As filed with the Securities and Exchange Commission on September 4, 1997
Registration No. 33-38204
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
POST-EFFECTIVE AMENDMENT NO. 13 ON
FORM SB-2 TO
REGISTRATION STATEMENT
ON FORM S-1
Under
The Securities Act of 1933
--------------------------
BCAM INTERNATIONAL, INC.
(Name of small business issuer in its charter)
New York 8911 13-3228375
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
1800 Walt Whitman Road
Melville, New York 11747
(516) 752-3550
(516) 752-3558 (fax)
(Address and telephone number of principal executive
offices and principal place of business)
----------------------------------------------------------------
Michael Strauss, Chairman of the Board
BCAM International, Inc.
1800 Walt Whitman Road
Melville, New York 11747
(516) 752-3550
(516) 752-3558 (fax)
(Name, address and telephone number of agent for service)
------------------------------------------
Copies to:
Norman M. Friedland, Esq.
Ruskin Moscou Evans & Faltischek, P.C.
170 Old Country Road
Mineola, New York 11501
(516) 663-6600
(516) 663-6641 (fax)
------------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
<PAGE>
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than the securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
====================================================================================================================
Proposed Maximum Proposed Maximum
Amount to be Offering Price Aggregate Offering Amount of
Title of Securities to be Registered Registered Per Share Price Registration Fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Redeemable Class B Warrants (a).... 807,659 1.50 1,211,489 $367.12
- --------------------------------------------------------------------------------------------------------------------
Redeemable Class E Warrants (a).... 491,588 1.25 614,485 $186.21
- --------------------------------------------------------------------------------------------------------------------
Common Stock Issuable Upon Exercise
of Redeemable Class B Warrants (b) 969,191 (e) (e) (e)
- --------------------------------------------------------------------------------------------------------------------
Common Stock Issuable Upon Exercise
of Redeemable Class E Warrants (c) 540,747 (f) (f) (f)
- --------------------------------------------------------------------------------------------------------------------
Common Stock Issued in Connection
with Stock Options Issued to 875,000 1.00744 881,510 $267.12
Consultants ( d)
- --------------------------------------------------------------------------------------------------------------------
Total Registration Fee..................................................................................$820.45(g)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) 2,530,000 Redeemable Class B Warrants were issuable upon the exercise of
2,530,000 Redeemable Class A Warrants and 2,530,000 Redeemable Class E
Warrants were registered by the original Registration Statement declared
effective February 11, 1991 and by Amendment No. 3 (November 27, 1991)
thereof. As of June 30, 1997, 807,659 Redeemable Class B Warrants and
491,588 Redeemable Class E Warrants remain outstanding.
(b) 2,783,000 shares of Common Stock issuable upon exercise of the Redeemable
Class B Warrants were originally registered by the Original Registration
Statement declared. As of June 30, 1997, 969,191 shares of Common Stock
remain issuable upon the exercise of 807,659 Redeemable Class B Warrants
that are outstanding.
(c) 2,783,000 shares of Common Stock issuable upon exercise of the Redeemable
Class E Warrants and such shares were originally registered by the original
Registration Statement declared effective February 11, 1991, and by
Amendment No. 3 (November 27, 1991) thereof. Subsequent conversion of
1,717,000 Redeemable Class A Warrants into 1,717,000 Redeemable Class E
Warrants per the Discounted Warrant plan provide the issuance of 1,888,700
shares of Common Stock upon the exercise of the Redeemable Class E
Warrants. As of June 30, 1997, 540,747 shares of Common Stock remain
issuable upon the exercise of 491,588 Redeemable Class E Warrants that are
outstanding.
(d) 875,000 shares of Common Stock issuable upon the exercise of 875,000
options issued to consultants.
(e) Common Stock issuable upon exercise of the Redeemable Class B Warrants. No
separate filing fee required.
(f) Common Stock issuable upon exercise of the Redeemable Class E Warrants. No
separate filing fee required.
(g) Fees relating to items (a), (b), and (c) and to Common Stock issued in
connection with January 15, 1997 and July 21, 1997 private placements were
paid upon filing of the Registration Statement and the SB-2 Registration
Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
BCAM INTERNATIONAL, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item Number Caption in Form SB-2 Location in Prospectus
- ----------- -------------------- ----------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Cover of Prospectus
Front Cover Page of Prospectus.....................
2. Inside Front and Outside Back Cover Pages of Inside Front and Outside Back Cover
Prospectus......................................... Page of Prospectus
3. Summary Information and Risk Factors............... Prospectus Summary; Risk Factors
4. Use of Proceeds.................................... Use of Proceeds; Agreements
5. Determination of Offering Price.................... Underwriter; Agreements
6. Dilution........................................... Dilution
7. Selling Security Holders........................... Not Applicable
8. Plan of Distribution............................... Plan of Distribution
9. Legal Proceedings.................................. Business - Legal Proceedings
10. Directors, Executive Officers, Promoters and Management
Control Persons....................................
11. Security Ownership of Certain Beneficial Owners Principal Stockholders
and Management.....................................
12. Description of Securities.......................... Description of Securities
13. Interest of Named Experts and Counsel.............. Not Applicable
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities..... Not Applicable
15. Organization Within Last Five Years................ Business
16. Description of Business............................ Business
17. Management's Discussion and Analysis of Plan of Management's Discussion and Analysis
Operation..........................................
18. Description of Property............................ Business - Properties
19. Certain Relationships and Related Transactions..... Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters............................................ Risk Factors
21. Executive Compensation............................. Management - Executive Compensation
22. Financial Statements............................... Financial Statements
23. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosures............... Not Applicable
</TABLE>
<PAGE>
PROSPECTUS
BCAM INTERNATIONAL, INC.
807,659 Redeemable Class B Warrants Expiring on January 18, 1998(a)
491,588 Redeemable Class E Warrants Expiring on January 18, 1998(b)
969,191 Shares of Common Stock Issuable Upon Exercise of
Redeemable Class B Warrants(c)
540,747 Shares of Common Stock Issuable Upon Exercise of
Redeemable Class E Warrants(c)
875,000 Shares of Common Stock Issuable upon the Exercise
of 875,000 Stock Options(d)
(a) 807,659 Redeemable Class B Warrants expiring on January 18, 1998 were
issued in December 1993, upon the exercise of Redeemable Class A Warrants that
were issued and sold as part of the Company's initial public offering ("IPO") in
January, 1990 (Registration No. 33-31282). The expiration date of the warrants
was extended from January 17, 1997 to January 18, 1998 by unanimous resolution
of the Board of Directors on December 20, 1996. Each Redeemable Class B Warrant
currently entitles the registered holder thereof to purchase one and two-tenths
(1.2) shares of Common Stock at an exercise price of $1.50 per share (subject to
adjustment upon the occurrence of certain anti-dilution events). The Redeemable
Class B Warrants are subject to redemption by the Company at $.05 per Warrant,
on not less than 30 days' prior written notice if the average exercise price of
the Common Stock exceeds the applicable average closing bid price for any period
of 30 consecutive business days ending within 15 days prior to the date of the
notice of the redemption.
(b) 491,588 Redeemable Class E Warrants (initially registered by the
Company in November, 1991 [Registration No. 33-38204, Post-Effective
Registration No. 3]) were issued during a 70 day period ending February 19, 1992
(the "Special Class A Exercise Period") pursuant to a Discounted Warrant Plan
which provided that a holder of a Redeemable Class A Warrant who exercised his
right to purchase the Common Stock during the Special Class A Exercise Period
would receive a Redeemable Class E Warrant. Each Redeemable Class E Warrant
currently entitles the registered holder thereof to purchase one and one-tenth
(1.1) shares of Common Stock at an exercise price of $1.25 per share (subject to
adjustment upon the occurrence of certain anti-dilution events) until January
18, 1998. See "Description of Securities - Redeemable Class E Warrants). The
Redeemable Class E Warrants are subject to redemption by the Company at $.05 per
Warrant, on not less than 30 days' prior written notice if the average exercise
price of the Common Stock exceeds the applicable average closing bid price for
any period of 30 consecutive business days ending within 15 days prior to the
date of the notice of the redemption
(c) 969,191 shares of Common Stock that are issuable upon exercise of the
Redeemable Class B Warrants and 540,747 shares of Common Stock that are issuable
upon exercise of the Redeemable Class E Warrants.
(d) The Company granted an aggregate of 875,000 options to several
consultants and a former joint venture partner and will issue 875,000 shares of
Common Stock upon the exercise of such options at the following exercise prices
(i) 300,000 stock options at $1.0469 with an expiration date of May 7, 1999;
(ii) 100,000 stock options at $1.1719 with an expiration date of August 20,
2006; (iii) 100,000 stock options at $1.69 with an expiration date of July 21,
1999; (iv) 300,000 stock options at $.75 with an expiration date of May 7, 1999,
(v) 45,000 options at $.75 with an expiration date of May 7, 1999, (vi) 25,000
options at $.75 with an expiration of May 7, 1999, (vii) 5,000 options at $.75
with an expiration of May 7, 1999.
The Company is not aware of any underwriting arrangements with respect to
the sale of the securities to which this Prospectus relates. The Common Stock is
traded from time to time on the Boston Stock Exchange and the Common Stock and
the Redeemable Class B Warrants and the Redeemable Class E Warrants are traded
in the NASDAQ Over-The-Counter market (Small Cap) at prices then prevailing.
1
<PAGE>
The Company will receive proceeds from any exercise of the options and the
Warrants described (see "Use of Proceeds").
The representative average of the high and low bid quotations of the
Company's Common Stock on June 30, 1997, as reported on NASDAQ (symbol: BCAM),
is $.78 per share. (See "Market for Company's Common Equity and Related
Stockholder Matters").
THESE SECURITIES ARE SUBJECT TO A HIGH DEGREE OF RISK AND SUBSTANTIAL
DILUTION. SEE "RISK FACTORS AND DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is September 4, 1997.
No dealer, salesman or any other person has been authorized to give any
information or to make any representation or projections of future performance
other than those contained in this Prospectus, and any such other information,
projections or representation if given or made must not be relied upon as being
authorized by the Company. The delivery of this Prospectus or any offer or sale
hereunder at any time does not imply that the information herein is correct as
of any time subsequent to the date hereof or that there has not been any change
in the affairs of the Company since the date hereof. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than those to which it relates or any of the securities offered hereby in
any jurisdiction to any person to whom it is unlawful to make such offer or
solicitation.
2
<PAGE>
AVAILABLE INFORMATION
---------------------
The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form SB-2 under the 1933 Act with respect to the
Common Stock offered by this Prospectus. This Prospectus does not contain all
the information set forth in the Registration Statement and the exhibits
thereto, For further information with respect to the Company and the Company's
Common Stock, reference is made to the Registration Statement and such exhibits.
Statements in the Prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. The Company is subject to the informational requirements of
the Exchange Act, and in accordance therewith, files reports and other
information with the Commission. The Registration Statement, the exhibits
thereto and such reports and other information may be inspected by anyone
without charge at the principal officer of the Commission at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and copies of all or any part of it may be obtained from the
Commission upon payment of a prescribed fee. The Company's Class A Common Stock
is quoted on the NASDAQ Stock Market and reports and other information
concerning the Company may also be inspected and copied at the office of the
NASDAQ Stock Market, Inc., NASDAQ Operations, 1735 K Street, N.W., Washington,
D.C. 20549. The Commission also maintains a web site that contains reports,
proxy and information statements and other information that may be obtained
electronically by using the Commission's Web Site on the Internet at
http://www.sec.gov.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by reference
to the more detailed information, financial statements and notes appearing
elsewhere in this Prospectus. Each prospective investor is urged to reach this
Prospectus in its entirety. Unless the context requires otherwise, all
references to "BCAM" and the "Company" herein include its subsidiaries. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. When used in this Prospectus, the words "anticipate," "believe,"
"estimate" and "expect" and other similar expressions as they relate to the
Company or its management are intended to identify such forward-looking
statements. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as those discussed elsewhere in this
prospectus. As used in this Prospectus, "fiscal year" refers to the fiscal year
ending December 31 of the specifically identified calendar year.
THE COMPANY
BCAM International, Inc. (the "Company") is a software technology company,
specializing in ergonomic (human factor) solutions for major corporations,
individuals, and government. Recently, the Company completed its restructuring
by focusing on (i) accelerating the development and commercialization of the
Company's Intelligent Surface Technology ("IST"), (ii) continuing its
development of proprietary software, which consists of the intelligent part of
"IST", MQPro(TM) (formerly Mannequin(R)), and the EARLY(R) process, (iii)
building its ergonomic consulting services business, which consists of Ergonomic
Product Assessment and Redesign, and Ergonomic Workplace Assessment and (iv)
emphasizing a strategy of broadening and strengthening business relationships
such as joint ventures, partnerships, licenses and other alliances. The Company
continues to believe that its ergonomic consulting services have been and
continue to be the engine that drives new product ideas and with it, the
potential of royalty income, as well as new product and service offerings.
4
<PAGE>
- --------------------------------------------------------------------------------
THE OFFER
Securities Offered..................... 807,659 Redeemable Class B Warrants and
969,191 shares of Common Stock issuable
upon exercise of Redeemable Class B
Warrants;
491,588 Redeemable Class E Warrants and
540,747 shares of Common Stock issuable
upon exercise of Redeemable Class E
Warrants;
875,000 shares of Common Stock issuable
upon the exercise of 875,000 stock
options by consultants and a former
joint venture partner.
Each Redeemable Class B Warrant may be
exercised until January 18, 1998 to
purchase one and two-tenths (1.2) shares
of Common Stock at $1.50 per share until
January 18, 1998. Each Redeemable Class
E Warrant may be exercised until January
18, 1998 to purchase one and one-tenth
(1.1) shares of Common Stock at a price
of $1.25. See "Description of Securities
- Warrants" and "Recent Events -
Discounted Warrant Plan." Stock options
may be exercised as follows: (i) 300,000
stock options at $1.0469 until May 7,
1999; (ii) 100,000 stock options at
$1.1719 until August 20, 2006; (iii)
100,000 stock options at $1.69 until
July 21, 1999; (iv) 300,000 stock
options at .75 until May 7, 1999, (v)
45,000 options at $.75 until May 7,
1999, (vi) 25,000 options at $.75 until
May 7, 1999, and (vii)5,000 options at
$.75 until May 7, 1999.
Shares of Common Stock Outstanding
Before Offering........................ 15,954,733 (1)
Shares of Stock Outstanding After
Offering............................... 18,339,671 (1)
Use of Proceeds........................ For general working capital purposes.
(See "Use of Proceeds")
Risk Factors .......................... Investment in the securities offered
hereby involves a high degree of risk
and immediate and substantial dilution.
See "Risk Factors" and "Dilution."
NASDAQ Symbols......................... Common Stock - BCAM
Redeemable Class B Warrants - BCAML
Redeemable Class E Warrants - BCAMZ
Boston Stock Exchange Symbol........... Common Stock - BAM
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
(1) Does not include (i) shares of Common Stock issuable under options to
acquire an aggregate of 432,000 shares (net of cancellations and
exercises), issued under the Company's 1989 Stock Option Plan, as amended
(the "1989 Plan"), (ii) shares of Common Stock issuable upon the exercise
of options granted to non-management directors under the Company's 1989
Non-Statutory Stock Option Plan (the "Non-Statutory Plan"), under which
options to acquire an aggregate of 100,000 shares (net of cancellations and
exercises) have been granted, (iii) 2,000,000 shares of Common Stock
reserved for issuance under the Company's 1995 Stock Option Plan (the "1995
Plan"), under which options to acquire an aggregate of 1,760,500 shares
(net of cancellations and exercises) have been granted and (iv) 2,200,000
shares that have been granted to Directors and Officers, subject to
shareholder approval. See (A) "Management - Stock Option Plans",
"Management - Director Compensation", and "Principal Stockholders-Security
Ownership of Certain Beneficial Owners and Management."
SUMMARY FINANCIAL DATA
The summary financial data set forth below are derived from financial
statements of the Company appearing elsewhere in this Prospectus and from prior
years' Form 10K-SB. The financial statements for the six months ended June 30,
1996 and 1997 are unaudited. The summary financial data should be read in
conjunction with financial statements and notes thereto, and to prior years'
Form 10K-SB.
Summary Financial Information
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
--------------------------------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 1996 1997
---------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Net revenue ...... 1,371 1,382 1,138 752 605 211 287
Net loss ......... (2,228)(1) (595)(2) (2,389)(2) (1,689) (1,514) (919) (909)(1)
Weighted average
number of common
shares and common
equivalent shares
outstanding ...... 9,056,231 10,949,876 14,681,530 14,818,055 14,868,128 14,858,222 15,682,634
Net loss per share (0.25)(1) (0.05)(2) (0.16)(2) (0.11) (0.10) (0.06) (0.06)(1)
Balance Sheet
Data:
Cash, cash
equivalents and
marketable
securities ....... 817 6,040 4,168 2,209 526 1,604 241
Working capital .. 719 6,261 3,718 2,156 597 1,196 667
Total assets ..... 1,721 6,975 5,088 3,034 1,305 2,340 1,559
Long term debt ... -- -- --
Stockholder's
equity ........... 1,166(3) 6,661(3) 4,252 2,604 1,015 1,644 1,161(3)
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
Notes:
(1) The net loss for 1992 includes the financial results of the HumanCad
division. The HumanCad division was discontinued on February 23, 1993. Net
loss includes a loss from discontinued operations of $1,247,270 in 1992 or
$.14 per share. In March 1997, after one year of beta-testing and market
studies, the Company relaunched the marketing of MQPro(TM) (formerly known
as Mannequin(R)) through its HumanCAD(R) division. As of June 30, 1997 the
HumanCAD division had sales of $54,876.
(2) In years 1993 and 1994, the Company's investment of approximately $72,000
in a partnership was written off ($17,000 in 1994 and $55,000 in 1993).
ErgoRisk Services, Inc. (Canada) was purchased for $65,000 to effectively
terminate a joint venture, and was subsequently written off in 1994.
(3) The Company completed Private Placements in 1992 and 1993 and in the first
quarter of 1997 which increased the amount of stockholder`s equity.
7
<PAGE>
RISK FACTORS
The securities offered hereby are speculative in nature, involve a high
degree of risk, and should only be made by investors who can afford the loss of
their entire investment. Each prospective investor should carefully consider the
following risks, as well as others described elsewhere in this Prospectus,
before purchasing the securities offered hereby. This Prospectus contains
forward-looking statements which involve risks and uncertainties. When used
herein, the words "anticipate," "believe," "estimate," and "expect" and similar
expressions as they relate to the Company or its management are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements could differ materially from the results expected
in, or implied by, these forward-looking statements. Factors that could cause or
contribute to such differences include those discussed in the following risk
factors.
OPERATING HISTORY; OPERATING LOSSES. The Company is a software technology
company specializing in ergonomic solutions for individuals, government and
major corporations, and has incurred operating losses since its inception. The
Company reported a net loss of $ 908,678 for the six month period ended June 30,
1997, and net losses of $1,514,140 and $1,689,480 for the fiscal years ended
December 31, 1996 and 1995. Since inception, the Company has accumulated
deficits. As of June 30, 1997, the accumulated deficit was $ 14,109,968. The
Company's operations are subject to numerous risks associated with the
establishment and development of a business and the commercialization of new
technologies. The Company expects to continue to incur operating losses until
the completion of the development and commercialization of its technologies. The
Company is aggressively pursuing its consulting business by strengthening its
sales and marketing activities and its HumanCAD(R) Division through the sales of
its MQPro(TM) (formerly Mannequin(R)) software and development of other related
ergonomic software products. In addition, as part of the company's strategy to
diversify by acquisition, as well as through the internal development of its own
products, the Company is acquiring all of the capital stock of Drew Shoe
Corporation ("Drew Shoe"), a designer, manufacturer, marketer and distributor of
proprietary brand medical footwear located in Lancaster, Ohio. There can be no
assurance that the Company will achieve or sustain profitable operations through
the Drew Shoe acquisition or through broadening and strengthening development
and commercialization of its technologies or through growth of its consulting
business, and software division.
DISCRETION IN USE OF PROCEEDS DESIGNATED FOR WORKING CAPITAL. The Company
will have broad discretion with respect to the application of the proceeds.
While such funds are to be applied for working capital and general purposes in
furtherance of the Company's business, investors will be reliant on management
as to the specific applications of the proceeds.
NO ESTABLISHED MARKETS. Although the Company believes it has the right
products and services for the market place, there can be no assurance that the
Company's potential clients will find the Company's services or products of the
type provided or proposed by the Company to be desirable or of economic value.
RISKS OF EXPANSION. The Company has incurred and continues to incur
significant expenses to attract and retain qualified management personnel,
engineers, scientists, and ergonomists, for marketing and sales, and development
activities. The Company's expenses may exceed its revenues until such time as
the volume and profitability of its business increase to the extent necessary to
offset these expenses.
DEPENDENCE ON MAJOR CUSTOMERS. During the fiscal year ended December 31,
1996, L.A. Rumbold Ltd., The Long Island Lighting Company ("LILCO") and Stanley
Tools, Inc. accounted for 38%, 18% and 18%, respectively, and 74%, in the
aggregate of the Company's net revenue. No assurance can be given that the
Company will continue to be retained by any of its major clients beyond the
current projects or that such clients will retain the Company for any future
services. During the fiscal year ended December 31, 1995, BE Aerospace, Inc.,
Remington Arms Company, Inc. and Reebok International, Ltd. ("Reebok") accounted
for 29%, 12% and 11% respectively, and 52%, in the aggregate, of the Company's
net revenues.
EFFECT OF STATE OF ECONOMY. The market for the Company's services may be
adversely affected by a recession or other economic downturn. During an economic
recession, such services may be considered
8
<PAGE>
discretionary and delays in commencing ergonomic programs are possible. These
factors are not within the control of the Company.
GROWTH LIMITATIONS INHERENT IN SERVICE PORTION OF BUSINESS. The specialized
ergonomic consulting services and software products typically provided by the
Company require significant time and attention of the Company's technical
personnel. Accordingly, the Company's ability to deliver such specialized
services is limited by the relatively few qualified personnel employed by the
Company, at any given time, to perform these services.
FIXED PRICE CONTRACTS. The ergonomic consulting services provided by the
Company are often offered to clients on a fixed price basis. In setting its
price for services, the Company seeks to estimate the technical staff's hours
that will be required to provide the services. To the extent that the Company
underestimates the total hours that will be required to satisfy the contract,
the Company could realize a loss on any particular contract or contracts.
LIMITED RIGHTS TO CERTAIN PRODUCTS. In certain cases, the Company may
develop products for its clients in response to a specific request of such
client. In such cases, the client may fund all or a significant portion of the
Company's development costs. Although the Company believes that it owns the
rights to develop any products derived from work performed, including certain
products under development by the Company, no assurance can be given that any
client which has retained the Company will not in the future assert the right to
restrict the Company's activities with respect to any technology developed or
claim rights to products sought to be commercialized by the Company.
LACK OF PATENT PROTECTION; RELIANCE ON TRADE SECRET AND COPYRIGHT
PROTECTION. The Company has obtained seven issued patents (six U.S. and one
European) and received a Notice of Allowance on one patent from the patent
office related to Intelligent Surface Technology. There can be no assurance that
its technologies are entitled to patent protection or that the claims in the
pending patent applications (currently four) will be issued as patents, that any
issued patents will provide the Company with significant competitive advantages,
or that challenges will not be instituted against the validity or enforceability
of any patents owned by the Company or, if instituted, that such challenges will
not be successful. The cost of litigation to uphold the validity of a patent and
prevent infringement can be substantial even if the Company prevails.
Furthermore, there can be no assurance that others will not independently
develop similar technologies, duplicate the Company's technology or design
around the patented aspects of the Company's technology or that the Company will
not infringe on patents or other rights owned by third parties.
The Company protects its proprietary written material, know-how, computer
software and technology which it has or may develop, through the use of
copyrights, common-law trade secret protection, trademarks and service marks,
and contractual arrangements. These laws provide only limited protection,
however, since they do not protect the "ideas" or "concepts" reflected in such
materials or software, but only protect the expression of the "ideas" or
"concepts" contained therein. While the Company enters into confidentiality
arrangements with its employees, consultants and customers, and implements
various measures to maintain "trade secret" protection for its products in an
attempt to maintain the proprietary nature of its products, there can be no
assurance that these measures will be successful. Accordingly, there is no
assurance that competitors may not develop products, materials or software which
perform similar or identical functions as the Company's products or proprietary
software without infringing upon the Company's copyrights or violating trade
secret laws. The legal and factual issues arising in copyright or trade secret
litigation are often both complex and unclear and any attempt to enforce the
Company's rights thereunder will face both the high cost of litigation and the
uncertainty of the result.
GOVERNMENT REGULATION. The Company does not believe that its present and
currently proposed activities are generally subject to any material government
regulation in the United States or other countries. It is possible that certain
products developed by the Company in the future as an adjunct to its principal
ergonomics business, might be deemed under new legislation or regulations to be
"medical devices" or otherwise be subject to the jurisdiction of the Federal
Food and Drug Administration or similar agencies. In the event that any product
is subject to such governmental regulation, the Company will be required to
obtain
9
<PAGE>
any necessary approvals which could delay or, in certain circumstances, even
prevent the introduction to the marketplace of such product and result in
significant expense.
RETENTION OF KEY PERSONNEL; LIMITED EXPERIENCE WITH COMPANY. The company is
dependent upon the services of Michael Strauss, the President and Chief
Operating Officer, Chairman of the Board of Directors and Chief Executive
Officer of the Company, Robert Wong, the Vice Chairman, Chief Technology
Officer, Acting Secretary and Acting Chief Financial Officer of the Company, and
Norman Wright, the Vice Chairman of the Company and President and Chief
Executive Officer of the "HumanCad(R)" Systems Division of the Company. There
can be no assurance that the Company will be able to retain the services of its
key personnel, and the loss of the services such personnel could have a material
adverse effect on the Company's business and prospects
COMPETITION. Although management believes that the Company's unique
technologies, proprietary software, methodologies and know-how give it a
competitive advantage, other companies or agencies are developing, and have
developed, particular services and technologies that are competitive with the
Company's services and technology and that increased competition is likely. It
is certain that some competitors will have significantly greater financial,
technical and other resources than the Company. Many of the large industrial
companies, especially major insurance companies, that form the primary market
for the Company's services may also seek to develop or have already developed
their own ergonomic programs. Similar services may also be supplied by
universities, hospitals, government agencies or other entities, many of which
may have substantially greater financial and other resources than the Company.
POTENTIAL LIABILITY; INSURANCE COVERAGE. The Company may be exposed to
liability claims for injuries, property damage or other losses arising out of
improper provision of services. The Company currently has liability insurance
for such losses which the Company believes is sufficient to cover all claims.
However, there can be no assurance that it will be able to maintain such
coverage or obtain additional coverage, at a reasonable cost or otherwise, or
that the coverage that it has or that it may obtain will be sufficient to cover
any and all claims. Although no claims have been asserted to date, in the event
that a claim is successfully asserted against the Company, such claim could have
a material adverse effect on the Company.
OUTSTANDING WARRANTS/OPTIONS. As of June 30, 1997, the Company had
outstanding 807,659 Redeemable Class B Warrants exercisable at $1.50 per share
to purchase 969,191 shares of Common Stock, 491,588 Redeemable Class E Warrants
exercisable at $1.25 per share to purchase 540,747 shares of Common Stock and
1,075,000 Non-Redeemable Class AA Warrants exercisable at $.65 per share to
purchase 1,075,000 shares of Common Stock. As of July 22, 1997, the Company also
had 50,000 Non-Redeemable Class BB Warrants outstanding to purchase 50,000
shares of Common Stock exercisable at $1.03125 per share in connection with the
first $500,000 tranche of a potential financing of $1,500,000. In addition, the
Company expects to exercise its option to utilize the second tranche of $500,000
by September 8, 1997, which will result in the issuance of an additional 50,000
Non-Redeemable Class BB Warrants. Should the Company choose to exercise its
option to utilize the third tranche of $500,000, the Company will be obligated
to issue an additional 50,000 Non-Redeemable Class BB Warrants. The Company has
also granted stock options to purchase an aggregate of 3,167,500 additional
shares of its Common Stock (net of exercises and cancellations) including
875,000 options not part of the plans described in "Stock Option Plans" and
included in the shares being registered herein, at exercise prices ranging from
$0.75 to $1.69 per share. Of these, the Company has granted to its
non-management directors, former directors and consultants options to purchase
an aggregate of 1,507,500 shares of its Common Stock at exercise prices ranging
from $0.75 to $3.22 per share. Holders of options and warrants are likely to
exercise them when, in all likelihood, the Company could obtain additional
capital on terms more favorable than those provided by such options or warrants.
Further, while such options and warrants are outstanding, they may adversely
affect the terms on which the Company can obtain additional capital. In
addition, future sales of Common Stock could depress the market price of the
Company's Common Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Common Stock offered
herein will incur immediate dilution in net tangible book value at June 30, 1997
upon exercise of Redeemable Class B, Redeemable Class E , and Non-Redeemable
Class AA Warrants of approximately $1.355, $1.148, and $.55 per share,
respectively, and $.908 upon exercise of the Stock Options Issued to
Consultants, Directors, Officers and Employees.
10
<PAGE>
FINANCIAL STANDARDS FOR CONTINUED NASDAQ LISTING. On August 22, 1997 the
Securities Exchange Commission approved NASDAQ proposed changes to its current
listing criteria. Under the proposed rules, for initial listing the Company,
generally, must have (i) net tangible assets of at least $4,000,000, or a market
capitalization of at least $50,000,000, or net income in two of the last three
years of $750,000; (ii) a minimum of 1,000,000 shares publicly held; (iii) a
minimum of $5,000,000 in market value of public float; (iv) a minimum bid price
of $4.00 per share; (v) a minimum of 300 shareholders; (vi) an operating history
of one year or a market capitalization of $50,000,000; and (vii) implementation
of corporate governance requirements. Under the proposed rules for continued
listing, the Company, generally, must have (i) net tangible assets of
$2,000,000, or a market capitalization of at least $35,000,000, or net income in
two of the last three years of at least $500,000; (ii) a minimum of 500,000
shares publicly held; (iii) a minimum of $1,000,000 in market value of public
float; (iv) a minimum bid price of $1.00 per share; (v) a minimum of 300
shareholders; and (vi) implementation of corporate governance requirements.
Companies failing to satisfy the new continued listing requirements will be
allowed six months to meet this new requirement.
Prior to August 22, 1997, to maintain its listing on the NASDAQ Small Cap
market, the Company must have in total assets of at least $2M; capital and
surplus of at least $1M and a minimum bid price of $1 per share, provided,
however, the $1.00 bid price per share is not applicable if the Company
maintains a public float of $1M and capital and surplus of $2M. The Company's
Common Stock currently has a bid price of less than $1.00 per share and the
Company does not have capital and surplus of $2,000,000. The Company has been
notified by NASDAQ of such non-compliance, which must be remedied under the
compliance requirements which were effective prior to August 22, 1997, and then
the Company has six months to comply with the post August 22, 1997 compliance
requirements.
Upon completion of the financing including the funding associated with the
Drew Shoe Acquisition and described herein, the Company believes that it will be
in compliance with the standards for continued listing (both NASDAQ compliance
requirements prior to as well as post August 22, 1997). The Company expects that
the proceeds from various funding sources will be sufficient to cure the NASDAQ
requirements described herein whether or not it is able to complete the Drew
Shoe Acquisition. There can be no assurance, however, that the Company will in
fact be able to obtain the necessary financing. If the Company is unable to
satisfy NASDAQ's maintenance criteria, trading, if any, in the Company's
securities would be conducted in the over-the-counter market in the "pink
sheets" or the NASD's "Electronic Bulletin Board." As a consequence, an investor
would likely find it more difficult to dispose of, or to obtain quotations as to
the price of, the securities.
PENNY STOCK REGULATION. In the event that the Company is unable to satisfy
the NASDAQ maintenance requirements, trading of the Common Stock will be
conducted in the "pink sheets" or the NASD's Electronic Bulletin Board. In the
absence of the Company's securities being quoted on NASDAQ, or the Company
having $2,000,000 in net tangible assets, trading in the securities would
continue to be covered by Rule 15g-9 promulgated under the Exchange Act for
non-NASDAQ and non-exchange listed securities. Under such rule, broker-dealers
who recommend such securities to person other than established customers and
accredited investors must make a special written suitability determination for
the purchaser and receive the purchaser's written agreement to a transaction
prior to sale. Securities are exempt from this rule if the market price is at
least $5.00 per share.
The Commission has adopted regulations that generally define a "penny
stock" to be any equity security that has a market price of less than $5.00 per
share, subject to certain exceptions. Such exceptions include an equity security
listed on NASDAQ and an equity security issued by an issuer that has (i) net
tangible assets of at least $2,000,000, if such issuer has been in continuous
operation for three years, (ii) net tangible assets of at least $5,000,000, if
such issuer has been in continuous operation for less than three years, or (iii)
average revenue of at least $6,000,000 for the preceding three years. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
As a result the market liquidity for such securities has been severely
affected by limiting the ability of broker-dealers to sell securities. There is
no assurance that trading in the Company's securities will not be subject to
these or other regulations that would adversely affect the market for such
securities.
NO DIVIDENDS. The Company has paid no cash dividends on its Common Stock
since its inception and does not anticipate paying cash dividends on its Common
Stock in the foreseeable future.
11
<PAGE>
MARKET OVERHANG. Future sales of common stock could depress the market
price of the Company's common stock. Further, the options and warrants presently
outstanding could adversely affect the market for the Common Stock, and any sale
of the Common Stock acquired pursuant to such options and warrants could also
depress the market price of the Common Stock.
DREW SHOE ACQUISITION. The Company intends to acquire all of the capital
stock of Drew Shoe. If the Company is not able to complete the acquisition, the
Company will recognize as a one-time charge approximately $500,000 in prepaid
expenses associated with the acquisition. If the Company does complete the
acquisition, the goodwill recognized will be amortized over the useful life of
assets acquired. There can be no assurance that the company will complete the
acquisition
NON-REGISTRATION IN CERTAIN JURISDICTIONS OF SHARES UNDERLYING WARRANTS AND
PREFERRED STOCK. Holders of the Warrants or Preferred Stock may reside in or
move to jurisdictions in which the common shares underlying the securities may
not be registered or otherwise qualified for sale during the period that the
securities are exercisable. In this event, the Company would be unable to issue
common shares unless and until the shares could be qualified for sale in
jurisdictions in which such purchasers reside, or an exemption to such
qualification exists in such jurisdiction. The Company has no obligation to
effect any such registration or qualification. If the Company elects to attempt
such registration or qualification, no assurances can be given that the Company
will be able to effect any required registration or qualification.
Notwithstanding this, the Company intends to put forth its best efforts to cause
this registration statement to be effective by approximately November 7, 1997.
However, no assurances can be given that the statement will be effective on or
about that date. The Company has qualified the offering in the following states:
Alabama, Connecticut, Florida, Georgia, Hawaii, Illinois, Kansas, Kentucky,
Louisiana, Massachusetts, Michigan, Mississippi, New Jersey, New York, Ohio,
Pennsylvania, Rhode Island, Texas, Utah, West Virginia and Wisconsin. See
"Description of Securities".
12
<PAGE>
SPECIAL RISK FACTORS
The following are special risk factors which the Company believes are related to
the Drew Shoe transaction if and when said transaction should occur.
RELATIVE TERMS AND CONDITIONS OF RECENT FINANCINGS. On March 31, 1997 the
Company completed a $1,075,000 Private Placement and on July 24, 1997 the
Company completed the first tranche for $500,000 of a potential $1,500,000
financing. The Company also expects to complete the second tranche of $500,000
by September 8, 1997. In addition, the Company is concurrently working to
complete a Min/Max Private Placement consisting of $3,500,000 or 35,000 Shares
of the Company's Convertible Preferred Stock on a "best efforts, 35,000 Shares
or none basis"(the "Min/Max Offering"). Kirr Marbach, a principal stockholder of
the Company, is arranging $1,000,000 of additional financing, the terms of which
are identical to the Min/Max Offering. The terms of the Min/Max Offering and the
Kirr Marbach offering differ from the prior financings and may differ from
future financings.
REVOLVING LINE OF CREDIT; TERM LOAN. In conjunction with the Drew Shoe
acquisition, Drew Shoe has obtained a commitment from Bank One, NA ("Bank One")
for a $4,500,000 asset-based revolving line of credit (the "Line of Credit"),
with an interest rate of the Prime Rate plus 1.5%, a closing fee of 1/2 of 1%,
and a maturity date of September 30, 1999. Additionally, Bank One has committed
to a Term Loan of $1,000,000, with an interest rate of the Prime Rate plus 1.5%,
a closing fee of $5,000, and a maturity date of September 30, 2000. Both the
Line of Credit and the Term Loan will be secured by all of Drew Shoe's assets,
including receivables and inventory, land, building, machinery and equipment,
which will determine the total amount available. There can be no assurance that
the full $5,500,000 will be available to the Company because the lender may
disallow some portion of Drew Shoe's assets as security. In addition, even if
the entire $5,500,000 anticipated is available, there can be no assurance that
this amount is sufficient to fund all of the future working capital requirements
of Drew Shoe.
ONGOING OPERATION OF DREW SHOE; OPERATING HISTORY AND PROFITABILITY. Drew
Shoe was incorporated approximately 60 years ago. The company was primarily a
comfort shoe manufacturer until 1992, when its shifted its focus to medical
footwear, which had previously comprised only a small portion of the company's
business. Accordingly, Drew Shoe has only a five year operating history in the
medical footwear business.
In fiscal 1996, Drew Shoe had net income of $25,707 on sales of $14,609,346
and in fiscal 1995 Drew Shoe had net income of $283,602 on sales of $13,646,924.
There can be no assurance that Drew Shoe will be profitable. Although Drew Shoe
has experienced moderate revenue growth since it shifted its focus to medical
footwear, such growth may not be sustainable and may not be indicative of future
operating results. See Management of Growth; Risks Associated with Expansion;
Capital Requirements.
Drew Shoe's prospects must be considered in light of the risks, expenses
and difficulties frequently encountered by manufacturers and - to some extent,
retailers - in the process of shifting their sales and marketing efforts to new
end users and, in effect, anticipating growth from a new target market. In order
to address these risks, Drew Shoe must, among other things, respond to
competitive developments, attract, retain and motivate qualified persons, and
continue to develop its expertise in marketing, product development and customer
service. There can be no assurance that Drew Shoe will be successful in
addressing these risks. The failure of Drew Shoe to achieve significant
profitability would have a material adverse effect on the Company.
COMPETITION. The market for the wholesale distribution and retail
distribution of medical footwear and comfort shoes is intensely competitive.
Drew Shoe faces strong existing competition for similar products and will face
significant competition from new companies or existing companies with new
products. Many of these companies may be better financed, have better name
recognition and good will, have more marketing expertise and capabilities, have
a larger and more loyal customer base, along with other attributes, that may
enable them to compete more effectively. Drew Shoe has minimal , if any,
proprietary rights to prevent competitors from duplicating its footwear.
The market for medical footwear, and for casual shoes, which may be
perceived by many consumers as a substitute for medical footwear, includes a
number of well-established companies with recognized brand names. Potential
purchases of medical footwear are often based upon highly subjective decisions
that may be influenced by numerous factors, many of which are out of Drew Shoe's
control. As a result, Drew Shoe may face substantial competition from existing
and new companies that market both medical and comfort shoes that are
13
<PAGE>
perceived to meet needs for comfort and protection, and are visually appealing.
There can be no assurance as to the market acceptance of Drew shoes in relation
to its competition.
RELIANCE ON A SINGLE MAJOR PRODUCT LINE. Drew Shoe has relied to a large
extent on medical footwear for sales. In addition, 80% of its sales are women's
shoes. If sales of these products are less than projected, Drew Shoe's business,
operating results and financial condition would be materially adversely
affected. In addition, while only a minor percentage of Drew Shoe's revenue is
currently related to the 1994 Federal legislation which provides for Medicare
funding of shoes for diabetics, the Company has anticipated in its revenue
projections that some portion of its future growth will be related to this
factor as individuals become aware of this benefit. If Drew Shoe does not
properly promote this opportunity, Drew Shoe's business, operating results and
financial condition would be adversely affected.
RELIANCE ON CERTAIN DISTRIBUTION CHANNELS. Drew Shoe relies on its own
specialty retail stores for approximately 15% of its distribution, the Veteran's
Administration for approximately 7% of its distribution, and approximately 2,000
specialty retail stores as customers for the remainder of its distribution. Drew
Shoe intends to expand distribution through its own specialty retail stores. The
retail business is intensely competitive. There can be no assurance that Drew
Shoe's own specialty retail stores, which also distribute competitors' products,
will be profitable and will therefore, be a viable distribution mechanism.
Further, there can be no assurance that Drew Shoe distribution through
unaffiliated retail stores will continue to support its current pricing
structure if additional competition should enter the market. Further, there can
be no assurance that the Veteran's Administration will remain a major customer.
DEPENDENCE ON CERTAIN SUPPLIERS; FOREIGN SUPPLIERS. Drew Shoe depends on
various raw materials and components to manufacture its shoes, many of which are
dependent on one supplier. Drew Shoe does not have binding long-term supply
contracts with these suppliers. Therefore, Drew Shoe's success will depend on
maintaining its relationships with these suppliers and developing relationships
with new suppliers. Any significant delay or disruption in the supply of leather
and other key materials caused by manufacturers' production limitations,
material shortages, quality control problems, labor interruptions, shipping
problems or other reasons would materially adversely affect the Company's
business. The delays in receiving such supplies from alternative sources would
cause Drew Shoe to sustain at least temporary shortages of materials which would
have a material adverse effect on the Company's business, operating results and
financial condition.
Approximately 15% of Drew Shoe's supplies, primarily leather, are provided
by Italian companies. As a result, the supply of some of the materials required
to manufacture Drew's shoes is subject to additional cost and risk factors, many
of which are out of the Company's control, including political instability,
import duties, trade restrictions, work stoppages and foreign currency
fluctuations. An interruption or material increase in the cost of supply would
materially adversely affect Drew Shoe's business, operating results and
financial condition.
MANUFACTURING AND INVENTORY SYSTEMS. Drew Shoe's business is subject to
inventory risk, in that its inventory turnover has been traditionally low and
its lack of adequate inventory management systems has resulted in a significant
writedown of inventory in 1996, which is greater than historical norms.
Inventory losses are currently determined annually upon the occurrence of a
physical inventory and subsequent reconciliation of the results of same against
accounting records. The Company intends to substantially improve, develop and
implement inventory management systems to correct these problems. However, there
can be no assurance that the Company will be successful in doing so. Drew Shoe's
business is also subject to manufacturing risk, in that its machinery and
equipment may not be as modern as that of its competitors. Inventory management
systems and other manufacturing improvements including manufacturing automation
may require significant funding. There can be no assurance that the Company will
have sufficient funding to implement these improvements or that, even if funding
is sufficient, that the Company will be technically and operationally successful
in implementing these improvements.
14
<PAGE>
LABOR CONTRACT. The Drew Shoe business is subject to potential for
increases in its labor cost, in that its union contract is up for renegotiation
in May of 1998. There can be no assurance that potential increases in labor
costs can be passed through to the consumer in increased pricing. Furthermore,
there can be no assurance that new management will be able to maintain the
quality of the labor/management relationship developed at Drew Shoe over the
years.
DEPENDENCE ON KEY PERSONNEL. Drew Shoe is dependent upon certain key
personnel, including Charles Schulyer, the President of Drew Shoe, Frank Shyjka,
the Executive Vice President of Drew Shoe and Larry Martin, the Vice President
of Finance of Drew Shoe, to manage, market and operate the Company's business.
There is strong competition for qualified personnel in the shoe manufacturing
industry, and the loss of key personnel or an inability of Drew Shoe to attract,
retain and motivate key personnel could adversely affect Drew Shoe's business,
operating results and financial condition. There can be no assurance that Drew
Shoe will be able to retain its existing key personnel or attract additional
qualified personnel.
NO EXPERIENCE OF MANAGEMENT IN FOOTWEAR BUSINESS. Management of the Company
has no prior experience in operating a footwear business such as Drew Shoe.
There can be no assurance that the Company will be able to successfully develop
Drew Shoe's business.
SUSCEPTIBILITY TO GENERAL ECONOMIC CONDITIONS. Because sales of shoes have
historically been dependent, to some extent, on discretionary consumer spending,
Drew Shoe's revenues are subject to fluctuations based upon the general economic
conditions of the United States. If there is a general economic downturn or
recession in the United States consumer spending on medical footwear could
decline which could have a material adverse effect on Drew Shoe's business,
operating results and financial condition.
PRODUCT RETURNS FROM WARRANTY. Drew Shoe, as part of its marketing efforts,
accepts product returns for 30 days from the date of sale, and charges customers
a $6 restocking fee. Drew Shoe has experienced an approximately 10% return rate
over the past two years. The percentage has not varied significantly over the
past 5 years. If the rate of returned product increases, Drew Shoe's business,
operating results and financial condition could be materially adversely
affected.
MANAGEMENT OF GROWTH; RISKS ASSOCIATED WITH EXPANSION; CAPITAL
REQUIREMENTS. Drew Shoe's growth and expected growth has resulted in, and is
expected to continue to result in increased demands on Drew Shoe's management
and its operating systems. This growth may require an increase in the number of
employees and an increase in the responsibilities of both existing and new
management personnel. This growth may result in a strain on Drew Shoe's existing
operational, financial, human resource and information systems.
Drew Shoe's financial and management controls, reporting systems and
procedures have evolved with the growth of Drew Shoe and there can be no
assurance that Drew Shoe's controls, systems or procedures will continue to be
adequate to support its operations. The Company expects that Drew Shoe will need
to further develop its management controls, reporting systems and procedures to
accommodate potential future growth and enhance current efficiency. There can be
no assurance that Drew Shoe will be able to do so effectively and on a timely
basis, and failure to do so when necessary could have a material adverse effect
upon Drew Shoe's business, operating results and financial condition.
SEASONALITY AND QUARTERLY FLUCTUATIONS. Historically, sales of Drew Shoe
products are not seasonal. However, sales revenue and profitability may vary
from quarter to quarter based on the introduction of new products, opening of
new stores, weather conditions, marketing and media expenditures, and certain
non-recurring charges. While revenues are not necessarily seasonal, earnings
tend to be seasonal and tend to fall into the first six months of the fiscal
year.
DIVERSION OF COMPANY EXECUTIVE'S ATTENTION. The Drew Shoe acquisition and
integration into BCAM's core business is expected to consume a significant
amount of time of Michael Strauss, the Company's Chief Executive Officer, which
will detract from his ability to focus on BCAM's "core business", which could
adversely affect the future growth and development of this aspect of the
Company's business.
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MARKET FOR COMPANY'S EQUITY SECURITIES
COMMON STOCK - NASDAQ
1994 High Bid Low Bid
- ---- -------- -------
First Quarter 3 7/16 2 9/32
Second Quarter 2 1/2 1 5/16
Third Quarter 2 1/16 1 7/16
Fourth Quarter 1 7/8 31/32
1995
- ----
First Quarter 1 1/16 3/4
Second Quarter 1 9/32 7/8
Third Quarter 1 21/32 31/32
Fourth Quarter 2 1
1996
- ----
First Quarter 1 1/4 29/32
Second 1 5/16 29/32
Quarter 1 23/32 15/16
Third Quarter 1 7/16 13/16
Fourth Quarter
1997
- ----
First Quarter 1 3/8 27/32
Second Quarter 1 1/8 11/16
Third Quarter 1 5/16 23/32
through September 2, 1997
COMMON STOCK - BOSTON STOCK EXCHANGE
1994 High Bid Low Bid
- ---- -------- -------
First Quarter 2 1/2 2 1/4
Second Quarter 1 13/16 1 9/16
Third Quarter 1 3/4 1 1/2
Fourth Quarter 1 7/8 15/16
1995
- ----
First Quarter 1 1/32 11/16
Second Quarter 1 1/8 1/2
Third Quarter 1 19/32 13/16
Fourth Quarter 1 23/32 1
16
<PAGE>
1996
- ----
First Quarter 1 7/32 3/4
Second Quarter 1 1/4 7/8
Third Quarter 1 19/32 1 3/8
Fourth Quarter 1 7/16 7/8
1997
- ----
First Quarter 1 1/4 23/32
Second Quarter 1 9/16
Third Quarter 1 1/16 9/16
through September 2, 1997
REDEEMABLE CLASS B WARRANTS - NASDAQ
1994 High Bid Low Bid
- ---- -------- -------
First Quarter 3/4 9/32
Second Quarter 13/32 1/8
Third Quarter 3/16 1/8
Fourth Quarter 7/32 1/8
1995
- ----
First Quarter 1/8 1/8
Second Quarter 1/8 1/8
Third Quarter 1/8 1/8
Fourth Quarter 7/32 1/8
1996
- ----
First Quarter 1/8 1/8
Second Quarter 1/8 1/16
Third Quarter 1/8 1/8
Fourth Quarter 1/16 1/16
1997
- ----
First Quarter 1/16 1/16
Second Quarter NA NA
Third Quarter 1/16 1/16
through September 2, 1997
17
<PAGE>
REDEEMABLE CLASS E WARRANTS - NASDAQ
1994 High Bid Low Bid
- ---- -------- -------
First Quarter 2/38 1 1/8
Second Quarter 1 1/4 3/8
Third Quarter 7/8 9/16
Fourth Quarter 11/16 1/4
1995
- ----
First Quarter 11/32 1/4
Second Quarter 3/8 5/16
Third Quarter 5/8 3/8
Fourth Quarter 7/8 3/8
1996
- ----
First Quarter 7/16 3/8
Second Quarter 3/8 3/8
Third Quarter 5/8 3/8
Fourth Quarter 7/8 5/16
1997
- ----
First Quarter 5/16 5/16
Second Quarter 5/16 1/4
Third Quarter 1/4 3/16
through September 2, 1997
18
<PAGE>
DILUTION
As of June 30, 1997, the net tangible book value per share of the Company's
Common Stock was $.063 "Net tangible book value per share" represents the amount
of the Company's tangible assets, less the amount of its liabilities and
redeemable stock, divided by the number of shares of Common Stock outstanding.
After giving effect to the receipt of the proceeds from the sale of Common Stock
upon exercise of the balance of Redeemable Class B, Redeemable Class E, and
Non-Redeemable Class AA Warrants at exercise prices per share of $1.50,$1.25,
and $0.65, respectively, and all Common Stock Options at an average price of
1.151 the pro forma net tangible book value per share of Common Stock as of June
30, 1997, would have been $.344. This would result in dilution to purchasers of
Common Stock upon the exercise of all Warrants, and consultant, employee and
director stock options of $.781. Refer to the following table for the dilution
of each of the Warrants.
Director,
Non- Employee
Redeemable Redeemable Redeemable &
Class B Class E Class AA Consultant
Warrants Warrants Warrants Options Total
-------- -------- -------- ---------- -----
Public offering
price per share of
Common Stock upon
exercise of Warrants
and Stock Options ......... $1.500 $1.250 $0.650 $1.151 $1.125
Net tangible book
value per share at
June 30, 1997 ............. $0.063 $0.063 $0.063 $0.063 $0.063
Net increase per
share attributable
upon exercise of the
Warrants and Stock
Options ................... $0.082 $0.039 $0.037 $0.180 $0.282
Pro forma net
tangible book value
per share of Common
Stock after exercise
of the Warrants and
Stock Options ............. $0.145 $0.102 $0.100 $0.243 $0.344
Dilution of net
tangible book value
per share of Common
Stock to new
investors ................. $1.355 $1.148 $0.550 $0.908 $0.781
19
<PAGE>
USE OF PROCEEDS
The Company will derive proceeds from any exercise of the Redeemable Class
B and E Warrants, and the Stock Options to consultants, directors and employees.
The Redeemable Class B and E Warrants are exercisable no later than January 18,
1998 (formerly January 16, 1995), and the options to consultants, directors and
employees have exercise dates from the present through August 20, 2006. Assuming
the exercise of the Redeemable Class B and E Warrants, the maximum aggregate
amount of such proceeds is estimated at approximately $2,129,721. If the Company
were to receive such proceeds, said proceeds would be utilized for general
working capital purposes.
The Company may also use working capital for acquisitions, including the
Drew Shoe acquisition described herein (see "Drew Shoe Acquisition").
The foregoing represents the Company's best estimate of its use of the net
proceeds from any exercise of the Warrants and Stock Options offered hereby,
based upon the current state of its business operations, its current plans and
current economic and industry conditions. Further events, including the
problems, delays, expenses and complications frequently encountered by
businesses as well as changes in economic, regulatory or competitive conditions
or the success or lack thereof of the Company's research and marketing
activities, may require reallocation of funds or may require the delay,
abandonment or reduction of the Company's efforts.
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1997, as adjusted to reflect (a) the issuance and sale of 969,191 shares of
Common Stock upon exercise of the Redeemable Class B Warrants at $1.50 per
share; (b) the issuance and sale of 540,747 shares of Common Stock upon issuance
of the Redeemable Class E Warrants at $1.25, (c) the issuance and sale of
1,075,000 shares of Common Stock upon exercise of the Non-Redeemable Class AA
Warrants at $.65 per share, and (d) the issuance of 3,167,500 shares of Common
Stock upon exercise of 3,167,500 stock options to employees, directors, former
directors, consultants, and a former joint venture partner.
June 30, 1997
-------------
Actual As Adjusted
------ -----------
Acquisition Preferred Stock, par value $.01 per $ - $ -
share, authorized 750,000 shares, no shares
issued or outstanding
Common Stockholders' Equity
Common Stock, $.01 par value; 40,000,000 shares 167,179 224,703
authorized; 16,717,915 shares issued and
15,954,733 outstanding; 22,470,353 shares issued
and 21,707,171 outstanding, as adjusted
Paid-in surplus 16,002,908 22,419,647
Deficit (14,109,968) (14,109,968)
------------ ------------
2,060,119 8,534,382
Less:
Treasury Shares (763,182 shares) (899,100) (899,100)
--------- ---------
Common Stockholders' Equity $1,161,019 $7,635,282
========== ==========
Total Capitalization $1,161,019 $7,635,282
========== ==========
20
<PAGE>
SELECTED FINANCIAL DATA
The following information is qualified by reference to, and should be read
in conjunction with, the Company's financial statements and the notes thereto,
and to prior years' Form 10K-SB.
Summary Financial Information
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
--------------------------------------------------------------------------- -------------------------
1992 1993 1994 1995 1996 1996 1997
---------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Net revenue ......... 1,371 1,382 1,138 752 605 211 287
Direct costs ........ 589 461 1,141 598 273 49 150
Selling, general
and administrative .. 1,735 1,454 2,339 1,832 1,802 1,075 1,027
Research,
development and
engineering ......... 47 57 120 186 98 47 31
Operating loss ...... (1,000)(1) (590)(2) (2,462)(2) (1,864) (1,568) (960) (921)(1)
Interest income ..... 55 59 155 175 54 41 12
Interest expense .... 36 4 -- -- -- -- --
Loss on investments . -- 60(2) 82(2) -- -- -- --
Net loss from
continuing operations (981)(1) (595)(2) (2,389)(2) (1,689) (1,514) (919) (909)(1)
Loss from
discontinued
operations .......... 1,247(1) -- -- -- -- -- --
Net loss ............ (2,228)(1) (595)(2) (2,389)(2) (1,689) (1,514) (919) (909)(1)
Weighted average
number of common
shares and common
equivalent shares
outstanding ......... 9,056,231 10,949,876 14,681,530 14,818,055 14,868,128 14,858,222 15,682,634
Net loss per share .. (0.25)(1) (0.05)(2) (0.16)(2) (0.11) (0.10) (0.06) (0.06)(1)
Balance Sheet Data:
Cash, cash
equivalents and
marketable
Securities .......... 817 6,040 4,168 2,209 526 1,604 241
Working capital ..... 719 6,261 3,718 2,156 597 1,196 667
Total assets ........ 1,721 6,975 5,088 3,034 1,305 2,340 1,559
Long term debt ...... -- -- -- -- -- -- --
Stockholders' Equity 1,166(3) 6,661(3) 4,252 2,604 1,015 1,644 1,161
</TABLE>
Notes:
(1) The net loss for 1992 includes the financial results of the HumanCad
division. The HumanCad division was discontinued on February 23, 1993. Net
loss includes a loss from discontinued operations of $1,247,270 in 1992 or
$.14 per share. In March 1997, after one year of beta-testing and market
studies, the Company relaunched the marketing of MQPro(TM) (formerly known
as Mannequin(R)) through its HumanCAD(R) division. As of June 30, 1997 the
HumanCAD division had sales of $54,876.
(2) In years 1993 and 1994, the Company's investment of approximately $72,000
in a partnership was written off ($17,000 in 1994 and $55,000 in 1993).
ErgoRisk Services, Inc. (Canada) was purchased for $65,000 to effectively
terminate a joint venture, and was subsequently written off in 1994.
(3) There were private placements in 1992 and 1993 and in the first quarter
of Fiscal Year 1997, which increased the amount of stockholders' equity.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
RESULTS OF CONTINUING OPERATIONS
Management anticipates a significant contribution from software sales and
Software Based Ergonomic Consulting Services in the future starting with 1997.
Software sales and Software Based Ergonomic Consulting Services contributed
minimal revenue in 1996 and 1995. The Company's Traditional Ergonomic Consulting
Services provided virtually all revenue to the Company from contracts providing
for a fixed price or a fixed hourly rate. In setting its price for services, the
Company seeks to estimate the man hours that will be required to provide the
services. To the extent that the Company underestimates the man hours that will
be required, or the expenses it will incur in performing a contract, the Company
could realize a loss on any particular contract. The Company's policy is to
recognize revenue based on a percentage of completion method as costs are
incurred. Net revenue decreased by $147,523 in 1996 from 1995.
Net revenue includes the following:
Year Ended December 31,
1996 1995
---- ----
Intelligent Surface Technology (IST) $ 28,030 $ 96,473
Ergonomic Product Assessment and Redesign services $ 415,160 $ 451,508
Ergonomic Workplace Assessment services $ 161,364 $ 204,096
Revenue from IST includes the initial payments for licensing the IST as
well as fees associated with the development of the prototypes for the specific
applications. Revenue from IST in 1996 includes $15,000 connected with the Sealy
option and development agreement signed in 1996. In 1996, $12,500 of revenue
from the 1994 Lumex agreement was written off after the termination of that
agreement. IST revenue declined $68,443 in 1996 from 1995 and accounted for 5%
of net revenue in 1996 versus 13% in 1995. The majority of 1995 revenue is
attributable to the licensing and development agreements with Reebok for
Intelligent Footwear and Athletic Sport and Fitness Equipment and Lumex.
Due to the one-time nature of many of the Company's consulting contracts,
revenue from Ergonomic Product Assessment and Redesign services, and Ergonomic
Workplace Assessment services (Traditional Ergonomic Consulting Services)
fluctuates from year to year. Ergonomic Product Assessment and Redesign services
revenue decreased by $36,348 in 1996 from 1995 and provided 69% of the Company's
revenue in 1996 compared to 60% in 1995. Revenue from Ergonomic Workplace
Assessment services decreased $42,732 in 1996 from 1995 and accounted for 26% of
net revenue in 1996 versus 27% in 1995. Both of these decreases reflect a change
in the strategy to focus on industries where the Company has significant
expertise, and to build long-term relationships for future integration of our
technology in these companies' products.
Direct costs include salaries, equipment purchases for contracts,
consulting fees and certain other costs. Gross profit may fluctuate from period
to period. Factors influencing fluctuations include the nature and volume of
services provided to individual customers which affect contract pricing, the
Company's success in estimating contract costs (principally professional time),
the timing of hiring new professionals, who may require training before gaining
experience, efficiencies and meeting customer demands.
Direct costs decreased $325,290, to $272,980 in 1996 from $598,270 in 1995
primarily due to: (i) a more favorable mix of internal versus outside resources
in 1996 as compared to 1995, and (ii) the elimination in 1996 of a reserve for
$149,000 for Textron development, previously recorded in 1994, representing
estimated expenses for providing additional development services to Textron.
Under the agreed amendment
22
<PAGE>
with Textron, signed in August 1996, Textron may receive a credit for $150,000
from any royalties that may be earned by the Company and will be proportional
over a four-year period commencing in the first year when royalties become
payable.
Gross profit, as set forth in the table below, increased by $ 177,767 in
1996 as compared to 1995. The increase was due to the reduction in direct costs
which more than offset the decline in net revenue.
Year Ended December 31,
1996 1995
Net Revenue $604,554 $752,077
Direct Costs $272,980 $598,270
Gross Profit $331,574 $153,807
Gross Profit Percentage 55% 20%
Since taking over in 1995, a key objective of the new management team has
been to reduce selling, general and administrative expenses and redirect such
cash savings in the development of core business such as IST and HumanCAD(R)
software. Selling, general and administrative expenses were $1,801,915 in 1996,
which included approximately $355,000 in certain non-recurring and unusual
expenses (including severance and other items) incurred as a result of the
Company's restructuring. Without these non-recurring and unusual expenses the
selling, general and administrative costs in 1996 would have been $1,446,653.
Therefore, excluding these 1996 non-recurring and unusual expenses, selling,
general and administrative expenses were $1,446,653 in 1996, $1,831,494 in 1995
(which includes approximately $193,000 of non-recurring expenses) and $2,339,225
in 1994, demonstrating management's commitment to lower these expenses and
redirect cash into the core technology.
The Company's research and development costs decreased $87,965 to $97,854
in 1996 from $185,819 in 1995. This decrease is primarily due to the
capitalization of $85,191 of development expenditures in 1996 relating to the
upgrade of the Company's MQPro(TM) software, released in March 1997. In prior
years, these costs were R&D in nature and accordingly were expensed in the
period they were incurred. The remaining costs reflect the development of
several components relating to certain applications of the IST. During 1996 and
1995, the Company made significant progress in the development of the necessary
components relating to certain applications of the IST, such as a microvalve
(patent filed in June 1996), a self-generating power supply and an intelligent
switch.
Net interest income decreased $119,971 to $54,055 in 1996 from $174,026 in
1995. The decrease is primarily attributable to a decrease in cash available for
investment from 1995 to 1996 utilized for operating activities.
Due to the net losses and the accounting rules in accordance with
Financial Accounting Standards Board ("FASB") Statement No. 109, "Accounting for
Income Taxes", there was no provision for income taxes in 1996 and 1995.
As a result of all of the above, the net loss in 1996 decreased $175,340
to $1,514,140 from $1,689,480 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and held-to-maturity securities decreased by
$1,682,514 to $526,344 at December 31, 1996, from $2,208,858 at December 31,
1995. Net cash used in operating activities, mainly to cover the 1996 net loss,
was $1,602,237 for the year ended December 31, 1996, compared to $2,010,346 in
the year ended December 31, 1995. Financing activities used $74,246 in cash for
the year ended December 31, 1996, compared to $59,299 for the year ended
December 31, 1995. This consisted mainly of uses of cash for stock registration
and issuance costs.
23
<PAGE>
Accounts receivable, net of the allowance for doubtful accounts, decreased
to $22,537 at December 31, 1996, from $135,995 at December 31, 1995. Three
customers comprised 84% of gross accounts receivable at December 31, 1996.
Prepaid expenses and other current assets increased to $333,477 at December
31, 1996, from $233,585 at December 31, 1995. Other current assets principally
include profits and expenses for services rendered but are not yet billed. Also
included in the 1996 amount are approximately $185,000 of costs related to the
acquisition of Drew Shoe.
Accounts payable, accrued expenses and sundry liabilities decreased to
$285,065 at December 31, 1996, from $422,671 at December 31, 1995. The decrease
of $137,606 resulted primarily from the elimination of an accrual for $149,000
relating to the Textron licensing agreement.
Consequently, working capital decreased $1,558,474 to $597,293 at December
31, 1996, from $2,155,767 at December 31, 1995.
On March 19, 1997, the Company entered into an agreement with the owners of
Drew Shoe whereby, the Company will purchase all of the Common Stock of Drew
Shoe for $4,600,000 subject to financing. Drew Shoe, of Lancaster Ohio, is a 125
year-old leading designer, manufacturer and distributor of medical footwear and
orthotic products This acquisition will complete the Company's restructuring.
Drew Shoe represents an opportunistic and synergistic vehicle for the Company to
incorporate IST into medical footwear and orthotic products, for diabetics,
arthritics, and the aging population.
On March 10, 1997, at the National Design Engineering Show in Chicago,
Illinois, the Company, through its HumanCAD(R) Systems division, introduced
MQPro(TM), a PC-based human modeling and ergonomics design program that creates
accurate, three-dimensional humanoids with point-and-click simplicity. MQPro(TM)
will be the first ergonomic product in its series of computer-aided human
ergonomic software.
On January 15, 1997, the Company offered a minimum of 400,000 Units, each
consisting of one share of the Company's Common Stock and a non-redeemable Class
AA Warrant, which entitles the holder to purchase one share of the Company's
Common Stock at a price of $0.65 per share, until March 31, 2002. The offering
was completed on March 28, 1997, and 1,075,000 units have been sold raising
$1,075,000 for the Company.
On December 20, 1996, the Company extended the expiration date of the
Company's Class B Warrants and Class E Warrants from January 17, 1997, to
January 17, 1998, and of the Company's Class C Warrants from January 17, 1997,
to March 18, 1997. The conversion of the Warrants is a potential source of
additional capital. The Class C Warrants expired and were not converted.
The Company's net revenue was $604,554 in 1996. Revenue is expected to be
higher in 1997 than in 1996 because it will include sales of its HumanCAD(R)
software, the start of royalties from Textron (Textron informed the Company in
1996 that certain 1998 model automobiles will be introduced in the fall of 1997
incorporating IST in the design of the driver's and front passenger's seats) and
continued revenues from the Company's Traditional Ergonomic Consulting Services
as well as the new Software Based Ergonomic Consulting Services.
The Company has no material commitments for any future capital
expenditures.
The Company expects that its working capital, together with revenue from
operations, the proceeds from a private placement (see below), and potential
exercise of its Class B and Class E Warrants, will be sufficient to meet
liquidity and capital requirements through 1997. Longer term cash requirements
are dictated by a number of external factors, which include, among others,
further development of and royalties from IST, further development and product
sales of HumanCAD(R) software and the Company's ability to introduce new
competitive products and services.
24
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's future operating results are dependent on the Company's
ability to (i) successfully further develop IST and increase the number of
licensees, and the commercialization of IST by its licensees, (ii) further
develop and sell its HumanCAD(R) software consisting of MQPro(TM), EARLY(R)
process and Back-To-Work(TM) methodology, (iii) successfully market and sell its
new Software Based Consulting Services and its Traditional Ergonomic Consulting
Services and (iv) complete the Company's acquisition of Drew Shoe, future
profitability of Drew Shoe and introduction of IST in medical footwear and
orthotic products.
THREE MONTHS AND SIX MONTHS ENDED JUNE, 1997 COMPARED TO THREE MONTHS AND SIX
MONTHS ENDED JUNE, 1996
RESULTS OF OPERATIONS
Net revenue is recognized when products are shipped, or is based on the
percentage of completion method as costs are incurred. No significant
obligations remain outstanding and collection of the accounts receivable, in
management's estimation, is deemed probable.
Net revenue increased by $107,635, to $215,861, during the three months
ended June 30, 1997, as compared to the same period in 1996. The increase was
due to $47,828 of revenue from sales of the HumanCAD(R) division's MQPro(TM)
software, which was launched in April 1997, an increase in Product Assessment
and Redesign revenue of $39,535, and an increase of $22,500 in Intelligent
Surface Technology ("IST") revenue. Net revenue increased by $76,511, to
$287,232, during the six months ended June 30, 1997, as compared to the same
period in 1996. The increase was primarily due to $54,876 of revenue from sales
of MQPro(TM) software.
Direct costs include salaries, product costs, equipment purchases for
contracts, consulting fees and certain other costs. Gross profit may fluctuate
from period to period. Factors influencing fluctuations include the nature and
volume of services provided to individual customers which affect contract
pricing, the Company's success in estimating contract costs (principally
professional time), the timing of hiring new professionals, who may require
training before gaining experience, efficiencies and meeting customer demands.
Direct costs in total increased by $66,635, to $71,178, in the quarter
ended June 30, 1997, and by $101,061, to $150,349, in the six months ended June
30, 1997, as compared to the same periods in 1996. The first six months of 1996
reflect lower direct costs because of a credit of $148,960, due to the
elimination of a reserve no longer deemed necessary. Excluding this
non-recurring item, direct costs were $18,575 lower in the three months ended
June 30 and $47,899 lower in the six months ended June 30 than the comparable
periods in 1996.
As a result of the above, gross profit, as set forth in the table below,
increased by $41,000 for the quarter ended June 30, 1997, and decreased by
$24,550 for the six months ended June 30, 1997, as compared to the comparable
periods in 1996.
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
Net revenue $215,861 $108,226 $287,232 $210,721
Direct costs 71,178 4,543 150,349 49,288
-------- -------- -------- --------
Gross profit $144,683 $103,683 $136,883 $161,433
Gross profit % 67% 96% 48% 77%
25
<PAGE>
Selling, general and administrative expenses increased by $50,432, to
$618,091, for the three months ended June 30, 1997, and decreased by $48,289, to
$1,027,026, for the six months ended June 30, 1997, as compared to the same
periods in 1996. Included in these figures were $252,675 of costs in the six
months ended June 30, 1997, of which $212,512 was incurred in the second
quarter, in connection with the launch of the HumanCAD(R) division's MQPro(TM)
software. Offsetting this was a reduction in expenses relating to the Company's
Ergonomic Consulting Services business of $162,080 in the three months ended
June 30 and $300,964 in the six months ended June 30, primarily in the areas of
legal costs, salaries and benefits, consulting costs, reporting and exchange
fees and insurance premiums.
Research, development and engineering costs increased by $3,035 for the
quarter ended June 30, 1997 and decreased by $16,083 for the six months ended
June 30, 1997 from the same periods in 1996.
Net interest income decreased by $11,383 for the three months ended June
30, 1997, and by $29,592 for the six months ended June 30, 1997, compared to the
periods ended June 30, 1996. This was due to a decrease in assets available for
investment.
Net loss, as a result of the above, for the three months and six months
ended June 30, 1997, was $490,437 and $908,678, respectively, as compared to a
net loss of $466,587 and $918,908 for the comparable period in 1996.
There was no tax benefit for the three months or six months ended June 30,
1997 and the three months or six months ended June 30, 1996. Losses which have
increased the future availability of the net operating loss carryforward have
been offset by valuation allowances.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and held-to-maturity securities were $240,964 as of
June 30, 1997, compared to $526,344 as of December 31, 1996. Net cash used in
operating activities, mainly to cover the net loss, was $1,338,021 for the six
month period ended June 30, 1997. Financing activities, primarily the proceeds
from a private placement completed on March 28, 1997 provided $1,054,370 in cash
for the six month period ended June 30, 1997.
Working capital was $666,585 as of June 30, 1997, compared to $597,293 as
of December 31, 1996. The increase of $69,292 or 11.6% in working capital was
primarily attributable to the proceeds from the private placement, reduced by
the net loss incurred in the six months ended June 30, 1997.
The Company expects that its working capital, together with revenue from
operations, and the proceeds from future private placements, will be more than
sufficient to meet any liquidity and capital requirements for the remainder of
1997.
On March 19, 1997, the Company entered into an agreement with the owners of
Drew Shoe Corporation ("Drew Shoe") whereby, the Company will purchase all of
the Common Stock of Drew Shoe for approximately $5,500,000 subject to financing.
Drew Shoe, of Lancaster Ohio, is a 125 year-old leading designer, manufacturer
and distributor of medical footwear and orthotic products. Drew Shoe represents
an opportunistic and synergistic vehicle for the Company to incorporate IST into
medical footwear and orthotic products, for diabetics, arthritics, and the aging
population.
The Company has committed to spend $230,000 during the remainder of 1997
for the development of the Microvalve, which is a necessary component relating
to certain applications of the IST.
26
<PAGE>
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid Expenses and Other Current Assets were $719,725 compared with
$333,477 on December 31, 1996. During the six month period the Company
accelerated (1) its acquisition related activities and (2) its marketing
activities related to the launching of MQPro(TM) on March 10, 1997. The impact
of the launch related activities, including marketing and product packaging,
occurred primarily in the second quarter of the Company's fiscal year. On March
28, 1997, the Company signed a Stock Purchase Agreement to acquire Drew Shoe.
Spending associated with the acquisition is expected to be included in the
balance sheet of the subsidiary and amortized, beginning the month after the
acquisition is concluded. Should the acquisition not occur, expenses associated
with the acquisition will be expensed in the third quarter of the current fiscal
year. Expenses associated with the launching of MQPro(TM) are being amortized
over the remainder of the current fiscal year.
FORWARD-LOOKING STATEMENTS
Information set forth in this Prospectus regarding the Company's plans for
future operations constitutes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Any forward-looking statements
should be considered in light of the factors set forth in the "Risk Factors"
section of this Prospectus.
BUSINESS
The Company is a software technology company, specializing in providing
ergonomic solutions (human factors engineering) to individuals, major
corporations and government. The company's revenues are derived primarily from
consulting services. The Company completed, in early 1996, its restructuring by
focusing on (I)broadening and strengthening its patent portfolio, and
accelerating the commercialization of the Company's Intelligent Surface
Technology ("IST"), (II) continuing its development of proprietary software,
which consists of the intelligent part of "IST", MQPro(TM) (formerly
Mannequin(R)), and the EARLY(R) process, (III) building its ergonomic consulting
services business, which consists of Ergonomic Product Assessment and Redesign,
and Ergonomic Workplace Assessment and (IV) emphasizing a strategy of broadening
and strengthening business relationships such as joint ventures, partnerships,
licenses and other alliances. The Company has established a collaborative
research and development relationship with the State University of New York at
Stony Brook, with plans to establish additional relationships with other
universities, government laboratories, and other subcontractors.
The Company believes that its ergonomic consulting services are the primary
source of new product ideas and with it, the potential for royalty income, as
well as new product and service offerings.
During the course of the Company's performance of ergonomic product and
workplace assessment services, the Company from time to time develops certain
know-how based upon data from its consulting services which it is able to embody
into proprietary technologies. When this occurs, and it is believed that the
technology is a significant enhancement from the existing technology, the
Company files for patent protection under the laws of the United States and, if
warranted, internationally.
INTELLIGENT SURFACE TECHNOLOGY
Since 1991, the Company has been issued seven patents, one notice of
allowance, and currently has four additional patent filings pending related to
its Intelligent Surface Technology("IST"), which empowers surfaces to
automatically measure any part of the body touching said surface and then, in
real time, adjust themselves to conform to that user's body to provide comfort
and fit. Such a surface is considered an intelligent surface because it is able
to learn about the user and recognize patterns in the user's movements through
the Company's proprietary software. The Company has identified applications for
this technology in
27
<PAGE>
the primary areas of seating, footwear and bedding. In addition, the technology
can be used for, among other things, handtools, exercise equipment and helmets.
CURRENT LICENSEES
TEXTRON. The Company and McCord Winn Textron, Inc., a subsidiary of
Textron, Inc.("Textron"), signed a development and license agreement in
March 1993(the "Textron Agreement"), which was amended in October 1993 and
August 1996. Under the Textron agreement, the Company granted an exclusive
worldwide license to Textron, to use the IST patents and know-how in the
manufacture, use and sale of seats and seating components in the
transportation industry, wheelchairs, office furniture applications, and
hospital beds. In 1996, Textron informed the Company that it expects a
certain 1998 model automobile to be introduced in the fall of 1997, to
incorporate IST in the design of the driver and passenger seat.
The August 1996 amendment to the Textron Agreement obligated Textron
to pay royalties to the Company through December 31, 1999, for any products
designed by Textron using the Company's IST. The royalties average 3% of
net sales after the first $150,000 of net sales. After January 1, 2000,
Textron shall be obligated to pay the Company royalties only for products
designed which actually incorporate IST patents and know-how transmitted to
Textron by the Company after May 31, 1996. The Company has disclosed to
Textron that it has received four patents and one notice of allowance after
May 31, 1996.
REEBOK. In January 1994, the Company and Reebok signed a world-wide
exclusive licensing and development agreement for the use of IST footwear.
Generally, if the Company's technology is incorporated into Reebok's
footwear, the Company expects to receive approximately $1.00 for every pair
of shoes sold. In addition, Reebok has a right of first refusal to obtain
exclusive licenses to use IST in athletic, sport and fitness equipment.
Medical equipment and orthopedic shoes and other devices are specifically
excluded from the Reebok license. The Company and Reebok are continuing to
work closely in developing the application of the Company's IST, which is
expected to be introduced in Reebok's footwear products in due course.
SEALY. In August, 1996, the Company signed an agreement with Sealy,
Inc. to utilize the Company's IST, computer software, know-how and
expertise towards development of new Sealy products. Specifically, Sealy
has an option agreement to utilize IST in its adjustable bed and a right of
first refusal as applied to all bedding products (excluding medical bedding
applications).
Since 1991, when the first patent was issued in IST, the Company has
recorded cumulative sales revenue of $1,009,753.
POTENTIAL NEW LICENSEES
The Company has identified several organizations that can benefit from
its technologies and ergonomic design expertise. As a result of this
activity, the Company is in advanced discussions with a (1) a manufacturer
of recliners, (2) an office furniture company for office seating products,
(3) an airline for its first class seat, (4) a wheelchair manufacturer, (5)
a hospital bedding company, (6) a manufacturer of operating room tables,
(7) a medical footwear company and (8) a tool manufacturer. It is actively
pursuing the leading companies within these fields in order to increase the
number of licensees and generate additional revenue.
MARKETING STRATEGY
The Company focuses on licensing rights to its IST technology to major
corporations that meet specific criteria. Criteria include (1) size, (2)
financial stability, (3) marketing presence and (4) sufficient resources to
commercialize the Company's technology. The company's pricing objectives
for the purchase of rights include an advance sufficient to insure the
licensee's focus on commercialization of the technology and a royalty
payment for each unit sold by the licensee.
28
<PAGE>
TECHNOLOGY STRATEGY
The Company's technology objectives for IST are to increase the number
of users for IST, license as many organizations as possible to use its IST
and to commercialize its technology as rapidly as practical. The Company
believes that these objectives can be accomplished by a strategy of (1)
broadening and strengthening the Company's portfolio of patents in IST and
(2) developing one or more key components in the IST system, such as a
microvalve, self-generating power supply and intelligent switch, (3)
enhancing its application engineering development capability, and (4)
developing know-how and methodologies in incorporating IST into common
products such as seats, helmets, footwear and hand-tools.
IST PATENTS
During 1995 and 1996, the Company substantially broadened and
strengthened its intellectual property related to IST, both domestically
and internationally. During, 1996, the United States Patent Office issued
three patents and the Company received a notice of allowance from the
European Patent Office. The Company now has seven issued patents, one
notice of allowance, and four pending patents.
The new patents, together with the pending patents, have enabled the
Company to broaden its market for licensing its technology, both
domestically and internationally. The newly allowed claims cover a broad
range of uses of IST, especially for medical applications.
PROPRIETARY SOFTWARE DEVELOPMENT
In addition to the IST software, the Company's other software development
efforts have always been focused in areas that support the Company's Ergonomic
Consulting services. Since 1989, the Company has developed, marketed,
maintained, and continuously upgraded two proprietary software packages:
MQPro(TM) (formerly Mannequin(R)) and EARLY(R).
MQPRO(TM) (FORMERLY MANNEQUIN(R))
The Company's HumanCAD(R) division launched the marketing of MQPro(TM)
software for Windows in the second quarter of 1997. The software is
compatible with CAD and other graphic programs, and has motion capture
capabilities useful for graphical illustrations and motion analysis. The
Company believes that many universities, design organizations and
government agencies, including NASA, are current users of the earlier
version of MQPro(TM). The results of a successful beta test of the new
version of MQPro(TM), and preliminary market survey confirmed that a
substantial market exists, especially among CAD users and industrial
designers. The Company estimates that there are approximately 2,000,000 CAD
seats in existence, which has been growing at a rate of 400,000 seats per
year.
MQPro(TM) is a human modeling program that enables the user to render
3-dimensional scaleable humanoid figures on a personal computer (PC). These
figures can be articulated into any position and then can be viewed from
any angle, distance or perspective. The result of that view can be printed,
plotted or exported to other graphics software for further enhancement of
the image. The figures can walk, bend, reach and grasp objects. A user can
test the functionality of many devices. The Company has recently upgraded a
Windows(R) version that processes on all Windows(R) platforms.
EARLY(R)
The Company's EARLY(R) process (Ergonomic Assessment of Risk and
Liability) allows the ergonomist to integrate videotapes of tasks with the
assistance of sophisticated software to identify risk of Cumulative Trauma
Disorders and determine opportunities for ergonomic intervention. This
process could facilitate a good fit between the workplace and workers'
capabilities. Currently, the Company's EARLY(R) process is marketed on a
retail basis to industrial companies and governments, and wholesale to
insurance companies. See Marketing of Ergonomic Consulting Services.
29
<PAGE>
ERGONOMIC CONSULTING SERVICES BUSINESS
The Company believes that its ergonomic consulting services are the primary
source of new product ideas and with it, the potential for royalty income, as
well as new product and service offerings. During the course of the Company's
performance of ergonomic product and workplace assessment services, the Company
from time to time develops certain know-how based upon data from its consulting
services which it is able to embody into proprietary technologies. When this
occurs, and it is believed that the technology is a significant enhancement from
the existing technology, the Company files for patent protection under the laws
of the United States and, if warranted, internationally.
ERGONOMIC PRODUCT ASSESSMENT AND REDESIGN
The Company performs comprehensive subjective and objective ergonomic
testing of products. The tests quantify the product's relationship to the
human subject in terms of comfort, fit, usability and user performance.
Results of the ergonomic testing are used by product developers,
manufacturers and industrial design firms to improve existing products
and/or develop new ones. In essence, the Company serves as the "User's
Representative", communicating user needs in terms that engineers and
industrial designers can apply in the design of product. This analysis
provides substantial guidance and a strong foundation for the design
process.
ERGONOMIC WORKPLACE ASSESSMENT
Workers' Compensation coverage to employees cost U.S. employers over
$100 billion in 1996. It is also estimated that more than 2.5 million
people developed musculoskeletal disorders in 1996, and according to OSHA,
each year over $20 billion dollars are spent on repetitive stress injuries
(or Cumulative Traumatic Disorders). Many of these injuries involve lost
duty time for recuperation and reassignment of injured workers to other
jobs, in addition to medical treatment costs, thus escalating total
workers' compensation costs.
The Company provides Ergonomic Workplace Assessment services to
industrial companies, government, and insurance companies, to reduce
musculoskeletal injuries, through its proprietary EARLY(R) services and
custom tailored consulting services and provides benefits including (1)the
potential for improved productivity and (2)enhanced product and service
quality.
30
<PAGE>
EARLY(R) is a unique laboratory service for the analysis of an
organization's workplace for ergonomic health using proprietary
computer-assisted software for biomechanical analysis. EARLY(R) allows for
the prediction of musculoskeletal injury likelihood and the development of
cost-effective solutions to reduce the risk factors related to Work Related
Musculoskeletal Disorders (WMSDs) with emphasis on Cumulative Trauma
Disorders.
Benefits of the EARLY(R) service to clients are that it may (1)reduce
workers' compensation costs, (2) help prevent work related musculoskeletal
disorders, (3) assist in compliance with OSHA, NIOSH, and ADA regulations,
(4) increase productivity and improve quality of life, (5)provide practical
ergonomic engineering and off-the-shelf product solutions, and/or
(6)organize job rotation schedules.
EARLY(R) consists of a three-phase process: data collection,
laboratory analysis and solution(s). Data collection includes a short
videotape of the task being performed, an employee musculoskeletal stress
questionnaire and historical injury and illness data. Laboratory analysis
is performed by ergonomists using proprietary, computerized biomechanical
modeling techniques at the Company's laboratories. Recommendations are
provided from a data-base of standard solutions. If no solution is
available from the data-base, customized solutions are also developed.
Customized analyses, not typically available as part of standard
EARLY(R), are provided including (1)unique recommendations which are beyond
EARLY(R)'s database of standard solutions, (2)implementation assistance,
(3)long-term monitoring and (4)follow-up.
MARKETING OF ERGONOMIC CONSULTING SERVICES
Ergonomics, human factors, originated in academia and was only
recently popularized by industry. Because the sales process is long and
complex, the Company's emphasis is on building long-term relationships with
major organizations and maximizing return from each relationship. The
company markets and promotes its Ergonomic Consulting Services with
traditional methods including obtaining referrals from existing clients,
publishing articles, speaking at seminars and conducting industry specific
seminars. The Company is expanding the scope of its sales efforts to also
include attending and exhibiting at trade shows, utilizing direct marketing
techniques, building a highly experienced and professional sales team,
advertising in selected trade publications and expanding its Internet web
site.
PRICING OF ERGONOMIC CONSULTING SERVICES
The Company's pricing formula generally includes a fixed consulting
fee together with a royalty which may be earned when the Company's
ergonomic product redesign recommendations are commercialized or a
percentage of cost savings when major ergonomic workplace assessment
recommendations are implemented.
BUSINESS RELATIONSHIP STRATEGY
The Company focuses on building long-term relationships with major
organizations as a key part of its marketing strategy. The Company's
objective is to grow its revenue base through repeat business.
RESEARCH AND DEVELOPMENT
The Company's research and development is focused on enhancing and
commercializing the Company's core technologies. The Company attempts to
minimize spending on research. Therefore, the Company typically attempts to
acquire the rights to use an existing technology, if available. The Company
will, however, fund research for technology, when the needed technology is not
available. For example, the Company is funding research, design and development
of a microvalve which is needed in the application of its IST for hand tools and
footwear.
31
<PAGE>
The Company uses its internal resources and subcontractors, as needed, in
its research and development activities. For example, the Company has
established a collaborative research and development relationship with the State
University of New York at Stony Brook, and plans to establish additional
relationships with other universities, and government laboratories, as
necessary.
COMPETITION
Management of the Company believes that its unique technologies,
proprietary software, methodologies and know-how are a competitive advantage.
The Company believes that MQPro(TM) is the only software package of its kind
that will process on a PC with a minimum of resources, i.e., 8 MB of memory.
Most other human modeling software requires more computing resources such as
workstation hardware. Therefore, MQPro(TM) has significant economic advantages
over other competing software of its kind. With respect to its Ergonomic
Workplace Assessment, there are many competing sources for similar services to
the Company's offerings. However, the Company believes its EARLY(R) process,
with its accompanying proprietary software, provides significant advantages in
terms of (1) cost and (2)proven database solutions for its clients.
There are many sources of ergonomic product design services, especially
internal designers of organizations. Other companies and agencies are
developing, and have developed, particular services and technologies that are
competitive with the Company's services and technology and management believes
that increased competition is likely. Some of the Company's competitors have
significantly greater financial, technical and other resources than the Company.
GOVERNMENT REGULATION
The Company's present and anticipated activities are not generally subject
to government regulation in the United States or other countries.
While the Company cannot predict the extent to which it may be affected by
legislative or other regulatory developments, it does believe that the current
policies of OSHA encourage the use of the Company's services. The Company
believes that if OSHA continues to focus on ergonomic issues, it will result in
both industry and the general public becoming more aware of the need for
ergonomic services and products. Focus is also occurring at the FDA to encourage
more human factor engineering in the design of medical devices.
The costs and effects of complying with environmental laws by the Company
are not material.
PROPRIETARY INFORMATION
The patent process is a major protection for the Company's intellectual
property. As of today, the Company has obtained seven patents (six in the United
States and one European) and one notice of allowance, and has filed four
additional United States patent applications relating to its IST. One of the
four patents filed is significant because it is for a critical component needed
to miniaturize the application of the IST. Such miniaturization will allow the
Company to a) accelerate the commercialization of many applications, b) enter
the very large and expanding medical footwear market with applications for
diabetics, arthritics and the aging population, and c) provide applications to
other industries, such as the hand tool industry. The Company also has five U.S.
patents in fields other than IST.
The Company protects its proprietary written material, know-how, computer
software and technology which it has or may develop, through the use of United
States copyrights, common-law trade secret protection, trademarks and service
marks, and contractual arrangements. In addition, the Company enters into
confidentiality arrangements with its employees, consultants and customers, and
implements various measures to maintain "trade secret" protection for its
products.
32
<PAGE>
DREW SHOE ACQUISITION
Since November of 1996, the Company has been working on raising the funds
necessary to acquire Drew Shoe Corporation ("Drew Shoe") for approximately $5.5M
in cash, notes and Common Stock and the Company believes that the proceeds of
various financings (described herein) will be sufficient to complete the
acquisition and to provide sufficient working capital for the ongoing operations
of the combined entities. On March 20, 1997, the Company and the owners of Drew
Shoe entered into a definitive purchase/sale agreement, which was subject to the
Company obtaining sufficient financing to complete the acquisition by May 1997.
The Company could not obtain this financing at that time on terms which it
considered acceptable (and which it considered sufficient to complete the
acquisition of Drew Shoe as well as fund the growth of BCAM and Drew Shoe). The
Company, therefore, allowed its contractual right to purchase Drew Shoe
Corporation to expire. On July 23, 1997, the Company reached an agreement with
Drew Shoe to extend the deadline for the closing of the Drew Shoe Acquisition,
as outlined in the Purchase Agreement, from March 28, 1997 to September 15,
1997, for $25,000 for each of the two owners of Drew Shoe, with the total of
$50,000 to be credited to the purchase price at the closing.
The Company is, therefore, continuing its effort to finance the acquisition
of Drew Shoe and the Company expects that it can obtain the funding through the
financings described herein and will be able to purchase Drew Shoe, although
there can be no assurance that such purchase will occur.
Drew Shoe is based in Lancaster, Ohio, and is a privately held company
founded in 1875. Drew Shoe is a leading designer, manufacturer, marketer and
distributor of premium priced men's (20%) and women's (80%) high quality,
classically designed Medical and Comfort Shoes and Orthotic products, with
significant brand name recognition. Drew Shoe's distribution network supplies
independent retailers throughout the country, and sells directly to customers
through 14 Drew Shoe-owned specialty retail stores throughout the United States.
Drew Shoe's headquarters are located on 11 acres of land and occupies 108,000
square feet, of which 65,000 square feet is utilized for manufacturing and the
remainder for warehouse and administrative offices. All facilities are company
owned.
Drew Shoe specializes in medical footwear for individuals requiring
pedorthic/prescription products including those individuals (a) with congenital
defects or injuries that produce foot deformities such that standard sizes do
not fit properly, (b) who spend large amounts of time standing, especially on
hard surfaces, (c) who experience pain from the effects of having worn ill
fitting shoes, and (d) who suffer from diseases that affect the foot, especially
arthritis and diabetes. Most foot problems are exacerbated by age with the
over-50 segment of the population being particularly susceptible. The
demographics of the U.S. population are expected to expand Drew Shoe's target
market.
The target market for Drew Shoe for persons requiring
pedorthic/prescription footwear is estimated to be between 2% and 5% of the
population or two billion to four billion per year.
The Company believes that Drew Shoe's market and reputation make it an
acquisition that will position the Company to commercialize its IST in the
Medical footwear market. Drew Shoe, following its acquisition and the
applications of IST, will be positioned as the "leading edge" in a new
generation of Medical footwear.
Attached are the unaudited Statement of Income, Balance Sheet and Statement
of Cash Flows for Drew Shoe for the periods ending December 31, 1996 and 1995
and for the interim period ending June 30, 1997 and 1996.
EMPLOYEES
As of August 31, 1997, the Company had 16 employees and 7 part-time
employees, including five in technical staff, three in sales and marketing, and
three senior management members, with the rest being accounting and
administrative staff. In addition, the Company established a collaborative
research & development relationship with the State University of New York at
Stony Brook, with plans to establish additional relationships with other
universities, government laboratories, and other sub-contractors.
33
<PAGE>
PROPERTIES
Since 1990, the Company has leased office space at 1800 Walt Whitman Road,
Melville, New York. The Company's lease expires on March 31, 2000. The current
annualized lease rate for this space is approximately $138,000, which is subject
to annual increases. The facility, which contains approximately 8,400 square
feet, includes biomechanics research laboratories and a comprehensive ergonomic
library as well as offices. The laboratories are used both for testing and for
the redesign of products. The facilities are believed to be adequate for the
Company's operations into the foreseeable future.
LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
SUPPLIERS
The Company provides services, and the materials it uses in its business
may be obtained from numerous suppliers.
FORWARD-LOOKING STATEMENTS
Information set forth in this Prospectus regarding the Company's plans for
future operations constitutes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Any forward-looking statements
should be considered in light of the factors set forth in the "Risk Factors"
section of this Prospectus.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company are as follows:
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
Michael Strauss 55 Chairman, President, Chief Executive Officer,
Chief Operating Officer and Director
Robert Wong 56 Vice Chairman, Chief Technology Officer, Acting
Chief Financial Officer, Acting Treasurer, Acting
Secretary and Director
Norman B. Wright 61 Vice Chairman, President and Chief Executive
Officer, HumanCAD(R) Systems and Director
Julian H. Cherubini 61 Director
Joel L. Gold 56 Director
Sandra Meyer 60 Director
Glenn F. Santmire 54 Director
Michael Strauss became the Company's President and Chief Operating Officer
effective January 2, 1995 and its Chairman of the Board and Chief Executive
Officer on February 16, 1995. From 1991 to December 31, 1994, Mr. Strauss was
President and Chief Operating Officer of Colorado Prime Corp., a home food
service company providing home delivery of high quality, custom designed food
programs to retail customers. From 1984 to 1991, he was Chairman and Chief
Executive Officer of Capital Credit Corporation, a subsidiary of Union
Corporation, a New York Stock Exchange Company. Capital Credit Corporation
provides receivables management and consumer debt collection services to
corporations in the financial
34
<PAGE>
services, telecommunications, health care and related businesses. Prior to his
tenure at Union Corporation, Mr. Strauss was employed by American Express
Company in various senior management positions including Executive Vice
President of the Financial Services Division of Shearson Lehman Brothers,
Executive Vice President of Travel Related Services, and President of American
Express Canada, Inc. Mr. Strauss has a BBA from the City University of New York
and an MBA from the Baruch School-City University of New York.
In February, 1995, Robert Wong was appointed Vice Chairman of the Board and
Chief Technology Officer, after having become a director in February of 1994.
Since September, 1996, Mr. Wong is also serving as Acting Chief Financial
Officer, Acting Secretary and Acting Treasurer. Previously, from February 1994
through February 1995, Mr. Wong worked as a representative for the Prudential
Insurance Company, and was a private investor from 1989 to February 1995. Over
the previous 27 years, Mr. Wong was founder and president of several technology
companies and president of several subsidiaries of Coordinated Apparel, Inc. Mr.
Wong has a Bachelor of Science in Electrical Engineering and also a Bachelor of
Science in Industrial Management from Massachusetts Institute of Technology.
In April,1997, Norman B. Wright was appointed President and Chief Executive
Officer of the Company's HumanCAD(R) Systems Division and Vice-Chairman of the
Company's Board of Directors. Previously, Mr. Wright was President and Chief
Executive Officer of Virtek Vision International, Inc., a Canadian-based,
multi-national laser-projection machine intelligence and pattern analysis
systems designer and manufacturer. Prior to that he had been in senior
management and had launched and guided a number of public technology companies
through their successful development.
Julian H. Cherubini was elected a director in June 1995 and is the
President and Chief Executive Officer of AliMed, Inc., a company that
manufactures and distributes a broad range of products for orthopedic
rehabilitation, diagnostic imaging, operating rooms, occupational medicine and
ergonomics. Mr. Cherubini founded AliMed, Inc. in 1970 and has served as its
President and Chief Executive Officer since its inception. Mr. Cherubini holds a
BS Degree in Metallurgy from the Massachusetts Institute of Technology and a
Masters Degree in Materials and Radiochemistry from the University of Texas at
Oak Ridge.
Joel L. Gold was elected a Director in February 1994. In April 1996, Mr.
Gold became Executive Vice President of L.T. Lawrence Co., an investment banking
firm. From April 1995 to April 1996, Mr. Gold was a managing director and head
of investment banking at Fechtor & Detwiler. From 1993 to 1995, Mr. Gold was a
managing director at Furman Selz Incorporated, an investment banking firm. Prior
to joining Furman Selz, from 1991 to 1993, he was a managing director at Bear
Stearns & Co., an investment banking firm. Previously, Mr. Gold was a managing
director at Drexel Burnham Lambert for nineteen years. He is currently a member
of the Board of Directors of MSA Realty Corp., Action Industries, Inc., Concord
Camera, William Greenberg, Jr. Desserts and Cakes, Inc., Sterling Vision, Inc.
and Life Medical Sciences. Mr. Gold has a law degree from New York University
and an MBA from Columbia Business School.
Glenn F. Santmire was appointed a director in October 1995. Since 1995 he
has been employed by Unisys Corporation as Group Vice President of the Worldwide
Finance-Market Sector Group. From 1994 to 1995 he was President of GFS
Associates, Inc., a consulting firm which he founded. From 1992 to 1994 Mr.
Santmire was a Senior Vice President at Mastercard International and from 1990
to 1992 he was President of Enhanced Telephone Services, Inc., a subsidiary of
Citibank. Mr. Santmire possesses both a BA and an MBA degree from New York
University as well as a law degree from George Washington University School of
Law.
Sandra Meyer was appointed a director in July of 1997. Ms. Meyer is the
Senior Partner at Clark & Weinstock, a management consulting firm providing
strategic advisory service to corporations and institutions. She is retired from
Citicorp where she served as a senior corporate officer, Corporate Affairs.
Prior to joining Citicorp, she served in increasingly senior marketing and
general management positions at American Express and General Foods (now part of
Kraft).
35
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
------------------- -------------------
Bonus Other Annual Options (#) All Other
Name and Principal Position Year Salary ($) ($) Compensation ($) Compensation ($)
- ------------------- ---- --- --- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Michael Strauss (1) 1996 $200,000 - $8,280 - -
Chairman, President, Chief 1995 $200,000 - $7,743 1,000,000 -
Executive Officer and Chief 1994 - - - - -
Operating Officer
Robert Wong (2) 1996 $102,000 - $6,000 - -
Vice Chairman, 1995 $ 87,000 - $2,000 492,500 -
Chief Technology Officer, 1994 - - - 7,500 -
Acting Chief Financial
Officer, Acting Secretary,
and Acting Treasurer
</TABLE>
(1) Mr. Strauss became employed by the Company as its President and Chief
Operating Officer on January 2, 1995 at an annual salary of $200,000. He
subsequently became Chairman and Chief Executive Officer with no additional
compensation on February 16, 1995.
(2) Mr. Wong was elected a Director in February 1994. He became employed by the
Company as its Chief Technology Officer, and was appointed Vice Chairman,
on February 16, 1995 at an annual salary of $102,000. Since September,
1996, he is also serving as Acting Chief Financial Officer, Acting
Secretary and Acting Treasurer with no additional compensation.
36
<PAGE>
OPTION GRANTS IN FISCAL YEAR 1994 AND 1995 (9)
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING OPTIONS EMPLOYEES IN FISCAL EXERCISE OF BASE
NAME GRANTED (#) YEAR 1995(9) PRICE ($/SH) EXPIRATION DATe
<S> <C> <C> <C> <C> <C>
Michael Strauss 300,000 (1) 15.94% $1.0313 1/03/05
Chairman, President 200,000 (2) 10.63 0.9219 2/16/05
& Chief Executive Officer 500,000 (3) 26.57 1.0469 7/03/05
Robert P. Wong 7,500 (4) N/A 1.6800 7/21/04
Vice Chairman, Chief 25,000 (5) 1.33 0.9219 2/16/05
Technology Officer, 175,000 (6) 9.30 0.9219 2/16/05
Acting Chief Financial 25,000 (7) 1.33 1.0313 6/22/05
Officer, Acting 267,500 (8) 14.22 1.0469 7/3/05
Secretary and Acting
Treasurer
</TABLE>
- ----------
(1) Options vested are as follows: 100,000 shares on January 3, 1996;
100,000 shares on January 3, 1997; 50,000 shares on January 3, 1998;
and 50,000 shares on January 3, 1999.
(2) Options vested are as follows: 50,000 shares on February 16, 1996;
50,000 shares on February 16, 1997; 50,000 shares on February 16,
1998; and 50,000 shares on February 16, 1999.
(3) Options vested are as follows: 125,000 shares on July 3, 1996;
125,000 shares on July 3, 1997; 125,000 shares on July 3, 1998; and
125,000 shares on July 3, 1999.
(4) Options vested are as follows: 7,500 shares on July 21, 1994.
(5) Options vested are as follows: 10,000 shares on August 16, 1995;
7,500 shares on February 16, 1996; and 7,500 shares on February 16,
1997.
(6) Options vested are as follows: 43,750 shares on February 16, 1996;
43,750 shares on February 16, 1997; 43,750 shares on February 16,
1998 and 43,750 shares on February 16, 1999.
(7) Options vested are as follows: 10,000 shares on December 22, 1995;
7,500 shares on June 22, 1996; and 7,500 shares on June 22, 1997.
(8) Options vested are as follows: 66,875 shares on July 3, 1996; 66,875
shares on July 3, 1997; 66,875 shares on July 3, 1998; and 66,875
shares on July 3, 1999.
(9) There were no options or stock appreciation rights granted or
exercised or long term incentive plan payments during the year
ending December 31, 1996 to the persons set forth in the Summary
Compensation Table. See "Security Ownership of Certain Beneficial
Owners and Management" for disclosure of Options granted in 1997.
37
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND CURRENT OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
AGGREGATED OPTION OPTIONS AT AUGUST 15, IN-THE-MONEY OPTIONS AT
EXERCISES IN 1996 1997* (#) AUGUST 15, 1997* (9)
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
($)
<S> <C> <C> <C> <C>
Michael Strauss ____ ____ 550,000/450,000 -0- / -0-
Chairman, President &
Chief Executive Officer*
Robert P. Wong ____ ____ 278,750/221,250 -0- / -0-
Vice Chairman , Chief
Technology Officer,
Acting Chief Financial
Officer, Acting
Secretary and Acting
Treasurer*
</TABLE>
* Does not include options granted subject to shareholder approval.
There were no options or stock appreciation rights granted or exercised or
long term incentive plan payments during the year ending December 31, 1996 to
the persons set forth in the Summary Compensation Table. . See "Security
Ownership of Certain Beneficial Owners and Management" for disclosure of Options
granted in 1997.
MICHAEL STRAUSS
Mr. Michael Strauss became the President and Chief Operating Officer of the
Company effective January 2, 1995 pursuant to an employment agreement dated
October 13, 1994 and amended on February 16, 1995. On February 16, 1995 Mr.
Strauss became Chief Executive Officer and Chairman of the Board of Directors.
Pursuant to a revised employment agreement effective January 1, 1997, and
expiring December 31, 1999, unless renewed, Mr. Strauss receives a base salary
at a rate of $225,000 per year. Mr. Strauss is also entitled to participate in
the Company's benefit plans and to receive an allowance for the cost of an
automobile. The employment agreement terminates upon death or long-term or
permanent disability of Mr. Strauss. The Company may terminate Mr. Strauss'
employment for "Cause" which is defined as (i) being convicted of a felony, (ii)
a material breach of or failure to perform under the employment agreement, or
(iii) intentional dishonesty in the performance of his duties under the
employment agreement. The Company may also terminate Mr. Strauss without cause
on one hundred and eighty days prior written notice. Upon termination without
cause, Mr. Strauss receives all salary and other compensation to date of
termination, plus severance. Upon termination on death or disability, Mr.
Strauss receives all salary and other compensation to date of termination. Upon
termination for "Cause", Mr. Strauss receives all salary and other compensation
except any earned but unpaid bonus. The employment agreement contains a covenant
by which Mr. Strauss agreed not to disclose any of the Company's confidential
information, nor use any of its property at any time, except as required in the
conduct of his duties. Mr. Strauss further agreed to assign to the Company all
inventions and works of authorship made, discovered, or conceived by Mr. Strauss
during the term of employment and agrees to assist the Company in perfecting its
rights to such property. In addition, Mr. Strauss has agreed not to compete with
the Company for a period of 6 months from that date of termination, or such
shorter period as determined by the Company. The employment agreement also
prevents Mr. Strauss, during the time employed by the company, and for six(6)
months thereafter, from (i) soliciting business or engaging in business of the
type conducted by the Company from any person, firm or entity which was a
38
<PAGE>
customer of the Company at any time within two years preceding his termination
or a prospective customer, (ii) inducing any such customers to reduce their
business with the Company, (iii) soliciting or attempting to solicit any
employees of the Company to leave the employ of the Company, (iv) offering or
causing to be offered employment to any person who was employed by the Company
at any time during the two years prior to his termination of employment.
ROBERT P. WONG
Mr. Robert P. Wong became the Vice Chairman and Chief Technology Officer of
the Company effective February 16, 1995. Pursuant to an employment agreement
effective January 1, 1997, and expiring December 31, 1998, unless renewed, Mr.
Wong receives a base salary at a rate of $127,000 per annum. Mr. Wong is also
entitled to participate in the Company's benefit plans and to receive an
allowance for the cost of an automobile. The employment agreement terminates
upon death or long-term or permanent disability of Mr. Wong. The Company may
terminate Mr. Wong's employment for "Cause" which is defined as (i) being
convicted of a felony, (ii) a material breach of or failure to perform under the
employment agreement, or (iii) intentional dishonesty in the performance of his
duties under the employment agreement. The Company may also terminate Mr. Wong
without cause on one hundred and eighty days prior written notice. Upon
termination without cause, Mr. Wong receives all salary and other compensation
to date of termination, plus severance. Upon termination on death or disability,
Mr. Wong receives all salary and other compensation to date of termination. Upon
termination for "Cause", Mr. Wong receives all salary and other compensation
except any earned but unpaid bonus. The employment agreement contains a covenant
by which Mr. Wong agreed not to disclose any of the Company's confidential
information, nor use any of its property at any time, except as required in the
conduct of his duties. Mr. Wong further agreed to assign to the Company all
inventions and works of authorship made, discovered, or conceived by Mr. Wong
during the term of employment and agrees to assist the Company in perfecting its
rights to such property. In addition, Mr. Wong has agreed not to compete with
the Company for a period of 6 months from that date of termination, or such
shorter period as determined by the Company. The employment agreement also
prevents Mr. Wong, during the time employed by the Company and for six months
thereafter, from (i) soliciting business or engaging in business of the type
conducted by the Company from any person, firm or entity which was a customer of
the Company at any time within two years preceding his termination or a
prospective customer, (ii) inducing any such customers to reduce their business
with the Company, (iii) soliciting or attempting to solicit any employees of the
Company to leave the employ of the Company, (iv) offering or causing to be
offered employment to any person who was employed by the Company at any time
during the two years prior to his termination of employment.
STOCK OPTION PLANS
The Board of Directors and the Shareholders of the Company approved and
adopted the 1995 Stock Option Plan(the "1995 Plan"). Pursuant to the 1995 Plan,
the Company is permitted to issue ISOs and NQOs to employees, directors or
consultants of the Company (ISOs and NQOs are hereinafter collectively referred
to as "Options"). ISOs under the 1995 Plan are intended to qualify for the tax
treatment accorded under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). NQOs are intended to be Options which do not qualify for
the tax treatment accorded under Section 422 of the Code. The purpose of the
1995 Plan is to assist the Company in attracting and retaining the services of
competent employees, directors and consultants. The 1995 Plan replaces all prior
option plans and no further options will be granted under the prior option
plans.
Under the Code, generally, there will be no tax consequences from the grant
or exercise of an ISO under the 1995 Plan. An employee holding (i) an ISO at
least two years from the date of grant and (ii) the Common Stock issued on
exercise for at least one year after the exercise, will have long term capital
gain or loss income tax treatment for the gain or loss recognized on the sale of
the Common Stock. The difference between the fair market value of the Common
Stock at the time the ISO is exercised and the exercise price will be an "item
of adjustment" under Code Section 56(b)(3) for purposes of the Alternative
Minimum Tax under Code Section 55. If an employee disposes of the Common Stock
without meeting these holding period requirements, the employee will realize
ordinary income equal to the difference between the lesser of the fair market
value of the Common Stock on the date of exercise and the exercise price or the
amount realized over
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<PAGE>
the adjusted basis and capital gain treatment for any excess realized, and the
Company will be entitled to a corresponding income tax deduction, in an amount
equal to the ordinary income realized by the employee. When an employee is
entitled to capital gain treatment on the sale of the Common Stock, there is no
taxable event to the Company. The employee also must remain a Company employee
from the time the ISO was granted until three (3) months before the date of
actual exercise, except that disabled employee or a deceased employee's
representative may exercise an ISO twelve (12) months after termination of
employment.
Under the Code, generally, there will be no tax consequences from the grant
of a NQO under the 1995 Plan. An employee, director or consultant holding a NQO
shall be deemed to receive compensation upon exercise of the NQO in an amount
equal to the excess, if any, of the fair market value of the Common Stock issued
on exercise over the exercise price. The employee, director or consultant will
realize ordinary income, and the Company will be entitled to a corresponding
income tax deduction, in an amount equal to such excess. Such income constitutes
"wages" subject to the withholding requirements of the Code. The basis of the
Common Stock acquired pursuant to the NQO will be increased by the amount of
taxable income attributable to the exercise. All gain or loss on the sale of the
Common Stock will be capital gain or loss.
The foregoing is based upon the current Federal tax laws and regulations
and is not a complete description of the tax aspects of the 1995 Plan. In
addition, each optionee may be subject to state and local taxes.
All employees, directors and consultants of the Company, any subsidiary or
any parent of the Company are eligible to participate in the 1995 Plan.
Currently, three officers, three non-officer directors, and all other employees
are eligible to participate. The Board of Directors anticipates that the number
of eligible employees, directors and consultants may increase with the growth of
the Company.
The 1995 Plan is administered by the Board of Directors of the Company,
which to the extent it shall determine may delegate its powers with respect to
the administration of the 1995 Plan to a committee (the "Committee") consisting
of not less than three members, who shall be directors of the Company. To the
extent permitted under the express provisions of the 1995 Plan, the Board of
Directors shall have authority to determine which employees, directors or
consultants are eligible to receive Options, the number of shares covered by
each grant of an Option, and otherwise to interpret and administer the 1995
Plan. The Board of Directors may at any time terminate the 1995 Plan and may,
under certain circumstances, amend the 1995 Plan, provided that no amendment may
materially increase the maximum number of shares subject to the 1995 Plan,
materially increase the maximum benefits accruing under the 1995 Plan,
materially modify the requirements for eligibility, make any change requiring
shareholder approval under the Code or the 1934 Act, or change the terms of an
outstanding Option without the consent of the optionee.
Under the 1995 Plan, ISOs to purchase shares of the Company's Common Stock
shall not be granted with an exercise price less than 100 percent of the fair
market value of the Common Stock on the date the ISO is granted; provided,
however, than an employee that owns more than ten (10%) percent of the voting
power of all classes of the Company's Common Stock shall not be granted an ISO
with an exercise price of less than 110% percent of the fair market value of the
Common Stock on the date of the grant. The option price per share with respect
to each NQO granted under the 1995 Plan shall be determined by the Board of
Directors. The employee, director or consultant shall pay for the Common Stock
acquired on exercise of Options under the 1995 Plan by delivering a check
payable to the order of the Company, or cash, a promissory note, or shares of
Common Stock having a fair market value on the date of delivery equal to
aggregate exercise price for such number of Option shares and any income tax
withholding due. In no event shall the optionee have any right or status as a
shareholder prior to the issuance of the Option shares.
Options under the 1995 Plan shall have a term of not more than ten (10)
years; provided, however, that in no event shall any ISO granted to a person
then owning more than ten (10%) percent of the voting power of all classes of
the Company's Common Stock be exercisable more than five (5) years after the
date the Option is granted. Except for provisions requiring acceleration of
vesting, no Option shall vest or be first exercisable prior to six months from
the date of grant. Any Option granted to an employee under the 1995 Plan shall
terminate three (3) months after termination of employment, except as may be
extended by the Board. Any Option granted to a consultant or non-employee
director shall terminate twelve (12) months after he ceases to
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<PAGE>
be a consultant or non-employee director, except as may be extended by the
Board. Any Option granted under the 1995 Plan shall terminate (i) on the earlier
of the expiration of the Option or twelve (12) months after the date on which
the optionee ceases to be an employee, a non-employee director, or a consultant
if such termination results from the optionee's permanent and total disability;
and (ii) on the earlier of the expiration of the Option or twelve (12) months
after the optionee's death, if the optionee was an employee, non-employee
director or consultant at death, during which period the optionee's executors or
administrators may exercise any Option not exercised by the optionee during his
lifetime. If the optionee's death occurs within three (3) months after
termination as an employee, a non-employee director or a consultant, the Option
may be exercised until the earlier of twelve (12) months following the date of
the optionee's death or the expiration of the Option. The aggregate fair market
value, determined at the time the ISO is granted, of the Common Stock with
respect to which ISOs are exercisable for the first time by an employee in any
calendar year under the 1995 Plan may not exceed $100,000. Subject to the
foregoing and to the specific limitations set out in the 1995 Plan, any Option
granted pursuant to the 1995 Plan shall contain provisions established by the
Board of Directors setting forth the manner of exercise of such Option.
Pursuant to the terms of the 1995 Plan, the number of shares covered by an
Option and the Option price per share (as well as the maximum number of shares
as to which Options may be granted to any one individual) are subject to
adjustment for stock dividends, stock splits, mergers, consolidations, and other
similar events. Otherwise, the maximum number of shares that can be issued under
the 1995 Plan is 2,000,000.
In the event of a change of control, all Options become fully vested.
Change of control is deemed to occur when (i) any group becomes the owner of at
least 20% of the total voting power of all classes of capital stock of the
Company entitled to vote in an election, (ii) the current directors shall cease
to constitute a majority of the board, (iii) the shareholders approve a certain
plan of liquidation or merger or consolidation of the Company where the
Company's current shareholders do not hold at least a majority of common stock
of the surviving corporation or the Board of Directors immediately prior to the
merger or consolidation would not constitute a majority of the Board of
Directors of the surviving corporation, or the shareholders approve an agreement
providing for the sale or other disposition of substantially all of the
Company's assets.
Unless sooner terminated in accordance with its terms, the 1995 Plan will
expire on the date ten (10) years after the date of its adoption by the Board of
Directors and no Option may be granted after that date.
In 1989, the directors of the Company adopted and the stockholders of the
Company approved the adoption of the 1989 Stock Option Plan(the "1989 Plan"). In
1992, the Board of Directors adopted and the stockholders approved the adoption
of an amendment to the Plan to (a) increase the total number of shares with
respect to which options may be granted by 500,000 to 1,565,957, (b) permit the
granting of NQOs at a price per share less than the fair market value of the
Company's Common Stock on the date of grant, (c) permit options to be exercised
up to two years after termination of employment under certain circumstances, and
(d) make certain other changes necessary to bring the 1989 Plan into compliance
with Rule 16b-3 under Section 16 of the 1934 Act ("Rule 16b-3"). The purpose of
the 1989 Plan was to enable the Company to attract and encourage key employees,
including officers and consultants, to contribute to the success of the Company
by granting such employees ISOs and/or NQOs and by granting NQOs to such
consultants. The 1989 Plan provides for the granting of options to purchase
shares of the Company's Common Stock at a price per share not less than the fair
market value on the date of grant, provided that NQOs may be granted at less
than the fair market value of the Common Stock on the date of grant. No option
may be outstanding for more than ten years after its grant.
The 1989 Plan has been administered by the Board of Directors or a
committee of not less than two or more directors appointed by the Board of
Directors (the "Committee"). Members of the Board who are not employees of the
Company are not eligible to participate in the 1989 Plan. The Board (or the
Committee) had determined, among other things, the recipients of grants, whether
a grant consisted of ISOs or NQOs or a combination thereof, and the number of
shares to be subject to such options.
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<PAGE>
Upon exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash or check or, if authorized by
the Board of Directors, by promissory note or in shares of the Company's Common
Stock, or in a combination of the above. Generally, options may be exercised
while the recipient is an employee of the Company and within 3 months after
termination of employment. In the event of a termination of employment due to
the death or permanent disability of an employee, options may be exercised up to
twelve months following the date of termination (but in no event after the
scheduled expiration date of the option).
The 1989 Plan was replaced by the 1995 Plan.
Pursuant to the 1995 Plan, the Board of Directors has granted options to
acquire an aggregate of 1,760,500 shares of Common Stock of the Company (net of
cancellations). The Board of Directors intends such options to be ISOs to the
extent such is allowable under the Code. Any such options granted as ISOs which
exceed such limitation shall be characterized as NQOs. The Board of Directors
has also granted NQOs to acquire an aggregate of 165,000 shares of Common Stock
(net of cancellations) pursuant to the 1995 Plan to various officers and
directors and consultants.
Pursuant to the 1989 Plan, the Board of Directors granted ISOs to acquire
32,000 shares of Common Stock of the Company (net of cancellations). In
addition, the Board of Directors granted NQOs to acquire an aggregate of 400,000
shares of Common Stock of the Company (net of cancellations) to a consultant.
The Board of Directors had also granted NQOs to acquire an aggregate of 100,000
shares of Common Stock (net of cancellations) pursuant to the Non-Statutory Plan
to various officers and directors.
All outstanding options are exercisable at prices ranging from $0.922 to
$3.219 per share. The exercise prices of all outstanding options were determined
by the Board to be not less than the fair market value of the Common Stock as of
the date of grant. The options all expire not more than ten years after the date
of grant and by their terms become void if any of the recipients violate any
restrictive covenant or confidentiality agreement executed by them with respect
to the Company.
DIRECTOR COMPENSATION
Formerly, Directors received no cash compensation for their services as
directors, but were reimbursed for expenses actually incurred by them with
respect to attendance at Board of Directors meetings. However, effective July 1,
1995, non-employee Directors received a $5,000 retainer per year (paid on a
quarterly basis) and $500 for every meeting attended and $500 for committee
meetings fees if held separately from board meetings. There are no fees for
telephonic committee or board meetings. Prior to July 1, 1995, the Company had
compensated non-employee directors solely through the issuance of NQOs pursuant
to the Non-Statutory Plan, which has expired. As of December 1, 1996, options to
purchase 100,000 shares of Common Stock under the Non-Statutory Plan remain
outstanding. Non-employee directors have been issued NQO's under the 1995 Plan.
In addition, the Board has granted options to Messers, Gold, Cherubini, Santmire
and Ms. Meyer for each to purchase 50,000 shares, granting of which is subject
to shareholder approval. Accordingly, the Board has issued NQOs (exercisable
during a ten-year term which options vest over a two-year period) to each of
Messrs. Gold, Wong, Cohen, Cherubini and Santmire to purchase an aggregate of
192,500 shares of Common Stock at exercise prices ranging from $.922 to $1.680
per share, which was determined by the Board to be not less than the fair market
value thereof on the date of grant.
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<PAGE>
PRINCIPAL STOCKHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of August 15, 1997, based on
information obtained from the records of the Company with respect to the
beneficial ownership of shares of Common Stock of the Company by (i) each person
known by the Company to be owners of more than five percent of the outstanding
shares of Common Stock, (ii) each director and nominee and certain executive
officers, and (iii) all officers and directors as a group.
Common Stock
------------
<TABLE>
<CAPTION>
Amount and Nature Percentage of Common
Name and Address of Beneficial Owner of Beneficial Ownership(2) Stock Owned
- ------------------------------------ -------------------------- -----------
<S> <C> <C>
Kirr, Marbach & Co LLC
621 Washington Street, Columbus, IN 47201 2,042,500(3) 12.8%
Michael Strauss(1) 883,333(4) 5.5%
Robert P. Wong(1) 528,750(5) 3.3%
Norman B. Wright(1) 250,000(6) 1.6%
Joel L. Gold(1) 157,500(7) 1.0%
Julian H. Cherubini(1) 75,000(8) *
Glenn F. Santmire(1) 67,500(9) *
Sandra Meyer(1) 50,000(10) *
All officers and directors as a group (7 persons) 2,012,083 12.6%
</TABLE>
- ----------
(1) All addresses are c/o BCAM International, Inc., 1800 Walt Whitman Road,
Melville, New York 11747.
(2) The Company believes that all persons named in the table have sole voting
and investment power with respect to all shares of Common Stock
beneficially owned by them.
(3) Includes warrants to purchase 700,000 shares of Common Stock exercisable
within 60 days of the date hereof.
(4) Includes options to purchase 550,000 shares of Common Stock exercisable
within 60 days of the date hereof, plus 333,333 shares of Common Stock
which will be exercisable at $0.75 per share within 60 days subject to
shareholder approval. Does not include options to purchase 450,000 shares
of Common Stock not exercisable within 60 days of the date hereof, and
options to purchase 666,667 shares of Common Stock at $.75/share not
exercisable within 60 days subject to shareholder approval.
(5) Includes options to purchase 278,750 shares of Common Stock exercisable
within 60 days of the date hereof, plus 250,000 shares of Common Stock
which will be exercisable at $0.75 per share within 60 days subject to
shareholder approval. Does not include options to purchase 221,250 shares
of Common Stock not exercisable within 60 days of the date hereof, and
options to purchase 250,000 shares of Common Stock at $.75 per/share not
exercisable within 60 days subject to shareholder approval.
(6) Includes options to purchase 250,000 shares of Common Stock which will be
exercisable at $0.75 per share within 60 days subject to shareholder
approval. Does not include options to purchase 250,000 shares of Common
Stock at $.75/per share not exercisable within 60 days of the date hereof
subject to shareholder approval.
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<PAGE>
(7) Includes options to purchase 57,500 shares of Common Stock exercisable
within 60 days of the date hereof, plus 50,000 shares of Common Stock which
will be exercisable at $0.75 per share within 60 days subject to
shareholder approval.
(8) Includes options to purchase 25,000 shares of Common Stock exercisable
within 60 days of the date hereof, plus 50,000 shares of Common Stock which
will be exercisable at $0.75 per share within 60 days subject to
shareholder approval.
(9) Includes options to purchase 17,500 shares of Common Stock exercisable
within 60 days of the date hereof, plus 50,000 shares of Common Stock which
will be exercisable at $0.75 per share within 60 days subject to
shareholder approval. Does not include options to purchase 7,500 shares of
Common Stock not exercisable within 60 days of the date hereof.
(10) Includes options to purchase 50,000 shares of Common Stock which will be
exercisable at $0.75 per share within 60 days subject to shareholder
approval.
* less than 1%
DESCRIPTION OF SECURITIES
COMMON STOCK
In June 1995, the Company authorized an increase in its authorized Common
Stock from 20,000,000 shares, $.01 par value per share, to 40,000,000 shares,
$.01 par value per share, of which 15,954,733 shares of Common Stock are issued
and outstanding as of June 30, 1997, including 1,075,000 shares of common stock
not yet registered. The holders of outstanding shares of Common Stock are
entitled to receive dividends out of assets legally available theretofore and in
such amounts as the Board of Directors may from time to time determine. See
"Dividend Policy." Each stockholder is entitled to one vote per share of Common
Stock held by him. Under the Company's Restated Certificate of Incorporation the
Common Stock is not subject to redemption. See "Certain
Transactions-Redemption." Upon liquidation, dissolution or winding up of the
Company and following provision for the liquidation preference of all
outstanding preferred stock, the assets legally available for distribution to
the holders of Common Stock are distributable ratably among the holders of the
outstanding Common Stock. All outstanding shares of Common Stock are, and the
shares of Common Stock issuable upon exercise of the Warrants will upon
issuance, be fully paid and non-assessable. In September 1989, the Company
authorized and adopted a Restated Certificate of Incorporation which provided
that the Company's Common Stock is not entitled to any preemptive rights. The
Company has received from each of its Pre-IPO Stockholders waivers of any
preemptive rights such stockholders may have been entitled to with respect to
prior issuances of securities by the Company.
WARRANTS
The following warrants are issued and outstanding:
<TABLE>
<CAPTION>
Number of
Shares Obtained
Number of Exercise Price Upon Exercise
Warrants (per share, as of Each Expiration
Warrants Outstanding adjusted) Warrant Dates
-------- ----------- --------- ------- -----
<S> <C> <C> <C> <C>
Redeemable Class B 807,659 $1.50 1.2 1/18/98
Redeemable Class E 491,588 $1.25 1.1 1/18/98
Non-Redeemable Class AA 1,075,000 $ .65 1.0 3/31/98
Non-Redeemable Class BB 50,000 $1.03125 1.0 7/22/02
</TABLE>
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<PAGE>
REDEEMABLE CLASS B AND REDEEMABLE CLASS E WARRANTS.
The Redeemable Class B and E Warrants have been issued pursuant to a
warrant agreement, dated January 17, 1990 (as amended, the "Warrant Agreement"),
among the Company, the Underwriter and North American Transfer Co., as assignee
from American Stock Transfer & Trust Company, warrant agent (the "Warrant
Agent"), and are evidenced by warrant certificates in registered form.
WARRANT AMENDMENTS
On December 20, 1996, the Company extended the expiration date of the
Company's Redeemable Class B Warrants and Redeemable Class E Warrants to January
17, 1998 and amended the exercise price of the Redeemable Class B Warrants to
$1.50/share .
As provided initially in the Warrant Agreement, each Redeemable Class B
Warrant entitled the holder thereof to purchase one share of Common Stock at
exercise prices, ranging from $3.33 to $4.67 per share, subject to adjustment,
at any time commencing upon issuance of the Redeemable Class B Warrants until
the close of business on the expiration date (originally January 17, 1998),
unless previously redeemed. The Redeemable Class B Warrants are subject to
redemption by the Company at any time on not less than 30 days' prior written
notice, at $.03 per Warrant, if (i) the average closing bid price of the Common
Stock exceeds the applicable average closing bid price for any period of 30
consecutive business days ending within 15 days prior to the date of the notice
of redemption and (ii) the Company has in effect a current prospectus covering
the Common Stock issuable upon exercise of the Class B Warrants.
The exercise price of the Redeemable Class B and E Warrants and the number
and kind of shares of Common Stock or other securities and property to be
obtained upon the exercise of those Warrants are subject to adjustment in
certain circumstances, including a stock split of, or stock dividend on, or a
subdivision, combination or recapitalization of, the Common Stock or sale of
Common Stock at less than the market price of the Common Stock, provided that no
adjustment shall be made unless and until the adjustment, or the aggregate of
successive adjustments, would exceed $.25 per share. Additionally, an adjustment
would be made upon the sale of all or substantially all of the assets of the
Company so as to enable those Warrant holders to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable in
such event by a holder of the number of shares of Common Stock that might
otherwise have been purchased upon exercise of such Warrant. No adjustment for
previously paid cash dividends, if any, will be made upon exercise of those
Warrants.
After giving effect to the foregoing provisions, the exercise prices for
the Redeemable Class E and Redeemable Class B Warrants, have been adjusted to
the prices set forth in the table below, and the number of shares to be obtained
upon the exercise of the Class B Warrants has been increased from one share to
one and two-tenths (1.2) shares; provided, that, the application of the
foregoing provisions for adjustment upon the issuance of Redeemable Class E
Warrants has not resulted in a further adjustment in the exercise prices of the
Redeemable Class B Warrants because the amount of the adjustment has not
exceeded $.25 per share.
The current exercise prices for the Redeemable Class B Warrants are as
follows:
EXERCISE PRICE
WARRANTS AND PERIOD (PER SHARE, AS ADJUSTED)
Redeemable Class B $1.50
Redeemable Class E $1.25
The Warrants do not confer upon the holder any voting or any other rights
of a stockholder of the Company. Upon notice to the Warrant holders, the Company
has the right to reduce the exercise price or extend the expiration date of the
Warrants.
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<PAGE>
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the respective expiration date (or earlier redemption date) of such
Warrants at the offices of the Warrant Agent, with the form of "Election to
Purchase" on the reverse side of the Warrant certificate duly completed and
executed, accompanied by payment of the full exercise price (by certified check
payable to the order of the Warrant Agent) for the number of Warrants being
exercised.
The terms of the Redeemable Class E Warrants are identical to those of the
Redeemable Class B Warrants, excluding the adjusted exercise prices set forth
above and the adjusted conversion ratio, provided that, pursuant to the terms of
the Company's Discounted Warrant Plan, each Redeemable Class E Warrant entitles
the registered holder thereof to purchase one and one-tenth (1.1) shares of
Common Stock at $1.25 per share, subject to adjustment, at any time prior to its
expiration on January 17, 1998.
NON-REDEEMABLE CLASS AA WARRANTS
1,075,000 Non-redeemable Class AA Warrants were issued in 1997 in
connection with a private placement offering for $1,075,000. 1,075,000 shares of
the Company's Common Stock are issuable upon the exercise of the 1,075,000
Warrants at an exercise price of $.65 per share. The Non-RedeemableClass AA
Warrants are exercisable until March 31, 2002. One Warrant is convertible into
one share of the Company's Common Stock. As of the date of this filing, the
Common Stock Shares issuable upon conversion of the Warrants had not been
registered.
The terms of the Non-Redeemable Class AA Warrants are identical to those of
the Redeemable Class B Warrants, excluding the exercise prices set forth above
and the conversion ratio, provided that, pursuant to the terms of the private
placement offering, each Non-Redeemable Class AA Warrant entitles the registered
holder thereof to purchase one share of Common Stock at $.65 per share, subject
to adjustment, at any time prior to its expiration on March 31, 2002.
NON-REDEEMABLE CLASS BB WARRANTS
50,000 Non-Redeemable Class BB Warrants were issued on July 22, 1997 in
connection with the first tranche of a potential financing of $1,500,000. In
addition, the Company expects to exercise its option to utilize the second
tranche of $500,000 by September 8, 1997, resulting in the issuance of an
additional 50,000 Non-Redeemable Class BB Warrants. Should the Company choose to
exercise its option to utilize the third tranche of $500,000, the Company will
be obligated to issue an additional 50,000 Non-Redeemable Class BB Warrants. The
150,000 aggregate potential outstanding Warrants are exercisable at $1.03125 per
share. One Warrant is convertible into one share of the Company's Common Stock.
The Non-Redeemable Class BB Warrants are exercisable until July 22, 2002. As of
the date of this filing, no Common Stock Shares had been registered in
connection with the Non-Redeemable Class BB Warrants.
The terms of the Non-Redeemable Class BB Warrants are identical to those of
the Redeemable Class B Warrants, excluding the exercise prices set forth above
and the conversion ratio, provided that, pursuant to the terms of the private
placement offering, each Non-Redeemable Class BB Warrant entitles the registered
holder thereof to purchase one share of Common Stock at $1.03125 per share,
subject to adjustment, at any time prior to its expiration on July 22, 2002.
ACQUISITION PREFERRED STOCK
The Company is authorized to issue 750,000 shares of its Acquisition
Preferred Stock, $.01 par value, none of which are presently issued and
outstanding. The Acquisition Preferred Stock is only permitted to be issued as
consideration pursuant to (i) a statutory merger or consolidation as to which
the Company is the surviving entity, (ii) the acquisition by the Company of
substantially all the assets or business of another entity or (iii) the
acquisition by the Company of 50% or more of the voting securities of another
entity. The Acquisition Preferred Stock is issuable from time to time in one or
more series. The Board of Directors is authorized to fix, before issuance, (i)
the voting powers, if any, and (ii) the designations, preferences and any other
rights, qualifications, limitations and restrictions applicable to each series
of Acquisition Preferred Stock, including, without limitation, dividend rates
and conditions, dividend preferences, conversion and redemption rights and
liquidation preferences. The Board of Directors may without approval of the
holders of the Common Stock issue the Acquisition Preferred Stock with voting
and conversion rights which may adversely affect the rights, including voting
rights, of the holders of the Common Stock.
46
<PAGE>
8% PREFERRED STOCK
The Company is authorized to issue 15,000 shares of its 8% Preferred Stock,
$10.00 par value, none of which are issued and outstanding. Holders of 8%
Preferred Stock do not have any voting rights.
Holders of shares of 8% Preferred Stock are entitled to cumulative cash
dividends at an annual rate of $.80 per share, payable quarterly, as and when
declared by the Board of Directors, before any dividend may be paid or declared
on the Common Stock. The Company may at any time, and within five years after
issuance must, redeem the 8% Preferred Stock, at $10.00 per share, together with
accrued and unpaid dividends, if any. In the event of the liquidation or winding
up of the Company, holders of the 8% Preferred Stock will be entitled to receive
$10.00 per share, together with all accrued and unpaid dividends, before any
amounts may be paid in respect of the Company's Common Stock.
PREFERRED STOCK OF BCA SERVICES
On July 22, 1997, the Company commenced an offering of 150 shares of
Redeemable Convertible Preferred Stock in BCA Services Inc. (a subsidiary of
BCAM International, Inc.), the proceeds of which were to be used for working
capital purposes. The first tranche was in the amount of $500,000 and 50
Redeemable Convertible Preferred Stock Shares were issued. The second tranche,
expected to be drawn down by September 8, 1997, will also be in the amount of
$500,000 and an additional 50 Redeemable Convertible Preferred Stock Shares will
be issued. A third tranche is available to the Company to be drawn down up to
sixty (60) days after the Company's registration statement is declared
effective. Each share of BCA Services Inc. Preferred Stock entitles the holder
to convert to a number of common shares of BCAM International Inc. at any time
during a one year period following the closing date and is convertible into BCAM
International, Inc. Common Stock at 70% of the average closing bid price of BCAM
common stock over the three day trading period ending on the day preceding the
conversion date. The conversion price may in no event be greater than
$.9375("maximum price"). As of the date of this filing, none of the 6,000,000
shares of Common Stock which are expected to be registered in conjunction with
the potential financing of $1,500,000 had been registered.
TRANSFER AGENT AND WARRANT AGENT
North American Transfer Co., Freeport, New York is the Company's transfer
and warrant agent.
BUSINESS COMBINATION PROVISIONS
New York law regulates "business combinations," a term covering a broad
range of transactions, between "resident domestic corporations" (as defined,
which term would include the Company) and an interested stockholder, which is
defined as any person beneficially owning, directly or indirectly, 20% or more
of the outstanding voting stock of the resident domestic corporation or any
affiliate or associate of such owner. However, if the interested stockholder has
owned at least 5% of such outstanding voting stock at all times from October 31,
1985 to the date at which he or it first attains 20% ownership (the "Stock
Acquisition Date"), the proposed business combination is exempt from this
statute. Under the statute, a resident domestic corporation may not engage in
any business combination with any interested stockholder unless (a) if the
business combination is to occur within five years of the date the stockholder
acquired 20% or more ownership, either the business combination or the stock
acquisition must have been previously approved by the board of directors, or (b)
the business combination is approved by a majority of outstanding voting shares
(not including those shares owned by the interested stockholder), which approval
may not be effectively given until approximately five years after the interested
stockholder's Stock Acquisition Date, or (c) the consideration paid to the
non-interested stockholders must meet certain stringent conditions imposed by
the statute. The restrictions imposed by the statute will not apply to a
corporation which amends its by-laws by the affirmative vote of a majority of
its outstanding voting stock (not including those shares held by the interested
stockholders) to "elect out" of the statute; provided that such amendment will
not be effective for 18 months after such vote and will not apply to any
business combination where the Stock Acquisition Date is on or prior to the date
of the amendment.
47
<PAGE>
At this time, the Company will not seek to "elect out" of the statute and,
therefore, the restrictions imposed by the statute will apply to the Company.
The Company does not presently anticipate participating in any business
combination or similar transaction covered by the "business combination" statute
in the foreseeable future and is not actively considering or discussing any such
transaction.
SHARES ELIGIBLE FOR FUTURE SALE
Upon issuance of all shares of Common Stock registered hereby, the Company
will have 18,339,671 shares of Common Stock outstanding all of which are freely
tradable, accept 1,075,000 shares of Common Stock which have not yet been
registered. The 18,339,671 shares include 969,191 shares of Common Stock
issuable upon exercise of Redeemable Class B Warrants, 540,747 shares of Common
Stock issuable upon exercise of Redeemable Class E Warrants, and 875,000 shares
of Common Stock issued in connection with Stock Options issued to Consultants.
With respect to an aggregate of 2,292,500 of Common Stock under Stock
Option plans that could be issued upon the exercise of options granted to
employees and certain consultants, such stock is also expected to be freely
tradable upon the exercise of the options, increasing total shares eligible for
future sales to 20,632,171. There can, however, be no assurance that such
options will be exercised on the dates on which such exercises and sales will
occur.
As of the date of this filing, the Company had 1,075,000 shares of Common
Stock issuable on the exercise of 1,075,000 Non-Redeemable Class AA Warrants and
1,075,000 shares of Common Stock issued, all of which had not yet been
registered, all of such Warrants and Shares issued in conjunction with a 1997
Private Placement Offering; 150,000 shares of Common Stock issuable, but not yet
registered, on the exercise of 150,000 Non-Redeemable Class BB Warrants; and
6,000,000 shares of Common Stock issuable, but not yet registered, on the
conversion of shares of Redeemable Convertible Preferred Stock in BCA Services
Inc. Such stock is expected to be freely tradable upon the exercise of the
options, and upon the conversion of the shares to the extent available under the
terms of the Formula, up to, and including 6,000,000 shares, increasing maximum
aggregate shares eligible for future sales to 27,857,171. There can, however, be
no assurance that such options will be exercised on the dates on which such
exercises and sales will occur.
PLAN OF DISTRIBUTION
The securities registered hereby and described in this prospectus may be
sold by the owner from time to time through dealers or brokers in transactions
on NASDAQ Over-The-Counter market (Small Cap) at prices then prevailing, or
directly to one or more purchasers in negotiated transactions at negotiated
prices, or in a combination thereof. The Company is not aware of any agreements
or arrangements on the part of any person concerning the sale of any of the
securities registered hereby. The Company, at the request of any person
intending to sell any of the securities registered hereby, will deliver copies
of this prospectus, at no cost or charge, to such persons.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Ruskin, Moscou, Evens & Faltischek, P.C., Mineola, New York.
48
<PAGE>
EXPERTS
The consolidated financial statements of BCAM International, Inc. at
December 31, 1996 and for each of the two years in the period then ended,
appearing in this Prospectus and Registration Statement, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and are included in reliance upon such report, given
upon the authority of such firm as experts in accounting and auditing.
49
<PAGE>
INDEX OF FINANCIAL STATEMENTS
BCAM International, Inc. Condensed Consolidated Balance Sheet--
June 30, 1997 (Unaudited).....................................................51
BCAM International, Inc. Condensed Consolidated Statements of Operations -
Six Months Ended June 30, 1997 and 1996 (Unaudited)...........................52
BCAM International, Inc. Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996 (Unaudited)..........................53
BCAM International, Inc. Notes to Condensed Consolidated Financial
Statements - June 30, 1997 (Unaudited)........................................54
Ernst & Young - Report of Independent Auditors................................56
BCAM International, Inc Condensed Consolidated Balance Sheet -
December 31, 1996.............................................................57
BCAM International, Inc Condensed Consolidated Statements of Operations -
Years Ended December 31, 1996 and 1995........................................58
BCAM International, Inc Condensed Statements of Common Shareholders'
Equity - Years Ended December 31, 1996 and 1995...............................59
BCAM International, Inc Condensed Consolidated Statements of Cash Flows -
Years Ended December 31, 1996 and 1995........................................60
BCAM International, Inc Notes to Condensed Consolidated Financial
Statements - December 31, 1996................................................61
Drew Shoe Corporation Condensed Consolidated Balance Sheet--
June 30, 1997 (Unaudited).....................................................73
Drew Shoe Corporation Condensed Consolidated Statements of Operations -
Six Months Ended June 30, 1997 and 1996 (Unaudited)...........................74
Drew Shoe Corporation Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996 (Unaudited)..........................75
Drew Shoe Corporation Condensed Consolidated Balance Sheet -
December 31, 1996(Unaudited)..................................................77
Drew Shoe Corporation Condensed Consolidated Statements of Operations -
Years Ended December 31, 1996 and 1995 (Unaudited)............................78
Drew Shoe Corporation Condensed Statements of Common Shareholders' Equity -
Years Ended December 31, 1996 and 1995 (Unaudited)............................79
Drew Shoe Corporation Condensed Consolidated Statements of Cash Flows -
Years Ended December 31, 1996 and 1995(Unaudited).............................80
Drew Shoe Corporation Notes to Condensed Consolidated Financial Statements -
December 31, 1996(Unaudited)..................................................81
50
<PAGE>
BCAM International, Inc.
Condensed Consolidated Balance Sheet (Unaudited)
June 30, 1997
<TABLE>
<CAPTION>
<S> <C>
Assets
Current assets:
Cash and cash equivalents 240,964
Accounts receivable, less allowance for doubtful accounts of $11,245 73,796
Inventory 26,158
Prepaid expenses and other current assets 719,725
------------
Total current assets 1,060,643
Property, plant, and equipment, at cost:
Furniture and fixtures 220,318
Equipment 586,421
Leasehold improvements 50,519
------------
857,258
Less accumulated depreciation and amortization (695,725)
------------
161,533
Other assets, principally patents and capitalized software
(net of accumulated amortization of $103,600) 337,190
------------
Total assets 1,559,366
============
Liabilities and shareholders' equity Current liabilities:
Accounts payable 203,715
Accrued expenses and other current liabilities 190,343
------------
Total current liabilities 394,058
Other liabilities 4,289
Commitments and contingencies -
Acquisition preferred stock, par value $.01 per share:
Authorized 750,000 shares, no shares issued or outstanding -
Common shareholders' equity:
Common stock, par value $.01 per share; authorized 40,000,000 shares,
16,717,915 shares issued and 15,954,733 shares outstanding 167,179
Paid-in surplus 16,002,908
Deficit (14,109,968)
------------
2,060,119
Less 763,182 treasury shares (899,100)
------------
1,161,019
------------
Total liabilities and shareholders' equity 1,559,366
============
</TABLE>
See accompanying notes
51
<PAGE>
BCAM International, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30 Six months ended June 30
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenue $ 215,861 $ 108,226 $ 287,232 $ 210,721
Costs and expenses:
Direct costs of revenue 71,178 4,543 150,349 49,288
Selling, general and administrative 618,091 567,659 1,027,026 1,075,315
Research, development and 22,368 19,333 30,477 46,560
engineering
------------ ------------ ------------ ------------
Total operating expenses 711,637 591,535 1,207,852 1,171,163
------------ ------------ ------------ ------------
Net loss from operations (495,776) (483,309) (920,620) (960,442)
Interest income, net 5,339 16,722 11,942 41,534
------------ ------------ ------------ ------------
Net loss $ (490,437) $ (466,587) $ (908,678) $ (918,908)
============ ============ ============ ============
Net loss per share $ (0.03) $ (0.03) $ (0.06) $ (0.06)
============ ============ ============ ============
Weighted average number of common
shares outstanding 15,954,733 14,859,211 15,682,634 14,858,222
============ ============ ============ ============
</TABLE>
See accompanying notes
52
<PAGE>
BCAM International, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Operating activities
Net loss $ (908,678) $ (918,908)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation 33,984 72,840
Amortization 12,837 --
Accrued interest on held to maturity securities -- 7,172
Changes in operating assets and liabilities:
Accounts receivable (51,259) (21,850)
Inventory (26,158) --
Prepaid expenses and other current assets (386,248) 116,210
Other assets (121,492) (77,821)
Accounts payable, accrued expenses and sundry liabilities 108,993 (139,033)
Other liabilities -- 4,707
----------- -----------
Net cash (used in) operating activities (1,338,021) (956,683)
----------- -----------
Investing activities
Loss from sale of equipment 3,331 --
Proceeds from sale of equipment 3,000 --
Purchase of equipment (8,060) --
Proceeds from sale of held to maturity securities -- 1,500,000
----------- -----------
Net cash (used in) provided by investing activities (1,729) 1,500,000
----------- -----------
Financing activities
Net proceeds from short-term debt -- 400,000
Net proceeds from sale of common stock 1,075,000 --
Net proceeds from exercise of options -- 18,440
Payment of stock registration and issuance costs (20,630) (59,219)
----------- -----------
Net cash provided by financing activities 1,054,370 359,221
----------- -----------
(Decrease) increase in cash and cash equivalents (285,380) 902,538
Cash and cash equivalents at beginning of period 526,344 701,686
=========== ===========
Cash and cash equivalents at end of period $ 240,964 $ 1,604,224
=========== ===========
</TABLE>
See accompanying notes
53
<PAGE>
BCAM International, Inc.
("the Company")
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 1997
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month and six-month period ended June 30, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-KSB for the year ended December 31, 1996.
2. Per Share Data
Net loss per share has been computed on the basis of the weighted average
number of common shares outstanding for each of the periods presented. Common
stock equivalents have been excluded since their effect is antidilutive.
3. Income Taxes
The Company accounts for income taxes in accordance with Financial
Accounting Standards Board ("FASB") Statement No. 109, "Accounting for Income
Taxes". The Company has not reflected a benefit for income taxes in the
accompanying Condensed Consolidated Statements of Operations for the three
months and six months ended June 30, 1997 and the three months and six months
ended June 30, 1996, since the future availability of net operating loss
carryforwards have been offset in full by valuation allowances in accordance
with FASB Statement No. 109.
4. Private Placement
On January 15, 1997, the Company offered a minimum of 400,000 units, each
consisting of one share of the Company's common stock and a non-redeemable Class
AA warrant which entitled the holder to purchase one share of the Company's
Common Stock at a price of $1.10 per share, until March 31, 1999. The proceeds
were to be used for the advancement of various technologies as well as for
working capital. The offering was completed on March 28, 1997, and the Company
sold 1,075,000 units for $1,075,000. On May 14, 1997 the Company changed the
conversion price of the Class AA warrants from $1.10 per share to $ .65 per
share and extended the expiration date from March 31, 1999 to March 31, 2002.
5. Stock Purchase Agreement
On March 19, 1997 the Company entered into an agreement with Drew Shoe
Corporation ("Drew") to purchase all of the common stock of Drew for
approximately $5,000,000. This commitment is contingent upon the Company
obtaining the necessary financing to fund the purchase. The Company does not
have any obligations under this agreement should management be unable to obtain
this financing.
54
<PAGE>
6. Subsequent Events
On July 24, 1997, the Company completed an offering of 150 shares of
Redeemable Convertible Preferred Stock in BCA Services Inc. (a wholly owned
subsidiary of BCAM International, Inc.), the proceeds of which were used for
working capital purposes. The first tranche was in the amount of $500,000 and 50
Redeemable Convertible Preferred Stock Shares were issued. Two additional
tranches of $500,000 each are available to the Company to draw down on, one up
to sixty(60) days after the Company's registration statement is declared
effective, and another one up to sixty(60) days after the second tranche is
drawn down.
On July 23, 1997, the Company reached an agreement with Drew to extend the
deadline for the closing of the Drew Shoe Acquisition, as outlined in the
Purchase Agreement, from March 28, 1997 to September 15, 1997, for $25,000 for
each of the two partners, with the total of $50,000 to be credited to the
purchase price at the closing.
The Company is in process of arranging the funding for the acquisition of
Drew and, in conjunction with this effort, the following has occurred:
On July 8, 1997 (modified on August 11, 1997), the Company received a
commitment from Coleman and Company to work to consummate a private placement
offer for a minimum of $3.5 Million and a maximum of $5.0 Million in Convertible
and Redeemable Acquisition Preferred Stock, the shares of which will be
convertible into shares of the Company's Common Stock. In conjunction with this
equity funding, the Company expects that a group, including its largest
shareholder, will purchase $1.0M of additional Preferred Stock, under
substantially the same terms and conditions as the Coleman offer, bringing the
total of the expected funding to between $4.5M to $6.0M. The proceeds are
expected to be used for the acquisition of Drew and other working capital needs.
On June 18, 1997, the Company received a commitment letter from Coast
Business Credit to provide up to $6.5M in asset-based financing under a
revolving line of credit to be secured by substantially all of the assets of
Drew and to be guaranteed by BCAM International. The proceeds are expected to be
used for the acquisition of Drew and for operating capital for Drew.
55
<PAGE>
Report of Independent Auditors
Shareholders and Board of Directors
BCAM International, Inc.
We have audited the accompanying consolidated balance sheet of BCAM
International, Inc., as of December 31, 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
two years in the period ended December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of BCAM
International, Inc. at December 31, 1996, and the consolidated results of their
operations and cash flows for each of the two years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Melville, New York
February 27, 1997, except for Note
10, as to which the date is March
28, 1997
56
<PAGE>
BCAM International, Inc.
Consolidated Balance Sheet
December 31, 1996
<TABLE>
<CAPTION>
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 526,344
Accounts receivable - trade, less allowance for doubtful accounts
of $11,245 22,537
Prepaid expenses and other current assets 333,477
------------
Total current assets 882,358
Property, plant and equipment, at cost:
Furniture and fixtures 220,318
Equipment 593,542
Leasehold improvements 50,519
------------
864,379
Less accumulated depreciation and amortization 670,591
------------
193,788
Other assets, principally patents (net of accumulated amortization
of $263,874) 228,535
------------
Total assets $ 1,304,681
============
Liabilities and shareholders' equity Current liabilities:
Accounts payable $ 118,501
Accrued expenses and sundry liabilities 166,564
------------
Total current liabilities 285,065
Other liabilities 4,289
Commitments and contingencies --
Acquisition preferred stock, par value $.01 per share--authorized 750,000
shares, no shares issued or outstanding --
Common shareholders' equity:
Common stock, par value $.01 per share--authorized 40,000,000 shares, 15,642,915
shares issued and 14,879,733 shares outstanding 156,429
Paid-in surplus 14,959,288
Deficit (13,201,290)
------------
1,914,427
Less 763,182 treasury shares (899,100)
------------
1,015,327
============
Total liabilities and shareholders' equity $ 1,304,681
============
</TABLE>
See accompanying notes.
57
<PAGE>
BCAM International, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
---------------------------
<S> <C> <C>
Net revenue $ 604,554 $ 752,077
Costs and expenses:
Direct costs of revenue 272,980 598,270
Selling, general and administrative 1,801,915 1,831,494
Research and development 97,854 185,819
---------------------------
2,172,749 2,615,583
---------------------------
Net loss from operations (1,568,195) (1,863,506)
Interest income, net of interest expense of $14,579 in 1996 54,055 174,026
---------------------------
Net loss $ (1,514,140) $ (1,689,480)
===========================
Net loss per share $ (0.10) $ (0.11)
===========================
Weighted average number of common shares and
common equivalent shares outstanding 14,868,128 14,818,055
===========================
</TABLE>
See accompanying notes.
58
<PAGE>
BCAM International, Inc.
Consolidated Statements of Common Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock
$.01 par value Shares held in
-------------------- Paid-in
Shares Amount surplus Deficit Subtotal Treasury Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 15,520,415 $155,204 $ 14,994,058 $ (9,997,670) $ 5,151,592 $(899,100) $ 4,252,492
Shares issued in connection with
conversion of BCA Services, Inc. stock 100,000 1,000 99,000 -- 100,000 -- 100,000
Registration and issuance costs -- -- (59,299) -- (59,299) -- (59,299)
Net loss -- -- -- (1,689,480) (1,689,480) -- (1,689,480)
----------------------------------------------------------------------------------------
Balance at December 31, 1995 15,620,415 156,204 15,033,759 (11,687,150) 3,502,813 (899,100) 2,603,713
Exercise of common stock warrants 22,500 225 20,520 -- 20,745 -- 20,745
Registration and issuance costs -- -- (94,991) -- (94,991) -- (94,991)
Net loss -- -- -- (1,514,140) (1,514,140) -- (1,514,140)
----------------------------------------------------------------------------------------
Balance at December 31, 1996 15,642,915 $156,429 $ 14,959,288 $(13,201,290) $ 1,914,427 $(899,100) $ 1,015,327
========================================================================================
</TABLE>
See accompanying notes.
59
<PAGE>
BCAM International, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
--------------------------
<S> <C> <C>
Operating activities
Net loss $(1,514,140) $(1,689,480)
Adjustments to reconcile net loss to net cash used in operating
activities:
Provision for doubtful accounts -- 34,726
Depreciation 86,220 103,479
Amortization 103,895 63,648
Interest accreted on held-to-maturity securities -- (114,370)
Changes in operating assets and liabilities:
Accounts receivable 113,458 (50,866)
Prepaid expenses and other current assets (99,892) (3,105)
Other assets (150,618) (49,492)
Accounts payable, accrued expenses and sundry liabilities (137,606) (277,998)
Other liabilities (3,554) (26,888)
--------------------------
Net cash used in operating activities (1,602,237) (2,010,346)
--------------------------
Investing activities
Purchases of property, plant and equipment (6,031) (5,188)
Proceeds from sale of equipment -- 1,200
Purchases of held-to-maturity securities -- (2,799,782)
Proceeds from sale of held-to-maturity securities 1,507,172 4,535,000
--------------------------
Net cash provided by investing activities 1,501,141 1,731,230
--------------------------
Financing activities
Proceeds from note payable 400,000 --
Repayment of note payable (400,000) --
Net proceeds from exercise of stock options 20,745 --
Payment of stock registration and issuance costs (94,991) (59,299)
--------------------------
Net cash used in financing activities (74,246) (59,299)
--------------------------
Decrease in cash and cash equivalents (175,342) (338,415)
Cash and cash equivalents at beginning of year 701,686 1,040,101
==========================
Cash and cash equivalents at end of year $ 526,344 $ 701,686
=========================
</TABLE>
See accompanying notes.
60
<PAGE>
BCAM International, Inc.
Notes to Consolidated Financial Statements
December 31, 1996
1. Description of Business and Principles of Consolidation
BCAM International, Inc. (the "Company") is a software technology company,
specializing in ergonomic (human factor) solutions for individuals, government,
and for major corporations. The Company commenced a restructuring in 1995 by
focusing on (i) accelerating the development and commercialization of the
Company's Intelligent Surface Technology ("IST"), (ii) continuing its
development of proprietary software, which consists of IST, MQPro(TM) (formerly
Mannequin(R)), the EARLY(R) process and Back-to-Work(TM) methodology, and (iii)
upgrading and marketing its proprietary software products, and marketing
Software Based Ergonomic Consulting Services. The Company also provides its
Traditional Ergonomic Consulting Services in Ergonomic Product Assessment and
Redesign and Ergonomic Workplace Assessment, with emphasis on broadening and
strengthening long-term business relationships such as joint ventures,
partnerships, licensees and other alliances.
The consolidated financial statements include the accounts of BCAM
International, Inc. and its subsidiaries, BCA Services, Inc., and BCAM
Technologies, Inc., collectively referred to as the "Company". BCA Services,
Inc. was established in December 1993 to directly focus on providing
comprehensive ergonomic laboratory assessment services to U.S. manufacturing and
service industries for measuring the potential risk of musculoskeletal injury.
The operations of BCAM Technologies, Inc., formed in December 1992, which were
not significant, were terminated in December 1993.
2. Summary of Significant Accounting Policies
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Cash and cash equivalents
at December 31, 1996 consist of demand and money market accounts with U.S. banks
($56,759) and a money market account with a U.S.
investment institution ($469,585).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and footnotes. Actual
results could differ from those estimates.
61
<PAGE>
2. Summary of Significant Accounting Policies (continued)
Revenue
Revenue is recognized based on the percentage of completion method as costs are
incurred, no significant obligations remain outstanding and collection of the
accounts receivable, in management's estimation, is deemed probable.
Property, Plant and Equipment
Depreciation is computed using the straight-line method at rates based on the
estimated useful lives of the related assets. The estimated useful lives for
furniture and fixtures is 10 years and equipment is 7 years. Leasehold
improvements are amortized over the lease term or estimated useful life of the
improvements, whichever is shorter.
Other Assets
Patents, trademarks and other intellectual properties are initially capitalized
at cost. This amount ($143,344 at December 31, 1996) is being amortized using
the straight-line method over the estimated useful lives of the underlying
assets of approximately 5 years.
In 1996, the Company capitalized software development costs of $85,191. These
costs will be amortized over two years using the straight-line method commencing
when the software is deemed available for sale.
Research and Development
Research and development costs are charged to operations in the period incurred.
Income Taxes
The Company accounts for income taxes using Financial Accounting Standards Board
("FASB") Statement No. 109, "Accounting for Income Taxes." At December 31, 1996,
the Company has net operating loss carryforwards of approximately $13,741,000
for income tax purposes, expiring through 2011.
62
<PAGE>
2. Summary of Significant Accounting Policies (continued)
At December 31, 1996 and 1995, deferred tax assets approximating $4,672,000 and
$4,129,000, respectively, arising from the future availability of net operating
loss carryforwards have been offset in full by valuation allowances in
accordance with FASB Statement No. 109.
Net Loss Per Share
Net loss per share has been computed on the basis of the weighted average number
of common shares outstanding. Common stock equivalents have been excluded
because their effect is antidilutive.
Stock-Based Compensation
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." In accordance with the standard, the Company elected to continue
to account for its stock-based compensation under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations (APB 25). Under APB 25, because the exercise price of the
Company's stock options granted equals the market price of the underlying stock
on the date of the grant, no compensation expense is required to be recognized.
Accounting Change
In 1996, the Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. This adoption had no effect on the
consolidated financial statements.
Reclassification
Certain amounts in the 1995 financial statements have been reclassified to
conform with the 1996 presentation.
63
<PAGE>
3. Acquisition Preferred Stock
The Company is authorized to issue 750,000 shares of its acquisition preferred
stock, $.01 par value, none of which are presently issued and outstanding. The
acquisition preferred stock is only permitted to be issued as consideration
pursuant to (i) a statutory merger or consolidation as to which the Company is
the surviving entity, (ii) the acquisition by the Company of substantially all
the assets or business of another entity or (iii) the acquisition by the Company
of 50% or more of the voting securities of another entity. The acquisition
preferred stock is issuable from time to time in one or more series. The Board
of Directors is authorized to fix, before issuance, the voting powers, if any,
the designations, preferences and any other rights, qualifications, limitations
and restrictions applicable to each series of acquisition preferred stock,
including, without limitation, dividend rates and conditions, dividend
preferences, conversion and redemption rights and liquidation preferences.
4. Common Shareholders' Equity
On January 24, 1990, the Company issued and sold 1,100,000 units for $4.00 per
unit in connection with a public offering. The net proceeds, after accounting
for direct expenses of the offering, were approximately $3,397,000. On February
26, 1990, the underwriter issued and sold an additional 165,000 units at $4.00
per unit resulting from the exercise of the overallotment option and the Company
received net proceeds of $574,200. Each unit consists of three shares of common
stock and two Class A warrants. Each Class A warrant is exercisable to purchase
one share of common stock and one Class B warrant at a price of $2.00, subject
to adjustment, commencing one year from the date of the Prospectus (January 17,
1990) until January 17, 1997 (extended from January 16, 1995) subject, in
certain circumstances, to earlier redemption by the Company. As a result of the
dilutive effects of private placements (see Note 7) and the Discounted Warrant
Plan (see below), the number of shares issuable under and the exercise price of
the Company's Class B warrants, which may be exercised commencing upon issuance
until January 17, 1998 (extended from January 17, 1997), have been adjusted such
that each Class B warrant, as adjusted, entitles the holder to purchase one and
two tenths (1.2) shares (originally one share) of Common stock at an adjusted
price that varies from $2.69 to $3.23 to January 17, 1997 and $1.50 per share
thereafter (originally $3.33 to $4.67). As a result of the issuance of
approximately 1,717,000 Class E warrants pursuant to the Discounted Warrant
Plan, each Class A warrant remaining unexercised entitles the holder thereof to
purchase one and two-tenth (1.2) (originally one share) shares of common stock
and one Class B warrant at an adjusted price per share, subject to further
adjustment, of $1.72. Since the Company has satisfied the condition of
redemption, namely the closing bid price of common stock of the Company
exceeding $2.67 for a period of 30 consecutive business days, the remaining
Class A Warrants were called effective November 19, 1993. The Company extended
the redemption date to December 20, 1993 and 807,659 Class A Warrants were
exercised resulting in the issuance of 969,191 shares of common stock and
807,659 Class B Warrants exercisable to purchase 969,191 shares of common stock
and receipt by the Company of net proceeds of $1,667,008.
4. Common Shareholders' Equity (continued)
In connection with the public offering, the Company sold 110,000 Unit Purchase
Options (the "Unit Options") to the underwriter and a finder on January 24, 1990
for a nominal consideration. The units purchasable upon exercise of the Unit
Options are identical to the units sold in the public offering, except that the
warrants included therein are not redeemable. The Unit Options are exercisable
at 130% of the public offering price subject to certain antidilution
adjustments. The Unit Options are exercisable during the five-year period
(originally three-years) commencing two years from the date of the public
offering, expiring January 17, 1997. As a result of the dilutive effects of the
private placement, the number of Unit Options has been increased to 127,547 and
the unit price adjusted to $4.35 per unit (originally $5.20 per unit). Pursuant
to a settlement agreement certain Unit Purchase Option holders surrendered for
exercise in full 30,369 units in a cashless transaction that provided them with
85,674 shares of common stock representing the excess of the fair market value
of the common stock and Class A warrants, over the exercise price of the Unit.
At December 31, 1996, there were 97,178 units (underwriter) and 1,568 units
(finder) outstanding.
In October 1991, the Board of Directors of the Company approved a Discounted
Warrant Plan, providing for 1) a reduction in the price of each Class A warrant
which was exercised during the Class A Limited Exercise Period (expired in 1992)
from $2.00 to the discounted price of $1.50 per share of common stock, and 2)
the issuance to each holder who exercised a discounted Class A warrant during
the Class A Limited Exercise Period, a Class E warrant, in lieu of a Class B
warrant, which has the same terms and conditions as the Class B warrants, except
that the price of each Class E warrant was reduced to the discounted price of
$1.25 per share of common stock until the expiration date on January 17, 1998
(extended from January 16, 1995).
Pursuant to the Discounted Warrant Plan, approximately 1,717,000 Class A
warrants were exercised resulting in the issuance of approximately 1,717,000
shares of common stock and 1,717,000 Class E warrants exercisable to purchase
approximately 1,888,700 shares of common stock and the receipt by the Company of
net proceeds of approximately $2,500,000. During the year ended December 31,
1993, 1,022,825 Class E warrants were exercised resulting in an issuance of
1,125,109 shares of common stock and receipt by the Company of net proceeds of
$1,406,464. In connection with the exercise of the E warrants, options to
purchase 38,508 unregistered shares of common stock exercisable at prices
ranging from $3.31 through $3.44 per share were issued to two
64
<PAGE>
registered brokerage houses, as an inducement for their exercise of the
aforementioned Class E warrants. The options were exercisable for 18 months from
the dates of exercise of the Class E warrants (October 1993). In addition,
through December 31, 1992, 202,588 Class E warrants were exercised resulting in
the issuance of approximately 223,000 shares of common stock and the receipt by
the Company of net proceeds of approximately $280,000. In connection with the
Discounted Warrant Plan, the Board of Directors issued in 1992 an aggregate of
166,154 restricted shares of common stock of the Company to two registered
brokers, in full payment of the compensation due them for soliciting the
exercise of the Class A warrants.
4. Common Shareholders' Equity (continued)
In June 1991, Class D warrants exercisable over a five-year term to purchase
176,250 shares of common stock at $2.00 per share and Class C warrants
exercisable over a five and one-half year term (originally five-year term) to
purchase 200,000 shares of common stock at $1.00 per share were issued in
connection with the private placement (see Note 7). As a result of the exercise
of Class E warrants and pursuant to provisions for adjustment of the exercise
price of the Company's Class D warrants, each Class D warrant entitles the
holder to purchase approximately two and three-tenths (2.3) (originally one
share) shares of common stock at an adjusted price per share, subject to further
adjustment, of approximately $.88 per share and each Class C warrant to purchase
228,571 (originally 200,000) shares of common stock at $.88 per share. Through
December 31, 1996, 173,750 Class D warrants have been exercised resulting in an
issuance of 397,143 shares of common stock and the receipt by the Company of
$347,500 and 63,334 Class C warrants have been exercised resulting in an
issuance of 72,334 shares of common stock and the receipt by the Company of
$63,344. The Class C warrants still outstanding which were to expire on January
17, 1997 were extended to March 18, 1997 and the price was reduced to $.75 per
share. Such warrants expired unexercised.
Effective June 22, 1995, the Company's shareholders voted to increase the number
of authorized common stock from 20 million shares to 40 million shares.
Common shares reserved for future issuance as of December 31, 1996 are
approximately as follows:
Units sold in public offering in 1990:
Class B warrants 969,000
Class E warrants 541,000
Third party options (Note 5) 500,000
Unit Options 766,000
1989 Stock Option Plan (Note 5) 432,000
1989 Nonstatutory Plan (Note 5) 100,000
1995 Stock Option Plan 1,761,000
Warrants issued in private placement in 1991 (Note 7): 0
Class C warrants 156,000
Class D warrants 6,000
------------
5,231,000
============
65
<PAGE>
5. Stock Options
In June 1995, the shareholders of the Company approved the adoption of the 1995
Stock Option Plan (the "1995 Plan"). The 1995 Plan provides for the granting of
incentive stock options ("ISOs") and/or nonqualified stock options to employees,
directors or consultants of the Company to purchase an aggregate of 2,000,000
shares of the Company's common stock. The option price per share for ISOs
granted under the 1995 Plan shall not be less than the fair market value of the
Company's common stock on the date of grant. Furthermore, the option price per
share shall be determined by the Board of Directors. Options vest based on
certain provisions related principally to future services. Options are
exercisable over various periods up to ten years from the date of grant. No
option may be granted under the 1995 Plan after June 2005. At December 31, 1996,
there were 219,500 shares available for granting of future options. The 1995
Plan replaced all prior option plans and no further options will be granted
under the prior option plans.
In 1989, the shareholders of the Company approved the adoption of a 1989 Stock
Option Plan (the "1989 Plan"). The 1989 Plan provided for the granting of
incentive stock options and/or nonqualified stock options to key employees and
consultants to purchase shares of the Company's common stock at a price per
share not less than the fair market value on the date of grant. In 1992, the
Plan was amended to (a) increase the number of shares to 1,565,957, (b) permit
the granting of nonqualified stock options at a price per share less than the
fair market value of the Company's common stock on the date of grant and (c)
permit options to be exercised up to two years after termination of employment
under certain circumstances. Options vest based on certain provisions related
principally to future services. Options are exercisable over various periods up
to six years from the date of grant. Pursuant to the terms of the 1995 Plan, no
options may be granted under the 1989 Plan subsequent to June 22, 1995.
In 1989, the Company also adopted a Nonstatutory Stock Option Plan (the "1989
Nonstatutory Plan") for directors. Under the 1989 Nonstatutory Plan, the Company
could grant options for the purchase of an aggregate of 355,000 shares of common
stock at not less than fair market value at the date of grant. The options
expire at various dates. Pursuant to the terms of the 1995 Plan, no options may
be granted under the 1989 Nonstatutory Plan subsequent to June 22, 1995.
66
<PAGE>
5. Stock Options (continued)
Option activity during each of the two years ended December 31, 1996 for the
1989 Plan and the 1989 Nonstatutory Plan is summarized as follows:
<TABLE>
<CAPTION>
1989 Nonstatutory Plan 1989 Plan
Shares Under Option Shares Under Option
-----------------------------------------------------------------------
Weighted
Number Average Number
Option price per of Option price per Exercise of
share Shares share Price Shares
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1995 190,833 988,008
Granted - $.92 119,000
Cancelled/expired $1.13 to $2.56 (90,833) $.92 to $3.47 (655,008)
------------- -------------
Balance at December 31,1995 100,000 $1.95 452,000
Exercised - $.92 $.92 (2,500)
Cancelled - $.92 to $3.13 $2.18 (17,500)
------------- -------------
Balance at December 31,1996 100,000 $1.94 432,000
============= =============
</TABLE>
Option activity during each of the two years ended December 31, 1996 for the
1995 Plan is summarized as follows:
<TABLE>
<CAPTION>
1995 Plan
Shares Under Option
------------------------------------------------------
Weighted Number
Option price per Average of
share Exercise Price shares
------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1995 -
Granted $0.92 to $1.68 1,962,500
Cancelled/expired $0.92 (30,000)
---------------
Balance at December 31,1995 $1.04 1,932,500
---------------
Granted $0.95 to $1.20 $1.09 198,000
Cancelled/expired $0.92 $1.09 (350,000)
Exercised $0.92 $0.92 (20,000)
---------------
Balance at December 31,1996 1,760,500
===============
</TABLE>
67
<PAGE>
5. Stock Options (continued)
During 1996, the Company granted 100,000 fully vested nonstatutory stock options
at fair market value to a third party, which are exercisable for a period of ten
years at a price of $1.17 per share. In addition, during 1995, the Company
granted 300,000 fully vested nonstatutory stock options at fair market value to
a third party, which are exercisable for a period of eighteen months at a price
of $1.05 per share, and 5,000 nonstatutory stock options at fair market value to
a third party, which were cancelled in 1996. Further, in 1994 the Company
granted 100,000 nonstatutory stock options at fair market value to a third
party, which vest ratably over two years and are exercisable for a period of
five years at a price of $1.69 per share. At December 31, 1996, 500,000 of these
options are outstanding.
* * * * * * * *
Pro forma information regarding net income and earnings per share is required by
FASB Statement No. 123, "Accounting for Stock-Based compensation" which requires
that the information be determined as if the Company has accounted for its stock
options granted subsequent to December 31, 1994 under the fair value method of
that statement. The fair value for these options was estimated at the date of
the grant using a Black-Scholes option pricing model. The Company's pro forma
information follows:
December 31
1996 1995
------------------------------
Pro forma net loss $(1,861,660) $(1,876,559)
Pro forma loss per share $ (.13) $ (.13)
The fair value of these options at the date of the grant was estimated with the
following weighted average assumptions for 1996 and 1995: risk free interest
rates ranging from 5.7% to 7.1%, no dividend yield, volatility factor of the
expected market price of the Company's common stock of 49%, and a weighted
average expected life of the options ranging from six to eight years. Because
Statement 123 is applicable only to options granted subsequent to December 31,
1994 and employee stock options granted vest over a period from one to four
years, its pro forma effect will not be fully reflected in pro forma net income.
68
<PAGE>
5. Stock Options (continued)
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ ---------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding at Remaining Average Outstanding at Average
Exercise Price December 31, Contractual Exercise December 31, Exercise
1996 Life Price 1996 Price
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.92-$1.00 495,500 8.0 years $0.92 157,250 $0.92
$1.01-$2.00 1,589,000 6.8 years $1.12 708,375 $1.12
$2.01-$3.22 208,000 0.2 years $2.64 205,000 $2.65
- ---------------------------------------------------------------------------------------
$0.92-$3.22 2,292,500 2.5 years $1.22 1,070,625 $1.38
=======================================================================================
</TABLE>
The weighted average fair value of all stock options granted in 1996 was $.70
per share.
6. Leases
The Company leases its office space for a term extending through March 31, 2000.
In August, 1996, this lease was modified to reflect a reduction in leased space.
Additionally, the Company has entered into various operating leases for
equipment. Future minimum payments under noncancellable operating leases for
years ending December 31 are as follows:
1997 $150,674
1998 155,146
1999 155,865
2000 39,316
------------
$501,001
============
Rent expense in 1996 and 1995, under all operating leases, was approximately
$168,000 and $179,000, respectively.
69
<PAGE>
7. Private Placements
On June 25, 1991, the Company completed a private placement, for which D.H.
Blair and Co. Inc. ("Blair") acted as placement agent, of $1,762,500 of its
securities, consisting of $1,101,562 of Senior Secured Convertible Promissory
Notes (the "Notes") convertible into Common Stock at $1.00 per share, 660,937
shares of common stock at $1.00 per share and 176,250 Class D warrants
exercisable over a five-year term at $.88 per share (originally $2.00 per share)
for 402,731 shares (originally 176,250 shares) of common stock. These securities
had been sold pursuant to a Securities Purchase Agreement among the Company, the
purchasers and Blair as purchasers' representative (the "Purchase Agreement"),
in a total of 35.25 Units of $50,000 each, consisting of a $31,250 Note, 18,750
shares of common stock and 5,000 Class D warrants. The Company paid Blair a fee
of $176,250 and expenses of $56,750 and issued to Blair, Class C warrants
exercisable over a five-year term to purchase 228,571 shares (originally 200,000
shares) of common stock at $.88 (originally $1.00 per share). All of the Notes
were converted or redeemed in 1992.
During the period commencing in June 1993 and ending in September 1993, the
Company completed four separate private placements ("Private Placements"), of an
aggregate of 1,843,873 shares of the Company's common stock at prices ranging
from $1.10 to $1.15 per share for net proceeds of $2,039,925. The Company paid
commissions in the amount of $35,075 to an individual, granted 100,000 shares of
unregistered common stock and options to purchase an additional 425,000 shares
of common stock at prices ranging from $1.31 to $3.47 per share, in
consideration of services rendered in connection with the Private Placements.
8. Deferred Revenue
On December 27, 1993, the Company sold 100,000 shares (2.4% interest) of its
subsidiary BCA Services, Inc. to Polaris Partners for the sum of $100,000
resulting in the Company recording such amount as deferred revenue. Pursuant to
an exchange agreement dated April 6, 1995, the Company agreed to exchange the
100,000 shares of BCA Services, Inc. for 100,000 shares of BCAM International,
Inc., at which time $99,000 of the deferred revenue was credited to paid-in
surplus and $1,000 was credited to common stock.
9. Significant Customers
The Company generated a significant percentage of its revenue from a small
number of customers. In 1996, revenue from three customers comprised
approximately 74% of total revenue (38%, 18% and 18%). In 1995, revenue from
four customers comprised approximately 62% of total revenue (29%, 12%, 11% and
10%).
At December 31, 1996, three customers accounted for approximately 84% of the
Company's gross accounts receivable. Consistent with industry standards,
receivables are generally payable within 90 to 120 days and collateral is not
required.
70
<PAGE>
10. Subsequent Events
On March 19, 1997 the Company entered into an agreement with another company
(the "acquiree") to purchase all of the common stock of the acquiree for
approximately $4,600,000. This commitment is contingent upon the Company
obtaining the necessary financing to fund the purchase. The Company does not
have any obligations under this agreement should management be unable to obtain
this financing.
On January 15, 1997, the Company offered a minimum of 400,000 units, each
consisting of one share of the Company's common stock and a non-redeemable Class
AA warrant which entitles the holder to purchase one share of the Company's
Common Stock at a price of $1.10 per share, until March 31, 1999. The offering
was completed on March 28, 1997, and the Company sold 1,075,000 units for
$1,075,000. The funds will be used for the advancement of various technologies
as well as for working capital.
71
<PAGE>
72
<PAGE>
DREW SHOE CORP
BALANCE SHEET
AS OF JUNE 30, 1997 (UNAUDITED)
ASSETS
CURRENT ASSETS:
CASH $ 176,023
NOTES AND ACCOUNTS RECEIVABLE-LESS ALLOWANCE FOR
DOUBTFUL ACCOUNTS (1997-$66,460; 1996-$116,287) 1,925,197
INVENTORIES 6,644,853
PREPAID EXPENSES AND OTHER 102,879
------------
TOTAL CURRENT ASSETS 8,848,952
------------
PROPERTY, PLANT AND EQUIPMENT-AT COST:
LAND 100,000
BUILDINGS AND IMPROVEMENTS 811,353
MACHINERY AND EQUIPMENT 2,763,362
------------
TOTAL 3,674,715
LESS ACCUMULATED DEPRECIATION 2,340,079
------------
PROPERTY, PLANT AND EQUIPMENT-NET 1,334,636
------------
OTHER ASSETS:
CASH SURRENDER VALUE OF LIFE INSURANCE-NET OF 74,357
POLICY LOANS (1997-$423,334; 1996-$499,460)
INTANGIBLE PENSION ASSET 59,390
------------
MISCELLANEOUS 187,529
------------
TOTAL OTHER ASSETS 321,276
============
TOTAL $ 10,504,864
============
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES:
CURRENT PORTION OF LONG-TERM DEBT $ 2,815,386
ACCOUNTS PAYABLE 675,878
ACCRUED PAYROLL AND PAYROLL TAXES 281,838
ACCRUED PENSION COSTS-CURRENT PORTION 246,823
ACCRUED OTHER LIABILITIES 150,458
------------
TOTAL CURRENT LIABILITIES 4,170,383
LONG-TERM DEBT - LESS CURRENT PORTION 1,113,266
ACCRUED PENSION COST-ADDITIONAL LIABILITY 110,613
SHAREHOLDERS' EQUITY:
COMMON STOCK-NO PAR VALUE; AUTHORIZED-1,711.3422 SHARES;
ISSUED AND OUTSTANDING-1710 SHARES 127,156
RETAINED EARNINGS 5,034,669
------------
TOTAL 5,161,825
EXCESS ADDITIONAL PENSION LIABILITY (51,223)
------------
TOTAL SHAREHOLDERS EQUITY 5,110,602
TOTAL $ 10,504,864
============
In the opinion of management, the unaudited financial statements include all
normal recurring adjustments the Company considers necessary for a fair
presentation of such financial statements in accordance with generally accepted
accounting principles,
73
<PAGE>
DREW SHOE CORP
STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
1997 1996
----------------------------------
NET SALES $7,773,892 $7,346,378
COST OF GOODS SOLD 4,709,086 4,611,994
----------------------------------
GROSS MARGIN 3,064,806 2,734,384
----------------------------------
OPERATING EXPENSES:
SELLING 1,816,954 1,597,533
GENERAL AND ADMINISTRATIVE 915,245 853,321
----------------------------------
TOTAL OPERATING EXPENSES 2,732,199 2,450,854
----------------------------------
OPERATING INCOME 332,607 283,530
INTEREST EXPENSE (NET
OF INTEREST INCOME) 153,351 121,151
----------------------------------
NET INCOME $ 179,256 $ 162,379
==================================
In the opinion of management, the unaudited financial statements include all
normal recurring adjustments the Company considers necessary for a fair
presentation of such financial statements in accordance with generally accepted
accounting principles,
74
<PAGE>
DREW SHOE CORP
STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 179,256 $ 162,379
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 118,480 106,401
(INCREASE) IN NOTES AND ACCOUNTS RECEIVABLE (366,575) (198,296)
DECREASE (INCREASE) IN INVENTORY 49,180 (866,579)
DECREASE IN PREPAID EXPENSES AND OTHER 13,656 9,712
INCREASE (DECREASE) IN ACCOUNTS PAYABLE (208,084) 433,201
INCREASE (DECREASE) IN ACCRUED PAYROLL AND PAYROLL TAXES (47,227) 29,182
INCREASE IN PENSION EXPENSE 51,388 104,290
INCREASE IN ACCRUED AND OTHER LIABILITIES 68,529 116,608
-----------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES (141,397) (103,102)
-----------------------
-----------------------
CASH FLOW FROM INVESTING ACTIVITIES-PROPERTY PURCHASED (94,675) (146,347)
-----------------------
CASH FLOW FROM FINANCING ACTIVITIES:
NET PROCEEDS UNDER REVOLVER NOTE AGREEMENT 973,000 229,681
PROCEEDS FROM THE ISSUANCE OF LONG-TERM DEBT 12,828
PRINCIPAL PAYMENTS ON LONG-TERM DEBT (587,662) (73,382)
NET PROCEEDS FROM LOANS AGAINST THE CASH SURRENDER VALUE 142,848
OF LIFE INSURANCE
DISTRIBUTIONS TO SHAREHOLDERS (55,560)
-----------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 385,338 256,415
-----------------------
NET INCREASE IN CASH 149,266 6,966
CASH-BEGINNING OF PERIOD 26,757 27,659
-----------------------
CASH-END OF PERIOD $ 176,023 $ 34,625
=======================
</TABLE>
In the opinion of management, the unaudited financial statements include all
normal recurring adjustments the Company considers necessary for a fair
presentation of such financial statements in accordance with generally accepted
accounting principles,
75
<PAGE>
DREW SHOE CORPORATION
UNAUDITED BALANCE SHEETS, DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash $ 26,757 $ 27,659
Notes and accounts receivable - less allowance for
doubtful accounts (1996 - $68,000; 1995 - $115,400) 1,558,622 1,991,761
Inventories 6,694,033 5,982,321
Prepaid expenses and other 116,536 141,531
------------ ------------
Total current assets 8,395,948 8,143,272
PROPERTY, PLANT AND EQUIPMENT - At cost:
Land 100,000 100,000
Buildings and improvements 865,325 828,676
Machinery and equipment 2,614,715 2,395,964
------------ ------------
Total 3,580,040 3,324,640
Less accumulated depreciation 2,229,895 1,992,809
------------ ------------
Property, plant and equipment - net 1,350,145 1,331,831
OTHER ASSETS:
Cash surrender value of life insurance - net of
policy loans (1996 - $501,000; 1995 - $349,000) 69,074 189,821
Intangible pension asset 59,390 296,052
Miscellaneous 194,200 132,357
------------ ------------
Total other assets 322,664 618,230
------------ ------------
TOTAL $ 10,068,757 $ 10,093,333
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,135,315 $ 1,886,458
Accounts payable 883,962 858,350
Accrued payroll and payroll taxes 329,065 368,574
Accrued pension cost - current portion 195,435 79,540
Accrued other liabilities 75,022 31,081
------------ ------------
Total current liabilities 3,618,799 3,224,003
LONG-TERM DEBT - Less current portion 1,407,999 1,560,856
ACCRUED PENSION COST - Additional liability 110,613 527,017
SHAREHOLDERS' EQUITY:
Common stock - no par value; authorized - 1,711.3422
shares; issued and outstanding - 1,710 shares 127,156 127,156
Retained earnings 4,855,413 4,885,266
------------ ------------
Total 4,982,569 5,012,422
Excess additional pension liability (51,223) (230,965)
------------ ------------
Total shareholders' equity 4,931,346 4,781,457
------------ ------------
TOTAL $ 10,068,757 $ 10,093,333
============ ============
</TABLE>
See notes to financial statements.
76
<PAGE>
DREW SHOE CORPORATION
UNAUDITED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
1996 1995
NET SALES $14,609,346 $13,646,926
COST OF GOODS SOLD 9,146,708 8,590,713
----------- -----------
GROSS MARGIN 5,462,638 5,056,213
----------- -----------
OPERATING EXPENSES:
Selling 3,477,433 2,972,764
General and administrative 3,477,433 1,546,155
----------- -----------
Total operating expenses 5,177,812 4,518,919
----------- -----------
OPERATING INCOME 284,826 537,294
INTEREST EXPENSE (Net
of interest income) 259,119 253,692
----------- -----------
NET INCOME $ 25,707 $ 283,602
=========== ===========
See notes to financial statements.
77
<PAGE>
DREW SHOE CORPORATION
UNAUDITED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Excess
Common Stock Additional Total
Outstanding Retained Pension Shareholders'
Shares Amount Earnings Liability Equity
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 1,710 $127,156 $ 4,853,464 $ 4,980,620
Net income 283,602 283,602
Change in excess of additional pension
liability
over recognized intangible pension asset $(230,965) (230,965)
Distributions to shareholders (251,800) (251,800)
----- -------- ----------- --------- -----------
BALANCE, DECEMBER 31, 1995 1,710 127,156 4,885,266 (230,965) 4,781,457
Net income 25,707 25,707
Change in excess of additional pension
liability
over recognized intangible pension asset 179,742 179,742
Distributions to shareholders (55,560) (55,560)
----- -------- ----------- --------- -----------
BALANCE, DECEMBER 31, 1996 1,710 $127,156 $ 4,855,413 $ (51,223) $ 4,931,346
===== ======== =========== ========= ===========
</TABLE>
See notes to financial statements.
78
<PAGE>
DREW SHOE CORPORATION
UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 25,707 $ 283,602
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 247,978 227,088
Decrease (increase) in notes and accounts receivable 433,139 (312,845)
Increase in inventories (711,712) (276,645)
Decrease (increase) in prepaid expenses and other 83,899 (51,089)
Increase in accounts payable 25,612 222,689
Increase (decrease) in accrued payroll and payroll taxes (39,509) 37,366
Increase (decrease) in accrued pension expense 115,895 (23,567)
Increase (decrease) in accrued other liabilities 43,941 (18,049)
--------- ---------
Net cash provided by operating activities 224,950 88,550
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES - Property purchased (266,292) (232,117)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds under revolver note agreement 218,123 396,357
Proceeds from issuance of long-term debt 21,308 450,132
Principal payments on long-term debt (143,431) (526,653)
Distributions to shareholders (55,560) (157,800)
--------- ---------
Net cash provided by financing activities 40,440 162,036
--------- ---------
NET INCREASE (DECREASE) IN CASH (902) 18,469
CASH - BEGINNING OF YEAR 27,659 9,190
--------- ---------
CASH - END OF YEAR $ 26,757 $ 27,659
========= =========
SUPPLEMENTAL DISCLOSURES:
. Cash paid during the year for interest $ 328,540 $ 358,296
========= =========
. Non-cash transactions:
Change in additional pension liability recorded as:
Increase (decrease) in intangible pension asset $(236,662) $ 123,951
Decrease (increase) in shareholders' equity (179,742) 230,965
--------- ---------
Total $(416,404) $ 354,916
========= =========
Shareholders' receivables offset against distributions $ 94,000
=========
</TABLE>
See notes to financial statements.
79
<PAGE>
DREW SHOE CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations - The Company manufactures, imports, and distributes women's
and men's shoes for sale to independent retailers and through Company
owned retail operations throughout the United States.
Cash - Substantially all of the Company's cash is maintained in one
banking institution.
Inventories - Inventories are stated at the lower of cost, determined on a
first-in, first-out basis, or market. Inventories at December 31, 1996 and
1995 are summarized as follows:
1996 1995
Raw materials $ 858,907 $ 740,917
Work-in-process 988,714 897,528
Finished goods 4,846,412 4,343,876
---------- ----------
Total inventories $6,694,033 $5,982,321
========== ==========
Property, Plant and Equipment - Property, plant and equipment are stated
at cost. Depreciation is calculated using the straight-line method based
on the following estimated useful lives of the assets:
Estimated
Asset Description Useful Lives
Buildings and improvements 10 - 35 years
Machinery and equipment 5 - 13 years
Pension Plans - The Company has two non-contributory, defined benefit
pension plans covering substantially all employees. Benefits under the
plan covering non-union employees are based on average monthly
compensation and years of service. Benefits under the plan covering union
employees are based on years of service. The Company's policy is to make
contributions to the plans sufficient to meet minimum funding
requirements.
The provisions of Statement of Financial Accounting Standards No. 87 (SFAS
No. 87), "Employers' Accounting for Pensions," require recognition in the
balance sheet of an additional minimum liability and related intangible
asset for pension plans with accumulated benefits in excess of plan
assets. This resulted in the recognition at December 31, 1996 and 1995 of
an additional liability of $110,613 and $527,017 respectively. SFAS No. 87
provides that the intangible asset cannot exceed the amount of
unrecognized prior service costs. At December 31, 1996 and 1995 an
intangible asset of $59,390 and $296,052 was recognized, with the
remaining balance of $51,223 and $230,965, respectively, recorded as a
reduction of shareholders' equity.
Income Taxes - The Company is treated as an S Corporation for income tax
purposes. Accordingly, net income of the Company is generally included
directly in the income tax returns of the Company's shareholders and is
not taxable to the Company.
Revenue Recognition - Revenue from wholesale product sales is recognized
at the time products are shipped. Revenue from retail product sales
through Company owned retail operations is recognized at the point of
sale.
80
<PAGE>
Advertising Expense - The Company expenses advertising costs as they are
incurred. Advertising expense was $365,000 and $364,000 for the years
ended December 31, 1996 and 1995, respectively.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Reclassifications - Certain 1995 financial statement amounts have been
reclassified to conform with the 1996 presentation.
2. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Revolver note, prime (8.25% and 8.5% at December 31, 1996
and 1995) interest payable monthly, principal due August 1997
collateralized by substantially all of the Company's assets $1,462,253 $1,244,130
Mortgage note, prime plus .25% interest (total of 8.50% and
8.75% at December 31, 1996 and 1995), due in monthly
installments through February 2000, collateralized by real estate 395,000 427,500
Bankers acceptance - effective interest rate of 7.25% and 7.5%,
at December 31, 1996 and 1995, due and paid through
additional borrowing on the revolver note March 1997,
collateralized by substantially all of the Company's assets 500,000 500,000
Note payable - former shareholder, prime (8.25% and 8.5% at
December 31, 1996 and 1995) interest, renewable every
January 1 for an additional 12 months, unsecured 213,869 213,869
Debentures - former shareholders, 10%, due in monthly
installments, maturing at various dates through
July 2002, unsecured 943,476 1,054,408
Other 28,716 7,407
---------- ----------
Total 3,543,314 3,447,314
Less current portion 2,135,315 1,886,458
---------- ----------
Long-term debt - less current portion $1,407,999 $1,560,856
========== ==========
</TABLE>
81
<PAGE>
Borrowings not to exceed $2,750,000 are available under the revolver note
based on certain asset balances of the Company. Unused available
borrowings at December 31, 1996 were approximately $405,000. The borrowing
base and available borrowings may be changed by the lender at any time
upon 30 days written notice to the Company.
The $213,869 note payable to a former shareholder was renewed as of
January 1, 1997. Accordingly, such note is classified as noncurrent at
December 31, 1996.
Certain of the loan agreements contain various restrictive covenants
including net worth and working capital requirements, cash flow ratio,
limitations on additional borrowings and officers' salaries, and limits
annual distributions to shareholders to an amount necessary to provide for
the annual income tax liabilities of the shareholders with respect to
their share of the income of the Company. The Company was in violation of
certain of the covenants during 1996. The Bank has waived compliance
through March 31, 1997, after which time the Company expects to be in
compliance. See also Note 5.
Maturities of long-term debt are as follows:
Year ending December 31:
1997 $2,135,315
1998 395,777
1999 197,505
2000 487,499
2001 200,087
Thereafter 127,131
----------
Total $3,543,314
==========
3. PENSION PLANS
A summary of the components of net periodic pension cost follows:
Year Ended December 31,
1996 1995
Service cost $ 135,590 $ 80,498
Interest 144,279 94,746
Actual return on plan assets (45,938) (90,671)
Amortization and deferral (12,643) 74,909
--------- ---------
Net pension cost $ 221,288 $ 159,482
========= =========
The following table sets forth the funded status and amounts recognized in
the balance sheets at December 31, 1996 and 1995:
82
<PAGE>
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 1,656,830 $ 1,773,117
=========== ===========
Accumulated benefit obligation $ 1,741,296 $ 1,834,083
=========== ===========
Plan assets at fair value $ 1,385,401 $ 1,391,161
Actuarial present value of projected benefit obligation 2,077,163 2,062,020
----------- -----------
Projected benefit obligation greater than plan assets (691,762) (670,859)
Unrecognized net loss 244,513 295,267
Unrecognized transition liability, net of amortization 149,054 174,595
Unrecognized prior service cost 102,760 121,457
Additional minimum liability (110,613) (527,017)
----------- -----------
Total accrued pension liability (306,048) (606,557)
Less current portion 195,435 79,540
----------- -----------
Long-term portion - representing additional liability $ (110,613) $ (527,017)
=========== ===========
</TABLE>
Significant assumptions used in the accounting for the defined benefit
plans were as follows:
December 31,
1996 1995
Discount rate 7% 7%
Rate of increase in compensation levels 4% 4%
Expected long-term rate of return on assets 8.25% 8%
The plans' assets at December 31, 1996 and 1995 are invested in an annuity
investment fund, certificates of deposit, insurance contracts, and
interest bearing cash accounts.
4. LEASE COMMITMENTS
The Company leases retail space and certain machinery and equipment under
operating leases that expire through 2001. Rent expense relating to
operating leases was $358,000 and $223,000, respectively, for the years
ended December 31, 1996 and 1995.
83
<PAGE>
The following is a summary of future minimum rental payments required
under non-cancelable operating leases:
Year ending December 31:
1997 $225,542
1998 149,714
1999 66,564
2000 15,010
2001 1,452
--------
Total $458,282
========
5. SUBSEQUENT EVENT
On March 20, 1997, the shareholders of the Company entered into an
agreement, subject to certain conditions, to sell all shares of the
Company held by them. Two of the conditions prior to closing the sale, are
an amendment of the non-union pension plan to suspend the accrual of any
additional future benefits to employees covered by the plan, and the
refinancing of the Company's revolver note (see Note 2).
* * * * * *
84
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 721 through 725 of the New York Business Corporation Law provide
that New York corporations shall have the power, under specified circumstances,
to indemnify their directors, officers, employees and agents in connection with
actions, suits or proceedings brought against them by a third party or in the
right of the corporation by reason of the fact that they were or are such
directors, officers, employees or agents, against expenses incurred in such
actions, suits or proceedings. Article Seventh of the Company's Restated
Certificate of Incorporation provides for indemnification of directors and
officers of the Company generally in accordance with New York law.
Section 721 of the New York Business Corporation Law permits a corporation
to enter into agreements with its directors and officers providing for
indemnification for actions, suits or proceedings brought against them by a
third party or in the right of the corporation, by reason of the fact that they
were or are such directors or officers, against expenses incurred in such
actions, suits or proceedings, provided, however, that no such indemnification
may be provided if a judgment or other final adjudication adverse to the
director or officer establishes that his acts were committed in bad faith or
were the result of active and deliberate dishonesty and were material to the
cause of action so adjudicated, or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled. Pursuant to such
authority, the Company has entered into an agreement with each of its current
directors indemnifying them to the maximum extent permitted by Section 721. The
agreement provides for the indemnification of these individuals against any and
all civil or criminal actions or proceedings brought as a result of such
individual being a director or officer of the Company and any judgments and
amounts paid in settlement costs and expenses, including reasonable attorneys
fees. No indemnification may be made, however, if a judgment or final
adjudication establishes that the individual committed acts in bad faith or with
deliberate dishonesty and were material to the cause of action so adjudicated,
or that he personally gained financial profit or other advantage to which he was
not legally entitled. Such indemnification shall be made only by the Board
acting with a quorum consisting of directors who are not parties to the action
in question, or by independent legal counsel, or by the stockholders and in all
cases only after a finding that the applicable standard of conduct has been met.
Under Section 722(a), the corporation may indemnify any director or officer
in any action (other than an action by or in the right of the corporation)
brought against him by reason of the fact that he, his testator or intestate was
a director or officer of the corporation, or served another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise in
any capacity at the request of the corporation. Indemnification may be given for
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorney's fees, if such director or officer is shown to have acted in good
faith, in furtherance of a purpose believed to be in the best interests of the
corporation, and, in the case of a criminal action or proceeding, to have had no
reason to believe such conduct was unlawful.
Section 722(c) of the New York Business Corporation Law provides for
permissive indemnification by the corporation of directors and officers, sued by
or in the right of the corporation, against reasonable expenses including
attorney's fees unless the director or officer is found to have breached his
duty to the corporation under Section 717 or Section 715(h) of the Business
Corporation Law, respectively. Amounts paid under this section may not include
amounts paid in settlement of a threatened or pending action and expenses
incurred in defense of a threatened action or settlement of a pending action
without court approval.
Indemnification may be by court order under Section 724 or by approval of
the corporation in the manner set forth in the statute. Under Section 723(a),
success on the merits or otherwise entitles the director or officer to
indemnification under Section 722. If not wholly successful, indemnification
shall be made by the corporation only if a quorum of the board, not including
parties to the action, finds that the standards of Section 722 have been met. If
a quorum cannot be obtained, approval may be by the board upon (i) the opinion
of independent legal counsel or (ii) a determination by the stockholders that
the standards of conduct have been met by the director or officer. Expenses may
be paid in advance if authorized by one of the methods discussed above. Under
Section 724, if the corporation fails to provide indemnification, the director
or officer may apply to the court and may receive indemnification to the extent
authorized under Section 722. Expenses may also be advanced if the court finds
the defendant director or officer to have raised genuine issues of fact or law.
Expenses advanced must be repaid to the corporation if (i) the director or
officer has not met the applicable standard which entitles him to
indemnification or (ii) if he has been paid in excess of the amount to which he
is entitled. Indemnification may not be made if it is inconsistent with the
corporation's certificate, by-laws, board resolutions or agreements or a
condition imposed by the court in approving a settlement.
The New York Business Corporation Law permits a corporation through its
certificate of incorporation to prospectively eliminate or limit the personal
liability of its directors to the corporation or its stockholders for damages
for breach of fiduciary duty as a director, with certain exceptions. The
exceptions include acts or omissions in bad faith or which involve intentional
misconduct or knowing violations of law, improper declaration of dividends, and
transactions from which the director personally gained in fact a financial
profit or
85
<PAGE>
other advantage to which he was not legally entitled. The Company's Restated
Certificate of Incorporation exonerates its directors from personal liability to
the extent permitted by this statutory provision.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that, in the opinion
of the Commission, such indemnification is against public policy as expressed in
the 1933 Act and is therefore unenforceable.
ITEM 2. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this offering are as follows:
Accounting fees and expenses............................................$20,000
Legal fees and expenses.................................................$20,000
Printing and Miscellaneous expenses.....................................$ 5,000
-------
TOTAL...................................................................$45,000
=======
ITEM 3. RECENT FINANCINGS
Since December of 1996, the Company has completed the following financings for
working capital purposes:
MARCH 1997 PRIVATE PLACEMENT On March 31, 1997, the Company completed a
private placement of 1,075,000 units at a purchase price of $1.00 per unit. Each
unit consists of one share of Common Stock and a Non-Redeemable Class AA Warrant
which entitles the holder to purchase one share of the Common Stock until March
31, 2002 at an exercise price of $.65 per share.
JULY 1997 PRIVATE PLACEMENT In July 1997, the Company completed the first
$500,000 tranche of a $1,500,000 offering of shares of Convertible Series A
Preferred Stock of BCA Services Inc., the Company's wholly-owned subsidiary. The
Company expects to complete the second $500,000 tranche by September 8, 1997.
Provided that certain conditions are satisfied, a third tranche is available to
the Company, at its option. Each share of Convertible Series A Preferred Stock
is convertible into the Company's Common Stock at any time during a one year
period following the closing date at a conversion price equal to the lower of
(i) 70% of the average closing bid price of Common Stock as reported by the
NASDAQ SmallCap Market over the three day trading period ending on the day
preceding the conversion date, or (ii) $.9375 per share.
ITEM 4. EXHIBITS.
3.1 Restated Certificate of Incorporation(1)
3.2 Restated and Amended By-Laws(1)
3.3 Amendment to Certificate of Incorporation(12)
3.4 Amendment to Certificate of Incorporation of BCA Services, Inc.(16)
4.5 Underwriter's Unit Purchase Option(4)
4.6 Finder's Unit Purchase Option(4)
4.7 Warrant Agreement(4)
4.8 Form of Senior Secured Convertible Promissory Note(5)
4.9 Form of Class C Common Stock Purchase Warrant(5)
4.10 Form of Class D Common Stock Purchase Warrant(5)
4.11 Revised Form of Amendment No. 1 to Warrant Agreement(7)
4.12 Revised Form of Class E Common Stock Purchase Warrant(7)
5.13 Opinion of Rivkin, Radler & Kremer (14)
5.14 Opinion of Ruskin, Moscou, Evans & Faltischek P.C. (16)
10.15 Stock Redemption Agreement(1)
10.16 1989 Stock Option Plan(1)
10.17 Employment Agreement with Dr. Clifford M. Gross(1)
2
<PAGE>
10.18 Employment Agreement with Arthur Fein (1)
10.19 Bridge Warrant(1)
10.20 Bridge Note and Related Loan Agreement(1)
10.21 Consulting Agreement with Lear Siegler Seating Corporation(1)
10.22 Extension Agreement to Redemption Agreement (Exhibit 10.1)
10.23 Consulting Agreement dated August 1, 1988 with NRC Resources Group,
Inc.(1)
10.24 General Release of NRC Resources Group, Inc.(1)
10.25 Mortgage Note and Related Loan Agreement and Mortgage and Security
Agreement(1)
10.26 Second Extension Agreement to Redemption Agreement(4)
10.27 Merger and Acquisition Agreement with D.H. Blair & Co., Inc.(4)
10.28 1989 Nonstatutory Stock Option Plan(2)
10.29 Consulting Agreement with D.H. Blair & Co., Inc.(4)
10.30 Consulting Agreement with Steelcase, Inc.(2)
10.31 License and Manufacturing Agreement with MicroComputer Accessories,
Inc.(4)
10.32 Employment Agreement with Cynthia Roth(4)
10.33 Employment Agreement with Kenneth Goodman(4)
10.34 Form of Employment Agreement with Ava Stern(4)
22.35 Form of Employment Agreement with William Sirois(4)
10.36 Lease Of Premises at 1800 Walt Whitman Road, Melville, New York(4)
10.37 Consulting Agreement dated as of February 1, 1990 with NRC Resources
Group, Inc.(4)
10.38 Underwriting Agreement (for IPO) with D.H. Blair & Co., Inc.(4)
10.39 Securities Purchase Agreement dated June 25, 1991 among the Company,
the Purchasers and D.H. Blair & Co., Inc.(5)
10.40 Security Agreement dated as of June 25, 1991 between the Company and
D.H. Blair & Co., Inc., as Purchasers' Representative(5)
10.29 Employment Agreement dated as of June 20, 1991 between David A.
Deutsch and the Company(5)
10.30 Letter of Understanding between Kenneth A. Goodman and the
Company(5)
10.31 Employment Agreement dated as of August 1, 1991 between Joel Sher
and the Company(5)
10.32 Amendment to 1989 Stock Option Plan(5)
10.33 Distributor Agreement with Techexport, Inc.(3)
10.34 Partnership Agreement dated December 28, 1992 for Ergonomics
Solutions Group (ESG)(8)
10.35 License Agreement dated December 28, 1992, between the Company and
ESG(8)
10.36 Development and Licensing Agreement dated March 5, 1993 between the
Company and McCord Winn Textron, Inc.(8)
10.37 Agreement dated August 22, 1992 between the Company and PT
Industries Pesawat Terbang Nusantra (IPTN)(8)
10.38 Further Amendments to 1989 Stock Option Plan(8)
10.39 Amendment to Development and Licensing Agreement dated October 27,
1993 between the Company and McCord Winn Textron(9)
10.40 Investors Consulting Agreement with Strategic Growth International
Inc.(9)
10.41 Agreement dated December 22, 1993 between the Company and PT
Industries Pesawat Terbang Nusantra (IPTN)(9)
10.42 Agreement dated September 29, 1993 between the Company, McCord Winn
Textron, Inc. and Lear Seating Company(9)
10.43 Development and Licensing Agreement dated January 4, 1994 between
the Company and Reebok International Ltd.(9)
10.44 License Agreement dated September 28, 1994 between the Company and
Lumex, Inc.(10)
10.45 Employment Agreement dated October 13, 1994 between Michael Strauss
and the Company(10)
10.46 Letter Agreement dated February 15, 1996, between the Company and
McCord Winn Textron, Inc. to extend the Development and License
Agreement dated March 5, 1993(13)
10.47 Amendment to Employment Agreement between Michael Strauss and the
Company(12)
10.48 1995 Stock Option Plan(12)
10.49 Amendment letter of agreement dated August 15, 1996 between the
Company and McCord Winn Textron, Inc.(15)
10.50 Letter of agreement terminating the September 28, 1994, Development
and License Agreement between the Company and Lumex, Inc.(15)
10.51 Letter of Agreement with Josephberg & Grosz to provide the Company
investment banking services(15)
10.52 Stock Purchase Agreement between the Company and the owners of Drew
Shoe Corporation(15)
10.53 Private Placement Memorandum dated January 15, 1997(16)
3
<PAGE>
10.54 Registration Rights Agreement dated July 15, 1997(16)
10.55 Consulting agreement with Strategic Growth International dated
October 4, 1996(16)
10.56 Consulting agreement with R.J. Falkner & Co.(16)
10.57 Consulting agreement with .Deltasite Communications Corp(16)
10.58 Consulting agreement with Imin Kao(16)
10.59 Letters of agreement with Charles Schuyler and Frank Shyjka dated
July 23, 1997 extending the deadline for the closing of the Drew
Shoe Acquisition as outlined in the Purchase Agreement dated March
20, 1997 from March 28, 1997 to September 15, 1997(16)
21.00 Subsidiaries of the Company(11)
24.1 Consent of Rivkin, Radler & Kremer - included in Exhibit 5.1(14)
24.2 Consent of Ernst & Young LLP(14)
24.3 Consent of Ernst & Young LLP(16)
25.1 Power of Attorney executed by Robert P. Wong(14)
25.2 Power of Attorney executed by Julian H. Cherubini(14)
25.3 Power of Attorney executed by Lawrence N. Cohen(14)
25.4 Power of Attorney executed by Joel L. Gold(14)
25.5 Power of Attorney executed by Glenn F. Santmire(14)
- -------
(1) Filed as an Exhibit to Registrant's Registration Statement on Form
S-18 (file no. 33-31282) and incorporated herein by reference
thereto.
(2) Filed as an Exhibit to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989 (file no. 0-18109) and
incorporated herein by reference thereto.
(3) Filed as part of Item 14 of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1991 (file no. 0-18109)
and incorporated herein by reference thereto.
(4) Filed as an Exhibit to Registrant's Registration Statement on Form
S-1 (file no. 33-38204) and incorporated herein by reference
thereto.
(5) Filed as an Exhibit to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form S-1 (file no. 33-38204)
and incorporated herein by reference thereto.
(6) Filed as an Exhibit To Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form S-1 (file no. 33-38204)
and incorporated herein by reference thereto.
(7) Filed as an Exhibit to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form S-1 (file no. 33-38204)
and incorporated herein by reference thereto.
(8) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1992 (file no. 0-18109) and
incorporated herein by reference thereto.
(9) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1993 (file no. 0-18109) and
incorporated by reference thereto.
(10) Filed as an Exhibit to Registrant's Form 10-QSB/A filed December 5,
1994 amending the Form 10-QSB for the quarterly period ended
September 30, 1994 (file no. 0-18109) and incorporated by reference
thereto.
(11) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1994 (file no. 0-18109) and
incorporated by reference thereto.
(12) Filed as an Exhibit to Registrant's Form 10-QSB for the quarterly
period ended June 30, 1995 (file no. 0-18109) and incorporated by
reference thereto.
(13) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995 (file no. 0-18109) and
incorporated by reference thereto.
(14) Filed as an Exhibit to Post-Effective Amendment No. 7 on Form SB-2
to Registrant's Registration Statement on Form S-1 (file no.
33-38204) and incorporated herein by reference thereto.
(15) Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1996 (file no. 0-18109) and
incorporated by reference thereto.
(16) Filed herewith.
4
<PAGE>
ITEM 5. UNDERTAKINGS.
Undertakings Required by Regulation S-B, Item 512 (a):
THE UNDERSIGNED REGISTRANT HEREBY UNDERTAKES:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section
10(a)(3) of the 1933 Act;
(ii) to reflect in the prospectus any facts or events
which, individually or together represent a fundamental
change in the information set forth in the registration
statement; and
(iii) to include any additional or changed material
information on the plan of distribution.
(2) That, for determining liability under the 1933 Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from
registration any of the securities being registered which remain unsold at the
termination of the offering.
Undertaking Required by Regulation S-B, Item 512 (e):
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers, and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment No. 13 on Form SB-2 to Form S-1
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the County of Suffolk, State of New York, on the 4th day of
September, 1997
BCAM INTERNATIONAL, INC.
By: /s/ Michael Strauss
--------------------------------
Michael Strauss
Chairman of the Board, President
and Chief Executive Officer
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
PRINCIPAL EXECUTIVE OFFICER:
/s/ Michael Strauss Michael Strauss Chairman of September 4, 1997
- ------------------------- the Board,
President,
Chief Executive
Officer and
Director
PRINCIPAL FINANCIAL OFFICER:
/s/ Robert P. Wong Robert P. Wong Vice Chairman September 4, 1997
- ------------------------- of the Board,
Chief Technology
Officer, Acting
Chief Financial
Officer, Acting
Secretary, and
Acting Treasurer
ADDITIONAL DIRECTORS:
\s\ Norman B. Wright Norman B. Wright Director, Vice September 4, 1997
- ------------------------- Chairman of
the Board, and
President and
CEO of the
HumanCAD(R)
division
\s\ Julian H. Cherubini Julian H. Cherubini Director September 4, 1997
- -------------------------
\s\Joel L. Gold Joel L. Gold Director September 4, 1997
- -------------------------
\s\Sandra Meyer Sandra Meyer Director September 4, 1997
- -------------------------
\s\Glenn F. Santmire Glenn F. Santmire Director September 4, 1997
- -------------------------
7
<PAGE>
EXHIBIT INDEX
Exhibit Description Page No.
- ------- ----------- --------
3.4 Amendment to Certificate of Incorporation of BCA
Services, Inc.
5.14 Opinion of Ruskin, Moscou, Evans & Faltischek P.C.
10.53 Private Placement Memorandum dated January 15, 1997
10.54 Registration Rights Agreement dated July 15, 1997
10.55 Consulting agreement with Strategic Growth
International dated October 4, 1997
10.56 Consulting agreement with R.J. Falkner & Co
10.57 Consulting agreement with Deltasite Communications
Corp.
10.58 Consulting agreement with Imin Kao
10.59 Letters of agreement with Charles Schuyler and Frank
Shyjka dated July 23, 1997 extending the deadline
for the closing of the Drew Shoe Acquisition as
outlined in the Purchase Agreement dated March 20,
1997 from March 28, 1997 to September 15, 1997
24.3 Consent of Ernst & Young LLP
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION OF
BCA SERVICES, INC.
Under Section 805 of the Business Corporation Law
The undersigned, being the President and Secretary of BCA Services, Inc.,
do hereby certify and set forth:
1. The name of the corporation is BCA Services, Inc (the "Corporation"). The
name of the Corporation when it was originally formed was "ErgoLAB, INC."
2. The Certificate of Incorporation of the Corporation was filed by the
Department of State on December 3, 1993 and amended by a Certificate of
Amendment of the Certificate of Incorporation filed with the Department of
State on September 30, 1994 which changed the name of the Corporation to
"ErgoRisk Services, Inc." and further amended by a Certificate of
Amendment of the Certificate of Incorporation filed with the Department of
State on October 25, 1995 changing the name of the Corporation to "BCA
Services, Inc."
3. The Certificate of Incorporation of the Corporation is hereby amended to
add a new class of authorized stock, "Series A Convertible Preferred
Stock." The number of shares of common stock which are issued and
outstanding is 1,000,000, par value $.01 per share. The number of such
shares of common stock that shall remain issued and outstanding after the
effective date of this amendment shall be the same number of shares of
common stock issued and outstanding prior to the effectiveness of this
amendment, with no change. The Certificate of Incorporation of the
Corporation is hereby amended by deleting Article Fourth in its entirety
and replacing it with a new Article Fourth, as follows:
"FOURTH: (a) The aggregate number of shares of common stock which the
Corporation shall have authority to issue is ten million (10,000,000),
$0.01 par value per share.
(b) Authority is hereby expressly granted to the Board of Directors of the
Corporation, at any time and from time to time, to issue any class or classes of
stock or any series of any class of stock of the Corporation (common or
preferred) and to determine by resolution, before the issuance of the shares of
any class or series, the number of shares to be included in such class or
series, the designations and the powers, preferences and rights, and the terms,
conditions, qualifications or restrictions thereof.
(c) There is hereby established a series of preferred stock entitled,
"Series A Convertible Preferred Stock" ("Series A Preferred Stock"). The
aggregate number of shares of Series A Preferred Stock which the Corporation
shall have authority to issue is two million (2,000,000), $0.01 par value per
share. The relative designations and powers, preferences and rights, and the
terms, conditions, qualifications and restrictions of the Series A Preferred
Stock are as follows:
<PAGE>
1) Designation and Amount. The shares of such series shall have a par value of
$0.01 per share and shall be designated as Series A Convertible Preferred Stock
(the "Series A Preferred Stock") and the number of authorized shares
constituting the Series A Preferred Stock shall be 2,000,000. The Series A
Preferred Stock shall be offered at a purchase price of Ten Thousand Dollars
($10,000) per share (the "Original Series A Issue Price"), with a six percent
(6%) per annum accretion rate as set forth herein.
2) Rank. The Series A Preferred Stock shall rank: (i) junior to any other class
or series of capital stock of the Company hereafter created specifically ranking
by its terms senior to the Series A Preferred Stock (collectively, the "Senior
Securities"); (ii) prior to all of the Company's common stock, $0.01 par value
per share ("Common Stock"); (iii) prior to any class or series of capital stock
of the Company hereafter created not specifically ranking by its terms senior to
or on parity with any Series A Preferred Stock of whatever subdivision
(collectively, with the Common Stock, "Junior Securities"); and (iv) on parity
with any class or series of capital stock of the Company hereafter created
specifically ranking by its terms on parity with the Series A Preferred Stock
("Parity Securities") in each case as to distributions of assets upon
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary (all such distributions being referred to collectively as
"Distributions").
3) Dividends. The Series A Preferred Stock will bear no dividends, and the
holders of the Series A Preferred Stock ("Holders") shall not be entitled to
receive dividends on the Series A Preferred Stock.
4) Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, the Holders of shares of Series A
Preferred Stock shall be entitled to receive, immediately after any
distributions to Senior Securities required by the Company's Certificate of
Incorporation or any certificate of designation, and prior in preference to any
distribution to Junior Securities but in parity with any distribution to Parity
Securities, an amount per share equal to the sum of (i) the Original Series A
Issue price for each outstanding share of Series A Preferred Stock and (ii) an
amount equal to six percent (6%) of the Original Series A Issue Price per annum
for the period that has passed since the date that, in connection with the
consummation of the purchase by Holder of shares of Series A Preferred Stock
from the Company, the escrow agent first had in its possession funds
representing frill payment for the shares of Series A Preferred Stock (such
amount being referred to herein as the "Premium"). If upon the occurrence of
such event, and after payment in frill of the preferential amounts with respect
to the Senior Securities, the assets and funds available to be distributed among
the Holders of the Series A Preferred Stock and Parity Securities shall be
insufficient to permit the payment to such Holders of the frill preferential
amounts due to the Holders of the Series A Preferred Stock and the Parity
Securities, respectively, then the entire assets and funds of the Company
legally available for distribution shall be distributed among the Holders of the
Series A Preferred Stock and the Parity Securities, pro rata, based on the
respective liquidation amounts to which each such series of stock is entitled by
the Company's Certificate of Incorporation and any certificate(s) of designation
relating thereto.
<PAGE>
(b) Upon the completion of the distribution required by subsection 4(a),
if assets remain in this Company, they shall be distributed to holders of Junior
Securities in accordance with the Company's Certificate of Incorporation
including any duly adopted certificate(s) of designation.
(c) At each Holder's option, a sale, conveyance or disposition of all or
substantially all of the assets of the Company or the effectuation by the
Company of a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of shall be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 4; provided further that an event described in the prior clause that the
Holder does not elect to treat as a liquidation and a consolidation, merger,
acquisition, or other business combination of the Company with or into any other
company or companies shall not be treated as a liquidation, dissolution or
winding up within the meaning of this Section 4, but instead shall be treated
pursuant to Section 5(f) hereof.
(d) In the event that, immediately prior to the closing of a transaction
described in Section 4(c) which would constitute a liquidation event, the cash
distributions required by Section 4(a) or Section 6 have not been made, the
Company shall either: (i) cause such closing to be postponed until such cash
distributions have been made, or (ii) cancel such transaction, in which event
the rights of the Holders of Series A Preferred Stock shall be the same as
existing immediately prior to such proposed transaction.
5) Conversion. The record Holders of this Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each record Holder of Series A Preferred Stock
shall be entitled (at the times and in the amounts set forth below) and subject
to the right of redemption set forth in Section 6(a), at the office of the
Company or any transfer agent for the Series A Preferred Stock (the "Transfer
Agent"), to convert (in multiples of one (1) share of Preferred Stock) as
follows: all remaining Series A Preferred Stock held by such Holder at any time
beginning anytime after Company's registration statement becomes effective at
the office of the Company or any Transfer Agent for the Series A Preferred
Stock, into that number of fully-paid and non-assessable shares of common stock
of BCAM International, Inc. ("BCAM Common Stock") calculated in accordance with
the following formula (the "Conversion Rate"):
Number of shares issued upon conversion of one (1) share of Series A Preferred
Stock
[(AR)(N/365)(10,000)+ 10,000]/Conversion Price
where,
o N= the number of days between (i) the date that, in connection
with the
<PAGE>
consummation of the initial purchase by Holder of shares of Series A
Preferred Stock from the Company, the escrow agent first had in its
possession funds representing frill payment for the shares of Series
A Preferred Stock for which conversion is being elected, and (ii)
the applicable Date of Conversion (as defined in Section 5(c)(iv)
below) for the shares of Series A Preferred Stock for which
conversion is being elected, and
o AR= 6% if the registration is effective within 90 days of the date
of the last closing of a purchase and sale of Series A Preferred
Stock that occurs pursuant to the offering by the Company (the "Last
Closing"), and 18% if the registration statement is not effective by
the 90th day after the Last Closing.
o Conversion Price = the lesser of (x) 100% of the average Closing
Bid Price, as that term is defined below, for the three (3) trading
days immediately preceding the Last Closing, or (y) 70% of the
average Closing Bid Price, as that term is defined below, of BCAM's
Common Stock for three (3) trading days immediately preceding the
Date of Conversion, as defined below (the "Variable Conversion
Price").
For Purposes hereof, the term "Closing Bid Price" shall mean the closing
bid price on the Nasdaq Small Cap Market, or if no longer traded on the Nasdaq
Small Cap Market, the closing bid price on the principal national securities
exchange or the national market system on which BCAM's Common Stock is so traded
and if not available, the mean of the high and low prices on the principal
national securities exchange or the national market system on which BCAM's
Common Stock is so traded.
(b) Conversion before Registration. Notwithstanding the limitations
on conversion set forth above, each record Holder of Series A Preferred Stock
shall be entitled to convert, the Preferred Stock (in multiples of one (1) share
of Preferred Stock) prior to the effectiveness of the registration statement at
the office of the Transfer Agent, into that number of fully-paid and
non-assessable shares of BCAM's Common Stock calculated in accordance with the
Conversion Rate set forth above.
(c) Mechanics of Conversion. In order to convert Series A Preferred
Stock into full shares of BCAM's Common Stock, the Holder shall (i) fax, on or
prior to 11:59 p.m., New York City time (the "Conversion Notice Deadline") on
the date of conversion, a copy of the fully executed notice of conversion
("Notice of Conversion") to the Company at the office of the Company or its
designated transfer agent (the "Transfer Agent") for the Series A Preferred
Stock stating that the Holder elects to convert, which notice shall specify the
date of conversion (together with a copy of the front page of each certificate
to be converted) and (ii) surrender to a common courier for delivery to the
office of the Company or the Transfer Agent, the original certificates
representing the Series A Preferred Stock being converted (the "Preferred Stock
Certificates"), duly endorsed for transfer; provided, however, that the Company
shall not be obligated to issue certificates evidencing the shares of BCAM
Common Stock issuable upon such conversion unless either the Preferred Stock
Certificates are delivered to the Company or its
<PAGE>
Transfer Agent as provided above, or the Holder notifies the Company or its
Transfer Agent that such certificates have been lost, stolen or destroyed
(subject to the requirements of subparagraph (i) below). Upon receipt by Company
of a facsimile copy of a Notice of Conversion, Company shall immediately send,
via facsimile, a confirmation of receipt of the Notice of Conversion to Holder
which shall specify that the Notice of Conversion has been received and the name
and telephone number of a contact person at the Company whom the Holder should
contact regarding information related to the Conversion. In the case of a
dispute as to the calculation of the Conversion Rate, the Company shall promptly
issue to the Holder the number of Shares that are not disputed and shall submit
the disputed calculations to its outside accountant via facsimile within three
(3) days of receipt of Holder's Notice of Conversion. The Company shall cause
the accountant to perform the calculations and notify Company and Holder of the
results no later than forty-eight (48) hours from the time it receives the
disputed calculations. Accountant's calculation shall be deemed conclusive
absent manifest error.
(i) Lost or Stolen Certificates. Upon receipt by the Company
of evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates representing shares of Series A Preferred Stock, and (in the case
of loss, theft or destruction) of indemnity or security reasonably satisfactory
to the Company, and upon surrender and cancellation of the Preferred Stock
Certificate(s), if mutilated, the Company shall execute and deliver new
Preferred Stock Certificate(s) of like tenor and date. However, Company shall
not be obligated to re-issue such lost or stolen Preferred Stock Certificates if
Holder contemporaneously requests Company to convert such Series A Preferred
Stock into BCAM Common Stock.
(ii) Delivery of Common Stock Upon Conversion. The Transfer
Agent or the Company (as applicable) shall, no later than the close of business
on the third (3rd) business day (the "Deadline") after receipt by the Company or
the Transfer Agent of a facsimile copy of a Notice of Conversion and receipt by
Company or the Transfer Agent of all necessary documentation duly executed and
in proper form required for conversion, including the original Preferred Stock
Certificates to be converted (or after provision for security or indemnification
in the case of lost or destroyed certificates, if required), issue and surrender
to a common courier for either overnight or (if delivery is outside the United
States) two (2) day delivery to the Holder at the address of the Holder as shown
on the stock records of the Company a certificate for the number of shares of
BCAM Common Stock to which the Holder shall be entitled as aforesaid.
(iii) No Fractional Shares. If any conversion of the Series A
Preferred Stock would create a fractional share of BCAM Common Stock or a right
to acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of BCAM Common Stock issuable upon
conversion, in the aggregate, shall be the next lower number of shares.
(iv) Date of Conversion. The date on which conversion occurs
(the "Date of Conversion") shall be deemed to be the date set forth in such
Notice of Conversion, provided (i) that the advance copy of the Notice of
Conversion is faxed to the Company before 11:59 p.m., New York City time, on the
Date of Conversion, and (ii) that the original Preferred
<PAGE>
Stock Certificates representing the shares of Series A Preferred Stock to be
converted are surrendered by depositing such certificates with a common courier,
as provided above, and received by the Transfer Agent or the Company within five
(5) business days after the Date of Conversion. The person or persons entitled
to receive the shares of BCAM Common Stock issuable upon such conversion shall
be treated for all purposes as the record Holder or Holders of such shares of
BCAM Common Stock on the Date of Conversion. If the original Preferred Stock
Certificates representing the Series A Preferred Stock to be converted are not
received by the Transfer Agent or the Company within five (5) business days
after the Date of Conversion or if the facsimile of the Notice of Conversion is
not received by the Company or its designated Transfer Agent prior to the
Conversion Notice Deadline, the Notice of Conversion, at the Company's option,
may be declared null and void.
(d) Reservation of Stock Issuable Upon Conversion. BCAM shall at all
times reserve and keep available out of its authorized but unissued shares of
BCAM Common Stock, solely for the purpose of effecting the conversion of the
Series A Preferred Stock, such number of its shares of BCAM Common Stock as
shall from time to time be sufficient to effect the conversion of all then
outstanding Series A Preferred Stock; and if at any time the number of
authorized but unissued shares of BCAM Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of Series A Preferred
Stock, the Company and BCAM will take such corporate action as may be necessary
to increase BCAM's authorized but unissued shares of BCAM Common Stock to such
number of shares as shall be sufficient for such purpose.
(e) Automatic Conversion. Each share of Series A Preferred Stock
outstanding on the date which is one (1) year after the Last Closing Date
automatically shall be converted into BCAM Common Stock on such date at the
Conversion Rate then in effect (calculated in accordance with the formula in
Section 5(a) above), and the date which is one (1) year after the Last Closing
Date shall be deemed the Date of Conversion with respect to such conversion.
(f) Adjustment to Conversion Rate.
(i) Adjustment to Fixed Conversion Price Due to Stock Split,
Stock Dividend, Etc. If, prior to the conversion of all of the Series A
Preferred Stock, the number of outstanding shares of BCAM Common Stock is
increased by a stock split, stock dividend, or other similar event, the Fixed
Conversion Price shall be proportionately reduced, or if the number of
outstanding shares of BCAM Common Stock is decreased by a combination or
reclassification of shares, or other similar event, the Fixed Conversion Price
shall be proportionately increased.
(ii) Adjustment to Variable Conversion Price. If, at any time
when any shares of the Series A Preferred Stock are issued and outstanding, the
number of outstanding shares of BCAM Common Stock is increased or decreased by a
stock split, stock dividend, or other similar event, which event shall have
taken place during the reference period for determination of the Conversion
Price for any conversion of the Series A Preferred Stock, then the Variable
Conversion Price shall be calculated giving appropriate effect to the stock
split, stock dividend, combination, reclassification or other similar event for
all five (5) trading days immediately preceding the Date of Conversion.
<PAGE>
(iii) Adjustment Due to Merger, Consolidation, Etc. If, prior
to the conversion of all Series A Preferred Stock, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of BCAM's Common Stock shall be
changed into the same or a different number of shares of the same or another
class or classes of stock or securities of BCAM or another entity or there is a
sale of all of substantially all of BCAM or the Company's assets or there is a
change of control transaction not deemed to be a liquidation pursuant to section
4(c), then the Holders of Series A Preferred Stock shall thereafter have the
right to receive upon conversion of Series A Preferred Stock, upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of BCAM
Common Stock immediately theretofore issuable upon conversion, such stock,
securities and/or other assets which the Holder would have been entitled to
receive in such transaction had the Series A Preferred Stock been converted
immediately prior to such transaction, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the Holders
of the Series A Preferred Stock to the end that the provisions hereof
(including, without limitation, provisions for the adjustment of the Conversion
Price and of the number of shares issuable upon conversion of the Series A
Preferred Stock) shall thereafter be applicable, as nearly as may be practicable
in relation to any securities thereafter deliverable upon the exercise hereof.
The Company or BCAM shall not effect any transaction described in this
subsection 5(f)(iii) unless (a) it first gives thirty (30) business days prior
notice of such merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event (during which time the Holder shall be
entitled to convert its shares of Series A Preferred Stock into BCAM Common
Stock) and (b) the resulting successor or acquiring entity (if not the Company)
assumes by written instrument the obligations of the Company under this
Certificate of Designation including this subsection 5(f)(iii).
(iv) No Fractional Shares. If any adjustment under this
Section 5(f) would create a fractional share of BCAM Common Stock or a right to
acquire a fractional share of BCAM Common Stock, such fractional share shall be
disregarded and the number of shares of BCAM Common Stock issuable upon
conversion shall be the next lower number of shares.
(g) 4.9% Stock Ownership Limitation: Notwithstanding anything to the
contrary set forth herein, Holder agrees that in no event shall Holder be
entitled to convert a portion of the principal in excess of that portion of the
principal of the convertible Preferred Stock upon conversion of which the sum of
(i) the number of shares of BCAM Common Stock beneficially owned by Holder and
Holder's affiliates (other than shares of common stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
principal of the convertible Preferred Stock or warrants and (ii) the number of
shares of common stock issuable upon the conversion of the portion of the
principal of Preferred Stock or warrants with respect to which the determination
in this paragraph is being made, would result in beneficial ownership by Holder
of more than 4.9% of the outstanding shares of BCAM's Common Stock. For purposes
of the immediately preceding sentence, beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in the
parenthetical set forth in clause (i) of the immediately preceding sentence.
<PAGE>
6) Investor's Right to Force Redemption.
(a) Forced Redemption For Failure To Register BCAM Common Stock. If
Company and/or BCAM International, Inc. ("BCAM") fails to have a registration
statement become effective registering the BCAM Common Stock within 180 days
from the Last Closing, then Holder has the right to elect to force Company to
redeem for cash any shares of Series A Preferred Stock not yet converted.
(b) Redemption Price Upon Forced Redemption. The redemption price per
share of Series A Preferred Stock under Section 6(a) shall be calculated in
accordance with the following formula ("Redemption Rate"):
[[(.18)(N/365)(10,000)]+l0,000] x Closing, Bid Price on Date of Conversion
/Conversion Price
where,
"N", "Date of Conversion", "Closing Bid Price" and "Conversion Price"
shall have the same meanings as described in Section 5.
(c) Mechanics of redemption. If Holder elects to redeem its Series A
Preferred Stock for cash pursuant to Section 6(a), Holder shall follow the same
procedures as detailed in Section 5(c); provided that, Holder indicates on the
Notice of Conversion its desire to redeem its Series A Preferred Stock for cash
in lieu of receiving BCAM Common Stock.
(d) Payment of Redemption Price.
(i) Each Holder submitting Preferred Stock being redeemed
under this Section 6 shall send their Series A Preferred Stock Certificates so
redeemed to the Company or its Transfer Agent, and the Company or BCAM shall pay
via wire transfer the applicable redemption price to that Holder within five (5)
business days after Notice of Holder's election to redeem its Preferred Stock
for cash. The Company shall not be obligated to deliver the redemption price
unless the Preferred Stock Certificates so redeemed are delivered to the Company
or its Transfer Agent, or, in the event one (1) or more certificates have been
lost, stolen, mutilated or destroyed, unless the Holder has complied with
Section 5(c)(i).
7) Voting Rights. The Holders of the Series A Preferred Stock shall have no
voting power whatsoever, except as otherwise provided by the New York Business
Corporation Law ("New York Law"), and no Holder of Series A Preferred Stock
shall vote or otherwise participate in any proceeding in which actions shall be
taken by the Company or the shareholders thereof or be entitled to notification
as to any meeting of the shareholders.
Notwithstanding the above, Company shall provide Holder with notification
of any meeting of the shareholders regarding any major corporate events
affecting the Company or BCAM. In the event of any taking by the Company of a
record of its shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire any share of any class or any
<PAGE>
other securities or property (including by way of merger, consolidation or
reorganization), or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Company or BCAM, or any proposed liquidation, dissolution or winding up of
the Company or BCAM, the Company shall mail a notice to Holder, at least ten
(10) days prior to the record date specified therein, of the date on which any
such record is to be taken for the purpose of such dividend, distribution, right
or other event to the extent known at such time.
To the extent that under New York Law the vote of the Holders of the
Series A Preferred Stock, voting separately as a class, is required to authorize
a given action of the Company, the affirmative vote or consent of the Holders of
at least a majority of the shares of the Series A Preferred Stock represented at
a duly held meeting at which a quorum is present or by written consent of a
majority of the shares of Series A Preferred Stock (except as otherwise may be
required under New York Law) shall constitute the approval of such action by the
class. To the extent that under New York Law the Holders of the Series A
Preferred Stock are entitled to vote on a matter with holders of Common Stock or
BCAM Common Stock, voting together as one (1) class, each share of Series A
Preferred Stock shall be entitled to a number of votes equal to the number of
shares of BCAM Common Stock into which it is then convertible using the record
date for the taking of such vote of stockholders as the date as of which the
Conversion Price is calculated. Holders of the Series A Preferred Stock also
shall be entitled to notice of all shareholder meetings or written consents with
respect to which they would be entitled to vote, which notice would be provided
pursuant to BCAM or the Company's by-laws and applicable statutes.
8) Protective Provision. So long as shares of Series A Preferred Stock are
outstanding, the Company shall not without first obtaining the approval (by vote
or written consent, as provided by New York Law) of the holders of at least
seventy-five percent (75%) of the then outstanding shares of Series A Preferred
Stock, and at least seventy-five percent (75%) of the then outstanding Holders:
(a) alter or change the rights, preferences or privileges of the
Series A Preferred Stock or any Senior Securities so as to affect
adversely the Series A Preferred Stock; provided, however, that no such
change may be approved at any time on or prior to the effectiveness of the
registration statement unless such change is unanimously approved by all
Holders;
(b) create any new class or series or stock having a preference over
or on parity with the Series A Preferred Stock with respect to
Distributions (as defined in Section 2 above) or increase the size of the
authorized number of Series A Preferred; or
(c) do any act or thing not authorized or contemplated by this
Designation which would result in taxation of the holders of shares of the
Series A Preferred Stock under Section 305 of the Internal Revenue Code of
1986, as
<PAGE>
amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
In the event Holders of at least seventy-five percent (75%) of the then
outstanding shares of Series A Preferred Stock and at least seventy-five percent
(75%) of the then outstanding Holders agree to allow the Company to alter or
change the rights, preferences or privileges of the shares of Series A Preferred
Stock, pursuant to subsection (a) above, so as to affect the Series A Preferred
Stock that did not agree to such alteration or change (the "Dissenting Holders")
and Dissenting Holders shall have the right for a period of thirty (30) business
days to convert pursuant to the terms of this Certificate of Designation as they
exist prior to such alteration or change.
9) Status of Converted or Redeemed Stock. In the event any shares of
Series A Preferred Stock shall be converted or redeemed pursuant to Section 5 or
Section 6 hereof, the shares so converted or redeemed shall be canceled, shall
return to the status of authorized but unissued Preferred Stock of no designated
series, and shall not be issuable by the Company as Series A Preferred Stock.
10) Preference Rights. Nothing contained h@ shall be construed to prevent
the Board of Directors of the Company from issuing one (1) or more series of
Preferred Stock with dividend and/or liquidation preferences junior to the
dividend and liquidation preferences of the Series A Preferred Stock."
4. The above amendments to the Certificate of lncorporation were authorized
by unanimous written consent of the board of directors followed by written
consent of the sole shareholder of the Corporation.
IN WITNESS WHEREOF, the undersigned have executed this Certificate
as of the 19th day of July, 1997.
\s\ Robert P. Wong
-------------------------------
Robert P. Wong, President
\s\ Karen J. Tantone
-------------------------------
Karen J. Tantone, Secretary
RUSKIN, MOSCOU, EVANS & FALTISCHEK P.C.
170 Old Country Road
Mineola, NY 11501
September 4, 1997
BCAM International, Inc.
1800 Walt Whitman Road
Melville, New York 11747
Gentlemen:
You have requested our opinion in connection with Post-Effective Amendment
No. 13 on Form SB-2 to Form S-1 to be filed by BCAM International, Inc. (the
"Company") with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, (the "Act"), regarding registration under
the Act of certain securities (the "Securities") for sale by the Company and by
certain Selling Shareholders named therein.
As counsel for the Company, we have examined such records, documents and
questions of law as we have deemed appropriate for the purposes of this opinion
and, on the basis thereof, advise you that in our opinion all the Securities
which are currently outstanding are, and which are issuable upon the due and
proper exercise of Securities will be, legally issued and fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to this firm in the Prospectus under
the caption "Legal Matters."
Very truly yours,
/s/ Ruskin, Moscou, Evans & Faltischek P.C.
January 15, 1997
BCAM INTERNATIONAL, INC.
(A New York Corporation)
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
$1,100,000 (Maximum) - 1,100,000 Units at $1.00 per Unit
$400,000 (Minimum) - 400,000 Units at $1.00 per Unit
This is an Offering for up to 1,100,000 Units, each Unit consisting of one
share of the Company's Common Stock (the "Shares") and a non-redeemable Class AA
Warrant (the "Warrant") which entitles the holder to purchase one Share until
March 31, 1998 at a price of $1.10 per share. These Units will be offered in
minimum blocs of 100,000 Units at a price of $100,000 per Unit. The Company
reserves the right to sell fractional (1/2) Units.
The Units (and the Shares and Warrants) offered hereby have not been
registered with or approved by the Securities and Exchange Commission ("SEC") in
reliance upon the exemptions from registration pursuant to Section 4(2) of the
Securities Act of 1933 as amended (the "Act") and as promulgated by the SEC
pursuant to the Act. Any representation to the contrary is unlawful. This
Memorandum does not constitute an offer or solicitation in any state or other
jurisdiction in which such offer or solicitation is not authorized. Each
purchaser of the securities offered hereby must acquire the securities for his
own account and must bear the economic risk of the investment for an indefinite
period. Although the Company's Common Stock is publicly traded on NASDAQ
(symbol: BCAM) and the Boston Stock Exchange (symbol: BAM), the Units (and the
Shares and the Warrants) offered hereby are not being registered with the
Securities and Exchange Commission and are not freely tradeable, and there is no
assurance that there will be a market for the resale of these securities when,
or if, they are registered. Subject to applicable regulations, the Company will
register the Common Stock and the Common Stock issuable on the exercise of the
Class AA Warrants on January 31, 1998, or as soon thereafter as practical.
================================================================================
Price to Sales Commission Proceeds to
Investor Issuer
- --------------------------------------------------------------------------------
Per Unit $100,000 $0 $100,000
- --------------------------------------------------------------------------------
Total Minimum (400,000 Units) $400,000 $0 $400,000
- --------------------------------------------------------------------------------
Total Maximum (1,100,000 $1,100,000 $0 $1,100,000
Units)
================================================================================
THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION UNDER THE SECURITIES AND
EXCHANGE ACT OF 1933 WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION.
THE SECURITIES AND
<PAGE>
EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF ANY SECURITIES NOR DOES IT
PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SELLING
LITERATURE.
THIS MEMORANDUM HAS NOT BEEN REVIEWED BY THE ATTORNEY GENERAL OF THE STATE OF
NEW YORK PRIOR TO ITS ISSUANCE AND USE. THE ATTORNEY GENERAL OF THE STATE OF NEW
YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE CONSIDERED ONLY BY
PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. THE SECTIONS OF THIS
MEMORANDUM ENTITLED "RECENT EVENTS" AND "SPECIAL RISK FACTORS" (AT PAGES 6
THROUGH 7 AND PAGES 7 THROUGH 9 ) SHOULD BE CAREFULLY REVIEWED BY EACH
PROSPECTIVE INVESTOR.
THE UNITS ARE BEING OFFERED ON A "BEST EFFORTS" BASIS BY THE COMPANY FOR A
PERIOD UNTIL FEBRUARY 28, 1997, UNLESS EXTENDED.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME.
FOR FLORIDA RESIDENTS
THE UNITS REFERRED TO HEREIN WILL BE SOLD TO, AND ACQUIRED BY, THE HOLDER
IN A TRANSACTION EXEMPT UNDER ss.517.061 OF THE FLORIDA SECURITIES ACT. THE
UNITS HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE STATE OF FLORIDA. IN
ADDITION, ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF VOIDING THE PURCHASE
WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH
PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER, OR AN ESCROW AGENT OR WITHIN
THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH
PURCHASER, WHICHEVER OCCURS LATER.
FOR NEW YORK RESIDENTS
THE PRIVATE PLACEMENT MEMORANDUM HAS NOT BEEN REVIEWED BY THE ATTORNEY GENERAL
PRIOR TO ITS ISSUANCE AND USE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS
NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
i
<PAGE>
THIS PRIVATE OFFERING MEMORANDUM DOES NOT CONTAIN AN UNTRUE STATEMENT OF A
MATERIAL FACT OR OMIT TO STATE A MATERIAL FACT NECESSARY TO MAKE THE STATEMENTS
MADE IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING.
IT CONTAINS A FAIR SUMMARY OF THE MATERIAL TERMS AND DOCUMENTS PURPORTED TO BE
SUMMARIZED HEREIN.
FOR PENNSYLVANIA RESIDENTS
UNDER PROVISIONS OF THE PENNSYLVANIA SECURITIES ACT OF 1972, EACH PENNSYLVANIA
RESIDENT SHALL HAVE THE RIGHT TO WITHDRAW HIS ACCEPTANCE WITHOUT INCURRING ANY
LIABILITY TO THE SELLER, UNDERWRITER (IF ANY) OR ANY PERSON, WITHIN TWO (2)
BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE ISSUER OF HIS WRITTEN BINDING
CONTRACT OF PURCHASE OR IN THE CASE OF A TRANSACTION IN WHICH THERE IS NO
WRITTEN BINDING CONTRACT OF PURCHASE, WITHIN TWO BUSINESS DAYS AFTER HE MAKES
THE INITIAL PAYMENT FOR THE SECURITIES BEING OFFERED.
ii
<PAGE>
NOTICE
The following documents previously filed by the Company with the
Securities and Exchange Commission (the "Commission") are hereby included in
this Private Placement Memorandum:
1. The Company's Annual Report on Form 10-KSB for the year ended December
31, 1995; and
2. The Company's Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1996.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended, shall be deemed to
be incorporated by reference into this Private Placement Memorandum. Any
statements contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Private Placement Memorandum to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Registration Statement.
The Company undertakes to provide without charge to each person to whom a
Prospectus is delivered, upon oral or written request of such person, a copy of
any document that has been incorporated in this Prospectus by reference.
Requests for such documents should be directed to
1
<PAGE>
the Company at its offices located at 1800 Walt Whitman Road, Melville, New York
11747 (telephone number (516) 752-3550), Attention: Secretary
2
<PAGE>
- -------------------------------------------------------------------------------
SUMMARY OF OFFERING
Offering/Per Unit.............. One share of Common Stock and one
Class AA Warrant (the "Warrant")
Amount......................... Up to 1,000,000 Units; minimum
offering of 400,000 Units
Use of Proceeds................ See page 9 for details
Class AA Warrants.............. Each Class AA Warrant entitles the
holder to purchase one share of
BCAM Common Stock at $1.10 per
share
Term........................... Exercisable to March 31, 1998
Anti-Dilution, No Call......... Standard formula for stock splits,
stock dividends or issuances or
sale of Common Stock below
conversion price or market price.
The Company cannot compel the
redemption of the Warrants
Registration of Common Stock... Subject to applicable regulations, the
Company will register the Common Stock and
the Common Stock issuable on the exercise
of the Class AA Warrants by January 31,
1998 or as soon thereafter as practical.
- --------------------------------------------------------------------------------
3
<PAGE>
SUMMARY
The following summary information is qualified in its entirety by
reference to the more detailed information, financial statements and notes
appearing elsewhere in this Prospectus.
THE COMPANY
BCAM International, Inc. (the "Company") a New York based corporation, is
a software technology company, specializing in providing ergonomic solutions
(Human Factors Engineering) for major corporations and Government Agencies
including NASA. The Company completed its restructuring, in early 1996, by
focusing on (a) accelerating the development and commercialization of the
Company's Intelligent Surface Technology ("IST"), (b) continuing its development
of proprietary software, which consists of the intelligent part of IST,
Mannequin(R), the EARLY(R) process and Back-to-Work(TM) Technology, (c) building
its ergonomic consulting services business, which consists of Ergonomic Product
Assessment and Redesign, and Ergonomic Workplace Assessment, and (d) emphasizing
a strategy of broadening and strengthening business relationships such as joint
ventures, partnerships, licenses and other alliances. In addition, the Company
established a collaborative research and development relationship with the State
University of New York at Stony Brook, with plans to establish additional
relationships with other universities, government laboratories, and other
subcontractors.
4
<PAGE>
The Company continues to believe that its ergonomic consulting services
was and still is the engine that drives new product ideas and with it, the
potential of royalty income, as well as new product and service offerings.
During the course of the Company's performance of ergonomic product and
workplace assessment services, the Company from time to time develops certain
know-how based upon data from its consulting services which it is able to embody
into proprietary technologies. When this occurs, and it is believed that the
technology is a significant enhancement from the existing technology, the
Company files for patent protection under the laws of the United States and, if
warranted, internationally.
On November 25, 1996, the Company signed a letter of intent to acquire
Drew Shoe Corporation. (See "Recent Events" at pages 6 and 7 ).
5
<PAGE>
RECENT EVENTS
On November 25, 1996, the Company entered into a letter of intent
for the purchase of Drew Shoe Corporation ("Drew") (either as a stock purchase
or an asset purchase, to be determined) of Lancaster, Ohio, a privately held
company founded in 1875 that has become a leading designer, manufacturer,
marketer and distributor of premium priced men's (20%) and women's (80%) high
quality, classically designed Medical Shoes and Orthotic products, with
significant brand name recognition. Drew has a solid distribution network,
supplying to independent retailers throughout the country and directly to
customers through its 15 owned specialty retail outlet stores throughout the
United States. Drew's headquarters, located on 11 acres of land occupies 108,000
square feet, of which 65,000 is utilized for manufacturing with the remainder
for warehouse and administrative offices. All facilities are company owned. Drew
specializes in medical footwear for those suffering from the types of problems
requiring pedorthic/prescription products such as: (a) persons with congenital
defects or injuries that produce foot deformities such that standard sizes do
not fit properly, (b) those suffering from the effects of spending large amounts
of time standing, especially on hard surfaces, (c) those suffering from the
effects of having worn ill fitting shoes, and (d) those suffering from diseases
that affect the foot, especially arthritis and diabetes. Most foot problems are
exacerbated by age-with the over 50 segment of the population being particularly
susceptible. Thus, the continued aging of the U.S. population should serve well
to expand Drew's target market.
The United States market for Medical Shoes and related products has been
estimated by the Pedorthic Footwear Association (PFA) as 73% of the U.S.
population (190 million people)
6
<PAGE>
who spend a total of $28 Billion per year on these products. The target market
for Drew for persons requiring pedorthic/prescription footwear is estimated by
the PFA to be between 2% and 5% of the population or $2 Billion to $4 Billion
per year.
The Company believes that Drew's expanding market, long-standing
reputation in the marketplace and it's strategic operating position, makes it an
excellent acquisition that will position the Company to fully exploit the growth
in the Medical footwear market and commercialize its Intelligent Surface
Technology for footwear applications. Drew will be positioned as the "leading
edge" in new generation of Medical footwear for persons.
In addition to this offering (see Use of Proceeds on page 10 ), the
Company expects to raise approximately $7,500,000 in new investment funds to
finance the acquisition of Drew and for other purposes including: provision of
the capital requirements for the further development and commercialization of
the Company's Intelligent Surface Technology and proprietary software; funding
for the configuration of the Company's Intelligent Surface Technology in Drew's
medical shoes; and funding other capital and working capital requirements for
the first and second year following the Drew acquisition. The Company has
retained the investment banking firm of Josephberg Grosz & Company to "manage"
the Drew-related financing.
SPECIAL RISK FACTORS
The risks to the investor presented by the Drew transaction include:
A. No Assurances That The Drew Acquisition Will Occur. If this
acquisition is not consummated, the Company's losses will be higher since all
the expenditures incurred for
7
<PAGE>
legal, accounting and due diligence in connection with the Drew acquisition,
cannot be capitalized and will have to be expensed. Also, by not closing the
Drew acquisition, the Drew-related financing, which is intended to fund further
development of the Company's Intelligent Surface Technology and proprietary
software, as well as the Drew acquisition, will not be raised. The Company would
then seek additional capital, which is expected to be dilutive to the Company's
existing stockholders, including the purchasers of this private placement, and
there can be no assurances that such capital can be raised.
B. Dilutive Effects Of The Drew-Related Financing. The Company has
not been advised of the actual terms by which investors would be willing to
invest approximately $7.5 million in the Company in order to permit it to
consummate the Drew acquisition. The terms of such a financing are, however,
expected to include provisions that provide such investors with a preference on
the Company's assets and in the payment of dividends, which provide investors
with certain levels of control over the Company's actions, and which may be at a
price which is more favorable than the price of the Units being sold pursuant to
this offering.
C. Ongoing Operation of Drew. While Drew has historically been
profitable, there can be no assurance that its business will continue to be
profitable following its acquisition by the Company. One of Drew's two partners
will be retiring from the Drew business and, while the Company believes that the
remaining partner, who will have a three-year employment contract with the
Company, is capable of operating the Drew business, it is possible that this
will not be the case. Drew will replace the function of the retiring partner
through the hire of a Vice President of Operations and a Director of Information
Systems. Additionally, the continued profitability of the
8
<PAGE>
Drew business is subject to numerous uncertainties, some of which the Company
may not be aware of on the date hereof.
D. Diversion of Company Executive's Attention. The Drew acquisition (and
the negotiations leading up to the Drew acquisition) are expected to consume an
enormous amount of Michael Strauss' time, which will detract from his ability to
focus on BCAM's "core business" for a period of time. The diversion of his
full-time effort on BCAM's "core business" could adversely affect the future
growth and development of this business.
9
<PAGE>
USE OF PROCEEDS
The proceeds from the sale of the Shares and any proceeds from the
exercise of the nonredeemable Class AA Warrants will be used by the Company for
general working capital purposes including further investment in technology
development.
This represents the Company's best estimate of its use of the net
proceeds, based upon the current state of its business operations, its current
plans and current economic and industry conditions. Further events, not
currently predictable, may require reallocation of the funds.
In 000's
--------
Mannequin(R) Software Marketing Launch $ 500
Back-To-Work(TM) 200
Development of Prototype of "Microvalve" 200
Partial Development of Intelligent Surface
Technology 100
------
$1,000
======
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996.
December 1, 1996 As Adjusted
---------------- -----------
Acquisition Preferred Stock, par $ -- $ --
value $.01 per share, authorized
750,000 shares, no shares issued or
outstanding
Common Stockholders' Equity:
Common Stock, $.01 par value,
40,000,000 shares authorized;
15,640,415 shares issued and
14,877,233 outstanding: 16,640,415
shares issued and 15,877,233
outstanding, as adjusted (1) 156,404 166,404
Paid-in surplus 14,984,139 15.974,139
Deficit (12,858,851) (12,858,851)
------------ ------------
2,281,692 3,281,692
Less:
Treasury Shares (763,182 shares) (899,100) (899,100)
------------ ------------
Common Stockholders Equity $ 1,382,592 $ 2,382,592
============ ============
(1) assumes the sale of 1,000,000 shares of Common Stock at $1.00 per share.
Does not include the exercise of the nonredeemable Class AA Warrants
11
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
In June 1995, the Company authorized an increase in its authorized Common
Stock from 20,000,000 shares, $.01 par value per share, to 40,000,000 shares,
$.01 par value per share. The holders of outstanding shares of Common Stock are
entitled to receive dividends out of assets legally available therefor at such
time and in such amounts as the Board of Directors may from time to time
determine. See "Dividend Policy." Each stockholder is entitled to one vote per
share of Common Stock held by him. Under the Company's Restated Certificate of
Incorporation the Common Stock is not subject to redemption. Upon liquidation,
dissolution or winding up of the Company and following provision for the
liquidation preference of all outstanding preferred stock, the assets legally
available for distribution to the holders of Common Stock are distributable
ratably among the holders of the outstanding Common Stock. All outstanding
shares of Common Stock are, and the shares of Common Stock issuable upon
exercise of the Warrants will upon issuance, be fully paid and non-assessable.
Warrants
Class B, and Class E Warrants; Class AA Warrants
On December 20, 1996, the Company extended the expiration date of the
Company's Class B Warrants, and Class E Warrants from January 17, 1997 to
January 17, 1998, and amended the exercise price of the Class B Warrants as set
forth in the table below.
Each Class AA Warrant, which is being sold as part of the Units offered
hereby, will entitle the holder to purchase, at the "Warrant Exercise Price" of
$1.10 per share, one share of the
12
<PAGE>
Company's Common Stock at any time prior to March 31, 1998. The Class AA
Warrants are not redeemable, and are not transferable.
The exercise price of the Class B and E Warrants, as well as the Class AA
Warrants, and the number and kind of shares of Common Stock or other securities
and property to be obtained upon the exercise of those Warrants are subject to
adjustment in certain circumstances, including a stock split of, or stock
dividend on, or a subdivision, combination or recapitalization of, the Common
Stock or sale of Common Stock at less than the market price of the Common Stock,
provided that no adjustment shall be made unless and until the adjustment, or
the aggregate of successive adjustments, would exceed $.25 per share.
Additionally, an adjustment would be made upon the sale of all or substantially
all of the assets of the Company so as to enable those Warrant holders to
purchase the kind and number of shares of stock or other securities or property
(including cash) receivable in such event by a holder of the number of shares of
Common Stock that might otherwise have been purchased upon exercise of such
Warrant. No adjustment for previously paid cash dividends, if any, will be made
upon exercise of those Warrants.
Number of Shares
Number of Exercise Price Obtained Upon
Warrants (per share, as Exercise of Each
Warrants and Period Outstanding adjusted) Warrant Redeemable
Class B 807,659 $1.50 1.2 Yes (1)
Class E 491,588 $1.25 1.1 Yes (1)
Class AA 1,000,000 $1.10 1.0 No
13
<PAGE>
- ----------
(1) The Class B and Class E Warrants are subject to redemption by the Company
at any time, on not less than 30 days' prior written notice, at $.05 per
Warrant, if (i) the average Exercise Price of the Common Stock exceeds the
applicable average closing bid price for any period of 30 consecutive
business days ending within 15 days prior to the date o the notice of
redemption; and (ii) the Company has in effect a current prospectus
covering the Common Stock issuable upon exercise of the Class B and Class
E Warrants.
The Warrants do not confer upon the holder any voting or any other rights
of a stockholder of the Company. Upon notice to the Warrant holders, the Company
has the right to reduce the exercise price or extend the expiration date of the
Warrants.
The Warrants may be exercised upon surrender of the Warrant certificate
on or prior to the respective expiration date (or earlier redemption date) of
such Warrants at the offices of the Warrant Agent, with the form of "Election
to Purchase" on the reverse side of the Warrant certificate duly completed
and executed accompanied by payment of the full exercise price (by certified
check payable to the order of the Warrant Agent) for the number of Warrants
being exercised.
Acquisition Preferred Stock
The Company is authorized to issue 750,000 shares of its Acquisition
Preferred Stock, $.01 par value, none of which are presently issued and
outstanding. The Acquisition Preferred Stock is only permitted to be issued as
consideration pursuant to (i) a statutory merger or consolidation as to which
the Company is the surviving entity, (ii) the acquisition by the Company of
substantially all the assets or business of another entity, or (iii) the
acquisition by the Company of 50% or more of the voting securities of another
entity.
14
<PAGE>
8% Preferred Stock
The Company is authorized to issue 15,000 shares of its 8% Preferred
Stock, $10.00 par value, none of which are issued and outstanding, Holders of 8%
Preferred Stock do not have any voting rights.
Transfer Agent and Warrant Agent
North American Transfer Co., Freeport, New York, is the Company's transfer
agent.
SHARES ELIGIBLE FOR FUTURE SALE
Upon issuance and registration of all shares of Common Stock issuable upon
exercise of the foregoing options and warrants, the Company will have 19,152,171
shares of Common Stock outstanding, all of which are freely tradeable, not
including the Shares sold pursuant to this Offering.
With respect to an aggregate of 2,765,000 of Common Stock that could be
issued upon the exercise of options granted to employees and certain
consultants, such stock is also expected to be freely tradeable upon the
exercise of the options. There can, however, be no assurance that such options
will be exercised on the dates on which such exercises and sales will occur.
PLAN OF DISTRIBUTION
The Shares are being offered by the Company on a "best efforts" basis in a
"private" offering to a select number of accredited investors. No broker,
underwriter or placement agent is being utilized or compensated for the sale of
the Units.
15
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Ruskin, Moscou, Evans & Faltischek, P.C., Mineola, New York.
16
<PAGE>
SUBSCRIPTION AGREEMENT
BCAM International, Inc.
1800 Walt Whitman Road
Melville, New York 11747
Gentlemen:
(1) Subscription
The undersigned hereby subscribes to purchase __________ Units at $1.00
per Unit, each Unit consisting of one share of Common Stock of BCAM
International, Inc. (the "Company") and a Class AA Warrant to purchase one
Share of Common Stock at $1.10 per share at any time prior to March 31,
1998, and herewith tenders payment for the subscribed number of shares. In
connection with this subscription, I hereby execute this Investment Letter
and agree that my subscription may be rejected by the Company either in
whole or in part, for any reason whatsoever, and I understand that if my
subscription is rejected, all of my funds will be returned to me, without
interest.
I hereby acknowledge that I have received, read, understand, and am
familiar with the "Confidential Private Placement Memorandum" dated
January 15, 1997, including all attachments and exhibits thereto
("Memorandum"). I further acknowledge that, except as set forth in the
Memorandum, no representations or warranties have been made to me, or to
my advisors, by the Company, or by any person acting on behalf of the
Company with respect to the sale of the Units and/or the economic, tax or
any other aspects or consequences of a purchase of the Units and/or the
investment made therein, and that I have not relied upon any information
concerning the Offering, written or oral, other than that contained in the
Memorandum.
I hereby acknowledge that I have had an opportunity to ask questions of,
and receive answers from persons acting on behalf of the Company to verify
the accuracy and completeness of the information set forth in the
Memorandum and I hereby acknowledge that I have not requested the Company
to provide any additional information with respect to the Company or the
Offering prior to the actual sale of the shares to me.
(2) Representations and Warranties
I warrant and represent to the Company:
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(a) The Units are being issued to me by the Company for investment only,
for my own account, and are not being purchased by me with a view to
distribution of said Units, or for the offer and/or sale in
connection with any distribution thereof. The undersigned is not
participating, directly or indirectly, in an underwriting of the
Units (or Common Stock) or in any similar undertaking. I have no
present plans to enter into any contract, undertaking, agreement or
arrangement which would entail an underwriting of such shares or any
similar distribution thereof.
(b) By reason of my knowledge and experience in financial and business
matters in general, and investments of this type in particular, I am
capable of evaluating the merits and risks of an investment by me in
the units and I am capable of bearing the economic risks associated
with this investment in the Units.
(c) I understand that there is no guarantee of profits or against loss
as a result of purchasing the Units and I hereby state that I can
afford a complete loss of my investment in such Units. I further
warrant that my present financial condition is such that I have no
present or perceived future need to dispose of any portion of the
Units to satisfy any existing or contemplated undertaking,
obligation, need or indebtedness. Consequently, I represent that I
have sufficient liquid assets to pay the full purchase price for the
Units, have adequate means for providing for my current needs and
possible personal contingencies and have no need to liquidate any of
my investment in the Company.
(d) I am an "accredited investor" as that term is defined in Rule 501 of
Regulation D promulgated by the Securities and Exchange Commission,
in that (i) my individual net worth or joint net worth taking my
spouse into consideration, at the time of my purchase of the Units
herein, exceeds One Million Dollars ($1,000,000); or (ii) my
individual income in each of the last two years exceeded Two Hundred
Thousand Dollars ($200,000) ($300,000 joint income taking my spouse
into consideration) and I have a reasonable expectation of reaching
the same income level in this current year.
(e) I have been represented by such legal counsel and other advisors,
each of whom has been personally selected by me, as I have found
necessary to consult concerning the purchase of Units, and such
representation has included an examination of applicable documents
and an analysis of all tax, financial, recording and securities law
aspects of an investment in the Units. I, my counsel, my advisors,
and such other persons with whom I have found it necessary and
advisable to consult, have represented to me that they have
sufficient knowledge or experience in business and financial matters
to evaluate the information set forth in the Memorandum, the risks
associated with this investment, and to make an informed investment
decision with respect hereto. To the extent that I have found
2
<PAGE>
it necessary to consult with any such counsel and/or advisors
concerning the purchase of the Units. I have relied upon their
advice and counsel in making such investment decision.
(f) I am a resident of the state set forth below my name on the
signature page of this investment letter.
(3) "Lock-up" and Securities Law Restrictions on Transfers
I understand that the Common Stock is required to be registered under the
Securities Act of 1933 (the "1933 Act") in accordance with the
"registration rights" provisions of Annex A hereto.
I agree that any certificates evidencing the Units (and Common Stock and
the Class AA Warrants) received by me by virtue of this subscription shall
be stamped or otherwise imprinted with a conspicuous legend to give notice
of the securities law transfer restrictions set forth herein and I
acknowledge that the Company may cause stop transfer orders to be placed
on my account. The legend shall be in substantially the following form:
NO SALE, OFFER TO SELL, OR TRANSFER OF ANY SECURITY REPRESENTED BY THIS
CERTIFICATE SHALL BE MADE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND IN COMPLIANCE
WITH ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT THE PROPOSED TRANSFER IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF SAID ACT AND IS IN COMPLIANCE WITH APPLICABLE
STATE SECURITIES LAWS.
(4) Notices
Any Notices or other communications required or permitted herein shall be
sufficiently given if sent by registered or certified mail, postage
prepaid, return receipt requested, and if to the Company, to the address
set forth above, and if to me to the address set forth below my signature
hereto, or to such other addresses as the company or I shall designate to
the other by notice in writing.
(5) Applicable Law
Except when an interpretation of Federal and/or state securities laws is
necessary or such law governs, this agreement shall be governed by and
construed in accordance with the laws of the State of New York.
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<PAGE>
(6) Certification With Respect to Federal Interest Payments; Back-up
Withholding
Under penalties of perjury, the undersigned hereby certifies to the
Company as follows:
(a) The number shown below is my Social Security Number (or if
applicable, the undersigned's Tax Identification Number) and such
number is my correct taxpayer identification number; and
(b) I am not subject to back-up withholding either because I have not
been notified by the Internal Revenue Service that I am subject to
back-up withholding as a result of a failure to report all interest
or dividends, or the Internal Revenue Service has notified me that I
am no longer subject to back-up withholding.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Agreement this ________ day of _______________, 1997.
Subscription:__________________ Units
at $1.00 per Unit
____________________________ ________________________________
Signature of Subscriber Typed or Printed Name
____________________________ _________________________________
Social Security or Tax ID # of Subscriber Address (Residence)
_________________________________
City/Town State Zip
_________________________________
Telephone
ACCEPTED: BCAM INTERNATIONAL, INC.
DATED:_____________________ By:_________________________
Authorized Officer
4
<PAGE>
BCAM INTERNATIONAL, INC.
CONFIDENTIAL PROSPECTIVE PURCHASER QUESTIONNAIRE
THIS QUESTIONNAIRE IS TO BE COMPLETED BY EACH PERSON WHO DESIRES TO
PURCHASE UNITS OF BCAM INTERNATIONAL, INC. (THE "COMPANY").
INSTRUCTIONS
If, the answer to any questions is "None" or "Not Applicable," please so
state.
Your answers will be kept confidential at all times, however, you hereby
agree that the Company or the Placement Agent may present this Questionnaire to
such parties as they deem appropriate in order to assure themselves that the
offer and sale of Common Stock to you will not result in violations of federal
or state securities laws which are being relied upon by the Company or the
Placement Agent in connection with the offer and sale thereof.
INSTRUCTIONS: Please type clearly or print your answer, and state "none" or "not
applicable" when appropriate. Please complete Section A and each other Section
you are requested to complete in Question A3. If there is insufficient space for
any of your answers, please attach additional pages. If the Common Stock is to
be owned by more than one individual or by a corporation or partnership, you may
need extra copies of this Questionnaire.
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<PAGE>
SECTION A: SUBSCRIBER INFORMATION
A1. Name(s) of Subscriber(s): _________________
_________________
_________________
A2. Manner of Ownership of Common
Stock
(For IRA's or Keogh Plans - see
Section F)
__ One Individual ........ Please complete Section A, B, C
and, if applicable, D, E and F.
__ Husband and Wife....... Please have one spouse complete
Tenants by the Entirety Sections A, B and C and, if
applicable, D, E and F. Please
have both spouses complete
Section C. Tenants in Common
Please have each individual
separately complete Sections A,
B, and C and, if applicable, D,
E and F.
__ Joint Tenants with Please have each individual
Right of Survivorship separately complete Sections
Two or More Individuals A, B, and C and, if
(but not husband and wife) applicable, D, E and F.
__ Corporate Ownership..... Please complete Section A, B, D
and, if applicable, E and F for
the corporation. Please have
each person who owns an equity
interest in the corporation
separately complete Sections B
and, if applicable, C, D, E and
F.
__ Partnership Ownership.... Please complete Sections A, B
and D, and have each general
partner and limited partner
separately complete Sections B,
C, D, E and F, if applicable.
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<PAGE>
__ Trust Ownership ........ Please complete Sections A, B and
F, if applicable, and have each
beneficiary and trustee of the
trust separately complete Sections
B, C, D, E and F, if applicable.
SECTION B: ACCREDITED INVESTOR STATUS
B1. Please check whether one or more of the following definitions of
"accredited investor," if any, applies to you.
__ (a) A Bank as defined in Section 3(a)(2) of the Securities Act of
1933, as amended (the "1933 Act"), or any savings and loan
association or other institution as defined in Section
3(a)(5)(A) of the 1933 Act whether acting in its individual or
fiduciary capacity; any broker or dealer registered pursuant
to Section 15 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); an insurance company as defined
in Section 2(13) of the 1933 Act; an investment company
registered under the Investment Company Act of 1940 or a
business development company as defined in Section 2(a)(48) of
that act; a Small Business Investment Company licensed by the
U.S. Small Business Administration under Section 301(c) or (d)
of the Small Business Investment Act of 1958; any plan
established and maintained by a state, or its political
subdivisions, or any agency or instrumentality of a state or
its political subdivisions for the benefit of its employees,
if such plan has total assets in excess of $5,000,000; any
employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974, if the investment
decision is made by a plan fiduciary, as defined in Section
3(21) of such act, which is either a bank, savings and loan
association, insurance company, or registered investment
advisor, or if the employee benefit plan has total assets in
excess of $5,000,000 or, if a self-directed plan, with
investment decisions made solely by persons that are
Accredited Investors.
__ (b) A Private Business Development Company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940.
__ (c) A business corporation or an organization described in Section
501(c)(3) of the Internal Revenue Code a Massachusetts or
similar business trust, or partnership, not formed for the
specific purpose of acquiring the securities offered, with
total assets in excess of
$5,000,000.
__ (d) A natural person whose individual net worth, or joint net
worth with that person's spouse, at the time of purchase
exceeds $1,000,000.
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<PAGE>
__ (e) A natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income
with that person's spouse in excess of $300,000 in each of
those years and has a reasonable expectation of reaching the
same income level in the current year.
__ (f) Any trust, with total assets in excess of $5,000,000, not
formed for the specific purpose of acquiring the Common Stock,
whose purchase is directed by a sophisticated person as
described in Rule 506(b)(2)(ii) of Regulation D.
__ (g) Any entity in which all of the equity owners are Accredited
Investors.
SECTION C: INDIVIDUAL INFORMATION
C1. General Information
Name: ________________________________________________
Date of Birth:__________ Social Security Number:____________
Martial Status: ______ Spouse's Name:_______________________
If the Units are to be owned by two or more individuals (not husband and wife),
are you related to any other co-owners(s)?
Yes__ No__
If yes, please explain the relationship(s):
C2. Principal Residence:
Address:_________________________________________
Number Street
_________________________________________
City State Zip Code
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<PAGE>
Mailing Address (if other than Principal Residence above):
_________________________________________
Number Street
_________________________________________
City State Zip Code
Home Telephone Number (______)___________________
C3. Current Employment or Business Activity:
Company Name: ___________________________________
Address: ________________________________________
Number Street
________________________________________
City State Zip Code
Business Telephone Number: (___)_________________
Principal Business: _____________________________
Position and Title: _____________________________
Description of Duties and Responsibilities: _____
_________________________________________________
Length of Time in Present Position: _____________
Is the company publicly owned: Yes ___ No ___
C4. Education: Please describe your business and/or professional education or
training, listing any schools you have attended and degrees you have
received.
Degrees
Dates School Major (Year Received)
----- ------ ----- ---------------
5
<PAGE>
C5. Prior Employment or Business Activity: Please describe your prior
employment or principal business activities during the last five years,
providing all information requested below.
Description of
Company Name Principal Position Duties and
Dates and Address Business & Title Responsibilities
----- ----------- -------- ------- ----------------
-------------------------------------------------------------------
------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
C6. The undersigned will provide a financial statement if requested by the
Company.
If Individual:
C7. Net worth, exclusive of the net worth of your spouse and exclusive of the
value of your principal residence, furnishings therein and personal
automobiles (IT IS IMPORTANT THAT YOU CHECK THE HIGHEST APPLICABLE
AMOUNT):
( ) less than $100,000 ( ) $100,000 to $149,999
( ) $150,000 to $199,999 ( ) $200,000 to $249,999
( ) $250,000 to $349,999 ( ) $350,000 to $699,000
( ) $700,000 to $799,999 ( ) $800,000 to $1,000,000
( ) over $1,000,000
If Joint Ownership:
C8. Net worth, inclusive of the net worth of your spouse and excluding the
value of your principal residence, furnishings therein and personal
automobiles (HIGHEST APPLICABLE AMOUNT):
( ) less than $100,000 ( ) $100,000 to $149,999
( ) $150,000 to $199,999 ( ) $200,000 to $249,999
( ) $250,000 to $349,999 ( ) $350,000 to $699,000
( ) $700,000 to $799,999 ( ) $800,000 to $1,000,000
( ) over $1,000,000
6
<PAGE>
C9. Indicate (a) your individual income from all sources for the calendar
years 1993 and 1994 and estimated income for 1996 or (b) your joint income
with your spouse from all sources for the calendar years 1994 and 1995 and
estimated income for 1996 (IT IS IMPORTANT THAT YOU CHECK THE HIGHEST
APPLICABLE AMOUNT):
(a) individual income:
$ 60,000 $100,001 $150,000 $200,000
to to to to $300,000
$100,000 $149,999 $199,999 $299,000 and over
-------- -------- -------- -------- --------
1994 ( ) ( ) ( ) ( ) ( )
1995 ( ) ( ) ( ) ( ) ( )
1996 ( ) ( ) ( ) ( ) ( )
(b) joint income:
$ 60,000 $100,001 $150,000 $200,000
to to to to $300,000
$100,000 $149,999 $199,999 $299,000 and over
-------- -------- -------- -------- --------
1994 ( ) ( ) ( ) ( ) ( )
1995 ( ) ( ) ( ) ( ) ( )
1996 ( ) ( ) ( ) ( ) ( )
C10. Investment experience:
(a) The frequency with which you invest in marketable securities is:
( ) often ( ) occasionally ( ) never
(b) The frequency with which you invest in unmarketable securities is:
( ) often ( ) occasionally ( ) never
SECTION D: CORPORATE OFFEREES OR PARTNERSHIP OFFEREES
D1. General Information
Legal Name of Corporation or Partnership: _______________________________
_________________________________________________________________________
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<PAGE>
Fictitious name:_____________________________
State of Incorporation:______________________
Date of Incorporation:______________________
Federal I.D. Number:_________________________
Fiscal Year Ends:____________________________
Number of Equity Owners:_____________________
Name and Title of Executive Officer Executing
Questionnaire:_______________________________
D2. Business Address:____________________________
_____________________________________________
Mailing Address (if different):______________
_____________________________________________
Telephone Number: (___) _____________________
D3. Name of Primary Bank:
Address:_____________________________________
_____________________________________________
Telephone Number: (___)______________________
Account Type and Number:_____________________
Person Familiar with your Account:___________
D4. Was the corporation or partnership formed for the specific purpose of
purchasing securities?
___ Yes ___ No
8
<PAGE>
Check if applicable to the corporation:
Subchapter S___ Professional___
D5. The undersigned represents and warrants as follows:
(a) The corporation or partnership, as the case may be, has been duly
incorporated or formed (if a partnership) is validly existing as a
corporation or partnership in good standing under the laws of the
jurisdiction of its incorporation or formation with full power and
authority to enter into the transactions contemplated by the
Agreement:
(b) (i) The officers or partners of the undersigned who, on behalf
of the undersigned, have considered the purchase of the Common Stock
and the advisers, if any, of the corporation or the partnership, as
the case may be, in connection with such consideration are named
below in this Questionnaire, and such officers and advisors or
partners, if any, were duly authorized to act for the corporation or
the partnership in reviewing such investment.
(ii) The names and positions of the officers or partners, of
the undersigned who, on its behalf, have reviewed the purchase of
the Common Stock is as follows:
____________________________________
____________________________________
(iii) In evaluating the merits and risks of the purchase of
the Common Stock the corporation or the partnership, as the case may
be, intend to rely upon the advice of, or will consult with, the
following persons:
____________________________________
____________________________________
____________________________________
(c) The officers of the corporation (if not Accredited Investors) or the
partners of the partnership who, on its behalf, have considered the
purchase of the Common Stock and the advisors, if any, of the
corporation or the partnership who, in connection with such
consideration, together have such knowledge and experience in
financial and business matters that such officer(s), partner(s) and
such advisor(s), if any, together are capable
9
<PAGE>
of evaluating the merits and risks of the purchase of Common Stock
and of making an informed investment decision;
(d) Together with any corporation or group of corporations with which it
files a consolidated federal income tax return, the undersigned has
reserves and/or net worth adequate to permit it to satisfy any tax
or other liabilities arising from its liability with respect to the
investment and the operation thereof.
(e) The net worth of the corporation or the partnership is in excess of
$___________________
(f) The corporation or the partnership has had, during each of the past
two fiscal or tax years, gross income from all sources of at least
$___________________ and $_________________ respectively;
(g) The undersigned expects the corporation or the partnership to have
during the current fiscal or tax year, gross income from all sources
of at least $_______________; and
(h) The undersigned knows of no pending or threatened litigation the
outcome of which could adversely affect the answer to any question
hereunder;
(i) Indicate the following if a partnership offeree:
(1) The date the partnership was formed and stat of formation:______
(2) The names of each partner in the partnership:
____________________________________
____________________________________
Please have each individual partner execute a separate questionnaire
or forward to the Company a letter from a general partner warranting
and representing that each partner is sophisticated and has a
sufficient net worth or salary level to be deemed an Accredited
Investor.
10
<PAGE>
SECTION E. TRUST OFFEREES
E1. General Information:
Legal Name:___________________________________________
State of Formation:___________________________________
Date of Formation:___________________________________
Federal I.D. Number:_______ Fiscal Year Ends:_________
Number of Beneficiaries:______________________________
Principal Purpose:____________________________________
Was the trust formed for the specific purpose of purchasing Units?
___ Yes ___ No
E2. Business Address:_____________________________________
______________________________________________________
Telephone Number: (___)______________________________
Mailing Address_______________________________________
______________________________________________________
E3. Authorization: If the trust was established in connection with a
deferred compensation plan, please attach a copy of the
trust's organizational documents and a properly
certified copy of the resolutions adopted by the trust's
board of directors authorizing the trust to purchase the
Common Stock and authorizing the trustee named below to
execute on behalf of the trust all relevant documents
necessary to subscribe for and purchase the Common
Stock. In all cases, please attach a properly certified
copy of the resolutions adopted by the trustees of the
trust authorizing the trust to purchase the Units and
authorizing the trustee named below to execute on behalf
of the trust all relevant documents necessary to
subscribe for and purchase the Units.
Name of Authorized Trustee:____________________________
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<PAGE>
E4. Please initial the space below if appropriate:
The Trust has total assets exceeding $5,000,000. _____
E5. Name of Primary Bank:_________________________________
Address:______________________________________________
______________________________________________________
Telephone Number: (___)_______________________________
Account Type and Number:______________________________
Person Familiar with your Account:____________________
SECTION F. QUALIFIED PENSION PLAN, INCLUDING IRA AND KEOGH PLANS ("PLAN")
OFFEREES
F1. Please initial the appropriate space below:
_______ a. The Plan requires the investment of each beneficiary or participant
to be held in a segregated account and the Plan allows each
beneficiary or participant to make his own investment decisions,
and the decision to purchase the Units has been made by the
beneficiary or the participant and such beneficiary or
participant is an Accredited Investor (Please provide information
of the same kind requested of individual offerees relating to
such Investor)
OR
_______ b. The investment decisions made for the Plan are made by a plan
fiduciary, whether a bank, an insurance company, or a registered
investment advisor.
OR
_______ c. The Plan has total assets exceeding $5,000,000.
12
<PAGE>
F2. General Information:
Legal Name:___________________________________________
State of Formation:___________________________________
Date of Formation:____________________________________
Federal I.D. Number:_______ Fiscal Year Ends:_________
Number of Beneficiaries:______________________________
Principal Purpose:____________________________________
F3. Business Address:_____________________________________
______________________________________________________
Telephone Number: (___)______________________________
Mailing Address_______________________________________
______________________________________________________
F4. Authorization: If the investment decision is being made by a beneficiary
or participant of a Plan, please attach applicable
trust documents which permit each beneficiary or
participant to make his own investment decisions. In
all other cases, please attach or reference a copy of
the resolutions adopted by the trustees of the Plan
trust authorizing the Plan to purchase the Units and
authorizing the fiduciary named below to execute on
behalf of the Plan all relevant documents necessary to
subscribe for and purchase the Units.
Name of Authorized Fiduciary:_________________________
F5. Name of Primary Bank:_________________________________
Address:______________________________________________
______________________________________________________
______________________________________________________
Telephone Number: (___)_______________________________
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<PAGE>
Account Type and Number:_____________________________
Person Familiar with your Account:___________________
The undersigned hereby represents and warrants that the foregoing
statements are true and accurate to the best of the information and belief of
the undersigned and the undersigned will promptly notify the Company of any
changes in the foregoing answers.
FOR INDIVIDUALS:
_____________________________________
(Print Name)
_____________________________________
(Print Name)
Dated: ________________, 1997
_____________________________________
(Signature)
FOR CORPORATIONS:
_____________________________________
Name of Company
_____________________________________
Executive Officer of Company
Dated: ________________, 1997 _____________________________________
Signature of Officer
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<PAGE>
FOR PARTNERSHIPS:
_____________________________________
Name of Partnership
_____________________________________
Name of Partner executing
Questionnaire
Dated: ________________, 1997 _____________________________________
Signature of Partner
executing Questionnaire
FOR TRUSTS:
_____________________________________
Name of Trust
_____________________________________
Name of Authorized Trustee
Dated: ________________, 1997 _____________________________________
Signature of Authorized
Trustee
FOR QUALIFIED PENSION PLANS:
_____________________________________
Name of Qualified Pension Plan
and
_____________________________________
Name of Plan Fiduciary
executing Questionnaire
15
<PAGE>
Dated: ________________, 1997 _____________________________________
Signature of Plan Fiduciary
executing Questionnaire
or
_____________________________________
Name of Plan Fiduciary
executing Questionnaire
or
Dated: ________________, 1997 _____________________________________
Signature of Plan Beneficiary
executing Questionnaire
16
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
July 22, 1997 by and among BCAM INTERNATIONAL, INC., a New York corporation
("Company"), Corporate Capital Management ("Investment Banker") and the
subscribers (hereinafter referred to as "Subscribers" or "Investors") to the
Company's offering ("Offering") of up to One Million Five Hundred Thousand
Dollars ($1,500,000) of Series A Convertible Preferred Stock (the "Preferred
Stock") pursuant to the Regulation D Securities Subscription Agreement between
the Company and the Subscriber(s) ("Subscription Agreement").
1. Definitions For purposes of this Agreement:
(a) The term "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933 (the "Act"), and
the declaration or ordering of effectiveness of such registration statement or
document;
(b) For purposes of the Required Registration under Section 2 hereof, the
term "Registrable Securities" means the shares of the Company's Common Stock
issuable or issued upon (i) conversion of the Series A Preferred Stock (the
"Preferred Stock") issued to Subscribers in the Offering and (ii) exercise of
the Warrants.
For purposes of a Piggyback Registration under Section 3 hereof,
"Registrable Securities" shall have the meaning set forth above, except that the
following shall not constitute Registrable Securities for purposes of a
Piggyback Registration under Section 3 hereof:
1. shares of Common Stock obtainable (x) on conversion of the Preferred
Stock (in whole or in part) and (y) on exercise of the Warrant (the
"Warrant Shares"), shall not constitute Registrable Securities if
those shares of Common Stock may be resold in a public transaction
without registration under the Act, including without limitation
pursuant to Rule 144 under the Act, and
2. any Registrable Securities resold in a public transaction shall
cease to constitute Registrable Securities.
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock which have been
issued or are issuable upon conversion of the Preferred Stock and exercise of
the Warrants at the time of such determination;
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<PAGE>
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any permitted assignee thereof;
(e) The term "Warrants" means the warrants granted to any Subscriber(s)
the Investment Banker or to any persons designated by them in connection with
this Offering;
(f) The term "Initiating Holders" means (i) holders of Registrable
Securities obtained or obtainable upon conversion of at least Two Hundred (200)
shares of Preferred Stock; and
(g) The term "Due Date" means the date which is ninety (90) days after the
Last Closing of the initial tranche (as defined in the Subscription Agreement)
of the Offering (as defined in the Subscription Agreement).
2. Required Registration
(a) Within thirty (30) days after the Last Closing of the initial tranche
of the Offering (as defined in the Subscription Agreement), the company shall
file a registration statement ("Registration Statement") on form S-3 (or other
suitable form, at the Company's discretion but subject to the reasonable
approval of the Investors), covering the resale of all shares of Registrable
Securities then outstanding.
(b) The Registration Statement shall be done as a "shelf" registration
statement under Rule 415, and shall be maintained effective until
the distribution described in the Registration Statement is
completed. The Company shall use its best efforts to have the
Registration Statement declared effective within ninety (90) days
after the Last Closing of the initial tranche (as defined in the
Subscription Agreement).
3. Piggyback Registration. If the Registration Statement described in
Section 2 is not effective by the Due Date, and If (but without any obligation
to do so) the company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Holders)
any of its Common Stock under the Act in connection with the public offering of
such securities solely for cash (other than a registration relating solely for
the sale of securities to participants in a Company stock plan or a registration
on Form S-4 promulgated under the Act or any successor or similar form
registering stock issuable upon a reclassification, upon a business combination
involving an exchange of securities or upon an exchange offer for securities of
the issuer or another entity), the Company shall, at such time, promptly give
each Holder written notice of such registration (a "Piggyback Registration
Statement"). Upon the written request of each Holder given by fax within ten
(10) days after mailing of such notice by the Company, which request shall state
the intended method of disposition of such shares by such Holder, the Company
shall cause to be included in such registration statement under the Act all of
the Registrable Securities that each such Holder has requested to be registered
2
<PAGE>
("Piggyback Registration"), nothing herein shall prevent the Company from
withdrawing or abandoning the registration statement prior to its effectiveness.
4. Limitation on Obligations to Register
(a) In the case of a Piggyback Registration on an underwritten public
offering by the Company, if the managing underwriter determines and advises in
writing that the inclusion in the registration statement of all Registrable
Securities proposed to be included would interfere with the successful marketing
of the securities proposed to be registered by the company, then the number of
such Registrable Securities to be included in the registration statement shall
be allocated among all Holders who had requested Piggyback Registration, in the
proportion that the number of Registrable Securities which each such Holder,
including Investment Banker, seeks to register bears to the total number of
Registrable Securities sought to be included by all Holders, including
Investment Banker.
(b) Notwithstanding anything to the contrary herein, the Company shall
have the right (i) to defer the initial filing or request for acceleration of
effectiveness of any Piggyback Registration Statement or (ii) after
effectiveness, to suspend effectiveness of any such registration statement, if,
in the good faith judgment of the board of directors of the Company and upon the
written advice of counsel to the Company, which delay in filing or requesting
acceleration of effectiveness or such suspension of effectiveness is necessary
in light of (i) the requirement by the underwriter in a public offering by the
Company that such Registration Statement be delayed or suspended or (ii) the
existence of material non-public information (financial or otherwise) concerning
the Company, disclosure of which at the time is not, in the opinion of the board
of directors of the Company upon the advice of counsel, (A) otherwise required
and (B) in the best interests of the Company; provided, however, that solely in
the case of a demand registration the Company will not delay filing or suspend
effectiveness of such registration for more than three (3) months from the date
of demand, unless it is then engaged in an acquisition that would make such
registration impracticable, in which case it will use its best efforts to
eliminate such impracticability as soon as possible after such three (3) month
period.
(c) In the event the Company believes that shares sought to be registered
under Section 2 or Section 3 by Holders do not constitute "Registrable
Securities" by virtue of Section 1 (b) of this Agreement, and the status of
those shares as Registrable Securities is disputed, the Company shall provide,
at its expense, an Opinion of Counsel, reasonably acceptable to the Holders of
the Securities at issue (and satisfactory to the Company's transfer agent to
permit the sale and transfer) that those securities may be sold immediately,
without restriction or resale, without registration under the Act, by virtue of
Rule 144 or applicable provisions.
5. Obligations of the Company Whenever required under this Agreement to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
3
<PAGE>
(a) In the event that the number of shares available under a registration
statement filed pursuant to Section 2 or 3 above is insufficient to cover all of
the Registrable Securities then outstanding, the Company shall amend that
registration statement, or file a new registration statement, or both, so as to
cover all shares of Registrable Securities then outstanding. The Company shall
use its best efforts to effect such amendment or new registration within ninety
(90) days of the date the registration statement filed under Section 2 or 3 is
insufficient to cover all the shares of Registrable Securities then outstanding.
Unless and until such amendment or new registration statement is effective, the
Investors shall have the rights described in Section 2(c) above.
(b) Prepare and file with the Securities and Exchange Commission ("SEC") a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective.
(c) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(d) With respect to any Registration Statement filed pursuant to this
Agreement, keep such registration statement effective until the Holders of
Registrable Securities covered by such registration statement have completed the
distribution described in the registration statement.
(e) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(f) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders of the Registrable
Securities covered by such registration statement, provided that the Company
shall not be required in connection therewith or as a condition thereto qualify
to do business or to file a general consent to service or process in any such
states or jurisdictions.
(g) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such agreement.
(h) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such
4
<PAGE>
registration statement, as then in effect, includes an untrue statement of
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in lights of the
circumstances then existing.
(i) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Agreement, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Agreement, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date of the outside
counsel of recognized standing (or reasonably acceptable to Holder) representing
the Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii) a letter dated such date, form the independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and the Holders requesting registration
of Registrable Securities.
(j) As promptly as practicable after becoming aware of such event, notify
each Investor of the happening of any event of which the Company has knowledge,
as a result of which the prospectus included in the Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statement therein, in light of the circumstances under which they were made, not
misleading, and use its best efforts promptly to prepare a supplement or
amendment to the Registration Statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or amendment to each
Investor as such Investor may reasonably request.
(k) Provide Holders with written notice of the sate that a registration
statement registering the resale of the Registrable Securities is declared
effective by the SEC.
(l) Provide Holders and their representatives the opportunity to conduct a
reasonable due diligence inquiry of Company's pertinent financial and other
records and make available its officers, directors and employees for questions
regarding such information as it relates to information contained in the
registration statement.
(m) Provide Holders and their representatives the opportunity to review
the registration statement and all amendments thereto a reasonable period of
time prior to their filing with the SEC.
6. Furnish Information It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
regard to each selling Holder that such selling Holders shall furnish to the
Company such information regarding themselves, the Registrable Securities held
by them, and the intended method of disposition of such securities as shall be
required to effect the registration of their
5
<PAGE>
Registrable Securities or to determine that registration is not required
pursuant to Rule 144 or other applicable provision of the Act.
7. Expenses of Registration All expenses other than underwriting discounts
and commissions and fees and expenses of counsel to the selling Holders incurred
in connection with registrations, filing or qualifications pursuant to Sections
2 and 3, including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company, shall be borne by the Company.
8. Indemnification In the event any Registrable Securities are included in
a registration statement under this Agreement.
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the officers and directors of each Holder, any underwriter
(as defined in the Act) for such Holder and each person, if any, who controls
such Holder or underwriter within the meaning of the Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendment or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation by the
Company of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, the 1934 Act or any state securities law,
and the Company will reimburse each such Holder, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, subsection 10(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, officer, director, underwriter or controlling
person.
(b) To the extent permitted by law, each selling Holder, severally and not
jointly, will indemnify and hold harmless the Company, each of its directors,
each of its officers who have signed the registrations statement, each person,
if any, who controls the company within the meaning of the Act, any underwriter
and any other Holder selling securities in such registration statement or any of
its directors or officers or any person who controls such Holder, against any
losses, claims, damages, or liabilities (joint or
6
<PAGE>
several) to which the Company or any such director, officer, controlling person,
or underwriter or controlling person, or other such Holder or director, officer
or controlling person may become subject, under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will reimburse any legal or other expenses reasonably incurred by the
Company and any such director, officer, controlling person, underwriter or
controlling person, other Holder, officer, director, or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, or action, provided, however, that the indemnity agreement contained
in this subsection 10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld, provided, that, in no event shall any indemnity under this subsection
10(b) exceed the net proceeds from the offering received by such Holder
(c) Promptly after receipt by an indemnified party under this Section 10
of notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 10, deliver to the indemnifying party
a written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the reasonably incurred fees and expenses of one such counsel to
be paid by the indemnifying party, if representation of such indemnified party
by the counsel retained by the indemnifying party would be inappropriate due to
actual or potential conflicting interests between such indemnified party and any
other party represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 10, but the omission so to delivery written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 10.
(d) In the event that the indemnity provided in paragraph (a) or (b) of
this Section 10 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and each holder of Registrable
Securities agree to contribute to the aggregate claims, losses, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defining same) (collectively "Losses") to which the
Company and one or more of the holders of Registrable Securities may be subject
in such proportion as is appropriate to reflect the relative fault of the
Company and the holders in connection with the statements or omissions which
resulted in such Losses; provided, however, that in no case shall any holder be
responsible for any
7
<PAGE>
amount in excess of the net purchase price of securities sold by it under the
registration statement. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to information provided
by the Company or by the holder. The Company and the holders agree that it would
not be just and equitable if contribution were determined by pro rata allocation
or any other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of the is
paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 10, each person who controls a
holder of Registrable Securities within the meaning of either the Securities Act
or the Exchange Act and each director, officer, partner, employee and agent of a
holder shall have the same rights to contribution as such holder, and each
person who controls the Company within the meaning of either the Securities Act
or the Exchange Act and each director of the Company, and each officer of the
Company who has signed the registration statement, shall have the same rights to
contribution as the Company, subject in each case to the applicable terms and
conditions of this paragraph (d).
(e) The obligations of the company and Holders under this Section 10 shall
survive the redemption and conversion, if any, of Preferred Stock, the
completion of any offering of Registrable Securities in a registration statement
under this Agreement, and otherwise.
9. Reports Under Securities Exchange Act of 1934 With a view to making
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration, the Company
agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company, if
true, that it has complied with the reporting requirements of SEC Rule 144, the
Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report
of the company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested in availing any
Holder of any rule of regulation of the SEC which permits the selling of any
such securities without registration.
10. Amendment of Registration Rights Any provision of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent
8
<PAGE>
of the company and the holders of a majority of the Registrable Securities
provided that the amendment treats all Holders equally. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each Holder,
each future Holder, and the Company.
11. Notices All notices required or permitted under this Agreement shall
be made in writing signed by the party making the same, shall specify the
section under this Agreement pursuant to which it is given, and shall be
addressed if to (i) the Company at: President, BCAM International, Inc., 1800
Walt Whitman Road, Melville, NY 11747, Telephone No. (516) 752-3550, Telecopy
No. (516) 752-3558 and (ii) the Holders at their respective last address as the
party shall have furnished in writing as a new address to be entered on such
register. Any notice, except as otherwise provided in this Agreement, shall be
made by fax and shall be deemed given at the time of transmission of the fax.
12. Termination This Agreement shall terminate on the date that is two (2)
years from the date of this Agreement; but without prejudice to (i) the
parities' rights and obligations arising from breaches of this Agreement
occurring prior to such termination (ii) other indemnification obligations under
this Agreement or (iii) the Company's obligation to maintain the effectiveness
of registration statement filed prior thereto in accordance with the terms
hereof, and to fulfill its obligation hereunder in respect thereof until it is
no longer required to maintain the effectiveness thereof.
13. Assignment No assignment, transfer or delegation, whether by operation
of law or otherwise, of any rights or obligations under this Agreement by the
Company or any Holder, respectively, shall be made without the prior written
consent of the majority in interest of the Holders or the Company, respectively;
provided that the right of a Holder may be transferred to a subsequent holder of
the Holder's Registrable Securities (provided such transferee shall provide to
the Company, together with or prior to such transferee's request to have such
Registrable Shares included in a Piggyback Registration, a writing executed by
such transferee agreeing to be bound as a Holder by the terms of the Agreement);
and provided further that the Company may transfer its rights and obligations
under this Agreement to a purchaser of all or a substantial portion of its
business if the obligations of the company under this Agreement are assumed in
connection with such transfer, either by merger or other operation of law (which
may include without limitation a transaction whereby the Registrable Shares are
converted into securities of the successor in interest) or by specific
assumption executed by the transferee.
(Intentionally Left Blank)
15. Governing Law This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
in and wholly to be performed in that jurisdiction, except for matters arising
under the Actor the
9
<PAGE>
Securities Exchange Act of 1934, which matters shall be construed and
interpreted in accordance with such laws.
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date first above written.
BCAM INTERNATIONAL, INC.
By: \s\ Michael Strauss
-----------------------------
Michael Strauss
Address: BCAM International, Inc.
1800 Walt Whitman Road
Melville, NY 11747
By: \s\ Mark Savage
-----------------------------
Mark Savage, President
Address: Corporate Capital Management
14345 23rd Avenue North
Plymouth, Minnesota 55447
INVESTOR(S)
-----------------------------
Investor's Name
By:
-----------------------------
(Signature)
Address:
-----------------------------
-----------------------------
-----------------------------
10
October 4, 1996
Mr. Richard Cooper
Chairman of the Board -
Chief Executive Officer
Stan Altschuler
President -
Chief Operating Officer
Strategic Growth International, Inc.
111 Great Neck Road
Suite 606
Great Neck, NY 11021
Dear Rich & Stan:
This letter is to confirm the agreement under which Strategic Growth
International, Inc. will serve as Investor Relations Consultant to BCAM
International, Inc. ("the Company").
DUTIES:
As Investor Relations Consultant, you will:
a) Consult with the management of the Company on Investor Relations
aspects of shareholder communications, including how to arrange and
conduct meetings with the professional investment community and
investor groups; how to communicate the corporate message to
specified audiences, and how to enhance relations with security
analysts and the financial press.
b) Help develop and implement a comprehensive Investor Relations
program. Each plan will be designed to achieve results-oriented
quantified goals and objectives.
c) Provide professional staff services as may be reasonably required to
help the Company carry out its programs and objectives.
The scope of SGI's services shall not include any activities related to or
regarding the raising of funds. Such activities shall be subject to a separate
agreement.
<PAGE>
Mr. Richard Cooper & Stanley Altschuler
October 4, 1996
Page 2
LIABILITY:
The Company agrees to indemnify and hold harmless SGI from and against any and
all losses, claims, damages, expenses or liabilities which SGI may incur based
upon information, representations, reports or data furnished by the Company to
the extent that such material is furnished, prepared or approved by the Company
for use by SGI.
OUT OF POCKET EXPENSES:
The Company will reimburse SGI for all reasonable out-of-pocket disbursements,
including travel expenses, made in the performance of its duties under this
agreement. Items, such as luncheons with the professional investment community,
graphic design and printing, postage, long distance telephone calls, etc., will
be billed as incurred.
RECORDS AND RECORD KEEPING:
SGI will maintain accurate records of all out-of-pocket expenditures incurred on
behalf of the Company. Authorization for projects and operating activities will
be obtained in advance before commitments are made.
TERMS OF PAYMENT:
Billings will be done monthly for the coming month. Expenses and charges will be
included in the following month's bill.
Payment will be due within ten (10) days upon receipt of invoice.
SERVICE FEES:
The Company will pay SGI a monthly retainer fee of $6,000 for services under
this agreement. The monthly retainer shall commence on September 1, 1996 for one
year.
In addition, immediately upon execution of this agreement, the Company will
issue a grant of a four year option for SGI to purchase 100,000 shares of the
Company's common stock at the closing per share bid price on August 20, 1996,
plus up to 300,000 additional options to purchase common stock of the Company,
exercisable over four years from grant, at the closing bid price on the date of
grant with the date or dates of grant and amount of shares to be based upon
fulfillment of certain performance standards as shall be determined by the
Company's Chief Executive Officer.
<PAGE>
Mr. Richard Cooper & Stanley Altschuler
October 4, 1996
Page 3
TERMS OF AGREEMENT:
This agreement is to extend from September 1, 1996 for one year. The agreement
shall be automatically renewed in one year, unless either party provides written
notice by August 1, 1997.
This agreement shall be governed by and subject to the jurisdiction of and law
of New York State.
Please confirm agreement to the above by endorsing all three (3) copies and
returning two (2) copies to BCAM International, Inc.
AGREED TO AND ACCEPTED BY:
/s/ Michael Strauss \s\ Richard Cooper
- ------------------- ------------------
BCAM International, Inc. Strategic Growth International, Inc.
AT/gll
CONTRACT
Customer: BCAM International, Inc.
Date: January 21, 1997
Term of Contract: One Year
Contract Begins: February 1, 1997
*************************************************************************
The undersigned, acting on behalf of BCAM International, Inc. ("the customer"),
hereby contracts with R.J. Falkner & Company, Inc. for a period of not less than
one year, for the provision of consulting services to include, but not be
limited to the following:
(1) The preparation of at least two "Research Profile" reports during the next
twelve months;
(2) Distribution of such reports to over 8,000 retail brokers and 2,300+ money
managers in the U.S., Canada and Europe;
(3) Exposure of Research Profile reports to high-net-worth individual investors
via StreetNet, an Internet investor information service affiliated with BUYSIDE
magazine;
(4) Distribution of news releases and other shareholder communiques to the
brokerage community, institutional and individual investors, and research
analysts; and
(5) Telephone and personal meetings between R. Jerry Falkner, CFA and investor
groups, regional/national brokerage firms, and/or institutional investors, when
appropriate, in order to stimulate interest in the customer's common stock
within the investment community.
A cash retainer fee will be paid to R.J. Falkner & Company, Inc. at the rate of
$1,500 per month in advance. In addition to such monthly retainer, the customer
will be invoiced for reimbursement of expenses directly incurred in the
provision of these services on a monthly basis. Such expenses will primarily
involve publishing, printing and postage costs related to the distribution of
"Research Profile" reports and shareholder communiques; telephone calls placed
on the customer's behalf; and travel expenses required to visit the customer
and/or for trips to visit brokerage firms/investor groups/institutions on behalf
of the customer (such trip expenses are pro-rated among several customers). Such
reimbursable expenses shall not exceed $500 per month, except in those months
(twice each year) when "Research Profile" reports are printed and distributed to
the investment community on the customer's behalf. Documentation of all
reimbursable expenses will be provided on each monthly invoice, and the customer
agrees to reimburse R.J. Falkner & Company, Inc. for such expenses within 30
days following receipt of such invoices.
<PAGE>
In addition to the cash compensation outlined above, Mr. Falkner will be granted
a ten-year option to purchase 45,000 shares of BCAM International's common
stock, with such option to be issued no later than February 15, 1997. The
exercise price on the option will be equivalent to the closing market price of
BCAM's common stock on the date of option issuance.
This contract may be canceled by the Customer after twelve months upon written
notice to be received by R.J. Falkner & Company within a ten-day period ending
February 1, 1998. If such notice is not forthcoming, the services of R.J.
Falkner & Company, Inc. will continue on a month-to-month basis. At any time
after completion of the initial one-year term of the contract's starting date,
either party may cancel the services of R.J. Falkner & Company, Inc. upon 60
days' written notice. If the customer chooses to terminate the services of R.J.
Falkner & Company, Inc. all advance retainer fees for the months remaining in
the initial twelve-month term of the contract, plus any unreimbursed expenses.
In the event of dispute, the prevailing party will be entitled to recover its
costs, including reasonable attorney's fees.
The parties acknowledge that this contract is entered into in the State of
Colorado and that performance of the contract will be accomplished within the
states of Colorado and Texas.
Signed
\s\ Michael Strauss
- -------------------
Michael Strauss
Chief Executive Officer
BCAM International, Inc.
\s\ R. Jerry Falkner
- --------------------
R. Jerry Falkner, CFA
President
R.J. Falkner & Company, Inc.
Date: 1/21/97
Note: Please retain one original copy of this contract for your records, and
return one original copy to R.J. Falkner & Company, Inc.
DELATSITE COMMUNICATIONS CORP
(Formerly The Info Shop Inc.)
25 East Loop Road
Stony Brook, New York 11790
(516) 444-6009 Phone (516) 444-8825 Fax HTTP://WWW.INFOSHOP.COM URL
February 2, 1997
Mr. Robert Wong
BCAM International, Inc.
1800 Walt Whitman Road
Melville, NY 11790
Dear Robert:
Based on the meetings we have had and the materials that you sent to us about
MQPro(TM) we are pleased to submit the following proposal for a World Wide Web
site for MQPro(TM) for your consideration.
We will create and host a site in the MQPRO(TM) domain that will consist of a
"home page" and links to other pages contained in the site. The "Website Index"
contained in your materials suggest that you would like links to pages for:
o Human Modeling: An Introduction to Computer Aided Ergonomics
o Computer Aided Design and Engineering on the PC
o Overview of MQPro(TM)
o Features of MQPro(TM)
o Background of MQPro(TM)
o System Requirements
o Release Date
o Cost
o Custom Applications
o Ergonomics Consulting
o Where to find us
o Mailing List
<PAGE>
-2-
February 2, 1997
In addition to the above we would suggest links to pages for:
o Download Demo of MQPro(TM)
o Customer Support (E-Mail link)
o FAQ (for frequently asked questions)
o Guestbook Order MQPro(TM) (an on-line order form)
o Links to other sites
After discussions, we may decide to combine some of the above pages.
During our discussions, we have agreed that BCAM will supply us with the
graphics for the site from its MQPro(TM) program in a form that can be converted
to either .gif or .jpg for use on the Web. This will include the individual
frames that when placed together will make animated .gifs so that we can
simulate motion. Therefore, this proposal does not anticipate the creation of
additional custom graphics, which would be prepared by graphic artists. BCAM has
also provided us with the basic text for the site.
We estimate that the site will be the equivalent of 15 to 20 8 1/2 x 11 printed
pages when completed and base this proposal on a site of up to 20 of these
pages. (MQPro(TM)Web Site).
During our various discussions, you have indicated a strong desire to keep the
cash flow implications to BCAM for the creation of this Web site to an absolute
minimum. I have indicated that I would be willing to consider stock options
under your employee/supplier stock option plan as partial compensation for the
site. Therefore, I propose to charge BCAM a flat one time fee of $2,000 for the
site. This will help to defray some of my direct out of pocket cost for the
programmers that will develop and implement the site. As additional compensation
in lieu of normal charges which would normally be in excess of $10,0000 for a
site of this magnitude I would be granted 25,000 stock options. *
In addition, we would give BCAM a preferential rate on the monthly display and
storage charges. We will charge $10.00 per month per page, which is the lowest
fee charged to any customer.
I have given a great deal of thought to our discussion about what would be
appropriate to charge for the storage and downloading of the demo program. As I
told you we have never permitted this before and I am not sure what to expect in
terms of heavy requirements on our system for downloading of such a large file.
You suggested that I "come up with something" that we could both review after
six months. I therefore suggest that we store the program (which I understand is
approximately three to four megabytes) at no charge and that we charge you "by
the download". Since this would be a very economical way for BCAM to distribute
the demo program (no disks, no postage, no disk creation charge, etc.) perhaps a
fee of $1.50** to $2.00** per download would be reasonable. The main advantage
to BCAM of this method is that you only have incurred a cost if someone actually
downloads the demo. I am open to any additional suggestions you may have on this
matter.
<PAGE>
-3-
February 2, 1997
I am looking forward to working on the MQPro(TM) site. I believe that we can
make some "cool" animations from the output of your program and that this will
help us create an award-wining site that will serve as resource to the field of
ergonomics and be of great assistance to BCAM in the marketing, sales and
customer support of the program.
I look forward to hearing from you soon.
Sincerely,
\s\ Jerold B. Krupnick
Jerold B. Krupnick
President
\s\RPW * These 25,000 stock options will also include a second web site for
- ------
\s\JK bcamergo, a flat one time fee of $2,000. This second Web site will
- ----- also be the equivalent of 15 to 20 8 1/2 X 11 printed pages when
completed. Creation fee only. Does not include monthly display and
storage fee.
\s\RPW ** After six months, Delatsite Communications Corp. agrees to
- ------ renegotiate the fee down for per download, based upon the
\s\JK experience during the first six months.
- -----
Accepted by: \s\ Robert P. Wong
------------------
Robert P. Wong
Vice Chairman - Chief Technology Officer
CONSULTING AGREEMENT
This Agreement is made this 15 day of May, 1997, by and between Imin
Kao, with a principal place of business at 17 Botany Lane, Stony Brook, NY
11790, and BCAM International, Inc., a New York corporation with its principal
office located in Melville, New York. Imin Kao and BCAM will be referred to in
this Agreement as "Consultant" and "Company", respectively. The SUNY at Stony
Brook is referred to as the "University" in this Agreement.
A. The Company desires to retain the Consultant as an independent
Consultant to collaborate with and advise the Company regarding research,
development, testing, validating and technology management in the area of
micromechanical devices including electronic design control circuits for such
devices and processes.
B. The Consultant is willing to serve as a Consultant under the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein contained, the
parties agree as follows:
1. Consulting Services. Beginning January 1, 1997 and as requested by
the Company the Consultant agrees to serve as a Consultant to the
Company regarding its micromechanical devices and processes as
specified by the Company. Consultant confirms that he is free to
enter into this Agreement without conflict with his nominal
employment as a professor at the University. Consultant confirms
that University resources will not be used under this Consulting
Agreement.
2. Terms of Agreement. The term of this Agreement shall commence on the
day stated in Paragraph 1 hereinabove and end two (2) years
hereafter unless the Consultant receives written notification by the
Company of its intent to terminate this Agreement prior to that
date. Termination shall be effective upon Consultant's receipt of
such notice.
3. Consulting Fee. In consideration for the Consultant's services the
Company agrees to pay the Consultant a fee of Seven Hundred Fifty
dollars ($750) per month beginning in January 1, 1997.
* In addition, the Company agrees to pay the Consultant a fee of Two
Thousand Five Hundred dollars ($2,500) after the testing of Phase I
(designed Task 1.6) of the microvavle project described in the
Memorandum of Agreement between MCNC and Company dated 1/23/97 and
amended 3/25/97.
<PAGE>
* As additional compensation and incentive, the Company will grant to
Consultant the right to purchase 5,000 shares of Company's stock at
the average of bid and ask price at the date of May 7, 1997. This
right will expire on May 7, 1999.
4. Inventions. Consultant and his employees, assistants, aids and the
like shall assign all rights, title, and interest to inventions
derived from Consultant's disclosures to Company subject to the
following constraints:
Consultant shall turn over his disclosure notebooks to Company for all
inventions conceived while working under this Agreement by submitting through a
notarized affidavit. The Company shall have 24 months following such disclosure
to file a patent application(s).
In the Event that the Company does not file the patent application
within the defined 24 month period, the Company will return the related
disclosure notebook(s) to Consultant within 30 days. In the event further that
Company does not elect to file the patent application within the defined 24
month period, the Company forgoes its rights to the disclosed invention and
Consultant and Consultant's assignees are free to file a patent application with
full ownership rights as the assignee.
In the event that the Consultant obtains help or assistance from an
employee research assistant or the like, the Consultant shall require the
employee, assistant or the like to assign all of his/her rights, title and
interest in any invention to the Company. Furthermore, the Consultant shall
obtain such agreement as well as an agreement respecting confidentiality in
advance of such other person performing services for Consultant.
Consultant agrees to cooperate fully and assist the Company with any patent
application undertaken by the Company.
5. It is agreed that the Consultant's work as a Consultant is that of
an independent contractor and not as an employee of the Company. As
such, the Consultant is not entitled to benefits and privileges
accorded to staff and personnel by virtue of their status as
employees. As an independent contractor the Consultant acknowledges
that the Consultant has no authority to hold himself out as other
than a Consultant to the Company.
6. Consultant agrees that during the term of this Agreement and for a
period of two (2) years following the termination of this Agreement,
the Consultant will not work, either as an employee, independent
contractor, Consultant or any capacity for any competitor of the
Company or its affiliates without written authorization from the
Company. Consultant acknowledges that he understand the scope and
effect of this two (2) year non-compete term and agrees that the
term is reasonable.
<PAGE>
7. The Consultant shall execute with this Agreement a Confidentiality
and Nondisclosure Agreement with the Company. In any area or areas
where said Confidentiality and Nondisclosure Agreement disagrees or
conflicts with the present Agreement, the present Agreement takes
precedence.
8. Unless otherwise provided, this Agreement shall terminate
immediately upon the occurrence of any of the following events:
A. Death or total disability of the Consultant
B. As set forth in Paragraph 2
C. Upon breach by Company or Consultant of any of the
condition of this Agreement.
9. Governing Law and Jurisdiction. The terms of this Agreement shall be
construed in accordance with the laws of the State of New York. Any
dispute arising out of this Agreement shall be resolved in the
courts of the State of New York.
10. Payments made by the Company for the services of Consultant under
this Agreement shall be made to Imin Kao, 17 Botany Lane, Stony
Brook, NY 11790.
11. Modification. This Agreement may only be amended by a written
instrument signed by both parties.
IN WITNESS OF THIS AGREEMENT the parties hereto have duly executed and delivered
this Agreement as of the day and year first above written.
IMIN KAO BCAM INTERNATIONAL, INC.
\s\ Imin Kao By: \s\ Robert P. Wong
- ------------------------------ -------------------------------
Robert P. Wong, Vice Chairman
July 23, 1997
Mr. Charles G. Schuyler
President
Drew Shoe Corporation
252 Quarry Road
P.O. Box 300
Lancaster, Ohio 43130
Dear Chuck:
Attached is a check for $25,000 representing our agreement to extend
the deadline for the closing of the Drew Shoe Acquisition as outlined in the
Purchase Agreement dated March 20, 1997 from March 28, 1997 to September 15,
1997.
It is understood that this payment will be applied towards the purchase
price, should the acquisition be completed by September 15, 1997. However, if
the acquisition is not completed within this period, the amount of $25,000 will
be nonrefundable.
Please sign below and return an original signed copy to my attention.
Sincerely,
\s\ Michael Strauss
\s\ Charles G. Schuyler
- -----------------------
Concur: Charles G. Schuyler
Drew Shoe Corporation
MS/kjt
<PAGE>
July 23, 1997
Mr. Frank Shyjka
Executive Vice President
Drew Shoe Corporation
252 Quarry Road
P.O. Box 300
Lancaster, Ohio 43130
Dear Frank:
Attached is a check for $25,000 representing our agreement to extend
the deadline for the closing of the Drew Shoe Acquisition as outlined in the
Purchase Agreement dated March 20, 1997 from March 28, 1997 to September 15,
1997.
It is understood that this payment will be applied towards the purchase
price, should the acquisition be completed by September 15, 1997. However, if
the acquisition is not completed within this period, the amount of $25,000 will
be nonrefundable.
Please sign below and return an original signed copy to my attention.
Sincerely,
\s\ Michael Strauss
\s\ Frank Shyjka
- ---------------------
Concur: Frank Shyjka
Drew Shoe Corporation
MS/kjt
Exhibit 24.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 27, 1997(except Note 10, as to which the date
is March 28, 1997), in the Post-Effective Amendment No. 13 on Form SB-2 to the
Registration Statement (Form S-1 No. 33-47612) and related Prospectus of BCAM
International, Inc.
/s/ Ernst & Young LLP
Melville, New York
September 4, 1997
