U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
DECEMBER 25, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
Commission file number 33 -11062-D
UNITED SHIELDS CORPORATION
(Exact name of registrant as specified in its charter)
Colorado 84-1049047
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
655 Eden Park Drive, Suite 260, Cincinnati, Ohio 45202
(Address of principal executive offices, including zip code)
Registrant's telephone number: (513) 241-7470
Securities registered pursuant to Section 12(b) of the Exchange
Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange
Act: NONE
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and disclosure will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The aggregate market value of registrant's Common Stock held
by non-affiliates as of February 26, 1999, based upon the closing
price of a share of the Common Stock on the OTC Bulletin Board as
of that date, was $2,965,000. The total number of shares of
registrant's Common Stock outstanding as of February 26, 1999 was
16,604,875.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by
reference and the part of the Form 10-KSB into which the document
is incorporated: Certain Exhibits shown on Exhibit Index
Transitional Small Business Disclosure Format (Check one): Yes __
No __X__
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Background and History of the Company.
United Shields Corporation ("USC" or the "Company") is a
Cincinnati, Ohio based holding company that currently owns two
operating subsidiaries: The HeaterMeals Company ("HMC"), which
manufactures and markets patented, portable electrochemical
heaters and a line of shelf-stable meals that incorporate such
heaters, and R. P. Industries, Inc. ("RPI") which is engaged in
the production of molded plastic components and finished products
of original equipment manufacturers.
The Company was incorporated under the laws of the State of
Colorado on October 22, 1986 under the name O.T.C. Capital
Corporation and in June 1987, completed its initial public
offering of Common Stock. During 1987, most of the offering
proceeds were expended, and in February 1988, all of the Directors
and officers resigned and new Directors and officers were
appointed. From that date until February 1997, the Company had
virtually no assets or liabilities and no business operations. On
March l5, 1995, the name of the Company was changed to Capital
2000, Inc.
Effective February 12, 1997, United Shields Corporation (a
Nevada Corporation) acquired all of the outstanding shares of
Capital 2000, Inc. in a reverse merger in exchange for restricted
shares of Common Stock pursuant to a Share Exchange Agreement.
The Directors and officers of United Shields Corporation became
the Directors and officers of the Company. Subsequent to the
aforementioned reverse merger, the name of Capital 2000, Inc. was
changed to United Shields Corporation and the name of United
Shields Corporation (the Nevada Corporation) was changed to UNSC,
Inc., a wholly-owned subsidiary of the Company. The Company was
originally formed for the primary purpose of seeking out
acquisitions of properties, businesses, or merger candidates,
without limitation as to the nature of the business operations or
geographic area of the acquisition candidates.
The principal executive offices of the Company are located at
655 Eden Park Drive, Suite 260, Cincinnati, Ohio 45202; its
telephone number is (513) 241-7470; and its facsimile number is
(513) 412-3632.
GROWTH STRATEGY
Through the Company's Plastic Injection Molding and Specialty
Products segments, USC has a strategy of increasing overall
profitability and thereby increasing the market value of its
Common Stock for its stockholders.
Plastic Injection Molding Segment
In its Plastic Injection Molding segment, the Company has a
strategy of growth through the acquisition of profitable injection
molding enterprises which allow the Company to provide fully
integrated injection molding products and services to its
customers. Through this acquisition strategy, management believes
it will provide more value to its customers while creating
operational and financial synergies with respect to the combined
operations. Typically, it is expected that USC's corporate staff
will not direct the operations of its acquired injection molding
companies on an on-going basis, but, in addition to strategic
planning, financial and legal oversight, will provide investor
relations, financing, acquisition and other business development
activities. From time-to-time, the corporate staff also will be
active in non-operational business activities such as risk
management and employee benefit program management. Although the
Company expects that the existing management of any acquired
company typically would be retained to manage day-to-day
operations, it is anticipated that the business of the acquired
company could be expanded through the support of USC's corporate
staff described above.
It is likely that any such acquisition in the near-term would
require USC to raise additional capital to finance the
acquisition. If this additional capital were raised through debt
financing arrangements, USC would incur additional interest
expense; sales of additional equity to raise acquisition capital
would dilute, on a pro-rata basis, the percentage ownership of all
USC stockholders. There can be, however, no assurance that
sufficient financing will be available to USC to implement its
acquisition strategy on terms and conditions that are acceptable
to the Company.
Acquisitions may involve a number of risks some of which
could have a material adverse effect on the Company's operations
and financial results including, without limitation, the ability
to successfully integrate several acquisitions at the same time
(if the Company is able to acquire several companies within a
short period of time); the diversion of management's attention
among acquired businesses and in seeking additional acquisition
opportunities. There can be no assurance that the Company will be
successful in consummating potential acquisitions or in
integrating acquired businesses.
Specialty Products Segment
The Company also intends to expand its operations in its
Specialty Products segment by broadening the geographic
distribution of the shelf-stable line of food products, creating
new meals for target audiences where the convenience of the self-
heating feature is important, developing direct marketing
opportunities, and exploiting the self-heating technology
internationally and in other commercial categories. Recently, the
Company has generated significant interest by others on an
international basis that wish to incorporate the self-heating
technology into meals for their target audiences.
The Company has also expanded its marketing and distribution
associated with its shelf-stable meals via direct marketing and
the Internet. The Company has generated additional interest in
these meals from certain specialty groups and individuals, like
those concerned with the Year 2000 issue and disaster relief,
where the shelf-stable meals can be reserved for use over periods
of up to two years without any spoilage or adverse taste
consequences.
PRODUCTS AND PRODUCTION
Plastic Injection Molding Segment
The Company's Plastic Injection Molding Segment, which is
currently comprised of RPI, is engaged in the production of molded
plastic components and finished products of original equipment
manufacturers through its two manufacturing facilities. Richmond
Plastics, which is located near Richmond, Virginia, manufactures
component parts and finished products primarily for original
equipment manufacturers principally located in the southeast and
mid-Atlantic regions, operating 15 to 20 molding machines ranging
from 75 tons to 700 tons of clamp pressure. Granville Plastics,
which is located in the Raleigh-Durham, North Carolina area,
operates between 20 and 25 machines ranging from 22 tons to 300
tons of clamp pressure, and also serves original equipment
manufacturers principally located in the southeast and mid-
Atlantic regions. Secondary operations performed at these plants
include hot stamping, sonic welding, pad printing, chemical
bonding, heat transfer decal application, spray painting, drilling
and assembly. Injection molds and tools are generally provided by
outside vendors. RPI operates on a just-in-time basis with many
of its customers, and inventories, which are comprised primarily
of various plastic resins and finished goods, are managed to
minimal levels. Granville Plastics is ISO 9002 certified and
Richmond Plastics has recently passed their ISO 9002 certification
audit and has been recommended for certification.
Specialty Products Segment
HMC manufactures and markets patented, portable
electrochemical heaters and a line of shelf-stable meals that
incorporate such heaters. The electrochemical heater is comprised
of metallic alloy powder embedded with plastic that generates heat
when activated by water, but is flameless, non-toxic and flexible
in design. Since 1990, the Company has sold over 100 million
flameless ration heaters ("FRH") to government contractors, which
incorporate the FRH into "Meals-Ready-to-Eat" ("MRE's"), for the
United States military. Since 1996, the Company has sold almost 2
million shelf-stable meals under the trademark "HeaterMeals"(R).
HeaterMeals(R) is an assortment of breakfast and dinner entrees
packaged with the patented electrochemical heater, utensil pack
and water activation pouch, which allows the consumer to have a
hot meal anyplace and anytime.
RESEARCH AND DEVELOPMENT
The Company continually invests in the development of new
products and manufacturing processes in each of its operating
subsidiaries. All research and development costs, including
salaries and wages of employees involved in research and
development, are expensed as incurred.
MARKETING AND DISTRIBUTION
Plastic Injection Molding Segment
The Company's Plastic Injection Molding Segment, which is
currently comprised of RPI, manufactures plastic components which
are generally sold to other manufacturers (original equipment
manufacturers and other end-users) who incorporate these
components in their products. The vast majority of sales are made
directly by RPI's employees and are distributed principally by
truck through the use of independent freight companies.
Sales to one of RPI's customers, who operates in the home and
building construction industry, approximated 12% of the Company's
total net sales for 1998. RPI has provided services and products
to hundreds of accounts, including many Fortune 1000 and large,
privately-held customers.
Specialty Products Segment
The Company's Specialty Products Segment, which is comprised
of HMC, distributes its electrochemical heater primarily to
government contractors which incorporate the flameless ration
heaters into "Meals-Ready-to-Eat" ("MRE's"), for the United States
military. Since 1990, the Company has sold over 100 million
flameless ration heaters ("FRH") to these government contractors.
HMC distributes its shelf-stable meals primarily through
wholesalers to approximately 1200 truckstops throughout the United
States, select grocery stores in Kentucky, Ohio, Indiana and
Michigan and various specialty retail outlets. Since 1996, the
Company has sold almost 2 million shelf-stable meals under the
trademark "HeaterMeals"(R).
The Company intends to expand its marketing and sales of the
HeaterMeals(R) brand by broadening the geographic distribution of
the products, creating new meals for new target audiences where
the convenience of the self-heating feature is important,
developing direct marketing opportunities, and exploiting the
self-heating technology in other commercial categories. Recently,
the Company has generated significant interest by others on an
international basis that wish to incorporate the self-heating
technology into meals for their target audiences.
The Company has also expanded its marketing and distribution
associated with its shelf-stable meals via direct marketing and
the Internet. The Company has generated additional interest in
these meals from certain specialty groups and individuals, like
those concerned with the Year 2000 issue and disaster relief,
where the shelf-stable meals can be reserved for use over periods
of up to two years without any spoilage or adverse taste
consequences.
Sales to the government contractors approximated 23% and 55%
of the Company's total net sales for 1998 and 1997, respectively.
Another of HMC's customers represented 10% of the Company's total
sales in 1997. The Company's total net sales in 1997 were derived
solely from HMC.
RAW MATERIALS
Plastic Injection Molding Segment
RPI's principal raw material is pelletized plastic resin that is
delivered in bulk quantities by railcar, truck, or in large boxes
("Gaylords"), typically weighing 1,000 pounds. RPI secures its
resin primarily from General Polymers and Southern Polymers, among
other suppliers. The resins used by RPI are crude oil or natural
gas derivatives and may be affected to some extent by the supply,
demand and price trends in the petroleum industry. RPI did not
incur any material shortages or unavailability during 1998.
Prices experienced by RPI have been relatively stable, with
certain resin prices rising and falling modestly. RPI does not
have any long-term fixed price supply contracts with any of its
vendors.
Specialty Products Segment
HMC's principal raw material is magnesium powder which is
delivered in bulk quantities by truck, or in barrels weighing 150
pounds. The magnesium powder used by HMC is derived from
magnesium ingots and may be affected to some extent by the supply,
demand and price trends in the minerals industry. HMC did not
incur any material shortages or unavailability during 1998.
Prices experienced by HMC have been relatively stable. HMC does
not have any long-term fixed price supply contracts with any of
its vendors.
COMPETITIVE CONDITIONS
Plastic Injection Molding Segment
RPI competes with numerous plastic injection molders
throughout its sales territories. The competition for the
products and services provided by RPI can be characterized as
extensive. There are numerous companies that offer competing
products nationally or internationally, and in certain geographic
areas RPI has competition from local manufacturers as well. Many
competitors can produce similar products with varying prices and
qualities, and possess greater financial, marketing and research
capabilities than those of RPI. Some of RPI's customers have the
resources to manufacture comparable products with in-house
resources.
RPI believes that its trade name, reputation and long-
standing history of providing high quality products are
significant to its competitive position. Further, RPI believes
that price is also a significant element of competition. The
performance of RPI in the future will depend on its ability to
develop and market its injection molding capabilities so as to
gain additional customers and expand business opportunities with
existing customers. The Company's operating performance could be
adversely affected if it does not maintain its injection molding
capabilities with its current customers; and, there can be no
assurance that RPI will continue its current business volume in
light of numerous competitive factors in this industry.
Specialty Products Segment
With respect to HMC, the Company believes its products are
different from those that currently exist in the marketplace
because of the incorporation of its self-heating technology into
its products. Further, the Company is protected by certain
patents and license rights with respect to the self-heating
technology. To the extent HMC's line of shelf-stable meals are to
be sold in the food and beverage industry, that industry is highly
competitive and is dominated by many competitors who are
substantially larger and have greater financial resources than the
Company.
EMPLOYEES
As of December 25, 1998, the Company had four corporate
employees, all of whom were full-time. As of such date, HMC had
30 employees, of whom 27 employees were full-time; and, RPI had
110 employees, of whom 109 employees were full-time.
PATENTS
HMC is the owner of a patent for an exothermic heater device
for wrapping around a pipe joint. The patent covers the use of a
liquid activated exothermic heater within a liquid impervious
flexible envelope configured to wrap around a pipe joint to heat
and accelerate the cure of an epoxy adhesive around the joint.
When appropriately wrapped around a pipe joint, water (or other
liquid) is poured into the envelope to activate the heating
material. The patent requires the use of an elongated pressure
sensitive adhesive strip with a removable protective cover for
securing the envelope to the pipe joint. This patent will expire
on May 16, 2014.
HMC also is the licensee of a patent for a flexible
electrochemical heater in the form of a composite structure that
includes a supercorroding metallic alloy powder dispersed in a
porous matrix. The license grants exclusive worldwide rights in
the commercial (non-military) market. Non-commercial market
rights are subject to reservation of rights of the University of
Cincinnati for its personnel and students under direct
administrative control of the university. Countries covered by
the license include Japan, United Kingdom and Canada. The license
will expire November 3, 2003.
TRADEMARKS
Except for HeaterMeals(R) and the phrase "The Meal with the
Stove Inside", which are registered with the U.S. Patent and
Trademark Office, the Company's trademarked names have not yet
been formally registered. It is the Company's intention to claim
a trademark on certain names under common law by using the "TM"
symbol. The duration of such trademarks under common law is the
length of time the Company continues to use them.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company through its wholly-owned subsidiary, RPI, owns
manufacturing facilities in Chester, Virginia and the Durham,
North Carolina area. Each such facility is encumbered by a
mortgage in favor of First Union National Bank. The Company
through its wholly-owned subsidiary, HMC, leases its manufacturing
facility in Cincinnati, Ohio. Additionally, the Company leases
its executive office also located in Cincinnati, Ohio.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently involved in any litigation or
similar proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of the
fiscal year ended December 25, 1998 to a vote of USC's
stockholders, through solicitation of proxies or otherwise.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The following table sets forth, for the periods indicated,
the high and low bid price for the Common Stock for the quarters
indicated as reported on the OTC Bulletin Board. The high and low
bid prices were taken from the OTC Daily Trading Summary for the
Company, supplied by Nasdaq Trading and Market Services.
1997 1998
-------------- --------------
High Low High Low
------ ------ ------ ------
First Quarter $ 4 3/4 $ 4 3/4 3
Second Quarter 3 3/4 2 5 2
Third Quarter 4 1/8 2 11/16 2 7/8 1/2
Fourth Quarter 4 5/8 3 1/4 3/4 3/32
As of February 26, 1999, the Company had approximately 240
shareholders of record.
The Company has never paid a cash dividend on the Common
Stock and does not expect to pay a cash dividend in the
foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Safe Harbor Provisions
This report contains certain "forward-looking statements".
The Company desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995
and is including this statement for the express purpose of
availing itself of the protection of such safe harbor with respect
to all such forward-looking statements. These forward-looking
statements, which are included in Management's Discussion and
Analysis, describe future plans or strategies and include the
Company's expectations of future financial results. The words
"expect," "estimate," "anticipate," "predict," and similar
expressions are intended to identify forward-looking statements.
Important factors that could cause the actual results, performance
or achievement of the Company to differ materially from the
Company's expectations include the following: 1) one or more of
the assumptions or other factors discussed in connection with
particular forward-looking statements prove not to be accurate; 2)
the Company is unsuccessful in increasing sales through its
anticipated marketing efforts; 3) mistakes in cost estimates and
cost over-runs; 4) the Company's inability to obtain financing for
one or more acquisitions and/or for general operations; 5) non-
acceptance of one or more products of the Company in the
marketplace due to costs or other reasons; 6) the Company's
inability to supply any product to meet market demand; 7)
generally unfavorable economic conditions which would adversely
effect purchasing decisions by retailers or consumers; 8)
development of a similar competing product with HeaterMeals(R)
which is not an infringement of any of the patents pertaining to
those products; 9) inability of the owner of any of the patents to
protect against infringement; 10) the inability to successfully
integrate one or more acquisitions with the Company's operations
(including the inability to successfully integrate several
acquisitions at the same time, integrate businesses which may be
diverse as to type of business, geographic area, or customer base
and the diversion of management's attention among several acquired
businesses) without substantial costs, delays or other problems;
11) if the Company experiences labor and/or employment problems
such as work stoppages, inability to hire and/or retain competent
personnel; 12) a shortage in the supply of significant raw
materials, such as plastic resin and magnesium, which would
significantly increase the cost of goods sold; 13) if the Company
experiences unanticipated problems (including but not limited to
accidents, fires, acts of God, etc.), or is adversely affected by
problems of its suppliers, shippers, customers or others; and 14)
potential material adverse consequences to the Company relating to
the Year 2000 issue. All written or oral forward-looking
statements attributable to the Company are made as of the date
hereof, and the Company assumes no obligation to update the
forward-looking statements, or to update the reasons why actual
results could differ materially from those projected in the
forward-looking statements.
Results of Operations
The following is a discussion of the results of operations
for the year ended December 25, 1998 as compared with the year
ended December 31, 1997. USC did not own an operating company
during the first 10 months of 1997, after which the Company
acquired HMC. Therefore, the operating results for the year ended
December 25, 1998 represent the Company's first complete fiscal
year of operations with its wholly-owned subsidiaries, HMC and
RPI.
NET SALES. For the year ended December 25, 1998, net sales
increased by $12,322,760 over the prior fiscal year, due to the
inclusion of sales of newly acquired companies for a full fiscal
year.
COST OF SALES. For the year ended December 25, 1998, cost of
sales increased by $9,649,694 over the prior fiscal year, due to
the inclusion of sales of newly acquired companies for a full
fiscal year.
GROSS PROFIT. For the year ended December 25, 1998, gross
profit increased by $2,673,066 over the prior fiscal year, due to
the inclusion of sales of newly acquired companies for a full
fiscal year. As a percentage of net sales, the gross profit
margin increased from 9.5% for the year ended December 31, 1997 to
21.1% for the year ended December 25, 1998, due primarily to: (i)
the inclusion of the operations of RPI, and (ii) substantial gross
profit margin improvement with respect to the HMC operation versus
the results of the period included in the prior year. The HMC
gross margin improvement realized in the current year was
primarily the result of significant reductions in cost of sales
due to the implementation of material cost reductions, automation
of processes and other efficiencies, and a modest increase in
prices.
OPERATING EXPENSES. For the year ended December 25, 1998,
operating expenses increased by $2,159,551 when compared to such
expenses in the prior fiscal year, due primarily to: (i) increases
in selling, general and administrative expenses to $2,808,617 for
the year ended December 25, 1998 from $1,566,220 for the year
ended December 31, 1997 as a result of the inclusion of operations
of newly acquired companies for a full fiscal year, net of a
reduction in 1998 of selling, general and administrative expenses
attributable to the corporate operations of approximately
$300,000; (ii) increase in goodwill amortization of approximately
$342,000 related to a full fiscal year of goodwill amortization
arising from the HMC and RPI acquisitions; (iii) write-off of
investment in potential acquisitions of $530,075 in the year ended
December 25, 1998 as a result of the expirations of letters of
intent with two potential acquisitions; and (iv) reorganization
and restructuring expenses of $44,936 as a result of certain
reorganization and restructuring activities during the fourth
quarter of 1998.
INTEREST EXPENSE, NET. Interest expense, net increased to
$1,439,928 for the year ended December 25, 1998 versus $74,287 for
the year ended December 31, 1997 as a result of: (i) additional
borrowings related to the Company's acquisitions of HMC and RPI;
(ii) additional non-cash interest expense of $686,109 for the year
ended December 25, 1998 versus $0 for the year ended December 31,
1997 related to the amortization of warrants issued in conjunction
with certain debt financing arrangements in 1998; and (iii)
additional borrowings related to the Company's financing of its
corporate operations.
INCOME TAXES. No income tax benefits attributable to the
losses from continuing operations were recorded in the years ended
December 25, 1998 and December 31, 1997 as a result of uncertainty
associated with the realization of these deferred tax assets.
SALE OF UNSC, INC. Effective November 30, 1998, the Company
and T. J. Tully executed an Agreement providing for the sale of
100% of the outstanding shares of common stock of UNSC, Inc., an
inactive wholly-owned subsidiary of the Company, to T.J. Tully for
monetary consideration of $1 and the grant of an option to
purchase 500,000 shares of the Company's Common Stock with an
exercise price of $0.50 per share pursuant to the Company's 1998
LTIP.
INFLATION. Management of the Company does not believe that
inflation has had a significant impact on the Company's operations
during the past three fiscal years. No significant amount of
sales or purchases is made pursuant to fixed price, long-term
agreements.
Liquidity and Capital Resources
SOURCE AND USE OF FUNDS. The Company's primary source of
liquidity has been cash generated from operating activities,
borrowings from related parties and a financial institution, and
proceeds from the issuance of the Company's Common Stock through
its private placement program. See "FINANCING ARRANGEMENTS" and
"ON-GOING FINANCING OF CORPORATE OPERATIONS AND ACQUISITIONS".
During the year ended December 25, 1998, net cash provided by
operating activities of $424,269 combined with the beginning cash
balance was used to fund investing activities of $142,208 and
financing activities of $603,291. Net cash used in investing
activities was primarily due to purchases of property and
equipment. Net cash used in financing activities was primarily
due to payments on notes payable-related parties, payments on
long-term debt and payments on a capital lease obligation, offset
by additional borrowings from a revolving line of credit and notes
payable-related parties, net proceeds from the issuance of Common
Stock through its private placement program, and proceeds from
borrowings on life insurance policies, net of an increase in cash
surrender value.
During the year ended December 31, 1997, net cash used in
operating and investing activities of $905,289 and $7,326,357,
respectively, was funded through additional borrowings on notes
payable-related parties and long-term debt, proceeds from the
issuance and subscription of Common Stock through the Company's
private placement program, net of payments on notes payable-
related parties.
FINANCING ARRANGEMENTS. The Company has borrowed funds from
NAVICAP and related affiliates to finance its on-going operations
and acquisitions. NAVICAP is a merchant banking firm, which also
owns approximately 31% of the total number of outstanding shares
of the Company's Common Stock. The majority of the balance due to
NAVICAP and related affiliates at December 25, 1998 is represented
by an Amended and Restated Promissory Note.
As of December 31, 1997 the majority of the balance due to
NAVICAP and related affiliates was represented by a promissory
note, which was due on demand. On March 30, 1998, the Company
issued 500,000 Stock purchase warrants to NAVICAP in connection
with an extension of the due date of the promissory note to
September 30, 1999. The fair value of the stock purchase warrants
was determined to be $1,059,500, which was allocated to the
warrants and recorded as additional paid in capital. The amount
allocated was based on the relative fair values of the debt and
warrants at the time of the warrant issuance. The value of the
stock purchase warrants was being amortized over the amended term
through September 30, 1999. On August 26, 1998, NAVICAP agreed to
restructure this promissory note by accepting 500,000 shares of
the Company's Common Stock in lieu of a $500,000 reduction in the
principal amount of the indebtedness.
Effective November 30, 1998, the Company and NAVICAP executed
the Amended and Restated Promissory Note to modify the terms of
the previously outstanding promissory note, which as of November
30, 1998 was comprised of principal and accrued interest of
$2,440,363 and $289,137, respectively. The terms set forth in the
Amended and Restated Promissory Note provide that accrued interest
through November 30, 1998 along with interest for the period
December 1, 1998 through December 25, 1998 shall be capitalized as
additional principal, after which time interest will then be
payable quarterly at 12% per annum. This Amended and Restated
Promissory Note also provided for a maturity date of October 30,
2003 and a conversion feature exercisable on or before December
24, 1998 which allowed for any amount of interest and/or principal
up to a maximum of $1,000,000 to be converted into shares of the
Company's Common Stock at a value of the greater of $0.25 per
share or the current market price on the date of conversion. As a
result of the extension of the maturity date of the Amended and
Restated Promissory Note on November 30, 1998, the Company
prospectively adjusted the amortization period of the stock
purchase warrants previously issued to NAVICAP through October 30,
2003. The remaining unamortized balance of the stock purchase
warrants as of December 25, 1998 was $578,635.
On December 4, 1998, NAVICAP exercised its option to convert
$1,000,000 of principal due under the Amended and Restated
Promissory Note in exchange for 4,000,000 shares of the Company's
Common Stock. After giving effect to the capitalized interest,
the debt conversion and the debt substitution referred to below,
the balance of the Amended and Restated Promissory Note at
December 25, 1998 was $542,217.
Further on November 30, 1998, as a component of the Amended
and Restated Promissory Note, the Company and NAVICAP agreed to
substitute $1,193,100 of the aggregate principal and accrued
interest owed to NAVICAP to a then non-affiliate of the Company,
William A. Frey III ("Frey" and "Frey Note"), who subsequently
became the holder of a majority of the Company's Common Stock and
Chairman and Chief Executive Officer of the Company. The terms
set forth in the Frey Note provide that accrued interest for the
period December 1, 1998 through December 25, 1998 shall be
capitalized as additional principal, after which time interest
will then be payable quarterly at 12% per annum. The Frey Note
also provided for a maturity date of October 30, 2003 and provides
for a conversion feature, which allows for any amount of interest
and/or principal to be converted into shares of the Company's
Common Stock at a value of $0.14 per share. After giving effect
to the capitalized interest, the balance on the Frey Note at
December 25, 1998 was $1,203,054.
Also on November 30, 1998, Frey provided a short-term loan in
the amount of $100,300 to T.J. Tully, the Company's then Chairman
and Chief Executive Officer, and certain related family members,
who collectively held a majority of the Company's Common Stock
(altogether the "Tully Group"), which in turn was used for the
purpose of providing a short-term loan ("Tully Loans -1") in the
same amount to the Company for additional working capital
purposes. On December 22, 1998, in conjunction with the
transactions described above, the Tully Group agreed to provide
additional working capital to the Company in the form of short-
term loans ("Tully Loans -2") in the amount of $274,700. The
Tully Loans -1 and -2 provide for interest at 11% and are due on
February 28, 1999.
During 1998, T.J. Tully and a related family member provided
other loans to the Company for working capital purposes in the
aggregate amount of $37,000, which generally provide for interest
at 12% and are otherwise due on demand.
On July 22, 1998, HMC entered into a Revolving Line of Credit
Agreement ("RLCA") with a financial institution. The RLCA
provides for: (i) borrowings up to $150,000 pursuant to a formula
based on eligible accounts receivable; (ii) monthly interest at a
variable rate equal to 3.0% above the financial institution's
prime commercial rate (10.75% at December 25, 1998); (iii)
maturity date of July 22, 1999; and (iv) customary financial and
other covenants.
On February 3, 1999, the RCLA was amended to permit
borrowings up to $300,000 pursuant to a formula based on eligible
accounts receivable and inventories and provided for an extended
maturity date of February 20, 2000.
RPI maintains a long-term debt facility ("RPI Facility") with
First Union National Bank ("First Union"), which as of December
25, 1998 had an outstanding balance of $3,880,060. This revolving
line of credit arrangement provides for a maximum borrowing of
$6,000,000 based on a percentage of eligible accounts receivable,
manufacturing equipment and real estate values, and includes
predetermined quarterly reductions in amounts that may be
outstanding with regard to manufacturing equipment and real
estate. At December 25, 1998, the permitted maximum borrowing
pursuant to the terms of the facility was approximately
$4,300,000. The RPI Facility also provides for interest at the
lower of prime (as defined) plus 0.75% or LIBOR plus 3.5% (8.50%
and 9.22% at December 25, 1998 and December 31, 1997,
respectively). Principal and interest are due in full in April
2000 and substantially all assets of RPI are pledged as
collateral. The RPI Facility is subject to a loan agreement,
which contains certain operating and financial covenants. At
December 25, 1998, the Company was in violation of one such
covenant, which since has been waived by First Union.
ON-GOING FINANCING OF CORPORATE OPERATIONS AND ACQUISITIONS.
While it is anticipated that the Company's subsidiaries will
generate sufficient cash flow and have sufficient resources to
fund their operations and financial obligations as they become due
in 1999, the Company's corporate operations will require
additional financial resources to support itself during 1999,
although it is anticipated that the Company's HMC subsidiary will
be able to provide a substantial amount of financing for the
Company's corporate operations during the last half of 1999 after
it completes the required payments under the Company's capital
lease obligation.
Accordingly, in an effort to provide financing for the
Company's corporate operations during the first half of 1999 and
to provide financial resources to complete desired acquisitions,
the Company embarked on a project to refinance its indebtedness
with respect to its RPI subsidiary. In March 1999, the Company
executed commitments letters with a national corporate finance
institution to provide term and revolving loan facilities to
accomplish the refinance project. The Company anticipates the
closing of the refinance project in the second quarter of 1999;
however, the commitment letters are contingent upon the successful
completion of numerous pre-closing activities, including among
other things, completion of the loan documentation and
environmental and other studies.
During the first three months of 1999, financing of the
Company's corporate operations has been provided by the Company's
Vice Chairman, related family members and the Chairman and Chief
Executive Officer. Management is continuing to evaluate
opportunities with various investors to raise additional capital,
without which the Company's growth will be restricted. Although
management believes that sufficient financing resources are
available, there can be no assurance that such resources will
continue to be available to the Company or that they will be
available on terms favorable to the Company. In the event, the
refinance project can not be completed and if financial resources
are not otherwise available to support the Company's corporate
operations, then the Company will be required to scale back or
eliminate certain corporate functions or sell some of its products
or operating assets.
YEAR 2000. During 1998, the Company continued to develop its
plan ("Y2K Plan") to identify, assess and remediate "Year 2000"
issues within each of its significant computer programs and
certain equipment which contains micro-processors. The Y2K Plan
is addressing the issue of computer programs and embedded computer
chips being unable to distinguish between the year 1900 and the
year 2000, if a program or chip uses only two digits rather than
four to define the applicable year. The Company has completed the
assessment and planning phases of the Y2K Plan in 1998, and is now
addressing the conversion, implementation and testing phases.
Currently, the Company's financial and manufacturing operations do
not rely on highly sophisticated date driven processes and, as
such, compliance with Year 2000 requirements is not significant in
these areas. Each of the Company's financial and manufacturing
systems is being updated, if necessary, to appropriately address
Year 2000 issues. The total cost of ensuring the Company's
compliance with the Year 2000 issues was not significant in 1998
and is not expected to be significant in 1999 or beyond. The
Company expects to resolve all of its Year 2000 issues during late
1999.
The Company is also in the process of identifying and
contacting critical suppliers and customers regarding their plans
and progress in addressing their Year 2000 issues. The Company
has received varying information from such third parties on the
state of compliance or expected compliance. In general, the
suppliers and customers have developed or are in the process of
developing plans to address their Year 2000 issues. The Company
will continue to monitor and evaluate the progress of suppliers
and customers on this critical matter.
Based on the progress the Company has made in addressing its
Year 2000 issues and the plans and timelines to complete this
project, the Company does not foresee significant risks associated
with its Year 2000 compliance regarding its own financial and
manufacturing systems at this time. The Company has not developed
a detailed contingency plan, but given the current status of its
progress, it appears that all financial and manufacturing systems
will be compliant. However, if the Company identifies significant
risks related to its Year 2000 compliance, including the failure
to correct a material Year 2000 problem of its critical suppliers
and customers, or its progress deviates from the anticipated
timeline, the Company will develop contingency plans as deemed
necessary at that time.
The failure to correct a material Year 2000 problem,
including such a failure by a critical supplier or customer, could
result in an interruption in, or failure of, certain normal
business activities or operations. Such failures could materially
and adversely affect the Company's operations, liquidity and
financial condition. Due to the general uncertainty inherent in
the Year 2000 problem, resulting in part from the uncertainty of
the Year 2000 readiness of critical suppliers and customers, the
Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on
the Company's operations, liquidity and financial condition.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
The consolidated financial statements and related notes
thereto of the Company for the year ended December 25, 1998 are
included in this Report on Form 10-KSB in their entirety
immediately following the signature pages hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
DIRECTORS AND EXECUTIVE OFFICERS
The following individuals serve as the Company's Directors
and executive officers:
William A. Frey III, age 53, has served as the Company's
Chairman of the Board of Directors and Chief Executive Officer
since January 1, 1999. Mr. Frey is the Founder and Chairman of
Trinity Healthcare Corporation ("THC") and holds executive
positions with other enterprises related to THC. Before THC, Mr.
Frey was Secretary of the Board of Directors; President, Financial
Services Division and Chief Financial Officer of Life Care Centers
of America. Prior to Life Care Centers of America, Mr. Frey was a
Manager at Price Waterhouse & Co.
Thomas J. Tully, age 69, has been a Director of the Company
since February 12, 1997 and Vice Chairman since January 1, 1999.
Prior to January 1, 1999, he was the Company's Chairman and Chief
Executive Officer. In 1993, Mr. Tully founded the Company's
subsidiary, UNSC, Inc. and has served as its Chief Executive
Officer since inception. From 1985 to 1993, Mr. Tully served as
President and owner of American Marketing/Financial Industries,
Inc., a marketing firm.
Donald T. Zimmerman, Jr., age 45, a Director and President of
the Company since January 1, 1999 has also served as Chief
Operating Officer of the Company since January 1998. From 1996
until January 1998, Mr. Zimmerman served as a management
consultant specializing in business strategy, marketing and new
product development. From 1983 through 1996, Mr. Zimmerman served
in various capacities at the Andrew Jergens Company, a wholly-
owned subsidiary of Kao Corporation of Japan and a personal care
products company, with his last position being Senior Vice
President. Mr. Zimmerman is also President of HMC and Vice
President of RPI, both of which are wholly-owned subsidiaries of
the Company.
Granville G. Valentine III, age 44, has been Senior Vice
President of the Company since December 1997. Mr. Valentine had
been an officer of R. P. Industries, Inc., including serving as
President and Chief Executive Officer, from July 1993 until the
Company completed its acquisition of that subsidiary in January
1998. Mr. Valentine was employed by James River Corporation from
1978 until July 1993. Mr. Valentine is also President and Chief
Executive Officer of R. P. Industries, Inc., a wholly-owned
subsidiary of the Company.
Jeffrey A. Pakrosnis, age 36, has been Vice President, Chief
Financial Officer and Secretary of the Company since July 6, 1998.
From May 1997 through July 1998, Mr. Pakrosnis served as Vice
President and Chief Financial Officer of Universal Document
Management Systems, Inc. ("UDMS"), a document solutions software
and service provider and a wholly-owned subsidiary of publicly-
traded MedPlus, Inc. For the 11 years prior to UDMS, Mr.
Pakrosnis was with KPMG Peat Marwick LLP, and served as Senior
Audit Manager over the last five years. Mr. Pakrosnis is also
Vice President, Secretary and Treasurer of HMC and Vice President
of RPI.
ITEM 10. EXECUTIVE COMPENSATION.
Summary
The following summary compensation table sets forth all
compensation paid or accrued by the Company for services rendered
in all capacities during the three years ended December 25, 1998
by the Chief Executive Officer and the three other most highly
compensated executive officers of the Company. There were no
other executive officers of the Company whose total salary and
bonus exceeded $100,000 in the 1998 fiscal year.
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------- ---------------------------
Other Stock LTIP All
Annual Awards Payout Other
Year Salary Bonus Compensation $ Options # $ Compensation
---- ------ ------ ------------ ----- ---------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
T.J. Tully 1998 $ 86,250 $ - - - 700,000 - $ -
Chairman and 1997 70,000 - - - - - -
Chief Executive 1996 - - - - - - -
Officer
Donald T. 1998 158,333 (1) - (1) - - 400,000 - -
Zimmerman 1997 - - - - - - -
Chief Operating 1996 - - - - - - -
Officer
Granville G. 1998 160,000 62,968 (2) - - 35,000 - 5,454 (2)
Valentine III 1997 - - - - - - -
Senior Vice 1996 - - - - - - -
President
Jeffrey A. 1998 38,182 (3) 20,000 (3) - - 400,000 - -
Pakrosnis 1997 - - - - - - -
Chief Financial 1996 - - - - - - -
Officer
<PAGE>
<FN>
(1) Amounts reflected herein are exclusive of salary and bonus
amounts of $41,667 and $50,000, respectively, not paid to the
named executive as of March 31, 1999 and which may not be
paid in the foreseeable future.
(2) Bonus and All Other Compensation earned by Granville G.
Valentine III was pursuant to R. P. Industries, Inc.'s Cash
Profit-Sharing Plan and Deferred Profit-Sharing Retirement
Plan, respectively.
(3) Amounts reflected herein are exclusive of salary and bonus
amounts of $20,000 and $50,000, respectively, not paid to the
named executive as of March 31, 1999 and which may not be
paid in the foreseeable future.
</FN>
</TABLE>
<PAGE>
Compensation of Directors
Directors of the Company are not entitled to compensation.
Employment Contract and Termination of Employment and Change-in-
Control Arrangements
During 1998, the Company entered into employment agreements
with Messrs. Tully, Zimmerman and Pakrosnis which provide for five
year terms, an agreed upon annual salary, benefits, nonstatutory
stock option grant, and provisions concerning termination of
employment upon sale or change in control of the Company. In
addition, in connection with the Company's acquisition of RPI on
December 31, 1997, the Company entered into an employment
agreement with Mr. Valentine which provides for a five-year term,
and agreed upon annual salary, benefits, nonstatutory stock option
grant and provisions concerning termination of employment upon
sale or change in control of RPI.
Further, effective January 1, 1999, the Company's Board of
Directors has elected Mr. Frey as Chairman of the Board of
Directors and Chief Executive Officer. Mr. Tully, who remains as
a Director, has been elected Vice Chairman. Mr. Zimmerman has
been promoted to President and Chief Operating Officer and elected
to the Board of Directors.
In conjunction with Mr. Frey's election as Chief Executive
Officer, the Company entered into a five-year employment agreement
with Mr. Frey, which provides for an agreed upon salary, benefits,
nonstatutory stock option grant and provisions concerning
termination of employment upon sale or change in control of the
Company.
Stock Option Plan
In 1998, the Company's stockholders and Board of Directors
approved the adoption of the 1998 Long-Term Incentive Plan ("1998
LTIP") pursuant to which the Company's Board of Directors may
grant stock options, stock appreciation rights and stock awards to
the Company's officers and key employees. No specific number of
shares were reserved for issuance under the 1998 LTIP. Subject to
other maximums depending on the type of issuance under the 1998
LTIP, the maximum number of shares of Common Stock that may be
delivered to any participant is 1,500,000 shares. Stock options
and stock appreciation rights are granted with an exercise price
at least equal to the underlying common stock's fair market value
at the date of grant. Stock options issued under the 1998 LTIP
have three or five-year terms and may be exercisable immediately
or ratably over the terms, both of which are determined by the
Board of Directors. As of December 25, 1998, stock options to
acquire 1,575,000 and 1,561,667 shares of Common Stock remained
outstanding and exercisable, respectively, with exercise prices
ranging between $0.50 and $3.75 per share.
Stock Option Grants
The following table sets forth information concerning options
granted to each of the named executive officers during the 1998
fiscal year.
<PAGE>
<TABLE>
Individual Grants
--------------------------------------------------------
Percentage of
Total Options
Granted to
Options Employees in Exercise price Expiration
Granted # Fiscal 1998 % Per Share $ Date
--------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
T.J. Tully 200,000 12.7 0.75 9/3/03
T.J. Tully 500,000 31.6 0.50 11/30/03
Donald T. Zimmerman 400,000 25.3 0.53 9/24/03
Granville G. Valentine III 35,000 2.2 3.75 2/1/03
Jeffrey A. Pakrosnis 400,000 25.3 0.53 9/24/03
</TABLE>
<PAGE>
Stock Option Exercises
The following table sets forth information concerning options
exercised during the 1998 fiscal year by the named executive
officers of the Company, as well as the aggregate value of
unexercised options held by such executive officer at December 25,
1998. The Company has no stock appreciation rights, either
freestanding or in tandem with stock options.
<TABLE>
Value of Unexercised In-the-
Number of Unexercised Options Money Options at
at December 25, 1998 December 25, 1998 (1)
----------------------------- ----------------------------
Shares
Acquired Value Unexerci- Unexerci-
on Exercise Realized Exercisable sable Exercisable sable
------------ -------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
T.J. Tully - - 700,000 - - -
Donald T.
Zimmerman - - 400,000 - - -
Granville G.
Valentine III - - 35,000 - - -
Jeffrey A. Pakrosnis - - 400,000 - - -
<FN>
(1) Calculated based upon the closing bid price of the Company's
Common Stock as reported on the OTC Bulletin Board as of
December 25, 1998, which was $0.375.
</FN>
</TABLE>
<PAGE>
Report on Repricing of Options/SARS
On July 2, 1998, pursuant to the employment agreement with
Mr. Tully, the Company granted an option to purchase 200,000
shares of the Company's Common Stock with an exercise price of
$1.9375 per share, the fair market value of the underlying Common
Stock at the date of grant. Because the Company could not at that
time make its contractual salary payments to Mr. Tully and
otherwise wished to retain his services, the Company agreed to
amend the stock option agreement in September, 1998 to provide for
an exercise price of $0.75 per share, the fair market value of the
underlying Common Stock at the date of amendment.
On May 16, 1998, pursuant to the employment agreement with
Mr. Zimmerman, the Company granted an option to purchase 160,000
shares of the Company's Common Stock with an exercise price of
$2.37 per share, the fair market value of the underlying Common
Stock at the date of grant. Because the Company could not at that
time make its contractual salary payments to Mr. Zimmerman and
otherwise wished to retain his services, the Company agreed to
amend the stock option agreement in September, 1998 to provide for
a grant of 400,000 options with an exercise price of $0.53 per
share, the fair market value of the underlying Common Stock at the
date of amendment.
On August 3, 1998, pursuant to the employment agreement with
Mr. Pakrosnis, the Company granted an option to purchase 72,500
shares of the Company's Common Stock with an exercise price of
$1.9375 per share, the fair market value of the underlying Common
Stock at the date of grant. Because the Company could not at that
time make its contractual salary payments to Mr. Pakrosnis and
otherwise wished to retain his services, the Company agreed to
amend the stock option agreement in September, 1998 to provide for
a grant of 400,000 options with an exercise price of $0.53 per
share, the fair market value of the underlying Common Stock at the
date of amendment.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth information with respect to
the beneficial ownership of shares of all classes of the Company's
voting securities as of March 26, 1999 of each executive officer,
each director, and each stockholder known to be the beneficial
owner of 5% or more of any class of the Company's voting
securities and all officers and directors as a group.
<PAGE>
<TABLE>
Amount and
Name and Address of Nature of
Title of Class Beneficial Owner Beneficial Owner Percent of Class
- ----------------------- ---------------------- -------------------- -------------------
<S> <C> <C> <C>
Common Stock William A. Frey III,
Chairman and Chief
Executive Officer 13,366,382 1 55.5%
Common Stock T.J. Tully, Vice Chairman 900,000 2 5.2%
Common Stock Donald T. Zimmerman,
President and Chief
Operating Officer 400,000 3 2.4%
Common Stock Granville G. Valentine III,
Senior Vice President 102,124 4 0.6%
Common Stock Jeffrey A. Pakrosnis,
Vice President and
Chief Financial Officer 400,000 3 2.4%
Common Stock Directors and Officers
as a Group 15,168,506 59.2%
Common Stock NAVICAP 5,200,460 5 31.3%
<PAGE>
<FN>
(1) Includes 372,500 shares owned by Frey, 165,000 and 50,000
shares beneficially owned by Frey through Trinity Fund VII and
Trinity Healthcare Corporation, respectively, warrants held by
Frey to purchase an additional 500,000 and 6,000,000 shares of the
Company's Common Stock with exercise prices of $4.00 and $0.14 per
share, respectively, 5,278,882 shares beneficially owned by Frey
through Trinity Capital Group, LLC and an option held by Frey to
purchase an additional 1,000,000 shares of the Company's Common
Stock with an exercise price of $0.56 per share granted pursuant
to the Company's 1998 Long-Term Incentive Plan ("1998 LTIP").
(2) Includes 100,000 shares owned by T.J. Tully, 100,000 shares
owned by his spouse and options held by T.J. Tully granted
pursuant to the Company's 1998 LTIP to purchase an additional
200,000 and 500,000 shares of the Company's Common Stock with
exercise prices of $0.75 and $0.50 per share, respectively.
(3) Comprised of options to purchase 400,000 shares of the
Company's Common Stock with an exercise price of $0.53 per share
granted pursuant to the Company's 1998 LTIP.
(4) Includes 67,124 shares owned by Granville G. Valentine and
options to purchase an additional 35,000 shares of the Company's
Common Stock with an exercise price of $3.75 per share granted
pursuant to the Company's 1998 LTIP.
(5) Includes 5,135,270 shares owned by NAVICAP Corporation (f/k/a
Ramsay-Hughes), 50,880 shares owned by Gregory Pitner, a Director,
Officer and shareholder of NAVICAP, and 14,310 shares owned by
other related parties of NAVICAP.
</FN>
</TABLE>
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
As of December 25, 1998, the Company was indebted in the
amount of $573,383 in principal and interest to NAVICAP and
related affiliates. Anthony G. Covatta, a Director of the Company
until his resignation in June 1998, is a stockholder of the
Company, and also a Director and stockholder of NAVICAP. In
addition, Mr. Covatta's law firm, Drew & Ward, served in various
capacities as legal counsel for the Company during 1997.
As of December 31, 1997, the majority of the balance due to
NAVICAP and related affiliates was represented by a promissory
note, which was due on demand. On March 30, 1998, the Company
issued 500,000 stock purchase warrants to NAVICAP in connection
with an extension of the due date of the promissory note to
September 30, 1999. The fair value of the stock purchase warrants
was determined to be $1,059,500, which was allocated to the
warrants and recorded as additional paid in capital. The amount
allocated was based on the relative fair values of the debt and
warrants at the time of the warrant issuance. The value of the
stock purchase warrants was being amortized over the amended term
through September 30, 1999. On August 26, 1998, NAVICAP agreed to
restructure this promissory note by accepting 500,000 shares of
the Company's Common Stock in lieu of a $500,000 reduction in the
principal amount of the indebtedness.
Effective November 30, 1998, the Company and NAVICAP executed
the Amended and Restated Promissory Note to modify the terms of
the previously outstanding longer-term promissory note, which as
of November 30, 1998 was comprised of principal and accrued
interest of $2,440,363 and $289,137, respectively. The terms set
forth in the Amended and Restated Promissory Note provide that
accrued interest through November 30, 1998 along with interest for
the period December 1, 1998 through December 25, 1998 shall be
capitalized as additional principal, after which time interest
will then be payable quarterly at 12% per annum. This Amended and
Restated Promissory Note also provided for a maturity date of
October 30, 2003 and a conversion feature exercisable on or before
December 24, 1998 which allowed for any amount of interest and/or
principal up to a maximum of $1,000,000 to be converted into
shares of the Company's Common Stock at a value of the greater of
$0.25 per share or the current market price on the date of
conversion. As a result of the extension of the maturity date of
the Amended and Restated Promissory Note on November 30, 1998, the
Company prospectively adjusted the amortization period of the
stock purchase warrants previously issued to NAVICAP through
October 30, 2003. The remaining unamortized balance of the stock
purchase warrants as of December 25, 1998 was $578,635.
On December 4, 1998, NAVICAP exercised its option to convert
$1,000,000 of principal due under the Amended and Restated
Promissory Note in exchange for 4,000,000 shares of the Company's
Common Stock. After giving effect to the capitalized interest,
the debt conversion and the debt substitution referred to below,
the balance of the Amended and Restated Promissory Note at
December 25, 1998 was $542,217.
Further on November 30, 1998, as a component of the Amended
and Restated Promissory Note, the Company and NAVICAP agreed to
substitute $1,193,100 of the aggregate principal and accrued
interest owed to NAVICAP to a then non-affiliate of the Company,
William A. Frey III ("Frey" and "Frey Note"), who subsequently
became the holder of a majority of the Company's Common Stock and
Chairman and Chief Executive Officer of the Company. The terms
set forth in the Frey Note provide that accrued interest for the
period December 1, 1998 through December 25, 1998 shall be
capitalized as additional principal, after which time interest
will then be payable quarterly at 12% per annum. The Frey Note
also provided for a maturity date of October 30, 2003 and provides
for a conversion feature, which allows for any amount of interest
and/or principal to be converted into shares of the Company's
Common Stock at a value of $0.14 per share. After giving effect
to the capitalized interest, the balance on the Frey Note at
December 25, 1998 was $1,203,054.
Also on November 30, 1998, Frey provided a short-term loan in
the amount of $100,300 to T.J. Tully, the Company's then Chairman
and Chief Executive Officer, and certain related family members,
who collectively held a majority of the Company's Common Stock
(altogether the "Tully Group"), which in turn was used for the
purpose of providing a short-term loan ("Tully Loans -1") in the
same amount to the Company for additional working capital
purposes. On December 22, 1998, in conjunction with the
transactions described above, the Tully Group agreed to provide
additional working capital to the Company in the form of short-
term loans ("Tully Loans -2") in the amount of $274,700. The
Tully Loans -1 and -2 provide for interest at 11% and are due on
February 28, 1999.
During 1998, T.J. Tully and a related family member provided
other loans to the Company for working capital purposes in the
aggregate amount of $37,000, which generally provide for interest
at 12% and are otherwise due on demand.
On April 13, 1998, consulting agreements were entered into
between T.J. Tully, then Chief Executive Officer of the Company,
and his spouse, individually, and NAVICAP which provided for the
payments of 300,000 and 200,000 shares, respectively, of the
Company's Common Stock owned by T.J. Tully and his spouse in
exchange for expertise, consultation, advice and other services
rendered by NAVICAP to T.J. Tully and his spouse.
On December 22, 1998, Trinity Capital Group, LLC ("TCG"), of
which William A. Frey III ("Frey") is Chief Manager, purchased a
total of 5,278,882 shares of the Company's Common Stock held by
T.J. Tully, then the Company's sole Director, Chairman and Chief
Executive Officer, and certain related family members (altogether,
the "Tully Group") in exchange for cash consideration of $527,889.
In a separate transaction, on November 18, 1998, Frey purchased
300,000 shares of the Company's Common Stock held by James F.
Tully, a related family member of T.J. Tully, in exchange for cash
consideration of $30,000.
In addition, in contemplation of the purchase of 5,278,882
shares of Common Stock by Frey from the Tully Group on December
22, 1998, the Company issued a warrant on November 30, 1998 to
Frey to purchase 6,000,000 shares of the Company's Common Stock at
$0.14 per share. The warrant is immediately exercisable and
expires on October 30, 2003. As a result of this transaction, the
Company recorded a non-cash expense of $515,545, which represented
the fair value of the warrant on the date of issuance. Prior to
this warrant issuance, Frey had obtained warrants to purchase
400,000 shares of the Company's Common Stock with an exercise
price of $4.00 per share from the warrants issued to NAVICAP by
the Company in March 1998.
Effective November 30, 1998, the Company and T. J. Tully
executed an Agreement providing for the sale of 100% of the
outstanding shares of common stock of UNSC, Inc., an inactive
wholly-owned subsidiary of the Company, to T.J. Tully for monetary
consideration of $1 and the grant of an option to purchase 500,000
shares of the Company's Common Stock with an exercise price of
$0.50 per share pursuant to the Company's 1998 LTIP. Further,
effective November 15, 1998, T.J. Tully forgave accrued and unpaid
compensation due from the Company in the amount of $25,000.
UNSC, Inc. had obtained from In-Flo Liquid Dispensing
Corporation ("In-Flo") the exclusive worldwide marketing rights to
sell a collapsible bottle. UNSC, Inc. was assigned the rights to
the collapsible bottle from Diverse Products Incorporated
("Diverse"). As consideration for the assignment, UNSC, Inc.
agreed to pay to Diverse $250,000 which was amended to $0.05 for
each collapsible bottle sold by or through UNSC with a maximum of
$250,000. The consideration was subsequently reduced to $0.04 for
each collapsible bottle sold by or through UNSC with a maximum of
$200,000. In consideration for this reduction, the Company agreed
to prepay (on behalf of UNSC) $40,000 of the $200,000 total,
payable at the rate of $5,000 per month for eight months beginning
on July 30, 1997. The Company completed payment of the entire
$40,000 in February 1998. Mr. T.J. Tully and his brother, Mr.
James F. Tully, are the sole shareholders, directors and officers
of Diverse. T.J. Tully is a Director, Vice Chairman and
stockholder of the Company. Prior to January 1, 1999, T.J. Tully
was the Company's Chairman and Chief Executive Officer. James F.
Tully is a stockholder of the Company.
Mr. Richard Hughes, the former President of the Company until
his resignation in June 1998, had been paid a one-time bonus of
$79,000 during 1997 in consideration of his employment with the
Company.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Sequentially
Exhibit Description of Exhibit Numbered Page
Number
- --------- ------------------------------------ ----------------
3.1 Articles of Incorporation of
Registrant, including subsequent
updates Note (a)
3.2 Bylaws of Registrant
10.1 Sales Agreement between In-Flo
Liquid Dispensing Corporation and
diverse Products Incorporated
dated May 5, 1995 (c)
10.2 Assignment of Sales Agreement
between Diverse Products
Incorporated and Health Shields
Corporation date May 9, 1995 (c)
10.3 Assignment of Sales Agreement
between In-Flo Liquid Dispensing
Corporation and In-flo North
America Limited dated January 22, 1996. (c)
10.4 Addendum to Assignment of Sales
Agreement between Diverse Products
Incorporated and Health Shields
Corporation dated August 8, 1996. (c)
10.5 Amending Agreement between Info
North America Limited and Health
Shields Incorporated dated February
1, 1996 (c)
10.6 Second Addendum to Assignment of
Sales Agreement between Diverse
Products Incorporated and USC dated
April 10. 1997 (c)
10.7 Promissory Note of USC dated
December 12, 1995 in favor of
Ramsay-Hughes, Inc. (c)
10.8 Letter of Ramsay-Hughes, Inc.
dated December1, 1996 extending
Promissory Note dated December
12, 1995 (c)
10.9 Promissory Note of USC dated
December 1, 1996 in favor of
Ramsay-Hughes, Inc. (c)
10.10 Agreement and Plan of Share
Exchange by and between The
HeaterMeals Company and United
Shields Corporation dated September
12, 1997. (d)
10.11 Merger Agreement by and among
R. P. Industries, Inc. and United
Shields Corporation and its wholly
owned subsidiary dated October
22, 1997. (e)
10.12 Third Addendum to Assignment of
Sales Agreement dated as of July
29, 1997 between diverse Products
Incorporated and United Shields
Corporation (Subsidiary) (f)
10.13 Promissory Note of the Company
dated May 22, 1997 in favor of
Ramsay-Hughes, Inc. (g)
10.14 Stock Pledge Agreement dated
May 29, 1997 between T.J. Tully
and Ramsay-Hughes, Inc. (g)
10.15 Stock Pledge Agreement dated May
29, 1997 between James F. Tully
and Ramsay-Hughes, Inc. (g)
10.16 Stock Pledge Agreement dated May
29, 1997 between Gay N. Tully and
Ramsay-Hughes, Inc. (g)
10.17 Agreement dated August 7, 1997
between Master Molders, Inc. and
the Company (g)
10.18 Management Agreement dated August
7, 1997 between Master Molders, Inc.
and the Company (g)
10.19 Share Exchange Agreement by and
between Capital 2000, Inc. and
United Shields Corporation dated
February 12, 1997 (h)
10.20 Sale and Leaseback Agreement dated
as of December 29, 1997 between The
HeaterMeals Company and Information
Leasing Corporation (i)
10.21 Lease Agreement dated as of December
29, 1997 between The HeaterMeals
Company and Information Leasing
Corporation (i)
10.22 Unconditional guaranty dated December
29, 1997 by United Shields Corporation
to Information Leasing Corporation (i)
10.23 Subordination Agreement dated as of
December 29, 1997 by and between
The HeaterMeals Company, United
Shields Corporation, Information
Leasing Corporation and Ramsay-Hughes,
Inc. (i)
10.24 Warrant to Purchase Common Stock
of United Shields Corporation dated
December 29, 1997 issued to Information
Leasing Corporation (i)
10.25 Registration Rights Agreement dated
December 29, 1997 between United
Shields Corporation and Information
Leasing Corporation (i)
10.26 Revolving Credit and Security
Agreement dated December 30, 1997
by and among R. P. Industries of
Ohio, Inc., United Shields
Corporation, Furniture Plastics
of Forest City, Inc., Granville
Plastics Company, Inc., R. P.
Enterprises, Inc., Richmond
Plastics, Inc., R. P. Real Estate,
Inc. and First Union National Bank (i)
10.27 Environmental Liabilities Agreement
dated December 30, 1997 by and among
R. P. Industries of Ohio, Inc. and
First Union National Bank (i)
10.28 Environmental Liabilities Agreement
dated December 30, 1997 by and among
Granville Plastics, Inc. and First
Union National Bank (i)
10.29 Pledge Agreement dated December 30,
1997 by and among R. P. Industries
of Ohio, Inc. United Shields
Corporation, Furniture Plastics of
Forest City, Inc., Granville Plastics
Company, Inc., R. P. Enterprises,
Inc., Richmond Plastics, Inc., R. P.
Real Estate, Inc. and First Union
National Bank (i)
10.30 Revolving Promissory Note dated
December 30, 1997 from R. P.
Industries of Ohio, Inc. to First
Union National Bank (i)
10.31 Credit Line Deed of Trust and
Assignment of Rents by R. P.
Industries of Ohio, Inc. to First
Union National Bank (i)
10.32 Credit Line Deed of Trust and
Assignment of Rents by Granville
Plastics Company, Inc. to First Union
National Bank (i)
10.33 Letter Agreement dated December 11,
1997 between United Shields
Corporation and Master Molders, Inc. (i)
10.34 Promissory Note dated December 18,
1997 from Master Molders, Inc. to
United Shields Corporation (i)
10.35 Amended and Restated Promissory
Note dated December 29, 1997 from
United Shields Corporation to
NAVICAP Corporation (i)
10.36 Letter Agreement dated January 6,
1998 between United Shields
Corporation and Donald T. Zimmerman (i)
10.37 Limited Recourse Promissory Note
dated November 30, 1998 between
William A. Frey III, T.J. Tully,
Gay N. Tully and James F. Tully (j)
10.38 Promissory Note dated November
30, 1998 between T.J. Tully and
United Shields Corporation (j)
10.39 Promissory Note dated November
30, 1998 between Gay N. Tully and
United Shields Corporation (j)
10.40 Promissory Note dated November
30, 1998 between James F. Tully
and United Shields Corporation (j)
10.41 Amended and Restated Promissory
Note dated November 30, 1998 between
NAVICAP Corporation and United Shields
Corporation (j)
10.42 Amended and Restated Promissory
Note dated November 30, 1998 between
William A. Frey III and United
Shields Corporation (j)
10.43 Agreement to purchase UNSC, Inc.
dated November 30, 1998 between
United Shields Corporation and
T.J. Tully (j)
10.44 Warrant Agreement dated November
30, 1998 between William A. Frey
III and United Shields Corporation (j)
10.45 Promissory Note dated December 22,
1998 between T.J. Tully and United
Shields Corporation (j)
10.46 Promissory Note dated December 22,
1998 between Gay N. Tully and United
Shields Corporation (j)
10.47 Promissory Note dated December 22,
1998 between James F. Tully and
United Shields Corporation (j)
10.48 Promissory Note dated December 22,
1998 between Andrew T. Tully and
United Shields Corporation (j)
10.49 Promissory Note dated December 22,
1998 between Nola E. Tully and
United Shields Corporation (j)
21 Subsidiaries of Registrant
24 Powers of Attorney Note (b)
27 Financial Data Schedule
99.1 Employment Agreement dated July 2,
1998 between United Shields
Corporation and T.J. Tully
99.2 Employment Agreement dated July 2,
1998 between United Shields
Corporation and Jeffrey A. Pakrosnis
99.3 Letter Agreement dated September 8,
1998 between United Shields
Corporation and Donald T. Zimmerman
99.4 Letter Agreement dated September 8,
1998 between United Shields
Corporation and Jeffrey A. Pakrosnis
99.5 Letter Agreement dated September 8,
1998 between United Shields
Corporation and Jeffrey A. Pakrosnis
99.6 Amendment to Employment Agreement
dated September 24, 1998 between
United Shields Corporation and
Donald T. Zimmerman
99.7 Letter Agreement dated September 24,
1998 between United Shields
Corporation and Jeffrey A. Pakrosnis
99.8 Amendment to the Employment Agreement
dated November 30, 1998 between United
Shields Corporation and T.J. Tully
99.9 Employment Agreement dated January 1,
1999 between United Shields Corporation
and William A. Frey III
Note Reference:
(a) Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement No. 22-11062-D and Exhibits 3.1
(a) and (b) to the Company's Form 10-K for the year ended December
31, 1995.
(b) Contained on the first page of the signature pages
contained in this report.
(c) Incorporated by reference to Exhibit 10(i) to the
Company's Annual Report on Form 10-KSB for the year ended December
31, 1996.
(d) Incorporated by reference to Exhibit 2.1 to the
Company's Form 8-K filed November 26,1997.
(e) Incorporated by reference to Exhibit 2.3 to the
Company's Form 8-K filed October 31, 1997.
(f) Incorporated by reference to Exhibit 10.3 to the
Company's Form 8-K filed August 22,1997.
(g) Incorporated by reference to Exhibit 10(i) to the
Company's Form 10-QSB for the period ended June 30, 1997.
(h) Incorporated by reference to Exhibit 10.1 to the
Company's Form 8-K filed April 1, 1997.
(i) Incorporated by reference to Exhibits 99.1 through
99.17 to the Company's Form 8-K filed January 20, 1998.
(j) Incorporated by reference to Exhibits (i) through
(xiii) to the Company's Form 8-K filed January 6, 1999.
(b) Reports on Form 8-K
On January 6, 1999, the Company filed a Current Report on
Form 8-K in which it reported that: (i) as a result of certain
transactions between between T.J. Tully, the Company's sole
Director, Chairman and Chief Executive Officer, certain related
family members, William A. Frey III ("Frey") and the Company, a
Change in Control of the Registrant had occurred with respect to
majority ownership of the total outstanding shares of the
Company's Common Stock; (ii) the Company restructured its
indebtedness to NAVICAP to provide for an extension of the
maturity date of such indebtedness to October 30, 2003 and to
substitute certain indebtedness with NAVICAP to Frey; and (iii)
the Company and T.J. Tully executed an Agreement providing for the
sale of 100% of the outstanding shares of common stock of UNSC,
Inc., an inactive wholly-owned subsidiary of the Company, to T.J.
Tully for monetary consideration of $1 and the grant of an option
to T.J. Tully to purchase 500,000 shares of the Company's Common
Stock with an exercise price of $0.50 per share pursuant to the
1998 LTIP.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities
Exchange Act of 1934, United Shields Corporation, the Registrant,
has duly caused this report on Form 10-KSB dated April 7, 1999 to
be signed on its behalf by the undersigned, thereunto duly
authorized.
United Shields Corporation
Date: By: /s/William A. Frey III
William A. Frey III
Chairman
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below hereby constitutes and appoints William A.
Frey III, Chairman and Chief Executive Officer of United Shields
Corporation, his or her true and lawful attorney-in-fact and
agent, with full power of substitution, and with power to act
alone, to sign and execute on behalf of the undersigned any
amendment or amendments to this report on Form 10-KSB, and to
perform any acts necessary to be done in order to file such
amendment or amendments, with exhibits thereto and other documents
in connection therewith with the Securities and Exchange
Commission and each of the undersigned does hereby ratify and
confirm all that said attorney-in-fact and agent, or his
substitutes, shall do or cause to be done by virtue hereof.
In accordance with the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Principal Executive Officer: Date:
/s/William A. Frey III Director, Chairman and April 7, 1999
William A. Frey III Chief Executive Officer
Principal Financial and
Accounting Officer:
/s/Jeffrey A. Pakrosnis Vice President and
Jeffrey A. Pakrosnis Chief Financial Officer April 7, 1999
Directors:
/s/Donald T. Zimmerman Director, President and
Donald T. Zimmerman Chief Operating Officer April 7, 1999
/s/T.J. Tully Director and Vice
T.J. Tully Chairman April 7, 1999
<PAGE>
United Shields Corporation
and Subsidiaries
- ------------------------------------------------------------------
Consolidated Financial Statements
Years Ended December 25, 1998, December 31, 1997
and December 31, 1996
<PAGE>
United Shields Corporation
and Subsidiaries
Contents
- ------------------------------------------------------------------
Consolidated Financial Statements
Report of Independent Certified Public Accountants 3
Consolidated Balance Sheets 4 - 5
Consolidated Statements of Operations 6
Consolidated Statements of Stockholders' Equity (Deficit) 7
Consolidated Statements of Cash Flows 8 - 9
Notes to Consolidated Financial Statements 10 - 28
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
United Shields Corporation
We have audited the accompanying consolidated balance sheets of
United Shields Corporation and Subsidiaries (a Colorado
corporation) as of December 25, 1998 and December 31, 1997 and the
related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the
period ended December 25, 1998. 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of United Shields Corporation and Subsidiaries as of
December 25, 1998 and December 31, 1997, and the results of its
consolidated operations and its consolidated cash flows for each
of the three years in the period ended December 25, 1998 in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
/s/Grant Thornton
Grant Thornton LLP
Cincinnati, Ohio
February 3, 1999
<PAGE>
<TABLE>
United Shields Corporation
and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
- ------------------------------------------------------------------
December 25, December 31,
As of 1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 191,609 $ 512,839
Accounts receivable, net 1,543,923 1,375,475
Other receivables 14,447 45,247
Inventories 1,321,168 1,424,661
Prepaid expenses 20,947 101,701
Refundable income taxes - 123,440
- ------------------------------------------------------------------
Total current assets 3,092,094 3,583,363
- ------------------------------------------------------------------
Property, plant and equipment, at cost:
Land 399,838 399,838
Machinery and equipment 3,485,620 3,435,526
Office furniture and fixtures 75,620 106,482
Vehicles 21,850 21,850
Building and leasehold
improvements 1,285,883 1,240,163
- ------------------------------------------------------------------
5,268,811 5,203,859
Less accumulated depreciation (619,236) (1,915)
- ------------------------------------------------------------------
Net property, plant and
equipment 4,649,575 5,201,944
- ------------------------------------------------------------------
Other assets:
Deposits 59,148 58,647
Investment in potential
acquisitions - 540,000
Cash surrender value of life
insurance, net of policy
loans of $1,270,441 and
$986,809 at December 25, 1998
and December 31, 1997,
respectively 961,845 1,030,365
Goodwill, net 4,990,379 5,347,940
Other 6,438 1,403
- ------------------------------------------------------------------
Total other assets 6,017,810 6,978,355
- ------------------------------------------------------------------
$ 13,759,479 $15,763,662
- ------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
<PAGE>
<TABLE>
United Shields Corporation
and Subsidiaries
Consolidated Balance Sheets
(continued)
<CAPTION>
- ------------------------------------------------------------------
As of December 25, December 31,
1998 1997
- ------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders'
Equity
Current liabilities:
Notes payable - related
parties - current $ 441,345 $ -
Capital lease obligation -
current 140,895 121,635
Accounts payable 1,318,041 1,496,165
Accounts payable - In Flo - 449,577
Accrued expenses and
other current liabilities 1,001,410 712,573
- ------------------------------------------------------------------
Total current liabilities 2,901,691 2,779,950
Revolving line of credit 91,487 -
Notes payable - related
parties 1,166,636 3,727,081
Long-term debt 3,880,060 4,551,000
Capital lease obligation - 140,895
Deferred compensation 625,357 625,357
- ------------------------------------------------------------------
Total liabilities 8,665,231 11,824,283
- ------------------------------------------------------------------
Stockholders' equity:
Common stock - authorized
500,000,000 shares without
par value; stated value $0.01; 166,049 115,301
issued and outstanding 16,604,875
and 11,530,100 at December 25, 1998
and December 31, 1997, respectively
Additional paid in capital 9,380,172 4,238,236
Common stock paid for but not yet
issued- 415,176 shares at
December 31, 1997 - 1,594,166
Accumulated deficit (4,451,973) (2,008,324)
- ------------------------------------------------------------------
Total stockholders' equity 5,094,248 3,939,379
- ------------------------------------------------------------------
$ 13,759,479 $ 15,763,662
- ------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
<PAGE>
<TABLE>
United Shields Corporation
and Subsidiaries
Consolidated Statements of Operations
<CAPTION>
- ------------------------------------------------------------------
December 25, December 31, December 31,
For the years ended 1998 1997 1996
- ------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $12,955,424 $ 632,664 $ -
Cost of sales 10,222,027 572,333 -
- ------------------------------------------------------------------
Gross profit 2,733,397 60,331 -
- ------------------------------------------------------------------
Operating expenses:
Selling, general
and administrative 2,808,617 1,566,220 362,532
Goodwill amortization 357,561 15,418 -
Write-off of
investment in
potential acquisitions 530,075 - -
Reorganization and
restructuring, net 44,936 - -
- ------------------------------------------------------------------
Total operating expenses 3,741,189 1,581,638 362,532
- ------------------------------------------------------------------
- ------------------------------------------------------------------
Loss from operations (1,007,792) (1,521,307) (362,532)
- ------------------------------------------------------------------
Other (income) expense:
Interest expense, net 1,439,928 74,287 8,705
Loss on sale of
property and equipment 67,218 - -
Other (8,789) 239 -
- ------------------------------------------------------------------
Total other expense 1,498,357 74,526 8,705
- ------------------------------------------------------------------
Loss before income taxes
and extraordinary item (2,506,149) (1,595,833) (371,237)
Income taxes - - -
- ------------------------------------------------------------------
Loss before extraordinary
item (2,506,149) (1,595,833) (371,237)
- ------------------------------------------------------------------
Extraordinary item -
gain on restructuring
of debt 62,500 - -
- ------------------------------------------------------------------
Net loss $(2,443,649) $(1,595,833) $ (371,237)
- ------------------------------------------------------------------
Weighted average shares
outstanding:
Basic and diluted 12,471,018 10,516,268 8,924,287
- ------------------------------------------------------------------
Loss before extraordinary
item per common
share - basic and diluted $(0.20) $(0.15) $(0.04)
- ------------------------------------------------------------------
Extraordinary item per
common share -basic and
diluted - - -
- ------------------------------------------------------------------
Net loss per common
share - basic and diluted $(0.20) $(0.15) $(0.04)
- ------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of these statements.
<PAGE>
<TABLE>
United Shields Corporation
and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
For the years ended December 31, 1996, December 31, 1997 and December 25, 1998
- ----------------------------------------------------------------------------------------------
Common
Additional stock paid
Common paid in for but not Accumulated
stock capital yet issued deficit Total
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 35,002 $ - $ - $ (41,254) $ (6,252)
312,753 shares of common
stock issued at estimated
value 28,100 - - - 28,100
Common stock paid for but
not yet issued - 105,735
shares of common stock - - 133,000 - 133,000
Net loss during the development
stage - - - (371,237) (371,237)
- ----------------------------------------------------------------------------------------------
Balance at December 31, 1996 63,102 - 133,000 (412,491) (216,389)
324,360 shares of common stock
issued in private offering 407,965 - (133,000) - 274,965
1,133,384 shares of common
stock issued or to be issued
for completed and potential
acquisitions 3,620,000 - 773,536 - 4,393,536
1,050,100 shares of common
stock issued in connection
with reverse acquisition - - - - -
Common stock paid for but not
yet issued - 221,792 shares of
common stock - - 820,630 - 820,630
250,000 warrants issued in
connection with capital lease
transaction - 262,470 - - 262,470
Adjust common stock to
reflect stated value of
$.01 per share (3,975,766) 3,975,766 - - -
Net loss - - - (1,595,833) (1,595,833)
- ----------------------------------------------------------------------------------------------
Balance at December 31,1997 115,301 4,238,236 1,594,166 (2,008,324) 3,939,379
193,384 shares of common
stock issued for completed
acquisitions 1,934 771,602 (773,536) - -
378,742 shares of common stock
issued in private offering 3,787 1,396,738 (820,630) - 579,895
500,000 warrants issued to a
related party in connection
with debt restructuring - 1,059,500 - - 1,059,500
2,649 shares of common stock -
other issuances 27 2,083 - - 2,110
4,500,000 shares of common
stock issued to a related
party in connection with
debt restructurings 45,000 1,392,500 - - 1,437,500
6,000,000 warrants issued to
a related party in connection
with reorganization and
restructuring - 515,545 - - 515,545
500,000 stock options issued to
a related party in connection
with sale of UNSC, Inc. - 3,968 - - 3,968
Net loss - - - (2,443,649) (2,443,649)
- ----------------------------------------------------------------------------------------------
Balance at December 25, 1998 $ 166,049 $9,380,172 $ - $(4,451,973) $5,094,248
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
<TABLE>
United Shields Corporation
and Subsidiaries
Consolidated Statements of Cash Flows
- ----------------------------------------------------------------------------------------------
December 25, December 31, December 31,
For the years ended 1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net cash flows provided by (used in)
operating activities:
Net loss $ (2,443,649) $ (1,595,833) $ (371,237)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization -
property and equipment 637,282 109,673 20,000
Amortization of goodwill and warrants 1,043,670 15,418 -
Write-off of investment in potential
acquisitions 530,075 - -
Loss on sale of property and equipment 67,218 - -
Reorganization and restructuring, net 44,936 - -
Gain on restructuring of debt (62,500) - -
Stock issued for compensation/naming
rights 2,110 - 28,100
Changes in working capital accounts,
net of effects of subsidiary companies
purchased:
Accounts and other receivables (137,648) 259,185 (6,955)
Inventories 103,493 (174,474) -
Prepaid expenses 80,754 (33,762) -
Income taxes 123,440 (9,687) -
Deposits and other (5,536) (44,227) -
Accounts payable (178,124) 438,748 213,368
Accrued expenses and other current
liabilities 618,748 129,670 8,705
- ----------------------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities 424,269 (905,289) (108,019)
- ----------------------------------------------------------------------------------------------
Cash flows provided by (used in) investing
activities:
Purchases of property and equipment (180,382) (28,051) -
Proceeds from sale of property and equipment 28,249 - -
(Investment) return of investment in
potential acquisitions, net 9,925 (120,000) -
Acquisition of subsidiary companies, net
of cash acquired - (7,678,306) -
Proceeds from sale of equipment in
connection with sale/leaseback - 500,000 -
- ----------------------------------------------------------------------------------------------
Net cash used in investing activities (142,208) (7,326,357) -
- ----------------------------------------------------------------------------------------------
Cash flows provided by (used in) financing
activities:
Borrowings under revolving line of credit 91,487 - -
Borrowings under notes payable - related
parties 441,345 3,935,162 73,119
Payments on notes payable - related parties (786,719) (837,415) (109,959)
Payments on long-term debt (670,940) - -
Borrowings on long-term debt - 4,551,000 -
Payments on capital lease obligation (326,879) - -
Proceeds from issuance of common stock, net
of expenses 579,895 275,000 -
Proceeds from borrowings on life insurance
policies, net of increase in cash
surrender value 68,520 - -
Proceeds from common stock paid for, not
yet issued - 820,631 133,000
- ----------------------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities (603,291) 8,744,378 96,160
- ----------------------------------------------------------------------------------------------
</TABLE>
-continued-
<TABLE>
United Shields Corporation
and Subsidiaries
Consolidated Statements of Cash Flows
(continued)
- ----------------------------------------------------------------------------------------------
December 25, December 31, December 31,
For the years ended 1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net increase (decrease) in cash (321,230) 512,732 (11,859)
Cash at beginning of period 512,839 107 11,966
- ----------------------------------------------------------------------------------------------
Cash at end of period $ 191,609 $ 512,839 $ 107
- ----------------------------------------------------------------------------------------------
Supplemental non-cash disclosures:
Increase in equipment under capital lease $ - $ 525,000 $ -
Increase in capital lease obligation - 262,530 -
Stock issued for investment in potential
acquisitions - 420,000 -
Increase in additional paid in capital -
issuance of warrants 1,059,500 262,470 -
Increase in common stock and additional
paid in capital - debt conversions 1,437,500 - -
Interest paid 501,705 - -
Income taxes paid (refunds received) (89,080) - -
Acquisition of subsidiary companies:
Assets acquired, including goodwill - 14,691,276 -
Liabilities assumed - (3,039,470) -
Common stock issued - (3,973,500) -
- ----------------------------------------------------------------------------------------------
Net cash paid $ - $ 7,678,306 $ -
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
<PAGE>
United Shields Corporation
And Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------
Company Description United Shields Corporation (the
"Company") is a Cincinnati, Ohio based
holding company which operates two
subsidiaries, The HeaterMeals Company
("HMC") and R. P. Industries, Inc.
("RPI").
HMC, also located in Cincinnati, Ohio
manufactures and markets patented,
portable electrochemical heaters and a
line of shelf-stable meals that
incorporate such heaters. HMC's primary
customer, with respect to its
electrochemical heater, is located in the
Midwest region and is a prime contractor
for the United States Department of
Defense. HMC's customers with respect to
its shelf-stable meals include truckstops
throughout the U.S. and specialty
sporting goods retail outlets. HMC also
sells its line of shelf-stable meals to
target consumers via direct marketing and
the Internet.
RPI is a custom injection molding company
with two plants located in Richmond,
Virginia and Oxford, North Carolina and
is engaged in the production of molded
plastic component and finished products
for original equipment manufacturers.
RPI's customers are primarily located in
the Southeast and Mid-Atlantic regions
and operate in the personal care,
construction, electronics, healthcare and
home products industries.
Raw materials utilized by HMC and RPI are
readily available, and neither company is
dependent on a single supplier or only a
few suppliers for its production
requirements, except in the case of HMC,
where it currently utilizes a custom-
manufactured bag for its electrochemical
heater sold to the prime contractor for
the United States Department of Defense
business. Additional efforts are
underway to qualify additional sources
beyond the single qualified source used
currently.
Prior to 1997, the Company was a
development stage enterprise. In
February 1997, Capital 2000, Inc. (a
public development stage enterprise)
acquired all of the outstanding shares of
the Company in exchange for restricted
shares of common stock of Capital 2000,
Inc. (the "Exchange"), pursuant to a
Share Exchange Agreement between Capital
2000, Inc. and the Company. Capital
2000, Inc. exchanged 9,540,000 shares of
common stock for all of the Company's
issued and outstanding 6,000,000 shares
of common stock. For accounting
purposes, the Exchange was treated as a
recapitalization of the Company where the
Company was treated as the accounting
acquiror. All periods have been restated
to give the effect of the
recapitalization. The historical
statements for 1996 are those of the
Company. Pro forma information is not
presented since this combination is not
considered to be a business combination.
In connection with the Exchange, the
directors and officers of the Company
became the directors and officers of
Capital 2000, Inc. Also, Capital 2000,
Inc. changed its name to United Shields
Corporation. After the Exchange, the
Company's shareholders owned
approximately 90% of the outstanding
common stock of Capital 2000, Inc. <PAGE>
United Shields Corporation
And Subsidiaries
Notes to Consolidated Financial Statements
(continued)
- ------------------------------------------------------------------
Principles of The consolidated financial statements
Consolidation include the accounts of the Company and
its wholly-owned subsidiaries. All
significant intercompany balances and
transactions have been eliminated in
consolidation.
Change of Accounting Effective January 1, 1998, the Company
Period changed its accounting period from a
calendar year-end to a 52/53 week fiscal
year. All accounting periods will end on
a Friday. The year-end will always end
on the last Friday of the calendar year.
Inventories Inventories are stated at the lower of
FIFO (first-in, first-out) cost or
market.
Property, Plant Property, plant and equipment are stated
and Equipment at cost. Depreciation of plant and
equipment is computed using the straight-
line method over a 30 year period for
plant and 3-10 year periods for
equipment. Expenditures for repairs and
maintenance are charged to expense as
incurred and additions and improvements
that significantly extend the lives of
assets are capitalized. Upon sale or
retirement of depreciable property, the
cost and accumulated depreciation are
removed from the related accounts and any
gain or loss is reflected in the results
of operations.
Goodwill Goodwill, which represents the excess of
purchase price over fair value of net
assets acquired, is amortized using the
straight-line method over the expected
period to be benefitted, which is 15
years. In accordance with Statement of
Financial Accounting Standards ("SFAS")
No. 121, Accounting for The Impairment of
Long-Lived Assets, the Company evaluates
its goodwill on an on-going basis to
determine potential impairment by
comparing the carrying value to the
estimated undiscounted future operating
cash flows of the acquired operation.
The amount of goodwill impairment, if
any, is measured based on the projected
discounted future operating cash flows
using a discount rate reflecting the
Company's average cost of funds. The
assessment of the recoverability of
goodwill will be impacted if estimated
future operating cash flows are not
achieved.
Accounts Payable Included in accounts payable at December
25, 1998 and December 31, 1997 were bank
overdrafts of $194,758 and $0,
respectively.
Deferred Compensation Through the Company's RPI subsidiary, two
unfunded salary continuation agreements
have been executed with respect to one
former officer and one current officer of
RPI. The Company has recorded the
approximate present value of the salary
continuation obligation as of December
25, 1998 and December 31, 1997.
<PAGE>
United Shields Corporation
And Subsidiaries
Notes to Consolidated Financial Statements
(continued)
- ------------------------------------------------------------------
Advertising Costs Advertising costs are charged to expense
as incurred. Advertising costs were not
material for each of the three fiscal
years ended December 25, 1998.
Income Taxes Income taxes are accounted for under the
asset and liability method. Deferred tax
assets and liabilities are recognized for
the estimated future tax consequences
attributable to differences between the
financial statement carrying amounts of
existing assets and liabilities and their
respective tax bases and operating loss
and tax credit carry forwards. Deferred
tax assets and liabilities are measured
using enacted tax rates in effect for the
year in which those temporary differences
are expected to be recovered or settled.
The effect on deferred tax assets and
liabilities of a change in tax rates is
recognized in income in the period that
includes the enactment date.
Stock Option Plan The Company applies the intrinsic value-
based method of accounting prescribed by
Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock
Issued to Employees, and related
interpretations, in accounting for its
stock options. As such, compensation
expense would be recorded on the date of
grant only if the current market price of
the underlying stock exceeded the
exercise price.
Use of Estimates In preparing financial statements in
in Financial Statements conformity with generally accepted
accounting principles, management makes
estimates and assumptions that affect the
reported amounts of assets and
liabilities and disclosures of contingent
assets and liabilities at the date of the
financial statements, as well as the
reported amounts of revenues and expenses
during the reporting period. Actual
results could differ from those
estimates.
Net Loss Per Share The Company's basic net loss per share
amount has been computed by dividing net
loss by the weighted average number of
outstanding common shares. The Company's
diluted net loss per share gives effect
to all dilutive common stock equivalents
outstanding during the period. Common
stock equivalents include shares issuable
upon exercise of the Company's stock
options and stock purchase warrants. The
dilutive effect, if any, of an aggregate
of 8,362,875 common stock equivalents was
not included in the weighted average
number of common shares for the year
ended December 25, 1998 because their
effect would have been anti-dilutive.
For the year ended December 31, 1997,
there were no common stock equivalents to
be considered in the computation of
diluted net loss per share.
Fair Value of The carrying value of financial
Financial Instruments instruments approximates fair market
value.
<PAGE>
United Shields Corporation
And Subsidiaries
Notes To Consolidated Financial Statements
(continued)
- ------------------------------------------------------------------
Comprehensive Income On January 1, 1998, the Company adopted
SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 established
standards for reporting and presentation
of comprehensive income and its
components in a full set of financial
statements. Comprehensive income
includes all changes in a company's
equity during the period that result from
transactions and other economic events
other than transactions with its
stockholders. The Company does not
presently have any comprehensive income
items other than its net loss.
Reclassifications Certain prior year amounts have been
reclassified in order to conform to the
current year presentation.
New Pronouncement In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments
and for Hedging Activities", which
establishes standards for reporting and
disclosure of derivative and hedging
instruments. SFAS No. 133 is effective
for financial statements for annual
periods beginning after June 15, 1999.
The Company will not be affected by this
new standard because the Company has no
derivative or hedging financial
instruments.
Inventories Inventories consisted of the following
components as of December 25, 1998 and
December 31, 1997:
1998 1997
Raw materials $ 561,532 $ 806,979
Work-in-process 178,362 44,336
Finished goods 581,274 573,346
---------- ----------
$1,321,168 $1,424,661
---------- ----------
Investments in The Company had issued letters of intent
Potential related to two potential acquisitions.
Acquisition In connection with these letters of
intent, the Company made deposits and
issued stock to the sellers of the
potential acquisitions. These payments
were to be applied to the purchase price
of the acquisitions upon closing. During
the fourth quarter of 1998, these letters
of intent expired with respect to the two
potential acquisitions. While the
Company continues to negotiate with these
companies regarding the acquisitions,
there can be no certainty that these
acquisitions will be consummated.
Accordingly, the Company wrote off the
remaining balance of its investments in
potential acquisitions as of December 25,
1998. At December 31, 1997 deposits of
$120,000 and 140,000 common shares of the
Company had been paid and issued to the
sellers, of which $65,000 of the deposits
was refunded during 1998.
<PAGE>
United Shields Corporation
And Subsidiaries
Notes To Consolidated Financial Statements
(continued)
- ------------------------------------------------------------------
Goodwill Goodwill and accumulated amortization
consisted of the following amounts as of
December 25, 1998 and December 31, 1997:
1998 1997
Goodwill $5,363,358 $5,363,358
Accumulated
amortization (372,979) (15,418)
--------- ---------
$4,990,379 $5,347,940
--------- ---------
In late 1997, the Company acquired all of
the assets and liabilities of HMC, a
privately-held manufacturer and marketer
of portable electrochemical heaters and
shelf-stable meals incorporating such
heaters, and RPI, a privately-held
manufacturer of injection molded plastic
component parts. The Company recorded
goodwill of $1,516,687 and $3,796,671,
respectively, in connection with those
acquisitions.
Notes Payable - Notes payable - related parties are
Related Parties unsecured obligations and consisted of
the following as of December 25, 1998 and
December 31, 1997:
1998 1997
NAVICAP and related
affiliates
(stockholders) - 12%
interest payable
quarterly, due
October 30, 2003 $ 571,562 $3,727,081
Frey Loan
(majority
stockholder) -
12% interest payable
quarterly, due
October 30, 2003 1,203,054 -
Tully Loans -1 and
- 2 and other notes
(stockholders) 412,000 -
--------- ---------
2,186,616 3,727,081
Unamortized
warrants (578,635) -
--------- ---------
1,607,981 3,727,081
Current portion (441,345) -
--------- ---------
$1,166,636 $3,727,081
--------- ---------
The Company has borrowed funds from
NAVICAP and related affiliates to finance
its on-going operations and acquisitions.
The majority of the balance due to
NAVICAP and related affiliates at
December 25, 1998 is represented by an
Amended and Restated Promissory Note.
<PAGE>
United Shields Corporation
And Subsidiaries
Notes To Consolidated Financial Statements
(continued)
- ------------------------------------------------------------------
Notes Payable - As of December 31, 1997 the majority of
Related Parties the balance due to NAVICAP and related
(continued) affiliates was represented by a
promissory note, which was due on demand.
On March 30, 1998, the Company issued
500,000 stock purchase warrants to
NAVICAP in connection with an extension
of the due date of the promissory note to
September 30, 1999. The fair value of
the stock purchase warrants was
determined to be $1,059,500, which was
allocated to the warrants and recorded as
additional paid in capital. The amount
allocated was based on the relative fair
values of the debt and warrants at the
time of the warrant issuance. The value
of the stock purchase warrants was being
amortized over the amended term through
September 30, 1999. On August 26, 1998,
NAVICAP agreed to restructure this
promissory note by accepting 500,000
shares of the Company's common stock in
lieu of a $500,000 reduction in the
principal amount of the indebtedness.
The Company recorded an extraordinary
gain of $62,500 as a result of this
restructuring.
Effective November 30, 1998, the Company
and NAVICAP executed the Amended and
Restated Promissory Note to modify the
terms of the previously outstanding
promissory note, which as of November 30,
1998 was comprised of principal and
accrued interest of $2,440,363 and
$289,137, respectively. The terms set
forth in the Amended and Restated
Promissory Note provided that accrued
interest through November 30, 1998 along
with interest for the period December 1,
1998 through December 25, 1998 will be
capitalized as additional principal,
after which time interest will then be
payable quarterly at 12% per annum. This
Amended and Restated Promissory Note also
provides for a maturity date of October
30, 2003 and a conversion feature
exercisable on or before December 24,
1998 which allowed for any amount of
interest and/or principal up to a maximum
of $1,000,000 to be converted into shares
of the Company's common stock at a value
of the greater of $0.25 per share or the
current market price on the date of
conversion. As a result of the extension
of the maturity date of the Amended and
Restated Promissory Note on November 30,
1998, the Company prospectively adjusted
the amortization period of the stock
purchase warrants previously issued to
NAVICAP through October 30, 2003. The
remaining unamortized balance of the
stock purchase warrants as of December
25, 1998 was $578,635.
On December 4, 1998, NAVICAP exercised
its option to convert $1,000,000 of
principal due under the Amended and
Restated Promissory Note in exchange for
4,000,000 shares of the Company's common
stock. After giving effect to the
capitalized interest, the debt conversion
and the debt substitution referred to
below, the balance of the Amended and
Restated Promissory note at December 25,
1998 was $542,217.<PAGE>
United Shields Corporation
And Subsidiaries
Notes To Consolidated Financial Statements
(continued)
- ------------------------------------------------------------------
Notes Payable - Further on November 30, 1998, as a
Related Parties component of the Amended and Restated
(continued) Promissory Note, the Company and NAVICAP
agreed to substitute $1,193,100 of the
aggregate principal and accrued interest
owed to NAVICAP to a then non-affiliate
of the Company, William A. Frey III
("Frey" and "Frey Note"), who
subsequently became the holder of a
majority of the Company's common stock
and Chairman and Chief Executive Officer
of the Company (see Reorganization and
Restructuring). The terms set forth in
the Frey Note provide that accrued
interest for the period December 1, 1998
through December 25, 1998 shall be
capitalized as additional principal,
after which time interest will then be
payable quarterly as 12% per annum. The
Frey Note also provides for a conversion
feature which allows for any amount of
interest and/or principal to be converted
into shares of the Company's common stock
at a value of $0.14 per share. After
giving effect to the capitalized
interest, the balance on the Frey Note at
December 25, 1998 was $1,203,054.
On November 30, 1998, in anticipation of
the transactions described under
Reorganization and Restructuring and the
modifications described above related to
the Amended and Restated Promissory Note,
Frey provided a short-term loan in the
amount of $100,300 to T.J. Tully, the
Company's former Chairman and Chief
Executive Officer, and certain related
family members, who collectively held a
majority of the Company's common stock
(altogether the "Tully Group"), which in
turn was used for the purpose of
providing a short-term loan ("Tully Loans
-1") in the same amount to the Company
for additional working capital purposes.
On December 22, 1998, in conjunction with
the Reorganization, the Tully Group
agreed to provide additional working
capital to the Company in the form of
short-term loans ("Tully Loans -2") in
the amount of $274,700. The Tully Loans
-1 and -2 provide for interest at 11% and
were due on February 28, 1999.
During 1998, T.J. Tully and a related
family member provided other loans to the
Company for working capital purposes in
the aggregate amount of $37,000, which
generally provide for interest at 12% and
are otherwise due on demand.
On April 13, 1998, consulting agreements
were entered into between the Chief
Executive Officer of the Company and his
spouse, individually, and NAVICAP which
provided for the payments of 300,000 and
200,000 shares, respectively, of the
Company's common stock owned by the Chief
Executive Officer and his spouse in
exchange for expertise, consultation,
advice and other services rendered to the
Chief Executive Officer and his spouse.
The aggregate maturities of Notes
Payable-Related Parties for each of the
five years subsequent to December 25,
1998 are as follows: 1999, $441,345;
2000, $0; 2001, $0; 2002, $0; and 2003,
$1,745,271.
<PAGE>
United Shields Corporation
And Subsidiaries
Notes To Consolidated Financial Statements
(continued)
- ------------------------------------------------------------------
Revolving Line of On July 22, 1998, HMC entered into a
Credit Revolving Line of Credit Agreement
("RLCA") with a financial institution.
The RLCA provides for: (i) borrowings up
to $150,000 pursuant to a formula based
on eligible accounts receivable; (ii)
monthly interest at a variable rate equal
to 3.0% above the financial institution's
prime commercial rate (10.75% at December
25, 1998); (iii) maturity date of July
22, 1999; and (iv) customary financial
and other covenants. The RLCA is secured
by HMC's accounts receivable, inventories
and other intangible assets.
On February 3, 1999 the RCLA was amended
to permit borrowings up to $300,000
pursuant to a formula based on eligible
accounts receivable and inventories and
provided for an extended maturity date of
February 20, 2000.
Long-Term Debt The Company, through it wholly-owned
subsidiary, RPI, also maintains a long-
term debt facility ("RPI Facility") with
a financial institution, which as of
December 25, 1998 had an outstanding
balance of $3,880,060. This revolving
line of credit arrangement provides for a
maximum borrowing of $6,000,000 based on
a percentage of eligible accounts
receivable, manufacturing equipment and
real estate values, and includes
predetermined quarterly reductions in
amounts that may be outstanding with
regard to manufacturing equipment and
real estate. At December 25, 1998, the
permitted maximum borrowing pursuant to
the terms of the facility was
approximately $4,300,000. The RPI
Facility also provides for interest at
the lower of prime (as defined) plus
0.75% or LIBOR plus 3.5% (8.50% and 9.22%
at December 25, 1998 and December 31,
1997, respectively). Principal and
interest are due in full in April 2000
and substantially all assets of RPI are
pledged as collateral. The RPI Facility
is subject to a loan agreement which
contains certain operating and financial
covenants. At December 25, 1998, the
Company was in violation of one such
covenant, which since has been waived by
the financial institution.
Lease Obligations On December 31, 1997, the Company entered
into a sale/leaseback transaction for the
equipment located at its HMC subsidiary.
The leaseback of the equipment has been
accounted for as a capital lease. The
amount recorded for the equipment under
the capital lease represented the
present value of the minimum lease
payments, using the Company's incremental
borrowing rate. The Company has agreed
to repurchase the equipment at lease
termination for $25,000.
<PAGE>
United Shields Corporation
And Subsidiaries
Notes To Consolidated Financial Statements
(continued)
- ------------------------------------------------------------------
Lease Obligations In connection with this transaction,
(continued) 250,000 warrants were also issued to the
leasing company. These warrants are
exercisable immediately at $4 per share
and expire at the end of a five year
term. The total proceeds received under
the sale/leaseback transaction were
$500,000 and the proceeds were allocated
to the capital lease obligation and the
warrants based upon their relative fair
values. As a result, a value of $262,470
was allocated to the warrants and
recorded as additional paid in capital at
December 31, 1997 and the capital lease
obligation was valued at $262,530. The
amount allocated to the warrants has been
treated as a discount on the capital
lease obligation and is being amortized
as additional interest expense over the
term of the lease.
At December 25, 1998 and December 31,
1997, the gross amount of equipment and
related accumulated amortization recorded
under the capital lease were as follows:
1998 1997
Equipment $501,570 $525,000
Less: accumulated
amortization (72,355) -
------- -------
$429,215 $525,000
------- -------
Amortization of equipment held under the
capital lease is included with
accumulated depreciation in the
consolidated financial statements.
Future minimum lease payments under the
capital lease as of December 25, 1998
are:
1999 minimum lease
payments $ 219,620
Less: Interest at
Company's incremental
borrowing rate (10,482)
------
Present value of
minimum lease payments 209,138
Less: remaining proceeds
allocated to warrants (68,243)
-------
Current portion of capital
lease obligation $140,895
-------
The Company leases office space, a
manufacturing facility and certain
equipment under non-cancelable operating
leases which expire on various dates
through February 2002. The aggregate
minimum lease payments under these leases
are as follows:
1999 $ 248,581
2000 234,320
2001 232,814
2002 52,965
2003 -
-------
$ 768,680
-------
<PAGE>
United Shields Corporation
And Subsidiaries
Notes To Consolidated Financial Statements
(continued)
- ------------------------------------------------------------------
Lease Obligations The operating lease included above
relative to the HMC manufacturing
facility contains an early lease
termination privilege provided that HMC
provides three months notice of its
intent to cancel the lease on July 31 or
December 31 of each year. The aggregate
future minimum lease payments include the
HMC manufacturing facility lease payments
without regard to the early termination
privilege.
Total rent expense was approximately
$252,000, $48,000 and $0 in 1998, 1997
and 1996, respectively.
Private Placement In 1998, the Company's stockholders and
of Securities, Board of Directors approved the adoption
Stock Options and of the 1998 Long-Term Incentive Plan
Stock Purchase ("1998 LTIP") pursuant to which the
Warrants Company's Board of Directors may grant
stock options, stock appreciation rights
and stock awards to officers and key
employees. No specific number of shares
were reserved for issuance under the 1998
LTIP. Subject to other maximums
depending on the type of issuance under
the 1998 LTIP, the maximum number of
shares of common stock that may be
delivered to any participant is 1,500,000
shares. Stock options and stock
appreciation rights are granted with an
exercise price at least equal to the
underlying common stock's fair market
value at the date of grant. Stock
options issued under the 1998 LTIP have
three or five-year terms and may be
either exercisable immediately or ratably
over the terms, both of which are
determined by the Board of Directors.
The per share weighted-average fair value
of stock options granted during 1998 was
$0.29 on the date of grant using the
Black Scholes option-pricing model with
the following weighted-average
assumptions: expected dividend yield of
0%, risk-free interest rate of 5.7 %,
expected life of 3.5 years, and a
volatility assumption of 80%.
The Company applies APB Opinion No. 25 in
accounting for the 1998 LTIP and,
accordingly, no compensation cost has
been recognized for its stock options in
the financial statements. Had the
Company determined compensation cost
based on the fair value at the date of
grant under SFAS No. 123, the Company's
net loss and net loss per share would
have been increased to the pro forma
amounts indicated below:
1998
Net loss As reported $2,443,649
Pro forma 2,900,839
Net loss As reported
per share (0.20)
(Basic and
Diluted) Pro forma (0.23)
Since certain of the stock options are
subject to three-year vesting periods,
the full impact of calculating
compensation cost for stock options under
SFAS No. 123 is not reflected in the pro
forma net loss amounts presented above
because compensation cost is reflected
over the stock options' vesting period.<PAGE>
United Shields Corporation
And Subsidiaries
Notes To Consolidated Financial Statements
(continued)
- ------------------------------------------------------------------
Private Stock option activity for the year ended
Placement of December 25, 1998 was as follows:
Securities, Stock
Options Number Weighted-Average
and of Shares Exercise Price
Stock Purchase ---------- ---------------
Warrants
(continued) Balance at
December 31,
1997 - $ -
Granted 1,580,000 0.67
Forfeited (5,000) 3.75
Balance at ---------
December 25,
1998 1,575,000 $0.66
--------- ----
At December 25, 1998 the range of
exercise prices and weighted-average
remaining contractual life of outstanding
options was $0.50 - $3.75 and 4.8 years,
respectively.
At December 25, 1998, the number of
options exercisable and the weighted-
average exercise price of those options
was 1,561,667 and $0.64, respectively.
On December 31, 1997, the Company entered
into a sale/leaseback transaction for the
equipment located at its HMC subsidiary,
which included the issuance of a stock
purchase warrant to purchase 250,000
shares of the Company's common stock.
The warrant is exercisable immediately at
$4 per share and expires at the end of a
five year term. The total proceeds
received under the sale/leaseback
transaction were $500,000 and the
proceeds were allocated to the capital
lease obligation and the warrant based
upon their relative fair values. As a
result, a value of $262,470 was allocated
to the warrant and recorded as additional
paid in capital at December 31, 1997.
The amount allocated to the warrant has
been treated as a discount on the capital
lease obligation and is being amortized
as additional interest expense over the
term of the lease.
On March 30, 1998, the Company issued a
stock purchase warrant to NAVICAP to
purchase 500,000 shares of the Company's
common stock in connection with an
extension of the due date of the
promissory note to September 30, 1999.
The warrant is exercisable immediately at
$4 per share and expires at the end of a
five year term. The fair value of the
warrant was determined to be $1,059,500,
which was allocated to the warrant and
recorded as additional paid in capital.
The amount allocated was based on the
relative fair values of the debt and the
warrant at the time of issuance. The
value of the warrant was being amortized
over the <PAGE>
United Shields Corporation
And Subsidiaries
Notes To Consolidated Financial Statements
(continued)
- ------------------------------------------------------------------
Private amended term through September 30, 1999.
Placement of Effective November 30, 1998, the Company
Securities, Stock And NAVICAP executed the Amended and
Options Restated Promissory Note to modify the
and terms of the previously outstanding
Stock Purchase longer-term promissory note, which among
Warrants other things, provided for an extension
of the maturity date to October 30, 2003.
Accordingly, the Company prospectively
adjusted the amortization period of the
warrant through the extended maturity
date.
On June 10, 1998, the Company issued
stock purchase warrants to purchase
37,875 shares of the Company's common
stock to investment brokers in connection
with the sale of the Company's common
stock via its private placement program.
These warrants are exercisable
immediately at $4.75 per share and expire
at the end of a two year term.
In connection with the Company's
Reorganization and Restructuring, on
November 30, 1998, the Company issued a
stock purchase warrant to Frey to
purchase 6,000,000 shares of the
Company's common stock at $0.14 per
share. The warrant is exercisable
immediately and expires on October 30,
2003. As a result of this transaction,
the Company recorded a non-cash expense
of $515,545, which represented the fair
value of the warrant on the date of
issuance.
In conjunction with the Company's
Reorganization and Restructuring,
effective November 30, 1998, the Company
and T.J. Tully executed an Agreement
providing for the sale of 100% of the
outstanding shares of common stock of
UNSC, Inc., an inactive wholly-owned
subsidiary of the Company, to T.J. Tully
for monetary consideration of $1 and the
grant of an option to purchase 500,000
shares of the Company's common stock with
an exercise price of $0.50 per share
pursuant to the Company's 1998 LTIP.
During the year ended December 25, 1998,
the Company completed its private
placement of securities in which it sold
156,950 shares of its common stock at
$4.00 per share. Total net proceeds of
$579,895 generated from this private
placement were used to fund operations
and to repay indebtedness incurred in
connection with the Company's
acquisitions in 1997.
Income Taxes No income tax benefits attributable to
the losses from continuing operations
were recorded in the years ended December
25, 1998 and December 31, 1997 as a
result of the uncertainty associated with
the realization of these deferred tax
assets. A reconciliation of the amounts
computed by applying the U.S. federal
income tax rate of 34 percent to pretax
loss from continuing operations is as
follows:
<PAGE>
United Shields Corporation
And Subsidiaries
Notes To Consolidated Financial Statements
(continued)
- ------------------------------------------------------------------
Income Taxes 1998 1997
(continued) Computed "expected"
tax benefit
before
extraordinary
item $(852,091) $(542,583)
Extraordinary
item 21,250 -
Amortization of
goodwill 121,571 -
Increase in cash
surrender value of
life insurance (45,581) -
Other 13,017 -
Change in the
beginning-of-
the-year balance
of the valuation
allowance 741,834 542,583
------- -------
$ - $ -
------- -------
The tax effects of temporary differences
that give rise to significant portions of
the deferred tax assets and deferred tax
liabilities at December 25, 1998 and
December 31, 1997 are presented below:
1998 1997
Deferred tax
liabilities:
Depreciation $ (35,251) $ (3,826)
Deferred tax
assets:
Accrued expenses 59,295 -
Acquisition
expenses 185,539 185,539
Deferred
compensation 237,430 244,940
AMT credit
carryforward 33,463 33,463
Tax credit
carryforward 343,371 343,371
Net operating
loss
carryforward 1,638,089 898,018
Other 10,392 28,989
--------- -------
Total gross
deferred tax
assets 2,507,579 1,734,320
Valuation
allowance (2,472,328) (1,730,494)
--------- ---------
Net deferred
tax assets 35,251 3,826
-------- ---------
Net deferred
tax components $ - $ -
-------- ---------<PAGE>
United Shields Corporation
And Subsidiaries
Notes To Consolidated Financial Statements
(continued)
- ------------------------------------------------------------------
Income Taxes For tax reporting purposes, the Company
(continued) has approximately $33,000 of alternative
minimum tax (AMT) credits available for
an indefinite period. The net operating
loss of approximately $4,818,000 can be
carried forward and used to reduce future
taxable income through 2013.
Additionally, tax credits of
approximately $343,000 can be carried
forward and these credits begin to expire
in 2005 at a rate of approximately
$48,000 per year. The utilization of
credits and losses will be limited due to
federal tax laws involving greater than
50% ownership changes and consolidated
return regulations.
The valuation allowance for deferred tax
assets as of December 31, 1997 and
December 25, 1998 was $1,730,494 and
$2,472,328, respectively. The net change
in the total valuation allowance for the
years ended December 25, 1998 and
December 31, 1997 was an increase of
$741,834 and $1,590,247, respectively.
In assessing the realizability of
deferred tax assets, management considers
whether it is more likely that not that
some portion or all of the deferred tax
assets will not be realized.
The ultimate realization of deferred tax
assets is dependent upon the generation
of future taxable income during the
periods in which temporary differences
become deductible. Management considers
the scheduled reversal of deferred tax
liabilities, projected future taxable
income, and tax planning strategies in
making this assessment. In order to
fully realize the deferred tax asset, the
Company will need to generate future
taxable income of $7,270,000 prior to the
expiration of the net operating loss
carryforwards in 2013. The Company
incurred taxable losses of $2,259,182 and
$1,578,881 for the years ended December
25, 1998 and December 31, 1997,
respectively. Based upon the level of
historical taxable losses and uncertainty
regarding the generation of taxable
income over periods which the deferred
tax assets are deductible, management
believes that it is not more likely than
not that the Company will realize the
benefits of these deductible differences,
net of the deferred tax liabilities at
December 25, 1998. Accordingly, a
valuation allowance of $2,472,328 has
been provided against the net deferred
tax assets at December 25, 1998. The
amount of the deferred tax asset that is
not considered realizable, however could
be increased in the near term if
estimates of future taxable income during
the carryforward period are increased.
Approximately $1,082,000 of the valuation
allowance relates to deferred tax assets
of the acquired subsidiaries of the
Company. Any subsequently recognized tax
benefits will be allocated to reduce
goodwill.
<PAGE>
United Shields Corporation
And Subsidiaries
Notes To Consolidated Financial Statements
(continued)
- ------------------------------------------------------------------
Reorganization and On December 22, 1998, Trinity Capital
Restructuring Group, LLC ("TCG"), of which Frey is
Chief Manager, purchased a total of
5,278,882 shares of the Company's common
stock held by the Tully Group in exchange
for cash consideration of $527,889. In a
separate transaction, on November 18,
1998, Frey purchased 300,000 shares of
the Company's common stock held by a
related family member included in the
Tully Group in exchange for cash
consideration of $30,000.
In addition, in contemplation of the
purchase of 5,278,882 shares of the
Company's common stock by Frey from the
Tully Group on December 22, 1998, the
Company issued a warrant on November 30,
1998 to Frey to purchase 6,000,000 shares
of the Company's common stock at $0.14
per share. The warrant is exercisable
immediately and expires on October 30,
2003. As a result of this transaction,
the Company recorded a non-cash expense
of $515,545, which represented the fair
value of the warrant on the date of
issuance.
Further, effective January 1, 1999, the
Company's Board of Directors elected Frey
as Chairman of the Board of Directors and
Chief Executive Officer.
In conjunction with the transaction
described above, effective November 30,
1998, the Company and T.J. Tully executed
an Agreement providing for the sale of
100% of the outstanding shares of common
stock of UNSC, Inc., an inactive wholly-
owned subsidiary of the Company, to T.J.
Tully for monetary consideration of $1
and the grant of an option to purchase
500,000 shares of the Company's common
stock with an exercise price of $0.50 per
share pursuant to the Company's 1998
LTIP. Further, effective November 15,
1998, T.J. Tully forgave accrued and
unpaid compensation due from the Company
in the amount of $25,000.
UNSC, Inc. obtained from In-Flo Liquid
Dispensing Corporation ("In-Flo") the
exclusive worldwide marketing rights to
sell a collapsible bottle. UNSC, Inc.
was assigned the marketing rights and
related sales agreement by a related
party, which was owned by T.J. Tully and
a related family member, both of which
were majority shareholders of the
Company, prior to the transaction. The
Company paid $115,000 for these rights
which represented the cost to the related
party. The value of these rights was
written-off at December 31, 1997 as
UNSC, Inc.'s rights were now non-
exclusive. The agreement with In-Flo
required minimum purchase commitments of
bottles during each of the contract years
as specified in the agreement in order to
maintain exclusive rights to sell the
collapsible bottle. As of December 31,
1997, UNSC, Inc. recorded $449,577
payable to In-Flo, which represented the
value of minimum purchase commitments for
the year then ended.
<PAGE>
United Shields Corporation
And Subsidiaries
Notes To Consolidated Financial Statements
(continued)
- ------------------------------------------------------------------
Reorganization As of March 26, 1998, the Company
and Restructuring received notice from In-Flo that it
(continued) believed UNSC, Inc. was in default of the
above agreement as it had not made any
bottle purchases as of January 31, 1998.
In-Flo has stated that it has the right
to terminate the agreement and the right
to demand liquidated damages in the
amount of CDN $3,225,000 (approximately
U.S. $2,206,000 as of December 31, 1997).
During 1998, the Company had not made any
payments to In-Flo nor had the Company
recorded additional purchase commitments
in light of the above disputes and the
on-going negotiations. As a result of
this transaction, the Company recorded a
non-cash gain on the sale of the
subsidiary in an amount equal to
$445,609.
As a result of the transactions described
above, the Company recorded a net expense
from the reorganization and restructuring
in the amount of $44,936, of which this
amount has been set forth separately in
the consolidated statement of operations.
Business and Credit HMC's primary line of business, flameless
Concentrations ration heaters, which it sells through a
prime contractor to the United States
Department of Defense for their "Meals
Ready-To-Eat" operations, can be impacted
by the United States Defense Budget. If
the United States significantly reduces
its budget allocations for defense
expenditures, or alters its operations
for individual ration feeding programs,
the Company's sales may be adversely
affected. Over the previous two years,
however, the United States Defense Center
Supply requirements have increased, and
the Company's sales of flameless ration
heaters have grown. HMC is currently in
the solicitation phase of renewing its
contract with its current prime
contractor as well as two potential new
prime contractors for the years 2000 -
2002. Sales to the Defense Center Supply
approximate 23% and 55% of the Company's
total net sales for 1998 and 1997,
respectively. Another of HMC's customers
represented 10% of the Company's total
sales in 1997. As of December 25, 1998,
accounts receivable from the prime
contractor was $95,472. The Company's
total net sales in 1997 were derived
solely from HMC.
Sales to one of RPI's customers, who
operates in the home building
construction industry, approximated 12%
of the Company's net sales for 1998. As
of December 25, 1998 accounts receivable
from this customer was $363,170. The
home building construction industry is
generally impacted by the state of the
general economy, specifically including
interest rate fluctuations. Relatively
stable growth is predicted in the home
and building construction industry for
the next year, however, changes in the
marketplace of this industry may
significantly effect management's
estimates and the Company's performance.
Furthermore, RPI's customer base and
industry generally operate without the
existence of long-term contracts.
Therefore, additional business volumes
may be generated in the short-term from
new customers or from RPI's current
customer base, or
<PAGE>
United Shields Corporation
And Subsidiaries
Notes To Consolidated Financial Statements
(continued)
- ------------------------------------------------------------------
Business and business volumes may be adversely
Credit affected in the short-term by a partial
Concentrations or total loss of business volume from an
(continued) existing customer.
The Company estimates an allowance for
doubtful accounts based on the credit
worthiness of its customers as well as
the general economic conditions.
Consequently, an adverse change in those
factors could affect the Company's
estimates of its bad debts.
Acquisitions In November 1997, the Company acquired
all of the assets and liabilities of HMC.
The purchase price consisted of
$2,000,000 in cash. The acquisition was
accounted for as a purchase, accordingly
the purchase price was allocated to the
assets and liabilities based on their
estimated value as of the date of
acquisition. The results of HMC's
operations have been included in the
consolidated statement of operations from
the date of the acquisition.
On December 31, 1997, the Company
acquired all of the assets and
liabilities of RPI. The purchase price
consisted of $6,100,000 in cash and
993,384 unregistered shares of the
Company's common stock with an
approximate value of $3,974,000. The
acquisition was accounted for as a
purchase. The price of the stock to the
acquiring shareholders was used to value
the assets and liabilities. The results
of RPI's operations have been included in
the consolidated statement of operations
from the date of the acquisition.
The following table summarizes, on an
unaudited pro forma basis, the estimated
combined results of the Company, HMC and
RPI assuming the acquisitions had
occurred on January 1, 1996. These
results include certain pro forma
adjustments, primarily goodwill
amortization and interest expense, and
are not necessarily indicative of what
results would have been had the Company
owned HMC and RPI during the periods
presented:
1997 1996
Net sales $14,657,497 $16,095,809
Net loss (3,787,835) (1,613,552)
Net loss per
common share:
Basic and
diluted $(0.33) $(0.16)
Business Segments The Company has the following two
reportable segments: Plastic Injection
Molding and Specialty Products. The
Plastic Injection Molding segment
consists of the Company's RPI subsidiary
and is engaged in the production of
molded plastic components and finished
products for original equipment
manufacturers who operate in the personal
care, construction, electronics,
healthcare and home products industries.
The Specialty Products segment consists
of the Company's HMC subsidiary and
manufacturers and markets patented,
portable electrochemical heaters and a
line of shelf-stable meals that
incorporate such heaters.
<PAGE>
United Shields Corporation
And Subsidiaries
Notes To Consolidated Financial Statements
(continued)
- ------------------------------------------------------------------
Business Segments The accounting policies used to develop
(continued) segment information correspond to those
described herein. Segment profit or loss
is based on profit or loss from
operations before income taxes and the
extraordinary gain on restructuring of
debt. There are no sales or transfers of
inventories or human capital between
segments. The reportable segments are
distinct business units operating in
different industries. They are
separately managed, with separate
marketing, manufacturing and distribution
systems. The following information about
the two segments is for the year ended
December 25, 1998:
<PAGE>
<TABLE>
Plastic
Injection Speciality
Molding Products Totals
---------- ------------ --------
<S> <C> <C> <C>
Revenues from external customers $ 8,908,422 $ 4,047,002 $12,955,424
Interest expense, net (1) 436,631 250,074 686,705
Depreciation and amortization 558,344 75,267 633,611
Segment profit (loss) 86,315 (132,191) (45,876)
Segment assets 10,812,687 2,751,443 13,564,130
Expenditures for segment assets 157,538 23,024 180,562
Reconciliation to Consolidated Amounts: Revenues Profit (loss) Assets
--------- ------------- -------
Totals for reportable segments $ 12,955,424 (45,876) $13,564,130
Other - - -
Elimination of intersegment profit (loss) - - -
Unallocated corporate headquarters expense (2) - (2,460,273) 195,349
---------- ---------- ----------
Total consolidated amounts $ 12,955,424 $(2,506,149) $13,759,479
---------- ---------- ----------
Reconciliation to Consolidated Amounts: Interest
expense, net
------------
Totals for reportable segments $ 686,705
Other -
Elimination of intersegment profit (loss) -
Unallocated corporate headquarters expense (2) 753,223
---------
Total consolidated amounts $ 1,439,928
---------
</TABLE>
<PAGE>
The following information about the
Company's Specialty Products segment is
for the period from November 1, 1997 (the
acquisition date of HMC) through December
31, 1997 and for the Company's Plastic
Injection Molding segment as of December
31, 1997 (the acquisition date of RPI):
<TABLE>
United Shields Corporation
And Subsidiaries
Notes To Consolidated Financial Statements
(continued)
- ----------------------------------------------------------------------------------------------
<CAPTION>
Business Segments Plastic
(continued) Injection Specialty
Molding Products Totals
---------- ---------- -------
<S> <C> <C> <C>
Revenues from external customers $ - $ 632,664 $ 632,664
Interest expense, net (1) - 1,543 1,543
Depreciation and amortization - 12,640 12,640
Segment profit (loss) - (110,996) (110,996)
Segment assets 11,976,204 3,172,681 15,148,885
Expenditures for segment assets - - -
Reconciliation to Consolidated Amounts: Revenues Profit (loss) Assets
---------- -------------- --------
Totals for reportable segments $ 632,664 $ (110,996) $15,148,885
Other - - -
Elimination of intersegment profit (loss) - - -
Unallocated corporate headquarters expense (2) - (1,484,837) 614,777
------- ---------- ----------
Total consolidated amounts $ 632,664 $ (1,595,833) $15,763,662
------- ---------- ----------
Reconciliation to Consolidated Amounts: Interest
expense, net
------------
Totals for reportable segments $ 1,543
Other -
Elimination of intersegment profit (loss) -
Unallocated corporate headquarters expense (2) 72,744
------
Total consolidated amounts $ 74,287
------
<PAGE>
<FN>
(1) Interest expense, net for the Company's Specialty Products
segment includes non-cash warrant amortization of $205,244
and $0 for the years ended December 25, 1998 and December 31,
1997, respectively.
(2) Interest expense, net for the Company's corporate
headquarters includes non-cash warrant Amortization of
$480,865 and $0 for the years ended December 25, 1998 and
December 31, 1997, respectively.
</FN>
</TABLE>
<PAGE>
Contingencies The Company is involved in litigation and
other matters which involve routine
matters incident to the Company's
business. In the opinion of management,
the ultimate disposition of such
litigation and matters will not have a
material effect upon the Company's
financial statements.
Exhibit 21
United Shields Corporation
Subsidiaries of the Company
R.P. Industries, Inc.
Furniture Plastics of Forest City, Inc.
Granville Plastics Company, Inc.
R.P. Enterprises, Inc.
R.P. Real Estate, Inc.
Richmond Plastics, Inc.
The HeaterMeals Company
HeaterMeals, Inc.
ZestoTherm, Inc.
Exhibit 99.1
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement) is entered into this
2nd day of July, 1998 and revised September 24, 1998, by and
between UNITED SHIELDS CORPORATION, a Colorado corporation (the
"Company" or "Employer") and T.J. Tully, an individual residing at
3178 Victoria Avenue, Cincinnati, Ohio 45208.
WHEREAS, the Company is willing to employ the Employee and
the Employee is willing to be employed by the Company on the
terms, covenants and conditions set forth herein; and
WHEREAS, the Company and the Employee desire to define in
this Agreement, the rights, duties and obligations of the
employment agreed to between the parties;
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained in this Agreement and specifically in
consideration of the employment of the Employee by the Company for
the compensation and upon the terms set forth herein, the parties
agree as follows:
1. TERM. Subject to the provisions for termination as
hereinafter provided, the Company hereby agrees to
employ the Employee and the Employee agrees to be
employed by the Company, for a term of six (5) years
beginning on January 1, 1998.
2. DUTIES OF EMPLOYEE.
A. The Employee agrees to perform the services
provided herein to the best of his ability and to
the satisfaction of the Board of Directors of the
Company. The Employee shall devote his full time,
attention, energies and best efforts to providing
said services to the Company.
B. The Company hereby employs and engages the
Employee in the position of Chairman of the Board
and Chief Executive Officer.
3. COMPENSATION.
A. (i) As compensation for the full and faithful
performance of the services to be rendered by the
Employee to the Company as set forth in Section 2
hereof, the Company shall pay the Employee a base
salary of $120,000 for the period from January 1,
1998 through December 31, 1998 and for each
subsequent one-year period (subject to Sections 3
(c) and 6) thereafter.
(ii) As additional compensation and consideration
for entering into this Agreement, the Employer
shall (a) grant to Employee a non-qualified stock
option award with immediate vesting pursuant to
the United Shields Corporation 1998 Long-Term
Incentive Plan ("1998 LTIP") to purchase 200,000
shares of common stock of Employer with an
exercise price equal to the fair market value of
the common stock utilizing the rules defined by
Section 7(h) of the 1998 LTIP.
B. Said salary shall be payable in twelve (12) equal
monthly installments in accordance with the
Company's normal payroll practices, and subject to
withholding of taxes as required by law.
C. Employee's base salary shall be reviewed at least
annually, commencing with a review during the
month of December, 1998 and may be adjusted from
time to time in the sole discretion of the Board
of Directors of the Company, but in no event will
it be adjusted to an amount lower than $120,000
per year.
D. Employee shall receive an annual cash bonus of 50%
of base compensation based on the Employee's
performance of the duties set forth in Section 2,
which may be amended from time to time. Each
annual bonus awarded to Employee shall be paid
within 60 days of the end of the calendar year.
E. Employee shall receive an additional performance
bonus in cash, common stock of the Company,
options to purchase common stock of the Company,
or any combination of cash, common stock and
options, with the method of payment to be at the
discretion of the Board of Directors of the
Company if the Company's performance goals,
established from time to time by the Board, are
met. The parties agree that the goals for the
first twelve (12) months of this Agreement are as
stated in Exhibit 1. The performance bonus is to
be paid within 60 days of the end of the calendar
year.
4. BENEFITS AND EXPENSES. During the term of this
Agreement, the Company shall provide to the Employee:
A. Reimbursement of all ordinary and reasonable
business-related expenses incurred during the
performance of the services set forth in Section 2
hereof upon submission of receipts for the same.
All such expenses are subject to the approval of
the Company. Reimbursement for automobile mileage
will be at the rate currently prescribed by the
Internal Revenue Service.
B. Thirty (30) days paid vacation per calendar year
in accordance with the Company's vacation policy
to be taken at such time or times and for such
duration as Employee shall determine in accordance
with the Company policy provided that such
vacation shall not interfere with
the material performance of the services set forth
in Section 2. Employee shall not be entitled to
carry over any unused portion of vacation into a
subsequent year.
C. Hospitalization and major medical insurance,
consistent with the Company's group policies, for
Employee and his immediate family, upon such terms
as are provided to employees of the Company
generally, which may be modified by the Company
from time to time.
D. Life insurance on Employee's life with a death
benefit equal to three (3) times Employee's base
compensation.
E. The Company agrees to provide to Employee the
additional fringe benefits available to salaried
employees of the Company generally, which may be
modified by the Company from time to time.
5. COVENANTS OF EMPLOYEE. The Employee agrees and
acknowledges that certain of the Company's services
are proprietary in nature and shall have been marketed
through the use of customer lists, trade secrets,
methods of operation and other confidential
information possessed by the Company and disclosed in
confidence to the Employee (hereinafter the "Trade
Secrets or Confidential Information) which may not
have been accessible to other persons in the trade.
Trade Secrets and Confidential Information shall not
include: (i) any information in the public domain,
(ii) any information received unsolicited from a third
party under no obligation of secrecy, or (iii) any
information known by Employee prior to entering into
this Agreement. The Employee also acknowledges that
he will have substantial and ongoing contact with the
Company's clients and will thereby gain knowledge of
client's needs and preferences, sources of information
and other valuable information necessary for the
success of the Company's business. The Employee
therefore covenants and agrees as follows:
A. He will not at any time take any action or make
any statement that could discredit the reputation
of the Company or its services or products.
B. During the term of this Agreement and for a period
of one (1) year following termination of
Employee's employment with the Company for any
reason, the Employee shall not:
(i) Solicit or accept business directly or
indirectly from any client of the Company
which does business within a five hundred
(500) mile radius of any facility owned or
operated by the Company;
(ii) Except as may be required by law, disclose,
divulge, discuss, copy or otherwise use or
suffer to be used in any manner, in
competition with, or contrary to the
interests of the Company, the Trade Secrets
or Confidential Information or any other
confidential information of or pertaining to
the Company or its services, disclosed to or
obtained by the Employee during the term of
this Agreement. The Employee further agrees
that he shall not, either during the term of
this Agreement or at any time subsequent
thereto, use, disclose or otherwise reveal
any of the Trade Secrets or Confidential
Information to any person, either directly or
indirectly, whether or not for compensation
or remuneration, except as necessary while
performing services on behalf of the Company;
(iii) Own, manage, advise, counsel, assist or
engage in the ownership, management or
control of, or be employed or engaged by or
otherwise affiliated or associated as a
consultant, independent contractor or
otherwise, directly or indirectly, with any
other corporation, partnership,
proprietorship, or other business entity, or
otherwise engage in any business which
competes with or is similar in nature to a
business in which the Company is engaged,
and from which the Company derives more than
5% of its revenue, within a five hundred
(500) mile radius of any facility owned or
operated by the Company; and
(iv) In conjunction with 5 (B) (iii), solicit,
induce, aid or suggest to any of the
employees, officers, agents, or consultants
of the Company or other persons having a
substantial contractual relationship with
the Company, to leave such employ, cease any
consulting relationship with the Company, or
terminate such contractual relationship with
the Company.
C. Employee recognizes that the foregoing items are
material to this Agreement and that the failure to
abide by such terms shall constitute, sufficient
Cause for Termination of Employment as provided in
Section 6 hereof.
D. Employee agrees and understands that the remedy at
law for any breach of this Section 5 will be
inadequate and that damages flowing from such
breach are not readily susceptible to being
measured in monetary terms. Accordingly, in the
event that the Company shall institute any action
or proceeding to enforce the provisions of this
Agreement, the Employee hereby waives the claim or
defense therein that the Company has an adequate
remedy at law. Nothing in this Section 5 shall be
deemed to limit the Company's remedies at law or
in equity for breach by the Employee of any of the
provisions of this Section 5 which may be pursued
by the Company.
E. Employee shall not create or suffer to be created,
without the express prior written consent of the
Company, any mortgage, pledge, lien or encumbrance
of any kind whatsoever against or upon any
property of the Company, or make any contract or
create any obligation, liability or debt of any
kind, in the name of or binding upon the Company
without its prior written consent other than in
the ordinary course of business.
F. Employee agrees that, upon termination or
employment with the Company for any reason
whatsoever, Employee will immediately return to
Company all papers, books, price lists and price
information, lists of sources of supply, customer
lists, processes, inventions, mailing lists,
employee lists and resumes, computer print-outs,
manuals, sales literature, Employee's copies of
customer invoices, quotations, purchase orders,
any copies of the foregoing or any documents or
notes containing excerpts from the foregoing and
all other documents, data, equipment, and products
belonging to or related to the business of the
Company which may be in Employee's possession. If
any such information has been electronically
stored, Employee shall return all disks, or other
storage media, containing such information and
shall permanently delete such information from the
computer hard drive, or other non removable
storage device, or any computer owned or
controlled by Employee after providing the Company
a copy of the information.
G. Employee agrees to assign and hereby assigns to
Company all of Employee's right, title and
interest, if any, in and to all inventions,
improvements, patents, trademarks, copyrights, and
trade names, which during the period of Employee's
employment by Company,
Employee has obtained, made or conceived or may
hereafter make or conceive, either solely or
jointly with others, in the course of such
employment, within the scope of the Company's
business, work or investigations, or with use of
the Company's time, employees, material or
facilities, or relating to or suggested by work or
problems arising in Company's business of which
Employee has been or may become aware by reason of
Employee's employment. Employee agrees that
Employee will execute, acknowledge and deliver all
papers, documents, assignments and other
information as may be required by Company to
obtain any patents, trademarks, copyrights, trade
names or other registrations or applications in
the name of the Company.
H. Employee agrees that the remedy at law for any
breach by Employee of the covenants set forth in
the foregoing sections 5A, B, C, D, E, F, or G is
inadequate and the Company, in addition to having
an action at law for damages, shall be entitled to
injunctive relief to enforce these covenants.
6. TERMINATION.
A. The Employee and the Company specifically agree
that the employment of the Employee may terminate
only upon the occurrence of any one or more of the
following events:
(i) The cessation of the business of the Company,
either voluntary or involuntarily;
(ii) The merger, consolidation, reorganization or
dissolution of the Company;
(iii) Death or permanent disability of the
Employee, including but not limited to a
physical or mental disability which renders
Employee incapable of effectively and
efficiently performing his duties hereunder,
for a consecutive period of sixty (60) days
or for an aggregate of one hundred twenty
(120) days or more during any twelve month
period;
(iv) For "Cause," which means:
(a) an act or acts of dishonesty on the
Employee's part or conviction of any
felony, or any crime involving moral
turpitude or entering into a treatment
program in lieu of such conviction;
(b) any material violation by the Employee
of his responsibilities, duties or
obligations hereunder, or failure to
perform his duties as reasonably
instructed by the Board of Directors of
the Company. Employee shall be notified
in writing of any such alleged failure
to perform and shall be given a
reasonable time frame in which to remedy
his failure before he is terminated for
cause under this provision;
(c) engaging by Employee in conduct which is
demonstrably and materially injurious to
the Company, monetarily or otherwise,
including but not limited to, any
material misrepresentation related to
the performance of his duties;
(d) any material breach by Employee of this
Agreement. Employee shall be notified in
writing of any such alleged failure to
perform and shall be given a reasonable
time frame in which to remedy his
failure before he is terminated for
cause under this provision;
(e) material breach by Employee of any of
his obligations contained in the Company
handbook for Employees, or such other
document or collection of documents
which set forth Company policy.
Employee shall be notified in writing of
any such alleged failure to perform and
shall be given a reasonable time frame
in which to remedy his failure before he
is terminated for cause under this
provision; and
(v) By either party upon thirty (30) days written
notice.
B. Company shall give Employee thirty (30) days prior
written notice of termination of employment.
Company shall have the option: (i) to retain the
services of the Employee for said thirty (30)
days, or (ii) compensate Employee for the number
of days less than thirty (30) days he received
notice at the then current salary rate for
Employee.
C. Except as provided in 6 (E), upon termination of
the employment of Employee or any reason
whatsoever whether or not the termination is
determined to be for Cause and to protect Trade
Secrets and Confidential Information, the Employee
shall be entitled to no further salary or other
compensation, and the Company shall have no
further obligations under this Agreement, and
except that portion of any unpaid salary accrued
and earned by the Employee hereunder up to the
date of termination.
D. Upon termination of the employment of Employee for
any reason whatsoever, whether or not the
termination is determined to be for Cause under
this Section, this Agreement shall continue in
full force and effect with respect to Employee's
covenants and agreements set forth in Section 5
above, including the obligations to refrain from
competition with the Company, to refrain from
soliciting agents of the Company, and to protect
Trade Secrets and Confidential Information.
E. Upon termination of Employee by the Employer
without Cause, pursuant to Sections 6A(i), 6A(ii)
or 6A(v), upon "Constructive Termination" of
Employee through a material reduction in duties
and responsibilities or by breach of this
Agreement by Employer, Employer shall pay Employee
severance pay equal to three (3) times the sum of
1) his base salary in effect at the time of
termination, and 2) the bonuses of Employee for
the prior calendar year. Employee understands and
agrees that payment pursuant to this Section 6E
shall constitute liquidated damages and Employee
shall have no right to any other compensation from
Employer in connection with this Agreement. The
compensation payable under this provision may be
made in cash or in common stock of the Employer.
The Employer shall have the discretion to choose
cash or Employer common stock for 25% of the
payment made under this Section 6E and the
Employee shall have the discretion to be paid
either in cash or Employer common stock for the
remaining 75%. Employer common stock shall be
valued at the date of payment annually to
Employee. The compensation under this Section 6E
shall be paid in equal annual installments payable
once every twelve months beginning no later than
three (3) months following the date of termination
of Employee's employment. In addition, to the
extent that Employee has been granted (i) stock
options, stock appreciation rights or other equity
instruments of Employer under the terms of a stock
option, stock appreciation rights or other similar
program as may be implemented by the Company, all
such options, rights or equity instruments which
have not vested shall become fully vested and
exercisable by Employee without restrictions upon
termination, and/or (ii) shares of restricted
common stock, all such shares shall become
unrestricted and free and clear of all liens or
other encumbrances upon termination.
7. NOTICES. All notices, demands and other
communications given under this Agreement shall be in
writing and shall be deemed effective with hand
delivered or mailed by certified mail, return receipt
requested, postage prepaid to the following addresses:
If to Employee:
T.J. Tully
3178 Victoria Avenue
Cincinnati, OH 45208
If to Company:
United Shields Corporation
655 Eden Park Drive
Suite 260
Cincinnati, Ohio 45202
or at such other addresses as the parties may
designate in writing.
8. ENTIRE CONTRACT. This Agreement constitutes the
entire understanding and agreement between the Company
and the Employee with regard to all matters contained
herein. This Agreement may be amended, supplemented
or interpreted at any time by written instrument duly
executed by all parties.
9. ASSIGNMENT. This Agreement shall not be assignable by
the Employee without the prior written consent of the
Company. This Agreement shall, to the extent not
limited hereby, inure to the benefit of and be
enforceable by the parties hereto, and their
respective heirs, representatives, successors and
assigns.
10. WAIVER. Any consent by any party to, or waiver of a
breach of any provision of this Agreement by the
other, whether express or implied, shall not
constitute a consent to, waiver of, or excuse for any
breach of any other provision or subsequent breach of
the same provision.
11. LEGAL CONSTRUCTION. In case any one of more of the
provisions contained in this Agreement shall for any
reason be held invalid, illegal or unenforceable in
any respect, that invalidity, illegality or
unenforceability shall not effect any other provision
of this Agreement, and this Agreement shall be
construed as of the invalid, illegal or unenforceable
provision had never been contained in it.
12. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the law of the state
of Ohio.
IN WITNESS WHEREOF, the parties have signed this Agreement on
the date first above written.
EMPLOYEE:
/s/ T.J. Tully
------------------------------
T.J. Tully
UNITED SHIELDS CORPORATION
By: /s/ T.J. Tully
---------------------------
T.J. Tully
CEO & Chairman of the
Board
Exhibit 99.2
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement) is entered into this
2nd day of July, 1998 by and between UNITED SHIELDS CORPORATION, a
Colorado corporation (the "Company" or "Employer") and Jeffrey A.
Pakrosnis, an individual residing at 9651 Kelly Drive, Loveland,
OH 45140.
WHEREAS, the Company is willing to employ the Employee and
the Employee is willing to be employed by the Company on the
terms, covenants and conditions set forth herein; and
WHEREAS, the Company and the Employee desire to define in
this Agreement, the rights, duties and obligations of the
employment agreed to between the parties;
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained in this Agreement and specifically in
consideration of the employment of the Employee by the Company for
the compensation and upon the terms set forth herein, the parties
agree as follows:
1. TERM. Subject to the provisions for termination as
hereinafter provided, the Company hereby agrees to
employ the Employee and the Employee agrees to be
employed by the Company, for a term of three (3) years
beginning on July 6, 1998.
2. DUTIES OF EMPLOYEE.
A. The Employee agrees to perform the services
provided herein to the best of his ability and to
the satisfaction of the Board of Directors of the
Company. The Employee shall devote his full time,
attention, energies and best efforts to providing
said services to the Company.
B. The Company hereby employs and engages the
Employee in the position of Vice President and
Chief Financial Officer (Principal Accounting
Officer). Specific job responsibilities to be
rendered by Employee are outlined in Exhibit 1
attached hereto, subject to the reasonable
assignment by the Chief Executive Officer of
additional or different duties, so long as the
nature of same shall be consistent with and
appropriate to an executive position of no lesser
than that of other executives reporting directly
to the Company's Chief Executive Officer.
<PAGE>
3. COMPENSATION.
A. (i) As compensation for the full and faithful
performance of the services to be rendered by the
Employee to the Company as set forth in Section 2
hereof, the Company shall pay the Employee a base
salary of $120,000 for the period from July 6,
1998 through December 31, 1998 and for each
subsequent one-year period (subject to Sections 3
(c) and 6) thereafter.
(ii) As additional compensation and consideration
for entering into this Agreement, the Employer
shall (a) grant to Employee on August 3, 1998 a
non-qualified stock option award with immediate
vesting pursuant to the United Shields Corporation
1998 Long-Term Incentive Plan ("1998 LTIP") to
purchase 72,500 shares of common stock of Employer
with an exercise price equal to the fair market
value of the common stock utilizing the rules
defined by Section 7(h) of the 1998 LTIP, and (b)
make cash payments of $20,000 upon execution of
this Agreement and $20,000 within 30 days from the
execution of this Agreement.
B. Said salary shall be payable in twelve (12) equal
monthly installments in accordance with the
Company's normal payroll practices, and subject to
withholding of taxes as required by law.
C. Employee's base salary shall be reviewed at least
annually, commencing with a review during the
month of March, 1999 and may be adjusted from time
to time in the sole discretion of the Board of
Directors of the Company, but in no event will it
be adjusted to an amount lower than $120,000 per
year.
D. Employee shall receive an annual cash bonus of 25%
of base compensation based on the Employee's
performance of the duties set forth in Section 2,
which may be amended from time to time. Employer
agrees that the annual bonus for the six (6 )
month period ending December 31, 1998 of $30,000
shall be guaranteed and shall be paid within 60
days of the end of the calendar year. Each
successive annual bonus awarded to Employee shall
also be paid within 60 days of the end of the
calendar year.
E. Employee shall receive an additional performance
bonus in cash, common stock of the Company,
options to purchase common stock of the Company,
or any combination of cash, common stock and
options, with the method of payment to be at the
discretion of the Board of Directors of the
Company if the Company's performance goals,
established from time to time by the Board, are
met. The parties agree that the goals for the
first six (6) months of this Agreement are as
stated in Exhibit 2. The performance bonus is to
be paid within 60 days of the end of the calendar
year.
4. BENEFITS AND EXPENSES. During the term of this
Agreement, the Company shall provide to the Employee:
A. Reimbursement of all ordinary and reasonable
business-related expenses incurred during the
performance of the services set forth in Section 2
hereof upon submission of receipts for the same.
All such expenses are subject to the approval of
the Company. Reimbursement for automobile mileage
will be at the rate currently prescribed by the
Internal Revenue Service.
B. Twenty (20) days paid vacation per calendar year
in accordance with the Company's vacation policy
to be taken at such time or times and for such
duration as Employee shall determine in accordance
with the Company policy provided that such
vacation shall not interfere with the material
performance of the services set forth in Section
2. Employee shall not be entitled to carry over
any unused portion of vacation into a subsequent
year.
C. Hospitalization and major medical insurance,
consistent with the Company's group policies, for
Employee and his immediate family, upon such terms
as are provided to employees of the Company
generally, which may be modified by the Company
from time to time.
D. Life insurance on Employee's life with a death
benefit equal to three (3) times Employee's base
compensation.
E. The Company agrees to provide to Employee the
additional fringe benefits available to salaried
employees of the Company generally, which may be
modified by the Company from time to time.
5. COVENANTS OF EMPLOYEE. The Employee agrees and
acknowledges that certain of the Company's services
are proprietary in nature and shall have been marketed
through the use of customer lists, trade secrets,
methods of operation and other confidential
information possessed by the Company and disclosed in
confidence to the Employee (hereinafter the "Trade
Secrets or Confidential Information) which may not
have been accessible to other persons in the trade.
Trade Secrets and Confidential Information shall not
include: (i) any information in the public domain,
(ii) any information received unsolicited from a third
party under no obligation of secrecy, or (iii) any
information known by Employee prior to entering into
this Agreement. The Employee also acknowledges that
he will have substantial and ongoing contact with the
Company's clients and will thereby gain knowledge of
client's needs and preferences, sources of information
and other valuable information necessary for the
success of the Company's business. The Employee
therefore covenants and agrees as follows:
A. He will not at any time take any action or make
any statement that could discredit the reputation
of the Company or its services or products.
B. During the term of this Agreement and for a period
of one (1) year following termination of
Employee's employment with the Company for any
reason, the Employee shall not:
(i) Solicit or accept business directly or
indirectly from any client of the Company
which does business within a five hundred
(500) mile radius of any facility owned or
operated by the Company;
(ii) Except as may be required by law, disclose,
divulge, discuss, copy or otherwise use or
suffer to be used in any manner, in
competition with, or contrary to the
interests of the Company, the Trade Secrets
or Confidential Information or any other
confidential information of or pertaining to
the Company or its services, disclosed to or
obtained by the Employee during the term of
this Agreement. The Employee further agrees
that he shall not, either during the term of
this Agreement or at any time subsequent
thereto, use, disclose or otherwise reveal
any of the Trade Secrets or Confidential
Information to any person, either directly or
indirectly, whether or not for compensation
or remuneration, except as necessary while
performing services on behalf of the Company;
(iii) Own, manage, advise, counsel, assist or
engage in the ownership, management or
control of, or be employed or engaged by or
otherwise affiliated or associated as a
consultant, independent contractor or
otherwise, directly or indirectly, with any
other corporation, partnership,
proprietorship, or other business entity, or
otherwise engage in any business which
competes with or is similar in nature to a
business in which the Company is engaged, and
from which the Company derives more than 5%
of its revenue, within a five hundred (500)
mile radius of any facility owned or operated
by the Company; and
(iv) In conjunction with 5 (B) (iii), solicit,
induce, aid or suggest to any of the
employees, officers, agents, or consultants
of the Company or other persons having a
substantial contractual relationship with the
Company, to leave such employ, cease any
consulting relationship with the Company, or
terminate such contractual relationship with
the Company.
C. Employee recognizes that the foregoing items are
material to this Agreement and that the failure to
abide by such terms shall constitute, sufficient
Cause for Termination of Employment as provided in
Section 6 hereof.
D. Employee agrees and understands that the remedy at
law for any breach of this Section 5 will be
inadequate and that damages flowing from such
breach are not readily susceptible to being
measured in monetary terms. Accordingly, in the
event that the Company shall institute any action
or proceeding to enforce the provisions of this
Agreement, the Employee hereby waives the claim or
defense therein that the Company has an adequate
remedy at law. Nothing in this Section 5 shall be
deemed to limit the Company's remedies at law or
in equity for breach by the Employee of any of the
provisions of this Section 5 which may be pursued
by the Company.
E. Employee shall not create or suffer to be created,
without the express prior written consent of the
Company, any mortgage, pledge, lien or encumbrance
of any kind whatsoever against or upon any
property of the Company, or make any contract or
create any obligation, liability or debt of any
kind, in the name of or binding upon the Company
without its prior written consent other than in
the ordinary course of business.
F. Employee agrees that, upon termination or
employment with the Company for any reason
whatsoever, Employee will immediately return to
Company all papers, books, price lists and price
information, lists of sources of supply, customer
lists, processes, inventions, mailing lists,
employee lists and resumes, computer print-outs,
manuals, sales literature, Employee's copies of
customer invoices, quotations, purchase orders,
any copies of the foregoing or any documents or
notes containing excerpts from the foregoing and
all other documents, data, equipment, and products
belonging to or related to the business of the
Company which may be in Employee's possession. If
any such information has been electronically
stored, Employee shall return all disks, or other
storage media, containing such information and
shall permanently delete such information from the
computer hard drive, or other non removable
storage device, or any computer owned or
controlled by Employee after providing the Company
a copy of the information.
G. Employee agrees to assign and hereby assigns to
Company all of Employee's right, title and
interest, if any, in and to all inventions,
improvements, patents, trademarks, copyrights, and
trade names, which during the period of Employee's
employment by Company,
Employee has obtained, made or conceived or may
hereafter make or conceive, either solely or
jointly with others, in the course of such
employment, within the scope of the Company's
business, work or investigations, or with use of
the Company's time, employees, material or
facilities, or relating to or suggested by work or
problems arising in Company's business of which
Employee has been or may become aware by reason of
Employee's employment. Employee agrees that
Employee will execute, acknowledge and deliver all
papers, documents, assignments and other
information as may be required by Company to
obtain any patents, trademarks, copyrights, trade
names or other registrations or applications in
the name of the Company.
H. Employee agrees that the remedy at law for any
breach by Employee of the covenants set forth in
the foregoing sections 5A, B, C, D, E, F, or G is
inadequate and the Company, in addition to having
an action at law for damages, shall be entitled to
injunctive relief to enforce these covenants.
6. TERMINATION.
A. The Employee and the Company specifically agree
that the employment of the Employee may terminate
only upon the occurrence of any one or more of the
following events:
(i) The cessation of the business of the Company,
either voluntary or involuntarily;
(ii) The merger, consolidation, reorganization or
dissolution of the Company;
(iii) Death or permanent disability of the
Employee, including but not limited to a
physical or mental disability which renders
Employee incapable of effectively and
efficiently performing his duties hereunder,
for a consecutive period of sixty (60) days
or for an aggregate of one hundred twenty
(120) days or more during any twelve month
period;
(iv) For "Cause," which means:
(a) an act or acts of dishonesty on the
Employee's part or conviction of any
felony, or any crime involving moral
turpitude or entering into a treatment
program in lieu of such conviction;
(b) any material violation by the Employee of
his responsibilities, duties or
obligations hereunder, or failure to
perform his duties as reasonably
instructed by the Board of Directors of
the Company. Employee shall be notified
in writing of any such alleged failure to
perform and shall be given a reasonable
time frame in which to remedy his failure
before he is terminated for cause under
this provision;
(c) engaging by Employee in conduct which is
demonstrably and materially injurious to
the Company, monetarily or otherwise,
including but not limited to, any
material misrepresentation related to the
performance of his duties;
(d) any material breach by Employee of this
Agreement. Employee shall be notified in
writing of any such alleged failure to
perform and shall be given a reasonable
time frame in which to remedy his failure
before he is terminated for cause under
this provision;
(e) material breach by Employee of any of his
obligations contained in the Company
handbook for Employees, or such other
document or collection of documents which
set forth Company policy. Employee shall
be notified in writing of any such
alleged failure to perform and shall be
given a reasonable time frame in which to
remedy his failure before he is
terminated for cause under this
provision; and
(v) By either party upon thirty (30) days written
notice.
B. Company shall give Employee thirty (30) days prior
written notice of termination of employment.
Company shall have the option: (i) to retain the
services of the Employee for said thirty (30)
days, or (ii) compensate Employee for the number
of days less than thirty (30) days he received
notice at the then current salary rate for
Employee.
C. Except as provided in 6 (E), upon termination of
the employment of Employee or any reason
whatsoever whether or not the termination is
determined to be for Cause and to protect Trade
Secrets and Confidential Information, the Employee
shall be entitled to no further salary or other
compensation, and the Company shall have no
further obligations under this Agreement, and
except that portion of any unpaid salary accrued
and earned by the Employee hereunder up to the
date of termination.
D. Upon termination of the employment of Employee for
any reason whatsoever, whether or not the
termination is determined to be for Cause under
this Section, this Agreement shall continue in
full force and effect with respect to Employee's
covenants and agreements set forth in Section 5
above, including the obligations to refrain from
competition with the Company, to refrain from
soliciting agents of the Company, and to protect
Trade Secrets and Confidential Information.
E. Upon termination of Employee by the Employer
without Cause, pursuant to Sections 6A(i), 6A(ii)
or 6A(v), upon "Constructive Termination" of
Employee through a material reduction in duties
and responsibilities or by breach of this
Agreement by Employer, Employer shall pay Employee
severance pay equal to three (3) times the sum of
1) his base salary in effect at the time of
termination, and 2) the bonuses of Employee for
the prior calendar year. Employee understands and
agrees that payment pursuant to this Section 6E
shall constitute liquidated damages and Employee
shall have no right to any other compensation from
Employer in connection with this Agreement. The
compensation payable under this provision may be
made in cash or in common stock of the Employer.
The Employer shall have the discretion to choose
cash or Employer common stock for 25% of the
payment made under this Section 6E and the
Employee shall have the discretion to be paid
either in cash or Employer common stock for the
remaining 75%. Employer common stock shall be
valued at the date of payment annually to
Employee. The compensation under this Section 6E
shall be paid in equal annual installments payable
once every twelve months beginning no later than
three (3) months following the date of termination
of Employee's employment. In addition, to the
extent that Employee has been granted (i) stock
options, stock appreciation rights or other equity
instruments of Employer under the terms of a stock
option, stock appreciation rights or other similar
program as may be implemented by the Company, all
such options, rights or equity instruments which
have not vested shall become fully vested and
exercisable by Employee without restrictions upon
termination, and/or (ii) shares of restricted
common stock, all such shares shall become
unrestricted and free and clear of all liens or
other encumbrances upon termination.
7. NOTICES. All notices, demands and other
communications given under this Agreement shall be in
writing and shall be deemed effective with hand
delivered or mailed by certified mail, return receipt
requested, postage prepaid to the following addresses:
If to Employee:
Jeffrey A. Pakrosnis
9651 Kelly Drive
Loveland, Ohio 45 i4O
If to Company:
United Shields Corporation
655 Eden Park Drive
Suite 260
Cincinnati, Ohio 45202
or at such other addresses as the parties may
designate in writing.
8. ENTIRE CONTRACT. This Agreement constitutes the
entire understanding and agreement between the Company
and the Employee with regard to all matters contained
herein. This Agreement may be amended, supplemented
or interpreted at any time by written instrument duly
executed by all parties.
9. ASSIGNMENT. This Agreement shall not be assignable by
the Employee without the prior written consent of the
Company. This Agreement shall, to the extent not
limited hereby, inure to the benefit of and be
enforceable by the parties hereto, and their
respective heirs, representatives, successors and
assigns.
10. WAIVER. Any consent by any party to, or waiver of a
breach of any provision of this Agreement by the
other, whether express or implied, shall not
constitute a consent to, waiver of, or excuse for any
breach of any other provision or subsequent breach of
the same provision.
11. LEGAL CONSTRUCTION. In case any one of more of the
provisions contained in this Agreement shall for any
reason be held invalid, illegal or unenforceable in
any respect, that invalidity, illegality or
unenforceability shall not effect any other provision
of this Agreement, and this Agreement shall be
construed as of the invalid, illegal or unenforceable
provision had never been contained in it.
12. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the law of the state
of Ohio.
IN WITNESS WHEREOF, the parties have signed this
Agreement on the date first above written.
EMPLOYEE:
/s/ Jeffrey A. Pakrosnis
Jeffrey A. Pakrosnis
UNITED SHIELDS CORPORATION
By: /s/ T.J. Tully
T.J. Tully
CEO & Chairman of the Board
Exhibit 99.3
September 8, 1998
Mr. Donald T. Zimmerman
2564 Handasyde Avenue
Cincinnati, OH 45208
Dear Tim,
This will confirm our agreement to replace Section 3 A (ii) of
your Employment Agreement dated September 30, 1997 with the
following:
"As additional compensation and consideration for entering into
this Agreement, the Employer shall grant to the Employee a non-
qualified stock option award with immediate vesting pursuant to
the United Shields Corporation 1998 Long-Term Incentive Plan
("1998 LTIP") to purchase 400,000 shares of common stock of
Employer with an exercise price equal to the fair market value of
the common stock utilizing the rules defined by Section 7(h) of
the 1998 LTIP."
Sincerely,
UNITED SHIELDS CORPORATION
By: /s/ T.J. Tully
T.J. Tully, CEO
Agreed:
/s/ Donald T. Zimmerman
Donald T. Zimmerman
Exhibit 99.4
September 8, 1998
Mr. Jeffrey A. Pakrosnis
9651 Kelly Drive
Loveland, OH 45140
Dear Jeff,
This will confirm our agreement to amend Section 3A(ii)(b) of your
Employment Agreement to reflect cash payments made under this
section as "advances", which, to the extent paid to Employee
during the period from July 2, 1998 through January 2, 1999 (the
"Advance Period"), shall be considered earned by the Employee as
of January 2, 1999 provided that Employee does not terminate his
employment with Employer for reasons other than Constructive
Termination of Employee through a material reduction in duties and
responsibilities or by breach of Employee's Employment Agreement
by Employer. Further, in the event Employer terminates Employee
prior to January 2, 1999 pursuant to sections 6(A)(i)-(iii) or (v)
of the Employment Agreement, advances paid to Employee during the
Advance Period shall be deemed earned by Employee as of the date
of termination by Employer. In the event Employee terminates his
employment with Employer prior to January 2, 1999 pursuant to
section 6(A)(v) of the Employment Agreement or Employer terminates
Employee prior to January 2, 1999 pursuant to section 6(A)(iv),
advances paid to Employee during the Advance Period shall be
repaid to Employer within (7) days of the date of termination.
Sincerely,
UNITED SHIELDS CORPORATION
By: /s/ T.J. Tully
T.J. Tully, CEO
Agreed: /s/ Jeffrey A. Pakrosnis
Jeffrey A. Pakrosnis
Exhibit 99.5
September 8, 1998
Mr. Jeffrey A. Pakrosnis
9651 Kelly Drive
Loveland, OH 45140
Dear Jeff,
This will confirm our agreement to amend Section 3 A (ii) of your
Employment Agreement dated July 2, 1998 by increasing the number
of shares granted in the non-qualified stock option award from
72,500 to 400,000.
Sincerely,
UNITED SHIELDS CORPORATION
By: /s/ T.J. Tully
T.J. Tully, CEO
Agreed: /s/ Jeffrey A. Pakrosnis
Jeffrey A. Pakrosnis
Exhibit 99.7
September 24,1998
Jeffrey A. Pakrosnis
9651 Kelly Drive
Loveland, OH 45140
Dear Jeff,
In an effort to make the employment contracts consistent
among the corporate executive officers of United Shields
Corporation, this letter will confirm our agreement to amend your
Employment Agreement dated July 2, 1998 to increase the term of
the Employment Agreement to five (5) years.
Sincerely,
/s/ T.J. Tully
T.J. Tully
Chairman & CEO
Agreed:
/s/ Jeffrey A. Pakrosnis
Jeffrey A. Pakrosnis
Exhibit 99.8
AMENDMENT TO
THE EMPLOYMENT AGREEMENT OF T.J. TULLY
NOVEMBER 30, 1998
This letter amends the employment agreement between United Shields
Corporation and T.J. Tully, dated July 2, 1998 as follows:
Effective November 30, 1998, the salary and bonus will be changed
to $50,000.00 annually with a finder's fee of $5,000.00 for each
acquisition found by T.J. Tully and subsequently acquired by
United Shields.
Effective January 1, 1998, the position will be changed to Vice
Chairman of the Board.
All other terms and conditions remain the same.
Agreed: /s/ T.J. Tully
T.J. Tully
/s/ William A. Frey III
William A. Frey III
Chairman
Exhibit 99.9
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement) is entered into this
first day of January, 1999 by and between UNITED SHIELDS
CORPORATION, a Colorado corporation (the "Company" or "Employer")
and William A. Frey III, an individual residing at 3401 Edgewood
Circle, Cleveland, Tennessee 37312.
WHEREAS, the Company is willing to employ the Employee and
the Employee is willing to be employed by the Company on the
terms, covenants and conditions set forth herein; and
WHEREAS, the Company and the Employee desire to define in
this Agreement, the rights, duties and obligations of the
employment agreed to between the parties;
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained in this Agreement and specifically in
consideration of the employment of the Employee by the Company for
the compensation and upon the terms set forth herein, the parties
agree as follows:
1. TERM. Subject to the provisions for termination as
hereinafter provided, the Company hereby agrees to
employ the Employee and the Employee agrees to be
employed by the Company, for a term of five (5) years
beginning on January 1, 1999.
2. DUTIES OF EMPLOYEE.
A. The Employee agrees to perform the services
provided herein to the best of his ability and to
the satisfaction of the Board of Directors of the
Company. The Employee shall devote his full time,
attention, energies and best efforts to providing
said services to the Company.
B. The Company hereby employs and engages the
Employee in the position of Chairman of the Board
and Chief Executive Officer
3. COMPENSATION.
A. (i) As compensation for the full and faithful
performance of the services to be rendered by the
Employee to the Company as set forth in Section 2
hereof, the Company shall pay the Employee a base
salary of $150,000 per year and for each
subsequent one-year period (subject to Sections 3
(c) and 6) thereafter.
(ii) As additional compensation and consideration
for entering into this Agreement, the Employer
shall (a) grant to Employee a non-qualified stock
option award with immediate vesting pursuant to
the United Shields Corporation 1998 Long-Term
Incentive Plan ("1998 LTIP") to purchase 1,000,000
shares of common stock of Employer with an
exercise price of $0.56 per share.
B. Said salary shall be payable in twelve (12) equal
monthly installments in accordance with the
Company's normal payroll practices, and subject to
withholding of taxes as required by law.
C. Employee's base salary shall be reviewed at least
annually, commencing with a review during the
month of December, 1999 and may be adjusted from
time to time in the sole discretion of the Board
of Directors of the Company, but in no event will
it be adjusted to an amount lower than $150,000
per year.
D. Employee shall receive an annual cash bonus of 33%
of base compensation based on the Employee's
performance of the duties set forth in Section 2,
which may be amended from time to time.
E. Employee shall receive an additional performance
bonus in cash, common stock of the Company,
options to purchase common stock of the Company,
or any combination of cash, common stock and
options, with the method of payment to be at the
discretion of the Board of Directors of the
Company if the Company's performance goals,
established from time to time by the Board, are
met.
4. BENEFITS AND EXPENSES. During the term of this
Agreement, the Company shall provide to the Employee:
A. Reimbursement of all ordinary and reasonable
business-related expenses incurred during the
performance of the services set forth in Section 2
hereof upon submission of receipts for the same.
All such expenses are subject to the approval of
the Company. Reimbursement for automobile mileage
will be at the rate currently prescribed by the
Internal Revenue Service.
B. Twenty (20) days paid vacation per calendar year
in accordance with the Company's vacation policy
to be taken at such time or times and for such
duration as Employee shall determine in accordance
with the Company policy provided that such
vacation shall not interfere with the material
performance of the services set forth in Section
2. Employee shall not be entitled to carry over
any unused portion of vacation into a subsequent
year.
C. Hospitalization and major medical insurance,
consistent with the Company's group policies, for
Employee and his immediate family, upon such terms
as are provided to employees of the Company
generally, which may be modified by the Company
from time to time.
D. Life insurance on Employee's life with a death
benefit equal to three (3) times Employee's base
compensation.
E. The Company agrees to provide to Employee the
additional fringe benefits available to salaried
employees of the Company generally, which may be
modified by the Company from time to time.
5. COVENANTS OF EMPLOYEE. The Employee agrees and
acknowledges that certain of the Company's services
are proprietary in nature and shall have been marketed
through the use of customer lists, trade secrets,
methods of operation and other confidential
information possessed by the Company and disclosed in
confidence to the Employee (hereinafter the "Trade
Secrets or Confidential Information) which may not
have been accessible to other persons in the trade.
Trade Secrets and Confidential Information shall not
include: (i) any information in the public domain,
(ii) any information received unsolicited from a third
party under no obligation of secrecy, or (iii) any
information known by Employee prior to entering into
this Agreement. The Employee also acknowledges that
he will have substantial and ongoing contact with the
Company's clients and will thereby gain knowledge of
client's needs and preferences, sources of information
and other valuable information necessary for the
success of the Company's business. The Employee
therefore covenants and agrees as follows:
A. He will not at any time take any action or make
any statement that could discredit the reputation
of the Company or its services or products.
B. During the term of this Agreement and for a period
of one (1) year following termination of
Employee's employment with the Company for any
reason, the Employee shall not:
(i) Solicit or accept business directly or
indirectly from any client of the Company
which does business within a five hundred
(500) mile radius of any facility owned or
operated by the Company;
(ii) Except as may be required by law, disclose,
divulge, discuss, copy or otherwise use or
suffer to be used in any manner, in
competition with, or contrary to the
interests of the Company, the Trade Secrets
or Confidential Information or any other
confidential information of or pertaining to
the Company or its services, disclosed to or
obtained by the Employee during the term of
this Agreement. The Employee further agrees
that he shall not, either during the term of
this Agreement or at any time subsequent
thereto, use, disclose or otherwise reveal
any of the Trade Secrets or Confidential
Information to any person, either directly or
indirectly, whether or not for compensation
or remuneration, except as necessary while
performing services on behalf of the Company;
(iii) Own, manage, advise, counsel, assist or
engage in the ownership, management or
control of, or be employed or engaged by or
otherwise affiliated or associated as a
consultant, independent contractor or
otherwise, directly or indirectly, with any
other corporation, partnership,
proprietorship, or other business entity, or
otherwise engage in any business which
competes with or is similar in nature to a
business in which the Company is engaged, and
from which the Company derives more than 5%
of its revenue, within a five hundred (500)
mile radius of any facility owned or operated
by the Company; and
(iv) In conjunction with 5 (B) (iii), solicit,
induce, aid or suggest to any of the
employees, officers, agents, or consultants
of the Company or other persons having a
substantial contractual relationship with the
Company, to leave such employ, cease any
consulting relationship with the Company, or
terminate such contractual relationship with
the Company.
C. Employee recognizes that the foregoing items are
material to this Agreement and that the failure to
abide by such terms shall constitute, sufficient
Cause for Termination of Employment as provided in
Section 6 hereof.
D. Employee agrees and understands that the remedy at
law for any breach of this Section 5 will be
inadequate and that damages flowing from such
breach are not readily susceptible to being
measured in monetary terms. Accordingly, in the
event that the Company shall institute any action
or proceeding to enforce the provisions of this
Agreement, the Employee hereby waives the claim or
defense therein that the Company has an adequate
remedy at law. Nothing in this Section 5 shall be
deemed to limit the Company's remedies at law or
in equity for breach by the Employee of any of the
provisions of this Section 5 which may be pursued
by the Company.
E. Employee shall not create or suffer to be created,
without the express prior written consent of the
Company, any mortgage, pledge, lien or encumbrance
of any kind whatsoever against or upon any
property of the Company, or make any contract or
create any obligation, liability or debt of any
kind, in the name of or binding upon the Company
without its prior written consent other than in
the ordinary course of business.
F. Employee agrees that, upon termination or
employment with the Company for any reason
whatsoever, Employee will immediately return to
Company all papers, books, price lists and price
information, lists of sources of supply, customer
lists, processes, inventions, mailing lists,
employee lists and resumes, computer print-outs,
manuals, sales literature, Employee's copies of
customer invoices, quotations, purchase orders,
any copies of the foregoing or any documents or
notes containing excerpts from the foregoing and
all other documents, data, equipment, and products
belonging to or related to the business of the
Company which may be in Employee's possession. If
any such information has been electronically
stored, Employee shall return all disks, or other
storage media, containing such information and
shall permanently delete such information from the
computer hard drive, or other non removable
storage device, or any computer owned or
controlled by Employee after providing the Company
a copy of the information.
G. Employee agrees to assign and hereby assigns to
Company all of Employee's right, title and
interest, if any, in and to all inventions,
improvements, patents, trademarks, copyrights, and
trade names, which during the period of Employee's
employment by Company,
Employee has obtained, made or conceived or may
hereafter make or conceive, either solely or
jointly with others, in the course of such
employment, within the scope of the Company's
business, work or investigations, or with use of
the Company's time, employees, material or
facilities, or relating to or suggested by work or
problems arising in Company's business of which
Employee has been or may become aware by reason of
Employee's employment. Employee agrees that
Employee will execute, acknowledge and deliver all
papers, documents, assignments and other
information as may be required by Company to
obtain any patents, trademarks, copyrights, trade
names or other registrations or applications in
the name of the Company.
H. Employee agrees that the remedy at law for any
breach by Employee of the covenants set forth in
the foregoing sections 5A, B, C, D, E, F, or G is
inadequate and the Company, in addition to having
an action at law for damages, shall be entitled to
injunctive relief to enforce these covenants.
6. TERMINATION.
A. The Employee and the Company specifically agree
that the employment of the Employee may terminate
only upon the occurrence of any one or more of the
following events:
(i) The cessation of the business of the Company,
either voluntary or involuntarily;
(ii) The merger, consolidation, reorganization or
dissolution of the Company;
(iii) Death or permanent disability of the
Employee, including but not limited to a
physical or mental disability which renders
Employee incapable of effectively and
efficiently performing his duties hereunder,
for a consecutive period of sixty (60) days
or for an aggregate of one hundred twenty
(120) days or more during any twelve month
period;
(iv) For "Cause," which means:
(a) an act or acts of dishonesty on the
Employee's part or conviction of any
felony, or any crime involving moral
turpitude or entering into a treatment
program in lieu of such conviction;
(b) any material violation by the Employee of
his responsibilities, duties or
obligations hereunder, or failure to
perform his duties as reasonably
instructed by the Board of Directors of
the Company. Employee shall be notified
in writing of any such alleged failure to
perform and shall be given a reasonable
time frame in which to remedy his failure
before he is terminated for cause under
this provision;
(c) engaging by Employee in conduct which is
demonstrably and materially injurious to
the Company, monetarily or otherwise,
including but not limited to, any
material misrepresentation related to the
performance of his duties;
(d) any material breach by Employee of this
Agreement. Employee shall be notified in
writing of any such alleged failure to
perform and shall be given a reasonable
time frame in which to remedy his failure
before he is terminated for cause under
this provision;
(e) material breach by Employee of any of his
obligations contained in the Company
handbook for Employees, or such other
document or collection of documents which
set forth Company policy. Employee shall
be notified in writing of any such
alleged failure to perform and shall be
given a reasonable time frame in which to
remedy his failure before he is
terminated for cause under this
provision; and
(v) By either party upon thirty (30) days written
notice.
B. Company shall give Employee thirty (30) days prior
written notice of termination of employment.
Company shall have the option: (i) to retain the
services of the Employee for said thirty (30)
days, or (ii) compensate Employee for the number
of days less than thirty (30) days he received
notice at the then current salary rate for
Employee.
C. Except as provided in 6 (E), upon termination of
the employment of Employee or any reason
whatsoever whether or not the termination is
determined to be for Cause and to protect Trade
Secrets and Confidential Information, the Employee
shall be entitled to no further salary or other
compensation, and the Company shall have no
further obligations under this Agreement, and
except that portion of any unpaid salary accrued
and earned by the Employee hereunder up to the
date of termination.
D. Upon termination of the employment of Employee for
any reason whatsoever, whether or not the
termination is determined to be for Cause under
this Section, this Agreement shall continue in
full force and effect with respect to Employee's
covenants and agreements set forth in Section 5
above, including the obligations to refrain from
competition with the Company, to refrain from
soliciting agents of the Company, and to protect
Trade Secrets and Confidential Information.
E. Upon termination of Employee by the Employer
without Cause, pursuant to Sections 6A(i), 6A(ii)
or 6A(v), upon "Constructive Termination" of
Employee through a material reduction in duties
and responsibilities or by breach of this
Agreement by Employer, Employer shall pay Employee
severance pay equal to three (3) times the sum of
1) his base salary in effect at the time of
termination, and 2) the bonuses of Employee for
the prior calendar year. Employee understands and
agrees that payment pursuant to this Section 6E
shall constitute liquidated damages and Employee
shall have no right to any other compensation from
Employer in connection with this Agreement. The
compensation payable under this provision may be
made in cash or in common stock of the Employer.
The Employer shall have the discretion to choose
cash or Employer common stock for 25% of the
payment made under this Section 6E and the
Employee shall have the discretion to be paid
either in cash or Employer common stock for the
remaining 75%. Employer common stock shall be
valued at the date of payment annually to
Employee. The compensation under this Section 6E
shall be paid in equal annual installments payable
once every twelve months beginning no later than
three (3) months following the date of termination
of Employee's employment. In addition, to the
extent that Employee has been granted (i) stock
options, stock appreciation rights or other equity
instruments of Employer under the terms of a stock
option, stock appreciation rights or other similar
program as may be implemented by the Company, all
such options, rights or equity instruments which
have not vested shall become fully vested and
exercisable by Employee without restrictions upon
termination, and/or (ii) shares of restricted
common stock, all such shares shall become
unrestricted and free and clear of all liens or
other encumbrances upon termination.
7. NOTICES. All notices, demands and other
communications given under this Agreement shall be in
writing and shall be deemed effective with hand
delivered or mailed by certified mail, return receipt
requested, postage prepaid to the following addresses:
If to Employee:
William A. Frey III
3401 Edgewood Circle
Cleveland, Tennessee 37312
If to Company:
United Shields Corporation
655 Eden Park Drive
Suite 260
Cincinnati, Ohio 45202
or at such other addresses as the parties may
designate in writing.
8. ENTIRE CONTRACT. This Agreement constitutes the
entire understanding and agreement between the Company
and the Employee with regard to all matters contained
herein. This Agreement may be amended, supplemented
or interpreted at any time by written instrument duly
executed by all parties.
9. ASSIGNMENT. This Agreement shall not be assignable by
the Employee without the prior written consent of the
Company. This Agreement shall, to the extent not
limited hereby, inure to the benefit of and be
enforceable by the parties hereto, and their
respective heirs, representatives, successors and
assigns.
10. WAIVER. Any consent by any party to, or waiver of a
breach of any provision of this Agreement by the
other, whether express or implied, shall not
constitute a consent to, waiver of, or excuse for any
breach of any other provision or subsequent breach of
the same provision.
11. LEGAL CONSTRUCTION. In case any one of more of the
provisions contained in this Agreement shall for any
reason be held invalid, illegal or unenforceable in
any respect, that invalidity, illegality or
unenforceability shall not effect any other provision
of this Agreement, and this Agreement shall be
construed as of the invalid, illegal or unenforceable
provision had never been contained in it.
12. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the law of the state
of Ohio.
IN WITNESS WHEREOF, the parties have signed this
Agreement on the date first above written.
EMPLOYEE:
/s/William A. Frey III
William A. Frey III
UNITED SHIELDS CORPORATION
By: /s/T.J. Tully
T.J. Tully
Vice Chairman
Exhibit 99.6
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into this
30th day of September, 1997, and revised the 24th day of
September, 1998, by and between UNITED SHIELDS CORPORATION, a
Colorado corporation (the "Company" or "Employer") and Donald T.
Zimmerman, Jr., an individual residing at 2564 Handasyde Avenue,
Cincinnati, OH 45208.
WHEREAS, the Company is willing to employ the Employee and
the Employee is willing to be employed by the Company on the
terms, covenants and conditions set forth herein; and
WHEREAS, the Company and the Employee desire to define in
this Agreement, the rights, duties and obligations of the
employment agreed to between the parties;
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained in this Agreement and specifically in
consideration of the employment of the Employee by the Company for
the compensation and upon the terms set forth herein, the parties
agree as follows:
1. Term. Subject to the provisions for termination as
hereinafter provided, the Company hereby agrees to employ the
Employee and the Employee hereby agrees to be employed by the
Company, for a term of five (5) years beginning on January 1,
1998, or an earlier date agreed to by both parties.
2. Duties of Employee.
A. The Employee agrees to perform the services
provided herein to the best of his ability and to the satisfaction
of the Board of Directors of the Company. The Employee shall
devote his full time, attention, energies and best efforts to
providing said services to the Company.
B. The Company hereby employs and engages the Employee
in the position of Executive Vice President and Chief Operating
Officer; and, in this capacity Employee will also be engaged as
President of the HeaterMeals Company. The Employee shall render
to the Company administrative and management services as are
customarily rendered by persons situated in similar management
capacities and to provide such other services for the Company as
directed by the Chief Executive Officer which shall be reasonably
related to his position, so long as the nature of same shall be
consistent with and appropriate to an executive position of no
lesser than that of other executives reporting directly to the
Company's Chief Executive Officer.
<PAGE>
3. Compensation.
A. (i) As compensation for the full and faithful
performance of the services to be rendered by the
Employee to the Company as set forth in Section 2
hereof, the Company shall pay the Employee a base
salary of $200,000.00 for the period from January
1, 1998 through December 31, 1998 and for each
subsequent one-year period (subject to Sections
3(C) and 6).
(ii) As additional compensation and consideration
for entering into this Agreement the Employer
shall grant to the Employee a non-qualified stock
option award with immediate vesting pursuant to
the United Shields Corporation 1998 Long-Term
Incentive Plan ("1998 LTIP") to purchase 400,000
shares of common stock of employer with an
exercise price equal to the fair market value of
the common stock utilizing the rules defined by
Section 7(h) of the 1998 LTIP.
B. Said salary shall be payable in twelve (12) equal
monthly installments in accordance with the Company's normal
payroll practices, and subject to withholding of taxes, etc. as
required by law.
C. Employee's base salary shall be reviewed at least
annually, commencing with a review during the month of March, 1999
and may be adjusted from time to time in the sole discretion of
the Board of Directors of the Company, but in no event will it be
adjusted to an amount lower than $200,000 per year.
D. Employee shall receive an annual bonus of 25% of
base compensation based on the Employee's performance of the
duties set forth in Section 2, which may be amended from time to
time. Employer agrees that the annual bonus for the twelve (12)
month period ending December 31, 1998 of $50,000 shall be
guaranteed and shall be paid within 60 days of the end of the
calendar year. Each successive annual bonus awarded to Employee
shall also be paid within 60 days of the end of the calendar year.
E. Employee shall receive an additional performance
bonus in cash, common stock of the Company, options to purchase
common stock of the company, or any combination of cash, stock and
options, with the method of payment to be at the discretion of the
Board of Directors of the Company if the Company's performance
goals, established from time to time by the Board, are met. The
parties understand and agree that the goals for the first year of
this Agreement are as stated in Exhibit 1. The performance bonus
is to be paid within 60 days of the end of the calendar year.
<PAGE>
4. Benefits and Expenses. During the term of this
Agreement, Company shall provide to the Employee:
A. The Employee shall be reimbursed for all ordinary
and reasonable business-related expenses incurred during the
performance of the service set forth in Section 2 hereof upon
submission of receipts for same. All such expenses are subject to
the approval of the Company. Reimbursement for automobile mileage
will be at the rate currently prescribed by the Internal Revenue
Service.
B. Twenty- five (25) days paid vacation per calendar
year in accordance with Company's vacation policy to be taken at
such time or times and for such duration as Employee shall
determine in accordance with the Company policy provided that such
vacation shall not interfere with the material performance of the
service set forth in Section 2. Employee shall not be entitled to
carry over any unused portion of vacation into a subsequent year.
C. Hospitalization and major medical insurance,
consistent with the Company's group policies, for Employee and his
immediate family, upon such terms as are provided to employees of
the Company generally, which may be modified by the Company from
time to time.
D. Life insurance on Employee's life with a death
benefit of no less than $500,000.00.
E. The Company agrees to provide to Employee the
additional fringe benefits available to salaried employees of the
Company generally, which may be modified by the Company from time
to time.
5. Covenants of Employee. The Employee agrees and
acknowledges that certain of the Company's services are
proprietary in nature and shall have been marketed through the use
of customer lists, trade secrets, methods of operation and other
confidential information possessed by the Company and disclosed in
confidence to the Employee (hereinafter the "Trade Secrets or
Confidential Information") which may not have been accessible to
other persons in the trade, Trade Secrets or Confidential
Information shall not include: (i) any information in the public
domain, (ii) any information received unsolicited from a third
party under no obligation of secrecy, or (iii) any information
known by Employee prior to entering into this Agreement. The
Employee also acknowledges that he will have substantial and
ongoing contact with the Company's clients and will thereby gain
knowledge of clients' needs and preferences, sources of
information and other valuable information necessary for the
success of Company's business. The Employee therefore covenants
and agrees as follows:
A. He will not at any time take any action or make
any statement that could discredit the reputation of the Company
or its services or products.
B. During the term of this Agreement and for a period
of one (1) year following termination of Employee's employment
with the Company for any reason, the Employee shall not:
(i) Solicit or accept business directly or
indirectly from any client of the Company which
does business within a five hundred (500) mile
radius of any facility owned or operated by the
Company;
(ii) Except as may be required by law, disclose,
divulge, discuss, copy or otherwise use or
suffer to be used in any manner, in competition
with, or contrary to the interest of the
Company, the Trade Secrets or Confidential
Information or any other confidential
information of or pertaining to the Company or
its services, disclosed to or obtained by the
Employee during the term of this Agreement. The
Employee further agrees that he shall not,
either during the term of this Agreement or at
any time subsequent thereto, use, disclose or
otherwise reveal any of the Trade Secrets or
Confidential Information to any person, either
directly or indirectly, whether or not for
compensation or remuneration, except as
necessary while performing services on behalf of
the Company;
(iii) Own, manage, advise, counsel, assist or engage
in the ownership, management or control of, or
be employed or engaged by or otherwise
affiliated or associated as a consultant,
independent contractor or otherwise, directly or
indirectly, with any other corporation,
partnership, proprietorship, or other business
entity, or otherwise engage in any business
which competes with or is similar in nature to a
business in which the Company is engaged, and
from which the Company derives more than 5% of
its revenue within a five hundred (500) mile
radius of any facility owned or operated by the
Company; and
(iv) In conjunction with 5(B)(iii), solicit, induce,
aid or suggest to any of the employees,
officers, agents, or consultants of the Company
or other persons having a substantial
contractual relationship with the Company, to
leave such employ, cease any consulting
relationship with the Company, or terminate such
contractual relationship with the Company.
C. Employee recognizes that the foregoing items are
material to this Agreement and that the failure to abide by such
terms shall constitute sufficient Cause for Termination of
Employment as provided in Section 6 hereof.
D. Employee agrees and understands that the remedy at
law for any breach of this Section 5 will be inadequate and that
damages flowing from such breach are not readily susceptible to
being measured in monetary terms. Accordingly, in the event that
the Company shall institute any action or proceeding to enforce
the provisions of this Agreement, the Employee hereby waives the
claim or defense therein that the Company has an adequate remedy
at law. Nothing in this Section 5 shall be deemed to limit the
Company's remedies at law or in equity for breach by the Employee
of any of the provisions of this Section 5 which may be pursued by
the Company.
E. Employee shall not create or suffer to be created,
without the express prior written consent of the Company, any
mortgage, pledge, lien or encumbrance of any kind whatsoever
against or upon any property of the Company, or make any contract
or create any obligation, liability or debt of any kind, in the
name of or binding upon the Company without its prior written
consent other than in the ordinary course of business.
F. Employee agrees that, upon termination of
employment with the Company for any reason whatsoever, Employee
will immediately return to Company all papers, books, price lists
and price information, lists of sources of supply, customer lists,
processes, inventions, mailing lists, employee lists and resumes,
computer print-outs, manuals, sales literature, Employee's copies
of customer invoices, quotations, purchase orders, any copies of
the foregoing or any documents or notes containing excerpts from
the foregoing and all other documents, data, equipment, and
products belonging to or related to the business of the Company
which may be in Employee's possession. If any such information
has been electronically stored, Employee shall return all disks,
or other storage media, containing such information and shall
permanently delete such information from the computer hard drive,
of other non removable storage device, or any computer owned or
controlled by Employee after providing the Company a copy of the
information.
G. Employee agrees to assign and hereby assigns to
Company all of Employee's right, title and interest, if any, in
and to all inventions, improvements, patents, trademarks,
copyrights, and trade names, which during the period of Employee's
employment by Company, Employee has obtained, made or conceived or
may hereafter make or conceive, either solely or jointly with
others, in the course of such employment, within the scope of
Company's business, work or investigations, or with use of
Company's time, employees, material or facilities, or relating to
or suggested by work or problems arising in Company's business of
which Employee has been or may become aware by reason of
Employee's employment. Employee agrees that Employee will
execute, acknowledge and deliver all papers, documents,
assignments and other information as may be required by Company to
obtain any patents, trademarks, copyrights, trade names or other
registrations or applications in the name of Company.
H. Employee agrees that the remedy at law for any
breach by Employee of the covenants set forth in the foregoing
sections 5A, B, C, D, E, F, or G is inadequate and the Company, in
addition to having an action at law for damages, shall be entitled
to injunctive relief to enforce these covenants.
6. Termination.
A. The Employee and the Company specifically agree
that the employment of Employee may terminate only upon the
occurrence of any one or more of the following events:
(i) The cessation of the business of the Company,
either voluntary or involuntarily;
(ii) The merger, consolidation, reorganization or
dissolution of the Company;
(iii) Death or permanent disability of the Employee,
including but not limited to a physical or
mental disability which renders Employee
incapable of effectively and efficiently
performing his duties hereunder for a
consecutive period of sixty (60) days or for an
aggregate of one hundred twenty (120) days or
more during any twelve month period;
(iv) For "Cause," which means:
(a) an act or acts of dishonesty on the
Employee's part or conviction of any felony, or
any crime involving moral turpitude or entering
into a treatment program in lieu of such
conviction;
(b) any material violation by the Employee of
his responsibilities, duties or obligations
hereunder, or failure to perform his duties as
reasonably instructed by the Board of Directors
of the Company. Employee shall be notified in
writing of any such alleged failure to perform
and shall be given a reasonable time frame in
which to remedy his failure before he is
terminated for cause under this provision;
(c) engaging by Employee in conduct which is
demonstrably and materially injurious to the
Company, monetarily or otherwise, including but
not limited to, any material misrepresentation
related to the performance of his duties;
(d) any material breach by Employee of this
Agreement. Employee shall be notified in
writing of any such alleged failure to perform
and shall be given a reasonable time frame in
which to remedy his failure before he is
terminated for cause under this provision;
(e) material breach by Employee of any of his
obligations contained in the Company handbook
for Employees, or such other document or
collection of documents which set forth Company
policy. Employee shall be notified in writing
of any such alleged failure to perform and shall
be given a reasonable time frame in which to
remedy his failure before he is terminated for
cause under this provision;
(v) By either party upon thirty (30) days
written notice.
B. Company shall give Employee thirty (30) days prior
written notice of termination of employment. Company shall have
the option: (i) to retain the services of the Employee for said
thirty (30) days, or (ii) compensate Employee for the number of
days less than thirty (30) days he received notice at the then
current salary rate for Employee.
C. Except as provided in 6(E), upon termination of
the employment of Employee for any reason whatsoever whether or
not the termination is determined to be for Cause and to protect
Trade Secrets and Confidential Information, the Employee shall be
entitled to no further salary or other compensation, and the
Company shall have no further obligations under this Agreement,
and except that portion of any unpaid salary accrued and earned by
the Employee hereunder up to the date of termination.
D. Upon termination of the employment of Employee for
any reason whatsoever, whether or not the termination is
determined to be for Cause under this Section, this Agreement
shall continue in full force and effect with respect to Employee's
covenants and agreements set forth in Section 5 above, including
the obligations to refrain from competition with the Company, to
refrain from soliciting agents of the Company, and to protect
Trade Secrets or Confidential Information.
E. Upon termination of Employee by the Employer
without Cause, pursuant to sections 6A(i), 6A(ii) or 6A(v), upon
"Constructive Termination" of Employee through a material
reduction in duties and responsibilities or by breach of this
Agreement by Employer, Employer shall pay Employee severance pay
equal to three times the sum of 1) his base salary in effect at
the time of termination, and 2) the bonuses of Employee for the
prior calendar year. Employee understands and agrees that payment
pursuant to this section 6E shall constitute liquidated damages
and Employee shall have no right to any other compensation from
Employer in connection with this Agreement. The compensation
payable under this provision may be made in cash or in common
stock of the Employer. The Employer shall have the discretion to
choose cash or Employer common stock for 25% of the payment made
under this section 6E and the Employee shall have the discretion
to be paid either in cash or Employer common stock on the
remaining 75%. Employer common stock shall be valued at the date
of payment annually to Employee . The compensation under this
section 6E shall be paid in equal annual installments payable once
every 12 months beginning no later than 3 months following the
date of termination of Employee's employment. In addition, to the
extent that Employee has been granted (i) stock options, stock
appreciation rights or other equity instruments of Employer under
the terms of a stock option, stock appreciation rights or other
similar program as may be implemented by the Company, all such
options, rights or equity instruments which have not vested shall
become fully vested and exercisable by Employee without
restrictions upon termination, and/or (ii) shares of restricted
common stock, all such shares shall become unrestricted and free
and clear of all liens or other encumbrances upon termination.
7. Notices. All notices, demands and other
communications given under this agreement shall be in writing and
shall be deemed effective with hand delivered or mailed by
certified mail, return receipt requested, postage prepaid to the
following addresses:
If to Employee:
Donald T. Zimmerman, Jr.
2564 Handasyde Avenue
Cincinnati, OH 45208
If to Company:
United Shields Corporation
655 Eden Park Drive
Suite 260
Cincinnati, Ohio 45202
or at such other addresses as the parties may designate in
writing.
8. Entire Contract. This Agreement constitutes the entire
understanding and agreement between the Company and the Employee
with regard to all matters contained herein. This Agreement may
be amended, supplemented or interpreted at any time only by
written instrument duly executed by all parties.
9. Assignment. This Agreement shall not be assignable by
the Employee without the prior written consent of the Company.
This Agreement shall, to the extent not limited hereby, inure to
the benefit of and be enforceable by the parties hereto, and their
respective heirs, representatives, successors and assigns.
10. Waiver. Any consent by any party to, or waiver of a
breach of any provision of this Agreement by the other, whether
express or implied, shall not constitute a consent to, waiver of,
or excuse for any breach of any other provision or subsequent
breach of the same provision.
11. Legal Construction. In case any one or more of the
provisions contained in this Agreement shall for any reason be
held to be invalid, illegal or unenforceable in any respect, that
invalidity, illegality or unenforceability shall not affect any
other provision of this agreement, and this Agreement shall be
construed as if the invalid, illegal or unenforceable provision
had never been contained in it.
12. Governing Law. This Agreement shall be governed by
and construed in accordance with the law of the state of Ohio.
IN WITNESS WHEREOF, the parties have signed this Agreement on the
date first above written.
EMPLOYEE:
/s/ Donald T. Zimmerman, Jr.
Donald T. Zimmerman, Jr.
UNITED SHIELDS CORPORATION
By: /s/ T.J. Tully
Chairman & CEO
<PAGE>
Exhibit 1
1998 United Shields Corporation and subsidiaries' consolidated
minimum total gross sales, calculated in accordance with Generally
Accepted Accounting Principles, required to receive additional
bonus: $50,000,000 achieved during the 1998 fiscal year, ending
December 31, 1998.
1998 additional bonus structure:
20% sales growth ("Sales Growth") = $100,000 (cash, stock or
option value)
30% Sales Growth = $150,000 (cash, stock or option value)
40% Sales Growth = $225,000 (cash, stock or option value)
Sales Growth shall be calculated based on the previous 12
months' consolidated total gross sales for United Shields
Corporation and its' subsidiaries and those companies for
which a contract has been signed by January 1, 1998 for
merger, consolidation, purchase, share exchange or
similar arrangement with United Shields Corporation.
The bonus shall be paid only to the extent such payment does
not cause the consolidated net pre-tax profit margin to fall
below 8%. Such bonus shall not accumulate year to year.
<PAGE>
BY-LAWS
OF
UNITED SHIELDS CORPORATION
(a Colorado Corporation)
(Adopted May 19, 1997, Amended July 14, 1997, Amended
February 13, 1998)
<PAGE>
ARTICLE I
Shareholders
Section 1.1 Annual Meetings. An annual meeting of
stockholders shall be held for the election of directors at such
date, time and place, either within or without the State of
Colorado as may be designated by resolution of the Board of
Directors. Any other proper business may be transacted at the
annual meeting.
Section 1.2 Special Meetings. Special meetings of
stockholders for any purpose or purposes, may be called at any
time by the Board of Directors, or by a committee of the Board of
Directors which has been duly designated by the Board of Directors
and whose power and authority, as expressly provided in a
resolution of the Board of Directors, includes the power to call
such meetings, but such special meetings may not be called by any
other person or persons.
Section 1.3 Notice of Meetings. Whenever stockholders are
required or permitted to take any action at a meeting, a written
notice of the meeting shall be given which shall state the place,
date and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called.
Unless otherwise provided by law, the certificate of incorporation
or these by-laws, the written notice of any meeting shall be given
not less than ten nor more than seventy days before the date of
the meeting to each stockholder entitled to vote at such meeting.
If mailed, such notice shall be deemed to be given when deposited
in the mail, postage prepaid and directed to the stockholder at
his address as it appears on the records of the corporation.
Section 1.4 Adjournments. Any meeting of stockholders,
annual or special, may adjourn from time to time to reconvene at
the same or some other place, and notice need not be given of any
such adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken. At the
adjourned meeting the corporation may transact any business which
could have been transacted at the original meeting. If the
adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting,
a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 1.5 Quorum. Except as otherwise provided by law, the
certificate of incorporation of these by-laws, at each meeting of
stockholders the presence in person or by proxy of the holders of
shares of stock having a majority of the votes which could be cast
by the holders of all outstanding shares of stock entitled to vote
at the meeting shall be necessary and sufficient to constitute a
quorum. In the absence of a quorum, the stockholders so present
may, by majority vote thereof, adjourn the meeting from time to
time in the manner provided in Section 1.4 of these by-laws until
a quorum shall attend. Shares of its own stock belonging to the
corporation or to another corporation, if a majority of the shares
entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the corporation,
shall neither be entitled to vote nor be counted for quorum
purposes; provided, however, that the foregoing shall not limit
the right of the corporation to vote stock, including but not
limited to its own stock, held by it in a fiduciary capacity.
Section 1.6 Organization. Meetings of stockholders shall be
presided over by the Chairman of the Board, if any, or in his
absence by the Vice Chairman of the Board, if any, or in his
absence by the President, or in his absence by a Vice President,
or in the absence of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such
designation by a chairman chosen at the meeting. The Secretary
shall act as secretary of the meeting, but in his absence the
chairman of the meeting may appoint any person to act as secretary
of the meeting.
Section 1.7 Voting; Proxies. Except as otherwise provided by
the certificate of incorporation, each stockholder entitled to
vote at any meeting of stockholders shall be entitled to one vote
for each share of stock held by him which has voting power upon
the matter in question. Each stockholder entitled to vote at a
meeting of stockholders may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted
upon after three years from its date, unless the proxy provides
for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and if, and only as long as,
it is coupled with an interest sufficient in law to support an
irrevocable power. A stockholder may revoke any proxy which is
not irrevocable by attending the meeting and voting in person, or
by filing an instrument in writing revoking the proxy or by filing
another duly executed proxy bearing a later date with the
Secretary of the corporation. Voting at meetings of stockholders
need not be by written ballot and need not be conducted by
inspectors of election unless so determined by the holders of
shares of stock having a majority of the votes which could be cast
by the holders of all outstanding shares of stock entitled to vote
thereon which are present in person or by proxy at such meeting.
At all meetings of stockholders for the election of directors a
plurality of the votes cast shall be sufficient to elect. All
other elections and questions shall, unless otherwise provided by
law, the certificate of incorporation or these by-laws, be decided
by the vote of the holders of shares of stock having a majority of
the votes which could be cast by the holders of all shares of
stock entitled to vote thereon which are present in person or
represented by proxy at the meeting.
Section 1.8 Fixing Date for Determining Stockholders of
Record. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock or for the purpose of
any other lawful action, The Board of Directors may fix a record
date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of
Directors and which record date: (1) in the case of determination
of stockholders entitled to vote at any meeting of stockholders or
adjournment thereof, shall, unless otherwise required by law, not
be more than seventy nor less than ten days before the date of
such meeting; (2) in the case of determining stockholders entitled
to express consent to corporate action in writing without a
meeting, shall not be more than ten days from the date upon which
the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action shall not be
more than seventy days prior to such other action. If no record
date is fixed: (1) the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived,
at the close of business on the day next preceding the day on
which the meeting is held; (2) the record date for determining
stockholders entitled to express consent to corporate action in
writing without a meeting when no prior action of the Board of
Directors is required by law shall be the first date on which a
signed written consent setting forth the action taken or proposed
to be taken is delivered to the corporation in accordance with
applicable law, or, if prior action by the Board of Directors is
required by law, shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such
prior action; and (3) the record date for determining stockholders
for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board
of Directors may fix a new record date for the adjourned meeting.
Section 1.9 Action by Consent of Stockholders. Unless
otherwise restricted by the certificate of incorporation, any
action required or permitted to be taken at any annual or special
meeting of stockholders may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting
forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes
that would be necessary to authorize to take such action at a
meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of taking of the corporate action
without a meeting by less than unanimous written consent shall be
given to those stockholders who have not consented in writing.
<PAGE>
ARTICLE II
Board of Directors
Section 2.1 Number; Qualifications. The property interests,
business and transactions of the Corporation shall be managed and
conducted by the Board of Directors which shall consist of not
less than one (1), nor more than seven (7) persons, as shall be
fixed from time to time by the Board of Directors, as hereinafter
provided. The Board of Directors shall be elected annually by a
ballot of the holders of the shares of the Corporation entitled to
vote thereon for the term of one (1) year, and shall serve until
the election and qualification of their successors, unless they
sooner resign and are replaced as hereinafter provided. The
number of directors may be fixed or changed from time to time
within the range, set forth above, by the shareholders or the
Board of Directors. Directors need not be shareholders.
Section 2.2 Election; Resignation; Removal; Vacancies. At
the annual meeting of shareholders, the shareholders shall elect
directors, each of whom shall hold office for a term of one (1)
year or until their successors are elected and qualified. Any
director may resign at any time upon written notice to the
Corporation. Such resignation shall take effect at the time
specified therein; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it
effective. Any newly created directorship or any vacancy
occurring in the Board of Directors for any cause may be filled by
the Board of Directors, or if the directors remaining in office
constitute fewer than a quorum of the Board, they may fill the
vacancy by the affirmative vote of the majority of all the
directors remaining in office or the shareholders may fill the
vacancy, and each director selected shall hold office until the
expiration of the term of office of the director whom he has
replaced or until his successor is elected and qualified.
Section 2.3 Regular Meetings. Regular meetings of the Board
of Directors may be held at such places within or without the
State of Nevada and at such times as the Board of Directors may
from time to time determine, and if so determined notices thereof
need not be given.
Section 2.4 Special Meetings. Special meetings of the Board
of Directors may be held at any time or place within or without
the State of Nevada whenever called by the President, any Vice
President, the Secretary, or by any member of the Board of
Directors. Notice of a special meeting of the Board of Directors
shall be given by the person or persons calling the meeting at
least twenty-four hours before the special meeting.
Section 2.5 Telephonic Meetings Permitted. Members of the
Board of Directors, or any committee designed by the Board of
Directors, may participate in a meeting thereof by means of
conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each
other, and participation in a meeting pursuant to this by-law
shall constitute presence in person at such meeting.
Section 2.6 Quorum; Vote Required for Action. At all
meetings of the Board of Directors a majority of the whole Board
of Directors shall constitute a quorum for the transaction of
business. Except in cases in which the certificate of
incorporation or these by-laws otherwise provide, the vote of a
majority of the directors present at a meeting at which a quorum
is present shall be the act of the Board of Directors.
Section 2.7 Organization. Meetings of the Board of Directors
shall be presided over by the Chairman of the Board, if any, or in
his absence by the Vice Chairman of the Board, if any, or in his
absence by the President, or in his absence by a chairman chosen
at the meeting. The Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 2.8 Informal Action by Directors. Unless otherwise
restricted by the certificate of incorporation or these by-laws,
any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken
without a meeting if all members of the Board of Directors or such
committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of
the Board of Directors or such committee.
ARTICLE III
Committees
Section 3.1 Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors,
designate one or more committees, each committee to consist of one
or more of the directors of the corporation. The Board of
Directors may designate one or more directors as alternate members
of any committee, who may replace 'any absent or disqualified
member at any meeting of the committee. In the absence or
disqualification of a member of the committee and the absence or
unavailability of any alternate member of the committee, the
member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in place of any such absent or
disqualified member. Any such committee, to the extent permitted
by law and to the extent provided in the resolution of the Board
of Directors establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all
papers which may require it.
Section 3.2 Committee Rules. Unless the Board of Directors
otherwise provides, each committee designated by the Board of
Directors may make, alter and repeal rules for the conduct of its
business. In the absence of such rules each committee shall
conduct its business in the same manner as the Board of Directors
conducts its business pursuant to Article III of these by-laws.
ARTICLE IV
Officers
Section 4.1 Executive Officers; Election; Qualifications;
Term of Office; Resignation; Removal; Vacancies. The Board of
Directors shall elect a President, Secretary and Treasurer, and it
may, if it so determines, choose a Chairman of the Board of a Vice
Chairman of the Board from among its members. The Board of
Directors may also choose one or more Vice Presidents, one or more
Assistant Secretaries and one or more Assistant Treasurers. Each
such officer shall hold office until the first meeting of the
Board of Directors after the annual meeting of stockholders next
succeeding his election, and until his successor is elected and
qualified or until his earlier resignation or removal. Any
officer may resign at any time upon written notice to the
corporation. The Board of Directors may remove any officer with
or without cause at any time, but such removal shall be without
prejudice to the contractual rights of such officer, if any, with
the corporation. Any number of offices may be held by the same
person. Any vacancy occurring in any office of the corporation by
death, resignation, removal or otherwise may be filled for the
unexpired portion of the term by the Board of Directors at any
regular or special meeting.
Section 4.2 Powers and Duties of Executive Officers. The
officers of the corporation shall have such powers and duties in
the management of the corporation as may be prescribed by the
Board of Directors and, to the extent not so provided, as
generally pertain to their respective offices, subject to the
control of the Board of Directors. The Board of Directors may
require any officer, agent or employee to give security for the
faithful performance of his duties.
ARTICLE V
Stock
Section 5.1 Certificates. Every holder of stock shall be
entitled to have a certificate signed by or in the name of the
corporation by the Chairman or Vice Chairman of the Board of
Directors, if any, or the President or a Vice President, and by
the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary, of the corporation, certifying the number of
shares of stock owned by him in the corporation. Any or all of
the signatures on the certificate may be a facsimile. In case any
officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent, or registrar before
such certificate is issued, it may be issued by the corporation
with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue.
Section 5.2 Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificates. The corporation may issue a new
certificate of stock in the place of any certificate theretofore
issued by it and alleged to have been lost, stolen or destroyed.
The corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the
corporation a bond sufficient to indemnify it against any claim
that may be made against it on account of the alleged loss, theft
or destruction of any such certificate or the issuance of such new
certificate.
ARTICLE VI
Indemnification
Section 6.1 Right to Indemnification. The corporation shall
indemnify and hold harmless, to the full extent permitted by
applicable law as amended or interpreted from time to time, any
person who it may indemnify pursuant to such laws. The
corporation shall be required to indemnify a person in connection
with a proceeding initiated by such person only if the proceeding
was authorized by the Board of Directors of the corporation.
Section 6.2 Prepayment of Expenses. The corporation shall
pay the expenses incurred in defending any proceeding in advance
of its final disposition, provided, however, that the payment of
expenses incurred by a director or officer in advance of the final
disposition of the proceeding shall be made only upon receipt of
an undertaking by the director of officer to repay all amounts
advanced if it should be ultimately determined that the director
or officer is not entitled to be indemnified under this Article or
otherwise.
Section 6.3 Claims. If a claim for indemnification or
payment of expenses under this Article is not paid in full within
sixty days after a written claim therefor has been received by the
corporation, the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall
be entitled to be paid the expense of prosecuting such claim. In
any such action the corporation shall have the burden of proving
that the claimant was not entitled to the requested
indemnification or payment of expenses under applicable law.
Section 6.4 Non-Exclusivity of Rights. The rights conferred
on any person by this Article VI shall not be exclusive of any
other rights which such person may have or hereafter acquire under
any statute, provision of the certificate of incorporation, these
by-laws, agreement, vote of stockholders or disinterested
directors or otherwise.
Section 6.5 Other Indemnification. The corporation's
obligation, if any, to indemnify any person who was or is serving
at its request as a director, officer, employee or agent of
another corporation partnership, joint venture, trust, enterprise
or non-profit entity shall be reduced by any amount such person
may collect as indemnification from such other corporation,
partnership, joint venture, trust, enterprise or non-profit
enterprise.
Section 6.6 Amendment or Repeal. Any repeal or modification
of the foregoing provisions of this Article VI shall not adversely
affect any right or protection hereunder of any person in respect
of any act or omission occurring prior to the time of such repeal
or modification.
ARTICLE VII
Miscellaneous
Section 7.1 Fiscal Year. The fiscal year of the corporation
shall be determined by resolution of the Board of Directors.
Section 7.2 Seal. The corporate seal, if any, shall have the
name of the corporation inscribed thereon and shall be in such
form as may be approved from time to time by the Board of
Directors.
Section 7.3 Waiver of Notice of Meetings of Stockholders,
Directors and Committees. Any written waiver of notice, signed by
the person entitled to notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance
of a person at a meeting shall constitute a waiver of notice of
such meeting, except when the person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to
the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be
transacted at, nor the purpose of any regular or special meeting
of the stockholders, directors, or members of a committee of
directors need be specified in any written waiver of notice.
Section 7.4 Interested Directors; Quorum. No contract or
transaction between the corporation and one or more of its
directors or officers, or between the corporation and any other
corporation partnership, association, or other organization in
which one or more of its directors of officers are directors or
officers, or have a financial interest shall be void or voidable
solely for this reasons, or solely because the director or officer
is present at or participates in the meeting of the Board of
Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for
such purpose, if: (1) the material facts as to his or their
relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee,
and the Board of Directors or committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority
of the disinterested directors, even though the disinterested
directors be less than a quorum; or (2) the material facts as to
his relationship or interest and as to the contract or transaction
are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved
in good faith by a vote of the stockholders; or (3) the contract
or transaction is fair as to the corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a
committee thereof, or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum
at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
7.5 Form of Records. Any records maintained by the
corporation in the regular course of its business, including its
stock ledger, books of account and minute books, may be kept on,
or be in the form of, punch cards, magnetic tape, photographs,
microphotographs, or any other information storage device,
provided that the records so kept can be converted into a clearly
legible form within a reasonable time. The corporation shall so
convert any records so kept upon the request of any person
entitled to inspect the same.
7.6 Amendment of By-Laws. These by-laws may be altered or
repealed, and new by-laws made, by the Board of Directors, but the
stockholders may make additional by-laws and may alter and repeal
any by-laws whether adopted by them or otherwise.
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<INCOME-PRETAX> (2,506,149)
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<INCOME-CONTINUING> (2,506,149)
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<EXTRAORDINARY> 62,500
<CHANGES> 0
<NET-INCOME> (2,443,649)
<EPS-PRIMARY> (0.20)
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</TABLE>
