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UNITED STATES 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 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ______ to ______.
Commission File No.: 0-20101
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URECOATS INDUSTRIES INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3545304
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Powerline Business Park
4100 North Powerline Road, Suite F-1
Pompano Beach, Florida 33021
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (954)977-5428
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $ .01
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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
of 1934 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 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. [X]
The Registrant's revenues for the fiscal year ended December 31, 1998 were
$-0-. As of March 31, 1999, 68,550,284 shares of Common Stock of the
Registrant were deemed outstanding, and the aggregate market value of the
Common Stock of the Registrant (based upon the average of the closing bid and
asked prices of the Common Stock at that date), excluding outstanding shares
beneficially owned by directors and executive officers, was approximately
$10,873,041.
DOCUMENTS INCORPORATED BY REFERENCE - None
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PART I
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FORWARD LOOKING STATEMENTS
This Form 10-KSB contains certain forward-looking statements. For this
purpose, any statements contained in this Form 10-KSB that are not statements
of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "estimate" or "continue" or the negative or other variations
thereof or comparable terminology are intended to identify forward-looking
statements. These statements by their nature involve substantial risks and
uncertainties, and actual results may differ materially depending on a
variety of factors.
ITEM 1. DESCRIPTION OF BUSINESS
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BUSINESS DEVELOPMENTS
Urecoats Industries Inc. (the "Company") is presently engaged, through its
wholly-owned subsidiary, Urecoats International, Inc. ("Urecoats"), in the
business of acquiring, developing, and marketing sealant and coating products
containing recycled material in their composition, for use in various
industries. The Company acquired Urecoats, a Florida corporation, organized
in January 1997, and formed for the purpose of selling and marketing of a new
line of sealant and coating products made in part with crumb rubber from
recycled tires (the "Company" and/or its wholly-owned Subsidiary are herein
referred to as the "Company"). Management's philosophy is based upon a belief
that there is an increasing market demand for quality and cost-effective
products, based on the global recycling movement and legislation aimed at
identification and extraction of raw materials in solid waste. The Company
is committed to acquiring and developing secondary use products, which
incorporate recaptured raw materials in their composition, to supply the
emerging present and future market demands for such products.
In October 1997, Urecoats acquired all right, title and interest in two
formulas, including certain technologies for their manufacture and
application. Urecoats is completing prototype development of a spray
application system for a roofing product. The Company has set up a testing,
training and laboratory facility, for various research and development
related to the Company current sealant products. Urecoats is also
developing in its new laboratory facility, an asphalt sealant product
incorporating crumb rubber, for the pavement industry.
In July 1997, the Company acquired another wholly-owned subsidiary,
Designer Wear, Inc. ("Designer Wear" or "DWI"). DWI, a Florida corporation
organized in August 1996, was engaged in the business of acquiring license
agreements for the design, contract manufacturing, sale and worldwide
distribution of branded merchandise products. Designer Wear originally
was focusing on sales, marketing and distribution of a line of socks,
using the name, likeness, signature, and image of the late American actor
"James Dean" under a trademark license agreement. In October 1997,
Designer Wear acquired ROK International, Inc. ("ROK"), which was a
development-stage business, primarily involved in the promotion and sales
of Smith and Wesson corporation trademark properties, pursuant to a
Trademark License Agreement, for apparel and accessories.
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Due to a disagreement between the Company, Designer Wear, ROK, and
Smith and Wesson regarding Smith & Wesson's alleged improper termination
of ROK's Trademark License Agreement, the Company ceased all activities
related to Branded Merchandise operations. (See Historical Information
and Legal Proceedings for more details.)
INDUSTRY OVERVIEW
Total sales of adhesives, sealants and coatings in the United States were
approximately $26.4 billion in 1996. Adhesives, sealants and coatings are
used in a wide range of products with applications in numerous industries,
including: industrial, consumer, construction, automotive, aerospace and
packaging. Typical industrial applications include corrosion resistant
industrial coatings, general assembly adhesives, fire-retardant textile
coatings, coatings for electronic components and numerous other diverse
applications. Consumer applications include various consumer-applied
adhesives such as white glues, caulks and sealants, architectural coatings
and miscellaneous do-it-yourself sealing applications for bathtub and kitchen
fixtures. Automotive market applications include the use of primers and top
coats, body sealants, structural adhesives and interior and exterior trim
adhesives. Typical construction applications include contractor-applied
architectural coatings, joint sealants and flooring and roofing adhesives.
Packaging industry applications include carton, corrugated box and flexible
consumer packaging adhesives, seam sealers and container coatings. Aerospace
applications include commercial, military and general aviation coatings,
composite bonding adhesives and structural epoxies.
The U.S. adhesives, sealants and coatings industry is highly fragmented
with over 500 competitors, and has grown from approximately $13.8 billion
in 1986 to approximately $26.4 billion in 1996, representing a compound
annual growth rate of 6.7%. Continued future growth is expected to result
from the trend of the industry to create simpler design and manufacture,
lower costs, improve bonding of dissimilar materials, reduce weight,
vibration and corrosion in new applications.
Additional industry growth is expected to occur as a result of the
increased use of adhesives, sealants and coatings in international markets.
Total worldwide sales for adhesives, sealants and coatings were approximately
$75.2 billion in 1996. In 1996, the United States accounted for approximately
35% of worldwide sales, while Europe accounted for approximately 40% of
worldwide sales and Japan accounted for approximately 12% of worldwide sales.
Sales to the remainder of the world accounted for approximately 13% of total
industry sales. Developing markets are currently under-penetrated with
respect to the use of adhesives, sealants and coatings. Strong growth is
expected in these markets, particularly in the Far East, Eastern Europe and
Latin America.
PRODUCTS
The Company purchased two proprietary Polymer Roofing/Sealant
Formulas/Materials, and certain technologies for their manufacturing and
application, from Creative Chemical Company (3C) ("Creative Chemical"),
under a Purchase and Sale Agreement dated October 30, 1997. Urecoats has
developed its first polymer roofing/sealant product from one of the two
formulas and is presently concentrating on completing development of the
prototype spray system, which is required for application of the product.
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Urecoats also entered into a Consulting Agreement on July 21, 1998,
effective June 1, 1998, with Creative Chemical and Ponswamy Rajalingam, Ph.D.
("Dr. Raja"), the owner and inventor, respectively, of the formulas purchased
by Urecoats International, including certain technologies for their spray
application (collectively referred to as "Raja Agreement"). Dr. Raja is
President of Creative Chemical and a chemist dedicated to researching,
developing and commercializing products incorporating recovered recycled raw
materials in their composition. Pursuant to the Raja Agreement, Dr. Raja is
performing various services, including but not limited to, supporting
commercialization efforts of the Roofing Product, development of the first
spray application prototype, product enhancements, new product developments,
product testing and analysis of results, identifying and establishing
criteria for certification of products with appropriate authorities, and
overseeing the laboratory. Dr. Raja has notified management, pursuant to a
provision in the Raja Agreement giving him the right to convert from a
consultant to a full-time employee, where he will become the Director of
Research and New Product Development. Dr. Raja has more than 15 years
experience in research and development related to polymer industries. He
has written more than 60 research papers in several journals and books.
He has developed and commercialized several products and technologies
including products containing recycled rubbers and plastics.
The Company also entered into a Consulting Agreement on January 31, 1999,
effective January 1, 1999, with R. Uma Umarani, Ph.D. ("Dr. Umarani"), a
chemist, for the research and development of an asphalt sealant formula.
Urecoats has retained various other consultants, which are capable,
skilled and experienced in the different fields necessary for the continued
development of its innovative technologies.
NEW PRODUCTS
Urecoats introduced its first product made for the roofing industry,
named "URECOATS 100" ("Roofing Product"), which is a tri-polymer system made
from polyurethane, crumb rubber from recycled tires and other chemicals.
URECOATS 100 is black in color, comprised of a proprietary formula and
applied through a specially designed application system. A one coat
reflective paint is under development for coloring the Roofing Product.
URECOATS 100 is designed as an elastomeric material with maximum elastic
recovery.
MARKETS AND STRATEGY
The Company focuses on select value-added niche markets in which it can
establish strong market positions and have advantages in product development,
manufacturing and distribution.
The Company has identified the $20 billion Roofing Industry for the
introduction of its first Product. Urecoats has primarily concentrated
marketing and distribution efforts on Mexico since its inception in January
1997. In connection therewith, the Company has retained several business and
marketing consultants in Mexico, most notably Antonio Domit, a distinguished
businessman in Mexico, for support in marketing URECOATS 100 in Mexico,
Central America and South America.
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The Company plans to continue implementation of product development for
value-added end-use applications in higher growth market segments,
particularly sealant and coatings which facilitate recycling and other
environmentally-friendly sealants and coatings. Management believes the
Company's technologies provide it with advantages in the development of new
products and the penetration of new markets.
The Company intends to continue to pursue additional strategic
acquisitions that will allow it to establish its market position in targeted
markets. Management believes that the high degree of fragmentation in the
adhesives, sealants and coatings industry will continue to provide suitable
acquisition candidates. Potential acquisition candidates will be evaluated
based upon the ability of the Company to: (i) expand its product line; (ii)
enhance its product development capabilities; (iii) market products through
new or expanded distribution channels; and (iv) increase its international
presence.
Management believes it has significant opportunities to establish its
products in international markets, to enter developing markets and to
establish new customer relationships. Management also believes it has a
world class rubber sealant membrane that will enhance and change many
industries.
MANUFACTURING, PACKAGING AND DISTRIBUTION
The production of sealants and coatings is a multi-stage process which
involves extensive formulation, mixing and in some cases, chemical synthesis.
Following one or more of these processes, the product is packaged in totes,
drums, pails, cartridges or other delivery forms for sale based upon the
customer's requirements. Principal manufacturing processes include blending,
polymerization and extrusion. Blending consists of dissolving or dispersing
various compounds in organic solvents or water. In polymerization, urethane
polymers are synthesized in closed reactor systems. Extrusion consists of
feeding formulated materials through an extruder to compound pressure
sensitive products.
Urecoats has initiated plans to handle initial URECOATS 100 manufacturing,
packaging and distribution through contract manufacturers. These contract
manufacturers will prepare the various components of the product, as
specified by Urecoats, provide for private label packaging and assist with
shipping of product components to Mexico or elsewhere, for distribution to
the customer. The Company is also considering establishing a subsidiary to
handle its future manufacturing, packaging and distribution needs.
RESEARCH AND DEVELOPMENT
The Company's subsidiary, Urecoats presently conducts research and
development activities, primarily related to products containing recycled
materials in their formula and spray application systems, through outside
consultants.
As mentioned above, Urecoats retained Dr. Umarani, to concentrate on
research and development of an asphalt sealant formula ("Asphalt Project")
made for the pavement industry. The goal of the Asphalt Project is to
develop a sealant with excellent performance, longer duration and lower cost,
as compared to existing asphalt sealant products in the marketplace today.
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The formula will be proprietary and based on similar chemical
technologies used in the Roofing Product and include a recycled material as
part of its composition. Preliminary experiments for water and gasoline
resistance and adhesion to asphalt blocks of different natures collected from
numerous sites were performed to decide on the composition of the sealant.
Leveraging its existing spray application technologies from the Roofing
Product, Urecoats is designing a prototype spray applicator to try the
sealant spray on asphalt blocks. Finalization and fine tuning of the
components and composition will be done after simultaneous lab testing and
spray on asphalt blocks. Additionally, steps are being taken to set up a
testing program for product approval from the Department of Transportation.
The Company expended approximately $672,228 on research and development
of products and spray application systems for the year ended December 31,
1998.
ENVIRONMENTAL COMPLIANCE
The Company is subject to extensive laws and regulations pertaining to the
discharge of materials into the environment, the handling and disposal of
solid and hazardous wastes, and the remediation of contamination, and
otherwise relating to health, safety and protection of the environment. The
URECOATS 100 product contains urethanes, which are supplied by major chemical
manufacturers and/or suppliers and include directions and safety precautions
for handling. At present, the Company does not perform actual manufacturing
operations and does not anticipate any material exposure to that end. The
Company is presently investigating the potential costs and impact of
environmental compliance, if any, with the use, handling and application of
its products and application systems.
EMPLOYEES AND CONSULTANTS
The Company and its subsidiaries have seven full-time employees and twelve
consultants performing various necessary corporate and operations functions.
COMPETITIVE CONDITIONS
The adhesives, sealants and coatings industry is highly competitive. The
industry is highly fragmented, with over 500 manufacturers ranging from small
regional companies to large multinational producers. Based upon available
data, management believes that no one company holds a dominant position on a
national basis. Competition is generally regional and is based on product
quality, technical service for specialized customer requirements, breadth of
product line, brand name recognition and price. Due to the uniqueness of the
technologies, ease of application, cost savings, and the environmental
marketing component (from the incorporation of crumb rubber from recycled
tires in its formula), that it can achieve a competitive niche in that market.
The Company believes its has the competitive strengths (technological
expertise and management team), to enable it to maintain its existing
customer relationship, attract new potential customers, enter new markets,
and develop additional products and applications. In addition, the Company
has enhanced its technological expertise both through cooperative research
and development efforts and joint technological alliances with world
renown manufacturers and equipment companies, such as Gusmer-Admiral, Inc.
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Moreover, management firmly believes its Roofing Product and developing
Asphalt Product, are uniquely formulated and new to their respective
industries, based upon available research and written feedback from the
independent roofing testing company described elsewhere in this report.
Therefore, there appears to be no direct competition in the marketplace for
these products. Further research and tests are currently being done to
confirm this conclusion.
RAW MATERIALS
The Company uses a variety of specialty and commodity chemicals in its
formulas. These raw materials are generally available from numerous
independent suppliers and purchases of raw materials are typically on a
spot basis. URECOATS 100 includes urethanes and a proprietary component
incorporating crumb rubber from recycled tires. The urethanes are readily
available in the marketplace, while the proprietary component must be
specially formulated.
PRINCIPAL SUPPLIERS
Urecoats is presently negotiating more competitive pricing with various
well known suppliers of the urethane components, and three suppliers for
another proprietary component, of the URECOATS 100 formula. Urecoats
established a working relationship with a worldwide leader in the design,
manufacture and distribution of polyurethane and hybrid urethane systems,
for the manufacture of certain portions of its prototype spray application
system. The world renowned company, GUSMER-ADMIRAL, Inc. ("Gusmer-Admiral"),
a subsidiary of Gusmer Machinery Group, Inc., has been working hand-in-hand
with Urecoats employees and consultants, on implementing engineering and
design changes, simplification, automation, enhancements, reliability,
consistency of raw material supply, safety measures, and ease of use by
spray applicators. (See "http://www.gusmer.com")
MAJOR CUSTOMERS
Although no purchase orders have been finalized to date, Urecoats is
maintaining a relationship with its customer in Mexico, Ipseal De Mexico,
S.A. de C.V. ("Ipseal"), for sales of the Product. However, the Company
and Urecoats are in active discussions with another entity in Mexico, for
the potential marketing, distribution and licensing of URECOATS 100 in
Mexico, Central America and South America.
PATENTS, TRADEMARKS AND LICENSES
The Company has submitted information on its proprietary formula and
specially designed spray application system, to its intellectual property
legal counsel for review and, in August 1998, the formula became the
subject of a utility patent application filed by the Company with the
United States Patent and Trademark Office ("USPTO"). The prototype spray
application system is still being reviewed at this time.
The Company utilizes URECOATS 100 as a trademark name and is presently
marketing the Roofing Product under that trademark name. Management also
performed trademark research on the name "Rubber Sealant Membrane (RSM)",
which trademark will be used for sales and marketing efforts. Trademark and
servicemark applications are presently being prepared and expected to be
filed with the USPTO during the second quarter of 1999.
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GOVERNMENTAL REGULATION
Urecoats is presently researching governmental approvals, if any, required
for its Roofing Product. To be sure, Urecoats has established a partnership
with an independent roof testing company, which is presently working with Dr.
Raja in setting up a suitable test program for URECOATS 100. The testing
company is also working with Dade County, Florida officials in preparing a
test program for approval of the URECOATS 100 Roofing Product.
The Company is presently researching governmental regulations, if any,
applicable to the manufacture, sales, distribution and application, of its
Roofing Product. Although no assurance can be given, management does not
anticipate any lengthy or costly governmental restrictions.
YEAR 2000 COMPLIANCE BY THE COMPANY AND OTHERS
Year 2000 compliance concerns the ability of certain computerized
information systems to properly recognize date-sensitive information, such as
invoices for the Company's services, as the year 2000 approaches. Systems
that do not recognize such information could generate erroneous data or cause
systems to fail; this problem may occur as early as calendar year 1999. The
Company has received notifications from its various vendors, suppliers, and
equipment manufacturers, of their Year 2000 compliant systems. The Company
also has updated its computer systems and hardware to be Year 2000 compliant.
However, there still remains a slight risk for the Year 2000 compliance of
those with whom the Company does business, primarily third party payors.
HISTORICAL INFORMATION
The Company was incorporated in the state of Delaware on October 20, 1989
as Natural Child Collection, Inc. and changed its name to Natural Child Care,
Inc. ("NCC"), on January 14, 1991. The Company underwent a recapitalization,
reverse merger, discontinued its pre-merger NCC operations, changed its name
to Winners All International, Inc., and began post-merger random lottery
operations relating to a surviving wholly-owned subsidiary, in 1993. On
January 29, 1997, a Special Meeting of the Board of Directors recognized and
resolved, that as a result of the permanent impairment of operational assets
relating to its random lottery operations, a measurement date of January 29,
1997 was established to abandon those operations, effective for the year
ended July 31, 1995. Since that determination, the Board restructured its
operations, reorganized management, rebuilt shareholder value, is complying
with Exchange Act reporting requirements, and continuing to settle former
outstanding material legal matters relating to the abandoned random lottery
operations.
SUBSEQUENT EVENTS
On February 8, 1999, shareholders of the Company authorized an amendment
to the Company's Restated Certificate of Incorporation increasing the
authorized common stock of the Company from a total of 60,000,000 shares of
common stock to 100,000,000 shares of Common Stock; authorized an amendment
to the Company's Restated Certificate of Incorporation to change the name
of the Company to Urecoats Industries Inc.; and ratified the Company's 1999
Consultant and Employee Stock Purchase and Option Plan covering a total of
8,000,000 shares of common stock. (See Exhibits 3.1, 3.2, 99.1 and 99.2)
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ITEM 2. PROPERTY
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The Company does not own any real property. The Company's subsidiary,
Urecoats, entered into two separate leases commencing on July 1, 1998
and terminating on July 31, 2001, for corporate offices and a testing
laboratory and training facility for sealant and spraying products. The
officers are located in the Powerline Business Park located at 4100 North
Powerline Road, Suite F-1 and I-4, respectively, Pompano Beach, Florida
33073. The Company and its subsidiaries all reside in these premises.
The Company has made substantial improvements to the leased premises,
especially the construction of twelve offices for existing and future
personnel in Suite F-1. The Company constructed specially designed
spray and chemical storage rooms, which included installation of safety
equipment, conference, training and other storage rooms, and a laboratory
for two chemists, in Suite I-4.
ITEM 3. LEGAL PROCEEDINGS
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(1) Designer Wear et. al. vs. Smith & Wesson et. al.
Designer Wear received notice from the Smith and Wesson corporation
("Smith & Wesson"), through ROK, of termination of ROK's Trademark
License Agreement dated March 1, 1996, as amended August 23, 1996.
Designer Wear and ROK management served notice to Smith & Wesson on the
validity of the termination notice. Although the Company's litigation
counsel and Smith & Wesson management attempted a resolution of the matter,
Designer Wear and ROK filed a lawsuit against Smith & Wesson and John S.
Steele ("Steele"), its Director of Licensing and Merchandising, on June 1,
1998 in the United States District Court for the Southern District Of
Florida, claiming, among other things, breach of a trademark licensing
agreement and the implied covenant of good faith and fair dealing,
tortious interference with the contractual relationship between ROK and
Designer Wear and requested a declaratory judgment and permanent
injunction. Designer Wear and ROK are also seeking damages of $50,000,000.
Smith & Wesson is a subsidiary of Tompkins PLC in London, England.
Smith & Wesson filed an "Answer and Affirmative Defenses of Defendant
Smith & Wesson to Plaintiffs' Complaint, Counterclaim and Jury Demand"
("Smith & Wesson Answer, Defenses and Counterclaims"), on July 13, 1998, in
the United States District Court For The Southern District Of Florida,
alleging, among other things, unclean hands, reformation of the license,
proper termination, defensive estoppel, and defensive waiver.
The Company filed a "Motion to Dismiss Counterclaims and Incorporated
Memorandum of Law", on or about August 4, 1998. In addition, Steele filed
a motion to dismiss claims against himself and/or to transfer the action,
on July 13, 1998, in the United States District Court For The Southern
District Of Florida. Designer Wear and ROK filed an opposition to this
motion, on or about July 27, 1998, in the United States District Court
For The Southern District Of Florida. This litigation is currently
undergoing further discovery and motions for request to produce documents
and information are now pending between the parties. At this time, the
outcome of this litigation cannot be determined.
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(2) Stanley Farber vs. the Company et. al.
On July 25, 1996, Stanley Farber ("Farber"), Plaintiff, filed a complaint
in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward
County, Florida. Plaintiff sued the Company and Davidoff and Molito, former
legal counsel for the Company, for Breach of an executive employment
contract. As a result of absence of counsel on behalf of the Company, a
final judgment of $142,187 was awarded on July 21, 1997. Subsequently, in
1997, the Company retained Counsel to appeal the final judgment, however,
it was affirmed by the Appellate Court.
Farber's counsel attempted to collect the amount of the judgment from
the Company by a Writ of Execution and Instructions For Levy served on the
Company dated June 15, 1998, which demanded payment of the judgment amount
in cash or turning over possession of all the stock certificates of the
Company's subsidiaries. The Company did not pay the judgment or turn over
the stock certificates. On September 10, 1998, Farber's counsel filed a
Motion for Contempt, which motion requested the Court to grant an order
demanding turning over the stock certificates to Farber and appointment of
a receiver. On October 7, 1998, the Court granted an Order demanding the
Company to turn over the stock certificates and denied the request to
appoint a receiver. Pursuant to the Order, the Company was given 10 days
to turn over the certificates or by October 17, 1998, or the Court would
entertain the Motion for Contempt. The Company did not turn over
possession of the stock certificates, upon advice of counsel, based on
the fact that the stock certificates were in the custody of the Company's
legal counsel in New York and the Court lacked jurisdiction to demand such
action from an out of state jurisdiction. On October 16, 1998, Farber's
counsel filed a Renewed Motion for Contempt and Order Appointing Receiver,
which Order was granted by the Court. However, prior to the appointment of
a receiver, the Company's litigation counsel effectuated a settlement on
the pay-out of the judgment on mutually agreeable terms on November 16,
1998. In connection with the settlement, the Company agreed to issue
50,000 shares of its restricted common stock to Farber, for his agreement
to forbear the appointment of a receiver under the Order granted by the
Court. As of the date of this report, the Company has paid $110,000 to
Farber. The balance of the amount due, including a settlement on
alleged attorney's fees due to Farber's counsel, is $77,500. The Company
has agreed to pay $25,000 per month until the judgment and attorney's fees
settlement are paid in full. The Company's litigation counsel continually
attempts to satisfy the remaining amount due under the judgment and
settlement of attorneys fees, from the issuance of restricted common stock.
(3) Raymond Kalley et. al. vs. the Company
On March 22, 1996, Raymond Kalley, as trustee of the EB Trust and PB
Trust (Plaintiff), sued the following in the Southern District of Florida
(Miami Division), the Company, UC'NWIN Systems Corporation, a consultant to
UC'NWIN Systems Corporation and a beneficiary to the EB and PB Trusts. In
this five-count complaint, Plaintiff sued the Defendants for alleged
violations of Section 18 of the Securities Act of 1934. Plaintiff alleges
that the Defendants, singly and in concert, filed misleading reports under
the Securities Exchange Act of 1934, including without limitation, the filing
of Form 10K. A default judgment in the amount of $1,075,000 was entered on
March 13, 1997. Counsel was retained to apply for the vacatur of the default
judgment on the grounds that the Company was not served with various motion
papers underlying the judgment.
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The Company's litigation counsel effectuated a settlement of this matter
and a "Stipulation For Settlement" was entered into between the parties. The
Stipulation For Settlement dated August 10, 1998, was recorded in the United
States District Court for the Southern District of Florida, Miami Division,
and its pertinent details follow:
"The Plaintiff, Raymond Kalley, as trustee of the EB Trust and PB Trust
("Kalley"), and the Defendant, Winners All International, Inc. ("Winners"),
by their undersigned attorneys, stipulate as follows:
1. Winners will immediately issue 350,000 shares of restricted stock
(the "Shares") to Kalley, as trustee of the EB Trust and PB Trust, which
Shares shall be subject to the normal one-year ownership requirement of
Rule 144.
2. Upon receipt of the Shares by Kalley, and the filing with the
Court of a notice to that effect by Kalley's counsel, the Final Judgment
entered by the Court on March 13, 1998 as to Winners shall be vacated.
3. After the Shares become tradable pursuant to Rule 144, and upon
Kalley's reasonable request, Winners shall cause its counsel to issue
forthwith and without cost to Kalley an opinion letter(s) which enables
Kalley immediately to sell the Shares notwithstanding the restrictive
legend thereon. Such opinion letters shall be reissued every three months
upon request by Kalley until the Shares are sold.
4. Kalley shall have the option to re-sell the Shares to Winners for
the sum of $150,000.00, which option may be exercised any time after the
earlier of (i) one-hundred-eighty (180) calendar days after the date of this
stipulation and (ii) February 15, 1999. If Kalley exercises such option to
sell, Winners must pay the $150,000.00 as follows: $55,000.00 within 30
calendar days after exercising of the option, $55,000.00 within 60 calendar
days after exercising the option and $40,000.00 within 90 calendar days after
exercising of the option. Winners' payments hereunder must be payable to
Raymond Kalley, as trustee of the EB Trust and the PB Trust. Such payments
should be delivered to the attention of Kalley's counsel, R. Lawrence Bonner,
Esq., at the address set forth below, either by hand-delivery or overnight
courier. The timeliness of payments will be governed by when they are
received at Mr. Bonner's office.
5. In the event that Winners fails to pay Kalley any of the above
payments within ten business days after the due date thereof, Kalley shall
be entitled to the entry of a Final Judgment against Winners in the amount
of $1,166,922.76, at a noticed hearing, after the filing of an affidavit of
non-compliance by Kalley's attorney. The Court shall retain jurisdiction
over Winners in order to enter such judgment.
6. If Winners timely complies with its obligations in this settlement
stipulation, the Court, upon application of Winners at a noticed hearing,
shall enter an order of dismissal with prejudice as to Winners in the
captioned case."
Raymond Kalley agreed to extend the date after which he could exercise
his option to demand the repurchase of the 350,000 shares of the Company's
restricted common stock that were issued to him pursuant to the above
described Stipulation For Settlement. The agreed extension is for a period
of sixty days, through April 16, 1999.
Page 11
<PAGE>
(4) AG Industries vs. the Company, et. al.
On April 17, 1995, AG Industries sued UC'NWIN Systems Corporation and the
Company and for a breach of contract and causes of action for unjust
enrichment and breach of implied contract. AG Industries seeks damages in
excess of $400,000. On August 22, 1995 the Company filed a Motion to Dismiss
and Alternative Motion for a Change of Venue. AG Industries has responded
and opposed the Defendants' motion. There has been no further discovery and
the outcome cannot be determined at the present time.
(5) Other Legal Matters
Other judgments against the Company total approximately $77,000.
Management is seeking settlements on the payment under these judgments. The
outcome of these negotiations cannot be determined at the present time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None. (See Item 1. Subsequent Events)
Page 12
<PAGE>
PART II
-------
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- -----------------------------------------------------------------
MARKET FOR COMMON EQUITY
The Company's common stock is traded over-the-counter on the NASDAQ
Bulletin Board primarily in the United States and Canada. The following
table sets forth range of high and low bid information for the Company's
common stock for each quarter within the last two fiscal years ending
December 31, 1998 and options to purchase common stock for each quarter
within the last fiscal year. The information provided below was obtained
from NASDAQ Trading & Market Services. The quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.
COMMON STOCK OPTIONS
------------------ -------------------
PERIOD HIGH LOW HIGH LOW
- ------------------------ -------- ------- -------- -------
January 1, 1997 - -- -- N/A N/A
March 31, 1997 .54 .46 N/A N/A
April 1, 1997 - .60 .50 N/A N/A
June 30, 1997 .51 .42 N/A N/A
July 1, 1997 - .48 .47 N/A N/A
September 30, 1997 .51 .38 N/A N/A
October 1, 1997 - .51 .42 N/A N/A
December 31, 1997 .32 .25 N/A N/A
January 2, 1998 - .27 .27 .27 .27
March 31, 1998 .17 .165 .17 .165
April 1, 1998 - .17 .165 .17 .165
June 30, 1998 .22 .18 .22 .18
July 1, 1998 - .21 .19 .21 .19
September 30, 1998 .17 .13 .17 .13
October 1, 1998 - .17 .135 .17 .135
December 31, 1998 .28 .26 .28 .26
As of the close of business on March 31, 1999, there were 298 holders of
record, respectively, of common stock. The Company believes it has over
1,800 beneficial owners of its common stock.
The Company has not paid any cash dividends on its common stock for the
last two fiscal years.
Page 13
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
- ------------------------------------------------------------------------
CURRENT OPERATIONS
The Company continues expenditures in research and development, and
expansion of product line, for the development of "URECOATS 100". This
Roofing Industry product, with worldwide marketability, is the first product,
in a line of products utilizing recycled material in their composition, for
the sealant and coating industry.
Settlements of litigation and judgments arising from discontinued former
operations were a focus of Management during 1998.
As a result of pending litigation, recurring losses and limited resources,
the Board of Directors approved resolutions to discontinue the activities of
Designer Wear and ROK. Management believes that in order to maximize
resources, the discontinuance of Branded Merchandise products operations was
necessary in restructuring the Company towards profitable activities.
RESULTS OF OPERATIONS
1998
Selling, General and Administrative costs of $329,757, consisted of
$204,697 for personnel costs; $40,706 for shareholder communications and
stock transfer costs; $32,000 for loan fees; $27,930 for travel; and $24,424
for miscellaneous expenses.
Research and Development expenditures of $672,228, consisted of $24,412
for materials; $372,992 for technical consultants; $33,904 for
demonstrations; $80,000 for salaries; $11,025 for auto expenses; $21,427
for rent; $14,265 for telephone; $37,389 for travel and entertainment; and
$76,814 for miscellaneous expenses.
The Company also incurred a loss of $(3,833,214), which included the
write-off of intangibles of $3,433,750, relating to discontinued Branded
Merchandise product operations.
1997
Selling, General and Administrative costs of $310,793, consisted of
$196,667 for salaries; $35,599 for rent; $7,123 for telephone costs; $20,986
for shareholder communications and stock transfer costs; $10,757 for computer
services; and $39,661 for miscellaneous expenses.
Included in research and development costs of $623,784 is a charge of
$515,000 arising from the initial search for the development of a product for
the sealant and coating industry. Other expenditures were for demonstration
of product costs.
The Company incurred $450,127 of expenses related to its discontinued
Branded Merchandise product operations.
Page 14
<PAGE>
The Company was operationally inactive from August 1, 1995 through
January 26, 1997. On January 29, 1997, a Special Meeting of the Board
of Directors was held. Discussions centered on reorganizing the affairs of
the Company, transacting business in an effort to rebuild shareholder value,
settle all outstanding matters, and to bring business records up to date.
During that same meeting, the Board of Directors recognized and resolved,
that as a result of the permanent impairment of former operational assets, a
measurement date of January 29, 1997 was established to abandon former
operations effective for the year ended July 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
1998
The Company expects to fund its anticipated cash requirements from the
private sale of additional shares of restricted stock. In 1998, the Company
raised approximately $1,279,600 through the private sale of additional shares
of restricted common stock. The Company incurred $296,747 of additional debt
from related parties and note holders. The Company utilized $185,008 for
equipment acquisitions, $62,500 for settlement of lawsuits and $1,032,092 for
operating activities. The Company continues to anticipate further sources of
financing from letters of credit resulting from sales of product. In addition,
the Company intends to reduce its debt and payables through the issuance of
additional shares of restricted common stock.
1997
The Company received approximately $1,127,709 from the sales of common
stock and loans and expensed $147,274, net, on acquisition of intangibles,
$27,789, net, on property and equipment, and approximately $951,567, net, on
operating activities.
Page 15
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
- -----------------------------
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT-STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
PAGE
------
INDEPENDENT AUDITOR'S REPORT ................................ 17
CONSOLIDATED BALANCE SHEET .................................. 18
CONSOLIDATED STATEMENTS OF OPERATIONS ....................... 19
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) .......... 20
CONSOLIDATED STATEMENTS OF CASH FLOWS ....................... 21-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .................. 23-39
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are not applicable, and therefore have been
omitted.
Page 16
<PAGE>
BAUM & COMPANY, P.A.
4310 SHERIDAN STREET, SUITE 202
HOLLYWOOD, FLORIDA 33021
INDEPENDENT AUDITOR'S REPORT
----------------------------
Board of Directors and Stockholders
Urecoats Industries Inc.
We have audited the accompanying consolidated balance sheet of Urecoats
Industries Inc. (formerly "Winners All International, Inc.") as of December
31, 1998, and the related consolidated statement of stockholders' (deficit)
for the year then ended, and the related consolidated statements of
operations and cash flows for the years ended December 31, 1998 and 1997.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatements. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statements
presentation. We believe that our audit provides a reasonable basis for our
opinion. In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Urecoats Industries Inc. as of December 31, 1998 and the results
of its consolidated operations and its consolidated cash flows for the years
ended December 31, 1998 and 1997, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As described in
Notes 2 and 3 to the consolidated financial statements, the Company has
suffered recurring losses, has discontinued a segment of operations, and is
in the continuous process of seeking additional capital, which outcome cannot
currently be determined. These conditions raise substantial doubt about its
ability to continue as a going concern. Management's plans regarding these
matters are described in Note 2. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
As described in Note 12, the Company is currently involved in a number of
lawsuits, many of which the outcome or final settlement cannot be reasonably
determined at the present time.
/s/ Joel S. Baum
- ----------------------------
Joel S. Baum, C.P.A
Baum & Company, P.A.
Certified Public Accountants
Hollywood, Florida
April 14, 1999 Page 17
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
------
Current Assets:
Cash $ 102,801
Loans Receivable 21,042
Prepaid Expenses 39,535
----------------
Total Current Assets 163,378
----------------
Property and Equipment, Net (Notes 1,6) 207,036
----------------
Other Assets:
Intangibles, Net (Notes 1,7) 997,777
Deposits 5,227
----------------
Total Other Assets 1,003,004
----------------
Total Assets $ 1,373,418
================
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
---------------------------------------
Current Liabilities:
Accounts Payable and Accrued Expenses (Note 9) $ 1,460,515
Loans Payable (Note 10) 72,752
Notes Payable (Note 8) 184,453
Due to Related Parties (Note 11) 232,623
----------------
Total Current Liabilities 1,950,343
----------------
Commitments and Contingencies (Note 12) 685,114
----------------
Stockholders' (Deficit):
Preferred Stock, $1.00 Par Value, 2,000,000 Shares
Authorized; Series A Convertible, 750,000 Shares
Authorized; Issued & Outstanding, 62,500 Shares
Unconverted (Less Offering Costs of $7,465) 55,035
Common Stock $.01 Par Value, 60,000,000 shares
Authorized; 58,992,784 Shares Issued & Outstanding 589,928
Additional Paid-In-Capital 15,806,185
Accumulated (Deficit) - Discontinued Operations (13,379,285)
Accumulated (Deficit) - Development Stage Operations (4,333,902)
----------------
Total Stockholders' (Deficit) (1,262,039)
----------------
Total Liabilities and Stockholders' (Deficit) $ 1,373,418
================
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 18
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
DEVELOPMENT
DEVELOPMENT STAGE
STAGE OPERATIONS
OPERATIONS (INCEPTION) CUMULATIVE
YEAR ENDED DECEMBER 31, DEVELOPMENT
DECEMBER 31, 1997 STAGE
1998 (RESTATED NOTE 3) OPERATIONS
-------------- ----------------- ------------
Revenues $ -0- $ -0- $ -0-
-------------- ----------------- ------------
Costs and Expenses:
Selling, General and
Administrative 329,757 310,973 640,730
Professional Fees 490,576 261,273 751,849
Depreciation and
Amortization 32,291 3,226 35,577
Research and Development 672,228 623,784 1,296,012
Consulting Fees 789,125 820,669 1,609,794
-------------- ----------------- ------------
Total Costs and Expenses 2,313,977 2,019,925 4,333,902
-------------- ----------------- ------------
Net(Loss)From Development
Stage Operations (2,313,977) (2,019,925) (4,333,902)
-------------- ----------------- ------------
(Loss) From Discontinued
Operations (3,833,214) (450,127)
-------------- -----------------
Net(Loss) $ (6,147,191) $ (2,470,052)
============== =================
Net(Loss)Per Common Share
Basic and Dilutive
Development Stage
Operations $ (.041) $ (.091)
Discontinued
Operations (.069) (.020)
-------------- -----------------
Total $ (.110) $ (.111)
============== =================
Weighted Average Shares
Outstanding 55,915,534 22,339,736
-------------- -----------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 19
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
DECEMBER 31, 1998
Preferred Stock Common Stock
Amount Amount
--------------- --------------------
Additional
PV PV Paid-In
Shares $1.00 Shares $.01 Capital
------ ------- ---------- -------- -----------
Balance at
December 31, 1997 62,500 $55,035 30,034,679 $300,347 $12,963,253
Issuance of Stock -- -- 28,958,105 $289,581 $ 2,842,932
Net(Loss)
for the Year -- -- -- -- --
------ ------- ---------- -------- -----------
Balance at
December 31, 1998 62,500 $55,035 58,992,784 $589,928 $15,806,185
====== ======= ========== ======== ===========
Development
Discontinued Stage
Operations Operations Total
Accumulated Accumulated Stockholder's
(Deficit) (Deficit) (Deficit)
------------ ----------- -------------
Balance at
December 31, 1997 $ (9,546,071)(1) $(2,019,922)(1) $ 1,752,639
Issuance of Stock -- -- 3,132,513
Net(Loss)
for the Year (3,833,214) $(2,313,977) $ (6,147,191)
------------ ----------- -------------
Balance at
December 31, 1998 $(13,379,285) $(4,333,902) $ (1,262,039)
============ =========== =============
- ----
(1) RESTATED NOTE 3.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 20
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
DEVELOPMENT DEVELOPMENT STAGE
STAGE OPERATIONS
OPERATIONS (INCEPTION)
YEAR ENDED DECEMBER 31, 1997
DECEMBER 31, 1998 (RESTATED NOTE 3)
----------------- -----------------
Cash Flows from Operating Activities:
Net(Loss)
Development Stage Operations $ (2,313,977) $ (2,019,925)
Discontinued Operations (3,833,214) (450,127)
Adjustments to Reconcile Net(Loss)
to Net Cash (Required)by Operating
Activities:
Depreciation and Amortization
Development Stage Operations 32,291 3,226
Discontinued Operations --- 14,924
Changes in Assets and Liabilities:
Prepaid Expenses (39,535) -0-
Loans Receivable (21,042) -0-
Deposits 3,553 (8,780)
Accounts Payable 856,292 604,233
Due to Related Parties 197,294 35,329
Decrease in Commitments and
Contingencies (97,907) ---
Net Assets and Liabilities of
Discontinued Operations (163,814) 68,004
----------------- -----------------
Net Cash (Required) by
Operating Activities (5,380,059) (1,753,126)
----------------- -----------------
Cash Flows from Investing Activities:
Acquisition of Property and Equipment
Development Stage Operations (185,008) (28,780)
Discontinued Operations --- (35,287)
(Acquisition) Write-off of Intangibles
Development Stage Operations (83,936) (913,490)
Discontinued Operations 3,343,750 (3,343,750)
----------------- -----------------
Net Cash Provided(Required)
by Investing Activities 3,074,806 (4,321,307)
----------------- -----------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 21
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
DEVELOPMENT DEVELOPMENT STAGE
STAGE OPERATIONS
OPERATIONS (INCEPTION)
YEAR ENDED DECEMBER 31, 1997
DECEMBER 31, 1998 (RESTATED NOTE 3)
----------------- -----------------
Cash Flows from Financing Activities:
Proceeds from Issuance of Common Stock 3,132,513 5,092,769
Proceeds from Issuance of Notes 99,453 85,000
(Decrease)Increase from Loans (824,991) 897,743
----------------- -----------------
Net Cash Provided by Financing
Activities 2,406,975 6,075,512
----------------- -----------------
Net Increase(Decrease) in Cash
Development Stage Operations 109,842 73
Discontinued Operations (8,120) 1,006
----------------- -----------------
Net Increase in Cash $ 101,722 $ 1,079
================= =================
Supplemental Disclosure of Cash Flow Information (Note 16)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Page 22
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
This summary of significant accounting policies is presented to assist in
understanding these consolidated financial statements. The consolidated
financial statements and notes are representations of management who is
responsible for their integrity and objectivity. The accounting policies
used conform to generally accepted accounting principles and have been
consistently applied in the preparation of these consolidated financial
statements.
ORGANIZATION
The Company was incorporated in October 1989 as Natural Child Collection,
Inc. and changed its name to Natural Child Care, Inc. ("NCC") in January
1991. In September 1993, NCC purchased Winners All Limited ("WAL"). This
acquisition was treated as a re-capitalization. The re-capitalization was
accounted for as a reverse acquisition, with WAL the surviving successor. On
October 27, 1993, the legal name of the Company was changed to Winners All
International, Inc. The Company was operationally inactive from August 1,
1995 through January 26, 1997. Pursuant to a January 29, 1997 Board of
Directors meeting, resolutions pertaining to discontinue all former
operations, retroactive to the year ended July 31, 1995, were ratified. On
February 17, 1997, the Company changed its former fiscal year of July 31, to
December 31. During 1997, the Company acquired all of the issued and
outstanding capital stock of Urecoats International, Inc. ("Urecoats") and
Designer Wear, Inc. ("DWI"). On October 8, 1997, DWI acquired all of the
issued and outstanding capital stock of ROK International, Inc. ("ROK"). On
February 8, 1999, the legal name of the Company was changed to Urecoats
Industries Inc. (the "Company").
BUSINESS
Urecoats is engaged in the acquisition, formulation, marketing and
distribution of sealant and coating products containing recycled materials in
their compositions. The Board of Directors passed a unanimous resolution
dated April 14, 1999, in lieu of a Special Meeting pursuant to Notice, to
discontinue the Branded Merchandise operations, retroactive for the year
ended December 31, 1998. (See Note 3)
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All material inter-company
items and transactions have been eliminated.
Page 23
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
- -------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has adopted Statement of Financial Accounting Standards No. 107
"Disclosure About Fair Value of Financial Instruments", which requires the
disclosure of the fair value of off-and-on balance sheet financial instruments.
Unless otherwise indicated, the fair values of all reported assets and
liabilities, which represent financial instruments (none of which are held
for trading purposes), approximate the carrying values of such amounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at historical cost. Depreciation of
property and equipment is provided on the straight-line method over the
estimated useful lives of the related assets. Maintenance and repairs are
charged to operations. Additions and betterments, which extend the useful
lives of the assets, are capitalized. Upon retirement or disposal of the
property and equipment, the cost and accumulated depreciation are eliminated
from the accounts, and the resulting gain or loss is reflected in operations.
INTANGIBLE ASSETS
Intangible assets, which primarily consist of the cost of acquired
businesses in excess of the fair value of tangible assets and liabilities
acquired (Goodwill) and capitalized patent application costs, are amortized,
commencing in the year of significant revenue recognition, by the straight-line
method over estimated useful lives of 40 years, and 10 years, respectively.
Pursuant to Statement of Accounting Standards 121 ("SFAS 121") "Accounting
for the Impairment of Long-Lived Assets to be Disposed of", long-lived assets
and certain identifiable intangibles to be held and used by the Company are
reviewed for impairment whenever there is an indication that the carrying
amount of the asset may not be recoverable. Recoverability of these assets
are determined by comparing the forecasted undiscounted net cash flows of the
operation to which the assets relate to the carrying amount including
associated intangible assets of such operation. If the operation is
determined to be unable to recover the carrying amount of its assets, then
intangible assets are written down first, followed by the other long-lived
assets of the operation, to fair value. Measurement of an impairment loss is
based on the fair value of the underlying asset. Fair value is principally
determined by discounted cash flows, depending upon the nature of the assets.
Page 24
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
- -------------------------------------------------------------
RESEARCH AND DEVELOPMENT COSTS
Research and development costs related to both future and present products
are charged to operations as incurred.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
requires the establishment of a deferred tax asset or liability for the
recognition of future deductions or taxable amounts, and operating loss and
tax credit carry-forwards. Deferred tax expense or benefit is recognized as a
result of the change in the deferred asset or liability during the year. If
necessary, the Company will establish a valuation allowance to reduce any
deferred tax asset to an amount which will more likely than not be realized.
OPTIONS
Options have been recorded at fair market value on the date of grant and
exercised in the applicable period.
NET EARNINGS PER COMMON SHARE
The Company accounts for earnings per share in accordance with Statement
of Financial Accounting Standard 128 ("SFAS 128") "Earnings Per Share". Basic
earnings per share is based upon the net earnings applicable to common shares
after preferred dividend requirements and upon the weighted average number of
common shares outstanding during the period. Diluted earnings per share
reflects the effect of the assumed conversions of convertible securities and
exercise of stock options only in the periods in which such effect would have
been dilutive.
NOTE 2 - GOING CONCERN
- ----------------------
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which considers
continuation of the Company as a going concern.
Going concern contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business over a reasonable length of
time. As shown in the consolidated financial statements, the Company has
suffered recurring losses resulting in an accumulated deficit of $13,379,285
from discontinued operations and $4,333,902 from development stage
operations. The Company must also obtain a significant amount of capital for
the future development of its product line.
Page 25
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 2 - GOING CONCERN CONTINUED
- --------------------------------
Management believes that in order to maximize resources the discontinuance
of Branded Merchandise Products operations was necessary in restructuring the
Company towards future profitable activities. The Company plans to raise
significant capital through the issuance of additional shares of stock, the
outcome of which cannot be determined at this time. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that
might result from these uncertainties.
NOTE 3 - DISCONTINUED OPERATIONS
- --------------------------------
As a result of pending litigation (Note 12), recurring losses and limited
resources, the Board of Directors passed a unanimous resolution, in lieu of a
Special Meeting pursuant to Notice, dated April 14, 1999, to discontinue the
activities of DWI and ROK, retroactive for the year ended December 31, 1998.
(See Note 3) DWI and ROK were engaged in the acquisition of license
agreements for the design, contract manufacturing, sale, and worldwide
distribution of Branded Merchandise products.
Operations related to Branded Merchandise products have been reflected in
Loss from Discontinued Operations, including the write-off of intangibles of
$3,359,856 (Goodwill, Trademark Agreements and Deferred Charges), for the
year ended December 31, 1998. Operations for the year ended December 31,
1997 have been restated to conform with the current year's presentation.
On July 1, 1997, the Company, pursuant to an Acquisition Agreement dated
March 27, 1997, exchanged 5,376,000 shares of its unregistered, restricted
common stock, to acquire 100% of the issued and outstanding stock of DWI, of
which 33% was owned by former or current officers of the Company. The
acquisition was accounted for as a purchase and was included in consolidated
operations of the Company as discontinued operation from that date through
December 31, 1997.
On October 8, 1997, DWI exchanged 1,200,000 shares of the Company's
restricted common stock and cash of $143,652, to acquire 100% of the issued
and outstanding stock of ROK. The acquisition was accounted for as a
purchase and was included in the consolidated operations of DWI as
discontinued operations from that date through December 31, 1997.
In accordance with Accounting Principle Board Opinion #16, the unaudited
pro forma consolidated results of operations of the Company are as follows:
Page 26
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 3 - DISCONTINUED OPERATIONS CONTINUED
- ------------------------------------------
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
"PRO FORMA"
(UNAUDITED)
YEAR ENDED
DECEMBER 31, 1997
(RESTATED NOTE 3)
-----------------
Revenues $ 70,631
-----------------
Costs and Expenses $ 3,034,998
-----------------
Net (Loss) from Discontinued Operations $ (2,964,367)
-----------------
Net (Loss) per Common Share $ (0.133)
-----------------
Weighted Average Shares Outstanding 22,339,736
-----------------
NOTE 4 - ACQUISITION OF COMPANIES
- ---------------------------------
On January 28, 1997, the Company, pursuant to an Acquisition Agreement,
accepted possession of 100% of the issued and outstanding capital stock of
Urecoats, in exchange for 2,100,000 shares of its unregistered, restricted
common stock. Urecoats was owned by former or current officers of the
Company. The acquisition was accounted for as a purchase and was included in
consolidated operations of the Company from that date through December 31,
1997.
NOTE 5 - COMMON STOCK TRANSACTIONS
- ----------------------------------
The Company offered 20,000,000 shares of its restricted common stock
("Shares"), in an Amended Private Placement commencing January 1, 1998
and terminating December 31, 1998 ("1998 Amended Placement"), pursuant to
the exemption under Rule 505 of the Securities Act of 1933, as amended
(the "Act"). The Shares were sold to "Accredited Investors", as defined in
Section 501(a) of Regulation D under the Act. The Board of Directors
determined, in the best interests of those parties participating in the 1998
Amended Placement, to fix the purchase price of all the Shares purchased
thereunder at $.075 per share. This decision was made because of the
volatility of the market price of the common stock as traded on the NASDAQ
over-the-counter Bulleting Board during the year. The Company sold
16,502,197 Shares under the 1998 Amended Placement. The total proceeds
received, net of commissions and fees paid in cash, amounted to $1,198,600.
Page 27
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 5 - COMMON STOCK TRANSACTIONS CONTINUED
- --------------------------------------------
A breakdown of the proceeds of the 1998 Amended Placement is below:
Cash $ 1,171,715
Conversion of Debt $ 25,000
Conversion of Consulting Fees $ 1,500
Conversion of Commissions and Fees $ 39,450
Less: Commissions and Fees Paid in Cash $ (39,065)
-------------
Total Net Proceeds $ 1,198,600
=============
The Conversion of Debt proceeds were received from the cancellation of
loans payable due and owing to non-affiliated parties by the Company. The
loans payable were satisfied with the issuance of 333,333 Shares.
The Conversion of Consulting Fees proceeds were received from the
cancellation of consulting fees due and owing by the Company. The consulting
fees were satisfied with the issuance of 20,000 Shares.
The Conversion of Commissions and Fees proceeds were received from the
cancellation of 10% commissions and fees due and owing by the Company
against the sale of 5,266,667 Shares. The commissions and fees were
satisfied with the issuance of 526,000 Shares.
The Commissions and Fees Paid in Cash proceeds were paid against 10%
commissions and fees due and owing by the Company against the sale of
5,208,666 Shares. The commissions and fees were satisfied with payments
equaling $39,065.
During the year ended December 31, 1998, the Company issued common stock,
as described below:
(a) The Company issued 3,600,000 shares of restricted common stock,
in exchange for cancellation of $829,858 of indebtedness.
(b) The Company issued 404,412 shares of restricted common stock, as
final payment for all right, title and interest to certain technologies
involving polymer /rubberized asphalt roofing/sealant formulas/materials,
and the rights and know-how for their manufacturing and application. This
transaction was valued and recorded at $55,000.
(c) The Company issued an aggregate of 850,000 shares of its
restricted common stock, as additional compensation, to two former officers
and directors of the Company. These transactions were valued and recorded at
$49,500. Howard Weiser and Edgar Mr. Reynolds, former officers and directors
of the Company, received 750,000 and 100,000 shares of restricted common
stock, respectively, valued and recorded at $44,500 and $5,000, respectively.
Page 28
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 5 - COMMON STOCK TRANSACTIONS CONTINUED
- --------------------------------------------
(d) The Company issued 20,000 shares of restricted common stock, as
an employee bonus. This transactions was valued and recorded at $1,000.
(e) The Company issued an aggregate of 5,200,000 shares of restricted
and unrestricted common stock, for consulting services, valued and recorded
at $629,830, 950,000 shares at a value of $58,650 were attributed to
directors' transactions. Charles A. Gargano received 600,000 shares of
restricted common stock, which was valued and recorded as $34,000. David M.
Goldblatt received 200,000 shares of restricted common stock, which was
valued and recorded at $13,400. Stuart B. Krost received 150,000 shares of
restricted common stock, which was valued and recorded at $11,250.
(f) The Company issued an aggregate of 1,205,000 shares of restricted
and unrestricted common stock, for legal services rendered. These
transactions were valued and recorded at $168,940.
(g) The Company issued an aggregate of 401,000 shares of restricted
common stock, for legal settlements. These transactions were valued and
recorded at $151,435.
(h) The Company received back 375,000 shares of restricted common
stock at $375, from a legal settlement. In connection with this transaction,
the Company issued 125,000 shares of its restricted common stock, as payment
for legal services. The shares were valued and recorded at $1,250.
(i) The Company issued 70,500 shares of restricted common stock, as
payment for office and other equipment. This transaction was valued and
recorded at $7,050.
(j) The Company issued an aggregate of 1,080,000 shares of restricted
common stock to three Non U.S. individual investors in reliance upon the
transaction exemption afforded by Regulation S as promulgated by the United
States Securities and Exchange Commission, under the Securities Act of 1933,
as amended ("Securities Act"). These transactions were valued and recorded
at $81,000.
Page 29
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 6 - PROPERTY AND EQUIPMENT
- -------------------------------
A summary of property and equipment at December 31, 1998 is as follows:
Leasehold Improvements $ 101,097
Office Equipment 51,110
Machinery and Equipment 102,314
-------------
Total Property and Equipment 254,521
Less: Accumulated Depreciation (47,485)
-------------
Total Property and Equipment, Net $ 207,036
=============
NOTE 7 - INTANGIBLES
- --------------------
A summary of intangibles at December 31, 1998 is as follows:
Organization Costs $ 678
Goodwill 913,490
Patent Costs 3,936
Acquisition of Proprietary Formula 80,000
-------------
Total Intangibles 998,104
-------------
Less: Accumulated Amortization (327)
-------------
Total Intangibles, Net $ 997,777
=============
Goodwill arises from the cost of the Company's acquisitions of Urecoats,
in excess of fair value of tangible assets and liabilities acquired.
Amortization is to commence upon the receipt of significant revenues.
Patent and Proprietary Formula costs are amortized, under the straight-
line method, over ten years. Amortization is to commence upon receipt of
significant revenue. The Company evaluates the amortization period of
intangibles on an ongoing basis, in light of any changes in business
conditions, events or circumstances, that may indicate the potential
impairment of intangible assets.
Page 30
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 8 - NOTES PAYABLE
- ----------------------
Notes payable to various individuals in the amount of $184,450, payable
on demand, bear interest at varying rates from 12% to 15% per annum.
NOTE 9 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
- ----------------------------------------------
A summary of accounts payable and accrued expenses at December 31, 1998
is as follows:
Accounts Payable $ 380,765
Accrued Salaries 181,160
Accrued Payroll Taxes 200,255
Accrued Expenses 698,335
------------
Total Accounts Payable and Accrued Expenses $ 1,460,515
============
NOTE 10 - LOANS PAYABLE
- ----------------------
Loans payable to various individuals are non-interest bearing and payable
on demand.
NOTE 11 - RELATED PARTY TRANSACTIONS
- ------------------------------------
As of December 31, 1998, the Company had the following related party
transactions:
Non-interest bearing loans, net of advances, from current or former
officers and directors of the Company, amounted to $232,623.
Accrued salaries of $181,160 to current or former officers of the
Company.
See accompanying Note 5 - Common Stock Transactions, Note 4 - Acquisition
of Companies and Note 3 - Discontinued Operations, for additional related
party transactions.
Page 31
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 12 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
LEASES
The Company's subsidiary, Urecoats, entered into two separate
operating leases at monthly rents of $3,736, commencing on July 1, 1998 and
terminating on July 31, 2001, for corporate offices and a testing laboratory
and training facility for sealant and spraying products. Rent expense for
the years ended December 31, 1998 and 1997, were $44,726 and $30,599,
respectively.
LITIGATION
(1) Designer Wear et. al. vs. Smith & Wesson et. al. - DWI received
notice from the Smith and Wesson corporation ("Smith & Wesson"), through ROK,
of termination of ROK's Trademark License Agreement dated March 1, 1996, as
amended August 23, 1996. Management provided return notice to Smith & Wesson
disagreeing with the termination notice and indicated the termination was not
valid. The Company's litigation counsel and Smith & Wesson management
attempted a resolution of the matter, however, a settlement was not reached.
Thereafter, a lawsuit was filed against Smith & Wesson and John S. Steele
("Steele"), its Director of Licensing and Merchandising, on June 1, 1998 in
the United States District Court for the Southern District Of Florida,
claiming: I. Breach Of A Trademark Licensing Agreement And The Implied
Covenant Of Good Faith And Fair Dealing; II. Promissory Estoppel; III.
Tortious Interference With The Contractual Relationship Between ROK And
DWI; and requested a declaratory judgment and permanent injunction. DWI and
ROK are also seeking damages of $50,000,000.
Smith & Wesson filed an "Answer and Affirmative Defenses of Defendant
Smith & Wesson to Plaintiffs' Complaint, Counterclaim and Jury Demand"
("Smith & Wesson Answer, Defenses and Counterclaims"), on July 13, 1998, in
the United States District Court For The Southern District Of Florida,
alleging, among other things, unclean hands, reformation of the license,
proper termination, defensive estoppel, and defensive waiver. The
counterclaims were brought against DWI, ROK, and third-party defendants
Laurence Sack, Howard Weiser and the Company (hereinafter collectively
referred to as ("Company et. al."). The counterclaims are as follows: I.
Federal trademark infringement; II. False description, false advertising,
tarnishment and dilution; III. Common law trademark infringement; IV. Common
law unfair competition; V. Breach of contract; VI. Breach of implied covenant
of good faith and fair dealings; VII. Duty to indemnify is valid and
enforceable; VIII. Fraud; and IX. Conspiracy to commit fraud.
Page 32
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 12 - COMMITMENTS AND CONTINGENCIES CONTINUED
- -------------------------------------------------
The Company et. al. filed a "Motion to Dismiss Counterclaims and
Incorporated Memorandum of Law", on or about August 4, 1998, in the United
States District Court For The Southern District Of Florida, in response to
the Smith & Wesson Answer, Defenses and Counterclaims. The Company et. al.
moved pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for
the dismissal of the counterclaims (and third-party claims) brought against
them in I, II, III, IV, VI, VII, VIII, and IX, on the ground that they are
insufficiently pled and should be dismissed because they fail to state any
claim upon which relief may be granted.
In addition, Steele filed a motion to dismiss claims against himself
and/or to transfer the action, on July 13, 1998, in the United States
District Court For The Southern District Of Florida. DWI and ROK filed an
opposition to this motion, on or about July 27, 1998, in the United States
District Court For The Southern District Of Florida. This litigation is
currently undergoing further discovery and motions for request to produce
documents and information are now pending between the parties. At this time,
the outcome of this litigation cannot be determined.
(2) The Company vs. Millennium Holdings Group, Inc. - On March 2, 1998,
a Statement of Claim was filed against Millennium Holdings Group, Inc.
("Millennium") with the American Arbitration Association ("AAA"),
headquartered in New York City, New York. The Company settled this matter
and entered into a Settlement Agreement and General Release on September 9,
1998. Pursuant to the Settlement Agreement, Millennium returned the 375,000
shares of restricted common stock and paid $20,000 in damages to the Company.
(3) Stanley Farber vs. the Company et. al. - On July 25, 1996, Stanley
Farber ("Farber"), Plaintiff, filed a complaint for Breach of an executive
employment contract, in the Circuit Court of the Seventeenth Judicial Circuit
in and for Broward County, Florida. As a result of absence of counsel on
behalf of the Company, a final judgment of $142,187 was awarded on July 21,
1997. Subsequently, in 1997, the Company retained Counsel to appeal the
final judgment, however, it was affirmed by the Appellate Court.
On November 16, 1998, the Company's litigation counsel effectuated a
settlement of the judgment for $157,500 and 50,000 shares of restricted
common stock. The Company has agreed to pay $25,000 per month until the
judgment and attorney's fees settlement are paid in full.
Page 33
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 12 - COMMITMENTS AND CONTINGENCIES CONTINUED
- -------------------------------------------------
(4) Raymond Kalley et. al. vs. the Company - On March 22, 1996, Raymond
Kalley, as trustee of the EB Trust and PB Trust (Plaintiff), sued the
following in the Southern District of Florida (Miami Division), the Company,
UC'NWIN Systems Corporation, a consultant to UC'NWIN Systems Corporation and
a beneficiary to the EB and PB Trusts. A default judgment in the amount of
$1,075,000 was entered on March 13, 1997. Counsel was retained to apply for
the vacatur of the default judgment on the grounds that the Company was not
served with various motion papers underlying the judgment. On August 10,
1998, the Company's litigation counsel effectuated a settlement of this
matter and a "Stipulation For Settlement" was entered into between the
parties. The Stipulation's pertinent details are as follows:
The Plaintiff, and the Company, by their undersigned attorneys, stipulate
as follows:
1. The Company will immediately issue 350,000 shares of restricted
stock (the "Shares") to Kalley, which Shares shall be subject to the normal
one-year ownership requirement of Rule 144.
2. Upon receipt of the Shares by Kalley, and the filing with the Court
of a notice to that effect by Kalley's counsel, the Final Judgment entered by
the Court on March 13, 1998 as to the Company shall be vacated.
3. Kalley shall have the option to re-sell the Shares to the Company
for the sum of $150,000, which option may be exercised any time after April
16, 1999. If Kalley exercises such option to sell, the Company must pay the
$150,000 as follows: $55,000.00 within 30 calendar days after exercising of
the option, $55,000.00 within 60 calendar days after exercising the option
and $40,000.00 within 90 calendar days after exercising of the option.
4. In the event that the Company fails to pay Kalley any of the above
payments within ten business days after the due date thereof, Kalley shall be
entitled to the entry of a Final Judgment against the Company in the amount
of $1,166,922.76.
(5) AG Industries vs. the Company, et. al. - On April 17, 1995, AG
Industries sued UC'NWIN Systems Corporation and the Company and for a breach
of contract and causes of action for unjust enrichment and breach of implied
contract. AG Industries seeks damages in excess of $400,000. On August 22,
1995 the Company filed a Motion to Dismiss and Alternative Motion for a
Change of Venue. AG Industries responded and opposed the Defendants' motion.
There has been no further discovery and the outcome cannot be determined at
the present time.
Page 34
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 12 - COMMITMENTS AND CONTINGENCIES CONTINUED
- -------------------------------------------------
(6) Other Legal Matters - Other judgments against the Company total
approximately $77,000. Management is seeking settlements on the payment
under these judgments. The outcome of these negotiations cannot be
determined at the present time.
(7) Liabilities from discontinued operations of $134,492 have been
added to the Reserve for Litigation.
As of December 31, 1998, the Company has established a reserve for
litigation of $685,114.
NOTE 13 - STOCKHOLDERS' (DEFICIT)
- ---------------------------------
PREFERRED STOCK
The Board of Directors reduced the number of authorized shares of Series
A, $1.00 par value preferred stock, from 2,000,000 shares by 750,000 shares,
leaving 1,250,000 shares to be designated a series of distinction and issued
by the Board. Each share of the Series A preferred stock entities its holder
to convert it into .36 shares of common stock, as adjusted in the event of
future dilution; to receive $1.000 per share in the event of voluntary or
involuntary liquidation, to have the same voting rights as the common stock,
and to share equally in payments of any dividends declared by the Board of
Directors.
NOTE 14 - STOCK OPTIONS
- -----------------------
STOCK OPTION PLAN
On January 26, 1998, the Company adopted the "1998 Employee and
Consultant Stock Option Plan" (the "1998 Plan"), authorizing the issuance of
3,000,000 shares of registered, common stock, to afford certain of its key
employees, officers and consultants who are responsible for the continued
growth of the Company an opportunity to acquire a proprietary interest in the
Company, and thus to create in such individuals an increased in and greater
concern for the welfare of the Company and its subsidiaries. The Company, by
means of this 1998 Plan, seeks to retain the services of persons now holding
key positions and to secure the services of persons capable of filling such
positions. The stock options offered pursuant to the Plan are a matter of
separate inducement and are not in lieu of any salary or other compensation
for the services of any key employee or consultant.
Page 35
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 14 - STOCK OPTIONS CONTINUED
- ---------------------------------
The stock options granted under the Plan are intended to be either
incentive stock options within the meaning of Section 422 of the Internal
Revenue code of 1986, as amended, or options that do not meet the
requirements for incentive stock options. Under the 1998 Plan, the fair
market value of a share is the closing "bid" price of the Company's shares on
the date of grant, as determined by Board of Directors approval, as quoted on
the Electronic Bulletin Board of the National Association of Securities
Dealers or its Automated Quotation System ("NASDAQ") or any successor
national stock exchange on which the Common Stock is then successor national
stock exchange on which the Common Stock is then traded, provided, however,
that if on the date in question there is no public market for the Company's
Shares and they are neither quoted on "NASDAQ" nor traded on a national
securities exchange, then the Administrator of the 1998 Plan, in its sole
discretion and best judgment, is to determine the fair market value.
Pursuant to this 1998 Plan, the Board, as Administrator of the 1998 Plan,
granted the 3,000,000 Options to various parties during the year, of which
150,000 Options, were still unexercised and outstanding as of the year ended
December 31, 1998. A summary of the outstanding Options is as follows:
STOCK OPTIONS
--------------------------
SHARES OPTION PRICE
------- ------------
Outstanding @ December 31, 1998 150,000 $.21 to $.22
=======
NOTE 15 - INCOME TAXES
- ----------------------
The Company has net operating tax loss carry-forwards of approximately
$16,100,000 in the United States and $1,500,000 in the United Kingdom, of
such loss carry-forwards, approximately $3,000,000 represents carry-forwards
of a predecessor, the utilization of which will be credited to additional
paid-in capital. The Company is not current with its corporate income tax
filings.
NOTE 16 - SUPPLEMENTAL CASH FLOW DISCLOSURES
- --------------------------------------------
(A) Cash Paid During The Year
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
Interest Paid $ -0- $ -0-
Income Taxes Paid $ -0- $ -0-
----------------- -----------------
Page 36
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 16 - SUPPLEMENTAL CASH FLOW DISCLOSURES CONTINUED
- ------------------------------------------------------
(B) Supplemental Schedule of Non-Cash Investing and Financing Activities
Year Ended Year Ended
December 31, December 31
1998 1997
------------- ------------
Increase in Intangibles Included:
Acquisition of Trademark Agreement $ $ 2,499,600
Acquisition of Goodwill 1,557,508
Acquisition of Deferred Charges 48,964
Acquisition of Property & Equipment 7,050 36,278
Acquisition of Proprietary Formula 80,000
Proceeds from Issuance of Shares Included:
Retainment of Consultants 631,330 491,066
Acquisitions of Companies 3,413,100
Legal Services, Settlements and
Other Services 411,575
Cancellation of Indebtedness 829,858
Proceeds from Loans Included:
Assumption of Debt in ROK Acquisition 599,858
NOTE 17 - RESEARCH AND DEVELOPMENT
- ----------------------------------
On February 21, 1997, pursuant to a February 4, 1997 letter of intent,
Urecoats completed negotiations, which resulted in a stock purchase agreement
("SPA") with Envio Dynamics Corporation ("EDC"). Urecoats was to acquire a
75% stock interest, amounting to 3,750,000 shares, of the authorized common
voting stock of EDC in exchange for $750,000. On March 21, 1997, Urecoats
entered into a purchase and sale agreement with the Essex Chemical
Corporation ("ESC") to acquire the land, building and equipment, located at
1521 Industrial Drive, Griffin, Georgia, for $375,000.
On June 13, 1997, Urecoats entered into a License and Option Agreement
with Ultimate Urethane Roofing, Inc. ("UUR"). As a result of disputes on the
validity of a sealant and coating product, all agreements with EDC and ESC
were canceled, and the agreement with UUR has been effectively canceled
between the parties. In June 1997, all disputes from EDC were settled and
Urecoats secured a promissory note from EDC for reimbursement of advances
made under the SPA, in the amount of $250,000. This note receivable was
deemed uncollectable and written off.
The Company took a charge to earnings of $515,000, which were classified
to research and development during the development stage.
Page 37
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 18 - SUBSEQUENT EVENTS
- ---------------------------
At a Special Meeting of the Shareholders of the Company, on February 8,
1999, the following matters were considered and approved by the requisite
majority voting requirements:
1. Authorized an amendment to the Company's Restated Certificate of
Incorporation increasing the authorized common stock of the Company
from a total of 60,000,000 shares of common stock having a par value
$.01 per share to 100,000,000 shares of Common Stock having a par
value of $.01 per share;
2. Authorized an amendment to the Company's Restated Certificate of
Incorporation to change the name of the Company to Urecoats
Industries Inc.;
3. Ratified the Company's 1999 Consultant and Employee Stock Purchase and
Option Plan covering a total of 8,000,000 shares of common stock.
The Company, pursuant to Board of Director approval, is in the process of
issuing an aggregate of 6,630,000 shares of its restricted common stock, for
certain private transactions, as described below:
(a) The Company is issuing an aggregate of 1,680,000 shares of
restricted common stock, for accrued consulting services rendered, 250,000 of
which is being issued to Stuart B. Krost, a director of the Company. The
accrued consulting services were valued and recorded at $124,770.
(b) The Company is issuing an aggregate of 400,000 shares of
restricted common stock, for accrued legal services rendered. The accrued
legal services were valued and recorded at $25,400.
(c) The Company is issuing 2,500,000 shares of restricted common
stock, in cancellation of a non-interest bearing loan made to the Company in
December 1998 by Richard J. Kurtz, Chairman of the Board, in the amount of
$187,500.
(d) The Company is issuing 250,000 shares of restricted common stock,
for consulting services rendered during the first quarter of 1999, to
Charles A. Gargano.
(e) The Company is issuing 800,000 shares of restricted common stock,
for bridge loan fees, due in the first quarter of 1999. The accrued fees
were valued and recorded at $32,000.
The Company expects to issue 1,000,000 shares of restricted common stock,
as other compensation, to Larry T. Clemons, President.
Page 38
<PAGE>
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
NOTE 18 - YEAR 2000 COMPLIANCE
- ------------------------------
The Company has updated its computer systems and hardware to be Year 2000
compliant. The Company has received notifications from various vendors,
suppliers, and equipment manufacturers, of their Year 2000 compliant systems.
However, there still remains a slight risk for the Year 2000 compliance of
those with whom the Company does business, primarily third parties.
Page 39
<PAGE>
PART III
--------
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- -------------------------------------------------------------------------
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT
- ----------------------------------------------------------------------
BOARD OF DIRECTORS
The members of the Board of Directors ("Board") of the Company are
presently Richard J. Kurtz, Charles A. Gargano, David M. Goldblatt, and
Stuart B. Krost. In a Special Meeting of the Board held on November 23,
1998, Richard J, Kurtz and Stuart B. Krost were appointed as new members
of the Board. In a Special Meeting of the Board held on February 8, 1999,
Howard Weiser resigned as Chairman of the Board and Richard J. Kurtz was
appointed as the new Chairman of the Board. Effective March 1, 1999,
Messrs. Weiser and Reynolds submitted resignations as directors, which
resignations were accepted by the Board on April 14, 1999.
For historical purposes, on or about July 1994, Charles A. Gargano and
David M. Goldblatt were elected to Board. Howard Weiser was appointed as a
director of the Company on January 28, 1997. Edgar M. Reynolds was elected
as a member of the Board on August 22, 1995. Howard Weiser was ratified as
Chairman of the Board on July 29, 1997. In the April 24, 1998 Special Meeting
of the Board, the Company appointed Antonio Domit as a new member of the
Board. The Board accepted the resignation of Antonio Domit as a director of
the Company, in its April 30, 1998 Special Meeting, due to a potential
conflict of interest. The Board created an Advisory Board for the purpose of
overseeing the implementation of its Urecoats subsidiary's operational plans
domestically and internationally, and appointed Antonio Domit as its
chairman, who was also recognized as a consultant handling introductions and
other matters in Mexico, Central and South America for the Company.
EXECUTIVE OFFICERS
The Executive Officers of the Company presently are Larry T. Clemons and
Michael T. Adams. In a Special Meeting of the Board held on February 8,
1999, the Board accepted the resignation of Howard Weiser as the President
and Chief Executive Officer of the Company and appointed Larry T. Clemons
as the new President. Effective March 1, 1999, Messes Weiser and Reynolds
submitted resignations as officers, which resignations were accepted by the
Board on April 14, 1999. Larry T. Clemons was appointed Treasurer and
Michael T. Adams became Vice President and Secretary, effective March 1,
1999.
Each Director holds office until the next annual meeting of stockholders
and until his successor is duly elected and qualified, or until death,
resignation or removal. Officers serve at the discretion of the Board.
Page 40
<PAGE>
Certain background information is set forth below with respect to the
current directors and officers.
NAME AGE POSITION(S) DATES
- ------------------- ----- ---------------------------- -----------------
Richard J. Kurtz 59 Chairman of the Board February 8, 1999
Charles A. Gargano 60 Director July 1994
David M. Goldblatt 55 Director July 1994
Stuart B. Krost 38 Director November 23, 1998
Howard Weiser 60 Resigned as Director March 1, 1999
Resigned as President & CEO February 8, 1999
Resigned as Secretary March 1, 1999
Edgar M. Reynolds 73 Resigned as Director, Vice
President and Director March 1, 1999
Larry T. Clemons 40 President February 8, 1999
Treasurer March 1, 1999
Michael T. Adams 33 Vice President and Secretary March 1, 1999
- ------
RICHARD J. KURTZ has been president and chief executive officer of the
Kamson Corporation, a privately held corporation, for the past 25 years.
Kamson Corporation has its principal executive offices located in Englewood
Cliffs, New Jersey and currently owns and operates more than sixty (60)
investment properties in the Northeastern United States. Mr. Kurtz is a
graduate of the University of Miami and a member of its President's Club. He
was formerly a director of the Inter-Community Bank located in Springfield,
New Jersey. Most notably, he was chosen "Man of the Year" by the Chamber of
Commerce in Englewood Cliffs and the Boy Scouts of America. Mr. Kurtz
resides in Alpine, New Jersey and is currently Vice President and a member
of the Board of Directors for the Jewish Community Center on the Palisades
in Tenafly, New Jersey. He is also proud to be an elected member of the
Board of Trustees and the Foundation Board for the Englewood Hospital and
Medical Center of New Jersey. Mr. Kurtz is a member of the Board of
Governors for the Jewish Home and Rehabilitation Center, and was recently
elected to the Board of Directors for the Israeli Cancer Research Fund.
CHARLES A. GARGANO is the Chairman of the Empire State Development
Corporation of New York State. Mr. Gargano also served as the Finance
Chairman of the New York Republic State Committee, from August 1988 to
August 1991. Mr. Gargano served as United States Ambassador to the Republic
of Trinidad and Tobago. A civil engineer, Mr. Gargano has been President of
G.M. Development, Inc. and actively serves on many boards and commissions as
Chairman or Director, including the Children's Developmental Center, Alpha
Hospitality Corp. and First Commercial Bank of Long Island.
Page 41
<PAGE>
DAVID M. GOLDBLATT has over 27 years of experience in trading, selling
and financing United States Government securities and money market
instruments. For the past five years, Mr. Goldblatt has been engaged as
a Securities principal with Seaboard Securities. In 1970, Mr. Goldblatt
traded short term U.S. government securities at William E. Pollack and Co.
In 1972, he was hired as Vice President at Cantor Fitzgerald and Company,
where he was required to sell and finance the Firms trading and matched book
positions. In 1976, Mr. Goldblatt was employed by Loeb, Rhodes & Company,
as a Senior Vice President. He was responsible for hiring sales personnel
for the money market department. In addition, he was in charge of selling
and financing the Firm's money market and matched book positions. In 1980,
Mr. Goldblatt was a partner in Resource Management. The Firm specialized in
trading U.S. government securities and short term money market instruments.
In 1992, Mr. Goldblatt initiated and developed the fixed income department
at Seaboard Securities. This division specializes in U.S. government
securities. Mr. Goldblatt earned his Master's Degree from Hunter College in
New York City.
STUART B. KROST is a medical doctor, Board Certified in physical
medicine and rehabilitation and pain management, and has been practicing
medicine for the past 8 years in Florida. Dr. Krost received his medical
degree from SUNY Health Science Center at Syracuse, New York, and bachelor's
degree from SUNY at Stony Brook, Long Island, New York. He graduated cum
laude, with honors, phi beta kappa, dean's list, and sigma beta honor
society. Dr. Krost's post graduate training was performed at the North
Shore University Hospital, Manhasset, New York, which is an affiliate of
Cornell University Medical College, and SUNY Health Science Center at
Brooklyn, New York. Dr. Krost is affiliated with the American Academy of
Physical Medicine and Rehabilitation, American Congress of Rehabilitation,
American Medical Association, American Academy of Pain Management, Palm
Beach County Medical Society, Florida Medical Society, Florida Society of
Pain Management and Rehabilitation, and American Pain Society.
HOWARD WEISER worked for Zales Jewelry Stores (NYO) for more than 20
years, and helped create its massive growth from 200 stores to over 1,800
stores. He was involved in all facets of the business and rose to Executive
Vice President. He was a Senior Vice President at Chock Full of Nuts and one
of the top executives leading to their growth. His experience, development
of store branches, travel all over the world, and influential friends and
contacts, provided the know-how and drive for reestablishing the Company.
EDGAR M. REYNOLDS attended Columbia University. Since 1973 until 1994,
he was in an Executive capacity with Digital Products Corporation, a public
company in the field of electronics, communications, and home monitoring.
At various times, he was the CEO and Director of Digital Products
Corporation. Prior thereto he managed a private consulting firm. Prior
thereto for twelve years, he was a financial officer and director of a
public chain of a variety of toy stores. During that period, he served as
a director of two Florida banks. He served overseas in the United States
Army Intelligence Service to World War II and was employed by a worldwide
import and export firm.
Page 42
<PAGE>
LARRY T. CLEMONS has extensive experience in taking products from Design
and Function, Marketing and Sales, Corporate Implementation, Drawing Board to
Factory, and Showroom Floor, to the Consumer within short periods of time.
Mr. Clemons moved to South Florida in 1983 and started Raffles Bar & Grill,
Dadeland Mall, Miami, FL. From 1981-1983, he taught speed reading at the
Reading Learn Center of South Florida. From 1983-1986, Mr. Clemons worked for
Holman Enterprises (Fort Lauderdale Lincoln-Mercury), in Fort Lauderdale,
Florida. He started the fleet operation department and was the Director of
ASC McLaren sales and Ford development (Prototype Convertible) OEM Program,
where he developed the first automotive showroom and sales in the Galleria
Mall. Starting from the ground up, he directed 3 new divisions for Holman
Enterprises and Fort Lauderdale Lincoln Mercury and achieved the top 10 Sales
Award in the Nation for 3 consecutive years. From 1986-1989, he worked for
ASC, Southgate, Michigan. Mr. Clemons was hired by Heinz Prechter,
Industrialist of the Year and Chairman of ASC, as Project Sales and Marketing
Coordinator. He was responsible for bringing the prototype ASC McLaren
Convertible to Ford Dealerships nationwide, under the newly designed Ford
Mustang chassis and image, prototype Chevrolet Camaro convertible, achieving
full production OEM status within one year of development, General Motors
Pontiac Division approving and purchasing production rights for the Pontiac
Firebird Convertible, and developing the "Sun In The Fun" program for South
Florida Ford Dealers with the Ford Escort. From 1989-1991, he maintained a
personal relationship with Heinz Prechter and worked independently in sales
and consulting on vintage cars. In 1992, he owned and operated his first Art
Museum and Gallery in Fort Lauderdale, FL, "Peace for the Planet"
Museum and Gallery; 1993, "Hermitage Museum", St. Petersburg, Russia
(Leningrad); and 1994 to present, opened "Gallery 721" Fort Lauderdale, FL.
Mr. Clemons is currently involved in a Real Estate project in Fort Lauderdale,
FL, encompassing 4 city blocks. Mr. Clemons attended the University of
Kentucky, Lexington, KY, from 1977 to 1979.
MICHAEL T. ADAMS is experienced in business administration, accounting,
legal matters, and public company disclosure reporting. Mr. Adams was
instrumental in the reorganization and restructuring of the Company in
connection with its acquisition of Urecoats International in January 1997.
Mr. Adams acted as a liaison between the Company's lawyers, accountants and
consultants for identifying all of the aspects of its former operations and
obtaining the status of outstanding matters, and was pivotal in ensuring the
Company's public filings were brought up-to-date and to be in compliance
with the Company's reporting requirements under the Exchange Act with the
Securities and Exchange Commission ("SEC"). Mr. Adams is primarily charged
with the duty of preparing and submitting the Company's public reports to the
SEC, in conjunction with the Company's SEC counsel. He was appointed as
President of Urecoats International on May 1, 1997. Mr. Adams was also a
Vice President and Secretary of the Company's Designer Wear subsidiary from
August 1996 to February 1998. From March 1996 to September 1996, Mr. Adams
worked as a consultant for various companies in the South Florida area. From
November 1991 to February 1996, Mr. Adams worked for Statewide Enterprises,
Statewide Security and Statewide Investigations, located in Dania, Florida,
where his last position was chief financial officer. Prior to that time,
from October 1985 to January 1991, Mr. Adams worked for American Express
Travel Related Services, located in Plantation, Florida. Mr. Adams earned
his Bachelor of Science degree (BS) in Business Administration in 1989,
Master of Science degree in Business Administration (MBA) in 1990 and Juris
Doctor degree (JD) in 1995, from Nova Southeastern University, located in
Fort Lauderdale, Florida.
Page 43
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
- --------------------------------
The Board approved annual salaries of $120,000 and $50,000 for Howard
Weiser and Edgar M. Reynolds, respectively, beginning May 1, 1997.
Management approved an annual salary of $80,000 for Michael T. Adams,
beginning May 1, 1997. The following table summarizes the salaries and
other applicable remuneration of the executive officers as of the year
ended December 31, 1998.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------------------------
(a) (b) (c) (d) (e)
Other
Annual
Name and Salary Bonus Compensation
Principal Position Year ($) ($) ($)
- ---------------------------------- ---- -------- ------- ------------
(1) Howard Weiser 1998 $120,000 -0- -0-
Chairman of the Board
President, CEO and
Secretary
(2) Edgar M. Reynolds 1998 $ 50,000 -0- -0-
Director, Vice President
and Treasurer
(3) Michael T. Adams 1998 $ 80,000 -0- -0-
Director, President
and Secretary of
Urecoats International, Inc.
Long-Term Compensation
--------------------------
Awards Payouts
-------------------------- -------
(f) (g) (h) (i)
Restricted Securities
Stock Underlying All Other
Awards Options/SARs LTIP Compensation
($) ($) ($) ($)
---------- ------------ ------- ------------
(1) $ 44,500* -0- -0- -0-
(2) $ 5,000* -0- -0- -0-
(3) $ -0- -0- -0- -0-
*See Item 11. Security Ownership of Certain Beneficial Owners and Management
Page 44
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The following table provides certain information based on the outstanding
securities of the Company as of March 31, 1999, with respect to each director,
officer, and known beneficial owners, if any, of more than 5% of the Company's
Common Stock and all corporate officers and directors as a group:
Description of Percent
Name or Party Beneficial Owner Amount of Class
- -------------------------- --------------------- ---------- --------
Richard J. Kurtz Chairman of the Board 4,600,000(1) 6.7%
301 Sylvan Avenue
Englewood Cliffs, NJ 07632
Charles A. Gargano Director 2,150,000(2) 3.1%
3 Lazare Lane
Islip, NY 11751
David M. Goldblatt Director 1,020,416(3) 1.5%
410 East 80th Street
New York, NY 10024
Stuart B. Krost Director 1,383,333(4) 2.0%
10394 La Reina Road
Delray Beach, FL 33446
Larry T. Clemons President 1,000,000(5) 1.5%
1807 N. Atlantic Blvd.
Ft. Lauderdale, FL 33305
Michael T. Adams Vice President and 1,170,000(6) 1.7%
1883 Discovery Way Secretary
Deerfield Beach, FL 33442
Cede & Co. Unknown 22,661,724 33.0%
P O Box 20
Bowling Green Sta
New York, NY 10025
Officers and Directors as a Group 11,323,749 16.5%
(1) The Board approved a private sale of 2,500,000 shares of restricted
common stock in exchange for cancellation of a loan due and owing by the
Company. The Board granted Mr. Kurtz Options to purchase 100,000 shares of
common stock under its 1999 Plan, effective February 8, 1999.
(2) The Board approved the issuance of 250,000 shares of restricted
common stock in its Special Meeting held on February 8, 1999. The Board
granted Mr. Gargano Options to purchase 150,000 shares of common stock under
its 1999 Plan, effective February 8, 1999.
(3) The Board granted Mr. Goldblatt Options to purchase 200,000 shares
of common stock under its 1999 Plan, effective February 8, 1999.
Page 45
<PAGE>
(4) The Board approved the issuance of 250,000 shares of restricted
common stock in its Special Meeting held on February 8, 1999. The Board
granted Mr. Krost Options to purchase 150,000 shares of common stock under
its 1999 Plan, effective February 8, 1999.
(5) The Board agreed to issue 1,000,000 shares of restricted common
stock, as additional executive compensation, to Larry T. Clemons, in
connection with his joining the Company.
(6) The Board granted Mr. Adams Options to purchase 250,000 shares of
common stock under its 1999 Plan, effective February 8, 1999.
(3) All of the above shares are owned of record and beneficially.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
Michael T. Adams was an officer, director and 12% shareholder in Urecoats
International and 3% shareholder in Designer Wear, respectively, prior to
their acquisitions by the Company.
Richard J. Kurtz is being issued 2,500,000 shares of restricted common
stock of the Company, in exchange for cancellation of a $187,500
non-interest bearing loan he made to the Company.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
EXHIBITS
None.
FINANCIAL STATEMENT SCHEDULES
Financial statements and schedules filed as a part of this report are
listed on the "Index to Financial Statements" page herein. All other
schedules are omitted because either (i) they are not required under the
instructions, (ii) they are inapplicable, or (iii) the information is
included in the financial statements.
REPORTS ON FORM 8-K
1. Form 8-K dated June 1, 1998
Page 46
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15 (d) of the Exchange Act, the
registrant caused this Year Ended December 31, 1998 Form 10-KSB Report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Pompano Beach and State of Florida on April 16, 1999.
URECOATS INDUSTRIES INC.
(Registrant)
/s/ Larry T. Clemons /s/ Michael T. Adams
- ------------------------ ----------------------------
Larry T. Clemons Michael T. Adams
President and Treasurer Vice President and Secretary
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant, and in the capacities and
on the dates indicated:
Signature Date
----------- ----------
/s/ Richard J. Kurtz April 16, 1999
----------------------
Richard J. Kurtz
Chairman of the Board
/ / April 16, 1999
----------------------
Charles A. Gargano
Director
/s/ David M. Goldblatt April 16, 1999
----------------------
David M. Goldblatt
Director
/s/ Stuart B. Krost April 16, 1999
----------------------
Stuart B. Krost
Director
Page 47
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- ----------------------------------------------------------------
3.1 RESTATED CERTIFICATE OF INCORPORATION
3.2 AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION
99.1 1999 CONSULTANT AND EMPLOYEE STOCK PURCHASE AND OPTION PLAN
99.2 1999 CONSULTANT AND EMPLOYEE STOCK PURCHASE AND OPTION PLAN,
AS AMENDED
27.1 FINANCIAL DATA SCHEDULE - YEAR ENDED DECEMBER 31, 1998
27.2 RESTATED FINANCIAL DATA SCHEDULE - YEAR ENDED DECEMBER 31, 1997
Page 48
<PAGE>
EXHIBIT 3.1
- -----------
RESTATED CERTIFICATE OF INCORPORATION
OF
WINNERS ALL INTERNATIONAL, INC.
Winners All International, Inc., a corporation organized and
existing under the laws of the State of Delaware, hereby certifies as
follows:
(a) The name of the corporation is Winners All International, Inc.
(the "Corporation"). The name under which the Corporation was originally
incorporated in Delaware is Natural Child Collection, Inc. The date of
filing the Corporation's original Certificate of Incorporation with the
Secretary of State of Delaware was October 20, 1989.
(b) This Restated Certificate of Incorporation of the Corporation,
which both restates and amends the provisions of the Corporation's
Certificate of Incorporation as heretofore amended, was duly adopted in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware, and written notice thereof
has been given to all stockholders who did not consent thereto in writing.
(c) The text of the Certificate of Incorporation of the
Corporation as heretofore amended is hereby restated and amended to read in
its entirety as follows:
FIRST: Name. The name of the corporation is WINNERS ALL INTERNATIONAL,
INC.
SECOND: Registered Office. The registered office of the Corporation is
to be located in the City of Wilmington, County of New Castle, in the State
of Delaware. The name of its registered agent is the Corporation Service
Company, whose address is 1013 Centre Road, Wilmington, Delaware 19805.
THIRD: Purposes. The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware (hereinafter referred to as
the "Delaware GCL").
FOURTH: Capital Stock. A. The total number of shares of stock which
the Corporation shall have the authority to issue is Sixty-Two Million
(62,000,000) shares of which of which Sixty Million (60,000,000) shall be
Common Stock of the par value of One Cent ($.01) per share (hereinafter
called the "Common Stock") and of which Two Million (2,000,000) shares shall
be Preferred Stock of the par value of One Dollar ($1.00) per share
(hereinafter called the "Preferred Stock").
Page 1 of 5
<PAGE>
B. Provisions Relating to the Preferred Stock. Shares of the
Preferred Stock may be issued from time to time in series, and the Board of
Directors of the Corporation is hereby authorized, subject to the limitations
provided by law, to establish and designate one or more series of the
Preferred Stock, to fix the number of shares constituting each series, and to
fix the designations, powers, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, of each series and the variations and the relative
rights, preferences and limitations as between series, and to increase and to
decrease the number of shares constituting each series. The authority of the
Board of Directors of the Corporation with respect to each series shall
include, but shall not be limited to, the authority to determine the
following:
(i) The designation of such series.
(ii) The number of shares initially constituting such
series.
(iii) The increase, and the decrease to a number not less
than the number of the outstanding shares of such series, of the
number of shares constituting such series theretofore fixed.
(iv) The rate or rates, and the conditions upon and the
times at which dividends on the shares of such series shall be
paid, the preference of relation which such dividends shall bear to
the dividends payable on any other class or classes or on any other
series of stock of the Corporation, and whether or not such
dividends shall be cumulative, and, if such dividends shall be
cumulative, the date or dates from and after which they shall
accumulate.
(v) Whether or not the shares of such series shall be
redeemable, and, if such shares shall be redeemable, the terms and
conditions of such redemption, including, but not limited to, the
date or dates upon or after which such shares shall be redeemable
and the amount per share which shall be payable upon such
redemption, which amount may vary under different conditions and at
different redemption dates.
(vi) The rights which the holders of the shares of such
series shall be entitled upon the voluntary or involuntary
liquidation, dissolution or winding up of, or upon any distribution
of the assets of, the Corporation, which rights may be different in
the case of a voluntary liquidation, dissolution or winding up than
in the case of such an involuntary event.
(vii) Whether or not the shares of such series shall have
voting rights, in addition to the voting rights provided by law,
and, if such shares shall have such voting rights, the terms and
conditions thereof, including, but not limited to, the right of the
holders of such shares to vote as a separate class either alone or
with the holders of shares of one or more other series of the
Preferred Stock and the right to have more than one vote per share.
Page 2 of 5
<PAGE>
(viii) Whether or not a sinking fund or a purchase fund
shall be provided for the redemption or purchase of the shares of
such series, and, if such a sinking fund or purchase fund shall be
provided, the terms and conditions thereof.
(ix) Whether or not the shares of such series shall be
convertible into, or exchangeable for, shares of any other class or
classes or any other series of the same or any other class or
classes of stock of the Corporation, and, if provision be made for
conversion or exchange, the terms and conditions of conversion or
exchange, including, but not limited to, any provision for the
adjustment of the conversion or exchange rate or the conversion or
exchange price.
(x) Any other relative rights, preferences and limitations.
C. Provisions Relating to the Common Stock.
(i) Subject to the preferential dividend rights applicable
to shares of the Preferred Stock, as determined by the Board of
Directors of the Corporation pursuant to the provisions of part B
of this Article FOURTH, the holders of shares of the Common Stock
shall be entitled to receive such dividends as may be declared by
the Board of Directors of the Company.
(ii) Subject to the preferential liquidation rights and
except as determined by the Board of Directors of the Corporation
pursuant to the provisions of part B of this Article FOURTH, in the
event of any voluntary or involuntary liquidation, dissolution or
winding up of, or any distribution of the assets of, the
Corporation, the holders of shares of the Common Stock shall be
entitled to receive all of the assets of the Corporation available
for distribution to its stockholders ratably in proportion to the
number of shares of the Common Stock held by them.
(iii) Except as otherwise determined by the Board of
Directors of the Corporation pursuant to the provisions of part B
of this Article FOURTH, the holders of shares of the Common Stock
shall be entitled to vote on all matters at all meetings of the
stockholders of the Corporation, and shall be entitled to one vote
for each share of the Common Stock entitled to one vote for each
share of the Common Stock entitled to vote at such meeting, voting
together with the holders of the Preferred Stock who are entitled
to vote, and not as a separate class.
FIFTH. Board of Directors and By-Laws. All corporate powers shall be
exercised by or under the direction of the Board of Directors, except as
otherwise provided by statute or by this Certificate of Incorporation, or any
amendment thereof, or by the By-Laws. Directors need not be elected by
written ballot. The By-Laws may be adopted, amended or repealed by the Board
of Directors of the Corporation, except as otherwise provided by law, but any
By-Law made by the Board of Directors is subject to amendment or repeal by
the stockholders of the Corporation.
Page 3 of 5
<PAGE>
SIXTH: Limited Liability. A director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under section 174
of the Delaware GCL, or (iv) for any transaction from which the director
derived any improper personal benefit. If the General Corporation Law of the
State of Delaware is herewith amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of the State of
Delaware, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification.
SEVENTH: Indemnification. (A) The Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or complete action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "proceeding"), by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise (an "indemnitee"), against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interest of the Corporation, in
accordance with and to the full extent permitted by statute. Except as
otherwise provided in paragraph (C) hereof, the Corporation shall be required
to indemnify an indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if the initiation of such proceeding (or
part thereof) by the indemnitee was authorized by the Board of Directors of
the Corporation.
(B) The Corporation shall pay the expense (including
attorneys' fees) incurred by an indemnitee in defining 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 or officer to repay all amounts advanced if it
should be ultimately determined that the director or officer is not entitled
to be indemnified hereunder or otherwise.
(C) If a claim for indemnification or payment of expenses
hereunder is not paid in full within sixty days after a written claim
therefor by the indemnitee has been received by the Corporation, the
indemnitee 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 indemnitee was not entitled to the requested
indemnification or payment of expenses under applicable law.
Page 4 of 5
<PAGE>
(D) The Corporation's obligation, if any, to indemnify or
advance expenses to any person who is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture
or other enterprise shall be reduced by any amount such person may collect as
indemnification from such other corporation, partnership, joint venture or
other enterprise.
(E) Any repeal or modification of the foregoing provisions
hereof shall not adversely affect any right or protection hereunder of any
persons in respect of any act or omission occurring prior to the time of
such repeal or modification.
The indemnification provided by this section shall not be deemed exclusive of
any other rights to which those seeking indemnification may be entitled under
these Articles or any agreement or vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
IN WITNESS WHEREOF, we have signed this Certificate and caused the
corporate seal of the Corporation to be hereunto affixed this 28th day of
June, 1994.
/s/M. Anthony Joyce
------------------------
President
/s/Eugene Stricker
------------------------
Assistant Secretary
Page 5 of 5
<PAGE>
EXHIBIT 3.2
- -----------
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
WINNERS ALL INTERNATIONAL, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Winners All
International, Inc. resolutions were duly adopted setting forth proposed
amendments of the Restated Certificate of Incorporation of said corporation,
declaring said amendments to be advisable and calling a meeting of the
stockholders of said corporation for consideration thereof. The resolutions
setting forth the proposed amendments are as follows:
RESOLVED, that the Restated Certificate of Incorporation of this
corporation be amended by changing the Article thereof numbered "FIRST" so
that, as amended, said Article shall be and read as follows:
"FIRST: Name. The name of the corporation is URECOATS INDUSTRIES INC."
RESOLVED, that the Restated Certificate of Incorporation of this
corporation be amended by changing the Article and Section thereof numbered
"FOURTH", Section "A", so that, as amended, said Article's Section shall be
and read as follows:
"FOURTH: Capital Stock. A. The total number of shares of stock which
the Corporation shall have the authority to issue is One Hundred and Two
Million (102,000,000) shares of which One Hundred Million (100,000,000) shall
be Common Stock of the par value of One Cent ($.01) per share (hereinafter
called the "Common Stock") and of which Two Million (2,000,000) shares shall
be Preferred Stock of the par value of One Dollar ($1.00) per share
(hereinafter called the "Preferred Stock")."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a special meeting of the stockholders of said corporation was duly
called and held upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware at which meeting the necessary
number of shares as required by statute were voted in favor of the
amendments.
THIRD: That said amendments were duly adopted in accordance with the
provision of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under
or by reason of said amendments.
IN WITNESS WHEREOF, said WINNERS ALL INTERNATIONAL, INC. has caused this
certificate to be signed by Larry T. Clemons, an Authorized Officer, this
12th day of February, 1999.
BY: /s/ Larry Clemons
-----------------
TITLE OF OFFICER: President
-----------------
<PAGE>
EXHIBIT 99.1
- ------------
WINNERS ALL INTERNATIONAL, INC.
1999 CONSULTANT AND EMPLOYEE STOCK PURCHASE AND OPTION PLAN
SECTION I
---------
PURPOSE
WINNERS ALL INTERNATIONAL, INC. desires to afford certain of its key
employees, officers, and consultants, who are responsible for the continued
growth of the Company, an opportunity to acquire a proprietary interest in
the Company, and, thus, to create in such individuals a greater concern for
the welfare of the Company and its subsidiaries. The Company, by means of
this 1999 Consultant and Employee Stock Purchase and Option Plan, seeks to
retain the services of persons now holding key positions and to secure the
services of persons capable of filling such positions. The Options offered
herein are a matter of separate inducement and are not in lieu of any salary
or other compensation for the services of any key employee or consultant.
The Options granted hereunder are intended to be either Incentive Stock
Options or Non-Qualified Stock Options.
SECTION II
-----------
DEFINITIONS
The terms, as used in this 1999 Plan, shall have the meanings set forth
below:
(a) Administrator. The Board of Directors of the Company, or a
committee established by the Board, designated to administer the 1999 Plan,
which shall consist of not less than two (2) Non-Employee Directors
satisfying the requirements of Rule 16b-3.
(b) Affiliate. Any entity that, directly or indirectly through one or
more intermediaries, is controlled by the Company and any entity in which the
Company has a significant equity interest.
(c) Code. The Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.
(d) Company. Winners All International, Inc., a Delaware corporation.
(e) Eligible Person. Any employee, officer or consultant providing
services to the Company or any Affiliate who the Administrator determines to
be an Eligible Person. A director of the Company who is not also an employee
of the Company or an Affiliate shall be an Eligible Person.
(f) Exchange Act. The Securities Exchange Act of 1934, as amended.
(g) Fair Market Value. The closing "bid" price of the Shares on the
date in question as quoted on NASDAQ, or any successor national stock exchange
on which the Shares are then traded; provided, however, that if on
the date in question there is no public market for the Shares and they are
neither quoted on NASDAQ nor traded on a national securities exchange, then
the Administrator shall, in its sole discretion and best judgment, determine
the Fair Market Value.
Page 1 of 13
<PAGE>
(h) Incentive Stock Option. An Option granted under the 1999 Plan that
is intended to meet the requirements of Section 422 of the Code or any
successor provision.
(i) NASDAQ. The National Association of Securities Dealers Electronic
Bulletin Board or Automated Quotation System.
(j) Non-Employee Directors. Directors, as such term is defined in Rule
16b-3(b)(3)(I) promulgated under the Exchange Act, that have the
qualifications thereunder to satisfy the requirements of Rule 16b-3.
(k) Non-Qualified Stock Option. An Option granted under the 1999 Plan
that is not intended nor meets the requirements of Section 422 of the Code
or any successor provision.
(l) Option. An Incentive Stock Option or a Non-Qualified Stock Option.
(m) Option Agreement. Any written agreement, contract or document
evidencing any Option granted under the 1999 Plan.
(n) Optionee. An Eligible Person granted an Option under the 1999 Plan.
(o) Participant. An Eligible Person designated to be granted an Option
under the 1999 Plan.
(p) Person. Any individual, corporation, partnership, association,
limited liability company, or trust.
(q) Rule 16b-3. The Rule 16b-3 promulgated by the Securities and Exchange
Commission under the Exchange Act, or any successor rule or regulation.
(r) Shares. The shares of common stock, $.01 par value, of the Company.
(s) 10% Shareholder. A Participant who owns Shares of the Company or
shares of any subsidiary corporation or parent corporation of the Company
possessing more than 10% of the Company or subsidiary corporation or parent
corporation of the Company.
(t) 1999 Plan. This 1999 Consultant and Employee Stock Purchase and
Option Plan.
SECTION III
------------
ADMINISTRATION
The Administrator, subject to the express provisions contained herein and
applicable law, shall administer this 1999 Plan with full power and authority
to:
(a) designate Participants;
(b) determine the types of Options (e.g., whether Incentive Stock Options
or Non-Qualified Stock Options) to be granted to each Participant under the
1999 Plan;
(c) determine the number of Shares to be covered by each Option;
Page 2 of 13
<PAGE>
(d) determine the terms and conditions of any Option Agreement;
(e) amend the terms and conditions of any Option Agreement and accelerate
the exercisability of Options covered thereunder;
(f) determine whether, to what extent and under what circumstances
Options may be exercised in cash, shares, cancellation of indebtedness of the
Company owing to the Optionee, other securities, other property, or any
combination thereof, or canceled, forfeited or suspended;
(g) determine whether, to what extent and under what circumstances
Options shall be deferred either automatically or at the election of the
holder thereof or the Administrator;
(h) interpret and administer the 1999 Plan and any instrument or Option
Agreement relating to, or Option granted under the 1999 Plan;
(i) establish, amend, suspend or waive such rules and regulations and
appoint such agents as it shall deem appropriate for the proper
administration of the 1999 Plan; and
(j) make any other determination and take any other action that it deems
necessary or desirable for the administration of the 1999 Plan.
Unless otherwise expressly provided in the 1999 Plan, all designations,
determinations, interpretations and other decisions under or with respect to
the 1999 Plan or any Option shall be within the sole discretion of the
Administrator, may be made at any time and shall be final, conclusive and
binding upon any Participant, any holder or beneficiary of any Option granted
under the 1999 Plan and any employee of the Company or any Affiliate.
SECTION IV
----------
AVAILABLE SHARES SUBJECT TO OPTION
The Shares underlying the Options granted pursuant to this 1999 Plan, are
subject to the following provisions:
(a) Shares Available. The total number of Shares for which Options may
be granted pursuant to the 1999 Plan shall be 8,000,000 Shares in the
aggregate, subject to approval by the shareholders of an Amendment to the
Company's Restated Certificate of Incorporation ("Restated Certificate") or
other duly authorized action making the Shares underlying the Options to
granted pursuant to the 1999 Plan available for issuance by the Company
without causing the Company upon effectuating the exercise of an Option, to
exceed its Restated Certificate common stock capitalization authorization,
and further, subject to adjustments as provided in Section 4(c). If any
Shares covered by an Option or to which an Option relates are not purchased
or are forfeited, or if an Option otherwise expires, then the number of
Shares counted against the aggregate number of Shares available under the
1999 Plan with respect to such Option, to the extent of any such forfeitures
or terminations, shall again be available for Options under the 1999 Plan.
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<PAGE>
(b) Accounting for Shares Covered by an Option. For purposes of this
Section 4, the number of Shares covered by an Option shall be counted on the
date of grant of such Option against the aggregate number of Shares available
for granting Options under the 1999 Plan.
(c) Adjustments. In the event that the Administrator shall determine
that any dividend or other distribution (whether in the form of cash, shares,
other securities or other property), re-capitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of shares or other securities of the
Company, issuance of warrants or other rights to purchase shares or other
securities of the Company or other similar rights to purchase shares or other
securities of the Company or other similar corporation transaction or event
affects the Shares subject to Option grants under the 1999 Plan such that an
adjustment is determined by the Administrator to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the 1999 Plan, then the Administrator
shall, in such manner as it may deem equitable, adjust any or all of:
(1) the number of Shares which may thereafter be made the subject of
Options;
(2) the number of Shares subject to outstanding Option awards; and
(3) the purchase or exercise price with respect to any Option,
provided, however, that the number of Shares covered by an Option or to which
such Option relates shall always be a whole number.
(d) Incentive Stock Options. Notwithstanding the foregoing, the number
of Shares available for granting Incentive Stock Options under the 1999 Plan
shall not exceed 2,000,000 Shares subject to adjustment as provided in the
1999 Plan and Section 422 or 424 of the Code or any successor provisions.
SECTION V
---------
ELIGIBILITY
Any Eligible Person shall be eligible to be designated a Participant. In
determining which Eligible Persons shall receive an Option and the terms of
any Option, the Administrator may take into account the nature of the
services rendered by the respective Eligible Persons, their present and
potential contributions to the success of the Company or such other factors
as the Administrator, in its discretion, shall deem relevant. Notwithstanding
the foregoing, an Incentive Stock Option may only be granted to full or
part-time employees (which term as used herein includes, without limitation,
officers and directors who are also employees) and shall not be granted to an
employee of an Affiliate unless such Affiliate is also a "subsidiary
corporation" of the Company within the meaning of Section 424(f) of the Code
or any successor provision.
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<PAGE>
SECTION VI
-----------
OPTION AWARDS
The Administrator is authorized to grant Options to Participants with the
following terms and conditions and with such additional terms and conditions
not inconsistent with the provisions of the 1999 Plan as the Administrator
shall determine:
(a) Exercise Price. The purchase price per Share purchasable under an
Option shall be determined by the Administrator, provided, however, that such
purchase price shall not be less than ninety percent (90%) of the Fair Market
Value of a Share on the date of grant of such Option, provided further, any
Option granted to a Participant who, at the time such Option is granted, is
an officer or director of the Company, the purchase price shall not be less
than one hundred percent (100%) of the Fair Market Value of a Share on the
date of grant of such Option, provided further, however, that in the case of
an Incentive Stock Option granted to a Participant who, at the time such
Option is granted, is deemed to be a 10% Shareholder, the purchase price for
each Share shall be such amount as the Administrator in its best judgment
shall determine to be not less than one hundred and ten percent (110%) of the
Fair Market Value per Share at the date the Incentive Stock Option is
granted. In determining stock ownership of a Participant for any purposes
under the 1999 Plan, the rules of Section 424(d) of the Code shall be
applied, and the Administrator may rely on representations of fact made to it
by the Participant and believe it to be true.
(b) Option Term. The term of each Option shall be fixed by the
Administrator which in any event shall not exceed a term of ten (10) years
from the date of the grant, provided, however, that the term of any Incentive
Stock Option granted to any 10% Shareholder shall not be exercisable after
the expiration of five (5) years from the date such Incentive Stock Option
was granted.
(c) Maximum Grant of Incentive Stock Options. The aggregate Fair Market
Value (determined on the date the Incentive Stock Option is granted) of
Shares subject to an Incentive Stock Option (when first exercisable) granted
to a Participant by the Administrator in any calendar year shall not exceed
one hundred thousand dollars ($100,000.00).
(d) Time and Method of Exercise. Subject to the provisions of the 1999
Plan, the Administrator shall determine the time or times at which an Option
may be exercised in whole or in part and the method or methods which shall
consist of cash, shares, cancellation of indebtedness of the Company owing to
the Optionee, other property, or any combination thereof, having a Fair
Market Value on the exercise date equal to the relevant exercise price, in
which, payment of the exercise price may be made or deemed to have been made.
(e) Limits on Transfer of Options. No Option shall be transferable by a
Participant otherwise than by will or by the laws of descent and
distribution; provided, however, that, if so determined by the Administrator,
a Participant may, in the manner established by the Administrator, designate
a beneficiary or beneficiaries to exercise the rights of the Participant and
receive any Shares purchased with respect to any Option upon the death of the
Participant. Each Option shall be exercisable during the Participant's
Page 5 of 13
<PAGE>
lifetime only by the Participant or, if permissible under applicable law, by
the Participant's guardian or legal representative. No Option or Shares
underlying any Option shall be pledged, alienated, attached or otherwise
encumbered, and any purported pledge, alienation, attachment or encumbrance
shall be void and unenforceable against the Company or any Affiliate.
(f) Restrictions and Securities Exchange Listing. All certificates for
Shares delivered upon the exercise of Options shall be subject to such stop
transfer orders and other restrictions as the Administrator may deem
advisable under the 1999 Plan or the rules, regulations and other
requirements of the Securities and Exchange Commission and any applicable
federal or state securities laws, and the Administrator may cause a legend or
legends to be placed on such certificates to make appropriate reference to
such restrictions. If the Shares or other securities are traded on a
national securities exchange, the Company shall not be required to deliver
any Shares covered by an Option unless and until such Shares have been
admitted for trading on such securities exchange.
(g) Termination of Employment or Consultancy. Termination of employment
or consultancy shall be subject to the following provisions:
(1) Upon termination of the employment or consultancy, as the case
may be, of any Participant, an Option previously granted to the Participant,
unless otherwise specified herein or by the Administrator in the Option,
shall, to the extent not theretofore exercised, not terminate or become null
and void:
(i) If the Participant shall die while in the employ of the
Company or during the one (1) year period, whichever is applicable, specified
in clause;
(ii) below and at a time when such Participant was entitled to
exercise an Option as herein provided, the legal representative of such
Participant, or such Person who acquired such Option by bequest or
inheritance or by reason of the death of the Participant, may, not later than
fifteen (15) months from the date of death, exercise such Option, to the
extent not theretofore exercised, in respect of any or all of such number of
Shares specified by the Administrator in such Option; and
(iii) If the employment or consultancy of any Participant to
whom such Option shall have been granted shall terminate by reason of the
Participant's retirement (at such age upon such conditions as shall be
specified by the Board of Directors), disability (as described in Section
22(e) of the Code) or dismissal by the Company other than for cause (as
defined below), and while such Participants entitled to exercise such Option
as herein provided, such Participant shall have the right to exercise such
Option so granted, to the extent not theretofore exercised, in respect of any
or all of such number of Shares as specified by the Administrator in such
Option, at any time up to one (1) year from the date of termination of the
Optionee's employment or consultancy by reason of retirement or dismissal
other than for cause or disability, provided, that if the Optionee dies
within such twelve (12) month period, subclause (i) above shall apply.
Page 6 of 13
<PAGE>
(2) If a Participant voluntarily terminates his or her employment or
consultancy, as the case may be, or is discharged for cause, any Option
granted hereunder shall, unless otherwise specified by the Administrator in
the Option, forthwith terminate with respect to any unexercised portion
thereof.
(3) If an Option granted hereunder shall be exercised by the legal
representative of a deceased or disabled Participant, or by a person who
acquired an Option granted hereunder by bequest or inheritance or by reason
of death of any such person, written notice of such exercise shall be
accompanied by a certified copy of letters testamentary or equivalent proof
of the right of such legal representative or other person to exercise such
Option.
(4) For all purposes of the 1999 Plan, the term "for cause" shall
mean:
(i) With respect to a Participant who is a party to a written
employment or consultancy agreement with the Company, as the case may be,
which contains a "for cause" definition or "cause" (or words of like import)
for purposes of termination of employment or consultancy thereunder by the
Company, "for cause" or "cause" as defined in the most recent of such
agreements; or
(ii) In all other cases, as determined by the Administrator in
its sole discretion, that one or more of the following has occurred:
(A) any failure by a Participant to substantially perform
his or her employment or consultancy duties, as the case may be, which shall
not have been corrected within thirty (30) days following written notice
thereof;
(B) any engaging by such Participant in misconduct or, in
the case of an officer Participant, any failure or refusal by such officer
Participant to follow the directions of the Company's Board of Directors or
Chief Executive Officer of the Company which, in either case, is injurious
to the Company or any Affiliate;
(C) any breach by a Participant of any obligation or
specification contained in the instrument pursuant to which an Option is
granted; or
(D) such Participant's conviction or entry of a plea of
nolo contendere in respect of any felony, or of a misdemeanor which results
in or is reasonably expected to result in economic or reputational injury
to the Company or any of its Affiliates.
SECTION VII
-----------
AMENDMENTS, TERMINATION AND ADJUSTMENTS
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Option Agreement or in the 1999 Plan:
Page 7 of 13
<PAGE>
(a) Amendments to the 1999 Plan. The Board of Directors of the Company
may amend, alter, suspend, discontinue or terminate the 1999 Plan; provided,
however, that, notwithstanding any other provision of the 1999 Plan or any
Option, without approval of the stockholders of the Company, no such
amendment, alteration, suspension, discontinuation or termination shall be
made that, absent such approval:
(1) would cause Rule 16b-3 to become unavailable with respect to the
1999 Plan;
(2) would violate the rules or regulations of any national
securities exchange on which the Shares of the Company are traded or the
rules or regulations of the National Association of Securities Dealers, Inc.
that are applicable to the Company; or
(3) would cause the Company to be unable, under the Code, to grant
Incentive Stock Options under the 1999 Plan.
(b) Amendments to Option Grants. The Administrator may waive any
conditions or rights of the Company under any outstanding Option grant,
prospectively or retroactively. The Administrator may not amend, alter,
suspend, discontinue or terminate any outstanding Option grant, prospectively
or retroactively, without the consent of the Participant or holder or
beneficiary thereof, except as otherwise herein provided.
(c) Correction of Defects, Omissions and Inconsistencies. The
Administrator may correct any defect, supply any omission or reconcile any
inconsistency in the 1999 Plan or any Option in the manner and to the extent
it shall deem desirable to carry the 1999 Plan into affect.
SECTION VIII
------------
INCOME TAX WITHHOLDING and TAX BONUSES
The exercise of Options and issuance of the underlying Shares under this
1999 Plan, are subject to the following:
(a) Withholding. In order to comply with all applicable federal or state
income tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal or state payroll,
withholding, income or other taxes, which are the sole and absolute
responsibility of a Participant, are withheld or collected from such
Participant. In order to assist a Participant in paying all or a portion of
the federal and state taxes to be withheld or collected upon exercise of any
Option, the Administrator, in its discretion and subject to such additional
terms and conditions as it may adopt, may permit the Participant to satisfy
such tax obligation by:
(1) electing to have the Company withhold a portion of the Shares
otherwise to be delivered upon exercise of any Option with a Fair Market
Value equal to the amount of such taxes or
(2) delivering to the Company Shares other than the shares issuable
upon exercise of the applicable Option with a Fair Market Value equal to the
amount of such taxes. The election, if any, must be made on or before the
date that the amount of tax to be withheld is determined.
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<PAGE>
(b) Tax Bonuses. The Administrator, in its discretion, shall have the
authority, at the time of grant of any Option under this 1999 Plan or at any
time thereafter, to approve cash bonuses to designated Participants to be
paid upon their exercise in order to provide funds to pay all or a portion of
federal and state taxes due as a result of such exercise, and shall have full
authority in its discretion to determine the amount of any such tax bonus.
SECTION IX
----------
EFFECTIVE DATE AND TERM
The effective date and term of this 1999 Plan are as follows:
(a) Effective Date. The effective date of this 1999 Plan shall be
November 23, 1998.
(b) Term of 1999 Plan. Unless the 1999 Plan shall have been discontinued
or terminated as provided for in the provisions of this 1999 Plan, the 1999
Plan shall terminate on November 23, 2008. No Option shall be granted after
the termination of the 1999 Plan. However, unless otherwise expressly
provided in the 1999 Plan or in an applicable Option, any Option theretofore
granted may extend beyond the termination of the 1999 Plan, and the authority
of the Administrator provided for hereunder with respect to the 1999 Plan and
any Option grants, and the authority of the Board of Directors of the Company
to amend the 1999 Plan, shall extend beyond the termination of the 1999 Plan.
SECTION X
----------
GENERAL PROVISIONS
The general provisions applicable to this 1999 Plan are as follows:
(a) No Rights to Option Grants. No Eligible Person, Participant or other
Person shall have any claim to be granted an Option under the 1999 Plan, and
there is no obligation for uniformity of treatment of Eligible Persons,
Participants or holders or beneficiaries of Options granted under the 1999
Plan. The terms and conditions of Options need not be the same with respect
to any Participant or with respect to different Participants.
(b) Option Agreements. No Participant will have rights under an Option
granted to such Participant unless and until a written Option shall have been
duly executed on behalf of the Company. Each Option shall set forth the
terms and conditions of the Option as granted to a Participant consistent
with the provisions of this 1999 Plan.
(c) Limit on Other Compensation Arrangements. Nothing contained in the
1999 Plan shall prevent the Company or any Affiliate from adopting or
continuing in effect other or additional compensation arrangements, and such
arrangements may be either generally applicable or applicable only in
specific cases.
(d) No Right to Employment. The grant of an Option shall not be
construed as giving a Participant the right to be retained in the employ of
the Company or any Affiliate, nor will it affect in any way the right of the
Page 9 of 13
<PAGE>
Company or an Affiliate to terminate such employment at any time, with or
without cause. In addition, the Company or an Affiliate may at any time
dismiss a Participant from employment free from any liability or any claim
under the 1999 Plan, unless otherwise expressly provided in the 1999 Plan or
in any Option.
(e) Governing Law. The validity, construction and effect of the 1999
Plan or any Option granted hereunder, and any rules and regulations relating
to the 1999 Plan or any Option granted hereunder, shall be determined in
accordance with the laws of the State of Delaware except to the extent
preempted by Federal law.
(f) Severability. If any provision of the 1999 Plan or any Option is or
becomes or is deemed to be invalid, illegal or unenforceable in any
jurisdiction or would disqualify the 1999 Plan or any Option under any law
deemed applicable by the Administrator, such provision shall be construed or
deemed amended to conform to applicable laws, or if it cannot be so construed
or deemed amended without, in the determination of the Administrator,
materially altering the purpose or intent of the 1999 Plan or the Option,
such provision shall be stricken as to such jurisdiction or Option, and the
remainder of the 1999 Plan or any Option shall remain in full force & effect.
(g) Section Headings. The section headings included herein are only for
convenience, and they shall have no effect on the interpretation of the 1999
Plan.
IN WITNESS WHEREOF, this 1999 Plan has been duly executed at Pompano
Beach, Florida on this 23rd day of November 1998.
WINNERS ALL INTERNATIONAL, INC.
/s/ Howard Weiser
- ------------------------
Howard Weiser
Chairman of the Board, President and Secretary
Page 10 of 13
<PAGE>
EXHIBIT
-------
OPTION
THE BOARD OF DIRECTORS' of Winners All International, Inc. ("Company")
has authorized and approved the 1999 Consultant and Employee Stock Purchase
and Option Plan ("1999 Plan" ), subject to approval and ratification of
the 1999 Plan by the shareholders of the Company within one (1) year from
the effective date of the 1999 Plan, and further, subject to approval by
the shareholders on an Amendment to the Company's Restated Certificate of
Incorporation ("Restated Certificate") or other duly authorized action
making shares of common stock underlying the Option granted herein available
for issuance by the Company without causing the Company upon effectuating
the exercise of this Option, to exceed its Restated Certificate's common
stock capitalization authorization. This 1999 Plan provides for the grant
of Options to employees including officers and directors and consultants of
the Company. Unless otherwise provided herein all defined terms shall have
the respective meanings ascribed to them under the 1999 Plan.
1. GRANT OF OPTION. Pursuant to authority granted to it under the 1999
Plan, the Administrator responsible for administering the 1999 Plan hereby
grants to you, as an employee or consultant of the Company and as of
____________, _______ ("Grant Date"), the following Options _____________.
Each Option permits you to purchase one share of the Company's common stock,
$.01 par value per share ("Shares").
2. CHARACTER OF OPTIONS. Pursuant to the 1999 Plan, Options granted
herein may be Incentive Stock Options or Non-Qualified Stock Options, or
both. To the extent permitted under the 1999 Plan and by law, such Options
shall first be considered Incentive Stock Options.
3. EXERCISE PRICE. The Exercise Price for each Non-Qualified Stock
Option granted herein to consultants shall be $____________ per Share and
employees $ ___________ per Share, and the exercise price for each Incentive
Stock Option granted herein shall be $ _______ per Share, except that an
Incentive Stock Option granted to a 10% Shareholder shall be $_______ per
Share. It is agreed and determined by the Administrator that the Fair Market
Value of the Shares subject to the Options herein on the date of grant is
$________ per Share.
4. PAYMENT OF EXERCISE PRICE. Options represented hereby may be
exercised in whole or in part by delivering to the Company your payment of
the Exercise Price of the Option so exercised in cash, Shares, cancellation
of indebtedness of the Company owing to the Optionee, or in such form
permitted under the 1999 Plan, or any combination thereof, having a Fair
Market Value on the exercise date equal to the relevant exercise price of the
relevant Option being exercised.
5. TERMS OF OPTIONS. The term of each Option granted herein shall be for
a term of up to ______ (___) years from the Grant Date, provided, however,
that the term of any Incentive Stock Option granted herein shall not be
exercisable after the expiration of five (5) years from the Grant Date.
Page 11 of 13
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6. LIMITS ON TRANSFER OF OPTIONS. The Option granted herein shall not be
transferable by you otherwise than by will or by the laws of descent and
distribution; provided, however, that you may designate a beneficiary or
beneficiaries to exercise your rights and receive any Shares purchased with
respect to any Option upon your death. Each Option shall be exercisable
during your lifetime only by you or, if permissible under applicable law, by
your legal representative. No Option herein granted or Shares underlying any
Option shall be pledged, alienated, attached or otherwise encumbered, and any
purported pledge, alienation, attachment or encumbrance thereof shall be void
and unenforceable against the Company or any Affiliate.
7. TERMINATION OF EMPLOYMENT OR CONSULTANCY. If your employment or
consultancy is terminated with the Company, your Option and/or any
unexercised portion, shall be subject to the provisions below:
(a) Upon the termination of your employment or consultancy with the
Company, to the extent not theretofore exercised, your Option shall continue
to be valid; provided, however, that:
(i) If the Participant shall die while in the employ of the
Company or during the one (1) year period, whichever is applicable, specified
in clause (ii) below and at a time when such Participant was entitled to
exercise an Option as herein provided, the legal representative of such
Participant, or such Person who acquired such Option by bequest or
inheritance or by reason of the death of the Participant, may, not later than
fifteen (15) months from the date of death, exercise such Option, to the
extent not theretofore exercised, in respect of any or all of such number of
Shares specified by the Administrator in such Option; and
(ii) If the employment or consultancy of any Participant to whom
such Option shall have been granted shall terminate by reason of the
Participant's retirement (at such age upon such conditions as shall be
specified by the Board of Directors), disability (as described in Section
22(e) of the Code) or dismissal by the Company other than for cause (as
defined below), and while such Participants entitled to exercise such Option
as herein provided, such Participant shall have the right to exercise such
Option so granted, to the extent not theretofore exercised, in respect of any
or all of such number of Shares as specified by the Administrator in such
Option, at any time up to one (1) year from the date of termination of the
Optionee's employment or consultancy by reason of retirement or dismissal
other than for cause or disability, provided, that if the Optionee dies
within such twelve (12) month period, subclause (i) above shall apply.
(b) If you voluntarily terminate your employment or consultancy, or
are discharged for cause, any Options granted hereunder shall forthwith
terminate with respect to any unexercised portion thereof.
(c) If any Options granted hereunder shall be exercised by your legal
representative if you should die or become disabled, or by any person who
acquired any Options granted hereunder by bequest or inheritance or by reason
of death of any such person written notice of such exercise shall be
accompanied by a certified copy of letters testamentary or equivalent proof
of the right of such legal representative or other person to exercise such
Options.
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(d) For all purposes of the 1999 Plan, the term "for cause" shall
mean "cause" as defined in the 1999 Plan or your employment or consultancy
agreement with the Company.
8. RESTRICTION; SECURITIES EXCHANGE LISTING. All certificates for shares
delivered upon the exercise of Options granted herein shall be subject to
such stop transfer orders and other restrictions as the Administrator may
deem advisable under the 1999 Plan or the rules, regulations and other
requirements of the Securities and Exchange Commission and any applicable
federal or state securities laws, and the Administrator may cause a legend or
legends to be placed on such certificates to make appropriate reference to
such restrictions. If the Shares or other securities are traded on a
national securities exchange, the Company shall not be required to deliver
any Shares covered by an Option unless and until such Shares have been
admitted for trading on such securities exchange.
9. AMENDMENTS TO OPTIONS HEREIN GRANTED. The Options granted herein may
not be amended without your consent.
10. WITHHOLDING TAXES. As provided in the 1999 Plan, the Company may
withhold from sums due or to become due to you from the Company an amount
necessary to satisfy its obligation to withhold taxes incurred by reason of
the disposition of the Shares acquired by exercise of the Options in a
disqualifying disposition (within the meaning of Section 421(b) of the Code),
or may require you to reimburse the Company in such amount.
Indicate your acceptance of all the terms and conditions of the Option and
1999 Plan, by your signature below and returning a copy of this Option to the
Company.
WINNERS ALL INTERNATIONAL, INC. (EMPLOYEE/CONSULTANT)
- ------------------------------- ----------------------------
(Printed Name) (Printed Name)
(Title) (Employee or Consultant)
- ---------------- ---------------
Date Date
Page 13 of 13
<PAGE>
EXHIBIT 99.2
- ------------
URECOATS INDUSTRIES INC.
1999 CONSULTANT AND EMPLOYEE STOCK PURCHASE AND OPTION PLAN
AS AMENDED
SECTION I
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PURPOSE
URECOATS INDUSTRIES INC. (the "Company"), formerly Winners All International,
Inc., desires to afford certain of its key employees, officers, and
consultants, who are responsible for the continued growth of the Company, an
opportunity to acquire a proprietary interest in the Company, and, thus, to
create in such individuals a greater concern for the welfare of the Company and
its subsidiaries. The Company, by means of this 1999 Consultant and Employee
Stock Purchase and Option Plan, seeks to retain the services of persons now
holding key positions and to secure the services of persons capable of filling
such positions. The Options offered herein are a matter of separate inducement
and are not in lieu of any salary or other compensation for the services of any
key employee or consultant. The Options granted hereunder are intended to be
either Incentive Stock Options or Non-Qualified Stock Options.
SECTION II
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DEFINITIONS
The terms, as used in this 1999 Plan, shall have the meanings provide below:
(a) Administrator. The Board of Directors of the Company, or a committee
established by the Board, designated to administer the 1999 Plan, which shall
consist of not less than two (2) Non-Employee Directors satisfying the
requirements of Rule 16b-3.
(b) Affiliate. Any entity that, directly or indirectly through one or
more intermediaries, is controlled by the Company and any entity in which the
Company has a significant equity interest.
(c) Code. The Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.
(d) Company. Urecoats Industries Inc., a Delaware corporation.
(e) Eligible Person. Any employee, officer or consultant providing
services to the Company or any Affiliate who the Administrator determines to
be an Eligible Person. A director of the Company who is not also an employee
of the Company or an Affiliate shall be an Eligible Person.
(f) Exchange Act. The Securities Exchange Act of 1934, as amended.
(g) Fair Market Value. The closing "bid" price of the Shares on the date
in question as quoted on NASDAQ, or any successor national stock exchange on
which the Shares are then traded; provided, however, that if on the date in
question there is no public market for the Shares and they are neither quoted
on NASDAQ nor traded on a national securities exchange, then the Administrator
shall, in its sole discretion and best judgment, determine the Fair Market
Value.
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(h) Incentive Stock Option. An Option granted under the 1999 Plan that
is intended to meet the requirements of Section 422 of the Code or any
successor provision.
(i) NASDAQ. The National Association of Securities Dealers Electronic
Bulletin Board or Automated Quotation System.
(j) Non-Employee Directors. Directors, as such term is defined in Rule
16b-3(b)(3)(I) promulgated under the Exchange Act, that have the
qualifications thereunder to satisfy the requirements of Rule 16b-3.
(k) Non-Qualified Stock Option. An Option granted under the 1999 Plan
that is not intended nor meets the requirements of Section 422 of the Code or
any successor provision.
(l) Option. An Incentive Stock Option or a Non-Qualified Stock Option.
(m) Option Agreement. Any written agreement, contract or document
evidencing any Option granted under the 1999 Plan.
(n) Optionee. An Eligible Person granted an Option under the 1999 Plan.
(o) Participant. An Eligible Person designated to be granted an Option
under the 1999 Plan.
(p) Person. Any individual, corporation, partnership, association,
limited liability company, or trust.
(q) Rule 16b-3. The Rule 16b-3 promulgated by the Securities and Exchange
Commission under the Exchange Act, or any successor rule or regulation.
(r) Shares. The shares of common stock, $.01 par value, of the Company.
(s) 10% Shareholder. A Participant who owns Shares of the Company or
shares of any subsidiary corporation or parent corporation of the Company
possessing more than 10% of the Company or subsidiary corporation or parent
corporation of the Company.
(t) 1999 Plan. This 1999 Consultant and Employee Stock Purchase and
Option Plan.
SECTION III
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ADMINISTRATION
The Administrator, subject to the express provisions contained herein and
applicable law, shall administer this 1999 Plan with full power and authority
to:
(a) designate Participants;
(b) determine the types of Options (e.g., whether Incentive Stock Options
or Non-Qualified Stock Options) to be granted to each Participant under the
1999 Plan;
(c) determine the number of Shares to be covered by each Option;
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(d) determine the terms and conditions of any Option Agreement;
(e) amend the terms and conditions of any Option Agreement and accelerate
the exercisability of Options covered thereunder;
(f) determine whether, to what extent and under what circumstances
Options may be exercised in cash, shares, cancellation of indebtedness of the
Company owing to the Optionee, other securities, other property, or any
combination thereof, or canceled, forfeited or suspended;
(g) determine whether, to what extent and under what circumstances
Options shall be deferred either automatically or at the election of the
holder thereof or the Administrator;
(h) interpret and administer the 1999 Plan and any instrument or Option
Agreement relating to, or Option granted under the 1999 Plan;
(i) establish, amend, suspend or waive such rules and regulations and
appoint such agents as it shall deem appropriate for the proper
administration of the 1999 Plan; and
(j) make any other determination and take any other action that it deems
necessary or desirable for the administration of the 1999 Plan.
Unless otherwise expressly provided in the 1999 Plan, all designations,
determinations, interpretations and other decisions under or with respect to
the 1999 Plan or any Option shall be within the sole discretion of the
Administrator, may be made at any time and shall be final, conclusive and
binding upon any Participant, any holder or beneficiary of any Option granted
under the 1999 Plan and any employee of the Company or any Affiliate.
SECTION IV
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AVAILABLE SHARES SUBJECT TO OPTION
The Shares underlying the Options granted pursuant to this 1999 Plan, are
subject to the following provisions:
(a) Shares Available. The total number of Shares for which Options may
be granted pursuant to the 1999 Plan shall be 8,000,000 Shares in the
aggregate, subject to adjustments as provided in Section 4(c). If any Shares
covered by an Option or to which an Option relates are not purchased or are
forfeited, or if an Option otherwise expires, then the number of Shares
counted against the aggregate number of Shares available under the 1999 Plan
with respect to such Option, to the extent of any such forfeitures or
terminations, shall again be available for Options under the 1999 Plan.
(b) Accounting for Shares Covered by an Option. For purposes of this
Section 4, the number of Shares covered by an Option shall be counted on the
date of grant of such Option against the aggregate number of Shares available
for granting Options under the 1999 Plan.
(c) Adjustments. In the event that the Administrator shall determine
that any dividend or other distribution (whether in the form of cash, shares,
other securities or other property), re-capitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
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combination, repurchase or exchange of shares or other securities of the
Company, issuance of warrants or other rights to purchase shares or other
securities of the Company or other similar rights to purchase shares or other
securities of the Company or other similar corporation transaction or event
affects the Shares subject to Option grants under the 1999 Plan such that an
adjustment is determined by the Administrator to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the 1999 Plan, then the Administrator
shall, in such manner as it may deem equitable, adjust any or all of:
(1) the number of Shares which may thereafter be made the subject of
Options;
(2) the number of Shares subject to outstanding Option awards; and
(3) the purchase or exercise price with respect to any Option,
provided, however, that the number of Shares covered by an Option or to which
such Option relates shall always be a whole number.
(d) Incentive Stock Options. Notwithstanding the foregoing, the number
of Shares available for granting Incentive Stock Options under the 1999 Plan
shall not exceed 6,000,000 Shares subject to adjustment as provided in the
1999 Plan and Section 422 or 424 of the Code or any successor provisions.
SECTION V
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ELIGIBILITY
Any Eligible Person shall be eligible to be designated a Participant. In
determining which Eligible Persons shall receive an Option and the terms of
any Option, the Administrator may take into account the nature of the
services rendered by the respective Eligible Persons, their present and
potential contributions to the success of the Company or such other factors
as the Administrator, in its discretion, shall deem relevant. Notwithstanding
the foregoing, an Incentive Stock Option may only be granted to full or
part-time employees (which term as used herein includes, without limitation,
officers and directors who are also employees) and shall not be granted to
an employee of an Affiliate unless such Affiliate is also a "subsidiary
corporation" of the Company within the meaning of Section 424(f) of the Code
or any successor provision.
SECTION VI
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OPTION AWARDS
The Administrator is authorized to grant Options to Participants with the
following terms and conditions and with such additional terms and conditions
not inconsistent with the provisions of the 1999 Plan as the Administrator
shall determine:
(a) Exercise Price. The purchase price per Share purchasable under an
Option shall be determined by the Administrator, provided, however, that such
purchase price shall not be less than ninety percent (90%) of the Fair Market
Value of a Share on the date of grant of such Option, provided further, any
Option granted to a Participant who, at the time such Option is granted, is
an officer or director of the Company, the purchase price shall not be less
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than one hundred percent (100%) of the Fair Market Value of a Share on the date
of grant of such Option, provided further, however, that in the case of an
Incentive Stock Option granted to a Participant who, at the time such Option is
granted, is deemed to be a 10% Shareholder, the purchase price for each Share
shall be such amount as the Administrator in its best judgment shall determine
to be not less than one hundred and ten percent (110%) of the Fair Market Value
per Share at the date the Incentive Stock Option is granted. In determining
stock ownership of a Participant for any purposes under the 1999 Plan, the
rules of Section 424(d) of the Code shall be applied, and the Administrator
may rely on representations of fact made to it by the Participant and believe
it to be true.
(b) Option Term. The term of each Option shall be fixed by the
Administrator which in any event shall not exceed a term of ten (10) years from
the date of the grant, provided, however, that the term of any Incentive Stock
Option granted to any 10% Shareholder shall not be exercisable after the expir-
ation of five (5) years from the date such Incentive Stock Option was granted.
(c) Maximum Grant of Incentive Stock Options. The aggregate Fair Market
Value (determined on the date the Incentive Stock Option is granted) of
Shares subject to an Incentive Stock Option (when first exercisable) granted
to a Participant by the Administrator in any calendar year shall not exceed
one hundred thousand dollars ($100,000.00).
(d) Time and Method of Exercise. Subject to the provisions of the 1999
Plan, the Administrator shall determine the time or times at which an Option
may be exercised in whole or in part and the method or methods which shall
consist of cash, shares, cancellation of indebtedness of the Company owing to
the Optionee, other property, or any combination thereof, having a Fair
Market Value on the exercise date equal to the relevant exercise price, in
which, payment of the exercise price may be made or deemed to have been made.
(e) Limits on Transfer of Options. No Option shall be transferable by a
Participant otherwise than by will or by the laws of descent and
distribution, except by gift to family members which is not otherwise
specifically proscribed by the Administrator in its discretion; provided,
however, that, if so determined by the Administrator, a Participant may, in
the manner established by the Administrator, designate a beneficiary or
beneficiaries to exercise the rights of the Participant and receive any
Shares purchased with respect to any Option upon the death of the
Participant. Each Option shall be exercisable during the Participant's
lifetime only by the Participant or, if permissible under applicable law,
by the Participant's guardian or legal representative. No Option or Shares
underlying any Option shall be pledged, alienated, attached or otherwise
encumbered, and any purported pledge, alienation, attachment or encumbrance
shall be void and unenforceable against the Company or any Affiliate.
(f) Restrictions and Securities Exchange Listing. All certificates for
Shares delivered upon the exercise of Options shall be subject to such stop
transfer orders and other restrictions as the Administrator may deem
advisable under the 1999 Plan or the rules, regulations and other
requirements of the Securities and Exchange Commission and any applicable
federal or state securities laws, and the Administrator may cause a legend
or legends to be placed on such certificates to make appropriate reference
to such restrictions. If the Shares or other securities are traded on a
national securities exchange, the Company shall not be required to deliver
any Shares covered by an Option unless and until such Shares have been
admitted for trading on such securities exchange.
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(g) Termination of Employment or Consultancy. Termination of employment
or consultancy shall be subject to the following provisions:
(1) Upon termination of the employment or consultancy, as the case
may be, of any Participant, an Option previously granted to the Participant,
unless otherwise specified herein or by the Administrator in the Option,
shall, to the extent not theretofore exercised, not terminate or become null
and void:
(i) If the Participant shall die while in the employ of the
Company or during the one (1) year period, whichever is applicable, specified
in clause;
(ii) below and at a time when such Participant was entitled to
exercise an Option as herein provided, the legal representative of such
Participant, or such Person who acquired such Option by bequest or
inheritance or by reason of the death of the Participant, may, not later than
fifteen (15) months from the date of death, exercise such Option, to the
extent not theretofore exercised, in respect of any or all of such number of
Shares specified by the Administrator in such Option; and
(iii) If the employment or consultancy of any Participant to
whom such Option shall have been granted shall terminate by reason of the
Participant's retirement (at such age upon such conditions as shall be
specified by the Board of Directors), disability (as described in Section
22(e) of the Code) or dismissal by the Company other than for cause (as
defined below), and while such Participants entitled to exercise such Option
as herein provided, such Participant shall have the right to exercise such
Option so granted, to the extent not theretofore exercised, in respect of any
or all of such number of Shares as specified by the Administrator in such
Option, at any time up to one (1) year from the date of termination of the
Optionee's employment or consultancy by reason of retirement or dismissal
other than for cause or disability, provided, that if the Optionee dies
within such twelve (12) month period, subclause (i) above shall apply.
(2) If a Participant voluntarily terminates his or her employment or
consultancy, as the case may be, or is discharged for cause, any Option
granted hereunder shall, unless otherwise specified by the Administrator in
the Option, forthwith terminate with respect to any unexercised portion
thereof.
(3) If an Option granted hereunder shall be exercised by the legal
representative of a deceased or disabled Participant, or by a person who
acquired an Option granted hereunder by bequest or inheritance or by reason
of death of any such person, written notice of such exercise shall be
accompanied by a certified copy of letters testamentary or equivalent proof
of the right of such legal representative or other person to exercise such
Option.
(4) For all purposes of the 1999 Plan, the term "for cause" shall mean:
(i) With respect to a Participant who is a party to a written
employment or consultancy agreement with the Company, as the case may be,
which contains a "for cause" definition or "cause" (or words of like import)
for purposes of termination of employment or consultancy thereunder by the
Company, "for cause" or "cause" as defined in the most recent of such
agreements; or
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(ii) In all other cases, as determined by the Administrator in
its sole discretion, that one or more of the following has occurred:
(A) any failure by a Participant to substantially perform his
or her employment or consultancy duties, as the case may be, which shall not
have been corrected within thirty (30) days following written notice thereof;
(B) any engaging by such Participant in misconduct or, in the
case of an officer Participant, any failure or refusal by such officer
Participant to follow the directions of the Company's Board of Directors or
Chief Executive Officer of the Company which, in either case, is injurious to
the Company or any Affiliate;
(C) any breach by a Participant of any obligation or
specification contained in the instrument pursuant to which an Option is
granted; or
(D) such Participant's conviction or entry of a plea of nolo
contendere in respect of any felony, or of a misdemeanor which results in or
is reasonably expected to result in economic or reputational injury to the
Company or any of its Affiliates.
SECTION VII
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AMENDMENTS, TERMINATION AND ADJUSTMENTS
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Option Agreement or in the 1999 Plan:
(a) Amendments to the 1999 Plan. The Board of Directors of the Company
may amend, alter, suspend, discontinue or terminate the 1999 Plan; provided,
however, that, notwithstanding any other provision of the 1999 Plan or any
Option, without approval of the stockholders of the Company, no such
amendment, alteration, suspension, discontinuation or termination shall be
made that, absent such approval:
(1) would cause Rule 16b-3 to become unavailable with respect to the
1999 Plan;
(2) would violate the rules or regulations of any national securities
exchange on which the Shares of the Company are traded or the rules or
regulations of the National Association of Securities Dealers, Inc. that are
applicable to the Company; or
(3) would cause the Company to be unable, under the Code, to grant
Incentive Stock Options under the 1999 Plan.
(b) Amendments to Option Grants. The Administrator may waive any
conditions or rights of the Company under any outstanding Option grant,
prospectively or retroactively. The Administrator may not amend, alter,
suspend, discontinue or terminate any outstanding Option grant, prospectively
or retroactively, without the consent of the Participant or holder or
beneficiary thereof, except as otherwise herein provided.
(c) Correction of Defects, Omissions and Inconsistencies. The Administrator
may correct any defect, supply any omission or reconcile any inconsistency in
the 1999 Plan or any Option in the manner and to the extent it shall deem
desirable to carry the 1999 Plan into affect.
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SECTION VIII
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INCOME TAX WITHHOLDING and TAX BONUSES
The exercise of Options and issuance of the underlying Shares under this
1999 Plan, are subject to the following:
(a) Withholding. In order to comply with all applicable federal or state
income tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal or state payroll,
withholding, income or other taxes, which are the sole and absolute
responsibility of a Participant, are withheld or collected from such
Participant. In order to assist a Participant in paying all or a portion of
the federal and state taxes to be withheld or collected upon exercise of any
Option, the Administrator, in its discretion and subject to such additional
terms and conditions as it may adopt, may permit the Participant to satisfy
such tax obligation by:
(1) electing to have the Company withhold a portion of the Shares
otherwise to be delivered upon exercise of any Option with a Fair Market
Value equal to the amount of such taxes or
(2) delivering to the Company Shares other than the shares issuable
upon exercise of the applicable Option with a Fair Market Value equal to the
amount of such taxes. The election, if any, must be made on or before the
date that the amount of tax to be withheld is determined.
(b) Tax Bonuses. The Administrator, in its discretion, shall have the
authority, at the time of grant of any Option under this 1999 Plan or at any
time thereafter, to approve cash bonuses to designated Participants to be
paid upon their exercise in order to provide funds to pay all or a portion of
federal and state taxes due as a result of such exercise, and shall have full
authority in its discretion to determine the amount of any such tax bonus.
SECTION IX
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EFFECTIVE DATE AND TERM
The effective date and term of this 1999 Plan are as follows:
(a) Effective Date. The effective date of this 1999 Plan shall be
November 23, 1998.
(b) Term of 1999 Plan. Unless the 1999 Plan shall have been discontinued
or terminated as provided for in the provisions of this 1999 Plan, the 1999
Plan shall terminate on November 23, 2008. No Option shall be granted after
the termination of the 1999 Plan. However, unless otherwise expressly
provided in the 1999 Plan or in an applicable Option, any Option theretofore
granted may extend beyond the termination of the 1999 Plan, and the authority
of the Administrator provided for hereunder with respect to the 1999 Plan and
any Option grants, and the authority of the Board of Directors of the Company
to amend the 1999 Plan, shall extend beyond the termination of the 1999 Plan.
SECTION X
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GENERAL PROVISIONS
The general provisions applicable to this 1999 Plan are as follows:
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(a) No Rights to Option Grants. No Eligible Person, Participant or other
Person shall have any claim to be granted an Option under the 1999 Plan, and
there is no obligation for uniformity of treatment of Eligible Persons,
Participants or holders or beneficiaries of Options granted under the 1999
Plan. The terms and conditions of Options need not be the same with respect
to any Participant or with respect to different Participants.
(b) Option Agreements. No Participant will have rights under an Option
granted to such Participant unless and until a written Option shall have been
duly executed on behalf of the Company. Each Option shall set forth the
terms and conditions of the Option as granted to a Participant consistent
with the provisions of this 1999 Plan.
(c) Limit on Other Compensation Arrangements. Nothing contained in the
1999 Plan shall prevent the Company or any Affiliate from adopting or
continuing in effect other or additional compensation arrangements, and such
arrangements may be either generally applicable or applicable only in
specific cases.
(d) No Right to Employment. The grant of an Option shall not be construed
as giving a Participant the right to be retained in the employ of the Company
or any Affiliate, nor will it affect in any way the right of the Company or an
Affiliate to terminate such employment at any time, with or without cause. In
addition, the Company or an Affiliate may at any time dismiss a Participant
from employment free from any liability or any claim under the 1999 Plan,
unless otherwise expressly provided in the 1999 Plan or in any Option.
(e) Governing Law. The validity, construction and effect of the 1999
Plan or any Option granted hereunder, and any rules and regulations relating
to the 1999 Plan or any Option granted hereunder, shall be determined in
accordance with the laws of the State of Delaware except to the extent
preempted by Federal law.
(f) Severability. If any provision of the 1999 Plan or any Option is or
becomes or is deemed to be invalid, illegal or unenforceable in any
jurisdiction or would disqualify the 1999 Plan or any Option under any law
deemed applicable by the Administrator, such provision shall be construed or
deemed amended to conform to applicable laws, or if it cannot be so construed
or deemed amended without, in the determination of the Administrator,
materially altering the purpose or intent of the 1999 Plan or the Option,
such provision shall be stricken as to such jurisdiction or Option, and the
remainder of the 1999 Plan or any Option shall remain in full force & effect.
(g) Section Headings. The section headings included herein are only for
convenience, and they shall have no effect on the interpretation of the 1999
Plan.
IN WITNESS WHEREOF, this 1999 Plan has been duly amended and executed at
Pompano Beach, Florida on this 14th day of April 1999.
URECOATS INDUSTRIES INC.
/s/ Larry T. Clemons
- ------------------------
Larry T. Clemons
President
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EXHIBIT
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OPTION
THE BOARD OF DIRECTORS of Urecoats Industries Inc. (the "Company"),
formerly Winners All International, Inc., has authorized and approved the
1999 Consultant and Employee Stock Purchase and Option Plan ("1999 Plan").
This 1999 Plan provides for the grant of Options to employees including
officers and directors and consultants of the Company. Unless otherwise
provided herein all defined terms shall have the respective meanings
ascribed to them under the 1999 Plan.
1. GRANT OF OPTION. Pursuant to authority granted to it under the 1999
Plan, the Administrator responsible for administering the 1999 Plan hereby
grants to you, as an employee or consultant of the Company and as of
____________, _______ ("Grant Date"), the following Options _______________.
Each Option permits you to purchase one share of the Company's common stock,
$.01 par value per share ("Shares").
2. CHARACTER OF OPTIONS. Pursuant to the 1999 Plan, Options granted
herein may be Incentive Stock Options or Non-Qualified Stock Options, or
both. To the extent permitted under the 1999 Plan and by law, such Options
shall first be considered Incentive Stock Options.
3. EXERCISE PRICE. The Exercise Price for each Non-Qualified Stock
Option granted herein to consultants shall be $____________ per Share and
employees $ ___________ per Share, and the exercise price for each Incentive
Stock Option granted herein shall be $ _______ per Share, except that an
Incentive Stock Option granted to a 10% Shareholder shall be $_______ per
Share. It is agreed and determined by the Administrator that the Fair
Market Value of the Shares subject to the Options herein on the date of
grant is $________ per Share.
4. PAYMENT OF EXERCISE PRICE. Options represented hereby may be
exercised in whole or in part by delivering to the Company your payment of
the Exercise Price of the Option so exercised in cash, Shares, cancellation
of indebtedness of the Company owing to the Optionee, or in such form
permitted under the 1999 Plan, or any combination thereof, having a Fair
Market Value on the exercise date equal to the relevant exercise price of
the relevant Option being exercised.
5. TERMS OF OPTIONS. The term of each Option granted herein shall be
for a term of up to ______ (___) years from the Grant Date, provided,
however, that the term of any Incentive Stock Option granted herein to an
Optionee who is at the time of the grant, the owner of 10% or more of the
outstanding Shares of the Company, shall not be exercisable after the
expiration of five (5) years from the Grant Date.
6. LIMITS ON TRANSFER OF OPTIONS. The Option granted herein shall not be
transferable by you otherwise than by will or by the laws of descent and
distribution, except for gifts to family members subject to any specific
limitation concerning such gift by the Administrator in its discretion;
provided, however, that you may designate a beneficiary or beneficiaries to
exercise your rights and receive any Shares purchased with respect to any
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Option upon your death. Each Option shall be exercisable during your
lifetime only by you or, if permissible under applicable law, by your legal
representative. No Option herein granted or Shares underlying any Option
shall be pledged, alienated, attached or otherwise encumbered, and any
purported pledge, alienation, attachment or encumbrance thereof shall be void
and unenforceable against the Company or any Affiliate.
7. TERMINATION OF EMPLOYMENT OR CONSULTANCY. If your employment or
consultancy is terminated with the Company, your Option and/or any
unexercised portion, shall be subject to the provisions below:
(a) Upon the termination of your employment or consultancy with the
Company, to the extent not theretofore exercised, your Option shall continue
to be valid; provided, however, that:
(i) If the Participant shall die while in the employ of the
Company or during the one (1) year period, whichever is applicable, specified
in clause (ii) below and at a time when such Participant was entitled to
exercise an Option as herein provided, the legal representative of such
Participant, or such Person who acquired such Option by bequest or
inheritance or by reason of the death of the Participant, may, not later than
fifteen (15) months from the date of death, exercise such Option, to the
extent not theretofore exercised, in respect of any or all of such number of
Shares specified by the Administrator in such Option; and
(ii) If the employment or consultancy of any Participant to whom
such Option shall have been granted shall terminate by reason of the
Participant's retirement (at such age upon such conditions as shall be
specified by the Board of Directors), disability (as described in Section
22(e) of the Code) or dismissal by the Company other than for cause (as
defined below), and while such Participants entitled to exercise such Option
as herein provided, such Participant shall have the right to exercise such
Option so granted, to the extent not theretofore exercised, in respect of any
or all of such number of Shares as specified by the Administrator in such
Option, at any time up to one (1) year from the date of termination of the
Optionee's employment or consultancy by reason of retirement or dismissal
other than for cause or disability, provided, that if the Optionee dies
within such twelve (12) month period, subclause (i) above shall apply.
(b) If you voluntarily terminate your employment or consultancy, or
are discharged for cause, any Options granted hereunder shall forthwith
terminate with respect to any unexercised portion thereof.
(c) If any Options granted hereunder shall be exercised by your legal
representative if you should die or become disabled, or by any person who
acquired any Options granted hereunder by bequest or inheritance or by reason
of death of any such person written notice of such exercise shall be
accompanied by a certified copy of letters testamentary or equivalent proof
of the right of such legal representative or other person to exercise such
Options.
(d) For all purposes of the 1999 Plan, the term "for cause" shall mean
"cause" as defined in the 1999 Plan or your employment or consultancy
agreement with the Company.
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8. RESTRICTION; SECURITIES EXCHANGE LISTING. All certificates for shares
delivered upon the exercise of Options granted herein shall be subject to
such stop transfer orders and other restrictions as the Administrator may
deem advisable under the 1999 Plan or the rules, regulations and other
requirements of the Securities and Exchange Commission and any applicable
federal or state securities laws, and the Administrator may cause a legend or
legends to be placed on such certificates to make appropriate reference to
such restrictions. If the Shares or other securities are traded on a
national securities exchange, the Company shall not be required to deliver
any Shares covered by an Option unless and until such Shares have been
admitted for trading on such securities exchange.
9. AMENDMENTS TO OPTIONS HEREIN GRANTED. The Options granted herein may
not be amended without your consent.
10. WITHHOLDING TAXES. As provided in the 1999 Plan, the Company may
withhold from sums due or to become due to you from the Company an amount
necessary to satisfy its obligation to withhold taxes incurred by reason of
the disposition of the Shares acquired by exercise of the Options in a
disqualifying disposition (within the meaning of Section 421(b) of the Code),
or may require you to reimburse the Company in such amount.
Indicate your acceptance of all the terms and conditions of the Option and
1999 Plan, by your signature below and returning a copy of this Option to the
Company.
URECOATS INDUSTRIES INC. (EMPLOYEE/CONSULTANT)
- ----------------------- -------------------------
(Printed Name) (Printed Name)
(Title) (Employee or Consultant)
- ---------------- ----------------
Date Date
Page 12 of 12
<PAGE>
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FINANCIAL DATA SCHEDULE - YEAR ENDED DECEMBER 31, 1998
</LEGEND>
<S> <C>
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0
55035
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
RESTATED FINANCIAL DATA SCHEDULE - YEAR ENDED DECEMBER 31, 1997
</LEGEND>
<RESTATED>
<S> <C>
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0
55035
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