U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A#1
AMENDED AND RESTATED
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended April 30, 1997
Commission file number 0-20848
UNIVERSAL HEIGHTS, INC.
(Name of small business issuer in its charter)
Delaware 65-0231984
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19589 N.E. 10th Avenue
Miami, Florida 33179
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (305) 653-4274
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value NASDAQ
Redeemable Common Stock Purchase Warrants NASDAQ
(Title of each class) (Name of exchange where registered)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days: YES X
NO___
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
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. [ ]
State issuers revenues for its most recent fiscal year: $161,312
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of July 31, 1997:
$1,111,731
State the number of shares of Common Stock of Universal Heights, Inc.
issued and outstanding as of July 31, 1997: 3,425,588
Transitional Small Business Disclosure Format: YES ___ NO _X_
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY--
Universal Heights, Inc. (the "Company") was originally organized in 1990
to design and market licensed novelty and souvenir products. In order to expand
its product line, during fiscal 1996, the Company acquired a private company
engaged in the sale of patented, weighted athletic gloves and also acquired
substantially all the assets of another private company engaged in the sale of
pens with sports logos. The Company is continuing to sell the weighted athletic
gloves; however, due to lack of sales growth, the Company is in the process of
selling off the remaining inventories of the other product lines.
As part of its strategy to diversify its business into a financial
services company positioned to take advantage of what management believes to be
profitable business and growth opportunities in the marketplace, in April 1997,
the Company organized Universal Property & Casualty Insurance Company ("UPCIC").
UPCIC was formed to participate in the transfer of homeowner insurance policies
from the Florida Residential Property and Casualty Joint Underwriting
Association (JUA).
The Company was incorporated under the laws of the state of Delaware on
November 13, 1990 and its principal executive offices are located at 19589 N.E.
10th Avenue, Miami, Florida 33179, and its telephone number is (305) 653-4274.
The Company has one subsidiary, Universal Insurance Holding Company, which is
wholly-owned. Universal Property & Casualty Insurance Company is a wholly-owned
subsidiary of Universal Insurance Holding Company.
UNIVERSAL PROPERTY & CASUALTY INSURANCE COMPANY--
UPCIC's application to become a Florida licensed property and casualty
insurance company was filed with the Florida Department of Insurance
(Department) on May 14, 1997 and is pending. UPCIC's proposal to begin
operations through the transfer of approximately 45,000 homeowner insurance
policies issued by JUA was approved by the JUA on June 21, 1997, subject to
certain minimum capitalization and other requirements including approval by the
Florida Department of Insurance.
JUA TAKEOUT PROGRAM
The JUA was established in 1992 as a temporary measure to provide
insurance coverage for individuals who could not obtain coverage from private
carriers because of the impact on the private insurance market of Hurricane
Andrew in 1992. Rather than serving as a temporary source of emergency insurance
coverage as was originally intended, the JUA has become a major provider of
original and renewal insurance coverage for Florida residents. In an attempt to
reduce the number of policies in the JUA, and thus the exposure of the program
to liability, the Florida legislature has approved a number of initiatives to
depopulate the JUA, which to date has resulted in approximately 600,000 policies
being acquired by private insurers. Recently, the Florida legislature has
approved, and the Department has implemented, the Market Challenge/Takeout Bonus
Program ("Takeout Program"), which provides additional incentives to private
insurance companies to acquire policies from the JUA.
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The Takeout Program is attractive because it provides both substantial
regulatory and financial incentives to private insurer participants. On the
regulatory side, participants will be exempt from regular assessments by the
Department for the state's emergency insurance coverage programs for a period of
three years. On the financial side, Takeout Program participants will also
receive a bonus payment based upon the number of policies taken out of the JUA
portfolio. UPCIC expects to receive a minimum bonus payment of approximately
$4,000,000 based upon a portfolio takeout of 45,000 policies. Bonus payments
must be held in escrow for three years, during which time such funds can be
counted as statutory reserves but may otherwise only be used for certain
prescribed purposes, such as payment of claims. After the three year period,
UPCIC will have unrestricted use of the bonus payment funds. In addition, UPCIC
will have investment income from the bonus payments which will also be available
at the end of the three years.
UPCIC's initial business and operations will consist of providing property
and casualty coverage through homeowners insurance policies acquired through the
JUA. UPCIC expects to acquire between 30,000 and 60,000 policies from the JUA.
Thereafter, UPCIC intends to offer homeowners property and casualty insurance in
Florida in the voluntary insurance market through independent agents, as surplus
permits. UPCIC expects to expand its business as market conditions and
opportunities permit. The earnings of UPCIC from policy premiums will be
supplemented by the generation of investment income from investment policies
adopted by the Board of Directors of UPCIC. UPCIC's principal investment goal
will be to maintain safety and liquidity, enhance equity values and achieve an
increased rate of return consistent with regulatory requirements.
OPERATIONS
All marketing, underwriting, rating, policy issuance and administration
functions will be performed for UPCIC by Universal P&C Management, Inc.
("Universal Management") pursuant to a Management Agreement and Addendum.
Universal Management is a wholly owned subsidiary of American European Group,
Inc. ("AEG"), a Delaware insurance holding company. Universal Management and AEG
both employ Joseph De Alessandro as a senior officer and director. Mr. De
Alessandro has over 40 years of experience in the insurance industry having
served as a senior executive with a number of insurance companies including
American International Group, Travelers Insurance Group and its subsidiary, Gulf
Insurance Company, and currently American European Group of Companies.
Claims handling functions for UPCIC will principally be administered by
independent claims adjustment firms licensed in Florida that are nationally
recognized as experts in claims adjusting and have catastrophe response
capabilities. UPCIC will retain oversight of claims administration by imposing
specified limits of claims settlement authority and by conducting regular audits
of claims practices.
MANAGEMENT OF EXPOSURE TO CATASTROPHIC LOSSES
UPCIC is exposed to multiple insured losses arising out of a single
occurrence, such as a natural catastrophe. As with all property and casualty
insurers, UPCIC expects to incur some losses related to catastrophes and will
price its policies accordingly. The Company's exposure to catastrophic losses
arises principally out of hurricanes and windstorms. UPCIC expects to manage its
exposure to such losses from an underwriting perspective by limiting the
accumulation of known risks in exposed geographic areas. In addition, UPCIC
intends to protect itself against the risk of catastrophic loss by obtaining
reinsurance coverage. UPCIC expects that its reinsurance program will consist of
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excess of loss and/or quota share reinsurance and catastrophe reinsurance. This
reinsurance program is currently being coordinated by UPCIC, which believes that
quality reinsurance coverage will be available.
ADEQUACY OF RESERVE
The reserve for losses and loss adjustment expenses to be established by
UPCIC will be estimates of amounts needed to pay reported and unreported claims
and related loss adjustment expenses. The estimates necessarily will be based on
certain assumptions related to the ultimate cost to settle such claims. There is
an inherent degree of uncertainty involved in the establishment of reserves for
losses and loss adjustment expenses and there may be substantial differences
between actual losses and UPCIC's reserve estimates. In the case of UPCIC, this
uncertainty is compounded by UPCIC's absence of historical claims experience.
UPCIC has relied on industry and JUA data as well as the expertise and
experience of key individuals referenced herein in an effort to establish
accurate estimates and adequate reserves. Furthermore, factors such as storms
and weather conditions, further inflation, claim settlement patterns,
legislative activity and litigation trends may have an impact on UPCIC's future
loss experience. Accordingly, there can be no assurance that UPCIC's reserves
will be adequate to cover ultimate loss developments. UPCIC's profitability and
financial condition could be adversely affected to the extent that its reserves
are inadequate.
GOVERNMENT REGULATION
Florida insurance companies are primarily subject to regulation and
supervision by the Department. Notwithstanding the three year regulatory relief
available to UPCIC under the Takeout Program, the Department has broad
regulatory, supervisory and administrative powers. Such powers relate, among
other things, to the granting and revocation of licenses to transact business;
the licensing of agents; the standards of solvency to be met and maintained; the
nature of and limitations on investments; approval of policy forms and rates;
periodic examination of the affairs of insurance companies; and the form and
content of required financial statements. Such regulation and supervision are
primarily for the benefit and protection of policyholders and not for the
benefit of investors.
In addition, the Florida legislature and the National Association of
Insurance Commissioners from time to time consider proposals that may effect,
among other things, regulatory assessments and reserve requirements. UPCIC
cannot predict the effect that any proposed or future legislation or regulatory
or administrative initiatives may have on the financial condition or operations
of UPCIC.
REINSURANCE
UPCIC expects to rely on the use of reinsurance to limit the amount of
risk retained under its policies and to increase its ability to write additional
risks. UPCIC's intention is to limit its exposure and therefore protect its
capital, even in the event of catastrophic occurrences, through reinsurance
agreements that transfer the risk of loss in excess of $5 million. The property
and casualty reinsurance industry is subject to the same market conditions as
the direct property and casualty insurance market, and there can be no assurance
that reinsurance will be available to UPCIC to the same extent and at the same
cost as currently anticipated by UPCIC. Reinsurance does not legally discharge
an insurer from its primary liability for the full amount of the risks it
insures, although it does make the reinsurer liable to the primary insurer.
Therefore, UPCIC is subject to credit risk with respect to it reinsurers. A
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reinsurer's insolvency or inability to make payments under a reinsurance treaty
could have a material adverse effect on the financial condition and
profitability of UPCIC.
DEPENDENCE ON KEY INDIVIDUALS
UPCIC's operations are materially dependent upon the efforts of Universal
Management, whose key executives include Joseph P. DeAlessandro, Chairman and
Chief Operating Officer; David Asher, Senior Vice President and Chief
Underwriting Officer; Robert Thomas, Chief Financial Officer and Executive Vice
President; and Barry J. Goldstein, Senior Vice President.
In addition, UPCIC's operations depend in large part on the efforts of
Bradley I. Meier, who serves as President and Chief Executive Officer of UPCIC.
Mr. Meier has also served as President and Chief Executive Officer and Director
of Universal Heights since its inception in November 1990.
The loss of the services provided by Universal Management's key executives
or Mr. Meier could have a material adverse effect on UPCIC's financial condition
and results of operations.
RELIANCE ON TAKEOUT PROGRAM
All of UPCIC's initial revenues will be derived from insurance policies
obtained through the JUA. Future profitability and growth are dependent upon
UPCIC's ability to renew the policies transferred from the JUA and to obtain
additional policyholders from the JUA or the voluntary insurance market. There
is no assurance that UPCIC will be able to retain the policyholders whose
policies it acquires from the JUA or that UPCIC will be able to attract
additional policyholders. The inability to retain and attract additional
policyholders could impair UPCIC's growth and future financial performance.
COMPETITION
The insurance industry is highly competitive and many companies currently
write homeowner property and casualty insurance. Additionally, UPCIC must
compete with companies that have greater capital resources and longer operating
histories for business both in the Takeout Program and the private insurance
market. Increased competition from other insurance companies could adversely
affect UPCIC's ability to do business profitably.
ATHLETIC GLOVES--
The patented, weighted athletic gloves are used for a variety of sports
including a golf glove, fitness glove, and a baseball batting glove. The
Company's glove products are currently sold primarily by telemarketing of former
customers. In addition, in June 1996, the Company signed Hale Irwin, three-time
winner of the PGA's US Open to a three year consulting and endorsement contract
for the Company's weighted golf glove. The weighted gloves are currently
produced overseas, however, these products could also be obtained domestically
from a variety of different sources. The golf, baseball and fitness markets are
highly competitive. Although the Company's weighted gloves are patented the
Company is competing against many larger companies with substantially greater
financial resources.
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PATENTS AND TRADEMARKS --
In connection with the acquisition of the weighted glove company, the
Company received an assignment of a patent covering the weighted glove. This
patent expires in 2007. In addition, in connection with the acquisition of the
pen company, the Company acquired a patent covering the pens. This patent
expires in 2011.
EMPLOYEES--
As of July 31, 1997, the Company has two employees, the president and an
administrative assistant. None of the Company's employees are represented by a
labor union.
The Company has an employment agreement with its president and chief
executive officer. See "Executive Compensation--Employment Agreement."
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 7,500 square feet of office space and
adjoining warehouse space in North Miami Beach, Florida under a month to month
lease.
ITEM 3. LEGAL PROCEEDINGS
On May 15, 1997, two former employees of the Company, Johnny Walker and
Larry Martin filed a lawsuit against the Company in the Circuit Court for
Pinellas County, Florida. The Plaintiffs asserted claims for an injunction and
for damages for breach of an Asset Purchase Agreement. The Complaint also
includes breach of employment agreements, breach of royalty agreements and other
relief. In connection therewith, the Plaintiffs are demanding unpaid salaries
amounting to approximately $130,000. The case is still in the discovery stage.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's $.01 par value Common Stock ("Common Stock") is quoted on
the NASDAQ Small-Cap Market under the symbol UHTS. The following table sets
forth the high and low bid and ask prices of the Common Stock, as reported by
NASDAQ. The following data reflects inter-dealer prices, without retail mark-up,
mark down or commission and may not necessarily represent actual transactions.
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Per share prices reflect the one-for-four reverse stock split of the Company's
Common Stock approved on December 2, 1994.
HIGH LOW
---- ---
FISCAL YEAR ENDED APRIL 30, 1996
- --------------------------------
First Quarter $4.50 $2.63
Second Quarter 3.88 .50
Third Quarter 4.00 .25
Fourth Quarter 2.25 1.12
FISCAL YEAR ENDED APRIL 30, 1997
- --------------------------------
First Quarter $1.88 $ .88
Second Quarter 1.38 1.00
Third Quarter 1.25 .38
Fourth Quarter 2.75 .38
At July 31, 1997, there were 48 shareholders of record of the Company's
Common Stock, although the Company believes that there are approximately 300
beneficial owners of its Common Stock. In addition, there were three
shareholders of the Company's Preferred Stock.
Beginning May 1, 1995, the Series A Preferred Stock pays a cumulative
dividend of $.25 per quarter. In addition, each share of Series A Preferred
Stock is convertible into 2.5 shares of Common Stock and may be redeemed by the
Company at $10 per share. The liquidation value of the Preferred Stock is $10
per share. There are currently 49,950 shares of Series A Preferred Stock issued
and outstanding. To date, while such dividends have accumulated, the Company has
not declared nor paid any cash or other dividends on such Preferred Stock.
On April 24, 1997, the Company issued to Stephen Guarino 100,000 shares of
Common Stock and warrants to purchase 100,000 shares of Common Stock at an
exercise price of $2.00 per share, warrants to purchase 100,000 shares of Common
Stock at an exercise price of $2.75 per share and warrants to purchase 100,000
shares of Common Stock at an exercise price of $3.50 per share at an aggregate
purchase price of $97,000. Each warrant may be exercised at any time from time
to time beginning on the second anniversary of the date of issuance of such
warrant until April 30, 1999; provided, however, that such warrants must be
exercised in increments of not less than 25,000 shares of Common Stock. The
shares of Common Stock and warrants were issued to Mr. Guarino, an accredited
investor, pursuant to Rule 506 of Regulation D under the Securities Act of 1933,
as amended. The shares of Common Stock and warrants were sold for cash and no
placement agent or underwriter was used.
The Company has never paid a cash dividend on its Common Stock and does
not anticipate the payment of cash dividends in the foreseeable future. The
Company intends to retain any earnings for use in the development and expansion
of its business.
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Applicable provisions of the Delaware General Corporation Law may affect
the ability of the Company to declare and pay dividends on its Common Stock. In
particular, pursuant to the Delaware General Corporation Law, a company may pay
dividends out of its surplus, as defined, or out of its net profits, for the
fiscal year in which the dividend is declared and/or the preceding year. Surplus
is defined in the Delaware General Corporation Law to be the excess of net
assets of the company over capital. Capital is defined to be the aggregate par
value of shares issued.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Over the past two years, the Company's sales have declined as a result
primarily of labor problems experienced by Major League Baseball (MLB), the
National Hockey League (NHL) and the National Basketball Association (NBA). Such
problems included substantial strikes by both MLB and the NHL and a threatened
strike by the NBA. As a result, the Company has changed its strategy and intends
to become a financial services company positioned to take advantage of what
management believes to be profitable business and growth opportunities in the
marketplace. In connection therewith, in April 1997, the Company organized
Universal Property & Casualty Insurance Company (UPCIC). UPCIC was formed to
participate in the transfer of homeowner insurance policies from the Florida
Residential Property and Casualty Joint Underwriting Association (JUA).
UPCIC's application to become a Florida licensed property and casualty
insurance company was filed with the Florida Department of Insurance
(Department) on May 14, 1997 and is pending. UPCIC's proposal to begin
operations through the acquisition of approximately 45,000 homeowner insurance
policies issued by JUA was approved by the JUA on May 21, 1997, subject to
certain minimum capitalization and other requirements.
The Company is currently in the process of a proposed private offering of
debt and/or equity securities in order to meet the minimum capitalization
requirements of the JUA. No assurances can be given whether the Company can
obtain such funds or the terms thereof. Failure to obtain such funds would have
a material adverse affect on the Company.
In June 1997, Mr. Joseph DeAlessandro was named chairman of the board and
chief operating officer of UPCIC. Mr. DeAlessandro was a senior key executive at
AIG Insurance Group for over 20 years, before leaving to head the Gulf Insurance
Co. and then Traveler's Insurance Group. In connection with Mr. DeAlessandro's
appointments, the Company entered into an agreement with a turnkey management
group headed by Mr. DeAlessandro to provide underwriting, claims and accounting
services to UPCIC.
In addition, as part of becoming a financial services company, in March
1997, Dr. Irwin Kellner, former chief economist for Chase Manhattan's Regional
Bank, was appointed to the Company's Board of Directors.
Historically, the Company's primary demands for cash included payments to
obtain inventory, payments to obtain licenses and royalty payments. To fund such
demands, the Company has generated funds from sales of its products and from
outside sources through the sale of its debt and equity securities, primarily to
related parties. In the future, the Company will attempt to obtain additional
funds from internal cash flow and the raising of additional working capital. The
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Company is also working closely with its vendors on a payment plan for its
accounts payable.
In July 1996, a group of investors purchased warrants at $.05 per warrant
from the Company entitling the holders to purchase 1,433,333 shares of the
Company's Common Stock at $.70 a share. During July, warrants to purchase
254,760 shares were exercised. As a result of these transactions the Company
received gross proceeds of approximately $250,000. The remaining warrants to
purchase shares of common stock expired in January 1997.
On April 24, 1997, the Company issued to Stephen Guarino 100,000 shares
of Common Stock and warrants to purchase 100,000 shares of Common Stock at an
exercise price of $2.00 per share, warrants to purchase 100,000 shares of Common
Stock at an exercise price of $2.75 per share and warrants to purchase 100,000
shares of Common Stock at an exercise price of $3.50 per share at an aggregate
purchase price of $97,000. (See Item 5 for terms of the issuance).
SEASONALITY
Sales of the Company's novelty and souvenir products were correlated with
the visibility of the various proprietary marks and their owners. The Company
does not believe that there will be any seasonality in the insurance business.
RESULTS OF OPERATIONS - YEARS ENDED APRIL 30, 1997 VERSUS APRIL 27, 1996
During the year ended April 30, 1997, the Company did not actively market
its core product line resulting in sales decreasing from $359,712 for the fiscal
year ended April 27, 1996 to $161,312 for the fiscal year ended April 30, 1997.
The loss from the operations of the core product line decreased from $990,919 in
fiscal 1996 to $569,996 in fiscal 1997. The decision to discontinue marketing
efforts was based on the projected continued losses, inability to achieve
critical mass and lessened demand for the products because of market factors.
Accordingly, at April 30, 1997, inventories have been written down to their
estimated net realizable value resulting in a charge of $952,896 to discontinued
operations in 1997. Related patents and trademarks have been written down to
their estimated fair value resulting in a charge of $434,679 to discontinued
operations in 1997. The Company does not expect to incur material losses on the
disposition of these product lines.
The Company is actively pursuing a strategy to enter into the financial
service industry. The Company plans to qualify as a property and casualty
insurer through the state of Florida market challenge program.
FINANCIAL CONDITION
CASH AND CASH EQUIVALENTS at April 30, 1997 were $35,269 as compared with
$30,337 at April 27, 1996. The increase is primarily the result of $495,358
being used for operating activities offset by $504,065 of financing activities,
consisting of advances from related parties and a private placement of warrants
to purchase Common Stock.
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DUE TO RELATED PARTIES at April 30, 1997 was $315,678 as compared to
$232,325 at April 27, 1996. During fiscal 1997, $627,040 of related party debt
was converted into 1,202,363 shares of Common Stock and 88,690 shares of Series
M Preferred Stock to be issued.
At the Company's present level of sales and operations, the Company does
not have and is not generating sufficient funds from operations or otherwise to
finance its proposed plan of operations for the next twelve months. In order to
finance the proposed operations of UPCIC, the Company is attempting to raise
funds through an additional equity financing or debt financing. Excluding
related party loans, the Company has not secured additional sources of
financing. There is no assurance that any such financing will be available on
commercially reasonable terms or at all. The Company's inability to obtain
future financing on terms acceptable to the Company would have a material
adverse affect on the Company's proposed insurance operations.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are annexed to this report and are
referenced as pages F-1 to F-17.
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
The directors and executive officers of the Company as of July 31, 1997
are as follows:
NAME AGE POSITION
---- --- --------
Bradley I. Meier 29 President, Chief Executive Officer,
Assistant Secretary and Director
Norman M. Meier 58 Director
Irwin I. Kellner 58 Director
Reed J. Slogoff 29 Director
Joel M. Wilentz 63 Director
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BRADLEY I. MEIER has been President and Chief Executive Officer of the
Company and a director since inception in November 1990. From September 1986
until May 1990, he was a student at the University of Pennsylvania's Wharton
School of Business, from which he graduated in 1990 with a B.S. in Economics.
Mr. Meier lettered and played on the varsity baseball team at the University of
Pennsylvania, E.I.B.L. Champions in 1988, 1989 and 1990, and was selected
All-Ivy League second baseman during his senior year.
NORMAN M. MEIER has been a director of the Company since July 1992. Since
December 1986, Mr. Meier is and has been President, Chief Executive Officer and
a director of Columbia Laboratories, Inc., a publicly-traded corporation engaged
in the development, registration, manufacture and sale of pharmaceutical
products. From 1971 to 1977, Mr. Meier was Vice President of Sales and Marketing
for Key Pharmaceuticals ("Key"), a company which had been engaged in the
marketing and sales of pharmaceuticals until its sale to Schering-Plough
Corporation in June 1986. From 1977 until June 1986, Mr. Meier served as a
consultant to Key.
IRWIN L. KELLNER has been a director of the Company since March 1997.
Since March 1997, Dr. Kellner has been an independent consultant. From 1996
through February 1997, Dr. Kellner was the chief economist for Chase Manhattan's
Regional Bank. From 1991 to 1996, Dr. Kellner held the same position with
Chemical and Manufacturers Hanover, Chase's predecessor organizations. Dr.
Kellner had been employed by the Bank since 1970. Dr. Kellner, a past president
of the Forecasters Club of New York and the New York Association of Business
Economists, holds membership, and has held a variety of posts, in several
professional associations, including the American Economic Association, American
Statistical Association and the National Association of Business Economists. His
other board memberships include the Children's AIDS Network, North Shore
University Hospital, the Don Monti Memorial Research Foundation and Touro
College's Barry Z. Levine School of Health Sciences. Dr. Kellner is also a
director of Columbia Laboratories, Inc.
REED J. SLOGOFF has been a director of the Company since March 1997.
Since January 1996, Mr. Slogoff has been an associate with the law firm of
Dilworth, Paxson, Kalish & Kaufmann LLP in Philadelphia. From January 1994
through January 1996, Mr. Slogoff was an associate with the law firm of Harvey,
Pennington, Herding & Dennison in Philadelphia. Mr. Slogoff received a B.A. from
the University of Pennsylvania in 1990, and received a J.D. from the University
of Miami School of Law in 1993.
JOEL M. WILENTZ has been a director of the Company since March 1997.
Since 1970, Dr. Wilentz has been employed by Dermatology Associates in
Hallendale, Florida.
Except for Norman M. Meier and Bradley I. Meier, who are father and son,
respectively, there are no family relationships among the Company's executive
officers and directors.
All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Directors receive no
compensation for serving on the Board, except for the receipt of stock options
and the reimbursement of reasonable expenses incurred in attending meetings.
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board.
The Company has entered into indemnification agreements with its
executive officers and directors pursuant to which the Company has agreed to
indemnify such individuals, to the fullest extent permitted by law, for claims
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made against them in connection with their positions as officers, directors or
agents of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely on the Company's review of the copies of such forms
received by it, or oral or written representations from certain reporting
persons, the Company believes that during the period ending April 30, 1997,
Mr. Bradley I. Meier, Mr. Norman M. Meier and Mrs. Phylis Meier each had two
late filings on Form 5 and Messrs. Grossman, Orlinsky and Pietrangelo each
had one late filing on Form 5. In addition, Drs. Kellner and Wilentz and Mr.
Slogoff each had one late filing on Form 3.
ITEM 10. EXECUTIVE COMPENSATION
The tables and descriptive information set forth below are intended to
comply with the Securities and Exchange Commission compensation disclosure
requirements applicable to, among other reports and filings, annual reports on
Form 10-KSB. This information is only being furnished with respect to the
Company's Chief Executive Officer (CEO) because no other executive officer
earned in excess of $100,000 during the year ended April 30, 1997.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
Compensation
Securities
Name and Underlying
Principal Position Year Salary Bonus Options
- ------------------ ---- ------ ----- -------------
Bradley I. Meier 1997 $ 75,000 $ - 90,000
President and Chief 1996 75,000 - 90,000
Executive Officer 1995 75,000 - 3,750
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES DURING 1997 AND FISCAL YEAR END OPTION VALUES
Number of Securities Number of Unexercised
Underlying Unexercised In-the-Money
Shares Options at Options at
Acquired April 30, 1997 April 30, 1997
On Value Exer- Unexer- Exer- Unexer-
Name Exercise Realized cisable cisable cisable cisable
- ---- -------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Bradley I. Meier - - 937,750 - - -
</TABLE>
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<PAGE>
EMPLOYMENT AGREEMENT
As of May 1, 1997, the Company entered in a four year employment
agreement with Bradley I. Meier. Under the terms of the employment agreement,
Mr. Meier will devote substantially all of his time to the Company and will be
paid a base salary of $250,000 per year. Additionally, pursuant to the
employment agreement, and during each year thereof, Mr. Meier will be entitled
to a bonus equal to 3% of pretax profits up to $5 million and 4% of pretax
profits in excess of $5 million. The employment agreement with Mr. Meier
contains non-competition and non-disclosure covenants. Under the terms of the
employment agreement, Mr. Meier was granted ten-year stock options to purchase
1,500,000 shares of Common Stock at $1.00 per share, of which 500,000 options
vest immediately, 500,000 options vest after one year and the remaining options
vest after two years. In addition, the agreement may be extended for an
additional two years at the option of Mr. Meier.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of July 31, 1997, directors and named executive officers, individually
and as a group, beneficially owned Common Stock as follows:
Name of Shares, Nature of Interest and
Beneficial Owner (1) Percentage Of Equity Securities(2)
- -------------------- ----------------------------------
Bradley I. Meier (3) 2,910,818 59.0%
Norman M. Meier (4) 1,465,624 37.1%
Irwin L. Kellner (5) 100,000 2.8%
Reed J. Slogoff (6) 100,000 2.8%
Joel M. Wilentz (7) 100,000 2.8%
Officers and directors
as a group (5 people) (8) 4,404,741 76.6%
- --------
(1) Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to the
shares of Common Stock beneficially owned by them.
(2) A person is deemed to be the beneficial owner of Common Stock that can be
acquired by such person within 60 days of the date hereof upon the
exercise of warrants or stock options or conversion of Series A and
Series M Preferred Stock or convertible debt. Except as otherwise
specified, each beneficial owner's percentage ownership is determined by
assuming that warrants, stock options, Series A and Series M Preferred
Stock and convertible debt that is held by such person (but not those
held by any other person) and that are exercisable within 60 days from
the date hereof, have been exercised or converted.
(3) Consists of (i) (a) 962,829 shares of Common Stock, (b) options to
purchase 1,875 shares of Common Stock at an exercise price of $9.00,
options to purchase 1,875 shares of Common Stock at an exercise price of
$12.50, ten-year options to purchase 90,000 shares at an exercise price
of $2.88 as to 45,000 shares and $3.88 as to the remaining 45,000 shares
granted pursuant to Mr. Meier's employment agreement, options to purchase
-13-
<PAGE>
90,000 shares at an exercise price of $1.13 per share and options to
purchase 500,000 shares at $1.25 per share, (c) warrants to purchase
15,429 shares of Common Stock at an exercise price of $1.75, warrants to
purchase 339,959 shares at an exercise price of $3.00 per share, warrants
to purchase 82,000 shares of Common Stock at $1.00 and warrants to
purchase 131,700 shares of Common Stock at a price of $.75 per share, (d)
169,450 shares of Common Stock issuable upon conversion of Series M
Preferred Stock and (ii) an aggregate of 271,701 shares of Common Stock
(including shares of Common Stock issuable upon exercise of warrants and
conversion of Series A and Series M Preferred Stock) beneficially owned
by Belmer Partners, a Florida general partnership ("Belmer"), of which
Mr. Meier is a general partner. Excludes options to purchase 250,000
shares of Common Stock at $1.00 per share which vest on November 2, 1997
and unvested options to purchase 1,000,000 shares of Common Stock at
$1.00 per share granted pursuant to Mr. Meier's new employment agreement.
Also excludes all securities owned by Norman Meier and Phylis Meier, Mr.
Meier's father and mother, respectively. Mr. Meier is the President,
Chief Executive Officer and a Director of the Company.
(4) Consists of (i) (a) 457,371 shares of Common Stock, (b) options to
purchase 3,750 shares of Common Stock at an exercise price of $12.50 per
share, and options to purchase 3,750 shares of Common Stock at an
exercise price of $9.00 per share and options to purchase 250,000 shares
of Common Stock at an exercise price of 1.25, (c) warrants to purchase
3,082 shares of Common Stock at an exercise price of $22.00 per share,
warrants to purchase 2,494 shares of Common Stock at an exercise price of
$4.25 per share, warrants to purchase 28,538 shares of Common Stock at an
exercise price of $1.50 per share, warrants to purchase 120,000 shares of
Common Stock at an exercise price of $3.00 and warrants to purchase
110,000 shares of Common Stock at an exercise price of $1.00, and (d )
214,938 shares of Common Stock issuable upon conversion of Series A and
Series M Preferred Stock owned by such person and (ii) an aggregate of
271,701 shares of Common Stock (including shares of Common Stock issuable
upon exercise of warrants and conversion of Series A and Series M
Preferred Stock) beneficially owned by Belmer, of which Mr. Meier is a
general partner. Excludes options to purchase 250,000 shares of Common
Stock at $1.00 per share which options vest on November 2, 1997 and
options to purchase 600,000 shares of Common Stock at $1.00 per share
which were granted on August 6, 1997. Excludes all securities owned by
Bradley Meier or Phylis Meier. Mr. Meier is a Director of the Company,
the father of Bradley Meier, the President of the Company and the former
spouse of Phylis Meier.
(5) Consists of options to purchase 100,000 shares of Common Stock at an
exercise price of $1.00 per share. Dr. Kellner is a director of the
Company.
(6) Consists of options to purchase 100,000 shares of Common Stock at $1.00
per share. Mr. Slogoff is a director of the Company.
(7) Consists of options to purchase 100,000 shares of Common Stock at $1.00
per share. Mr. Wilentz is a director of the Company.
(8) See footnotes (1) - (7) above.
-14-
<PAGE>
As of July 31, 1997, the following table sets forth information regarding
the number and percentage of Common Stock held by all persons who are known by
the Company to beneficially own or exercise voting or dispositive control over
5% or more of the Company's outstanding Common Stock:
Number of Shares Percent
Name and Address Beneficially Owned(1)(2) of Class(1)(2)
- ---------------- ------------------------ --------------
Phylis R. Meier (3) 996,426 25.9%
c/o Universal Heights, Inc.
19589 N.E. 10th Avenue
Miami, Florida 33179
Belmer Partners (4) 271,701 7.8%
c/o Phylis R. Meier
Managing General Partner
Universal Heights, Inc.
19589 N.E. 10th Avenue
Miami, Florida 33179
Shephard Lane, Esq. 214,142 6.0%
Slatt & Lane
600 Third Avenue
New York, NY 10016
- -----------
(1) Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to the
shares of Common Stock beneficially owned by them.
(2) A person is deemed to be the beneficial owner of Common Stock that can be
acquired by such person within 60 days of the date hereof upon the
exercise of warrants or stock options or conversion of Series A and
Series M Preferred Stock or convertible debt. Except as otherwise
specified, each beneficial owner's percentage ownership is determined by
assuming that warrants, stock options, Series A and Series M Preferred
Stock and convertible debt that are held by such a person (but not those
held by any other person) and that are exercisable within 60 days from
the date hereof, have been exercised or converted.
(3) Consists of (i) (a) 333,792 shares of Common Stock, (b) 2,880 shares of
Common Stock issuable upon conversion of related party debt, (c) warrants
to purchase 354,115 shares of Common Stock, and (d) 33,938 shares of
Common Stock issuable upon conversion of Series A and Series M Preferred
Stock owned by Ms. Meier, and (ii) an aggregate of 271,701 shares of
Common Stock (including shares of Common Stock issuable upon exercise of
warrants and conversion of Series A and Series M Preferred Stock)
beneficially owned by Belmer. Excludes all securities owned by Bradley
Meier and Norman Meier, the son and former spouse of Ms. Meier,
respectively. Ms. Meier is managing general partner of Belmer.
-15-
<PAGE>
(4) Consists of (a) 54,533 shares of Common Stock, (b) 67,168 shares of
Common Stock issuable upon exercise of warrants and (c) 150,000 shares of
Common Stock issuable upon conversion of Series A and Series M Preferred
Stock. Belmer Partners is a Florida general partnership in which Phylis
R. Meier is managing general partner and Bradley I. Meier and Norman M.
Meier are general partners.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of April 27, 1996 and April 30, 1997, the Company owed $60,873 and
$131,423, respectively, in accrued salary to Bradley Meier. In addition, during
the year ended April 27, 1996, $37,959 of accrued salaries were forgiven in
exchange for the issuance of warrants to purchase 37,959 shares of Common Stock
at $3.00 per share, through August 11, 2005.
During fiscal 1995, Phylis Meier and Bradley Meier lent the Company
$17,685 and $27,244, respectively. During fiscal 1996, Bradley Meier lent the
Company an additional $185,256, Phylis Meier lent the Company an additional
$221,800, Norman Meier lent the Company $118,000, Shephard Lane lent the Company
$10,000 and Michael Pietrangelo lent the Company $10,000. These loans bear
interest at 10%. As of April 27, 1996 the Company and debtors approved the
conversion of $212,500 of Bradley Meier's loans to be repaid through the
issuance of 510,096 shares of Common Stock, $150,000 of Phylis Meier's loans to
be repaid through the issuance of 240,000 shares of Common Stock and $100,000 of
Norman Meier's loans to be repaid through the issuance of 266,667 shares of
Common Stock.
FISCAL 1997 TRANSACTIONS
Transactions between the Company and its affiliates are on terms no less
favorable to the Company than can be obtained from third parties on an arms'
length basis. Transactions between the Company and any of its executive officers
or directors require the approval of a majority of disinterested directors.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
3.1 Registrant's Restated Amended and Restated Certificate of
Incorporation(1)
3.2 Registrant's Bylaws(1)
3.3 Certificate of Designations, Preferences, and Rights of Series M
Convertible Preferred Stock dated August 13, 1997.
4.1 Form of Common Stock Certificate(1)
4.2 Form of Warrant Certificate(1)
4.3 Form of Warrant Agency Agreement(1)
4.4 Form of Underwriter Warrant(1)
4.5 Affiliate Warrant(1)
4.6 Form of Warrant to purchase 100,000 shares of Common Stock at an
exercise price of $2.00 per share issued to Steven Guarino dated as of
-16-
<PAGE>
April __, 1997. (Substantially similar in form to two additional
warrants to purchase 100,000 shares of Common Stock issued to Mr.
Guarino dated as of April 24, 1997, with exercise prices of $2.75 and
$3.50 per share, respectively.)
10.1 Registrant's 1992 Stock Option Plan(1)
10.2 Form of Indemnification Agreement between the Registrant and each of
its directors and executive officers(1)
10.3 General Lease Agreement dated August 28, 1993 by and between AT&T
Credit Corporation and Universal Heights, Inc.(2)
10.4 Loan agreement dated October 23, 1993 by and between Equitable Bank
and Universal Heights, Inc.(3)
10.5 Management Agreements by and between Universal Property & Casualty
Insurance Company and Universal P&C Management, Inc. dated as of June
2, 1997.
10.6 Employment Agreement dated as of May 1, 1997 between Universal
Heights, Inc. and Bradley I. Meier.
(1) Incorporated by reference to the Registrant's Registration Statement
on Form S-1 (File No. 33-51546) declared effective on December 14,
1992.
(2) Incorporated by reference to the Registrant's Quarterly Report on Form
10-QSB for the quarter ended July 31, 1993.
(3) Incorporated by reference to the Registrant's Quarterly Report on Form
10-QSB for the quarter ended October 31, 1993.
REPORTS ON FORM 8-K
None.
-17-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNIVERSAL HEIGHTS, INC.
Date: October 14, 1997 By: /s/ Bradley I. Meier
---------------------------
Bradley I. Meier, President
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Certified Public Accountants' F-2
Consolidated Balance Sheet - April 30, 1997 F-3
Consolidated Statements of Operations for the Years Ended
April 30, 1997 and April 27, 1996 F-4
Consolidated Statements of Changes in Stockholders'
Deficiency for the Years Ended April 30, 1997 and
April 27, 1996 F-5
Consolidated Statements of Cash Flows for the Years
Ended April 30, 1997 and April 27, 1996 F-6 - F-7
Notes to the Consolidated Financial Statements F-8 - F-17
F-1
<PAGE>
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS'
To the Board of Directors and Stockholders
Universal Heights, Inc. and Subsidiary
Miami, Florida
We have audited the accompanying consolidated balance sheet of Universal
Heights, Inc. and Subsidiary as of April 30, 1997, and the related consolidated
statements of operations, changes in stockholders' deficiency and cash flows for
each of the two years in the period ended April 30, 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. 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
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Universal Heights,
Inc. and Subsidiary as of April 30, 1997, and the results of their consolidated
operations and cash flows for each of the two years in the period ended April
30, 1997, in conformity with generally accepted accounting principles.
As discussed in Note 1, the accompanying consolidated financial statements have
been prepared assuming that the Company will continue as a going concern. The
Company has had continuing operating losses and had a working capital deficiency
and shareholders' deficiency of $867,737 at April 30, 1997. The Company has
discontinued operations of its core product line and is directing its efforts to
become a property and casualty insurance company. As a result, the Company needs
additional funds to enter this business. These factors raise substantial doubt
about the ability of the Company to continue as a going concern. Management's
plans in regard to these matters are described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
Millward & Co. CPAs
Fort Lauderdale, Florida
July 18, 1997
F-2
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
APRIL 30, 1997
ASSETS
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED APRIL 30, 1997 AND APRIL 27, 1996
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OPF CASH FLOWS
FOR THE YEARS ENDED
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
APRIL 30, 1997
ASSETS
Cash and cash equivalents $35,269
Prepaid insurance 2,502
Deposits 9,816
Assets from discontinued operations 592,367
----------
Total Current Assets $639,954
--========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable 987,619
Accrued expenses 199,050
Due to related parties 305,678
Capitalized lease obligations 15,344
----------
Total Current Liabilities 1,507,691
==========
STOCKHOLDERS' DEFICIENCY:
Cumulative preferred stock, $.01 par value; 1,000,000
shares authorized; 138,640 shares issued and
outstanding 1,387
Common stock, $.01 par value, 20,000,000 shares
authorized; 3,212,672 shares issued and outstanding 32,294
Additional paid-in capital 7,247,748
Accumulated paid-in capital (8,102,166)
Subscriptions receivable (47,000)
-----------
Total Stockholders' Deficiency (867,737)
-----------
Total Liabilities and Stockholders' Deficiency $639,954
===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-3
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
APRIL 30, 1997 APRIL 27, 1996
OPERATING EXPENSES:
General and administrative $(400,903) $(426,267)
----------- ---------
LOSS FROM OPERATIONS (400,903) (426,267)
OTHER EXPENSE
Interest expense (14,988) (40,425)
---------- ---------
LOSS FROM CONTINUING OPERATIONS (415,891) (466,692)
---------- ---------
DISCONTINUED OPERATIONS:
Loss from operations of the Sports (569,996) (990,919)
Novelty and Souvenir business
to be disposed of
Estimated loss on disposal of Sports
Novelty and Souvenir business (1,387,575) -
----------- ---------
(1,957,571) (990,919)
---------- ---------
NET LOSS $(2,373,462) $(1,457,611)
============ ===========
LOSS PER COMMON SHARE:
Loss from continuing operations $(0.24) $(0.39)
Loss from discontinued operations (1.11) (0.83)
NET LOSS $(1.35) $(1.22)
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 1,767,373 1,197,780
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED APRIL 30, 1997 AND APRIL 27, 1996
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
---------------------- ------------------ Paid-in Accumulated Subscription
Shares Amount Shares Amount Capital Deficit Receivable Total
---------- --------- --------- -------- ----------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, April 29, 1995 49,950 $ 500 913,812 $ 9,138 $4,945,707 $(4,271,093) $ 684,252
Issuance of common stock for acquisitions - - 268,166 2,681 733,046 - 735,727
Debt exchanged for common stock - - 140,904 1,409 220,399 - 221,808
Debt exchanged for warrants - - - - 37,959 - 37,959
Issuance of common stock for services - - 276,000 2,760 285,540 - 288,300
Net loss, year ended April 27, 1996 - - - - - (1,457,611) - (1,457,611)
-------- ------- --------- -------- -------- ----------- -------- ----------
BALANCE, April 27, 1996 49,950 500 1,598,882 15,988 6,222,651 (5,728,704) 510,435
Debt exchanged for common stock 88,690 887 1,249,030 12,658 691,995 - 705,540
Capital raised on private placement - - 354,760 3,548 312,202 (47,000) 268,750
Issuance of common stock for services - - 10,000 100 20,900 - 21,000
Net loss, year ended April 30, 1997 - - - - - (2,373,462) - (2,373,462)
-------- -------- --------- ------- --------- ----------- -------- -----------
BALANCE, April 30, 1997 138,640 $ 1,387 3,212,672 $ 32,294 $7,247,748 $(8,102,166) $(47,000) ($867,737)
======== ======== ========= ======== ========== ============ ========= ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended
-----------------------------------------------
April 30, 1997 April 27, 1996
-----------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
CONTINUING OPERATION:
Net loss from continuing operations $(415,891) $(466,692)
Adjustments to reconcile net loss from continuing operations
to net cash used in continuing operations:
Stock issued for services 21,000 164,904
Change in assets and liabilities:
Decrease in deposits - 151
----------- ----------
Net cash used in continuing operations (394,891) (301,637)
----------- ----------
DISCONTINUED OPERATION:
Loss from discontinued operations (1,957,571) (990,919)
Adjustments to reconcile loss from discontinued operations
to net cash used in discontinued operations:
Depreciation and amortization 562,417 263,052
Provision for doubtful accounts (8,101) 12,200
Write down of inventories to net realizable value 952,896 317,988
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable 51,982 26,307
Inventories (8,647) 78,151
Other current assets 196,203 10,612
Increase (decrease) in:
Accounts payable and accrued expenses 120,355 186,468
----------- ----------
Net cash used in discontinued operations (90,466) (96,141)
----------- ----------
Net cash used in operating activities (485,357) (397,778)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (436) (17,963)
Acquisition of patents and trademarks (3,339) (11,522)
Acquisition of businesses - (84,400)
----------- ----------
Net cash used in investing activities (3,775) (113,885)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 268,750 -
Net repayments under line of credit - (132,656)
Advances from stockholders - 625,672
Issuance of related party loans 237,893 -
Repayment of loans payable - (39,249)
Payment on capital lease obligations (12,579) (14,334)
----------- ----------
Net cash provided by financing activities 494,064 439,433
----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,932 (72,230)
CASH AND CASH EQUIVALENTS, Beginning of Year 30,337 102,567
----------- ----------
CASH AND CASH EQUIVALENTS, End of Year $ 35,269 $ 30,337
=========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
April 30, 1997 April 27, 1996
-------------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid $ 9,479 $ 8,831
======== ========
SUPPLEMENTAL NONCASH OPERATING, FINANCING
AND INVESTING ACTIVITIES:
Preferred stock issued in exchange for debt $ 887 $ -
======== ========
Common stock issued in exchange for debt $704,653 $259,676
======== ========
Common stock issued in exchange for services
provided $ 21,000 $123,396
======== ========
Common stock issued in exchange for
acquisitions $ - $735,728
======== ========
Write-off of fully depreciated fixed
assets $ - $510,524
======== ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-7
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997 and April 27, 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Organization
- ------------
Universal Heights, Inc. (the "Company") was incorporated in Delaware in November
1990 to engage in the design, marketing, distribution and sale of high-quality,
licensed novelty and souvenir products under the trade name SuperSouvenirs(TM)
as well as other sports related products. During the fiscal year ended April 30,
1997, the Company did not actively market its core product line which resulted
in declining sales. This decision was based on the projected continued losses,
inability to achieve critical mass and lessened demand for products because of
market factors. Accordingly, at April 30, 1997, inventories have been written
down to their estimated net realizable value resulting in a charge of $952,896
to discontinued operations for 1997. Related patents and trademarks have been
written down to their estimated fair value resulting in a charge of $434,679 to
discontinued operations. The Company is actively pursuing a strategy to enter
into the financial service industry. The Company plans to qualify as a property
and casualty insurer through the State of Florida market challenge takeout
program.
Principles Of Consolidation
- ---------------------------
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All intercompany accounts and
transactions have been eliminated in consolidation.
Basis Of Presentation And Continued Existence
- ---------------------------------------------
The consolidated financial statements have been prepared assuming the Company
will continue as a going concern. The basis of accounting contemplates the
recovery of the Company's assets and the orderly satisfaction of its liabilities
in the normal course of conducting business. The Company has had continuing
operating losses and had a stockholders' deficiency and a working capital
deficiency of $867,737 as of April 30, 1997.
F-8
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997 and April 27, 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company does not have and is not generating sufficient funds from operations
or otherwise to finance its proposed plan of reorganization into a property and
casualty insurance company. In order to finance the proposed reorganization, the
Company is presently attempting to raise funds through an equity financing.
There is no assurance that any such financing will be successful on commercially
reasonable terms or at all. The Company's inability to obtain future financing
on terms acceptable to the Company would have a material adverse affect on the
Company's proposed reorganization. Management believes the reorganization of the
Company under the aforementioned activities is a way to achieve profitability.
Fiscal Year
- -----------
As of April 28, 1996, the Company changed its accounting fiscal year from a
52/53-week fiscal year ending on the Saturday closest to April 30 to a year
ending April 30, 1997.
Fair Market Value Of Financial Instruments
- ------------------------------------------
The carrying amount reported in the balance sheet for cash, accounts receivable,
accounts payable and accrued liabilities approximates fair market value due to
the immediate or short-term maturity of these consolidated financial
instruments.
Cash And Cash Equivalents
- -------------------------
For the purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
Assets From Discontinued Operations
- -----------------------------------
Inventories, consisting principally of licensed novelty and souvenir products,
are valued at their net realizable value based on management's anticipated
liquidation value.
Property and equipment are stated at cost less accumulated depreciation which
approximates net realizable value. Depreciation is computed by the straight-line
method based on estimated useful lives of the assets.
F-9
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997 and April 27, 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation and amortization expense was approximately $477,000 and $299,000 in
1997 and 1996, respectively.
The cost of acquiring patents and trademarks are amortized using the
straight-line method over their estimated ten-year lives. See impairment of
long-lived assets.
Revenue Recognition
- -------------------
Revenue from the sale of products is recognized upon shipment to the customer.
Net Loss Per Share
- ------------------
Loss per share is computed by dividing the net loss plus preferred dividend
requirement by the weighted average number of shares of common stock outstanding
during the period. Shares to be issued upon the exercise of the outstanding
options and warrants or the conversion of the preferred stock are not included
in the computation of loss per share as their effect is anti-dilutive.
Income Taxes
- ------------
The Company uses Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes". Under the liability method specified by SFAS 109,
the deferred tax liability is determined based on the difference between the
financial statement and tax bases of assets and liabilities as measured by the
enacted tax rates which will be in effect when these differences reverse.
Deferred income tax expense is the result of changes in the liability for
deferred taxes. The principal type of difference between assets and liabilities
for financial statement and tax return purposes is the net operating loss
carryforward.
F-10
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997 and April 27, 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment Of Long-lived Assets
- -------------------------------
In May 1996, the Company adopted FASB Statement No. 121 (SFAS 121), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". SFAS 121 became effective for fiscal years beginning after December 15,
1995 and addresses the accounting for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used for long-lived assets and certain identifiable intangibles to be
disposed of. The adoption of this pronouncement did not have a significant
impact on the Company's consolidated financial statements.
During fiscal 1997, patents and trademarks were deemed to be impaired and
written down to their fair value. Fair value, which was determined by reference
to the present value of the estimated future cash inflows of such assets,
exceeded their carrying value by $434,679. Accordingly, an impairment loss
amounting to $434,679 has been included in discontinued operations in 1997.
Stock Based Compensation
- ------------------------
In October 1995, the FASB issued Statement No. 123 (SFAS 123), "Accounting for
Stock Based Compensation". The accounting requirements of SFAS 123 are effective
for transactions entered into in fiscal years that begin after December 15,
1995. The disclosure requirements of SFAS 123 are effective for financial
statements for fiscal years beginning after December 15, 1995, or for an earlier
fiscal year for which this statement is initially adopted for recognizing
compensation costs. The Company believes this pronouncement will not have a
significant impact on the Company's consolidated financial statements.
Use Of Estimates
- ----------------
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
F-11
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997 and April 27, 1996
NOTE 2 - DISCONTINUED OPERATIONS
As of April 30, 1997, the Company decided to divest itself of its core business
operations and has not renewed any licensing agreements. Accordingly, the
Company is reporting the results of operations of its core business as a
discontinued operation for all periods presented in the consolidated financial
statements. Revenues from discontinued operations were $161,312 and $359,712 for
the fiscal years ended April 30, 1997 and April 27, 1996, respectively. The
Company does not expect to generate income or loss on these operations prior to
their ultimate disposition. In addition, the Company does not anticipate
incurring any additional material losses on the ultimate disposal of the
business.
Assets of the core business to be disposed of, at their expected net realizable
values, consisted of the following at April 30, 1997:
Inventories $ 300,000
Patents and trademarks 200,000
Property, equipment and other assets 92,367
---------
Total assets from discontinued operations $ 592,367
---------
Capitalized Lease Obligations
- -----------------------------
As of April 30, 1997, the Company has approximately $105,000 of furniture and
equipment pursuant to leases which have been accounted for as capital leases.
Interest on these obligations range from 11.1% to 23.1%.
F-12
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997 and April 27, 1996
NOTE 3 - COMPANY INDEBTEDNESS
The future minimum lease payments under capital leases together with the present
value of the minimum lease payments as of April 30, 1997 are as follows:
1998 $ 11,735
1999 3,963
2000 1,289
----------
Total minimum lease payments 16,987
Less: amount representing interest 1,643
----------
Present value of minimum lease payments $ 15,344
==========
The balance has been treated as a current liability as management is attempting
to terminate these leases.
NOTE 4 - DUE TO RELATED PARTIES
Note payable to an officer and director, with interest at
prime (8.25%) plus 2%, convertible into 15,429 shares of
Common Stock; if note is converted, warrants to purchase
15,429 shares of Common Stock at $1.75 per share, will be
issued. 27,000
Deferred salary, due on demand, non-interest bearing. 131,423
Accrued royalties related to acquisition of business. 7,670
Accrued interest, due on demand, non-interest bearing. 139,585
---------
305,678
Less current portion 305,678
---------
$ -
=========
F-13
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997 and April 27, 1996
NOTE 5 - INCOME TAXES
To date, the Company has incurred tax operating losses and, therefore, has
generated no income tax liabilities. As of April 30, 1997, the Company has
generated net operating loss carryforwards totaling approximately $4,687,900
which are available to offset future taxable income, if any, through 2012. As
the utilization of such operating losses for tax purposes is not assured, the
deferred tax asset has been fully reserved through the recording of a 100%
valuation allowance. Should a cumulative change in ownership of more than 50%
occur within a three-year period, there could be an annual limitation on the use
of the net operating loss carryforward.
The components of the net deferred income taxes are as follows:
Deferred Tax Assets:
Net Operating Loss Carryforward $ 1,809,500
Inventories 367,800
Patents and Trademarks 167,800
Compensation 50,700
------------
Total Deferred Tax Assets 2,395,800
Valuation Allowance for Deferred Tax Assets (2,395,800)
------------
Deferred Income Taxes, Net $ -
============
The net operating loss carryforwards are scheduled to expire as follows:
Expiration
Date
- ----------
2006 $ 8,300
2007 250,800
2008 721,700
2009 1,010,000
2010 1,115,700
2011 677,400
2012 904,000
-----------
$ 4,687,900
===========
F-14
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997 and April 27, 1996
NOTE 6 - STOCKHOLDERS' DEFICIENCY
CUMULATIVE PREFERRED STOCK
- --------------------------
In October 1994, 49,950 shares of Series A Preferred Stock were issued in
repayment of $499,487 of related party debt and another 88,690 shares of series
M preferred stock have been authorized for issuance in the current year for
repayment of $88,690 of related party debt. Each share of preferred stock is
convertible into 2.5 shares of Common Stock and 5 shares of common stock,
respectively, into an aggregate of 568,326 common shares. Beginning May 1, 1995,
the Preferred Stock pays a cumulative dividend of $.25 per share per quarter. In
connection with this transaction, the Company issued the holders warrants to
purchase 12,488 shares of Common Stock at $4.25 per share, exercisable through
October 17, 2004. The Preferred Stock is redeemable by the Company at $10 per
share through April 2000 and has a liquidation value of $10 per share. For the
year ended April 30, 1997 dividends have not been declared.
STOCK OPTION PLAN
- -----------------
All employees, officers, directors and consultants of the Company or any
subsidiary are eligible to participate in the Universal Heights, Inc. 1992 Stock
Option Plan (the "Plan"). Under the Plan, as amended, a total of 168,750 shares
of Common Stock have been authorized for issuance upon exercise of the options.
Information on options are as follows:
F-15
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997 and April 27, 1996
NOTE 6 - STOCKHOLDERS' DEFICIENCY (CONTINUED)
Number of Shares Price per Share
Outstanding, April 29, 1995 107,625 $ 6.00 - 22.00
Granted -
Cancelled (9,750) 6.00 - 10.00
--------
Outstanding, April 27, 1996 97,875 6.00 - 22.00
Granted -
Cancelled (62,250) 6.00 - 22.00
-------- ---------------
Outstanding, April 30, 1997 (35,625) $ 6.00 - 22.00
======== ===============
Options exercisable at April 30, 1997
are as follows 15,625 $22.00
8,750 6.00
5,625 9.00
5,625 12.50
--------
35,625
========
Other Stock Options
- -------------------
In connection with the purchase of the weighted athletic glove company, options
to purchase a total of 112,999 shares of Common Stock were issued as follows:
Options to purchase 3,333 shares of common stock at $3 per share, vesting July
31, 1996 and expiring July 31, 2005 were issued to each of three prior
stockholders.
Options to purchase 21,500 shares of common stock at $3.50 per share vesting
June 5, 1995 and expiring June 4, 2005 were issued to each of two prior owners
pursuant to their employment agreements.
F-16
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997 and April 27, 1996
NOTE 6 - STOCKHOLDERS' DEFICIENCY (CONTINUED)
Options to purchase 30,000 shares of common stock at $3 per share, vesting when
sales of weighted athletic gloves reach $12.5 million in any twelve consecutive
months, expiring on August 27, 2005 were issued to each of two prior owners.
In July 1996, the Company granted stock options to officers and directors to
purchase an aggregate of 1,210,000 shares of common stock at $1.25 per share.
The options are exercisable over a ten-year period. The Company has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock options issued to the officers and directors. Had compensation been
determined based on the fair value at the grant dates for the awards consistent
with the provisions of SFAS No. 123, the Company's net loss and net loss per
share would have been adjusted to the pro forma amounts indicated below:
OTHER STOCK OPTIONS (CONTINUED)
Information regarding the Company's issuance during the year ended April 30,
1997:
Loss from
Continuing
Net Loss Operations
-------- ----------
Loss:
As reported $(2,373,462) $ (415,891)
Pro forma $(3,811,462) $(1,853,891)
Loss per share:
As reported $ (1.35) $ (.24)
Pro forma $ (2.16) $ (1.05)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted assumptions:
Exercise price $ 1.25
Expected life of option 10
Risk free interest rate 6.66%
Expected volatility 117%
F-17
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997 and April 27, 1996
NOTE 6 - STOCKHOLDERS' DEFICIENCY (CONTINUED)
See Note 8 - Employment agreement and Note 10 - Subsequent event for additional
options.
Warrants
- --------
As of April 30, 1997, the following warrants are outstanding:
The Company has issued warrants to purchase a total of 1,256,526 shares of
Common Stock in connection with debt transactions as follows: warrants to
purchase 12,500 shares of Common Stock, exercisable at $22.00 per share through
October 1, 1997; warrants to purchase 12,488 shares of Common Stock, exercisable
at $4.25 per share through October 7, 2004; warrants to purchase 110,409 shares
of Common Stock, exercisable at $1.50 per share through November 29, 2004;
warrants to purchase 10,000 shares of Common Stock, exercisable at $2.25 per
share through March 23, 2005; warrants to purchase 15,429 shares of Common
Stock, exercisable at $1.75 per share through March 31, 2005; warrants to
purchase 120,000 shares of Common Stock, exercisable at $3.00 per share through
July 21, 2005; warrants to purchase 302,000 shares of Common Stock, exercisable
at $3.00 per share through August 11, 2005; warrants to purchase 10,000 shares
of Common Stock, exercisable at $2.50 per share through March 23, 2005; warrants
to purchase 20,000 shares of Common Stock, exercisable at $3.00 per share
through August 14, 2005; warrants to purchase 182,000 shares of Common Stock,
exercisable at $1.00 per share through October 11, 2005; warrants to purchase
30,000 shares of Common Stock, exercisable at $1.00 per share through November
15, 2005; warrants to purchase 300,000 shares of Common Stock, exercisable at
$1.25 per share through March 1, 2006 and warrants to purchase 131,700 shares of
Common Stock, exercisable at $.75 per share through December 3, 2006.
In addition, the Company issued warrants to purchase 37,959 and 16,667 shares of
Common Stock, respectively, to the president of the Company in connection with
the forgiveness of salary and to a former officer in connection with the
conversion of salary into Common Stock. Each such warrant is exercisable at a
price of $3.00 per share through August 11, 2005. The Company has also issued
warrants to purchase a total of 2,185,000 shares of Common Stock in connection
with professional services as follows: warrants to purchase 75,000 shares of
Common Stock, exercisable at $3.00 per share through May 11, 2005; warrants to
purchase 10,000 shares of Common Stock, exercisable at $1.00 per share through
October 23, 1998; warrants to purchase 40,000 shares of Common Stock,
F-18
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997 and April 27, 1996
NOTE 6 - STOCKHOLDERS' DEFICIENCY (CONTINUED)
Warrants (Continued)
- -------------------
exercisable at $1.75 per share through October 23, 1998; warrants to purchase
45,000 shares of Common Stock, exercisable at $1.00 per share through October
11, 2005; warrants to purchase 15,000 shares of Common Stock, exercisable at
$1.00 per share through October 11, 2000; warrants to purchase 1,000,000 shares
of Common Stock, exercisable at $1.25 per share through March 1, 2000. The
Company issued warrants to purchase 60,000 shares of Common Stock, exercisable
at $2.88 per share through August 2005 in connection with an acquisition. The
Company issued warrants to purchase 300,000 shares of Common Stock in connection
with a private placement as follows: warrants to purchase 100,000 shares of
Common Stock, exercisable at $2.00 per share, warrants to purchase 100,000
shares exercisable at $2.75 per share and warrants to purchase 100,000 shares
exercisable at $3.50 per share, each through April 30, 1997. The Company also
issued warrants to purchase 1,250,000 shares of Common Stock, exercisable at
$.63 per share, through June 12, 2002 in connection with a consulting agreement;
however, warrants to purchase 250,000 of such shares are not exercisable until
the Company's insurance subsidiary is licensed by the state of Florida and the
remaining warrants to purchase 1,000,000 shares vest upon achievement of agreed
upon annual pretax profit amounts.
In connection with the Company's initial public offering in December 1992, the
Company sold units; each unit included warrants (the "IPO Warrants"). Effective
in December 1995, the Company's Board of Directors amended the terms of the IPO
Warrants to reduce the exercise price and extend the expiration date. Each IPO
Warrant entitles its registered owner to purchase, at the exercise price of
$6.00, one share of the Company's Common Stock until December 31, 1998 (the "IPO
Warrant Expiration Date"). The Company may call and redeem all outstanding IPO
Warrants at any time upon 30 days' prior written notice, at the redemption price
of $.01 per IPO Warrant, at such time as the market price of its Common Stock
has exceeded the IPO Warrant exercise price by 20% for the period of 20
consecutive business days, provided that the holder may exercise the IPO Warrant
at any time prior to the expiration of the 30-day period. Customary
anti-dilution provisions protect the IPO Warrants.
Holders of IPO Warrants are not entitled to vote, to receive dividends, or to
exercise any rights of holders of common stock until the warrants have been
fully exercised.
Other Stock Issuance's
- ----------------------
In October 1995, 45,000 unregistered shares of common stock were issued for $.70
per share, the fair market value at the date of issuance, for legal services.
F-19
<PAGE>
In February 1996, in satisfaction of $70,000 of accounts payable, 25,000 shares
of common stock were issued at $3 per share, the fair market value of the shares
as of that date.
In February 1996, 153,557 shares of common stock were issued at $1.27 to $3 per
share upon the conversion of $232,362 of related party debt, to include current
year issuance's of the confirmation received.
F-20
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997 and April 27, 1996
NOTE 6 - STOCKHOLDERS' DEFICIENCY (CONTINUED)
In connection with the two business acquisitions in the year ended April 27,
1996, a total of 178,166 and 90,000 shares of common stock were issued,
respectively. Of these shares, 158,166 unregistered shares were valued at prices
ranging from $.70 to $2.10 per share, 60,000 and 50,000 shares were issued at
$3.75 and $4 per share, the guaranteed values, respectively.
None of the warrants has been issued at less than the bid price of the Company's
common stock on the date of grant.
In connection with a consulting agreement, the Company issued 50,000 shares of
common stock all of which have been issued as of April 27, 1996 and warrants to
purchase 50,000 shares of common stock. The shares are valued at the fair market
value as of the date of the agreement; $.70 per share or an aggregate of
$35,000.
In connection with a consulting agreement, the Company issued 142,000 shares of
common stock all of which have been issued as of April 27, 1996. The shares are
valued at the market value as of the date of the agreement; $1 per share or an
aggregate of $142,000.
In July 1996, a group of investors purchased warrants from the Company at $.05
per warrant entitling the holders to purchase 1,433,333 shares of the Company's
Common Stock at $.70 per share. The warrants were exercisable for six months.
During July 1996, warrants to purchase 254,760 shares were exercised for gross
proceeds of $250,000.
Other Stock Issuance's (Continued)
- ---------------------------------
During 1997, 10,000 shares were issued for services at a fair value of $21,000.
The Company issued 46,667 shares of common stock as payment to certain
creditors. The debt and fair market value of the shares approximated $78,500.
Pursuant to a subscription agreement dated April 22, 1997, the Company sold
100,000 shares of common stock at $.97 per share and issued warrants to purchase
100,000 shares at $2.00 per share; 100,000 shares at $2.75 per share; and
100,000 shares at $3.00 per share. The warrants expire on April 30, 1999.
F-21
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997 and April 27, 1996
NOTE 7 - PUBLIC RELATIONS AGREEMENT
In March 1995, the Company signed a two-year public relations agreement that
requires payments of $1,000 per month for the first six months, $2,500 per month
for the second six months and $3,000 per month for the final twelve months. As
additional compensation, the Company issued 6,250 shares of Common Stock at
$1.50 per share and issued in October 1995, an option to purchase an additional
6,250 shares of Common Stock at $1.50 per share, exercisable through March 2000.
This agreement was cancelled effective January 1, 1996.
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
Operating Leases
- ----------------
The Company leases office and adjoining warehouse space under a noncancelable
operating lease. Future minimum lease payments are as follows:
1997 $ 12,000
============
In addition, future lease payments are subject to adjustment based on annual
changes in the Consumer Price Index (as defined in the lease). Rent expense for
the years ended April 30, 1997 and April 27, 1996 was $41,238 and $42,534,
respectively. The Company is currently operating with a month-to-month lease.
Employment Agreement
- --------------------
The Company has an employment agreement with its President pursuant to which the
President receives annual compensation of $75,000 through April 30, 1997. This
agreement provides for additional compensation equal to an aggregate 1.0% of
gross sales in excess of $3,500,000 annually, 45,000 ten-year options to
purchase shares at $2.88, 45,000 ten-year options to purchase shares at $3.88
and 90,000 ten-year options to purchase shares at $1.125(See Note 10 -
Subsequent event for renewal terms).
Licensing Agreements
- --------------------
The Company's existing licensing agreements expire at various times through
March 31, 1998. As of April 27, 1996, the Company has not renewed licensing
agreements with the National Hockey League, Time Warner, Quarterback Club and
Notre Dame. The Company currently has no plans to renew these agreements.
F-22
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997 and April 27, 1996
In connection with the purchase of the weighted athletic glove company a royalty
agreement effective during the life of the patent was signed with the former
owners requiring minimum royalties of $10,000 in 1996, $20,000 in 1997 and
$30,000 per year thereafter. If such royalties are not paid or otherwise
satisfied, the patents would be reassigned to the previous owners of the
company.
NOTE 9 - LITIGATION
The following outlines pending litigation against Universal Heights:
Walker And Martin Vs. Universal Heights
- ---------------------------------------
This is a cause of action in the Circuit Court for Pinellas County, Florida. The
Plaintiffs have asserted claims for an injunction and for damages for breach of
an Asset Purchase Agreement. The amount in controversy is in excess of $15,000,
but no specific amount is claimed. The Complaint includes claims for breach of
employment agreements, breach of royalty agreements and other relief. It is too
early to determine the outcome
Note 10- SUBSEQUENT EVENTS
As of May 1, 1997, the Company entered in a four-year employment agreement with
the president of the Company. Under the terms of the employment agreement, the
president will devote substantially all of his time to the Company and will be
paid a base salary of $250,000 per year. Additionally, pursuant to the
employment agreement, and during each year thereof, the president will be
entitled to a bonus equal to 3% of pretax profits up to $5,000,000 and 4% of
pretax profits in excess of $5,000,000. The employment agreement contains
non-competition and non-disclosure covenants. Under the terms of the agreement,
the president was granted ten-year stock options to purchase 1,500,000 shares of
common stock at $1.00 per share, of which 500,000 options vest immediately,
500,000 options vest after one year and the remaining options vest after two
years. In addition, the agreement may be extended for an additional two years at
the option of the president.
F-23
<PAGE>
UNIVERSAL HEIGHTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997 and April 27, 1996
In connection with the Company's proposed insurance business, the Company has
granted 1,250,000 options to an officer to purchase common stock depending on
certain conditions at the exercise price of $.625.
Subsequent to April 30, 1997, the Company granted options to three new directors
to purchase 300,000 shares of the Company's common stock at an option price of
$1.00 per share.
F-24
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF DESIGNATION, PREFERENCES, AND
RIGHTS OF SERIES M CONVERTIBLE PREFERRED STOCK
of
UNIVERSAL HEIGHTS, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
Universal Heights, Inc. ("Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the board of directors of the
Company ("Board of Directors") or any committed of the Board of Directors
("Board Committee") by its Amended and Restated Certificate of Incorporation
("Certificate of Incorporation"), and pursuant to the provisions of Section 151
of the General Corporation Law of the State of Delaware, the Board of Directors,
at a meeting held on May 2, 1997, duly approved and adopted the following
resolution ("Resolution"):
RESOLVED, that, pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation of the Corporation, the Board of
Directors of the Corporation does hereby create, authorize and provide for the
issue of Series M Convertible Preferred Stock, par value $.01 per share,
consisting of 88,690 shares, having the designations, preferences, relative,
participating, optional and other special rights and the qualifications,
limitations and restrictions thereof that are set forth in the Certificate of
Incorporation and this Resolution as follows:
Section 1. DESIGNATION AND AMOUNT. (a) The shares of such series shall
be designated as "Series M Convertible Preferred Stock" and the number of shares
constituting such series shall be 88,690. The conversion price of the Series M
Convertible Preferred Stock shall be $1.00 per share ("Conversion Price").
(b) The Series M Convertible Preferred Stock shall, with respect to
dividend rights and rights on liquidation, dissolution or winding up, rank prior
to the Common Stock, par value $.01 per share, of the Corporation ("Common
Stock");
Section 2. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of shares of
Series M Convertible Preferred Stock, in preference to the holders of shares of
Common Stock and holders of any shares of other capital stock of the Corporation
ranking junior to the Series M Convertible Preferred Stock as to payment of
dividends, shall be entitled to receive, when, as and if declared by the Board
<PAGE>
of Directors, out of the assets of the Corporation legally available therefor,
cash dividends at an annual rate of $.20 per share, accruing and payable
annually on the anniversary date of the first day of the calendar quarter
immediately following the date hereof ("Issue Date"). In the event that accrued
dividends on the Series M Convertible Preferred Stock are not paid for the
preceding year, each holder of Series M Convertible Preferred Stock shall
receive, in lieu of such accrued and unpaid dividends, an amount of Series M
Convertible Preferred Stock equal in value to such accrued and unpaid dividends
based upon the Liquidation Preference of Series M Convertible Preferred Stock.
(b) Dividends payable pursuant to paragraph (a) of this Section 2 shall
begin to accrue and be cumulative from August 30, 1997. Dividends paid on the
shares of the Series M Convertible Preferred Stock in an amount less than the
total amount of such dividends at the time accrued and payable on such shares
shall be allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of the Series M Convertible Preferred Stock
entitled to receive payment of a dividend declared thereon, which record date
shall be no more than sixty days nor less than ten days prior to the date fixed
for the payment thereof.
Section 3. VOTING RIGHTS. In addition to any other voting rights
required by law, the holders of shares of Series M Convertible Preferred Stock
shall have the following voting rights:
(a) Each share of Series M Convertible Preferred Stock shall entitle
the holder thereof to one vote on all matters submitted to a vote of the
stockholders of the Corporation, and the holders of Series M Convertible
Preferred Stock shall vote as a series on matters affecting their value
including a) issuance of any new series of Preferred Stock of the Corporation
with superior rights, and b) any merger, dissolution, or sale of the
Corporation. All action requiring the approval of holders of shares of Series M
Convertible Preferred Stock voting as a series shall be authorized by a majority
vote of such holders.
(b) The holders of the Series M Convertible Preferred Stock, voting
separately as a series, in person or by proxy, shall be entitled to elect two of
the members of the Board of Directors of the Corporation at each annual meeting
of the stockholders or any special meeting called for that purpose. The holders
of the Common Stock and the holders of the Series M Convertible Preferred Stock,
2
<PAGE>
voting together as one class, in person or by proxy, shall be entitled to elect
the remaining directors of the Corporation at each annual meeting of the
stockholders or any special meeting called for that purpose.
Each director elected by the holders of shares of the Series M
Convertible Preferred Stock as provided in paragraph (b) of this Section 3
shall, unless his or her term shall expire earlier, hold office until the annual
meeting of stockholders next succeeding his or her election or until his or her
successor, if any, is elected and qualified.
In case any vacancy shall occur among the directors elected by the
holders of shares of the Series M Convertible Preferred Stock as provided in
paragraph (b) of this Section 3, such vacancy may be filed for the unexpired
portion of the term by vote of a majority of the remaining directors theretofore
elected by such holders (if there are remaining directors), or such directors'
successors in office. If any such vacancy is not so filled within twenty (20)
days after the creation thereof or if the directors so elected by the holders of
the Series M Convertible Preferred Stock shall cease to serve as directors
before their terms shall expire, the holders of the Series M Convertible
Preferred Stock then outstanding and entitled to vote for such directors may, by
written consent as herein provided, or at special meeting of such holders called
as provided herein, elect successors to hold office for the unexpired terms of
the directors whose places shall be vacant.
Section 4. REACQUIRED SHARES. Any shares of Series M Convertible
Preferred Stock redeemed, purchased or otherwise acquired by the Corporation in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares of the Series M Convertible Preferred Stock
shall, upon their cancellation, and upon the filing of an appropriate
certificate with the Secretary of the State of Delaware, become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock to be created by resolution or resolutions of the Board of
Directors. The Corporation will not repurchase Common Stock as long as Series M
Convertible Preferred Stock is outstanding without the approval of the holders
of the Series M Convertible Preferred Stock voting as a series.
Section 5. LIQUIDATION PREFERENCE. In the event of any voluntary or
involuntary liquidation, dissolution, or winding up of the Corporation, the
holders of Series M Convertible Preferred Stock shall be entitled to receive in
preference to holders of Common Stock an amount equal to the Conversion Price of
the Series M Convertible Preferred Stock plus any accrued but unpaid dividends
thereon, whether or not declared, to the date of such payment. Any remaining
proceeds shall be allocated between Common and Preferred Shareholders on a
pro-rata basis, treating the shares of Series M Convertible Preferred Stock on
an as-if converted basis.
3
<PAGE>
Section 6. CONVERSION. (a) Each share of Series M Convertible Preferred
Stock shall be convertible at the option of the holder thereof into fully paid
and nonassessable shares of Common Stock on a 1 for 5 basis. The number of
shares of Common Stock deliverable upon conversion of a share of the Series M
Convertible Preferred Stock, adjusted as hereinafter provided, is referred to
herein as the "Conversion Ratio." The Conversion ratio shall be subject to
adjustment from time to time pursuant to Section 7 herein.
Section 7. ADJUSTMENTS TO REFLECT CAPITAL CHANGES.
(a) Sale or Reorganization. In case the Corporation
shall enter into any reorganization, consolidation, merger, combination, or
other transaction ("Transaction"), irrespective of whether the Corporation is
the surviving entity, each share of Series M Convertible Preferred Stock shall,
immediately prior to such Transaction and without further action, be converted
into the same number of shares of stock or securities, cash, and/or any other
property that the holder of shares of Series M Convertible Preferred Stock would
have been entitled to receive pursuant to the terms of the Transaction if at the
time of such Transaction the holder of Series M Convertible Preferred Stock had
been the holder of record of a number of shares of Common Stock equal to the
number of shares of Common Stock receivable on conversion of such shares of
Series M Convertible Preferred Stock immediately prior to such Transaction.
(b) Recapitalization. In the event of any stock dividend, stock split
or combination of shares of the Corporation's outstanding Common Stock, the
number of shares of Series M Convertible Preferred Stock shall be adjusted to
reflect such stock dividend, stock split or combination by multiplying the
number of shares of Series M Convertible Preferred Stock by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event. In
the event the Corporation declares any stock dividend, stock split or
combination of shares of the Corporation's outstanding Common Stock, the
Conversion Price of the shares of Series M Convertible Preferred Stock shall be
adjusted by multiplying the Conversion Price of Series M Convertible Preferred
Stock by a fraction, the numerator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event and the denominator
of which is the number of shares of Common Stock outstanding immediately after
such event.
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<PAGE>
Section 10. REDEMPTION. The shares of Series M Convertible Preferred
Stock, on or before December 31, 2001, will be subject to redemption at the
option of the holder, if not previously converted, at the earlier of a
dissolution, winding up, or sale or merger wherein a "change of control" occurs
("Liquidity Events"). A change of control will occur: a) upon the sale or
transfer of substantially all the assets of the Corporation by sale, merger or
otherwise, or b) if any "person" (as such term is used in Sections 13(d) or
14(d) of the 1934 Act) is or becomes the beneficial owner, directly or
indirectly, of securities of the Corporation representing 50% or more of the
combined voting power of the then-existing outstanding securities of the
Corporation. If no Liquidity Event occurs on or before December 31, 2001, shares
of Series M Convertible Preferred Stock then held will be subject to redemption,
at the option of the holder, in equal amounts effective as of December 31, 2001
at a price equal to 125% of the Conversion Price of the Series M Convertible
Preferred Stock; December 31, 2002 at price equal to 150% of the Conversion
Price of the Series M Convertible Preferred Stock; and December 31, 2003 at a
price equal to 200% of the Conversion Price of Series M Convertible Preferred
Stock.
Section 11. AMENDMENT. The Certificate of Incorporation of the
Corporation shall not be further amended in any manner that would materially
alter or change the powers, preferences, or special rights of the Series M
Convertible Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority of the outstanding shares of
Series M Convertible Preferred Stock, voting separately as a series.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury this 13th day
of August, 1997.
UNIVERSAL HEIGHTS, INC.
By: /s/ Bradley I. Meier
----------------------------------
Name: Bradley I. Meier
Title: President and Chief Executive Officer
Attest:
By: /s/ Irwin L. Kellner
- -----------------------------
Name: Irwin L. Kellner
Title: Secretary
5
EXHIBIT 4.6
NEITHER THIS WARRANT NOR THE STOCK FOR WHICH IT MAY BE EXERCISED HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR
ANY OTHER FEDERAL OR STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF, EXCEPT AS PROVIDED IN ARTICLE IV, UNLESS SO REGISTERED OR
UNLESS SOLD PURSUANT TO AN EXEMPTION THEREFROM.
UNIVERSAL HEIGHTS, INC.
COMMON STOCK PURCHASE WARRANT
This certifies that, for value received, Steven Guarino, or his
registered assignee ("Holder") is entitled to subscribe for and purchase from
Universal Heights, Inc. ("Company"), a corporation organized and existing under
the laws of the State of Delaware, 100,000 shares ("Warrant Shares") (subject to
adjustment as set forth in Article II below) of Common Stock of the Company, par
value $0.01 per share ("Common Stock"), at the exercise price of $2.00 per share
("Exercise Price"), at any time and from time to time beginning on the second
anniversary of the date of issuance of this Warrant, in whole or in part, and on
or before April __, 1999 ("Expiration Date"), upon written notice from the
Holder to the Company ("Notice") and subject to the terms provided herein.
Capitalized terms used herein, and not otherwise defined, shall have
the meanings specified in Article IV. This Warrant is subject to the following
provisions, terms and conditions:
ARTICLE I
EXERCISE; RESERVATION OF SHARES
Section 1.01. WARRANT EXERCISE. The rights represented by this
Warrant may be exercised by the Holder, in whole or in part (but in increments
of not less than 25,000 Warrant Shares), upon Notice, by the surrender at the
principal office of the Company of this Warrant on or after the second
anniversary of the date of issuance hereof together with a duly executed
subscription in the form annexed ("Subscription Form") and accompanied by
payment, in certified or immediately available funds, of the Exercise Price for
the number of Warrant Shares specified in the Subscription Form. The shares so
purchased shall be deemed to be issued to the Holder (unless contrary
instructions are provided on the Subscription Form) as the record owner of such
shares as of the close of business on the date on which this Warrant shall have
been exercised as hereinabove provided. No fractional shares or script
representing fractional shares shall be issued upon exercise of this Warrant and
the number of shares which shall be issued upon such exercise shall be rounded
to the nearest whole share without the payment or receipt of any additional
consideration.
<PAGE>
Section 1.02. CERTIFICATES. Certificates for the shares purchased
pursuant to Section 1.01 shall be delivered to the Holder within a reasonable
time, after the rights represented by this Warrant shall have been so exercised,
and a new Warrant in the name of the Holder representing the rights, if any,
which shall not have been exercised with respect to this Warrant shall also be
delivered to such Holder within such time, with such new Warrant to be identical
in all other respects to this Warrant. The term "Warrant," as used herein,
includes any Warrants into which this Warrant may be divided or combined and any
subsequent Warrants issued upon the transfer or exchange or reissuance upon loss
(after provision of appropriate indemnification) hereof.
Section 1.03. RESERVATION OF SHARES. The Company represents,
warrants, covenants and agrees:
(a) That all shares of Common Stock which may
be issued upon exercise of this Warrant will, upon
issuance, be validly issued, fully paid and
nonassessable and free from all taxes, liens and
charges with respect to the issue thereof;
(b) That during the period from which the
rights represented by this Warrant may be exercised,
the Company will at all times have authorized, and
reserved for the purpose of issue and delivery upon
exercise of the rights evidenced by this Warrant, a
sufficient number of shares of to provide for the
exercise of the rights represented by this Warrant;
and
(c) If the Common Stock is listed on any
national securities exchange or similar trading
market, the shares of Common Stock which may be
issued upon exercise of this Warrant will also be
listed on such exchange subject to notice of
issuance.
ARTICLE II
ADJUSTMENTS
Section 2.01. REORGANIZATION, RECLASSIFICATION, CONSOLIDATION,
MERGER OR SALE.
2
<PAGE>
(a) CAPITAL EVENTS. If any reorganization or reclassification of the
capital stock of the Company, or any consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation (in any instance, a "Capital Event") shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets (including cash) with respect to or in exchange for their
Common Stock, then, as a condition of such Capital Event, lawful and adequate
provisions shall be made whereby the Holder hereof shall thereafter have the
right to purchase and receive upon the basis and upon the terms and conditions
specified in this Warrant and in lieu of the shares of the Common Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, an amount of such shares of stock, securities or
assets (including cash) as may have been issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby had such Capital
Event not taken place.
(b) PRESERVATION OF VALUE. In the case of any Capital Event,
appropriate provision shall be made with respect to the rights and interests of
the Holder of this Warrant to the end that the provisions hereof shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets (including cash) thereafter deliverable upon the
exercise of the rights represented hereby.
(c) OBLIGATION EXPRESSLY ASSUMED. The Company shall not effect any
consolidation, merger or sale of all or substantially all of its assets, unless
prior to the consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation or merger, or the corporation into or
for the securities of which the previously outstanding stock of the Company
shall be changed in connection with such consolidation or merger, or the
corporation purchasing such assets, as the case may be, shall assume by written
instrument executed and mailed or delivered to the registered Holder at the last
address of such Holder appearing on the books of the Company, the obligation to
deliver to such Holder, upon exercise of this Warrant, such shares of stock,
securities or assets (including cash) as, in accordance with the foregoing
provisions, such Holder may be entitled to purchase.
3
<PAGE>
Section 2.02. SUBDIVISION OR COMBINATION OF STOCK. In the event that
the Company shall at any time subdivide or split its outstanding shares of
Common Stock into a greater number of shares, the number of Warrant Shares
subject to issuance upon exercise of this Warrant at the opening of business on
the day upon which such subdivision becomes effective shall be proportionately
increased. In the event that the outstanding shares of Common Stock of the
Company shall be combined into a smaller number of shares, the number of shares
subject to issuance upon exercise of this Warrant at the opening of business on
the day upon which such subdivision becomes effective shall be proportionately
decreased. Any such increase or decrease, as the case may be, shall become
effective immediately after the opening of business on the day following the day
upon which such subdivision or combination, as the case may be, becomes
effective.
Section 2.03. EQUITABLE ADJUSTMENT. In the event the Company shall
participate in any extraordinary corporate event or transaction not otherwise
provided for herein, including a so-called issuer self-tender, there shall be
made an equitable and proportionate adjustment in the number of shares issuable
upon exercise of this Warrant and the Exercise Price consistent with the
principles of other such adjustments provided for in this Article II.
Section 2.04. ADDITIONAL COMMON STOCK. In the event the Company
shall within six months from the date hereof issue any additional shares of
Common Stock (other than through a stock subdivision or split covered by Section
2.02, a dividend upon the Company's Common Stock payable in stock covered by
Section 2.03 or pursuant to any existing right to purchase or acquire shares of
Common Stock of the Company) for a consideration per share of less than $1.00,
then the Exercise Price of the $2.00 Warrants shall be reduced to the price at
which the Company issued or sold such shares of Common Stock.
Section 2.05. TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company or any subsidiary of the Company, and the disposition
of any such shares (other than between the Company and any such subsidiary or
between any such subsidiaries) shall be considered an issue or sale of Common
Stock for purposes of this Article II.
Section 2.06. MINIMUM ADJUSTMENT. No adjustment in the number of
shares which may be issued upon exercise of this Warrant as provided in this
Article II shall be required unless such adjustment would require an increase or
decrease in such number of shares of at least five percent (5%) of the then
adjusted number of shares of Common Stock which may be issued upon exercise of
this Warrant; provided, however, that any such adjustments which by reason of
4
<PAGE>
the foregoing are not required to be made shall be carried forward and taken
into account and included in determining the amount of any subsequent
adjustment; and provided further, that if the Company shall at any time
subdivide or combine the outstanding shares of Common Stock or issue additional
shares of Common Stock as a dividend, said percentage shall forthwith be
proportionately adjusted so as to appropriately reflect the same.
Section 2.07. RECORD DATE. In the event that the Company shall not
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend payable in Common Stock, then such record date shall
be deemed for the purposes of this Article II to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend.
Section 2.08. TAX ADJUSTMENT. The Company may make such increases in
the number of shares of Common Stock purchasable upon exercise hereof, in
addition to those required by this Article II, as shall be determined by its
Board of Directors to be advisable in order to avoid taxation so far as
practicable of any dividend of stock or stock rights or any event treated as
such for federal income tax purposes to the recipients.
Section 2.09. OFFICER'S CERTIFICATE. Whenever there shall be any
adjustment as provided in this Article II, the Company shall forthwith file with
its Secretary and retain in the permanent records of the Company, an officer's
certificate showing the adjustment determined as provided in this Article II,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional or fewer shares of Common
Stock, and such other facts as may be reasonably necessary to show the reason
for and the method of computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by the Holder.
Section 2.10. NOTICE OF ADJUSTMENT. Upon any adjustment of the
number of shares which may be issued upon exercise of this Warrant, the Company
shall give notice thereof to the Holder, which notice shall state the increase
or decrease, if any, in the number of shares which may be issued upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
Section 2.11. DEFINITION OF "COMMON STOCK". As used in this Article
II, the term (i) "Common Stock" shall mean and include all of the Company's
authorized Common Stock of any class as constituted on the effective date
hereof, and shall also include any capital stock of any class of the Company
thereafter authorized which shall not be limited to a fixed sum or stated value
in respect of the rights of the holders thereof to participate in dividends or
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company.
5
<PAGE>
ARTICLE III
TRANSFER RESTRICTIONS; REGISTRATION RIGHTS
Section 3.01. SECURITIES LAW TRANSFER RESTRICTIONS. By taking and
holding this Warrant, the Holder (i) acknowledges that neither this Warrant nor
any shares of Common Stock which may be issued upon exercise of this Warrant
have been registered under the Securities Act or any applicable state securities
or blue sky law (collectively, "Securities Laws"); and (ii) agrees not to sell,
transfer or otherwise dispose of this Warrant or any such shares of Common Stock
without such registration unless the sale, transfer or disposition can be
effected without such registration and in compliance with the Securities Laws.
Any certificate for shares of Common Stock issued upon exercise of this Warrant
shall bear an appropriate legend describing the foregoing restrictions.
Section 3.02. PROVISION OF INFORMATION BY HOLDER. The Holder shall
make available to the Company such written information, presented in form and
content satisfactory to the Company, as the Company may reasonably request, from
time to time, in order to make the determination provided for in Section 3.01.
ARTICLE IV
MISCELLANEOUS
Section 4.01. TRANSFER OF WARRANTS. Subject to Article III, this
Warrant and any shares of any Stock obtained upon exercise of this Warrant may
be transferred at the principal office of the Company by registration in the
stock books of the Company maintained for such purpose upon delivery to the
Company of a duly executed assignment in the form annexed ("Assignment Form").
Section 4.02. NOTICES. Any notice or communication to be given
pursuant to this Warrant shall be in writing and shall be delivered in person or
by certified mail, return receipt requested, in the United States mail, postage
prepaid. Notices to the Company shall be addressed to the Company's principal
office. Notices to the Holder shall be addressed to the Holder's address as
reflected in the records of the Company. Notices shall be effective upon
delivery in person, or, if mailed, at midnight on the fifth business day after
mailing.
Section 4.03. ISSUE TAX. The issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without charge to
the original Holder for any issuance tax in respect thereof, provided that the
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<PAGE>
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the Holder of the Warrant exercised.
Section 4.04. NO SHAREHOLDER RIGHTS. This Warrant shall not
entitle the Holder to any voting rights or other rights as a shareholder of
the Company.
Section 4.05 CURRENT INFORMATION. The Company shall cause copies of
all financial statements and reports, proxy statements and other documents which
are provided to its shareholders to be sent by first class mail, postage
prepaid, on the date of mailing to such shareholders, to the Holder at the
address reflected in the records of the Company.
Section 4.06. GOVERNING LAW. This Warrant shall be governed by
and construed in accordance with the laws of the State of Delaware.
Section 4.07. HEADINGS; INTERPRETATION. The section headings used
herein are for convenience of reference only and are not intended to define,
limit or describe the scope or intent of any provision of this Warrant. When
used in this Warrant, the term "including" shall mean "including, without
limitation by reason or enumeration".
Section 4.08. SUCCESSORS. The covenants, agreements and
provisions of this Warrant shall bind the parties hereto and their respective
successors and permitted assigns.
IN WITNESS WHEREOF, the Company has caused this Warrant to be issued
this ____ day of April, 1997.
ATTEST: UNIVERSAL HEIGHTS, INC.
By:________________________ By:_______________________________
Title:_____________________ Title:____________________________
6
<PAGE>
SUBSCRIPTION FORM
TO BE EXECUTED ONLY UPON EXERCISE OF WARRANT
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for and purchases ____________ shares of Common Stock of
Universal Heights, Inc. which may be issued under this Warrant and herewith
delivers the sum of $____________ in full payment of the Exercise Price for such
shares, all on the terms and conditions specified in this Warrant. Such shares
are to be registered in the name of the registered holder of this Warrant unless
contrary instructions are herein given and certificates evidencing such shares
are to be delivered to it/him/her at the address reflected in the records of the
Company unless contrary instructions are herein given.
Register shares in the name of
- --------------------------------------------------------------------------------
Deliver certificates to
- --------------------------------------------------------------------------------
Dated: _________________ ___________________________________
(Signature of Registered Owner)
-----------------------------------
(Street Address)
-----------------------------------
(City) (State) (Zip Code)
7
<PAGE>
ASSIGNMENT FORM
---------------
TO BE EXECUTED ONLY UPON ASSIGNMENT OF WARRANT
For value received, the undersigned,_________________ ________
hereby sells, assigns and transfers unto _____________ _____________, whose
address is _______________________________ ______________, the right to purchase
Common Stock of Universal Heights, Inc. represented by this Warrant to the
extent of __________ shares, as to which such right is exercisable and does
hereby irrevocably constitute and appoint ______________________,
Attorney-in-Fact, to transfer the same on the books of the Company with full
power of substitution in the premises.
Dated: _________________ ___________________________________
(Signature of Registered Owner)
-----------------------------------
(Street Address)
-----------------------------------
(City) (State) (Zip Code)
8
EXHIBIT 10.5
MANAGEMENT AGREEMENT
--------------------
This Management Agreement (the "Agreement") is entered into this 2nd day
of June, 1997 by and between Universal Property & Casualty Insurance Company, a
Florida insurance corporation ("UPCIC"), and Universal P&C Management, Inc., a
New York corporation ("Universal Management").
WHEREAS, UPCIC desires Universal Management to provide underwriting,
administrative and certain other services described in this Agreement to UPCIC
(the "Services"):
WHEREAS, Universal Management desires to provide the Services to UPCIC;
and
WHEREAS, UPCIC and Universal Management desires to enter into this
Agreement to control their relationship with regard to their respective rights,
obligations and benefits.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and promises contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
I. RELATIONSHIP OF THE PARTIES
A. APPOINTMENT OF UNIVERSAL MANAGEMENT. UPCIC hereby appoints Universal
Management to perform the Services provided for in this Agreement.
Universal Management hereby accepts said appointment.
B. MANAGEMENT CONTROL OF UPCIC. The parties acknowledge that Universal
Management shall be an independent contractor in the performance of its
duties and responsibilities under this Agreement, and that no employee of
Universal Management shall be regarded as an employee of UPCIC as a result
of this Agreement, except in the circumstance of UPCIC specifically
employing a Universal Management employee.
C. STATUS OF UNIVERSAL MANAGEMENT. The parties acknowledge that Universal
Management shall be an independent contractor in the performance of its
duties and responsibilities under this Agreement, and that no employee of
Universal Management shall be regarded as an employee of UPCIC as a result
of this Agreement, except in the circumstance of UPCIC specifically
employing a Universal Management employee.
D. EMPLOYMENT OF UNIVERSAL MANAGEMENT EMPLOYEES. Universal Management
shall make available to, and UPCIC shall employ: (i) Joseph P.
DeAlessandro as UPCIC's Chairman and Chief Operating Officer; (ii) Robert
Thomas as UPCIC's Director of Finances; (iii) David Asher as UPCIC's
Director of Underwriting; and (iv) Barry J. Goldstein as UPCIC's Director
of Claims.
<PAGE>
II. UNDERWRITING SERVICES
Universal Management shall have the following authority and shall perform
the following underwriting Services for UPCIC.
A. MARKETING SERVICES. Universal Management shall underwrite applications
from potential insureds for prospective business. Universal Management
shall not request UPCIC to appoint any producer without determining that
the producer is lawfully licensed to transact the type of insurance for
which the producer is appointed. Universal Management shall not appoint
any managing general agent or sub-managing general agent and shall not
permit any sub-producers to serve on its board of directors as to new
business after assumption of risks by UPCIC transferred from the Florida
Residential Property and Casualty Joint Underwriting Association.
B. UNDERWRITING AND POLICY ISSUANCE.
--------------------------------
1. UPCIC and Universal Management shall mutually agree on the
underwriting standards and guidelines for the property and casualty
business to be written by UPCIC ("Underwriting Guidelines"), and
which, at a minimum, shall:
a. specify the basis of the rates to be charged;
b. specify the types of risks which may be written;
c. provide for maximum limits of liability;
d. specify applicable exclusions;
e. specify territorial limitations;
f. specify policy cancellation provisions; and
g. specify the maximum policy period.
2. Consistent with the Underwriting Guidelines and within the
limits on writings provided therein, Universal Management shall
receive applications, select risks and underwrite and issue all
policies, contracts, binders, endorsements and other insuring
documents.
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<PAGE>
C. POLICY FORMS AND FORM FILINGS. Consistent with the Underwriting
Guidelines, Universal Management shall develop policy and application
forms and related insurance contract wordings subject to UPCIC's written
approval and shall prepare and print all such forms.
D. RATES. Consistent with the Underwriting Guidelines, Universal
Management shall establish premium rates subject to UPCIC's prior
written approval.
E. POLICY CANCELLATION AND NON-RENEWAL. UPCIC shall have the right to
cancel or non-renew any insurance policies, contracts and endorsements in
accordance with their terms and applicable laws and regulations. Subject
to UPCIC's written Underwriting Guidelines, Universal Management may
cancel and non-renew any insurance policies, contracts and endorsements in
accordance with their terms and applicable laws and regulations.
III. ADMINISTRATIVE SERVICES
Universal Management shall have the following authority and shall perform
the following administrative Services.
A. PREMIUM COLLECTIONS AND REFUNDS. Universal Management shall perform the
following Services with respect to amounts due from policyholders.
1. Collect premiums or other amounts due from policyholders and
from any collection facility, including agents and other persons or
institutions that receive premiums. Universal Management shall
deposit all such premiums collected in a premium trust account in
the name of UPCIC, who shall control the account.
2. Immediately deposit funds collected or received by Universal
Management, in a premium trust account established by and in the
name of UPCIC with a federally or state chartered bank that is a
member of the Federal Reserve System (the "Account"). Commingling of
any funds deposited in the Account with any other funds of Universal
Management is prohibited.
3. Maintain records clearly recording the deposits in the Account
and, upon the request of UPCIC, shall furnish UPCIC with copies of
such records.
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<PAGE>
B. CLAIMS-RELATED SERVICES. As requested by UPCIC from time to time,
Universal Management shall communicate UPCIC's instructions regarding
claims matters to any claims adjusters appointed by UPCIC to administer
claims. UPCIC and Universal Management acknowledge that Universal
Management shall have no authority to adjust, compromise, settle or pay
claims or losses arising under any UPCIC insurance policies.
C. CORRESPONDENCE WITH POLICYHOLDERS AND PRODUCERS. Universal Management,
in the name of UPCIC shall conduct all correspondence with policyholders
and shall expeditiously handle all requests by policyholders, including,
but not limited to, requests for information, and shall keep all records
necessary or proper in connection therewith.
D. STAFF. Universal Management shall provide sufficient personnel
with the appropriate experience, expertise, capability and skill
necessary to perform the Services contemplated by this Agreement.
E. OFFICE FACILITIES. Universal Management shall provide all
facilities and equipment as needed for its operations and the
performance of its responsibilities under this Agreement.
F. DATA PROCESSING. Universal Management shall maintain data
processing facilities as needed for its operations and the performance
of its responsibilities under this Agreement.
G. BOOKS AND RECORDS.
-----------------
1. Universal Management shall separately maintain complete and
orderly files, books, records and accounts of all transactions
involving the Services that are in a form usable by UPCIC and in
accordance with generally accepted insurance and accounting
practices and applicable insurance laws and regulations. At a
minimum, such files, books, records and accounts shall
a. Show all policies issued, all premiums written,
collected, earned and unearned, all acquisition costs, all
return premiums paid and owing, all expenses paid and owing;
all charges, fees and expenses owed by, received by, or owing
to Universal Management and the data necessary to support all
such charges, fees and expenses; and
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<PAGE>
b. Include the relevant statistical information required in
any statement to be furnished to any regulatory authority.
Universal Management may maintain electronic files as long as it
maintains the capacity to deliver copies of such files to UPCIC in a
format suitable for UPCIC's use and in a timely fashion in
accordance with the terms of this Agreement.
2. All files, books, records and accounts maintained by Universal
Management relating to the insurance business administered pursuant
to this Agreement shall be the sole property of UPCIC.
3. UPCIC shall have the right at all times during regular
business hours to inspect all files, books, records and accounts
wherever located that pertain to the Services and shall have the
right to have furnished to it upon demand a copy of any such files,
books, records and accounts. In the event that UPCIC shall take sole
possession of any files, books, records and accounts relating to the
Services, Universal Management shall have the right to inspect and
copy such files, books, records and accounts. Insurance regulatory
authorities shall have access to all books and records of Universal
Management relating to the Services in a usable form, and all bank
accounts established in the name of UPCIC.
H. REPORTS.
-------
Within forty-five (45) days after the close of each calendar
month ("Month"), Universal Management shall render to UPCIC reports
of all transactions for said Month with respect to the Services in
formats acceptable to UPCIC. The reports shall include, but not
necessarily be limited to, an accounting of all premiums written,
collected, earned and unearned, all commissions payable thereon, all
return premium paid and owing, all expenses reported, paid or owing,
and such other data in such form as mutually agreed upon.
I. RESERVES. Universal Management shall determine for UPCIC
unearned premium and all other reserves as may be requested by
UPCIC from time to time.
J. COOPERATION. The parties shall provide each other with all such
information as they may each reasonably request in order to
fulfill the mandates of this Agreement.
5
<PAGE>
K. FINANCIAL ACCOUNTING AND REPORTING. Universal Management shall
provide the customary and necessary accounting services for UPCIC
and prepare all required regulatory, financial and accounting
reports. The parties shall cooperate with the actuary and
independent certified public accountant in the preparation of all
Federal, State and other governmental tax and other returns and all
regulatory and other statements as may be required to maintain the
parties in good standing or to effect their compliance with all
statutes and regulations governing their corporate existence and the
conduct of their business.
L. OTHER SERVICES. Universal Management shall perform such other duties
and services as are customary in the administration of insurance
business not specifically described in this Agreement but which are
incidental to the performance of the terms of this Agreement.
Notwithstanding the foregoing, Universal Management shall not
provide any services in connection with the negotiating, binding,
ceding or assuming, purchasing or selling of reinsurance or
retrocession coverage, either treaty or facultative, on behalf of
UPCIC.
M. UNIVERSAL MANAGEMENT'S MAINTENANCE OF INSURANCE AND BOND. During the
term of this Agreement, Universal Management shall maintain in force
for the benefit of UPCIC (i) errors and omissions insurance with
limits in the amount of at least $500,000 and (ii) a fidelity bond
in an amount equal to $250,000 or 10% of the gross direct written
premium produced by Universal Management, whichever is greater,
except that such bond shall be no more than $500,000. Universal
Management shall promptly provide evidence of such insurance to
UPCIC on or before each anniversary of the inception of this
Agreement.
IV. UNIVERSAL MANAGEMENT'S COMPENSATION AND EXPENSES
UPCIC agrees to pay Universal Management, and Universal Management agrees
to accept as full compensation for the Services provided hereunder, the fees set
forth in the Schedule of Fees which is attached to and made a part of this
Agreement.
V. MISCELLANEOUS
A. EFFECTIVE DATE. This Agreement shall become effective as of the
date that the Florida Insurance Department issues to UPCIC a
certificate of authority to transact the business of insurance in the
State of Florida.
6
<PAGE>
B. TERM AND TERMINATION. The term of this Agreement shall be for a period
of three (3) years and thereafter may be renewed for successive two (2)
year terms unless (i) either party shall give prior written notice of
non-renewal to the other party not later than sixty (60) days prior to the
expiration of any term hereof, or (ii) terminated in accordance with this
Section V(B). This Agreement may be terminated only as follows: (i) by
mutual written consent of UPCIC and Universal Management; (ii) by either
UPCIC or Universal Management in the event of material breach of this
Agreement by the other party and such breach is not cured within thirty
(30) days following the breaching party's receipt of written notice of the
breach from the non-breaching party; or (iii) by either UPCIC or Universal
Management immediately for cause in the event of the other party's willful
misconduct or gross negligence.
C. EXPIRATIONS. As between UPCIC and Universal Management, UPCIC shall
retain ownership of the expirations of the insurance business administered
pursuant to this Agreement upon termination of this Agreement.
D. REGULATORY COMPLIANCE. Each of UPCIC and Universal Management shall
be responsible for complying with all regulatory requirements applicable
to it for the lawful performance of its respective obligations under this
Agreement.
E. ASSIGNMENT; BINDING AGREEMENT. This Agreement may not be assigned in
whole or in part without the prior written consent of UPCIC and Universal
Management. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and to their respective successors, heirs
and permitted assigns.
F. SEVERABILITY. If any of the provisions of this Agreement shall be
determined to be contrary to law or unenforceable by any court of
competent jurisdiction, the remaining provisions shall, wherever possible,
be severable and shall remain enforceable in accordance with their terms.
G. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument, which shall be
deemed to have been fully executed in the state of Florida, without regard
to the actual price of execution.
H. HEADINGS. The articles and section headings contained in this
Agreement are inserted for the convenience of the parties only and shall
not affect in any way the meaning or interpretation of this Agreement.
7
<PAGE>
I. GOVERNING LAWS. This Agreement, and any amendments hereto, shall be
construed, interpreted according to and enforceable under and pursuant to
the laws of the State of Florida, without regard to any conflict of laws
principles.
J. JURISDICTION. Any action at law or equity, arising out of and
relating to the interpretation or the implementation of this Agreement
shall only be brought in the courts, either State or Federal located in
Dade County, State of Florida, to which courts the parties hereto submit
their personal jurisdiction.
K. WAIVER AND FURTHER DOCUMENTATION. No failure to enforce any
provision hereof shall operate as a waiver of or estoppel with respect to
such provision or any other provisions hereof. No waiver shall act as a
continuing waiver except to the extent specifically stated in writing by
the waiving party. Each of the parties hereto agrees to execute all such
further instruments and documents and to take all such further action as
the other parties may reasonably require in order to effectuate the terms
and purposes of this Agreement.
L. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and deemed to have been duly given if hand
delivered, faxed or mailed certified first class mail, return receipt
requested, postage prepaid. Notice shall be deemed effective on the date
of such hand delivery or fax and three (3) days after (not including
Sundays and federal holidays) the date of mailing such certified mail. All
notices shall be addressed as follows:
If to UPCIC:
Universal Property & Casualty Insurance Company
19589 Northeast 10th Avenue
North Miami Beach, Florida 33179
Attn: Bradley Meier, President
If to Universal Management:
Universal P&C Management, Inc.
2800 Ocean Boulevard South
Boca Raton, Florida 33432
Attn: Joseph P. DeAlessandro, President
Any party may change the address to which notices are to be addressed by
giving the other parties notice in the manner herein set forth.
8
<PAGE>
M. AMENDMENT AND MODIFICATION. This Agreement may be amended and
modified only in writing signed by each party hereto.
N. ENTIRE AGREEMENT. This Agreement and all exhibits attached
hereto constitute the entire agreement and understanding of the parties
on the subject hereof, and supersede all prior agreements and
understandings relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of
the day and year first above written.
UNIVERSAL PROPERTY & CASUALTY
INSURANCE COMPANY
By /s/ Bradley I. Meier
--------------------
UNIVERSAL P&C MANAGEMENT, INC.
By /s/ Joseph Dealessandro
-----------------------
9
<PAGE>
SCHEDULE OF FEES
16% of UPCIC's gross direct written premium.
<PAGE>
ADDENDUM
This addendum dated June 12, 1997, by and between Universal Property
& Casualty Insurance Company ("UPCIC") on the one hand, and Universal P&C
Management Inc. ("Universal Management") on the other hand, amends and modifies
the management agreement ("Agreement") executed June 2, 1997 by and between
UPCIC and Universal Management only in respect of Article IV of the Agreement as
this article relates to the "Schedule of Fees" attached to the Agreement and
made a part thereof.
The "Schedule of Fees" attached to the Agreement is modified and
amended as follows:
Universal Management fees shall be the lesser of (i) sixteen (16%)
percent PER ANNUM of the annual gross direct written premium collected by UPCIC,
OR (ii) a cost plus profit payment (the "CPP") as determined by the formula set
forth below.
The annual CPP for Universal Management shall be determined by the
following formula comprised of costs incurred by, and profit to Universal
Management:
(a) (i) the actual salary and benefits cost of American
European Group's and/or any of its subsidiaries or related company's
(collectively the "AEG Group") personnel and staff (as determined
and paid by the AEG Group for their own business) that provide
services to UPCIC, on a PRO RATA basis for their allocable time
utilization by Universal Management for UPCIC services, and (ii) the
actual salary and benefits cost to Universal Management for any
non-AEG Group personnel and staff required to be hired by Universal
Management to provide services to UPCIC, and
(b) (i) the PRO RATA cost of any of the AEG Group facilities,
equipment, computers and related software, allocable for the time they are
utilized by Universal Management in their provision of services to UPCIC,
and (ii) the actual cost of any non-AEG Group facilities, equipment,
computers and related software acquired, rented or leased by Universal
Management in its provision of services to UPCIC.
<PAGE>
Upon computing the total of the actual costs incurred by Universal
Management for the payment period due, in accordance with the above stated
and defined costs at Paragraphs (a) and (b), thus yielding the actual
costs for the payment period due (the "Payment Period Costs"), a ten (10%)
percent per ANNUM profit percentage (the "Profit %") shall be computed for
the payment period due, by multiplying the Profit % to Payment Period
Costs, thus yielding the profit payment for the payment period due (the
"Profit Period Payment"). The CPP payment calculation for the payment
period due, shall thus be the total of the Payment Period Costs and the
Profit Period Payment.
All expenses and disbursements to third-parties shall be reimbursable in
addition to the CPP.
UPCIC shall be entitled to review and obtain substantiation from Universal
Management and the AEG Group, prior to its payment, which substantiation
shall show (i) detailed cost breakdowns for all (a) AEG Group staff and
personnel providing services to UPCIC, (b) non AEG Group staff and
personnel hired by Universal Management to provide services to UPCIC, (c)
AEG Group facilities, equipment, computers and software utilized to
provide services to UPCIC and (d) non-AEG Group facilities, equipment
computers and software utilized to provide services to UPCIC and (ii) time
records for the (x) staff and personnel, and (y) facilities, equipment,
computers and software, utilized by Universal Management to provide
services to UPCIC.
The annual Fee shall be invoiced and paid quarterly for the first ninety
(90) days of the Agreement, and then monthly for the balance of the term
of the Agreement, and any renewals of the Agreement ("Payment Periods").
The payments shall be made within the twenty-five (25) days of the receipt
of any invoice relating to the close of each Payment Period, together with
supporting calculations, and data if requested. The Fee for the first
quarters payment, and then each Payment Period thereafter shall be
computed both (i) in the flat amount of sixteen (16%) percent for the
gross written premium collected in that Payment Period, AND (ii) pursuant
to the CPP formula for the Payment Period.
The sixteen (16%) percent flat calculation and the CPP calculations shall
both be made by Universal Management for each payment period due, and
provided to UPCIC with each invoice sent for payment, for each payment
period. UPCIC shall have the right to make payment of any invoice, in the
lesser amount of the two calculations for the Payment Period then due, in
its sole discretion.
<PAGE>
Universal Management undertakes the responsibility and warrants to
UPCIC ("Warranty"), that it will itself produce to UPCIC, or cause the AEG Group
to produce directly to UPCIC, in a timely manner upon request of UPCIC, any and
all auditable information, data and statistics required by UPCIC, to enable
UPCIC to establish the cost basis to the AEG Group, of the cost components set
forth in (a) and (b) in the above CPP formula. This Warranty shall be considered
an honorable undertaking, in addition to being a covenant of the agreement
between the parties, to enable UPCIC to select which method of payment would
yield the lesser payment to Universal Management for any of the payment periods,
I.E., the lesser of the flat sixteen (16%) percent payment, or the CPP payment.
The selection of either payment calculation for any payment period shall not
bind UPCIC to that payment calculation for any subsequent payment period.
In all other respects the Agreement remains the same, as if this
addendum had not made.
In WITNESS WHEREOF, the parties have signed this addendum as of the
date first written above.
UNIVERSAL PROPERTY & CASUALTY INSURANCE COMPANY
/S/ BRADLEY I. MEIER
--------------------
Bradley I. Meier, President
UNIVERSAL P & C MANAGEMENT, INC.
/S/ JOSEPH DEALESSANDRO
----------------------
By: Joseph DeAlessandro, President
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
--------------------
This employment agreement ("Agreement") dated as of the 1st day of
May, 1997, between Universal Heights, Inc. ("Universal") a corporation organized
and existing under and by virtue of the laws of the State of Delaware, having
its principal place of business at 19589 NE 10th Avenue, Miami, Florida 33179
(hereinafter referred to as the "Company"), and Bradley I. Meier, who resides at
19701 East Country Club Drive, Aventura, Florida 33180 (hereinafter referred to
as "Employee").
W I T N E S E T H:
------------------
WHEREAS, the Company is engaged in the sporting goods industry and
will be engaged in the investment and financial services industry; and
WHEREAS, the employee is running the sporting goods divison and will
develop and run the Company's activities in the investment and financial
services industry; and
WHEREAS, the Company is desirous of employing the Employee to run
the sporting goods division and provide assistance to the Company in the
development of its investment and financial services activities, and the
Employee is desirous of being employed by the Company to assist it in the
development of its investment and financial services activities; and
WHEREAS, the Company and Employee desire to enter into this
Agreement so that the rights, duties, benefits and obligations of each in
respect of the employment of the Employee for and by the Company will be fully
set forth under the terms and conditions stated herein upon the execution
hereof; and
WHEREAS, the Board of Directors of the Company, and the Compensation
and Stock Option Committee of the Board of Directors of the Company have
approved the employment of the Employee upon the terms and conditions set forth
herein by a resolution issued by it, and have authorized the execution and
delivery of this Agreement.
NOW, therefore, in consideration of the mutual promises contained
herein, the payment of Ten ($10.00) dollars by each party to the other, the
receipt of which is hereby duly acknowledged, and for other good and valuable
consideration, the Company and Employee agree as follows:
1. EMPLOYMENT
----------
The Company hereby employs the Employee in an executive
capacity, specifically as "President" and as the Company's "Chief Executive
Officer." The Employee hereby accepts such employment and agrees to perform the
services and duties specified herein.
<PAGE>
2. TERM
----
(a) The term of this Agreement ("Term") shall be for a period
of Four (4) years from the date hereof, unless sooner terminated in accordance
with the terms and conditions set forth herein. The Employee shall have an
option to extend this Agreement for an additional term of Two (2) years, under
the same terms and conditions as are contained herein.
(b) Upon the mutual agreement of the Employee and the Company,
the Term may be extended for an additional period of years, either upon the
terms and conditions set forth herein, or upon any other terms and conditions as
may be mutually agreed in writing between the Employee and the Company. The
foregoing notwithstanding, this Agreement shall terminate as provided for in
Article 2(a), and there shall not be any automatic renewal or other similar
extension of the Term.
3. DISABILITY
----------
If, during the Term, the Employee shall become unable to
perform his duties as provided for herein by reason of illness or injury, for a
consecutive period of Three Hundred Sixty Five (365) days, the Company may, on
Thirty (30) days written notice to the Employee, terminate the officership held
by Employee. In the event of such termination, then Employee shall remain an
employee of the Company and receive Seventy (70%) percent of his compensation
and all of his fringe benefits as is set forth below in this Agreement at
paragraphs "6" and "8" respectively.
4. TERMINATION FOR CAUSE
---------------------
This Agreement may be immediately terminated by the Company
for "cause" at any time, upon written notice to the Employee, after which all
obligations of the Company to the Employee shall thereupon cease. For the
purposes of this Agreement, the term "cause" when used with reference to the
termination of this Agreement, shall mean only any or all of the following:
(a) Employee's absence from his employment, for any reason
other than sickness or injury, at substantially all times during a period of
Ninety (90) consecutive days;
(b) Failure on the part of the Employee to (i) follow material
instructions or policy of the Board of Directors given or adopted in good faith,
or (ii) carry out an agreed policy or course of action as determined by (a) the
Board of Directors or (b) a committee of the Board of Directors, any or all of
which is or may be to the detriment of the Company; or
2
<PAGE>
(c) Willful misconduct or gross negligence of the Employee in
connection with the performance of his duties.
5. DUTIES
------
(a) The Employee shall perform the following duties in
connection with his employment, all of which shall be subject to the paramount
directions of the Board of Directors:
(i) To serve as "President" and to be the "Chief
Executive Officer" of the Company; and
(ii) To assist the Company in its business affairs, run
the sporting goods division, and develop and run its investment and financial
services activities, as well as in the Company's dealings with other companies,
its regulatory affairs, banking and other financial institutions and other
groups and institutions; and
(iii) To undertake such specific assignments, consistent
with his office and position, as may be given to him from time to time by the
Board of Directors; and
(iv) To continue to serve as a director of the Company,
and then as, if and when so re-elected, to continue to serve as a director of
the Company, and also if so elected, to serve as a director of any subsidiary or
affiliate of the Company.
(b) Employee shall devote his best efforts and skills to the
affairs of the Company, and to the performance of the duties set forth in this
Article 5, on a substantially full-time basis. The Employee shall not
participate in any outside business activity that will either (i) interfere
with, or (ii) be a conflict of interest with the performance of the Employee's
duties, activities and employment pursuant to this Agreement. The foregoing
notwithstanding, the Employee has disclosed to the Company his other outside
business interests ("Outside Business Interests") which are listed on Schedule
"1" hereto and the Company with this full knowledge has consented to the
Employee's continuance thereof. Moreover, the Company agrees to permit the
Employee to involve himself in other similar Outside Business Interests, on
condition that they similarly be disclosed and are added to Schedule "1" prior
to their being commenced. The Employee may also invest his assets and devote
such reasonable time as is necessary to do so, so as to manage, protect and
support the profitability of those invested assets.
3
<PAGE>
6. COMPENSATION
------------
(a) BASE SALARY
-----------
The Employee shall receive from the Company, or any of its
subsidiaries, for the discharge of the Employees duties and activities on behalf
of the Company as provided for herein, an annual salary ("Base Salary") of Two
Hundred fifty Thousand ($250,000.00) dollars, which shall be paid by the Company
to the Employee in equal and regular installments not less frequently than
monthly, in accordance with the Company's policy for payment of executive
salaries.
(b) ANNUAL BONUS
------------
The Employee shall receive an annual bonus of three (3%)
percent of the Company's pre-tax income up to five million ($5,000,000) dollars,
and four (4%) percent of the Company's pre-tax income over five million
($5,000,000) dollars
(c) SIGNING STOCK OPTION BONUS
--------------------------
The Employee upon the execution of this Agreement, shall be
granted an issuance of One Million Five Hundred Thousand (1,500,000) options to
purchase shares of common capital stock of the Company (the "Options"). The
Options shall be granted immediately, and vest as follows: (i) Five Hundred
Thousand (500,000) on the date of the grant, (ii) Five Hundred Thousand
(500,000) on the first anniversary of the grant, and (iii) Five Hundred Thousand
(500,000) on the second anniversary of the grant.
7. OPTIONS
-------
The Employee from time to time shall be granted as additional
compensation stock options ("Options's") to purchase shares of the Company's
Common ("Grant"). The Grant of the Options's shall be made pursuant to the
Company's 199_ Stock Option Plan, as may be amended from time to time ("Plan").
The Company shall enter into an option agreement for the issuance of the
Options's, which option agreement shall be subject to the terms and conditions
contained in the Plan.
4
<PAGE>
8. FRINGE BENEFITS
---------------
In addition to the Base Compensation set forth in Article 6
above, the Employee shall be entitled to receive the following benefits:
(a) Any benefits under group hospitalization, health, dental
care or sick leave plan, life or other insurance or death benefit plan, travel
or accident insurance, or contingent compensation plan, or any other present or
future plan, including any qualified retirement plan, for which any executives
are or shall become eligible. In the event the Employee is not eligible for
health benefits as described above, by reason of age, location or otherwise the
Employee shall be provided equivalent benefits determined at the election of the
Company. The Employee shall be eligible to receive the foregoing benefits during
the five (5) years period following the termination of his employment under this
Agreement; and
(b) An annual vacation of either or a combination of (i) up to
Four (4) consecutive weeks or (ii) up to any Thirty (30) days ("Vacation
Period"), at such time or times as shall be approved by the Company, and which
approval shall not be unreasonably refused. Full compensation shall be paid
during any Vacation Period. Any portion of any Vacation Period not used within
any year shall be accrued and will accumulate, and may be used by the Employee
at any time during his employment in accordance with the provisions of this
Article 8. In the event that the Employee has not used all of his accrued and
accumulated vacation time at the termination of his employment, then the
employee may then elect to have his accrued and accumulated Vacation Period time
converted to annual Base Salary, pro rata at the then prevailing Base Salary,
regardless of when the unused vacation time accrued; and
(c) The Employee may incur and shall be reimbursed for
reasonable expenses which are related to the Company's business, including
expenses for entertainment, travel and similar items ("Approved Reimbursable
Expenses"). All such reimbursement of Approved Reimbursable Expenses shall be
made within Thirty (30) days of receipt by the Company from the Employee of an
itemized account and if necessary proper substantiation of Approved Reimbursable
Expenses. In order to facilitate the payment of the Approved Reimbursable
Expenses, the Company shall furnish the Employee with Company acquired credit
cards as may be available to all other executive officers of the Company; and
5
<PAGE>
(d) The Employee shall be given a private office with
secretarial help and any and all reasonable facilities and services so as to be
suitable with his position as President and Chief Executive Officer, and so as
to assist in the performance of his duties and activities.
(e) The Employee shall be given an automobile allowance or
automobile lease plan to the extent of $7,500.00 PER ANNUM, paid in Twelve equal
monthly installments, to be used to defray acquisition expense for a luxury
automobile, and insurance and maintenance expenses for the automobile.
9. DISCLOSURE OF INFORMATION AND NON-COMPETITION
---------------------------------------------
(a) The Employee recognizes and acknowledges that during the
course of his employment he will have access to certain confidential information
of the Company and that such information constitutes valuable, special and
unique property of the Company. During the term of this Agreement and following
termination of his employment hereunder, the Employee will not disclose
information, including any trade secrets or confidential information of the
Company obtained during the course of his employment with the Company, except
such information as may have become part of the public domain through no fault
of the Employee, which public domain determination shall only be made by the
Company in a written acknowledgement made at the request of the Employee, before
the Employee may be free to disclose any such claimed public domain information.
(b) During the term of this Agreement, and for Two (2) years
thereafter, the Employee will not, directly or indirectly, engage in any
business enterprise or activity competitive with the business of the Company
either as an employee, consultant, partner, shareholder, or in any other
capacity. For the purposes of this covenant not to compete, a competing business
enterprise will be deemed competitive only if such business enterprise conducts
activities in the development of investments and financial services similar to
the activities of the Company. Further, the Employee agrees that he will not
either during or within Two (2) years subsequent to the termination of his
employment, disturb, entice, hire or in any other manner attempt to persuade any
employee, dealer, supplier or customer of the Company to discontinue its
business relationship with the Company.
(c) The Employer and the Company acknowledge that it would be
very difficult or impossible to measure the damages resulting from a breach of
this Article 9, and that any such breach would cause immediate and irreparable
harm. Therefore, in consequence of the foregoing, the Employee hereby agrees
that any breach or threatened breach by him of any provision of this Article 9
shall entitle the Company, in addition to any other legal remedies available to
it, to obtain from any Court of competent jurisdiction a temporary and permanent
injunction in order to enjoin such breach or threatened breach, without the
necessity on the part of the Company, in any application for such injunctive
6
<PAGE>
relief to show immediate and irreparable harm, which would be a requirement of
such an application absent this covenant waiving those requirements. The
Employee also covenants that the service of any papers to commence any legal
proceedings including proceedings to obtain injunctive relief, may be done by
utilizing Federal Express in lieu of any other form of personal delivery of the
process or orders of the Court and upon doing so the service and notice
provisions for the commencement of legal proceedings shall be satisfied.
10. DEATH DURING EMPLOYMENT
-----------------------
If the Employee dies during the term of his employment, the
Company shall pay to his estate compensation which would otherwise be payable to
the Employee for the shorter of (i) Three (3) years from the date of his death,
or (ii) through to the termination date of this Agreement. Said sums shall be
paid in accordance with written directions given by the Employee to the Company,
or lacking any such directions then to the surviving spouse of the Employee, or
if there is no surviving spouse, then to his surviving children in equal shares,
or if there are none, then to his estate.
11. PATENTS, COPYRIGHTS AND PROPRIETARY RIGHTS
------------------------------------------
During the Term of employment all work product emanating
directly and/or indirectly from the Employees duties and activities effected on
behalf of the Company ("Work Product"), shall be exclusively owned by the
Company. In the event that any such Work Product is the subject of an
application for patent, copyright, trade mark or similar proprietary protection
("Application"), then regardless of the name of the person or entity submitting
the Application, the Employee hereby acknowledges the Company's exclusive rights
in and to the Application for proprietary protection. In the event that the
Application results in the issuance of the requested proprietary protection,
E.G., a patent or copyright, then the Employee hereby acknowledges the Company's
exclusive ownership therein, and the employee will execute any documents
necessary to give effect and implement this ownership, including but not limited
to an assignment of the Application and/or the issued proprietary protection.
12. NOTICES
-------
Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and actually delivered, or if sent
either by Federal Express, or postage prepaid, by certified mail, return receipt
requested, with a copy by ordinary mail, to the addresses below:
As to Company: 19589 NE 10th Avenue
Miami, Florida 33179
As to Employee: 19701 East Country Club Drive
Aventura, Florida 33180
7
<PAGE>
or to such other address as either party shall designate by written notice to
the other.
13. ASSIGNMENT
----------
The rights and obligations of the Company under this Agreement
shall inure to the benefit of and shall be binding upon the successors and
assigns of the Company. The Employee acknowledges that the services to be
rendered by him are unique and personal, and accordingly, he may not assign any
of his rights, duties, obligations or benefits under this Agreement.
14. ENTIRE AGREEMENT
----------------
This Agreement contains the entire agreement and understanding
of the Company and the Employee with respect to the subject matter hereof, and
shall incorporate, merge and supersede all prior agreements and understandings
had between the Company and the Employee, either oral or written, if any. No
modification, change or amendment to this Agreement, shall be binding upon the
Company or the Employee unless the same is in writing, and signed by the party
against whom enforcement of the modification, change or amendment is sought to
be enforced.
15. MISCELLANEOUS
-------------
(a) This Agreement and the implementation of it shall be
subject to and governed by the laws of the State of Florida, and any legal
proceedings relating to (i) the interpretation or enforcement of any of the
provisions of this Agreement, or (ii) any dispute relating to the employment
relationship created by the Agreement, shall only be brought in the Circuit
Court of the State of Florida, in and for the County of Dade.
(b) The Article headings contained herein are for reference
purposes only and shall not in any way affect the meaning or the interpretation
of this Agreement.
(c) The failure of any provision of this Agreement shall in no
manner affect the right to enforce the remainder of this Agreement, and the
waiver by either The Company or the Employee of any breach of any provision of
this Agreement shall not be construed to be a waiver by the Company or the
Employee of any succeeding breach of such provision or a waiver by such party of
any breach of any other provision of this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on August 6, 1997 as of May 1, 1997.
EMPLOYEE:
Witness:
- -------------------- -------------------------
Bradley I. Meier
COMPANY:
UNIVERSAL HEIGHTS, INC.
Witness:
- ------------------------------
- ------------------------------ By:
9
<PAGE>
SCHEDULE 1
----------
OUTSIDE BUSINESS INTERESTS
--------------------------
As of execution date:
UNIVERSAL HEIGHTS, INC.
- ---------------------------
By:
- ---------------------------
Bradley I. Meier
Dated: August 6, 1997
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNIVERSAL
HEIGHTS, INC. AND SUBSIDIARY FORM 10-KSB FOR THE YEAR ENDED APRIL 30, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<CASH> 35,269
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 639,954
<CURRENT-LIABILITIES> 1,507,691
<BONDS> 0
0
1,387
<COMMON> 32,294
<OTHER-SE> (901,418)
<TOTAL-LIABILITY-AND-EQUITY> 639,954
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 400,903
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,988
<INCOME-PRETAX> (415,891)
<INCOME-TAX> 0
<INCOME-CONTINUING> (415,891)
<DISCONTINUED> (1,957,571)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,373,462)
<EPS-PRIMARY> (1.35)
<EPS-DILUTED> (1.35)
</TABLE>
