FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED MAY 31, 1998.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____.
STRATFORD ACQUISITION CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota 0-26112 41-1759882
(State of Jurisdiction) (Commission File Number) (IRS Employer ID No.)
67 Wall Street, Suite 2411, New York, New York 10005
(Address of Principal Executive offices) (Zip Code)
Registrant's telephone number, including area code 212-825-9292
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock $.001 par value NASD OTC Electronic Bulletin Board
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to filing requirements for the
past 90 days. Yes X No ___
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ].
Based on the closing sale price of $.40 on May 31, 1998, the aggregate market
value of the voting stock held by nonaffiliates of the registrant was
$3,534,334. The number of shares outstanding of the registrant's common stock,
$.001 par value was 11,965,646 on May 31, 1998.
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DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K Incorporated Document
Part IV, Item 14 Form 8-K filed on
August 27, 1997
Part IV, Item 14 Form 8-K filed on
November 3, 1997
Part IV, Item 14 Form 8-K filed on
November 17, 1997
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STRATFORD ACQUISITION CORPORATION
Table of Contents
Page No.
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Part I
Item 1. Business 1
a. Risk Factors 3
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security 11
Holders
Part II
Item 5. Market for Registrant's Common Equity and 11
Related Stockholder Matters
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of 12
Financial Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants 15
on Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the 15
Registrant
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial 18
Owners and Management
a. Section 16(a) Beneficial Ownership 19
Reporting Compliance
Item 13. Certain Relationships and Related Transactions 19
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 20
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PART I
Item 1. Business
a. General Development of Business
The Company is a corporation formed under the laws of Minnesota and has its
principal place of business and executive offices located at 67 Wall Street,
Suite 2411, New York, New York 10005, telephone 212-825-9292. The Company also
has a wholly-owned operating subsidiary, Novacrete Technology (Canada) Inc.,
which is a company registered pursuant to the laws of the Province of Ontario,
Canada and is located at 2525 Tedlo Street, Unit B, Mississauga, Ontario L5A
4A8, telephone 905-566-0716 ("Novacrete Canada").
Prior to August 15, 1995, the company was a dormant corporation. On August 15,
1995, upon acquiring the exclusive right to manufacture and market a proprietary
admixture for the enhancement of cementitious products ("Novacrete Admixture")
the company's plan was to conduct further research and development of the
Novacrete Admixture with the intention of marketing the Novacrete Admixture and
a line of pre-packaged concrete repair products using the Novacrete Admixture
(Novacrete Repair Products). (See also Legal Matters Historical).
The Novacrete Admixture is a blend of various materials that when mixed with
portland cement and water causes a chemical reaction that creates a calcium
silicate hydrate (CSH) paste binder that has a very dense microscopic pore
structure. This change in the molecular matrix of the cementitious product
increases the bonding between the CSH paste and the aggregates that are mixed
into the formula to create a mortar or concrete product. By having a denser pore
structure, the end product becomes more durable and resistant to chemicals and
water penetration. To enhance the handling and physical characteristics of the
finished products, the Novacrete Admixture also contains rheological modifiers,
surface activation agents and cellulose lubricants.
As such, the Novacrete Admixture causes cement to chemically react in a manner
that ultimately produces higher compressive, bonding, flexural and tensile
strengths, reduces shrinkage, increases workability and, most importantly,
because of its dense pore structure results in a product having a higher
resistance to penetration of water and chloride ions from de-icing salts. The
formulae used by the company to manufacture the Novacrete Repair Products have
been independently tested by outside testing laboratories and the performance
characteristics of the tested products as measured by tests conducted in
accordance with the industry standards - American Society for Testing and
Materials (ASTM) - place them in the highest category of concrete repair
products. In addition, the company has also had several ASTM tests conducted by
outside testing laboratories on other cement products and found that the
inclusion of the Novacrete Admixture at levels equal to 5% of the cement- volume
in the product resulted in increased performance characteristics.
To expedite the company's research and development of the Novacrete Admixture
for the purpose of more accurately accessing the application of the Novacrete
Admixture on various types of concrete mix designs the company has constructed
an internal laboratory and on August 24, 1998 it has hired a cement chemist with
over 25 years of research and development experience with cementitious products
to conduct a comprehensive study on the potential applications for the Novacrete
Admixture with special emphasis on usage in concrete.
Thus, the Company evolved from a dormant stage from its date of incorporation by
acquiring the technology that is now known as the Novacrete Admixture from
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the inventor, Dr.O. A. Battista on August 15, 1997. From August 15, 1995 through
November, 1997 the company had undergone a series of management changes and in
this two and a half year period, it generated no revenues and had incurred an
accumulated deficit of approximately $3,000,000 and was still in the early
development stage.
On November 17, 1997, the company made a major change in its business plan which
has resulted in significant advancements in all aspects of the company's
operations. With the implementation of a 60 Day Business Development Plan that
was announced in December, 1997, the company's new management has increased the
number and caliber of its board of directors and senior management, installed
industrial level manufacturing and packaging equipment and warehousing equipment
for raw materials and finished goods, refurbished its executive offices at its
operating plant, constructed an internal testing laboratory, opened its first
U.S. sales office New Jersey and closed on a working capital financing for
$550,000. The result of this business plan has allowed the company to
manufacture and package its products, execute a sales and marketing program in
Canada and the East Coast of the United States and most importantly, allowed the
company to book its first sale of Novacrete Repair Products. In April, 1998 the
company sold its first order of pre- packaged Novacrete Repair Products to a
distributor of construction products in Canada and in May, 1998, it sold its
first truckload of product to a construction product distributor in the United
States, however the order was not shipped until June, 1998. A truckload of
product has a weight capacity of 44,000 lbs. and can vary in dollar amount based
on the type of Novacrete product that has been shipped and whether the shipment
is to a wholesale distributor, standard distributor (sell directly to end-users)
or an end-user.
B. Financial Information About Industry Segments
Since August, 1995 until April, 1998 the company has been in the development
stage and has generated no revenue other than for $140,741 that was generated in
the fiscal year ending May 31, 1996, as a licensing fee that paid as part of a
transaction between the company and a manufacturer of commentates products that
the company attempted to acquire. This transaction never materialized and both
parties mutually terminated the negotiations.
On account of the company's only being operational since March, 1998 and that it
has only a limited product line as of the filing of this Form 10-K, it does not
presently account for its business operations in separate industry segments. The
company operates on plant in Mississauga, Ontario. The assets, revenues and
operating expenses are all part of the company's sole operation and are
dedicated to one business segment -- the manufacturing and marketing of the
Novacrete Admixture and Novacrete Repair Products.
On account of its current state of operations and its operating activity for the
past three fiscal years, the company believes that its financial information is
adequately presented in its audited financial statements and is cross-referenced
herein to the company's Consolidated Balance sheet and Consolidated Statements
of Operations appearing on pages F-3 and F-4, respectively.
RISK FACTORS
Although the company has recorded sales for the 1998 fiscal year, it technically
is still in the development-stage and any evaluation of the Company and its
business should only be made after having given careful consideration to the
following risk factors, in addition to those appearing elsewhere in this Form
10-K.
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Limited Operating History. From its inception until March, 1998, the
company has had essentially no operating history. From August, 1995, the company
has been engaged principally in research and development activities relating to
the development of a mineral-based additive to be used for enhancing the basic
properties of cementitious products (cements, mortars and concrete). The
company's efforts to emerge from the development stage were further delayed due
to the management transitions in 1996 and 1997. Accordingly, the company's
operations are subject to the risks inherent in the establishment of a new
business enterprise; specifically, the complications, delays and resulting
expenses often encountered in the marketing of a new technology, the
uncertainties of developing and marketing new or related products and the
difficulties in recruiting and retaining qualified personnel. (See Management's
Discussion and Analysis of Financial Condition and Results of Operations).
Lack of Profitability. The company has recorded net losses for each year of
operation (1994-1998) and has incurred an accumulated deficit of $3,932,684. In
the year ending May 31, 1998, the company had a net loss from operations of
$1,112,594.
Uncertain Market Acceptance. Since 1994, the company has focused its
product development efforts on the development of a mineral-based additive
mixture that is blended into cementitious products to improve the basic
properties of these products. The company is also a line of cementitious
concrete repair products that will be marketed and sold under the brand name
Novacrete. Although there is an existing market for the company's products there
is a risk that the end-users of the company's products may not appreciate the
benefits or recognize the potential applications of the company's products.
Market acceptance of the company's products will depend, in large part, upon the
ability of the company to demonstrate to the industry the performance
characteristics and cost effectiveness of the products.
Limited Product Line. The company's revenues will depend on its limited
product line. Although the company plans to expand its line of products in late
1998 its current product line is limited.
Limited Marketing Organization. Commercialization of the company's products
will be substantially dependent on the company's ability to develop a full
marketing and sales organization and enter into distribution agreements with
established distributors of cementitious products. There can be no assurance
that the company can develop or acquire a marketing organization, however the
company has hired three marketing personnel and has entered into distribution
arrangements with two distributors
Need for Additional Capital. The company may require additional funds
throughout the year for working capital. Funds for these purposes may be
obtained from a number of sources, including, revenues from sales, sales of
equity and debt instruments, bank financing and joint ventures. However, the
company currently has no arrangements for such financing, and there can be no
assurance that any additional financing can be obtained or, if obtained, that it
will be of a sufficient quantity to meet the company's immediate needs or on
reasonable terms. (See Working Capital)
Uncertainty of Protection Offered by Patents and Trade Secrets. The
company's technology is not protected by patents. In addition, there can be no
assurance that the company's technology or products will not infringe on a
patent that may be owned by another person. To the extent the company currently
relies on unpatented proprietary technology, processes and know-how and the
protection of such property by confidentiality agreements, there can be no
assurance that others may not independently develop similar technology and
know-how or that the confidentiality will not be breached by an unrelated
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party.
The company relies upon trade secret protection for much of its
confidential and proprietary technology and know how. There can be no assurance
that competitors will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the company's
trade secrets. Even if there is an infringement of any of the company's trade
secrets, the cost of enforcing its rights in an infringement action could be
substantial and would divert funds and resources that would otherwise be
available for other aspects of the Company's operations.
C. Description of Business
1. Business
The company's current plan of operation is to two-fold. First, the company has
taken affirmative steps this past year, and principally from November 17, 1998,
to develop an operating facility and management organization to effectively
oversee the development and marketing of its Novacrete Admixture and Novacrete
Repair Products. In particular, the company has hired the services of three
outside testing laboratories to conduct various ASTM tests on cement-based
products using the Novacrete Admixture. This testing work is an integral part of
the company's research and development program on uses of the Novacrete
Admixture in various types of products and under different field conditions.
Since the company's has received favorable test results on its Novacrete Repair
Products that are completed and on tests done in outside laboratories in which
the Novacrete Admixture has increased the performance characteristics of the
tested product sample, it believes the Novacrete Admixture could be used in
various concrete mix designs and marketed to manufacturers of: cement, ready-mix
concrete, block, pavers and pre-cast products. Use of the Novacrete Admixture in
these applications would dramatically expand the potential market for the
Novacrete Admixture. However, although the preliminary test results on the
Novacrete Admixture and Novacrete Repair Products have been favorable,
substantial research and development must be completed before a final
determination can be made about the widespread use of the Novacrete Admixture.
In addition, and notwithstanding the final results of the company's research and
development program, all prospective uses of the Novacrete Admixture in a
previously untested product will require additional laboratory testing to ensure
that the components in the new product test sample do not have an adverse
reaction when blended with the Novacrete Admixture. Because of the substantial
liability that will ensure if a product fails after it has been used on a
construction project the company will be required to conduct preliminary tests
of all product samples using the Novacrete Admixture pursuant to ASTM standards.
Second, the company will seek to acquire products and companies to expand the
company's array of products. Since November, 1997, the company has reviewed four
potential acquisition possibilities and has terminated discussions on three
acquisition prospects and believes it will close one acquisition after May 31,
1998. In July, 1998, the company's operating subsidiary, Novacrete Canada,
entered into a definitive agreement to purchase all the outstanding common stock
of a manufacturerer of polypropylene fibres, ARM PRO, Inc. ARM PRO has been in
the business of manufacturing the FIBERFORCE line of fibres for ten years and
sells it fibres in the United States and Canada. Polypropylene fibres are
blended into cement-based products to provide secondary reinforcement and reduce
cracking during the plastic (hardening) stage of the product. Polypropylene
fibres can be classified as a cement admixture, and will be a natural extension
to the company's existing product line. The company anticipates closing the
transaction on September 15, 1998. (See Subsequent Events)
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To effect its two-fold business plan the company sold a 10% $550,000 debenture
in February to raise the initial working capital required to make the following
improvements to its Mississauga, Ontario operating plant. (See Management
Discussion and Analysis Financial Condition and Results of Operation)
In February, 1997, the company purchased and installed a double-ribbon blending
machine that has the capacity to blend 6,000 lbs. of Novacrete Repair Products,
and because of its low density, 3,000 lbs. of Novacrete Admixture per batch.
Each batch requires approximately one hour. To package its products the company
installed a compressed air bagging system that can bag approximately 300 bags
weighing 55 lbs.each on an hourly basis and built in an industrial dust
collection system that maintains a quality and safe working environment for all
production personnel. To facilitate an efficient manufacturing process a new
inventory racking system was installed for raw materials and finished product.
These improvements will give the company a single shift weekly production
capacity of 210,000 lbs.of Novacrete Repair Product per week, which is the
equivalent of 3,818 bags (55lbs. each). Annually, this level of production will
produce 198,536 bags of Novacrete Repair Products which range in price from $11
to $36. On an annual basis, the company believes it has adequate capacity to
meet foreseeable demands over the 1999 fiscal year.
In addition to the development of its production facility, since February, 1998,
the company made approximately $20,000 of leasehold improvements to its offices
that are part of its manufacturing facility in Mississauga, Ontario (See
Properties). This investment has equipped the company with a new offices and
conference rooms and new computer hardware and software technology. While the
offices have provided the company with a more modern environment that is
conducible to the type of business that the company intends to conduct it was
principally designed to allow the company to expand its office space to
accommodate additional personnel that will join the company as it closes
anticipated acquisitions.
To facilitate its quality control and quality assurance programs and to conduct
its research and development the company built a 400 square foot testing
laboratory at its Mississauga, Ontario plant. To enhance sales in the United
States the company opened a sales office in Cedar Grove, New Jersey. (See
Properties). This sales office is located in the corporate offices of one of the
testing laboratories that the company employed.
As part of its plan of operation which began in February, 1998, the company
hired: (I) a civil engineer that has over 20 years of experience with
construction products and prior to joining the company was director of sales and
marketing for a leading Canadian manufacturer of polypropylene fibres and has
substantial knowledge of fibre market in Canada and the U.S., (ii) a cement
technologist who was principally responsible for all new product development and
secondarily employed to assist with sales of the Novacrete Repair Products,
(iii) a new plant supervisor having fifteen years of experience in the
manufacturing of commentates products and with shipping and receiving
responsibilities, and (iv) a salesperson based in Cedar Grove, New Jersey that
has thirty years of experience in the construction products filed and was
formerly employed by a company that marketed polypropylene fibres in the United
States, and (v) in August, 1998, the company hired a cement chemist having over
twenty-five years of experience in research and development of cementitious
products and monitoring quality control programs. (See Directors and Officer of
the Registrant)
Upon the closing of the ARM PRO acquisition which is scheduled for September 15,
1998, the company will expand its personnel by adding one additional sales
person and two plant employees. To better position the company to maximized
sales of ARM PRO fibres (post-closing) and the Novacrete line of products, the
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company intends to recruit at least one additional salesperson with ten or more
years of experience in selling fibres and concrete-related products and who will
be located in the southeastern portion of the United States and four agents that
will market the company's products on a commission basis.
Since February, 1998, the company has undertaken a comprehensive evaluation of
its Novacrete Admixture that has involved the expertise of its technical
personnel and three independent testing laboratories. From February to May 31,
1998, the company completed all the internal laboratory tests and field tests to
market its finished products: Novacrete MP, Novacrete MAR., Novacrete Floorcap.
The company is currently using its Novacrete Admixture in these products and has
manufactured several thousand pounds for sale to end-users. As of May 31, 1998,
the company has also developed trial formulations of its products Novacrete FC,
Novacrete GEL, Novacrete Duratop and Novacrete Flexcoat, however these products
are substantially completed but are still subject to independent laboratory and
field tests before they can be marketed. (See Working Capital)
The Novacrete Admixture is manufactured at the company's operating facility in
Mississauga, Ontario under the guidance of trained professional cement chemist
professionals to maintain high standards of quality control and to ensure
confidentiality over the proprietary formulae. Immediately after the Novacrete
Admixture is blended it is stored in large containers to be used in Novacrete
Repair Products or for bulk shipments to end-users and certain quantities are
packaged in 22lb. bags.
In addition to the Novacrete Admixture, the company manufactures and packages
into 55lb. bags the Novacrete Repair Products all of which contain different
percentages of the Novacrete Admixture. (See Product section below). The
Novacrete Repair Products are designed to provide lasting repair and
rehabilitation of various types of deteriorating concrete. The Novacrete Repair
Products are generally classified as state-of-the art products on account of
their being single component products (just add water). Users of the Novacrete
Repair Products are required to only add water pursuant to the written
instructions printed on the face of the bag for each of the various types of
Novacrete Repair Products. As a single component product the end-user is not
required to purchase any other materials to use the product and needs only
access to potable water. This single step process eliminates costs and labor and
substantially reduces the possibility of ruining a product by over- or
under-applying additional materials.
The company intends to distribute the Novacrete Repair Products principally
through distributors of construction products and will assist in establishing a
market for the products by marketing the products to engineers, architects and
contractors. In addition, wherever a distributor is not established in a
territory the company will seek to sell its Novacrete Repair Products direct to
the end-user. However, the company intends to market its Novacrete Admixture
directly to ready-mix concrete producers, brick, cinderblock and paver
manufacturers and to end-user such as architects, engineers, contractors and
construction managers who will either use the Novacrete Admixture, or specify
its use in a construction project.
2. Subsequent Events
In July, 1998, Novacrete Canada signed a definitive agreement to acquire all the
outstanding common stock of ARM PRO, Inc. ARM PRO is located in Teeswater,
Ontario and is affiliated with Teeswater Ready-Mix Corporation. ARM PRO
manufacturers a line of polypropylene fibres (FIBERFORCE) that are used in
cement-based products and are currently being used in the company's Novacrete
MAR. product, which is a fibre-reinforced multi-purpose concrete repair product.
The closing of this transaction has been scheduled for September 15, 1998. The
purchase price is $891,000 (CAN) and will be paid for
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from the proceeds received by the company from its sale of a 9% $800,000
Debenture that matures on September 4, 2000. To complete this financing the
company was required to issue to the investor a warrant to purchase 1,500,000
warrants having an exercise price of $.45 per share and an exercise period
commencing upon issuance and terminating on September 4, 2000. As part of this
financing which was with an entity that purchased $500,000 of the Debenture that
was sold by the company in February, 1998, the holder agreed to convert the
$500,000 principal amount of that Debenture which matures on October 31, 1998,
into the company's common stock at a rate equal to the average of the eleven
lowest closing trading prices during the month of October, 1998.
Upon the closing of the ARM PRO acquisition the company will relocate ARM PRO's
production and packaging equipment to its Mississauga, Ontario, facility.
3. Product Description - Novacrete Admixture
The admixture and concrete repair product businesses are well-established
throughout the world. There are various types of admixture products that are
used in construction products and the applications for these admixtures are
extensive. The Novacrete Admixture is a non-metallic, powder-based admixture
that consists of various raw materials that when combined together and mixed
with cement and water provides a chemical reaction which gives the final product
increased compressive and flexural strength, reduced shrinkage, greater density
and therefore better resistance to water and deicing salt penetration, greater
flow and workability and improves the bonding characteristics and setting time
for the product to fully-cure.
The Novacrete Admixture has the physical characteristics of a greyish-white
powder. Admixtures can be in powder form or liquid and can be used for multiple
or limited purposes such as slowing or increasing the setting time for a
product. Because of the reactive effect of the raw materials in the Novacrete
Admixture, the Novacrete Admixture should only be incorporated into cement-based
products where the other materials in the product are know and generally, only
after a sample test has been conducted to determine the appropriate level
(dosage rate) of Novacrete Admixture that should be used in the final product.
This approach substantially reduces the risk of improperly mixing the Novacrete
Admixture with chemically adverse substances that could cause product failure.
The Novacrete Admixture is manufactured at the Company's wholly-owned operating
subsidiary, Novacrete Canada, and is directly marketed by the company's sales
personnel in 22lb. bags or in bulk quantities to end-users, which range from
manufacturers of cementitious products such as ready-mix concrete, pre-cast
concrete, brick, paver, cinder block and other manufacturers of cement-based
pre-packaged products. The company also blends another admixture, synthetic
polypropylene fibres, into its Novacrete MPR product. Polypropylene fibres
provide secondary-reinforcement to cement-based products and help reduce
internal cracking (map cracking) of a product that derives from the heat that is
created within a cementitious product during the hydration process.
Upon the completion of its research and development program on the Novacrete
Admixture, and assuming the test results support the use of the admixture in
industry applications that require the use of high-performance concrete (HPC),
the company will seek to implement a marketing strategy to penetrate the market
for HPC. HPC can be defined as concrete that has high compressive and flexural
strengths and high resistance to chloride and water penetration. Use of HPC is
increasing as federal and state agencies demand greater product life
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and ultimate product strength for high-end uses such as roads, bridges, dams,
ports and other concrete applications that have exceptionally high load bearing
requirements like building foundations, parking garages and bridge decks.
Following is a list of the Novacrete products by category and if a product was
not available for sale on May 31, 1998, the date appearing in parenthesis is the
internal date set by the company for the initial release of the product.
I. PRODUCTS
ADMIXTURES
Novacrete Adment 77-A (Novacrete Admixture formulation)
STRUCTURAL MORTARS AND GELS
Novacrete MP - multi-purpose concrete and masonry repair mortar
Novacrete MAR. - synthetic fibre-reinforced repair mortar
Novacrete FC - fast-setting repair mortar (July 15,1998)
Novacrete GEL - lightweight gel repair for overhead repairs and horizontal
applications (July 15, 1998)
FLOORING SYSTEMS
Novacrete Duratop - heavy-duty floor topping to provide abrasion and chemical
resistance in aggressive service environments (July 15,
1998)
Novacrete Floorcap - self-leveling flooring product to ease installation and
reduce labor costs
Novacrete Flexcoat - flexible coating for the protection for
new concrete and as an aesthetic coating for
restored concrete (July 15, 1998)
II. Product Status
For those products that are not complete as of May 31, 1998, the company has
developed trial formulas for each product that need to be independently tested
and subject to field tests to ensure that the product meets the designed
specifications for the product and can be used in a commercial environment
without a foreseeable risk of failure. Although the company internally tests all
its products before they are approved for sale and will continue to monitor the
manufacturing of its products through quality control and quality assurance
programs, all products undergo test procedures by independent testing
laboratories to validate the company's tests results and for more exacting ASTM
testing procedures that are not currently available due to the company's lack of
equipment. The tests conducted for each product comport with ASTM standards and
are monitored each 1-3-7-28 day period in accordance with industry practice.
Although the company has stated in past filings with the Commission that certain
products had undergone testing procedures, with the hiring of new technical
personnel in February and March the company has undertaken a new product
development program which has resulted in additional testing of all Novacrete
products and certain technical modifications to the Novacrete Admixture to
enhance its performance capabilities. To complete the testing
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for the Novacrete Repair Products that are not completed as of May 31, 1998, the
company is allocating approximately $2,500 to $5,000 per product for outside
testing services. The company does not anticipate there being any material
modifications to the formulae. Additionnally the company anticipates incurring
costs to test the Novacrete Admixture in various design mixes that are submitted
to the company for special applications. In instances where the Novacrete
Admixture is believed to enhance the performance characteristics of a
cement-based product the company will retain an independent testing laboratory
to test a sample of the mix design that is submitted by the end-user (engineer,
contractor, architect, property owner) to determine the precise amount of
Novacrete Admixture that should be blended into the mix design (dosage rate) to
achieve the intended result.
Since March, 1998, the company engaged the services of a U.S.-based testing
laboratory to conduct tests using various dosage rates of Novacrete Admixture in
a cement-based product and anticipates having tests conducted on a monthly basis
at an average cost of $2,500 per month. Although the company incurs the cost to
have the mix designs tested it intends to recoup these costs over time as the
Novacrete Admixture begins to be used in projects, although no guarantees can be
made that the Novacrete Admixture will be sold to prospective customers.
III. Raw Materials
An important aspect of the Company's business is having an adequate supply of
raw materials to produce the Novacrete Additive, which is a key ingredient in
all the Novacrete Repair Products. The raw materials used in manufacturing the
Novacrete Admixture and the Novacrete Repair Products are available in the
United States and Canada, and there are no known substitutes for these raw
materials. The Company currently purchases the most of its raw materials from
five principal suppliers located in Canada and has access to numerous suppliers
in the United States. The raw materials are purchased on an as needed basis and
at market prices at the time of purchase. The Company does not anticipate that
the prices and supplies of the raw materials will fluctuate substantially since
the majority of the raw materials are commodity items such as sands and cement.
The company currently owns a substantial supply of the main component of its
Novacrete Admixture that its warehouses in its Mississauga facility and in a
public commercial warehouse. Assuming the company uses the entire inventory of
its primary raw material in its Novacrete Repair Products it will have the
capacity to produce over 20,000,000 lbs. of product.
IV. Intellectual Property Rights
The Company does not have patents on any of its technology or its products. The
Company received a certificate of registration for the use of the trademark
Novacrete from the Canadian Intellectual Property Office on June 15, 1997. The
Certificate remains in effect until June 5, 2012 and can be renewed by the
company. On March 3, 1998, the company received a Certificate of trademark
Registration No. 2,140,062 to use the trademark Novacrete in the United States.
The term of the U.S. trademark registration is for ten years. However, an
affidavit alleging use of the trademark in commerce must be filed in the Patent
and Trademark office between the fifth and sixth year following the granting of
the registration in order to keep the registration in force for the full
ten-year term. The registration may then be renewed for an additional ten year
terms provided that the mark is still being used in commerce at the time renewal
is sought.
The Company has not filed an application for a patent on its proprietary
technology. The Company believes that the trademark of its brand name Novacrete
will be more useful in the commercialization of its products. The
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core technology that is used in each of the company's products is not easily
replicated and if patented will ultimately become public information. The
company has developed internal controls to protect the confidentiality of its
technology and does not believe that the lack of legal patent protection will
impair its ability to effectively compete with other competitors of like
products or cause the company to incur unnecessary risk of loss of the
technology.
Since the company owns the trademark, Novacrete, for fourteen and ten years,
respectively, in Canada and the the United States, with each country allowing
for additional extensions of time, the company believes that it will have ample
time to establish brand recognition of the Novacrete name and product line. Even
if the company had patent portection over its technology, it still assumes the
risk that a competitor may misappropriate the technology and that its only
recourse would be to commence costly and time consuming litigation. The
existence or absence of a patent poses no commercial disadvantage to marketing
the Novacrete products.
V. Seasonality
As part of the construction business, the company is currently subject to
seasonal cycles which results in a major slow down in its operations during the
months of November through February. March begins the increase in business
activity which continues through November, with the peak sales months being
April through September. This seasonal cycle is attributable to the slowdown in
outdoor construction activity in Canada and the northeastern portion of the
United States during the winter months. On account of the company's current
operating status it will be subject to the seasonal effects of the winter
months, however the company has already begun to recruit agents to sell its
products in the southeastern portion of the U.S. and will engage in a very
active recruiting program to enroll agents in this territory to sell the
Novacrete Admixture and ARM PRO fibre product upon the closing of the ARM PRO
transaction later this year. The company's plan is to have at least two
full-time experienced salespersons, four agents and at least two major
distributors by the end of November, 1998 to help sell the company's products in
this southeastern U.S. territory.
VI. Working Capital Requirements
Since the company's principal market for the foreseeable future will consist of
the seven southern provinces of Canada and the East Coast of the United States
it will experience cash flow fluctuations that will track the seasonal
fluctuations in the company's business due to the construction slowdown in the
winter months. From March to September the company will experience its highest
level of working capital requirements to sustain higher levels of inventory to
meet the anticipated demand for finished products during these months. With the
slowdown of construction in the winter months the company anticipates it will
generally require less than one-half of the amount of working capital, since
sales will likely decrease to one-half to one-third of average monthly sales in
the peak months. For the period ending May 31, 1998 the company did not
experience a fluctuation in its working capital requirements since it was just
emerging from the development stage and did not have a major production demand.
However, for the fiscal year ending May 31, 1999, the company will likely
experience a fluctuation in its working capital requirements to finance its
inventory. To offset its working capital demands in 1999, the company can
leverage off of the 600,000 lbs. of the most significant raw material that it
uses in its Novacrete Admixture, which in turn is used in the Novacrete Repair
Products. This raw material was paid for in 1997. At the close of this fiscal
year end the company has $45,418 of finished good inventory, which has a market
value of approximately $120,000
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assuming all the inventory is sold through distributors versus to end-users
which commands a higher price.
In the fiscal year 1998 the net cash used in the company's operations was
$742,237. The amount was needed to fund the company's expansion of its operating
facility and for operating expenses for: rent, payroll, new operating equipment,
research and development, professional fees and trade debts. On account of the
company having a sufficient supply of its most needed raw material, other than
for ordinary packaging supplies, approximately $180,000 of the $742,237 was
incurred on a consistent monthly basis up to February, 1998. Since March, 1998,
the company purchased $105,000 of production equipment and making $17,000 of
leasehold improvements to the adjacent corporate offices. In addition, from
February, 1998 through May 31, 1998, the company hired 6 new people to fill two
management level positions, one administrative position, and three persons to
manufacture the company's products. With the hiring of the aforementioned
personnel and the increase in operating activity, since March, 1998 the company
has increased its monthly operating budget to $75,000.
To cover its working capital requirements in 1998, the company sold a 10%
Debenture in February of $550,000 and a 90 day note in May, 1998 for $40,000.
From April, 1998, the company sold $9,000 of product before the year end and
received a purchase order just prior to the close of the year end for another
$11,000 of product that was shipped in June. Had the company not been able to
sell the debenture to generate working capital it would have had a substantial
negative cash flow and would likely have had to formally reorganize or cease its
operations.
On September 4, 1998 the company sold a 9% $800,000 Debenture that matures on on
September 4, 2000 and a warrant to purchase 1,500,000 shares of common stock at
$.45 per share for a period expiring on September 4, 2000. From these proceeds
the company intends to use $600,000 to purchase ARM PRO and reserve the
remaining $200,000 for working capital. Upon closing the ARM PRO transaction,
pursuant to the definitive purchase agreement, ARM PRO is required to have
approximately $175,000 of cash, $100,000 in account receivable, $100,000 in
inventory and total liabilities not to exceed $50,000.
Although the company's general credit policy will be to invoice customers on a
thirty day payment basis, to encourage customers to take larger volume orders it
may in limited circumstances allow for payment of an invoice in sixty days. In
addition, although invoices are stated as being due in thirty days, it is fairly
common practice in the construction products industry for contractor customers
to pay outstanding accounts payable over a sixth day period. This delay results
from the contractor having to submit invoices for work completed which includes
the cost of materials used on the project. Although the company will be very
aggressive in allowing extending payment terms to customers where it will result
in additional sales of the company's products, extended payment terms will
generally be discouraged.
VII. Customer Dependence
On account of the company having just started to sell its products during the
later part of this fiscal period it cannot be deemed as dependent upon a single
customer, although the company did only sell product to one customer in this
period. In the future the company will not be dependent on one customer since
its marketing strategy is to diversify its sales through major distributors that
are located in various geographical areas and to a large number of construction
professionals, such as engineers, architects, contractors, construction managers
and end-users all of whom will likely be involved in separate construction
projects. Although it is anticipated that distributors of construction products
will represent the majority of sales of
11
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Novacrete Finished Mortar Products, the company anticipates it will have four to
five distributors stocking Novacrete products in Canada and at least the same
number on the East Coast of the United States. Although the company does not
have any historical information relating to sales of its products it does not
anticipate that any customer will account for ten percent or more of its annual
sales.
VIII. No Backlog Orders
The company does not have any backlog orders, but did complete the sale of one
truckload order in June in which the purchase order was submitted to the company
just prior to the year end. This order was shipped in early June.
IX. Government Contracts
The company does not have any material contracts with the Government or any
government agency and therefore does not have any exposure to these types of
agreement.
X. Competition
The construction products industry is a mature, worldwide industry with
competitors ranging from multi-national companies to local single product
manufacturers and marketers. The concrete repair products and admixture sectors
are two major sectors within the construction products industry with each sector
being very competitive. The competition in these sectors is generally based on
price, service and the performance characteristics of the product being sold. As
a new entrant to these, two sectors the company has no empirical basis to
categorize itself as competitive other than to rely on the independent test
results relating to the performance characteristics of the company's products
and price both of which the company believes very competitive based on
comparisons to like products. In the concrete repair sector where the Novacrete
Finished Mortar products will compete, the company will seek to execute its
strategy to have its products distributed by major distributors of pre-packaged
products while the company's sales personnel will focus in creating the demand
for the products by marketing them to the specification community which consists
of engineers, architects and contractors. The Novacrete products have
performance characteristics that place them in the highest category of products
that are intended for high-end uses such as road repairs, bridge and parking
deck repairs, sidewalks, industrial and commercials floors. As such these
products will be marketed to professional contractors for use in these types of
projects. The market for these products is complex and consists of various sized
competitors. Despite these considerations the company will seek to exploit what
it believes to be three competitive advantages. First, the company's
pre-packaged products are classified as state-of-the-art in that they are single
component, which means you only need to add water. The ease of use will aid the
installer dramatically when using Novacrete products and cut down on labor
costs. Secondly, the company does not have an excessive overhead and will use
this cost flexibility to be very competitive in pricing. After having reviewed
the market for pre-packaged concrete repair products similar to the company's
line of Novacrete Repair Products the company has concluded that the Novacrete
line is priced very competitively and can withstand further price competition.
Third, the company will continue to provide on-site technical expertise to users
of Novacrete products. The company believes that providing on-site technical
advisory services to customers will reinforce existing customer relationships
and stimulate use of the company's products. Although other companies also
provide technical services to their customers, the company
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plans to be more pro-active in this area than its competition.
XI. Research and Development
In each of the past three fiscal years the company has incurred expenses
relating to the research and development of its Novacrete Admixture and
Novacrete Finished Mortar Products. In fiscal year 1998, and principally after
January, 1998 the company spent approximately $35,000 on fees payable to outside
independent testing laboratories that were engaged to conduct various test
procedures to improve the Novacrete MP and Novacrete MAR. products and for
original tests on the Novacrete FC and Novacrete Floorcap products. In addition,
the company incurred approximately $35,000 in salaries paid to two individuals
that had dedicated substantial time to new product development. In fiscal year
1997 the company spent approximately $20,000 on fees payable to outside testing
laboratories to advance testing of the Novacrete MP and Novacrete MAR. products.
Other than for a brief period in 1997 in which the company employed the services
of a cement technology consultant for approximately three months, the company
did not have technical personnel on staff from January, 1997 through February,
1998 to conduct research and development on new products. In 1996, the company
spent less than $20,000 on fees payable to outside testing laboratories to
advance testing of the Novacrete MP and an old formulation for a Novacrete
Fast-Set product that the company has since abandoned and replaced with a new
formulation that will be marketed under the name Novacrete FC.
XII. Environmental Compliance
The company does not manufacture products or use raw materials in its products
that are deemed to be subject to rules or regulations relating to the discharge
of certain materials into the environment. Although the company has installed a
compressed-air dust control system in its facility to maintain a higher quality
of air in its operating plant this system is not mandatory. The system cost the
company approximately $20,000 and operates during the processing of certain
products that contain raw materials that have a very low density and have the
physical characteristics of dust-like particles.
With all shipment of product the company issues a material safety and data sheet
(MSDS) which describes the product and its components and precautionary measures
when using the product. Since the company's products are environmentally safe it
expects to expend a nominal percentage of its operating budget on environmental
compliance for the next fiscal year and for the foreseeable future, unless new
regulations are adopted by the governments of Canada or the United States.
XIII. Number of Employees
As of May 31, 1998, the company, on a consolidated basis ,employed ten full-time
employees. Of the ten employees, two were located in the company's principal
executive offices in New York City, one was located at the company's Cedar
Grove, New Jersey sales office and seven were located at the company's operating
subsidiary, Novacrete Canada. Of the ten employees: five persons were in
management positions, three persons were in plant operations and two person
occupied administrative assistant positions.
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D. Financial Information About Foreign and Domestic Operations and Export
Sales.
Although the company manufactured its products through a wholly-owned operating
subsidiary located in Canada it does not believe that it will be subject to any
material risks attendant with it being a foreign operation. The Canadian
government is stable and democratic and the company does not foresee any
changing conditions that would adversely impact the company. (See Section B
Financial Information about Industry Segments). To the contrary, with the recent
reduction of the Canadian dollars to the U.S. dollar the company has benefitted
by preferential exchange rates and lower cost of operation.
Item 2. Properties
In November, 1997 the company's principal executive offices were relocated to 67
Wall Street, Suite 2411, New York, New York 10005, telephone 212-825-9292,
pursuant to a month-to-month subletting agreement with the laws firm of Dowe &
Dowe which the company's current president is a partner. There was no charge for
the use of this office during the period November, 1997 through March, 1998.
When the began occupying an additional office in the Dowe & Dowe office suite in
March, 1998 it was charged a monthly rent of $1,500 for use of the office space
and conference room facilities. The rent charge is a pass-through charge by Dowe
& Dowe which sublets the space to the company for the same costs it pays to its
landlord.
In April, 1997, Novacrete Canada entered into a five year lease for a
manufacturing and office facility located at 2525 Tedlo Street, Unit B,
Mississauga, Ontario, Canada L5A 4A5, telephone (905)-566-0716. This facility is
subject to a five year lease commencing on May 1, 1997 and expiring on April 30,
2002. The annual lease payments are $62,500 (CAN). The company has the right to
sublease the facility in the event its operating needs expands beyond the
current facilities capacity.
In June, 1998 the company entered into a lease agreement to lease offices
located at 98 Sand Park Road, Cedar Grove, New Jersey, March, telephone 973-
xix-June, for a monthly sum of $500. This lease is on a month-to-month basis.
Item 3. Legal Matters
Legal Proceedings
On August 26, 1997, the Company filed a lawsuit in Federal District Court
located in Minnepin County, Minnesota, Stratford Acquisition Corporation v.
10222 Investments, et. al., Index No. 97-1954 DSD/JMM, against 49 separate
defendants to cancel common stock, stock options and stock warrants that the
company believes were issued either unlawfully or without consideration and to
cancel certain consulting and distribution agreements that the company
previously entered into and which are now deemed to be null and void. From the
filing of the lawsuit until August 12, 1998 the company entered into settlement
agreements whereby it was able to cancel 613,750 shares of common stock. On
August 12, 1998 the court acting upon a motion to dismiss the lawsuit for lack
of jurisdiction dismissed the action. With respect to the remaining defendants
the company is considering joining them in the following lawsuit in Ontario,
Canada, to avoid future challenges by the defendant shareholders as to
jurisdictional grounds.
In the interim, the company has authorized its transfer agent to place stop
transfer orders restricting the transfer of all shares of common stock
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subject to the lawsuit until it has been adjudicated.
In August, 1997, a company shareholder, Mel Greenspoon, filed a lawsuit in
Canada against the Company and one director, Mr. A. Roy MacMillan, Mel B.
Greenspoon v. Stratford Acquisition Corporation and A. Roy MacMillan, Ontario
Court General Division, Court File No. 97-CV-129814, to secure unrestricted
stock certificates for shares of restricted common stock he currently owns and
for damages. Mr. Greenspoon is one of the shareholders that is being sued by the
company to cancel his common stock holdings (See above paragraph). The company
does not believe that the lawsuit will ultimately be successful in light of the
company's counterclaims, nor should it have any materially adverse consequences
to the Company if it is successful.
On July 17, 1998, the company and all the defendants in the lawsuit Stratford
Acquisition Corporation v. Jan Sulkiewicz, et. al., Ontario Court (General
Division),Court File No. 97-CV-126925 entered into a global settlement agreement
which allowed the company to cancel 130,000 common shares of the 500,000 shares
that were originally issued to one of the defendants in exchange for which the
remaining 370,000 shares were released to cover a short position that was
created by the defendant having sold the stock, to a bona fide purchaser at the
average market price of $.30 per share, which was subject to a stop transfer
order. In addition one defendant, Mr. Jan Sulkiewicz received authorization to
use certain technology for one type of concrete repair product which he alleges
to have developed outside of the company and the parties entered into mutual
releases for any and all claims arising prior to the settlement date, which
resulted in seven defendants being dismissed from the above lawsuit that was
filed in federal district court of Minnesota.
In the matter of Barbara Robinson v. The Canadian Bar Association, et.al.
Stratford Acquisition Corporation, the plaintiff, formerly a director and
officer of the company filed a claim against the defendant alleging that the
defendant improperly denied her claim for disability benefits which she believes
are due to her for a partial period that covered her employment at the company.
The defendant filed a third-party complaint against the company alleging that
the application for insurance was improperly prepared and therefore they are not
liable for the claim. Both the defendant and the company believe that the claim
is frivolous and that it is unlikely to result in a materially adverse judgment
against the company.
Other Legal Matters
The SEC has made inquiries of the Company relating to certain accounting and
financial reporting issues as reported in its quarterly filings for 1996 and
1995. In addition the SEC has requested that the company respond to comments it
raised about the Company's Form 10-K filing for the fiscal year ending May 31,
1997 and that the company has since filed a response and an amended Form 10-K/A
for the period. The SEC has further responded with additional comments to the
company's first response and 1997 Form 10-K/A which the company has since
responded to in writing. The SEC has provided the company with oral assurances
that the issues raised with respect to the 1997 Form-K/A are now resolved.
On June 3, 1997, at a meeting of the Board of Directors, the Board adopted the
first official set of By-laws for the Company. Although there had been numerous
allegations that the Company had duly authorized By-laws, a search of all
corporate records, revealed only an unsigned set of By-laws that were not
believed to have been adopted by the Company's incorporators, by its first board
of directors or by the shareholders at an annual meeting. With interest in
correcting all legal, financial and operational problems that the Company has
been beset with, the Board adopted the By-laws and will provide
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the shareholders with the right to vote on the By-laws at the next annual
meeting of shareholders. The newly adopted By-laws provide for the removal of
directors. In accordance with this provision, the majority of the Board voted,
to remove G. Colin Rainier from the Board.
Historical Background
Stratford Acquisition Corporation ("the Company") was incorporated under the
laws of the State of Minnesota on February 17, 1966. From its inception to
August 15, 1995, the Company had limited operations and was primarily dormant
prior to its acquisition of Supercrete N.A., Limited, a corporation organized
under the laws of the Turks and Caicos Islands, British West Indies
("Supercrete"). On August 15, the Company executed a definitive acquisition
agreement with Supercrete and acquired all of the issued and outstanding shares
of Supercrete in exchange for 22,800,000 share of the Company's common stock, of
which 21,000,000 shares were exchanged back to the company. Supercrete owned an
exclusive license ("Supercrete License") to manufacture and distribute
Supercrete products ("Supercrete Products"). Supercrete acquired the Supercrete
License from AMR Investments, Ltd. ("AMR"), a corporation organized under the
laws of the Turks and Caicos Islands, British West Indies. AMR acquired the
Supercrete License pursuant to an agreement dated July 24, 1994 amongst AMR, the
late Dr. O.A. Battista ("Battista Estate") who was the original inventor of the
technology and processes for making Supercrete Products and a company he
controlled, Resources Services Corporation ("RSC"), which is a Texas
corporation. In accordance with the agreement between AMR, the Battista Estate
and RSC, both the Battista Estate and RSC notified AMR, and all subsequent
assignees of the Supercrete License, including the Company, that the agreement
had been breached for failure to pay royalties on sales of Supercrete Products
and consulting fees to the Battista Estate and RSC. On May 13, 1997, RSC and the
Battista Estate presented a final written notice to the Company that the
Supercrete License and all rights thereto, had been terminated. In June 1997,
the Company after negotiations with representatives of the Battista Estate and
RSC, entered into a new licensing agreement with the Battista Estate ("the
Stratford Agreement"). The Stratford Agreement provides that in exchange for
granting the Battista Estate the right to retain the original 500,000 shares of
the Company's common stock they received upon entering the licensing agreement
with AMR and the right to receive a future royalty fee of 2% of the gross sales
of all Supercrete Products, which royalty fee shall not exceed $500,000 (USD)
over the life of the Stratford Agreement, the Company was granted the exclusive
and definitive right and title to the Supercrete License. In the event of a
default on any royalty fee payment the Battista Estate shall, at its sole
option, receive a promissory note or common stock for the unpaid full value of
the unpaid royalty fee.
In addition to the foregoing, on December 20, 1996, Supercrete granted to the
company an unconditional right and title to the Supercrete License and was
subsequently deregistered from the Registrar of Companies for the Turks and
Caicos Islands, and is no longer a wholly-owned subsidiary of the Company. The
deregistration of Supercrete was intended to eliminate any unnecessary costs and
fees being incurred by Supercrete, which had no operations when deregistered.
In addition, on or about January 8, 1997, the Company provided Globesat
Infrastructure Technologies Corporation ("Globesat") with written notice that
the Supply and Distribution Agreement entered into on July 31, 1996, amongst the
Company, Globesat and Supercrete (the "Globesat Agreement") was terminated. The
Company believes that the Globesat Agreement was never entered into on an arm's
length basis and that Globestat has not fulfilled any of its obligations under
the agreement.
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Item 4. Submission of Matters to a Vote of Security Holders
No matters were known by the current management to have been submitted to a vote
of security holders during the fourth quarter of the fiscal year covered by this
report. Upon the filing of this Form 10-K the company intends to notice an
annual meeting of its shareholders to be held in late October, 1998.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock, $.001 par value, is traded on the Over-the-Counter
Bulletin Board ("OTC") operated by the National Association of Securities
Dealers under the ticker symbol HARD. The tables present its high and low
closing bid prices for each of the four quarters in the fiscal year ending May
31, 1998. The quotations reflect interdealer prices without retail mark-up,
mark-down or commissions and may not necessarily represent actual transactions.
The Company's common stock became actively traded in July, 1995. On May 31,
1998, the closing bid price was $.40. The Company has paid no cash dividends in
1998 and does not expect to change its dividend policy in the foreseeable
future.
Quarterly Common Stock Bid Price Ranges
Quarter High Low Last Day of Quarter
- ------- ---- ---
1st $.43 $.24 August 31, 1997
2nd $.52 $.25 November 30, 1997
3rd $.28 $.19 February 28, 1998
4th $.77 $.20 May 31, 1998
Quarter High Low Last Day of Quarter
- ------- ---- ---
1st $5.75 $1.12 August 31, 1996
2nd $2.00 $ .06 November 30, 1996
3rd $ .60 $ .16 February 28, 1997
4th $ .75 $ .25 May 31, 1997
The number of shares of common stock issued and outstanding as of May 31, 1998
and May 31, 1997 were 11,965,646 and 10,113,381 respectively. On a fully diluted
basis, the number of shares of common stock issued and outstanding on May 31,
1998 was 15,695,422. The company has approximately 1,200 shareholders holding
stock in record and nominee name.
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Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year End May 31, Cumulative
------------------------------------------ Jan. 1 thru
1998 1997 1996 May 31, 1998
------------ ------------ ------------ -------------
1998
- ----
<S> <C> <C> <C> <C>
Net Revenues(1): $9,073 $0 $140,741 $149,814
Income (loss from
continuing operations: ($1,112,594) ($2,303,778) ($375,361) ($3,932,684)
Income (loss) from
continuing operations
per weighted-average
share of common stock
outstanding: ($.10) ($.24) ($.07) ($.68)
Total Assets: $318,540 $219,533 $479,615 N/A
Long-Term Obligations: $0 $315,000 $0 $0
Cash Dividends: $0 $0 $0 $0
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
1998 vs. 1997
After the senior management change in November, 1997, the company significantly
advanced its plans to move from the development stage to the operating stage. On
March 15, 1997 the company officially began commercial levels of production of
its Novacrete products and recorded its first truckload shipment of product in
April, 1998, which was to a construction products distributor in Canada. In
addition in May, 1998, the company sold its first truckload of product to a
distributor in the United States. As a result of this activity, which began just
two and one-half months prior to the close of this fiscal year the company
recorded $9,073 in gross revenues for the one truckload sales that took place in
April. The truckload that was
- ----------
(1) The company was in the development stage throughout the entire fiscal year
although just prior to the end of its fiscal year the company began to sell
product.
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ordered in May was not shipped until early June and appears as revenue in the
first quarter of the 1999 fiscal year. Although this increase in gross revenues
represents a 100% over the operating results in 1997, the percentage increase
should only be viewed in light of the fact that the company recorded $0 in gross
revenue in the previous fiscal year and had very little capability in the
previous year to sell its products, although it did have inventory for sale.
In 1998, the company had $122,134 in inventory. Of this amount, $76,276
consisted of raw materials, $440 consisted of work in process and $45,418
consisted of finished goods. A substantial amount of the raw material inventory
consists of the 600,000 lbs. of one raw material that is used in the Novacrete
Admixture. The finished goods inventory consists of 55lb. bags of Novacrete
Repair Products that are stacked on wood pallets with each pallet containing 56
bags.
In 1997 the company had $143,313 of inventory, all of which was classified as
raw materials. A substantial majority of this inventory was hauled to a
commercial dumping facility by the company after the new management determined
that the material was intended to be used as Novacrete Admixture and was
improperly blended. This product was blended on equipment that the new
management has discarded as obsolete in place of the new industrial equipment
that was installed at the company's operating facility in February, 1998. The
company's decision was based on its current operating policy which requires
quality controls on all manufactured product and to avoid any rectification
claims that could result from selling product that was improperly made and would
likely underperform the stated performance standards for the product.
Although the company had obsolete blending equipment this equipment had the
capacity to blend over 200 lbs. of admixture per day, and that the admixture
that was discarded was packaged by an outside company.
From June 1, 1997 to January, 1998 the company's operations were funded through
sales of its common stock to affiliated and non-affiliated parties. In December,
1997, the company under the direction of its current President and Chief
Executive Officer announced a 60 Day Plan to advance the company from the
development stage. In February, 1998, the company sold a 10% $550,000
Convertible Debenture that matures on October 31, 1998, to three non-affiliated
persons who also received warrants to purchase 1,100,000 share of common stock
at the exercise price of $.30 per share for a three year period. The proceeds of
this debenture were used principally to purchase the industrial blending and
bagging equipment that was installed in the company's operating subsidiary, to
renovate the company's offices and for working capital to fund the company's
operations until sales of its product could materialize.
Operating costs relating to general and administrative cost decreased from
$927,451 in 1997 to $824,321 in 1998 or 12% from the previous year. The decrease
in operating costs was attributable primarily to the reduction of personnel from
November, 1997 to February, 1998, when the company began to increase its payroll
with new personnel and with better management of the company's resources. In
addition non-cash costs attributable to the issuance of stock compensation
decreased substantially in 1998 to $180,405 when compared to the $1,360,580
incurred in 1997. The company fully expects this trend to continue since new
management has terminated the stock option plan that was initiated in 1996 and
which resulted in the excessive issuance of common stock to insiders at below
market prices. In 1998, the company incurred $17,548 of interest expenses versus
$12,917 in the previous year and $15,267 of foreign currency losses versus
$3,144 in the previous year. In addition the company amortized debt discount of
$84,535 in 1998 which
19
<PAGE>
resulted from the issuance of warrants to holders of the debenture that was sold
in February, 1998.
The net result of operations increase in operating expenses over revenues
resulted in a loss from operations of $1,112,594.
On account of the changes that the company made this year to expand and equip
its operating facility and to recruit experienced personnel to oversee the
technical, operational and marketing aspects of the company's business and the
closing of the pending ARM PRO acquisition (See Subsequent Events) the company
believes that the fiscal year ending May 31, 1999, could result in material
increases in revenue.
1997 vs. 1996
From June 1, 1996 to November, 1997 the company was operated from an office
facility with the intention of either licensing its admixture technology to
manufacturers and marketers of admixture and cement-based products or to have
the admixture and finished mortar products manufactured and warehoused by an
outside manufacturing company (toll blended) for a negotiated charge per unit.
On November 26, 1996, as a result of substantial differences of opinion by the
then existing directors and shareholders of the company and certain allegations
of wrongdoing that were made against two of the company's directors, the
company's then Chairman and President, Arthur Smith, and his spouse, E. Lee
Monaco, resigned as directors and officers of the company. The only remaining
director, A. Roy MacMillan then became Chairman and President. On April, 1997
the company leased its existing manufacturing facility in Mississauga, Ontario
and began to manufacture its Novacrete Admixture and Novacrete MP products with
much smaller blending equipment and with limited personnel to oversee the proper
blending and packaging of the final product. Due to the lack of working capital
in this fiscal period, the company did limited research and development on its
intended line of products and actually accumulated general and administrative
costs of $927,451 and costs attributable to non-cash imputed stock compensation
of $1,360,580 for a total loss from operations of $2,288,031. In 1996 the
company incurred $518,947 in general and administrative costs an $7 of costs
attributable to non-cash imputed stock compensation. In 1996 there was a
$378,213 in additional deficit due to there being no sales.
Liquidity and Financial Resources
The Company ended the 1998 fiscal year with nominal liquidity and a $1,112,594
in operating losses. However, since the company has begun to sell its products
in commercial quantities to large distributors of construction products and
anticipates closing the ARM PRO transaction it anticipates that it will have
sufficient liquidity from its operations to cover its expenses. Since the
company has completed its hiring of all senior level positions it will have an
operating overhead in 1999 of approximately $850,000. Based on the profit margin
for the company's Novacrete Repair Products the company will need to generate
$1,400,000 of gross revenues to break-even. Although the company substantially
under performed this level of sale in 1998, the investments in new equipment and
sales personnel and marketing materials are expected to significantly enhance
the company's prospects for sale in 1999. In addition, in September, 1998 the
company sold a 9% $800,000 Debenture of which the Company expects to retain
$200,000 for working capital after it purchases ARM PRO. Although the company's
preference is to reserve these funds it has full discretion to use them for
working capital. As part of this financing which was with an entity that
purchased $500,000 of the Debenture that was sold by the company in February,
1998, the holder agreed
20
<PAGE>
to convert the principal amount of that Debenture which matures on October 31,
1998 into the company's common stock at a rate equal to the average of the
eleven lowest closing trading prices during the month of October, 1998. With the
completion of this financing in September, 1998 the company has affectively
reduced the principal amount of the $550,000 in note payable by $500,000. The
company expects to repay the remaining $50,000 of the note payable with cash.
In addition to the liquidity that should materialize as the selling season
continues, the company has sold historically debt and equity securities to
provide additional working capital on a need basis. The company however, cannot
give any assurances that the revenue prospects that it has budgeted for 1999
will materialize or that it will be able to raise capital through the sale of
its securities. In addition any future sales of securities may very well be on
terms that are not favorable to the company. (See Working Capital)
Inflation and Changing Prices
The company does not foresee any risks associated with inflation or price
increases in the near future. In addition the raw materials that are used in the
manufacturing of the company's products are available locally through many
sources and are generally commodity items. The one material that the company
uses in all its products that cannot be classified as commodity is currently in
sufficient supply although the company presently owns approximately 600,000 lbs.
of this product. Because the company's operations are in Canada the devaluation
of the Canadian dollar against the U.S. dollar has allowed the company to
manufacture its products less costly for the sales made in the United States and
that any funds raised through the sale of securities are U.S. dollar denominated
and then transferred to the Canadian subsidiary at favorable exchange rates. As
such, while the Company has exposure to inflation, in the very near future it
does not believe that inflation will bear significantly on its financial
position.
Item 8. Financial Statements and Supplementary Data
Page
Index to Financial Statements and Supplementary F-1
Financial Data
Report of Independent Certified Public Accountants F-2
Financial Statements:
Balance Sheet, May 31, 1998 and 1997 F-3
Statement of Operations, Years Ended May 31, F-4
1998, 1997 and 1996
Statement of Changes in Stockholders' Equity, F-5
Years Ended December 31, 1998, 1997, 1996 and 1995
Statement of cash Flows, Years Ended May 31, F-6
1998, 1997 and 1996
Notes to Financial Statements F-7
21
<PAGE>
STRATFORD ACQUISITION CORP. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998, 1997 AND 1996
<PAGE>
STRATFORD ACQUISITION CORP. AND SUBSIDIARY
(A Development Stage Enterprise)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-2
Financial Statements
Balance Sheets
as of May 31, 1998 and 1997 F-3
Statements of Operations
for the periods cumulative January 1, 1994 through May 31, 1998,
twelve months ended May 31, 1998, 1997 and 1996 F-4
Statements of Changes in Shareholders' Equity (Deficit)
for the years ended May 31, 1998, 1997, and 1996 F-5
Statements of Cash Flows
for the periods cumulative January 1, 1994 through May 31, 1998,
twelve months ended May 31, 1998, 1997 and 1996 F-6
Notes to Financial Statements F-7-15
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors
Stratford Acquisition Corp.
We have audited the accompanying consolidated balance sheets of Stratford
Acquisition Corp. and subsidiary (a development stage enterprise) as of May 31,
1998 and 1997 and the related consolidated statements of operations, changes in
shareholders' deficit and cash flows for the periods cumulative January 1, 1994
through May 31, 1998, and for the years ended May 31, 1998, 1997, and 1996.
These 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated 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 financial position of Stratford Acquisition Corp. and
subsidiary (a development stage enterprise) as of May 31, 1998 and 1997 and the
results of its operations, changes in shareholders' deficit and cash flows for
the periods cumulative January 1, 1994 through May 31, 1998 and the years ended
May 31, 1998, 1997 and 1996 in conformity with generally accepted accounting
principles.
FELDMAN SHERB EHRLICH & CO., P.C.
Certified Public Accountants
(Formerly Feldman Radin & Co., P.C.)
New York, New York
August 20, 1998, except for
Note 12 (B) for which the date
is September 4, 1998
F-2
<PAGE>
STRATFORD ACQUISITION CORP. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
May 31, May 31,
1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 49,108 $ 10,098
Accounts receivable 9,250 --
Other receivables 17,367 40,579
Inventory 122,134 143,313
Marketable securities -- 13,250
Prepaid assets 2,801 --
----------- -----------
Total Current Assets 200,660 207,240
PROPERTY, PLANT, AND EQUIPMENT, net of
accumulated depreciation and amortization 106,598 2,158
OTHER ASSETS 11,282 10,135
----------- -----------
$ 318,540 $ 219,533
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 162,115 $ 113,218
Advances from shareholder 37,000 --
Notes payable 520,470 --
----------- -----------
Total Current Liabilities 719,585 113,218
NOTES PAYABLE -- 315,000
SHAREHOLDERS' DEFICIT:
Common stock - $0.001 par value
50,000,000 shares authorized
11,965,646 and 10,113,381 shares
issued and outstanding, respectively 11,966 10,114
Additional paid-in capital 3,519,673 2,601,291
Deficit accumulated during the
development stage (3,932,684) (2,820,090)
----------- -----------
Shareholders' Deficit (401,045) (208,685)
----------- -----------
$ 318,540 $ 219,533
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-3
<PAGE>
STRATFORD ACQUISITION CORP. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
January 1, 1994
(Inception)
Year ended Year ended Year ended through
May 31, May 31, May 31, May 31,
1998 1997 1996 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Sale of cementitious products $ 9,073 $ -- $ -- $ 9,073
Technology license fees -- -- 140,741 140,741
------------ ------------ ------------ ------------
9,073 -- 140,741 149,814
OPERATING EXPENSES:
General and administrative costs 824,321 927,451 518,947 2,381,287
Non-Cash imputed Stock Compensation 180,405 1,360,580 7 1,571,557
------------ ------------ ------------ ------------
1,004,726 2,288,031 518,954 3,952,844
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (995,653) (2,288,031) (378,213) (3,803,030)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest income 409 314 474 1,213
Interest expense (17,548) (12,917) -- (30,465)
Amortization of debt discount (84,535) -- -- (84,535)
Foreign currency gain (loss) (15,267) (3,144) 2,378 (15,867)
------------ ------------ ------------ ------------
NET LOSS $ (1,112,594) $ (2,303,778) $ (375,361) $ (3,932,684)
============ ============ ============ ============
NET LOSS PER SHARE - BASIC $ (0.10) $ (0.24) $ (0.07) $ (0.68)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING 11,472,508 9,590,212 5,552,407 5,768,850
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE>
STRATFORD ACQUISITION CORP. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, May 31, 1995 5,000,000 $ 5,000 $ 359,970 $ (140,951) $ 224,019
Sale of common stock 494,700 495 617,324 -- 617,819
Exercise of granted options
under employee benefit plan 500,000 500 -- -- 500
Issuance of common stock
for consulting fees 7,250 7 -- -- 7
Shares issued for no consideration 1,800,000 1,800 (1,800) -- --
Net loss -- -- -- (375,361) (375,361)
----------- ----------- ----------- ----------- -----------
BALANCE, May 31, 1996 7,801,950 7,802 975,494 (516,312) 466,984
Sale of common stock 1,513,500 1,514 266,015 -- 267,529
Issuance of common stock
for services 626,531 627 1,171,287 -- 1,171,914
Issuance of options
for services -- -- 128,666 -- 128,666
Issuance of common stock
for compensation 171,400 171 59,829 -- 60,000
Net loss -- -- -- (2,303,778) (2,303,778)
----------- ----------- ----------- ----------- -----------
BALANCE, May 31, 1997 10,113,381 $ 10,114 $ 2,601,291 $(2,820,090) $ (208,685)
Sale of common stock 720,750 721 258,522 -- 259,243
Issuance of common stock
for services 295,000 295 47,505 -- 47,800
Issuance of common stock
for debt 988,824 989 325,533 -- 326,522
Issuance of common stock
for compensation 331,441 331 98,119 -- 98,450
Redemption of common stock (483,750) (484) 484 -- --
Value of warrants issued with debt -- -- 154,065 -- 154,065
Value of warrants and options issued
for services -- -- 34,155 -- 34,155
Net loss -- -- -- (1,112,594) (1,112,594)
----------- ----------- ----------- ----------- -----------
BALANCE, May 31, 1998 11,965,646 $ 11,966 $ 3,519,673 $(3,932,684) $ (401,045)
=========== =========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE>
STRATFORD ACQUISITION CORP. AND SUBSIDIARY
( A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
January 1, 1994
(Inception)
Year ended Year ended Year ended through
May 31, May 31, May 31, May 31,
1998 1997 1996 1998
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,112,594) $(2,303,778) $ (375,361) $(3,833,384)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 13,805 345 -- 14,150
Common stock issued as payment for services and compensation 146,250 1,231,914 7 1,408,736
Common stock issued as payment for interest 11,522 -- -- 11,522
Options issued as payment for services 34,155 128,666 -- 162,821
Amortization of debt discount 84,535 -- -- 84,535
Changes in assets and liabilities:
(Increase) decrease in trade receivables (9,250) -- -- (9,250)
(Increase) decrease in other receivables 23,212 (28,711) (11,868) (183,647)
(Increase) decrease in inventory 21,179 (143,313) -- (122,134)
(Increase) decrease in prepaid assets (2,801) -- -- (2,801)
(Increase) decrease in refundable deposits -- 178,148 (175,898) 166,280
(Increase) decrease in other assets (1,147) (10,135) -- (11,282)
Increase (decrease) in accounts payable and accrued expenses 48,897 100,587 12,131 162,115
----------- ----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (742,237) (846,277) (550,989) (2,152,339)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (118,246) (2,503) -- (120,749)
Purchase of marketable securities 13,250 (13,250) -- --
----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (104,996) (15,753) -- (120,749)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in due from shareholders 37,000 134,405 87,853 37,000
Proceeds from bridge financing 480,470 265,230 -- 745,700
Proceeds from issuance of debt with warrants 69,530 49,770 -- 119,300
Proceeds from issuance of debt without warrants 40,000 -- -- 40,000
Proceeds from the sale of common stock
and exercise of options 259,243 267,529 618,319 1,380,196
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 886,243 716,934 706,172 2,322,196
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 39,010 (145,096) 155,183 49,108
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 10,098 155,194 11 --
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 49,108 $ 10,098 $ 155,194 $ 49,108
=========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 691 $ 1,269 $ -- $ 1,960
=========== =========== =========== ===========
Income taxes $ 689 $ -- $ -- $ 689
=========== =========== =========== ===========
Non-cash financing and investing activities:
Conversion of debt to equity $ 315,000 $ -- $ -- $ 315,000
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
F-6
<PAGE>
STRATFORD ACQUISITION CORP. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1998
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
On May 11, 1995, the Company amended its Articles of Incorporation to
authorize the issuance of 50,000,000 shares of common stock from the
previously approved amount of 1,000,000 shares of common stock.
Additionally, the Company changed the par value of its common stock to
$0.001 par value from $0.10 par value. All amounts and valuations shown in
the accompanying financial statements reflect the effects of this change.
Substantially all of the Company's management, directors and officers were
replaced on November 29, 1996.
During January 1997 the Company acquired 100% of the outstanding stock of
Novacrete Technology (Canada) Inc., a newly created company established to
manufacture and distribute the Company's Novacrete product line.
The Company is in the development stage and, through its wholly owned
subsidiary, is engaged in the business of manufacturing and marketing a
proprietary admixture for enhancing cement-based products, hereinafter
referred to as "Novacrete" and various finished products for specific
applications which use predetermined amounts of the Novacrete additive. The
Company will initially market and sell the Novacrete additive mixture and
the Novacrete finished products to large distributors pursuant to
distribution agreements covering predetermined geographic areas on a
non-exclusive basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Basis of Presentation - The consolidated financial statements include
the accounts of the Company and its subsidiary. All material
intercompany transactions and balances have been eliminated.
(B) Cash and Cash Equivalents - The Company maintains funds in Canadian
financial institutions in both US dollar (US$) and Canadian dollar
(CN$) transaction accounts. All transactions reflected in the
accompanying financial statements have been converted into US dollar
equivalents, as of the end of each respective year at the Wall Street
Journal published exchange rate on the last day of the fiscal year,
for CN$ accounts and at historical amounts for US$ accounts.
F-7
<PAGE>
The Company considers all cash on hand and in banks, including
accounts in ledger overdraft positions, certificates of deposit and
other highly-liquid investments with maturities of three months or
less, when purchased, to be cash and cash equivalents.
(C) Income Taxes - The Company utilizes the liability method of accounting
for income taxes as set forth in FASB Statement No.109, "Accounting
for Income Taxes". Under the liability method, deferred taxes are
determined based on the difference between the financial statement and
tax bases of assets and liabilities using enacted tax rates in effect
in the years in which the differences are expected to reverse.
As reflected in the accompanying statements of operations, the Company
has incurred losses while in the development stage. Due to the limited
operations of the Company and the uncertainty surrounding the eventual
utilization of its losses, a valuation allowance has been recorded to
fully reserve for the deferred tax benefits generated by its net
operating losses.
(D) Property, Plant and Equipment - Property, plant and equipment are
stated at cost less accumulated depreciation. Depreciation for
financial statement purposes is computed by the straight-line method
over the estimated useful lives of the assets, which is generally five
years for equipment.
(E) Inventories - Inventories are valued at the lower of cost or market
determined by the first-in, first-out method of accounting.
(F) Fair Value of Financial Instruments - The carrying value of cash and
cash equivalents, other receivables, marketable securities, accounts
payable and accrued expenses approximate their fair values based on
the short-term maturity of these instruments.
(G) Marketable Securities - The Company's marketable securities are
comprised of equity securities classified as trading securities, which
are reported at their fair market values based upon the quoted market
prices of those investments at balance sheet date. Accordingly, net
realized and unrealized gains and losses on trading securities are
included in net earnings.
(H) Loss Per Share - The Company has adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share". Basic loss per
share is computed by dividing net loss by the weighted average number
of shares of common stock outstanding.
(I) Foreign Currency Re-measurement - Because the Company's functional
currency is the US dollar, the financial statements for the Company's
activities in Canada have been remeasured from Canadian dollars.
Accordingly, all gains and losses arising from Re-measurement of
monetary assets and liabilities have been recognized currently in
income.
F-8
<PAGE>
(J) Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results could
differ from those estimates.
3. CAPITAL STOCK TRANSACTIONS
(A) Present management is unable to determine the value received for the
1,800,000 shares issued in fiscal 1996 and is contacting the
registered shareholders to determine if appropriate consideration was
received for the shares. In the financial statements for the year
ended May 31, 1996, the shares have been recorded as outstanding with
no consideration received for their issuance. During fiscal 1998, a
total of 483,750 shares were returned back and canceled by the
Company. The Company intends to continue to pursue all litigation
against shareholders who received securities without paying fair
consideration to the Company.
(B) During fiscal 1996, the Company sold an aggregate of 494,700 shares of
common stock, pursuant to exemptions from registration under
Regulations S and D of the Securities and Exchange Act of 1933, as
amended, for an aggregate sum of approximately $618,000.
(C) In July 1995, the Company filed a Form S-8 with the Securities and
Exchange Commission to register approximately 2,000,000 shares of
common stock to be issued under the Company's 1995 Non-qualifying
Stock Option Plan ("Plan"). The Plan provides that stock options may
be issued to any person who is performing or has been engaged to
perform services of special importance to management in the operation,
development and growth of the Company. The determination of the option
price per share for any stock option issued under the Plan is at the
sole discretion of the Board of Directors or their designees. The Plan
expires on the tenth anniversary of its approval and all ungranted
stock options shall expire. During 1996, the Company issued a total of
500,000 options, all of which were immediately exercised by the
receiving parties on the respective grant dates. Current management
has terminated this stock option plan.
(D) During fiscal year end 1997, 126,531 options were granted as
consideration for various services received by the Company. The
Company also issued 500,000 shares of its common stock in connection
with certain management services and the acquisition of its
formulation costs.
(E) As payment for his salary in fiscal year end 1997, the Company's then
president, accepted 171,400 shares of the Company's common stock in
lieu of cash. The shares issued were based on $60,000 of compensation
which represented less than the total amount owed for fiscal 1997. The
remaining unpaid compensation of $31,250 has been included in Accounts
payable and accrued expenses at May 31, 1997.
F-9
<PAGE>
(F) During the year ended May 31, 1998 the Company issued 103,000 employee
stock options and warrants to purchase common stock at a per share
range of $ .25 - $ .50, with exercise periods ranging from 3-5 years..
In addition directors, the former president and the current president
were issued 1,819,276 options and warrants to purchase shares at $ .35
per share, exercisable for periods ranging from 3-5 years. A total of
300,000 options were also issued to two individuals as an incentive to
join the Company's board of directors. These options are exercisable
at $ .40 per share and expire five years from the date of issuance.
The Company issued 135,000 options and warrants to various consultants
in lieu of cash payment for services rendered during the year ended
May 31, 1998. All options and warrants are for five years from the
date of issuance, exercise price ranges from $ .25 to $ .50 per share
of common stock. The company has recorded $34,155 as consulting
expenses related to the issuance of these options and warrants.
The Company issued 1,405,000 warrants and options related to the
issuance of debt during the year ended May 31, 1998.
(G) During fiscal year end 1998, the Company issued 169,084 shares of its
common stock as compensation to its former president. Such shares were
valued at a price range of $ .32 to $ .35 per share.
The Company issued 432,357 of its common stock to its current
president as compensation for services rendered. Such shares were
valued at a price range of $ .20 to $ .35 per share.
The Company issued 25,000 shares of its common stock for consulting
services during the year ended May 31, 1998. Such shares were valued
at a price of $ .40 per share.
The Company for the year ended May 31, 1998, issued 988,914 shares of
its common stock for full payment of notes payable of $315,000 and
accrued interest.
During the year ended May 31, 1998, the Company sold 720,750 shares of
its common stock to various shareholders, at market prices ranging
from $ .24 to $ .40 per share to raise working capital.
(H) On April 1, 1998, the Company's board of directors approved a
resolution to adopt a Non-Qualified Stock Option Plan which shall be
subject to shareholder approval to become effective. The Plan consists
of stock options to purchase 1,200,000 shares of $ .001 par value
common stock for a period of five years from issuance, each option
having an exercise price equal to the average closing bid price for
common stock prior to date of issuance. The allocation of stock
options under the Plan shall be senior management personnel based on
total gross revenues generated by the Company's wholly-owned
subsidiary, Novacrete Technology (Canada) Inc.
F-10
<PAGE>
During the period commencing March 1, 1998 and ending February 28,
1999. In the event any stock options under the Plan shall be
undistributed in this period, they will remain unallocated and
distributed by the Company pursuant to performance terms set by the
board of directors for the period commencing on March 1, 1998 and
ending on February 28, 2000. In the event any stock options under the
plan shall be undistributed on February 28, 2000, they will remain
unallocated and distributed by the Company pursuant to performance
terms set forth by the board of directors for the period commencing on
March 1, 2000 and ending on February 28, 2001.
4. COMMITMENTS
The Company's prior executive office lease was terminated in August 1997.
That lease required payments of approximately $2,100 per month. The Company
has entered into a new lease for office space commencing June 1, 1997. This
lease requires monthly rent payments of approximately $3,400.
The Company leases telecommunication, reproduction and computer equipment
and office furnishings under long-term operating lease agreements. These
lease agreements require cumulative monthly payments of approximately
$1,656 per month for the terms of the respective leases expiring between
October 1998 and January 2001.
Total rent expense was approximately $61,000 for the year ended May 31,
1998. Future minimum noncancellable lease payments are as follows:
Year ending US$
May 31, Amount
----------- --------
1999 $ 56,893
2000 57,137
2001 48,530
2002 40,115
--------
TOTALS $202,675
========
In addition, all contracts, joint ventures and licensing agreements have
either expired or have been terminated by the Company's new management.
5. INVENTORY
Inventories at May 31, 1998 and 1997 consists of the following:
F-11
<PAGE>
1998 1997
-------- --------
Raw Material $ 76,276 $143,313
Work in Progress 440 --
Finished Goods 45,418 --
-------- --------
$122,134 $143,313
======== ========
6. PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment at May 31, 1998 and 1997 consists of the
following:
1998 1997
--------- ---------
Plant and Office equipment $ 103,247 $ 1,869
Leasehold Improvements 17,330 634
--------- ---------
120,577 2,503
Less: accumulated depreciation
and amortization (13,979) (345)
--------- ---------
$ 106,598 $ 2,158
========= =========
7. CONTINGENCIES
(A) The SEC has investigated certain activities of the Company and those
of the previous management. Current management strongly believes that
this investigation will have no adverse effect on the current position
of the Company.
(B) As consideration for the acquisition of its formulation costs the
Company issued 500,000 shares of its $0.001 par value common stock and
paid $100,000 to a former employee of the Company and entities related
to him. The Company previously commenced an action to recover such
amounts, based on lack of consideration. This matter was settled in
July 1998, with the return and cancellation of 130,000 shares to the
Company.
8. ADVANCES FROM SHAREHOLDERS
As of May 31, 1998 the Company was advanced $37,000 from existing
shareholders, to purchase additional shares of its common stock to raise
working capital. Subsequent to
F-12
<PAGE>
May 31, 1998 shares were issued for these advances.
9. NOTES PAYABLE
As of May 31, 1998, Notes Payable - consisted of the following:
<TABLE>
<CAPTION>
Number
Face of Exercise Warrant Unamortized
Issuance Date Amount Warrants Price Value Discount
- ------------------ ---------- ---------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
2/9/98 $ 500,000 1,000,000 $ .30 $ 94,814 $ 63,208
2/9/98 25,000 50,000 .30 4,741 3,161
2/9/98 25,000 50,000 .30 4,741 3,161
---------- ----------- ---------- ----------
$ 550,000 1,100,000 $ 104,296 $ 69,530
========== =========== ========== ==========
Less: Unamortized
Discount 69,530
----------
$ 480,470
==========
</TABLE>
During 1998 the Company raised $ 550,000 by the issuance of debt with
warrants attached. The proceeds were allocated between the debt and
warrants based on their estimated fair values. A total of 1,100,000
warrants were issued in February 1998 related to these debentures, these
warrants expire after three years from the date of issuance and are
exercisable at $ .30 per share of common stock. The debentures bear
interest at 10% per annum and mature on October 31, 1998. If the Company
should default on these notes, the sole recourse of the debt holder shall
be the conversion of all outstanding principal and accrued interest to
shares of the Company's common stock. Conversion would be based on the
lower of $ .20 per share of common stock or at a 20% discount to the
average closing bid price for the common stock for the five days prior to
the maturity date of the debenture. At May 31, 1997, the Company was
obligated to certain shareholders for bridge loans in the amount of $
315,000. These loans were advanced to the Company as needed to satisfy
working capital requirements and bore interest at 10% per annum. In June
1997 the Company issued 305,000 warrants to purchase common stock at $ .35
per share. These warrants expire five years from the date of issuance. In
July 1997, these bridge loans were converted to 988,824 shares of common
stock in satisfaction of all outstanding principal and accrued interest of
$ 11,440. The value attributable to the warrants was $49,770, which was
written off as an expense upon conversion.
In May 1998 the Company issued notes payable for a total of $40,000. The
notes bear interest at 10% per annum. The principal of the note and all
outstanding interest are due 90 days from the date of issuance. Interest on
the notes are payable with the Company's
F-13
<PAGE>
common stock at the rate of $ .40 per share. Furthermore if the notes are
not fully satisfied at the maturity date, the Company is obligated to issue
1/2 of a warrant to purchase 1 share of its common stock for each dollar of
the outstanding principal amount.
10. STOCK OPTIONS
The following table summarizes the activity with regard to options and
warrants for the year ended May 31, 1998.
Option / Options /
Warrant Warrants Issued Outstanding at
Date Granted Shares Price Related To May 31,1998
------------ ------ ----- ---------- -----------
June 1997 3,000 Employee Stock 3,000
Options
June 1997 1,819,276 .50 Employee Stock 1,819,276
Options
June 1997 305,000 .35 Debt 305,000
July 1998 50,000 .50 Services 50,000
September 1997 10,000 .50 Employee Stock 10,000
Options
September 1997 40,000 .25 Services 40,000
October 1997 200,000 .40 Employee Stock 200,000
Options
January 1998 100,000 .40 Employee Stock 100,000
Options
February 1998 1,100,000 .30 Debt 1,100,000
February 1998 25,000 .30 Employee Stock 25,000
Options
February 1998 20,000 .25 Services 20,000
April 1998 32,500 .35 Employee Stock 32,500
Options
April 1998 25,000 .31 Services 25,000
May 1998 32,500 .35 Employee Stock 32,500
Options
--------- ---------
3,762,276 3,762,276
========= =========
F-14
<PAGE>
During fiscal year ended May 31, 1997 the company granted 768,000 options
to certain individuals and entities. Included in this amount are 126,531
options issued as consideration for services received by the Company.
Immediately after the issuance all 768,000 of these options were exercised
and the shares obtained were sold in the open market.
The remaining parties receiving options granted during fiscal 1997
exercised those options, according to management, for negligible amounts.
The Company is seeking to cancel all shares issued to parties through the
exercise of options obtained for little or no consideration. Because of the
events surrounding the issuance of shares by the exercise of options the
Company has not recorded any expense related to their issuance except as
previously discussed.
11. STOCK-BASED COMPENSATION
In fiscal 1997, the Company adopted the disclosure provisions of SFAS No.
123, "Accounting for Stock-Based Compensation". For disclosure purposes,
the fair value of options is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for stock options granted during fiscal year ended May 31,
1998 and 1997 respectively: annual dividends of $0; expected volatility of
50%; risk free interest rate of 7%; and expected life of five years during
fiscal 1998 and one month during fiscal 1997. The weighted average fair
values of stock options granted during the years ended May 31, 1998 and
1997 was $.20 and $.08 respectively.
If the Company had recognized compensation costs in accordance with SFAS
No. 123, the Company's pro forma net loss and net loss per share would have
been $ 1,562,387 and $.14 for the year ended May 31, 1998 and $2,320,553
and $.24 for the year ended May 31, 1997.
12. SUBSEQUENT EVENTS:
(A) In July 1998, the Company entered into an agreement to acquire an
Ontario, Canada sited company in the business of producing specialized
fibers used in the manufacture of cementitious products. The purchase
price is approximately $889,000 (Canadian dollars).
(B) On September 4, 1998 the Company issued $800,000 (US$) of debt with
warrants attached. The debentures were issued in order to facilitate
the acquisition of the previously mentioned company and to provide
additional working capital. The debentures bears interest at 9% per
annum and matures on September 4, 2000. A total of 1,500,000 warrants
were issued with this debt, these warrants expire on September 4, 2000
and are exercisable at $ .45 per share.
F-15
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The company has engaged the certified public accounting firm of Feldman Serb. &
Erhlich as its outside auditors to audit the company's annual financial
statements for the fiscal year ending May 31, 1997 and has had no disagreements
with them.
PART III
Item 10. Directors and Executive Officers of the Registrant
The following provides certain information concerning the directors and
executive officers of the Company and its subsidiaries as of May 31, 1998.
Stratford Acquisition Corporation
Name Aqe Position
- ---- --- --------
William K. Lavin 53 Chairman, Secretary
Daniel W. Dowe 36 Director, President
and Chief Executive Officer
D. Friedenberg 45 Director, Treasurer
Edward J. Malloy 62 Director
Note: the company's former chairman and president, A.Roy MacMillan, retired
on November 17, 1998.
* All company directors currently serve for one year periods and will be
nominated at the next annual meeting of shareholders to serve as directors
for in the case of Messrs. Friedenberg and Dowe, three years, Mr. Lavin,
two years and Mr. Malloy one year.
William K. Lavin. Mr. Lavin became a director in October, 1997 and currently
operates his own consulting business that he formed in 1994. Prior to forming
his firm, he was Chief Executive Officer of Woolworth Corporation (NYSE:Z) from
1993-1994 and immediately prior to that position he served as Woolworth's Chief
Administrative and Financial Officer. Mr. Lavin serves on the board of directors
of the Allegheny corporation (NYSE:Y) and Chicago Title Corporation (NYSE:CTZ)
and is also a trustee of St. John's University.
Daniel W. Dowe. Mr. Dowe became a director in March, 1997 and he became Acting
President on November 17, 1997 and President and Chief Executive Officer on
April 1, 1998. Mr. Dowe has agree to serve in this capacity for a three year
period pursuant to a written employment agreement and will have an option to
serve for additional three year period. He is the founder of Dowe & Dowe, a New
York City-based law firm that provide some legal services to the company. Since
November 17, 1997, Mr. Dowe has provided legal services to the company without
charges as part of his employment responsibilities with the company. From 1993
to present, Mr. Dowe has been practicing corporate and securities law. From 1990
to 1993, upon graduating from Fordham University School of Law, Mr. Dowe was an
associate Donohue & Donohue a New York City- based law firm concentrating on
international trade matters. Prior to practicing law he was employed as an
accountant and internal auditor for Alliance Capital Management company, Salomon
Brothers (Salomon Smith Barney)
<PAGE>
and J.P. Morgan bank.
Douglas S. Friedenberg. Mr. Friedenberg has been a director since November,
1996. He has been the President of Firebird Capital Management, a financial
advisory firm, since March, 1993 and currently manages two private investment
funds for Firebird. He also writes a regular column for HFR Journal, a quarterly
publication for the investment industry. In 1991, he co-founded and became
President of Unicorn Capital Management, an investment management firm. From
1983 to 1991, he managed private investment portfolios for Morgan Stanley, Inc.
large New York City-based investment banking firm. Mr. Friedenberg currently
serves as a Director of Datametrics Corporation.
Edward J. Malloy. Mr. Malloy became a director in January, 1998. He is currently
President of the Building and Construction Council of Greater New York. Mr.
Malloy represents the interests of over 200,000 laborers involved in the
building trades in the Greater New York City area. He is responsible for
developing building projects in both the public and private sectors to ensure
for an adequate level of work for his union members. Mr. Malloy brings to the
company an extensive level of contacts and industry experience.
Novacrete Technology (Canada) Inc.
Name Aqe Position
- ---- --- --------
Daniel W. Dowe 36 Chairman, President,
Richard Dryburgh 48 Director, Sales Manager
Gary Lacey 50 Director, Operations Manager
John Bellocchio 55 U.S. Regional Sales Manager
Rajinder Bhagrath 55 Research and Development
Manager
* All Novacrete Canada directors serve for one periods and at the election of
the company's board of directors.
Daniel W. Dowe. (See above profile)
Richard Dryburgh. Mr. Dryburgh joined the company in February, 1998 as sales and
marketing manager for all of North America. Mr. Dryburgh is a Certified Civil
Engineering Technologist with more than 20 years' experience in marketing and
product development. Prior to joining Novacrete, from 1996 to 1998, Mr. Dryburgh
was Sales and Marketing Manager for ProMesh, Inc. of Kitchener, Ontario, where
he directed technical development, marketing and media advertising, and
international sales. ProMesh is a manufacturer and marketer of polypropylene
fibres. Prior to joining ProMesh he was the Sales and Marketing Manager for
National Slag (Lafarge) Ltd. From 1995 to 1996. From 1992-1995, Mr. Dryburgh
managed the construction division of several companies; coordinated and taught
in a program for construction trade students; and established and grew his own
contracting consulting firm, R.J. Dryburgh & Associates. Mr. Dryburgh holds a
degree in Construction Engineering Technology from Conestoga College of Applied
Arts & Technology, Waterloo, Ontario. He also completed professional courses at
Xerox International's (Salesmanship and Sales Management) and Humber College
(Successful Management).
Gary Lacey. Mr. Lacey joined the company in March, 1998 and oversees operations,
including quality control, quality assurance, and new product development. He
will also assist with sales, drawing on his extensive experience in the building
products industry. Mr. Lacey's experience
<PAGE>
includes marketing, sales and technical service of concrete repair products,
industrial flooring systems, protective coatings, and expansion joint systems.
Prior to joining the company, Mr. Lacey was employed from 1995 by EPoxy
Industries, Ltd. of Concord, Ontario, where he was Sales Manager of the Canadian
division of a U.S. manufacturing company. His responsibilities included defining
and developing the Canadian market of a complete product line, and developing a
Canadian distribution network. From 1990 to 1995 he was the Technical Sales
Representative with Harris Specialty Chemicals and from 1986-1990 he was a
Technical Sales Representative for Fosroc Construction Chemicals.
Mr. Lacey holds a Diploma in General Chemistry from the Granton Institute of
Technology, Toronto, and a Certificate in Business Administration, Sales and
Marketing major, from Sheridan College, Oakville, Ontario. He has also completed
technical courses in coatings technology, caulks and sealants, sales and
marketing.
John Bellocchio. Mr. Bellocchio will manage Novacrete's Northeastern United
States sales program. Prior to Novacrete, Mr. Bellocchio was Director of
Marketing and Sales at Anti-Hydro International, a manufacturer of liquid
admixtures and marketer of the ProMesh line of polypropylene fibres. Before
that, he was Eastern District manager for W.R. Grace Construction Projects
division, where he helped pioneer the sales and marketing efforts of a new
waterproofing product called Bituthane. This single product grew to over $15
million per year in sales. Prior to joining W.R.Grace he was employed in a
privately owned contracting business.
Mr. Bellocchio completed a two-year Certificate in Construction Management at
Fairleigh Dickinson University.
Dianne Hartwick. As General Manager, Ms. Hartwick oversees the daily
administrative functions of the Company's Canadian subsidiary, Novacrete
Technology, Inc., where she also serves as a director. In addition to her
primary duties, Ms. Hartwick will serve as the Company's administrative liaison
with vendors and distributors of the Company's products. In this capacity, Ms.
Hartwick will assist the efforts of the Company's marketing and operations staff
to ensure the timely delivery of raw materials and supplies, and that all
deliveries of finished products are met with total customer satisfaction.
Ms. Hartwick has been trained by the Industrial Accident Prevention Association
in loss control leadership and has been trained in Workplace Hazardous Materials
Information System (WHMIS) classification and legislation.
Employed on August 24, 1998
Rajinder S. Bhagrath. Mr. Bhagrath oversees the company's research and
development. For a six month period before joining the company, Mr. Bhagrath was
employed as a research chemist by one of the construction product industry's
leaders, Mapei, Inc. From 1971 to 1998, he was employed by Sternson Construction
Products in various capacities that lead to his becoming group leader for all
product development and research and development.
Item 11. Executive Compensation
<PAGE>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
----------------------
Annual compensation Awards Payouts
------------------- ------ -------
Securi-
ties
Name Other Underly- All
and Annual Restrict- ing Other
Princi- Compen- ed Stock Options/ LTIP Compen-
pal Salary Bonus sation Awards SARs Payouts sation
Position/Year ($) ($) ($) (#) ($) ($) ($)
- --------------------------------------------------------------------------------
Daniel W.
Dowe
President
(1)(2)(5) $180,000 367,500
Douglas
Friedenberg,
Treasurer
(1)(2)(6) $38,500
William K.
Lavin,
Chairman,
Secretary
(1)(6)
Edward J.
Malloy,
Director
(1)(6)
Richard
Dryburgh,
(4)
Gary
Lacey,
(4)
John
Bellocchio,
(4)
(1) Except for Mr. Dowe, the three remaining directors receive $2,500 per
quarter for services rendered as directors of the company, which is paid in
restricted common stock based on the average bid and closing prices of the
company's common stock on the last trading day for the months ending March,
June, September and December. In addition each non-employee director shall
receive an additional $10,000 per annum, payable in equally quarterly
installments if such director is a member of a committee of the board of
directors that actually meets during the quarterly period.
For assisting the company with corporate finance advice and capital raising
services Mr. Friedenberg has received a total of $38,500 of which $13,500
was paid in common stock at then the existing market price of $.35 per
share. In addition, upon the request of the company's President and with
full disclosure to the entire board of directors, certain directors may
receive additional compensation for services rendered to the company for
specifically defined and approved projects that are beyond their duties as
directors of the company. As of May 31, 1998, Mr. Lavin has provided the
company with approximately 20 hours of service relating to the strategy and
due diligence associated with potential corporate acquisitions. In this
capacity he charges the company a rate of $200 per hour.
(2) On June 25, 1997, the Company issued an aggregate of 1,727,772 stock
options
<PAGE>
to its then directors, Messrs. MacMillan, Friedenberg and Dowe as an
incentive for future performance. Of these options, Messrs. MacMillan,
Friedenberg and Dowe each received 575,924 options. The stock options are
exercisable when issued at then current market price of $.35 per share and
will expire on June 25, 2002.
(3) In lieu of cash, Mr. MacMillan has agreed to accept 189,160 shares of
common stock for the period June 1, 1997 to November 17, 1997, as payment
for his salary compensation which was based on $150,000 per annum. In
addition, Mr. MacMillan is claiming to be owed another $60,000 in unpaid
salary which the company disputes.
(4) Total compensation paid to each of these individuals did not exceed
$100,000.
(5) On April 1, 1998, Mr. Dowe agreed to serve as President and Chief Executive
Officer for a three year terms and for an additional three years at his
option. His base compensation for the period April 1, 1998 through March
31, 1999 is $180,000 and shall be subject to annual review by the
Compensation Committee of the Board of Directors but not less than $180,000
per annum. In addition for agreeing to wind down his equity interest and
involvement in his law firm, Dowe & Dowe, Mr. Dowe was granted 270,000
shares of common stock which when granted had a public market value of $.30
per share, although the share issued were restricted from transfer pursuant
to Rule 144. In addition Mr. Dowe shall be entitled to a cash bonus equal
to seven and one-half percent consolidated revenue not to exceed his base
salary and shall be allowed to participate in the company's stock option
plan if such plan is approved by the company's shareholders. From November
17, 1997 to March 31, 1998 Mr. Dowe was paid the sum of $15,000 and 30,000
shares of restricted common stock per month to serve as Acting President.
All common stock issued to Mr. Dowe can be registered pursuant to Form S-8,
although at the time of this filing he has not asked the company to
register any of his shares for resale.
(6) Pursuant to a resolution of the board of directors all non-employee
directors and employees that are not part of a defined cash bonus plan
shall be paid a cash bonus equal to $.50 per gas of a Novacrete Repair
Product sold at a price equal or greater to $11.00 per 55 lb. bag. In
addition cash bonuses will be paid at ten percent of the gross selling
price for Novacrete Admixture sold in excess of $2.00 per pound.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table shows the amount of common stock owned as of May 31, 1998,
by each director and officer and affiliates and by all directors and officers as
a group. Each individual has beneficial ownership of the shares which are
subject to an unexercised stock options and stock warrants held by him, and each
individual has sole voting power and sole investment power with respect to the
number of shares beneficially owned:
<PAGE>
Amount and Nature
Name and Address of Beneficial Percent of
of Beneficial owner ownership Class (1)
- ------------------- --------- ---------
Douglas Friedenberg, 3,353,376 21.4%
Director, Treasurer
1775 Broadway, Suite 1410
New York, New York 10019
Daniel W. Dowe
Director, President
Chief Executive Officer
67 Wall Street, Suite 2411
New York, New York 10005 1,008,281 6.4%
QuilCap Corporation
375 Park Avenue
New York, New York 10022 1,200,000 7.6%
William K. Lavin
Chairman
67 Wall Street
Suite 2411
New York, New York 10005 *
Edward J. Malloy
Director
71 West 23rd Street
New York, New York March *
Richard Dryburgh
2525 Tedlo Street
Unit B
Mississauga, Ontario L5A 4A8 *
Gary Lacey
2525 Tedlo Street
Unit B
Mississauga, Ontario L5A 4A8 *
John Bellocchio
67 Wall Street
Suite 2411
New York, New York 10005 *
All Directors and
officers as a group 4,759,157 30.32%
* Percentage of shared beneficially owned by each of these directors and
management employees does not exceed one percent of the class so owned, on
a fully diluted basis. As of May 31, 1998,the company had 11,965,646 shares
outstanding on a primary basis and 15,695,422 on a fully-diluted basis.
(1) The class includes stock options and stock warrants granted to the holders
prior to May 31, 1998 and which are deemed by the company to be acquirable
by the beneficial owner within 60 days of this filing by exercise of the
option or warrant. The company has elected not to include in this Table
subsequent common stock or common stock equivalent acquisitions by the
directors after May 31, 1998, to enable the financial statements and the
disclosures contained in this report to be comparable.
a. Section 16(a) Beneficial Ownership Reporting Compliance
Form Not Form
Beneficial Owner Status Filed Filed late
- --------------------------------------------------------------------------------
A. Roy MacMillan Former Director/Officer Form 5 (1)
Edward Malloy Director/Officer Form 3 (2)
(1) A.Roy MacMillan retired on November 17, 1997 and the company has no record
of a Form 5 being filed for the year end.
<PAGE>
(2) Mr. Malloy became a director on January 15, 1998 and did not file his Form
3 until March 12, 1998 which was attributable to a delay in his being
granted a stock option certificate and agreement representing his ownership
of 100,000 stock options.
A. Roy MacMillan became a director and officer in October, 1996. On September 5,
1997, Mr. MacMillan filed Form 3, Form 4 and Form 5 (for the period ending May
31, 1997). Form 3 covered one transaction involving an exercise of a stock
option for 50,000 shares of common stock. Form 5 recorded one additional
transaction not previously disclosed, whereby Mr. MacMillan received 171,400
shares of common stock in exchange for services rendered. Form 4, which was due
on July 15, 1997, disclosed two acquisitions of 71,248 and 98,450 shares of
common stock that were issued to Mr. MacMillan in exchange for services
rendered, an acquisition of a stock option for 575,924 shares of common stock
for services rendered and a warrant to purchase 91,504 shares of common stock
that was received for deferring compensation.
Mr. Friedenberg became a director and officer in November, 1996. On September 5,
1997, Mr. Friedenberg filed Form 3, Form 4 and Form 5 (for the period ending May
31, 1997) as beneficial owner of common stock, common stock options and common
stock warrants. Form 3 covered 585,000 common shares acquired by the Friedenberg
Entities prior to Mr. Friedenberg becoming a director of the Company. Form 5
recorded one additional transaction not previously disclosed whereby Mr.
Friedenberg and the Friedenberg Entities acquired an additional 450,000 shares
of common stock. Form 4, which was due on July 15, 1997, disclosed the
acquisition by the Friedenberg Entities of 907,150 shares of common stock and
304,000 warrants to purchase common stock and Mr. Friedenberg's acquisition of a
stock option to purchase 575,924 shares of common stock.
Daniel W. Dowe became a director in March, 1997. On September 5, 1997, Mr. Dowe
filed Form 3, Form 4 and Form 5 (for the period ending May 31, 1997). Form 3 was
filed to disclose his official status and no ownership of equity. Form 5
recorded one additional transaction not previously disclosed whereby Mr. Dowe
received a stock option for 575,924 shares of common stock. Form 4, which was
due on July 15, 1997, disclosed the acquisitions of 64,857 shares of common
stock that were received in exchange for services rendered.
The above transactions that occurred prior to May 31, 1997, were disclosed in a
Form 10-K/A that was filed for the period ending May 31, 1996 in June, 1997.
Item 13. Certain Relationships and Related Transactions
Mr. Friedenberg is a principal shareholder of the Company in addition to being a
director and officer. From June 1, 1997 until November 17, 1998, his investment
company sub-leased office space to the company at the rate of $1,000 per month.
In addition, three private investment funds that are controlled by Mr.
Friedenberg have loaned funds to the company and have purchase equity securities
to provide working capital to the company. The company has established a policy
whereby when common stock is sold to any funds controlled by Mr. Friedenberg, or
any other affiliate, the price of the common stock is the average between the
closing bid and asking prices for the common stock on the day prior to the
purchase, even though the common stock issued is subject to restricted legends.
The company believes that this policy is fair being that the common stock
issuable to Mr. Friedenberg's funds is not registered and thereby restricted
from transfer, and actually has a value that is discounted to the market price
of common stock that can be freely-traded.
For providing corporate finance advisory services and assisting with raising
capital from entities other than the funds he controls, Mr. Friedenberg has
received fees for his services totaling $38,500.
In addition to serving as a director of the company, Mr. Dowe's law firm, Dowe
<PAGE>
& Dowe, provided legal services to the company from June 1, 1997 to November 17,
1998. From November 17, 1997 Mr. Dowe has been performing legal work for the
company as part of his responsibilities as President. Prior to becoming Acting
President in November 17, 1997, Mr. Dowe's law firm charged the company $200 per
hour for legal services for corporate and securities matters. From November 17,
1997 to May 31, 1998, no legal fees have been paid to Dowe & Dowe. From June 1,
1997 to November 16, 1997 the company paid Dowe & Dowe approximately $15,000 for
services rendered and an additional $22,700 was paid in 64,857 shares of common
stock.
Mr. Lavin has provided the company with professional services relating to
potential corporate acquisitions. In this capacity he is paid on an hourly basis
for services rendered at the hourly rate of $200. In the period ending May 31,
1998 the company did not pay any funds to Mr. Lavin but anticipates paying him
$4,000 in the first quarter of 1999.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
Page
(A) The following financial statements and
supplementary data are included in
Part II Item 8
Index to Financial statements and Supplementary F-1
Financial Data
Report of Independent Certified Public Accountants F-2
Financial Statements:
Balance Sheet, May 31, 1998 and 1997 F-3
Statement of Operations, Years Ended May 31, F-4
1998, 1997 and 1996
Statement of Changes in stockholders' Equity, F-5
Years Ended December 31, 1998, 1997, 1996
and 1995
Statement of Cash Flows, Years Ended May 31, F-6
1998, 1997 and 1996
Notes to Financial Statements F-7
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
<PAGE>
(B) Exhibits to be incorporated herein by reference:
Exhibit Incorporated Document
3(i) - Articles of Incorporation Form 10-K/A for the
period ending May 31,
1996
3(ii) - By-Laws Form 10-K/A for the
period ending May 31, 1996
99 - Battista Agreement Form 10-K/A for the
period ending May 31,
1997.
99 - Supercrete N/A Limited Form 10-K for the period
Agreement dated December ending May 31, 1997
20, 1996
(B) Exhibits filed herein:
Exhibit
4 - 10% $550,000 Convertible
Debenture and Stock Warrant
Agreement
21 - Subsidiaries of the Company
99 - Employment Agreement for
Daniel W. Dowe dated
April 1, 1998
(C) Reports on Form 8-K
Part IV, Item 14 Form 8-K filed on
August 27, 1997
Part IV, Item 14 Form 8-K filed on
November 3, 1997
Part IV, Item 14 Form 8-K filed on
November 17, 1997
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, Stratford Acquisition Corporation has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized:
STRATFORD ACQUISITION CORPORATION
By: /s/ Daniel W. Dowe
----------------------------
Daniel W. Dowe, President
By: /s/ Douglas Friedenberg
--------------------------------
Douglas Friedenberg, Treasurer
Dated: September 15, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in capacities and on the dates indicated:
Dated
-----
/s/ Daniel W. Dowe Director September 15, 1998
- ------------------
Daniel W. Dowe
/s/ William K. Lavin Director September 15, 1998
- --------------------
William K. Lavin
/s/ Douglas Friedenberg Director September 15, 1998
- -----------------------
Douglas Friedenberg
/s/ Edward J. Malloy Director September 15, 1998
- --------------------
Edward J. Malloy
Exhibit 21
Subsidiaries of the Company
Novacrete Technology (Canada) Inc.
2525 Tedlo Street, Unit B
Mississauga, Ontario L5A 4A8
Exhibit 4
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SECTION 4(2) UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "1933 ACT"). THESE SECURITIES ARE "RESTRICTED" AND MAY NOT BE
RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE 1933 ACT PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.
No. _____ $500,000 USD
Dated: January , 1998
STRATFORD ACQUISITION CORPORATION2
10% $500,000 Debenture(3)
and
Warrant to Purchase 1,000,000 Shares of Common Stock
(Best Efforts Basis)
Minimum Unit Purchases: $25,000 (USD)
50,000 WARRANTS
THE SECURITIES REPRESENTED HEREBY, INCLUDING THE WARRANTS TO PURCHASE COMMON
STOCK AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF, ARE BEING
OFFERED AND SOLD WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED ("THE ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION
IN RELIANCE ON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE SECURITIES OFFERED HEREBY MAY NOT BE OFFERED FOR RESALE OR RESOLD
ABSENT REGISTRATION UNDER THE SECURITIES ACT OR SUCH LAWS UNLESS AN EXEMPTION
FROM REGISTRATION IS AVAILABLE.
UNITS (as defined below) OF THIS DEBENTURE SHALL BE PURCHASED FOR INVESTMENT
PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT
UNDER THE ACT SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO, OR (II) RECEIPT
BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH
- ----------
(2) In January 1997, the Company was authorized by the Secretary of State of
Minnesota to conduct business under the assumed name of NOVACRETE
TECHNOLOGY INC. Hereinafter the Company intends to use, whenever
applicable, the assumed name to facilitate its business and marketing
efforts and to change its name to Novacrete, Inc. subject to the approval
of its shareholders at the next annual meeting of shareholders which the
Company plans to hold in March 1998.
(3) In the event the Company is unable to pay at maturity the full amount of
the outstanding principal of the Debenture plus all accrued interest, such
outstanding principal amount of the Debenture plus all accrued interest
shall be converted into the Company's $.001 par value common stock at 60%
of the exercise price of the warrants issued with the Debenture in this
offering. (See Potential Conversion Rights).
<PAGE>
SUCH PROPOSED TRANSFER NOR IS SUCH PROPOSED TRANSFER IN VIOLATION OF ANY
APPLICABLE STATE SECURITIES LAWS.
THIS OFFERING IS BEING MADE SOLELY TO "ACCREDITED INVESTORS" AS THAT TERM IS
DEFINED IN RULE 501 OF REGULATION D PROMULGATED UNDER THE ACT, AND WILL BE SOLD
SOLELY PURSUANT TO A FULLY EXECUTED 10% $500,000 DEBENTURE AND STOCK WARRANT
SUBSCRIPTION AGREEMENT ("SUBSCRIPTION AGREEMENT").
THIS DEBENTURE is one of a duly authorized issue of Debentures of STRATFORD
ACQUISITION CORPORATION, a corporation duly organized and existing under the
laws of the State of Minnesota and having its principal executive offices at 67
Wall Street, Suite 2411, New York, New York 10005 (the "Company") designated as
its 10% $500,000 Debenture due October 31, 1998 (the "Maturity Date"), in an
aggregate face amount not exceeding Five Hundred Thousand ($500,000.00 USD)
Dollars(4), issuable on a "best efforts"(5) basis in minimum Units, which is
defined as an allotment of Twenty-Five Thousand Dollars ($25,000.00 USD) of
principal amount of the Debenture and a Warrant to purchase 50,000 shares of the
Company $.001 Common Stock at a exercise price of thirty cents ($.30 USD) per
share for a period expiring on February 1, 2001 (the "Warrant"). The Company
shall be authorized to sell Units in larger or smaller denominations, at its
sole discretion from time to time.
THE WARRANT each Holder shall be entitled to receive shall be a warrant to
purchase two (2) shares of the Company's $.001 par value common stock for every
one dollar ($1.00 USD) of principal amount of the Debenture purchased. The
Warrants are exercisable at the date of issuance, but not later than midnight on
February 1, 2001 (EST) and shall have an exercise price of thirty cents ($.30
USD). The Company reserves the sole right to redeem the warrant at the $.001 per
share if the bid price for the Company's common stock is equal to or exceeds
sixty ($.60 USD) for twenty consecutive trading days prior to the expiration of
the Warrant. (See Warrant Agreement).
FOR VALUE RECEIVED, the Company promises to pay to each registered holder hereof
and its successors and assigns (the "HOLDER"), each Holder being registered and
represented by its execution of the annexed 10% $500,000 DEBENTURE AND STOCK
WARRANT SUBSCRIPTION AGREEMENT (the "Subscription Agreement"), the principal sum
of the full amount (in United States Dollars) of the Holder's purchase of this
Debenture on the Maturity Date plus all accrued interest at the rate of 10% per
annum, such interest being calculated on the basis of the principal amount of
the Debenture outstanding at the Maturity Date of the Debenture, or on the
redemption date of all or any portion of the Debenture. (See Redemption Rights
below). The accrual of interest on the Debenture shall commence on the next day
after the date stated on the Subscription Agreement and shall continue to accrue
against the outstanding principal amount of the Debenture until its is paid or
converted in common stock. In instances where the Company shall redeem only a
portion of the Debenture, the unredeemed principal amount of the Debenture that
is outstanding after such partial redemption shall continue to accrue interest
until the unredeemed principal amount of the Debenture shall be redeemed or paid
in full by the Company, which shall not be later than the Maturity Date.
- ----------
(4) The Company reserves the right to increase the principal amount of the
Debenture to six hundred thousand dollars ($600,000) if it shall receive
subscriptions to purchase an additional one hundred thousand dollars
($100,000) of the Debenture.
(5) The Company is offering these securities on a best efforts basis. However,
the Company will make a diligent and good faith effort to complete the
entire offering of the Debenture, but cannot make any assurances that the
entire offering will be sold. In any event, the Company may, at its sole
discretion, complete less than the entire offering.
2
<PAGE>
The principal and interest payable on the Debenture will be paid to the person
in whose name this Debenture (or one or more predecessor Debentures) is
registered on the records of the Company regarding registration and transfers of
the Debenture (the "Debenture Register"), provided, however, that the Company's
obligation to a transferee of this Debenture arises only if such transfer, sale
or other disposition is made in accordance with the terms and conditions of the
Subscription Agreement between the Company and Holder. The principal of, and
interest on, this Debenture are payable in such coin and currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts, at the address last appearing on the Debenture
register of the Company as designated in writing by the Holder hereof from time
to time. To the extent the principal and all accrued interest are outstanding on
the Maturity Date, the Company will pay the principal and all accrued interest
due upon this Debenture on the Maturity Date, less any amounts required by law
to be deducted or withheld by the Company to the Holder at the last address on
the Debenture Register. The forwarding of such check shall constitute a payment
of principal and interest thereunder and shall satisfy and discharge the
liability for principal and interest on the Debenture to the extent of the sum
represented by such check plus any amounts so deducted, pursuant to this
Agreement.
The Debenture is being sold pursuant to an exemption from registration under the
securities laws and will be restricted from public resale. Accordingly, this
Debenture and any certificate(s), if any, evidencing ownership of the Debenture
will bear the following legend, or some other similar version:
THESE SECURITIES HAVE NOT BEEN REGISTERED
WITH THE UNITED STATES SECURITIES AND
EXCHANGE COM-MISSION OR THE SECURITIES
COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRA-TION UNDER SECTION
4(2) UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "1933 ACT"). THESE SECURITIES
ARE "RESTRICTED" AND MAY NOT BE RESOLD OR
TRANSFERRED EXCEPT AS PERMITTED UNDER THE
1933 ACT PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM.
In the event the Holder is relying on an exemption from registration under
the 1933 Act, the certificates evidencing ownership of the Debenture may be
issued without restrictive legends if the Holder furnishes an opinion of
counsel, reasonably satisfactory to the Company, that sets forth in detail the
legal basis for the exemption from registration and its availability hereto.
The Debenture is subject to the following additional provisions:
1. Exchangeability. The Debenture may be exchangeable for like
Debentures in amounts not to exceed the aggregate principal amount
initially purchased, including any accrued interest, of authorized
denominations, as requested by the Holders surrendering the same. No
service charge will be made for such registration or transfer or exchange.
2. Tax Withholdings. The Company shall be entitled to withhold from
all payments of principal of, and interest on, this Debenture any amounts
required to be withheld under the applicable
3
<PAGE>
provisions of the United States Income Tax or other applicable laws at the
time of such payments.
3. Offering Representations. This Debenture has been issued subject to
investment representations of the original Holder hereof and pursuant to
the Subscription Agreement and may be transferred or exchanged in the
United States only in compliance with the Act and applicable state
securities laws. Prior to the due presentment for such transfer of this
Debenture, the Company and any agent of the Company may treat the person in
whose name this Debenture is duly registered on the Company Debenture
Register as the owner hereof for the purpose of receiving payment as herein
provided and all other purposes, whether or not this Debenture is overdue,
and neither the Company nor any such agent shall be affected by notice to
the contrary. The transfer shall be bound, as the original Holder by the
same representations and terms described herein and under the Subscription
Agreement.
4. Redemption Rights. The Company may, at its sole option, redeem the
Debenture at any time prior to the Maturity Date by paying the Holder all
or any portion of the outstanding principal and all accrued interest on the
principal amount of the Debenture redeemed on the date of redemption. Under
no circumstances will the Company incur penalties for redeeming the
Debenture, or any portion thereof, prior to the Maturity Date.
5. Company's Payment Obligation. No provision of this Debenture shall
alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, and interest on this Debenture at
the place, time and rate, and in coin or currency herein prescribed.
6. Waiver of Demand. The Company hereby expressly waives demand and
presentment for payment, notice on nonpayment, protest, notice of protest,
notice of dishonor, notice of acceleration or intent to accelerate, and
diligence in taking any action to collect amounts called for hereunder and
shall be directly and primarily liable for the payment of all sums owing
and to be owing hereon, regardless of and without any notice, diligence,
act or omission as or with respect to the collection of any amount called
for hereunder.
7. Events of Default. The Company agrees to pay all costs and
expenses, including reasonable attorneys' fees, which may be incurred by
the Holder in collecting any amount due or exercising the conversion rights
under this Debenture, if one or more of the following described "Events of
Default" shall occur:
a. The Company fails to provide the Holder with certificates
evidencing ownership of shares of the Company's common stock which
certificates shall be issued to the Holder within ten (10) days from
the Maturity Date, if the Company shall not pay all of the outstanding
principal amount of the Debenture plus all accrued interest on the
Maturity Date. Any such certificates shall be issued based on the
terms and conditions of this Debenture; or
b. Any of the representations or warranties made by the Company
herein, or in the Subscription Agreement, shall have been materially
incorrect; or
4
<PAGE>
c. Any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or
assets of the Company and shall not be dismissed within thirty (30)
calendar days thereafter; or
d. Bankruptcy reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy law
or law for the relief of debtors shall be instituted by or against the
Company and, if instituted against the Company, the Company shall by
any action or answer approve of, consent to or acquiesce in any such
proceedings or admit the material allegations of, or default in
answering, a petition filed in any such proceeding.
Then, or at any time thereafter, and in each and every such case of an Event of
Default, unless such Event of Default shall have been deemed waived in writing
by the Holders owning the majority of the principal amount of the Debenture that
is outstanding at the Event of Default ("Majority Holders") (which waiver shall
not be deemed to be a waiver of any subsequent default but which shall be
applicable to all Holders), at the option of the Holder and in the Holder's sole
discretion, the Holder may consider this Debenture immediately due and payable,
without presentment, demand, protest, notice of any kind, all of which are
hereby expressly waived, anything herein or in any note or other instruments
contained to the contrary notwithstanding, and Holder may immediately, and
without expiration of any period of grace, enforce any and all of the Holder's
rights and remedies provided herein or any other rights or remedies afforded by
law. However, whenever the Majority Holders elect to waive the Event of Default,
all Holders, shall be bound by the actions of the Majority Holders and any
subsequent agreement that may be entered into between the Majority Holders and
the Company to cure the Event of Default, which shall include, but not be
limited to, the waiver of the Event of Default.
5
<PAGE>
8. Severability Clause. In case any provision of this Debenture is
held by a court of competent jurisdiction to be excessive in scope or
otherwise invalid or unenforceable, such provision shall be adjusted rather
than voided, if possible, so that it is enforceable to the maximum extent
possible, and the validity and enforceability of the remaining provisions
of this Debenture will not in any way be affected or impaired thereby.
9. Amendment. This Debenture and the Subscription Agreement referred
to in this Debenture constitute the full and entire understanding and
agreement between the Company and Holder with respect hereof. Neither this
Debenture nor any terms hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the Company and the
Holder.
10. Governing Law. This Debenture shall be construed and enforced in
accordance with and governed by the laws of the State of New York, except
for matters arising under the Act, without reference to principles of
conflicts of law. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the State and County
of New York or the state courts of the State of New York in connection with
any dispute arising under this Debenture and hereby waives, to the maximum
extent permitted by law, any objection, including any objection based on
forum non
6
<PAGE>
conveniens, to the bringing of any such proceeding in such jurisdictions.
Each party hereby agrees that if another party to this Debenture obtains a
judgment against it in such a proceeding, the party which obtained such
judgment may enforce same by summary judgment in the courts of any country
having jurisdiction over the party against whom such judgment was obtained,
and each party hereby waives any defenses available to it under local law
and agrees to the enforcement of such a judgment. Each party to this
Debenture irrevocably consents to the service of process in any such
proceeding by the mailing of copies thereof by registered or certified
mail, postage prepaid, to such party at its address set forth herein.
Nothing herein shall affect the right of any party to serve process in any
other manner permitted by law.
11. Non-Recourse. No recourse shall be had for the payment of the
principal or interest of this Debenture against any incorporator or any
past, present or future stockholder, officer, director or agent of the
Company or of any successor corporation under any statute or by the
enforcement of any assessment or otherwise, all such liability of the
incorporators, stockholders, officers, directors and agents being waived,
released and surrendered by the Holder hereof by the acceptance of this
Debenture.
12. Notice. All notices and other communications hereunder shall be in
writing and shall be deemed to have been made when delivered or mailed by
first class registered or certified mail, postage prepaid to the address of
the Company at the above address and to the Holder at the address appearing
on the Debenture Register.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized on January , 1998, and which
shall be retroactively applied to the date appearing above.
STRATFORD ACQUISITION CORPORATION
By: /s/ Daniel W. Dowe
-----------------------------
Mr. Daniel W. Dowe
President
7
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SECTION 4(2) UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "1933 ACT"). THESE SECURITIES ARE "RESTRICTED" AND MAY NOT BE
RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE 1933 ACT PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.
STOCK PURCHASE WARRANT
To Purchase ____ Shares of $.001 par value Common Stock of
---------
STRATFORD ACQUISITION CORPORATION
THIS CERTIFIES that, for value received by the Company, the Holder is entitled,
upon the terms and subject to the conditions hereinafter set forth, at any time
on or after the date hereof and on or prior to midnight February 1, 2001 (the
"Termination Date"), but not thereafter, to subscribe for and purchase from
STRATFORD ACQUISITION CORPORATION, a Minnesota corporation having its principal
executive offices at 67 Wall Street, Suite 2411, New York, New York 10005 (the
"Company"), ______ shares of the Company's $.001 par value Common Stock (the
"Warrant Shares"). The purchase price of one (1) share of Common Stock under
this Warrant shall be thirty cents ($.30 USD) (the "Exercise Price"). The
Exercise Price and the number of shares for which the Warrant is exercisable may
be subject to adjustment as provided herein.
1. Title of Warrant. Prior to the expiration hereof and subject to
compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company, by
the Holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant together with an Assignment Form acceptable to the Company,
properly endorsed, if the later is applicable. (See paragraph 9).
2. Authorization of Shares. The Company covenants that all shares of its
$.001 par value common stock ("Common Stock") which may be issued upon the
exercise of rights represented by this Warrant will, upon exercise of the rights
represented by this Warrant, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously
with such issue). This Warrant is being issued pursuant to a resolution of the
Company's Board of Directors.
3. Stock Certificate Legend. The Warrant is being sold pursuant to an
exemption from registration under the securities laws and will be restricted
from public resale. Accordingly, the Warrant Certificate(s) and the certificates
evidencing ownership of the Warrant Shares will bear the following legend, or
some other similar version:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE
UNITED STATES SECURITIES AND EXCHANGE COM-MISSION OR
THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRA-TION UNDER SECTION 4(2) UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT"). THESE SECURITIES ARE "RESTRICTED" AND MAY NOT BE
RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE
1933 ACT PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM.
In the event the Holder is relying on an exemption from registration under
the 1933 Act, the certificates evidencing ownership of the Warrant Shares may be
issued without restrictive legends if the Holder furnishes an opinion of
counsel, reasonably satisfactory to the Company, that sets forth in detail the
legal basis for the exemption from registration and its availability hereto.
<PAGE>
4. Exercise of Warrant. Exercise of the purchase rights represented by this
Warrant may be made at any time or times, in whole or in part, upon issuance of
this Warrant but prior to the close of business on the Termination Date, or such
earlier date on which this Warrant may terminate as provided in this Agreement
(See Redemption Rights) by the surrender of this Warrant at the office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the registered Holder hereof at the address of such Holder
appearing on the books of the Company) and upon payment of the Exercise Price
for the Warrant Shares thereby purchased; whereupon the Holder of this Warrant
shall be entitled to receive a certificate(s) for the number of Warrant Shares
so purchased within ten (10) days from exercising the Warrant. Payment of the
purchase price for the shares may be by certified check or cashier's check or by
wire transfer to an account designated by the Company in an amount equal to the
Exercise Price multiplied by the number of shares being purchased.
5. No Fractional Shares or Script. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant.
6. Charges, Taxes and Expenses. Issuance of certificates for the Warrant
Shares upon the exercise of this Warrant shall be made without charge to the
Holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the Holder of this Warrant, or in such name or names as may be directed by
the Holder of this Warrant; provided, however, that in the event a
certificate(s) for any Warrant Shares are to be issued in a name other than the
name of the Holder of this Warrant, this Warrant when surrendered for exercise
shall be accompanied by an Assignment Form acceptable to the Company executed by
the Holder hereof, together with evidence satisfactory to the Company that such
transfer or assignment is being made in compliance with all applicable federal
and state securities laws; and provided further, that upon any transfer involved
in the issuance or delivery of any certificates for shares of Common Stock, the
Company may require, as a condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.
7. Closing of Books. The Company will at no time close its shareholder
books or records in any manner which interferes with the timely exercise of this
Warrant.
8. No Rights as Shareholders until Exercise. This Warrant does not entitle
the Holder hereof to any voting rights or other rights as a shareholder of the
Company prior to the exercise thereof. However, at the time of the surrender of
this Warrant and purchase of the Warrant Shares, the Warrant Shares so purchased
shall be deemed to be issued to such Holder as the record owner of such Warrant
Shares as of the close of business on the date on which this Warrant shall have
been duly exercised.
9. Assignment and Transfer of Warrant. This Warrant may be assigned by the
surrender of this Warrant and a duly executed Assignment Form acceptable to the
Company, at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the registered Holder hereof
at the address of such Holder appearing on the books of the Company); provided,
however, that this Warrant may not be resold or otherwise transferred except (i)
in a transaction registered under the 1933 Act, or (ii) in a transaction
pursuant to an exemption, if available, from such registration and whereby, if
requested by the Company, an opinion of counsel reasonably satisfactory to the
Company is obtained by the Holder of this Warrant to the effect that the
transaction is so exempt.
10. Loss, Theft, Destruction or Mutilation of Warrant. The Company
2
<PAGE>
represents and warrants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
or Warrant certificate, and in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to it, and upon reimbursement to the Company
of all reasonable expenses incidental thereto, and upon surrender and
cancellation of such Warrant or Warrant certificate, if mutilated, the Company
will make and deliver a new Warrant or Warrant Certificate, whichever the case
may be, or both, of like tenor, in lieu of this Warrant or Warrant certificate.
11. Saturdays, Sundays, Holidays. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday, Sunday or a legal holiday, then such action may be taken or
such right may be exercised on the next succeeding day that is not a legal
holiday.
12. Effect of Certain Events.
(a) If at any time the Company proposes (i) to sell or otherwise convey all
or substantially all of its assets or (ii) to effect a transaction (by merger or
otherwise) in which more than 50% of the voting power of the Company is disposed
of (collectively, a "Sale or Merger Transaction"), in which the consideration to
be received by the Company or its shareholders consists solely of cash, the
Company shall give the Holder of this Warrant thirty (30) days prior written
notice of the proposed effective date of the transaction specifying that the
Warrant shall terminate if the Warrant has not been exercised by the effective
date of the transaction.
(b) In case the Company shall at any time effect a Sale or Merger
Transaction in which the consideration to be received by the Company or its
shareholders consists in part of consideration other than cash, the Company
shall give the Holder of this Warrant thirty (30) days prior written notice of
the proposed effective date of the transaction specifying the kind and amount of
shares or other securities and property which the Holder would have owned or
have been entitled to receive after the happening of such transaction had this
Warrant been exercised immediately prior thereto and that the Holder of this
Warrant shall have the right thereafter to purchase, by exercise of this Warrant
and payment of the purchase price the securities specified in such written
notice.
(C) Subject to the terms and conditions set forth herein, if the Company
proposes at any time after the completion of the offering to register any shares
of Common Stock (the "Initially Proposed Shares") under the Securities Act for
any reason, except pursuant to Forms S-4 and S-8 filings, the Company will
promptly (but in no event less than thirty (30) days prior to the anticipated
filing date of the Company's registration statement (the "Initial Registration
Statement") pursuant to the 1933 Act, give written notice to the Holder of its
intention to effect such registration (such notice to specify, to the extent
known, the proposed offering price, the number of shares of Common Stock
proposed to be registered and the distribution arrangements, including
indemnification of underwriters), and the Holder's shall be entitled to include
in such registration statement (on the same terms and conditions as the
Initially Proposed Shares), such number of Warrant Shares which the Holder has
purchased by way of exercising its purchase rights hereunder as shall be
specified in written request(s) ("Registration Request") delivered to the
Company not less than ten (10) business days before the later of (i) the
anticipated filing date specified in the Company's notice, or (ii) the actual
filing date. The Holder shall not be entitled to include in any such
registration any shares to which the Holder is entitled under this Warrant but
for which Holder has not exercised its purchase rights under this warrant and
paid the purchase price as of the date upon which the Company has received the
Holder's Registration Request.
3
<PAGE>
The Company and the Holder shall cooperate in good faith in connection with
the furnishing of information required for such registration and the taking of
such other actions as may be legally or commercially necessary in order to
effect such registration.
13. Adjustments of Exercise Price and Number of Warrant Shares. The number
and kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
happening of certain events, as hereinafter set forth:
(a) In case the Company shall (i) subdivide its outstanding shares of
Common Stock, (ii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock or (iii) issue any shares of its
capital stock in a reclassification of the Common Stock, the number of
Warrant Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the Holder of this Warrant shall be
entitled to receive the kind and number of Warrant Shares or other
securities of the Company which he would have owned or have been entitled
to receive had such Warrant been exercised in advance thereof. An
adjustment made pursuant to this paragraph (a) shall become effective
immediately after the effective date of such event retroactive to the
record date, if any, for such event.
(b) Whenever the number of Warrant Shares purchasable upon the
exercise of this Warrant is adjusted, as herein provided, the Exercise
Price payable upon exercise of this Warrant shall be adjusted by
multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of this Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant
Shares purchasable immediately thereafter.
(c) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would result in an
increase or decrease of at least one percent (1%) percent of the Exercise
Price; provided, that any adjustments which by reason of this paragraph (c)
are not required to be made shall be carried forward and taken into account
in any subsequent adjustment. All calculations shall be made to the nearest
cent or to the nearest onethousandth of a share, as the case may be.
(d) In the event that at any time, as a result of an adjustment made
pursuant to paragraph (a) above, the Holder of this Warrant shall become
entitled to purchase any securities of the Company other than shares of
Common Stock, thereafter the number of such other shares so purchasable
upon exercise of this Warrant and the Exercise Price of such shares shall
be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Warrant Shares contained in paragraphs (a) through (c), inclusive, above.
14. Voluntary Adjustment by the Company. The Company may at its option, at
any time during the term of this Warrant, reduce the then current Exercise Price
to any amount and for any period of time deemed appropriate by the Board of
Directors of the Company.
15. Notice of Adjustment. Whenever the number of Warrant Shares or number
or kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
promptly mail by registered or certified mail, return receipt requested, to the
transfer agent for the Common Stock and to the Holder of this Warrant notice of
such adjustment or adjustments setting forth the number of Warrant Shares (and
other securities or property) purchasable upon the exercise of this Warrant and
the Exercise Price of such Warrant Shares after such adjustment, setting forth a
brief statement of the facts requiring such adjustment and setting forth
4
<PAGE>
computation by which such adjustment was made. Such notice, in absence of
manifest error, shall be conclusive evidence of the correctness of such
adjustment.
16. Authorized Shares. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of Common Stock
upon the exercise of any purchase rights under this Warrant. The Company further
covenants that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for Warrant Shares upon the
exercise of the purchase rights under this Warrant. The Company will take all
such reasonable action as may be necessary to assure that such shares of Common
Stock may be issued as provided herein without violation of any applicable law
or regulation, or of any requirements of NASDAQ or any domestic securities
exchange upon which the Common Stock may be listed.
17. Redemption Rights. The Company may, in its sole discretion, redeem all
or any portion of the warrant(s) issued herein by paying the Holder $.001 for
each of the Warrant Shares redeemed, if the closing bid price for the Company's
Common Stock is equal to or exceeds two times the Warrant Exercise Price for
twenty (20) consecutive trading days, subsequent to the issuance of this
Warrant, but prior to the Warrant Expiration Date. In the event the Company
elects to redeem any or all of the Warrant Shares, the Holder shall deliver this
Agreement and any certificates evidencing ownership of the Warrant to the
Company and upon delivery of same shall have no further rights or obligations to
the Company with respect to the Warrant and any unexercised Warrant Shares. If
the Company elects to redeem all or any portion of the Warrant, it shall first
provide the Holder with at least twenty (20) days prior written notice (the
"Redemption Notice") of its intention to redeem the Warrant. Upon its receipt of
the Redemption Notice the Holder shall have the right to exercise the Warrant
and purchase the Warrant Shares prior to the expiration of the Redemption
Notice. However, nothing stated herein shall be construed to extend the
Termination Date of the Warrant.
18. Miscellaneous.
(a) Issue Date. The provisions of this Warrant shall be construed and shall
be given effect in all respects as if it had been issued and delivered by the
Company on the date hereof. This Warrant shall be binding upon any successors or
assigns of the Company.
(b) Restriction. The Holder hereof acknowledges that the common stock
acquired upon the exercise of this Warrant, if not registered, may have
restriction upon its resale imposed by state and federal securities laws.
(c) Modification and Waiver. This Warrant and any provisions hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or permitted to
be given or delivered to the Holders hereof of the Company shall be delivered or
shall be sent by certified or registered mail, postage prepaid, to each such
Holder at its address as shown on the books of the Company or to the Company at
the address set forth in this Agreement.
(e) Governing Law. This Agreement will be construed and enforced in
accordance with and governed by the laws of the State of New York, except for
matters arising under the Act, without reference to principles of conflicts of
law, principles or rules. Each of the parties consents to the jurisdiction of
the federal courts whose districts encompass any part of the State of New York
or the state courts of the
5
<PAGE>
State of New York in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions. Each party hereby agrees that if another
party to this Agreement obtains a judgment against it in such a proceeding, the
party which obtained such judgment may enforce same by summary judgment in the
courts of any country having jurisdiction over the party against whom such
judgment was obtained, and each party hereby waives any defenses available to it
under local law and agrees to the enforcement of such a judgment. Each party to
this Agreement irrevocably consents to the service of process in any such
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to such party at its address set forth herein. Nothing herein
shall affect the right of any party to serve process in any other manner
permitted by law.
(f) Counterparts. In lieu of the original, a facsimile transmission or copy
of the original shall be as effective and enforceable as the original. This
Agreement may be executed in counterparts which shall be considered an original
document and which together shall be considered a complete document.
(g) Voidability. In the event that any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force and effect without said
provision; provided that no such severability shall be effective if it
materially changes the economic benefit of this Agreement to any party.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officers thereunto duly authorized.
Dated: January , 1998
STRATFORD ACQUISITION CORPORATION
By: /s/ Daniel W. Dowe
-----------------------------
Daniel W. Dowe, President
Exhibit 99
EMPLOYMENT AGREEMENT
AGREEMENT by and between Stratford Acquisition Corporation, a Minnesota
corporation with principal executive offices at 67 Wall Street, New York, New
York 10005, (the "Company"), and Daniel W. Dowe, (the "Executive"), dated as of
the 1st day of April, 1998 (the "Effective Date").
1. Employment Period. The Company hereby employs the Executive and the Executive
hereby accepts such employment in accordance with the terms and provisions of
this Agreement, for the period commencing as of the Effective Date and ending on
the third anniversary of such date and which at the sole option of the Executive
may be extended for a another three year period commencing on April 2, 2001 and
terminating on April 1, 2004 (the "Employment Period").
2. Duties of the Executive. The Executive shall be the Chief Executive Officer
and President of the Company and shall report directly to the Chairman of the
Board of Directors. The duties of employment shall generally include those
required for the day-to-day and longer-term planning, development, operation and
advancement of the business of the Company, and such additional executive and
financial administrative and operational duties of a character keeping with the
Executive's position as Chief Executive Officer and President of the Company as
may from time-to-time be assigned to the Executive by the Board of Directors of
the Company. As Chief Executive Officer of the Board and President of the
Company, the Executive shall be in complete charge of the operations of the
Company and shall have full authority and responsibility, subject to the general
direction and control of the Board of Directors of the Company, for formulating
policies and administering the affairs of the Company in all respects, subject
to the provisions hereinafter contained.
During the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive agrees to devote
reasonable and appropriate attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, and to
diligently use his best efforts to perform faithfully and efficiently such
responsibilities and to promote and further the reputation and good name of the
Company. During the Employment Period it shall not be a violation of this
Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, or (B) manage personal investments, provided that such
activities do not interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement.
1
<PAGE>
3. Compensation.
(a) Base Salary. Commencing on the Effective Date and ending on March 30,
1998, the Executive shall receive an annual base salary of $180,000 ("Annual
Base Salary"), payable by the Company to the Executive on a bi-monthly basis. In
each subsequent year during the Employment Period which shall begin on the first
day of April, the Executive shall receive a base salary that shall be mutually
determined between the Executive and the Compensation Committee of the Board of
Directors which shall not be less than $180,000 per annum and shall be payable
on a bi-monthly basis.
Payments under this subsection (a) will be made in accordance with the
Company's payroll periods for all employees.
(b) Cash Bonus. The Executive shall receive an annual cash bonus equal to
7.5% of the Company's consolidated gross revenue which bonus shall not exceed
the Executive's base salary in each annual period. The period for measuring the
cash bonus shall commence on March 1, 1998 and end on February 28, 1999 and
shall be the same twelve month period for the duration of the Employment Period.
(c) Stock Options. For agreeing to serve as Chief Executive Officer, the
Executive shall be granted 270,000 shares of restricted common stock which shall
be registered at the Executive's request on the From S-8.
(d) Automobile Allowance. The Company shall provide the Executive with
monthly parking privileges in the Borough of Manhattan.
(e) Stock Option Plan. The Executive shall be entitled to receive stock
options from the Non-Qualified Stock Option Plan that was approved by the
Company's Board of Directors on April 1, 1998, and which shall be ratified by
the Company's shareholders if required under law.
4. Benefits.
(a) Holidays. The Executive will be entitled to all nationally-recognized
holidays each year plus five (5) personal days. The holidays which are generally
observed by the Company are as follows: New Year's Day, Washington's Birthday,
Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day,
Thanksgiving Day, the Friday following Thanksgiving Day and Christmas Day.
Additional holidays may be allowed in connection with holidays which fall on
weekends.
(b) Vacation. The Executive will be entitled to fifteen (15) business days
vacation each calendar year; provided, however, that no more than ten (10)
business days may be taken consecutively.
(c) Sick Leave. The Executive shall be allowed five (5) sick days per year.
Sick days are not cumulative and may not be carried from year to year.
(d) Emergency Leave. If a member of the Executive's immediate family dies
or becomes critically ill, the Executive will be allowed up to ten (10) days of
leave with pay. Additional time may be granted, upon approval of the Company's
Board of Directors.
2
<PAGE>
(e) Medical Benefits. The Company shall provide the Executive and his
dependents with medical insurance coverage without cost to the Executive.
(f) Directors and Officers' Liability Insurance. The Company shall endeavor
to obtain within a reasonable period but no later than 60 days after the
execution of this Agreement a Directors and Officers Liability Insurance policy
having limits of liability no less than one million dollars ($1,000,000). Until
such insurance has been procured, the Company shall indemnify the Executive and
hold him harmless against any and all losses, liabilities, costs (including
legal fees) and other expenses in any way incurred by the Executive in
connection with or on account of his duties or position as Chief Executive
Officer and President of the Company; provided, however, that no indemnification
may be made to or on behalf of the Executive if a judgment or other final
adjudication adverse to the Executive establishes, (a) that his acts were
committed in bad faith or were the result of active and deliberate dishonesty
and were material to the cause of action so adjudicated or (b) that he
personally gained in fact a financial profit or other advantage to which he was
not legally entitled, or was in breach of his duty of loyalty.
(h) Long-Term Disability Policy. The Company shall purchase a long-term
disability insurance policy for the benefit of the Executive for the amount of
the Executive's Base Salary then in effect.
(i) Expense Reimbursement. The Company shall reimburse Executive for all
reasonable and necessary expenditures made by Executive in connection with
travel, entertainment and miscellaneous expenses against receipts therefor
provided that such expenses have been incurred by Executive in connection with
the furtherance of the Company's business.
(j) Election as a Director. The Board of Directors shall nominate the
Executive as a director to serve initially for a three (3) year term and for a
second three (3) year term if the Executive elects to exercise his option to
extend his employment for another three (3) year term. If the Executive's
employment is terminated for any reason, then Executive will be deemed to have
immediately resigned from the Board of Directors of the Company, unless agreed
to otherwise by the Board of the Directors and the Executive.
5. Power to Bind the Company. The Executive's authority to obligate the Company
on any contract or agreement of any kind, character or nature is limited to
those contracts or obligations in which the Company's financial obligation does
not exceed the sum of $100,000. In any instance where the Company's financial
obligation to any party shall exceed $100,000, it shall require the approval of
the Board and Directors. In addition, any and all withdrawals or payments from
cash accounts owned by the Company in excess of $100,000 shall require the dual
signatures of the Executive and the Company's Treasurer. The Executive shall
have no authority to borrow funds for the Company or to pledge any of its assets
for any purposes whatsoever without the express written consent of the Board of
Directors. Likewise, the Executive shall not bring any legal proceedings on
behalf of the Company without the written consent of the Board of Directors.
3
<PAGE>
6. Place of Employment. During the Employment Period, the Executive shall be
entitled to perform services for the Company at an office to be established by
the Executive for that purpose in New York County, New York, or at any other
reasonable location, as assigned by the Company from time to time, subject to
Executive approval.
7. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of the Executive and his heirs and shall be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
4
<PAGE>
8. Termination of Employment.
(a) Termination Upon Death. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period; provided,
however, that the Company shall pay to the Executive's estate or designated
beneficiary, all monetary obligations including but not limited to the base
salary, bonuses, stock options, vehicle reimbursement, other reimbursements,
insurance, compensation and benefits prorated through the date of death.
(b) Termination Upon Disability. If the Company determines in good faith
that the Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 13 hereof of its intention
to terminate the Executive's employment. In such event, the Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such notice by the Executive (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, the Executive shall not
have returned to full-time performance of the Executive's duties.
Notwithstanding any such termination, the Company shall continue to pay the
Executive's salary and benefits until he starts receiving benefits under the
Company's long-term disability policy. For purposes of this Agreement,
"Disability" shall mean (a) the absence of the Executive from the Executive's
duties with the Company on a full-time basis for sixty (60) consecutive days as
a result of incapacity due to mental or physical illness, or (b) the good faith
determination made by the Board of Directors of the Company with the advice of a
qualified and independent physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably) that the
Executive has become, by reason of accident, illness, mental or physical
disability, so disabled as to be incapable of satisfactorily performing his
duties hereunder for a period of sixty (60) consecutive days.
1. Illness of Executive. If the Executive shall become unable to attend to the
duties of employment as required by this Agreement for thirty (30) consecutive
days and it becomes necessary for the Company to replace the Executive
temporarily, the Company may do so and at the same time may suspend all further
payments to the Executive for salary or bonuses and all other related
compensation; provided, however, that in the event that the Executive is
entitled to long term disability, the Company shall continue to pay the
Executive's salary and benefits until he starts receiving benefits thereunder.
The Company will recommence the payment of salary, bonuses and other
compensation at such date as the Executive shall resume and perform the
Executive's duties under this Agreement.
(c) Termination Upon Mutual Consent. Executive's employment may be
terminated by the mutual consent of the Company and the Executive on such terms
as they may agree upon provided that such terms shall include severance payments
for a period of six months from the date of termination.
(d) Termination for Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For the purpose of this
Agreement, "Cause" shall mean (i) a material breach by the Executive of the
Executive's obligations under this Agreement (other than as a result of
incapacity due to physical or mental illness) which is demonstrably willful and
deliberate on the Executive's part, which is committed in bad faith or without
5
<PAGE>
reasonable belief that such breach is in the best interests of the Company and
which is not remedied in a reasonable period of time after receipt of written
notice from the Company specifying such breach, (ii) the conviction of the
Executive of a felony involving moral turpitude, (iii) misappropriation of
significant Company assets or perpetration of fraud against the Company, (iv)
habitual intoxication or drug addiction, or (v) repeated breach of any
significant provision of this Agreement. If terminated for Cause, Executive will
be entitled to Base Salary earned, up to and including the date of termination.
In case of termination of employment for Cause pursuant to subsection (i), (ii)
or (iii) of Section 8(d) hereof, all other benefits, including without
limitation, cash bonuses and stock options that have not been issued shall be
forfeited as of the first date of any event giving rise to the Executive's
termination for Cause, and any and all certificates evidencing the Executive's
ownership of the Company's securities that were issued after the first date of
any event giving rise to the Executive's termination for Cause shall be returned
to the Company along with all stock powers forthwith. In case of termination of
employment for Cause pursuant to subsection (iv) or (v) of Section 8(d) hereof,
all non-vested and unearned benefits as of the date of termination shall be
forfeited by the Executive.
(e) Termination for Good Cause by Executive. Executive may terminate his
employment for Good Cause. For the purposes of this Agreement, "Good Cause"
shall mean: (i) discovery by the Executive that there were material
misrepresentations in the financial data of the Company or otherwise presented
to Executive prior to the date of this Agreement, or (ii) the Company's failure
within one week of the execution of this Agreement to grant to Executive all the
duties and responsibilities described in Section 2 of this Agreement, or (iii)
the Company does not pay the Executive any of his salary, bonus or benefit
entitlements under this Agreement when due under this Agreement, unless the
delay is waived by the Executive.
6
<PAGE>
If terminated for Good Cause, the Company shall pay the Executive his
entire outstanding Base Annual Salary for the duration of the Employment Period
within ten (10) business days from the date of termination..
(f) Termination Without Cause by the Company. The Company may terminate
Executive's employment at any time, without cause, upon written notice to
Executive. In the event of termination pursuant to this paragraph, the Company
shall pay the Executive his entire outstanding Base Annual Salary for the
duration of the Employment Period within ten (10) business days from the date of
termination.
9. Non-Competition. Unless the Executive's termination of his employment with
the Company is pursuant to either Paragraph 8 (c), (e) or (f), in which case
this paragraph 9 shall not apply, the Executive covenants and agrees, which
covenant and contract is made the essence of this contract, that the Executive
will not, without the prior written consent of the Company, in the United
States, its territories and possessions, at any time during the period of
employment and for a period of six (6) months immediately following termination
for any reason (whether the employment is terminated by the Company, by the
Executive or by the mutual consent of both parties), do any of the following
directly or indirectly: (i) enter into the employ of or render any services to
any person, firm, or corporation engaged in any Competitive Business (as defined
below); (ii) engage in any Competitive Business for his own account; (iii)
become associated with or interested in any Competitive Business as an
individual, partner, creditor, director, officer, principal, agent, consultant,
officer, salesperson, employee, trustee, advisor or in any other relationship or
capacity; (iv) employ or retain or have or cause any other person or entity to
employ or retain any person who was employed or retained by the Company or its
affiliates while Executive was employed by the Company; (v) sell, solicit or
accept business or orders from existing or newly-acquired customers of the
Company with respect to products or services similar to or competitive with the
Company or its subsidiaries, or (vi) interfere with, disrupt or attempt to
disrupt relationships, contractual or otherwise, between the Company and or a
subsidiary, and its customers, employees or vendors. However, nothing in this
Agreement shall preclude the Executive from investing his personal assets in the
securities of any Competitive Business if such securities are traded on a
national stock exchange or in the over-the-counter market and if such investment
does not result in his beneficially owning, at any time, more than 5% of the
publicly-traded equity securities of such competitor. "Competitive Business"
shall mean any business or enterprise which manufactures, markets and/or
distributes admixtures or cement-based products, similar to the Novacrete line
of products or such other products or services which the Company may develop and
market or otherwise be involved at any time during the Employment Period.
10. Executive Not to Disclose Confidential Information.
(a) Executive acknowledges that he has obtained and, during the Employment
Period shall obtain secret and confidential information concerning the business
of the Company and its affiliates including, without limitation, its products,
techniques, formulas, processes, methods of manufacture, systems, plans,
policies, its customer lists and sources of supply, their needs and
requirements, the nature and extent of contracts with customers and/or vendors
and related cost, price and sales information;
(b) The Executive further acknowledges that the Company and its
7
<PAGE>
affiliates will suffer substantial damage which will be difficult to compute if,
during the period of this employment with the Company or thereafter, the
Executive should enter a competitive business or divulge secret and confidential
information relating to the business of the Company and its affiliates
heretofore or hereafter acquired by him in the course of his employment with the
Company.
(c) The Executive shall hold in a fiduciary capacity for the benefit of the
Company all secret or confidential information, knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses,
which shall have been obtained by the Executive during the Executive's
employment by the Company or any of its affiliated companies and which shall not
be or become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement.) After
termination of the Executive's employment with the Company, the Executive shall
not, without the prior written consent of the Company or as may otherwise be
required by law or legal process, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
Upon termination of the Executive's employment, the Executive will forthwith
deliver to the Company, any and all literature, documents, data, information,
order forms, price lists, memorandum, correspondence, customer and prospective
customer lists, customer's orders, records and cards acquired or coming to the
knowledge and custody of the Executive in connection with the Executive's
activities as Chief Executive Officer and President of the Company.
(d) The Executive acknowledges that the provisions set forth in Section 11
of this Agreement are reasonable and necessary to protect the business of the
Company and its affiliates, and that the Company shall have no adequate remedy
at law should there be any breach of Section 11 by the Executive.
11. Resolution of Disputes. Any controversy or claim arising out of or relating
to this Agreement may be brought in a judicial forum, which legal right shall
not be waived by any party if the controversy or claim is first brought before a
non-binding mediation forum for resolution.
However, in the event of noncompliance or violation of this Agreement, the
Company or the Executive may alternatively apply to the court of competent
jurisdiction for a temporary restraining order, injunctive, and/or such other
legal and equitable remedies as may be appropriate, since the Company or the
Executive will have no adequate remedy at law for such violation on
noncompliance.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without reference to principles of conflict of
laws. The captions of this Agreement are not part of the provisions hereof and
shall have no force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
8
<PAGE>
(c) The Company may withhold from any amounts payable under this Agreement
such Federal, state or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.
(d) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(e) This Agreement constitutes the entire Agreement between the parties
regarding the subjects covered by this Agreement. Both parties acknowledge that
no other agreement, understanding, statement or promise other than those
contained in this Agreement is part of the Agreement of the parties and no other
agreement, understanding, statement or promise will be valid or binding.
(f) The Executive and the Company both represent and warrant that they are
free to enter into this Agreement and to perform each of the terms and covenants
of it. In addition both parties represent and warrant that they are not
restricted or prohibited, contractually or otherwise, from entering into and
performing this Agreement and that the execution and performance of this
Agreement is not a violation of any other agreement between any other person or
entity.
13. Notices. All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: Mr. Daniel W. Dowe
67 Wall Street, Suite 2411
New York, New York 10005
If to the Company: Stratford Acquisition Corporation
c/o William K. Lavin, Chairman
67 Wall Street, Suite 2411
New York, New York 10005
and personal delivery to his
home address.
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and Communications shall be effective
when actually received by the addressee.
14. Signatures. In witness whereof, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has caused this Agreement to be executed in its name on its behalf,
all as of the day and year first above written.
Attest:
_________________________ /s/ Daniel W. Dowe
------------------------------
Daniel W. Dowe
Attest: STRATFORD ACQUISITION CORPORATION
_________________________ By: /s/ William K. Lavin
------------------------------
William K. Lavin, Chairman
9
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