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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
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AMERICAN INTERNATIONAL INDUSTRIES, INC.
(Name of Small Business Issuer in its Charter)
NEVADA 88-0326480
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification Number)
organization)
601 HANSON ROAD
KEMAH, TEXAS 77565-2701
(Address of principal executive offices) (Zip Code)
(281) 334-4764
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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None None
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
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All references to American International Industries, Inc. common stock
reflect a three for one common stock split in July 1996.
PART I
FORWARD-LOOKING STATEMENTS
This Form 10-SB contains certain statements that are "Forward-Looking
Statements" within the meaning of Section 27A of the Securities Act of 1933
("Act") and Section 21E of the Securities Exchange Act of 1934 ("Exchange Act")
which can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "estimates," "will," "should," "plans" or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology or by discussions of strategy. Such statements include, but are not
limited to, the discussions of the Company's operations, liquidity, and capital
resources. Although the Company believes that the expectations reflected in any
Forward-Looking Statements are reasonable, there can be no assurances that such
expectations will prove to be accurate Forward-Looking Statements. Generally,
these statements relate to business plans, strategies, anticipated strategies,
levels of capital expenditures, liquidity, and anticipated capital financing
needed to effect the business plan. All phases of the Company's operations are
subject to a number of uncertainties, risks, and other influences, many of which
are outside the control of the Company and cannot be predicted with any degree
of accuracy. In light of the significant uncertainties inherent in any
Forward-Looking Statements, the inclusion of such statements should not be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved. Readers are cautioned
that such Forward-Looking Statements involve risks and uncertainties.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
American International Industries, Inc. is a Nevada corporation which began
conducting its current operations in September 1996, when it made its first
acquisition. As used herein, the term "AIII" or the "Company" refers to
American International Industries, Inc. or to American International Industries,
Inc. and its consolidated subsidiaries, as applicable. The Company is a holding
company currently operating five subsidiaries: Acqueren, Inc. (whose sole
business operating entity is Northeastern Plastics Inc. which is a supplier of
automotive after-market products and consumer durables), Brenham Oil & Gas, Inc.
(an owner of an oil and gas royalty interest), Har-Whit/Pitt's & Spitt's, Inc.
(a manufacturer and distributor of barbeque pits and a custom sheet metal
fabricator), Modern Film Effects, Inc., doing business as, Cinema Research
Corporation, (a provider of optical title and credits services and digital
special effects for the motion picture industry), and Texas Real Estate
Enterprises, Inc. (which owns certain undeveloped real estate in Harris,
Galveston, and Chambers counties in Texas, some of which is held by its wholly
owned subsidiary Midtowne Properties, Inc.). The Company's long-term strategy
is to expand the operations of each of its subsidiaries in their respective
fields.
The Company encounters substantial competition, in each of its product
and service areas, with businesses producing the same or similar products or
services, or with businesses producing different products designed for the
same uses. Such competition is expected to continue. Depending on the
particular market involved, the Company's businesses compete on a variety of
factors, such as price, quality, delivery, customer service, performance,
product innovation and product recognition. Other competitive factors for
certain products include breadth of product line, research and development
efforts and technical and managerial capability.
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AMERICAN INTERNATIONAL INDUSTRIES, INC.
In September 1994, the Company was incorporated in Nevada under the name
Black Tie Affair, Inc. for the purposes of engaging in catering services. In
July 1996, an unaffiliated group of investors purchased shares of Company
common stock constituting 90% of the outstanding shares of Black Tie Affair,
Inc. This group changed the name of the Company to Pitts and Spitts of
Texas, Inc., and acquired Pitt's & Spitts, Inc. and Har-Whit, Inc. in
September 1996. In September and October 1997, Mr. Daniel Dror, Sr. and his
affiliates gained control of the Company through the following arms-length
negotiated transactions with the Company and unaffiliated third parties: (i)
Elk International Corporation, Ltd., an entity controlled by Mr. Dror's
brother, purchased 5,000,000 shares of Company common stock at a purchase
price of $0.03 per share from the Company, received an option to purchase
2,000,000 shares of Company common stock at an exercise price of $0.02 per
share from the Company, and purchased 1,200,000 shares of Company common
stock at a purchase price of $0.03 per share from an individual (Mr. Dror has
never owned any shares of Elk International Corporation, Ltd., nor has he
ever served as an officer or director of such entity), (ii) Jack Talan,
currently a director of the Company, purchased 500,000 shares of Company
common stock from the Company at a purchase price of $0.10 per share, and
(iii) Daniel Dror & Company, Inc., controlled by Mr, Dror, purchased 200,000
shares of Company common stock at a purchase price of $0.03 per share from an
individual. At the closing of this transaction, the sole operating entities
of the Company were its two subsidiaries Pitt's & Spitt's, Inc. and Har-Whit,
Inc. This group elected a new board of directors, appointed current
management, and appointed Mr. Dror chairman of the board and chief executive
officer. In December 1997, the name of the Company was changed to Energy
Drilling Industries, Inc., and in June 1998, the Company changed its name to
American International Industries, Inc.
In January 1998, the Company amended its Articles of Incorporation to
increase its authorized common shares to 100,000,000 and to authorize
10,000,000 preferred shares. In September 1998, the Company amended its
Articles of Incorporation to increase its authorized common shares to
200,000,000 ("Common Stock"). As of October 28, 1998, the Company had
110,877,321 shares of Common Stock issued and outstanding, of which
25,673,852 shares are freely tradeable and the remainder are restricted. In
addition and as of December 1, 1998, the Company has not issued approximately
7,500,000 shares of Common Stock relating to the acquisition of Acqueren, Inc.
because these shares have not been exchanged. Further as of December 1, 1998,
1,000,000 shares of restricted Common Stock are authorized but not issued
relating to the purchase of Midtowne Properties, Inc. The Company is located
at 601 Hanson Road in Kemah, Texas 77565. Its telephone number is
(281) 334-4764.
As of December 1, 1998, the Company, excluding its subsidiaries, employed
six persons, none of which are covered by a collective bargaining agreement.
HAR-WHIT/PITT'S & SPITT'S, INC.
In September 1996, prior to Mr. Dror and his affiliates gaining control of
AIII, the Company purchased all of the capital stock of Pitt's & Spitt's, Inc.,
a Texas corporation, and Har-Whit, Inc., a Texas corporation, for 2,527,000
shares of Common Stock and $500,000 in exchange for non-compete agreements with
the previous owners. Messrs. Hartis and Whitworth, two of the prior owners of
the above corporations who have subsequently been appointed directors, each
received 631,750 shares of Common Stock and $250,000 in connection with the
acquisitions. In August 1998, Pitt's & Spitt's, Inc. was merged into Har-Whit,
Inc., which subsequently changed its name to Har-Whit/Pitt's & Spitt's, Inc.
("Har-Whit"). Har-Whit is located at 14221 Eastex Freeway in Houston, Texas
77032. Its telephone number is (281) 442-5013.
BRENHAM OIL & GAS, INC.
In December 1997, the Company purchased all of the capital stock of Brenham
Oil and Gas, Inc., a Texas corporation ("Brenham"), for 6,000,000 shares of
Common Stock from Daniel Dror II 1976 Trust. Mr. Dror is the trustee of the
Daniel Dror II 1976 Trust, but he has no financial interest in such trust, the
sole
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beneficiary being Mr. Dror's son. Brenham's sole asset is an oil and gas
royalty interest which was purchased by the Daniel Dror II 1976 Trust prior
to December 1995. The purchase price was based on the discounted estimated
cash flows from the royalty interest over a five year period. While no
independent valuation appraisal was conducted, management believes the terms
of the purchase were fair and reasonable based on such cash flows. Brenham
is located at 601 Hanson Road in Kemah, Texas 77565. Its telephone number
is (281) 334-4764.
TEXAS REAL ESTATE ENTERPRISES, INC.
In December 1997, the Company purchased all of the capital stock of
Texas Real Estate Enterprises, Inc. a Texas corporation ("TRE") for
10,000,000 shares of Common Stock from Elk International Corporation, Ltd.,
which is controlled by Mr. Dror's brother. The Company also purchased G.C.A.
Incorporated ("GCA") for a total consideration of 6,000,000 shares of AIII
Common Stock. TRE and GCA are collectively referred to as TRE. In May 1998,
the Company through TRE issued 8,000,000 shares of AIII Common Stock to
Daniel Dror & Company, Inc., which is controlled by Mr. Dror, in exchange for
additional property. Subsequently, Daniel Dror & Company, Inc. transferred
5,000,000 of such AIII Common Stock to Elk International Corporation, Ltd. in
extinguishment of debt on this property. In June 1998, the Company through
TRE purchased all of the capital stock of Midtowne Properties, Inc. for
1,100,000 shares of AIII Common Stock, from two parties, one of which is an
affiliate of Mr. Dror, which received 660,000 shares of AIII Common Stock. In
December 1998, because the appraisals on the properties exceeded the
preliminary values of the properties as estimated by both parties to the
transaction, the Company authorized the issuance of an additional 1,000,000
shares of AIII Common Stock, of which the party with which Mr. Dror is
affiliated is to receive 600,000 shares. The purchase price of TRE, GCA,
Midtowne Properties, Inc., and the additional property was established based
on the fair market value of the assets acquired as determined by independent,
certified appraisals. Management believes the terms of the purchases were
fair and reasonable based on such appraisals. TRE is located at 601 Hanson
Road in Kemah, Texas 77565. Its telephone number is (281) 334-4764.
ACQUEREN, INC.
In June 1998, the Company entered into a purchase agreement to acquire
all of the capital stock of Acqueren Inc., a Delaware corporation
("Acqueren"), which operates through its wholly owned subsidiary Northeastern
Plastics, Inc., a New York corporation ("NPI"). The purchase agreement
provided for the issuance of 6,750,000 shares of Common Stock to the two
largest shareholders of Acqueren in exchange for approximately 55% of the
outstanding capital stock of Acqueren, and provided for the remaining
shareholders of Acqueren to receive approximately 25.02 shares of Common
Stock for each share of Acqueren common stock exchanged (these remaining
shares of Acqueren common stock had been issued pursuant to a private
placement and included a warrant to purchase one share of Acqueren common
stock, which is included in the above exchange). The transaction was closed
effective July 1, 1998, and through December 1, 1998, the Company had
exchanged shares representing a total of 84% of the outstanding shares of
Acqueren. Based upon the estimated fair value of the restricted common stock
of AIII ($.08 per share), the total purchase consideration for Acqueren was
approximately $2,140,000. Management believes the terms of the acquisition
were fair and reasonable being based on arms-length negotiations. NPI is
located at 11601 Highway 32 in Nicholls, Georgia 31554. Its telephone
number is (912) 345-2030.
MODERN FILM EFFECTS, INC.
In September 1998, the Company purchased all of the capital stock of
Electronic Pictures California, Inc., a California corporation, in exchange for
1,900,000 shares of Common Stock. Electronic Pictures California, Inc. owned an
option to purchase all of the capital stock of Modern Film Effects, Inc., a
California corporation, doing business as Cinema Research Corporation, and
Digital Research Corporation, a California corporation. In September 1998, the
Company exercised such option and purchased all of the capital stock of Modern
Film Effects, Inc. and Digital Research Corporation (referred to collectively
as
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"CRC"), for 4,400,000 shares of Common Stock and options to purchase 400,000
shares of Common Stock over five years at $0.20 per share to Mr. Friedberg.
In November 1998, Digital Research Corporation became a wholly owned
subsidiary of Modern Film Effects, Inc. Based upon the estimated fair value
of the restricted common stock at the date of closing of $1,260,000 ($.20
per share), stock options valued at $32,000, and the discounted present value
of the note payable to selling stockholder ($303,300), the total purchase
consideration was approximately $1,595,300. Management believes the terms of
the acquisitions were fair and reasonable being based on arms-length
negotiations. CRC is located at 6860 Lexington Avenue in Hollywood,
California 90038. Its telephone number is (323) 460-4111.
BUSINESS OPERATIONS OF HAR-WHIT/PITT'S & SPITT'S, INC.
Har-Whit is (i) a manufacturer and seller of barbeque pits and accessories,
and (ii) a custom sheet metal and light structural fabrication company
specializing in stainless steel and aluminum. Har-Whit began selling barbeque
pits in 1983, and began its fabrication business in 1973.
PRODUCTS AND SERVICES
Har-Whit manufacturers ten standard styles of high quality barbeque pits
that it sells at retail at prices ranging from $625 to $4,395. In addition,
Har-Whit manufacturers custom barbeque pits which have been sold at prices as
high as approximately $35,000. Har-Whit's barbeque pits are sold under the name
"Pitt's & Spitt's," which management believes has established a reputation for
quality in the industry. In addition, Har-Whit offers a number of related
spices, sauces, accessories, cooking tools, and cookbooks in its retail showroom
and, on a very limited basis, through catalogs.
Har-Whit's custom fabrication business specializes in fabrication for
commercial and industrial customers predominantly in the energy and
environmental fields. Har-Whit also builds custom products for other
manufacturers under sub-contract agreements, on an as needed basis, from
specifications and drawings provided by the customer.
SALES AND MARKETING
Har-Whit distributes its barbeque pits primarily through its retail outlet
in Houston, Texas, as well as through orders worldwide. Har-Whit has over the
years, advertised in various publications, in addition to television and radio.
Har-Whit does little advertising and primarily markets it barbeque products and
custom fabrication business through limited advertising, the Internet, and word
of mouth.
Currently, Har-Whit has no contracts with distributors, no retail
agreements, and no marketing plan. Management believes its ability to
increase production is dependent, among other items, on its ability to
increase its facilities. In addition, even if Har-Whit is able to increase
production, there can be no assurance that there will be sufficient demand
for its products.
COMPETITION
Har-Whit competes against other manufacturers of barbeque pits, some of
which have far greater
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financial, marketing, and other resources than Har-Whit. Har-Whit competes
primarily on the basis of customer service and quality. Management believes
its primary and most recognizable competitors in its primary sales markets
are Klose Custom Barbeque Pits of Houston and Oklahoma Joe's of Oklahoma.
There can be no assurance that Har-Whit will be able to successfully compete
in this highly competitive marketplace.
Har-Whit competes in its custom fabrication business primarily on the basis
of quality and service. Har-Whit competes against other custom fabricators for
a limited amount of fabrication business. The recent downturn in oilfield
activity has increased competitive pressures, and Har-Whit intends to increase
its marketing emphasis on other industries, although currently no marketing plan
has been developed. Due to Har-Whit's narrow specialization in stainless and
aluminum products, it competes with a relatively small number of entities.
Management believes its primary and most recognizable competitors in the
custom fabrication field in the Houston area are Walkup Company, Robertson
Metal Fabrication, Campo Sheet Metal Works, Inc., Maudlin & Son, and
Precision Metal Fab Co. There can be no assurance that Har-Whit will be able
to successfully compete in this marketplace.
EMPLOYEES
As of December 1, 1998, the Company employed thirty-eight persons,
including management, sales, office, and manufacturing employees. No
employees are covered by a collective bargaining agreement. Management
considers relations with its employees to be satisfactory.
FACILITIES
Har-Whit currently operates out of one office in Houston, Texas, that it
owns. In addition, Har-Whit has recently acquired land for expansion
adjoining its current facility consisting of approximately 26,000 square feet
for $28,000 and a five year note of $30,000 for future expansion. Har-Whit
is planning to add an additional 9,000 square feet to the existing
manufacturing facilities on this land at a cost of approximately $250,000 if
sufficient funding can be obtained, to effect its business strategy of
increased sales as management believes a greater demand exists for its
products. One of AIII's primary functions is to assist its subsidiaries to
raise the necessary capital to support such growth, however, there is no
assurance that Har-Whit will be able to raise adequate proceeds to effectuate
any expansion plans. If Har-Whit is unable to raise sufficient proceeds to
fund such expansion it will continue to operate out of its current facilities
and with its current equipment. If Har-Whit is unable to fund plant
expansion and purchase new production equipment, it will not be able to
effectuate its business strategy of increased sales.
BUSINESS OPERATIONS OF BRENHAM OIL & GAS, INC.
Brenham's sole asset is an oil, gas, and mineral royalty interest covering
a twenty-four acre tract of land located in Washington County, Texas. The
royalty interest is currently leased by Union Pacific Resources Company ("Union
Pacific") for a term continuing until the covered minerals are no longer
produced in paying quantities from the leased premises. Royalties on the
covered minerals produced are paid to Brenham as follows: (i) for oil and other
liquid hydrocarbons, the royalty is one-sixth of such production, (ii) for gas
(including casinghead gas) the royalty is one-sixth of the net proceeds realized
by Union Pacific on the sale thereof, less a proportionate part of ad valorem
taxes and production, severance, or other excise
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taxes. In addition, Brenham is entitled to shut-in royalties of $1 per acre
of land for every ninety day period within which one or more of the wells on
the leased premises, or lands pooled therewith, are capable of producing in
paying quantities, but such wells are either shut-in or production is not
being sold. Currently, Brenham is not actively seeking further royalty
agreements. Brenham is operated from AIII's office in Kemah, Texas.
COMPETITION
Brenham's profitability is dependent on Union Pacific's ability to generate
profits from the tract of land on which Brenham owns its royalty interest. The
oil and gas industry is highly competitive, and Union Pacific competes against
companies with substantially larger financial and other resources. Union
Pacific's competitors include major integrated oil and gas companies and
numerous other independent oil and gas companies and individual producers and
operators. Competitive factors include price, contract terms, and types and
quality of service, including pipeline distribution logistics and efficiencies,
all of which may reduce any royalty payments made to Brenham.
GOVERNMENT REGULATION
Natural gas and crude oil exploration, development, and production
operations are subject to extensive rules and regulations promulgated by
federal, provincial, state and local authorities. Numerous federal, state and
local departments and agencies have issued rules and regulations binding on the
oil and gas industry and its individual members, some of which carry substantial
penalties for noncompliance. State statutes and regulations require permits for
drilling operations, drilling bonds and reports concerning operations. Such
statutes and regulations may limit the rate at which oil and gas otherwise could
be produced. The regulatory burden on the oil and gas industry increases its
cost of doing business and, consequently, affects its profitability.
BUSINESS OPERATIONS OF TEXAS REAL ESTATE ENTERPRISES, INC.
TRE and its wholly owned subsidiary Midtowne Properties, Inc. own nine
tracts of land in Harris, Chambers, and Galveston counties in Texas. See "Item
3. Description of Property." TRE is operated from AIII's office in Kemah,
Texas.
All the properties owned by TRE are undeveloped commercial properties free
of any mortgage obligations, however certain properties are subject to tax liens
in the amount of $300,000 in the aggregate. Such properties are available for
sale, however, management will explore development possibilities of its
properties if such possibilities are presented. At this time no development
plans are being considered.
COMPETITION
There is intense competition among companies in the real estate investment
and development business. Sales and payments on real estate sales obligations
depend, in part, on available financing and disposable income and, therefore,
are affected by changes in general economic conditions and other factors.
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The real estate development business and commercial real estate business are
subject to other risks such as shifts in population, fluctuations in the real
estate market, and unpredictable changes in the desirability of residential,
commercial and industrial areas. There is no assurance that TRE will be able
to compete in this market.
REGULATION
TRE's real estate operations are subject to comprehensive federal, state,
and local regulation. Applicable statutes and regulations may require
disclosure of certain information concerning real estate developments and credit
policies. In the future, if TRE decides to develop its properties, periodic
approval is required from various agencies in connection with the design of
developments, the nature and extent of improvements, construction activity, land
use, zoning, and numerous other matters. Failure to obtain such approval, or
periodic renewal thereof, could adversely affect the real estate development and
marketing operations of TRE. Various jurisdictions also require inspection of
properties by appropriate authorities, approval of sales literature, disclosure
to purchasers of specific information, bonding for property improvements,
approval of real estate contract forms and delivery to purchasers of a report
describing the property.
BUSINESS OPERATIONS OF ACQUEREN, INC.
Acqueren through its wholly owned subsidiary NPI, is a supplier of products
to retailers and wholesalers (i) in the automotive after-market, and (ii) in the
consumer durable electrical products markets.
PRODUCTS AND SERVICES
NPI's products in the automotive after-market include a variety of booster
cables sold under the brand name "Mechanix Choice" and "Bitty Booster Cable."
Also supplied under the brand name "Mechanix Choice," NPI markets portable hand
lamps, cord sets, and a variety of battery testers, battery repair kits, and
miscellaneous battery accessories.
The "Mechanix Choice" brand of booster cables was introduced in 1995, and
its products are currently available at CSK Automotive, Family Dollar, Victor
Automotive Products, Sam's Club, Caldor, and Bradless, among others. NPI's
"Bitty Booster Cable" brand of booster cables are currently distributed in the
automotive after-market and through well established food and drug retail
channels.
NPI's consumer durable electrical products include flood light kits, clamp
on lamps, household extension cords, tri-tap extension cords, heavy duty
extension cords, night lights, and surge protection devices. All of NPI's
consumer durable electrical products are UL Listed.
Beginning in late 1996, management changed its business strategy, and began
to target what it believed to be the less competitive food and drug and variety
retail industry. By adding more food and drug related items such as power
strips, multiple outlet devices, cord sets, and night lights, NPI has been able
to enter the consumer durables market at such locations as Family Dollar Stores,
Bills Dollar Stores, and Dollar
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Tree Stores.
Currently, virtually all of NPI's products are manufactured overseas.
NPI's products are manufactured based on NPI's specifications and design. Since
1995, NPI has changed all but one of its overseas suppliers, and as a result
management believes it has been able to reduce purchasing costs and increase
product quality. Currently, NPI has no long-term agreements with any overseas
or domestic manufacturers for its products, but relies on management's personal
contacts with such manufacturers in renewing its present agreements. There is
no assurance that NPI will be able to renew its present agreements with
manufacturers on terms economically favorable to NPI, if at all. The inability
of NPI to renew its agreements on economically favorable terms will have a
material adverse effect on NPI.
SALES AND MARKETING
Currently, NPI has no agreements with distributors, wholesalers, or
retailers, but sells its products from its warehouse through the use of
independent sales agents and through its in-house personnel. NPI contracts with
agents, which are responsible for contacting potential customers and clients in
a pre-determined sales area. NPI provides these agents with manuals, brochures,
and other promotional materials which are used in the selling process. After
sales are completed through the use of an agent, NPI directly bills the
customer, and all payments are made directly to NPI. Agents are compensated
solely on a commission basis, calculated on the net sales price of products
which are invoiced to customers. No commissions are paid until NPI receives
payment from customers.
NPI also sells a substantial portion of its products under a customer
friendly direct import program ("D/I program"). The D/I program offers NPI
customers the additional services of arranging for overseas manufacturing and
delivery to overseas freight forwarders. NPI can also arrange for the complete
turn key deliveries of its products to its customers place of business in the
United States. Under a turn key D/I program, NPI arranges, at an additional
cost to its customers, on site factory inspections of the goods prior to the
container loading, ocean and domestic freight services, customs and brokerage
services as well as container unloading at the customer's facility. NPI's
direct import sales are primarily guaranteed through a customer irrevocable bank
letter of credit issued by the customer. Currently, management estimates that
over one half of sales are made through the use of its D/I program. Management
believes the D/I program provides to its customers the most cost effective means
of obtaining large volumes of products. The average volume of NPI's direct
import shipments are substantially larger than its warehouse shipments
(management estimates that D/I program orders average a minimum of $40,000 to a
high of $1,200,000, as compared to warehouse shipments which average $1,200),
however, NPI is unable to realize the same gross profit margins on D/I program
orders, as compared to warehouse shipments. Management estimates that D/I
program gross profit margins range from a low of 8% to a high of 19%, while the
gross profit margins on its warehouse sales range from a low of 19% to a high of
40%.
NPI has chosen not to target several of the larger retailers in the
consumer market such as Home Depot, Lowes, Builders Square, Wal-Mart, K-Mart,
and Ace Hardware due to its capital limitations and due to the extreme
competitive market conditions for such accounts. While there is no assurance,
management believes it will be able to increase margins by focusing solely on
smaller and mid-market retailers which management believes have been ignored by
larger producers.
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In fiscal years 1998 and 1997, Family Dollar Stores, West Coast
Liquidations, and Consolidated Stores accounted for approximately 21%, 11%, and
13%, respectively, of NPI's revenues. There is no assurance that NPI will be
able to retain these customers, and the loss of any of these customers may have
an adverse effect on NPI.
COMPETITION
In the safety products category of the automotive after-market, of which a
substantial portion of NPI's products fall, NPI competes against a large number
of suppliers many of which have far greater financial resources than NPI. In
addition, management has seen little movement between suppliers at major
national retailers, and as such, NPI's ability to increase market share will be
limited. Management believes its primary competitors in the safety products
market include General Cable with an estimated 20% market share, Coleman Cable
with an estimated 18% market share, East Penn with an estimated 12% market
share, Champion with an estimated 8% market share, and many other producers and
importers. Based on current sales, management believes its market share of this
safety products category to be approximately 4%. There can be no assurance that
NPI will be able to successfully compete in this marketplace.
In the consumer durables electrical products market, NPI competes against a
large number of suppliers many of which have far greater financial resources
than NPI. Management believes its primary competitors in the consumer durables
market include Pacific Electricord Company with an estimated 35% market share,
Woods Wire with an estimated 30% market share, General Cable with an estimated
10% market share, Coleman Cable with an estimated 15% market share, and various
other producers. Based on current sales, management believes its market share
of the consumer durables electrical product market to be approximately 1.4%.
There can be no assurance that NPI will be able to successfully compete in this
marketplace.
Price is a highly significant factor in the safety products market and
the consumer durables electronical products markets. Many of the NPI's
products are made to industry specifications, and are therefore essentially
functionally interchangeable with those of competitors. However, NPI believes
that significant opportunities exist to differentiate all of its products on
the basis of quality, reliability, and customer service.
INTELLECTUAL PROPERTY
NPI has been issued a trademark on "Northeastern" (TM), "Jumpower" (TM),
"The Bitty Booster Cable" (TM), "connections with quality" (TM), and "small
enough to fit in your glove box strong enough to start your car" (TM).
EMPLOYEES
As of December 1, 1998, NPI employed seven persons, including
management, customer service, and warehouse employees. No employees are
covered by a collective bargaining agreement. Management considers relations
with its employees to be satisfactory.
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FACILITIES
NPI currently operates from one facility in Nicholls, Georgia. Its
facility is 30,000 square feet and is leased for $3,275 per month. The lease
expires in October 1999 and NPI has the option to renew such lease for an
additional two-year period with the monthly lease payments increased based on
the consumer price index.
BUSINESS OPERATIONS OF MODERN FILM EFFECTS, INC.
Modern Film Effects, Inc. consists of two divisions, Cinema Research
Optical and Title and Cinema Research Digital, which together provide full
technical, optical, and digital services for motion pictures, television,
commercial, and industrial producers, directors, editors, special effects
supervisors, and title designers. CRC's two divisions are distinct California
corporations, Modern Film Effects, Inc., d/b/a Cinema Research Corporation and
its wholly owned subsidiary Digital Research Corporation, which are collectively
referred to as CRC.
Management estimates that it completed more than 250 optical services
projects in its last fiscal year, and its client list consists of many of the
major studios in Hollywood, including Sony Film's Tri-Star Pictures, Columbia
Pictures, Paramount Studios, Universal Studios, and Disney Studios. Management
estimates that currently it accounts for 25% of the domestic revenues generated
for optical title and credit services in the industry.
In addition, CRC is conducting initial investigations as to the feasibility
of offering high-definition television ("HDTV") production to the marketplace
through Electronic Pictures California, Inc., a wholly owned subsidiary of AIII.
CRC has engaged the services of a person, on an at-will employment basis, with
prior experience in HDTV in Japan. CRC has no agreements with any
manufacturers, distributors, or retailers for HDTV. CRC has no agreements with
any customers for the sale or marketing of HDTV. This possible venture is in
the preliminary stages and there can be no assurance that the production of HDTV
will ever become viable within CRC.
PRODUCTS AND SERVICES
CRC's services include both optical and digital services. Its optical
services include the photographic creation of titles and credits, correcting
optical defects, wire removal, blue screen composites, and the production of
optical special effects. CRC's digital services consist of the production of
digital special effects. CRC's digital services are provided by digitizing film,
creating special effects in the digitized format, and subsequently transferring
the digitized images back to film.
SALES AND MARKETING
CRC believes it can exploit its market share in the optical services
industry to promote its digital services. Previously, CRC had marketed its
digital services to large scale special effect projects involving significant
labor and technological costs. CRC no longer intends to pursue these large
scale projects, and
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<PAGE>
instead will only market its digital services at the post-production stage
along with its optical services to smaller projects with fewer special
effects. The larger projects required CRC to competitively bid for services,
which often times produced losses when unexpected costs occurred. These
smaller projects are priced by the special effect, thereby allowing CRC to
better estimate its costs. While management believes CRC's business strategy
may reduce gross revenues attributable to digital services, it believes that
it will be better able to control costs.
CRC's primary marketing method is through David R. Miller's relationships
with studios in the industry. Mr. Miller, CRC's vice-president of marketing,
has been involved in the industry for over twenty years, and has cultivated
relationships with such studios as Tri-Star Pictures and Columbia Pictures.
Management estimates that Mr. Miller's contacts have accounted for over 65% of
CRC's optical business, with 60% derived solely from business conducted with
Tri-Star Pictures and Columbia Pictures. The loss of Mr. Miller for any reason
would severely limit CRC's ability to compete in the industry. In September
1998, CRC entered into a six-year employment agreement with Mr. Miller. CRC
does not maintain life insurance on Mr. Miller.
If adequate funding is obtained, CRC intends to consolidate its optical and
digital facilities and to update its digital software and film equipment. If
CRC is unable to raise sufficient proceeds to fund such consolidation and
upgrades, it will continue to operate out of its current facilities and with its
current equipment. CRC competes in a high technology industry which is
characterized by rapid technological changes. Development by others of new or
improved products, processes, or technologies may make CRC's facilities and
equipment obsolete or less competitive. One of AIII's primary functions is to
assist its subsidiaries to raise the necessary capital to support such growth,
however, there is no assurance that CRC will be able to raise adequate proceeds
to fund any consolidation or to update its equipment. In addition, even if it
is able to update its facilities and equipment, there can be no assurance that
its new facilities and equipment will not be obsolete in the near future. While
management believes that its optical services business is based on more
established technology, its digital services business is more susceptible to
rapid technological change.
If CRC is able to complete its consolidation plans, it intends to market
its services through the use of brochures, videos, and personal contact with
studios. CRC currently employs three sales persons, including Mr. Miller, and
intends to hire one additional sales person in the future. CRC relies on its
ability to package both its optical and digital services for its clients. The
digital services industry is highly competitive and CRC's ability to compete
will depend on its maintaining current technology. There is no assurance that
its market position in the optical industry will enable CRC to compete in the
digital industry. Currently, CRC has no contracts or commitments with any
studios for its services.
COMPETITION
CRC competes primarily against two corporations in the optical services
industry, Pacific Title/Mirage Studio ("PTM") and Howard Anderson Optical.
Management estimates that PTM currently accounts for approximately 65% of the
optical services provided to the industry. As the optical services industry
has few competitors, CRC will be competing for market share against a
corporation with greater financial resources and market share than CRC. CRC
believes it competes for business through quality production, personal
relationships with studios, long-standing reputation in the industry, and
timely delivery of products. There can be no assurance that CRC will be able
to successfully compete in this marketplace.
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<PAGE>
CRC is a relatively new entrant in the digital market and is currently
competing on the basis of technology. The cost of digital services machinery
and computers are extensive and are increasing. Therefore, the ability of CRC
to compete in the digital services industry is directly related to its ability
to update its technology. CRC competes against a large number of corporations in
the digital services industry, many with greater financial resources than CRC.
Assuming CRC is able to execute its business strategy, it will begin to focus
solely on the post-production, digital special effects market. Although CRC
believes there will be fewer participants in this market, the market will be
smaller than the current digital market and CRC will be competing for fewer
projects. In addition, CRC believes that its market share in the optical
industry will allow it to more effectively compete in the post-production,
digital special effects market. However, CRC competes in the optical industry
against PTM, which has far greater market share and financial resources than
CRC. Therefore, the CRC's new business strategy will require it to compete
directly against a corporation which currently holds a dominant position in the
optical industry. There can be no assurance that CRC will be able to
successfully compete in this marketplace.
INTELLECTUAL PROPERTY
CRC has not filed for any patent protection with the United States
Government. There is no assurance that employees of CRC, consultants, advisors
or others will maintain the confidentiality of its technology, or that its
technology will not otherwise become known, or be independently developed, by
competitors. Additionally, there is no assurance that CRC's technology does not
violate patent protections of other companies. The inability of the CRC to
utilize its technology or obtain patents may have a material adverse effect on
CRC.
EMPLOYEES
As of December 1, 1998, CRC employed thirty-eight persons, including
management, sales, office, and manufacturing employees of which eighteen persons
are covered by various industry-wide collective bargaining agreements. A
strike, job action, or labor disturbance by the members of any of these
organizations may have a material adverse effect on the Company. Management
considers relations with its employees to be satisfactory.
FACILITIES
Currently, CRC produces its digital services from a different facility than
its optical services. CRC intends to consolidate its optical and digital
facilities in 1998 in order to eliminate duplicative administrative costs and
reduce personnel.
CRC's optical facility is located in Hollywood, California. The
facility is 20,000 square feet and is leased for $13,000 per month. The
lease on the optical facility expires on November 30, 1999. CRC has acquired
for $50,000 an option on the facility, expiring in April 1999, which allows
it to purchase the facility for $1,170,000. CRC's digital facility is
located in Hollywood, California. The facility is 8,000 square feet and is
leased for $7,500 per month. The lease on the digital facility expired on
October 31, 1998 and CRC obtained an extension until December 19, 1998.
Subsequently, CRC has begun to consolidate the digital operations into its
optical facilities. This process is expected to be completed in January 1999.
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<PAGE>
Management has determined that its current optical facility is in need of
renovations, including interior redecoration and earthquake preparedness
repairs. A current strategy of CRC is to sell its option to purchase its
optical facility to a third party willing to make the above renovations, and to
subsequently enter into a leasing transaction for the facility on a long
term basis. There is no assurance that CRC will be able to execute a definitive
agreement with such a third party on terms economically favorable to CRC, if at
all. If CRC is unable to locate a third party willing to exercise the option
and make the above repairs by April 1999, it will be required to borrow funds in
order to exercise the option or it will have to continue to lease the facility
from its present owner. If CRC is required to exercise the option, it will be
required to borrow additional funds. One of AIII's primary functions is to
assist its subsidiaries raise the necessary capital to support such
transactions, however, there is no assurance that CRC will be able to obtain
such funds to exercise the option. In addition, if CRC is unable to exercise
the option, there is no assurance that it will be able to extend its current
lease on a long term basis, or on terms economically favorable to CRC, if at
all.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The Company is a holding company currently operating five subsidiaries:
Acqueren, acquired effective July 1, 1998 (whose sole business operating
entity is NPI which is a supplier of automotive after-market parts and
consumer durables), Brenham acquired in December 1997 (an owner of an oil and
gas royalty interest), Har-Whit acquired in September 1996 (a manufacturer
and distributor of barbeque pits and a custom sheet metal fabricator), CRC
acquired in September 1998 (a provider of optical title and credits services
and digital special effects for the motion picture industry), and TRE
acquired in December 1997 (which owns certain undeveloped real estate in
Harris, Galveston, and Chambers counties in Texas, some of which is held by
its wholly owned subsidiary Midtowne Properties, Inc.). All of the
acquisitions were accounted for using the purchase method of accounting
whereby the purchase price of the acquisition was allocated based upon the
fair value of the assets acquired and liabilities assumed. If the purchase
price exceeded the net fair market value of the assets acquired, any
remaining purchase price was allocated to goodwill.
The consolidated financial statements for AIII, which include all AIII's
subsidiaries, is audited for the year ended December 31, 1997, and unaudited for
the nine months ended September 30, 1998 and 1997. The unaudited pro forma
results for AIII are for the year ended December 31, 1997 and for the nine
months ended September 30, 1998, and assume that all acquisitions were effected
on January 1, 1997. The financial statements for CRC and Acqueren with respect
to the year ended June 30, 1998, are audited. The financial statements for CRC
and Acqueren with respect to the period ended September 30, 1998 and 1997, are
unaudited.
The historical financial statements of AIII include the acquisitions of
acquired companies (Acqueren and CRC) as of the effective date of the
purchase and the results of these companies subsequent to closing as both the
Acqueren and CRC transactions were accounted for under the purchase method of
accounting. Accordingly, Acqueren has been included in AIII's results of
operations since July 1, 1998, and CRC was included in the consolidated
balance sheet as of September 30, 1998. CRC results of operations will be
included in AIII's consolidated results beginning October 1, 1998.
The Company intends to grow through the acquisition of additional and
complimentary businesses.
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<PAGE>
The Company expects to face competition for acquisition candidates, which may
limit the number of acquisition opportunities and may lead to higher
acquisition prices. There can be no assurance that the Company will be able
to identify, acquire or manage profitably additional businesses or to
integrate any acquired businesses into the Company without substantial costs,
delays or other operational or financial problems. Further, acquisitions
involve a number of risks, including possible adverse effects on the
Company's operating results, diversion of management's attention, failure to
retain key personnel of the acquired business and risks associated with
unanticipated events or liabilities, some or all of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The timing, size and success of the Company's acquisition efforts and the
associated capital commitments cannot be readily predicted. The Company
currently intends to finance future acquisitions by using shares of its Common
Stock for a portion of the consideration to be paid. In the event that the
Common Stock does not maintain a sufficient market value, or potential
acquisition candidates are otherwise unwilling to accept Common Stock as part of
the consideration for the sale of their businesses, the Company may be required
to utilize more of its cash resources, if available, in order to initiate and
maintain its acquisition program. If the Company does not have sufficient cash
resources, its growth could be limited unless it is able to obtain additional
equity or debt financing.
NEW ACCOUNTING PRONOUNCEMENTS
COMPREHENSIVE INCOME - In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income". This statement is effective for financial
statements issued for periods beginning after December 15, 1997. The Company
adopted this statement during 1998 and it had no material impact on the
Company's financial statement disclosures.
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION - In June 1997, the FASB
issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information" ("SFAS 131"). This statement is effective for fiscal years
beginning after December 15, 1997. SFAS 131 requires the reporting of profit
and loss, specific revenue and expense items, and assets for reportable
segments. It also requires the reconciliation of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments, in each case to the corresponding amounts in the general purpose
financial statements. The Company is currently evaluating the effect SFAS
131 will have on its financial statement disclosure requirements for the year
ended December 31, 1998.
PENSION AND OTHER POSTRETIREMENT BENEFITS - In February 1998, the FASB
issued SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS 132"). SFAS 132 standardizes the disclosure
requirements for pensions and other post-retirement benefits and requires
additional information on changes in the benefit obligations and fair values of
plan assets. The statement is effective for financial statements for periods
beginning after December 15, 1997 and requires comparative information for
earlier years to be restated. Adoption of SFAS 132 is expected to have no
effect on the Company as there are no pension plans.
DERIVATIVE AND HEDGING ACTIVITIES - In June 1998, the FASB issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 requires companies to recognize all derivatives contracts as
either assets or liabilities in the balance sheet and to measure them at fair
value.
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<PAGE>
SFAS 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The Company does not expect adoption of the new standard on
January 1, 2000 to affect its financial statements.
RESULTS OF OPERATIONS -- AIII
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1997. Net loss for the nine months ended September 30, 1998,
was $137,908, as compared to $518,150 for the nine months ended September 30,
1997. This decrease is discussed in the following components of income,
however the primary reason for the change is the inclusion of Acqueren since
July 1, 1998, which had net income of $263,247 for the three months ended
September 30, 1998.
The net sales for the nine months ended September 30, 1998, were
$5,781,245, as compared to $1,801,649 for the nine months ended September 30,
1997, such increase is the result of the inclusion of Acqueren's results of
operations since its acquisition as of July 1, 1998. Acqueren's sales for
this three month period was $3,935,820. The sales for Har-Whit were
consistent with prior years.
Cost of sales as a percentage of net sales for the nine months ended
September 30, 1998, was approximately 78% as compared to approximately 65%
during the nine months ended September 30, 1997, such change is the result of
the inclusion of Acqueren which operates through NPI on a lower gross margin
than does Har-Whit.
Operating expenses for the nine months ended September 30, 1998, were
$1,433,411, as compared to $1,097,653 for the nine months ended September 30,
1997. This increase is the result of the acquisition of Acqueren which has
operating expenses of $275,367 since July 1, 1998.
Other income or expense, which includes interest income (expense), other
income, and increase in market value of equity securities, for the nine
months ended September 30, 1998, was $38,177, as compared to ($47,079) for
the nine months ended September 30, 1997. The increase is attributable
primarily to a $37,845 gain in the market value of equity securities, and a
$22,935 increase in interest income from higher levels of invested funds.
TWELVE MONTHS ENDED DECEMBER 31, 1997, COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1998. Net loss for the twelve months ended December 31, 1997, was
$870,027, as compared to $137,908 for the nine months ended September 30, 1998.
This decrease is discussed in the following components of income, however the
primary reason for the change is the inclusion of Acqueren since July 1, 1998.
The net sales for the twelve months ended December 31, 1997, were
$2,501,860, as compared to $5,781,245, for the nine months ended September
30, 1998, such increase was the result of the inclusion of Acqueren's results
of operations since its acquisition as of July 1, 1998. Acqueren's sales for
this three month period was $3,935,820. The sales for Har-Whit were
consistent with prior years.
Cost of sales as a percentage of net sales for the twelve months ended
December 31, 1997, was
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<PAGE>
approximately 65% as compared to approximately 78% during the nine months
ended September 30, 1998, such change is the result of the inclusion of
Acqueren which operates through NPI on a lower gross margin than does
Har-Whit.
Operating expenses for the twelve months ended December 31, 1997, were
$1,674,172 as compared to $1,433,411 for the nine months ended September 30,
1998. This change for the nine month period reflects the acquisition of
Acqueren which has operating expenses of $275,367 since July 1, 1998.
Other income or expense, which includes interest income (expense), other
income, and increase in market value of equity securities, for the twelve
months ended December 31, 1997, was ($61,860), as compared to $38,177 for the
nine months ended September 30, 1998. The increase is attributable primarily
to a $37,845 gain in the market value of equity securities, and a $22,935
increase in interest income from higher levels of invested funds.
Total assets at September 30, 1998, were $19,311,820, as compared to
$4,558,081 at December 31, 1997. The increase is primarily attributable to
AIII's acquisition of Acqueren and CRC.
Total liabilities at September 30, 1998, were $7,854,800, as compared to
$1,069,353 at December 31, 1997, and the increase is the result of 1998
acquisitions of Acqueren and CRC.
RESULTS OF OPERATIONS -- CRC
For the twelve months ended June 30, 1998, the net sales were
$5,849,579, operating expenses were $1,946,368, other income or expense,
which includes interest income (expense) and miscellaneous income, was
($58,138), resulting in a net loss of $455,211. Total assets at June 30,
1998, were $2,976,413, total liabilities were $3,522,074, and CRC had
negative current working capital of $965,652. For the fiscal year ended June
30, 1998, CRC had $526,386 net cash provided from operations, $27,825 net
cash used in investing activities, and $617,447 net cash used in financing
activities.
For the three months ended September 30, 1998 and 1997, the operations
of CRC were stable with net sales of $1,375,346 in 1998 and $1,487,812 in
1997. The change reflected slower activities in the movie industry in 1998
over 1997. The loss was $6,452 for the quarter ended September 30, 1998
versus $15,074 for the quarter ended September 30, 1987. The change in the
net loss is due to a reduction in interest expense due to lower debt and
capital lease obligations.
RESULTS OF OPERATIONS -- ACQUEREN
For the twelve months ended June 30, 1998, the net sales were
$7,841,829, operating expenses were $1,496,037, other income or expense,
which includes interest income (expense) and miscellaneous income (expense)
was ($48,526), resulting in a net loss of $1,095,616. Total assets at June
30, 1998, were $4,524,927, total liabilities were $3,323,599, and Acqueren
had current working capital of $1,428,574. For the fiscal year ended June
30, 1998, Acqueren had $705,533 net cash provided from operations, $792
net cash used in investing activities, and $754,230 net cash used in
financing activities.
During the quarter ended September 30, 1998 Acqueren had net revenue of
$3,935,820 compared to net sales of $2,808,922 for the quarter ended
September 30, 1997. This increase is due to increased marketing efforts by
the management of Acqueren. Net income for this subsidiary was $263,247 and
$20,714 for the quarter ended September 30, 1998 and 1997, respectively. This
improvement is due to $37,845 of increase in the market value of trading
securities and sales increases previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date primarily through
private sales of its equity securities. During the twelve months ended
December 31, 1997 the Company issued 12,778,060 shares of
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Common Stock for cash proceeds of $403,456, and during the nine months ended
September 30, 1998, the Company issued 21,660,000 shares of Common Stock for
cash of $2,217,500. The issuances in 1998 include the exercise of stock
options for 2,500,000 shares and 7,000,000 of stock subscribed, of which
2,000,000 have not been issued.
In September 1998, CRC borrowed $1,000,000 in the form of a promissory
note from a financial institution at the institution's prime rate, which is
supported by the cash balances of AIII and which matures in January 2000,
and beginning in February 1999, CRC will begin making quarterly payments of
accrued unpaid interest. CRC has (i) an outstanding note payable to a former
stockholder of CRC of $303,300, due in monthly payments of $6,325 through
September 2003, and (ii) an outstanding note payable to an officer and
director of CRC payable on demand of $173,000 at an interest rate of 8% per
annum. AIII has committed to funding the operations of CRC until December
31, 1999. In March 1998, Har-Whit secured a $150,000 line of credit with a
financial institution secured by its accounts receivables. The interest rate
for the line of credit is 10.50% and matures on March 18, 1999. Minimum
monthly payments of accrued unpaid interest began on April 18, 1998. As the
borrowing is secured by Har-Whit's accounts receivable, the amount actually
available under the line of credit will fluctuate, and based on accounts
receivables at September 15, 1998, approximately $50,000 additional borrowing
is currently available. Har-Whit has an outstanding note payable to a
financial institution of $640,401 at an interest rate of 9.75% per annum due
in monthly payments of $7,895 through February 2003 with the remaining amount
due in March 2003. NPI has an outstanding note payable to a former
stockholder of Acqueren of $293,381 at an interest rate of 6% per annum, with
a payment of $100,000 due in August 1999 and 2000 with the remainder due in
August 2001.
At September 30, 1998, AIII's current working capital was $2,952,230 as
compared to $344,093 at December 31, 1997. At September 30, 1998, AIII's
cash was $2,527,143 as compared to $62,991 at December 31, 1997, while
accounts receivable increased to $2,861,614 at September 30, 1998 as compared
to $253,553 at December 31, 1997. Inventories increased to $1,388,249 at
September 30, 1998, as compared to $180,022 at December 31, 1997, and
investments in trading securities increased to $404,875 at September 30,
1998. For the nine month period ended September 30, 1998, AIII had $548,545
of net cash used in operations, $673,771 of net cash provided from investing
activities, and $2,338,926 of net cash provided from financing activities.
For the nine month period ended September 30, 1997, the Company used $452,709
in operations, used $42,691 for investing activities, and provided $450,362
by financing activities. The change reflects increased activities of the
Company after the change of control to the Dror group in September 1997.
To date, the Company has no commitment for any such additional financing
and there can be no assurance that any such financing will be available or,
if it is available, that it will be available on acceptable terms. If
adequate funds are not available to satisfy either short or long-term capital
requirements, the Company may be required to limit its operations
significantly.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer systems that use two
digits rather than four to define the applicable year, which may prevent such
systems from accurately processing dates ending in the year 2000 and after.
This could result in system failures or in miscalculations causing disruption
of operations, including, but not limited to, an inability to process
transactions, to send and receive electronic data, or to engage in routine
business activities and operations.
Management has spoken to all management personnel at each of its
subsidiaries regarding their company's reliance on computer systems. Based
upon these discussions, management believes that the Company does not have
significant exposure to the Year 2000 issue. The subsidiaries operations do
not rely on computer operations for conducting the significant parts of its
business, and accordingly, the Company does not believe that its products and
services involve any material Year 2000 risks. In the first quarter of 1999,
the Company will establish a formal Year 2000 task force to develop and
implement a Year 2000 readiness program.
In addition to reviewing its internal systems, the Company plans to have
communications with its significant customers and vendors concerning Year 2000
compliance, including electronic commerce. There can be no assurance that the
systems of other companies that interact with the Company will be
sufficiently Year 2000 compliant so as to avoid an adverse impact on the
Company's operations, financial condition and results of operations.
The Company does not presently anticipate that the costs to address the
Year 2000 issue will have a material adverse effect on the Company's
financial condition, results of operations or liquidity due to the
aforementioned factors. However, management has not performed a formal
estimate of the costs for conversion of systems necessitated by the Year 2000
issue.
The Company presently anticipates that it will complete its Year 2000
assessment and any necessary remediations by December 31, 1999. However,
there can be no assurance that the Company will be successful in implementing
its Year 2000 remediation plan according to the anticipated schedule. In
addition, the Company may be adversely affected by the inability of other
companies whose systems interact with the Company to become Year 2000
compliant and by potential interruptions of utility, communication or
transportation systems as a result of Year 2000 issues.
Although the Company expects its internal systems to be Year 2000
compliant as described above, the Company intends to prepare a contingency
plan that will specify what it plans to do if it or important external
companies are not Year 2000 compliant in a timely manner. The Company expects
to prepare its contingency plan during 1999.
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ITEM 3. DESCRIPTION OF PROPERTY
The Company operates Brenham and TRE from its office in Kemah, Texas.
See Item 1. Description of Business: "Business Operations of Har-Whit/Pitt's
& Spitt's, Inc.," "Business Operations of Acqueren, Inc." and "Business
Operations of Modern Film Effects, Inc.," for a description of properties for
Har-Whit, NPI, and CRC. The Company believes its various facilities are
adequate to meet current business needs, except as discussed in Item 1.
The following table sets forth the properties owned by TRE, including
all properties owned by its wholly owned subsidiary Midtowne Properties, Inc.
All properties listed are owned free of any mortgage obligations, however
certain properties are subject to tax liens in the amount of $300,000, as
designated below, in the aggregate. TRE holds undeveloped commercial
properties for sale, although management may pursue, without a vote of
shareholders, development opportunities it believes to be economically
favorable. At the present time TRE has no plans to develop any of its
properties.
PROPERTY DESCRIPTION AND LOCATION
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------
286 acres, State Highway 146, 736 acres, Anahuac,
Galveston County, Texas Chambers County, Texas
- -------------------------------------------------------------------------------------
23 acres, North U.S. 59, Houston, 15 acres, North U.S. 59, Houston,
Harris County, Texas Harris County, Texas
- -------------------------------------------------------------------------------------
1 acre, Greens Road, Houston, 43 acres, Airport Blvd., Houston,
Harris County, Texas Harris County, Texas ($136,000 of tax lien)
- -------------------------------------------------------------------------------------
17,346 sq. ft., S.E. Corner of South 4,410 sq. ft., N.E. Corner of Fannin
Main St. and Ruth St., Houston, Harris and Blodgett, Houston, Harris County,
County, Texas ($71,000 tax lien) Texas ($56,000 tax lien)
- -------------------------------------------------------------------------------------
22,248 sq. ft., N.E. Corner Almeda and
Riverside Dr., Houston, Harris County,
Texas ($37,000 of tax lien)
- -------------------------------------------------------------------------------------
</TABLE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 1, 1998, the number and
percentage of outstanding shares of Company Common Stock owned by (i) each
person known to the Company to beneficially own more than 5% of its outstanding
Common Stock, (ii) each director, (iii) each named executive officer, and (iv)
all executive officers and directors as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES OF COMMON PERCENTAGE OF OWNERSHIP(2)
BENEFICIAL OWNER (1) STOCK BENEFICIALLY OWNED
<S> <C> <C>
Daniel Dror Sr. 13,226,000(3) 11.2%
Elk International Corporation, Ltd. (7) 25,850,000 21.8%
Raymond C. Hartis, Jr. 1,579,925(5) 1.3%
</TABLE>
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<TABLE>
<S> <C> <C>
William Dartmouth 110,000 *
Marc Fields -- --
Jordan Friedberg 1,300,000(4) 1.1%
Erick Friedman 2,200,000 1.9%
D. Wayne Whitworth 1,579,925(5) 1.3%
Jack R. Talan 862,000 *
John W. Stump III 20,000(6) *
Rebekah Laird-Ruthstrom 55,000 *
All executive officers 20,932,850 17.7%
and directors as a group
(10 persons)
</TABLE>
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(*) Indicates ownership of less than one percent.
(1) The business address of each principal stockholder is the same as the
address of the Company's principal executive offices except Mr. Fields
whose business address is 11601 Highway 32 in Nicholls, Georgia 31554.
(2) Percentages include outstanding options to purchase 7,720,000 shares of
Common Stock.
(3) Includes (a) an option to purchase 2,000,000 shares of Common Stock at an
exercise price of $0.12 per share, (b) 3,080,000 shares of Common Stock
owned by Daniel Dror & Company of which Mr. Dror is chief executive
officer, (c) 7,926,000 shares of Common Stock owned by Daniel Dror II
1976 Trust of which Mr. Dror is trustee and (d) 110,000 shares of Common
Stock owned by Daniel Dror II, Mr. Dror's son.
(4) Includes a five year option, which is exercisable immediately, to
purchase 400,000 shares of Common Stock at an exercise price of $0.20
per share.
(5) Includes an option to purchase 500,000 shares of Common Stock at an
exercise price of $0.02 per share.
(6) Consists of an option to purchase 20,000 shares of Common Stock at an
exercise price of $0.34 per share.
(7) Controlled by Mr. Dror's brother. Mr. Dror has no interest nor has he
ever been an officer or director of Elk International Corporation, Ltd.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The Company's directors and executive officers are:
<TABLE>
<CAPTION>
NAME Age POSITION
- ------------------------- ------ -------------------------
<S> <C> <C>
Daniel Dror, Senior 57 Chairman of the Board,
Chief Executive Officer
William Dartmouth 49 Director
Raymond C. Hartis, Jr. 49 Director
Jordan Friedberg 44 Director
Erick Friedman 59 Director
Jack R. Talan 73 Director
D. Wayne Whitworth 59 Director
</TABLE>
-19-
<PAGE>
<TABLE>
<S> <C> <C>
John W. Stump III 54 Chief Financial Officer
Rebekah Laird-Ruthstrom 44 Secretary and Treasurer
</TABLE>
DANIEL DROR has served as chairman of the board and chief executive
officer of the Company since September 1997. Since September 1993, Mr. Dror
has served as chairman of the board and chief executive officer of Daniel
Dror and Company, Inc. an investment and business management company. From
April 1994 to November 1996, Mr. Dror served as chairman of the board and
chief executive officer of Microtel International, Inc., a public company in
the telecommunication business. From 1982 until 1993, Mr. Dror served as
chairman of the board and chief executive officer of Kleer-Vu Industries,
Inc., a public company.
WILLIAM DARTMOUTH has served as director of the Company since September
1997 and as a director of Brenham since January 1998. From 1985 until 1990,
Mr. Dartmouth was a director of Carricke Communications, a distributor of
satellite dishes. In 1989 he was a founder of Kirklees Cable, a cable
franchise company which was acquired by International Cable Tel in 1993. In
1990 he was a founder of White Rose Television Ltd., a regional television
franchisee. Mr. Dartmouth served as a director of Kleer-Vu Industries, Inc.
from 1983 until 1993. Since 1994, Mr. Dartmouth has been a director of
Microtel International, Inc., a public company in the telecommunication
business.
RAYMOND HARTIS has served as director of the Company since December
1996. Mr. Hartis has served as vice president of Har-Whit since September
1998. Mr. Hartis served as director of Har-Whit since April 1998. From June
1997 to April 1998, Mr. Hartis served as director, secretary, and treasurer
of Har-Whit, Inc. From June 1997 to April 1998, Mr. Hartis served as director
and president of Pitt's & Spitt's, Inc. From October 1996 until June 1997,
Mr. Hartis served as a director of both Pitt's & Spitt's, Inc. and Har-Whit,
Inc. Mr. Hartis was one of the founders of Pitt's & Spitt's, Inc. and
Har-Whit, Inc. and has served both companies in multiple capacities from
inception in 1984 until October 1996.
JORDAN FRIEDBERG has served as director of the Company since November
1998. Mr. Friedberg has served as chief executive officer and president of
CRC since May 1998. From September 1997 until May 1998, Mr. Friedberg served
as consultant to CRC. From May 1994 until September 1997, Mr. Friedberg
served as the chief financial officer and associate producer of FilmRoos,
Inc. Mr. Friedberg earned a Masters of Business Administration from
Pepperdine University and a Bachelors of Science from California State
University at Northridge.
ERICK FRIEDMAN has served as director of the Company since May 1998.
Since 1989, Mr. Friedman has been employed by Yale University School of Music
as a professor of music. Since 1968, Mr. Friedman has invested in various
companies.
JACK TALAN has served as director of the Company since September 1997.
Since 1995, Mr. Talan has been a director of Microtel International, Inc., a
public company, and was the interim chairman and chief executive officer of
Microtel International, Inc. from November 1996 until March 1997. Since
March 1993, Mr. Talan has been a director of World Wide Collectibles, a
public company which markets a system designed to assure and protect the
integrity of limited edition collectibles, and was the president of that
company until December 1996. Since 1990, Mr. Talan has been the principal and
president of Jack Talan, Inc., a sales and marketing consulting company.
Additionally, Mr. Talan was the co-founder, major shareholder, director and
senior vice president of Arista Corporation., a publisher and distributor of
educational materials until it was sold in 1985.
D. WAYNE WHITWORTH has served as director of the Company since December
1996. Mr. Whitworth has served as president and director of Har-Whit since
September 1998. Mr. Whitworth served as director, president, and chief
executive officer of Har-Whit from June 1997 until September 1998. From
October 1996 until June 1997, Mr. Whitworth served as a director of both
Pitt's & Spitt's, Inc. and Har-Whit, Inc.
-20-
<PAGE>
Mr. Whitworth was one of the founders of Pitt's & Spitt's, Inc. and Har-Whit,
Inc. and has served both companies in multiple capacities from inception in
1984 until October 1996.
JOHN W. STUMP III has served as chief financial officer of the Company
since August 1998. From December 1996 to October 1997, Mr. Stump served as
chief executive officer of Changes International. From April 1996 to December
1996, Mr. Stump served as chief operating officer and chief financial officer of
Nutrition Resources, Inc. From February 1993 to April 1996, Mr. Stump served as
Acquisitions Analyst for Movie Gallery, Inc. Mr. Stump is a Certified Public
Accountant and has over twenty years of financial and accounting management
experience including public reporting and investor relations.
REBEKAH LAIRD-RUTHSTROM has served as secretary, treasurer, and executive
assistant secretary of the Company since February 1998. Since September 1993,
Ms. Laird-Ruthstrom has served as assistant secretary, treasurer, and executive
assistant of Daniel Dror and Company, Inc. From July 1994 to April 1997, Ms.
Laird-Ruthstrom served as executive assistant of Microtel International, Inc.
ITEM 6. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
----------------------------------- ------------------------
Bonus/ Securities
Other Annual Underlying All Other
Name and Principal Fiscal Compen- Stock Options/ Compen-
Position Year Salary sation Award(1) SARs sation
<S> <C> <C> <C> <C> <C> <C>
Daniel Dror, Sr.(2), CEO 1998(3) $ 2,000 $4,750(4) $23,640(5) 2,000,000(6) (7)
1997 -- -- -- -- --
Marc Fields,(8) 1998 $124,000 -- -- -- --
President NPI
1997 $127,483 -- -- -- --
1996 $117,616 -- -- -- --
</TABLE>
(1) The issuance of Company Common Stock was awarded for services rendered.
(2) Mr. Dror began serving as CEO of the Company in September 1997.
(3) As AIII's fiscal year is a calendar year, annual and long-term compensation
for 1998 is for the eleven months ended November 30, 1998.
(4) Represents total payments made by the Company for automobile owned by the
Company which Mr. Dror utilizes for the eleven months ended November 30,
1998.
(5) Consists of: (a) 100,000 shares of Common Stock granted in January 1998,
and (b) 100,000 shares of Common Stock granted in May 1998, pursuant to an
employment agreement.
-21-
<PAGE>
(6) In May 1998, Mr. Dror was granted an option to purchase 2,000,000 shares of
common stock at an exercise price of $0.12 per share expiring in May 2001.
(7) In fiscal 1998, the Company made advances to Mr. Dror in the amount of
$74,404. In November 1998, Mr. Dror executed a promissory note payable to
the Company for $74,404, payable on demand at prime interest rate.
(8) NPI's fiscal year end is June 30, 1998. Compensation is for AIII fiscal
years.
In May 1998, Mr. Dror entered into a three-year employment agreement with
the Company which provided for compensation of 100,000 shares of Common Stock
and options to purchase 2,000,000 shares of Common Stock at $0.12 per share
expiring in May 2001. In October 1998, Mr. Dror terminated the employment
agreement dated May 1998, and entered into a new three-year employment agreement
with the Company, which provides for a monthly salary of $1,000. The employment
agreement provides for a bonus to be determined by the Board of Directors. The
employment agreement may be terminated by the Company, upon death or disability
of Mr. Dror, or with cause, which includes, without limitation, gross
negligence, the failure to perform essential duties, and the willful engaging in
misconduct injurious to the Company.
In September 1994, Mr. Fields entered into an employment agreement with NPI
to serve as president and chief operating officer of NPI on an at-will basis,
which provided for an annual salary of $110,000, which was raised to $124,000 in
1998. The employment agreement provides for a bonus of 10% of the amount equal
to NPI's operating income, less rent and interest expense, which exceeds
$500,000. The employment agreement grants Mr. Fields an option to purchase NPI
common stock equal to 5% of NPI's equity at an exercise price of 5% of the total
shareholder's equity, if NPI conducts an initial public offering of its common
stock during Mr. Field's employment. The employment agreement provides for a
disability insurance policy as well as a life insurance policy in the name of
Mr. Fields' spouse in the amount of approximately three times Mr. Fields salary.
The employment agreement provides that upon termination NPI has the option to
have Mr. Fields sign a one-year non-compete agreement in exchange for one year's
base salary.
OTHER EMPLOYMENT AGREEMENTS
In November 1998, Mr. Hartis entered into an employment agreement with
Har-Whit to serve as vice president of Har-Whit expiring December 31, 2000,
which provides for a monthly salary of $5,000. The employment agreement
provides for a bonus to be determined by the Board of Directors. The
employment agreement may be terminated by the Company, upon death or
disability of Mr. Hartis, or with cause, which includes, without limitation
gross negligence, the failure to perform essential duties, and the willful
engaging in misconduct injurious to the Company.
In November 1998, Mr. Whitworth entered into an employment agreement with
Har-Whit to serve as president of Har-Whit expiring December 31, 2000, which
provides for a monthly salary of $5,000. The employment agreement provides for
a bonus to be determined by the Board of Directors. The employment agreement
may be terminated by the Company, upon death or disability of Mr. Whitworth, or
with cause, which includes, without limitation gross negligence, the failure to
perform essential duties, and the willful engaging in misconduct injurious to
the Company.
In August 1998, Mr. Stump entered into a six-month employment agreement
with the Company which provides for a monthly salary of $7,500 and an option to
purchase 20,000 shares of Common Stock
-22-
<PAGE>
at an exercise price of $0.34 per share expiring in August 2001. On the
expiration of the initial six-month period, either party may terminate the
employment agreement upon which Mr. Stump shall receive an additional amount
of $7,500.
In September 1998, David R. Miller entered into a six-year employment
agreement with Modern Film Effects and Digital Research Corporation
collectively, which provides that Mr. Miller serve as a consultant to the
companies for the initial year at a monthly salary of $6,000 and subsequently to
serve as an employee for the remaining five years at a to be determined salary.
The employment agreement provides for reimbursement for an automobile lease with
lease payments not to exceed $1,200 per month. The employment agreement may be
terminated only upon the permanent disability of Mr. Miller or with cause.
In September 1998, Jordan Friedberg entered into a five-year employment
agreement with Modern Film Effects and Digital Research Corporation
collectively, which provides that Mr. Friedberg serve as chief executive officer
and president to the companies at an annual salary of $65,000 for the initial
year to be increased annually thereafter at a rate of 10% per annum. The
agreement provides for reimbursement for an automobile lease with lease payments
not to exceed $1,000 per month. The employment agreement may be terminated only
upon the permanent disability of Mr. Friedberg or with cause.
The Company or its subsidiaries do not maintain life insurance on any of
its directors or employees. The directors serve without cash compensation,
but can be granted stock as discussed in Item 7 "Certain Relationships and
Transactions."
The following table provides information on the options granted to the
named executive officers during the current fiscal year:
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
PERCENT OF
SHARES UNDERLYING TOTAL GRANTS EXERCISE EXPIRATION
NAME OPTIONS GRANTED TO EMPLOYEES PRICE DATE
- ---------------------------------------------------------------------------------
1998(1) 1998
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Daniel Dror, Sr.(2) 2,000,000(2) 99% $0.12 5/14/01
- ---------------------------------------------------------------------------------
Marc Fields(2) -- -- -- --
- ---------------------------------------------------------------------------------
</TABLE>
- ----------------
(1) The 1998 period for Mr. Dror consists of the ten months ended October 31,
1998.
(2) Neither Messrs. Dror nor Fields received any options in fiscal year 1997.
As of October 31, 1998, options to purchase 7,720,000 additional shares of
Common Stock were outstanding at prices between $0.02 and $0.34 per share, which
expire no later than December 2002.
-23-
<PAGE>
AGGREGATED OPTION EXERCISES IN 1998
AND YEAR-END OPTION VALUES AT OCTOBER 30, 1998
<TABLE>
<CAPTION>
Value of
Shares Number of Securities Unexercised
Name Acquired on Value Underlying Unexercised in-the-money
Exercise Realized Options Options(1)
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Daniel Dror, Sr.(2) -- -- 2,000,000 -- $210,000 $ -0-
Marc Fields(2) -- -- -- -- -- --
</TABLE>
- ----------------
(1) Computed based on the differences between the fair market value on October
30, 1998 and aggregate exercise prices.
(2) Neither Messrs. Dror nor Fields did not receive any options in fiscal
year 1997.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1998, Mr. Dror was issued 100,000 shares of Common Stock in
exchange for services rendered. In May 1998, Mr. Dror was granted 100,000
shares of Common Stock, pursuant to an employment agreement. In May 1998,
Mr. Dror was issued an option to purchase 2,000,000 shares of Common Stock at
an exercise price of $0.12 per share, which expires in May 2001, pursuant to
an employment agreement. During fiscal year 1998, the Company advanced Mr.
Dror a total of $74,404, and in November 1998 Mr. Dror executed a promissory
note payable to the Company in the amount of $74,404 payable on demand at
prime interest rate. In September 1997, Elk International Corporation, Ltd.,
which is controlled by Mr. Dror's brother, was issued an option to purchase
2,000,000 shares of Common Stock at a purchase price of $0.02 per share,
which was exercised in June 1998. In September 1997, Elk International
Corporation, Ltd., which is controlled by Mr. Dror's brother, was issued
5,000,000 shares of Common Stock at a purchase price of $0.03 per share. In
May 1998, Elk International Corporation, Ltd., which is controlled by Mr.
Dror's brother, was issued 3,500,000 shares of Common Stock for an aggregate
purchase price of $300,000. In December 1998, Daniel Dror II was employed by
the Company at a monthly salary of $750. In November 1998, Mr. Dror purchased
GCA, Inc., a Texas corporation from the Company for $100. GCA, Inc. was
purchased by the Company in December 1997 from a former director of the
Company for 6,000,000 shares of Common Stock. Prior to Mr. Dror's acquisition
of GCA, Inc., and as of November 1998, all assets of GCA, Inc. had been
transferred to TRE and GCA, Inc. was not in good standing with the State of
Texas. See "Item 1. Description of Business -- General" for further discussion.
In September 1998, Mr. Friedberg was issued an option to purchase
400,000 shares of Common Stock at an exercise price of $0.20 per share, which
expires in September 2003. See "Item 1. Description of Business -- General"
for further discussion.
In September 1997, Mr. Hartis was issued an option to purchase 500,000
shares of Common Stock at an exercise price of $0.02 per share, which expires
in December 2002. In January 1998, Mr. Hartis was issued 100,000 shares of
Common Stock in exchange for management services rendered. Based upon the
market value of the restricted Common Stock ($.05 per share), $5,000 of
compensation expense was recorded. In May 1998, Mr. Hartis was issued 250,000
shares of Common Stock at an aggregate purchase price of $25,000. As of
November 9, 1998, the Company had not received payment. See "Item 1.
Description of Business -- General" for further discussion.
In September 1997, Mr. Whitworth was issued an option to purchase 500,000
shares of Common Stock at an exercise price of $0.02 per share, which expires in
December 2002. In January 1998, Mr.
-24-
<PAGE>
Whitworth was issued 100,000 shares of Common Stock in exchange for
management services rendered. Based upon the market value of the restricted
Common Stock ($.05 per share), $5,000 of compensation expense was recorded.
In May 1998, Mr. Whitworth was issued 250,000 shares of Common Stock at an
aggregate purchase price of $25,000. As of November 9, 1998, the Company had
not received payment. See "Item 1. Description of Business -- General" for
further discussion.
In January 1998, Mr. Talan was issued 100,000 shares of Common Stock in
exchange for services rendered.
In January 1998, Mr. Dartmouth was issued 100,000 shares of Common Stock in
exchange for services rendered.
In May 1998, Ms. Laird-Ruthstrom was issued 50,000 shares of Common Stock
in exchange for services rendered.
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 200,000,000 shares of Common
Stock, of which 110,877,321 shares are issued and outstanding as of October
28, 1998 and 7,720,000 shares are reserved for issuance pursuant to the
exercise of outstanding options and 2,000,000 for stock subscribed but not
issued. In addition and as of December 1, 1998, the Company has not issued
approximately 7,500,000 shares of Common Stock relating to the acquisition
of Acqueren, Inc. because these shares have not been exchanged. Further as
of December 1, 1998, 1,000,000 shares of Common Stock are authorized but
not issued relating to the purchase of Midtowne Properties, Inc.
The holders of shares of Common Stock are entitled to one vote per share on
each matter submitted to a vote of stockholders. In the event of liquidation,
holders of Common Stock are entitled to share ratably in the distribution of
assets remaining after payment of liabilities. Holders of Common Stock have no
cumulative voting rights, and, accordingly, the holders of a majority of the
outstanding shares have the ability to elect all of the directors. Holders of
Common Stock have no preemptive or other rights to subscribe for shares.
Holders of Common Stock are entitled to such dividends as may be declared by the
Board of Directors out of funds legally available therefor.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock, $.001 par value per share of which none are presently outstanding. The
Preferred Stock may be issued in one or more series, the terms of which may be
determined at the time of issuance by the Board of Directors, without further
action by stockholders, and may include voting rights (including the right to
vote as a series on particular matters), preferences as to dividends and
liquidation, conversion, redemption rights and sinking fund provisions. The
Company has no present plans for the issuance of Preferred Stock. The issuance
of Preferred Stock could adversely affect the rights of the holders of Common
Stock and, therefore, reduce the value of the Common Stock.
-25-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
. PAGE
.--------
<S> .<C>
AMERICAN INTERNATIONAL INDUSTRIES, INC.:
Report of Independent Certified Public Accountants. . . . . . . .F-2
Consolidated Balance Sheets as of December 31, 1997
and September 30, 1998 (unaudited) . . . . . . . . . . . . . .F-3 - F-4
Consolidated Statements of Loss for the year ended
December 31, 1997 and the nine months ended
September 30, 1998 and 1997 (unaudited). . . . . . . . . . . .F-5
Consolidated Statement of Stockholders' Equity for
the year ended December 31, 1997 and the nine
months ended September 30, 1998 (unaudited). . . . . . . . . .F-6
Consolidated Statement of Cash Flows for the year
ended December 31, 1997 and the nine months
ended September 30, 1998 and 1997 (unaudited). . . . . . . . .F-7 - F-8
Notes to Consolidated Financial Statements. . . . . . . . . . . .F-9 - F-28
MODERN FILM EFFECTS, INC. (D/B/A CINEMA RESEARCH CORPORATION)
AND DIGITAL RESEARCH CORPORATION:
Report of Independent Certified Public Accountants. . . . . . . .F-29
Combined Balance Sheets as of June 30, 1998 and
September 30, 1998 (unaudited) . . . . . . . . . . . . . . . .F-30 - F-31
Combined Statements of Loss for the year ended June 30, 1998
and the three months ended September 30, 1998 and 1997
(unaudited). . . . . . . . . . . . . . . . . . . . . . . . . .F-32
Combined Statements of Stockholders' Equity (Capital Deficit)
for the year ended June 30, 1998 and the three months
ended September 30, 1998 (unaudited) . . . . . . . . . . . . .F-33
Combined Statements of Cash Flows for the year ended
June 30, 1998 and the three months ended
September 30, 1998 and 1997 (unaudited). . . . . . . . . . . .F-34 - F-35
Notes to Combined Financial Statements. . . . . . . . . . . . . .F-36 - F-44
ACQUEREN, INC.:
Report of Independent Certified Public Accountants. . . . . . . .F-45
Consolidated Balance Sheets as of June 30, 1998 and
and September 30, 1998 (unaudited) . . . . . . . . . . . . . .F-46
Consolidated Statements of Operations for the year ended
June 30, 1998 and the three months ended
September 30, 1998 and 1997 (unaudited). . . . . . . . . . . .F-47
Consolidated Statements of Stockholders' Equity for
the year ended June 30, 1998 and the three
months ended September 30, 1998 (unaudited). . . . . . . . . .F-48
Consolidated Statement of Cash Flows for the year
ended June 30, 1998 and the three months
ended September 30, 1998 and 1997 (unaudited). . . . . . . . .F-49 - F-50
Notes to Consolidated Financial Statements. . . . . . . . . . . .F-51 - F-57
AMERICAN INTERNATIONAL INDUSTRIES, INC.:
Pro Forma Consolidated Statements of Loss for the year ended
December 31, 1997 and the nine months ended
September 30, 1998 . . . . . . . . . . . . . . . . . . . . . .F-58 - F-60
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and
Board of Directors
American International Industries, Inc.
Kemah, Texas
We have audited the consolidated balance sheet of American International
Industries, Inc. as of December 31, 1997, and the related consolidated
statements of loss, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of American International Industries, Inc. at December 31, 1997, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
Houston, Texas
April 22, 1998
F-2
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30,
DECEMBER 31, 1998
1997 (unaudited)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash (Note 8) $ 62,991 $ 2,527,143
Accounts receivable, net of allowance
for doubtful accounts of $19,000
and $382,000, respectively (Note 8) 253,553 2,861,614
Inventories (Notes 5 and 8) 180,022 1,388,249
Trading securities (Note 4) - 404,875
Investment securities - 54,540
Other (Note 14) 46,160 158,160
- --------------------------------------------------------------------------------------------------
Total current assets 542,726 7,394,581
INVESTMENT PROPERTIES (Note 6) 1,983,700 4,849,500
PROPERTY AND EQUIPMENT, net of accumulated
depreciation (Notes 7 and 8) 1,335,713 5,202,203
NATURAL GAS AND MINERALS INTEREST, net of
$45,000 amortization in 1998 300,000 255,000
GOODWILL, net of amortization of $10,500 in 1998 (Note 3) - 1,047,470
NON-COMPETE AGREEMENTS, net of amortization of $125,000
and $200,000, respectively 375,000 450,000
OTHER 20,942 113,066
- --------------------------------------------------------------------------------------------------
$4,558,081 $19,311,820
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-3
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30,
DECEMBER 31, 1998
1997 (unaudited)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 87,085 $ 2,523,913
Accrued expenses (Notes 4 and 13) 29,412 618,323
Accrued property taxes - 300,000
Notes payable to bank, current portion (Note 8) 72,962 130,647
Notes payable to related parties, current portion (Note 9) - 273,000
Capital lease obligations, current portion (Note 10) 9,174 596,468
- --------------------------------------------------------------------------------------------------
Total current liabilities 198,633 4,442,351
NOTES PAYABLE TO BANK, less current portion (Note 8) 571,916 1,615,663
NOTES PAYABLE TO RELATED PARTIES, less current portion (Note 9) - 496,681
CAPITAL LEASE OBLIGATIONS, less current portion (Note 10) - 906,301
DEFERRED TAX LIABILITY (Note 12) 298,804 298,804
OTHER - 95,000
- --------------------------------------------------------------------------------------------------
Total liabilities 1,069,353 7,854,800
- --------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 13)
- --------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value;
10,000,000 shares authorized,
none issued (Note 11) - -
Common stock, $.001 par value;
200,000,000 shares authorized (Note 11) 46,117 121,116
Additional paid-in capital 4,540,482 15,670,799
Deficit (1,097,871) (3,624,895)
- --------------------------------------------------------------------------------------------------
3,488,728 12,167,020
Less common stock subscriptions receivable - (710,000)
- --------------------------------------------------------------------------------------------------
Total stockholders' equity 3,488,728 11,457,020
- --------------------------------------------------------------------------------------------------
$ 4,558,081 $19,311,820
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-4
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF LOSS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the nine months
For the ended September 30,
year ended --------------------------
December 31, 1998 1997
1997 (unaudited) (unaudited)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 2,501,860 $ 5,781,245 $ 1,801,649
COST OF SALES 1,635,855 4,523,919 1,175,067
- ---------------------------------------------------------------------------------------------------------
GROSS PROFIT 866,005 1,257,326 626,582
OPERATING EXPENSES 1,674,172 1,433,411 1,097,653
- ---------------------------------------------------------------------------------------------------------
OPERATING LOSS (808,167) (176,085) (471,071)
- ---------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income - 22,935 -
Increase in market value of trading securities - 37,845 -
Other income 2,048 24,698 -
Interest expense (63,908) (47,301) (47,079)
- ---------------------------------------------------------------------------------------------------------
Total other income (expense), net (61,860) 38,177 (47,079)
- ---------------------------------------------------------------------------------------------------------
NET LOSS $ (870,027) $ (137,908) $ (518,150)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
LOSS PER SHARE - BASIC AND DILUTED $ (.06) $ - $ (.04)
WEIGHTED AVERAGE SHARES OUTSTANDING 14,121,344 82,124,429 11,901,590
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-5
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Stock
Common Stock Paid-in Subscription
Shares Amount Capital Deficit Receivable
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE at January 1, 1997 9,739,000 $ 9,739 $ 1,963,404 $ (227,844) $ -
Issuance of restricted shares for:
Brenham Oil and Gas (Note 3) 6,000,000 6,000 294,000 - -
Texas Real Estate Enterprises,
Inc. and G.C.A. Incorporated (Note 3) 16,000,000 16,000 1,784,000 - -
Consulting services (Note 11) 1,400,000 1,400 68,600 - -
Other assets 200,000 200 39,800 - -
Sale of shares for cash (Note 11) 12,778,060 12,778 390,678 - -
Net loss - - - (870,027) -
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE at December 31, 1997 46,117,060 46,117 4,540,482 (1,097,871) -
Issuance of restricted shares for:
Acqueren, Inc. (Note 3) 26,750,000 26,750 2,113,250 - -
Cinema Research Corporation and
D-Rez Corporation (Note 3) 6,300,000 6,300 1,285,700 - -
Investment properties (Note 6) 8,000,000 8,000 728,000 - -
Midtowne Properties (Note 6) 2,100,000 2,100 1,662,900 - -
Employee Compensation (Note 11) 1,000,000 1,000 54,700 - -
Sale of shares for cash (Note 11) 12,160,000 12,160 1,561,340 - -
Exercise of stock options (Note 11) 2,500,000 2,500 51,500 - -
Common stock subscribed (Note 11) 7,000,000 7,000 1,293,000 - (710,000)
Stock Dividend Issued (Note 11) 9,188,911 9,189 2,379,927 (2,389,116) -
Net loss - - - (137,908) -
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE at September 30, 1998
(unaudited) 121,115,971 $121,116 $15,670,799 $(3,624,895) $(710,000)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
- -----------------
F-6
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the nine months
For the ended September 30,
year ended -----------------------
December 31, 1998 1997
INCREASE (DECREASE) IN CASH 1997 (unaudited) (unaudited)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(870,027) $ (137,908) $(518,150)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 194,107 207,141 108,487
Common stock issued for services 70,000 55,700 -
Increase in market value of equity securities - (37,845) -
Changes in assets and liabilities, net of
acquired assets and liabilities:
Accounts receivable 125,109 24,490 170,831
Inventory (3,360) (111,699) (60,916)
Other assets (6,160) (39,336) (13,845)
Trading securities - (176,945) -
Accounts payable and accruals (187,951) (450,031) (139,116)
Cash received from sale of options - 49,785 -
Cash received from broker - 40,000 -
Other assets - 28,103 -
- --------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (678,282) (548,545) (452,709)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (26,262) (143,131) (42,691)
Cash received in acquisitions - 1,036,242 -
Purchase of real estate properties - (164,800) -
Purchase of investment securities - (54,540) -
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (26,262) 673,771 (42,691)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to bank 644,878 1,105,909 310,926
Repayments of notes payable to bank (333,952) (979,477) -
Proceeds from issuance of stock 403,456 2,217,500 144,481
Principal payments on capital lease obligations (6,106) (5,006) (5,045)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 708,276 2,338,926 450,362
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
F-7
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the nine months
For the ended September 30,
year ended -------------------
December 31, 1998 1997
INCREASE (DECREASE) IN CASH 1997 (unaudited) (unaudited)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net increase (decrease) in cash 3,732 2,464,152 (45,038)
Cash at beginning of period 59,259 62,991 59,259
- --------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 62,991 $2,527,143 $14,221
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 62,635 $ 49,500 $47,600
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
NON-CASH TRANSACTIONS:
Acquisition of land for common stock $1,800,000 $2,401,000 $ -
- --------------------------------------------------------------------------------------------------------------------
Acquisition of mineral interest for common stock $ 300,000 $ - $ -
- --------------------------------------------------------------------------------------------------------------------
Exchange of common stock for securities $ 40,000 $ - $ -
- --------------------------------------------------------------------------------------------------------------------
Assumption of property taxes on purchase
of land $ - $ 300,000 $ -
- --------------------------------------------------------------------------------------------------------------------
Purchase of securities on margin $ - $ 160,000 $ -
- --------------------------------------------------------------------------------------------------------------------
Issuance of note payable in acquisition $ - $ (303,300) $ -
- --------------------------------------------------------------------------------------------------------------------
Subscription of common stock $ - $ 710,000 $ -
- --------------------------------------------------------------------------------------------------------------------
Purchase of subsidiary assets and liabilities
through the issuance of common stock and options:
Accounts receivable $ - $2,632,551 $ -
Inventory - 1,096,528 -
Other current assets - 112,664 -
Property, plant and equipment - 3,800,000 -
Other assets - 80,227 -
Non-compete agreements - 150,000 -
Goodwill - 1,057,970 -
Accounts payable - (2,681,466) -
Accrued expenses - (514,434) -
Notes payable - (975,000) -
Capital lease obligations - (1,498,601) -
Long-term debt to related parties - (466,381) -
Other liabilities - (95,000) -
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
F-8
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
1. ORGANIZATION, In September 1997 an investor group ("1997 Group")
OWNERSHIP AND acquired control of Pitts & Spitts of Texas, Inc. and
BUSINESS changed the name to American International Industries,
Inc. (the "Company" or "AIII").
In July 1996, a previous group of investors (unrelated
to the 1997 Group) purchased 90% of the outstanding
shares of a dormant company (A Black Tie Affair,
Incorporated ("BTA")). This investor group changed the
name of BTA to Pitt's & Spitt's of Texas, Inc.("PST").
PST purchased Har-Whit, Inc. ("Har-Whit") and Pitt's and
Spitt's, Inc. ("P&S") on September 30, 1996. The
purchase was consummated for 2,527,000 shares of PST
common stock valued at $1.2 million and $500,000 in cash
for noncompete agreements to the previous owners of
Har-Whit and P&S. Har-Whit and P&S were affiliated by
common ownership and were merged in 1998. The merged
entities operate a custom metal working facility
specializing in steel fabrication, designs and
manufactures custom barbecue and smoker pits and
performs welding services primarily for the oil and gas
industry. Its customer base is primarily Southeast
Texas, except for barbeque pits which are distributed
throughout the United States.
As discussed in Note 3 the Company acquired two
additional businesses in 1998 as part of its acquisition
and expansion plans. These acquisitions were accounted
for as purchases and resulted in the Company owning 100%
of the stock of the acquired companies. One of the
acquired companies sells wholesale automobile products
to retail outlets throughout the United States. The
second acquired company is in the post-production film
industry with customers primarily in the Los Angeles,
California area.
2. SUMMARY OF PRINCIPLES OF CONSOLIDATION - The consolidated financial
SIGNIFICANT statements include the accounts of the Company and all
ACCOUNTING wholly owned subsidiaries. All significant intercompany
POLICIES transactions and balances have been eliminated in
consolidation.
INTERIM FINANCIAL STATEMENTS - The consolidated interim
financial statements at September 30, 1998 and for the
nine months ended September 30, 1998 and 1997 are
unaudited. In the opinion of management of AIII, the
unaudited consolidated financial statements at September
30, 1998 and for the nine months ended September 30,
1998 and 1997, include all normal recurring adjustments
necessary for a fair presentation of the financial
position and results of operations for such periods.
Results of operations for the interim periods are not
necessarily indicative of results to be expected for a
full year.
F-9
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
INVENTORIES - Inventories are valued at the lower of
cost (first in, first out) or market.
TRADING SECURITIES - The Company records trading
securities and related call options sold on such
securities at market value with any changes in the
market value of such securities and options included as
a component of net income for the period. The Company
only sells call options for the number of shares
purchased, with the proceeds of such sales recorded as a
liability. The Company does not enter into any
speculative option transactions.
PROPERTY, EQUIPMENT AND DEPRECIATION - Property and
equipment are recorded at cost less accumulated
depreciation. Upon retirement or sale, the cost of the
assets disposed of and the related accumulated
depreciation are removed from the accounts, with any
resultant gain or loss being recognized as a component
of operations. Depreciation is computed over the
estimated useful lives of the assets (5-20 years) using
the straight-line method for financial reporting
purposes and accelerated methods for income tax
purposes. Maintenance and repairs are charged to
operations as incurred.
INVESTMENT PROPERTIES - Investment properties are
carried at the lower of cost or fair market value, net
of selling costs.
NATURAL GAS AND MINERALS INTEREST - The Company valued
its interest in a natural gas royalty interest at cost.
Such cost is amortized on a straight-line basis over the
estimated five year life of the gas well, which
approximates the units of production method.
INTANGIBLE ASSETS - The Company's intangible assets
represent goodwill acquired in the acquisitions
discussed in Note 3 and the non-compete agreements. The
Company amortizes goodwill over a 15 year period and the
non-compete agreements over their term of 5 to 6 years
on a straight-line basis.
IMPAIRMENT OF LONG-LIVED ASSETS - Realization of
long-lived assets, including goodwill, is periodically
assessed by the management of the Company. Accordingly,
in the event that facts and circumstances indicate that
property and equipment, and intangible or other assets
may be impaired, an evaluation of recoverability would
be performed. If an evaluation is required, the
estimated future undiscounted cash flows associated with
the asset are compared to the asset's carrying amount to
determine if a write-down to market value is necessary.
In management's opinion, there is no impairment of such
assets at December 31, 1997 or September 30, 1998.
F-10
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
REVENUE RECOGNITION - The Company recognizes revenue at
the time of shipment of product to its customers or
completion of services provided.
INCOME TAXES - The Company is a taxable entity and
recognizes deferred tax assets and liabilities for the
future tax consequences attributable to differences
between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to be in effect when
the temporary differences reverse. The effect on the
deferred tax assets and liabilities of a change in tax
rates is recognized in income in the year that includes
the enactment date of the rate change. A valuation
allowance is used to reduce deferred tax assets to the
amount that is more likely than not to be realized.
LOSS PER SHARE - In February 1997, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 128,
"Earnings Per Share". SFAS No. 128 is effective for the
year ended December 31, 1997. SFAS No. 128 simplifies
the standards required under current accounting rules
for computing earnings per share and replaces the
presentation of primary earnings per share and fully
diluted earnings per share with a presentation of basic
earnings per share ("basic EPS") and diluted earnings
per share ("diluted EPS").
The basic net loss per common share is computed by
dividing the net loss by the weighted average number of
shares outstanding during a period. Diluted net loss per
common share is computed by dividing the net loss,
adjusted on an as if converted basis, by the weighted
average number of common shares outstanding plus
potential dilutive securities. For the year ended
December 31, 1997 the nine month periods ended and
September 30, 1998 and 1997, potential dilutive
securities had an anti-dilutive effect and were not
included in the calculation of diluted net loss per
common share. These securities include options to
purchase 3,300,000 and 7,720,000 shares of common stock
at December 31,1997 and September 30, 1998,
respectively, and subscriptions to purchase 2,000,000
shares of common stock at September 30, 1998.
MANAGEMENT'S ESTIMATES AND ASSUMPTIONS - The preparation
of financial statements in conformity with generally
accepted accounting principles requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of
revenues and expenses during the reported period. Actual
results could differ from these estimates.
F-11
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
STOCK-BASED COMPENSATION - The Company has chosen to
continue to account for stock-based compensation using
the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", and related Interpretations and to
elect the disclosure option of SFAS No. 123, "Accounting
for Stock-Based Compensation". Accordingly, compensation
cost for stock options issued to employees is measured
as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount
an employee must pay to acquire the stock (see Note 11).
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company
estimates the fair value of its financial instruments
using available market information and appropriate
valuation methodologies. However, considerable judgement
is required in interpreting market data to develop the
estimates of fair value. Accordingly, the Company
estimates of fair value are not necessarily indicative
of the amounts that the Company could realize in a
current market exchange. The use of different market
assumption and/or estimation methodologies may have a
material effect on the estimated fair value amounts. The
interest rates payable by the Company on its notes
payable approximate market rates. The Company believes
that the fair value of its financial instruments
comprising accounts receivable, accounts payable and
notes payable approximate their carrying amounts.
NEW ACCOUNTING PRONOUNCEMENTS:
COMPREHENSIVE INCOME - In June 1997, the FASB issued
SFAS No. 130, "Reporting Comprehensive Income". This
statement is effective for financial statements issued
for periods beginning after December 15, 1997. The
Company adopted this statement during 1998 and it had no
material impact on the Company's financial statement
disclosures.
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION - In
June 1997, the FASB issued SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information"
("SFAS 131"). This statement is effective for fiscal
years beginning after December 15, 1997. SFAS 131
requires the reporting of profit and loss, specific
revenue and expense items, and assets for reportable
segments. It also requires the reconciliation of total
segment revenues, total segment profit or loss, total
segment assets, and other amounts disclosed for
segments, in each case to the corresponding amounts in
the general purpose financial statements. The Company is
currently evaluating the effect the adoption of this
statement will have on its financial statement
disclosure requirements for the year ended December 31,
1998.
F-12
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
PENSION AND OTHER POSTRETIREMENT BENEFITS - In February
1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement
Benefits" ("SFAS 132"). SFAS 132 standardizes the
disclosure requirements for pensions and other
post-retirement benefits and requires additional
information on changes in the benefit obligations and
fair values of plan assets. The statement is effective
for financial statements for periods beginning after
December 15, 1997 and requires comparative information
for earlier years to be restated. Adoption of SFAS 132
is expected to have no effect on the Company as
there are no pension plans.
DERIVATIVE AND HEDGING ACTIVITIES - In June 1998, the
FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS
133 requires companies to recognize all derivatives
contracts as either assets or liabilities in the balance
sheet and to measure them at fair value. SFAS 133 is
effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company does not
expect adoption of the new standard on January 1, 2000
to affect its financial statements.
3. ACQUISITIONS In December 1997 the Company purchased the outstanding
stock of Brenham Oil and Gas ("Brenham") for 6,000,000
shares of restricted common stock. Brenham owns a
royalty interest in a gas well. Also in December 1997,
the Company purchased Texas Real Estate Enterprises,
Inc. ("TRE") and G.C.A. Incorporated ("GCA") for a
total, combined consideration of 16,000,000 shares of
restricted common stock. TRE and GCA jointly owned a 290
acre parcel of real estate on Galveston Bay, Texas.
These acquisitions were accounted for as purchases.
Brenham and TRE were acquired from a trust for the
benefit of the son of the Chief Executive Officer (CEO)
of the Company and the brother of the CEO of the
Company, respectively. The purchase price for Brenham
was based upon the present value of estimated future
cash flows from this interest over a 5 year basis. The
purchase price of TRE was based upon fair market values
as determined by independent appraisals. Since the
purchases of these companies were completed in late
December 1997, results of operations on these
acquisitions are included in the accompanying financial
statements beginning January 1, 1998. The gas well had
production in 1997 that resulted in approximately
$80,000 of royalty payments to Brenham; TRE and GCA had
no material operations in 1997.
F-13
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
ACQUEREN ACQUISITION - Effective July 1, 1998, the
acquisition by AIII of 100% of the outstanding stock of
Acqueren, Inc. and its wholly owned subsidiary,
Northeastern Plastics Inc., (NPI) (collectively referred
to as "Acqueren") was closed and the transaction was
accounted for as a purchase. Operations of Acqueren have
been recorded by the Company since July 1, 1998 in the
accompanying September 1998 statement of loss.
The purchase agreement provides for the two primary
shareholders of Acqueren to receive 5,000,000 and
1,750,000 shares of AIII's common stock in exchange
for their 700,000 and 150,000 shares, respectively,
of Acqueren's stock. The purchase agreement further
provides for the remaining stockholders of Acqueren to
receive 25.02 shares of AIII's common stock for each
share of the Acqueren's stock. In total, the terms of
the sale required AIII to issue 26,750,000 shares of
restricted common stock in exchange for 100% of the
outstanding common stock of Acqueren. Based upon the
estimated fair value of the restricted common stock of
AIII, the total purchase consideration of the Company
was approximately $2,140,000 ($.08 per share).
CRC ACQUISITION - On September 24, 1998, the
shareholders of Cinema Research Corporation and Digital
Research Corporation, entities under common ownership
and collectively referred to as "CRC", completed an
agreement to sell 100% of the outstanding stock to AIII.
As a part of the purchase, AIII acquired Electronic
Pictures Corporation, a company that owned an option to
purchase CRC and D-Rez as its only asset and AIII
exercised this option. Terms of the sale required AIII
to issue 6,300,000 shares of its restricted common stock
and give options to purchase 400,000 shares of the
acquirer's common stock over a 5 year period at $.20 per
share. In addition, the acquirer issued a $379,500
non-interest bearing note payable due in sixty equal,
monthly installments. Based upon the estimated fair
value of the restricted common stock of $1,260,000 ($.20
per share), stock options valued at $32,000 and the
discounted present value note payable to selling
shareholder of $303,300, the total purchase
consideration of the Company was approximately
$1,595,300.
As a condition to selling CRC, the president and chief
executive officer, and vice-president of marketing, who
was a selling shareholder of CRC, signed five and six
year employment contracts, respectively, which included
covenants not to compete with the Company for the term
of the contract. These contracts require aggregate
compensation payments of approximately $175,000 annually
to these individuals.
F-14
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
ACCOUNTING FOR ACQUISITIONS - The allocation of the
purchase prices in the Acqueren and CRC acquisitions are
shown below and are based upon management's initial
estimation of the fair market values of the acquired
assets and liabilities assumed. Such estimate is subject
to revision as more information regarding fair market
values becomes available.
<TABLE>
<CAPTION>
Acqueren CRC
----------------------------------------------------------------------------------------
<S> <C> <C>
Purchase consideration:
Notes payable to selling stockholder
(discounted value) $ - $ 303,300
Common stock and options (restricted) 2,140,000 1,292,000
----------------------------------------------------------------------------------------
$ 2,140,000 $ 1,595,300
----------------------------------------------------------------------------------------
Assets acquired and liabilities assumed:
Current assets $ 4,034,626 $ 843,359
Property, plant and equipment 100,000 3,700,000
Other assets - 80,227
Non-compete agreements - 150,000
Goodwill 879,834 178,136
Current liabilities (2,581,079) (709,821)
Capital lease obligations - (1,498,601)
Notes payable - (975,000)
Debt to related parties (293,381) (173,000)
----------------------------------------------------------------------------------------
$ 2,140,000 $ 1,595,300
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
The following presents the unaudited pro forma results
of operation of AIII for the year ended December 31,
1997 and the nine months ended September 30, 1998 and
1997, as if these purchase transactions would have been
consummated as of January 1, 1997.
F-15
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the Nine For the Nine
Year Ended Months Ended Months Ended
December 31, September 30, September 30,
1997 1998 1997
--------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C>
Pro forma sales $16,808,397 $ 12,455,780 $11,992,701
Pro forma operating
loss $(2,182,907) $ (1,903,364) $(1,608,659)
Pro forma net loss $(2,448,212) $ (1,863,640) $(1,822,797)
Pro forma basic and
diluted net loss
per share $ (.04) $ (.02) $ (.03)
Weighted average
shares outstanding 69,171,344 107,123,236 66,951,590
</TABLE>
4. TRADING In the third quarter of 1998, the Company began
SECURITIES investing excess funds in marketable, equity securities.
In order to reduce the cost of the investment and
associated risk in such securities, the Company sold
call options for the number of shares purchased. The
securities and related call options are carried at
market value with any changes in market value during the
period of the stock or call option included as a
component of net income. For the nine-months ended
September 30, 1998, the Company recognized a $37,845
increase in the market value of such equity securities
as a component of net loss.
As of September 30, 1998, the trading securities and
related call options are summarized below.
<TABLE>
<CAPTION>
Security Option
Equity Security Security Market Option Market
(unaudited) Cost Value Proceeds Value
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
General Instruments,
10,000 shares of
common stock $176,817 $228,750 $(27,512) $ (50,000)
Loral Space and
Communications,
10,000 shares of
common stock 132,290 147,500 (18,812) (21,870)
Ciena Corporation,
2,000 shares of
common stock 27,838 28,625 $ (3,461) (8,000)
------------------------------------------------------------------------------------
$336,945 $404,875 $(49,785) $(79,870)
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>
F-16
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
In addition, the Company purchased such trading
securities under a margin account arrangement. As of
September 30, 1998, the Company owed approximately
$160,000 on such margin account and this amount is
included in accrued expenses in the accompanying
financial statements. Further, the market value of the
options is also included in accrued expenses at
September 30, 1998.
5. INVENTORIES Inventories consisted of the following at:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
----------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Raw materials $ 44,125 $ 65,259
Work-in-process 102,489 175,362
Finished goods 33,408 1,147,628
----------------------------------------------------------------------
$ 180,022 $1,388,249
----------------------------------------------------------------------
</TABLE>
6. INVESTMENT Investment properties include the following:
PROPERTIES
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
----------------------------------------------------------------------
(unaudited)
<S> <C> <C>
290 undeveloped acres on
Galveston Bay, Texas (Note 3) $1,800,000 $1,800,000
42.6 undeveloped acres of land in
Southeast Houston, Texas (1) - 1,400,000
Commercial properties in Harris
County, Texas (1) - 565,000
736 undeveloped acres of land in
Anuahauc, Texas (2) - 736,000
23 acres of undeveloped land in
Harris County, Texas - 164,800
Other properties 183,700 183,700
----------------------------------------------------------------------
$1,983,700 $4,849,500
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
(1) In June 1998, AIII purchased a real estate company,
Mid-Towne Properties, Inc. ("Mid-Towne") for 2,100,000
shares plus the assumption of property taxes of
approximately $300,000. Mid-Towne was 60% owned by a
trust for the benefit of the son of the CEO of the
Company and the recorded values of these assets were
based upon recent
F-17
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
independent appraisals. These properties had no material
operations in 1998 and 1997.
(2) On May 14, 1998, the Company purchased 736 acres of
undeveloped land in Anuahauc, Texas from a company owned
by the Chief Executive Officer of AIII who is also a
stockholder in the Company. The consideration paid for
the land consisted of 8,000,000 shares of newly issued,
restricted common stock of AIII. Since this land was
purchased from a related party the property was recorded
at its fair market value as determined by independent
appraisal. This acreage had no material operations in
1998 and 1997. Of the 8,000,000 shares issued, the
company controlled by the CEO of the Company transferred
5,000,000 shares to Elk International Corporation, Ltd.,
a company controlled by his brother, for satisfaction of
existing debt on the property.
Management of AIII has made the determination that it is
in the best interest of the company's stockholders to
continue to hold such assets until an acceptable offer
is received for these properties or a development
opportunity is identified. The properties are listed
with a sales agent, however there are no entities
actively interested in any of the company's properties.
7. PROPERTY AND Major classes of property and equipment together with
EQUIPMENT their estimated useful lives, consisted of the
following:
<TABLE>
<CAPTION>
Years December 31, September 30,
1997 1998
----------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
Land - $ 328,000 $ 328,000
Building and improvements 20 665,246 665,246
Machinery and equipment 8 404,117 4,322,332
Office equipment 7 29,735 75,325
Automobiles 5 25,800 101,800
---------------------------------------------------------------------------------------
1,452,898 5,492,703
Less accumulated depreciation
and amortization (117,185) (290,500)
---------------------------------------------------------------------------------------
Net property and equipment $1,335,713 $5,202,203
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
Included in the above balances as of September 30, 1998
are assets used by the Company for CRC's operation under
capital leases (see Note 10). Such leased assets include
approximately $2,000,000 of digital film and computer
equipment.
F-18
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
8. NOTES PAYABLE Notes payable to a bank consisted of the following:
TO BANK
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
--------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Note payable to a bank, 9.75% per annum,
due in monthly payments of principal
and interest of $7,895 through February 2003
with remaining amount due in March 2003
for Har-Whit $644,878 $ 640,401
Note payable to a bank, 8% per annum,
due in January 2000 with only
interest due quarterly for CRC - 1,000,000
$150,000 line of credit with a bank,
10.5% per annum, interest only
due monthly with payment of principal
due at maturity in March 1999 for Har-Whit - 49,132
Note payable to bank's finance company,
10.5% per annum due in monthly payments
of principal and interest of $575
through 2004 - 56,777
--------------------------------------------------------------------------------
644,878 1,746,310
Less-current portion (72,962) (130,647)
--------------------------------------------------------------------------------
$571,916 $1,615,663
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
The notes payable are outstanding to a specific
subsidiary and are secured by that subsidiary's
inventory, accounts receivable and property and
equipment. The notes are also guaranteed by AIII
and the $1,000,000 note payable as of September 30,
1998 is further collateralized by AIII's cash in bank.
On December 31, 1997, the Company's 9.5% note payable to
a bank for the amount of $644,878 matured. In March
1998, the Company refinanced this loan with a long-term
note payable. Due to the refinancing of the note in
1998, the amount of note payable to bank reported as
current and long-term portions in the December 31, 1997
balance sheet are based upon the terms of the refinanced
note.
F-19
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
Principal repayment provisions of long-term
debt are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
-------------------------------------------------------------------------------
<S> <C> <C>
(unaudited)
1998 $ 72,962 $ -
1999 40,773 130,647
2000 44,931 1,081,815
2001 49,513 81,815
2002 54,562 81,815
2003 382,137 370,218
-------------------------------------------------------------------------------
Total $644,878 $1,746,310
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
9. NOTES PAYABLE TO In connection with the acquisitions discussed in Note 3,
RELATED PARTIES the Company has the following notes payable to related
parties, none of which were outstanding at December 31,
1997:
<TABLE>
<CAPTION>
September 30,
1998
-------------------------------------------------------------------------------
(unaudited)
<S> <C>
Note payable to a selling stockholder of CRC, without
interest, due in monthly payments through September
2003 of $6,325, recorded using an 8% discount rate
(discount of $76,200) $ 303,300
Note payable to principal selling stockholder of Acqueren,
6% per annum, annual payment of $100,000 due in August 1999
and 2000 with remainder due in August 2001 293,381
Note payable to officer of CRC, 8% per annum, due upon demand 173,000
-------------------------------------------------------------------------------
Total notes payable to related parties 769,681
Less-current portion (273,000)
-------------------------------------------------------------------------------
Notes payable to related parties, long-term portion $ 496,681
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
Interest expense for the nine months ended September 30,
1998 on these related party notes was approximately
$5,000.
F-20
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
10. CAPITAL LEASES The Company, through its CRC acquisition (Note 3), has
the following future aggregate minimum annual lease
payments required under capital leases as of
September 30, 1998:
<TABLE>
<CAPTION>
Years ending September 30, (unaudited)
-------------------------------------------------------
<S> <C>
1999 $ 738,163
2000 900,577
2001 107,669
-------------------------------------------------------
Total minimum lease payments 1,746,409
Less amount representing interest (243,640)
-------------------------------------------------------
Present value of net minimum lease payments 1,502,769
Less current portion (596,468)
-------------------------------------------------------
Long-term portion $ 906,301
-------------------------------------------------------
-------------------------------------------------------
</TABLE>
Interest rates on the capitalized leases range from 7.3%
to 22.7%. The leases contains restrictive covenants
regarding various financial ratios and capital
distributions. At September 30, 1998, the Company was in
violation of certain financial ratios and has received a
waiver for those violations from the lessor.
11. CAPITAL STOCK The Company is authorized to issue up to 10,000,000
AND STOCK shares of Preferred Stock, $.001 par value per share of
OPTIONS which none are presently outstanding. The Preferred
Stock may be issued in one or more series, the terms of
which may be determined at the time of issuance by the
Board of Directors, without further action by
stockholders, and may include voting rights (including
the right to vote as a series of particular matters),
preferences as to dividends and liquidation, conversion,
redemption rights and sinking fund provisions. The
Company has no present plans for the issuance of
Preferred Stock.
The Company is authorized to issue up to 200,000,000
shares of Common Stock, of which 114,115,971 shares were
issued and outstanding, 7,000,000 shares were subscribed
at September 30, 1998, and 3,300,000 and 7,720,000 were
reserved for issuance pursuant to the exercise of
outstanding stock options as of December 31, 1997 and
September 30, 1998, respectively.
F-21
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
In September 1997, the Company sold 5,000,000 newly
issued restricted shares to a corporation controlled by
the brother of the CEO of the Company for $150,000. In
connection with this sale, the Company granted this
related party the option to purchase an additional
2,000,000 shares at $.02 per share and such option was
for three years and vested immediately. In 1998, this
option was exercised by the related party and the
Company received $40,000.
Also during 1997, the Company sold 500,000 restricted
common shares to a director of the Company for $.10
per share. Further in 1997, the Company sold an
additional 7,278,060 shares of common stock through
various private sales for between $.02 and $.10 per
share for total net proceeds of $203,456.
In connection with the change in control of the Company
to the 1997 Group (Note 1) in October 1997 the Company
issued 500,000 options to each of two individuals as an
enticement to return to manage the operations of
Har-Whit and P&S and also issued 300,000 options to the
outside legal counsel of the Company to purchase common
stock of AIII for legal services performed. These
options are exercisable at $.02 per share through
December 2002 and such options were immediately
exercisable. At the date of grant, these options were
determined to have no material value. Further, the two
individuals who manage Har-Whit and P&S were issued
100,000 shares individually of the Company's common
stock in January 1998 for management services rendered.
This issuance was recorded as $10,000 of compensation
expense in 1998 based on the market value of the shares
($.05 per share) at the date of grant. In May 1998,
these two individuals each were granted the right to
purchase 250,000 shares of the Company's common stock at
$.25 per share. These shares have not been paid for and
are classified as subscribed shares.
In December 1997, the Company issued 1,400,000 shares of
restricted common stock to a consulting firm for
strategic planning assistance rendered to the Company.
Such shares were valued at the market price of $.05 per
share resulting in a $70,000 charge to general and
administrative expense in 1997.
In connection with sale of newly issued restricted
common stock in May 1998, the Company granted an
investor the option to purchase an additional 4,000,000
shares at $.25 per share, which were immediately
exercisable through the year 2002.
F-22
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
In 1998, the Company issued 200,000 shares of common
stock to its CEO in exchange for executive and
management services rendered. Such award was recorded at
the date of grant as a $13,000 compensation expense
based on the market value (approximately $.07 per share)
of the shares issued. Further, in accordance with a May
1998 employment agreement, the Company granted an option
to purchase 2,000,000 shares at $.12 per share through
May 2001, which were immediately exercisable, to its
Chief Executive Officer. Since the option price exceeded
the then market value of AIII's stock, there was no
charge to expense for this grant.
In May 1998, the Company sold 3,500,000 newly issued
restricted shares to a corporation controlled by the
brother of the CEO of the Company for a total
consideration of $300,000.
In addition in January and May 1998, the Company issued
600,000 shares of restricted common stock to employees
and directors for management advisory services. These
awards were recorded as $32,700 of compensation
expense at the market value (ranging from $.05 to
$.08 per share) of the shares issued at the date of
grant.
During 1998, the Company sold 8,660,000 of restricted
common stock through various private sales for between
$.10 and $.40 per share for total proceeds of
$1,273,500. Also in 1998, holders of 500,000 options
exercised their rights and purchased stock for between
$.02 and $.04 per share. This issuance resulted in
$14,000 being paid to the Company. Further in 1998, the
Company issued 7,000,000 shares to individuals for
between $.10 and $.22 per share under stock subscription
agreements for total expected proceeds of $1,300,000. As
of September 30, 1998, $710,000 of such subscriptions
remain unpaid.
In July 1998, the Company declared a 10% stock dividend
that was payable to stockholders of record as of August
30, 1998. Such dividend resulted in issuance of
9,188,911 shares to stockholders and was accounted for
at the market value as of August 30, 1998 ($.26 per
share).
Effective December 31, 1996, the Company was required to
adopt the disclosure portion of SFAS No. 123. This
statement requires the Company to provide pro forma
information regarding net loss applicable to common
stockholders and loss per share as if compensation cost
for the Company's stock options granted had been
determined in accordance with the fair value based
method prescribed in SFAS 123. The Company estimates the
fair value of each stock option at the grant date by
using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants
in 1997 and 1998 as follows:
F-23
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1998
--------------------------------------------------------
<S> <C> <C>
Dividend yield 0% 0%
Expected volatility 90% 90%
Risk free interest 6.50% 6.50%
Expected lives 5 years 4-5 years
</TABLE>
Under the accounting provisions of SFAS 123, the
Company's net loss applicable to common stockholders and
loss per share would have been increased to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
For the For the Nine
Year Ended Months Ended
December 31, September 30,
1997 1998
---------------------------------------------------------------
(unaudited)
<S> <C> <C>
Net loss applicable to common
stockholders:
As reported $(870,027) $(137,908)
Pro forma $(880,027) $(282,908)
Loss per share:
As reported $ (.06) $ -
Pro forma $ (.06) $ -
---------------------------------------------------------------
---------------------------------------------------------------
</TABLE>
A summary of the status of the Company's stock options
to employees as of December 31, 1997 and September 30,
1998 and changes during the periods ending on those
dates is presented below:
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1998
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
-----------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Outstanding at
beginning of period - $ - 1,000,000 $.02
Granted 1,000,000 .02 2,020,000 .12
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
F-24
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1998
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
-------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Outstanding and
exercisable at
end of period 1,000,000 $ .02 3,020,000 $ .09
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Weighted-average
fair value of
options granted
during the period $ .01 $ .07
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about fixed
stock options outstanding at December 31, 1997 and
September 30, 1998:
<TABLE>
<CAPTION>
Number Out- Number Out- Weighted
standing and standing and Average
Exercisable at Exercisable at Remaining
Exercise December 31, September 30, Contractual
Price 1997 1998 Life (Years)
------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
$.02 1,000,000 1,000,000 4.0
$.12 - 2,000,000 4.0
$.34 - 20,000 4.0
------------------------------------------------------------------------------------------------
$.02 - $.34 1,000,000 3,020,000 4.0
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
</TABLE>
F-25
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
12. INCOME TAXES A reconciliation of income taxes at the federal
statutory rate to amounts provided for the periods shown
are as follows:
<TABLE>
<CAPTION>
For the nine months
For the ended
year ended September 30,
December 31, -------------------
1997 1998 1997
---------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Tax benefit computed at
statutory rate $(295,000) $(47,000) $(176,000)
Change in valuation allowance,
net of valuation allowance of
acquired subsidiaries 295,000 47,000 176,000
---------------------------------------------------------------------------------------
$ - $ - $ -
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
Deferred taxes are determined based on the temporary
differences between the financial statement and income
tax bases of assets and liabilities as measured by the
enacted tax rates which will be in effect when these
differences reverse. The components of deferred income
tax assets are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
---------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Deferred tax assets:
Provision for doubtful accounts $ 7,000 $ 167,000
Net operating loss 295,000 1,499,000
Provision for inventory losses - 108,000
Other - 35,000
---------------------------------------------------------------------------------------
302,000 1,809,000
Valuation allowance (302,000) (1,809,000)
Deferred tax liability:
Difference in carrying value of property
and equipment 298,804 298,804
---------------------------------------------------------------------------------------
Net deferred tax liability $ 298,804 $ 298,804
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
At December 31, 1997 and September 30, 1998, the Company
provided a 100% valuation allowance for the deferred tax
asset because it could not be determined whether it was
more likely than not that the deferred tax asset would
be realized.
F-26
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
The Company has net operating loss carryforwards of
approximately $867,000 and $1,008,000 as of December 31,
1997 and September 30, 1998, respectively, to offset
future taxable income which expire through 2118. In
addition, the acquired subsidiaries (Note 3) have
individual net operating loss carryforwards in excess
of $3,400,000. However, such net operating loss
carryforwards are limited due to separate company
limitations in accordance with income tax regulations.
13. COMMITMENTS As of November 1, 1997, Acqueren relocated its
AND operations from Brooklyn, NY, to Nicholls, GA. In
CONTINGENCIES accordance with the move the Company executed a lease
from an unrelated party for the Company's new facility
for a term of two years through October 9, 1999 and
provides for annual rent of $39,300. The lease provides
for an option to renew for an additional term of two
years. For the nine months ended September 30, 1998,
$29,500 was recorded as rent expense under this lease.
In connection with the relocation to Nicholls, GA in
1997, Acqueren terminated its union contract in New
York. The union has claimed a deficiency for unfunded
pension liabilities. Management has accrued $125,000 in
1998 relating to this potential liability. Management
estimates that such an amount will be sufficient to
cover any potential obligation to this union.
Various key officials of the Company have entered into
employment agreements with the Company. The CEO of the
Company entered into a three-year employment agreement
which provides for a monthly salary of $1,000 plus a
bonus as determined by the Board of Directors. The two
key management personnel of Har-Whit/Pitts and Spitts,
who are also Directors of the Company, entered into
three-year employment contracts expiring in 2000 that
require payments of $5,000 per month to each official
plus a bonus at the discretion of the Board of
Directors. The president of NPI previously entered into
an at-will employment agreement that provides an annual
salary of $124,000 plus a bonus based upon operating
results of this subsidiary. The Company entered into
other employment agreements in connection with the
purchase of CRC as discussed in Note 3.
CRC leases office space under a non-cancelable operating
lease expiring October 31, 1998 from the father-in-law
of the prior stockholder of CRC who became a shareholder
in the Company after the CRC acquisition discussed in
Note 3. As of the date of acquisition by AIII, CRC owed
approximately $160,000 of unpaid rent under this lease,
a portion of which was paid in the acquisition by AIII.
The Company has an option
F-27
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
- --------------------------------------------------------------------------------
to purchase this building for $1,170,000 through April
1999 and this value approximates its fair market value.
The Company leases automobiles under operating leases
expiring in various years through June 30, 2001. Future
aggregate rental payments under these non-cancelable
operating leases require annual payments of
approximately $20,000 through 2001.
On December 10, 1998, the Company filed an Original
Petition and Request for Temporary Injunction for breach
of contract and common law and stock fraud in connection
with the Company's acquisition of Acqueren, Inc. against
TDA Industries, Inc. and Fred Friedman in the 56th
Judicial District Court of Galveston, Texas. The Company
has claimed the defendants misrepresented the amount of
Acqueren's equity as of the date of the purchase
agreement. The Company is seeking actual damages in the
amount of not less than $1,100,000, in addition to
further relief which it may be entitled to.
14. RELATED In 1998, the Company advanced the Chief Executive
PARTY Officer $74,404. The officer executed a promissory note
TRANSACTIONS to the Company due upon demand. This note bears interest
at prime and is included in other current assets as of
September 30, 1998.
Other related party transactions are discussed in Notes
3,6,9,11 and 13.
F-28
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
Modern Film Effects, Inc.
(d\b\a Cinema Research Corporation)
and Digital Research Corporation
We have audited the combined balance sheet of Modern Film Effects, Inc. (d/b/a
Cinema Research Corporation) and Digital Research Corporation as of June 30,
1998, and the related combined statements of loss, stockholders' equity (capital
deficit) and cash flows for the year then ended. These financial statements are
the responsibility of the Companies' management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
As discussed in Notes 1 and 10, Cinema Research Corporation and Digital Research
Corporation were sold effective September 24, 1998.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Cinema Research
Corporation and Digital Research Corporation as of June 30, 1998, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
Houston, Texas
September 25, 1998
F-29
<PAGE>
MODERN FILM EFFECTS, INC.
(D/B/A CINEMA RESEARCH CORPORATION)
AND DIGITAL RESEARCH CORPORATION
COMBINED BALANCE SHEETS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
1998 1998
- -----------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS (Notes 7 and 10)
CURRENT
Cash $ 19,830 $ 139,285
Accounts receivable, net of allowance for doubtful accounts
of $19,775 418,964 470,473
Inventories (Note 2) 54,024 46,528
Prepaid expenses and other 30,215 102,073
- -----------------------------------------------------------------------------------------------
Total current assets 523,033 758,359
- -----------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, net of accumulated depreciation
(Note 3) 2,303,153 3,700,000
- -----------------------------------------------------------------------------------------------
OTHER
Deposits 14,019 14,019
Film library, net of accumulated depreciation of $10,000 16,208 66,208
Other receivable, net of allowance of $112,865 (Note 4) 100,000 90,000
Non-compete agreements (Note 10) - 150,000
Goodwill, net of accumulated amortization 20,000 178,136
- -----------------------------------------------------------------------------------------------
Total other assets 150,227 498,363
- -----------------------------------------------------------------------------------------------
$2,976,413 $4,956,722
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
</TABLE>
F-30
<PAGE>
MODERN FILM EFFECTS, INC.
(D/B/A CINEMA RESEARCH CORPORATION)
AND DIGITAL RESEARCH CORPORATION
COMBINED BALANCE SHEETS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, September 30,
1998 1998
- -----------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)
(Note 10)
CURRENT LIABILITIES
Accounts payable and accrued expenses (Note 9) $ 625,991 $ 474,821
Current portion of capital leases (Note 5) 592,530 592,300
Notes payable to related party, current portion (Note 7) 270,164 243,000
Deferred revenue - 95,000
- -----------------------------------------------------------------------------------------------
Total current liabilities 1,488,685 1,405,121
- -----------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES
Capital lease obligations (Note 5) 1,040,041 906,301
Notes payable to stockholders and related parties,
long-term portion (Note 7) - 233,300
Notes payable to bank (Note 8) 993,348 1,000,000
Advance from parent company - 120,000
- -----------------------------------------------------------------------------------------------
Total long-term liabilities 2,033,389 2,259,601
- -----------------------------------------------------------------------------------------------
COMMITMENTS (Notes 9 and 10)
STOCKHOLDERS' EQUITY (CAPITAL DEFICIT) (Note 10)
Common stock, 2,000 shares ,authorized, issued
and outstanding, no par value 11,000 11,000
Additional paid-in capital 510,025 1,281,000
Deficit (1,066,686) -
- -----------------------------------------------------------------------------------------------
Total stockholders' equity (capital deficit) (545,661) 1,292,000
- -----------------------------------------------------------------------------------------------
$ 2,976,413 $4,956,722
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
</TABLE>
F-31
<PAGE>
MODERN FILM EFFECTS, INC.
(D/B/A CINEMA RESEARCH CORPORATION)
AND DIGITAL RESEARCH CORPORATION
COMBINED STATEMENTS OF LOSS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
For the three months ended
year ended September 30,
June 30, -----------------------------
1998 1998 1997
- ------------------------------------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
NET SALES $5,849,579 $1,375,346 $1,487,812
COST OF SALES 4,300,284 1,009,076 980,716
- ------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 1,549,295 366,270 507,096
- ------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Selling 345,759 114,909 100,578
General and administrative 1,600,609 236,710 382,299
- ------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,946,368 351,619 482,877
- ------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (397,073) 14,651 24,219
- ------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (Note 8) (109,082) (21,103) (39,293)
Miscellaneous income 50,944 - -
- ------------------------------------------------------------------------------------------------------------------
Total other expenses, net (58,138) (21,103) (39,293)
- ------------------------------------------------------------------------------------------------------------------
NET LOSS $(455,211) $ (6,452) $ (15,074)
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
</TABLE>
F-32
<PAGE>
MODERN FILM EFFECTS, INC.
(D/B/A CINEMA RESEARCH CORPORATION)
AND DIGITAL RESEARCH CORPORATION
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN
SHARES(1) AMOUNT CAPITAL DEFICIT TOTAL
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, July 1, 1997 2,000 $11,000 $ 267,525 $ (611,475) $(332,950)
Contribution of capital by stockholder - - 181,985 - 181,985
Interest expense on stockholder
loan not charged by the Company - - 60,515 - 60,515
Net loss - - - (455,211) (455,211)
- -------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1998 2,000 11,000 510,025 (1,066,686) (545,661)
Net loss (unaudited) - - - (6,452) (6,452)
Purchase price allocation from
parent company (Note 10) (unaudited) - - 770,975 1,073,138 1,844,113
- -------------------------------------------------------------------------------------------------------------------
BALANCE, September 30, 1998 (unaudited) 2,000 $11,000 $1,281,000 $ - $1,292,000
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
</TABLE>
- ----------------------------------
(1) There are individually 1,000 shares of Modern Film Effects,
Inc. and Digital Research Corporation outstanding.
F-33
<PAGE>
MODERN FILM EFFECTS, INC.
(D/B/A CINEMA RESEARCH CORPORATION)
AND DIGITAL RESEARCH CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
For the
For the Three months ended
Year ended September 30,
June 30, ------------------------
1998 1998 1997
- -----------------------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(455,211) $ (6,452) $ (15,074)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Bad debts 112,865 - -
Depreciation and amortization 488,788 122,016 97,544
Accretion of interest on notes to stockholders 60,515 - -
Gain on sale of leased equipment (20,000) - -
Changes in assets and liabilities:
Accounts receivable 238,109 (41,509) (209,624)
Inventories (23,772) 7,496 (58,206)
Prepaid expenses and other current assets (7,788) (71,858) 627
Accounts payable and accrued expenses 123,455 (169,268) (22,718)
Other liabilities 9,425 - -
Deferred revenue received - 95,000 -
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 526,386 (64,575) (207,451)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (45,037) - -
Proceeds on sale of leased equipment 20,000 - -
Additions to film library (2,788) - -
- -----------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (27,825) - -
- -----------------------------------------------------------------------------------------------------
</TABLE>
F-34
<PAGE>
MODERN FILM EFFECTS, INC.
(D/B/A CINEMA RESEARCH CORPORATION)
AND DIGITAL RESEARCH CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
For the
For the Three months ended
Year ended September 30,
June 30, ------------------------
1998 1998 1997
- -----------------------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Equity contribution from stockholders 181,985 - -
Proceeds from borrowings from stockholders 260,000 173,000 210,000
Repayment of borrowings from stockholders (394,122) (250,000) -
Principal payments on notes payable to bank (120,095) (725,000) (19,000)
Proceeds from note payable to bank - 1,000,000 -
Principal payments on capital leases (545,215) (133,970) (100,613)
Advance from parent company - 120,000 -
- -----------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (617,447) 184,030 90,387
- -----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (118,886) 119,455 (117,064)
CASH, beginning of period 138,716 19,830 138,716
- -----------------------------------------------------------------------------------------------------
CASH, end of period $ 19,830 $ 139,285 $ 21,652
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 48,567 $ 22,500 $ 38,750
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
NON-CASH TRANSACTIONS (Note 10)
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
</TABLE>
F-35
<PAGE>
MODERN FILM EFFECTS, INC.
(D/B/A CINEMA RESEARCH CORPORATION)
AND DIGITAL RESEARCH CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30,1998 AND 1997 IS UNAUDITED.
- ------------------------------------------------------------------------------
1. SUMMARY OF BUSINESS AND BASIS OF PRESENTATION
SIGNIFICANT Cinema Research Corporation (CRC) is the operating
ACCOUNTING name of Modern Film Effects, Inc. which is organized
POLICIES under the laws of the State of California. Digital
Research Corporation ("D-Rez") is also organized as a
California corporation. CRC and D-Rez have common
ownership and are collectively referred to as the
Company. The Company provides full technical, optical
and digital services for motion pictures, television,
commercial and industrial producers, directors,
editors, and title designers throughout the greater
Los Angeles area.
The Company's financial statements are presented on
the going concern basis, which contemplates the
realization of assets and the satisfaction of
liabilities in the normal course of business. The
Company had a capital and a working capital deficit
at June 30, 1998 and incurred a net loss of $455,211
for the year then ended. These factors raised doubt
about the Company's ability to continue as a going
concern. However, in May 1998 the Company's
stockholders signed a letter of intent to sell their
interests to an unrelated company. This sale was
closed on September 24, 1998 as discussed in Note 10.
The new parent company of the Company has provided
assurances that it will provide funding for the
Company at least through December 31, 1999. Further,
management of the Company has developed a plan to
reduce operating costs while increasing revenues to
return the Company to profitability. However, there
are no assurances that such a plan will be successful
in returning the Company to profitable operations.
INTERIM FINANCIAL INFORMATION
The accompanying interim financial statements as of
September 30, 1998 and for the three months ended
September 30, 1998 and 1997 are unaudited. However,
the information includes all adjustments of a normal
recurring nature which are, in the opinion of
management, necessary to present fairly the financial
position of the Company as of September 30, 1998 and
the results of its operations and cash flows for the
three months ended September 30, 1998 and 1997.
Accounting measurements at interim dates inherently
involve greater reliance on estimates than at year
end. Accordingly, the results of operations for
those interim periods are not necessarily indicative
of the results for any other interim period or the
full year. The Company's September 30, 1998 balance
sheet is included in the financial statements of
American International Industries, Inc. (Note 10).
F-36
<PAGE>
MODERN FILM EFFECTS, INC.
(D/B/A CINEMA RESEARCH CORPORATION)
AND DIGITAL RESEARCH CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30,1998 AND 1997 IS UNAUDITED.
- ------------------------------------------------------------------------------
1. SUMMARY OF INVENTORIES
SIGNIFICANT Inventories consist of raw film stock and work in
ACCOUNTING process and is stated at the lower of cost (first-in,
POLICIES (CONT'D) first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. For
financial reporting purposes, depreciation is recorded
using the straight-line and accelerated methods over
the estimated useful lives of the property, which
range from three to ten years. The Company uses
accelerated methods for income tax purposes.
Expenditures for repairs and maintenance are charged
to expense when incurred. Additions, major renewals
and replacements that increase the property's useful
life are capitalized.
Leasehold improvements are amortized over the shorter
of the respective lease term or estimated useful life
of the improvement.
INTANGIBLE ASSETS
The Company's intangible assets as of September 30,
1998 represent goodwill acquired and the value of non-
compete agreements in the transaction discussed in
Note 10. The Company amortizes goodwill over a 15
year period and the non-compete agreements over 5
years on a straight-line basis.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews the carrying values of its long-
lived and intangible assets for possible impairment
whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be
recoverable.
INCOME TAXES
The Company accounts for income taxes using the asset
and liability method. This method generally provides
that deferred tax assets and liabilities be recognized
for temporary differences between the financial
reporting basis and the income tax basis of the
Company's assets and liabilities. A valuation
allowance is recorded to reduce the potential deferred
tax asset when it is more likely than not that all or
some portion of the potential deferred tax asset will
not be realized. The impact on deferred taxes of
changes in tax rates and laws, if any, are applied to
the years during which temporary differences are
expected to be settled and reflected in the financial
statements in the period of enactment.
F-37
<PAGE>
MODERN FILM EFFECTS, INC.
(D/B/A CINEMA RESEARCH CORPORATION)
AND DIGITAL RESEARCH CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30,1998 AND 1997 IS UNAUDITED.
- ------------------------------------------------------------------------------
1. SUMMARY OF Subsequent to the sale of the Company (Note 10), the
SIGNIFICANT Company's operating results will be included in the
ACCOUNTING parent company's consolidated income tax return.
POLICIES
(CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the
Company to concentration of credit risk consist
primarily of trade receivables. In the normal course
of business, the Company extends unsecured credit to
customers principally in the California-based
entertainment industry.
USE OF ESTIMATES
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
2. INVENTORIES Inventories consisted of the following as of:
<TABLE>
<CAPTION>
June 30, September 30,
1998 1998
------------------------------------------------
(unaudited)
<S> <C> <C>
Raw materials $ 30,264 $ 24,791
Work-in-process 23,760 21,737
------------------------------------------------
$ 54,024 $ 46,528
------------------------------------------------
------------------------------------------------
</TABLE>
F-38
<PAGE>
MODERN FILM EFFECTS, INC.
(D/B/A CINEMA RESEARCH CORPORATION)
AND DIGITAL RESEARCH CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30,1998 AND 1997 IS UNAUDITED.
- ------------------------------------------------------------------------------
3. PROPERTY AND Property and equipment consisted of the following as of:
EQUIPMENT
<TABLE>
<CAPTION>
June 30, September 30,
1998 1998
-----------------------------------------------------------------
<S> <C> <C>
(unaudited)
Machinery and film equipment $ 4,439,900 $ 3,200,000
Computer equipment
and software 527,718 300,000
Office furniture, fixtures,
and equipment 283,301 150,000
Leasehold improvements 186,455 50,000
-----------------------------------------------------------------
5,437,374 3,700,000
Less accumulated depreciation (3,134,221) -
-----------------------------------------------------------------
Property and equipment, net $ 2,303,153 $ 3,700,000
-----------------------------------------------------------------
-----------------------------------------------------------------
</TABLE>
Included in the above balances are assets used by the
Company under capital leases (see Note 5). Such leased
assets include approximately $2,400,000 of film
equipment and $155,000 of computer equipment.
Accumulated depreciation on such leased assets totaled
approximately $480,000 as of June 30, 1998. As of
September 30, 1998 equipment under capital leases was
approximately $2,000,000.
4. OTHER RECEIVABLE Other receivable consists of an amount owed for work
performed by the Company for an unrelated party. This
project was completed in 1996 and the Company is
awaiting payment of this amount from proceeds from the
sale of the film rights. Due to the uncertainty of the
collection of this amount, an allowance of $112,865 has
been established for this receivable as of June 30,
1998 and the net balance of $100,000 has been
classified as a non-current asset in the accompanying
financial statements. During the three month period
ended September 30, 1998, $10,000 was collected on this
account.
F-39
<PAGE>
MODERN FILM EFFECTS, INC.
(D/B/A CINEMA RESEARCH CORPORATION)
AND DIGITAL RESEARCH CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30,1998 AND 1997 IS UNAUDITED.
- ------------------------------------------------------------------------------
5. CAPITAL LEASES Future aggregate minimum annual lease payments required
under capital leases (see Note 3) as of June 30, 1998
follows:
<TABLE>
<CAPTION>
YEARS ENDING
------------------------------------------------------------
<S> <C>
1999 $ 743,620
2000 900,577
2001 231,896
2002 6,286
------------------------------------------------------------
Total minimum lease payments 1,882,379
Less amount representing interest (249,808)
------------------------------------------------------------
Present value of net minimum lease payments 1,632,571
Less current portion (592,530)
------------------------------------------------------------
Long-term portion $ 1,040,041
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
Interest rates on the capitalized leases range from
7.3% to 22.7%. The leases contains restrictive
covenants regarding various financial ratios and
payments to officers/stockholders. As of June 30 and
September 30, 1998, the Company was in violation of
these covenants but has obtained a waiver from the
lessor.
6. INCOME TAXES A reconciliation of income taxes at the federal
statutory rate to amounts provided for the year ended
June 30, 1998 follows:
<TABLE>
<S> <C>
Tax benefit computed at statutory rates $(155,000)
Change in valuation allowance 155,000
------------------------------------------------------
$ -
------------------------------------------------------
------------------------------------------------------
</TABLE>
Deferred taxes are determined based on the temporary
differences between the financial statement and income
tax bases of assets and liabilities as measured by the
enacted tax rates which will be in effect when these
differences reverse. The components of deferred income
tax assets as of June 30, 1998 were as follows:
F-40
<PAGE>
MODERN FILM EFFECTS, INC.
(D/B/A CINEMA RESEARCH CORPORATION)
AND DIGITAL RESEARCH CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30,1998 AND 1997 IS UNAUDITED.
- ------------------------------------------------------------------------------
6. INCOME TAXES
(CONT'D).
<TABLE>
<S> <C>
Deferred tax assets:
Provision for doubtful accounts $ 44,000
Net operating loss 670,000
Other 35,000
------------------------------------------------------
749,000
Deferred tax liability - Depreciation (291,000)
Valuation reserve (458,000)
------------------------------------------------------
Net deferred tax assets $ -
------------------------------------------------------
------------------------------------------------------
</TABLE>
At June 30, 1998, the Company provided a 100% valuation
allowance for the deferred tax asset because it could
not determine whether it was more likely than not that
the deferred tax asset would be realized.
At June 30, 1998, Cinema Research Corporation and
Digital Research Corporation had available net
operating loss carryforwards (NOL) of approximately
$1,960,000 which expire in varying amounts through
2013. In accordance with income tax regulations, such
NOLs will be limited due to the sale of the Company as
discussed in notes 1 and 10.
7. NOTES PAYABLE
TO STOCKHOLDERS The stockholders of the Company loaned $674,000 to the
Company on an unsecured basis as of June 30, 1998.
Such notes bear interest from 8.5% to 10% and have no
stated maturity and interest expense for the year ended
June 30, 1998 was approximately $60,000. In addition,
the stockholders took non-interest bearing, unsecured
advances from the Company of $403,836. The net amount
owed to stockholders as of June 30, 1998 was $270,164
and such amount is classified as a current liability as
it is due on demand. $20,164 of these net loans were
not repaid as part of the sale of the Company as
discussed in Note 10.
As part of the sale of the Company (Note 10), the
acquirer issued a $379,500 non-interest bearing note
payable due in sixty equal, monthly installments. The
discounted, present value of this note payable is
$303,300 with $70,000 of such amount classified as a
current liability at September 30, 1998 with the
remainder classified as long-term. Subsequent to June
30, 1998, a prior stockholder advanced the Company an
additional $173,000 which is also classified as a
current liability as it is due on demand.
F-41
<PAGE>
MODERN FILM EFFECTS, INC.
(D/B/A CINEMA RESEARCH CORPORATION)
AND DIGITAL RESEARCH CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30,1998 AND 1997 IS UNAUDITED.
- ------------------------------------------------------------------------------
8. NOTES PAYABLE
TO BANK Notes payable to bank are collateralized by
substantially all of the Company's assets and consisted
of:
<TABLE>
<CAPTION>
June 30, September 30,
1998 1998
---------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Note payable to bank, interest
at 11% per annum, monthly
payments of $5,000 plus
interest through June 2004 $ 480,041 $ -
Note payable to bank, interest
at 10% per annum, matured
in April 1998 449,760 -
Note payable to bank, interest
at 10% per annum, monthly
payments of $3,333 plus
interest through January 2000 63,547 -
Note payable to a bank, interest
at 8% per annum, due in
January 2000 with only
interest due quarterly - 1,000,000
---------------------------------------------------------------------------
$ 993,348 $ 1,000,000
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
As of June 30, 1998 and through September 24, 1998, the
Company was in default of certain of the restrictive
covenants relating to its notes payable. As discussed
in Notes 1 and 10, the Company was sold to a third
party on September 24, 1998 and the acquirer assumed
certain of the notes payable of the notes outstanding
as of June 30, 1998 with the remaining amount being the
obligation of the prior stockholders. Since the
assumed notes payable were refinanced by the acquirer
with long-term debt, the balance of the notes payable
as of June 30, 1998 is classified as long-term
liabilities.
9. COMMITMENTS Cinema Research Corporation leases office space under a
non-cancelable operating lease expiring October 31,
1998 from an individual who is related to a principal
stockholder of the Company. The lease requires monthly
payments of approximately $20,000. The lease has an
option to renew for one three-year term at the same
rate as the initial period. As of June 30, 1998, the
Company owed approximately $160,000 of unpaid rent
under this lease and such amount is included in accrued
expenses in the financial statements as of June 30,
1998. For the year ended June 30,
F-42
<PAGE>
MODERN FILM EFFECTS, INC.
(D/B/A CINEMA RESEARCH CORPORATION)
AND DIGITAL RESEARCH CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30,1998 AND 1997 IS UNAUDITED.
- ------------------------------------------------------------------------------
9. COMMITMENTS
(CONT'D). 1998, the company incurred $240,000 of rent expense
under this lease. As a condition to closing the
acquisition of the Company (Note 10), a portion of this
accrued rent was not assumed by the acquirer.
Digital Research Corporation leases office space under
a non-cancelable operating lease expiring October 31,
1998. The lease requires monthly payments of
approximately $6,129. For the year ended June 30, 1998
and three months ended September 30, 1998, the company
incurred $73,548 and $18,387, respectively, of rent
expense under this lease.
The Company leases automobiles under operating leases
expiring in various years through year ending June 30,
2001. Future aggregate rental payments under such
leases require annual payments of approximately
$20,000.
10. SUBSEQUENT
EVENT On September 24, 1998, the Company's stockholders
completed an agreement to sell 100% of the outstanding
stock to a third party, as discussed in Note 1. Terms
of the sale required the acquirer to issue 6,300,000
shares of its restricted common stock and give options
to purchase 400,000 shares of the acquirer's common
stock over a 5 year period at $.20 per share. In
addition, the acquirer issued a $379,500 non-interest
bearing note payable due in sixty equal, monthly
installments. Also, the acquirer refinanced the
Company's notes payable (see Note 8).
As a condition to selling the Company, the president
and chief executive officer and vice-president of
marketing (who was a selling shareholder of the
Company) signed five and six year employment contracts,
respectively. These contracts included covenants not to
compete with the Company for the terms of the
respective contracts. These contracts require aggregate
compensation payments of approximately $140,000
annually to these individuals. Further, the contracts
provide for the payment of incentives based upon
individual and operating performance. The Company has
assigned $150,000 of value to these non-compete
contracts as of September 30, 1998.
Based upon the estimated fair value of the restricted
common stock and stock options ($1,292,000) and the
note payable issued to a selling stockholder
($303,300), the total consideration paid for the
Company was approximately $1,595,300. The purchase
price is allocated based upon the fair value of the
assets acquired and liabilities assumed and such
allocation is shown in the following schedule. Since
the purchase price exceeded the net fair value of the
assets acquired, the remaining purchase price is
allocated to goodwill which is amortized over 15 years.
F-43
<PAGE>
MODERN FILM EFFECTS, INC.
(D/B/A CINEMA RESEARCH CORPORATION)
AND DIGITAL RESEARCH CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30,1998 AND 1997 IS UNAUDITED.
- ------------------------------------------------------------------------------
The following purchase price allocation is based upon
management's initial estimation of the fair market
values of the acquired assets and liabilities assumed.
Such estimate is subject to revision as more
information regarding these fair market values becomes
available.
<TABLE>
------------------------------------------------------
<S> <C>
Assets acquired and liabilities assumed:
Current assets $ 753,359
Property and equipment 3,700,000
Other assets 170,227
Non-compete agreements 150,000
Goodwill 178,136
Current liabilities (882,821)
Capital lease obligations (1,498,601)
Notes payable (975,000)
------------------------------------------------------
$ 1,595,300
------------------------------------------------------
------------------------------------------------------
</TABLE>
Because the new parent acquired 100% of the outstanding
common stock of the Company, the effect of the purchase
has been reflected in the financial statements of the
Company as of September 30, 1998 using "push down"
accounting. This purchase price allocation resulted in
the following non-cash purchase price adjustments for
the three months ended September 30, 1998:
<TABLE>
----------------------------------------------------------------------
<S> <C>
Property and equipment $ 1,518,863
Other assets 50,000
Non-compete agreements 150,000
Goodwill 178,136
Write-off of existing goodwill at purchase (20,000)
Other obligations assumed in purchase - net (18,098)
Cancellation of note payable to related party 20,164
Notes payable not assumed in purchase 268,348
Issuance of note payable to selling stockholder (303,300)
Equity (1,844,113)
----------------------------------------------------------------------
</TABLE>
F-44
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the board of Directors
and Stockholder of
Acqueren, Inc.
Kemah, Texas
We have audited the consolidated balance sheet of Acqueren, Inc. as of June 30,
1998 and the related consolidated statements of operations, stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
As discussed in Note 8, the Company was acquired effective July 1, 1998 by
American International Industries, Inc., in a business combination accounted for
as a purchase transaction.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Acqueren, Inc. as of
June 30, 1998, and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Houston, Texas
September 18, 1998
F-45
<PAGE>
ACQUEREN, INC.
CONSOLIDATED BALANCE SHEETS
(NOTE 8)
<TABLE>
<CAPTION>
June 30, September 30,
1998 1998
------------ -------------
(unaudited)
<S> <C> <C>
ASSETS
Current:
Cash...................................................... $ 2,021,956 $ 680,617
Accounts receivable - trade, less allowance for doubtful
accounts of $362,633.................................... 1,439,499 2,007,062
Inventories............................................... 984,355 1,102,732
Trading securities (Note 2)............................... - 404,875
Investment securities, at cost............................ - 54,540
Other..................................................... 10,592 18,944
------------ -------------
Total current assets.................................. 4,456,402 4,268,770
Property and equipment, less accumulated
depreciation and amortization (Note 3).................... 68,525 94,601
Goodwill, less accumulated amortization of $10,500.......... - 869,334
------------ -------------
$ 4,524,927 $5,232,705
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable related party, current portion (Note 5)...... $ 1,103,938 $ 100,000
Accounts payable.......................................... 1,612,412 1,963,952
Accrued expenses and other (Notes 2 and 7)................ 311,478 522,125
Due to parent............................................. - 50,000
------------ -------------
Total current liabilities............................. 3,027,828 2,636,077
Note payable - related party, less current portion (Note 5). 295,771 193,381
------------ -------------
Total liabilities..................................... 3,323,599 2,829,458
------------ -------------
Commitments and Contingencies (Note 7)
Stockholders' equity
Common stock, $.001 par value, 10,000,000 shares
authorized, 1,549,473 outstanding....................... 1,549 1,549
Additional paid-in capital................................ 3,012,317 2,138,451
Retained earnings (deficit)............................... (1,812,538) 263,247
------------ -------------
Total stockholders' equity............................ 1,201,328 2,403,247
------------ -------------
$ 4,524,927 $5,232,705
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-46
<PAGE>
ACQUEREN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the
year ended For the three months ended
June 30, September 30,
1998 1998 1997
------------ ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Revenues.................................................... $ 7,841,829 $3,935,820 $2,808,922
Cost of revenues............................................ 7,392,882 3,342,653 2,346,483
------------ ---------- ----------
Gross profit................................................ 448,947 593,167 462,439
Selling, general and
administrative expenses................................... 1,496,037 275,367 440,412
------------ ---------- ----------
Income (loss) from operations............................... (1,047,090) 317,800 22,027
------------ ---------- ----------
Other income (expense):
Interest income.......................................... 90,795 823 20,000
Interest expense (Note 5)................................ (117,856) (3,700) (21,313)
Increase in market value
of trading securities.................................. - 37,845 -
Other.................................................... (21,465) 479 -
------------ ---------- ----------
Total other income (expense), net........................... (48,526) 35,447 (1,313)
------------ ---------- ----------
Income (loss) before income taxes.......................... (1,095,616) 353,247 20,714
Income tax expense - current (Note 6)....................... - (90,000) -
------------ ---------- ----------
Net income (loss)........................................... $ (1,095,616) $ 263,247 $ 20,714
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-47
<PAGE>
ACQUEREN, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid-in Earnings
Shares Amount Capital (Deficit) Total
--------- ------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, July 1, 1997..................... 1,549,473 $1,549 $3,012,317 $ (716,922) $ 2,296,944
Net loss.................................. - - - (1,095,616) (1,095,616)
--------- ------- ---------- ------------ ------------
BALANCE, June 30, 1998.................... 1,549,473 1,549 3,012,317 (1,812,538) 1,201,328
Purchase price allocation
from parent company (Note 8)
(unaudited)............................ - - (873,866) 1,812,538 938,672
Net income (unaudited).................... - - - 263,247 263,247
--------- ------- ---------- ------------ ------------
BALANCE, September 30, 1998 (unaudited)... 1,549,473 $1,549 $2,138,451 $ 263,247 $ 2,403,247
--------- ------- ---------- ------------ ------------
--------- ------- ---------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-48
<PAGE>
ACQUEREN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
For the
year ended For the three months ended
June 30, September 30,
1998 1998 1997
------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $(1,095,616) $ 263,247 $ 20,714
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization....................... 21,600 15,899 5,807
Increase in market value of trading securities...... - (37,845) -
Provision for doubtful accounts..................... 178,633 - -
Changes in operating assets and liabilities:
Accounts receivable............................ (600,862) (567,563) (1,545,723)
Inventories.................................... 1,135,227 (118,377) 107,753
Trading securities............................. - (176,945) -
Cash received from sale of options............. - 49,785 -
Other current asset............................ 47,980 (8,352) 5,176
Accounts payable............................... 881,870 351,540 1,354,031
Accrued expenses and other
current liabilities.......................... 136,701 (1,860) 73,624
------------ ------------ ------------
Net cash provided by (used in) operating activities....... 705,533 (230,471) 21,382
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures.................................... (792) - -
Purchase of investment securities....................... - (54,540) -
------------ ------------ ------------
Net cash used in investing activities..................... (792) (54,540) -
------------ ------------ ------------
Cash flows from financing activities:
Due to parent........................................... - 50,000 -
Repayment of note payable -- bank...................... (750,000) - (150,000)
Repayment of notes payable -- stockholders.............. - (1,106,328) -
Proceeds of long-term debt to related parties........... 1,000,000 - -
Repayment of long-term debt............................. (1,004,230) - -
------------ ------------ ------------
Net cash used in financing activities..................... (754,230) (1,056,328) (150,000)
------------ ------------ ------------
Net decrease in cash...................................... (49,489) (1,341,339) (128,618)
Cash at beginning of period............................... 2,071,445 2,021,956 2,071,445
------------ ------------ ------------
Cash at end of period..................................... $ 2,021,956 $ 680,617 $ 1,942,827
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-49
<PAGE>
ACQUEREN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
For the
year ended For the three months ended
June 30, September 30,
1998 1998 1997
---------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest........ $110,856 $ - $ -
---------- ----------- -----------
---------- ----------- -----------
NON-CASH TRANSACTIONS:
Investments purchased on margin account......... $ - $ 160,000 $ -
---------- ----------- -----------
---------- ----------- -----------
Purchase price adjustments (Note 8):
Property and equipment........................ $ - $ 31,475 $ -
---------- ----------- -----------
---------- ----------- -----------
Goodwill...................................... $ - $ 879,834 $ -
---------- ----------- -----------
---------- ----------- -----------
Accrued liabilities not assumed............... $ - $ 27,363 $ -
---------- ----------- -----------
---------- ----------- -----------
Equity........................................ $ - $ (938,672) $ -
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-50
<PAGE>
ACQUEREN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
Acqueren, Inc. and its wholly-owned subsidiary, Northeastern Plastics,
Inc., (collectively referred to as "the Company") are engaged in the import,
sale and repair of a variety of electrical wiring devices for wholesale and
retail distribution. Effective July 1, 1998, the Company was acquired in a
purchase transaction (see Note 8).
INTERIM FINANCIAL INFORMATION
The accompanying interim financial statements as of September 30, 1998 and
for the three months ended September 30, 1998 and 1997 are unaudited.
However, the information includes all adjustments of a normal recurring nature
which are, in the opinion of management, necessary to present fairly the
financial position of the Company as of September 30, 1998 and the results of
its operations and cash flows for the three months ended September 30, 1998
and 1997. Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year end. Accordingly, the results of operations
for those interim periods are not necessarily indicative of the results for any
other interim period or the full year.
The Company's balance sheet as of September 30, 1998 and its operating
results for the three months then ended are included in the financial statements
of American International Industries, Inc. for the nine months ended September
30, 1998 (see Note 8).
TRADING SECURITIES
The Company records trading securities and related call options sold on
such securities at market value with any changes in the market value of such
securities and options included as a component of net income for the period.
The Company only sells call options for the number of shares purchased, with
the proceeds of such sales recorded as a liability. The Company does not
enter into any speculative option transactions.
INVENTORIES
Inventories, consisting primarily of finished goods, are valued at the
lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and
amortization of improvements and equipment are provided principally by either
the straight-line or accelerated methods over the estimated useful lives of
the assets for financial statement purposes and accelerated methods for
income tax purposes.
GOODWILL
Goodwill is the result of the sale of the Company and has been recorded
to the extent that the purchase price exceeded the net fair value of the
assets acquired (see Note 8). Goodwill is being amortized over 15 years.
F-51
<PAGE>
ACQUEREN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
INCOME TAXES
Deferred income taxes are calculated using the liability method. Under
this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and income tax bases of assets
and liabilities measured using the enacted tax rates which will be in effect
when these differences reverse (see Note 6). A valuation allowance, if
necessary, is recorded to reduce the deferred tax asset when management
believes that it is more likely than not that all or some portion of the
potential deferred tax asset will not be realized. Such analysis is primarily
based on trends in the Company's operating results.
IMPAIRMENT OF LONG-LIVED ASSETS
Realization of long-lived assets, including goodwill, is periodically
assessed by the management of the Company. Accordingly, in the event that
facts and circumstances indicate that property and equipment or goodwill may
be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows associated
with the asset are compared to the asset's carrying amount to determine if a
write-down to market value is necessary. In management's opinion, there is no
impairment of such assets at June 30, 1998 or September 30, 1998.
MANAGEMENT'S ESTIMATES AND ASSUMPTIONS
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles which requires management to make
estimates and assumptions that effect the reported amounts of assets and lia-
bilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. The Company reviews all significant estimates affecting
the financial statements on a recurring basis and records the effect of any
necessary adjustments prior to their issuance. The actual results could differ
from those estimates.
REVENUE RECOGNITION
Revenues are recognized upon shipment of product to customers.
CONCENTRATION OF CREDIT RISK
At June 30, 1998 and September 30, 1998, the Company's cash in a financial
institution exceeded the federally insured deposits limit by approximately
$1,715,000 and $480,000, respectively. Management does not anticipate any
losses on these deposits. The Company extends credit to its customers,
primarily in the retail industry, throughout the United States.
For the year ended June 30, 1998 three customers accounted for
approximately 21%, 13% and 11% of the Company's revenues.
F-52
<PAGE>
ACQUEREN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
NOTE 2 - TRADING SECURITIES
During the three months ended September 30, 1998, the Company began
investing excess funds in marketable, equity securities. In order to reduce
the cost of the investment and associated risk in such securities, the Company
sold call options for the number of shares purchased. The securities and
related call options are carried at market value with any changes in market
value during the period of the stock or call option included as a component of
net income. For the three months ended September 30, 1998, the Company
recognized a $37,845 increase in the market value of such equity securities as a
component of net loss.
As of September 30, 1998, the trading securities and related call options
are summarized below.
<TABLE>
<CAPTION>
Security Option
Security Market Option Market
Equity Security (unaudited) Cost Value Proceeds Value
- --------------------------- -------- -------- --------- ---------
<S> <C> <C> <C> <C>
General Instruments,
10,000 shares of common stock $176,817 $228,750 $(27,512) $(50,000)
Loral Space and Communications,
10,000 shares of common stock 132,290 147,500 (18,812) (21,870)
Ciena Corporation,
2,000 shares of common stock 27,838 28,625 (3,461) (8,000)
-------- -------- --------- ---------
$336,945 $404,875 $(49,785) $(79,870)
-------- -------- --------- ---------
-------- -------- --------- ---------
</TABLE>
In addition, the Company purchased such trading securities under a margin
account arrangement. As of September 30, 1998, the Company owed approximately
$160,000 on such margin account and this amount is included in accrued expenses
in the accompanying financial statements. Further, the market value of the
options are also included in accrued expenses at September 30, 1998.
F-53
<PAGE>
ACQUEREN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
NOTE 3 - PROPERTY AND EQUIPMENT
The major classes of property and equipment are as follows:
<TABLE>
<CAPTION>
Estimated
Useful June 30, September 30,
Lives 1998 1998
--------- ---------- -------------
(unaudited)
<S> <C> <C> <C>
Furniture, fixtures and machinery... 8-10 $ 592,748 $ 98,000
Automotive equipment................ 3 16,448 2,000
---------- -------------
609,196 100,000
Less accumulated depreciation....... (540,671) (5,399)
---------- -------------
$ 68,525 $ 94,601
---------- -------------
---------- -------------
</TABLE>
NOTE 4 - NOTE PAYABLE - BANK
During the year ended June 30, 1998, the Company had a $3,000,000 credit
facility with a bank that provided for a line of credit and letters of
credit. Borrowings under this agreement bore interest at prime. In January
1998, the Company repaid all borrowings under this agreement and the agreement
was terminated.
NOTE 5 - NOTE PAYABLE - RELATED PARTY
The Company had the following notes payable to related parties.
<TABLE>
<CAPTION>
June 30, September 30,
1998 1998
------------ -------------
(unaudited)
<S> <C> <C>
Note payable to principal corporate stockholder,
interest at 6% per annum, paid in August 1998................ $ 1,000,000 $ -
Note payable to principal corporate stockholder,
interest at 6% per annum, due in annual install-
ments of approximately $100,000 through 2001................. 399,709 293,381
------------ -------------
1,399,709 293,381
Less current portion......................................... (1,103,938) (100,000)
------------ -------------
$ 295,771 $ 193,381
------------ -------------
------------ -------------
</TABLE>
The $1,000,000 note was repaid subsequent to June 30, 1998 and
accordingly, this debt was classified as a current liability as of June 30,
1998. Interest expense on the debt to related parties was $83,480 and $3,700
for the year ended June 30, 1998 and the three months ended September 30, 1998,
respectively.
F-54
<PAGE>
ACQUEREN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
NOTE 6 - INCOME TAXES
A reconciliation of income taxes at the federal statutory rate to amounts
provided for the year ended June 30, 1998 is as follows:
<TABLE>
<CAPTION>
Amount
----------
<S> <C>
Tax benefit computed at statutory rate............ $ (372,500)
Change in valuation allowance..................... 372,500
----------
$ -
----------
----------
</TABLE>
Deferred taxes are determined based on the temporary differences between
the financial statement and income tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these differences
reverse. The components of deferred income tax assets as of June 30, 1998 were
as follows:
<TABLE>
<CAPTION>
Amount
----------
<S> <C>
Deferred tax assets:
Provision for doubtful accounts................. $ 123,000
Net operating loss.............................. 490,000
Provision for inventory losses.................. 108,000
----------
721,000
Deferred tax liability:
Depreciation.................................... (15,500)
----------
705,500
Valuation reserve................................. (705,500)
----------
Net deferred tax asset............................ $ -
----------
----------
</TABLE>
At June 30, 1998, the Company provided a 100% valuation allowance for the
deferred tax asset because it could not be determined whether it was more likely
than not that the deferred tax asset would be realized.
At June 30, 1998, the Company has a net operating loss carryforward of
approximately $1,440,000 which will expire in varying amounts through 2013. In
accordance with income tax regulations, the utilization of such net operating
losses may be limited due to the sale of the Company as discussed in Note 8.
Beginning July 1, 1998, the Company's operating results will be included in
the consolidated tax return of the parent company, AIII. For the three months
ended September 30, 1998 income taxes have been allocated to the Company based
on a stand-alone basis.
F-55
<PAGE>
ACQUEREN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company rents its operating facility under a long-term operating lease
agreement through October 1999, with an option to renew for an additional two
years. The agreement requires annual rents of $39,300. During the year ended
June 30, 1998 and the three months ended September 30, 1998, the Company
incurred rent expense of $26,200 and $9,825, respectively, under this agreement.
The Company terminated its union contract in New York and the union has
claimed a deficiency for unfunded pension liabilities. Management has accrued
$125,000 as of June 30, 1998 and September 30, 1998, relating to this potential
liability. Management estimates that such an amount will be sufficient to cover
any potential obligation to the union. Currently, the work force is not under
any collective bargaining agreement.
In 1994, the Company entered into an at-will employment agreement with its
president that provides an annual salary of $124,000 plus a bonus based upon
operating results of the Company. In addition, the Company provides a life
insurance policy to the president in the name of the president's spouse and the
cost of such policy is charged to operations.
NOTE 8 - SALE OF COMPANY
The acquisition of 100% of the Company's outstanding stock by American
International Industries Inc. (AIII) was closed into escrow and the transaction
was accounted for as a purchase effective July 1, 1998. All matters were
resolved and the transaction was finalized in August, 1998.
The purchase agreement provided for the two primary shareholders of the
Company to receive 5,000,000 and 1,750,000 shares of AIII's common stock in
exchange for their 700,000 and 150,000 shares, respectively, of the Company's
stock. The purchase agreement further provided for the remaining stockholders
of the Company to receive 25.02 shares of AIII's common stock for each share of
the Company's stock. In total AIII issued 26,750,000 shares of restricted
common stock in exchange for 100% of the outstanding common stock of the
Company.
Based upon the estimated fair value of the restricted common stock of
AIII, the consideration paid for the Company was approximately $2,140,000.
The purchase price was allocated based upon the fair value of the assets
acquired and liabilities assumed, as shown in the following purchase price
allocation. Goodwill has been recorded to the extent that the purchase price
exceeded the net fair value of the assets acquired with goodwill being
amortized over 15 years.
The following purchase price allocation is based upon management's
estimation of the fair market values of the acquired assets and liabilities
assumed. Such estimate is subject to revision as more information regarding
these fair market values becomes available.
F-56
<PAGE>
ACQUEREN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ALL INFORMATION AS OF SEPTEMBER 30, 1998 AND FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 IS UNAUDITED.
<TABLE>
<S> <C>
Assets acquired and liabilities assumed:
Current assets.............................. $ 4,034,626
Property, plant and equipment............... 100,000
Goodwill.................................... 879,834
Current liabilities......................... (2,581,079)
Long-term debt.............................. (293,381)
------------
$ 2,140,000
------------
------------
</TABLE>
F-57
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
PROFORMA FINANCIAL STATEMENTS
The following unaudited pro forma consolidating statements of loss for the
year ended December 31, 1997 and the nine month period ended September 30,
1998 give effect to the acquisitions of Brenham Oil and Gas (Brenham),
Acqueren, Inc. and its wholly-owned subsidiary Northeastern Plastics, Inc.
(Acqueren) and Modern Film Effects, Inc. (d/b/a Cinema Research Corporation)
and Digital Research Corporation (CRC) by American Industries International
(AIII) as discussed in Note 3 to the accompanying financial statements of
AIII. The purchase of TRE did not impact the statements of loss because this
entity has no operations. These pro forma consolidated statement of loss were
prepared assuming that the purchase of Brenham, Acqueren and CRC was
completed as of January 1, 1997. The balance sheet as of September 30, 1998
in the accompanying financial statements for AIII gives effect to these
acquisitions and the related purchase price allocation of these acquisitions
since they were acquired prior to September 30, 1998.
The pro forma statements have been prepared based upon the unaudited
financial statements of Brenham, Acqueren and CRC for the year ended December
31, 1997 and the nine months ended September 30, 1998. The pro forma
information gives effect to the acquisitions under the purchase method of
accounting and reflects the assumptions and adjustments included in the notes
to the pro forma consolidated statements of loss. These adjustments give
effect to events that are directly attributable to the purchases, that are
expected to have a continuing impact, and that are factually supportable.
These pro forma income statements may not be indicative of the results that
actually would have occurred if the Brenham, Acqueren and CRC acquisitions
had been in effect from January 1, 1997 or which may occur in the future. The
pro forma statements of loss should be read in conjunction with the
accompanying financial statements of AIII, Acqueren and CRC as of and for the
periods presented.
F-58
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
PROFORMA CONSOLIDATING STATEMENT OF LOSS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Brenham Acqueren CRC Adjustments Ref Consolidated
---------- ------- -------- --- ----------- --- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 2,501,860 $80,000 $ 7,509,124 $6,717,413 $ - $16,808,397
Cost of sales 1,635,855 60,000 6,518,077 4,801,650 205,000 (1) 13,220,581
----------- ------- ----------- ---------- --------- ------------
Gross Profit 866,005 20,000 991,047 1,915,763 (205,000) 3,587,816
Total Operating expenses 1,674,172 - 1,711,853 2,284,697 100,000 (2) 5,770,723
----------- ------- ----------- ---------- --------- ------------
Operating Income (Loss) (808,167) 20,000 (720,806) (368,934) (305,000) (2,182,907)
----------- ------- ----------- ---------- --------- ------------
Other Income (expense):
Interest income - - 45,399 4,924 (42,000) (3) 8,323
Interest expense (63,908) - (108,500) (146,078) 60,000 (3) (258,486)
Other income 2,048 - 2,429 7,800 - 12,277
Other expense - - (50,313) (16,300) - (66,613)
Gain (loss) on sale of assets - - 50,000 (10,806) - 39,194
----------- ------- ----------- ---------- --------- ------------
Total other income (expense) (61,860) - (60,985) (160,460) 18,000 (265,305)
----------- ------- ----------- ---------- --------- ------------
Net Income (Loss) $ (870,027) $20,000 $ (781,791) $ (529,394) $(287,000) $ (2,448,212)
----------- ------- ----------- ---------- --------- ------------
----------- ------- ----------- ---------- --------- ------------
Pro forma net loss per share - basic and diluted $ (.04)
------------
Pro forma weighted-average shares outstanding 69,171,344
------------
</TABLE>
REFERENCES
- ----------
(1) To record increase in depreciation for the step-up in basis of property and
equipment due to the purchased companies.
(2) To record amortization of goodwill and amortization of non-compete
agreements due to purchased comapnies.
(3) To adjust interest income and expense for the repayment of the note payable
to principal stockholder.
F-59
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
PRO FORMA CONSOLIDATING STATEMENT OF LOSS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Acqueren CRC Adjustments Ref Pro-Forma
---------- -------- --- ----------- --- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales $5,781,245 $2,640,674 $4,033,861 - $12,455,780
Cost of sales 4,523,919 3,072,956 3,223,312 153,000 (1) 10,973,187
---------- ---------- ---------- --------- -----------
Gross Profit (loss) 1,257,326 (432,282) 810,549 153,000 1,482,593
Operating expenses 1,433,411 545,963 1,331,583 75,000 (2) 3,385,957
---------- ---------- ---------- --------- -----------
Operating Loss (176,085) (978,245) (521,034) (228,000) (1,903,364)
---------- ---------- ---------- --------- -----------
Other income (expense):
Interest income 22,935 45,935 (31,500) (3) 37,370
Interest expense (47,301) (46,264) (61,768) 45,000 (3) (110,333)
Other income 24,698 - 50,144 - 74,842
Increase in market value of trading
securities 37,845 - - - 37,845
---------- ---------- ---------- --------- -----------
Total other income (expense) 38,177 (329) (11,624) 13,500 39,724
---------- ---------- ---------- --------- -----------
New Loss $ (137,908) $ (978,574) $ (532,658) $(214,500) $(1,863,640)
---------- ---------- ---------- --------- -----------
---------- ---------- ---------- --------- -----------
Pro forma loss per share - basic and diluted $ (.02)
-----------
Pro forma weighted average shares outstanding 107,123,236
-----------
</TABLE>
REFERENCES
- ----------
(1) To record increase in depreciation for the step-up in basis of property and
equipment due to the purchased companies.
(2) To record amortization of goodwill and non-compete agreements due to the
purchased companies.
(3) To adjust interest income and expense for the repayment of the note payable
to principal stockholder.
F-60
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
The Company's Common Stock trades under the symbol "EDII" on the OTC
Electronic Bulletin Board. The market for the Company Common Stock on the OTC
Electronic Bulletin Board is limited, sporadic and highly volatile. The
following table sets forth the high and low bid prices per share of the
Company's Common Stock for the last two fiscal years as reported by the OTC
Electronic Bulletin Board. These prices reflect inter-dealer prices, without
retail mark-ups, mark-downs or commissions, and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
HIGH LOW
- -----------------------------------------------------------------------------
FISCAL 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
First Quarter 1.3636 .5545
- -----------------------------------------------------------------------------
Second Quarter .7955 .0455
- -----------------------------------------------------------------------------
Third Quarter .1364 .0273
- -----------------------------------------------------------------------------
Fourth Quarter .1455 .0727
- -----------------------------------------------------------------------------
FISCAL 1998
- -----------------------------------------------------------------------------
First Quarter .2091 .0909
- -----------------------------------------------------------------------------
Second Quarter .6364 .1091
- -----------------------------------------------------------------------------
Third Quarter .4818 .20
- -----------------------------------------------------------------------------
Fourth Quarter, through December 29, 1998 .27 .16
- -----------------------------------------------------------------------------
</TABLE>
On December 29, 1998, the last sales price of the Company's Common Stock
as reported by the OTC Electronic Bulletin Board was $0.265. The Company
believes that as of October 28, 1998, there were approximately 191 record
owners of its Common Stock.
It is the present policy of the Company not to pay cash dividends and to
retain future earnings to support the Company's growth. Any payment of cash
dividends in the future will be dependent upon the amount of funds legally
available therefor, the Company's earnings, financial condition, capital
requirements and other factors that the Board of Directors may deem relevant.
The Company does not anticipate paying any cash dividends in the foreseeable
future.
ITEM 2. LEGAL PROCEEDINGS
On December 10, 1998, the Company filed an Original Petition and Request
for Temporary Injunction for breach of contract and common law and stock
fraud in connection with the Company's acquisition of Acqueren, Inc. against
TDA Industries, Inc. and Fred Friedman in the 56th Judicial District Court of
Galveston, Texas. The Company has claimed the defendants misrepresented the
amount of equity in Acqueren as represented in the acquisition agreement.
The Company is seeking actual damages in the amount of not less than
$1,100,000, in addition to further relief which it may be entitled to.
II-1
<PAGE>
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
II-2
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
Current management gained control of the Company in October 1997.
Management believes that all prior issuances of Common Stock aggregating
7,028,060 for a total purchase price of $178,456 were made in reliance on
Section 4(2) of the Act.
The following information sets forth certain information for all securities
the Company sold since the Company began current operations in September 1996,
without registration under the Act. All transactions or securities were
effected or issued in reliance on the exemption from registration afforded by
Section 4(2) and/or Regulation D promulgated under the Act, unless otherwise
specified in the issuance description. There were no underwriters in any of
these transactions, nor were any sales commissions paid thereon.
SECURITIES ISSUED FOR CASH
In September 1997, the Company issued 500,000 shares of Common Stock to
a current director of the Company at a purchase price of $0.10 per share.
In September 1997, the Company issued 5,000,000 shares of Common Stock
to a party related to a director of the Company at a purchase price of $0.03
per share.
In October 1997, the Company issued 250,000 shares of Common Stock to
two accredited investors at a purchase price of $0.10 per share.
In December 1997, the Company issued 200,000 shares of Common Stock in
exchange for shares of another corporation valued at $40,000. In August 1998,
the Company returned such shares to their previous owner for $40,000 cash.
In February 1998, the Company issued 50,000 shares of Common Stock to an
accredited investor at a purchase price of $0.20 per share.
From January 1998 to February 1998, the Company issued 5,000,000 shares
of Common Stock, pursuant to an exemption under Rule 504 of Regulation D, to
one accredited investor at an aggregate purchase price of $500,000 ($0.10 per
share).
From February 1998 to April 1998, the Company issued 1,400,000 shares of
Common Stock, pursuant to an exemption under Rule 504 of Regulation D, to one
accredited investor at an aggregate purchase price of $200,000 ($0.143 per
share).
In May 1998, the Company issued 1,500,000 shares of Common Stock to
directors and to a party associated with the Company at a purchase price of
$0.10 per share. As of November 1, 1998, the Company had not received the
purchase price for these shares.
In May 1998, the Company issued 3,500,000 shares of Common Stock to the
brother of the CEO of the Company at an aggregate purchase price of $300,000
($0.086 per share).
II-3
<PAGE>
From May 1998 to June 1998, the Company issued 1,500,000 shares of
Common Stock, pursuant to an exemption under Rule 504 of Regulation D, to one
accredited investor at an aggregate purchase price of $300,000 ($0.20 per
share).
In May 1998, the Company issued 100,000 shares of Common Stock to one
accredited investor at a purchase price of $0.25 per share.
In June 1998, the Company issued 110,000 shares of Common Stock to one
accredited investor at a purchase price of $0.35 per share.
In June 1998, the Company agreed to issue 4,500,000 shares of Common
Stock to one accredited investor at an aggregate purchase price of $1,000,000
of which 2,500,000 shares had been issued as of October 28, 1998, and of
which $350,000 was still to be paid to the Company.
In June 1998, the Company issued 500,000 shares of Common Stock to one
accredited investor at a purchase price of $0.40 per share.
In June 1998, the Company agreed to issue 1,000,000 shares of Common
Stock to one accredited investor at a purchase price of $0.15 per share. As
of November 1, 1998, the Company had not received the purchase price.
SECURITIES ISSUED FOR SERVICES RENDERED
In July 1996, the Company issued 550,000 shares of Common Stock to
former directors for management advisory services rendered. The value of
these shares were deemed to be immaterial by prior management.
In October 1996, the Company issued 10,000 shares of Common Stock to a
former officer for management services rendered. The value of these shares
were deemed to be immaterial by prior management.
In September 1996, the Company issued 10,000 shares of Common Stock to
an employee for receptionist services rendered. The value of these shares
were deemed to be immaterial by prior management.
In December 1997, the Company issued 1,400,000 shares of restricted
common stock to a consulting firm for strategic planning assistance
rendered to the Company. Such shares were valued at the market price of $.05
per share resulting in a $70,000 charge to general and administrative expense
in 1997.
In May 1997, the Company issued 40,000 shares of Common Stock to a
advertising consultant for services rendered. The value of these shares
were deemed to be immaterial by prior management.
In September 1997, the Company issued options to purchase 3,300,000
shares of Common Stock at an exercise price of $0.02 per share to current and
former directors of the Company and to a party related to a director of the
Company. In addition, 600,000 options to purchase shares were issued in
September 1997 to a former officer and director. In October 1998, options to
purchase 500,000 of these options were repurchased by the Company for
$20,000. The remaining options to purchase 100,000 shares were transferred
to an unrelated party who exercised these options in August 1998. In June 1998,
options to purchase 2,000,000 shares of Common Stock were exercised by the
brother of the CEO of the Company.
In October 1997, the Company issued 100,000 shares of Common Stock to an
consultant of the Company for management advisory services rendered. Such
shares were valued at the market value of $.05 per share. Accordingly, a
$5,000 compensation expense was recorded.
II-4
<PAGE>
In October 1997, the Company issued six options each to purchase 200,000
shares of Common Stock to a party pursuant to a finders fee agreement in
connection with equity raising transactions at exercise prices of $0.02,
$0.04, $0.06, $0.08, $0.10, and $0.20 per share. In February 1998, the
options to purchase 200,000 shares of Common Stock at $0.02 and $0.04 were
exercised, and as of December 1998 all remaining options were canceled.
In January 1998, the Company issued 610,000 shares of Common Stock to
officers, directors, and employees for management advisory services rendered.
These shares were valued at the market value of $.05 per share resulting in a
$30,500 compensation expense.
In January 1998, the Company issued 100,000 shares of Common Stock to a
former employee in exchange for the surrender of a previously issued option
to purchase 100,000 shares of Common Stock at an exercise price of $0.02 per
share. The issuance was recorded as $5,000 of compensation expense ($.05 per
share).
In January 1998, the Company issued 100,000 shares of Common Stock to a
former director as part of a severance payment. This issuance was recorded
as $5,000 compensation expense ($.05 per share).
In May 1998, the Company issued 190,000 shares of Common Stock to key
employees of one of its subsidiaries, to an officer of the Company, and to a
director of the Company for management advisory services rendered. The
issuance of such shares was recorded at the market value ($.08 per share) at
the date of grant as $15,200 of compensation expense.
In May 1998, the Company issued an option to purchase 2,000,000 shares
of Common Stock to the CEO of the Company at an exercise price of $0.12 per
share.
In May 1998, the Company issued an option to purchase 4,000,000 of
Common Stock to party in connection with an exempt offering at an exercise
price of $0.25 per share.
In August 1998, the Company issued an option to purchase 20,000 shares
of Common Stock at an exercise price of $0.34 per share to an officer of the
Company as part of an employment agreement.
SECURITIES ISSUED IN ACQUISITIONS
See Item 1 "Description of Business" for detailed discussion of these
transactions and related values and values per share.
In October 1996, the Company issued 2,527,000 of Common Stock, one-half
of which was issued to current directors of the Company, in exchange for the
outstanding shares of Pitt's & Spitt's, Inc. and Har-Whit, Inc.
In December 1997, the Company issued 22,000,000 shares of Common Stock
to parties associated with the Company, to parties related to a director of
the Company, and to affiliates of the Company in exchange for the outstanding
shares of Brenham Oil & Gas, Inc., Texas Real Estate Enterprises, Inc., and
GCA, Inc.
In May 1998, the Company on behalf of one of its subsidiaries issued
8,000,000 shares of Common Stock to a party associated with the Company in
exchange for a piece of property.
II-5
<PAGE>
In June 1998 and in December 1998, the Company on behalf of one of its
subsidiaries issued a total of 2,100,000 shares of Common Stock to party
associated with the Company and to party related to a director of the Company
in exchange for the outstanding shares of Midtowne Properties, Inc.
Effective July 1, the Company entered into a purchase agreement to acquire
Acqueren Inc. which provided for the issuance of 6,750,000 shares of Common
Stock to the two primary shareholders of Acqueren, Inc, and provided for the
remaining shareholders of Acqueren, Inc. to receive approximately 25.02
shares of common stock for each share of Acqueren, Inc. common stock
exchanged for a total of 26,750,000 shares of AIII Common Stock. As of
December 1, 1998, the Company had exchanged approximately 19,597,000 shares of
Common Stock pursuant to the purchase agreement with the remaining shares
held by the Company until the Acqueren shares are exchanged.
In September 1998, the Company issued 6,300,000 shares of Common Stock,
and an option to purchase 400,000 shares of Common Stock at an exercise price
of $0.20 per share to a current director in exchange for the outstanding shares
of Modern Film Effects, Inc., Digital Research Corporation, and Electronic
Pictures California, Inc.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.7502 of the Nevada General Corporation Law allows the Company
to indemnify any person who was or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by reason of the
fact that he or she is or was a director, officer, employee or agent of the
Company or is or was serving at the request of the Company as a director,
officer, employee or agent of any corporation, partnership, joint venture,
trust or other enterprise. The Company may advance expenses in connection
with defending any such proceeding, provided the indemnitee undertakes to pay
any such amounts if it is later determined that such person was not entitled
to be indemnified by the Company. In addition, the Company's Certificate of
Incorporation and Bylaws provide for indemnification of all directors,
officers, and control persons.
Insofar as indemnification by the Company for liabilities arising under
the Act may be permitted to directors, officers and controlling persons of
the Company pursuant to provisions of the Certificate of Incorporation and
Bylaws, or otherwise, the Company has been advised that in the opinion of the
SEC, such indemnification is against public policy and is, therefore,
unenforceable. In the event that a claim for indemnification by such
director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding is asserted by such director,
officer or controlling person in connection with the securities being
offered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-6
<PAGE>
PART III
ITEM 1. EXHIBITS
The following exhibits are to be filed as part of the Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
----------- --------------------------------------------------------
<S> <C>
Exhibit 2.1 Articles of Incorporation of Black Tie Affair, Inc.
Exhibit 2.2 Certificate of Amendment of Articles of Incorporation
of American International Industries, Inc.
Exhibit 2.3 Certificate of Amendment of Articles of Incorporation of
Energy Drilling Industries, Inc.
Exhibit 2.4 Certificate of Amendment of Articles of Incorporation of
Energy Drilling Industries, Inc.
Exhibit 2.5 Certificate of Amendment of Articles of Incorporation of
Pitts and Spitts of Texas, Inc.
Exhibit 2.6 Certificate of Amendment of Articles of Incorporation of
Black Tie Affair, Inc.
Exhibit 2.7 Amended and Restated Bylaws of American International
Industries, Inc.
Exhibit 2.8 Common Stock Certificate, American International
Industries, Inc.
Exhibit 2.9 Common Stock Certificate, Acqueren, Inc.
Exhibit 2.10 Common Stock Certificate, Har-Whit/Pitt's & Spitt's, Inc.
Exhibit 6.1 Daniel Dror, Sr. Employment Agreement dated May 14, 1998
Exhibit 6.2 Daniel Dror, Sr. Employment Agreement dated
October 16, 1998
Exhibit 6.3 Raymond C. Hartis Employment Agreement
Exhibit 6.4 D. Wayne Whitworth Employment Agreement
Exhibit 6.5 John Stump III Employment Agreement
Exhibit 6.6 Marc Fields Employment Agreement
Exhibit 6.7 Jordan Friedberg Employment Agreement
</TABLE>
ITEM 2. DESCRIPTION OF EXHIBITS
III-1
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN INTERNATIONAL INDUSTRIES, INC.
Dated: December 30, 1998 By: /s/ Daniel Dror, Sr.
-----------------------------------------
DANIEL DROR, SR., Chief Executive Officer
<PAGE>
EXHIBIT 2.1
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
SEP 27 1994
15064-94
--------
CHERYL A. LAU, SECRETARY OF STATE
CHERYL A. LAU
ARTICLES OF INCORPORATION
OF
BLACK TIE AFFAIR INCORPORATED
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, have this day voluntarily associated ourselves
together for the purpose of forming a Corporation under and pursuant to the
laws of the State of Nevada, and we do hereby certify that:
ARTICLE I - NAME: The exact name of this corporation is:
Black Tie Affair Incorporated
ARTICLE II - RESIDENT AGENT:
The Resident Agent of the Corporation is Max C. Tanner, Esq., The Law
Offices of Max C. Tanner, 2950 East Flamingo Road, Suite G, Las Vegas, Nevada
89121.
ARTICLE III - DURATION: The Corporation shall have perpetual existence.
ARTICLE IV - PURPOSES: The purpose, object and nature of the business for
which this Corporation is organized are:
(a) To engage in any lawful activity;
(b) To carry on such business as may be necessary, convenient, or
desirable to accomplish the above purposes, and to do all other things
incidental thereto which are not forbidden by law or by these Articles
of Incorporation.
ARTICLE V - POWERS: The powers of the Corporation shall be those powers
granted by 78.060 and 78.070 of the Nevada Revised Statutes under which this
corporation is formed. In addition, the Corporation shall have the following
specific powers:
(a) To elect or appoint officers and agents of the Corporation and to fix
their compensation;
<PAGE>
(b) To act as an agent for any individual, association, partnership,
corporation or other legal entity;
(c) To receive, acquire, hold, exercise rights arising out of the
ownership or possession thereof, sell, or otherwise dispose of, shares
or other interests in, or obligations of, individuals, associations,
partnerships, corporations, or governments;
(d) To receive, acquire, hold, pledge, transfer, or otherwise dispose of
shares of the corporation, but such shares may only be purchased,
directly or indirectly, out of earned surplus;
(e) To make gifts or contributions for the public welfare or for
charitable, scientific or educational purposes, and in time of war, to
make donations in aid of war activities.
ARTICLE VI - CAPITAL STOCK:
Section 1. AUTHORIZED SHARES. The total number of shares which this
Corporation is authorized to issue is 25,000,000 shares of Common Stock at
$.001 par value per share.
Section 2. VOTING RIGHTS OF SHAREHOLDERS. Each holder of the Common Stock
shall be entitled to one vote for each share of stock standing in his name
on the books of the Corporation.
Section 3. CONSIDERATION FOR SHARES. The Common Stock shall be issued for
such consideration, as shall be fixed from time to time by the Board of
Directors. In the absence of fraud, the judgment of the Directors as to the
value of any property for shares shall be conclusive. When shares are
issued upon payment of the consideration fixed by the Board of Directors,
such shares shall be taken to be fully paid stock and shall be
non-assessable. The Articles shall not be amended in this particular.
Section 4. PRE-EMPTIVE RIGHTS. Except as may otherwise be provided by
the Board of Directors, no holder of any shares of the stock of the
Corporation, shall have any preemptive right to purchase, subscribe for,
or otherwise acquire any shares of stock of the Corporation of any class
now or hereafter authorized, or any securities exchangeable for or
convertible into such shares, or any warrants or other instruments
evidencing rights or options to subscribe for, purchase, or otherwise
acquire such shares.
2
<PAGE>
Section 5. STOCK RIGHTS AND OPTIONS. The Corporation shall have the
power to create and issue rights, warrants, or options entitling the
holders thereof to purchase from the corporation any shares of its
capital stock of any class or classes, upon such terms and conditions
and at such times and prices as the Board of Directors may provide,
which terms and conditions shall be incorporated in an instrument or
instruments evidencing such rights. In the absence of fraud, the
judgment of the Directors as to the adequacy of consideration for the
issuance of such rights or options and the sufficiency thereof shall be
conclusive.
ARTICLE VII - ASSESSMENT OF STOCK: The capital stock of this Corporation, after
the amount of the subscription price has been fully paid in, shall not be
assessable for any purpose, and no stock issued as fully paid up shall ever be
assessable or assessed. The holders of such stock shall not be individually
responsible for the debts, contracts, or liabilities of the Corporation and
shall not be liable for assessments to restore impairments in the capital of the
Corporation.
ARTICLE VIII - DIRECTORS: For the management of the business, and for the
conduct of the affairs of the Corporation, and for the future definition,
limitation, and regulation of the powers of the Corporation and its directors
and shareholders, it is further provided:
Section 1. SIZE OF BOARD. The members of the governing board of the
Corporation shall be styled directors. The number of directors of the
Corporation, their qualifications, terms of office, manner of election,
time and place of meeting, and powers and duties shall be such as are
prescribed by statute and in the by-laws of the Corporation. The name and
post office address of the directors constituting the first board of
directors, which shall be Two (2) in number are:
NAME ADDRESS
Dennis Evans 6357 Vicuna Drive
Las Vegas, NV 89102
Kevin Coleman 1923 N. Jones
A 202
Las Vegas, NV 89108
3
<PAGE>
Section 2. POWERS OF BOARD. In furtherance and not in limitation of
the powers conferred by the laws of the State of Nevada, the Board of
Directors is expressly authorized and empowered:
(a) To make, alter, amend, and repeal the By-Laws subject to the power of
the shareholders to alter or repeal the By-Laws made by the Board of
Directors.
(b) Subject to the applicable provisions of the ByLaws then in effect, to
determine, from time to time, whether and to what extent, and at what
times and places, and under what conditions and regulations, the
accounts and books of the Corporation, or any of them, shall be open
to shareholder inspection. No shareholder shall have any right to
inspect any of the accounts, books or documents of the Corporation,
except as permitted by law, unless and until authorized to do so by
resolution of the Board of Directors or of the Shareholders of the
Corporation;
(c) To issue stock of the Corporation for money, property, services
rendered, labor performed, cash advanced, acquisitions for other
corporations or for any other assets of value in accordance with the
action of the board of directors without vote or consent of the
shareholders and the judgment of the board of directors as to value
received and in return therefore shall be conclusive and said stock,
when issued, shall be fully-paid and non-assessable.
(d) To authorize and issue, without shareholder consent, obligations of
the Corporation, secured and unsecured, under such terms and
conditions as the Board, in its sole discretion, may determine, and to
pledge or mortgage, as security therefore, any real or personal
property of the Corporation, including after-acquired property;
(e) To determine whether any and, if so, what part, of the earned
surplus of the Corporation shall be paid in dividends to the
shareholders, and to direct and determine other use and disposition
of any such earned surplus;
(f) To fix, from time to time, the amount of the profits of the
Corporation to be reserved as working capital or for any other
lawful purpose;
(g) To establish bonus, profit-sharing, stock option, or other types of
incentive compensation plans for the employees, including officers and
directors, of the Corporation, and to fix the amount of profits to be
shared or distributed, and to determine the persons to
4
<PAGE>
participate in any such plans and the amount of their respective
participations.
(h) To designate, by resolution or resolutions passed by a majority of
the whole Board, one or more committees, each consisting of two or
more directors, which, to the extent permitted by law and authorized
by the resolution or the By-Laws, shall have and may exercise the
powers of the Board;
(i) To provide for the reasonable compensation of its own members by
By-Law, and to fix the terms and conditions upon which such
compensation will be paid;
(j) In addition to the powers and authority herein before, or by statute,
expressly conferred upon it, the Board of Directors may exercise all
such powers and do all such acts and things as may be exercised or
done by the corporation, subject, nevertheless, to the provisions of
the laws of the State of Nevada, of these Articles of Incorporation,
and of the By-Laws of the Corporation.
Section 3. INTERESTED DIRECTORS. No contract or transaction between
this Corporation and any of its directors, or between this Corporation
and any other corporation, firm, association, or other legal entity
shall be invalidated by reason of the fact that the director of the
Corporation has a direct or indirect interest, pecuniary or otherwise,
in such corporation, firm, association, or legal entity, or because the
interested director was present at the meeting of the Board of Directors
which acted upon or in reference to such contract or transaction, or
because he participated in such action, provided that: (1) the interest
of each such director shall have been disclosed to or known by the Board
and a disinterested majority of the Board shall have nonetheless
ratified and approved such contract or transaction (such interested
director or directors may be counted in determining whether a quorum is
present for the meeting at which such ratification or approval is
given); or (2) the conditions of N.R.S. 78.140 are met.
ARTICLE IX - LIMITATION OF LIABILITY OF OFFICERS OR DIRECTORS: The personal
liability of a director or officer of the corporation to the corporation or
the Shareholders for damages for breach of fiduciary duty as a director or
officer shall be limited to acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law.
ARTICLE X - INDEMNIFICATION: Each director and each officer of the corporation
may be indemnified by the corporation as follows:
5
<PAGE>
(a) The corporation may indemnify any person who was or is a party, or
is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the corporation), by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement, actually and reasonably incurred by him in connection
with the action, suit or proceeding, if he acted in good faith and
in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation and with respect to any
criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The termination of any action, suite or
proceeding, by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not of itself
create a presumption that the person did not act in good faith and
in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and that, with respect to
any criminal action or proceeding, he had reasonable cause to
believe that his conduct was unlawful.
(b) The corporation may indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed
action or suit by or in the right of the corporation, to procure a
judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him
in connection with the defense or settlement of the action or suit, if
he acted in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to
which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals there from, to be liable
to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the
action or suit was brought or other court of competent jurisdiction
determines upon application that
6
<PAGE>
in view of all the circumstances of the case the person is fairly
and reasonably entitled to indemnity for such expenses as the court
deems proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in subsections (a) and
(b) of this Article, or in defense of any claim, issue or matter
therein, he must be indemnified by the corporation against expenses,
including attorney's fees, actually and reasonably incurred by him in
connection with the defense.
(d) Any indemnification under subsections (a) and (b) unless ordered by
a court or advanced pursuant to subsection (e), must be made by the
corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer,
employee or agent is proper in the circumstances. The determination
must be made:
(i) By the stockholders;
(ii) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit
or proceeding;
(iii) If a majority vote of a quorum consisting of directors who
were not parties to the act, suit or proceeding so orders, by
independent legal counsel in a written opinion; or
(iv) If a quorum consisting of directors who were not parties to
the act, suit or proceeding cannot be obtained, by independent
legal counsel in a written opinion.
(e) Expenses of officers and directors incurred in defending a civil or
criminal action, suit or proceeding must be paid by the corporation
as they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on
behalf of the director or officer to repay the amount if it is
ultimately determined by a court of competent jurisdiction that he
is not entitled to be indemnified by the corporation. The
provisions of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than
directors or officers may be entitled under any contract or
otherwise by law.
7
<PAGE>
(f) The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(i) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled
under the certificate or articles of incorporation or any
bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his
office, except that indemnification, unless ordered by a
court pursuant to subsection (b) or for the advancement of
expenses made pursuant to subsection (e) may not be made to
or on behalf of any director or officer if a final
adjudication establishes that his acts or omissions involved
intentional misconduct, fraud or a knowing violation of the
law and was material to the cause of action.
(ii) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE XI - PLACE OF MEETING; CORPORATE BOOKS: Subject to the laws of the
State of Nevada, the shareholders and the Directors shall have power to hold
their meetings, and the Directors shall have power to have an office or
offices and to maintain the books of the Corporation outside the State of
Nevada, at such place or places as may from time to time be designated in the
By-Laws or by appropriate resolution.
ARTICLE XII - AMENDMENT OF ARTICLES: The provisions of these Articles of
Incorporation may be amended, altered or repealed from time to time to the
extent and in the manner prescribed by the laws of the State of Nevada, and
additional provisions authorized by such laws as are then in force may be
added. All rights herein conferred on the directors, officers and
shareholders are granted subject to this reservation.
ARTICLE XIII - INCORPORATOR: The name and address of the sole incorporator
signing these Articles of Incorporation is as follows:
NAME POST OFFICE ADDRESS
1. Max C. Tanner 2950 East Flamingo Road, Suite G
Las Vegas, Nevada 89121
8
<PAGE>
IN WITNESS WHEREOF, the undersigned incorporation has executed these
Articles of Incorporation this 21st day of September, 1994.
/s/ Max C. Tanner
------------------------------
Max C. Tanner
STATE OF NEVADA )
)ss:
COUNTY OF CLARK )
On September 21, 1994, personally appeared before me, a Notary Public,
Max C. Tanner, who acknowledged to me that he executed the foregoing Articles
of Incorporation for Black Tie Affair Incorporated, a Nevada Corporation.
/s/ June Y. Kelsay
------------------------------
Notary Public
- ------------------------------------
[SEAL] Notary Public-State of Nevada
COUNTY OF CLARK
JUNE Y. KELSAY
My Commission Expires
January 10, 1996
- ------------------------------------
9
<PAGE>
EXHIBIT 2.2
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
SEP 22 1998
NO. C15064-94
---------
DEAN HELLER
DEAN HELLER, SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
AMERICAN INTERNATIONAL INDUSTRIES, INC.
We, the undersigned, Daniel Dror, President, and Rebekah Laird-Ruthstrom,
Secretary, of American International Industries, Inc., a Nevada corporation (the
"Corporation), do hereby certify:
That the Board of Directors of the Corporation in a Unanimous Written
Consent on August 5, 1998 adopted a resolution to amend the original articles as
follows:
"Section 1 of Article VI of the Corporation's Articles of
Incorporation is hereby amended to read as follows:
"Section 1. AUTHORIZED SHARES. The total number of shares which the
Corporation shall have the authority to issue is 210,000,000 which shall
consist of 10,000,000 shares of Preferred Stock of the par value of $.001
per share and 200,000,000 shares of Common Stock of the par value of $.001
per share. The Board of Directors of the Corporation shall have authority
to establish series of unissued shares of any or all of the Preferred Stock
by fixing and determining the relative rights and preferences of the shares
of any series so established within the limitations of Nevada law and to
increase or decrease the number of shares within each such series;
provided, however, that the Board of Directors may not decrease the number
of shares within a series below the number of shares within such series
that is then issued."
That the number of shares of the Corporation outstanding and entitled to
vote on an amendment to the Articles of Incorporation is 86,722,078 and that
the said change and amendment have been consented to and approved by a majority
vote of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
/s/ Daniel Dror
---------------------------------
Daniel Dror, President
/s/ Rebekah Laird-Ruthstrom
---------------------------------
Rebekah Laird-Ruthstrom, Secretary
STATE OF TEXAS )
COUNTY OF GALVESTON )
On the 6th day of August 1998, personally appeared before me, a Notary
Public, Daniel Dror, President and Rebekah Laird-Ruthstrom, Secretary of
American International Industries, Inc., who acknowledged that they execute
the above instrument.
/s/ Celia-Frances Mabry
---------------------------------
NOTARY PUBLIC
- ----------------------------------
[SEAL] CELIA-FRANCES MABRY
NOTARY PUBLIC
State of Texas
Comm. Exp. 07-14-2002
- ----------------------------------
<PAGE>
EXHIBIT 2.3
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
[DATE]
C15064-94
---------
CERTIFICATE OF AMENDMENT
To THE ARTICLES OF INCORPORATION OF
ENERGY DRILLING INDUSTRIES, INC.
We, the undersigned, Daniel Dror, President, and Rebekah Laird-Ruthstrom,
Assistant Secretary, of Energy Drilling Industries, Inc., a Nevada corporation
(the "Corporation), do hereby certify:
I
Pursuant to Section 78.315 of the Nevada Revised Statutes, the Board
of Directors of the Corporation by their Unanimous Written Consent, dated May
14, 1998, adopted a resolution to amend the Corporation's Articles of
Incorporation as follows:
Article I is hereby amended to read as follows:
The name of the Corporation is "American International Industries,
Inc.".
II
That the number of shares of the Corporation outstanding and entitled
to vote on an amendment to the Articles of Incorporation is 51,977,060, and that
the said change and amendment have been consented to and approved by a majority
vote of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
/s/ Daniel Dror
---------------------------------
Daniel Dror, President
/s/ Rebekah Laird-Ruthstrom
---------------------------------
Rebekah Laird-Ruthstrom, Asst. Secretary
STATE OF TEXAS )
)
COUNTY OF GALVESTON )
On the 17th day of June 1998, personally appeared before me, a Notary
Public, Daniel Dror, who acknowledged that he is President of Energy Drilling
Industries, Inc. and that he is authorized to and did execute the
above instrument.
/s/ Jackie Hart
---------------------------------
NOTARY PUBLIC
----------------------------
[SEAL] JACKIE HART
NOTARY PUBLIC
State of Texas
Comm. Exp. 06-05-2000
----------------------------
STATE OF TEXAS )
)
COUNTY OF GALVESTON )
On the 17th day of June 1998, personally appeared before me, a Notary
Public, Rebekah Laird-Ruthstrom who acknowledged that she is Assistant
Secretary of Energy Drilling Industries, Inc. and that she is authorized to
and did execute the above instrument.
/s/ Jackie Hart
---------------------------------
NOTARY PUBLIC
----------------------------
[SEAL] JACKIE HART
NOTARY PUBLIC
State of Texas
Comm. Exp. 06-05-2000
----------------------------
<PAGE>
EXHIBIT 2.4
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
JAN 30 1998
No. C15064-94
---------
DEAN HELLER
DEAN HELLER, SECRETARY OF STATE
CERTIFICATE OF AMENDMENT OF THE ARTICLES OF INCORPORATION
OF
ENERGY DRILLING INDUSTRIES, INC.
We, the undersigned, Daniel Dror, Sr., President, and W. Arthur
Lindsay, Secretary, of Energy Drilling Industries, Inc. (the "Corporation")
do hereby certify:
That the Board of Directors of the Corporation at a meeting duly
convened, held on January 19, 1998, adopted a resolution to amend the
original articles as follows:
"Section 1 of Article VI of the Corporation's Articles of
Incorporation is hereby amended to read as follows:
"Section 1. AUTHORIZED SHARES. The total number of shares which
the Corporation shall have the authority to issue is 110,000,000 which
shall consist of 10,000,000 shares of Preferred Stock of the par value
of $.001 per share and 100,000,000 shares of Common Stock of the par
value of $.001 per share. The Board of Directors of the Corporation
shall have authority to establish series of unissued shares of any or
all of the Preferred Stock by fixing and determining the relative
rights and preferences of the shares of any series so established
within the limitations of Nevada law and to increase or decrease the
number of shares within each such series; provided, however, that the
Board of Directors may not decrease the number of shares within a
series below the number of shares within such series that is then
issued."
That the number of shares of the Corporation outstanding and entitled
to vote on an amendment to the Articles of Incorporation is 22,469,060; that the
said change and amendment have been consented to and approved by a majority vote
of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
/s/ Daniel Dror, Sr.
---------------------------------
Daniel Dror, Sr., President
/s/ W. Arthur Lindsay
---------------------------------
W. Arthur Lindsay, Secretary
1
<PAGE>
State of Texas )
) ss.
County of Harris )
On January 21, 1998, personally appeared before me, a Notary Public, Daniel
Dror, Sr. and W. Arthur Lindsay, who acknowledged that they executed the above
instrument.
/s/ Gwen M. Vaughan
---------------------------------
- ---------------------------------------
[SEAL] GWEN M. VAUGHAN
NOTARY PUBLIC, STATE OF TEXAS
MY COMMISSION EXPIRES
FEB. 29, 2000
- ---------------------------------------
<PAGE>
EXHIBIT 2.5
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
DEC 22 1997
NO.
----------
DEAN HELLER
DEAN HELLER, SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
PITTS & SPITTS OF TEXAS, INC.
We, the undersigned, John Christensen, President, and W. Arthur Lindsay,
Secretary, a Nevada corporation ("the Corporation"), do hereby certify:
I
Pursuant to Section 78.315 of the Nevada Revised Statutes, the Board
of Directors of the Corporation by their Unanimous Written Consent, dated
December 5, 1997, adopted a resolution to amend the Corporation's Articles of
Incorporation as follows:
Article I is hereby amended to read as follows:
The name of the Corporation is "Energy Drilling Industries, Inc."
II
That the number of shares of the Corporation outstanding and entitled
to vote on an amendment to the Articles of Incorporation is 22,517,060, and that
the said change and amendment have been consented to and approved by a majority
vote of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
/s/ John Christensen
---------------------------------
John Christensen, President
/s/ W. Arthur Lindsay
---------------------------------
W. Arthur Lindsay, Secretary
STATE OF TEXAS )
)
COUNTY OF HARRIS )
On the 10th day of December, 1997, personally appeared before me, a Notary
Public, John Christensen, who acknowledged that he is the President of Pitts &
Spitts of Texas, Inc. and that he is authorized to and did execute the above
instrument.
/s/ Gwen M. Vaughan
---------------------------------
NOTARY PUBLIC
- ------------------------------------
[SEAL] GWEN M. VAUGHAN
NOTARY PUBLIC, STATE OF TEXAS
MY COMMISSION EXPIRES
FEB. 29, 2000
- ------------------------------------
<PAGE>
STATE OF TEXAS )
)
COUNTY OF HARRIS )
On the 10th day of December, 1997, personally appeared before me, a
Notary Public, W. Arthur Lindsay, who acknowledged that he is the Secretary
of Pitts & Spitts of Texas, Inc. and that he is authorized to and did execute
the above instrument.
/s/ Gwen M. Vaughan
---------------------------------
NOTARY PUBLIC
- ------------------------------------
[SEAL] GWEN M. VAUGHAN
NOTARY PUBLIC, STATE OF TEXAS
MY COMMISSION EXPIRES
FEB. 29, 2000
- ------------------------------------
<PAGE>
EXHIBIT 2.6
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
JULY 26 1996
NO. C15064.94
---------
DEAN HELLER
DEAN HELLER, SECRETARY OF STATE
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
BLACK TIE AFFAIR, INCORPORATED
Pursuant to Section 78.390 of the Nevada Revised Statutes, we the
undersigned officers of Black Tie Affair, Incorporated (the "Corporation"), do
hereby certify the following:
1. That we are the duly-elected President and Secretary of the
Corporation;
2. That the amendment to the Articles of Incorporation was approved by a
majority of the issued and outstanding shares of the Corporation; and
3. That the Amendment to the Articles of Incorporation in its entirety is
set forth in Exhibit "A" attached hereto.
/s/ Michael M. Hanna
---------------------------------
Michael M. Hanna, President
/s/ W. Arthur Lindsay
---------------------------------
W. Arthur Lindsay, Secretary
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss.
COUNTY OF HARRIS )
On this the 16th day of July, 1996, before me, the undersigned Notary
Public, personally appeared Michael M. Hanna, known to me to be the President
of Black Tie Affair, Incorporated, a Nevada Corporation, the corporation which
executed the attached instrument, and who executed same on behalf of said
corporation, freely and voluntarily and for the uses and purposes therein
mentioned.
/s/ Tara Lee Trahan
---------------------------------
Notary Public
- ----------------------------------
[SEAL] TARA LEE TRAHAN
Notary Public
State of Texas
My Comm. Exp. Sept. 6, 1998
- ----------------------------------
<PAGE>
ACKNOWLEDGMENT
STATE OF TEXAS )
) ss.
COUNTY OF HARRIS )
On this the 16th day of July, 1996, before me, the undersigned Notary
Public, personally appeared W. Arthur Lindsay, known to me to be the Secretary
of Black Tie Affair, Incorporated, a Nevada Corporation, the corporation which
executed the attached instrument, and who executed same on behalf of said
corporation, freely and voluntarily and for the uses and purposes therein
mentioned.
/s/ Tara Lee Trahan
---------------------------------
Notary Public
- ----------------------------------
[SEAL] TARA LEE TRAHAN
Notary Public
State of Texas
My Comm. Exp. Sept. 6, 1998
- ----------------------------------
<PAGE>
EXHIBIT A
AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
BLACK TIE AFFAIR, INCORPORATED
(PURSUANT TO NEVADA REVISED STATUTES SECTION 78.390)
<PAGE>
BLACK TIE AFFAIR, INCORPORATED
Amendment to the Articles of Incorporation
The Articles of Incorporation for Black Tie Affair, Incorporated, a Nevada
corporation, are hereby amended with the change of Article I to read as follows:
The Articles of Incorporation are hereby amended by striking out the
existing Article I in its entirety and substituting therefor new Article I, to
wit:
Article I - Name: The exact name of this Corporation is:
Pitts and Spitts of Texas Inc.
<PAGE>
EXHIBIT 2.7
AMENDED AND RESTATED BYLAWS
OF
AMERICAN INTERNATIONAL INDUSTRIES, INC.
A NEVADA CORPORATION
ARTICLE 1.
DEFINITIONS
1.1 DEFINITIONS. Unless the context clearly requires otherwise, in
these Bylaws:
(a) "BOARD" means the board of directors of the Company.
(b) "BYLAWS" means these bylaws as adopted by the Board and
includes amendments subsequently adopted by the Board or by the
Stockholders.
(c) "ARTICLES OF INCORPORATION" means the Articles of
Incorporation of American International Industries, Inc., as filed with
the Secretary of State of the State of Nevada and includes all amendments
thereto and restatements thereof subsequently filed.
(d) "COMPANY" means American International Industries, Inc., a
Nevada corporation.
(e) "SECTION" refers to sections of these Bylaws.
(f) "STOCKHOLDER" means stockholders of record of the Company.
1.2 OFFICES. The title of an office refers to the person or
persons who at any given time perform the duties of that particular office
for the Company.
ARTICLE 2.
OFFICES
2.1 PRINCIPAL OFFICE. The Company may locate its principal office
within or without the state of incorporation as the Board may determine.
2.2 REGISTERED OFFICE. The registered office of the Company required
by law to be maintained in the state of incorporation may be, but need not be,
the same as the principal place of business of the Company. The Board may
change the address of the registered office from time to time.
<PAGE>
2.3 OTHER OFFICES. The Company may have offices at such other
places, either within or without the state of incorporation, as the Board may
designate or as the business of the Company may require from time to time.
ARTICLE 3.
MEETINGS OF STOCKHOLDERS
3.1 ANNUAL MEETINGS. The Stockholders of the Company shall hold
their annual meetings for the purpose of electing directors and for the
transaction of such other proper business as may come before such meetings at
such time, date and place as the Board shall determine by resolution.
3.2 SPECIAL MEETINGS. The Board, the Chairman of the Board, the
President or a committee of the Board duly designated and whose powers and
authority include the power to call meetings may call special meetings of the
Stockholders of the Company at any time for any purpose or purposes. Special
meetings of the Stockholders of the Company may also be called by the holders
of at least 30% of all shares entitled to vote at the proposed special
meeting.
3.3 PLACE OF MEETINGS. The Stockholders shall hold all meetings at
such places, within or without the State of Texas, as the Board or a
committee of the Board shall specify in the notice or waiver of notice for
such meetings.
3.4 NOTICE OF MEETINGS. Except as otherwise required by law, the
Board or a committee of the Board shall give notice of each meeting of
Stockholders, whether annual or special, not less than 10 nor more than 50
days before the date of the meeting. The Board or a committee of the Board
shall deliver a notice to each Stockholder entitled to vote at such meeting
by delivering a typewritten or printed notice thereof to him personally, or
by depositing such notice in the United States mail, in a postage prepaid
envelope, directed to him at his address as it appears on the records of the
Company, or by transmitting a notice thereof to him at such address by
telegraph, telecopy, cable or wireless. If mailed, notice is given on the
date deposited in the United States mail, postage prepaid, directed to the
Stockholder at his address as it appears on the records of the Company. An
affidavit of the Secretary or an Assistant Secretary or of the Transfer
2
<PAGE>
Agent of the Company that he has given notice shall constitute, in the
absence of fraud, prima facie evidence of the facts stated therein.
Every notice of a meeting of the Stockholders shall state the
place, date and hour of the meeting and, in the case of a special meeting,
also shall state the purpose or purposes of the meeting. Furthermore, if the
Company will maintain the list at a place other than where the meeting will
take place, every notice of a meeting of the Stockholders shall specify where
the Company will maintain the list of Stockholders entitled to vote at the
meeting.
3.5 STOCKHOLDER NOTICE. Subject to the Articles of Incorporation,
the Stockholders who intend to nominate persons to the Board of Directors or
propose any other action at an annual meeting of Stockholders must timely
notify the Secretary of the Company of such intent. To be timely, a
Stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than 50 days nor more
than 90 days prior to the date of such meeting; provided, however, that in
the event that less than 75 days' notice of the date of the meeting is given
or made to Stockholders, notice by the Stockholder to be timely must be
received not later than the close of business on the 15th day following the
date on which such notice of the date of the annual meeting was mailed. Such
notice must be in writing and must include a (i) a brief description of the
business desired to the brought before the annual meeting and the reasons for
conducting such business at the meeting; (ii) the name and record address of
the Stockholder proposing such business; (iii) the class, series and number
of shares of capital stock of the Company which are beneficially owned by the
Stockholder; and (iv) any material interest of the Stockholder in such
business. The Board of Directors reserves the right to refuse to submit any
such proposal to stockholders at an annual meeting if, in its judgment, the
information provided in the notice is inaccurate or incomplete.
3.6 WAIVER OF NOTICE. Whenever these Bylaws require written
notice, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall constitute the
equivalent of notice. Attendance of a person at any meeting shall constitute
a waiver of notice of such meeting, except when the person attends the
meeting for the express purpose of objecting, at the beginning
3
<PAGE>
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. No written waiver of notice need specify either
the business to be transacted at, or the purpose or purposes of any regular
or special meeting of the Stockholders, directors or members of a committee
of the Board.
3.7 ADJOURNMENT OF MEETING. When the Stockholders adjourn a
meeting to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which
the adjournment is taken. At the adjourned meeting, the Stockholders may
transact any business which they may have transacted at the original meeting.
If the adjournment is for more than 30 days or, if after the adjournment,
the Board or a committee of the Board fixes a new record date for the
adjourned meeting, the Board or a committee of the Board shall give notice of
the adjourned meeting to each Stockholder of record entitled to vote at the
meeting.
3.8 QUORUM. Except as otherwise required by law, the holders of a
majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy, shall constitute a quorum for all purposes at
any meeting of the Stockholders. In the absence of a quorum at any meeting
or any adjournment thereof, the holders of a majority of the shares of stock
entitled to vote who are present, in person or by proxy, or, in the absence
therefrom of all the Stockholders, any officer entitled to preside at, or to
act as secretary of, such meeting may adjourn such meeting to another place,
date or time.
If the chairman of the meeting gives notice of any adjourned
special meeting of Stockholders to all Stockholders entitled to vote thereat,
stating that the minimum percentage of stockholders for a quorum as provided
by Nevada law shall constitute a quorum, then, except as otherwise required
by law, that percentage at such adjourned meeting shall constitute a quorum
and a majority of the votes cast at such meeting shall determine all matters.
3.9 ORGANIZATION. Such person as the Board may have designated or,
in the absence of such a person, the highest ranking officer of the Company
who is present shall call to order any meeting of the Stockholders, determine
the presence of a quorum, and act as chairman of the meeting. In the absence
of
4
<PAGE>
the Secretary or an Assistant Secretary of the Company, the chairman shall
appoint someone to act as the secretary of the meeting.
3.10 CONDUCT OF BUSINESS. The chairman of any meeting of
Stockholders shall determine the order of business and the procedure at the
meeting, including such regulations of the manner of voting and the conduct
of discussion as he deems in order.
3.11 LIST OF STOCKHOLDERS. At least 10 days before every meeting of
Stockholders, the Secretary shall prepare a list of the Stockholders entitled
to vote at the meeting or any adjournment thereof, arranged in alphabetical
order, showing the address of each Stockholder and the number of shares
registered in the name of each Stockholder. The Company shall make the list
available for examination by any Stockholder for any purpose germane to the
meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting
will take place or at the place designated in the notice of the meeting.
The Secretary shall produce and keep the list at the time and
place of the meeting during the entire duration of the meeting, and any
Stockholder who is present may inspect the list at the meeting. The list
shall constitute presumptive proof of the identity of the Stockholders
entitled to vote at the meeting and the number of shares each Stockholder
holds.
A determination of Stockholders entitled to vote at any meeting
of Stockholders pursuant to this Section shall apply to any adjournment
thereof.
3.12 FIXING OF RECORD DATE. For the purpose of determining
Stockholders entitled to notice of or to vote at any meeting of Stockholders
or any adjournment thereof, or Stockholders entitled to receive payment of
any dividend, or in order to make a determination of Stockholders for any
other proper purpose, the Board or a committee of the Board may fix in
advance a date as the record date for any such determination of Stockholders.
However, the Board shall not fix such date, in any case, more than 50 days
nor less than 10 days prior to the date of the particular action.
5
<PAGE>
If the Board or a committee of the Board does not fix a record
date for the determination of Stockholders entitled to notice of or to vote
at a meeting of Stockholders, the record date shall be at the close of
business on the day next preceding the day on which notice is given or if
notice is waived, at the close of business on the day next preceding the day
on which the meeting is held or the date on which the Board adopts the
resolution declaring a dividend.
3.13 VOTING OF SHARES. Each Stockholder shall have one vote for
every share of stock having voting rights registered in his name on the
record date for the meeting. The Company shall not have the right to vote
treasury stock of the Company, nor shall another corporation have the right
to vote its stock of the Company if the Company holds, directly or
indirectly, a majority of the shares entitled to vote in the election of
directors of such other corporation. Persons holding stock of the Company in
a fiduciary capacity shall have the right to vote such stock. Persons who
have pledged their stock of the Company shall have the right to vote such
stock unless in the transfer on the books of the Company the pledgor
expressly empowered the pledgee to vote such stock. In that event, only the
pledgee, or his proxy, may represent such stock and vote thereon.
A plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote shall determine all
elections and, except when the law or Articles of Incorporation requires
otherwise, the affirmative vote of a majority of the shares present in person
or represented by proxy at the meeting and entitled to vote shall determine
all other matters.
Where a separate vote by a class or classes is required, a
majority of the outstanding shares of such class or classes, present in
person or represented by proxy, shall constitute a quorum entitled to take
action with respect to that vote on that matter and the affirmative vote of
the majority of shares of such class or classes present in person or
represented by proxy at the meeting shall be the act of such class.
The Stockholders may vote by voice vote on all matters. Upon
demand by a Stockholder entitled to vote, or his proxy, the Stockholders
shall vote by ballot. In that event, each ballot shall state the
6
<PAGE>
name of the Stockholder or proxy voting, the number of shares voted and such
other information as the Company may require under the procedure established
for the meeting.
3.14 INSPECTORS. At any meeting in which the Stockholders vote by
ballot, the chairman may appoint one or more inspectors. Each inspector
shall take and sign an oath to execute the duties of inspector at such
meeting faithfully, with strict impartiality, and according to the best of
his ability. The inspectors shall ascertain the number of shares outstanding
and the voting power of each; determine the shares represented at a meeting
and the validity of proxies and ballots; count all votes and ballots;
determine and retain for a reasonable period a record of the disposition of
any challenges made to any determination by the inspectors; and certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots. The certification required herein shall take
the form of a subscribed, written report prepared by the inspectors and
delivered to the Secretary of the Company. An inspector need not be a
Stockholder of the Company, and any officer of the Company may be an
inspector on any question other than a vote for or against a proposal in
which he has a material interest.
3.15 PROXIES. A Stockholder may exercise any voting rights in
person or by his proxy appointed by an instrument in writing, which he or his
authorized attorney-in-fact has subscribed and which the proxy has delivered
to the secretary of the meeting pursuant to the manner prescribed by law.
A proxy is not valid after the expiration of 13 months after
the date of its execution, unless the person executing it specifies thereon
the length of time for which it is to continue in force (which length may
exceed 12 months) or limits its use to a particular meeting. Each proxy is
irrevocable if it expressly states that it is irrevocable and if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power.
The attendance at any meeting of a Stockholder who previously
has given a proxy shall not have the effect of revoking the same unless he
notifies the Secretary in writing prior to the voting of the proxy.
7
<PAGE>
3.16 ACTION BY CONSENT. Any action required to be taken at any
annual or special meeting of stockholders of the Company or any action which
may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the Company by delivery to its registered office,
its principal place of business, or an officer or agent of the Company having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Company's registered office shall be by hand
or by certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective
to take the corporate action referred to therein unless, within 50 days of
the earliest dated consent delivered in the manner required by this section
to the Company, written consents signed by a sufficient number of holders to
take action are delivered to the Company by delivery to its registered
office, its principal place of business or an officer or agent of the Company
having custody of the book in which proceedings of meetings of stockholders
are recorded. Delivery made to the Company's registered office shall be by
hand or by certified or registered mail, return receipt requested.
Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE 4.
BOARD OF DIRECTORS
4.1 GENERAL POWERS. The Board shall manage the property, business
and affairs of the Company.
4.2 NUMBER. The number of directors who shall constitute the Board
shall equal not less than two nor more than 10, as the Board may determine by
resolution from time to time.
8
<PAGE>
4.3 ELECTION OF DIRECTORS AND TERM OF OFFICE. The Stockholders of
the Company shall elect the directors at the annual or adjourned annual
meeting (except as otherwise provided herein for the filling of vacancies).
Each director shall hold office until his death, resignation, retirement,
removal, or disqualification, or until his successor shall have been elected
and qualified.
4.4 RESIGNATIONS. Any director of the Company may resign at any
time by giving written notice to the Board or to the Secretary of the
Company. Any resignation shall take effect upon receipt or at the time
specified in the notice. Unless the notice specifies otherwise, the
effectiveness of the resignation shall not depend upon its acceptance.
4.5 REMOVAL. Stockholders holding a majority of the outstanding
shares entitled to vote at an election of directors may remove any director
or the entire Board of Directors at any time, with or without cause.
4.6 VACANCIES. A majority of the remaining directors, although less
than a quorum, or a sole remaining director may fill any vacancy on the
Board, whether because of death, resignation, disqualification, an increase
in the number of directors, or any other cause. Any director elected to fill
a vacancy shall hold office until his death, resignation, retirement,
removal, or disqualification, or until his successor shall have been elected
and qualified.
4.7 CHAIRMAN OF THE BOARD. At the initial and annual meeting of
the Board, the directors may elect from their number a Chairman of the Board
of Directors. The Chairman shall preside at all meetings of the Board and
shall perform such other duties as the Board may direct. The Board also may
elect a Vice Chairman and other officers of the Board, with such powers and
duties as the Board may designate from time to time.
4.8 COMPENSATION. The Board may compensate directors for their
services and may provide for the payment of all expenses the directors incur
by attending meetings of the Board or otherwise.
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ARTICLE 5.
MEETINGS OF DIRECTORS
5.1 REGULAR MEETINGS. The Board may hold regular meetings at such
places, dates and times as the Board shall establish by resolution. If any
day fixed for a meeting falls on a legal holiday, the Board shall hold the
meeting at the same place and time on the next succeeding business day. The
Board need not give notice of regular meetings.
5.2 PLACE OF MEETINGS. The Board may hold any of its meetings in
or out of the State of Texas, at such places as the Board may designate, at
such places as the notice or waiver of notice of any such meeting may
designate, or at such places as the persons calling the meeting may designate.
5.3 MEETINGS BY TELECOMMUNICATIONS. The Board or any committee of
the Board may hold meetings by means of conference telephone or similar
telecommunications equipment that enable all persons participating in the
meeting to hear each other. Such participation shall constitute presence in
person at such meeting.
5.4 SPECIAL MEETINGS. The Chairman of the Board, the President, or
one-half of the directors then in office may call a special meeting of the
Board. The person or persons authorized to call special meetings of the
Board may fix any place, either in or out of the State of Texas as the place
for the meeting.
5.5 NOTICE OF SPECIAL MEETINGS. The person or persons calling a
special meeting of the Board shall give written notice to each director of
the time, place, date and purpose of the meeting of not less than three
business days if by mail and not less than 24 hours if by telegraph or in
person before the date of the meeting. If mailed, notice is given on the
date deposited in the United States mail, postage prepaid, to such director.
A director may waive notice of any special meeting, and any meeting shall
constitute a legal meeting without notice if all the directors are present or
if those not present sign either before or after the meeting a written waiver
of notice, a consent to such meeting, or an approval of the minutes of the
meeting. A notice or waiver of notice need not specify the purposes of the
meeting or the business which the Board will transact at the meeting.
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5.6 WAIVER BY PRESENCE. Except when expressly for the purpose of
objecting to the legality of a meeting, a director's presence at a meeting
shall constitute a waiver of notice of such meeting.
5.7 QUORUM. A majority of the directors then in office shall
constitute a quorum for all purposes at any meeting of the Board. In the
absence of a quorum, a majority of directors present at any meeting may
adjourn the meeting to another place, date or time without further notice.
No proxies shall be given by directors to any person for purposes of voting
or establishing a quorum at a directors meetings.
5.8 CONDUCT OF BUSINESS. The Board shall transact business in such
order and manner as the Board may determine. Except as the law requires
otherwise, the Board shall determine all matters by the vote of a majority of
the directors present at a meeting at which a quorum is present. The
directors shall act as a Board, and the individual directors shall have no
power as such.
5.9 ACTION BY CONSENT. The Board or a committee of the Board may
take any required or permitted action without a meeting if all members of the
Board or committee consent thereto in writing and file such consent with the
minutes of the proceedings of the Board or committee.
ARTICLE 6.
COMMITTEES
6.1 COMMITTEES OF THE BOARD. The Board may designate, by a vote of
a majority of the directors then in office, committees of the Board. The
committees shall serve at the pleasure of the Board and shall possess such
lawfully delegable powers and duties as the Board may confer.
6.2 SELECTION OF COMMITTEE MEMBERS. The Board shall elect by a
vote of a majority of the directors then in office a director or directors to
serve as the member or members of a committee. By the same vote, the Board
may designate other directors as alternate members who may replace any absent
or disqualified member at any meeting of a committee. In the absence or
disqualification of any member of any committee and any alternate member in
his place, the member or members of the committee present at the meeting and
not disqualified from voting, whether or not he or they constitute a quorum,
may appoint
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by unanimous vote another member of the Board to act at the meeting in the
place of the absent or disqualified member.
6.3 CONDUCT OF BUSINESS. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as the law or these Bylaws require otherwise.
Each committee shall make adequate provision for notice of all meetings to
members. A majority of the members of the committee shall constitute a
quorum, unless the committee consists of one or two members. In that event,
one member shall constitute a quorum. A majority vote of the members present
shall determine all matters. A committee may take action without a meeting
if all the members of the committee consent in writing and file the consent
or consents with the minutes of the proceedings of the committee.
6.4 AUTHORITY. Any committee, to the extent the Board provides,
shall have and may exercise all the powers and authority of the Board in the
management of the business and affairs of the Company, and may authorize the
affixation of the Company's seal to all instruments which may require or
permit it. However, no committee shall have any power or authority with
regard to amending the Articles of Incorporation, adopting an agreement of
merger or consolidation, recommending to the Stockholders the sale, lease or
exchange of all or substantially all of the Company's property and assets,
recommending to the Stockholders a dissolution of the Company or a revocation
of a dissolution of the Company, or amending these Bylaws of the Company.
Unless a resolution of the Board expressly provides, no committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger.
6.5 MINUTES. Each committee shall keep regular minutes of its
proceedings and report the same to the Board when required.
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ARTICLE 7.
OFFICERS
7.1 OFFICERS OF THE COMPANY. The officers of the Company shall
consist of a Chief Executive Officer, a President, a Chief Financial Officer,
a Secretary and such Vice Presidents, Assistant Secretaries, Assistant
Treasurers, and other officers as the Board may designate and elect from time
to time. The same person may hold at the same time any two or more offices,
except the offices of President and Secretary.
7.2 ELECTION AND TERM. The Board shall elect the officers of the
Company. Each officer shall hold office until his death, resignation,
retirement, removal or disqualification, or until his successor shall have
been elected and qualified.
7.3 COMPENSATION OF OFFICERS. The Board shall fix the compensation
of all officers of the Company. No officer shall serve the Company in any
other capacity and receive compensation, unless the Board authorizes the
additional compensation.
7.4 REMOVAL OF OFFICERS AND AGENTS. The Board may remove any
officer or agent it has elected or appointed at any time, with or without
cause.
7.5 RESIGNATION OF OFFICERS AND AGENTS. Any officer or agent the
Board has elected or appointed may resign at any time by giving written
notice to the Board, the Chairman of the Board, the President, or the
Secretary of the Company. Any such resignation shall take effect at the date
of the receipt of such notice or at any later time specified. Unless
otherwise specified in the notice, the Board need not accept the resignation
to make it effective.
7.6 BOND. The Board may require by resolution any officer, agent,
or employee of the Company to give bond to the Company, with sufficient
sureties conditioned on the faithful performance of the duties of his
respective office or agency. The Board also may require by resolution any
officer, agent or employee to comply with such other conditions as the Board
may require from time to time.
7.7 PRESIDENT. The President shall be the chief operating officer
of the Company and, subject to the Board's control, shall supervise and
direct all of the business and affairs of the Company. When
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present, he shall sign (with or without the Secretary, an Assistant
Secretary, or any other officer or agent of the Company which the Board has
authorized) deeds, mortgages, bonds, contracts or other instruments which the
Board has authorized an officer or agent of the Company to execute. However,
the President shall not sign any instrument which the law, these Bylaws, or
the Board expressly require some other officer or agent of the Company to
sign and execute. In general, the President shall perform all duties
incident to the office of President and such other duties as the Board may
prescribe from time to time.
7.8 VICE PRESIDENTS. In the absence of the President or in the
event of his death, inability or refusal to act, the Vice Presidents in the
order of their length of service as Vice Presidents, unless the Board
determines otherwise, shall perform the duties of the President. When acting
as the President, a Vice President shall have all the powers and restrictions
of the Presidency. A Vice President shall perform such other duties as the
President or the Board may assign to him from time to time.
7.9 SECRETARY. The Secretary shall (a) keep the minutes of the
meetings of the Stockholders and of the Board in one or more books for that
purpose, (b) give all notices which these Bylaws or the law requires, (c)
serve as custodian of the records and seal of the Company, (d) affix the seal
of the corporation to all documents which the Board has authorized execution
on behalf of the Company under seal, (e) maintain a register of the address
of each Stockholder of the Company, (f) sign, with the President, a Vice
President, or any other officer or agent of the Company which the Board has
authorized, certificates for shares of the Company, (g) have charge of the
stock transfer books of the Company, and (h) perform all duties which the
President or the Board may assign to him from time to time.
7.10 ASSISTANT SECRETARIES. In the absence of the Secretary or in
the event of his death, inability or refusal to act, the Assistant
Secretaries in the order of their length of service as Assistant Secretary,
unless the Board determines otherwise, shall perform the duties of the
Secretary. When acting as the Secretary, an Assistant Secretary shall have
the powers and restrictions of the Secretary. An Assistant Secretary shall
perform such other duties as the President, Secretary or Board may assign
from time to time.
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7.11 TREASURER. The Treasurer shall (a) have responsibility for all
funds and securities of the Company, (b) receive and give receipts for moneys
due and payable to the corporation from any source whatsoever, (c) deposit
all moneys in the name of the Company in depositories which the Board
selects, and (d) perform all of the duties which the President or the Board
may assign to him from time to time.
7.12 ASSISTANT TREASURERS. In the absence of the Treasurer or in
the event of his death, inability or refusal to act, the Assistant Treasurers
in the order of their length of service as Assistant Treasurer, unless the
Board determines otherwise, shall perform the duties of the Treasurer. When
acting as the Treasurer, an Assistant Treasurer shall have the powers and
restrictions of the Treasurer. An Assistant Treasurer shall perform such
other duties as the Treasurer, the President, or the Board may assign to him
from time to time.
7.13 DELEGATION OF AUTHORITY. Notwithstanding any provision of these
Bylaws to the contrary, the Board may delegate the powers or duties of any
officer to any other officer or agent.
7.14 ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless the Board directs otherwise, the President shall have the power to
vote and otherwise act on behalf of the Company, in person or by proxy, at
any meeting of stockholders of or with respect to any action of stockholders
of any other corporation in which the Company holds securities. Furthermore,
unless the Board directs otherwise, the President shall exercise any and all
rights and powers which the Company possesses by reason of its ownership of
securities in another corporation.
7.15 VACANCIES. The Board may fill any vacancy in any office
because of death, resignation, removal, disqualification or any other cause
in the manner which these Bylaws prescribe for the regular appointment to
such office.
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ARTICLE 8.
CONTRACTS, LOANS, DRAFTS,
DEPOSITS AND ACCOUNTS
8.1 CONTRACTS. The Board may authorize any officer or officers,
agent or agents, to enter into any contract or execute and deliver any
instrument in the name and on behalf of the Company. The Board may make such
authorization general or special.
8.2 LOANS. Unless the Board has authorized such action, no officer
or agent of the Company shall contract for a loan on behalf of the Company or
issue any evidence of indebtedness in the Company's name.
8.3 DRAFTS. The President, any Vice President, the Treasurer, any
Assistant Treasurer, and such other persons as the Board shall determine
shall issue all checks, drafts and other orders for the payment of money,
notes and other evidences of indebtedness issued in the name of or payable by
the Company.
8.4 DEPOSITS. The Treasurer shall deposit all funds of the Company
not otherwise employed in such banks, trust companies, or other depositories
as the Board may select or as any officer, assistant, agent or attorney of
the Company to whom the Board has delegated such power may select. For the
purpose of deposit and collection for the account of the Company, the
President or the Treasurer (or any other officer, assistant, agent or
attorney of the Company whom the Board has authorized) may endorse, assign
and deliver checks, drafts and other orders for the payment of money payable
to the order of the Company.
8.5 GENERAL AND SPECIAL BANK ACCOUNTS. The Board may authorize the
opening and keeping of general and special bank accounts with such banks,
trust companies, or other depositories as the Board may select or as any
officer, assistant, agent or attorney of the Company to whom the Board has
delegated such power may select. The Board may make such special rules and
regulations with respect to such bank accounts, not inconsistent with the
provisions of these Bylaws, as it may deem expedient.
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ARTICLE 9.
CERTIFICATES FOR SHARES AND THEIR TRANSFER
9.1 CERTIFICATES FOR SHARES. Every owner of stock of the Company
shall have the right to receive a certificate or certificates, certifying to
the number and class of shares of the stock of the Company which he owns.
The Board shall determine the form of the certificates for the shares of
stock of the Company. The Secretary, transfer agent, or registrar of the
Company shall number the certificates representing shares of the stock of the
Company in the order in which the Company issues them. The President or any
Vice President and the Secretary or any Assistant Secretary shall sign the
certificates in the name of the Company. Any or all certificates may contain
facsimile signatures. In case any officer, transfer agent, or registrar who
has signed a certificate, or whose facsimile signature appears on a
certificate, ceases to serve as such officer, transfer agent, or registrar
before the Company issues the certificate, the Company may issue the
certificate with the same effect as though the person who signed such
certificate, or whose facsimile signature appears on the certificate, was
such officer, transfer agent, or registrar at the date of issue. The
Secretary, transfer agent, or registrar of the Company shall keep a record in
the stock transfer books of the Company of the names of the persons, firms or
corporations owning the stock represented by the certificates, the number and
class of shares represented by the certificates and the dates thereof and, in
the case of cancellation, the dates of cancellation. The Secretary, transfer
agent, or registrar of the Company shall cancel every certificate surrendered
to the Company for exchange or transfer. Except in the case of a lost,
destroyed, stolen or mutilated certificate, the Secretary, transfer agent, or
registrar of the Company shall not issue a new certificate in exchange for an
existing certificate until he has cancelled the existing certificate.
9.2 TRANSFER OF SHARES. A holder of record of shares of the
Company's stock, or his attorney-in-fact authorized by power of attorney duly
executed and filed with the Secretary, transfer agent or registrar of the
Company, may transfer his shares only on the stock transfer books of the
Company. Such person shall furnish to the Secretary, transfer agent, or
registrar of the Company proper evidence of his authority to make the
transfer and shall properly endorse and surrender for cancellation his
existing
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certificate or certificates for such shares. Whenever a holder of record of
shares of the Company's stock makes a transfer of shares for collateral
security, the Secretary, transfer agent, or registrar of the Company shall
state such fact in the entry of transfer if the transferor and the transferee
request.
9.3 LOST CERTIFICATES. The Board may direct the Secretary,
transfer agent, or registrar of the Company to issue a new certificate to any
holder of record of shares of the Company's stock claiming that he has lost
such certificate, or that someone has stolen, destroyed or mutilated such
certificate, upon the receipt of an affidavit from such holder to such fact.
When authorizing the issue of a new certificate, the Board, in its discretion
may require as a condition precedent to the issuance that the owner of such
certificate give the Company a bond of indemnity in such form and amount as
the Board may direct.
9.4 REGULATIONS. The Board may make such rules and regulations,
not inconsistent with these Bylaws, as it deems expedient concerning the
issue, transfer and registration of certificates for shares of the stock of
the corporation. The Board may appoint or authorize any officer or officers
to appoint one or more transfer agents, or one or more registrars, and may
require all certificates for stock to bear the signature or signatures of any
of them.
9.5 HOLDER OF RECORD. The Company may treat as absolute owners of
shares the person in whose name the shares stand of record as if that person
had full competency, capacity and authority to exercise all rights of
ownership, despite any knowledge or notice to the contrary or any description
indicating a representative, pledge or other fiduciary relation, or any
reference to any other instrument or to the rights of any other person
appearing upon its record or upon the share certificate. However, the
Company may treat any person furnishing proof of his appointment as a
fiduciary as if he were the holder of record of the shares.
9.6 TREASURY SHARES. Treasury shares of the Company shall consist
of shares which the Company has issued and thereafter acquired but not
canceled. Treasury shares shall not carry voting or dividend rights.
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ARTICLE 10.
INDEMNIFICATION
10.1 DEFINITIONS. In this Article:
(a) "INDEMNITEE" means (i) any present or former Director,
advisory director or officer of the Company, (ii) any person who while
serving in any of the capacities referred to in clause (i) hereof served
at the Company's request as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another
foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, and (iii) any person nominated
or designated by (or pursuant to authority granted by) the Board of
Directors or any committee thereof to serve in any of the capacities
referred to in clauses (i) or (ii) hereof.
(b) "OFFICIAL CAPACITY" means (i) when used with respect to a
Director, the office of Director of the Company, and (ii) when used with
respect to a person other than a Director, the elective or appointive
office of the Company held by such person or the employment or agency
relationship undertaken by such person on behalf of the Company, but in
each case does not include service for any other foreign or domestic
corporation or any partnership, joint venture, sole proprietorship,
trust, employee benefit plan or other enterprise.
(c) "PROCEEDING" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative, any appeal in such an action, suit or
proceeding, and any inquiry or investigation that could lead to such an
action, suit or proceeding.
10.2 INDEMNIFICATION. The Company shall indemnify every Indemnitee
against all judgments, penalties (including excise and similar taxes), fines,
amounts paid in settlement and reasonable expenses actually incurred by the
Indemnitee in connection with any Proceeding in which he was, is or is
threatened to be named defendant or respondent, or in which he was or is a
witness without being named a defendant or respondent, by reason, in whole or
in part, of his serving or having served, or having been nominated or
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designated to serve, in any of the capacities referred to in Section 10.1, if
it is determined in accordance with Section 10.4 that the Indemnitee (a)
conducted himself in good faith, (b) reasonably believed, in the case of
conduct in his Official Capacity, that his conduct was in the Company's best
interests and, in all other cases, that his conduct was at least not opposed
to the Company's best interests, and (c) in the case of any criminal
proceeding, had no reasonable cause to believe that his conduct was unlawful;
provided, however, that in the event that an Indemnitee is found liable to
the Company or is found liable on the basis that personal benefit was
improperly received by the Indemnitee the indemnification (i) is limited to
reasonable expenses actually incurred by the Indemnitee in connection with
the Proceeding and (ii) shall not be made in respect of any Proceeding in
which the Indemnitee shall have been found liable for willful or intentional
misconduct in the performance of his duty to the Company. Except as provided
in the immediately preceding proviso to the first sentence of this Section
10.2, no indemnification shall be made under this Section 10.2 in respect of
any Proceeding in which such Indemnitee shall have been (x) found liable on
the basis that personal benefit was improperly received by him, whether or
not the benefit resulted from an action taken in the Indemnitee's Official
Capacity, or (y) found liable to the Company. The termination of any
Proceeding by judgment, order, settlement or conviction, or on a plea of nolo
contendere or its equivalent, is not of itself determinative that the
Indemnitee did not meet the requirements set forth in clauses (a), (b) or (c)
in the first sentence of this Section 10.2. An Indemnitee shall be deemed to
have been found liable in respect of any claim, issue or matter only after
the Indemnitee shall have been so adjudged by a court of competent
jurisdiction after exhaustion of all appeals therefrom. Reasonable expenses
shall, include, without limitation, all court costs and all fees and
disbursements of attorneys for the Indemnitee. The indemnification provided
herein shall be applicable whether or not negligence or gross negligence of
the Indemnitee is alleged or proven.
10.3 SUCCESSFUL DEFENSE. Without limitation of Section 10.2 and in
addition to the indemnification provided for in Section 10.2, the Company
shall indemnify every Indemnitee against reasonable expenses incurred by such
person in connection with any Proceeding in which he is a witness or
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a named defendant or respondent because he served in any of the capacities
referred to in Section 10.1, if such person has been wholly successful, on
the merits or otherwise, in defense of the Proceeding.
10.4 DETERMINATIONS. Any indemnification under Section 10.2 (unless
ordered by a court of competent jurisdiction) shall be made by the Company
only upon a determination that indemnification of the Indemnitee is proper in
the circumstances because he has met the applicable standard of conduct.
Such determination shall be made (a) by the Board of Directors by a majority
vote of a quorum consisting of Directors who, at the time of such vote, are
not named defendants or respondents in the Proceeding; (b) if such a quorum
cannot be obtained, then by a majority vote of a committee of the Board of
Directors, duly designated to act in the matter by a majority vote of all
Directors (in which designated Directors who are named defendants or
respondents in the Proceeding may participate), such committee to consist
solely of two (2) or more Directors who, at the time of the committee vote,
are not named defendants or respondents in the Proceeding; (c) by special
legal counsel selected by the Board of Directors or a committee thereof by
vote as set forth in clauses (a) or (b) of this Section 10.4 or, if the
requisite quorum of all of the Directors cannot be obtained therefor and such
committee cannot be established, by a majority vote of all of the Directors
(in which Directors who are named defendants or respondents in the Proceeding
may participate); or (d) by the shareholders in a vote that excludes the
shares held by Directors that are named defendants or respondents in the
Proceeding. Determination as to reasonableness of expenses shall be made in
the same manner as the determination that indemnification is permissible,
except that if the determination that indemnification is permissible is made
by special legal counsel, determination as to reasonableness of expenses must
be made in the manner specified in clause (c) of the preceding sentence for
the selection of special legal counsel. In the event a determination is made
under this Section 10.4 that the Indemnitee has met the applicable standard
of conduct as to some matters but not as to others, amounts to be indemnified
may be reasonably prorated.
10.5 ADVANCEMENT OF EXPENSES. Reasonable expenses (including court
costs and attorneys' fees) incurred by an Indemnitee who was or is a witness
or was, is or is threatened to be made a named defendant
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or respondent in a Proceeding shall be paid by the Company at reasonable
intervals in advance of the final disposition of such Proceeding, and without
making any of the determinations specified in Section 10.4, after receipt by
the Company of (a) a written affirmation by such Indemnitee of his good faith
belief that he has met the standard of conduct necessary for indemnification
by the Company under this Article and (b) a written undertaking by or on
behalf of such Indemnitee to repay the amount paid or reimbursed by the
Company if it shall ultimately be determined that he is not entitled to be
indemnified by the Company as authorized in this Article. Such written
undertaking shall be an unlimited obligation of the Indemnitee but need not
be secured and it may be accepted without reference to financial ability to
make repayment. Notwithstanding any other provision of this Article, the
Company may pay or reimburse expenses incurred by an Indemnitee in connection
with his appearance as a witness or other participation in a Proceeding at a
time when he is not named a defendant or respondent in the Proceeding.
10.6 EMPLOYEE BENEFIT PLANS. For purposes of this Article, the
Company shall be deemed to have requested an Indemnitee to serve an employee
benefit plan whenever the performance by him of his duties to the Company
also imposes duties on or otherwise involves services by him to the plan or
participants or beneficiaries of the plan. Excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable
law shall be deemed fines. Action taken or omitted by an Indemnitee with
respect to an employee benefit plan in the performance of his duties for a
purpose reasonably believed by him to be in the interest of the participants
and beneficiaries of the plan shall be deemed to be for a purpose which is
not opposed to the best interests of the Company.
10.7 OTHER INDEMNIFICATION AND INSURANCE. The indemnification
provided by this Article shall (a) not be deemed exclusive of, or to
preclude, any other rights to which those seeking indemnification may at any
time be entitled under the Company's Articles of Incorporation, any law,
agreement or vote of shareholders or disinterested Directors, or otherwise,
or under any policy or policies of insurance purchased and maintained by the
Company on behalf of any Indemnitee, both as to action in his Official
Capacity and as to action in any other capacity, (b) continue as to a person
who has ceased to be in the capacity by reason
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of which he was an Indemnitee with respect to matters arising during the
period he was in such capacity, (c) inure to the benefit of the heirs,
executors and administrators of such a person and (d) not be required if and
to the extent that the person otherwise entitled to payment of such amounts
hereunder has actually received payment therefor under any insurance policy,
contract or otherwise.
10.8 NOTICE. Any indemnification of or advance of expenses to an
Indemnitee in accordance with this Article shall be reported in writing to
the shareholders of the Company with or before the notice or waiver of notice
of the next shareholders' meeting or with or before the next submission to
shareholders of a consent to action without a meeting and, in any case,
within the 12-month period immediately following the date of the
indemnification or advance.
10.9 CONSTRUCTION. The indemnification provided by this Article
shall be subject to all valid and applicable laws, including, without
limitation, Sections 78.7502 and 78.751 of the Nevada General Corporation
Law, and, in the event this Article or any of the provisions hereof or the
indemnification contemplated hereby are found to be inconsistent with or
contrary to any such valid laws, the latter shall be deemed to control and
this Article shall be regarded as modified accordingly, and, as so modified,
to continue in full force and effect.
10.10 CONTINUING OFFER, RELIANCE, ETC. The provisions of this
Article (a) are for the benefit of, and may be enforced by, each Indemnitee
of the Company, the same as if set forth in their entirety in a written
instrument duly executed and delivered by the Company and such Indemnitee and
(b) constitute a continuing offer to all present and future Indemnitees. The
Company, by its adoption of these Bylaws, (x) acknowledges and agrees that
each Indemnitee of the Company has relied upon and will continue to rely upon
the provisions of this Article in becoming, and serving in any of the
capacities referred to in Section 10.1(a) of this Article, (y) waives
reliance upon, and all notices of acceptance of, such provisions by such
Indemnitees and (z) acknowledges and agrees that no present or future
Indemnitee shall be prejudiced in his right to enforce the provisions of this
Article in accordance with their terms by any act or failure to act on the
part of the Company.
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10.11 EFFECT OF AMENDMENT. No amendment, modification or repeal of
this Article or any provision hereof shall in any manner terminate, reduce or
impair the right of any past, present or future Indemnitees to be indemnified
by the Company, nor the obligation of the Company to indemnify any such
Indemnitees, under and in accordance with the provisions of the Article as in
effect immediately prior to such amendment, modification or repeal with
respect to claims arising from or relating to matters occurring, in whole or
in part, prior to such amendment, modification or repeal, regardless of when
such claims may arise or be asserted.
ARTICLE 11.
TAKEOVER OFFERS
In the event the Company receives a takeover offer, the Board of
Directors shall consider all relevant factors in evaluating such offer,
including, but not limited to, the terms of the offer, and the potential
economic and social impact of such offer on the Company's stockholders,
employees, customers, creditors and community in which it operates.
ARTICLE 12.
NOTICES
12.1 GENERAL. Whenever these Bylaws require notice to any
Stockholder, director, officer or agent, such notice does not mean personal
notice. A person may give effective notice under these Bylaws in every case
by depositing a writing in a post office or letter box in a postpaid, sealed
wrapper, or by dispatching a prepaid telegram addressed to such Stockholder,
director, officer or agent at his address on the books of the Company.
Unless these Bylaws expressly provide to the contrary, the time when the
person sends notice shall constitute the time of the giving of notice.
12.2 WAIVER OF NOTICE. Whenever the law or these Bylaws require
notice, the person entitled to said notice may waive such notice in writing,
either before or after the time stated therein.
24
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ARTICLE 13.
MISCELLANEOUS
13.1 FACSIMILE SIGNATURES. In addition to the use of facsimile
signatures which these Bylaws specifically authorize, the Company may use
such facsimile signatures of any officer or officers, agents or agent, of the
Company as the Board or a committee of the Board may authorize.
13.2 CORPORATE SEAL. The Board may provide for a suitable seal
containing the name of the Company, of which the Secretary shall be in
charge. The Treasurer, any Assistant Secretary, or any Assistant Treasurer
may keep and use the seal or duplicates of the seal if and when the Board or
a committee of the Board so directs.
13.3 FISCAL YEAR. The Board shall have the authority to fix and
change the fiscal year of the Company.
ARTICLE 14.
AMENDMENTS
Subject to the provisions of the Articles of Incorporation, the
Stockholders or the Board may amend or repeal these Bylaws at any meeting.
The undersigned hereby certifies that the foregoing constitutes a true
and correct copy of the Bylaws of the Company as adopted by the Directors on
the 16th day of November, 1998.
Executed as of this the 16th day of November, 1998.
/s/ Rebekah Laird-Ruthstrom
---------------------------------------------
REBEKAH LAIRD-RUTHSTROM, Secretary
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EXHIBIT 2.8
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
NUMBER SHARES
CUSIP NO. 02686Y 10 2
The shares represented by this certificate have not been registered
under the Securities Act of 1933 (the "Act") or under the securities laws of
any state or other jurisdiction ("Blue Sky Laws"). The shares have been
acquired for investment and may not be sold or transferred in the absence of
(i) an effective registration statement covering the shares under the Act
and, if requested by the corporation, an opinion of counsel satisfactory to
the corporation to the effect that all requirements under the Blue Sky Laws
applicable to the sale or transfer have been complied with, or (ii) an
opinion of counsel satisfactory to the corporation to the effect that
registration is not required under the Act and all requirements under the
Blue Sky Laws applicable to the sale or transfer have been complied with.
AMERICAN INTERNATIONAL INDUSTRIES, INC.
100,000,000 AUTHORIZED SHARES $0.001 PAR VALUE NON-ASSESSABLE
THIS CERTIFIES THAT
is the record holder of
Shares of AMERICAN INTERNATIONAL INDUSTRIES, INC. Common Stock transferable
on the books of the Corporation by the holder hereof in person or by duly
authorized attorney upon surrender of this Certificate properly endorsed.
This Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED
SILVER STATE REGISTRAR
P.O. BOX 17985,
SALT LAKE CITY, UTAH 84117
BY
AUTHORIZED SIGNATURE
[CORPORATE]
[SEAL]
/s/ Rebekah Laird-Ruthstrom /s/ Daniel Dror
SECRETARY PRESIDENT
<PAGE>
EXHIBIT 2.9
NUMBER SHARES
C 46 INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
ACQUEREN, INC.
TOTAL AUTHORIZED ISSUE 11,000,000 SHARES
SEE REVERSE FOR
CERTAIN DEFINITIONS
10,000,000 SHARES PAR VALUE 1,000,000 AUTHORIZED SHARES PAR VALUE
$.001 EACH $.001 EACH
COMMON STOCK PREFERRED STOCK
THIS IS TO CERTIFIES THAT IS THE OWNER OF
-----------------------------
*
- ------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
ACQUEREN, INC.
TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON
OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY
ENDORSED.
WITNESS, THE SEAL OF THE CORPORATION AND THE SIGNATURES OF ITS DULY
AUTHORIZED OFFICERS.
DATED:
[SEAL]
/s/ Lucille Manno /s/ Douglas P. Fields
- ------------------------------- -------------------------------
Lucille Manno Asst. SECRETARY Douglas P. Fields CEO
<PAGE>
EXHIBIT 2.10
ORGANIZED UNDER THE LAWS OF THE STATE OF TEXAS
NUMBER [GRAPHIC] SHARES
HAR-WHIT/PITT'S & SPITT'S, INC.
COMMON STOCK
The Corporation is Authorized to Issue 100,000,000 Shares Common Stock -
Par Value $.001 Per Share
THIS CERTIFIES THAT ___________________________________________ IS THE OWNER OF
__________________________________________FULLY PAID AND NON-ASSESSABLE SHARES
of the Common Stock of HAR-WHIT/PITT'S & SPITT'S, INC.
TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN
PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE
PROPERLY ENDORSED.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO
BE SIGNED BY ITS DULY AUTHORIZED OFFICERS AND TO BE SEALED WITH THE SEAL OF
THE CORPORATION.
DATED
-----------------------------
- --------------------------------- ---------------------------------
SECRETARY PRESIDENT
<PAGE>
EXHIBIT 6.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") made effective as of the 14th
day of May, 1998, by and between ENERGY DRILLING INDUSTRIES, INC. incorporated
under the laws of the State of Nevada ("EDII"), and DANIEL DROR (the
"Executive").
WHEREAS, the Executive is presently serving as Chief Executive Officer and
Chairman of the Board of Directors of EDII;
WHEREAS, the Executive has rendered valuable service to EDII and it is the
desire of the Board of Directors of EDII that the Executive continue his
employment with EDII in order that the experience he has gained and the
management ability he has demonstrated will continue to be available to EDII.
WHEREAS, EDII considers the continued services of the Executive to be in
the best interests of EDII and desires to induce the Executive to continue his
employment with EDII on an impartial and objective basis and without distraction
or conflict of interest; and
WHEREAS, the Executive is willing to continue his employment with EDII
from and after the date hereof on the basis of the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, upon the mutual promises and covenants of the parties, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and intending to be legally bound, the parties agree as
follows:
1. EMPLOYMENT, EDII hereby employs the Executive, and the Executive
hereby accepts such employment, for the period stated in Section 3 below and
upon the other terms and conditions herein provided.
2. POSITION AND DUTIES,
(a) EMPLOYMENT DUTIES. During the employment Period (as defined in
Section 3) the Executive agrees to serve as Chief Executive Officer of EDII,
except as may be modified by the written agreement of the parties hereto. In
his capacity as Chief Executive Officer; shall have supervision, control over
and responsibility for, the general managements and operations of EDII, and
shall perform such managerial duties and responsibilities for EDII which are
customarily assumed by chief executive officers of similar corporations, and
shall report directly to the Board of Directors of EDII. The Executive will
perform such other duties as may from time to time be assigned to him by the
respective Board of Directors of EDII, provided such duties are consistent
with and do not interfere with the performance of the duties described herein
and are of a type customarily performed by persons of similar titles with
similar corporations. The Executive's duties shall not be altered except upon
the agreement of the parties. Throughout the Employment Period, and except
for illness, vacation periods and leaves of absence granted by EDII (if any),
the Executive shall devote all his business time, attention, skill and
efforts to the faithful
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performance of his duties hereunder, and shall accept such office or offices to
which he may be elected by the Board of Directors of EDII or its subsidiaries.
(b) DIRECTORSHIPS. During the Employment Period, the Board of
Directors of EDII will favorably consider the nomination of Executive as a
director of EDII if, in the judgment of the Board of Directors of EDII,
Executive is fulfilling his duties in a manner which is believed by the Board
of Directors of EDII to, and that his nomination would, be in the best
interests of EDII and its stock holders.
3. TERM.
(a) PERIOD OF EMPLOYMENT. The period of the Executive's employment
under this Agreement shall commence as of the date hereof and shall, unless
sooner terminated by the death of the Executive, mutual agreement or pursuant
to Section 7(b), continue for a period of three (3) years therefrom (such
period being herein referred to as the "Employment Period"); provided,
however, subject to Section 3(b), and if the Employment Period has not been
terminated by the death of the Executive, by mutual agreement or pursuant to
Section 7(b), that as of each May 20th (the "Anniversary Date") during the
Employment Period, the Employment Period shall be extended for one year, so
that at all times the Employment Period on each Anniversary Date during the
term of this Agreement shall be an unexpired period of three (3) years. The
last day of the Employment Period, as from time to time extended, and without
regard to any early termination pursuant to Sections 7(a) or (c), is
hereinafter referred to as the "Expiration Date."
(b) TERMINATION OF AUTOMATIC EXTENSION BY NOTICE. EDII or the
Executive may elect to terminate the automatic extension of the Employment
Period set forth in Section 3(a) by giving written notice of such election.
Any notice given hereunder shall be effective with respect to the automatic
extension scheduled to occur on the next succeeding Anniversary Date
following the date on which notice is given, provided, however, that such
notice must precede such Anniversary Date by a period of not less than 30
days.
4. COMPENSATION.
(a) SALARY AND INCENTIVE COMPENSATION. For all services rendered by
the Executive in any capacity during the Employment Period under this
Agreement, the Executive shall be paid as compensation (1) 100,000 shares of
EDII common stock, plus (2) 2,000,000 options at $0.12 per share for 3 years,
plus (3) such incentive compensation or bonus, if any, as may be awarded to
the Executive from time to time by the Board of Directors of EDII. Such
shares and options shall be given in accordance with EDII's standard stock
and option agreement, and any such incentive compensation or bonus shall be
payable in the manner and at the time specified by the Board of Directors.
(b) REIMBURSEMENT OF EXPENSES. EDII shall pay or reimburse the
Executive, in accordance with EDII's policies and requirements, for all
reasonable travel and other expenses incurred by the Executive in performing
his obligations under this Agreement.
5. PARTICIPATION IN INCENTIVE COMPENSATION AND BENEFIT PLANS.
2
<PAGE>
In addition to the payments provided under this Agreement, the Executive (or
his beneficiary) is and shall be entitled to benefits under any and all
executive or contingent compensation, stock options, restricted stock or
stock purchase plans, retirement income or pension plans, supplemental or
excess benefit plans, group hospitalization, health care, or sick leave
plans, life or other insurance or death benefit plans, travel and accident
insurance, vacation plans, or other present or future group employee benefit
plans or programs of EDII for which executive employees of EDII or any of its
subsidiaries are eligible, and the Executive may be eligible to receive,
during the Employment Period, all benefits and emoluments for which he is
eligible under any such benefit plan or program of EDII in accordance with
the provisions and requirements (including discretionary authority, where
applicable) of any such plan or program.
6. VACATION AND SICK LEAVE.
Executive shall be entitled to be compensated for annual vacation, personal
and sick leave in accordance with established EDII policy.
7. TERMINATION OF EMPLOYMENT.
(a) TERMINATION WITHOUT CAUSE. Notwithstanding anything to the
contrary contained in this Agreement, subject to executive receiving the
compensation set forth in subsection (d) of this Section 7, EDII may
terminate the Executive's employment under this Agreement at any time.
(b) TERMINATION WITH CAUSE. EDII may terminate the Executive's
employment under this Agreement at any time for cause. The Executive shall
have no right to receive compensation or other benefits for any period after
termination for cause. The term for "cause" shall include and shall be
limited to the following events:
(1) The Executive is convicted of a felony;
(2) The Executive willfully and deliberately fails or refuses
in a material respect to comply with a significant instruction of the Board
of Directors, provided the Executive fails to cure such non-compliance within
20 days after receiving written notice of such non-compliance, other than
non-compliance due to a physical or mental illness, which willful failure
results in, or which in the good faith judgment of the Board of Directors may
result in, demonstrable material injury and damage to EDII; or
(3) The Executive willfully and deliberately makes material
misrepresentations to the Board of Directors of EDII.
If EDII Board of Directors determines that Executive's employment under
this Agreement shall be terminated for cause, then the Board of Directors
shall forthwith provide Executive with a written notice of said
determination. The notice shall contain a detailed statement of the facts
which constitute the particular of the cause for termination.
(c) TERMINATION BY EXECUTIVE FOR GOOD REASON. The Executive shall
be entitled to terminate his employment hereunder for "good reason". Any
termination of employment hereunder under
3
<PAGE>
any of the following circumstances shall be for good reason, the occurrence
of any of which shall be deemed a breach of this Agreement by EDII;
(1) without the express written consent of the Executive, the
Executive is assigned any substantial duties inconsistent with his positions,
duties, responsibilities and status with EDII as in effect of the date
hereof, his titles as in effect on the date hereof are changed, or the
Executive is removed or not appointed or re-elected to any of such executive
officer positions, except in connection with the termination of the
Executive's employment pursuant to subsection (b) of this Section 7 of this
Agreement, or as a result of his total disability or death;
(2) EDII shall fail to observe or perform any covenant or
agreement in this Agreement to be observed or performed by EDII.
(3) Executive is not re-elected to or Executive is removed
from the Board of Directors of EDII, absent the existence of "cause" as
defined in Section 7(b) above;
(d) REMEDIES FOR TERMINATION. Upon termination of the Executive's
employment under this Agreement pursuant to subsections (a) or c) of this
Section 7, except modified by subsection (d)(5) of this Section 7, the
Executive shall receive until the Expiration Date of the Employment Period,
as extended:
(1) The salary set forth in Section 4, as the same may
have been increased from time to time, payment of which shall be at the time
provided for in this Agreement as if the Executive's employment under this
Agreement had not terminated;
(2) annually, an amount equal to the average of the three
highest annual cash incentive compensation payments made to Executive by EDII
prior to such termination pursuant to subsection 7(a) or the event giving
Executive the right to terminate his employment under subsection 7(c); and
(3) medical care, pension and similar benefits, at no
cost to Executive, substantially comparable to those furnished to Executive
by EDII immediately prior to termination of employment hereunder;
(4) the stock options granted to the Executive pursuant
to this Agreement will continue in force and effect; and
(5) in the event that Executive becomes entitled to any
payments ("Severance Payments") from EDII under this subsection (d) or
otherwise which are subject to tax (the "Excise Tax") imposed by Section 4999
of the Internal Revenue Code of 1986, as amended, EDII shall pay to Executive
an additional amount (the "Gross-up Payment") such that the net amount
retained by the Executive under this subsection (d), after deduction of any
Excise Tax on the Severance Payments and any Excise Tax federal, state and
local income tax upon the Gross-up Payment, shall be equal to the Severance
Payments before the Excise Tax.
4
<PAGE>
Any payment made by EDII under this Section shall be deemed to
constitute liquidated damages and not a penalty for EDII's breach of this
Agreement. Executive shall not be required to mitigate his damages hereunder
by seeking employment or otherwise. Executive's right to compensation as
provided in this subsection 7(d) shall continue if the Executive secures
other employment.
(6) DISABILITY.
If the Executive is totally disabled (as hereunder defined) prior
to the expiration of the Employment Period, EDII may, on ten 10 days written
notice to Executive, pay the Executive a disability benefit which is equal to
the salary provided in Section 4, as the same may have been increased from
time to time, received by Executive at this commencement of the Executive's
total disability, reduce by the sum of (i) the amount of any benefits to
which the Executive may be entitled with respect to the same period under any
disability plan or pension plan, including related supplemental and excess
benefit plans or agreements, of EDII and (ii) the disability benefits payable
under any government regulated plan including worker's compensation benefits.
Payment of such disability benefit shall commence with the week coincidence
with the notice given above and shall continue until the earlier of the
Expiration Date or the Executive's death. As used in this Agreement, the term
"total disability" shall mean complete inability of the Executive to perform
all of his duties under this Agreement, which disability shall continue for
any period of three full consecutive months. Upon the termination of such
total disability, the Executive shall be offered an appropriate position at
Executive's established compensation and benefits level. In the event of
partial disability or illness, the obligation of EDII to pay the salary of
Executive pursuant to Section 4 of this Agreement shall not be affected.
8. WITHHOLDING OF TAXES.
EDII may withhold from any payments under this Agreement all
applicable taxes, as shall be required pursuant to any law or governmental
regulation or ruling.
9. GENERAL PROVISIONS.
(a) NON-ASSIGNABILITY. Neither this Agreement nor any right or
interest hereunder shall be assignable by Executive without EDII's prior
written consent; provided, however, that nothing in this Section 10(a) shall
preclude the executors, administrators, or other legal representatives of the
estate of the Executive from assigning any right hereunder to the person or
persons entitled thereto under the Executive's will or, in case of intestacy,
to the person or persons entitled thereto under the laws of intestacy
applicable to the Executive's estate,
(b) NO ATTACHMENT. Except as otherwise required by law, no right to
receive payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge or
hypothecation to execution, attachment, levy or similar process or assignment
by operation of law, and attempt, voluntary or involuntary, to effect any
such action shall be null, void and of no effect.
(c) AMENDMENT. No amendment or modification of this Agreement shall
be deemed
5
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effective unless and until executed in writing.
(d) ENTIRE UNDERSTANDING. This Agreement sets forth the entire
understanding between the parties with the respect to the subject matter
hereof and cancels and supersedes all prior oral and written agreements
between the parties with respect to the subject matter hereof.
10. LEGAL EXPENSES.
EDII shall pay all reasonable legal fees and expenses incurred by
the Executive incident to obtaining or enforcing any right or benefit
provided by this Agreement.
11. SEVERABILITY.
If for any reason any provision of this Agreement shall be held
invalid, such invalidity shall not affect any provision of this Agreement not
held so invalid, and all other such provisions shall to the full extent
consistent with law continue in full force and effect. If any such provision
shall be held invalid in part, such invalidity shall in no way affect the
rest of such provision not held so invalid, and the rest of such provision,
together with all other provisions of this Agreement, shall likewise to the
full extent consistent with law continue in full force and effect.
12. HEADINGS.
The headings are included solely for convenience of reference and
shall not control the meaning or interpretation of any of the provisions of
this Agreement.
13. INTERPRETATION.
If any provision of this Agreement shall be subject of a dispute
between EDII and the Executive and a court or arbitrator to which such
dispute has been brought shall be unable to resolve which of two reasonable
interpretations of such provision is the proper interpretation thereof, then
the interpretation most favorable to the Executive shall control.
14. GOVERNING LAW.
This agreement has been executed and delivered in the state of
California and its validity, interpretation, performance and enforcement
shall be governed by and construed in accordance with the laws thereof
applicable to contracts executed and to be wholly performed in California.
15. CONSENT TO JURISDICTION.
Executive and EDII irrevocably consent to the exclusive
jurisdiction of the Superior Court in and for the County of Santa Clara,
California and/or the United States District Court for the Northern District
of California in any action or proceeding pursuant to this Agreement and
agree to service of
6
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process in accordance with Section 17 herein.
16. NOTICES.
All notices, requests, demands and other communications hereunder
shall be in writing and shall have been duly given if delivered by hand or
mailed, certified or registered mail, return receipt requested, with postage
prepaid, to the following addresses or to such other address as either party
may designate by like notice:
A. If to Executive, to:
Mr. Daniel Dror
601 Hanson Rd.
Kemah, TX 77565-2701
B. If to EDII, to:
Energy Drilling Industries, Inc.
601 Hanson Rd.
Kemah, TX 77565-2701
and to such other additional person or persons as either party shall have
designated to the other party in writing by like notice.
17. REIMBURSEMENT OF EXPENSES.
In the event EDII or any party other than the Executive asserts
that this Agreement, in whole or in part, is unenforceable or invalid, then
EDII shall reimburse Executive for any costs and expenses including, without
limitation, legal fees incurred by Executive in enforcing this Agreement or
defending its validity.
18. SUCCESSORS, BINDING AGREEMENT.
(a) EDII 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 EDII to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that EDII would be
required to perform it if no such succession had taken place. Failure by EDII
to obtain assumption and agreement prior to the effectiveness of any such
succession shall constitute a breach of Agreement and the provisions of
Section 7(d) of this Agreement shall apply. As used in this Agreement, "EDII"
shall mean EDII 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.
(b) This Agreement shall inure to the benefit of and be enforceable
by and inure to the benefit of both EDII and its successors and assigns and
the Executive and his personal or legal representatives, executors,
administrators, heirs, distributee, devisees, legatees, successors and
assigns. If
7
<PAGE>
the Executive should die while any amount is payable to the Executive under
this Agreement all such amounts, unless otherwise provided herein, shall be
accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee, or, if there is no such designee, to the
Executive's estate.
IN WITNESS WHEREOF, EDII has caused this Agreement to be executed and
its seal to be affixed hereto by its officers thereunto duly authorized, and
the Executive has signed and sealed this Agreement, all as of the day and
year first above written.
ATTEST: ENERGY DRILLING INDUSTRIES, INC.
/s/ Rebekah Laird-Ruthstrom
---------------------------------
By: Rebekah Laird-Ruthstrom
Treasurer/Asst. Secretary
WITNESS: EXECUTIVE:
/s/ [ILLEGIBLE]
/s/ Daniel Dror
---------------------------------
DANIEL DROR, Employee
Chief Executive Officer
Chairman of Board
8
<PAGE>
EXHIBIT 6.2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated this 16th day of October, 1998 between
American International Industries, Inc., a Nevada corporation, currently
having its principal place of business at 601 Hanson Road, Kemah, Texas 77565
(the "Company"), and Daniel Dror (the "Executive") an individual.
WHEREAS, the Company desires to employ Executive and Executive desires to
be employed by the Company, as a Chief Executive Officer of the Company.
WHEREAS, the Executive is willing to enter into an agreement with the
Company upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and covenants herein
contained, the parties hereto agree as follows:
1. TERM OF AGREEMENT. Subject to the terms and conditions hereof, the
term of employment of the Executive under this Employment Agreement shall be for
the period commencing on the date hereof (the "Commencement Date) and
terminating on October 16, 2001, unless sooner terminated as provided in
accordance with the provisions of Section 5 hereof. (Such term of employment is
herein sometimes called the "Employment Term.")
2. EMPLOYMENT. As of the Commencement Date, the Company hereby agrees to
employ the Executive as Chief Executive Officer of the Company, and the
Executive hereby accepts such employment and agrees to perform his duties and
responsibilities hereunder in accordance with the terms and conditions
hereinafter set forth.
3. DUTIES AND RESPONSIBILITIES. Executive shall serve as Chief
Executive Officer during the Employment Term. Executive shall report to and be
subject to the direction of the Directors of the Company and shall perform
duties which are consistent with his current title and position as Chief
Executive Officer of the Company and such other duties as may be assigned to him
from time to time by the Directors which are consistent with his position of
management and leadership. During the Employment Term, Executive shall devote
his full time, skill, energy and attention to the business of the Company and
shall perform his duties in a diligent, trustworthy, loyal and businesslike
manner.
4. COMPENSATION AND BENEFITS DURING THE EMPLOYMENT TERM:
(a) The Executive's base compensation shall be at the rate of $1,000
per month, for the term of this Agreement, payable in regular
semi-monthly installments in accordance with the Company's practice
for its executives, less applicable withholding for income and
employment taxes as required by law and other deductions as to which
the Executive shall agree. Such base compensation shall be subject to
increases as and when determined by the Company's Directors at their
sole discretion.
<PAGE>
(b) In addition to the Executive's base compensation, Executive will
be entitled to a bonus as determined by the Company's Directors.
(c) The Executive shall be entitled to reimbursement of all
reasonable, ordinary and necessary business related expenses incurred
by him in the course of his duties and upon compliance with the
Company's procedures.
5. TERMINATION. A termination of this agreement is either (1) for death
or disability under Section 5 (a) or 5 (b); (2) with cause under Section 5 (c);
or for good reason under Section 5 (d). All other terminations which may occur
shall constitute a breach of this agreement.
(a) The Company shall have the right to terminate the employment of
the Executive under this Agreement for disability in the event
Executive suffers an injury, illness or incapacity of such character
as to substantially disable him from performing his duties without
reasonable accommodation by the Company hereunder for a period of more
than sixty (60) consecutive days upon the Company giving at least
thirty (30) days written notice of termination; provided, however,
that if the Executive is eligible to receive disability payments
pursuant to a disability policy paid for by the Company, the Executive
shall assign such benefits to the Company for all periods as to which
he is receiving full payment under this agreement.
(b) This agreement shall terminate upon the death of Executive.
(c) The Company may terminate this agreement at any time because of
(i) Executive's material breach of any term of this agreement, (ii)
the willful engaging by the Executive in misconduct which is
materially injurious to the Company, monetarily or otherwise;
provided, in each case, however, that the Company shall not terminate
this Agreement pursuant to this Section 5(c) unless the Company shall
first have delivered to the Executive, a notice which specifically
identifies such breach or misconduct and the Executive shall not have
cured the same within fifteen (15) days after receipt of such notice,
(iii) Executive's gross negligence in the performance of his duties or
(iv) the failure of Executive to perform his essential duties or
comply with reasonable directions of the Directors.
(d) The Executive may terminate his employment for "Good Reason" if:
(i) he is assigned, without his express written consent, any
duties inconsistent with his positions, duties, responsibilities,
authority and status with the Company as of the date hereof, or a
change in his reporting responsibilities or titles as in effect
as of the date hereof;
(ii) his compensation is reduced;
(iii) (1) the Company shall file a petition for bankruptcy or
re-organization under the federal bankruptcy statues or an
involuntary petition is filed against the Company and not removed
or withdrawn within thirty (30) days or (2) the Company does not
pay any material amount of compensation due hereunder
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<PAGE>
and then fails either to pay such amount within the ten (10) day
notice period required for termination hereunder or to contest in
good faith said notice. Further, if such contest is not resolved
within thirty (30) days the Company shall submit such dispute to
arbitration, under Section 7.
6. REVEALING OF TRADE SECRETS, ETC.. Executive acknowledges the interest
of the Company in maintaining the confidentiality of information related to its
business and shall not at any time during the Employment Term or thereafter,
directly or indirectly, reveal or cause to be revealed to any person or entity
the supplier lists, customer lists or other confidential business information of
the Company; provided, however, that the parties acknowledge that it is not the
intention of this paragraph to include within its subject matter (a) information
not proprietary to the Company, (b) information which is then in the public
domain, or (c) information required to be disclosed by law.
7. ARBITRATION. If a dispute should arise regarding this agreement, all
claims, disputes, controversies, differences or other matters in question
arising out of this relationship shall be settled finally, completely and
conclusively by arbitration of a single arbitrator in Harris County, Texas, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "Rules"). Arbitration shall be initiated by written demand.
This agreement to arbitrate shall be specifically enforceable only in the
District Court of Harris County, Texas. A decision of the arbitrator shall be
final, conclusive and binding on the Company and the Executive, and judgement
may be entered in the District Court of Harris County, Texas, for enforcement
and other benefits. On appointment, the arbitrator shall then proceed to decide
the arbitration subjects in accordance with the Rules. Any arbitration held in
accordance with this paragraph shall be private and confidential and no person
shall be entitled to attend the hearings except the arbitrator, Executive,
Executive's attorneys, and an designated representatives of the Company and
their respective attorneys. The matters submitted for arbitration, the hearings
and proceedings and the arbitration award shall be kept and maintained in
strictest confidence by Executive and the Company and shall not be discussed,
disclosed or communicated to any persons. On request of any party, the record
of the proceeding shall be sealed and may not be disclosed except insofar, and
only insofar, as may be necessary to enforce the award of the arbitrator and any
judgement enforcing an award. The prevailing party shall be entitled to recover
reasonable and necessary attorneys' fees and costs from the non-prevailing
party.
8. COVENANTS NOT TO COMPETE.
(a) EXECUTIVE'S ACKNOWLEDGMENT. Executive agrees and acknowledges
that in order to assure the Company that it will retain its value as a
going concern, it is necessary that Executive undertake not to utilize
his special knowledge of the business and his relationships with
customers and suppliers to compete with the Company. Executive
further acknowledges that:
(i) the Company is and will be engaged in the business;
(ii) Executive will occupy a position of trust and confidence
with the Company prior to the date of this agreement and,
during such period and Executive's employment under this
agreement, Executive has, and will become familiar with
the Company's trade secrets and with
3
<PAGE>
other proprietary and confidential information concerning
the Company;
(iii) the agreements and covenants contained in this Section 8
are essential to protect the Company and the goodwill of
the business; and
(iv) Executive's employment with the Company has special,
unique and extraordinary value to the Company and the
Company would be irreparably damaged if Executive were to
provide services to any person or entity in violation of
the provisions of this agreement.
(b) COMPETITIVE ACTIVITIES. Executive hereby agrees that for a
period commencing on the date hereof and ending one year following the
later of (i) termination of Executive's employment with the Company
for whatever reason, and (ii) the conclusion of the period, if any,
during which the Company is making payments to Executive, he will not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, co-partner or in any other individual or representative
capacity, own, operate, manage, control, engage in, invest in or
participate in any manner in, act as a consultant or advisor to,
render services for (alone or in association with any person, firm,
corporation or entity), or otherwise assist any person or entity
(other than the Company) that engages in or owns, invests in,
operates, manages or controls any venture or enterprise that directly
or indirectly engages or proposes in engage in the business of the
manufacturing, distribution or sale of (i) products manufactured,
distributed, sold or licensed by the Company at the time of
termination or (ii) products proposed at the time of such termination
to be manufactured, distributed, sold or licensed by the Company
within sixty (60) miles of the Company's operations (the "Territory");
provided, however, that nothing contained herein shall be construed to
prevent Executive form investing in the stock of any competing
corporation listed on a national securities exchange or traded in the
over-the-counter market, but only if Executive is not involved in the
business of said corporation and if Executive and his associates (as
such term is defined in Regulation 14(A) promulgated under the
Securities Exchange Act of 1934, as in effect on the date hereof),
collectively, do not own more than an aggregate of two percent of the
stock of such corporation ("Permitted Investments"). With respect to
the Territory, Executive specifically acknowledges that the Company
has conducted the business throughout those areas comprising the
Territory and the Company intends to continue to expand the business
throughout the Territory.
9. OPPORTUNITIES. During his employment with the Company, and for one
year thereafter, Executive shall not take any action which might divert from the
Company any opportunity learned about by him during his employment with the
Company (including without limitation during the Employment Term) which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company.
10. SURVIVAL. In the event that this Agreement shall be terminated, then
notwithstanding such termination, the obligations of Executive pursuant to
Sections 6 and 8 of this agreement shall survive such termination.
4
<PAGE>
11. CONTENTS OF AGREEMENT, PARTIES IN INTEREST, ASSIGNMENT, ETC. This
Agreement sets forth the entire understanding of the parties hereto with respect
to the subject matter hereof. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective heirs, representatives, successors and assigns of the parties hereto,
except that the duties and responsibilities of Executive hereunder which are of
a personal nature shall neither be assigned nor transferred in whole or in part
by Executive. This Agreement shall not be amended except by a written
instrument duly executed by the parties.
12. SEVERABILITY. If any term or provision of this Agreement shall be
held to be invalid or unenforceable for any reason, such term or provision shall
be ineffective to the extent of such invalidity or unenforceability without
invalidating the remaining terms and provisions hereof, and this Agreement shall
be construed as if such invalid or unenforceable term or provision had not been
contained herein.
13. NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party to the other party shall be in writing and shall be
deemed to have been duly given when delivered personally or five (5) days after
dispatch by registered or certified mail, postage prepaid, return receipt
requested, to the party to whom the same is so given or made:
IF TO THE COMPANY ADDRESSED TO:
American International Industries, Inc.
601 Hanson Road
Kemah, Texas 77565
WITH A COPY TO:
Brewer & Pritchard, P.C.
1111 Bagby, Suite 2450
Houston, Texas 77002
IF TO EXECUTIVE ADDRESSED TO:
Daniel Dror
26 E. 63rd St. #11E
New York, New York 10021
or to such other address as the one party shall specify to the other party in
writing.
14. COUNTERPARTS AND HEADINGS. This agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all which
together shall constitute one and the same instrument. All headings are
inserted for convenience of reference only and shall not affect the meaning or
interpretation of this agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
5
<PAGE>
AMERICAN INTERNATIONAL INDUSTRIES, INC.
By: /s/ John W. Stump
-------------------------------------
John W. Stump, Vice President
EXECUTIVE
By: /s/ Daniel Dror
-------------------------------------
Daniel Dror
6
<PAGE>
EXHIBIT 6.3
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated this 9th day of November, 1998 between
Har-Whit / Pitt's & Spitt's, Inc., a Texas corporation, currently having its
principal place of business at 14221 Eastex Freeway, Houston, Texas 77032 (the
"Company"), and Raymond C. Hartis (the "Executive") an individual.
WHEREAS, the Company desires to employ Executive and Executive desires to
be employed by the Company, as a Vice President of the Company.
WHEREAS, the Executive is willing to enter into an agreement with the
Company upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and covenants herein
contained, the parties hereto agree as follows:
1. TERM OF AGREEMENT. Subject to the terms and conditions hereof, the
term of employment of the Executive under this Employment Agreement shall be for
the period commencing on the date hereof (the "Commencement Date") and
terminating on December 31, 2000, unless sooner terminated as provided in
accordance with the provisions of Section 5 hereof. (Such term of employment is
herein sometimes called the "Employment Term.")
2. EMPLOYMENT. As of the Commencement Date, the Company hereby agrees to
employ the Executive as Vice President of the Company, and the Executive hereby
accepts such employment and agrees to perform his duties and responsibilities
hereunder in accordance with the terms and conditions hereinafter set forth.
3. DUTIES AND RESPONSIBILITIES. Executive shall serve as Vice President
during the Employment Term. Executive shall report to and be subject to the
direction of the Directors of the Company and shall perform duties which are
consistent with his current title and position as Vice President of the Company
and such other duties as may be assigned to him from time to time by the
Directors which are consistent with his position of management and leadership.
During the Employment Term, Executive shall devote his full time, skill, energy
and attention to the business of the Company and shall perform his duties in a
diligent, trustworthy, loyal and businesslike manner.
4. COMPENSATION AND BENEFITS DURING THE EMPLOYMENT TERM:
(a) The Executive's base compensation shall be at the rate of $5,000
per month, for the term of this Agreement, payable in regular
semi-monthly installments in accordance with the Company's practice
for its executives, less applicable withholding for income and
employment taxes as required by law and other deductions as to which
the Executive shall agree. Such base compensation shall be subject to
increases as and when determined by the Company's Directors at their
sole discretion.
<PAGE>
(b) In addition to the Executive's base compensation, Executive will
be entitled to a bonus as determined by the Company's Directors.
(c) The Executive shall be entitled to reimbursement of all
reasonable, ordinary and necessary business related expenses incurred
by him in the course of his duties and upon compliance with the
Company's procedures.
5. TERMINATION. A termination of this agreement is either (1) for death
or disability under Section 5(a) or 5(b); (2) with cause under Section 5(c);
or for good reason under Section 5(d). All other terminations which may occur
shall constitute a breach of this agreement.
(a) The Company shall have the right to terminate the employment of
the Executive under this Agreement for disability in the event
Executive suffers an injury, illness or incapacity of such character
as to substantially disable him from performing his duties without
reasonable accommodation by the Company hereunder for a period of more
than sixty (60) consecutive days upon the Company giving at least
thirty (30) days written notice of termination; provided, however,
that if the Executive is eligible to receive disability payments
pursuant to a disability policy paid for by the Company, the Executive
shall assign such benefits to the Company for all periods as to which
he is receiving full payment under this agreement.
(b) This agreement shall terminate upon the death of Executive.
(c) The Company may terminate this agreement at any time because of
(i) Executive's material breach of any term of this agreement, (ii)
the willful engaging by the Executive in misconduct which is
materially injurious to the Company, monetarily or otherwise;
provided, in each case, however, that the Company shall not terminate
this Agreement pursuant to this Section 5(c) unless the Company shall
first have delivered to the Executive, a notice which specifically
identifies such breach or misconduct and the Executive shall not have
cured the same within fifteen (15) days after receipt of such notice,
(iii) Executive's gross negligence in the performance of his duties or
(iv) the failure of Executive to perform his essential duties or
comply with reasonable directions of the Directors.
(d) The Executive may terminate his employment for "Good Reason" if:
(i) he is assigned, without his express written consent, any
duties inconsistent with his positions, duties, responsibilities,
authority and status with the Company as of the date hereof, or a
change in his reporting responsibilities or titles as in effect
as of the date hereof;
(ii) his compensation is reduced;
(iii) (1) the Company shall file a petition for bankruptcy or
re-organization under the federal bankruptcy statues or an
involuntary petition is filed against the Company and not removed
or withdrawn within thirty (30) days or (2) the Company does not
pay any material amount of compensation due hereunder
2
<PAGE>
and then fails either to pay such amount within the ten (10) day
notice period required for termination hereunder or to contest in
good faith said notice. Further, if such contest is not resolved
within thirty (30) days the Company shall submit such dispute to
arbitration, under Section 7.
6. REVEALING OF TRADE SECRETS, ETC.. Executive acknowledges the interest
of the Company in maintaining the confidentiality of information related to its
business and shall not at any time during the Employment Term or thereafter,
directly or indirectly, reveal or cause to be revealed to any person or entity
the supplier lists, customer lists or other confidential business information of
the Company; provided, however, that the parties acknowledge that it is not the
intention of this paragraph to include within its subject matter (a) information
not proprietary to the Company, (b) information which is then in the public
domain, or (c) information required to be disclosed by law.
7. ARBITRATION. If a dispute should arise regarding this agreement, all
claims, disputes, controversies, differences or other matters in question
arising out of this relationship shall be settled finally, completely and
conclusively by arbitration of a single arbitrator in Harris County, Texas, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "Rules"). Arbitration shall be initiated by written demand.
This agreement to arbitrate shall be specifically enforceable only in the
District Court of Harris County, Texas. A decision of the arbitrator shall be
final, conclusive and binding on the Company and the Executive, and judgement
may be entered in the District Court of Harris County, Texas, for enforcement
and other benefits. On appointment, the arbitrator shall then proceed to decide
the arbitration subjects in accordance with the Rules. Any arbitration held in
accordance with this paragraph shall be private and confidential and no person
shall be entitled to attend the hearings except the arbitrator, Executive,
Executive's attorneys, and an designated representatives of the Company and
their respective attorneys. The matters submitted for arbitration, the hearings
and proceedings and the arbitration award shall be kept and maintained in
strictest confidence by Executive and the Company and shall not be discussed,
disclosed or communicated to any persons. On request of any party, the record
of the proceeding shall be sealed and may not be disclosed except insofar, and
only insofar, as may be necessary to enforce the award of the arbitrator and any
judgement enforcing an award. The prevailing party shall be entitled to recover
reasonable and necessary attorneys' fees and costs from the non-prevailing
party.
8. COVENANTS NOT TO COMPETE.
(a) EXECUTIVE'S ACKNOWLEDGMENT. Executive agrees and acknowledges
that in order to assure the Company that it will retain its value as a
going concern, it is necessary that Executive undertake not to utilize
his special knowledge of the business and his relationships with
customers and suppliers to compete with the Company. Executive
further acknowledges that:
(i) the Company is and will be engaged in the business;
(ii) Executive will occupy a position of trust and confidence
with the Company prior to the date of this agreement and,
during such period and Executive's employment under this
agreement, Executive has, and will become familiar with
the Company's trade secrets and with
3
<PAGE>
other proprietary and confidential information concerning
the Company;
(iii) the agreements and covenants contained in this Section 8
are essential to protect the Company and the goodwill of
the business; and
(iv) Executive's employment with the Company has special,
unique and extraordinary value to the Company and the
Company would be irreparably damaged if Executive were to
provide services to any person or entity in violation of
the provisions of this agreement.
(b) COMPETITIVE ACTIVITIES. Executive hereby agrees that for a
period commencing on the date hereof and ending one year following the
later of (i) termination of Executive's employment with the Company
for whatever reason, and (ii) the conclusion of the period, if any,
during which the Company is making payments to Executive, he will not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, co-partner or in any other individual or representative
capacity, own, operate, manage, control, engage in, invest in or
participate in any manner in, act as a consultant or advisor to,
render services for (alone or in association with any person, firm,
corporation or entity), or otherwise assist any person or entity
(other than the Company) that engages in or owns, invests in,
operates, manages or controls any venture or enterprise that directly
or indirectly engages or proposes in engage in the business of the
manufacturing, distribution or sale of (i) products manufactured,
distributed, sold or licensed by the Company at the time of
termination or (ii) products proposed at the time of such termination
to be manufactured, distributed, sold or licensed by the Company
within sixty (60) miles of the Company's operations (the "Territory");
provided, however, that nothing contained herein shall be construed to
prevent Executive from investing in the stock of any competing
corporation listed on a national securities exchange or traded in the
over-the-counter market, but only if Executive is not involved in the
business of said corporation and if Executive and his associates (as
such term is defined in Regulation 14(A) promulgated under the
Securities Exchange Act of 1934, as in effect on the date hereof),
collectively, do not own more than an aggregate of two percent of the
stock of such corporation ("Permitted Investments"). With respect to
the Territory, Executive specifically acknowledges that the Company
has conducted the business throughout those areas comprising the
Territory and the Company intends to continue to expand the business
throughout the Territory.
9. OPPORTUNITIES. During his employment with the Company, and for one
year thereafter, Executive shall not take any action which might divert from the
Company any opportunity learned about by him during his employment with the
Company (including without limitation during the Employment Term) which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company.
10. SURVIVAL. In the event that this Agreement shall be terminated, then
notwithstanding such termination, the obligations of Executive pursuant to
Sections 6 and 8 of this agreement shall survive such termination.
4
<PAGE>
11. CONTENTS OF AGREEMENT, PARTIES IN INTEREST, ASSIGNMENT, ETC. This
Agreement sets forth the entire understanding of the parties hereto with respect
to the subject matter hereof. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective heirs, representatives, successors and assigns of the parties hereto,
except that the duties and responsibilities of Executive hereunder which are of
a personal nature shall neither be assigned nor transferred in whole or in part
by Executive. This Agreement shall not be amended except by a written
instrument duly executed by the parties.
12. SEVERABILITY. If any term or provision of this Agreement shall be
held to be invalid or unenforceable for any reason, such term or provision shall
be ineffective to the extent of such invalidity or unenforceability without
invalidating the remaining terms and provisions hereof, and this Agreement shall
be construed as if such invalid or unenforceable term or provision had not been
contained herein.
13. NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party to the other party shall be in writing and shall be
deemed to have been duly given when delivered personally or five (5) days after
dispatch by registered or certified mail, postage prepaid, return receipt
requested, to the party to whom the same is so given or made:
IF TO THE COMPANY ADDRESSED TO:
Har-Whit / Pitt's & Spitt's, Inc.
14221 Eastex Freeway
Houston, Texas 77032
WITH A COPY TO:
Brewer & Pritchard, P.C.
1111 Bagby, Suite 2450
Houston, Texas 77002
IF TO EXECUTIVE ADDRESSED TO:
Raymond C. Hartis
182 Springs Edge
Montgomery, Texas 77356
or to such other address as the one party shall specify to the other party in
writing.
14. COUNTERPARTS AND HEADINGS. This agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all which
together shall constitute one and the same instrument. All headings are
inserted for convenience of reference only and shall not affect the meaning or
interpretation of this agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
5
<PAGE>
HAR-WHIT / PITT'S & SPITT'S, INC.
By: /s/ Wayne Whitworth
-------------------------------------
D. Wayne Whitworth, President
EXECUTIVE
By: /s/ Raymond C. Hartis
-------------------------------------
Raymond C. Hartis
6
<PAGE>
EXHIBIT 6.4
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated this 9th day of November, 1998 between
Har-Whit / Pitt's & Spitt's, Inc., a Texas corporation, currently having its
principal place of business at 14221 Eastex Freeway, Houston, Texas 77032 (the
"Company"), and D. Wayne Whitworth (the "Executive") an individual.
WHEREAS, the Company desires to employ Executive and Executive desires to
be employed by the Company, as a President of the Company.
WHEREAS, the Executive is willing to enter into an agreement with the
Company upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and covenants herein
contained, the parties hereto agree as follows:
1. TERM OF AGREEMENT. Subject to the terms and conditions hereof, the
term of employment of the Executive under this Employment Agreement shall be for
the period commencing on the date hereof (the "Commencement Date) and
terminating on December 31, 2000, unless sooner terminated as provided in
accordance with the provisions of Section 5 hereof. (Such term of employment is
herein sometimes called the "Employment Term.")
2. EMPLOYMENT. As of the Commencement Date, the Company hereby agrees to
employ the Executive as President of the Company, and the Executive hereby
accepts such employment and agrees to perform his duties and responsibilities
hereunder in accordance with the terms and conditions hereinafter set forth.
3. DUTIES AND RESPONSIBILITIES. Executive shall serve as President
during the Employment Term. Executive shall report to and be subject to the
direction of the Directors of the Company and shall perform duties which are
consistent with his current title and position as President of the Company and
such other duties as may be assigned to him from time to time by the Directors
which are consistent with his position of management and leadership. During
the Employment Term, Executive shall devote his full time, skill, energy and
attention to the business of the Company and shall perform his duties in a
diligent, trustworthy, loyal and businesslike manner.
4. COMPENSATION AND BENEFITS DURING THE EMPLOYMENT TERM:
(a) The Executive's base compensation shall be at the rate of $5,000
per month, for the term of this Agreement, payable in regular
semi-monthly installments in accordance with the Company's practice
for its executives, less applicable withholding for income and
employment taxes as required by law and other deductions as to which
the Executive shall agree. Such base compensation shall be subject to
increases as and when determined by the Company's Directors at their
sole discretion.
<PAGE>
(b) In addition to the Executive's base compensation, Executive will
be entitled to a bonus as determined by the Company's Directors.
(c) The Executive shall be entitled to reimbursement of all
reasonable, ordinary and necessary business related expenses incurred
by him in the course of his duties and upon compliance with the
Company's procedures.
5. TERMINATION. A termination of this agreement is either (1) for death
or disability under Section 5 (a) or 5 (b); (2) with cause under Section 5 (c);
or for good reason under Section 5 (d). All other terminations which may occur
shall constitute a breach of this agreement.
(a) The Company shall have the right to terminate the employment of
the Executive under this Agreement for disability in the event
Executive suffers an injury, illness or incapacity of such character
as to substantially disable him from performing his duties without
reasonable accommodation by the Company hereunder for a period of more
than sixty (60) consecutive days upon the Company giving at least
thirty (30) days written notice of termination; provided, however,
that if the Executive is eligible to receive disability payments
pursuant to a disability policy paid for by the Company, the Executive
shall assign such benefits to the Company for all periods as to which
he is receiving full payment under this agreement.
(b) This agreement shall terminate upon the death of Executive.
(c) The Company may terminate this agreement at any time because of
(I) Executive's material breach of any term of this agreement, (ii)
the willful engaging by the Executive in misconduct which is
materially injurious to the Company, monetarily or otherwise;
provided, in each case, however, that the Company shall not terminate
this Agreement pursuant to this Section 5-C- unless the Company shall
first have delivered to the Executive, a notice which specifically
identifies such breach or misconduct and the Executive shall not have
cured the same within fifteen (15) days after receipt of such notice,
(iii) Executive's gross negligence in the performance of his duties or
(iv) the failure of Executive to perform his essential duties or
comply with reasonable directions of the Directors.
(d) The Executive may terminate his employment for "Good Reason" if:
(i) he is assigned, without his express written consent, any
duties inconsistent with his positions, duties, responsibilities,
authority and status with the Company as of the date hereof, or a
change in his reporting responsibilities or titles as in effect
as of the date hereof;
(ii) his compensation is reduced;
(iii) (1) the Company shall file a petition for bankruptcy or
re-organization under the federal bankruptcy statues or an
involuntary petition is filed against the Company and not removed
or withdrawn within thirty (30) days or (2) the Company does not
pay any material amount of compensation due hereunder
2
<PAGE>
and then fails either to pay such amount within the ten (10) day
notice period required for termination hereunder or to contest in
good faith said notice. Further, if such contest is not resolved
within thirty (30) days the Company shall submit such dispute to
arbitration, under Section 7.
6. REVEALING OF TRADE SECRETS, ETC.. Executive acknowledges the interest
of the Company in maintaining the confidentiality of information related to its
business and shall not at any time during the Employment Term or thereafter,
directly or indirectly, reveal or cause to be revealed to any person or entity
the supplier lists, customer lists or other confidential business information of
the Company; provided, however, that the parties acknowledge that it is not the
intention of this paragraph to include within its subject matter (a) information
not proprietary to the Company, (b) information which is then in the public
domain, or (c) information required to be disclosed by law.
7. ARBITRATION. If a dispute should arise regarding this agreement, all
claims, disputes, controversies, differences or other matters in question
arising out of this relationship shall be settled finally, completely and
conclusively by arbitration of a single arbitrator in Harris County, Texas, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "Rules"). Arbitration shall be initiated by written demand.
This agreement to arbitrate shall be specifically enforceable only in the
District Court of Harris County, Texas. A decision of the arbitrator shall be
final, conclusive and binding on the Company and the Executive, and judgement
may be entered in the District Court of Harris County, Texas, for enforcement
and other benefits. On appointment, the arbitrator shall then proceed to decide
the arbitration subjects in accordance with the Rules. Any arbitration held in
accordance with this paragraph shall be private and confidential and no person
shall be entitled to attend the hearings except the arbitrator, Executive,
Executive's attorneys, and an designated representatives of the Company and
their respective attorneys. The matters submitted for arbitration, the hearings
and proceedings and the arbitration award shall be kept and maintained in
strictest confidence by Executive and the Company and shall not be discussed,
disclosed or communicated to any persons. On request of any party, the record
of the proceeding shall be sealed and may not be disclosed except insofar, and
only insofar, as may be necessary to enforce the award of the arbitrator and any
judgement enforcing an award. The prevailing party shall be entitled to recover
reasonable and necessary attorneys' fees and costs from the non-prevailing
party.
8. COVENANTS NOT TO COMPETE.
(a) EXECUTIVE'S ACKNOWLEDGMENT. Executive agrees and acknowledges
that in order to assure the Company that it will retain its value as a
going concern, it is necessary that Executive undertake not to utilize
his special knowledge of the business and his relationships with
customers and suppliers to compete with the Company. Executive
further acknowledges that:
(i) the Company is and will be engaged in the business;
(ii) Executive will occupy a position of trust and confidence
with the Company prior to the date of this agreement and,
during such period and Executive's employment under this
agreement, Executive has, and will become familiar with
the Company's trade secrets and with
3
<PAGE>
other proprietary and confidential information concerning
the Company;
(iii) the agreements and covenants contained in this Section 8
are essential to protect the Company and the goodwill of
the business; and
(iv) Executive's employment with the Company has special,
unique and extraordinary value to the Company and the
Company would be irreparably damaged if Executive were to
provide services to any person or entity in violation of
the provisions of this agreement.
(b) COMPETITIVE ACTIVITIES. Executive hereby agrees that for a
period commencing on the date hereof and ending one year following the
later of (i) termination of Executive's employment with the Company
for whatever reason, and (ii) the conclusion of the period, if any,
during which the Company is making payments to Executive, he will not,
directly or indirectly, as employee, agent, consultant, stockholder,
director, co-partner or in any other individual or representative
capacity, own, operate, manage, control, engage in, invest in or
participate in any manner in, act as a consultant or advisor to,
render services for (alone or in association with any person, firm,
corporation or entity), or otherwise assist any person or entity
(other than the Company) that engages in or owns, invests in,
operates, manages or controls any venture or enterprise that directly
or indirectly engages or proposes in engage in the business of the
manufacturing, distribution or sale of (i) products manufactured,
distributed, sold or licensed by the Company at the time of
termination or (ii) products proposed at the time of such termination
to be manufactured, distributed, sold or licensed by the Company
within sixty (60) miles of the Company's operations (the "Territory");
provided, however, that nothing contained herein shall be construed to
prevent Executive form investing in the stock of any competing
corporation listed on a national securities exchange or traded in the
over-the-counter market, but only if Executive is not involved in the
business of said corporation and if Executive and his associates (as
such term is defined in Regulation 14(A) promulgated under the
Securities Exchange Act of 1934, as in effect on the date hereof),
collectively, do not own more than an aggregate of two percent of the
stock of such corporation ("Permitted Investments"). With respect to
the Territory, Executive specifically acknowledges that the Company
has conducted the business throughout those areas comprising the
Territory and the Company intends to continue to expand the business
throughout the Territory.
9. OPPORTUNITIES. During his employment with the Company, and for one
year thereafter, Executive shall not take any action which might divert from the
Company any opportunity learned about by him during his employment with the
Company (including without limitation during the Employment Term) which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company.
10. SURVIVAL. In the event that this Agreement shall be terminated, then
notwithstanding such termination, the obligations of Executive pursuant to
Sections 6 and 8 of this agreement shall survive such termination.
4
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11. CONTENTS OF AGREEMENT, PARTIES IN INTEREST, ASSIGNMENT, ETC. This
Agreement sets forth the entire understanding of the parties hereto with respect
to the subject matter hereof. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective heirs, representatives, successors and assigns of the parties hereto,
except that the duties and responsibilities of Executive hereunder which are of
a personal nature shall neither be assigned nor transferred in whole or in part
by Executive. This Agreement shall not be amended except by a written
instrument duly executed by the parties.
12. SEVERABILITY. If any term or provision of this Agreement shall be
held to be invalid or unenforceable for any reason, such term or provision shall
be ineffective to the extent of such invalidity or unenforceability without
invalidating the remaining terms and provisions hereof, and this Agreement shall
be construed as if such invalid or unenforceable term or provision had not been
contained herein.
13. NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party to the other party shall be in writing and shall be
deemed to have been duly given when delivered personally or five (5) days after
dispatch by registered or certified mail, postage prepaid, return receipt
requested, to the party to whom the same is so given or made:
IF TO THE COMPANY ADDRESSED TO:
Har-Whit / Pitt's & Spitt's, Inc.
14221 Eastex Freeway
Houston, Texas 77032
WITH A COPY TO:
Brewer & Pritchard, P.C.
1111 Bagby, Suite 2450
Houston, Texas 77002
IF TO EXECUTIVE ADDRESSED TO:
D. Wayne Whitworth
313 Magnolia Pt.
Huffman, Texas 77336
or to such other address as the one party shall specify to the other party in
writing.
14. COUNTERPARTS AND HEADINGS. This agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all which
together shall constitute one and the same instrument. All headings are
inserted for convenience of reference only and shall not affect the meaning or
interpretation of this agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
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HAR-WHIT / PITT'S & SPITT'S, INC.
By: /s/ Raymond C. Hartis
-------------------------------
Raymond C. Hartis, Vice President
EXECUTIVE
By: /s/ Wayne Whitworth
--------------------------------
D. Wayne Whitworth
6
<PAGE>
EXHIBIT 6.5
Employment Agreement
This Employment agreement, dated as of August 3, 1998 between American Int.
Ind. Inc. (EDII) and John W. Stump III (Stump) shall govern the employment of
John W. Stump III in the capacity of Chief Financial Officer of EDII and all
of its subsidiary and related companies.
Term - Stump shall be employed by EDII beginning August 10, 1998, and
such employment shall continue for a "trial period" of six months until
February 10, 1999. At the end of such "trial period" the parties shall
either enter into a new employment agreement expected to provide for a
three year term, or in the event that either party desires to not enter
into such new employment agreement, a termination bonus of one month
salary shall be paid to Stump and the relationship of the parties will
cease.
Bonus - Stump shall be awarded the option to acquire 20,000 shares of
the common stock of EDII as of the date such employment commences, at
the closing bid price of such securities on that date, such option being
effective for a period of three years from the date of employment.
Compensation - Stump shall be employed at an initial salary of $7,500
per month, payable in the manner customary for other employees, and
shall be provided group insurance and other employee benefits as are
customary for the employees of the Company.
Responsibilities and duties - Stump shall be employed as the Chief
Financial Officer of the Company and all of its subsidiary and related
companies, and shall perform such duties as are customary in that
capacity, and such other duties as may be assigned to him by the Chief
Executive Officer or the Board of Directors, provided such duties are
appropriate for an officer employed in the capacity of Chief Financial
Officer.
Place of employment - The headquarters for performance of Stump's duties
shall be in the Houston area; however he may be required to travel to
other locations in the conduct of his duties. All expenses related to
such business travel shall be borne directly by the Company.
Termination - This Employment Agreement may be terminated by the Company
only in the event of the conviction of Stump of a felony or his physical
disability, which would prevent him from performing substantially all of
the duties which would normally be expected of him. Stump may terminate
this agreement by giving thirty days written notice.
Non-competition - Stump shall not be involved in any capacity as an
officer, employee, partner, consultant or significant stockholder in any
other business venture which would compete with any of the Companies
affiliated with EDII during the term of this agreement.
Signed:
/s/ John W. Stump III August 5, 1998
-----------------------------------
John W. Stump III - Employee
/s/ Daniel Dror August 5, 1998
-----------------------------------
Daniel Dror - CEO - EDII
<PAGE>
EXHIBIT 6.6
NORTHEASTERN PLASTICS, INC.
420 Carroll Street
Brooklyn, NY 11215
September 22, 1994
Mr. Marc H. Fields
6754 Leafwood Drive
Anaheim Hills, CA 92807
Dear Marc:
Fred and I very much enjoyed our meeting with you, and I've enjoyed our
continuing discussions on the phone.
The purpose of this letter is to review some of the things that we discussed
concerning the opportunity at Northeastern Plastics, Inc. ("NPI"). I
apologize in advance for the dry, dense and somewhat legal tone of this
letter, but this is my way of trying to achieve some clarity. I hope that I
have succeeded. This letter briefly addresses the following issues:
1. Job title and position.
2. Base pay.
3. Annual incentive bonus and dates of payment.
4. Stock (equity) purchase option if NPI accomplishes an initial public
offering of stock.
5. Possible additional stock options that may be granted by a publicly owned
NPI.
6. Benefits.
7. Your move to the Brooklyn, NY, area and related expenses.
8. Confidentiality, trade secrets, ETC., issues.
9. Miscellaneous items.
If you and NPI decide that we have both reached a firm understanding, you
would be employed as President and Chief Operating Officer of NPI. You would
receive base compensation from NPI at the annual rate of $110,000. This would
be paid in the customary way (weekly or bi-weekly, I believe) that NPI pays
its executive employees. Your duties as President and Chief Operating Officer
of NPI would encompass all of those normally performed by someone with such
titles and in such positions and, additionally, would include the duties and
responsibilities that you discussed with Fred and me as well as others (E.G.,
responsibility for implementation of the NPI strategic plan) that may be
assigned to you by me as Chairman of the Board of Directors of NPI.
<PAGE>
Mr. Marc H. Fields Page 2
September 22, 1994
In addition to the base compensation mentioned above, you would be entitled
to receive a bonus as President and Chief Operating Officer after the end of
each fiscal year based on the financial performance of NPI for each fiscal
year that you are employed. As you know, at the end of each fiscal year, NPI
has audited financial statements prepared by its independent auditors. After
the aforesaid annual audited financial statements are completed, you would be
entitled to receive a cash bonus based on what is currently described in
NPI's June 30, 1993 audited financial statements as (a) "Income Before Parent
And Affiliated Companies' Charges" (which is an amount that is also before
any provision (or benefit) for federal income tax allocated from parent)
(herein referred to as "Operating Income"), but less (b) the deduction for
"Rent" ("Rent") which is carried under what is currently described in such
financial statements as "Parent And Affiliated Companies' Charges," and less
(c) any deduction for "Interest" ("Interest") which may be carried under what
is currently described in such financial statements as "Parent And Affiliated
Companies' Charges" (or a caption of similar import), all on a consistent
basis taken from NPI's annual fiscal year end audited financial statements.
(As an example, the amount of NPI's Operating Income as stated in NPI's
audited financial statements for fiscal 1993 was $292,054, and for fiscal
1992 was $493,190; Rent for fiscal 1993 was $30,000, and for fiscal 1992 was
$30,000; and Interest for fiscal 1993 and fiscal 1992 was not charged.) (As I
mentioned to you, the amount of intercompany Rent will increase beginning in
fiscal 1995 and thereafter to reflect the fact that the leasehold improvements
as stated on NPI's historical financial statements have been transferred out
of NPI (offset by a commensurate reduction in the liability account "Due to
Parent and Affiliated Companies") and that the Rent account will now include
appropriate amounts of carrying charges, depreciation, ETC., which were
previously included in other expense accounts of NPI (which other expense
accounts, of course, will be reduced commensurately)). This calculation may
be adjusted further to reflect adjustments that the Board of Directors of NPI
may make in its discretion to reflect fairly the financial impact on NPI of
any acquisitions, divestitures, restructurings, initial public offering of
equity securities, or other actions, if any, taken by NPI, and non-recurring
events, or unusual factors, if any, including, without limitation, any situation
in which there are any ambiguities or changes in the format of the annual
financial statements, or to settle any other issues in connection with this
annual determination which may impact NPI's annual financial statements.
Let's refer to this final calculation as the "Bonus Compensation Formula
Amount" or "BCFA." You would be entitled to receive an annual bonus equal to
ten (10%) percent of the amount by which the BCFA exceeds $500,000 per year.
The bonus amount determined by the Board of Directors would be paid to you
during the second quarter of the fiscal year following the fiscal year with
respect to which it is earned. For purposes of our understanding, the first
year's bonus would be related to NPI's fiscal year ending June 30, 1995. We
have already discussed with you NPI's results of operations for July and August
1994.
If an initial public offering (the "offering") of equity securities of NPI is
consummated while you are employed by NPI as President and Chief Operating
Officer, you would be entitled to a non-qualified option (which I have not
discussed with NPI's attorneys or accountants) to purchase shares of common
stock of NPI equal to five (5%) percent of the equity of NPI directly from
NPI (or, perhaps, from its parent), which option would be exercisable
immediately prior to such
<PAGE>
Mr. Marc H. Fields Page 3
September 22, 1994
offering (the "option"). The exercise price (the "exercise price") of such
option, I.E., the purchase price of your investment, would be equal in amount
to five (5%) percent of the total shareholder's equity of NPI, described, for
example, in NPI's audited financial statements for the fiscal year ended June
30, 1993 as "Total shareholder's equity," immediately prior to such offering,
adjusted to include certain other items, such as, without limitation, net
income (losses) and changes in capital and retained earnings accounts,
additional contributions to such Total shareholder's equity by the parent or
other affiliates of NPI, ETC., subsequent to the fiscal year end audited
financial statements to the time of the exercise of the option. (As an
example, the amount of NPI's Total shareholder's equity as stated in NPI's
audited financial statements for the fiscal year ended June 30, 1993 was
$2,225,310. If such offering had been consummated at June 30, 1993, and you
were employed by NPI as President and Chief Operating Officer, you would
have been entitled to buy shares of common stock representing five (5%)
percent of the equity of NPI for the amount of $111,265.) The exercise price
for the purchase of such shares would be payable in cash when you exercised
the option. This option would be exercisable in whole only, I.E., all at one
time, and only if there is an initial public offering of shares of NPI. This
option would not be assignable.
The Board of Directors of NPI may in its discretion make adjustments to the
Total shareholder's equity (the "Adjusted Equity") (and therefore the
exercise price of the option) to reflect fairly, without limitation, the
impact of financial or other transactions or actions or events that may be
required, beneficial, or desirable in connection with an offering, to take
account of the effects of taxes of any kind, to accommodate the requirements
of any underwriter or state in which an offering is to be made, to reflect
the impact of any restructuring, refinancing, or unusual or non-recurring
events or, without limitation, to accommodate any demand or event required to
be accommodated to facilitate an offering of the equity of NPI. Of course,
there is no assurance, nor can there be any, that any offering of NPI will
occur in the future. The option discussed herein, its terms and the exercise
of it, and the purchase of any equity in NPI are all subject to all
securities laws and rules of all relevant jurisdictions, including, without
limitation, federal and New York State, and to all tax and other laws, rules
and requirements affecting or relating to a non-qualified option as described
so briefly herein. Counsel for NPI as well as the Board of Directors of NPI
would determine the exact form and terms of the written option document.
You, of course, would agree to adhere to all relevant rules and laws relating
to the purchase of unregistered securities and the exercise of the option.
In addition to the non-qualified option discussed above, at the time of any
offering or thereafter, the Board of Directors of NPI would be free to make
available to you additional, qualified stock options which might be made
available to employees of NPI at exercise prices determined at the time of
any offering and on terms that would be determined at that time. Of course,
there can be no assurance that any offering of common shares of NPI will
occur or that any such qualified stock options would ever be created or
granted.
NPI would make available to you employee benefits that it makes available
generally to other executives and management personnel of NPI. Specifically,
you would be provided with a company paid medical plan, company paid life
insurance (providing a death benefit of
<PAGE>
Mr. Marc H. Fields Page 4
September 22, 1994
approximately two and one-half to three times your base compensation), and a
disability plan which I believe meets the parameters that you mentioned to me
of providing benefits of approximately sixty percent of base compensation.
As we discussed on the telephone, you would provide your own automobile, but
NPI will pay to you a $500 per month automobile allowance. Regarding a
dental plan, no employee of TDA or its subsidiaries has a dental plan, and
CIGNA will not write one for only one person in our group plan. Accordingly,
we will have to discuss this particular item with you.
You would move your residence to within a reasonable commuting distance of
the Brooklyn, NY, facility of NPI by no later than December 31, 1994 and
continue to reside in such area (assuming NPI continues to maintain its
principal office in the Brooklyn area) as long as you are employed by NPI.
Prior to that, upon your commencement of employment at NPI, you would work
full time at NPI and live within a reasonable commuting distance of the
Brooklyn facility. NPI and you will arrive at an understanding as to a maximum
amount to be paid to you which you would use to defray your expenses of
transportation to and from Brooklyn, your living expenses in the Brooklyn area
prior to your permanent move to the Brooklyn area, and all of your moving
and related expenses in connection with your move to the Brooklyn area. (We
will discuss with you the situation including your current home in California
after your meeting with General Cable Corporation.)
We would ask that you complete all of NPI's normal hiring forms and
procedures. You would receive an employee manual of NPI (if available), and
we would ask that you acknowledge the fact that you received this, read it
and understand it. NPI may ask that you take a medical examination and would
review your recent medical reports and may ask you to take additional medical
examinations from time to time for life insurance which NPI may purchase on
your life for NPI's benefit.
If you become an employee of NPI, you would have the right at your discretion
to quit or retire at any time. Likewise, NPI would have the right to
terminate your employment at any time. In addition, except as expressly
described above, NPI would have the right to change or eliminate any employee
benefits that you receive at any time consistent with such changes affecting
benefits with regard to all other full-time management personnel of NPI.
As you know, NPI is currently checking the references that you provided to
Bob Cox of A. T. Kearney, Inc. When this is completed, which should be within
days, we can proceed to finalize the understanding between you and NPI.
No representations are made to you, and none should be relied upon, unless
expressly set forth in this letter.
NPI would also ask that you sign a trade secret and confidentiality agreement
and that you sign a separate agreement not to compete. The trade secret and
confidentiality agreement would be written in a manner mutually agreeable to
you and NPI, but would, among other matters, particularly address and seek to
protect NPI's sources of product in Asia, NPI's customers, NPI's
<PAGE>
Mr. Marc H. Fields Page 5
September 22, 1994
organization of representatives and agents, NPI's terms of sale and
arrangements with customers, and NPI's future plans and strategies, ETC. You
told me that you have no objection to signing such an agreement. In addition,
you stated that you would be willing to sign a non-competition agreement if you
were paid during the non-competition period. Accordingly, NPI would prepare
such an agreement providing, at NPI's option at the time of termination, for
a very broad one-year non-competition agreement in exchange for the payment of
one year's base pay ($110,000) during such year to become effective upon the
termination of your employment by NPI.
Although a letter such as this is unavoidably legalistic in tone (at least
the way that I write it), the contents of which are obviously quite serious, I
want you to know that Fred and I are very much looking forward to your
joining NPI and wish you great success in this endeavor. Please call Fred or
me to discuss any issues discussed above or any questions that you may have.
Very truly yours,
NORTHEASTERN PLASTICS, INC.
Douglas P. Fields
Chairman of the Board
DPF:lm
cc: Frederick M. Friedman
<PAGE>
EXHIBIT 6.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of 9-10,
1998, between Modern Film Effects, Inc., a California corporation, Digital
Research Corporation, a California corporation, (hereinafter collectively
referred to as the "Company") and Jordan Friedberg, an individual
("Executive"), with reference to the following.
RECITALS
A. The Company is an entertainment group in the business of pre and
post-production film optics and titles, as well as special digital and visual
effects development and title design for the television and motion picture
industries, and such other related businesses as the Company may from time
to time engage in.
B. The Company desires to retain and employ Executive as the Company's
Chief Executive Officer and President, and Executive desires to accept such
retention and employment, subject to the terms and conditions set forth in
this Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing premises, the
provisions set forth below, and other good and valuable consideration, the
parties agree as follows.
1. EMPLOYMENT. The Company hereby retains and employs Executive as its
Chief Executive Officer and President and Executive hereby accepts such
retention and employment, for the term and subject to the provisions set forth
below.
2. TERM. Unless sooner terminated as set forth below, Executive shall
be retained for a period of five (5) years whereby Executive is an employee of
the Company and at the end of the five (5) year term, Executive will have an
option to remain as an employee for an additional five (5) years. The actual
period of time that Executive remains in the employ of the Company pursuant
to this Agreement is referred to herein as the "Employment Period."
3. DUTIES. Executive shall be retained and employed as Chief Executive
Officer and President and shall hold such other offices or positions with the
Company as may be reasonably requested by the Company from time to time.
Executive shall devote his full time and efforts to the performance of the
Executive's duties hereunder on a full time basis, five (5) business days per
week, in accordance with the normal business hours of the Company and work
exclusively for the Company unless otherwise requested by the Company.
Executive shall
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performance of the Executive's duties hereunder on a full time basis, five
(5) business days per week, in accordance with the normal business hours of
the Company and work exclusively for the Company unless otherwise requested
by the Company. Executive shall oversee all operations and growth of the
Company's business for the maximum benefit of the Company. Executive shall
report to the Company's Chairman of the Board, in addition to the normal
duties associated with the position of Chief Executive Officer of companies
of similar size, and provide the Company, and its Board of Directors, with
proposed business strategy and analysis, and such other duties established by
the Company's Board of Directors.
(b) Executive shall be named as a Director of the Company and as
long as this Agreement shall remain in full force and effect, Executive shall
have a seat on the Board of Directors of the Company.
4. COMPENSATION. Execution shall be entitled to the following forms of
compensation for the performance of his duties.
(a) ANNUAL SALARY. The Company shall pay or cause to be paid to
Executive an annual base salary during the first year in the amount of
Sixty-Five Thousand Dollars ($65,000.00), to be increased annually thereafter
at a rate of ten percent (10%).
(b) VACATION. Executive shall be entitled to two weeks paid
vacation for years one and two (1 and 2), three (3) weeks vacation for years
three and four (3 and 4), and four (4) weeks vacation for the fifth (5th)
year of employment. The time for such vacations shall be mutually agreed upon
between Company and Executive. Further, vacation pay can and will be accrued
from year to year and any amount accrued in excess of five (5) weeks shall be
paid to Executive as additional salary.
(c) MEDICAL INSURANCE. The Company shall provide, pay for or
reimburse Executive with or for reasonable insurance for Executive, spouse
and children. Insurance shall include health, dental and optical insurance in
accordance with the general Company practices, long-term disability insurance
and life insurance at a level in accordance with an executive in a similar
entertainment company.
(d) EXPENSES. Executive shall be entitled to the use of Company's
credit cards during the period of his employment for travel and other
out-of-pocket expenses incurred in the performance of his duties hereunder,
in a reasonable monthly amount, including, but not limited to, cell phone,
internet, cable and appropriate satellite feeds.
(e) AUTOMOBILE. Executive shall receive reimbursement of business
related automobile and gasoline expenses for one automobile. This shall
include an automobile lease, including the down payment, with a lease payment
not to exceed One Thousand Dollars ($1,000.00) per month, plus insurance,
gasoline, and maintenance.
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6. TERMINATION. The Employment Period shall be immediately and
automatically terminated upon Executive's death. The Employment Period shall
also terminate under the following conditions.
(a) TERMINATION FOR CAUSE. Notwithstanding anything in this Agreement
to the contrary, the Company may terminate Executive's employment hereunder
at any time if Executive:
(i) Is convicted of, or pleads guilty or nolo contendere to (i)
any felony, or (ii) misdemeanor involving moral turpitude;
(ii) Is adjudicated to be incompetent or, in the reasonable
opinion of a licensed physician or psychiatrist retained by the Company, is
unable by reason of mental or physical illness or incapacity;
(iii) Is unable to carry out Executive's duties hereunder for a
period of three months during any twelve-month period;
(iv) In the reasonable opinion of a licensed physician or
psychiatrist retained by the Company, is substantially unable by reason of
drug (including alcohol) abuse or addiction, to reasonably and effectively
carry out Executive's duties hereunder for any period of time in excess of
Executive's accrued vacation time or sick leave, if any;
(v) Fails or refuses to perform Executive's reasonable and
customary duties hereunder for a period of ten (10) days after written notice
describing the duty or duties which Executive has failed or refused to
perform is given to Executive by the Company;
(vi) Is in violation of any provisions of this Agreement;
provided, however, that if such violation can be cured in a manner that will
restore the Company to the position he would have enjoyed in the absence of
the violation, Executive shall have a period of ten (10) days after written
notice describing the violation is given to Executive by the Company to
completely cure such violation and, if completely cured, this Agreement shall
not be subject to termination of such violation.
Should Executive be terminated for cause, his severance shall be
equivalent to four (4) months salary and full benefits for a period of two
(2) years.
(b) BY PERMANENT DISABILITY. The Employment Period shall terminate
upon "Permanent Disability" of Executive. "Permanent Disability" shall mean,
with respect to Executive, (i) the suffering of any mental or physical
illness, disability or incapacity to the extent that Executive shall be
unable to perform his duties or (ii) the absence of Executive from his
employment by reason of any mental or physical illness, disability or
incapacity for a period of three (3) months during any six (6) month period;
provided, however, in either case, that such illness, disability or
incapacity shall be determined to be of a permanent nature by a licensed
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(b) BY PERMANENT DISABILITY. The Employment Period shall terminate
upon "Permanent Disability" of Executive. "Permanent Disability" shall mean,
with respect to Executive, (i) the suffering of any mental or physical
illness, disability or incapacity to the extent that Executive shall be
unable to perform his duties or (ii) the absence of Executive from his
employment by reason of any mental or physical illness, disability or
incapacity for a period of three (3) months during any six (6) month period;
provided, however, in either case, that such illness, disability or
incapacity shall be determined to be of a permanent nature by a licensed
physician selected by the Board of Directors. The termination date in the
event of a clause (i) of the immediately preceding sentence, shall be the
date of determination by the physician, and in the case of clause (ii) of the
immediately preceding sentence, the last day of such three (3) month period.
In the case of Permanent Disability, the Company shall promptly pay to
Executive (or his representative) the sum of (A) the unpaid Annual Base
Salary to which he is entitled pursuant to Section 4(a) through the
termination date and (B) any earned but unpaid commissions or profit
participation due to Executive pursuant to Section 5, and all benefits under
Executive's Disability Insurance Plan, if any.
(c) TERMINATION WITHOUT CAUSE. Notwithstanding anything in the
Agreement to the contrary, should the Executive be terminated from employment
without cause, Executive shall be entitled to a salary and full benefits
package, including automobile expenses, for one (1) year, or the balance of
this employment contract, whichever is greater.
7. AFFIRMATIVE COVENANTS. Executive makes the following promises and
covenants to the Company.
(a) NON-COMPETITION. Executive agrees that at all times during the
Term:
(i) For a period equal to two years severance from and after
the termination of Executive's employment with the Company, D-Rez or AIII,
whichever is later, Executive shall not, and shall cause Executive's
Affiliates not to, directly or indirectly, as a partner, joint venturer,
employer, employee, contractor, consultant, shareholder, director, officer,
trustee, principal or agent engage in, control, advise with respect to,
manage, act as a consultant to, receive any economic benefit from or exert
any influence upon the development, marketing, manufacture, sale,
distribution, offering or promoting for sale in the California counties
listed in EXHIBIT "A", any state of the United States, North America, the
European Union, Asia or Africa of titles, post-production services or high
definition conversion or work for any company that provides such services
(the "Competitive Services"); provided, however that Executive may, without
violating this covenant, own as a passive investment not in excess of five
percent (5%) of the securities of a corporation which engages in such
competition if such securities are traded on a national securities exchange
or traded publicly in the over-the-counter market.
(ii) Executive acknowledges that the foregoing territorial
and time limitations are reasonable and properly required for the adequate
protection of Buyer and that in the
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executive officers, director, shareholder, department managers at the Company
of the Company to invest in or to purchase, or to offer or subscribe to
purchase, any security or general or equity interest in any venture that is
competitive with or similar to the business of the Company. As used in this
Section the terms "employ" and "employment" are used in the broadcast sense
to encompass all associations, including and without limitation, that of
employee, agent, independent contractor, owner, officer, director,
shareholder, partner, associate, representative and consultant.
(iv) If the scope of any restrictions contained in
paragraph (i) and (ii) of this Section is too broad to permit enforcement of
such restrictions of their full extent, then such restrictions shall be
enforced to the maximum extent permitted by law, and Executive hereby
consents and agrees that such scope may be judicially modified accordingly in
any proceeding brought to enforce such restrictions.
(v) The ideas, developments, writings and designs developed
in whole or in part by the Executive during the Executive's employment with
the Company, D-Rez and EDII which relate to the business of the Company,
D-Rez or EDII (the "Work Product") are, and shall remain, the exclusive
property of the Company, D-Rez or EDII. To the extent that any of the Work
Product is capable of protection by copyright, the Executive acknowledges
that it is created within the scope of the Executive's employment with the
Company, D-Rez or EDII and is a "work-made-for-hire."
(b) REMEDIES FOR BREACH OF AFFIRMATIVE COVENANTS OF EXECUTIVE.
(i) Subject to the limitations provided by applicable law,
the covenants set forth in this Section 7 shall continue to be binding upon
Executive in accordance with their terms, notwithstanding the termination of
his employment with Company for any reason whatsoever. Such covenants shall
be deemed and construed as separate agreements independent of any other
provisions of this Agreement and any other agreement between the Company and
Executive. The existence of any claim or cause of action by Executive against
the Company, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of any or all such
covenants in accordance with their terms.
(ii) The parties hereby agree that any breach or threatened
breach of Section 7 of this Agreement will cause substantial and irreparable
damage to the other in an amount and of a character difficult to ascertain.
Accordingly, for their mutual benefit and to prevent any such breach or
threatened breach, and in addition to any other relief to which a party may
otherwise be entitled, the non-breaching party shall be entitled to immediate
temporary, preliminary and permanent injunctive relief through appropriate
legal proceedings, without proof that actual damages have been incurred or
may be incurred by such a party with respect to such breach or threatened
breach. The parties expressly agree that the party seeking this relief shall
not be required to post any bond or other security as a condition to obtaining
any injunctive relief pursuant to this Section and each of the parties
expressly waive any rights to the contrary. The parties intend for the
covenants of this Agreement to be enforceable to the
5
<PAGE>
maximum extent permitted by law, and if any reviewing court deems any of such
covenants to be unenforceable or invalid, Sellers and Buyer authorize any
such court to reform (A) the unenforceable or invalid provisions and to
impose such restrictions as reformed, and (B) the remaining provisions as it
deems reasonable.
(c) FURTHER DUTIES. Executive shall perform such other duties and
work for, consult to, or assist such other entities as may be requested from
time to time by the Company.
8. REPRESENTATIONS AND WARRANTIES OF EXECUTIVE. Executive represents
and warrants to the Company that (i) Executive is under no contractual or
other restriction or obligation that is inconsistent with the execution of
this Agreement, the performance of Executive's duties hereunder or any of the
rights of the Company hereunder, (ii) Executive is under no physical or
mental disability that would impair the performance of Executive's duties
under this Agreement; and (iii) Executive has reviewed this Agreement with
Executive's legal counsel.
9. NOTICES. All notices, requests, demands or other communication
(collectively, "Notice") given to any party pursuant to this Agreement shall
not be effective unless given in writing and addressed to the parties at
their respective addresses as set forth below.
If to Executive:
Jordan Friedberg
6860 Lexington Avenue
Hollywood, CA 90048
If to the Company:
Notice shall be deemed duly given when delivered personally or by
telegram, telex or courier, or, if mailed, forty-eight (48) hours after
deposit in the United States mail, certified mail, postage pre-paid. The
addresses of the parties for the purpose of providing Notice pursuant to this
paragraph may be changed from time to time by Notice to the other party duly
given in the foregoing manner.
10. GOVERNING LAW; DISPUTES. This Agreement will be interpreted in
accordance with California law, including all matters of construction,
validity, performance and enforcement, without giving effect to any
principles of conflict of laws. Any dispute or proceeding concerning this
Agreement except an action pursuant to Section 7 hereof will be resolved by
binding arbitration to be held in Los Angeles County, California. Any party
may
6
<PAGE>
demand arbitration through written notice sent by certified mail to the other
(an "Arbitration Demand"). Within fifteen (15) days after the date that the
Arbitration Demand is first mailed, each of the parties will confer to select
a mutually acceptable arbitrator from JAMS/Endispute ("JAMS"). If the
arbitrator so selected is unavailable, the parties will confer to select
another arbitrator. If the parties cannot mutually agree to the selection of
an arbitrator, or if one party refuses to participate in the selection
process, JAMS will appoint an arbitrator. The arbitrator will be governed by
the provisions of this Agreement rather than the rules of JAMS.
If JAMS is unable or unwilling to select an arbitrator, the
Presiding Judge of the Los Angeles County Superior Court will select an
arbitrator upon the request of either party, and such selection will be
binding on the parties. The arbitrator so selected will schedule the
arbitration hearing within sixty (60) days after he or she is first selected.
The parties will be permitted written discovery and one deposition each. The
arbitrator will have authority to enter a binding judgment even if the
parties do not appear at the arbitration and may also grant any remedy or
relief that the arbitrator reasonably believes to be just and appropriate,
provided that such remedy or relief is within the scope of this Agreement.
All fees and expenses of the arbitration will be paid equally by the
parties participating in the arbitration. At the conclusion of the
arbitration, the arbitrator will award the prevailing party reasonable
attorneys' fees, including all arbitration costs. If the arbitration award is
made, the prevailing party may convert the award into a judgment and execute
upon that judgment.
11. ATTORNEYS' FEES. If any arbitration, litigation, action, suit or
other proceedings is instituted to remedy, prevent or obtain relief from a
breach of this Agreement, in relation to a breach of this Agreement or
pertaining to a declaration of rights under this Agreement, the prevailing
party will recover all such party's attorneys' fees incurred in each and
every such action, suit or other proceeding, including any and all appeals or
petitioner therefrom. As used in this Agreement, attorneys' fees will be
deemed to be the full and actual costs of any legal services actually
performed in connection with the matters involved, including those related to
any appeal or the enforcement of any judgment, calculated on the basis of the
usual fee charged by attorneys performing such services, and will not be
limited to "reasonable attorneys' fees" as defined in any statute or rule of
court.
12. AMENDMENTS/WAIVERS. This Agreement may be amended, supplemented,
modified, or rescinded only through an express written instrument signed by
all the parties or their respective successors and assigns; provided,
however, that this Agreement may only be amended or modified upon the express
written consent of EDII, which may be withheld by EDII in its sole and
absolute discretion. Either party may specifically and expressly waive in
writing any portion of this Agreement or any breach hereof, but no such
waiver shall constitute a further or continuing waiver of any preceding or
succeeding breach of the same or any other provision. The consent by one
party to any action for which such consent was required shall not be deemed
to imply consent or waiver of the necessity of obtaining such consent for the
same or similar acts in the future.
7
<PAGE>
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument. All faxed
signatures shall be deemed originals.
14. SEVERABILITY. Each provision of this Agreement is intended to be
severable and if any term of provision herein is determined invalid or
unenforceable for any reason, such illegality or invalidity shall not affect
the validity of the remainder of this Agreement and, wherever possible,
intent shall be given to the invalid or unenforceable provision.
15. ENTIRE AGREEMENT. This Agreement contains the entire and complete
understanding between the parties concerning its subject matter and all
representations, agreements, arrangements and understandings between or among
the parties, whether oral or written, have been fully merged herein and
are superseded hereby.
16. REMEDIES. All rights, remedies, undertakings, obligations, options,
covenants, conditions and agreements contained in this Agreement shall be
cumulative and no one of them shall be exclusive of any other.
17. ASSIGNMENT. Neither this Agreement, nor any interest herein, shall
be assignable (voluntarily, involuntarily, by judicial process or otherwise)
Executive to any person or entity without the prior written consent of the
Company. Any attempt to assign this Agreement without such consent shall be
void and, at that option of the Company, shall be an incurable breach of this
Agreement resulting in the termination of this Agreement.
18. SUCCESSORS. Subject to the foregoing paragraph, this Agreement shall
be binding upon and inure to the benefit of the parties and their respective
heirs, legalees, legal representatives, successors and permitted assigns.
19. INTERPRETATION. The language in all parties of this Agreement shall
be in all cases construed simply according to its fair meaning and not
strictly for or against any party. Whenever the context requires, all words
used in the singular will be construed to have been used in the plural and
vice versa, and each gender will include any other gender. The captions of
the paragraphs of this Agreement are for convenience only and shall not
affect the construction or interpretation of any of the provisions herein.
20. BENEFIT OF AGREEMENT. This Agreement is for the sole and exclusive
benefit of the signators hereto and nothing in this Agreement shall be
construed to give any person or entity other than the parties hereto any
legal or equitable right, claim or remedy, except EDII, which is an intended
third party beneficiary of this Agreement.
21. LIMITATION ON ACTIONS. Any claim, dispute, controversy or action for
breach relative to this Agreement must be brought and legal process or
arbitration, as the case may be, initiated within one (1) year after the
cause of action for such claim first accrued or the breach first occurred,
whichever is sooner.
8
<PAGE>
22. MISCELLANEOUS. The recitals and all exhibits, attachments or other
documents referenced in this Agreement are fully incorporated into this
Agreement by reference. Unless expressly set forth otherwise herein, all
references herein to a "day," "month," or "year" shall be deemed to be a
reference to a calendar day, month or year, as the case may be. All
cross-references herein shall refer to provisions within this Agreement, and
shall not be deemed to be references to the overall transaction or to any
other agreement or document.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
"EXECUTIVE"
/s/ Jordan Friedberg
----------------------------------
JORDAN FRIEDBERG, an individual
"THE COMPANY"
MODERN FILM EFFECTS, INC.,
a California corporation
By:
------------------------------
Its:
---------------------------
Approved by American International
Industries, Inc.
Date: __________________, 1998 ----------------------------------
DANIEL DROR, Chairman of the Board
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 SEP-30-1998 SEP-30-1997
<PERIOD-START> JAN-01-1997 JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1997 SEP-30-1998 SEP-30-1997
<CASH> 62,991 2,527,143 0
<SECURITIES> 0 459,415 0
<RECEIVABLES> 272,553 3,243,614 0
<ALLOWANCES> 19,000 382,000 0
<INVENTORY> 180,022 1,388,249 0
<CURRENT-ASSETS> 542,726 7,394,581 0
<PP&E> 1,452,898 5,492,703 0
<DEPRECIATION> 117,185 290,500 0
<TOTAL-ASSETS> 4,558,081 19,311,820 0
<CURRENT-LIABILITIES> 198,633 4,442,351 0
<BONDS> 571,916 3,018,645 0
0 0 0
0 0 0
<COMMON> 4,586,599 15,791,915 0
<OTHER-SE> (1,097,871) (4,334,895) 0
<TOTAL-LIABILITY-AND-EQUITY> 4,558,081 19,311,820 0
<SALES> 2,501,860 5,781,245 1,801,649
<TOTAL-REVENUES> 2,501,860 5,781,245 1,801,649
<CGS> 1,635,855 4,523,919 1,175,067
<TOTAL-COSTS> 3,310,027 5,957,330 2,272,720
<OTHER-EXPENSES> 61,860 (38,177) 47,079
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 63,908 47,301 47,079
<INCOME-PRETAX> (870,027) (137,908) (518,150)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (870,027) (137,908) (518,150)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (870,027) (137,908) (518,150)
<EPS-PRIMARY> (.06) 0 (.04)
<EPS-DILUTED> (.06) 0 (.04)
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