Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
NOTE: Pursuant to Rule 15d-2 under the Securities Exchange Act of
1934 this Annual Report contains only certified financial statements
for the fiscal year ended December 31, 1998.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period From _____ to _____
Commission file number 33-82468
AIM GROUP, INC.
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(Exact name of small business issuer in its charter)
Delaware 13-3773537
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)
Jones Mill Industrial Park
Highway 270
P.O. Box 208
Jones Mill, Arkansas 72105
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (501)844-2600
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Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
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None None
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Securities registered pursuant to Section 12(g) of the Exchange Act:
None
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(Title of class)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period as the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. (X)
Issuer's revenues for its most recent fiscal year: $2,085,398
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such stock, as
of a specified date within the past 60 days.
Aggregate market value as of March 24,1999: $3,389,144
State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date.
Common Stock, $.01 par value, as of March 24, 1999: 1,360,201 shares.
Transitional Small Business Disclosure Format:
Yes [ ] No [X]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company was incorporated under Delaware law on March 24, 1994 for
the purpose of acquiring, through a merger consummated on March 31, 1995, all
of the outstanding shares of capital stock of (i) HeatShield Technologies,
Inc. ("HTI"), a corporation formed in May 1991 for research and development to
exploit industrial minerals applications and markets, and its wholly-owned
subsidiaries United Minerals Corporation (Arkansas) ("UMC-Arkansas"), which
was formed in March 1993 to construct a surface modification plant in Malvern,
Arkansas that commenced operations in April 1994, and United Minerals
Corporation (Arizona) ("UMC-Arizona"), which was formed in March 1992 to
engage in the surface mining and processing of Klannerite(R) at the Viva Luz
Mine in Mojave County, northern Arizona; and (ii) Advanced Industrial
Minerals, Inc. ("AIM"), a corporation formed in July 1981 that owned the
mineral rights to the Viva Luz Mine.
In August 1998, the Company relocated its executive headquarters from
Pompano Beach, Florida to Jones Mills, Arkansas. References herein to "AIM
Group" or the "Company" include all of the Company's wholly-owned subsidiaries
unless otherwise indicated.
Currently, the Company is primarily engaged in the surface modification
of industrial fillers at its plant in Malvern, Arkansas and the ownership of
the rights to develop and market Klannerite(R)mined from the Viva Luz Mine in
Mojave County, Arizona. The Company plans during 1999 to enter into a second
line of business, the implementation of a roll-up strategy within the
Information Technologies ("IT") industry by acquiring small, established
Internet Service Providers ("ISPs") and Business Software Solutions Providers
("BSSPs") that focus on application Web site design and development for small
to medium-sized businesses. In addition, the Company has acquired a minority
equity interest in Netsurfer, Inc., a private company headquartered in
Atlanta, Georgia that currently markets a product utilizing Internet access
software for sale to ISPs.
This report contains forward-looking statements relating to future
revenues and results of operations, the Company's customers, uses of
Klannerite(R) and the Company's plans to enter the IT business. Such
forward-looking statements are identified by the use of words such as
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"believes," "intends," "expects," "may," "should," "plan," "projected,"
"contemplates," "anticipates" or similar words. The forward-looking statements
are based on the Company's beliefs and assumptions based on information
currently available to it and involve risks and uncertainties. Actual future
results may differ significantly from the results discussed in the
forward-looking statements. Factors that may cause such differences in
connection with the Company's current industrial minerals and specialty
materials business include risks and uncertainties relating to the Company's
ability to retain existing personnel; the Company's dependence upon the
economic conditions in the industries in which the Company's customers
operate; the presence of free silica, which possess a potential risk as a
cancer causing agent, in certain of the Company's products; the ability of the
Company to effectively compete with other companies, some of which have
substantially greater financial and other resources than the Company; the
impact of government regulations on the Company's extraction and processing
activities and the risks and hazards inherent therein; the commercial
viability of Klannerite(R); the material adverse effect on the Company's
results of operations if it were to lose its significant customers; the
possible unavailability of supplies; the possible loss of existing access to
the Viva Luz Mine; and the losses that could result from the Company's
exposure to currency fluctuations. Factors that could cause actual results to
differ significantly from the results discussed in the forward-looking
statements relating to the Company's proposed acquisition and operation of
ISPs and BSSPs include the risks and uncertainties relating to the absence of
the Company's operating experience in the IT business; the intense competition
in the market for Internet access and related services; the rapidly changing
technology in connection with Internet access; the competition for ISP and
BSSP acquirees and the risks associated with the post-acquisition operation of
acquired ISPs and BSSPs; the start-up nature of ISP and BBSP acquirees;
questions as to the continued growth and demand for Internet access; the
retention and acquisition of subscribers; dependence on telecommunications
carriers; and the Company's ability to engage necessary new managerial
personnel and to retain the existing personnel of acquired ISPs or BSSPs.
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SURFACE MODIFICATION OF INDUSTRIAL FILLERS
GENERAL
At the Company's surface modification plant that commenced operations on
April 1994 in Malvern, Arkansas, approximately 40 miles southwest of Little
Rock, Arkansas, the Company processes industrial minerals used as fillers in
the plastics and elastomer or rubber industries. The purpose of the Company's
surface modification of industrial fillers is to reinforce and improve the
mechanical, electrical and physical properties of the fillers used in plastic,
rubber and sealant compounds. The fillers treated with silanes, which are
coupling agents, at the Company's plant include clay, mica, alumina,
trihydrite, wollastonite, magnesium hydroxide and microspheres. The plant's
surface modification treatments are marketed under the Uni-Kote(R)label.
The Company serves the filler surface modification needs of a customer
either by (i) acquiring the appropriate industrial filler itself, modifying
the surface of the filler as called for and then delivering the resulting
finished product to the customer; or (ii) acting as a "toll" processor, in
which case the customer delivers the industrial filler to be surface modified
to the Company. Delivering or "tolling" industrial fillers for surface
modification is an attractive alternative to many companies, as surface mining
technology is complicated and requires the use of chemicals that involve
environmental and health risks. In addition, many users need small quantities
of surface modified fillers that do not warrant the construction and operation
of a facility for that purpose.
The gross profit margin for the Company's toll processor surface
modification business is approximately 80%, as compared to approximately 25%
for the finished product surface modification business. The toll processor
business is more profitable because there is a lower cost of sales due to (i)
no cost of minerals, (ii) the silane is purchased by the customer in many
cases and (iii) there is no cost of packaging in many cases. The percentage of
the Company's total sales represented by toll processor operations (as opposed
to finished product sales) amounted to 2% in 1997, and 4% in 1998.
The fillers treated by the Company's surface modification facility are
primarily used in the plastics and rubber industries. The customer seeks to
improve the filler's physical properties and performance. The surface
modification process is a heat retention and thermal dynamic process that
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involves the application of organosilanes and other coupling agents.
Enhancements of the physical characteristics of the filler that can result
from the surface modification process include flame retardation, lower oil
absorption, less moisture ingress or accumulation, increased tensile or tear
strengths and better mixing viscosity. Composites containing surface modified
fillers are used in the electronics, transportation, construction materials
and appliance industries. Surface modified fillers can decrease the amount of
resin used in a composite, providing cost savings, improved performance and
enhanced safety for the end user.
The Company's surface modification plant will accept or "toll" bags of
industrial minerals delivered by truck and mix them in a heated batch process
mixer. The mixing and heating time is approximately 30 to 40 minutes, after
which the treated filler is loaded and bagged into 50 to 2,500 pound
containers for shipment.
The use of surface modified fillers may require that customers change
their formula or production method in order to achieve maximum benefit from
the modified filler materials. Consequently, there may be a prolonged interval
of business development during which the customer undertakes testing and
evaluation prior to a change in materials source.
PLANT CAPACITY
The Malvern surface modification facility has an estimated capacity of
treating approximately 7,200 tons of customer filler per year on a two-shift,
five day per week basis. During 1997 and 1998, the Company operated on a
one-shift per day basis and treated approximately 1,900 and 1,600 tons,
respectively, of customer fillers. The Company attributes the decline to the
reduction in orders by a major customer. The plant currently has two mixing
and packaging lines. However, expansion to three mixing and packing lines
could be implemented to increase capacity and permit the treatment of a more
diverse product mix.
CUSTOMERS
Approximately 87% of the Company's sales of surface modified fillers in
1998 were surface modified alumina trihydrate. Other minerals modified by the
Company include magnesium hydroxide, microspheres, talc and nepheline syenite.
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During 1996, 1997 and 1998, a subsidiary of Laport P.L.C. ("Laport"), a
British plastics compounder and the Company's major customer, accounted for
approximately 83%, 67%, and 61%, respectively, of the Company's sales
revenues. The loss of that customer, to whom the Company sells finished
products and does not act as a toll processor, would have a materially adverse
effect on the Company. The Company has no long-term contractual arrangement
with that customer and no assurance can be given to the amount of future sales
that may will be made by the Company to that customer. Of the Company's sales
to a total of 15 customers in 1998, sales to the three largest companies
accounted for approximately 89% of total sales in that year.
Pursuant to a contract dated March 25, 1997, and amended on September
13, 1997, with a subsidiary of Martin Marietta Materials, Inc. ("Martin
Marietta"), the Company serves as the northern United States distributor of
magnesium hydroxide produced by Martin Marietta. The Company serves as Martin
Marietta's exclusive U.S. agent to surface treat the flame retardant and smoke
suppression products with silane at the Company's surface modification
facility. The Company's sales pursuant to that contract during 1997 and 1998
amounted to $10,581 and $17,460, respectively, and the Company estimates that
total annual sales pursuant to the contract during 1999 will increase to
approximately $200,000.
As in the case of magnesium hydroxide, alumina trihydrate serves as an
excellent flame retardant in that it gives off water molecules when it is
exposed to heat.
MARKETING AND DISTRIBUTION
The Company's sells its surface modified fillers through sales
representatives and Company employees. The Company currently has 2 contract
sales representatives, 2 sales related employees and 1 distributor with 9
sales people. The Company advertises occasionally in trade journals and
magazines. In addition, the Company will from time to time exhibit its
products at industry conferences and trade shows. The Company is dependent
upon its customers' inclusion of the Company's products in the customers'
typical plastics and rubber formulations in order to obtain sales. Due to its
limited financial resources, the Company has not been able to increase its
research and development spending to facilitate customer use of its products.
To date, the Company has provided over 1,000 samples of its products to over
200 companies. Management believes that due to the long sales cycle which
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sometimes can last over 3-4 years, many of its earlier efforts to obtain sales
are still pending.
RAW MATERIALS
The Company purchases the minerals that are used as functional fillers
in its surface modification business from a limited number of suppliers. The
Company believes that alternative sources of supply on commercially acceptable
terms generally are readily available. However, the loss of an existing source
of supply could result in a disruption of the Company's business that would
adversely affect the Company's results of operations.
Minerals purchased and used by the Company as industrial fillers in its
surface modification business include alumina trihydrate and magnesium
hydroxide, which are excellent flame retardants; wollastonite, which is used
in electrical reinforcement, car bumpers and automobile assemblies; nepheline
syenite, which is a strengthening agent for plastic; microspheres or glass
bubbles, which are used for light weight high performance applications in
aerospace; and clay and mica, which are used for filler applications in
plastics and rubbers.
Of the over 300 primary kinds of silanes that exist, the Company
purchases and uses approximately 20 of them as coupling agents that are added
to the filler in the surface modification process. The Company purchases the
silanes used by it in its surface modification operations from several sources
and believes that readily available alternative sources are available.
COMPETITION
The Company's surface modification products are sold in highly
competitive markets which are influenced by price, profit performance,
customer location, service and general economic conditions. The Company
competes with other mineral suppliers and toll processors in the filler
surface modification industry. Many of such companies are substantially larger
and more diversified that the Company. The Company estimates that during 1998,
a total of approximately 100,000 tons of surface modified magnesium hydroxide,
alumnia trihydrate, wollastonite, calcined kaolin, silica, mica, feldspar,
talc, calcium carbonate and microspheres were produced in the United States.
Of that amount, the Company estimates that its shipments of approximately
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1,600 tons of such surface modified minerals constituted approximately 2% of
the U.S. production. The Company's products tend to apply to the higher value
end of the potential market. As such, the volumes tend to decrease as opposed
to the commodity type treated minerals such as silica, talc and calcium
carbonates.
The Company's relatively small size constitutes a competitive advantage
in certain respects. Many of the Company's competing producers of surface
modified fillers are large and vertically integrated and generally do not
engage in the production of small amounts of surface modified fillers that are
custom tailored to the customer's needs. The processing of such small orders
serves as a potentially significant source of the Company's toll processing
business. Furthermore, manufacturers of proprietary high performance
composites often prefer not to have a potential competitor surface modifying
its materials.
The silane surface modified fillers produced by the Company are used in
the high volume, high performance end of the plastic reinforced composite
business, as opposed to the lower value, low performance end of the business.
BUSINESS STRATEGY AND OPPORTUNITIES
The Company's goals in the filler surface modification business are to
(i) diversify its customer base by developing additional market applications
such as filled resin systems and further development of surface modification
technology of additional filler materials; (ii) expand production by serving
such market applications for new customers; and (iii) secure upstream sources
of raw materials by consummating supply and distribution agreements with such
new customers, such as the agreements entered into during 1997 with Martin
Marietta. On March 4, 1998 the Company received approval for certification of
Registration to ANSI/ISO/ASQ Q9002-1994 "(ISO-9002 Certification") by American
Certification Corporation. This certification is a rating to the industry that
United Minerals Corporation - Arkansas, a wholly-owned subsidiary of the
Company, conforms with the production of consistent high quality, value-added
ISO-9002 silane surface modified fillers and toll processing of custom
products. Management believes this ISO-9002 Certification will add customer
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value and create a potential benefit by increased sales revenues.
New possible business opportunities that have been identified by the
Company include (i) the installation of new equipment costing approximately
$280,000 to enable the Company to engage in resin compounding, (ii) the
commencement of related toll services such as vacuum drying, delumping,
repackaging, precision classification and micron grinding and (iii) the
potential development of silane surface modification facilities in Europe and
the Far East, where silane surface modification is not as highly developed as
it is in the United States.
During 1998, the Company was successful in developing a new treated line
of clay products for wire and cable plastic compounding applications. Current
marketing efforts are underway to further develop this potential new business.
The Company has received a written report by an independent laboratory that
this new clay product meets or exceeds standards set in the industry by other
existing products presently selling in the marketplace.
PROCESSING AND MARKETING OF KLANNERITE(R)
The Viva Luz Mine in Mojave County, northern Arizona is approximately 31
miles east of Needles, California and 43 miles southwest of Kingman, Arizona.
The mine can be reached via a 4.5 mile improved dirt road, suitable for both
passenger cars and trailer trucks, from Interstate Route 40 which runs between
Kingman and Needles. In July 1992, the Atchison Topeka and Santa Fe Railway
Company (the "Railway Company"), whose tracks cross the path from the highway
to the Viv Luz Mine, denied public access across its tracks to the mine. Due
to the remote location of the mine site and railroad crossing liability
issues, the Railway Company requested that access to the mine be limited to
pre-arranged time periods when safety personnel can be made available to
provide traffic control for vehicles crossing the tracks. On a quarterly
basis, the Company can arrange access with the Railway Company to cross over
the railroad tracks. Approximately one week prior to the date that access to
the mine site is required, the Company telephones the Railway Company and
requests the provision of a flagman and a spotter and advises the railroad of
the days when such two persons are required. The Railway Company makes the
appropriate arrangements which allow the Company access to the mine site. The
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Company believes that it possesses a prescriptive easement entitling it to use
the crossing path over the railroad tracks and that the Railway Company will
not deny access to the mine across the tracks. However, should the Railway
Company deny access to the mine across such railroad tracks in the future, the
Company could make arrangements to use an alternate route to access the mine.
Such alternate road is in need of upgrading to bring it to a condition to
permit use and the Company estimates that such upgrading would cost
approximately $70,000 and could be completed in approximately one month.
Therefore, the Company believes that the additional cost to use the alternate
route would not have a material effect on the Company's financial condition or
operating results.
New Mexico & Arizona Land Company ("NMAL"), the owner of the
approximately 80 acre track on which the Viva Luz Mine is located, originally
leased the property for mining purposes on March 1, 1984, (the "Lease") and
the Lease was assigned to HTI and certain affiliates on October 8, 1991 and
conveyed to UMC (Arizona) during 1998. The Mining Lease, which expires in
March 2004, is subject to a further term in perpetuity provided the property
is in operation and is generating minimum royalties. The Lease permits the
exploration of the property and removal of the mineral over the remaining term
and calls for the payment of a production royalty of 5% of the total
consideration obtained for the mineral less transportation costs, subject to a
minimum royalty of $5,000 per year.
The geology of the Viva Luz Mine is that of a zone system of
hydrothermally altered rocks. The mine is located directly on a natural fault
which acted as the natural plumbing system for hot, corrosive waters which
eliminated a majority of impurities, producing the distinctive and unique
white rock that is a pure, uniform, porous rock that has the trade name
Klannerite(R). In the 1950s, the white sandy mineral was used as roofing
granules because of its insulating capabilities.
ORE RESERVES
The Viva Luz Mine is a cristobalite, quartz and Kaolinite deposit with
proven and probable ore reserves. The deposit is classified into three
different grades, K1, K2 and K3. Based on the independent ore reserve report
of Rio Services, Inc., dated May, 1992, the highest grade of K1 has an
estimated mineral deposit of approximately 262,000 short tons (i.e., 2,000
lbs) of proven reserves and 78,000 short tons of probable reserves, for a
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total of approximately 340,000 short tons of proven and probable reserves, and
the two lower grades, K2 and K3, have a total estimated reserve of
approximately 1,350,000 short tons of probable reserves. The Company believes
K1 may be used in connection with filler applications, K2 may be used in
connection with refractory applications and K3 may be used as a low grade
filler. The Company has focused its efforts on the development of applications
for the pure white K1 grade rather than the lower grade, off color K2 or pale
green K3.
The term "ore reserve" for the above purposes means that part of a
mineral deposit which could be economically and legally extracted or produced
at the time of the reserve determination. "Proven reserves" means reserves for
which (i) quantity is computed from dimensions revealed in outcrops, trenches,
workings or drill holes, and grade and/or quality are computed from the
results of detailed sampling, and (ii) the sites for inspections, sampling and
measurement are spaced so closely and the geologic character is so well
defined that size, shape, depth and mineral content of the reserves are
well-established. "Probable Reserves" means reserves for which quantity and
grade and/or quality are computed from information similar to that used for
proven reserves, but the sites for inspection, sampling and measurement are
farther apart or are otherwise less adequately spaced. The degree of
assurance, although lower than that for proven reserves, is high enough to
assume continuity between points of observation.
The mineral deposit outcrops at the surface and most of the overburden
has been removed. Thirteen six-inch dry rotary holes were drilled to block out
an ore reserve and verify the quality of the rock. Hole depths ranged from 100
to 240 feet, and samples were collected using an air cyclone and splitter,
every five feet through the ore zone. Thirteen cross sections were constructed
in AutoCad and used to calculate the above proven ore reserves. An estimated
82% of the mineral is recoverable in the mining process. The loss in the
recovery process was taken into account in calculating the above ore reserve
data.
KLANNERITE(R) DEVELOPMENTAL ACTIVITIES
During the 1980s and early 1990s, the efforts of several industrial
corporations to develop commercially viable uses for Klannerite(R)were not
successful. In 1992, prior to the acquisition by the Company of HTI and AMI on
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March 31, 1995, HTI processed 222.5 tons of K1 which it considered to be a
trial production run. Of that production, 7.5 tons were distributed as samples
and 2.5 tons were sold to refractory customers for use as a protective
coating. No further sales of Klannerite(R)have been made since 1995. During
1998, a nominal number of samples aggregating approximately 200 pounds were
sent to prospective customers.
In February 1997, the Company's former management announced its
intention to write-off a portion the approximate $4 million carrying value of
the Viva Luz Mine lease, which consisted of the property's purchase price of
approximately $3.9 million and pre-paid royalties. The announcement stated
that management had anticipated that Klannerite(R) would have greater
potential commercial applications as an industrial mineral filler in the
paint-coatings and plastics compounding industries and as an energy saving
coating, but that the Company had experienced disappointing results in its
testing of those applications. The announcement further stated that the
Company had limited financial resources to pursue the research and development
of commercial applications of the mineral. Following the change in the members
of the Board of Directors and appointment of current management of the Company
in March 1997, the Company announced in April 1997 that the previously
proposed write-off was premature and would not be implemented and that efforts
would be made to identify viable commercial applications for the mineral.
During 1997, several independent tests performed in accordance with
American Society for Testing and Materials Standards concluded that calcined
Klannerite(R)serves as an excellent pozzolanic material, which is a mixture of
silica and clay, for use in cement to achieve low permeability, increase
compressive strength facilitating early set-up time and stop alkalki
reactivity that causes unwanted expansion. The Company has concluded, based on
such tests and a preliminary feasibility study, that Klannerite(R)has a
commercially viable application as a white pozzolan in the cement industry and
that additional research and development may result in the identification of
other commercially viable applications.
The Company believes that there is demand for higher quality aggregates
in cement in the United States, particularly in southwestern states of
Arizona, New Mexico, Nevada and Southern California, and that a market exists
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for a high performance pozzolan.
The Company plans to market the property in combination with the
construction of a new pozzolan processing facility, which essentially will be
a grinding and crushing operation, near the Viva Luz Mine site and expects
that the plant will supply the cement market for Arizona, New Mexico, Nevada
and southern California. The Company estimates that the cost to construct the
new facility will approximate $4 million and that an additional $1 million
will be required to construct roads, extra silos, and office and covered raw
storage for environmental purposes.
In addition to developing the proposed use of Klannerite(R) as a white
pozzolan for use in cement, the Company plans to continue its efforts to
identify other commercially viable industrial mineral applications as a paint
filler, plastic filler and elastomer filler.
MARKETING
Pozzolans are additives that improve the properties of concrete made
from Portland cement. Pozzolans work by preventing detrimental chemical
reactions between Portland cement and the aggregate and sand fractions of the
concrete. The demand for pozzolans is increasing for several reasons: a) many
high quality deposits of aggregate have been exhausted or removed from
inventory due to environmental constraints; lower quality aggregates need more
pozzolan to offset their tendency to react with Portland cement; b) pozzolans
are considered to be environmentally friendly because many represent a useful
application for waste materials (power plant fly ash and blast furnace slag)
and because they partially replace Portland cement, a major source of
greenhouse gases. In some states, the U.S. Department of Transportation
mandates pozzolan use for these reasons. The southwest, where the Klannerite
deposit is located, has some of the worst aggregates in the United States, and
thus a great need for high quality pozzolan.
COMPETITION
The pozzolan market can be divided into three sectors based on price: a)
low cost pozzolan, selling for about $35 per ton delivered, and dominated by
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fly ash and blast furnace slag; b) mid priced pozzolan, selling for about $80
per ton delivered, and dominated by calcined shales and tuffs; and c) high
priced pozzolan, selling for about $160 per ton or more, delivered, and
dominated by silica fume and calcined kaolin. The higher priced pozzolans have
better performance characteristics. Klannerite will compete in the $80 per ton
market. Within this market segment, the relatively low unit cost prevents
shipping over great distances. The nearest commercial calcined shales are in
Kansas (1,357 miles from Phoenix); the nearest commercial tuffs are in Idaho
(818 miles from Phoenix). Neither product is currently sold in the southwest.
Therefore, the marketing goal for Klannerite is to create a new market in the
southwest for medium priced pozzolan. Within a reasonable shipping distance
incuding Arizona, the Las Vegas area, and southern California, it is estimated
there is a potential market for medium priced pozzolan beginning at about
25,000 tons per year and expanding to about 70,000 tons per year in 8 years.
PROPOSED INFORMATION TECHNOLOGIES BUSINESS
The Company intends to acquire established high technology oriented
businesses involved in activities relating to Internet and business solution
software services. During January, 1999, the Company acquired a minority
equity interest in Netsurfer, Inc., a private company headquartered in
Atlanta, Georgia that currently markets a product utilizing Internet access
software for sale to ISPs.
The Company has executed a letter of intent to acquire one Internet/new
media company, which has developed and currently markets a variety of new
media (Internet, Intranet, and E-Commerce) products in addition to high-speed
communications capabilities. In unison with its ISP services, this
organization also focuses on access and connectivity via dedicated lines for
small to mid-sized businesses. The utilization of new media technologies to
support AutoCAD and project management software is another specialty of this
organization and is believed by the Company to be unique. Web site
development, site management and web hosting are also integral components of
this organization.
In addition, the Company is negotiating definitive agreements to acquire
two separate software sales and services companies focused on Enterprise
Resource Planning ("ERP") business solution applications which consist of
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financial, administrative, human resource, manufacturing, distribution,
point-of-sale and inventory management software. The market focus of these
organizations in their Value Added Reseller's ("VARs") role is to provide
software to small to middle sized companies whose revenues range from $50
million to $500 million. That software also will support management
information systems ("MIS"), and data base management of sales and marketing
information. It is believed that these types of companies will generate
recurring revenues from their hosting services and software maintenance they
provide to their customers. Supporting these companies in their ability to
secure recurring revenue is their establishment of a solid service
organization and reputation of specialization in a number of vertical markets.
Pursuant to rules of the Vancouver Stock Exchange to which the Company
is subject, the Company plans to seek the approval of its shareholders
relating to its proposed entry into the Information Technologies related
business at the next Annual Meeting of Shareholders.
Total ISP revenues in the United States are projected to grow from $3.3
billion in 1996 to $18.3 billion in the year 2000, according to International
Data Corporation ("IDC"). Industry analysts have reported that small and
medium sized businesses represent a potential market of over seven million
customers in the United States, and use of the Internet by this market segment
is expected to grow substantially from its current low level of market
penetration. IDC predicts that dedicated connections to the Internet for small
and medium sized businesses will grow from approximately 90,000 in 1996 to
just fewer than 800,000 in 2000, representing a 73% compounded annual growth
rate. Small and medium sized businesses generally seek an ISP with locally
based personnel who are readily available to respond in-person to technical
issues, who can assist in developing and implementing the customer's effective
use of the Internet, and with whom they can establish a stable and long-term
relationship. In addition, they are increasingly reliant on enhanced product
offerings that address their specific business needs on a cost-effective
basis, allowing them to compete with larger companies. For example, IDC
estimates Web hosting revenues from small and medium sized businesses will
grow from $84 million in 1996 to over $3.4 billion in the year 2000,
representing 95% of the total Web hosting market.
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<PAGE>
The rapid development and growth of the Internet has resulted in a
highly fragmented industry of over 4,000 national and local ISPs in the United
States, with no dominant ISP serving the needs of small and medium sized
businesses. Independent regional and local ISPs successfully captured
approximately one-half of this market, despite the substantially greater
resources of the national providers. However, rising costs and increasing
demands from business customers have made it more difficult for the small ISP
to meet its customer's demands on a cost-effective basis.
ENVIRONMENTAL AND GOVERNMENT REGULATION
The mining and surface modification operations of the Company are
subject to laws and regulations relating to exploration procedures, safety
precautions, property reclamation, employee health and safety, air quality
standards, pollution and other environmental protection controls imposed by
federal, state and local governments and regulatory agencies. In particular,
the Company's surface modification operations are subject to regulation by the
Occupational Safety and Health Administration ("OSHA ) and the Environmental
Protection Agency (the "EPA"). In particular, the production of materials
containing silica is regulated by the EPA and OSHA as such material
potentially can be hazardous if inhaled or otherwise consumed. These potential
hazards arise in connection with the operation of the Company's surface
modification facility and Viva Luz Mine processing. The EPA and OSHA
regulations concerning crystalline silica generally deal with health effects
and toxicity and exposure limits, as well as certain safe handling rules such
as specified engineering controls, procedures and personal protective
equipment requirements such as masks or respirators. The Company believes that
it is either in compliance with the applicable regulations or that the level
of operations is such that compliance with such regulations is not required.
The surface modification facility at Malvern, Arkansas is authorized to
operate under the State Implementation Plan. Because emissions at the plant
are less than 10 tons per year, the plant is not required to have an air
quality permit. Compliance with the U.S. Clean Air Act and the regulations
thereunder would be required if emissions from the facility were to exceed 10
tons per year. The surface modification facility presently has approximately
one ton of emissions per year. In order to reach the 10-ton per year level,
the Company estimates that it would have to install two additional processing
17
<PAGE>
lines, which is more than double its existing installed production capacity,
and would have to operate four production lines 24 hours a day, 5 days a week
and 52 weeks a year. The Company does not anticipate reaching this level of
production in the foreseeable future.
The Company is subject to OSHA's "Right to Know" regulations which
require the Company to disclose potential health hazards of its products and
processes to employees and customers. Such regulations require the Company and
its employees to comply with requirements relating to dust extraction and
control processes, equipment, safety clothing and use of certain equipment,
particularly respiration filters to remove airborne particles.
The National Institute of Occupational Safety and Health ("NIOSH") has
recently determined that respirable silica, which occurs naturally in
Klannerite(R), is a known carcinogen to humans. The Company expects that
proposed regulations will require more stringent limits on allowable silica
exposure and may include the required installation of additional dust control
equipment to reduce particulate emissions as well as improved safety equipment
to reduce personal exposure and the employment of extant technological
solutions. Many of the cement producers and redi-mix companies which would be
potential customers of the Company are currently using silica in their
formulas. Compliance with such possible new regulations could have a
materially adverse impact upon the Company.
OCCUPATIONAL HAZARDS AND INSURANCE
The Company's extraction and processing operations are subject to the
usual hazards incident to the extraction and processing of industrial
minerals, including pollution and other environmental hazards and risks,
periodic interruptions due to inclement or hazardous weather conditions, power
interruption, critical equipment failure, fires, unusual or unexpected
geological or mining conditions and flooding. These hazards can cause personal
injury and loss of life, severe damage to and destruction of property and
equipment, pollution or environmental damage, suspension of operations,
monetary loss and possible legal liability. For example, certain of the
Company's products contain free silica, which has, on the basis of limited
18
<PAGE>
evidence, been determined to pose a potential risk as a cancer causing agent.
The Company maintains insurance of various types to cover its
operations. It has an aggregate of $5 million of general liability insurance.
In addition, the Company maintains business interruption and property coverage
which protects against losses related to the Company's equipment, inventory
and earnings. The Company's insurance does not cover every potential risk
associated with its mineral processing operations. In particular, coverage is
not obtainable by the Company or other companies within the industry for
certain types of environmental hazards, such as pollution or other hazards as
a result of the disposal of waste products occurring from the production of
industrial minerals. The occurrence of a significant adverse event, the risks
of which are not fully covered by insurance, could have a material adverse
effect on the Company's financial condition and results of operations.
Furthermore, no assurance can be given that the Company will be able to
maintain adequate insurance in the future at reasonable rates.
EMPLOYEES
The Company presently employs 11 full-time employees, of whom two are
employed in the Company's headquarters in Jones Mill, Arkansas, one is
employed in Coral Springs, Florida, and eight are employed at the Company's
Malvern surface modification facility. Activities at the Viva Luz Mine are
conducted under contract with a third party. None of the Company's employees
are covered by a collective bargaining agreement.
The Company has employment agreements, which are renewable on an annual
basis, with its Chief Operating Officer, Chief Financial Officer, and the
Manager and Assistant Manager of its Malvern surface modification facility.
ITEM 2. DESCRIPTION OF PROPERTY
In August 1998, the Company relocated its executive offices to 1,000
square feet of space leased in Jones Mills, Arkansas at an annual rental of
$11,500 under a lease expiring on August 31, 1999.
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<PAGE>
UMC (Arkansas) owns a 9,050 square foot industrial building in Malvern,
Arkansas which contains the Company's surface modification facility. The
building includes 1,850 square feet of laboratory and office space and is
situated on 3.75 acre site. The Company has a collateral mortgage on the
property that had a principal balance of approximately $50,000 at December 31,
1998.
UMC (Arizona) leases the Viva Luz Mine, which is located on an 80 acre
site located in Mojave County, Arizona, pursuant to a lease that expires in
March 2004. The lease, which calls for the payment of a production royalty of
5% of the gross consideration obtained for the mineral mined less
transportation costs, subject to a minimum royalty payment of $5,000 per year,
provides for a further term in perpetuity as long as the property is in
operation and is generating minimum royalties.
ITEM 3. LEGAL PROCEEDINGS
In September, 1995, the UMC(AR) subsidiary of the Company was named as a
defendant in an action brought in Chancery Court for Davidson County,
Tennessee by Franklin Industrial Minerals ("Franklin") of Nashville, TN. In
addition, in April and May 1996, Aristech Chemical Corporation ("Aristech") ,
the Company's customer, and the ultimate customers Chemtron Systems,
Inc.("Chemtron") and several companies forming the Insituform group of
companies ("Insituform"), respectively, filed intervenor suits against the
Company and Franklin. In June 1998, Insituform assigned its claims against
Aristech and Chemtron to the Company and Franklin in exchange for a mutual
release between the parties. The Company and Franklin now own those claims
which seek approximately $180,000 plus interest. The Company's management is
of the belief that the claims by Aristech and Chemtron are groundless and that
the intervenor suits will find Aristech to be responsible and the Company will
prevail in its counter suit. Management is of the opinion that the cost of
resolution of the claims will not have any material adverse effect on the
financial condition of the Company and currently believes that the total
exposure is less than $25,000.
Currently, the Company is not a party to any other material legal
proceeding against the Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1998, no items were submitted to the
shareholders of the Company for vote.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been listed on the Vancouver Stock
Exchange ("VSE"), Vancouver, B.C., Canada since April, 1995 under the trading
symbol AIG.U and has been quoted since March 22, 1999 on the United States
Over-the-Counter Bulletin Board operated by the National Association of
Securities Dealers, Inc. under the trading symbol "AIGU."
The following table sets forth, for the periods indicated, the high and
low sales prices per share of the Common Stock as reported on the VSE, as
adjusted to reflect the reverse one-for-three stock split effected on August
21, 1998:
<TABLE>
<CAPTION>
1997 HIGH LOW
----
<S> <C> <C>
First Quarter........... $ 1.74 $ .69
Second Quarter.......... .90 .30
Third Quarter........... .84 .69
Fourth Quarter.......... 1.05 .45
1998
----
First Quarter........... $ 2.75 $ .90
Second Quarter.......... 3.25 1.95
Third Quarter .......... 4.00 3.00
Fourth Quarter.......... 3.50 2.50
</TABLE>
As of March 15, 1999, there were 354 holders of record of the Company's
Common Stock. This total does not account for holders of shares through
intermediaries and brokerage firms. The Company has never declared or paid
dividends on its Common Stock and does not plan to do so in the foreseeable
future.
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<PAGE>
DESCRIPTION OF THE CAPITAL STOCK OF THE REGISTRANT
COMMON STOCK
The Company's authorized capital consists of 12,000,000 shares of Common
Stock, par value $0.01 per share. The Company has reserved 250,000 shares of
Common Stock for issuance upon the exercise of options granted or to be
granted pursuant to the Company's 1997 Stock Option Plan (which includes
157,669 shares of Common Stock issuable upon the exercise of outstanding stock
options), 500,000 shares of Common Stock issuable upon conversion of
outstanding Convertible Promissory Notes, 25,000 shares issuable upon the
exercise of an option granted to a consultant and 150,000 shares of Common
Stock issuable upon conversion of the outstanding shares of Series A
Convertible Preferred Stock.
Holders of Common Stock are entitled to one vote for each whole share on
all matters to be voted upon by shareholders, including the election of
directors. Holders of Common Stock do not have cumulative voting rights in the
election of directors. All shares of Common Stock are equal to each other with
respect to liquidation and dividend rights. Holders of Common Stock are
entitled to receive dividends if and when declared by the Company's Board of
Directors out of funds legally available therefor under Delaware law. In the
event of the liquidation of the Company, all assets available for distribution
to the holders of the Common Stock are distributable among them according to
their respective holdings. Holders of Common Stock have no preemptive rights
to purchase any additional, unissued shares of Common Stock. All of the
outstanding shares of Common Stock of the Company are, and those to be issued
pursuant to this offering will be, fully paid and nonassessable.
PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of preferred
stock, par value $0.01 per share. 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 shareholders, and may
include voting rights (including the right to vote as a series on particular
matters), preferences as to dividends and liquidation, conversion and
redemption rights, and sinking fund provisions. The ability of the Board of
22
<PAGE>
Directors to issue preferred stock could also be used as a means for resisting
a change of control of the Company, and therefore can be considered an
"anti-takeover" device. The future issuance of additional shares of preferred
stock could adversely affect the rights of the holders of the Common Stock and
therefore, reduce the value of the Common Stock.
SERIES A CONVERTIBLE PREFERRED STOCK
On December 30, 1998, the Company consummated the sale of a total of
150,000 shares of Series A Convertible Preferred Stock, par value $1.00 per
share (the "Series A Convertible Preferred Stock"), at a price of $2.50 per
share in a private offering effected pursuant to Rule 506 of Regulation D
under the Securities Act of 1933. The following summarizes the terms of the
Series A Convertible Preferred Stock:
CONVERSION. Each share of Series A Convertible Preferred Stock is
convertible into one share of Common Stock, subject to a possible
anti-dilutive adjustment. The Series A Preferred Stock is subject to the
mandatory conversion provision discussed below.
REDEMPTION. In the event the Company consummates the sale of at
least $2,100,000 of Common Stock in connection with this offering on or before
June 30, 1999, the Company will, within 30 days after the consummation of such
sale, offer to redeem the Series A Preferred Stock on the following terms. The
redemption price for each 100 shares of Series A Convertible Preferred Stock
will consist of (i) the payment of $250.00 (or $2.50 per share) and (ii) the
issuance of a number of shares of Common Stock equal to the greater of (a) 50
shares of Common Stock or (b) the number of shares of Common Stock having a
market value, based on the average closing sale prices of the shares of Common
Stock on the Vancouver Stock Exchange for the prior 10 consecutive trading
days, equal to $125.00. The prior approval of the VSE will be required in the
event the total number of shares of Common Stock issuable in connection with
such redemption were to exceed 100,000. The holders of the Series A
Convertible Preferred Stock will have the right to reject any such redemption
offer.
MANDATORY CONVERSION. If the Company makes the above-referenced
redemption offer and such offer is rejected by a holder of the Series A
Convertible Preferred Stock, the Company will thereafter have the right to
require such holder to convert such holder's shares of Series A Convertible
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<PAGE>
Preferred Stock into Common Stock at the conversion price in the event the
closing sale prices of the Common Stock on the VSE for a period of any 10
consecutive trading days are equal to or in excess of $6.00 per share.
VOTING RIGHTS. The holders of the Series A Convertible Preferred
Stock will be entitled to vote on an as-converted basis with the holders of
the Common Stock on all matters to be voted upon the stockholders of the
Company, and will also be entitled to vote separately as a class if necessary
and to the extent provided by law.
DIVIDENDS. The holders of the Series A Convertible Preferred Stock
will be entitled to receive cash dividends only when and if declared by the
Company's Board of Directors. Unless declared by the Board of Directors, no
dividends will accrue or accumulate with respect to the Series A Convertible
Preferred Stock.
LIQUIDATION PREFERENCE. In the event of any liquidation,
dissolution or winding up of the Company, the holders of the Series A
Convertible Preferred Stock will be entitled to receive, in preference to the
holders of Common Stock, and amount equal to $2.50 per share, plus declared
but unpaid dividends, if any. A merger or sale of all or substantially all of
the assets of the Company will be deemed to be a liquidation or winding up of
the Company for purposes of such liquidation.
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<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This discussion should be read in conjunction with the information
contained in the Financial Statements and Notes thereto of the Company that
are presented elsewhere in this Report. Incorporated in March 1994, the
Company's predecessor had minimal operations until it merged with Advanced
Industrial Minerals, Inc. and HeatShield Technologies, Inc. (and its
subsidiaries) effective March 31, 1995.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the amount and
percentage of net sales of certain items included in the Company's Statement
of Operations:
<TABLE>
<CAPTION>
Period Ended Dec. 31, 1998 % OF SALES 1997 % OF SALES
---- ---------- ---- ----------
<S> <C> <C> <C> <C>
Net Sales $ 2,085,398 100.0 $ 2,316,472 100.0
Cost of Sales 1,546,904 74.2 1,795,780 77.5
Gross Profit 538,494 25.8 520,692 22.5
General and Admin. Expense 503,816 24.2 575.973 24.9
Selling and Mktg. Expense 109,016 5.2 157,781 6.8
Interest Expense 204,009 9.8 189,872 8.2
Depreciation and Amort. 73,259 3.5 79,829 3.4
Total Operating Expenses 890,100 42.7 1,003,455 43.3
Net Loss (351,606) (16.9) (482,763) (20.8)
Imputed Non-cash PfdStkDiv (67,500) 0
Loss Avail. to Com. Shares (419,106) (482,763)
Loss Per Share $0.32 $0.37
Weighted Avg. Shares Out. 1,325,016 1,319,414
</TABLE>
YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
Sales for 1998 decreased $231,074, or 10%, to $2,085,398 compared to
$2,316,472 for 1997. The gross margin in 1998 increased $17,802, or 3.4%, to
$538,494 compared to $520,692 for 1997. The sales decreases reflected a slight
decline in sales from the Company's largest customer along with continued
pricing pressures in the industry. The gross margin improvement is due mainly
to cost reductions obtained from major material suppliers.
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<PAGE>
The Company's core business products are sold to customers for use as
fillers in resin matrices. The majority of sales were of surface modified
minerals sold to the plastics compounding industry; approximately 3.6% of 1998
sales were made as a toll processor of customers' materials. A small portion
of sales were production size samples for customers' evaluation.
Selling and administration expenses decreased in 1998 to $612,832, or
29.4% of sales, compared to $733,754, or 31.7% of sales, for 1997. The
decrease of $120,922 is due to continuing cost reduction and containment
efforts primarily in personnel and head office related expenses.
Interest charges for 1998 increased to $204,009, or 9.8% of sales, from
$189,872, or 8.2% of sales, for the comparable period in 1997. This increase
was due to additional financing required for working capital. Depreciation and
amortization declined slightly to $73,259 in 1998 from $79,829 for the prior
year. The decrease is due to less capital spending and certain assets becoming
fully depreciated in 1998.
The Net Loss in 1998 was $351,606, or 16.9% of sales, which represents a
loss of $0.32 per share, compared with a net loss of $482,763, or 20.8% of
sales, which represented a loss of $ 0.37 per share, based on the weighted
average number of shares outstanding during the respective periods. (The $0.32
per share loss takes into consideration an "Imputed Non-Cash Preferred Stock
Dividend" of $67,500.) The net loss for 1998 includes approximately $55,000 in
non-recurring expenses relating to a proposed acquisition that was not
consummated during 1998. Approximately $36,000 of this amount was for legal
expenses with the balance, $19,000, for travel and various organizational
expenses.
RESOURCE PROPERTY
During 1998, several independent test results performed under American
Society for Testing and Materials ("ASTM") concluded that calcined
Klannerite(R) is an excellent pozzolanic material for use in cement to
increase compressive strength and stop alkalai reactivity which causes
unwanted expansion. Discussions are ongoing with several large cement
companies concerning the feasibility that Klannerite(R) can be manufactured
into products with commercial viability.
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<PAGE>
The Company has generated a Marketing and Feasibility Report dated
January 1999, on the basis of which the current Board of Directors and
management believe that sufficient evidence exists in order to enable the
Company to negotiate the sale of the Company's interest in the Viva Luz Mine.
In addition, the Company has received favorable indications from several
possible purchasers, end-users and/or strategic partners including but not
limited to a number of west coast cement producers and the State of Arizona,
Department of Transportation.
INCOME TAXES AND NET OPERATING LOSS CARRYFORWARDS
The Company made no provision for income taxes for the year ended
December 31, 1998, having generated an operating loss for the year and
recognizing tax benefits from the utilization of net operating loss
carryforwards (NOLs) for book purposes. For a more complete discussion on
income taxes and NOLs, refer to Note 9 in the Financial Statements.
As of December 31, 1998, the Company's NOLs aggregated approximately
$3,151,000, expiring through the year 2012. These NOLs arose primarily from
the operations of the Company in the prior two years and those of acquired
companies merged as of March 31, 1995. Similarly no provision was made for
income taxes in the corresponding period 1996. Except as more fully discussed
below and subject to the limitations of the Internal Revenue Code of 1986 as
amended ("Code"), these NOLs should be available to offset future income of
the Company, subject to the limitations described below. Use of NOLs to reduce
future taxable income may subject the Company to an alternative minimum tax.
Section 382 of the Code limits the amount of a corporation's taxable
income that can be offset by NOLs arising prior to an "ownership change". An
ownership change occurs when, for example, shares comprising more than 50% of
a corporation's stock are sold to different or new public shareholders. As a
result of the March 31, 1995 acquisition and merger of the corporations, and
the ownership changes that occurred in connection therewith, the limitation on
the utilization of the NOLs imposed by Section 382 of the Code will apply.
Under the limitation, the amount of the Company's taxable income that each
year can be offset by NOLs attributable to periods before the ownership change
cannot exceed the product of (i) the fair market value of the stock of the
Company immediately prior to the ownership change and (ii) the long term
tax-exempt rate prescribed by the IRS. The limitation imposed by the change in
27
<PAGE>
ownership may result in the Company paying income taxes in excess of the
amount payable in the absence of the ownership change.
LIQUIDITY AND SOURCES OF CAPITAL
As of December 31, 1998, the Company had a working capital deficit of
$343,572. This compares with a working capital deficit of $447,297 as of
December 31 of the previous year. The working capital deficit was funded by
cash flow from the operations of the United Minerals Corporation (UMC)
subsidiary and short term loan and equity financing. Management believes that
additional working capital financing will be required to meet the Company's
needs for the coming year. Management anticipates that if sales do not
increase the Company will need additional funding sometime this year.
To increase available cash for purchases and payroll during the early
stages of development, the Company entered into, and has continued, its
factoring arrangement which provides for cash advances against invoices to
customers, during the period for which such invoices are outstanding. Customer
payments are then applied directly to advances. This factoring, while not
increasing working capital, has provided for liquidity of receivables. The
Company intends to reduce its reliance on factoring as a source of working
capital during 1999. The company did renew its new factoring agreement during
1998 while keeping its factoring costs constant during the year.
The Company has outstanding $1,050,000 principal amount of Series A
Convertible Promissory Notes (the "Convertible Promissory Notes"). The
Convertible Promissory Notes, which are held by three holders and are
unsecured, bear interest at a rate of 10% per year, mature on June 30, 1999
and are convertible at a price of $2.10 per share. Pursuant to the Convertible
Promissory Notes, as amended on November 13, 1998, the Noteholders will be
required to convert their Convertible Promissory Notes if (i) the Company
completes the sale of $2,100,000 in an equity offering, (ii) the Company's
Common Stock on the Vancouver Stock Exchange (the "VSE") averages in excess of
$4.50 per share for a 90-day period, and (iii) the Company's Common Stock on
the VSE maintains an average trading volume of 6,000 shares for the same
90-day period.
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On December 30, 1998, the Company consummated the private sale of a
total of 150,000 shares of its Series A Convertible Preferred Stock (the
"Series A Preferred Stock") at a price of $2.50 per share. Each share of
Series A Preferred Stock is convertible into one share of the Company's Common
Stock, subject to possible anti-dilutive adjustment. As described below, the
Company plans to conduct a private offering of Common Stock during the second
quarter of 1999. In the event the Company consummates the sale of at least
$2.1 million of Common Stock in connection with that offering on or before
June 30, 1999, the Company will, within 30 days after the consummation of such
sale, offer to redeem the Series A Preferred Stock on the following terms. The
redemption price for each 100 shares of Series A Preferred Stock will consist
of (i) the payment of $250.00 (or $2.50 per share) and (ii) the issuance of a
number of shares of Common Stock equal to the greater of (a) 50 shares of
Common Stock or (b) the number of shares of Common Stock having a market
value, based on the average closing sale prices of the shares of the Common
Stock on the VSE for the prior ten consecutive trading days, equal to $125.00.
The prior approval of the VSE will be required in the event the total number
of shares of Common Stock issuable in connection with such redemption exceeds
100,000 shares. The holders of the Series A Preferred Stock will have the
right to reject any such redemption offer.
If the Company makes the above-referenced redemption offer and such
offer is rejected by a holder of the Series A Preferred Stock, the Company
will thereafter have the right to require such holder to convert such holder's
shares of Series A Preferred Stock into Common Stock at the conversion price
in the event the closing sale prices of the Common Stock on the VSE for a
period of any ten consecutive trading days are equal to or in excess of $6.00
per share. The holders of the Series A Preferred Stock will be entitled to
vote on an as-converted basis with the holders of the Common Stock and will be
entitled to receive cash dividends only when and if declared by the Company's
Board of Directors. Of the $375,000 total proceeds of the private offering of
Series A Preferred Stock, the Company used approximately $80,000 to repay
certain short-term indebtedness on December 31, 1998. Of the remaining
proceeds, approximately $204,000 was used on January 21, 1999 to acquire the
minority equity interest in another company described below and the balance of
approximately $91,000 was used in January 1999 to reduce current accounts
payable to vendors and for other working capital purposes.
29
<PAGE>
PROPOSED ENTRY INTO INFORMATION TECHNOLOGIES BUSINESS
The Company intends to acquire established high technology oriented
businesses involved in activities relating to Internet and business solution
software services. On January 21, 1999, the Company acquired a minority equity
interest in Netsurfer, Inc., a private company headquartered in Atlanta,
Georgia that currently markets products utilizing Internet access software for
sale to ISPs. The Company's payment of $204,000 to purchase such minority
equity interest was derived from the proceeds of the above-described private
offering of Series A Preferred Stock effected on December 31, 1998.
Furthermore, the Company is currently engaged in discussions to acquire a
company that has developed and currently markets a variety of Internet,
intranet and e-commerce products as well as two additional companies which
provide software solutions that focus on applications for small to
medium-sized businesses. The Company intends to finance such three proposed
acquisitions through the issuance of additional shares of Common Stock and the
payment of cash raised from a proposed private offering of between 600,000 and
1,500,000 shares of Common Stock that the Company plans to conduct during the
second quarter of 1999.
The Company cannot make any representations at this time as to whether
or on what terms it will be able to pursue its entry into the Information
Technologies business through the above-described proposed acquisitions. The
Company's entry into that business will be subject to its ability to enter
into and consummate agreements with such companies, to raise the necessary
equity financing associated with such acquisitions and to obtain the approvals
of its shareholders and the VSE of its proposed entry into such new business.
YEAR 2000 ISSUE
The Company is in the process of developing a formal program to ensure
that all significant computer systems are substantially Year 2000 compliant by
the year ending December 31, 1999. When completed the program will encompass:
(1) identification of all information technology systems ("IT Systems") and
non-information technology systems ("Non-IT Systems") that are not Year 2000
compliant; (2) repair or replacement of the identified non-compliant systems,
30
<PAGE>
and (3) testing of the repaired or replaced systems.
Efforts to date on the program have been mainly in review of the
Company's accounting and financial reporting systems. The primary computer
software applications in this area are vendor supplied and the Company will be
contacting these vendors over the next three months to obtain how these
vendors will be Year 2000 on such applications. For example, when appropriate
software updates will be sent to address any Year 2000 issues. Other efforts
on the Year 2000 issue have included the establishment of a committee by the
Board of Directors to carry out the Year 2000 program.
There has been correspondence with some key suppliers and customers
regarding each other's plans to handle key Year 2000 issues and this is
continuing.
At this point, the Company has established a formal plan with detailed
action items and targeted completion times which are presently being
addressed. During this time communication with software vendors and business
partners will be on-going along with further effort in the implementation
phase of the program. The implementation costs of this program have been
assessed and the Company estimates that the exposure to the Company will be
less than $10,000.
The Company will continue to monitor and evaluate the impact of the Year
2000 issue on its operations. Until the Company is into the final testing part
of the program the risks from potential Year 2000 failures cannot be fully
assessed. Due to this situation, the Company cannot begin any contingency
plans. Such plans will be developed as any potential Year 2000 failures are
identified in the final testing stages.
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements of the Company and the report of Moore Stephens
Frost thereon are set forth elsewhere in this report.
31
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable. (Information relating to the resignation of the
Company's former independent accounting firm in June 1998 and engagement of
the Company's new independent accounting firm in September 1998 was set forth
in Forms 8-K filed by the Company on July 23, 1998 and September 25, 1998.)
32
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT
DIRECTORS AND OFFICERS
The following table sets forth information regarding the directors and
executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Paul R. Arena 40 Chairman of the Board, President and
Chief Executive Officer
Theodore L. Lamb 51 Director and Chief Operating Officer
Leigh S. Zoloto 44 Chief Financial Officer, Secretary and Treasurer
James L. Austin 51 Director
Dr. Audrey L. Braswell 68 Director
Ernest W. Purcell 46 Director
</TABLE>
PAUL R. ARENA has been Chairman of the Board, Chief Executive Officer
and President of AIM Group since March 27, 1997. He previously served as Vice
President-Business development of the Company from September 1995 to August
1996 and from May 1991 to August 1995 held the positions he has presently,
with the exception of President from May 1995 to August 1996. He has been a
director of the Company since 1994. Prior thereto he held the positions he has
presently with one of the Company's subsidiaries since May of 1991. From June
of 1990 to August of 1991, Mr. Arena served as Vice President of Finance and a
Director of Saftron, Inc. of Miami, Florida. From February of 1988 to January
of 1990, he was a Senior Vice President and partner of Gulfstream Financial
Associates, Inc. a subsidiary of the Kemper Group.
33
<PAGE>
THEODORE L. LAMB has been the Chief Operating Officer and a director of
the Company since February, 1999. Prior thereto, he had been a Senior Vice
President of the Interealty Corporation (a combined subsidiary of: NewsHolding
Corporation, Cox Corporation, Tribune Company, Knight-Ridder Corporation,
Advance Publications) from May, 1992 until August, 1998 where he managed
divisional operations as well as creating new Internet initiatives on a
national and North American scale. He began working within the new venture
initiatives of the IBM Corporation in January, 1982 where he managed various
marketing and sales organizations dealing with the Smart Buildings/Shared
Tenant Services industry where network design and management and
telecommunications services were provided. Previously, he worked within the
banking industry from August, 1971 to October, 1981.
LEIGH S. ZOLOTO has been Chief Financial Officer, Secretary and
Treasurer of the Company since June 1996. Prior thereto, he was the Controller
and Director of Information Systems for a subsidiary of Westinghouse Electric
Corporation from November 1988 to May 1996. From August 1986 to July of 1988
he was a Financial Systems Consultant for Cullinet Software, Inc. Previously,
he was the Regional Controller from September 1981 to March of 1986 for
National Medical Care, Inc., which was a subsidiary of W.R. Grace & Co.
JAMES L. AUSTIN has been the President of Empire State Newsprint since
February 1997. For the past 27 years, Mr. Austin has been engaged in various
positions within the paper industry. From October of 1989 to September 1994,
Mr. Austin served as the President of MoDoCell Inc. which operates paper
processing mills throughout North America and is a subsidiary of MoDo Inc. of
Sweden, one of the world's largest paper processors. He has been a director of
the Company since March 27, 1997.
DR. AUDREY L. BRASWELL has been the President and owner of Vista
Pacifica Enterprises, Inc., an operator of several health care facilities in
California, since 1974. For the past 35 years, Dr. Braswell has been engaged
in various levels of health, education, and social assistance activities. Dr.
Braswell is also a real estate developer of residential, commercial and
industrial properties. He has been a director of the Company since March 27,
1997.
ERNEST W. PURCELL has been a Vice President for the investment banking
firm of Houlihan, Lokey, Howard & Zukin since February 1997. Previously, he
34
<PAGE>
was a Vice President and Senior Associate with Valuemetrics, Inc. from October
1989 to January 1997. From May 1987 to August of 1989, Mr. Purcell was a Vice
President/Partner of Southern Freightways, Inc. He has been a director of the
Company since March 27, 1997.
ADVISORY BOARD
The Company has had an Advisory Board, which furnishes advice to the
Company in connection with its proposed program of acquiring and operating
information technology companies, since February, 1999. The following table
sets forth information regarding the current member of the Advisory Board. The
Company intends to appoint additional members to the Advisory Board later in
the year.
<TABLE>
<CAPTION>
Name Age Principal Occupation
---- --- --------------------
<S> <C> <C>
Dr. Donald Ratajczak 55 Director, Economic Forecasting Center, College of
Business Administration, Georgia State University
</TABLE>
DR. DONALD RATAJCZAK has occupied the position of Director of the
Economic Forecasting Center, College of Business Administration, Georgia State
University since 1973. Prior thereto he was Director of Research, Director of
Forecasting Models and Associate Director University of California at Los
Angeles ("UCLA") Forecasting Project during 1973, 1969-1970 and 1969-1973,
respectively. Dr. Ratajczak was also Assistant Professor, at UCLA, Graduate
School of Management, from 1969 to 1973. From 1966 to 1968, he was an
Instructor at Massachusetts Institute of Technology and from 1966 to 1967, he
was an Economist, Office of Postmaster General of the United States in
Washington, D.C. Dr. Ratajczak graduated in 1972 with a Ph.D degree in
Economics from Massachusetts Institute of Technology.
35
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
paid or awarded to current executive officers of the Company during each of
the years ended December 31, 1996, 1997 and 1998.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
---------------------------------- ------------------------------------------------
Awards Payouts
------------------------ ---------------------
Securities
Other Restricted Underlying All
Annual Stock Options/ LTIP Other
Name and Salary Bonus Compensation Award(s) SARs Payouts Compensation
Principal Position Year ($) ($) ($) (S) (#) ($) ($)
(b) (c) (d) (e) (f) (g) (h) (i)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul R. Arena 1998 $118,000 $8,000 $0 None N/A None None
Chairman, CEO & 1997 $97,200 $0 $0 None N/A None None
President(1) 1996 $96,000 $0 $0 None N/A None None
Leigh S. Zoloto 1998 $86,380 $6,250 $0 None N/A None None
Chief Financial 1997 $75,250 $0 $0 None N/A None None
Officer 1996 $68,000 $0 $0 None N/A None None
<FN>
(1) Mr. Arena was appointed Chairman, CEO and President on March 27,
1997. He previously served as Vice President-Business Development
from September 1995 to August 1996. From May 1991 to August 1995
he held the positions he has presently, with the exception of
President from May 1995 to August 1995.
(2) Mr. Lamb was appointed Chief Operating Officer on February 15,
1999 and was not paid any compensation during 1998.
</FN>
</TABLE>
The following Options Grants Table sets forth, for each of the above
named executive officers, information regarding individual grants of options
granted in 1998 and their potential realizable value. Information regarding
individual option grants includes the number of options granted, the
percentage of total grants to employees represented by each grant, the
per-share exercise price and the expiration date.
36
<PAGE>
<TABLE>
<CAPTION>
Option Grants Table
-------------------
(Individual Grants)
Number of Shares % of Total Options Granted Exercise
Underlying Options To Directors, Officers, Price Expiration
Name Granted(#)(1) Employees in Fiscal Year(2) ($/SH)(3) Date
---- ------------------ --------------------------- --------- ----------
<S> <C> <C> <C> <C>
Paul R. Arena 30,000 31.25% 3.00 12/27/08
Leigh S. Zoloto 15,000 15.62% 3.00 12/27/08
<FN>
(1) The options are incentive stock options granted on December 28,
1998 under the Company's 1997 Stock Option Plan that become
exercisable cumulatively as to 25%, 50%, 75% and 100% after the
first, second, third and fourth anniversaries, respectively, after
the date of grant.
(2) Based on options for a total of 96,000 shares granted to all
directors, officers and employees.
(3) The exercise price is equal to or exceeds the fair market value on
the date of grant of the option.
</FN>
</TABLE>
EXERCISE OF WARRANTS AND OPTIONS
During September, 1998, Leigh Zoloto exercised an option to purchase
3,333 shares of Common Stock at an exercise price of $0.90 per share. Under
the terms of the options, a portion of the exercised shares were used to pay
for the options exercised. Under these terms, 857 shares at a market value of
$3.50 per share were used to purchase the shares resulting in 2,476 shares
being issued.
EMPLOYMENT AGREEMENTS
The Company has employment agreements, which are renewable on an annual
basis, with its Chief Operating Officer, Chief Financial Officer, and the
Manager and Assistant Manager of its Malvern surface modification facility.
DIRECTORS
Directors are not compensated for their services as directors; however,
they are reimbursed for all reasonable expenses incurred in connection
therewith.
37
<PAGE>
KEY MAN INSURANCE
During January 1999, a 10 year level term life insurance policy was
issued by The Travelers Companies in the amount of $1,000,000 on the life of
the Company's Chief Executive Officer. This policy is paid yearly at the
option of the Company and inures 75% to the benefit of the Company and 25% to
the insured's estate.
1997 STOCK OPTION PLAN
In September 1997, the Company's shareholders approved the adoption of
the Company's 1997 Stock Option Plan (the "Plan"), which is administered by
the Company's Board of Directors, and authorized a total of 250,000 shares of
Common Stock for issuance thereunder. The purpose of the Plan is to enable the
Company to attract and retain competent personnel by offering them the
opportunity to acquire an equity interest in the Company. Options granted
under the Plan may either be incentive stock options ("ISO") that satisfy the
requirements of Section 422 of the Internal Revenue Code or non-statutory
options ("NSOs") which are not intended to satisfy such requirements.
The total shares issued to officers and directors of the Company as a
result of options granted under the Plan, together with all shares issued to
officers and directors under other compensation arrangements, may not exceed
10% of the Company's issued and outstanding shares during any one-year period.
The number of shares issued to any one officer of director as a result of the
exercise of options under the Plan, together with all other shares issued to
such person under other compensation arrangements, may not exceed 5% of the
Company's issued and outstanding shares during any one-year period.
The exercise price per share under any option granted under the Plan may
not be less than 100% of the fair market value of the Common Stock on the date
of grant, or in the case of ISOs, less than 110% of such fair market value if
the option is granted to a person who holds 10% or more of the voting power of
Common Stock. Fair market value will be as determined as provided by the Plan;
provided, that if the Common Stock is listed on the Vancouver Stock Exchange,
its fair market value shall be not less than the average closing market price
of the Common Stock on the Vancouver Stock Exchange for the 10 trading days
38
<PAGE>
immediately preceding the day on which the Vancouver Stock Exchange receives
notice regarding the granting of such options, with market price being defined
for this purpose as the average closing price of the Company's shares as
traded on the Vancouver Stock Exchange during this 10-day period, or such
other price as may be agreed to by the Company and accepted by the Vancouver
Stock Exchange. The aggregate fair market value of the Common Stock subject to
an ISO, as determined upon a grant, which is exercisable by an optionee for
the first time during any calendar year, cannot exceed $100,000. The number
and kind of shares subject to an option, and the option exercises price, may
be adjusted in certain circumstances to prevent dilution. The method of
payment of an option exercise price will be as determined by the Board of
Directors and set forth in the individual stock option agreement.
If an optionee ceases to be an employee or director for cause, his or
her options lapse. If for any reason other than death or termination for cause
an optionee ceases to be an employee or director of the Company, any
unexercised portion of the option as of the date of termination of employment
or director service may be exercised for 30 days thereafter. Upon the death of
an optionee while employed by the Company or serving on its Board, his or her
legal representative or a legatee may, within twelve months after the death,
exercise any unexercised portion of the option as of the time of the
optionee's death. Options are not transferable or assignable otherwise than by
will or the laws of descent and distribution, and during his or her lifetime
may only be exercised by the optionee.
39
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 15,
1999, concerning the beneficial ownership of the Company's Common Stock by
each shareholder known by the Company to be the beneficial owner of more than
5% of the Company's outstanding shares of Common Stock, by each of the
directors, and by all directors and executive officers of the Company as a
group:
<TABLE>
<CAPTION>
Number of Percent of
Shares of Common Stock
Common Stock(1) Outstanding(1)
--------------- --------------
<S> <C> <C>
Dr. Audrey L. Braswell(2).......... 325,405 21.59%
Paul R. Arena(3)................... 257,074 17.89%
Northern Federal
Minerals, LLC(4)................... 142,867 9.50%
Bernard R. Kossar(5)............... 142,867 9.50%
Dr. James E. Ehrlich............... 91,886 6.76%
Loeb Investors Co. 118(6).......... 81,848 6.02%
Theodore L. Lamb(7)................ 33,333 2.46%
Ernest W. Purcell(8)............... 7,500 *
James L. Austin(9)................. 6,112 *
Leigh S. Zoloto(10)................ 2,476 *
All officers and
directors as a group
(6 persons)(11).................... 1,091,368 57.76%
--------------------
* Less than 1.0%
<FN>
(1) A person is deemed to be the beneficial owner of Common Stock that
can be acquired by such person within 60 days upon the exercise of
options and convertible securities. Each beneficial owner's
percentage ownership is determined by assuming that options and
convertible securities held by such person (but not those held by
any other person) and which are exercisable within 60 days have
been exercised. Unless otherwise noted, the Company believes that
all persons named in the table have sole voting and investment
power with respect to all shares of Common Stock beneficially
owned by them.
40
<PAGE>
(2) Includes 142,867 shares into which $300,000 principal amount of
Convertible Promissory Notes owned by him are convertible, 14,000
shares into which shares of Series A Convertible Preferred Stock
owned by him are convertible and 4,167 shares subject to options.
Does not include 12,500 shares subject to options not exercisable
within 60 days.
(3) Includes 71,429 shares into which $150,000 principal amount of
Convertible Promissory Notes owned by him are convertible, 142,867
shares into which $300,000 principal amount of Convertible
Promissory Notes owned by Northern Federal Minerals LLC (33.33% of
the outstanding capital stock of which are owned by Mr. Arena) are
convertible and 5,833 shares subject to options. Does not include
47,501 shares subject to options not exercisable within 60 days.
(4) Northern Federal Minerals LLC is a limited liability corporation
of which 33.33% is owned by Paul R. Arena. The 214,296 shares
underlying the Convertible Promissory Note owned by Northern
Federal Minerals LLC is reported above as 142,867 shares
beneficially owned by Northern Federal Minerals LLC and 71,429
shares beneficially owned by Mr. Arena. The address of Federal
Minerals LLC is 959 Maiden Lane, Ann Arbor, MI 48105.
(5) Consists of shares into which $300,000 principal amount of
Convertible Promissory Notes owned by him are convertible.
(6) Loeb Investors Co. 118 is a partnership owned by Loeb Partners
Corporation, an investment firm located at 61 Broadway, New York,
New York 10006.
(7) Does not include 33,333 shares subject to options not exercisable
within 60 days.
(8) Includes 4,167 shares subject to options. Does not include 12,500
shares subject to options not exercisable within 60 days.
(9) Includes 4,167 shares subject to options. Does not include 12,500
shares subject to options not exercisable within 60 days.
41
<PAGE>
(10) Does not include 25,000 shares subject to options not exercisable
within 60 days.
(11) Includes a total 214,296 shares into which $450,000 principal
amount of Convertible Promissory Notes are convertible and 18,334
shares subject to options. Does not include 139,335 shares subject
to options not exercisable within 60 days.
</FN>
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On April 11, 1997 and May 20, 1997 the Company executed an Amendment
(the "First Amendment") to its Note Agreements relating to the $1,050,000
principal amount of the Company's outstanding Series A Convertible Promissory
Notes (the "Convertible Promissory Notes") issued to Northern Federal
Minerals, LLC, a Michigan limited liability company of which Paul R. Arena (an
officer and director of the Company) is a principal and 33.3% equity interest
holder, Bernard R. Kossar (a former director of the Company) and Dr. Audrey L.
Braswell (a director of the Company). The First Amendment included provisions
which: a) extended the maturity date of the Convertible Promissory Notes to
March 31, 1998; b) increased the annual interest rate to 10% effective January
1, 1997; c) changed the conversion price to $2.10 per share; and d) agreed
that the Company will not, without the prior approval of the holders of at
least 80% of the principal amount of Convertible Promissory Notes outstanding,
incur any indebtedness which ranks senior in priority to payment to the
Noteholders.
On March 24, 1998 the Company executed an Amendment (the "Second
Amendment") with the above three parties who are holders of the Convertible
Promissory Notes. The Second Amendment includes provisions which: a) extend
the maturity date of the Convertible Promissory Notes to December 31, 1998; b)
maintain the annual interest rate at 10%; and c) maintain the conversion price
at $2.10 per share. In addition, the Noteholders have agreed to be bound by
certain provisions restricting the sale of any shares issued upon conversion.
The Convertible Promissory Notes remain unsecured.
42
<PAGE>
On November 30, 1998, the Company announced that an additional Amendment
(the "Third Amendment") was executed with the above three parties. The Third
Amendment extends the maturity of the Convertible Promissory Notes to June 30,
1999 and includes provisions requiring the conversion of the Notes if (i) the
Company completes a minimum of $2,000,000 of equity financing; (ii) the
Company's Common Stock on the VSE averages in excess of $4.50 per share for a
90-day period; and (iii) the Company's Common Stock on the VSE maintains an
average daily trading volume of 6,000 shares for the same 90-day period.
During April 1998, the Company entered into an agreement for a
Promissory Note in the amount of $150,000 with Dr. Braswell, a director of the
Company. The loan was approved by the Board on March 31, 1998 and consists of
an unsecured note with annual interest, payable monthly, of 8.5%. The
principal balance is due in May 1999. Interest expense on this note was $7,842
for the year ended December 31, 1998.
43
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a.). EXHIBITS. The following exhibits are filed herewith or
incorporated by reference:
<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------
<S> <C>
3(a) Certificate of Incorporation of AIM Group, Inc.
(Incorporated herein by reference to Exhibit 3(a) to
the Registrant's Registration Statement on Form S-4 (
File No. 33-82468 )
3(b) Certificate of Amendment to Certificate of
Incorporation of AIM Group, Inc. (Incorporated herein
by reference to Exhibit 3(b) to the Registrant's
Registration Statement on Form S-4 (File No.
33-82468).)
3(c) Certificate of Amendment to Certificate of
Incorporation of AIM Group, Inc. (Incorporated herein
by reference to Exhibit 3(c) to the Registrant's
Annual Report on Form 10-KSB for the year ended
December 31, 1997.)
3(d) Certificate of Amendment to Certificate of
Incorporation of the Registrant. (Incorporated by
reference to Exhibit 3 to the Registrant's Quarterly
Report on Form 10-QSB for the quarter ended September
30, 1998.)
3(e) By-Laws of AIM Group, Inc. (Incorporated herein by
reference to Exhibit 3(c) to the Registrant's
Registration Statement on Form S-4 (File No.
33-82468).)
4(a) Form of AIM Group, Inc. Warrant Certificate
(Incorporated herein by reference to Exhibit 4(b) to
the Registrant's Registration Statement on Form S-4
(File No.3382468).)
4(b) Form of AIM, Inc. Option Certificate. (Incorporated
herein by reference to Exhibit 4(c) to the
Registrant's Registration Statement on Form S-4 (File
No. 33-82468).)
4(c) Certificate of Designation, Preferences and Rights of
Preferred Stock relating to the Registrant's Series A
Convertible Preferred Stock. (Incorporated by
reference to Exhibit 4 to the Registrant's Current
Report on Form 8-K filed on January 5, 1999.)
10(a) Agreement and Plan of Merger dated as of August 3,
1994, by and among Heatshield, AIM, AIM Group, Inc.,
Merger Sub-H and L. P. (Incorporated herein by
reference to Exhibit 2 to to the Registrant's
Registration Statement on Form S-4 (File No.
33-82468).)
44
<PAGE>
10(b) Amendment No. 1 dated as of November 14, 1994, to the
Agreement and Plan of Merger dated as of August 3,
1994 by and among Heatshield, AIM, AIM Group, Inc.,
Heatshield Acquisition and Heatshield Funding Group.
(Incorporated herein by reference to Exhibit 2(b) to
the Registrant's Registration Statement on Form S-4
(File No. 33-82468).)
10(c) Amendment No. 2 dated as of November 30, 1994, to the
Agreement and Plan of Merger dated as of August 3,
1994 by and among Heatshield, AIM, AIM Group, Inc.,
Heatshield Acquisition and Heatshield Funding Group.
(Incorporated herein by reference to Exhibit 2(c) to
the Registrant's Registration Statement on Form S-4
(File No. 33-82468).)
10(d) AIM Group, Inc. 1994 Stock Option Plan. (Incorporated
herein by reference to Exhibit 4(a) to the
Registrant's Registration Statement on Form S-4 (File
No. 33-82468).)
10(e) Kaolinite Mining Lease and Agreement, dated March 1,
1984, between Eterna-Tec Corp. as lessee and New
Mexico and Arizona Land Company as Lessor.
(Incorporated herein by reference to Exhibit 10(a) to
the Registrant's Registration Statement on Form S-4
(FIle No. 33-82468).)
10(f) Assignment Agreement, dated October 26, 1989, by and
between Eterna-Tec Corp. and AIM pursuant to which
Eterna-Tec assigned to AIM Group, Inc. the Kaolinite
Lease. (Incorporated herein by reference to Exhibit
10(b) to the Registrant's Registration Statement on
Form S-4 (File No. 33-82468).)
10(g) Lease Agreement, dated October 17, 1994, by and between
Merrick Venture Capital, Inc. and AIM Group, Inc.
(Incorporated herein by reference to Exhibit 10(pp)
to the Registrant's Registration Statement on Form
S-4. (File No. 33-82468).)
10(h) Form of Series A Convertible Promissory Note, as issued
by AIM Group, Inc. on November 13, 1995, December 20,
1995 and February 2, 1996. (Incorporated herein by
reference to Exhibit 10(e) of the Registrant's Form
10-KSB for the year ended December 31, 1996.)
10(i) Form of letter agreement amending Series A Convertible
Promissory Note, as entered into by AIM Group, Inc.
and each of the holders of the Series A Convertible
Promissory Notes on April 10,1997. (Incorporated
herein by reference to Exhibit 10(f) of the
Registrants Form 10-KSB for the year ended December
31, 1996.)
45
<PAGE>
10(j) Form of letter agreement amending Series A Convertible
Promissory Note, as entered into by AIM Group, Inc.
and each of the holders of the Series A Convertible
Promissory Notes on April 10,1997. (Incorporated
herein by reference to Exhibit 10(g) to the
Registrant's Annual Report on Form 10-KSB for the
year ended December 31, 1997.)
10(k) 1997 Stock Option Plan of the Registrant.
10(l) Form of letter agreement amending Series A Convertible
Promissory Note, as entered into by the Registrant
with each of the holders of the Series A Convertible
Promissory Notes on March 24, 1998.
10(m) Form of letter agreement amending Series A Convertible
Promissory Note, as entered into by the Registrant
with each of the holders of the Series A Convertible
Promissory Notes on November 13, 1998.
10(n) Promissory Note for $150,000 owed by United Minerals
Corporation to Audrey L. Braswell.
10(o) Employment Agreement, effective February 15, 1999,
between AIM Group, Inc. and Theodore L. Lamb.
10(p) Stock Option Agreement, dated November 24, 1998,
between the Registrant and R. Jerry Falkner.
21 Subsidiaries of the Registrant (Incorporated herein by
reference to Exhibit 21 of the Registrant's Form
10-KSB for the year ended December 31, 1996.)
27 Financial Data Schedule
</TABLE>
(b). REPORTS ON FORM 8-K. The Registrant did not file any Current
Reports on Form 8-K during the quarter ended December 31, 1998.
The Registrant filed a Current Report on Form 8-K on January 5,
1999 reporting the issuance of 150,000 shares of Series A
Convertible Preferred Stock on December 30, 1998.
46
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AIM GROUP, INC.
Registrant
Dated: March 26, 1999 By: /s/PAUL R. ARENA
----------------
Paul R. Arena
Chairman of the Board,
Chief Executive Officer
and President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Dated: March 26, 1999 By: /s/PAUL R. ARENA
----------------
Paul R. Arena
Chairman of the Board
Chief Executive Officer
President and Director
(Principal Executive Officer)
Dated: March 26, 1999 By: /s/LEIGH S. ZOLOTO
------------------
Leigh S. Zoloto
Chief Financial Officer
Secretary and Treasurer
(Principal Financial Officer)
Dated: March 26, 1999 By: /s/JAMES L. AUSTIN
------------------
James L. Austin
Director
Dated: March 26, 1999 By: /s/A.L. BRASWELL
----------------
A.L. Braswell
Director
Dated: March 26, 1999 By: /s/E.W. PURCELL
---------------
E.W. Purcell
Director
Dated: March 26, 1999 By: /s/THEODORE L. LAMB
-------------------
Theodore L. Lamb
Director
47
<PAGE>
AIM GROUP, INC.
AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
AND
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
CONSOLIDATED FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITOR'S REPORT
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
AIM Group, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of AIM
Group, Inc. and Subsidiaries as of December 31, 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit. The
consolidated financial statements of AIM Group, Inc. and Subsidiaries as of
December 31, 1997, and for each of the two years in the period ended December
31, 1997, were audited by other auditors whose report, dated March 13, 1998,
included an explanatory paragraph referring to the Company's ability to
continue as a going concern.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in the
first paragraph present fairly, in all material respects, the financial
position of AIM Group, Inc. and Subsidiaries as of December 31, 1998 and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
Moore Stephens Frost
Certified Public Accountants
Little Rock, Arkansas
February 19, 1999
<PAGE>
AIM GROUP, INC. 2
AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1998 and 1997
<TABLE>
<CAPTION>
Assets 1998 1997
------ ------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 324,841 $ 9,898
Accounts receivable 67,473 91,391
Inventories 135,198 202,155
Prepaid expenses 7,752 6,967
------------ ------------
Total current assets 535,264 310,411
Resource property 4,005,373 4,000,373
Property, plant & equipment
Land 10,000 10,000
Plant 108,000 108,000
Building improvements 264,715 177,328
Plant and lab equipment 314,006 310,233
Engineering equipment 66,412 66,412
Vehicles 14,318 37,044
Furniture and fixtures 100,379 100,379
877,830 809,396
Less accumulated depreciation 293,740 236,685
Net property, plant and equipment 584,090 572,711
Other assets 29,917 40,511
------------ ------------
Total assets $ 5,154,644 $ 4,924,006
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AIM GROUP, INC. 3
AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1998 and 1997
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1998 1997
------------------------------------ ------------ ------------
<S> <C> <C>
Current liabilities
Note payable $ 150,000 $ -
Accounts payable 621,511 630,692
Accrued expenses 73,048 46,062
Current portion of long-term debt 34,277 80,954
------------ ------------
Total current liabilities 878,836 757,708
Long-term debt less current maturities 179,207 93,091
Convertible debentures 1,050,000 1,050,000
Stockholders' equity
Preferred stock, $1 par value; 1,000,000
authorized, 150,000 issued and outstanding 150,000 -
Common stock, $.01 par value; 12,000,000
authorized, 1,330,018 issued in 1998 and
1,326,685 in 1997 13,300 13,267
Additional paid in capital 4,544,810 4,249,343
Retained earnings (deficit) (1,651,633) (1,232,527)
3,056,477 3,030,083
Treasury stock, 3,150 common shares, at cost (9,876) (6,876)
Total stockholders' equity 3,046,601 3,023,207
------------ ------------
Total liabilities and stockholders' equity $ 5,154,644 $ 4,924,006
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AIM GROUP, INC. 4
AND SUBSIDIARIES
Colsolidated Statement of Operations
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Sales $ 2,085,398 $ 2,316,472 $ 3,092,278
Cost of sales 1,546,904 1,795,780 2,148,191
------------ ------------ ------------
Gross profit 538,494 520,692 944,087
Operating expense
General and administrative 503,816 575,973 791,826
Selling and marketing 109,016 157,781 270,612
Write-off of investment - abandoned project - - 93,396
Interest 204,009 189,872 131,429
Depreciation and amoritzation 73,259 79,829 72,487
------------ ------------ ------------
Total operating expenses 890,100 1,003,455 1,359,750
------------ ------------ ------------
Loss from operations before income taxes (351,606) (482,763) (415,663)
Income taxes - - -
------------ ------------ ------------
Net loss $ (351,606) $ (482,763) $ (415,663)
============ ============ ============
Basic and diluted earnings per share
Net loss available to common shareholders $ (351,606) $ (482,763) $ (415,663)
Imputed non-cash preferred stock dividend (67,500 ) - -
Loss available to common shares $ (419,106) $ (482,763) $ (415,663)
============ ============ ============
Weighted average common shares outstanding 1,325,016 1,319,414 1,320,053
============ ============ ============
Basic and diluted earnings per common share $ (0.32) $ (0.37) $ (0.31)
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AIM GROUP, INC. 5
AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Preferred Common Preferred Common Additional Retained Treasury
Shares Shares Stock Stock paid-in capital Deficit Stock Total
------- --------- --------- --------- ------------ ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1996 - 1,371,155 $ - $ 13,711 $ 4,177,682 $ (334,101) $(11,575) $3,845,717
Issuance of 26,667 shares of common
stock - 26,667 - 267 82,525 - - 82,792
Purchase of 429 shares of common
stock - - - - - - (1,400) (1,400)
Cancellation of 71,137 shares of
treasury stock - (71,137) - (711) (10,864) - 11,575 -
Net loss - - - - - (415,663) - (415,663)
------- --------- --------- --------- ------------ ------------ --------- -----------
Balance at December 31, 1996 - 1,326,685 - 13,267 4,249,343 (749,764) (1,400) 3,511,446
Purchase of 26,363 shares of common
stock - - - - - - (30,476) (30,476)
Sale of 23,810 shares of common
stock - - - - - - 25,000 25,000
Net loss - - - - - (482,763) - (482,763)
------- --------- --------- --------- ------------ ------------ --------- -----------
Balance at December 31, 1997 - 1,326,685 - 13,267 4,249,343 (1,232,527) (6,876) 3,023,207
Issuance of 150,000 shares of
preferred stock 150,000 - 150,000 - 225,000 - - 375,000
Exercise of stock option for 3,333
shares of common stock and
repurchase of 857 shares of
treasury stock - 3,333 - 33 2,967 - (3,000) -
Imputed non-cash dividend on
preferred stock - - - - 67,500 (67,500) - -
Net loss - - - - - (351,606) - (351,606)
------- --------- --------- --------- ------------ ------------ --------- -----------
Balance at December 31, 1998 150,000 1,330,018 $150,000 $ 13,300 $ 4,544,810 $(1,651,633) $ (9,876) $3,046,601
======= ========= ========= ========= ============ ============ ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AIM GROUP, INC. 6
AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (351,606) $ (482,763) $ (415,663)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation 64,668 79,829 72,487
Amortization expense 8,591 6,683 6,683
Loss from sale of property, plant & equipment 4,113 - -
Changes in assets and liabilities:
Accounts receivable 23,918 89,744 44,867
Inventories 66,957 (41,385) (7,741)
Other current assets (785) 11,562 9,140
Other assets 2,003 (358) 14,709
Accounts payable (9,181) 349,238 (60,551)
Accrued expenses 26,986 (50,049) (26,340)
------------ ------------ ------------
Net cash used by operations (164,336) (37,499) (362,409)
------------ ------------ ------------
Cash flows from investing activities
Purchases of property, plant and equipment (91,160) (95,481) (129,130)
Proceeds from sale of property, plant and equipment 11,000 - -
Increase in resource property (5,000) (5,000) (3,599)
------------ ------------ ------------
Net cash used by investing activities (85,160) (100,481) (132,729)
------------ ------------ ------------
Cash flows from financing activities
Borrowings from note payable 150,000 - -
Proceeds from issuance of long-term debt 161,489 96,152 21,070
Repayments of long-term debt (122,050) (13,140) (14,470)
Proceeds from issuance of convertible debentures - - 300,000
Purchase of common stock to be held in treasury stock - (5,476) (1,400)
Proceeds from issuance of convertible preferred stock 375,000 - -
------------ ------------ ------------
Net cash flows provided (used) by financing activities 564,439 77,536 305,200
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 314,943 (60,444) (189,938)
Cash and cash equivalents - beginning of year 9,898 70,342 260,280
------------ ------------ ------------
Cash and cash equivalents - end of year $ 324,841 $ 9,898 $ 70,342
============ ============ ============
Supplemental disclosure of cash flow information
Interest paid $ 197,953 $ 172,968 $ 129,395
Income taxes paid $ - $ - $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
AIM GROUP, INC. 7
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPLES OF CONSOLIDATION - The consolidated financial
statements of AIM Group, Inc. and Subsidiaries ("the Company")
contain the accounts of AIM Group, Inc. ("the Parent") and its
wholly-owned subsidiaries, United Minerals Corp. of Arkansas
("UMCAR"), United Minerals Corp. of Arizona ("UMCAZ"), Heatshield
Technologies, Inc. ("HTI") and HST Capital Corp. ("HST"). All
significant intercompany accounts and transactions have been
eliminated.
The consolidated financial statements are stated in U.S.
Dollars in accordance with generally accepted accounting
principles in the United States. There are no material differences
with Canadian generally accepted accounting principles.
b. BUSINESS ACTIVITY - The Parent provides centralized management,
finance, long range planning, accounting and administration to two
principal operating entities. These operations are a surface
modification facility (UMCAR) and a mining lease (UMCAZ).
The Parent is listed on the Vancouver Stock Exchange and
Over the Counter - Bulletin Board. The Company's common stock is
currently quoted under the symbols AIG.U and AIGU, respectively.
UMCAR is the Company's core business. It operates a surface
modification facility, both as principal and as a toll processor,
in the rubber and plastics industries. The plant has been designed
to treat industrial fillers such as clay, mica,
alumina-trihydrate, wolastonite, magnesium-hydroxide and
mircospheres with silanes. The treated products are used in the
plastic and elastomer industries.
UMCAZ holds a mining lease ("the Lease"), which expires
March 2004, with New Mexico and Arizona Land Company, the owner of
the mining rights. The Lease is subject to a further term in
perpetuity provided the property is in operation and is generating
minimum royalties. The Lease permits the exploration of the
property and removal of the mineral, a hydrothermally altered
cristobalite-triymite-quartz-kaolinite deposit, trademarked
Klannerite(R)in Arizona, over the remaining term. The Lease calls
for the payment of production royalty of 5% of the gross
consideration obtained for the mineral less transportation cost,
subject to minimum royalty payments of $5,000 per year.
HTI was set up to carryout reserve analysis, surface mining
and processing of Klannerite(R). HST was established as a holding
company. Neither of these companies are active at this time.
c. CASH AND CASH EQUIVALENTS - For purposes of the consolidated
statement of cash flows, the Company considers all highly liquid
instruments purchased with an original maturity of three months or
less to be cash equivalents.
d. INVENTORIES - Inventories are valued at the lower of cost
(first-in, first-out method) or market.
<PAGE>
AIM GROUP, INC. 8
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
e. RESOURCE PROPERTY - Resource property consists of the mineral
lease and deposits located in Arizona. The property was valued
based on appraisal as part of a merger, which occurred in March
1995.
f. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
stated at cost. Depreciation is provided primarily by the
straight-line method over the estimated useful lives of the
various assets. The estimated useful lives of property, plant and
equipment for purposes of computing depreciation are as follows:
Buildings 39 years
Plant equipment 10 years
Engineering equipment 5 years
Laboratory equipment 7 years
Furniture and office equipment 5-7 years
g. TRADEMARKS AND PATENTS - The Company received the trademark
registration for the product name Klannerite(R)in 1993. The
Company was granted a patent on the Photon Diffusive Coating in
November 1996. The Company's trademarks are AIM Group(R), the
corporate entity Uni-Kote(R), the UMCAR marketing label; and
Klannerite(R), the rock from UMCAZ operations.
h. INCOME TAXES - The Company utilizes the liability method of
accounting for income taxes. The liability method provides
deferred taxes on the balance sheet for the temporary differences
between financial statement and income tax return basis of assets
and liabilities as of the fiscal year end date at the presently
enacted tax rates.
i. EARNINGS PER SHARE - Earnings per share is based on the weighted
average number of shares and share equivalents outstanding during
each year.
j. 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 at December 31, 1998 and 1997 and
revenues and expenses for each of the three years in the period
ended December 31, 1998. The actual outcome of the estimates could
differ from those estimates made in the preparation of the
financial statements.
k. STOCK OPTIONS - The Company adopted Statement of Financial
Accounting Standards No. 123 for footnote disclosure purposes only
and will continue to apply the intrinsic value method of
Accounting Principles Board Opinion No. 125 for financial
reporting purposes.
<PAGE>
AIM GROUP, INC. 9
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998, 1997 and 1996
2. CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash held in
financial institutions in excess of balances insured by the Federal
Deposit Insurance Corporation and accounts receivable due to the
majority of the Company sales being made to a few customers.
The Company maintains its cash in bank deposit accounts at high
credit quality financial institutions. The balances, at times, may
exceed federally insured limits.
During the year ended December 31, 1998, approximately 89% of its
surface modification sales were to three customers, with 61% being to a
single customer and 14% from each of the other two customers. During the
years ended December 31, 1997 and 1996, approximately 67% and 83%,
respectively, of its surface modification sales were with a single
customer. At December 31, 1998 and 1997, these customers accounted for
less than 10% of the accounts receivable balance.
3. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Raw materials $ 78,043 $141,926
Klannerite(R) 48,645 48,645
Supplies 8,510 11,584
-------- --------
$135,198 $202,155
======== ========
</TABLE>
4. RESOURCE PROPERTY
Resource Property consists of approximately 340,000 tons of K1 and
1,350,000 tons of K2/K3 deposits at December 31, 1998. The average
estimated process recovery of the deposit is 82%.
During 1992, the Company processed 222.5 tons of K1. This was
considered a trial production run. Approximately 7.5 tons of the 222.5
tons produced was distributed as samples and approximately 2.5 tons were
sold. The remaining 212.5 tons are being held in inventory.
<PAGE>
AIM GROUP, INC. 10
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998, 1997 and 1996
4. RESOURCE PROPERTY (CONT.)
The carrying value of the resource property including the prepaid
royalties is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Resource property purchase price $ 3,935,798 $ 3,935,798
Pre-paid royalties 69,575 64,575
----------- -----------
$ 4,005,373 $ 4,000,373
</TABLE>
No sales of Klannerite(R) have been reported for the years ended
December 31, 1998, 1997 and 1996.
The Company continues to develop this property for commercial use
and has submitted product for approval to the State of Arizona
Department of Transportation. The Company plans to market the property
based on its availability to produce product for the concrete materials
industry. Based upon the current evaluation of this proposed project,
the Company believes that the property has a fair value equal to or
greater than its carrying amount. However, there is currently no
production and there is no assurance the value can be realized.
5. NOTE PAYABLE
Note payable consists of an unsecured note payable to a
stockholder with interest due monthly at 8.5%. The principal balance is
due in May 1999. Interest expense on this note was $7,842 for the year
ended December 31, 1998.
6. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revolving note payable to a bank, payable
in monthly installments of $2,972, including
interest at 6%, through August 2004, secured
by equipment and a second real estate mortgage. $ 158,457 $ 96,152
Mortgage payable to a bank, payable
in monthly installments of $837, including
interest at 9.75%, through September 2000,
remaining balance due October 2000, secured
by real estate. 49,877 54,546
</TABLE>
<PAGE>
AIM GROUP, INC. 11
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998, 1997 and 1996
6. LONG-TERM DEBT (CONT.)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Note payable to a finance company, payable in
monthly installments of $311, including interest
at 14.21%, through August 2000, secured by
equipment. $ 5,150 $ 7,888
Note payable to a finance company, payable in
monthly installments of $750, including interest
at 9.5%, through April 2001, secured by
equipment. Balance repaid during 1998. - 15,459
--------- ---------
213,484 174,045
Less current maturities 34,277 80,954
--------- ---------
Long-term debt, less current maturities $ 179,207 $ 93,091
========= =========
</TABLE>
Following are aggregate maturities of long-term debt as of
December 31, 1998:
<TABLE>
<S> <C> <C>
1999 $ 34,277
2000 73,660
2001 28,939
2002 30,724
2003 32,619
Thereafter 13,265
--------
$213,484
========
</TABLE>
The Company also has a factoring arrangement for its receivables
arising from its sale of products from its Arkansas facility. The factor
has a security interest in all factored accounts receivable. Factoring
cost included in interest expense was $68,065, $71,183 and $85,741 in
1998, 1997 and 1996, respectively.
7. CONVERTIBLE DEBENTURES
During April and May 1997, the Company executed an Amendment ("the
First Amendment") with three related parties who are holders of the
Company's Series A convertible notes payable ("the Notes") having an
aggregate face value of $1,050,000, which were approved by the Vancouver
<PAGE>
AIM GROUP, INC. 12
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998, 1997 and 1996
7. CONVERTABLE DEBENTURES (CONT.)
Stock Exchange on June 18, 1997. The first Amendment included provisions
which: (a) extended the maturity date of the Notes to March 31, 1998;
(b) increased the annual interest rate to 10%, effective January 1,
1997; (c) changed the conversion price to $2.10 per share; and (d)
agreed that the Company will not, without the prior approval of the
holders of at least 80% of the principal amount of the Notes
outstanding, incur any indebtedness which ranks senior in priority to
payment to the Note holders. The Notes remain unsecured.
During March 1998, the Company executed an Amendment ("the Second
Amendment") with the three related parties who are holders of the Notes
having an aggregate face value of $1,050,000, which were approved by the
Vancouver Stock Exchange. The second Amendment included provisions
which: (a) extended the maturity date of the Notes to December 31, 1998;
(b) maintain the annual interest rate at 10%, (c) maintain the
conversion price at $2.10 per share; and (d) provides that the Note
holders could not convert their Notes prior to August 1, 1998. In
addition, the Note holders agreed to be bound by certain provisions
restricting the sale of any shares issued upon conversion. The Notes
remain unsecured.
During December 1998, the Company executed an Amendment ("the
Third Amendment") with the three related parties who are holders of the
Notes having an aggregate face value of $1,050,000, which was approved
by the Vancouver Stock Exchange. The third Amendment includes a
provision to extend the maturity date of the Notes to June 30, 1999. The
Notes remain unsecured.
The following related individuals and affiliated concerns acquired
the Notes:
Northern Federal Minerals, LLC - Paul R. Arena, an officer
and director of the Company, is a principal in this Michigan
limited liability corporation. On November 13, 1995,
Northern Federal Minerals, LLC purchased $450,000 principal
amount of the Notes.
Bernard R. Kossar, who is a stockholder of the Company, on
December 20, 1995 purchased $300,000 principal amount of the
Notes.
Dr. Audrey L. Braswell, who is a director or the Company, on
May 20, 1997 purchased $300,000 principal amount of the
Notes.
Interest expense on the Notes was $105,000, $105,000 and $36,750
for the years ended December 31, 1998, 1997 and 1996, respectively.
<PAGE>
AIM GROUP, INC. 13
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998, 1997 and 1996
8. PREFERRED STOCK
The 150,000 shares of preferred stock issued in 1998 has a
liquidating preference of $2.50 per share for a total of $375,000. The
preferred stock is only entitled to dividends as declared by the Board
of Directors and no dividends shall accrue or accumulate on this stock.
The preferred shares are convertible into one share of common stock, as
adjusted for any future stock dividends, stock splits or reverse stock
splits.
The conversion feature of the preferred stock is $2.50 per share
which is less than the current market for the common stock. This results
in a beneficial conversion amount which is treated as an imputed
non-cash preferred stock dividend in the accompanying financial
statements.
9. INCOME TAXES
The Company has net operating loss carryforwards available to
offset future taxable income of approximately $3,151,000 expiring
through the year 2012. Due to the merger in 1995, the net operating
losses are subject to certain limitations, computed on an annual basis.
These loss carryforwards are the only temporary difference that would
give rise to deferred income taxes. Due to the Company's continued
losses and the restricted use of some of the carryforwards, a valuation
allowance has been recorded to offset all income tax benefits and
deferred tax assets.
Total gross deferred tax assets and gross deferred liabilities at
December 31, 1998 and 1997 are as follows:
<TABLE>
<S> <C> <C>
Gross deferred tax liabilities $ - $ -
Gross deferred tax asset 1,206,518 1,072,120
Less valuation allowance 1,206,518 1,072,120
---------- ----------
Net deferred tax asset - -
---------- ----------
Net deferred taxes $ - $ -
========== ==========
</TABLE>
10. STOCK SPLIT
On August 21, 1998, the Company executed a 1 for 3 reverse stock
split of the common shares outstanding resulting in a reduction in the
common shares outstanding from 3,980,053 to 1,326,685. All applicable
share and per share data in these financial statements have been
restated to give effect to this reverse stock split.
<PAGE>
AIM GROUP, INC. 14
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998, 1997 and 1996
11. STOCK OPTIONS AND WARRANTS
During 1997, the Company established the 1997 Incentive Stock
Option Plan providing for the issuance of an aggregate of up to 250,000
common shares of the Company for employees, officers and directors.
Subsequently in 1997, the Board of Directors approved the grant of
options to purchase 73,335 shares of the Company's common stock at $.90
per share to certain directors, officer and employees. The options
expire ten years from the date of grant and have a four-year vesting
period at 25% per year.
During November 1998, the Board of Directors approved the grant of
options to purchase 25,000 shares of the Company's common stock at $2.50
per share to a consultant. During December 1998, the Board of Directors
approved the grant of options to purchase 96,000 shares of the Company's
common stock at $3.00 per share to certain directors, officers and
employees under the same terms as the 1997 options above.
Following is a summary of the status of the options during the
years ending December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Weighted
Average
Number Exercise
of Shares Price
--------- --------
<S> <C> <C>
Options granted during 1997 and
outstanding at December 31, 1997 73,335 $ 0.90
Options granted during 1998 121,000 2.90
Options exercised during 1998 (3,333) 0.90
Forfeitures during 1998 (8,333) 0.90
--------
Options outstanding at December 31, 1998 182,669 $ 2.22
======== =======
Options exercisable
- December 31, 1997 - $ 0.90
- December 31, 1998 12,918 0.90
Weighted average fair value of options
granted during year ended
- December 31, 1997 $ 0.33
- December 31, 1998 1.25
</TABLE>
<PAGE>
AIM GROUP, INC. 15
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998, 1997 and 1996
11. STOCK OPTIONS AND WARRANTS (CONT.)
During 1998, options were exercised for 3,333 shares at $0.90 per
share. Under the terms of the options, a portion of the exercised shares
can be used to pay for the options exercised. Under these terms, 857
shares at a market value of $3.50 per share were used to purchase the
shares resulting in 2,476 shares being issued. This is treated as a
non-cash transaction in the accompanying consolidated statement of cash
flows.
As of December 31, 1998, outstanding options are summarized as
follows within ranges of the exercise price:
<TABLE>
<CAPTION>
Exercise Price
--------------
$0.90 $2.50 - 3.00
Per Share Per Share Total
---------- ---------- ----------
<S> <C> <C> <C>
Option shares outstanding 61,669 121,000 182,669
Weighted average
exercise price $ 0.90 $ 2.90 $ 2.22
Weighted average
remaining contractual life 105 months 107 months 107 months
Option shares exercisable 12,918 - 12,918
Weighted average
exercise price $ 0.90 $ 2.90 $ 0.90
</TABLE>
The Company has accounted for all of the options under Accounting
Principles Board (APB) Opinion No. 25. No compensation expense has been
recognized for the options under this method. Statement of Financial
Accounting Standards (SFAS) No. 123 "Accounting for Stock-Based
Compensation" provides for fair value accounting for all stock options
based on various factors at the date the grants were made. Expense
related to these options would have been $6,994 and $1,504 during the
years ended December 31, 1998 and 1997, respectively, based on the
vesting schedule of the various options, had the Company adopted SFAS
No. 123. The following is pro forma net income and earnings per share as
if the options had been accounted from under FASB No. 123:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income (loss)
- As reported $(351,606) $(482,763) $(415,663)
- Pro forma (358,600) (484,267) (415,663)
Earnings per share
- As reported (0.32) (0.37) (0.31)
- Pro forma (0.32) (0.37) (0.31)
</TABLE>
<PAGE>
AIM GROUP, INC. 16
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998, 1997 and 1996
11. STOCK OPTIONS AND WARRANTS (CONT.)
The fair value of the grants was determined using the
Black-Scholes model. The significant assumptions used in this valuation
were as follows:
<TABLE>
<S> <C>
Risk-free interest rate 4.61% to 6.09%
Expected life 5 to 10 years
Expected volatility 30%
Expected dividend rate $ 0.00
</TABLE>
12. CONTINGENCIES
The Company is involved in a lawsuit, which occurred in the normal
course of business. Management intends to vigorously defend these
actions and believes no material losses will occur and believes that
exposure on this matter is limited to $25,000.
13. RENT EXPENSES
The Company rents certain office space and equipment under month
to month rent agreements. Rent expense under these agreements was not
significant for the years ended December 31, 1998, 1997 and 1996,
respectively.
14. MANAGEMENT'S PLANS
The Company has incurred recurring losses from operations as
indicated in the consolidated financial statements. In addition, the
Company has not been successful in the development of its resource
property. Due to the lack of cash flow, the Company was unable to invest
in and exploit the property and there is uncertainty in the potential
market for the deposit. There is no assurance that the resource property
will be fully recoverable at these levels. Based on studies performed
during 1998, management believes that there is a service and product
market and the product can be sold at a profit. In addition, the surface
modification business located in Arkansas is heavily reliant on few
customers. Unless the Company is successful in diversifying and
expanding its customer base, the prospects for this line of business
remains uncertain.
<PAGE>
AIM GROUP, INC. 17
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998, 1997 and 1996
14. MANAGEMENT'S PLANS (CONT.)
Management is seeking alternative sources of equity financing that
would allow the marketing and diversification effort for the surface
modification business as well as the continued research and development
effort of the resource property. Management has entered into letters of
intent or is negotiating definitive purchase agreements to acquire three
entities in the information technology business, but these acquisitions are
dependent upon the execution of definitive agreements and the successful
private placement of equity financing. However, if these efforts are
successful, management intends to direct the Company into this new
business, which it believes would be profitable. There can be no assurance
that the Company will be successful in its efforts to complete the proposed
acquisitions, complete the equity financing or obtain additional financing.
If the Company is not successful in its efforts, it may be necessary to
undertake such other actions as may be appropriate to preserve asset value.
The financial statements do not include any adjustments that might result
if the Company is not successful in these efforts.
15. RECLASSIFICATION
The Company's factoring arrangement meets the criteria set forth
in Statement of Financial Standards No. 125 (SFAS 125), "Accounting for
transfers and servicing of Financial Assets and Extinguishment of
Liabilities." Accordingly, the Company has treated the factored accounts
receivable as a sale. As a result of applying SFAS 125, the 1997
receivable financing liability of $277,441 has been offset against the
accounts receivable balance of $368,832, to comply with the 1998
presentation.
16. SUBSEQUENT EVENTS
Subsequent to December 31, 1998, the Company entered an agreement
to purchase 2,200 shares (approximately 3% equity ownership) of
convertible preferred stock of a software technology company which sells
to internet service providers. In addition, the Company has received a
purchase warrant for 1,100 shares of additional convertible preferred
stock which would enable the Company to increase its total equity
ownership to approximately 4.5%.
EXHIBIT 10(K)
AIM GROUP, INC.
1997 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN: The purposes of this Plan are:
* to attract and retain competent executives with outstanding
ability for positions of substantial responsibility;
* to provide additional incentive to corporate officers, key
employees, and members of the corporate Board of Directors, and;
* to promote the success of the Corporation's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Board at the time of grant.
2. DEFINITIONS: As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board in accordance with Section 4 of
the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, the Vancouver Stock Exchange and
any other stock exchange or quotation system on which the Common Stock is
listed or quoted and the applicable laws of any foreign country or
jurisdiction where options are, or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Corporation.
(d) "Code" means the U.S. Internal Revenue Code of 1986, as amended.
(e) "Common Stock" means the Common Stock of the Corporation.
(f) "Corporation" means AIM Group, INC.
(g) "Director" means a member of the Board.
(h) "Employee" means any key employee, including, without limitation,
Officers employed by the Corporation or any Subsidiary of the Corporation.
Neither service as a Director nor payment of the director's fee by the
Corporation shall be sufficient to constitute "employment" by the Corporation.
An employee may serve as a Director of the Company and maintain his status as
an employee.
<PAGE>
(i) "Exchange Act" means the U.S. Securities Exchange Act of 1934, as
amended.
(j) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on the Vancouver Stock
Exchange, its fair market value shall be not less than the average closing
market price of the Common Stock on the Vancouver Stock Exchange for the 10
trading days immediately preceding the day on which the Vancouver Stock
Exchange receives notice regarding the granting of such options, with market
price being defined for this purpose as the average closing price of the
Corporation's shares as traded on the Vancouver Stock Exchange during this
10-day period, or such other price as may be agreed to by the Corporation and
accepted by the Vancouver Stock Exchange;
(ii) If the Common Stock is listed on any other established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market, its Fair Market Value shall be
the closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
prior to the time of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(iii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value
of a Share of Common Stock shall be the mean between the high bid and low
asked prices for the Common Stock on the last market trading day prior to the
day of determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable; or
(iv) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(k) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(l) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(m) "Notice of Grant" means a written or electronic notice evidencing
certain terms and conditions of an individual Option grant. The Notice of
Grant is part of the Option Agreement.
(n) "Officer" means a person who is an officer of the Corporation
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(o) "Option" means a stock option granted pursuant to the Plan.
2
<PAGE>
(p) "Option Agreement" means an agreement between the Corporation and
an Optionee evidencing the terms and conditions of an individual option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(q) "Optioned Stock" means the Common Stock subject to an Option.
(r) "Optionee" means the holder of an outstanding Option granted under
the Plan.
(s) "Plan" means this 1997 Stock Option Plan.
(t) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(u) "Service Provider" means an Officer, Employee or non-employee
member of the Board.
(v) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(w) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN: Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of shares which may be optioned and
sold under the Plan is 750,000 Shares.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to a method of payment under
Section 9(c), the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued
under the Plan shall not be returned to the Plan and shall not become
available for future distribution under the Plan.
4. ADMINISTRATION OF THE PLAN:
(a) PROCEDURE:
(i) RULE 16b-3. If the Common Stock is registered under Section
12 of the Exchange Act and to the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule
16b-3.
(ii) ADMINISTRATION: The Plan shall be administered by the Board.
3
<PAGE>
(b) POWERS OF THE ADMINISTRATOR: Subject to the provisions of the Plan
the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value in accordance with the
Plan;
(ii) to select the Service Providers to whom Options may be
granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(iv) to approve forms of Option Agreement for use under the
Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common
Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to construe and interpret the terms of the Plan and
Options granted pursuant to the Plan;
(vii) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(viii) to modify or amend each Option (subject to Section 14(c)
of the Plan);
(ix) to allow Optionees to satisfy withholding tax obligations
by electing to have the Corporation withhold from the Shares to be issued upon
exercise of an Option that number of Shares having a Fair Market Value equal
to the amount required to be withheld. The Fair Market Value of the Shares to
be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable;
(x) to authorize any person to execute on behalf of the
Corporation any instrument required to effect the grant of an Option
previously granted by the Administrator;
(xi) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION: The Administrator's decisions,
4
<PAGE>
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options.
5. ELIGIBILITY: Nonstatutory Stock Options may be granted to Service
Providers. Incentive Stock Options may be granted only to Service Providers
who are Employees.
6. LIMITATIONS:
(a) Each Option shall be designated in the attended Option Agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Corporation and any Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the option with respect to such shares is granted.
(b) Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee's relationship as an Officer, an
Employee or a Director of the Corporation, nor shall they interfere in any way
with the Optionee's right or the Corporation's right to terminate such
relationship at any time, with or without cause.
(c) The aggregate number of Shares reserved for issuance to Officers
and Directors of the Corporation under the Plan, together with all Shares
reserved for issuance to Officers and directors under all of the Corporation's
other previously established or proposed share compensation arrangements, will
not exceed 10% of the Corporation's issued and outstanding Shares from time to
time.
(d) The aggregate number of Shares issued to Officers and Directors of
the Corporation as a result of the exercise of options granted under the Plan,
together with all Shares issued to Officers and Directors under all of the
Corporation's other previously established or proposed share compensation
arrangements, will not exceed 10% of the Corporation's issued and outstanding
Shares during any one-year period.
(e) The number of Shares issued to any one Officer or Director of the
Corporaiton and such person's associates as a result of the exercise of
options granted under the Plan, together with all Shares issued to that
Officer or Director and such person's associates under all of the
Corporation's other previously established or proposed share compensation
arrangements, will not exceed 5% of the Corporation's issued and outstanding
Shares during any one-year period.
7. TERM OF PLAN: The Plan shall be effective on the date it is
approved by the shareholders of the Company and shall continue in effect for a
term of 10 years from such date, unless terminated earlier under Section 14 of
the Plan.
5
<PAGE>
8. TERM OF OPTION: The term of each Option shall be stated in the
Option Agreement and shall be 10 years from the date of grant or such shorter
term as may be provided in the Option Agreement. Moreover, in the case of an
Incentive Stock Option granted to an Optionee who, at the time the Incentive
Stock Option is granted, owns Common Stock representing more than 10% of the
voting power of all classes of stock of the Corporation or any Subsidiary, the
term of the Incentive Stock Option shall be 5 years from the date of grant or
such shorter term as may be provided in the Option Agreement.
9. OPTION EXERCISE PRICE AND CONSIDERATION:
(a) EXERCISE PRICE: The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than 10% of the voting
power of all classes of stock of the Corporation or any Parent or Subsidiary,
the per Share exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator, but shall be no less
than 100% of the Fair Market Value per Share on the date of grant.
(b) WAITING PERIOD AND EXERCISE DATES: At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before
the Option may be exercised.
(c) FORM OF CONSIDERATION: The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the Administrator
shall determine the acceptable form of consideration at the time of grant.
Such consideration may consist entirely of:
(i) cash;
(ii) check;
6
<PAGE>
(iii) previously acquired Shares having an aggregate Fair Market
Value on the date of exercise (determined in accordance with Section 2(k)
equal to the aggregate exercise price of all Options being exercised;
(iv) in the case of a Nonstatutory Stock Option, other Shares
which (A) in the case of Shares acquired upon exercise of an Option, have been
owned by the Optionee for more than six months on the date of surrender, and
(B) have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised;
(v) Shares as to which this Option is then being exercised, in
which case the Corporation is to retain so many shares that would otherwise
have been delivered by the Corporation upon that exercise of this Option as
equals the number of shares that would have been surrendered to the
Corporation if the purchase price had been paid with previously issued stock;
or
(vi) any combination of the foregoing methods of payment; or
(vii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTION:
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and
at such times and under such conditions as determined by the Administrator and
set forth in the Option Agreement. Options shall vest cumulatively to the
extent of 25% of the Shares covered thereby at the end of each of the first 4
years following the date of grant. Unless the Administrator provides
otherwise, vesting of Options granted hereunder shall be tolled during any
unpaid leave of absence. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the Corporation has received:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by
the Administrator and permitted by the Option Agreement and the Plan. Shares
issued upon exercise of an Option shall be issued in the name of the Optionee
or, if requested by the Optionee, in the name of the Optionee and his or her
spouse. Until the Shares are issued (as evidenced by the appropriate entry on
the books of the Corporation or of a duly authorized transfer agent of the
Corporation), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. The Corporation shall issue (or cause to be
issued) such Shares promptly after the Option is exercised. No adjustment will
be made for a dividend or other right for which the record date is prior to
the date the Shares are issued, except as provided in Section 12 of the Plan.
7
<PAGE>
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for exercise under the
Option, meaning by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER: If an Optionee
ceases to be a Service Provider for cause, his or her Option shall immediately
become terminated and lapse and the Shares covered thereby shall revert to the
Plan. If an Optionee ceases to be a Service Provider, other than as a result
of having been dismissed for cause or upon the Optionee's death, the Optionee
may exercise his or her Option within 30 days or such shorter period of time
as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by
the unvested portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified by the Administrator, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(c) DEATH OF OPTIONEE: If an Optionee dies while a Service Provider,
the Option may be exercised within one year after the death of Optionee, by
the Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent that the Option is
vested on the date Optionee ceased to be a Service Provider. If, at the time
Optionee ceased to be a Service Provider, the Optionee is not vested as to his
or her entire Option, the shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the
person(s) entitled to exercise the Option under the Optionee's will or laws of
descent or distribution. If the Option is not so exercised within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(d) BUYOUT PROVISIONS: The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. NON-TRANSFERABILITY OF OPTIONS: Unless determined otherwise by the
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed or in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE:
(a) CHANGES IN CAPITALIZATION: Subject to any required action by the
shareholders of the Corporation, the number of shares of Common Stock covered
by each outstanding Option, and the number of shares of Common Stock which
have been authorized for issuance under the Plan but as to which no Options
have yet been granted or which have been returned to the Plan upon
8
<PAGE>
cancellation or expiration of an Option, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without
receipt of consideration by the Corporation; provided, however, that
conversion of any convertible securities of the Corporation shall not be
deemed to have been "effected without receipt of consideration". Such
adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein,
no issuance by the Corporation of Shares of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
(b) DISSOLUTION OR LIQUIDATION: In the event of the proposed
dissolution or liquidation of the Corporation, the Administrator shall notify
each Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide for an
Optionee to have the right to exercise his or her Option until 10 days prior
to such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option would not otherwise be exercisable. To the
extent it has not been previously exercised, an Option will terminate
immediately prior to the consummation of such proposed action.
(c) MERGER OR ASSET SALE: In the event of a merger of the Corporation
with or into another corporation, or the sale of substantially all of the
assets of the Corporation, each outstanding Option shall be assumed or an
equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option, the
Optionee shall fully vest in and have the right to exercise the Option as to
all of the Optioned Stock, including Shares as to which it would not otherwise
be vested or exercisable. If an Option becomes fully vested and exercisable in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Administrator shall notify the Optionee in writing or electronically that
the Option shall be fully vested and exercisable for a period of 15 days from
the date of such notice, and the Option shall terminate upon the expiration of
such period. For the purposes of this paragraph, the Option shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned
Stock subject to the Option immediately prior to the merger or sale of assets,
the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were
offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely
common stock of the successor corporation or its Parent, the Administrator
may, with the consent of the successor corporation, provide for the
consideration to be received upon the exercise of the Option, for each Share
of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per
share consideration received by holders of Common Stock in the merger or sale
of assets.
9
<PAGE>
13. DATE OF GRANT: The date of grant of an Option shall be, for all
purposes, the date of which the Administrator make the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN:
(a) AMENDMENT AND TERMINATION: The Board shall amend the Plan from
time to time as required to comply with the requirements of Applicable Laws.
Additionally, in its sole discretion the Board may at any time amend, alter,
suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL: If necessary to comply with Applicable Laws,
the Corporation shall obtain shareholder approval of any Plan amendment.
(c) EFFECT OF AMENDMENT OR TERMINATION: No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the
Corporation. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to options
granted under the Plan prior to the date of such termination.
15. CONDITIONS UPON ISSUANCE OF SHARES:
(a) LEGAL COMPLIANCE: Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Corporation with respect to such
compliance.
(b) INVESTMENT REPRESENTATIONS: As a condition to the exercise of an
Option, the Corporation may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell
or distribute such Shares if, in the opinion of counsel for the Corporation,
such a representation is required.
16. INABILITY TO OBTAIN AUTHORITY: The inability of the Corporation to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Corporation's counsel to be necessary to the lawful issuance
and sale of any Shares hereunder, shall relieve the Corporation of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
17. RESERVATION OF SHARES: The Corporation, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
10
<PAGE>
shall be sufficient to satisfy the requirements of the Plan.
11
EXHIBIT 10(L)
AIM GROUP, INC.
2001 West Sample Road, Suite 300
Pompano Beach, FL 33064
March 24, 1998
Dr. Audrey L. Braswell
36453 Woodbriar Drive
Yucaipa, CA 92399
Re: Second Amendment to Series A 3.5% Convertible
Note of Aim Group, Inc.
---------------------------------------------
Dear Dr. Braswell:
This letter agreement provides for an amendment to the Series A 3.5%
Convertible Note (the "Note") issued to you by AIM Group, Inc. (the "Company")
in the principal amount of $300,000.00 on May 20, 1997, as amended on May 20,
1997. The Board of Directors of the Company has approved the changes in the
terms of the Note set forth below and, upon acceptance by you in the space set
forth below, the Note will be deemed to be amended to give effect to such
changes, subject to the approval of the Vancouver Stock Exchange. Defined
terms set forth below have the same meaning as prescribed in the Note unless
the context otherwise requires.
The Note is amended as follows:
1. MATURITY. The Maturity Date of the Note is extended to be December 31,
1998.
2. INTEREST RATE. The annual interest rate of the Note will remain at 10%,
payable quarterly in arrears at the beginning of each calendar quarter.
3. THE CONVERSION PRICE. The conversion provisions of the Note will remain
at a Conversion Price of $.70 per share, convertible with the same terms of
the Note as amended.
4. TIME OF CONVERSION. Noteholders may not convert their notes prior to
August 1, 1998. After the closing of the Company's proposed equity offering in
the minimum amount of $2,000,000 in mid-1998, there will be a mandatory
conversion if the closing bid price of the Company's common stock on the
Vancouver Stock Exchange averages in excess of $1.50 for a ninety (90) day
period.
<PAGE>
5. LOCK-UP. The Noteholders agree that they will not sell any shares
received upon conversion of the Notes for 240 days following the closing of a
contemplated underwritten best efforts public offering, provided, however,
that the Noteholders may sell up to 300,000 common shares in accordance with
the attached Schedule A, during the period from 120 days to 240 days after the
closing. Management (other than Northern Federal Minerals LLC (Arena) and Dr.
Braswell, which may sell on the same basis as the other Noteholders),
including any officers, directors or ten percent (10%) shareholders, will not
sell any shares until 330 days after the closing of the offering. All parties
agree that any sale of shares are subject to the appropriate Rule 144 and 145
restrictions, if any.
6. EFFECT OF AMENDMENT. Except as amended hereby, and by the amendment of
May 20, 1997, the Note will remain in full force and effect.
Sincerely yours,
AIM GROUP, INC.
By: /s/PAUL R. ARENA
----------------
Paul R. Arena
Chairman of the Board and
Chief Executive Officer
Accepted on this
24th day of March, 1998
DR. AUDREY L. BRASWELL
By: /s/AUDREY L. BRASWELL
---------------------
<PAGE>
SCHEDULE "A"
Of the Second Amendment to the:
Series A 3.5% Convertible
Note of AIM Group, Inc.
<TABLE>
<CAPTION>
Noteholder Principal Amount Shares Cv @ $.70 (*)
---------- ---------------- ---------------- ---
<S> <C> <C> <C>
Dr. Audrey L. Braswell $300,000 428,571 85,714
Bernard R. Kossar $300,000 428,571 85,714
Northern Federal Minerals, LLC $450,000 642,857 128,571
</TABLE>
(*) Number of pro-rata allowable shares that can be sold by noteholder
during the period as described in Paragraph 5 of the Second Amendment.
EXHIBIT 10(M)
AIM GROUP, INC.
Hwy 270, P.O. Box 208
Jones Mills, Arkansas 72105
November 13, 1998
Dr. Audrey L. Braswell
36453 Woodbriar Drive
Yucaipa, CA 92399
Re: Third Amendment to Series A Convertible
Note of AIM Group, Inc.
---------------------------------------
Dear Dr. Braswell:
This letter agreement provides for an amendment to the Series A
Convertible Note (the "Note") issued to you by AIM Group, Inc. (the "Company")
in the principal amount of $300,000.00 on May 20, 1997, as amended on May 20,
1997 and March 24, 1998. The Board of Directors of the Company has approved
the changes in the terms of the Note set forth below and, upon acceptance by
you in the space set forth below, the Note will be deemed to be amended to
give effect to such changes, subject to the approval of the Vancouver Stock
Exchange. Defined terms set forth below have the same meaning as prescribed in
the Note unless the context otherwise requires.
The Note is amended as follows:
1. MATURITY. The Maturity Date of the Note is extended to be June 30, 1999.
2. INTEREST RATE. The annual interest rate of the Note will remain at 10%,
payable quarterly in arrears at the beginning of each calendar quarter.
3. THE CONVERSION PRICE. The conversion provisions of the Note will remain
at a Conversion Price of $2.10 per share (adjusted for one for three reverse
stock split), convertible with the same terms of the Note as amended.
4. TIME OF CONVERSION. a) Noteholders may at anytime convert their Notes
subject to the terms set forth in the opinion letter of AIM's counsel dated
November 2, 1998. except as otherwise provided in Paragraph 5 of this
agreement.
b) After the closing of the Company's proposed equity offering(s) in the
minimum amount of $2,000,000, there will be a mandatory conversion if the
closing bid price of the Company's common stock on the Vancouver Stock
<PAGE>
Exchange averages in excess of $4.50 per share for a ninety (90) day period
and maintains an average daily trading volume of 6,000 shares for the same
ninety (90) day period.
5. LOCK-UP. a) If the Noteholders are advised in writing of the closing of
one or more contemplated private placements (the "Financing") with a
cumulative total in excess of $2,000,000, the Noteholders will refrain from
selling any shares received upon conversion of the Notes for 240 days
following the first subscription of the Financing, provided, however, that the
Noteholders may sell up to 100,000 common shares in accordance with the
attached Schedule A, during the period from 120 days to 240 days following the
first subscription of the Financing.
b) Management (other than Northern Federal Minerals LLC (Arena) and Dr.
Braswell, which may sell on the same basis as the other Noteholders),
including any officers, directors or ten percent (10%) shareholders, will not
sell any shares until 330 days after the closing of the Financing. All parties
agree that any sale of shares will be subject to Rule 144 under the Securities
Act of 1933.
6. EFFECT OF AMENDMENT. Except as amended hereby, and by the amendments of
May 20, 1997 and March 24, 1998, the terms of the Note, attached hereto, will
remain in full force and effect.
Sincerely yours,
AIM GROUP, INC.
By: /s/PAUL R. ARENA
----------------
Paul R. Arena
Chairman of the Board and
Chief Executive Officer
Accepted on this
15th day of November, 1998
DR. AUDREY L. BRASWELL
By: /s/AUDREY L. BRASWELL
---------------------
<PAGE>
SCHEDULE "A"
Of the Third Amendment to the:
Series A Convertible
Notes of AIM Group, Inc.
<TABLE>
<CAPTION>
Noteholder Principal Amount Shares Cv @ $.70 (*)
---------- ---------------- ---------------- ---
<S> <C> <C> <C>
Dr. Audrey L. Braswell $300,000 142,857 28,572
Bernard R. Kossar $300,000 142,857 28,572
Northern Federal Minerals, LLC $450,000 214,286 42,856
</TABLE>
Adjusted for one for three reverse stock split
(*) Number of pro-rata allowable shares that can be sold by Noteholder
during the period as described in Paragraph 5 of the Second Amendment.
EXHIBIT 10(N)
PROMISSORY NOTE
$150,000.00 Malvern, Arkansas
May 12, 1998
FOR VALUE RECEIVED, the undersigned, UNITED MINERALS CORPORATION
("Maker"), does hereby promise to pay, with payment of up to Seventy-Five
Thousand Dollars ($75,000.00) being guaranteed jointly by Paul R. Arena and
Michele L. Arena ("Guarantors"), to the order of AUDREY L. BRASWELL
("Holder"), the principal amount of One Hundred Fifty Thousand Dollars
($150,000.00), together with interest computed on such principal amount from
the date hereof on the unpaid principal balance at the annual rate, compounded
daily, equal to the prime rate of eight and one-half percent (8.5%).
1. The principal amount outstanding under this Note, together with
accrued and unpaid interest, shall be paid by the Maker to the Holder in
twelve (12) equal monthly payments of interest, with the first such monthly
installment payment being due on June 12, 1998, and the final installment
payment being due on May 12, 1999. The Maker shall make all such payments to
the order of the Holder at 13600 Diamond Point Drive, Yucripa, California
92399 (or such other address as may be designated in writing by Holder to
Maker).
2. This Note may be prepaid in whole or in part at any time, without
premium or penalty, with interest to the date of payment. If this Note is
prepaid, there is to be no discount from the obligation to pay the full
principal balance due at the time of prepayment.
3. Whenever an attorney is used to obtain payment under, or to
otherwise enforce, this Note or to enforce, declare, or adjudicate any rights
or obligations under this Note, whether by suit or by any other means
whatsoever, the costs and expenses thereof, including reasonable attorneys'
fees and expenses, shall be payable by the non-prevailing party.
4. Each of the following shall constitute an event of default ("Event
of Default") hereunder:
(a) If Maker or Guarantors fail to pay any installment of interest or
principal on this Note when due hereunder which failure continues for a period
of ten (10) days after the due date thereof;
(b) If Maker or Guarantors shall admit in writing its or their
inability to pay its debts as they become due, file a petition in bankruptcy
or make a petition to take advantage of any insolvency act; make an assignment
for the benefit of creditors, commence a proceeding for the appointment of a
receiver, trustee, liquidator or conservator of all or any substantial part of
its property; file a petition or answer seeking reorganization or similar
relief under the Federal bankruptcy laws or any similar law or statute
governing the relative rights of debtors and creditors; and
<PAGE>
(c) If any of the creditors of Maker or Guarantors shall file a
petition in bankruptcy against Maker or Guarantors or for reorganization of
Maker or Guarantors pursuant to the Federal bankruptcy laws or similar law or
statute, and if such petition shall not be discharged or dismissed within
sixty (60) calendar days after the date on which such petition was filed.
5. In the event of the happening of any Event of Default, then the
unpaid principal of this Note, and interest thereon until payment, shall
forthwith become absolute and due and payable without any notice or demand
whatsoever.
6. This Note (a) may not be changed, waived, discharged, or
terminated except by an instrument in writing signed by the party against whom
enforcement of such change, waiver, discharge, or termination is sought, (b)
shall be binding upon Maker, Guarantors and their successors and assigns, and
(c) shall inure to the benefit of and be enforceable by the Holder, and his
heirs, executors, administrators, distributees, and personal representatives.
7. This Note shall be governed by and construed in accordance with
the laws of the State of Arkansas applicable to agreements made and to be
performed entirely within such State.
8. All parties now and hereafter liable with respect to this Note,
whether as maker, principal, surety, endorser, guarantor, or otherwise, hereby
waive presentation for payment, demand, notice of nonpayment or dishonor,
protest, and notice of protest to Maker or any other person.
9. The obligation of Guarantors hereunder shall be secured by a
second mortgage in the amount of Seventy-Five Thousand Dollars ($75,000.00) on
the residence of Guarantors at 128 Hamilton Place, Hot Springs, Arkansas
71913.
IN WITNESS WHEREOF, each of Maker and each Guarantor has caused this
Note to be executed as indicated below.
Attest (Seal): UNITED MINERALS CORPORATION
By: /s/LEIGH ZOLOTO BY: /s/PAUL R. ARENA
--------------- ----------------
Secretary Paul R. Arena
Witnesses: GUARANTORS:
/s/CATHY PENDERGRAFT /s/PAUL R. ARENA
-------------------- ----------------
Paul R. Arena
/s/VAN MICHAEL /s/MICHELE L. ARENA
-------------- -------------------
Michele L. Arena
2
EXHIBIT 10(0)
EMPLOYMENT AGREEMENT
This Agreement to be effective February 15, 1999 is entered into by and
between AIM Group, Inc., a Delaware corporation and its wholly-owned
subsidiary American Internet Media, Inc., a Delaware corporation in formation,
(the "Employer"), and Theodore L. Lamb, 6705 Polo Drive, Cumming, Georgia
30040 (the "Employee").
WITNESSETH:
WHEREAS, Employer intends to engage in the information technology and
related businesses including but not limited to internet services, software
development and sales, world wide web site development and sales, point of
sales technology and media and advertising, (the "Information Technologies");
and to conduct research, experimentation, development, and exploitation of
these related technologies and to engage in other businesses; and
WHEREAS, Employer desires to employ Employee as a Director and Chief
Operating Officer of AIM Group, Inc.; and Director and Chief Operating Officer
of American Internet Media, Inc. (the "Company") of Employer, and Employee
desires to be employed by Employer in such capacities pursuant to the terms
and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein contained, it is agreed as follows:
1. EMPLOYMENT: DUTIES AND RESPONSIBILITIES
Employer hereby employs Employee as a Director and Chief Operating
Officer of AIM Group, Inc.; and Director and Chief Operating Officer of
American Internet Media, Inc. of Employer. Subject at all times to the
direction of the Officers and Board of Directors of Employer, Employee shall
serve in these capacities to be in charge of the overall operations of AIM
Group, Inc. and the operations of American Internet Media, Inc. including the
performance of such other general services and duties as the Board of
Directors shall determine. Employee shall serve in such other positions and
offices of the Employer and its affiliates, if selected, without any
additional compensation.
Employee shall interrelate with outside sources and stimuli (conference,
journals, consultation, etc.) and remain aware and current of the
opportunities, both business and technical in nature particular to the field
of Information Technologies.
Employee shall have direct responsibility over the operations of AIM
Group, Inc. and the operations of American Internet Media, Inc stated in this
Section 1.
<PAGE>
To confer with the Directors and other Officers of the Corporation on
ideas and proposals to further define time opportunities and gain rationale to
propose to the Board of Directors a formal long term as well as immediate plan
of both local, national, and international business.
In the performance of all of the involved research and product/project
development stages and to be aware of other affiliates as well as outside
entities also involved in supporting the progress of the projects to
completion. Furthermore to be responsible for their being informed in a timely
manner to provide for the most efficient and straight forward coordination of
efforts, generally stated, to keep things going.
2. FULL TIME EMPLOYMENT
Employee hereby accepts employment by Employer upon the terms and
conditions contained herein and agrees that during the term of this Agreement,
the Employee shall devote substantially all of his business time, attention,
and energies to the business of the Employer. Employee, during the term of
this Agreement, will not perform any services for any other business entity,
whether such entity conducts a business which is competitive with the business
of Employer or is engaged in any other business activity, provided, however,
that nothing herein contained shall be construed as (a) preventing Employee
from investing his personal assets in any business or businesses which do not
compete directly or indirectly with the Employer, provided such investment or
investments do not require any services on his part on the operation of the
affairs of the entity in which such investment is made and in which his
participation is solely that of an investor, (b) preventing Employee from
purchasing securities in any corporation whose securities are regularly
traded, if such purchases shall not result in his owning beneficially at any
time more than 5% of the equity securities of any corporation engaged in a
business which is competitive, directly or indirectly, to that of Employer,
(c) preventing Employee from engaging in any activities, if he receives the
prior written approval of the Board of Directors of Employer with respect to
his engaging in such activities.
3. RECORDS
In connection with his engagement hereunder, Employee shall accurately
maintain and preserve all notes and records generated by Employer which relate
to Employer and its business and shall make all such reports, written if
required, as Employer may reasonably require.
4. TERM
Employee's employment hereunder shall be for a period of two one-year
terms to commence on the date hereof and end one year from date. Each one year
term shall be deemed a Contract Year.
5. COMPENSATION
2
<PAGE>
(a) As full compensation ("Base Salary") for the performance of his
duties on behalf of Employer, Employee shall be compensated as follows:
(i) BASE SALARY. Employer, during the term hereof, shall pay
Employee a base salary at the rate of One-Hundred Twenty Thousand Dollars
($120,000) per annum, payable semi-monthly; during the second-year term,
Employer shall pay Employee a base salary at the rate of One Hundred-Fifty
Thousand Dollars ($150,000) per annum provided that the trailing twelve month
net sales for the Company are in excess of $10 million and the net profits are
in excess of $1 million. If this Agreement is renewed for a subsequent term or
terms, base salary shall be increased pursuant to; a) a minimum of
Five-Percent (5%) per year (the "Minimum Increase"); or b) as the Board of
Directors shall determine if in excess to the Minimum Increase, payable
semi-monthly beginning January 1, 2001 subject to the performance criteria as
outlined in Section 1. Future salary increases will be subject to mutual
agreement in accordance with job performance.
Directors may consider other meritorious adjustments in compensation or
a bonus under appropriate circumstance including the conception of valuable or
unique inventions, processes, discoveries or improvements capable of
profitable exploitation.
(ii) PERFORMANCE BONUS. Upon the proposed establishment of the
Company's Performance Profit Sharing Plan (the"Plan"), Employee shall receive
a performance bonus of the pre-tax profit generated from the Employer
("additional compensation") as shall be determined by the Board of Directors
of AIM Group, Inc.
(iii) INCENTIVE STOCK OPTION. Employee shall also receive stock
options under Employer's parent AIM Group, Inc. ("AIM") 1997 Incentive Stock
Option Plan or such other Incentive Stock Option Plan then in existence (the
"ISO Plan") to purchase shares of AIM's Common Stock. The number of options to
be issued to Employee will be set forth by AIM's Board of Directors from time
to time at their sole discretion. Initially, the Employee shall receive
options at minimum, equal to 33,333 common shares of AIM Group, Inc.
exercisable at $3.00 per share in accordance with the terms of the ISO Plan.
The ISO Plan provides a 10 year exercise period and vests 25% per year. During
the second year of employment, the Employee shall receive options provided the
performance criteria is reached as described in Section 5(a)(i) with respect
to target net revenues of $10 million and net profits of $1 million at a
minimum , equal to one-percent (1/2%) of the number of outstanding common
shares of AIM Group, Inc. and the end of the first term exercisable at the
price of the Common Stock on such day of issuance, each subject the terms as
more clearly defined within the ISO Plan.
(b) Employer shall reimburse Employee for the expenses incurred by
Employee in connection with his duties hereunder, including travel on
businesses, attending technical and business meetings, professional activities
and entertainment, such reimbursement to be made in accordance with regular
Employer policy and upon presentation by Employee of the details of, and
originals of vouchers for, such expenses.
3
<PAGE>
(c) Employer shall provide to Employee, as partial consideration for
the execution of this agreement, 33,333 common shares of AIM Group, Inc.,
subject to Rules 144 and 145 of the Securities Act of 1933.
The compensation to be paid to the Employee as described in Section 5 (a)(iii)
and (c) above shall be subject to the acceptance by any regulatory authority
having jurisdiction over the Employer. If all or any portion of Section 5
(a)(iii) and/or (c) should be negated, then the parties shall agree to such
other form of compensation which would be mutually acceptable.
6. FRINGE BENEFITS
(a) During the term of this Agreement, Employer shall provide at its
sole expense to Employee, hospitalization, major medical, life insurance and
other fringe benefits on the same terms and conditions as it shall afford
other senior management employees. In addition, Employer will seek to provide
key-man term life insurance on Employee in the amount of One Million Dollars
($1,000,000) to inure Three-Quarters (75%) to the benefit of Employer and
One-Quarter (25%) to the benefit of the Employee's estate. Nothing herein
shall require Employer to obtain or maintain such coverage.
(b) During the term of this Agreement, Employer shall provide paid
vacation to Employee which accrues from the date of execution of this
Agreement. The annual paid vacation earned for each twelve month period is:
(i) three (3) weeks per annum up to three (3) years of full-time employment;
(ii) four (4) weeks per annum up to seven (7) years of full-time employment;
and (iii) five (5) weeks per annum over seven (7) years of full-time
employment.
7. SUBSIDIARIES
For the purposes of this Agreement all references to business products,
services and sales of Employer shall include those of Employer's affiliates.
8. INVENTORIES: SHOP RIGHTS
All systems, inventions, discoveries, apparatus, techniques, methods,
know-how, formulae or improvements made, developed or conceived by Employee
during Employee's employment by Employer, whenever or wherever made, developed
or conceived, and whether or not during business hours, which constitutes an
improvement, on those heretofore, now or at any during Employee's employment,
developed, manufactured or used by Employer in connection with the
manufacture, process or marketing of any product heretofore or now or
hereafter developed or distributed by Employer, or any services to be
performed by Employer or of any product which shall or could reasonable be
manufactured or developed or marketed in the reasonable expansion of
Employer's business, shall be and continue to remain Employer's exclusive
property, without any added compensation or any reimbursement for expenses to
4
<PAGE>
Employee, and upon the conception of any and every such invention, process,
discovery or improvement and without waiting to perfect or complete it,
Employee promises and agrees that Employee will immediately disclose it to
Employer and to no one else and thenceforth will treat it as the property and
secret of Employer.
Employee will also execute any instruments requested from time to time
by Employer to vest in it complete title and ownership to such invention,
discovery or improvement and will, at the request of Employer do such acts and
execute such instrument as Employer may require but at Employer's expense to
obtain Letters of Patent, trademarks or copyrights in the United States and
foreign countries, for such invention, discovery or improvement and for the
purpose of vesting title thereto in Employer, all without any reimbursement
for expenses (except as provided in Section 5 or otherwise and without any
additional compensation of any kind of Employee.
9. NON-DISCLOSURE
(a) Employee acknowledges that the services to be rendered by him or
her to Employer are peculiar, special, unique and extraordinary, and that he
may during the term of his employment obtain confidential information of
Employer's method of doing business, secrets, customers, suppliers, formulae,
and processes, the use or revelation of which by Employee during Employee's
employment or after the termination of the employment hereunder, might, would
or could injure or cause injury to Employer's business. Accordingly, Employee
agrees to forever keep secret and inviolate any knowledge or information as to
any of Employer's secret articles, devices, formulae, processes, invention,
customers, suppliers, or discoveries and will not utilize the same for his
private benefit or indirectly for the benefit of others and will never
disclose such secret knowledge or information to anyone else. The foregoing
shall not be applicable to any information which now is or hereafter shall be
in the public domain in the context in which used provided the Employee does
not release such information without Employer's authorization.
(b) In addition, Employee agrees that all information received from
principals and agents of Employer will be held in total confidence for a
period of two (2) years following termination of employment.
10. NON-COMPETITION
In consideration of the Employee's employment with Employer, its
successors, present or future subsidiaries, or assigns during such time as may
be mutually agreeable, of the compensation provided herein, of the Employee's
Base Salary as an Employee and for other good and valuable consideration,
receipt and adequacy of which are hereby acknowledged, Employee agrees:
(a) That during the employment by Employer, Employee will not (i)
engage in a business that competes, directly or indirectly, with any of the
5
<PAGE>
products, services or businesses of Employer; (ii) be or become a stockholder,
partner, owner, officer, director, employee or agent of, or consultant to, or
give financial or other assistance to, any person or entity engaged in or
considering engaging in any such business; (iii) seek in competition with the
business of Employer to procure orders from or do business with any customer
of Employer; (iv) solicit, or contact with a view to the engagement or
employment of, any person who is an employee of Employer; (v) seek to contract
or engage (in such a way as to adversely affect or interfere with the business
of Employer) any person or entity who has been contracted with or engaged to
manufacture, assemble, supply or deliver products, goods, materials or
services to Employer; or (vi) engage in or participate in any effort or act to
induce any of the customers, associates, consultants, partners, or employees
of Employer to take any action which might be disadvantageous to Employer;
provided, however, that nothing herein shall prohibit Employee from owning, as
a passive investor, in the aggregate not more than 5% of the outstanding
publicly traded stock of any corporation so engaged.
(b) That for a period of two years following termination of Employee's
employment, Employer shall, at its option, have the right to require that the
Employee not (i) engage in a business that competes, directly or indirectly
with any of the products sold or businesses conducted by any division or
subsidiary of Employer in which the Employee worked during the two (2) year
period prior to the termination of the Employee's employment by Employer; (ii)
be or become a stockholder, partner, owner, officer, director, employee or
agent of, or a consultant to, or give financial or other assistance to, any
person or entity engaged in or considering engaging in any such business;
(iii) seek in competition with the business of Employer to procure orders from
or do business with any customer of Employer with which Employee had contact
during the two years prior to termination of Employee's employment with
Employer; (iv) solicit, or contact with a view to the engagement or employment
of, any person who is an employee of Employer; (v) seek to contract or engage
(in such a way as to adversely affect or interfere with the business of
Employer) any person or entity who has been contracted with or engaged to
manufacture, assemble, supply or deliver products, goods, materials or
services to Employer; or (vi) engage in or participate in any effort or act to
induce any of the customers, associates, consultants, partners, or employees
of Employer to take any action which might be disadvantageous to Employer;
provided, however, that nothing herein shall prohibit Employee from owning, as
a passive investor, in the aggregate not more than 5% of the outstanding
publicly traded stock of any corporation so engaged. The foregoing
restrictions shall apply to conduct and activities in any city, county or
state in the United States or in any foreign country in which any Employer
subsidiary or division in which Employee worked during the two years prior to
termination of Employee's employment with Employer sells products or services
or conducts business. Employer shall, if it exercises its option set forth in
this Section 10 (b), with respect to employment or consulting activities, make
the payments described in Section 10 (d) below to Employee. In the event that
the Employee would violate the provisions of this section following
termination of Employee's employment, Employer may, at its option, extend the
foregoing two (2) year period by the duration of the Employee's violation.
6
<PAGE>
(c) During Employee's employment by Employer and during the course of
the above-mentioned two (2) year period, Employee shall advise Employer in
writing of each and every BONA FIDE OFFER subject to the restrictions set
forth in this Agreement which Employee receives and wishes to accept.
Employees notice shall be sufficiently detailed regarding the nature and scope
of the offer and the identity and business of the offeror to permit Employer
to make an informed decision whether to exercise its option hereunder, and
shall include a copy of the written offer from the offeror. Employee agrees to
supplement the notice with further information upon request by Employer.
(d) Employer shall have ten (10) business days following receipt of
Employee's written notification (and any requested supplement) to advise me of
its election, in its sole discretion, either; (i) to waive the non-competition
provisions of this Agreement, in which case Employee shall be free to accept
such offer subject to all the other terms and conditions of any agreements
with Employer relating to inventions and confidential information; or (ii) to
insist upon Employers full compliance with the provisions of this Agreement.
If Employer elects option (ii) with respect to an employment or consulting
offer, Employer shall compensate Employee monthly in an amount equal to my
latest monthly base pay as an employee of the Employer in lieu of salary,
benefits and all other remuneration Employee would have received in connection
with the proposed employment or consulting for a period beginning on the date
of Employees notice as provided above and ending twenty-four (24) months from
severance of Employee's employment with Employer. The amount payable may be
reduced as provided herein. Monthly payments shall begin with the end of the
month Employer elects option (ii) above. In the event Employee receives an
offer of temporary or part-time employment or an offer to serve as consultant,
the amount payable pursuant to this Section 10(d) shall be the lesser of (a)
my latest monthly base pay or (b) the amount offered for temporary or
part-time employment or consulting. Payments for temporary employment or
consulting shall only be paid during the period for which Employee receives an
offer of temporary employment or consulting.
(e) The election by Employer of option (i) in Section 10(d) above with
respect to any one offer shall not be deemed a release or a waiver with
respect to any other offers which Employee may receive during the two-year
period of restriction. Payments pursuant to Section 10(d) above will be
adjusted if Employer exercises its option with respect to a subsequent offer
of employment or consulting which results in different payments. Payments
ender Section 10(d) will be based solely upon the most recent offer of
employment or consulting presented to Employer. In no event will compensation
ender Section 10(d) exceed Employee's latest monthly base pay as an employee
of Employer.
(f) If Employee accepts employment or performs services for any
business acceptable to Employer or not subject to the restriction set forth in
this Agreement during the two-year period of restriction, the amount of any
compensation to which Employee may later become entitled hereunder shall be
reduced by the amount by which compensation received for such employment or
services exceeds the base pay Employee would have received at Employer for a
period of time of the same duration as such employment or services. Employee
shall promptly advise Employer in writing upon seeking payment pursuant to
7
<PAGE>
Section 10(d) of the dates such acceptable or unrestricted employment
commenced and terminated and the compensation received therefor. In such case,
Employer shall reduce future payments to Employee under Section 10(d) as
provided herein.
Payments pursuant to Section 10(d) above shall also be reduced by an amount
equal to the amount paid to Employee by Employer under any other agreement, if
any, limiting Employee's right to subsequent employment.
(g) Notices shall be sent to Employer at most recent corporate
headquarters address, and to Employee at the most recent address Employer has
for Employee, or at such different address as either party shall have given
notice by certified mail, Return Receipt Requested. Refusal by either party to
accept a notice shall be deemed receipt of that notice.
(h) If any provision of this Section 10 should be adjudicated to be
invalid or unenforceable, such provision shall be deemed deleted herefrom with
respect, and only with respect, to the operation of such provision in the
particular jurisdiction in which such adjudication was made; provided,
however, that to the extent any such provision may be made valid and
enforceable in such jurisdiction by limitations on the scope of activities,
geographical area or time period covered, the parties agree that such
provision instead shall be modified and deemed limited to the extent, and only
to the extent, necessary to make such provisions enforceable to the fullest
extent permissible under the laws and public policies applied in such
jurisdiction, and in such limited form shall be fully enforceable. The parties
further agree to modify, re-execute and resubmit this Agreement to an
appropriate court if necessary to effect the purpose of this Agreement. This
Agreement shall be construed and enforced in accordance with the laws of the
State of Georgia.
(i) The Employee acknowledges and agrees that a breach of the
provisions of this Agreement by the Employee will cause serious and
irreparable damage to Employer that may be difficult to quantify and for which
monetary damages alone will not be adequate. Accordingly, the Employee agrees
that if Employer should bring an action to enforce its rights under this
Agreement and if Employer establishes that Employee has breached any of the
Employee's obligations under this Agreement, Employer shall be entitled to (i)
temporary and/or permanent injunctive relief without the need for posting a
bond, and (ii) reasonable attorneys' fees incurred by Employer in bringing and
prosecuting any action for breach. Nothing in this Agreement shall be
construed to prohibit Employer from pursuing any other legal or equitable
remedy. Employee agrees that in no event will Employer be liable to Employee
for damages in connection with Employer's enforcement of this Agreement in
excess of the amounts specifically provided herein. Employee agrees that
Employer, or its assignee, may assign this Agreement upon written notice to
Employee.
(j) In consideration for Employees obligations under this Agreement,
Employer shall pay Employee upon termination of Employee's employment with
Employer, as supplemental severance pay in addition to all other normal
8
<PAGE>
severance benefits, but in lieu of similar severance under any other
non-competition agreement, if any, with Employer, three months of my latest
Base Salary as an Employee of Employer.
11. INJUNCTION
(a) Should Employee at any time reveal or threaten to reveal any such
secret knowledge or information, or during any restricted period, engage or
threaten to engage in any business in competition with that of Employer, or
perform or threaten to perform any services for anyone engaged in such
competitive business, or in any way violate or threaten to violate any of the
provisions of this Agreement, Employer shall be entitled to an injunction
restraining Employee from doing or continuing to do or performing any such
acts; and Employee hereby consents to the issuance of such an injunction.
(b) In the event that a proceeding is brought in equity to enforce the
provisions of this Paragraph, Employee shall not argue as a defense that there
is an adequate remedy at law, nor shall Employer be prevented from seeking any
other remedies which may be available.
(c) The existence of any claim or cause of action by Employer against
Employee, or by Employee against Employer, whether predicated upon this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Employer of the foregoing restrictive covenants but shall be litigated
separately.
12. PRIOR AGREEMENTS
Employee represents that Employee is not now under any written
agreement, nor has he previously, at any time entered into any written
agreement with any person, firm or corporation, which would or could in any
manner preclude or prevent Employee from giving freely and Employer receiving
the exclusive benefit of his services.
13. MISCELLANEOUS
If any provision of this Agreement shall be declared by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced
in whole or in part, the remaining conditions and provisions or portions
thereof shall nevertheless remain in full force and effect and enforceable to
the extent they are valid, legal and enforceable, and no provision shall be
deemed dependent upon any covenant or provision so expressed herein.
All prior agreements with respect to the subject matter hereof between
the parties are hereby cancelled. This Agreement contains the entire agreement
of the parties relating to the subject matter hereof, and the parties hereto
have made no agreements, representations or warranties relating to the subject
9
<PAGE>
matter of this Agreement which are not set forth herein. No modification of
this Agreement shall be valid unless made in writing and signed by the parties
hereto.
The rights, benefits, duties and obligations under this Agreement shall
inure to, and be binding upon, the Employer, its successors and assigns, and
upon the Employee and his legal representatives, heirs and legatees. This
Agreement constitutes a personal service agreement, and the performance of the
Employee's obligations hereunder may not be transferred or assigned by the
Employee.
The failure of either party to insist upon the strict performance of any
of the terms, conditions and provisions of this Agreement shall not be
construed as a waiver or relinquishment of future compliance therewith, and
said terms, conditions and provisions shall remain in full force and effect.
No waiver of any term or conditions of this Agreement on the part of either
party shall be effective for any purpose whatsoever unless such waiver is in
writing and signed by such party.
This Agreement shall be construed and governed by the laws of the State
of Georgia.
Except as provided in Section 10, any controversy or claim arising
under, out of, or in connection with this Agreement or any breach or claimed
breach thereof, shall be settled by arbitration before the American
Arbitration Association, in Atlanta, Georgia, before a panel of three
arbitrators, in accordance with its rules, and judgement upon any award
rendered may be entered in any court having jurisdiction thereof.
IN WITNESS WHEREOF the parties have set their hands and seals this 15th day of
February, 1999.
On Behalf of Employer:
AIM GROUP, INC. and
AMERICAN INTERNET MEDIA, INC.
By: /s/PAUL R. ARENA
----------------
PAUL R. ARENA, Director
/s/THEODORE L. LAMB
-------------------
THEODORE L. LAMB, Employee
10
EXHIBIT 10(P)
AIM GROUP, INC.
STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of November 24, 1998, by and between AIM
GROUP, INC., a Delaware corporation (the "Company"), and R. Jerry Falkner (the
"Optionee").
W I T N E S S E T H:
WHEREAS, the Company desires to grant to the Optionee an option to
purchase shares of the Company's common stock, par value $.01 per share (the
"Common Stock"), in consideration for the Optionee's consulting services to
the Company pursuant to an agreement, dated November 24, 1998, between the
Company and the Optionee (the "Consulting Agreement").
NOW, THEREFORE, the parties hereto, intending to be legally bound, do
agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions of this
Agreement, the Company hereby grants to Optionee the right and option to
purchase from the Company all or part of an aggregate of 25,000 shares of
Common Stock. This option is not intended to constitute an incentive stock
option within the meaning of Section 422A of the Internal Revenue Code of
1986, as amended (the "Code").
2. OPTION PRICE AND TIME OF EXERCISE. The per-share purchase price at
which the shares subject to option hereunder may be purchased by Optionee
pursuant to his exercise of this option shall be $2.50, which price equals the
closing sale price per share of the Common Stock on the Vancouver Stock
Exchange on November 24, 1998, the date of grant of this option. The
Optionee's right to exercise this option shall vest as to 25% of the shares of
Common Stock underlying the option at the end of each of the first four
three-month periods following the date hereof; provided, however, that vesting
shall not occur as to any three-month period during which the Optionee is not
engaged by the Company pursuant to the Consulting Agreement. The right to
exercise the option shall be cumulative to the extent not theretofore
exercised. The right to exercise the option shall expire, except as provided
in Paragraph 5 below, at the close of business on the day preceding the fifth
anniversary hereof (the "Option Period").
3. METHOD OF EXERCISE AND PAYMENT FOR SHARES. This option shall be
exercised by written notice delivered to the Company at its principal office,
specifying the number of shares to be acquired upon such exercise, and
accompanied by cash payment of the exercise price.
4. NON-TRANSFERABILITY. This option is not transferable by Optionee
except as otherwise provided in Paragraph 5 below, and during Optionee's
lifetime is exercisable only by him.
<PAGE>
5. EXERCISE AFTER DEATH. In the event Optionee dies before the
expiration of this option, Optionee's estate, or the person or persons to whom
his rights under this option shall pass by will or the laws of descent and
distribution, may exercise this option, to the extent exercisable at the date
of death, at any time within six months following Optionee's death (but in any
event before the expiration of the Option Period).
6. ADJUSTMENTS.
(a) ADJUSTMENTS BY STOCK SPLIT, STOCK DIVIDEND, ETC. If the
Company shall at any time increase or decrease the number of its outstanding
shares of Common Stock, or change in any way the rights and privileges of such
shares, by means of the payment of a Common Stock dividend or the making of
any other distribution upon such shares payable in Common Stock, or through a
Common Stock split or subdivision of shares, or a consolidation or combination
of shares, or through a reclassification or recapitalization involving the
Common Stock, then the numbers, rights and privileges of the shares of Common
Stock underlying the option granted hereunder shall be increased, decreased or
changed in like manner as if they had been issued and outstanding, fully paid
and non-assessable at the time of such occurrence.
(b) DIVIDEND PAYABLE IN STOCK OF ANOTHER CORPORATION, ETC. If
the Company shall at any time pay or make any dividend or other distribution
upon the Common Stock payable in securities or other property (except money or
Common Stock), a proportionate part of such securities or other property shall
be set aside and delivered to the Optionee upon exercise hereof.
(c) APPORTIONMENT OF PRICE. Upon any occurrence described in the
preceding subsections (a) and (b) of this Section 8, the total option price
hereunder shall remain unchanged but shall be apportioned ratably over the
increased or decreased number or changed kinds of securities or other property
subject to this option.
(d) RIGHTS TO SUBSCRIBE. If the Company shall at any time grant
to the holders of its Common Stock rights to subscribe PRO RATA for additional
shares thereof or for any other securities of the Company or of any other
corporation, there shall be added to the number of shares underlying this
option the Common Stock or other securities which the Optionee would have been
entitled to subscribe for if immediately prior to such grant the Optionee had
exercised his entire option, and the option price shall be increased by the
amount which would have been payable by the Optionee for such Common Stock or
other securities.
(e) DETERMINATION BY THE COMPANY. Adjustments under this Section
6 shall be made by the Company, whose determinations with regard thereto shall
be final and binding. No fractional shares of Common Stock shall be issued on
account of any such adjustment.
7. MERGER, CONSOLIDATION, ETC.
(a) EFFECT OF TRANSACTION. Upon the occurrence of any of the
following events, if the notice required by Section 7(b) hereof shall have
first been given, the option granted hereunder shall automatically terminate
2
<PAGE>
and be of no further force and effect whatsoever, without the necessity for
any additional notice or other action by the Company: (i) the merger,
consolidation or liquidation of the Company or the acquisition of its assets
or stock pursuant to a nontaxable reorganization, unless the surviving or
acquiring corporation, as the case may be, shall assume all outstanding
options of the Company or substitute new options for them pursuant to Section
425(a) of the Code; (ii) the dissolution or liquidation of the Company; (iii)
the appointment of a receiver for all or substantially all of the Company's
assets or business; (iv) the appointment of a trustee for the Company after a
petition has been filed for the Company's reorganization under applicable
statutes; or (v) the sale, lease or exchange of all or substantially all of
the Company's assets and business.
(b) NOTICE OF SUCH OCCURRENCES. At least 30 days' prior written
notice of any event described in Section 7(a) hereof, except the transactions
described in subsections 7(a)(iii) and (iv) as to which no notice shall be
required, shall be given by the Company to the Optionee. If the Optionee is so
notified, he may exercise all or a portion of the entire unexercised portion
of this option at any time before the occurrence of the event requiring the
giving of notice. Such notice shall be deemed to have been given when
delivered personally to the Optionee or when mailed to the Optionee by
registered or certified mail, postage prepaid, at the Optionee's last address
known to the Company.
8. BINDING EFFECT, ENTIRE AGREEMENT. Subject to the limitations
stated above, this Agreement shall be binding upon and inure to the benefit of
the personal representatives of Optionee and the successors of the Company.
This Agreement constitutes the entire agreement between the parties and cannot
be altered, modified, or changed in any way unless made in writing and signed
by the party against whom such alteration, modification, or change is
asserted.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by its President and the Optionee has signed this Agreement.
AIM GROUP, INC.
By: /s/PAUL R. ARENA
----------------
Paul R. Arena
President
R. JERRY FALKNER
/s/R. JERRY FALKNER
-------------------
R. Jerry Falkner
3
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<ARTICLE> 5
<CIK> 0000928032
<NAME> AIM GROUP, INC.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 324,841
<SECURITIES> 0
<RECEIVABLES> 67,473
<ALLOWANCES> 0
<INVENTORY> 135,198
<CURRENT-ASSETS> 535,264
<PP&E> 877,830
<DEPRECIATION> 293,740
<TOTAL-ASSETS> 5,154,644
<CURRENT-LIABILITIES> 878,836
<BONDS> 1,229,207
0
0
<COMMON> 13,300
<OTHER-SE> 3,033,301
<TOTAL-LIABILITY-AND-EQUITY> 5,154,644
<SALES> 2,085,398
<TOTAL-REVENUES> 2,085,398
<CGS> 1,546,904
<TOTAL-COSTS> 2,437,004
<OTHER-EXPENSES> 686,091
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 204,009
<INCOME-PRETAX> (351,606)
<INCOME-TAX> 0
<INCOME-CONTINUING> (351,606)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (351,606)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> 0
</TABLE>
