As filed with the Securities and Exchange Commission on June 23, 1999
SEC File No. 333-72345
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 4 TO FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------------
TECHNICAL ENVIRONMENT SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
COLORADO 3273 98-0149351
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code No.) Identification No.)
organization)
C/O TES GmbH
25 Impler Strasse
81371, Munich
Germany
(Address of registrant's principal executive offices)(Postal Code)
---------------
Copies to:
Henry F. Schlueter Paul Maricle
Schlueter & Associates, P.C. Rossi & Maricle P. C.
1050 17th Street, Suite 1700 370 17th Street, Suite 4250
Denver, Colorado 80265 Denver, Colorado 80202-4004
(303) 292-3883 (303) 623-5600
-----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. /___/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. /___/
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. /___/ If delivery of the prospectus is expected to be
made pursuant to Rule 434, please check the following box. /___/
------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of registration
Securities to be registered registered(1) offering price per share(2) aggregate offering price fee
<S> <C> <C> <C> <C>
- --------------------------- ------------------------ --------------------------- ------------------------ -------------------------
Common Stock,
no par value 11,467,974 $2.50 $28,669,935 $7,970.00(3)
- --------------------------- ------------------------ --------------------------- ------------------------ -------------------------
</TABLE>
(1) Based on the number of shares of TES common stock to be issued to the
stockholders of ENTECS upon consummation of the merger as provided in the
merger agreement attached as Appendix A to the proxy statement/prospectus
forming a part of this Registration Statement.
(2) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457 adopted under the Securities Act of 1933, as amended.
<PAGE>
(3) The total registration fee of $7,970 is offset by the filing fee of $8,492
previously paid on February 12, 1999 in connection with the initial filing
of this registration statement.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Technical Environment Solutions, Environmental Technologies and Software
Inc. Solutions, Inc.
25 Impler Strasse 25 Impler Strasse
81371, Munich 81371, Munich
Germany Germany
49 089 720 15 100 49 089 720 15 300
Prospectus Proxy Statement
11,467,974 Shares of Common Stock
June __, 1999
Dear Environmental Technologies and Software Solutions, Inc. Stockholder:
Technical Environment Solutions, Inc. and Environmental Technologies and
Software Solutions, Inc. have entered into an Agreement and Plan of Merger which
provides that TES Acquisition Corp., a subsidiary of TES, be merged into ENTECS,
subject to the approval of the ENTECS stockholders. If the merger takes place,
your ENTECS common stock will be converted into TES common stock as described in
this prospectus and proxy statement.
ENTECS board of directors has scheduled a special meeting of the
stockholders to vote on the merger agreement on July 30, 1999 at 9:00 a.m.,
local time, at the facilities of TES Oecon Ag located at Max-Planck - Str. 14,
86899 Landsberg a. Lech, Germany. The merger agreement must be approved by a
majority of the outstanding shares of ENTECS common stock issued as of June 25,
1999. If the merger agreement is approved, we expect the merger to take place
within 45 days of the stockholder's approval.
This prospectus and proxy statement contain important information
concerning TES, ENTECS, the terms of the merger and the conditions which must be
satisfied before the merger can occur. You should carefully consider the risk
factors relating to the merger and to ownership of TES common stock that are
described started on page 16.
The required vote to approve the merger agreement is based on the total
number of outstanding share of ENTECS common stock and not the number of shares
that are actually voted. Not voting at the meeting, failing to submit a proxy
card, or abstaining from voting at the meeting has the same effect as voting
against the merger. Your vote on the merger is important to us. Please vote your
shares of common stock by completing the enclosed proxy card and returning it to
us in the enclosed envelope. The ENTECS board of directors urges you to vote in
favor of the merger.
Neither the SEC nor any state securities commission has approved or
disapproved of these securities or determined if this proxy statement and
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Sincerely,
Gerd Behrens
President
<PAGE>
ENVIRONMENTAL TECHNOLOGIES AND SOFTWARE SOLUTONS, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 30, 1999
To the Stockholders of Environmental Technologies and Software Solutions, Inc.
This shall serve as notice that a special meeting of stockholders of
Environmental Technologies and Software Solutions, Inc., a Colorado corporation
will be held at 9:00,a.m., local time, on July 30, 1999 at the facilities of TES
Oecon AG located at Max-Planck - Str. 14, 86899 Landsberg a. Lech Germany for
the following purposes:
1. To vote upon a proposal to approve (a) the agreement and plan of
merger, dated as of June 22, 1999, between Technical Environment
Solutions, Inc., a Colorado corporation, TES Acquisition Corp., a Colorado
corporation and a wholly owned subsidiary of TES, and ENTECS, and (b) the
merger of TES Acquisition with and into ENTECS. Upon the merger, among
other things, ENTECS will become a wholly owned subsidiary of TES, and each
outstanding share of ENTECS common stock, no par value per share, will be
converted, without any action on the part of the stockholder, into the
right to receive seven shares of TES common stock.
2. To grant the board of directors of ENTECS discretionary authority
to adjourn the special meeting to solicit additional votes for approval of
the merger agreement and the merger.
3. To transact other business as may properly come before the special
meeting or any adjournment or postponement of the special meeting.
These items of business are more fully described in the proxy statement and
prospectus, which is attached to and made a part of this notice, and which you
are urged to read carefully.
The board of directors has fixed the close of business on June 25, 1999 as
the record date for determining stockholders entitled to notice of and to vote
at the special meeting and any adjournment or postponement of the special
meeting. Approval of the merger agreement and the merger will require the
affirmative vote of the holders of a majority of the outstanding shares of
ENTECS common stock.
BY ORDER OF THE BOARD OF DIRECTORS
Frank Behrens, Secretary
[LOCATION]
__________, 1999
To assure that your shares are represented at the special meeting, you are
urged to complete, date and sign the enclosed proxy and mail it promptly in the
postage-paid envelope provided, whether or not you plan to attend the special
meeting in person. You may revoke your proxy in the manner described in the
accompanying proxy statement and prospectus at any time before it has been voted
ate the special meeting. Any stockholder attending the special meeting may vote
in person even if that stockholder has returned a proxy.
2
<PAGE>
TABLE OF CONTENTS
Page
----
Question and Answers About the ENTECS/TES Merger ........................ 6
Summary ................................................................. 8
General ......................................................... 8
The Parties, Affiliation and Market Information Market Information 8
The Special Meeting ............................................. 9
The Merger ...................................................... 10
Summary Historical and Pro Forma Financial Data ................. 13
Monetary Exchange Rates ................................................. 16
Risk Factors ............................................................ 16
Forward-Looking Statements .............................................. 18
The Special Meeting ..................................................... 18
General ........................................................ 18
Matters to be Considered at the Special Meeting ................ 19
Votes Required for Approval of the Merger ...................... 19
Voting at the Special Meeting .................................. 19
Treatment of Abstentions ....................................... 19
Proxies ........................................................ 20
Procedure for Revocation of Proxy .............................. 20
Dissenters' Rights ............................................. 21
Expenses of Solicitation ....................................... 21
Recommendation of the Board of Directors ....................... 21
The Merger .............................................................. 22
Background and Reasons for the Merger .......................... 22
Effects of the Merger .......................................... 22
Opinion of Financial Advisor.................................... 23
Federal Income Tax Considerations in the United States ......... 26
Income Tax Considerations in Germany ........................... 27
Dissenters' Rights ............................................. 29
Interests of Certain Persons in the Merger ..................... 30
Financing of the Merger ........................................ 31
Accounting Treatment ........................................... 31
The Merger Agreement .................................................... 32
General ........................................................ 32
Effective Time of the Merger ................................... 32
Exchange of Certificates ....................................... 32
Fractional Shares .............................................. 33
Representations ................................................ 33
Conduct of Business Pending the Merger ......................... 34
Conditions to Consummation of the Merger ....................... 34
Termination .................................................... 35
Expenses and Fees .............................................. 36
3
<PAGE>
Unaudited Pro Forma Combined Condensed Financial Statements ............. 37
Technical Environment Solutions, Inc. and Environmental Technologies
and Software Solutions, Inc. Pro Forma Combined Condensed
Balance Sheet ................................................ 38
Technical Environment Solutions, Inc. and Environmental Technologies
and Software Solutions, Inc. Pro Forma Combined Condensed
Statement of Operations for the Year ended December 31, 1998 . 39
Technical Environment Solutions, Inc. and Environmental Technologies
and Software Solutions, Inc. Pro Forma Combined Condensed
Financial Statement of Operations for the Three Months ended
March 31, 1999 ............................................... 40
Technical Environment Solutions, Inc. and Environmental Technologies
and Software Solutions, Inc. Notes to Pro Forma Combined Condensed
Financial Statements ......................................... 41
Selected Financial Data of TES .......................................... 42
TES Management's Discussion and Analysis of Financial Condition and Results
of Operations ................................................ 44
Selected Financial Data of ENTECS ....................................... 50
ENTECS Management's Discussion and Analysis of Financial Condition and Results
of Operations ................................................ 51
Business of TES ......................................................... 53
Business of ENTECS ...................................................... 62
Material Contracts Between TES and ENTECS ............................... 67
Security Ownership of Certain Beneficial Owners and Management of TES ... 69
Directors and Executive Officers of TES ................................. 70
Certain Relationships and Related Transactions .......................... 74
Security Ownership of Certain Beneficial Owners and Management of ENTECS. 76
Directors and Executive Officers of ENTECS .............................. 77
Description of TES Capital Stock ........................................ 80
Market for TES' Common Stock and Related Stockholder Matters ............ 81
Legal Opinions .......................................................... 82
Experts ................................................................. 83
Additional Information .................................................. 83
Index to Financial Statements ........................................... 84
Appendix A -- Agreement and Plan of Merger
Appendix B -- Opinion of Blake Street Securities, LLC
Appendix C -- Sections of the Colorado Business Corporation Act relating to
dissenter's rights
4
<PAGE>
QUESTIONS AND ANSWERS
ABOUT THE TES AND ENTECS MERGER
Q: What do I need to do now?
A: If you are an ENTECS stockholder, please carefully read and consider
the information contained in this document, then fill out and sign your
proxy card. Please mail your signed proxy card in the enclosed return
envelope as soon as possible so that your shares may be represented at
the meeting. Your proxy card will instruct the persons named on the
card to vote your shares at the meeting as you direct on the card. If
you do not vote or you abstain, the effect will be a vote against the
merger. The board of directors of ENTECS unanimously recommends that
you vote in favor of the proposed merger.
Q: If my broker holds my shares in "street name", will my broker vote my
shares for me?
A: Your broker will vote your shares only if you provide instructions on
how to vote. You should follow the directions provided by your broker
to vote your shares.
Q: May I change my vote after I have mailed my signed proxy card?
A: You may change your vote at any time before your proxy is voted at the
meeting. You can do this in one of three ways. Each method alone is
sufficient to change your proxy.
(1) You can send a written notice to ENTECS at its business address
stating that you would like to revoke your proxy.
(2) You can complete and submit a new proxy card to ENTECS at its
business address.
(3) You can attend the meeting and vote in person. Simply attending the
meeting, however, will not revoke your proxy; you must vote at the
meeting.
If, however, you have instructed a broker to vote your shares, you must
follow directions received from your broker to change your vote.
Q. Should I send in my stock certificates now?
A: No. After the merger is completed, ENTECS stockholders will receive
written instructions for exchanging their stock certificates. TES
stockholders will keep their existing certificates.
5
<PAGE>
Q: When will ENTECS stockholders be permitted to sell the TES shares they
receive in the merger?
A: Immediately following the merger, each ENTECS stockholder, except those
who are officers, directors, or otherwise consider "affiliates" of TES
under the SEC rules, will be entitled to sell or transfer the TES
common stock received by that stockholder in the merger.
Q: When do you expect the merger to be completed?
A: We expect to complete the merger shortly after receiving stockholder
approval at the meeting.
Q. Who can help answer my questions about the merger?
A. If you have more questions about the merger, you should contact:
Gerd Behrens, President
Technical Environment Solutions, Inc.
c/o TES GmbH
25 Impler Strasse
81371, Munich
Germany
6
<PAGE>
SUMMARY
The following is a brief summary of the information contained elsewhere in
this proxy statement and prospectus. We refer you to the more detailed
information contained in this proxy statement and prospectus and the appendices
to this proxy statement and prospectus.
General
This proxy statement and prospectus relates to the proposed merger of TES
Acquisition with and into ENTECS in accordance with an agreement and plan of
merger, dated June 22, 1999. A copy of the merger agreement is attached to this
proxy statement and prospectus as appendix A.
The Parties, Affiliation and Market Information
TES TES is a non-operating holding company, which conducts
operations in Germany through two wholly owned German
subsidiaries - Technical Environment Solutions GmbH and
TES Oecon AG. Since 1994, TES has been engaged in the
marketing of recycling services on a contract basis
primarily for electronic scrap and other valuable waste
materials in cooperation with specialist waste disposal
companies.
The address and telephone number for TES and its
subsidiaries are: Technical Environmental Solutions,
Inc., c/o TES GmbH, 25 Impler Strasse, 81371, Munich,
Germany; Telephone No. 49 089 720 15 100.
ENTECS ENTECS is a non-operating holding company, which
conducts operations entirely in Germany through two
wholly owned German subsidiaries -ENTECS Umwelttechnik
GmbH and ENTECS Software und Umweltmanagement GmbH.
ENTECS is active in the recycling of various waste
products within the environmental protection industry,
which is expected to grow rapidly due to increasing
investments being made to comply with environmental
regulation by both private enterprises and public
institutions. The environmental protection industry is
also expected to continually create new jobs because of
the dynamic growth in the area.
7
<PAGE>
ENTECS holds the exclusive licensing rights to a new
recycling system for the capture and re-use of cement
waste and waste water that is generated by concrete
mixing plants. The system, known as the "BRS-Compact,"
is in the process of being patented both as a
technology and as a process. ENTECS' subsidiary, ENTECS
Umwelttechnik GmbH, owns an artificial peat production
system, which produces three grades of high- quality
all-natural artificial peat products.
The address and telephone number for ENTECS and its
subsidiaries is Environmental Technologies and Software
Solutions, Inc., c/o ENTECS Umwelttechnik GmbH, 25
Impler Strasse, 81371, Munich Germany; Telephone No. 49
089 720 15 300.
Affiliation TES and ENTECS may be considered to be "affiliates"
as that term is defined in the rules and regulations
under the Securities Act of 1933 because of the
common stock ownership of the two companies vested
in members of the Behrens family, and the directorships
and executive offices held by Gerd Behrens and Frank
Behrens in both companies. Further, members of the
Behrens family may be considered to be "promoters" and
"parents" of both TES and ENTECS within the meaning of
the rules and regulations promulgated under the
Securities Act.
Market
Information TES' common stock began trading in the over-the-counter
market during the fourth calendar quarter of 1998. The
first quotation for TES' common stock was reported in
the NASD's Electronic Bulletin Board on October 23,
1998. The high bid during the period from October 23 to
December 31, 1998, was $3.50 and the low bid was $0.75.
The closing bid price was $1.75 and the closing ask
price was $3.625 on March 31, 1999.
There is no public market for ENTECS' common stock.
From inception to the present, ENTECS offered its
common stock in private sales at prices ranging from
$5.81 per share to $7.00 per share.
The Special Meeting
Record Date;
Shares Entitled
to Vote Only holders of record of shares of ENTECS common stock
at the close of business on June 25, 1999 are entitled
to notice of and to vote at the ENTECS special meeting.
As of that date, there were _______________ shares of
ENTECS common stock outstanding. Each share will be
entitled to one vote on each matter acted upon at the
special meeting.
8
<PAGE>
Purpose of the
Meeting The purpose of the ENTECS special meeting is to vote
upon a proposal to approve the merger agreement and the
merger of TES Acquisition with and into ENTECS.
Votes Required The holders of a majority of the outstanding shares of
ENTECS common stock must approve the merger. TES
stockholders do not need to approve the merger;
however, the board of directors of TES has approved the
merger and TES, as the sole stockholder of TES
Acquisition, will vote in favor of the merger. The
officers and directors of ENTECS and stockholders of
more than 5% of the outstanding shares of ENTECS common
stock, who beneficially own 890,000 shares of ENTECS
common stock, or approximately 54.3% of issued and
outstanding shares, have advised that they intend to
vote all shares which they beneficially own in favor of
the merger.
Dissenters'
Rights Any holder of record of ENTECS common stock who does
not vote in favor of the merger and delivers a demand
for payment prior to the vote on the merger at the
ENTECS special meeting may demand payment for his or
her shares if the merger is approved. Failure to comply
in a timely manner with each of the procedural
requirements specified by Colorado law will result in
the loss of dissenters' rights. See "The Merger
-Dissenters' Rights."
Special Approvals Except for the registration statement, of which this
proxy statement and prospectus is a part, being
declared effective by the United States Securities and
Exchange Commission and the filings that must be made
with the Colorado Secretary of State's office to effect
the merger, management is not aware of any federal or
state regulatory compliance requirements that must be
met or approvals that must be obtained for the merger
to occur.
The Merger
Effects of the
Merger Upon consummation of the merger, TES Acquisition, a
wholly owned subsidiary of TES, will be merged with and
into ENTECS and ENTECS will become a wholly owned
subsidiary of TES. Each share of ENTECS common stock
outstanding immediately prior to the merger will be
converted into the right to receive seven shares of TES
common stock. Based upon the number of shares of ENTECS
common stock expected to be outstanding immediately
prior to the merger, the stockholders of ENTECS will
have the right to receive an aggregate of approximately
9
<PAGE>
11,467,974 shares of TES common stock upon consummation
of the merger. As a result, ENTECS shareholders will
own approximately 68.7% of the TES common stock issued
and outstanding after the merger.
Following the merger, the board of directors of TES
will consist of Gerd Behrens, Chairman, Frank Behrens,
and Dieter Gastinger. Jutta Behrens, who is presently a
director of TES, and Yvonne Marquard, who is presently
a director of ENTECS, will resign at the effective time
of the merger. Jutta Behrens will also resign her
position as Treasurer of TES at the effective time of
the merger. The executive officers of TES following the
merger are anticipated to be: Gerd Behrens, President,
Frank Behrens, Secretary-Treasurer and Dieter
Gastinger-Senior Vice President.
The articles of incorporation and bylaws of TES, as in
effect at this time, will govern the rights, duties and
privileges of the TES stockholders after the merger.
Management does not believe that there are any material
differences between the rights set forth in the
articles of incorporation and bylaws of ENTECS and
those set forth in the articles of incorporation and
bylaws of TES.
Reasons for the
Merger The companies have complementary product lines. After
the merger, we expect to offer customers a wider range
of environmental protection products and to capture a
larger market share for these products. As a result,
management expects the merger to result in
administrative efficiencies, increased financial
strength, and increased market potential, including
global markets, for the added products that TES will
acquire from ENTECS.
Management expects that TES will be able to better
position itself in the environmental protection
industry as a result of the merger with a combination
of ENTECS' innovative technologies and TES' certified
recycling services. Management believes that as a
result of the merger, TES also will be more efficient
in its services to its customers and assistance to them
in complying with government environmental regulation
since all activities will be conducted under the
umbrella of TES.
TES will have a larger base of existing customers,
allowing it to target customers with incremental
product and service offerings and to increase revenues
from these offerings. Also, if TES is successful in
integrating the ENTECS and TES products and thus
expanding its sales, the larger base of products and
sales revenue should make it easier to raise additional
capital.
10
<PAGE>
Recommendation
of the Board of
Directors ENTECS' board of directors has approved the merger by
unanimous vote, believes the merger is in the best
interests of ENTECS' stockholders, and recommends its
approval by ENTECS stockholders.
Opinion of Financial
Advisor The boards of directors of TES and ENTECS have received
an opinion of Blake Street Securities, LLC, an
independent financial advisor, for the purpose of
estimating a "fair range" for the exchange ratio of
TES common stock for ENTECS common stock in the
merger.
United States
Federal Income Tax
Considerations Management expects that the merger will constitute a
tax-free reorganization for federal income tax purposes
and that ENTECS stockholders who are U.S. citizens will
not recognize gain with respect to the shares of TES
common stock received by them as a result of the
merger. See "The Merger - United States Federal Income
Tax Considerations."
German Income Tax
Considerations Management expects that some ENTECS stockholders may
recognize taxable income for German income tax purposes
with respect to the shares of TES common stock received
by them as a result of the merger. See "The Merger -
Income Tax Considerations in Germany."
Effective Time of
the Merger Management expects the merger to become effective
within 45 days of the special meeting of the ENTECS
stockholders, scheduled for July 30, 1999, at the time
the articles of merger between ENTECS and TES
Acquisition are filed with the Colorado Secretary of
State and the other conditions set forth in the merger
agreement are satisfied. See "The Merger Agreement -
Effective Time of the Merger."
11
<PAGE>
Summary Historical and Pro Forma Financial Data
Set forth below are summary historical financial and unaudited pro forma
consolidated data of TES and ENTECS. The summary historical financial data are
based upon the historical financial statements of TES and ENTECS, including the
notes to those financial statements, included at the end of this proxy statement
and prospectus, and should be read in conjunction with those financial
statements. The summary unaudited pro forma combined condensed financial data
are presented for illustrative purposes only and are not necessarily indicative
of the financial position or results of operations that would have been reported
had the merger been in effect during the periods presented or that may be
reported in the future. The summary unaudited pro forma combined condensed
financial data should be read in conjunction with the unaudited pro forma
combined condensed financial statements, including the notes to those unaudited
pro forma financial statements, appearing elsewhere in this proxy statement and
prospectus.
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Summary Financial Data
Year Ended December 31, Three Months Ended March 31,
-------------------------------------------------- ----------------------------
1995 1996 1997 1998 1998 1998 1999 1999
DM DM DM DM US $ DM DM US $
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Sales 577,564 293,814 427,882 610,056 365,960 175,375 231,215 137,628
Gross Profit 226,200 116,471 248,132 407,822 244,680 130,409 180,832 107,638
Income (loss) from
operations (97,772) (165,143) (638,564) (996,486) (597,772) (151,586) (183,781) (109,393)
Net income (loss) (121,587) (207,420) (666,092) (1,066,813) (639,960) (172,488) (191,423) (113,942)
Earnings (loss)
per share (0.08) (0.14) (0.40) (0.61) (0.37) (0.03) (0.04) (0.02)
<CAPTION>
December 31, 1998 March 31, 1999
----------------- --------------
DM US $ DM US $
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (168,467) (101,060) (93,532) (55,674)
Current assets 292,335 175,366 361,279 215,047
Current liabilities 460,802 276,426 454,811 270,721
Total assets 814,977 488,888 974,553 580,091
Total liabilities 979,471 587,565 1,330,470 791,947
Stockholders' equity (164,494) (98,677) (355,917) (211,856)
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Environmental Technologies and Software Solutions, Inc.
Summary Financial Data
Year Ended December 31, Three Months Ended March 31,
---------------------------- -------------------------------
1997 1998 1998 1998 1999 1999
Statement of Operations Data: DM DM US $ DM DM US $
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Revenue -- 69,369 41,613 -- 90,291 53,745
Income (loss) from Operation (343,614) (1,393,650) (827,622) (312,504) (366,577) (218,201)
Net income (loss) (344,625) (1,378,707) (817,775) (312,504) (366,680) (218,262)
Earnings (loss) per share (0.33) (0.99) (0.59) (0.25) (0.23) (0.14)
<CAPTION>
December 31, 1998 March 31, 1999
----------------- --------------
DM US $ DM US $
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) (78,743) (47,235) 660,595 393,212
Current assets 571,462 342,809 1,441,988 858,326
Current liabilities 650,205 390,044 781,393 465,114
Total assets 2,527,699 1,516,315 3,690,926 2,196,979
Total liabilities 650,205 390,044 781,393 465,114
Stockholders' equity 1,877,494 1,126,271 2,909,533 1,731,865
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
and
Environmental Technologies and Software Solutions, Inc.
Summary Unaudited Pro Forma Combined Condensed Financial Data
Year Ended Three Months Ended
December 31, 1998 March 31, 1999
----------------- --------------
DM DM
<S> <C> <C>
Statement of Operations Data:
Sales 679,425 321,506
Gross profit 463,247 65,134
Net income (loss) (2,445,520) (558,103)
Income (loss) per share (0.19) (0.03)
<CAPTION>
December 31, 1998 March 31, 1999
----------------- --------------
DM DM
Balance Sheet Data:
Working capital (247,210) 567,063
Current assets 863,797 1,803,267
Current liabilities 1,111,007 1,236,204
Total assets 3,054,007 4,019,820
Total liabilities 1,341,007 1,466,204
Stockholders' equity 1,713,000 2,553,616
</TABLE>
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MONETARY EXCHANGE RATES
Throughout this document we express monetary amounts in German Deutsche
Marks and United States Dollars. Unless specified otherwise, monetary amounts
expressed in German Deutsche Marks have been translated into, and
correspondingly expressed in United States Dollars based upon the Noon Buying
Rate of the Federal Reserve Bank of New York on December 31 of the year in which
the transaction occurred. Transactions occurring in 1999 have been translated
based upon the exchange rate on March 31, 1999. These translations are made
solely for the convenience of the reader and are not necessarily expressed in
monetary amounts that would have resulted had the exchange rate on the date of
the actual transaction been used.
RISK FACTORS
The risk factors discussed below should be considered in conjunction with
the other information contained in this proxy statement and prospectus.
TES is currently experiencing a liquidity crisis and must raise additional
funds. TES' business is capital intensive. TES has not generated sufficient cash
flow to fund its operations and activities and is currently experiencing a
liquidity crisis and must raise additional funds. If TES is unable to obtain
necessary financing, it will be required to significantly curtail its activities
or cease operations. TES has no commitments for any future financing and there
can be no assurance that TES will be able to obtain additional financing in the
future from either debt or equity financings, bank loans, or other sources on
acceptable terms or at all. If available, any additional equity financings may
be dilutive to TES' stockholders and any debt financings may contain restrictive
covenants and additional debt service requirements, which could adversely affect
TES' operating results.
Because we have limited experience in how our current business is conducted
we may not be able to profitably operate our own recycling facility or our
planned job training program. Although TES has been in business since 1994, its
experience is limited in how its business is conducted today. There can be no
assurance that, even after the expenditure of substantial funds and efforts, TES
will ever achieve or maintain an adequate level of business or profitability.
Until recently TES operated only as a "middle-man" by contracting with
third-party recycling facilities to service its customers. TES did not operate
its own recycling facility until approximately one year ago and has not yet
achieved profitability in its operations of the recycling facility. TES might
not be able to successfully market its recycling services and profitably operate
its own recycling facility. Further, although TES has developed plans to open a
job training program for the recycling industry, there can be no assurance that
it will be able to successfully open its job training facility or that, if
opened, TES will be able to operate the facility on a profitable basis. The
failure to successfully market, sell, and conduct recycling operations or the
failure to open its job training facility and operate that facility on a
profitable basis could have a material adverse effect on TES' financial
condition and results of operations.
Because we have a limited number of customers, the loss of any customer
could significantly affect profitability. A significant portion of TES' revenues
has been derived from a limited number of customers. TES, in the future, may
lose customers that accounted for significant portions of its revenues in past
periods and cause a substantial reduction in income. In fiscal 1998, revenues
from TES' largest customer amounted to 10% of its total revenues, and in fiscal
1997, four customers each accounted for 10%, or 40% total, of TES' total
revenues. TES' management expects that TES will continue to be dependent upon a
limited number of customers for significant portions of its revenues in future
periods. TES' future operating results may also be subject to significant
period-to-period fluctuations as a consequence of limited customer
concentration.
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A significant asset of ENTECS contains engineering design defects. TES has
learned that the BRS-Compact concrete recycling system, for which its affiliate
ENTECS owns the exclusive worldwide production and sales rights, contains a
design defect. Should the design defect not be correctable or should ENTECS not
be able to market and sell the BRS-Compact System because of past reliability
problems, ENTECS will lose an important revenue source or find its revenue
expectations significantly diminished. If that case occurs, the market value
that TES placed on ENTECS may not be realized. The BRS Compact system represents
a significant component of the total assets of ENTECS and, along with the
anticipated revenue from sale of the technology, represents a substantial
component of the value of ENTECS that TES used in negotiating the terms of the
merger. ENTECS anticipates that a significant portion of its future revenues
will be derived from the sales to customers of this technology. The design
defect was revealed during recent testing of the technology by one of ENTECS
potential customers. That customer refused to accept the BRS Compact system
because of repeated breakdowns. A subsequent review of the technology by an
independent engineering consultant confirmed the design defect. ENTECS believes,
after consultation with the engineering consultant, that the design defect is
correctable. ENTECS has received quotes to correct the design defect that range
between 100,000 DM and 150,000 DM (US $59,880 and $89,820). However, there can
be no assurance that the design defect can be fully corrected or that ENTECS can
market and sell the system once the design defect is corrected.
TES' affiliate, ENTECS, is involved in a dispute with the independent
contractor that designed the BRS-Compact system. The independent contractor from
whom ENTECS licensed the BRS-Compact concrete recycling technology has made a
monetary demand against ENTECS for unpaid consulting fees. The independent
contractor has also informed ENTECS that he considers the license agreement with
ENTECS to be terminated. ENTECS believes it still possesses the license to
produce and market the BRS-Compact system. While ENTECS believes it still
possesses the license, there can be no assurances that the independent
contractor will not file a claim in court seeking to find the license invalid,
or that, if a lawsuit is filed, that the court would not find in favor of the
independent contractor. Further, the independent contractor may file a court
action to seek monetary damages. While ENTECS believes that it does not owe the
sum claimed by the independent contractor, there can be no assurance that a
court would not find in favor of the independent contractor. Should a court
subsequently find the license agreement with the independent contractor invalid,
ENTECS would lose an important revenue source and TES may not realize the value
which it placed on ENTECS in negotiating the terms of the merger.
FORWARD-LOOKING STATEMENTS
Some statements contained in this proxy statement and prospectus that are
not statements of historical facts are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements include, among others, statements regarding
anticipated cost savings resulting from the merger, TES' future economic
performance and financial position, and plans and objectives of management for
future operations including plans and objectives relating to the development and
conduct of the recycling business and the job training business. Forward-looking
statements are subject to factors that could cause actual results to differ
materially from future results expressed or implied by forward-looking
statements. They are based on assumptions, including the following:
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o that TES will be able to develop it's recycling business and develop and
establish its job training programs
o that competitive conditions within the recycling industry will not change
materially or adversely
o that demand for TES' recycling services and recycled materials and products
will remain strong
o that TES will retain key management personnel
o that TES' forecasts will accurately anticipate market demand
o that there will be no material adverse change in TES' operations or
business.
Although TES believes that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the results contemplated in
forward-looking information will be realized.
Management of TES intends that the forward-looking statements contained in
this proxy statement and prospectus be subject to the safe harbors created by
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934.
THE SPECIAL MEETING
General
This proxy statemen and prospectus is being furnished to holders of ENTECS
common stock, in connection with the solicitation of proxies by the ENTECS board
of directors for use at the ENTECS special meeting of stockholders. This proxy
statement and prospectus and the accompanying forms of proxy are first being
mailed to ENTECS stockholders on or about June 30, 1999.
Matters to be Considered at the Special Meeting
At the ENTECS special meeting, holders of ENTECS common stock will consider
and vote upon (1) a proposal to approve the merger of TES Acquisition with and
into ENTECS in accordance with an agreement and plan of merger dated June 22,
1999 among TES Acquisition, TES, and ENTECS; (2) a proposal to grant the ENTECS'
board of directors discretionary authority to adjourn the special meeting to
solicit additional votes for approval of the merger agreement and the merger;
and (3) other matters as may properly come before the special meeting or any
adjournments or postponements of the special meeting.
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Votes Required for Approval of the Merger
Under the Colorado Business Corporation Act, the merger must be approved by
the affirmative vote of the holders of a majority of the outstanding shares of
ENTECS common stock. As of the record date, directors and executive officers of
ENTECS who may be deemed to be beneficial owners of approximately 890,000
shares, or 54.31% of the outstanding shares of ENTECS stock, have advised ENTECS
that they intend to vote or direct the vote of all shares of their stock over
which they have voting control for approval of the merger.
Voting at the Special Meeting
The ENTECS board of directors has fixed June 25, 1999 as the record date
for the determination of ENTECS' stockholders entitled to notice of and to vote
at the special meeting. Accordingly, only holders of record of shares of ENTECS
common stock on the record date will be entitled to notice of and to vote at the
special meeting. As of the record date, there were ____________ shares of ENTECS
common stock outstanding, held by approximately _____ holders of record. Each
holder of record of shares of ENTECS common stock on the record date is entitled
to one vote per share on each proposal properly submitted to a vote at the
special meeting. The presence, in person or by properly executed proxy, of the
holders of a majority of the outstanding shares of ENTECS common stock is
necessary to constitute a quorum at the special meeting.
Treatment of Abstentions
Abstentions and broker non-votes will be counted as shares present for
purposes of determining the presence or absence of a quorum at the ENTECS
meeting. Broker non-votes are shares held by brokers or nominees that are
represented at a meeting but with respect to which the broker or nominee is not
empowered to vote on a particular matter.
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Proxies
The ENTECS proxy accompanying this proxy statement and prospectus is
solicited on behalf of the ENTECS board of directors for use at the special
meeting. You are requested to complete, date, and sign the accompanying proxy
and promptly return it in the accompanying envelope to ENTECS' transfer agent,
Corporate Stock Transfer, Inc. or otherwise mail it to ENTECS. ENTECS
stockholders who hold their ENTECS common stock in the name of a bank, broker or
other nominee should follow the instructions provided by their bank, broker or
nominee on voting their shares. All shares of ENTECS common stock that are
entitled to vote and are represented at the special meeting by properly executed
proxies received prior to or at the special meeting, and are not revoked, will
be voted at the special meeting in accordance with the instructions indicated on
the proxies. If the instruction is to abstain, the shares represented by the
proxy will be deemed to be present at the special meeting but will not be voted
with respect to the merger, thus having the same effect as a vote against the
merger. If no instructions are indicated, the proxy will be voted FOR approval
of the merger.
In the event that a quorum is not present at the time the ENTECS meeting is
convened, or if for any other reason ENTECS believes that additional time should
be allowed for the solicitation of proxies, ENTECS may adjourn the ENTECS
meeting with or without a vote of the stockholders. If ENTECS proposes to
adjourn the ENTECS meeting by a vote of the stockholders, the persons named in
the enclosed form of proxy will vote all shares of ENTECS common stock for which
they have voting authority in favor of an adjournment.
ENTECS' board of directors does not presently intend to bring any other
business before the special meeting and, so far as is known to ENTECS' board of
directors, no other matters are to be brought before the special meeting. As to
any business that may properly come before the special meeting, however, it is
intended that proxies, in the form enclosed, will be voted in accordance with
the judgment of the persons voting the proxies.
Procedure for Revocation of Proxy
An ENTECS stockholder who has given a proxy may revoke it at any time
before it is exercised at the special meeting by
o delivering a written notice to ENTECS' secretary, bearing a date later than
the date of the proxy, stating that the proxy is revoked;
o signing and delivering a proxy relating to the same shares and bearing a
later date than the date of the previous proxy prior to the vote at the
special meeting; or
o attending the special meeting and voting in person.
The presence of an ENTECS stockholder of record without voting at the
meeting will not automatically revoke a proxy, and any revocation during the
meeting will not affect votes previously taken. ENTECS stockholders who hold
their ENTECS common stock in the name of a bank, broker or other nominee should
follow the instructions provided by their bank, broker or nominee in revoking
their previously voted shares.
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Dissenters' Rights
Under the Colorado Business Corporation Act, any holder of record of ENTECS
common stock who does not vote in favor of the merger and delivers a demand for
payment prior to the vote on the proposed merger at the ENTECS special meeting
may demand a cash payment for the "fair value" of his or her shares of ENTECS
common stock. If the parties cannot agree to an appropriate "fair value," it
would be determined in judicial proceedings. Management cannot predict what the
determination of "fair value" would be if its is determined by judicial
proceedings. In order to exercise this right, a stockholder must comply with
each of the procedural requirements of the Colorado Business Corporation Act. A
description of those requirements is provided in "The Merger - Dissenters'
Rights." The failure to take any of the steps required in a timely manner will
result in a loss of dissenters' rights.
Expenses of Solicitation
TES and ENTECS will share the cost of solicitation of proxies from ENTECS
stockholders estimated to be $___________ plus reasonable out-of-pocket
expenses. In addition to solicitation by mail, the directors, officers, and
employees of ENTECS may solicit proxies from stockholders by telephone,
facsimile, or in person, following the original mailing of the proxies and other
soliciting materials. Arrangements will also be made with custodians, nominees,
and fiduciaries for forwarding of proxy solicitation materials to beneficial
owners of shares held of record by custodians, nominees, and fiduciaries, and
TES and ENTECS will reimburse those holders for their reasonable expenses.
Recommendation of the Board of Directors
The ENTECS board of directors has unanimously approved the merger agreement
and the merger, believes that the terms of the merger agreement are fair to, and
the merger is in the best interests of, ENTECS and its stockholders and,
therefore, recommends that the holders of ENTECS common stock vote FOR approval
and adoption of the merger agreement and the consummation of the merger.
The matters to be considered at the special meeting are of great importance
to the stockholders of ENTECS. Accordingly, ENTECS stockholders are urged to
read and carefully consider the information presented in this proxy statement
and prospectus and to complete, date, sign, and promptly return the enclosed
proxy in the enclosed postage-paid envelope.
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THE MERGER
Background and Reasons for the Merger
Germany has adopted some of the strictest laws and regulations in the world
relating to the recycling of business waste products. These laws and regulations
apply to a myriad of different types of waste products. TES and ENTECS are each
in the business of providing products and services to assist German businesses
in complying with environmental laws and regulations.
Gerd Behrens, president of each company, founded both TES and ENTECS.
Because TES and ENTECS recycle different types of product waste, Mr. Behrens
initially believed it more efficient to contain the operations in separate
entities. TES' focus has been upon electronic scrap and ENTECS' focus has been
upon wood products and concrete. However, in June 1998 Mr. Behrens began to
explore the feasibility of combining the operations of TES and ENTECS under one
entity. The executive and administrative offices of both companies are presently
at the same location. Management expects that the merger will ultimately result
in administrative efficiencies by reducing the overhead of maintaining two
holding companies, increased financial strength, and increased market potential,
including global markets for all products. Management expects that TES will be
able to better position itself in the environmental protection industry as a
result of the merger with a combination of the innovative technologies of ENTECS
and the certified recycling services of TES. Management believes that compliance
with governmental regulations following the merger will be simplified since the
compliance function is expected to be performed by a single group of employees
rather than two separate groups with all activities conducted under the umbrella
of TES.
TES intends to operate the two subsidiaries it presently owns, TES GmbH and
TES Oecon AG, and the two present subsidiaries of ENTECS, ENTECS Umwelttechnik
GmbH and ENTECS Software and Umweltmanagement GmbH, under the umbrella of TES as
a holding company providing management services to its subsidiaries. This will
permit the consolidation of management expertise into one company. The
operations of each subsidiary will be better able to complement each other in
this way. For example, the training operations of TES Oecon AG will be able to
offer new training courses for services and technologies that are developed by
or as a result of the consulting services provided by ENTECS Software and
Umweltmanagment GmbH. Each of the present TES and ENTECS subsidiaries will
continue after the merger to offer the same products and services as they
presently offer. The management of TES also anticipates the development of new
products and services in the environmental service industry as a result of the
closer interaction of the subsidiary's management and marketing personnel.
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Effects of the Merger
Upon consummation of the merger, TES Acquisition, a wholly owned subsidiary
of TES will be merged with and into ENTECS and ENTECS will become a wholly owned
subsidiary of TES. Each share of ENTECS common stock outstanding immediately
prior to the merger will be converted into the right to receive seven shares of
TES common stock.
Management determined the exchange ratio by calculating the ratio of the
net capital contributions made by the TES stockholders and the ENTECS
stockholders to the total of the net capital contributions of both companies.
With this ratio, management computed the number of total TES shares to be
outstanding after the merger by dividing the TES shares outstanding before the
merger by TES' ratio of the net capital contribution computed above. Management
then computed the number of TES shares to be issued to ENTECS stockholders by
subtracting the number of TES shares outstanding before the merger from the
number to be outstanding after the merger. The exchange ratio equals the number
of TES shares to be issued to ENTECS stockholders as a result of the merger
divided by the number of shares of ENTECS common stock outstanding before the
merger. The computed exchange ratio was then rounded to the nearest whole
number.
Based upon the number of shares of ENTECS common stock expected to be
outstanding immediately prior to the merger, the stockholders of ENTECS will
have the right to receive an aggregate of approximately 11,467,974 shares of TES
common stock upon consummation of the merger. Subsequent to the merger, the
ENTECS stockholders will control approximately 68.7% of the issued and
outstanding shares of TES.
Dieter Gastinger has been nominated for election to the board of directors
subsequent to the merger. Mr. Gastinger is presently an officer and director of
ENTECS. Mr. Gastinger's business experience is described in this document under
the caption "Directors and Officers of ENTECS." The board of directors of TES
following the merger will consist of Gerd Behrens, Frank Behrens, and Dieter
Gastinger. Jutta Behrens, who is presently a director of TES, and Yvonne
Marquard, who is presently a director of ENTECS, will resign at the effective
time of the merger. The executive officers of TES following the merger are
anticipated to be: Gerd Behrens-Chairman of the Board and President, Frank
Behrens-Secretary-Treasurer and a Director, and Dieter Gastinger-Senior Vice
President.
The articles of incorporation and bylaws of TES, as in effect at this time
will govern the rights, duties and privileges of the TES stockholders subsequent
to the merger. Management does not believe that there are any material
differences between the rights set forth in the articles of incorporation and
bylaws of ENTECS and those set forth in the constituent documents of TES. For a
description of the rights and preferences of the TES common stock, see
"Description of TES Capital Stock."
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Opinion of Financial Advisor
Gerd Behrens and Frank Behrens have established the principal terms of the
merger. Because each are officers and directors of TES and ENTECS, the terms of
the merger were not negotiated on an "arms-length" basis. As a result, Blake
Street Securities, LLC was retained to render an independent opinion to the
board of directors of TES and ENTECS. The purpose of the opinion was to estimate
a "fair range" for the exchange ratio of TES common stock for ENTECS' common
stock in the proposed merger of the two companies. Blake Street's opinion was
based upon a review of the companies from a financial point of view.
On June 1, 1999, Blake Street delivered its opinion that, based upon and
subject to the matters set forth in the opinion and as of such date, the merger
of TES with ENTECS should result in an exchange of shares of TES and ENTECS at a
ratio ranging from 6.91 shares of TES common stock for each share of ENTECS
common stock to 8.36 shares of TES common stock for each share of ENTECS common
stock. The full text of the written opinion of Blake Street, dated as of June 1,
1999, is set forth as appendix B to this proxy statement and prospectus and
describes the assumptions made, matters considered and limits on the review
undertaken. ENTECS stockholders are urged to read the opinion in its entirety.
Blake Street's opinion addresses only the fairness, from a financial point
of view, of the merger to the TES and ENTECS stockholders and does not
constitute a recommendation to any stockholder of TES as to any action each
stockholder should take with respect to the merger. In addition, the merger
consideration resulted from the negotiations between TES and ENTECS and was not
initially determined by Blake Street.
In arriving at the opinion, Blake Street assumed and relied upon the
accuracy and completeness of the financial and other information obtained from
public sources or provided to it by TES and ENTECS. Blake Street has not assumed
responsibility for any independent verification of such information or
undertaken any obligation to verify such information. The management of TES and
ENTECS informed Blake Street that the forecasts and projections provided to
Blake Street represent their best current judgment, at the date of the opinion,
as to the future financial performance of TES and ENTECS, each on a stand-alone
basis. Blake Street assumed the projections had been reasonably prepared based
on such current judgment. Blake Street assumed no responsibility for and
expresses no view as to such forecasts and projections or the assumptions on
which they were based. Blake Street did not perform an independent evaluation or
appraisal of the assets of either TES or ENTECS.
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Blake Street also took into account its assessment of general economic,
market and financial conditions and its experience in similar transactions, as
well as its experience in securities valuation in genera. Blake Street's opinion
necessarily is based upon regulatory, economic, market and other conditions, as
well as information made available to Blake Street as of June 1, 1999. The
regulatory, economic, market and other conditions and the information made
available to Blake Street could only be evaluated by Blake Street as of the date
of the opinion.
In connection with rendering the opinion, dated as of June 1, 1999, Blake
Street reviewed a limited number of sources of information to reach its
conclusions. Blake Street reviewed the following information:
o TES' annual report for the year ended December 31, 1998 filed on Form
10-KSB;
o TES' quarterly report for the quarter ended March 31, 1999 filed on Form
10-QSB;
o Non-public operating and financial information, including projections
relating to the business of TES provided by the management of TES;
o Non-public operating and financial information, including projections
relating to the business of ENTECS provided by the management of ENTECS;
and
o Information pertaining to the merger contained in this filing on Form S-4.
Blake Street relied under two principle approaches in making their opinion
of the terms of the merger. These approaches were the Income/NPV approach and
the Capital Contribution approach.
Under the Income/NPV approach, Blake Street compared the present value
contribution of the estimated future cash flows of TES with the present value
contribution of the estimated future cash flows of ENTECS. Under this approach,
Blake Street estimated that ENTECS would contribute 73.5% of the combined
company's future cash flows and that TES would contribute 26.5% of the combined
company's future cash flows.
Under the Capital Contribution approach, Blake Street compared the net
capital contributions invested by the stockholders of each company with the net
capital contributed invested by the stockholders of both companies combined.
Under this approach, as of March 31, 1999, ENTECS held 68.9% of the net capital
contributions of the two entities combined and TES held 31.1% of the net capital
contributions of the combined entities.
As a result of these analyses, Blake Street concluded that the exchange
ratio for the proposed merger of TES and ENTECS, as of March 31, 1999, should
result in ENTECS stockholders receiving between 68.0 and 72.0 percent of the
combined company's common stock and TES stockholders receiving between 28.0 and
32.0 percent of the combined company's common stock. Based upon the present
shares outstanding of common stock for each ENTECS and TES, Blake Street
concluded that this range should result in an exchange ratio of between 6.91
shares of TES common stock for each share of ENTECS common stock and 8.36 shares
of TES common stock for each share of ENTECS common stock.
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Blake Street' opinion was for the use and benefit of both the TES and
ENTECS boards of directors in their consideration, from a financial point of
view, of the merger. The opinion was not intended to be and does not constitute
a recommendation to any shareholder as to any actions such shareholder should
take with respect to the merger. Blake Street was not requested to opine as to,
and its opinion does not in any manner address, the underlying business decision
of either TEC or ENTECS to proceed with or effect the merger. Neither does Blake
Street's opinion address the relative merits of the merger as compared to any
alternative business strategies that might exist, or the effect of any other
transaction in which either TES or ENTEC might engage.
Under the terms of the agreement, Blake Street is entitled to receive an
aggregate cash fee of US $22,000 plus reimbursement for all reasonable
out-of-pocket expenses for its role in rendering the opinion. Under the terms of
the agreement, TES also agreed to indemnify, defend and hold Blake Street
harmless if they become involved in any way in any legal or administrative
proceeding related to the services they provided in rendering their opinion of
the terms of the merger.
Federal Income Tax Considerations in the United States
The following discussion summarizes the material federal income tax
considerations relevant to the exchange of shares of ENTECS common stock for TES
common stock under the merger that are generally applicable to holders of ENTECS
common stock. Thi discussion is based on currently existing provisions of the
Internal Revenue Code of 1986, existing and proposed Treasury regulations under
the Internal Revenue Code, and current administrative rulings and court
decisions, all of which are subject to change. Any change in the Internal
Revenue Code and Treasury regulations, which may or may not be retroactive,
could alter the tax consequences to TES, ENTECS, or ENTECS' stockholders as
described in this discussion.
ENTECS stockholders should be aware that this discussion does not deal with
all federal income tax considerations that may be relevant to particular ENTECS
stockholders in light of their particular circumstances, like stockholders who
are dealers in securities, who are subject to the alternative minimum tax
provisions of the Code, who are foreign persons, who do not hold their ENTECS
common stock as capital assets, or who acquired their shares in connection with
stock option or stock purchase plans or in other compensatory transactions. In
addition, the following discussion does not address the tax consequences of the
merger under foreign, state, or local tax laws. Nor does the following
discussion address the tax consequences of transactions effectuated prior or
subsequent to, or concurrently with, the merger. This is so whether or not any
those transactions are undertaken in connection with the merger, including
without limitation any transaction in which shares of ENTECS common stock are
acquired or in which shares of TES common stock are disposed. Accordingly,
ENTECS stockholders are urged to consult their own tax advisors as to the
specific tax consequences to them of the merger, including the applicable
federal, state, local, and foreign tax consequences.
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The merger is intended to constitute a reorganization. If the merger does
qualify as a reorganization, then, subject to the limitations and qualifications
referred to in this discussion, the merger will generally result in the
following federal income tax consequences:
1. No gain or loss will be recognized by ENTECS' stockholders solely upon
their receipt of TES common stock in exchange for ENTECS common stock in the
merger except to the extent of cash received instead of a fractional share of
TES common stock.
2. The aggregate tax basis of the TES common stock received by ENTECS
stockholders in the merger, reduced by any tax bases attributable to fractional
shares deemed to be disposed of, will be the same as the aggregate tax basis of
the ENTECS common stock surrendered in exchange for the TES common stock.
3. The holding period of the TES common stock received by each ENTECS
stockholder in the merger will include the period for which the ENTECS common
stock surrendered in exchange for the TES common stock was considered to be
held, provided that the ENTECS common stock surrendered in exchange for the TES
common stock is held as a capital asset at the time of the merger.
4. Cash payments received by ENTECS' stockholders instead of a fractional
share will be treated as if the fractional share of TES common stock had been
issued in the merger and then redeemed by TES. An ENTECS stockholder receiving
cash will recognize gain or loss upon the payment of the cash, measured by the
difference, if any, between the amount of cash received and the basis in the
fractional share.
5. Neither TES, TES Acquisition, nor ENTECS will recognize material amounts
of gain solely as a result of the merger.
The parties are not requesting and will not request a ruling from the
Internal Revenue Service in connection with the merger. The consummation of the
merger is conditioned on the receipt by TES and ENTECS of an opinion from
Schlueter & Associates, P.C. to the effect that the merger will constitute a
reorganization. ENTECS stockholders should be aware that the tax opinion does
not bind the IRS and the IRS is therefore not precluded from successfully
asserting a contrary opinion.
The tax opinion will be subject to assumptions and qualifications,
including but not limited to the truth and accuracy of representations made by
TES, ENTECS, and TES Acquisition.
A successful IRS challenge to the reorganization status of the merger would
result in ENTECS stockholders recognizing taxable gain or loss with respect to
each share of common stock of ENTECS surrendered equal to the difference between
the stockholder's basis in his/her shares and the fair market value, as of the
effective date of the merger, of the TES common stock received in exchange for
the ENTECS common stock. In an event like this, a stockholder's aggregate basis
in the TES common stock received in the merger would equal its fair market
value, and the stockholder's holding period for that stock would begin the day
after the merger.
26
<PAGE>
Income Tax Considerations in Germany
The following discussion summarizes the material German income tax
considerations relevant to the exchange of shares of ENTECS common stock for TES
common stock under the merger that are generally applicable to holders of ENTECS
common stock. This discussion is based on currently existing provisions of the
tax law in Germany. The tax law in Germany relating to sale of stock in
companies was recently updated. In March 1999, Germany enacted
"Steuerentlastungsgesetz 1999/2000/2002," which impacts gains from the sale of
capital stock, in addition to other features. Most features of this law were
retroactive to January 1, 1999, including that section of the
Steuerentlastungsgesetz regulation that pertains to sales of investments and
shares in stock companies, called "Kapitalgesellschaften." Measures of the
Steuerentlastungsgesetz regulation relating to value added tax, however, are
effective April 1, 1999.
As a result of the Kapitalgesellschaften regulation, it is possible that
German citizens holding shares of ENTECS common stock may incur tax liability
from the exchange of their ENTECS stock for TES stock under the terms of the
merger agreement. This possibility is based upon the following general
assumptions under the Kapitalgesellschaften regulation:
1. The ENTECS stockholder holds his ENTECS shares privately, and not as
company property;
2. The ENTECS stockholder is a German citizen not subject to other tax
limitations under German law; and
3. The investment in ENTECS qualifies as moveable property under Article
13 of the double taxation agreement between Germany and the United
States, dated August 29, 1989.
Within the general assumptions stated above, an ENTECS stockholder may be
subject to taxation if the sale of a private investor's investment in a stock
company results in a gain. A gain from the sale of an investment in a stock
company is generally realized if the sales price of stock less the selling costs
of the stock sold exceeds the investor's acquisition costs.
Under the Kapitalgesellschaften regulation, the merger of ENTECS with TES
may qualify as a sale of shares. In this scenario, any gain would be determined
by the market value of the TES shares received in exchange for the ENTECS
stockholders shares plus the value of any additional monetary consideration
received. Additional monetary consideration might include, for example, cash for
fractional shares. For example, if the market value of TES shares on the date of
the merger exceeded the ENTECS stockholders acquisition cost of his or her
ENTECS shares, a gain would result. In determining if a gain resulted from the
exchange of stock, any additional consideration such as cash received for
fractional shares would be added to the market value of the TES shares
exchanged. If, on the other hand, the acquisition costs of the ENTECS
stockholder's stock is equal to or greater than the market value of the TES
shares - plus any additional consideration - then no gain would result and the
ENTECS stockholder will incur no tax liability resulting from the merger.
27
<PAGE>
There are additional considerations that may impact the taxability of the
merger under the Kapitalgesellschaften regulation. Where a gain has resulted, as
described above, from the exchange of ENTECS stock under the terms of the
merger, and the ENTECS stockholder has held his or her ENTECS shares in excess
of twelve months from the date of purchase, no tax liability will be incurred by
the ENTECS stockholder. Generally, only ENTECS stockholders who have held their
ENTECS shares for twelve months or less will incur tax liability. However, if an
ENTECS stockholder holds a material investment in ENTECS stock, then the
exchange of their shares will result in tax liability, regardless of the length
of time they held their ENTECS stock. A material investment is defined as an
investment in ten percent or more of a company's stock. Thus, ENTECS
stockholders who hold more than ten percent of ENTECS stock and receive a gain
from the sale or exchange of their shares, will incur tax liability even if they
held the stock longer than twelve months.
ENTECS stockholders may incur further tax liability other than that
specified by the Kapitalgesellschaften regulation. Given the third assumption
stated above that the ENTECS stockholder's investment in ENTECS stock qualifies
as moveable property as in Article 13 of the double taxation agreement between
the United States and Germany, the ENTECS stockholder may be subject to taxation
in the German state where he or she resides. We do not discuss the tax
liabilities that may result to ENTECS stockholders by the German State in which
they reside any further in this document.
Dissenters' Rights
Under Section 7-113-102 of the Colorado Business Corporations Act,
stockholders are entitled to payment of the fair value of their shares in the
case of a merger requiring stockholder approval. In order to assert dissenter's
rights, a stockholder who wishes to assert his/her rights must, before a vote is
taken, deliver a written notice to ENTECS stating that the stockholder intends
to demand payment for his/her shares if the proposed action is taken. In
addition, the stockholder must not vote in favor of the proposed action. Rather,
the stockholder must vote either against the proposed action or abstain.
Further, a stockholder's vote against the proposal does not satisfy his/her
notice requirement under the Colorado Business Corporation Act. Instead, the
stockholder must cause ENTECS to receive written notice stating that he/she
intends to demand payment for their shares if the proposed action is taken. This
written notice must be received by ENTECS before a vote on the merger is taken.
See Section 7-113-202 of the Colorado Business Corporations Act. TES'
stockholders will not have dissenters' rights under the Colorado Business
Corporation Act in connection with the merger.
28
<PAGE>
According to Section 7-113-203 of the Colorado Business Corporations Act,
if the proposed corporate action is approved by a vote of the stockholders, the
corporation must send a notice to the dissenters who properly notified the
corporation of their intention to dissent before the vote was taken. This
notice, known as the "dissenter's notice" in Colorado, must be sent by the
corporation no later than ten days after the corporate action was taken. This
notice to the dissenting stockholders will state:
o Where a dissenting stockholder must demand payment;
o How to surrender his/her stock certificates in exchange for payment of the
fair value of the surrendered stock certificates; and
o Indicate the date by which the corporation must receive the payment demand
and certificates.
When the dissenting stockholder receives the dissenter's notice from the
corporation, he/she must then demand payment for his/her shares, certify that
he/she was a stockholder before the date set for the right to dissent, and
deposit his/her stock certificates as directed in the dissenter's notice. Once
the dissenting stockholder complies with these conditions, the corporation must
then pay the dissenting stockholder an amount that the corporation believes to
be the fair value of the surrendered stock certificates. To determine the fair
value of any dissenting stockholders common stock, ENTECS intends to rely on a
valuation analysis of TES and ENTECS performed by Blake Street Securities, LLC.
Blake Street prepared the valuation analysis so that it could render a fairness
opinion on the terms of the merger.
A copy of the sections of the Colorado Business Corporation Act that
discuss the rights of stockholders to dissent from a transaction is attached as
appendix C to this proxy statement and prospectus.
Because of the complexities of these provisions of the Colorado law, ENTECS
stockholders who are considering pursuing dissenters' rights may wish to consult
legal counsel.
Interests of Persons in the Merger
The members of the TES board of directors have interests in the merger that
are in addition to their interests as stockholders of TES. Also, some members of
the ENTECS board of directors and management have interests in the merger that
are in addition to their interests as stockholders of ENTECS. The TES board of
directors and the ENTECS board of directors were aware of these interests and
considered them in approving the merger agreement and the transactions
contemplated in the merger agreement.
The stockholders of ENTECS should consider these interests in the merger
that presented potential conflicts, including those referred to below, when
evaluating the recommendation of the ENTECS board of directors with respect to
the merger.
29
<PAGE>
The officers and directors and key consultants of ENTECS include
individuals who are also officers and directors or consultants of TES. These
individuals include Gerd Behrens, Frank Behrens, Yvonne Marquard, and Karsten
Behrens.
Gerd Behrens, the president and a director of ENTECS, is also the chairman
of the board and the president of TES. Gerd Behrens owns 500,000 shares, or
30.5%, of ENTECS common stock.
Frank Behrens, the secretary and a director of ENTECS, is also the
secretary and a director of TES. Frank Behrens owns 200,000 shares, or 12.2%, of
ENTECS common stock. Further, Frank Behrens received 35,000 DM, or approximately
US $20,995, in consultant fees and 42,500 DM, or approximately US $25,494,
compensation in 1998 for serving as managing director of ENTECS Software und
Umweltmanagement GmbH.
Karsten Behrens served as a consultant to both ENTECS and TES. He owns
200,000 shares, or 12.2% of ENTECS common stock. Karsten Behrens also received
52,500 DM, or approximately US $31,494, in consultant fees from ENTECS in 1998.
Yvonne Marquard served as a consultant to both ENTECS and TES. She owns
90,000 shares, or 5.5%, of ENTECS common stock. She also received 162,809 DM, or
approximately US $97,665, in consultant fees from ENTECS in 1998.
Gerd and Jutta Behrens are husband and wife, and Frank Behrens and Karsten
Behrens are the sons of Gerd and Jutta Behrens. Frank Behrens and Karsten
Behrens are brothers.
TES has entered into an employment agreement with Gerd Behrens under which
Mr. Behrens will be paid approximately 8,000 DM per month. Mr. Behrens also has
an employment agreement with ENTECS under which he will be paid approximately
8,000 DM per month. See "Directors and Officers of TES - Employment and
consulting agreements" and "Directors and Officers of ENTECS - Employment and
consulting agreements" for further discussion of these arrangements.
TES and ENTECS have each entered into consulting agreements with Yvonne
Marquard. Under the ENTECS agreement she has been paid a consulting or finder's
fee based upon the difference between 20% of the gross proceeds raised and the
amount of commission or fees actually paid to brokers or finders for the sale of
ENTECS' securities. Ms. Marquard was paid approximately 162,809 DM (US $97,665)
by ENTECS under the terms of her agreement with ENTECS in 1998. Ms. Marquard is
the wife of Michael Marquard, who is an employee of TES.
30
<PAGE>
The merger agreement provides that TES will, from and after the effective
date of the merger, indemnify, defend, and hold harmless the present and former
officers, directors, employees, and agents of ENTECS in respect of acts or
omissions occurring on or before the effective date of the merger, in each case
to the full extent TES is permitted under Colorado law, the ENTECS articles of
incorporation, or the ENTECS bylaws or any indemnification agreement to which
ENTECS is a party, in each case as in effect on the date of the merger
agreement.
Financing the Merger
The merger will be a stock for stock transaction. Stockholders of ENTECS
will receive shares of the common stock of TES in exchange for their shares of
ENTECS common stock. Cash will be paid to ENTECS stockholders instead of
fractional shares, which is not expected to be material. Expenses and other
costs of the merger will be paid from funds generated by the operations of TES.
Accounting Treatment
The merger will be accounted for by TES as a reorganization of companies
under common control in accordance with U.S. generally accepted accounting
principles. The accounting for the merger under this method is expected to be
similar to that of a pooling of interests. Under this accounting treatment, the
recorded assets and liabilities of TES and ENTECS will be carried forward to the
combined company's financial statements at their historical amounts, the
consolidated earnings to the combined company will include the earnings of TES
and ENTECS for the entire fiscal year in which the merger occurs and for all
prior years presented, and the reported retained earnings of TES and ENTECS for
the prior periods will be combined and restated as consolidated retained
earnings of the combined company.
31
<PAGE>
THE MERGER AGREEMENT
The description of the merger agreement set forth in this section is a
summary of the material provisions of the merger agreement, a copy of which is
attached as appendix A to this proxy statement/ prospectus. This description is
qualified in its entirety by reference to the merger agreement.
General
TES, TES Acquisition, and ENTECS have entered into the merger agreement,
which provides (1) that TES Acquisition, a wholly owned subsidiary of TES, will
be merged with and into ENTECS, and (2) that at the time the merger becomes
effective each share of outstanding ENTECS common stock will be converted into
the right to receive seven shares of TES common stock. The merger is subject to
the satisfaction of a number of conditions, including the approval of the
stockholders of ENTECS.
Effective Time of the Merger
The closing will occur, and the merger will become effective, upon:
1. the approval of the merger agreement by the ENTECS stockholders;
2. the acceptance for filing of articles of merger between TES
Acquisition and ENTECS with the Colorado Secretary of State; and
3. the satisfaction or waiver of the other conditions set forth in the
merger agreement.
It is anticipated that the articles of merger will be filed within 45 days
of the ENTECS stockholders meeting.
Exchange of Certificates
Corporate Stock Transfer of Colorado will act as exchange agent in
connection with the merger. As soon as practicable after the effective date of
the merger, the exchange agent will send a notice and transmittal form to ENTECS
stockholders to be used in forwarding their ENTECS stock certificates for
surrender and exchange for the merger consideration. Please do not surrender
your ENTECS certificates for exchange until you receive the transmittal form and
instructions. The instructions will include procedures concerning lost
certificates.
Each holder of ENTECS common stock will be entitled, upon surrender to the
exchange agent, to receive in exchange for his shares of ENTECS common stock
certificates representing the number of whole shares of TES common stock into
which his shares of ENTECS common stock were converted in the merger, together
with any cash payable instead of fractional shares. Until a holder of ENTECS
32
<PAGE>
common stock surrenders his/her ENTECS common stock certificates to the exchange
agent, the certificates representing shares of ENTECS common stock will be
deemed to represent the number of whole shares of TES common stock into which
the shares of ENTECS common stock were converted.
ENTECS stockholders should not send any stock certificates
with their proxy cards
Fractional Shares
Certificates representing fractional shares of TES common stock will no be
issued in the merger. Fractional share interests will not entitle the owner to
vote or to any other rights of a stockholder of TES. Instead of the issuance of
any fractional share of TES common stock, each holder of ENTECS common stock who
otherwise would be entitled to receive a fractional share of TES common stock in
the merger will receive, upon surrender for exchange, an amount in cash
determined by multiplying (1) the amount of $4.00 by (2) the fraction of a TES
share to which that holder would otherwise be entitled. If more than one
certificate representing shares of ENTECS common stock is surrendered for the
account of the same stockholder of record, the number of full shares of TES
common stock for which certificates will be delivered will be computed on the
basis of the aggregate number of shares of ENTECS common stock represented by
the certificates surrendered by that stockholder.
Representations
The parties make various representations and warranties in the merger
agreement, including representations and warranties by each of ENTECS and TES as
to:
o organization and good standing,
o capitalization,
o authorization of the merger agreement and the absence, except as
specified, of the need for governmental or third party consents to the
merger,
o compliance with applicable law,
o accuracy of financial statements,
o absence of material undisclosed liabilities and the absence of
material adverse changes in the financial or other condition,
operations, or business of ENTECS and TES, taken as a whole,
33
<PAGE>
o absence of pending or threatened material litigation,
o absence of employee benefit plans and collective bargaining
agreements,
o material compliance with applicable environmental laws and
regulations, and
o absence of brokers or finders.
Conduct of Business Pending the Merger
TES and ENTECS have agreed to conduct their operations, except as otherwise
provided in the merger agreement, according to their normal course of business
until consummation of the merger. Further, TES and ENTECS have each agreed that,
among other things, until the consummation of the merger, unless the other
agrees in writing or as otherwise required or permitted by the merger agreement,
it will not:
o issue any shares of capital stock, effect any stock split, or
otherwise change its capitalization as it existed on the date the
merger agreement was signed;
o declare, set aside, or pay any dividend or other distribution, whether
in cash, stock, or property or any combination of cash, stock, or
property, in respect of any of its capital stock;
o amend or propose to amend its articles of incorporation or bylaws;
o acquire, sell, lease, encumber, transfer, or dispose of any assets
except in the ordinary course of business;
o incur any indebtedness for borrowed money or guarantee any
indebtedness issued, sell any debt securities, warrants or rights to
acquire any debt securities, guarantee any debt of others, make any
loans, advances, or capital contributions, or mortgage, pledge, or
otherwise encumber any material assets or create any material lien on
material assets, except in the ordinary course of business;
o pay, discharge, or satisfy any claims, liabilities, or obligations
except in the ordinary course of business; or
o change any accounting principles or practices except as required by
generally accepted accounting principles.
34
<PAGE>
Conditions to Consummation of the Merger
The obligations of TES and ENTECS to complete the merger are subject to the
following conditions:
o ENTECS' stockholders must approve all transactions contemplated by the
merger agreement;
o The relevant governmental authorities must grant all required
authorizations, consents, orders or approvals;
o The registration statement that contains this proxy statement and
prospectus shall have become effective under the Securities Act and must
not be the subject of any stop order or proceedings seeking a stop order;
o There must not be any law, order, injunction, or other legal restraint or
prohibition enjoining or preventing the consummation of the merger;
o The representations and warranties of TES, TES Acquisition and ENTECS
contained in the merger agreement must be true and correct as of the
closing;
o Neither party to the merger agreement may have suffered any material
adverse change to its business or financial condition;
o Each party to the merger agreement may have performed all obligations
required to be performed under the merger agreement except where the
failure to perform would not have a material adverse effect;
o Each party must have furnished to the other an opinion of its counsel to
the effect that the respective party and each of its respective
subsidiaries, among other conditions:
o is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Colorado;
o has the corporate power to carry on its business as it is being
conducted on the closing date of the merger agreement;
o has validly issued its capital stock, and that capital stock is
outstanding, fully paid and nonassessable, and that between the date
of the merger agreement and the closing date of the merger, no
additional shares of its capital stock have been issued;.
Additional Conditions of Obligation of ENTECS are as follows:
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<PAGE>
o TES must have received the opinion of ENTECS' tax counsel to the effect
that the merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, and that TES Acquisition and ENTECS will each be a party to
that reorganization within the meaning of Section 368(b) of the Code.
Termination
The merger agreement may be terminated at any time prior to effectiveness
of the merger, whether before or after stockholder approval of the merger, by
o mutual consent of TES and ENTECS,
o either TES or ENTECS if the merger is not consummated before June 30,
1999 unless the failure to consummate the merger by that date is due
to the action or failure to act of the party seeking to terminate the
agreement,
o either TES or ENTECS if
- the conditions to that party's obligations have become impossible
to satisfy; or
- any permanent injunction or other order of a court or other
competent authority preventing the consummation of the merger has
become final and non-appealable,
o ENTECS, if it has received a proposal from a third party which
contemplates a transaction which the board of directors determines,
after consultation with its legal and financial advisors, is more
favorable than the transactions contemplated by the merger agreement,
unless, within five days of receipt by TES of notice of ENTECS'
receipt of third-party transaction proposal, TES and ENTECS agree to a
transaction which the board of directors determines, after
consultation, is more favorable than the proposed third-party
transaction, or
o TES or ENTECS if ENTECS fails to obtain the required approval of its
stockholders upon a vote held at a duly held meeting of stockholders
or at any adjournment of a duly held meeting of the stockholders for
the purpose of obtaining its stockholder's vote.
If the merger agreement is terminated and abandoned, the merger agreement
will immediately become void and have no effect, without any liability on the
part of any party to the merger agreement or its affiliates, directors,
officers, or stockholders, except with respect to confidentiality obligations
and indemnification provisions relating to brokers or finders or other similar
persons or entities.
Expenses and Fees
Whether or not the merger is consummated, all expenses incurred in
connection with the merger agreement and the transactions contemplated by the
merger agreement will be paid by the party incurring costs and expenses of the
merger and merger agreement, except that the printing and mailing costs
associated with this proxy statement and prospectus shall be borne equally by
TES and ENTECS. In addition to printing and mailing expenses, costs and expenses
incurred in connection with the merger agreement are expected to consist
primarily of legal and accounting fees, tax opinion fees, and filing fees under
federal and state regulatory laws and are estimated to be
________________________.
36
<PAGE>
UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined statement of
operations of Technical Environment Solutions, Inc. gives effect to the proposed
merger of TES and ENTECS as if the transaction occurred at the beginning of the
period presented. The unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1998 is derived from the audited
statements of operations of TES and ENTECS. The unaudited pro forma condensed
combined statement of operations for the three months ended March 31, 1999 is
derived from the unaudited statements of operations of TES and ENTECS.
The unaudited pro forma condensed combined balance sheet at March 31, 1999
gives effect to the proposed Merger of TES and ENTECS as if the transaction
occurred on March 31, 1999. The unaudited pro forma condensed combined balance
sheet is derived from the historical balance sheet of TES and ENTECS as of March
31, 1999.
The unaudited pro forma condensed combined financial data do not reflect
the effects of any anticipated changes to be made by TES in its operations. The
data are presented for informational purposes only and should not be construed
to be indicating:
o the results of operations or the financial position of TES that
actually would have occurred had the proposed merger been consummated
as of the dates indicated; or
o the results of operation or the financial position of TES in the
future.
The following pro forma condensed combined financial data and notes are
qualified in their entirety by reference to, and should be read in conjunction
with, "Management's Discussion and Analysis of Financial Condition and Results
of Operation," the consolidated financial statements and notes of TES and ENTECS
and other historical information included elsewhere in this filing.
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<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
and
Environmental Technologies and Software Solutions, Inc.
Pro Forma Combined Condensed Balance Sheet
March 31, 1999
(Unaudited)
Pro Forma Pro Forma
TES ENTECS Adjustments Combined
DM DM DM DM
Assets
Current Assets:
<S> <C> <C> <C> <C>
Cash .............................................................. 215,467 1,226,663 -- 1,442,130
Accounts receivable ............................................... 125,193 48,315 -- 173,508
Inventory .......................................................... 0 120,000 120,000
Prepaid expenses ................................................... 20,619 47,010 67,629
---------- ---------- ---------- ----------
Total current assets ............................................... 361,279 1,441,988 -- 1,803,267
Property and equipment, net ........................................ 155,098 522,028 677,126
Investments ........................................................ 10,000 -- -- 10,000
Note receivable - non current ...................................... 50,000 -- 50,000
Intangible assets .................................................. -- 1,081,251 1,081,251
Due from affiliated company ........................................ -- 645,659 (645,659) 0
Other assets ....................................................... 398,176 -- 398,176
---------- ---------- ---------- ----------
974,553 3,690,926 (645,659) 4,019,820
========== ========== ========== ==========
Liabilities and stockholders' equity Current liabilities:
Notes payable - banks .............................................. 32,059 -- 32,059
Notes payable - others ............................................. 80,000 -- 80,000
Accounts payable ................................................... 98,843 324,254 -- 423,097
Accounts payable - related party ................................... 15,862 316,850 -- 332,712
Other current liabilities .......................................... 228,047 140,289 -- 368,336
---------- ---------- ---------- ----------
Total current liabilities .......................................... 454,811 781,393 0 1,236,204
Loans from shareholders ............................................ 230,000 -- 230,000
Loans from affiliated companies .................................... 645,659 -- (645,659) --
Common stock ....................................................... 2,260,155 4,999,545 7,259,700
Accumulated deficit ................................................ (2,616,072) (2,090,012) -- (4,706,084)
---------- ---------- ---------- ----------
Total stockholders' equity ......................................... (355,917) 2,909,533 -- 2,553,616
---------- ---------- ---------- ----------
974,553 3,690,926 (645,659) 4,019,820
========== ========== ========== ==========
</TABLE>
See accompanying notes.
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<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
and
Environmental Technologies and Software Solutions, Inc.
Pro Forma Combined Condensed Statement of Operations
Year ended December 31, 1998
(Unaudited)
Pro Forma Pro Forma
TES ENTECS Adjustments Combined
DM DM DM DM
<S> <C> <C> <C> <C>
Net sales .......................................... 610,056 69,369 -- 679,425
Cost of sales ...................................... 202,174 14,004 -- 216,178
----------- ----------- ----------- -----------
Gross profit ....................................... 407,882 55,365 -- 463,247
General and administrative ......................... 1,404,368 1,449,015 -- 2,853,383
Losses of unconsolidated subsidiary ................ 49,000 -- -- 49,000
Interest income .................................... (19,668) (18,581) 7,515 (30,734)
Interest expense ................................... 40,995 2,166 (7,515) 35,646
----------- ----------- ----------- -----------
Net income before taxes ............................ (1,066,813) (1,377,235) -- (2,444,048)
Taxes on income .................................... -- 1,472 -- 1,472
----------- ----------- ----------- -----------
Net income (loss) .................................. (1,066,813) (1,378,707) -- (2,445,520)
=========== =========== =========== ===========
Basic income per share ............................. (0.20) (1.00) -- (0.16)
=========== =========== =========== ===========
Weighted average shares ............................ 5,224,830 1,378,707 8,177,710 14,875,779
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
39
<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
and
Environmental Technologies and Software Solutions, Inc.
Pro Forma Combined Condensed Statement of Operations
Three Months ended March 31, 1999
(Unaudited)
Pro Forma Pro Forma
Adjustments Combined
DM DM DM DM
<S> <C> <C> <C> <C>
Net sales .......................................... 231,215 90,291 -- 321,506
Cost of sales ...................................... 50,383 205,989 256,372
----------- ----------- ----------- -----------
Gross profit ....................................... 180,832 (115,698) 65,134
General and administrative ......................... 364,613 250,879 -- 615,492
Losses of unconsolidated subsidiary ................ 0 -- -- 0
Interest income .................................... (5,453) (8,639) 7,515 (6,577)
Interest expense ................................... 13,095 8,485 (7,515) 14,065
----------- ----------- ----------- -----------
Net income before taxes ............................ (191,423) (366,423) -- (557,846)
Taxes on income .................................... -- 257 -- 257
----------- ----------- ----------- -----------
Net income (loss) ................................. (191,423) (366,680) -- (558,103)
=========== =========== =========== ===========
Basic income per share ............................ (0.04) (0.23) (0.03)
=========== =========== =========== ===========
Weighted average shares ............................ 5,224,830 1,563,515 9,381,090 16,169,435
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
40
<PAGE>
Technical Environment Solutions, Inc.
And
Environmental Technologies and Software Solutions, Inc.
Notes to Pro Forma Combined Condensed Financial Statements
December 31, 1998 and March 31, 1999
(unaudited)
1. TES and ENTECS have signed a letter of intent, dated December 10, 1998, in
which they propose to enter into a definitive agreement and plan of merger
providing for the merger of a wholly owned subsidiary of TES into ENTECS.
Under the terms of the agreement, the holders of ENTECS common stock will
receive seven shares of TES common stock for each outstanding share of
ENTECS' common stock. Accordingly, the pro forma condensed combined
financial statements as of March 31, 1999 give effect to the issuance of
11,288,774 TES common shares and assumes the merger with ENTECS will be
accounted for as a reorganization of companies under common control. The
accounting for the merger is expected to be similar to that of a pooling of
interests.
2. The pro forma condensed combined statement of operations gives effect to
the merger of TES with ENTECS as if the merger occurred at the beginning of
the periods presented.
3. Inter-company advances, accrued interest on the advances and amounts of
interest income and expense have been eliminated.
4. The pro forma weighted average shares outstanding for basic earnings (loss)
per share gives effect to the issuance of seven shares of TES stock in
exchange for each share of ENTECS stock outstanding for the period
presented, weighted for the period the shares were actually outstanding.
41
<PAGE>
SELECTED FINANCIAL DATA OF TES
The selected balance sheet data as of December 31, 1998 and the selected
statement of operations data for the years ended December 31, 1995, 1996, 1997
and 1998, have been derived from the financial statements of TES. The selected
unaudited financial data at March 31, 1999 and for the three months ended March
31, 1998 and 1999 have been prepared on a basis consistent with the consolidated
financial statements of TES. In the opinion of TES, the selected unaudited
financial data include all adjustments -consisting only of normal recurring
adjustments- necessary for a fair presentation of the financial position at the
date presented and results of operations for the periods presented. Operating
results for the three months ended March 31, 1999 are not necessarily indicative
of results for the full fiscal year. These data should be read in conjunction
with the consolidated financial statements of TES, the notes to the consolidated
financial statements of TES and TES' management discussion and analysis of
financial condition and results of operations, all of which are included in this
proxy statement and prospectus.
The TES Selected Financial Data Table Follows on the Next Page.
42
<PAGE>
<TABLE>
<CAPTION>
TES Selected Financial Data Table
Year Ended December 31, Three Months Ended March
----------------------------------------------------- -----------------------------
1995 1996 1997 1998 1998 1998 1999 1999
Statement of ---- ---- ---- ---- ---- ---- ---- ----
Operations Data: DM DM DM DM US $ DM DM US $
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales 577,564 293,814 427,822 610,056 365,960 175,375 231,215 137,628
Cost of Operations 351,364 177,343 179,690 202,174 121,280 44,966 50,383 29,990
------- ------- ------- ------- ------- --------- -------- --------
Gross Profit 226,200 116,471 248,132 407,882 244,680 130,409 180,832 107,638
Other Costs and Expenses:
General and Administrative 323,972 281,614 652,519 1,305,774 783,308 281,995 364,613 217,032
General and Administrative
- related parties -- -- 234,177 98,594 59,145 -- -- --
------- ------- ------- ------- ------- --------- -------- --------
Income (loss) from operations (97,772) (165,143) (638,564) (996,486) (597,772) (151,586) (183,781) (109,393)
Other Income and (expense):
Interest Income 4,780 1,240 19,190 19,668 11,798 238 5,453 3,246
Losses of unconsolidated subsidiary -- -- -- (49,000) (29,394) (15,530) -- --
Interest Expense - related party -- -- (18,100) (24,418) (14,648) -- -- --
Interest Expense (28,595) (43,517) (28,618 (16,577) (9,944) (5,610) (13,095) (7,795)
-------- -------- ------- -------- ------- --------- -------- ---------
(23,815) (42,277) (27,528) (70,327) (42,188) (20,902) (7,642) (4,549)
Income (loss) before income taxes (121,587) (207,420) (666,092)(1,066,813) (639,960) (172,488) (191,423) (113,942)
Provision for income taxes -- -- -- -- -- -- -- --
--------- -------- --------- --------- --------- -------- --------- --------
Net income (loss) (121,587) (207,420) (666,092)(1,066,813) (639,960) (172,488) (191,423) (113,942
========= ========= ========= ========= ========= ========= ========= =========
Basic income (loss) per share: (0.08) (0.14) (0.40) (0.61) (0.37) (0.03) (0.04) (0.02)
========= ========= ========= ========= ========= ========= ========= =========
Weighted average common and
common equivalent shares
outstanding 1,507,176 1,508,134 5,028,813 5,224,830 5,224,830 5,224,830 5,224,830 5,224,830
========= ========= ========= ========= ========= ========= ========= =========
<CAPTION>
December 31, 1998 March 31, 1999
---------------------- ---------------------------
DM US $ DM US $
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (168,467) (101,060) (93,532) (55,674)
Current assets 292,335 175,366 361,279 215,047
Current liabilities 460,802 276,426 454,811 270,721
Total assets 814,977 488,888 974,553 580,091
Total liabilities 979,471 587,565 1,330,470 791,947
Stockholders' equity (164,494) (98,677) (355,917) (211,856)
</TABLE>
43
<PAGE>
TES Management's Discussion and Analysis of Financial Conditions
and Results of Operations
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of net sales represented by selected items included in TES' statements of
operations:
<TABLE>
<CAPTION>
Fiscal year ended Three Months Ended
December 31, March 31,
------------------------ --------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales ................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Operations ...................... 60.4 39.6 33.1 25.6 21.8
----- ----- ----- ----- -----
Gross Profit ............................ 39.6 60.4 66.9 74.4 78.2
General and administrative .............. 95.8 195.3 230.2 160.8 157.7
----- -----
Income (loss) from operations ........... (56.2) (134.9) (163.3) (86.4) (79.5)
Interest income ......................... .4 4.2 3.2 .1% 2.4
Losses of Unconsolidated Subsidiary...... -- -- (8.0) (8.9) --
Interest expense ........................ (14.8) (10.3) (6.7) (3.2) (5.7)
----- ----- -----
Net income .............................. (70.6) (140.9) (174.8) (98.4) (82.8)
===== ===== ===== ===== =====
</TABLE>
Three-months Ended March 31, 1999 Compared to Three-months Ended March 31, 1998
Sales for the three-month period ended March 31, 1999 were DM 231,215 (US
$137,628), an increase of DM 55,840 (US $33,238), or 31.8%, as compared to the
three-month period ended March 31, 1998. The principal reason for this increase
in sales was increased recycling activity at TES' new Landsberg facility.
Cost of operations for the three-month period ended March 31, 1999 was DM
50,383 (US $29,990), an increase of DM 5,417 (US $3,224), or 12.1%, as compared
to the three-month period ended March 31, 1998. This increase was due to
increased costs of operations directly attributable to the increase in sales.
As a result of the changes noted above, gross profit for the three-month
period ended March 31, 1999, was DM 180,382 (US $107,370), an increase of DM
50,423 (US $30,014), or 38.7%, as compared to the three-month period ended March
31, 1998.
General and administrative expenses for the three-month period ended March
31, 1999, were DM 364,613 (US $217,032), an increase of DM 82,618 (US $49,177),
or 29.3%, as compared to the three-month period ended March 31, 1998. This
increase was principally due to the following:
44
<PAGE>
o Increased payroll and payroll related expenses for employees in the
Landsberg facility.
o A reduction in the state-subsidies which TES receives for each new
position created in the recycling component of its business. These
subsidies are treated as an offset to general and administrative
expenses. The subsidies which TES receives from the state end after
each new employee's first complete year of employment. Thereafter, TES
must bear the full cost of such employees salary and benefits.
o Rent for additional storage-ground at the Landsberg facility due to
the increased operating activity.
o Increased payroll and payroll related costs of sales personnel. and,
o Legal and accounting expenses related to the proposed merger of TES
with ENTECS.
As a result of these factors, the operating loss for the three-month period
ended March 31, 1999, was DM 183,781 (US $109,393), an increase in the operating
loss of DM 32,195 (US $19,164), or 21.2%, as compared to the three-month period
ended March 31, 1998. Other income and expenses for the three-month period ended
March 31, 1999, was an expense of DM 7,642 (US $4,549), a decrease of DM 13,260
(US $7,893), or 63.4%, as compared to the three-month period ended March 31,
1998. The decrease in other expenses was primarily due to the fact that TES had
written off its investment in an unconsolidated subsidiary in 1998 and, as a
result, had no such loss recorded in the three-months ended March 31, 1999. For
the reasons noted above, the net loss for the three-month period ended March 31,
1999, was DM 191,423 (US $113,942), an increase in the net loss of DM 18,935 (US
$11,271), or 11.0%, as compared to the three-month period ended March 31, 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Sales for the year ended December 31, 1998, were 610,056 DM (US $365,960),
an increase of 156,147 DM (US $93,669), or 25.6%, as compared to the year ended
December 31, 1997. This increase in sales resulted principally from increased
production volume in TES' recycling business, including increased production
volume at its new Landsberg facility during its first operational year.
Cost of operations for the year ended December 31, 1998 was 202,174 DM (US
$121,280), an increase of 22,484 DM (US $13,488), or 12.5%, as compared to the
year ended December 31, 1997. This increase in cost of operations resulted
principally from increased operating cost directly attributable to the increase
in sales. Operating costs are principally comprised of disposal costs and
transportation costs. These categories of cost increased proportionately with
the increased production volume contributing to the increase in sales. However,
TES was able to achieve reduced unit costs in these categories as a result of
the increased unit volume.
General and administrative expenses for the year ended December 31, 1998
were 1,404,368 DM (US $842,452), an increase of 517,672 DM (US $310,541), or
58.4%, as compared to the year ended December 31, 1997. This increase in general
and administrative expenses was due to increased lease costs resulting from the
45
<PAGE>
lease and opening of the Landsberg facility and to staffing and labor expenses
related to the increased production volume in TES' recycling business. TES also
incurred increased general and administrative expenses as a result of increased
marketing activities and additional professional services resulting from TES'
merger plans with ENTECS.
As a result of the above factors, the operating loss for the year ended
December 31, 1998 was 996,486 DM (US $597,772), an increase in the operating
loss of 384,009 DM (US $230,359), or 62.7%, as compared to the year ended
December 31, 1997.
Interest income increased minimally for the year ended December 31, 1998 as
compared to the previous year. Interest income was 19,668 DM (US $11,798) for
the year ended December 31, 1998 and was 19,190 DM (US $11,512) for the year
ended December 31, 1997. Interest expenses for the year ended December 31, 1998
were 40,995 DM (US $24,592), a decrease of 5,723 DM (US $3,433), or 12.3%,
compared to the previous year. This decrease was a result of TES' payment of
180,000 DM (US $107,978) loan in early 1998.
TES incurred a loss from its unconsolidated subsidiary for the year ended
December 31, 1998 of 49,000 DM (US $29,394). No loss from its unconsolidated
subsidiary was incurred in the previous year. The loss of 49,000 DM from its
unconsolidated subsidiary is a result of TES reporting its share of losses of
its investment in a subsidiary, T-Cycle Computer Service, a German company
engaged in the dismantling and disposing of surplus electronic equipment in
Germany. TES had paid 49,000 DM for its investment in T-Cycle and accounted for
this investment under the equity method of accounting. T-Cycle has filed for
bankruptcy under German law.
As a result of the above factors, the net loss for the year ended December
31, 1998 was 1,066,813 DM (US $639,960), an increase of 426,808 DM (US
$256,034), or 66.7%, as compared to the year ended December 31, 1997.
Year Ended December 31, 1997, Compared to Year Ended December 31, 1996
Sales for the year ended December 31, 1997 were 423,300 DM (US $236,203),
an increase of 129,486 DM (US $72,254), or 44.1%, as compared to the year ended
December 31, 1996. Cost of operations for the year ended December 31, 1997, was
179,690 DM (US $100,268), an increase of 2,347 DM (US $1,310), or 1.3%, as
compared to the year ended December 31, 1996. Gross profit for the year ended
December 31, 1997, was 274,219 DM (US $153,015), an increase of 157,748 DM (US
$88,024), or 135.4%, as compared to the year ended December 31, 1996. These
increases were primarily due to an increase in the number of sales persons
employed by TES from one manager/sales person to four full-time sales persons.
Management believes that the increase in sales and the corresponding increase in
gross profit are directly attributable to the increase in the number of persons
engaged in marketing.
46
<PAGE>
General and administrative expenses for the year ended December 31, 1997,
were 886,696 DM (US $494,780), an increase of 605,082 DM (US $337,639), or
214.9%, as compared to the year ended December 31, 1996. This increase was
principally due to the increased costs, both direct and indirect, associated
with the increase in the number of sales persons, and increased costs for
staffing and equipping the Landsberg facility and bringing that facility into
operation.
As a result of these factors, the operating loss for the year ended
December 31, 1997, was 612,477 DM (US $341,765), an increase in the loss of
447,334 DM (US $249,614), or 270.9%, as compared to the year ended December 31,
1996. In addition, these factors resulted in a loss for the year ended December
31, 1997, of 640,005 DM (US $347,126) compared to a loss of 207,420 DM (US
$115,741) for the year ended December 31, 1996, an increase in the loss of
432,585 DM (US $241,384).
Liquidity and Capital Resources
TES is currently experiencing a liquidity crisis and must raise additional
funds. Further,TES has not generated sufficient cash flow to fund its operations
and activities. TES historically relied upon internally generated funds and
loans from its principal shareholder and his wife to finance its operations and
growth.
During the six months ended June 30, 1997, TES received 2,208,550 DM (US
$1,232,381) from an offering of its common stock conducted solely in Germany to
German citizens. At March 31, 1998, TES had working capital of 179,215 DM (US
$107,508) and cash of 386,775 DM (US $232,019). At March 31, 1999 TES had
negative working capital of 93,532 DM (US $55,674) and cash and cash equivalents
of 215,467 DM (US $128,254). Further, TES's net deficit had increased to 355,917
DM (US $211,855) at March 31, 1999 from a net deficit of 164,494 DM (US $98,677)
at December 31, 1998.
Currently, TES is borrowing funds from ENTECS to meet its working capital
needs. At March 31, 1999, TES had advances due to ENTECS of 645,659 DM (US
$384,321), including 356,990 DM (US $213,766) which was loaned to TES by ENTECS
in the quarter ended March 31, 1999. Based upon recent sales of stock by ENTECS,
management believes that it will have sufficient funds to satisfy its cash
requirements until December 31, 1999 through additional borrowings from ENTECS.
Management intends to raise additional funds as necessary through further public
offerings of its stock in the second half of the current fiscal year and through
bank loans or loans from private investors, if necessary. There can be no
assurance that TES will be able to obtain this financing.
Gerd Behrens has an employment agreement with TES under which he is
entitled to an annual salary of 96,000 DM (US $57,143). Mr. Behrens has elected
to defer payment under his employment agreement until funds are available to pay
his salary.
Management has no plans at this time to materially reduce the number of its
employees or dispose of any of TES's assets. TES has future minimum lease
obligations totaling 1,066,560 DM (US $634,857) through 2003. See the Notes to
Consolidated Financial Statements of TES located elsewhere this document.
47
<PAGE>
Year 2000 Compliance
The Year 2000 computer problem, commonly referred to as Y2K, refers to the
potential for system and processing failures of date-related data as a result of
computer-controlled systems using two digits rather than four to define the
applicable year. For example, computer programs that have time-sensitive
software may recognize a date represented as "00" as the year 1900 rather than
the year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
ENTECS has the exclusive distribution rights to Fabius, which is a software
product designed to assist companies with environmental compliance. The
developer of Fabius has advised TES that it is Y2K compliant. In addition, TES
has tested Fabius for Y2K compliance, and based upon the results of those tests,
management believes that Fabius is Y2K compliant. However, TES' testing of
Fabius does not cover every possible computing environment. Accordingly, some
customers may have Y2K problems with products that TES believes are Y2K
compliant. For instance, users of Fabius may be operating on older versions of
hardware platforms than the hardware platforms tested.
TES also may be affected by Y2K issues related to non-compliant internal
systems developed by TES or by third-party vendors. TES has reviewed its
internal systems, including its accounting system, and has found them to be Y2K
compliant. TES is not currently aware of any Y2K problem relating to any of its
internal, material systems and management does not believe that it has any
material systems that contain embedded chips that are not Y2K compliant.
TES' internal operations and business are also dependent upon the
computer-controlled systems of third parties like suppliers, customers and
service providers. Management believes that absent a systemic failure outside
the control of TES, like a prolonged loss of electrical or telephone service, or
Y2K problems at its suppliers, customers and service providers, it will not have
a material impact on TES. TES has no contingency plan for systemic failures like
losses of electrical or telephone services. TES' contingency plan in the event
of a non-systemic failure is to establish relationships with alternative
suppliers or vendors to replace failed suppliers or vendors. Other than the
previously described testing, and remedying problems identified by testing or
from external sources, TES has no other contingency plans or intention to create
other contingency plans.
Should a TES customer using Fabius incur a Y2K problem that wasn't
encountered by TES or the developer of Fabius in its Y2K compliance testing,
then TES might subsequently need to address that failure in the Fabius software.
Any failure by TES or its licensor to make Fabius Y2K compliant could result in
any or all of the following events:
o a decrease in sales of Fabius;
o an increase in allocation of resources to address Y2K problems of its
customers without additional revenue commensurate with the additional
dedication of resources;
48
<PAGE>
o an increase in litigation costs relating to losses suffered by Fabius'
customers due to year 2000 problems.
Failures of TES' internal systems could temporarily prevent it from
processing orders, issuing invoices, and could require it to devote significant
resources to correcting these problems. But to management's knowledge, the
supplier as Y2K compliant has attested the internal accounting systems. In any
event, TES is unable to determine at this time whether the consequences of Y2K
failures will have a material impact on its business, results of operations, and
financial condition. This is a result of the general uncertainty inherent in the
year 2000 computer problem, resulting from the uncertainty of the year 2000
readiness of third-party suppliers and vendors,
49
<PAGE>
SELECTED FINANCIAL DATA OF ENTECS
The selected balance sheet data as of December 31, 1998 and the selected
statement of operations data for the years ended December 31, 1997 and 1998,
have been derived from the financial statements of ENTECS. The selected
unaudited financial data at March 31, 1999 and for the three months ended March
31, 1998 and 1999 have been prepared on a basis consistent with the consolidated
financial statements of ENTECS. In the opinion of ENTECS, the selected unaudited
financial data include all adjustments -consisting only of normal recurring
adjustments- necessary for a fair presentation of the financial position at the
date presented and results of operations for the periods presented. Operating
results for the three months ended March 31, 1999 are not necessarily indicative
of results for the full fiscal year. These data should be read in conjunction
with the consolidated financial statements of ENTECS, the notes to the
consolidated financial statements of ENTECS and ENTECS' management discussion
and analysis of financial condition and results of operations, all of which are
included in this proxy statement and prospectus.
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
------------------------------- ------------------------------
1997 1998 1998 1998 1999 1999
DM DM US $ DM DM US $
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Revenues -- 69,369 41,613 -- 90,291 53,745
Other Costs and Expenses:
Cost of goods sold -- 14,004 8,401 -- 205,989 122,613
General and administrative 256,114 1,231,359 738,668 225,004 33,223 19,776
General and administrative
- related parties 87,500 217,656 130,567 87,500 217,656 129,557
--------- --------- --------- --------- --------- ---------
Income (loss) from operations (343,614) (1,393,650) (836,023) (312,504) (366,577) (218,201)
Other Income and (expense):
Interest income 783 11,066 6,638 -- 1,124 669
Interest income - related parties -- 7,515 4,508 -- 7,515 4,473
Interest expense - related parties -- (1,682) (1,009) -- (1,682) (1,001)
Interest expense (1,794) (484) (290) -- (6,803) (4,049)
--------- --------- --------- --------- --------- ---------
(1,011) 16,415 9,847 -- 154 92
Income (loss) before income taxes (344,625) (1,377,235) (826,176) (312,504) (366,680) (218,262)
Provision for income taxes -- (1,472) (883) -- -- --
--------- --------- --------- --------- --------- ---------
Net income (loss) (344,625) (1,378,707) (827,059) (312,504) (366,680) 218,262)
========= ========= ========= ========= ========= =========
Basic income (loss) per share: (0.33) (0.99) (0.60) (0.25) (0.23) (0.14)
========= ========= ========= ========= ========= =========
Weighted average common and
common equivalent shares
outstanding 1,033,751 1,387,134 1,387,134 1,259,532 1,563,515 1,563,515
========= ========= ========= ========= ========= =========
<CAPTION>
December 31, 1998 March 31, 1999
----------------- --------------
Balance Sheet Data: DM US $ DM US $
<S> <C> <C> <C> <C>
Working Capital (deficit) (78,743) (47,235) 660,595 393,212
Current assets 571,462 342,809 1,441,988 858,326
Current liabilities 650,205 390,044 781,393 465,114
Total assets 2,527,699 1,516,315 3,690,926 2,196,979
Total liabilities 650,205 390,044 781,393 465,114
Stockholders' equity 1,877,494 1,126,271 2,909,533 1,731,865
</TABLE>
50
<PAGE>
ENTECS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General and Results of Operations
ENTECS is in the business of recycling and disposal of waste materials,
development and construction of new technologies in the environmental area, and
development, production, and sale of software programs for environmental and
recycling solutions.
ENTECS was incorporated in Colorado in May 1997. It has recorded limited
sales during the period presented and is considered to be in its development
stage. ENTECS' operations to date have been carried out solely within Germany by
its wholly owned subsidiaries, ENTECS Umwelttechnik GmbH formed in July 1997,
formerly known as ENTECS Umweltmanagement GmbH until March 1998, and ENTECS
Software and Umweltmanagement GmbH, formed in March 1998.
ENTECS has incurred accumulated deficits through December 31, 1998 of
1,723,332 DM (US $1,126,271). Since ENTECS has recorded revenues of only 69,369
DM (US $41,613) since its inception, this deficit has occurred principally as a
result of incurring general and administrative expenses. Since inception ENTECS
has incurred 1,792,629 DM (US $1,060,973) in general and administrative
expenses. 1,449,015 DM (US $869,238) of these expenditures was incurred in the
year ended December 31, 1998 and 343,614 DM (US $191,738) were incurred from
inception of ENTECS through December 31, 1997. This increase of 1,105,401 DM (US
$663,108), or 322%, was the result of primarily increased operating activities
as ENTECS incurred development costs. Included in general and administrative
expenses are 305,156 DM (US $179,392) paid to related parties since the ENTECS'
inception.
Liquidity and Capital Resources
As of December 31, 1998, ENTECS had cash and cash equivalents of 393,080 DM
(US $235,801) and a negative working capital of 78,743 DM (US $47,235). ENTECS
has financed its operations since inception principally through the sale of its
common stock. Since inception, ENTECS has received proceeds from the sale of its
common stock of 3,600,826 DM (US $2,160,064).
ENTECS used cash of 742,264 DM (US $463,540 in operating activities.
Cash used in investing activities since inception was 1,669,706 DM (US
$954,540) of which 593,750 DM (US $335,362) was used for the purchase of license
rights, 705,756 DM (US $400,210) was used to purchase fixed assets, and 370,200
DM (US $222,076) was advanced to TES.
51
<PAGE>
ENTECS has also used the proceeds from the sale of common stock to make
repayments to affiliated companies of 391,695 DM (US $236,101) and to make
repayments to related parties of 287,500 DM (US $172,466). These repayments to
affiliated companies and related parties reflect principally the repayment of
funds paid by related parties for license fees on behalf of ENTECS.
ENTECS has an employment agreement with Gerd Behrens under which he is
entitled to an annual salary of 96,000 DM (US $57,143). Mr. Behrens has elected
to defer payment of his compensation under this agreement until there is funds
available to pay him. ENTECS also has an employment agreement with Frank Behrens
under which he is paid an annual salary of 51,000 DM (US $30,357) plus 5% of
ENTECS gross profit defined as the gross profit of ENTECS less taxes and
deductions. Dieter Gastinger has an employment agreement with ENTECS under which
he is paid an annual salary of 51,000 DM (US $30,357) plus 5% of ENTECS gross
profit as is defined above.
Year 2000 Compliance
ENTECS may be affected by Y2K issues related to non-compliant internal
systems developed by ENTECS or by third-party vendors. ENTECS has reviewed its
internal systems, including its accounting system, and has found them to be Y2K
compliant. ENTECS is not currently aware of any Y2K problem relating to any of
its internal, material systems and does not believe that it has any material
systems that contain embedded chips that are not Y2K compliant.
ENTECS' internal operations and business are also dependent upon the
computer-controlled systems of third parties like suppliers, customers and
service providers. Management believes that absent a systemic failure outside
the control of ENTECS, like a prolonged loss of electrical or telephone service,
Y2K problems at third parties suppliers will not have a material impact on
ENTECS. ENTECS has no contingency plan for systemic failures like losses of
electrical or telephone services. ENTECS' contingency plan in the event of a
non-systemic failure is to establish relationships with alternative suppliers or
vendors to replace failed suppliers or vendors. Other than the previously
described testing, and remedying problems identified by testing or from external
sources, ENTECS has no other contingency plans or intention to create other
contingency plans.
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BUSINESS OF TES
General Information
TES was incorporated under the laws of Colorado in June 1994. It is a
non-operating holding company. TES' operations are conducted entirely in
Germany. It has two wholly owned subsidiaries that have been established under
the laws of Germany. Operations are conducted through these subsidiaries:
namely, Technical Environment Solutions GmbH and TES Oecon AG. TES GmbH was
formed in May, 1992 and TES Oecon AG was formed in July, 1997 and commenced
operations in October, 1997. Unless the context otherwise requires, references
to TES include its subsidiaries. Since 1994, TES has been engaged in the
marketing of recycling services on a contract basis primarily for electronic
scrap and other valuable waste materials in cooperation with specialist waste
disposal companies. Recently, TES commenced recycling activities at its own
facility in Landsberg a. Lech, Germany, which is southwest of Munich. The
recycling activities are conducted principally within the TES GmbH subsidiary.
Management intends to significantly expand this operation in the future.
Management also intends to develop a job training school, the Oecon Institute,
to provide training and education for positions in the recycling industry.
Management intends to focus TES' job training programs upon providing job
education and training for the long-term unemployed and disadvantaged. The
training programs are conducted within the TES Oecon AG subsidiary.
During February, 1998, TES also acquired a 49% ownership interest in
T-Cycle Computer Service and Verwertungs GmbH, a German company engaged in
dismantling and disposing of surplus electronic equipment. TES paid 49,000 DM
(US $29,394) for its investment in T-Cycle. TES has accounted for this
investment under the equity method of accounting in accordance with U.S.
generally accepted accounting principles. Subsequent to its investment in
T-Cycle, and during its fiscal year ended December 31, 1998, TES has written off
its investment in T-Cycle as a result of heavy losses incurred by T-Cycle and
the subsequent filing of bankruptcy under German law by T-Cycle.
A significant portion of TES' revenues has been derived from a limited
number of customers. In fiscal 1998, revenues from TES' largest customer
amounted to 10% of its total revenues, and in fiscal 1997, four customers each
accounted for 10%, or 40% total, of TES' total revenues. TES' management expects
that TES will continue to be dependent upon a limited number of customers for
significant portions of its revenues in future periods.
TES has not expended a material amount of time for research and development
in the past two fiscal years. Research and development costs, if they are
incurred, are expensed in the period they are incurred.
TES is engaged principally in the business of helping other businesses
comply with the cost and effect of German environmental laws. As such, TES has
reported in its financial statements substantial amounts for the category "cost
of operations" which is composed of the costs TES incurred to dispose of
environmental waste for its customers. These costs, however, are directly borne
by TES' customers and not by TES. TES has not incurred material costs of its own
in complying with applicable environmental law.
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Recycling
TES offers to its customers a service intended to assist the customer in
complying with all environmental regulation to which it is subject. In doing so,
TES provides to its customers a service which disassembles, removes,
re-utilizes, re-processes, and markets and sells the recycled materials to
others. Its waste disposal services also include archiving the recycled
materials and documenting the path of movement and end location of that
material. This has the additional function of serving as verification for
government agencies and environmental protection groups that the waste has been
locally disposed.
TES' strategies mainly emphasize the technologically feasible reutilization
of scrap electrical and electronic equipment in a manner that not only
demonstrates economic and ecological responsibility but also achieves maximum
conservation of resources through optimum recovery of recyclable materials. TES
provides its employees with the training necessary to operate automated systems
utilized to disassemble and process the materials to be recycled. TES' processes
ensure that the materials, once disposed of, enter the reprocessing cycle and
satisfy all legal regulations.
Germany has strict laws relating to the recycling and disposal of all
manufactured products. The basis for the German environmental legislation with
respect to the treatment of waste product is called "Kreislaufwirtschafts-und
Abfallgesetz, which was effective October, 1996. The German law was enacted, in
part, to comply with requirements of the European Union. All European countries
participating in the European Union must enact these environmental laws. In
practice these laws are enacted in phases. The focus of these phases is to enact
legislation which first promotes attempts to avoid the creation of waste, second
to recycle the waste and third to deposit or incinerate the waste. Germany is a
small country with a large population. Landfill space is extremely limited.
Therefore, the government requires that electronic scrap as well as an array of
other manufactured product waste be disposed of either by incineration or by
depositing it in abandoned underground coal or salt mines. Hence disposal of
most waste in Germany is more expensive than it is in the United States.
Disposal of waste also becomes more expensive as legislation becomes more
directed to recycling or avoidance which is the trend with the European Union
dictated requirements.
Because of the requirements of the European Union, even stricter laws
regarding recycling of electronic products such as televisions, computers,
computer monitors, radios, telephones, and virtually every other type of
electronic product are anticipated by TES' management. It is expected that these
laws will require that the old products be broken down into smaller components,
and to the extent possible that these components be re-used or recycled rather
than simply being incinerated. In order to prepare for what the industry views
as inevitable recycling requirements, many larger companies have already begun
to voluntarily comply with proposed recycling standards and are shipping all
used and obsolete electronic products to recycling centers such as that operated
by TES.
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TES also utilizes its manufacturing equipment to convert glass from cathode
ray tubes, commonly referred to as CRTs, computer components, and other
manufacturing by-products and industrial wastes into manufacturing raw materials
that may be resold.
TES employs a two-tier strategy:
o decentralized disassembly
o centralized processing and re-use.
Management intends to use a wide variety of collection points as it grows in the
future in order to provide full geographic coverage of Germany's waste disposal
needs. At this time, TES can cover the southern portions of Germany with its own
collection center, the Landsberg facility. TES has not yet expanded into
northern Germany because the cost of shipping the electronic scrap to Landsberg
in Bavaria is economically unfeasible.
One important aspect of TES' service strategy is that all recycling and
disposal paths are fully documented. Each customer who recycles electronic scrap
through TES receives a printout documenting the disposal in accordance with the
recycling laws. To accomplish this, TES and its associates offer a fully
comprehensive program to register and sort spent electronic equipment using TES'
own "RNP" data processing system, a software program that supports the exchange
of data between TES, manufacturers, and waste reprocessing companies.
The RNP database also contains:
o model and order number of electronic products
o size and weight of electronic products
o analysis of materials in electronic products
Another module in the RNP database is a logistics program likewise
developed by TES. This program covers:
o collection and disposal
o transportation and warehousing
o disposal and recycling
o documentation of each piece of equipment
o for fixed assets bookkeeping
o for the tax authorities
o for environmental groups
According to figures from the German Federal Office of the Environment,
approximately two million tons of spent electronic equipment is generated each
year in Germany alone. Of these, some 50 to 60 percent comes from the field of
entertainment electronics and another 25 percent from household appliances. The
remainder comes from the area of data processing technologies or from other
technologies primarily used by industry, research facilities, and the business
sector. Some 300,000 tons are made up of spent computers and television sets
alone, of which it is estimated that only 25 percent are disposed of in an
ecologically sound manner.
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This electronic scrap contains not only valuable raw materials but also a
wide range of toxic substances harmful to the environment. TES collects and
disassembles this spent equipment and then reprocesses and markets the valuable
waste materials salvaged from it. TES also separates and properly disposes of
the toxic substances.
The management of TES believes that the recycling of used television sets
and computer monitors including CRT glass is in a growth industry. As a result,
TES has recently expanded its efforts in this area. Recently, TES purchased
machinery designed to dismantle CRTs. In TES' CRT recycling operation, used CRTs
are shipped to TES by its customers. Under the terms of the arrangements with
its customers, TES is paid a fee for recycling the used CRTs. The CRTs include
both funnel glass - the back of a television screen, which is relatively thin
and tubular in shape - and panel glass. After the funnel glass has been cut from
the front portion of the tube and cleaned, it can be sold back to the original
manufacturers and other companies to be "up-cycled," i.e., reincorporated into a
CRT.
At this time the panel glass can not be recycled and must be incinerated.
TES must pay a fee to dispose of the panel glass. Management expects, however,
to be able eventually to either sell the panel glass to companies that recycle
glass or, at a minimum, to have these companies haul the panel glass away at no
cost to TES. Even if TES must pay to have the panel glass taken away, TES' CRT
recycling business is profitable because of the fees it is paid by its customers
to recycle the CRTs. The ability to sell the panel glass will help increase TES'
profits from this operation.
TES hopes to increase its market share in the recycling of CRT glass. TES
believes this can be achieved as the market for its products and services is
made aware that recycling will provide a less costly and more environmentally
responsible means of disposing of waste CRT glass when compared to the
alternative methods currently utilized to dispose of CRT glass. Further,
management believes that manufacturers of CRT glass will shift their purchases
of CRT glass to the recycled product as they learn of the savings that can be
achieved when compared to CRT glass manufactured from raw, rather than recycled,
ingredients. In addition, management believes that the electronics industry may
be a source of other waste streams that may be recycled. Management believes
that TES' CRT glass recycling and materials reuse capability will position TES
to process large volume end-of-life television and computer waste since current
regulations in Germany exclude them from landfills.
TES also recycles computer systems. TES resells many of the used computer
parts that are generated from this recycling activity, including plastic, gold,
copper, aluminum, steel, and other raw materials. Management believes that this
is possible because the most cost-effective source for spare parts is generally
recycled parts, and for out-of-production parts, it is frequently the only
source. Conversely, the best use for recycled parts is to resell them for use in
the installed base as either spares or low-cost additions to existing systems.
Similarly, recycled parts are also often both less expensive and more readily
available than repaired parts.
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TES is currently operational in the types and methods of recycling of the
waste products described above. However, the industry is young and not as yet
fully developed. The management of TES anticipates that it has positioned itself
to take advantage of the growth in this industry as its market's customer base
sees the savings that recycled products can produce and as the impact and cost
of increasing national legislation is felt.
TES' future success will depend significantly on its ability to enhance its
recycling capabilities in a manner which keeps pace with technological
developments and evolving industry standards. There can be no assurance that TES
will be successful in enhancing its recycling capabilities or meeting customer
requirements adequately. TES' delay or failure to develop or acquire
technological improvements or to adapt to technological change would have a
material adverse effect on TES' business, results of operations, and financial
condition.
Recycling Process
Material to be recycled is transported by TES from its customer's location
by truck. The cost for transportation of material to be recycled by TES is borne
by the customer. The first step in the processing of recycled material at TES'
location involves the inspection of the material received by TES to assure that
it complies with requirements set forth in TES' agreements. TES personnel will
conduct this process on a visual basis. Assuming that the material is in
compliance with TES' agreements, the material will be sorted for processing on
TES' recycling line. Nonconforming shipments will be rejected and returned to
the supplier. This process will be undertaken to protect TES from receiving
materials that it is not equipped to handle either on the basis of the economics
or safety involved with handling of the material.
After the material has been sorted, it will then be stored until it is
delivered to the recycling line. Material on the recycling line will be
disassembled, and spare computer parts, integrated circuit boards, and other
parts of the electronic products that can be resold will be
sorted and cleaned. Other material will be, if appropriate, sorted for sale,
cleaned and ground and crushed. As the final result of the process, as much as
possible of the residual materials are reused in an environmentally sound way.
They are recovered, sorted, and returned to the cycle of raw materials. To
prevent the processing techniques from emitting toxic by-products, TES employs
mechanical processes exclusively, i.e. no chemicals are used by TES in the
disassembly process.
Those materials that cannot be recycled are discarded. The materials that
TES must discard are hazardous waste, CRT glass and fire-retardant plastics from
computers. TES contracts with others to discard hazardous materials. The costs
to dispose of hazardous materials are borne directly by the customer. The cost
to discard hazardous materials is included in the cost of operations of TES'
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financial statements. These costs have declined on a per unit basis as the
volume of production of TES has increased.
TES disassembles the following kinds of electronic scrap for recycling:
o cathode ray tubes
o computers and peripherals of any kind
o PCs and monitors
o other office equipment
o household appliances of all sizes o television sets, radios, VCRs etc.
o telecommunication equipment o electrical tools
o standby power generation units
o industrial control units
o measurement and control devices
o laboratory and medical equipment
o visual recording and reproduction equipment
o composite plastics and metals
o circuit boards
o magnetic and video tapes
To obtain fully sorted raw materials from worn-out electronic equipment,
the first thing that must be done is to disassemble the scrap by hand. During
this process components with toxic substances such as condensers or lithium
batteries are removed and sent to separate disposal plants.
At this preliminary disassembly stage the scrap is broken down into the
following categories:
o plastics
o ferrous metals
o nonferrous metals
o cathode ray tubes
o cables
o circuit boards
o toxic substances
If the preliminary disassembly stage fails to yield fully sorted materials,
further processing is required. In the next stages the material is further
broken down through non-chemical and non-thermal processes. The mixture of
materials thus obtained is completely sorted by means of magnets, eddy currents,
wind, sifting, or similar techniques.
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These processes yield, among other things, the following types of
materials:
o iron
o aluminum
o copper
o glass
o plastics
o ceramics
o composite metal granulates
The fully separated metals and glass are sent to various smelting plants as
secondary raw materials. Similarly, those fully sorted plastics that have not
been treated with flameproofing are sent away for reuse. Plastics which are not
fully separated or which contain bromine flameproofing are disposed in
accordance with environmental regulations, as are all other toxic substances.
Precious metal granulates are sent to separation plants for further processing.
All the methods TES employs represent state-of-the-art technologies and
have been streamlined for a smooth interaction of their ecological and economic
aspects. Further, TES' methods are designed to assure compliance with all legal
and government regulations, with the paths of reprocessing and disposal
completely documented.
CRTs are removed from the television sets and computer monitors, and then
processed by the CRT recycling line. TES employs a specially designed saw to
separate the panel glass from the funnel glass. After the pieces of CRT glass
are sorted by type of glass and by size, the glass is cleaned and coatings on
the glass are removed prior to sale or other disposition of the glass.
Job Training
In Germany all trades are governed by strict educational standards. This
means that anyone who wants to work as a plumber, carpenter, baker, cook, etc.
must complete a training program for that trade and work for a number of years
under the supervision of a "Meister" in order to gain practical training.
Without this training and experience, one cannot be employed in a trade.
Germany currently has the highest unemployment rates it has had since the
end of World War II. The unification of the former East Germany with West
Germany has created especially high unemployment rates among young people in the
former East German states. The German federal and state governments are
therefore anxious to create job opportunities for these long-term unemployed
youths and are providing subsidies for companies that create jobs.
TES Oecon Institute is developing a job-training center which management
expects to open in the summer of 1999. The center is intended to provide
training for long-term unemployed youths and disadvantaged people. The Oecon
Institute is located within the Landsberg facility. It intends to offer various
new technical job classifications in environmental protection areas, such as the
position title "Electronic Recycling Technician." TES Oecon Institute will offer
courses required by some governmental agencies for environmental managers of
other companies, as well as seminars and workshops covering special
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environmental issues such as environmental law issues, certification and audits,
management systems, software program training, and ecological input-output
analysis. TES expects to hire prior to the center's opening four additional
training instructors to its current staff of one chief trainer.
With its job-training program the Oecon Institute will provide the
opportunity for the long-term unemployed and other disadvantaged groups to find
an entrance into the work force. Through the training offered by TES, the newly
trained employees will be prepared for new challenges.
The job title "electronic recycling technician" is timely for the new
market structures because the need for qualified personnel for proper disposal
technologies will significantly increase in the coming years. The practical
training for electronic recycling technician will take place in the Institute's
own workshop and in partner companies throughout Germany.
The new profession, electronic recycling technician, has been defined by
the rules and regulations of the Federal Ministry for Youth and Research and
students who successfully complete the training will receive certification from
the responsible industry chambers of commerce. The job training facility will
receive daily subsidies for each student as required by law.
Management anticipates that the job-training center will be very successful
because there is an increasing demand for qualified technicians. In addition,
the government must make even greater efforts to reduce Germany's high
unemployment. There are a number of state subsidies and job creation programs
that offer job-training schools a sure and long-term financial basis. Potential
sources for subsidies include, among others, the Social Welfare Offices, Youth
and Social Service Agencies, and Unemployment Agencies. TES expects it will be
dependent to some extent upon various government subsidies for the new job
training program. Further, along with the job training, the Institute will offer
a number of revenue producing seminars and workshops covering special
environmental issues, environmental law issues, and the certification and
auditing of environmental operations and locations. A close working relationship
with TUEV-Suddeutschland, a product testing and certification organization in
Germany similar to that of UL Laboratories in the United States will allow TES
access to qualified teaching and training personnel.
Competition
Management believes that the electronic recycling services industry is
fragmented with widespread competition from a variety of small independent
suppliers and several major suppliers in Germany. Management believes that
competition for recycling and waste disposal customers is based on price and the
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ability to offer convenient locations for shipping of waste and recycling
products. Through their subsidiaries, RWE, VEBA, VIAG, are TES' major
competitors in Germany.
Government Regulation
Germany has adopted some of the strictest laws in the world relating to the
recycling and disposal of chemicals, waste, appliances, computers, television
sets, and other electronic products. The business of recycling and waste
disposal is subject to various governmental laws on both a federal and state
basis in Germany. Further, the regulations are becoming increasingly complex and
recycling and disposal more strictly regulated. These laws and regulations
include landfill disposal restrictions, hazardous waste management requirements,
and air quality standards, as well as special permit and license conditions for
recycling and disposal of waste and outdated or used products.
TES' recycling centers, including the Landsberg facility as well as various
centers with which TES may contract to provide services, are subject to various
federal, state, and local laws and regulations and licensing requirements. These
laws and regulations relate to the collection, processing, and recycling of
chemicals, waste, appliances, computers, television sets, and other electronic
products. Requirements for registrations, permits, and licenses vary depending
upon the locale in which the recycling center is located. TES' centers are
registered with the German government as hazardous waste generators and are
licensed, where required, by appropriate state and local authorities.
Any of these permits or approvals may be subject to denial, revocation, or
modification under various circumstances. Failure to comply with the conditions
of these permits, approvals, registrations, authorizations, or exemptions may
adversely affect the operation of TES' business and may subject TES to federal,
state, or locally-imposed penalties. TES' ability to satisfy the permitting
requirements for a particular facility does not assure that permitting
requirements for other facilities will be satisfied. In addition, if new
environmental legislation is enacted or current regulations are amended or are
interpreted or enforced differently, TES or its customers may be required to
obtain additional operating permits, registrations, certifications, exemptions,
or approvals. There can be no assurance that TES or its customers will meet all
of the applicable regulatory requirements. TES also has agreements with approved
and licensed hazardous waste companies for transportation and disposal of PCBs
from its recycling center.
Management believes that further government regulation of the recycling
industry could have a positive effect on TES' business. The level of
enforcement, for example, by federal, state and local environmental protection
agencies, could positively affect demand for TES' services. However, there can
be no assurance what course future regulation may take. Under some
circumstances, further regulation could materially increase the costs of TES'
operations and have an adverse effect on TES' business. In addition, as is the
case with all companies handling hazardous materials, under some circumstances,
TES may be subject to contingent liability. TES' business exposes it to the risk
that harmful substances may be released or escape into the environment from its
facilities, processes, or equipment, resulting in potential liability for the
clean up or re-mediation of the release and/or potential personal injury
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associated with the release. Additionally, TES is potentially subject to
regulatory liability for the generation, transportation, treatment, storage, or
disposal of waste, both hazardous and non-hazardous, if it does not act in
accordance with the requirements of federal or state hazardous waste regulations
or facility specific regulatory determinations, authorizations, or exemptions.
Employees
TES has 14 full time employees, including Gerd Behrens, two
management-administrative persons, and 11 line workers employed in its recycling
business. Further, TES employs one person as a secretary/administrative
assistant on a part-time basis. In addition, TES has contracted with three
independent contractors who are engaged in the marketing of TES' recycling
services.
Dependence on Key Employees
TES' success depends to a significant extent upon the continued services of
Gerd Behrens, its president, and Frank Behrens, its secretary, and after the
merger it will also depend on the services of Dieter Gastinger, presently a
director and the managing director of ENTECS. The loss of any of these persons
could have a material adverse effect on TES' results of operations. Further, TES
believes that its success will depend in large part upon its ability to attract
and retain highly skilled technical, managerial, sales, and marketing personnel.
There can be no assurance that TES will be successful in attracting and
retaining the personnel it requires to develop and market its recycling business
or its job training program in a successful manner. Presently, TES has entered
into an employment agreement with Gerd Behrens to ensure the availability of his
services to the subsidiary. Either party may terminates the employment
agreement, but only upon six months notice.
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Description of Property
TES currently leases office space for its main corporate offices at 25
Impler Strasse, 81371, Munich at a monthly rental of approximately 5,553 DM (US
$3,305). The lease expires on December 31, 2004. Management of TES believes that
the existing facilities are adequate at this time for TES' operations. In
addition, TES leases two buildings for its recycling operations at Landsberg a.
Lech, Germany at a monthly rental of approximately 18,700 DM (US $11,130). The
lease on these buildings expires on December 31, 2001. Under the terms of this
lease, TES also has an option to purchase the buildings for 2,200,000 DM
(approximately US $1,309,525) if the option is exercised prior to December 31,
2000. Thereafter the price increases by 77,000 DM (approximately US $45,835) per
year. The facility in Landsberg is sufficiently large that TES expects that it
will also be able to conduct its job training at that same facility.
BUSINESS OF ENTECS
ENTECS was incorporated under the laws of Colorado in May 1997. It is a
non- operating holding company. ENTECS' operations are conducted entirely in
Germany by two wholly owned German subsidiaries, ENTECS Umwelttechnik GmbH and
ENTECS Software und Umweltmanagement GmbH. ENTECS is involved in the
environmental protection industry, which is expected to grow rapidly due to
increasing investments being made in the area by both private enterprises and
public institutions. The environmental protection industry is also expected to
continually create new jobs because of the dynamic growth in the area.
ENTECS' stated corporate purpose is the development and marketing of future
oriented environmental patents, innovations, and technologies as well as
software solutions for the environmental market. ENTECS is achieving this goal
by working closely with patent owners and engineers with special technical
know-how in the industry.
ENTECS holds the exclusive licensing rights to a new recycling system for
the capture and re-use of cement waste and waste water that is generated by
cement mixing plants. The system known as the "BRS-Compact" is in the process of
being patented both as a technology and as a process. ENTECS has acquired the
exclusive licensing rights to the BRS-Compact from the patent holder, Mr.
Juergen Bozenhardt, for all of Europe and a right of first refusal for the
Americas and Asia.
ENTECS has also acquired a license for two patents for the development of a
recycling machine based on double worm system for recycling metal dust and other
materials. The double worm system is based upon the principle of counter
rotating screws that are designed to handle a wide variety of materials. The
twin screws can be modified and assembled in accordance with end-producer
requirements. For example, if the base waste materials to be recycled have a
high water content, a parallel separation of the liquid and solid components can
be achieved. The patent will include both the process based on the worm system
for recycling metal dust and other materials and the finished products of the
recycling machine. The patent process is registered with the European Patent
Office under number 038 3227 and number 038 3229.
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ENTECS is active in the business areas of concrete recycling, production of
artificial peat products, and software solutions for environmental management.
The following is a description of these industry segments:
The Concrete Recycling System (BRS Compact)
The ready-mixed concrete industry produces significant quantities of waste
concrete and mortar in the production process and when the concrete mixer trucks
are cleaned out each day. This waste concrete and cleaning process produces a
large quantity of wastewater that is very high in alkaline with a pH value
between 12.9 - 13.9. Hence the wastewater cannot be disposed of via the public
sewer systems in most European Union countries because of environmental
regulations. ENTECS plans to market its BRS-Compact system to meet the demands
created by these regulations.
The BRS-Compact system makes it possible for concrete plants to recycle the
waste concrete by washing the sand and gravel so it can be reused. The
wastewater generated by the process is also reused in the cement mixing plant.
Not only are the waste products reused but also public landfill space is saved
because until now the cement waste had to be disposed of as "special" waste
material. This process eliminates all waste from the process. In addition to the
cost savings on material, the water recycling reduces the cost of fresh water
used in the process and sewage charges.
The systems used by ENTECS' competitors can be classified into one of five
types. These are:
o Water basins or sinks where the sediments are extracted through chains
over a ramp.
o Pre-washing with added separate purification unit.
o Vibration sieve.
o Slant de-watering snails with or without classification sieves. And,
o Closed washing drum with added separate purification unit.
Each of these types of systems include disadvantages that include requiring
multiple units, high wear and tear of the machinery, or leaving a residue of
environmentally contaminated waste product at the conclusion of the process.
The BRS-Compact system is expected to include all of the unique features of
ENTECS competitor's systems in one unit. Further, management believes the BRS
Compact system has substantially reduced the level of wear and tear on the unit
because of its design, as well as the level of waste product that must be
disposed. Management believes that this new concrete recycling system is
currently the only one of its kind world wide, which allows for completely
waste-free concrete production and has the following advantages:
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o No production of alkaline waste water = Cost savings for fresh water
and waste water disposal;
o Complete recycling of the concrete components sand and gravel = Cost
savings for raw materials and landfill use;
o Residue-free production of fresh concrete = No need for waste concrete
storage and disposal; and
The market for the BRS Compact is in particular the ready-mix industry and
concrete fabrication operations. In Germany alone there are approximately 2,600
ready-mix companies according to the Federation of German Ready-Mix Industries.
Further, there are approximately 8,000 ready-mix companies in the remaining
European Union member countries.
The BRS Compact system is being modified to address design problems that
ENTECS has encountered with the BRS Compact system. Management believes that
these design problems will be solved by August 1999. Further, management is
involved in a dispute with the investor of the BRS Compact system. Please see
"Dispute Between ENTECS and Independent Contractor" for more information.
Wood Fiber/Artificial Peat
Peat cutting or harvesting has come under public criticism for ecological
and conservation reasons. Peat cutting will be completely prohibited by state
law in Bavarian and Hessian moors in the foreseeable future. Large scale peat
harvesting has already been largely discontinued because most of the land leases
for the peat harvesting expire over the next ten-year period. Development of
artificial peat products is therefore necessary because of the reduction of peat
harvesting. The annual peat usage in Germany currently is approximately 6
million square meters, according to the 1994 database of "Torfstreuverbund", an
association of peat producers in Germany. The amount of peat harvested
historically will have to be artificially produced in the long term.
ENTECS' subsidiary ENTECS Umwelttechnik GmbH owns an artificial peat
production system. ENTECSS Umwelttechnik GmbH produced three grades of high
quality all natural artificial peat products. The quality of the artificial peat
depends on the quality of the raw materials used in the process. The artificial
peat products have all of the qualities of peat. The artificial peat products
are marketed as TORBELLA(R) plus, TORBELLA(R) standard, and Tornova(R).
Torbella(R) and Tornova(R) are registered trademarks. ENTECS believes these
products provide the following advantages:
o Flawless natural product without chemical additives;
o Large water absorption capacity;
o Development of high-quality humus soil;
o Produced from waste wood;
o Unlimited uses; and
o Contributes to the conservation of the bio-top and the protection of
the peat deposits.
ENTECS presently owns a production facility for artificial peat located in
Bad Wurzach/Allgau. All materials, transportation facilities and technical
services for the production of artificial peat are maintained presently at this
one location. ENTECS management has been investigating the feasibility of adding
a second location to its artificial peat production capabilities. ENTECS'
management does not anticipate adding a second location, however, until after
the merger, if then.
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Target customers are garden soil manufacturers, garden supply stores, and
governmental units. Alternative uses for the products include the following:
o Good for use where peat normally is used such as gardening and
farming;
o Mulch material;
o Athletic fields;
o Pet and animal cages and stalls; and
o Special uses: biological filters for biological exhaust filtering or
as a binding material for soaking up chemical substances.
Software Solutions for Environmental Protection
Interest is increasing for an automated solution for businesses that need
to monitor their environmental protection obligations. This involves overall
management supervision of the organizational structure, areas of responsibility,
patterns of behavior, operational procedures, and processes and materials for
the establishment and implementation of firm wide environmental policy. Until
now, the software programs for management of environmental protection
obligations for small and medium-sized businesses have been too inflexible,
complex, and expensive. Therefore AkkU Umweltberatung GmbH, a Munich-based
company, developed an inexpensive and individually customizable software package
to assist small and medium-sized businesses to develop their own environmental
management systems. The software is known as the "Fabius 1.0 Software Module for
Effective Environmental Management." In cooperation with ENTECS Software und
Umweltmanagement GmbH the Fabius software was further developed to the current
version "Fabius 2.1." AkkU Umweltberatung GmbH owns the Fabius software's
copyright. ENTECSS Software und Umweltmanagement GmbH has acquired an exclusive
distribution license for Fabius.
Fabius has been on the market in varying industry branches and with firms
of varying size since 1996. Some of the well-known users of the software are
Allianz AG, Dr. Oetker KG, Tetra Pak GmbH, and Tesa-Werke. The Fraunhofer
Institute for Management and Organization rated the Fabius software in April
1998 as one of the most used environmental protection software solutions for
businesses.
Dispute Between ENTECS and Independent Contractor
ENTECS is involved in a dispute with a former independent contractor.
ENTECS has received a demand for payment under its agreement for independent
contractor services with Juergen Bozenhardt, the patent holder of the BRS
Compact concrete recycling system, which ENTECS has licensed from Mr.
Bozenhardt. Neither Mr. Bozenhardt nor ENTECS have filed a claim with any court
or administrative agency at this time.
Mr. Bozenhardt has made a demand to ENTECS for 177,000 DM (US $105,357)
that he claims is owed for unpaid consulting fees. ENTECS believes that it owes
Mr. Bozenhardt no more than 20,000 DM (US $11,905) for consulting fees. Further,
ENTECS believes that it has a cause of action against Mr. Bozenhardt for breach
of their contractual agreement as well as a breach of the license agreement for
the BRS-Compact system with Mr. Bozenhardt.
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<PAGE>
ENTECS has learned that the BRS-Compact system licensed from Mr. Bozenhardt
has several design defects that prevent the machine from operating properly.
After a potential customer refused to accept the BRS system because of several
breakdowns during its testing of the machine, ENTECS contacted an independent
engineering expert to test the BRS-Compact system. The engineering consultant
advised ENTECS that there are design defects in the BRS-Compact system that will
prevent it from working reliably unless corrected. ENTECS has requested quotes
to correct the design defects and anticipates that these defects will cost
between 100,000 DM and 150,000 DM (approximately US $59,525 to $89,285) to
correct. ENTECS intends to correct the design defect and continue to market the
system to potential users. Based on discussions with the independent engineering
expert, management believes that the design defects in the BRS Compact system
can corrected by August 1999.
After the discovery of the design defects, ENTECS notified Mr. Bozenhardt
that it was terminating the consulting contract between the parties.
Subsequently, Mr. Bozenhardt sent notice to ENTECS that he considered both the
consulting agreement and the license agreement for the BRS-Compact system to be
terminated. The terms of the license agreement provide that the agreement may
only be terminated for cause as is defined in the agreement. Mr. Bozenhardt has
not provided any written explanation to ENTECS regarding the basis under which
he considers the license agreement to be terminated. Further, the management of
ENTECS does not believe that it has breached any of the termination provisions
of the license agreement. As a result, ENTECS believes that it still holds the
license to market the BRS-Compact system and intends to vigorously defend its
rights under the license if necessary. Further, ENTECS believes that once the
design defects of the BRS-Compact system are corrected, it will be able to
market the system to its customers and to enter into sub-license agreements with
others to also market the system.
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<PAGE>
MATERIAL CONTRACTS BETWEEN TES AND ENTECS
TES previously entered into a license agreement that it subsequently sold
to ENTECS. This license is for the exclusive rights to produce and to sell the
BRS-Compact concrete recycling system. The license pertains to all areas of the
world except for the United States of America and Asia. TES obtained a first
right of refusal for rights to produce and sell the BRS-Compact system in the
United States of America and Asia. This license was acquired from Mr. Juergen
Bozenhardt in March 1997 and subsequently sold to ENTECS in September 1997. The
license grants the holder of the license the right to use the technology for
fifteen years and grants the licensee the first right of refusal to purchase the
technology for up to two years after the termination of the license. Mr.
Bozenhardt was appointed to the board of directors of ENTECS concurrently with
the acquisition of the BRS-Compact technology by ENTECS. He subsequently
resigned his position with the ENTECS board of directors in July 1998.
Under the terms of the license agreement, ENTECS has paid the licensor
625,000 DM (US $348,753) to acquire the rights under the license. Of this
amount, 250,000 DM (US $139,501) was paid by TES to Mr. Bozenhardt, the
licensor, on behalf of ENTECS and was treated as a due to affiliate payable by
ENTECS at December 31, 1997. The full amount of the due to affiliate payable was
repaid in 1998.
In addition to the license fee described above, ENTECS, as licensee, is
required to pay to Mr. Bozenhardt a royalty of 6% of all net sales of the
product sold by ENTECS.
ENTECS has also acquired an exclusive license covering two European patents
from Data Consult, a company owned by Mr. Gerd Behrens, President of TES and
ENTECS. This license was acquired by ENTECS in September 1997. The two patents,
Nos. EPO 383227 and EPO 383229 relate to the technology and process to bind
particle wastes such as dust, metal scrap, fibers, waste paper and other similar
matter into solids as well as a process for processing oil sludge containing
iron. The date of the license is May 15, 1997 and it terminates with the
expiration of the patents, which under German law is typically twenty years from
the date of the patent registration. Patent No. 383227 was issued on May 12,
1993 and patent no. 383229 was issued on May 6, 1992.
Data Consult acquired the license to these patents from UWAS Umweltservice
GmbH, a company controlled by Mr. Dieter Gastinger. Data Consult subsequently
sold the licenses to ENTECS. Data Consult sold the license to ENTECS at the cost
it acquired that license from UWAS. Concurrent with the acquisition of the
license to the patents, Mr. Gastinger became an officer and director of ENTECS.
Mr. Gastinger also acquired common stock and became a stockholder of ENTECS.
The license for this technology applies to all countries of the European
Union in which the patents are valid. In areas outside the European Union,
ENTECS is prohibited from using the licensed processes or from selling the
products produced by the licensed processes if there is no patent protection in
those areas. The license fee to acquire the licenses was 650,000 DM (US
$389,922), of which 250,000 DM (US $149,970) was paid by TES and was accounted
for by ENTECS as due to affiliate at December 31, 1998. ENTECS has not yet put
the technology or process into production and has not yet generated any revenue
from this license.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF TES
The table below sets forth information with respect to the ownership of
TES' common stock of the following:
o each officers, directors and director nominees, individually;
o all officers, directors and director nominees as a group, which
includes Gerd Behrens, Frank Behrens, Jutta Behrens, and Dieter
Gastinger;
o each beneficial owners of more than 5% of TES' common stock; and
o TES' key consultants.
Gerd and Jutta Behrens are husband and wife, and each own shares
separately. Gerd Behrens individually owns 1,500,000 shares and Jutta Behrens
individually owns 1,260,000 shares. Under SEC rules, as husband and wife, each
of them may be considered the beneficial owner of the shares held by the other.
Frank Behrens and Karsten Behrens are brothers and are the sons of Gerd and
Jutta Behrens. Gerd and Jutta Behrens disclaim beneficial ownership of the
shares held by their sons. Ms. Marquard is the wife of Michael Marquard, who is
an employee of TES. Michael Marquard may be deemed to be the beneficial owner of
these shares.
Except as otherwise indicated, the following stockholders have sole voting
and investment power with respect to the shares. The address given for each of
the individuals named is the address of TES, 25 Impler Strasse, 81371, Munich,
Germany, unless otherwise indicated. There are no outstanding options, warrants,
or rights to purchase securities from TES.
<TABLE>
<CAPTION>
Name Number of Percent of Number of Shares Percent of Class
Of Owner Shares Class after Merger After Merger
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gerd Behrens 2,760,000 52.8% 6,260,000 51.8%
Frank Behrens 600,000 11.5% 2,000,000 16.6%
Jutta Behrens 2,760,000 52.8% 6,260,000 51.8%
Karsten Behrens 850,000 16.3% 2,250,000 18.6%
Yvonne Marquard 240,000 4.2% 870,000 7.2%
Dieter Gastinger -0- -0- 700,000 5.8%
All officers and
directors as a group
(3 persons) 3,360,000 64.3% 8,960,000 74.2%
</TABLE>
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<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF TES
Officers, Directors and Key Consultants
The officers and directors and key consultants of TES are listed in the
following table. All individuals will remain in the same titles and positions
indicated subsequent to the merger, except that Jutta Behrens will resign as a
director, effective upon consummation of the merger. The board of directors of
TES has nominated Dieter Gastinger to fill the vacancy created by the
resignation of Jutta Behrens.
Officers and Directors
Tenure as Officer
Name Age Position(s) or Director
- ---- --- ----------- -----------------
Gerd Behrens 61 Chairman of the June 21, 1994
Board and President to Present
Frank Behrens 32 Secretary March 3, 1995
and a director to Present
Jutta Behrens 60 Treasurer March 3, 1995
and a director to Present
Key Consultants
Karsten Behrens 31 Consultant October 1, 1996
to Present
Yvonne Marquard 29 Consultant February 1, 1997
to Present
Director Nominees
Dieter Gastinger 55 Director Nominee As of Date of Merger
---------------------------------
Gerd Behrens, Jutta Behrens, Frank Behrens, Karsten Behrens and Yvonne
Marquard may be deemed to be "promoters" and "parents" of TES within the meaning
of the rules and regulations promulgated under the Securities Act.
The directors of TES are elected to hold office until the next annual
meeting of stockholders and until their respective successors have been elected
and qualified. Officers of TES are elected annually by the board of directors
and hold office until their successors are duly elected and qualified. Gerd
Behrens and Jutta Behrens are married to each other, and they are the parents of
Frank Behrens and Karsten Behrens. Frank Behrens and Karsten Behrens are
brothers. There are no other family relationships between any director or
executive officer and any other director or executive officer. Set forth below
is biographical information with respect to TES' founders and promoters and each
officer and director.
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<PAGE>
Gerd Behrens, founder and promoter, has been chairman of the board of
directors and president of TES since its inception in June 1994. Mr. Behrens
holds a Diploma as a Businessman (Dipl. Kaufmann), which is roughly equivalent
to a Bachelors Degree in Business Administration in the United States. From 1989
until the founding of TES, Mr. Behrens was the managing director of Data
Consult, a German company located in Munich, Germany, that purchased and sold
used computers. Since the founding of TES, Mr. Behrens has devoted substantially
all of his time to its business and affairs.
Frank Behrens has been secretary and a director of TES since March 3, 1995.
Mr. Behrens is a graduate of Ludwig-Maximillians University in Munich in
Geography and Economics. Mr. Behrens has served as a consultant to various
firms, including TES, since graduating from the University of Munich in 1995.
Mr. Behrens' consulting services have related primarily to urban planning and
development and the development of environmental management systems and software
tools for these systems. Mr. Behrens provided TES with assistance in the writing
and drafting of its business plan and offering materials that were used to raise
funds from German investors and with the development of environmental management
systems and software tools for these systems.
Jutta Behrens has been treasurer and a director of TES since March 3, 1995.
Mrs. Behrens is a qualified industrial accountant and has since 1970 owned and
operated her own firm, which provides accounting services to businesses and
individuals in Germany.
Karsten Behrens has been a consultant to TES and has acted as its legal
counsel since October 1, 1996. Mr. Behrens is a graduate of Ludwig-Maximillians
University in Munich in law. Mr. Behrens has completed the necessary
post-graduate employment requirements and passed the necessary examinations to
be licensed as a lawyer in Germany. He has provided TES with legal services and
with other management and consulting services. His principal consulting
activities were focused upon providing TES with assistance in the writing and
drafting of its business plan and offering materials that were used to raise
funds from German investors and in assisting TES with various legal matters.
Yvonne Marquard has been a consultant to TES since February 1, 1997. Ms.
Marquard assisted TES and ENTECS with the placement of its common stock in
Germany. Ms. Marquard founded her own firm--Yvonne Marquard Unternehmensberatung
in 1997 to provide financial consulting services to various businesses. Prior to
founding her own firm Ms. Marquard was employed by AURUM Vermoegensanlagen GmbH,
a German financial services firm.
Dieter Gastinger will be a director of TES upon completion of the merger
and has been a director of ENTECS since September 1997. For the past ten years
Mr. Gastinger has been the owner of UWAS Umweltservice GmbH, a firm offering
environmental services and recycling technologies. Prior to starting his
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<PAGE>
environmental recycling business, Mr. Gastinger was CFO for a renting service
firm and managing director of a leasing firm in Germany.
Executive Compensation
The following table summarizes all compensation paid to the officers and
directors of TES, and to Karsten Behrens as a consultant, for services rendered
to TES during the last three fiscal years. Gerd Behrens' salary includes 80,000
DM (US $47,990) that he elected to defer until the time that TES has funds
available to pay him. This unpaid salary has been included as an accrued expense
of related parties in the balance sheet of TES as of December 31, 1998.
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------- Long Term
Salary/ Consulting Fees Compensation
------------------------------------------- ---------------------
Number of
Name and Principal Other Annual Options
Position Year DM US $ Compensation Awarded
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gerd Behrens, 1998 95,500 57,288 -0- -0-
President and Director 1997 57,600 32,141 -0- -0-
1996 10,000 6,499 -0- -0-
Jutta Behrens, 1998 -0- -0- -0- -0-
Treasurer and Director 1997 -0- -0- -0- -0-
1996 -0- -0- -0- -0-
Frank Behrens, 1998 -0- -0- -0- -0-
1997 40,250 22,460 -0- -0-
1996 -0- -0- -0- -0-
Karsten Behrens, 1998 12,255 7,352 -0- -0-
1997 98,650 55,047 -0- -0-
1996 3,150 2,047 -0- -0-
</TABLE>
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<PAGE>
Employment and Consulting Agreements
TES has entered into an employment agreement with Gerd Behrens under which
Mr. Behrens will be paid approximately 8,000 DM (US $4,762) per month. Mr.
Behrens has deferred payment of this compensation until TES has funds available
to pay Mr. Behrens. TES has a consulting agreement with Karsten Behrens under
which he is paid an hourly fee of 50DM per hour for services as needed. TES
previously had a consulting agreement with Frank Behrens to prepare a business
plan and an investment memorandum for which he was paid a flat rate. This
agreement was terminated by the parties and Frank Behrens now devotes his full
time and attendtion to ENTECS. Gerd Behrens divides his time and attention
between the business and affairs of TES, ENTECS and their subsidiaries, as
needed. Karsten Behrens is expected to devote his time and attention to TES on
an as needed basis.
TES has entered into a consulting agreement with Yvonne Marquard in which
she is paid a consulting or finder's fee for the sale of TES' common stock. Her
compensation under this agreement is the difference between 20% of the gross
proceeds raised and the amount of commission or fees actually paid to brokers or
finders for the sale of TES' common stock. Ms. Marquard has not provided any of
these types of services for TES and, therefore, has not been paid compensation
under her agreement with TES. Ms. Marquard is the wife of Michael Marquard, who
is an employee of TES.
The employment and consulting agreements between TES and Gerd Behrens, Ms.
Marquard and Karsten Behrens also contain an agreement to maintain
confidentiality of trade secrets and other materials.
Directors
Other than in accordance with to their employment or consulting
arrangements, the members of the board of directors are not compensated for
their services as directors; however, they are reimbursed for all reasonable
expenses incurred in connection with those services.
Option Plans
Except as described below, TES has no retirement, pension, profit sharing,
stock option, or insurance or medical reimbursement plans or programs covering
its officers and directors, and does not contemplate implementing any of these
plans at this time.
The board of directors of TES has adopted a stock option plan, which
provides for the grant of options to purchase an aggregate of not more than
500,000 shares of TES' common stock. The purpose of the stock option plan is to
make options available to directors, management, key employees, consultants, and
technical advisers of TES. A grant of stock options to these individuals will
provide them with a more direct stake in the future of TES and provide them with
additional rewards and incentives for contributing to TES' success.
A committee appointed by the board of directors will administer the stock
option plan. This committee will determine the following:
o The persons to be granted options under the plan;
o The number of shares subject to each option;
o The term of the option;
o The manner in which the option may be exercised; and
o The exercise price of each option, subject to the requirement that no
option may be exercisable more than 10 years after the date of grant.
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<PAGE>
The committee will have the power to establish such other terms and
conditions for options granted under the stock option plan as they determine are
necessary and appropriate. No option granted under the plan shall be
transferable otherwise than by will or the laws of descent and distribution. The
exercise price of stock options granted under the plan will be established by
the board of directors in their sole discretion and may be less than the fair
market value of the underlying shares on the date of grant as determined by the
committee. The exercise price may be paid in cash or in common stock or a
combination of cash and common stock.
As of the date of this proxy statement and prospectus, no options have been
granted under the stock option plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the founding of TES, Gerd Behrens acquired 4,500,000
shares of its common stock. Subsequent to the founding and prior to the time
that TES raised any funds from outside directors, Mr. Behrens sold his wife,
Jutta Behrens, and his sons, Karsten and Frank Behrens, 2,760,000 of these
shares and sold Yvonne Marquard 240,000 of these shares. Mr. Behrens paid
approximately 90,870 DM (US $54,089) for his original 4,500,000 shares. The
shares discussed in this paragraph have been adjusted to reflect a stock
dividend issued in December, 1998.
In addition, Jutta Behrens has loaned TES approximately 141,250 DM. The
initial loan was made on March 20, 1996, in the amount of 80,000 DM (US $51,992)
for a five-year term and bears interest at 9.25% per year. The second loan was
made on September 10, 1996, in the amount of approximately 50,000 DM (US
$32,495) for a four-year term and bears interest at 8% per year. The third loan
was made on December 31, 1996, in the amount of approximately 11,200 DM (US
$7,421) for a four-year term and bears interest at 8% per year. Further, Gerd
Behrens loaned TES approximately 100,000 DM (US $55,800) in connection with the
capitalization of TES Oecon AG, which was interest free until January 1, 1998.
Subsequent to January 1, 1998, the loan bears interest at a rate of 6% per
annum. The loan is due on December 31, 2001, subject to a right for TES to
extend the loan for an additional 5 years if necessary for economic reasons.
TES' president and major stockholder is also president and the major
stockholder of ENTECS. TES paid a deposit of DM 250,000 (US $139,501) for the
rights to use the BRS concrete recycling system and subsequently transferred the
rights to ENTECS in exchange for a short-term note. The advance was paid in full
during 1998. Additionally, ENTECS made advances to TES aggregating DM 370,200
(US $222,075) during the year ended December 31, 1998. The advances bear
interest at 6% per annum and are due after ten years.
During 1997, TES made working capital advances to ENTECS of DM 50,000 (US
$27,900) and paid DM 86,250 (US $48,128) of costs associated with the operations
of ENTECS. The working capital advance accrued interest at 8% per annum. ENTECS
repaid the working capital advance with payments of DM 23,000 (US $12,834) in
1997 and DM 27,000 (US $16,197) plus accrued interest in January 1998.
During the quarter ended March 31, 1999, TES borrowed DM 356,990 from
ENTECS in a series of transactions. These loans are due in 2009, and bear
interest at 6% per annum.
In connection with TES' financing efforts in Germany, TES entered into an
agreement with Yvonne Marquard. Under this agreement Ms. Marquard was paid a
consulting or finder's fee. The fee is to be determined by the difference
between 20% of the gross proceeds raised and the amount of commission or fees
actually paid to brokers or finders for the sale of TES' securities. Ms.
Marquard was paid approximately 86,533 DM (US $48,285) under the terms of this
agreement. Ms. Marquard is the wife of Michael Marquard, who is an employee of
TES.
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<PAGE>
TES also paid Frank Behrens consulting fees equal to 40,250 DM (US
$22,460). These fees were paid in connection with the writing and drafting of
TES' business plan and offering materials that were used to raise funds from
German investors.
TES paid Karsten Behrens consulting fees equal to approximately 98,650 DM
(US $55,047) in 1997 and 12,255 DM (US $7,352) in 1998. These fees were for the
performance of legal services for TES and the writing and drafting of TES'
business plan and offering materials that were used to raise funds from German
investors.
The management of TES believes that the above transactions were on terms no
less favorable than could be obtained from unaffiliated third parties. TES does
not presently have any policies regarding future affiliated transactions.
Except as otherwise disclosed in this document, there have been no related
party transactions or any other transactions or relationships required to be
disclosed by Item 404 of Regulation S-B.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF ENTECS
The table below sets forth information with respect to the ownership of
ENTECS' common stock of the following:
o each officers, directors and director nominees, individually;
o all officers, directors and director nominees as a group, which
includes Gerd Behrens, Frank Behrens, Yvonne Marquard and Dieter
Gastinger;
o each beneficial owners of more than 5% of TES' common stock; and
o TES' key consultants.
Frank Behrens and Karsten Behrens are brothers and are the sons of Gerd
Behrens. Gerd Behrens disclaims beneficial ownership of the shares held by his
sons.
Except as otherwise indicated, the following stockholders have sole voting
and investment power with respect to the shares. The address given for each of
the individuals named is the address of ENTECS, 25 Impler Strasse, 81371,
Munich, Germany, unless otherwise indicated. There are no outstanding options,
warrants, or rights to purchase securities from ENTECS.
Name of Owner Number of Share Percent of Class
Gerd Behrens 500,000 30.5%
Frank Behrens 200,000 12.2%
Dieter Gastinger 100,000 6.1%
Yvonne Marquard 90,000 5.5%
Karsten Behrens 200,000 12.2%
All officers and directors as a group
(4 persons) 890,000 54.3%
-----------------------------
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<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF ENTECS
Officers, Directors and Key Consultants
The officers, directors and key consultants of ENTECS are as follows:
Officers and Directors
Tenure as Officer
Name Age Position(s) or Director
- ---- --- ----------- -----------------
Gerd Behrens 61 President and May, 1997
a Director to Present
Frank Behrens 32 Secretary May, 1997
and a Director to Present
Yvonne Marquard 29 Director May, 1997
to Present
Dieter Gastinger 55 Director September, 1997
to Present
Key Consultants
Karsten Behrens 31 Consultant May, 1997
to Present
Gerd Behrens, Jutta Behrens, Frank Behrens, Karsten Behrens and Yvonne
Marquard may be deemed to be "promoters" and "parents" of ENTECS within the
meaning of the rules and regulations promulgated under the Securities Act.
The directors of ENTECS are elected to hold office until the next annual
meeting of stockholders and until their respective successors have been elected
and qualified. Officers of ENTECS are elected annually by the board of directors
and hold office until their successors are duly elected and qualified. Gerd
Behrens is the father of Frank Behrens and Karsten Behrens. Frank Behrens and
Karsten Behrens are brothers. There are no other family relationships between
any director or executive officer and any other director or executive officer.
Set forth below is biographical information with respect to ENTECS' founders and
promoters and each officer and director.
Gerd Behrens, founder and promoter, has been a director and president of
ENTECS since its inception in May 1997. Mr. Behrens holds a Diploma as a
Businessman (Dipl. Kaufmann), which is roughly equivalent to a Bachelors Degree
in Business Administration in the United States. From 1989 until the founding of
ENTECS, Mr. Behrens was the managing director of Data Consult, a firm located in
Munich, Germany, that purchased and sold used computers and, subsequently, the
founder, director and president of TES, since its inception in June 1994. Since
the founding of TES and ENTECS, Mr. Behrens has devoted substantially all of his
time to the business and affairs of those companies.
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<PAGE>
Frank Behrens has been secretary and a director of ENTECS since May, 1997.
Mr. Behrens is a graduate of Ludwig-Maximillians University in Munich in
Geography and Economics. Mr. Behrens has served as a consultant to various
firms, including TES, since graduating from the University of Munich in 1995.
Mr. Behrens' consulting services have related primarily to urban planning and
development and the development of environmental management systems and software
tools for these systems. Mr. Behrens provided TES and ENTECS in the writing and
drafting of its business plan and offering materials that were used to raise
funds from German investors and with the development of environmental management
systems and software tools for these systems.
Yvonne Marquard has been a director of ENTECS since May, 1997. Ms. Marquard
assisted ENTECS with the placement of its common stock in Germany. Ms. Marquard
founded her own firm--Yvonne Marquard Unternehmensberatung in 1997 to provide
financial consulting services to various businesses. Prior to founding her own
firm Ms. Marquard was employed by AURUM Vermoegensanlagen GmbH, a German
financial services firm.
Karsten Behrens has been the Managing Director to ENTECS Umweltmanagment
since July, 1997. Mr. Behrens is a graduate of Ludwig-Maximillians University in
Munich in law. Mr. Behrens has completed the necessary post-graduate employment
requirements and passed the necessary examinations to be licensed as a lawyer in
Germany.
Dieter Gastinger has been a director of ENTECS since September 1997. For
the past ten years Mr. Gastinger has been the owner of UWAS Umweltservice GmbH,
a firm offering environmental services and recycling technologies. Prior to
starting his environmental recycling business, Mr. Gastinger was CFO for a
renting service firm and managing director of a leasing firm in Germany.
78
<PAGE>
Executive Compensation
The following table summarizes all compensation paid to the officers and
directors of ENTECS for services rendered to ENTECS since its inception in 1997.
Gerd Behrens elected to defer his 1998 salary of 57,600 DM (US $34,553) due him
until the time that ENTECS has the funds available to pay him. This unpaid
salary has been included in the balance sheet of ENTECS as of December 31, 1998
as an accrued expense of related parties.
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------- Long Term
Salary/ Consulting Fees Compensation
------------------------------------------- -------------------
Number of
Name and Principal Other Annual Options
Position Year DM US $ Compensation Awarded
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gerd Behrens, 1998 57,600 34,553 -0- -0-
President and Director 1997 -0- -0- -0- -0-
Frank Behrens, 1998 77,500 46,490 -0- -0-
Secretary and Director 1997 -0- -0- -0- -0-
Karsten Behrens, 1998 52,500 31,494 -0- -0-
Consultant 1997 -0- -0- -0- -0-
Dieter Gastinger, 1998 52,850 31,704 -0- -0-
Managing Director of 1997 -0- -0- -0- -0-
Umweltmanagement
Yvonne Marquard, 1998 62,809 36,678 -0- -0-
Director & Consultant 1997 -0- -0- -0- -0-
</TABLE>
No advances have been made or are contemplated by ENTECS to any of its
officers or directors.
Employment and Consulting Agreements
TES has entered into an employment agreement with Gerd Behrens under which
Mr. Behrens will be paid approximately 8,000 DM (US $4,762) per month. Mr.
Behrens has deferred payment of this compensation until TES has funds available
to pay him. Further, ENTECS has entered into employment agreements with Frank
Behrens and Dieter Gastinger. Under their employment agreements, Frank Behrens
and Dieter Gastinger each receive a monthly salary of 4,250 DM (US $2,530). In
addition to their salary, Frank Behrens and Mr. Gastinger are each entitled to
5% of ENTECS gross profit. Gross profit is defined in Frank Behrens and Mr.
Gastinger's employment agreements as gross profit less taxes and deductions.
Gerd Behrens divides his time and attention to the business and affairs of
TES, ENTECS and their subsidiaries, as needed. Frank Behrens and Dieter
Gastinger devote their full time and attention to the business affairs of
ENTECS.
ENTECS has entered into a consulting agreement with Yvonne Marquard in
which she is paid a consulting or finder's fee based upon the difference between
20% of the gross proceeds raised and the amount of commission or fees actually
paid to brokers or finders for the sale of ENTECS' securities. Ms. Marquard was
paid by ENTECS approximately 162,800 DM under the terms of this agreement in
1998. Ms. Marquard is the wife of Michael Marquard, who is an employee of TES.
The employment and consulting agreements between ENTECS and Gerd Behrens,
Frank Behrens, Dieter Gastinger and Yvonne Marquard also contain an agreement to
maintain confidentiality of trade secrets and other materials.
Directors
Other than in accordance with to their employment or consulting
arrangements, the members of the board of directors are not compensated for
their services as directors; however, they are reimbursed for all reasonable
expenses incurred in connection with those services.
79
<PAGE>
DESCRIPTION OF TES CAPITAL STOCK
The authorized capital stock of TES consists of 20,000,000 shares of common
stock, of no par value. As of December 31, 1998, 5,224,830 shares of common
stock were outstanding. On November 18, 1998, the board of directors of TES
authorized a share dividend of the common stock of TES which caused to be issued
as of the same date, two (2) shares of common stock for each one (1) share of
common stock issued and outstanding. Management expects that approximately
16,692,804 shares of TES common stock will be outstanding after the merger.
Common Stock
Holders of common stock are entitled to one vote for each whole share on
all matters to be voted upon by stockholders, including the election of
directors. Holders of common stock do not have cumulative voting rights in the
election of directors. This means that holders of more than 50% of the shares
voting for the election of directors can elect all of the directors if they so
choose. In this event, the holders of the remaining less than 50% of the shares
voting for the election of directors will not be able to elect any person or
persons to the board of directors. All shares of common stock are equal to each
other with respect to liquidation and dividend rights. No holder of any shares
of common stock has any preemptive rights to subscribe for or purchase any
additional, unissued shares of TES' common stock. Upon liquidation, dissolution,
or winding up of the company, each share of the common stock is entitled to
share ratably in the amount available for distribution to holders of common
stock. All shares of common stock outstanding are fully paid and nonassessable,
and the common stock is not subject to conversion or redemption.
Transfer Agent and Registrar
Corporate Stock Transfer, Inc., 370 17th Street, Suite 2360, Denver,
Colorado 80202, has been retained to serve as the transfer agent and registrar
for TES' common stock.
MARKET FOR TES' COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Until recently, there was no public market for TES' common stock. At the present
time, there is only a limited market for TES' common stock. There can be no
assurance that an active trading market will develop or be sustained in the
future for TES' securities. TES does not presently meet the requirements for
inclusion in either the NASDAQ SmallCap Market or the NASDAQ National Market.
Trading in TES' common stock is being conducted in the over-the-counter market
in the NASD's "Electronic Bulletin Board." TES may never meet the requirements
for inclusion in either of those two markets. As a result of trading on the
Bulletin Board, it may be more difficult to obtain quotations of the market
price of TES' securities. Consequently, the liquidity of TES' securities could
be impaired, not only in the number of securities which could be bought and
sold, but also through delays in the timing of transactions, reduction in
security analysts' and the news media's coverage of TES, and lower prices for
TES' securities than might otherwise be attained.
80
<PAGE>
TES' securities also come within the definition of "penny stock" contained
in Rule 3a51-1 under the Securities Exchange Act of 1934. Classification as a
penny stock may adversely affect the ability of broker-dealers to sell TES'
securities and may adversely affect the ability of TES' stockholders to sell any
of their securities in the secondary market. ENTECS stockholders should become
familiar with the impact that these regulations may have upon the TES common
stock they obtain in the merger.
Management expects that approximately 11,467,974 shares of TES common stock
will be issued to the ENTECS stockholders as a result of the merger. In
addition, TES' board of directors has adopted a stock option plan under which it
could issue up to 500,000 shares of common stock. No options have been granted
under the stock option plan at this time. Although future sales of the TES
shares being issued in the merger and of shares that might be issued in the
future on exercise of any options under the stock option plan could have a
depressive effect under the trading price of the common stock. In addition,
the existence of options may adversely affect the terms on which TES may obtain
additional equity capital in the future. Also, the market price of TES' common
stock could be subject to significant fluctuations in response to variations in
actual and anticipated quarterly operating results, changes in earnings
estimates by analysts, announcements of new products or technological
innovations by TES or its competitors, and other events or factors. Further,
the stocks of many companies have experienced extreme price and volume
fluctuations that have often been unrelated to the companies' operating
performance.
The table set forth below presents the range, on a quarterly basis, of high
and low bid prices per share of common stock as reported by the National
Quotation Bureau, Inc. The quotations represent prices between dealers and do
not include retail markup, markdown or commissions and may not necessarily
represent actual transactions. TES' common stock began trading in the
over-the-counter market during the company's fourth quarter ended December 31,
1998. The first quotation for TES' common stock was first reported in the NASD's
Electronic Bulletin Board on October 23, 1998. As a result, the high and low
bids reported for the period ended December 31, 1998 do not represent a full
quarter of activity.
Quarter Ended High Low
------------- ---- ---
December 31, 1998 $3.50 $0.75
March 31, 1999 $4.25 $1.75
TES had approximately 65 shareholders of record as of May 31, 1999, which
does not include shareholders whose shares are held in street or nominee names.
Holders of TES' common stock are entitled to receive dividends as may be
declared by the board of directors out of legally available funds. No dividends
have been declared to date by TES, nor does TES anticipate declaring and paying
cash dividends in the foreseeable future. At the present time, TES has a net
deficit and is prohibited from paying dividends under Colorado law.
LEGAL OPINIONS
Legal matters in connection with the merger are being passed upon for TES
by Schlueter & Associates, P.C Denver, Colorado and for ENTECS by Rossi &
Maricle, P.C., Denver, Colorado.
EXPERTS
The financial statements of TES at December 31, 1998, and for each of the
two years in the period ended December 31, 1998, included in this proxy
statement and prospectus and the registration statement of which this proxy
statement and prospectus is part, have been audited by Scheifley & Associate,
P.C., independent auditors, as set forth in their report appearing elsewhere in
this proxy statement and prospectus, and in the registration statement, and are
included in reliance upon that report given upon the authority of that firm as
experts in accounting and auditing.
81
<PAGE>
The financial statements of ENTECS at December 31, 1998, and for each
of the two years in the period ended December 31, 1998, included in this proxy
statement and prospectus and the registration statement of which this proxy
statement and prospectus is part, have been audited by Scheifley & Associate,
P.C., independent auditors, as set forth in their report appearing elsewhere in
this proxy statement and prospectus, and in the registration statement, and are
included in reliance upon that report given upon the authority of that firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
TES is subject to the informational requirements of the Securities Exchange
Act of 1934 and it files reports, proxy statements, and other information with
the Securities and Exchange Commission in accordance with that law. You may
inspect and copy TES' reports, proxy statements, and other information at the
public reference facilities maintained by the Securities and Exchange Commission
at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
and at its regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
You may obtain copies of those materials at prescribed rates by writing to the
Securities and Exchange Commission, Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549. The public may obtain information on the operation
of the Public Reference Room by calling the Commission at 1-800-SEC-0330. TES is
an electronic filer with the Commission, which maintains a web site containing
reports, proxy statements, and other information at the following location:
http://www.sec.gov.
This prospectus is part of a registration statement on Form S-4 filed by
TES with the Securities and Exchange Commission under the Securities Act of
1933. This prospectus omits some of the information contained in the
registration statement. You may obtain further information about TES and the TES
common stock in the registration statement and the exhibits to the registration
statement. Any statements contained in this proxy statement and prospectus
concerning the provisions of any document are not necessarily complete, and, in
each instance, you may refer to the copy of the document filed with the
Commission. Each statement in this proxy statement and prospectus about a
document is qualified in its entirety by reference to the actual document.
82
<PAGE>
INDEX TO FINANCIAL STATEMENTS
TECHNICAL ENVIRONMENT SOLUTIONS, INC., Page
Independent Auditor's Report ...................................... F-1
Consolidated Balance Sheet as of December 31, 1998 ................. F-2
Consolidated Statements of Operations for the two years
ended December 31, 1998 ......................................... F-3
Consolidated Statements of Stockholders' Equity for the
two years ended December 31, 1998 ............................... F-4
Consolidated Statements of Cash Flow for the two years
ended December 31, 1998 ......................................... F-5
Notes to Consolidated Financial Statements ......................... F-7
Consolidated Balance Sheet as of March 31, 1999 (Unaudited) ........ F-15
Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1999 (Unaudited) ....................... F-16
Consolidated Statements of Cash Flow for the three months
ended March 31, 1998 and 1999 (Unaudited) ....................... F-17
Notes to Unaudited Financial Statements ............................ F-18
ENVIRONMENTAL TECHNOLOGIES AND SOFTWARE SOLUTIONS, INC ..................
Independent Auditor's Report ....................................... F-19
Consolidated Balance Sheet as of December 31, 1998 ................. F-20
Consolidated Statements of Operations for the two years
ended December 31, 1998 ......................................... F-21
Consolidated Statements of Stockholders' Equity for the two years
ended December 31, 1998 ........................................ F-22
Consolidated Statements of Cash Flow for the two
years ended December 31, 1998 ................................... F-23
Notes to Consolidated Financial Statements ...................... F-25
Consolidated Balance Sheet as of March 31, 1999 (Unaudited) ....... F-33
Consolidated Statements of Operations for the three months
ended March 31, 1998 and 1999 (Unaudited) ....................... F-34
Consolidated Statements of Cash Flow for the three months
ended March 31, 1998 and 1999 (Unaudited) ....................... F-35
Notes to Unaudited Financial Statements ............................ F-36
83
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Technical Environment Solutions, Inc.
We have audited the consolidated balance sheet of Technical Environment
Solutions, Inc. as of December 31, 1998 and the related consolidated statements
of operations, changes in stockholders' equity, and cash flows for each of the
two years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of Technical
Environment Solutions, Inc. as of December 31, 1998, and the results of its
operations and cash flows for each of the two years then ended, in conformity
with generally accepted accounting principles.
James E. Scheifley & Associates, P.C.
Certified Public Accountants
Denver, Colorado
March 26, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Consolidated Balance Sheet
December 31, 1998
ASSETS
DM US $
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................ 166,970 100,162
Accounts receivable, trade ....................................... 68,662 41,189
Accounts receivable - other ...................................... 34,699 20,815
Prepaid expenses ................................................. 22,004 13,200
---------- ----------
Total current assets ......................................... 292,335 175,366
Property and equipment, at cost, net of
accumulated depreciation of DM 102,469,/ ......................... 162,642 97,566
Investments ........................................................ 10,000 5,999
Note receivable - related party .................................... 50,000 29,994
Other assets ....................................................... 300,000 179,964
---------- ----------
814,977 488,888
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - banks ............................................ 29,541 17,722
Notes payable - others ........................................... 80,000 47,990
Accounts payable ................................................. 102,536 61,508
Accounts payable and accrued expenses - related parties .......... 115,928 69,543
Accrued expenses ................................................. 132,797 79,662
---------- ----------
Total current liabilities .................................... 460,802 276,426
Loans from shareholders .......................................... 230,000 137,972
Advances from affiliated company ................................. 288,669 173,167
Stockholders' equity:
Common stock, no par value,
20,000,000 shares authorized,
5,244,830 shares issued and outstanding ........................... 2,260,155 1,355,822
Accumulated deficit
(2,424,649) (1,454,499)
---------- ----------
(164,494) (98,677)
---------- ----------
814,977 488,888
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Consolidated Statements of Operations
Years Ended December 31,
--------------------------------
1997 1998 1998
DM DM US $
<S> <C> <C> <C>
Sales .................................................. 347,213 610,056 365,960
Sales to related party ................................. 80,609 -- --
---------- ---------- ----------
427,822 610,056 365,960
Cost of operations ..................................... 179,690 202,174 121,280
---------- ---------- ----------
Gross profit ........................................... 248,132 407,882 244,680
Other costs and expenses:
General and administrative ........................... 652,519 1,305,774 783,308
General and administrative - related parties.......... 234,177 98,594 59,145
---------- ---------- ----------
(Loss) from operations ................................. (638,564) (996,486) (597,772)
Other income and (expense):
Interest income ...................................... 19,190 19,668 11,798
Losses of unconsolidated subsidiary .................. -- (49,000) (29,394)
Interest expense - related party ..................... (18,100) (24,418) (14,648)
Interest expense ..................................... (28,618) (16,577) (9,944)
---------- ---------- ----------
(27,528) (70,327) (42,188)
(Loss) before income taxes ............................. (666,092) (1,066,813) (639,960)
Provision for income taxes ............................. -- -- --
---------- ---------- ----------
Net (loss) ............................................. (666,092) (1,066,813) (639,960)
========== ========== ==========
Earnings (loss) per share:
Basic and diluted (loss) per share .................... (0.40) (0.61) (0.37)
========== ========== ==========
Weighted average shares outstanding ................... 5,028,813 5,224,830 5,224,830
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Consolidated Statement of Stockholders' Equity
Years Ended December 31, 1998 and 1997
Common Stock Accumulated
Shares Amount Deficit Total
DM DM DM
<S> <C> <C> <C> <C>
Balance, December 31, 1996 ..................... 4,524,402 121,360 (691,744) (570,384)
Sale of stock for cash ........................ 700,428 2,675,310 2,675,310
Less expenses of offering ................... (536,515) (536,515)
Net loss for the year ........................... -- -- (666,092) (666,092)
---------- ---------- ---------- ----------
Balance, December 31, 1997 ..................... 5,224,830 2,260,155 (1,357,836) 902,319
Net loss for the year ........................... -- -- (1,066,813) (1,066,813)
---------- ---------- ---------- ----------
Balance, December 31, 1998 ..................... 5,224,830 2,260,155 (2,424,649) (164,494)
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31,
1997 1998 1998
DM DM US $
<S> <C> <C> <C>
Net (loss) ................................................. (666,092) (1,066,813) (639,960)
Adjustments to reconcile net income (loss) to net
cash (used in) operating activities:
Depreciation ............................................ 12,521 44,047 26,423
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ............. 56,190 (68,662) (41,189)
(Increase) decrease in prepaid expenses ................ (32,269) 14,350 8,608
(Increase) decrease in other assets .................... (37,935) 40,344 24,202
Increase (decrease) in accounts payable and
accrued expenses including related parties ......... 91,045 142,817 85,673
---------- ---------- ----------
Total adjustments ................................... 89,552 172,896 103,717
---------- ---------- ----------
Net cash (used in) operating activities .................. (576,540) (893,917) (536,243)
---------- ---------- ----------
Cash flows from investing activities:
Advance to affiliate .................................... (363,250) -- --
Repayment of affiliate advance .......................... -- 250,000 149,970
Long-term lease deposit ................................. (300,000) -- --
Increase in note receivable ............................. (50,000) -- --
Purchase of fixed assets ................................ (109,624) (88,323) (52,983)
---------- ---------- ----------
Net cash provided by (used in) investing activities ........ (822,874) 161,677 96,987
---------- ---------- ----------
Cash flows from financing activities:
Advances from affiliated company ........................ -- 370,200 222,076
Proceeds from sale of common stock ...................... 2,138,795 -- --
Decrease in deferred financing fees ..................... 19,145 -- --
Repayment of notes payable - bank ....................... (22,766) (168,257) (100,934)
Repayment of stockholder advances ....................... (6,900) (4,300) (2,579)
Repayment of convertible notes .......................... (20,000) (10,000) (5,999)
---------- ---------- ----------
Net cash provided by
financing activities .................................... 2,108,274 187,643 112,563
---------- ---------- ----------
Increase (decrease) in cash ................................ 708,860 (544,597) (326,693)
Cash and cash equivalents,
beginning of period ....................................... 2,707 711,567 426,855
---------- ---------- ----------
Cash and cash equivalents,
end of period ............................................. 711,567 166,970 100,162
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31,
1997 1998 1998
DM DM US $
<S> <C> <C> <C>
Supplemental cash flow information:
Cash paid for interest .......................................... -- 33,219 19,927
Cash paid for income taxes ...................................... -- -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
Technical Environment Solutions, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
Note 1. Summary of significant accounting policies.
Technical Environment Solutions, Inc. and subsidiaries (the "Company) is in the
business of recycling surplus and obsolete electronic equipment. The Company's
operations to date have been carried out solely within Germany by its wholly
owned subsidiaries Technical Environment Solutions GmbH, (TES GmbH)and TES Oecon
AG, formed in 1997 These operations consist of dismantling and disposing of
electronic equipment secured from customers. The Company has used independent
recycling companies to complete the disposal process, however, during 1997, the
Company secured plant facilities necessary to begin certain processing functions
on its own. TES Oecon AG, a wholly owned subsidiary, plans to establish a
technical school for training electronic recycling workers for itself and
others. During February 1998, the Company acquired a 49% ownership interest in
T-Cycle Computer Service and Verwertungs GmbH, a German company engaged in
dismantling and disposing of surplus electronic equipment in Germany.
The Company was incorporated in Colorado on June 21, 1994.
The accompanying financial statements have been prepared in accordance with
United States generally accepted accounting principles ("U.S. GAAP"). The
Company maintains its financial records in accordance with the German Commercial
Code, which represents generally accepted accounting principles in Germany
("German GAAP"). Generally, accepted accounting principles in Germany vary in
certain significant respects from U.S. GAAP. Accordingly, the Company has
recorded certain adjustments in order that these financial statements be in
accordance with U.S.
GAAP.
Solely for the convenience of the reader, the accompanying consolidated
financial statements as of and for the year ended December 31, 1998 have been
translated into United States dollars. ("U.S. $") at the rate of DM 1.667 per
U.S. $1.00 the Noon Buying Rate of the Federal Reserve Bank of New York on
December 31, 1998. The translations should not be construed as a representation
that the amounts shown could have been, or could be, converted into U.S. dollars
at that or any other rate.
F-7
<PAGE>
Principles of consolidation
The consolidated statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation.
Cash and cash equivalents
The Company considers all highly-liquid investments purchased with a maturity of
three months or less to be cash equivalents.
Fair value of financial instruments
The Company's financial instruments consist of cash and cash equivalents and
accounts receivable and payable. The carrying amounts of such financial
instruments approximate fair value because of the short maturity of these
instruments.
Property and equipment
Property and equipment are stated at cost. Depreciation is provided for using
the straight line method over estimated useful lives of five to seven years for
equipment and the remaining lease term for leasehold improvements. Depreciation
expense amounted to DM 44,047 and DM 12,521 for the years ended December 31,
1998 and 1997, respectively.
Revenue recognition
Revenue is recorded when services are performed. Sales amounts included in the
foregoing Consolidated Statement of Operations consist of gross contract amounts
paid to the Company by its customers for the removal of recyclable materials.
Advertising
Advertising expenses are charged to expense upon first showing. The Company
incurred advertising expense of DM 9,000 and DM 109,865 during the years ended
December 31, 1998 and 1997 respectively.
Net loss per share
Basic Earnings per Share ("EPS") is computed by dividing net income available to
common stockholders by the weighted average number of common stock shares
outstanding during the year. Diluted EPS is computed by dividing net income
available to common stockholders by the weighted-average number of common stock
shares outstanding during the year plus potential dilutive instruments such as
stock options and warrants. The effect of stock options on diluted EPS is
determined through the application of the treasury stock method, whereby
proceeds received by the Company based on assumed exercises are hypothetically
used to repurchase the Company's common stock at the average market price during
the period.
F-8
<PAGE>
The basic loss per share is computed by dividing the net loss for the period by
the weighted average number of common shares outstanding for the period. Loss
per share is unchanged on a diluted basis since the assumed exercise of common
stock equivalents would have an anti-dilutive effect due to the existence of
operating losses.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the reported amounts
of revenue and expenses during the periods presented. Actual results could
differ from those estimates making it reasonably possible that a change in these
estimates could occur in the near term.
Stock-based Compensation
The Company adopted Statement of Financial Accounting Standard No. 123 (FAS
123), Accounting for Stock-Based Compensation beginning with the Company's first
quarter of 1996.
Upon adoption of FAS 123, the Company when required will continue to measure
compensation expense for any stock-based employee compensation plans using the
intrinsic value method prescribed by APB No. 25, Accounting for Stock Issued to
Employees, and will provide pro forma disclosures of the effect on net income
and earnings per share as if the fair value-based method prescribed by FAS 123
had been applied in measuring compensation expense.
Recent Pronouncements
SFAS No. 130, "Reporting Comprehensive Income", establishes guidelines for all
items that are to be recognized under accounting standards as components of
comprehensive income to be reported in the financial statements. The statement
is effective for all periods beginning after December 15, 1997 and
reclassification financial statements for earlier periods will be required for
comparative purposes. To date, the Company has not engaged in transactions which
would result in any significant difference between its reported net loss and
comprehensive net loss as defined in the statement.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 provides
authoritative guidance on when internal-use software costs should be capitalized
and when these costs should be expensed as incurred.
Effective January 1, 1998, the Company adopted SOP 98-1. Costs capitalized by
the Company during the year ended December 31, 1998 in accordance with these
guidelines were not significant.
F-9
<PAGE>
Effective December 31, 1998, the Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131"). SFAS 131
superseded SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise. SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. SFAS 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The adoption of SFAS 131 did not affect results of
operations or financial position. To date, the Company has operated in one
business segment only.
Effective December 31, 1998, the Company adopted the provisions of SFAS No. 132,
Employers' Disclosures about Pensions and Other Post-retirement Benefits ("SFAS
132"). SFAS 132 supersedes the disclosure requirements in SFAS No. 87,
Employers' Accounting for Pensions, and SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions. The overall objective of SFAS 132
is to improve and standardize disclosures about pensions and other
post-retirement benefits and to make the required information more
understandable. The adoption of SFAS 132 did not affect results of operations or
financial position. The Company has not initiated benefit plans to date which
would require disclosure under the statement.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), which
is required to be adopted in years beginning after June 15, 1999. SFAS 133 will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings. The Company has not yet
determined what the effect of SFAS 133 will be on earnings and the financial
position of the Company, however it believes that it has not to date engaged in
significant transactions encompassed by the statement.
Note 2. Investments
During July 1995, the Company invested DM 10,000 in Okologik AG, a German
company engaged in the production and conservation of energy by alternative
means. The Company's 1,334 shares represent less than 2% of total shares
outstanding. As yet, no market exists for the stock and the Company has
accounted for its investment at cost.
F-10
<PAGE>
Note 3. Notes payable and long-term debt
Notes payable - banks at December 31, 1998 consists of a bank line of credit
having a balance at December 31, 1998 of DM 29,541. The line of credit bears
interest at 10.75% per annum and had DM 20,459 additional credit available at
that date. The Company also had a term loan with the bank having a remaining
principal balance due at December 31, 1997 of DM 180,050. The term loan was paid
in full on February 28, 1998.
During 1995, the Company sold DM 210,000 of convertible debentures to thirteen
individual investors in Germany. The debentures bear interest at 10.75% per
annum and are due in dates ranging from March 1999 to July 1999. The debentures
were to be convertible into shares of the Company's common stock, however, none
were converted. During 1996, DM 100,000 plus accrued interest was repaid to
certain of the investors. An additional DM 20,000 plus accrued interest was
repaid in 1997. During January 1998, an additional DM 10,000 was repaid.
Note 4. Income taxes.
At December 31, 1997 the Company had approximately DM 2,396,000 of unused net
operating loss deductions in Germany that may be carried forward indefinitely.
A valuation allowance of DM 1,198,000 was provided at December 31, 1998 for net
operating loss carryforwards which more likely than not will not be utilized in
the foreseeable future. The valuation reserve increased by approximately DM
533,000 and DM 320,000 during the years ended December 31, 1998 and 1997,
respectively.
Note 5. Commitments and contingencies
The Company is obligated for non-cancelable operating lease payments with
initial terms exceeding one year relating to office space and warehouse space.
The lease agreements require future minimum lease payments as follows:
Year Ending December 31, Amount
1999 268,260
2000 272,220
2001 287,820
2002 147,420
2003 90,840
--------
1,066,560
In connection with the lease, the Company paid a DM 300,000 refundable deposit
to guarantee performance of the lease and to secure a purchase option for the
building. The lease contract includes a purchase option whereby the Company may
acquire the property for DM 2,200,000 if the option is exercised before December
31, 2000. The deposit is included in other assets in the accompanying balance
sheet. The deposit may be fully offset against the purchase price of the
building, however should the purchase option expire unexercised, the deposit
will be reduced by DM 90,000.
F-11
<PAGE>
The Company has accrued DM 22,500 of additional rent during the year ended
December 31, 1998 and will continue making annual accruals through the end of
the option period to provide for the possible impairment of the deposit amount.
Rent expense in 1998 and 1997 was DM 270,420 and DM 49,020, respectively.
The Company has entered into employment contract with its president which
provides for an annual salary of DM 96,000 per year through June 1999.
Note 6. Related party transactions
A shareholder of the Company who is also wife of the Company's president made
loans aggregating DM 130,000 to the Company during the year ended December 31,
1996. The loans bear interest at between 8% and 9.25% per annum and are due DM
80,000 in 2000 and DM 50,000 in 2001 plus accrued interest.
Additionally, during 1993, the shareholder advanced DM 25,000 to the Company of
which DM 6,900 was repaid in each of the years 1995 through 1997 with the
balance of DM 4,300 repaid during 1998.
Additionally, during 1996, the Company's president and major shareholder
advanced DM 100,000 to the Company's German subsidiary. The amount bears
interest at 6% per annum beginning January 1, 1998 and the interest is due at
the end of each calendar year. The loan principle is due in full on December 31,
2001.
The Company's president and major shareholder is president and a shareholder of
ENTECS, Inc. a Colorado corporation formed in May 1997 to exploit patent rights
to a concrete recycling system and related equipment. The Company paid a deposit
of DM 250,000 for the rights to use the concrete system and subsequently
transferred the rights to ENTECS in exchange for a short term note. The advance
was paid in full during 1998. Additionally, ENTECS made advances to the Company
aggregating DM 370,200 during the year ended December 31, 1998. The advances
bear interest at 6% per annum and are due after ten years.
Additionally, during 1997, the Company made working capital advances to ENTECS
of DM 50,000 and paid DM 86,250 of costs associated with the operations of
ENTECS. The working capital advance bears interest at 8% per annum and was
repaid DM 23,000 in 1997 and DM 27,000 plus accrued interest of $1,682 in
January 1998.
The balance of the long term notes due ENTECS net of the amounts due from ENTECS
amounted to DM 288,669 at December 31, 1998 and comprises the balance of
advances from affiliated company included in the accompanying balance sheet.
F-12
<PAGE>
During the year ended December 31, 1997, the Company advanced DM 50,000 to a
German entity called Arbeit fur Alle e.V. (AFA). The note bears interest at 8%
per annum and was originally due in installments of DM 10,000 at the end of each
calendar year beginning in 1998. The payments have been extended to begin in
1999. Certain officer/shareholders of the Company have a direct ownership
interest in AFA. Interest accrued as of December 31, 1998 with respect to the
loan amounted to DM 6,600.
During the year ended December 31, 1998 the Company paid an aggregate of DM
98,594 to two officer/shareholders for consulting services provided to the
Company.
Note 7. Stockholders' equity
During the periods covered by these financial statements the Company issued
securities in reliance upon an exemption from registration with the Securities
and Exchange Commission. Although the Company believes that the sales did not
involve a public offering and that it did comply with the exemptions from
registration, it could be liable for rescission of said sales if such exemption
was found not to apply. The Company has not received a request for rescission of
shares nor does it believe that it is probable that its shareholders would
pursue rescission nor prevail if such action were undertaken
On December 31, 1998 the Company effected a stock dividend whereby each holder
of the Company's outstanding common stock received an additional two shares for
each share held. The Company has accounted for the dividend as a three share for
one share forward stock split and consequently, all share and per share data in
the foregoing financial statements and notes thereto have been restated to
reflect the dividend.
During 1997, the Company commenced a private sale of its common stock to a
limited group of investors in Germany. The Company sold 700,428 shares of its
common stock for gross proceeds of DM 2,675,310 and incurred direct expenses of
the offering amounting to DM 536,515.
The Company has established a stock option plan for directors, management, key
employees, consultants and technical advisers whereby an aggregate of 500,000
options to purchase common stock of the Company may be granted. The grant price
of the options will be equal to the market price for the Company's common stock
at the date the options are granted. No options have been granted under the plan
through the date of these financial statements.
Note. 8. Concentrations and information about major customers
During 1998 and 1997, all of the Company's revenue from recycling operations was
derived from sales within Germany. During 1998, the Company had one major
customer, Nutzel/Logosys GmbH which accounted for 10% of its sales. During 1997,
the Company had four major customers, Allianz Versicherungs AG, Bayerische
Landesbank, Hewlett Packard GmbH and Philips GmbH whose purchases from the
Company each accounted for greater than 10% of the Company's sales.
F-13
<PAGE>
No amounts were due from these customers at December 31, 1998.
Note 9. Operations of unconsolidated subsidiary
During February 1998, the Company acquired a 49% ownership interest in T-Cycle
Computer Service and Verwertungs GmbH, a German company engaged in dismantling
and disposing of surplus electronic equipment in Germany. The Company paid
DM49,000 for its investment in T-Cycle and has accounted for the investment
using the equity method of accounting. Accordingly, the Company has recognized
its share of the losses of T-Cycle for the period ended December 31, 1998, which
amounted to DM 49,000, as a reduction of its investment in the company. T-Cycle
has filed for protection under German bankruptcy laws. The Company does not
believe that it is contingently liable for any outstanding debts of T-Cycle.
Note 10. Correction of prior year financial statement
The financial statements for the year ended December 31, 1997 have been
corrected to reflect an adjustment to the commission earned by the Company on
the sale of the BRS license technology to ENTECS. The commission has been
reduced by DM 26,087 of German value added tax (VAT) associated with the
transaction. The adjustment increased the net loss for 1997 by DM 26,087 or DM
.0 per share.
Note 11. Proposed merger.
On December 10, 1998 TES and ENTECS signed a letter of intent in which they
propose to enter into a definitive agreement and plan of merger providing for
the merger of a wholly owned subsidiary of TES into ENTECS. Under the terms of
the letter of intent, the holders of ENTECS Common Stock will receive seven (7)
shares of TES Common Stock for each outstanding share of ENTECS Common Stock.
The Company plans to account for the merger as a reorganization of companies
under common control. The accounting for the merger is expected to be similar to
that of a pooling of interests.
F-14
<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Consolidated Balance Sheet
March 31, 1999
(Unaudited)
ASSETS
DM US $
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................................ 215,467 128,254
Accounts receivable, trade ....................................................... 125,193 74,520
Prepaid expenses ................................................................. 20,619 12,273
---------- ----------
Total current assets ......................................................... 361,279 215,047
Property and equipment, at cost, net of
accumulated depreciation of DM 75,675 ............................................ 155,098 92,320
Investments ........................................................................ 10,000 5,952
Note receivable - related party .................................................... 50,000 29,762
Other assets ....................................................................... 398,176 237,010
---------- ----------
974,553 580,091
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - banks ............................................................ 32,059 19,084
Notes payable - others ........................................................... 80,000 47,619
Accounts payable ................................................................. 98,843 58,834
Accounts payable - related party ................................................. 15,862 9,442
Accrued expenses ................................................................. 228,047 135,742
---------- ----------
Total current liabilities .................................................... 454,811 270,721
Loans from shareholders .......................................................... 230,000 136,905
Advances from affiliated company ................................................. 645,659 384,321
Stockholders' equity:
Common stock, no par value,
20,000,000 shares authorized,
5,224,830 shares issued and outstanding ........................................... 2,260,155 1,345,330
Accumulated deficit
(2,616,072) (1,557,186)
---------- ----------
(355,917) (211,856)
---------- ----------
974,553 580,091
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended March 31,
1998 1999 1999
DM DM US $
---- ---- ----
<S> <C> <C> <C>
Sales ......................................................... 144,766 231,215 137,628
Sales to related party ........................................ 30,609 -- --
---------- ---------- ----------
175,375 231,215 137,628
Cost of operations ............................................ 44,966 50,383 29,990
---------- ---------- ----------
Gross profit .................................................. 130,409 180,832 107,638
Other costs and expenses:
General and administrative .................................. 281,995 364,613 217,032
---------- ---------- ----------
(Loss) from operations ........................................ (151,586) (183,781) (109,393)
Other income and (expense):
Interest income ............................................. 238 5,453 3,246
Losses of unconsolidated subsidiary ......................... (15,530) -- --
Interest expense ............................................ (5,610) (13,095) (7,795)
---------- ---------- ----------
(20,902) (7,642) (4,549)
(Loss) before income taxes .................................... (172,488) (191,423) (113,942)
Provision for income taxes .................................... -- -- --
---------- ---------- ----------
Net (loss) .................................................... (172,488) (191,423) (113,942)
========== ========== ==========
Earnings (loss) per share:
Net income (loss) ............................................ (0.03) (0.04) (0.02)
========== ========== ==========
Weighted average shares outstanding .......................... 5,224,830 5,224,830 5,224,830
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
1998 1999 1999
DM DM US $
---- ---- ----
<S> <C> <C> <C>
Net (loss) ............................................................. (172,488) (191,423) (113,942)
Adjustments to reconcile net income (loss) to net
cash (used in) operating activities:
Depreciation ........................................................ 17,253 11,026 6,563
Losses of unconsolidated subsidiary ................................. 15,530 -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ......................... 346,003 (21,832) (12,995)
(Increase) decrease in prepaid expenses ............................ 12,414 1,385 824
(Increase) decrease in other assets ................................ (220,922) (98,176) (58,438)
Increase (decrease) in accounts payable and
accrued expenses ............................................... (31,643) (5,991) (3,566)
-------- -------- --------
Total adjustments ............................................... 138,635 (113,588) (67,612)
-------- -------- --------
Net cash (used in) operating activities .............................. (33,853) (305,011) (181,554)
-------- -------- --------
Cash flows from investing activities:
Advance to affiliate ................................................ (49,000) -- --
Purchase of fixed assets ............................................ (65,154) (3,482) (2,073)
-------- -------- --------
Net cash provided by (used in) investing activities .................... (114,154) (3,482) (2,073)
-------- -------- --------
Cash flows from financing activities:
Advances from affiliated company .................................... -- 356,990 212,494
Repayment of notes payable - bank ................................... (166,785) -- --
Repayment of notes payable - other .................................. (10,000) -- --
-------- -------- --------
Net cash provided by
financing activities ................................................ (176,785) 356,990 212,494
-------- -------- --------
Increase (decrease) in cash ............................................ (324,792) 48,497 28,867
Cash and cash equivalents,
beginning of period ................................................... 711,567 166,970 99,387
-------- -------- --------
Cash and cash equivalents,
end of period ......................................................... 386,775 215,467 128,254
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
Technical Environment Solutions, Inc.
Notes to Unaudited Financial Statements
March 31, 1999
(Unaudited)
Basis of presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions incorporated in Regulation 10-SB of the Securities and
Exchange Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments and accruals) considered necessary for a fair
presentation have been included.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year. The accompanying
financial statements should be read in conjunction with the Company's financial
statements for the year ended December 31, 1998.
Basic loss per share was computed using the weighted average number of common
shares outstanding.
During the quarter ended March 31, 1999, the Company borrowed DM 356,990 from a
company controlled by the Company's principal shareholder. The loans are due in
2009, and bear interest at 6% per annum.
F-18
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Environmental Technologies and Software Solutions, Inc.
We have audited the consolidated balance sheet of Environmental Technologies and
Software Solutions, Inc. as of December 31, 1998 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the years in the two year period then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of Environmental
Technologies and Software Solutions, Inc. as of December 31, 1998, and the
results of its operations and cash flows for each of the years in the two year
period then ended, in conformity with generally accepted accounting principles.
James E. Scheifley & Associates, P.C.
Certified Public Accountants
Denver, Colorado
April 2, 1999
F-19
<PAGE>
<TABLE>
<CAPTION>
Environmental Technologies and Software Solutions, Inc.
A Development Stage Company
Consolidated Balance Sheet
December 31, 1998
ASSETS
DM US $
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................................................... 393,080 235,801
Accounts receivable ............................................................ 2,230 1,338
Inventory ...................................................................... 120,000 71,986
Prepaid expenses ............................................................... 56,152 33,684
---------- ----------
Total current assets ....................................................... 571,462 342,809
Property and equipment, at cost, net of
accumulated depreciation of DM 24,758 .......................................... 544,442 326,600
Due from affiliated company ...................................................... 288,669 173,166
License rights ................................................................... 1,123,126 673,741
---------- ----------
2,527,699 1,516,315
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................... 135,552 81,314
Due to related parties ......................................................... 225,000 134,974
Accrued expenses ............................................................... 76,884 46,120
Accrued expenses - related parties ............................................. 212,769 127,636
---------- ----------
Total current liabilities .................................................. 650,205 390,044
Stockholders' equity:
Common stock, no par value,
50,000,000 shares authorized,
1,465,182 shares issued and outstanding ......................................... 3,600,826 2,160,064
Deficit accumulated during development stage
(1,723,332) (1,033,793)
---------- ----------
1,877,494 1,126,271
---------- ----------
2,527,699 1,516,315
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
<TABLE>
<CAPTION>
Environmental Technologies and Software Solutions, Inc.
A Development Stage Company
Consolidated Statements of Operations
Years Ended December 31, 1997 and 1998
to
December 31,
1997 1998 1998 1998
DM DM US $ DM
<S> <C> <C> <C> <C>
Revenues ............................................. -- 69,369 41,613 69,369
Other costs and expenses:
Cost of goods and services ......................... -- 14,004 8,401 14,004
General and administrative ......................... 256,114 1,231,359 738,668 1,487,473
General and administrative - related parties ....... 87,500 217,656 130,567 305,156
---------- ---------- ---------- ----------
(Loss) from operations ............................... (343,614) (1,393,650) (836,023) (1,737,264)
Other income and (expense):
Interest income .................................... 783 11,066 6,638 11,849
Interest income - related parties .................. 7,515 4,508 7,515
Interest expense - related parties ................. (1,682) (1,009) (1,682)
Interest expense ................................... (1,794) (484) (290) (2,278)
---------- ---------- ---------- ----------
(1,011) 16,415 9,847 15,404
(Loss) before income taxes ........................... (344,625) (1,377,235) (826,176) (1,721,860)
Provision for income taxes ........................... -- (1,472) (883) (2,355)
---------- ---------- ---------- ----------
Net (loss) ........................................... (344,625) (1,378,707) (827,059) (1,724,215)
========== ========== ========== ==========
Earnings (loss) per share:
Basic and diluted (loss) per share .................. (0.33) (0.99) (0.60) (1.33)
========== ========== ========== ==========
Weighted average shares outstanding ................. 1,033,751 1,387,134 1,387,134 1,299,041
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
<TABLE>
<CAPTION>
Environmental Technologies and Software Solutions, Inc.
A Development Stage Company
Consolidated Statement of Stockholders' Equity
Year Ended December 31, 1998 and 1997
Common Stock Accumulated
Shares Amount Deficit Total
DM DM DM
<S> <C> <C> <C> <C>
Balance at inception ...................................................... -- -- -- --
Shares issued at inception for services in May 1997
at $.003 per share ....................................................... 1,090,000 3,685 3,685
Shares issued for services:
July 1997 at DM12.54 per share ......................................... 800 10,035 10,035
August 1997 at DM12.54 per share ....................................... 8,200 102,861 102,861
Sale of stock for cash:
June 1997 at DM12.07 per share ......................................... 1,750 21,131 21,131
July 1997 at DM11.62 per share ......................................... 43,290 503,164 503,164
August 1997 at DM12.00 per share ....................................... 24,264 291,059 291,059
September 1997 at DM12.50 per share .................................... 25,100 313,719 313,719
October 1997 at DM12.09 per share ...................................... 14,750 178,375 178,375
Less expenses of offering
(422,759) (422,759)
Net loss for the year ...................................................... -- -- (344,625) (344,625)
---------- ---------- ---------- ----------
Balance, December 31, 1997 ................................................ 1,208,154 1,001,269 (344,625) 656,644
Sale of stock for cash:
January 1998 at DM12.31 per share ...................................... 19,465 239,684 239,684
February 1998 at DM12.22 per share ..................................... 40,170 490,851 490,851
March 1998 at DM12.18 per share ........................................ 15,400 187,588 187,588
April 1998 at DM12.43 per share ........................................ 13,970 173,668 173,668
May 1998 at DM12.23 per share .......................................... 38,650 472,683 472,683
June 1998 at DM11.50 per share ......................................... 107,143 1,231,242 1,231,242
July 1998 at DM12.72 per share ......................................... 22,230 282,630 282,630
Less expenses of offering .............................................. (478,789) (478,789)
Net loss for the year ...................................................... -- -- (1,378,707) (1,378,707)
---------- ---------- ---------- ----------
Balance, December 31, 1998 ................................................ 1,465,182 3,600,826 (1,723,332) 1,877,494
========== ========== ========== ==========
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
Environmental Technologies and Software Solutions, Inc.
A Development Stage Company
Consolidated Statement of Cash Flows
Years Ended December 31, 1997 and 1998
Inception
to
December 31,
1997 1998 1998 1998
DM DM US $ DM
---- ---- ---- ------------
<S> <C> <C> <C> <C>
Net (loss) ................................................. (344,625) (1,378,707) (827,059) (1,723,332)
Adjustments to reconcile net income (loss) to net
cash (used in) operating activities:
Depreciation and amortization .............................. 72,916 183,716 110,208 256,632
Interest added to affiliate loan ........................ 1,682 81,531 48,909 83,213
Loss on transfer of machinery ........................... -- 16,556 9,932 16,556
Expenses incurred by affiliate .......................... 53,763 -- -- 53,763
Expenses added to related party loans ................... 87,500 -- -- 87,500
Common stock issued for services ........................ 116,581 -- -- 116,581
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ............. (101,134) 98,904 59,331 (2,230)
(Increase) decrease in prepaid expenses ................ -- (56,152) (33,684) (56,152)
(Increase) decrease in deposits ........................ (5,400) 5,400 3,239 --
Increase (decrease) in accounts payable and ............ --
accrued expenses ................................... 555,041 (129,836) (77,886) 425,205
---------- ---------- ---------- ----------
Total adjustments ................................... 780,949 200,119 120,047 981,068
---------- ---------- ---------- ----------
Net cash (used in) operating activities .................. 436,324 (1,178,588) (707,011) (742,264)
---------- ---------- ---------- ----------
Cash flows from investing activities:
Purchase of license rights .............................. (568,750) (25,000) (14,997) (593,750)
Advance to affiliated company ........................... -- (370,200) (222,076) (370,200)
Purchase of fixed assets ................................ (553,042) (152,714) (91,610) (705,756)
---------- ---------- ---------- ----------
Net cash provided by (used in) investing activities ........ (1,121,792) (547,914) (328,683) (1,669,706)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from loan from affiliate ....................... 27,000 -- -- 27,000
Repayments to affiliated companies ...................... -- (418,695) (251,167) (418,695)
Repayments to related parties ........................... -- (287,500) (172,466) (287,500)
Proceeds from sale of common stock ...................... 884,688 2,599,557 1,559,422 3,484,245
---------- ---------- ---------- ----------
Net cash provided by
financing activities .................................... 911,688 1,893,362 1,135,790 2,805,050
---------- ---------- ---------- ----------
Increase (decrease) in cash ................................ 226,220 166,860 100,096 393,080
Cash and cash equivalents,
beginning of period ....................................... -- 226,220 135,705 --
---------- ---------- ---------- ----------
Cash and cash equivalents,
end of period ............................................. 226,220 393,080 235,801 393,080
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
<TABLE>
<CAPTION>
Environmental Technologies and Software Solutions, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, 1997 and 1998
1997 1998 1997
DM DM US $
<S> <C> <C> <C>
Supplemental cash flow information:
Cash paid for interest -- -- --
Cash paid for income taxes -- -- --
Non-cash investing and financing activities:
License rights acquired for debt 761,250 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
Environmental Technologies and Software Solutions, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
Note 1. Summary of significant accounting policies.
Environmental Technologies and Software Solutions, Inc. and subsidiary (the
"Company) is in the business of recycling and disposal of waste materials,
development and construction of new technologies in the environmental area as
well as development, production and sale of software programs for environmental
and recycling solutions and to engage in any other lawful purpose and business.
The Company's operations to date have been carried out solely within Germany by
its wholly owned subsidiaries, ENTECS Umwelttechnik GmbH, (ENTECS GmbH) and
ENTECS Software and Umwelttechnik GmbH, (Software GmbH) formed in March 1998.
The Company was incorporated in Colorado on May 9, 1997. The Company has
recorded limited sales during the periods presented and is considered to be in
its development stage.
The accompanying financial statements have been prepared in accordance with
United States generally accepted accounting principles ("U.S. GAAP"). The
Company maintains its financial records in accordance with the German Commercial
Code, which represents generally accepted accounting principles in Germany
("German GAAP"). Generally, accepted accounting principles in Germany vary in
certain significant respects from U.S. GAAP. Accordingly, the Company has
recorded certain adjustments in order that these financial statements be in
accordance with U.S. GAAP.
Solely for the convenience of the reader, the accompanying consolidated
financial statements as of and for the year ended December 31, 1998 have been
translated into United States dollars. ("U.S. $") at the rate of DM 1.667 per
U.S. $1.00 the Noon Buying Rate of the Federal Reserve Bank of New York on
December 31, 1998. The translations should not be construed as a representation
that the amounts shown could have been, or could be, converted into U.S. dollars
at that or any other rate.
Principles of consolidation
The consolidated statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation.
F-25
<PAGE>
Cash and cash equivalents
The Company considers all highly-liquid investments purchased with a maturity of
three months or less to be cash equivalents.
Fair value of financial instruments The Company's financial instruments
consist of cash and cash equivalents and accounts receivable and payable. The
carrying amounts of such financial instruments approximate fair value because of
the short maturity of these instruments.
Property and equipment
Property and equipment are stated at cost. Depreciation is provided for using
the straight line method over estimated useful lives of five to seven years for
equipment and the remaining lease term for leasehold improvements. No
depreciation expense has been recorded for the year ended December 31, 1997 on
the Company's machinery and equipment had not been placed in service.
Depreciation expense for the year ended December 31, 1998 amounted to DM 24,758.
Intangible assets
The Company has purchased certain licenses for the use of technology to be used
in its planned business activities (see Note 2). The licenses are amortized
using the straight line method over the term of the license beginning in 1997.
Amortization for the years ended December 31, 1998 and 1997 amounted to DM
158,958 and DM 72,916, respectively.
The Company makes reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Under SFAS No. 121,
an impairment loss would be recognized when estimated future cash flows expected
to result from the use of the asset and its eventual disposition is less than
its carrying amount. No such impairment losses have been identified by the
Company for the 1998 and 1997 fiscal years.
Revenue recognition
Revenue is recorded when goods are shipped or services are performed. Sales
returns and allowances are recorded after returned goods are received and
inspected. The Company expects to begin sales of its products in 1998 and plans
to provide currently for estimated product returns arising therefrom.
Advertising
Advertising expenses are charged to expense upon first showing. The Company
incurred DM 75,815 DM 1,173 of advertising expense during 1998 and 1997,
respectively.
F-26
<PAGE>
Net loss per share
Basic Earnings per Share ("EPS") is computed by dividing net income available to
common stockholders by the weighted average number of common stock shares
outstanding during the year. Diluted EPS is computed by dividing net income
available to common stockholders by the weighted-average number of common stock
shares outstanding during the year plus potential dilutive instruments such as
stock options and warrants. The effect of stock options on diluted EPS is
determined through the application of the treasury stock method, whereby
proceeds received by the Company based on assumed exercises are hypothetically
used to repurchase the Company's common stock at the average market price during
the period.
The basic loss per share is computed by dividing the net loss for the period by
the weighted average number of common shares outstanding for the period. Loss
per share is unchanged on a diluted basis since the assumed exercise of common
stock equivalents would have an anti-dilutive effect due to the existence of
operating losses.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the reported amounts
of revenue and expenses during the periods presented. Actual results could
differ from those estimates making it reasonably possible that a change in these
estimates could occur in the near term.
Stock-based Compensation
The Company adopted Statement of Financial Accounting Standard No.
123 (FAS 123), Accounting for Stock-Based Compensation beginning with
the Company's first quarter of operations.
Upon adoption of FAS 123, the Company when required will continue to measure
compensation expense for any stock-based employee compensation plans using the
intrinsic value method prescribed by APB No. 25, Accounting for Stock Issued to
Employees, and will provide pro forma disclosures of the effect on net income
and earnings per share as if the fair value-based method prescribed by FAS 123
had been applied in measuring compensation expense.
F-27
<PAGE>
Recent Pronouncements
SFAS No. 130, "Reporting Comprehensive Income", establishes guidelines for all
items that are to be recognized under accounting standards as components of
comprehensive income to be reported in the financial statements. The statement
is effective for all periods beginning after December 15, 1997 and
reclassification of financial statements of financial statements for earlier
periods will be required for comparative purposes.
To date, the Company has not engaged in transactions which would result in any
significant difference between its reported net loss and comprehensive net loss
as defined in the statement.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 provides
authoritative guidance on when internal-use software costs should be capitalized
and when these costs should be expensed as incurred.
Effective January 1, 1998, the Company adopted SOP 98-1. Costs capitalized by
the Company during the year ended December 31, 1998 in accordance with these
guidelines were not significant.
Effective December 31, 1998, the Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131"). SFAS 131
superseded SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise. SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. SFAS 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The adoption of SFAS 131 did not affect results of
operations or financial position. To date, the Company has operated in one
business segment only.
Effective December 31, 1998, the Company adopted the provisions of SFAS No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits ("SFAS
132"). SFAS 132 supersedes the disclosure requirements in SFAS No. 87,
Employers' Accounting for Pensions, and SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions. The overall objective of SFAS 132
is to improve and standardize disclosures about pensions and other
post-retirement benefits and to make the required information more
understandable. The adoption of SFAS 132 did not affect results of operations or
financial position. The Company has not initiated benefit plans to date which
would require disclosure under the statement.
F-28
<PAGE>
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), which
is required to be adopted in years beginning after June 15, 1999. SFAS 133 will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings.
The Company has not yet determined what the effect of SFAS 133 will be on
earnings and the financial position of the Company, however it believes that it
has not to date engaged in significant transactions encompassed by the
statement.
Note 2. Intangible assets
Intangible assets consist of two licenses for the use of recycling technology
and a software license. One of the licenses (Benton Recycling System (BRS)) has
been purchased from an affiliated company which had purchased the license during
March 1997 from an individual who, concurrently with the purchase by the Company
in September 1997, became a director of the Company. The license grants the
Company the right to use patented technology for the recycling of waste concrete
for a fifteen year period. The Company paid an aggregate of DM 625,000 for the
license of which DM 250,000 was due to the affiliated company at December 31,
1997. This amount was paid to the affiliated company during 1998. During 1998,
the Company accrued DM 155,168 for continuing consulting services provided by
the director. This amount is included in accrued expenses - related parties at
December 31, 1998.
Additionally, a royalty of 6% of net sales derived from the licensed technology
is specified in the purchase contract. The BRS patents consists of a registered
process and a patent for the construction of the corresponding machines which
are based on the BRS technology. This patent has been filed for European and
international rights however, it has not yet been registered.
The license excludes Asia and the United States of America, however in these
areas the Company has a first right of refusal for purchase of the technology.
F-29
<PAGE>
During the year ended December 31, 1998, due to operational problems experienced
with the machine, the Company suspended payment of consulting fees to the
director and the director has threatened litigation to enforce performance under
the contract. Should the litigation begin, the Company intends to file a
counterclaim for breach of the license agreement. At December 31, 1998, the
Company has accrued the full amount due under the license agreement. The Company
believes that its rights under the license agreement have not been impaired and
that modifications to the equipment design will not be significant and may be
effected by a qualified design engineer other than the director.
The second license (UWAS license, which covers two patents no. EPO 383227 and
EPO 383229) has been purchased from an affiliated company which had purchased
the license during 1997 from an unaffiliated German corporation. A significant
shareholder of the unaffiliated corporation, concurrently with the purchase by
the Company in September 1997, became a director of the Company. The Company
paid an aggregate of DM 650,000 for the license of which DM 250,000 was due to
the affiliated company at December 31, 1998. The process patents for recycling
metal dust and other materials into solids were registered during May 1993 and
May 1992. The license expires with the expiration of the patent which, according
to German law normally expires 20 years after registration.
The amortization for the licenses has been calculated on basis of useful lives
of 10 years for the process licenses and 2 years for the software license which
the Company has determined to be appropriate amortization periods for the
licenses using the straight line method. The total amortization for the years
ended December 31, 1998 and 1997 amounted to DM 158,958 and DM72,916,
respectively.
Note 3. Income taxes.
At December 31, 1998 the Company had approximately DM 1,700,000 of unused net
operating loss deductions in Germany that may be carried forward indefinitely.
A valuation allowance of DM 500,000 was provided at December 31, 1998 for net
operating loss carryforwards which more likely than not will not be utilized in
the foreseeable future.
F-30
<PAGE>
Note 4. Commitments and contingencies
The Company occupies its administrative offices pursuant to a short term lease
with TES, an affiliated company. Rent expense in 1998 and 1997 was DM 62,488 and
DM 7,200, respectively.
The Company has entered into employment contract with its general manager of
ENTECS GmbH which provides for an annual salary of DM 51,000 per year through
June 1999 and provides for a management bonus of 5% of pre tax profits of the
subsidiary.
Note 5. Related party transactions
The Company's president and major shareholder is president and a shareholder of
TES, Inc., a Colorado corporation formed in June 1994. TES, Inc. paid a deposit
of DM 250,000 and additional payments of DM 86,250 for the rights to use the
concrete recycling system and subsequently transferred the rights to the Company
in exchange for a short term note. During 1998 the note was paid in full.
Additionally, the Company made advances to TES aggregating DM 370,200 during the
year ended December 31, 1998. The advances bear interest at 6% per annum and are
due after ten years.
Additionally, during 1997, the Company received working capital advances from
TES of DM 50,000 and TES paid DM 53,763 of costs associated with the Company's
capital raising activities. The working capital advance bears interest at 8% per
annum and was repaid DM 23,000 in 1997 and DM 27,000 was repaid in January 1998.
The net balance of working capital advances, accrued interest and payment of the
Company's costs amounted less payments by TES of costs associated with the BRS
license in 1997 comprises the balance of amounts due affiliated company included
in the accompanying balance sheet of DM 288,669.
During the year ended December 31, 1997, the Company incurred costs associated
with its organization and financing activities amounting to DM 87,500. The costs
are for services provided by two of the Company's directors and significant
shareholders pursuant to contractual arrangements. This amount in included in
general and administrative costs - related parties and amounts due to related
parties in the foregoing financial statements.
Additionally, in 1998 and 1997, a significant shareholder and director received
DM 146,525 and DM 48,486, respectively in commissions related to the sale of the
Company's securities. This amount has been included in offering expenses in the
accompanying statement of stockholders' equity.
F-31
<PAGE>
The Company's president who is a director and significant shareholder receives a
monthly salary of DM 8,000 of which DM 57,600 was unpaid as of December 31,
1998. This amount is included in accrued expenses - related parties in the
accompanying balance sheet.
Note 6. Stockholders' equity
During the periods covered by these financial statements the Company issued
securities in reliance upon an exemption from registration with the Securities
and Exchange Commission. Although the Company believes that the sales did not
involve a public offering and that it did comply with the exemptions from
registration, it could be liable for rescission of said sales if such exemption
was found not to apply. The Company has not received a request for rescission of
shares nor does it believe that it is probable that its shareholders would
pursue rescission nor prevail if such action were undertaken
At inception, the Company issued an aggregate of 1,090,000 shares of its common
stock to five German citizens for services provided in connection with the
formation of the Company valued at DM 3,685.
During July and August 1997, the Company issued an aggregate of 9,000 shares of
its common stock to two German citizens for services provided to the Company.
The shares were issued at DM 12.54 per share which is considered to be their
fair value based on the contemporaneous sale of the Company's shares for cash.
During June 1997, the Company commenced a private sale of its common stock to a
limited group of investors in Germany. The Company sold 109,154 shares of its
common stock for gross proceeds of DM 1,307,448 and incurred direct expenses of
the offering amounting to DM 422,759. The shares were offered at a price of
$7.00 US per share. During 1998 the Company continued the private sale of its
common stock and sold an additional 257,028 shares for gross proceeds of DM
3,078,346. Certain shares of the private offering were purchased by a German
stock brokerage firm at a discounted price net of the brokers agreed upon 17%
sales commission. The discount amounted to DM 91,813 and has been accounted for
as an additional expense of the offering. Direct expenses related to the 1998
stock sales amounted to DM 570,601 including the discount described above.
F-32
<PAGE>
<TABLE>
<CAPTION>
Environmental Technologies and Software Solutions, Inc.
A Development Stage Company
Consolidated Balance Sheet
March 31, 1999
ASSETS
DM US $
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................................ 1,226,663 730,157
Accounts receivable .............................................................. 48,315 28,759
Inventory ........................................................................ 120,000 71,429
Prepaid expenses ................................................................. 47,010 27,982
---------- ----------
Total current assets ......................................................... 1,441,988 858,326
Property and equipment, at cost, net of
accumulated depreciation of DM 24,758 ............................................ 522,028 310,731
Due from affiliated company ........................................................ 645,659 384,320
License rights ..................................................................... 1,081,251 643,602
---------- ----------
3,690,926 2,196,979
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................. 324,254 193,007
Due to related parties ........................................................... 250,000 148,811
Accrued expenses ................................................................. 140,289 83,504
Accrued expenses - related parties ............................................... 66,850 39,792
---------- ----------
Total current liabilities .................................................... 781,393 465,114
Stockholders' equity:
Common stock, no par value,
50,000,000 shares authorized,
1,612,682 shares issued and outstanding ........................................... 4,999,545 2,975,920
Deficit accumulated during development stage ...................................... (2,090,012) (1,244,055)
---------- ----------
2,909,533 1,731,865
---------- ----------
3,690,926 2,196,979
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE>
<TABLE>
<CAPTION>
Environmental Technologies and Software Solutions, Inc.
A Development Stage Company
Consolidated Statements of Operations
Three Months Ended March 31, 1999
(Unaudited)
Inception
to
March 31,
1998 1999 1999 1999
DM DM US $ DM
---- ---- ---- ----------
<S> <C> <C> <C>
Revenues ................................................... -- 90,291 53,745 159,660
Other costs and expenses:
Cost of goods and services ............................... -- 205,989 122,613 219,993
General and administrative ............................... 225,004 33,223 19,776 1,520,696
General and administrative - related parties ............. 87,500 217,656 129,557 522,812
---------- ---------- ---------- ----------
(Loss) from operations ..................................... (312,504) (366,577) (218,201) (2,103,841)
Other income and (expense):
Interest income .......................................... -- 1,124 669 12,973
Interest income - related parties ........................ -- 7,515 4,473 15,030
Interest expense - related parties ....................... -- (1,682) (1,001) (3,364)
Interest expense ......................................... -- (6,803) (4,049) (9,081)
---------- ---------- ---------- ----------
-- 154 92 15,558
(Loss) before income taxes ................................. (312,504) (366,423) (218,109) (2,088,283)
Provision for income taxes ................................. -- (257) (153) (1,729)
---------- ---------- ---------- ----------
Net (loss) ................................................. (312,504) (366,680) (218,262) (2,090,012)
========== ========== ========== ==========
Earnings (loss) per share:
Basic and diluted (loss) per share ........................ (0.25) (0.23) (0.14) (1.21)
========== ========== ========== ==========
Weighted average shares outstanding ....................... 1,259,532 1,563,515 1,563,515 1,726,663
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<PAGE>
<TABLE>
<CAPTION>
Environmental Technologies and Software Solutions, Inc.
A Development Stage Company
Consolidated Statement of Cash Flows
Three Months Ended March 31, 1999
(Unaudited)
Inception
to
September 30,
1998 1999 1999 1999
DM DM US $ DM
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Net (loss) ..................................................... (312,504) (366,680) (218,262) (2,090,012)
Adjustments to reconcile net income (loss) to net
cash (used in) operating activities:
Depreciation and amortization .................................. 31,876 42,959 25,571 299,591
Interest added to affiliate loan ............................ -- -- -- 83,213
Loss on transfer of machinery ............................... -- -- -- 16,556
Expenses incurred by affiliate .............................. -- -- -- 53,763
Expenses added to related party loans ....................... -- -- -- 87,500
Common stock issued for services ............................ -- -- -- 116,581
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ................. (37,208) (46,085) (27,432) (48,315)
(Increase) decrease in prepaid expenses .................... -- 9,142 5,442 (47,000)
(Increase) decrease in deposits ............................ 5,400 -- -- --
Increase (decrease) in accounts payable and
accrued expenses ....................................... 12,019 106,188 63,207 531,393
---------- ---------- ---------- ----------
Total adjustments ....................................... 12,087 112,204 66,788 1,093,272
---------- ---------- ---------- ----------
Net cash (used in) operating activities ...................... (300,417) (254,476) (151,474) (996,740)
---------- ---------- ---------- ----------
Cash flows from investing activities:
Purchase of license rights .................................. -- -- -- 27,000
Advance to affiliated company ............................... -- (356,990) (212,494) (727,190)
Purchase of fixed assets .................................... (53,435) 21,330 12,696 (684,426)
---------- ---------- ---------- ----------
Net cash provided by (used in) investing activities ............ (53,435) (335,660) (199,798) (2,005,366)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from loan from affiliate ........................... -- -- -- 27,000
Repayments to affiliated companies .......................... (147,017) -- -- (418,695)
Repayments to related parties ............................... (100,000) 25,000 14,881 (262,500)
Proceeds from sale of common stock .......................... 820,696 1,398,719 832,571 4,882,964
---------- ---------- ---------- ----------
Net cash provided by
financing activities ........................................ 573,679 1,423,719 847,452 4,228,769
---------- ---------- ---------- ----------
Increase (decrease) in cash .................................... 219,827 833,583 496,180 1,226,663
Cash and cash equivalents,
beginning of period ........................................... 226,220 393,080 233,976 --
---------- ---------- ---------- ----------
Cash and cash equivalents,
end of period ................................................. 446,047 1,226,663 730,157 1,226,663
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-35
<PAGE>
Environmental Technologies and Software Solutions, Inc.
Notes to Unaudited Financial Statements
March 31, 1999
Basis of presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions incorporated in Regulation 10-SB of the Securities and
Exchange Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments and accruals) considered necessary for a fair
presentation have been included.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year. The accompanying
financial statements should be read in conjunction with the Company's financial
statements for the year ended December 31, 1998.
Basic loss per share was computed using the weighted average number of common
shares outstanding.
During the period ended March 31, 1999, the Company loaned DM356,990 to a
company controlled by the Company's principal shareholder. The loans are due in
2009 and bear interest at 6% per annum.
During the period ended March 31, 1999 the Company continued the private
offering of its common stock to a limited group of investors in Germany. The
Company sold 147,500 shares of its common stock for gross proceeds of DM
1,391,219 and incurred direct expenses of the offering amounting to DM350,329.
The shares were offered at a price of $7.00 US per share, however, 145,300 of
the shares were purchased at $5.81 per share or a discount of 17% by a German
investment firm. The discount has been included as a direct cost of the
offering.
F-36
<PAGE>
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 10 of TES' Articles of incorporation provides for the
indemnification of TES' officers and directors. Further, the officers and
directors are indemnified under various provisions of the Colorado Business Act,
which provides for the indemnification of officers and directors and other
persons against expenses, judgments, fines and amounts paid in settlement in
connection with threatened, pending or completed suits or proceedings against
such persons by reason of serving or having served as officers, directors or in
other capacities, except in relation to matters with respect to which such
persons shall be determined not to have acted in good faith and in the best
interests of TES. With respect to matters as to which TES' officers and
directors and others are determined to be liable for misconduct or negligence,
including gross negligence in the performance of their duties to TES, Colorado
law provides for indemnification only to the extent that the court in which the
action or suit is brought determines that such person is fairly and reasonably
entitled to indemnification for which the court deems proper.
In accordance with the laws of the State of Colorado, TES' bylaws authorize
indemnification of a director, officer, employee, or agent of TES for expenses
incurred in connection with any action, suit, or proceeding to which he or she
is named a party by reason of his or her having acted or served in such
capacity, except for liabilities arising from his or her own misconduct or
negligence in performance of his or her duty. In addition, even a director
officer, employee, or agent of TES who was found liable for misconduct or
negligence in the performance of his or her duty may obtain such indemnification
if, in view of all the circumstances in the case, a court of competent
jurisdiction determines such person is fairly and reasonably entitled to
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling TES by
the these provisions, TES has been informed that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933, and is therefore
unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following is a complete list of Exhibits filed as part of
this registration statement and which are incorporated in this document.
Exhibit
No. Document
- ------- --------
3.1 Articles of Incorporation(1)
3.2 Bylaws(1)
4.1 Form of Stock Certificate(1)
4.2 Form of Convertible Debenture(1)
4.3 Stock Option Plan(1)
5.1 Opinion of Schlueter & Associates, P.C. as to legality of
TES common stock(3)
II-1
<PAGE>
5.2 Opinion of Rossi & Maricle, P.C. as to legality of ENTECS
common stock(3)
8.1 Opinion of Schlueter & Associates, P.C. as to the tax
consequences of the proposed merger under the tax laws of
the United States(3)
10.1 Employment Contract of Gerd Behrens dated May 19, 1992(1)
10.2 Lease for Impler Strasse office(1)
10.3 Lease for building in Landsberg am Lech(1)
10.4 Lease for building #2 (Halle) at Landsberg am Lech(1)
10.5 Agreement dated February 2, 1998 between TES Inc. and
T-Cycle GmbH(1)
10.6 Consulting Agreement dated October 28, 1996 between TES
and Karsten Behrens(2)
10.7 Consulting Agreement between TES and Yvonne Marquard(2)
10.8 Employment Agreement dated July 1, 1997 between TES and
Gerd Behrens(2)
10.9 Employment Agreement dated March 9, 1998 between ENTECS
Umwelttechnik GmbH and Dieter Gastinger(2)
10.10 Employment Agreement dated March 8, 1998 between ENTECS
Software & Umweltmanagement GmbH And Frank Behrens(2)
10.11 Employment Agreement dated July 1, 1998 between ENTECS and
Gerd Behrens(2)
10.12 Consulting Agreement dated June 9, 1997 between ENTECS and
Yvonne Marquard(2)
10.13 License Agreement for BRS-Compact system between Juergen
Bozenhardt and ENTECS(2)
10.14 Patent License Agreement dated December 18, 1996 between
UWAS Umweltservice GmbH and Data Consult(2)
10.15 Transfer Agreement of Metal Dust Patents dated May 15,
1997 between Data Consult and ENTECS(2)
23.1 Consent of James E. Scheifley & Associates, P.C. with
respect to TES(3)
23.2 Consent of James E. Scheifley & Associates, P.C. with
respect to ENTECS(3)
23.3 Consens of Schlueter & Associates, P.C. (included with
Exhibit 5.1)(3)
23.4 Consent of Rossi & Maricle, P.C. (included with Exhibit
5.2)(3)
23.5 Consent of Blake Street Securities, LLC(2)
23.6 Consent of Schlueter & Associates, P.C. (included with
Exhibit 8.1) (3)
99.1 Consent of Dieter Gastinger(2)
- -----------------------
(1) Incorporated by reference from the Registrant's registration statement on
Form 10-SB (SEC File No. 0-23779) previously filed with the Commission
(2) Previously filed
(3) Filed herewith
(b) Financial Statement Schedules. Schedules have been omitted since the
required information is not present, or not present in amounts sufficient to
require submission of the schedule, or because the information is included in
the financial statements or notes thereto.
ITEM 22. UNDERTAKINGS.
(a) Rule 512
The undersigned Registrant undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is part of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for the
other Items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed under the
immediately preceding paragraph, or (ii) that purports to meet the requirements
of section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering.
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Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the (Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant by the indicated provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(b) The undersigned Registrant undertakes to respond to requests for
information that is incorporated by reference into the prospectus under Items 4,
10(b), 11, or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(c) The undersigned Registrant undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the State of Colorado
on the 23rd of June, 1999.
TECHNICAL ENVIRONMENT SOLUTIONS, INC.
(Registrant)
By: /s/ Gerd Behrens
--------------------------------------
Gerd Behrens, President
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the persons in the capacities and on
the dates indicated.
Date Title Signature
- ---- ----- ---------
June 23, 1999 President and director /s/ Gerd Behrens
(Principal Executive Officer) -------------------------
Gerd Behrens
June 23, 1999 Treasurer and director /s/ Jutta Behrens
(Principal Financial and --------------------------
Accounting Officer) Jutta Behrens
June 23, 1999 Secretary and director /s/ Frank Behrens
--------------------------
Frank Behrens
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
(Reverse Triangular Merger)
among
ENVIRONMENTAL TECHNOLOGIES AND SOFTWARE SOLUTIONS, INC.
TECHNICAL ENVIRONMENTAL SOLUTIONS, INC.
and
TES ACQUISITION CORP.
<PAGE>
Section 2.01 The Merger
Section 2.02 Effects of the Merger
Section 2.03 Certificate of Incorporation and Bylaws
Section 2.04 Directors
Section 2.05 Conversion
Section 2.06 Tax Consequences
ARTICLE III
EXCHANGE OF SHARES
Section 3.01 Exchange of Certificates
Section 3.02 Dissenting Shares
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ENTECS
Section 4.01 Organization
Section 4.02 Capitalization
Section 4.03 Authority Relative to this Agreement
Section 4.04 Consents and Approvals; No Violations
Section 4.05 Reports
Section 4.06 Absence of Certain Changes
Section 4.07 No Undisclosed Liabilities
Section 4.08 Information in Disclosure Documents
and Registration Statement
Section 4.09 No Default
Section 4.10 Litigation
Section 4.11 Compliance with Applicable Law
Section 4.12 Taxes
Section 4.13 ERISA
Section 4.14 Intellectual Property
Section 4.15 Change in Control
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
TES AND ACQUISITION CORP.
Section 5.01 Organization
Section 5.02 Capitalization
Section 5.03 Authority Relative to this Agreement
Section 5.04 Consents and Approvals; No Violations
Section 5.05 Reports
Section 5.06 Absence of Certain Changes
Section 5.07 No Undisclosed Liabilities
Section 5.08 Information in Disclosure Documents and Registration Statement
Section 5.09 No Default
Section 5.10 Litigation
Section 5.11 Compliance with Applicable Law
Section 5.12 Taxes
Section 5.13 ERISA
Section 5.14 Intellectual Property
Section 5.15 Interim Operations of Acquisition Corp.
Section 5.16 Change in Control
ARTICLE VI
COVENANTS
Section 6.01 Covenants of ENTECS and TES
Section 6.02 Additional Covenants of ENTECS
Section 6.03 No Solicitation
Section 6.04 Access to Information
Section 6.05 Best Efforts
Section 6.06 Stockholders Meetings
Section 6.07 Letters of Accountants
Section 6.08 Affiliates
Section 6.09 Indemnification and Insurance
Section 6.10 Certain Benefits
Section 6.11 Brokers or Finders
ARTICLE VII
CONDITIONS
Section 7.01 Conditions to Each Party's Obligation to Effect the Merger
Section 7.02 Conditions of Obligations of TES and Acquisition Corp.
Section 7.03 Conditions of Obligations of ENTECS
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.01 Termination
Section 8.02 Effect of Termination
Section 8.03 Amendment
Section 8.04 Extension; Waiver
ARTICLE IX
POST CLOSING COVENANTS
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ARTICLE X
MISCELLANEOUS
Section 10.01 Non-survival of Representations and Warranties
Section 10.02 Notices
Section 10.03 Descriptive Headings
Section 10.04 Counterparts
Section 10.05 Entire Agreement; Assignment
Section 10.06 Governing Law
Section 10.07 Specific Performance
Section 10.08 Expenses
Section 10.09 Publicity
Section 10.10 Parties in Interest
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<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 22, 1999, by and among
Environmental Technologies and Software Solutions, Inc., a Colorado corporation
("ENTECS"), Technical Environment Solutions, Inc. a Colorado corporation
("TES"), and TES Acquisition Corp., a Colorado corporation and a wholly owned
subsidiary of TES ("Acquisition Corp.").
ARTICLE I
DEFINITIONS
"Code". Shall mean the Internal Revenue Code of 1986, as amended.
ARTICLE II
THE MERGER
Section 2.01 The Merger. Upon the terms and subject to the conditions
hereof, as promptly as practicable following the satisfaction or waiver of the
conditions set forth in Article VI hereof, but in no event later than two days
thereafter, unless the parties shall otherwise agree, Articles of Merger (the
"Articles of Merger") providing for the merger of Acquisition Corp. with and
into ENTECS (the "Merger") shall be duly prepared, executed and filed by ENTECS,
as the surviving corporatio (sometimes the "Surviving Corporation"), in
accordance with the relevant provisions of the Colorado Business Corporation
Act(the "Colorado Act") and the parties hereto shall take any other actions
required by law to make the Merger effective.
Following the Merger, ENTECS, with all its purposes, objects, rights,
privileges, powers and franchises, shall continue, and Acquisition Corp. shall
cease to exist. The time the Merger becomes effective is referred to herein as
the "Effective Time" and the date on which the Effective Time occurs is referred
to as the "Closing Date." Prior to the filing of the Articles of Merger, a
closing shall take place at the offices of Schlueter & Associates, P.C., 1050
Seventeenth Street, Suite 1700, Denver, Colorado 80202.
Section 2.02 Effects of the Merger. The Merger shall have the effects set
forth in the Colorado Act. As of the Effective Time, the Surviving Corporation
shall be a wholly owned subsidiary of TES.
Section 2.03 Certificate of Incorporation and Bylaws. The Certificate of
Incorporation of the Surviving Corporation shall be as set forth in Exhibit
2.03(a). The Bylaws of the Surviving Corporation shall be as set forth in
Exhibit 2.03(b).
Section 2.04 Directors. The directors and officers of Acquisition Corp.
immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation until their successors shall have been
duly elected or appointed and shall have qualified or until their earlier death,
resignation or removal in accordance with the Certificate of Incorporation and
Bylaws of the Surviving Corporation.
Section 2.05 Conversion. At the Effective Time, by virtue of the Merger and
without any action on the part of TES, Acquisition Corp., ENTECS or the holder
of any of the following securities:
(a) Subject to Section 2.01(e), each issued and outstanding share of
common stock, no par value, of ENTECS (an "ENTECS Share") (other than shares to
be cancelled in accordance with Section 2.05(b) hereof) shall be converted into
the right to receive seven (7.0) fully paid and nonassessable shares of common
stock, no par value, of TES (the "TES Shares").
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(b) Each ENTECS Share that is held in the treasury of ENTECS and each
ENTECS Share held by TES or any subsidiary of TES shall be cancelled and retired
and cease to exist.
(c) Each issued and outstanding share of the capital stock of
Acquisition Corp. shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
Section 2.06 Tax Consequences. It is intended that the Merger shall
constitute a reorganization within the meaning of Section 368(a) of the Code and
that this Agreement shall constitute a "plan of reorganization" for the purposes
of Section 368 of the Code.
ARTICLE III
EXCHANGE OF SHARES
Section 3.01 Exchange of Certificates. a. At the Effective Time, TES shall
deposit with Corporate Stock Transfer, Inc. (the "Exchange Agent"), in trust for
the benefit of the holders of ENTECS Shares for exchange in accordance with this
Article II, certificates representing the aggregate number of TES Shares
issuable pursuant to Section 2.06 in exchange for ENTECS Shares.
(b) Promptly after the Effective Time, the Exchange Agent shall mail
to each holder of record of a certificate or certificates which immediately
prior to the Effective Time represented ENTECS Shares (the "Certificates") a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as TES and ENTECS may reasonably specify) and instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing TES Shares and cash in lieu of fractional shares, if applicable.
Upon surrender of a Certificate to the Exchange Agent, together with such letter
of transmittal, duly executed, the holder of such Certificate shall be entitled
to receive in exchange therefor the certificates representing whole TES Shares
and cash in lieu of fractional shares, if applicable, which such holder has the
right to receive pursuant to the provisions of this Agreement, and the
Certificate so surrendered shall forthwith be cancelled. If a certificate
representing TES Shares is to be issued in a name other than that in which the
Certificate surrendered in exchange therefore is registered, it shall be a
condition to the issuance that such Certificate be properly endorsed (or
accompanied by an appropriate instrument of transfer) and accompanied by
evidence that any applicable stock transfer taxes have been paid or provided
for. Until surrendered as contemplated by this Section, each Certificate shall
be deemed at any time after the Effective Time to represent only the right to
receive the consideration specified herein; provided that in the event any
holder exercises his appraisal rights, if any, under Section 7-113-102 of the
Colorado Act and becomes entitled to receive the appraised value of his shares
instead of the TES Shares into which such shares shall have been converted, TES
shall pay suc holder the appraised value of such shares, together with any other
sums which it may owe him as a result of the appraisal proceeding, upon his
surrender to the Exchange Agent of the certificate or certificates which
immediately prior to the Effective Time represented the shares so appraised, and
the Exchange Agent shall not thereafter be required to deliver to such holder
any TES Shares.
Any certificates of TES Shares which remain unclaimed by the holders
of Certificates for twelve months after the Effective Time shall be returned by
the Exchange Agent to TES, and any holders of Certificates who have not
theretofore complied with Section 3.01 shall thereafter receive delivery
(subject to abandoned property, escheat or other similar laws) of the TES Shares
issuable upon the conversion of their Certificates and any dividends payable on
such Shares, without any interest thereon only after delivering their
Certificates and letters of transmittal to TES, and otherwise complying with
Section 2.01(b).
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<PAGE>
(c) No dividends or other distributions declared or made after the
Effective Time with respect to TES Shares with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to the TES Shares represented thereby and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 3.01(e) until the
holder of record of such Certificate shall surrender such Certificate. Following
surrender of any such Certificate, there shall be paid to the record holder of
the certificates representing whole TES Shares issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional TES Share to which such holder is entitled
pursuant to Section 3.01(e) and the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such whole TES Shares and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to surrender and a payment date subsequent to surrender payable with
respect to such whole TES Shares.
(d) Following the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of ENTECS Shares that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be cancelled and exchanged as
provided in this Article III.
(e) No certificate or scrip representing fractional TES Shares shall
be issued upon the surrender for exchange of Certificates, and such fractional
share interests will not entitle the owner thereof to vote or to any rights of a
stockholder of TES In lieu of any such fractional share, TES shall pay to each
former stockholder of ENTECS who otherwise would be entitled to receive a
fraction of a TES Share an amount in cash determined by multiplying (i) the
amount of $4.00 by (ii) the fraction of a TES Share to which such holder would
otherwise be entitled. As promptly as practicable after any determination of the
amount of cash to be paid to holders of ENTECS Shares in lieu of any fractional
share interests, TES shall deposit funds sufficient to pay such amount with the
Exchange Agent and the Exchange Agent shall pay such amounts to such holders of
ENTECS Shares in accordance with the terms of this Article III.
Section 3.02 Dissenting Shares. If any holder of Shares shall be entitled
to be paid the "fair value" of his Shares, as provided in Section 7-113-102 of
the Colorado Act, ENTECS shall give TES notice thereof and TES shall have the
right to participate in all negotiations and proceedings with respect to any
such demands. ENTECS shall not, except with the prior written consent of TES,
voluntarily make any payment with respect to, or settle or offer to settle, any
such demand for payment.
Section 3.03 Adjustments. If, between the date of this Agreement and the
Effective Time, the Shares shall have been exchanged into a different number of
shares or a different class by reason of any reclassification, recapitalization,
split-up, combination, exchange of shares or readjustment, or a stock dividend
thereon shall be declared with a record date within such period, the amount into
which the Shares will be converted in the Merger shall be correspondingly
adjusted.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ENTECS
ENTECS represents and warrants to TES and Acquisition Corp. as follows:
Section 4.01 Organization. ENTECS is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
ENTECS is duly qualified or licensed and in good standing to do business in each
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<PAGE>
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification or licensing necessary,
except in such jurisdictions where the failure to be so duly qualified or
licensed and in good standing would not in the aggregate have a material adverse
effect on the business, operations or financial condition of ENTECS taken as a
whole. ENTECS has heretofore delivered to TES accurate and complete copies of
the Certificate of Incorporation and Bylaws, as currently in effect, of ENTECS
and each of its subsidiaries.
Section 4.02 Capitalization. (a) The authorized capital stock of ENTECS
consists of 50,000,000 ENTECS Shares of which, as of December 31, 1998,
1,465,182 were issued and outstanding. All the issued and outstanding ENTECS
Shares are validly issued, fully paid and nonassessable and free of preemptive
rights. Since December 31, 1998, ENTECS has not issued any shares of its capital
stock.
Section 4.02(a) of the disclosure schedule previously delivered by TES to
ENTECS (the "TES Disclosure Schedule") sets forth each other share of capital
stock (or security substantially equivalent to capital stock) of TES issued or
outstanding and each other subscription, option, warrant, call, right,
convertible security or other agreement or commitment of any character
obligating TES to issue, transfer or sell any security, and, as to each such
security, agreement or commitment, the average conversion or exercise price
thereof, a range of the conversion or exercise prices and the effects of the
Merger and the other transactions contemplated hereby on such security,
agreement or commitment, including pursuant to antidilution provisions thereof.
All TES Shares which are to be issued pursuant to the Merger or the other
transactions contemplated hereby, will be, when issued in accordance with the
respective terms thereof, duly authorized, validly issued, fully paid and
nonassessable and free of any preemptive rights in respect thereto. Since
December 31, 1998, TES has not issued any shares of its capital stock (or
securities substantially equivalent to capital stock).
Except as set forth above or in Section 4.02(a) of ENTECS disclosure
schedule previously delivered by ENTECS to TES (the "ENTECS Disclosure
Schedule"), or as contemplated hereby, there are not now, and at the Effective
Time there will not be, any shares of capital stock (or securities substantially
equivalent to capital stock) of ENTECS issued or outstanding or any
subscriptions, options, warrants, calls, rights, convertible securities or other
agreements or commitments of any character obligatin ENTECS to issue, transfer
or sell any of its securities.
(b) Section 4.02 of ENTECS Disclosure Schedule sets forth the name and
jurisdiction of incorporation of each subsidiary of ENTECS. Unless noted
otherwise, each subsidiary of ENTECS is wholly owned. Except as disclosed in
Section 4.02 of ENTECS Disclosure Schedule, ENTECS does not own, directly or
indirectly, any capital stock or other equity securities of any corporation or
have any direct or indirect equity or ownership interest in any business. All of
the outstanding shares of capital stock of each of ENTECS' subsidiaries have
been validly issued and are fully paid and nonassessable and, except as set
forth in Section 4.02 of ENTECS Disclosure Schedule, are owned by either ENTECS
or another of its subsidiaries free and clear of all liens, charges, claims or
encumbrances. There are not now, and at the Effective Time there will not be,
any outstanding subscriptions, options, warrants, calls, rights, convertible
securities or other agreements or commitments of any character relating to the
issued or unissued capital stock or other securities of any of ENTECS'
subsidiaries, or otherwise obligating ENTECS or any such subsidiary to issue,
transfer or sell any such securities. There are not now, and at the Effective
Time there will not be, any voting trusts or other agreements or understandings
to which ENTECS or any of its subsidiaries is a party or is bound with respect
to the voting of the capital stock of ENTECS or any of ENTECS' subsidiaries.
Except as set forth above or in Section 4.02 of ENTECS Disclosure Schedule,
there are no persons or entities (other than subsidiaries of ENTECS) in which
ENTECS or any of its subsidiaries has any voting rights or equity interests.
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Section 4.03 Authority Relative to This Agreement. ENTECS has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of ENTECS and no
other corporate proceedings on the part of ENTECS are necessary to authorize
this Agreement or to consummate the transactions so contemplated (other than,
with respect to the Merger, the approval and adoption of this Agreement by the
holders of a majority of the outstanding ENTECS Shares). This Agreement has been
duly and validly executed and delivered by ENTECS and constitutes a valid and
binding agreement of ENTECS, enforceable against ENTECS in accordance with its
terms.
Section 4.04 Consents and Approvals; No Violations. Except for applicable
requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), the
Securities Act of 1933 (the "Securities Act"), state Blue Sky laws, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the filing and recordation of Articles of Merger, as required by the
Colorado Act, no filing with, and no permit, authorization, consent or approval
of, any public body or authority including courts of competent jurisdiction,
domestic or foreign ("Governmental Entity"), is necessary for the consummation
by ENTECS of the transactions contemplated by this Agreement. Except as set
forth in Section 4.04 of ENTECS Disclosure Schedule, neither the execution and
delivery of this Agreement by ENTECS nor the consummation by ENTECS of the
transactions contemplated hereby nor compliance by ENTECS with any of the
provisions hereof will (i) conflict with or result in any breach of any
provision of the Certificate of Incorporation or Bylaws of ENTECS or any of its
subsidiaries, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or obligation to which ENTECS or any of
its subsidiaries is a party or by which any of them or any of their properties
or assets may be bound or (iii) violate any order, writ, injunction, decree,
statute, treaty, rule or regulation applicable to ENTECS, any of its
subsidiaries or any of their properties or assets, except in the case of (ii) or
(iii) for violations, breaches or defaults which are not in the aggregate
material to the business, operations or financial condition of ENTECS and its
subsidiaries taken as a whole and which will not prevent or delay the
consummation of the transactions contemplated hereby.
Section 4.05 Reports. As of the Effective Date, ENTECS has not been
required to file any reports with the U.S. Securities and Exchange Commission.
Section 4.06 Absence of Certain Changes. Except as set forth in Section
4.06 of ENTECS Disclosure Schedule, since December 31, 1998, neither ENTECS nor
any of its subsidiaries has taken any of the actions set forth in Sections
6.01(b) to (h), suffered any adverse changes in its business, operations or
financial condition which are material to ENTECS and its subsidiaries taken as a
whole (other than changes generally affecting the industries in which ENTECS
operates, including changes du to actual or proposed changes in law or
regulation, or changes relating to the transactions contemplated by this
Agreement, including the change in control contemplated hereby) or entered into
any transaction, or conducted its business or operations, other than in the
ordinary and usual course of business and consistent with past practice and
other than in connection with ENTECS' exploration of alternatives leading to the
execution of this Agreement.
Section 4.07 No Undisclosed Liabilities. Except as and to the extent set
forth in Section 4.07 of ENTECS Disclosure Schedule, neither ENTECS nor any of
its subsidiaries had at December 31, 1998, any liabilities not reflected on a
consolidated balance sheet of ENTECS and its subsidiaries. Except as and to the
extent set forth in such Schedule, since December 31, 1998, neither ENTECS nor
any of its subsidiaries has incurred any liabilities material to the business,
operations or financia condition of ENTECS and its subsidiaries taken as a
whole, except liabilities incurred in the ordinary and usual course of business
and consistent with past practice and liabilities incurred in connection with
this Agreement.
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Section 4.08 Information in Disclosure Documents and Registration
Statement. None of the information supplied in writing by ENTECS for inclusion
or incorporation by reference in (i) the registration statement on Form S-4 to
be filed with the SEC by TES in connection with the issuance of TES Shares
pursuant to the transactions contemplated hereby (the "S-4") will, at the time
the S-4 is filed with the SEC and at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading and (ii) the joint proxy statement relating to
the meetings of ENTECS' and TES' stockholders to be held in connection with the
Merger (the "Proxy Statement") will, at the date mailed to stockholders and at
the times of the meetings of stockholders to be held in connection with the
Merger, contain any untrue statement of a material fact or omit to state an
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder, except
that no representation is made by ENTECS with respect to statements made therein
based on information supplied by TES or Acquisition Corp. in writing for
inclusion or incorporation by referenc in the Proxy Statement.
Section 4.09 No Default. Except as set forth in Section 4.09 of ENTECS
Disclosure Schedule, neither ENTECS nor any of its subsidiaries is in default or
violation (and no event has occurred which with notice or the lapse of time or
both would constitute a default or violation) of any term, condition or
provision of (i) its Certificate of Incorporation or its Bylaws, (ii) any note,
bond, mortgage, indenture, license, contract, agreement or other instrument or
obligation to which ENTECS or any of its subsidiaries is a party or by which
they or any of their properties or assets may be bound or (iii) any order, writ,
injunction, decree, statute, rule or regulation applicable to ENTECS or any of
its subsidiaries, which defaults or violations would, in the aggregate, have a
material adverse effect on the business, operations or financial condition of
ENTECS and its subsidiaries taken as a whole or which would prevent or delay the
consummation of the transactions contemplated hereby.
Section 4.10 Litigation. Except as disclosed in Section 4.10 of ENTECS
Disclosure Schedule, there is no action, suit, proceeding, review or, to the
best knowledge of ENTECS, investigation pending or, to the best knowledge of
ENTECS, threatened involving ENTECS or any of its subsidiaries, at law or in
equity, or before any Governmental Entity which in the aggregate are reasonably
likely to have a material adverse effect on the business, operations or
financial condition of ENTECS and its subsidiaries taken as a whole.
Section 4.11 Compliance with Applicable Law. ENTECS and its subsidiaries
hold all permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of their respective
businesses (the "ENTECS Permits"), except for failures to hold such ENTECS
Permits which would not, in the aggregate, have a material adverse effect on the
business, operations or financial condition of ENTECS and its subsidiaries taken
as a whole. ENTECS and its subsidiaries are in compliance with the terms of
ENTECS Permits, except where the failure so to comply would not have a material
adverse effect on the business, operations or financial condition of ENTECS and
its subsidiaries taken as a whole. The businesses of ENTECS and its subsidiaries
are not being conducted in violation of any applicable law, ordinance, rule,
regulation, decree or order of any Governmental Entity, except for violations
which in the aggregate do not and would not have a material adverse effect on
the business, operations or financial condition of ENTECS and its subsidiaries
taken as a whole.
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Section 4.12 Taxes. ENTECS and each of its subsidiaries has duly filed all
material federal, state, local and foreign tax returns required to be filed by
it, and ENTECS has duly paid, caused to be paid or made adequate provision for
the payment of all Taxes (as hereinafter defined) required to be paid in respect
of the periods covered by such returns and has made adequate provision for
payment of all Taxes anticipated to be payable in respect of all calendar
periods since the periods covered by such returns. The federal income tax
returns required to be filed by ENTECS have been examined by the IRS, or the
period during which any assessments may be made by the IRS has expired, for all
taxable years through 1998. All deficiencies and assessments asserted as a
result of such examinations or other audits by federal, state, local or foreign
taxing authorities have been paid, fully settled or adequately provided for in
the financial statements submitted by ENTECS to TES for the purposes of
inclusion in the S-4 to be filed with the SEC as a result of the transactions
contemplated herein, and no issue or claim has been asserted for Taxes by any
taxing authority for any prior period, the adverse determination of which would
result in a deficiency which would have a material adverse effect on the
business, financial condition or results of operations of ENTECS and its
subsidiaries taken as a whole, other than those heretofore paid or provided for.
Except as set forth in Section 4.12 of ENTECS Disclosure Schedule, there are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any federal or foreign income tax return of ENTECS or its
subsidiaries. For purposes of this Section 4.12 and Section 5.12 below, "Taxes"
shall mean all taxes, assessments and governmental charges imposed by any
federal, state, county, local or foreign government, taxing authority,
subdivision or agency thereof, including interest, penalties or additions
thereto.
Section 4.13 Employee Benefit Plans. (a) With respect to each employee
benefit plan, and any material bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, insurance or other plan, arrangement or understanding
(whether or not legally binding) (all the foregoing being herein called the
"ENTECS Benefit Plans"), maintained or contributed to by ENTECS or any of its
subsidiaries, ENTECS has made available to TES a true and correct copy of, where
applicable, (i) such ENTECS Benefit Plan, and (ii) each trust agreement and
group annuity contract, if any, relating to such ENTECS Benefit Plan.
(b) With respect to ENTECS Benefit Plans, in the aggregate, no event
has occurred, and to the knowledge of ENTECS or any of its subsidiaries there
exists no condition or set of circumstances which are reasonably likely to occur
in connection with which ENTECS or any of its subsidiaries would be subject to
any liability, that would have a material adverse effect on ENTECS and its
subsidiaries, taken as a whole (except liability for benefits claims and funding
obligations payable in the ordinary course), under any applicable law.
(c) Except as set forth in Section 4.13 of ENTECS Disclosure Schedule,
with respect to ENTECS Benefit Plans, in the aggregate, there are no funded
benefit obligations for which contributions have not been made or properly
accrued and there are no unfunded benefit obligations which have not been
accounted for by reserves, or otherwise properly footnoted in accordance with
generally accepted accounting principles, on the financial statements of ENTECS
or any of its subsidiaries, which obligations are reasonably likely to have a
material adverse effect on ENTECS and its subsidiaries, taken as a whole.
Section 4.14 Intellectual Property. Except as set forth in Section 4.14 of
ENTECS Disclosure Schedule, no claim is pending or, to the knowledge of ENTECS,
threatened to the effect that the present or past operations of ENTECS or any
subsidiary of ENTECS infringes upon or conflicts with the rights of others with
respect to any intellectual property (including, without limitation, patents,
patent rights, patent applications, trademarks, trademark applications, trade
names, copyrights, drawings, trade secrets, know-how and computer software)
necessary to permit ENTECS and its subsidiaries to conduct their businesses as
now operated (the "Intellectual Property") and no claim is pending or threatened
to the effect that any of the Intellectual Property is invalid or unenforceable.
No contract, agreement or understanding with any party exists which would impede
or prevent the continued use by ENTECS and its subsidiaries of the entire right,
title and interest of ENTECS and its subsidiaries in and to the Intellectual
Property.
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Section 4.15 Change in Control. Except as set forth in Section 4.16 of
ENTECS Disclosure Schedule, neither ENTECS nor any of its subsidiaries is a
party to any contract, agreement or understanding which contains a "change in
control" provision or "potential change in control" provision.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
TES AND ACQUISITION CORP.
TES and Acquisition Corp. represent and warrant to ENTECS as follows:
Section 5.01 Organization. Each of TES and its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Each of TES and its subsidiaries is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing would not in the aggregate have a material adverse effect on the
business, operations or financial condition of TES and its subsidiaries taken as
a whole. TES has heretofore delivered to ENTECS accurate and complete copies of
the TES' charter and bylaws, as currently in effect, of TES and each of its
subsidiaries.
Section 5.02 Capitalization. (a) The authorized capital stock of TES
consists of 20,000,000 TES Shares of which, as of December 31, 1998, 5,224,830
TES Shares were issued and outstanding. All the issued and outstanding TES
Shares are validly issued, fully paid and nonassessable and free of preemptive
rights.
Section 5.02(a) of the disclosure schedule previously delivered by TES to
ENTECS (the "TES Disclosure Schedule") sets forth each other share of capital
stock (or security substantially equivalent to capital stock) of TES issued or
outstanding and each other subscription, option, warrant, call, right,
convertible security or other agreement or commitment of any character
obligating TES to issue, transfer or sell any security, and, as to each such
security, agreement or commitment, the average conversion or exercise price
thereof, a range of the conversion or exercise prices and the effects of the
Merger and the other transactions contemplated hereby on such security,
agreement or commitment, including pursuant to antidilution provisions thereof.
All TES Shares which are to be issued pursuant to the Merger or the other
transactions contemplated hereby, will be, when issued in accordance with the
respective terms thereof, duly authorized, validly issued, fully paid and
nonassessable and free of any preemptive rights in respect thereto. Since
December 31, 1998, TES has not issued any shares of its capital stock (or
securities substantially equivalent to capital stock).
Except as set forth above or in Section 5.02(a) of the TES Disclosure
Schedule or as contemplated hereby, there are not now, and at the Effective Time
there will not be, any shares of capital stock (or securities substantially
equivalent to capital stock) of TES issued or outstanding or any subscriptions,
options, warrants, calls, rights, convertible securities or other agreements or
commitments of any character obligating TES to issue, transfer or sell any of
its securities.
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(b) Section 5.02 of the TES Disclosure Schedule sets forth the name
and jurisdiction of incorporation of each subsidiary of TES. Unless noted
otherwise, each subsidiary of TES is wholly owned. Except as disclosed in
Section 5.02 of the TES Disclosure Schedule, TES does not own, directly or
indirectly, any capital stock or other equity securities of any corporation or
have any direct or indirect equity or ownership interest in any business. All of
the outstanding shares of capital stoc of each of TES' subsidiaries have been
validly issued and are fully paid and nonassessable and, except as set forth in
Section 5.02 of the TES Disclosure Schedule, are owned either by TES or another
of its subsidiaries free and clear of all liens, charges, claims or
encumbrances. There are not now, and at the Effective Time there will not be,
any outstanding subscriptions, options, warrants, calls, rights, convertible
securities or other agreements or commitments of any character relating to the
issued o unissued capital stock or other securities of any of TES' subsidiaries,
or otherwise obligating TES or any such subsidiary to issue, transfer or sell
any such securities. There are not now, and at the Effective Time there will not
be, any voting trusts or other agreements or understandings to which TES or any
of its subsidiaries is a party or is bound with respect to the voting of the
capital stock of TES or any of TES' subsidiaries. Except as set forth above or
in Section 5.02 of the TES Disclosure Schedule, there are no persons or entities
(other than subsidiaries of TES) in which TES or any of its subsidiaries has any
voting rights or equity interests.
Section 5.03 Authority Relative to this Agreement. Each of TES and
Acquisition Corp. has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of TES and Acquisition Corp. and by TES as the sole
stockholder of Acquisition Corp. and no other corporate proceedings on the part
of TES or Acquisition Corp. are necessary to authorize this Agreement or to
consummate the transactions so contemplated (other than the affirmative vote of
a majority of the TES Shares present at the stockholders meeting to be held in
connection with this Agreement and entitled to vote). This Agreement has been
duly and validly executed and delivered by each of TES and Acquisition Corp. and
constitutes a valid and binding agreement of each of TES and Acquisition Corp.,
enforceable against each of TES and Acquisition Corp. in accordance with its
terms.
Section 5.04 Consents and Approvals; No Violations. Except for applicable
requirements of the Exchange Act, Securities Act, state Blue Sky laws, the HSR
Act, and the filing and recordation of Articles of Merger, as required by the
Colorado Act, no filing with, and no permit, authorization, consent or approval
of, any Governmental Entity, is necessary for the consummation by TES of the
transactions contemplated by this Agreement. Except as set forth in Section 5.04
of the TES Disclosure Schedule, neither the execution and delivery of this
Agreement by TES or Acquisition Corp. nor the consummation by TES or Acquisition
Corp. of the transactions contemplated hereby nor compliance by TES or
Acquisition Corp. with any of the provisions hereof will (i) conflict with or
result in any breach of any provision of the charter or bylaws of TES or any of
its subsidiaries or Acquisition Corp., (ii) result in a violation or breach of,
or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration) under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, agreement or other instrument or obligation to
which TES or any of its subsidiaries is a party or by which any of them or any
of their properties or assets may be bound or (iii) violate any order, writ,
injunction, decree, statute, treaty, rule or regulation applicable to TES, any
of its subsidiaries or any of their properties or assets, except in the case of
(ii) or (iii) for violations, breaches or defaults which are not in the
aggregate material to the business, operations or financial condition of TES and
its subsidiaries taken as a whole and which will not prevent or delay the
consummation of the transactions contemplated hereby.
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Section 5.05 Reports. TES has filed all required forms, reports and
documents with the SEC since February 11, 1998 (collectively, the "TES SEC
Reports"), all of which have complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act. Except as
set forth in Section 5.05 of the TES Disclosure Schedule, none of such TES SEC
Reports, including without limitation any financial statements or schedules
included therein, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading. Each of the balance sheets
(including the related notes) included in the TES SEC Reports fairly presents
the consolidated financial position of TES and its subsidiaries as of the
respective dates thereof, and the other related statements (including the
related notes) included therein fairly present the results of operations and the
changes in financial position of TES and its subsidiaries for the respective
fiscal years, except, in the case of interim financial statements, for year-end
audit adjustments, consisting only of normal recurring accruals. Each of the
financial statements (including the related notes) included in the TES SEC
Reports has been prepared in accordance with generally accepted accounting
principles consistently applied during the periods involved, except as otherwise
noted therein.
Section 5.06 Absence of Certain Changes. Except as set forth in the TES SEC
Reports or Section 5.06 of the TES Disclosure Schedule, since December 31, 1998
neither TES nor any of its subsidiaries has taken any of the actions set forth
in Sections 6.01(a) to (h), suffered any adverse changes in its business,
operations or financial condition which are material to TES and its subsidiaries
taken as a whole (other than changes generally affecting the industries in which
TES operates, including changes due to actual or proposed changes in law or
regulation) or entered into any transaction, or conducted its business or
operations, other than in the ordinary and usual course of business and
consistent with past practice.
Section 5.07 No Undisclosed Liabilities. Except as and to the extent set
forth in the TES SEC Reports, neither TES nor any of its subsidiaries had at
December 31, 1998 any liabilities required by generally accepted accounting
principles to be reflected on a consolidated balance sheet of TES and its
subsidiaries. Except as and to the extent set forth in such TES SEC Reports,
since December 31, 1998 neither TES nor any of its subsidiaries has incurred any
liabilities material to the business, operations or financial condition of TES
and its subsidiaries taken as a whole, except liabilities incurred in the
ordinary and usual course of business and consistent with past practice and
liabilities incurred in connection with this Agreement.
Section 5.08 Information in Disclosure Documents and Registration
Statement. None of the information supplied by TES or Acquisition Corp. in
writing for inclusion or incorporation by reference in the Proxy Statement will,
at the date mailed to stockholders and at the times of the meetings of
stockholders to be held in connection with the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Proxy Statement
will comply in all material respects with the provisions of the Exchange Act and
the rules and regulations thereunder, and the S-4 will comply in all material
respects with the provisions of the Securities Act and the rules and regulations
thereunder (including that it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make statements therein not misleading), except that no
representation is made by TES with respect to statements made therein based on
information supplied by ENTECS in writing for inclusion or incorporation by
reference in the Proxy Statement or the S-4.
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Section 5.09 No Default. Except as set forth in Section 5.09 of the TES
Disclosure Schedule, neither TES nor any of its subsidiaries is in default or
violation (and no event has occurred which with notice or the lapse of time or
both would constitute a default or violation) of any term, condition or
provision of (i) its charter or its bylaws, (ii) any note, bond, mortgage,
indenture, license, contract, agreement or other instrument or obligation to
which TES or any of its subsidiaries i a party or by which they or any of their
properties or assets may be bound or (iii) any order, writ, injunction, decree,
statute, rule or regulation applicable to TES or any of its subsidiaries, which
defaults or violations would, in the aggregate, have a material adverse effect
on the business, operations or financial condition of TES and its subsidiaries
taken as a whole or which would prevent or delay the consummation of the
transactions contemplated hereby.
Section 5.10 Litigation. Except as disclosed in the TES SEC Reports or in
Section 5.10 of the TES Disclosure Schedule, there is no action, suit,
proceeding, review or, to the best knowledge of TES or Acquisition Corp.,
investigation pending or, to the best knowledge of TES or Acquisition Corp.,
threatened involving TES or any of its subsidiaries, at law or in equity, or
before any Governmental Entity which in the aggregate are reasonably likely to
have a material adverse effect on the business, operations or financial
condition of TES and its subsidiaries taken as a whole.
Section 5.11 Compliance with Applicable Law. TES and its subsidiaries hold
all permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities necessary for the lawful conduct of their respective
business (the "TES Permits"), except for failures to hold such TES Permits which
would not, in the aggregate, have a material adverse effect on the business,
operations or financial condition of TES and its subsidiaries taken as a whole.
TES and its subsidiaries are in compliance with the terms of the TES Permits,
except where the failure so to comply would not have a material adverse effect
on the business, operations or financial condition of TES and its subsidiaries
taken as a whole. The businesses of TES and its subsidiaries are not being
conducted in violation of any applicable law, ordinance, rule, regulation,
decree or order of any Governmental Entity, except for violations which or in
the aggregate do not and would not have a material adverse effect on the
business, operations or financial condition of TES and its subsidiaries taken as
a whole.
Section 5.12 Taxes. TES and each of its subsidiaries has duly filed all
material federal, state, local and foreign tax returns required to be filed by
it, and TES has duly paid, caused to be paid or made adequate provision for the
payment of all Taxes required to be paid in respect of the periods covered by
such returns and has made adequate provision for payment of all Taxes
anticipated to be payable in respect of all calendar periods since the periods
covered by such returns. The federal income tax returns required to be filed by
TES have been examined by the IRS, or the period during which any assessments
may be made by the IRS has expired, for all taxable years through 1997. All
deficiencies and assessments asserted as a result of such examinations or other
audits by federal, state, local or foreign taxing authorities have been paid,
fully settled or adequately provided for in the financial statements contained
in the TES SEC Reports, and no issue or claim has been asserted for Taxes by any
taxing authority for any prior period, the adverse determination of which would
result in a deficiency which would have a material adverse effect on the
business, financial condition or results of operations of TES and its
subsidiaries taken as a whole, other than those heretofore paid or provided for.
Except as set forth in Section 5.12 of the TES Disclosure Schedule, there are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any federal or foreign income tax return of TES or its
subsidiaries.
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Section 5.13 Employee Benefit Plans. (a) With respect to each employee
benefit plan, and any material bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, insurance or other plan, arrangement or understanding
(whether or not legally binding) (all the foregoing being herein called the "TES
Benefit Plans"), maintained or contributed to by TES or any of its subsidiaries,
TES has made available to ENTECS a true and correct copy of, where applicable,
(i) such TES Benefit Plan, and (ii) each trust agreement and group annuity
contract, if any, relating to such TES Benefit Plan.
(b) With respect to TES Benefit Plans, in the aggregate, no event has
occurred, and to the knowledge of TES or any of its subsidiaries there exists no
condition or set of circumstances which are reasonably likely to occur in
connection with which TES or any of its subsidiaries would be subject to any
liability, that would have a material adverse effect on TES and its
subsidiaries, taken as a whole (except liability for benefits claims and funding
obligations payable in the ordinary course), under any applicable law.
(c) Except as set forth in Section 5.13 of TES Disclosure Schedule,
with respect to TES Benefit Plans, in the aggregate, there are no funded benefit
obligations for which contributions have not been made or properly accrued and
there are no unfunded benefit obligations which have not been accounted for by
reserves, or otherwise properly footnoted in accordance with generally accepted
accounting principles, on the financial statements of TES or any of its
subsidiaries, which obligations are reasonably likely to have a material adverse
effect on TES and its subsidiaries, taken as a whole.
Section 5.14 Intellectual Property. Except as set forth in Section 5.14 of
the TES Disclosure Schedule, no claim is pending or, to the knowledge of TES,
threatened to the effect that the present or past operations of the TES or any
subsidiary of TES infringes upon or conflicts with the rights of others with
respect to any intellectual property (including, without limitation, patents,
patent rights, patent applications, trademarks, trademark applications, trade
names, copyrights, drawings, trade secrets, know-how and computer software)
necessary to permit TES and its subsidiaries to conduct their businesses as now
operated (the "Intellectual Property") and no claim is pending or threatened to
the effect that any of the Intellectual Property is invalid or unenforceable. No
contract, agreement or understanding with any party exists which would impede or
prevent the continued use by TES and its subsidiaries of the entire right, title
and interest of TES and its subsidiaries in and t the Intellectual Property.
Section 5.15 Interim Operations of Acquisition Corp. Acquisition Corp. was
formed solely for the purpose of engaging in the transactions contemplated
hereby, has engaged in no other business activities and has conducted its
operations only as contemplated hereby.
Section 5.16 Change in Control. Except as set forth in Section 5.17 of the
TES Disclosure Schedule, neither TES nor any of its subsidiaries is a party to
any contract, agreement or understanding which contains a "change in control" or
"potential change in control" provision. Except as set forth in the TES SEC
Reports or Section 5.17 of the TES Disclosure Schedule, there are no agreements
or understandings between TES and its subsidiaries, on the one hand, and any
affiliates of TES (other than subsidiaries of TES), on the other hand.
ARTICLE VI
COVENANTS
Section 6.01 Covenants of ENTECS and TES. During the period from the date
of this Agreement and continuing until the Effective Time, ENTECS and TES each
agree as to itself and its subsidiaries that (except as expressly contemplated
or permitted by this Agreement, Section 4.01 of ENTECS Disclosure Schedule or
Section 5.01 of the TES Disclosure Schedule, as the case may be, or to the
extent that the other party shall otherwise consent in writing):
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(a) Each party and its subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course, consistent with past
practice, and use its best efforts to preserve intact their present business
organizations, keep available the services of their present officers and
employees and preserve their relationships with customers, suppliers and others
having business dealings with them.
Each party will, and will cause each of its subsidiaries to, (i) use its best
efforts to preserve its business intact, keep available the services of all of
its present officers, employees, agents and representatives, and preserve the
goodwill of all suppliers, customers, clients and others having business
relations with it or any of its subsidiaries; (ii) maintain its corporate
existence and good standing in its state of incorporation; (iii) keep and
maintain in good condition, repair and working order all buildings, offices,
stores and other structures and all machinery, tools, equipment, fixtures and
other property of it and its subsidiaries and observe and conform to all
material terms and conditions upon or under which any of their properties is
held; and (iv) continue and maintain in full force and effect all insurance now
maintained and promptly proceed with the repair, restoration or replacement of
any asset or property damaged or destroyed by fire or other casualty after the
date hereof, whether insured or uninsured, subject to the rights, if any, of the
lessors or mortgagees thereof, covenant, consider the following:
(b) No party shall, nor shall any party permit any of its subsidiaries
to, nor shall any party or subsidiary propose to, (i) declare, set aside or pay
any dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of any of its capital stock, (ii) split, combine
or reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or (iii) repurchase, redeem or otherwise
acquire, or permit any subsidiary to repurchase, redeem or otherwise acquire,
any of its securities or any securities of its subsidiaries.
(c) No party shall, nor shall any party permit any of its subsidiaries
to, authorize for issuance, issue, sell, deliver or agree or commit to issue,
sell or deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any stock of any
class or any other securities (including indebtedness having the right to vote)
or equity equivalents (including, without limitation, stock appreciation
rights), except as required pursuant to the agreements and instruments
outstanding on the date hereof and disclosed in Sections 4.02 and 5.02, or amend
in any material respect any of the terms of any such securities or agreements
outstanding on the date hereof, other than the issuance of shares of ENTECS
Shares or TES Shares, as the case may be, upon the exercise of stock options
pursuant to ENTECS Stock Plans or TES Stock Plans and upon the exercise or
conversion of other ENTECS options, warrants or rights, in each case outstanding
on the date of this Agreement and in accordance with their present terms.
(d) No party shall amend or propose to amend its charter or bylaws.
(e) No party shall, nor shall any party permit any of its subsidiaries
to, acquire, sell, lease, encumber, transfer or dispose of any assets outside
the ordinary course of business, consistent with past practice, or any assets
which are material to such party and its subsidiaries taken as a whole, except
pursuant to obligations in effect on the date hereof, or enter into any
commitment or transaction outside the ordinary course of business, consistent
with past practice.
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(f) No party shall, nor shall any party permit any of its subsidiaries
to, incur (which shall not be deemed to include entering into credit agreements,
lines of credit or similar arrangements until borrowings are made under such
arrangements) any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of such party or any of its subsidiaries or
guarantee (or become liable for) any debt of others or make any loans, advances
or capital contributions or mortgage, pledge or otherwise encumber any material
assets or create or suffer any material lien thereupon other than in each case
in the ordinary course of business consistent with prior practice.
(g) No party shall, nor shall any party permit any of its subsidiaries
to pay, discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business consistent
with past practice or in accordance with their terms, of liabilities reflected
or reserved against in, or contemplated by, the consolidated financial
statements (or the notes thereto) of any party and its consolidated subsidiaries
or incurred in the ordinary course of business consistent with past practice.
(h) No party shall change any of the accounting principles or
practices used by it (except as required by generally accepted accounting
principles).
(i) No party shall, nor shall any party permit any of its subsidiaries
to, agree to take any of the foregoing actions or take or agree to take any
action that would or is reasonably likely to result in any of its
representations and warranties set forth in this Agreement being untrue or in
any of the conditions to the Merger set forth in Article VII not being
satisfied.
(j) Each of the parties shall give prompt notice to the other party
of: (a) any notice of, or other communication relating to, a default or event
which, with notice or the lapse of time or both, would become a default,
received by it or any of its subsidiaries subsequent to the date of this
Agreement and prior to the Effective Time, under any agreement, indenture or
instrument material to the financial condition, properties, businesses or
results of operations of it and its subsidiaries, taken as a whole, to which it
or any of its subsidiaries is a party or is subject; (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement, which consent, if required, would breach the representations
contained in Articles IV and V; and (c) any material adverse change in the
financial condition, properties, businesses, results of operations or prospects
of it and its subsidiaries, taken as a whole.
(k) The parties shall consult with each other before issuing any press
releases or otherwise making public statements with respect to the transactions
contemplated hereby and in making any filings with any federal or state
governmental or regulatory agency or with any national securities exchange with
respect thereto.
Section 6.02 Additional Covenants of ENTECS. During the period from the
date of this Agreement and continuing until the Effective Time, ENTECS agrees as
to itself and its subsidiaries that it will not, without the prior written
consent of TES, except as contemplated by this Agreement, including Section 6.11
hereof, or required by law (i) enter into, adopt, amend or terminate any ENTECS
Benefit Plan or other employee benefit plan or any agreement, arrangement, plan
or policy between ENTECS and one or more of its directors or executive officers
or (ii) except for normal increases in the ordinary course of business
consistent with past practice that, in the aggregate, do not result in a
material increase in benefits or compensation expense to ENTECS, increase in any
manner the compensation or fringe benefits of any director, officer or employee
or pay any benefit not required by any plan and arrangement as in effect as of
the date hereof or enter into any contract, agreement, commitment or arrangement
to do any of the foregoing.
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Section 6.03 No Solicitation. Neither ENTECS nor any of its subsidiaries,
affiliates, officers, directors, representatives or agents shall, directly or
indirectly, solicit, initiate or encourage (including by way of furnishing
information) any person, entity or group concerning any merger, sale of
substantial assets outside the ordinary course of business, sale of shares of
capital stock or similar transaction involving ENTECS or any of its subsidiaries
or divisions (other than the transactions contemplated by this Agreement),
provided that ENTECS may participate in negotiations with or furnish information
to a third party if the Board of Directors of ENTECS believes, after
consultation with its outside counsel, that the failure to do so would be a
breach of its fiduciary duty under applicable law. ENTECS shall promptly advise
TES of any such inquiries or proposals.
Section 6.04 Access to Information. Upon reasonable notice and subject to
restrictions contained in confidentiality agreements to which such party is
subject (from which such party shall use reasonable efforts to be released),
ENTECS and TES shall each (and shall cause each of their respective subsidiaries
to) afford to the officers, employees, accountants, counsel and other
representatives of the other, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, each of ENTECS and TES shall
(and shall cause each of their respective subsidiaries to) furnish promptly to
the other all information concerning its business, properties and personnel as
such other party may reasonably request. Unless otherwise required by law or
court order, the parties will hold any such information which is nonpublic in
confidence until such time as such information otherwise becomes publicly
available through no wrongful act of either party, and in the event of
termination of this Agreement for any reason each party shall promptly return
all nonpublic documents obtained from any other party, and any copies or
summaries made of such documents, to such other party.
Section 6.05 Best Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
including, without limitation, (i) the prompt preparation and filing with the
SEC of the S-4 and the Proxy Statement, (ii) such actions as may be required to
have the S-4 declared effective under the Securities Act and to have the Proxy
Statement cleared by the SEC, in each case as promptly as practicable, including
by consulting with each other as to, and responding promptly to, any SEC
comments with respect thereto, (iii) such actions as may be required to be taken
under applicable state securities or Blue Sky laws in connection with the
issuance of TES Shares contemplated hereby, (iv) the preparation and filing of
all applicable forms under the HSR Act, and (v) the preparation and filing of
all other forms, registrations and notices required to be filed to consummate
the transactions contemplated hereby and the taking of such actions as are
necessary to obtain any requisite approvals, consents, orders, exemptions,
waivers by any public or private third party. Each party shall promptly consult
with the other with respect to, provide any necessary information with respect
to and provide the other (or its counsel) copies of, all filings made by such
party with any Governmental Entity in connection with this Agreement and the
transactions contemplated hereby.
Section 6.06 Stockholders Meetings. Each of ENTECS and TES shall duly call,
give notice of, convene and hold a meeting of its stockholders as promptly as
practicable for the purpose of voting, in the case of ENTECS, upon this
Agreement and related matters and, in the case of TES, upon the issuance of TES
Shares pursuant hereto. TES and ENTECS will, through their respective Board of
Directors, recommend to their respective stockholders approval of such matters
and will coordinate and cooperate with respect to the timing of such meetings
and shall use their best efforts to hold such meetings on the same day and as
soon as practicable after the date hereof, and shall use their best efforts to
secure the approval of their stockholders for the transactions contemplated
herein, subject, in the case of ENTECS, to its fiduciary duties under applicable
law.
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Section 6.07 Letters of Accountant. Each of TES and ENTECS shall use its
respective best efforts to cause to be delivered to the other a letter of
Schiefley & Associates, P.C., independent public accountant to both parties,
dated a date within two business days before the date on which the S-4 shall
become effective and addressed to the other, in form and substance reasonably
satisfactory to the other and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the S-4.
Section 6.08 Affiliates. Prior to the Closing Date, ENTECS shall deliver to
TES a letter identifying all persons who are, at the time this Agreement is
submitted for approval to the stockholders of ENTECS, "affiliates" of ENTECS for
purposes of Rule 145 under the Securities Act. ENTECS shall use its best efforts
to cause each such person to deliver to TES on or prior to the Closing Date a
written agreement, substantially in the form attached as Exhibit 6.08 hereto.
Section 6.09 Indemnification and Insurance. b. In the event of any
threatened or actual claim, action, suit, proceeding or investigation, whether
civil, criminal or administrative, including, without limitation, any such
claim, action, suit, proceeding or investigation in which any of the present or
former officers or directors (the "Managers") of ENTECS is, or is threatened to
be, made a party by reason of the fact that he is or was a director, officer,
employee or agent of ENTECS, or is or was serving at the request of ENTECS as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, whether before or after the Effective Time,
the parties hereto agree to cooperate and use their best efforts to defend
against and respond thereto. It is understood and agreed that ENTECS shall
indemnify and hold harmless, and from and after the Effective Time each of the
Surviving Corporation and TES shall indemnify and hold harmless, as and to the
full extent permitted by applicable law (including by advancing expenses
promptly as statements therefor are received), each such Manager against any
losses, claims, damages, liabilities, costs, expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement in connection with any
such claim, action, suit, proceeding or investigation, and in the event of any
such claim, action, suit, proceeding or investigation (whether arising before or
after the Effective Time), (i) the Managers may retain counsel satisfactory to
them, and ENTECS, or the Surviving Corporation and TES after the Effective Time,
shall pay all fees and expenses of such counsel for the Managers promptly, as
statements therefore are received, and (ii) ENTECS, or the Surviving Corporation
and TES after the Effective Time, will use their respective best efforts to
assist in the vigorous defense of any such matter; provided that neither ENTECS
nor the Surviving Corporation or TES shall be liable for any settlemen effected
without its prior written consent (which consent shall not be unreasonably
withheld); and provided further that the Surviving Corporation and TES shall
have no obligation hereunder to any Manager when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final and non-appealable, that indemnification of such Manager in the
manner contemplated hereby is prohibited by applicable law. Any Manager wishing
to claim indemnification under this Section 6.09(a), upon learning of any such
claim, action, suit, proceeding or investigation, shall notify ENTECS and, after
the Effective Time, the Surviving Corporation and TES, thereof (provided that
the failure to give such notice shall not affect any obligations hereunder,
unless the indemnifying party is actually and materially prejudiced thereby).
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(b) TES and Acquisition Corp. agree that all rights to indemnification
existing in favor of the Managers as provided in ENTECS' Certificate of
Incorporation or Bylaws or similar documents of any of ENTECS' subsidiaries as
in effect as of the date hereof, and in any agreement between ENTECS or any
subsidiary and any Manager with respect to matters occurring prior to the
Effective Time shall survive the Merger and shall continue in full force and
effect for a period of not less than six years. TES shall cause to be maintained
in effect for not less than six years after the Effective Time, policies of
directors' and officers' liability insurance (of at least the same coverage and
amounts containing terms and conditions which are no less advantageous than the
terms and conditions contained in similar policies maintained by TES for TES'
directors and officers) with respect to claims arising from facts or events
which occurred before the Effective Time to the extent available.
(c) The provisions of this Section 6.09 are intended to be for the
benefit of, and shall be enforceable by, each indemnified party and his or her
heirs and representatives.
Section 6.10 Certain Benefits. (a) Each of TES and Acquisition Corp.
acknowledges that consummation of the transactions contemplated by this
Agreement will constitute a change in control of ENTECS (to the extent such
concept is applicable) for the purposes of all agreements, contracts, plans,
programs, policies or arrangements of ENTECS described in Section 6.10 of ENTECS
Disclosure Schedule or ENTECS SEC Reports. From and after the Effective Time,
TES and its subsidiaries (including the Surviving Corporation) will honor in
accordance with their terms all employee benefit plans and employment, severance
and consulting agreements described in Section 6.10 of ENTECS Disclosure
Schedule or in ENTECS SEC Reports between ENTECS or any of its subsidiaries and
any officer, director, or employee of ENTECS or any of its subsidiaries in
effect prior to the Effective Time; provided, however, that nothing herein shall
preclude any changes effected on a prospective basis to any employee benefit
plan.
(b) TES and Acquisition Corp. agree that, for at least one year from
the Effective Time, subject to applicable law, the Surviving Corporation and its
subsidiaries will provide benefit plans to employees employed as of the
Effective Time which will, in the aggregate, be no less favorable than those
currently provided by ENTECS and its subsidiaries to their employees and,
thereafter, will provide benefits no less favorable than those provided by TES
and its other subsidiaries to their employees.
(c) The covenants set forth in Section 6.10 of ENTECS Disclosure
Schedule shall have the same force and effect as if they were set forth in this
Section 6.10.
Section 6.11 Brokers or Finders. Each of TES and ENTECS represents, as to
itself, its subsidiaries and its affiliates, that no agent, broker, investment
banker, financial advisor or other firm or person is or will be entitled to any
broker's or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement. Each of TES and
ENTECS agree to indemnify and hold the other harmless from and against any and
all claims, liabilities or obligations with respect to any fees, commissions or
expenses asserted by any person on the basis of any act or statement alleged to
have been made by such party or its affiliate.
ARTICLE VII
CONDITIONS
Section 7.01 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Closing Date of the following conditions:
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(a) This Agreement shall have been approved and adopted by the
affirmative vote of the holders of a majority of the outstanding ENTECS Shares
and the issuance of TES Shares pursuant to the Merger and the other terms of
this Agreement shall have been approved by the board of directors of TES, the
board of directors of Acquisition Corp. and TES as the sole stockholder of
Acquisition Corp.
(b) Other than the filing provided for by Section 1.01, all
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations or terminations of waiting periods (including the waiting
period under the HSR Act) imposed by, any Governmental Entity, and all required
third party consents, the failure to obtain which would have a material adverse
effect on TES and its subsidiaries, including the Surviving Corporation and its
subsidiaries, taken as a whole, shal have been filed, occurred or been obtained.
TES shall have received all state securities or "Blue Sky" permits and other
authorizations necessary to issue the TES Shares pursuant to the Merger and the
other terms of this Agreement.
(c) The S-4 shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceedings seeking a stop order.
(d) No statute, rule, regulation, executive order, decree or
injunction shall have been enacted, entered, promulgated or enforced by any
court or governmental authority which prohibits the consummation of the Merger
and shall be in effect.
Section 7.02 Conditions of Obligations of TES and Acquisition Corp.. The
obligations of TES and Acquisition Corp. to effect the Merger are further
subject to the satisfaction at or prior to the Closing Date of the following
conditions, unless waived by TES and Acquisition Corp.:
(a) The representations and warranties of ENTECS set forth in this
Agreement shall be true and correct as of the date of this Agreement, and shall
also be true in all material respects (except for such changes as are
contemplated by the terms of this Agreement and such changes as would be
required to be made in the exhibits to this Agreement if such schedules were to
speak as of the Closing Date) on and as of the Closing Date with the same force
and effect as though made on and as of the Closing Date, except if and to the
extent any failures to be true and correct would not, in the aggregate, have a
material adverse effect on ENTECS and its subsidiaries taken as a whole.
(b) From the date of this Agreement through the Closing Date, except
as set forth in Section 4.06 of ENTECS Disclosure Schedule, ENTECS shall not
have suffered any adverse changes in its business, operations or financial
condition which are material to ENTECS and its subsidiaries taken as a whole
(other than changes generally affecting the industries in which ENTECS operates,
including changes due to actual or proposed changes in law or regulation, or
changes relating to the transactions contemplated by this Agreement, including
the change in control contemplated hereby).
(c) ENTECS shall have performed all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, except
where any failures to perform would not, in the aggregate, have a material
adverse effect on ENTECS and its subsidiaries taken as a whole.
(d) At the Closing, ENTECS shall have furnished TES with copies of (i)
resolutions duly adopted by the Board of Directors of ENTECS approving the
execution and delivery of this Agreement and all other necessary or proper
corporate action to enable ENTECS to comply with the terms of this Agreement,
and (ii) the resolution duly adopted by the holders of Shares approving and
adopting this Agreement and the Merger, such resolutions to be certified by the
Secretary or Assistant Secretary of ENTECS.
(e) Opinion of ENTECS' Counsel. At the Closing, ENTECS shall have
furnished TES with an opinion, dated the Closing Date, of counsel to ENTECS, in
form and substance satisfactory to TES and its counsel, to the effect that:
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(i) ENTECS is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Colorado;
(ii) each of ENTECS' subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation;
(iii) each of ENTECS and each of its subsidiaries have the
corporate power to carry on its businesses as they are being conducted on the
Closing Date;
(iv) the authorized capital stock of ENTECS consists of
50,000,000 Shares, and the 1,456,182 Shares issued and outstanding on the date
hereof are validly issued and outstanding, fully paid and nonassessable and that
between the date hereof and the Closing Date no additional Shares have been
issued and none of such issued and outstanding Shares were issued in violation
of any preemptive rights of shareholders of ENTECS;
(v) ENTECS has taken all required corporate action to approve and
adopt this Agreement and this Agreement is a valid and binding obligation of
ENTECS enforceable against ENTECS in accordance with its terms, subject as to
enforcement to bankruptcy, reorganization, moratorium, insolvency and other laws
of general applicability relating to or affecting creditors' rights and to
general equity principles;
(vi) the execution and delivery of this Agreement by ENTECS do
not, and the consummation of the transactions contemplated by this Agreement by
ENTECS will not, constitute (i) a breach or violation of, or a default under,
the charter or bylaws of ENTECS or any of its subsidiaries, or (ii) a breach,
violation or impairment of, or a default under, any judgment, decree, order,
statute, law, ordinance, rule or regulation now in effect applicable to ENTECS
or any of its subsidiarie or their respective properties known to such counsel,
or any agreement, indenture, mortgage, lease or other instrument of ENTECS or
any of its subsidiaries or to which ENTECS or any of its subsidiaries is subject
and in each case known to such counsel;
(vii) All filings required to be made by ENTECS prior to the
Effective Time with, and all consents, approvals, permits or authorizations
required to be obtained by ENTECS prior to the Effective Time from, governmental
and regulatory authorities of Germany, the United States and the State of
Colorado in connection with the execution and delivery of this Agreement by
ENTECS and the consummation of the transactions contemplated by this Agreement
by ENTECS, have been so made or obtained, as the case may be;
(viii) All actions, proceedings, instruments and documents
required to carry out this Agreement, or incidental hereto, and all other legal
matters shall have been approved by counsel to TES, and such counsel shall have
received all documents, certificates and other papers reasonably requested by it
in connection therewith.
In rendering the foregoing opinion (the "Primary Opinion"), such
counsel may rely on certificates of officers and other agents of ENTECS and
public officials as to matters of fact and, as to matters relating to the law of
jurisdictions other than Colorado, upon opinions of counsel of such other
jurisdictions reasonably satisfactory to Parent and its counsel, provided such
reliance is expressly noted in the Primary Opinion and the opinions of such
other counsel and the certificates of suc officers, agents and public officials
relied on are attached to the Primary Opinion;
Section 7.03 Conditions of Obligations of ENTECS. The obligation of ENTECS
to effect the Merger is further subject to the satisfaction at or prior to the
Closing Date of the following conditions, unless waived by ENTECS:
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(a) The representations and warranties of TES set forth in this
Agreement shall be true and correct as of the date of this Agreement, and shall
also be true in all material respects (except for such changes as are
contemplated by the terms of this Agreement and such changes as would be
required to be made in the exhibits to this Agreement if such schedules were to
speak as of the Closing Date) on and as of the Closing Date with the same force
and effect as though made on and as of the Closing Date, except if and to the
extent any failures to be true and correct would not, in the aggregate, have a
material adverse effect on TES and its subsidiaries taken as a whole.
(b) From the date of this Agreement through the Closing Date, except
as set forth in Section 5.06 of the TES Disclosure Schedule, TES shall not have
suffered any adverse changes in its business, operations or financial condition
which are material to TES and its subsidiaries taken as a whole (other than
changes generally affecting the industries in which TES operates, including
changes due to actual or proposed changes in law or regulation).
(c) TES shall have performed all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, except where any
failures to perform would not, in the aggregate, have a material adverse effect
on TES and its subsidiaries taken as a whole.
(d) The opinion, based on representations of ENTECS and TES, of
Schlueter & Associates, P.C. or Brinkerhoph & Revnig, P.C., counsel to ENTECS,
to the effect that the Merger will be treated for federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code, and that TES,
Acquisition Corp. and ENTECS will each be a party to that reorganization within
the meaning of Section 368(b) of the Code, dated on or about the date that is
two business days prior to the date the Proxy Statement is first mailed to
stockholders of ENTECS and TES, shall not have been withdrawn or modified in any
material respect.
(e) At the Closing, TES and Acquisition Corp. shall have furnished
ENTECS with copies of (i) resolutions duly adopted by their respective Boards of
Directors approving the execution and delivery of this Agreement and all other
necessary or proper corporate action to enable them to comply with the terms of
this Agreement, and (ii) the resolutions duly adopted by the holders of TES
Shares approving the issuance of TES Shares, such resolutions to be certified by
the Secretary or Assistant Secretary of TES.
(f) At the Closing, the TES shall have furnished ENTECS with an
opinion, dated the Closing Date, of counsel to the TES and Acquisition Corp., in
form and substance satisfactory to ENTECS and its counsel, to the effect that:
(i) Each of TES and Acquisition Corp. is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Colorado;
(ii) each has the corporate power to carry on its businesses as
they are being conducted on the Closing Date;
(iii) the authorized capital stock of TES consists of 20,000,000
Shares, and the 5,224,830 Shares issued and outstanding on the date hereof are
validly issued and outstanding, fully paid and nonassessable and that between
the date hereof and the Closing Date no additional Shares have been issued and
none of such issued and outstanding Shares were issued in violation of any
preemptive rights of shareholders of TES;
(iv) TES and Acquisition Corp. has each taken all required
corporate action to approve and adopt this Agreement and this Agreement is a
valid and binding obligation of the each, enforceable in accordance with its
terms, subject as to enforcement to bankruptcy, reorganization, moratorium,
insolvency and other laws of general applicability relating to or affecting
creditors' rights and to general equity principles;
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(v) the execution and delivery of this Agreement by each of the
TES and Acquisition Corp. do not, and the consummation of the transactions
contemplated by this Agreement by each will not, constitute (i) a breach or
violation of, or a default under, the charter or bylaws of either, or (ii) a
breach, violation or impairment of, or a default under, any judgment, decree,
order, statute, law, ordinance, rule or regulation now in effect applicable to
either or their respective properties known to such counsel, or any agreement,
indenture, mortgage, lease or other instrument of either or to which either is
subject and in each case known to such counsel;
(vi) all filings required to be made by each prior to the
Effective Time with, and all consents, approvals, permits or authorizations
required to be obtained by each prior to the Effective Time from, governmental
and regulatory authorities of the Germany, United States and the State of
Colorado in connection with the execution and delivery of this Agreement by
ENTECS and the consummation of the transactions contemplated by this Agreement
by each, have been so made or obtained, as the case may be.
In rendering the foregoing opinion (the "Primary Opinion"), such
counsel may rely on certificates of officers and other agents of TES or
Acquisition Corp. and public officials as to matters of fact and, as to matters
relating to the law of jurisdictions other than Colorado, upon opinions of
counsel of such other jurisdictions reasonably satisfactory to Parent and its
counsel, provided such reliance is expressly noted in the Primary Opinion and
the opinions of such other counsel and the certificates of such officers, agents
and public officials relied on are attached to the Primary Opinion.
All actions, proceedings, instruments and documents required to carry
out this Agreement, or incidental hereto, and all other legal matters shall have
been approved by counsel to ENTECS, and such counsel shall have received all
documents, certificates and other papers reasonably requested by it in
connection therewith.
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.01 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the matters
presented in connection with the Merger by the stockholders of ENTECS or TES:
(a) by mutual consent of TES and ENTECS;
(b) by either TES or ENTECS if the Merger shall not have been
consummated before June 30, 1999 (unless the failure to consummate the Merger by
such date shall be due to the action or failure to act of the party seeking to
terminate this Agreement);
(c) by either TES or ENTECS if (i) the conditions to such party's
obligations shall have become impossible to satisfy or (ii) any permanent
injunction or other order of a court or other competent authority preventing the
consummation of the Merger shall have become final and non-appealable;
(d) by ENTECS if it shall have received a proposal from a third party
which contemplates a transaction which the Board of Directors determines, after
consultation with its legal and financial advisors, is more favorable than the
transactions contemplated hereby, unless, within five days of receipt by TES of
notice of such third-party transaction, TES and ENTECS agree to a transaction
which the Board of Directors determines, after such consultation, is more
favorable than such third-part transaction; or
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(e) by either party if any required approval of the stockholders of
TES or ENTECS shall not have been obtained by reason of the failure to obtain
the required vote upon a vote held at a duly held meeting of stockholders or at
any adjournment thereof for the purpose of obtaining such vote.
Section 8.02 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 8.01 hereof, this Agreement
shall forthwith become void and have no effect, without any liability on the
part of any party hereto or its affiliates, directors, officers or stockholders,
other than the provisions of Sections 6.04 and 6.12. Nothing contained in this
Section 8.02 shall relieve any party from liability for any breach of this
Agreement.
Section 8.03 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of ENTECS or of TES, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 8.04 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
ARTICLE IX
POST CLOSING COVENANTS
In filing federal tax returns at any time, each of TES, ENTECS and New
Acquisition Corp. will take consistent filing positions to the effect that for
federal income tax purposes (i) the Merger qualifies as a "reorganization"
within the meaning of Section 368(a)(1)(A) of the Code, and no Shareholder is
required to recognize income gain or loss with respect thereto; (ii) a
Shareholder is not required to recognize any income or gain with respect to his
right, if any, to receive payments under such Shareholder's employment
agreement.
ENTECS will provide assistance to the Shareholders in determining their
basis in ENTECS' common stock.
ARTICLE X
MISCELLANEOUS
Section 10.01 Nonsurvival of Representations and Warranties. The
representations and warranties made herein shall not survive beyond the
Effective Time.
Section 10.02 Notices. All notices and other communications hereunder shall
be in writing (and shall be deemed given upon receipt) if delivered personally,
telecopied (which is confirmed) or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
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(a) if to TES or Acquisition Corp., to
Gerd Behrens, President
c/o TES GmbH
25 Impler Strasse
Munich, 81371
Germany
with a copy to
Henry F. Schlueter
Schlueter & Associates, P.C.
1050 17th Street, Suite 1700
Denver, Colorado 80265
and
(b) if to ENTECS, to
Gerd Behrens, President
c/o ENTECS GmbH
25 Impler Strasse
81371, Munich
Germany
with a copy to
Paul Maricle
Rossi & Maricle, P.C.
370 17th Street, Suite 4250
Denver, Colorado 80202
Section 10.03 Descriptive Headings. The descriptive headings herein are
inserted for convenience only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
Section 10.04 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 10.05 Entire Agreement; Assignment. This Agreement (a) constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof (other than any confidentiality agreement between the parties; any
provisions of such agreements which are inconsistent with the transactions
contemplated by this Agreement being waived hereby) and (b) shall not be
assigned by operation of law or otherwise, provided that TES may cause
Acquisition Corp. to assign its rights and obligations to TES or any other
wholly owned subsidiary of TES, but no such assignment shall relieve Acquisition
Corp. of its obligations hereunder if such assignee does not perform such
obligations.
Section 10.06 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Colorado without regard to any
applicable principles of conflicts of law.
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Section 10.07 Specific Performance. The parties hereto agree that if any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that the parties shall be entitled to specific performance of the terms
hereof, in addition to any other remedy at law or equity.
Section 10.08 Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses.
Section 10.09 Publicity. Except as otherwise required by law, for so long
as this Agreement is in effect, neither ENTECS nor TES shall, or shall permit
any of its subsidiaries to, issue or cause the publication of any press release
or other public announcement with respect to the transactions contemplated by
this Agreement without prior consultation with the other party.
Section 10.10 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person or
persons any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement, except pursuant to Sections 5.09, 5.10 and 5.11
hereof. TES shall cause Acquisition Corp. to perform its obligations hereunder.
<PAGE>
IN WITNESS WHEREOF, ENTECS, TES and Acquisition Corp. have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
ENVIRONMENTAL TECHNOLOGIES
AND SOFTWARE SOLUTIONS, INC.
By: /s/ Frank Behrens
---------------------------------------
Name: Frank Behrens
--------------------------------
Title: Secretary
--------------------------------
TECHNICAL ENVIRONMENT
SOLUTIONS, INC.
By: /s/ Gerd Behrens
---------------------------------------
Name: Gerd Behrens
--------------------------------
Title: President
--------------------------------
TES ACQUISITON CORP.
By: /s/ Gerd Behrens
---------------------------------------
Name: Gerd Berens
--------------------------------
Title: President
--------------------------------
<PAGE>
ENTECS' DISCLOSURE SCHEDULE
Section Disclosure
4.02(a) None
4.02(b) ENTECS Software und Umweltmanagement GmbH
Jurisdiction of Incorporation: Germany
ENTECS Umweltechnik GmbH
Jurisdiction of Incorporation: Germany
None.
4.06 None.
None
4.09 None
None
4.12 None
None
ENTECS has received a demand for payment
under its agreement for independent contractor
services with Juergen Bozenhardt, the patent
holder of the BRS Compact concrete recycling
system, which ENTECS has licensed from Mr.
Bozenhardt. Mr. Bozenhardt has made a demand to
ENTECS for 177,000 DM (US $105,357) that he claims
is owed for unpaid consulting fees. ENTECS
believes that Mr. Bozenhardt's demands are not
valid. ENTECS believes that it has a cause of
action against Mr. Bozenhardt for breach of their
contractual agreement as well as a breach of the
license agreement for the BRS-Compact system with
Mr. Bozenhardt.
<PAGE>
None
Schedule of Agreements:
Consulting Agreement between ENTECS, Inc. and
Karsten Behrens dated March 1, 1997
Consulting Agreement between ENTECS, Inc. and Frank
Behrens dated April 3, 1997
Employment Agreement dated July 15, 1997 between
ENTECS GmbH and Karsten Behrens
Employment Agreement dated July 15, 1997 between
ENTECS GmbH and Frank Behrens
Employment Agreement for Managing Director dated
March 9, 1998 between ENTECS Umwelttechnik GmbH and
Dieter Gastinger
Employment Agreement for Managing Director dated
March 8, 1998 between ENTECS Software &
Umweltmanagement GmbH and Frank Behrens
Employment Agreement dated July 1, 1998 between
ENTECS, Inc. and Gerd Behrens as President of ENTECS
Consulting Agreement dated June 9, 1997 between
ENTECS, Inc. and Yvonne Marquard
Consulting Agreement dated September 11, 1997
between ENTECS GmbH and Jurgen Bozenhardt - English
Abstract
License Agreement for BRS-Compakt between Bozenhardt
and ENTECS GmbH
Transfer of Metal Dust Patents dated May 15, 1997
between Data Consult and ENTECS, Inc.
<PAGE>
TES' DISCLOSURE SCHEDULE
Section Disclosure
5.02(a) None
5.02(b) Technical Environment Solutions GmbH
Jurisdiction of Incorporation: Germany
TES Oecon AG
Jurisdiction of Incorporation: Germany
None
None
None
None
5.09 None
None
5.12 None
None
None
5.16 None
<PAGE>
APPENDIX B
BLAKE
STREET
June 01, 1999
The Board of Directors
Technical Environmental Solutions, Inc.
c/o Mr. Frank Behrens, Secretary, TES GmbH
25 Impler Strasse
81371, Munich Germany
The Board of Directors
Environmental Technologies and Software Solutions, Inc.
Umwelttechnik GmbH
25 Impler Strasse
81371, Munich Germany
Re: Fairness Opinion - Combination of Environmental Technologies and Software
Solutions, Inc. ("ENTECS") with Technical Environment Solutions, Inc. ("TES").
Dear Directors:
Pursuant your request, Blake Street Securities, LLC has prepared a Fairness
Opinion for the purpose of estimating a fair "range" for the exchange ratio
regarding the acquisition of ENTECS by TES as a going concern.
From our analysis the range for the exchange ratio for the proposed acquisition
of ENTECS by TES as of March 31, 1999, is between 68.0 - 72.0 percent of the
combined company's common stock be distributed to ENTECS' shareholders, and
between 28.0 - 32.0 percent of the combined company's common stock be held by
TES' shareholders. This estimation is consistent from both a net present value
analysis of the 1999-2001 pro forma net income estimates of ENTECS and TES and
the net capital contribution analysis of the contributed capital accounts on the
balance sheets of ENTECS and TES as of March 31, 1999.
It is our opinion that a merger of TES with ENTECS should result in an exchange
of shares of TES and ENTECS at a ratio ranging from 6.91 shares of TES for each
share of ENTECS to 8.36 shares of TES for each share of ENTECS based upon the
number of shares outstanding as of March 31, 1999 respectively.
Very Truly Yours,
Chris G. Mendrop
CEO
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION...........................................................3
RIGHTS AND LIMITING CONDITIONS................................................3
STATEMENT OF INDEPENDENCE.....................................................4
PURPOSE AND METHODOLOGY.......................................................5
COST APPROACH..............................................................5
CAPITAL CONTRIBUTION APPROACH..............................................5
INCOME APPROACH............................................................5
HISTORICAL OPERATING APPROACH..............................................5
MARKET APPROACH............................................................6
IDENTIFICATION OF ENTITIES....................................................6
BUSINESS OF TES............................................................6
Recycling...............................................................7
DIRECTORS AND EXECUTIVES OF TES............................................7
BUSINESS OF ENTECS.........................................................8
The Concrete Recycling System (BRS Compact).............................8
Wood Fiber/Artificial Peat..............................................9
Software Solutions for Environmental Protection.........................9
DIRECTORS AND EXECUTIVES OF ENTECS........................................10
BACKGROUND AND REASONS FOR THE MERGER........................................10
EFFECTS OF THE MERGER........................................................11
STRUCTURE....................................................................12
POST MERGER DIRECTORS AND EXECUTIVE OFFICERS OF TES..........................12
ANALYSES.....................................................................12
INCOME / NPV APPROACH.....................................................12
CAPITAL CONTRIBUTION APPROACH.............................................14
CONCLUSION AND RECOMMENDATION................................................14
APPENDIX A
APPENDIX B
<PAGE>
GENERAL INFORMATION
Blake Street Securities, LLC ("BSS") has been retained by the Board of Directors
of Technical Environmental, Inc. ("TES") to provide a Fairness Opinion regarding
the exchange ratio for the combined business of ("TES") and Environmental
Technologies and Software Solutions, Inc. ("ENTECS") as a going concern as of
March 31, 1999.
BSS has relied on a limited number of sources while gathering data for the
following Fairness Opinion including historical financial and company
information found in TES' Form 10KSB filing for the period ending 12-31-98, Form
S-4/A filing dated 05-07-99, Form 10QSB filing for the period ending March 31,
1999, ENTEC's unaudited finacial statements for the quarter ended March 31,
1999, and the estimated 1999-2001 pro forma financial statements for both TES
and ENTECS provided by Mr. Frank Behrens on behalf of the respective companies.
We at BSS have not attempted to independently verify any of the information
gathered or received, and for the purpose of this report we have assumed that
all the material and information gathered or provided is both valid and
accurate.
RIGHTS AND LIMITING CONDITIONS
It should be noted that this Fairness Opinion regarding the combined businesses
of TES and ENTECS as a going concern has been prepared exclusively for the Board
of Directors of TES and ENTECS. This report is not to be reproduced in whole or
in part for any reason without the written consent of the Board of Directors of
TES, ENTECS, and BSS; any other use of this report is invalid.
BSS assumes no responsibility for matters of a legal nature directly or
indirectly affecting the businesses valued.
BSS does not assume responsibility for the accuracy and completeness of the
Information, including, but not limited to, the disclosure materials related to
the Acquisition, and BSS shall not be obligated to conduct any independent study
or investigation as to the accuracy or completeness of the Information. TES and
ENTECS represent that the disclosure materials will not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances in which they were
made, not false or misleading, and that the information will be true complete
and correct in all material respects.
If BSS or any person associated with BSS becomes involved in any way in any
legal or administrative proceeding related to the services performed hereunder
or the Evaluation, TES and ENTECS will indemnify, defend and hold BSS and any
such person harmless from all damages and expenses (including reasonable
attorney" fees and expenses, and court costs) incurred in connection therewith,
except to the extent that a court having jurisdiction shall have determined in a
final judgement that such loss, claim, damage or liability resulted primarily
from the negligence, bad faith, willful misfeasance, or reckless disregard of
the obligations or duties of BSS hereunder.
<PAGE>
The obligations of BSS are solely corporate obligations, and no officer,
director, member, employee, agent, shareholder or controlling person shall be
subjected to any personal liability whatsoever to any person, nor will any such
claim be asserted on behalf or any other party to the Agreement or any person
relying on the Evaluation.
Projections are included in this report, however the assumptions have not been
provided and, therefore could not be evaluated as to there rational. Projections
and assumptions are inherently subject to uncertainty and may be significantly
influenced by events that are unforeseeable or otherwise differ or vary from
reasonable expectations. Consequently, operating results may vary from the
projections set forth in the pro forma's provided, commensurately affecting the
value of this method of estimation.
This report is valid only for the report date or dates specified herein and only
for the report purpose specified herein. The client warrants that any reports,
analyses, or other documents prepared for it by BSS will be used only in
compliance with all applicable laws and regulations.
BSS does consent to a description of or the inclusion of the text of its Opinion
in any filing required to be made by the TES or ENTECS with the SEC in
connection with the contemplated acquisition and in materials delivered to TES
or ENTECS shareholders that are a part of such filings.
STATEMENT OF INDEPENDENCE
The statements in this report are, to the best of BSS' knowledge, true and
correct. The reported analyses, opinions, and conclusions are limited only by
the reported assumptions and limiting conditions, and they are our personal,
unbiased professional analyses, opinions, and conclusions.
BSS has no present or prospective interest in the property that is subject to
this report, and has no personal interest or bias with respect to the parties
involved. BSS' compensation is not contingent on an action or event resulting
from the analyses, opinions, or conclusions in, or the use of, this report.
BSS' analyses, opinions, and conclusions were developed, and this report has
been prepared, without the employ of a recognized professional appraiser. No
one, other than those cited, provided significant professional assistance to the
persons signing this report.
Blake Street Securities, LLC
- --------------------------------------
Chris Mendrop
Chief Executive Officer
<PAGE>
PURPOSE AND METHODOLOGY
The purpose of this report is to provide an opinion and estimate a fair range
for the exchange ratio concerning the acquisition of ENTECS by TES, as a going
concern as of June 01, 1999. In order to estimate the fairness of the exchange
ratio of the purposed acquisition of ENTECS by TES as a going concern, we have
considered (5) five approaches to value:
* the cost, or book value, approach
* the capital contribution approach
* the income, or net present value approach
* historical operating approach
* and the market approach
COST APPROACH
The cost approach involves consideration of the book value, adjusted book value,
or estimated liquidation value of the company in question. Liquidation value
requires no consideration of earnings, since the presumption is made that the
enterprise will no longer be operating. The value is determined by adjusting the
balance sheet amounts to match the estimated market price of the company's
assets and liabilities. Liquidation is usually considered when the underlying
assets are worth more by themselves than as a going concern. This approach would
not be appropriate since the companies will be combined to form an on going
concern and does not presume liquidation.
CAPITAL CONTRIBUTION APPROACH
The capital contribution approach, or net contribution, is a method by which
start-up, and developmental companies assign a value when there are no cash
flows and no retained earnings the on balance sheet. This approach can be direct
and an effective way to assign value.
INCOME APPROACH
The income approach seeks to identify the present value of expected future cash
flows of the entity in question. Income generated by the subject company is
analyzed and projected over a specified time frame. Future "going concern"
income for the indefinite future can also be considered. The results are
discounted at appropriate rate to arrive at the estimated current value.
Typically, this approach to estimate value is well suited for development stage
companies such as TES and ENTECS.
HISTORICAL OPERATING APPROACH
The historical operating approach is intended for mature companies that are
profitable and have a well-established revenue base. However, both TES and
ENTECS would be considered development stage companies because of the relatively
short operating histories, consistent operating losses, and significant
accumulated deficits. Therefore, this approach will not be appropriate to
estimate the value of either entity.
<PAGE>
MARKET APPROACH
The market approach entails an investigation and analysis of actively traded
public companies, similar to the subject company with regard to products,
services, and markets. Market multiples for the publicly traded companies are
then determined based on the ratio of their invested capital (equity market
capitalization plus the fair market value of interest-bearing debt) to various
parameters such as revenues, EBITDA, and EBIT. In selecting market multiples for
the subject company, consideration is given to relative financial condition and
operating performance of the company, as compared to the publicly traded
comparable companies. This approach is also intended for mature companies that
are profitable and have well-established revenue and capital bases, therefore,
this approach would also be inappropriate.
For the purpose of this report, we have chosen to rely on both the income
approach, in the form of a discounted cash flow method, and the net capital
contribution approach to estimate value.
IDENTIFICATION OF ENTITIES
BUSINESS OF TES
TES was incorporated under the laws of Colorado in June 1994. It is a
non-operating holding company. TES' operations are conducted entirely in
Germany. It has two wholly-owned subsidiaries that have been established under
the laws of Germany. Operations are conducted through these subsidiaries:
namely, Technical Environment Solutions GmbH ("TES GmbH") and TES Oecon AG
("Oecon"). TES GmbH was formed in May, 1992 and TES Oecon AG was formed in July,
1997 and commenced operations in October, 1997. Unless the context otherwise
requires, references to TES include its subsidiaries. Since 1994, TES has been
engaged in the marketing of recycling services on a contract basis primarily for
electronic scrap and other valuable waste materials in cooperation with
specialist waste disposal companies. Recently, TES commenced recycling
activities at its own facility in Landsberg a. Lech, Germany, which is southwest
of Munich. The recycling activities are conducted principally within the TES
GmbH subsidiary. Management intends to significantly expand this operation in
the future. Management also intends to develop a job training school, the Oecon
Institute, to provide training and education for positions in the recycling
industry. Management intends to focus TES' job training programs upon providing
job education and training for the long-term unemployed and disadvantaged. The
training programs are conducted within the TES Oecon AG subsidiary.
A significant portion of TES' revenues has been derived from a limited number of
customers. In fiscal 1998, revenues from TES' largest customer amounted to 10%
of its total revenues, and in fiscal 1997, four customers each accounted for
10%, or 40% total, of TES' total revenues. TES' management expects that TES will
continue to be dependent upon a limited number of customers for significant
portions of its revenues in future periods.
TES is engaged principally in the business of helping other businesses comply
with the cost and effect of German environmental laws. As such, TES has reported
in its financial statements substantial amounts for the category "cost of
operations" which is composed of the costs TES incurred to dispose of
environmental waste for its customers. These costs, however, are directly borne
by TES' customers and not by TES. TES has not incurred material costs of its own
in complying with applicable environmental law.
<PAGE>
Recycling
TES offers to its customers a service intended to assist the customer in
complying with all environmental regulation to which it is subject. In doing so,
TES provides to its customers a service which disassembles, removes,
re-utilizes, re-processes, and markets and sells the re-cycled materials to
others. Its waste disposal services also include archiving the recycled
materials and documenting the path of movement and end location of that
material. This has the additional function of serving as verification for
government agencies and environmental protection groups that the waste has been
locally disposed.
TES' strategies mainly emphasize the technologically feasible reutilization of
scrap electrical and electronic equipment in a manner that not only demonstrates
economic and ecological responsibility but also achieves maximum conservation of
resources through optimum recovery of recyclable materials. TES provides its
employees with the training necessary to operate automated systems utilized to
disassemble and process the materials to be recycled. TES' processes ensure that
the materials, once disposed of, enter the reprocessing cycle and satisfy all
legal regulations.
TES also utilizes its manufacturing equipment to convert certain types of glass
from cathode ray tubes ("CRTs"), computer components, and certain other
manufacturing by-products and industrial wastes into manufacturing raw materials
that may be resold.
TES employs a two-tier strategy:
* decentralized disassembly
* centralized processing and re-use.
Management intends to use a wide variety of collection points as it grows in the
future to provide full geographic coverage of Germany's waste disposal needs. At
this time, TES can cover the southern portions of Germany with its own
collection center, the Landsberg facility. TES has not yet expanded into
northern Germany because the cost of shipping the electronic scrap to Landsberg
in Bavaria is economically unfeasible.
DIRECTORS AND EXECUTIVES OF TES
Name Position Held % Common Stock Owned
Gerd Behrens Chairman of the Board and President 52.8%
Frank Behrens Secretary and a Director 11.5%
Jutta Behrens Treasurer and a Director 52.8%
Karsten Behrens Consultant 16.3%
Yvonne Marquard Consultant 4.2%
<PAGE>
BUSINESS OF ENTECS
ENTECS was incorporated under the laws of Colorado in May 1997. It is a
non-operating holding company. ENTECS' operations are conducted entirely in
Germany by two wholly-owned German subsidiaries, ENTECS Umwelttechnik GmbH and
ENTECS Software and Umweltmanagement GmbH. ENTECS is involved in the
environmental protection industry, which is expected to grow rapidly due to
increasing investments being made in the area by both private enterprises and
public institutions. The environmental protection industry is also expected to
continually create new jobs because of the dynamic growth in the area.
ENTECS' stated corporate purpose is the development and marketing of future
oriented environmental patents, innovations, and technologies as well as
software solutions for the environmental market. ENTECS is achieving this goal
by working closely with patent owners and engineers with special technical
know-how in the industry.
ENTECS holds the exclusive licensing rights to a new recycling system for the
capture and re-use of cement waste and waste water that is generated by cement
mixing plants. The system known as the "BRS-Compact" is in the process of being
patented both as a technology and as a process. ENTECS has acquired the
exclusive licensing rights to the BRS-Compact from the patent holder, Mr.
Juergen Bozenhardt, for all of Europe and a right of first refusal for the
Americas and Asia.
ENTECS has also acquired a license for two patents for the development of a
recycling machine based on double worm system for recycling metal dust and other
materials. The double worm system is based upon the principle of counter
rotating screws that are designed to handle a wide variety of materials. The
twin screws can be modified and assembled in accordance with end-producer
requirements. For example, if the base waste materials to be recycled have a
high water content, a parallel separation of the liquid and solid components can
be achieved. The patent will include both the process based on the worm system
for recycling metal dust and other materials and the finished products of the
recycling machine. The patent process is registered with the European Patent
Office under number 038 3227 and number 038 3229.
ENTECS is active in the business areas of concrete recycling, production of
artificial peat products, and software solutions for environmental management.
The following is a description of these industry segments.
The Concrete Recycling System (BRS Compact)
The ready-mixed concrete industry produces significant quantities of waste
concrete and mortar in the production process and when the concrete mixer trucks
are cleaned out each day. This waste concrete and cleaning process produces a
large quantity of waste water that is very high in alkaline (pH value
12.9-13.9). Hence the waste water cannot be disposed of via the public sewer
systems in most European Union countries because of environmental regulations.
The new concrete recycling system makes it possible for concrete plants to
recycle the waste concrete by washing the sand and gravel so it can be reused.
The waste water generated by the process is also reused in the cement mixing
plant. Not only are the waste products reused but also public land fill space is
saved because until now the cement waste had to be disposed of as "special"
waste material. This process eliminates all waste from the process. In addition
to the cost savings on material, the water recycling reduces the cost of fresh
water used in the process and sewage charges. The BRS Compact system includes
all unique features of ENTECS' competitor's systems as well as other features
which ENTECS' competitor's systems do not include. Management believes that this
new concrete recycling system is currently the only one of its kind world-wide,
which allows for completely waste-free concrete production.
<PAGE>
Wood Fiber/Artificial Peat
Peat cutting or harvesting has come under public criticism for ecological and
conservation reasons. Peat cutting will be completely prohibited by state law in
Bavarian and Hessian moors in the foreseeable future. Large scale peat
harvesting has already been largely discontinued because most of the land leases
for the peat harvesting expire over the next ten year period. Development of
artificial peat products is therefore necessary because of the reduction of peat
harvesting. The annual peat usage in Germany currently is approximately 6
million square meters, according to the 1994 database of "Torfstreuverbund", an
association of peat producers in Germany. The amount of peat harvested
historically will have to be artificially produced in the long term.
ENTECS' subsidiary ENTECS Umwelttechnik GmbH owns an artificial peat production
system. ENTECSS Umwelttechnik GmbH produced three grades of high-quality all
natural artificial peat products. The quality of the artificial peat depends on
the quality of the raw materials used in the process. The artificial peat
products have all of the qualities of peat. The artificial peat products are
marketed as TORBELLA(R) plus, TORBELLA(R) standard, and Tornova(R). Torbella(R)
and Tornova(R) are registered trademarks.
ENTECS presently owns a production facility for artificial peat located in Bad
Wurzach/Allgau. All materials, transportation facilities, and technical services
for the production of artificial peat are maintained presently at this one
location. ENTECS management has been investigating the feasibility of adding a
second location to its artificial peat production capabilities. ENTECS'
management does not anticipate adding a second location, however, until after
the merger, if then.
Software Solutions for Environmental Protection
Interest is increasing for an automated solution for businesses that need to
monitor their environmental protection obligations. This involves overall
management supervision of the organizational structure, areas of responsibility,
patterns of behavior, operational procedures, and processes and materials for
the establishment and implementation of firm wide environmental policy. Until
now, the software programs for management of environmental protection
obligations for small and medium-sized businesses has been too inflexible,
complex, and expensive. Therefore AkkU Umweltberatung GmbH, a Munich-based
company, developed an inexpensive and individually customizable software package
to assist small and medium-sized businesses to develop their own environmental
management systems. The software is known as the "Fabius 1.0 Software Module for
Effective Environmental Management." In cooperation with ENTECS Software and
Umweltmanagement GmbH the Fabius software was further developed to the current
version "Fabius 2.1" (collectively with the Fabius 1.0 version, "Fabius"). AkkU
Umweltberatung GmbH owns the Fabius software's copyright. ENTECSS Software and
Umweltmanagement GmbH have acquired an exclusive distribution license for
Fabius.
Fabius has been on the market in varying industry branches and with firms of
varying size since 1996. Some of the well-known users of the software are
Allianz AG, Dr. Oetker KG, Tetra Pak GmbH, and Tesa-Werke. Fabius was rated b
the Fraunhofer Institute for Management and Organization (Fraunhofer IAO,
Stuttgart, April 1998) as one of the most used environmental protection software
solutions for businesses.
<PAGE>
DIRECTORS AND EXECUTIVES OF ENTECS
Name Position Held % Common Stock Owned
Gerd Behrens Chairman of the Board and President 30.5%
Frank Behrens Secretary and a Director 12.2%
1 Karsten Behrens Consultant 12.2%
1 Dieter Gastinger Managing Director/Umweltmanage 6.1%
1 Yvonne Marquard Consultant and Director 5.5%
BACKGROUND AND REASONS FOR THE MERGER
Germany has adopted some of the strictest laws and regulations in the world
relating to the recycling of business waste products. These laws and regulations
apply to a myriad of different types of waste products. TES and ENTECS are each
in the business of providing products and services to assist German businesses
in complying with such laws and regulations. Both TES and ENTECS were founded by
Gerd Behrens, president of each company. Because TES and ENTECS recycle
different types of product waste, Mr. Behrens initially believed it more
efficient to contain the operations in separate entities. TES' focus has been
upon electronic scrap and ENTECS' focus has been upon wood products and
concrete. However, in June 1998 Mr. Behrens began to explore the feasibility of
combining the operations of TES and ENTECS under one entity. The executive and
administrative offices of both companies are presently at the same location.
Management expects that the merger will ultimately result in administrative
efficiencies by reducing the overhead of maintaining two holding companies,
increased financial strength, and increased market potential, including global
markets for all products. Management expects that TES will be able to better
position itself in the environmental protection industry as a result of the
merger with a combination of the innovative technologies of ENTECS and the
certified recycling services of TES. Management believes that compliance with
governmental regulations following the merger will be simplified since the
compliance function is expected to be performed by a single group of employees
rather than two separate groups with all activities conducted under the umbrella
of TES.
<PAGE>
TES intends to operate the two subsidiaries it presently owns, TES GmbH and TES
Oecon AG, and the two present subsidiaries of ENTECS, ENTECS Umwelttechnik GmbH
and ENTECS Software and Umweltmanagement GmbH, under the umbrella of TES as a
holding company providing management services to its subsidiaries. This will
permit the consolidation of management expertise into one company. The
operations of each subsidiary will be better able to complement each other in
this way.
For example, the training operations of TES Oecon AG will be able to offer new
training courses for services and technologies that are developed by or as a
result of the consulting services provided by ENTECS Software and
Umweltmanagment GmbH. Each of the present TES and ENTECS subsidiaries will
continue after the merger to offer the same products and services as they
presently offer. The management of TES also anticipates the development of new
products and services in the environmental service industry as a result of the
closer interaction of the subsidiary's management and marketing personnel.
EFFECTS OF THE MERGER
Upon consummation of the merger, TES Acquisition, a wholly-owned subsidiary of
TES, will be merged with and into ENTECS and ENTECS will become a wholly-owned
subsidiary of TES. Each share of ENTECS common stock outstanding immediately
prior to the merger is purposed to be converted into the right to receive 6.93
shares of TES common stock.
Management determined the exchange ratio by calculating the ratio of the net
capital contributions made by the TES stockholders and the ENTECS stockholders
to the total of the net capital contributions of both companies. With this
ratio, management computed the number of total TES shares to be outstanding
after the merger by dividing the TES shares outstanding before the merger by
TES' ratio of the net capital contribution computed above. Management then
computed the number of TES shares to be issued to ENTECS stockholders by
subtracting the number of TES shares outstanding before the merger from the
number to be outstanding after the merger. The exchange ratio equals the number
of TES shares to be issued to ENTECS stockholders as a result of the merger
divided by the number of shares of ENTECS common stock outstanding before the
merger.
Based upon the number of shares of ENTECS common stock expected to be
outstanding immediately prior to the merger, the stockholders of ENTECS will
have the right to receive an aggregate of approximately 11,355,650 shares of TES
common stock upon consummation of the merger. Subsequent to the merger, the
ENTECS stockholders will control approximately 68.5% of the issued and
outstanding shares of TES.
<PAGE>
STRUCTURE
The boards of directors of TES and ENTECS have agreed to merge TES Acquisition
Corp. ("TES Acquisition"), a subsidiary of TES, into ENTECS. ENTECS would become
a wholly-owned subsidiary of TES. ENTECS stockholders would receive 6.93 shares
of TES common stock for each share of ENTECS common stock which they owned
before the merger.
POST MERGER DIRECTORS AND EXECUTIVE OFFICERS OF TES
All individuals will remain in the same titles and positions indicated
subsequent to the merger. The board of directors of TES has nominated Dieter
Gastinger for election to the TES board of directors upon consummation of the
merger.
Gerd Behrens, Jutta Behrens, Frank Behrens, Karsten Behrens, and Yvonne Marquard
may be deemed to be "promoters" and "parents" of TES within the meaning of the
rules and regulations promulgated under the Securities Act.
The directors of TES are elected to hold office until the next annual meeting of
stockholders and until their respective successors have been elected and
qualified. Officers of TES are elected annually by the board of directors and
hold office until their successors are duly elected and qualified. Gerd Behrens
and Jutta Behrens are married to each other, and they are the parents of Frank
Behrens and Karsten Behrens. Frank Behrens and Karsten Behrens are brothers.
There are no other family relationships between any director or executive
officer and any other director or executive officer.
ANALYSES
As stated in the methods and methodology section previously, we have considered
(5) five separate approaches to estimate value in the analysis, but have relied
on the income approach and the capital contribution approach to estimate value.
Because ENTECS and TES are in essentially the same industry and located in the
same geographical locations and are regulated by same laws/government, and
operations are directed and managed by the same principals, unsystematic
Business risk can be safely assumed away.
An arbitrary discount rate of 15.0 percent will be used in the NPV calculation
disregarding the actual risk free rate, beta, and weighted average cost of
capital ("WACC"). Each company's cash flow projections will be discounted to
reflect a relative base to weigh value as to the contribution of each entity
moving forward.
INCOME / NPV APPROACH
The income or NPV approach seeks to estimate the present value of future cash
flows that will be generated by the business. In this case both ENTECS and TES
will be calculated and compared. This approach begins with a set of assumptions,
forecasts, and pro forma financial statements to ground the estimated cash
flows; however, BSS did not receive the assumptions and forecasts, only the
estimated cash flows.
<PAGE>
Projections are included in this report, however the assumptions have not been
provided and, therefore could not be evaluated as to there rational. Projections
and assumptions are inherently subject to uncertainty and may be significantly
influenced by events that are unforeseeable or otherwise differ or vary from
reasonable expectations. Consequently, operating results may vary from the
projections set forth in the in the pro forma's provided, commensurately
affecting the value of this method of estimation.
The estimated net income for ENTECS, years 1999-2001 are as follows:
(See appendix A for detailed Pro Forma)
1999 2000 2001
---- ---- ----
-$90,332.DM $840,646.DM $1,268,292.DM
NPV = $1,391,022.DM
The estimated net income for TES, years 1999-2001 are as follows:
(See appendix A for detailed Pro Forma)
1999 2000 2001
---- ---- ----
-$249,540.DM $256,644.DM $796,344.DM
NPV = $500,678.DM
For this analysis, the cash flows were discounted at a rate of 15.0 percent.
This number was assigned arbitrarily to each company's cash flow projections to
reflect a relative base to weight value as to the contribution of each entity
moving forward. It is important to understand that the discount rate chosen is
arbitrary because we are using this method to extrapolate a fair exchange ratio
and not the actual present dollar value of the projected cash flows.
To calculate the present value contribution of the future cash flows for ENTECS
and TES, divide the NPV for the respective company by the sum of the NPV of both
companies.
Calculation:
ENTECS TES Total
NPV: $1,391,022.DM $500,678.DM $1,891,700.DM
ENTECS present value contribution: 73.53% ($1,391,022 / $1,891,700)
TES present value contribution: 26.47% ($500,678 / $1,891,700)
<PAGE>
CAPITAL CONTRIBUTION APPROACH
The capital contribution approach, or net contribution, is a method by which
start-up, and developmental companies assign a value when there are no cash
flows and no retained earnings, and/or an accumulated deficit the on balance
sheet.
This approach concerns the amount found on the balance sheet know as the
contributed capital or common stock and preferred stock. Contributed capital is
the amount of capital that has been invested by the owners (stockholders) of the
company since inception.
To calculate the respective percentages of capital contributed by the
shareholders of ENTECS and TES, divide each company's amount received from the
issuance of common stock by the sum of the amounts received from the issuance of
common stock of both companies. (See appendix B for balance sheet comparison)
As of March 31, 1999, ENTECS and TES report the following balances in their
contributed capital accounts:
ENTECS TES Total
------ --- -----
$4,999,545.DM $2,260,155.DM $7,259,700.DM
Calculation of contribution:
ENTECS capital contribution: 68.87% ($4,999,545 / $7,259,700)
TES capital contribution: 31.13% ($2,260,155 / $7,259,700)
CONCLUSION
From our analysis the range for the exchange ratio for the proposed acquisition
of ENTECS by TES as of March 31, 1999, is between 68.0 - 72.0 percent of the
combined company's common stock be distributed to ENTECS' shareholders, and
between 28.0 - 32.0 percent of the combined company's common stock be held by
TES' shareholders. This estimation is consistent from both a net present value
analysis of the 1999-2001 pro forma net income estimates of ENTECS and TES and
the net capital contribution analysis of the contributed capital accounts on the
balance sheets of ENTECS and TES as of March 31, 1999.
It is our opinion that a merger of TES with ENTECS should result in an exchange
of shares of TES and ENTECS at a ratio ranging from 6.91 shares of TES for each
share of ENTECS to 8.36 shares of TES for each share of ENTECS based upon the
number of shares outstanding as of March 31, 1999 respectively.
<PAGE>
APPENDIX A
TES: PRO FORMA 1999-2001
================================================================================
- --------------------------------------------------------------------------------
(000)$DM 1999 2000 2001
- --------------------------------------------------------------------------------
Net Sales 1,074,900 3,162,000 5,023,200
Sales 974,400 3,102,000 4,963,200
Other operating income 100,500 60,000 60,000
Cost of Services 440,880 1,558,800 2,682,240
Operating expenses 883,560 1,346,556 1,544,616
Salaries & Wages 553,656 853,656 949,656
Other 329,904 492,900 594,960
Net Income / Loss (249,540) 256,644 796,344
======== ======= =======
- --------------------------------------------------------------------------------
ENTECS: PRO FORMA 1999-2001
================================================================================
- --------------------------------------------------------------------------------
(000)$DM 1999 2000 2001
- --------------------------------------------------------------------------------
Net Sales 728,180 3,006,060 3,381,700
Sales 728,180 2,706,060 3,081,700
Other operating income 0 300,000 300,000
Cost of Services 444,880 1,395,812 1,280,398
Operating expenses 373,632 769,602 833,010
Salaries & Wages 222,882 344,082 370,482
Other 150,750 425,520 462,528
Net Income / Loss (90,332) 840,646 1,268,292
======= ======= =========
- --------------------------------------------------------------------------------
<PAGE>
APPENDIX B
BALANCE SHEET COMPARISON
3/31/99 3/31/99
(000)$DM TES ENTECS
================================================================================
ASSETS
Current:
Cash/Equivalents $ 215,467 $ 1,226,663
Accounts Receivable 125,193 48,315
Inventory 0 120,000
Prepaid Exp 20619 47,010
----------- -----------
Total Current Assets 361,279 1,441,989
=========== ===========
PP&E (net of accumulated depreciation) 155,098 522,028
Investments 10,000 0
Note Receivable-non current 50,000 0
Intangible Assets 0 1,081,251
Due from Affiliated Company 0 645,659
Other Assets 398,176 0
----------- -----------
TOTAL ASSETS 974,553 3,690,928
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities:
Notes Payable- Bank 32,059 0
Notes Payable- Other 80,000 0
Accounts Payable 98,843 324,254
Accounts Payable- related party 15,862 250,000
Accrued Expenses 228,047 207,139
----------- -----------
Total Current Liabilities 454,811 781,393
=========== ===========
Loans from shareholders 230,000 0
Loans from affiliated Companies 645,659 0
TOTAL LIABILITIES 875,659 781,394
=========== ===========
STOCKHOLDERS EQUITY
Issuance of Common Stock 2,260,155 4,999,545
% of combined contribution 31.13% 68.87%
Accumulated deficit (2,616,072) (2,090,012)
----------- -----------
Stockholders Equity (355,917) 2,909,533
TOTAL LIAB. & SHAREHOLDERS' EQUITY- $ 974,553 $ 3,690,927
Number of shares outstanding 5,244,830 1,612,682
=========== ===========
<PAGE>
APPENDIX C
Sections Of The Colorado Business Corporation Act
Relating To Dissenters' Rights.
7-113-101 - Definitions.
For purposes of this article:
(1) "Beneficial shareholder" means the beneficial owner of shares held in a
voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring domestic or foreign
corporation, by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 7-113-102 and who exercises that right at the
time and in the manner required by part 2 of this article.
(4) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action except to the extent that exclusion would
be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at the legal rate as
specified in section 5-12-101, C.R.S.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of a nominee to the extent such owner is
recognized by the corporation as the shareholder as provided in section
7-107-204.
(7) "Shareholder" means either a record shareholder or a beneficial
shareholder.
7-113-102 - Right to dissent.
(1) A shareholder, whether or not entitled to vote, is entitled to dissent
and obtain payment of the fair value of the shareholder's shares in the event of
any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party if:
(I) Approval by the shareholders of that corporation is required
for the merger by section 7-111-103 or 7-111-104 or by the
articles of incorporation; or
(II) The corporation is a subsidiary that is merged with its
parent corporation under section 7-111-104;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of the corporation for
which a shareholder vote is required under section 7-112-102 (1);
and
<PAGE>
(d) Consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of an entity
controlled by the corporation if the shareholders of the
corporation were entitled to vote upon the consent of the
corporation to the disposition pursuant to section 7-112-102 (2).
(1.3)A shareholder is not entitled to dissent and obtain payment, under
subsection (1) of this section, of the fair value of the shares of any class or
series of shares which either were listed on a national securities exchange
registered under the federal "Securities Exchange Act of 1934", as amended, or
on the national market system of the national association of securities dealers
automated quotation system, or were held of record by more than two thousand
shareholders, at the time of:
(a) The record date fixed under section 7-107-107 to determine the
shareholders entitled to receive notice of the shareholders'
meeting at which the corporate action is submitted to a vote;
(b) The record date fixed under section 7-107-104 to determine
shareholders entitled to sign writings consenting to the
corporate action; or
(c) The effective date of the corporate action if the corporate
action is authorized other than by a vote of shareholders.
(1.8)The limitation set forth in subsection (1.3) of this section shall not
apply if the shareholder will receive for the shareholder's shares, pursuant to
the corporate action, anything except:
(a) Shares of the corporation surviving the consummation of the plan
of merger or share exchange;
(b) Shares of any other corporation which at the effective date of
the plan of merger or share exchange either will be listed on a
national securities exchange registered under the federal
"Securities Exchange Act of 1934", as amended, or on the national
market system of the national association of securities dealers
automated quotation system, or will be held of record by more
than two thousand shareholders;
(c) Cash in lieu of fractional shares; or
(d) Any combination of the foregoing described shares or cash in lieu
of fractional shares.
(2) (Deleted by amendment, L. 96, p. 1321, ss. 30, effective June 1, 1996.)
(2.5)A shareholder, whether or not entitled to vote, is entitled to dissent
and obtain payment of the fair value of the shareholder's shares in the event of
a reverse split that reduces the number of shares owned by the shareholder to a
fraction of a share or to scrip if the fractional share or scrip so created is
to be acquired for cash or the scrip is to be voided under section 7-106-104.
(3) A shareholder is entitled to dissent and obtain payment of the fair
value of the shareholder's shares in the event of any corporate action to the
extent provided by the bylaws or a resolution of the board of directors.
(4) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this article may not challenge the corporate action
creating such entitlement unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
7-113-103 - Dissent by nominees and beneficial owners.
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the record shareholder's name only if the record
shareholder dissents with respect to all shares beneficially owned by any one
person and causes the corporation to receive written notice which states such
dissent and the name, address, and federal taxpayer identification number, if
any, of each person on whose behalf the record shareholder asserts dissenters'
rights. The rights of a record shareholder under this subsection (1) are
determined as if the shares as to which the record shareholder dissents and the
other shares of the record shareholder were registered in the names of different
shareholders.
<PAGE>
(2) A beneficial shareholder may assert dissenters' rights as to the shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive the
record shareholder's written consent to the dissent not later
than the time the beneficial shareholder asserts dissenters'
rights; and
(b) The beneficial shareholder dissents with respect to all shares
beneficially owned by the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents
with respect to the shares held by any one or more beneficial shareholders, each
such beneficial shareholder must certify to the corporation that the beneficial
shareholder and the record shareholder or record shareholders of all shares
owned beneficially by the beneficial shareholder have asserted, or will timely
assert, dissenters' rights as to all such shares as to which there is no
limitation on the ability to exercise dissenters' rights. Any such requirement
shall be stated in the dissenters' notice given pursuant to section 7-113-203.
7-113-201 - Notice of dissenters' rights.
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is submitted to a vote at a shareholders' meeting,
the notice of the meeting shall be given to all shareholders, whether
or not entitled to vote. The notice shall state that shareholders are
or may be entitled to assert dissenters' rights under this article and
shall be accompanied by a copy of this article and the materials, if
any, that, under articles 101 to 117 of this title, are required to be
given to shareholders entitled to vote on the proposed action at the
meeting. Failure to give notice as provided by this subsection (1)
shall not affect any action taken at the shareholders' meeting for
which the notice was to have been given, but any shareholder who was
entitled to dissent but who was not given such notice shall not be
precluded from demanding payment for the shareholder's shares under
this article by reason of the shareholder's failure to comply with the
provisions of section 7-113-202 (1).
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104, any written or oral solicitation of a shareholder to execute
a writing consenting to such action contemplated in section 7-107-104 shall be
accompanied or preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters' rights under this article, by a copy of this
article, and by the materials, if any, that, under articles 101 to 117 of this
title, would have been required to be given to shareholders entitled to vote on
the proposed action if the proposed action were submitted to a vote at a
shareholders' meeting. Failure to give notice as provided by this subsection (2)
shall not affect any action taken pursuant to section 7-107-104 for which the
notice was to have been given, but any shareholder who was entitled to dissent
but who was not given such notice shall not be precluded from demanding payment
for the shareholder's shares under this article by reason of the shareholder's
failure to comply with the provisions of section 7-113-202 (2).
7-113-202 - Notice of intent to demand payment.
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is submitted to a vote at a shareholders' meeting and if
notice of dissenters' rights has been given to such shareholder in connection
with the action pursuant to section 7-113-201 (1), a shareholder who wishes to
assert dissenters' rights shall:
(a) Cause the corporation to receive, before the vote is taken,
written notice of the shareholder's intention to demand payment
for the shareholder's shares if the proposed corporate action is
effectuated; and
(b) Not vote the shares in favor of the proposed corporate action.
(2) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized without a meeting of shareholders pursuant to
section 7-107-104 and if notice of dissenters' rights has been given to such
shareholder in connection with the action pursuant to section 7-113-201 (2), a
shareholder who wishes to assert dissenters' rights shall not execute a writing
consenting to the proposed corporate action.
(3) A shareholder who does not satisfy the requirements of subsection (1)
or (2) of this section is not entitled to demand payment for the shareholder's
shares under this article.
<PAGE>
7-113-203 - Dissenters' notice.
(1) If a proposed corporate action creating dissenters' rights under
section 7-113-102 is authorized, the corporation shall give a written
dissenters' notice to all shareholders who are entitled to demand payment for
their shares under this article.
(2) The dissenters' notice required by subsection (1) of this section shall
be given no later than ten days after the effective date of the corporate action
creating dissenters' rights under section 7-113-102 and shall:
(a) State that the corporate action was authorized and state the
effective date or proposed effective date of the corporate
action;
(b) State an address at which the corporation will receive payment
demands and the address of a place where certificates for
certificated shares must be deposited;
(c) Inform holders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment demand is
received;
(d) Supply a form for demanding payment, which form shall request a
dissenter to state an address to which payment is to be made;
(e) Set the date by which the corporation must receive the payment
demand and certificates for certificated shares, which date shall
not be less than thirty days after the date the notice required
by subsection (1) of this section is given;
(f) State the requirement contemplated in section 7-113-103 (3), if
such requirement is imposed; and
(g) Be accompanied by a copy of this article.
7-113-204 - Procedure to demand payment.
(1) A shareholder who is given a dissenters' notice pursuant to section
7-113-203 and who wishes to assert dissenters' rights shall, in accordance with
the terms of the dissenters' notice:
(a) Cause the corporation to receive a payment demand, which may be
the payment demand form contemplated in section 7-113-203 (2)
(d), duly completed, or may be stated in another writing; and
(b) Deposit the shareholder's certificates for certificated shares.
(2) A shareholder who demands payment in accordance with subsection (1) of
this section retains all rights of a shareholder, except the right to transfer
the shares, until the effective date of the proposed corporate action giving
rise to the shareholder's exercise of dissenters' rights and has only the right
to receive payment for the shares after the effective date of such corporate
action.
(3) Except as provided in section 7-113-207 or 7-113-209 (1) (b), the
demand for payment and deposit of certificates are irrevocable.
(4) A shareholder who does not demand payment and deposit the shareholder's
share certificates as required by the date or dates set in the dissenters'
notice is not entitled to payment for the shares under this article.
<PAGE>
7-113-205 - Uncertificated shares.
(1) Upon receipt of a demand for payment under section 7-113-204 from a
shareholder holding uncertificated shares, and in lieu of the deposit of
certificates representing the shares, the corporation may restrict the transfer
thereof.
(2) In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
7-113-206 - Payment.
(1) Except as provided in section 7-113-208, upon the effective date of the
corporate action creating dissenters' rights under section 7-113-102 or upon
receipt of a payment demand pursuant to section 7-113-204, whichever is later,
the corporation shall pay each dissenter who complied with section 7-113-204, at
the address stated in the payment demand, or if no such address is stated in the
payment demand, at the address shown on the corporation's current record of
shareholders for the record shareholder holding the dissenter's shares, the
amount the corporation estimates to be the fair value of the dissenter's shares,
plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section shall be
accompanied by:
(a) The corporation's balance sheet as of the end of its most recent
fiscal year or, if that is not available, the corporation's
balance sheet as of the end of a fiscal year ending not more than
sixteen months before the date of payment, an income statement
for that year, and, if the corporation customarily provides such
statements to shareholders, a statement of changes in
shareholders' equity for that year and a statement of cash flow
for that year, which balance sheet and statements shall have been
audited if the corporation customarily provides audited financial
statements to shareholders, as well as the latest available
financial statements, if any, for the interim or full-year
period, which financial statements need not be audited;
(b) A statement of the corporation's estimate of the fair value of
the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under
section 7-113-209; and
(e) A copy of this article.
7-113-207 - Failure to take action.
(1) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 does not occur within sixty days after the date
set by the corporation by which the corporation must receive the payment demand
as provided in section 7-113-203, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(2) If the effective date of the corporate action creating dissenters'
rights under section 7-113-102 occurs more than sixty days after the date set by
the corporation by which the corporation must receive the payment demand as
provided in section 7-113-203, then the corporation shall send a new dissenters'
notice, as provided in section 7-113-203, and the provisions of sections
7-113-204 to 7-113-209 shall again be applicable.
<PAGE>
7-113-208 - Special provisions relating to
shares acquired after announcement of
proposed corporate action.
(1) The corporation may, in or with the dissenters' notice given pursuant
to section 7-113-203, state the date of the first announcement to news media or
to shareholders of the terms of the proposed corporate action creating
dissenters' rights under section 7-113-102 and state that the dissenter shall
certify in writing, in or with the dissenter's payment demand under section
7-113-204, whether or not the dissenter (or the person on whose behalf
dissenters' rights are asserted) acquired beneficial ownership of the shares
before that date. With respect to any dissenter who does not so certify in
writing, in or with the payment demand, that the dissenter or the person on
whose behalf the dissenter asserts dissenters' rights acquired beneficial
ownership of the shares before such date, the corporation may, in lieu of making
the payment provided in section 7-113-206, offer to make such payment if the
dissenter agrees to accept it in full satisfaction of the demand.
(2) An offer to make payment under subsection (1) of this section shall
include or be accompanied by the information required by section 7-113-206 (2).
7-113-209 - Procedure if dissenter is dissatisfied with payment or offer.
(1) A dissenter may give notice to the corporation in writing of the
dissenter's estimate of the fair value of the dissenter's shares and of the
amount of interest due and may demand payment of such estimate, less any payment
made under section 7-113-206, or reject the corporation's offer under section
7-113-208 and demand payment of the fair value of the shares and interest due,
if:
(a) The dissenter believes that the amount paid under section
7-113-206 or offered under section 7-113-208 is less than the
fair value of the shares or that the interest due was incorrectly
calculated;
(b) The corporation fails to make payment under section 7-113-206
within sixty days after the date set by the corporation by which
the corporation must receive the payment demand; or
(c) The corporation does not return the deposited certificates or
release the transfer restrictions imposed on uncertificated
shares as required by section 7-113-207 (1).
(2) A dissenter waives the right to demand payment under this section
unless the dissenter causes the corporation to receive the notice required by
subsection (1) of this section within thirty days after the corporation made or
offered payment for the dissenter's shares.
Exhibit 5.1
SCHLUETER & ASSOCIATES, P.C. LETTERHEAD
June 22, 1999
Technical Environment Solutions, Inc.
C/O TES GmbH
25 Impler Strasse
Munich, 81371
Germany
Re: Registration Statement on Form S-4
Reg. No. 333-72345
Ladies and Gentlemen:
We have acted as counsel for Technical Environment Solutions, Inc., a
Colorado corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-4 (the "Registration Statement") filed by the
Company with the Securities and Exchange Commission. The Registration Statement
relates to the registration under the Securities Act of 1933, as amended (the
"1933 Act"), of 11,467,974 shares of common stock, no par value (the
"Securities") that will be issued by the Company to stockholders of
Environmental Technologies and Software Solutions, Inc. ("ENTECS") , a Colorado
corporation, pursuant to the Agreement and Plan of Merger, dated as of June 22,
1999 (the "Merger Agreement").
This opinion is delivered pursuant to the requirements of Item 601(b)(5) of
Regulation S-K under the 1933 Act.
We have examined and relied on originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records and other
instruments, have made such inquiries as to questions of fact of officers and
representatives of the Company and have made such examinations of law as we have
deemed necessary or appropriate for purposes of giving the opinion expressed
below. In such examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals and the
conformity with the originals of all documents submitted to us as copies.
<PAGE>
Technical Environment Solutions, Inc.
June 22, 1999
Page 2
The following opinions are limited solely to applicable federal law of the
United States of America and the Corporation Law of the State of Colorado. Based
upon and subject to the foregoing, we are of the opinion that:
1. The issuance and sale by the Company of the Securities, as provided in
the Registration Statement and the Merger Agreement, have been duly
and validly authorized by all necessary corporate action of the
Company.
2. The Securities, when issued and sold in conformity with the
resolutions of the board of directors of the Company and as provided
in the Registration Statement and the Merger Agreement, will be
validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
this firm under the heading "Legal Matters" in the Proxy Statement/Prospectus
included in the Registration Statement as the counsel who will pass upon the
validity of the Securities. In giving this consent, we do not thereby admit that
we are in the category of persons whose consent is required under Section 7 of
the Securities Act or the rules of the Securities and Exchange Commission.
Very truly yours,
/s/ Schlueter & Associates, P.C.
SCHLUETER & ASSOCIATES, P.C.
Exhibit 5.2
ROSSI & MARICLE, P.C. LETTERHEAD
June 21, 1999
Environmental Technologies and Software Solutions, Inc.
25 Impler Strasse
Munich, 81371
Germany
Re: Registration Statement on Form S-4
Reg. No. 333-72345
Ladies and Gentlemen:
We have acted as counsel for Environmental Technologies and Software
Solutions, Inc., a Colorado corporation (the "Company"), in connection with the
preparation of a Proxy Statement and Registration Statement on Form S-4 (the
"Registration Statement") filed by Technical Environment Solutions Inc. ("TES")
with the Securities and Exchange Commission. The Registration Statement relates
to the registration under the Securities Act of 1933, as amended (the "1933
Act"), of 11,467,974 shares of common stock, no par value (the "Securities")
that will be issued by TES to stockholders of the Company, pursuant to the
Agreement and Plan of Merger, dated as of June 22, 1999 (the "Merger
Agreement").
This opinion is delivered pursuant to the requirements of Item 601(b)(5) of
Regulation S-K under the 1933 Act.
In connection with this opinion, we have made such investigations and
examined such records, including the Company's Articles of Incorporation and
Bylaws, as amended, and corporate minutes, as we deemed necessary to the
performance of our services and to give this opinion. We have also examined and
are familiar with the originals or copies, certified or otherwise identified to
our satisfaction, of such other documents, corporate records and other
instruments as we have deemed necessary for the preparation of this opinion. In
expressing this opinion we have relied, as to any questions of fact upon which
our opinion is predicated, upon representations and certificates of the officers
of the Company.
In giving this opinion we have assumed:
(a) the genuineness of all signatures and the authenticity and
completeness of all documents submitted to us as originals;
(b) the conformity to originals and the authenticity of all documents
supplied to us as certified, photocopied, conformed or facsimile
copies and the authenticity and completeness of the originals of any
such documents;
(c) the proper, genuine and due execution and delivery of all documents by
all parties to them and that there has been no breach of the terms
thereof; and
(d) that the performance of any obligation under any documents in any
jurisdiction outside the United States will not be illegal or
ineffective under the laws of that jurisdiction.
<PAGE>
The opinions expressed are qualified in their entirety as follows:
(a) such opinions and the agreements referenced herein are subject to the
application of bankruptcy, insolvency, reorganization, state
fraudulent conveyance acts and other similar laws affecting the
enforcement of rights and all laws and legal precedents concerning the
obligations of creditors and other parties to act reasonably, in good
faith and with fairness in exercising their rights to enforce certain
remedies;
(b) the enforceability of the obligations under the agreements referenced
herein are subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or
at law); and
(c) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to certain equitable defenses and to
the discretion of the court before which any proceedings are brought
and may not be available with respect to the enforcement of the terms
and provisions of the agreements referenced herein.
The following opinions are limited solely to applicable federal law of the
United States of America and the Corporation Law of the State of Colorado. Based
upon and subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Colorado,
and has the corporate power and authority to own and operate its
properties and to carry on its business as it is now being conducted.
2. The Company's authorized capital consists of 50,000,000 shares of no
par value Common Stock . As of the date of this opinion, the Company
has issued and outstanding 1,638,282 shares of Common Stock. All of
the issued and outstanding shares of Common Stock are validly issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the use of our name in the Prospectus included as
part of the Registration Statement in connection with the matters referred to
under the caption "Legal Matters." In giving this consent, we do not thereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act or the rules of the Securities and Exchange
Commission.
Very truly yours,
/s/ Rossi & Maricle, P.C.
ROSSI & MARICLE, P.C.
EXHIBIT 8.1
SCHLUETER & ASSOCIATES, P.C.
1050 Seventeenth Street, Suite 1700
Denver, Colorado 80202
(303) 292-3883
Facsimile (303) 296-8880
June 22, 1999
Technical Environment Solutions, Inc.
C/O TES GmbH
25 Impler Strasse
Munich, 81371
Germany
Environmental Technologies and Software Solutions, Inc.
C/O TES GmbH
25 Impler Strasse
Munich, 81371
Germany
Ladies and Gentlemen:
Our opinion has been requested regarding certain federal income tax
consequences of the merger (the "Merger") of TES Acquisition Corp. ("Merger
Sub"), a Colorado corporation and newly-formed subsidiary of Technical
Environment Solutions, Inc. (" TES"), a Colorado corporation, with and into
Environmental Technologies and Software Solutions, Inc. ("Entecs"), a Colorado
corporation, pursuant to that Agreement and Plan of Merger, dated as of June 22,
1999 (the "Agreement"), by and between TES, Entecs and Merger Sub. Unless
otherwise indicated, capitalized terms used in this letter shall have the
meaning given them in the Agreement.
For purposes of our opinion, we have examined and relied upon copies of the
following documents, including all schedules and exhibits attached thereto:
(a) the Agreement;
(b) the Registration Statement on Form S-4 containing the Proxy
Statement/Prospectus prepared by TES and Entecs in connection with the
Merger and filed with the Securities and Exchange Commission pursuant
to the Securities Act of 1933, as amended (the "Registration
Statement"); and
(c) certificates to Counsel from TES and Entecs provided in connection
with the Merger (the "Certificates").
We have not independently verified the factual matters relating to the
Merger in connection with or apart from our preparation of this opinion and,
accordingly, our opinion does not take into account any matters not set forth in
this letter which might have been disclosed by independent verification.
<PAGE>
Provided that the Merger is consummated in accordance with the terms and
conditions set forth in the Agreement, and based on the facts and
representations set forth in the Certificates and this letter, and subject to
the qualifications and other matters set forth in this letter, it is our opinion
that for federal income tax purposes:
(a) The Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
(b) No gain or loss will be recognized by the Entecs shareholders (who are
U.S. taxpayers) upon the exchange of their Entecs common stock solely
for TES common stock pursuant to the Merger (except with respect to
cash received in lieu of a fractional share of TES common stock).
(c) The aggregate tax basis of the TES common stock received by the Entecs
shareholders who, pursuant to the Merger, exchange all of their Entecs
common stock solely for TES common stock will be the same as the
aggregate tax basis of the Entecs common stock surrendered in exchange
(reduced by any amount allocable to a fractional share interest in TES
common stock for which cash is received).
(d) Any cash received by a holder of Entecs common stock in lieu of a
fractional share interest in TES common stock shall be treated as
received in exchange for such fractional share. Such gain or loss
generally will be recognized for federal income tax purposes measured
by the difference between the amount of cash received and the portion
of the stockholder's tax basis allocable to such fractional share.
(e) The holding period of the TES common stock received pursuant to the
Merger in exchange for Entecs common stock will include the holding
period of the Entecs common stock surrendered in the exchange if such
Entecs common stock was a capital asset in the hands of the exchanging
stockholder at the Effective Time of the Merger.
Our opinion is limited to the foregoing United States federal income tax
consequences of the Merger as a reorganization within the meaning of Section
368(a) of the Code, which is the only matter as to which our opinion has been
requested. We do not address any other federal income tax consequences of the
Merger, or any transactions undertaken incident to the Merger. Additionally, we
have not considered matters (including German Federal, German State/Provincial,
other state or local tax consequences) arising under the laws of any
jurisdiction other than matters of federal law arising under the law of the
United States.
Our opinion is based on the understanding that the relevant facts are, and
will be as of the Effective Time of the Merger, as set forth or referred to in
this letter and in the Certificates. If this understanding is incorrect or
incomplete in any respect, our opinion could be affected. Our opinion also is
based upon the existing provisions of United States federal income tax law,
including the Internal Revenue Code of 1986, as amended, the Treasury Department
Regulations promulgated thereunder (final, temporary and proposed), published
revenue rulings and procedures of the Internal Revenue Service, judicial
decisions, reports and statements of congressional committees and members and
such other matters as we have considered relevant, all as in effect on the date
hereof. Any of such authorities could be changed at any time (possibly
retroactively), and any such changes could alter the statements and opinions
expressed herein. In rendering this opinion, we undertake no responsibility to
advise of any new developments in the application or interpretation of the U.S.
federal income tax laws.
This letter is intended for the sole benefit of TES, Merger Sub, Entecs and
the Entecs shareholders and may not be relied upon by any other party without
our prior written consent. We hereby consent to the filing of this opinion with
the Securities and Exchange Commission as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Schlueter & Associates, P.C.
SCHLUETER & ASSOCIATES, P.C.
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 dated
June 23, 1999 of our report dated March 26, 1999, relating to the financial
statements of Technical Environment Solutions, Inc. as of December 31, 1998 and
to the reference to our firm under the caption "EXPERTS" in the registration
statement.
James E. Scheifley & Associates, P.C.
Certified Public Accountants
June 23, 1999
Denver, Colorado
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 dated
June 23, 1999 of our report dated April 2, 1999, relating to the financial
statements of Environmental Technologies and Software Solutions, Inc. as of
December 31, 1998 and to the reference to our firm under the caption " EXPERTS "
in the registration statement.
James E. Scheifley & Associates, P.C.
Certified Public Accountants
June 23, 1999
Denver, Colorado
