UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
Munich, 81371
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.
<PAGE>
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
Securities to be registered(1) offering price per share(2) aggregate offering price registration fee
registered
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock
no par value 8,300,237 $3.00 $24,900,711 $6,923.00
- ---------------------------------------------------------------------------------------------------------------------
(1) Based on the number of shares 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.
</TABLE>
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>
[ENTECS LOGO]
[________________, 1999]
Dear Stockholder:
I am pleased to forward the enclosed Proxy Statement/Prospectus for the
Special Meeting (the "Special Meeting") of Stockholders of Environmental
Technologies and Software Solutions, Inc. ("ENTECS") to be held on
______________, 1999 at _______ a.m. local time, at ENTECS' facilities located
at ______________________________________________, Munich, Germany. The purpose
of the Special Meeting is to consider and vote upon the combination of ENTECS
with Technical Environment Solutions, Inc. ("TES" or the "Company") through the
merger (the "Merger")of TES Acquisition Corp. ("Merger Sub"), a wholly-owned
subsidiary of TES, with and into ENTECS.
The Merger is subject to the terms and conditions of an Agreement and Plan
of Merger, dated as of ________________, 1999 (the "Merger Agreement"), by and
among TES, Merger Sub and ENTECS. In the Merger, Merger Sub will be merged with
and into ENTECS; ENTECS will be the surviving corporation and will become a
wholly owned subsidiary of TES. Pursuant to the Merger, each outstanding share
of the Common Stock of ENTECS ("ENTECS Common Stock")will be converted, without
any action on the part of the holder thereof, into the right to receive 5.7
shares of TES Common Stock (the "Exchange Ratio"). The shares of TES Common
Stock held by TES shareholders prior to the Merger will remain unchanged by the
Merger. Based on the number of shares of ENTECS Common Stock outstanding as of
December 31, 1999, it is expected that, as a result of the Merger, TES will
issue approximately 8,300,237 million shares of TES Common Stock.
THE ENTECS BOARD OF DIRECTORS (THE "BOARD") HAS CAREFULLY REVIEWED AND
CONSIDERED THE TERMS AND CONDITIONS OF THE MERGER AGREEMENT AND THE PROPOSED
MERGER. THE BOARD UNANIMOUSLY BELIEVES THE TERMS AND CONDITIONS OF THE MERGER
AGREEMENT AND THE PROPOSED MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE
ENTECS STOCKHOLDERS. THE BOARD HAS UNANIMOUSLY APPROVED THE TERMS AND CONDITIONS
OF THE MERGER AGREEMENT AND THE MERGER, AND UNANIMOUSLY RECOMMENDS THAT THE
ENTECS STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT AND THE
CONSUMMATION OF THE MERGER.
The Merger Agreement and the consummation of the Merger must be approved by
the holders of ENTECS Common Stock representing a majority of the outstanding
shares of ENTECS Common Stock entitled to vote at the Special Meeting. Your vote
on this matter is very important. We urge you to review carefully the enclosed
material and to return your proxy promptly.
<PAGE>
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE MARK, SIGN,
DATE AND PROMPTLY RETURN YOUR PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN
THOUGH YOU HAVE PREVIOUSLY RETURNED YOUR PROXY. YOU SHOULD NOT SEND IN THE STOCK
CERTIFICATE(S) FOR YOUR ENTECS COMMON STOCK AT THIS TIME.
On behalf of the Board, I thank you for your support and urge you to vote
FOR approval of the Merger Agreement and the consummation of the Merger.
Sincerely,
Gerd Behrens, President
<PAGE>
ENVIRONMENTAL TECHNOLOGIES AND SOFTWARE SOLUTONS, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ____________________, 1999
To the Stockholders of Environmental Technologies and Software Solutions, Inc.
NOTICE IS HEREBY GIVEN that a Special Meeting (the "Special Meeting") of
Stockholders of Environmental Technologies and Software Solutions, Inc., a
Colorado corporation ("ENTECS"), will be held at ________a.m., local time, on
__________________, 1999 at ENTECS' facilities located at
__________________________________________________, Munich, Germany for the
following purposes:
1. To consider and vote upon a proposal to approve (a) the Agreement
and Plan of Merger, dated as of _________________, 1999, (the "Merger
Agreement"), by and among Technical Environment Solutions, Inc.., a
Colorado corporation("TES"), TES Acquisition Corp., a Colorado corporation
and a wholly-owned subsidiary of TES ("Merger Sub"), and ENTECS, and (b)
the merger of Merger Sub with and into ENTECS (the "Merger") whereby, among
other things, ENTECS will survive the Merger and become a wholly-owned
subsidiary of TES, each outstanding share of ENTECS Common Stock, no par
value per share ("ENTECS Common Stock") will be converted, without any
action on the part of the holder thereof, into the right to receive 5.7
shares of TES Common Stock (the "Exchange Ratio").
2. To grant the Board of Directors of ENTECS discretionary authority
to adjourn the Special Meeting in order to solicit additional votes for
approval of the Merger Agreement and the Merger.
3. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement/Prospectus, a copy of which is attached hereto and made a part hereof
and which you are urged to read carefully.
The Board of Directors has fixed the close of business on _____________,
1999 as the record date for determining stockholders entitled to notice of and
to vote at the Special Meeting and any adjournment or postponement thereof.
Approval of the Merger Agreement and the Merger will require the affirmative
vote of the holders of ENTECS Common Stock representing a majority of the
outstanding shares of ENTECS Common Stock entitled to vote at the Special
Meeting.
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/PROSPECTUS AT ANY TIME BEFORE IT HAS BEEN VOTED AT
THE SPECIAL MEETING. ANY STOCKHOLDER ATTENDING THE SPECIAL MEETING MAY VOTE IN
PERSON EVEN IF SUCH STOCKHOLDER HAS RETURNED A PROXY.
<PAGE>
PROXY STATEMENT/PROSPECTUS
TECHNICAL ENVIRONMENT SOLUTIONS, INC. ENVIRONMENTAL TECHNOLOGIES AND
PROSPECTUS SOFTWARE SOLUTIONS, INC.
PROXY STATEMENT
For Special Meeting of Stockholders
To be Held ______________
This Proxy Statement/Prospectus constitutes the Proxy Statement of Environmental
Technologies and Software Solutions, Inc., a Colorado corporation ("ENTECS"), in
connection with the solicitation of proxies by the ENTECS Board of Directors for
use at the Special Meeting of ENTECS stockholders (the "Special Meeting") to be
held at _______ a.m., local time, on _________________, 1999, at ENTECS'
facilities located at ____________________, Munich, Germany, and at any
adjournments or postponements of the Special Meeting.
This Proxy Statement/Prospectus also constitutes the Prospectus of
Technical Environment Solutions, Inc. ("TES") for use in connection with the
offer and issuance of shares of TES Common Stock, no par value per share ("TES
Common Stock"), pursuant to the merger (the "Merger") of TES Acquisition Corp.,
a Colorado corporation and a wholly-owned subsidiary of TES ("Merger Sub"), with
and into ENTECS under the terms of the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of ________________, 1999, by and among TES, Merger Sub
and ENTECS. A copy of the Merger Agreement is attached hereto as Appendix A. As
a result of the Merger, ENTECS will become a wholly owned subsidiary of TES.
Upon the effectiveness of the Merger, each share of ENTECS Common Stock
Company will be converted, without any action on the part of the holder thereof,
into the right to receive 5.7 shares of TES Common Stock (the "Exchange Ratio").
An aggregate of 8,300,237 million shares of TES Common Stock, based on 1,456,182
shares of ENTECS Common Stock outstanding as of December 31, 1998, will be
issued by TES in the Merger.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to stockholders of ENTECS on or about ______________, 1999.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY
STATEMENT/PROSPECTUS. THE PROPOSED MERGER IS A COMPLEX TRANSACTION. ENTECS
STOCKHOLDERS ARE STRONGLY URGED TO READ AND CONSIDER CAREFULLY THIS PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY, PARTICULARLY THE MATTERS REFERRED TO UNDER
THE SECTION LABELED "RISK FACTORS"
- ------------------------
NEITHER THIS TRANSACTION NOR THE SECURITIES OF TES OFFERED HEREBY HAVE BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------
The date of this Proxy Statement/Prospectus is_____________, 1999.
<PAGE>
AVAILABLE INFORMATION
TES is subject to the informational requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Judiciary Plaza,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at certain
regional offices of the Commission located at 1801 California Street, Denver,
Colorado 80202. Copies of such material can be obtained at prescribed rates by
writing to the 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 constitutes part of a registration statement on Form S-4
(the "Registration Statement") filed by TES with the Commission under the
Securities Act of 1933, as amended (the "Act"). This Prospectus omits certain of
the information contained in the Registration Statement, and reference is hereby
made to the Registration Statement and to the exhibits thereto for further
information with respect to TES and the TES Common Stock offered hereby. Any
statements contained herein concerning the provisions of any document are not
necessarily complete, and, in each instance, reference is made to the copy of
such document filed with the Commission. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement/Prospectus incorporates by reference documents
relating to TES that are not presented herein or delivered herewith. Such
documents (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference) are available to any person, including
any beneficial owner of TES or ENTECS Common Stock, to whom this Proxy
Statement/ Prospectus is delivered, on written or oral request, without charge,
from TES, 25 Impler Strasse, Munich 81371, Germany, Attention: Frank Behrens,
Telephone: 011 49 89 720 15 100, if ordering from Europe and 370 17th Street,
Suite 4250, Denver, Colorado 80202, Attention: Paul Maricle, Telephone (303)
623-5600 if ordering from outside of Europe. In order to ensure timely delivery
of the documents, any such request should be made by ____________, 1999. Copies
of the documents so requested will be delivered by first class mail, postage
paid.
<PAGE>
The following documents are incorporated by reference herein:
1 Form 10-SB, filed with the Commission on February 11, 1998.
2 Form 10-SB, as amended, filed with the Commission on July 2, 1998.
3 Form 10-QSB filed with the Commission on August 17, 1998.
4 Form 10-QSB filed with the Commission on November 19, 1998.
5 Form 8-K filed with the Commission on December 30, 1998.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus in addition to certain
statements incorporated herein by reference, that are not statements of
historical facts are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 and are thus prospective. Such
forward-looking statements include, without limitation, statements regarding
anticipated cost savings resulting from the Merger, TES' future financial
position, business strategy, budgets, reserve estimates, expected future
production, and plans and objectives of management for future operations. Such
forward-looking statements are subject to risks, uncertainties and other
factors, which could cause actual results to differ materially from future
results expressed or implied by such forward-looking statements. Important
factors that could cause actual results to differ materially from the results
expressed or implied by any forward-looking statements ("Cautionary Statements")
are disclosed under "Risk Factors" and in other filings made by TES with the
Commission which have been incorporated herein by reference. All subsequent
written and oral forward-looking statements relating to the matters described in
this Prospectus and attributable to TES or to persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.
<PAGE>
TABLE OF CONTENTS
Page
Available Information
Incorporation of Certain Documents by Reference
Forward-Looking Statements
Summary
General
The Parties
The Special Meeting
The Merger
Summary Historical and ProForma Financial Data
Risk Factors
Limited Operating History; New Business, Limited Product Sales
Capital Intensive Business; Need for Additional Financing
Dependence on Key Personnel
Concentration of Revenues
Dependence upon Environmental Regulation
Regulatory Status of Operations
Potential Environmental Liability
Possible Inability to List Securities on NASDAQ and Potential Effect upon
Trading
Risks of Classification as a "Penny Stock"
Ability to Respond to Technological Change
Competition
Limited Public Market for Securities
Possible Volatility of Stock Price
Dividends and Dividend Policy
Control by Management
Shares Eligible for Future Sale
Important Factors related to Forward-Looking Statements and Associated
Risks
The Special Meeting
General
Matters to be Considered at the Special Meeting
Voting at the Special Meeting; Record Dates
Proxies
Appraisal Rights
Expenses of Solicitation
Recommendation of the Board of Directors
Recommendation of the Board of Director
<PAGE>
The Merger
Background and Reasons for the Merger
Recommendations of the Board of Directors
Federal Income Tax Considerations in the United States
Income Tax Consideration in Germany
Appraisal Rights
Interests of Certain Person in the Merger
Financing of the Merger
Accounting Treatment
The Merger Agreement
General
Effective Time of the Merger
Exchange of Certificates
Fractional Shares
Representations
Conduct of Business Pending the Merger
Termination
Expenses and Fees
Unaudited Pro Forma Consolidated Financial Statements
Technical Environment Solutions, Inc. Pro Forma Combined Condensed Balance
Sheet
Technical Environment Solutions, Inc. Pro Forma Combined Condensed
Statement of Operations for the nine monoths ended September 30, 1998
Technical Environment Solutions, Inc. Pro Forma Combined Condensed
Statement of Operations for the year ended December 31, 1997
Technical Environment Solutions, Inc. Notes to Pro Forma Combined
Condensed Financial Statement
Selected Financial Data of TES
TES' Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Selected Financial Data of ENTECS
ENTECS' Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Business of TES
Business of ENTECS
Security Ownership of Certain Beneficial Owners and Management of TES
Directors and Executive Officers of TES
Certain Relationships and Related Transactions
Description of TES Capital Stock
Legal Opinions
Experts
Index to Financial Statements
Appendix A -- Agreement and Plan of Merger and Certificate of Merger
Appendix B -- Opinion of Schlueter & Associates, P.C.
Appendix C -- Opinion of Rossi & Maricle, P.C.
Appendix D -- Section 7-113-102 of the Colorado Business Corporation Act
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy/Prospectus and in the documents incorporated herein by reference.
Certain capitalized terms used in the Summary are defined elsewhere in this
Proxy/ Prospectus. Reference is made to the more detailed information contained
in this Proxy/Prospectus, the Appendices hereto and the documents incorporated
by reference in this Proxy/Prospectus.
General
This Proxy Statement/Prospectus relates to the proposed merger of Merger
Sub with and into ENTECS pursuant to an Agreement and Plan of Merger, dated
_______________, 1999 (the "Merger Agreement"), a copy of which is attached
hereto as Appendix A.
The Parties
TES TES is a non-operating holding company which conducts
Germany-based operations through two wholly-owned
subsidiaries, Technical Environment Solutions, GmbH and TES
Oecon AG. Since 1994, TES has been engaged in the marketing
of recyling services on a contract basis primarily for
electronic scrap and other valuable waste materials in
cooperation with specialist waste disposal companies.
ENTECS ENTECS is a non-operating holding company. The Company's
operations are conducted entirely in Germany by two wholly
owned German subsidiaries, ENTECS Umwelttechnik GmbH, and
ENTECS Software und Umweltmanagement GmbH. The Company is
involved in the future-oriented 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 holds the exclusive licensing rights to a
new recycling system for the capture an 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' subsidiary, ENTECS Umwelttechnik GmbH, owns
an artificial peat production system and produces three
grades of high-quality all-natural artificial peat products.
<PAGE>
The Special Meeting
Time, Date and
Place The Special Meeting of ENTECS Stockholders will be held on
_______________, 1999, at _______ a.m., local time, at
________________, Munich, Germany.
Record Dates; Shares
Entitled to Vote Only holders of record of shares of ENTECS Common Stock at
the close of business on ___________, 1999 (the "ENTECS
Record Date") are entitled to notice of and to vote at the
ENTECS Special Meeting. At such date, there were
_______________ shares of ENTECS Common Stock outstanding,
each of which will be entitled to one vote on each matter
acted upon at the Special Meeting.
Purpose of the
Meeting The purpose of the ENTECS Special Meeting is to consider and
to vote upon a proposal to approve the Merger Agreement and
the merger of Merger Sub with and into ENTECS.
Votes Required The affirmative vote of the holders of a majority of the
outstanding shares of ENTECS Common Stock is required to
approve the Merger. No stockholder approval is required by
TES stockholders to approve the Merger; however, the board
of directors of TES has approved the Merger and TES, as the
sole shareholder of Merger Sub, will vote in favor of the
Merger.
Appraisal Rights Any holder of record of ENTECS Common Stock who does not
vote in favor of the Merger and delivers a demand for
appraisal prior to the vote thereon at the ENTECS Special
Meeting has the right to obtain cash payment for the "fair
value" of his or her shares, as may be determined in
judicial proceedings under Colorado law. Failure to comply
in a timely manner with each of the procedural requirements
specified by Colorado law will result in the loss of
appraisal rights. See "The Merger - Appraisal Rights."
The Merger
Effects of
the Merger Upon consummation of the Merger, Merger Sub, 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
5.7 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
8,300,237 shares of TES Common Stock upon consummation of
the Merger.
<PAGE>
Reasons for the
Merger The Merger is expected to result in administrative
efficiencies, increased financial strength, and increased
market potential, including global markets, for the added
products that TES shall acquire from ENTECS. The Company
expects that it will be able to better position itself as a
result of the Merger to combine innovative technologies with
the offering of certified environmental services and thereby
achieve synergies in the market for its products.
Recommendation
of the Board of
Directors The Board of Directors of ENTECS 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.
Certain United States
Federal Income Tax
Considerations It is expected that the Merger will constitute a tax-free
reorganization for federal income tax purposes, and,
accordingly no gain will be recognized by ENTECS
stockholders who are U.S. citizens 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."
Certain German
Income Tax
Considerations It is expected that no taxable income will be recognized by
ENTECS stockholders 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 The Merger is expected to become effective on ____________,
1999, at the time the Articles of Merger between ENTECS and
Merger Sub are filed with the Colorado Secretary of State
and certain other conditions set forth in the Merger
Agreement are satisfied. See "The Merger Agreement -
Effective Time of the Merger."
<PAGE>
Summary Historical Financial Data
Set forth below are summary historical financial data and comparative per
share data of TES and ENTECSS. The summary historical financial data and
comparative per share data are based upon the respective historical financial
statements of TES and ENTECS, including the notes thereto, included elsewhere in
this Proxy Statement/Prospectus, and should be read in conjunction therewith.
The summary unaudited pro forma consolidated 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 pro forma consolidated financial data should be read in
conjunction with the unaudited pro forma consolidated financial statements,
including the notes thereto, appearing elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Summary Financial Data
Nine Months Ended
Year Ended December 31, September 30,
----------------------- -------------
Statement of Operations Data: 1995 1996 1997 1997 1997 1998 1998
---- ---- ---- ---- ---- ---- ----
DM DM DM US $ DM DM US $
-- -- -- ---- -- -- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Sales 577,564 293,814 453,909 253,283 256,226 611,527 366,184
Gross Profit 226,200 116,471 274,219 153,015 115,371 431,852 258,594
Net income (loss) (121,587) (207,420) (640,005) (357,126) (353,323) (632,318) (378,634)
Income (loss) from operations (97,772) (165,143) (612,477) (341,765) (333,568) (566,514) (339,230)
Earnings (loss) per share (0.08) (0.14) (0.38) (0.21) (0.21) (0.36) (0.22)
-------- -------- -------- -------- -------- -------- --------
December 31. 1997 September 30. 1998
----------------- ------------------
DM US $ DM US $
-- ---- -- ----
Balance Sheet Data:
Working capital 653,996 364,932 21,259 12,729
Current assets 1,188,826 663,370 331,087 198,256
Current liabilities 534,830 298,438 309,828 185,527
Total assets 1,697,536 947,233 986,071 590,462
Total liabilities 769,130 429,178 689,983 413,164
Shareholders' equity 928,406 518,055 296,088 177,298
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Environmental Technologies and Software Solutions, Inc.
Summary Financial Data
Nine Months Ended
Year Ended December 31 September 30,
---------------------- -------------------------------------
1997 1997 1997 1998 1998
DM US$ DM DM US$
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue -- -- -- 20,000 11,975
Income (loss) from Operation (343,614) (191,738) (181,689) (909,145) (544,333)
Net income (loss) (344,625) (192,302) (181,801) (878,653) (526,077)
Earnings (loss) per share (0.33) (0.19) (0.19) (0.65) (0.39)
December 31, 1997 September 30, 1998
----------------------- -----------------------
DM DM DM DM
Balance Sheet Data:
Working capital (deficit) (227,687) (127,039) 981,870 587,876
Current assets 327,354 182,665 1,320,043 790,350
Current liabilities 555,041 309,714 338,173 202,474
Total assets 2,142,880 1,195,737 3,068,950 1,837,475
Total liabilities 1,486,236 829,327 701,105 419,773
Shareholders' equity 656,644 366,410 2,367,845 1,417,701
</TABLE>
<PAGE>
Technical Environment Solutions, Inc.
Summary Unaudited Pro Forma Consolidated Financial Data
Nine Months
Year Ended Ended
Dec. 31, 1997 Sept. 30, 1998
------------- --------------
DM DM
Statement of Operations Data:
Sales 453,909 631,527
Gross profit 274,219 451,852
Net income (loss) (984,630) (1,510,971)
Income (loss) per share (0.13) (0.16)
September 30,
1998
-------------
Balance Sheet Data: DM
Working capital 853,129
Current assets 1,493,630
Current liabilities 640,501
Total assets 3,897,521
Total liabilities 1,233,588
Shareholders' equity 2,663,933
<PAGE>
RISK FACTORS
The risk factors discussed below should be considered in conjunction with
the other information contained in this Prospectus and the documents
incorporated by reference herein.
Limited Operating History; New Business, Limited Product Sales. Although
the Company has been in business since 1994, its operations during that time
consisted mainly of the marketing and sale of recycling services to larger
companies. Until recently, the Company did not have its own recycling facility
but contracted as a "middle-man" to deliver material from larger companies to
certain recyclers. The Company has a limited operating history and substantially
all of its revenues have been derived from the sale of recycling services.
Although the Company recently commenced operation of its own recycling facility,
there can be no assurance that the Company will be able to successfully market
and conduct its recycling services. Further, although the Company has developed
plans to open a job training program for the recycling industry, there can be no
assurance that the Company will be able to successfully open its job training
facility or that, if opened, the Company will be able to operate the facility on
a profitable basis. There can be no assurance that, even after the expenditure
of substantial funds and efforts, the Company will ever achieve or maintain an
adequate level of business or profitability. The failure to successfully market,
sell, and conduct recycling operations will have a material adverse effect on
the Company's financial condition and results of operations. It may also be
expected that the failure to successfully open its job training facility and
operate that facility on a profitable basis will also have a material adverse
effect on the Company's financial condition and results of operations.
Capital Intensive Business; Need for Additional Financing. The Company's
business is capital intensive. The Company is currently experiencing a liquidity
crisis and must raise additional funds. Further, the Company has not generated
sufficient cash-flow to fund its operations and activities. The Company has no
commitments for any future financing and there can be no assurance that the
Company 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 the
Company's stockholders and any debt financings may contain restrictive covenants
and additional debt service requirements, which could adversely affect the
Company's operating results. If the Company is unable to obtain necessary
financing, it will be required to significantly curtail its activities or cease
operations.
Dependence on Key Employees. The Company's success depends to a significant
extent upon a number of key management and technical personnel, the loss of one
or more of whom could have a material adverse effect on the Company's results of
operations. Further, the Company 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 the
Company 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.
<PAGE>
Concentration of Revenues. A significant portion of the Company's revenues
have been derived from one customer. In fiscal 1996, revenues from the Company's
largest customer amounted to 10% of the Company's total revenues, and in fiscal
1995, that same customer accounted for 40% of the Company's total revenues. The
Company expects that it will continue to be dependent upon a limited number of
customers for significant portions of its revenues in future periods. There can
be no assurance that revenues from customers that accounted for significant
revenues in past periods, individually or as a group, will continue, or if
continued will reach or exceed historical levels in any future period. The
Company's operating results may in the future be subject to substantial
period-to-period fluctuations as a consequence of such customer concentration.
Dependence upon Environmental Regulation. Federal, state and local
environmental legislation and regulations mandate stringent waste management and
operations practices, which require substantial capital expenditures and often
impose strict liabilities for non-compliance. Environmental laws and regulations
are, and will continue to be, a principal factor affecting demand for the
technology and services being developed or offered by the Company. The level of
enforcement activities by federal, state and local environmental protection and
related agencies, and changes in regulations and waste generator compliance
activities, will also affect demand. To the extent that the burdens of complying
with such laws and regulations may be eased as a result of, among other things,
political factors, or that suppliers of manufacturing by-products and other
industrial wastes find alternative means to comply with applicable regulatory
requirements, the Company's ability to procure such by-products and wastes and
the demand for the Company's services could be adversely affected, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. Any changes in these regulations which increase
compliance standards may require the Company to change or improve its processes.
Regulatory Status of Operations. The Company and its customers operate in a
highly regulated environment, and any future facilities may be required to have
various federal, state and/or local government permits and authorizations,
registrations and/or exemptions. Any of these permits or approvals may be
subject to denial, revocation or modification under various circumstances.
Failure to comply with the conditions of such permits, approvals, registrations,
authorizations or exemptions may adversely affect the operation of the Company's
business and may subject the Company to federal, state or locally-imposed
penalties. The Company's 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, the Company or its customers may be required to obtain additional
operating permits, registrations, certifications, exemptions or approvals. There
can be no assurance that the Company or its customers will meet all of the
applicable regulatory requirements.
<PAGE>
Potential Environmental Liability. The Company's 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
associated with the release. Additionally, the Company 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 waste regulations or
facility specific regulatory determinations, authorizations or exemptions.
The Company may also be exposed to certain environmental risks resulting
from the actions of the suppliers of the products that it recycles and other
suppliers of industrial waste. Although the Company maintains general liability
insurance, this insurance is subject to coverage limits and generally excludes
coverage for losses or liabilities related to environmental damage or pollution.
Although the Company conducts and plans to conduct its operations prudently with
respect to environmental regulations and plans to structure its relationships
with customers and contractors in a manner so as to minimize its exposure to
environmental liabilities, the Company's business, financial condition and
results of operations could be materially adversely affected by an environmental
claim that is not covered or only partially covered by insurance or other
available remedy.
Possible Inability to List Securities on NASDAQ and Potential Effect upon
Trading. In order to be included in NASDAQ's SmallCap Market, a company must
satisfy the requirements described below. A company must meet one or more of the
following three requirements: (i) net tangible assets of $4 million ($2 million
for continued inclusion), (ii) have a market capitalization of $50 million ($35
million for continued inclusion), or (iii) have net income (in the latest fiscal
year or 2 of the last 3 fiscal years) of $750,000 ($500,000 for continued
inclusion). In addition, a company must also satisfy the following requirements:
(i) one million shares in the public float (500,000 for continued inclusion),
(ii) $5 million of market value of the public float ($1 million for continued
<PAGE>
inclusion), (iii) a minimum bid price of $4 ($1 for continued inclusion), (iv)
three market makers (two for continued inclusion), (v) 300 (round lot)
shareholders, (vi) an operating history of one year or market capitalization of
$50 million, and (vii) certain corporate governance standards. The Company does
not presently meet the requirements for inclusion in either the NASDAQ SmallCap
Market or the NASDAQ National Market, and may never meet the requirements for
inclusion in either of those two markets. Trading in the Company's securities is
being conducted in the over-the-counter market in the NASD's "Electronic
Bulletin Board" and, as a result, it may be more difficult to obtain quotations
of the market price of the Company's securities. Consequently, the liquidity of
the Company's 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
the Company and lower prices for the Company's securities than might otherwise
be attained
Risks of Classification as a "Penny Stock." The Company's securities are
currently subject to Rule 15g-9 under the Securities Exchange Act of 1934, which
imposes additional sales practice requirements on broker-dealers that sell such
securities to persons other than established customers and "accredited
investors" (generally, individuals with a net worth in excess of $1,000,000 or
annual incomes exceeding $200,000 or $300,000 together with their spouses). For
transactions covered by such rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, such rule may
adversely affect the ability of broker-dealers to sell the Company's securities
and may adversely affect the ability of the Company's shareholders to sell any
of their securities in the secondary market.
Commission regulations define a "penny stock" to be any non-Nasdaq equity
security that has a market price (as therein defined) of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. Disclosure is also required to be made about commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities are listed on the Nasdaq SmallCap Market
or the Nasdaq National Market, and have certain price and volume information
provided on a current and continuing basis or meet certain minimum net tangible
assets or average revenue criteria. It is not presently anticipated that the
Company's securities will qualify for either the National Market or SmallCap
<PAGE>
markets. There can be no assurance that the Company's securities will qualify
for exemption from these restrictions. In any event, even if the Company's
securities were exempt from such restrictions, it would remain subject to
Section 15(b)(6) of the Exchange Act, which gives the Commission the authority
to prohibit any person that is engaged in unlawful conduct while participating
in a distribution of a penny stock from associating with a broker-dealer or
participating in a distribution of a penny stock, if the Commission finds that
such a restriction would be in the public interest. If the Company's securities
were subject to the rules on penny stocks, the market liquidity for the
Company's securities could be severely adversely affected.
Ability to Respond to Technological Change. The Company's 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 the Company will be
successful in enhancing its recycling capabilities or meeting customer
requirements adequately. The Company's delay or failure to develop or acquire
technological improvements or to adapt to technological change would have a
material adverse effect on the Company's business, results of operations and
financial condition.
Competition. The market for the Company's services and recycled products is
competitive and subject to rapid change. There can be no assurance that
competitors will not develop alternative methodologies that: (i) are superior to
the Company's methodologies; or that (ii) achieve greater market acceptance.
Further, the market for recycled products and raw material is dependent to some
extent upon prices for new products and material, and perceptions as to the
quality of recycled products or material. To the extent that the prices of new
products or material are competitive with the prices offered by the Company,
sales of the Company's recycled products may be adversely affected. Accordingly,
there can be no assurance that the Company will be able to compete successfully
with its present or potential competition, or that competition will not have a
material adverse effect on the Company's results of operations and financial
condition.
Limited Public Market for Securities. Until recently, there was no public
market for the Company's common stock. At the present time there is only a
limited market for the Company's common stock. There can be no assurance that an
active trading market will develop or be sustained in the future for the
Company's securities.
Possible Volatility of Stock Price. The market price of the Company's
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 the Company or its competitors, and other events or factors. In
addition, the stocks of many companies have experienced extreme price and volume
fluctuations that have often been unrelated to the companies' operating
performance.
Dividends and Dividend Policy. The Company has not paid any cash dividends
on its Common Stock and does not expect to declare or pay any cash or other
dividends in the foreseeable future. As a holding company, the Company holds no
significant tangible assets other than its investments in and advances and loans
to its wholly-owned subsidiaries. The Company's ability to make cash dividend
payments to holders of the Common Stock is dependent upon the receipt of
sufficient funds from TES GmbH.
<PAGE>
Control by Management. Prior to the Merger, the officers and directors of
the Company own approximately 64.3% of the outstanding shares of the Company's
Common Stock. After the Merger, it is expected that the officers and directors
of the Company will own approximately 54.3% of the outstanding shares of the
Company's Common Stock. Due to their stock ownership, the officers and directors
will be in a position to elect the Board of Directors and, therefore, to control
the business and affairs of the Company, including certain significant corporate
actions such as acquisitions, the sale or purchase of assets and the issuance
and sale of the Company's securities.
Shares Eligible for Future Sale. As of December 31, 1998, the Company had
not reserved any shares of Common Stock for issuance upon exercise of stock
options that may be granted pursuant to its stock option plan ("Plan Options").
Sales of Common Stock underlying the Plan Options may adversely affect the price
of the Common Stock. In addition, the existence of such options and warrants may
adversely affect the terms on which the Company may obtain additional equity
capital in the future. Further, all of the Company's Common Stock has been sold
in "off-shore" transactions, including 233,476 shares that were sold between
February and July of 1997, and which under certain circumstances will be
eligible for resale into the United States after those shares have been held for
one year. Shares held by the officers and directors of the Company may only be
sold in compliance with Rule 144 adopted under the Securities Act of 1933, as
amended. Further, as a result of the merger, it is anticipated that 8,300,230
shares of TES Common Stock will be issued to the ENTECS stockholders. The market
overhang created by the TES shares being issued in the merger could have a
depressive effect upon the trading price of the Common Stock.
Important Factors related to Forward-Looking Statements and Associated
Risks. This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, and the Company intends that such
forward-looking statements be subject to the safe harbors created thereby. These
forward-looking statements include the 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, and the
future economic performance of the Company. The forward-looking statements
included herein are based on current expectations that involve a number of risks
and uncertainties. These forward-looking statements are based on assumptions
that the Company will be able to develop its recycling business, develop and
establish its job training programs, that competitive conditions within the
recycling industry will not change materially or adversely, that demand for the
Company's recycling services and recycled materials and products will remain
strong, that the Company will retain key management personnel, that the
Company's forecasts will accurately anticipate market demand and that there will
be no material adverse change in the Company's operations or business.
<PAGE>
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company 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. In addition, as disclosed elsewhere under other
risk factors, the business and operation of the Company are subject to
substantial risks which increase the uncertainty inherent in such
forward-looking statements. In light of the significant uncertainties inherent
in the forward-looking information included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the objectives or plans of the Company will be achieved.
<PAGE>
THE SPECIAL MEETING
General
This Proxy Statement/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 the Stockholders to be
held on ____________, 199__ at
_________________________________________________, Munich, Germany, commencing
at _____ a.m., local time. This Proxy Statement/Prospectus and the accompanying
forms of proxy are first being mailed to ENTECS stockholders on or about
__________, 199__.
Matters to be Considered at the Special Meeting
At the ENTECS Special Meeting, holders of ENTECS Common Stock, the only
stock of ENTECS having voting rights with respect thereto, will consider and
vote upon (i) a proposal to approve the merger of Merger Sub with and into
ENTECS (the "Merger") pursuant to an Agreement and Plan of Merger dated
_________, 1999 (the "Merger Agreement") among Merger Sub, TES and ENTECS; and
(ii) such other matters as may properly come before the Special Meeting or any
adjournments or postponements thereof.
Voting at the Special Meeting; Record Dates
The ENTECS Board of Directors has fixed ___________, 199__ 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
entitled to vote is necessary to constitute a quorum at the Special Meeting.
Under the Colorado Business Corporation Act (the "Colorado Act"), the
affirmative vote of the holders of a majority of the outstanding shares of
ENTECS Common Stock is required for the approval of the Merger. 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 61.1% of the outstanding
shares, of such stock, have advised ENTECS that they intend to vote or direct
the vote of all shares of such stock over which they have voting control for
approval of the Merger.
<PAGE>
Proxies
The ENTECS proxy accompanying this Proxy Statement/Prospectus is solicited
on behalf of the ENTECS Board of Directors for use at the Special Meeting.
Stockholders are requested to complete, date and sign the accompanying proxy and
promptly return it in the accompanying envelope or otherwise mail it to ENTECS.
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 such 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, thereby
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.
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 respect thereof in
accordance with the judgment of the persons voting such proxies. An ENTECS
stockholder who has given a proxy may revoke it at any time before it is
exercised at the Special Meeting by (i) delivering to the Secretary of ENTECS a
written notice, bearing a date later than the date of the proxy, stating that
the proxy is revoked, (ii) signing and so 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 (iii) attending the Special Meeting and
voting in person.
Appraisal Rights
Under the Colorado Act, any holder of record of ENTECS Common Stock who
does not vote in favor of the Merger and delivers a demand for appraisal prior
to the vote on the proposed Merger at the ENTECS Special Meeting has the right
to obtain cash payment for the "fair value" of his or her shares of ENTECS
Common Stock. Such "fair value" would be determined in judicial proceedings, the
results of which cannot be predicted, if the parties cannot agree to an
appropriate "fair value." In order to exercise such right, a stockholder must
comply with each of the procedural requirements of the Colorado Act , a
description of which is provided in "The Merger - Appraisal Rights." The failure
to take any of the steps required in a timely manner will result in a loss of
appraisal rights.
<PAGE>
Expenses of Solicitation
TES and ENTECS will share the cost of solicitation of proxies from its
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 such custodians, nominees and fiduciaries,
and TES and ENTECS will reimburse such 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 AND BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO,
AND THAT 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/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
-----------
ENTECS STOCKHOLDERS SHOULD NOT SEND ANY
STOCK CERTIFICATES WITH THEIR PROXY CARDS
-----------
<PAGE>
THE MERGER
Background and Reasons for the Merger
TES and ENTECS both provide products in the recycling of other industries
waste products. Both TES and ENTECS were founded by Gerd Behrens, president for
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. However, in June, 1998 Mr. Behrens began to explore the
feasibility of combining the operations of TES and ENTECS into one entity. The
Company expects that the Merger will result in administrative efficiencies,
increased financial strength and increased market potential, including global
markets for all products. The Company further expects that it will be able to
better position itself as a result of the Merger to combine innovative
technologies with the offering of certified environmental services and thereby
achieve synergies in the market for its products. Management believes that as a
result of the Merger, the Company will also be able to more effectively comply
with governmental regulation since all activities will be conducted under the
umbrella of TES.
Recommendation of the Board of Directors
The Board of Directors of ENTECS, by unanimous vote, has determined the
Merger to be in the best interests of ENTECS' stockholders, approved the Merger
Agreement, and recommended that ENTECS stockholders vote FOR the proposal to
approve the Merger Agreement, the Merger, and the transactions contemplated
thereby.
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 pursuant to the Merger that are generally applicable to holders of
ENTECS Common Stock. This discussion is based on currently existing provisions
of the Internal Revenue Code of 1986, as amended (the "Code") existing and
proposed Treasury Regulations thereunder and current administrative rulings and
court decisions, all of which are subject to change. Any such change, which may
or may not be retroactive, could alter the tax consequences to TES, ENTECS or
ENTECS' stockholders as described herein.
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, such as 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
<PAGE>
Merger under foreign, state or local tax laws, the tax consequences of
transactions effectuated prior or subsequent to, or concurrently with, the
Merger (whether or not any such 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.
The Merger is intended to constitute a Reorganization. Provided that the
Merger does so qualify as a Reorganization, then, subject to the limitations and
qualifications referred to herein, the Merger will generally result in the
following federal income tax consequences:
(a) No gain or loss will be recognized by holders of ENTECS Common Stock
solely upon their receipt of TES Common Stock in exchange for ENTECS Common
Stock in the merger (except to the extent of cash received in lieu of a
fractional share of TES Common Stock).
(b) 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 therefor.
(c) 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 therefor was considered to be held, provided that
the ENTECS Common Stock so surrendered is held as a capital asset at the time of
the Merger.
(d) Cash payments received by holders of ENTECS Common Stock in lieu of a
fractional share will be treated as if such fractional share of TES Common Stock
had been issued in the Merger and then redeemed by TES. A ENTECS stockholder
receiving such cash will recognize gain or loss, upon such payment, measured by
the difference (if any) between the amount of cash received and the basis in
such fractional share.
(e) Neither TES, Merger Sub nor ENTECS will recognize material amounts of
gain solely as a result of the Merger.
<PAGE>
The parties are not requesting and will not request a ruling from the
Internal Revenue Service (the "IRS") 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 (the "Tax Opinions"). ENTECS stockholders should be
aware that the Tax Opinions do not bind the IRS and the IRS is therefore not
precluded from successfully asserting a contrary opinion. The Tax Opinions will
be subject to certain assumptions and qualifications, including but not limited
to the truth and accuracy of certain representations made by TES, ENTECS and
Merger Sub.
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 such share and the fair market value, as of the
Effective Time, of the TES Common Stock received in exchange therefor. In such
event, a stockholder's aggregate basis in the TES Common Stock so received would
equal its fair market value, and the stockholder's holding period for such stock
would begin the day after the Merger.
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 pursuant to 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.
It is expected that no taxable income will be recognized by ENTECS
stockholders for German income tax purposes with respect to the shares of TES
Common Stock received by them as a result of the Merger. This expectation is
based upon the following assumptions:
(a) All ENTECS stockholders hold their ENTECS shares privately, and not as
company property;
(b) No ENTECS stockholder will receive additional consideration or money
for their ENTECS shares other than the TES shares they are entitled to
receive;
(c) The value of the ENTECS shares that ENTECS stockholders exchange for
TES shares do not exceed the value of TES Common Stock shares as of
the Merger date; and
(d) No single ENTECS stockholder obtains more than 10% of the TES Common
Stock as a result of the Merger.
In any event, ENTECS stockholders who have held their stock for six (6)
months or more are not subject to income tax as a result of the exchange of
their shares.
Appraisal Rights
Stockholders of ENTECS who do not vote in favor of the Merger may, under
certain circumstances and by following the procedures prescribed by the Colorado
Act , exercise appraisal rights and receive cash for their shares of ENTECS
Common Stock. Stockholders of TES will not have appraisal rights under the
Colorado Act in connection with the Merger.
<PAGE>
If a holder of ENTECS Common Stock exercises appraisal rights in connection
with the Merger under Section 7-113-102 of the Colorado Act, any shares of
ENTECS Common Stock in respect of which such rights have been exercised and
perfected will not be converted into the applicable consideration as determined
by the Merger Agreement but instead will be converted into the right to receive
such consideration as may be determined under the procedures identified under
Section 7-113-102 of the Colorado Act. This Proxy Statement/Prospectus is being
sent by personal delivery or by mail to all holders of record of shares of
ENTECS Common Stock on the ENTECS Record Date and constitutes notice of the
appraisal rights available to such holders under Section 7-113-102 of the
Colorado Act.
The following summary of the provisions of Section 7-113-102 of the
Colorado Act is not intended to be a complete statement of such provisions and
is qualified in its entirety by reference to the full text of Section 7-113-102,
a copy of which is attached to this Proxy Statement/Prospectus as Appendix D and
incorporated herein by reference.
Subject to certain limited exceptions, a stockholder of a Colorado
corporation has the right to demand and receive payment of the fair value of his
or her stock in the cases of
(a) a merger to which the corporation is a party if:
(i) approval of the shareholders of the corporation is required by
the Articles of Incorporation; or
(ii) the corporation is a subsidiary being merged with its parent;
(b) a share exchange by which the corporation's shares will be acquired;
(c) a sale, lease, exchange or other disposition of all or substantially
all of the property of the corporation for which a stockholder vote is
required;
(d) a sale, lease, exchange or other disposition of all or substantially
all of the property of an entity controlled by the corporation if the
stockholders are entitled to consent to that disposition;
(e) an amendment to the Articles of Incorporation that materially and
adversely affects the shares because it:
(i) alters or abolishes a preferential right of the shares;
(ii) creates, alters or abolishes a redemption right of the shares
(including matters involving a sinking fund for redemption or
repurchase);
(f) an amendment to the Articles of Incorporation that affects the shares
because it:
(i) excludes or limits the right of the shares to vote on any matter
or to cumulate votes (other than simply issuing additional shares
with similar voting rights);
(ii) reduces the number of shares owned by the stockholder to a
fraction of a share or to scrip;
(g) for any corporate action to the extent provided by the bylaws or by a
resolution of the board of directors.
<PAGE>
Fair value of the stock is determined immediately before the effectuation
of he corporate action to which to which the dissenter objects. Care must be
exercised by any objection stockholder that the fair appraisal remedy procedures
be scrupulously followed in order to maintain such remedy.
IN VIEW OF THE COMPLEXITIES OF THE FOREGOING PROVISIONS OF THE COLORADO
LAW, ENTECS STOCKHOLDERS WHO ARE CONSIDERING PURSUING APPRAISAL RIGHTS MAY WISH
TO CONSULT LEGAL COUNSEL.
Interests of Certain 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, and certain members
of 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 thereby.
In considering the recommendation of the ENTECS Board of Directors with
respect to the Merger, stockholders of ENTECS should be aware that certain
officers and directors of ENTECS have interests in the Merger, including those
referred to below, that presented them with potential conflicts of interests.
The ENTECS Board of Directors was aware of these potential conflicts and
considered them along with the other matters described in "The Special Meeting
- -- Board Recommendation" and "The Merger and Related Transactions -- Reasons for
the Merger."
The officers and directors 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, President and Director of ENTECS, is also Chairman of the
Board and President of TES. Gerd Behrens owns 500,000 shares, or 34.3%, of
ENTECS Common Stock.
Frank Behrens, Secretary and Treasurer and a Director of ENTECS, is also
Secretary and a Director of TES. Frank Behrens owns 200,000 shares, or 13.7%, of
ENTECS Common Stock. Further, Frank Behrens received 35,000 DM in consultant
fees and 42,500 DM compensation in 1998 for serving as managing director of
ENTECS Software und Umweltmanagement GmbH.
<PAGE>
Karsten Behrens served as a consultant to both ENTECS and TES. He owns
200,000 shares, or 13.7% of ENTECS Common Stock. Karsten Behrens also received
52,500 DM in consultant fees from ENTECS in 1998.
Yvonne Marquard served as a consultant to both ENTECS and TES. She owns
90,000 shares, or 6.2%, of ENTECS Common Stock. She also received 162,809 DM in
consultant fees from ENTECS in 1998.
The Merger Agreement provides that TES will, from and after the Effective
Time, indemnify, defend and hold harmless the present and former officers,
directors and employees and agents of ENTECS in respect of acts or omissions
occurring on or prior to the Effective Time, in each case to the full extent
such corporation 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. Shareholders of ENTECS
will receive shares of the Common Stock of TES in exchange for their shares of
ENTECS Common Stock. Expenses and other costs of the Merger will be paid from
funds generated by the operations of the Company.
Accounting Treatment
The Merger will be accounted for by TES as a business combination of
entities under common control in accordance with U.S. generally accepted
accounting principles. Under the purchase method of accounting, the purchase
price of the ENTECS Capital Stock, including direct and incremental costs of the
Merger, will be allocated to the assets acquired and liabilities assumed based
on their estimated fair value, with the excess purchase consideration allocated
to goodwill.
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 and is incorporated
by reference herein. This description is qualified in its entirety by reference
to the Merger Agreement.
<PAGE>
General
TES, Merger Sub, and ENTECS have entered into the Merger Agreement , which
provides (i) that Merger Sub, a wholly owned subsidiary of TES, will be merged
with and into ENTECS, and (ii) that at the time of the Merger becomes effective
(the "Effective Time") each share of outstanding ENTECS Common Stock will be
converted into the right to receive 5.7 shares of TES Common Stock (the "Merger
Consideration"). 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 shall occur, and the Merger shall become effective, upon (i)
the approval of the Merger Agreement by the ENTECS stockholders, (ii) the
acceptance for filing of Articles of Merger between Merger Sub and ENTECS with
the Colorado Secretary of State, and (iii) 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 on ________________, 1999.
Exchange of Certificates
Corporate Stock Transfer of Colorado will act as exchange agent (the
"Exchange Agent") in connection with the Merger. As soon as practicable after
the Effective Time, the Exchange Agent will send a notice and transmittal form
to ENTECS stockholders to be used in forwarding certificates evidencing their
shares of ENTECS Common Stock for surrender and exchange for the Merger
Consideration. ENTECS stockholders are requested not to surrender their
certificates for exchange until such transmittal forms and instructions are
received. Such 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 therefor certificates representing the
number of whole shares of TES Common Stock into which their shares of ENTECS
Common Stock were converted in the Merger, together with any cash payable in
lieu of fractional shares. Until so surrendered, 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
<PAGE>
Fractional Shares
No certificate or scrip representing fractional shares of TES Common Stock
will be issued pursuant to the Merger. No fractional share interests will
entitle the owner thereof to vote or to any other rights of a stockholder of
TES. In lieu 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 (i) the amount of
$4.00 by (ii) the fraction of a TES share to which such holder would otherwise
be entitled. If more than one certificate representing shares of ENTECS Common
Stock shall be surrendered for the account of the same stockholder of record,
the number of full shares of TES Common Stock for which certificates shall be
delivered shall be computed on the basis of the aggregate number of shares of
ENTECS Common Stock represented by the certificates so surrendered.
Representations
The Merger Agreement contains various representations and warranties of the
parties thereto. These include representations and warranties by each of ENTECS
and TES as to (i) organization and good standing, (ii) capitalization, (iii)
authorization of the Merger Agreement and the absence, except as specified, of
the need for governmental or third party consents to the Merger, (iv) compliance
with applicable law, (v) accuracy of financial statements, (vi) absence of
material undisclosed liabilities and the absence of material adverse changes in
the condition (financial or otherwise), operations or business of ENTECS and
TES, taken as a whole, (vii) absence of pending or threatened material
litigation, (viii) absence of employee benefit plans and collective bargaining
agreements, (ix) material compliance with applicable environmental laws and
regulations, and (x) no 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
pending consummation of the Merger. Further, TES and ENTECS has each agreed
that, among other things, prior to the consummation of the Merger, unless the
other agrees in writing or as otherwise required or permitted by the Merger
Agreement, it shall not (i) except pursuant to the exercise of certain options,
warrants, conversion rights and other contractual rights, issue any shares of
<PAGE>
capital stock, effect any stock split or otherwise change its capitalization as
it existed on the date of the Merger Agreement was executed, (ii) 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,
(iii) amend or propose to amend its charter or bylaws, (iv) acquire, sell,
lease, encumber, transfer or dispose of any assets except in the ordinary course
of business, (v) incur any indebtedness for borrowed money or guarantee any such
indebtedness issued or sell any debt securities or warrants or rights to acquire
any debt securities of such party or guarantee any debt of others or make any
loans, advances or capital contributions or mortgage, pledge or otherwise
encumber any material assets or create any material lien thereupon except in the
ordinary course of business, (vi) pay, discharge or satisfy any claims,
liabilities or obligations other than payment, discharge or satisfaction in the
ordinary course of business or (vii) change any accounting principles or
practices (except as required by generally accepted accounting principles).
Termination
The Merger 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 by (i) mutual consent of
TES and ENTECS, (ii) 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), (iii) either TES or ENTECS if (a) the conditions to
such party's obligations shall have become impossible to satisfy or (b) 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, (iv) 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-party transaction , or (v) 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.
<PAGE>
In the event of the termination and abandonment of the Merger Agreement,
the Merger Agreement shall forthwith become void and have no effect, without any
liability on the part of any party thereto or its affiliates, directors,
officers or stockholders, except with respect to confidentiality obligations and
indemnification provisions relating to brokers or finders or other such 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 thereby
will be paid by the party incurring such costs and expenses, except that the
printing and mailing costs associated with this Proxy Statement/Prospectus shall
be borne equally by TES and ENTECS. In addition to printing and mailing
expenses, such costs and expenses consist primarily of legal and accounting
fees, tax opinion fees and filing fees under federal and state regulatory laws
and are estimated at______________________.
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined statements of
operations of Technical Environment Solutions, Inc. gives effect to the proposed
merger of TES and ENTECS as if such transaction occurred at the beginning of
each period presented. The unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1997 is derived from the audited
statements of operations of TES and ENTECS. The unaudited pro forma condensed
combined statement of operations for the nine months ended September 30, 1998 is
derived from the unaudited statements of operations of TES and ENTECS.
The unaudited pro forma condensed combined balance sheet at September 30,
1998 gives effect to the proposed Merger of TES and ENTECS as if such
transaction occurred on September 30, 1998. The unaudited pro forma condensed
combined balance sheet is derived from the unaudited historical balance sheet of
TES and ENTECS as of September 30, 1998.
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 from
the historical operations, are presented for informational purposes only and
should not be construed to be indicating (i) 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 (ii) 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 thereto of TES
and ENTECS and other historical information included elsewhere in this proxy.
<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Pro Forma Combined Condensed Balance Sheet
September 30, 1998
(Unaudited)
Pro Forma Pro Forma
TES ENTECS Adjustments Combined
DM DM DM DM
-------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash 190,305 865,847 -- 1,056,152
Accounts receivable 120,471 174,605 -- 295,076
Note receivable - current 10,000 -- -- 10,000
Advances to affiliate 0 157,500 (157,500)(4) --
Inventory 0 120,001 120,001
Prepaid expenses 10,311 2,090 12,401
---------- ---------- ---------- ----------
Total current assets 331,087 1,320,043 (157,500) 1,493,630
Property and equipment, net 169,857 593,573 763,430
Investments 10,000 -- -- 10,000
Note receivable - non current 40,000 -- 40,000
Intangible assets -- 1,155,334 1,155,334
Other assets 435,127 -- 435,127
---------- ---------- ---------- ----------
986,071 3,068,950 (157,500) 3,897,521
========== ========== ========== ==========
Liabilities and stockholders'
equity Current liabilities:
Notes payable - others 80,000 -- 80,000
Cash overdraft 30,156 -- 30,156
Accounts payable 91,930 187,472 -- 279,402
Accounts payable - related party 15,862 -- (7,500)(4) 8,362
Other current liabilities 91,880 150,701 -- 242,581
---------- ---------- ---------- ----------
Total current liabilities 309,828 338,173 (7,500) 640,501
Loans from shareholders 230,155 -- 230,155
Loans from related parties 150,000 275,000 (150,000)(4) 275,000
Loans from affiliated companies -- 87,932 87,932
Common stock 2,260,155 3,591,123 5,851,278
Accumulated deficit (1,964,067) (1,223,278) -- (3,187,345)
---------- ---------- ---------- ----------
Total stockholders' equity 296,088 2,367,845 -- 2,663,933
---------- ---------- ---------- ----------
986,071 3,068,950 (157,500) 3,897,521
========== ========== ========== ==========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Pro Forma Combined Condensed Statement of Operations
Nine Months Ended September 30, 1998
(Unaudited)
Pro Forma Pro Forma
TES ENTECS Adjustments Combined
DM DM DM DM
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales 611,527 20,000 -- 631,527
Cost of sales 179,675 -- -- 179,675
---------- ---------- ---------- ----------
Gross profit 431,852 20,000 -- 451,852
General and administrative 998,366 909,145 -- 1,907,511
Losses of unconsolidated subsidiary 49,000 -- -- 49,000
Interest income (5,233) (12,430) 7,500(4) (10,163)
Interest expense 20,321 1,938 (7,500)(4) 14,759
---------- ---------- ---------- ----------
Net income before taxes (630,602) (878,653) -- (1,509,255)
Taxes on income 1,716 -- -- 1,716
---------- ---------- ---------- ----------
Net income (loss) (632,318) (878,653) -- (1,510,971)
========== ========== ========== ==========
Basic income per share (0.36) (0.65) -- (0.16)
========== ========== ========== ==========
Weighted average shares 1,741,610 1,358,118 6,383,155(5) 9,482,883
========== ========== ========== ==========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Pro Forma Combined Condensed Statement of Operations
Year Ended December 31, 1997
(Unaudited)
Pro Forma Pro Forma
TES ENTECS Adjustments Combined
DM DM DM DM
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales 453,909 -- -- 453,909
Cost of sales 179,690 -- -- 179,690
---------- ---------- ---------- ----------
Gross profit 274,219 -- -- 274,219
General and administrative 886,696 343,614 -- 1,230,310
Interest income (19,190) (783) 1,682 (4) (18,291)
Interest expense 46,718 1,794 (1,682)(4) 46,830
---------- ---------- ---------- ----------
Net income before taxes (640,005) (344,625) -- (984,630)
Taxes on income -- -- -- --
---------- ---------- ---------- ----------
Net income (loss) (640,005) (344,625) -- (984,630)
========== ========== ========== ==========
Basic income per share
(0.38) (0.33) -- (0.13)
========== ========== ========== ==========
Weighted average shares 1,676,271 1,033,751 4,858,630(5) 7,568,652
========== ========== ========== ==========
</TABLE>
See accompanying notes.
<PAGE>
Technical Environment Solutions, Inc.
Notes to Pro Forma Combined Condensed Financial Statements
December 31, 1997 and September 30, 1998
(Unaudited)
(1) TES and ENTECS propose to enter into a definitive agreement and plan of
merger (the "Agreement") providing for the merger of ENTECS with and into
TES. Under the terms of the proposed agreement the holder of ENTECS Common
Stock will receive 5.7 shares of TES Common Stock for each of its
outstanding shares. Accordingly, the pro forma condensed combined balance
sheet as of September 30, 1998 gives effect to the issuance of 8,300,237
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 historical results of operations of ENTECS for the nine months ended
September 30, 1998 and year ended December 31, 1997 reflect the operations
of ENTECS since May 1997 (its inception).
(3) The pro forma condensed combined statements of operations gives effect to
the Merger of TES with ENTECS as if the merger occurred on January 1 of the
period indicated.
(4) Inter-company advances, accrued interest thereon and amounts of interest
income and expense have been eliminated.
(5) The pro forma weighted average shares outstanding for basic earnings (loss)
per share gives effect to the issuance of 5.7 shares of TES stock in
exchange for each share of ENTECS stock outstanding for all periods
presented, weighted for the period such shares were actually outstanding.
<PAGE>
SELECTED FINANCIAL DATA OF TES
The following selected financial data should be read in conjunction with
the financial statements and related notes thereto appearing elsewhere in this
Prospectus. The selected financial data as of December 31, 1996 and 1997 and for
each of the two years in the period ended December 31, 1997, have been derived
from the Financial Statements of TES that have been audited by the Company's
independent auditors and are included elsewhere in this Prospectus. The selected
unaudited financial data at September 30, 1998 and for the nine months ended
September 30, 1997 and 1998 have been prepared on a basis consistent with the
Financial Statements of TES and, in the opinion of TES, include all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the financial position at such date and results of operations for such
periods. Operating results for the nine months ended September 30, 1998 are not
necessarily indicative of results for the full fiscal year. The selected
financial data provided below is not necessarily indicative of the future
results of operations or financial performance of the Company.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
---------------------------------------- --------------------------------
Statement of Operations Data: 1995 1996 1997 1997 1997 1998 1998
---- ---- ---- ---- ---- ---- ----
DM DM DM US $ DM DM US $
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales 577,564 293,814 453,909 253,283 256,226 611,527 366,184
Cost of Operations 351,364 177,343 179,690 100,268 140,855 179,675 107,590
------- ------- ------- ------- ------- ------- -------
Gross Profit 226,200 116,471 274,219 153,015 115,371 431,852 258,594
Other Costs and Expenses
General and Administrative 323,972 281,614 886,696 494,780 448,939 998,366 597,823
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations (97,772) (165,143) (612,477) (341,765) (333,568) (566,514) (339,230)
Other Income and (expense)
Interest Income 4,780 1,240 19,190 10,708 4,582 5,233 3,134
Losses of unconsolidated subsidiary -- (49,000) (29,341)
Interest Expense (28,595) (43,517) (46,718) (26,029) (24,337) (20,321) (12,169)
-------- -------- -------- -------- -------- -------- --------
(23,815) (42,277) (27,528) (15,361) (19,755) (64,088) (38,376)
Income (loss) before income taxes (121,587) (207,420) (640,005) (357,126) (353,323) (630,602) (377,606)
Provision for income taxes -- -- -- -- -- 1,716 1,028
--------- -------- -------- -------- -------- -------- --------
Net income (loss) (121,587) (207,420) (640,005) (357,126) (353,323) (632,318) (378,634)
--------- -------- -------- -------- ------- -------- --------
Earnings (loss) per share:
Net income (loss) (0.08) (0.14) (0.38) (0.21) (0.21) (0.36) (0.22)
--------- -------- ------- -------- ------- -------- --------
Weighted average common and
common equivalent shares
outstanding 1,507,176 1,508,134 1,676,271 1,676,271 1,654,492 1,741,610 1,741,610
</TABLE>
<PAGE>
December 31. 1997 September 30. 1998
--------------------- ---------------------
DM US $ DM US $
Balance Sheet Data:
Working capital 653,996 364,932 21,259 12,729
Current assets 1,188,826 663,370 331,087 198,256
Current liabilities 534,830 298,438 309,828 185,527
Total assets 1,697,536 947,233 986,071 590,462
Total liabilities 769,130 429,178 689,983 413,164
Shareholders' equity 928,406 518,055 296,088 177,298
- --------------------
<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 certain items included in the Company's Statements
of Operations:
Fiscal year ended Nine Months Ended
December 31 September 30
--------------------------- ----------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
DM DM DM DM DM
Sales 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Operations 60.8 60.4 39.6 55.0 29.4
Gross Profit 39.2 39.6 60.4 45.0 70.6
General and administrative 56.1 95.8 195.3 175.2 163.3
Income (loss) from operations (16.9) (56.2) (134.9) (130.2) (92.6)
Interest income .8 .4 4.2 1.8 .9
Interest expense (5.0) (14.8) (10.3) (9.5) (11.3)
----- ----- ----- ----- -----
Net income (21.1) (70.6) (140.9) (137.9) (103.4)
Year Ended December 31, 1997, Compared to Year Ended December 31, 1996
Sales for the year ended December 31, 1997, were 423,300 DM, an increase of
129,486 DM, 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, an increase of
2,347 DM, 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, an increase of 157,748 DM,
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 the
Company 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 is directly attributable to the increase in the number of persons
engaged in marketing.
General and administrative expenses for the year ended December 31, 1997,
were 886,696 DM, an increase of 605,082 DM, 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.
<PAGE>
As a result of these factors the operating loss for the year ended December
31, 1997, was (612,477) DM, an increase in the loss of 447,334 DM, 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)
compared to a loss of (207,420 DM) for the year ended December 31, 1996, an
increase in the loss of (432,585 DM).
Year Ended December 31, 1996, Compared to Year Ended December 31, 1995
Sales for the year ended December 31, 1996, were 293,814 DM, a decrease of
283,750 DM, or 49%, as compared to the year ended December 31, 1995. Cost of
operations for the year ended December 31, 1996, was 177,343 DM, a decrease of
174,021 DM, or 49%, as compared to the year ended December 31, 1995. Gross
Profit for the year ended December 31, 1996, was 116,471 DM, a decrease of
109,729 DM, or 48%, as compared to the year ended December 31, 1995. These
decreases were primarily due to the loss of the Company's largest
customer-Siemens Nixdorf and a decline in the prices paid for recycling of
electronic materials as more particularly described below. The German federal
government announced that it planned to pass new legislation relating to the
recycling of electronic scrap. This announcement caused a decline in the prices
for recycling electronic scrap of approximately 70%. In addition, the Company
lost its largest customer Siemens Nixdorf during this same period. Siemens
Nixdorf had constituted approximately 50% of the Registrant's total sales during
the prior year. Management believes that the principal reason that it lost
Siemens Nixdorf involved the costs of transportation associated with moving the
scrap material a distance of approximately 700 kilometers between Siemens
Nixdorf's plant and the Company's recycling subcontractors. Competitors with
recycling facilities closer to Siemens Nixdorf were able to provide services at
a much lower cost than the Registrant because the competitors' transportation
costs were lower than the Company's.
General and administrative expenses for the year ended December 31, 1996,
were 281.614 DM, a decrease of 42,358 DM, or 13%, as compared to the year ended
December 31, 1995. This decrease was principally due to the decline in the
Company's recycling business and the corresponding decrease in personnel and
general and administrative expenses.
As a result of these factors the operating loss for the year ended December
31, 1996, was (165,143) DM, an increase in the loss of 67,371 DM, or 68%, as
compared to the year ended December 31, 1995. In addition, these factors
resulted in an increase in the loss for the year ended December 31, 1996, of
(207,420 DM) compared to a loss of (121,587 DM) for the year ended December 31,
1995, an increase in the loss of (85,833 DM).
<PAGE>
Nine Months Ended September 30, 1998, Compared to Nine Months Ended September
30, 1997
Sales for the nine month period ended September 30, 1998, were DM 534,102,
an increase of DM 277,876, or 108.5%, as compared to the nine month period ended
September 30, 1997. The principal reasons for this increase were that the
Company was able to add new customers for its recycling business to replace
customers lost in the prior year and the opening of the Landsberg facility. Cost
of operations for the nine month period ended September 30, 1998, was DM
179,675, an increase of DM 38,820, or 27.6%, as compared to the nine month
period ended September 30, 1997. This increase was primarily due to increased
operating activities. Gross Profit for the nine month period ended September 30,
1998, was DM 431,852, an increase of DM 316,481, or 274.3%, as compared to the
nine month period ended September 30, 1997.
General and administrative expenses for the nine month period ended
September 30, 1998, were DM 998,366, an increase of DM 549,427, or 122.4%, as
compared to the nine month period ended September 30, 1997. This increase was
principally due to increased expenses associated with the opening of the
Landsberg facility and an increase in general and administrative expenses
associated with the higher level of activity as well as increased accounting and
legal expenses resulting from the Company's registration under the Securities
Exchange Act of 1934.
As a result of these factors, the operating loss for the nine month period
ended September 30, 1998, was DM 566,514, an increase in the operating loss of
DM 232,946, or 69.8%, as compared to the nine month period ended September 30,
1997. Other income and expenses for the nine month period ended September 30,
1998, was an expense of DM 64,088, an increase of DM 44,333, or 224.4%, as
compared to the nine month period ended September 30, 1997. The increase in
other expenses was primarily due to an increase in losses of DM 49,000 of its
unconsolidated subsidiary. Further, for the reasons noted above, the net loss
for the nine month period ended September 30, 1998, was DM 632,318, an increase
in the net loss of DM 278,995, or 79.0%, as compared to the nine month period
ended September 30, 1997.
Liquidity and Capital Resources
The Company is currently experiencing a liquidity crisis and must raise
additional funds. Further, the Company has not generated sufficient cash-flow to
fund its operations and activities. The Company traditionally relied principally
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, the Company received 2,208,550 DM from an offering of its Common Stock
conducted solely in Germany to German citizens. At March 31, 1998, the Company
had working capital of 179,215 DM and cash of 386,775 DM. At September 30, 1998
working capital had decreased to 21,259 DM and cash had decreased to 113,955 DM.
Currently, the Company is borrowing funds from ENTECS to meet its working
capital needs.
<PAGE>
SELECTED FINANCIAL DATA OF ENTECS
The following selected financial data should be read in conjunction with
the financial statements and related notes thereto appearing elsewhere in this
Prospectus. The selected financial data as of December 31, 1997 and for the one
year period ended December 31, 1997, have been derived from the Financial
Statements of ENTECS that have been audited by the Company's independent
auditors and are included elsewhere in this Prospectus. The selected unaudited
financial data at September 30, 1998 and for the nine months ended September 30,
1997 and 1998 have been prepared on a basis consistent with the Financial
Statements of ENTECS and, in the opinion of ENTECS, include all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the financial position at such date and results of operations for such
periods. Operating results for the nine months ended September 30, 1998 are not
necessarily indicative of results for the full fiscal year. The selected
financial data provided below is not necessarily indicative of the future
results of operations or financial performance of ENTECS.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------ --------------------------------------------
Statement of Operations Data: 1997 1997 1997 1998 1998
---- ---- ---- ---- ----
DM US $ DM DM US $
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues -- -- -- 20,000 11,975
Other Costs and Expenses:
General and Administrative 343,614 191,738 181,689 909,145 532,358
---------- ---------- ---------- ---------- ----------
Income (loss) from operations (343,614) (191,738) (181,689) (889,145) (532,358)
Other Income and (expense)
Interest Income 783 437 -0- 12,430 7,442
Interest Expense (1,794) (1,001) (112) (1,938) (1,160)
---------- ---------- ---------- ---------- ----------
(1,011) (564) (112) 10,492 6,282
Income (loss) before income taxes (344,625) (192,302) (181,801) (878,654) (526,076)
Provision for income taxes -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) (344,625) (192,302) (181,801) (878,653) (526,076)
---------- ---------- ---------- ---------- ----------
Earnings (loss) per share:
Net income (loss) (0.33) (0.19) (0.19) (0.65) (0.39)
---------- ---------- ---------- ---------- ----------
Weighted average common and
common equivalent shares
outstanding 1,033,751 1,033,751 946,550 1,358,118 1,358,118
</TABLE>
<PAGE>
December 31, 1997 September 30, 1998
--------------------- ---------------------
DM US $ DM US $
Balance Sheet Data:
Working capital (deficit) (227,687) (127,049) 981,870 587,876
Current assets 327,354 182,665 1,320,043 790,350
Current liabilities 555,041 309,714 338,173 202,474
Total assets 2,142,880 1,195,737 3,068,950 1,837,475
Total liabilities 1,486,236 829,375 701,105 419,773
Shareholders' equity 656,644 366,410 2,367,845 1,417,701
ENTECS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General and Results of Operations
ENTECS (or, 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.
ENTECS was incorporated in Colorado in May, 1997. The Company 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 (formerly
ENTECS Umwelttechnik GmbH until March, 1998) was formed in July, 1997 and ENTECS
Software and Umwelltechnik GmbH, formed in March, 1998.
The Company has incurred accumulated deficits through September 30, 1998 of
1,223,278DM. Since the Company has recorded revenues of only 20,000 DM since its
inception, this deficit has occurred principally as a result of incurring
general and administrative expenses. Since inception the Company has incurred
1,252,759 DM in general and administrative expenses, 909,145 DM of these
expenditures were incurred in the nine months ended September 30, 1998 and
343,614 DM were incurred from inception of the Company through December 31,
1997. This increase of 565,531 DM, or 165%, was the result of primarily
increased operating activities as the Company incurred development costs.
Included in the general and administrative expenses incurred since inception was
a loan of 87,500 DM to a related party.
Liquidity and Capital Resources
As of September 30, 1998, ENTECS has cash and cash equivalents of 865,847
DM and working capital of 525,674 DM. The Company has financed its operations
since inception principally through the sale of its common stock. Since
inception, the Company has received proceeds from the sale of its common stock
of 3,474,542 DM.
The proceeds from the sale of common stock have been used to finance the
Company's operations. Of the proceeds received by the Company 626,321 DM was
used by operating activities.
Cash used in investing activities since inception was 1,442,111 DM of which
568,750 DM was used for the purchase of license rights, 723,361 DM was used to
purchase fixed assets and 150,000 DM was advanced to an affiliated company.
The Company has also used its proceeds from the sale of common stock to
make repayments to affiliated companies of 330,763 DM and to make repayments to
related parties of 237,500 DM. These repayments to affiliated companies and
related parties reflect principally the repayment of funds paid by such parties
for license fees on behalf of ENTECS.
<PAGE>
BUSINESS OF TES
General Information
- -------------------
Technical Environment Solutions, Inc. (the "Company" and "TES") was
incorporated under the laws of Colorado in June 1994, and is a non-operating
holding company. The Company's operations are conducted entirely in Germany, and
the Company 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"). Unless the context otherwise requires, references to the "Company"
include its subsidiaries. Since 1994, the Company 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, the Company commenced recycling activities at its
own facility in Landsberg a. Lech, Germany, which is southwest of Munich, and
intends to significantly expand this operation in the future. The Company also
intends to develop a job training school, the Oecon Institute, to provide
training and education for positions in the recycling industry. The Company
intends to focus its job training programs upon providing job education and
training for the long-term unemployed and disadvantaged.
Recycling
- ---------
The Company offers a single source solution for the disassembly, removal,
reutilization, reprocessing and marketing of recyclable materials. Its waste
disposal services also include archiving the recycled materials and documenting
of the movement of that material. This has the additional function of serving as
verification for government agencies and environmental protection groups. The
Company's 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. The
special equipment and expertise of TES' associates ensures that the materials,
once disposed of, will enter the reprocessing cycle and satisfy all legal
regulations.
Germany has strict laws relating to the disposal of all manufactured
products. Unlike the United States where land is plentiful, 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.
<PAGE>
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 the electronics
industry. 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.
The Company 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.
The Company employs a two-tier strategy:
decentralized disassembly
centralized processing and re-use.
The Company 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.
One important aspect of the Company's service strategy is that all
recycling and disposal paths are fully documented. Each customer who recycles
electronic scrap through TES then receives a printout documenting the disposal
pursuant to the recycling laws. To accomplish this, the Company and its
associates offer a fully comprehensive program to register and sort spent
electronic equipment using the Company's own "RNP" data processing system, a
software program that supports the exchange of data between the Company,
manufacturers and waste reprocessing companies.
The RNP database also contains:
-model and order number of electronic products
-size and weight of electronic products
-analysis of materials in electronic products
Another module in the RNP database is a logistics program likewise
developed by the Company. This program covers:
-collection and disposal
-transportation and warehousing
-disposal and recycling
-documentation of each piece of equipment
-for fixed assets bookkeeping
-for the tax authorities
-for environmental groups
<PAGE>
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.
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 Company views the recycling of used television sets and computer
monitors including CRT glass as a growth area and has recently purchased
machinery designed to dismantle the CRTs. In the Company's CRT recycling
operation, used CRTs will be shipped to the Company by its customers. Under the
terms of the agreements with the clients, 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 "upcycled",
i.e. reincorporated into a CRT.
At this time the panel glass can not be recycled and must be incinerated.
TES must pay a small charge 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,
the CRT recycling is a profitable business for the company because of the fees
TES is paid by its customers to recycle the CRTs. The ability to sell the panel
glass will only increase TES' profits from this operation.
The Company believes that the recycling of CRT glass will provide a less
costly and more environmentally responsible means of disposing of waste CRT
glass compared to currently available alternative methods of CRT glass disposal.
<PAGE>
Further, management believes that manufacturers will be able to repurchase
recycled CRT glass from the Company at a savings compared to virgin ingredients.
In addition, the Company believes that the electronics industry may be a source
of other waste streams that may be recycled. The Company believes that its CRT
glass recycling and materials reuse capability will position the Company 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. The Company 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.
Recycling Process
- -----------------
The first step in the processing of recycled material involves the
inspection of the material received by the Company to assure that it complies
with requirements set forth in the Company's agreements. This process will be
conducted on a visual basis by Company personnel. Assuming that the material is
in compliance with the Company's agreements, the material will be sorted for
processing on the Company's recycling line. Nonconforming shipments will be
rejected and returned to the supplier. This process will be undertaken to
protect the Company 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 sorted for sale (if appropriate), cleaned and (if
appropriate) ground and crushed. As the final result of the process, all 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, the Company employs
mechanical processes exclusively (i.e., no chemicals are used by TES in the
disassembly process).
The Company disassembles the following kinds of electronic scrap for
recycling:
-cathode ray tubes
-computers and peripherals of any kind
-PCs and monitors
<PAGE>
-other office equipment
-household appliances of all sizes
-television sets, radios, VCRs etc.
-telecommunication equipment (e.g., telephones)
-electrical tools
-standby power generation units
-industrial control units
-measurement and control devices -laboratory and medical equipment
-visual recording and reproduction equipment
-composite plastics and metals
-circuit boards
-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:
-plastics
-ferrous metals
-nonferrous metals
-cathode ray tubes
-cables
-circuit boards
-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.
These processes yield, among other things, the following types of
materials:
-iron
-aluminum
-copper
-glass
-plastics
-ceramics
-composite metal granulates
<PAGE>
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 flame-proofing are sent away for reuse. Plastics which are not
fully separated or which contain bromine flame-proofing are disposed in
accordance with legal 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 then processed by the CRT
recycling line. The Company 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.
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
ability to offer convenient locations for shipping of waste and recycling
products. Among TES' major competitors in Germany are RWE, VEBA, VIAG, Sero AG
and Waste Management.
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.
<PAGE>
The Company's recycling center is subject to various federal, state and
local laws and regulations and licensing requirements relating 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. The Company's centers are registered with the German
Government as hazardous waste generators and are licensed, where required, by
appropriate state and local authorities. The Company has agreements with
approved and licensed hazardous waste companies for transportation and disposal
of PCB's from its recycling center.
Management believes that further government regulation of the recycling
industry could have a positive effect on the Company's business; however, there
can be no assurance what course future regulation may take. Under some
circumstances, further regulation could materially increase the costs of the
Company's operations and have an adverse effect on the Company's business. In
addition, as is the case with all companies handling hazardous materials, under
some circumstances, the Company may be subject to contingent liability.
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 is providing subsidies for companies that create jobs.
TES Oecon Institute is developing a job training center. The center is
intended to provide training for long-term unemployed youths and disadvantaged
people. It will offer various new technical job classifications in environmental
protection areas, such as the position, Electronic Recyling Technician, for
example. TES Oecon Institute will offer courses required by certain governmental
agencies for environmental managers of other companies, as well as seminars and
workshops covering special environmental issues such as environmental law
issues, certification and audits, management systems, software program training,
and ecological input-output analysis.
<PAGE>
With its job training program the Oecon Institute will support the creation
of new job possibilities in future-oriented industry areas and 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
which 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. The Company 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 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
will allow the Company access to qualified teaching and training personnel.
Employees
- ---------
The Company has 14 full time employees, including Gerd Behrens, two
management/administrative persons, and 11 line workers employed in its recycling
business. Further, the Company employs one person as a secretary/administrative
assistant on a part-time basis. In addition, the Company has contracted with
three independent contractors who are engaged in the marketing of the Company's
recycling services.
<PAGE>
Description of Property
- -----------------------
The Company currently leases office space for the Company's main corporate
offices at 25 Impler Strasse, 81371, Munich at a monthly rental of approximately
5,552.75 DM. The lease expires on December 31, 2004. Management of the Company
believes that the existing facilities are adequate at this time for the
Company's operations. In addition, the Company leases two buildings for its
recycling operations at Landsberg a. Lech, Germany at a monthly rental of
approximately 18,700 DM. The leases on these buildings expire on December 31,
2001. Under the terms of this lease, the Company also has an option to purchase
the buildings for 2,200,000 DM if the option is exercised prior to December 31,
2000. Thereafter the price shall increase by 77,000 DM per year. The facility in
Landsberg is sufficiently large that the Company expects that it will also be
able to conduct its job training at that same facility.
<PAGE>
BUSINESS OF ENTECS
Environmental Technologies and Software Solutions, Inc. (the "Company" and
"ENTECS") was incorporated under the laws of Colorado in May, 1997. The Company
is a non-operating holding company. The Company's operations are conducted
entirely in Germany by two wholly owned German subsidiaries, ENTECS
Umwelttechnik GmbH, and ENTECS Software und Umweltmanagement GmbH. The Company
is involved in the future-oriented 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 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. The Company 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. The Company has acquired
the exclusive licensing rights to the BRS-Compact from the patent holder for all
of Europe and a right of first refusal for the Americas and Asia.
ENTECS also has plans to acquire a patent for the development of a
recycling machine based on double worm system for recycling metal dust and other
materials. 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. To date, ENTECS has paid
400,000 DM, which represents 61.5% of the purchase price for the exclusive
licensing rights for all of Europe.
<PAGE>
The Company 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 can not 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. All components of the competitions
systems have been incorporated in the BRS Compact and have been improved upon.
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:
* No production of alkaline waste water = Cost savings for fresh water and
waste water disposal.
* Complete recycling of concrete components (sand and gravel) = Cost savings
for raw materials and landfill use.
* Residue-free production of fresh concrete = No need for waste concrete
storage and disposal.
* Process patent is pending.
* Currently not direct competitors (other than conventional recycling
processes).
The target 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.
<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. This will have to be replaced in the long term.
ENTECS' subsidiary ENTECSS 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. The Company believes these
products provide the following advantages:
* Flawless natural product without chemical additives.
* Large water absorption capacity.
* Development of high-quality humus soil.
* Produced from waste wood.
* Unlimited uses
* Contributes to the conservation of the bio-top and the protection of
the peat deposits.
Target customers are garden soil manufacturers, garden supply stores and
governmental units. Alternative uses for the products include the following:
* Good for use where peat normally is used (gardening and farming).
* Mulch material.
* Athletic fields.
* Pet and animal cages and stalls.
* Special uses: biological filters for biological exhaust filtering or
as a binding material for soaking up chemical substances.
<PAGE>
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 ENTECSS Software und
Umweltmanagement GmbH the Fabius software was further developed to the current
version "Fabius 2.1" (collectively with the Fabius 1.0 version, "Fabius"). The
Fabius software's copyright is owned by AkkU Umweltberatung GmbH. 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. Fabius was rated by
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>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF TES.
- ----------------------------------------------------------------------
The following table sets forth information with respect to the ownership of
the Company's Common Stock by all officers and directors, individually, all
officers and directors as a group, all beneficial owners of more than ten
percent of the Common Stock as of December 31, 1998, and by one of the Company's
consultants. Except as otherwise indicated, the following shareholders have sole
voting and investment power with respect to the shares.
Percent
Name and address Number of of
of owner shares Class
- ---------------- --------- -------
Gerd Behrens 1,500,000(1) 28.7%
C/O TES GmbH
25 Impler Strasse,
Munich, 81371,
Germany
Frank Behrens 600,000(2) 11.5%
C/O TES GmbH
25 Impler Strasse,
Munich, 81371,
Germany
Jutta Behrens 1,260,000(1) 24.1%
C/O TES GmbH
25 Impler Strasse,
Munich, 81371,
Germany
Karsten Behrens 850,000(2) 16.3%
C/O TES GmbH
25 Impler Strasse,
Munich, 81371,
Germany
Yvonne Marquard 240,000(3) 4.2%
C/O TES GmbH
25 Impler Strasse,
Munich, 81371,
Germany
All officers and directors 3,360,000 64.3%
as a group (3 persons)(4)
- -----------------------
(1) Gerd and Jutta Behrens are husband and wife, and own these shares
separately. As husband and wife each of them may be considered the
beneficial owner of the shares held by the other.
(2) 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.
(3) Yvonne Marquard has served as a consultant to the Company and has been paid
consulting or finder's fees for her efforts in assisting the Company with
its financing efforts. Ms. Marquard is the wife of Michael Marquard, who is
an employee of the Company. Michael Marquard, may be deemed to be the
beneficial owner of these shares.
(4) Does not include 850,000 shares held by Karsten Behrens, nor does it
include 240,000 shares held by Yvonne Marquard because neither are officers
or directors of the Company.
<PAGE>
There are no outstanding options, warrants, or rights to purchase
securities from the Company.
DIRECTORS AND EXECUTIVE OFFICERS OF TES
Officers and Directors and Key Consultants
The officers and directors of Technical Environment Solutions, Inc. (the
"Company") and key consultants are as follows:
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
Gerd Behrens, Jutta Behrens, Frank Behrens, Karsten Behrens and Yvonne
Marquard may be deemed to be "promoters" and "parents" of the Company within the
meaning of the Rules and Regulations promulgated under the Securities Act.
The directors of the Company are elected to hold office until the next
annual meeting of shareholders and until their respective successors have been
elected and qualified. Officers of the Company 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 the Company's founders
and promoters and each officer and director.
Gerd Behrens, founder and promoter, has been Chairman of the Board and
President of the Company since inception. 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. Mr. Behrens has over 35 years
of experience in business with a variety of firms and has served in a number of
positions, including senior management positions, since 1989. From 1989 until
the founding of the Company, Mr. Behrens was the managing director of Data
Consult, a firm located in Munich, Germany, that purchased and sold used
computers. Since the founding of the Company, Mr. Behrens has devoted
substantially all of his time to the business and affairs of the Company.
<PAGE>
Frank Behrens has been Secretary and a director of the Company 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 the Company, 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
organization structures and certain software tools for these systems. Mr.
Behrens provided the Company 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
organization structures and certain software tools for these systems.
Jutta Behrens has been Treasurer and a director of the Company 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 the Company 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 the Company
with legal services and with other management and consulting services. His
principal consulting activities were focused upon providing the Company 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
the Company with various legal matters.
Yvonne Marquard has been a consultant to the Company since February 1,
1997. Ms. Marquard assisted the Company 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.
<PAGE>
Executive Compensation
The following table summarizes all compensation paid to the officers and
directors of the Company, and to Karsten Behrens as a consultant, for services
rendered to the Company during the last three fiscal years.
Long Term
Annual Compensation Compensation
-------------------- ------------
Other Number of
Name and Fiscal Salary/ Annual Options
Principal Position Year Consulting Fees Compensation Awarded
- ------------------ ---- --------------- ------------ -------
Gerd Behrens, 1998 15,500 DM -0- -0- (1)
President 1997 57,600 DM -0- -0-
and Director 1996 10,000 DM -0- -0-
1995 24,000 DM -0- -0-
Jutta Behrens, 1998 -0- -0- -0- (1)
Treasurer 1997 -0- -0- -0-
and Director 1996 -0- -0- -0-
1995 -0- -0- -0-
Frank Behrens, 1998 -0- -0- -0- (1)
Secretary 1997 40,250 DM -0- -0-
and Director 1996 -0- -0- -0-
and Director 1995 -0- -0- -0-
Karsten Behrens, 1998 12,255 DM -0- -0- (1)
Consultant 1997 98,650 DM -0- -0-
1996 3,150 DM -0- -0-
1995 2,930 DM -0- -0-
- -----------------------------
(1) No advances have been made or are contemplated by the Company to any of its
officers or directors.
Employment and Consulting Agreements
- ------------------------------------
The Company has entered into an employment agreement with Gerd Behrens
under which Mr. Behrens will be paid approximately 6,500 DM per month. Further,
the Company has a consulting agreement with Jutta Behrens' accounting firm under
which Mrs. Behrens' firm is paid 500 DM per month in exchange for providing the
services of Jutta Behrens to the Company. Also, the Company has a consulting
agreement with Frank Behrens' personal consulting firm, under which the firm
will be paid 30 DM per hour for providing the services of Frank Behrens to the
Company. Karsten Behrens serves on the board of directors of TES Oecon AG, and
as such there is a consulting agreement with Karsten Behrens' personal
consulting firm under which his firm is paid an hourly fee of 50 DM per hour for
services as needed. Gerd Behrens devotes his full time and attention to the
business and affairs of the Company. Frank Behrens is expected to devote
approximately 30 hours per month on average to the business and affairs of the
Company, with the expectation that as the Company requires more of Mr. Behrens'
time and efforts he will devote more time to the Company with an appropriate
increase in his compensation arrangements. Jutta Behrens is expected to devote
such time as is necessary to maintain the Company's accounting records on a
current basis. It is not anticipated that Mrs. Behrens will devote additional
time to the Company, and as the Company's needs for accounting and bookkeeping
increase, management believes that the Company will hire accounting and
bookkeeping personnel directly to meet those needs. It is also anticipated that
Mrs. Behrens will remain as the Treasurer until such time as the Company's
business requires a full-time person, at which time it is expected that the
Company will replace Mrs. Behrens with a qualified person. Karsten Behrens is
expected to devote approximately 10 hours per month on average to the business
and affairs of the Company, with the expectation that as the Company requires
more of Mr. Behrens' time and efforts he will devote more time to the Company
with an appropriate increase in his compensation arrangements.
<PAGE>
The employment and consulting agreements between the Company and Gerd
Behrens, Jutta Behrens, Frank Behrens and Karsten Behrens also contain an
agreement to maintain confidentiality of trade secrets and other materials.
Directors
- ---------
Other than pursuant 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 therewith.
Option Plans
- ------------
Except as described below, the Company 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
such plans at this time.
The Board of Directors of the Company has adopted a Stock Option Plan (the
"Plan") which provides for the grant of options to purchase an aggregate of not
more than 500,000 shares of the Company's Common Stock. The purpose of the Plan
is to make options available to directors, management, key employees,
consultants, and technical advisers of the Company in order to provide them with
a more direct stake in the future of the Company and to provide them with
additional rewards and incentives for contributing to the success of the
Company.
The Plan will be administered by a committee (the "Committee") appointed by
the Board of Directors which determines the persons to be granted options under
the Plan, the number of shares subject to each option, the term of the option,
the manner in which the option may be exercised and 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. The Committee will have the power to establish
such other terms and conditions for options granted under the 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 Prospectus, no options have been granted under the
Plan.
Except as described below under "Certain Relationships and Related
Transactions," the Company paid no cash or non-cash compensation to any officer
or director during the fiscal years ended December 31, 1995 and 1996.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the founding of the Company, Gerd Behrens acquired
4,500,000 shares of Common Stock of Technical Environment Solutions, Inc. (the
"Company"). Subsequent to the founding and prior to the time that the Company
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 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 the Company approximately 141,250 DM.
The initial loan was made on March 20, 1996, in the amount of 80,000 DM 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 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 for a four year term and bears
interest at 8% per year. Further, Gerd Behrens loaned the Company approximately
100,000 DM 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 the Company to extend the loan for an additional 5 years
if necessary for economic reasons.
In connection with the Company's financing efforts in Germany, the Company
entered into an agreement with Yvonne Marquard under which Mrs. Marquard was
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 the Company's securities. Ms. Marquard was
paid approximately 86,533 DM under the terms of this agreement. Ms. Marquard is
the wife of Michael Marquard, who is an employee of the Company.
The Company also paid Frank Behrens consulting fees equal to 40,250 DM in
connection with the writing and drafting of the Company's business plan and
offering materials that were used to raise funds from German investors and with
the development of environmental management systems and organization structures
and certain software tools for these systems.
The Company paid Karsten Behrens consulting fees equal to approximately
98,650 DM in connection with his performance of legal services for the Company
and the writing and drafting of the Company's business plan and offering
materials that were used to raise funds from German investors.
Except as otherwise disclosed herein, there have been no related party
transactions or any other transactions or relationships required to be disclosed
pursuant to Item 404 of Regulation S-B
<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 ("Common Stock"). 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. After the Merger,
approximately 13,525,067 shares of TES Common Stock are estimated will be
outstanding.
Common Stock
- ------------
Holders of Common Stock are entitled to one vote for each whole share on
all matters to be voted upon by shareholders, including the election of
directors. Holders of Common Stock do not have cumulative voting rights in the
election of directors. 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
choose to do so, and in such 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 the Company's 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 the
Company's Common Stock.
LEGAL OPINIONS
Certain 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, 1997 , and for each of the
two years in the period ended December 31, 1997, included in this Proxy
Statement/Prospectus and the registration statement of which this Proxy
Statement/Prospectus is part, have been audited by Schiefley & Associate, P.C.,
independent auditors, as set forth in their report appearing elsewhere herein,
and in the registration statement, and are included in reliance upon such report
given upon the authority of such firms as experts in accounting and auditing.
The Financial Statements of ENTECS at December 31, 1997 , and for each of
the two years in the period ended December 31, 1997, included in this Proxy
Statement/Prospectus and the registration statement of which this Proxy
Statement/Prospectus is part, have been audited by Schiefley & Associate, P.C.,
independent auditors, as set forth in their report appearing elsewhere herein,
and in the registration statement, and are included in reliance upon such report
given upon the authority of such firms as experts in accounting and auditing.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Page
----
TECHNICAL ENVIRONMENT SOLUTIONS, INC.
Independent Auditors Report F-1
Consolidated Balance Sheet as of December 31, 1997 F-2
Consolidated Statements of Operations for the two
years ended December 31, 1997 F-3
Consolidated Statements of Stockholders' Equity for
the two years ended December 31, 1997 F-4
Consolidated Statements of Cash Flow for the two
years ended December 31, 1997 F-5
Notes to Consolidated Financial Statements F-7
Consolidated Balance Sheet as of September 30, 1998 (unaudited) F-12
Consolidated Statement of Operations for the nine months
ended September 30, 1998 (unaudited) and September 30, 1997
(unaudited) F-13
Consolidated Statement of Cash Flows for the nine months
ended September 30, 1998 (unaudited) and September 30, 1997
(unaudited) F-14
Notes to Unaudited Financial Statements F-15
ENVIRONMENTAL TECHNOLOGIES AND SOFTWARE SOLUTIONS, INC.
Independent Auditor's Report F-16
Consolidated Balance Sheet as of December 31, 1997 F-17
Consolidated Statement of Operations for the year ended
December 31, 1997 F-18
Consolidated Statement of Stockholders' Equity for the year
ended December 31, 1997 F-19
Consolidated Statements of Cash Flows for the year ended
December 31, 1997 F-20
Notes to Consolidated Financial Statements F-22
Consolidated Balance sheet as of September 30, 1998 (unaudited) F-28
Consolidated Statement of Operations for the nine months
ended September 30, 1998 (unaudited) and September 30, 1997
(unaudited) F-29
Consolidated Statement of Stockholders' Equity for the nine
months ended September 30, 1998 (unaudited) and September 30,
1997 (unaudited) F-30
Consolidated Statement of Cash Flows for the nine months
ended September 30, 1998 (unaudited) and September 30, 1997 F-31
Notes to Unaudited Financial Statements F-32
<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, 1997 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of Technical
Environment Solutions, Inc. as of December 31, 1997, 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
June 10, 1998
F-1
<PAGE>
Technical Environment Solutions, Inc.
Consolidated Balance Sheet
December 31, 1997
ASSETS
------
DM US $
---------- ----------
Current assets:
Cash and cash equivalents 711,567 397,058
Accounts receivable, trade 65,973 36,813
Accounts receivable -related party 364,932 203,634
Note receivable - current portion 10,000 5,580
Prepaid expenses 36,354 20,286
---------- ----------
Total current assets 1,188,826 663,370
Property and equipment, at cost, net of
accumulated depreciation of DM 45,901 118,366 66,049
Investments 10,000 5,580
Note receivable - non-current 40,000 22,320
Other assets 340,344 189,914
---------- ----------
1,697,536 947,233
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable - banks 197,798 110,373
Notes payable - others 90,000 50,220
Accounts payable 87,484 48,815
Accounts payable - related party 15,862 8,851
Accrued expenses 143,686 80,177
---------- ----------
Total current liabilities 534,830 298,438
Loans from shareholders 234,300 130,740
Stockholders' equity:
Common stock, no par value,
20,000,000 shares authorized,
1,741,610 shares issued and outstanding 2,260,155 1,261,177
Accumulated deficit (1,331,749) (743,122)
---------- ----------
928,406 518,055
---------- ----------
1,697,536 947,233
========== ==========
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Consolidated Statements of Operations
Years Ended December 31,
1996 1997 1997
DM DM US $
---------- ---------- ----------
<S> <C> <C> <C>
Sales 293,814 423,300 236,203
Sales to related party
-- 30,609 17,080
---------- ---------- ----------
293,814 453,909 253,283
Cost of operations 177,343 179,690 100,268
---------- ---------- ----------
Gross profit 116,471 274,219 153,015
Other costs and expenses:
General and administrative 281,614 886,696 494,780
---------- ---------- ----------
(Loss) from operations (165,143) (612,477) (341,765)
Other income and (expense):
Interest income
1,240 19,190 10,708
Interest expense (43,517) (46,718) (26,069)
---------- ---------- ----------
(42,277) (27,528) (15,361)
(Loss) before income taxes (207,420) (640,005) (357,126)
Provision for income taxes -- -- --
---------- ---------- ----------
Net (loss) (207,420) (640,005) (357,126)
========== ========== ==========
Earnings (loss) per share:
Basic (loss) per share
(0.14) (0.38) (0.21)
========== ========== ==========
Weighted average shares outstanding 1,508,134 1,676,271 1,676,271
========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Consolidated Statement of Stockholders' Equity
Years Ended December 31, 1997 and 1996
Common Stock Accumulated
Shares Amount Deficit Total
DM DM DM
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 1,508,134 121,360 (484,324) (362,966)
Net loss for the year -- -- (207,420) (207,420)
---------- ---------- ---------- ----------
Balance, December 31, 1996 1,508,134 121,360 (691,744) (570,384)
Sale of stock for cash 233,476 2,675,310 2,675,310
less expenses of offering (536,515) (536,515)
Net loss for the year -- -- (640,005) (640,005)
---------- ---------- ---------- ----------
Balance, December 31, 1997 1,741,610 2,260,155 (1,331,749) 928,406
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31,
1996 1997 1997
DM DM US $
------- ------- -------
<S> <C> <C> <C>
Net (loss) (207,420) (640,005) (357,126)
Adjustments to reconcile net income (loss) to net
cash (used in) operating activities:
Loss on sale of fixed assets 10,270 -- --
Depreciation 22,902 12,521 6,987
Interest added to shareholder loans 3,948 -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (14,231) 30,102 16,797
(Increase) decrease in prepaid expenses 411 (32,269) (18,006)
(Increase) decrease in other assets 45,624 (37,935) (21,168)
Increase (decrease) in accounts payable and
accrued expenses 10,847 91,045 50,804
---------- ---------- ----------
Total adjustments 79,771 63,464 35,413
---------- ---------- ----------
Net cash (used in) operating activities (127,649) (576,541) (321,713)
---------- ---------- ----------
Cash flows from investing activities:
Proceeds from sale of assets 16,500 -- --
Advance to affiliate -- (363,250) (202,695)
Long-term lease deposit -- (300,000) (167,401)
Increase in note receivable -- (50,000) (27,900)
Purchase of fixed assets -- (109,624) (61,171)
---------- ----------
Net cash provided by (used in) investing activities 16,500 (822,874) (459,167)
---------- ---------- ----------
Cash flows from financing activities:
Advances from stockholder 230,000 -- --
Proceeds from sale of common stock -- 2,138,795 1,193,457
Decrease in deferred financing fees -- 19,145 10,683
Repayment of notes payable - bank (34,448) (22,766) (12,704)
Repayment of stockholder advances (6,900) (6,900) (3,850)
Proceeds from convertible notes -- -- --
Repayment of notes payable - other (100,000) (20,000) (11,160)
---------- ---------- ----------
Net cash provided by
financing activities 88,652 2,108,274 1,176,427
---------- ---------- ----------
Increase (decrease) in cash (22,497) 708,859 395,547
Cash and cash equivalents,
beginning of period 25,204 2,707 1,511
---------- ---------- ----------
Cash and cash equivalents,
end of period 2,707 711,566 397,057
========== ========== ==========
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Technical Environment Solutions, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31,
1996 1997 1997
DM DM US $
------ ------ ------
Supplemental cash flow information:
Cash paid for interest -- --
Cash paid for income taxes -- --
See accompanying notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
Technical Environment Solutions, Inc.
Notes to Consolidated Financial Statements
December 31, 1997
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, 1997 have been
translated into United States dollars. ("U.S. $") at the rate of DM1.7921 per
U.S. $1.00 the Noon Buying Rate of the Federal Reserve Bank of New York on
December 31, 1997. 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.
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.
F-7
<PAGE>
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 DM12,521 and DM22,122 for the years ended December 31, 1997
and 1996, 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 did
not incur significant amounts of advertising during the 1996 however DM109,865
was charged to advertising expense during 1997.
Net loss per share
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 supersedes and simplifies the
existing computational guidelines under Accounting Principles Board ("APB")
Opinion No. 15, "Earnings Per Share."
The statement is effective for financial statements issued for periods ending
after December 15, 1997. Among other changes, SFAS No. 128 eliminates the
presentation of primary earnings per share and replaces it with basic earnings
per share for which common stock equivalents are not considered in the
computation. It also revises the computation of diluted earnings per share. The
Company has adopted SFAS No. 128 and there is no material impact to the
Company's earnings per share, financial condition, or results of operations. The
Company's earnings per share have been restated for all periods presented to be
consistent with SFAS No. 128.
Basic loss per share of common stock is computed based on the weighted average
number of common shares outstanding during the year. Common stock equivalents
were anti-dilutive and were excluded from the computation.
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
F-8
<PAGE>
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.
Note 2. Investments
During July 1995, the Company invested DM10,000 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.
Note 3. Notes payable and long-term debt
Notes payable - banks at December 31, 1997 consists of a bank line of credit
having a balance at December 31, 1997 of DM17,747. The line of credit bears
interest at 10.75% per annum and had DM32,253 additional credit available at
that date. The Company also has a term loan with the bank having a remaining
principal balance due at December 31, 1997 of DM180,050. The loan bears interest
at 7.75% per annum and is due in installments of DM1,875 monthly through July
2010 and is collateralized by the personal residence of the Company's president
and major shareholder. The term loan was paid in full on February 28, 1998.
During 1995, the Company sold DM210,000 of convertible debentures to thirteen
individual investors in Germany. The debentures bear interest at 10.75% per
annum and are due in March 1999. The debentures were to be convertible into
shares of the Company's common stock, however, none were converted. During 1996,
DM100,000 plus accrued interest was repaid to certain of the investors. An
additional DM20,000 plus accrued interest was repaid in 1997. During January
1998, an additional DM10,000 was repaid.
Note 4. Income taxes.
At December 31, 1997 the Company had approximately DM1,330,000 of unused net
operating loss deductions in Germany that may be carried forward indefinitely.
A valuation allowance of DM665,000 was provided at December 31, 1997 for net
operating loss carryforwards which more likely than not will not be utilized in
the foreseeable future.
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
------------------------ ------
1998 265,020
1999 268,260
2000 272,220
2001 287,820
2002 147,420
Thereafter 90,450
----------
1,331,190
F-9
<PAGE>
In connection with the lease, the Company paid a DM300,000 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 DM2,200,000 if the option is exercised before December
31, 2000. The deposit is included in other assets in the accompanying balance
sheet.
Rent expense in 1996 and 1997 was DM48,239 and DM49,020, respectively.
The Company has entered into employment contract with its president which
provides for an annual salary of DM96,000 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 DM130,000 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
DM80,000 in 2000 and DM50,000 in 2001 plus accrued interest.
Additionally, during 1993, the shareholder advanced DM25,000 to the Company of
which DM6,900 was repaid in each of the years 1995 through 1997. The advance
bears interest at 8% per annum.
Additionally, during 1996, the Company's president and major shareholder
advanced DM100,000 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 DM250,000 for the rights to use the concrete system and subsequently
transferred the rights to Entecs in exchange for a short term note. During 1998,
DM125,000 was paid against the note and the balance is due currently.
Additionally, during 1997, the Company made working capital advances to Entecs
of DM50,000 and paid DM86,250 of costs associated with the operations of Entecs.
The working capital advance bears interest at 8% per annum and was repaid
DM23,000 in 1997 and DM27,000 plus accrued interest of $1,682 was repaid in
January 1998.
The balance of the short term note, working capital advance, accrued interest
and payment of Entecs costs amounted to DM364,932 at December 31, 1997 and
comprises the balance of accounts receivable - related party included in the
accompanying balance sheet.
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.
F-10
<PAGE>
During 1997, the Company commenced a private sale of its common stock to a
limited group of investors in Germany. The Company sold 233,476 shares of its
common stock for gross proceeds of DM2,675,310 and incurred direct expenses of
the offering amounting to DM536,515.
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 1997 and 1996, all of the Company's revenue from recycling operations was
derived from sales within Germany. During 1996, the Company had one major
customer, Seimens Nixdorf AG 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.
Aggregate amounts due from these customers amounted to DM12,007 at December 31,
1997.
The Company has to date functioned as an intermediary in carrying out its
recycling operations. The Company has used the services of Fuchs AG to complete
the disposal of all recycled materials.
Note 9. Subsequent events
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 will account for the investment using
the equity method of accounting.
F-11
<PAGE>
Technical Environment Solutions, Inc.
Consolidated Balance Sheet
(Unaudited)
September 30, September 30,
1998 1998
ASSETS
(DM) (US$)
Current Assets:
Cash and equivalents 190,305 $ 113,955
Accounts receivable, trade 120,471 72,138
Note receivable - current portion 10,000 5,988
Prepaid expenses 10,311 6,175
----------- -----------
Total current assets 331,087 198,256
Property and equipment, at cost, net of
accumulated depreciation of DM 98,898 169,857 101,711
Investments 10,000 5,988
Note receivable - non-current 40,000 23,952
Other assets 435,127 260,555
----------- -----------
986,071 $ 590,462
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable - others 80,000 $ 47,905
Cash overdraft 30,156 18,057
Accounts payable 91,930 55,047
Accounts payable - related party 15,862 9,498
Accrued expenses 91,880 55,020
----------- -----------
Total current liabilities 309,828 185,527
Loans from shareholders 230,155 137,817
Loan from related party 150,000 89,820
Shareholders' Equity:
Common stock, no par value
20,000,000 shares authorized
1,741,610 shares issued and outstanding 2,260,155 1,353,386
Accumulated deficit (1,964,067) (1,176,088)
----------- -----------
296,088 177,298
----------- -----------
986,071 $ 590,462
=========== ===========
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
1997 1998 1997 1998 1998
---- ---- ---- ---- ----
DM DM DM DM US$
<S> <C> <C> <C> <C> <C>
Sales 61,376 169,030 256,226 534,102 $ 319,822
Sales to related party -- 32,995 -- 77,425 46,362
----------- ----------- ----------- ----------- -----------
61,376 202,025 256,226 611,527 366,184
Cost of operations 46,732 80,203 140,855 179,675 107,590
----------- ----------- ----------- ----------- -----------
Gross profit 14,644 121,822 115,371 431,852 258,594
Other costs and expenses:
General and administrative 258,851 342,990 448,939 998,366 597,824
----------- ----------- ----------- ----------- -----------
(Loss) from operations (244,207) (221,168) (333,568) (566,514) (339,230)
Other income and (expense):
Interest income 123 2,106 4,582 5,233 3,134
Losses of unconsolidated subsidiary -- (40,974) -- (49,000) (29,341)
Interest expense (5,032) (5,298) (24,337) (20,321) (12,169)
----------- ----------- ----------- ----------- -----------
(4,909) (44,166) (19,755) (64,088) (38,376)
(Loss) before income taxes (249,116) (265,334) (353,323) (630,602) (377,606)
Provision for income taxes (1,396) 95 -- 1,716 1,028
----------- ----------- ----------- ----------- -----------
Net (loss) (247,720) (265,429) (353,323) (632,318) (378,634)
=========== =========== =========== =========== ===========
Earnings (loss) per share:
Net income (loss) (0.14) (0.15) (0.21) (0.36) (0.22)
----------- ----------- ----------- ----------- -----------
Weight average shares outstanding 1,741,610 1,741,610 1,654,492 1,741,610 1,741,610
=========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
F-13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1997 1998 1998
---- ---- ----
DM DM US$
<S> <C> <C> <C>
Net (loss) (353,322) (632,318) (378,634)
Adjustments to reconcile net income (loss) to
net cash (used in) operating activities:
Depreciation 4,000 40,476 24,237
Losses of unconsolidated subsidiary -- 49,000 29,341
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 62,369 310,434 185,889
(Increase) decrease in prepaid expenses -- 26,043 15,595
(Increase) decrease in other assets -- (94,783) (56,756)
Increase (decrease) in accounts payable,
cash overdraft and accrued expenses (52,612) (17,204) (10,302)
---------- ---------- ----------
Total adjustments 13,757 313,966 188,004
---------- ---------- ----------
Net cash (used in) operating activities (339,565) (318,352) (190,630)
---------- ---------- ----------
Cash flows from investing activities:
Investments in unconsolidated subsidiary -- (49,000) (29,341)
Increase in notes receivable (100,000) -- --
Deposit on building purchase (307,835) -- --
Purchase of fixed assets (150,003) (91,967) (55,070)
---------- ---------- ----------
Net cash provided by (used in) investing activities (557,838) (140,967) (84,411)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from sale of common stock 2,028,550 -- --
Proceeds of related party loan -- 150,000 89,820
Advances from stockholders 100,000 -- --
Repayment of stockholder loans (111,179) (4,145) (2,482)
Repayment of notes payable - bank (58,405) (197,798) (118,442)
Repayment of notes payable - other -- (10,000) (5,988)
---------- ---------- ----------
Net cash provided by
financing activities 1,958,966 (61,943) (37,092)
========== ========== ==========
Increase (decrease) in cash 1,061,563 (521,262) (312,133)
Cash and cash equivalents,
beginning of period 2,707 711,567 426,088
---------- ---------- ----------
Cash and cash equivalents, end of period 1,064,270 190,305 113,955
========== ========== ==========
See accompanying notes to consolidated financial statements.
F-14
</TABLE>
<PAGE>
Technical Environment Solutions, Inc.
Notes to Unaudited Financing Statement
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, 1997, included elsewhere herein.
Basic loss per share was computed using the weighted average number of common
shares outstanding.
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 were due in March 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 10,000 of the debentures plus accrued interest was repaid during
the period ended September 30, 1998. Additionally, the Company paid DM 197,798
against bank debt prior to its maturity.
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 DM
49,000 for its investment in T-Cycle and will account for the investment using
the equity method of accounting. Accordingly, the Company has recognized its
share of losses of T-Cycle for the period ended September 30, 1998, which
amounted to DM 49,000, as a reduction of its investment in the Company.
During the quarter ended September 30, 1998, the Company borrowed DM 150,000
from a company controlled by the Company's principal shareholder. The loan is
due in DM 50,000 installments in 2006, 2007 and 2008, and bears interest at 6%
per annum.
F-15
<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, 1997 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of Environmental
Technologies and Software Solutions, Inc. as of December 31, 1997, and the
results of its operations and cash flows for the year then ended, in conformity
with generally accepted accounting principles.
James E. Scheifley & Associates, P.C.
Certified Public Accountants
Denver, Colorado
December 11, 1998
F-16
<PAGE>
Environmental Technologies and Software Solutions, Inc.
A Development Stage Company
Consolidated Balance Sheet
December 31, 1997
ASSETS
------
DM US $
Current assets:
Cash and cash equivalents 226,220 126,232
Accounts receivable 101,134 56,433
---------- ----------
Total current assets 327,354 182,665
Property and equipment, at cost, net of
accumulated depreciation of DM 0 553,042 308,600
Deposits
5,400 3,013
License rights 1,257,084 701,459
---------- ----------
2,142,880 1,195,737
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable 498,000 277,885
Accrued expenses
57,041 31,829
---------- ----------
Total current liabilities 555,041 309,714
Amounts due to affiliated companies 843,695 470,786
Amounts due to related parties
87,500 48,825
Stockholders' equity:
Common stock, no par value,
50,000,000 shares authorized,
1,208,154 shares issued and outstanding 1,001,269 558,713
Deficit accumulated during development stage (344,625) (192,302)
---------- ----------
656,644 366,410
---------- ----------
2,142,880 1,195,737
========== ==========
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
Environmental Technologies and Software Solutions, Inc.
A Development Stage Company
Consolidated Statement of Operations
Year Ended December 31, 1997
1997 1997
DM US $
Other costs and expenses:
General and administrative 256,114 142,913
General and administrative - related parties 87,500 48,825
---------- ----------
(Loss) from operations 343,614 191,738
Other income and (expense):
Interest income 783 437
Interest expense (1,794) (1,001)
---------- ----------
(1,011) (564)
(Loss) before income taxes 344,625 192,302
Provision for income taxes -- --
---------- ----------
Net (loss) 344,625 192,302
========== ==========
Earnings (loss) per share:
Basic (loss) per share 0.33 0.19
========== ==========
Weighted average shares outstanding 1,033,751 1,033,751
========== ==========
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
<TABLE>
<CAPTION>
Environmental Technologies and Software Solutions, Inc.
A Development Stage Company
Consolidated Statement of Stockholders' Equity
Year Ended December 31, 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
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
F-19
<PAGE>
Environmental Technologies and Software Solutions, Inc.
A Development Stage Company
Consolidated Statement of Cash Flows
Year Ended December 31, 1997
1997 1997
DM US $
-------- --------
Net (loss) 344,625 192,302
Adjustments to reconcile net income (loss) to
net cash (used in) operating activities:
Depreciation and amortization 72,916 40,687
Interest added to affiliate loan 1,682 939
Expenses incurred by affiliate 53,763 30,000
Expenses added to related party loans (337,500) (188,327)
Common stock issued for services 116,581 65,053
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (101,134) (56,433)
(Increase) decrease in prepaid expenses -- --
(Increase) decrease in deposits (5,400) (3,013)
Increase (decrease) in accounts payable and
accrued expenses 555,041 309,715
---------- ----------
Total adjustments 355,949 198,621
---------- ----------
Net cash (used in) operating activities 700,574 390,923
---------- ----------
Cash flows from investing activities:
Purchase of license rights (568,750) (317,365)
Purchase of fixed assets (553,042) (308,600)
---------- ----------
Net cash provided by (used in)
investing activities (1,121,792) (625,965)
---------- ----------
Cash flows from financing activities:
Proceeds from loan from affiliate 27,000 15,066
Proceeds from sale of common stock 884,688 493,660
---------- ----------
Net cash provided by
financing activities 911,688 508,726
---------- ----------
Increase (decrease) in cash 490,470 273,685
Cash and cash equivalents,
beginning of period -- --
---------- ----------
Cash and cash equivalents,
end of period 490,470 273,685
========== ==========
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
Enviornmental Technologies and Software Solutions, Inc.
A Development Stage Company
Consolidated Statements of Cash Flows
Year Ended December 31, 1997
1997 1997
DM US $
-------- ---------
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) (1,364,236)
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
Environmental Technologies and Software Solutions, Inc.
Notes to Consolidated Financial Statements
December 31, 1997
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 no sales during the period 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, 1997 have been
translated into United States dollars. ("U.S. $") at the rate of DM1.7921 per
U.S. $1.00 the Noon Buying Rate of the Federal Reserve Bank of New York on
December 31, 1997. 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-22
<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 has not been placed in service.
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 year ended December 31, 1997 amounted to DM72,916.
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 1997 fiscal year.
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 DM1,173 of advertising expense during 1997.
F-23
<PAGE>
Net loss per share
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 supersedes and simplifies the
existing computational guidelines under Accounting Principles Board ("APB")
Opinion No. 15, "Earnings Per Share."
The statement is effective for financial statements issued for periods ending
after December 15, 1997. Among other changes, SFAS No. 128 eliminates the
presentation of primary earnings per share and replaces it with basic earnings
per share for which common stock equivalents are not considered in the
computation. It also revises the computation of diluted earnings per share. The
Company has adopted SFAS No. 128 and there is no material impact to the
Company's earnings per share, financial condition, or results of operations. The
Company's earnings per share have been restated for all periods presented to be
consistent with SFAS No. 128.
Basic loss per share of common stock is computed based on the weighted average
number of common shares outstanding during the year. Common stock equivalents
were anti-dilutive and were excluded from the computation.
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.
F-24
<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.
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 Ststem (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 DM625,000 for the
license of which DM250,000 was due to the affiliated company at December 31,
1997. 25, 1997). 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.
The second license (UWAS license, which covers two patents no. EPO 383227 and
EPO 383229 which relate to an artificial peat production system) 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 DM650,000 for the license of which DM425,000 was due to the affiliated
company at December 31, 1997. The process patents for an artificial peat
production system have been registered during May 1993 and May 1992. The
contract expires with the expiration of the patent which, according to German
law normally expires 20 years after registration.
F-25
<PAGE>
The amortization for both licenses have been calculated on basis of useful lives
of 10 years which the Company has determined to be an appropriate time to
amortize the licenses using the straight line method. The total amortization in
1997 amounts to DM72,916 (DM36,458 each license).
Note 3. Income taxes.
At December 31, 1997 the Company had approximately DM345,000 of unused net
operating loss deductions in Germany that may be carried forward indefinitely.
A valuation allowance of DM172,500 was provided at December 31, 1997 for net
operating loss carryforwards which more likely than not will not be utilized in
the foreseeable future.
Note 4. Commitments and contingencies
The Company occupies its administrative offices pursuant to a short term lease.
Rent expense in 1997 was DM7,200.
The Company has entered into employment contract with its general manager of
ENTECS GmbH which provides for an annual salary of DM51,000 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 DM250,000 and additional payments of DM86,250 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, DM125,000 was paid against the
note and the balance is due currently.
Additionally, during 1997, the Company received working capital advances from
TES of DM50,000 and TES paid DM53,763 of costs associated with the capital
raising activities of Entecs. The working capital advance bears interest at 8%
per annum and was repaid DM23,000 in 1997 and DM27,000 plus accrued interest of
$1,682 was repaid in January 1998.
F-26
<PAGE>
The balance of the short term note, working capital advance, accrued interest
and payment of the Company's costs amounted to DM418,695 due to TES, Inc. at
December 31, 1997. This amount plus the amount due for the purchase of the UWAS
license as described in Note 2 (DM425,000) comprises the balance of loans from
affiliated companies included in the accompanying balance sheet.
During the year ended December 31, 1997, the Company incurred costs associated
with its organization and financing activities amounting to DM87,500. 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, a significant shareholder and director received DM48,486 in
commissions related to the sale of the Company's securities. This amount has
been included in offering expenses in the accompanying statement of operations.
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 DM3,685.
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 DM12.54 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 DM1,307,448 and incurred direct expenses of
the offering amounting to DM422,759. The shares were offered at a price of $7.00
US per share.
F-27
<PAGE>
Environmental Technologies and Software Solutions, Inc.
A Development Stage Company
Consolidated Balance Sheet
September 30, 1998
(Unaudited)
ASSETS
------
DM US $
Current assets:
Cash and cash equivalents 865,847 518,409
Accounts receivable 174,605 104,541
Advances to affiliates 157,500 94,300
Inventory 120,001 71,848
Prepaid expenses 2,090 1,251
---------- ----------
Total current assets 1,320,043 790,350
Property and equipment, at cost, net of
accumulated depreciation of DM9,787 593,573 355,390
Deposits -- --
License rights 1,155,334 691,734
---------- ----------
3,068,950 1,837,475
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable 187,472 112,244
Accrued expenses 150,701 90,229
---------- ----------
Total current liabilities 338,173 202,474
Amounts due to affiliated companies 87,932 52,648
Amounts due to related parties 275,000 164,651
Stockholders' equity:
Common stock, no par value,
50,000,000 shares authorized,
1,456,182 shares issued and outstanding 3,591,123 2,150,116
Deficit accumulated during development stage (1,223,278) (732,414)
---------- ----------
2,367,845 1,417,701
---------- ----------
3,068,950 1,837,474
========== ==========
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
<TABLE>
<CAPTION>
Environmental Technologies and Software Solutions, Inc.
A Development Stage Company
Consolidated Statement of Operations
Nine Months Ended September 30, 1998 and 1997
(Unaudited)
Inception
to
September 30,
1997 1998 1998 1998
DM DM US $ DM
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues -- 20,000 11,975 20,000
Other costs and expenses:
General and administrative 181,689 821,645 491,944 1,165,259
General and administrative - related parties -- 87,500 52,389 87,500
---------- ---------- ---------- ----------
(Loss) from operations (181,689) (889,145) (532,358) (1,232,759)
Other income and (expense):
Interest income -- 12,430 7,442 13,213
Interest expense (112) (1,938) (1,160) (3,732)
---------- ---------- ---------- ----------
(112) 10,492 6,282 9,481
(Loss) before income taxes (181,801) (878,653) (526,076) (1,223,278)
Provision for income taxes -- -- -- --
---------- ---------- ---------- ----------
Net (loss) (181,801) (878,653) (526,076) (1,223,278)
========== ========== ========== ==========
Earnings (loss) per share:
Basic (loss) per share (0.19) (0.65) (0.39) (1.02)
========== ========== ========== ==========
Weighted average shares outstanding 946,550 1,358,118 1,358,118 1,195,935
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
F-29
<PAGE>
<TABLE>
<CAPTION>
Environmental Technologies and Software Solutions, Inc.
A Development Stage Company
Consolidated Statement of Stockholders' Equity
Year Ended December 31, 1997 and September 30, 1998
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
(The following information is unaudited)
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 DM12.54 per share 107,143 1,344,138 1,344,138
July 1998 at DM12.10 per share 13,230 160,031 160,031
Less expenses of offering (478,789) (478,789)
Net loss for the year -- -- (878,653) (878,653)
---------- ---------- ---------- ----------
Balance, September 30, 1998 1,456,182 3,591,123 (1,223,278) 2,367,845
========== ========== ========== ==========
</TABLE>
F-30
<PAGE>
<TABLE>
<CAPTION>
Environmental Technologies and Software Solutions, Inc.
A Development Stage Company
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1998 and 1997
(Unaudited)
Inception
to
September 30,
1997 1998 1998 1998
DM DM US $ DM
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net (loss) (181,801) (878,653) (526,077) (1,223,278)
Adjustments to reconcile net income (loss) to net
cash (used in) operating activities:
Depreciation and amortization -- 111,537 66,781 184,453
Interest added to affiliate loan -- (7,500) (4,490) (5,818)
Expenses incurred by affiliate 22,773 -- -- 53,763
Expenses added to related party loans -- -- -- 87,500
Common stock issued for services 116,581 -- -- 116,581
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (106,534) (73,471) (43,989) (174,605)
(Increase) decrease in prepaid expenses (2,090) (2,090) (1,251) (2,090)
(Increase) decrease in deposits 5,400 5,400 3,233 --
Increase (decrease) in accounts payable and --
accrued expenses 535,041 (216,868) (129,846) 338,173
---------- ---------- ---------- ----------
Total adjustments 571,171 (182,992) (109,563) 597,957
---------- ---------- ---------- ----------
Net cash (used in) operating activities 389,370 (1,061,645) (635,639) (625,321)
---------- ---------- ---------- ----------
Cash flows from investing activities:
Purchase of license rights (80,000) -- -- (568,750)
Advance to affiliated company -- (150,000) (89,810) (150,000)
Purchase of fixed assets (403,042) (170,319) (101,975) (723,361)
---------- ---------- ---------- ----------
Net cash provided by (used in) investing activities (483,042) (320,319) (191,785) (1,442,111)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from loan from affiliate 27,000 -- -- 27,000
Repayments to affiliated companies -- (330,763) (198,038) (330,763)
Repayments to related parties -- (237,500) (142,199) (237,500)
Proceeds from sale of common stock 765,572 2,589,854 1,550,625 3,474,542
---------- ---------- ---------- ----------
Net cash provided by
financing activities 792,572 2,021,591 1,210,389 2,933,279
---------- ---------- ---------- ----------
Increase (decrease) in cash 698,900 639,627 382,964 865,847
Cash and cash equivalents,
beginning of period -- 226,220 135,445 --
---------- ---------- ---------- ----------
Cash and cash equivalents,
end of period 698,900 865,847 518,409 865,847
========== ========== ========== ==========
</TABLE>
F-31
<PAGE>
Environmental Technologies and Software Solutions, Inc.
Notes to Unaudited Financial Statements
September 30, 1998
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, 1997, included elsewhere herein.
Basic loss per share was computed using the weighted average number of common
shares outstanding.
During the period ended September 30, 1998, the Company loaned DM150,000 to a
company controlled by the Company's principal shareholder. The loan is due in
DM50,000 installments in 2006, 2007 and 2008, and bears interest at 6% per
annum.
During the period ended September the Company continued the private offering of
its common stock to a limited group of investors in Germany. The Company sold
248,028 shares of its common stock for gross proceeds of DM3,068,643 and
incurred direct expenses of the offering amounting to DM478,789. The shares were
offered at a price of $7.00 US per share.
F-32
<PAGE>
AGREEMENT AND PLAN OF MERGER
(Reverse Triangular Merger)
among
ENVIRONMENTAL TECHNOLOGIES AND SOFTWARE SOLUTIONS, INC.
TECHNICAL ENVIRONMENTAL SOLUTIONS, INC.
and
TES ACQUISITION CORP.
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
THE MERGER
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 SUB
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 Sub
Section 5.16 Change in Control
<PAGE>
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 Sub
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
ARTICLE X
MISCELLANEOUS
Section 10.01 Nonsurvival 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
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February ____, 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 Sub, Inc., a Colorado corporation and a wholly
owned subsidiary of TES ("Acquisition Sub").
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 Sub with and into
ENTECS (the "Merger") shall be duly prepared, executed and filed by ENTECS, as
the surviving corporation (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 Sub 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 Sub
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.
<PAGE>
Section 2.05 Conversion. At the Effective Time, by virtue of the Merger and
without any action on the part of TES, Acquisition Sub, 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 5.7 fully paid and nonassessable shares of common stock, no par
value, of TES (the "TES Shares").
(b) Each ENTECS Share which 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
Sub 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 such 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.
<PAGE>
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).
(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 which 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.
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ENTECS
ENTECS represents and warrants to TES and Acquisition Sub 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
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,
1,456,182 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.
Except as set forth above or in Section 4.02 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 obligating ENTECS to issue, transfer or sell any of
its securities.
(b) Section 4.02 of ENTECS Disclosure Schedule sets forth the name,
jurisdiction of incorporation and capitalization of each subsidiary of ENTECS.
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's
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's 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's 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.
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.
<PAGE>
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 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) 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's 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 financial 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.
<PAGE>
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's and TES's 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 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, except
that no representation is made by ENTECS with respect to statements made therein
based on information supplied by TES or Acquisition Sub in writing for inclusion
or incorporation by reference 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.
<PAGE>
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.
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.
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
TES AND ACQUISITION SUB
TES and Acquisition Sub 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's 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 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 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.
(b) Section 5.02 of the TES Disclosure Schedule sets forth the name,
jurisdiction of incorporation and capitalization of each subsidiary of TES.
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 stock of each of TES's
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 or unissued capital stock or other securities
of any of TES's 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's
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.
<PAGE>
Section 5.03 Authority Relative to this Agreement. Each of TES and
Acquisition Sub 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 Sub and by TES as the sole stockholder
of Acquisition Sub and no other corporate proceedings on the part of TES or
Acquisition Sub 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 Sub and constitutes a
valid and binding agreement of each of TES and Acquisition Sub, enforceable
against each of TES and Acquisition Sub 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 Sub nor the consummation by TES or Acquisition
Sub of the transactions contemplated hereby nor compliance by TES or Acquisition
Sub 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 Sub, (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.
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 Sub 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.
<PAGE>
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 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 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 Sub,
investigation pending or, to the best knowledge of TES or Acquisition Sub,
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.
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 4.13 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 to the Intellectual Property.
Section 5.15 Interim Operations of Acquisition Sub. Acquisition Sub 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.
<PAGE>
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 5.01 of ENTECS Disclosure Schedule or
the TES Disclosure Schedule, as the case may be, or to the extent that the other
party shall otherwise consent in writing):
(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.
(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.
<PAGE>
(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.
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.
<PAGE>
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.
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 settlement 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).
(b) TES and Acquisition Sub agree that all rights to indemnification
existing in favor of the Managers as provided in ENTECS's Certificate of
Incorporation or Bylaws or similar documents of any of ENTECS's 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's
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 Sub
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.
<PAGE>
(b) TES and Acquisition Sub 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:
(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 affirmative vote of the holders of a
majority of the TES Shares present at the meeting and entitled to vote.
(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, shall 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 Sub. The
obligations of TES and Acquisition Sub 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 Sub:
(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's 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:
(i) ENTECS is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Colorado;
<PAGE>
(ii) each of ENTECS's 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
subsidiaries 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 such 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:
(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 Sub 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.
<PAGE>
(e) At the Closing, TES and Acquisition Sub 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 Sub, in form and
substance satisfactory to ENTECS and its counsel, to the effect that:
(i) Each of TES and Acquisition Sub 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 Sub 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;
(v) the execution and delivery of this Agreement by each of the TES and
Acquisition Sub 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 Sub
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.
<PAGE>
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-party transaction; or
(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.
<PAGE>
ARTICLE IX
POST CLOSING COVENANTS
In filing federal tax returns at any time, each of TES, ENTECS and New
Acquisition Sub 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's 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):
(a) if to TES or Acquisition Sub, to
Gerd Behrens, President
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
Karl-B`hm-Sta8e 2
85598 Baldham
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 Sub to assign its rights and obligations to TES or any other wholly
owned subsidiary of TES, but no such assignment shall relieve Acquisition Sub 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.
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.
<PAGE>
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 Sub to perform its obligations hereunder.
IN WITNESS WHEREOF, ENTECS, TES and Acquisition Sub 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:________________________________
Name:
Title:
TECHNICAL ENVIRONMENT SOLUTIONS, INC.
By:___________________________________
Name:
Title:
TES ACQUISITON CORP.
By:___________________________________
Name:
Title:
<PAGE>
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 10 of the Company's Articles of Incorporation provides for the
indemnification of the Company's 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 the Company. With respect to matters as to which the Company's
officers and directors and others are determined to be liable for misconduct or
negligence, including gross negligence in the performance of their duties to the
Company, 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, the Company's Bylaws
authorize indemnification of a director, officer, employee, or agent of the
Company 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 the Company 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 the
Registrant pursuant to the foregoing provisions, the Registrant 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 herein.
<TABLE>
<CAPTION>
Exhibit
No. Document
- ------- --------
<S> <C>
3(i) Articles of Incorporation(1)
3(ii) Bylaws(1)
4(i) Form of Stock Certificate(1)
4(ii) Form of Convertible Debenture(1)
4(iii) Stock Option Plan(1)
5.1 Opinion of Schlueter & Associates, P.C. as to legality of TES Common Stock(2)
5.2 Opinion of Rossi & Maricle, P.C. as to legality of Entecs Common Stock(2)
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(2)
II-1
<PAGE>
10(i) Employment Contract of Gerd Behrens dated May 19, 1992(1)
10(ii) Lease for Impler Strasse office(1)
10(iii) Lease for building in Landsberg am Lech(1)
10(iv) Lease for building #2 (Halle) at Landsberg am Lech(1)
10(v) Agreement dated February 2, 1998 between TES Inc. and T-Cycle GmbH(1)
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 Consents of Schlueter & Associates, P.C. (included with Exhibits 5.1 and 8.1)(2)
23.3 Consent of Rossi & Maricle, P.C. (included with Exhibit 5.2)(2)
</TABLE>
- -----------------------
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 To be filed by Amendment
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 hereby 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 pursuant
to 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 thereof.
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 pursuant to the foregoing 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
II-2
<PAGE>
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 hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
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 hereby 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
II-3
<PAGE>
SIGNATURES
- ----------
Pursuant to 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 12th
day of February, 1999.
TECHNICAL ENVIRONMENT SOLUTIONS, INC.
(Registrant)
By: /s/ Gerd Behrens
----------------------------------
Gerd Behrens, President
Pursuant to 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
- ---- ----- ---------
February 12, 1999 President and Director /s/ Gerd Behrens
- --------------------- (Principal Executive Officer) Gerd Behrens
February 12, 1999 Treasurer and Director /s/ Jutta Behrens
- --------------------- (Principal Financial and Jutta Behrens
Accounting Officer)
February 12, 1999 Secretary and Director /s/ Frank Behrens
- --------------------- Frank Behrens
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 dated
February 12, 1999 of our report dated June 10, 1998, relating to the financial
statements of Technical Environment Solutions, Inc. as of December 31, 1997 and
to the reference to our firm under the caption "EXPERTS" in the registration
statement
James E. Scheifley & Associates, P.C.
Certified Public Accountants
February 12, 1999
Denver, Colorado
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 dated
February 12, 1999 of our report dated December 11, 1998, relating to the
financial statements of Environmental Technologies and Software Solutions, Inc.
as of December 31, 1997 and to the reference to our firm under the caption
"EXPERTS" in the registration statement
James E. Scheifley & Associates, P.C.
Certified Public Accountants
February 12, 1999
Denver, Colorado
