SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------------------
SCHEDULE 13E-4
Issuer Tender Offer Statement
Pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934
TYREX OIL COMPANY
------------------
(Name of issuer)
TYREX OIL COMPANY
------------------
(Name of person(s) filing statement)
---------------------------------------------
Common Stock, par value $0.01 per share
---------------------------------------
(Title of class of securities)
902416 10 6
----------
(CUSIP number of class of securities)
TOM N. RICHARDSON, PRESIDENT
777 NORTH OVERLAND TRAIL, SUITE 101
CASPER, WYOMING 82601
(307) 234-4260
--------------
(Name, address and telephone number of person authorized to receive notices
and communications on behalf of the person(s) filing statement)
COPY TO:
Samuel E. Wing, Esq.
Jones & Keller, P.C.
1625 Broadway
Suite 1600
Denver, CO 80202
(303) 573-1600
October 27, 1997
(Date tender offer first published, sent or given to security holders)
<PAGE>
CALCULATION OF FILING FEE
- -----------------------------------------------------------------
TRANSACTION VALUATION* AMOUNT OF FILING FEE
$1,800,000 $360
- -----------------------------------------------------------------
* Calculated solely for purposes of determining the filing fee, based upon
the proposed purchase of 6,000,000 shares at $0.30 per share.
[ ]Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
Amount Previously Paid: N/A Filing Party: N/A
Form or Registration No.: N/A Date File: N/A
- -----------------------------------------------------------------
- -----------------------------------------------------------------
1
<PAGE>
This Issuer Tender Offer Statement on Schedule 13E-4 (the "Statement")
relates to the tender offer by Tyrex Oil Company, a Wyoming corporation (the
"Company"), to purchase up to 6,000,000 shares of its common stock, par value
$0.01 per share (the "Shares"), at $0.30 per share, upon the terms and subject
to the conditions set forth in the offer to purchase, dated October 27, 1997
(the "Offer to Purchase") and the related Letter of Transmittal (which, as they
may be amended from time to time, are herein collectively referred to as the
"Offer"). Copies of the Offer to Purchase and Letter of Transmittal are filed
as Exhibits A-1 and A-2, respectively, to this Statement.
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is Tyrex Oil Company, a Wyoming corporation.
The address of its principal executive offices is 777 North Overland Trail,
Suite 101, Casper, Wyoming 82601.
(b) The information set forth in "Introduction," "The Offer--" "Number of
Shares;-- Proration;" and "Interests of Officers, Directors and Others" in the
Offer to Purchase is incorporated herein by reference. The Offer is being made
to all holders of Shares, including officers, directors and affiliates of the
Company, although the Company has excluded by contract three individuals who
became major shareholders as the result of an Acquisition. See "Introduction--
Acquisition of 3Si."
(c) The information set forth in "Introduction" and "The Offer--Price
Range of Shares; Dividends" in the Offer to Purchase is incorporated herein by
reference.
(d) This Statement is being filed by the issuer.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth in "The Offer--Source and Amount of Funds"
in the Offer to Purchase is incorporated herein by reference.
(b) Not applicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER.
(a)-(j) The information set forth in "Introduction," "Background and
Purpose of the Offer--Certain Effects of the Offer;" "--Interests of Officers,
Directors and Others;" "--Source and Amount of Funds;" and "--Effects of the
Offer on the Market for Shares; Registration Under the Exchange Act" in the
Offer to Purchase is incorporated herein by reference.
2
<PAGE>
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
The information set forth in "Interests of Officers, Directors and Others"
and "The Offer" in the Offer to Purchase is incorporated herein by reference.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
The information set forth in "Introduction," "The Offer--; Background and
Purpose of the Offer; Certain Effects of the Offer;" Purpose of the Offer,"
"Certain Effects of the Offer," "Interests of Officers, Directors and Others;"
and "Transactions and Arrangements Concerning the Shares" in the Offer to
Purchase is incorporated herein by reference.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in "Introduction" and "The Offer--Fees and
Expenses" in the Offer to Purchase is incorporated herein by reference.
ITEM 7. FINANCIAL INFORMATION.
(a)-(b) The information set forth in "Information Concerning 3Si;" "Pro
Forma Financial Information;" "Certain Information Concerning Tyrex" and
"Financial Statements" in the Offer to Purchase is incorporated herein by
reference as is set forth therein.
ITEM 8. ADDITIONAL INFORMATION.
(a) Not applicable; see Item 5 above.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) The information set forth in the Offer to Purchase and the related
Letter of Transmittal, copies of which are attached hereto as Exhibits A-1 and
A-2, respectively, is incorporated herein by reference.
3
<PAGE>
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(A-1) Form of Offer to Purchase dated October 27, 1997.
(A-2) Form of Letter of Transmittal.
(A-3) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees (including Broker's Transmittal
Letter and Client Letter).
(A-4) Guidelines for Certification of Taxpayer Identification Number on
Form W-9.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable
(e) Not applicable
4
<PAGE>
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
TYREX OIL COMPANY
By: /s/ Tom N. Richardson
------------------------------------------
Name: Tom N. Richardson
Title: President (Principal Financial and
Accounting Officer)
Dated: October 27, 1997
5
<PAGE>
October 27, 1997
Dear Tyrex Shareholders:
We are pleased to forward to you the necessary information and forms as
required for you as a shareholder to tender your shares to Tyrex Oil Company
pursuant to our self tender offer as announced in our press release of May 28,
1997. You will recall in that notice we notified our shareholders and the
general public of our merger with 3Si Inc., of Englewood, Colorado.
You are urged to carefully read the enclosed document and to take special
note of the time restrictions placed on you as shareholders in which to tender
your shares to the transfer agent. A synopsis of the basic terms of the tender
offer are as follows: Tyrex will purchase up to six million (6,000,000) shares
of its outstanding common stock from shareholders of record as of May 20, 1997
at $.30 per share. If more than six million shares are tendered, then the buy
back will be subject to proration. Those shareholders who own less than 100
shares, and tender all of them, will not be subject to proration and the Company
will purchase all of those tendered shares. As a shareholder you may tender all
of your shares, a portion of your shares, or none at all. The shares issued to
the owners of 3Si in connection with the acquisition are not eligible for the
tender and will not be purchased by Tyrex. If you decide not to tender any
shares, nothing further is required for you to do and your share certificates do
--
not need to be sent to the transfer agent or exchanged for new ones.
- ---
If you have any questions concerning the tender offer, or if you have lost
your certificate(s) or they have been destroyed, please follow the instructions
as set out in the transmittal notice or contact Mr. John Harmann with American
Securities Transfer & Trust, Inc. at 303-234-5300.
Please see the short message from 3Si's Fred Slack on the following page.
If you have any further questions concerning 3Si and its operations as set out
in this document, please contact Fred at 303-741-9123.
Very truly yours,
TYREX OIL COMPANY
/s/ Tom N. Richardson
By:
Tom N. Richardson, President
<PAGE>
October 27, 1997
Dear Tyrex Shareholders:
The quarter ended September 30, typically has been one of our slowest due
to the number of customers on vacation, finishing their fiscal years and still
in the middle of their budgeting cycles. We are very happy to report that the
Company made a modest profit during this quarter and posted a little over $7
million in sales.
The reason for this upward trend is due to many factors - not the least of
which is the $5 million financing facility established with Duetsche Financial
Services--$2 million revolving line of credit at the prime rate of interest and
$3 million inventory wholesale financing line. This facility provides the room
for continued growth of larger accounts and flexibility to pursue more
aggressively other lines of business.
The USPS sub-contract continues to grow with the addition of 31 new
employees during the quarter ended September 30, 1997. Monthly revenues now
average over $380,000 and is an example of the recurring revenue type of
business we will continue to pursue.
Our Internet security group is evolving into a much broader Internet
products and services business. As a result of our Internet Assessment
Methodology, we are finding our expertise covers more products and services. An
example is our Self-Help help desk. This product becomes the first tier of
support a customer accesses over the Internet to seek help on a number of common
desktop questions without human intervention. The Self-Help help desk is a
self-perpetuating database product, which increases in capability and value over
time through user interaction.
We at 3Si are certainly excited about the future and we look forward to
serving you, our shareholders, in the future.
Sincerely,
/s/ Frederick J. Slack
Frederick J. Slack
CEO 3Si
<PAGE>
OFFER TO PURCHASE FOR CASH
BY
TYREX OIL COMPANY
OF
UP TO 6,000,000 SHARES OF ITS COMMON STOCK
AT $0.30 PER SHARE
- --------------------------------------------------------------------------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS
EXPIRE AT 5:00 P.M., DENVER TIME, ON MONDAY,
DECEMBER 1, 1997, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MAKING
OF THE OFFER. HOWEVER, STOCKHOLDERS MUST MAKE THEIR OWN DECISIONS WHETHER TO
TENDER SHARES. NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY
RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING SHARES.
THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS INCLUDING
PRORATION. SEE "THE OFFER TO PURCHASE--CERTAIN CONDITIONS OF THE OFFER."
----------------------------------------
Tyrex Oil Company, a Wyoming corporation (the "Company"), invites its
stockholders to tender shares of its common stock, par value $0.01 per share
(the "Shares"), to the Company at $0.30 per Share (the "Purchase Price") in
cash, upon the terms and subject to the conditions set forth in this Offer to
Purchase and the related Letter of Transmittal (which together constitute the
"Offer").
The Company will pay the Purchase Price for all Shares validly tendered and
not withdrawn, upon the terms and subject to the conditions of the Offer
including the proration terms hereof.
The Shares were listed and traded on the NASDAQ SmallCap Market under the
symbol "TYRX." On July 30, 1997 the closing per Share sales price as reported
on NASDAQ was $.25 bid and $.28 asked. The Company was advised on July 30, 1997
that the NASDAQ Stock Market had determined to delist its shares from the
SmallCap Market effective as of that date. The determination was made by NASDAQ
because it felt "the merger [with 3Si] resulted in a change of control, a change
of business and arguably a change in financial structure." The Company has
appealed such delisting and is awaiting a decision from a NASDAQ Listing and
Hearing Review Committee. If the initial decision is affirmed, which may be
likely, it may not be possible to obtain a new listing since the Company does
not meet certain NASDAQ qualification requirements as to net assets and share
price. Therefore, the Company's common stock may be quoted, if at all, on the
Electronic Bulletin Board. It is possible that
<PAGE>
trading may be limited and sporadic and little liquidity may exist for holders
wishing to sell shares of the Company's common stock in the future.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET INFORMATION AND/OR QUOTATIONS
FOR THE SHARES.
----------------------------------------
October 27, 1997
<PAGE>
IMPORTANT
Any stockholders desiring to tender all or any portion of their Shares
should either (i) complete and sign the appropriate Letter of Transmittal or a
facsimile thereof in accordance with the instructions in the Letter of
Transmittal, mail or deliver it with any required signature guarantee and any
other required documents to American Stock Transfer & Trust, Inc. (the
"Depositary"), and either mail or deliver the stock certificates for such Shares
to the Depositary (with all such other documents) or follow the procedure for
book-entry delivery set forth in "The Offer--Procedure for Tendering Shares" or
(ii) request a broker, dealer, commercial bank, trust company or other nominee
to effect the transaction for such stockholder. A stockholder having Shares
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee must contact that broker, dealer, commercial bank, trust company
or other nominee if such stockholder desires to tender such Shares. TO EFFECT A
VALID TENDER OF THEIR SHARES, STOCKHOLDERS MUST VALIDLY COMPLETE THE LETTER OF
TRANSMITTAL.
Questions and requests for assistance may be directed to the Depositary at
the address and telephone number set forth on Exhibit A-2 attached hereto.
Requests for additional copies of this Offer to Purchase or the Letter of
Transmittal may be directed to the Depositary.
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION 1
Background of Tyrex 1
Acquisition of 3Si 1
SUMMARY 3
THE OFFER 5
Number of Shares 5
Priority 5
Proration 6
Record Date 6
Tenders by Owners of Fewer than 100 Shares 6
Procedure for Tendering Shares 7
Withdrawal Rights 10
Purchase of Shares and Payment of Purchase Price 10
Certain Conditions of the Offer 11
Price Range of Shares; Dividends 13
Background and Purpose of the Offer; Certain Effects of the 14
Offer
Interests of Officers, Directors and Others 16
Source and Amount of Funds 17
Effects of the Offer on the Market for Shares;
Registration Under the Exchange Act 17
Certain Legal Matters; Regulatory Approvals 17
Certain Federal Income Tax Consequences 18
Extension of the Offer; Termination; Amendments 21
Fees and Expenses 22
Miscellaneous 22
INFORMATION CONCERNING 3Si 24
RISK FACTORS 27
Operating Losses 27
Fluctuations in Revenue 27
Need for Additional Financing 27
Changing Technologies 27
Substantial Indebtedness 28
Reliance on Key Employees 28
Competitive Industry 28
Control of Insiders 28
No Dividends Contemplated 28
PRO FORMA FINANCIAL INFORMATION 29
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SELECTED FINANCIAL DATA 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 31
MANAGEMENT 35
Directors and Officers 35
Summary Compensation Table 37
Employment Agreements 37
Certain Transactions 39
PRINCIPAL SHAREHOLDERS AND SHAREHOLDERS OF
MANAGEMENT 40
CERTAIN INFORMATION CONCERNING TYREX 41
FINANCIAL STATEMENTS F-1
</TABLE>
iii
<PAGE>
INDEX TO APPENDICES
ITEM DESCRIPTION
Appendix I Form of Letter of Transmittal.
Appendix II Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees (including Broker's Transmittal
Letter and Client Letter).
Appendix II Guidelines for Certification of Taxpayer Identification Number on
Form W-9.
iv
<PAGE>
INTRODUCTION
Background of Tyrex. Tyrex, or the Company, has been a small independent
--------------------
oil and gas company since 1980. It has experienced the volatility of the oil
and gas business during that time and the difficulties of attracting oil and gas
exploration and development funds to expand its business. See "Certain
Information Concerning Tyrex" herein.
At times in the past several years, the Board believed that the market
prices for the Company's common stock were not fully reflective of its actual
value. Therefore, in previous communications to stockholders, the Board
announced that it would explore ways to increase both stockholder liquidity and
recognition of underlying values. The Board indicated that it would pursue the
sale of assets and distribution of cash to stockholders, a merger with another
company, or a combination of both. The Board did not believe a merger with
another small oil company would obviate the inherent problems it has faced in
the industry over the past several years (i.e., inability to attract oil and gas
exploration and development funds, depleting reserves, low and volatile oil and
gas prices). The Board further believed that the Company's assets were not
large enough to attract the interest of major oil companies or that its status
as a public company would be a significant interest to medium size or larger oil
companies.
Therefore, the Company engaged One Capital Corporation, an unaffiliated
financial consulting firm, to assist the Company in its efforts to maximize
shareholder value. Over a period of approximately 18 months the Company, with
One Capital's assistance, reviewed a number of possible business opportunities,
including the acquisition of 3Si as described below under "Introduction--
Acquisition of 3Si." This acquisition was completed on May 28, 1997. On May
30, 1997, the Company completed the sale of its producing oil and gas
properties. The Board believes stockholders are benefitted by having the
opportunity to obtain cash for at least a portion of their shares through this
self tender offer while at the same time retaining share ownership in the
Company whose new management will continue to implement its business strategy in
a new emerging industry. See "Information Concerning 3Si" below.
Acquisition of 3Si. On May 28, 1997, the Company entered into an Agreement
-------------------
and Plan of Reorganization and Transition Agreement whereby it acquired
Kimbrough Computer Sales, Inc. d/b/a 3Si Incorporated ("3Si") in a triangular
merger. A transitory corporation formed for the purpose and wholly owned by the
Company was merged with and into 3Si and 3Si was the surviving corporation which
is now a wholly owned subsidiary of the Company.
The Company issued 28,333,333 shares of its common stock to three
individuals who were not affiliated with the Company prior to the transaction.
The three individuals, the former owners of 3Si, were Frank Backes, Frederick
Slack and Felipe Larry Valdez. Messrs. Backes, Slack and Valdez were elected to
the Board of Directors of the Company and now comprise three of its eight
members. See "Management--Directors and Executive Officers."
3Si is engaged in computer and Internet sales and service, primarily as a
systems integrator, focusing on Internet security services. 3Si distributes and
resells computer hardware and software and also provides maintenance service on
computers, as well as consulting and training.
The consideration issued in connection with the transaction was established
through negotiation between the Company and the 3Si shareholders. Moreover, the
Company received a fairness opinion as to the financial terms of the transaction
from an independent private investment consulting firm.
1
<PAGE>
After the self tender offer described herein is completed, three of the
current directors of the Company will resign and the three nominees of 3Si will
then comprise three of the five member Board of Directors of the Company. See
"Management" below for further details in this regard.
2
<PAGE>
SUMMARY
This general summary is provided for the convenience of the Company's
stockholders and is qualified in its entirety by reference to the full text and
more specific details of this Offer to Purchase.
Number of Shares to be Purchased.... 6,000,000 Shares (or such lesser number
Shares as are validly tendered).
Purchase Price...................... 30 per Share.
How to Tender Shares................ See "The Offer--Procedure for Tendering
Shares."
Dividends........................... None anticipated.
Brokerage Commissions............... None.
Stock Transfer Tax.................. None, if payment is made to the
registered holder.
Expiration and Proration Dates...... December 1, 1997 at 5:00 P.M., Denver
time, unless extended by the Company.
Payment Date........................ As soon as practicable after the
Expiration Date.
Position of the Company and its
Directors.......................... Neither the Company nor its Board of
Directors makes any recommendation to
any stockholder as to whether to tender
or refrain from tendering Shares.
Withdrawal Rights................... Tendered Shares may be withdrawn at any
time until 5:00 P.M., Denver time, on
Monday, December 1, 1997, unless the
Offer is extended by the Company and,
unless previously purchased, after 5:00
P.M., Denver time, on Tuesday, December
23, 1997. See "The Offer--Withdrawal
Rights."
3
<PAGE>
Odd Lots............................ There will be no proration of Shares
tendered by any stockholder owning
beneficially fewer than 100 Shares in
the aggregate as of May 20, 1997 who
continues to beneficially own fewer than
100 Shares on the Expiration Date, and
who tenders all such Shares on or prior
to the Expiration Date and who checks
the "Odd Lots" box in the Letter of
Transmittal.
Further Developments Regarding
the Offer.......................... Call the Depositary or consult your
broker.
-------------------------------------------
THE COMPANY HAS NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON
BEHALF OF THE COMPANY AS TO WHETHER STOCKHOLDERS SHOULD TENDER OR REFRAIN FROM
TENDERING SHARES PURSUANT TO THE OFFER. THE COMPANY HAS NOT AUTHORIZED ANY
PERSON TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH
THE OFFER ON BEHALF OF THE COMPANY OTHER THAN THOSE CONTAINED IN THIS OFFER TO
PURCHASE OR IN THE LETTER OF TRANSMITTAL. DO NOT RELY ON ANY SUCH
RECOMMENDATION OR ANY SUCH INFORMATION OR REPRESENTATION, IF GIVEN OR MADE, AS
HAVING BEEN AUTHORIZED BY THE COMPANY.
---------------------------------------------
~Additional~Information~. The Company is subject to the informational
filing requirements of the Exchange Act and, in accordance therewith, is
obligated to file reports and other information with the Commission relating to
its business financial condition and other matters. Information, as of
particular dates, concerning the Company's directors and officers, their
remuneration, options granted to them, the principal holders of the Company's
securities and any material interest of such persons in transactions with the
Company is required to be disclosed in proxy statements distributed to the
Company's stockholders and filed 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 450 Fifth Street, N.W.,
Room 2120, Washington, D.C. 20549; at its regional offices located at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and 7 World Trade
Center, New York, New York 10048. Copies of such material may also be obtained
by mail, upon payment of the Commission's customary charges, from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington D.C. 20549. The Commission also maintains a Web site on the World
Wide Web at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. In addition, the Company will furnish without charge to
each person to whom this Offer is delivered a copy of the Company's Form 10-K as
of June 30, 1997 upon request.
4
<PAGE>
THE OFFER
NUMBER OF SHARES
Upon the terms and subject to the conditions of the Offer to Purchase, the
Company will accept for payment (and thereby purchase) 6,000,000 Shares or such
lesser number of Shares as are validly tendered before the Expiration Date (and
not withdrawn in accordance with the section "Withdrawal Rights" below) at a net
cash price (determined in the manner set forth below) of $0.30 per Share. The
term "Expiration Date" means 5:00 p.m. Denver time, on Monday, December 1, 1997,
unless and until the Company in its sole discretion shall have extended the
period of time during which the Offer is open, in which event the term
"Expiration Date" shall refer to the latest time and date at which the Offer, as
so extended by the Company, shall expire. See below for a description of the
Company's right to extend the time during which the Offer is open and to delay,
terminate or amend the Offer. Subject to odd lot tenders described below, if
the Offer is oversubscribed, Shares tendered on or before the Expiration Date
will be eligible for proration. The proration period also expires on the
Expiration Date.
THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE
"CERTAIN CONDITIONS OF THE OFFER" BELOW.
The Company will pay the Purchase Price for all Shares validly tendered on
or before the Expiration Date and not withdrawn, upon the terms and subject to
the conditions of the Offer. All Shares not purchased pursuant to the Offer
will be returned to the tendering stockholders at the Company's expense as
promptly as practicable following the Expiration Date.
If the number of Shares validly tendered and not withdrawn on or prior to
the Expiration Date is less than or equal to 6,000,000 Shares the Company will,
upon the terms and subject to the conditions of the Offer, purchase at the
Purchase Price all Shares so tendered.
PRIORITY
Upon the terms and subject to the conditions of the Offer, in the event
that on or prior to the Expiration Date more than 6,000,000 Shares (or such
greater number of Shares as the Company may elect to purchase pursuant to the
Offer) are validly tendered and not withdrawn, the Company will purchase such
validly tendered Shares in the following order of priority:
(i) all Shares validly tendered and not withdrawn on or prior to the
Expiration Date by any Odd Lot Owner (defined as an owner of fewer than 100
Shares) who:
(a) tenders all Shares beneficially owned by such Odd Lot Owner
(partial tenders will not qualify for this preference); and
5
<PAGE>
(b) completes the box captioned "Odd Lots" in the Letter of
Transmittal; and
(ii) after purchase of all of the foregoing Shares, all other Shares
validly tendered and not withdrawn on or prior to the Expiration Date on a
pro rata basis.
PRORATION
In the event that proration of tendered Shares is required, the Company
will determine the final proration factor as promptly as practicable after the
Expiration Date. Proration for each stockholder tendering Shares (other than
Odd Lot Owners) shall be based on the ratio of the number of Shares tendered by
such stockholder to the total number of Shares tendered by all stockholders
(other than Odd Lot Owners). This ratio will be applied to stockholders
tendering Shares (other than Odd Lot Owners) to determine the number of Shares
that will be purchased from each such stockholder pursuant to the Offer.
Although the Company does not expect to be able to announce the final results of
such proration until approximately seven business days after the Expiration
Date, it will announce preliminary results of proration by press release as
promptly as practicable after the Expiration Date. Stockholders can obtain such
preliminary information from the Depositary and may be able to obtain such
information from their brokers.
As described below, the number of Shares that the Company will purchase
from a stockholder may affect the United States federal income tax consequences
to the stockholder of such purchase and therefore may be relevant to a
stockholder's decision whether to tender Shares. The Letter of Transmittal
affords each tendering stockholder the opportunity to designate the order of
priority in which Shares tendered are to be purchased in the event of proration.
RECORD DATE
This Offer to Purchase and the related Letter of Transmittal will be mailed
to record holders of Shares as of May 20, 1997 (the "Record Date") and will be
furnished to brokers, banks and similar persons whose names, or the names of
whose nominees, appear on the Company's stockholder list or, if applicable, who
are listed as participants in a clearing agency's security position listing for
subsequent transmittal to beneficial owners of Shares.
TENDERS BY OWNERS OF FEWER THAN 100 SHARES
The Company, upon the terms and subject to the conditions of the Offer,
will accept for purchase, without proration, all Shares validly tendered and not
withdrawn on or prior to the Expiration Date by or on behalf of stockholders who
beneficially own as of the Expiration Date, an aggregate of fewer than 100
Shares ("Odd Lot Owners"). To avoid proration, however, an Odd Lot Owner must
validly tender all such Shares that such Odd Lot owner beneficially owns;
partial tenders will not qualify for this preference. This preference is not
available to partial tenders or to owners of 100 or more Shares in the
aggregate, even if such owners have separate stock certificates for fewer than
100 such Shares. Any Odd Lot Owner wishing to tender all such Shares
beneficially owned by such stockholder
6
<PAGE>
pursuant to this Offer must complete the box captioned "Odd Lots" in the Letter
of Transmittal. Stockholders owning an aggregate of less than 100 Shares whose
Shares are purchased pursuant to the Offer will avoid both the payment of
brokerage commissions and any applicable odd lot discounts payable on a sale of
their Shares in transactions in the market.
PROCEDURE FOR TENDERING SHARES
~ Proper~Tender~of~Shares~. For Shares to be validly tendered pursuant to
the Offer, the certificates for such Shares (or confirmation of receipt of such
Shares pursuant to the procedures for book-entry transfer set forth below),
together with a properly completed and duly executed Letter of Transmittal (or
manually signed facsimile thereof) with any required signature guarantees, and
any other documents required by the Letter of Transmittal, must be received
prior to 5:00 p.m. Denver time, on the Expiration Date by the Depositary at its
address set forth on the back cover of this Offer to Purchase.
In addition, Odd Lot Owners who tender all Shares must complete the section
entitled "Odd Lots" on the Letter of Transmittal, in order to qualify for the
preferential treatment available to Odd Lot Owners.
~Signature~Guarantees~and~Method~of~Delivery~. No signature guarantee is
required on the Letter of Transmittal IF (i) the Letter of Transmittal is signed
by the registered holder of the Shares (which term, for purposes of this
Section, includes any participant in The Depositary Trust Company or the
Philadelphia Depositary Trust Company (the "Book-Entry Transfer Facilities")
whose name appears on a security position listing as the holder of the Shares)
tendered therewith and payment and delivery are to be made directly to such
registered holder, or (ii) if Shares are tendered for the account of a firm or
other entity that is a member in good standing of the Security Transfer Agent's
Medallion Program, the New York Stock Exchange Medallion Program or the Stock
Exchange Medallion Program (an "Eligible Institution"). In all other cases, all
signatures on the Letter of Transmittal must be guaranteed by an Eligible
Institution. See Instruction 1 of the Letter of Transmittal. If a certificate
representing Shares is registered in the name of a person other than the signer
of a Letter of Transmittal, or if payment is to be made, or Shares not purchased
or tendered are to be issued, to a person other than the registered holder, the
Letter of Transmittal must be guaranteed, and in either case signed exactly as
the name of the registered holder appears on the certificate. In all cases,
payment for Shares tendered and accepted for payment pursuant to the Offer will
be made only after timely receipt by the Depositary of certificates for such
Shares (or a timely confirmation of a book-entry transfer of such Shares into
the Depositary's account at one of the Book-Entry Transfer Facilities as
described below), a properly completed and duly executed Letter of Transmittal
(or manually signed facsimile thereof) and any other documents required by the
Letter of Transmittal.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING SHARE CERTIFICATES, THE
LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS, IS AT THE ELECTION AND
RISK OF THE TENDERING STOCKHOLDER. IF
7
<PAGE>
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED.
~Book-Entry~Delivery~. The Depositary will establish an account with
respect to the Shares at each of the Book-Entry Transfer Facilities for purposes
of the Offer within two business days after the date of this Offer to Purchase.
Any financial institution that is a participant in a Book-Entry Transfer
Facility's system may make book-entry delivery of the Shares by causing such
facility to transfer such Shares into the Depositary's account in accordance
with such facility's procedure for such transfer. Even though delivery of
Shares may be effected through book-entry transfer into the Depositary's account
at one of the Book-Entry Transfer Facilities, a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof), if
required, with any required signature guarantees and other required documents
must, in any case, be transmitted to and received by the Depositary at its
address set forth in this Offer to Purchase on or prior to the Expiration Date
must be followed. DELIVERY OF THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED
DOCUMENTS TO ONE OF THE BOOK-ENTRY TRANSFER FACILITIES DOES NOT CONSTITUTE
DELIVERY TO THE DEPOSITARY.
~Backup~Federal~Income~Tax~Withheld~. Under the United States federal
income tax backup withholding rules, unless an exemption applies under the
applicable law and regulations, 31% of the gross proceeds payable to a
stockholder or other payee pursuant to the Offer must be withheld and remitted
to the United States Treasury, unless the stockholder or other payee provides
such person's taxpayer identification number (employer identification number or
social security number) to the Depositary and certifies under penalties of
perjury that such number is correct. Therefore, each tendering stockholder
should complete and sign the Substitute Form W-9 Certification included as part
of the Letter of Transmittal so as to provide the information and certification
necessary to avoid backup withholding, unless such stockholder otherwise
establishes to the satisfaction of the Depositary that the stockholder is not
subject to backup withholding. Certain stockholders (including, among others,
all corporations and certain foreign stockholders (in addition to foreign
corporations)) are not subject to these backup withholding and reporting
requirements. In order for a foreign stockholder to qualify as an exempt
recipient, that stockholder must submit an IRS Form W-8 or a Substitute Form W-
8, signed under penalties of perjury, attesting to that stockholder's exempt
status. Such statements can be obtained from the Depositary. See Instructions
8 and 9 of the Letter of Transmittal.
TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING EQUAL TO 31% OF THE GROSS
PAYMENTS MADE TO STOCKHOLDERS FOR SHARES PURCHASED PURSUANT TO THE OFFER, EACH
STOCKHOLDER WHO DOES NOT OTHERWISE ESTABLISH AN EXEMPTION FROM SUCH WITHHOLDING
MUST PROVIDE THE DEPOSITARY WITH THE STOCKHOLDER'S CORRECT TAXPAYER
IDENTIFICATION NUMBER AND PROVIDE CERTAIN OTHER INFORMATION BY COMPLETING THE
SUBSTITUTE FORM W-9 CERTIFICATION INCLUDED WITH THE LETTER OF TRANSMITTAL.
8
<PAGE>
For a discussion of certain United States federal income tax consequences
to tendering stockholders, see "Certain Income Tax Considerations" below.
~Withholding~for~Foreign~Stockholders~. Even if a foreign stockholder has
provided the required certification to avoid backup withholding, the Depositary
will withhold United States federal income taxes equal to 31% of the gross
payments payable to a foreign stockholder or his or her agent unless the
Depositary determines that a reduced rate of withholding is available pursuant
to a tax treaty or that an exemption from withholding is applicable. See
"Certain Income Tax Considerations."
~Tendering~Stockholder's~Representation~and~Warranty;~Company's~Acceptance~
Constitutes~an~Agreement~. It is a violation of Rule 14e-4 promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for a
person acting alone or in concert with others, directly or indirectly, to tender
Shares for such person's own account unless at the time of tender and at the
Expiration Date such person has a "net long position" equal to or greater than
the amount tendered in (a) the Shares and will deliver or cause to be delivered
such Shares for the purpose of tender to the Company within the period specified
in the Offer, or (b) other securities immediately convertible into, exercisable
for or exchangeable into Shares ("Equivalent Securities") and, upon the
acceptance of such tender, will acquire such Shares by conversion, exchange or
exercise of such Equivalent Securities to the extent required by the terms of
the Offer and will deliver or cause to be delivered such Shares so acquired for
the purpose of tender to the Company within the period specified in the Offer.
Rule 14e-4 also provides a similar restriction applicable to the tender or
guarantee of a tender on behalf of another person. A tender of Shares made
pursuant to any method of delivery set forth herein will constitute the
tendering stockholders representation and warranty to the Company that (a) such
stockholder has a "net long position" in Shares or Equivalent Securities being
tendered within the meaning of Rule 14e-4, and (b) such tender of Shares
complies with Rule 14e-4. The Company's acceptance for payment of Shares
tendered pursuant to the Offer will constitute a binding agreement between the
tendering stockholder and the Company upon the terms and subject to the
conditions of the Offer.
~Determinations~of~Validity;~Rejection~of~Shares;~Waiver~of~Defects;~No~Obl
igation~to~Give~Notice~of~Defects~. All questions as to the number of Shares to
be accepted, the price to be paid therefor and the validity, form, eligibility
(including time of receipt) and acceptance for payment of any tender of Shares
will be determined by the Company, in its sole discretion, which determination
shall be final and binding on all parties. The Company reserves the absolute
right to reject any or all tenders it determines not to be in proper form or the
acceptance of or payment for which may, in the opinion of the Company's counsel,
be unlawful. The Company also reserves the absolute right to waive any of the
conditions of the Offer and any defect or irregularity in the tender of any
particular Shares or any particular stockholder. No tender of Shares will be
deemed to be properly made until all defects or irregularities have been cured
or waived. Neither of the Company nor the Depositary or any other person is or
will be obligated to give notice of any defects or irregularities in tenders,
and none of them will incur any liability for failure to give any such notice.
9
<PAGE>
CERTIFICATES FOR SHARES, TOGETHER WITH A PROPERLY COMPLETED LETTER OF
TRANSMITTAL AND ANY OTHER DOCUMENTS REQUIRED BY THE LETTER OF TRANSMITTAL, MUST
BE DELIVERED TO THE DEPOSITARY AND NOT TO THE COMPANY. ANY SUCH DOCUMENTS
DELIVERED TO THE COMPANY WILL NOT BE FORWARDED TO THE DEPOSITARY AND THEREFORE
WILL NOT BE DEEMED TO BE VALIDLY TENDERED.
WITHDRAWAL RIGHTS
Shares tendered pursuant to the Offer may be withdrawn at any time before
the Expiration Date and, unless accepted for payment by the Company as provided
in this Offer to Purchase, may also be withdrawn after 5:00 p.m. Denver time on
December 23, 1997.
For a withdrawal to be effective, the Depositary must receive (at its
address set forth herein and in the Letter of Transmittal) a notice of
withdrawal in writing prior to acceptance. Such notice of withdrawal must
specify the name of the person who tendered the Shares to be withdrawn, the
number of Shares tendered, the number of Shares to be withdrawn and the name of
the registered holder, if different from that of the person who tendered such
Shares. If the certificates have been delivered or otherwise identified to the
Depositary, then, prior to the release of such certificates, the tendering
stockholder must submit the request in writing and the signature on the notice
of withdrawal must be guaranteed by an Eligible Institution (except in the case
of Shares tendered by an Eligible Institution). If Shares have been tendered
pursuant to the procedure for book-entry transfer set forth above, the notice of
withdrawal must specify the name and the number of the account at the applicable
Book-Entry Transfer Facility to be credited with the withdrawn Shares and
otherwise comply with the procedures of such facility. All questions as to the
form and validity, including time of receipt of notices of withdrawal will be
determined by the Company, in its sole discretion, which determination shall be
final and binding on all parties. None of the Company, the Depositary, or any
other person is or will be obligated to give any notice of any defects or
irregularities in any notice of withdrawal, and none of them will incur any
liability for failure to give any such notice. Withdrawals may not be rescinded,
and any Shares properly withdrawn will thereafter be deemed not tendered for
purposes of the Offer. However, withdrawn Shares may be re-tendered before the
Expiration Date by again following any of the procedures described above under
"Procedure for Tendering Shares."
If the Company extends the Offer or is delayed in its purchase of Shares
then, without prejudice to the Company's rights under the Offer, the Depositary
may, subject to applicable law, retain on behalf of the Company all tendered
Shares, and such Shares may not be withdrawn except to the extent tendering
stockholders are entitled to withdrawal rights as described herein.
PURCHASE OF SHARES AND PAYMENT OF PURCHASE PRICE
The Company will, upon the terms and subject to the conditions of the
Offer, accept for payment and pay for (and thereby purchase) Shares validly
tendered and not withdrawn as soon as
10
<PAGE>
practicable after the Expiration Date. For purposes of the Offer, the Company
will be deemed to have accepted for payment (and therefore purchased), subject
to proration, Shares that are validly tendered and not withdrawn when, as and if
it gives oral or written notice to the Depositary of its acceptance of such
Shares for payment pursuant to the Offer.
Upon the terms and subject to the conditions of the Offer, the Company will
purchase and pay a single per Share Purchase Price for all of the Shares
accepted for payment pursuant to the Offer as soon as practicable after the
Expiration Date. In all cases, payment for Shares tendered and accepted for
payment pursuant to the Offer will be made promptly (subject to possible delay
in the event of proration) but only after timely receipt by the Depositary of
certificates for Shares (or of a timely confirmation of a book-entry transfer of
such Shares into the Depositary's account at one of the Book-Entry Transfer
Facilities), a properly completed and duly executed Letter of Transmittal (or
manually signed facsimile thereof) and any other required documents.
Payment for Shares purchased pursuant to the Offer will be made by
depositing the aggregate Purchase Price therefor with the Depositary, which will
act as agent for tendering stockholders for the purpose of receiving payment
from the Company and transmitting payment to the tendering stockholders. In the
event of proration, the Company will determine the proration factor and pay for
those tendered Shares accepted for payment as soon as practicable after the
Expiration Date. However, the Company does not expect to be able to announce
the final results of any such proration until approximately seven business days
after the Expiration Date. Under no-circumstances will the Company pay interest
on the Purchase Price including, without limitation, by reason of any delay in
making payment. Certificates for all Shares not purchased, including Shares not
purchased due to proration, will be returned (or, in the case of Shares tendered
by book-entry transfer, such Shares will be credited to the account maintained
with one of the Book-Entry Transfer Facilities by the participant who so
delivered such Shares) as promptly as practicable following the Expiration Date
or termination of the Offer without expense to the tendering stockholder. In
addition, if certain events occur, the Company may not be obligated to purchase
Shares pursuant to the Offer. See "Certain Conditions of the Offer" below.
ANY TENDERING STOCKHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE FULLY, SIGN
AND RETURN TO THE DEPOSITARY THE SUBSTITUTE FORM W-9 CERTIFICATION INCLUDED WITH
THE LETTER OF TRANSMITTAL MAY BE SUBJECT TO REQUIRED BACKUP FEDERAL INCOME TAX
WITHHOLDING OF 31% OF THE GROSS PROCEEDS PAID TO SUCH STOCKHOLDER OR OTHER PAYEE
PURSUANT TO THE OFFER.
CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provisions of the Offer, the Company shall not be
required to accept for payment, purchase or pay for any Shares tendered, and may
terminate or amend the Offer or may postpone the acceptance for payment of, or
the purchase of and the payment for Shares tendered, subject to Rule 13e-4(f)
promulgated under the Exchange Act, if at any time on or after October 27,
11
<PAGE>
1997 and on or prior to the Expiration Date, any of the following events shall
have occurred (or shall have been determined by the Company to have occurred)
that, in the Company's judgment in any such case and regardless of the
circumstances giving rise thereto (including any action or omission to act by
the Company), makes it inadvisable to proceed with the Offer or with such
acceptance for payment or payment:
(a) there shall have been threatened, instituted or be pending before
any court, agency, authority or other tribunal any action, suit or
proceeding by any government or governmental, regulatory or administrative
agency or authority or by any other person, domestic or foreign, or any
judgment, order or injunction entered, enforced or deemed applicable by any
such court, authority, agency or tribunal, which (i) challenges or seeks to
make illegal, or to delay or otherwise directly or indirectly to restrain,
prohibit or otherwise affect the making of the Offer, the acquisition of
Shares pursuant to the Offer or is otherwise related in any manner to, or
otherwise affects, the Offer; or (ii) could, in the sole judgment of the
Company, materially affect the business, condition (financial or other),
income, operations or prospects of the Company and its subsidiaries, taken
as a whole, or otherwise materially impair in any way the contemplated
future conduct of the business of the Company and its subsidiaries, taken
as a whole, or materially impair the Offer's contemplated benefits to the
Company; or
(b) there shall have been any action threatened or taken, or any
approval withheld, or any statute, rule or regulation invoked, proposed,
sought, promulgated, enacted, entered, amended, enforced or deemed to be
applicable to the Offer or the Company or any of its subsidiaries, by any
government or governmental, regulatory or administrative authority or
agency or tribunal, domestic or foreign, which, in the sole judgment of the
Company, would or might directly or indirectly result in any of the
consequences referred to in clause (i) or (ii) of paragraph (a) above; or
(c) there shall have occurred (i) the declaration of any banking
moratorium or any suspension of payments in respect of banks in the United
States (whether or not mandatory); (ii) any general suspension of trading
in, or limitation on prices for, securities on any United States national
securities exchange or in the over-the-counter market; (iii) the
commencement of a war, armed hostilities or any other national or
international crisis directly or indirectly involving the United States;
(iv) any limitation (whether or not mandatory) by any governmental,
regulatory or administrative agency or authority on, or any event which, in
the sole judgment of the Company might materially affect, the extension of
credit by banks or other lending institutions in the United States; (v) any
significant decrease in the market price of the Shares or in the market
prices of equity securities generally in the United States or any change in
the general political, market, economic or financial conditions in the
United States or abroad that could have in the sole judgment of the Company
a material adverse effect on the business, condition (financial or
otherwise), income, operations or prospects of the Company and its
subsidiaries, taken as a whole, or on the trading in the Shares; (vi) in
the case of any of the foregoing existing at the time of the announcement
of the Offer, a material acceleration or worsening thereof; or (vii) any
decline in either the Dow Jones Industrial Average or the S&P 500 Composite
Index by an amount in excess of 20% measured from the close of business on
May 20, 1997; or
12
<PAGE>
(d) any change shall occur or be threatened in the business,
condition (financial or other), income, operations or prospects of the
Company and its subsidiaries, taken as a whole, which in the sole judgment
of the Company is or may be material to the Company and its subsidiaries
taken as a whole.
The foregoing conditions are for the Company's sole benefit and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition (including any action or inaction by the Company) or may be waived by
the Company in whole or in part. The Company's failure at any time to exercise
any of the foregoing rights shall not be deemed a waiver of any such right, and
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time. In certain circumstances, if the Company waives any
of the foregoing conditions, it may be required to extend the Expiration Date of
the Offer. Any determination by the Company concerning the events described
above and any related judgment or decision by the Company regarding the
inadvisability of proceeding with the purchase of or payment for any Shares
tendered will be final and binding on all parties.
PRICE RANGE OF SHARES; DIVIDENDS
The Shares were listed and traded on the NASDAQ SmallCap Market under the
symbol "TYRX." On July 30, 1997 the closing per Share sales price as reported
on NASDAQ was $.25 bid and $.28 asked. The Company was advised on July 12, 1997
that the NASDAQ Stock Market had determined to delist its shares from the
SmallCap Market effective as of that date. The determination was made by NASDAQ
because it felt "the merger [with 3Si] resulted in a change of control, a change
of business and arguably a change in financial structure." The Company has
appealed such delisting and is awaiting a decision from a NASDAQ Listing and
Hearing Review Committee. If the initial decision is affirmed, which may be
likely, it may not be possible to obtain a new listing since the Company does
not meet certain NASDAQ qualification requirements as to net assets and share
price. Therefore, the Company's common stock may be quoted, if at all, in the
"pink sheets" and on the Electronic Bulletin Board. It is possible that trading
may be limited and sporadic and little liquidity may exist for holders wishing
to sell shares of the Company's common stock in the future. STOCKHOLDERS ARE
URGED TO OBTAIN CURRENT MARKET INFORMATION AND/OR QUOTATIONS FOR THE SHARES.
13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Calender 1997 1996 1995
Quarter High Low High Low High Low
First .28 .19 .22 .13 .22 .16
Second .31 .19 .25 .16 .25 .16
Third * .31 .25 .25 .16 .25 .09
Fourth -- -- .28 .16 .19 .09
<FN>
* Through July 30, 1997.
</TABLE>
SECURITY HOLDERS: As of May 20, 1997, Tyrex had approximately 1,900
shareholders of record of its common stock.
DIVIDEND PLANS: Tyrex has paid no cash dividends and has no current
plans to do so.
TRANSFER AGENT: American Securities Transfer & Trust, Inc. is the
transfer agent and registrar for the common stock of the Company and also acts
as Depositary for purposes of this Offer to Purchase. Its address is 938 Quail
Street, Suite 101, Lakewood, Colorado 80215 and its telephone number is (303)
234-5300.
BACKGROUND AND PURPOSE OF THE OFFER; CERTAIN EFFECTS OF THE OFFER
The following discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially
from the results discussed in the forward-looking statements. Factors that
might cause such a difference include, but are not limited to, the matters
discussed below.
The Offer provides stockholders who are considering a sale of all or a
portion of their Shares the opportunity, if any such Shares are purchased
pursuant to the Offer, to sell those Shares for cash to the Company without the
usual costs associated with a market sale. The Offer would also allow Odd Lot
Owners whose Shares are purchased pursuant to the Offer to avoid both the
payment of brokerage commissions and any applicable odd lot discounts payable on
sales of odd lots in a securities market. To the extent the purchase of Shares
in the Offer results in a reduction in the number of stockholders of record, the
costs to the Company for services to stockholders should be reduced. The Offer
also allows stockholders to sell a portion of their Shares while retaining a
continuing equity interest in the Company if they so desire. Stockholders who
determine not to accept the Offer will increase their proportionate interest in
the Company's equity, and therefore in the Company's future earnings, if any,
and assets, subject to the Company's right to issue additional Shares and other
equity securities in the future.
14
<PAGE>
At times in the past several years, the Board believed that the market
prices for the Company's common stock were not fully reflective of its actual
value. Therefore, in previous communications to stockholders, the Board
announced that it would explore ways to increase both stockholder liquidity and
recognition of underlying values. The Board indicated that it would pursue the
sale of assets and distribution of cash to stockholders, a merger with another
company, or a combination of both. The Board did not believe a merger with
another small oil company would obviate the inherent problems it has faced in
the industry over the past several years (i.e., inability to attract oil and gas
exploration and development funds, depleting reserves, low and volatile oil and
gas prices). The Board further believed that the Company's assets were not
large enough to attract the interest of major oil companies or that its status
as a public company would be a significant interest to medium size or larger oil
companies.
Therefore, the Company engaged One Capital Corporation, an unaffiliated
financial consulting firm, to assist the Company in its efforts to maximize
shareholder value. Over a period of approximately 18 months the Company, with
One Capital's assistance, reviewed a number of possible business opportunities,
including the acquisition of 3Si as described above under "Introduction--
Acquisition of 3Si". This acquisition was completed on May 28, 1997. On May
30, 1997, the Company completed the sale of its producing oil and gas
properties. The Board believes stockholders are benefitted by having the
opportunity to obtain cash for at least a portion of their shares while at the
same time retaining share ownership in the Company whose new management will
continue to implement its business strategy in a new emerging industry. See
"Information Concerning 3Si."
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MAKING
OF THE OFFER. HOWEVER, STOCKHOLDERS MUST MAKE THEIR OWN DECISIONS WHETHER TO
TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. NEITHER THE COMPANY NOR
ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER
TO TENDER OR REFRAIN FROM TENDERING SHARES AND NEITHER THE COMPANY NOR ITS BOARD
OF DIRECTORS HAS AUTHORIZED ANY PERSON TO MAKE ANY SUCH RECOMMENDATION.
Shares the Company acquires pursuant to the Offer will be retained as
treasury stock (unless and until the Company determines to retire such Shares)
and will be available for issuance without further stockholder action (except as
required by applicable law) for purposes including, but not limited to, the
acquisition of other businesses, raising of additional capital for use in the
Company's business, and satisfaction of obligations under existing or future
employee benefit plans. The Company has no current plans for the issuance of
Shares repurchased pursuant to the Offer. Except as disclosed in this Offer to
Purchase, the Company currently has no plans or proposals that relate to or
would result in (a) the acquisition by any person of additional securities of
the Company or the disposition of securities of the Company; (b) an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving the Company, or any or all of its subsidiaries; (c) a
sale or transfer of a material amount of assets of the Company or any of its
subsidiaries; (d) any change in the present Board of Directors or management of
the Company except that three directors will resign reducing the eight person
Board to
15
<PAGE>
five persons; (e) any material change in the present dividend policy of
retaining all earnings, if any, or the Company's corporate structure or
business; (g) any material change in the Company's Articles of Incorporation or
Bylaws or any actions which may impede the acquisition of control of the Company
by any person; (h) a class of equity security of the Company being delisted from
NASDAQ; (i) a class of equity security of the Company becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or
(j) the suspension of the Company's obligation to file reports pursuant to
Section 15(d) of the Exchange Act.
INTERESTS OF OFFICERS, DIRECTORS AND OTHERS
As of May 20, 1997, there were 10,960,091 Shares outstanding. As of May
20, 1997, there were 469,000 Shares issuable upon the exercise of all
outstanding options and warrants theretofore issued by the Company. As of May
20, 1997, the Company's directors and officers as a group (5 persons)
beneficially owned 1,377,900 Shares (including 369,000 Shares issuable upon the
exercise of options exercisable within 60 days of such date), which constituted
approximately 12% of the outstanding Shares (including Shares issuable if
options held by the Company's directors and executive officers exercisable
within 60 days of such date were exercised) at such time. In connection with
the 3Si acquisition, the Company issued 28,333,333 Shares of its common stock to
three individuals who were then elected to its eight member Board of Directors.
See "Introduction--Acquisition of 3Si" above. As part of the acquisition which
was completed on May 28, 1997, the three individuals waived any right to
participate in the Offer to Purchase. Also as part of the acquisition, the
Company's financial advisor was granted warrants to purchase up to 750,000
shares of the Company's common stock at an exercise price of $0.30 per share.
Therefore, whether or not all 6,000,000 shares are purchased in the Offer
and whether or not all officers and eligible directors of the Company accept the
Offer, the three new stockholders who acquired their shares in the 3Si
acquisition will be in a position to control the Company after the Offer. See
"Introduction--Acquisition of 3Si."
Except as set forth above, based on the Company's records and information
provided to the Company by its directors, officers, associates and subsidiaries,
neither the Company nor any of its associates or subsidiaries or persons
controlling the Company nor, to the best of the Company's knowledge, any of the
directors or officers of the Company or any of its subsidiaries, nor any
associates or subsidiaries of any of the foregoing, has effected any
transactions in the Shares during the 40 business days prior to the date hereof.
Except as set forth in this Offer to Purchase, neither the Company or any
person controlling the Company nor, to the Company's knowledge, any of its
directors or executive officers, is a party to any contract, arrangement,
understanding or relationship with any other person relating, directly or
indirectly, to the Offer with respect to any securities of the Company
(including, but not limited to, any contract, arrangement, understanding or
relationship concerning the transfer or the voting of any such
16
<PAGE>
securities, joint ventures, loan or option arrangements, puts or calls,
guarantees of loans, guarantees against loss or the giving or withholding of
proxies, consents or authorizations).
SOURCE AND AMOUNT OF FUNDS
Assuming that the Company purchases 6,000,000 Shares pursuant to the Offer
at $0.30 per share, the Company expects the aggregate cost, including all fees
and expenses applicable to the Offer to be approximately $1,850,000. The
Company intends to fund the Offer through its cash on hand which presently
exceeds that amount.
EFFECTS OF THE OFFER ON THE MARKET FOR SHARES; REGISTRATION UNDER THE EXCHANGE
ACT
The Company's purchase of Shares pursuant to the Offer will reduce the
number of Shares that might otherwise trade publicly and is likely to reduce the
number of stockholders. The Shares were listed and traded on the NASDAQ
SmallCap Market under the symbol "TYRX." On July 30, 1997 the closing per Share
sales price as reported on NASDAQ was $.25 bid and $.28 asked. The Company was
advised on July 12, 1997 that the NASDAQ Stock Market had determined to delist
its shares from the SmallCap Market effective as of that date. The
determination was made by NASDAQ because it felt "the merger [with 3Si] resulted
in a change of control, a change of business and arguably a change in financial
structure." The Company has appealed such delisting and is awaiting a decision
from a NASDAQ Listing and Hearing Review Committee. If the initial decision is
affirmed, which may be likely, it may not be possible to obtain a new listing
since the Company does not meet certain NASDAQ qualification requirements as to
net assets and share price. Therefore, the Company's common stock may be
quoted, if at all, on the Electronic Bulletin Board. It is possible that
trading may be limited and sporadic and little liquidity may exist for holders
wishing to sell shares of the Company's common stock in the future.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET INFORMATION AND/OR QUOTATIONS
FOR THE SHARES.
The Shares are registered under the Exchange Act, which requires, among
other things, that the Company furnish certain information to its stockholders
and to the Commission and comply with the Commission's proxy rules in connection
with meetings of the Company's stockholders. The Company believes that its
purchase of Shares pursuant to the Offer will not result in the Shares becoming
eligible for deregistration under the Exchange Act.
CERTAIN LEGAL MATTERS; REGULATORY APPROVALS
The Company is not aware of any license or regulatory permit material to
its business that might be adversely affected by its acquisition of Shares as
contemplated in the Offer or of any approval or other action by any government
or governmental, administrative or regulatory authority or agency, domestic or
foreign, that would be required for the Company's acquisition or ownership of
Shares as contemplated by the Offer. Should any such approval or other action
be required, the Company currently contemplates that it will seek such approval
or other action. The Company cannot predict whether it may determine that it is
required to delay the acceptance for payment of, or payment for, Shares tendered
pursuant to the Offer pending the outcome of any such matter. There can be no
17
<PAGE>
assurance that any such approval or other action, if needed, would be obtained
or would be obtained without substantial conditions or that the failure to
obtain any such approval or other action might not result in adverse
consequences to the Company's business. The Company's obligations under the
Offer to accept for payment and pay for Shares are subject to certain
conditions.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
~ General~. The following discussion is a summary of certain anticipated
United States federal income tax consequences of an exchange of Shares for cash
pursuant to the Offer. This discussion is general in nature, and does not
discuss all aspects of federal income taxation that may be relevant to a
particular investor in light of the investor's particular circumstances, or to
certain types of investors subject to special treatment under federal income tax
laws (such as individual retirement accounts, insurance companies, tax-exempt
organizations, financial institutions, brokers, dealers, foreign entities,
taxpayers that are neither citizens nor residents of the United States or
persons who hold Shares as a position in a "straddle" or as a part of a
"hedging" or "conversion" transaction for United States federal income tax
purposes). In particular, the discussion of the consequences of an exchange of
Shares for cash pursuant to the Offer applies only to a United States Holder.
For purposes of this summary, a "United States Holder" is a holder of Shares
that is (a) a citizen or resident of the United States, (b) a corporation,
partnership or other entity created or organized in or under the laws of the
United States, any state or any political subdivision thereof, or (c) an estate
or trust the income of which is subject to United States federal income taxation
regardless of its source. This discussion does not address the tax consequences
to foreign stockholders who will be subject to United States federal income tax
on a net basis on the proceeds of their exchange of Shares for cash pursuant to
the Offer because such income is effectively connected with the conduct of a
trade or business within the United States. Such stockholders are generally
taxed in a manner similar to United States Holders; however, certain special
rules apply. The summary may not be applicable with respect to Shares acquired
as compensation (including Shares acquired upon the exercise of options or which
were or are subject to forfeiture restrictions). The summary also does not
address any state, local, foreign or other tax laws, or any United States tax
consequences other than United States federal income tax (e.g., estate or gift
tax) consequences, that may be applicable to particular investors.
The summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed regulations thereunder, Internal Revenue Service
("IRS") rulings and pronouncements, reports of congressional committees,
judicial decisions and current administrative rulings and practice, all as in
effect on the date hereof, all of which are subject to change or differing
interpretations at any time, and any such change may be applied retroactively in
a manner that could adversely affect a stockholder who exchanges his Shares for
cash pursuant to the Offer. For purposes of this discussion, stockholders are
presumed to hold their Shares as capital assets within the meaning of Section
1221 of the Code.
No rulings from the IRS have been or will be requested with respect to any
of the tax issues discussed herein. Accordingly, there can be no assurance that
the IRS will not take a different position
18
<PAGE>
concerning the tax consequences described herein and that any such position
would not be sustained. ALL STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDERS OF THE
EXCHANGE OF THEIR SHARES FOR CASH PURSUANT TO THE OFFER, INCLUDING THE
APPLICATION OF STATE, LOCAL, AND FOREIGN TAX LAWS.
~United~States~Holders~Who~Receive~Cash~Pursuant~to~the~Offer~. An
exchange of Shares for cash pursuant to the Offer by a United States Holder will
be a taxable transaction for United States federal income tax purposes, and will
be governed by the "redemption" rules of Section 302 of the Code.
Under Section 302 of the Code, a United States Holder whose Shares are
exchanged for cash pursuant to the Offer will be treated as having sold such
holders' Shares, and accordingly will recognize gain or loss if the exchange (a)
results in a "complete termination" of such holder's equity interest in the
Company, (b) is "substantially disproportionate" with respect to such holder, or
(c) is "not essentially equivalent to a dividend" with respect to the holder,
each as discussed below. Under Section 318 of the Code, a United States Holder
will be treated as owning Shares actually or constructively owned by certain
related individuals and entities, as well as Shares which that holder or certain
related individuals and entities have an option or other right to acquire. Due
to the complexity of the constructive ownership rules of Section 318, United
States Holders should consult their tax advisors concerning the application of
the constructive ownership rules to their specific circumstances.
In addition, if a United States Holder sells Shares to persons other than
the Company at or about the time such holder also sells Shares to the Company
pursuant to the Offer, and the various sales effected by the holder are part of
an overall plan to reduce or terminate such holder's proportionate interest in
the Company, then the sales to persons other than the Company may, for United
States federal income tax purposes, be integrated with the holder's sale of
Shares pursuant to the Offer and, if integrated, should be taken into account in
determining whether the holder satisfies any of the three tests described below.
A United States Holder who exchanges Shares for cash pursuant to the Offer
will satisfy the "complete termination" test mentioned above if, immediately
after the exchange, such United States Holder does not actually or
constructively own any Shares. If a United States Holder would otherwise
satisfy the complete termination test but for his constructive ownership of
Shares held by family members, under certain circumstances the United States
Holder may be entitled to disregard such constructive ownership.
A United States Holder who exchanges Shares for cash pursuant to the Offer
will satisfy the substantially disproportionate test mentioned above, if
immediately after the exchange: (i) such holder actually and constructively
owns less than 50% of the total combined voting power of all classes of
outstanding stock of the Company entitled to vote; (ii) such holder's percentage
of the total outstanding voting stock of the Company immediately after the
exchange is less than 80% of his percentage of
19
<PAGE>
ownership of such stock immediately before the exchange; and (iii) such holder's
percentage of outstanding common stock (voting or nonvoting) after the exchange
is less than 80% of such holder's percentage of ownership before the exchange.
A United States Holder will satisfy the "not essentially equivalent to a
dividend test if the reduction is such holder's proportionate interest in the
Company constitutes a "meaningful reduction" given such holder's particular
facts and circumstances. The IRS has indicated in a published ruling that even
a small reduction in the percentage interest of a small minority shareholder in
a publicly held corporation who exercises no control over corporate affairs
might constitute such a meaningful reduction."
If the exchange of a United States Holder's Shares for cash pursuant to the
Offer is treated as a sale or exchange under Section 302, and such holder held
his Shares as a capital asset, such holder will recognize capital gain or loss
equal to the difference between the amount of cash received and such holders
cost or other tax basis in the Shares exchanged. Any such capital gain or loss
will be long-term capital gain or loss if the holding period of the Shares
exceeds 12 months or 18 months as of the Effective Date of the exchange and
taxed at 28% and 20%, respectively.
If a United States Holder who exchanges Shares pursuant to the Offer is not
treated under Section 302 as having sold such holder's Shares for cash, the
entire amount of the cash received by such holder will be treated as a dividend
to the extent of the Company's current and accumulated earnings and profits,
which the Company does not anticipate will be sufficient to cover the amount of
any such dividend but such may be includible in such holder's gross income as
ordinary income in its entirety, without reduction for the tax basis of the
Shares exchanged. No loss will be recognized. The United States Holder's tax
basis in the Shares exchanged generally will be added to such holder's tax basis
in such holder's remaining Shares. To the extent that cash received in exchange
for Shares is treated as a dividend to a corporate United States Holder, such
holder will be (i) eligible for a dividends-received deduction (subject to
applicable limitations) and (ii) subject to the "extraordinary dividend
provisions of the Code. To the extent, if any, that the cash received by a
United States Holder exceeds the Company's current and accumulated earnings and
profits, it will be treated first as a tax-free return of such holder's tax
basis in the Shares and thereafter as capital gain.
~Withholding~for~Non-U.S.~Holders~. In addition to the possible
application of back-up withholding (see Federal Income Tax Backup Withholding
Below), a Non-U.S. Holder that exchanges their Shares for cash pursuant to the
Offer may be subject to withholding tax at a rate of thirty-one percent (31%)
with respect to the gross proceeds from such exchange. For purposes of
determining whether the applicability of this withholding rule, a Non-U.S.
Holder is a holder that is not (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity created or organized in or under
the laws of the United States or any political subdivision thereof or (iii) any
estate or trust the income of which is subject to United States federal income
taxation regardless of the source of such income.
~Federal~Income~Tax~Backup~Withholding~. A United States Holder that sells
his Shares for cash pursuant to the Offer may be subject to backup withholding
at the rate of 31% with respect to the gross
20
<PAGE>
proceeds from such sale, if such holder (i) fails to furnish a social security
or other taxpayer identification number ("TIN"), (ii) furnishes an incorrect
TIN, (iii) is notified by the Internal Revenue Service that such stockholder
failed to report dividends or (iv) under certain circumstances, fails to provide
a certified statement, signed under penalty of perjury, that the TIN provided is
the correct number and that the stockholder is not subject to backup
withholding. Corporations and certain other exempt categories may be exempt
from backup withholding if they demonstrate that fact to the Depositary.
Accordingly, each tendering stockholder should complete and sign the Substitute
Form W-9 included as part of the Letter of Transmittal so as to provide the
information and certification necessary to avoid backup withholding, unless such
Stockholder otherwise establishes to the satisfaction of the Depositary that the
stockholder is not subject to backup withholding.
Exempt foreign persons must submit a Form W-8 or a Substitute Form W-8,
signed under penalty of perjury, attesting to that stockholder's exempt status
in order to avoid backup withholding. Generally, for purposes of filing a Form
W-8 or a Substitute Form W-8, an exempt foreign person is (1) an individual that
is neither a U.S. citizen nor a U.S. resident and has not been physically
present in the United States for a period of 183 days during the tax year in
which the Bonds are sold; (2) a foreign corporation, (3) a foreign partnership;
or (4) a foreign estate or foreign trust. Form W-8 or Substitute Form W-8 can
be obtained from the Depositary. See Instructions contained in the Letter of
Transmittal.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY. EACH STOCKHOLDER IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE OFFER, INCLUDING
THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
EXTENSION OF THE OFFER; TERMINATION; AMENDMENTS
The Company expressly reserves the right, in its sole discretion, at any
time and from time to time, and regardless of whether or not any of the events
set forth in the subsection "Certain Conditions of the Offer" above shall have
occurred or shall be deemed by the Company to have occurred, to extend the
period of time during which the Offer is open and thereby delay acceptance for
payment of, and payment for, any Shares by giving oral or written notice of such
extension to the Depositary and making a public announcement thereof. The
Company also expressly reserves the right, in its sole discretion, to terminate
the Offer and not accept for payment or pay for any Shares not theretofore
accepted for payment or paid for or, subject to applicable law, to postpone
payment for Shares upon the occurrence of any of the conditions specified in the
subsection "Certain Conditions of the Offer" above by giving oral or written
notice of such termination or postponement to the Depositary and making a public
announcement thereof. Additionally, in certain circumstances, if the Company
waives any of the conditions of the Offer set forth in the subsection "Certain
Conditions of the Offer" above, it may be required to extend the Expiration Date
of the Offer. The Company's reservation of the right to delay payment for
Shares that it has accepted for payment is limited by Rule 13e-4(f)(5)
promulgated under
21
<PAGE>
the Exchange Act, which requires that the Company must pay the consideration
offered or return the Shares tendered promptly after termination or withdrawal
of a tender offer. Subject to compliance with applicable law, the Company
further reserves the right, in its sole discretion, and regardless of whether
any of the events set forth in the subsection "Certain Conditions of the Offer"
above shall have occurred or shall be deemed by the Company to have occurred, to
amend the Offer in any respect (including, without limitation, by decreasing or
increasing the consideration offered in the Offer to holders of Shares or by
decreasing or increasing the number of Shares being sought in the Offer).
Amendments to the Offer may be made at any time and from time to time effected
by public announcement thereof, such announcement, in the case of an extension,
to be issued no later than 9:00 A.M., Denver time, on the next business day
after the last previously scheduled or announced Expiration Date. Any public
announcement made pursuant to the Offer will be disseminated promptly to
stockholders in a manner reasonably designated to inform stockholders of such
change. Without limiting the manner in which the Company may choose to make any
public announcement, except as provided by applicable law (including Rule
13e-4(e)(2) promulgated under the Exchange Act), the Company shall have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by making a release to the Dow Jones News Service.
If the Company makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, the Company will extend the Offer to the extent required by Rules
13e-4(d)(2) and 13e-4(e)(2) promulgated under the Exchange Act, which require
that the minimum period during which an offer must remain open following
material changes in the terms of the offer or information concerning the offer
(other than a change in price or a change in percentage of securities sought)
will depend upon the facts and circumstances, including the relative materiality
of such terms or information. If (i) the Company increases or decreases the
price to be paid for Shares, the Company increases the number of Shares being
sought and such increase in the number of Shares being sought exceeds 2% of the
outstanding Shares, or the Company decreases the number of Shares being sought,
and (ii) the Offer is scheduled to expire at any time earlier than the
expiration of a period ending on the tenth business day from, and including, the
date that notice of such increase or decrease is first published, sent or given,
the Offer will be extended until the expiration of such period of ten business
days.
FEES AND EXPENSES
The Company has used American Stock Transfer & Trust, Inc. as Depositary in
connection with the Offer. The Depositary will receive reasonable and customary
compensation for its services. The Company will also reimburse the Depositary
for out-of-pocket expenses, including reasonable attorneys' fees, and has agreed
to indemnify the Depositary against certain liabilities in connection with the
Offer, including certain liabilities under the federal securities laws. The
Depositary may contact stockholders by mail, telephone, telex, telegraph and
personal interviews, and may request brokers, dealers and other nominee
stockholders to forward materials relating to the Offer to beneficial owners.
The Depositary has not been retained or directed to make solicitations or
recommendations in connection with the Offer.
22
<PAGE>
The Company will not pay fees or commissions to any broker, dealer,
commercial bank, trust company or other person for soliciting any Shares
pursuant to the Offer. The Company will, however, on request, reimburse such
persons for customary handling and mailing expenses incurred in forwarding
materials in respect of the Offer to the beneficial owners for which they act as
nominees. No such broker, dealer, commercial bank or trust company has been
authorized to act as the Company's agent for purposes of the Offer. The Company
will not reimburse any stockholder for any fees charged by brokers, dealers,
commercial banks or any other financial institution.
MISCELLANEOUS
The Company is not aware of any jurisdiction where the making of the Offer
is not in compliance with applicable law. If the Company becomes aware of any
jurisdiction where the making of the Offer is not in compliance with any valid
applicable law, the Company will make a good faith effort to comply with such
law. If, after such good faith effort, the Company cannot comply with such law,
the Offer will not be made to (nor will tenders be accepted from or on behalf
of) the holders of Shares residing in such jurisdiction. In any jurisdiction
the securities or blue sky laws of which require the Offer to be made by a
licensed broker or dealer, the Offer is being made on the Company's behalf by
one or more registered brokers or dealers licensed under the laws of such
jurisdiction.
23
<PAGE>
INFORMATION CONCERNING 3SI
ACQUISITION OF 3SI
On May 28, 1997 Tyrex acquired 100% of the common stock of 3Si in a reverse
triangular merger accounted for as a purchase. Under the terms of the merger,
3Si is a wholly owned subsidiary of Tyrex. The merger is accounted for
financial statement purposes as a purchase of Tyrex by 3Si, since the merger
resulted in approximately 70% of the now outstanding common stock of Tyrex being
issued to the 3Si stockholders. The financial statements for the period ended
June 30, 1997 contain the results of operations of 3Si for the six months ended
June 30, 1997, and the results of operations for Tyrex from the date of
acquisition (May 28, 1997) through June 30, 1997. The financial statements for
the years ended December 31, 1995 and 1996 include the results of operations for
3Si only. See "Financial Statements."
3SI, INC. OVERVIEW
3Si (Solution, System and Service Integration) has provided comprehensive
computer hardware and software solutions for over 17 years to clients throughout
the continent. Founded in 1979, as Kimbrough Computer Sales, Inc., 3Si offers a
wide array of systems integration services, including Internet security and
business needs assessments, hardware sales, maintenance and support, and
technical consulting, training and education. Larry Valdez, Fred Slack and
Frank Backes, all formerly with Digital Equipment Company, bought 3Si from its
original owners in August 1993. Since 1993, 3Si has grown from sales of
approximately $9 million and 27 employees to sales of $19 million and 125
employees in 1996.
3Si is headquartered in Denver, Colorado and has sales offices in Colorado
Springs, Colorado; Albuquerque, New Mexico; St. Louis, Missouri, and Raleigh,
North Carolina. The Raleigh office directly supports 3Si's technical consulting
contract with the U.S. Postal Service while the Albuquerque office directly
supports 3Si's Equipment and Services Schedule Contract (ESS Contract) with the
State of New Mexico.
Within its systems integrator framework, 3Si in July 1996 introduced a
group of professionals who focus entirely on providing Internet security
assessments and solutions to its customers. This group, lead by Frank Backes
who has extensive experience in providing network security to the U.S.
Government and is a recognized expert in the field of Internet security,
currently performs Internet security assessments for 3Si's customers. The
assessment process involves determining the client's computer and connectivity
environment, defining the client's objectives for security in accessing the
Internet, and finally, developing the proper hardware/software/configuration
solution to solve the client's needs. In communicating the solution to the
client, the assessment uses easy to understand pictorial depictions of the
client's existing and needed environment. The Company believes its assessment
methodology is copyrightable and plans to file for copyright protection in the
near future. With the startup of the Internet security business, the Company
has entered into various strategic
24
<PAGE>
agreements with companies such as Netcom, J.D. Edwards, JDL, and IBM to directly
provide Internet security assessment methodology to those companies and their
customers.
THE MICROCOMPUTER PRODUCTS INDUSTRY
The microcomputer products industry is one characterized by significant
change. Rapid advances in computer technology have enabled manufacturers to
offer substantially improved microcomputer products, with new and easier to use
software applications. As a result of the improved technology, and the
improvements made in ease of use of the applications of this technology, the
number of consumer and small business users of microcomputer products has
increased substantially in recent years. Another significant factor in the
increased usage of these products is the reduction in price of microcomputer
hardware.
These trends have also resulted in rapid growth in the microcomputer
reseller industry. In addition to sales by traditional microcomputer retailers,
microcomputers and related products are now sold by mass merchandisers, hard
good specialty retailers, national mail order houses, general office equipment
retailers and superstore-type microcomputer retailers. The decline in prices
for microcomputer hardware products offered to the end user and the increased
competition of the microcomputer reseller industry has created extreme price
pressures for microcomputer resellers.
As a result, the Company views the microcomputer reseller industry as
evolving and changing rapidly, with ongoing consolidation and realignment. The
Company believes that this presents opportunities, as well as challenges. The
Company believes that the market for microcomputer products and services will
continue to grow. The Company's belief in this trend is based upon its
experience with its own customers as well as general industry studies.
COMPETITION
The Company competes with numerous other companies offering many of the
same services. Competition is based upon factors such as the existence of
personal relationships with clients, price, service and reputation. Some of the
Company's competitors are larger, have greater resources and are more
established than the Company, especially as systems integrators and computer
resellers. The Company is not able at this time to accurately evaluate its
competitive position in the industry. There is no assurance that the Company
will be able to compete successfully in the future.
USPS CONTRACT
In April 1996, 3Si entered into a sub-contract agreement to provide
information systems support to the U.S. Postal Service. Revenues for the six
months ended June 30, 1997 were approximately $2.0 million which constituted
greater than 10% of the total revenues of the Company for the period. The
Company estimates continuing revenue from this sub-contract agreement to be
approximately $3 million per year for the next three years ending March 31,
2001, (which includes anticipated renewals). While the Company does not
anticipate early termination of the sub-contract, or not obtaining the annual
25
<PAGE>
renewals when due pursuant to the sub-contract, loss of the contract would have
a materially adverse impact on the Company.
SEASONALITY
The Company experiences a seasonal peak during the fourth calendar quarter
during which over 30% of 3Si's annual sales typically occur.
PERSONNEL
At June 30, 1997, the Company had 128 employees.
PROPERTIES
3Si currently rents its headquarters in Englewood, Colorado in a stand-
alone office building of approximately 16,000 sq. ft. pursuant to a 6-year
operating lease expiring in 2001. 3Si also maintains sales offices in Colorado
Springs, Colorado (leased, month-to-month), Albuquerque, New Mexico (leased,
expiring November 1998), St. Louis (maintained by an independent sales
representative) and Raleigh, North Carolina (subleased month-to-month). The
Company believes it has adequate facilities for the present level of business
and does not anticipate significant acquisitions of property, or facilities
during the remainder of 1997.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings nor have such
been threatened.
26
<PAGE>
RISK FACTORS
~In~addition~to~the~other~information~contained~in~this~document,~the~follo
wing~risk~factors~should~be~considered~carefully~in~evaluating~the~Company,~its~
business~prospects~and~the~self~tender~offer~described~herein.~~This~document~co
ntains~certain~forwardlooking~statements~that~involve~substantial~risks~and~unce
rtainties.~~When~used~herein,~the~words~"may,"~"will,"~"expect,"~"anticipate,"~"
continue,"~"estimate,"~"project,"~"intend,"~"believe"~and~similar~expressions~ar
e~intended~to~identify~forwardlooking~statements~within~the~meaning~of~Section~2
7A~of~the~Securities~Act~of~1933~and~Section~21E~of~the~Securities~Exchange~Act~
of~1934~regarding~events,~conditions~and~financial~trends~that~may~affect~the~Co
mpany's~future~plan~of~operations,~business~strategy,~operating~results~and~fina
ncial~position.~~Prospective~investors~are~cautioned~that~any~forwardlooking~sta
tements~are~not~guarantees~of~future~performance~and~are~subject~to~risks~and~un
certainties~and~that~actual~results~could~differ~materially~from~the~results~exp
ressed~in~or~implied~by~these~forwardlooking~statements~as~a~result~of~various~f
actors.~~Such~factors~are~described~under~the~headings~"Management's~Discussion~
and~Analysis~of~Financial~Condition~and~Results~of~Operations,"~"Business"~and~i
n~the~risk~factors~set~forth~below.~
Operating Losses. Although 3Si has attained significant sales growth since
----------------
1993, it has incurred losses of approximately $178,000 and $195,000 for its
years ended December 31, 1995 and 1996, respectively, and an operating loss of
approximately $275,000 for the six month period ended June 30, 1997. There is
no assurance that the Company will be profitable in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Financial Statements."
Fluctuations in Revenue. The Company's revenues can fluctuate widely from
-----------------------
period to period as a result of the absence or presence of sales of hardware to
3Si's customers (hardware sales account for approximately 70% of 3Si's sales)
and seasonality. 3Si currently experiences approximately 30% of its sales in
the quarter ending in December. The Company's revenues could also be adversely
affected by a general economic recession that reduces demand for integration
services and hardware. A decrease in revenues will adversely affect the
Company's results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Need for Additional Financing. In connection with the Company's
-----------------------------
implementation of its business plan and its desire to become a premier Internet
security company, the Company anticipates requiring additional debt and equity
financing in the near future. 3Si recently refinanced its bank debt, which was
in the form of a term loan, to a revolving line of credit. The Company also
anticipates placing either a private or public offering to raise new equity
capital in the near future. There is also no guarantee that the Company will be
able to raise additional equity capital that it may require to fully implement
its business plan and strategy.
Changing Technologies. The Company's business is subject to changes in
---------------------
technology and new service introductions. Accordingly, the Company's ability to
compete will be dependent upon its ability to adapt to technological changes in
the industry and to develop services based on those changes to
27
<PAGE>
satisfy evolving client requirements. Technological changes may create new
products or services that are competitive with, superior to, or render obsolete
the services currently offered by the Company. There can be no assurance that
current technologies, or technologies yet to emerge, will not in the future
compete with or replace the services offered by the Company.
Substantial Indebtedness. 3Si has a substantial amount of outstanding
------------------------
indebtedness. As of June 30, 1997, 3Si had total liabilities of approximately
$4,500,000. See "Financial Statements." This level of indebtedness could have
important consequences to the stockholders, including the following: (i) the
ability of the Company to obtain financing in the future for working capital
needs, capital expenditures, acquisitions, investments, general corporate
purposes or other purposes may be materially limited or impaired; (ii) a
significant portion of the Company's cash flow from operating activities will be
required to pay this debt and interest charges, and will not be available for
other purposes; and (iii) the Company's level of indebtedness may reduce the
Company's flexibility to respond to changing business and economic conditions.
Substantially all of 3Si's assets serve as collateral security for its credit
line.
Reliance on Key Employees. The Company's success depends largely upon the
-------------------------
abilities of Fred Slack, Chief Executive Officer, Frank Backes, President and
Larry Valdez, Chief Operating Officer. The loss of the services of any of these
individuals could have a negative impact on the Company. 3Si has employment
agreements with each of these persons. See "Management."
Competitive Industry. The Company competes with numerous other companies
--------------------
offering many of the same services. Competition is based upon factors such as
the existence of personal relationships with clients, price, service and
reputation. Some of the Company's competitors are larger, have greater
resources and are more established than the Company, especially as systems
integrators and computer resellers. The Company is not able at this time to
accurately evaluate its competitive position in the industry. There is no
assurance that the Company will be able to compete successfully in the future.
See "Business--Competitive Factors."
Control of Insiders. As a result of the acquisition of 3Si by the Company,
--------------------
the three shareholders of 3Si, Fred Slack, Frank Backes and Larry Valdez, own
approximately 70% of the outstanding common stock of the Company. These three
individuals also serve as three of the current eight members on the Company's
Board of Directors; however, after the self tender offer described herein is
completed, three of the current directors of the Company will resign and the
three nominees of 3Si will then comprise three of the five member Board of
Directors of the Company.
No Dividends Contemplated. To date, the Company has not paid any cash or
-------------------------
other dividends on its Common Stock and does not anticipate paying dividends in
the foreseeable future.
28
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following information is derived from the Financial Statements included
herein and gives pro forma effect to the self tender offer described herein,
assuming full acceptance, and payment of $1,800,000 in redemption of shares and
$50,000 of related expenses. To the extent fewer than 6,000,000 shares are
tendered and purchased, the Company's cash position and book value per share
will be increased accordingly.
Actual Pro Forma
---------------------------------------
June 30, 1997 June 30, 1997
--------------------------------------
Cash $ 2,219,145 $ 369,145
Total assets 7,263,823 5,413,823
Shareholders' equity 2,708,572 858,572
Book value per share .069 .026
29
<PAGE>
SELECTED FINANCIAL DATA
On May 28, 1997 Tyrex acquired 100% of the common stock of 3Si in a reverse
triangular merger accounted for as a purchase. Under the terms of the merger,
3Si is a wholly owned subsidiary of Tyrex. The merger is accounted for
financial statement purposes as a purchase of Tyrex by 3Si, since the merger
resulted in approximately 70% of the now outstanding common stock of Tyrex being
issued to the 3Si stockholders. The financial information for the period ended
June 30, 1997 contains the results of operations of 3Si for the six months ended
June 30, 1997, and the results of operations for Tyrex from the date of
acquisition (May 28, 1997) through June 30, 1997. The financial information for
the years ended December 31, 1993, 1994, 1995 and 1996 include the results of
operations for 3Si only.
<TABLE>
<CAPTION>
Six Months
Ended Year Ended Year Ended Year Ended Year Ended
June 30, December December December December
1997 31, 1996 31, 1995 31, 1994 31, 1993
<S> <C> <C> <C> <C> <C>
Net Sales $ 9,976,536 $19,007,245 $21,774,221 $17,503,876 $ 9,574,211
Income (loss) from operations (190,063) 3,590 (109,477) 349,322 35,537
Net income (loss) from
continuing operations (275,198) (195,315) (177,977) 366,846 52,947
Discontinued operations 200,793 -- -- -- --
Net income (loss) (74,405) (195,315) (177,977) 366,846 52,947
Per Common Share:
From continuing operations (.04) (651) (593) 1,223 176
From discontinued operations .03 -- -- -- --
Net income (loss) per
Common Share (.01) (651) (593) 1,223 176
At year end:
Total assets 7,263,823 5,349,586 5,221,723 3,123,711 3,084,682
Long-term obligations 64,502 76,060 99,496 -- --
Working capital (deficit) 1,767,402 (168,223) 166,922 721,944 550,078
Stockholders' equity 2,708,572 142,966 433,893 826,425 596,904
</TABLE>
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
With the merger of Tyrex and 3Si, the Company believes it has the financial
resources to meet the Company's financial needs for its operations during the
next 12 months. As of June 30, 1997, the Company had working capital of
approximately $1,767,000.
As of September 30, 1997, the Company had replaced its note payable with a
bank with an accounts receivable line of credit facility with another financial
institution. The new revolving line of credit is at the prime rate of interest
and permits the Company to borrow up to $2 million based on 85% of the Company's
eligible accounts receivable balance computed under the terms of the agreement.
The line is secured by substantially all of the assets of the Company.
The Company also anticipates undertaking either a private or public
offering to raise new equity capital in the near future. Although no such
arrangement exists currently, any issuance of additional securities may have a
dilutive effect to the existing shareholders of the Company. There is also no
assurance that the Company will be able to raise additional equity capital that
it may require to fully implement its business plan.
RESULTS OF OPERATIONS
~SIX~MONTHS~ENDED~JUNE~30,~1997~COMPARED~TO~SIX~MONTHS~ENDED~JUNE~30,~1996~
OVERVIEW
The statements of operations and cash flows for the six months ended June
30, 1997, include the results of operations and cash flows for 3Si for the six
months ended June 30, 1997 and the 33 days from May 28, 1997 (the date of the
acquisition) to June 30, 1997 for Tyrex. Due to the nature of Tyrex's
operations during the 33 days ended June 30, 1997 (i.e., completing the sales of
its oil and gas properties and discontinuing its oil and gas operations) the
results of Tyrex's operations are disclosed as "discontinued operations."
Tyrex realized a gain on its final disposition of oil and gas properties of
$536,700 in the 33 day period ended June 30, 1997. Included in Tyrex's gain
from discontinued operations for the 33 day period ended June 30, 1997 were
costs attributable to the acquisition of approximately $190,000 and severance
costs relating to Tyrex's remaining employees of approximately $117,000
including accrued payroll taxes. As of June 30, 1997, Tyrex had three full-time
employees. No discontinued operations are included in the December 31, 1995 and
1996 financial statements which reflect only the operations of 3Si.
3Si realized a net loss from continuing operations of $275,198 during the
six months ended June 30, 1997. This loss is attributable primarily to 3Si's
continued investment in its Internet security startup business and reduced
hardware sales. The Internet security division lost $150,180 during the first
six
31
<PAGE>
months of 1997, attributable to its startup nature whereby revenues generated by
the Internet security division did not yet cover expenses.
COMPARATIVE ANALYSIS
Sales were approximately $9,977,000 during the six months ended June 30,
1997. Total sales were up from the same period in the previous year by
approximately $1,255,000 or 14.4%. This change is primarily the result of the
United States Postal Service ("USPS") sub-contract which did not begin until May
1996; and a decline in hardware sales between periods. The USPS sub-contract
sales for the first six months of 1997 and 1996 were approximately $1,970,000
and $367,000, respectively, accounting for an increase of approximately
$1,603,000. The decline in hardware sales, which was approximately $348,000 was
directly attributable to the three 3Si co-owners' attention to merger and
financing activities. The co-owners' involvement was diverted from usual sales
activities causing the lower hardware sales during the first six months of 1997
versus the first six months of 1996.
The Company's gross margin changed as a percentage of sales from 25.7% in
1996 to 31.9% in 1997. These changes primarily result from the addition of the
USPS contract and the Internet security business which create higher, consulting
based, margins (i.e., the compensation related to the delivery of the consulting
sales is included in selling and administrative expenses versus cost of goods
sold). Gross margin increased approximately $1,105,000 due to the addition of
the USPS sub-contract and the Internet security business slightly offset by
lower hardware sales as discussed above.
Selling and administrative expenses increased approximately $1,415,000, or
72.3% due primarily to the addition of the labor costs associated with the USPS
sub-contract. During the first six months of 1997, the Company incurred
additional labor costs of approximately $1,284,000 relative to the USPS sub-
contract. Included in selling and administrative expenses for the six months
ended June 30, 1997 are also approximately $251,000 of expenses related to the
Internet security business which had not existed until July 1996. These
increases in costs were slightly offset by savings in other expenses due to cost
containment and expense reduction in other areas.
At June 30, 1997, the Company had 128 employees, including 57 servicing the
USPS sub-contract in Raleigh, North Carolina and 3 in Wyoming versus having had
84 in total at June 30, 1996 including 29 servicing the USPS sub-contract.
YEAR ENDED DECEMBER 31, 1996 VERSUS DECEMBER 31, 1995
OVERVIEW
3Si realized a net loss of $195,315 for the year ended December 31, 1996
versus a net loss of $177,977 for the year ended December 31, 1995. The loss
incurred in 1996 is attributable primarily due to the Company's investment in
its Internet security startup business which began in earnest in July
32
<PAGE>
1996. The Internet security division lost $174,009 during the second half of
1996, attributable to its startup nature.
COMPARATIVE ANALYSIS
Sales decreased approximately $2,777,000, or 12.7% from the previous year.
This change is primarily the result of the USPS sub-contract which did not begin
until May 1996; and a decline in hardware sales between periods. The USPS sub-
contract sales for the year were approximately $1,757,000 and hardware sales
declined approximately $4,534,000. Hardware sales declined as the Company
focused on higher margin consulting sales like the USPS sub-contract and higher
margin hardware sales.
3Si's gross margin changed as a percentage of sales from 17.3% in 1995 to
25.7% in 1996. These changes primarily result due to the addition of the USPS
contract and higher margin hardware sales. The USPS sub-contract creates
higher, consulting based, margins (i.e., the compensation related to the
delivery of the consulting sales included in selling and administrative expenses
versus cost of goods sold). Gross margin on hardware sales increased from 14.6%
in 1995 to 15.4% in 1996 as the Company focused on proposing on higher margin
sales as part of its strategy to return to long-term profitability.
Selling and administrative expenses increased approximately $986,000, or
25.4% due primarily to the addition of the labor costs associated with the USPS
contract. During 1996, the Company incurred additional labor costs of
approximately $1,176,000 relative to the USPS sub-contract which is slightly
offset by savings in other expenses due to cost containment and reduction in
other areas. Included in selling and administrative expenses are also
approximately $204,000 of expenses relative to the Internal security business.
At December 31, 1996, the Company had 102 employees, including 43 servicing
the USPS sub-contract in Raleigh, North Carolina versus having had 62 employees
at December 31, 1995.
YEAR ENDED DECEMBER 31, 1995 VERSUS DECEMBER 31, 1994
OVERVIEW
3Si realized an operating loss of $177,977 for the year ended December 31,
1995 versus net income of $366,846 for the year ended December 31, 1994. The
loss is due primarily to the increase in selling and administrative expenses
over 1994 of approximately 61% without a commensurate increase in sales
(increase of approximately 24%). Selling and administrative costs increased as
3Si hired new employees, opened its Albuquerque, New Mexico office and invested
in its existing sales force in an effort to increase its sales during 1995.
3Si recognized the need to reduce its work force in October 1995, and
terminated 15 employees within the next 5 months.
33
<PAGE>
COMPARATIVE ANALYSIS
Sales increased approximately $4,270,000, or 24.4% from 1994. This change
is primarily due to the increases in hardware sales accomplished by 3Si's
expanded sales force; although, ultimately the expansion in the sales force did
not produce the necessary revenues to sustain profitability for the year. 3Si
made adjustments to the sales force to compensate for the lack of productivity
in the fourth quarter of 1995.
3Si's gross margin changed as a percentage of sales from 15.8% in 1994 to
17.3% in 1995. This change is primarily the result of higher margin hardware
sales and the Company's focus on providing expanded services to its customers.
Expanding service sales creates higher, consulting based, margins (i.e., the
compensation related to the delivery of the consulting sales is included in
selling, general and administrative expenses versus cost of goods sold).
Selling, general and administrative expenses increased approximately
$1,477,000, or 61.3% due primarily to the addition of the labor costs including
commissions of approximately $1,400,000 relative to the increase in the
Company's employees during the year and approximately $77,000 of costs incurred
including initial operating losses of the opening of the Company's Albuquerque,
New Mexico sales office. In the fourth quarter of 1995, the Company recognized
that the expansion in the sales force was not producing the necessary revenues
to sustain profitability for the year. 3Si made adjustments to the sales force
to compensate for the lack of productivity in the fourth quarter of 1995.
At December 31, 1995, the Company had 62 employees versus having had 52 at
December 31, 1994.
34
<PAGE>
MANAGEMENT
Directors and Officers
----------------------
The following three persons are the executive officers of 3Si and are three
of its five member Board of Directors. Tom N. Richardson and Doris K. Backus,
two directors of Tyrex, joined the 3Si Board in connection with the merger of
the companies. Messrs. Backes, Slack and Valdez are three of the eight persons
presently comprising the Board of Directors of Tyrex. Upon completion of the
Offer described herein, three Tyrex Board members will resign and Messrs.
Backes, Slack and Valdez will comprise a majority of Tyrex's then five person
Board of Directors.
FREDERICK J. SLACK, 42, CHIEF EXECUTIVE OFFICER. Mr. Slack has served as
Co-Owner and Chief Executive Officer of 3Si since August 1993. Mr. Slack
received his B.A. degree in Education in 1977 from the University of Northern
Colorado. Initially, Mr. Slack began his business career as a Methods and
Procedures Analyst for National Farmers Union Insurance in Denver, where he was
first introduced to mainframe computer environments. Mr. Slack then went to
work as the Western Territory Sales Manager for Travenol Labs selling
hospital/medical information systems involving IBM equipment. Finally, in 1986,
Mr. Slack became a sales/project manager for Digital Equipment Corporation
(DEC). Initially, Mr. Slack served as one of the project managers within the
LSST (Large Systems Selling Team) which focused on large complex $1,000,000
solutions to larger customers. LSST selling required multi-computer system
disciplines including hardware, software, consulting, training and
implementation. Mr. Slack then moved his sales expertise and success into the
Government Sales Division for DEC. Over the next 5 years, Mr. Slack served as
project manager for similarly large, sophisticated government customers with
mission critical, classified systems needs. Mr. Slack's responsibilities
included writing "white papers," preparing and presenting bids and proposals,
negotiating contracts, and implementation of contracts once awarded. Mr. Slack,
throughout his career, has been involved in preparing personal, division and
corporate budgets and implementation of those budgets at all levels.
FRANK W. BACKES, 36, PRESIDENT. Mr. Backes has served as Co-Owner and
Director of Technology of 3Si since August 1993. Mr. Backes received his
B.S.E.E. degree in Semiconductor Physics in 1984. Mr. Backes started his career
working for Science Applications International Corporation designing Command and
Control systems for the Department of Defense. Mr. Backes' accomplishments in
the field of Command and Control systems include: research and successful
development of client-server based systems in 1987, dynamic user interface
designs in 1988 using Ada and PHIGS, implementing 3D graphics for display of
command center information in 1989, training and working in combat position as
an orbital analyst in the Space Surveillance Center at NORAD, designing and
implementing several command centers pushing the development of state of the art
high availability techniques. In 1989 Mr. Backes went to work for Digital
Equipment Corporation as a computer industry analyst. Continuing on the path of
pushing computer and networking technology to its limits, Mr. Backes began
applying his experience to commercial business systems. In addition to his work
in the computer industry, Mr. Backes has utilized skills in working with and
teaching students from
35
<PAGE>
elementary schools to high schools. One project was coordination, management
and teaching students to interact, over the Internet, with the Mars Land Rover
developed by Jet Propulsion Lab for NASA. This project was the first time that
anyone outside of NASA was given the opportunity to send commands over the
Internet to the Mars rover. Other projects include coaching Odyssey of the Mind
teams and working as a tutor for students in math and science.
FELIPE "LARRY" VALDEZ, 44, CHIEF OPERATING OFFICER. Mr. Valdez has served
as Chief Executive Officer of 3Si since he co-purchased 3Si in August 1993. Mr.
Valdez began his career working in telecommunications electronic manufacturing
operations in Logistics, Production and Inventory planning in 1971. Mr. Valdez
moved from telecommunications manufacturing to computer manufacturing when he
joined Digital Equipment Corporation in 1977 in its Albuquerque Operations as an
Inventory Control Planner. Shortly after that, Mr. Valdez relocated to
Digital's Colorado Springs operations where he as responsible for New Product
introduction on a variety of leading technology storage products. Mr. Valdez
was promoted into Digital's Customer Support Center where he led technical
support teams in providing remote support to a variety of customers on a
national level. Mr. Valdez joined Digital's Software Support organization where
he led technical and business consultants in providing pre-and post sales
support to Digital's Sales Representatives in major Federal Government and
Commercial Accounts. Mr. Valdez' teams were successful at winning and deploying
numerous multi-million dollar programs for Digital Equipment where he,
individually, and his teams, collectively, were recognized numerous times for
their accomplishments. Mr. Valdez obtained Bachelor and Masters Degrees in
Business Administration while employed full-time. In 1997, Mr. Valdez was
selected by the University of Phoenix as a faculty member in its Organization
Behavior studies program where he teaches Organization Communications courses.
36
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth all cash compensation paid by Tyrex or 3Si
to each executive officer for each of the years indicated.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-term Compensation
Annual Awards Payouts
Compensation
Other All
annual Restricted Other
Name and Compen- Stock Options/ LTIP Compen-
principal position Year Salary ($) Bonus sation (1) Awards SARs payouts sation(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TYREX OIL COMPANY:
Tom N. Richardson 1997 $52,500 - - - - - -
President, CFO 1996 52,500 - - $7,813 - - -
1995 52,500 - - - - - -
3SI:
Frederick J. Slack 1997 $37,500 - - - - - $13,279
Chief Executive 1996 68,000 - - - - - 31,871
Officer 1995 68,000 - - - - - 71,518
Frank W. Backes 1997 $37,500 - - - - - $13,279
President 1996 68,000 - - - - - 31,871
1995 68,000 - - - - - 71,518
Felipe L. Valdez 1997 $37,500 - - - - - $13,279
Chief Operating 1996 68,000 - - - - - 31,871
Officer 1995 68,000 - - - - - 71,518
- ----------------------
<FN>
(1) Perquisites and other personal benefits or property did not, in aggregate,
exceed $50,000 or 10% of the total compensation.
(2) 3Si was a subchapter S corporation prior to its acquisition by Tyrex.
Amounts indicated are distributions to the three officers of 3Si named
above, made to them in their capacities as shareholders.
</TABLE>
EMPLOYMENT AGREEMENTS
Concurrent with the merger of Tyrex and 3Si, the Company entered into
separate employment agreements with each of the co-owners of 3Si - Fred Slack,
Frank Backes and Larry Valdez. Pursuant to the agreements, the Company will
compensate each of the individuals $110,000 in fiscal 1998. The individuals are
eligible for increases in their annual compensation subject to the profitability
of the Company. The agreements expire May 31, 2000 unless terminated for cause
by 3Si or early termination by the individual with 90 days written notice.
37
<PAGE>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<S> <C> <C> <C>
Value of Unexercised
Shares Unexercised In-the-Money Options
Acquired on Options at FY-End(#) at FY-End($)
Name Exercise Exercisable/Unexercisable Exercisable/Unexercisable
- ---- -------- ---------------------- -----------------------
n/a -- -- --
</TABLE>
OPTION/SAR GRANTS TABLE
The following table provides the specified information concerning stock
options granted to officers and directors of Tyrex during the fiscal year ended
June 30, 1997.
<TABLE>
<S> <C> <C> <C> <C>
Number of
securities Percent of total
underlying options granted Exercise of
options to employees in base price
Name granted (#) fiscal year ($/share) Expiration Date
- ---------------- ------------ ------------- ---------- ----------------
Tom N. Richardson 160,000 34% $ 0.14 January 18, 1999
William P. Gruman 160,000 34% 0.14 January 18, 1999
Doris K. Backus 49,000 10% 0.14 January 18, 1999
</TABLE>
38
<PAGE>
CERTAIN TRANSACTIONS
In connection with the sale of the Company's producing oil and gas
properties on May 30, 1997, 10% of the purchase price was paid by, and a 10%
interest in the properties was assigned to Tom N. Richardson, the President of
Tyrex. Mr. Richardson paid the same price for his interest as did the non-
affiliated purchasers of the remaining 90% interest.
As part of the acquisition of 3Si and the refocusing of the Company's
business activities, it is anticipated that Mr. Richardson, President and Ms.
Backus, Secretary/Treasurer will be terminated. Termination pay to these two
persons will be $56,500 and $33,000, respectively.
In connection with the acquisition of 3Si by Tyrex, the parties and certain
of their shareholders entered into a Transition Agreement which provides, among
other things, that until this self tender Offer is completed:
(i) the Board of Directors of Tyrex will consist of eight members,
consisting of the five members of Tyrex's Board serving at the
date of the acquisition and the three former shareholders of 3Si
(i.e., Messrs. Slack, Backes and Valdez);
(ii) Messrs. Slack, Backes, Valdez and Richardson, as shareholders,
agreed to vote for the Board as constituted in (i) above and all
granted Mr. Richardson an irrevocable proxy with respect thereto;
(iii)the persons in (ii) above further agreed to take whatever actions
are necessary to ensure that this self tender Offer is completed;
and
(iv) upon completion of the Offer, Messrs. Traut, Gruman and Massey
have agreed to resign from the Board of Directors.
Other than as set forth herein, no officer, director or principal
shareholder of Tyrex or 3Si has or proposes to have any direct or indirect
material interest by security holdings, contracts or otherwise in Tyrex or 3Si
or in any assets proposed to be acquired by Tyrex or 3Si or in any purchase, the
value of which will be affected by the operations of Tyrex or 3Si.
39
<PAGE>
PRINCIPAL SHAREHOLDERS AND SHAREHOLDERS OF MANAGEMENT
The following sets forth information as of May 28, 1997, the date of the
completion of the merger of Tyrex and 3Si, the ownership of Tyrex common stock
on an individual basis and ownership by all executive officers and directors as
a group:
<TABLE>
<CAPTION>
Number of Shares
Beneficially Owned
Period of
Service as Percent
Position(s) Director or of
Name and Age with the Company Officer Direct Indirect Class
<S> <C> <C> <C> <C> <C> <C>
Frederick J. Slack Director 5/28/97 9,387,777(1) -0- 23.7%
Age: 42 to present
Frank W. Backes Director 5/28/97 9,387,777(1) -0- 23.7%
Age: 36 to present
Felipe L. Valdez Director 5/28/97 9,387,779(1) -0- 23.7%
Age: 44 to present
John D. Traut Chairman and 11/8/79 534,000 -0- 1.3%
Age: 69 a Director to present
William P. Gruman Director 1/27/86 393,500(2) -0- <1.0%
Age: 68 to present
Tom N. Richardson President and a 7/10/86 354,900(3) -0- <1.0%
Age: 47 Director to present
Morris R. Massey Director 6/1/93 15,500 -0- <1.0%
Age: 65 to present
Doris K. Backus Secretary/Treasurer 12/5/91 80,000(4) -0- <1.0%
Age: 43 and Director to present
All Officers and
Directors as a Group 29,541,233 -0- 74.5%
(eight persons)
- ------------------
<FN>
(1) Messrs. Slack, Backes and Valdez have waived any right to participate in
this self tender Offer and were not owners of record on May 20, 1997, the
record date for the Offer.
(2) Includes immediately exercisable options to purchase 160,000 shares of
Common Stock at $0.14 per share at any time before January 18, 1999.
(3) Includes immediately exercisable options to purchase 160,000 shares of
Common Stock at $0.14 per share at any time before January 18, 1999.
(4) Includes immediately exercisable options to purchase 49,000 shares of
Common Stock at $0.14 per share at any time before January 18, 1999.
</TABLE>
40
<PAGE>
CERTAIN INFORMATION CONCERNING TYREX
~ Additional~Information~. The Company is subject to the informational
filing requirements of the Securities Exchange Act of 1934 and, in accordance
therewith, is obligated to file reports and other information with the
Securities and Exchange Commission ("Commission") relating to its business
financial condition and other matters. Information, as of particular dates,
concerning the Company's directors and officers, their remuneration, options
granted to them, the principal holders of the Company's securities and any
material interest of such persons in transactions with the Company is required
to be disclosed in proxy statements distributed to the Company's stockholders
and filed 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 450 Fifth Street, N.W., Room 2120, Washington,
D.C. 20549; at its regional offices located at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511; and 7 World Trade Center, New York, New York
10048. Copies of such material may also be obtained by mail, upon payment of
the Commission's customary charges, from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549.
The Commission also maintains a Web site on the World Wide Web at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The following reports of the Company are hereby incorporated by reference
herein and are each available without charge upon request:
1. Annual Report on Form 10-K for the fiscal year ended June 30, 1997;
2. Definitive Proxy Statement for Annual Meeting of Shareholders dated
December 5, 1996;
3. Report on Form 8-K (the 3Si acquisition) dated June 6, 1997;
4. Report on Form 8-K (financial statements re: 3Si) dated June 9,
1997; and
5. Report on Form 8-KA (pro forma financial statements re: 3Si) dated
September 9, 1997.
All reports and any definitive proxy or information statements filed by
the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date hereof and prior to the termination of the Offer shall be deemed
to be incorporated by reference into this Offer to Purchase and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein, or
contained in this Offer to Purchase, shall be deemed to be modified or
superseded for purposes of this Offer to Purchase to the extent that a statement
contained herein or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Offer to
Purchase.
41
<PAGE>
Any person receiving a copy of this Offer to Purchase may obtain without
charge, upon request, a copy of any of the documents incorporated by reference
herein, except for the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Such requests should
be directed to Tyrex Oil Company, 777 North Overland Trail, Suite 101, Casper,
Wyoming 82601, Attention: Tom N. Richardson, telephone number: (307) 234-4260.
Persons wishing to contact 3Si should call or write Fred J. Slack, c/o 3Si
Incorporated, 6886 South Yosemite, Englewood, Colorado 80112; telephone (303)
741-9123.
42
<PAGE>
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
TYREX OIL COMPANY
June 30, 1997
<PAGE>
JOHN M. HANSON & COMPANY, P.C.
Certified Public Accountants
Board of Directors
Tyrex Oil Company
Independent Auditors' Report
----------------------------
We have audited the accompanying balance sheets of Tyrex Oil Company as of
June 30, 1997 and December 31, 1996 and the related statements of operations,
changes in stockholders' equity, and cash flows for the period January 1, 1997
through June 30, 1997 and the years ended December 31, 1996 and 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentations. We believe that our audits provide a reasonable basis for our
opinion.
On May 28, 1997 Tyrex Oil Company ("Tyrex") acquired 100% of the common
stock of Kimbrough Computer Sales, Inc. d/b/a 3Si Incorporated ("3Si") in a
reverse merger accounted for as a purchase. Under the terms of the merger, 3Si
is a wholly owned subsidiary of Tyrex. As discussed in Note A, the merger is
accounted for financial statement purposes as a purchase of Tyrex by 3Si, since
the merger resulted in 72% of the outstanding stock of Tyrex being held by the
3Si stockholders. The financial statements for the period ended June 30, 1997
contain the results of operations of 3Si for the six months ended June 30, 1997,
and the results of operations of Tyrex from the date of acquisition (May 28,
1997) through June 30, 1997. The financial statements for the years ended
December 31, 1996 and 1995 include the results of operations for 3Si only.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tyrex Oil Company as of June
30, 1997 and December 31, 1996 and the results of its operations and its cash
flows for the period January 1, 1997 through June 30, 1997 and the years ended
December 31, 1996 and 1995 in conformity with generally accepted accounting
principles.
/S/John M. Hanson & Company, P.C.
Denver, Colorado
September 22, 1997, except for Note F as to which the date is October 6, 1997
F1
<PAGE>
<TABLE>
Tyrex Oil Company
Balance Sheets (Page 1 of 2)
June 30, 1997 and December 31, 1996
<CAPTION>
ASSETS
1997 1996
<S> <C> <C>
CURRENT ASSETS (NOTE F)
Cash and cash equivalents (Note B) $ 2,219,145 $ 47,166
Accounts receivable - trade (Note D) 3,334,430 4,537,908
Inventory (Note B) 643,474 286,210
Other current assets 61,102 91,053
Total current assets 6,258,151 4,962,337
PROPERTY AND EQUIPMENT - AT COST (NOTE F)
Computer systems 358,438 323,437
Furniture and fixtures (Note G) 228,480 168,234
Leasehold improvements 73,082 63,063
Total property and equipment 660,000 554,734
Less accumulated depreciation and
amortization (Note B) (297,258) (187,885)
Net property and equipment 362,742 366,849
OTHER ASSETS (NOTE F)
Deposits 20,534 20,400
Other (Notes C and G) 622,396 -
Total other assets 642,930 20,400
Total assets $ 7,263,823 $ 5,349,586
<FN>
The accompanying notes are an integral part of these statements
</TABLE>
F2
<PAGE>
<TABLE>
Tyrex Oil Company
Balance Sheets (Page 2 of 2)
June 30, 1997 and December 31, 1996
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
<S> <C> <C>
CURRENT LIABILITIES
Revolving line of credit (Note E) $ - $ 1,175,000
Notes payable (Note F) 1,264,271 -
Current portion of capital lease (Note G) 22,734 21,729
Accounts payable - trade 2,774,908 3,684,793
Customer deposits 120,498 103,863
Accrued liabilities 308,338 145,175
Total current liabilities 4,490,749 5,130,560
LONG-TERM DEBT (NOTE G) 64,502 76,060
COMMITMENTS (NOTE G) - -
STOCKHOLDERS' EQUITY (NOTES C AND I)
Common stock - authorized 50,000,000
shares of $.01 par value; issued and
outstanding 39,293,424 shares at
June 30, 1997; authorized 50,000
shares of no par value; issued and
outstanding 300 shares at December 31,
1996 392,934 30,000
Additional paid in capital 2,322,902 -
Retained (deficit) earnings (1,277) 112,966
Treasury stock-at cost, 45,000
shares at June 30, 1997 (5,987) -
Total stockholders' equity 2,708,572 142,966
Total liabilities and stockholders' equity $ 7,263,823 $ 5,349,586
<FN>
The accompanying notes are an integral part of these statements
</TABLE>
F3
<PAGE>
<TABLE>
Tyrex Oil Company
Statements of Operations
For the Period January 1, 1997 through June 30, 1997
and the Years Ended December 31, 1996 and 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Product sales $ 6,984,752 $15,612,000 $20,452,203
Consulting and other service revenue 2,991,784 3,395,245 1,322,018
Net sales 9,976,536 19,007,245 21,774,221
Cost of products sold 6,202,716 13,204,231 17,475,266
Costs of contract labor 477,355 640,125 194,783
Royalty expense 115,532 286,106 326,727
Total cost of goods sold 6,795,603 14,130,462 17,996,776
Gross profit 3,180,933 4,876,783 3,777,445
Selling and administrative expenses 3,370,996 4,873,193 3,886,922
(Loss) earnings from operations (190,063) 3,590 (109,477)
Other income (expense)
Interest income 5,597 16,584 3,686
Miscellaneous income 3,062 2,616 18,942
Interest expense (93,794) (170,413) (91,128)
Offering costs - (45,071) -
Loss on disposition of assets - (2,621) -
Total other expense (85,135) (198,905) (68,500)
Net loss before income taxes (275,198) (195,315) (177,977)
Income taxes (Note J) - - -
Net loss from continuing operations (275,198) (195,315) (177,977)
Discontinued operations (Note K)
Gain on disposal of oil and gas properties 200,793 - -
Net loss $ (74,405) $ (195,315) $ (177,977)
Net loss from continuing operations
per common share $ (.04) $ (651) $ (593)
Net gain from discontinued operations
per common share $ .03 $ - $ -
Net loss per common share $ (.01) $ (651) $ (593)
Weighted average shares outstanding (Note B) 6,549,154 300 300
<FN>
The accompanying notes are an integral part of these statements
</TABLE>
F4
<PAGE>
<TABLE>
Tyrex Oil Company
Statements of Changes in Stockholders' Equity
For the Period January 1, 1997 through June 30, 1997
and the Years Ended December 31, 1996 and 1995
<CAPTION>
Additional Retained Total
# Common Common Treasury Paid-In (Deficit) Stockholders'
Shares Stock Stock Capital Earnings Equity
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 300 $ 30,000 $ - $ - $ 796,425 $ 826,425
Net loss for the year ended
December 31, 1995 - - - - (177,977) (177,977)
Dividends declared - - - - (214,555) (214,555)
Balance, December 31, 1995 300 30,000 - - 403,893 433,893
Net loss for the year ended
December 31, 1996 - - - - (195,315) (195,315)
Dividends declared - - - - (95,612) (95,612)
Balance, December 31, 1996 300 30,000 - - 112,966 142,966
Stock of 3Si acquired by Tyrex (300) (30,000) - - - (30,000)
Stock of Tyrex outstanding prior
to the merger with 3Si 10,960,091 109,601 - - - 109,601
Stock of Tyrex issued to 3Si
stockholders 28,333,333 283,333 - - - 283,333
Treasury stock of Tyrex prior
to the merger - - (5,987) - - (5,987)
Additional paid-in capital
of Tyrex - - - 2,322,902 - 2,322,902
Net loss for the period ended
June 30, 1997 - - - - (74,405) (74,405)
Dividends declared by 3Si prior to
the merger with Tyrex - - - - (39,838) (39,838)
Balance June 30, 1997 39,293,424 $ 392,934 $ (5,987)$ 2,322,902 $ (1,277)$ 2,708,572
<FN>
The accompanying notes are an integral part of these statements
</TABLE>
F5
<PAGE>
<TABLE>
Tyrex Oil Company
Statements of Cash Flows (Page 1 of 2)
For the Period January 1, 1997 through June 30, 1997
and the Years Ended December 31, 1996 and 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Operating activities:
Net loss $ (74,405) $ (195,315) $ (177,977)
Reconciling adjustments:
Depreciation and amortization 51,025 91,765 50,931
Gain on sale of oil and gas properties (536,700) - -
Loss on disposition of furniture and fixtures - 2,621 -
Change in operating assets and liabilities:
Accounts receivable 1,378,006 (426,212) (1,336,096)
Inventory (357,264) 138,981 (238,367)
Other assets 37,211 (50,389) (19,128)
Accounts payable (1,010,200) 723,027 1,218,541
Other liabilities 107,043 (108,211) 103,188
Total adjustments (330,879) 371,582 (220,931)
Net cash (used for) provided by
operating activities (405,284) 176,267 (398,908)
Investing activities:
Proceeds from sale of oil and gas properties 1,342,184 - -
Deposits on equipment purchases - - 3,250
Purchases of equipment (41,414) (129,088) (173,415)
Costs of merger (48,924) - -
Payment of royalty agreement (625,000) - -
Cash acquired in merger 1,887,653 - -
Net cash provided by (used for)
investing activities 2,514,499 (129,088) (170,165)
<FN>
The accompanying notes are an integral part of these statements
</TABLE>
F6
<PAGE>
<TABLE>
Tyrex Oil Company
Statements of Cash Flows (Page 2 of 2)
For the Period January 1, 1997 through June 30, 1997
and the Years Ended December 31, 1996 and 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Financing activities:
Proceeds from note payable $ 499,783 $ - $ -
Payments on long term debt - (21,026) (1,517)
Revolving line of credit, net - (175,000) 1,050,000
Payments on notes payable and capital leases (421,065) - -
Repayments to (advances from) owners 23,884 53,487 (80,231)
Dividends paid, prior to merger (39,838) (95,612) (214,555)
Net cash provided by (used for)
financing activities 62,764 (238,151) 753,697
Net change in cash and cash equivalents 2,171,979 (190,972) 184,624
Cash and cash equivalents at beginning of period 47,166 238,138 53,514
Cash and cash equivalents at end of period $ 2,219,145 $ 47,166 $ 238,138
</TABLE>
Summary of noncash investing and financing activity:
To complete the merger of Tyrex and 3Si, Tyrex issued 28,333,333 of its $.01 par
value common shares to the three owners of 3Si. These shares were issued based
on the value of the outstanding shares of Tyrex on May 28, 1997. In connection
with the merger, the following assets and liabilities were acquired:
<TABLE>
<S> <C>
Cash $ 1,887,653
Oil and gas properties 1,001,867
Other assets 192,647
Liabilities (353,394)
Fair market value of stock issued $ 2,728,773
</TABLE>
See Note G for capital lease disclosures.
See Note K for noncash activities related to the sale of Tyrex's oil and gas
properties.
<TABLE>
<S> <C> <C> <C>
Interest paid $ 93,794 $ 176,774 $ 81,531
<FN>
The accompanying notes are an integral part of these statements
</TABLE>
F7
<PAGE>
Tyrex Oil Company
Notes to Financial Statements
June 30, 1997
Note A - Organization
On May 28, 1997 Tyrex Oil Company ("Tyrex") acquired 100% of the common stock of
Kimbrough Computer Sales, Inc. d/b/a 3Si Incorporated ("3Si"). Under the terms
of the merger, 3Si is a wholly owned subsidiary of Tyrex.
The merger is accounted for as a purchase of Tyrex by 3Si, since the merger
resulted in 72% of the outstanding stock of Tyrex being held by the 3Si
stockholders.
The financial statements for the period ended June 30, 1997 contain the results
of operations of 3Si for the six months ended June 30, 1997, and the results of
operations of Tyrex from the date of acquisition (May 28, 1997) through June 30,
1997. The financial statements for the years ended December 31, 1996 and 1995
include the results of operations for 3Si only. On May 30, 1997 Tyrex sold all
of its oil and gas properties. The gain on the disposal of Tyrex's oil and gas
properties is included in the financial statements as discontinued operations.
All intercompany balances and transactions have been eliminated in the financial
statements.
Tyrex was organized in Wyoming in 1979 and was engaged in oil and gas
exploration and development. There are no oil and gas activities included in
these financial statements.
3Si was incorporated in Colorado in 1979 and operates one business segment,
providing services as a systems integrator focusing on internet security
services, distributing and reselling computer hardware and software, providing
maintenance service on computers, and consulting and training services.
The principal markets for 3Si's sales and services have been the U.S. Postal
Service and large corporations located in Colorado and New Mexico. 3Si is
concentrating on expanding its sales base throughout the United States. The
corporate offices are located in Englewood, Colorado. 3Si also maintains
offices in Albuquerque, New Mexico; Raleigh, North Carolina; and Colorado
Springs, Colorado. 3Si obtains substantial hardware from two vendors, but this
hardware can be readily obtained from other sources.
In April 1996, 3Si entered into an sub-contract agreement to provide information
systems support to the U.S. Postal Service. Revenues for the six months ended
June 30, 1997 were approximately $2 million. Revenues for the nine months that
3Si operated under the agreement in 1996 were approximately $1.8 million.
F8
<PAGE>
Notes to Financial Statements
Note B - Summary of Accounting Policies
Use of Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in these financial statements
and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with an original maturity of three months or less to be
cash equivalents. At June 30, 1997, the Company maintained cash balances of
approximately $1,913,000 in excess of the amount insured by the Federal Deposit
Insurance Corporation.
Inventory
Inventory is stated at lower of cost (weighted average method) or market and
consists of computer system components and service parts.
Depreciation and Amortization
Depreciation and amortization have been provided in amounts sufficient to relate
the cost of depreciable assets to operations over their estimated useful lives
using straight-line and accelerated methods. Equipment acquired under capital
leases is amortized on a straight-line basis over the lease period.
Advertising Costs
Advertising costs are charged to operations as incurred. Advertising expense
for the period ended June 30, 1997 was $19,750. For the years ended December
31, 1996 and 1995, advertising expense was $37,534 and $29,167, respectively.
Loss Per Share
Net loss per share is computed on the basis of the weighted average number of
common stock shares only, as shares subject to warrants and stock options would
have an anti-dilutive effect. The weighted average number of shares for the
years ended December 31, 1996 and 1995 are calculated using the 300 outstanding
shares of 3Si only. For the period ended June 30, 1997, the weighted average
number of shares is based on 300 shares of 3Si being outstanding for five months
and 39,293,424 shares of Tyrex being outstanding for one month.
Comparability of Financial Statements
Certain items from the December 31, 1996 and 1995 financial statements have been
reclassified in order to make them comparable to the June 30, 1997 financial
statements. There is no effect on net loss.
F9
<PAGE>
Notes to Financial Statements
Note B - Summary of Accounting Policies (continued)
Fair Value of Financial Instruments
Estimated fair values of the Company's financial instruments (all of which are
held for nontrading purposes) are as follows:
<TABLE>
<CAPTION>
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 2,219,145 $ 2,219,145 $ 47,166 $ 47,166
Notes payable (1,264,271) (1,264,271) - -
Capital lease obligations (87,237) (87,237) (97,789) (97,789)
</TABLE>
The carrying amount approximates fair value of cash and cash equivalents. The
fair value of debt is based on current rates at which the Company could borrow
funds with similar remaining maturities. The carrying amounts approximate fair
value.
Costs and Expense Applicable to Sales and Revenues
Costs of contract labor associated with service revenue is shown separately in
the statement of operations. Other costs associated with service revenue are
included with selling and administrative expenses as the nature of these costs
make it impractical to separate them from selling and administrative expenses.
Note C - Business Combinations
On May 28, 1997, Tyrex acquired 3Si in a reverse merger. Tyrex issued
28,333,333 of its $.01 par value common shares to the three owners of 3Si for
100% of the outstanding stock of 3Si. These shares were issued based on the
value of the outstanding shares of Tyrex on May 28, 1997. The fair value of
Tyrex's outstanding shares was determined to be $2,728,773. The excess of the
net assets of Tyrex over the value of the shares was allocated to Tyrex's oil
and gas properties.
Tyrex also paid $625,000 to satisfy a License and Royalty agreement with 3Si's
former stockholders. (See Note G) This payment has been capitalized as an
intangible asset and is being amortized using the straight-line method over 20
years.
F10
<PAGE>
Notes to Financial Statements
Note C - Business Combinations (continued)
The following summarized pro forma (unaudited) information assumes the
acquisition had occurred on January 1, 1996.
1997 1996
Net sales $ 9,976,536 $ 19,007,245
Loss from continuing operations $ (275,198) $ (195,315)
Income from discontinued operations $ 436,915 $ 55,743
Net income (loss) $ 161,717 $ (139,572)
Earnings per share
Primary
Loss from continuing operations $ (.01) $ -
Income from discontinued
operations $ .01 $ -
Net (loss) $ - $ -
The above amounts reflect adjustments for revaluation of the basis of the oil
and gas properties sold.
Note D - Accounts Receivable
1997 1996
Trade receivables $3,379,430 $4,552,908
Allowance for doubtful accounts (45,000) (15,000)
Net $3,334,430 $4,537,908
At June 30, 1997 approximately 48% of trade receivables were owed by nine
customers. Generally, the Company does not require collateral or other security
to support customer receivables.
F11
<PAGE>
Notes to Financial Statements
Note E - Revolving Line of Credit
The bank revolving line of credit expired April 7, 1997. The weighted average
interest rate for the period ended December 31, 1996 was 10.87%. The weighted
average interest rate for the period January 1, 1997 through April 7, 1997 was
11.57%.
Note F - Notes Payable
1997 1996
--------- ---------
Note payable to a bank with monthly payments of
$80,000 plus interest at 2.5% over prime rate,
due September 2, 1997; collateralized by
substantially all assets of 3Si and guaranteed
by the three officers of 3Si. The note contains
restrictions relating to incurring additional
debt and maintaining certain financial ratios.
The weighted average interest rate for this
note payable from April 8, 1997 through June
30, 1997 was 11.50%. $ 946,285 $ -
Note payable to a financing company with weekly
payments of $10,970 including interest at 9.5%,
due February, 1998. This note is unsecured. 317,986 -
----------- -----------
$1,264,271 $ -
========== ===========
On September 30, 1997, the note payable to the bank was replaced by an account
receivable facility with a financing company. The terms of this facility
provide for the Company to borrow up to $2,000,000, subject to a limitation of
85% of the Company's net eligible account receivable balance. Interest is at
the prime rate, and the facility is due October 1, 1998, but may be renewed for
additional one year periods. The facility is collateralized by substantially
all assets of the Company, and contains restrictions relating to incurring
additional debt or issuing additional security interests and altering the
Company's structure.
Note G - Commitments
Leases
The Company currently has operating leases for office space in Englewood and
Colorado Springs, Colorado and Albuquerque, New Mexico. The rent expense is net
of a sublease in the Englewood office of $23,500 and $27,000 for the period
ended June 30, 1997, and the year ended December 31, 1996, respectively.
Rent expense was $53,137 for the period ended June 30, 1997 and $124,440 and
$136,055 for the years ended December 31, 1996 and 1995, respectively.
F12
<PAGE>
Notes to Financial Statements
Note G - Commitments (continued)
During December, 1995, 3Si acquired $120,332 of furniture and fixtures under a
capital lease. Accumulated amortization is $38,105 at June 30, 1997, and
$26,072 at December 31, 1996.
<TABLE>
<CAPTION>
Capital Capital Operating
Lease Lease Leases
Minimum Debt Minimum
Payment Maturity Payment
<S> <C> <C> <C>
June 30, 1998 $ 31,324 $ 22,734 $ 151,847
June 30, 1999 31,324 25,570 140,966
June 30, 2000 31,324 28,500 133,062
June 30, 2001 10,442 10,432 133,062
June 30, 2002 - - 30,768
$ 104,414 87,236 $ 589,705
Less current portion (22,734)
Long term debt $ 64,502
</TABLE>
Royalties
3Si executed a License and Royalty Agreement effective August 1, 1993 with
former stockholders of 3Si. Under the terms of the agreement, 3Si was obligated
to pay 1.5% of gross revenues as a royalty expense to the former stockholders
through July, 1999. As a condition of the agreement with the former
stockholders, dividends payable to the new stockholders had been limited. As
part of the merger, Tyrex satisfied this royalty agreement for a payment of
$625,000. The buy out of this agreement is recorded as an intangible asset and
is being amortized using the straight-line method over twenty years.
Employment Agreements
The Company entered into separate employment agreements with each of the co-
owners of 3Si -Fred Slack, Frank Backes and Larry Valdez. Pursuant to the
agreements, the Company will compensate each of the individuals $110,000 in
fiscal 1998. The individuals are eligible for increases in their annual
compensation subject to the profitability of the Company. The agreements expire
May 31, 2000 unless terminated for cause by 3Si or early termination by the
individual with 90 days written notice.
F13
<PAGE>
Notes to Financial Statements
Note H - Profit Sharing Plan
3Si established a 401(k) profit-sharing plan covering substantially all
employees during the year ended December 31, 1995. Company contributions are at
the discretion of the Board of Directors. For the period ended June 30, 1997
and the years ended December 31, 1996 and 1995, no contributions were made to
the plan.
Note I - Stock Options and Warrants
Tyrex has a stock option plan whereby 750,000 shares of common stock were
reserved for issuance to employees. On January 18, 1997, prior to the merger
with 3Si, options for 469,000 shares were granted. These options are fully
vested and expire January 18, 1999 or within 90 days of employee's termination.
The option price is equal to 50% of the market value of the common stock on the
date of grant. These options are recorded in accordance with FASB Statement
123, "Accounting for Stock Based Compensation" using the quoted market value of
Tyrex's common stock. No compensation expense related to these options is
recorded in these financial statements.
Tyrex's stock option plan contains a provision that in the event Tyrex merges
with another corporation the provisions of the stock option plan are binding
upon the new corporation.
The plan also contains a provision that in the event of an increase or decrease
in the number of shares of capital stock of Tyrex, there will be a proportionate
and equitable adjustment to the terms of the outstanding options with respect to
the amount and class of stock remaining subject to option, and the purchase
price to be paid for the stock. At June 30, 1997, the effects of this provision
on the outstanding options and the stock purchase price has not been determined.
Changes in the status of options outstanding under the plan for the period from
May 29, 1997 to June 30, 1997 are as follows:
Beginning of period, May 29, 1997 469,000
Granted -
Terminated -
End of period, June 30, 1997 469,000
Option price $ .14
On May 28, 1997, Tyrex granted warrants to purchase 750,000 shares of the
Company's common stock at a price of $.30 per share. These warrants become
exercisable 90 days after May 28, 1997 and are effective for two years from that
date.
F14
<PAGE>
Notes to Financial Statements
Note J - Income Taxes
The Company will file a consolidated federal income tax return for the twelve
months ended June 30, 1997. This return will contain twelve months of
operations for Tyrex and one month of operations, subsequent to the merger, for
3Si. Prior to the merger, 3Si was organized as an S corporation. All earnings
were passed through to the 3Si stockholders and taxed on their individual tax
returns.
The merger of Tyrex and 3Si was accomplished through a tax-free reorganization.
The Company's deferred tax asset is compromised of the following at June 30,
1997.
Related to net operating loss carryforward
generated by 3Si for the one month ended
June 30, 1997 $ 21,000
Valuation allowance (21,000)
Net deferred tax asset $ -
The Company has available at June 30, 1997, an unused net operating loss
carryforward of $97,000 expiring June 30, 2012.
For the year ended June 30, 1997, Tyrex had approximately $3,390,000 of
operating loss carryforwards available. These loss carryforwards will be
applied to taxable income generated from Tyrex's operations and the sale of its
oil and gas properties. None of these prior Tyrex net operating losses are
available in future years.
A reconciliation of income tax at the statutory rate to the Company's effective
rate for the year ended June 30, 1997 is as follows:
Computed at the expected statutory rate 34 %
Effect of net operating loss carryforward
and valuation allowance (34)%
Effective income tax rate 0 %
F15
<PAGE>
Notes to Financial Statements
Note K - Discontinued Operations
On May 30, 1997 Tyrex sold all of its oil and gas properties and discontinued
all of its oil and gas operating activities. The selling price was $1,803,257.
After adjusting for revenues received and expenses paid, net cash received was
$1,563,258. A deposit of $180,325 was received in a prior period. At June 30,
1997, $40,749 was recorded as an account receivable. These oil and gas
operations were conducted by Tyrex Oil Company prior to the merger with 3Si. No
discontinued operations are included in the December 31, 1996 and 1995 financial
statements which reflect only the operations of 3Si. Tyrex incurred costs of
$116,633, including payroll taxes, to provide severance pay for three employees
associated with the oil and gas operations. This amount has been recorded an
accrued liability at June 30, 1997, and included in the direct costs associated
with the disposition of the oil and gas properties.
There is no tax effect from the sale of the oil and gas properties as Tyrex has
sufficient net operating loss carryforwards to offset any taxable gain on the
sale.
The gain from discontinued operations consists of the following:
Gain on sale of oil and gas properties $536,700
Direct cost associated with disposition of
oil and gas properties, including severance
package and merger costs incurred by Tyrex (335,907)
Gain on sale of discontinued operations $200,793
Note L - Related Party Transactions
Amounts due from a 3Si stockholder were $2,862 and $26,744 at June 30, 1997 and
December 31, 1996, respectively. These amounts are included in accounts
receivable - trade and other current assets.
Amounts due to two officers of Tyrex under a severance pay agreement are $89,198
at June 30, 1997. These amounts are included in accrued liabilities.
See Note G regarding employment agreements with three officers.
The sale of the oil and gas properties was made, in part, to a related party;
10% of the interest in these properties was sold to an officer of the
corporation. The terms of the sale to the officer did not differ from the terms
of the sale to unrelated third parties.
F16
<PAGE>
TYREX OIL COMPANY
FINANCIAL STATEMENTS
MAY 28, 1997
<PAGE>
HOCKER, LOVELETT, HARGENS & SKOGEN, P.C.
Certified Public Accountants
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders and Board of Directors
Tyrex Oil Company
We have audited the balance sheets of Tyrex Oil Company as of May 28, 1997 and
June 30, 1996 and the related statements of operations, stockholders' equity,
and cash flows for the period July 1, 1996 through May 28, 1997 and the years
ended June 30, 1996 and 1995. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amount and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tyrex Oil Company as of May 28,
1997 and June 30, 1996, and the results of its operations and its cash flows for
the period July 1, 1996 through May 28, 1997 and the years ended June 30, 1996
and 1995, in conformity with generally accepted accounting principles.
/S/Hocker, Lovelett, Hargens & Skogen, P.C.
Casper, Wyoming
July 18, 1997
<PAGE>
<TABLE>
TYREX OIL COMPANY
BALANCE SHEETS
MAY 28, 1997 AND JUNE 30, 1996
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents - Note 11 $ 1,882,653 $ 478,195
Certificates of Deposit 5,000 105,000
Accounts receivable 155,609 154,842
Prepaid costs 34,139 862
Deferred tax asset - Note 7 90,000 -
Total 2,167,401 738,899
OTHER ASSETS
Investment - - 89,109
Other - - 6,777
Total - - 95,886
PROPERTY AND EQUIPMENT, at cost - Notes 3 and 8
Oil and gas properties using successful efforts method,
net of accumulated depreciation and depletion of
$2,671,902 in 1997 and $2,792,301 in 1996 1,134,884 1,994,961
Less: impairment allowance (33,742) (40,603)
1,101,142 1,954,358
Other equipment, net of accumulated depreciation
of $60,953 in 1997 and $64,137 in 1996 2,899 5,944
Total 1,104,041 1,960,302
Total $ 3,271,442 $ 2,795,087
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 100,315 $ 68,775
Deposit payable 180,325 - -
Accrued expenses 72,183 64,144
Lease payable - Note 12 571 2,486
Current portion of debt - Note 10 - - 43,107
Total 353,394 178,512
DEFERRED COMPENSATION - Note 5 - - 32,491
LONG-TERM DEBT - Note 10 - - 154,001
Total 353,394 365,004
STOCKHOLDERS' EQUITY - Note 5
Common stock, $.01 par value; authorized -
50,000,000 shares; issued and outstanding - 10,960,091
shares in 1997 and 1996 109,601 109,601
Additional paid-in capital 5,460,910 5,396,910
Retained (deficit) (2,646,476) (3,070,441)
Total 2,924,035 2,436,070
Less: Treasury stock, at cost, 45,000 shares in 1997 and 1996 (5,987) (5,987)
2,918,048 2,430,083
Total $ 3,271,442 $ 2,795,087
<FN>
See accompanying notes to financial statements.
</TABLE>
F17
<PAGE>
<TABLE>
TYREX OIL COMPANY
STATEMENTS OF OPERATIONS
FOR THE PERIOD JULY 1, 1996 THROUGH MAY 28, 1997
AND THE YEARS ENDED JUNE 30, 1996 AND 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
REVENUES
Oil and gas sales - Note 4 $ 1,422,016 $ 1,330,128 $ 1,410,917
Sales of oil and gas properties 660,325 6,903 453,100
Sale of investments 100,377 7,232 16,426
Sale of other equipment 930 500 -
Interest 50,652 5,110 10,460
Coal 17,530 28,363 51,960
Other, primarily operating fees 83,398 124,526 110,575
Total 2,335,228 1,502,762 2,053,438
COSTS AND EXPENSES
Oil and gas production 574,243 697,998 600,134
Production taxes 149,895 134,339 169,347
Cost of oil and gas properties sold 637,083 7,894 254,679
Cost of investments sold 88,437 13,703 11,526
Cost of other equipment sold 461 14 -
Exploration 51,599 123,100 196,132
Depreciation, depletion and valuation allowance 177,375 361,581 308,851
Interest 6,365 20,590 38,346
General and administrative - Notes 5 and 6 315,805 299,755 330,525
Total 2,001,263 1,658,974 1,909,540
INCOME (LOSS) BEFORE INCOME TAXES 333,965 (156,212) 143,898
INCOME TAX EXPENSE (CREDITS) - Note 7
Current - - -
Deferred (90,000) - -
(90,000) - -
NET INCOME (LOSS) $ 423,965 $ (156,212) $ 143,898
DIVIDENDS PER SHARE $ - $ - $ -
INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE $ .04 $ (.01) $ .01
WEIGHTED AVERAGE SHARES OUTSTANDING 11,166,451 10,897,707 10,795,091
<FN>
See accompanying notes to financial statements.
</TABLE>
F18
<PAGE>
<TABLE>
TYREX OIL COMPANY
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JULY 1, 1996 THROUGH MAY 28, 1997
AND THE YEARS ENDED JUNE 30, 1996 AND 1995
<CAPTION>
Additional Total Stock-
Common Stock Treasury Paid - In Retained holders'
Shares Amount Stock Capital (Deficit) Equity
<S> <C> <C> <C> <C> <C> <C>
Balance June 30,
1994 10,795,091 $ 107,951 $ - $ 5,385,669 $ (3,058,127) $ 2,435,493
Purchases of
25,000 shares
treasury stock - - (3,352) - - (3,352)
Net income for the
year ended June 30,
1995 - - - - 143,898 143,898
Balance June 30,
1995 10,795,091 107,951 (3,352) 5,385,669 (2,914,229) 2,576,039
Purchases of
20,000 shares
treasury stock - - (2,635) - - (2,635)
Stock bonuses 165,000 1,650 - 11,241 - 12,891
Net loss for the
year ended June 30,
1996 - - - - (156,212) (156,212)
Balance June 30,
1996 10,960,091 109,601 (5,987) 5,396,910 (3,070,441) 2,430,083
Compensation
associated with
stock options - - - 64,000 - 64,000
Net income for the
period July 1, 1996
through May 28,
1997 - - - - 423,965 423,965
Balance May 28,
1997 10,960,091 $ 109,601 $ (5,987) $ 5,460,910 $ (2,646,476) $ 2,918,048
<FN>
See accompanying notes to financial statements.
</TABLE>
F19
<PAGE>
<TABLE>
TYREX OIL COMPANY
STATEMENTS OF CASH FLOWS
FOR THE PERIOD JULY 1, 1996 THROUGH MAY 28, 1997
AND THE YEARS ENDED JUNE 30, 1996 AND 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ( loss) $ 423,965 $ (156,212) $ 143,898
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and depletion 177,375 361,581 308,851
Sales of properties (661,254) (14,635) (469,526)
Costs of properties disposed 637,544 21,611 266,205
Investment of revenue reinvested - (28,363) -
Stock options 31,509 - -
Gain on sale of investment (11,940) - -
Deferred tax adjustments (90,000) - -
(Increase) Decrease in:
Interest receivable - 5,138 (2,189)
Accounts receivable (767) (31,446) 76,473
Prepaid costs (33,277) 948 (1,810)
(Decrease) Increase in:
Accounts payable and accrued expenses 39,579 (17,606) (15,213)
Leases payable - - 4,268
Deferred compensation - 6,031 8,820
Surrendered leases 41,409 100,434 143,122
Total adjustments 130,178 403,693 319,001
Net Cash Provided by Operating Activities 554,143 247,481 462,899
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of properties 661,255 7,403 453,100
Deposit received on sale of properties 180,325 - -
Purchases of properties (68) (67,871) (208,691)
Proceed from sale of investments 100,377 7,232 16,426
Purchase of investments - (17,171) (12,655)
Investment income 7,449 28,363 -
Certificates of deposit and treasury bills (purchased)
redeemed 100,000 (100,000) -
Net cash provided by (used in) investing activities 1,049,338 (142,044) 248,180
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings - 125,000 -
Repayments on borrowings and leases (199,023) (92,879) (578,021)
Purchase of treasury stock - (2,635) (3,352)
Issuance of common stock - 12,891 -
Net cash provided by (used in) financing activities (199,023) 42,377 (581,373)
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,404,458 147,814 129,706
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 478,195 330,381 200,675
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 1,882,653 $ 478,195 $ 330,381
<FN>
See accompanying notes to financial statements.
</TABLE>
F20
<PAGE>
TYREX OIL COMPANY
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
a.General - The Company was organized November 8, 1979, and is engaged in
oil and gas exploration and development within the Rocky Mountain
region of the United States. Its sales are primarily to other energy
oriented companies with payment terms normally being upon transfer of
ownership or within thirty days.
b.Cash and Cash Equivalents - For purposes of the Statement of Cash
Flows, the Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
c.Oil and Gas Properties - The Company follows the successful efforts
method of accounting for its oil and gas activities. Under this
accounting method, costs associated with the acquisition, drilling, and
equipping of successful exploratory and development wells are
capitalized. Geological and geophysical costs, delay rentals, and
drilling costs of unsuccessful exploratory wells are charged to expense
as incurred. Depletion and depreciation of the capitalized costs for
producing oil and gas properties are provided by the unit-of-production
method based on proved oil and gas reserves.
d.Other Equipment - Leasehold improvements, processing equipment, office
equipment and furniture are depreciated by the straight-line and
accelerated methods over estimated useful lives of three to seven
years.
e.Income Taxes - Deferred income taxes are provided for the tax effect
of timing differences arising from certain costs and expenses which are
recognized in different periods for income tax and financial reporting
purposes. For additional information regarding income taxes, see Note
7 to the financial statements.
f.Income (Loss) Per Share - Income per share is computed on the basis
of the weighted average number of common stock and common stock
equivalent shares outstanding during the period. Net loss per share is
computed on the basis of the weighted average number of common stock
shares only as shares subject to warrants and stock options would have
an antidilutive effect.
g.Bad Debts - The direct write off method of accounting for uncollectible
accounts receivable is utilized whereby an account is written off only
when determined to be uncollectible. The results of this method do not
vary materially from the preferred method.
h.Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
F21
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Subsequent and Significant Events
Subsequent to May 28, 1997, the Company entered into an Agreement and Plan
of Reorganization and Transition Agreement whereby it was acquired by
Kimbrough Computer Sales, Inc. d/b/a 3SI, Inc. in a reverse triangular
merger. The merger is to be accounted for under the purchase method. Tyrex
issued 28,333,333 shares of common stock to the three 3SI shareholders.
Also, as part of the transaction, the Registrant was required to buyout the
royalty agreement from the predecessor 3SI shareholders. Tyrex remains the
registrant and 3SI will be a wholly owned subsidiary of the Registrant.
As part of the merger and transition agreement, Tyrex Oil Company was to
completely divest itself of its oil and gas properties and discontinue all
of its oil and gas operating activities. The proposed sale of all oil and
gas properties was also consummated subsequent to May 28,1997 and
subsequent to the merger. The properties were sold for a purchase price of
$1,803,257. For allocation of operating revenue and expense purposes, the
sale was effective January 1, 1997. Thus, after closing the sale on May 30,
1997, Tyrex paid to the purchaser $239,999 for revenue received in excess
of expenses paid from January 1, 1997 through the June, 1997 closing. Title
to the properties did not pass and the risk of loss did not pass until such
time as the Agreement was closed, therefore, in accordance with generally
accepted accounting principles, the operating revenue and expenses are
properly reflected in the May 28, 1997 financial statements. The President
of the Company, in association with outside parties, purchased a 10%
interest in the oil and gas properties.
As a result of the merger and asset sale, in future consolidated financial
statements, the results from operations of oil and gas activities will be
reflected as discontinued operations. The merger and transition agreement
also provides a severance package for Tyrex's current employees. The
estimated liability to the Company is $120,000 to be reflected in the June
30, 1997 consolidated financial statements with the sale of the oil and gas
properties.
Also, as a result of the merger, subsequent to May 28, 1997, Tyrex will
file a consolidated tax return with 3SI.
F22
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Subsequent and Significant Events (Continued)
Condensed proforma financial statement for Tyrex Oil Company as of and for
the 32 day period ended June 30, 1997 is as follows:
<TABLE>
<S> <C>
BALANCE SHEET
Assets
Cash and short-term investments $ 1,969,042
Accounts receivable 59,020
Furniture and fixtures 2,665
Investment in subsidiary 400,000
Intangible asset - royalty 622,396
Total Assets $ 3,053,123
Liabilities and Stockholders' Equity
Liabilities
Accounts payable $ 6,924
Accrued expenses 116,633
Total Liabilities 123,557
Stockholders' Equity
Common stock 392,934
Additional paid-in capital 4,988,302
Retained (deficit) (2,445,683)
Total 2,935,553
Less: Treasury Stock (5,987)
Total Stockholders' Equity 2,929,566
Total Liabilities and Stockholders' Equity $ 3,053,123
INCOME STATEMENT
Revenues $ 1,757
Interest income
INCOME FROM CONTINUING OPERATIONS 1,757
INCOME FROM DISCONTINUED OPERATIONS 199,036
NET INCOME $ 200,793
</TABLE>
F23
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. Impaired Oil and Gas Properties
The Company provides an allowance for impaired value of undeveloped and
developed properties on an annual basis. An impairment allowance has been
provided for one producing property at May 28, 1997 and two producing
properties at June 30, 1996. The impairment was provided due to the fact
that net future estimated revenues are not expected to be great enough to
offset the costs that the Company has in the properties. The impairment
loss originated in 1995 and is included in exploration costs on the
Statement of Operations for the year ended June 30, 1995.
4. Major Customers
Certain customers who accounted individually for more than 10% of the
Company's oil and gas sales are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Company A $ 592,382 $ 548,778 $ 558,371
Company B 361,030 440,535 451,785
Company C - 144,745 147,345
</TABLE>
5. Employees' Incentive Stock Option Plan
Under an employees' incentive stock option plan approved by the
stockholders in December, 1991, 750,000 shares of common stock were
authorized and reserved for issuance to employees. Options granted under
this plan expire five years from the date of grant. The option price was
equal to 50% of the market value of the common stock on the date of grant.
Non-cash compensation to employees in fiscal years 1995-96 and 1994-95 was
recognized in the amount of $8,148 and $8,820 per year, respectively, due
to vested options. There were four options outstanding which would have
expired if not exercised on or before January 17, 1997.
On January 18, 1997, the Board of Directors granted new options,
substantially equal to the previous options, which will expire if not
exercised on or before January 18, 1999. The new options were recorded in
accordance with FASB Statement 123, "Accounting for Stock Based
Compensation" using the current fair value of Tyrex common stock ($.27 per
share).
F24
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Employees' Incentive Stock Option Plan (Continued)
Changes in the status of options outstanding under the plan for the periods
ended May 28, 1997 and June 30, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
Shares
1997 1996 1995
<S> <C> <C> <C>
Beginning of year 582,000 630,000 630,000
Granted 469,000 - -
Terminated (582,000) (48,000) -
End of year 469,000 582,000 630,000
Option Price $ .14 $ .14 $ .14
</TABLE>
The Company also granted 165,000 shares in stock bonuses during the year
ended June 30, 1996 for which $12,891 is recognized as compensation in the
Statement of Operations for that period.
6. Related Party Transactions and Rents
The Company rents office space on a month-to-month basis. The Company paid
$10,602 during the period ended May 28, 1997 for its current space.
Previously, the Company rented a portion of its office facilities from an
officer-director. The rental agreement ended August, 1996. Payments to this
individual were $1,713, $10,278, and $10,278 for the periods ended May 28,
1997 and June 30, 1996 and 1995, respectively.
7. Income Taxes
The Company follows FASB Statement 109, "Accounting for Income Taxes,"
(SFAS 109) which applies an asset and liability approach requiring the
recognition of deferred tax assets and liabilities with respect to the
expected future tax consequences of events that have been recorded in the
financial statements and tax returns. Income tax at the statutory rate is
reconciled to the Company's actual income tax (benefit) expense at 15% for
the periods ended May 28, 1997 and June 30, 1996 and 1995. The Company has
no foreign, state or other income taxes.
All of the Company's earnings are within the United States.
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Income Tax (Credits)
Current $ - $ - $ -
Deferred (90,000) - -
Total $ (90,000) $ - $ -
</TABLE>
F25
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. Income Taxes (Continued)
Deferred tax liabilities (assets) are comprised of the following at:
<TABLE>
<CAPTION>
May 28, June 30,
Tax effects of temporary differences 1997 1996 1995
<S> <C> <C> <C>
1st year federal lease rentals $ 61,887 $ 61,887 $ 61,887
Intangible drilling costs 99,288 184,771 184,771
Lease impairments 5,061 6,090 6,090
Total deferred tax liabilities 166,236 252,748 252,748
Depletion of intangible drilling (79,942) (152,804) (140,458)
costs
Cost of lease surrendered (36,873) (36,873) (36,873)
Depreciation (2,670) (2,670) (2,670)
Other assets (13,799) (13,799) (14,436)
Stock options (19,500) - -
Net operating loss carryforwards (449,831) (535,928) (524,959)
Total deferred tax assets (602,615) (742,074) (719,396)
Valuation allowances 346,379 489,326 466,648
Net deferred tax assets $ 90,000 $ - $ -
</TABLE>
As discussed in Note #2 on subsequent events, the Company sold its oil and
gas properties at a taxable gain of $650,000. Therefore, under the
definitions in SFAS 109, it is considered more likely than not that the
$90,000 net deferred tax asset at May 28, 1997 will be recognized.
At May 28, 1997, the Company had unused deductions and credits which may be
applied against future taxable income and which expire as follows:
<TABLE>
<CAPTION>
Percent-
age Net
Depletion Operating
Year in Excess Loss Invest-
Ending of Cost Carry- ment Tax
June 30, Depletion forward Credit
<S> <C> <C> <C>
1998 $ - $ 1,131,777 $ -
1999 - - 1,641
2000 - - 3,397
2000 - 770,086 890
2001 - 76,105 -
2003 - 170,572 -
2004 - 218,090 -
2005 - 142,283 -
2007 - 184,962 -
2008 - 648,866 -
2011 - 47,854 -
Indefinite 209,675 - -
</TABLE>
F26
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. Income Taxes (Continued)
In the opinion of management, very immaterial differences exist between the
net operating loss carryforwards available for tax purposes and financial
reporting purposes.
8. Oil and Gas Producing Activities
Capitalized costs relating to oil and gas producing activities are as
follows as of:
<TABLE>
<CAPTION>
May 28, June 30,
1997 1996 1995
<S> <C> <C> <C>
Undeveloped properties $ 80,363 $ 452,164 $ 550,012
Developed properties 3,726,423 4,335,098 4,285,955
Total 3,806,786 4,787,262 4,835,967
Accumulated depreciation and
depletion (2,671,902) (2,792,301) (2,443,458)
Net $ 1,134,884 $ 1,994,961 $ 2,392,509
</TABLE>
Costs incurred in oil and gas property acquisitions, exploration, and
development activities for the periods ended (all located in the United
States) are as follows:
<TABLE>
<CAPTION>
May 28, June 30,
1997 1996 1995
<S> <C> <C> <C>
Property acquisition:
Proved $ 68 $ 55,342 $ 37,171
Unproved - 7,629 60,448
Exploration 51,599 123,100 196,132
Development - 5,223 108,319
Total $ 51,667 $ 191,294 $ 402,070
</TABLE>
F27
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. Oil and Gas Producing Activities (Continued)
Reserve quantity information (unaudited) for the periods ended (all located
in the United States):
<TABLE>
<CAPTION>
Proved Developed Reserves
May 28, June 30,
1997 1996 1995
Oil Gas Oil Gas Oil Gas
(bbls) (mcf) (bbls) (mcf) (bbls) (mcf)
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 658,080 1,031,881 575,088 1,174,442 668,925 1,309,470
Revisions of previous estimates 313 2,594 165,551 (190,831) (22,276) -
Purchases (sales) of minerals in
place - net (2,104) (143,720) (1,231) 147,234 18,365 -
Discoveries - - - - - -
Production (69,000) (111,131) (81,328) (98,964) (89,926) (135,028)
End of year 587,289 779,624 658,080 1,031,881 575,088 1,174,442
</TABLE>
<TABLE>
<CAPTION>
Proved Undeveloped Reserves
May 28, June 30,
1997 1996 1995
Oil Gas Oil Gas Oil Gas
(bbls) (mcf) (bbls) (mcf) (bbls) (mcf)
<S> <C> <C> <C> <C> <C> <C>
Beginning of year - - - - - -
Revisions of previous
estimates - - - - - -
Purchases (sales) of
minerals in place - - - - - -
Discoveries - - - - - -
Production - - - - - -
End of year - - - - - -
</TABLE>
The above reserve information is based on estimates prepared in 1996 by
Allen & Crouch, independent petroleum engineers, from data including
ownership interests, operating expenses, production information and current
prices furnished to them by the Company with revisions by the Company for
1997 activity. Estimates of gas and oil reserves and their estimated values
require numerous engineering assumptions as to the productive capacity and
production rates of existing geological formations and require the use of
certain SEC guidelines as to assumptions regarding costs to be incurred in
developing and producing reserves and prices to be realized from the sale
of future production. Revisions of previous year estimates can have a
significant impact on these values. Also, exploration costs in one year may
lead to significant discoveries in later years and may significantly change
previous estimates of proved reserves and their valuation. Accordingly,
estimates of reserves and their value are inherently imprecise and are
subject to constant revision and change and should not be construed as
representing the actual quantities of future production or cash flows to be
realized from the Company's gas and oil properties or the fair market value
of such properties.
F28
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. Oil and Gas Producing Activities (Continued)
The following is a standardized measure of the discounted net future cash
flows and changes applicable to proved oil and gas reserves required by the
SFAS 69 of the FASB. The future cash flows are based on estimates of oil
and gas reserves utilizing prices and costs in effect as of year end
discounted at 10% per year and assuming continuation of existing economic
conditions.
Standardized measure of discounted future net cash flows and changes
therein relating to proved oil and gas reserves is as follows at
(unaudited):
<TABLE>
<CAPTION>
May 28, June 30,
1997 1996 1995
<S> <C> <C> <C>
Future cash flows $ 11,408,454 $ 11,878,297 $ 9,500,916
Future production costs (5,771,280) (6,844,832) (4,766,970)
Future development costs (341,026) (310,024) (281,840)
Future income taxes (285,833) (194,972) (174,388)
Future net cash flows 5,010,315 4,528,469 4,277,718
10% annual discount (1,503,095) (1,358,541) (1,283,315)
Discounted future net
cash flows $ 3,507,220 $ 3,169,928 $ 2,994,403
</TABLE>
The following are the principal sources of changes in the standardized
measure of discounted future net cash flows for the period ended
(unaudited):
<TABLE>
<CAPTION>
May 28, June 30,
1997 1996 1995
<S> <C> <C> <C>
Sales, net of production
costs $ (697,878) $ (497,791) $ (641,437)
Sales of properties (99,762) - -
Purchases - (67,728) 149,675
Revisions of previous
quantity estimates 7,714 1,463,140 (181,548)
Net changes in prices and
production costs 776,496 (1,039,089) 2,113,382
Accretion of discount 350,722 316,993 299,440
Net changes $ 337,292 $ 175,525 $ 1,739,512
</TABLE>
F29
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. Oil and Gas Producing Activities (Continued)
Unaudited sales prices and costs are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Sales price
Oil (per bbl) $ 18.43 $ 17.36 $ 15.03
Gas (per mcf) .75 .44 .73
Production costs,
including taxes
Oil (per bbl) 8.67 8.99 6.88
Gas (per mcf) .87 .90 .69
</TABLE>
9. Off-Balance Sheet Risk of Financial Instruments
Interest bearing, time deposits are held by the Company in commercial banks
in excess of the Federal Deposit Insurance Corporation's maximum limits.
The excess deposits totaled $1,380,853 at May 28, 1997 and $282,743 at June
30, 1996.
10. Long-Term Debt and Collateralized Assets
The following is a summary of notes payable at June 30, 1996:
<TABLE>
<S> <C>
Note payable to Key Bank in monthly
installments of $5,345 including
interest at 9.625%, due November 11,
2000 secured by a mortgage security
agreement on certain producing $ 197,108
properties
Less: Current maturities (43,107)
$ 154,001
<FN>
The note was paid during the period ending May 28, 1997.
</TABLE>
11. Cash Equivalents
Included as cash equivalents at May 28, 1997 are investments in Treasury
Bills in the amount of $550,604. The cost of these instruments approximates
market value and they are intended to be held until maturity.
F30
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. Capital Lease
During the fiscal year 1995, the Company entered into a capital lease for a
copier which is recorded in the balance sheet under Other Equipment. Cost
of the copier was $2,500 and accumulated depreciation at May 28, 1997 was
$1,780.
Future minimum lease payments under the capital lease as of May 28, 1997
are $571 due within the next year.
13. Reclassifications
Certain items in the 1996 and 1995 financial statements have been
reclassified to conform to the current year's presentation.
14. Supplemental Cash Flow Information
Cash payments during the periods ended May 28, 1997 and June 30, 1996 and
1995 included interest of $6,365, $20,590 and $38,346, respectively.
In 1997, non-cash financing activities included the issuance of stock
options with an aggregate value of $130,000. The Company had previously
recorded a liability of $32,491 on a separate option issue.
F31
<PAGE>
EXHIBIT A-2
LETTER OF TRANSMITTAL - SHAREHOLDERS
<PAGE>
FOR CERTIFICATED SHARES ONLY
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
TYREX OIL COMPANY
PURSUANT TO THE OFFER TO PURCHASE DATED OCTOBER 27, 1997
- --------------------------------------------------------------------------------
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
DENVER TIME, ON DECEMBER 1, 1997 UNLESS THE OFFER IS EXTENDED.
- -------------------------------------------------------------------------------
THE DEPOSITARY FOR THE OFFER IS:
AMERICAN SECURITIES TRANSFER & TRUST, INCORPORATED
BY MAIL: BY HAND OR OVERNIGHT COURIER:
Post Office Box 1596 938 Quail Street, Suite 101
Denver, Colorado 80201 Lakewood, Colorado 80215
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT
CONSTITUTE A VALID DELIVERY. DELIVERIES TO THE COMPANY WILL NOT BE FORWARDED TO
THE DEPOSITARY AND WILL NOT CONSTITUTE VALID DELIVERY. DELIVERIES TO BOOK-ENTRY
TRANSFER FACILITIES WILL NOT CONSTITUTE VALID DELIVERY TO THE DEPOSITARY.
THIS LETTER OF TRANSMITTAL IS TO BE USED ONLY IF CERTIFICATES ARE ENCLOSED OR IF
CERTIFICATE(S) HAVE BEEN LOST OR DESTROYED.
<PAGE>
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED (SEE INSTRUCTIONS 3 AND 4)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name(s), Address(es), No. of Shares Held Shares Tendered
Acct. No., and TIN of in this Account (Attach additional signed list if necessary)
Registered Holder(s)
<S> <C> <C> <C> <C>
Certificate Total No. of Shares Number of Shares
Number(s) Represented By Tendered (1)
Certificates
Total
Shares
<FN>
Indicate in this box the order (by certificate number) in which Shares are to be
purchased in the event of proration. (Attach additional signed list if
necessary). See Instruction 12.
(1) Unless otherwise indicated, it will be assumed that all Shares represented
by each Share certificate delivered to the Depositary are being tendered
hereby. See Instruction 4.
(2) If you do not designate an order, then in the event less than all Shares
tendered are purchased due to proration, Shares will be selected by the
Depositary. See Instruction 12.
(3) If you cannot locate your certificate, please contact the Depositary.
(4) Do not sign your share certificate.
(5) If you need assistance, please call (303) 298-5300.
</TABLE>
2
<PAGE>
NOTE: ALL STOCKHOLDERS MUST PROVIDE SIGNATURES ON PAGE 6 AND THE
SUBSTITUTE W-9 ON PAGE 7 MUST BE COMPLETED. PLEASE READ THE INSTRUCTIONS IN
THIS LETTER OF TRANSMITTAL CAREFULLY.
The undersigned hereby tenders to Tyrex Oil Company, a Wyoming corporation
(the "Company"), the above-described shares of its common stock, par value $0.01
per share (the "Shares"), at $0.30 per share (the "Purchase Price"), net to the
seller in cash, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated October 27, 1997 (the "Offer to Purchase"), receipt of
which is hereby acknowledged, and in this Letter of Transmittal which, as
amended from time to time, together constitute the "Offer".
Subject to, and effective upon, acceptance for payment of and payment for
the Shares tendered herewith in accordance with the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any such extension or amendment), the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to all the Shares that are being tendered hereby that
are purchased pursuant to the Offer to or upon the order of the Company and
hereby irrevocably constitutes and appoints the Depositary the true and lawful
agent and attorney-in-fact of the undersigned with respect to such Shares, with
full power of substitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest) to: (i) deliver certificates for
such Shares, to or upon the order of the Company upon receipt by the Depositary,
as the undersigned's agent, of the Purchase Price with respect to such Shares;
(ii) present certificates for such Shares for cancellation and transfer on the
books of the Company; and (iii) receive all benefits and otherwise exercise all
rights of beneficial ownership of such Shares, all in accordance with the terms
of the Offer.
The undersigned hereby represents and warrants to the Company that the
undersigned has full power and authority to tender, sell assign and transfer the
Shares tendered hereby and that, when and to the extent the same are accepted
for payment by the Company, the Company will acquire good, marketable and
unencumbered title thereto, free and clear of all liens, restrictions, charges,
encumbrances, conditional sales agreements or other obligations relating to the
sale or transfer thereof, and the same will not be subject to any additional
documents deemed by the Depositary or the Company to be necessary or desirable
to complete this sale, assignment and transfer of the Shares tendered hereby.
The undersigned represents and warrants to the Company that the undersigned
has read and agrees to all of the terms of the Offer. All authority herein
conferred or agreed to be conferred shall not be affected by, and shall survive
the death or incapacity of the undersigned, and any and all obligations of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in the Offer to Purchase and in the Instructions will
constitute the undersigned's acceptance of the terms and conditions of the
Offer, including the undersigned's representation and warranty to the Company
that (i) the undersigned has a net long position in the Shares or equivalent
securities being tendered within the meaning of Rule 14e-4 promulgated under the
Securities Exchange Act of 1934, as
3
<PAGE>
amended, and (ii) the tender of such Shares complies with Rule 14e-4. The
Company's acceptance for payment of Shares tendered pursuant to the Offer will
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the conditions of the Offer.
The names and addresses of the registered holders should be printed, if
they are not already printed above, exactly as they appear on the certificates
representing Shares tendered hereby. The certificate numbers, the number of
Shares represented by such certificates, and the number of Shares that the
undersigned wishes to tender should be indicated in the appropriate boxes on
this Letter of Transmittal.
The undersigned understands that all Shares validly tendered and not
withdrawn will be purchased at the Purchase Price, net to the seller in cash,
upon the terms and subject to the conditions of the Offer, including the
proration provisions, and that the Company will return all other Shares not
purchased because of proration.
The undersigned recognizes that, under certain circumstances set forth in
the Offer to Purchase, the Company may terminate or amend the Offer or may
postpone the acceptance for payment of, or the payment for, Shares tendered or
may not be required to purchase any of the Shares tendered hereby or may accept
for payment fewer than all of the Shares tendered hereby.
Unless otherwise indicated under "Special Payment Instructions," please
issue the check for the Purchase Price of any Shares purchased, and/or return
any Shares not tendered or not purchased, in the name(s) of the undersigned.
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please mail the check for the Purchase Price of any Shares purchased and/or any
certificates for Shares not tendered or not purchased (and accompanying
documents, as appropriate) to the undersigned at the address shown below the
undersigned's signature(s). In the event that both "Special Payment
Instructions" and "Special Delivery Instructions" are completed, please issue
the check for the Purchase Price of any Shares and/or return any Shares not
tendered or not purchased in the name(s) of, and mail such check and/or any
certificates to, the person(s) so indicated. The undersigned recognizes that
the Company has no obligation, pursuant to the "Special Payment Instructions,"
to transfer any Shares from the name of the registered holder(s) thereof if the
Company does not accept for payment any of the Shares so tendered.
The undersigned understands that acceptance of Shares by the Company for
payment will constitute a binding agreement between the undersigned and the
Company upon the terms and subject to the conditions of the Offer.
4
<PAGE>
ODD LOTS
(SEE INSTRUCTION 7.)
The box below is to be marked ONLY if Shares are being tendered by person
who, as of the close of business on May 20, 1997, and who continues to own as of
the Expiration Date, an aggregate of fewer than 100 Shares.
The undersigned owned beneficially, as of the close of business
on May 20, 1997, and continues to own beneficially as of the
Expiration Date, an aggregate of fewer than 100 Shares, all of which
are being tendered.
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, AND 6)
- -------------------------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
To be completed ONLY if the check for the aggregate Purchase Price of
Shares purchased and/or certificates for Shares not tendered or not purchased
are to be ISSUED in the name other than that printed on the first page.
Issue: / / check and/or / / certificate(s) to:
Name:
----------------------------------------
(Please Print)
Address:
-------------------------------------
---------------------------------------------
(City, State, Zip)
---------------------------------------------
(Tax Identification or Social Security No.)
(See Substitute Form W-9 Certification Included Herein)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL MAILING INSTRUCTIONS
5
<PAGE>
To be completed ONLY if the check for the Purchase Price of Shares
purchased and/or certificates for Shares not tendered or not purchased are to be
MAILED to someone other than the name and address printed on the first page.
Address:
-------------------------------------
---------------------------------------------
(City, State, Zip)
---------------------------------------------
(Tax Identification or Social Security No.)
Is this a permanent address change? / / Yes / / No
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(ALL SECTIONS MARKED WITH AN X MUST BE COMPLETED BY ALL STOCKHOLDERS)
Please sign exactly as your name(s) appear under "Description of Shares
Tendered: above. Each joint owner must sign; if one or more owners are
deceased, the other(s) must sign and enclose the death certificate. If you are
signing for someone else, you must enclose documentation with the Letter of
Transmittal certifying your authorization to sign, i.e. Death Certificate, Power
of Attorney, Letters Testamentary, etc. If your account is held as an IRA or a
third party acts as the custodian on your account, the custodian must also sign
the Letter of Transmittal. Of you have questions as to your authority to sign,
please call the Depositary at (303) 234-5300.
PLEASE FILL IN YOUR PHONE NUMBER HERE:
( )
----------------------------
DAY OR WORK TELEPHONE NUMBER
Date:
------------------------------
X
----------------------------------------------------------
(OWNER SIGNATURE)
X
----------------------------------------------------------
(CO-OWNER (CUSTODIAN SIGNATURE, IF APPLICABLE)
X
----------------------------------------------------------
(SIGNATURE GUARANTEE, ONLY IF SPECIAL PAYMENT
INSTRUCTIONS OR SPECIAL DELIVERY INSTRUCTIONS
HAVE BEEN COMPLETED. SEE INSTRUCTIONS 1, 5, AND 6.)
6
<PAGE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THIS OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
- -------------------------------------------------------------------------------
SUBSTITUTE FORM W-9 CERTIFICATION -- UNDER PENALTIES OF PERJURY, I CERTIFY
THAT (i) THE NUMBER SHOWN ON THIS FORM IS MY CORRECT TAXPAYER IDENTIFICATION
NUMBER (OR I AM WAITING FOR A NUMBER TO BE ISSUED TO ME) AND (ii) I AM NOT
SUBJECT TO BACKUP WITHHOLDING BECAUSE: (a) I AM EXEMPT FROM BACKUP WITHHOLDING;
OR (b) I HAVE NOT BEEN NOTIFIED BY THE IRS THAN THAT I AM SUBJECT TO BACKUP
WITHHOLDING AS A RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS; OR (c)
THE IRS HAS NOTIFIED ME THAN THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING.
Certification instructions -- You must cross out Item (ii) above if you
have been notified by the IRS that you are currently subject to backup
withholding because of underreporting interest or dividends on your tax return.
Date:
------------------------- -------------------------
(Tax I.D. Number)
- ------------------------------ -------------------------
(Signature) (Address)
- ------------------------------ -------------------------
(Print Name) (City, State, Zip)
- --------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING YOUR TIN.
I certify under penalties of perjury that a TIN has not been issued to me,
and either (1) I have mailed or delivered an application to receive a TIN to the
appropriate IRS Center of Social Security Administration Office or (2) I intend
to mail or deliver an application in the near future. I understand that if I do
not provide a TIN by the time of my payment, 31% of all payments made to me
thereafter will be withheld until I provide a number.
- ------------------------------ --------------------
(Signature) (Date)
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a firm or other
entity that is a member in good standing of the Security Transfer Agent's
Medallion Program, the New York Stock Exchange Medallion Program or the Stock
Exchange Medallion Program (an "Eligible Institution"), unless (i) this Letter
of Transmittal is signed by the registered holder(s) of the Shares tendered
therewith and such holder(s) have not completed the box entitled "Special
Payment Instructions" or the box entitled "Special Delivery Instructions" on
this Letter of Transmittal, or (ii) such Shares are tendered for the account of
an Eligible Institution. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARE CERTIFICATES. This Letter
of Transmittal is to be used only if share certificates are to be forwarded
herewith or if share certificates have been lost or destroyed. Certificates for
all physically delivered Shares, as well as a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof) and any
other documents required by this Letter of Transmittal, must be received by the
Depositary at one of its addresses set forth on the front page of this Letter of
Transmittal prior to the Expiration Date. If certificates are forwarded to the
Depositary in multiple deliveries, a properly completed and duly executed Letter
of Transmittal must accompany each such delivery.
The method of delivery of all documents, including Share Certificates, the
Letter of Transmittal and any other required documents, is at the election and
risk of the tendering stockholder, and the delivery will be deemed made only
when actually received by the Depositary. If delivery is by mail, registered
mail with return receipt requested, properly insured, is recommended. In all
cases, sufficient time should be allowed to ensure timely delivery.
No alternative or contingent tenders will be accepted. By executing this
Letter of Transmittal (or facsimile thereof), the tendering stockholder waives
any right to receive any notice of the acceptance for payment of the Shares.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
signed schedule and attached to this Letter of Transmittal.
4. PARTIAL TENDERS. If fewer than all the Shares represented by any
certificate delivered to the Depositary are to be tendered, fill in the number
of Shares that are to be tendered in the box entitled "Number of Shares
Tendered." In such case, a new certificate for the remainder of the Shares
represented by the old certificate will be sent to the person(s) signing this
Letter of Transmittal, unless otherwise provided in the "Special Payment
Instructions" or "Special Delivery Instructions" boxes on this Letter of
Transmittal, as promptly as practicable following the expiration or termination
of the Offer. All Shares represented by certificates delivered to the
Depositary will be deemed to have been tendered unless otherwise indicated.
8
<PAGE>
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, the signature(s) must correspond with the name(s) as
written on the face of the certificates without alteration, enlargement or any
change whatsoever.
If any of the Shares tendered hereby are held of record by two or more
persons, all such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in different names on
different certificates, it will be necessary to complete, sign and submit as
different registrations of certificates.
If this Letter of Transmittal or any certificate or stock power is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory to
the Company of the authority of such person so to act must be submitted.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Certificate(s) listed, the Special Payment
Instructions must be completed and the signature must be guaranteed. (See
Instruction 1 above).
6. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the
Purchase Price of any Shares tendered hereby is to be issued in the name of,
and/or any Shares not tendered or not purchased are to be returned to, a person
other than the person(s) signing this Letter of Transmittal, or if the check
and/or any certificates for Shares not tendered or not purchased are to be
mailed to someone other than the person(s) signing this Letter of Transmittal or
to an address other than that shown above in the box captioned "Special Payment
Instructions" and/or "Special Delivery Instructions" on this Letter of
Transmittal should be completed.
7. ODD LOTS. As described in the Offer to Purchase, if fewer than all
Shares validly tendered and not withdrawn prior to the Expiration Date are to be
purchased, the Shares purchased first will consist of all Shares tendered by any
stockholder who owned beneficially, as of the close of business on May 20, 1997,
and continues to own beneficially as of the Expiration Date, an aggregate of
fewer than 100 Shares and who validly tendered all such Shares. Partial tenders
of Shares will not qualify for this preference and this preference will not be
available unless the box captioned "Odd Lots" on page 3 of this Letter of
Transmittal is marked.
8. SUBSTITUTE FORM W-9 AND FORM W-8. Under the United States federal
income tax backup withholding rules, unless an exemption applies under the
applicable law and regulations, 31% of the gross proceeds payable to a
stockholder or other payee pursuant to the Offer must be withheld and remitted
to the United States Treasury, unless the stockholder or other payee provides
such person's taxpayer identification number (employer identification number or
social security number)
9
<PAGE>
to the Depositary and certifies that such number is correct. Therefore, each
tendering stockholder should complete and sign the Substitute Form W-9
Certification included as part of this Letter of Transmittal so as to provide
the information and certification necessary to avoid backup withholding, unless
such stockholder otherwise establishes to the satisfaction of the Depositary
that it is not subject to backup withholding. Certain stockholders (including,
among others, all corporations and certain foreign stockholders (in addition to
foreign corporations)) are not subject to these backup withholding and reporting
requirements. In order for a foreign stockholder to qualify as an exempt
recipient, that stockholder must submit an IRS Form W-8 or a Substitute Form W-
9, signed under penalties of perjury, attesting to that stockholder's exempt
status. Such statements may be obtained from the Depositary.
9. WITHHOLDING ON FOREIGN STOCKHOLDERS. Even if a foreign stockholder
has provided the required certification to avoid backup withholding, the
Depositary will withhold United States federal income taxes equal to 31% of the
gross payments payable to a foreign stockholder or his or her agent unless the
Depositary determines that an exemption from or a reduced rate of withholding is
available pursuant to a tax treaty or that an exemption from withholding is
applicable because such gross proceeds are effectively connected with the
conduct of a trade or business in the United States.
10. REQUEST FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or request
for assistance may be directed to the Depositary at the telephone number and
address listed below. Requests for additional copies of the Offer to Purchase,
this Letter of Transmittal or other tender offer materials may be directed to
the Depositary, and such copies will be furnished promptly at the Company's
expense. Stockholders may also contact their local broker, dealer, commercial
bank or trust company for documents relating to, or assistance concerning, the
Offer.
11. IRREGULARITIES. All questions as to the number of Shares to be
accepted and the validity, form, eligibility (including time of receipt) and
acceptance for payment of any tender of Shares will be determined by the
Company, in its sole discretion, which determination shall be final and binding
on all parties. The Company reserves the absolute right to reject any or all
tenders it determines not to be in proper form or the acceptance of or payment
for which may, in the opinion of the Company's counsel be unlawful. The Company
also reserves the absolute right to waive any of the conditions of the Offer and
any defect or irregularity in the tender of any particular Shares or any
particular stockholder. No tender of Shares will be deemed to be validly made
until all defects or irregularities have been cured or waived. Neither the
Company, nor the Depositary or any other person is or will be obligated to give
notice of any defects or irregularities in tenders, and none of them will incur
any liability for failure to give any such notice.
12. ORDER OF PURCHASE IN EVENT OF PRORATION. As described in the Offer to
Purchase, stockholders may designate the order in which their Shares are to be
purchased in the event of proration. The order of purchase may affect whether
any capital gain or loss recognized on the Shares purchased is long-term or
short-term (depending on the holding period for the Shares purchased) and the
amount of gain or loss recognized for federal income tax purposes.
10
<PAGE>
13. INQUIRIES. All inquiries with respect to this Letter of Transmittal
and requests for additional copies of this Letter of Transmittal should be made
to American Securities Transfer & Trust, Incorporated.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A MANUALLY SIGNED FACSIMILE
THEREOF) TOGETHER WITH SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS MUST
BE RECEIVED BY THE DEPOSITARY, PRIOR TO THE EXPIRATION DATE.
11
<PAGE>
EXHIBIT A-3
LETTER OF TRANSMITTAL - NOMINEES
<PAGE>
TYREX OIL COMPANY
To: Brokers, Banks and Other Nominees
Ladies and Gentlemen:
Enclosed is a copy of materials relating to an Offer being made by Tyrex
Oil Company to Stockholders of its common stock. Tyrex has commenced a tender
offer to purchase 6,000,000 shares of the Company's common stock at a price of
$0.30 per Share in Cash. We refer you to the enclosed materials for the term
and conditions of the Offer. You may obtain additional copies of all materials
by contacting American Securities Transfer & Trust, Incorporated, the Depositary
for the Offer, at: (303) 234-5300.
Since you are the holder of record, in order to participate in the Offer on
behalf of your clients, you should complete, execute and mail the Letter of
Transmittal (containing the Certificate of Broker, Bank or Other Nominee) that
is enclosed with this letter to the Depositary at the address above, together
with the Share certificate(s) tendered. You should mail the certificate(s) as
soon as practicable after you receive authorization from your clients, together
with a Broker Letter of Transmittal for the Offer. All documents must be
received on or before December 1, 1997, which is the expiration date for the
Offer, unless it is extended.
THE CUSIP NUMBER IS:
902416 10 6
The Company agrees to reimburse you for the customary reasonable expenses
of solicitation of your clients. Your reimbursement request should be submitted
to the Company, attn: Tom N. Richardson. We appreciate your cooperation in this
matter.
Very truly yours,
AMERICAN SECURITIES TRANSFER &
TRUST, INCORPORATED
Enclosures:
Broker Letter of Transmittal for the Offer
Client Letter to Beneficial Owners
Offer to Purchase
<PAGE>
LETTER OF TRANSMITTAL
(FOR BROKERS, BANKS AND OTHER NOMINEES)
Pursuant to instructions received from certain beneficial owners of Tyrex
Oil Company common stock, we herewith deliver to you the below listed Tyrex Oil
Company stock certificates. These Shares are being delivered to you pursuant to
the Offer to Purchase For Cash up to 6,000,000 Shares of Tyrex Oil Company
common stock at $0.30 per share. We shall retain in our files a copy of the
instructions received from such beneficial owners.
The undersigned hereby warrants that (i) it has transmitted to each
beneficial owner it represents the materials provided regarding the Offer and
(ii) it is currently submitting for sale a total of:
- --------------------------------------------------------------------------------
Shares representing Beneficial Shareholder Accounts
----- -----
- --------------------------------------------------------------------------------
<TABLE>
CERTIFICATE OF BROKER, BANK OR OTHER NOMINEE
(IF YOU HAVE ADDITIONAL ACCOUNTS TO LIST,
PLEASE ATTACH THAT LIST TO THIS FORM)
<CAPTION>
Stockholder Name Social Security Number Internal Acct. Number Share Amount
<S> <C> <C> <C>
</TABLE>
We hereby attest that the above list and any attached list of stockholder
names, social security numbers, account numbers and corresponding Share holdings
sets forth a complete list of such information, including the entire number of
Shares owned by clients of our firm who are tendering pursuant to the Offer at
this time.
Signed: Dated:
----------------------- -------------
By:
-----------------------------------
(Please print name)
2
<PAGE>
Name, Address and Telephone Number of Broker, Bank or Nominee:
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
Tax I.D. Number:
Any questions or request for assistance may be directed to:
American Securities Transfer & Trust, Incorporated
938 Quail Street, Suite 101
Lakewood, Colorado 80215
Telephone: (303) 234-5300
THIS COMPLETED FORM MUST BE RECEIVED ON OR BEFORE 5:00 P.M. DENVER,
COLORADO TIME ON DECEMBER 1, 1997.
3
<PAGE>
EXHIBIT A-4
TAXPAYER CERTIFICATION GUIDELINES
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. Social Security numbers have nine digits separated by two hyphens;
I.E., 000-00-0000. Employer identification numbers have nine digits
separated by one hyphen; I.D., 00-0000000. The table below will determine
the number to give the payer.
<TABLE>
<S> <C> <C> <C>
GIVE THE SOCIAL SECURITY GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: NUMBER OF FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF
1. An individual account The individual 5. Sole proprietorship The owner (1)
account
2. Two or more individuals The actual owner of the 6. A valid trust, estate, or Legal entity (Do not furnish
(joint account) account or, if any combined pension trust the identifying number of the
funds, any one or the personal representative or
individuals (2) trustee unless the legal
entity itself is not
designated in the account
title.) (3)
3. Custodian account of a The minor (4) 7. Corporate account The corporation
minor (Uniform Gift to Minors
Act)
4. a. The usual revocable The grantor-trustee 8. Religious, charitable, or The organization
savings trust account (grantor educational organization
is also trustee) account
b. So-called t rust The actual owner 9. Partnership account held The partnership
account that is not legal or in the name of the business
valid trust under State law
10. A broker or registered The broker or nominee
nominee
11. Account with the The public entity
Department of Agriculture in
the name of a public entity
(such as a State or local
government, school district,
or prison) that receives
agricultural program payments.
<FN>
(1) Show the name of the owner
(2) List first and circle the name of the person whose number you furnish.
(3) List first and circle the name of the legal trust, estate, or pension
trust.
(4) Circle the minor's name and furnish the minor's social security number.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
</TABLE>
1
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local
office of the Social Security Administration or the Internal Revenue Service
and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
A corporation.
A financial institution.
An organization exempt form tax under Section 501(a), or an individual
retirement plan.
The United States or any agency or instrumentality thereof.
A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
A real estate investment trust.
A common trust fund operated by a bank under Section 584(a).
An exempt charitable remainder trust, or a non-exempt trust described in
Section 4947(a)(1).
An entity registered at all times under the Investment Company Act of 1940.
A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
Payments to nonresident aliens subject to withholding under Section 1441.
Payments to partnerships not engaged in a trade or business in the United
States and which have at least one nonresident partner.
Payments of patronage dividends where the amount received is not paid in
money.
Payments made by certain foreign organizations.
Payments made to a nominee.
2
<PAGE>
Payments of interest not generally subject to backup withholding include the
following:
Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you have
not provided your taxpayer identification number to the payer.
Payments of tax-exempt interest (including exempt interest dividends under
Section 852).
Payments described in Section 6049(b)(5) to nonresident aliens.
Payments on tax-free covenant bonds under Section 1451.
Payments made by certain foreign organizations.
Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER, IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under Sections 6041, 6041(a),
6045, and 6050A.
PRIVACY ACT NOTICE. Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payment to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1984, payers must generally
withhold 20% of taxable interest, dividends, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an under-
payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
3
<PAGE>
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
4
<PAGE>
