SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
FORM 10-KSB
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT")
For the Fiscal Year Ended December 31, 1998
[X ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from July 1, 1998 to December 31, 1998
Commission file number: 33-15097-D
AFFILIATED RESOURCES CORPORATION
(Name of small business issuer in its charter)
Colorado 84-1045715
(State or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)
3050 Post Oak Boulevard, Suite 1080 Houston, Texas 77056
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (713) 355-8940
Securities registered pursuant to Section 12(b) of
the Act:
None
Securities registered pursuant to Section 12(g) of
the Act:
None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes __ No
X
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB/A or any amendment to this Form 10-KSB/A.
[ ]
State issuer's revenues for its most recent fiscal year $ 0 .
---
The aggregate market value of the voting common equity held by
non-affiliates of the registrant as of July 16, 1999 was $7,995,159 based on
14,200,993 shares outstanding at a price of $.563.
State the number of shares outstanding of $.003 par value Common Stock of
the registrant at July 16, 1999: 16,547,743.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
FORWARD LOOKING STATEMENTS
This Report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 (the "Securities Act") and Section 21E
of the Securities Exchange Act of 1934 (the "Exchange Act"). Words such as
"expects," intends,", "plans," "projects," "believes," "estimates" and similar
expressions typically identify such forward looking statements. These statements
also include all statements with respect to Company operations and the ability
for the Company to raise funds in the future or make future acquisitions or
obtain sufficient funds from Company operations to fund its operations or make
acquisitions.
Even though we believe our expectations regarding future events are
based on reasonable assumptions, forward-looking statements are not guarantees
of future performance. There are many reasons why actual results could, and
probably will, differ from those contemplated in our forward- looking
statements. These include, among others, (i) changes in Company operations or
management, (ii) enforceability of contracts and the Company's ability to meet
its executory obligations under such contracts, (iii) the ability of the Company
to obtain funds, (iv) civil, criminal, regulatory or administrative actions,
claims or proceeding and regulations dealing with protection of the environment
or other areas, (v) economic conditions and trends and (vi) other unpredictable
or unknown factors not discussed.
ITEM 1. BUSINESS
General
Affiliated Resources Corporation, formerly known as Synaptix Systems
Corporation (the "Company"), was incorporated in the State of Colorado in
December 1986 and became a public company in August 1987. By June 30, 1995, the
Company had divested itself of all of its assets and had ceased operations.
In December, 1996, approximately 90% of the issued and outstanding
shares of stock of the Company were acquired by Alan W. Harvey, its President
and CEO, in connection with the acquisition of assets of Swallen Investments
Corp., a company engaged in the development and marketing of computer software
equipment (the "Software Assets"). The Software Assets included the rights to an
incomplete software code related to EAGLE, a wireless communication software
program under development. Although the Company anticipated that it would be
able to provide related systems integration and networking services in
connection with the license of the Software Assets, the Company lacked the
resources and funding to develop the Software Assets and to deliver the product
to market in a timely manner. For that reason, and in connection with a
management change in the Company in March 1998, the Company sold the Software
Assets to Mobilelink Communications, Inc. ("Mobile"). The Company retained a
five percent interest in Mobile's gross sales of the Software Assets, beginning
with the fiscal quarter ending June 30, 1998. If gross sales do not exceed
$200,000 within 24 months from the closing date of the transaction, then the
Software Assets will be returned to the Company. The Software Assets are still
in a development stage, and therefore, the Company has not received any revenue
as a result of its retained interest as of June 30, 1999.
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Also as a result of the management change in March 1998, the Company
was repositioned to focus on the acquisition of those companies whose product or
service is technically innovative and market proven, but whose market
penetration can be significantly expanded through enhanced marketing or
additional capitalization. To that end, in July 1998, the Company acquired, in
exchange solely for 641,026 shares of the Company's common stock, all of the
stock of CobolTexas Inc., a company that has a software product that uses
on-line technology to solve the Year 2000 technology (Y2K) problems for COBOL
and PL1 software users. CobolTexas is exploring business as a subcontractor to
software remediation companies. To date, no sales have materialized and it is
uncertain as to whether any sales will materialize.
On December 30, 1998 the Company acquired all the outstanding stock of
ChemWay Systems, Inc. ("ChemWay") , a corporation that blends and packages
chemicals for the automotive aftermarket industry. Management believes that
ChemWay is uniquely suited to management's business plan, and that this
acquisition will generate sufficient revenues and provide an asset base for
continued growth.
At the Company's 1998 Annual Meeting of Shareholders held December 16,
1998, the shareholders approved a change in the fiscal year end of the Company
from June 30 to December 31, and a change in the name of the Company from
Synaptix Systems Corporation to Affiliated Resources Corporation. In January
1999, the Articles of Incorporation of the Company were amended to change the
corporate name to Affiliated Resources Corporation.
Management plans to expand the Company by introducing new products and
by developing strategic marketing alliances to promote its products in the
national market. In addition, expansion will also be achieved through selected
acquisitions using leverage, stock of the Company, or a combination of both.
Management is confident that current discussions with investors will yield
additional capital to complete its proposed acquisitions and provide sufficient
working capital for future operations.
ChemWay Systems, Inc.
On December 30, 1998 the Company acquired all the issued and
outstanding stock of ChemWay Systems, Inc., from Evans Systems, Inc., a Texas
corporation ("Evans"), and Way Energy, Inc., a Delaware corporation, in exchange
for 1,500,000 shares of Company common stock.
The Purchase Agreement for the acquisition, as amended through the
date of this filing, requires the Company to fulfill certain covenants
including, but not limited to, (i) receiving at least $1,500,000 in additional
proceeds from the sale of Common Stock in a private placement, and (ii) paying
the mortgage indebtedness on the ChemWay's commercial industrial facility
described below (which amounted to $232,500 plus principal and interest at
December 31,1999. As of July 16, 1999, the Company had not fulfilled the
obligations but believes that it will be able to fulfill its obligations on a
timely basis. Various of the Company's obligations under the Purchase Agreement
are secured by a pledge of substantially all of the assets of ChemWay.
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Patents, Trademarks, Licenses
In March 1998, the Company sold the Software Assets to Mobile. The
Company retained a five percent interest in Mobile's gross sales of the Software
Assets, beginning with the fiscal quarter ending June 30, 1998. If gross sales
do not exceed $200,000 within 24 months from the closing date of the
transaction, then the Software Assets will be returned to the Company. As of
June 30, 1999, the Software Assets are still in a development stage, and
therefore, the Company has not received any revenue to date as a result of its
retained interest in the Software Assets.
On December 30, 1998, the Company acquired all of the outstanding stock
of ChemWay, a Company engaged in the blending and packaging of chemicals for the
automotive aftermarket. The Company has been, and will continue to be, required
to disclose its trade secrets and proprietary know-how not only to employees and
consultants, but also to potential corporate partners, collaborators, and
contract manufacturers. There can be no assurance that any confidentiality
agreements that the Company may enter into with such persons will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets and proprietary know-how will not otherwise become
known or be independently discovered by competitors.
Financing and Working Capital
At December 31, 1998, stockholders equity in the company was 6,043,986.
The Company had a retained earnings deficit of $7,690,070 based on historic
losses, and a negative working capital balance of $972,605. The Company had no
revenues from operations during the last six months of 1998. Management believes
that current discussions with investors will yield sufficient additional capital
to continue its acquisition strategy and to fund future operations, and that
these acquisitions will generate sufficient revenues to operate independently
and provide an asset base for continued growth. There is no assurance, however,
that the Company will be successful in raising equity and continuing as a going
concern.
Employees
The Company employed three full-time employees as of July 16, 1999. Of
these, two were employed in management, and one is employed in a clerical
administration. At June 30, 1999, ChemWay, employed an additional nineteen
employees. In July 1998, the Company entered into an agreement with four
individuals to provide contract services in connection with marketing and
providing services for the Company's software program. The loss to the Company
of the services of the management personnel could have a material adverse effect
upon the Company's future operations. The Company's success also may depend on
its ability to attract and retain other qualified technical and management
personnel. The Company competes for such persons with other companies, academic
institutions, government entities, and other organizations, most of which have
substantially greater capital resources and facilities than the Company. There
can be no assurance that the Company will be successful in recruiting or
retaining personnel of the requisite caliber or in adequate numbers to enable it
to conduct its business as proposed. Furthermore, the Company's possible future
expansion into activities requiring additional expertise in marketing will place
increased demands on the Company's resources and management skills. The
Company's lack of working capital increases the risk that key employees will be
attracted to other business opportunities.
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ITEM 2. DESCRIPTION OF PROPERTY
As of December 31, 1998, the Company owned commercial industrial
property which consisted of 2,400 square feet of administrative offices; 53,000
square feet of warehouse; and 16,539 square feet of manufacturing and warehouse
facilities in Bay City, Texas which were acquired in the ChemWay acquisition. Of
the real property acquired, 16,539 square feet is located on a 13 acre tract
that is leased from the Port of Bay City, Texas. In that acquisition the Company
also assumed a sublease of 14,528 square feet of manufacturing and warehouse
space that is also located on the 13 acre tract leased from the Port of Bay
City. In October 1998, the Company relocated its corporate offices to Houston,
Texas, and leased approximately 1,600 square feet of administrative office
space. The lease is for a term of 13 months, and will expire on October 31,
1999. In addition, the Company entered into a lease of executive offices in
Brecksville, Ohio, covering approximately 800 square feet. This lease is for a
term of one year and will expire on September 30, 1999.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in various legal proceedings
arising in the ordinary course of business. To management's knowledge, the
Company is not currently involved in any legal proceedings and is not aware of
any legal proceeding threatened against it, except for a claim that was made by
a individual that was formerly employed by an unrelated company. The Company
does not believe that this claim has merit.
At the time of the acquisition of ChemWay, a number of vendor claims
had been incurred in the normal course of business. Since the acquisition of
ChemWay, several of the items have been paid and the Company believes that the
final disposition of the items will not have a materially adverse effect upon
the financial statements of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 16, 1998, the security holders of the Company voted on the
following matters at the Annual Meeting of Shareholders:
(1) electing Peter C. Vanucci, Edward F. Feighan, Edward S. Fleming and J.
Thomas McManamon to the board of directors for the ensuing year;
(2) approving an amendment to the Articles of Incorporation to change the
name of the Company to Affiliated Resources Corporation;
(3) ratifying the adoption of the Company's 1997 Incentive Stock Option
Plan and Non-Statutory Stock Option Plan;
(4) approving a change in the Company's fiscal year end to December 31;
and
(5) ratifying the appointment of Weinstein Spira & Company, P.C. as the
Company's independent auditors.
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Each of the matters voted on at the meeting was approved. The number of
votes cast for, against or withheld, and the number of abstentions and broker
non-votes on each matter, were as follows:
<TABLE>
<CAPTION>
MATTER FOR AGAINST WITHHELD ABSTAIN NON-VOTES
- ------ --- ------- -------- ------- ---------
Election of Directors
<S> <C> <C>
Peter C. Vanucci 10,722,591 - 117 - -
Edward F. Feighan 10,722,591 - 117 - -
Edward S. Fleming 10,722,591 - 117 - -
J. Thomas McManamon 10,722,591 - 117 - -
Charter Amendment 10,709,691 12,900 117 - -
Option Plans 7,747,383 155,538 40,117 - -
FYE Change to 12/31 10,718,708 - 4,000 - -
Auditors 10,722,708 - - - -
</TABLE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's common stock is traded on the NASDAQ OTC
Electronic Bulletin Board under the symbol "ARCX". The Company's common stock
commenced trading on June 6, 1997, but had not traded for the period December
31, 1993 through June 5, 1997. As of June 30, 1999, there were approximately 245
beneficial owners of the Company's common stock The following table sets forth,
for the quarterly periods indicated, the range of high and low closing prices
for the Company's common stock, as reported by the NASDAQ OTC Electronic
Bulletin Board.
High Low
1997
March 31, 1997 $0.00 $.00
June 30, 1997 2.875 0
September 30, 1997 3.25 2.25
December 31, 1997 4.00 1.125
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1998 High Low
- ---- ---- ---
March 31, 1998 3.125 1
June 30, 1998 1.9375 0.875
September 30, 1998 4.25 1.75
December 31, 1998 6.00 4.0625
1999
March 31, 1999 6.00 4.75
June 30, 1999 5.63 .563
The closing price of the Company's common stock on July 16, 1999 was
$.563.
During the six months ended December 31, 1998, 2,709,251 shares were
issued. Of this amount, 6,000 shares were issued for services, 562,225 shares
were purchased in connection with a private offering (resulting in gross
proceeds of $1,005,000 used primarily to pay certain obligation of ChemWay and
to provide working capital for initial start-up of operations), 641,026 shares
were issued in connections with the CobolTexas transaction, 1,500,000 shares
were issued in connection with the ChemWay acquisition. No underwriter was
involved in the sales of stock. These shares of Common Stock were sold in
transactions exempt from registration under Section 4(2) of the Securities Act
of 1933, as amended, because of the private nature of the sales.
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on the Common
Stock. The payment of dividends in the future will depend on the Company's
earnings, if any, capital requirements, operating and financial position and
general business conditions. The Company intends to retain any future earnings
for reinvestment in its business and does not intend to pay cash dividends in
the foreseeable future. The Company has not entered into any agreement which
restricts its ability to pay dividends on its Common Stock in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the audited
financial statements included elsewhere herein. Except for the historical
information contained herein, the matters discussed in this Annual Report are
forward-looking statements that involve a number of risks and uncertainties.
There are certain important factors and risks, including the rapid change in
hardware and software technology, market conditions, the anticipation of growth
of certain market segments and the positioning of the Company's products and
services in those segments, the timing of the product announcements, the release
of new or enhanced products, the introduction of competitive products and
services by existing or new competitors and the significant risks associated
with the acquisition of new products, product rights, technologies, businesses,
the management of growth, the Company's ability to attract and retain highly
skilled technical, managerial and sales and marketing personnel, and the other
risks detailed from time to time in the Company's SEC reports, including
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reports on Form 10-KSB and Form 10-QSB, that could cause results to differ
materially from those anticipated by the statements made herein.
Introduction
During the six months ended December 31, 1998, the Company acquired
CobolTexas Inc., in exchange solely for shares of the Company's voting stock,
all of the stock of CobolTexas Inc. CobolTexas owns a software product that uses
on-line technology to solve the Year 2000 technology (Y2K) problems for COBOL
and PL1 software users. CobolTexas is primarily exploring business as a
subcontractor or licensor to software remediation companies. The focus has been
on those companies who are currently negotiating with domestic and international
organizations and governments to enter into contracts for services to be
rendered in connection with solutions to year 2000 problems. Under this
scenario, the CobolTexas email response systems which uses on-line technology to
identify and create year 2000 solutions over the Internet for both Cobol and PL1
software becomes an analysis tool of the remediation company. Although to date
no sales have materialized, management feels that this approach provides the
best alternative for use of the product, while at the same time reducing
potential liability.
On December 30, 1998 the Company acquired all the outstanding stock of
ChemWay Systems, Inc., a corporation that blends and packages chemicals for the
automotive aftermarket. The Company commenced operations of ChemWay on January
7, 1999, and during the first quarter of 1999, ChemWay's facilities became fully
operational with respect to providing customers with a full line of its
products. Additionally, ChemWay is aggressively pursuing new product lines and
marketing alliances to expand to a national market. While this process has been
severely hampered by a lack of adequate working capital, ChemWay has begun to
generate sales and is shipping product. The Company raised approximately
$1,005,000 in private placement during the fiscal year ended December 31, 1999,
$754,385 of which was used to pay ChemWay debt and other costs assumed pursuant
to the Purchase Agreement. The Purchase Agreement for the acquisition, as
amended through the date of this filing, requires the Company to fulfill certain
covenants including, but not limited to, (i) receiving at least $1,500,000 in
additional proceeds from the sale of Common Stock in a private placement, and
(ii) paying the mortgage indebtedness on the ChemWay's commercial industrial
facility described below (which amounted to $232,500 plus principal and interest
at December 31,1999). As of July 16, 1999, the Company had not fulfilled the
obligations but believes that it will be able to fulfill its obligations on a
timely basis. Various of the Company's obligations under the Purchase Agreement
are secured by a pledge of substantially all of the assets of ChemWay.
Management is continuing in its endeavor to identify acquisition
candidates that it believes will be suited to management's business plan to
generate sufficient revenues and provide and asset base for continued growth.
When evaluating acquisitions, the ability to use leverage in order to reduce the
issuance of stock, will be a significant factor, especially in the near term.
Management's business strategy is to focus on the acquisition of those companies
whose product or service is technically innovative or market proven, whose
market penetration can be significantly expanded through enhanced marketing or
additional capitalization, and believes that these acquisitions will generate
sufficient revenues and provide an asset base for continued growth.
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Based on management's evaluation of business opportunities and
discussions with investors, it has been decided to focus the Company's expansion
activities on those companies, products or services which are related to or can
make use of ChemWay products or services. This endeavor may involve expanded
retail and promotional opportunities. Management is confident that, based on
current discussions with investors, the new focus of the Company will provide
the basis for sufficient capital for operations and planned acquisitions.
Disposition of Assets
The Company had anticipated that it would be able to provide related
systems integration and networking services in connection with the license of
the Software Assets, but the Company lacked the resources and funding to develop
the Software Assets and deliver the product to market in a timely manner. For
that reason, and in connection with a management change in March 1998, the
Company sold the Software Assets to Mobile. In consideration for the sale of
these assets, the Company retained a five percent interest in Mobile's gross
sales of the Software Assets, beginning with the fiscal quarter ending June 30,
1998. In the event that gross sales do not exceed $200,000 within 24 months from
the closing date of the transaction, then the Software Assets will be returned
to the Company. In March 1998, Mobile transferred the Software Assets to Titan
Wireless. As of June 30, 1999, and subsequent thereto, Mobile has still not
completed the development of the Software Assets.
The following discussion is included to describe the Company's
financial position and results of operations for the six months ended December
31, 1998 and 1997, respectively. The financial statements and notes thereto
contain detailed information that should be referred to in conjunction with this
discussion.
Results of Operations
Comparison of Six Months Ended December 31, 1998 to Six Months Ended
December 31, 1997
Costs and expenses for the six months ended December 31, 1998 declined
when compared to the six months ended December 31, 1997. The Company recorded a
net loss of $586,843 or a ($.04) loss per share for the period ended December
31, 1998, compared with a net loss of $681,591, or a ($.05) loss per share for
the same period at December 31, 1997. General and Administrative Expenses
totaled $586,843. The Company incurred expenses in the amount of $83,000 in
legal and accounting fees in connection with various acquisitions, in addition
to the amount of $236,933 which has been recorded as unamortized stock
compensation, $16,000 in costs as a result of the relocation of the corporate
offices, and approximately $34,000 in expenditures that were made on behalf of
ChemWay Systems, Inc. The amount of $86,720 for salaries of the Companies
executive officers, for the six months ended December 31, 1998, is included in
General and Administrative Expenses, has been accrued but not paid.
Revenues
The Company did not record any meaningful revenues for the six months
ended December 31, 1998 or 1997. During this time, the Company secured investor
capital. The Company plans to develop its continuing operations by expansion of
its ChemWay operations and through additional
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acquisitions. It is anticipated that future acquisitions will be financed
primarily through the issuance of common stock. In July 1998, the Company
purchased CobolTexas Inc., in September 1998 it entered into a letter of intent
to purchase all of the outstanding stock of Chem Way Systems, Inc., and that
acquisition was consummated on December 30, 1998.
Financial Condition
Based on management's evaluation of business opportunities and
discussions with investors, it has been decided to focus the Company's expansion
activities on those companies, products or services which are related to or can
make use of ChemWay products or services. This endeavor may involve expanded
retail and promotional opportunities. Management is confident that, based on
current discussions with investors, the new focus of the Company will provide
the basis for sufficient capital for operations and planned acquisitions. There
can be no assurance that the Company will be able to raise sufficient additional
capital to achieve these objectives or meet its working capital needs.
General and Administrative Expenses
General and administrative expenses were $586,843 for the six months
ended December 31, 1998 and $746,377 for the six months ended December 31, 1997,
a decrease of $94,748.
Loss from Operations
The Company had an operating loss of $586,843 for the six months ended
December 31, 1998, compared with a loss of $746,377 for the six months ended
December 31, 1997. The net loss for the six months ended December 31, 1998 was
attributable to general and administrative expenses.
Income Taxes
The Company had no income tax expense. As of December 31, 1998, the
Company had net operating loss carryfowards of approximately $5,900,000. The
Company most likely will not be able to utilize the carryover incurred prior to
fiscal 1997 due to change of ownership and the requirement for the continuation
of the same type of business. This amount will expire during the years 2012
through 2018.
Net Loss
The Company had a net loss of $586,843 for the six months ended
December 31, 1998, compared with a net loss of $746,377 for six months ended
December 31, 1997.
Liquidity and Capital Resources
As of December 31, 1998, the Company had a working capital deficiency
of $972,605, compared to a working capital deficiency of $732,938 at December
31, 1997. Subsequent to December 31, 1998, the Company's working capital
deficiency has continued to increase. The cash balance at December 31, 1998 was
$144,123 and at December 31, 1997, was $2,583.
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Cash used for operations during the six months ended December 31, 1998
was $860,737, compared to $324,486 for the six months ended December 31, 1997.
Cash used in investing activities during the six months ended December 31, 1998
was $23,595, compared to $7,975, for the six months ended December 31, 1997.
Cash provided by financing activities during the six months ended December 31,
1998 totaled $1,028,000, which included proceeds from private offerings,
compared to $334,055 for the six months ended December 31, 1997.
ITEM 7. FINANCIAL STATEMENTS
The reports of the Company's Independent Public Accountants, Financial
Statements and Notes to Financial Statements appear herein as noted below:
Page
Independent Auditor's Reports................................................12
Balance Sheets, December 31, 1998 and June 30,1998...........................14
Statements of Operations for the Six Months ended December 31, 1998
and Years ended June 30, 1998 and 1997......................................16
Statements of Changes in Stockholders' Equity (Deficit) for the Six
Months ended December 31, 1998 and Years ended June 30, 1998 and 1997.......17
Statements of Cash Flows for the Six Months ended December 31, 1998
and years ended June 30, 1998 and 1997......................................18
Notes to Financial Statements................................................20
Introduction to Pro Forma Consolidated Statements of Operations..............29
Pro Forma Consolidated Statements of Operations..............................30
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Independent Auditors' Report
Board of Directors and Stockholders
Affiliated Resources Corporation
(formerly Synaptix Systems Corporation)
Houston, Texas
We have audited the accompanying Consolidated Balance Sheets of Affiliated
Resources Corporation (formerly Synaptix Systems Corporation) as of December 31,
1998 and June 30, 1998, and the related Statements of Operations, Stockholders'
Equity (Deficit) and Cash Flows for the six months ended December 31, 1998 and
for the year ended June 30, 1998. 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 presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Affiliated Resources
Corporation (formerly Synaptix Systems Corporation) as of December 31, 1998 and
June 30, 1998, and the results of their operations and their cash flows for the
six months ended December 31, 1998 and for the year ended June 30, 1998, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered accumulated losses from
operations of $7,630,070 and has a working capital deficiency of $912,605. These
conditions raise substantial doubt about its ability to continue as a going
concern. Management's plans regarding those matters also are described in Note
2. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
WEINSTEIN SPIRA & COMPANY, P.C.
Houston, Texas
March 3, 1999
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SMITH & COMPANY
A PROFESSIONAL CORPORATION OF
CERTIFIED PUBLIC ACCOUNTANTS
MEMBERS OF: 10 WEST 100 SOUTH, SUITE 700
AMERICAN INSTITUTE OF SALT LAKE CITY, UTAH
CERTIFIED PUBLIC ACCOUNTANTS TELEPHONE:(801) 575-8297
UTAH ASSOCIATION OF FACSIMILE:(801) 575-8306
CERTIFIED PUBLIC ACCOUNTANTS E-MAIL: smith & [email protected]
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Stockholders and
The Board of Directors
Synaptix Systems Corporation
(A Development Stage Company)
We have audited the accompanying balance sheet of Synaptix Systems Corporation
(a development stage company) as of June 30, 1997, and the related statements of
operations, changes in stockholders' equity (deficit) and cash flows for the
year ended June 30, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Synaptix Systems Corporation (a
development stage company) as of June 30, 1997 and the results of its operations
and its cash flows for the year ended June 30, 1997 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As shown in the financial statements, the
Company has a working capital deficiency of $90,713 as of June 30, 1997, and has
incurred accumulated losses of $5,175,147 at that date. The Company's ability to
generate sufficient cash flows to meet its obligations and sustain its
operations cannot be determined at this time. These uncertainties raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
Smith & Company
CERTIFIED PUBLIC ACCOUNTANTS
Salt Lake City, Utah
October 7, 1997
13
<PAGE>
AFFILIATED RESOURCES CORPORATION
(formerly SYNAPTIX SYSTEMS CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
-------------------- ---------------------
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 144,123 $ 455
Inventory 966,584
Prepaid expenses 18,699
-------------------- ---------------------
Total Current Assets 1,129,406 455
-------------------- ---------------------
Property and Equipment
Land 41,000
Buildings 1,064,000
Warehouse equipment 2,450,000
Office equipment and furniture 76,552 25,004
Vehicles 39,784
Leasehold improvements 7,277
-------------------- ---------------------
3,678,613 25,004
Less: Accumulated depreciation (5,300) (1,434)
-------------------- ---------------------
3,673,313 23,570
Goodwill 3,421,923
Deposits 3,201
-------------------- ---------------------
$ 8,227,843 $ 24,025
==================== =====================
</TABLE>
See accompanying notes to consolidated financial
statements.
14
<PAGE>
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
-------------------- ---------------------
LIABILITIES
Current Liabilities
<S> <C> <C>
Current maturities of long-term debt $ 236,624
Accounts payable 1,430,057 $ 231,973
Accrued expenses 352,330 309,704
Advance payable 23,000
-------------------- ---------------------
Total Current Liabilities 2,042,011 541,677
Long-Term Debt 141,846 140,000
-------------------- ---------------------
2,183,857 681,677
-------------------- ---------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock, $1 par value, 10,000,000 shares
authorized, no shares outstanding
Common Stock, $.003 par value, 25,000,000 shares authorized,
16,451,743 and 13,742,492 shares issued and outstanding
at December 31, 1998 and June 30, 1998, respectively 49,355 41,227
Additional Paid-In Capital 15,320,480 8,306,628
Accumulated Deficit (7,630,070) (7,103,227)
Unamortized Stock Compensation (1,695,779) (1,902,280)
-------------------- ---------------------
6,043,986 (657,652)
-------------------- ---------------------
$ 8,227,843 $ 24,025
==================== =====================
</TABLE>
See accompanying notes to consolidated financial
statements.
15
<PAGE>
AFFILIATED RESOURCES CORPORATION
(formerly SYNAPTIX SYSTEMS CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Six
Months Ended
December 31, For the Year Ended June 30,
1998 1998 1997
-------------------- -------------------- --------------------
<S> <C> <C>
Revenues $ 4,710
Selling, General and Administrative
Expenses $ 526,843 $ 2,074,494 408,775
-------------------- -------------------- --------------------
Loss from Operations (526,843) (2,074,494) (404,065)
Other Income (Expense)
Settlement of litigation (86,000) (20,000)
Debt forgiveness 297,007 75,840
Loss on disposal of property and
equipment (64,593)
-------------------- -------------------- --------------------
146,414 55,840
-------------------- -------------------- --------------------
Net Loss $ (526,843) $ (1,928,080) $ (348,225)
==================== ==================== ====================
Net Loss Per Share $ (.04) $ (0.14) $ (0.14)
==================== ==================== ====================
Weighted Average Shares
Outstanding 14,553,194 13,602,778 2,506,606
==================== ==================== ====================
</TABLE>
See accompanying notes to consolidated financial
statements.
16
<PAGE>
AFFILIATED RESOURCES CORPORATION
(formerly SYNAPTIX SYSTEMS CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIT) For the Six Months Ended December 31,
1998 and Years Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
Additional Unamortized Stock
Common Stock Preferred Stock Paid-In Accumulated Stock Subscription
Shares Amount Shares Amount Capital Deficit Compensation Receivable Total
---------- -------- --------- ---------- ----------- ------------ ------------ ---------- ----------
<S> <C> > <C> <C> <C> <C> <C> <C> <C> <C>
Balance-6/30/96 39,668 $ 119 174,865 $ 174,865 $ 4,610,729 $ (4,826,922) $ (41,209)
Sale of
restricted
common stock
for cash 1,217,500 3,652 3,652
Issuance of
restricted
common stock
for expenses 58,334 175 20,825 21,000
Issuance of
common stock
for preferred
shares 174,865 525 (174,865) (174,865) 174,340
Sale of common
stock for stock
subscription 2,000,000 6,000 194,000 $ (200,000)
Sale of common
stock for cash
and services 6,750,000 20,250 251,500 271,750
Sale of restricted
common stock for
cash assets and
expenses 2,250,000 6,750 27,000 33,750
Issuance of
restricted common
stock for assets
and expenses 3,000,000 9,000 69,203 78,203
Cancellation of
restricted stock (16,667) (50) (9,950) (10,000)
Net loss (348,225) (348,225)
---------- -------- --------- ---------- ----------- ------------ ------------ ---------- ----------
Balance-6/30/97 15,473,700 46,421 5,337,647 (5,175,147) (200,000) 8,921
Sale of common
stock for cash 20,000 60 15,940 16,000
Issuance of
common stock
for services 248,792 746 312,441 313,187
Cancellation of
stock
subscription (2,000,000) (6,000) (194,000) 200,000
Issuance of
common stock
options for
services 2,834,600 $ (1,902,280) 932,320
Net loss (1,928,080) (1,928,080)
---------- -------- --------- ---------- ----------- ------------ ------------ ---------- ----------
Balance-6/30/98 13,742,492 41,227 8,306,628 (7,103,227) (1,902,280) (657,652)
Sale of common
stock for cash 562,225 1,687 1,003,313 1,005,000
Issuance of
common stock
for services 6,000 18 9,762 9,780
Issuance of
common stock
for acquisition
of ChemWay 1,500,000 4,500 5,995,500 6,000,000
Issuance of
common stock
for acquisition
of CobolTexas 641,026 1,923 5,277 7,200
Amortization
of stock
compensation 206,501 206,501
Net loss (526,843) (526,843)
---------- -------- --------- ---------- ----------- ------------ ------------ ---------- ----------
Balance-12/31/98 16,451,743 $ 49,355 $ $15,320,480 $ (7,630,070) $ (1,695,779) $ $6,043,986
========== ======== ========= ========== =========== ============ ============ ========== ==========
</TABLE>
See accompanying notes to consolidated financial
statements.
17
<PAGE>
AFFILIATED RESOURCES CORPORATION
(formerly SYNAPTIX SYSTEMS CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six
Months Ended
December 31, For the Year Ended June 30,
1998 1998 1997
-------------------- --------------------- --------------------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net loss $ (526,843) $ (1,928,080) $ (348,225)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation expense 3,866 20,662
Loss on disposal of assets 64,593
Stock issued for services 313,187
Non-cash compensation expense 206,501 932,320
Stock issued for expenses 251,403
Debt forgiveness (297,007) (75,840)
Changes in assets and liabilities:
Prepaid expenses (3,682) 72,770 (21,695)
Accounts payable and accrued liabilities (537,378) 375,966 135,364
Deposits (3,201)
-------------------- --------------------- --------------------
Net Cash Used in Operating Activities (860,737) (445,589) (58,993)
Cash Flows From Investing Activities:
Purchase of equipment (23,595) (7,952) (22,658)
-------------------- --------------------- --------------------
Net Cash Used in Investing Activities (23,595) (7,952) (22,658)
Cash Flows From Financing Activities:
Advance from related party 23,000
Proceeds from debt 437,007 62,640
Sale of common stock 1,005,000 16,000 20,000
-------------------- --------------------- --------------------
Net Cash Provided by Financing 1,028,000 453,007 82,640
-------------------- --------------------- --------------------
Activities
Net Increase (Decrease) in Cash Equivalents 143,668 (534) 989
Cash and Cash Equivalents at Beginning of Period 455 989
-------------------- --------------------- --------------------
Cash and Cash Equivalents at End of Period $ 144,123 $ 455 $ 989
==================== ===================== ====================
</TABLE>
See accompanying notes to consolidated financial
statements.
18
<PAGE>
Supplemental Operating Activities:
In 1997, 312,500 shares of stock were issued for prepaid expenses of $34,825.
For the six months ended December 31, 1998, 6,000 shares of stock were issued
for accounts payable of $9,780.
Supplemental Investing Activities:
In 1997, 3,000,000 shares of stock were issued for $75,878 of equipment.
In 1997, $2,338 of equipment was obtained by entering into a capital lease in
the amount of $2,338.
Effective July 8, 1998, the Company issued 641,026 shares of common stock for
the stock of CobolTexas, Inc., which had office equipment of $7,200.
Effective December 29, 1998, the Company acquired the following assets and
liabilities of ChemWay Systems, Inc. for stock valued at $6,000,000:
Inventory $ 966,584
Prepaid expenses 15,017
Property and equipment 3,622,814
Goodwill 3,421,923
Accounts payable (1,716,605)
Accrued expenses (71,263)
Long-term debt (238,470)
------------
$ 6,000,000
============
See accompanying notes to consolidated financial
statements.
19
<PAGE>
AFFILIATED RESOURCES CORPORATION
(formerly SYNAPTIX SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and June 30, 1998
Note 1 - Organization and Summary of Significant Accounting Policies
The Company issues financial statements on the accrual method of accounting in
accordance with generally accepted accounting principles. Accounting principles
followed by the Company and the methods of applying those principles which
materially affect the determination of financial position, results of operations
and cash flows are summarized below:
Organization
Synaptix Systems Corporation was incorporated in Colorado on December 31,
1986. In May 1998, an Assumed Name Certificate was filed with the State of
Texas to enable the Company to conduct business under the name Affiliated
Resources Corporation. On January 13, 1999, the name was changed to
Affiliated Resources Corporation (the Company). During the six months ended
December 31, 1998, the Company changed its fiscal year end from June 30 to
December 31. The unaudited net loss for the six months ended December 31,
1997 was $746,377 ($.05 per share), consisting of general and administrative
expenses.
The Company intends to focus on the acquisition of those companies whose
product or service is technically innovative and market-proven, but whose
market penetration can be significantly expanded through enhanced marketing
or additional capitalization.
Principles of Consolidation
The consolidated financial statements include the accounts of Affiliated
Resources Corporation and its wholly-owned subsidiaries, CobolTexas, Inc. and
ChemWay Systems, Inc. All material intercompany accounts and transactions
have been eliminated. ChemWay Systems, Inc. produces, packages and markets
automotive after-market chemical products. CobolTexas, Inc. is engaged in the
remediation of computer systems involving the year 2000 problems.
Revenue Recognition
Sales are recognized at the date of product shipment, and amounts receivable
are recorded at that time. Earnings are charged with a provision for doubtful
accounts based on collection experience and a current review of the
collectibility of accounts. Accounts deemed uncollectible are applied against
the allowance for doubtful accounts.
Cash and Cash Equivalents
The Company considers all investments purchased with an original maturity of
three months or less to be cash equivalents. As of December 31, 1998, the
Company had cash deposits in excess of federally insured limits.
20
<PAGE>
AFFILIATED RESOURCES CORPORATION
(formerly SYNAPTIX SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998 and June 30, 1998
Inventory
Inventory, consisting of raw materials, packaging and packaged automotive
chemical products, is valued at the lower of cost, as determined by the
first-in, first-out (FIFO) method, or market.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed at rates
considered sufficient to amortize the cost of the assets over their estimated
useful lives using the straight-line method. Repairs and maintenance costs
are charged against income and betterments are capitalized as additions to
the related assets. Depreciation is based upon the following estimated useful
lives:
Building 15 - 25 years
Warehouse equipment 15 years
Office equipment and furniture 5 - 7 years
Vehicles 5 years
Leasehold improvements 5 - 15 years
Unamortized Stock Compensation
The Company accounts for stock-based compensation under APB Opinion 25. Total
compensation cost recognized for stock options granted to employees is the
difference between the quoted market price of the stock at the grant date
less the amount the employee is required to pay. The cost is charged to
expense over the periods in which the employee performs the related services.
Costs related to future periods are recorded as unamortized stock
compensation and deducted from stockholders' equity (deficit).
Goodwill
Goodwill arises from the acquisition of assets at an amount in excess of
their fair market value. Amortization is computed by the straight-line method
over 15 years.
Loss Per Share
The computation of loss per share is based on the weighted average number of
shares outstanding during the period.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
Under this method, deferred income taxes are recorded to reflect the tax
consequences in future years of temporary differences between the tax basis
of the assets and liabilities and their financial amounts at year end. The
Company provides a valuation allowance to reduce deferred tax assets to their
estimated net realizable value.
21
<PAGE>
AFFILIATED RESOURCES CORPORATION
(formerly SYNAPTIX SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998 and June 30, 1998
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2 - Going Concern
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company had a working capital deficit of
$912,605 and $541,222 at December 31, 1998 and June 30, 1998, respectively and
has accumulated operating losses of $7,630,070 as of December 31, 1998.
The Company plans to grow its continuing operations by expansion through
acquisitions. These acquisitions will be financed primarily through the issuance
of common stock or a combination of common stock and leverage, and it is
management's belief that these acquisitions will generate sufficient revenues
and provide an asset base for continued growth. Management is confident that
current discussions with investors will yield additional capital to complete the
proposed acquisitions and provide sufficient working capital for future
operations. However, there is no assurance that the Company will be successful
in raising equity and continuing as a going concern.
Note 3 - Acquisitions and Dispositions
Effective December 29, 1998, the Company acquired from Evans Systems, Inc., all
of the outstanding stock of ChemWay Systems, Inc., which is engaged in the
business of producing, packaging and marketing automotive after-market chemical
products. The purchase price of $6,000,000 consisted of 1,500,000 shares of
common stock valued at $4 per share. The acquisition has been accounted for as a
purchase, and the operations are included in the accompanying consolidated
financial statements from the date of acquisition.
The Purchase Agreement requires the Company to fulfill certain obligations,
including funding of $1,500,000 to satisfy creditors of ChemWay and providing
working capital for current operations and repayment of a $232,500 note payable
to Chase Bank. The Company has pledged all of the assets of ChemWay Systems,
Inc. to secure the obligations.
Effective July 8, 1998, the Company acquired all of the outstanding stock of
CobolTexas, Inc. in exchange for 641,026 shares of common stock. The acquisition
is accounted for as a pooling of interests and recorded at the net book value of
CobolTexas, Inc. There were no operations of CobolTexas, Inc. prior to the
acquisition. CobolTexas, Inc. is engaged in the remediation of computer systems
involving the year 2000 problems.
22
<PAGE>
AFFILIATED RESOURCES CORPORATION
(formerly SYNAPTIX SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998 and June 30, 1998
Note 3 - Acquisitions and Dispositions (Continued)
On May 15, 1997, the Company issued 3,000,000 shares of its restricted common
stock to acquire many fixed assets, software products, and rights from Guarantee
Mortgage who had foreclosed on assets owned by Swallen Investments Corp.
("Swallen"). Prior to the items being owned by Swallen, the items had been owned
by Synaptix, Inc.("Synaptix Texas"), a Texas entity controlled by Alan W.
Harvey, the Company's President at the time of the acquisition. The transaction
was valued at $78,203, which represented the approximate historical cost of the
assets and rights when held by Synaptix Texas.
In March 1998, the Company sold the software assets and other property and
equipment to Titan Wireless for a five percent interest in Titan's gross sales
of the software assets. A loss of $64,593 was recorded in the June 30, 1998
Statement of Operations for the transaction.
Note 4 - Long-Term Debt
Long-term debt as of December 31, 1998 and June 30, 1998 was as follows:
December 31, June 30,
1998 1998
------------ ------------
8% Unsecured note payable to a corporation,
interest and principal due November, 2002 $ 100,000 $ 100,000
8% Unsecured note payable to a corporation,
interest and principal due April, 2001 40,000 40,000
Prime plus 2% note payable to a bank, secured
by land and building, principal of $7,500 plus
interest due quarterly, matures November 30,
2003, in default 232,500
10.25% Note payable to a finance company,
secured by vehicle, principal and interest
of $379 due monthly, matures May, 2000 5,970
------------ ------------
378,470 140,000
Less current maturities 236,624
------------ ------------
$ 141,846 $ 140,000
============ ============
23
<PAGE>
AFFILIATED RESOURCES CORPORATION
(formerly SYNAPTIX SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998 and June 30, 1998
Long-term debt is payable in the future as follows:
June 30,
1999 $ 236,624
2001 41,846
2002 100,000
---------
$ 378,470
=========
Note 5 - Stockholders' Equity (Deficit)
In fiscal 1997 the Company effected a one-for-sixty reverse split of its common
stock and increased the par value per share from $.00005 to $.003. All share and
per share amounts in the accompanying consolidated financial statements and
notes have been adjusted to reflect the stock split.
Preferred Stock
The Company has 10,000,000 shares of $1.00 par value voting Preferred Stock
authorized for issuance.
The Voting Preferred Shares are callable and redeemable at the option of the
Company. In addition to the cash redemption price of $1.00 per share, holders of
the Voting Preferred Shares are entitled to two shares of Common Stock for each
of the Voting Preferred Shares redeemed. Holders of the Voting Preferred Shares
are entitled to vote on all matters to be voted upon by the shareholders, have a
liquidation preference of $1.00 per share before any winding-up of the Company,
and are entitled to such dividend as may be declared by the Board of Directors.
The Voting Preferred Shares have no preemptive rights or sinking fund
provisions. During fiscal 1997, the Company canceled all 174,865 outstanding
shares of Series A Voting Preferred Stock by issuing 174,865 shares of Common
Stock. The Preferred Stock shareholders waived all of the other rights
associated with the Preferred Stock.
Common Stock
During the year ended June 30, 1997, the Company issued 174,865 shares of common
stock to retire 174,865 shares of Preferred Stock, and sold or issued 15,259,167
shares of common stock for $20,000 cash, $251,403 of expenses, $110,703 of
assets, and $200,000 in the form of promissory notes for subscribed stock.
During the year ended June 30, 1998, the 2,000,000 shares of subscribed stock
were cancelled.
During the year ended June 30, 1998, 248,792 shares of stock valued at $313,187
were issued for salaries and services. Another 20,000 shares of common stock
were sold for $16,000 cash.
24
<PAGE>
AFFILIATED RESOURCES CORPORATION
(formerly SYNAPTIX SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998 and June 30, 1998
Common Stock (Continued)
During the six months ended December 31, 1998, 6,000 shares of stock valued at
$9,780 were issued for services. 562,225 shares were sold for $1,005,000 cash.
1,500,000 shares valued at $6,000,000 were issued to purchase ChemWay Systems,
Inc. An additional 641,026 shares were issued to acquire CobolTexas, Inc. in a
pooling of interests.
Note 6 - Stock Options
During fiscal 1997, the Company established an incentive stock option and
non-statutory stock option plan. 4,000,000 shares of common stock were
registered. During fiscal 1997, Mr.
Alan W. Harvey exercised 3,000,000 options at $.005 per share.
The Company also established an employee stock compensation plan and registered
4,000,000 shares of its common stock. During fiscal 1997, 3,750,000 shares were
issued.
During the year ended June 30, 1998, the Company granted 2,220,000 options for
past and future compensation. Compensation expense recorded during the year
ended June 30, 1998 related to these options was $932,320. Unamortized future
compensation of $1,902,280 will be amortized straight-line over five years.
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
For the Six
Months Ended
December 31, For the Year Ended June 30,
------------ ---------------------------
1998 1998 1997
---- ---- ----
Stock Price Stock Price Stock Price
Options Per Share Options Per Share Options Per Share
------------ -------------- ------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of period 2,282,000 $ .15 - .50 62,000 $ .15 3,062,000 $ .005 - .15
Granted 2,220,000 .15 - .50
Exercised (50,000) .20 (3,000,000) .005
Cancelled (62,000) .15
------------ -------------- ------------- ---------------- ------------- ---------------
End of period 2,170,000 $ .15 - .50 2,282,000 $ .15 - $.50 62,000 $ .15
============ ============== ============= ================ ============= ===============
Exercisable at end
of period 2,170,000 $ .15 - .50 2,282,000 $ .15 - $.50 62,000 $ .15
============ ============== ============= ================ ============= ===============
</TABLE>
For the Year Ended June 30,
1998 1997
Weighted-average fair value of options granted
during the period $ 1.59 $ .00
The fair value of the options at date of grant was estimated using the
Black-Scholes Model with the following weighted-average assumptions:
For the Year Ended June 30,
1998 1997
Risk-free interest rate 5.64% 5.86%
Expected life 4.98 years 1.04 years
Expected volatility 114% 114%
25
<PAGE>
Expected dividends None None
26
<PAGE>
AFFILIATED RESOURCES CORPORATION
(formerly SYNAPTIX SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998 and June 30, 1998
Had the Company elected to apply Financial Accounting Standards Board Statement
No. 123, "Accounting for Stock-Based Compensation," using the fair value based
method, the Company's net loss and loss per share would have been increased to
the proforma amounts indicated below:
<TABLE>
<CAPTION>
For the Six
Months Ended
December 31, For the Year Ended June 30,
1998 1998 1997
<S> <C> <C> <C>
Net loss as reported $ (526,843) $ (1,928,080) $ (348,225)
Net loss proforma $ (593,393) $ (1,971,688) $ (348,225)
Basic loss per share as reported $ (.04) $ (0.14) $ (0.14)
Basic loss proforma $ (.04) $ (0.15) $ (0.14)
</TABLE>
Note 7 - Income Taxes
At December 31, 1998 and June 30, 1998, the Company had net operating loss
carryforwards available to offset future taxable income of approximately
$5,900,000 and $5,332,000, respectively. These amounts expire during the years
2012 through 2018. The Company most likely will not be able to utilize the
carryover incurred prior to fiscal 1997 due to change of ownership and the
requirement for the continuation of the same type of business.
Note 8 - Operating Leases
Affiliated Resources Corporation leases office space under operating leases on a
month to month basis.
ChemWay Systems, Inc. leases warehouse space under an operating lease agreement
which expires in June, 2007.
Net minimum lease payments are as follows:
1999 $ 24,000
2000 24,000
2001 24,000
2002 24,000
2003 24,000
Thereafter 84,000
--------
$204,000
========
Rental expense for the Company was $20,636 for the six months ended December 31,
1998, and $40,611 and $46,223 for the years ended June 30, 1998 and 1997,
respectively.
27
<PAGE>
AFFILIATED RESOURCES CORPORATION
(formerly SYNAPTIX SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1998 and June 30, 1998
Note 9 - Related Party Transactions
During the year ended June 30, 1997, the Company's President, or entities
controlled by him, received 5,967,500 shares of the Company's common stock for
$20,000 cash and services valued at $7,402.
During the years ended June 30, 1998 and 1997, debt in the amount of $297,007
and $75,840, respectively, was forgiven by related parties. The amount
represents cash given to the Company.
28
<PAGE>
AFFILIATED RESOURCES CORPORATION
(formerly SYNAPTIX SYSTEMS CORPORATION)
INTRODUCTION TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS
December 31, 1998 and June 30, 1998
The following unaudited pro forma financial information should be read in
conjunction with the historical financial statements and notes thereto of
Affiliated Resources Corporation, which are included in this annual financial
report, and the separate ChemWay Systems, Inc. financial statements and notes
thereto which will be filed in a separate Form 8-K Current Report.
It is not practicable at the current time to furnish audited financial
statements of ChemWay Systems, Inc, at September 30, 1998, and for the year then
ended. These financial statements will be filed in a separate Form 8-K Current
Report when they are available.
The following unaudited pro forma financial information of Affiliated Resources
Corporation combines the Statements of Operations for ChemWay Systems, Inc. for
the year ended September 30, 1998 and the three months ended December 31, 1998
with the Statements of Operations for Affiliated Resources Corporation for the
year ended June 30, 1998 and the three months ended December 31, 1998. The
statements give effect to the following pro forma adjustments: (1) amortization
and depreciation of the goodwill and property and equipment acquired upon the
purchase of ChemWay, as if the purchase had been consummated at July 1, 1997;
and (2) the elimination of the inter company tax benefit of ChemWay's net
operating loss which cannot be utilized by Affiliated Resources Corporation, as
if the purchase of ChemWay had been consummated as of July 1, 1997.
The pro forma financial data do not purport to represent what the results of
operations would actually have been if such transaction in fact had occurred on
the date indicated or to project the Company's results of operations for any
future period.
29
<PAGE>
AFFILIATED RESOURCES CORPORATION
(formerly SYNAPTIX SYSTEMS CORPORATION)
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Historical
Affiliated ChemWay
Resources Systems,
Corporation Inc.
June 30, September 30, Pro Forma
1998 1998 Adjustments Pro Forma
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Revenues $ 2,641,000 $ 2,641,000
Cost of sales 2,591,000 2,591,000
------------ ------------ ----------- -------------
Gross profit 50,000 50,000
------------ ------------ ----------- -------------
Operating expenses 1,347,000 1,347,000
General and administrative $ 2,074,494 187,000 2,261,494
Depreciation and
amortization 210,000 (1)$ 317,000 527,000
------------ ------------ ----------- -------------
2,074,494 1,744,000 317,000 4,135,494
------------ ------------ ----------- -------------
Operating loss (2,074,494) (1,694,000) (317,000) (4,085,494)
Interest income 40,000 40,000
Interest expense (201,000) (201,000)
Settlement of litigation (86,000) (86,000)
Debt forgiveness 297,007 297,007
Loss on disposal of
property and equipment (64,593) (64,593)
------------ ------------ ----------- -------------
Loss before tax (1,928,080) (1,855,000) (317,000) (4,100,080)
Federal income tax 593,000 (2) (593,000)
------------ ------------ ----------- -------------
Net loss $ (1,928,080) $ (1,262,000) $ (910,000) $ (4,100,080)
============ ============ =========== =============
</TABLE>
30
<PAGE>
AFFILIATED RESOURCES CORPORATION
(formerly SYNAPTIX SYSTEMS CORPORATION)
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended December 31, 1998
<TABLE>
<CAPTION>
Historical
Affiliated ChemWay
Resources Systems, Pro Forma
Corporation Inc. Adjustments Pro Forma
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Revenues $ 82,022 $ 82,022
Cost of sales 229,364 229,364
------------ ------------ ----------- -------------
Gross profit (147,342) (147,342)
------------ ------------ ----------- -------------
Operating expenses 60,521 60,521
General and administrative $ 398,112 165,510 563,622
Depreciation and
amortization 1,487 49,078 (1)$ 80,000 130,565
------------ ------------ ----------- -------------
399,599 275,109 80,000 754,708
------------ ------------ ----------- -------------
Operating loss (399,599) (422,451) (80,000) (902,050)
Interest income 5,000 5,000
Interest expense (3,099) (3,099)
------------ ------------ ----------- -------------
Net loss $ (399,599) $ (420,550) $ (80,000) $ (900,149)
============ ============ =========== =============
</TABLE>
31
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company appointed the firm of Weinstein Spira & Company , P.C.,
Five Greenway Plaza, Suite 2200, Houston, Texas 77046, as its Independent
Accountants, effective as of July 14, 1998. Smith & Company, Inc., the Company's
Independent Accountants for more than the past two years, who are located in
Salt Lake City, Utah, resigned effective as of August 3, 1998. There were no
disagreements between the Company and its accountants.
The report of Smith & Company. on the financial statements of the
Company for each of the two fiscal years in the period ended June 30, 1997, did
not contain any adverse opinion or disclaimer of opinion , but was modified for
a going concern paragraph.
During the Company's most recent two fiscal years and all subsequent
interim periods preceding the change in auditors, there was no disagreement with
Smith & Company. on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which if not resolved to
the satisfaction of Smith & Company., would have caused them to make a reference
to the subject matter of the disagreements in connection with their report; nor
has Smith & Company. ever presented a written report, or otherwise communicated
in writing to the Company or its Board of Directors the existence of any
"disagreement" or "reportable event" within the meaning of Item 304 of
Regulation S-K.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS
Set forth below is certain information concerning the nominees for
election as director of the Company, including all positions and offices with
the Company held by each such person and the business experience of each during
at least the past five years.
Peter C. Vanucci was elected to serve as Chairman of the Board and
Chief Executive Officer of the Company effective as of February 15, 1998. Since
1990, Mr. Vanucci held the position of President and a Director of Wexford,
Inc., a corporation specializing in business and property evaluation, ad valorem
tax consulting, real estate development and financial consulting.
Edward S. Fleming has held the position of President since May 1998,
and was first elected a director in December 1996. Prior to that time, Mr.
Fleming held the positions of Acting President beginning in October 1997, in
addition to his position as Vice President and Chief Financial Officer, to which
he was elected in December 1996. From 1993 to the present, Mr. Fleming has also
held the position of Geologic Science Advisor to the Astronaut Office, Johnson
Space Center, and was primarily responsible for the planning, coordination and
evaluation of military and civilian manned space observations of the Earth,
including the management of all Army personnel assigned to the Space Center. He
has an extensive background in systems administration of the SUN and UNIX
programs, as well as experience in a wide variety of sophisticated remote
sensing software packages. Prior to 1993, Mr. Fleming held a succession of
various leadership positions of national and military prominence while serving
as an officer in the United States Army for more than 20 years.
J. Thomas McManamon was elected to serve as a director in May 1998. Mr.
McManamon has held the position of Director of the Science, Engineering,
Mathematics and Aerospace Academy for the Cuyahoga Community College since
January 1995. From 1992 to 1995, Mr. McManamon was a Financial Consultant with
the firm of Butcher & Singer.
32
<PAGE>
No director serves as a member of the Board of Directors of any other
company with a class of securities registered under the Securities Act of 1934,
as amended, or which is registered as an investment company under the Investment
Company Act of 1940.
Meetings of the Board of Directors
During the calendar year ended December 31, 1998, the Board of
Directors of the Company which consisted of four directors, held eight meetings,
Each director attended at least 75% of the meetings of the board of directors.
Standing Committees.
In October 1998, the board voted to establish three standing committees
consisting of an Audit Committee, an Executive Committee and a Compensation
Committee.
The Audit Committee, which is composed of Messrs. McManamon and Fleming
meets with key management and the independent public accountants to review the
internal controls of the Company and to review its financial reporting. The
Audit Committee also recommends to the Board of Directors the appointment of the
independent public accountants to serve as auditors in examining the financial
statements of the Company. The Audit Committee is charged with the
responsibility of reviewing and overseeing all material transactions and
material proposed transactions between the Company and one or more of its
directors or executive officers, or their affiliates, with a view to assuring
that all such transactions will be (a) on terms no less favorable to the Company
than would be available with unaffiliated third parties and (b) ratified by a
majority of independent directors who have no interest in such transactions.
The Executive Committee, which is composed of Messrs. Vanucci and
McManamon, has the authority to exercise all powers of the Board of Directors in
the management of the business and affairs of the Company during intervals
between meetings of the board of directors, except that it has no authority to
propose amendments to the Restated Certificate of Incorporation, adopt an
agreement of merger or consolidation, recommend to the shareholders the sale,
lease or exchange of all or substantially all of the Company's assets or its
dissolution, or amend the Bylaws.
The Compensation Committee, which is composed of Messrs. McManamon and
Vanucci (a) makes recommendations to the Board of Directors concerning the
election of the Company's officers, (b) reviews the employee compensation and
benefit plans and sets the compensation for officers of the Company, (c) awards
bonuses to officers of the Company, (d) assumes responsibility for all
broad-based compensation and benefit programs of the Company and (e) administers
the Employee Stock Option Plan.
Compensation of Directors
In October 1997, two persons then serving as Company directors were
granted options to purchase the Common Stock of the Company at an option price
of $.20 per share. Mr. Fleming was granted an option to purchase up to 350,000
shares of Common Stock, and Mr. Mark F. Walz was granted an option to purchase
up to 200,000 shares of Common Stock. The grant of 200,000 shares of Common
Stock to Mr. Walz was in consideration for services rendered as a non-employee
director for the period December 1996 through October 1997. Mr. Walz resigned in
February 1998. In May, 1998, Mr. Fleming was granted an additional option to
purchase up to 150,000 shares of Common Stock at an option price of $.50 per
share.
Non-employee directors will be reimbursed for reasonable expenses
incurred in connection with attendance at any meetings of the board of directors
of the Company.
33
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table set forth certain information regarding the
executive officers of the Company. Each officer serves at the pleasure of the
board of directors.
<TABLE>
<CAPTION>
Year Named to
Name Age Position Held with Company Present Position
- ---- --- -------------------------- ----------------
<S> <C> <C>
Peter C. Vanucci 51 Chairman and Chief Executive Officer March 1998
Edward S. Fleming 44 President October 1997
Virginia M. Lazar(1) 47 Executive Vice President and Corporate May 1998
Secretary
David L. Deerman(2) 60 President, ChemWay Systems, Inc. December 1998
Alan W. Harvey(3) 39 Chairman, President and Chief Executive December 1996 to October
Officer 1997
</TABLE>
(1) From January 1996 until her election as an officer of the Company in
May 1998, Ms. Lazar was the President of Corporate Administrative
Services, Inc., a corporation engaged in providing consulting and
administrative services to public companies. For the prior 17 years,
Ms. Lazar was employed by Petrominerals Corporation and, since 1987,
held the position of Corporate Secretary of that Corporation.
(2) In December 1998 Mr. Deerman was elected President of ChemWay Systems,
Inc. Mr. Deerman had formerly served as President of ChemWay Systems,
Inc., a subsidiary of Evans Systems, Inc. for the period December 1990
through December 29, 1998. Prior to that time, Mr. Deerman had served
as President, and a Director of Way Energy, Inc., a subsidiary of Evans
Systems, Inc., for the period June 1984 through December 1998.
(3) Mr. Harvey was elected to serve as Chairman of the Board, President and
Chief Executive Officer effective as of December 23, 1996, and resigned
as a director and officer of the Company on October 17, 1997.
34
<PAGE>
Summary Compensation Table
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by, or paid to, the Company's
executive officers during the fiscal year ended June 30, 1998 and for the period
through June 30,1999.
<TABLE>
<CAPTION>
Annual Compensation
Name and Principal Other Annual All other
Position Year Salary Bonus Compensation Compensation
($) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
Peter C. Vanucci 1998 78,125(1) - - -
Chairman and Chief 1999 93,213 - - -
Executive Officer
Edward S. Fleming 1998 - - - -
President(2)
Virginia M. Lazar 1998 56,250(3) - - -
Executive Vice 1999 45,500
President and Corporate
Secretary
David Deerman(3) 1999 54,562
President, ChemWay
Systems, Inc.
Alan W. Harvey 1997 14,385(4) - - -
Chairman, President and
Chief Executive Officer
</TABLE>
(1) Mr. Vanucci has accrued his salary for the fiscal year ended June
30,1998 as set forth above. Salary for 1999 currently accrues at the
rate of $125,000 per year and accrued salary amounted to $93,213 at
June 30, 1999 Mr. Vanucci was granted an immediately exercisable option
to purchase up to 1,000,000 shares of the Company's common stock at a
price of $.50 per share in May 1998.
(2) Mr. Fleming is a part-time employee, and is not entitled to any salary
at this time. Mr. Fleming was granted an immediately exercisable option
to purchase up to 350,000 shares of the Company's common stock at a
price of $.20 per share in October 1997, and was granted an additional
immediately exercisable option to purchase up to 150,000 shares of the
Company's common stock at a price of $.50 per share in May 1998.
(3) Ms. Lazar has accrued her salary for the fiscal year ended June 30,
1998 as set forth above. Salary for 1999 currently accrues at the rate
of $90,000 per year and amounted to $45,500 at June 30, 1999. Ms. Lazar
was granted an immediately exercisable option to purchase up to 500,000
shares of the Company's common stock at a price of $.50 per share in
May 1998.
(4) Mr. Deerman, President of ChemWay Systems, Inc. has an annual salary of
$108,000, in accordance with an Employment Agreement, which commenced
on January 1, 1999. Mr. Deerman was granted an option to purchase up to
250,000 shares of the Company's common stock at $.50 per share in March
1999, in accordance with the terms and conditions of his employment
agreement.
(5) Mr. Harvey terminated his employment in October 1997. Mr. Harvey's
salary is for the period July 1, 1997 through October 31, 1997.
35
<PAGE>
Incentive Stock Option Plan and Non-Statutory Stock Option Plan
The Company has adopted an Incentive Stock Option Plan and a
Non-Statutory Stock Option Plan (together, the "Option Plan"), under which the
Company may award stock options to employees, including non-employee directors
of the Company. The Company intends to make such awards to employees in order to
induce qualified persons to accept employment with the Company, and to reward
key personnel of the Company in lieu of cash bonuses. A total of seven million
shares of the Company's Common Stock have been reserved for issuance pursuant to
the Option Plan. During the calendar year ended December 31, 1998, which
includes the period July 1, 1997 through December 31, 1998, a total of two
million two hundred thousand shares were granted to employees and directors.
Five million two hundred thousand of the seven million shares available under
the Plan have been issued.
Employee Stock Compensation Plan
The Company has adopted an Employee Stock Compensation Plan (the
"Compensation Plan"), which provides that the Company may issue stock awards to
employees, including consultants who have provided bona fide services to the
Company not connected to any financing activities. The Company intends to make
such awards to employees and consultants for services rendered on behalf of the
Company, in lieu of cash payments otherwise owing to these individuals, and to
make future employment with the Company, and to reward key personnel of the
Company in lieu of cash bonuses. During the fiscal year ended June 30, 1998, the
Company issued 250,000 shares of the Company's Common Stock to employees,
including the amount of 96,750 shares which were awarded to Ms. Lazar for
services rendered and in repayment of expenses during the year 1997. Ms. Lazar
was elected to serve as an officer of the Company on May 15, 1998. During the
fiscal year ended December 31, 1998, the Company issued 6,000 shares of the
Company's Common Stock to employees
Other Compensation of Executive Officers
During the fiscal year ended June 30, 1998 and the six month period
ended December 31, 1998, the Company provided travel and entertainment expenses
to its executive officers and key employees. The aggregate amount of such
compensation, as to any executive officer or key employee, did not exceed the
lesser of $25,000 or 10% of the cash compensation paid to such executive officer
or key employee, nor did the aggregate amount of such other compensation exceed
10% of the cash compensation paid to all executive officers or key employees as
a group.
36
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth information with respect to the grant of
options under the Company's 1997 Non-Statutory Stock Option Plan and Incentive
Stock Option Plan during the fiscal year ended December 31, 1998, and subsequent
thereto.
<TABLE>
<CAPTION>
Number of Percent of
Securities total options Market
underlying granted to Price on Grant
Name options employees in Exercise or Grant Expiration Date
- ----
granted fiscal year base price Date Date Value(1)
------------- ------------------- ------------ ----------- -------------- -----
(#) (%) ($/Share) ($/Share)
<S> <C> <C> <C> <C> <C> <C> <C>
Peter C. Vanucci 1,000,000 43% .50 1.00 5/1/2002 1,000,000
Edward S. Fleming 350,000 22% .20 3.50 5/1/2002 1,225,000
150,000 .50 1.00 5/1/2002 350,000
Virginia M. Lazar 500,000 22% .50 1.00 5/1/2002 500,000
Mark F. Walz 200,000 9% .20 3.50 5/1/2002 700,000
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and FYE Option Values
<TABLE>
<CAPTION>
Number of securities Value of unexercised
Shares underlying unexercised in-the-money options
acquired Value options at fiscal year-end at fiscal year-end
Name on Exercise Realized Exercisable/unexercisable Exercisable/unexercisable
(#) ($) (#) ($)
<S> <C> <C> <C> <C>
Mark F. Walz 50,000(1) 134,375 150,000 243,750
</TABLE>
(1)Of the 200,000 shares granted under an option to Mr. Walz, 50,000
shares were exercised in July 1998.
37
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of June 30, 1999 by each
director and executive officer and each person or entity known to the Company to
own beneficially 5% or more. Unless otherwise indicated in the footnote below,
each person has sole voting and dispositive power over the shares indicated.
<TABLE>
<CAPTION>
Amount and Percent of Total
Name and Address of Nature of Percent of Outstanding
Title of Class Beneficial Owner Beneficial Interest Class Voting Securities
- --------------- ------------------------- ------------------- -------------- -----------------
<S> <C> <C> <C> <C>
$.003 par value Swallen Investments, Inc. 3,000,000 18.1% 18.1%
common stock 3310 Sheffield Circle
Sarasota, Florida 34239
$.003 par value Way Energy, Inc. 1,500,000 9.1% 9.1%
common stock 720 N. Avenue F
P.O. Box 2480
Bay City, Texas 77404
$.003 par value Peter C. Vanucci(1) 1,000,000 6.0% 6.0%
common stock 8221 Brecksville Road
Bldg. 3, Suite 207
Brecksville, Ohio 44141
$.003 par value Merity International, Inc. 946,341 5.7% 5.7%
common stock 1647 Dick Bay
Box R.R. #3
Dickinson, Texas 77539
$.003 par value Edward F. Feighan(2) 650,000 3.9% 3.9%
common stock 5100 Key Tower
127 Public Square
Cleveland, Ohio 44114
$.003 par value Virginia M. Lazar(3) 596,750 3.6% 3.6%
common stock 3050 Post Oak Blvd.
Suite 1080
Houston, Texas 77056
$.003 par value Edward S. Fleming(4) 500,000 3.0% 3.0%
common stock 3050 Post Oak Blvd.
Suite 1080
Houston, Texas 77056
$.003 par value David L. Deerman(5) 250,000 1.5% 1.5%
common stock 1605 Cottonwood
Bay City, Texas 77414
$.003 par value Mark F. Walz(6) 175,000 1.1% 1.1%
common stock 13131 Almeda Road
Houston, Texas 77045
All executive officers and 2,346,750 14.2% 14.2%
directors as a group(4)
</TABLE>
38
<PAGE>
(1)Consists of an option to purchase up to 1,000,000 shares of the Company's
Common Stock at $.50 per share.
(2) Mr. Feighan, a former director, resigned in June 1999.
(3)Includes an option to purchase up to 500,000 shares of the Company's
common stock at $.50 per share.
(4)Consists of an option to purchase up to 350,000 shares of the Company's
Common Stock at $.20 per share and an option to purchase an additional
150,000 shares at a price of $.50 per share.
(5)Consists of an option to purchase up to 250,000 shares of the Company's
common stock at $.50 per share, in accordance with the terms and
conditions of an Employment Agreement.
(6)Includes an option to purchase up to 150,000 shares of the Company's
Common Stock at $.20 per share.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since December 1996, Corporate Administrative Services, Inc. has
rendered services to the Company in connection with corporate securities
compliance and corporate governance. Ms. Lazar, as the former President of
Corporate Administrative Services, Inc., received compensation from the Company
in the form of 96,750 shares of Company Common Stock for services rendered. In
addition, that Company forgave fees due and payable in the amount of $80,000 for
the fiscal year ended June 30, 1998.
On June 1, 1998, Peter Vanucci entered into a Stock Purchase Agreement
with Evans on behalf of SouthHills Capital Corporation ("SouthHills"), an
investment entity of which he was then President. Pursuant to such Stock
Purchase Agreement, SouthHills purchased 175,000 shares of Common Stock of Evans
at $.75 per share. Evans was then the beneficial owner of ChemWay. SouthHills
closed the purchase of such shares as nominee for Belfast Ventures, Inc. in
September 1998. These shares were issued in the name of SouthHills and held
beneficially by Belfast. Mr. Vanucci disclaims any beneficial ownership of such
Evans shares at any time, and did not otherwise receive any remuneration in
connection with the transactions described in this paragraph. Later in
September, 1998, the Company began negotiations with Evans for the purchase of
ChemWay which ultimately closed in December, 1998.
No executive officer, director, stockholder known to the Company to
own, beneficially or of record, more than 5% of the Company's Common Stock, or
any member of the immediate family of any of those persons has engaged since the
beginning of the Company's last fiscal year, or proposes to engage in the
future, in any transaction or series of similar transactions with the Company,
directly or indirectly through a separate entity, in which the amount involved
exceeded or will exceed $60,000.
No director of the Company has served or currently serves as a partner
or executive officer of any investment banking firm that performed services for
the Company during the last fiscal year or that the Company proposes to have
perform services during the current year. The Company knows of no other
relationship between any director and the Company substantially similar in
nature and scope to those described above.
Section 16(a) Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons holding more than 10% of a
registered class of the Company's equity securities to file with the SEC initial
reports of ownership, reports of changes in ownership and annual reports of
ownership of Common Stock and other equity securities of the Company. Such
directors, officers and stockholders are also required to furnish the company
with copies of all such filed reports.
Based on a review of the copies of such reports furnished to the
Company, the Company believes that all Section 16(a) reporting requirements were
timely fulfilled during 1998, except that Mr. Vanucci filed two months late his
initial report on Form 3 reporting his election as a director and executive
officer in February
39
<PAGE>
1998, Mr. Harvey failed to file his terminating Form 4 or 5 upon his resignation
as an executive officer and director in October 1997, and Mr. McManamon did not
timely file his initial report on Form 3 upon his election as a director in May
1998.
ITEM 12. EXHIBITS AND REPORTS ON FORM 8-K.
1. Reports on Form 8-K.
The Company filed the following reports on Form 8-K during six months
ended December 31, 1998 and subsequent thereto:
A Form 8-K was filed on August 3, 1998 announcing the
acquisition of assets from CobolTexas Inc., and a Change in
Registrant's Accountants.
2. Exhibits
Exhibit
Number Description
2 Asset Purchase Agreement by and between Swallen Investments
Corp. and Synaptix Systems Corporation, dated May, 1997.(1)
2.1 Asset Purchase Agreement by and between Synaptix Systems
Corporation, a Colorado corporation, and Mobilelink
Communications, Inc. ("Mobile"), a Nevada corporation, dated
March 26, 1998.(2)
2.2 Modification Agreement by and between Synaptix Systems
Corporation, a Colorado corporation, and Mobilelink
Communications, Inc., a Nevada corporation.(3)
2.3 Plan and Agreement of Reorganization between Synaptix Systems
Corporation, CobolTexas, Inc., E. Lyle Flinn, Robert Burnside,
Gabriel C. Cox, and Robert G. Oliver, dated July 8, 1998.(4)
2.4 Contractors Agreement between CobolTexas, Inc., and E. Lyle
Flinn, Robert Burnside, Gabriel C. Cox and Robert G. Oliver,
Jr. dated July 8, 1998.(4)
2.5 Stock Purchase Agreement by and among Synaptix Systems
Corporation, a Colorado corporation, doing business as
Affiliated Resources Corporation, Evans Systems, Inc., a Texas
corporation, and Way Energy, Inc., a Delaware corporation,
dated October 30, 1998.
40
<PAGE>
Exhibit
Number Description
2.6 Amendment No. 1 to Stock Purchase Agreement dated December 29,
1998, by and among Synaptix Systems Corporation, a Colorado
corporation doing business as Affiliated Resources Corporation,
Evans Systems, Inc., a Texas corporation, and Way Energy, Inc.,
a Delaware corporation.
2.7 Waiver and Second Amendment to Stock Purchase
Agreement dated March 11, 1999 from Evans Systems,
Inc.
2.8 Waiver and Third Amendment to Stock Purchase Agreement dated
April 26, 1999.
3.1 Amendment to Articles of Incorporation (6)
3.2 Restated Articles of Incorporation of the Company as
filed with the Secretary of State of Colorado on
January 13, 1999.
3.3 Bylaws (5)
4.1 Option Agreement by and between Peter C. Vanucci and Synaptix
Systems Corporation, dated May 20, 1998.(2)
4.2 Option Agreement by and between Virginia M. Lazar and Synaptix
Systems Corporation, dated May 20, 1998.(2)
4.3 Option Agreement by and between Edward S. Fleming and Synaptix
Systems Corporation, dated May 20, 1998(2)
4.4 Option Agreement by and between David L. Deerman and Synaptix
Systems Corporation, dated March 23, 1999.
10.1 Synaptix Systems Corporation 1997 Incentive and Non-Statutory
Stock Option Plan (4)
10.2 Form of Synaptix Systems Corporation Employee Stock Option
Agreement(4)
10.3 Synaptix Systems Corporation 1997 Employee Stock Compensation
Plan(6)
10.4 Promissory Note by and between Synaptix Systems Corporation and
Emerald Investments, dated November 1997.(4)
10.6 Promissory Note by and between Synaptix Systems Corporation and
Merity International Inc., dated April 1998.(4)
10.9 Settlement agreement and release by and between Synaptix
Systems Corporation and Alan W. Harvey.(8)
10.10 Settlement Agreement and Release by and between Synaptix
Systems Corporation and certain employees.(8)
10.11 Employment Agreement by and between David L. Deerman
and ChemWay Systems, Inc., dated December 30, 1998.
17 Resignation Letter of Mark F. Walz.(9)
17.1 Resignation Letter of Edward F. Feighan
27 Financial Data Schedule
41
<PAGE>
(1) Incorporated herein by reference in Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended March 31, 1997.
(2) Incorporated herein by reference in Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended March 31, 1998.
(3) Incorporated herein by reference in Registrant's Report on Form 14A,
dated November 3, 1997.
(4) Incorporated herein by reference in Registrant's Report on Form 8-K
dated August 3, 1998.
(5) Incorporated herein by reference in Registrant's Report in Amendment
No. 2 to Form 10-KSB, dated November 16, 1998.
(6) Incorporated herein by reference in Registrant's Report on Form 14A,
dated December 30, 1996.
(7) Incorporated by Reference in Form S-8 Registration, dated May 12, 1997.
(8) Incorporated herein by reference to Registrant's Annual Report on Form
10-KSB dated October 31, 1997.
(9) Incorporated herein by reference to Registrant's Quarterly Report on
Form 10-QSB for the quarterly period ended December 31, 1997.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized.
AFFILIATED RESOURCES CORPORATION
(Registrant)
By: /s/ Peter C. Vanucci
Peter C. Vanucci
Chairman and Chief Executive Officer
Dated: August 6, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in their capacities indicated and on the dates indicated.
Name Title Date
Chairman, Chief Executive August 5,1999
Peter C. Vanucci Officer & Director
President & Director August 5,1999
Edward S. Fleming
Director August 5,1999
J. Thomas McManamon
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized.
AFFILIATED RESOURCES CORPORATION
(Registrant)
By: /s/ Peter C. Vanucci
Peter C. Vanucci
Chairman and Chief Executive Officer
Dated: August 6, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in their capacities indicated and on the dates indicated.
Name Title Date
/s/ Peter C. Vanucci Chairman, Chief Executive August 5,1999
Peter C. Vanucci Officer & Director
/s/ Edward S. Fleming President & Director August 5,1999
Edward S. Fleming
/s/ J. Thomas McManamon Director August 5,1999
J. Thomas McManamon
44
<PAGE>
Exhibit 2.5
STOCK PURCHASE AGREEMENT
SYNAPTIX SYSTEMS CORPORATION
EVANS SYSTEMS, INC.
WAY ENERGY, INC.
October 30, 1998
<PAGE>
STOCK PURCHASE AGREEMENT
THIS AGREEMENT, dated October 30, 1998, is by and among
Synaptix Systems Corporation, a Colorado corporation, d.b.a. Affiliated
Resources Corporation ("Buyer"), Evans Systems, Inc., a Texas corporation
("ESI"), and Way Energy, Inc., a Delaware corporation ("Seller").
W I T N E S S E T H:
WHEREAS, the Seller is a wholly-owned subsidiary of ESI and
owns all of the issued and outstanding shares (the "Shares") of common stock,
par value $10.00 per share (the "Common Stock"), of ChemWay Systems, Inc., a
Texas corporation (the "Company");
WHEREAS, the Company has previously been engaged in the
business (hereinafter referred to as the "Business") of producing, packaging and
marketing automotive after-market chemical products, the operations of which was
suspended in February 1998; and
WHEREAS, the Buyer desires to purchase and the Seller desires
to sell the Shares, upon the terms and subject to the conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual promises herein contained, each of Buyer and Seller agrees as follows:
ARTICLE I.
PURCHASE AND SALE OF SHARES
Section 1.1. Purchase and Sale of Shares. Upon the terms and
subject to the conditions set forth in this Agreement, on the Closing Date (as
hereinafter defined), Seller shall sell, convey, assign, transfer and deliver to
Buyer, and Buyer shall purchase from Seller, all right, title and interest in
and to the Shares free and clear of any restrictions or conditions to transfer
or assignment, rights of first refusal, mortgages, liens, pledges, charges,
encumbrances, equities, claims, covenants, conditions, restrictions, options or
agreements for an amount equal to the Purchase Price (as hereinafter defined).
On the Closing Date, Seller shall deliver to Buyer a certificate or certificates
representing the Shares, duly endorsed in blank or accompanied by a stock power
executed in blank.
Section 1.2. Purchase Price. The aggregate purchase price for
the Shares shall consist of shares of the Common Stock of the Buyer having an
aggregate value of $6,000,000 (the "Purchase Price"). The Purchase Price shall
be payable by delivery on the Closing Date of shares (the "Payment Shares")^ of
Buyer's Common Stock, $.003 par value per share (the "Buyer Common Stock"). All
Payment Shares to be delivered under this Agreement shall be valued at $4.00
(the "Closing Date Price"). All references in this Agreement to the Payment
Shares shall be references to an aggregate number of shares of Buyer Common
Stock with such aggregate value.
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Section 1.3. Make Whole Adjustment. (a) In the event that the
Anniversary Date Average Price (as defined below) is less than the Closing Date
Price, Buyer shall issue a number of additional shares of Buyer Common Stock
(the "Make Whole Shares") to ESI. The number of Make Whole Shares to be issued
to ESI shall be equal to (i) the Purchase Price less (x) the number of Payment
Shares delivered to ESI multiplied by (y) the Anniversary Date Average Price
divided by (ii) the Anniversary Date Average Price. The Anniversary Date Market
Price shall mean the greater of (x) $2.40 and (y) the average closing price of a
share of Buyer Common Stock on the Buyer's then principal trading market, during
the 20 consecutive trading day period ending two trading days prior to the one
year anniversary of the Closing Date. The Make Whole Shares, if any, shall be
delivered to ESI ten days after the one year anniversary of the Closing Date.
(b) Buyer's obligation to issue the Make Whole Shares shall be
absolute, non- contingent and irrevocable, independent of all other legal
relationships among the parties to this Agreement and not subject to any right
of set-off or other reduction of any kind, whether for any claim of any kind
whatsoever, liability, damage, loss, expense, cause of action or otherwise.
(c) If Buyer shall at any time during the period from the
Closing Date to the one year anniversary of the Closing Date subdivide the
outstanding Buyer Common Stock into a greater number of shares or consolidate
the outstanding Buyer Common Stock into a smaller number of shares (any such
event being called a "Buyer Stock Reorganization"), then the number of Make
Whole Shares to be issued shall be adjusted to a number determined by
multiplying the number of Make Whole Shares that would have been issued pursuant
to the foregoing formula by a fraction, the numerator of which shall be the
number of shares of Buyer Common Stock outstanding after giving effect to such
Buyer Stock Reorganization and the denominator of which shall be the number of
shares of Buyer Common Stock outstanding immediately before such Buyer Stock
Reorganization.
(d) (A) If (i) Buyer agrees to merge or consolidate
with another entity and Buyer is not the surviving entity upon
consummation of the merger or consolidation (the date of such
consummation being the "Transaction Date"), (ii) the Transaction Date
occurs on or before the last day upon which the Make Whole Shares could
be delivered under Section 1.3(a) hereof and the Make Whole Shares have
not been issued and delivered to ESI and (iii) the value two trading
days before the Transaction Date of the consideration per share of
Buyer Common Stock to be received by shareholders of Buyer, determined
by the Buyer's board of directors acting in good faith (the
"Consideration Value") in such merger or consolidation is not equal to
or greater than the Closing Date Price, then on the Transaction Date
immediately prior to the consummation of the merger or consolidation,
Buyer shall deliver to each Seller for each share of Buyer Common Stock
originally issued at the closing hereunder and held by such Seller on
the Transaction Date (before the consummation of the merger or
consolidation) either (x) an amount of cash equal to the difference
between the Closing Date Price and the Consideration Value or (y)
shares of Buyer Common Stock having a value equal to the difference
between the Closing Date Price and the Consideration Value, with such
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value determined based upon the average closing price of a share of
Buyer Common Stock during the 20 trading days ending two trading days
prior to the Transaction Date , the form of such payment, either cash
or stock, to be at the option of Buyer .
(B) If (i) on or before the last date upon which the Make
Whole Shares could be delivered under Section 1.3(a) hereof (provided
that no Make Whole Shares have been issued and delivered to ESI), Buyer
concludes a transaction required to be reported under Section 13(e) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and the rules and regulations promulgated thereunder (the "13(e)
Transaction") and (ii) the average closing price of a share of Buyer
Common Stock on the 20 trading days ending two trading days prior to
the last day upon which shareholders of Buyer could tender shares of
Buyer Common Stock in the 13(e) Transaction (the "13(e) Transaction
Date Average Price") is less than the Closing Date Price, on the date
Buyer distributes the consideration for the shares of Buyer Common
Stock tendered and accepted in the 13(e) Transaction, Buyer shall pay
to ESI an amount of cash per share tendered and accepted equal to the
difference between the Closing Date Price and the 13(e) Transaction
Date Average Price, provided that Buyer shall also pay to ESI the
consideration per share tendered and accepted of Buyer Common Stock
paid in the 13(e) Transaction to tendering shareholders for shares of
Buyer Common Stock accepted by the Buyer.
(c) Upon payment of the amounts provided in Section 1.3(d)(A),
Buyer and its successors and assigns shall have no further obligation
to issue the Make Whole Shares under Section 1.3(a). Upon payment of
the amounts provided in Section 1.3(d)(B), Buyer shall have no further
obligation to issue the Make Whole Shares under Section 1.3(a) to ESI
with respect to tendered shares that the Buyer accepted, but Buyer
shall remain obligated to issue the Make Whole Shares under Section
1.3(a) with respect to all shares of Buyer Common Stock that were
originally issued on the Closing Date and remain issued and outstanding
and owned by ESI on the first anniversary date of the Closing Date.
(e) If, on or before the last date upon which the Make Whole
Shares could be delivered under Section 1.3(a) hereof, Buyer concludes a
recapitalization, capital reorganization or other similar transaction and as a
result shares of Buyer Common Stock are exchanged, converted, reclassified or
otherwise changed, in whole or in part, into one or more classes of other shares
or equity securities of Buyer (or securities convertible into shares or other
equity securities of Buyer), such shares, other equity securities or convertible
securities received by ESI shall be subject to the terms of this Section 1.3,
and Buyer's board of directors, acting in good faith, shall take such actions as
may reasonably be necessary to assure that ESI receives, with respect to such
shares, other equity securities or convertible securities, the full economic
benefit intended by this Section 1.3 with respect to the Buyer Common Stock
received by ESI on the Closing Date.
(f) The 13(e) Transaction Date Average Price and the value of
Buyer Common Stock for the purposes of clause (y) of Section 1.3(d)(A) shall be
determined based upon the average closing price of a share of Buyer Common Stock
on the Buyer's then principal trading
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market, during the 20 consecutive trading day period ending two trading days
prior to such transaction date.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF SELLER AND ESI
Each of Seller and ESI represents and warrants to Buyer that:
Section 2.1. Corporate Existence. Each of Seller, ESI and the
Company is a corporation duly organized, validly existing and in good standing
under the laws of its respective jurisdiction of incorporation and has the
corporate power to own, operate or lease its respective properties and to carry
on its business as now being conducted. Complete and correct copies of the
Articles of Incorporation of the Company and all amendments thereto, certified
by the Secretary of State of the State of Texas, and of the By-Laws of the
Company and all amendments thereto, certified by the Secretary of the Company,
heretofore have been delivered to Buyer. As a result of the business conducted
by the Company or the character or location of its properties, the Company is
duly qualified to do business and is in good standing in those states listed on
Schedule 2.1 hereto, which states are the only states where the nature of the
business conducted by it or the character or location of its properties requires
such qualification and where the failure to so qualify would have a material
adverse effect upon the business, operations, assets, properties, rights or
condition (financial or otherwise) or prospects of the Company or upon the
ability of the Company to consummate the transactions contemplated by this
Agreement (a "Material Adverse Effect").
Section 2.2. Authorization; Validity. Each of Seller and ESI
has all requisite corporate power and authority to enter into this Agreement and
the Lease Agreement (as defined hereinafter) to perform its obligations
hereunder and to consummate the transactions contemplated hereby. No
declaration, recording or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement and the Lease
Agreement by Seller and ESI or the consummation by Seller and ESI of the
transactions contemplated hereby or thereby, other than such declarations,
filings, registrations, notices, authorizations, consents or approvals which, if
not made or obtained, as the case may be, would not, in the aggregate, have a
Material Adverse Effect. All necessary action has been taken by Seller and ESI
with respect to the execution, delivery and performance by Seller and ESI of
this Agreement, the Lease Agreement and the consummation of the transactions
contemplated hereby and thereby. Assuming the due execution and delivery of this
Agreement and the Lease Agreement by Buyer, each of these Agreements and the
Lease Agreement is a legal, valid and binding obligation of Seller and ESI,
enforceable against Seller and ESI in accordance with its respective terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws of general application affecting the enforcement of
creditors' rights and general principles of equity (whether applied in a
proceeding at law or in equity).
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Section 2.3. No Breach of Statute or Contract. Except as set
forth on Schedule 2.3 hereto, neither the execution and delivery of this
Agreement, nor the consummation by each of Seller and ESI of the transactions
contemplated hereby, nor compliance by each of Seller and ESI with any of the
provisions hereof, will (a) violate or cause a default under any statute
(domestic or foreign), judgment, order, writ, decree, rule or regulation of any
court or governmental authority applicable to Seller, ESI or the Company or any
of their respective properties; (b) breach or conflict with any of the terms,
provisions or conditions of the respective Certificates or Articles of
Incorporation or respective By-Laws of Seller, ESI or the Company; or (c)
violate, conflict with or breach or require the authorization, consent or
approval of any party under any agreement, contract, mortgage, instrument,
indenture or license to which Seller, ESI or the Company is a party or by which
Seller, ESI or the Company is or may be bound, or constitute a default (in and
of itself or with the giving of notice, passage of time or both) thereunder, or
result in the creation or imposition of any encumbrance upon, or give to any
other party or parties any claim, interest or right, including rights of
termination or cancellation in, or with respect to, any of their respective
properties or the Shares.
Section 2.4. Subsidiaries. The Company has no subsidiaries or equity
investments in any other corporation, association, partnership, joint venture or
other entity.
Section 2.5. Capitalization and Shareholdings. The authorized
capital stock of the Company consists of 500,000 shares of Common Stock, of
which 65,000 shares are issued and outstanding, and are owned of record and
beneficially by Seller. At the Closing, the Seller will own all of the Shares
free and clear of all liens, claims, charges or encumbrances. Except for the
required consents set forth on Schedule 2.5, the Seller has full right, power,
legal capacity and authority to transfer and deliver the Shares pursuant to this
Agreement and neither the Seller nor the Company is a party to or bound by any
agreements, arrangements or understandings restricting in any manner the sale or
transfer of the Shares. The capital stock of the Company is duly authorized and
all issued capital stock has been duly and validly issued and is fully paid and
non-assessable and free of preemptive rights. There is not outstanding, and
neither the Seller nor the Company is bound by or subject to, any subscription,
option, warrant, call, right, contract, commitment, agreement, understanding or
arrangement to issue any additional shares of capital stock of the Company,
including any right of conversion or exchange under any outstanding security or
other instrument, and no shares of Common Stock are reserved for issuance for
any purpose.
Section 2.6. Financial Statements. Attached hereto as Schedule
2.6 is a balance sheet of the Company at June 30, 1998 and related statement of
income for the nine months then ended (collectively the "Company Financial
Statements"), certified by the Chief Financial Officer of the Company as having
been prepared in accordance with GAAP consistently applied. Except as set forth
on Schedule 2.6, the Company Financial Statements (i) are true, correct and
complete, (ii) are in accordance with the books and records of the Company, and
(iii) fairly, completely and accurately present the financial position of the
Company at the dates specified and the results of its operations for the periods
covered.
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Section 2.7. Absence of Undisclosed Liabilities. Except as
disclosed in the Company Financial Statements or on Schedule 2.7 attached
hereto, the Company has no debts, liabilities or obligations of any kind,
whether accrued, absolute, contingent or other, whether due or to become due,
that would have a Material Adverse Effect.
Section 2.8. Absence of Certain Changes or Events. Except as
set forth on Schedule 2.8 hereto, since June 30, 1998, no event or circumstance
has occurred resulting or reasonably likely to result in a Material Adverse
Effect. Without limiting the generality of the foregoing, since that date there
has not been, with respect to the Company:
(a) Any change in its Business, operations (as now conducted
or as presently proposed to be conducted), assets, properties or rights,
prospects or condition (financial or otherwise), or combination thereof which
reasonably could be expected to result in a Material Adverse Effect;
(b) Other than in the usual and ordinary course of business,
any increase in amounts payable by the Company to or for the benefit of or
committed to be paid by the Company to or for the benefit of any officer,
director, stockholder, consultant, agent or employee of the Company, in any
capacity, or in any benefits granted under any bonus, stock option, profit
sharing, pension, retirement, deferred compensation, insurance, or other direct
or indirect benefit plan with respect to any such person;
(c) Any transaction entered into or carried out other than in
the ordinary and usual course of its business, including without limitation, any
transaction resulting in the incurrence of liabilities or obligations;
(d) Any material change made in the methods of doing business
or in the accounting principles or practices or the method of application of
such principles or practices;
(e) Any mortgage, pledge, lien, security interest,
hypothecation, charge or other encumbrance imposed or agreed to be imposed on or
with respect to any of its properties that will not be discharged prior to the
Closing Date except for financing statements filed by personal property lessors
as a matter of notification only;
(f) Except in the ordinary course of business, any sale, lease
or other disposition of, or any agreement to sell, lease or otherwise dispose of
any of its properties, assets or services, individually or in the aggregate, in
excess of $25,000;
(g) Any purchase of or any agreement to purchase capital
assets or any lease or any agreement to lease, as lessee, any capital assets,
individually or in the aggregate, with a purchase price or carrying value in
excess of $25,000;
(h) Any modification, waiver, change, amendment, release,
rescission or termination of, or accord and satisfaction with respect to, any
material term, condition or
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provision of any contract, agreement, license or other instrument to which the
Company is a party, other than any satisfaction by performance in accordance
with the terms thereof in the usual and ordinary course of its business;
(i) Any declaration of, or dividend or other distribution to
the Company's stockholders, purchase, redemption or reclassification of any of
the Company's capital stock or stock split, stock dividend, exchange or
recapitalization or execution of any agreement in respect of the foregoing;
(j) Any damage, destruction or similar loss, whether or not covered by
insurance, adversely affecting the Business;
(k) any labor grievances or claims filed, or any similar event
or condition of any character, that will have a Material Adverse Effect on the
Company;
(l) any cancellation, or agreement to cancel, any
indebtedness, obligation or other liability owing to it, provided that it may
negotiate and adjust bills in the course of good faith disputes with customers
in a manner consistent with past practice; or
(m) Any commitment by the Company to do any of the foregoing.
Section 2.9. Proprietary Rights. Schedule 2.9 sets forth a
complete and accurate list of all patents (including all reissues,
reexaminations, continuations, continuations-in-part and divisions thereof),
inventions, trade secrets, processes, proprietary rights, proprietary knowledge,
know-how, computer software, trademarks, names, service marks, trade names,
copyrights, symbols, logos, franchises and permits of the Company and all
applications therefor, registrations thereof and licenses, sublicenses or
agreements in respect thereof that the Company owns or has the right to use or
to which the Company is a party and all filings, registrations or issuances of
any of the foregoing with or by any federal, state, local or foreign regulatory,
administrative or governmental office or offices (collectively, the
"Intellectual Property Rights"). The Intellectual Property Rights listed on
Schedule 2.9 are all the proprietary rights necessary to the conduct of the
Business as now conducted. Except as set forth on Schedule 2.9 or as would not
reasonably be expected to have a Material Adverse Effect (a) the Company is the
sole and exclusive owner of all right, title and interest in and to all
Intellectual Proprietary Rights free and clear of all liens, claims, charges,
equities, rights of use, encumbrances and restrictions whatsoever, (b) no
consent or approval of any party will be required for the use of any of these
Intellectual Property Rights by Buyer following the Closing Date, and (c) no
governmental registration of any of these Intellectual Property Rights has
lapsed or expired or been canceled, abandoned, opposed or the subject of any
reexamination request.
Except as disclosed in Schedule 2.9 or as would not reasonably
be expected to have a Material Adverse Effect (a) the Company is not, nor will
it be as a result of the execution and delivery of this Agreement or the
performance of its obligations hereunder, in violation of any license,
sublicense or other agreement to which it is a party and pursuant to which it is
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authorized to use any third-party patents, trademarks, service marks or
copyrights (the "Third- Party Intellectual Property Rights"); (b) no claims with
respect to the patents, registered and material unregistered trademarks and
service marks, registered copyrights, trade names and any applications therefor
owned by the Company (the "Company Intellectual Property Rights"), any trade
secret material to the Company, or Third-Party Intellectual Property Rights to
the extent arising out of any use, reproduction or distribution of such
Third-Party Intellectual Property Rights or through the Company, are currently
pending or, to the knowledge of ESI, threatened in writing by any person; and
(c) ESI does not know of any valid ground for any bona fide claims (i) to the
effect that the manufacture, sale, licensing or use of any products as now used,
sold or licensed or proposed for use, sale or license by the Company, infringes
on any copyright, patent, trademarks, service mark or trade secrets, copyrights,
patents, technology, know-how or computer software programs and applications
used in the business of the Company as currently conducted or as proposed to be
conducted; (ii) challenging the ownership, validity or effectiveness of any of
the Company Intellectual Property Rights or other trade secret material to the
Company; or (iii) challenging the license or legally enforceable right to use of
the Third Party Intellectual Property Rights by the Company.
Section 2.10. Litigation. Schedule 2.10 sets forth a complete
and accurate list as of the date hereof of all claims, actions, suits,
proceedings or, to ESI's knowledge, investigations (collectively, the
"Proceedings") pending or threatened against or affecting the Company or any of
the Company's properties or to ESI's knowledge, any of the Company's officers or
directors in their capacities as such, in, before or by any federal, state, or
local or foreign court, governmental agency or other governmental body (each a
"Governmental Authority"). Seller and ESI shall update Schedule 2.10 as of the
Closing Date, but any information on such updated schedule relating to
Proceedings arising after the date hereof shall not constitute a breach of this
Section 2.10 unless such Proceedings have had or can reasonably be expected to
have a Material Adverse Effect. Except as set forth on Schedule 2.10, there is
no Proceeding pending or, to the knowledge of ESI, threatened against or
affecting the Company or any of the Company's properties or to ESI's knowledge,
any of the Company's officers or directors in their capacity as such, in, before
or by any Governmental Authority that has had or can reasonably be expected to
have a Material Adverse Effect, nor has any Governmental Authority notified the
Company prior to the date hereof of any intention to conduct any investigation
with respect to the Company. The Company is not subject to or in default with
the respect to any judgment, order, writ, injunction or decree or any
governmental restriction.
Section 2.11. Contracts and Commitments. Schedule 2.11 lists
all personal property leases, contracts, agreements, contract rights, license
agreements, franchise rights and agreements, policies, purchase and sales
orders, quotations and executory commitments, instruments, third party
guaranties, indemnifications, arrangements, obligations and understandings,
whether oral or written, to which the Company is a party (whether or not legally
bound thereby), that are currently in effect and that require payments,
individually or in the aggregate, in excess of $25,000, other than purchase and
sale orders, quotations and executory commitments incurred in the ordinary
course of business of the Company (collectively, the "Contracts") . Each of the
Contracts is valid and binding, in full force and effect and enforceable
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against the Company in accordance with its provisions. Except as set forth on
Schedule 2.11, the Company has not assigned, mortgaged, pledged, encumbered, or
otherwise hypothecated any of its right, title or interest under any of the
Contracts. Neither the Company nor, to ESI's knowledge, any other party thereto
is in violation of, in default in respect of nor has there occurred an event or
condition which, with the passage of time or giving of notice (or both), would
constitute a material violation or a default of any Contract. No notice has been
received by Seller, ESI or the Company claiming any such default by the Company
or indicating the desire or intention of any other party thereto to amend,
modify, rescind or terminate the same.
Section 2.12. Compliance with Laws; Environmental Matters.
(a) For the purposes of this Section 2.12, "Environmental
Laws" means any and all laws, statutes, codes, ordinances, orders, rules,
regulations, judgments, decrees, injunctions, writs, edicts, awards,
authorizations or other requirement of any national, state, county, municipal or
other government, domestic or foreign, or of any agency, board, bureau,
commission, court, department or other instrumentality thereof, or any
obligation included in any certificate, franchise, permit or license issued by
any such governmental authority or resulting from binding arbitration, including
any requirement under common law, relating to the environment or public or
worker health or safety, including ambient air, surface water, land surface or
subsurface strata, or to emissions, discharges, releases or threatened releases
of pollutants, contaminants, chemicals or industrial, toxic or hazardous
substances or wastes (including Solid Wastes, Hazardous Wastes or Hazardous
Substances) or noxious noise or odor into the environment, or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
recycling, removal, transport or handling of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or wastes (including petroleum,
petroleum distillates, asbestos or asbestos-containing material, volatile
organic compounds or polychlorinated biphenyls).
(b) The Company is in compliance in all material respects with
all laws, ordinances, regulations and orders applicable to the Business,
including without limitation all Environmental Laws applicable to it or any of
its owned or operated facilities, sites or other properties, businesses and
operations, including those which relate to the reporting by the Company of all
sites owned or operated by it where Solid Wastes, Hazardous Wastes or Hazardous
Substances have been treated, stored, disposed of or otherwise handled, and
possesses all necessary certifications and licenses required for the conduct of
its Business. Seller and ESI have no notice or actual knowledge of any
violations of such laws, ordinances, regulations and orders or notice of intent
to cancel, terminate or not renew such certifications or licenses, whether
actual, claimed or alleged, except as disclosed on Schedule 2.12 hereto and
except for those instances as are not reasonably likely to have a Material
Adverse Effect.
(c) The Company is not the subject of or, to the knowledge of
Seller or ESI, being threatened to be the subject of (i) any enforcement
proceeding, (ii) any investigation under any Environmental Law, or (iii) any
third party claim relating to the violation of any Environmental Law on or off
the properties of the Company.
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(d) No release (as defined in the Environmental Laws) at, from
in or on any site owned or operated by the Company has occurred which, if all
relevant facts were known, would require remediation to avoid deed record
notices, restrictions liabilities or would result in other consequences that
would not be applicable if that release had not occurred.
(e) The Company has not transported or arranged for the
transportation of any Solid Wastes, Hazardous Wastes or Hazardous Substances to,
or disposed or arranged for the disposition of any Solid Wastes, Hazardous
Wastes or Hazardous substances at, any off-site location that could reasonably
be expected to lead to any claim against the Company or Buyer as a potentially
responsible party for any fines, clean-up costs, remedial work, damage to
natural resources, personal injury or property damage.
(f) To the knowledge of Seller or ESI, no storage tanks exist
or have ever existed on or under any of the properties owned or operated by the
Company from which any Solid Wastes, Hazardous Wastes or Hazardous Substances
have been released into the surrounding environment. The Company has provided
the Buyer with copies (or if not available, accurate written summaries) of all
environmental investigations, studies, audits, reviews and other analyses
conducted by or on behalf, or which otherwise are in the actual or constructive
possession, of the Company, respecting any facility, site or other property
presently owned or operated by the Company.
Section 2.13. Taxes. Except as set forth on Schedule 2.13:3
(a) The Company has duly filed all federal, state, local and
foreign tax returns and tax reports required to have been filed by it prior to
the date hereof and will file, on or before the Closing Date, all such returns
and reports that are required to be filed after the date hereof and on or before
the Closing Date, all such returns and reports are true, correct and complete in
all material respects, none of such returns and reports has been amended, and
all taxes, assessments, fees and other governmental charges arising under such
returns and reports (i) have been fully paid (or, with respect to any returns or
reports filed between the date hereof and the Closing Date, will be), or (ii)
are being contested in good faith by appropriate proceedings (and are set forth
on Schedule 2.13);
(b) Schedule 2.13 sets forth the dates and results of any and
all audits of federal, state, local and foreign tax returns of the Company
performed by federal, state, local or foreign taxing authorities. No waivers of
any applicable statutes of limitations are outstanding. All deficiencies
proposed as a result of any audits have been paid or settled. There is no
pending or threatened federal, state, local or foreign tax audit of the Company
and no agreement with any federal, state, local or foreign tax authority that
may affect the subsequent tax liabilities of the Company; and
(c) The Company has no material liabilities for taxes other
than as shown on the Company Financial Statements, and no federal, state, local
or foreign tax authority is now
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asserting or, to the knowledge of Seller or ESI, threatening to assert any
deficiency or assessment for additional taxes with respect to the Company.
(d) All amounts required to be withheld by the Company and
paid to governmental agencies for income, social security, unemployment
insurance, sales, excise, use and other taxes have been collected or withheld
and paid to the proper taxing authority. The Company has made all deposits
required by law to be made with respect to employees' withholding and other
employment taxes.
Section 2.14. Employees. The Company is not a party to or
bound by any collective bargaining agreement, nor has the Company experienced
any strike or material grievance, unfair labor practice or other collective
bargaining dispute within the three year period prior to the date hereof. To the
knowledge of Seller and ESI, the Company has not committed any wrongful
discharge or other wrongful act with respect to the employment or termination of
any employee prior to the Closing Date that, individually or in the aggregate,
can reasonably be anticipated to result in a Material Adverse Effect. Schedule
2.14 sets forth a complete list of the names, titles and rates of compensation
at the date hereof of all employees, nonemployee officers or directors and key
consultants and independent contractors of the Company. Except as set forth on
Schedule 2.14, there are no employment agreements, whether written or oral, to
which the Company is a party. The Company is not aware of any employee of the
Company who is not a citizen of, or authorized in accordance with federal
immigration laws to be employed in, the United States.
Section 2.15. Employee Benefit Plans. Schedule 2.15 hereto
comprises a listing of each bonus, stock option, stock purchase, benefit, profit
sharing, savings, retirement, liability, insurance, incentive, deferred
compensation, and other similar fringe or employee benefit plans, programs or
arrangements for the benefit of or relating to, any employee of, or independent
contractor or consultant to, and all other compensation practices, policies,
terms or conditions, whether written or unwritten (the "Employee Plans") which
the Company presently maintains, to which the Company presently contributes or
under which the Company has any liability and which relates to employees or
independent contractors of the Company. The Employee Plans administered by the
Company have been administered in all material respects in accordance with all
requirements of applicable law and terms of each such plan. Each Employee Plan
that is required or intended to be qualified under applicable law or registered
or approved by a governmental agency or authority, has been so qualified,
registered or approved by the appropriate governmental agency or authority and,
to the best of the Seller's and ESI's knowledge, nothing has occurred since the
date of the last qualification, registration or approval to adversely affect, or
cause, the appropriate governmental agency or authority to revoke such
qualification, registration or approval. Except as set forth in Schedule 2.15
all contributions (including premiums) in material amounts required by law or
contract to have been made or approved by the Company under or with respect to
Employee Plans have been paid or accrued by the Company. Without limiting the
foregoing, there are no material unfunded liabilities under any Employee Plan.
Neither the Seller nor ESI has received notice of any investigations, litigation
or other enforcement actions against the Company with respect to any of the
Employee Plans.
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Section 2.16. Title to Property. The Company has good and
marketable title, or valid leasehold rights (in the case of leased property), to
all real property and all personal property purported to be owned or leased by
it or used in the operation of its business, free and clear of all encumbrances,
excluding (i) liens for taxes, fees, levies, imposts, duties or governmental
charges of any kind which are not yet delinquent or are being contested in good
faith by appropriate proceedings which suspend the collection thereof; (ii)
liens for mechanics, materialmen, laborers, employees, suppliers or other which
are not yet delinquent or are being contested in good faith by appropriate
proceedings; (iii) liens created in the ordinary course of business in
connection with the leasing or financing of office, computer and related
equipment and supplies; (iv) easements and similar encumbrances ordinarily
created for fuller utilization and enjoyment of property; (v) liens set forth on
Schedule 2.16; and (vi) liens or defects in title or leasehold rights that are
not reasonably likely to have a Material Adverse Effect. All of such owned or
leased property with a value in excess of $10,000 is listed on Schedule 2.16
hereto, as well as a brief description of each such property, which if leased
shall include the termination date of such lease. The Company has provided Buyer
with true, complete and correct copies of all title reports and insurance
policies relating to any of the real properties listed as being owned or leased
in Schedule 2.16 and of all leases under which the Company is leasing each of
the properties listed in Schedule 2.16 as being leased. The fixed assets of the
Company are affixed only to one or more of the real properties listed in
Schedule 2.16 and, except as set forth therein, are well- maintained and
adequate for the purposes for which they presently are being used or held for
use, ordinary wear and tear excepted. All the property, plant and equipment of
the Company are in good working order and condition, ordinary wear and tear
expected, and adequate for the purposes for which they presently are being used
or held for use.
Section 2.17. Investment. ESI is acquiring the Payment Shares
and will acquire the Make Whole Shares solely for its own account as an
investment and not with a view to, or for offer or resale in connection with,
any distribution thereof within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations promulgated
thereunder. ESI is an "accredited investor" as that term is defined in Rule 501
promulgated under the Act.
Section 2.18. Related Party Agreements. Except as set forth in
Schedule 2.18, there are no contracts or other agreements, written or oral, to
which the Company is a party or is bound or by which any property of the Company
is bound or may be subject and to which the Seller or any of its Affiliates (as
such term is defined in the Securities Act) also is a party.
Section 2.19. Relations With Governments, etc. The Company has
not made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office which would cause
the company to be in violation of the Foreign Corrupt Practices Act of 1977 or
any governmental requirement to a similar effect.
Section 2.20. Inventories. All inventories, net of reserves determined in
accordance with GAAP, of the Company which are classified as such on the Company
Financial Statements are merchantable and salable or usable in the ordinary
course of business. The
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Company does not depend on any single vendor for its inventories the loss of
which could have a Material Adverse Effect.
Section 2.21. Insurance. Set forth on Schedule 2.21 is a list
of all insurance policies carried by the company, a list of all insurance loss
runs and worker's compensation claims received for the most recently ended three
policy years, and true, complete and correct copies of all insurance policies
carried by the Company which are in effect as of the date hereof, all of which
(A) have been issued by insurers of recognized responsibility and (B) currently
are, and will remain without interruption through the Closing Date, in full
force and effect. No insurance carried by the Company has been canceled by the
insurer during the past five years, and the Company has never been denied
coverage nor received any notice or other communication from any issuer of any
such insurance policy of any material increase in any deductibles, retained
amounts or the premiums payable thereunder, or any threatened increase in
deductibles, retainages or premiums.
Section 2.22. Brokers. Except as disclosed on Schedule 2.22,
all negotiations relative to this Agreement and the transactions contemplated
hereby have been carried on by or on behalf of Seller, ESI and the Company in
such a manner as not to give rise to any claim against Buyer, any Affiliate (as
such term is defined in the rules and regulations promulgated under the
Securities Act) thereof, Seller, ESI or the Company for a finder's fee,
brokerage commission, advisory fee or other similar payment.
Section 2.23. Closing Date Effect. All of the representations
and warranties of Seller and ESI are true and correct as of the date hereof and
shall be true and correct on and as of the Closing Date with the same force and
effect as if such representations and warranties were made by Seller to Buyer on
the Closing Date.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller and ESI that:
Section 3.1. Corporate Existence. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Colorado. Complete and correct copies of the Articles of Incorporation of Buyer
and all amendments thereto, certified by the Secretary of State of the State of
Colorado, and the By-laws of Buyer, and all amendments thereto, certified by the
Secretary of Buyer, heretofore have been delivered to Seller. As a result of the
business conducted by Buyer or the character or location of its properties,
Buyer is duly qualified to do business and is in good standing in those states
listed on Schedule 3.1 hereto, which are the only states where the nature of the
business conducted by it or the character or location of its properties requires
such qualification and where the failure to so qualify would have a material
adverse effect upon the business, operations, assets, properties, rights or
condition
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(financial or otherwise) or prospects of Buyer or upon the ability of the Buyer
to consummate the transactions contemplated by this Agreement (a "Buyer Material
Adverse Effect").
Section 3.2. Authorization; Validity. Buyer has all requisite
corporate power and authority to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby. No
declaration, recording or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by Buyer or the
consummation by Buyer of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not, in the
aggregate, have a Buyer Material Adverse Effect. All necessary corporate action
has been taken by Buyer with respect to the execution, delivery and performance
by Buyer of this Agreement and the consummation of the transactions contemplated
hereby. Assuming the due execution and delivery of this Agreement by Seller and
ESI, this Agreement is a legal, valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general application affecting the enforcement of creditors' rights and general
principles of equity (whether applied in a proceeding at law or in equity).
There does not exist any circumstances that would operate to terminate, reduce,
alter or impair the obligation of Buyer to issue the Make Whole Shares or that
give rise to or would give rise to a right of set-off by Buyer or any defense to
the performance of Buyer's obligation to issue the Make Whole Shares in
accordance with the terms of this Agreement.
Section 3.3. No Breach of Statute or Contract. Neither the
execution and delivery of this Agreement, nor the consummation by Buyer of the
transactions contemplated hereby, nor compliance by Buyer with any of the
provisions hereof, will (a) violate or cause a default under any statute
(domestic or foreign), judgment, order, writ, decree, rule or regulation of any
court or governmental authority applicable to Buyer or any of its material
properties; (b) breach or conflict with any of the terms, provisions or
conditions of the Articles of Incorporation or By-laws of Buyer; or (c) violate,
conflict with or breach or require the authorization, consent or approval of any
party under any agreement, contract, mortgage, instrument, indenture or license
to which Buyer is a party or by which Buyer is or may be bound, or constitute a
default (in and of itself or with the giving of notice, passage of time or both)
thereunder, or result in the creation or imposition of any encumbrance upon, or
give to any other party or parties, any claim, interest or right, including
rights of termination or cancellation, in^ or with respect to any of Buyer's
properties.
Section 3.4. Capitalization; Buyer Common Stock. Buyer's
authorized capital stock consists of (i) 25,000,000 shares of Buyer Common
Stock, of which [15,665,492] shares are issued and outstanding on the date
hereof and will be outstanding on the Closing Date and (ii) 10,000,000 shares of
Preferred Stock, $1.00 par value, of which there are no shares issued and
outstanding on the date hereof. Except as set forth in Schedule 3.4, there are
no subscriptions, options, warrants, calls, rights, contracts, commitments,
understandings, restrictions or arrangements of any kind relating to the
issuance, sale or transfer by Buyer of its capital stock,
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including without limitation, any rights of conversion or exchange under any
outstanding securities or other instruments. The issuance and delivery of the
Payment Shares and the Make Whole Shares have been duly and validly authorized
by all necessary corporate action on the part of Buyer and will be duly and
validly issued, fully paid and non-assessable. The Payment Shares and the Make
Whole Shares will be issued, transferred and delivered to ESI free and clear of
any and all liens, claims, charges, encumbrances, restrictions and agreements of
any nature whatsoever. The Payment Shares and the Make Whole Shares will not be
issued, transferred, and delivered to ESI in violation of any preemptive rights,
rights of first refusal or other similar rights.
Section 3.5. SEC Reports and Financial Statements. Except for
Buyer's Form 10-KSB which was filed two days late on October 16, 1998, Buyer has
timely filed with the SEC, and has heretofore made available to Seller and ESI
true and complete copies of, all forms, reports, schedules, statements and other
documents required to be filed by it under the Securities Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act") on or after June 30, 1998
(as such documents have been amended or supplemented since the time of their
filing and, in the case of registration statements and proxy statements, on the
dates of effectiveness and the dates of mailing, respectively^ ( collectively,
the "Buyer SEC Reports"). At the time of filing, the Buyer SEC Reports
(including any financial statements or schedules included therein) (a) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and (b)
complied in all material respects with the applicable requirements of the
Securities Act and the Exchange Act, as the case may be. The audited
consolidated financial statements and unaudited interim consolidated financial
statements (including the related notes) of Buyer included in the Buyer SEC
Reports have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as may be indicated therein or
in the notes thereto) and fairly present in all material respects the financial
position of Buyer and its subsidiaries as of the dates thereof and the results
of their operations and changes in financial position for the periods then
ended, subject, in the case of the unaudited interim financial statements, to
normal year-end audit adjustments and any other adjustments described therein
(which will not be material individually or in the aggregate).
Section 3.6. Absence of Undisclosed Liabilities. Except as
disclosed in the Buyer SEC Reports, Buyer has no material debts, liabilities or
obligations of any kind, whether accrued, absolute, contingent or other, whether
due or to become due, that would have a Buyer Material Adverse Effect.
Section 3.7. Absence of Certain Changes or Events. Except as
set forth on Schedule 3.7 hereto, since June 30, 1998, no event or circumstance
has occurred resulting or reasonably likely to result in a Buyer Material
Adverse Effect. Without limiting the generality of the foregoing, since that
date, there has not been with respect to Buyer:
(a) Any change in its business, operations (as now conducted
or as presently proposed to be conducted), assets, properties or rights,
prospects or condition (financial or
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otherwise), or combination thereof which reasonably could be expected to result
in a Buyer Material Adverse Effect;
(b) Other than in the usual and ordinary course of business,
any increase in amounts payable by Buyer to or for the benefit of or committed
to be paid by Buyer to or for the benefit of any officer, director, stockholder,
consultant, agent or employee of Buyer, in any capacity, or in any benefits
granted under any bonus, stock option, profit sharing, pension, retirement,
deferred compensation, insurance, or other direct or indirect benefit plan with
respect to any such person;
(c) Any transaction entered into or carried out other than in
the ordinary and usual course of its business, including without limitation, any
transaction resulting in the incurrence of liabilities or obligations;
(d) Any material change made in the methods of doing business
or in the accounting principles or practices or the method of application of
such principles or practices;
(e) Any mortgage, pledge, lien, security interest,
hypothecation, charge or other encumbrance imposed or agreed to be imposed on or
with respect to any of its properties that will not be discharged prior to the
Closing Date except for financing statements filed by personal property lessors
as a matter of notification only;
(f) Except in the ordinary course of business, any sale, lease
or other disposition of, or any agreement to sell, lease or otherwise dispose of
any of its properties, assets or services, individually or in the aggregate, in
excess of $25,000;
(g) Any purchase of or any agreement to purchase capital
assets or any lease or any agreement to lease, as lessee, any capital assets,
individually or in the aggregate, with a purchase price or carrying value in
excess of $25,000;
(h) Any modification, waiver, change, amendment, release,
rescission or termination of, or accord and satisfaction with respect to, any
material term, condition or provision of any contract, agreement, license or
other instrument to which the Company is a party, other than any satisfaction by
performance in accordance with the terms thereof in the usual and ordinary
course of its business;
(i) Any declaration of, or dividend or other distribution to
the Company's shareholders, purchase, redemption or reclassification of any of
the Company's capital stock or stock split, stock dividend, exchange or
recapitalization or execution of any agreement in respect of the foregoing;
(j) Any damage, destruction or similar loss, whether or not covered by
insurance, adversely affecting Buyer's business; or
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(k) Any commitment by the Buyer to do any of the foregoing.
Section 3.8. Litigation. Schedule 3.8 sets forth a complete
and accurate list as of the date hereof of all Proceedings pending or, to
Buyer's knowledge, threatened against or affecting the Buyer or any of the
Buyer's properties or to Buyer's knowledge any of Buyer's officers or directors
in their capacities as such, in, before or by any Governmental Authority. Buyer
shall update Schedule 3.8 as of the Closing Date, but any information on such
updated schedule relating to Proceedings arising after the date hereof shall not
constitute a breach of this Section 3.8 unless such Proceedings have had or can
reasonably be expected to have a Buyer Material Adverse Effect. Except as set
forth on Schedule 3.8 or as disclosed in the Buyer SEC Reports, there is no
Proceeding pending or, to the knowledge of Buyer, threatened against or
affecting the Buyer or any of the Buyer's properties or to Buyer's knowledge any
of the Buyer's officers or directors in their capacity as such, in, before or by
any Governmental Authority that has had or can reasonably be expected to have a
Buyer Material Adverse Effect, nor has any Governmental Authority notified the
Buyer prior to the date hereof of any intention to conduct any investigation
with respect to Buyer. The Buyer is not subject to or in default with the
respect to any judgment, order, writ, injunction or decree or any governmental
restriction.
Section 3.9. Compliance with Laws; Environmental Matters.
(a) Buyer is in compliance in all material respects with all
laws, ordinances, regulations and orders applicable to its business and Buyer
has no notice or actual knowledge of any violations thereof, whether actual,
claimed or alleged, except as disclosed on Schedule 3.9 hereto and except for
those instances of non-compliance or those violations as are not reasonably
likely to have a Buyer Material Adverse Effect.
(b) Buyer is not the subject of or, to its knowledge, being
threatened to be the subject of (i) any enforcement proceeding, or (ii) any
investigation, brought in either case under any Environmental Law, at any time
in effect or (iii) any third party claim relating to the violation of any
Environmental Law on or off the properties of Buyer. Buyer has not been notified
that it must obtain any permits and licenses or file documents for the operation
of its business under any Environmental Laws. Buyer has not been notified of any
conditions on or off its properties that can reasonably be expected to give rise
to any Environmental Law and that would result in a Buyer Material Adverse
Effect.
(c) Except as disclosed on Schedule 3.9, there are no
Hazardous Substances that Buyer has used, stored or otherwise held in or on any
of the facilities of Buyer that are present at or have migrated from the
facilities, whether contained in ambient air, surface water, groundwater, land
surface or subsurface strata.
Section 3.10. Taxes. Except as set forth on Schedule 3.10:
(a) Buyer and its subsidiaries have duly filed all federal,
state, local and foreign tax returns and tax reports required to be filed by
them prior to the date hereof and will
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file, on or before the Closing Date, all such returns and reports which are
required to be filed after the date hereof and on or before the Closing Date,
all such returns and reports are true, correct and complete in all material
respects, none of such returns and reports has been amended, and all taxes,
assessments, fees and other governmental charges arising under such returns and
reports (i) have been fully paid (or, with respect to any returns or reports
filed between the date hereof and the Closing Date, will be) or (ii) are being
contested in good faith by appropriate proceedings (and are set forth on
Schedule 3.10);
(b) Schedule 3.10 sets forth the dates and results of any and
all audits of federal, state, local and foreign tax returns of Buyer and its
subsidiaries have performed by federal, state, local or foreign taxing
authorities. No waivers of any applicable statutes of limitations are
outstanding. All deficiencies proposed as a result of any audits have been paid
or settled. There is no pending or threatened federal, state, local or foreign
tax audit of Buyer and its subsidiaries and no agreement with any federal,
state, local or foreign tax authority that may affect the subsequent tax
liabilities of the Company; and
(c) Buyer and its subsidiaries have no material liabilities
for taxes other than as shown on the financial statements included in the Buyer
SEC Reports, and no federal, state, local or foreign tax authority is now
asserting or, to the knowledge of Buyer, threatening to assert any deficiency or
assessment for additional taxes with respect to the Company.
(d) All amounts required to be withheld by the Buyer and paid
to governmental agencies for income, social security, unemployment insurance,
sales, excise, use and other taxes have been collected or withheld and paid to
the proper taxing authority. The Buyer has made all deposits required by law to
be made with respect to employees' withholding and other employment taxes.
Section 3.11. Investment. The Buyer is acquiring the Shares
solely for its own account as an investment and not with a view to, or for offer
or resale in connection with, any distribution thereof within the meaning of the
Securities Act, and the rules and regulations promulgated thereunder. Buyer is
an "accredited investor" as that term is defined in Rule 501 promulgated under
the Act.
Section 3.12. Related Party Agreements. Except as set forth in
Schedule 3.12, there are no contracts or other agreements, written or oral, to
which the Buyer is a party or is bound or by which any property of the Buyer is
bound or may be subject and to which the Buyer or any of its Affiliates (as such
term is defined in the Securities Act) also is a party.
Section 3.13. Employees. The Buyer is not a party to or bound
by any collective bargaining agreement, nor has the Buyer experienced any strike
or material grievance, unfair labor practice or other collective bargaining
dispute within the three year period prior to the date hereof. The Buyer has not
committed any wrongful discharge or other wrongful act with respect to the
employment or termination of any employee prior to the Closing Date that,
individually or in the aggregate, can reasonably be anticipated to result in a
Material Adverse Effect. Schedule 3.13
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sets forth a complete list of the names, titles and rates of compensation at the
date hereof of all employees, nonemployee officers or directors and key
consultants and independent contractors of the Buyer. Except as set forth on
Schedule 3.13, there are no Employment Agreements, whether written or oral, to
which the Buyer is a party. The Buyer is not aware of any employee of the Buyer
who is not a citizen of, or authorized in accordance with federal immigration
laws to be employed in, the United States.
Section 3.14. Relations With Governments, etc. The Buyer has
not made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office which would cause
the Buyer to be in violation of the Foreign Corrupt Practices Act of 1977 or any
governmental requirement to a similar effect.
Section 3.15. Brokers. Except as disclosed on Schedule 3.15
all negotiations relative to this Agreement and the transactions contemplated
hereby have been carried on by or on behalf of Buyer in such a manner as not to
give rise to any claim against Buyer, Seller or ESI, any Affiliate thereof, or
the Company for a finder's fee, brokerage commission, advisory fee or other
similar payment.
Section 3.16. Closing Date Effect. All of the representations
and warranties of Buyer are true and correct as of the date hereof and shall be
true and correct on and as of the Closing Date with the same force and effect as
if such representations and warranties were made by Buyer to Seller and ESI on
the Closing Date.
ARTICLE IV.
COVENANTS
Section 4.1. Access to Information.
(a) ESI and Seller shall cause the Company to afford to Buyer
and, on a need to know basis, its accountants, counsel, financial advisors and
other representatives (the "Buyer Representatives") full access during normal
business hours throughout the period prior to the Closing Date to all of its
properties, books, contracts, commitments and records (including, but not
limited to, tax returns) and, during such period, shall furnish promptly to the
Buyer or Buyer Representatives such other information concerning the Company's
business as Buyer shall reasonably request; provided that no investigation
pursuant to this Section 4.1 shall amend or modify any representations or
warranties made herein or the conditions to the obligations of the respective
parties to consummate the transactions contemplated hereby. Buyer shall treat,
and shall cause the Buyer Representatives to treat, all such materials and
information in accordance with section 4.5 hereof.
(b) Buyer shall afford ESI, Seller and, on a need to know
basis, their respective accountants, counsel, financial advisors and other
representatives (the "Seller Representatives") full access during normal
business hours throughout the period prior to the Closing Date to all
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of the respective properties, books, contracts, commitments and records
(including, but not limited to, tax returns) of Buyer and its subsidiaries and,
during such period, shall furnish promptly to Seller, ESI or the Seller
Representatives (i) a copy of each report, schedule and other document filed by
any of them with the SEC in connection with the transactions contemplated by
this Agreement or that may have a material effect on their respective
businesses, and (ii) such other information concerning Buyer's business as
Seller and ESI shall reasonably request; provided that no investigation pursuant
to this Section 4.1 shall amend or modify any representations or warranties made
herein or the conditions to the obligations of the respective parties to
consummate the transactions contemplated hereby. Seller and ESI shall treat, and
shall cause the Seller Representative to treat, all such materials and
information in accordance with the terms and conditions of the Non-Disclosure
Agreement.
Section 4.2. Agreement to Cooperate. Subject to the terms and
conditions herein provided, each of the parties hereto shall use all reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using its reasonable efforts to obtain all necessary
or appropriate waivers, consents and approvals and to effect all necessary
filings and submissions.
Section 4.3. Conduct of Business Prior to the Closing Date.
(a) During the period from the date of this Agreement to the
Closing Date, except as otherwise contemplated by this Agreement or consented to
or approved by Buyer in writing, ESI and Seller shall cause the Company (i) to
conduct its business in the usual, regular and ordinary course consistent with
past practice and prudent business principles and (ii) to use its reasonable
efforts to maintain and preserve intact its business organization, employees,
goodwill with customers and advantageous business relationships and to retain
the services of its officers and key employees.
(b) Seller and ESI agree that on and or after the date hereof
and prior to the Closing Date, without the consent of Buyer, Seller and ESI
shall not cause or otherwise suffer or permit the Company to:
(i) incur or become subject to, or agree to incur or become
subject to, any obligation or liability (absolute or contingent) except current
liabilities incurred, and obligations under contracts entered into, in the
ordinary course of business;
(ii) mortgage, pledge or subject to lien, charge or any
encumbrance, any of the Company's properties or agree so to do;
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(iii) sell or transfer or agree to sell or transfer any of its
assets, properties or services or cancel or agree to cancel any debt or claim,
except in each case in the ordinary course of business;
(iv) consent or agree to a waiver of any right of substantial
value;
(v) terminate any contract, agreement, license or other
instrument to which it is a party that provides for monthly payments by or to
the Company in excess of $10,000;
(vi) through negotiation or otherwise, make any commitment or
incur any liability or obligation to any labor organization except in the
ordinary course of business consistent with past practice;
(vii) make or agree to make any accrual or arrangement for or
payment of bonuses or special compensation of any kind to any officer, employee
or agent;
(viii) terminate any employee of the Company earning in excess
of $25,000 per annum or directly or indirectly pay or make a commitment to pay
any severance or termination pay to any officer, employee or agent except in the
ordinary course of business consistent with past practice;
(ix) introduce any new method of management, operation or
accounting with respect to its business or any of the assets, properties or
rights applicable thereto;
(x) make capital expenditures or commitments therefor in
excess of $10,000 except for repairs and maintenance in the ordinary course of
business consistent with past practice; or
(xi) authorize or enter into any agreement to do any of the
foregoing.
Section 4.4. Conduct of Buyer's Business Prior to the Closing
Date. Buyer agrees that, between the date of this Agreement and the Closing
Date, except (a) for any actions taken by Buyer relating to any other
acquisitions or business combinations or (b) as expressly contemplated by any
other provision of this Agreement, unless Seller and ESI shall otherwise agree
in writing, (x) the respective business of Buyer and its subsidiaries shall be
conducted only in, and shall not take any action except in, the ordinary course
of business consistent with past practice. By way of amplification and not
limitation, except (a) for any actions taken by Buyer relating to any other
acquisitions or business combinations or (b) as expressly contemplated by any
other provision of this Agreement, neither Buyer nor its subsidiaries shall,
between the date of this Agreement and the Closing Date, directly or indirectly,
do, or agree to do, any of the following without the prior written consent of
Seller and ESI, which consent shall not be unreasonably withheld or delayed:
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(i) declare, set aside, make or pay any dividend or
other distribution, payable in cash, stock, property
or otherwise, with respect to any of its capital
stock, except that any subsidiary of Buyer may pay
dividends or make other distributions to Buyer or any
other subsidiary of Buyer;
(ii) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or
indirectly, any of its capital stock;
(iii) sell, transfer, license, sublicense or
otherwise dispose of any material assets; or
(iv) authorize or enter into any formal or informal
agreement or otherwise make any commitment to do any
of the foregoing.
Section 4.5. Confidentiality. Each of the parties to this
Agreement convenants and agrees to hold in strict confidence all data and
information obtained from the other party hereto or any subsidiary, division,
associate, representative, agent or affiliate of any such party, including but
not limited to information furnished prior to the date hereof (unless such
information is or becomes publicly available without the fault of any
representative of such party, or public disclosure of such information is
required by law in the opinion of the counsel to such party) and shall insure
that such representatives do not disclose information to others without the
prior written consent of the other party hereto, and in the event of the
termination of this Agreement, to cause its representatives to return promptly
every document furnished by the other party hereto or any subsidiary, division,
associate, representative, agent or affiliate of any such party in connection
with the transactions contemplated hereby and any copies thereof which may have
been made, other than documents which are publicly available.
Section 4.6. Announcements. None of the parties to this
Agreement nor any of their respective Affiliates shall make any public
announcements prior to the Closing Date or any time thereafter with respect to
this Agreement or the transactions contemplated hereby without the written
consent of the other parties hereto, unless advised by counsel that such
disclosure is required by law (in which event such party shall promptly notify
the other parties hereto).
Section 4.7. Satisfaction of Conditions. Each of the parties hereto shall use
its best efforts to fulfill or obtain the fulfillment of all of the conditions
to Closing.
Section 4.8. Notice of Developments. Buyer, ESI and Seller
agree to give each other prompt written notice in the event its own
representations and warranties are discovered to be untrue as of the time made
or in the event such party determines that such representations and warranties
shall be untrue as if made at and as the Closing Date. No disclosure by Buyer,
ESI or Seller pursuant to this Section 4.8, however, shall be deemed to or shall
supplement the schedules hereto or to cure any misrepresentation or breach of
warranty;
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provided, however, that the delivery of or failure to deliver any notice
pursuant to this Section 4.8 shall not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
Section 4.9. Reporting Status. Until one year after the date
as of which the Seller may sell all of the Purchase Shares without restriction
pursuant to Rule 144(k) promulgated under the Securities Act, the Buyer shall
use its best efforts to timely file all reports required to be filed with the
SEC pursuant to the Exchange Act and to maintain its status as an issuer
required to file reports under the Exchange Act even if the Exchange Act or the
rules and regulations thereunder would otherwise permit such termination.
Section 4.10. AMEX Listing. The Buyer shall use reasonable
efforts to secure the listing of the Buyer Common Shares, including the Payment
Shares and the Make Whole Shares, on the American Stock Exchange.
Section 4.11. Board Representative. Buyer shall appoint a
designee of ESI to its Board of Directors at the earliest practicable date
following the Closing Date and shall nominate and recommend the re-election of
such designee at its next annual meeting of stockholders; provided, however,
that if Seller shall no longer own at least 5% of the issued and outstanding
shares of Buyer Common Stock the Buyer shall have no further obligation under
this Section 4.11. In the event that ESI chooses not to seek the appointment of
a designee to the Buyer's Board of Directors, the Buyer shall (i) allow a
representative of ESI to attend and observe meetings of its Board of Directors
and (ii) provide ESI with all notices and other documents provided to its Board
of Directors.
Section 4.12. Company Funding. The Buyer will secure equity or
debt financing on or prior to the Closing Date in an amount which Buyer and ESI
reasonably believe will be sufficient to satisfy the creditors of the Company.
The Buyer will make a capital contribution (the "Capital Contribution") to the
Company in an amount to be reasonably agreed to by the Buyer and ESI, the
proceeds of which shall be used to satisfy creditors of the Company and to fund
the commencement of the Company's operations. In addition, Buyer shall use its
best efforts to secure the release of ESI as guarantor of indebtedness of the
Company set forth on Schedule 4.12, including without limitation, (a) executing
agreements with creditors of the Company to provide a guaranty to such creditors
in a form reasonably satisfactory to such creditors, and (b) providing such
creditors with all of the information it requests on a timely basis.
ARTICLE V.
CLOSING
Section 5.1. Closing. This transaction shall close and all
deliveries to be made at the time of closing (the "Closing") shall take place at
10:00 a.m., local time, on November 30, 1998, or on such other date as may be
agreed upon from time to time in writing by Seller and Buyer (the "Closing
Date"). The Closing shall take place at the offices of Short &
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Ketchand, 11 Greenway Plaza, Suite 1512, Houston Texas 77046, or at such other
place as the Buyer and the Seller shall mutually agree.
Section 5.2. Deliveries by Seller and ESI. On or prior to the
Closing Date, Seller and ESI shall deliver to Buyer, duly and properly executed,
the following:
(a) A certificate or certificates representing the Shares,
duly endorsed in blank for transfer or accompanied by separate stock powers duly
executed in blank, with all necessary documentary stamps evidencing the payment
of all applicable transfer taxes.
(b) Resolutions of the Board of Directors of Seller and ESI
authorizing the execution and delivery of this Agreement by Seller and the
performance of its obligations hereunder, certified by the Secretary of each of
the Seller and ESI.
(c) A certificate of the Secretary of State of Texas dated as
of a recent date as to the good standing of the Company in such state.
(d) A certificate of the Secretary of State of each state
listed on Schedule 2.1, dated as of a recent date as to the good standing of the
Company in each such state.
(e) A Certificate of the President and Secretary of Seller and
ESI in accordance with Section 6.1(d).
(f) A Registration Rights Agreement to be entered into by and
between Buyer and ESI, in the form attached hereto as Exhibit A (the
"Registration Rights Agreement").
(g) Such other separate instruments or documents that Buyer
may reasonably deem necessary or appropriate in order to consummate the
transactions contemplated by this Agreement including, without limitation, all
regulatory and contractual consents of third parties.
Section 5.3. Deliveries by Buyer. On or prior to the Closing Date, Buyer
shall deliver to Seller and ESI all duly and properly executed, the following:
(a) Resolutions of the Board of Directors of Buyer authorizing
the execution and delivery of this Agreement by Buyer and the performance of its
obligations hereunder, certified by the Secretary of Buyer.
(b) A certificate of the Secretary of State of Colorado dated
as of a recent date as to the good standing of Buyer in such state.
(c) A certificate of the President and Secretary of Buyer in
accordance with Section 6.2(d).
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(d) The Payment Shares, registered in the name of ESI or its
designee, any such designation to be made by ESI in writing and delivered to
Buyer not later than two days prior to the Closing Date.
(e) The Registration Rights Agreement.
(f) Such other separate instruments or documents that Seller
and ESI may reasonably deem necessary or appropriate in order to consummate the
transactions contemplated by this Agreement.
ARTICLE VI.
CONDITIONS PRECEDENT TO OBLIGATIONS
Section 6.1. Conditions to Obligations of Buyer. Each and
every obligation of Buyer to be performed on the Closing Date shall be subject
to the satisfaction as of or before the Closing Date of the following conditions
(unless waived in writing by Buyer):
(a) Representations and Warranties. Seller's and ESI's
representations and warranties set forth in Article II of this Agreement shall
have been true and correct in all respects when made and shall be true and
correct in all material respects at and as of the Closing Date as if such
representations and warranties were made as of the Closing Date, except for
changes permitted or contemplated by this Agreement and except to the extent
that any representation or a warranty is made as of a specified date, in which
case such representation or warranty shall be true in all material respects as
of such date.
(b) Performance of Agreement. All covenants, conditions and
other obligations under this Agreement which are to be performed or complied
with by Seller and ESI shall have been fully performed and complied with on or
prior to the Closing Date, including, without limitation, the delivery of the
fully executed instruments and documents in accordance with Section 5.2 hereof.
(c) No Adverse Proceeding. There shall be no pending or
threatened claim, action, litigation or proceeding, judicial or administrative,
or governmental investigation against Buyer, Seller, ESI or the Company, for the
purpose of enjoining or preventing the consummation of this Agreement, or
otherwise claiming that this Agreement or the consummation hereof is illegal.
(d) Certificate. Seller and ESI shall have delivered to Buyer
a certificate, dated the Closing Date, executed by Seller's and ESI's President
and Secretary, to the effect that (i) the conditions set forth in subsections
(a) and (b) and, to the best knowledge of such officers, (c), of this Section
6.1 have been satisfied and (ii) the Articles of Incorporation and By-laws of
the
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Company shall have not been amended since the date upon which certified copies
of each had been delivered to Buyer and remain in full force and effect.
(e) Consents and Approvals. All consents, approvals and
authorizations of all material contracts, licenses, agreements or instruments
required for consummation of the transactions contemplated by this Agreement
shall have been received and shall be in full force and effect.
(f) No Material Adverse Effect. There shall not have occurred
any event or circumstance resulting or reasonably likely to result in a Material
Adverse Effect.
(g) Lease Agreement. Buyer shall have entered into a real
property lease or sublease (the "Lease Agreement") with the lessor or the
sublessor for a portion used by the Company in the premises located at the Port
of Bay City, in a form reasonably satisfactory to Buyer.
Section 6.2. Conditions to Obligations of Seller and ESI. Each
and every obligation of Seller and ESI to be performed on the Closing Date shall
be subject to the satisfaction as of or before the Closing Date of the following
conditions (unless waived in writing by Seller or ESI):
(a) Representations and Warranties. Buyer's representations
and warranties set forth in Article III of this Agreement shall have been true
and correct in all material respects when made and shall be true and correct in
all material respects at and as of the Closing Date as if such representations
and warranties were made as of the Closing Date, except for changes permitted or
contemplated by this Agreement and except to the extent that any representation
or a warranty is made as of a specified date, in which case such representation
or warranty shall be true in all material respects as of such date.
(b) Performance of Agreement. All covenants, conditions and
other obligations under this Agreement which are to be performed or complied
with by Buyer shall have been fully performed and complied with on or prior to
the Closing Date including, without limitation, the delivery and the fully
executed instruments and documents in accordance with Section 5.3 hereof.
(c) No Adverse Proceeding. There shall be no pending or
threatened claim, action, litigation or proceeding, judicial or administrative,
or governmental investigation against Buyer, Seller or the Company, for the
purpose of enjoining or preventing the consummation of this Agreement, or
otherwise claiming that this Agreement or the consummation hereof is illegal.
(d) Certificate. Buyer shall have delivered to Seller and ESI
a certificate, dated the Closing Date, executed by Buyer's President and
Secretary to the effect that (i) the conditions set forth in subsections (a) and
(b) and, to the best knowledge of such officers, (c), of this Section 6.2 have
been satisfied and (ii) the Articles of Incorporation and By-laws of Buyer shall
have not
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been amended since the date upon which certified copies of each had been
delivered to Seller and remain in full force and effect.
(e) No Buyer Material Adverse Effect. There shall not have
occurred any event or circumstance resulting or reasonably likely to result in a
Buyer Material Adverse Effect, including but not limited to, a reduction of the
Fair Market Value of the Buyer Common Stock below $3.20. Fair Market Value shall
be calculated based upon the average of the closing sales prices of Buyer Common
Stock on the Nasdaq OTC Bulletin Board for any five consecutive trading days.
(f) Tax Free Status. The Seller shall have received advice of
its tax counsel that it will not be taxed upon receipt of the Payment Shares and
the Make Whole Shares.
(g) Company Funding; Release of Guaranty. Buyer shall have
made the Capital Contribution to the Company. In addition, ESI and Seller shall
have been released from all obligations relating to the indebtedness of the
Company set forth on Schedule 4.12.
ARTICLE VII.
INDEMNIFICATION
Section 7.1. Survival of Representations and Warranties and
Agreements. Subject to the limitations set forth in this Article VII and
notwithstanding any investigation conducted at any time with regard thereto by
or on behalf of Buyer, ESI or the Seller, all representations, warranties,
covenants and agreements of Buyer, ESI and the Seller in this Agreement shall
survive the execution, delivery and performance of this Agreement and shall be
deemed to have been made again by the Buyer, ESI and the Seller at and as of the
Closing. The obligation of indemnity provided herein shall survive the Closing.
Section 7.2. Indemnification.
(a) Subject to the limitations set forth in this Article VII,
Seller and ESI shall indemnify and hold harmless Buyer from and against any and
all losses, liabilities, damages, demands, claims, suits, actions, judgments or
causes of action, assessments, costs and expenses including, without limitation,
interest, penalties, reasonable attorneys' fees, any and all reasonable expenses
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all amounts paid
in settlement of any claim or litigation (collectively, "Damages"), asserted
against, resulting to, imposed upon, or incurred or suffered by Buyer, directly
or indirectly, as a result of or arising from any inaccuracy in or breach of the
representations and warranties or covenants of the Seller or ESI contained in
this Agreement (individually an "Indemnifiable Claim" and collectively
"Indemnifiable Claims" when used in the context of Buyer as the Indemnified
Party (as hereinafter defined)).
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(b) Subject to the limitations set forth in this Article VII,
Buyer shall indemnify and hold harmless Seller and ESI from and against any and
all Damages asserted against, resulting to, imposed upon, or incurred or
suffered by Seller or ESI, directly or indirectly, as a result of or arising
from any inaccuracy in or breach of any of the representations and warranties or
covenants of the Buyer contained in this Agreement (individually an
"Indemnifiable Claim" and collectively "Indemnifiable Claims" when used in the
context of Seller or ESI as the Indemnified Party).
(c) For purposes of this Article VII, all Damages shall be
computed net of any insurance coverage (from the amount of which coverage there
shall be deducted all costs and expenses, including attorneys' fees, of the
Indemnified Party not reimbursed by such coverage) with respect thereto that
reduces the Damages that would otherwise be sustained; provided, however, that
in all cases, the timing of the receipt or realization of insurance proceeds
shall be taken into account in determining the amount of reduction of Damages.
Section 7.3. Limitations on Indemnification. Rights to indemnification
hereunder are subject to the following limitations:
(a) All obligations of indemnity provided herein resulting
from the assertion of liability with respect to any representations and
warranties (other than Sections 2.13 and 3.10 which shall survive for the
applicable statute of limitations including all extensions thereof and Sections
2.12, 2.14 and 3.4 which shall survive until eighteen months after the Closing
Date) shall terminate on the first anniversary of the Closing Date.
(b) If, prior to the termination of any obligation to
indemnify as provided for herein, written notice of a claimed breach is given by
the party seeking indemnification including in detail the basis therefor (the
"Indemnified Party") to the party from whom indemnification is sought (the
"Indemnifying Party") or a suit or action based upon a claimed breach is
commenced against the Indemnified Party, the Indemnified Party shall not be
precluded from pursuing such claimed breach or suit or action, or from
recovering from the Indemnifying Party (whether through the courts or otherwise)
on the claim, suit or action, by reason of the termination otherwise provided
for above.
(c) The right of any party hereto to commence or assert an
action, suit, claim or proceeding for Damages in respect of the breach of a
representation or warranty contained herein shall terminate at the same time
that the obligation of indemnification provided herein with respect to such
breach shall terminate.
(d) No party shall assert any claim against any other party or
parties for indemnification hereunder with respect to any breach of a
representation or warranty unless and until the amount of all such claims shall
exceed $20,000.
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Section 7.4. Procedure for Indemnification with Respect to
Third-Party Claims. The Indemnified Party shall give the Indemnifying Party
prompt written notice of any third party claim, demand, assessment, suit or
proceeding to which the indemnification set forth in Section 7.3 applies, which
notice to be effective must describe such claim in reasonable detail (the
"Indemnification Notice"). Notwithstanding the foregoing, the Indemnified Party
shall not have any obligation to give any notice of any assertion of liability
by a third party unless such assertion is in writing, and the rights of the
Indemnified Party to be indemnified hereunder in respect of any third party
claim shall not be adversely affected by its failure to give notice pursuant to
the foregoing unless and, if so, only to the extent that, the Indemnifying Party
is materially prejudiced thereby. The Indemnifying Party shall have the right to
control the defense or settlement of any such action subject to the provisions
set forth below, but the Indemnified Party may, at its election, participate in
the defense of any action or proceeding at its sole cost and expense.
Notwithstanding the foregoing, if there exists a conflict of interest that would
make it inappropriate for the same counsel to represent both the Indemnified
Party, on the one hand, and the Indemnifying Party, on the other hand, in
connection with any Indemnifiable Claim, then the Indemnified Party shall be
entitled to retain its own counsel as is reasonably satisfactory to the
Indemnifying Party at the Indemnifying Party's expense. In the event that such
Indemnified Party shall seek indemnification as provided herein, such
Indemnified Party shall make available to the Indemnifying Party, at its
expense, all witnesses, pertinent records, materials and information in the
Indemnified Party's possession or under the Indemnified Party's control relating
thereto as is reasonably required by the Indemnifying Party. Should the
Indemnifying Party fail to defend any such Indemnifiable Claim (except for
failure resulting from the Indemnified Party's failure to timely give notice of
such Indemnifiable claim), then, in addition to any other remedy, the
Indemnified Party may settle or defend such action or proceeding through counsel
of its own choosing and may recover from the Indemnifying Party the amount of
such settlement, demand, or any judgment or decree and all of its costs and
expenses, including reasonable fees and disbursements of counsel. Except as
permitted in the preceding sentence, the Indemnifying Party shall not be liable
for any settlement effected without its written consent, which consent shall not
be unreasonably withheld; provided, however, if such approval is unreasonably
withheld, the liability of the Indemnifying Party shall be limited to the amount
of the proposed compromise or settlement and the amount of the Indemnified
Party's reasonable counsel fees incurred in defending such claim, as permitted
by the preceding sentence, at the time such consent is unreasonably withheld.
Notwithstanding the preceding sentence, the right of the Indemnified Party to
compromise or settle any claim without the prior written consent of the
Indemnifying Party shall only be available if a complete release of the
Indemnifying Party is contemplated to be part of the proposed compromise or
settlement of such third party claim.
Section 7.5. Procedure For Indemnification with Respect to
Non-Third-Party Claims. In the event that the Indemnified Party asserts the
existence of an Indemnifiable Claim (but excluding claims resulting from the
assertion of liability by third parties), it shall give prompt written notice to
the Indemnifying Party specifying the nature and amount of the claim asserted
(the "Non-Third Party Claim Indemnification Notice"). If the Indemnifying Party,
within 30 days (or such greater time as may be necessary for the Indemnifying
Party to investigate such Indemnifiable Claim not to exceed 60 days), after
receiving the Non-Third Party Claim
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Indemnification Notice from the Indemnified Party, shall not give written notice
to the Indemnified Party announcing its intent to contest such assertion of the
Indemnified Party (the "Contest Notice"), such assertion shall be deemed
accepted and the amount of the claim shall be deemed a valid Indemnifiable
Claim. During the time period set forth in the preceding sentence, the
Indemnified Party shall cooperate fully with the Indemnifying Party in respect
of such Indemnifiable Claim. In the event, however, that the Indemnifying Party
contests the assertion of a claim by giving a Contest Notice to the Indemnified
Party within such period, then if the parties hereto, acting in good faith,
cannot reach agreement with respect to such claim within 60 days after such
notice was first given to the Indemnifying Party, such parties may seek any
remedy available to them at law or in equity.
ARTICLE VIII.
TERMINATION
Section 8.1. Termination by Buyer. This Agreement may be
terminated and cancelled at any time prior to the Closing Date by Buyer upon
written notice to Seller and ESI if: (i) any of the representations or
warranties of Seller contained herein shall prove to be inaccurate or untrue in
any respect; (ii) any obligation, term or condition to be performed, kept or
observed by Seller hereunder has not been performed, kept or observed in any
material respect at or prior to the time specified in this Agreement, provided,
however, that (x) Buyer has given Seller and ESI written notice of all reasons
for the proposed termination and (y) Seller or ESI has not cured any such
condition within 10 days of receiving the Buyer's notice; or (iii) Buyer is not
satisfied in its sole discretion with the results of its full due diligence
review of the Business by Buyer and its counsel and agents, provided, however,
that the Buyer's right to terminate pursuant to this subsection (iii) shall
terminate on November 30, 1998.
Section 8.2. Termination by Seller or ESI. This Agreement may
be terminated and cancelled at any time prior to the Closing Date by Seller and
ESI upon written notice to Buyer if: (i) any of the representations or
warranties of Buyer contained herein shall prove to be inaccurate or untrue in
any material respect; ^(ii) any obligation, term or condition to be performed,
kept or observed by Buyer hereunder has not been performed, kept or observed in
any material respect at or prior to the time specified in this Agreement,
provided, however, that (x) Seller and ESI has given Buyer written notice of all
reasons for the proposed termination and (y) Buyer has not cured any such
condition within 10 days of receiving the Seller's and ESI's notice; or (iii)
ESI and the Seller are not satisfied in their sole discretion with the results
of their due diligence review of the Buyer and its respective business
operations, prospects, liabilities and assets, provided, however, the Buyer's
right to terminate pursuant to this subsection (iii) shall terminate on November
30, 1998.
Section 8.3. Termination by Any Party. Any party hereto shall
have the right to terminate and cancel this Agreement if (i) the Closing Date
shall not have occurred on or before November 30, 1998, unless extended pursuant
to Section 5.1 hereof; provided that such failure of occurrence shall not have
resulted from the delay, default or breach of such party; or
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(ii) a court of competent jurisdiction shall have issued an order, decree or
ruling permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement, and such order, decree, ruling or
other action shall have become final and nonappealable.
Section 8.4. Termination by Mutual Consent. This Agreement may be terminated
and cancelled at any time prior to the Closing Date by mutual written consent of
Buyer, Seller and ESI.
Section 8.5. Effect of Termination. In the event of
termination of this Agreement by any party hereto as provided in this Article
VIII, this Agreement shall forthwith become void and there shall be no further
obligation on the part of any party or their respective officers or directors
(except as set forth in this Section 8.5, Section 4.5 and in Sctio 4.6 which
shall survive the termination). Nothing in this Section 8.5 shall relieve any
party from liability for any breach or failure of observance of the provisions
of this Agreement.
ARTICLE IX.
MISCELLANEOUS PROVISIONS
Section 9.1. Notices. All notices and other communications
required or permitted under this Agreement shall be deemed to have been duly
given and made when received if in writing and if served either by personal
delivery to the party for whom intended (which shall include delivery by Federal
Express or similar nationally recognized service) or five business days after
being deposited, postage prepaid, certified or registered mail, return receipt
requested, in the United States mail bearing the address shown in this Agreement
for, or such other address as may be designated in writing hereafter by, such
party:
If to Seller or ESI:Evans Systems, Inc.
720 North Avenue F
P.O. Box 2480
Bay City, Texas 77404-2480
Attention: Chief Executive Officer
with a copy to: Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attention: Michael Otner, Esq.
If to Buyer: Synaptix Systems Corporation
3050 Post Oak Boulevard, Suite 1080
Houston, Texas 77056
Attention: Chief Executive Officer
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with a copy to: Boyer Ewing & Harris
9 Greenway Plaza, Suite 3200
Houston, Texas 77046
Attention: John Boyer, Esq.
Section 9.2. Entire Agreement. This Agreement, the documents
referred to herein, and the other matters agreed to in writing by the parties on
the date hereof, embody the entire agreement and understanding of the parties
hereto with respect to the subject matter hereof, and supersede all prior and
contemporaneous agreements and understandings, oral or written, relative to said
subject matter.
Section 9.3. Binding Effect; Assignment. This Agreement and
the various rights and obligations arising hereunder shall inure to the benefit
of and be binding upon Buyer, Seller and ESI and their respective successors and
permitted assigns. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be transferred or assigned (by operation of law or
otherwise) by either of the parties hereto without the prior written consent of
the other party except that Buyer shall have the right to assign its rights but
not its obligations hereunder to any Affiliate thereof. Any transfer or
assignment of any of the rights, interests or obligations hereunder in violation
of the terms hereof shall be void and of no force or effect.
Section 9.4. Captions. The Article and Section headings of this Agreement are
inserted for convenience only and shall not constitute a part of this Agreement
in construing or interpreting any provision hereof.
Section 9.5. Expenses of Transaction. Seller and ESI shall pay
all costs and expenses incurred by them, in connection with this Agreement and
the transactions contemplated hereby. Buyer shall pay all costs and expenses
incurred by it in connection with this Agreement and the transactions
contemplated hereby.
Section 9.6. Waiver; Consent. This Agreement may not be
changed, amended, terminated, augmented, rescinded or discharged (other than by
performance), in whole or in part, except by a writing executed by each of the
parties hereto, and no waiver of any of the provisions or conditions of this
Agreement or any of the rights of a party hereto shall be effective or binding
unless such waiver shall be in writing and signed by the party claimed to have
given or consented thereto. Except to the extent that a party hereto may have
otherwise agreed to in writing, no waiver by that party of any condition of this
Agreement or breach by the other party of any of its obligations,
representations or warranties hereunder shall be deemed to be a waiver of any
other condition or subsequent or prior breach of the same or any other
obligation or representation or warranty by such other party, nor shall any
forbearance by the first party to seek a remedy for any noncompliance or breach
by such other party be deemed to be a waiver by the first party of its rights
and remedies with respect to such noncompliance or breach.
Section 9.7. No Third Party Beneficiaries. Subject to the provisions of
Section 9.3 hereof, nothing herein, expressed or implied, is intended or shall
be construed to
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confer upon or give to any person, firm, corporation or legal entity, other than
the parties hereto, any rights, remedies or other benefits under or by reason of
the provisions of this Agreement.
Section 9.8. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
Section 9.9. Gender. Whenever the context requires, words used
in the singular shall be construed to mean or include the plural and vice versa,
and pronouns of any gender shall be deemed to include and designate the
masculine, feminine or neuter gender.
Section 9.10. Governing Law. This Agreement shall in all respects be
construed in accordance with and governed by the laws of the State of Texas,
without regard to the principles of conflicts of laws thereof.
Section 9.11. Knowledge. As used in this Agreement, the term
"knowledge", when used herein with respect to Seller, ESI or Buyer shall mean
the knowledge of each of the executive officers of Seller or Buyer, as the case
may be.
Section 9.12. Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day and year first above written.
BUYER:
SYNAPTIX SYSTEMS CORPORATION
By:
Name:
Title:
SELLER:
WAY ENERGY, INC.
By:
Name:
Title:
EVANS SYSTEMS, INC.
By:
Name:
Title:
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TABLE OF CONTENTS
Page
ARTICLE I.
PURCHASE AND SALE OF SHARES.........................1
Section 1.1. Purchase and Sale of Shares.........................1
Section 1.2. Purchase Price......................................1
Section 1.3. Make Whole Adjustment...............................2
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF SELLER AND ESI....4
Section 2.1. Corporate Existence.................................4
Section 2.2. Authorization; Validity.............................5
Section 2.3. No Breach of Statute or Contract....................5
Section 2.4. Subsidiaries....................................... 6
Section 2.5. Capitalization and Shareholdings....................6
Section 2.6. Financial Statements................................6
Section 2.7. Absence of Undisclosed Liabilities..................6
Section 2.8. Absence of Certain Changes or Events............... 6
Section 2.9. Proprietary Rights..................................8
Section 2.10. Litigation..........................................9
Section 2.11. Contracts and Commitments..........................10
Section 2.12. Compliance with Laws; Environmental
Matters..............................10
Section 2.13. Taxes............................................. 12
Section 2.14. Employees......................................... 12
Section 2.15. Employee Benefit Plans............................ 13
Section 2.16. Title to Property................................. 13
Section 2.17. Investment........................................ 14
Section 2.18. Related Party Agreements...........................14
Section 2.19. Relations With Governments, etc....................14
Section 2.20. Inventories........................................14
Section 2.21. Insurance..........................................15
Section 2.22. Brokers........................................... 15
Section 2.23. Closing Date Effect............................... 15
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF BUYER...................................... 15
Section 3.1. Corporate Existence............................... 15
-i-
<PAGE>
TABLE OF CONTENTS (cont'd)
Page
Section 3.2. Authorization; Validity........................... 16
Section 3.3. No Breach of Statute or Contract.................. 16
Section 3.4. Capitalization; Buyer Common Stock................ 17
Section 3.5. SEC Reports and Financial Statements.............. 17
Section 3.6. Absence of Undisclosed Liabilities................ 18
Section 3.7. Absence of Certain Changes or Events.............. 18
Section 3.8. Litigation........................................ 19
Section 3.9. Compliance with Laws; Environmental Matters....... 19
Section 3.10. Taxes............................................. 20
Section 3.11. Investment........................................ 21
Section 3.12. Related Party Agreements...........................21
Section 3.13. Employees..........................................21
Section 3.14. Relations With governments, etc....................21
Section 3.15. Brokers............................................22
Section 3.16. Closing Date Effect............................... 22
ARTICLE IV.
COVENANTS.................................................................... 22
Section 4.1. Access to Information............................. 22
Section 4.2. Agreement to Cooperate............................ 23
Section 4.3. Conduct of Business Prior to the Closing Date..... 23
Section 4.4. Conduct of Buyer's Business Prior to the
Closing Date...................................... 24
Section 4.5. Confidentiality................................... 25
Section 4.6. Announcements..................................... 25
Section 4.7. Satisfaction of Conditions........................ 26
Section 4.8. Notice of Developments............................ 26
Section 4.9. Reporting Status.................................. 26
Section 4.10. AMEX Listing...................................... 26
Section 4.11. Board Representative.............................. 26
Section 4.12. Company Funding................................... 26
ARTICLE V.
CLOSING...................................................................... 27
Section 5.1. Closing........................................... 27
Section 5.2. Deliveries by Seller and ESI...................... 27
Section 5.3. Deliveries by Buyer............................... 28
ARTICLE VI.
-ii-
<PAGE>
TABLE OF CONTENTS (cont'd)
Page
CONDITIONS PRECEDENT TO OBLIGATIONS.......................................... 28
Section 6.1. Conditions to Obligations of Buyer................ 28
Section 6.2. Conditions to Obligations of Seller and ESI....... 29
ARTICLE VII.
INDEMNIFICATION.............................................................. 31
Section 7.1. Survival of Representations and Warranties
and Agreements.....................................31
Section 7.2. Indemnification................................... 31
Section 7.3. Limitations on Indemnification.................... 32
Section 7.4. Procedure for Indemnification with Respect to
Third-Party Claims................................ 32
Section 7.5. Procedure For Indemnification with Respect to
Non-Third-Party Claims............................ 33
ARTICLE VIII.
TERMINATION.................................................................. 34
Section 8.1. Termination by Buyer.............................. 34
Section 8.2. Termination by Seller or ESI...................... 34
Section 8.3. Termination by Any Party.......................... 34
Section 8.4. Termination by Mutual Consent..................... 35
Section 8.5. Effect of Termination............................. 35
ARTICLE IX.
MISCELLANEOUS PROVISIONS..................................................... 35
Section 9.1. Notices........................................... 35
Section 9.2. Entire Agreement.................................. 36
Section 9.3. Binding Effect; Assignment........................ 36
Section 9.4. Captions.......................................... 36
Section 9.5. Expenses of Transaction........................... 36
Section 9.6. Waiver; Consent................................... 36
Section 9.7. No Third Party Beneficiaries...................... 37
Section 9.8. Counterparts...................................... 37
Section 9.9. Gender............................................ 37
Section 9.10. Governing Law..................................... 37
Section 9.11. Knowledge......................................... 37
Section 9.12. Incorporation of Exhibits and Schedules........... 37
-iii-
<PAGE>
INDEX TO EXHIBITS AND ANNEXES
EXHIBIT
A.................................................Registration Rights Agreement
-iv-
<PAGE>
INDEX TO SCHEDULES
Seller
2.1...................................List of Jurisdictions in Which the Company
is Qualified to Do Business
2.3............................................Effects under Statute or Contract
2.5............................................................Required Consents
2.6.................................................Company Financial Statements
2.7...........................................Absence of Undisclosed Liabilities
2.8.........................................Absence of Certain Changes or Events
2.9.................................................Intellectual Property Rights
2.10..................................................................Litigation
2.11...................................................Contracts and Commitments
2.12..................................Compliance with Laws; Hazardous Substances
2.13.......................................................................Taxes
2.14...................................................................Employees
2.15...............................................................Benefit Plans
2.16...............................................................Real Property
2.18....................................................Related Party Agreements
2.22.....................................................................Brokers
2.21...................................................................Insurance
4.12........................................................Company Indebtedness
Buyer
3.1...............................................List of Jurisdictions in Which
Buyer is Qualified to Do Business
3.4.............................................Agreements, Etc. with Respect to
Buyer Common Stock
3.7.........................................Absence of Certain Changes or Events
3.8...................................................................Litigation
3.9...................................Compliance with Laws; Hazardous Substances
3.10.......................................................................Taxes
3.12....................................................Related Party Agreements
3.13...................................................................Employees
3.15.....................................................................Brokers
-v-
<PAGE>
Exhibit 2.6
Amendment No. 1 to Stock Purchase Agreement
Amendment No. 1 dated as of December ___, 1998 to the Stock Purchase
Agreement dated as of October 30, 1998 (the "Stock Purchase Agreement"), by and
among Synaptix Systems Corporation, a Colorado corporation, d.b.a. Affiliated
Resources Corporation ("Buyer"), Evans Systems, Inc., a Texas corporation
("ESI"), and Way Energy, Inc., a Delaware corporation ("Seller").
W I T N E S S E T H :
WHEREAS, the above parties have entered into the Stock
Purchase Agreement, pursuant to which Buyer will buy and Seller will sell all of
the issued and outstanding shares (the "Shares") of common stock, par value
$1.00 per share, of ChemWay Systems, Inc., a Texas corporation (the "Company");
and
WHEREAS, the parties desire, upon the terms and conditions hereinafter
set forth, to amend the Stock Purchase Agreement as set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
1. Section 1.3(a) is hereby amended in its entirety to read as
follows:
"Make Whole Adjustment. In the event that the Anniversary Date Average
Price (as defined below) is less than the Closing Date Price, Buyer shall issue
a number of additional shares of Buyer Common Stock (the "Make Whole Shares") to
Seller . The number of Make Whole Shares to be issued to Seller shall be equal
to the greater of (i) zero (-0-), or (ii) the Payment Shares subtracted from the
result obtained by dividing the Purchase Price by the Anniversary Date Average
Price. The Anniversary Date Average Price shall mean the greater of (x) $2.40 or
(y) the average closing price of a share of Buyer Common Stock on the Buyer's
then principal trading market, during the 20 consecutive trading day period
ending two trading days prior to the one year anniversary of the Closing Date.
The Make Whole Shares, if any, shall be delivered to Seller ten days after the
one year anniversary of the Closing Date. The maximum number of Make Whole
Shares to be issued shall be 1,000,000."
2. Section 1.3(d) (A) is hereby amended in its entirety to read as
follows:
"(A) If (i) Buyer agrees to merge or consolidate with
another entity and Buyer is not the surviving entity upon
consummation of the merger or consolidation (the date of such
consummation being the "Transaction Date"), (ii) the
Transaction Date occurs on or before the last day upon which
the Make Whole Shares could be delivered under Section 1.3(a)
hereof and the Make
<PAGE>
Whole Shares have not been issued and delivered to Seller and
(iii) the value two trading days before the Transaction Date
of the consideration per share of Buyer Common Stock to be
received by shareholders of Buyer, determined by the Buyer's
board of directors acting in good faith (the "Consideration
Value") in such merger or consolidation is not equal to or
greater than the Closing Date Price, then on the Transaction
Date immediately prior to the consummation of the merger or
consolidation, Buyer shall deliver to each Seller for each
share of Buyer Common Stock originally issued at the closing
hereunder and held by such Seller on the Transaction Date
(before the consummation of the merger or consolidation)
shares of Buyer Common Stock having a value equal to the
difference between the Closing Date Price and the
Consideration Value, with such value determined based upon the
average closing price of a share of Buyer Common Stock during
the 20 trading days ending two trading days prior to the
Transaction Date."
3. Section 1.3(d)(B) is hereby amended in its entirety to read as
follows:
"(B) If (i) on or before the last date upon which the
Make Whole Shares could be delivered under Section 1.3(a)
hereof (provided that no Make Whole Shares have been issued
and delivered to Seller), Buyer concludes a transaction
required to be reported under Section 13(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations promulgated thereunder (the "13(e)
Transaction") and (ii) the average closing price of a share of
Buyer Common Stock on the 20 trading days ending two trading
days prior to the last day upon which shareholders of Buyer
could tender shares of Buyer Common Stock in the 13(e)
Transaction (the "13(e) Transaction Date Average Price") is
less than the Closing Date Price, on the date Buyer
distributes the consideration for the shares of Buyer Common
Stock tendered and accepted in the 13(e) Transaction, Buyer
shall pay to Seller an amount of cash per share tendered and
accepted equal to the difference between the Closing Date
Price and the 13(e) Transaction Date Average Price (as if
Buyer had issued shares of Buyer Common Stock having a value
equal to the difference between the Closing Date Price and the
Transaction Date Average Price, and such shares were tendered
and accepted), provided that Buyer shall also pay to Seller
the consideration per share tendered and accepted of Buyer
Common Stock paid in the 13(e) Transaction to tendering
shareholders for shares of Buyer Common Stock accepted by the
Buyer."
4. Article I is hereby supplemented to include an additional provision,
Section 1.4, that shall read as follows:
"Section 1.4 Put Right. At any time after April 1, 1999
(the "Put Date"), Seller shall have the right to sell (i.e. to
"put") the Payment Shares to the Buyer for $4.00 per Payment
Share as described below (the "Put"). Notwithstanding
<PAGE>
anything to the contrary herein, the Put shall immediately
terminate and be of no further force and effect upon the
satisfaction and full performance by Buyer of those covenants
set forth in Sections 4.12 and 4.13 of the Stock Purchase
Agreement, provided that there is no inaccuracy or breach of
the representations of the Buyer contained in Section 3.17.
(1)At any time on or after the Put Date, Seller may notify the Buyer of
its irrevocable election to exercise the Put by delivering to the Company a duly
completed notice of such election.
(2)No later than 10 business days after Seller's delivery of the notice
of election, the Buyer shall effect the purchase of the Shares, at the closing
(the "Closing") to occur at a mutually convenient time, date and location.
(3)At the Closing, (i) the Buyer shall pay to Seller $4.00 per Share,
and (ii) Seller shall convey any Payment Shares subject to the Put to the Buyer
free and clear of all liens, claims or encumbrances and deliver to the Buyer
appropriate stock powers in blank duly executed by Seller.
(4)As security for the Buyer's satisfaction of its obligations under
this Section 1.4, the Buyer shall enter into a Security Agreement in favor of
Seller substantially in the form of Exhibit B hereto.
5. Article III is hereby supplemented to include an additional
provision, Section 3.17, that shall read as follows:
"Section 3.17. Company Funding. Since October 30, 1998 the Buyer has
issued or agreed to issue an aggregate of 920,000 shares for aggregate cash
proceeds of $800,000 and has a note receivable in an amount of $1,500,000. The
Buyer has received additional subscriptions for 80,000 shares which is expected
to yield aggregate net proceeds of $200,000 (the "Subscriptions"). The Buyer has
entered into a letter agreement dated December 18, 1998 with ICI Americas, Inc.
("ICI"), a copy of which is attached hereto as Exhibit 3.17 (the "ICI
Agreement"), regarding repayment of approximately $1,000,000 of the indebtedness
of the Company to ICI. At the Closing, the Buyer shall contribute $500,000 of
the previously described net proceeds to enable the Company to make the $500,000
payment required at Closing. The Buyer has no reason to believe that it will be
unable to satisfy other trade creditors of the Company and or to fund the
commencement of the Company's operations on or prior to February 1, 1999."
6. Article IV is hereby amended by deleting Section 4.12 and inserting
in its place the following:
"Section 4.12. Additional Financings; Commencement of Operations, etc..
On of before February 1, 1999, the Buyer will (i) receive full payment of the
principal amount of the note described in Section 3.17 above, (ii) receive
payment of the Subscriptions or other equity
<PAGE>
financing resulting in at least $200,000 in additional net proceeds, (iii)
contribute at least $1,500,000 of the proceeds from the financings described in
Section 3.17 and this Section 4.12 to satisfy creditors of the Company and to
fund the operations of the Company, (iv) satisfy all existing liabilities to the
creditors that are set forth on Schedule 4.12 and (v) commence full operations
of the Company. The Buyer further agrees to continue to provide the Seller
Representatives with full access to the properties, contracts and records of the
Buyer and its subsidiaries until fulfillment of Sections 4.12 and 4.13 and the
Buyer shall furnish promptly to the Seller or Seller Representatives such other
information concerning the business of the Buyer and the Company as the Seller
shall reasonably request."
7. Article IV is hereby supplemented to include an additional
provision, Section 4.13, that shall read as follows:
"Section 4.13 Repayment of Warehouse Note, Etc.. Following the Closing
Date, Buyer covenants and agrees to satisfy all obligations of ESI under the
note dated November 29,1996 (the "Warehouse Note") in favor of Texas Commerce
Bank National Association currently having a principal balance of approximately
$240,000 and to pay all payments of principal and interest under such Warehouse
Note as such payments become due and payable. In addition, as soon as
practicable following the Closing Date and not later than March 31, 1999, the
Buyer hereby covenants and agrees to (i) repay the entire unpaid balance of the
Warehouse Note, together with all accrued but unpaid interest thereon, (ii)
fully perform, or cause the Company to fully perform, the ICI Agreement, and
(iii) repay all of the indebtedness of the Company to Dot Chemical, Inc. ("Dot")
or obtain a full release of Seller and affiliate from all indebtedness of the
Company to Dot."
8. Article IV is hereby supplemented to include an additional
provision, Section 4.14, that shall read as follows:
"Section 4.14 Restriction on Buyer's Actions. Buyer covenants
and agrees that, except (i) as contemplated by this Agreement,
or (ii) as agreed in writing by Seller, after the date hereof,
and prior to the time that all covenants of the Buyer in set
forth in Sections 4.12 and 4.13 of this Agreement have been
satisfied:
(a)the Buyer will not, directly or indirectly, (a) sell,
transfer or pledge or agree to sell any capital stock of the Company or (b)
split, combine or reclassify Buyer's outstanding Common Stock;
(b)(a) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to its capital
stock; (b) sell, transfer, lease, license, sell, mortgage, pledge, dispose of,
or encumber any assets of the Company that are subject to the terms of the
Security Agreement; or (c) redeem, purchase or otherwise acquire directly or
indirectly any of its capital stock;
<PAGE>
(c)the Buyer will not modify, amend or terminate any of the
Company's Material Agreements or waive, release or assign any material rights or
claims of the Company;
(d)neither Buyer nor the Company will adopt a plan of complete
or partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of Buyer or the Company;
(e)Except for payments required to satisfy existing
liabilities to creditors of the Company and ESI pursuant to Sections 4.12 and
4.13, the Company will not make or agree to make any capital expenditure or
capital expenditures greater than $50,000 in the aggregate;
(f)neither Buyer nor any of its Subsidiaries will increase the
compensation of any director, executive officer or other key employee of Buyer
or pay any benefit or amount not required by a plan, agreement, understanding or
arrangement as in effect on the date of the Agreement to any such person;
(g)neither Buyer nor any of its Subsidiaries will take, or
agree to commit to take, any action that would make any representation or
warranty of the Buyer contained herein inaccurate in any material respect; or
(h) neither Buyer nor any of its Subsidiaries will authorize or enter
into an agreement to do any of the foregoing."
9. Section 5.3(d) is hereby amended in its entirety to read as follows:
"(d) The Payment Shares, registered in the name of the
Seller."
10. Section 6.2(f) is hereby amended in its entirety to read as
follows:
"(f) Tax Free Status. The Seller shall have received
advice of its tax counsel that it will not be taxed upon
receipt of the Payment Shares and the Make Whole Shares, other
than amounts, if any, treated as interest pursuant to Section
483 of the Internal Revenue Code of 1986, as amended and
Treasury Regulations promulgated thereunder."
11. Section 6.2(g) is hereby deleted in its entirety.
12. The Registration Rights Agreement is hereby amended in its entirety
and replaced with the Registration Rights Agreement attached hereto as Exhibit
B.
13. The Disclosure Schedules are hereby amended and replaced in their
entirety with the amended Disclosure Schedules attached hereto as Exhibit C.
<PAGE>
14. Except as modified above, and in the letter agreement dated as of
October 30, 1998 the terms and conditions of the Stock Purchase Agreement are
hereby confirmed and shall remain in full force and effect.
15. This Amendment may be executed simultaneously in two or more
counterparts which may be by facsimile, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have duly executed this
Amendment No. 1 as of the date first above written.
BUYER:
SYNAPTIX SYSTEMS CORPORATION
By:
Name:
Title:
SELLER:
WAY ENERGY, INC.
By:
Name:
Title:
EVANS SYSTEMS, INC.
By:
Name:
Title:
<PAGE>
Exhibit 2.7
March 11, 1999
Mr. J. L. Evans, Chief Executive Officer
Evans Systems, Inc.
720 North Avenue F
P.O. Box 2480
Bay City, Texas 77404
Re: Waiver and Second Amendment to Stock Purchase Agreement
Dear J. L.:
Affiliated Resources Corporation (the "Company") has been unable to
fulfill its obligations under the Stock Purchase Agreement dated as of October
30, 1998 by and among the Company, Evans Systems, Inc. and Way Energy, Inc. as
amended by Amendment No. 1 to Stock Purchase Agreement (the "First Amendment")
dated as of December 30, 1998 (as amended, the "Stock Purchase Agreement"), as
of the dates for compliance set forth therein. Specifically, the obligations
contained in new Section 4.12 subsections (i) through (v) of the Stock Purchase
Agreement to be fulfilled on or before February 1, 1999 were not completed by
the Company by that date, and the covenants of the Company in Section 4.13
subsections (i) through (iii) have not been fulfilled have not been completed.
The Company hereby requests a waiver of the Company's failure to comply
with those sections of the Stock Purchase Agreement, an agreement to extend the
date for compliance with the obligations set forth in Section 4.12 to April
15,1999, and the agreement of Seller not to exercise the Put until after May 14,
1999 (as extended, the "Put Date").
.
Except as modified above, in the letter agreement dated as of October
30, 1998 and in the First Amendment, the terms and conditions of the Stock
Purchase Agreement are hereby confirmed and shall remain in full force and
effect.
<PAGE>
Please evidence your agreement to this waiver and amendment by signing
this letter in the space provided below and returning one copy of this letter
agreement to the Company.
AFFILIATED RESOURCES CORPORATION
Peter C. Vanucci, Chief Executive Officer
Agreed to and Accepted as of March __, 1999:
WAY ENERGY, INC.
By
J. L. Evans, Chief Executive Officer
EVANS SYSTEMS, INC.
By
J. L. Evans, Chief Executive Officer
<PAGE>
Exhibit 2.8
April 26, 1999
Mr. J. L. Evans, Chief Executive Officer
Evans Systems, Inc.
720 North Avenue F
P.O. Box 2480
Bay City, Texas 77404
Re: Waiver and Third Amendment to Stock Purchase Agreement
Dear Mr. Evans:
Affiliated Resources Corporation (the "Company") has previously entered
into the Stock Purchase Agreement dated as of October 30, 1998 by and among the
Company, Evans Systems, Inc. and Way Energy, Inc. ("Seller"), as amended by
Amendment No. 1 to Stock Purchase Agreement (the First Amendment") dated as of
December 30, 1998 and Amendment No. 2 dated March 16, 1999 (the "Second
Amendment" and the Stock Purchase Agreement, as amended to date, the "Stock
Purchase Agreement"), as of the dates for compliance set forth therein. The
purpose of the Third Amendment to the Stock Purchase Agreement i to amend the
Stock Purchase Agreement as follows:
(10) Sections 1.3, 1.4, 3.17 and 4.14 are hereby deleted in their entirety.
(11) Article IV is hereby amended by deleting Section 4.12 and inserting in
its place the following:
"Section 4.12. Additional Financing, etc. As soon as practicable after
the date hereof, the Buyer will receive payment for the sale of common stock or
other securities of Buyer resulting in at least $1,5000,000 in proceeds to
Buyer. The Buyer agrees to continue to provide the Seller Representatives with
full access to the properties, contracts and records of the Buyer and its
subsidiaries and to furnish promptly to the Seller or Seller Representatives
such other information concerning the business of the Buyer and the Company as
the Seller shall reasonably request, until Buyer has received that amount in
full."
The Seller hereby further hereby releases its lien on and security
interest in ChemWay's stock and assets (and agrees to execute such financing
statements or other documents necessary
<PAGE>
to evidence such release) securing the Company's performance of the obligations
under old Section 4.12, upon fulfillment of the obligation of the Buyer under
this new Section 4.12.
(12) Article IV is hereby supplemented to include an additional
provision, Section 4.13, that shall read as follows:
"Section 4.13. Repayment of Warehouse Note. Following the Closing Date,
Buyer covenants and agrees to satisfy all obligations of ESI under the Note
dated November 29, 1996 (the Warehouse Note") in favor of Texas Commerce Bank
National Association currently having a principal balance of approximately
$240,000 and to pay all payments of principal and interest under such Warehouse
Note as such payments become due and payable. In addition, not later than July
31, 1999, the Buyer hereby covenants and agrees to repay the entire unpaid
balance of the Warehouse Note."
The purpose of this amendment is to facilitate th Company's acquisition
program and sale of Company stock to investors by removing provisions of the
Stock Purchase Agreement that are or may be objectionable to potential
acquisition targets and investors.
Except as modified above, in the letter agreement dated as of October
30, 1998, and in the First and Second Amendments, the terms and conditions of
the Stock Purchase Agreement are hereby confirmed and shall remain in full force
and effect.
Please evidence your agreement to this waiver and amendment by signing
this letter in the space provided below and returning one copy of this letter
agreement to the Company.
AFFILIATED RESOURCE CORPORATION
/s/ Peter C. Vanucci
Peter C. Vanucci, Chief Executive Officer
Agreed and Accepted as of April 26, 1999:
WAY ENERGY, INC.
By /s/ J. L. Evans
J. L. Evans, Chief Executive Officer
EVANS SYSTEMS, INC.
By /s/ J. L. Evans
J. L. Evans, Chief Executive Officer
<PAGE>
Exhibit 3.2
RESTATED ARTICLES OF INCORPORATION
OF AFFILIATED RESOURCES CORPORATION
Pursuant to the provisions of the Colorado Corporation Code, the
undersigned Colorado corporation hereby adopts these Restates Articles of
Incorporation, and does further certify hereby to the Secretary of State of the
State of Colorado, that:
Article 1 of the Restated Articles of Incorporation is to be deleted in
its entirety to change the name of the Company from SYNAPTIX SYSTEMS
CORPORATION, and in its place shall be substituted the following:
FIRST: The name of the corporation is AFFILIATED RESOURCES CORPORATION.
Such amendment was adopted by a vote of the shareholders. The number of
shares voted for the amendment was sufficient for approval.
IN WITNESS WHEREOF, Affiliated Resources Corporation has caused these
presents to be signed in its name and on its behalf by its Chairman and Chief
Executive Officer and attested by it s Executive Vice President and Secretary on
this 12th day of January, 1998, and its Chairman and Chief Executive Officer
acknowledges that these Restated Articles of Incorporation are the act and deed
of Affiliated Resources Corporation and, under the penalties of perjury, that
the matters and facts set forth herein with respect to the authorization and
approval are ture in all material respects to the best of the Chairman and Chief
Executive Officer's knowledge, information and belief.
AFFILIATED RESOURCES CORPORATION
By:
Peter C. Vanucci
Chairman and Chief Executive Officer
Attest:
Virginia M. Lazar
Executive Vice President & Secretary
<PAGE>
STATE OF OHIO ss.
ss. ss.
COUNTY OF ss.
Before me, , a notary public in and for said County, personally
appeared Peter C. Vanucci, who acknowledged before me that he is the Chairman
and Chief Executive Officer of Affiliated Resources Corporation, a Colorado
corporation, and that he signed the foregoing Restated Articles of Incorporation
as his free and voluntary act and deed for the uses and purposes therein set
forth, and that the facts contained therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this day of
January, 1999.
Notary Public
STATE OF TEXAS ss.
ss. ss.
COUNTY OF HARRIS ss.
Before me, , a notary public in and for said County, personally
appeared Virginia M. Lazar, who acknowledged before me that she is the Executive
Vice Presidenet and Secretary of Affiliated Resources Corporation, a Colorado
corporation, and that she signed the foregoing Restated Articles of
Incorporation as her free and voluntary act and deed for the uses and purposes
therein set forth, and that the facts contained therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this day of
January, 1999.
Notary Public
<PAGE>
Exhibit 4.4
AFFILIATED RESOURCES CORPORATION
EMPLOYEE STOCK OPTION AGREEMENT
This Agreement is made effective as of the 23rd day of March, 1999 (the
"Option Grant Date"), by and between AFFILIATED RESOURCES CORPORATION (the
"Company") and DAVID L. DEERMAN (the "Optionee").
RECITALS
WHEREAS, the Board of Directors of the Company has established the
Synaptix Systems Corporation (now known as Affiliated Resources Corporation)
1997 Incentive Stock Option Plan, (the "Plan"); and
WHEREAS, pursuant to the provisions of said Plan, the Board of
Directors of the Company, by action duly taken on March 3, 1999, granted to the
Optionee an option or options (the "Option(s)") to purchase shares of the common
stock of the Company on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth herein and other good and valuable consideration, the
parties hereto agree as follows:
1. The Option(s). The Optionee may, at his option and on the terms and
conditions set forth herein and in accordance with the terms and conditions set
forth in Mr. Deerman's Employment Agreement, attached hereto and made a part
hereof, purchase all or any part of an aggregate of TWO HUNDRED FIFTY THOUSAND
(250,000) shares of common stock under the Plan, at the price of $.50 per share.
2. Plan Type and Exercise Dates. The Options (if more than one) are
intended as separate incentive stock options. The Option(s) shall be exercisable
at the option price(s) as to the specific number of shares on and after the
"Start" dates and on or before the "Terminate" dates set forth below:
Numbers of Option Exercise Dates
Shares Price Start Date Terminate Date
250,000 $.50 December 30, 1999 December 30, 2003
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Optionee acknowledges that he understands that he has no right
whatsoever to exercise the Option(s) granted hereunder with respect to any
Optioned Shares covered by any installment, until such installment accures as
provided above. Optionee further understands that the Option(s) granted
hereunder shall expire and become unexercisable as provided in Section 3(c)
below.
3. Governing Plans. This Agreement hereby incorporates by reference the
Plan and all of the terms and conditions of the Plan and as the same may be
amended from time to time hereafter in accordance with the terms thereof, but no
such subsequent amendment shall adversely affect the Optionee's rights under
this Agreement and the Plan, except as may be required by applicable law. The
Optionee expressly acknowledges and agrees that the provisions of this Agreement
are subject to the Plan; the terms of this Agreement shall in no manner limit or
modify the controlling provisions of the Plan, and in case of any conflict
between the provisions of the Plan and this Agreement, the provisions of the
Plan shall be controlling and binding upon the parties hereto. The Optionee also
hereby expressly acknowledges, represents and agrees as follows:
(a) Acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto and by reference, incorporated herein, and
represents that he is familiar with the terms and provisions
of said Plan, and hereby accepts this Agreement, subject to
all of the terms and provisions of said Plan.
(b) Agrees to accept as binding, conclusive and final, all
decisions or interpretations of the Board of Directors (or the
Committee, if so authorized) upon any questions arising under
the Plan.
(c) Acknowledges that he is familiar with Section 7 of the Plan
regarding the exercise of the Option(s) and represents that he
understands that said Option(s) must be exercised on or before
the earliest of the following dates, whichever is applicable:
(i) the "Terminate" date noted above in Section 2; (ii) the day
prior to the fifth anniversary of the Option(s) Grant Date, as
provided in Section 7(b) of the Plan; (iii) the Effective Date
of a sale or other disposition of all or substantially all of
the stock or assets of the Company, as provided in Subsection
7(c) of the Plan; (iv) the date which is 30 days following the
Optionee's termination of employment for any reason, other than
death or total and permanent disability, as provided under
Subsection 7(d) of the Plan; or (v) the date that is one year
following his termination of employment by reason of his death,
or the date that is one year following his termination of
employment by reason of total and permanent disability,
whichever is applicable, as provided in Subsection 7(e) of the
Plan.
(d) Acknowledges and understands that the use by Optionee of
Company Stock to pay the exercise price of an Option, as
permitted by Section 4 of this Agreement, may have significant
adverse tax consequences for Optionee, and
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that Optionee should consult with a knowledge tax advisor
prior to utilizing Company Stock to exercise an Option.
4. Exercise. In order to exercise an Option, the Optionee shall deliver
a written notice of exercise to the Company at its principal business office,
which notice shall specify the number of shares to purchased and shall be
accompanied by payment in cash or check, made payable to the order of the
Company in the full amount of the purchase price of the shares to be purchased.
5. Representation and Warranties. As a condition to the exercise of any
portion of an Option, the Company may require the person exercising such Option
to make any representation and/or warranty to the Company as may, in judgment of
Counsel to the Company, be required under any applicable law or regulation,
including but not limited to, a representation and warranty that the shares are
being acquired only for investment and without any present intention to sell or
distribute such shares, in the opinion of counsel for the Company, such a
representation is required under the Securities Act of 1933, or any other
applicable law, regulation or rule of any governmental agency.
6. Options Not Transferable. The Option(s) may be exercised during the
lifetime of the Optionee, only by the Optionee. The Optionee's rights and
interests under this Agreement and in and to th Option (s) may not be sold,
pledged, hypothecated, assigned, encumbered, gifted or otherwise transferred in
any manner, either voluntarily or involuntarily, by operation of law, except by
will or the laws of descent or distribution, subject to the provisions of
Section 7(e) of the Plan.
7. No Enlargement of Employee Rights. Nothing in this Agreement shall
be construed to confer upon the Optionee (if any employee) any right to continue
employment with the Company (or an Affiliated Company), or to restrict in any
way the right of the Company (or an Affiliated Company, if he is an employee
thereof) to terminate his employment.
8. Withholding of Taxes. Subject to any election by Optionee to deliver
stock owned by Optionee or to withhold shares of stock exercised pursuant to
such option to satisfy such withholding obligation, Optionee authorizes the
Company to withhold, in accordance with any applicable law, from any
compensation payable to him, any taxes required to be withheld by Federal, State
or local law, as a result of the Grant of the Option(s) or the issuance of
stock, pursuant to the exercise of such Option(s).
9. Laws Applicable to Construction. This Agreement shall be construed
and enforced in accordance with the laws of the State of Texas.
10. Agreement Binding on Successors. The terms of this Agreement shall
be binding upon the executors, administrators, heirs, successors, transferees
and assignees of the Optionee.
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11. Costs of Litigation. In any action at law or in equity to enforce
any of the provisions or rights under this Agreement or the Plan, the
unsuccessful party to such litigation, as determined by the Court in a final
judgment or decree, shall pay the successful party or parties all costs,
expenses an reasonable attorney's fees incurred by the successful party or
parties (including without limitation, costs, expenses and fees on any appeals),
and if the successful party recovers judgment in any such action or proceeding,
such costs, expenses and attorney's fees shall be included as part of the
judgment .
12. Necessary Acts. The Optionee agrees to perform all acts and execute
and deliver any documents that may be reasonably necessary to carry out the
provisions of this Agreement, including but not limited to, all acts and
documents related to compliance with Federal and/or State securities laws.
13. Counterparts. For convenience, this Agreement may be executed in
any number of identical counterparts, each of which shall be deemed a complete
original in itself, and may be introduced in evidence or used for any other
purpose without the production of any counterparts.
14. Invalid Provisions. In the event that any provision of this
Agreement is found to be invalid or otherwise unenforceable under any applicable
law, such invalidity or unenforceability shall not be construed as rendering any
other provisions contained herein invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid and unenforceable provision was not contained herein.
IN WITNESS WHEREOF, the Company and the Optionee have executed
this Agreement, effective as of the date first written hereinabove.
AFFILIATED RESOURCES CORPORATION OPTIONEE
By: David L. Deerman
Peter C. Vanucci
Title: Chairman and CEO 9 Colonial Lane
Street Address
W. Columbia, Texas 77486
By: City and State
Virginia M. Lazar
Title: Secretary Social Security Number
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SPOUSAL CONSENT
By his or her signature below, the spouse of the Optionee, if such
Optionee be legally married as of the date of his execution of this Agreement,
acknowledges that he or she has read this Agreement and Plan, and is familiar
with the terms and provisions thereof, and agrees to be bound by all of the
terms and conditions of said Agreement and said Plan document.
Dated:
Spouse
REPRESENTATION OF MARITAL STATUS
By his or her signature below, the Optionee represents that he or she
is not legally married as of the date of execution of this Agreement.
Dated:
Optionee
<PAGE>
Exhibit 10.11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into
effective as of December 30, 1998 by and between ChemWay Systems, Inc., a Texas
corporation ("ChemWay" or the "Company"), and Mr. David Deerman (hereinafter
referred to as the "Executive").
WITNESSETH:
WHEREAS, the Company desires to have the benefit of the Executive's
efforts and services;
WHEREAS, the Executive is willing to commit himself to serve the Company,
on the terns and conditions herein provided; and
WHEREAS, in order to effect the foregoing, the Company and the Executive
wish to enter into an employment agreement on the terms and conditions set forth
below.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter set forth, the parties hereto mutually
covenant and agree as follows:
1. DEFINITIONS.
Whenever used in this Agreement, the following terms shall have the
meanings set forth below:
(a) "Accrued Benefits" shall mean the amount payable not later than
fourteen (14) days following an applicable Termination Date, which shall be
equal to the sum of the following amounts:
(i) All salary earned or accrued through the Termination Date;
(ii) Reimbursement for any and all monies advanced in
connection the Executive's employment for reasonable and necessary
expenses incurred by the Executive through the Termination Date.
(iii) Any and other cash benefits previously earned through
the Termination Date and deferred at the election of the Executive or
pursuant to any deferred compensation plans then in effect.
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(iv) All other payments and benefits to which the Executive
may be entitled under the terms of any benefit plan of the Company or
otherwise, including, but not limited to, any bonus declared by the
Board, any compensation for earned, but unused, vacation days, and any
unpaid automobile allowance.
(b) "Affiliate" shall have the same meaning as given to that term in
Rule 12b-2 of Regulation 12B promulgated under the Securities Exchange
Act of 1934, as amended.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Disability" shall mean a physical or mental condition whereby the
Executive is unable to perform on a full-time, continuous basis the
customary duties of the Executive under this Agreement.
(e) "Notice of Termination" shall mean the notice described in
Section 9 hereof;
(f) "Termination Date" shall mean, except as otherwise provided in
Section 8 hereof or as otherwise agreed between the Company and the
Executive:
(i) The Executive's date of death;
(ii) Thirty (30) days after the delivery of the Notice of
Termination terminating the Executive's employment on account of
Disability pursuant to Subsection 8(b) hereof, unless the Executive
returns on a full-time basis to the performance of Executive's duties
prior to the expiration of such period;
(iii) Thirty (30) days after the delivery of the Notice of
Termination if the Executive's employment is terminated by the
Executive voluntarily; and
(iv) Fifteen (15) days after the delivery of the Notice of
Termination, if the Executive's employment is terminated by the Company
for any reason other than the Executive's death or Disability.
2. EMPLOYMENT.
The Company hereby agrees to employ the Executive and the Executive hereby
agrees to serve the Company, on the terms and conditions set forth herein.
3. TERM.
The Company's employment of the Executive under the provisions of the
Agreement shall commence on the effective date hereof ("the Closing") and end on
the second anniversary of the Closing, unless further extended or sooner
terminated as hereinafter provided.
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4. POSITION AND DUTIES.
The executive shall serve as President of the Company and in such
additional capacities as may be reasonably assigned to the Executive by the
Board. In his capacity as President of the Company, the Executive shall have
such duties, responsibilities and authority as are usual and customary for
executives who hold the same or a substantially similar position with companies
of comparable size in the same industry as the Company. In connection with any
capacities, the Executive shall have such duties, responsibilities and authority
as may from time to time be reasonably assigned to the Executive by the Board.
The Executive shall devote substantially all the Executive's working time and
efforts to the business and affairs of the Company.
5. PLACE OF PERFORMANCE.
In connection with the Executive's employment by the Company, the Executive
shall be based at the Company's facilities in Bay City, Texas except for
required travel on company business, and except as otherwise agreed to between
the Executive and the Company.
6. COMPENSATION AND RELATED MATTERS.
(a) Commencing on the date hereof, and during Executive's employment,
the Company shall pay to the Executive an annual salary of $108,000.00,
payable in equal installments on the first and fifteenth days of each month
(or in such other installments consistent with the Company's policies and
procedures and as agreed to by the Executive). The Executive's salary may
be amended from time to time in accordance with normal business practices
of the Company at the full discretion of the Board.
(b) At the Closing, the Executive will receive $20,000.00 as a signing
bonus. If, on the first anniversary of the Closing, the Executive is
employed by the Company and neither the Executive nor the Company has given
the other any Notice of Termination, the Executive shall be entitled to a
$20,000.00 retention bonus.
(c) During the Executive's employment hereunder, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in performing services hereunder, including all
cellular telephone, business, travel, and living expenses while away from
home on business or at the request of and in the service of the Company,
provided that such expenses are incurred and accounted for in accordance
with the Company's policies and procedures. The Executive shall also be
reimbursed for club membership dues for membership in one (1) area
dining/fitness/country club establishment.
(d) The Executive shall be entitled to the number of vacation days in
each calendar year, and to compensation for earned but unused vacation
days, determined in accordance with the Company's vacation plan or policy.
The Executive shall also be entitled to all paid holidays provided by the
Company to its other executives.
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(e) The Executive shall receive a car allowance of $500.00 per month,
with any annual increase to be determined by the Board, payable in
accordance with the Company's policies and procedures. In addition, the
Executive shall be reimbursed for business mileage at the rate and based on
the same criteria set forth in IRS Publication 463 , as amended from time
to time.
(f) The Executive shall be entitled to such other benefits, including,
but not limited to, medical insurance, life insurance, disability
insurance, and officers' and directors' insurance, determined in accordance
with the Company's benefit plan or policy.
(g) The Executive shall be granted options to purchase 250,000 (two
hundred fifty thousand) shares of the Company's common stock based on the
following vesting schedule at the exercise prices indicated:
(i) If, on the first anniversary of the Closing, the Company
meets or exceeds the performance criteria established by the Board and
attached hereto as Schedule A, 125,000 options shall vest on the first
anniversary of the Closing at an exercise price of $0.50 per share;
(ii) If, on the second anniversary of the Closing, the Company
meets or exceeds the performance criteria established by the Board and
attached hereto as Schedule B, 125,000 options shall vest on the second
anniversary of the Closing at an exercise price of $0.50 per share.
(iii) If, on the first anniversary of the Closing, the Company
has not met the performance criteria established by the Board and
attached hereto as Schedule A, the 125,000 options set forth in (i)
above shall not immediately lapse, but the vesting date shall be
extended for a period of one (1) year. If, on the second anniversary of
the Closing, the Company has not met the performance criteria
established by the Board and attached hereto as Schedule B, all options
shall immediately lapse.
7. OFFICES.
The Executive agrees to serve without additional compensation, if elected
or appointed thereto, as a member of the Board or as a member of the board of
directors of any subsidiary of the Company; provided, however, that the
Executive is indemnified for serving in any and all such capacities to the
fullest extent provided by applicable law.
8. TERMINATION.
(a) As a result of death: If the Executive shall die during the term of
this Agreement, the Executive's employment shall terminate on the
Executive's date of death, and the
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Executive's surving spouse, or the Executive's estate if the Executive dies
without a surviving spouse, shall be entitled to the Executive's Accred
Benefits as of the Termination Date.
(b) As a result of Disability: If, as a result of the Executive's
Disability, the Executive shall have been unable to perform the Executive's
duties hereunder on a full-time, continuous basis for two (2) consecutive
months or for an aggregate of three (3) months within any twelve (12) month
period, the Company may terminate the Executive's employment. During the
terms of the Executive's Disability prior to termination, the Executive
shall continue to receive all salary and benefits payable under Section 6
hereof, including participation in all employee benefit plans, programs,
and arrangements in which the Executive was entitled to participate
immediately prior to the Disability; provided, however, that the
Executive's continued participation is permitted under the terms and
provisions of such plans, programs, and arrangements. In the event the
Executive's employment is terminated on account of the Executive's
Disability in accordance with this Subsection 8(b), the Executive shall
receive the Executive's Accrued Benefits as of the Termination Date and
shall remain eligible for all benefits provided by any long-term disability
program of the Company in effect at the time of such termination. The
payment of the Accrued Benefits by the Company to the Executive shall be in
addition to, and not in lieu of, any benefits payable by reason of the
Executive's Disability to the extent provided under any long-term
disability program of the Company in effect at the time of the Executive's
termination, or under any disability insurance policy, or otherwise.
(c) Termination Without Cause: Either party to this Agreement may
terminate the Executive's employment hereunder without cause at any time
upon notice to the other party, and upon any such termination, the
Executive shall be entitled to receive his Accrued Benefits. In the event
that the Company terminates the Executive's employment pursuant to this
Subsection 8(c), the Executive shall receive from the Company within
fourteen (14) days of the Termination Date a lump-sum cash payment (the
"Severance Payment"), as severance, in an amount equal to fifty percent
(50%) of the Executive's annual salary, as set forth in Subsection 6(a)
hereof.
(d) Termination as a result of cause. The Company may terminate the
Executive for cause, upon the occurrence of any one or more of the
following acts or omissions:
(i) The determination in a binding and final judgment, order,
or decree by a court or administrative agency of competent
jurisdiction, that the Executive has engaged in fraudulent conduct, and
the determination by the Board, in its sole discretion that such
fraudulent conduct has a significant adverse impact on the Company;
(ii) The conviction of the Executive on a felony or
misdemeanor involving moral turpitude (as evidenced by a binding and
final judgment, order, or decree of a court of competent jurisdiction)
and the determination by the Board, in its sole discretion, that such
conviction has a significant adverse impact on the Company;
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(iii) The refusal by the Executive to perform the Executive's
duties or responsibilities as determined by the Board;
(iv) The performance by the Executive of his duties or
responsibilities in a negligent manner causing harm to the Company's
revenues or reputation, as determined by the Board; or
(v) The failure of the Company to achieve operating profits in
any two consecutive quarters (beginning with the third quarter of
operations after October 31, 1998).
In the event of termination for cause, as set forth above, the
Executive will be entitled to receive his Accrued Benefits, but will
not be entitled to the Severance Payment, except as otherwise provided
by Texas law.
(e) In the event that the Executive is terminated by the Company
pursuant to Subsections 8(a), 8(b) or 8(c), all stock options granted
pursuant to Subsection 6(g) as well as any stock options subsequently
granted shall become fully vested as of the Termination Date. In the event
that the Executive is terminated pursuant to Subsection 8(d), all stock
options not vested at the time of termination shall immediately lapse.
9. TERMINATION NOTICE.
Any termination by the Company or the Executive of the Executive's
employment hereunder shall be communicated by written Notice of Termination to
the Executive, if such Notice of Termination is delivered by the Company, and to
the Company, if such Notice of Termination is delivered by the Executive. The
Notice of Termination shall indicate the specific termination provision in this
Agreement relied upon shall set forth the Termination Date.
10. NONDISCLOSURE OF PROPRIETARY INFORMATION.
Recognizing that the Company is presently engaged, and may hereafter
continue to be engaged, in the research and development of processes, the
manufacturing of products, or the performance of services, which involve
experimental and inventive work and that the success of its business depends
upon the protection of such processes, products, and services by patent,
copyright, or secrecy and that the Executive has had, or during the course of
Executive's engagement as an employee or consultant may have, access to
Proprietary Information, as hereinafter defined, of the Company and that the
Executive has furnished, or during the course of the Executive's engagement may
furnish, Proprietary Information to the Company, the Executive agrees that:
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(a) "Proprietary Information" shall mean any and all methods,
inventions, improvements or discoveries, whether or not patentable or
copyrightable, and any other information of a secret, proprietary,
confidential, or generally undisclosed nature relating to the Company, its
products, customers, processes, and services, including information
relating to testing research, development, manufacturing, marketing, and
selling, disclosed to the Executive or otherwise made known to the
Executive as a consequence of or through the Executive's engagement by the
Company (including information originated by the Executive) in any
technological area previously developed by the Company or developed,
engaged in, or researched, by the Company during the term of the
Executive's engagement, including, but not limited to, trade secrets,
processes, products, formulae, apparatus, techniques, know-how, marketing
plans, data, improvements, strategies, forecasts, customer lists, and
technical requirements of customers, unless such information is in the
public domain to such an extent as to be readily available to the Company's
competitors.
(b) The Executive acknowledges that the Company has exclusive property
rights to all Proprietary Information, and the Executor hereby assigns all
rights that the Executive might otherwise possess in any Proprietary
Information to the Company. The Executive will not at any time during or
after the term of the Executive's engagement, which term shall include any
time in which the Executive may be retained by the Company as a consultant,
directly or indirectly use, communicate, disclose, or disseminate any
Proprietary Information.
(c) All documents, records, notebooks, notes, memoranda, and similar
repositories of, or containing, Proprietary Information made or compiled by
the Executive at any time or made available to the Executive prior to or
during the term of Executive's engagement by the Company, including any and
all copies thereof, shall be the property of the Company, shall be held by
the Executive in trust solely for the benefit of the Company, and shall be
delivered to the Company by the Executive on the termination of the
Executive's engagement or at any other time on the request of the Company.
(d) The Executive will not assert any rights under any inventions,
copyrights, discoveries, concepts, or ideas, or improvements thereof, or
know-how related thereto, as having been made or acquired by the Executive
prior to the Executive's being engaged by the Company or during the term of
the Executive's engagement if based on or otherwise related to Proprietary
Information.
11. ASSIGNMENT OF INVENTIONS.
(a) For purposes of this Section 11, the term "Inventions" shall mean
discoveries, concepts, and ideas, whether patentable or copyrightable or
not, including, but not limited to, improvements, know-how, data,
processes, methods, formulae, and techniques, as well as improvements
thereof, or know-how related thereto, concerning any past, present, or
prospective activities of the Company, which the Executive makes,
discovers, or conceives (whether or not during the hours of the Executive's
engagement or with the use of the
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Company's facilities, materials, or personnel), either solely or jointly
with others during the Executive's engagement by the Company or any
Affiliate of the Company and, if based on or related to Proprietary
Information, at any time after termination of such engagement. All
inventions shall be the sole property of the Company, and the Executive
agrees to perform the provisions of this Section 11 with respect thereto
without the payment by the Company of any royalty or any consideration
therefor, other than the regular compensation paid to the Executive in his
capacity of as an employee or consultant.
(b) The Executive shall maintain written notebooks in which the
Executive shall set forth, on a current basis, information as to the
Inventions, describing in detail the procedures employed and the results
achieved, as well as information as to any studies or research projects
undertaken on the Company's behalf. The written notebooks shall at all
times be the property of the Company and shall be surrendered to the
Company upon termination of the Executive's engagement or, upon request of
the Company, at any time prior thereto.
(c) The Executive shall apply, at the Company's request and expense,
for United States and foreign letters patent or copyrights, either in the
Executive's name or otherwise as the Company shall desire.
(d) The Executive hereby assigns to the Company all of the Executive's
rights to the Inventions and to applications for United States and/or
foreign letters patent or copyrights and to United States and/or foreign
letters patent or copyrights granted in respect of the Inventions.
(e) The Executive shall acknowledge and deliver promptly to the
Company, without charge to the Company, but at its expense, such written
instruments (including applications and assignments) and do such other
acts, such as giving testimony in support of the Executive's inventorship,
as may be necessary in the opinion of the Company to obtain, maintain,
extend, reissue, and enforce United States and/or foreign letters patent
and copyrights relating to the Inventions and to vest the entire right and
title thereto in the Company or its nominee. The Executive acknowledges and
agrees that any copyright developed or conceived of by the Executive during
the terms of the Executive's employment which is related to the business of
the Company shall be a "work for hire" under the copyright law of the
United States and other applicable jurisdictions.
(f) The Executive represents that the Executive's performance of all of
the terms of this Agreement and as an employee of or consultant to the
Company does not and will not breach any trust existing prior to the
Executive's employment by the Company. The Executive agrees not to enter
into any agreement, either written or oral, in conflict herewith and
represents and agrees that the Executive has not brought and will not bring
with the Executive to the Company or use in the performance of the
Executive's responsibilities at the Company any materials or documents of a
former employer which are not generally available to the public, unless the
Executive has obtained written authorization from the former
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employer for their possession and use, and the Executive has provided a
copy of such written authorization to the Company.
(g) No provision of this Section 11 shall be deemed to limit the
restrictions applicable to the Executive under Section 10 hereof.
12. SHOP RIGHTS.
The Company shall also have the royalty-free right to use in its business,
and to make, use, and sell products, processes, and/or services derived from any
inventions, discoveries, concepts, and ideas, whether or not patentable,
including, but not limited to, processes, methods, formulas, and techniques, as
well as improvements thereof or know-how related thereto, concerning any past,
present, or prospective activities of the Company, which are not within the
scope of Inventions as defined in Section II hereof, but which are conceived or
made by the Executive during the period that the Executive is engaged by the
Company with the use or assistance of the Company's facilities, materials, or
personnel.
13. NON-COMPETE.
The Executive acknowledges that the Company has and will continue to
provide the Executive access to the Company's Proprietary Information, and
further acknowledges that the Proprietary Information is valuable to the
Company. The Executive further acknowledges that the Company has provided other
items of value to the Executive, including stock options. In return, the
Executive hereby agrees that during the Executive's employment, and for a period
of one year from the termination thereof, the Executive will not, without the
written consent of the Company:
(a) Within any jurisdiction or marketing area in which the Company or
any subsidiary thereof is doing business, own manage, operate, or control
any Business, provided, however, that for purposes of this Subsection
13(a), ownership of securities of not in excess of five percent (5%) of any
class of securities of a public company shall not be considered as owning,
managing, operating, or controlling any Business; or
(b) Within any jurisdiction or marketing area in which the Company or
any subsidiary thereof is doing business, act as, or become employed as, an
officer, director, employee, consultant or agent of any Business; or
(c) Solicit any Business for, or sell any products that are in
competition with the Company's products to, any company which is a customer
or client of the Company or any of its subsidiaries as of the Termination
Date; or
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(d) Solicit the employment of, or hire, any full time employee employed
by the Company or its subsidiaries as of the Termination Date.
The term "Business," as used in this Section 13, shall mean any person or
entity which engages in the same or substantially similar business as the
Company, namely, the blending or packaging of chemicals for aftermarket use.
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14. EXECUTIVE REPRESENTATIONS.
The Executive warrants and represents that it has identified all prior
obligations, written or oral, such as confidentiality agreements or covenants
restricting future employment of the Executive. Executive further agrees that,
for a period of one year immediately following the termination of Executive's
employment with the Company, Executive will inform each new employer, prior to
accepting employment, of the existence and details of this Agreement and provide
the employer with a copy of this Agreement. Executive agrees to indemnify and
hold harmless the Company from any and all costs, expenses, and liabilities, of
any kind, which the Company may incur as a result of any failure of the
representations and warranties contained herein.
15. REMEDIES AND JURISDICTION.
(a) The Executive hereby acknowledges and agrees that a breach of the
agreements contained in Section 13 of this Agreement will cause irreparable
harm and damage to the Company, that the remedy at law for the breach or
threatened breach of the agreements set forth in Section 13 of this
Agreement will be inadequate, and that, in addition to all other remedies
available to the Company for such breach or threatened breach (including,
without limitation, the right to recover damages), the Company shall be
entitled to injunctive relief for any breach or threatened breach of the
agreements contained in Section 13 of this Agreement.
(b) All claims, disputes, and other matters in question between the
parties arising under this Agreement, except those pertaining to Section 13
hereof, shall, unless otherwise provided herein, be decided by arbitration
in the State of Texas in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
(including such procedures governing selection of the specific arbitrator
or arbitrators), unless the parties otherwise agree. The Company shall pay
the costs of any such arbitration. The award by the arbitrator or
arbitrators shall be final, and judgment may be entered upon it in
accordance with applicable law in any state or federal court having proper
jurisdiction.
16. ATTORNEYS' FEES.
In the event that either party hereunder institutes any legal proceedings
in connection with its rights or obligations under this Agreement, the
prevailing party in such proceeding shall be entitled to recover from the other
party all reasonable attorneys' fees and expenses incurred therein.
17. SUCCESSORS.
xxxvi
<PAGE>
This Agreement and all rights of the Executive hereunder shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, estate, executors, administrators, heirs, or beneficiaries. In
the event of the Executive's death, all amounts payable to the Executive under
this Agreement shall be paid to the Executive's surviving spouse, if the
Executive dies without a surviving spouse, to the Executive's estate. This
Agreement shall inure to the benefit of, be binding upon, and be enforceable by
or against, any successor, surviving or resulting corporation, or other entity
or any assignee of the Company to which all or substantially all of the business
and assets of the Company is transferred whether by merger, consolidation,
exchange, assignment, sale, lease, or other disposition or action.
18. ENFORCEMENT.
The provisions of this Agreement shall be regarded as divisible, and if any
of such provisions or any part hereof is declared invalid or unenforceable by a
court of competent jurisdiction, the validity and enforceability of the
remainder of such provisions or the parts hereof add the applicability thereof
shall not be affected thereby.
19. AMENDMENT OR TERMINATION.
This Agreement may not be amended or terminated during its term, except by
written instrument executed by both the Company and the Executive.
20. SURVIVABILITY.
The provisions of Sections 10, 11, 12, 13 and 15 hereof and the provisions
hereof relating to the payment of the Accrued Benefits and the Severance Payment
shall survive the termination of this Agreement.
21. ENTIRE AGREEMENT.
This Agreement sets forth the entire agreement between the Executive and
the Company with respect to the subject matter hereof and supersedes all prior
oral or written agreements, negotiations, commitments, and understandings with
respect thereto.
22. GOVERNING LAW; VENUE.
This Agreement and the respective rights and obligations of the Executive
and the Company hereunder shall be governed by and construed in accordance with
the laws of the State of Texas without giving effect to the provisions,
principles, or policies thereof relating to choice of law or conflict of laws.
Venue of any arbitration or other legal proceeding or action relating to this
Agreement shall be proper in Harris County, Texas.
23. NOTICE.
xxxvii
<PAGE>
Notices given pursuant to this Agreement shall be in writing and shall be
deemed given when received, and if mailed, shall be mailed by United States
registered or certified mail, return receipt requested, postage prepaid, if to
the Company, to:
xxxviii
<PAGE>
ChemWay Systems, Inc.
c/o Affiliated Resources Corporation
3050 Post Oak Blvd., Suite 1080
Houston, Texas 77056
ATTN: President
with a copy to corporate counsel for the Company to:
Short & Ketchand, L.L.P.
11 Greenway Plaza, Suite 1520
Houston, Texas 77046
or to such other address as the Company shall have given to the Executive or, if
to the Executive to:
9 Colonial Lane
West Columbia, Texas 77486
24. NO WAIVER.
No waiver by either party at any time of any breach by the other party of,
or any failure by the other party to comply with, any condition or provisions of
this Agreement to be performed by the other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same time or at any prior
or subsequent time.
25. HEADINGS.
The headings herein contained are for reference only and shall not affect
the meaning or interpretation of any provision of this Agreement.
26. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
xxxix
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer, and the Executive has executed this Agreement, on
the date and year first above written.
THE COMPANY:
CHEMWAY SYSTEMS, INC.
By: ____________________________________
Peter C. Vanucci, Chairman
EXECUTIVE:
By: ___________________________________
David Deerman
xl
<PAGE>
Exhibit 17.1
Edward F. Feighan
5100 Key Tower
127 Public Square
Cleveland, Ohio 44113
June 4, 1999
Peter C. Vanucci, Chairman
Affiliated Resources Corporation
8221 Brecksville Road
Brecksville, Ohio 44141
Dear Mr. Vanucci:
Effective the date of this letter, I hereby resign my position as a member of
the Board of Directors of Affiliated Resources Corporation.
Sincerely,
Edward F. Feighan
xli
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Affiliated Resources Corporation December 31, 1998 financial statements
and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000817125
<NAME> Affiliated Resources Corporation
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 144,123
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 966,584
<CURRENT-ASSETS> 1,129,406
<PP&E> 3,678,613
<DEPRECIATION> (5,300)
<TOTAL-ASSETS> 8,227,843
<CURRENT-LIABILITIES> 2,042,011
<BONDS> 0
0
0
<COMMON> 49,355
<OTHER-SE> 5,994,631
<TOTAL-LIABILITY-AND-EQUITY> 8,227,843
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 526,843
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (526,843)
<INCOME-TAX> 0
<INCOME-CONTINUING> (526,843)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (526,843)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
