<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1997.
Registration No. 333-
- ----------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CANMAX INC.
(Exact name of registrant as specified in its charter)
WYOMING 7373 75-2461665
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification Number)
incorporation or Code Number)
organization
<TABLE>
<C> <C>
150 WEST CARPENTER FREEWAY PHILIP M. PARSONS
IRVING, TEXAS 75039 EXECUTIVE VICE PRESIDENT/CHIEF FINANCIAL OFFICER
(972) 541-1600 (972) 541-1600
(Address, including zip code, and telephone number, (Address, including zip code, and telephone number,
including area code, of registrant's principal executive office) including area code, of agent for service)
</TABLE>
--------------------
WITH COPIES TO:
WILLIAM L. RIVERS, ESQ. IRWIN F. SENTILLES, III, ESQ.
ARTER & HADDEN GIBSON, DUNN & CRUTCHER LLP
1717 MAIN STREET, SUITE 4100 1717 MAIN STREET, SUITE 5400
DALLAS, TEXAS 75201 DALLAS, TEXAS 75201
(214) 761-2100 (214) 698-3100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective and upon the effective time of the proposed merger (the "Merger") of
Auto-Gas Systems, Inc., a Delaware corporation ("AGSI") with and into Canmax
Retail Systems, Inc., a Texas corporation and a wholly owned subsidiary of the
Registrant ("CRSI"), as described in the Amended and Restated Agreement and Plan
of Merger (the "Merger Agreement") dated as of June 16, 1997 between the
Registrant, CRSI and AGSI, attached as Appendix A to the Joint Proxy
Statement/Prospectus forming a part of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Title of each Class of Amount of
Securities to be Proposed Maximum Proposed Maximum Registration
Registered Amount to be Registered Offering Price Per Share Aggregate Offering Price Fee
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock, no
par value per share 6,700,000 N/A N/A $2,500 (1)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The registration fee has been computed on the basis of the June 30, 1997
book value of the AGSI securities to be exchanged in the Merger
($8,248,692) pursuant to Rule 457(f)(2).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
- ------------------------------------------------------------------------------
<PAGE>
[CANMAX LETTERHEAD]
_____________, 1997
Dear Stockholder:
You are cordially invited to attend the special meeting of stockholders
(the "Special Meeting") of CANMAX INC., a Wyoming corporation ("Canmax"), which
will be held on _____________, 1997 at _____ a.m., local time at
_______________________.
At this important Special Meeting, you will be asked to consider and vote
upon a proposal to approve and adopt the Amended and Restated Agreement and Plan
of Merger dated as of June 16, 1997 (the "Merger Agreement"), among Canmax,
Auto-Gas Systems, Inc., a Delaware corporation ("AGSI"), and Canmax Retail
Systems, Inc., a Texas corporation and wholly-owned subsidiary of Canmax
("CRSI"), pursuant to which AGSI will merge with and into CRSI (the "Merger"),
and the related issuance of up to 6.7 million shares (the "Merger Shares") of
Canmax common stock, no par value per share ("Canmax Common Stock").
THE MERGER IS MORE COMPLETELY DESCRIBED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS, AND A COPY OF THE MERGER AGREEMENT IS ATTACHED AS APPENDIX
A THERETO.
AT THE DIRECTORS' MEETING HELD TO CONSIDER THE PROPOSED MERGER AND THE
ISSUANCE OF THE MERGER SHARES, THE DIRECTORS OF CANMAX CAREFULLY CONSIDERED AND
UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AS BEING IN THE BEST INTERESTS OF
CANMAX AND ITS STOCKHOLDERS. THE CANMAX BOARD OF DIRECTORS RECOMMENDS THAT THE
CANMAX STOCKHOLDERS VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT AND RELATED
ISSUANCE OF SHARES OF CANMAX COMMON STOCK.
Rauscher Pierce Refsnes, Inc., Canmax's financial advisor, has rendered an
opinion to the Board of Directors that the proposed Merger and Merger Agreement
is fair to the stockholders of Canmax from a financial point of view as of the
date of such opinion. The analysis, support and limitations of this opinion are
discussed in the enclosed Joint Proxy Statement/Prospectus and the opinion is
attached as Appendix B thereto.
Pursuant to Wyoming law, the stockholders of Canmax who object to the
Merger Agreement or issuance of the Merger Shares will not be afforded appraisal
rights or the right to receive cash for their shares of Canmax Common Stock.
The enclosed Joint Proxy Statement/Prospectus sets forth information,
including financial data, relating to Canmax and AGSI and describes the terms
and conditions of the Merger. The Board of Directors of Canmax requests that
you carefully review these materials before completing the enclosed Proxy Card.
SIGNED BUT UNMARKED PROXY CARDS RETURNED BY A CANMAX STOCKHOLDER WILL BE DEEMED
TO BE A VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND RELATED
ISSUANCE OF THE MERGER SHARES.
Should you require assistance in completing your Proxy Card or if you have
any questions about the voting procedure or the accompanying Joint Proxy
Statement/Prospectus, please feel free to contact Canmax at 150 West Carpenter
Freeway, Irving, Texas 75039 (telephone: (972) 541-1600).
Very truly yours,
----------------------------------------------
Roger D. Bryant, President and Chief
Executive Officer
<PAGE>
CANMAX, INC.
150 WEST CARPENTER FREEWAY
IRVING, TEXAS 75039
---------------------------
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD
_____________________, 1997
TO THE STOCKHOLDERS OF CANMAX INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting (together with any
adjournments or postponements thereof, the "Special Meeting") of stockholders
of Canmax Inc., a Wyoming corporation ("Canmax"), will be held at
______________, on ______________, 1997 at ___ a.m., local time, for the
following purposes, as more fully described in the accompanying Joint Proxy
Statement/Prospectus:
(i) To consider and vote upon a proposal to approve and adopt
the Amended and Restated Agreement and Plan of Merger dated as of June
16, 1997 among Auto-Gas Systems, Inc., a Delaware corporation
("AGSI"), Canmax and Canmax Retail Systems, Inc., a wholly-owned
subsidiary of Canmax ("CRSI"), pursuant to which AGSI will be merged
with and into CRSI (the "Merger"), and the related issuance of up to
6.7 million shares of common stock, no par value per share, of Canmax
("Canmax Common Stock"), estimated to be _________ shares of Canmax
Common Stock, or ____% of the total number of shares then outstanding,
based upon the number of shares of AGSI common stock outstanding as of
the date hereof.
(ii) To transact such other business as may properly come before
the Special Meeting.
The Board of Directors has fixed the close of business on __________, 1997,
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the Special Meeting. Pursuant to the Joint Proxy
Statement/Prospectus, Canmax is seeking the affirmative vote of the holders of
shares representing a majority of the outstanding voting power of the Canmax
Common Stock to approve the Merger Agreement and the related issuance of the
Canmax Common Stock. Because the Board of Directors has required the approval of
a majority of all of the issued and outstanding shares of Canmax Common Stock,
abstentions and broker non-votes will have the effect of a vote "against" the
Merger Agreement and related issuance of shares of Canmax Common Stock.
Pursuant to applicable Wyoming law, the stockholders of Canmax who object
to the Merger or the related transactions will not be afforded appraisal rights
or the right to receive cash for their shares of Canmax Common Stock.
YOUR ATTENTION IS DIRECTED TO THE ACCOMPANYING JOINT PROXY STATEMENT/
PROSPECTUS. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED CANMAX PROXY CARD AND RETURN IT IN THE
ACCOMPANYING ENVELOPE. SIGNED BUT UNMARKED PROXY CARDS RETURNED BY A CANMAX
STOCKHOLDER WILL BE DEEMED TO BE A VOTE FOR THE APPROVAL AND ADOPTION OF EACH OF
THE PROPOSALS. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTE AT THE
SPECIAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE JOINT PROXY
STATEMENT/PROSPECTUS.
By Order of the Board of Directors,
-----------------------------------------------
Roger D. Bryant, President and Chief
Executive Officer
Irving, Texas
______________, 1997
<PAGE>
[AGSI LETTERHEAD]
__________, 1997
Dear Stockholder:
You are cordially invited to attend the special meeting of the stockholders
(the "Special Meeting") of AUTO-GAS SYSTEMS, INC., a Delaware corporation
("AGSI"), which will be held on , 1997 at _:_ a.m., local time, at
__________________________.
At this important Special Meeting, you will be asked to consider and vote
upon a proposal to approve and adopt the Amended and Restated Agreement and Plan
of Merger dated as of June 16, 1997 (the "Merger Agreement"), among Canmax Inc.,
a Wyoming corporation ("Canmax"), Canmax Retail Systems, Inc., a Texas
corporation and wholly owned subsidiary of Canmax ("CRSI"), and AGSI, pursuant
to which, among other things, AGSI will merge with and into CRSI (the "Merger").
If the Merger Agreement is approved and the Merger is consummated, each
outstanding share of common stock, $1.00 par value per share, of AGSI ("AGSI
Common Stock") will be converted into the right to receive 3.37623 shares of
common stock, no par value per share, of Canmax ("Canmax Common Stock"). Any
fractional shares otherwise issuable to a stockholder of AGSI as a result of the
Merger will be paid in cash.
DETAILS OF THE PROPOSED MERGER AND THE MERGER AGREEMENT ARE SET FORTH IN
THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS WHICH YOU ARE URGED TO
CAREFULLY REVIEW. A COPY OF THE MERGER AGREEMENT IS ATTACHED TO THE JOINT PROXY
STATEMENT/PROSPECTUS AS APPENDIX A.
AT THE DIRECTORS' MEETING HELD TO CONSIDER THE PROPOSED MERGER AND THE
RELATED MERGER AGREEMENT, THE BOARD OF DIRECTORS CAREFULLY CONSIDERED AND
UNANIMOUSLY APPROVED THE TERMS OF THE MERGER AGREEMENT AS BEING FAIR TO, AND IN
THE BEST INTERESTS OF, AGSI AND ITS STOCKHOLDERS. THE BOARD OF DIRECTORS
RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the attached Joint Proxy
Statement/Prospectus, including the opinion of The GulfStar Group, Inc., AGSI's
financial advisor, that the consideration to be received in the Merger is fair
to the stockholders of AGSI from a financial point of view.
The affirmative vote of the holders of shares representing a majority of
the outstanding voting power of AGSI Common Stock is necessary to approve and
adopt the Merger Agreement. The holders of approximately 25.1% of the
outstanding shares of AGSI Common Stock have agreed to vote their shares in
accordance with the recommendation of the Board of Directors of AGSI with regard
to Merger Agreement.
Pursuant to the Delaware General Corporation Law ("DGCL"), holders of AGSI
Common Stock who vote against the Merger and comply with the detailed provisions
contained in Section 262 of the DGCL will be entitled to dissent from the Merger
Agreement and seek payment of the fair value of their shares of AGSI Common
Stock. Because an executed Proxy Card will be voted "FOR" the Merger unless
otherwise specified, a stockholder returning a signed but unmarked Proxy Card
will waive his or her right to dissent from the Merger. A copy of Section 262 of
the DGCL is reproduced as Appendix D to the attached Joint Proxy
Statement/Prospectus. AGSI stockholders wishing to dissent from the Merger
should read such materials carefully.
At this important Special Meeting, you will also be asked to consider
and vote upon a resolution approving the grant to G. Randy Nicholson and
Jeffrey F. Upp of warrants to purchase Canmax Common Stock in connection with
non-competition agreements to be entered into by them pursuant to the Merger
Agreement (the "Compensation Arrangements"). Approval of the Compensation
Arrangements is not a condition to the Merger, but is being sought solely for
the purpose of satisfying the requirement of the Internal Revenue Code for
not imposing federal excise tax and other adverse tax consequences in respect
of the Compensation Arrangements should they be found to constitute
"parachute payments" under the Internal Revenue Code. The Board of Directors
has unanimously approved the Compensation Arrangements, and the Compensation
Arrangements will be implemented if the Merger is consummated regardless of
the outcome of the stockholder vote on this resolution. The Compensation
Arrangements provide for the grant of warrants to purchase 285,000 and
120,000 shares of Canmax Common
<PAGE>
Stock, at an exercise price of $0.58 per share, to Mr. Nicholson and Mr. Upp,
respectively. Such stock warrants are described under the caption "The
Merger - Certain Compensation Arrangements" in the enclosed Joint Proxy
Statement/Prospectus. This resolution requires the affirmative vote of the
holders of 75% of the outstanding shares of AGSI Common Stock, not including
the shares beneficially held by Mr. Nicholson and Mr. Upp.
YOUR VOTE IS IMPORTANT. The Board encourages you to be represented in
person or by proxy at the Special Meeting regardless of the number of shares of
AGSI Common Stock you own. Whether or not you plan on attending the Special
Meeting, please complete, sign, date and return the enclosed Proxy Card
promptly. This action will not limit your right to vote in person at the Special
Meeting if you wish to do so. SIGNED BUT UNMARKED PROXY CARDS RETURNED BY
STOCKHOLDERS OF AGSI WILL BE DEEMED TO BE A VOTE FOR THE APPROVAL OF THE MERGER
AGREEMENT AND FOR THE APPROVAL OF THE COMPENSATION ARRANGEMENTS.
Please do not send your share certificates with your Proxy Card. After
approval of the Merger Agreement and the Merger by the stockholders of AGSI and
satisfaction of all other conditions to the Merger you will receive a Letter of
Transmittal and instructions for the surrender and exchange of your shares.
Should you require assistance in completing your Proxy Card or if you have
any questions about the voting procedure or the accompanying Joint Proxy
Statement/Prospectus, please feel free to contact Auto-Gas Systems, Inc. at 1202
Estates Drive, Suite D, Abilene, Texas 79602 (telephone: (915) 676-3150).
Very truly yours,
------------------------------------------------
G. Randy Nicholson, President
<PAGE>
AUTO-GAS SYSTEMS, INC.
1202 ESTATES DRIVE, SUITE D
ABILENE. TEXAS 79602
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD __________, 1997
TO THE STOCKHOLDERS OF AUTO-GAS SYSTEMS, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting (together with any adjournments
or postponements thereof, the "Special Meeting") of the stockholders of
Auto-Gas Systems, Inc., a Delaware corporation ("AGSI"), will be held at
_________________ on _________, 1997 at ____ a.m., local time, for the
following purposes, as more fully described in the accompanying Joint Proxy
Statement/Prospectus:
l. To consider and vote upon a proposal to approve and adopt the
Amended and Restated Agreement and Plan of Merger dated as of June 16, 1997
(the "Merger Agreement") among Canmax Inc., a Wyoming corporation ("Canmax"),
Canmax Retail Systems, Inc., a Texas corporation and wholly owned subsidiary
of Canmax ("CRSI"), and AGSI, pursuant to which, among other things, (a) AGSI
will merge with and into CRSI (the "Merger") and (b) each outstanding share
of common stock, $1.00 par value per share, of AGSI ("AGSI Common Stock")
will be converted into the right to receive 3.37623 shares of common stock,
no par value per share, of Canmax ("Canmax Common Stock"). Any fractional
shares otherwise issuable to an AGSI stockholder as a result of the Merger
will be paid in cash.
2. To consider and vote upon a resolution approving the grant to G.
Randy Nicholson and Jeffrey F. Upp of warrants to purchase 285,000 and
120,000 shares of Canmax Common Stock, respectively, at an exercise price of
$0.58 per share, in connection with non-competition agreements to be entered
into by them pursuant to the Merger Agreement (the "Compensation
Arrangements"). Approval of the Compensation Arrangements is not a condition
to the Merger, but is being sought solely for the purpose of satisfying the
requirement of the Internal Revenue Code for not imposing federal excise tax
and other adverse tax consequences in respect of the Compensation
Arrangements should they be found to constitute "parachute payments" under
the Internal Revenue Code.
3. To transact such other business as may properly come before the
Special Meeting.
The Board of Directors of AGSI has unanimously approved the Merger
Agreement and has determined that the Merger is fair to, and in the best
interests of, AGSI and its stockholders. Accordingly, the AGSI Board of
Directors unanimously recommends that you vote FOR approval of the Merger
Agreement. The Board also unanimously recommends that you vote FOR approval
of the Compensation Arrangements.
THE MERGER AGREEMENT PROVIDES FOR THE MERGER OF AGSI WITH AND INTO CRSI. AS
A RESULT, THE MERGER MUST BE APPROVED BY THE STOCKHOLDERS OF AGSI.
The Board of Directors has fixed the close of business on ________, 1997
as the record date for the determination of stockholders entitled to notice
of, and to vote at, the Special Meeting. Pursuant to the Joint Proxy
Statement/Prospectus, AGSI is seeking the affirmative vote of the holders of
shares representing a majority of the outstanding voting power of AGSI Common
Stock to approve the Merger Agreement and the affirmative vote of the holders
of 75% of the outstanding shares of AGSI Common Stock, not including the
shares beneficially voted by Mr. Nicholson and Mr. Upp, to approve the
Compensation Arrangements. Abstentions will be counted for the purpose of
determining the presence or absence of a quorum at the Special Meeting;
however, because the affirmative vote of percentages of the outstanding
shares of AGSI Common Stock is being sought, abstentions will have the same
effect as negative votes. Certain stockholders of AGSI holding approximately
25.1% of the outstanding shares of AGSI Common Stock have agreed to vote such
shares in accordance with the recommendation of the AGSI Board of Directors
with regards to the approval of the Merger Agreement.
YOUR ATTENTION IS DIRECTED TO THE ACCOMPANYING JOINT PROXY STATEMENT/
PROSPECTUS. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED AGSI PROXY CARD AND RETURN IT IN THE
ACCOMPANYING ENVELOPE. SIGNED BUT UNMARKED PROXY CARDS RETURNED BY AN AGSI
STOCKHOLDER WILL BE DEEMED TO BE A VOTE "FOR" THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND "FOR" THE APPROVAL OF THE COMPENSATION ARRANGEMENTS. THE
PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE VOTE AT THE
<PAGE>
SPECIAL MEETING BY FOLLOWING THE PROCEDURES SET FORTH IN THE ACCOMPANYING
JOINT PROXY STATEMENT/PROSPECTUS.
By Order of the Board of Directors,
----------------------------------------
G. Randy Nicholson, President
Abilene, Texas
__________, 1997
<PAGE>
INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS SUBJECT TO
COMPLETION OR AMENDMENT WITHOUT NOTICE. THESE SECURITIES MAY NOT BE SOLD NOR MAY
AN OFFER TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
STATE.
<PAGE>
SUBJECT TO COMPLETION - DATED AUGUST 13, 1997
______________________________________
JOINT PROXY STATEMENT
FOR
CANMAX INC. AUTO-GAS SYSTEMS, INC.
150 WEST CARPENTER FREEWAY 1202 ESTATES DRIVE, SUITE D
IRVING, TEXAS 75039 ABILENE, TEXAS 79602
SPECIAL MEETING OF STOCKHOLDERS SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON ____________, 1997 TO BE HELD ON ____________, 1997
_______________________________________
PROSPECTUS
CANMAX INC.
UP TO 6,700,000 SHARES OF COMMON STOCK
____________________________________________
This Joint Proxy Statement/Prospectus and the accompanying appendices
and forms of proxies are being furnished in connection with (i) the
solicitation of proxies by the Board of Directors of Canmax Inc., a Wyoming
corporation ("Canmax"), to be used at a Special Meeting of Stockholders of
Canmax to be held on __________, 1997 (the "Canmax Meeting") and any
adjournments or postponements thereof for the purposes set forth herein and
in the accompanying Canmax Notice of Special Meeting, and (ii) the
solicitation of proxies by the Board of Directors of Auto-Gas Systems, Inc.,
a Delaware corporation ("AGSI"), to be used at a Special Meeting of
Stockholders of AGSI to be held on _____________, 1997 (the "AGSI Meeting")
and any adjournments or postponements thereof for the purposes set forth
herein and in the accompanying AGSI Notice of Special Meeting.
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
Canmax with respect to a maximum of 6,700,000 shares of common stock, no par
value per share, of Canmax ("Canmax Common Stock") to be issued to the
stockholders of AGSI in connection with the merger (the "Merger") of AGSI
with and into Canmax Retail Systems, Inc., a Texas corporation and wholly
owned subsidiary of Canmax ("CRSI"), in exchange for all of the outstanding
shares of AGSI common stock, $1.00 par value per share ("AGSI Common Stock"),
outstanding as of the effective time of the Merger (the "Effective Time"),
subject to the terms of the Amended and Restated Agreement and Plan of Merger
dated as of June 16, 1997 (the "Merger Agreement"), among Canmax, CRSI and
AGSI. Pursuant to the terms of the Merger Agreement, each outstanding share
of AGSI Common Stock will be converted into the right to receive 3.37623
shares of Canmax Common Stock.
Shares of Canmax Common Stock are currently listed on the Nasdaq Stock
Market's SmallCap Market (the "Nasdaq SmallCap Market") under the symbol
"CNMX." On August 8, 1997, the reported closing sale price of a share of
Canmax Common Stock on the Nasdaq SmallCap Market was $2.375. See
"Information Concerning Canmax - Dividends on and Market Prices of Canmax
Common Stock."
This Joint Proxy Statement/Prospectus and the related Notices of Special
Meeting and forms of proxies are first being mailed on or about ___________,
1997, to stockholders of record of Canmax at the close of business on
_____________, 1997 (the "Canmax Record Date") and stockholders of record of
AGSI at the close of business on _____________, 1997 (the "AGSI Record
Date"). There were ______ shares of Canmax Common Stock outstanding at the
close of business on the Canmax Record Date and _______ shares of AGSI Common
Stock outstanding at the close of business on the AGSI Record Date. Only
stockholders of record on the applicable record date will be entitled to
notice of, and to vote at, the meetings.
THE INFORMATION CONTAINED HEREIN WITH RESPECT TO THE MERGER IS QUALIFIED
BY REFERENCE TO THE MERGER AGREEMENT ATTACHED AS APPENDIX A HERETO AND
INCORPORATED HEREIN BY REFERENCE.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN
IMPORTANT FACTORS THAT SHOULD BE CONSIDERED IN ADDITION TO THE OTHER
INFORMATION HEREIN, BEFORE VOTING UPON THE VARIOUS MATTERS TO BE CONSIDERED
AT THE CANMAX MEETING AND THE AGSI MEETING.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION , NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS JOINT PROXY STATEMENT/
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS _________, 1997.
<PAGE>
TABLE OF CONTENTS
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . iv
"Safe Harbor" Statement Under The Private Securities. . . . . . . . . . . .v
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
The Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
The Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Historical and Unaudited Pro Forma Combined Condensed Financial
Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Comparative Market Price Data . . . . . . . . . . . . . . . . . . . . . 10
Comparative Per Share Data. . . . . . . . . . . . . . . . . . . . . . . 10
The Combined Company. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Product Concentration . . . . . . . . . . . . . . . . . . . . . . . . . 13
Concentration of Revenues; Customer Concentration . . . . . . . . . . . 13
History of Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Liquidity Needs; Dilution . . . . . . . . . . . . . . . . . . . . . . . 14
Significant Fluctuations in Revenues and Operating Results. . . . . . . 14
Need for Additional Financing for Growth. . . . . . . . . . . . . . . . 15
Management of Growth; Integration of Acquired Businesses. . . . . . . . 15
Risks Associated with Rapid Technological Change. . . . . . . . . . . . 15
Dependence on and Need to Recruit and Retain Key Management
and Technical Personnel . . . . . . . . . . . . . . . . . . . . . . . 16
Intense Competition . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Protection of Intellectual Property . . . . . . . . . . . . . . . . . . 16
Absence of Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . 16
Market for Common Stock; Volatility of Stock Price. . . . . . . . . . . 17
Proposed Increased Listing Standards. . . . . . . . . . . . . . . . . . 17
Shares Subject for Future Sale. . . . . . . . . . . . . . . . . . . . . 17
The Canmax Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Time, Place and Date. . . . . . . . . . . . . . . . . . . . . . . . . . 17
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Record Date; Voting Rights. . . . . . . . . . . . . . . . . . . . . . . 18
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Solicitation of Proxies and Expenses. . . . . . . . . . . . . . . . . . 18
Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
The AGSI Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Time, Place and Date. . . . . . . . . . . . . . . . . . . . . . . . . . 19
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Record Date; Voting Rights. . . . . . . . . . . . . . . . . . . . . . . 19
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Solicitation of Proxies and Expenses. . . . . . . . . . . . . . . . . . 20
Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Background of the Merger. . . . . . . . . . . . . . . . . . . . . . . . 21
Canmax's Reasons for the Merger; Recommendations of the Canmax Board. . 23
Opinion of Canmax Advisor . . . . . . . . . . . . . . . . . . . . . . . 24
AGSI's Reasons for the Merger; Recommendations of the AGSI Board. . . . 27
Opinion of AGSI Advisor . . . . . . . . . . . . . . . . . . . . . . . . 27
Terms of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Non-Competition Agreement . . . . . . . . . . . . . . . . . . . . . . . 34
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Voting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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Transferability of Canmax Common Stock. . . . . . . . . . . . . . . . . 34
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . 35
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . 35
Appraisal Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Interested Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Certain Compensation Arrangements . . . . . . . . . . . . . . . . . . . 39
Information Concerning Canmax. . . . . . . . . . . . . . . . . . . . . . . . 40
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Recent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Dividends and Market Prices of Canmax Common Stock. . . . . . . . . . . 45
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Security Ownership Of Certain Beneficial Owners, Directors
And Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Certain Relationships And Related Transactions. . . . . . . . . . . . . 57
Information Concerning AGSI. . . . . . . . . . . . . . . . . . . . . . . . . 57
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Company Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Products And Services . . . . . . . . . . . . . . . . . . . . . . . . . 60
Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Potential Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Product Development . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Proprietary Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Facilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Dividends and Market Value of AGSI Common Stock . . . . . . . . . . . . 65
AGSI Common Stock Ownership . . . . . . . . . . . . . . . . . . . . . . 65
The Combined Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Business Of The Combined Company. . . . . . . . . . . . . . . . . . . . 67
Unaudited Pro Forma Combined Condensed Financial Information. . . . . . 68
Selected Consolidated Financial Information Of Canmax. . . . . . . . . . . . 74
Management's Discussion And Analysis Of Financial Condition And Results Of
Operations Of Canmax . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Results Of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 76
Liquidity And Sources Of Capital. . . . . . . . . . . . . . . . . . . . 83
Selected Financial Information Of AGSI . . . . . . . . . . . . . . . . . . . 85
Management's Discussion And Analysis Of Financial Condition And Results Of
Operations Of AGSI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Factors That May Affect Future Results. . . . . . . . . . . . . . . . . 86
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 87
Liquidity And Capital Resources . . . . . . . . . . . . . . . . . . . . 94
Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Description Of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . 94
Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Change of Control and Severance Arrangements. . . . . . . . . . . . . . 96
Transfer Agent and Registrar. . . . . . . . . . . . . . . . . . . . . . 96
Comparison Of Rights Of Holders Of Shares Of Canmax Common Stock . . . . . . 97
Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Business Combinations . . . . . . . . . . . . . . . . . . . . . . . . . 97
Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 98
State Takeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . 98
Amendments to Certificate of Incorporation. . . . . . . . . . . . . . . 99
Amendments to Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . 99
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . .100
Dividend Sources. . . . . . . . . . . . . . . . . . . . . . . . . . . .100
Duration of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . .100
Stockholder Action Without a Meeting. . . . . . . . . . . . . . . . . .100
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Special Stockholder Meetings. . . . . . . . . . . . . . . . . . . . . .101
Cumulative Voting . . . . . . . . . . . . . . . . . . . . . . . . . . .101
Number and Election of Directors. . . . . . . . . . . . . . . . . . . .101
Removal of Directors. . . . . . . . . . . . . . . . . . . . . . . . . .102
Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
Indemnification of Directors and Officers . . . . . . . . . . . . . . .103
Limitation of Personal Liability of Directors . . . . . . . . . . . . .104
Certain Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . .105
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . .F-1
Appendices
Appendix A - Amended and Restated Agreement and Plan of Merger
Appendix B - Opinion of Canmax Advisor
Appendix C - Opinion of AGSI Advisor
Appendix D - Notice of Appraisal Rights
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY STATEMENT/
PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF
SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CANMAX,
CRSI, AGSI OR ANY OTHER PERSON. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM
ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF CANMAX, CRSI OR AGSI SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
Canmax is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). The reports,
proxy statements and other information filed by Canmax with the Commission
can be inspected and copied at the public reference facilities maintained by
the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission at 7
World Trade Center, New York, New York 10048, and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, such
materials filed electronically by Canmax with the Commission are available at
the Commission's World Wide Web Site at http://www.sec.gov. Canmax Common
Stock is listed on the Nasdaq SmallCap Market and copies of Canmax's reports,
proxy statements and other information may also be requested at the offices
of the National Association of Securities Dealers, Inc. at 1735 K Street,
N.W., Washington, DC 20006-1500.
Canmax has filed with the Commission a Registration Statement on Form
S-4 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), which includes the joint proxy statement of Canmax and AGSI with
respect to the Merger and the prospectus of Canmax with respect to the shares
of Canmax Common Stock to be issued pursuant to the Merger Agreement. As
permitted by the rules and regulations of the Commission, this Joint Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement. Copies of the Registration Statement are available
from the Commission upon payment of certain fees prescribed by the
Commission. Statements contained in this Joint Proxy Statement/Prospectus as
to the contents of any contract or other document referred to herein are not
necessarily complete. In each instance, reference is hereby made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement or such other document and each such statement is qualified in all
respects by such reference.
All information contained in this Joint Proxy Statement/Prospectus
regarding AGSI has been supplied by AGSI, all information regarding the
Merger has been supplied by AGSI and/or Canmax and all other information has
been supplied by Canmax.
The term "Canmax" when used in this Joint Proxy Statement/Prospectus
shall mean Canmax Inc. and its subsidiaries through which it conducts
business, unless the context indicates otherwise.
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"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
With the exception of historical information, the matters discussed in
this Joint Proxy Statement/Prospectus include forward looking statements that
involve risks and uncertainties. Among the risks and uncertainties to which
Canmax is subject are (i) user acceptance of Windows NT as an operating
system, (ii) concentration of revenues between two customers and Canmax's
relationship with such customers, (iii) the ability of Canmax to manage its
growth, (iv) Canmax's need for additional financing to fund product
development, marketing and related support services, (v) future technological
developments and product acceptance, (vi) intense price and product
competition within the industry, (vii) acquisition integration and (viii)
other risks indicated herein and in filings with the Commission. As a
result, the actual results realized by Canmax could differ materially from
the statements made herein. Recipients of this Joint Proxy
Statement/Prospectus are cautioned not to place undue reliance on the forward
looking statements made in this Joint Proxy Statement/Prospectus.
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION APPEARING ELSEWHERE IN
THIS JOINT PROXY STATEMENT/PROSPECTUS. THE SUMMARY DOES NOT PURPORT TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND
CONSOLIDATED FINANCIAL STATEMENTS (AND NOTES THERETO) CONTAINED IN THIS JOINT
PROXY STATEMENT/PROSPECTUS AND THE APPENDICES HERETO, ALL OF WHICH SHOULD BE
CAREFULLY REVIEWED. THE INFORMATION CONTAINED HEREIN WITH RESPECT TO CANMAX AND
AGSI HAS BEEN SUPPLIED BY EACH RESPECTIVE ENTITY. ADDITIONALLY, THE INFORMATION
CONTAINED HEREIN WITH RESPECT TO THE MERGER (AS DEFINED HEREIN) IS QUALIFIED BY
REFERENCE TO THE AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER ATTACHED
HERETO AS APPENDIX A AND INCORPORATED HEREIN BY REFERENCE. CROSS-REFERENCES IN
THIS SUMMARY REFER TO INDICATED CAPTIONS OR PORTIONS OF THIS JOINT PROXY
STATEMENT/PROSPECTUS.
THE PARTIES
CANMAX
Canmax Inc. ("Canmax"), through its wholly owned subsidiary Canmax Retail
Systems, Inc. ("CRSI"), develops and provides enterprise wide technology
solutions to the convenience store and retail petroleum industries. Canmax
offers fully integrated retail automation solutions, including "C-Serve," which
includes point of sale ("POS") systems, credit/debit network authorization
systems, pump control systems, and other back office management systems, and
"Vista," its headquarters-based management system. Canmax's products and
services enable retailers and operators to interact electronically with
customers, capture data at the point of sale, manage site operations and
logistics and communicate electronically with their sites, vendors and
credit/debit networks. Canmax also provides (a) software development,
customization and enhancements, (b) systems integration, installation and
training services, and (c) 24 hour a day, 365 day per year help desk services.
These additional services enable Canmax to tailor the solutions to each
customer's specifications and provide successful system implementation,
installation, training and after sales support.
Canmax's objective is to be a leading provider of enterprise wide
technology solutions to the convenience store and retail petroleum market.
Canmax is developing an enhanced version of its C-Serve product to run on the
Windows NT operating system in conjunction with a development project with NCR
Corporation ("NCR") and The Southland Corporation ("Southland"). As of July 31,
1997, Canmax's products have been installed in over 5,900 locations and Canmax
has customers including Southland, ARCO and the Army and Air Force Exchange.
Canmax was incorporated on July 10, 1986 under the Company Act of the
Province of British Columbia, Canada, and subsequently changed its name to
"International Retail Systems Inc." On August 7, 1992, Canmax renounced its
original province of incorporation and elected to continue its domicile under
the laws of the State of Wyoming, and on November 30, 1994 its name was changed
to "Canmax Inc." Canmax's principal executive offices are located at 150 West
Carpenter Freeway, Irving, Texas 75039 and its telephone number is
(972) 541-1600.
CRSI
CRSI is a wholly owned subsidiary of Canmax and is the primary entity
through which Canmax conducts its operations. CRSI was incorporated on August
28, 1991 under the laws of the State of Texas. CRSI's principal executive
offices are located at 150 West Carpenter Freeway, Irving, Texas 75039 and its
telephone number is (972) 541-1600.
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AGSI
Auto-Gas Systems, Inc. ("AGSI") provides software applications to selected
markets within the retail petroleum industry, offering fully integrated retail
automation solutions including POS systems, back office management systems and
headquarters-based management systems for gasoline and convenience stores, as
well as site control systems for traditional retail fuel outlets, alternative
fuel outlets and private fleet fueling sites. AGSI's products enable its
customers to automate their transactions with customers, communicate
electronically with debit/credit networks, generate management reports, and
manage operations by site, providing necessary data for decision making in the
operation of a gasoline/convenience store. In addition, AGSI provides custom
software development services, project management services, technical support
and repair services to its customers.
AGSI's predecessor pioneered "pay-at-the-pump" technology in 1981, which
enabled consumers to activate fueling pumps by swiping a magnetic stripe credit,
debit or proprietary fleet card. AGSI continued to innovate new technology
when, in the late 1980s, it introduced "controllers" for card readers built into
the dispenser. Prior to the introduction of this technology, pay-at-the-pump
was limited to stand alone card readers usually located at commercial fueling
depots and private sites. AGSI's technology solution interfaces with an
assortment of fuel dispensers and in excess of 40 credit/debit card networks,
including proprietary networks of major oil companies and third party electronic
payment networks.
AGSI acquired a personal computer ("PC") based convenience store automation
solution in July 1992 with an existing installed base of approximately 1,500
sites. The acquisition of this "inside the store" solution vertically
integrated with the existing pay-at-the-pump solution, thereby giving AGSI a
product line that provided a total solution from the fueling island and cash
register to the customer's back office accounting. AGSI currently has over
1,000 customers and an installed base of over 9,500 sites for all products.
The principal executive offices of AGSI are located at 1202 Estates Drive,
Suite D, Abilene, Texas 79602 and its telephone number is (915) 676-3150.
THE MEETINGS
THE CANMAX MEETING
TIME, PLACE AND DATE. A Special Meeting of Stockholders of Canmax (the
"Canmax Meeting") is scheduled to be held on ______________, 1997 at
________________, commencing at ___ a.m. local time.
PURPOSE. At the Canmax Meeting, the stockholders of Canmax will consider
and vote upon a proposal to approve and adopt the Amended and Restated Agreement
and Plan of Merger dated as of June 16, 1997 by and among Canmax, CRSI and AGSI
(the "Merger Agreement") and the issuance to the former stockholders of AGSI up
to 6.7 million shares of common stock, no par value per share, of Canmax
("Canmax Common Stock"). Upon consummation of the Merger, AGSI will be merged
with and into CRSI, and the combined entity will continue as a wholly-owned
subsidiary of Canmax. At the Canmax Meeting, the Canmax stockholders will also
consider and vote upon such other business as may properly come before the
Canmax Meeting or any adjournment or postponement thereof.
RECORD DATE; SHARES ENTITLED TO VOTE. Holders of record of Canmax Common
Stock at the close of business on _______________, 1997 (the "Canmax Record
Date") will be entitled to notice of, and to vote at, the Canmax Meeting. At
the close of business on the Canmax Record Date, __________ shares of Canmax
Common Stock were issued and outstanding. Each outstanding share of Canmax
Common Stock is entitled to one vote with respect to each matter to be voted on
at the Canmax Meeting.
VOTE REQUIRED. The presence at the Canmax Meeting, in person or by proxy,
of the holders of a majority of the issued and outstanding shares of Canmax
Common Stock constitutes a quorum for the transaction of business. Although
neither the Wyoming Business Corporation Act ("WBCA") nor the Articles of
Incorporation of Canmax require the approval of the stockholders of Canmax, the
Canmax Board has elected to submit the Merger Agreement and the related issuance
of shares of Canmax Common Stock for approval by the stockholders of Canmax.
Because
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the Canmax Board has required the approval of a majority of all of the
issued and outstanding shares of Canmax Common Stock, abstentions and broker
non-votes will have the effect of a vote "against" the Merger Agreement and
related issuance of shares. The percentage of currently outstanding shares of
Canmax Common Stock entitled to vote held by directors, executive officers and
their affiliates is 1.9%, or 127,498 shares of Canmax Common Stock.
THE AGSI MEETING
TIME, PLACE AND DATE. A Special Meeting of the Stockholders of AGSI (the
"AGSI Meeting") is scheduled to be held on ______________, 1997 at
_____________, commencing at _____ a.m. local time.
PURPOSES. At the AGSI Meeting, the stockholders of AGSI will consider and
vote upon a proposal to approve and adopt the Merger Agreement, pursuant to
which each outstanding share of AGSI common stock, $1.00 par value per share
("AGSI Common Stock") will be converted into the right to receive 3.37623 shares
of Canmax Common Stock and cash in lieu of any fractional shares. At the AGSI
Meeting, the AGSI stockholders will also consider and vote a resolution
approving the grant to G. Randy Nicholson and Jeffrey F. Upp of warrants to
purchase 285,000 and 120,000 shares of Canmax Common Stock, respectively, at an
exercise price of $.58 per share, in connection with non-competition agreements
to be entered into by them pursuant to the Merger Agreement (the "Compensation
Arrangements"). Such stock warrants are described in "The Merger - Certain
Compensation Arrangements. Approval of the Compensation Arrangements is not a
condition to the Merger, but is being sought solely for the purpose of
satisfying the requirements of the Internal Revenue Code for not imposing
federal excise tax and other adverse tax consequences in respect of the
Compensation Arrangements. At the AGSI Meeting, the AGSI stockholders will also
consider and vote upon such other business as may properly come before the AGSI
Meeting or any adjournment or postponement thereof.
RECORD DATE; SHARES ENTITLED TO VOTE. Holders of record of AGSI Common
Stock at the close of business on __________, 1997 (the "AGSI Record Date") will
be entitled to notice of, and to vote at, the AGSI Meeting. At the close of
business on the AGSI Record Date, _________ shares of AGSI Common Stock were
issued and outstanding. Each outstanding share of AGSI Common Stock is entitled
to one vote with respect to each matter to be voted on at the AGSI Meeting.
VOTES REQUIRED. The presence at the AGSI Meeting, in person or by proxy,
of the holders of a majority of the issued and outstanding shares of AGSI Common
Stock constitutes a quorum for the transaction of business. Pursuant to the
Delaware General Corporation Law ("DGCL"), the Merger Agreement must be approved
by the holders of more than fifty percent (50%) of the issued and outstanding
shares of AGSI Common Stock. Pursuant to the Internal Revenue Code, the
Compensation Arrangements must be approved by the holders of 75% of the
outstanding shares of AGSI Common Stock, not including the shares beneficially
held by Mr. Nicholson and Mr. Upp. Because approval of the Merger Agreement and
the Compensation Arrangements require a percentage of all of the issued and
outstanding shares of AGSI Common Stock, abstentions will have the effect of a
vote "against" the Merger Agreement. The percentage of currently outstanding
shares of AGSI Common Stock entitled to vote held by directors, executive
officers and their affiliates is 57.1%, or 879,962 shares of AGSI Common Stock.
ON JUNE 16, 1997, G. RANDY NICHOLSON, BARBARA NICHOLSON AND M-Y PROPERTIES,
LTD., AN ENTITY CONTROLLED BY MR. NICHOLSON AND RAY MCGLOTHLIN, JR.,
COLLECTIVELY HELD RECORD OWNERSHIP OF APPROXIMATELY 386,471 SHARES OR
APPROXIMATELY 25.1% OF THE AGSI COMMON STOCK OUTSTANDING AS OF SUCH DATE. SUCH
STOCKHOLDERS EXECUTED A STOCKHOLDERS VOTING AGREEMENT WHEREBY THEY AGREED, IN
CONNECTION WITH THE MERGER, TO VOTE THEIR SHARES IN ACCORDANCE WITH THE
RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF AGSI. ON JULY 9, 1997, THE AGSI
SHARES HELD BY M-Y PROPERTIES, LTD. WERE DISTRIBUTED EQUALLY TO G. RANDY
NICHOLSON AND RAY MCGLOTHLIN, JR. SUCH SHARES REMAIN SUBJECT TO THE
STOCKHOLDERS VOTING AGREEMENT.
THE MERGER
MERGER; EFFECTIVE TIME. Pursuant to the Merger Agreement, AGSI will be
merged with and into CRSI, a wholly owned subsidiary of Canmax, whereupon the
separate corporate existence of AGSI will cease and AGSI and CRSI will continue
as a single entity under the laws of the State of Texas. If the Merger is
approved by the requisite vote of the shareholders of Canmax and AGSI and the
other conditions to the consummation of the Merger are satisfied or, where
permissible, waived, the Merger will become effective upon the later of the
filing of the
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Certificate of Merger with the Secretary of State of Delaware and the
issuance of a Certificate of Merger by the Secretary of State of Texas, each
in the manner required by state law to cause the Merger to become effective
(the "Effective Time"). From and after the Effective Time, by virtue of the
Merger and without any action on the part of the holders thereof, all issued
and outstanding shares of AGSI Common Stock will no longer be outstanding,
will be canceled and retired and will cease to exist. Each holder of a
certificate formerly representing any AGSI shares will thereafter cease to
have any rights with respect to such shares, except the right to receive
shares of Canmax Common Stock and cash in lieu of any fractional shares upon
the surrender of such certificate in accordance with the terms of the Merger
Agreement. See "The Merger - Terms of the Merger - Effective Time."
CONVERSION OF SHARES. At the Effective Time, each share of AGSI Common
Stock issued and outstanding immediately prior to the Effective Time will be
converted into the right to receive 3.37623 shares of Canmax Common Stock (the
"Exchange Rate"), or an aggregate of up to 6,700,000 shares of Canmax Common
Stock (the "Merger Shares"). The exact number of Merger Shares to be issued in
connection with the Merger will be determined by the number of shares of AGSI
Common Stock outstanding immediately prior to the closing date of the Merger
(the "Closing Date").
FRACTIONAL SHARES. No fractional shares of Canmax Common Stock will be
issued in connection with the Merger. See "The Merger - Terms of the Merger -
Fractional Shares." Holders of shares of AGSI Common Stock will be entitled to
receive a cash payment in lieu of any fractional shares of Canmax Common Stock.
STOCK OPTIONS; WARRANTS. Pursuant to the terms of the Merger Agreement,
all outstanding options ("AGSI Options") and warrants ("AGSI Warrants") to
acquire shares of AGSI Common Stock will, by virtue of the Merger and without
any action on the part of the holder thereof, be assumed by Canmax and
thereafter be deemed to constitute an option or warrant, as applicable, to
acquire the number of whole shares of Canmax Common Stock equal to the number of
shares of AGSI Common Stock issuable with respect to such stock option or
warrant multiplied by the Exchange Rate at an exercise price equal to the
exercise price stated in such stock option or warrant divided by the Exchange
Rate. See "The Merger - Terms of the Merger - Stock Options; Warrants."
EXCHANGE OF CERTIFICATES. Promptly after the Effective Time, Montreal
Trust Company (the "Exchange Agent"), acting in its capacity as the exchange
agent pursuant to the terms of an exchange agent agreement (the "Exchange
Agreement"), will mail to each holder of record (as of the Effective Time) of an
outstanding certificate or certificates that immediately prior to the Effective
Time represented outstanding shares of AGSI Common Stock (the "AGSI
Certificates"), a Letter of Transmittal ("Letter of Transmittal") for use in
effecting the surrender of the AGSI Certificates for exchange and/or payment.
Until surrendered and exchanged, each AGSI Certificate will evidence the
ownership of that number of whole shares of Canmax Common Stock into which the
shares of AGSI Common Stock represented thereby shall have been converted and
the right to receive cash in lieu of any fractional shares. ELECTIONS BY AGSI
STOCKHOLDERS MADE IN THE LETTER OF TRANSMITTAL ARE IRREVOCABLE. AGSI
STOCKHOLDERS ARE REQUESTED NOT TO SURRENDER THEIR AGSI CERTIFICATES FOR EXCHANGE
UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL AND INSTRUCTIONS FROM THE EXCHANGE
AGENT. See "The Merger - Terms of the Merger - Exchange of Certificates."
CANMAX'S REASONS FOR THE MERGER; RECOMMENDATION OF THE CANMAX BOARD. The
Board of Directors of Canmax ("Canmax Board") has unanimously determined that
the Merger Agreement and the related issuance of shares of Canmax Common Stock
are advisable and in the best interests of Canmax and its stockholders and has
therefore unanimously approved and adopted the Merger Agreement and the related
issuance of shares of Canmax Common Stock. Accordingly, the Canmax Board
unanimously recommends that the stockholders of Canmax vote "FOR" the approval
and adoption of the Merger Agreement and the related issuance of shares of
Canmax Common Stock. See "The Merger - Canmax's Reasons for the Merger;
Recommendation of the Canmax Board."
OPINION OF CANMAX ADVISOR. On June 16, 1997, Rauscher Pierce Refsnes, Inc.
(the "Canmax Advisor") delivered its oral opinion to the Board of Directors of
Canmax to the effect that, as of such date and based upon the assumptions made,
matters considered and limits of review as set forth in such opinion, the
transaction contemplated by the Merger Agreement is fair to the stockholders of
Canmax from a financial point of view. The full text of the written opinion of
the Canmax Advisor, dated July 21, 1997, which sets forth the assumptions made,
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4
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matters considered and limitations on their review undertaken in connection with
the opinion, is attached hereto as APPENDIX B and incorporated herein by
reference. The written opinion of the Canmax Advisor dated July 21, 1997 is
substantially identical to the June 16, 1997 oral opinion delivered to the
Canmax Board. Holders of Canmax Common Stock are urged to, and should, read
such opinion carefully in its entirety. See "The Merger - Opinion of Canmax
Advisor."
AGSI'S REASONS FOR THE MERGER; RECOMMENDATION OF THE AGSI BOARD. The Board
of Directors of AGSI ("AGSI Board") has unanimously determined that the Merger
Agreement is advisable and in the best interests of AGSI and its stockholders
and has therefore unanimously approved and adopted the Merger Agreement.
Accordingly, the AGSI Board unanimously recommends that stockholders of AGSI
vote "FOR" the approval and adoption of the Merger Agreement. See "The Merger -
AGSI's Reasons for the Merger; Recommendation of the AGSI Board."
OPINION OF AGSI ADVISOR. On August 8, 1997, the GulfStar Group, Inc.
(the "AGSI Advisor") delivered its oral opinion to the Board of Directors of
AGSI to the effect that, as of such date and based upon the assumptions made,
matters considered and limits of review as set forth in such opinion, the
transaction contemplated by the Merger Agreement dated June 16, 1997 is fair to
the stockholders of AGSI from a financial point of view. The full text of the
written opinion of the AGSI Advisor, dated August 8, 1997, which sets forth the
assumptions made, matters considered and limitations on their review undertaken
in connection with the opinion, is attached hereto as APPENDIX C and
incorporated herein by reference. The written opinion of the AGSI Advisor dated
August 8, 1997 is substantially identical to the August 8, 1997 oral opinion
delivered to the AGSI Board. Holders of AGSI Common Stock are urged to, and
should, read such opinion carefully in its entirety. See "The Merger - Opinion
of AGSI Advisor."
LIMITATIONS ON TRANSFERABILITY OF CANMAX COMMON STOCK. Shares of Canmax
Common Stock received by certain persons deemed to be ''affiliates'' of AGSI for
purposes of Rule 145 under the Securities Act of 1933, as amended (the
"Securities Act"), will be subject to the restrictions imposed by such rule. In
accordance with Rule 145, an affiliate of AGSI receiving Canmax Common Stock
issued in the Merger may not sell such shares except pursuant to the volume and
manner of sale limitations and other requirements specified in such Rule or
pursuant to an effective registration statement under the Securities Act.
Canmax has agreed to file a registration statement covering the resale of shares
of Canmax Common Stock acquired by certain former affiliates of AGSI in the
Merger. See "The Merger - Transferability of Canmax Common Stock."
LISTING OF CANMAX COMMON STOCK ON NASDAQ SMALLCAP MARKET. Canmax has
agreed to cause the Merger Shares to be listed for trading on the Nasdaq
SmallCap Market.
CONDITIONS; WAIVER. The obligations of Canmax and CRSI on the one hand,
and AGSI on the other hand, to consummate the Merger are contingent upon and
subject to the satisfaction or waiver of certain conditions, including, among
others, the approval of the Merger Agreement by holders of the requisite number
of shares of AGSI Common Stock. See "The Merger - Terms of the Merger -
Conditions; Waiver."
REGULATORY APPROVALS. The Merger does not require any regulatory approvals
other than federal and state approvals required in connection with the
effectiveness of the Registration Statement of which this Joint Proxy
Statement/Prospectus forms a part. See "The Merger - Terms of the Merger -
Regulatory Approvals."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The Merger is intended to qualify
as a tax-free reorganization within the meaning of Section 368(a) of the Code
such that, for federal income tax purposes, no gain or loss will be recognized
by the stockholders of AGSI solely by reason of the exchange of their shares of
AGSI Common Stock for shares of Canmax Common Stock in the Merger. Gain will be
recognized with respect to cash received in lieu of fractional shares or in
connection with the exercise of appraisal rights under applicable law. AGSI
will receive an opinion of counsel as to the tax consequences of the Merger.
ALL STOCKHOLDERS OF AGSI SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE
TAX CONSEQUENCES OF THE MERGER BASED ON SUCH STOCKHOLDER'S OWN PARTICULAR FACTS
AND CIRCUMSTANCES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND
FOREIGN TAX LAWS
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5
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AND POSSIBLE CHANGES IN THE TAX LAWS. See "The Merger - Certain Federal
Income Tax Consequences."
ACCOUNTING TREATMENT. Canmax expects that the Merger will be accounted for
under the "purchase" method of accounting.
APPRAISAL RIGHTS. Pursuant to the DGCL, holders of AGSI Common Stock who
make written demand on AGSI and comply with the detailed provisions contained in
Section of 262 the DGCL will be entitled to seek payment from Canmax of the
"fair value" of their AGSI Common Stock, as determined by the Delaware Court of
Chancery following an appraisal thereof. A vote against the Merger shall not
constitute a demand. A copy of Section 262 of the DGCL is reproduced as APPENDIX
D hereto. Holders of shares of Canmax Common Stock will not be entitled to
exercise any right to dissent from or seek an appraisal of their shares in
connection with the Merger. See "The Merger - Appraisal Rights. "
TERMINATION. The Merger may be terminated at any time prior to the
Effective Date of the Merger by (i) written agreement between the parties
thereto, (ii) any of AGSI, Canmax or CRSI if the transactions contemplated by
the Merger Agreement have not been consummated prior to October 31, 1997, and
(iii) under certain other circumstances. See "The Merger - Terms of the
Merger - Termination."
BREAK-UP FEE. If the Merger Agreement is terminated as a result of either
party's Board of Directors approving the execution of, or recommending to its
stockholders the acceptance of, an agreement relating to an acquisition proposal
from a third party, then such party shall be obligated to pay to the other party
$400,000 in cash, which such sum is to serve as the sole and exclusive remedy
for any claims arising from the Merger Agreement or the termination thereof. See
"The Merger - Terms of the Merger - Break-Up Fee."
INTERESTS OF CERTAIN PERSONS IN THE MERGER. In connection with the
Merger Agreement, Canmax has agreed to engage G. Randy Nicholson, the current
President and Chief Executive Officer of AGSI, as a consultant to Canmax for
a period of two (2) years following the Effective Date at an annual
compensation of $150,000 plus certain benefits, and Jeffrey F. Upp, the
current Vice President of Finance and Chief Financial Officer of AGSI, as an
employee of Canmax for a period of seven months following the Effective Date
at a monthly compensation of $8,000 plus certain benefits. CONCURRENT WITH
AND AS A CONDITION TO THE MERGER AGREEMENT, CANMAX HAS AGREED TO GRANT TO
MESSRS. NICHOLSON AND UPP, AS ADDITIONAL COMPENSATION FOR CERTAIN
NON-COMPETITIVE COVENANTS, WARRANTS TO PURCHASE 285,000 AND 120,000 SHARES,
RESPECTIVELY, OF CANMAX COMMON STOCK AT AN EXERCISE PRICE OF $0.58 PER SHARE,
RESPECTIVELY (THE "COMPENSATION ARRANGEMENTS"). For a further discussion of
these matters and the interests of other persons in the Merger, see "The
Merger - Interested Parties" and "- Certain Compensation Arrangements."
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6
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SUMMARY HISTORICAL AND UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION
CANMAX HISTORICAL FINANCIAL INFORMATION
The summary consolidated financial information presented below has been derived
from the consolidated audited and unaudited financial statements of Canmax for
the periods indicated. The data presented below should be read in conjunction
with such financial statements and the Notes thereto. See "Index to Financial
Statements."
<TABLE>
Six Months
Ended April 30, Fiscal Years Ended October 31,
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues $ 7,734 $ 5,159 $ 12,264 $ 8,996 $ 9,675 $ 4,659 $ 2,224
Cost of software licenses,
product revenue and
development revenue 3,466 2,222 4,489 4,352 3,219 1,411 700
Operating expenses 3,602 3,472 7,604 8,328 8,305 4,361 3,510
Interest expense, net 7 19 28 50 66 29 6
Writedown of capitalized
software - - - - 4,127 - -
Net income (loss) 659 (554) 143 (3,734) (6,042) (1,142) (1,992)
Net income (loss) per share(1) 0.10 (0.11) 0.02 (0.79) (1.54) (0.31) (0.60)
BALANCE SHEET DATA:
Total assets $ 4,669 $ 4,288 $ 5,650 $ 4,702 $ 5,328 $ 6,883 $ 2,051
Working capital (deficiency) 1,237 (628) 208 (469) 146 526 (748)
Non-current obligations 172 208 256 265 1,375 146 56
Shareholders' equity 2,735 1,371 2,075 1,719 1,910 4,045 496
</TABLE>
(1) All per share amounts have been retroactively adjusted to reflect a
one-for-five reverse stock split of Canmax Common Stock effective
December 21, 1995.
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AGSI HISTORICAL FINANCIAL INFORMATION
The summary financial information presented below has been derived from the
audited and unaudited financial statements of AGSI for the periods indicated.
The data presented below should be read in conjunction with such financial
statements and the Notes thereto. See "Index to Financial Statements."
<TABLE>
Six Months
Ended March 31, Fiscal Years Ended September 30,
----------------- ---------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 4,703 $ 6,702 $12,445 $ 12,082 $ 10,353 $ 5,371 $ 4,474
Cost of systems, software,
development, support and
service agreements 1,510 2,223 4,200 4,758 4,150 2,594 2,142
Operating expenses 3,084 2,793 6,064 4,594 3,581 2,688 2,116
Interest income (expense), net 62 67 142 100 (20) (412) (371)
Writedown of capitalized
software - - - 892 - - -
Net income (loss) 56 1,062 1,403 1,075 2,368 (511) (255)
Net income (loss) per share 0.03 0.64 0.84 0.63 1.40 (0.92) (0.54)
BALANCE SHEET DATA:
Total assets $10,110 $10,141 $10,193 $ 8,804 $ 7,634 $ 5,301 $ 4,178
Working capital (deficiency) 6,282 6,223 6,195 5,267 3,490 878 (117)
Non-current obligations - - - - - 235 3,037
Stockholders' equity (deficit) 8,084 7,687 8,028 6,625 5,550 3,182 (756)
</TABLE>
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following table sets forth summary unaudited pro forma combined
condensed financial information of both Canmax and AGSI (the "Combined Company")
and has been derived from, or prepared on a basis consistent with, the unaudited
pro forma combined condensed financial statements included elsewhere in this
Joint Proxy Statement/Prospectus. The data is presented for illustrative
purposes only and is not necessarily indicative of the combined results of
operations or financial position that would have occurred if the Merger had
occurred at the beginning of each period presented or on the dates indicated,
nor is it necessarily indicative of future operating results or financial
position of the Combined Company. See "The Combined Company - Unaudited Pro
Forma Combined Condensed Financial Statements."
<TABLE>
Unaudited Pro Forma
---------------------------------------
Fiscal Year Ended Six Months Ended
October 31, 1996(1) April 30, 1997(2)
------------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 24,708 $ 12,437
Cost of systems, software licenses, product
revenue, and development revenues 8,747 5,047
Operating expenses 14,145 6,882
Interest income, net 104 50
Net income 1,750 557
Net income per share 0.14 0.05
BALANCE SHEET DATA: Unaudited Pro Forma
April 30, 1997(3)
-----------------
Total assets $ 15,672
Working capital 6,872
Non-current obligations 966
Shareholders' equity 10,426
</TABLE>
(1) Includes the historical information of Canmax for the year ended October
31, 1996 and the historical information of AGSI for the year ended
September 30, 1996, as if the Merger had occurred at the beginning of the
respective fiscal year.
(2) Includes the historical information of Canmax for the six month period
ended April 30, 1997 and the historical information of AGSI for the six
month period ended March 31, 1997, as if the Merger had occurred at the
beginning of the respective period.
(3) Includes the historical information of Canmax as of April 30, 1997 and the
historical information of AGSI as of March 31, 1997, as if the Merger had
occurred April 30, 1997.
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COMPARATIVE MARKET PRICE DATA
The Canmax Common Stock is listed on the Nasdaq SmallCap Market under the
symbol "CNMX." The AGSI Common Stock is not listed on any public exchange or
automated quotation system and, as a result, no market price for such shares is
available. On June 16 1997, the last full trading day preceding the public
announcement of Canmax's intent to pursue the Merger Agreement, the closing sale
price per share of Canmax Common Stock was $2.75. As of August 8, 1997, the
closing sale price per share of Canmax Common Stock was $2.375. Recipients of
this Joint Proxy Statement/Prospectus are encouraged to obtain current market
quotations for the Canmax Common Stock. See "Information Concerning Canmax -
Dividends on and Market Prices of Canmax Common Stock."
COMPARATIVE PER SHARE DATA
The following table sets forth for Canmax Common Stock and AGSI Common
Stock certain historical per share data and certain unaudited pro forma and
equivalent pro forma per share data. Neither Canmax nor AGSI has paid any cash
dividends or distributions. The pro forma amounts included in the table below
are based on the purchase method of accounting and a preliminary allocation of
the consideration paid by Canmax. The following information should be read in
conjunction with the historical financial statements and accompanying notes of
Canmax and AGSI included elsewhere in this Joint Proxy Statement/Prospectus. The
pro forma financial data are presented for informational purposes only, and are
not necessarily indicative of the results or financial position that actually
would have occurred had the Merger been consummated as of the beginning of the
periods indicated nor are such data necessarily indicative of future results or
financial position.
<TABLE>
Canmax AGSI
-------------------------------- ----------------------------------
Six Months Fiscal Year Six Months Fiscal Year
Ended Ended Ended Ended
April 30, 1997 October 31, 1996 March 31, 1997 September 30, 1996
-------------- ---------------- -------------- ------------------
<S> <C> <C> <C> <C>
HISTORICAL:
Net income per share $ 0.10 $ 0.02 $ 0.03 $ 0.84
Book value per share $ 0.41 $ 0.41 $ 5.24 $ 5.21
PRO FORMA EQUIVALENT:
Net income per share(1) $ 0.05 $ 0.14 $ 0.15 $ 0.47
Book value per share(1) $ 0.88 N/A $ 2.98 N/A
</TABLE>
(1) The pro forma information for AGSI reflects an "equivalent" pro forma
adjustment determined by multiplying the pro forma information of Canmax by
3.37623, the Exchange Ratio, assuming that 5,205,451 shares of Canmax Common
Stock are issued in the Merger.
THE COMBINED COMPANY
GENERAL. Following the consummation of the Merger, the Combined Company
will be in the business of developing and providing enterprise wide technology
solutions to the convenience store and retail petroleum industries. In
particular, the Combined Company will offer an expanded product line with
solutions that will service the needs of the smaller customer or the larger
customer looking for an integrated, scaleable solution, plus "pay-at-the-pump,"
unattended and fleet fueling capability. The Combined Company's products and
services will be sold through its direct sales force and extensive distribution
network. The Combined Company will have access to in excess of 40 credit/debit
card networks, including proprietary networks of major oil companies and third
party electronic payment networks. Further, the Combined Company will have an
expanded presence internationally, with installed sites in Hong Kong, China, the
Middle East, South America and Canada.
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The Combined Company's products will be installed in over 15,000 locations,
and the Combined Company anticipates to continue serving the customers of Canmax
and AGSI, including Circle K, BHP Hawaii, Thrifty Oil, Fuelman, Inc., Irving
Oil Corp., West Texas Gas, Southland, ARCO, and the Army and Airforce Exchange.
Canmax does not currently anticipate any material changes in the Combined
Company's business strategy or market focus, although the Combined Company will
have additional marketing opportunities because of the Combined Company's
products. No assurance can be given that the Merger will be consummated and, if
consummated, no assurance can be given that the businesses combined thereby can
be successfully integrated. See "Risk Factors - Management of Growth;
Integration of Acquired Businesses" and "The Combined Company - Business of the
Combined Company."
MANAGEMENT OF THE COMBINED COMPANY. The Combined Company will be managed
after consummation of the Merger by Canmax's existing management and up to three
directors selected by representatives of AGSI. Canmax expects to enter into a
non-competition and consulting agreement with G. Randy Nicholson, the President
and Chief Executive Officer of AGSI, and a non-competition and employment
agreement with Jeffrey F. Upp, the Vice President and Chief Financial Officer of
AGSI. Upon consummation of the Merger, Canmax anticipates that Steve Covington
and Jeff Fisher, each a Vice President of AGSI, will continue to serve in
managerial positions with the Combined Company. See "The Merger - Interested
Parties" and "The Combined Company - Business of the Combined Company."
PRINCIPAL HOLDERS. The following table sets forth the effect of the Merger
on persons who beneficially own five percent or more of the outstanding shares
of Canmax Common Stock or who will beneficially own five percent or more of the
outstanding shares of Canmax Common Stock immediately following the Merger.
<TABLE>
CANMAX COMMON STOCK CANMAX COMMON STOCK
OWNED BEFORE THE MERGER OWNED AFTER THE MERGER
----------------------------- -----------------------------
NAME NUMBER OF SHARES PERCENT(1) NUMBER OF SHARES PERCENT(2)
- ------------------------ ---------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
Dodge Jones Foundation 1,000,000 15.1 1,375,140 11.6
Joseph E. Canon 1,000,000(3) 15.1 1,375,140(3) 11.6
Founders Equity Group, Inc. 913,364(4) 13.7 913,364(4) 7.7
Kamehameha Schools 0 0 1,354,901 11.5
Bernice Pauahi
Bishop Estate
Henry H. Peters 0 0 1,354,901(5) 11.5
G. Randy Nicholson 0 0 1,680,831(6) 13.4
</TABLE>
(1) Based upon 6,611,005 shares of Canmax Common Stock outstanding as of July
31, 1997.
(2) Assumes 1,541,794 shares of AGSI Common Stock are outstanding as of the
Effective Time, resulting in the issuance of an aggregate of 5,205,451 shares of
Canmax Common Stock in connection with the Merger.
(3) Includes 1,375,140 shares held by the Dodge Jones Foundation of which Mr.
Cannon serves as the Executive Director. As such, Mr. Canon exercises voting
power over all of such shares.
(4) Includes 50,000 shares subject to presently exercisable warrants.
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<PAGE>
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(5) Includes 1,354,901 shares held by the Kamehameha Schools Bernice Pauahi
Bishop Estate, of which Mr. Peters serves as the Trustee. As such, Mr. Peters
exercises voting power over all of such shares.
(6) Includes (i) 481,677 shares subject to presently exercisable warrants to be
assumed by Canmax in the Merger; (ii) 285,000 shares subject to warrants to be
issued at closing in connection with Mr. Nicholson's non-competition agreement
(see "The Merger - Interested Parties" and "- Certain Compensation Arrangements"
for a description of the terms of Mr. Nicholson's warrant); (iii) 33,762 shares
held by Barbara Nicholson, the wife of Mr. Nicholson; and (iv) 8,103 shares held
in trust of which Mr. Nicholson serves as trustee, as to which shares Mr.
Nicholson has sole voting power.
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<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, ALL OF THE RISK FACTORS LISTED BELOW SHOULD BE
CONSIDERED CAREFULLY BY AGSI STOCKHOLDERS IN EVALUATING THE MERGER. THESE
FACTORS SHOULD BE CONSIDERED IN CONJUNCTION WITH THE OTHER INFORMATION
INCLUDED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. IN THE EVENT THAT THE
MERGER IS NOT CONSUMMATED, STOCKHOLDERS OF AGSI WILL CONTINUE TO HOLD SHARES
IN AGSI. THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. CANMAX'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED BELOW. SEE "SAFE HARBOR STATEMENT UNDER PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995."
CONCENTRATION OF REVENUES; CUSTOMER CONCENTRATION
Canmax's revenues are currently concentrated in The Southland
Corporation ("Southland"), which accounted for approximately 94% and 77% of
Canmax's total revenue for the six month periods ended April 30, 1997 and
1996, respectively. Canmax's revenues derived from its relationship with
Southland include products and services provided directly by Canmax to
Southland and indirectly through NCR Corporation ("NCR") to Southland
pursuant to NCR's contract with Southland. For the fiscal years ended
October 31, 1994, 1995 and 1996, Southland accounted for approximately 50%,
73% and 86%, respectively, of Canmax's total revenues for such fiscal years.
During those same periods, Electronic Data Systems ("EDS") accounted for 38%,
10% and 7%, respectively, of Canmax's revenues for such fiscal years. No
other customer accounted for over 10% of Canmax's total revenues. On April
29, 1997, Canmax and EDS agreed to terminate substantially all of their
business arrangements. Canmax does not anticipate any significant future
revenues from EDS.
By the end of calendar 1997, Canmax will have completed its previously
announced $9.5 million project development contract with NCR/Southland, and
Canmax's help desk services and production support agreements with Southland
expire in December 1998. Canmax is in discussions with Southland regarding
future projects and services, but no definitive agreement has been reached to
date. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Canmax - Liquidity and Sources of Capital." Any
termination or significant disruption of Canmax's relationships with
Southland could have a material adverse effect on Canmax's business,
financial condition and results of operations. In addition, a deterioration
in the financial condition of any of its principal customers could expose
Canmax to the possibility of large accounts receivable write-offs, which
would materially adversely affect Canmax's financial condition and results of
operations. See "Information Concerning Canmax - Business - Customers."
PRODUCT CONCENTRATION
Canmax's primary product is C-Serve, which was designed by Canmax
exclusively for the retail petroleum and convenience store marketplace to
provide POS transaction processing including a comprehensive range of
management tools. For the fiscal years ended October 31, 1994, 1995 and
1996, C-Serve accounted for approximately 55%, 57% and 34%, respectively, of
Canmax's revenues for such fiscal periods. Canmax has allocated significant
capital resources to the development and completion of an enhanced version of
C-Serve to run on the Microsoft Windows family of operating systems
("Windows"). Canmax anticipates that C-Serve and its related enhancements
and versions will continue to account for a substantial portion of Canmax's
revenue for the foreseeable future. Accordingly, to the extent that Canmax
experiences any decline in demand for these products and services as a result
of competition, product obsolescence or otherwise, Canmax's operating results
and business prospects could be adversely affected.
HISTORY OF LOSSES
From inception through the fiscal year ended October 31, 1995, Canmax
experienced losses from continuing operations. These losses amounted to
approximately $6,042,000 and $3,734,000 for the fiscal years ended October
31, 1994 and 1995, respectively. For the fiscal year ended October 31, 1996,
Canmax reported its first full year of net income of approximately $143,000.
For the six months ended April 30, 1997, Canmax reported
13
<PAGE>
net income of approximately $659,000. There can be no assurance that Canmax
will continue to report net income in the future as it pursues its plans to
expand its product offerings and customer base and to enhance the
capabilities of its state-of-the art help desk.
The development of Canmax's business and the expansion of its product
offerings and customer base will require significant expenditures. Certain
of these expenditures, including marketing, sales and general and
administrative costs, are expensed as incurred while other expenditures,
including software design costs, are expensed over a period of time. Canmax
will continue to incur significant expenditures with the growth of its
business, including capital costs associated with expanding Canmax's product
offerings and sales, marketing and other expenses associated with expanding
Canmax's customer base. In light of Canmax's history of losses and its
expectation that it will continue to incur significant expenses in the
foreseeable future, there can be no assurance that Canmax will be able to
implement its growth strategy, sustain profitability or generate sufficient
cash flow to service its growth expectations.
LIQUIDITY NEEDS; DILUTION
Canmax generally maintains liquidity through cash generated by
operations, the issuance of equity securities, and the exercise of stock
options. Canmax has no line of credit or other lending facility. Canmax
continues to utilize the majority of its development resources to complete
the NCR/Southland Windows NT based project currently in progress. Canmax is
also developing its next generation Windows-based product to market to
potential customers other than Southland, the completion of which will not be
funded by work currently being performed for Southland. Canmax estimates
that the costs necessary to complete the development of this product and
bring the new product to market will range from $1.5 million to $2.0 million.
The failure to complete the development of such product could materially and
adversely affect the business prospects of Canmax.
Canmax believes that it may be necessary to raise additional capital to
complete development of its next generation products within the critical
window of opportunity and to provide vital marketing and other support
services. If cash generated from operations is insufficient to satisfy
Canmax's liquidity requirements, Canmax may be required to sell additional
debt or equity securities or obtain lines of credit, delay new product
development or restructure operations to reduce costs. No financing
arrangements to support this development project have been entered into by
Canmax at this time and there can be no assurances that such arrangements
will be available in the future, or, if available, that such arrangements
will be on terms satisfactory to Canmax.
Canmax is reviewing an acquisition strategy within its current industry
and other vertical markets. From time to time Canmax will review acquisition
candidates with products, technologies or other services that could enhance
Canmax's product offerings or services. Any material acquisitions could
result in Canmax issuing or selling additional debt or equity securities,
obtaining additional debt or other lines of credit. These activities may
also result in a decrease in Canmax's working capital depending, on the
amount, timing and nature of the consideration to be paid.
If the Merger is not consummated or if the cash resources of AGSI at the
Effective Time are insufficient to meet Canmax's current liquidity needs,
Canmax may immediately seek other sources of capital, which may include
public or private debt and/or equity financing or obtaining lines of credit.
No assurance can be given that such resources would be available to Canmax on
acceptable terms, if at all. Such financings could have a dilutive effect on
the stockholders of Canmax.
SIGNIFICANT FLUCTUATIONS IN REVENUES AND OPERATING RESULTS
Canmax's quarterly and annual revenues and operating results have varied
significantly in the past and are likely to continue to do so in the future.
Revenues and operating results may fluctuate as a result of several factors,
including the demand for Canmax's products and services, the timing and
acceptance of the introduction of new hardware and software products,
competitive conditions and economic conditions. In particular, Canmax's
operating results are highly sensitive to changes in the mix of Canmax's
product and service revenues and product margins. Further, the purchase of
Canmax's products and services generally involves a significant commitment of
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capital, with the attendant delays frequently associated with large capital
expenditures and authorization procedures within an organization. For these
and other reasons, Canmax's operating results are subject to a number of
significant risks over which Canmax has little or no control, including
customers' technology needs, budgetary constraints and internal authorization
reviews. Canmax may be unable to adjust spending sufficiently in a timely
manner to compensate for any unexpected revenue shortfall, which could
adversely affect operating results. Accordingly, Canmax believes that
period-to-period comparisons of its operating results should not be relied
upon as an indication of future performance. In addition, the results of any
quarterly period are not necessarily indicative of results to be expected for
a full fiscal year. It is possible that in certain future periods, Canmax's
operating results may be below the expectations of public market analysts and
investors. In such event, the price of Canmax's Common Stock would likely be
materially adversely affected. See "Selected Consolidated Financial Data of
Canmax" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Canmax."
NEED FOR ADDITIONAL FINANCING FOR GROWTH
The growth of Canmax's business will require substantial investment on a
continuing basis to finance capital expenditures and expenses related to
product development and customer base growth. However, although the majority
of Canmax's new product development expenses are currently funded through
revenues derived under agreements with NCR and Southland, Canmax anticipates
that it will require an additional $1.5 to $2.0 million to develop and bring
its next generation Windows-based product to market. Canmax has historically
utilized capital leases to fund its larger capital expenditures, and cash
flow from operations and trade credit for its working capital requirements.
There can be no assurance that any such required additional funds would be
available on satisfactory terms and conditions, if at all. The markets for
Canmax's product and service offerings are characterized by rapidly changing
technology and frequent new product and service offerings. As a result,
Canmax's success will depend on its ability to enhance existing products and
services and to develop and introduce, on a timely and cost-effective basis,
new products and services that keep pace with technological developments and
address increasingly sophisticated customer requirements. This continued
product development may utilize capital currently expected to be available
for Canmax's present operations. The amount and timing of Canmax's future
capital requirements, if any, will depend upon a number of factors, including
product development expenses, marketing support service expenses, and
competitive conditions, many of which are not within Canmax's control.
Failure to obtain any required additional financing could materially
adversely affect the growth, cash flow and earnings of Canmax.
MANAGEMENT OF GROWTH; INTEGRATION OF ACQUIRED BUSINESSES
The consummation of the Merger will result in a significant growth of
Canmax's operations. To manage this growth effectively, Canmax will be
required to implement and improve its operating and financial systems and
controls. In addition, Canmax will be required to integrate its business
operations with those of AGSI. To the extent that Canmax's existing
management and management personnel of AGSI retained following the Merger are
unable to assume or adequately perform these combined duties, Canmax would be
adversely affected. There can be no assurance that the management, systems
and controls currently in place or any steps taken to improve such
management, systems and controls will be adequate in the future.
Achieving the benefits that Canmax believes will result from the Merger
will depend in part upon the integration of the businesses of Canmax and AGSI
in an efficient and effective manner, and there can be no assurance that this
will occur. The transition to a combined company will require substantial
attention from management. The diversion of management attention and any
difficulties encountered in the transition process could have an adverse
effect on the revenues and operating results of Canmax. In addition, there
can be no assurance that management of the two companies will be compatible,
and the process of combining the two organizations could cause the
interruption of, or the disruption in, the activities of either or both the
companies' businesses, which could have an adverse effect on their combined
operations.
RISKS ASSOCIATED WITH RAPID TECHNOLOGICAL CHANGE
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The markets for Canmax's product and service offerings are characterized
by rapidly changing technology and frequent new product and service
offerings. The introduction of new technologies can render existing products
and services obsolete and unmarketable. Canmax's primary software product is
C-Serve which runs under MS-DOS and UNIX operating systems. With the
emerging growth of the Windows family of operating systems, customers are
preferring that their systems, solutions and software run under a
Windows-based system. As a result, Canmax believes it is critical that it
develop a Windows based product to remain competitive in today's changing
marketplace. Further, Canmax's continued success will depend on its ability
to enhance existing products and services, to develop and introduce, on a
timely and cost-effective basis, new products and services that keep pace
with technological developments, and to address increasingly sophisticated
customer requirements. There can be no assurance that Canmax will be
successful in identifying, developing and marketing product and service
enhancements or new products and services that respond to technological
change, that Canmax will not experience difficulties that could delay or
prevent the successful development, introduction and marketing of product and
service enhancements or new products and services, or that its product and
service enhancements and new products and services will adequately meet the
requirements of the marketplace and achieve market acceptance. Canmax's
business, financial condition and results of operations could be materially
adversely affected if Canmax were to incur delays in sourcing and developing
product and service enhancements or new products and services or if such
product and service enhancements or new products and services did not gain
market acceptance.
DEPENDENCE ON AND NEED TO RECRUIT AND RETAIN KEY MANAGEMENT AND TECHNICAL
PERSONNEL
Canmax's success depends to a significant extent on its ability to
attract and retain key personnel. In particular, Canmax is dependent on its
senior management and technical personnel. As of April 30, 1997, Canmax
employed approximately 49 technical professionals. Canmax anticipates
further growth in its technical staff. In the past, Canmax has experienced
difficulty in attracting qualified technical personnel. Competition for such
technical personnel is intense and no assurance can be given that Canmax will
be able to recruit and retain such personnel. The failure to recruit and to
retain management and technical personnel could have a material adverse
effect on Canmax's anticipated growth, revenues and results of operations.
See "Information Concerning Canmax - Business - Employees" and " -
Management."
INTENSE COMPETITION
The markets in which Canmax operates are characterized by intense
competition from several types of technical service providers, including POS
equipment manufactures, specialized application software companies and pump
manufacturers. Canmax expects to face further competition from new market
entrants and possible alliances between competitors in the future. Certain
of Canmax's current and potential competitors have greater financial,
technical, marketing and other resources than Canmax. As a result, they may
be able to respond more quickly to new or emerging technologies and changes
in customer requirements or to devote greater resources to the development,
promotion and sale of their products and services than Canmax. No assurance
can be given that Canmax will be able to compete successfully against current
and future competitors. See "Information Concerning Canmax - Business --
Competition."
PROTECTION OF INTELLECTUAL PROPERTY
Canmax seeks to protect its proprietary software, systems and processes
through copyright, trademark and trade secret laws and contractual
restrictions on disclosure and copying. Despite such measures, it may be
possible for unauthorized third parties to copy aspects of Canmax's software,
systems and processes or to obtain and use information that Canmax regards as
proprietary. In addition, no assurance can be given that the protective
measures taken by Canmax will be sufficient to preclude competitors from
developing competing or similar proprietary software, systems and processes.
ABSENCE OF DIVIDENDS
Canmax has never declared or paid any cash dividends on the Canmax
Common Stock and does not presently intend to pay cash dividends on the
Canmax Common Stock in the foreseeable future. Canmax intends to
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retain future earnings for reinvestment in its business. See "Information
Concerning Canmax - Dividends on and Market Prices of Canmax Common Stock."
MARKET FOR COMMON STOCK; VOLATILITY OF STOCK PRICE
Canmax cannot ensure that an active trading market for the Common Stock
on the Nasdaq SmallCap Market will be sustained subsequent to the Merger.
After completion of the Merger, the market for the Common Stock may be
influenced by many factors, including the depth and liquidity of the market
for the Canmax Common Stock, investor perceptions of Canmax and general
economic and other similar conditions. The market price for shares of the
Canmax Common Stock has varied significantly and may be volatile depending on
news announcements or changes in general market conditions. In particular,
news announcements, quarterly results of operations, competitive
developments, litigation or governmental regulatory action impacting Canmax
may adversely affect the Canmax Common Stock price.
PROPOSED INCREASED LISTING STANDARDS
On January 28, 1997, the National Association of Securities Dealers,
Inc. and The Nasdaq Stock Market approved increases in the listing and
maintenance standards governing the Nasdaq SmallCap Market that are awaiting
final approval by the Commission. If the new standards are approved by the
Commission and Canmax fails to meet the increased maintenance standards,
Canmax could be subject to being delisted from the Nasdaq SmallCap Market.
The delisting of Canmax would materially adversely affect the liquidity of
the Canmax Common Stock.
SHARES AVAILABLE FOR FUTURE SALE
Canmax will issue up to an additional 6.7 million shares of Canmax
Common Stock in connection with the Merger. Following the consummation of the
Merger, certain former stockholders of AGSI may seek to dispose of the shares
of Canmax Common Stock received in connection with the Merger. Canmax has
agreed to register the resale of shares of Canmax Common Stock received by
certain affiliates of AGSI (to be designated at closing) following the
consummation of the Merger, which registration will enable such persons to
resell their shares of Canmax Common Stock received in the Merger without
restriction. In addition, Canmax has filed a registration statement for the
resale of 863,364 shares of Canmax Common Stock acquired in a private
transaction which was declared effective by the Commission concurrently with
the Registration Statement of which this Joint Proxy Statement/Prospectus
forms a part. As a result, such shares, constituting approximately 13.1% of
the total of all issued and outstanding shares of Canmax Common Stock
(anticipated to be approximately 7.3% following the Merger), are presently
available for resale without restriction. There can be no assurance, given
the moderately low volume of trading typically exhibited in the Canmax Common
Stock, that all holders seeking to dispose of Canmax Common Stock will be
able to do so or at what price such shares will be sold if dispositions are
made. Further, the sale of a significant number of shares of Canmax Common
Stock could adversely affect the market price thereof. See "Information
Concerning Canmax - Dividends on and Market Prices of Canmax Common Stock"
and "Description of Capital Stock - Registration Rights."
THE CANMAX MEETING
TIME, PLACE AND DATE
This Joint Proxy Statement/Prospectus is being furnished to the holders
of Canmax Common Stock in connection with the solicitation of proxies by and
on behalf of the Board of Directors of Canmax for use at the special meeting
of shareholders of Canmax (together with any adjournments or postponements
thereof, the "Canmax Meeting") to be held at _____ a.m. on _______ , 1997 at
______________.
PURPOSE
At the Canmax Meeting, the stockholders of Canmax will consider and vote
upon a proposal to approve and adopt the Merger Agreement and the related
issuance of up to 6.7 million shares Canmax Common Stock to the former
stockholders of AGSI. Upon consummation of the Merger, AGSI, will be merged
with and into CRSI, and
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the combined entity will continue as a wholly-owned subsidiary of Canmax. In
addition, at the Canmax Meeting, the Canmax stockholders will consider and
vote upon such other business as may properly come before the Canmax Meeting
or any adjournment or postponement thereof. See "The Merger - Background and
Reasons for the Merger; Recommendation of the Canmax Board."
THE BOARD OF DIRECTORS OF CANMAX HAS UNANIMOUSLY APPROVED THE MERGER AND
RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
RELATED ISSUANCE OF SHARES OF CANMAX COMMON STOCK.
RECORD DATE; VOTING RIGHTS
Holders of shares of Canmax Common Stock of record at the close of
business on ______________, 1997 (the "Canmax Record Date") are entitled to
notice of, and to vote at, the Canmax Meeting regarding the approval and
adoption of the Merger and upon each other matter properly submitted at the
Canmax Meeting. On the Canmax Record Date, there were outstanding and
entitled to vote __________ shares of Canmax Common Stock, owned by ______
holders of record. Each share of Canmax Common Stock is entitled to one vote
upon the approval and adoption of the Merger and any other matter properly
submitted at the Canmax Meeting.
VOTE REQUIRED
The presence at the Canmax Meeting, in person or by proxy, of the
holders of a majority of the issued and outstanding shares of Canmax Common
Stock constitutes a quorum for the transaction of business. Although neither
the Wyoming Business Corporation Act ("WBCA") nor the Articles of
Incorporation of Canmax require the approval of the stockholders of Canmax,
the Canmax Board has elected to submit the Merger and the related issuance of
shares of Canmax Common Stock for approval by the stockholders of Canmax.
Because the Canmax Board has required the approval of a majority of all of
the issued and outstanding shares of Canmax Common Stock, abstentions and
broker non-votes will have the effect of a vote "against" the Merger. As of
July 31, 1997 the directors and executive officers of Canmax and their
affiliates owned an aggregate of 127,498 shares (1.9%) of the
then-outstanding shares of Canmax Common Stock. Pursuant to applicable
Wyoming law, stockholders of Canmax who object to the Merger Agreement and
related issuance of shares of Canmax Common Stock will not be afforded the
right to receive cash for their shares of Canmax Common Stock.
SOLICITATION OF PROXIES AND EXPENSES
This Joint Proxy Statement/Prospectus, the accompanying notice and proxy
are being mailed on or about _____, 1997 to holders of Canmax Common Stock
entitled to notice of, and to vote at, the Canmax Meeting. The cost of
preparing, assembling, printing, filing and mailing the Joint Proxy
Statement/Prospectus will be borne jointly by AGSI and Canmax. Nominees,
fiduciaries and other custodians have been requested to forward soliciting
materials to beneficial owners of shares of Canmax Common Stock held of
record by them, and such custodians will be reimbursed for their expenses.
Canmax has retained The Herman Group, Inc. to assist in the solicitation of
proxies in connection with the Canmax Meeting for a fee of $5,000 plus
reimbursement of out-of-pocket expenses. Certain officers, directors and
employees of Canmax may also solicit proxies by telephone or personal
contact. Such officers, directors and employees will not be additionally
compensated for such solicitation (other than their regular salaries), but
will be reimbursed by Canmax for out-of-pocket expenses incurred by them in
the course of such solicitation.
PROXIES
Holders of Canmax Common Stock are requested to complete, date, sign and
promptly return the accompanying form of proxy in the enclosed envelope.
Shares of Canmax Common Stock represented by properly executed proxies
received by Canmax and not revoked will be voted at the Canmax Meeting in
accordance with the instructions contained therein. If instructions are not
contained therein, proxies will be voted (i) FOR approval and adoption of the
Merger and the Merger Agreement and the related issuance of shares of Canmax
Common Stock, and (ii) in the discretion of the holders of the proxy with
respect to any other matter that may properly come before the Canmax Meeting.
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Any proxy signed and returned by a holder of Canmax Common Stock may be
revoked by such holder at any time before it is voted by giving written
notice of such revocation to Canmax, by signing and delivering a proxy
bearing a later date, or by attending the Canmax Meeting and giving notice of
revocation to Canmax at that time. Attendance at the Canmax Meeting will not
in and of itself constitute a revocation of a proxy. Signed but unmarked
proxies will be deemed to be a vote FOR approval and adoption of the Merger
Agreement and related issuance of shares of Canmax Common Stock.
THE AGSI MEETING
TIME, PLACE AND DATE
This Joint Proxy Statement/Prospectus is being furnished to the holders
of AGSI Common Stock in connection with the solicitation of proxies by and on
behalf of the Board of Directors of AGSI for use at the special meeting of
shareholders of AGSI (together with any adjournments or postponements
thereof, the "AGSI Meeting") to be held at _____ a.m. on _______ , 1997 at
______________.
PURPOSE
At the AGSI Meeting, the stockholders of AGSI will consider and vote
upon a proposal to approve and adopt the Merger Agreement, pursuant to which
each outstanding share of AGSI Common Stock will be converted into the right
to receive 3.37623 shares of Canmax Common Stock and cash in lieu of any
fractional shares. At the AGSI Meeting, the AGSI stockholders will also
consider and vote a resolution approving the grant of warrants to purchase
285,000 and 120,000 shares of Canmax Common Stock, respectively, at an
exercise price of $0.58 per share, to G. Randy Nicholson and Jeffrey F. Upp
in connection with non-competition agreements to be entered into by them
pursuant to the Merger Agreement. See "The Merger - Certain Compensation
Arrangements." Such approval is not a condition to the Merger, but is being
sought solely for the purpose of satisfying the requirements of the Internal
Revenue Code for not imposing federal excise tax and other adverse tax
consequences in respect of the Compensation Arrangements should they be found
to constitute "parachute payments" under the Internal Revenue Code. In
addition, at the AGSI Meeting, the AGSI stockholders will consider and vote
upon such other business as may properly come before the AGSI Meeting or any
adjournment or postponement thereof. See "The Merger - AGSI's Reasons for
the Merger; Recommendation of the AGSI Board."
THE BOARD OF DIRECTORS OF AGSI HAS UNANIMOUSLY APPROVED THE MERGER AND THE
COMPENSATION ARRANGEMENTS AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND FOR APPROVAL OF THE COMPENSATION ARRANGEMENTS.
RECORD DATE; VOTING RIGHTS
Holders of shares of AGSI Common Stock of record at the close of
business on ______________ 1997 (the "AGSI Record Date") are entitled to
notice of, and to vote at, the AGSI Meeting regarding the approval and
adoption of the Merger Agreement and upon each other matter properly
submitted at the AGSI Meeting. On the AGSI Record Date, there were
outstanding and entitled to vote ___________ shares of AGSI Common Stock,
owned by ____ holders of record. Each share of AGSI Common Stock is entitled
to one vote upon the approval and adoption of the Merger Agreement and any
other matter properly submitted at the AGSI Meeting.
VOTE REQUIRED
The presence, in person or by proxy, of stockholders holding a majority
of the outstanding shares of AGSI Common Stock entitled to vote will
constitute a quorum at the AGSI Meeting. Pursuant to the terms of the DGCL,
the affirmative vote of the holders of more than fifty percent (50%) of the
outstanding shares of AGSI Common Stock entitled to vote is required for
approval and adoption of the Merger Agreement. The approval of the
Compensation Arrangements requires the affirmative vote of the holders of 75%
of the outstanding shares of AGSI Common Stock, not including the shares
beneficially held by Mr. Nicholson and Mr. Upp.
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As of July 31 , 1997 the directors and executive officers of AGSI and
their affiliates owned an aggregate of 879,962 shares (57.1%) of the
then-outstanding shares of AGSI Common Stock. G. Randy Nicholson, the
President and Chief Executive Officer of AGSI, his wife, Barbara Nicholson
and M-Y Properties, Ltd., an entity controlled by Mr. Nicholson and Ray
McGlothlin, Jr., have each agreed, pursuant to the terms of a Stockholders
Voting Agreement, to vote their shares of AGSI Common Stock, representing
386,471 shares (or approximately 25.1% of the outstanding shares) in
accordance with the recommendation of the Board of Directors of AGSI with
regard to the Merger. On July 9, 1997, the AGSI shares held by M-Y
Properties, Ltd. were distributed equally to G. Randy Nicholson and Ray
McGlothlin, Jr. Such shares remain subject to the Stockholders Voting
Agreement.
Abstentions will be counted for the purpose of determining the presence
or absence of a quorum at the AGSI Meeting. However, because the affirmative
vote of the holders of percentages of the outstanding shares of AGSI Common
Stock is required to approve the Merger Agreement and the Compensation
Arrangements, abstentions will have the same effect as negative votes.
See "The Merger - Appraisal Rights" for a discussion of the rights
available to stockholders of AGSI who make a written demand on appraisal of
their shares of AGSI Common Stock and comply with the detailed provisions of
the DGCL.
SOLICITATION OF PROXIES AND EXPENSES
This Joint Proxy Statement/Prospectus, the accompanying notice and proxy
are being mailed on or about _____, 1997 to holders of AGSI Common Stock
entitled to notice of, and to vote at, the AGSI Meeting. The cost of
preparing, assembling, printing, filing and mailing the Joint Proxy
Statement/Prospectus will be borne jointly by AGSI and Canmax. Nominees,
fiduciaries and other custodians have been requested to forward soliciting
materials to beneficial owners of shares of AGSI Common Stock held of record
by them, and such custodians will be reimbursed for their expenses. Certain
officers, directors and employees of AGSI may solicit proxies by telephone or
personal contact. Such officers, directors and employees will not be
additionally compensated for such solicitation (other than their regular
salaries), but will be reimbursed by AGSI for out-of-pocket expenses incurred
by them in the course of such solicitation.
PROXIES
Holders of AGSI Common Stock are requested to complete, date, sign and
promptly return the accompanying form of proxy in the enclosed envelope.
Shares of AGSI Common Stock represented by properly executed proxies received
by AGSI and not revoked will be voted at the AGSI Meeting in accordance with
the instructions contained therein. If instructions are not contained
therein, proxies will be voted (i) FOR approval and adoption of the Merger
Agreement, (ii) FOR approval and adoption of the Compensation Arrangements;
and (iii) in the discretion of the holders of the proxy with respect to any
other matter that may properly come before the AGSI Meeting.
Any proxy signed and returned by a holder of AGSI Common Stock may be
revoked by such holder at any time before it is voted by giving written
notice of such revocation to AGSI, by signing and delivering a proxy bearing
a later date, or by attending the AGSI Meeting and giving notice of
revocation to AGSI at that time. Attendance at the AGSI Meeting will not in
and of itself constitute a revocation of a proxy.
THE MERGER
GENERAL
Effective June 16, 1997, Canmax, CRSI and AGSI executed the Merger
Agreement attached as APPENDIX A hereto. The Merger Agreement provides for,
among other things, the merger of AGSI with and into CRSI upon satisfaction
(or waiver where permissible) of the conditions precedent to the Merger,
including the approval of
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the requisite vote of the shareholders of AGSI and Canmax, as more
specifically set forth in the Merger Agreement. Pursuant to the terms of the
DGCL, the Merger Agreement requires the approval of the holders of more than
fifty percent (50 %) of the voting power of AGSI. The Canmax Board has
elected to submit the Merger Agreement and the related issuance of shares of
Canmax Common Stock to its stockholders for approval, and has required the
approval thereof by the holders of a majority of the outstanding shares of
Canmax Common Stock. Upon consummation of the Merger, the separate corporate
existence of AGSI will cease and AGSI will combine with CRSI as a single
corporation.
Upon the later of the filing of the Certificate of Merger with the
Secretary of State of Delaware and the issuance of a Certificate of Merger by
the Secretary of State of Texas, each in the manner required by state law to
cause the Merger to become effective (the "Effective Time"), the stockholders
of AGSI will become stockholders of Canmax. Thereafter, the businesses
previously conducted by AGSI and Canmax (through CRSI) will be conducted
through CRSI as a wholly owned corporate subsidiary of Canmax.
BACKGROUND OF THE MERGER
As part of its continuing efforts to maximize shareholder value, the
Canmax Board has periodically considered an acquisition strategy within its
current industry and other vertical markets. From time to time Canmax has
reviewed, and will continue to review, acquisition candidates with products,
technologies or other services that could enhance Canmax's product offerings
or services.
In late October 1996 at a trade show in Las Vegas, Nevada, Roger D.
Bryant, the Chief Executive Officer of Canmax, and G. Randy Nicholson, the
Chief Executive Officer and President of AGSI, informally discussed the
possibilities of a strategic alliance and jointly marketing Canmax and AGSI's
products and services. Messrs. Bryant and Nicholson continued these
discussions throughout the remainder of October and early November of 1996,
and in mid-November, a meeting was held in Canmax's offices among Mr. Bryant,
Philip M. Parsons, the Chief Financial Officer of Canmax, Mr. Nicholson and
Jeffrey F. Upp, the Chief Financial Officer of AGSI. These discussions and
the meeting revealed that the companies had similar business strategies and
complementary product lines and distribution opportunities, and that merging
the two companies should be considered. Therefore, on November 26, 1996,
the companies signed confidentiality agreements to exchange information for
further evaluation with regard to a possible transaction.
On February 27, 1997, Mr. Bryant and Mr. Parsons visited AGSI's offices
in Abilene, Texas and met with Mr. Nicholson and Mr. Upp to discuss the
structure of a possible transaction.
On March 25, 1997, Mr. Bryant, Mr. Parsons, and Debra L. Burgess, Chief
Operating Officer of Canmax, met with Mr. Nicholson and Mr. Upp at Canmax's
offices to discuss general parameters of a business combination, primarily
focusing on the valuation and structural issues arising from the proposed
transaction. The parties reviewed and discussed various financial valuation
models for the combined company prepared by Canmax management and engaged in
a presentation and review of each company's independent historical and
projected financial results, and presentation of a new business model for the
combined company on a projected prospective basis.
From late March through early May of 1997, the companies continued
discussions regarding the proposed business combination. During this time,
Canmax also negotiated and finalized the termination of certain obligations
to EDS.
Canmax began preliminary due diligence on AGSI on May 5, 1997. On May
22, 1997, Mr. Bryant met with Mr. Nicholson at AGSI's offices in Abilene,
Texas to discuss certain terms of the transaction. These discussions
primarily focused on the combined board structure, treatment of outstanding
AGSI stock options and warrants, consulting contracts for Mr. Nicholson and
Mr. Upp, and prospective employee matters.
On May 27, 1997, the results of the preliminary due diligence and the
matters discussed above were presented to the Canmax Board. Additionally,
management presented (i) an overview of both companies' products, (ii) the
advantages of the combined company from a product, operations, sales and
marketing, and research and
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development perspective, and (iii) projected pro forma financial information.
The Canmax Board authorized management to commence negotiations of a
definitive agreement related to the transaction. Upon the general terms
presented to the Board, which included the issuance of up to 6.7 million
shares for the currently outstanding stock, options and warrants of AGSI, and
set forth other parameters in negotiating the certain terms of the proposed
transaction.
In late May, a privately-held software development company ("Party A")
contacted Mr. Nicholson and discussed the possibility of a merger with AGSI
followed by an initial public offering ("IPO") of the resulting company's
stock. Mr. Nicholson presented this proposal to the AGSI Board of Directors,
which instructed Mr. Nicholson to continue to investigate the feasibility of
the proposed business combination with Party A and the IPO of the resulting
company. Mr. Nicholson notified representatives of Canmax of Party A's
proposal and of AGSI's continued discussions with Party A.
On May 30, 1997, as a result of the parties' inability to agree upon the
parameters for continuing negotiations, including a quiet period to ensure
exclusive dealings and certain key terms and conditions of the transaction,
Canmax withdrew its offer to acquire and merge with AGSI. Further
discussions between AGSI representatives and Party A revealed that the
proposed merger and IPO would likely involve significant uncertainties and
that negotiation and consummation of such transactions could not be
effectuated within a reasonable period of time. Therefore, the AGSI Board of
Directors instructed Mr. Nicholson to resume negotiations with Canmax. On
June 6, the AGSI Board approved a quiet period and on June 9-10, 1997, Mr.
Bryant, Mr. Parsons, and Ms. Burgess of Canmax met with Mr. Nicholson and Mr.
Upp in Abilene, Texas to continue negotiations and discuss a tentative
schedule for completion of due diligence and the filing of the joint
proxy/prospectus. At the meeting, the parties tentatively agreed that the
board of directors of the combined company would be comprised of three
persons from Canmax, three persons designated by AGSI and three outside
members chosen from Canmax's four current outside directors, with Mr. Bryant
to serve as Chairman and Mr. Nicholson to serve as Vice-Chairman.
From June 11, 1997 through June 16, 1997, members of senior management
of Canmax and AGSI, together with their legal advisors, negotiated the terms
of the definitive Merger Agreement and related documents. The substance of
these discussions, which were held telephonically, through the exchange of
draft documents and at a meeting on June 11, 1997 at the offices of AGSI's
legal counsel related to finalization of the terms of the Merger Agreement
and the content of the disclosure schedules of each of Canmax and AGSI to be
delivered in connection with the execution of the Merger Agreement.
On June 16, 1997, the Canmax Board held a meeting at which a draft of
the definitive Merger Agreement was reviewed and Rauscher Pierce Refsnes,
Inc. (the "Canmax Advisor") delivered its oral opinion to the effect that, as
of such date and based upon the assumptions made, matters considered and
limits of review, the transaction contemplated by the Merger Agreement was
fair to the stockholders of Canmax from a financial point of view. Following
such discussions, the Board approved the Merger Agreement, subject to review
of disclosure schedules at a later time, the receipt of a final fairness
opinion from the Canmax Advisor, and the completion of a valuation project.
Additionally, the Board voted to amend the bylaws of Canmax to create a
Chairman and Vice Chairman position on the Board.
Late in the evening of June 16, 1997, the parties executed the Merger
Agreement. On June 17, 1997 Canmax issued a press release announcing the
proposed Merger.
From June 17, 1997 to July 23, 1997, the companies completed their
disclosure schedules in accordance with the Merger Agreement; completed due
diligence on the aforementioned disclosure schedules; and completed a
valuation project and preliminary allocation of the transaction purchase
price.
On July 21, 1997, a meeting of the Canmax Board was held. At the
meeting, John R. Bozalis and John D. Kearney, representatives of the Canmax
Advisor, presented a review and analysis of the historical and future
prospects of Canmax and AGSI, the potential benefits of a business
combination between Canmax and AGSI, and the fairness of such a transaction
from a financial point of view to Canmax and the shareholders of Canmax. The
presentation, analysis and opinions of the Canmax Advisor at such meeting was
consistent with the preliminary oral opinion of the Canmax Advisor presented
at the June 16, 1997 meeting of the Canmax Board. Additionally, the Canmax
Board reviewed and discussed the AGSI disclosure schedules, the results of
the valuation project and preliminary allocation of the transaction purchase
price, the terms of the consulting and non-competition agreements with Mr.
Nicholson and Mr. Upp in accordance with the Merger Agreement, and the terms
of the employment agreements with Mr. Bryant, Mr. Parsons, and Ms. Burgess.
Following such discussions, the Canmax Board unanimously approved the Merger
and such employment agreements.
On July 21, 1997, the Canmax Advisor delivered a written opinion to the
members of the Canmax Board to the effect that the proposed Merger was fair
from a financial point of view to Canmax and the shareholders of Canmax.
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CANMAX'S REASONS FOR THE MERGER; RECOMMENDATION OF THE CANMAX BOARD
Following several months of negotiations and preliminary analysis of the
Merger, the Board of Directors of Canmax met on June 16, 1997 and, after
having reviewed a draft of the proposed Agreement and Plan of Merger,
determined that the terms of the Merger were fair and in the best interests
of Canmax and its stockholders. At such meeting, the Canmax Board authorized
certain officers of Canmax to execute the Merger Agreement. On July 21, 1997,
the Canmax Board unanimously approved the Merger upon the terms set forth in
the Merger Agreement as being in the best interests of Canmax and its
stockholders, and ratified and approved the actions of the officers of Canmax
in negotiating and executing the Merger Agreement.
ACCORDINGLY, THE BOARD OF DIRECTORS OF CANMAX, HAVING UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND DETERMINED THAT THE MERGER AGREEMENT AND
RELATED ISSUANCE OF SHARES OF CANMAX COMMON STOCK ARE FAIR TO AND IN THE BEST
INTERESTS OF CANMAX AND ITS STOCKHOLDERS, RECOMMENDS THAT THE STOCKHOLDERS OF
CANMAX VOTE FOR THE ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND RELATED
ISSUANCE OF SHARES OF CANMAX COMMON STOCK.
The decision of the Canmax Board to approve the Merger Agreement on July
21, 1997 followed several months of exploring and analyzing strategic and
financial alternatives available to Canmax. During this period, the Canmax
Board reviewed in detail the business plan, results of operations and
prospects of Canmax. Also during this period, Canmax considered other
potential acquisition candidates and other alternatives for strategic
alliances and acquisitions and sources of capital.
In making its recommendation to the stockholders of Canmax with respect
to the Merger, the Canmax Board considered a number of factors. These
factors, all of which supported its determination, include the following:
(i) The information provided to the Canmax Board by the officers of
Canmax with respect to the financial and other aspects of the Merger,
including the prospects of Canmax if the Merger were not consummated;
(ii) The review of the material terms and conditions of the Merger as
reflected in the Merger Agreement, including the amount and form of
consideration;
(iii) The historical and prospective business of both AGSI and Canmax,
including, among other things, the current financial condition and future
prospects of AGSI and Canmax;
(iv) The range of complementary services offered by Canmax and AGSI,
which the combined entity can use to retain and broaden existing client
relationships;
(v) The strategic effect of a business combination with AGSI including
(A) access to additional product lines, (B) access to a broader customer base
to expand its existing client relationships, (C) the compatibility of the
business operations of Canmax and AGSI and (D) the opportunities to enhance
shareholder value by bringing in additional management expertise; and
(vi) The impact of the Merger on the long-term goals, interests,
prospects and objectives of Canmax.
The foregoing discussion of the information and factors considered by
the Canmax Board is not exhaustive but is intended to include all material
factors considered by the Canmax Board. The Canmax Board did not quantify or
attach any particular weight to any of the various factors that it considered
in reaching its determination that the Merger is in the best interest of its
stockholders.
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OPINION OF CANMAX ADVISOR
Rauscher Pierce Refsnes, Inc. (the "Canmax Advisor") has delivered its
written opinion dated July 21, 1997, that the consideration to be paid to the
shareholders of AGSI as pursuant to the Merger Agreement is fair from a
financial point of view to the shareholders of Canmax. The full text of the
written opinion of the Canmax Advisor dated July 21, 1997, which sets forth
the assumptions made, the matters considered and the review undertaken with
regard to such opinion, is attached as APPENDIX B hereto. Stockholders are
urged to read the opinion in its entirety. The summary of the Canmax
Advisor's opinion set forth in this Joint Proxy Statement/Prospectus is
qualified in its entirety by reference to the full text of such opinion.
In arriving at its opinion, the Canmax Advisor (i) reviewed the Merger
Agreement; (ii) reviewed the Annual Reports to Stockholders for the two
fiscal years ended October 31, 1996, Annual Reports on Form 10-K for the
three fiscal years ended October 31, 1996 and interim Reports to Stockholders
and Quarterly Reports on Form 10-Q for the six months ended April 30, 1997,
of Canmax; (iii) reviewed the audited financial statements for the four years
ended September 30, 1996 and the unaudited interim financial statements for
the eight months ended May 31, 1996 and May 31, 1997 of AGSI; (iv) discussed
with certain members of senior management of Canmax and AGSI the past and
current business operations, financial condition and future prospects of
Canmax and AGSI; (v) reviewed certain internal financial analyses and
forecasts of Canmax and AGSI prepared by respective managements; (vi)
reviewed historical market prices and trading volumes for the Canmax's Common
Stock; (vii) compared certain financial information for Canmax and AGSI with
similar information for certain other companies the securities of which are
publicly traded; (viii) compared certain financial information for Canmax and
AGSI with similar information for certain other companies, the securities of
which are publicly traded; and (ix) reviewed selected financial terms of
certain recent business combinations.
In connection with its review and the presentation of its written
opinion, the Canmax Advisor relied upon and assumed the accuracy and
completeness of the financial and other information publicly available or
furnished to it by Canmax and AGSI or their representatives. The Canmax
Advisor has not independently verified the accuracy or completeness of such
information. The Canmax Advisor has not made or obtained any independent
evaluations or appraisals of any of the properties, assets or facilities of
Canmax or AGSI. With respect to the financial projections of Canmax and
AGSI, the Canmax Advisor has assumed that they were reasonably prepared on a
basis reflecting the best currently available estimates and judgments of
management as to the future financial performance of Canmax and AGSI,
respectively, and the Canmax Advisor expressed no opinion with respect to
such forecasts or the assumptions on which they are based.
MERGER CONSIDERATION. The Canmax Advisor estimated the consideration to
be paid by Canmax in the Merger (the "Merger Consideration") would consist of
approximately 5,205,454 shares of Canmax Common Stock and options and
warrants to purchase an additional 1,494,546 shares at various strike prices
as adjusted by the exchange ratio agreed to in the Merger. Based on the
average closing share price of $2.32 for the five days preceding the
announcement of the Merger Agreement on June 17, 1997, the total Merger
Consideration was estimated at $13,207,000.
The following is a summary of the analyses that the Canmax Advisor
utilized in arriving at its opinion as to the fairness of the consideration
to be paid to the stockholders of AGSI pursuant to the Merger Agreement from
a financial point of view to the shareholders of Canmax, and that the Canmax
Advisor discussed with the Board of Directors of Canmax at its July 21, 1997
meeting.
VALUATION METHODOLOGY. For purposes of its opinion as to the fairness
of the consideration to be paid to the shareholders of AGSI by Canmax in
connection with Merger from a financial point of view, the Canmax Advisor
employed three principal valuation methodologies: a publicly traded
comparable company analysis, a merger and acquisition transaction analysis
and a discounted cash flow analysis. The Canmax Advisor drew no specific
conclusion from any one of these valuation methodologies, but subjectively
factored its observations from each analysis into its qualitative assessment
of the relevant facts and circumstances. The methodologies used by the
Canmax Advisor as described to the Board of Directors of Canmax at its July
21, 1997 meeting, are described below.
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PUBLICLY TRADED COMPARABLE COMPANY ANALYSIS. The Canmax Advisor
reviewed the financial, operating and market performance of the following
group of companies with that of AGSI: American Software, Inc., Applied
Intelligence Group, JDA Software Group, Inc., MICROS Systems, Inc., PAR
Technology, Radiant Systems, Inc., Telepanel Systems, Inc., and Tokheim
Corporation. The comparable company group (the "Comparable Group") was
selected because they are publicly-traded companies with operations that, for
purposes of this analysis, may be considered to be similar to the operations
of AGSI. The Canmax Advisor observed that comparable company analysis is
subject to certain limitations, including the fact that no individual company
has a business mix that precisely mirrors that of AGSI. The Comparable Group
was selected from a broader universe of companies that supply software and
hardware for retail point of sale systems. The Canmax Advisor examined
certain publicly available information for the Comparable Group, including,
but not limited to, latest 12 months ("LTM") net sales, gross profit,
earnings before interest, taxes, depreciation and amortization ("EBITDA"),
earnings before interest and taxes ("EBIT"), net income, earnings per share,
market capitalization (the market value of a company's common stock), net
debt (total debt and other obligations less cash equivalents and marketable
securities) and the market value of capitalization (market capitalization
plus net debt). The Canmax Advisor also examined and compared various market
data, including various trading multiples such as market value of
capitalization to net sales, gross profit, EBITDA and EBIT, and the stock
price per share to earnings per share. In comparing the implied valuation
ranges from the Comparable Group to the consideration paid by Canmax to AGSI,
the Canmax Advisor adjusted valuations to reflect an average premium for
control based on statistics observed over the past five years.
The Comparable Group's market value of capitalization to LTM net sales
multiples ranged from 0.6x to 21.1x (with a median of 1.9x) and was 1.3x for
AGSI based on the estimated Merger Consideration. The Comparable Group's
market value of capitalization to gross profit multiples ranged from 1.6x to
15.3x (with a median of 3.1x) and was 2.0x for AGSI based on the estimated
Merger Consideration. The Comparable Group's market value of capitalization
to LTM EBITDA multiples ranged from 10.4x to 26.7x (with a median of 11.7x)
and was 15.1x for AGSI based on the estimated Merger Consideration. The
Comparable Group's market value of capitalization to LTM EBIT multiples
ranged from 13.2x to 29.3x (with a median of 17.6x) and was 31.1x for AGSI
based on the estimated Merger Consideration. The Comparable Group's stock
price per share to LTM earnings per share multiples ranged from 23.9x to
47.3x (with a median of 28.1x) and was 52.4x for AGSI based on the estimated
Merger Consideration.
COMPARABLE MERGER AND ACQUISITION TRANSACTION ANALYSIS. The Canmax
Advisor reviewed selected financial terms of certain recent similar business
combinations including: International Verifact Inc./National Transaction
Network, Inc., HBO & Co./Enterprise Systems, Inc., Reed Elsevier PLC/MDL
Information Systems, IDX Systems Corp./Phamis Inc., Moore Corp. Ltd./Peak
Technologies Group Inc., Sterling Software Inc./Texas Instruments Inc.
- -software business, Hewlett-Packard Co./VeriFone Inc., International
Verifact, Inc./Soricon Corp., Baan Co NV/Aurum Software Inc., BTG
Inc./Nations Inc., Cardinal Health, Inc./MediQual Systems, Electronic Arts
Inc./Maxis Inc., Industrial Data Systems Corp./Design Automation Systems,
Radiant Systems, Inc./Restaurant Management and Control Systems, Inc.,
Radiant Systems, Inc./Twenty/20 Visual Systems (the "Comparable Transaction
Group"). The Canmax Advisor observed that the Comparable Transaction Group
analysis is subject to certain limitations, including: (i) the analysis does
not incorporate the time of the transactions, (ii) no single transaction is
precisely comparable in business characteristics and market conditions, and
(iii) there is a scarcity of public disclosure on terms of certain of the
comparable transactions and the financial performance of acquirees.
The Comparable Transaction Group's market value of capitalization to LTM
net sales multiples ranged from 0.3x to 9.3x (with a median of 2.4x) and was
1.3x for AGSI based on the estimated Merger Consideration. The Comparable
Transaction Group's market value of capitalization to LTM gross profit
multiples ranged from 1.3x to 15.4x (with a median of 5.1x) and was 2.0x for
AGSI based on the estimated Merger Consideration. The Comparable Transaction
Group's market value of capitalization to LTM EBIT multiples ranged from
16.6x to 30.6x (with a median of 23.3x) and was 31.1x for AGSI based on the
estimated Merger Consideration. The Comparable Transaction Group's market
value of capitalization to LTM cash flow multiples ranged from 15.0x to 30.4x
(with a median of 21.7x) and was 13.3x for AGSI based on the estimated Merger
Consideration. The Comparable Transaction Group's market value of
capitalization to LTM net income multiples ranged from 22.1x to 46.0x (with a
median of 32.7x) and was 52.4x for AGSI based on the estimated Merger
Consideration.
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DISCOUNTED CASH FLOW ANALYSIS. Using a discounted cash flow analysis,
the Canmax Advisor estimated the present value of the future cash flows that
AGSI could be expected to produce over a four-year period from 1998 through
2001 under various assumptions. The Canmax Advisor determined the value for
the AGSI Common Stock by adding (i) the present value (using discount rates
ranging from 14.0% to 20.0%) of the four -year unleveraged free cash flows of
AGSI and (ii) the present value of AGSI's year 2001 estimated terminal value,
and subtracting (iii) net debt as defined above. The terminal values were
estimated by multiplying the year 2001's projected unlevered net income of
AGSI by a range of multiples derived from the Comparable Group, as contained
in the Publicly Traded Comparable Company Analysis (ranging from 9.0x to
12.0x the year 2001's unlevered net income). This analysis produced implied
equity values ranging from $16.1 million to $22.6 million (with a median of
$19.1 million) compared to the estimated Merger Consideration of $13.2
million.
OTHER FACTORS CONSIDERED. The Canmax Advisor reviewed recent trends in
the price per share of Canmax's Common Stock and noted that on June 16, 1997,
the day prior to the public announcement of the proposed Merger, Canmax's
Common Stock last trading price on the Nasdaq SmallCap Market was $2.75 per
share. Further, during the period from May 16, 1997 through June 15, 1997,
Canmax's Common Stock traded in a range from $1.875 per share to $2.313 per
share and during the period from June 17, 1997 through July 18, 1997 Canmax's
Common Stock traded in a range from $2.188 per share to $2.75 per share.
In arriving at its written opinion dated July 21, 1997 and in discussing
its opinion with the Board of Directors, the Canmax Advisor performed
certain financial analyses, portions of which are summarized above. The
summary set forth above is not a complete description of the Canmax Advisor's
analyses. The Canmax Advisor believes that its analyses must be considered
as a whole and that selecting portions of its analyses could create an
incomplete view of the process underlying its opinion. In addition, the
Canmax Advisor may have given various analyses more or less weight than other
analyses and may have deemed some assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be the Canmax
Advisor's view of the actual value of AGSI, Canmax or the Combined Company.
The preparation of a fairness opinion is a complex process involving
subjective judgments and is not necessarily susceptible to partial analysis
or summary description. No company or transaction used in the Publicly
Traded Comparable Company Analysis or the Comparable Merger and Acquisition
Transaction Analysis summarized above is identical to AGSI or Canmax or the
transaction. Accordingly, any such analysis of the value of the
consideration paid to stockholders of AGSI involves complex considerations
and judgments concerning differences in the potential financial and operating
characteristics of the comparable companies, as well as other factors
relating to the trading and the acquisition values of the comparable
companies. These and other limitations may detract from the usefulness of
Comparable Group's publicly traded multiples or other valuation
methodologies. In performing its analyses, the Canmax Advisor considered
numerous assumptions with respect to industry performance, general business,
economic, market and financial conditions and other matters, many of which
are beyond the control of Canmax and all of which are beyond the control of
the Canmax Advisor. The results of the analyses performed by the Canmax
Advisor are not necessarily indicative of actual values, which may be
significantly more or less favorable than suggested by such analyses. The
analyses described above were prepared solely as part of Canmax's analysis of
the fairness of the consideration to the shareholders of AGSI. The analyses
do not purport to be appraisals or to reflect the prices at which AGSI or the
Combined Company might actually trade or the actual trading value of Canmax's
securities.
The Canmax Advisor is a nationally recognized investment banking firm
that regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions. Canmax selected the Canmax Advisor
to act as its financial advisor on the basis of the Canmax Advisor's
reputation and familiarity with Canmax and its industry. The Canmax Advisor
was not involved directly in the negotiation of the Merger. Pursuant to the
engagement letter dated June 12, 1997 between Canmax and the Canmax Advisor,
Canmax agreed to pay to the Canmax Advisor a fee of $75,000 for its financial
advisory services. Of this amount, $25,000 was payable upon execution of the
engagement letter, $25,000 was payable upon the delivery of the Canmax
Advisor of a form of its written opinion, and $25,000 was payable upon the
delivery of the final written opinion to the Canmax Board. Canmax has also
agreed to reimburse the Canmax Advisor for fees reasonably incurred by the
Canmax Advisor. In connection with the execution of the engagement letter,
Canmax and the Canmax Advisor also entered into an indemnification letter
providing for the indemnification of the Canmax Advisor and its affiliates,
directors, officers,
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employees, agents and controlling persons against certain expenses and
liabilities, including liabilities under the Federal securities laws, in
connection with its services.
AGSI'S REASONS FOR THE MERGER; RECOMMENDATION OF THE AGSI BOARD
After several months of negotiations, analysis of the Merger, and due
diligence into the business of Canmax, the Board of Directors of AGSI met on
June 16, 1997 to consider the Merger. At the meeting, the AGSI Board
reviewed a draft of the Merger Agreement and the terms of the Merger and
received an oral report from The GulfStar Group, Inc. (the "AGSI Advisor")
with respect to the proposed combination with Canmax. At the meeting, the
AGSI Board approved the terms of the Merger Agreement subject to final
approval by the AGSI Board and shareholders, formalization of acceptable
arrangements with certain AGSI employees and the satisfactory completion of
due diligence. On August 8, 1997, after reviewing the Merger Agreement, the
recommendations and report of the AGSI Advisor, the historical and
prospective businesses of both AGSI and Canmax, including, among other
things, the current financial condition and future prospects of AGSI and
Canmax, the AGSI Board approved the Merger Agreement and determined that
their terms of the Merger were fair and in the best interests of AGSI and its
stockholders.
AGSI management believes the Merger affords major synergistic
opportunities to compete in the market segment AGSI services. AGSI
management also believes that the combination of AGSI and Canmax will create
an organization with the ability to market integrated solutions from the fuel
and store points-of-sale to headquarters management with the support of
substantial help desk services. Developing an integrated suite of products
should allow for marketing to a different class of customer, including the
major oil companies. The combined efforts in research and development, along
with the well-developed help desk support of Canmax, should greatly
strengthen the ability of the Combined Company to market its products as the
industry evolves. At the same time, AGSI management believes the AGSI
stockholders will benefit from the ability to continue as Canmax shareholders
and to participate in future growth of the business, while having ownership
in a much larger and more diverse publicly traded company as a result of the
tax-free exchange contemplated by the Merger.
ACCORDINGLY, THE BOARD OF DIRECTORS OF AGSI RECOMMENDS THAT THE
STOCKHOLDERS OF AGSI VOTE FOR THE ADOPTION AND APPROVAL OF THE MERGER
AGREEMENT AND RELATED EXCHANGE OF THEIR AGSI SHARES FOR SHARES OF CANMAX
COMMON STOCK.
OPINION OF AGSI ADVISOR
At a meeting on August 8, 1997, The GulfStar Group, Inc. (the "AGSI
Advisor") delivered to the Board of Directors of AGSI its opinion dated
August 8, 1997, to the effect that, based upon and subject to the
assumptions, qualifications and limitations therein set forth, as of such
date, the per share consideration to be received by the stockholders of AGSI
pursuant to the Merger Agreement is fair from a financial point of view to
the holders of the AGSI Common Stock.
The full text of such written opinion of the AGSI Advisor which sets
forth the assumptions made, the matters considered, the scope and limitations
of the review undertaken and the procedures followed by the AGSI Advisor with
regard to such opinion, is attached as APPENDIX C. Stockholders are urged to
read the opinion in its entirety. The summary of the AGSI Advisor's opinion
set forth in this Joint Proxy Statement/Prospectus is qualified in its
entirety by reference to the full text of such opinion.
The AGSI Advisor has consented to the reproduction of its fairness
opinion as Appendix C and to the inclusion of the summary thereof therein.
In giving such consent, the AGSI Advisor does not admit that it comes within
the category of persons whose consent is required under Section 7 of the
Securities Act, or the rules and regulations of the Commission thereunder,
nor does it thereby admit that it is an expert with respect to any part of
the Registration Statement of which this Joint Proxy Statement/Prospectus is
a part within the meaning of the term "experts" as used in the Securities
Act, or the rules and regulations of the Commission thereunder. The AGSI
Advisor's opinion was for the information of the AGSI Board in connection
with the AGSI Board's consideration of the Merger and does not constitute a
recommendation to any AGSI stockholder as to what actions such stockholder
should take with respect to, or how such stockholder should vote on, the
Merger Proposals.
In arriving at its opinion, the AGSI Advisor, among other things, (i)
reviewed the audited financial statements for recent years and other
financial and operating data of AGSI made available to the AGSI Advisor by
AGSI; (ii) discussed with certain members of AGSI's senior management ("AGSI
Management") the business, financial condition and prospects of AGSI and the
Combined Company; (iii) reviewed and discussed with AGSI Management certain
internally prepared operating and financial information regarding AGSI,
including certain projections; (iv) performed a limited review of and
conducted discussions with certain members of Canmax's senior management
("Canmax Management") concerning the audited financial statements of Canmax
for recent years and other publicly available information regarding Canmax,
its finances and operations, the business, financial condition and prospects
of Canmax and the Combined Company, certain internally prepared operating and
financial information regarding Canmax and the Combined Company, including
projections prepared by Canmax Management, and historical market prices and
trading volumes for the Canmax Common Stock; (v) compared certain financial
information of AGSI and Canmax with certain financial information and the
recently reported common stock prices of companies engaged in businesses the
AGSI Advisor considers to be comparable to that of AGSI and Canmax; (vi)
reviewed the financial terms, to the
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extent publicly available, of certain comparable merger and acquisition
transactions; (vii) reviewed the Merger Agreement, as signed on June 16, 1997;
and (viii) performed such other analysis and examinations and considered such
other information, financial studies, analyses and investigations and
financial, economic and market data as deemed relevant by the AGSI Advisor.
The AGSI Advisor also assumed that the Merger will qualify as a tax-free
reorganization for United States federal income tax purposes.
In rendering its opinion, the AGSI Advisor assumed and relied upon the
accuracy and completeness of all of the information, representations and
warranties concerning AGSI, Canmax or the Combined Company provided to or
considered by it in connection with its review of the Merger, including the
representations and warranties of each party in the Merger Agreement, and it
did not assume any responsibility for independent verification of such
information. The AGSI Advisor did not prepare any independent evaluation or
appraisal of any of the assets or liabilities (contingent or otherwise) of
AGSI or Canmax, nor did it conduct a physical inspection of the properties
and facilities of either company or been furnished with any such evaluation
or appraisal. With respect to the financial forecasts and projections made
available to it and used in its analysis, the AGSI Advisor assumed that they
reflect the best currently available estimates and judgments of the expected
future financial performance of AGSI, Canmax and the Combined Company, as the
case may be. The AGSI Advisor expressed no opinion with respect to such
forecasts and projections or the assumptions on which they were based. For
purposes of its opinion, the AGSI Advisor assumed that neither AGSI nor
Canmax is a party to any pending transactions, including external financings,
recapitalizations or material merger discussions other than the Merger and
those activities undertaken in the ordinary course of conducting their
respective businesses. The AGSI Advisor has not been asked to consider, and
its opinion does not address, the relative merits of the Merger as compared
to any alternate business strategies that might exist for AGSI or the effect
of any other transaction in which AGSI might engage. The AGSI Advisor's
opinion is necessarily based on information available to it, and on economic,
market, financial and other conditions and circumstances existing and
disclosed to it, as of the date of its opinion. Although subsequent
developments may affect its opinion, the AGSI Advisor has no obligation to
update, revise or reaffirm its opinion.
The AGSI Advisor did not express any opinion as to what the value of the
Canmax Common Stock actually will be when issued to the AGSI stockholders
pursuant to the Merger Agreement or the price at which the Canmax Common
Stock will trade subsequent to the Merger.
In arriving at its opinion dated August 8, 1997 and in discussing its
opinion with the Board of Directors, the AGSI Advisor performed certain
financial analyses, portions of which are summarized below. The summary set
forth below is not a complete description of the AGSI Advisor's analyses.
The preparation of a fairness opinion is a complex process that involves
various determinations as to the most appropriate and relevant quantitative
methods of financial analyses and the application of those methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Accordingly, in arriving at its opinion,
the AGSI Advisor did not attribute any particular weight to any analysis or
factor. No company or transaction used in the AGSI Advisor's analyses is
identical to Canmax, AGSI, the Combined Company, or the Merger. Accordingly,
the AGSI Advisor believes that its analyses and the summary set forth below
must be considered as a whole and that selecting portions of its analyses,
without considering all analyses, or of the summary, without considering all
factors and analyses, could create an incomplete
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view of the processes underlying the analyses set forth in the AGSI Advisor's
presentation to the AGSI Board and its opinion. In performing its analyses,
the AGSI Advisor made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many
of which are beyond the control of AGSI and Canmax. The analyses performed
by the AGSI Advisor (and summarized below) are not necessarily indicative of
actual values or actual future results, which may be significantly more or
less favorable than suggested by such analyses. Additionally, analyses
relating to the values of businesses do not purport to be appraisals or to
reflect the prices at which businesses actually may be sold.
The analyses performed were prepared solely as part of the AGSI
Advisor's analysis of the fairness of the consideration to be received by
AGSI stockholders holding shares of AGSI Common Stock prior to the Merger and
were provided to the AGSI Board in connection with the delivery of the AGSI
Advisor's opinion. Because such analyses are inherently subject to
uncertainty, none of the AGSI Board or Management, the AGSI Advisor or any
other person assumes responsibility if future events do not conform to the
judgments reflected in the respective opinion of the AGSI Advisor.
The AGSI Advisor has estimated that the total consideration to be paid
by Canmax in the Merger will equal, in the aggregate, approximately
$13,738,000. This consideration includes 5,205,451 shares of Canmax Common
Stock. To calculate the total consideration the AGSI Advisor used an average
price of $2.173 per Canmax share, which is based on the average closing
prices paid during the 5-day and 30-day trading periods ending June 15, 1997,
the day before the Merger Agreement was signed. The AGSI Advisor included as
part of total consideration the values of vested options to acquire AGSI
Common Stock. The AGSI Advisor also included in total consideration certain
warrants and other consideration paid by Canmax for non-competition
agreements with certain senior mangers of AGSI.
VALUATION METHODOLOGY. As a part of the process it employed to reach
its opinion regarding the fairness from a financial point of view to the
holders of the AGSI Common Stock of the consideration to be received in
connection with the Merger, the AGSI Advisor employed principally three
valuation methodologies: a publicly traded comparable company analysis, a
merger and acquisition transaction analysis and a discounted cash flow
analysis. The AGSI Advisor drew no specific conclusion from any one of these
valuation methodologies, but subjectively factored its observations from each
analysis into its qualitative assessment of the relevant facts and
circumstances. The methodologies used by the AGSI Advisor as described to
the Board of Directors of AGSI at its August 8, 1997 meeting are summarized
below.
PUBLICLY TRADED COMPARABLE COMPANY ANALYSIS. The AGSI Advisor reviewed
publicly available financial, operating and market information for the
following group of companies (the "Selected Companies") that it chose for
purposes of this analysis: Cam Data Systems, Inc., Radisys Corporation,
Radiant Systems, Inc., Tokheim Corporation, and ScanSource, Inc. The
Selected Companies were chosen because they are publicly traded companies
that for the purpose of analysis may be considered most similar to AGSI. The
AGSI Advisor compared historical financial and stock price information for
the Selected Companies with similar information for AGSI and Canmax. For
each of the foregoing Selected Companies, the AGSI Advisor examined its
earnings before interest, taxes, depreciation and amortization ("EBITDA"),
earnings before interest and taxes ("EBIT") and net income, all measures of
financial performance, for the latest twelve month period ("LTM") as reported
prior to June 16, 1997. The AGSI Advisor also analyzed the equity market
value ("Equity Value") and market value of invested capital ("MVIC"), which
it calculated by adding to the equity value the net debt (long-term debt less
cash balances), for each of the Selected Companies. The AGSI Advisor then
calculated and compared various trading multiples: MVIC to Sales, MVIC to
EBITDA, MVIC to EBIT and Equity Value to Net Income. The AGSI Advisor used
these multiples and corresponding financial performance information for AGSI
and the Combined Company to derive an implied valuation range for the equity
of AGSI and of the Combined Company. The valuation range for AGSI was
premised on the fact that it is not a public company and that it is a party
to a transaction in which 100% of its shares are being exchanged for stock
(or cash; in the case of fractional shares). In calculating the valuation
range of AGSI's Equity Value, the AGSI Advisor made adjustments that
relied on a study of premiums paid recently in control transactions.
For the Selected Companies, the ratio of MVIC to Sales ranged from 0.25
to 4.42, with a median of 0.61. The MVIC to EBITDA multiples for the
Comparable Group ranged from 3.2 to 790.9 with a median of 11.4, and the MVIC
to EBIT, ranged from 4.9 to 18.7 with a median of 12.5. The ratio of Equity
Value to Net Income for the Selected Companies ranged from 11.3 to 19.6 (two
companies had negative net income) with a median of 19.6. The AGSI Advisor
then used the median multiples to calculate a range of implied values for
both AGSI and the Combined Company. The range of implied values for AGSI and
the Combined Company was expressed in the aggregate and on a per share basis.
The per share range for AGSI was from $0.49 to $1.37 (adjusted to a Combined
Company basis by dividing by the Exchange Ratio). The corresponding range
for the Combined Company was $1.23 to $2.61.
COMPARABLE MERGER ACQUISITION TRANSACTION ANALYSIS. The AGSI Advisor
reviewed financial terms as disclosed in publicly available information for
selected recent business combinations that it deemed to have similarities to
the Merger. The AGSI Advisor divided these transactions into two groups, a
small transaction group
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(total consideration $100 million and below) and a large transactions group
(total consideration above $100 million). The small transaction group
(Acquirer/Acquired) consisted of Video Lottery Technologies, Inc./Investor
Group, Milgray Electronics, Inc./Bell Industries, Inc. and Max Serve
Inc./Sears Roebuck & Co. The large transaction group included MDL
Information Systems/Elsevier Science, Phamis, Inc./IDX Systems, Peak
Technologies Group, Inc./Moore Corp., Ltd. and Verifone,
Inc./Hewlett-Packard, Inc.
The AGSI Advisor calculated MVIC to Sales, MVIC to EBITDA and Equity
Value to Net Income for each company in the two samples. Such analysis of
the small transaction sample indicated the following transaction multiples:
0.49 to 1.56 for MVIC to Sales with a median of 0.62, 6.6 to 9.4 for MVIC to
EBITDA with a median of 7.8, and 11.6 to 29.6 (one company had negative net
income) with a median of 20.6 for Equity Value to Net Income. The ranges of
the calculated multiples for the large transaction sample were as follows:
0.9 to 4.28 for MVIC to Sales with a median of 2.73, 13.4 to 24.6 for MVIC to
EBITDA with a median of 16.2, and 22.1 to 52.0 for Equity Value for Net
Income with a median of 32.9. The AGSI Advisor used Median multiples from
each sample to calculate a valuation range for the equity of AGSI and the
Combined Company, both aggregate and on a per share basis, adjusted by the
Exchange Ratio. Based on such analysis of the small transaction group, the
indicated per share valuation range was $0.79 to $1.18 for AGSI and $1.25 to
$2.50 for the Combined Company; and based on such analysis of the large
transaction group, the indicated per share valuation range was $0.98 to $3.58
for AGSI and $3.68 to $5.49 for the Combined Company.
DISCOUNTED CASH FLOW ANALYSIS. The AGSI Advisor used a discounted cash
flow ("DCF") analysis to estimate the present value of the future cash flows
of AGSI prepared by AGSI Management and of the Combined Company prepared by
Canmax Management. In performing this analysis the AGSI Advisor relied on
cash flow projections for AGSI and the Combined Company for the fiscal years
1998 through 2002. The AGSI Advisor (i) calculated the present value of the
unleveraged free cash flows of each company over the five-year period and
added to this amount (ii) the present value of its cash flow value remaining
at the end of fiscal 2002 ("Terminal Value"). The discount rates used by the
AGSI Advisor ranged from 14.4% to 18.4%. The Terminal Values were calculated
by applying a multiple to the distributable cash flow in 2002. The Terminal
Value multiple was based on the discount rate and the growth rate expected
after 2002. This analysis resulted in an indicated per share valuation range
of $1.22 to $2.50 for AGSI and $1.90 to $5.35 for the Combined Company.
As part of its investment banking business, the AGSI Advisor is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, private placements and valuations
for estate, corporate and other purposes. The AGSI Advisor was engaged
solely to render its opinion and has provided no other investment banking
services to AGSI or Canmax in connection with the Merger or any other
contemplated or completed business transaction. Therefore, in arriving at
its opinion, the AGSI Advisor was not authorized to solicit, and did not
solicit, interest from any party with respect to any alternative transaction.
Pursuant to an engagement letter dated June 10, 1997, AGSI agreed to pay the
AGSI Advisor a fee of $50,000 for its services performed in connection with
the delivery of its opinion. AGSI also agreed to reimburse the AGSI Advisor
for its direct expenses reasonably incurred in connection with its
assignment, and to indemnify the AGSI Advisor against liability for certain
actions.
TERMS OF THE MERGER
THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS WITH
RESPECT TO THE MERGER AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE COMPLETE TEXT OF THE MERGER AGREEMENT ATTACHED HERETO AS APPENDIX A AND
INCORPORATED HEREIN BY REFERENCE.
THE MERGER. Subject to the terms of the Merger Agreement, (i) at the
Effective Time, AGSI will merge with and into CRSI, (ii) the separate
existence of AGSI will cease, (iii) CRSI will be the surviving corporation in
the Merger (the "Surviving Corporation") and (iv) the internal corporate
affairs of the Surviving Corporation will continue to be governed by the laws
of the State of Texas. Upon consummation of the Merger, the Surviving
Corporation's principal office will be in Irving, Texas.
CERTIFICATE OF INCORPORATION; BYLAWS. The Merger Agreement provides
that the Certificate of Incorporation of CRSI as in effect immediately prior
to the Effective Time will become the Certificate of Incorporation of the
Surviving Corporation. The Bylaws of CRSI in effect at the Effective Time
will become the Bylaws of the Surviving Corporation.
DIRECTORS AND OFFICERS. The executive officers of CRSI at the Effective
Time will become the officers of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal. G. Randy Nicholson and Jeffrey F. Upp
will continue to serve the Surviving Corporation as a consultant for a period
of up to two years and as an employee for a period of up to seven months,
respectively, and Steve Covington, Vice President of AGSI, will be employed
by CRSI for a period of up to one year following the Effective Time. Pursuant
to the terms of the Merger Agreement, immediately prior to the Effective
Time, Canmax has agreed to cause the number of Board of Directors of Canmax
to be increased from seven to nine persons, to cause removal or resignation
of one current director of Canmax, and to cause to be elected three directors
selected by AGSI (subject to the written approval of the remainder of the
Canmax Board). Canmax has agreed to cause two such directors to be appointed
to the Audit Committee of Canmax and one of such directors to be appointed to
the Compensation Committee of Canmax. See "The Merger - Interested Parties."
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EFFECTIVE TIME. Promptly following satisfaction (or waiver where
permissible) of the conditions to the Merger, the Merger will be consummated
and become effective at the later of the time that the Certificate of Merger
to be filed pursuant to the DGCL is accepted for filing by the Secretary of
State of Delaware and a Certificate of Merger is issued by the Secretary of
State of Texas pursuant to the Texas Business Corporation Act ("TBCA"), or
such later date and time as may be specified in such Certificates of Merger.
The Certificates of Merger will be filed only upon satisfaction or waiver of
the conditions contained in the Merger Agreement and only if no party has
exercised any right of termination provided in the Merger Agreement. See "The
Merger - Terms of the Merger - Conditions; Waiver." At the Effective Time, the
stock transfer books of AGSI will be closed whereupon transfers of AGSI
Common Stock will not be permitted.
CONVERSION OF SHARES. Upon consummation of the Merger, each share of
AGSI Common Stock will be converted into the right to receive 3.37623 shares
of Canmax Common Stock. The maximum aggregate number of shares issuable by
Canmax in connection with the Merger will be 6.7 million shares of Canmax
Common Stock (the "Merger Shares"). THE EXACT NUMBER OF MERGER SHARES TO BE
ISSUED IN THE MERGER WILL NOT BE DETERMINED UNTIL IMMEDIATELY PRECEDING THE
CONSUMMATION THEREOF. THE NUMBER OF SHARES OF CANMAX COMMON STOCK TO BE
ISSUED WILL BE DETERMINED BY REFERENCE TO THE NUMBER OF SHARES OF AGSI COMMON
STOCK OUTSTANDING IMMEDIATELY PRIOR TO THE EFFECTIVE TIME. See "Information
Concerning Canmax - Dividends on and Market Prices of Canmax Common Stock."
FRACTIONAL SHARES. No fractional shares of Canmax Common Stock will be
issued in the Merger. In lieu of any such fractional shares, each investor
who otherwise would be entitled to receive a fractional share of Canmax
Common Stock pursuant to the Merger will be paid an amount in cash, without
interest, based upon the average closing price of the Canmax Common Stock
over the ten-day period ending three days prior to closing.
STOCK OPTIONS; WARRANTS. Pursuant to the terms of the Merger Agreement,
all stock options and warrants to acquire shares of AGSI Common Stock shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be assumed by Canmax and shall thereafter be deemed to constitute an
option or warrant to acquire, on the same terms and conditions, where
applicable, the number of whole shares of Canmax Common Stock and cash in
lieu of any fractional shares equal to the number of shares of AGSI Common
Stock issuable with respect to such stock option or warrant multiplied by the
Exchange Rate, at an exercise price per share equal to the exercise price per
share of AGSI Common Stock divided by the Exchange Rate. As promptly as
practicable after the Effective Time, Canmax shall issue to each holder of an
AGSI option or warrant, a written instrument evidencing Canmax's assumption
of such option or warrant. As of August 8, 1997, there were outstanding
stock options to acquire 300,000 shares of AGSI Common Stock and warrants to
acquire 142,667 shares of AGSI Common Stock.
EXCHANGE OF CERTIFICATES. Montreal Trust Company has been selected to
act as the exchange agent (the "Exchange Agent") pursuant to the terms of an
Exchange Agent Agreement between Canmax and the Exchange Agent (to be
executed immediately prior to the Effective Time), for the purpose of
effectuating the delivery of the shares of Canmax Common Stock (or cash in
lieu of any fractional shares) to be issued in the Merger. Promptly after the
Effective Time, Canmax will cause the Exchange Agent to send to each holder
of AGSI Common Stock at the Effective Time a letter of transmittal ("Letter
of Transmittal") advising such holders of the terms of the exchange of the
AGSI Common Stock and the procedures for surrendering AGSI stock certificates
("AGSI Certificates") in exchange for the consideration provided in the
Merger Agreement. Any payment of cash in lieu of fractional shares of Canmax
Common Stock will be delivered to each former holder of AGSI Common Stock by
check concurrent with the delivery of the whole shares of Canmax Common Stock
to be issued to such holder pursuant to the Merger Agreement. ELECTIONS MADE
BY AGSI STOCKHOLDERS MADE IN THE LETTER OF TRANSMITTAL ARE IRREVOCABLE. AGSI
STOCKHOLDERS ARE REQUESTED NOT TO SURRENDER THEIR AGSI CERTIFICATES FOR
EXCHANGE UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL AND INSTRUCTIONS FROM THE
EXCHANGE AGENT.
Following the Effective Time and until surrendered as provided above,
AGSI Certificates will be deemed to represent the right to receive
certificates representing that number of whole Merger Shares of Canmax Common
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Stock into which the shares of AGSI Common Stock formerly represented by such
AGSI Certificates were converted in the Merger and a cash payment in lieu of
any fractional shares.
The holders of AGSI Certificates will not be entitled to receive
dividends or any other distribution from Canmax declared on or after the
Effective Time until the AGSI Certificates are surrendered. Upon surrender of
an AGSI Certificate, the person in whose name such shares of Canmax Common
Stock are issued shall be paid any dividends or other distributions which
have a record date after the Effective Time and a payment date prior to
surrender. In no event shall the persons entitled to receive such dividends
or other distributions be entitled to receive interest on such dividends or
other distributions.
Any certificates for shares of Canmax Common Stock and funds deposited
with the Exchange Agent with respect to the formerly outstanding shares of
AGSI Common Stock that remain unclaimed for six months after the Effective
Time will be delivered to Canmax upon demand, and those holders of AGSI
Certificates who have not surrendered their AGSI Certificates shall look only
to Canmax for redemption and payment with respect thereto. After such time,
holders of AGSI Certificates may submit such certificates to Canmax at 150
West Carpenter Freeway, Irving, Texas 75039, Attention: Chief Financial
Officer. Pursuant to the Exchange Agent Agreement, the Exchange Agent will be
compensated for out-of-pocket expenses and Canmax will indemnify the Exchange
Agent against certain liabilities.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains numerous
representations and warranties of Canmax, CRSI and AGSI. Each of Canmax, CRSI
and AGSI has represented and warranted certain matters regarding, among other
things, organization and qualifications; subsidiaries; capitalizations, the
authority to enter into, the enforceability of, and the absence of conflicts
with the Merger Agreement; financial matters; taxes; assets and contractual
rights and obligations; litigation; employee benefit plans; the absence of
brokers or finders; inventories; customers; suppliers; and employee and other
labor matters.
AGSI has made additional representations and warranties regarding its
directors and officers, bank accounts and certain affiliates. CRSI and
Canmax have made additional representations and warranties regarding the
accuracy of information contained in materials filed with the Commission and
the termination of its relationships with EDS.
COVENANTS AND OBLIGATIONS.
COVENANTS PENDING THE EARLIER OF THE EFFECTIVE TIME OR THE
TERMINATION OF THE MERGER. The Merger Agreement sets forth certain
obligations of the parties pending the earlier of the Effective Time or the
abandonment or termination of the Merger. See "The Merger - Terms of the
Merger - Termination." In general, each of AGSI, Canmax and CRSI has agreed,
among other things, to (i) operate its business only in the ordinary course,
(ii) use its best efforts to keep its business, properties and business
relationships substantially intact, (iii) pay and perform its debts,
liabilities and obligations and comply with applicable laws, (iv) not take
any action that would cause a breach of any representation or warranties set
forth in this Merger Agreement, (v) not declare or pay any dividends or make
any distributions of its equity interests, except as specifically provided in
the Merger Agreement, (vi) not sell or lease any of its assets except in the
ordinary course of business, (vii) except as specified in the Merger
Agreement, not grant any increase in compensation of any director or officer
or employee or pay any bonuses to such persons, (viii) provide each other and
their respective advisors reasonable access to all of its assets, reports,
records and personnel, (ix) not issue any public announcements regarding the
Merger without the written consent of the other, (x) use reasonable efforts
to consummate the transactions contemplated by the Merger Agreement, and (xi)
notify each other in writing of any event that could reasonably be
anticipated to have a material adverse effect or require any information
contained herein to be supplemented or amended under applicable securities
laws.
OTHER AGREEMENTS. Pursuant to the Merger Agreement, Canmax is
obligated to (i) prepare and file with the Commission the Registration
Statement on Form S-4 (of which this Joint Proxy Statement/Prospectus forms a
part) with respect to the shares of Canmax Common Stock issuable in the
Merger and use all reasonable efforts to have the Registration Statement
declared
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effective as soon as practicable, (ii) take all action necessary to commence
a meeting of its stockholders as promptly as practicable after the
Registration Statement is declared effective, recommend to its stockholders
the approval of the Merger Agreement and use reasonable efforts to obtain
such approval by its stockholders, (iii) execute and deliver a registration
rights agreement providing for the registration of the resale of the shares
of Canmax Common Stock acquired by certain affiliates of AGSI in the Merger,
(iv) use reasonable efforts to prepare and file with the Commission a
registration statement under the Securities Act with respect to the shares of
Canmax Common Stock issuable upon the exercise of the AGSI Stock Options
assumed by Canmax and to have such registration statement declared effective
as soon as practicable, (v) make all required filings with the Commission,
(vi) use reasonable efforts to cause the number of members of the Board of
Directors of Canmax to be increased from seven to nine, (vii) indemnify the
officers, directors and employees of AGSI in a manner consistent with the
indemnification rights available to such persons prior the Effective Time
pursuant to the Articles of Incorporation and Bylaws of AGSI and the DGCL and
(viii) cause the shares of Canmax Common Stock to be issued pursuant to the
Merger to be listed for trading on the Nasdaq SmallCap Market.
Pursuant to the Merger Agreement, AGSI is obligated to (i) take all
action necessary to convene meetings of its stockholders as promptly as
practicable after the Registration Statement is declared effective, recommend
to its stockholders the approval of the Merger Agreement and use all
reasonable efforts to obtain such approval by its stockholders, (ii) prepare
a list of individuals who may be deemed affiliates thereof, (iii) use its
best efforts to obtain and deliver to Canmax a consent letter of Price
Waterhouse LLP, its independent auditors, and (iv) deliver to Canmax letters
of resignation of all directors of AGSI.
CONDITIONS; WAIVER. The respective obligations of the parties to
consummate the Merger are subject to the satisfaction or, where permissible,
waiver of the following general conditions: (i) the Registration Statement to
which this Joint Proxy Statement/Prospectus forms a part of shall have become
effective in accordance with applicable law, (ii) the transactions
contemplated by the Merger Agreement shall not have been restrained, enjoined
or otherwise prohibited by any applicable law and (iii) no action or
proceeding shall be in effect or pending which could render the consummation
of the transactions contemplated by the Merger Agreement illegal. The
obligations of Canmax and CRSI to consummate the Merger are also subject to
the satisfaction (or, where permissible, waiver) of the following conditions:
(i) the approval of the Merger by the stockholders of Canmax; (ii) the
accuracy in all material respects of the representations and warranties of
AGSI set forth in the Merger Agreement; (iii) delivery of certain documents,
certificates and legal opinions by AGSI, (iv) the absence of any material
adverse change in the business of AGSI; (v) the receipt of evidence that
holders of no more than 10% of the outstanding shares of AGSI Common Stock
have exercised appraisal rights under the DGCL; (vi) the execution by G.
Randy Nicholson and Jeffrey F. Upp of non-competition, consulting and
employment agreements with Canmax; (vii) the receipt by Canmax of the consent
letter from AGSI's accountants; (viii) the performance by AGSI in all
material respects of all obligations required to be performed by AGSI prior
to closing; (ix) the receipt by Canmax of control or effective control of the
bank and similar deposit accounts of AGSI; and (x) the receipt by Canmax of a
fairness opinion from the Canmax Advisor, which opinion shall not have been
withdrawn prior to closing.
The obligations of AGSI to consummate the Merger Agreement are subject
to the satisfaction (or, where permissible, waiver) of the following
conditions: (i) the approval of the Merger by the stockholders of AGSI, (ii)
the accuracy in all material respects of the representations and warranties
of Canmax and CRSI set forth in the Merger Agreement, (iii) delivery of
certain documents, certificates and legal opinions by Canmax and CRSI, (iv)
the performance in all material respects by Canmax and CRSI of all
obligations required to be performed by Canmax and CRSI prior to closing; (v)
the absence of any material adverse change in the business of Canmax or CRSI
requiring an amendment or supplement to this Proxy Statement/Prospectus, (vi)
the receipt by AGSI of a fairness advisor opinion from the AGSI advisor,
which opinion shall not have been withdrawn prior to closing; (vii) the
execution of non-competition and/or employment agreements by Roger D. Bryant,
Debra L. Burgess, and Philip M. Parsons with CRSI, and (viii) an opinion of
tax counsel to AGSI that the Merger will constitute a tax free reorganization.
REGULATORY APPROVALS. The Merger does not require any regulatory
approvals other than federal and state approval required in connection with
the effectiveness of the Registration Statement of which this Joint Proxy
Statement/Prospectus forms a part.
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NO SOLICITATION. AGSI, CRSI and Canmax have each agreed that, prior to
the Effective Time, they will not permit any individual acting on their
behalf to solicit or encourage any inquiries or proposals for or enter into
any discussions with respect to the acquisition of a substantial equity
interest in, or business combination involving, such party (an "Acquisition
Proposal"). Furthermore, each of Canmax, CRSI and AGSI has agreed that it
will not permit any employee or other person acting on its behalf to furnish
any non-public information concerning such entities to any person or entity
other than in the ordinary course of business, in compliance with its
fiduciary duties to its stockholders or pursuant to applicable law.
TERMINATION. The Merger Agreement may be terminated at any time prior to
the Effective Time by mutual consent. In addition, the Merger Agreement may
be terminated by AGSI, CRSI or Canmax in the event that any one or more of
the conditions to its obligation to close have not been satisfied in full
(or, where permissible, waived) on or before October 31, 1997.
BREAK-UP FEE. If the Merger Agreement is terminated as a result of the
Board of Directors of Canmax, CRSI or AGSI approving the execution of, or
recommending to its stockholders the acceptance of an Acquisition Proposal,
then such party shall be obligated to pay to the other party $400,000 in
cash, which sum is the sole and exclusive remedy for any claims arising from
the Merger Agreement or the termination thereof.
NON-COMPETITION AGREEMENT
At closing, G. Randy Nicholson, the President and Chief Executive
Officer of AGSI, and Jeffrey F. Upp, Vice President and Chief Financial
Officer of AGSI, will enter into Non-Competition Agreements with Canmax
and/or CRSI that will prohibit these individuals from competing with Canmax
in geographic areas in which AGSI has previously conducted business for a
period of five (5) years following the closing. See "The Merger - Interested
Parties."
INDEMNIFICATION
The Merger Agreement provides that Canmax (and CRSI, as the surviving
corporation in the Merger) shall indemnify the former officers, directors and
employees of AGSI to the fullest extent permitted by applicable law,
provided, that the requirement to advance expenses to such persons shall be
limited to those instances in which the indemnified party undertakes to repay
such amount if it shall ultimately be determined that he is not required to
be indemnified under Section 145(c) of the DGCL.
VOTING AGREEMENTS
Concurrently with the execution of the Merger Agreement, certain
stockholders of AGSI holding approximately 25.1% of the outstanding AGSI
Common Stock executed a voting agreement, pursuant to which such stockholders
have agreed to vote their shares in connection with the recommendation of the
AGSI Board with regard to the Merger. The AGSI Board has recommended the
approval and adoption of the Merger Agreement, and therefore such
stockholders are contractually obligated to vote in favor of the Merger
Agreement; provided that the AGSI Board may change such recommendation in
connection with an Acquisition Proposal and its fiduciary obligations to its
stockholders. See "The Merger -Terms of the Merger - Break-up Fee.".
TRANSFERABILITY OF CANMAX COMMON STOCK
The shares of Canmax Common Stock to be issued in connection with the
Merger will be freely tradeable under the Securities Act, except for shares
of Canmax Common Stock issued to any person deemed to be an affiliate of AGSI
for purposes of Rule 145 under the Securities Act at the time of the AGSI
Meeting (the "Rule 145 Affiliates"). The Rule 145 Affiliates may not resell
the shares of Canmax Common Stock received in connection with the Merger
except pursuant to an effective registration statement under the Securities
Act covering such shares, or in compliance with Rule 144 or Rule 145
promulgated under the Securities Act or another applicable exemption from the
registration requirements of the Securities Act. Pursuant to the terms of the
Merger Agreement, (a) AGSI will cause to be prepared and delivered to Canmax
prior to the Closing Date, a list identifying all persons who may
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be deemed to be Rule 145 Affiliates, and (b) Canmax has agreed to enter into
a registration rights agreement with such persons at closing, pursuant to
which Canmax will file a registration statement with the Commission following
the closing to permit resales of the shares of Canmax Common Stock received
in the Merger by such Rule 145 Affiliates. Canmax has agreed to file such
registration statement within sixty (60) days of the Effective Time and
maintain such registration for up to two years. Pursuant to the terms of the
registration rights agreement, Canmax will bear the expenses of such
registration, other than any underwriting fees or discounts or the fees of
counsel to the selling stockholders. Canmax has also agreed to indemnify the
selling stockholders from certain liabilities and expenses, including
liabilities arising from violations of applicable securities laws.
ACCOUNTING TREATMENT
It is expected that the Merger will be accounted under the "purchase"
method of accounting.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a tax-free reorganization under
the Code. Consummation of the Merger is conditioned upon AGSI receiving an
opinion of its counsel substantially to the effect that the Merger will be
treated as a tax-free "reorganization" under Section 368(a) of the Code.
Assuming the Merger so qualifies for Federal income tax purposes (i) no gain
or loss will be recognized by Canmax, CRSI or AGSI as a result of the Merger,
(ii) holders of AGSI Common Stock whose shares are converted into Canmax
Common Stock in the Merger generally will recognize no gain or loss as a
result of the conversion (except with respect to AGSI shareholders, who will
recognize gain or loss to the extent that they receive cash in lieu of
fractional shares or if they exercise their dissenters' rights), and (iii)
the holding period and basis applicable to shares of Canmax Common Stock
received in the Merger will be the same as the holding period and basis
attributable to the AGSI Common Stock that was converted into Canmax Common
Stock in the Merger (reduced by any amount allocable to a fractional share
interest in Canmax Common Stock for which cash is received). A holder of
shares of AGSI Common Stock who receives cash in lieu of a fractional share
interest in Canmax Common Stock will recognize gain or loss measured by the
difference between the amount of cash received and the amount of the
shareholder's aggregate basis allocated to the fractional share interest.
Any gain an AGSI shareholder recognizes will be taxed either as a dividend or
as a capital gain. The Internal Revenue Service (the "Service") has
published a ruling holding that, in the case of a minority shareholder whose
relative stock interest in the surviving corporation is minimal, who
exercises no control over the surviving corporation's affairs, and whose
relative ownership interest in the surviving corporation has been reduced by
a minimal amount (for example, as a result of the receipt of cash in lieu of
fractional shares), any gain or loss such shareholder recognizes will be a
capital gain or loss. If an AGSI shareholder has held his or her shares as a
capital asset, any capital gain or loss recognized will be long-term if the
shareholder held his or her shares for more than one year at the time of the
Merger.
No rulings have been requested from the Service with respect to any of
the matters discussed herein.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
IT DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE MERGER.
IN ADDITION, IT DOES NOT DISCUSS THE FEDERAL INCOME TAX CONSIDERATIONS THAT
MAY BE RELEVANT TO CERTAIN PERSONS, INCLUDING HOLDERS OF OPTIONS OR WARRANTS,
AND MAY NOT APPLY TO CERTAIN HOLDERS SUBJECT TO SPECIAL TAX RULES, INCLUDING
DEALERS IN SECURITIES, FOREIGN HOLDERS AND HOLDERS WHO ACQUIRED THEIR SHARES
OF AGSI COMMON STOCK PURSUANT TO THE EXERCISE OF OPTIONS OR OTHERWISE AS
COMPENSATION. THE DISCUSSION IS BASED UPON CURRENTLY EXISTING PROVISIONS OF
THE CODE, EXISTING TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE
RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING IS SUBJECT TO CHANGE AND
TO THE DELIVERY OF SUCH OPINION OF COUNSEL AND ANY SUCH CHANGE OR SUCH
OPINION OF COUNSEL, IF AND AS DELIVERED, COULD AFFECT THE CONTINUING ACCURACY
OF THIS DISCUSSION.
EACH AGSI SHAREHOLDER SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISOR
WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM, HER OR
IT, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN
TAX LAWS.
At October 31, 1996, Canmax had net operating loss carryforwards for
federal income tax purposes of approximately $19.1 million which expire in
the years 2006 through 2010. Utilization of net operating losses may
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be subject to annual limitations due to an ownership change as provided by
the Code. Canmax anticipates that it will undergo a change of ownership as
defined in Code Section 382, upon the issuance of the shares contemplated by
the Merger. Based on a share price of $2.50 of Canmax Common Stock, the
resulting annual limitation of the Combined Company is expected to be
approximately $1.0 million per year, and it is anticipated that the annual
limitation will result in the expiration of approximately $4.2 million of net
operating losses before utilization.
An issuance by Canmax of its own stock is not a taxable event.
Therefore, Canmax will not recognize any taxable gain or loss from the
Merger. In addition, the existing holders of the Canmax Common Stock will
have no federal income tax consequences as a result of the Merger.
APPRAISAL RIGHTS
Holders of shares of AGSI Common Stock are entitled to appraisal rights
in connection with the Merger under Section 262 of the DGCL. Under the DGCL,
holders of shares of AGSI Common Stock who follow the procedures set forth in
Section 262 will be entitled to have their shares of AGSI Common Stock
appraised by the Delaware Court of Chancery and to receive payment of the
"fair value" of such shares, exclusive of any element of value arising from
the accomplishment or expectation of the Merger, together with a fair rate of
interest, as determined by such court. Any stockholder who wishes to
exercise appraisal rights, or to preserve his or her rights to do so, should
carefully review the following discussion and the text of Section 262, which
is attached to this Joint Proxy Statement/Prospectus as APPENDIX D. Failure
to timely and properly comply with the procedure set forth in Section 262
will result in the loss of appraisal rights under the DGCL.
Under Section 262, when a merger is to be submitted for approval at a
stockholder meeting, not less than 20 days prior to the meeting, a
corporation must notify its stockholders of the availability of appraisal
rights and include in such notice a copy of Section 262. This Joint Proxy
Statement/Prospectus constitutes such notice.
EACH AGSI STOCKHOLDER ELECTING TO DEMAND APPRAISAL OF HIS OR HER SHARES
OF AGSI COMMON STOCK MUST DELIVER TO AGSI A WRITTEN DEMAND FOR APPRAISAL OF
SUCH SHARES BEFORE TAKING OF A VOTE ON THE AGSI MERGER. A proxy or vote
against the AGSI Merger does not constitute such a demand. This written
demand for appraisal must be in addition to and separate from any proxy or
vote concerning the Merger. In addition, a holder of shares of AGSI Common
Stock wishing to exercise his or her appraisal rights must hold of record
such shares of AGSI Common Stock on the date the written demand for appraisal
is made and must continue to hold such shares until the Effective Time.
Lastly, a stockholder wishing to exercise his or her appraisal rights must
not vote in favor of the Merger Agreement. A failure to vote will satisfy
this requirement, but a vote in favor of the Merger Agreement by proxy or in
person, or the return of a signed proxy that does not specify a vote against
approval of the Merger Agreement, will constitute a waiver of such
stockholder's right of appraisal and will nullify any previously filed
written demand for appraisal. If any holder of shares of AGSI Common Stock
fails to comply with any of these conditions and the Merger becomes
effective, the holder of shares of AGSI Common Stock will be entitled to
receive the consideration receivable with respect to such shares in
accordance with the Merger Agreement.
Within ten days after the Effective Time, AGSI must notify each
stockholder of AGSI who has complied with Section 262 and has not voted in
favor of or consented to the Merger.
Only a holder of record of shares of AGSI Common Stock is entitled to
assert appraisal rights for the shares of AGSI Common Stock registered in that
holder's name. A demand for appraisal should be executed by or on behalf of the
holder of record, fully and correctly, as his or her name appears on his or her
stock certificates. The demand must state that the stockholder intends to
demand payment for his shares of AGSI Common Stock if the Merger is consummated.
If the Merger Agreement is approved by AGSI's stockholders, each stockholder who
has filed an objection complying with the requirements of Section 262 and who
did not vote in favor of the Merger Agreement will be notified in writing of
such approval within ten days following the Effective Time of the Merger. If
the shares of AGSI Common Stock are owned of record in a fiduciary capacity,
such as by a trustee, guardian, or custodian, execution of the demand should be
made in that capacity. If the shares of AGSI Common Stock are owned of record
by more than one person, as in a joint tenancy or tenants in common, the demand
should be executed by or on behalf of all joint owners. An authorized agent,
including one of the joint owners, may execute a demand for appraisal on behalf
of a holder of record; however, the agent must identify the record owner or
owners and expressly disclose the fact that, in executing the demand, the agent
is agent for such owner or owners. A record
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holder such as a broker who holds shares of AGSI Common Stock as nominee for
several beneficial owners may exercise appraisal rights with respect to the
shares of AGSI Common Stock held for one or more beneficial owners while not
exercising such rights with respect to the shares of AGSI Common Stock held
for other beneficial owners; in such case, the written demand should set
forth the number of shares of AGSI Common Stock as to which appraisal is
sought and where no number of shares of AGSI Common Stock is expressly
mentioned the demand will be presumed to cover all shares of AGSI Common
Stock held in the name of the record owner. Stockholders who hold their
shares of AGSI Common Stock in brokerage accounts or other nominee forms and
who wish to exercise appraisal rights are urged to consult with their brokers
to determine the appropriate procedures for the making of a demand for
appraisal by such a nominee. All written demands for appraisal pursuant to
Section 262 should be sent or delivered to AGSI at 1202 Estates Drive, Suite
D, Abilene, Texas 79602, Attention: G. Randy Nicholson.
Within 120 days after the Effective Time, the Surviving Corporation or
any stockholder entitled to appraisal rights under Section 262 may file a
petition in the Delaware Court of Chancery demanding a determination of the
fair value of the shares of AGSI Common Stock entitled to appraisal. The
Surviving Corporation is under no obligation and has no present intention to
file a petition with respect to the appraisal of the fair market value of the
shares of AGSI Common Stock. Accordingly, it is the obligation of the
stockholders of AGSI to initiate all necessary action to perfect their
appraisal rights within the time prescribed in Section 262. At any time
within 60 days after the Effective Time of the Merger, any holder of shares
of AGSI Common Stock who has demanded appraisal has the right to withdraw the
demand and accept the consideration offered pursuant to the Merger Agreement.
Any attempt by a holder of shares of AGSI Common Stock to withdraw his or
her appraisal demand more than 60 days after the Effective Time will require
the written approval of AGSI.
Within 120 days after the Effective Time, any stockholder of AGSI who
has complied with the requirements for exercise of appraisal rights will be
entitled, upon written request, to receive from AGSI a statement setting
forth the aggregate number of shares of AGSI Common Stock not voted in favor
of the Merger and with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares. Such statements
must be mailed within ten days after a written request therefor has been
received by AGSI.
If a petition for an appraisal is timely filed by a holder of shares of
AGSI Common Stock and a copy thereof is delivered to AGSI, AGSI will then be
obligated within 20 days to provide the Court of Chancery with a duly
verified list containing the names and addresses of all stockholders of AGSI
who have demanded an appraisal of their shares. After notice to such
stockholders, the Court of Chancery is empowered to conduct a hearing on such
petition to determine those stockholders who have complied with Section 262
and who have become entitled to appraisal rights under that section. The
Court of Chancery may require the holders of shares of AGSI Common Stock who
demanded the payment for their shares to submit their stock certificates to
the Register in Chancery for notation thereon of the pendency of the
appraisal proceeding. If any stockholder fails to comply with such
direction, the Court of Chancery may dismiss the proceedings as to such
stockholder.
If a petition for an appraisal is timely filed, after a hearing on the
petition, the Court of Chancery will determine the stockholders entitled to
appraisal rights and will appraise the "fair value" of their shares of AGSI
Common Stock, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
Stockholders considering seeking appraisal should be aware that the fair
value of their shares of AGSI Common Stock as determined by Section 262 could
be more than, the same as, or less than the consideration they would receive
pursuant to the Merger if they did not seek appraisal of their shares of AGSI
Common Stock and that investment banking opinions as to fairness from a
financial point of view are not necessarily opinions as to the fair value
under Section 262. The Delaware Supreme Court has stated that "proof of
value by any techniques or methods which are generally considered acceptable
in the financial community and are otherwise admissible in court" should be
considered in the appraisal proceedings. In addition, Delaware courts have
decided that the statutory appraisal remedy, depending on factual
circumstances, may or may not be a dissenter's exclusive remedy. The Court
also will determine the amount of interest, if any, to be paid upon the
amounts to be received by persons whose shares of AGSI Common Stock have been
appraised. The cost of the action may be determined by the Court and
allocated to the parties as the Court deems equitable. The Court also may
order that all or a portion of the expense incurred by any stockholder in
connection with an appraisal, including, without limitation, reasonable
attorneys' fees and the
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fees and expenses of experts utilized in appraisal proceedings, be charged
pro rata against the value of all the shares of AGSI Common Stock entitled to
be appraised.
Any holder of shares of AGSI Common Stock who has demanded an appraisal
in compliance with Section 262 will not, after the Effective Time, be
entitled to vote the shares of AGSI Common Stock subject to such demand for
any purpose or be entitled to the payment of dividends or other distributions
on those shares of AGSI Common Stock (except dividends or other distributions
payable to stockholders of record at a date prior to the Effective Time).
If any stockholder who demands appraisal of his or her shares of AGSI
Common Stock under Section 262 fails to perfect, or effectively withdraws or
loses, his or her rights to appraisal, as provided in the DGCL, the shares of
AGSI Common Stock of such stockholder will be converted into the right to
receive shares of Canmax Common Stock, and cash in lieu of any fractional
shares, pursuant to the Merger Agreement. A stockholder will fail to
perfect, effectively lose or withdraw, his or her rights to appraisal if no
petition for appraisal is filed within 120 days after the Effective Time of
the Merger.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in a loss of such rights (in which
event a stockholder will be entitled to receive shares of Canmax Common
Stock, and cash in lieu of any fractional shares, in accordance with the
Merger Agreement for each share of AGSI Common Stock owned by him or her).
Canmax may, at its option, decline to consummate the AGSI Merger if
holders of an aggregate of more than 10% of the outstanding shares of AGSI
Common Stock shall have exercised such appraisal rights.
Holders of Canmax Common Stock will not have any dissenters' or
appraisal rights with respect to the Merger.
INTERESTED PARTIES
At closing, Canmax and G. Randy Nicholson, the President and Chief
Executive Officer of AGSI, will enter into a Non-Competition Agreement and a
Consulting Agreement. The Non-Competition Agreement prohibits Mr. Nicholson
from competing with Canmax in geographic areas in which AGSI has previously
conducted business for a period of five years from the closing. Mr.
Nicholson will receive $25,000 per year during the term of the
Non-Competition Agreement. As additional consideration for the
Non-Competition Agreement, Canmax has agreed to a Compensation Arrangement
under which Canmax will grant to Mr. Nicholson at closing a warrant to
purchase 285,000 shares of Canmax Common Stock at an exercise price of $0.58
per share. See "The Merger - Certain Compensation Arrangements." All
warrants issued in connection with the Non-Competition Agreement will expire
January 15, 1999. The Consulting Agreement with Mr. Nicholson is for a two
year term at an annual compensation of $150,000 per year. In addition, under
his Consulting Agreement, Mr. Nicholson will be entitled to an office
allowance of up to $25,000 per year, a secretarial allowance of up to $33,000
per year and health benefits of up to $10,000 per year.
Upon the closing of the Merger, Mr. Jeffrey F. Upp, Vice President and
Chief Financial Officer of AGSI, will enter into a Non-Competition Agreement
and an Employment Agreement. The Non-Competition Agreement prohibits Mr. Upp
from competing with Canmax in geographic areas in which AGSI has previously
conducted business for a period of five years from the closing. As
consideration for the Non-Competition Agreement, Canmax has agreed to a
Compensation Arrangement under which Canmax will grant to Mr. Upp a warrant
to purchase 120,000 shares of Canmax Common Stock at an exercise price of
$0.58 per share. See "The Merger -Certain Compensation Arrangements." All
warrants issued in connection with the Non-Competition Agreement will expire
January 15, 1999. The Employment Agreement is for a period of seven months
following the closing. During this time, Mr. Upp will be compensated at the
rate of $8,000 per month plus health and insurance benefits.
Canmax has agreed to include the shares of Canmax Common Stock issuable in
connection with the warrants to be granted to Messrs. Nicholson and Upp in the
registration statement to be filed with regard to resales
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of shares of Canmax Common Stock received in the Merger by Rule 145
Affiliates. See "Terms of Merger - Transferability of Canmax Common Stock."
Upon consummation of the Merger, Canmax intends to enter into an
employment agreement with Steve Covington, a Vice President of AGSI, pursuant
to which Mr. Covington will perform managerial responsibilities for CRSI for
a period of one year at an annual base compensation of $100,000. See
"Information Concerning Canmax - Management - Employment and Change of
Control Agreements." Mr. Covington will also be entitled to participate in
any bonus programs established by the Canmax Board and will receive health
and insurance benefits. Mr. Covington's employment agreement provides for
the vesting of all of his options to purchase shares of AGSI Common Stock
held by Mr. Covington (which options will be assumed by Canmax in the Merger)
upon certain changes of control. In addition, following the consummation of
the Merger, Jeff Fisher, a Vice President of AGSI, will serve in a managerial
capacity for CRSI.
Following the execution of the Merger Agreement, Roger D. Bryant, the
President and Chief Executive Officer of Canmax, Philip M. Parsons, an
Executive Vice President and Chief Financial Officer of Canmax, and Debra L.
Burgess, an Executive Vice President and Chief Operating Officer of Canmax,
entered into written employment agreements with CRSI. See "Information
Concerning Canmax -Management - Employment and Change of Control Agreements."
The Dodge Jones Foundation owns 111,112 shares of AGSI Common Stock
(approximately 7.2% of the outstanding shares of AGSI Common Stock) and, on
April 29, 1997, acquired from Electronic Data Systems Corporation 1,000,000
shares of Canmax Common Stock (or approximately 15.1% of the outstanding
shares of Canmax Common Stock). See "Information Concerning Canmax - Recent
Events."
In connection with the Merger Agreement, Canmax has agreed to indemnify
the former officers and directors of AGSI to the fullest extent permitted by
applicable law. See "The Merger - Indemnification."
From 1985 to 1989, Roger D. Bryant, the President and Chief Executive
Officer of Canmax, served as the President of AGSI. During such period of
service at AGSI, Mr. Bryant reported to G. Randy Nicholson, the then Chairman
of AGSI and the current President and Chief Executive Officer of AGSI. In
1988 and 1989, Mr. Bryant also served as the Chief Operating Officer of AFCO
and reported to Mr. Nicholson, who was the then President of AFCO. In 1989,
Mr. Bryant ceased his affiliations with AGSI and AFCO to pursue other career
opportunities.
CERTAIN COMPENSATION ARRANGEMENTS
PURPOSES. In connection with the Non-Competition Agreements between Mr.
Nicholson, Mr. Upp and Canmax, Canmax will grant to Mr. Nicholson and Mr. Upp
warrants to purchase 285,000 shares and 120,000 shares, respectively, of
Canmax Common Stock at an exercise price of $0.58 per share. This exercise
price represents approximately 25% of the average closing price for the
Canmax Common Stock for the 20 day period ending immediately prior to
reaching agreement on the Compensation Arrangements. The warrants expire on
January 15, 1999 subject to possible extension as described below. These
grants are intended not only to enable Mr. Nicholson and Mr. Upp to generate
cash should they wish to exercise their existing warrants and options that
will be converted into rights to acquire Canmax Common Stock but also to
allow Canmax to conserve cash while executing the Non-Competition Agreements.
Mr. Nicholson currently beneficially holds a warrant to acquire 142,667
shares of AGSI Common Stock at an exercise price of $4.50 per share. In
accordance with the terms of the Merger Agreement, Canmax will assume the
terms of the warrant and convert it into a warrant to acquire 481,677 shares
of Canmax Common Stock at an exercise price of $1.33 per share. The terms of
Mr. Nicholson's current warrant contains anti-dilution provisions that
provide for the grant of additional warrants and an adjusted exercise price
if AGSI issues stock or options a price lower than the exercise price from
time to time in effect. Mr. Nicholson has agreed to waive such anti-dilution
provisions from and after the date of the Merger.
Mr. Upp currently holds options to acquire 19,000 shares of AGSI Common
Stock at an exercise price of $4.50 per share and options to acquire 39,000
shares of AGSI Common Stock at an exercise price of $8.00 per share. These
options were granted under the AGSI Stock Option Plan. In accordance with
the terms of the Merger Agreement, Canmax will assume the terms of the
options and convert them into options to acquire 64,148 shares of
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Canmax Common Stock at an exercise price of $1.33 per share and options to
acquire 131,673 shares of Canmax Common Stock at an exercise price of $2.37.
To facilitate the Compensation Arrangements, which are also intended to
conserve Canmax cash in connection with the Non-Competition Agreements, the
Canmax Board of Directors has voted to exempt, pursuant to Rule 16b-3 of the
SEC, certain transactions from the operation of Section 16(b) of the Exchange
Act: the assumption in the Merger of all warrants and options currently held
by Mr. Nicholson and Mr. Upp and the issuance of all shares issuable by
Canmax in connection therewith; the issuance of the additional warrants to
Mr. Nicholson and Mr. Upp and the issuance of all shares issuable by Canmax
in connection therewith; and the issuance of all shares issued to Mr.
Nicholson and Mr. Upp pursuant to the terms of the Merger Agreement. See
"Information Concerning AGSI - AGSI Common Stock Ownership."
The Compensation Arrangements further provide that the shares issuable
to Mr. Nicholson and Mr. Upp in connection with the exercise of the
additional warrants as well as the shares issuable to Mr. Nicholson and Mr.
Upp in connection with the exercise of the existing warrant and options,
along with certain shares issued in connection with the Merger, shall be
registered, following the closing, with the Commission for possible resale.
See "The Merger -Terms of the Merger - Covenants and Obligations." The
Canmax registration obligation is subject, however, to its right to suspend
use of the registration statement for up to 90 days per year with a
corresponding extension of the term of the registration rights and the
warrants.
In addition to the Compensation Arrangements, Canmax has agreed to enter
into a one-year employment agreement for Mr. Steve Covington. This
employment agreement provides for Mr. Covington to perform managerial
responsibilities for CRSI for a period of one year at an annual base
compensation of $100,000 plus health and insurance benefits and to
participate in any bonus programs established by the Canmax Board. In
addition, Mr. Covington's employment agreement provides for the vesting of
all of his options issued by AGSI prior to the Merger (the obligations for
which are being assumed by Canmax pursuant to the terms of the Merger
Agreement) upon certain changes of control. See "Information Concerning
Canmax - Management - Employment and Change of Control Agreements."
SHAREHOLDER APPROVAL. Although the Compensation Arrangement are
intended to serve as additional consideration for the execution of the
Non-Competition Agreements, if the Compensation Arrangements are determined
to be "parachute payments" as defined by the Code, section 280G of the Code
provides for the imposition of a nondeductible 20% excise tax upon Mr.
Nicholson and Mr. Upp and a denial of employee compensation deductions for
AGSI unless a resolution approving the grant of stock warrants is approved by
the AGSI shareholders after disclosure of all material facts. This
resolution requires the affirmative vote of the holders of 75% of the
outstanding shares of AGSI Common Stock, not including the shares
beneficially held by Mr. Nicholson and Mr. Upp. Approval of the Compensation
Arrangements is not a condition to the Merger nor is it a condition to the
issuance of the warrants pursuant to the Compensation Arrangement.
Shareholder approval is being requested to prevent possible adverse tax
consequences to Mr. Nicholson and Mr. Upp as well as AGSI.
INFORMATION CONCERNING CANMAX
BUSINESS
GENERAL. Canmax Inc. through its wholly owned subsidiary CRSI,
develops and provides enterprise-wide technology solutions to the convenience
store and retail petroleum industries. Canmax offers fully integrated retail
automation solutions, including "C-Serve," which includes point of sale
("POS") systems, credit/debit network authorization systems, pump control
systems, and other back office management systems, and "Vista," its
headquarters-based management system. Canmax's products and services enable
retailers and operators to interact electronically with customers, capture
data at the point of sale, manage site operations and logistics and
communicate electronically with their sites, vendors and credit/debit
networks. Canmax also provides (a) software development, customization and
enhancements, (b) systems integration, installation and training services,
and (c) 24 hour a day, 365 day per year help desk services. These additional
services enable Canmax to tailor the solutions to each customer's
specifications and provide successful system implementation, installation,
training and after sales support.
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Canmax's objective is to become a leading provider of enterprise wide
technology solutions to the convenience store and retail petroleum market.
Canmax is developing an enhanced version of its C-Serve product to run on the
Windows NT operating system in conjunction with a development project with
NCR and Southland scheduled for release in the fourth calendar quarter of
1997. As of July 31, 1997 Canmax's products have been installed in over 5,900
locations and its customers include, among others, Southland, ARCO and the
Army and Air Force Exchange.
BUSINESS STRATEGY. In the United States, there are currently
approximately 200,000 locations which derive revenues from the operations of
convenience stores and/or retail gasoline sites. Canmax believes that the
industry is currently under automated and under invested in automation and
technology solutions. The National Association of Convenience Stores (NACS)
1995 Future Study: Convenience 2000 confirms that the convenience store
environment requires information derived from automation solutions to compete
efficiently and effectively. Convenience stores lag the rest of the retail
industry in store automation. For example, approximately 16% of all
convenience stores utilize scanning technology, while grocery stores have
implemented scanning technology in approximately 90% of their locations.
Recent studies indicated that convenience store operators recognize the
significance of automation of their operations to their future success.
Canmax believes that the industry is prepared to increase its investment in
automation and technology solutions. This belief is supported by recent
surveys which reveal that the majority of convenience store operators plan to
increase their spending for technology solutions. Canmax therefore believes
that there will be demand in the marketplace for the Canmax's products,
solutions and services. Canmax believes that international markets also
represent substantial marketing opportunities for its solutions.
Canmax's marketing strategy includes (i) providing solutions based
products and services for the automation and management of convenience stores
and gasoline stations, (ii) maintaining a high level of customer service
through its help desk services and account managers, (iii) seeking strategic
partnerships to provide Canmax visibility to buying audiences worldwide, and
(iv) continuing to invest in product development initiatives.
Canmax identifies potential customers by size and geographic location
and directs its marketing efforts along these segments. In general, Canmax
allocates its sales and marketing efforts to "corporate accounts" with global
operations, "national accounts" with operations primarily in the U.S. and
"regional accounts" with operations on a local or regional basis. Canmax
estimates that corporate accounts represent approximately 20% of its target
locations, national accounts represent 60% of its target locations, and
regional accounts represent the remaining 20% of its target locations.
Canmax utilizes concurrent efforts by both sales representatives and account
managers in analyzing, selecting and implementing an automation system.
PRODUCTS AND SERVICES. Canmax utilizes a process called "Pathmation" to
analyze a customer's needs, assess a customer's options, and implement the
best resources available to build a path leading a customer to its ultimate
goal. The Pathmation process includes (i) defining business goals, (ii)
defining business processes to support the business goals; (iii) determining
technology requirements to support defined business processes; (iv)
developing an implementation plan that encompasses business processes,
technology training and continuing support; (v) deploying modified business
processes, technology and support infrastructure; and (vi) continuously
validating results with business goals and changes in business practices.
In December of 1993, Canmax signed a five year agreement with Southland
to provide software licenses, development services, and provide hardware and
help desk services. Southland chose Canmax's proprietary convenience store
automation software, C-Serve, as the basis for its automation of store
functions and operations at its corporate and franchise operated 7-Eleven
convenience stores in the United States. Software licensing, product and
service revenue under this agreement during the fiscal years ended October
31, 1994, 1995, and 1996 totaled approximately $2,118,000, $3,733,000 and
$2,581,000, respectively, while development revenues recorded under the
Southland agreement during these same periods totaled approximately
$2,468,000, $1,792,000 and $971,000, respectively. In 1995, Canmax
contracted with NCR to successfully bid for two additional contracts with
Southland. These projects resulted in revenues to Canmax of approximately
$1,005,000 and $1,755,000 in the fiscal years ended October 31, 1995 and
1996, respectively. During fiscal 1996, Canmax reached an agreement with NCR
to develop for Southland a next generation Windows NT based version of the
Canmax C-Serve convenience store software for $9.5 million. NCR was chosen
by Southland to provide project management and
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other professional services for the project. Approximately $3,920,000 of
revenues under such agreement was recognized by Canmax in fiscal 1996, and
the remainder is expected to be recognized in fiscal 1997. There are
currently over 5,000 7-Eleven stores using software developed by Canmax.
C-SERVE. The Canmax C-Serve is a comprehensive site-based store
automation software solution that provides, as its key features, debit/credit
card processing, pump control, POS and scanning capabilities, and significant
back office functions. Canmax's solutions are designed to allow retailers to
process transactions, manage pumps and credit/debit card processing and
capture data at the point of sale, as well as manage other front office and
back office operations. The key purpose of such systems is to provide the
store operator with information and tools to enable improved store operations
and profitability. C-Serve includes features such as touch screen, PC
keyboard or integrated third party POS terminals providing user friendly
applications and flexibility in set up and configuration to accommodate the
operational needs and differences of each site. Further, C-Serve has the
capability of supporting communications and data transfer to and from remote
corporate headquarters.
C-Serve was designed exclusively for the retail petroleum and
convenience store marketplace. C-Serve's features include:
- point-of-sale transaction processing, incorporating touch screens, PC
POS keyboards, or integrated POS terminals,
- fueling transactions,
- dispenser controls,
- settlement transactions for credit/debit cards,
- shift and day reporting,
- store maintenance,
- file maintenance,
- inventory controls,
- fuel inventory management,
- reporting capabilities,
- accounts receivable controls,
- island payment terminals,
- credit/debit card authorizations,
- communications to or from head office,
- security controls,
- shelf label generation,
- interface to handheld terminals and scanners,
- time and attendance records, and
- car wash interface.
Presently, C-Serve operates in a DOS/UNIX environment. Canmax is
currently developing its next generation of C-Serve software to run under the
Windows NT operating system. The next generation product is being developed
concurrently with the development project with NCR/Southland and is expected
to reflect state of the art technologies, features and functionality. Release
of this product is scheduled for the fourth calendar quarter of 1997.
VISTA. The Canmax " Vista" software provides a flexible automation
system that is able to conform to changing business needs. Vista is a
decision support, communications and remote store management system that
operates from corporate headquarters. Through a communications network,
Vista provides for the transmission of data messages from headquarters to the
remote store and from the store to headquarters. Vista's features include
fuel and retail pricebook maintenance, tax book maintenance, vendor
pricebook maintenance, and exception reporting for stores. Other features
of Vista include:
-batch or on-line communications
-remote on-line support
-sales analysis from store to store, zone to zone and region to region
-addition of new parameters at any time
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-decision support, and
-report writer
OTHER SERVICES AND PRODUCTS. In addition to revenues generated from the
licensing of C-Serve and Vista software and sale of proprietary communication
boards, revenues are generated from the following other services:
1) modification and custom development contracts,
2) installation and training services,
3) annual maintenance and support services contracts, and
4) the provision of third-party software and hardware.
Canmax's products are designed to provide a flexible generic system that
can be easily modified to meet most customer's individual needs and
preferences. Most customers, such as major oil companies, typically require a
certain degree of product customization and the development of unique
interfaces to communicate with their existing proprietary networks and host
systems. Canmax typically charges for customization and development costs.
Because Canmax retains ownership of the source code for such products (which
is essential to effect program changes), Canmax typically realizes service
revenues from such products throughout the duration of a relationship with
the customer.
To assist retailers and store operators in optimizing their use of
Canmax's software, Canmax also offers consulting, installation, training and
help desk support services. Canmax provides installation and training
services at each installed site, and back-up and technical support services
from a central location. Canmax has developed a proprietary help desk support
system known as "Sites." Sites provides efficient call handling, automatic
problem escalation, and customer reporting 24 hours a day, 7 days a week.
Trained support technicians handle everything from "how do I..." questions to
dispatching field service for hardware problems. Support services also
include free software and user guide updates as well as ensuring that
technicians respond to all problems in a timely manner. Sites management
reports help identify and resolve recurring issues, such as the need for
additional training at the store or potential hardware failures. Sites also
supports remote dial in capability to the Canmax help desk Sites database,
which provides customers managing a number of locations access to data and
reporting functions to better manage their operations.
Canmax does not usually directly sell hardware, such as personal
computers and POS terminals, although it does provide a small amount of
related equipment which may not be readily available from the principal
hardware vendor. The majority of hardware products supplied to customers is
provided by hardware vendors such as NCR, Ultimate Technologies and Compaq
Computers. Third party software and hardware products such as operating
systems, local and wide area network software and modems are also packaged
with Canmax's software and firmware products and sold in accordance with
distribution agreements entered into with such suppliers.
PRODUCT DEVELOPMENT Due to the rapid pace of technological change in
its industry, Canmax believes that its future success will depend, in part,
on its ability to enhance and develop its software products to meet customer
needs.
C-Serve is being enhanced to be operating system independent through the
use of sophisticated software tools. Canmax believes that this independence
will be a competitive advantage. Canmax currently provides C-Serve in a Unix
environment and a Windows NT based version of C-Serve is scheduled for
release in fourth calendar quarter of 1997. Canmax has developed Vista
(commonly referred to as a "host system") which enables operators of chains
of gas stations/convenience stores to monitor and control activities at
stores. Operators are able to obtain "real time" store level information
(from all stores or any number of selected stores) at headquarters over
communications lines to provide timely information for decision making.
During the fiscal years ended October 31, 1994, 1995 and 1996, Canmax
expensed approximately $2,609,000, $2,401,000 and $1,477,000, respectively,
on product development activities. Canmax incurred approximately $3,127,000,
$0 and $129,000 during the fiscal years ended October 31, 1994, 1995 and
1996, respectively, in software development costs, which were initially
capitalized. Because of the uncertainty of future revenue in the near term
from certain products, Canmax recorded a write down of approximately
$4,127,000 of
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<PAGE>
capitalized software costs in fiscal 1994. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation of Canmax."
SALES AND MARKETING. Canmax markets C-Serve and ancillary products and
services from its offices in Irving, Texas. Virtually all sales efforts are
focused on the U.S., Canada and Mexico at this time. However, Canmax plans to
expand its international marketing efforts in the future. More than 99% of
1996 revenue was derived from U.S. based customers.
BACKLOG. Product is generally delivered to customers when ordered.
There is no backlog of orders; however Canmax has signed contracts with
customers for the future delivery of products and services. Revenue from
these contracts may be affected by changes in customer requirements,
competition, technology and economic factors. There can be no assurance that
the Canmax's expectation of revenue will be realized in full.
COMPETITION.
Canmax believes its competition can be categorized as follows:
- pump manufacturers,
- point-of-sale equipment manufacturers, and
- specialized application software companies.
Pump manufacturers supply the majority of point-of-sale devices used by
gas stations and convenience stores. They supply specialized equipment with
proprietary interfaces specific to their pump control consoles. The
proprietary nature of their products limits the technology used and the
ability to interface to other devices. Their primary intent, however, is to
provide a complementary service to the sale of their "core" product - pumps.
Canmax faces competition from manufacturers such as Dresser Industries Inc.,
Gilbarco Inc. and Tokheim Corporation.
Software firms, such as Canmax, specializing in gas and convenience
store applications enjoy the advantage of bringing specialized knowledge and
applications to customers. The industry, however, does not enjoy a strong
reputation as service consultants who deliver solutions that meet/exceed
customer expectations. Canmax faces competition from software firms such as
Radiant Systems, Inc., MSI, Pinnacle, Inc., and Stores Automated Software,
Inc. Canmax's service strategy is designed to employ "Pathmation," a
consultative servicing process, to understand customer needs, while guiding
and delivering appropriate products better than other marketplace
alternatives.
Specialized POS manufacturers traditionally have developed solutions
based on their proprietary hardware. POS manufacturers, such as Verifone,
Ltd., NCR and IBM, also compete with Canmax.
Many of Canmax's current and prospective competitors have substantially
greater financial, technical and marketing resources than Canmax. The most
significant threat is the possibility of some consolidation or alliance of
major suppliers creating a larger, stronger presence in the marketplace.
Canmax also anticipates that additional competitors may enter certain of
Canmax's markets, resulting in even greater competition. There can be no
assurance that Canmax will be able to compete with existing or new
competitors. Increased competition could result in significant price
reductions with negative effects upon Canmax's gross margins and a loss of
market share, which could materially and adversely affect Canmax's business,
financial condition and operating results.
EMPLOYEES. As at April 30, 1997, Canmax had 115 full time employees.
The functional distribution of the employees was 9 in sales and marketing and
professional services, 49 in product development and advanced research, 11 in
general and administration, and 46 in service, support and education. All are
located in Irving, Texas with the exception of two sales employees located
outside Texas. None of its employees is represented by a labor union, and
Canmax considers its employee relations to be excellent.
PROPERTIES. Canmax occupies 47,178 square feet of office space at 150 West
Carpenter Freeway, Irving, Texas, pursuant to a lease which expires August 31,
1998. The space is used for executive, administrative, sales, engineering
personnel, help desk and related services, as well as for inventory storage and
demonstration purposes.
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<PAGE>
Canmax does not have an option to renew the lease. Canmax believes that its
existing facilities are adequate to meet its current and foreseeable
requirements and that suitable additional or substitute space will be
available as needed. Canmax does not believe it has been or will be
materially affected by environmental laws.
LEGAL PROCEEDINGS. Neither Canmax nor any of its subsidiaries are party
to any material legal proceedings.
RECENT EVENTS
EDS OPTION EXERCISE. On April 29, 1997, EDS exercised an option to
acquire up to 25% of Canmax's Common Stock, resulting in Canmax issuing to
EDS an additional 1,598,136 shares of Canmax Common Stock. Canmax accounted
for this transaction by reclassifying the amount associated with the option
to common stock. EDS then immediately sold its total interest in Canmax,
representing 1,863,364 shares, in a private transaction to Founders Equity
Group, Inc. and the Dodge Jones Foundation, two Texas-based institutional
investors. In conjunction with this transaction, Canmax agreed to extend
certain registration rights similar to those held by EDS with regard to such
shares to the two institutional investors.
Canmax believes that the termination of its relationship with EDS is
beneficial because Canmax will be able to market its products directly
(rather than through EDS) to a much larger customer base within selected
target markets. Additionally, Canmax believes that the termination of the EDS
option will facilitate Canmax's future growth strategies as the dilutive
effect of the EDS option has been eliminated.
ENGAGEMENT OF FOUNDERS EQUITY GROUP. In May 1997, Canmax retained
Founders Equity Group, Inc. ("Founders"), the holder of 863,364 shares
(13.1%) of Canmax Common Stock, to provide investment advisory services to
Canmax with regards to the proposed Merger with AGSI. Pursuant to the terms
of such agreement, Canmax has agreed to pay to Founders a fee of $25,000.
WARRANT ISSUANCE. On May 9, 1997, Founders exercised its right to
demand that Canmax file a registration statement with regard to all its
shares of Canmax Common Stock. Under applicable securities laws, Canmax was
unable to file the Founders registration statement until after the filing of
the registration statement of which this Joint Proxy Statement/Prospectus
forms a part. Pursuant to the terms of the registration rights agreement
with Founders, Canmax was to have filed a registration statement on or about
July 23, 1997 or incur a registration penalty of 50,000 shares per month.
Founders has agreed to extend the registration obligation until August 26,
1997 in exchange for its receipt of a warrant to acquire 50,000 shares of
Canmax Common Stock at an exercise price of $2.00 per share.
DIVIDENDS ON AND MARKET PRICES OF CANMAX COMMON STOCK
The Canmax Common Stock traded on the Nasdaq SmallCap Market under the
symbol "CNMX" from February 11, 1994 through November 24, 1995. From November
25, 1995 until December 21, 1995, Canmax Common Stock was traded under the
symbol "CNMXC" pursuant to a temporary listing exception to the minimum bid
price listing requirement granted by The Nasdaq Stock Market. After a
one-for-five reverse stock split effected by Canmax on December 21, 1995,
Canmax was successful in reaching the minimum bid price listing requirement
and, in connection therewith, began trading under the symbol "CNMCD". On
January 15, 1996, Canmax was notified of its compliance with all Nasdaq
listing requirements and on January 17, 1996, Canmax's trading symbol
reverted back to "CNMX." As of August 8, 1997, there were 480 holders of
record of Canmax Common Stock.
The following table sets forth for the fiscal periods indicated the high
and low closing sales price per share of Canmax Common Stock as reported on
the Nasdaq SmallCap Market. All per share amounts have been retroactively
adjusted to reflect a one-for-five reverse stock split of Canmax's Common
Stock effective December 21, 1995. The market quotations presented reflect
inter-dealer prices, without retail mark-up, mark-down or commissions and may
not necessarily reflect actual transactions.
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<PAGE>
CANMAX
COMMON STOCK CLOSING PRICES
---------------------------
HIGH LOW
---- ---
FISCAL 1995
First Quarter $ 8.75 $ 5.00
Second Quarter $ 6.88 $ 3.91
Third Quarter $ 7.66 $ 4.06
Fourth Quarter $ 5.31 $ 2.50
FISCAL 1996
First Quarter $ 4.31 $ 2.19
Second Quarter $ 4.63 $ 2.50
Third Quarter $ 4.50 $ 1.63
Fourth Quarter $ 3.25 $ 1.50
FISCAL 1997
First Quarter $ 2.50 $ 1.50
Second Quarter $ 2.88 $ 1.50
Third Quarter $ 2.75 $ 1.88
Fourth Quarter (through August 8, 1997) $ 2.50 $ 2.19
On June 16, 1997, the last full trading day prior to announcement of the
proposed Merger, the reported closing price per share of Canmax Common Stock
was $2.75. On August 8 , 1997, the most recent available date prior to
printing this Joint Proxy Statement/Prospectus, the reported closing price
per share of Canmax Common Stock was $2.375. RECIPIENTS OF THIS JOINT PROXY
STATEMENT/PROSPECTUS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE
CANMAX COMMON STOCK.
Canmax has never declared or paid any cash dividends on the Canmax
Common Stock and does not presently intend to pay cash dividends on the
Canmax Common Stock in the foreseeable future. Canmax intends to retain
future earnings for reinvestment in its business.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF CANMAX
The following table sets forth certain information regarding the
executive officers and directors of Canmax who are expected to be directors
and executive officers of the Combined Company.
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Roger D. Bryant 54 President, Chief Executive Officer,
and Director
Debra L. Burgess 39 Executive Vice President, Chief
Operating Officer, Secretary and
Director
Philip M. Parsons 39 Executive Vice President, Chief
Financial Officer,
Treasurer and Director
W. Thomas Rinehart 56 Director
Robert M. Fidler 58 Director
C. William Robertson 55 Director
ROGER D. BRYANT has served as President, Chief Executive Officer and a
director of Canmax since November 15, 1994. Prior to joining Canmax, Mr. Bryant
was President of Network Data Corporation (1993-1994),
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<PAGE>
a private corporation which specialized in developing software for the
convenience store and retail petroleum industries. Mr. Bryant has also served
as President of Wayne Division, USA (1991-1993), a division of Dresser
Industries Inc., a manufacturer of fuel dispensing equipment. Mr. Bryant has
extensive knowledge and experience in the software development, retail
petroleum and convenience store industries. Mr. Bryant holds a degree in
electrical engineering.
DEBRA L. BURGESS has served with the Company since 1989 in increasingly
responsible positions. Since November 1994, she has been the Company's Chief
Operating Officer and a director. Ms. Burgess has been the Secretary of the
Company since 1996. Prior to joining Canmax, Ms. Burgess was the Manager of
Retail Automation responsible for the selection and implementation of a
retail automation solution (1981-1989) at Fina Oil and Chemical Company, a
retail petroleum, petrochemical refining and exploration company. Ms.
Burgess is a Certified Public Accountant.
ROBERT M. FIDLER has served as a director of Canmax since November 1994.
Mr. Fidler joined Atlantic Richfield Company ("ARCO") in 1960, was a member
of ARCO's executive management team from 1976 to 1993 and was ARCO's manager
of New Marketing Programs from 1985 until his retirement in 1994. Mr. Fidler
has extensive knowledge and experience in managing retail petroleum
operations.
PHILIP M. PARSONS has served as Executive Vice President, Chief
Financial Officer and Treasurer since June 1995 and was elected a director of
the Company in December, 1995. Previously, Mr. Parsons was a Director of
International Financial Planning for KFC International (1994-1995)
responsible for international business and strategic planning and was based
in Louisville, Kentucky, and a Director of Financial Planning for KFC South
Pacific (Australia, New Zealand and South Africa) responsible for business
and strategic planning and was based in Sydney, Australia (1990-1994). KFC
(Kentucky Fried Chicken) is a fast food company and a division of PepsiCo
Inc. Mr. Parsons is a Chartered Accountant (Australia).
W. THOMAS RINEHART has served as a director since May, 1991. He was
co-founder and Executive Vice President of BASS Inc., from June 1981 until
his retirement in September 1992. BASS Inc., a private corporation, is a
supplier of retail automation hardware and software to the grocery store
industry. Prior to BASS Inc., Mr. Rinehart was with NCR from 1964 to 1981,
where he held various staff and management positions within its retail
software development divisions. Mr. Rinehart has extensive experience in
software development and retail automation.
C. WILLIAM ROBERTSON has served as a director of Canmax since May 1997.
Since 1994, Mr. Robertson has been the Vice President Brand Marketing for
Amoco Oil Company with responsibilities for all marketing activities of the
petroleum products division of Amoco. Mr. Robertson joined Amoco in 1964 and
has held several senior positions including Vice President of Commercial and
Industrial Sales (1992-1993) and Manager - Operations and Planning Department
(1991-1992). Mr. Robertson has significant experience in the petroleum and
convenience store industry.
A brief description of the business experience and position of additional
persons who are expected to serve as executive officers of the Combined
Company and its subsidiaries who are not also directors is provided below.
LYNN G. CHIANESE is Vice President of Customer Services of CRSI and has
served in that capacity since April 1993. Ms. Chianese joined Canmax in
September 1986 and has held positions of increasing responsibility. Prior to
joining Canmax, she was the Operations Manager for Darnell / Darcor, an
international manufacturing company.
STEVE COVINGTON has served with AGSI since 1985 in increasingly
responsible positions. Since 1996, he has been Vice President of Technical
Operations responsible for research and development, major account
management, customer support and related services.
WILLIAM C. DOOLITTLE is Vice President of Sales and Marketing of CRSI and
has served in that capacity since October 1996. Prior to joining Canmax, he
held several sales and marketing positions at PHH Corporation over 17 years,
including Director of Sales / Account Management and Vice President of Client
Relations. Immediately prior to joining Canmax, he was the Director of
Strategic Accounts for PHH Vehicle Management Services.
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<PAGE>
JEFFREY A. FISHER is Vice President, Domestic Sales of AGSI and has served
in that capacity since March 1997. Prior to joining the Company, he was
National Account Manager for Tokheim Corporation (1996-1997), an
international manufacturer of pumps and related equipment, with
responsibilities for national sales. Previously, he held senior sales
positions with AGSI (1987-1995) with responsibilities for the distributor
sales network and national accounts.
IVOR J. FLANNERY is Vice President of Advanced Research of CRSI and has
served in that capacity since January 1989. Mr. Flannery joined Canmax in
September 1983 and has held positions of increasing responsibility. Prior to
joining Canmax he was an Advanced Systems Engineer for a software development
company which developed point of sale systems for the retail petroleum
industry.
RICHARD STEPHENS, 43, is Vice President of Development of CRSI and has
served in that capacity since April 1995. Previously, he spent 7 years with
the Wayne Division of Dresser Industries Inc., a manufacturer of fuel
dispensing equipment, as Manager - Systems Software, responsible for
developing POS systems and applications.
Additionally, the following persons are expected to serve as directors
of Canmax following the Merger:
JOSEPH E. CANON, 55, has served as Executive Director of the Dodge Jones
Foundation, a private charitable foundation since 1982. Mr. Canon has broad
management and investment responsibilities and serves on the board of First
Financial Bankshares, a publicly traded bank holding company.
G. RANDY NICHOLSON, 60, has served as Chairman of the Board and
President of AGSI since its inception in 1986 and since May 1993,
respectively. Mr. Nicholson has extensive industry knowledge and experience
and has founded and/or served as director and executive officer of several
companies in related industries since 1971. Mr. Nicholson serves on the
Board of Trustees of Abilene Christian University and is a Certified Public
Accountant. Mr. Nicholson previously served as President, Vice-Chairman of
the Board of Directors and Director of AutoFuel Company ("AFCO"). In March
1993, AFCO filed for reorganization pursuant to Chapter 11 of the Bankruptcy
Code. AFCO's plan of reorganization was confirmed by the bankruptcy court in
June 1994. Mr. Nicholson resigned as President of AFCO in November 1994 and
served as a member of its Board of Directors until January 1997.
HENRY H. PETERS, 56, has served as a director of AGSI since 1990 and as
a trustee of Kamehameha Schools Bernice Pauahi Bishop Estate (KSBE), a
Hawaiian charitable trust since 1984. Mr. Peters has more than 20 years of
experience in politics serving as a Representative and Speaker of the House
in the Hawaii State Legislature. Mr. Peters has extensive business
experience and currently serves or has served as a director of several U.S.
and international companies and financial institutions. Mr. Peters served as
a Director of AFCO until March 1993, when AFCO filed for reorganization
pursuant to Chapter 11 of the Bankruptcy Code.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by Canmax and its
subsidiaries during the years ended October 31, 1996, 1995 and 1994 for
services in all capacities to each of Canmax's chief executive officer and
the four highest paid executive officers (the "Named Executive Officers") of
Canmax whose total annual salary and bonus exceeded $100,000.
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<PAGE>
<TABLE>
Long-Term
Compensation
Annual Compensation Awards Awards
------------------------------------------- ------
Other Securities
Bonus ($) Annual Underlying
Name and Principal Position Year Salary ($) (1) Compensation Options (#)
- ----------------------------- ---- --------- ------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Roger D. Bryant 1996 169,750 73,920 18,733(2) 210,000
President & CEO 1995 149,827 10,000 - 35,000
1994 - - - -
Debra L. Burgess 1996 118,542 40,320 - 69,000
Executive Vice President 1995 104,260 4,000 - 15,800
Chief Operating Officer 1994 78,339 30,000 - -
Secretary
Philip M. Parsons 1996 108,750 36,900 - 55,000
Executive Vice President 1995 36,070 4,000 - 10,000
Chief Financial Officer 1994 - - - -
Treasurer
Ivor Flannery 1996 94,050 21,056 - 15,000
Vice President- 1995 91,055 12,750 - -
Advanced Research (3) 1994 83,469 - - 11,000
Richard Stephens 1996 94,000 21,056 - 20,000
Vice President- 1995 52,724 4,500 - 5,000
Development (3) 1994 - - - -
</TABLE>
(1) Reflects bonus earned during the fiscal year but paid during the next year.
(2) Reflects compensation associated with relocation expenses incurred by Mr.
Bryant.
(3) Reflects positions held with Canmax's subsidiary, CRSI.
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
Messrs. Bryant, Parsons and Ms. Burgess serve as executive officers of CRSI
pursuant to written employment agreements that commenced July 1, 1997. Each
employment agreement provides these executives certain benefits and protections
upon a "Change of Control," which is defined to occur (i) at any time a person
acquires in excess of thirty percent of the combined voting power of the
outstanding securities of CRSI or Canmax, (ii) if, at any time during the
twenty-four month period following a merger, tender offer, consolidation, sale
of assets or contested election, or any combination thereof, at least a majority
of the Canmax Board shall cease to consist of either (a) directors who served
prior to such transaction or (b) directors whose nomination for election by the
stockholders of Canmax was approved by at least two-thirds of all directors then
serving, or (iii) at any time the stockholders of Canmax approve an agreement to
sell or dispose of all or substantially all of the assets of CRSI or Canmax.
Each employment agreement specifically excludes the proposed Merger with AGSI
from the Change of Control definition. Each employment agreement also permits
CRSI to terminate the executive for "Cause", meaning a termination as a result
of (a) acts of dishonesty constituting a felony or intended to result in
substantial gain for personal enrichment at the expense of CRSI or Canmax, or
(b) the willful and continued failure to substantially perform such person's
duties and responsibilities following a demand for substantial performance by
CRSI or Canmax. Each employment agreement prohibits the executive from engaging
in any activities in competition with CRSI or Canmax during the employment term
and prohibits the executive from soliciting any
49
<PAGE>
employees, customers or clients of Canmax or CRSI during the 2-year period
following any voluntary termination by the executive or termination for Cause.
The employment agreements with Messrs. Bryant, Parsons and Ms. Burgess also
provide for the issuance of warrants ("Performance Warrants") to each executive
as additional employment compensation. Each Warrant expires 10 years from the
date of issuance, and is exercisable at a price of $2.25 per share, the closing
price of the Canmax Common Stock on July 17, 1997, the date that the
compensation committee approved the issuance of such warrants. The Performance
Warrants vest 50% upon the "Trigger Date" and 50% on the one-year anniversary
of the Trigger Date. As used in each employment agreement, the Trigger Date
means the date of the earlier of the following events: (i) the earnings per
share of Canmax (after tax) equals or exceeds $0.30 per share during any fiscal
year, (ii) the closing price of the Canmax Common Stock equals or exceeds $8.00
per share for sixty-five consecutive trading days, or (iii) a Change of Control.
Mr. Bryant's employment agreement expires June 30, 1999. Mr. Bryant is
entitled to receive an annual base salary of $185,000 and to participate in any
bonus programs established by the Canmax Board. Upon execution of his
employment agreement, Mr. Bryant was also granted Performance Warrants to
acquire 250,000 shares of Canmax Common Stock. Pursuant to the terms of his
agreement, Mr. Bryant may elect to voluntarily terminate his employment within
90 days following a Change of Control and receive a lump sum payment equal to
one year's base salary. If Mr. Bryant is terminated during his employment
period without Cause, he will be entitled to continue to receive his base salary
and benefits for a period of two years and an amount equal to any bonus paid
during the preceding 12 months (payable in 24 monthly installments) in
accordance with CRSI's standard payroll cycle; provided, however, that such
amounts shall be payable in a lump sum following a Change of Control.
Ms. Burgess' employment agreement expires June 30, 1998. Ms. Burgess is
entitled to receive an annual base salary of $140,000 and to participate in any
bonus programs established by the Canmax Board. Upon the execution of her
employment agreement, Ms. Burgess was also granted Performance Warrants to
acquire 125,000 shares of Canmax Common Stock. Pursuant to the terms of her
agreement, Ms. Burgess may elect to voluntarily terminate her employment within
90 days following a Change of Control and receive a lump sum payment equal to
one year's base salary. If Ms. Burgess is terminated during her employment
period without Cause, she will be entitled to continue to receive her base
salary and benefits for a period of one year and an amount equal to 50% of any
bonus paid during the preceding 12 months (payable in 12 monthly installments)
in accordance with CRSI's standard payroll cycle; provided, however, that such
amounts shall be payable in a lump sum following a Change of Control.
Mr. Parsons' employment agreement expires June 30, 1998. Mr. Parsons is
entitled to receive an annual base salary of $125,000 and to participate in any
bonus programs established by the Canmax Board. Upon the execution of his
employment agreement, Mr. Parsons was also granted Performance Warrants to
acquire 100,000 shares of Canmax Common Stock. Pursuant to the terms of his
agreement, Mr. Parsons may elect to voluntarily terminate his employment within
90 days following a Change of Control and receive a lump sum payment equal to
one year's base salary. If Mr. Parsons is terminated during his employment
period without Cause, he will be entitled to continue to receive his base salary
and benefits for a period of one year and an amount equal to 50% of any bonus
paid during the preceding 12 months (payable in 12 monthly installments) in
accordance with CRSI's standard payroll cycle; provided, however, that such
amounts shall be payable in a lump sum following a Change of Control.
Upon consummation of the Merger, Steve Covington is anticipated to
execute an employment agreement with CRSI for a one year term, pursuant to
which he will be entitled to receive an annual base salary of $100,000 and to
participate in any bonus programs established by the Canmax Board. Mr.
Covington's employment agreement will contain "Change of Control" and "Cause"
definitions and provisions similar to Mr. Parsons' and Ms. Burgess'.
Pursuant to the terms of his agreement, Mr. Covington would be entitled to
elect to voluntary terminate his employment within 90 days following a Change
of Control and receive a lump sum payment equal to one year's base salary.
If Mr. Covington were to be terminated during his employment without Cause,
he would be entitled to continue to receive his base salary and benefits for
a period of one year and an amount equal to 50% of any bonus paid during the
preceding 12 months (payable in 12 monthly installments) in accordance with
CRSI's regular payroll cycle; provided, however, that such amounts shall be
payable in a lump sum following a Change of Control. Mr. Covington's
employment agreement prohibits him from competing with CRSI during the
employment term and prohibits him from soliciting any employee, consultant,
supplier or customer of CRSI or Canmax during the two year period following
his voluntary termination of the agreement or a termination for Cause. The
agreement also provides for the vesting of all of his options to acquire
shares of AGSI Common Stock held by Mr. Covington (which options will be
assumed by Canmax in the Merger) following a Change of Control.
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STOCK OPTIONS
The Board of Directors introduced a stock option plan (the "Stock Option
Plan"), pursuant to a resolution dated March 29, 1990, in the form approved by
Canmax's shareholders at an annual general meeting held March 20, 1990.
The Stock Option Plan authorizes the Directors to grant options to purchase
common shares of Canmax provided that, when exercised, such options will not
exceed 1.2 million shares of Canmax Common Stock and no options will be granted
to any individual director or employee which will, when exercised, exceed 5% of
the issued and outstanding shares of Canmax. The term of any option granted
under the Stock Option Plan is fixed by the Board of Directors at the time the
options are granted, provided that the exercise period may not be longer than 10
years from the date of granting. The exercise price of any options granted under
the Stock Option Plan is the fair market value at the date of grant.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to stock options
pursuant to Canmax's stock option plans granted to the Named Executive Officers
during fiscal year ended October 31,1996.
<TABLE>
Potential
Realizable Value at Assumed
Individual Grants Annual Rates of Stock Price
Appreciation for Option Term (1)
------------------------------------------------ --------------------------------
% of Total
Number of Options
Securities Granted to
Underlying Employees Exercise Expiration
Options in Fiscal Price Date 5% 10%
Name Granted Year ($/Sh) ($) ($)
---- ------------------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Roger D. Bryant
10,000 2.00 7/22/01 5,526 12,210
50,000 2.25 12/28/00 31,082 68,682
50,000 2.25 12/28/01 38,261 86,801
50,000 2.25 12/28/02 45,799 106,731
50,000 2.25 12/28/03 53,714 128,654
------------------------ --------------------
210,000 33% 74,381 403,078
Debra L. Burgess
19,000 2.00 7/22/01 10,499 23,199
12,500 2.25 12/28/00 7,770 17,171
12,500 2.25 12/28/01 9,565 21,700
12,500 2.25 12/28/02 11,450 26,683
12,500 2.25 12/28/03 13,428 32,163
------------------------ --------------------
69,000 11% 52,712 120,916
Philip M. Parsons
5,000 2.00 7/22/01 2,763 6,105
12,500 2.25 12/28/00 7,770 17,171
12,500 2.25 12/28/01 9,565 21,700
12,500 2.25 12/28/02 11,450 26,683
12,500 2.25 12/28/03 13,428 32,163
------------------------ --------------------
55,000 9% 44,977 103,822
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Ivor J. Flannery
3,750 2.25 12/28/00 2,331 5,151
3,750 2.25 12/28/01 2,870 6,510
3,750 2.25 12/28/02 3,435 8,005
3,750 2.25 12/28/03 4,029 9,649
------------------------ --------------------
15,000 2% 12,664 29,315
Richard Stephens
5,000 2.25 12/28/00 3,108 6,868
5,000 2.25 12/28/01 3,826 8,680
5,000 2.25 12/28/02 4,580 10,673
5,000 2.25 12/28/03 5,371 12,865
------------------------ ------- ------
20,000 3% 16,885 39,087
</TABLE>
(1) Based upon the per share market price on the date of grant and on annual
appreciation of such market price through the expiration date of such options at
the stated rates. These amounts represent assumed rates of appreciation only
and may not necessarily be achieved. Actual gains, if any, are dependent on the
future performance of the Common Stock, as well as the continued employment of
the Named Executives through the vesting period. The potential realizable
values indicated have not taken into account amounts required to be paid as
income tax under the Internal Revenue Code of 1986, as amended, and any
applicable state laws.
No other annual or long-term compensation was received or is receivable by the
executive officers named above in respect of employment in 1996 or prior years.
The following table sets forth information with respect to each exercise of
stock options during fiscal 1996, by each of the Named Executive Officers and
the number of options held at fiscal year end and the aggregate value of
in-the-money options held at fiscal year end. None of the Named Executive
Officers exercised options in fiscal 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
<TABLE>
Number of
Securities Value of
Underlying Unexercised
Unexercised "In-the-Money"
Options at Options at
SharesFY-End (#) FY-End ($)
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Roger D. Bryant 0 0 95,000 150,000 0 0
Debra L. Burgess 0 0 60,300 37,500 0 0
Philip M. Parsons 0 0 27,500 37,500 0 0
Ivor J. Flannery 0 0 22,750 11,250 0 0
Richard Stephens 0 0 10,000 15,000 0 0
</TABLE>
52
<PAGE>
The following table sets forth certain information concerning the repricing of
options held by Named Executive Officers during the 1996 fiscal year. See
"Compensation Committee Report," below, for information concerning the repricing
of options during the fiscal year ended October 31, 1996.
<TABLE>
Name and Date Number of Market Price Exercise New Exercise Length of
Position Securities of Stock at Price at Time Price ($) Original
Underlying Time of of Repricing Option Term
Options Repricing or or Remaining at
Repriced or Amendment Amendment Date of
Amendent (#) ($) ($) Repricing or
Amendment
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Debra L. Burgess 12/29/95 5,000 $2.25 $5.00 $2.25 05/12/97
Executive Vice
President, Chief
Operating
Officer 8,000 $2.25 $5.00 $2.25 11/10/98
Ivor J. Flannery 12/29/95 5,000 $2.25 $6.25 $2.25 10/01/99
Vice President - 6,000 $2.25 $5.00 $2.25 08/25/99
Advanced Research
Canmax Retail Systems Inc. 8,000 $2.25 $5.00 $2.25 05/12/97
</TABLE>
On October 31, 1996, there were 1,051,050 outstanding stock options with a
weighted average exercise price of $3.04 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Canmax has no interlocking relationships involving any of its
Compensation Committee members which would be required by the Commission to
be reported herein, and no officer or employee of Canmax serves on its
Compensation Committee.
COMPENSATION COMMITTEE REPORT
In fiscal 1996, Canmax's Compensation Committee consisted of all four
outside directors; Messrs. DeMare, Fidler, Seay and Rinehart. The Committee
was responsible for determining the compensation of Canmax's executive
officers and other key senior employees, including Roger D. Bryant, Canmax's
Chief Executive Officer, (the "Chief Executive").
DETERMINATION OF CEO AND EXECUTIVE OFFICER COMPENSATION. Canmax has
strived to structure its executive compensation programs in a manner designed
to attract and retain a talented and capable management team, and to provide
appropriate compensation based on that team's achievement of financial
performance objectives. During fiscal 1996, the Compensation Committee held
primary responsibility for determining the compensation of the Chief
Executive, and for approving the determinations of compensation paid to other
officers and senior executives, as proposed by the Chief Executive.
Compensation is normally paid to the Chief Executive in the form of base
compensation, bonus compensation and the granting of options to buy shares of
Canmax's Common Stock at then prevailing market prices. Each year the Board
of Directors of Canmax sets forth certain financial performance objectives
for Canmax. Canmax's ability to meet such targeted financial goals, and the
Chief Executive's previous base compensation level, are the most important
criteria utilized by the Compensation Committee in determining the
compensation of the Chief Executive, although the Compensation Committee
reviews other factors, including the compensation awarded
53
<PAGE>
to chief executive officers of similar corporations. Based on a review of
such criteria, the Compensation Committee will determine the annual base and
bonus compensation of the Chief Executive. In addition, the Compensation
Committee may grant stock options in order to align the interests of the
Chief Executive with those of the shareholders. With respect to the Chief
Executive's compensation during fiscal 1996, the Compensation Committee
primarily considered Canmax's financial performance and the previously
existing compensation level of the Chief Executive.
Compensation to other executive officers is also provided in the form of
base compensation, bonus compensation and the granting of stock options.
Base compensation is determined based on industry norms associated with the
position held by the executive and the recommendation of the Chief Executive,
while bonus compensation is normally linked to specific shorter-term (e.g.,
one to three years) financial performance objectives. Stock options are
granted to align the interests of the executive officers with those of the
shareholders. The Chief Executive is principally responsible for the
performance assessment of individual executive officers and provides his
recommendations to the Compensation Committee for its review and approval.
STOCK OPTION REPRICING. Canmax's Stock Option Plan is intended to provide
directors, executives and other key employees with increased motivation and
incentive to exert their best efforts on behalf of Canmax through the
opportunity to benefit from appreciation in the value of the Common Stock. Due
to declines in the price of the Common Stock, certain options outstanding under
the Stock Option Plan were exercisable at prices which exceeded the then current
market value of the Common Stock. In order to restore the incentive value to
such options, the Compensation Committee in December 1995, approved the
repricing of certain options held by employees, including certain Named
Executives.
On December 29, 1995, outstanding employee stock options with respect to
87,100 shares of Common Stock, with exercise prices ranging from $5.00 to $ 6.25
per share, were repriced at an exercise price of $2.25 per share, the market
price of the Common Stock on that date. All other terms and conditions of the
repriced options remained the same. The Committee believes that by repricing
these options, Canmax has restored the incentive for such employees that was
intended to be provided by the prior grant of such options.
COMPENSATION COMMITTEE:
Nick DeMare
Robert M. Fidler
W. Thomas Rinehart (Chairman)
Gerald R. Seay
54
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT
The following table sets forth (a) certain information as of July 31,
1997, concerning those persons known to Canmax, based on information obtained
from such persons, Canmax's records and schedules required to be filed with
Canmax, with respect to the beneficial ownership of Canmax's Common Stock by
(i) each shareholder known by Canmax to own beneficially 5% or more of such
outstanding Common Stock, (ii) each current director of Canmax, (iii) each
Named Executive Officer and (iv) all executive officers and directors of
Canmax as a group, and (b) the effect of the Merger on percentage ownership
by such persons and persons who will hold in excess of 5% of Canmax's Common
Stock outstanding following the Merger. Except as otherwise indicated below,
each of the entities or persons named in the table has sole voting and
investment power with respect to all shares of Common Stock beneficially
owned. Effect has been given to shares reserved for issuance under
outstanding stock options and warrants where indicated.
Shares Shares
Beneficially Owned Beneficially Owned
Before the Merger After the Merger
------------------ -----------------
Name and Address of Beneficial Owner Number Percent(1) Number Percent(2)
- ------------------------------------ ------ ------- ------ -------
Dodge Jones Foundation 1,000,000 15.1% 1,375,140 11.6%
400 Pine Street, Suite 900
Abilene, Texas 79601
Joseph E. Canon 1,000,000(3) 15.1% 1,375,140(3) 11.6%
Dodge Jones Foundation
P.O. Box 176
Abilene, Texas 79604
Founders Equity Group 913,364(4) 13.7% 913,364(4) 7.7%
2602 McKinney, Suite 220
Dallas, Texas 75204
Kamehameha Schools Bernice
Pauahi Bishop Estate 0 0 1,354,901 11.5%
567 South King Street
Honolulu, Hawaii 96813
Henry H. Peters 0 0 1,354,901(5) 11.5%
Kamehameha Schools Bernice
Pauahi Bishop Estate
567 South King Street
Honolulu, Hawaii 96813
Roger D. Bryant (6) 150,000(7) 2.2% 150,000(7) 1.3%
Nick DeMare 46,880(8) * 46,880(8) *
Chase Management
1090 West Georgia Street, Suite 1305
Vancouver, BC V6E 3V7
W. Thomas Rinehart 101,600(9) 1.5% 101,600(9) *
700 Freeling Drive
Sarasota, Florida 34242
55
<PAGE>
Philip M. Parsons (6) 45,400(10) * 45,400(10) *
Debra L. Burgess (6) 79,800(11) 1.2% 79,800(11) *
Ivor J. Flannery (6) 69,718(12) 1.1% 69,718(12) *
Robert M. Fidler 25,000(13) * 25,000(13) *
987 Laguna Road
Pasadena, California 91105
C. William Robertson 5,000(14) * 5,000(14) *
276 Browning Court
Wheaton, Illinois 60187
Richard Stephens (6) 15,000(15) * 15,000(15) *
G. Randy Nicholson 0 0 1,680,831(16) 13.4%
AutoGas Systems, Inc.
1202 Estates Drive, Suite D
Abilene, Texas 79602
All Executive Officers and
Directors as a group (11 and
16 persons, respectively) 557,398 7.9% 5,085,088 38.7%
* Less than 1.0%
1. Based upon 6,611,005 shares of Canmax Common Stock outstanding as of July
31, 1997.
2. Based upon 11,816,456 shares of Canmax Common Stock outstanding following
the Merger, assuming 5,205,451 shares of Canmax Common Stock are issued in
the Merger.
3. Includes 1,375,140 shares held by Dodge Jones Foundation, of which Mr.
Canon serves as the Executive Director. As such, Mr. Canon exercises
voting power over all of such shares.
4. Includes 50,000 shares subject to presently exerciseable warrants.
5. Includes 1,354,901 shares held by Kamehameha Schools Bernice Pauahi Bishop
Estate, of which Mr. Peters serves as the Trustee. As such, Mr. Peters
exercises voting power over all of such shares.
6. The business address for Canmax executives is 150 West Carpenter Freeway,
Irving, Texas 75039.
7. Includes 150,000 shares of Common Stock which may be acquired through the
exercise of stock options which are exercisable within 60 days of July
31, 1997 ("Vested Options").
8. Includes 36,600 Vested Options.
9. Includes 35,000 Vested Options.
10. Includes 45,000 Vested Options.
11. Includes 77,800 Vested Options.
56
<PAGE>
12. Includes 26,500 Vested Options.
13. Includes 20,000 Vested Options.
14. Includes 5,000 Vested Options.
15. Includes 15,000 Vested Options.
16. Includes 481,677 shares subject to presently exercisable warrants; 285,000
shares subject to warrants to be issued at close to Mr. Nicholson as part
of a non-competition agreement; 33,762 shares held by Barbara Nicholson,
wife of Mr. Nicholson; and 8,103 shares held in trust of which Mr.
Nicholson as trustee has sole voting power.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the first quarter of 1995, a director, W. Thomas Rinehart
advanced Canmax $250,000. The advance was unsecured and had an interest rate
of 10%. The principal balance was due on demand. Principal payments of
$95,765 were repaid during the six months ended April 30, 1997, which fully
satisfied Canmax's obligation.
On April 30, 1997, Founders Equity Group, Inc. ("Founders") acquired
from EDS 863,364 shares of Canmax Common Stock in a private transaction, in
connection with which Canmax agreed to extend to Founders certain
registration rights similar to those previously held by EDS. On May 9, 1997,
Founders exercised its right to demand that Canmax file a registration
statement with regard to all of its shares of Canmax Common Stock. Under
applicable securities laws, Canmax was unable to file the Founders
registration statement until after the filing of the registration statement
of which this Joint Proxy Statement/Prospectus forms a part. Pursuant to the
terms of the registration rights agreement with Founders, Canmax was to have
filed a registration statement on or about July 23, 1997 or incur a
registration penalty of 50,000 shares per month. Founders has agreed to
extend the registration obligation until August 26, 1997 in exchange for its
receipt of a warrant to acquire 50,000 shares of Canmax Common Stock at an
exercise price of $2.00 per share. In addition, in May of 1997, Canmax
retained Founders to provide advisory services regarding the proposed Merger
with AGSI, and agreed to pay to Founders a fee of $25,000 for such services.
On April 30, 1997, the Dodge Jones Foundation acquired from EDS
1,000,000 shares of Canmax Common Stock in a private transaction, in
connection with which Canmax agreed to extend to the Dodge Jones Foundation
certain registration rights similar to those previously held by EDS. Joseph
E. Cannon, the Executive Director of the Dodge Jones Foundation, is
anticipated to serve as a member of the Canmax Board following the Merger.
INFORMATION CONCERNING AGSI
BUSINESS
Auto-Gas Systems, Inc. ("AGSI") provides software applications to
selected markets within the retail petroleum industry offering fully
integrated retail automation solutions including point-of-sale (POS) systems,
back office management systems and headquarters-based management systems for
gas and convenience stores, as well as site control systems for traditional
retail fuel outlets, alternative fuel outlets and private fleet fueling
sites. AGSI's products enable its customers to automate their transactions
with customers, communicate electronically with debit/credit networks,
generate management reports, and manage operations by site, providing
necessary data for decision making in the operation of a gas/convenience
store. In addition, AGSI provides custom software development services,
project management services, technical support and repair services to its
customers.
57
<PAGE>
AGSI's predecessor pioneered "pay-at-the-pump" technology in 1981, which
enabled consumers to activate fueling pumps by swiping a magnetic stripe
credit, debit or proprietary fleet card. AGSI continued to innovate new
technology when, in the late 1980s, it introduced "controllers" for card
readers built into the dispenser. Prior to the introduction of this
technology, pay-at-the-pump was limited to stand alone card readers usually
located at commercial fueling depots and private sites. AGSI's technology
solution interfaces with an assortment of fuel dispensers and over 40
credit/debit card networks, including proprietary materials of major oil
companies and third party electronic payment networks.
AGSI acquired a PC based convenience store automation solution in July
1992 with an existing installed base of approximately 1,500 sites. The
acquisition of this "inside the store" solution vertically integrated with
the existing pay-at-the-pump solution, thereby giving AGSI a product line
that provided a total solution from the fueling island and cash register to
the customer's back office accounting. AGSI currently has over 1,000
customers and an installed base of over 9,500 sites for all products.
COMPANY OPERATIONS
AGSI traces its end-user focus to its history as a gasoline marketing
company. Each product line is designed around features most desired by the
end-users. The product line consists of automation solutions for fuel
islands and convenience store operations. The product development plan
includes seamless consolidation and integration of island and in-store
automation technology.
AGSI's fuel island automation products consist of hardware and software
for use in the attended or unattended sale of gasoline products in both
retail and commercial operations where the marketer wishes to accommodate
several payment methods such as credit and debit cards, private fleet or
fleet network cards, and cash. These products allow the marketer to operate
its petroleum sales in a totally self-service mode. With the Auto-Gas
solution, a customer has the capability to insert a credit, debit or
proprietary card, enter a Personal Identification Number (PIN) if applicable,
select a pump number, indicate the specific amount of fuel desired, and
proceed to pump the fuel.
STOREMASTER-TM-, AGSI's convenience store automation solution, is a
PC-based, store level software that gathers information electronically and/or
manually from existing equipment in stores for the purpose of automating
transactions and inventory control. It consists of four modules: Cashier's
Work Station, Manager's Work Station, Home Office System, and Price Book
System. These products can be used in tandem as a fully integrated system or
as stand-alone modules.
The store automation products that are currently offered are supported
by the DOS operating system. AGSI has begun rewriting its modules in a new
programming language which will run on the Windows NT-based operating system.
Although, because of the inherent difficulties in developing software, AGSI
can offer no assurance of any delivery date, it is anticipated that some of
these modules will be available in the third quarter of the 1997 calendar
year.
AGSI's major products include:
SITE CONTROLLERS - electronic microchip devices that control and
authorize communication between the fuel dispensers, card readers in
dispensers, island card readers and credit/debit networks.
ISLAND CARD READERS - a customer interface terminal featuring a magnetic
stripe card reader and receipt printer. The card reader is used for
receiving a fuel customer's card information and printing the receipt upon
completion of the transaction.
CONVENIENCE STORE MANAGEMENT SOFTWARE - software modules that manage,
control and report store operating data such as In-store and fuel island
point-of-sale transactions, inventory, personnel time and attendance
58
<PAGE>
for the purpose of managing store operations and providing data to interface
to the headquarters general ledger system.
POINT-OF-SALE HARDWARE - IBM-compatible retail point-of-sale terminals
that include a computer, keyboard, credit card reader, receipt printer and
monitor. These terminals are sometimes sold in conjunction with AGSI's
convenience store software solutions.
CUSTOM SOFTWARE DEVELOPMENT - AGSI contracts with some customers to add
customized features to its products and to develop proprietary interfaces
from AGSI software/hardware to specified credit/debit networks.
PRODUCT APPLICATION.
AGSI's products are used primarily to control and manage the business
processes surrounding retail point-of-sale transactions and inventory at
conveniences stores and various types of fueling centers. It developed its
proprietary product line to interface and control various peripheral devices
used in the petroleum retail industry, such as fuel tank monitors, automated
car washes, money order machines, and various types of fuel dispensers. A
significant use of AGSI's various products consists of the specific software
interfaces that have been developed for over 40 company and third party
credit/debit networks. These networks allow for automatic authorization of
credit and debit transactions at the fuel island and in the store.
AGSI's markets are primarily driven by its product applications. As
shown below, each major market served by AGSI product line requires differing
product applications.
- --------------------------------------------------------------------------------
MARKETS/TYPES OF CUSTOMERS PRODUCT APPLICATION
- --------------------------------------------------------------------------------
Convenience Store Fuel Island
Management Management
- --------------------------------------------------------------------------------
Convenience Stores with Gasoline Sales X X
- --------------------------------------------------------------------------------
Convenience Stores without Gasoline Sales X
- --------------------------------------------------------------------------------
Travel Centers X X
- --------------------------------------------------------------------------------
Retail Fueling Centers (petroleum product focus) X
- --------------------------------------------------------------------------------
Fleet Fueling Centers (public and private) X X
- --------------------------------------------------------------------------------
Grocery Chains X
- --------------------------------------------------------------------------------
Mass Merchandise Chains X
- --------------------------------------------------------------------------------
Alternative Fuel Sites (public and private) X X
- --------------------------------------------------------------------------------
SALES AND MARKETING STRATEGIES.
LOCATION - AGSI markets its products through a variety of channels.
Fuel automation solutions are marketed primarily through distributors devoted
to petroleum equipment. This channel is supported by a regionally focused
AGSI sales force. The convenience store solutions are marketed directly by
AGSI's sales force, selected petroleum equipment distributor contractors and
value-added resellers that specialize in point-of-sale equipment product
lines.
59
<PAGE>
AGSI's target markets include convenience store chains and travel
centers consisting of 30 sites or more, grocery store and mass merchandise
chains, fleet fueling centers, and alternative fuel centers.
Competition in these markets varies in strength with the convenience
store market displaying intense competition. Many disparate companies
compete for the installed base with the competition ranging from large fuel
dispenser companies that offer automation products with their dispensers to
small software development companies. The products offered and their degree
of integration also vary greatly depending on the seller. This intense
competition in the convenience store vertical market derives from the
increasingly complex technology requested by the users. The market looks to
the technology solutions currently available in grocery chains and other
large retailers as its model for the future.
Less intense competition drives the newer markets for fuel automation.
AGSI is attempting to gain a competitive advantage by marketing fuel
automation solutions to grocery and mass merchandise chains, although no
assurance can be given that it will be successful in doing so.
In the fleet fueling center, travel center, and alternative fueling
center markets, moderate competition prevails. AGSI enjoys a long-standing
presence in these markets with a reputation as the innovator of automation
products.
PRICE - AGSI solutions are typically priced on the "high-end" of the
market because of their functionality as an interface with a variety of
credit/debit networks, as well as the marketplace experience possessed by
AGSI's technicians. AGSI's pricing strategy follows accordingly.
PRODUCT - While AGSI traces its beginnings to fuel automation
technology, the current strategy is to offer modular and integrated solutions
for automation of all areas of the fuel island and convenience store. AGSI
believes that its large number of credit/debit network interfaces provides it
with a strategic, competitive advantage. The interfaces alone create a
separate product line that is positioned for sale to competing automation
solution marketers.
PROMOTION - AGSI uses a variety of promotion strategies, relying
primarily on participation in major industry trade shows and national
advertising in industry-specific trade magazines. AGSI enjoys a
long-standing identification with technology equipment and hardware; however,
over time, AGSI's emphasis has shifted to application/solution development to
focus on opportunities for growth within the industry. By offering an
integrated solution with custom interfaces for a customer's credit/debit
network needs, AGSI can facilitate sales of automation hardware as an
integrated package. Thus, in national advertising and trade show product
demonstrations, AGSI now emphasizes its software and solution development
capabilities.
PRODUCTS AND SERVICES
AGSI offers fully integrated as well as modular stand-alone solutions
that enable retailers of fuel products and convenience items to streamline
and improve operating efficiencies, providing more time for improved customer
service. Its products are designed to track and route transaction
information between stores and headquarters, providing micro and macro level
data at all levels of management. AGSI sells not only proprietary solutions
(software and hardware), but also third-party products to enhance a
customer's capabilities with only one sale.
AGSI's product line can also be categorized by the retail business
process that it supports. The overall retail transaction process includes
two distinct sub-processes: (1) the point-of-sale transaction and (2) the
recording, processing and reporting of the transaction data, typically
referred to as back-office or headquarters processes. As shown below, AGSI's
products support these retail business processes for a variety of functions.
60
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
PROCESS PRODUCT APPLICATION PRODUCT NAME/CATEGORY FUNCTIONALITY
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Point of Sale Convenience Stores STOREMASTER Software - Integrated Fuel and
Merchandise Control
- Cashier's Work Station - Scanning
- Cash Control
- Fuel Island Control
- Vendor and Product Management
- Product Price/Cost Management
- -------------------------------------------------------------------------------------------------------------------------------
Point of Sale Fuel Islands Fuel Island Card Readers - Provides "Pay-at-the-Pump"
- Customer Interface Terminal via
works in tandem with an - Club Cards (access cards)
AutoGas Site Controller - Proprietary Cards
- Island Master Terminal - Retail Cards
- a customer interface - Bank Credit/Debit Cards
terminal with an - Major Oil Company Cards
integrated site controller - Unattended Fueling Automation
- -------------------------------------------------------------------------------------------------------------------------------
Back Office/ Convenience Store Chain STOREMASTER Software - Executive Information
Headquarters Headquarters - Home Office System - Electronic Price Book
Process - Price Book System - Centralized Cost/Inventory Management
- Balancing/Auditing
- -------------------------------------------------------------------------------------------------------------------------------
Back Office/ Convenience Store Back STOREMASTER Software - Captures POS data electronically
Headquarters Office - Manager's Work Station - Shift Reporting
Process - Inventory Control
- Vendor/Price/Cost Management
- -------------------------------------------------------------------------------------------------------------------------------
Back Office/ Fueling Center Site - Site Management System Site-by-Site Information Management
Headquarters Management - Headquarters Software for Retail and Fleet Fueling Centers
Process - Inventory/Environmental - Tank Monitor Interfaces
Management System Software - Fuel Price Management
- Fleet/Proprietary Card Program Management
- Transaction Collection and Reporting
- -------------------------------------------------------------------------------------------------------------------------------
Ancillary Products Services Consulting - Custom application features
& Services Training - System Design and Implementation
Software Maintenance - End-User Support
Technical Support - Software Maintenance Support
Custom Development &
Integration
- -------------------------------------------------------------------------------------------------------------------------------
61
<PAGE>
- -------------------------------------------------------------------------------------------------------------------------------
PROCESS PRODUCT APPLICATION PRODUCT NAME/CATEGORY FUNCTIONALITY
- -------------------------------------------------------------------------------------------------------------------------------
Ancillary Products Convenience Store Point- - IBM SurePOS 4694 Point-of- - Modular or integrated hardware design
& Services of-Sale Hardware Sale Terminal includes these options:
- IBM SureOne Point-of-Sale computer processor, monitor, printer,
Terminal customer display, magnetic strip reader,
scanner and cash drawer.
- Network ready
- Industry-standard personal computer
hardware
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MARKETS
CONVENIENCE STORE/TRAVEL CENTER MARKET - Convenience stores and travel
centers place a primary emphasis on providing the public with a convenient
location to quickly purchase a wide array of consumable products,
predominantly food, beverages, and gasoline. AGSI's products and services aid
in the automated and convenient delivery of these products, thereby allowing
managers and employees to work more efficiently.
Products available to this market include STOREMASTER-TM-, Site Master
Controllers, and Island Card Readers.
AGSI sells its products and services to this highly competitive industry
through contracted distributors as well as a channel mixture of direct
selling and value added resellers. An experienced sales force personally
directs the majority of sales. Each of these salesmen is trained to find
the configuration which best meets the needs of the individual customer. The
value added resellers are typically computer and point-of-sale hardware
resellers that wish to complement their hardware sales with software
solutions.
These market segments accounted for 88.3% of AGSI's total revenues in
fiscal 1996 and 84.6% of AGSI's total revenues in fiscal 1995. Major
convenience store accounts include Circle K Stores, Inc., The Southland
Corporation, and BHP Hawaii (the aggregate of these three accounts equaled
35.7% and 32.0% of total revenue in fiscal 1996 and 1995, respectively).
In the convenience store software market, AGSI competes with companies
such as: Professional DataSolutions, Inc., The Pinnacle Corporation, Radiant
Systems, COPES , Verifone, Ltd., Dresser Industries, Inc. (Wayne Division),
Gilbarco, Inc., Tokheim Corporation, Stores Automated Software, Inc.,
Matsushita Electric Corporation of America (Panasonic), The Software Works,
CDR Corporation and others.
GROCERY/MASS MERCHANDISING STORE MARKETS - AGSI now targets a new
market, grocery and mass merchandise chains. Sales began in this market in
fiscal 1996 with grocery stores installing unattended fueling sites.
Establishing fueling sites allows them to provide a new service for their
already loyal customers and use remote areas of their parking lots to
increase profits.
Grocery and mass merchandise chains will typically operate their retail
fueling center in an unattended environment, which means that they will
utilize card readers in dispensers and a site controller to automate the
fueling process, eliminating the need for labor at the fueling site. Products
used are the Site Master Controllers, Island Card Readers, Site Management
System Software and Inventory/Environmental Management Systems Software.
62
<PAGE>
These market segments accounted for 0.3% of AGSI's total revenue in
fiscal 1996. AGSI's major customers in these markets include HEB, a
Texas-based grocery chain; Brookshire Brothers, a grocery chain; and Price
Costco, a Seattle-based mass merchandise chain.
FLEET FUELING CENTERS - Fleet Fueling Centers are typically operated as
unattended private fueling centers; however, many retail fueling centers are
adding fleet networks to their list of accepted cards. Customers mostly use
AGSI's Island Master product line of integrated card readers/site controllers
in unattended private fleet environments; however, where retail and fleet use
is mixed, a customer may use a Site Master Controller with either an Island
Card Reader or a card reader in the fuel dispenser (gas pump).
Petroleum equipment distributors sell most products for this market.
AGSI dedicates one salesman specifically to fleet business development.
AGSI's top customers in the fleet fuel market include Schneider National
Trucking, Ohio Bell, and SAIA Trucking. Major competitors include PetroVend
and Tokheim Corporation (Gasboy division).
This market segment accounted for 8.2% of total revenue in fiscal 1996
and 14% of total revenue in fiscal 1995. AGSI's top customers in the fleet
fuel market include Fuelman, Inc. and U-Fuel, Inc. (the aggregate of these
two accounts equaled 2.6% and 4.9% of total revenue in 1996 and 1995,
respectively). Major competitors include PetroVend and Tokheim Corporation
(Gasboy division).
ALTERNATIVE FUEL CENTERS - Alternative Fuel Centers operate both
unattended and attended sites for dispensing fuel products such as CNG
(compressed natural gas), Propane, and Methane. The products applicable for
this market include the same products used in the Fleet Fueling Market.
Petroleum equipment distributors sell most products for this market;
however, because this market is still in an early stage, AGSI finds that
manufacturers of alternative fuel dispensers possess significant influence in
the choice of automation vendors. AGSI also dedicates one salesman
specifically to business development in this marketplace.
This market segment accounted for 3.2% of total revenue in fiscal 1996
and 1.4% of total revenue in fiscal 1995. AGSI's top customers in this
market include West Texas Gas, Marcum Fuel Systems and American Natural Gas &
Power. Major competitors include E.J.Ward, FuelMaster, PetroVend and Tokheim
Corporation (Gasboy division).
POTENTIAL MARKETS
AGSI began the introduction of its products to the grocery and mass
merchandise chains in fiscal 1996 with sales to customers such as HEB and
Price Costco. AGSI believes that to date these sites have been successful
ventures for these customers, and AGSI is encouraged by the initial
acceptance of its technology by these markets.
Because AGSI follows a product development strategy of breaking apart
its products' capabilities into modular applications, it has received
numerous inquiries from competitors and other companies regarding
re-marketing AGSI's credit/debit authorizer modules as a part of third party
solutions. AGSI evaluates each inquiry and considers this a potential market
for growth. The market recognizes AGSI's expertise in this area and views
the remarketing of the AGSI authorizers as more economical than developing
and selling their own products.
AGSI has also sought entry into potential overseas markets. AGSI has
installations in Hong Kong for Mobil Oil and has completed development for
"pay at the pump" fuel dispensing in mainland China. AGSI has also recently
completed the three-year development of software for the Venezuelan state oil
company. AGSI is encouraged by its entry into these and other new
environments, although no assurance can be given as to its future success
there.
63
<PAGE>
PRODUCT DEVELOPMENT
AGSI is actively developing new software modules to run on the Windows
NT-based operating system that are anticipated to become available in the
third calendar quarter of 1997; however, because of the uncertainties
inherent in software development, AGSI can give no assurance in this regard.
PROPRIETARY RIGHTS
AGSI's success and ability to compete is dependent in part upon its
proprietary technology, including its software source code. To protect its
proprietary technology, AGSI relies on a combination of trade secret,
nondisclosure, and copyright law, which may afford only limited protection.
In addition, effective copyright and trade secret protection may be
unavailable or limited in certain foreign countries. Although AGSI relies on
the limited protection afforded by such intellectual property laws, it also
believes that factors such as the technological and creative skills of its
personnel, new product developments, frequent product enhancements, name
recognition and reliable maintenance are essential to establishing and
maintaining its competitive position.
Despite the measures taken by AGSI to protect its proprietary rights,
unauthorized parties may attempt to reverse engineer or copy aspects of
AGSI's products or to obtain and use information that AGSI regards as
proprietary. Policing unauthorized use of AGSI's products is difficult.
Litigation, with its related expense and diversion of management resources,
may, from time to time, be necessary to enforce AGSI's intellectual property
rights, to protect AGSI's trade secrets, to determine the validity and scope
of the proprietary rights of others, or to defend against claims of
infringement or invalidity.
EMPLOYEES
As of March 31, 1997, AGSI employed 116 persons. None of AGSI's
employees is represented by a collective bargaining agreement nor has AGSI
experienced any work stoppage. AGSI considers its relations with its
employees to be good.
AGSI's future operating results depend in significant part upon the
continued service of its key technical, consulting and senior management
personnel and its continuing ability to attract and retain highly qualified
technical and managerial personnel. Competition for such personnel is
intense, and there can be no assurance that AGSI will retain its key
managerial or technical personnel or attract such personnel in the future.
If AGSI is unable to hire and retain qualified personnel in the future, such
inability could have a material adverse effect on AGSI's business, operating
results and financial condition.
FACILITIES
AGSI leases its principal offices at 1202 Estates Drive, Suite D,
Abilene, TX 79602. These offices contain approximately 5,000 sq. ft. and
house the administrative, marketing and accounting/finance functions. AGSI
production and repair departments operate in a separate leased facility of
approximately 12,000 sq. ft in an industrial park near major highways in
Abilene, Texas. The training, support and software research and development
group occupies a third leased facility of approximately 12,000 sq. ft. in New
Braunfels, Texas.
LEGAL PROCEEDINGS
AGSI is a party to various lawsuits in the ordinary course of its
business and does not believe that the outcome of these lawsuits will have a
material effect on AGSI's financial position or results of operation.
64
<PAGE>
DIVIDENDS ON AND MARKET VALUE OF AGSI COMMON STOCK
The AGSI Common Stock is not listed on any exchange or traded or quoted
in any established securities market. AGSI has never declared or paid any
cash dividends and does not expect to declare any such dividends in the
foreseeable future. The payment of any future dividends will depend on
earnings and the capital requirements of AGSI and other factors AGSI's Board
considers appropriate. AGSI currently intends to retain any earnings to
support continuing product development, growth and expansion. AGSI Common
Stock Ownership
AGSI COMMON STOCK OWNERSHIP
PRINCIPAL STOCKHOLDERS. The following table sets forth the persons and
groups who beneficially owned more than 5% of the outstanding shares of
Common Stock as of July 31, 1997. AGSI compiled this information from its
stock records and other information available to AGSI. Unless otherwise
indicated, these persons possess sole voting and investment power with
respect to the shares of Common Stock that they beneficially own. AGSI has
only one class of voting securities issued and outstanding.
- -------------------------------------------------------------------------------
Name and Address Number of Shares Percentage of
of Beneficial Owner Beneficially Owned Outstanding Shares
- -------------------------------------------------------------------------------
G. Randy Nicholson 413,429(1) 24.5%
President and Chairman of the Board
c/o Auto-Gas Systems, Inc.
P.O. Box 6957
Abilene, TX 79608
Ray McGlothlin, Jr. 115,709 7.5%
Vice Chairman of the Board
c/o Auto-Gas Systems, Inc.
P.O. Box 6957
Abilene, TX 79608
Jeffrey F. Upp
Vice President, Secretary, Treasurer, 81,500(2) 5.2%
Chief Financial Officer and Director
c/o Auto-Gas Systems, Inc.
P.O. Box 6957
Abilene, TX 79608 401,306 26.0%
Kamehameha Schools Bernice Pauahi Bishop Estate
567 South King St, Suite 200
Honolulu, HI 96813 111,112 7.2%
Dodge Jones Foundation
P.O. Box 176
Abilene, TX 79604
- -------------------------------------------------------------------------------
(1) These shares of AGSI Common Stock include: warrants to acquire 142,667
shares of AGSI Common Stock; 255,962 shares held by G. Randy Nicholson,
10,000 shares held by Barbara Hart Nicholson, Mr. Nicholson's wife, and
4,800 shares held by G. Randy Nicholson as custodian for Braden Jeffrey
Upp.
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<PAGE>
(2) These shares of AGSI Common Stock include: options to acquire 34,600
shares that are presently exercisable or are exercisable within sixty (60)
days of July 31, 1997; 2,400 shares held by Jeffrey F. Upp, 2,400 shares
held by Randa Kae Upp, Mr. Upp's wife, and 42,100 shares held by Randak
Inc., of which Jeffrey F. Upp owns 40% and Randa Kae Upp owns 60% of all
voting shares.
DIRECTORS AND EXECUTIVE OFFICERS. The following table sets forth the
number of shares of Common Stock beneficially owned as of July 31, 1997 by each
director of AGSI, each executive officer of AGSI, and all directors and
executive officers of AGSI as a group. AGSI compiled this information from its
stock records and other information available to AGSI. Unless otherwise
indicated, these individuals possess sole voting and investment power with
respect to the shares they beneficially own.
- -------------------------------------------------------------------------------
Name and Address Number of Shares Percentage of
of Beneficial Owner Beneficially Owned Outstanding Shares
- -------------------------------------------------------------------------------
G. Randy Nicholson 413,429(1) 24.5%
President and Chairman of
the Board
c/o Auto-Gas Systems, Inc.
P.O. Box 6957
Abilene, TX 79608
115,709 7.5%
Ray McGlothlin, Jr.
Vice Chairman of the Board
c/o Auto-Gas Systems, Inc.
P.O. Box 6957
Abilene, TX 79608
Jeffrey F. Upp 81,500(2) 5.2%
Vice President, Secretary, Treasurer,
Chief Financial Officer and Director
c/o Auto-Gas Systems, Inc.
P.O. Box 6957
Abilene, TX 79608
34,600(3) 2.2%
Steve Covington
Vice President
c/o Auto-Gas Systems, Inc.
P.O. Box 6957
Abilene, TX 79608
0 0%
Jeffrey Fisher
Vice President
c/o Auto-Gas Systems, Inc.
P.O. Box 6957
Abilene, TX 79608
Chris Gindorf, III 80,000(4) 4.9.%
Director
c/o Auto-Gas Systems, Inc.
P.O. Box 6957
Abilene, TX 79608
66
<PAGE>
- -------------------------------------------------------------------------------
Name and Address Number of Shares Percentage of
of Beneficial Owner Beneficially Owned Outstanding Shares
- -------------------------------------------------------------------------------
Eric L. Oliver 45,258 2.9%
Vice President
c/o Auto-Gas Systems, Inc.
P.O. Box 6957
Abilene, TX 79608
Henry Peters 401,306(5) 26.0%
Director
c/o Kamehameha Schools Bernice Pauahi Bishop Estate
567 South King St, Suite 200
Honolulu, HI 96813
Directors and Officers as a Group 1,171,829 63.9%
- -------------------------------------------------------------------------------
(1) These shares of AGSI Common Stock include: warrants to acquire 142,667
shares of AGSI Common Stock; 255,962 shares held by G. Randy Nicholson,
10,000 shares held by Barbara Hart Nicholson, Mr. Nicholson's wife, and
4,800 shares held by G. Randy Nicholson as custodian for Braden Jeffrey
Upp.
(2) These shares of AGSI Common Stock include: options to acquire 34,600
shares that are presently exercisable or are exercisable within sixty (60)
days of July 31, 1997; 2,400 shares held by Jeffrey F. Upp, 2,400 shares
held by Randa Kae Upp, Mr. Upp's wife, and 42,100 shares held by Randak
Inc., of which Jeffrey F. Upp owns 40% and Randa Kae Upp owns 60% of all
voting shares.
(3) These shares of AGSI Common Stock include options to acquire 34,600 shares
that are presently exercisable or are exercisable within sixty (60) days of
July 31, 1997.
(4) These shares of AGSI Common Stock include options to acquire 80,000 shares.
(5) These shares include 401,306 shares held by the Estate of Bernice Pauahi
Bishop of which Henry Peters serves as a trustee.
THE COMBINED COMPANY
BUSINESS OF THE COMBINED COMPANY
Following the consummation of the Merger, Canmax, together with the
combined operations of AGSI (the "Combined Company"), will be in the business of
developing and providing enterprise wide technology solutions to the convenience
store and retail petroleum industries. In particular, the Combined Company will
offer an expanded product line, with solutions that will service the needs of
the smaller customer or the larger customer looking for an integrated, scaleable
solution, plus "pay-at-the-pump," unattended and fleet fueling capability. The
Combined Company's products and services will be sold through its direct sales
force and extensive distribution network. The Combined Company will have access
to in excess of 40 credit/debit card networks, including proprietary networks of
major oil companies and third party electronic payment networks. Further, the
Combined Company will have an expanded presence internationally, with installed
sites currently in Hong Kong, mainland China, the Middle East, South America and
Canada.
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<PAGE>
The Combined Company's products have been installed in over 15,000
locations and its customers include Circle K, BHP Hawaii, Thrifty Oil,
Fuelman, Inc., Irving Oil Corp., West Texas Gas, The Southland Corporation,
ARCO, and the Army and Airforce Exchange.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial information
gives effect to the proposed Merger. Upon consummation of the Merger, each
share of AGSI Common Stock will be converted into the right to receive
3.37623 shares of Canmax Common Stock. The Merger will be accounted for as a
purchase of AGSI by Canmax.
The unaudited pro forma combined condensed balance sheet as of April 30, 1997
gives effect to the Merger as if it had occurred on April 30, 1997, and
combines the unaudited consolidated balance sheet of Canmax as of April 30,
1997 and the unaudited balance sheet of AGSI as of March 31, 1997.
The unaudited pro forma combined condensed statement of operations for the
six months ended April 30, 1997 combines the unaudited consolidated statement
of operations of Canmax for the six months ended April 30, 1997, and the
unaudited statement of operations of AGSI for the six months ended March 31,
1997, as if the Merger had occurred at the beginning of the respective period.
The unaudited pro forma combined condensed statement of operations for the
year ended October 31, 1996, combines the audited consolidated statement of
operations of Canmax for the year ended October 31, 1996, and the audited
statement of operations of AGSI for the year ended September 30, 1996, as if
the Merger had occurred at the beginning of the respective fiscal year.
The unaudited pro forma combined condensed financial information described
above is presented for illustrative purposes only and is not necessarily
indicative of the financial position or results of operations that would have
actually been reported had the Merger occurred at the beginning of the
periods presented, nor is it necessarily indicative of future financial
position or results of operations. The accompanying unaudited pro forma
combined condensed financial statements are based upon the respective
historical financial statements of Canmax and AGSI and should be read in
conjunction with the respective historical financial statements and notes
thereto of Canmax and AGSI included elsewhere in this Joint Proxy Statement /
Prospectus. Additionally, the accompanying unaudited pro forma combined
condensed financial statements do not incorporate any benefits from cost
savings that may result in the combined entity.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
<TABLE>
Historical Pro Forma
----------------------------- --------------------------------
Canmax Inc. AutoGas
Systems Inc.
April 30, March 31,
1997 1997 Adjustments Combined
---------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 71,573 $ 2,358,053 $ 2,429,626
Accounts receivable, net 2,726,096 2,444,107 5,170,203
Inventories 50,582 2,299,657 2,350,239
Deferred tax asset 239,625 239,625
Prepaid expenses and other 151,715 570,858 722,573
----------- ------------ -----------
Total current assets 2,999,966 7,912,300 10,912,266
Property and equipment, net 1,094,989 660,453 1,755,442
Purchased research and development $ 6,960,000 (A) -
(6,960,000)(B)
Capitalized software costs, net 401,292 1,247,048 400,000 (A) 1,548,340
(500,000)(D)
Intangible assets, net 38,889 481,391 (A) 1,315,050
794,770 (C)
Investment in FST Holdings 283,547 (283,547)(D) -
Other assets 134,329 6,657 140,986
----------- ------------ ----------- ------------
Total assets $ 4,669,465 $ 10,110,005 $ 892,614 $ 15,672,084
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
</TABLE>
See accompanying notes to unaudited pro forma
combined condensed financial statements.
69
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET (CONTINUED)
<TABLE>
Historical Pro Forma
----------------------------- --------------------------------
Canmax Inc. AutoGas
Systems Inc.
April 30, March 31,
1997 1997 Adjustments Combined
---------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 827,203 $ 563,104 $ 1,390,307
Accrued liabilities 496,566 942,746 $ 647,000 (G) 2,086,312
Deferred revenue 271,871 124,283 396,154
Current portion of lease obligation 132,839 132,839
Current portion of long term debt 34,703 34,703
------------ ------------ -------------- ------------
Total current liabilities 1,763,182 1,630,133 647,000 4,040,315
Lease obligations 103,060 103,060
Long-term debt 68,600 68,600
Non-compete 794,770 (C) 794,770
Deferred tax liability 396,044 (156,419)(L) 239,625
Shareholders' equity:
Common stock 23,234,233 1,541,794 (1,541,794)(H) 37,885,324
14,651,091 (H)
Additional paid-in capital 5,344,739 (5,344,739)(H) -
Retained earnings (deficit) (20,499,610) 1,197,295 (6,960,000)(B) (27,459,610)
(1,197,295)(H)
------------ ------------ -------------- ------------
Total shareholders' equity 2,734,623 8,083,828 (392,737) 10,425,714
------------ ------------ -------------- ------------
Total liabilities and
shareholders' equity $ 4,669,465 $ 10,110,005 $ 892,614 $ 15,672,084
------------ ------------ -------------- ------------
------------ ------------ -------------- ------------
</TABLE>
See accompanying notes to unaudited pro forma
combined condensed financial statements.
70
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
Historical Pro Forma
----------------------------- ----------------------------
Canmax Inc. AutoGas
Systems Inc.
Six months Six months
ended ended
April 30, 1997 March 31, 1997 Adjustments Combined
-------------- -------------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Systems sales $ - $ 3,153,881 $ 3,153,881
Software licenses and product
revenue 654,761 621,405 1,276,166
Development 6,081,848 177,170 6,259,018
Service agreements 997,565 750,214 1,747,779
---------- ------------ ------------
7,734,174 4,702,670 12,436,844
---------- ------------ ------------
Costs and expenses:
Cost of systems sales - 1,352,466 $ 200,000 (E) 1,552,466
Costs of software licenses
and product revenue 474,353 64,193 (50,000)(I) 488,546
Cost of development revenues 2,991,773 14,672 3,006,445
Customer service 1,154,793 1,026,319 2,181,112
Product development 314,515 515,987 830,502
Sales and marketing 253,753 887,094 1,140,847
General and administrative 1,878,471 733,653 37,910 (E) 2,729,511
79,477 (K)
---------- ------------ ---------- ------------
7,067,658 4,594,384 267,387 11,929,429
---------- ------------ ---------- ------------
Operating income 666,516 108,286 (267,387) 507,415
Other income (expense):
Interest, net (7,250) 61,563 (4,738)(K) 49,575
Equity loss in FST Holdings - (40,552) 40,552 (N) -
---------- ------------ ---------- ------------
Income before taxes 659,266 129,297 (231,573) 556,990
Income tax expense (benefit) - 73,043 (73,043)(M) -
---------- ------------ ---------- ------------
Net income $ 659,266 $ 56,254 $ (158,530) $ 556,990
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
Net income per common
and common equivalent share $ 0.10 $ 0.05
---------- ------------
---------- ------------
Shares used in per share
computation 6,618,348 12,369,719
---------- ------------
---------- ------------
</TABLE>
See accompanying notes to unaudited pro forma
combined condensed financial statements.
71
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
Historical Pro Forma
--------------------------------------- --------------------------
Canmax Inc. AutoGas Systems, Inc.
Year Ended Year Ended
October 31, 1996 September 30, 1996 Adjustments Combined
---------------- --------------------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Systems sales $ - $ 9,529,884 $ 9,529,884
Software licenses and product
revenue 1,892,077 1,483,934 3,376,011
Development 7,392,040 271,526 7,663,566
Service agreements 2,979,743 1,159,174 4,138,917
----------- ------------ ------------
12,263,860 12,444,518 24,708,378
----------- ------------ ------------
Costs and expenses:
Cost of systems sales - 3,572,913 $ 400,000 (F) 3,972,913
Costs of software licenses
and product revenue 1,539,644 203,351 (100,000)(J) 1,642,995
Cost of development revenues 2,949,166 182,082 3,131,248
Customer service 2,321,798 1,895,954 4,217,752
Product development 1,476,720 1,066,365 2,543,085
Sales and marketing 440,582 1,612,475 2,053,057
General and administrative 3,365,289 1,730,753 75,821 (F) 5,330,817
158,954 (K)
----------- ------------ ---------- ------------
12,093,199 10,263,893 534,775 22,891,867
----------- ------------ ---------- ------------
Operating income 170,661 2,180,625 (534,775) 1,816,511
Other income (expense):
Interest, net (28,047) 141,554 (9,477)(K) 104,030
Equity loss in FST Holdings - (87,983) 87,983 (N) -
----------- ------------ ---------- ------------
Income before taxes 142,614 2,234,196 (456,269) 1,920,541
Income tax expense (benefit) - 831,564 (660,724)(M) 170,840
----------- ------------ ---------- ------------
Net income $ 142,614 $ 1,402,632 $ 204,455 $ 1,749,701
----------- ------------ ---------- ------------
----------- ------------ ---------- ------------
Net income per common
and common equivalent share $ 0.02 $ 0.14
----------- ------------
----------- ------------
Shares used in per share
computation 6,851,148 12,481,356
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to unaudited pro forma
combined condensed financial statements.
72
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
(A) Adjustment to reflect intangible assets resulting from the merger of
AGSI with CRSI. The purchase price was 5,205,451 shares of Canmax common
stock which, for purposes of purchase accounting, was valued at $12,638,842
plus the value assigned to AGSI stock options and warrants assumed by Canmax
of $ 2,174,249 and acquisition costs of $485,000 for a total purchase price
of $15,298,091. Canmax is currently in the process of having an independent
appraiser perform an allocation of the purchase price.
Based upon discussions with the independent appraiser, a preliminary
allocation of the purchase price with regards to intangible assets is as
follows:
Description Allocation of Purchase Price Amortization Period
(Useful Life)
- --------------------------------------------------------------------------------
Purchased research and development $6,960,000 N/A
Goodwill $ 123,391 5 years
Capitalized software costs $1,147,048 1-5 years
Assembled workforce $ 358,000 7 years
Of the total purchase price allocated to capitalized software costs,
$400,000 represents additional value identified by the appraisal which has
been assigned a 1 year life.
The above allocation is preliminary and may change based upon the final
valuation and allocation of the purchase price.
(B) Purchased research and development was identified and valued through
extensive interviews and analysis of data for each of AGSI's products under
development. Expected future cash flows of each product under development
were discounted taking into account risks associated with the difficulties
and uncertainties in completing the project(s) and thereby achieving
technological feasibility and risks related to the viability of and potential
changes in future target markets. This resulted in $6,960,000 of purchased
research and development which has not reached technological feasibility and
does not have alternative future use. Therefore, in accordance with
generally accepted accounting principles, the $6,960,000 of purchased
research and development cost was written-off as a pro forma adjustment in
the accompanying pro forma balance sheet as of April 30, 1997. Such charge
will be included in the income statement in the period the transaction is
consummated. Such charge has been excluded from the pro forma statements of
operations as it was considered a non-recurring material charge.
(C) Adjustment to reflect non-compete agreements with AGSI executives
resulting from the merger of AGSI with Canmax.
(D) The adjustment to capitalized software costs represents a write-down to
projects recorded on AGSI's books for which the Combined Company has no plans
to market the products or will not pursue additional development to market
the products. Therefore, Canmax has assigned no value to such projects.
The investment in FST Holdings, which is accounted for under the equity
method, has historically incurred losses. The Combined Company does not plan
to invest additional funds in the underlying venture. Therefore, Canmax has
assigned no value to the investment.
(E) Adjustment to reflect the pro forma amortization of capitalized software
costs of $200,000, assembled work force of $25,571 and goodwill of $12,339
over their estimated useful lives resulting from the acquisition of AGSI for
the six months ended April 30, 1997.
73
<PAGE>
(F) Adjustment to reflect the pro forma amortization of capitalized software
costs of $400,000, assembled work force of $51,143 and goodwill of $24,678
over their estimated useful lives resulting from the acquisition of AGSI for
the year ended October 31, 1996.
(G) Represents accrual for estimated costs associated with the merger
totaling $647,000 which primarily consist of legal and professional fees of
$235,000, estimated severance and relocation costs of $250,000 and
registration costs of $162,000. Costs totaling $485,000 have been accounted
for as additional purchase price. The remaining costs of $162,000 represent
costs estimated to be incurred to register the securities to be issued
relating to the Merger and have been recorded as a reduction of the fair
value of the securities issued.
(H) Reflects the elimination of AGSI's historical shareholders' equity and
the recording of the additional shares, options and warrants issued as a
result of the merger, net of estimated costs to register securities to be
issued.
(I) Impact on amortization of $50,000 for the six months ended April 30,
1997, of the pro forma write-down of capitalized software (see (D) above).
(J) Impact on amortization of $100,000 for the year ended October 31, 1996
of the pro forma write-down of capitalized software (see (D) above).
(K) Imputed interest and amortization on non-compete agreements.
(L) Adjustment to reflect tax impact of the Merger as of April 30, 1997.
(M) The Combined Company anticipates that the Merger will qualify as a tax
free reorganization under Internal Revenue Code (I.R.C.) Section 368(a).
The Combined Company anticipates limitation of use of its tax net
operating loss ("NOL") carryforwards as a result of a change in ownership as
defined in I.R.C. Section 382. Based on the estimated market value of Canmax
prior to the Merger, as provided under Section 382, the Combined Company will
utilize its limited NOL carryforward to partially offset the pro forma
taxable income and accordingly has reduced tax expense paid or accrued for
the six months ended April 30, 1997 and the year ended October 31, 1996.
The Combined Company will provide an allowance of approximately $6.2
million to reduce its deferred tax asset to zero due to uncertainty of its
realization. The deferred tax asset is principally attributable to $17.3
million in NOL carryforwards expiring from 2006 to 2010.
(N) Adjustment to reflect impact on equity loss in FST Holdings of the pro
forma valuation adjustment to investment in FST Holdings (See (D) above).
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF CANMAX
The selected consolidated financial information presented below for the
fiscal years ended October 31, 1996, 1995, and 1994, were derived from the
audited consolidated financial statements of Canmax, which are included
elsewhere in this Joint Proxy Statement/Prospectus. The selected consolidated
financial data presented below for the years ended October 31, 1993 and 1992
were derived from audited consolidated financial statements of Canmax, which are
not included in this Joint Proxy Statement/Prospectus. The selected consolidated
financial data presented below for the six months ended April 30, 1996 and 1997
are unaudited but have been prepared on the same basis as the audited
consolidated financial statements and, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, which Canmax
considers necessary for a fair
74
<PAGE>
presentation of the financial information set forth therein. The results of
operations for the six months ended April 30, 1997 are not necessarily
indicative of results that may be expected for Canmax's fiscal year ending
October 31, 1997. This selected consolidated financial information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Canmax" and the Consolidated Financial
Statements (including the notes thereto) of Canmax. See "Index to Financial
Statements."
<TABLE>
<CAPTION>
Six Months
Ended April 30, Fiscal Years Ended October 31,
------------------- ---------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- ------ ------ ------ ------ ------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 7,734 $ 5,159 $12,264 $ 8,996 $ 9,675 $ 4,659 $ 2,224
Cost of software licenses,
product revenue and
development revenue 3,466 2,222 4,489 4,352 3,219 1,411 700
Operating expenses 3,602 3,472 7,604 8,328 8,305 4,361 3,510
Interest expense, net 7 19 28 50 66 29 6
Writedown of capitalized
software - - - - 4,127 - -
Net income (loss) 659 (554) 143 (3,734) (6,042) (1,142) (1,992)
Net income (loss) per share(1) 0.10 (0.11) 0.02 (0.79) (1.54) (0.31) (0.60)
BALANCE SHEET DATA:
Total assets $ 4,669 $ 4,288 $ 5,650 $ 4,702 $ 5,328 $ 6,883 $ 2,051
Working capital (deficiency) 1,237 (628) 208 (469) 146 526 (748)
Non-current obligations 172 208 256 265 1,375 146 56
Shareholders' equity 2,735 1,371 2,075 1,719 1,910 4,045 496
</TABLE>
(1) All per share amounts have been retroactively adjusted to reflect a
one-for-five reverse stock split of Canmax Common Stock effective
December 21, 1995.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF CANMAX
THE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS AND OTHER PARTS OF THIS PROSPECTUS CONTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. CANMAX'S
ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE
INCLUDE BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS." SEE "SAFE
HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995."
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
total revenues of Canmax for the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year Six Months
Ended October 31, Ended April 30,
1996 1995 1994 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses and product
revenue 15.4% 34.8% 50.7% 8.5% 27.6%
Development 60.3% 42.2% 41.5% 78.6% 52.2%
Service agreements 24.3% 23.0% 7.8% 12.9% 20.2%
---- ------ ------ ----- ------
100% 100% 100% 100% 100%
---- ------ ------ ----- ------
Costs and expenses:
Costs of software licenses, product
revenue and development revenues 36.6% 48.3% 33.2% 44.8% 43.1%
Customer service 18.9% 26.2% 22.6% 14.9% 21.9%
Product development 12.0% 26.7% 27.0% 4.1% 10.7%
Sales and marketing 3.6% 7.4% 13.9% 3.3% 4.5%
General and administrative 27.5% 32.3% 22.4% 24.3% 30.2%
Interest and financing 0.2% 0.6% 0.7% 0.1% 0.3%
Writedown of capitalized software - - 42.6% - -
---- ------ ------ ----- ------
98.8% 141.5% 162.5% 91.5% 110.7%
---- ------ ------ ----- ------
Net income (loss) 1.2% (41.5)% (62.5)% 8.5% (10.7)%
---- ------ ------ ----- ------
---- ------ ------ ----- ------
</TABLE>
REVENUES
SIX MONTHS ENDED APRIL 30, 1997 COMPARED TO SIX MONTHS ENDED APRIL 30,
1996. For the six months ended April 30, 1997 Canmax had revenues of
$7,734,174, an increase of $2,575,286 or 49.9% over the comparable period in
1996. For the six months ended April 30, 1997, Southland and NCR accounted
for approximately 94% of Canmax's total revenue as compared to approximately
77% for the comparable period of 1996. The improvement in revenue is a
result of significant development services provided under current contracts
with NCR and Southland during the six months ended April 30, 1997. This
increase in development revenues was partially offset by a reduction in
hardware and software sales as Canmax completed delivery of these components
to Southland during the first quarter of 1996. See "Risk Factors -
Concentration of Revenues; Customer Concentration."
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For the six months ended April 30, 1997 Canmax had software licenses and
product revenue of $654,761, a decrease of 54.0% over the comparable period
in 1996. The decrease is primarily due to the decline in sales of hardware
components to other customers and a decrease in software and hardware sales
to Southland for one phase of Southland's UNIX store upgrade which commenced
during 1995 and concluded during the first quarter of 1996. These decreases
were partially offset by software and hardware sales to Southland during the
six months ended April 30, 1997 for planned implementation by Southland of a
Windows NT solution later in calendar year 1997.
For the six months ended April 30, 1997 Canmax had development revenue
of $6,081,848, an increase of $3,389,271 or 125.9% over the comparable period
in 1996. Development revenue from the base contract with Southland continued
to decline from approximately $763,000 during the six months ended April 30,
1996 to approximately $427,000 during the same period in 1997, in accordance
with the terms of the contract. Additionally, during the same period of
1996, Canmax recognized development revenue of approximately $1,569,000 for
work associated with a contract between Canmax and NCR to develop a
preliminary (non scanning) point of sale software application in UNIX for
Southland. This project was completed in July 1996. These reductions in
development revenue were more than offset by additional development revenues
of approximately $5,636,000 for work performed under an agreement with NCR
and Southland to develop a scanning point of sale application for Southland
and other associated inventory, merchandising and back office functions,
running in a Windows NT environment. Current projects under the existing
agreement with NCR and Southland are expected to conclude during the third
quarter of 1997. Canmax is currently negotiating additional contracts with
NCR and Southland to provide development services.
For the six months ended April 30, 1997, Canmax recorded service
agreement revenue of $997,565, a decrease of $43,923 or 4.2% over the
comparable period in 1996. This decrease resulted from a decline in the
installation, training and site survey revenues reflecting a lower number of
new installations of Canmax's proprietary software accompanied by a decrease
in calls received by the 24 hour / 7 day a week help desk, which caused a
decline in revenues due to the structure of the support contract with
Southland. This decrease was offset by an increase in revenue from the help
desk due to an increased number of sites supported from approximately 5,800
at April 30, 1996 to 5,900 at April 30, 1997.
FISCAL 1996 COMPARED TO FISCAL 1995. For the year ended October 31,
1996, Canmax had revenues of $12,263,860, an increase of $3,267,773, or
36.3%, over 1995. The improvement in revenue is a result of growth in
service agreement revenues and significant growth in development revenue as
Canmax completed a project to develop a preliminary (non scanning) point of
sale software application in UNIX for Southland and commenced a project to
produce a scanning point of sale application and other associated inventory,
merchandising, and back office functions for Southland in a Windows NT
environment.
Software licenses and product revenue for the year ended October 31,
1996 was $1,892,077, a decrease of $1,235,358, or 39.5% over 1995. The
decrease is primarily due to the sale during 1995 of software and hardware
components to Southland in accordance with their contract which did not occur
during 1996. The provision of these items to Southland under their contract
commenced during 1995 and concluded during the first quarter of 1996.
Development revenue for the year ended October 31, 1996 was $7,392,040,
an increase of $3,590,832, or 94.5% , over 1995. While development revenue
from the base contract with Southland declined in accordance with the terms
of the contract compared with the same period in 1995, Canmax recognized
additional development revenue of $1,868,824 for work associated with a
contract between Canmax and NCR to develop a preliminary (non scanning) point
of sale software application in UNIX for Southland. This project was
completed in July 1996. In fiscal 1996, Canmax reached agreement with NCR to
develop for Southland a next generation Windows NT based version of the
Canmax "C-Serve" convenience store software for $9.5 million. The resulting
product will be used in Southland's approximately 5,000 7-Eleven stores in
the United States. NCR was chosen by Southland to provide project management
and other professional services for this project. The $9.5 million in
revenues is in addition to previous contracts awarded to Canmax from
Southland. During 1996, Canmax recognized revenue of $3,920,098 under this
agreement. No such revenue was recorded in 1995.
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Service agreements revenue for the year ended October 31, 1996 was
$2,979,743, an increase of $912,299, or 44.1%, over 1995. This improvement
results from an increase in revenue from the 24 hour/7 day a week help desk
services of 49.4%, reflecting an increase in the number of sites supported
from 3,654 as of October 31, 1995 to 5,912 as of October 31,1996. While the
number of sites increased by 61.8%, revenue increased at a lower rate due to
the structure of the support contract with Southland which provided for a
minimum payment until a certain volume of support calls was reached. These
increases were offset by a reduction in installation and training revenue
resulting from a decrease in the number of sites installed and trained in
1996 compared with 1995.
FISCAL 1995 COMPARED TO FISCAL 1994. Revenues for fiscal 1995 declined
7.0% from $9,674,595 to $8,996,087 for fiscal 1994 primarily as a result of
delays in the rollout schedule for Southland and installation delays for the
Army and Air Force Exchange (AAFES).
Revenue from software sales declined from $2,927,307 in fiscal 1994 to
$1,385,137 in fiscal 1995. Fiscal 1994 software revenue included one time
sales of Canmax's proprietary software, C-Serve, to EDS and AAFES amounting
to $2,082,700. Excluding these sales, software revenues increased from
$844,607 in fiscal 1994 to $1,388,137 in fiscal 1995 as a result of increased
sales of third party software to Southland for installation in their 7-Eleven
stores under the five year agreement with Canmax.
Revenue from hardware and component parts declined by 3% from $1,919,534
in fiscal 1994 to $1,742,297 in fiscal 1995. Canmax continued to sell
hardware and components to Southland for use in their 7-Eleven store as part
of the five year agreement with Canmax.
Service agreement revenue increased 172% from $758,963 in fiscal 1994 to
$2,067,444 in fiscal 1995. This increase resulted from installation services
provided to AAFES during the year where Canmax installed its proprietary
C-Serve software in some 68 locations during the year and from an increase in
the number of installed sites supported by Canmax's 24 hour / 7 day a week
help desk. The number of supported locations increased from 1747 at October
31, 1994 to 3654 at October 31, 1995. Of the increase of 1907 locations,
AAFES accounted for 68 to bring their total supported sites to 82 at October
31, 1995 and Southland increased from 1166 to 2951 at October 31, 1995 as
Canmax continued to rollout and install the system developed for Southland
under the five year agreement with Canmax. Canmax continued to support 411
ARCO locations at October 31, 1995, up from 391 at October 31, 1994.
Development revenue declined from $4,012,520 in fiscal 1994 to
$3,801,208 in fiscal 1995, or 5.3%. The decline is a result of the reduction
in joint development work on business opportunities for major oil companies
with EDS, compared with fiscal 1994. Of the revenue for fiscal 1995,
approximately 60% is attributable to work performed for Southland as part of
the five year agreement and under a contract with NCR to develop a
point-of-sale system for the 7-Eleven stores.
GROSS MARGIN
SIX MONTHS ENDED APRIL 30, 1997 COMPARED TO SIX MONTHS ENDED APRIL 30,
1996. For the six months ended April 30, 1997, gross margin, as a percentage
of software licenses and product revenue was 27.6%, as compared with 30.6%
for the same period in 1996, prior to 1996 inventory writedowns of $217,623.
The net decrease in gross margin is due to the following.
For the six months ended April 30, 1997 the gross margin on software sales
was 19.6% compared with 21.5% for the same period in 1996, excluding inventory
writedowns. The decline is due to increased sales of lower margin purchased
software during the reporting period. For the six months ended April 30, 1997
the gross margin on hardware sales was 46.2% compared with 31.9% for the same
period in 1996, excluding inventory writedowns. Mix changes in products sold,
driven by customer orders, accounted for the increase. Additionally, included in
cost of revenues for software licenses and product revenue for the six months
ended April 30, 1996 is a one time writedown of $105,763 for software inventory
that Canmax determined was necessary due to the limited likelihood
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<PAGE>
of future sales of that item. Further, also included in cost of revenues for
software licenses and product revenue for the six months ended April 30, 1996
is a one time writedown of inventory to net realizable value of $111,860 that
Canmax determined was required. These charges totaling $217,623 negatively
impacted gross margins on software licenses and product revenue for the six
months ended April 30, 1996.
For the six months ended April 30, 1997 gross margin on development was
50.8% compared with 62.3% for the same period in 1996. This decrease is due
to lower planned profit margins on the current NCR and Southland development
project, the scanning point of sale application with associated inventory,
merchandising and back office functions which operates in a Windows NT
environment, as compared to the development project in progress in 1996, the
preliminary (non scanning) point of sale software application in UNIX. The
lower planned profit margin is a result of the need to employ a significant
number of highly skilled contractors to complete certain phases of the
NCR/Southland Windows NT based project throughout the life of the project
including the first and second quarter of 1997. No such requirements were
necessary or incurred during the first six months of 1996.
FISCAL 1996 COMPARED TO FISCAL 1995. Gross margin as a percentage of
software license, product and development revenue was 54.0% for the year
ended October 31,1996 compared with 37.2% for the same period in 1995, prior
to 1996 inventory writedowns of $217,623.
Gross margin on software sales increased from 17.6% for the year ended
October 31, 1995 to 27.0% for the same period in 1996, excluding the $105,763
software inventory writedown recorded in 1996. This improvement was due to a
change in mix of products sold away from low margin products sold to
Southland during 1995 to a mix that is more representative of higher margin
products sold during 1996. Gross margin on hardware sales increased slightly
from 31.6% for the year ended October 31, 1995 to 32.8% for the same period
in 1996, excluding the $111,860 hardware inventory writedown recorded in
1996. The improvement in 1996 was due to the sale of hardware with higher
than normal margins compared with 1995.
For the year ended October 31, 1996, the gross margin on development
revenue was 60.1% compared with 47.1% for the same period in 1995. The
improvement is a result of improved profit margins negotiated on Canmax's
development projects.
FISCAL 1995 COMPARED TO FISCAL 1994. Gross Margin, as a percentage of
software license, product and development revenue, decreased from 63.9% in
fiscal 1994 to 37.2% in fiscal 1995. Gross Margin on software sales declined
from 51.6% in fiscal 1994 to 17.6% in fiscal 1995 as a result of low margin
third party software products sold to Southland under the terms of the five
year agreement with Canmax and due to significantly lower sales of Canmax's
proprietary software C-Serve. Gross margin on hardware sales declined from
56.7% to 31.6% as a result of low margins on sales on components to
Southland. Gross margin on development revenue declined from 76.5% to 47.1%
as a result of an increase in direct expenses attributable to development
revenue. The additional costs arose as a result of a change in the mix of
staff working on the projects. During the year ended October 31, 1995 Canmax
had a larger percentage of contractors employed on development projects than
in the prior year compared to the number of full-time employees. Contractors
can be up to two or three times more expensive than employees.
EXPENSES
SIX MONTHS ENDED APRIL 30, 1997 COMPARED TO SIX MONTHS ENDED APRIL 30,
1996. For the six months ended April 30, 1997, customer service costs
slightly increased by 2.2% compared with the same period in 1996. This was
due to efficiencies and lower overall expenditure levels offset by costs
associated with servicing an increased number of sites from approximately
5,800 at April 30, 1996 to approximately 5,900 at April 30, 1997.
For the six months ended April 30, 1997 product development costs declined
from $550,087 for the same period in 1996 to $314,515, a reduction of 42.8%. The
reduction is due to a significant increase in funded development projects which
resulted in development expenditures being included in cost of revenues. The
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<PAGE>
reduction was partially offset by capitalization of software development
costs amounting to $128,874 relating to a new credit card processing network
interface Canmax developed during the first quarter of 1996.
General and administrative expenses increased 20.4% for the six months
ended April 30, 1997 compared with the same period in 1996. These increases
are predominantly as a result of the establishment of a business development
unit, responsible for identifying new business opportunities and project
management as well as timing of annual shareholders' meeting expenses,
increased expenditures for investor relations in the second quarter of 1997,
and amounts accrued in 1997 for performance based compensation which were not
accrued during 1996.
For the six month period ended April 30, 1997, Canmax recorded no tax
provision as net operating loss carryforwards of approximately $19.1 million
would offset any liability related to fiscal year 1997.
As a result of the foregoing, Canmax earned net income of $659,266 or
$0.10 per share, as compared to a net loss of $554,148, or ($0.11) per share
for the comparable period in 1996.
FISCAL 1996 COMPARED TO FISCAL 1995. For the year ended October 31,
1996, customer service costs decreased 1.6% compared with the same period in
1995. The decline in cost despite the increase in the number of' sites
supported from 3,654 to 5,912 is due to lower operating costs for the service
arising from increased efficiencies and lower overall expenditure levels.
For the year ended October 31, 1996, product development costs declined
from $2,401,306 for the same period in 1995 to $1,476,720, a reduction of
38.5%. The reduction was due to an overall reduction in product development
funded by Canmax and due to the capitalization of software development costs
amounting to $128,874 relating to a new credit card processing network
interface Canmax developed during the first quarter of 1996.
General and administrative expenses increased 15.9% for the year ended
October 31, 1996 compared with 1995, predominately as a result of the
establishment of a business development unit responsible for identifying new
business opportunities and project management. Sales and marketing expenses
declined 33.5% for the year ended October 31, 1996 compared with the same
period in 1995. These cost reductions are a result of lower expenditure
levels.
During the year ended October 31, 1996, Canmax announced it would close
its wholly owned subsidiary, Dataplane Technologies Inc., on August 31, 1996.
Dataplane had designed and developed certain communication processor boards
which allow C-Serve to handle some of the communication protocols and device
interfaces used in the industry. Canmax determined that the technology had a
limited life and it would no longer continue to develop and manufacture the
technology. Canmax has licensed the manufacturing rights of the technology
to Bass Inc. for the next three years and anticipates providing for future
requirements through Bass. In addition, Canmax closed its non operating
subsidiary, The Point of Sale Corporation.
The cost of closing these subsidiaries has been included in part in the
writedown of $217,623 of inventory previously discussed and $25,000 included
in general and administrative expense representing the write off of
intellectual property.
At October 31, 1996, Canmax ceased operations of its wholly owned
subsidiary, Canmax Retail Systems (British Columbia), which had been
providing software development services on a software development project
which was completed on October 31, 1996.
As a result of the foregoing, Canmax generated net income of $142,614,
or $0.02 cents per share, for 1996 as compared with incurring a net loss of
$3,734,450, or $0.79 cents per share, for the year ended October 1995.
FISCAL 1995 COMPARED TO FISCAL 1994. In June of 1995, Canmax took
actions to reduce expenditures and focus on operational stability and revenue
improvement as part of a five step plan for restructuring Canmax. The Plan,
completed in January of 1996, included:
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- Replacing several members of senior management including the Chief Financial
Officer, Vice President of Development, Chief Operations Officer and Vice
President of Marketing. Further, the former President and Chief Executive
Officer was replaced by Mr. Roger Bryant on November 15, 1994.
- Modifying the composition of the Board of Directors to comprise four outside
members and three inside members
- Improving productivity through process improvement.
- Implementing a restructuring of operations in June 1995 to reduce expenditure
levels through lower staff numbers and strong cost containment. These cost
reductions contributed towards the improvement in cash flows experienced by
Canmax during the second half of 1995. Improved cash flow during the
second half of 1995 contributed to the reduction in liabilities and an
overall strengthening of the balance sheet during the second half of 1995.
Customer service expenses increased 7.9% in fiscal 1995 from $2,186,178
to $2,359,279. Costs were essentially flat compared to prior year despite a
172.4% increase in revenue, without any reduction in support levels or
customer satisfaction.
During fiscal 1995, Canmax spent $2,401,306 on product development, or
7.9% less than fiscal 1994. However, during fiscal 1994, Canmax wrote off
$4,127,232 of software development costs which was initially capitalized and
subsequently written off in October 1994 because of uncertainty of future
revenue in the near term. Expenditure on such activities in fiscal 1995 was
significantly reduced, and Canmax did not capitalize any development costs in
fiscal 1995.
General and administrative expenses increased 34.3% in fiscal 1995 from
$2,162,627 to $2,904,548 predominately as a result of expenditure and
expansion in the first half of fiscal 1995. In the second half of 1995,
general and administrative expenses were lower than the comparable period in
1994 primarily as a result of cost reduction through lower staff numbers and
expenditure control.
Sales and marketing costs decreased 50.8% in fiscal 1995 from $1,346,767
to $662,982. The reduction was a result of a reduction in the number of
staff members and other cost reductions resulting from a refocus of
activities from large contracts to smaller, less time consuming and less
expensive contracts.
For the year ended October 31, 1995, Canmax incurred a net loss of
$3,734,450, or a net loss of $0.79 per share, as compared to a net loss of
$6,042,114, or a net loss of $1.54 per share, for the year ended October 31,
1994.
WRITEDOWN OF CAPITALIZED SOFTWARE
Canmax regularly evaluates the carrying value of capitalized software
costs in accordance with FASB 86. At October 31, 1994 Canmax reviewed the
value of its capitalized software and determined that there was some
uncertainty associated with future revenue opportunities in the near term
from certain products. Accordingly, capitalized software was written down by
$4,127,232 to a carrying value of $813,387.
The write-down of capitalized software projects during the fourth
quarter of fiscal 1994 consisted primarily of two projects, EDS Development
Projects ($1.5 million) and Remote Store Management ($2.0 million).
EDS DEVELOPMENT PROJECTS. During fiscal 1994, Canmax entered into a
Joint Marketing Agreement (JMA) with EDS whereby Canmax's core product
offering, C-Serve, would be jointly marketed by EDS and Canmax to the retail
petroleum and convenience store industry. C-Serve is a sophisticated point
of sale system developed by Canmax specifically for use in gas stations and
convenience stores. Prospective customers approached by EDS and Canmax often
requested modifications and enhancements to the base C-Serve product which
required development efforts to be undertaken. Canmax elected to undertake
the development for four of these potential customers in 1994 as it was
believed by management of Canmax that the enhancements, in addition to
solving the particular customers' needs, had broad market application to its
target customer base. Canmax's intention was that once
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<PAGE>
development was completed, the enhancements would become further options
available on the base C-Serve product and thus the costs capitalized would be
recovered from Canmax's estimate of sales for the base C-Serve product. EDS
agreed to fund a portion of the development costs. An agreement was reached
whereby EDS would fund 50% of the jointly incurred product development costs.
This arrangement has been disclosed in Note 3 to Notes to Consolidated
Financial Statements. Canmax capitalized its portion of development costs
incurred based upon FASB 86 criteria during 1994 on each of these EDS
development projects. As development on these projects progressed during
fiscal 1994, it became apparent to management of Canmax that specific orders
from these customers and orders from other customers would not materialize.
Thus, management concluded in the fourth quarter of fiscal 1994 that the EDS
development projects should be written off.
RSMS - REMOTE STORE MANAGEMENT SYSTEM. The remote store management
system (RSMS) was originally conceived as a corporate headquarters system to
remotely access C-Serve locations. Canmax had determined that this type of
system was required to service the emerging and long term needs of the
industry and its customers. Canmax believed that the future success of
C-Serve and future sales opportunities required the completion of this
product.
The RSMS system was to be implemented in a client server environment and
development was planned in two phases. Version one would support the ability
to set up store parameters at the corporate headquarters and down load these
to the remote location. Further, sales information and other pertinent
information collected at the store level could be uploaded to the corporate
headquarters for consolidation, accounting, and reporting purposes. Version
two would include the functionality to support corporate merchandise price
books.
Canmax entered into a contract with Southland during 1993 and the RSMS
project was expanded to include the requirements for Southland. The
requirements for Southland were to be incorporated into the RSMS design. In
mid 1994, Southland amended their requirements to specifically exclude a
client server application.
For the year ended October 31, 1994 Canmax reviewed the RSMS product and
concluded that the project had diverged significantly from its original
design and was now specific to the requirements of Southland. Further, there
was an emerging requirement from the industry which reversed the trends
identified at the commencement of the project, such that price book
management was now more important than two way data interchange.
Consequently, management of Canmax concluded during the fourth quarter of
Fiscal 1994 that the product had limited or no application for customers and
accordingly the unamortized capitalized costs of the software was written
down to its net realizable value of $0.
EDS OPTION EXERCISE
On April 29, 1997, EDS exercised its option to acquire up to 25% of
Canmax's Common Stock, resulting in Canmax issuing an additional 1,598,136
shares. Canmax accounted for this transaction by reclassifying the amount
associated with the option to common stock. EDS then immediately sold its
total interest in Canmax, representing 1,863,364 shares, in a private
transaction to two Texas-based institutional investors. In conjunction with
this transaction, Canmax agreed to extend certain registration rights similar
to those held by EDS with regard to such shares to such investors.
Additionally, EDS and Canmax agreed to amend a license and grant of
rights agreement which specifies rights and obligations of both parties as to
788 of Canmax's site licenses currently owned by EDS, and to terminate all
formal agreements including the aforementioned stock option agreement, as
well as their joint marketing and other supporting business agreements.
Canmax believes that the termination of its relationship with EDS is
beneficial because Canmax will be able to market its products directly
(rather than to EDS) to a much larger customer base within selected target
markets. Additionally, Canmax believes that the termination of the EDS option
will facilitate Canmax's future growth strategies as the dilutive effect of
the EDS option has been eliminated.
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LIQUIDITY AND SOURCES OF CAPITAL
At April 30, 1997, Canmax has net working capital of $1,236,784. During
the six months ended April 30, 1997, Canmax used cash in operating activities
of $635,831. This use of cash is primarily as a result of decreased
collections due to timing of contractual billings to customers on development
projects and timing of payments to vendors offset by sales of software and
hardware inventory on hand at fiscal year end 1996 during the first and
second quarter of 1997. To maintain liquidity during fiscal 1997, Canmax
must increase revenue volume through the successful completion of on-going
development contracts with customers, the introduction of new products to the
marketplace, increasing the market share for existing products and services,
and negotiating new development contracts with customers.
Canmax continues to utilize the majority of its development resources to
complete the NCR/SLC Windows NT based project currently in progress. This
project was originally scheduled to be completed by April 30, 1997. However,
due to external factors and changes in project schedules and requirements
outside the control of Canmax, the completion date for Canmax's development
activities was extended to May 31, 1997, with some testing and implementation
to extend through August 1997. Modifications to project requirements will
increase total project revenues from $9.5 million to $10.3 million. These
modifications will have little impact on gross margins. Through April 30,
1997, approximately $9.5 million in revenues have been recognized under this
contract. Canmax currently has several projects under negotiation that are
expected to absorb existing development resources at the completion of the
NCR/SLC project and generate additional development revenues.
Canmax continues to develop a version of its C-Serve software that runs
under the Microsoft Windows family of operating systems. This product is
expected to be completed in the fourth calendar quarter of 1997. The new
product is being developed in conjunction with the NCR/SLC project noted
above and is expected to include state of the art technology and best
industry practices for the management of retail gas stations and convenience
stores. Completion of the new product is dependent, among other things, on
the successful and timely conclusion of key components of the development
project currently in process for NCR/SLC.
To complete development of the next generation Windows based product,
Canmax will need to perform additional development effort that is not funded
by work currently being performed for SLC. Costs necessary to perform the
additional development, to bring the new product to market and to provide for
infrastructure improvements are estimated to range from $1.5 million to $2.0
million. Canmax has increased its sales and marketing efforts in order to
generate market interest in existing systems as well as new products under
development.
Canmax believes that it may be necessary to raise additional capital to
complete development of its next generation product within the critical
window of opportunity and to provide vital marketing and other support
services. If cash generated by operations is insufficient to satisfy
Canmax's liquidity requirements, Canmax may be required to sell additional
debt or equity securities or obtain lines of credit, delay new product
development or restructure operations to reduce costs. No financing
arrangements to support this development project have been entered into by
Canmax at this time and there can be no assurances that such arrangements
will be available in the future, or, if available, that such arrangements
will be on terms satisfactory to Canmax.
Canmax is reviewing an acquisition strategy within its current industry
and other vertical markets. From time to time Canmax will review acquisition
candidates with products, technologies or other services that could enhance
Canmax's product offerings or services. Any material acquisitions could
result in Canmax issuing or selling additional debt or equity securities,
obtaining additional debt or other lines of credit. These activities may
also result in a decrease to Canmax's working capital depending on the
amount, timing and nature of the consideration to be paid.
The foregoing "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Canmax" section contains various "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act, which represent Canmax's expectations or beliefs
concerning,
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<PAGE>
among other things, future operating results and various components thereof
and the adequacy of future operations to provide sufficient liquidity. Canmax
cautions that such matters necessarily involve significant risks and
uncertainties that could cause actual operating results and liquidity needs
to differ materially from such statements, including, without limitation:
user acceptance of Windows NT as an operating system, continued acceptance of
UNIX based software and Canmax's products and services, timing of completion
of development projects and new products, competitive factors such as pricing
and the release of new products and services by competitors, potential need
for additional financing to fund product development, marketing and related
support services, general economic conditions, product demand and
manufacturing efficiencies. See "Risk Factors."
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SELECTED FINANCIAL INFORMATION OF AGSI
The selected financial information presented below for the years ended September
30, 1996, 1995 and 1994 were derived from the audited financial statements of
AGSI, which are included elsewhere in this Joint Proxy Statement/Prospectus.
The selected financial information presented below for the years ended September
30, 1993 and 1992 were derived from the audited financial statements of AGSI,
which are not included in this Joint Proxy Statement/Prospectus. The selected
financial data presented below for the six months ended March 31, 1997 and 1996
are unaudited but have been prepared on the same basis as the audited financial
statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, which AGSI considers necessary
for a fair presentation of the financial information set forth therein. The
results of operations for the six months ended March 31, 1997 are not
necessarily indicative of results that may be expected for AGSI's fiscal year
ending September 30, 1997. This selected financial information should be read
in conjunction with "Management Discussion and Analysis of Financial Condition
and Results of Operations," and the Financial Statements (including the notes
thereto) of AGSI. See "Index to Financial Statements."
<TABLE>
Six Months
Ended March 31, Fiscal Years Ended September 30,
------------------- ---------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $ 4,703 $ 6,702 $ 12,445 $ 12,082 $ 10,353 $ 5,371 $ 4,474
Cost of systems, software,
development, support and
service agreements 1,510 2,223 4,200 4,758 4,150 2,594 2,142
Operating expenses 3,084 2,793 6,064 4,594 3,581 2,688 2,116
Interest income (expense), net 62 67 142 100 (20) (412) (371)
Writedown of capitalized
software - - - 892 - - -
Net income (loss) 56 1,062 1,403 1,075 2,368 (511) (255)
Net income (loss) per share 0.03 0.64 0.84 0.63 1.40 (0.92) (0.54)
BALANCE SHEET DATA:
Total assets $ 10,110 $ 10,141 $ 10,193 $ 8,804 $ 7,634 $ 5,301 $ 4,178
Working capital (deficiency) 6,282 6,223 6,195 5,267 3,490 878 (117)
Non-current obligations - - - - - 235 3,037
Stockholders' equity (deficit) 8,084 7,687 8,028 6,625 5,550 3,182 (756)
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion provides an analysis of AGSI's results of
operations and liquidity and capital resources.
FACTORS THAT MAY AFFECT FUTURE RESULTS
In this Management's Discussion and Analysis of Financial Condition and
Results of Operations, AGSI makes certain statements as to its expected
financial condition, results of operations, cash flows, and business strategy
and plans for periods after March 31, 1997. All of these statements are
forward-looking statements made pursuant to the safe harbor provisions of
Section 27A of the Securities Act. These statements are not historical and
involve risks and uncertainties. AGSI's actual financial condition, results
of operations, cash flows, and business strategy and plans for future periods
may differ materially due to several factors, including but not limited to
AGSI's ability to control costs and implement its sales and marketing plan,
regional and national economic conditions, changes in consumer demand for
products offered by AGSI, technological advances or the lack thereof, and the
other factors affecting AGSI's operations described in this Joint Proxy
Statement/Prospectus. AGSI cannot control these risks and uncertainties and,
in many cases, cannot predict the risks and uncertainties that could cause
its actual results to differ materially from those indicated by the
forward-looking statements.
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<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations data for the
periods presented:
<TABLE>
Six Months Ended
March 31, Year Ended September 30,
------------------------- ----------------------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Systems $3,153,881 $5,007,791 $ 9,529,884 $ 9,907,056 $ 8,512,754
Software 621,405 948,596 1,483,934 864,042 1,479,526
Development 177,170 203,034 271,526 755,412 136,680
Support and service
agreements 750,214 542,634 1,159,174 555,852 224,158
---------- ---------- ----------- ----------- -----------
Total revenues 4,702,670 6,702,055 12,444,518 12,082,362 10,353,118
---------- ---------- ----------- ----------- -----------
Costs and expenses
Cost of systems 1,352,466 1,876,424 3,572,913 3,554,288 3,788,184
Cost of software 64,193 120,501 203,351 378,119 323,518
Cost of development 14,672 132,075 182,082 762,134 7,039
Cost of support and
service agreements 78,855 94,260 241,843 63,860 31,652
Writedown of capitalized
software - - - 892,060 -
Sales and marketing 887,094 813,246 1,612,475 1,427,587 1,182,185
Product development 515,987 416,966 1,066,365 560,025 582,646
Support services 947,464 700,615 1,654,111 948,557 549,326
General and
administrative 733,653 861,648 1,730,753 1,658,136 1,266,785
---------- ---------- ----------- ----------- -----------
Total costs and
expenses 4,594,384 5,015,735 10,263,893 10,244,766 7,731,335
---------- ---------- ----------- ----------- -----------
Operating income 108,286 1,686,320 2,180,625 1,837,596 2,621,783
Other income (expense)
Interest income 61,563 66,905 141,678 104,386 10,098
Interest expense - - (124) (4,068) (29,648)
Equity loss in FST
Holdings (40,552) (45,883) (87,983) (134,467) (117,701)
---------- ---------- ----------- ----------- -----------
Total other income
(expense) 21,011 21,022 53,571 (34,149) (137,251)
---------- ---------- ----------- ----------- -----------
Income before income
taxes 129,297 1,707,342 2,234,196 1,803,447 2,484,532
Income tax expense 73,043 645,380 831,564 728,583 116,294
---------- ---------- ----------- ----------- -----------
Net income $ 56,254 $1,061,962 $ 1,402,632 $ 1,074,864 $ 2,368,238
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
</TABLE>
87
<PAGE>
The following table sets forth, for the periods presented, the percentage
relationship of certain statement of operations items to total revenues.
<TABLE>
Six Months Ended
March 31, Year Ended September 30,
------------------ ------------------------------
1997 1996 1996 1995 1994
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Systems 67.1% 74.7% 76.6% 82.0% 82.2%
Software 13.2% 14.2% 11.9% 7.2% 14.3%
Development 3.8% 3.0% 2.2% 6.3% 1.3%
Support and service agreements 15.9% 8.1% 9.3% 4.5% 2.2%
------ ------ ------ ------ ------
Total revenues 100.0% 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------ ------
Costs and expenses
Cost of systems 28.8% 28.0% 28.7% 29.4% 36.6%
Cost of software 1.4% 1.8% 1.6% 3.1% 3.1%
Cost of development 0.3% 2.0% 1.5% 6.3% 0.1%
Cost of support and service
agreements 1.7% 1.4% 1.9% 0.5% 0.3%
Writedown of capitalized
software - - - 7.4% -
Sales and marketing 18.9% 12.1% 13.0% 11.8% 11.4%
Product development 11.0% 6.2% 8.6% 4.6% 5.6%
Support services 20.1% 10.5% 13.3% 7.9% 5.3%
General and administrative 15.6% 12.9% 13.9% 13.7% 12.2%
------ ------ ------ ------ ------
Total costs and expenses 97.8% 74.9% 82.5% 84.7% 74.6%
------ ------ ------ ------ ------
Operating income 2.2% 25.1% 17.5% 15.3% 25.4%
Other income (expense)
Interest income 1.3% 1.0% 1.1% 0.9% 0.1%
Interest expense - - - - (0.3%)
Equity loss in FST Holdings (0.9%) (0.7%) (0.7%) (1.1%) (1.1%)
------ ------ ------ ------ ------
Total other income
(expense) 0.4% 0.3% 0.4% (0.2%) (1.3%)
------ ------ ------ ------ ------
Income before income taxes 2.6% 25.4% 17.9% 15.1% 24.1%
Income tax expense 1.6% 9.6% 6.7% 6.0% 1.1%
------ ------ ------ ------ ------
Net income 1.0% 15.8% 11.2% 9.1% 23.0%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
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<PAGE>
SIX MONTHS ENDED MARCH 31, 1997 COMPARED TO SIX MONTHS ENDED MARCH 31, 1996
AGSI derives the majority of its revenues from systems sales which includes
hardware/software systems and peripherals for fueling automation system
solutions. Systems sales decreased 37.0% to $3.2 million for the six months
ended March 31, 1997, compared to $5.0 million for the six months ended March
31, 1996. The decrease is primarily due to a decrease in orders from AGSI's
largest customer. This customer has recently experienced a change in control
and is currently reevaluating its options for pay-at-the-pump and store
automation. AGSI's products are included in the evaluation, and continue to be
considered for portions of the customer's ultimate automated system solution.
This customer accounted for 9.9% and 35.4% of total sales for the six months
ended March 31, 1997 and 1996, respectively.
AGSI also derives revenue from software sales consisting of StoreMaster, a
DOS based convenience store automation solution, and various site management
solutions. Software sales decreased 34.5% to $621,405 for the six months ended
March 31, 1997, compared to $948,596 for the six months ended March 31, 1996.
The decrease for the period is due to a decline in StoreMaster orders which may
be attributed to customers delaying purchasing decisions until the release of
AGSI's Crown Suite, a Windows NT based convenience store automation solution,
which is scheduled for the fourth quarter of the fiscal year ending September
30, 1997.
AGSI also derives revenues from development, support and service agreements
which include funded custom product development, customer support, maintenance
agreements and other services. Development, support and service agreement
revenues increased 24.4% to $927,384 for the six months ended March 31, 1997,
compared to $745,668 for the six months ended March 31, 1996. During the period
ended March 31, 1997 AGSI implemented an aggressive maintenance agreement
program, whereby customers were encouraged to enroll all installed sites in
order to receive firmware upgrades/releases. Customer acceptance of and
enrollment in the program resulted in an increase in maintenance agreement
revenue for the period. In addition, AGSI experienced an increase in support
revenue in connection with the installation, training and support of new product
introductions, which typically require less reliance on AGSI's authorized
service contractors to provide these services.
Gross margin on systems revenues was 57.1% for the six months ended March 31,
1997 compared to 62.5% for the same period of the prior year. The decline is
attributable to increased sales of certain third party in-store POS hardware and
peripherals which historically have lower margins than AGSI's typical fueling
automation solution. Management believes that future sales will consist
primarily of AGSI's typical fueling automation solution and that gross margin
will return to prior period levels.
Gross margin on software revenues remained relatively consistent for the six
months ended March 31, 1997 and 1996 at 89.7% and 87.3%, respectively.
Gross margin on development, support and service agreement revenues was 89.9%
for the six months ended March 31, 1997 compared to 69.6% for the same period of
the prior year. Custom product development contracts vary widely in the amount
of labor required for completion thereby greatly affecting the gross margin
realized at the time of completion. The difference in the gross margin for the
1997 and 1996 period is solely attributable to which custom product development
contracts were completed during that period.
Sales and marketing expenses increased 9.1% to $887,094 for the six months
ended March 31, 1997, compared to $813,246 for the six months ended March 31,
1996. Sales and marketing expenses as a percentage of total revenues was 18.9%
and 12.1% for the six month period ended March 31, 1997 and 1996, respectively.
The increase was associated with an increase in sales personnel and to increased
advertising and trade show related expenses. The increase in sales personnel
resulted from a shift in sales territories due to sales personnel having
previously covered a broader territory. Advertising expenses increased due to
product collateral requirements and continued support for AGSI's advertising
campaign. Trade show expense increased due to increased trade show
participation which is in accordance with AGSI's sales oriented strategy of
decreasing the cost of a sales call by seeing as many prospects and customers as
possible at regional and national trade shows.
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<PAGE>
Product development expenses consist primarily of personnel and other costs
in connection with product development efforts. Product development expenses
increased 23.7% to $515,987 for the six months ended March 31, 1997, compared to
$416,966 for the six months ended March 31, 1996. As a percentage of total
revenue, product development expenses were 11% and 6.2% for the 1997 and 1996
periods, respectively. The increase was due to higher development costs
associated with new product development, including credit card network
authorizors/interfaces and Windows NT based convenience store automation
solutions. AGSI capitalizes proprietary software development costs incurred
subsequent to the establishment of technological feasibility, and prior to
general release of the product to the public. For the six months ended March
31, 1997, software development costs of $405,933 were capitalized by AGSI, as
compared to $442,426 for the six months ended March 31, 1996. AGSI capitalized
44.0% of its product development costs for the six months ended March 31, 1997,
as compared to 51.5% for the six months ended March 31, 1996.
Support services expenses consist primarily of personnel and other costs
associated with the customer call center, field technical support, training and
product documentation functions. Support services expenses increased 35.2% to
$947,464 for the six months ended March 31, 1997, as compared to $700,615 for
the six months ended March 31, 1996. The increase was due primarily to
increased personnel costs associated with the increase in the total support
hours available to customers. Help desk support was increased to 7 day/24 hour
support effective October 1, 1996. As a percentage of total revenues, support
services expenses were 20.1% and 10.5% for the 1997 and 1996 periods,
respectively. The increase was due to a decrease in total revenues while
management continued its commitment to customer support.
General and administrative expenses decreased 14.9% to $733,653 for the six
months ended March 31, 1997, as compared to $861,648 for the six months ended
March 31, 1996. The decrease was primarily due to a decrease in management
bonus expense, which represented 2.3% and 20.3% of general and administrative
expenses for the six months ended March 31, 1997 and 1996, respectively.
Management bonuses are discretionary and based on the operating performance of
the Company. General and administrative expenses as a percentage of total
revenues was 15.6% and 12.9% for the 1997 and 1996 periods, respectively.
Interest income decreased 8.0% to $61,563 for the six months ended March 31,
1997, compared to $66,905 for the six months ended March 31, 1996. The decrease
was primarily due to a decrease in interest earned on AGSI's lower cash
balances.
Equity loss in FST Holdings decreased 11.6% to $40,552 for the six months
ended March 31, 1997, compared to $45,883 for the six months ended March 31,
1996. AGSI and FleetStar, Inc., which is a wholly-owned subsidiary of Jack B.
Kelley, Inc., each own 50% of FST Holdings ("FST"). FST is involved in a
corporate joint venture with Lone Star Energy through FleetStar of Texas, L.L.C.
("FleetStar") which is owned 50% by each. FleetStar develops and operates
compressed natural gas fueling sites, the majority of which are in the
Dallas/Fort Worth metroplex.
The provision for income taxes decreased 88.7% to $73,043 for the six months
ended March 31, 1997, compared to $645,380 for the six months ended March 31,
1996. The decrease in income taxes was primarily attributable to the decrease
in income before income taxes. AGSI's effective tax rate was 56% and 38% for
the six months ended March 31, 1997 and 1996, respectively. AGSI's effective
tax rate for the six months ended March 31, 1997 is adversely affected by lower
earnings which included an equity loss in FST Holdings of $40,552. Excluding
the equity loss results in an effective tax rate of 43% for the period ended
March 31, 1997. The difference between income taxes calculated at the federal
statutory rate of 34% and the effective tax rate is primarily due to state taxes
and a benefit not realized on the equity loss in the FST Holdings investment.
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
Systems sales decreased 3.8% to $9.5 million for the year ended September 30,
1996 ("fiscal 1996"), compared to $9.9 million for the year ended September 30,
1995 ("fiscal 1995"). The decrease is primarily due to a large systems sales
order of approximately $435,000 from an international customer during fiscal
1995, which was not repeated during fiscal 1996. Domestic sales for fiscal 1996
and fiscal 1995 were consistent
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<PAGE>
Software sales increased 71.7% to $1.5 million for fiscal 1996, compared to
$864,042 for fiscal 1995. The increase is attributable to increased sales of
StoreMaster and various site management software to new and existing customers.
Development, support and service agreement revenues increased 9.1% to $1.4
million for fiscal 1996, compared to $1.3 million for fiscal 1995. The increase
was due primarily to agreements with two major customers to provide support
services in connection with system retrofits and/or upgrades for in excess of
1,500 installed customer locations. The increase in support and service
agreement revenue was offset by a decrease in funded custom development revenue
During fiscal 1995, AGSI entered into a custom development contract with a large
international customer which required the development of an on-line proprietary
card processing solution for certain of its international locations. The total
contract was funded by the customer and recognized by AGSI during fiscal 1995.
Gross margin on systems revenues was 62.5% for the year ended September 30,
1996 compared to 64.1% for the prior year. This decrease is primarily due to an
increase in amortization expense associated with capitalized software.
Increased amortization expense is attributable to shortening the amortizable
life of some capitalized software to more appropriately reflect the period it
provides value to AGSI.
Gross margin on software revenues was 86.3% for the year ended September 30,
1996 compared to 56.2% for the prior year. During fiscal 1995, management
evaluated the continued useful life and the net realizable value of capitalized
software products. This evaluation resulted in a write-down of capitalized
computer software development costs of $892,060 and additional amortization of
approximately $136,000. The additional amortization reduced the gross margin on
software revenues for the year ended September 30, 1995. In addition, the
write-down reduced the unamortized value of capitalized software products for
the year ended September 30, 1996 further improving the gross margin on software
revenues.
Gross margin on development, support and service agreement revenues was 70.4%
and 37.0% for the years ended September 30, 1996 and 1995, respectively. During
fiscal 1995, AGSI deferred recognition of approximately $333,000 of revenues in
connection with a funded custom development project with a large international
customer that provided for a one-year trial period. The one-year trial period
expired during fiscal 1996 at which time the customer accepted the project and
the revenue was recognized.
During fiscal 1995, management evaluated the continued useful life and the
net realizable value of capitalized software products. This evaluation resulted
in the write-down of capitalized computer software development costs of
$892,060. Management's evaluation of capitalized software products during
fiscal 1996 did not result in a write-down.
Sales and marketing expenses increased 13.0% to $1.6 million for fiscal 1996,
compared to $1.4 million for fiscal 1995. Sales and marketing expenses as a
percentage of total revenues were 13.0% and 11.8% for the years ended September
30, 1996 and 1995, respectively. The increase was due primarily to higher
compensation expense and related benefits in addition to increased advertising,
trade show and travel expenses. The increase in advertising expense is due to
product literature and collateral requirements. The increase in trade show
expense is primarily attributable to an increase in trade show participation and
staffing requirements at trade shows attended. The increase in travel expenses
is related to an increase in sales staff due to expanding territories.
Product development expenses increased 90.4% to $1.1 million for fiscal 1996,
compared to $560,025 for fiscal 1995. The increase was associated with AGSI's
strategy and continued commitment in connection with its new product development
activities. Increased expenses can be traced to additional research and
development personnel and increased outside consulting costs. AGSI's product
development strategy requires that many of its developed products be written in
current generation language for multiple platforms. In addition, AGSI is
currently developing a Windows NT based convenience store automation solution,
which is scheduled for release in the fourth quarter of the fiscal year ending
September 30, 1997. Product development expenses as a percentage of total
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<PAGE>
revenues were 8.6% and 4.6% for fiscal 1996 and 1995, respectively. In fiscal
1996, software development costs of $647,638 were capitalized by AGSI, as
compared to $485,744 for fiscal 1995. AGSI capitalized 37.8% of its product
development costs in fiscal 1996, as compared to 46.5% in fiscal 1995.
Support services expenses increased 74.4% to $1.6 million for fiscal 1996,
compared to $948,557 for fiscal 1995. The increase was associated with AGSI's
commitment to customer support. Increased expenses are directly attributable to
increased personnel and other costs associated with the expansion of the
customer help desk and training centers. During fiscal 1996, AGSI implemented
new help desk support software and expanded customer support service to 7 days /
24 hour support. In addition, AGSI expanded its training center to facilitate
larger classes and to meet the specific requirements of customers and authorized
service contractors. Support services expenses as a percentage of total
revenues were 13.3% and 7.9% for fiscal 1996 and 1995, respectively. The
increase was due to a decrease in total revenues while management continued its
commitment to customer support.
General and administrative expenses increased 4.4 % to $1.7 million for
fiscal 1996, compared to $1.6 million for fiscal 1995. The increase was due
primarily to higher compensation expense and related benefits caused by
administrative staff additions. General and administrative expenses as a
percentage of total revenues were 13.9% and 13.7% for fiscal 1996 and 1995,
respectively.
Net interest income increased 41.1% to $141,554 for fiscal 1996, compared to
$100,318 for fiscal 1995. The increase was due to interest earned on AGSI's
increased cash balances available for investment during the period.
Equity loss in FST Holdings decreased to $87,983 for fiscal 1996, compared to
$134,467 for fiscal 1995. The decrease in loss was due to increased natural gas
sales for the period resulting in increased gross profit.
The provision for income taxes increased 14.1% to $831,564 for fiscal 1996,
compared to $728,583 for fiscal 1995. The increase is primarily attributable to
an increase in income before income taxes. The difference between income taxes
calculated at the federal statutory rate of 34% and AGSI's effective tax rate of
37% and 40% for fiscal 1996 and 1995, respectively, is primarily due to state
taxes and a benefit not realized on the equity loss in the FST Holdings
investment, partially offset by the tax benefit from a research and development
credit for fiscal 1995.
YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30, 1994
Systems sales increased 16.4% to $9.9 million for fiscal 1995, compared to
$8.5 million for the year ended September 30, 1994 ("fiscal 1994"). The
increase related to increased systems sales to new and existing customers.
Software sales decreased 41.6% to $864,042 for fiscal 1995, compared to $1.5
million for fiscal 1994. The decrease related to decreased sales of convenience
store automation solutions for the period.
Development, support and service agreement sales increased 263.4% to $1.3
million for fiscal 1995, compared to $360,838 for fiscal 1994. The increase was
due primarily to an increase in funded custom development projects and
maintenance revenues.
Gross margin on systems revenues was 64.1% for the year ended September 30,
1995 compared to 55.5% for the same period of the prior year. The increase is
attributable to a decline in amortization expense associated with capitalized
software. Amortization expense declined as the majority of capitalized software
projects were fully amortized during fiscal 1994.
Gross margin on software revenues was 56.2% for the year ended September 30,
1995 compared to 78.1% for the prior year. During fiscal 1995, management
evaluated the continued useful life and the net realizable value of capitalized
software products. This evaluation resulted in a write-down of capitalized
computer software development costs of $892,060 and additional amortization of
approximately $136,000. The additional amortization adversely impacted the
gross margin for fiscal 1995.
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<PAGE>
Gross margin on development, support and service agreement revenues was
37.0% for the year ended September 30, 1995 compared to 89.3% for the prior
year. During 1995, AGSI deferred recognition of approximately $333,000 of
revenues in connection with a funded custom development project with a large
international customer that provided for a one-year trial period.
During fiscal 1995, management evaluated the continued useful life and the
net realizable value of capitalized software projects. This evaluation resulted
in a writedown of capitalized computer software development costs of $892,060.
Management's evaluation of capitalized software products during fiscal 1994 did
not result in a material write-down.
Sales and marketing expenses increased 20.8% to $1.4 million for fiscal 1995,
compared to $1.2 million for fiscal 1994. The increase was due primarily to
increase sales and marketing staff and increased advertising and trade show
expenses. Sales and marketing expenses as a percentage of total revenues were
11.8% and 11.4% for fiscal 1995 and 1994, respectively.
Product development expenses decreased 3.9% to $560,025 for fiscal 1995,
compared to $582,646 for fiscal 1994. The decrease was primarily due to
decreased capitalization of software development costs. Product development
expenses as a percentage of total revenues were 4.6% and 5.6% for fiscal 1995
and 1994, respectively. In fiscal 1995, software development costs of $485,744
were capitalized by the Company, as compared to $331,998 for fiscal 1994. The
Company capitalized 46.5% of its product development costs in fiscal 1995, as
compared to 36.3% in fiscal 1994.
Support services expenses increased 72.7% to $948,557 for fiscal 1995,
compared to $549,326 for fiscal 1994. The increase was due primarily to
increased personnel and other costs associated with the expansion of the
customer support and training centers. Support services expenses as a
percentage of total revenues were 7.9% and 5.3% for fiscal 1995 and 1994,
respectively.
General and administrative expenses increased 30.9% to $1.6 million for
fiscal 1995, compared to $1.3 million for fiscal 1994. The increase was due
primarily to higher compensation expense and related benefits in addition to
increased professional services, office rent and travel expenses. General and
administrative expenses as a percentage of total revenues were 13.7% and 12.2%
for fiscal 1995 and 1994, respectively.
Interest income increased 933.7% to $104,386 for fiscal 1995, compared to
$10,098 for fiscal 1994. The increase was due to an increase in interest earned
on AGSI's higher cash balances available for investment during the period.
Interest expense decreased 86.3% to $4,068 for fiscal 1995, compared to
$29,648 for fiscal 1994. The decrease was due to the decrease in interest
accrued in connection with amounts outstanding to a bank pursuant to a line of
credit agreement. The line of credit agreement expired on April 5, 1995.
Equity loss in FST Holdings increased 14.2% to $134,467 for fiscal 1995,
compared to $117,701 for fiscal 1994. The increase in loss was due to increased
marketing expense and general and administrative expense associated with
construction and promotion of new CNG fueling sites.
The provision for income taxes increased 526.5% to $728,583 for fiscal 1995,
compared to $116,294 for fiscal 1994. Although income before taxes decreased
for fiscal 1995, the provision increased due to the utilization of net
operating loss carryforwards during fiscal 1994. The provision for fiscal 1994
is primarily state taxes and alternative minimum tax liability, as AGSI had
substantial net operating losses to offset income for federal income tax
purposes. The difference between income taxes calculated at the federal
statutory rate of 34% and AGSI's effective tax rate of 40% for fiscal 1995, is
primarily due to state taxes and a benefit not realized on the equity loss in
the FST Holdings investment, partially offset by the benefit from a research and
development credit.
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LIQUIDITY AND CAPITAL RESOURCES
AGSI requires cash primarily for, financing inventory, capital expenditures,
computer software development and computer software acquisitions. Historically,
AGSI has met these liquidity requirements primarily through cash flow generated
from operating activities.
Net cash used for operating activities was $553,736 for the six months ended
March 31, 1997, and was primarily attributable to minimal income generated for
the six-month period, increased inventory levels, increased accounts receivable
and the payment of accrued management bonuses. The increase in inventory is
attributable to the timing of shipments from the manufacturer and anticipated
sales based on forecasts. The increase in receivable reflects increased
shipments near month end primarily attributable to the requested delivery
schedule of one large customer. AGSI generated net cash from operations of $1.0
million for the six months ended March 31, 1996. AGSI generated net cash from
operations of $1.3 million, $2.5 million and $2.7 million in fiscal 1996, 1995
and 1994, respectively.
Cash used for investing activities was $225,684 and $386,693 for the six
months ended March 31, 1997 and 1996, respectively. Cash used was related to
the acquisitions of property and equipment and capitalization of computer
software development costs. Cash used for investing activities was $1.1
million, $0.9 million and $0.7 million in fiscal 1996, 1995 and 1994,
respectively. Cash used was related to the acquisitions of property and
equipment, computer software development, computer software acquisitions and
investments in FST Holdings. Capital expenditures were primarily attributable
to expenditures for computer equipment related to AGSI's increased staffing
levels during fiscal years 1994 through 1996. AGSI anticipates that cash from
operations will be sufficient to fund its planned capital expenditures for the
remainder of fiscal 1997.
AGSI had no financing activities for the six months ended March 31, 1997 and
1996, respectively, and fiscal 1996. Cash used by financing activities was
$235,369 and $951,215 for fiscal years 1995 and 1994, respectively, and was
related to the payment of a secured note payable for the StoreMaster computer
software acquisition and to payments made to a bank pursuant to a line of credit
agreement, which expired on April 5, 1995.
AGSI expects to satisfy its anticipated demands and commitments for cash in
the next twelve months from existing cash and cash provided by operations. If
AGSI's requirements for working capital and capital expenditures, including
future acquisitions, exceed currently anticipated levels, AGSI may be required
to obtain additional funds, if available, in the credit or capital markets.
INFLATION
AGSI, as well as the petroleum marketing industry in general, may be
adversely affected during periods of high inflation, primarily because of higher
inventory costs. Inflation also increases AGSI's financing, labor and material
costs. AGSI attempts to pass through to its customers any increases in its
costs through increased sales prices and, to date, inflation has not had a
material adverse effect on AGSI's results of operations. However, there is no
assurance that inflation will not have a material adverse impact on AGSI's
future results of operations.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Canmax consists of 44,169,100 shares of
Canmax Common Stock. As of August 8, 1997, there were 6,611,005 shares of
Canmax Common Stock held by 480 stockholders of record.
The Canmax Common Stock is the only class of capital stock authorized by
Canmax's Articles of Incorporation. Each share of Canmax Common Stock ranks
equally as to dividends, voting rights, participation in assets on winding-up
and in all other respects. No shares have been or will be issued subject to call
or assessment. There are no pre-emptive rights, provisions for redemption or
purchase for either cancellation or surrender or provisions for sinking or
purchase funds. Provisions as to the modification, amendment or variation of
such rights or such provisions are contained in the laws of the State of
Wyoming. All outstanding shares of Canmax Common
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Stock are fully paid and non-assessable, and the shares of Canmax Common
Stock offered hereby will, upon issuance (as described herein), be fully paid
and non assessable.
Canmax's Common Stock trades on the Nasdaq SmallCap Market tier of The
Nasdaq Stock Market under the symbol CNMX. On November 25, 1995, Canmax's Common
Stock was granted a temporary exception to the Minimum Bid Price listing
requirement and Canmax's stock remained listed and traded under the symbol
CNMXC. At the time, Canmax's Common Stock had been trading below the minimum bid
price of $1.00. Nasdaq granted Canmax a temporary listing exception subject to
Canmax achieving a minimum bid price in excess of $1.00 on or before January 22,
1996. In order to meet the Nasdaq listing requirements, the Board of Directors
of Canmax approved a one-for five reverse stock split effective December 21,
1995. No fractional shares were issued pursuant to such change. In lieu of
issuing fractional shares, one additional share was issued to replace the
fractional share. From this date, Canmax had a temporary new trading symbol of
CNMCD, previously CNMXC. Canmax's Common Stock has traded in excess of the
minimum bid price requirement since December 21, 1995. On January 15, 1996,
Nasdaq advised Canmax that it was in compliance with all requirements necessary
for continued listing on The Nasdaq SmallCap Market tier of The Nasdaq Stock
Market. Effective January 17, 1996, Canmax's trading symbol reverted back to
CNMX. While Canmax anticipates meeting the requirements for continued listing on
the Nasdaq SmallCap Market in the future, there can be no assurance that Canmax
will continue to comply with the listing requirements. See "Risk Factors -
Proposed Increased Listing Standards."
REGISTRATION RIGHTS
The beneficial owners of 1,863,364 shares of Canmax Common Stock currently
outstanding have the right to request that Canmax effect the registration of any
or all of such shares or to include any or all of such shares in any
registration statement to be filed by Canmax relating to the registration of
Canmax Common Stock under the Securities Act (other than registration statements
on Form S-4 or Form S-8). The holders of such shares, the Dodge Jones Foundation
(with respect to 1,000,000 shares) and Founders Equity Group ("Founders") (with
respect to 863,364 shares), acquired such shares from EDS on April 29, 1997. See
"Information Concerning Canmax - Recent Events - EDS Option Exercise." In
connection with such transaction, Canmax extended to such investors registration
rights similar to the registration rights formerly held by EDS. The registration
rights agreement with Founders requires Canmax to file with the Commission,
within 75 days of demand, a registration statement covering the shares of Canmax
Common Stock requested to be included in the registration statement or incur
registration penalties of 50,000 shares per month until such registration
statement is filed or until the demand registration is withdrawn. On May 9,
1997, Founders requested that Canmax file a registration statement covering all
of its shares of Canmax Common Stock. Founders has agreed to extend the date
for Canmax's registration obligation until August 26, 1997 to allow Canmax to
file such registration statement immediately following the filing of the
registration statement of which this Joint Proxy Statement/Prospectus forms a
part. As consideration for such extension, Canmax agreed to grant to Founders a
warrant to purchase up to 50,000 shares of Canmax Common Stock at an exercise
price of $2.00 per share. Canmax has agreed to grant to Founders the right to
include the shares underlying the warrant in future registrations of Canmax
Common Stock (other than registration statements on Form S-4 or Form S-8).
In addition, Canmax has agreed to file within 60 days following the
consummation of the Merger a registration statement to permit resales of shares
of Canmax Common Stock received in the Merger by certain former affiliates of
AGSI. Canmax has also agreed to include in such registration statement shares
issuable upon the exercise of the warrants granted to Messrs. Nicholson and Upp
as consideration for certain noncompetition agreements. See "The Merger -
Noncompetition Agreements;" "The Merger - Transferability of Canmax Common
Stock;" and "The Merger - Interested Parties."
Pursuant to the terms of employment agreements entered into between Canmax
and Roger D. Bryant, its President and Chief Executive Officer, Debra L.
Burgess, its Executive Vice President and Chief Operating Officer and Philip M.
Parsons, its Executive Vice President and Chief Financial Officer, such persons
were granted warrants to require shares of Canmax Common Stock that vest upon
Canmax's achieving certain financial performance results or a Change of Control.
See "Information Concerning Canmax - Management - Employment and Change of
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Control Agreements." These warrants entitle the holders thereof to request the
registration of the shares issuable pursuant to such warrants or to include such
shares in other registration statements (other than on Form S-4 or S-8) of
Canmax.
CHANGE OF CONTROL AND SEVERANCE ARRANGEMENTS
The employment agreements between Canmax and certain executive officers
provide for an immediate vesting of options and warrants held by such persons
upon a "Change of Control" and provide such persons with certain severance
benefits arising from terminations following a Change of Control or an
involuntary termination. See "Information Concerning Canmax - Management -
Employment and Change of Control Agreements."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Canmax Common Stock is Montreal
Trust Company.
COMPARISON OF RIGHTS OF HOLDERS OF SHARES OF CANMAX COMMON STOCK
WITH RIGHTS OF HOLDERS OF AGSI COMMON STOCK
The rights of the stockholders of AGSI are governed by the DGCL. Upon
consummation of the Merger, the former shareholders of AGSI (other than AGSI
shareholders who receive cash in lieu of fractional shares of Canmax Common
Stock and AGSI shareholders who perfect their dissenters' rights) will become
shareholders of Canmax, a Wyoming corporation. As stockholders of Canmax, such
holders' rights will differ in certain respects (in some cases materially) from
those presently held. The rights of Canmax shareholders will be established by
the Wyoming Business Corporation Act ("WBCA"), the Articles of Incorporation of
Canmax (the "Canmax Articles") and the Bylaws of Canmax (the "Canmax Bylaws").
Certain differences and similarities between the rights of stockholders of
AGSI and those of shareholders of Canmax are set forth below. This summary is
not intended to be relied upon as an exhaustive list of differences or a
detailed description and analysis of the provisions discussed and is qualified
in its entirety by the WBCA, the Canmax Articles, the Canmax Bylaws, the DGCL,
the Certificate of Incorporation of AGSI (the "AGSI Certificate") and the Bylaws
of AGSI (the "AGSI Bylaws").
GENERALLY
The Canmax Articles authorize an aggregate of 44,169,100 shares of Canmax
Common Stock.
The AGSI Certificate authorizes an aggregate of 3,000,000 shares of AGSI
Common Stock.
BUSINESS COMBINATIONS
Generally, under the DGCL, the approval by the affirmative vote of the
holders of a majority of the outstanding stock of a corporation entitled to vote
on the matter is required for a merger or consolidation or sale, lease or
exchange, of all or substantially all of a corporation's assets to be
consummated.
Under the WBCA, unless the WBCA, the Articles of Incorporation or the Board
of Directors acting pursuant to the WBCA require a greater vote or a vote by
voting groups, the approval by the affirmative vote of the holders of a majority
of the outstanding stock of a corporation entitled to vote or of each voting
group entitled to vote on the matter is required for a merger or share exchange.
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DISSENTERS' RIGHTS
Under the DGCL, stockholders generally have the right to demand and
receive payment of the fair value of their stock in the event of a merger or
consolidation; provided, however, that no dissenters or appraisal rights are
available for the shares of any class or series of stock which, at the record
date for the meeting held to approve such transaction, were either (i) held
of record by more than 2,000 stockholders or (ii) listed on a national
securities exchange or, only under the DGCL, designated as a national market
system security on an inter-dealer quotation system by the NASD. Even if the
shares of any class or series of stock meet the requirements of clause (i) or
(ii) above, appraisal rights are available for such class or series if the
holders thereof receive in the merger or consolidation anything except: (a)
shares of stock of the corporation surviving or resulting from such merger or
consolidation; (b) shares of stock of any other corporation which at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or held of record by more than 2,000
stockholders or, only under the DGCL, designated as a national market system
security on an inter-dealer quotation system by the NASD; (c) cash in lieu of
fractional shares of the corporations described in clause (a) or (b) of this
sentence; or (d) any combination of shares of stock and cash in lieu of
fractional shares described in the foregoing clauses (a), (b) and (c). The
stockholders of AGSI will be entitled to exercise appraisal rights in
connection with the Merger.
Under the WBCA, shareholders generally have the right to dissent from,
and to obtain payment of the fair value of their shares in the event of a
merger or consolidation, a share exchange or a sale or exchange of all or
substantially all of the property of a corporation. The WBCA imposes
significant duties on shareholders who wish to avail themselves of the right
to demand and receive payment of the fair cash value of their stock, and any
shareholder who does not satisfy these duties will not be entitled to payment
for his or her shares. The shareholders of Canmax will not have the right to
exercise dissenters or appraisal rights in connection with the Merger.
STATE TAKEOVER STATUTES
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
Section 203 of the DGCL generally prohibits any business combination
(defined to include a variety of transactions, including (i) mergers and
consolidations; (ii) sales or dispositions of assets having an aggregate
market value equal to 10% or more of the aggregate market value of the
corporation determined on a consolidated basis; (iii) issuances of stock
(except for certain pro rata and other issuances); and (iv) disproportionate
benefits from the corporation (including loans and guarantees)) between a
Delaware corporation and any interested stockholder (defined generally as any
person who, directly or indirectly, beneficially owns 15% or more of the
outstanding voting stock of the corporation) for a period of three years
after the date on which the interested stockholder became an interested
stockholder. These restrictions do not apply, however, (a) if, prior to such
date, the board of directors of the corporation approved either the business
combination or the transaction which resulted in such stockholder becoming an
interested stockholder; (b) if, upon consummation of the transaction
resulting in such stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
corporation at the time the transaction was commenced (excluding, for the
purposes of determining the number of shares outstanding, shares owned by
persons who are directors and also officers and by certain employee plans of
the corporation); (c) if, on or subsequent to such date, the business
combination is approved by the board of directors and the holders of at least
two-thirds (2/3) of the shares not involved in the transaction; or (d) under
certain other circumstances.
In addition, a Delaware corporation may adopt an amendment to its
Certificate of Incorporation or Bylaws expressly electing not to be governed
by Section 203 of the DGCL if, in addition to any other vote required by law,
such amendment is approved by the affirmative vote of a majority of the
shares entitled to vote. Such amendment will not, however, be effective until
12 months after such stockholder vote and will not apply to any business
combination with an interested stockholder who was such on or prior to the
effective date of such amendment.
AGSI has not adopted an amendment to either the AGSI Certificate or the
AGSI Bylaws electing not to be governed by Section 203 of the DGCL.
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Section 17-18-104 of the Wyoming Management Stability Act ("WMSA")
generally restricts the ability of a "Qualified Corporation" (defined in the
WMSA to include certain publicly traded corporations incorporated in Wyoming
- -generally having at least $10,000,000 of assets and in excess of 1,000
record stockholders - and with substantial business operations within the
state) to engage in any business combination (defined to include a variety of
transactions, including (i) any merger, consolidation or share exchange; (ii)
any sale, lease, exchange, mortgage, pledge, transfer or other disposition of
assets having an aggregate market value or book value equal to 10% or more of
the aggregate market value or book value of the corporation determined on a
consolidated basis; (iii) any issuance or transfer of stock (except for
certain prorata and other issuance); (iv) disproportionate benefits from the
corporation (including loans and guarantees); and (v) any agreements,
arrangements or understandings relating to the adoption of a plan or a
proposed plan for liquidation and dissolution of the corporation) with an
interested shareholder (defined generally as any person who, directly or
indirectly, beneficially owns 15% or more of the outstanding voting stock of
the corporation) for a period of three years after the date on which the
interested shareholder became an interested shareholder. These restrictions
do not apply, however, (a) if, prior to such date, the board of directors of
the corporation approved either the business combination or the transaction
which resulted in such shareholder becoming an interested shareholder, (b)
if, on or subsequent to such date, the business combination is approved by
the board of directors and the holders of at least 2/3rds of the voting
shares not involved in the transaction, or (c) under certain other
circumstances.
In addition, a Wyoming corporation may adopt an amendment to its
Articles of Incorporation or Bylaws electing not to be governed by Section
17-18-104 of the WMSA or by filing a statement making the election with the
Secretary of State, such election to be authorized by the board of directors
of the corporation. The election made by the corporation shall be effective
immediately upon adoption of the Bylaws or on the date of filing with the
Secretary of State.
Canmax has not adopted an amendment to either the Canmax Articles or the
Canmax Bylaws electing not to be governed by Section 17-18-104 of the WMSA;
however, Canmax does not meet the requirements of a Qualified Corporation and
therefore is not subject to the protections of the WMSA.
WYOMING CONTROL SHARE ACQUISITION STATUTE
Under the WMSA, shares of a Qualified Corporation acquired in a "control
share acquisition" do not have voting rights unless conferred by the
stockholders of such corporation pursuant to the WMSA. As used in the WMSA, a
"control share acquisition" generally means the acquisition by any person (an
"acquiring person") of shares of voting stock giving the acquiring person
direct or indirect voting power in the election of directors within any of
the following ranges: (i) 1/5th or more but less than 1/3rd of such voting
power; (ii) 1/3rd or more but less than a majority of such voting power; or
(iii) a majority or more of such voting power. An acquiring person may make
a control share acquisition only if: (i) such person delivers an acquiring
person's statement to a Qualified Corporation, and (ii) a resolution is
adopted and approved by both a majority of (a) all outstanding voting shares
including interested shares (as hereafter defined), and (b) all outstanding
shares, excluding interested shares. "Interested shares" means the shares of
a Qualified Corporation in respect of which any of the following persons may
exercise or direct the exercise of the voting power of a Qualified
Corporation in the election of directors: (i) the acquiring person, (ii) any
officer of a Qualified Corporation elected or appointed by the directors of a
Qualified Corporation, or (iii) any employee of Canmax who is also a director
of a Qualified Corporation. Canmax has not taken any corporate action to opt
out of the Wyoming Control Share Acquisition Statute; however Canmax does not
meet the requirements of a Qualified Corporation and therefore is not subject
to the protections of the WMSA.
WYOMING SHAREHOLDER TAKEOVER PROTECTION STATUTE
The WMSA requires that any offeror (defined as any person who makes or in
any way participates in making a takeover offer), before making a takeover offer
with regard to a Qualified Corporation, shall file with the Secretary of State
certain information specified in the Wyoming Securities Act or as prescribed by
the Secretary of State, and shall, not later than the filing date of the
statement, deliver a copy of the statement to the target company
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at its principal office or to its registered agent for service of process in
the State of Wyoming. No takeover offer shall be made which is not made to
all offerees holding the same class of equity securities of a Qualified
Corporation on substantially equivalent terms. No stock shall be contracted
for, purchased or paid for pursuant to a takeover offer within the first 20
business days after the offer is made and no shares shall be purchased or
paid for in violation of any order of the Secretary of State. No offeror may
acquire in any manner any equity securities of any class of a Qualified
Corporation at any time within two years following the conclusion of a
takeover offer with respect to that class, including, but not limited to,
acquisitions made by purchase, exchange, merger, consolidation, partial or
complete liquidation, redemption, reverse stock split and any other
recapitalization or reorganization unless the holder of that equity security
is also afforded, at the time of that acquisition, a reasonable opportunity
to dispose of that security to the offeror upon substantially equivalent
terms. For purposes of the WMSA, a "takeover offer" means an offer to acquire
or an acquisition of any equity security of a Qualified Corporation pursuant
to a tender offer or request or invitation for tenders, if, after the
acquisition, the offeror is or will be directly or indirectly a record or
beneficial owner of more than 10% of any class of the outstanding equity
securities of a Qualified Corporation.
A Wyoming corporation may elect not to be governed by the Shareholder
Takeover Protection Statute (i) by adopting a specific provision in its
Articles of Incorporation; (ii) through a statement in the Bylaws that the
corporation elects not to be subject to the restrictions of the shareholder
takeover protection provisions, such election to be effective immediately
upon adoption of the Bylaws unless the Articles of Incorporation provide
otherwise; or (iii) by filing a statement with the Secretary of State making
the election not to be governed by such statute, such election to be
effective from the date of filing with the Secretary of State. If a
corporation has elected not to be subject to the provisions of the
Shareholder Takeover Protection Statute, such provisions will not apply to
the following: (i) an acquisition by an offeror, if the instant transaction
and all acquisitions of equity securities of the same class during the
preceding 12 months by the offeror or any of its affiliates do not exceed 2%
of that class; or (ii) an acquisition determined by order of the Secretary of
State to be a takeover offer but is not made for the purpose of, and not
having the effect of, changing or influencing the control of a Qualified
Corporation. Canmax has not made an election to opt out of the Shareholder
Takeover Protection Statute; however, Canmax does not meet the requirements
of a Qualified Corporation and therefore is not subject to the protections of
the WMSA.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation, a proposed amendment to the Certificate of Incorporation
requires the affirmative vote of a majority of all shares outstanding and
entitled to be cast on the matter. If any such amendment would adversely
affect the rights of any holders of shares of a class or series of stock, the
vote of the holders of a majority of all outstanding shares of the class or
series, voting as a class, is also necessary to authorize such amendment. The
AGSI Certificate does not provide additional requirements regarding
amendments to its Certificate of Incorporation.
Under the WBCA, unless the WBCA, the Articles or Incorporation or the
Board of Directors acting pursuant to the WBCA require a greater vote or a
vote by voting groups, a proposed amendment to the Articles of Incorporation
requires the affirmative vote of the holders of a majority of the votes
entitled to be cast on the amendment or of each voting group entitled to vote
on the amendment. The Canmax Articles do not provide additional requirements
regarding amendments to its Articles of Incorporation.
AMENDMENTS TO BYLAWS
Under the DGCL, the power to adopt, alter, amend and repeal the Bylaws
is vested exclusively in the stockholders, except to the extent that the
Certificate of Incorporation vests such power in the board of directors. The
AGSI Certificate vests in its Board of Directors the power to adopt, alter,
amend, or repeal the Bylaws. The AGSI Bylaws provide that the Bylaws may be
altered, amended or repealed, and new Bylaws may be made by (i) the Board of
Directors by vote of a majority of the number of directors then in office and
acting at any meeting of directors or (ii) the stockholders at any annual
meeting of stockholders without notice, or at a special meeting of
stockholders, provided notice of the proposed amendment to the Bylaws is
given. Further, the AGSI Bylaws state
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that any Bylaws made or altered by the stockholders may be altered or
repealed by either the Board of Directors or the stockholders.
Under the WBCA, a corporation's board of directors may amend or repeal
the Bylaws unless (i) the Articles of Incorporation or the WBCA reserves such
power exclusively to the shareholders in whole or in part, or (ii) the
shareholders in amending or repealing a particular Bylaw provide expressly
that the Board of Directors may not amend or repeal that Bylaw, provided that
a Bylaw that fixes a greater quorum or voting requirement for shareholders
under the WBCA may not be adopted, amended or repealed by the Board of
Directors. The Canmax Bylaws provide that the power to alter, amend or
repeal the Bylaws and to adopt new Bylaws is reserved to the Board of
Directors, to be exercised by a majority vote of the Board of Directors.
PREEMPTIVE RIGHTS
Under the DGCL, a stockholder does not possess preemptive rights unless
such rights are specifically granted in the Certificate of Incorporation. The
AGSI Certificate does not provide for preemptive rights.
Under the WBCA, a shareholder does not possess preemptive rights unless
such rights are specifically granted in the Articles of Incorporation. The
Canmax Articles do not provide for preemptive rights.
DIVIDEND SOURCES
Under the DGCL, a board of directors may authorize a corporation to make
distributions to its stockholders, subject to any restrictions in its
Certificate of Incorporation, either (i) out of surplus; or (ii) if there is
no surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Under the DGCL, no distribution
out of net profits is permitted, however, if the corporation's capital is
less than the amount of capital represented by the issued and outstanding
stock of all classes having a preference upon the distribution of assets,
until such deficiency has been repaired. The AGSI Certificate does not
provide additional requirements regarding the distribution of dividends.
Under the WBCA, a Board of Directors may authorize a corporation to make
distributions to its shareholders subject to any restrictions imposed by the
Articles of Incorporation, provided that no distribution may be made if after
giving it effect (i) the corporation would not be able to pay its debts as
they become due in the usual course of business, or (ii) the corporation's
total assets would be less than the sum of its total liabilities plus (unless
the Articles of Incorporation permit otherwise) the amount that would be
needed, if the corporation were to be dissolved at the time of distribution,
to satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the distribution. The
Canmax Articles do not provide additional requirements regarding the
distribution of dividends.
DURATION OF PROXIES
Generally, under the DGCL, no proxy is valid for more than three years
after its date unless otherwise provided in the proxy. The AGSI Bylaws do not
alter the effective period of a proxy.
Under the WBCA, no proxy is valid for more than eleven months unless a
longer period is expressly provided in the proxy. The Canmax Bylaws do not
alter the effective period of a proxy.
STOCKHOLDER ACTION WITHOUT A MEETING
Under the DGCL, action requiring the vote of stockholders may be taken
without a meeting, without prior notice and without a vote, by the written
consent of stockholders having not less than the minimum number of votes that
would be necessary to take such action at a meeting at which all shares
entitled to vote thereon were present and acted. The AGSI Bylaws do not
provide additional requirements regarding stockholder action by written
consent.
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Under the WBCA, action required or permitted by the WBCA to be taken at
a shareholder's meeting may be taken without a meeting if notice of the
proposed action is given to all voting shareholders and the action is taken
by the holders of all shares entitled to vote on the action. The action
shall be evidenced by one or more written consents describing the action
taken, signed, either manually or by facsimile, by the holders of the
requisite number of shares entitled to vote on the action, and delivered to
the corporation for inclusion in the minutes or filing with the corporate
records. The Canmax Bylaws do not provide additional requirements regarding
shareholder action by written consent.
SPECIAL STOCKHOLDER MEETINGS
The DGCL provides that a special meeting of stockholders may be called
by the Board of Directors or by such person or persons as may be authorized
by the Certificate of Incorporation or by the Bylaws. The AGSI Bylaws permit
the Board of Directors, the Chairman of the Board or the Vice Chairman of the
Board to call a special meeting of the stockholders for any purpose or
purposes.
The WBCA provides that a special meeting of shareholders may be called
by the Board of Directors, any person or persons authorized by the Articles
of Incorporation or Bylaws, or the holders of at least 10% of all votes
entitled to be cast on any issue proposed to be considered at the proposed
special meeting upon one or more written demands by such holders. The Canmax
Bylaws provide that special meetings of the shareholders may be called by the
Board of Directors or by the shareholders holding at least 10% of all of the
votes entitled to be cast on any issue proposed to be considered at the
proposed special meeting.
CUMULATIVE VOTING
The DGCL permits cumulative voting for the election of directors if
provided for in a corporation's Certificate of Incorporation. The ASGI
Certificate does not provide for cumulative voting for the election of
directors.
The WBCA permits cumulative voting for the election of directors if
provided for in the corporation's Articles of Incorporation. The Canmax
Articles do not provide for cumulative voting for the election of directors.
NUMBER AND ELECTION OF DIRECTORS
The DGCL permits the Certificate of Incorporation or the Bylaws of a
corporation to contain provisions governing the number and terms of
directors. However, if the Certificate of Incorporation contains provisions
fixing the number of directors, such number may not be changed without
amending the Certificate of Incorporation. The ASGI Certificate does not fix
the number of directors.
The DGCL permits the Certificate of Incorporation of a corporation, the
initial Bylaws or a Bylaw adopted by the stockholders to provide that
directors be divided into one, two or three classes. The term of office of
one class of directors shall expire each year with the terms of office of no
two classes expiring the same year. AGSI has not established a classified
Board of Directors.
The WBCA permits the Articles of Incorporation or the Bylaws of a
corporation to contain provisions governing the number and terms of
directors, provided that the number of directors shall not be less than one.
The Articles of Incorporation or Bylaws may establish a variable range for
size of the Board of Directors by fixing a minimum and maximum number of
directors and the number of directors may be fixed or changed from time to
time within such range by the shareholders or the Board of Directors. The
terms for all directors expire at the next annual meeting of the shareholders
following their election unless their terms are staggered under the
provisions of the WBCA. The Canmax Bylaws provide that the number of
directors shall be fixed from time to time by resolution of the Board of
Directors and that each director shall hold office until the next annual
meeting of shareholders or until his or her successor has been elected and
qualified. The Canmax Bylaws further state that directors shall be
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<PAGE>
natural persons who are eighteen years of age or older, but need not be
residents of Wyoming or shareholders of Canmax.
The WBCA provides that if there are three or more directors, the
Articles of Incorporation may provide for staggered terms by dividing the
total number of directors into two or three groups, with each group
containing one-half or one-third of the total, as the case may be. The term
of office of one class of directors shall expire each year with the terms of
office of no two classes expiring in the same year. Canmax has not
established staggered terms for their Board of Directors.
REMOVAL OF DIRECTORS
The DGCL provides that a director or directors may be removed with or
without cause by the holders of a majority of the shares then entitled to
vote at an election of directors, except that (i) members of a classified
board may be removed only for cause, unless the Certificate of Incorporation
provides otherwise and (ii) in the case of a corporation having cumulative
voting, if less than the entire board is to be removed, no director may be
removed without cause if the votes cast against such director's removal would
be sufficient to elect such director if then cumulatively voted at an
election of the entire board of directors or of the class of directors of
which such director is a part. The AGSI Bylaws provide that any director may
be removed at any time with or without cause by the affirmative vote of the
stockholders having a majority of the voting power at a special meeting of
the stockholders called for that purpose.
The WBCA provides that the shareholders may remove one or more directors
with or without cause unless the Articles of Incorporation provide that the
directors may be removed only for cause, except that (i) if a director is
elected by a voting group of shareholders, only the shareholders of that
voting group may participate in the vote to remove him; (ii) if cumulative
voting is authorized, a director may not be removed if the number of votes
sufficient to elect him under cumulative voting is voted against his removal,
or if cumulative voting is not authorized, a director may be removed only if
the number of the votes cast to remove him exceeds the number of votes cast
not to remove him; and (iii) a director may be removed by the shareholders
only at a meeting called for the purpose of removing him and the meeting
notice shall state that the purpose or one of the purposes of the meeting is
removal of a director. The Canmax Bylaws provide that the shareholders may
remove the entire Board of Directors or any lesser number with or without
cause, at a meeting called expressly for the purpose of removal of directors
by a vote of the holders of a majority of the shares then entitled to vote at
an election of directors.
VACANCIES
Under the DGCL, unless otherwise provided in the Certificate of
Incorporation or the Bylaws, vacancies on the Board of Directors and newly
created directorships resulting from an increase in the authorized number of
directors may be filled by a majority of the directors then in office,
although less than a quorum, or by the sole remaining director, provided
that, in the case of a classified board, such vacancies and newly created
directorships may be filled by a majority of the directors elected by such
class, or by the sole remaining director so elected. In the case of a
classified board, directors elected to fill vacancies or newly created
directorships shall hold office until the next election of the class for
which such directors have been chosen, and until their successors have been
duly elected and qualified. In addition, if, at the time of the filing of any
such vacancy or newly created directorship, the directors in office
constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Delaware Court of Chancery may,
upon application of any stockholder or stockholders holding at least 10% of
the total number of outstanding shares entitled to vote for such directors,
summarily order an election to fill any such vacancy or newly created
directorship, or replace the directors chosen by the directors then in
office. Neither the AGSI Certificate nor the AGSI Bylaws provide additional
requirements regarding vacancies of directors.
Under the WBCA, unless the Articles of Incorporation provide otherwise, if
a vacancy occurs on the Board of Directors, including a vacancy resulting from
an increase in the number of directors, the shareholders or the Board of
Directors may fill the vacancy, except that if the directors remaining in office
constitute fewer than a
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<PAGE>
quorum, the board of directors may fill the vacancy by the affirmative vote
of a majority of all directors remaining in office. If the vacancy was held
by a director elected by a voting group of shareholders and if such vacancy
is to be filled by the shareholders, only the holders of shares of that
voting group are entitled to vote to fill such vacancy. In addition to the
foregoing statutory provisions, the Canmax Bylaws provide that any
directorship to be filled by reason of an increase in the number of directors
may be filled by the affirmative vote of a majority of the directors then in
office or by election at an annual meeting or at a special meeting called for
that purpose. A director chosen to fill a position resulting from an increase
in the number of directors shall hold office until the next election of
directors by the shareholders and until his or her successor shall have been
elected and qualified.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the DGCL, a corporation may indemnify a director, officer,
employee or agent of a corporation against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was
unlawful. In the case of an action brought by or in the right of a
corporation, the corporation may indemnify a director, officer, employee or
agent of the corporation against expenses (including attorneys' fees)
actually and reasonably incurred by him or her if he or she acted in good
faith and in a manner he or she reasonably believed to be in the best
interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless the court in which such
action or suit was brought or, the Delaware Court of Chancery determines
that, in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the court shall deem
proper. The AGSI Bylaws provide that such persons shall be indemnified to the
fullest extent authorized by the DGCL.
A director, officer, employee or agent who is successful, on the merits
or otherwise, in defense of any proceeding subject to the DGCL's (as the case
may be) indemnification provisions must be indemnified by the corporation for
reasonable expenses incurred therein, including attorneys' fees. The DGCL
states that any indemnification, unless ordered by a court, shall be made
only upon a determination that a director or officer has met the required
standard of conduct before the director or officer may be indemnified. The
determination may be made (i) by a majority vote of a quorum of disinterested
directors; (ii) if a quorum of disinterested directors is not obtainable, or
even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel; or (iii) by the stockholders.
The DGCL requires AGSI to advance reasonable expenses to a director or
officer after such person provides an undertaking to repay the corporation if
it is determined that the required standard of conduct has not been met.
This indemnification and advancement of expenses is not exclusive of any
other rights to which those seeking indemnification or advancement of
expenses may be entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise. Delaware corporations may procure
insurance for purposes of indemnification of directors and officers. In
addition to the statutory provisions, the AGSI Bylaws provide that the
indemnification and advancement of expenses provided by, or granted pursuant
to, the Bylaws shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Under the WBCA, a corporation may indemnify an individual made a party
to a proceeding because he or she is or was a director of the corporation,
against expenses (including attorneys' fees), judgments and fines incurred
with respect to such proceeding if (i) he or she acted in good faith, (ii) he
or she reasonably believed that his or her conduct was in, or at least not
opposed to, the corporation's best interests, and (iii) in the case of any
criminal proceeding, he or she had no reasonable cause to believe his or her
conduct was unlawful. Unless otherwise limited by its Articles of
Incorporation, a corporation shall indemnify a director who was wholly
successful, on the merits or otherwise, in the defense of any proceeding to
which he or she was a party because he or she is or was a director of the
corporation against reasonable expenses incurred by him or her in connection
with the proceeding. In the case of an action brought by or in the right of
a corporation, indemnification shall be limited to reasonable expenses
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<PAGE>
incurred in connection with such proceeding. A corporation may not indemnify
a director (i) in connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation, or
(ii) in connection with any other proceeding charging improper personal
benefit to him, whether or not involving action in his or her official
capacity, in which he or she was adjudged liable on the basis that personal
benefit was improperly received by him or her.
The WBCA states that a corporation may not indemnify a director unless a
determination has been made that indemnification of the director is
permissible because he or she has met the standard of conduct set forth in
the WBCA. The determination shall be made (i) by a majority vote of a quorum
of disinterested directors, (ii) if a quorum of disinterested directors is
not obtainable, by majority vote of a committee duly designated by the board
of directors consisting solely of two or more disinterested directors, (iii)
by special legal counsel selected (a) by the board of directors or its
committee in the manner prescribed above, or (b) if a quorum of the board of
directors cannot be obtained or a committee cannot be designated, by majority
vote of the full board of directors, including directors who are parties, or
(iv) by the shareholders. Determination of a proceeding by judgment, order,
settlement, conviction or upon a plea of NOLO CONTENDERE or its equivalent is
not, of itself, determinative, that the director did not meet the standard of
conduct required by the WBCA.
The WBCA provides that a corporation may advance reasonable expenses
incurred by a director who is a party to a proceeding if (i) the director
furnishes the corporation a written affirmation of his or her good faith
belief that he or she has met the standard of conduct, (ii) the director
furnishes the corporation a written undertaking, executed personally or on
his or her behalf, to repay the advance if it is ultimately determined that
he or she did not meet the standard of conduct, and (iii) a determination is
made that the facts then known to those making the determination would not
preclude indemnification under the WBCA. The undertaking required by (ii)
above shall be an unlimited general obligation of the director but need not
be secured and may be accepted without reference to financial ability to make
repayment. Wyoming corporations may procure insurance for purposes of
indemnification of directors and officers. Neither the Canmax Articles nor
the Canmax Bylaws provide any provision inconsistent with the WBCA.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors or persons controlling Canmax pursuant to
the foregoing provisions, Canmax has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
The DGCL provides that a corporation's Certificate of Incorporation may
include a provision limiting the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of a
fiduciary duty as a director. However, no such provision can eliminate or
limit the liability of a director for (i) any breach of the director's duty
of loyalty to the corporation or its stockholders; (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of the law; (iii) violation of certain provisions of the DGCL; (iv) any
transaction from which the director derived an improper personal benefit; or
(v) any act or omission prior to the adoption of such a provision in the
Certificate of Incorporation. The AGSI Certificate provides a provision
eliminating the personal liability for monetary damages of its directors to
the fullest extent permitted under the DGCL.
The WBCA provides that a corporation's Articles of Incorporation may
contain a provision eliminating or limiting the personal liability of a
director to the corporation or its shareholders from monetary damages, for
breach of fiduciary duty as a director. However, no such provision shall
eliminate or limit the liability of a director for (i) breach of the
director's duty of loyalty to the corporation or its shareholders, (ii) acts
or omissions not in good faith or which involved intentional misconduct or a
knowing violation of law, (iii) violation of certain provisions of the WBCA,
or (iv) any transaction from which the director derived an improper personal
benefit. Further, the WBCA provides that a corporation shall not eliminate
or limit the liability of a director for any act or omission occurring
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<PAGE>
prior to May 22, 1987. Neither the Canmax Articles nor the Canmax Bylaws
provide provisions for limiting personal liability of directors.
CERTAIN LEGAL MATTERS
The validity of the shares of Canmax Common Stock being offered hereby
is being passed upon for Canmax by Arter & Hadden, 1717 Main Street, Suite
4100, Dallas. Texas 75201. Certain federal income tax consequences of the
Merger will be passed upon for AGSI by Gibson, Dunn & Crutcher LLP, Dallas,
Texas.
EXPERTS
The consolidated financial statements of Canmax Inc. at October 31, 1996
and 1995, and for each of the three years in the period ended October 31,
1996, appearing in this Joint Proxy Statement/Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as
set forth in their report thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The financial statements of AGSI at September 30, 1996, 1995 and 1994
appearing in this Joint Proxy Statement/Prospectus and Registration Statement
have been audited by Price Waterhouse LLP, independent auditors, as set forth
in their report thereon appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF CANMAX INC. AND SUBSIDIARIES:
Report of Ernst & Young LLP, Independent Auditors.. . . . . . . . F-2
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations . . . . . . . . . . . . . . F-4
Consolidated Statements of Shareholders' Equity . . . . . . . . . F-5
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements. . . . . . . . . . . . F-7
UNAUDITED INTERIM FINANCIAL STATEMENTS OF CANMAX INC. AND SUBSIDIARIES:
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . F-21
Consolidated Statements of Operations . . . . . . . . . . . . . . F-23
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . F-24
Notes to Consolidated Financial Statements. . . . . . . . . . . . F-25
FINANCIAL STATEMENTS OF AUTO-GAS SYSTEMS, INC.:
Report of Price Waterhouse LLP, Independent Accountants . . . . . F-27
Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . F-28
Statements of Income. . . . . . . . . . . . . . . . . . . . . . . F-29
Statements of Stockholders' Equity. . . . . . . . . . . . . . . . F-30
Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . F-31
Notes to Financial Statements . . . . . . . . . . . . . . . . . . F-32
F-1
<PAGE>
CANMAX INC. AND SUBSIDIARIES
AUDITED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Canmax Inc.
We have audited the accompanying consolidated balance sheets of Canmax Inc.
and subsidiaries as of October 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity and cash flows
for each of the three years in the period ended October 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Canmax Inc. and
subsidiaries at October 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the
period ended October 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Dallas, Texas
December 19, 1996
F-2
<PAGE>
CANMAX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
October 31
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash $ 908,772 $ 477,364
Accounts receivable, less allowance for doubtful
accounts of $95,207 in 1996 and $71,177 in 1995 2,027,288 1,221,458
Inventory 388,800 474,481
Prepaid expenses and other 202,513 76,259
------------ ------------
Total current assets 3,527,373 2,249,562
Property and equipment (note 4) 1,411,567 1,634,325
Capitalized software costs, net of accumulated
amortization of $607,857 in 1996 and $381,811
in 1995 516,999 614,171
Intellectual property rights, net of accumulated
amortization of $620,173 in 1996 and $497,005
in 1995 50,000 173,168
Other assets 144,194 30,676
------------ ------------
$ 5,650,133 $ 4,701,902
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,724,195 $ 1,290,263
Accrued liabilities (note 5) 778,521 511,641
Deferred revenue 558,122 586,836
Current portion of lease obligations 128,282 109,475
Current portion of long-term debt 34,022 -
Advances from shareholders (note 6) 95,765 220,000
------------ ------------
Total current liabilities 3,318,907 2,718,215
Lease obligations (note 7) 169,794 200,015
Development obligation (note 3) - 65,000
Long-term debt (note 8) 86,114 -
Commitments (notes 7 and 11)
Shareholders' equity (notes 3 and 9)
Common stock, no par value, 44,169,100 shares
authorized; 5,012,869 and 4,935,269 shares
issued and outstanding in 1996 and 1995,
respectively 18,372,574 18,163,634
Option to purchase common stock (note 3) 4,861,659 4,861,659
Accumulated deficit (21,152,714) (21,295,328)
Foreign currency translation adjustment (6,201) (11,293)
------------ ------------
Total shareholders' equity 2,075,318 1,718,672
------------ ------------
$ 5,650,133 $ 4,701,902
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
CANMAX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended October 31
---------------------------------
1996 1995 1994
Revenues: ------ ------ ------
Software licenses and product revenue $ 1,892,077 $ 3,127,435 $ 4,903,112
Development 7,392,040 3,801,208 4,012,520
Service agreements 2,979,743 2,067,444 758,963
----------- ----------- -----------
12,263,860 8,996,087 9,674,595
Costs and expenses:
Cost of software licenses and product
revenue 1,539,644 2,342,937 2,277,729
Cost of development revenues 2,949,166 2,009,060 941,153
Customer service 2,321,798 2,359,279 2,186,178
Product development 1,476,720 2,401,306 2,608,678
General and administrative 3,365,289 2,904,548 2,162,627
Sales and marketing 440,582 662,982 1,346,767
Interest and financing costs 28,047 50,425 66,345
Writedown of capitalized software - - 4,127,232
----------- ----------- -----------
12,121,246 12,730,537 15,716,709
----------- ----------- -----------
Net income (loss) $ 142,614 $(3,734,450) $(6,042,114)
----------- ----------- -----------
----------- ----------- -----------
Net income (loss) per common and
common equivalent share $ .02 $ (.79) $ (1.54)
----------- ----------- -----------
----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding 6,851,148 4,706,382 3,918,889
----------- ----------- -----------
----------- ----------- -----------
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
CANMAX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Option to Foreign
Purchase Currency
Common Stock Common Accumulated Translation
Shares Amount Stock Deficit Adjustment Total
--------- ----------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT OCTOBER 31, 1993 3,816,096 $12,607,640 $2,947,301 $(11,518,764) $ 8,584 $ 4,044,761
Shares issued:
For cash on exercise of options 102,000 666,848 - - - 666,848
For cash on exercise of warrants 117,950 656,163 - - - 656,163
For services 40,000 307,257 - - - 307,257
For conversion of advances
from shareholders 55,128 376,631 - - - 376,631
Net loss - - - (6,042,114) - (6,042,114)
Translation adjustment - - - - (13,999) (13,999)
Original EDS option to purchase
common stock - - 1,052,699 - - 1,052,699
Liability to EDS converted to option
to purchase common stock - - 861,659 - - 861,659
--------- ----------- ---------- ------------ -------- -----------
BALANCE AT OCTOBER 31, 1994 4,131,174 14,614,539 4,861,659 (17,560,878) (5,415) 1,909,905
Shares issued:
For cash on exercise of options 294,200 1,321,000 - - - 1,321,000
For conversion of advances from
shareholder 30,000 150,000 - - - 150,000
EDS 265,228 1,273,095 - - - 1,273,095
Private Placement 214,667 805,000 - - - 805,000
Net loss - - - (3,734,450) - (3,734,450)
Translation adjustment - - - - (5,878) (5,878)
--------- ----------- ---------- ------------ -------- -----------
BALANCE AT OCTOBER 31, 1995 4,935,269 18,163,634 4,861,659 (21,295,328) (11,293) 1,718,672
Shares issued for cash on
exercise of options 77,600 208,940 - - - 208,940
Net income - - - 142,614 - 142,614
Translation adjustment - - - - 5,092 5,092
--------- ----------- ---------- ------------ -------- -----------
BALANCE AT OCTOBER 31, 1996 5,012,869 $18,372,574 $4,861,659 $(21,152,714) $ (6,201) $2,075,318
--------- ----------- ---------- ------------ -------- -----------
--------- ----------- ---------- ------------ -------- -----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
CANMAX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
YEAR ENDED OCTOBER 31
-------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 142,614 $(3,734,450) $(6,042,114)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Issuance of common stock for accrued
interest and services - - 343,888
Writedown of capitalized software - - 4,127,232
Inventory write down 217,623 - -
Loss on disposal of assets 3,329 - -
Depreciation and amortization 916,582 849,251 1,267,592
Accounts payable to EDS converted
to option to purchase common stock - - 861,659
Changes in operating assets and liabilities:
Accounts receivable (805,830) 154,535 (218,412)
Accounts receivable from EDS - 446,976 (446,976)
Accounts receivable from stockholders - - 71,921
Inventory (131,942) (151,566) (88,041)
Prepaid expenses and other (126,254) (43,358) 47,497
Accounts payable 433,932 533,286 (85,550)
Accounts payable to EDS - 67,539 205,907
Accrued liabilities 266,880 (84,707) (3,627)
Accrued interest - - (22,939)
Deferred revenue (28,714) 432,901 (21,217)
----------- ----------- -----------
Net cash provided by (used in) operating activities 888,220 (1,529,593) (3,180)
----------- ----------- -----------
Investing activities:
Purchase of property and equipment (347,939) (163,575) (1,106,379)
Capitalized software costs (128,874) - (3,127,459)
Increase in other assets (113,518) - -
----------- ----------- -----------
Net cash used in investing activities (590,331) (163,575) (4,233,838)
----------- ----------- -----------
Financing activities:
Net proceeds from issuance of common stock 208,940 2,126,000 1,323,011
Agreements with EDS:
-proceeds - - 1,065,065
-funds used for marketing - - (272,975)
Increase (decrease) in leasehold obligations (11,414) (102,971) 227,836
Repayment of shareholder advances (124,235) (107,200) -
Advances from shareholders - 250,000 227,200
Decrease in development obligations (65,000) - -
Proceeds from borrowing 123,602 - -
Repayment on borrowing (3,466) - -
----------- ----------- -----------
Net cash provided by financing activities 128,427 2,165,829 2,570,137
----------- ----------- -----------
Effect of exchange rate changes on cash 5,092 (5,878) 4,381
----------- ----------- -----------
Net increase (decrease) in cash 431,408 466,783 (1,662,500)
Cash at beginning of year 477,364 10,581 1,673,081
----------- ----------- -----------
Cash at end of year $ 908,772 $ 477,364 $ 10,581
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
Canmax Inc. (the "Company") was incorporated on July 10, 1986 as 311824 B.C.
Ltd. under the Company Act of the Province of British Columbia, Canada. On
August 13, 1986, the Company changed its name to International Retail Systems
Inc. On August 7, 1992, International Retail Systems renounced its original
province of incorporation and reincorporated in the state of Wyoming. On
November 30, 1994, the name of the Company was changed to Canmax Inc.
The Company, through its wholly owned subsidiary, Canmax Retail Systems,
Inc., develops and licenses sophisticated software systems, sells ancillary
hardware, and licenses certain third party software to operators of
convenience stores and gas stations. The Company provides related
development, customization, and software enhancements to its customers and
provides services such as integration, installation and training, and a 24
hour, 365 day per year, help desk.
In December 1995, the Company's Board of Directors authorized a one-for-five
reverse stock split of the Company's Common Stock, effective December 21,
1995. All applicable share and per share data have been retroactively
restated to give effect to the reverse stock split.
LIQUIDITY
At October 31, 1996, the Company has an accumulated deficit of $21,152,714
and a net working capital surplus of $208,466. To maintain liquidity during
the next year, the Company must increase revenue volumes through the
successful completion of on-going development contracts with customers, the
introduction of new products to the marketplace, and increasing the market
share for existing products and services. The Company commenced work on a
next generation Windows based product in May of 1996 which is expected to be
completed in 1997. The majority of the Company's new product will be
developed in conjunction with a development project currently in process for
The Southland Corporation. Completion of the Company's next generation
Windows based product is dependent on the successful and timely conclusion of
key components of the development project currently in process for The
Southland Corporation.
To complete development of the next generation Windows based product, the
Company will need to perform additional development effort that is not funded
by work currently being performed for The Southland Corporation. Costs
necessary to perform the additional development, to bring the new product to
market and provide for infrastructure improvements are estimated to be in the
range of $1.0 - $3.0 million. The Company believes that it may be necessary
to raise additional capital to complete development of its next generation
product within the necessary window of opportunity and to provide vital
marketing and other support services. If cost generated by operations is
insufficient to satisfy the Company's liquidity requirements, the Company may
be required to sell additional debt or equity securities or obtain lines of
credit, delay new product development or restructure operations to reduce
costs. No financing arrangements to support this development project have
been entered into by the Company at this time.
F-7
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT POLICIES
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Canmax Retail Systems Inc. (Texas), Canmax Retail
Systems Inc. (British Columbia), The Point of Sale Corporation and Dataplane
Technologies, Inc. All significant intercompany transactions have been
eliminated.
REVENUE RECOGNITION
Revenue from software licenses and product sales is recognized when the software
or products have been delivered to the customer and collectibility is probable
and no significant vendor obligations remain after delivery. Revenue from
software development contracts is recognized as the Company performs the
services in accordance with the contract terms. Revenue from maintenance
agreements is recognized ratably over the term of the agreement. Revenue from
long-term contracts is recognized using the percentage-of-completion method.
Progress to completion is measured based upon the relationship that total costs
incurred to date bears to the total costs expected to be incurred on a specific
project. Losses on fixed price contracts are recorded when estimable.
INVENTORY
Inventory is stated at the lower of cost (first in - first out) or market and is
primarily comprised of computer hardware and purchased software.
PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment is calculated using the
straight-line method over the estimated useful lives of assets ranging from
three to five years.
CAPITALIZED SOFTWARE COSTS
Under provisions of the Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed," software development costs are charged to expense when incurred until
technological feasibility for the product has been established, at which time
the costs are capitalized until the product is available for release. The
Company begins amortizing capitalized software costs upon general release of the
software products to customers. The Company evaluates the net realizable value
for each of its capitalized projects by comparing the estimated future gross
revenues from a project less estimated future disposal costs to the amount of
the unamortized capitalized cost. The Company recorded a writedown of $4,127,232
in 1994 for projects for which the net book value was in excess of net
realizable value. Remaining costs are being amortized using the greater of 1)
the ratio that current gross revenues for a capitalized software project bears
to the total of current and
F-8
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
future gross revenue for that project or 2) the straight-line method over the
remaining economic life of the related projects which is estimated to be a
period of between four and five years. Amortization of capitalized software
costs amounted to $226,046, $119,216, and $692,486 in 1996, 1995, and 1994,
respectively.
INTELLECTUAL PROPERTY RIGHTS
Intellectual property rights consist of the rights to computer software used in
the Company's products. Expenditures are recorded at cost and are being
amortized on a straight-line basis over a projected life of five years.
Amortization of intellectual property rights amounted to $123,168, $130,596, and
$130,596 in 1996, 1995, and 1994, respectively.
FOREIGN CURRENCY TRANSLATION
The Company's functional currency is the United States dollar. For operations
outside the United States, monetary assets and liabilities denominated in
foreign currencies are converted at the exchange rate in effect at the balance
sheet date and non-monetary assets and liabilities at the rate in effect on the
dates of the transactions. Revenues and expenses are converted at rates
approximating exchange rates in effect at the time of the transactions. Gains or
losses arising on conversion of foreign currency transactions are included in
operations in the period they occur or losses on fixed term monetary liabilities
which are included in shareholders' equity.
NET INCOME (LOSS) PER SHARE
Net income (loss) per common and common equivalent share is based upon the
weighted average number of common shares outstanding as adjusted for the one-
for-five reverse stock split. Net income (loss) per share data are based upon
the weighted average number outstanding shares of common stock plus dilutive
common stock equivalents. Common stock equivalent shares consist of stock
options (using the treasury stock method), and an option to purchase common
stock held by EDS (see Note 3).
INCOME TAXES
The liability method is used in accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
STATEMENT OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers all cash
and highly liquid short-term deposits to be cash equivalents. Total interest
paid during 1996, 1995, and 1994 amounted to $50,349, $43,733, and $52,653,
respectively.
F-9
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
The Company derives its sales primarily from customers in the retail petroleum
market. The Company performs periodic credit evaluations of its customers and
generally does not require collateral. Billed receivables are generally due
within 30 days. Credit losses have historically been insignificant. A
significant portion of the Company's revenues is from three customers.
The Southland Corporation accounted for 64%, 61%, and 50%, NCR (formerly AT&T
Global Information Solutions Company) accounted for 22%, 12%, and 0%, and EDS
accounted for 7%, 10%, and 38% of the Company's revenues for 1996, 1995, and
1994, respectively. At October 31, 1996 and 1995, accounts receivable from The
Southland Corporation accounted for 46% and 54%, respectively, of total accounts
receivable. At October 31, 1996 and 1995, accounts receivable from NCR accounted
for 37% and 28%, respectively of total accounts receivable. Management feels the
allowance for doubtful accounts adequately provides for any losses that may
occur.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation in accordance with
provisions of the Accounting Principles Board's Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees."
F-10
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECLASSIFICATIONS
Certain amounts appearing in the 1995 consolidated balance sheet have been
reclassified to conform to the 1996 presentation.
3. EDS AGREEMENTS
The Company signed agreements with Electronic Data Systems Corporation ("EDS")
in April 1993 which were amended in October 1994. Under the terms of the amended
agreements, EDS markets the Company's software services and hardware technology
to the retail petroleum marketplace exclusively, and the Company offers EDS the
right to participate with its customers and prospective customers. EDS provided
$2,600,000 in cash of which $2,000,000 was used for product development,
$500,000 was used to support the Company's marketing efforts, and $100,000 as
consideration for a software license granted to EDS. EDS also provided
$2,000,000 in services to the Company.
In connection with the above agreements, EDS received an option to purchase up
to 25% of the common stock of the Company calculated on a fully diluted basis at
the time of exercise at an exercise price of not less than 75% of the market
value of the common stock at the time of exercise, minus $4,000,000, which will
be reduced by royalties or similar payments received by EDS from any licensing
of the Company's product other than through EDS. The stock option is exercisable
at EDS' option any time between April 22, 1994 and April 22, 1998. The Company
accounted for the transaction as follows:
$4,000,000 as an option to purchase common stock,
$ 500,000 as a deferred marketing credit with respect to the cash
intended for marketing support, and
$ 100,000 as revenue with respect to the software license.
The financial statements include the following non-cash transactions related to
the services provided by EDS to the Company pursuant to the EDS agreements:
- - services received from EDS and included in expenses - $1,188,168 and
$663,210 in 1995 and 1994, respectively, and
- - programming services received from EDS and capitalized as software
costs - $389,489 in 1994.
During 1994, the Company purchased services from EDS valued at $1,972,329. By
agreement $861,659 of this amount was not paid by the Company and has been added
to the original $4,000,000 option amount. The balance, $1,110,670, was offset
against EDS' liability to the Company for site licenses sold to EDS.
F-11
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In connection with prospective business opportunities with major oil
companies, the Company and EDS jointly incurred $2,130,130 in product
development costs. EDS funded that total cost, which included reimbursing the
Company for $1,679,977 in expenses paid by the Company. By agreement, the
Company owed EDS for one-half of the total cost. That development obligation
for $1,065,065 and other amounts due to EDS of $34,935 were converted into
229,167 common shares of the Company on November 15, 1994. The price per
share of $4.80 was determined pursuant to agreement with EDS and represents
75% of market value. In fiscal 1995, EDS and the Company jointly incurred
$346,190 in product development costs. By agreement the Company owed EDS for
one half of the total cost. On April 20, 1995, the $173,095 development
obligation was converted into 36,061 common shares of the Company at a
conversion rate of $4.80 per share.
During 1994 the Company sold EDS 788 site licenses for $1,810,670. Pursuant
to the contract, the amount receivable for this transaction was used to
offset amounts payable to EDS of $1,110,670 and to settle a disputed $400,000
liability relating to deferred marketing funding that arose from an amendment
to the original agreements with EDS.
In addition to the site license revenues described in the preceding
paragraph, the Company recognized additional revenue from EDS of
approximately $0.9 million and $1.9 million for fiscal 1995 and 1994,
respectively, for services and development work in conjunction with
prospective business opportunities with major oil companies. During fiscal
1996, the Company recognized revenue of approximately $0.8 million from EDS
for services, site license fees, and development.
F-12
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of transactions with EDS for each of the last four fiscal years is set
forth below:
<TABLE>
Recorded As
---------------------------------------------------------------------------------------
Option to
Year/ Total Purchase Deferred
Transaction Amount of Common Common Capitalized Marketing Revenue
Description Transaction Stock Stock Software Credit (Expense)
- ----------------------- ----------- ----- ----- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
1993
Cash received from EDS
for option to purchase
Company's common
stock $2,000,000 $2,000,000 $ - $ - $ - $ -
Cash for marketing
from EDS 500,000 - - - 500,000 -
Licenses sold to EDS 100,000 - - - - 100,000
Development services
provided by EDS 947,301 947,301 - 537,112 - (410,189)
1994
Development and
programming services
purchased from EDS 1,052,699 1,052,699 - 389,489 - (633,210)
Other services purchased
from EDS 1,972,329 861,659 - - - (1,972,329)
Sale of 788 site licenses
to EDS 1,810,670(1) - - - - 1,810,670
Development revenue 614,912 - - - - 614,912
Product & services revenue 1,250,764 - - - - 1,250,764
1995
Other development
services purchased
from EDS 1,188,168 - - - - (1,188,168)
Conversion of development
obligations due to EDS
shares of the Company's
common stock 1,273,095(2) - 1,273,095 - - -
Development Revenue 175,513 - - - - 175,513
Product & services revenue 751,440 - - - - 751,440
1996
Other services purchased
from EDS 84,327 - - - - (84,327)
Development revenue 143,415 - - - - 143,415
Product & services revenue 690,751 - - - - 690,748
</TABLE>
(1) $1,110,670 of the sales amount was used to offset existing EDS obligations.
$400,000 was used to settle a disputed obligation with EDS and $300,000
was paid in cash to the Company.
(2) EDS obligations were converted into 265,228 shares of the Company's common
stock.
F-13
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at October 31:
1996 1995
------------ -----------
At cost:
Furniture and fixtures $ 925,637 $ 915,161
Computer equipment 1,630,937 1,371,273
Computer software 388,041 322,372
Leasehold improvements 593,843 593,843
------------ -----------
3,538,458 3,202,649
Less accumulated depreciation
and amortization (2,126,891) (1,568,324)
------------ -----------
$ 1,411,567 $ 1,634,325
------------ -----------
------------ -----------
Depreciation and amortization expense amounted to $567,368, $519,439, and
$444,511 in 1996, 1995, and 1994, respectively.
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following at October 31:
1996 1995
--------- ---------
Accrued compensation and benefits $ 405,924 $ 99,245
Accrued rent 150,755 134,697
Other 221,842 277,699
--------- ---------
$ 778,521 $ 511,641
--------- ---------
--------- ---------
6. ADVANCES FROM SHAREHOLDERS
During 1994, Dwight Romanica advanced the Company $300,000. The advance was
unsecured and the Company paid interest of $24,000. Half of the advance
($150,000) was repaid by February 28, 1995 and $150,000 was exchanged for 30,000
common shares.
During 1995, a director, W. Thomas Rinehart advanced the company $250,000. The
advance was unsecured and has an interest rate of 10%. The Company repaid
principal of $30,000 and paid interest of $13,456 in fiscal 1995; repaid
principal of $124,235 and interest of $37,732 in fiscal 1996. The remaining
principal balance of $95,765 is due on demand and is being repaid in weekly
installments.
F-14
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LEASEHOLD AND CAPITAL LEASE OBLIGATIONS
Through October 31, 1996, a total of $593,843 of leasehold obligations were
incurred on behalf of the Company. Of this amount, $0, $0 and $300,000 were
incurred in 1996, 1995 and 1994, respectively. These costs have been
capitalized as leasehold improvements and are to be repaid with interest
calculated at 8% to 11% per annum in monthly installments of $11,104, over the
remaining lease term, which terminates on August 31, 1998.
The Company leased equipment under capital leases in 1996 totaling $106,050.
The capital lease obligations are to be repaid with interest at 15% to 16% per
annum in monthly installments of $2,995 through June, 2000.
Future minimum payments due under leasehold and capital lease obligations are as
follows:
Years ended October 31:
1997 $ 153,732
1998 134,100
1999 35,940
2000 21,874
2001 -
---------
Total future minimum lease payments 345,646
Less amount representing interest 47,570
---------
Present value of minimum lease payments 298,076
Less current portion 128,282
---------
Leasehold and capital lease obligations
less current portion $ 169,794
---------
---------
8. LONG-TERM DEBT
Long-term debt consists of the following at October 31:
1996
----
Bank term loan $ 120,136
Less current portion 34,022
---------
$ 86,114
---------
---------
Interest is charged on outstanding amounts at the prime rate (8.25% at October
31, 1996), payable monthly. Obligations due under the bank term loan are
secured by investments in government securities totaling $133,335 at October 31,
1996. Such restricted investments are classified as other noncurrent assets.
F-15
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future maturities of long-term debt are as follows:
1997 $ 34,022
1998 35,210
1999 36,499
2000 14,405
---------
$ 120,136
---------
---------
9. STOCK OPTIONS
In 1990, the Company adopted a stock option plan (the "Stock Option Plan"). The
Stock Option Plan authorizes the Board of Directors to grant up to 1,200,000
options to purchase common shares of the Company. No options will be granted to
any individual director or employee which will, when exercised, exceed 5% of the
issued and outstanding shares of the Company. The term of any option granted
under the Stock Option Plan is fixed by the Board of Directors at the time the
options are granted, provided that the exercise period may not be longer than 10
years from the date of granting. The exercise price of any options granted
under the Stock Option Plan is the fair market value at the date of grant.
Activity under the Stock Option Plan for the three years ended October 31, 1996
was as follows:
<TABLE>
Number of shares Option price per share
---------------- ----------------------
<S> <C> <C>
Options outstanding at October 31, 1993 258,710 $2.15 - $15.00
Options granted 272,300 5.00 - 7.85
Options exercised 102,000 1.95 - 12.10
Options canceled 17,100 6.75 - 15.00
--------- --------------
Options outstanding at October 31, 1994 411,910 1.95 - 6.25
Options granted 418,200 2.50 - 5.00
Options exercised 294,200 3.75 - 5.00
Options canceled 45,360 5.00 - 6.75
--------- --------------
Options outstanding at October 31, 1995 490,550 2.50 - 5.00
Options granted 729,600 1.88 - 4.19
Options exercised 77,600 1.90 - 2.88
Options canceled 91,500 2.25 - 6.25
--------- --------------
Options outstanding at October 31, 1996 1,051,050 $1.88 - $ 5.00
--------- --------------
--------- --------------
</TABLE>
Effective December 29, 1995, employee options to purchase 87,100 shares of the
Company's Common stock were repriced to the then current market price. The
repricing was made because management believed that the higher priced options
were no longer a motivating factor for key employees and officers. The options
repriced are reflected in the cancellation and grant activity for 1996.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting
F-16
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for Stock Issued to Employees" (APB 25) and related interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123 "Accounting
for Stock-Based Compensation," requires use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
All options granted under the Stock Option Plan have up to 10 year terms and
have vesting periods which range from 0 to 3 years from the grant date. Pro
Forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions for 1996;
applicable risk-free interest rates based on the current treasury-bill
interest rate at the grant date, which ranged from 5.2% to 5.6%; dividend
yields of 0%; volatility factors of the expected market price of the
company's common stock of between 0.8 and 0.9; and an expected life of the
option of between 2 and 7 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company' employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosure, the estimated fair value of the options
is amortized to expense over the options' vesting period. The effects of
applying SFAS No. 123 in computing the pro forma disclosures presented below
are not indicative of future amounts as only options granted subsequent to
October 31, 1995 have been included in the pro forma computations. The
Company's pro forma information for the year ended October 31, 1996 is as
follows:
Pro forma net loss $(443,104)
---------
---------
Pro forma loss
per share $ (0.09)
---------
---------
F-17
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the Company's stock option activity, and related information for
the year's ended October 31, 1996 is as follows:
Number of Weighted-Average
Shares Exercise Price
--------- ----------------
Outstanding -
beginning of year 490,550 $4.10
Granted 729,600 2.19
Exercised 77,600 2.69
Canceled 91,500 4.86
Outstanding-
end of year 1,051,050 3.04
Exerciseable at
end of year 623,300 3.67
Weighted-average
fair value of options
granted during the
year 2.18
The weighted average remaining contractual life of options outstanding at
October 31, 1996 is 5.37 years.
F-18
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of October 31 are as
follows:
1996 1995
------------ ---------
Deferred tax assets:
Current:
Allowance for doubtful accounts $ 32,370 $ 24,200
Provisions and accrued expenses 69,700 -
Less: valuation allowance (102,070) (24,000)
------------ ----------
Total current - -
------------ ----------
Noncurrent:
Capitalized software and intellectual property 417,613 896,104
Property and equipment 19,927 20,741
Net operating loss 6,503,397 6,101,502
Other - 40,717
Less: valuation allowance (6,940,937) (7,059,064)
------------ ----------
Total noncurrent - -
------------ ----------
Total deferred tax assets $ - $ -
------------ ----------
------------ ----------
The valuation allowance for deferred tax assets decreased by $40,057 during
the year ended October 31, 1996.
The reconciliation of income tax provision at the statutory United States
federal income tax rates to income tax provision is:
1996 1995 1994
---- ---- ----
Income tax provision (benefit) at
statutory rate $ 48,489 $(1,269,713) $(2,039,918)
Benefit of net operating loss not
recognized - 1,331,851 2,039,918
Other (48,489) (62,138) -
-------- ----------- -----------
$ - $ - $ -
-------- ----------- -----------
-------- ----------- -----------
At October 31, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $19.1 million which expire in
2006 through 2010. Utilization of net operating losses may be subject to
annual limitations due to the ownership change limitation provided by the
Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating losses before utilization. At October 31, 1996
the net operating losses carry forwards of the Company and its subsidiaries
were not subject to any material annual limitation.
F-19
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS
The Company leases office space and computer equipment under noncancellable
operating leases. Future minimum lease payments for the fiscal years ending
October 31 are as follows:
1997 $ 608,277
1998 511,323
1999 27,238
----------
$1,146,838
----------
----------
Total rent expense amounted to $498,631, $633,060, and $528,940 for 1996,
1995, and 1994, respectively.
12. BENEFIT PLAN
Effective January 1, 1994, the Company implemented an Internal Revenue Code
Section 401(k) Profit Sharing Plan for all employees of the Company. The Plan
provides for voluntary contributions by employees into the Plan subject to
the limitations imposed by the Internal Revenue Code Section 401(k). The
Company may match employee contributions to a discretionary percentage of the
employees contribution. The Company's matching funds are determined at the
discretion of the Board of Directors and are subject to a seven year vesting
schedule from the date of original employment. The Company made no matching
contributions during the years ended October 31, 1996, 1995 and 1994.
F-20
<PAGE>
CANMAX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, OCTOBER 31,
1997 1996
----------- ------------
ASSETS (UNAUDITED)
Current Assets:
Cash $ 71,573 $ 908,772
Accounts receivable, net (Note B) 2,726,096 2,027,288
Inventory (Note C) 50,582 388,800
Prepaid expenses and other 151,715 202,513
----------- -----------
Total current assets 2,999,966 3,527,373
Property and equipment at cost less
accumulated depreciation and amortization
of $2,386,244 in 1997 and $2,126,891 in 1996 1,094,989 1,411,567
Capitalized software costs, net of
accumulated amortization of $723,564
in 1997 and $607,857 in 1996 401,292 516,999
Intellectual property rights, net of accumulated
amortization of $631,284 in 1997 and $620,173
in 1996 38,889 50,000
Other assets 134,329 144,194
----------- -----------
$ 4,669,465 $ 5,650,133
----------- -----------
----------- -----------
See accompanying notes.
F-21
<PAGE>
CANMAX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
APRIL 30, OCTOBER 31,
1997 1996
------------- -------------
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 827,203 $ 1,724,195
Accrued liabilities 496,566 778,521
Deferred revenue 271,871 558,122
Current portion of lease obligation 132,839 128,282
Current portion of long-term debt 34,703 34,022
Advance from shareholder (Note E) - 95,765
------------ ------------
Total current liabilities 1,763,182 3,318,907
Lease obligations 103,060 169,794
Long - term debt 68,600 86,114
Shareholders' equity:
Common stock, no par value,
44,169,100 shares authorized;
6,611,005 and 5,012,869 shares
issued and outstanding in 1997
and 1996, respectively 23,234,233 18,372,574
Option to purchase common stock
(Note D) - 4,861,659
Accumulated deficit (20,499,610) (21,158,915)
------------ ------------
Total shareholders' equity 2,734,623 2,075,318
------------ ------------
$ 4,669,465 $ 5,650,133
------------ ------------
------------ ------------
See accompanying notes.
F-22
<PAGE>
CANMAX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE SIX MONTHS
ENDED APRIL 30,
----------------------------
1997 1996
---------- -----------
Revenues:
Software licenses and product revenue $ 654,761 $ 1,424,823
Development 6,081,848 2,692,577
Service agreements 997,565 1,041,488
---------- ------------
7,734,174 5,158,888
---------- ------------
Costs and expenses:
Costs of software licenses and product
revenue 474,353 1,206,010
Cost of development revenues 2,991,773 1,016,376
Customer service 1,154,793 1,130,447
Product development 314,515 550,087
General and administrative 1,878,471 1,560,392
Sales and marketing 253,753 231,092
Interest and financing 7,250 18,632
---------- ------------
7,074,908 5,713,036
---------- ------------
Net income (loss) $ 659,266 $ (554,148)
---------- ------------
---------- ------------
Net income (loss) per common and
common equivalent share $ .10 $ (0.11)
---------- ------------
---------- ------------
Weighted average common and common
equivalent shares outstanding 6,618,348 4,952,824
---------- ------------
---------- ------------
See accompanying notes.
F-23
<PAGE>
CANMAX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS
ENDED APRIL 30,
-------------------------
1997 1996
---------- -----------
Operating activities:
Net income (loss) $ 659,266 $ (554,148)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 470,935 441,077
Loss on disposal of assets 8,958 -
Writedown of inventory - 217,623
Writedown of investment - 18,675
Changes in assets and liabilities:
Accounts receivable (698,808) (134,636)
Inventory 338,218 (74,748)
Prepaid expenses and other 50,798 (110,355)
Accounts payable (896,992) (261,889)
Accrued liabilities (281,955) 39,733
Deferred revenue (286,251) 219,315
---------- ----------
Net cash used in operating activities (635,831) (199,353)
Investing activities:
Purchase of property and equipment (36,496) (31,226)
Capitalized software costs - (128,874)
Decrease in other assets 9,865 19,817
---------- ----------
Net cash used in investing activities (26,631) (140,283)
Financing activities:
Net proceeds from issuance of
common stock - 208,940
Decrease in lease obligation (62,178) (55,963)
Decrease in development obligation - (65,000)
Repayment of shareholder advance (95,765) (16,154)
Repayment on borrowing (16,833) -
---------- ----------
Net cash (used in) provided by financing
activities (174,776) 71,823
---------- ----------
Effect of exchange rate changes on cash 39 (2,409)
---------- ----------
Net decrease in cash (837,199) (270,222)
Cash at beginning of period 908,772 477,364
---------- ----------
Cash at end of period $ 71,573 $ 207,142
---------- ----------
---------- ----------
See accompanying notes.
F-24
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for
the six month period ended April 30, 1997 are not necessarily indicative of
the results that may be expected for the year ended October 31, 1997. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10K for the
year ended October 31, 1996. Certain amounts in the 1996 condensed
consolidated statement of operations have been reclassified to conform with
the 1997 presentation.
NOTE B - ACCOUNTS RECEIVABLE
At April 30, 1997, accounts receivable included approximately $1,800,000 of
work performed for which billings have not been presented to the customer or
for which amounts are not contractually billable. The Company billed and
collected approximately $500,000 of this amount in May, 1997. Approximately
$960,000 was billed and is scheduled to be collected in June, 1997. The
remaining amounts are scheduled to be billed and collected in July, 1997.
NOTE C - INVENTORY
Inventory consists primarily of computer hardware and purchased software.
NOTE D - EDS AGREEMENTS AND TRANSACTION
The company signed agreements with Electronic Data Systems Corporation
("EDS") in April 1993 which were amended in October 1994. Under the terms of
the amended agreements, EDS marketed the Company's software, services and
hardware technology to the retail petroleum marketplace exclusively, and the
Company offered EDS the right to participate with its customers and
prospective customers and to acquire up to 25% of the Company's common stock
calculated on a fully diluted basis at the time of exercise, at an exercise
price of not less than 75% of the market value of the common stock at the
time of exercise, minus $4,861,659, which would be reduced by royalties or
similar payments received by EDS from any licensing of the Company's product
other than through EDS.
On April 29, 1997, EDS exercised its option to acquire up to 25% of the
Company's common stock, resulting in the Company issuing an additional
1,598,136 shares. The Company accounted for this transaction by
reclassifying the amount associated with the option to common stock. EDS
then immediately sold its total interest in the Company, representing
1,863,364 shares, in a private transaction to two Texas-based institutional
investors. In conjunction with this transaction, the Company entered into
registration rights agreements with the two institutional investors.
Additionally, EDS and the Company agreed to amend a license and grant of
rights agreement which specifies rights and obligations of both parties as to
788 of the Company's site licenses currently owned by EDS, and to terminate
all formal agreements including the aforementioned stock option agreement, as
well as their joint marketing and other supporting business agreements.
F-25
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE E - ADVANCES FROM SHAREHOLDERS
During the first quarter of 1995, a director, W. Thomas Rinehart, advanced
the Company $250,000. The advance was unsecured and had an interest rate of
10%. The principal balance was due on demand and was being repaid in weekly
installments. Principal payments of $95,765 were repaid during the six month
period ended April 30, 1997.
NOTE F - NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Net income (loss) per common and common equivalent share is based upon the
weighted average number of common shares outstanding, and when dilutive,
common equivalent shares outstanding during the period. Common equivalent
shares consist of stock options (using the treasury stock method) and the EDS
Option (Note D).
NOTE G - NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," which is required to be adopted for periods
ending after December 15, 1997. At that time, the Company will be required
to change the method currently used to compute earnings per share and to
restate all prior periods. Under the new requirements, primary earnings per
share will be replaced by a simpler calculation called "basic" earnings per
share. This calculation will exclude all common stock equivalents and other
dilutive securities (i.e. options, warrants and convertible instruments).
Under the new requirements, "diluted" earnings per share will replace the
existing fully diluted earnings per share calculation. The new diluted
earnings per share will include the effect of all dilutive instruments if
they meet certain requirements. Under the new standards, earnings (loss) per
share would be as follows:
For the six months
ended April 30
1997 1996
---- ----
Basic $ .13 $ (.11)
Diluted $ .10 $ (.11)
F-26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
AUTO-GAS SYSTEMS, INC.
In our opinion, the financial statements of Auto-Gas Systems, Inc. (the
"Company") listed in the accompanying index present fairly, in all material
respects, the financial position of the Company at September 30, 1996 and
1995, and the results of its operations and its cash flows for the three
years ended September 30, 1996 in conformity with generally accepted
accounting principles. 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 of
these statements in accordance with generally accepted auditing standards
which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the financial statements, the Company changed its
method of accounting for income taxes in fiscal 1994.
/s/ Price Waterhouse LLP
Fort Worth, Texas
November 8, 1996
F-27
<PAGE>
<TABLE>
AUTO-GAS SYSTEMS, INC.
BALANCE SHEETS
- -------------------------------------------------------------------------------------
MARCH 31, SEPTEMBER 30,
1997 1996 1995
----------- ----------- ----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,358,053 $ 3,137,473 $2,882,179
Accounts and notes receivable, net of
allowance for doubtful accounts of
$356,171, $332,924 and $291,020,
respectively 2,444,107 2,020,890 1,845,500
Inventories 2,299,657 2,118,754 1,676,276
Deferred tax assets 239,625 350,609 428,339
Prepaid expenses and other current
assets 570,858 313,500 277,555
----------- ----------- ----------
Total current assets 7,912,300 7,941,226 7,109,849
Property and equipment, net 660,453 682,737 396,830
Computer software development and
acquisition costs, net 1,247,048 1,228,564 881,876
Investment in FST Holdings 283,547 324,099 374,582
Other assets 6,657 16,373 40,423
----------- ----------- ----------
Total assets $10,110,005 $10,192,999 $8,803,560
----------- ----------- ----------
----------- ----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 563,104 $ 561,507 $ 500,809
Accrued warranty 258,831 284,963 160,770
Accrued management bonus 5,042 283,170 297,355
Accrued franchise taxes 186,986 183,557 120,798
Accrued commissions 31,589 44,007 126,569
Accrued expenses and other current
liabilities 460,298 374,340 255,779
Deferred revenue 124,283 15,000 380,563
----------- ----------- ----------
Total current liabilities 1,630,133 1,746,544 1,842,643
Deferred tax liabilities 396,044 418,881 335,975
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock, $1 par value, 3,000,000
shares authorized, 1,541,794 shares
issued and outstanding 1,541,794 1,541,794 1,541,794
Additional paid-in capital 5,344,739 5,344,739 5,344,739
Retained earnings (deficit) 1,197,295 1,141,041 (261,591)
----------- ----------- ----------
Total stockholders' equity 8,083,828 8,027,574 6,624,942
----------- ----------- ----------
Total liabilities and stockholders'
equity $10,110,005 $10,192,999 $8,803,560
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
<TABLE>
AUTO-GAS SYSTEMS, INC.
STATEMENTS OF INCOME
- ----------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED MARCH 31, FOR THE YEARS ENDED SEPTEMBER 30,
-------------------------- --------------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Systems $3,153,881 $5,007,791 $ 9,529,884 $ 9,907,056 $ 8,512,754
Software 621,405 948,596 1,483,934 864,042 1,479,526
Development 177,170 203,034 271,526 755,412 136,680
Support and service agreements 750,214 542,634 1,159,174 555,852 224,158
---------- ---------- ----------- ----------- -----------
4,702,670 6,702,055 12,444,518 12,082,362 10,353,118
---------- ---------- ----------- ----------- -----------
Costs and expenses:
Cost of systems 1,352,466 1,876,424 3,572,913 3,554,288 3,788,184
Cost of software 64,193 120,501 203,351 378,119 323,518
Cost of development 14,672 132,075 182,082 762,134 7,039
Cost of support and service
agreements 78,855 94,260 241,843 63,860 31,652
Writedown of capitalized software - - - 892,060 -
Sales and marketing 887,094 813,246 1,612,475 1,427,587 1,182,185
Product development 515,987 416,966 1,066,365 560,025 582,646
Support services 947,464 700,615 1,654,111 948,557 549,326
General and administrative 733,653 861,648 1,730,753 1,658,136 1,266,785
---------- ---------- ----------- ----------- -----------
4,594,384 5,015,735 10,263,893 10,244,766 7,731,335
---------- ---------- ----------- ----------- -----------
108,286 1,686,320 2,180,625 1,837,596 2,621,783
Other income (expense):
Interest income 61,563 66,905 141,678 104,386 10,098
Interest expense - - (124) (4,068) (29,648)
Equity loss in FST Holdings (40,552) (45,883) (87,983) (134,467) (117,701)
---------- ---------- ----------- ----------- -----------
Income before income tax expense 129,297 1,707,342 2,234,196 1,803,447 2,484,532
Income tax expense 73,043 645,380 831,564 728,583 116,294
---------- ---------- ----------- ----------- -----------
Net income $ 56,254 $1,061,962 $ 1,402,632 $ 1,074,864 $ 2,368,238
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
AUTO-GAS SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
SHARES STOCK CAPITAL (DEFICIT) TOTAL
--------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1993 1,541,794 $ 1,541,794 $ 5,344,739 $ (3,704,693) $ 3,181,840
Net income for the year ended
September 30, 1994 2,368,238 2,368,238
--------- ----------- ----------- ------------- -----------
Balance at September 30, 1994 1,541,794 1,541,794 5,344,739 (1,336,455) 5,550,078
Net income for the year ended
September 30, 1995 1,074,864 1,074,864
--------- ----------- ----------- ------------- -----------
Balance at September 30, 1995 1,541,794 1,541,794 5,344,739 (261,591) 6,624,942
Net income for the year ended
September 30, 1996 1,402,632 1,402,632
--------- ----------- ----------- ------------- -----------
Balance at September 30, 1996 1,541,794 1,541,794 5,344,739 1,141,041 8,027,574
Net income for the six months
ended March 31, 1997 (unaudited) 56,254 56,254
--------- ----------- ----------- ------------- -----------
Balance at March 31, 1997
(unaudited) 1,541,794 $ 1,541,794 $ 5,344,739 $ 1,197,295 $ 8,083,828
--------- ----------- ----------- ------------- -----------
--------- ----------- ----------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-30
<PAGE>
AUTO-GAS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
FOR THE SIX MONTHS FOR THE YEARS
ENDED MARCH 31, ENDED SEPTEMBER 30,
------------------------ --------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 56,254 $1,061,962 $1,402,632 $1,074,864 $2,368,238
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization 96,756 72,251 160,613 135,664 123,598
Writedown and amortization of
capitalized software 132,728 131,766 256,413 1,271,766 600,362
Deferred income taxes 88,147 112,985 160,636 (38,174) (54,190)
Equity loss in FST Holdings 40,552 45,883 87,983 134,467 117,701
Bad debt expense 23,247 32,156 41,904 107,252 17,545
Changes in assets and liabilities providing
(using) cash:
Accounts and notes receivable (446,464) (734,977) (217,294) (76,646) (527,075)
Inventories (180,903) (85,564) (442,478) (355,060) (439,165)
Prepaid expenses and other current
assets (257,358) 129,091 (35,945) (51,468) (173,387)
Other assets 9,716 13,525 24,050 36,865 51,061
Accounts payable 1,597 180,250 60,698 42,916 (93,623)
Accrued expenses and other current
liabilities (118,008) 77,692 (156,797) 265,579 695,524
---------- ---------- ---------- ---------- ----------
Cash provided by (used for) operating activities (553,736) 1,037,020 1,342,415 2,548,025 2,686,589
---------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (74,472) (186,753) (446,520) (226,762) (180,106)
Computer software development and
acquisition costs (151,212) (199,940) (603,101) (558,699) (219,881)
Investment in FST Holdings - - (37,500) (112,500) (328,000)
---------- ---------- ---------- ---------- ----------
Cash used for investing activities (225,684) (386,693) (1,087,121) (897,961) (727,987)
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Net repayments on line of credit and
other notes - - - (235,369) (951,215)
---------- ---------- ---------- ---------- ----------
Cash used for financing activities - - - (235,369) (951,215)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (779,420) 650,327 255,294 1,414,695 1,007,387
Cash and cash equivalents, beginning of period 3,137,473 2,882,179 2,882,179 1,467,484 460,097
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents, end of period $2,358,053 $3,532,506 $3,137,473 $2,882,179 $1,467,484
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ - $ - $ 124 $ 4,990 $ 50,408
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Income taxes $ 89,066 $ 289,052 $ 597,844 $1,081,036 $ -
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
AUTO-GAS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. NATURE OF BUSINESS
DESCRIPTION OF BUSINESS. Auto-Gas Systems, Inc. ("Auto-Gas" or the
"Company") was incorporated in the state of Delaware in December 1986. The
Company is engaged in the design, development, manufacture, and marketing of
automated fueling systems and convenience store automation software. Sales
are achieved by in-house salesmen primarily to operators of convenience
stores and gas stations located in the United States with some international
sales.
INTERIM FINANCIAL INFORMATION. The accompanying interim financial
information for the six-month period ended March 31, 1997 and 1996 has not
been audited but, in the opinion of management of the Company, includes all
adjustments (consisting of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the Company's financial
position at March 31, 1997, and results of operations and cash flows for the
six-month periods ended March 31, 1997 and 1996. The results of operations
for the six-month period ended March 31, 1997 are not necessarily indicative
of results expected for any subsequent period or the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION - Revenue from the sale of automated fueling systems
and convenience store automation software is recognized upon shipment to
customers when all significant risks of ownership have been transferred.
Certain software sales are contingent upon acceptance after a trial period.
In such cases, revenue is not recognized until after the trial period when
the buyer becomes obligated to pay the Company. Revenue from software
maintenance agreements is recognized ratably over the term of the agreement.
Revenue from product development contracts is recorded as deferred revenue
until completion of the related project and delivery to the customer.
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of
account receivables and cash and cash equivalents in excess of FDIC insured
limits. Substantially all of the Company's customers are engaged in
convenience store and automated fueling system operations; however, credit
risk is limited due to the large number of customers, their dispersion across
many different geographic locations and the Company's ongoing performance of
credit evaluations of its customers' financial condition. As of September
30, 1996, the Company had no significant concentration of credit risk. Cash
and cash equivalents in excess of FDIC insured limits approximated $2,600,000
as of September 30, 1996. The Company has not experienced any losses on its
cash and cash equivalents.
CASH AND CASH EQUIVALENTS - For purposes of the Statements of Cash
Flows, the Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
F-32
<PAGE>
AUTO-GAS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
INVENTORIES - Inventories are stated at the lower of cost or market with
cost being determined using the first-in, first-out (FIFO) method. The cost
of inventory includes material, freight-in, labor and overhead. The
components of inventories are as follows:
MARCH 31, SEPTEMBER 30,
1997 1996 1995
------------ ------------ ------------
(unaudited)
Raw materials $ 1,279,429 $ 1,212,243 $ 1,034,502
Work-in-process 196,056 158,458 109,867
Finished goods 824,172 748,053 531,907
------------ ------------ ------------
$ 2,299,657 $ 2,118,754 $ 1,676,276
------------ ------------ ------------
------------ ------------ ------------
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost and
depreciated using the straight-line method over estimated useful lives
ranging from five to seven years. Leasehold improvements are generally
amortized on the straight-line method based on the shorter of an estimated
useful life of ten years or the lease term. Maintenance and repairs are
charged to income as incurred. The Company capitalizes renewals and
betterments which significantly enhance the value or extend the useful life
of an asset. Upon sale or retirement of depreciable assets, the cost and
related accumulated depreciation are removed from the accounts, and the
resulting gain or loss is credited to or charged against income.
IMPAIRMENT OF LONG-LIVED ASSETS - In March 1995, the Financial
Accounting Standards Board issued FAS 121 on "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement requires companies to investigate potential impairments of
long-lived assets, certain identifiable intangibles, and associated goodwill
on an exception basis, when there is evidence that events or changes in
circumstances have made recovery of an asset's carrying value unlikely. Upon
adoption, where such circumstances exist, the Company will evaluate the
carrying amount of the related long-lived assets by estimating future cash
flows expected to result from the use of such assets and their eventual
disposition. If future cash flows (undiscounted and without interest
charges) are less than the carrying amount of the assets, an impairment loss
will be recorded. The impairment loss is to be measured as the amount by
which the carrying amount of the asset exceeds the estimated fair value of
the asset. The Company is required to adopt this statement on October 1,
1996; however, such adoption is not expected to have an impact on the
Company's results of operations or financial condition.
RESEARCH AND DEVELOPMENT COSTS - Costs associated with research and
development activities are expensed as incurred. Research and development
costs expensed for the years ended September 30, 1996, 1995 and 1994 were
$1,066,365, $560,025 and $582,646, respectively.
COMPUTER SOFTWARE DEVELOPMENT AND ACQUISITION COSTS - The Company
capitalizes the cost of purchased software as well as proprietary software
development costs incurred subsequent to the establishment of technological
feasibility and prior to general release of the product to the public. Annual
amortization of capitalized software development costs is equal to the
greater of the ratio of the products current gross revenues to the total of
current and expected gross revenues or the straight-line method computed on
F-33
<PAGE>
AUTO-GAS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
estimated useful lives ranging from three to seven years. At
each balance sheet date, the unamortized capitalized costs for each product
are compared to the net realizable value (NRV) of the product with any
excess of capitalized costs over NRV written off. Accumulated amortization
of capitalized software development and acquisition costs as of September
30, 1996 and 1995 were $3,478,239 and $3,221,827, respectively.
Amortization of software costs for the years ended September 30, 1996, 1995
and 1994 amounted to $256,413, $379,706 and $600,362, respectively, and is
included in cost of systems and cost of software, as applicable, in the
accompanying statements of income.
During fiscal 1995, management's evaluation of the continued useful life
and the net realizable value of capitalized software projects resulted in a
writedown of capitalized computer software development costs of $892,060
which has been reflected in the accompanying statements of income.
For the years ended September 30, 1996, 1995 and 1994, the Company
received product development fees totaling $271,526, $755,412 and $136,680,
respectively, and incurred development costs of $182,082, $429,134 and
$7,039, respectively, under such contracts. Costs incurred under such
product development contracts are capitalized in prepaid expenses and other
current assets on the accompanying balance sheets and charged to cost of
development upon the delivery of the product to the customer.
ADVERTISING COSTS - The Company's advertising expenditures are expensed
in the period the advertising first occurs. Advertising expense for the
years ended September 30, 1996, 1995 and 1994 was $197,380, $138,487 and
$77,969, respectively.
INCOME TAXES - Effective October 1, 1993, the Company adopted Statement
of Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income
Taxes." The adoption of FAS 109 changes the Company's method of accounting
for income taxes from the deferred method (APB 11) to an asset and liability
approach. Previously, the Company deferred the past tax effects of timing
differences between financial reporting and taxable income. The asset and
liability method, which requires recognition of deferred tax assets and
liabilities for expected future tax consequences of temporary differences
between the book and tax basis of assets and liabilities and other tax
attributes, including tax loss and credit carryforwards. The Company
provides a valuation allowance for the amount of tax assets not expected to
be realized. The adoption of FAS 109 had no effect on the Company's results
of operations or financial position.
F-34
<PAGE>
AUTO-GAS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
FAIR VALUES OF FINANCIAL INSTRUMENTS - The Company believes that the
carrying amounts of its cash and cash equivalents, accounts and notes
receivable, accounts payable, accrued expenses and other current liabilities
approximate their fair market values due to their short-term nature.
ACCOUNTING FOR STOCK-BASED COMPENSATION - In October 1995, the FASB issued
FAS No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"), which
is effective for fiscal years beginning after December 15, 1995. Effective
October 1, 1996, the Company will adopt FAS 123 which establishes financial
accounting and reporting standards for stock-based employee compensation
plans. The pronouncement defines a fair value based method of accounting
for an employee stock option or similar equity instrument and encourages
all entities to adopt that method of accounting for all of their employee
stock option compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the intrinsic
value based method of accounting as prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25"). Entities electing to remain with the accounting in APB 25 must make
pro forma disclosures of net income and earnings per share as if the fair
value based method of accounting defined in FAS 123 had been applied. The
Company will continue to account for stock-based employee compensation
plans under the intrinsic method pursuant to APB 25 and will make the
disclosures in its footnotes as required by FAS 123.
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 reported period. Actual results could differ from
those estimates.
3. INVESTMENT IN FST HOLDINGS
Auto-Gas and FleetStar, Inc., which is a wholly-owned subsidiary of Jack
B. Kelley, Inc., each own 50% of FST Holdings. FST Holdings ("FST") is
involved in a corporate joint venture with Lone Star Energy through FleetStar
of Texas, L.L.C. (FleetStar), which is owned 50% by each. FleetStar develops
and operates compressed natural gas fueling sites, the majority of which are
in the Dallas/Fort Worth metroplex. Auto-Gas uses the equity method of
accounting for its investment in FST.
F-35
<PAGE>
AUTO-GAS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1996 and 1995 consisted of the
following:
1996 1995
------------ ----------
Computer equipment $ 1,032,193 $ 770,272
Furniture and fixtures 246,441 176,834
Marketing assets 186,919 182,312
Machinery and equipment 127,281 90,333
Other assets 110,591 40,458
------------ ----------
1,703,425 1,260,209
Less: accumulated depreciation
and amortization (1,020,688) (863,379)
------------ ----------
$ 682,737 $ 396,830
------------ ----------
------------ ----------
Depreciation and amortization expense for the years ended September 30,
1996, 1995 and 1994 was $160,613, $135,664 and $123,598, respectively.
5. STOCK WARRANTS
On September 1, 1993, Auto-Gas issued to the president of the Company
warrants to purchase 142,667 shares of common stock at $4.50 per share.
The value assigned to the warrants of $39,233 is reflected in other assets
net of accumulated amortization of $39,233 and $26,156 at September 30,
1996 and 1995, respectively. The value was amortized ratably over the
three-year period beginning October 1, 1993. The warrants may be exercised
at any time until the expiration date of September 1, 1998. The Company
has reserved 142,667 shares of common stock for exercise of these warrants.
6. FEDERAL INCOME TAXES
The provision for income taxes for the years ended September 30, 1996, 1995
and 1994 consisted of:
1996 1995 1994
--------- ---------- ----------
Current state $ 62,470 $ 132,471 $ 110,484
Current federal 608,458 634,286 60,000
Deferred 160,636 (38,174) (54,190)
--------- ---------- ----------
Income tax expense $ 831,564 $ 728,583 $ 116,294
--------- ---------- ----------
--------- ---------- ----------
F-36
<PAGE>
AUTO-GAS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Deferred tax assets and liabilities are comprised of the following:
SEPTEMBER 30,
1996 1995
----------- -----------
Deferred tax liabilities:
Capitalized software and custom projects $ (376,001) $ (305,602)
Depreciation and amortization (42,880) (30,373)
----------- -----------
Total deferred tax liabilities (418,881) (335,975)
----------- -----------
Deferred tax assets:
Bad debt and warranty reserves 210,081 266,829
Software amortization 70,967 141,940
Other 69,561 19,570
----------- -----------
350,609 428,339
Deferred tax assets valuation allowance - -
----------- -----------
Total deferred tax assets 350,609 428,339
----------- -----------
Net deferred tax (liabilities) assets $ (68,272) $ 92,364
----------- -----------
----------- -----------
The differences between the Company's effective tax rate and the federal
statutory rate of 34% for the years ended September 30, 1996, 1995 and 1994
are as follows:
1996 1995 1994
---------- ---------- ----------
Tax at the statutory corporate
rate $ 759,627 $ 613,172 $ 844,741
State income taxes, net of
federal benefit 41,230 87,431 81,791
Undistributed loss in
FST Holdings 29,914 45,718 40,018
Research and development
credit - (45,859) -
Utilization of NOL carryforward - - (854,319)
Other, net 793 27,121 4,063
---------- ---------- ----------
$ 831,564 $ 728,583 $ 116,294
---------- ---------- ----------
---------- ---------- ----------
Effective tax rate 37% 40% 5%
---------- ---------- ----------
---------- ---------- ----------
During the year ended September 30, 1994, the Company utilized $2,830,073
of operating loss carryforwards to offset taxable income.
F-37
<PAGE>
AUTO-GAS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
7. BENEFIT PLANS
Under the terms of two incentive stock option plans (the "Plans"), Auto-Gas
may grant 300,000 options to key employees and directors for the purchase
of shares of its common stock. Terms of options under the Plans are
determined by a committee consisting of two or more members of the Board of
Directors and are not to exceed 10 years. The option price is determined
by the committee and shall not be less than 100% of the fair market value
of the common stock at the time of granting the option, or $3.35 per share,
whichever is greater. The options are exercisable 40% after two years and
an additional 20% each subsequent year. Information about the Plans for
the years ended September 30, 1996, 1995 and 1994 is as follows:
1996 1995 1994
----------- ----------- -----------
Options outstanding, October 1 300,000 183,000 198,000
Granted - 117,000 -
Exercised - - -
Surrendered (8,500) - (15,000)
----------- ----------- -----------
Options outstanding, September 30 291,500 300,000 183,000
----------- ----------- -----------
----------- ----------- -----------
Exercisable, September 30 174,500 163,800 144,600
----------- ----------- -----------
----------- ----------- -----------
Exercise Price, September 30 $3.50-$8.00 $3.50-$8.00 $3.50-$4.50
----------- ----------- -----------
----------- ----------- -----------
During fiscal 1991, the Company implemented a 401(k) plan for all qualified
employees of Auto-Gas. The Company may make contributions to the plan upon
approval from the Board of Directors; however, employer contributions are
not mandatory. Only employee contributions were made to the plan during
fiscal 1996, 1995 and 1994.
8. MAJOR CUSTOMERS
During the years ended September 30, 1996, 1995 and 1994, one major
customer accounted for 26%, 18% and 26%, respectively, of total sales.
This customer was acquired by another company during fiscal 1996. The
effect of this acquisition, if any, on future sales to this customer is not
yet determinable. During the years ended September 30, 1996, 1995 and
1994, another major customer accounted for 7%, 13%, and 13%, respectively,
of total sales.
9. RELATED PARTY TRANSACTIONS
Auto-Gas and AutoFuel Company (AFCO), an operator of unattended retail
gasoline stations, have certain common stockholders, directors and
officers. Revenues for the years ended September 30, 1996, 1995 and 1994
include $13,988, $45,392 and $17,498, respectively, of sales to AFCO.
Accounts and notes receivable as of September 30, 1996 and 1995 include
$26,372 and $62,258, respectively, due from AFCO. During the year ended
September 30, 1994, Auto-Gas wrote off $100,952 of its September 30, 1993
receivable from AFCO as a result of the discharge of this liability by
AFCO's bankruptcy proceedings.
F-38
<PAGE>
AUTO-GAS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The Company subleases its administrative office facilities from AFCO. The
terms of the sublease require payments, on a month-to-month basis, of
$2,000 per month. The amount of rent paid for the years ended September
30, 1996, 1995 and 1994 was $24,000, $24,000 and $17,000, respectively.
10. COMMITMENTS AND CONTINGENCIES
At September 30, 1996, Auto-Gas does not have any operating leases with
initial or remaining noncancellable lease terms in excess of one year. The
amount of rent expense for the year ended September 30, 1996 aggregated
$102,574.
Auto-Gas is a party to various lawsuits arising in the ordinary course of
its business and does not believe that the outcome of these lawsuits will
have a material effect on the Company's financial position or results
from operations.
11. PROPOSED MERGER
Subject to stockholder approval, the Company is considering a proposal
whereby each outstanding share of the Company's common stock, $1.00 par
value per share, will be converted into the right to receive 3.37623 shares
of Canmax Inc. common stock and cash in lieu of any fractional shares.
F-39
<PAGE>
APPENDICES
APPENDIX A AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
APPENDIX B OPINION OF CANMAX ADVISOR
APPENDIX C OPINION OF AGSI ADVISOR
APPENDIX D NOTICE OF APPRAISAL RIGHTS
<PAGE>
APPENDIX A
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
DATED AS OF JUNE 16, 1997
BETWEEN
AUTO-GAS SYSTEMS, INC.
(A DELAWARE CORPORATION)
AND
CANMAX RETAIL SYSTEMS, INC.
(A TEXAS CORPORATION)
AND
CANMAX INC.
(A WYOMING CORPORATION)
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1. THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Effect of the Merger . . . . . . . . . . . . . . . . . . . . . 1
1.3. Effect of the Merger . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF AGSI . . . . . . . . . . . . 5
2.1. Organization; Good Standing. . . . . . . . . . . . . . . . . . 5
2.2. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4. Authority; Enforceability; Non-Contravention . . . . . . . . . 6
2.5. Financial Statements . . . . . . . . . . . . . . . . . . . . . 6
2.6. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.7. Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.8. Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.9. Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.10. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.11. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.12. Registration Rights. . . . . . . . . . . . . . . . . . . . . . 11
2.13. Key Persons Insurance. . . . . . . . . . . . . . . . . . . . . 11
2.14. Certain Activities and Services. . . . . . . . . . . . . . . . 11
2.15. Governmental Permits . . . . . . . . . . . . . . . . . . . . . 11
2.16. Compliance With Laws . . . . . . . . . . . . . . . . . . . . . 11
2.17. RESERVED . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.18. Intellectual Property. . . . . . . . . . . . . . . . . . . . . 11
2.19. Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . 12
2.20. Finder's Fees. . . . . . . . . . . . . . . . . . . . . . . . . 13
2.21. Directors, Officers and Employees. . . . . . . . . . . . . . . 13
2.22. Bank Accounts, etc. . . . . . . . . . . . . . . . . . . . . . 13
2.23. RESERVED . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.24. Rule 145 Affiliates. . . . . . . . . . . . . . . . . . . . . . 13
2.25. Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.26. Customers. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.27. Suppliers. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.28. Real Property. . . . . . . . . . . . . . . . . . . . . . . . . 14
2.29. Employees, Labor Matters, Etc. . . . . . . . . . . . . . . . . 15
2.30. HSR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.31. Further Representation . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF CRSI AND CNMX. . . . . . . . 16
3.1. Organization; Good Standing; Listing . . . . . . . . . . . . . 16
3.2. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.3. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 16
3.4. Authority; Enforceability; Non-Contravention . . . . . . . . . 17
i
<PAGE>
3.5. Financial Statements . . . . . . . . . . . . . . . . . . . . . 17
3.6. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.7. Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.8. Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.9. Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.10. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.11. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.12. Registration Rights. . . . . . . . . . . . . . . . . . . . . . 23
3.13. Key Person Insurance . . . . . . . . . . . . . . . . . . . . . 23
3.14. Certain Activities and Services. . . . . . . . . . . . . . . . 23
3.15. Governmental Permits . . . . . . . . . . . . . . . . . . . . . 23
3.16. Compliance With Laws . . . . . . . . . . . . . . . . . . . . . 23
3.17. RESERVED . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.18. Intellectual Property. . . . . . . . . . . . . . . . . . . . . 23
3.19. Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . 24
3.20. Finder's Fees. . . . . . . . . . . . . . . . . . . . . . . . . 25
3.21. RESERVED . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.22. Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.23. Customers. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.24. Suppliers. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.25. Real Property. . . . . . . . . . . . . . . . . . . . . . . . . 26
3.26. Directors, Officers and Employees. . . . . . . . . . . . . . . 27
3.27. Employees, Labor Matters, Etc. . . . . . . . . . . . . . . . . 27
3.28. HSR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.29. CNMX Public Information. . . . . . . . . . . . . . . . . . . . 27
3.30. EDS Settlement . . . . . . . . . . . . . . . . . . . . . . . . 28
3.31. Further Representations. . . . . . . . . . . . . . . . . . . . 28
ARTICLE 4. COVENANTS OF AGSI. . . . . . . . . . . . . . . . . . . . . . . 28
4.1. Operation Prior to the Closing Date. . . . . . . . . . . . . . 28
4.2. No Solicitation. . . . . . . . . . . . . . . . . . . . . . . . 29
4.3. AGSI Disclosure Schedule . . . . . . . . . . . . . . . . . . . 30
ARTICLE 5. COVENANTS OF CNMX AND CRSI. . . . . . . . . . . . . . . . . . . 30
5.1. Operation Prior to the Closing Date . . . . . . . . . . . . . . 30
5.2. No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . 32
5.3. CNMX Disclosure Schedule. . . . . . . . . . . . . . . . . . . . 33
5.4. Continuity of Business Enterprise . . . . . . . . . . . . . . . 33
ARTICLE 6. ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . 33
6.1. AGSI Stock Option Plans; Warrants . . . . . . . . . . . . . . . 33
6.2. Shareholders Meeting. . . . . . . . . . . . . . . . . . . . . . 34
6.3. Registration Statement and Proxy Statement; Listing of
CNMX Common Shares . . . . . . . . . . . . . . . . . . . . . . 34
6.4. Access. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.5. Compliance with Securities Act; Registration Rights Agreement . 35
6.6. RESERVED. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.7. Reasonable Efforts. . . . . . . . . . . . . . . . . . . . . . . 36
6.8. Public Announcements. . . . . . . . . . . . . . . . . . . . . . 36
ii
<PAGE>
6.9. Notification of Certain Matters . . . . . . . . . . . . . . . . 36
6.10. Letters of AGSI's Accountants . . . . . . . . . . . . . . . . . 37
6.11. SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.12. Reporting Requirements. . . . . . . . . . . . . . . . . . . . . 37
6.13. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 37
6.14. Resignation of Directors of AGSI. . . . . . . . . . . . . . . . 38
6.15. Number and Appointment of Directors of CNMX . . . . . . . . . . 38
6.16. AGSI Proposal . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 7. CONDITIONS PRECEDENT TO MERGER. . . . . . . . . . . . . . . . . 39
7.1. Registration Statement. . . . . . . . . . . . . . . . . . . . . 39
7.2. No Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.3. AGSI Proposal . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.4. Goodwill Determination. . . . . . . . . . . . . . . . . . . . . 39
ARTICLE 8. CONDITIONS PRECEDENT TO CLOSING BY CNMX AND CRSI. . . . . . . . 39
8.1. Stockholder Approval; Further Board Approval. . . . . . . . . . 40
8.2. Representations and Warranties. . . . . . . . . . . . . . . . . 40
8.3. AGSI Documents. . . . . . . . . . . . . . . . . . . . . . . . . 40
8.4. No Material Adverse Change. . . . . . . . . . . . . . . . . . . 40
8.5. Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . 40
8.6. Non-Competition Agreement; Employment and Consulting
Relationship . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.7. Accountant's Consent Letter . . . . . . . . . . . . . . . . . . 41
8.8. AGSI Obligations Performed . . . . . . . . . . . . . . . . . . 41
8.9. Satisfaction or Waiver of Conditions Precedent of AGSI. . . . . 41
8.10. RESERVED. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.11. RESERVED. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.12. Bank Account. . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.13. CNMX's Investigation. . . . . . . . . . . . . . . . . . . . . . 41
8.14. Fairness Opinion. . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE 9. CONDITIONS PRECEDENT TO CLOSING BY AGSI . . . . . . . . . . . . 42
9.1. Stockholder Approval; Further Board Approval. . . . . . . . . . 42
9.2. Representations and Warranties. . . . . . . . . . . . . . . . . 42
9.3. CNMX and/or CRSI Documents. . . . . . . . . . . . . . . . . . . 43
9.4. Satisfaction or Waiver of Conditions Precedent of
CNMX and CRSI. . . . . . . . . . . . . . . . . . . . . . . . . 43
9.5. CNMX and CRSI Obligations Performed . . . . . . . . . . . . . . 43
9.6. No Material Adverse Changes . . . . . . . . . . . . . . . . . . 43
9.7. AGSI's Investigation. . . . . . . . . . . . . . . . . . . . . . 43
9.8. Fairness Opinion. . . . . . . . . . . . . . . . . . . . . . . . 44
9.9. Non-Competition Agreement; Employment and Consulting
Relationship . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.10. Tax Advice. . . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE 10. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.1. Termination by Mutual Consent . . . . . . . . . . . . . . . . . 44
10.2. Termination by AGSI . . . . . . . . . . . . . . . . . . . . . . 45
iii
<PAGE>
10.3. Termination by CNMX or CRSI . . . . . . . . . . . . . . . . . . 45
10.4. Termination Resulting from Acquisition Proposals. . . . . . . . 45
10.5. Effect of Termination . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE 11. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.2. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.1. Expenses of the Transaction . . . . . . . . . . . . . . . . . . 52
12.2. Further Assurances. . . . . . . . . . . . . . . . . . . . . . . 52
12.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.4. No Modification Except in Writing . . . . . . . . . . . . . . . 53
12.5. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . 53
12.6. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.7. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.8. Publicity; Announcements. . . . . . . . . . . . . . . . . . . . 53
12.9. Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . 54
12.10. Captions; Construction. . . . . . . . . . . . . . . . . . . . . 54
12.11. Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
iv
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (the "Agreement"),
is made and entered into as of the 16th day of June, 1997, by and among AUTO-GAS
SYSTEMS, INC., a Delaware corporation ("AGSI"), CANMAX RETAIL SYSTEMS, INC., a
Texas corporation ("CRSI"), and CANMAX INC., a Wyoming corporation ("CNMX").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of CNMX, CRSI and AGSI have
approved the merger of AGSI with and into CRSI pursuant and subject to the terms
and conditions of this Agreement;
WHEREAS, AGSI, CRSI and CNMX desire to make certain representations,
warranties and agreements in connection with the Merger and also to set forth
the various conditions to the Merger;
WHEREAS, the Board of Directors of AGSI, CRSI and CNMX have adopted
resolutions approving this Agreement;
WHEREAS, the terms used in this Agreement shall have the meanings
respectively ascribed to them in Article 11 hereof.
NOW, THEREFORE, the parties hereto hereby adopt the above recitals and
agree as follows:
ARTICLE 1. THE MERGER
1.1. THE MERGER. At the Effective Time, AGSI will merge with and
into CRSI (the "Merger") in accordance with the terms and conditions of this
Agreement. CRSI shall be the corporation surviving the Merger (the "Surviving
Corporation") and shall continue to be governed by the laws of the State of
Texas. The Merger shall have the effects specified under the TBCA and DGCL.
1.2. EFFECT OF THE MERGER.
(a) EFFECTIVE TIME. At the Effective Time, subject in all instances
to each of the terms, conditions, provisions and limitations contained in
this Agreement, (i) AGSI will merge with and into CRSI by the filing with
the Secretary of the States of Texas and Delaware Articles or a Certificate
of Merger; (ii) each AGSI Share outstanding at the Effective Time, by said
occurrence and with no further action on the part of the holder
- -------------------------------------------------------------------------------
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER -- PAGE 1
<PAGE>
thereof, shall be transformed and converted into the right to receive,
upon surrender of a certificate representing such AGSI Share ("AGSI
Certificate"), the Conversion Amount, without interest or any similar
payment thereon or with respect thereto; (iii) each share of common stock
of CRSI outstanding prior to the Merger will, by said occurrence and with
no further action on the part of the holder thereof, be transformed and
converted into one share of common stock of the Surviving Corporation, so
that thereafter CNMX will be the sole and exclusive owner of equity
securities of the Surviving Corporation; and (iv) the Surviving Corporation
shall be the owner of all of the business, assets, rights and other
attributes thereto of, or held by, either AGSI or CRSI.
(b) CONVERSION AMOUNT. On the Closing Date, each outstanding AGSI
Share shall be exchanged for 3.37623 CNMX Shares ("Conversion Amount"),
subject to adjustment as provided in Section 1.2(m).
(c) CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION. The
articles of incorporation of the Surviving Corporation shall be the
articles of incorporation of CRSI immediately prior to the Effective Time.
(d) BYLAWS OF THE SURVIVING CORPORATION. The bylaws of the Surviving
Corporation shall be the bylaws of CRSI immediately prior to the Effective
Time.
(e) BOARD OF DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION.
The board of directors and officers of CRSI immediately prior to the
Effective Time shall be the board of directors and the officers of the
Surviving Corporation, respectively, immediately upon the Effective Time,
and such persons shall serve in such positions for the respective terms
provided by law or in the bylaws of the Surviving Corporation and until
their respective successors are elected and qualified.
(f) EXCHANGE PROCEDURES. Montreal Trust shall act as exchange agent
hereunder (the "Exchange Agent"). In the event Montreal Trust is unable or
unwilling to act as the Exchange Agent, CNMX and AGSI shall, upon mutual
agreement, seek to select a comparable party to act as Exchange Agent. CNMX
Shares shall be held by the Exchange Agent pursuant to the terms of an
Exchange Agreement (the "Exchange Agreement") in a form reasonably
acceptable to CNMX, AGSI and the Exchange Agent. Immediately prior to the
Effective Time, CNMX shall deposit, or cause to be deposited, with the
Exchange Agent, in trust for the holders of AGSI Shares, the aggregate
Conversion Amount (together with cash in an amount sufficient to be issued
in lieu of fractional shares) issuable pursuant to Section 1.2(b) in
exchange for outstanding AGSI Shares (the "Exchange Fund"). As soon as
practicable after the Effective Time, the Exchange Agent shall mail to each
holder of record of AGSI Shares a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
AGSI Certificates shall pass, only upon actual delivery of the AGSI
Certificates to the Exchange Agent and shall contain instructions for use
in effecting the surrender of the AGSI Certificates in exchange for the
Conversion Amount). Upon the surrender of an AGSI Certificate for
cancellation to the Exchange Agent, together with such
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letter of transmittal, duly executed, the holder of such AGSI Certificate
shall receive in exchange therefor the Conversion Amount for the AGSI
Shares represented by such AGSI Certificate, and the AGSI Certificate so
surrendered shall forthwith be canceled. Until surrendered as contemplated
by this Section 1.2(f), each AGSI Certificate shall, at and after the
Effective Time, be deemed to represent only the right to receive, upon
surrender of such AGSI Certificate, the Conversion Amount with respect to
each AGSI Share represented thereby in accordance with the terms of this
Agreement.
(g) DIVIDENDS; TRANSFER TAXES. No dividends or other distributions
that are declared on or after the Effective Time on CNMX Shares or are
payable to the holders of record of CNMX Shares on or after the Effective
Time will be paid to persons entitled by reason of the Merger to receive
CNMX Shares until such persons surrender their AGSI Certificates, as
provided in this Article 1. Subject to the effect of Applicable Law, there
shall be paid to the record holder of CNMX Shares (i) at the time of such
surrender or as promptly as practicable thereafter, the amount of any
dividends or other distributions theretofore paid with respect to whole
CNMX Shares and having a record date on or after the Effective Time and a
payment date prior to such surrender and (ii) at the appropriate payment
date or as promptly as practicable thereafter, the amount of dividends or
other distributions payable with respect to CNMX Shares and having a record
date on or after the Effective Time but prior to surrender and a payment
date subsequent to surrender. In no event shall the person entitled to
receive such dividends or other distributions be entitled to receive
interest on such dividends or other distributions. If any dividends, cash
in lieu of fractional shares or CNMX Shares are to be paid to or issued in
a name other than that in which the AGSI Certificate surrendered in
exchange therefor is registered, it shall be a condition of such exchange
that the AGSI Certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
exchange shall pay to the Exchange Agent any transfer or other taxes
required by reason of the issuance of CNMX Shares in a name other than that
of the registered holder of the AGSI Certificate surrendered or shall
establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not applicable.
(h) NO FRACTIONAL SHARES. No certificates or scrip representing
fractional CNMX Shares shall be issued upon the surrender for exchange of
AGSI Certificates pursuant to this Article 1, and, except as provided in
this Section 1.2(h), no dividend or other distribution, stock split or
interest shall relate to any such fractional security, and such fractional
interests shall not entitle the owner thereof to vote or to any rights of a
security holder of CNMX. In lieu of any fractional security, each holder of
AGSI Shares who would otherwise have been entitled to a fraction of a CNMX
Share upon surrender of AGSI Certificates for exchange pursuant to this
Article 1 will be paid an amount in cash (without interest) equal to the
value of the fractional share based upon the Closing Price. Any such
payment of cash in lieu of fractional CNMX Shares shall be delivered to
each former holder of AGSI Shares by check concurrent with the delivery of
the portion of the Conversion Amount represented by CNMX Shares.
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(i) RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund and
any dividends or distributions with respect to CNMX Shares which remain
undistributed to the former holders of AGSI Shares for six (6) months after
the Effective Time shall be delivered to CNMX, upon demand of CNMX, and any
former holders of AGSI Shares who have not theretofore complied with this
Article 1 shall thereafter look only to the Surviving Corporation and CNMX
for payment of their claim for the Conversion Amount into which such AGSI
Shares are convertible, any cash in lieu of fractional CNMX Shares, and any
dividends or distributions with respect to CNMX Shares.
(j) NO FURTHER OWNERSHIP RIGHTS IN COMMON STOCK. All CNMX Shares
issued, and all cash paid pursuant to this Section 1.2, upon the surrender
for exchange of AGSI Certificates in accordance with the terms hereof,
shall be deemed to have been issued or paid, as the case may be, in full
satisfaction of all rights pertaining to the AGSI Shares.
(k) CLOSING OF AGSI TRANSFER BOOKS. At the Effective Time, the stock
transfer books of AGSI shall be closed and no transfer of AGSI Shares shall
thereafter be made. If, after the Effective Time, AGSI Certificates are
presented to the Surviving Corporation, they shall be canceled and
exchanged as provided in this Article 1.
(l) FURTHER ASSURANCES. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (i) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, its right, title or interest in,
to or under any of the rights, privileges, powers, franchises, properties
or assets of AGSI or CRSI, or (ii) otherwise to carry out the purposes of
this Agreement, the Surviving Corporation and its proper officers and
directors or their designees shall be authorized to execute and deliver, in
the name and on behalf of each such corporation, all such deeds, bills of
sale, assignments and assurances and do, in the name and on behalf of each
of such corporations, all such other acts and things necessary, desirable
or proper to vest, perfect or confirm its right, title or interest in, to
or under any of the rights, privileges, powers, franchises, properties or
assets of such corporations and otherwise to carry out the purposes of this
Agreement.
(m) CERTAIN ADJUSTMENTS. The Conversion Amount shall be subject to
appropriate adjustment in the event of a stock split, stock dividend, cash
dividend or distribution, asset dividend or distribution or other corporate
distribution, reorganization or recapitalization with respect to the CNMX
Shares subsequent to the date hereof on or prior to the Effective Time and
permitted by this Agreement.
(n) DISSENTER'S RIGHTS. To the extent that the holders of AGSI
Shares exercise dissenter's rights pursuant to applicable provisions of the
DGCL, the AGSI Shares of such holders shall not be converted into a right
to receive the Conversion Amount, but the CNMX Shares representing the
Conversion Amount attributable to such shares shall be held
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by the Exchange Agent, subject to the provisions of such law. If any such
holder fails to perfect or withdraws or loses its dissenter's rights, such
AGSI Shares shall then be treated as if they had been converted as of the
Effective Time into a right to receive the Conversion Amount (in accordance
with Section 1.2(f)).
1.3. CLOSING. The Closing of the Merger (the "Closing")
shall take place at 10:00 a.m. on a date (the "Closing Date") to be specified by
the parties, which shall be no later than the fifth (5th) business day after the
satisfaction or waiver of the conditions set forth in Articles 7, 8 and 9
hereof, unless another date or place is agreed to in writing by the parties
hereto, at the offices of Arter & Hadden, Dallas, Texas, or some other mutually
agreeable location in Dallas, Texas.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF AGSI
AGSI hereby represents and warrants to CNMX and CRSI that as of the date
hereof, except as set forth in the written Disclosure Schedule (the "AGSI
Disclosure Schedule") delivered to CNMX and CRSI on or prior to July 1, 1997
that is arranged in paragraphs corresponding to the numbered and lettered
paragraphs contained in this Article 2, including, but not limited to, the
individual schedules referred to in this Article 2:
2.1. ORGANIZATION; GOOD STANDING. AGSI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is qualified as a foreign corporation in the jurisdictions set
forth in SCHEDULE 2.1(a). Except as set forth in SCHEDULE 2.1(b), AGSI is
qualified as a foreign corporation in all jurisdictions in which it is required
to qualify as a result of the conduct of its business or ownership of its
properties and where the failure to be so qualified could reasonably be
anticipated to have a Material Adverse Effect. AGSI has delivered to CNMX
complete and correct copies of its Certificate of Incorporation and Bylaws as in
effect on the date hereof.
2.2. SUBSIDIARIES. There are no AGSI Subsidiaries. Except as set
forth on SCHEDULE 2.2, AGSI does not own, directly or indirectly, any shares of
stock or any other equity or long-term debt securities of any corporation or
have any equity interest in any firm, partnership, Joint Venture, association or
other Person.
2.3. CAPITALIZATION. The authorized capital stock of AGSI as of
the date of this Agreement consists of 3,000,000 shares of common stock, $1.00
par value per share, of which 1,541,794 are issued and outstanding. SCHEDULE 2.3
sets forth, as of the date of this Agreement, a true and correct list of all
outstanding options, warrants, calls, puts, commitments and other rights to
purchase, or securities or other rights convertible or exchangeable into,
capital stock of AGSI indicating the record and, to the Knowledge of AGSI, the
beneficial owner thereof, the exercise, conversion or exchange price and period
thereof, the term and any vesting or other conditions thereof. All securities
issued or issuable by AGSI have been paid for and delivered in accordance with
the terms of applicable agreements or instruments, duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof have no rights
of rescission with respect thereto and are not subject to personal liability by
reason of being such holders; none of such securities were
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issued in violation of the preemptive rights of any holder of any security of
AGSI or any similar rights granted by AGSI or Applicable Law.
2.4. AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. AGSI has the
corporate power and authority to conduct the business and activities conducted
by it and to own or lease the assets owned or leased by it. AGSI has the
corporate power and authority (subject to shareholder approval as set forth in
Section 9.1 and further approval of the Board of Directors of AGSI in connection
with the satisfaction of the conditions set forth in Sections 7.3, 7.4, 9.7 and
9.8) to execute and deliver this Agreement and all other documents required to
be executed and delivered by AGSI hereunder, to consummate the transactions
hereby contemplated, and to take all other actions required to be taken by AGSI
pursuant to the provisions hereof. This Agreement and all other documents
required to be executed and delivered by AGSI hereunder have been duly
authorized by all corporate action necessary on the part of AGSI (subject to
shareholder approval as set forth in Section 9.1 and further approval of the
Board of Directors of AGSI in connection with the satisfaction of the conditions
set forth in Sections 7.3, 7.4, 9.7 and 9.8) and have been duly, or will when
executed and delivered be duly, executed and delivered by AGSI and constitute
the legal, valid and binding obligations of AGSI, enforceable against AGSI in
accordance with their terms. Except as disclosed in SCHEDULE 2.4, neither the
execution nor the delivery of this Agreement or any other documents required to
be executed and delivered by AGSI hereunder or the consummation of the
transactions hereby contemplated by AGSI (i) conflicts with or constitutes any
violation or breach of the Certificate of Incorporation or the Bylaws of AGSI;
(ii) constitutes any violation or breach of, or gives any other Person any
rights (including any right of acceleration, termination or cancellation) under,
any AGSI Contract or other document or agreement to which AGSI is a party, the
violation of which, in the aggregate, could reasonably be expected to have a
Material Adverse Effect; (iii) constitutes a violation of any Order or
Applicable Law; or (iv) will result in the creation of any Lien on any of the
assets or properties of AGSI.
2.5. FINANCIAL STATEMENTS.
(a) SCHEDULE 2.5 lists the audited financial statements of AGSI as
of, and for the fiscal years ending September 30, 1994, 1995 and 1996 and
the unaudited financial statement for the six months ended March 31, 1997
("AGSI Cut-Off Date"), including the balance sheets and related statements
of income and retained earnings (deficit) (collectively, the "AGSI
Financial Statements"). The AGSI Financial Statements and all notes thereto
(i) have been prepared in accordance with the books and records of AGSI;
(ii) fairly present in all material respects the financial position and
results of operations of AGSI as of the date thereof and for the periods
referenced therein; (iii) are in accordance with GAAP; and (iv) have been
delivered to CNMX; except, in each case, that (I) the unaudited interim
AGSI Financial Statements are subject to normal and recurring year-end
adjustments that AGSI, as of the date hereof, does not have any reason to
believe will be material, and (II) footnote disclosure is omitted from such
interim AGSI Financial Statements.
(b) Except as set forth on SCHEDULE 2.5, since the AGSI Cut-Off
Date: (i) AGSI has conducted its business in the ordinary, regular course
thereof; (ii) there has been
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no change in the financial condition of AGSI which has had or reasonably
could be anticipated to have a Material Adverse Effect, or any damage,
destruction or loss, not covered by insurance, which has had or reasonably
could be anticipated to have a Material Adverse Effect, or any change in
the nature, or in the condition, of the businesses of AGSI which has had or
reasonably could be anticipated to have a Material Adverse Effect; or any
event, condition or state of facts or any character whatsoever, the
occurrence of which has had or reasonably could be anticipated to have a
Material Adverse Effect; and (iii) except in the ordinary and regular
course of its business, AGSI has not made any dispositions of any of
assets; disposed of any records relating to assets or properties; borrowed
any funds; incurred, assumed or become subject to any obligation or
liability, indebtedness for borrowed money, absolute or contingent; paid,
discharged, or satisfied any claim, liability or obligation, absolute,
accrued, contingent or otherwise; canceled any debts owed to it or them;
waived any claims or rights of value; granted or extended any power of
attorney; or acted as any guarantor.
(c) AGSI does not have either (i) any Liabilities that, in the
aggregate, reasonably could be anticipated to have a Material Adverse
Effect or (ii) any AGSI Severance Obligations, except (A) as described in
the AGSI Financial Statements, (B) incurred since March 31, 1997 in the
ordinary course of business consistent with past practices, (C) for legal,
accounting, investment banking and similar transaction costs incurred in
connection with this Agreement, or (D) as otherwise set forth on SCHEDULE
2.5. Except as set forth on SCHEDULE 2.5, there has been no change in the
business, financial condition, operations or prospects of AGSI, any
repurchase of any capital stock of AGSI, any dividend declared or paid or
any distribution made by AGSI with respect to such capital stock, since
March 31, 1997 which has had or reasonably could be anticipated to have a
Material Adverse Effect.
2.6. TAXES.
(a) All Taxes levied, assessed, or imposed upon AGSI or its
business, assets or properties as of the AGSI Cut-Off Date have been duly
and fully paid or have been provided for on the Balance Sheet of AGSI in
accordance with GAAP as of the AGSI Cut Off Date (the "AGSI Cut-Off Date
Balance Sheet"). All reserves shown on the AGSI Cut Off Date Balance Sheet
are reasonable estimates, as of the date hereof, of the amounts payable
with regard to the contingency for which the reserve has been established.
In addition, except as set forth on SCHEDULE 2.6, all filings, returns, and
reports with respect to Taxes required by any foreign or domestic law or
regulation to be filed by AGSI on or prior to the date hereof have been
duly and timely filed, except where such failures to file, in the
aggregate, could not reasonably be anticipated to result in AGSI's payment
of in excess of $75,000 on or before December 31, 1997. Except as set forth
in SCHEDULE 2.6, there are no agreements, waivers or other arrangements
(oral or written) currently in force providing for extensions of time with
respect to the assessment or collection of unpaid Taxes, nor, except as set
forth on SCHEDULE 2.6, are there any actions, suits, proceedings,
inquiries, investigations or claims of any nature or kind whatsoever now
pending or, to the Knowledge of AGSI, threatened,
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against AGSI with respect to any such returns or reports, or any such
Taxes, or any matters under discussion with any federal, state, county,
local or other authority relating to Taxes.
(b) Except as otherwise disclosed on SCHEDULE 2.6: (i) AGSI has made
all payments of estimated Taxes required to be made under Section 6655 of
the Code and any comparable provisions of state, local, federal or other
law, except where the failure to do so could not reasonably be anticipated
to result, in the aggregate, in AGSI's payment of in excess of $75,000 on
or before December 31, 1997; (ii) all amounts of any Taxes, including
payroll and federal excise taxes, that are required to be collected or
withheld by AGSI have been duly collected or withheld, and have been duly
remitted or deposited in accordance with law; (iii) no power of attorney
has been granted by AGSI that is currently in force with respect to any
matter relating to Taxes; (iv) AGSI does not have any deferred gain or loss
(A) arising from deferred inter-company transactions, within the meaning of
Treas. Regs. Section 1.1502-13 or any successor regulations, or (B) with
respect to the stock or obligations of any member of the affiliated group
of which AGSI is the common parent, as described in Treas. Regs. Section
1.1502-14; (v) AGSI is not required to include in income any adjustment
pursuant to Section 481(a) of the Code (or any similar provision of law or
regulations) by reason of a change in accounting method, nor, to the
Knowledge of AGSI, is the IRS or any other taxing authority considering any
such change in accounting method; (vi) AGSI has not disposed of any
property which has been accounted for Tax purposes under the installment
method, the gain or loss from which has not been recognized; (vii) AGSI
does not own any interest in any entity which is characterized as a
partnership for federal income tax purposes; (viii) AGSI will not have any
"non-recaptured net Section 1231 losses," within the meaning of Section
1231(c) of the Code on the Closing Date; (ix) no claim or assertion, to the
Knowledge of AGSI, has been made against AGSI by any tax authority in any
jurisdiction in which no tax return has been filed by AGSI that it may be
subject to Tax in that jurisdiction or otherwise is required to file a tax
return.
2.7. PROPERTY.
(a) Except as shown on SCHEDULE 2.7(a), AGSI has good and marketable
title to all of its assets free and clear of any Liens, other than
Permitted Liens. The assets set forth on or detailed in the AGSI Cut-Off
Date Balance Sheet comprise all tangible assets, either owned by AGSI or
subject to capital leases and used or useable by AGSI in its business,
except for any properties acquired in the ordinary course of business since
the AGSI Cut-Off Date. Except as disclosed in SCHEDULE 2.7(a), there are
no tangible assets or properties used by AGSI in the operation of its
business that (i) are not reflected on the AGSI Cut-Off Date Balance Sheet,
(ii) have not been acquired in the ordinary course of business since the
AGSI Cut-Off Date, or (iii) are not leased or licensed to AGSI under valid,
current leases or license arrangements. The assets reflected on the AGSI
Cut-Off Date Balance Sheet are in all material respects adequate for the
purposes for which such assets are currently used and are held for use, and
are in reasonably good repair and operating condition (subject to normal
wear and tear).
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(b) SCHEDULE 2.7(b) contains a true and correct copy of the
depreciation schedule for tangible assets of AGSI reflected in the AGSI
Cut-Off Date Balance Sheet.
2.8. RECEIVABLES. The accounts receivable reflected in the
AGSI Cut-Off Date Balance Sheet are, net of reserves therefor, (a) valid
receivables that have arisen in the ordinary course of the operations of AGSI
and (b) collectible and not subject to setoff, counterclaim, or any agreement to
reduce or discount.
2.9. CONTRACTS
(a) Except as set forth elsewhere on SCHEDULES 2.10 AND 2.28(b),
SCHEDULE 2.9, sets forth a complete and correct list of the following types
of contracts to which AGSI is a party or is otherwise bound (the "AGSI
Contracts"):
(i) any sales agency, manufacturer's representative, marketing
or distributorship agreements under which AGSI has paid or received in
excess of $20,000 in the twelve-month period ending September 30, 1996
or $10,000 in the six month period ending March 31, 1997;
(ii) any loan agreements, lease agreements, notes, mortgages,
indentures, guarantees, security agreements, letters of credit,
financing documents or other agreements for the borrowing or lending
of money by AGSI in excess of $100,000;
(iii) all Joint Venture agreements;
(iv) all agreements involving an aggregate amount in excess of
$100,000 to provide goods or perform services or for the payment of
goods or services;
(v) any commitment or agreement for any capital expenditure or
leasehold improvement in excess of $100,000;
(vi) any agreement, contract or commitment limiting or
restraining AGSI from engaging or competing in any manner or in any
business;
(vii) all collective bargaining agreements, employment
agreements, consulting agreements and severance agreements;
(viii) all agreements for the offer or sale of securities, if
any;
(ix) all agreements with investment bankers or brokers;
(x) all agreements under which AGSI is entitled to
indemnification and under which the potential claims subject to
indemnification could reasonably be expected to exceed $100,000;
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(xi) all agreements to which AGSI is a party and involving an
aggregate amount in excess of $100,000 under which, since October 1,
1996, AGSI or the other party to the agreement has, or has been
alleged to have, in writing breached, failed to perform under or
otherwise failed to comply with the terms of, such agreement;
(xii) any agreement with any Governmental Authority;
(xiii) any material agreement, contract or commitment
involving more than $100,000 not made in the ordinary course of
business;
(xiv) any agreements or other arrangements with any
Affiliates of AGSI (such agreements or arrangements to be separately
identified or described in such other Schedules or SCHEDULE 2.9 as
"AGSI Affiliate Agreements"); and
(xv) any other contracts, agreements or commitments, the
termination of which could reasonably be anticipated to have a
Material Adverse Effect.
(b) True and correct copies of all the AGSI Contracts shall be
delivered to CNMX by or on behalf of AGSI on or before June 30, 1997.
Except as set forth on SCHEDULE 2.9(b), (i) AGSI has not received notice
of any plan or intention of any party to any AGSI Contract to exercise
any right to cancel or terminate any AGSI Contract, the termination of
which, together with all other AGSI Contracts so noticed, could reasonably
be anticipated to have a Material Adverse Effect; (ii) each of the AGSI
Contracts is valid and enforceable in accordance with its terms, except
to the extent that the invalidity or unenforceability of such AGSI
Contract, together with all other such AGSI Contracts, could not reasonably
be anticipated to have a Material Adverse Effect, and (iii) AGSI is not in
default in any material respect in the performance, observance or
fulfillment of any material obligation, covenant or condition contained
therein, and, to the Knowledge of AGSI, no event has occurred which with
or without the giving of notice or lapse of time, or both, would constitute
such a default thereunder, except to the extent that such default or event,
together with all other such defaults or events, could not reasonably be
anticipated to have a Material Adverse Effect.
2.10. INSURANCE. SCHEDULE 2.10 lists all insurance policies held
by AGSI and which are in full force and effect.
2.11. LITIGATION. Except as set forth on SCHEDULE 2.11, there is
no claim or Proceeding, in each case domestic or foreign, pending or, to the
Knowledge of AGSI, threatened against, or involving the properties or business
of AGSI which (a) questions the validity of the issuance of the capital stock of
AGSI, this Agreement or any action taken or to be taken by AGSI pursuant to or
in connection with this Agreement; or (b) could otherwise reasonably be
anticipated to have a Material Adverse Effect.
2.12. REGISTRATION RIGHTS. Except as set forth on SCHEDULE 2.12,
no Person has rights to the registration of any securities of AGSI.
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2.13. KEY-PERSON INSURANCE. AGSI does not have any key-person
insurance on the life of any officer, director or employee of AGSI.
2.14. CERTAIN ACTIVITIES AND SERVICES. Except as set forth on
SCHEDULE 2.14, AGSI does not engage in any business other than developing,
selling or licensing software, hardware and other equipment for retailers and
other customers and services related thereto.
2.15. GOVERNMENTAL PERMITS. AGSI owns, holds or possesses all
Governmental Permits which are necessary to entitle it to own or lease, operate
and use its assets and to carry on and conduct their business as currently
conducted, except to the extent that the absence thereof, considered in the
aggregate, could not reasonably be anticipated to have a Material Adverse
Effect.
2.16. COMPLIANCE WITH LAWS. AGSI has complied with Applicable Law
and Orders of any Governmental Authority having jurisdiction over it or its
operations, including, but not limited to, all rules or regulations regulating,
if applicable, zoning, fair and equal employment practices, the safety of the
workplace, the discharge of materials into the Environment or otherwise relating
to the protection of the Environment, antitrust, anti-monopoly or anti-
competitive activities, wages, hours, collective bargaining and the payment of
withholding and social security taxes except to the extent that such non-
compliance or partial compliance could not reasonably be anticipated to have a
Material Adverse Effect. Except as set forth on SCHEDULE 2.16, there are no
Orders outstanding and in effect against AGSI, its assets, or the transactions
contemplated by this Agreement. Except as set forth in SCHEDULE 2.16, AGSI has
not received any written notice or, to its Knowledge, oral notice from any
Person to the effect that, or otherwise been advised that, AGSI is not in
compliance with any Applicable Law, ordinance, regulation, building or zoning
law, except to the extent that such non-compliance or partial compliance could
not reasonably be anticipated to have a Material Adverse Effect, and AGSI has no
reason to anticipate that any existing circumstances are likely to result in a
violation of any law, statute, ordinance or regulation, the non-compliance or
partial compliance with which could reasonably be anticipated to have a Material
Adverse Effect.
2.17. [RESERVED].
2.18. INTELLECTUAL PROPERTY.
(a) TITLE. SCHEDULE 2.18(a) contains a complete and correct list
and a brief description of all Intellectual Property that is owned,
licensed or used by AGSI and material to AGSI's business. Except as set
forth in SCHEDULE 2.18(A), AGSI owns or has the right to use pursuant to
license or sublicense agreements all of such Intellectual Property, free
from any liens and free from any requirement of any past, present or future
royalty payments, license fees, charges or other payments, or conditions or
restrictions, and has filed all certificates, affidavits and other
documents, and taken all other actions, necessary to retain its title to
said properties and to keep the same in effect.
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(b) NO INFRINGEMENT. The conduct of the business of AGSI does not
infringe or otherwise conflict with any rights of any Person in respect of
any Intellectual Property owned by AGSI, and, to AGSI's Knowledge, does not
infringe or otherwise conflict with any rights of any Person in respect of
any Intellectual Property owned by others, except to the extent that the
same could not reasonably be anticipated to have a Material Adverse Effect.
2.19. EMPLOYEE PLANS.
(a) SCHEDULE 2.19 sets forth a true and complete list of each
"employee benefit plan," as such term is defined in section 3(3) of ERISA,
whether or not subject to ERISA, and each bonus, incentive or deferred
compensation, severance, termination, retention, change of control, stock
option, stock appreciation, stock purchase, phantom stock or other
equity-based, performance or other employee or retiree benefit or
compensation plan, program, arrangement, agreement, policy or
understanding, whether written or unwritten, that provides or may provide
benefits or compensation in respect of any employee or former employee of
AGSI or the beneficiaries or dependents of any such employee or former
employee (such employees, former employees, beneficiaries and dependents
collectively, the "AGSI Employees") or under which any AGSI Employee is
or may become eligible to participate or derive a benefit, as well as any
other plan which exists to benefit or compensate employees, and that is
or has been maintained or established by AGSI or to which AGSI contributes
or is or has been obligated or required to contribute or with respect to
which AGSI may have any liability or obligation (collectively, the "AGSI
Plans"). AGSI has not communicated to any AGSI Employee any intention or
commitment to modify any AGSI Plan or to establish or implement any other
employee or retiree benefit or compensation arrangement.
(b) All AGSI Plans conform (and at all times within the five years
preceding the date hereof have conformed) in all material respects to, and
are being administered and operated (and have at all times within the five
years preceding the date hereof been administered and operated) in material
compliance with, the requirements of ERISA, the Code and all other
applicable laws. All returns, reports, filings and disclosure statements
required to be made under ERISA and the Code with respect to all AGSI Plans
have been timely filed or delivered, except to the extent that the failure
of which, considered together with all other such failures, could not
reasonably be anticipated to have a Material Adverse Effect. There have not
been any "prohibited transactions," as such term is defined in Section 4975
of the Code or Section 406 of ERISA involving any of the AGSI Plans, that
could reasonably be anticipated to subject AGSI to any penalty or tax
imposed under the Code or ERISA in excess of $25,000. Except as disclosed
in SCHEDULE 2.19, AGSI does not maintain and has not maintained any AGSI
Plan qualified under Section 401(a) of the Code and exempt from tax under
Section 501(a) of the Code. AGSI has no announced plan or legally binding
commitment to create any AGSI Plans or to materially amend or modify any
existing AGSI Plan.
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(c) There are no pending or, to the Knowledge of AGSI, threatened
claims asserted or instituted against (i) any AGSI Plans or its assets,
(ii) any fiduciary with respect to any such AGSI Plan or (iii) AGSI or any
of its officers, directors or employees under ERISA or any other applicable
laws and rules and regulations promulgated thereunder, or claiming benefit
payments other than those made in the ordinary operation of such AGSI
Plans, nor is there any basis for such claim, in each case which could
reasonably be anticipated to have a Material Adverse Effect. To the
Knowledge of AGSI, the AGSI Plans are not the subject of any investigation,
audit or action by any governmental agency, including, but not limited to,
the IRS, the Department of Labor, the Equal Employment Opportunity
Commission or the Pension Benefit Guaranty Corporation ("PBGC").
2.20. FINDER'S FEES. Except as set forth on SCHEDULE 2.20, AGSI
has not taken any action which would impose any obligation or liability to any
person for finder's fees, agent's commissions or like payments in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
2.21. DIRECTORS, OFFICERS AND EMPLOYEES. SCHEDULE 2.21 sets forth
a list of all directors, officers or managers of AGSI. Except as set forth on
SCHEDULE 2.21, AGSI does not have any outstanding loans or extension of credit
to, or any contracts, agreements or understandings with, any executive officer
or director or member of their immediate family or any person with which any
such person has a material relationship. SCHEDULE 2.21 sets forth a list of (a)
the names and positions of each employee of AGSI who was paid an aggregate
compensation for the calendar year ended December 31, 1996 in excess of $75,000,
together with the amount thereof; and (b) any AGSI Severance Obligations,
together with any arrangements or agreements relating thereto.
2.22. BANK ACCOUNTS, ETC. SCHEDULE 2.22 sets forth a list of all
(i) bank accounts of AGSI and the persons authorized to draw thereon and the
balances thereof as of the AGSI Cut-Off Date; (ii) safe deposit boxes of AGSI
and the persons who have access thereto; and (iii) powers of attorney for tax
purposes or otherwise and a summary of the terms thereof.
2.23. [RESERVED].
2.24. RULE 145 AFFILIATES. The only persons deemed to be "affiliates"
of AGSI as such terms defined in Paragraphs (c) and (d) of Rule 145 of the
Securities Act ("Rule 145 Affiliates") are set forth on SCHEDULE 2.24.
2.25. INVENTORIES. Except as specifically described on SCHEDULE
2.25 hereto, all inventories reflected on the AGSI Cut-Off Date Balance Sheet
and all inventories acquired by AGSI after the AGSI Cut-Off Date, net of any
reserves established in respect thereof in accordance with GAAP, consist of
items of quality and quantity which are useable or saleable in the ordinary
course of business of AGSI. The values at which the inventories are carried on
the AGSI Cut-Off Date Balance Sheet as at the AGSI Cut-Off Date and the values
at which inventories are carried on the books and records of AGSI for periods
subsequent to the AGSI Cut-Off Date with respect to
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inventories acquired after the AGSI Cut-Off Date reflect the normal valuation
policy of AGSI in setting inventory at the lower of cost or net realizable
market values, all in accordance with GAAP. Since the AGSI Cut-Off Date,
inventories have been maintained at normal and adequate levels for the
continuation of the business of AGSI, in its normal course, no change has
occurred in such inventories which affect or will affect the useability or
saleability thereof, no write-downs or write-ups of the value of such
inventories has occurred and no additional amounts have been reserved with
respect to such inventories. SCHEDULE 2.25 lists the locations of all
inventories, together with a brief description of the type and amount at each
location.
2.26. CUSTOMERS. SCHEDULE 2.26 sets forth (a) the names of all
customers of AGSI that purchased products, goods or services from AGSI with an
aggregate value for each such customer of (i) $100,000 or more during the twelve
month period ended September 30, 1996 or (ii) $50,000 or more during the six-
month period ended March 31, 1997, and (b) the amount each such customer was
invoiced during such period. Except as set forth on SCHEDULE 2.26, AGSI has not
received any notice or has no substantial reason to believe that any customer of
AGSI set forth in SCHEDULE 2.26 (i) has ceased, or will cease, to use the
products, goods or services of AGSI, (ii) has substantially reduced, or will
substantially reduce, the use of products, goods or services of AGSI, or (iii)
has sought, or is seeking, to reduce the price it will pay for products, goods
or services of AGSI, including in each case after the consummation of the
transactions contemplated hereby. To the Knowledge of AGSI, no such customer of
AGSI described in clause (a) of this section has otherwise threatened to take
any action described in the preceding sentence as a result of the consummation
of the transactions contemplated by this Agreement or any other agreement
executed and delivered by AGSI hereunder or pursuant hereto.
2.27. SUPPLIERS. SCHEDULE 2.27 sets forth (a) the names of
all suppliers from which AGSI ordered inventories and other products, goods and
services with an aggregate purchase price for each such supplier of (i) $100,000
or more during the twelve month period ended September 30, 1996 or (ii) $50,000
or more during the six month period ended March 31, 1997, and (b) the amount for
which each such supplier invoiced AGSI during such period. AGSI has not received
any notice from any such supplier indicating that there is or will be any
material change in the price of such items or services, and AGSI has no reason
to believe that there will be any such material change in the price of any such
item or services, or that any such supplier will not sell such items or provide
any such services to CNMX or CRSI at any time after the Closing Date on terms
and conditions similar to those used in its current sales to AGSI, subject to
general and customary price increases.
2.28. REAL PROPERTY.
(a) AGSI does not own, directly or indirectly, or have any fixed or
contingent obligation to acquire, any interest in any real property that is
used in any manner in connection with its respective business.
(b) SCHEDULE 2.28(b) contains a complete and correct list of all
real property Leases, setting forth the address, landlord and tenant for
each Lease. Each such Lease is legal, valid, binding, enforceable, and in
full force and effect in all material respects. Neither
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AGSI nor any other party is in default, violation or breach in any material
respect under any such Lease, and no event has occurred and is continuing
that constitutes or, with notice or the lapse of time or both, would
constitute that violation or breach in any respect under any such Lease.
AGSI enjoys peaceful and undisturbed possession under such Leases.
(c) The Leased Real Property constitutes all of the real property
leased, occupied or utilized by AGSI in any manner in connection with the
conduct or operation of its business.
2.29. EMPLOYEES, LABOR MATTERS, ETC. There are no labor disputes
currently subject to any grievance procedure, arbitration or litigation and
there is no petition pending or, to the Knowledge of AGSI, threatened with
respect to any employee employed in the operation of any of AGSI's business that
could reasonably be anticipated to have a Material Adverse Effect. To the
Knowledge of AGSI, AGSI has complied with all provisions of Applicable Law
pertaining to the employment of employees, including, without limitation, all
such Applicable Law relating to labor relations, equal employment, fair
employment practices, entitlement, prohibited discrimination or other similar
employment practices or acts, except to the extent that any failure so to
comply, individually or together with all other such failures, has not had or
resulted in, or could not reasonably be anticipated to have or result in, a
Material Adverse Effect.
2.30. HSR. Immediately prior to the Closing, the "Person" (as
defined in the regulations issued by the Federal Trade Commission under the HSR
Act) within which AGSI is included will have total assets (as shown on its last
regularly prepared balance sheet) and annual net sales (as shown on its last
regularly prepared annual statement of income and expenses) of less than
$100,000,000.
2.31. FURTHER REPRESENTATION. No representation or warranty of
AGSI contained in this Agreement contains any untrue statement of, or omits to
state, a material fact necessary in order to make the statements made herein, in
light of the circumstances under which they are made, not misleading. Copies of
all documents listed in the Schedules and furnished or given, or to be furnished
or given, by AGSI to CNMX or CNMX's agents are or will be true, complete and
genuine.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF CRSI AND CNMX
CNMX and CRSI hereby represent and warrant to AGSI that as of the date
hereof, except as set forth in the written disclosure schedule (the "CNMX
Disclosure Schedule") delivered to AGSI on or prior to July 1, 1997 that is
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article 3, including, but not limited to, the individual
schedules referred to in this Article 3:
3.1. ORGANIZATION; GOOD STANDING; LISTING. CNMX is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Wyoming and is qualified as a foreign corporation in the jurisdictions
set forth in SCHEDULE 3.1(a). CRSI is a corporation duly
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organized, validly existing and in good standing under the laws of the State
of Texas and is qualified as a foreign corporation in the jurisdiction set
forth on SCHEDULE 3.1(a). Except as set forth on SCHEDULE 3.1(b), each of
CNMX and CRSI is qualified as a foreign corporation in all jurisdictions in
which it is required to qualify as a result of the conduct of its business or
ownership of its properties and where the failure to be so qualified could
reasonably be anticipated to have a Material Adverse Effect. Each of CNMX and
CRSI has delivered to AGSI complete and correct copies of their respective
Articles of Incorporation and Bylaws as in effect on the date hereof. The
CNMX Shares are currently quoted and traded on the Nasdaq SmallCap Market.
CNMX is in compliance with the Nasdaq SmallCap Market listing standards as
promulgated by the National Association of Securities Dealers, Inc., and has
not received any notices and is not aware of any circumstances which may
adversely affect such listing.
3.2. SUBSIDIARIES. There are no CNMX Subsidiaries other than
CRSI and the Dormant Subsidiaries. The Dormant Subsidiaries have not conducted
any operations since October 1, 1996 and do not, individually or in the
aggregate, have any material assets or Liabilities. CNMX owns directly, free and
clear of liens, all outstanding shares of CRSI, and all such shares are validly
issued, fully paid, non-assessable and not subject to preemptive rights. There
are no outstanding subscriptions, options, warrants, calls, conversion or
exchange rights, commitments or agreements of any character obligating CRSI to
issue, deliver or sell additional shares of its capital stock or equity
interests of any class or any securities convertible into or exchangeable for
any such capital stock or equity interests, and there are no rights of first
refusal, transfer restrictions or similar rights or obligations with respect to
the ownership interests of CNMX in CRSI. Except as set forth on SCHEDULE 3.2,
CRSI does not own, directly or indirectly, any shares of stock or any other
equity or long-term debt securities of any corporation or have any equity
interest in any firm, partnership, Joint Venture, association or other Person.
3.3. CAPITALIZATION. The authorized capital stock of CNMX as of
the date of this Agreement, consists of 44,169,100 shares of common stock, of
which 6,611,005 were issued and outstanding as of June 10, 1997. The authorized
capital stock of CRSI as of the date of this Agreement consists of 10,000 shares
of Common Stock, $1.00 par value per share, of which CNMX owns all of the issued
and outstanding shares. SCHEDULE 3.3 sets forth, as of the date of this
Agreement, a true and correct list of all outstanding options, warrants, calls,
puts, commitments and other rights to purchase, or securities or other rights
convertible or exchangeable into, capital stock of CNMX or CRSI indicating the
record and, to the Knowledge of CNMX, the beneficial owner thereof, the
exercise, conversion or exchange price and period thereof, the term and any
vesting or other conditions thereof. All securities issued or issuable by CNMX
or CRSI have been paid for and delivered in accordance with the terms of
applicable agreements or instruments, duly authorized and validly issued and are
fully paid and non assessable; the holders thereof have no rights of rescission
with respect thereto and are not subject to personal liability by reason of
being such holders; none of such securities were issued in violation of the
preemptive rights of any holder of any security of CNMX or CRSI or any similar
rights granted by CNMX or CRSI or Applicable Law.
3.4. AUTHORITY; ENFORCEABILITY; NON-CONTRAVENTION. CNMX and CRSI
each have the corporate power and authority to conduct the business and
activities conducted by it or them and to
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own or lease the assets owned or leased by it or them. CNMX and CRSI each
have the corporate power and authority (subject to shareholder approval as
set forth in Section 8.1 and further approval of the Board of Directors of
CNMX and CRSI in connection with the satisfaction of the conditions set forth
in Sections 7.3, 7.4, 8.13 and 8.14) to execute and deliver this Agreement
and all other documents required to be executed and delivered by CNMX and
CRSI hereunder, to consummate the transactions hereby contemplated, and to
take all other actions required to be taken by CNMX and CRSI pursuant to the
provisions hereof. This Agreement and all other documents required to be
executed and delivered by CNMX and CRSI hereunder have been duly authorized
by all corporate action necessary on the part of CNMX and CRSI (subject to
shareholder approval as set forth in Section 8.1 and further approval of the
Board of Directors of CNMX and CRSI in connection with the satisfaction of
the conditions set forth in Sections 7.3, 7.4, 8.13 and 8.14) and have been
duly, or will when executed and delivered be duly, executed and delivered by
CNMX and CRSI and constitute the legal, valid and binding obligations of CNMX
and CRSI, enforceable against CNMX and CRSI in accordance with their terms.
Except as disclosed in SCHEDULE 3.4, neither the execution nor the delivery
of this Agreement or any other documents required to be executed and
delivered by CNMX and CRSI hereunder or the consummation of the transactions
hereby contemplated by CNMX and CRSI (i) conflicts with or constitutes any
violation or breach of the Articles of Incorporation or the Bylaws of CNMX
and CRSI; (ii) constitutes any violation or breach of, or gives any other
Person any rights (including any right of acceleration, termination or
cancellation) under, any CNMX Contract or other document or agreement to
which CNMX or CRSI is a party, the violation of which, in the aggregate,
could reasonably be expected to have a Material Adverse Effect; (iii)
constitutes a violation of any Order or Applicable Law; or (iv) will result
in the creation of any Lien on any of the assets or properties of CNMX or
CRSI.
3.5. FINANCIAL STATEMENTS.
(a) SCHEDULE 3.5 lists the audited financial statements of CNMX as
of, and for the fiscal years ending October 31, 1994, 1995 and 1996 and the
unaudited financial statement for the fiscal quarter and six months ending
April 30, 1997 ("CNMX Cut-Off Date"), including the balance sheets and
related statements of operations and shareholders equity (collectively, the
"CNMX Financial Statements"). The CNMX Financial Statements and all notes
thereto (i) have been prepared in accordance with the books and records of
CNMX and CRSI; (ii) fairly present in all material respects the financial
position and results of operations of CNMX and CRSI as of the date thereof
and for the periods referenced therein; (iii) are in accordance with GAAP;
and (iv) have been delivered to AGSI; except, in each case, that (I) the
unaudited interim CNMX Financial Statements are subject to normal and
recurring year end adjustments that CNMX, as of the date hereof, does not
have any reason to believe will be material and (II) footnote disclosure
has been omitted from such interim CNMX Financial Statements.
(b) Except as set forth on SCHEDULE 3.5, since the CNMX Cut-Off
Date, (i) CNMX and CRSI have conducted its or their businesses in the
ordinary, regular course thereof; (ii) there has been no change in the
financial condition of CNMX or CRSI which has had or could reasonably be
anticipated to have a Material Adverse Effect, or any damage,
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destruction or loss, not covered by insurance, which has had or could
reasonably be anticipated to have a Material Adverse Effect, or any
change in the nature, or in the condition, of the businesses of CNMX and
CRSI which has had or could reasonably be anticipated to have a Material
Adverse Effect; or any event, condition or state of facts or any
character whatsoever, the occurrence of which has had or could
reasonably be anticipated to have a Material Adverse Effect; and (iii)
except in the ordinary and regular course of its or their businesses,
neither CNMX nor CRSI has made any dispositions of any of assets;
disposed of any records relating to assets or properties; borrowed any
funds; incurred, assumed or become subject to any obligation or
liability, indebtedness for borrowed money, absolute or contingent;
paid, discharged, or satisfied any claim, liability or obligation,
absolute, accrued, contingent or otherwise; canceled any debts owed to
it or them; waived any claims or rights of value; granted or extended
any power of attorney; or acted as any guarantor.
(c) Neither CNMX nor CRSI has either (i) any Liabilities that,
in the aggregate, reasonably could be anticipated to have a Material
Adverse Effect or (ii) any CNMX Severance Obligations, except (A) as
described in the CNMX Financial Statements, (B) incurred since April 30,
1997 in the ordinary course of business consistent with past practices,
(C) for legal, accounting, investment banking and similar transaction
costs incurred in connection with this Agreement, or (D) as otherwise
set forth on SCHEDULE 3.5. Except as set forth on SCHEDULE 3.5, there
has been no change in the business, financial condition, operations or
prospects of CNMX or any CNMX Subsidiary, any repurchase of any capital
stock of CNMX, any dividend declared or paid or any distribution made by
CNMX with respect to such capital stock, since April 30, 1997 which has
had or reasonably could be anticipated to have a Material Adverse Effect.
3.6. TAXES.
(a) All Taxes levied, assessed, or imposed upon CNMX or CRSI or
their businesses, assets or properties as of the CNMX Cut-Off Date have
been duly and fully paid or have been provided for on the Balance Sheet
of CNMX or CRSI in accordance with GAAP as of the CNMX Cut-Off Date
("CNMX Cut-Off Date Balance Sheet"). All reserves shown on the CNMX
Cut-Off Date Balance Sheet are reasonable estimates, as of the date
hereof, of the amounts payable with regard to the contingency for which
the reserve has been established. In addition, all filings, returns, and
reports with respect to Taxes required by any foreign or domestic law or
regulation to be filed by CNMX or CRSI on or prior to the date hereof
have been duly and timely filed, except where such failures to file, in
the aggregate, could not reasonably be anticipated to result in CNMX's
payment of in excess of $75,000 on or before December 31, 1997. Except
as set forth in SCHEDULE 3.6, there are no agreements, waivers or other
arrangements (oral or written) currently in force providing for
extensions of time with respect to the assessment or collection of
unpaid Taxes, nor, except as set forth on SCHEDULE 3.6, are there any
actions, suits, proceedings, inquiries, investigations or claims of any
nature or kind whatsoever now pending or, to the knowledge of CNMX,
threatened, against CNMX or CRSI with respect to any such returns or
reports, or any such Taxes, or
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any matters under discussion with any federal, state, county, local or
other authority relating to Taxes.
(b) Except as otherwise disclosed on SCHEDULE 3.6: (i) CNMX and
CRSI has made all payments of estimated Taxes required to be made under
Section 6655 of the Code and any comparable provisions of state, local,
federal or other law, except where the failure to do so could not
reasonably be anticipated to result, in the aggregate, in CNMX's payment
of in excess of $75,000 on or before December 31, 1997; (ii) all amounts
of any Taxes, including payroll and federal excise taxes, that are
required to be collected or withheld by CNMX or CRSI have been duly
collected or withheld, and have been duly remitted or deposited in
accordance with law; (iii) no power of attorney has been granted by CNMX
or CRSI that is currently in force with respect to any matter relating
to Taxes; (iv) none of CNMX nor CRSI has any deferred gain or loss (A)
arising from deferred intercompany transactions, within the meaning of
Treas. Regs. Section 1.1502-13 or any successor regulations, or (B) with
respect to the stock or obligations of any member of the affiliated
group of which CNMX is the common parent, as described in Treas. Regs.
Section 1.1502-14; (v) neither CNMX nor CRSI is required to include in
income any adjustment pursuant to Section 481(a) of the Code (or any
similar provision of law or regulations) by reason of a change in
accounting method, nor, to the Knowledge of CNMX or CRSI, is the IRS or
any other taxing authority considering any such change in accounting
method; (vi) neither CNMX nor CRSI has disposed of any property which
has been accounted for Tax purposes under the installment method, the
gain or loss from which has not been recognized; (vii) neither CNMX nor
CRSI owns any interest in any entity which is characterized as a
partnership for federal income tax purposes; (viii) neither CNMX nor
CRSI will have any "non-recaptured net Section 1231 losses," within the
meaning of Section 1231(c) of the Code on the Closing Date; and (ix) no
claim or assertion, to the Knowledge of CNMX, has been made against CNMX
or CRSI by any tax authority in any jurisdiction in which no tax return
has been filed by CNMX or said Subsidiary that it may be subject to Tax
in that jurisdiction or otherwise is required to file a tax return.
(c) CNMX has a regular tax net operating loss carry forward from
its last filed federal corporate income tax return for the year ending
October 31, 1996, in the approximate amount of approximately $ 19.1
million. As of the date hereof, neither CNMX nor CRSI has undergone an
ownership change which would limit under Section 382 of the Code of the
amount of taxable income of either CNMX or CRSI against which these net
operating loss carry forwards may be offset. CNMX expects that at or
prior to the consummation of the Merger it will undergo a Section 382
change of ownership with a resulting Section 382 limitation.
3.7. PROPERTY.
(a) Except as shown on SCHEDULE 3.7(a), CNMX and CRSI have good and
marketable title to all of its assets free and clear of any Liens, other
than Permitted Liens. The assets set forth on or detailed in the CNMX Cut-
Off Date Balance Sheet comprise
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all tangible assets used or useable by CNMX and CRSI in their business,
except for any properties acquired in the ordinary course of business
since the CNMX Cut-Off Date. Except as disclosed in SCHEDULE 3.7(a),
there are no tangible assets or properties used by CNMX or CRSI in the
operation of their business that (i) are not reflected on the CNMX
Cut-Off Date Balance Sheet, or (ii) have not been acquired in the
ordinary course of business since the CNMX Cut-Off Date, or (iii) are
not leased or licensed to CNMX under valid, current leases or license
arrangements. The assets reflected on the CNMX Cut-Off Date Balance
Sheet are in all material respects adequate for the purposes for which
such assets are currently used and are held for use, and are in
reasonably good repair and operating condition (subject to normal wear
and tear).
(b) SCHEDULE 3.7(b) contains a true and correct copy of the
depreciation schedule for all tangible assets of CNMX reflected in the CNMX
Cut-Off Date Balance Sheet.
3.8. RECEIVABLES. The accounts receivable reflected in the CNMX
Cut-Off Date Balance Sheet are, net of reserves therefor, (a) valid receivables
that have arisen in the ordinary course of the operations of CNMX and CRSI and
(b) collectible and not subject to setoff, counterclaim, or any agreement to
reduce or discount.
3.9. CONTRACTS.
(a) Except as set forth elsewhere on SCHEDULES 3.10 OR 3.28(b),
SCHEDULE 3.9 sets forth a complete and correct list of the following types
of contracts to which CNMX or CRSI is a party or is otherwise bound (the
"CNMX Contracts"):
(i) any sales agency, manufacturer's representative,
marketing or distributorship agreements under which CNMX or CRSI has
paid or received in excess of $20,000 in the twelve-month period
ending October 31, 1996 or $10,000 in the six month period ending
April 30, 1997;
(ii) any loan agreements, lease agreements, notes, mortgages,
indentures, guarantees, security agreements, letters of credit,
financing documents or other agreements for the borrowing or lending
of money by CNMX or CRSI in excess of $100,000;
(iii) all agreements relating to the acquisition of CRSI;
(iv) all Joint Venture agreements;
(v) all agreements involving an aggregate amount in excess
of $100,000 to provide goods or perform services or for the payment
for goods or services;
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(vi) any commitment or agreement for any capital expenditure
or leasehold improvement in excess of $100,000;
(vii) any agreement, contract or commitment limiting or
restraining CNMX or CRSI from engaging or competing in any manner or
in any business;
(viii) all collective bargaining agreements, employment
agreements, consulting agreements and severance agreements;
(ix) all agreements for the offer or sale of securities, if
any;
(x) all agreements with investment bankers or brokers;
(xi) all agreements under which either CNMX or CRSI is
entitled to indemnification and under which the potential claims
subject to indemnification could reasonably be expected to exceed
$100,000;
(xii) all agreements to which either CNMX or CRSI is a party
and involving an aggregate amount in excess of $100,000 under which,
since November 1, 1996, either CNMX or CRSI or the other party to the
agreement has, or has been alleged to have, in writing, breached,
failed to perform under or otherwise failed to comply with the terms
of, such agreement;
(xiii) any agreement with any Governmental Authority;
(xiv) any material agreement, contract or commitment
involving more than $100,000 not made in the ordinary course of
business;
(xv) any agreements or other arrangements with any
Affiliates of CNMX or CRSI (such agreements or arrangements to be
separately identified or described in such other Schedules or
SCHEDULE 3.9 as "CNMX Affiliate Agreements"); and
(xvi) any other contracts, agreements or commitments, the
termination of which could reasonably be anticipated to have a
Material Adverse Effect; and
(xvii) any past or present agreements between CNMX or CRSI and
Electronic Data Systems, Inc. or its Affiliates.
(b) True and correct copies of all the CNMX Contracts shall be
delivered to AGSI by or on behalf of CNMX on or before June 30, 1997.
Except as set forth in
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SCHEDULE 3.9(b), (i) neither CNMX nor CRSI has received notice of any
plan or intention of any party to any CNMX Contract to exercise any
right to cancel or terminate any CNMX Contract, the cancellation of
which, together with all other CNMX Contracts so noticed, could
reasonably be anticipated to have a Material Adverse Effect; (ii) each
of the CNMX Contracts is valid and enforceable in accordance with its
terms, except to the extent that the invalidity or unenforceability of
such CNMX Contract, together with all other such CNMX Contracts, could
not reasonably be anticipated to have a Material Adverse Effect, and
(iii) neither CNMX nor CRSI is in default in any material respect in the
performance, observance or fulfillment of any material obligation,
covenant or condition contained therein, and, to the Knowledge of CNMX
or CRSI, no event has occurred which with or without the giving of
notice or lapse of time, or both, would constitute such a default
thereunder, except to the extent that such default or event, together
with all other such defaults or events, could not reasonably be
anticipated to have a Material Adverse Effect.
3.10. INSURANCE. SCHEDULE 3.10 lists all insurance policies held
by CNMX or CRSI and which are in full force and effect.
3.11. LITIGATION. Except as set forth on SCHEDULE 3.11, there is
no claim or Proceeding, in each case domestic or foreign, pending or, to the
Knowledge of CNMX, threatened against, or involving the properties or business
of CNMX or CRSI which (a) questions the validity of the issuance of the capital
stock of CNMX or CRSI, this Agreement or any action taken or to be taken by CNMX
pursuant to or in connection with this Agreement; or (b) could otherwise
reasonably be anticipated to have a Material Adverse Effect.
3.12. REGISTRATION RIGHTS. Except as set forth on SCHEDULE 3.12,
no Person has rights to the registration of any securities of CNMX or CRSI.
3.13. KEY-PERSON INSURANCE. Neither CNMX nor CRSI has any key-
person insurance on the life of any officer, director or employee of CNMX or
CRSI.
3.14. CERTAIN ACTIVITIES AND SERVICES. Except as set forth on
SCHEDULE 3.14, neither CNMX nor CRSI engages in any business other than software
development for convenience stores and petroleum retailers.
3.15. GOVERNMENTAL PERMITS. CNMX and CRSI own, hold or possess
all material Governmental Permits which are necessary to entitle it to own or
lease, operate and use its assets and to carry on and conduct their business as
currently conducted, except to the extent that the absence thereof, considered
in the aggregate, could not reasonably be anticipated to have a Material Adverse
Effect.
3.16. COMPLIANCE WITH LAWS. CNMX and CRSI have complied with
Applicable Law and Orders of any Governmental Authority having jurisdiction over
it or them or its or their operations, including, but not limited to, all rules
or regulations regulating, if applicable, zoning, fair and equal
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<PAGE>
employment practices, the safety of the workplace, the discharge of materials
into the Environment or otherwise relating to the protection of the
Environment, antitrust, anti monopoly or anti-competitive activities, wages,
hours, collective bargaining and the payment of withholding and social
security taxes, except to the extent that such non-compliance or partial
compliance could not reasonably be anticipated to have a Material Adverse
Effect. Except as set forth in SCHEDULE 3.16, there are no Orders outstanding
and in effect against CNMX or CRSI, its or their assets, or the transactions
contemplated by this Agreement. Except as set forth in SCHEDULE 3.16, CNMX
has not received any written notice or, to its Knowledge, oral notice from
any Person to the effect that, or otherwise been advised that, CNMX or CRSI
is not in compliance with any Applicable Law, ordinance, regulation, building
or zoning law, except to the extent that such non compliance or partial
compliance could not reasonably be anticipated to have a Material Adverse
Effect, and CNMX and CRSI have no reason to anticipate that any existing
circumstances are likely to result in a violation of any law, statute,
ordinance or regulation, the non-compliance or partial compliance with which
could reasonably be anticipated to have a Material Adverse Effect.
3.17. [RESERVED].
3.18. INTELLECTUAL PROPERTY.
(a) TITLE. SCHEDULE 3.18(a) contains a complete and correct list
and a brief description of all Intellectual Property that is owned licensed
or used by CNMX and CRSI and material to their businesses. Except as set
forth in SCHEDULE 3.18(a), either CNMX or CRSI owns or has the right to use
pursuant to license or sublicense agreements all of such Intellectual
Property, free from any liens and free from any requirement of any past,
present or future royalty payments, license fees, charges or other
payments, or conditions or restrictions and has filed all certificates,
affidavits and other documents, and taken all other actions, necessary to
retain its title to said properties and to keep the same in effect.
(b) NO INFRINGEMENT. The conduct of the business of CNMX and CRSI
by them does not infringe or otherwise conflict with any rights of any
Person in respect of any Intellectual Property owned by any of them and, to
their Knowledge, does not infringe or otherwise conflict with any rights of
any Person in respect of any Intellectual Property owned by others, except
to the extent that the same could not reasonably be anticipated to have a
Material Adverse Effect.
3.19. EMPLOYEE PLANS.
(a) SCHEDULE 3.19 sets forth a true and complete list of each
"employee benefit plan," as such term is defined in section 3(3) of ERISA,
whether or not subject to ERISA, and each bonus, incentive or deferred
compensation, severance, termination, retention, change of control, stock
option, stock appreciation, stock purchase, phantom stock or other equity-
based, performance or other employee or retiree benefit or compensation
plan, program, arrangement, agreement, policy or understanding, whether
written or
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<PAGE>
unwritten, that provides or may provide benefits or compensation
in respect of any employee or former employee of CNMX or CRSI or the
beneficiaries or dependents of any such employee or former employee (such
employees, former employees, beneficiaries and dependents collectively, the
"CNMX Employees") or under which any CNMX Employee is or may become
eligible to participate or derive a benefit, as well as any other plan
which exists to benefit or compensate employees, and that is or has been
maintained or established by CNMX or to which CNMX or CRSI contributes or
is or has been obligated or required to contribute or with respect to which
CNMX or CRSI may have any liability or obligation (collectively, the "CNMX
Plans"). CNMX has not communicated to any CNMX Employee any intention or
commitment to modify any CNMX Plan or to establish or implement any other
employee or retiree benefit or compensation arrangement.
(b) All CNMX Plans conform (and at all times within the five years
preceding the date hereof have conformed) in all material respects to, and
are being administered and operated (and have at all times within the five
years preceding the date hereof been administered and operated) in material
compliance with, the requirements of ERISA, the Code and all other
applicable laws. All returns, reports, filings and disclosure statements
required to be made under ERISA and the Code with respect to all CNMX Plans
have been timely filed or delivered, except to the extent that the failure
of which, considered together with all other such failures, could not
reasonably be expected to have a Material Adverse Effect. There have not
been any "prohibited transactions," as such term is defined in Section 4975
of the Code or Section 406 of ERISA involving any of the CNMX Plans, that
could reasonably be anticipated to subject CNMX or CRSI to any penalty or
tax imposed under the Code or ERISA in excess of $25,000. Except as
disclosed in SCHEDULE 3.19, neither CNMX nor CRSI maintains or has
maintained any CNMX Plan qualified under Section 401(a) of the Code and
exempt from tax under Section 501 (a) of the Code. Neither CNMX nor CRSI
has announced any plan or legally binding commitment to create any CNMX
Plans or to materially amend or modify any existing CNMX Plan.
(c) There are no pending or, to the Knowledge of CNMX, threatened
claims asserted or instituted against (i) any CNMX Plans or its assets,
(ii) any fiduciary with respect to any such CNMX Plan or (iii) CNMX or CRSI
or any of its officers, directors or employees under ERISA or any other
applicable laws and rules and regulations promulgated thereunder, or
claiming benefit payments other than those made in the ordinary operation
of such plans, nor is there any basis for such claim, in each case which
could reasonably be anticipated to have a Material Adverse Effect. To the
Knowledge of CNMX and CRSI, the CNMX Plans are not the subject of any
investigation, audit or action by any governmental agency, including, but
not limited to, the IRS, the Department of Labor, the Equal Employment
Opportunity Commission or the PBGC.
3.20. FINDER'S FEES. Except as set forth on SCHEDULE 3.20, neither
CNMX nor CRSI has taken any action which would impose any obligation or
liability to any person for finder's fees, agent's commissions or like
payments in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby.
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<PAGE>
3.21. [RESERVED].
3.22. INVENTORIES. Except as specifically described on SCHEDULE 3.22
hereto, all inventories reflected on the CNMX Cut-Off Date Balance Sheet and
all inventories acquired by CNMX or CRSI after the CNMX Cut-Off Date, net of
any reserves established in respect thereof in accordance with GAAP, consist
of items of quality and quantity which are useable or saleable in the
ordinary course of business of CNMX and CRSI. The values at which the
inventories are carried on the CNMX Cut-Off Date Balance Sheet as at the CNMX
Cut-Off Date and the values at which inventories are carried on the books and
records of CNMX for periods subsequent to the CNMX Cut-Off Date with respect
to inventories acquired after the CNMX Cut-Off Date reflect the normal
valuation policy of CNMX in setting inventory at the lower of cost or net
realizable market values, all in accordance with GAAP. Since the CNMX Cut-Off
Date, inventories have been maintained at normal and adequate levels for the
continuation of the business of CNMX and CRSI, in its normal course, no
change has occurred in such inventories which affect or will affect the
useability or saleability thereof, no write-downs or write-ups of the value
of such inventories has occurred and no additional amounts have been reserved
with respect to such inventories. SCHEDULE 3.22 lists the locations of all
inventories, together with a brief description of the type and amount at each
location.
3.23. CUSTOMERS. SCHEDULE 3.23 sets forth (a) the names of all
customers of CNMX and CRSI that purchased products, goods or services from CNMX
or CRSI with an aggregate value for each such customer of (i) $ 100,000 or more
during the twelve month period ended October 31, 1996 or (ii) $50,000 or more
during the six month period ended April 30, 1997 and (b) the amount each such
customer paid during such period. Except as set forth on SCHEDULE 3.23, neither
CNMX nor CRSI has received any notice or has any substantial reason to believe
that any customer of CNMX or CRSI set forth on SCHEDULE 3.23 (i) has ceased, or
will cease, to use the products, goods or services of CNMX or CRSI, (ii) has
substantially reduced, or will substantially reduce, the use of products, goods
or services of CNMX or CRSI, or (iii) has sought, or is seeking, to reduce the
price it will pay for products, goods or services of CNMX or CRSI, including in
each case after the consummation of the transactions contemplated hereby. To
the Knowledge of CNMX, no such customer of CNMX or CRSI described in clause (a)
of this section has otherwise threatened to take any action described in the
preceding sentence as a result of the consummation of the transactions
contemplated by this Agreement or any other agreement executed and delivered by
CNMX hereunder or pursuant hereto.
3.24. SUPPLIERS. SCHEDULE 3.24 sets forth (a) the names of all
suppliers from which CNMX and CRSI ordered inventories, and other products,
goods and services with an aggregate purchase price for each such supplier of
(i) $100,000 or more during the twelve month period ended October 31, 1996, or
(ii) $50,000 or more during the six month period ended April 30, 1997 and (b)
the amount for which each such supplier invoiced CNMX or CRSI during such
period. Neither CNMX nor CRSI has received any notice from any such supplier
indicating that there is or will be any material change in the price of such
items or services, and neither CNMX nor CRSI has any reason to believe that
there will be any material change in the price of any such item or services, or
that any such suppliers will not sell such items or provide any such services to
CNMX or CRSI at any time after the Closing Date on terms and conditions similar
to those used in its current sales to CNMX or CRSI, subject to general and
customary price increases.
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3.25. REAL PROPERTY.
(a) Neither CNMX nor CRSI owns, directly or indirectly, or has any
fixed or contingent obligation to acquire, any interest in any real
property that is used in any manner in connection with its respective
business.
(b) SCHEDULE 3.25(b) contains a complete and correct list of all
real property Leases, setting forth the address, landlord and tenant for
each Lease. Each such Lease is legal, valid, binding, enforceable, and in
full force and effect in all material respects. Neither CNMX, CRSI nor any
other party is in default, violation or breach in any material respect
under any such Lease, and no event has occurred and is continuing that
constitutes or, with notice or the lapse of time or both, would constitute
that violation or breach in any respect under any such Lease. CNMX and CRSI
enjoy peaceful and undisturbed possession under such Leases.
(c) The Leased Real Property constitutes all of the real property
leased, occupied or utilized by CNMX and CRSI in any manner in connection
with the conduct or operation of their respective businesses.
3.26. DIRECTORS, OFFICERS AND EMPLOYEES. SCHEDULE 3.26 sets forth
a list of all directors, officers or managers of CNMX. Except as set forth on
SCHEDULE 3.26, CNMX does not have any outstanding loans or extension of credit
to, or any contracts, agreements or understandings with, any executive officer
or director or member of their immediate family or any person with which any
such person has a material relationship. SCHEDULE 3.26 sets forth a list of (a)
the names and positions of each employee of CNMX who was paid an aggregate
compensation for the fiscal year ended December 31, 1996 in excess of $75,000,
together with the amount thereof; and (b) any CNMX Severance Obligations,
together with any agreements or arrangements relating thereto.
3.27. EMPLOYEES, LABOR MATTERS, ETC. There are no labor disputes
currently subject to any grievance procedure, arbitration or litigation and
there is no petition pending or, to the Knowledge of CNMX and CRSI, threatened
with respect to any employee employed in the operation of any of CNMX's and
CRSI's business that could reasonably be anticipated to have a material adverse
effect. To the Knowledge of CNMX and CRSI, CNMX and CRSI has complied with all
provisions of Applicable Law pertaining to the employment of employees,
including, without limitation, all such Applicable Law relating to labor
relations, equal employment, fair employment practices, entitlement, prohibited
discrimination or other similar employment practices or acts, except to the
extent that any failure so to comply, individually or together with all other
such failures, has not had or resulted in, and could not reasonably be
anticipated to have or result in, a Material Adverse Effect.
3.28. HSR. Immediately prior to the Closing, the "Person" (as
defined in the regulations issued by the Federal Trade Commission under the HSR
Act) within which CNMX and CRSI are included will have total assets (as shown on
its last regularly prepared balance sheet) and annual net
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<PAGE>
sales (as shown on its last regularly prepared annual statement of income and
expenses) of less than U.S. $ 100,000,000.
3.29. CNMX PUBLIC INFORMATION. CNMX has heretofore made available
to AGSI a true and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by it or its predecessors with
the SEC (as any such documents have since the time of their original filing been
amended, the "CNMX Documents") since October 31, 1995, which are all the
documents (other than preliminary material) that it was required to file with
the SEC since such date. As of their respective dates, the CNMX Documents did
not contain any untrue statements of material facts or omit to state material
facts required to be stated therein or necessary to make the statement therein,
in light of the circumstances under which they were made, not misleading. As of
their respective dates, the CNMX Documents complied in all material respects
with the applicable requirements of the Securities Act and the Exchange Act, and
the rules and regulations promulgated under such statutes.
3.30. EDS SETTLEMENT. Except as set forth on SCHEDULE 3.30,
neither CNMX nor CRSI has any continuing liabilities or obligations arising from
the past relationship of CNMX or CRSI with Electronic Data Systems, Inc. or any
of its Affiliates.
3.31. FURTHER REPRESENTATION. No representation or warranty of
CNMX or CRSI contained in this Agreement contains any untrue statement of, or
omits to state, a material fact necessary in order to make the statements made
herein, in light of the circumstances under which they are made, not misleading.
Copies of all documents listed in the Schedules and furnished or given, or to be
furnished or given, by CNMX or CRSI to AGSI or AGSI's agents are or will be
true, complete and genuine.
ARTICLE 4. COVENANTS OF AGSI
AGSI hereby agrees to perform as follows:
4.1. OPERATION PRIOR TO THE CLOSING DATE. Subject to the provisions
of Section 4.2, from the date hereof through the Closing Date:
(a) AGSI shall not engage in any practice, take any action or
enter into any transaction other than in the customary and ordinary course
of business without giving prior notice to CNMX. Following the Proxy
Mailing Date, AGSI shall not engage in any practice, take any action, or
enter into any transactions other than in the customary and ordinary course
of business, without the prior written consent of CNMX, if such practice,
action or transaction would change in any material respect the information
concerning AGSI required to be described in the Registration Statement.
(b) AGSI shall use its best efforts to keep its business,
properties and business relationships substantially intact.
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER -- PAGE 27
<PAGE>
(c) AGSI shall (i) pay and perform all of its debts, liabilities
and obligations consistent with past practices, except to the extent being
contested in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been established, (ii) perform its obligations
under all Authorizations and AGSI Contracts, and (iii) comply in all
respects with Applicable Law, except, in each case, where the failure to so
perform or comply could not reasonably be anticipated to have a Material
Adverse Effect.
(d) Except as contemplated by SCHEDULE 4.1 in the AGSI Disclosure
Schedule, AGSI shall (i) not take any action, and shall endeavor in good
faith not to permit any event to occur, which would cause or constitute a
material breach, or would, if such action or event had occurred prior to
the date of this Agreement, have caused or constituted a material breach,
of any of the representations and warranties set forth in Article 2 hereof,
except that AGSI may operate in the ordinary course of its business even if
the results of operation in the ordinary course of business would require
disclosure in the AGSI Disclosure Schedule; provided that such AGSI
Disclosure Schedule is supplemented by AGSI not later than five Business
Days prior to the Closing Date to reflect the changes therein resulting
from such operation, and such operation does not result in a Material
Adverse Effect; (ii) in the event of, and promptly after the occurrence of,
or promptly after becoming aware of the occurrence of or the impending or
threatened occurrence of, any event which would cause or constitute a
material breach or would, if it had occurred immediately prior to the date
hereof, have caused or constituted a material breach of any of the
representations and warranties set forth in Article 2, give notice thereof
to CNMX; and (iii) use its best efforts to prevent or promptly to remedy
such breach.
(e) AGSI shall not (i) repurchase, declare or pay any dividends,
(ii) make any other distributions consisting of cash or marketable
securities or any combination thereof, or (iii) issue, sell or agree to
sell any shares of its capital stock, or any securities convertible into,
or options with respect to, or warrants to purchase or rights to subscribe
for, any shares of its capital stock, except (I) pursuant to the exercise
of options and warrants outstanding as of the date hereof or (II) with
regard to the issuance of AGSI Options, to the extent that any future
grants of AGSI Options will not result in a net increase in the aggregate
number of AGSI Shares issued or issuable under the AGSI Stock Option Plans
between the date hereof and the Effective Time.
(f) AGSI shall not sell, lease, transfer or otherwise dispose of
any of its assets, except as provided for by, or contemplated in, this
Agreement, or in the ordinary course of business.
(g) Except as contemplated by SCHEDULE 4.1 in the AGSI Disclosure
Schedule, AGSI shall not increase in any manner the base compensation of,
or enter into any new bonus or incentive agreement or arrangement with, any
of its directors, officers or employees, pay bonuses to any such director,
officer or employee, or pay any salaries except (i) in the ordinary course
of business consistent with past practices, or (ii) as required under any
existing written employment agreement with any officer, director or
employee of AGSI.
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4.2. NO SOLICITATION. From and after the date hereof, AGSI will
not, and will not authorize or permit any of its officers, directors, employees,
agents and other representatives (collectively, "AGSI Representatives") to
directly or indirectly, solicit, initiate or encourage (including by way of
furnishing information) any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, an AGSI Acquisition
Proposal (as defined herein) from any Person or engage in any discussion or
negotiations relating thereto or accept any AGSI Acquisition Proposal. AGSI
shall immediately cease and cause to be terminated any existing solicitation,
discussion or negotiation with any parties conducted heretofore by AGSI or any
AGSI Representatives with respect to any of the foregoing. To the extent
permitted by Applicable Law, AGSI will promptly notify CNMX of any such
discussion or negotiations, requests for such information or the receipt of any
AGSI Acquisition Proposal, including (a) the identity of the person or group
engaging in such discussions or negotiations, requesting such information or
making such AGSI Acquisition Proposal and (b) the material terms and conditions
of any AGSI Acquisition Proposal. As used in this Agreement, "AGSI Acquisition
Proposal" shall mean any proposal or offer considered by the Board of Directors
of AGSI to be bona fide, other than a proposal or offer by CNMX or any of its
Affiliates, for a tender or exchange offer, a merger, consolidation or other
business combination involving AGSI or any proposal to acquire in any manner a
substantial equity interest in AGSI. Notwithstanding the foregoing, nothing in
this Section 4.2 shall prohibit the Board of Directors of AGSI from furnishing
information to or entering into discussions or negotiations with, any person or
entity that makes an unsolicited bona fide proposal to acquire AGSI pursuant to
a merger, consolidation, share exchange, purchase of a substantial portion of
the assets, business combination or some other transaction, if, and only to the
extent that (A) the Board of Directors determines in good faith that such action
is required for the Board of Directors to comply with its fiduciary duty to its
stockholders, (B) prior to furnishing such information to, or entering into
discussions with or negotiations with, such person or entity, to the extent
permitted by Applicable Law, AGSI provides notice to CNMX to the effect that it
is furnishing information to, or entering into discussions or negotiations with,
such person or entity, and (C) to the extent permitted by Applicable Law, AGSI
keeps CNMX informed, on a current basis, of the status of any such discussions
or negotiations.
4.3. AGSI DISCLOSURE SCHEDULE. On or before July 1, 1997, AGSI
shall deliver to CNMX and CRSI the AGSI Disclosure Schedule. AGSI shall have the
right to update the AGSI Disclosure Schedule until five (5) Business Days prior
to the Closing Date to reflect changes therein resulting from operations in the
ordinary course of business; provided, that AGSI shall not be entitled to update
the AGSI Disclosure Schedule if such update, considered in the aggregate with
all other subsequent modifications to the AGSI Disclosure Schedule, reflect a
Material Adverse Effect when compared to the representations contained in the
AGSI Disclosure Schedule originally delivered to CNMX.
ARTICLE 5. COVENANTS OF CNMX AND CRSI
CNMX and CRSI hereby agree to perform as follows:
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5.1. OPERATION PRIOR TO THE CLOSING DATE. Subject to the
provisions of Section 5.2, from the date hereof through the Closing Date:
(a) Neither CNMX nor CRSI shall engage in any practice, take any
action or enter into any transaction other than in the customary and
ordinary course of business without giving prior notice to AGSI. Following
the Proxy Mailing Date, neither CNMX nor CRSI shall engage in any practice,
take any action, or enter into any transactions, other than in the
customary and ordinary course of business, without the prior consent of
AGSI if such practice, action or transaction would change in any material
respect the information concerning CNMX or CRSI required to be disclosed in
the Registration Statement.
(b) CNMX and CRSI shall use their best efforts to keep their
business, properties and business relationships substantially intact.
(c) Each of CNMX and CRSI shall pay and perform all of its debts,
liabilities and obligations consistent with past practices, except to the
extent being contested in good faith and as to which adequate reserves
(determined in accordance with GAAP) have been established, (ii) perform
its obligations under all Authorizations and CNMX Contracts, and (iii)
comply in all respects with Applicable Law, except, in each case, where the
failure to so perform or comply could not reasonably be anticipated to have
a Material Adverse Effect.
(d) Except as contemplated by SCHEDULE 5.1 in the CNMX Disclosure
Schedule, CNMX and CRSI shall (i) not take any action, and shall endeavor
in good faith not to permit any event to occur, which would cause or
constitute a material breach, or would, if such action or event had
occurred prior to the date of this Agreement, have caused or constituted a
material breach, of any of the representations and warranties set forth in
Article 3 hereof, except that CNMX and CRSI may operate in the ordinary
course of their businesses even if the results of operation in the ordinary
course of business would require disclosure in the CNMX Disclosure
Schedule; provided that such CNMX Disclosure Schedule is supplemented by
CNMX not later than five (5) Business Days prior to the Closing Date to
reflect the changes therein resulting from such operation, and such
operation does not result in a Material Adverse Effect; (ii) in the event
of, and promptly after the occurrence of, or promptly after becoming aware
of the occurrence of or the impending or threatened occurrence of, any
event which would cause or constitute a material breach or would, if it had
occurred immediately prior to the date hereof, have caused or constituted a
material breach of any of the representations and warranties set forth in
Article 3, give notice thereof to AGSI; and (iii) use its best efforts to
prevent or promptly to remedy such breach.
(e) Neither CNMX nor CRSI shall (i) repurchase, declare or pay any
dividends, (ii) make any other distributions consisting of cash or
marketable securities or any combination thereof, or (iii) issue, sell or
agree to sell any shares of its capital stock, or any securities
convertible into, or options with respect to, or warrants to purchase or
rights to
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subscribe for, any shares of its capital stock, except, in each
case (I) pursuant to the exercise of options and warrants outstanding as of
the date hereof, or (II) pursuant to grants under stock option plans of
CNMX in existence on the date hereof, in the ordinary course of business
consistent with prior practices.
(f) Neither CNMX nor CRSI shall sell, lease, transfer or otherwise
dispose of any of its assets, except as provided for by, or contemplated
in, this Agreement, or in the ordinary course of business.
(g) Except as contemplated by SCHEDULE 5.1 in the CNMX Disclosure
Schedule, neither CNMX nor CRSI shall increase in any manner the base
compensation of, or enter into any new bonus or incentive agreement or
arrangement with, any of its directors, officers or employees, pay bonuses
to any such director, officer of employee, or pay any salaries except (i)
in the ordinary course of business consistent with past practices, or (ii)
as required under any existing written employment agreement with any
officer, director or employee of CNMX or CRSI.
(h) CNMX shall not transfer any interest in CRSI.
5.2. NO SOLICITATION. From and after the date hereof, neither
CNMX nor CRSI will authorize or permit any of its officers, directors,
employees, agents and other representatives (collectively, "CNMX
Representatives") to directly or indirectly, solicit, initiate or encourage
(including by way of furnishing information) any inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead to, a CNMX
Acquisition Proposal (as defined herein) from any Person or engage in any
discussion or negotiations relating thereto or accept any CNMX Acquisition
Proposal. CNMX and CRSI shall immediately cease and cause to be terminated any
existing solicitation, discussion or negotiation with any parties conducted
heretofore by CNMX, CRSI or any CNMX Representatives with respect to any of the
foregoing. To the extent permitted by Applicable Law, CNMX will promptly notify
AGSI of any such discussion or negotiations, requests for such information or
the receipt of any CNMX Acquisition Proposal, including (a) the identity of the
person or group engaging in such discussions or negotiations, requesting such
information or making such CNMX Acquisition Proposal and (b) the material terms
and conditions of any Acquisition Proposal. As used in this Agreement, "CNMX
Acquisition Proposal" shall mean any proposal or offer considered by the Board
of Directors of CNMX to be bona fide, other than a proposal or offer by AGSI or
any of its Affiliates, for a tender or exchange offer, a merger, consolidation
or other business combination involving CNMX or CRSI or any proposal to acquire
in any manner a substantial equity interest in CNMX or CRSI. Notwithstanding the
foregoing, nothing in this Section 5.2 shall prohibit the Board of Directors of
CNMX from (i) furnishing information to or entering into discussions or
negotiations with, any person or entity that makes an unsolicited bona fide
proposal to acquire CNMX or CRSI pursuant to a merger, consolidation, share
exchange, purchase of a substantial portion of the assets, business combination
or some other transaction, if, and only to the extent that (A) the Board of
Directors determines in good faith that such action is required for the Board of
Directors to comply with its fiduciary duty to its stockholders, (B) prior to
furnishing such information to, or entering into discussions with or
negotiations with, such person or
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entity, to the extent permitted by Applicable Law, CNMX provides notice to
AGSI to the effect that it is furnishing information to, or entering into
discussions or negotiations with, such person or entity, and (C) to the
extent permitted by Applicable Law, CNMX keeps AGSI informed, on a current
basis, of the status of any such discussions or negotiations; and (ii)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to a
CNMX Acquisition Proposal. CNMX will use reasonable efforts to cause a Person
provided proprietary information in accordance with the foregoing to enter
into a confidentiality agreement.
5.3. CNMX DISCLOSURE SCHEDULE. On or before July 1, 1997, CNMX
and CRSI shall deliver to AGSI the CNMX Disclosure Schedule. CNMX shall have the
right to update the CNMX Disclosure Schedule until five (5) Business Days prior
to the Closing Date to reflect changes therein resulting from operations in the
ordinary course of business; provided, that CNMX shall not be entitled to update
the CNMX Disclosure Schedule if such update, considered in the aggregate with
all other subsequent modifications to the CNMX Disclosure Schedule, reflect a
Material Adverse Effect when compared to the representations contained in the
CNMX Disclosure Schedule originally delivered to AGSI.
5.4. CONTINUITY OF BUSINESS ENTERPRISE. CNMX will either
continue, or will cause the Surviving Corporation to continue, at least one
significant historic business line of AGSI, or use at least a significant part
of AGSI's historic business assets in a business, in each case within the
meaning of Treasury Regulation 1.368-l(d).
ARTICLE 6. ADDITIONAL AGREEMENTS
6.1. AGSI STOCK OPTION PLANS; WARRANTS.
(a) At the Effective Time, each then outstanding option to purchase
AGSI Shares (whether or not then currently exercisable) (each, an "AGSI
Option") granted under the AGSI's Stock Option Plans shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
assumed by CNMX and shall thereafter be deemed to constitute an option to
acquire, on the same terms and conditions as were applicable under such
option, the number of whole CNMX Shares and cash in lieu of any fractional
shares equal to the number of AGSI Shares issuable with respect to such
AGSI Stock Option multiplied by the Conversion Amount, at an exercise price
per CNMX share equal to the exercise price per AGSI Share divided by the
Conversion Amount. As promptly as practicable after the Effective Time,
CNMX shall issue to each holder an AGSI Stock Option under the AGSI Stock
Option Plans a written instrument evidencing CNMX's assumption of such
option. Prior to the Effective Time, AGSI shall take such additional
actions as are necessary or desirable under Applicable Law and the
applicable agreements and AGSI Stock Option Plans to assure that each
outstanding AGSI Stock Option shall, from and after the Effective Time,
represent only the right to purchase, upon exercise, whole CNMX Shares and
cash in lieu of any fractional shares.
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(b) As soon as practicable after the Effective Time, CNMX shall
file and use reasonable efforts to cause to become effective a registration
statement under the Securities Act of 1933, as amended (the "Securities
Act") with respect to the issuance of CNMX Shares issuable upon exercise of
such AGSI Stock Options assumed by CNMX pursuant to Section 6.1(a).
(c) At the Effective Time, each then outstanding warrant to
purchase AGSI Shares (each, an "AGSI Warrant") shall, by virtue of the
Merger and without any action on the part of the holder thereof, be assumed
by CNMX and shall thereafter be deemed to constitute a warrant to acquire,
on the same terms and conditions as were applicable to such AGSI Warrant,
the number of whole CNMX Shares and cash in lieu of any fractional shares
equal to the number of AGSI Shares issuable with respect to such AGSI
Warrant multiplied by the Conversion Amount, at an exercise price per CNMX
Share equal to the exercise price per AGSI Share divided by the Conversion
Amount. As promptly as practicable after the Effective Time, CNMX shall
issue to each holder of an AGSI Warrant a written instrument evidencing
CNMX's assumption of such AGSI Warrant. Prior to the Effective Time, AGSI
shall take such additional actions as are necessary or desirable under
Applicable Law and the applicable agreements relating to any AGSI Warrant
to assure that each outstanding AGSI Warrant shall, from and after the
Effective Time, represent only the right to purchase, upon exercise, whole
CNMX Shares and cash in lieu of any fractional shares.
6.2. SHAREHOLDERS MEETING. AGSI and CNMX shall each take all
action necessary in accordance with Applicable Law and in accordance with their
respective certificates or articles of incorporation and bylaws to convene a
meeting of their respective stockholders as promptly as practicable after the
Registration Statement is declared effective by the SEC, to consider and vote
upon the approval of this Agreement. AGSI (subject to the provisions of Sections
4.2 and Section 10) and CNMX (subject to the provisions of Sections 5.2 and
Section 10) each, through its board of directors, shall recommend to its
stockholders approval of this Agreement, and shall use reasonable efforts to
obtain approval and adoption of this Agreement by such stockholders.
6.3. REGISTRATION STATEMENT AND PROXY STATEMENT; LISTING OF CNMX
COMMON SHARES.
(a) CNMX shall prepare and file with the SEC as soon as practicable
a Registration Statement on Form S-4 ("Registration Statement") with
respect to the CNMX Shares issuable in the Merger, a portion of which shall
also serve as the joint proxy statement/prospectus with respect to the
meetings of the stockholders of CNMX and AGSI to approve the Merger, and
shall use all reasonable efforts to have the Registration Statement
declared effective by the SEC as soon as practicable. AGSI acknowledges and
agrees that such Registration Statement may be filed concurrently with
and/or include a separate registration statement on Form S-3 for the resale
of CNMX Shares that were issued in a transaction unrelated to the Merger.
CNMX shall also take any action required to be taken under blue sky or
securities laws in connection with CNMX Shares prior to the Closing.
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AGSI shall furnish CNMX all information concerning AGSI and the holders of
its common stock required for use in the Registration Statement, and AGSI
shall take such other actions as CNMX may reasonably request in connection
with the preparation of such Registration Statement and the actions to be
taken by AGSI pursuant to this Section 6.3. None of the information
furnished by or on behalf of AGSI for use in the Registration Statement
shall contain any material misstatement of fact or omit to state a material
fact or any fact necessary to make the statements contained therein not
misleading.
(b) AGSI shall prepare as soon as practicable a proxy statement
that will be the same proxy statement/prospectus contained in the
Registration Statement and a form of proxy, in connection with the vote
of AGSI's stockholders with respect to the consummation of the transactions
set forth in this Agreement (such proxy statement/prospectus, together with
any amendments thereof or supplements thereto, in any case in the form or
forms mailed to AGSI's stockholders, is herein called the "Proxy
Statement"). CNMX shall furnish AGSI all information concerning CNMX and
CRSI required for use in the Proxy Statement, and CNMX shall take such
other action as AGSI may reasonably request in connection with the
preparation of the Proxy Statement. None of the information furnished by
or on behalf of CNMX for use in the Registration Statement shall contain
any material misstatement of fact or omit to state a material fact or
any fact necessary to make the statements contained therein not misleading.
(c) CNMX shall file with the National Association of Securities
Dealer, Inc., a Nasdaq National Market Notification Form for Listing
Additional Shares and Notification Pursuant to SEC Rule 10b-17 with regard
to the CNMX Shares to be issued in the Merger to permit trading in such
shares from and after the Closing Date.
6.4. ACCESS. Each of CNMX, CRSI and AGSI (as applicable, the
"Reviewing Party") and their respective officers, employees and representatives
(including independent public accountants, investment bankers, environmental
consultants and counsel), as applicable, will at all reasonable times be
permitted reasonable access to the corporate offices and other facilities of
each other (as applicable, the "Disclosing Party"); will be permitted to make
copies of or abstracts from all of the books and records, financial and
operating data and other information of the Disclosing Party; and will be
permitted to discuss the affairs and accounts of the Disclosing Party with the
directors, officers, employees, counsel, and accountants of the Disclosing
Party. Such investigation shall not, however, affect the representations and
warranties of AGSI, CNMX or CRSI set forth in Articles 2 and 3 hereof,
respectively. In the event the transactions contemplated hereby should not close
for any reason, the Reviewing Party agrees that it will promptly return to the
Disclosing Party all such documents (including copies thereof) furnished by or
on behalf of the Disclosing Party to the Reviewing Party and its representatives
and the Reviewing Party shall hold in confidence and shall not use or disclose
to any third party any information concerning the Disclosing Party obtained from
such documents or otherwise in connection with the transactions contemplated by
this Agreement unless (a) such information was at the time of its use or
disclosure to any third party by the Reviewing Party in the public domain other
than as a result of any breach of this provision by the Reviewing Party or (b)
such disclosure is required by Applicable Law.
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6.5. COMPLIANCE WITH SECURITIES ACT; REGISTRATION RIGHTS AGREEMENT.
Prior to the Closing Date, AGSI shall cause to be prepared and delivered to
CNMX and CRSI an updated list (reasonably satisfactory to counsel for CNMX)
identifying all persons who at the time of AGSI's shareholder meeting may be
deemed to be a Rule 145 Affiliate. On the Closing Date, CNMX shall execute a
Registration Rights Agreement containing the terms described in SCHEDULE 6.5
providing for the registration of the sale of the CNMX Shares by certain
Affiliates of AGSI to be received by AGSI in the Merger, as further provided
therein; provided, however, that CNMX shall not have any registration
obligation with regard to (a) any Persons who are not subject to the
restrictions of Rule 145 on the Closing Date, or (b) who, by reason of their
affiliation (or lack thereof) with CNMX or subsequent changes in the scope of
Rule 145, cease to become subject to the limitations of Rule 145.
6.6. [RESERVED].
6.7. REASONABLE EFFORTS. Subject to Sections 4.2 and 5.2, upon
the terms and subject to the conditions set forth in this Agreement, each of the
parties agrees to use its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Merger and
the other transactions contemplated by this Agreement, including (a) the
obtaining of all necessary actions or non-actions, waivers, consents and
approvals from Governmental Authorities and the making of all necessary
registrations and filings (including filings with Governmental Authorities) and
the taking of all reasonable steps as may be necessary to obtain an approval or
waiver from, or to avoid an action or proceeding by any Governmental Authority;
(b) the obtaining of all necessary consents, approvals or waivers from third
parties, the absence of which, in the aggregate, could reasonably be anticipated
to have a Material Adverse Effect; (c) the defending of any lawsuits or other
legal proceedings, whether judicial or administrative, challenging this
Agreement or the consummation of the transactions contemplated hereby including
seeking to have any stay or temporary restraining order entered by any court or
other Governmental Authority vacated or reversed; and (d) the execution and
delivery of any additional instruments necessary to consummate the transactions
contemplated by this Agreement.
6.8. PUBLIC ANNOUNCEMENTS. CNMX and CRSI, on the one hand, and
AGSI, on the other hand, will consult with each other before issuing any press
release with respect to the transactions contemplated by this Agreement, and
shall not issue any such press release without the prior consent of the other,
which consent shall not be unreasonably withheld or delayed, unless otherwise
required under Applicable Law.
6.9. NOTIFICATION OF CERTAIN MATTERS. AGSI shall give to CNMX
prompt notice of: (i) any notice of, or other communication relating to, a
default or event that, with notice or lapse of time or both, would become a
default, received subsequent to the date of this Agreement and prior to the
Effective Time under any note, license, agreement or other instrument or
obligation other than in respect of defaults which, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect; (ii) from and after the Proxy Mailing Date, prompt notice of the
occurrence of any event that would require the information regarding AGSI
contained in the Proxy
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Statement to be amended or supplemented under applicable securities laws; and
(iii) any Material Adverse Effect or the occurrence of any event which, so
far as reasonably can be foreseen at the time of its occurrence, is
reasonably likely to result in a Material Adverse Effect. CNMX and CRSI
shall give AGSI (a) any notice of, or other communication relating to, a
default or event that, with notice or lapse of time or both, would become a
default, received subsequent to the date of this Agreement and prior to the
Effective Time under any note, license, agreement or other instrument or
obligation other than in respect of defaults which, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect; (b) from and after the date of this Agreement, prompt notice of the
occurrence of any event that would require CNMX to file a current report on
Form 8-K or issue a press release under applicable securities laws; (c) from
and after the Proxy Mailing Date, prompt notice of the occurrence of any
event that would require the information regarding CNMX contained in the
Proxy Statement to be amended or supplemented under applicable securities
laws; and (d) any Material Adverse Effect or the occurrence of any event
which, so far as reasonably can be foreseen at the time of its occurrence, is
reasonably likely to result in a Material Adverse Effect. Each party shall
give the other prompt notice of any written notice or other written
communication from any third party alleging that the consent of such third
party is or may be required in connection with the transactions contemplated
by this Agreement.
6.10. LETTERS OF AGSI'S ACCOUNTANTS. AGSI shall use its best
efforts to deliver to CNMX a letter from Price Waterhouse, AGSI's independent
auditors, dated a date within two business days before the date on which the
Registration Statement shall become effective and addressed to CNMX, in form and
substance reasonably satisfactory to CNMX and customary in scope and substance
for consent letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement
("Accountant's Consent Letter").
6.11. SEC FILINGS. CNMX shall cause to be filed all periodic and
current reports required to be filed with the SEC for all periods after the
execution of this Agreement through the Closing Date.
6.12. REPORTING REQUIREMENTS. CNMX shall continue to file such
reports under the Exchange Act on a timely basis so as to permit resales of CNMX
Shares by the Rule 145 Affiliates in accordance with Rule 145, during the period
in which such persons are subject to the limitations of Rule 145 in effect at
such time; provided, however, that CNMX shall not have any such obligation with
regard to (a) any Person who is not subject to the restrictions of Rule 145 on
the Closing Date, or (b) who, by reason of their affiliation (or lack thereof)
with CNMX or subsequent changes in the scope of Rule 145, cease to become
subject to the limitations of Rule 145.
6.13. INDEMNIFICATION.
(a) SCOPE OF INDEMNITY. From and after the Effective Time, CNMX
shall indemnify, defend and hold harmless the officers, directors and
employees of AGSI who were such at any time prior to the Effective Time
(the "Indemnified Parties") from and against all losses, expenses, claims,
damages or liabilities arising out of the transactions contemplated by this
Agreement to the fullest extent permitted or required under Applicable
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Law; provided, however that the requirement to advance expenses shall be
limited to those instances in which the indemnified party undertakes to
repay such amount if it shall ultimately be determined that he is not
required to be indemnified under Section 145(c) of the DGCL. CNMX agrees
that all rights to indemnification existing in favor of the directors,
officers and employees of AGSI as provided in AGSI's Certificate of
Incorporation or Bylaws, as applicable, and as in effect as of the date
hereof, with respect to matters occurring through the Effective Time,
shall survive the Merger and shall continue in full force and effect
from and after the Effective Time, and CNMX shall, and shall cause the
Surviving Corporation to, indemnify and hold harmless such persons to
the extent so provided. In the event of any actual or threatened claim,
action, suit, proceeding or investigation in respect of any indemnifiable
matter under this Section 6.13, (i) CNMX shall cause the Surviving
Corporation to pay the reasonable fees and expenses of counsel selected
by the Indemnified Party in advance of the final disposition of any such
action to the fullest extent permitted by Applicable Law, upon receipt of
any undertaking required by Applicable Law, and (ii) CNMX shall cause the
Surviving Corporation to cooperate in the defense of any such matter.
(b) CONTINUING EFFECT. The provisions of this Section 6.13 shall
survive the Merger, and are intended to be for the benefit of, and shall be
enforceable by, any officer, director, employee, trustee or agent of AGSI,
and such person's heirs or representatives, that is the subject of such
Section, as the case may be (the expense, including reasonable attorneys'
fees, that may be incurred thereby in enforcing such provisions to be paid
by CNMX).
6.14. RESIGNATION OF DIRECTORS OF AGSI. AGSI shall deliver to
CNMX, except as otherwise requested by CNMX, the written resignation of all
directors of AGSI effective as of the Effective Date.
6.15. NUMBER AND APPOINTMENT OF DIRECTORS OF CNMX. At Closing,
CNMX shall use its best efforts to take all necessary corporate action in order
to (a) increase the number of members of the Board of Directors of CNMX from
seven (7) to nine (9), (b) effect the removal or resignation of one Director and
(c) create the office of Vice Chairman; and, prior to Closing, AGSI shall have
the right to designate three Directors to be effective upon Closing to serve
until removed or their successor is elected; provided that such individuals'
background and experience meets CNMX's reasonable criteria for a director of
CNMX. In addition, CNMX shall use its best efforts to cause one of such
directors designated by AGSI to be elected Vice Chairman, two of such directors
designated by AGSI to be appointed to the Audit Committee of the CNMX Board and
one of such directors designated by AGSI to be appointed to the Compensation
Committee of the CNMX Board.
6.16. AGSI PROPOSAL. On or before June 23, 1997, AGSI shall
deliver to CNMX a proposal (the "Proposal") regarding the provision of value or
benefits to certain executives of AGSI. CNMX shall have until July 8, 1997 to
accept or reject the Proposal (as the same may be amended by the mutual
agreement of CNMX and such executives), upon written notice to AGSI, in its sole
discretion.
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ARTICLE 7. CONDITIONS PRECEDENT TO MERGER
The obligation of the parties hereto to consummate the Merger is subject to
fulfillment, or written waiver signed by all parties hereto, of each of the
following conditions precedent on or prior to the Closing Date or the date
specified therein.
7.1. REGISTRATION STATEMENT. The Registration Statement shall
have become effective in accordance with the provisions of the Securities Act.
No stop order suspending the effectiveness of the Registration Statement shall
have been issued by the SEC and remain in effect. All necessary state securities
or blue sky authorizations shall have been received. The CNMX Shares issuable in
the Merger shall have been listed or approved for listing on the Nasdaq SmallCap
Market.
7.2. NO ORDER. No Governmental Authority or court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
law, rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is then in effect and has
the effect of prohibiting the Merger or any of the transactions contemplated
hereby or otherwise making the consummation of the Merger or any of the
transactions contemplated hereby illegal.
7.3. AGSI PROPOSAL. If the Proposal shall have been rejected by
CNMX on or before July 8, 1997, and if CNMX and such executives shall not have
mutually agreed in writing on an acceptable proposal on or before August 11,
1997, then either party may terminate this Agreement upon written notice to the
others at any time prior to written agreement of CNMX and AGSI upon the terms of
such proposal.
7.4. GOODWILL DETERMINATION. CNMX and AGSI shall each have
determined, in their reasonable discretion, on or before July 15, 1997, that the
net increase in the goodwill associated with the Merger anticipated to be
reflected on the balance sheet of CNMX following the Closing Date will not be
more than $1.5 million. The failure of any party to terminate this Agreement as
a result of the failure of this condition on or before July 22, 1997 shall
constitute a waiver of such party's right to terminate this Agreement hereunder.
ARTICLE 8. CONDITIONS PRECEDENT TO CLOSING BY CNMX AND CRSI
The obligations of CNMX and CRSI to consummate the Merger are subject to
fulfillment, or written waiver signed by CNMX and CRSI, of each of the following
conditions precedent on or prior to the Closing Date.
8.1. STOCKHOLDER APPROVAL; FURTHER BOARD APPROVAL. The Merger
shall have been approved by the requisite vote of the holders of CNMX Shares in
accordance with Applicable Law and its Articles of Incorporation and Bylaws and
the further approval of the Boards of Directors of CNMX and CRSI referred to in
Section 3.4 shall have been obtained.
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8.2. REPRESENTATIONS AND WARRANTIES. Each and every representation
and warranty made by AGSI (as updated by the substitution of Schedules
pursuant to Section 4.3) shall be true and correct (a) in all respects (with
regard to representation and warranties subject to materiality or Material
Adverse Effect qualifications) and (b) in all respects other than the failure
of which could not reasonably be anticipated to have a Material Adverse
Effect (with regard to representations and warranties not subject to
materiality or Material Adverse Effect qualifications), in each case when
made, and shall be true and correct in all such respects as if originally
made on and as of the Closing Date.
8.3. AGSI DOCUMENTS. AGSI shall have delivered the following to
CNMX in form and substance reasonably satisfactory to CNMX and its counsel:
(a) A certificate signed by the chief executive officer of AGSI, on
behalf of and in his capacity as an officer of AGSI, confirming, on and as
of the Closing Date, the satisfaction of the condition contained in Section
8.2 and AGSI's compliance in all material respects with the applicable
covenants set forth in Articles 4 and 6.
(b) An opinion of counsel to AGSI in a form reasonably acceptable
to CNMX.
(c) The minute books, bylaws, certificate of incorporation of AGSI.
8.4. NO MATERIAL ADVERSE CHANGE. No change shall have occurred
with respect to AGSI, or its assets from the date hereof through the Closing
Date which would have a Material Adverse Effect.
8.5. DISSENTERS' RIGHTS. The holders of AGSI Shares requesting
an appraisal of their shares or exercising the dissenters' right referred to in
Section 1.2(m) hereof shall not hold more than an aggregate of 10% of all
outstanding AGSI Shares.
8.6. NON-COMPETITION AGREEMENT; EMPLOYMENT AND CONSULTING
RELATIONSHIP.
(a) The person listed on SCHEDULE 8.6(a) shall have executed an
agreement containing the general terms and conditions set forth in SCHEDULE
8.6(a).
(b) The parties identified on SCHEDULE 8.6(b) shall have entered
into employment or consulting agreements with either CNMX or the Surviving
Corporation upon the general terms and conditions set forth in
SCHEDULE 8.6(b).
8.7. ACCOUNTANT'S CONSENT LETTER. CNMX shall have received from
AGSI the Accountant's Consent Letter.
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8.8. AGSI OBLIGATIONS PERFORMED. All obligations of AGSI to be
performed hereunder through and including the Closing Date shall have been
performed in all material respects.
8.9. SATISFACTION OR WAIVER OF CONDITIONS PRECEDENT OF AGSI.
Each of the conditions precedent to the obligations of AGSI set forth in
Articles 7 and 9 shall have been satisfied or otherwise waived by AGSI.
8.10. RESERVED.
8.11. RESERVED.
8.12. BANK ACCOUNT. AGSI shall have irrevocably instructed all
banks and other financial institutions where AGSI maintains an account, lock
box, safe deposit box, or similar arrangement, to change the persons authorized
to make withdrawals therefrom or deposits thereto or otherwise to transact
business in connection therewith, to such persons as CNMX shall designate in
writing at least two Business Days prior to Closing Date.
8.13 CNMX'S INVESTIGATION.
(a) CNMX shall not have found the AGSI Disclosure Schedule to
disclose any state of facts with respect to the matters represented in
Article 2 hereof that is unacceptable to it, in its sole judgment, as a
basis for proceeding with the Merger on the terms and conditions
contemplated hereby. Failure of CNMX to object in writing to any disclosure
in the AGSI Disclosure Schedule by the Due Diligence Date shall be deemed a
waiver of this condition.
(b) The investigation by CNMX and its representatives in connection
with the transactions contemplated by this Agreement shall not have caused
CNMX or its representatives to become aware of any facts or circumstances
which relate to the business, operations, assets, properties, liabilities,
financial condition, results of operation or affairs of AGSI that, in the
good faith business judgment of CNMX, either (i) represent a material
adverse change or state of facts that could reasonably be expected to
result in a material adverse change in the business, operations, assets,
properties or prospects of AGSI from that described in Article 2 hereof, or
(ii) represent in the aggregate previously undisclosed Liabilities that
could reasonably be anticipated to result in Damages in excess of $300,000.
(c) CNMX may deliver, based upon its review of the AGSI Disclosure
Schedules and other information delivered to it on or prior to the earlier
of (i) the date on which the Proxy Statement is to be mailed to the
shareholders of AGSI and CNMX ("Proxy Mailing Date") or (ii) August 21,
1997, written notice of its election to terminate this Agreement as a
result of the failure to satisfy the conditions in clause (a) or (b) above,
specifying in reasonable detail the reason therefor, and CNMX's failure to
deliver such
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termination notice on or prior to such date shall constitute waiver of this
condition by CNMX.
8.14. FAIRNESS OPINION. CNMX shall receive a final written
opinion from the CNMX Financial Advisor on or before August 8, 1997 that the
Merger and other transactions contemplated under this Agreement are fair to the
stockholders of CNMX from a financial point of view ("CNMX Fairness Opinion"),
and such CNMX Fairness Opinion shall not have been withdrawn prior to the
Closing Date.
ARTICLE 9. CONDITIONS PRECEDENT TO CLOSING BY AGSI
The obligation of AGSI to consummate the Merger is subject to fulfillment,
or written waiver signed by AGSI, of each of the following conditions precedent
on or prior to the Closing Date.
9.1. STOCKHOLDER APPROVAL; FURTHER BOARD APPROVAL. The Merger
shall have been approved by the requisite vote of the holders of the AGSI Shares
in accordance with Applicable Law and its Certificate of Incorporation and
Bylaws and the further approval of its Board of Directors referred to in Section
2.4 shall have been obtained.
9.2. REPRESENTATIONS AND WARRANTIES. Each and every representation
and warranty made by CNMX and/or CRSI (as updated by the substitution of
schedules pursuant to Section 5.3) shall be true and correct (a) in all
respects (with regard to representations and warranties subject to
materiality or Material Adverse Effect qualifications) and (b) in all
respects other than the failure of which could not reasonably be anticipated
to have a Material Adverse Effect (with regard to representations and
warranties not subject to materiality or Material Adverse Effect
qualifications), in each case when made and shall be true and correct in all
such respects as if originally made on and as of the Closing Date.
9.3. CNMX AND/OR CRSI DOCUMENTS. CNMX and/or CRSI, as the
applicable case may be, shall have executed and delivered to AGSI in form and
substance reasonably satisfactory to AGSI and its counsel:
(a) A certificate of the chief executive officer of CNMX and CRSI,
on behalf of and in his respective capacity as an officer of CNMX and CRSI,
confirming, on and as of the Closing Date, the satisfaction of the
condition contained in Section 9.2 and the compliance by CNMX and CRSI in
all material respects with the applicable covenants set forth in Articles 5
and 6.
(b) An opinion of counsel to CNMX and/or CRSI in a form reasonably
acceptable to AGSI.
(c) The Registration Rights Agreement, executed by CNMX.
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(d) The Exchange Agent Agreement, executed by CNMX and the Exchange
Agent.
9.4. SATISFACTION OR WAIVER OF CONDITIONS PRECEDENT OF CNMX AND
CRSI. Each of the conditions precedent to the obligations of CNMX and CRSI set
forth in Articles 7 and 8 shall have been satisfied or otherwise waived by AGSI.
9.5. CNMX AND CRSI OBLIGATIONS PERFORMED. All obligations of
CNMX and CRSI to be performed hereunder through and including the Closing Date
shall have been performed in all material respects. In addition, the elections
and appointments contemplated by Section 6.15 hereof shall have become
effective.
9.6. NO MATERIAL ADVERSE CHANGES. No event shall have occurred
from the date hereof through the Closing Date that would require the information
regarding CNMX contained in the Proxy Statement to be amended or supplemented
under applicable securities laws or otherwise would have a Material Adverse
Effect.
9.7. AGSI'S INVESTIGATION.
(a) AGSI shall not have found the CNMX Disclosure Schedule to
disclose any state of facts with respect to the matters represented in
Article 3 hereof that is unacceptable to it, in its sole judgment, as a
basis for proceeding with the Merger on the terms and conditions
contemplated hereby. Failure of AGSI to object in writing to any disclosure
in the CNMX Disclosure Schedule by the Due Diligence Date shall be deemed a
waiver of this condition.
(b) The investigation by AGSI and its representatives in
connection with the transactions contemplated by this Agreement shall not
have caused AGSI or its representatives to become aware of any facts or
circumstances which relate to the business, operations, assets, properties,
liabilities, financial condition, results of operation or affairs of CNMX
that, in the good faith business judgment of AGSI, either (i) represent a
material adverse change or state of facts that could reasonably be expected
to result in a material adverse change in the business, operations, assets,
properties or prospects of CNMX from that described in Article 3 hereof, or
(ii) represent in the aggregate previously undisclosed Liabilities that
could reasonably be anticipated to result in Damages in excess of $300,000.
(c) AGSI may deliver, based upon its review of the CNMX Disclosure
Schedules and other information delivered to it on or prior to the earlier
of (i) the Proxy Mailing Date or (ii) August 21, 1997, written notice of
its election to terminate this Agreement as a result of the failure to
satisfy the conditions in clause (a) or (b) above, specifying in reasonable
detail the reason therefor, and AGSI's failure to deliver such termination
notice on or prior to such date shall constitute waiver of this condition
by AGSI.
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER -- PAGE 42
<PAGE>
9.8. FAIRNESS OPINION. AGSI shall receive a final written
opinion from the AGSI Financial Advisor on or before August 8, 1997 that the
Merger and other transactions contemplated under this Agreement are fair to the
stockholders of AGSI from a financial point of view ("AGSI Fairness Opinion"),
and such AGSI Fairness Opinion shall not have been withdrawn prior to the
Closing Date.
9.9. NON-COMPETITION AGREEMENT; EMPLOYMENT AND CONSULTING RELATIONSHIP.
(a) The persons listed in SCHEDULE 9.9(a) shall have executed an
agreement containing the general terms and conditions set forth in SCHEDULE
9. 9(a).
(b) The parties identified on SCHEDULE 9.9(b) shall have entered
into employment or consulting agreements with CNMX or the Surviving
Corporation upon the general terms and conditions set forth in SCHEDULE
9.9(b).
9.10. TAX ADVICE. AGSI shall have received from its tax counsel
an opinion, in form and substance satisfactory to it, that the Merger will
constitute a tax-free reorganization within the meaning of Section 368 of the
Code.
ARTICLE 10. TERMINATION
10.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated and may be abandoned at any time prior to the Effective Time, before
or after the approval of this Agreement by the shareholders of AGSI and CNMX, by
the mutual consent of CNMX, CRSI and AGSI.
10.2. TERMINATION BY AGSI. This Agreement may be terminated and
the Merger may be abandoned by AGSI if either (a) AGSI has not received written
notice from CNMX that the further approvals of the Boards of Directors of CNMX
and CRSI referred to in Section 3.4 have been obtained on or before August 21,
1997, or (b) the closing conditions set forth in Articles 7 and 9 shall not have
been satisfied in full or waived on or before October 31, 1997 or the date set
forth therein.
10.3. TERMINATION BY CNMX OR CRSI. This Agreement may be
terminated and the Merger may be abandoned by CNMX or CRSI if either (a) CNMX
has not received written notice from AGSI that the further approval of the Board
of Directors of AGSI referred to in Section 2.4 has been obtained on or before
August 21, 1997, or (b) the closing conditions set forth in Articles 7 and 8
shall not have been satisfied in full or waived on or before October 31, 1997 or
the date set forth therein.
10.4. TERMINATION RESULTING FROM ACQUISITION PROPOSALS. In the
event that any Person shall have made an AGSI Acquisition Proposal or CNMX
Acquisition Proposal, as applicable, and the Board of Directors of AGSI or CNMX,
as applicable, approves the execution of an agreement relating thereto or
recommends to the stockholders of AGSI or CNMX, as applicable, the acceptance
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER -- PAGE 43
<PAGE>
of any such acquisition proposal, then such party shall promptly, but in no
event later than two days after the date of such Board approval or
recommendation, pay to the other a fee of $400,000 as liquidated damages,
this Agreement shall terminate and the parties shall have no further
liability or obligations hereunder. Each party acknowledges that the
agreements contained in this Section 10.4 are integral parts of the
transactions contemplated in this Agreement, and that, without these
agreements, no party would enter into this Agreement; accordingly, if either
party fails to promptly pay the amount due and pursuant to Section 10.4, and,
in order to obtain such payment, the party entitled to receive payment
commences a suit which results in a judgment against the non-paying party,
for the fee set forth in this Section 10.4, the non-prevailing party shall
pay the prevailing party its cost and expenses (including attorneys' fees) in
connection with such suit, together with interest on such amounts.
10.5. EFFECT OF TERMINATION. In the event of the termination of
this Agreement and abandonment of the Merger (other than as provided in Section
10.4. above, in which case the payment of the amount specified therein shall be
deemed to be liquidated damages for any claims under this Agreement arising from
a termination resulting from an AGSI Acquisition Proposal or CNMX Acquisition
Proposal, as applicable), this Agreement shall terminate and the parties shall
have no liabilities or obligations to each other hereunder, except as provided
in Sections 6.4; provided that nothing contained herein shall relieve any party
of liability for fraud or willful breach of this Agreement.
ARTICLE 11. DEFINITIONS
11.1. DEFINITIONS. The terms used in this Agreement have the
respective meanings specified or referred to in this Article 11:
"ACCOUNTANT'S CONSENT LETTER" shall have the meaning set forth in Section
6.10.
"AFFILIATE" means with respect to any Person, any other Person directly or
indirectly controlling, controlled by or under common control with such Person,
and any other Person who or which, directly or indirectly, has an equity
interest of 10% or greater in such Person, is a director, or executive officer
of such Person, or a member of the immediate family of any of the foregoing
Persons, whether or not living under the same roof with such Person.
"AGSI ACQUISITION PROPOSAL" shall have the meaning set forth in Section
4.2.
"AGSI AFFILIATE AGREEMENTS" shall have the meaning set forth in Section
2.9(a)(xv).
"AGSI CERTIFICATES" shall have the meaning set forth in Section 1.2.
"AGSI CONTRACTS" shall have the meaning set forth in Section 2.9.
"AGSI CUT-OFF DATE" shall have the meaning set forth in Section 2.5(a).
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER -- PAGE 44
<PAGE>
"AGSI CUT-OFF DATE BALANCE SHEET" shall have the meaning set forth in
Section 2.6(a).
"AGSI DISCLOSURE SCHEDULE" shall have the meaning set forth in the
introductory paragraph Article 2, to be delivered to CNMX and CRSI in accordance
with Section 4.3.
"AGSI EMPLOYEES" shall have the meaning set forth in Section 2.19.
"AGSI FAIRNESS OPINION" shall have the meaning set forth in Section 9.8.
"AGSI FINANCIAL ADVISOR" shall mean The GulfStar Group, Inc.
"AGSI FINANCIAL STATEMENTS" shall have the meaning set forth in Section
2.5(a).
"AGSI OPTIONS" shall have the meaning set forth in Section 6.1.
"AGSI PLANS" shall have the meaning set forth in Section 2. l9(a).
"AGSI SHARES" shall mean all of the issued and outstanding capital stock of
AGSI immediately before the Merger.
"AGSI STOCK OPTION PLANS" means the option plans under which AGSI grants
AGSI Options.
"AGSI SUBSIDIARY" means any entity in which AGSI has the ability to direct
the management or affairs, other than FST Holdings, Inc. or Fleet Star of Texas,
LLC.
"AGSI REPRESENTATIVES" shall have the meaning set forth in Section 4.2.
"APPLICABLE LAW" means any federal, state, local, municipal, foreign or
other law, statute, legislation, act, constitution, ordinance, code, treaty,
rule, regulation or guideline applicable to or against AGSI, CNMX or CRSI.
"AUTHORIZATION" means any license, permit, authorization, franchise, grant,
registration, certificate, consent and waiver awarded to AGSI or CNMX and/or
CRSI by a Governmental Authority which is used, useable or held for use in or in
conjunction with or otherwise associated with the business of AGSI, CNMX and/or
CRSI.
"BUSINESS DAY" means a day other than a Saturday, Sunday or other day on
which commercial banks in Dallas, Texas are authorized or required to close.
"CLOSE" OR "CLOSING" means the consummation of the transactions
contemplated in Article 1 hereof as provided for in Section 1.3.
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER -- PAGE 45
<PAGE>
"CLOSING PRICE" means the last sales prices for the CNMX Shares on the
Trading Day proceeding the Closing Date, as reported on the Nasdaq SmallCap
Market.
"CLOSING DATE" means the date on which the Closing shall occur as provided
for in Section 1.3.
"CNMX" shall have the meaning set forth in the Recitals.
"CNMX ACQUISITION PROPOSAL" shall have the meaning set forth in Section
5.2.
"CNMX AFFILIATE AGREEMENTS" shall have the meaning set forth in Section
3.9(a)(xv)
"CNMX CONTRACTS" shall have the meaning set forth in Section 3.9.
"CNMX CUT-OFF DATE" shall have the meaning set forth in Section 3.5(a).
"CNMX CUT-OFF DATE BALANCE SHEET" shall have the meaning set forth in
Section 3.6(a).
"CNMX DISCLOSURE SCHEDULE" shall have the meaning set forth in the
introductory paragraph of Article 3, to be delivered to AGSI in accordance with
Section 5.3.
"CNMX FAIRNESS OPINION" shall have the meaning set forth in Section 8.14.
"CNMX FINANCIAL ADVISOR" shall mean Rauscher Pierce Refsnes, Inc.
"CNMX FINANCIAL STATEMENTS" shall have the meaning set forth in Section
3.5(a).
"CNMX REPRESENTATIVES" shall have the meaning set forth in Section 5.2.
"CNMX SUBSIDIARY" means any entity in which CNMX has the ability to direct
the management or affairs.
"CNMX SHARES" means shares of common stock, without par value, of CNMX.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONVERSION AMOUNT" shall mean the number of CNMX Shares issuable for each
AGSI Share in the Merger.
"DAMAGES" means all losses,, liabilities, settlement payments, awards,
judgments, fines, penalties, damages, deficiencies, court costs, costs of
arbitration or administrative proceedings, reasonable attorneys' fees and other
reasonable expenses and costs.
"DGCL" means the Delaware General Corporation Law.
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER -- PAGE 46
<PAGE>
"DISCLOSING PARTY" shall have the meaning set forth in Section 6.4.
"DORMANT SUBSIDIARIES" means the following CNMX subsidiaries: Dataplane
Technologies, Inc., Canmax Retail Systems (B.C.), Inc. and the Point of Sale
Corporation.
"DUE DILIGENCE DATE" means July 22, 1997.
"EFFECTIVE TIME" shall mean the last to occur of the date and time of the
filing of the (a) articles of merger in the State of Texas and (b) certificate
of merger in the State of Delaware.
"EMPLOYEE BENEFIT PLANS" shall have the meaning set forth in Section 2.19.
"ENVIRONMENT" means the soil, surface waters, ground waters, land, stream,
sediments, surface or subsurface strata and ambient air.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" means the Security Exchange Act of 1934, as amended.
"EXCHANGE AGENT" means Montreal Trust.
"EXCHANGE AGREEMENT" shall have the meaning set forth in Section 1.2(f).
"EXCHANGE FUND" shall have the meaning set forth in Section 1.2(f).
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America. The term "generally accepted
accounting principles" shall mean accounting principles which are (a) consistent
with the principles promulgated or adopted by the Financial Accounting Standards
Board and its predecessors as generally accepted accounting principles, and (b)
such that a certified public accountant would, insofar as the use of accounting
principles is pertinent, be in a position to deliver an unqualified opinion as
to financial statements in which such principles have been properly applied.
"GOVERNMENTAL AUTHORITY" means any federal, state, local, municipal,
foreign or other government or any federal, state or local regulatory authority.
"GOVERNMENTAL PERMITS" means all licenses, consents, franchises, permits,
privileges, immunities, approvals, certificates and other authorizations from a
Governmental Authority to AGSI, CNMX, or CRSI, as applicable.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER -- PAGE 47
<PAGE>
"INTELLECTUAL PROPERTY" means any and all United States and foreign: (a)
patents (including design patents, industrial designs and utility models) and
patent applications (including reexaminations, docketed patent disclosures
awaiting filing, reissues, divisions, continuations-in-part and extensions),
patent disclosures awaiting filing, provisional applications, reissues,
divisions, contributions, continuations-in-part and extensions, inventions and
improvements thereto; (b) trademarks, service marks, trade names, trade dress,
logos, business and product names, slogans, and registrations and applications
for registration thereof; (c) copyrights (including all software) and
registrations thereof; (d) inventions, processes, designs, formulae, trade
secrets, know-how, industrial models, confidential and technical information,
manufacturing, engineering and technical drawings, product specifications and
confidential business information; (e) mask work and other semiconductor chip
rights and registrations thereof; (f) intellectual property rights similar to
any of the foregoing; and (g) copies and tangible embodiments thereof (in
whatever form or medium, including electronic media).
"IRS" means the Internal Revenue Service.
"JOINT VENTURE" means a joint venture, partnership, limited liability
company or other similar arrangement, whether in corporate, partnership or other
legal form.
"KNOWLEDGE" means (a) with respect to an individual "knowledge" of a
particular fact or other matter if such individual is aware or should reasonably
be aware, after due inquiry, of such fact or other matter; (b) with respect to a
Person (other than an individual) "knowledge" of a particular fact or other
matter if any individual who is serving as a director or executive officer of
such Person has "knowledge" of such fact or other matter; and (c) with respect
to the warranties made by AGSI, CNMX and CRSI that AGSI, CNMX and CRSI based
upon a reasonable investigation, believes is true.
"LEASES" shall mean those leases executed by AGSI, CNMX or CRSI referred to
in Sections 2.28 and 3.25 and the respective schedules.
"LIABILITIES" means damages, obligations, claims, demands, judgments or
settlements of any nature or kind, known or unknown, fixed, accrued, absolute or
contingent, liquidated or unliquidated, including all costs and expenses (legal,
accounting or otherwise).
"LIENS" means any lien, pledge, hypothecation, charge, mortgage, deed of
trust, security interest or encumbrance against any assets or properties of
AGSI, CNMX or CRSI, as the case may be.
"MATERIAL ADVERSE EFFECT" means any event or circumstance which results in
or is reasonably likely to result in a material adverse change in (i) the
financial condition, business, operations, properties or prospects of the
specified entity, other than either general economic changes or regulatory or
competitive changes that affect their industry generally, over which such entity
has no control; (ii) the ability of such entity to perform its obligations under
this Agreement, or (iii) the validity or enforceability of this Agreement.
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER -- PAGE 48
<PAGE>
"MERGER" means the merger described in Section 1.1.
"NASDAQ SMALLCAP MARKET" means the National Association of Securities
Dealers Automated Quotation SmallCap Market.
"ORDER" means any order, judgment, injunction, or ruling issued, made,
entered or rendered by any court, administrative agency or other Governmental
Authority or by any arbitrator as to which AGSI, CNMX, or CRSI is a party.
"PBGC" shall have the meaning set forth in Section 2.19(c).
"PERMITTED LIENS" means deposits under workmen's compensation, unemployment
insurance or social security laws, or to secure statutory obligations or surety
or similar bonds; government charges or other governmental levies which are not
yet delinquent, or which are being contested in good faith by appropriate
proceedings with adequate reserves in conformity with GAAP; statutory liens
imposed by law incurred in the ordinary course of business or for obligations
not yet due to carriers, warehousemen, laborers or materialmen; the interest or
title of any lessor and property pursuant to a lease of real property; and other
encumbrances other than those securing monetary obligations that do not
materially and adversely affect the use of property as heretofore used in the
ordinary course of business or materially detract from the value thereof.
"PERSON" means any individual, corporation, partnership, joint venture,
estate, trust, cooperative, foundation, union, syndicate, league, consortium,
coalition, committee, society, firm, company or other enterprise, association,
organization or other entity or Governmental Authority.
"PROCEEDING" means any suit, litigation, arbitration, proceeding (including
any civil, criminal, administrative, investigative or appellate proceeding).
"PROPOSAL" shall have the meaning set forth in Section 6.16.
"PROXY MAILING DATE" shall have the meaning set forth in Section 8.13(c).
"PROXY STATEMENT" shall have the meaning set forth in Section 6.3(b).
"REGISTRATION STATEMENT" shall have the meaning set forth in Section
6.3(a).
"RULE 145 AFFILIATE" shall have the meaning as defined in paragraphs (c)
and (d) of Rule 145 of the Securities Act.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER -- PAGE 49
<PAGE>
"SEVERANCE OBLIGATIONS" shall mean, with respect to either AGSI, CNMX or
CRSI, as applicable, the aggregate amount of any payments due under any
agreements or arrangements with any current or former employees, officers, or
directors that would entitle such person to receive any compensation or other
payments upon or arising from either (i) the termination of such person's
services as an employee, officer or director, or (ii) the consummation of the
Merger.
"SURVIVING CORPORATION" shall have the meaning set forth in Section 1.1.
"TAX" OR "TAXES" means any federal, state, local or foreign income, sales,
excise, real or personal property or other taxes, assessments, fees, levies,
duties, deductions or other charges of any nature whatsoever (including, without
limitation, interest and penalties) imposed by any Applicable Law.
"TBCA" means the Texas Business Corporation Act.
"TRADING DAY" means any day in which trades are recorded on the Nasdaq
SmallCap Market.
11.2. DEFINED TERMS. In this Agreement, all definitions shall be
equally applicable to both the singular and the plural forms.
ARTICLE 12. MISCELLANEOUS
12.1. EXPENSES OF THE TRANSACTION. Each of AGSI, CNMX and CRSI
agrees to pay its own fees and expenses in connection with this Agreement and
the transactions hereby contemplated, except as otherwise provided herein.
12.2. FURTHER ASSURANCES. Each of AGSI, CNMX and CRSI agrees
that it will, at any time and from time to time after the Closing Date, upon the
request of the other party, do, execute, acknowledge and deliver, or will cause
to be done, executed, acknowledged and delivered, all such further acts,
assignments, transfers, conveyances, powers of attorney and assurances as may be
reasonably required from time to time in order to effectuate the provisions and
purposes of this Agreement.
12.3. NOTICES. All notices or other communications required or
permitted hereunder shall be in writing and shall be deemed given or delivered
(a) when delivered personally or by private courier, (b) when actually delivered
by registered United States mail, return receipt requested, or (c) when sent by
telecopy (provided, however, that, it is telephonically or electronically
confirmed), addressed as follows:
If to CNMX or CRSI, to:
Canmax Inc.
150 W. Carpenter Freeway
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER -- PAGE 50
<PAGE>
Irving, TX 75039
Attn: Roger D. Bryant
Phone: 972-541-1600
Fax: 972-281-2388
With copy to:
Arter & Hadden
1717 Main Street, Suite 4100
Dallas, TX 75202
Attn: William L. Rivers
Phone: (214) 761-4357
Fax: (214) 741-7139
If to AGSI, to:
Auto-Gas Systems, Inc.
1202 Estates Drive, Suite D
Abilene, Texas 79802
Attn: G. Randy Nicholson
Phone: (915) 678-3150
Fax: (915) 676-3156
With copy to:
Gibson, Dunn & Crutcher LLP
1717 Main Street, Suite 5400
Dallas, Texas 75201
Attn: Irwin F. Sentilles, III
Phone: (214) 698-3119
Fax: (214) 571-2956
or such other address as such party may indicate by a notice delivered to the
other parties hereto in the manner herein provided.
12.4. NO MODIFICATION EXCEPT IN WRITING. This Agreement shall
not be changed, modified, or amended except by a writing signed by the party to
be charged and this Agreement may not be discharged except by performance in
accordance with its terms or by a writing signed by the party to which
performance is to be rendered.
12.5. ENTIRE AGREEMENT. This Agreement, together with the
Schedules and Exhibits hereto and all previously executed Confidentiality
Agreements, sets forth the entire agreement and understanding, and supersedes
all prior agreements and understandings, among the parties as to the subject
matter hereof.
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER -- PAGE 51
<PAGE>
12.6. SEVERABILITY. If any provision of this Agreement or the
application of any provision hereof to any person or in any circumstances is
held invalid, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected unless the
provision held invalid shall substantially impair the benefits of the remaining
portions of this Agreement.
12.7. ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned by any party hereto except
with the prior written consent of the other parties. Any purported assignment
contrary to the terms of this Agreement shall be void.
12.8. PUBLICITY; ANNOUNCEMENTS. Except to the extent required by
law, prior to the Closing Date, all publicity related to the transactions
contemplated hereby shall be subject to the mutual approval of CNMX and AGSI;
provided, CNMX and AGSI shall be entitled to disclose the transactions
contemplated hereby without the prior approval of the other, but with prior
notice to the other, to the extent reasonably necessary for CNMX or AGSI to
comply with applicable securities laws.
12.9. CHOICE OF LAW. This Agreement shall be deemed to have been
made in, and shall be construed in accordance with the laws of the State of
Texas, and its validity, construction, interpretation and legal effect shall be
governed by the laws of the State of Texas applicable to contracts entered into
and performed entirely therein.
12.10. CAPTIONS; CONSTRUCTION. The captions appearing in this
Agreement are inserted only as a matter of convenience and for reference and in
no way define, limit or describe the scope and intent of this Agreement or any
of the provisions hereof. All uses of the term "including" shall be construed as
descriptive and not a limitation of the item described. All words used herein
shall be construed to be of such gender as the circumstances require.
12.11. SCHEDULES. The Schedules referred to herein and delivered
upon execution hereof or pursuant to SCHEDULES 4.2 OR 5.2, as applicable, are
hereby made a part of this Agreement.
[Remainder of page intentionally left blank]
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER -- PAGE 52
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
to be effective as of the day and year first above written.
AUTO-GAS SYSTEMS, INC.:
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
CANMAX INC.:
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
CANMAX RETAIL SYSTEMS, INC.
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
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<PAGE>
APPENDIX B
[LOGO]
RAUSCHER PIERCE REFSNES, INC.
July 21, 1997
Board of Directors
Canmax Inc.
150 West Carpenter Freeway
Irving, Texas 75039
Gentlemen:
You have asked our opinion as to the fairness from a financial point of view to
the holders of common stock of Canmax Inc. ("Canmax") of the proposed merger of
AutoGas Systems, Inc. ("AutoGas") with Canmax in which the common stock (the
"Merger") provided for in the Agreement and Plan of Merger dated as of June 16,
1997 (the "Merger Agreement") between Canmax and AutoGas. We understand the
Merger Agreement provides for each outstanding share of AutoGas common stock
will be converted into the right to receive 3.37623 shares of Canmax common
stock, resulting in an aggregate of up to 6,700,000 shares of Canmax common
stock as consideration.
In connection with the opinion described below, we have reviewed business and
financial information relating to Canmax and AutoGas. We have, among other
things: (i) reviewed the Merger Agreement dated June 16, 1997 between Canmax and
AutoGas; (ii) reviewed the Annual Reports to Stockholders for the three fiscal
years ended October 31, 1996, Annual Reports on Form 10-K for the three fiscal
years ended October 31, 1996 and interim Reports to Stockholders and Quarterly
Reports on Form 10-Q for the six months ended April 30, 1997 of Canmax; (iii)
reviewed the audited financial statements for the four years ended September 30,
1996 and the unaudited interim financial statements for the eight months ended
May 31, 1996 and May 31, 1997 of AutoGas; (iv) discussed with certain members of
senior management of Canmax and AutoGas the past and current business
operations, financial condition and future prospects of Canmax and AutoGas; (v)
reviewed certain internal financial analyses and forecasts of Canmax and AutoGas
prepared by respective managements; (vi) reviewed historical market prices and
trading volumes for Canmax's common stock; (vii) compared certain historical
market prices and trading volumes for Canmax's common stock; (viii) compared
certain financial information for Canmax and AutoGas with similar information
for certain other companies the securities of which are publicly traded; and
(ix) reviewed selected financial terms of certain recent business combinations.
<PAGE>
In addition, we have considered such other information and have conducted such
other analyses as we deemed appropriate under the circumstances. In connection
with our review, we have relied upon and assumed the accuracy and completeness
of the financial and other information publicly available or furnished to us by
Canmax and AutoGas or their representatives. We have not independently verified
the accuracy or completeness of such information. We have not made or obtained
any independent evaluations or appraisals of any of the properties, assets or
facilities of Canmax or AutoGas. With respect to the financial projections of
Canmax and AutoGas, we have assumed that they have been reasonably prepared on a
basis reflecting the best currently available estimates and judgments of
management as to the future financial performance of Canmax and AutoGas,
respectively, and we express no opinion with respect to such forecasts or the
assumptions on which they are based.
Subject to the foregoing and based upon our experience as investment bankers,
the matters described above and other factors we deemed relevant, we are of the
opinion that as of the date hereof the consideration to be paid to the
shareholders of AutoGas pursuant to the Merger Agreement is fair from a
financial point of view to the shareholders of Canmax.
Very truly yours,
RAUSCHER PIERCE REFSNES, INC.
By: /s/ John D. Kearney
--------------------------
John D. Kearney
Managing Director
<PAGE>
APPENDIX C
THE GULFSTAR GROUP, INC.
[Letterhead]
August 8, 1997
Board of Directors
Auto-Gas Systems, Inc.
1202 Estates Drive, Suite D
Abilene, Texas 79602
Gentlemen:
You have requested our opinion as to the fairness to the holders of the
common stock of Auto-Gas Systems, Inc. ("AGSI" or the "Company") from a
financial point of view of the per share consideration be received by the
stockholders of AGSI pursuant to the terms of the Agreement and Plan of Merger
dated as of June 16, 1997 (the "Merger Agreement") among Canmax Inc. ("Canmax"),
Canmax Retail Systems, Inc., a wholly owned subsidiary of Canmax ("CRSI"), and
AGSI. Pursuant to the terms of the Merger Agreement, AGSI will merge with CRSI
(the "Merger") and each outstanding share of AGSI ("AGSI Common Stock") will be
converted into the right to receive 3.37623 (the "Exchange Ratio") shares of
Canmax's common stock ("Canmax Common Stock"). The business enterprise
resulting from the merger is referred to herein as New Canmax while the
independent entities are referred to as AGSI and Canmax. Additionally, all
options ("AGSI Options") and warrants ("AGSI Warrants") to acquire shares of
AGSI common stock will become options and warrants to acquire Canmax Common
Stock with the number of shares and the exercise price of each option or warrant
adjusted by the Exchange Ratio.
In arriving at our opinion, we have, among other things, (i) reviewed the
audited financial statements for recent years and other financial and operating
data of AGSI made available to us by the Company; (ii) discussed with certain
members of AGSI's senior management ("Management") the business, financial
condition and prospects of AGSI and New Canmax; (iii) reviewed and discussed
with Management certain internally prepared operating and financial information
regarding AGSI, including certain projections; (iv) performed a limited review
of, and conducted discussions with certain members of Canmax's senior management
("Canmax Management") concerning, the audited financial statements of Canmax for
recent years and other publicly available information regarding Canmax, its
finances and operations, the business, financial condition and prospects of
Canmax and New Canmax, certain internally prepared operating and financial
information regarding Canmax and New Canmax (including projections prepared by
Canmax Management) and information concerning historical market prices and
<PAGE>
trading volumes for Canmax's common stock; (v) compared certain financial
information of AGSI and Canmax with certain financial information and the
recent reported common stock prices of companies engaged in businesses we
consider to be comparable to that of AGSI and Canmax; (vi) reviewed the
financial terms, to the extent publicly available, of certain comparable
merger and acquisition transactions; (vii) reviewed a copy of the Merger
Agreement dated June 16, 1997 (and we assume that the final form of the
Amended and Restated merger Agreement will not vary in any manner that would
be material to our analysis); and (viii) performed such other analysis and
examinations and considered such other information, financial studies,
analyses and investigations and financial, economic and market data as we
deemed relevant. We have assumed that the Merger will qualify as a tax-free
reorganization for United States federal income tax purposes.
In rendering our opinion, we have assumed and relied upon the accuracy
and completeness of all of the information, representations and warranties
concerning AGSI, Canmax or New Canmax provided to or considered by us in
connection with our review of the Merger, including the representations and
warranties of each party in the merger Agreement, and we have not assumed any
responsibility for independent verification of such information. We have not
prepared any independent evaluation or appraisal of any of the assets or
liabilities (contingent or otherwise) of AGSI or Canmax, nor have we
conducted a physical inspection of the properties and facilities of either
company or been furnished with any such evaluation or appraisal. With
respect to the financial forecasts and projections made available to us and
used in our analysis, we have assumed that they reflect the best currently
available estimates and judgments of the expected future financial
performance of AGSI, Canmax and New Canmax. For purposes of our opinion, we
have assumed that neither AGSI nor Canmax is a party to any pending
transactions, including external financings, recapitalizations or material
merger discussions other than the Merger and those activities undertaken in
the ordinary course of conducting their respective businesses. We are not
expressing any opinion as to what the value of the Canmax Common Stock
actually will be when issued to the AGSI stockholders pursuant to the Merger
Agreement or the price at which the Canmax Common Stock will trade subsequent
to the Merger. We have not been asked to consider, and our opinion does not
address, the relative merits of the Merger as compared to any alternate
business strategies that might exist for AGSI or the effect of any other
transaction in which AGSI might engage. Our opinion is necessarily based on
information available to us, and on economic, market, financial and other
conditions and circumstances existing and disclosed to us, as of the date
hereof. Although subsequent developments may affect our opinion, we have no
obligation to update, revise or reaffirm it.
As part of our investment banking business, we are regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, private placements and valuations for estate, corporate and other
purposes. We were engaged solely to render our opinion and have provided no
other investment banking services to AGSI or Canmax in connection with the
Merger or any other contemplated or completed business transaction. Therefore,
in arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to any alternative transaction.
We will receive a fee for our services performed in connection with the delivery
of our opinion. Our opinion, as expressed herein, is provided for the
information of the Board of Directors of AGSI in its evaluation of the
<PAGE>
proposed Merger. Our opinion may not be used circulated, quoted or otherwise
referred to, whether in a registration statement, prospectus, proxy statement
or other document, or used for any other purpose without our prior written
consent. Our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on
the proposed Merger.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, and after considering such other matters as we
deemed relevant, we are of the opinion that as of the date hereof the per share
consideration to be received by the stockholders of AGSI pursuant to the Merger
Agreement is fair from a financial point of view to the holders of the AGSI
Common Stock.
Very truly yours,
The GulfStar Group, Inc.
<PAGE>
APPENDIX D
NOTICE OF APPRAISAL RIGHTS
Set forth below is a reproduction of Section 262 of the Delaware General
Corporation Law (the "DGCL"). All section references below are to applicable
sections of the DGCL.
262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the marking of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock' and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" means a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 o4 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to Sections
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository receipts
at the effective date of the merger or consolidation will be either listed
on a national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware corporation.
(d) Appraisal rights shall be perfected as follows:
<PAGE>
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
his shares shall deliver to the corporation, before the taking of the vote on
the merger or consolidation, a written demand for appraisal of his shares. A
proxy or vote against the merger or consolidation shall not constitute such a
demand. A stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective date of
such merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied with
this subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within twenty days after the date
of mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be PRIMA FACIE
evidence of the facts stated herein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given; provided that, if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stockholders. Notwithstanding the foregoing,
at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement
shall be mailed to the stockholder within 10 days after his written request for
such a statement is received by the surviving or resulting corporation or within
10 days after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares
<PAGE>
have not been reached by the surviving or resulting corporation. If the
petition shall e filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and place
fixed for the hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on the list
at the addresses therein stated. Such notice shall also be given by 1 or
more publications at least 1 week before the day of hearing, in a newspaper
of general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail
and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair
rate of interest, the Court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon application by
the surviving or resolution corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this section
and who has submitted his certificates of stock to the Registry in Chancery, if
such is required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
expenses of experts, to be charged pro rata against the value of all the shares
entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
<PAGE>
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The by-laws of Canmax provide for the indemnification of an individual made
a party to any proceeding because he or she is a director, officer, employee or
agent of Canmax against liability incurred in the proceeding if (i) he or she
conducted himself or herself in good faith; (ii) he or she reasonably believed
that his or her conduct was in or at least not opposed to the best interest of
Canmax; and (iii) in the case of any criminal proceeding, he or she had no
reasonable cause to believe his or her conduct was unlawful. Insofar as
indemnification for liabilities arising under the Securities Act may be
committed to directors or persons controlling Canmax, Canmax has been informed
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and it is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
The following is a list of all exhibits filed as part of this Registration
Statement on Form S-4, including those incorporated herein by reference.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
2.1 Amended and Restated Agreement and Plan of
Merger dated June 16, 1997 by and among Canmax,
Inc., ("Canmax") Canmax Retail Systems, Inc.
("CRSI") and Auto-Gas Systems, Inc. (included
as APPENDIX A to this Joint Proxy
Statement/Prospectus that forms a part of this
Registration Statement)
3.1 Articles of Incorporation (file as of Exhibit
3.01 to Canmax's Registration Statement on Form
10, File No. 0-22636 (the "Form 10"), and
incorporated herein by reference)
3.2 Bylaws (filed as Exhibit 3.02 to the Form 10
and incorporated herein by reference)
4.1 Registration Rights Agreement between Canmax
and the Dodge Jones Foundation (filed as
Exhibit 4.02 to Canmax's Quarterly Report on
Form 10-Q for the period ended April 30, 1997
and incorporated herein by reference)
4.2 Registration Rights Agreement between Canmax
and Founders Equity Group, Inc. (filed as
Exhibit 4.02 to Canmax's Quarterly Report on
Form 10-Q for the period ended April 30, 1997
and incorporated herein by reference).
4.3 Amended Stock Option Plan (filed as Exhibit
10.08 to Canmax's Quarterly Report on Form 10-Q
for the period ended July 31, 1996 and
incorporated herein by reference).
5* Opinion of Arter & Hadden (including the
consent of such firm) regarding legality of
securities being offered.
8* Opinion of Gibson, Dunn & Crutcher, L.L.P.
regarding certain United States federal income
tax consequences.
10.1 Master Agreement for Computer Software
Development, License and Maintenance between
CRSI and The Southland Corporation (filed as
Exhibit 10.05 to the Form 10 and incorporated
herein by reference).
II-1
<PAGE>
10.2** Software Development Agreement dated July 1,
1996 between NCR Corporation and CRSI (filed as
Exhibit 10.09 to Canmax's Annual Report on Form
10-K for the period ended October 31, 1996).
23.1* Consent of Arter & Hadden (to be included as a
part of its Opinion filed as Exhibit 5 hereto).
23.2 Consent of Ernst & Young LLP, independent
auditors.
23.3 Consent of Price Waterhouse LLP, independent
accountants.
24.1 Power of Attorney (included on page II-4).
*To be filed by Amendment
**Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission pursuant to
Canmax's Application requesting confidential treatment
under Rule 406 under the Securities Act of 1933, as
amended.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because they are either not applicable or the
required information has been disclosed in the financial information or notes
thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(g) (1) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is part of this Registration Statement, by any person
or party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertake that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (I) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining
II-2
<PAGE>
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising out of the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by each
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit it to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(z) (1) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the Joint Proxy
Statement/Prospectus pursuant to Items 4, 10(b), 11 or 13 of this form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(2) The undersigned Registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the Company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irving, State of Texas,
on the 13th day of August, 1997.
CANMAX INC.
By: /s/ Philip M. Parsons
-----------------------------------
Name: Philip M. Parsons
-----------------------------------
Title: Executive Vice President
Chief Financial Officer
-----------------------------------
POWER OF ATTORNEY
We, the undersigned directors and officers of Canmax Inc., do hereby
consent and appoint Roger D. Bryant and Philip M. Parsons, or either of them,
our true and lawful attorneys and agent, to do any and all acts and things in
our name and on our behalf in our capacities as directors and officers and to
execute any and all instruments for us and in our names in the capacities
indicated below, which said attorneys and agents, or either of them, may deem
necessary or advisable to enable said Corporation to comply with the Securities
Act of 1933 and any rules, regulations and requirement of the Securities and
Exchange Commission, in connection with this Registration Statement, including
specifically, but without limitation, the power and authority to sign for us or
any of us in our names and in the capacities indicated below, and any and all
amendments (including post-effective amendments) hereto; and we do hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on the 13th day of August, 1997, by the
following persons in the capacities indicated:
/s/ Roger D. Bryant
- -------------------------- President,
Roger D. Bryant Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Philip M. Parsons
- -------------------------- Executive Vice President, Chief
Philip M. Parsons Financial Officer and Director
(Principal Financial and Accounting Officer)
/s/ Debra L. Burgess
- -------------------------- Executive Vice President,
Debra L. Burgess Chief Operating Officer and Director
II-4
<PAGE>
- -------------------------- Director
Nick DeMare
/s/ Robert M. Fidler
- -------------------------- Director
Robert M. Fidler
- -------------------------- Director
W. Thomas Rinehart
- -------------------------- Director
C. William Robertson
II-5
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
2.1 Amended and Restated Agreement and Plan of
Merger dated June 16, 1997 by and among Canmax,
Inc., ("Canmax") Canmax Retail Systems, Inc.
("CRSI") and Auto-Gas Systems, Inc. (included
as APPENDIX A to this Joint Proxy
Statement/Prospectus that forms a part of this
Registration Statement)
3.1 Articles of Incorporation (file as of Exhibit
3.01 to Canmax's Registration Statement on Form
10, File No. 0-22636 (the "Form 10"), and
incorporated herein by reference)
3.2 Bylaws (filed as Exhibit 3.02 to the Form 10
and incorporated herein by reference)
4.1 Registration Rights Agreement between Canmax
and the Dodge Jones Foundation (filed as
Exhibit 4.02 to Canmax's Quarterly Report on
Form 10-Q for the period ended April 30, 1997
and incorporated herein by reference)
4.2 Registration Rights Agreement between Canmax
and Founders Equity Group, Inc. (filed as
Exhibit 4.02 to Canmax's Quarterly Report on
Form 10-Q for the period ended April 30, 1997
and incorporated herein by reference).
4.3 Amended Stock Option Plan (filed as Exhibit
10.08 to Canmax's Quarterly Report on Form 10-Q
for the period ended July 31, 1996 and
incorporated herein by reference).
5* Opinion of Arter & Hadden (including the
consent of such firm) regarding legality of
securities being offered.
8* Opinion of Gibson, Dunn & Crutcher, L.L.P.
regarding certain United States federal income
tax consequences.
10.1 Master Agreement for Computer Software
Development, License and Maintenance between
CRSI and The Southland Corporation (filed as
Exhibit 10.05 to the Form 10 and incorporated
herein by reference).
10.2** Software Development Agreement dated July 1,
1996 between NCR Corporation and CRSI (filed as
Exhibit 10.09 to Canmax's Annual Report on Form
10-K for the period ended October 31, 1996).
23.1* Consent of Arter & Hadden (to be included as a
part of its Opinion filed as Exhibit 5 hereto).
23.2 Consent of Ernst & Young LLP, independent
auditors.
23.3 Consent of Price Waterhouse LLP, independent
accountants.
24.1 Power of Attorney (included on page II-4).
*To be filed by Amendment
**Portions of this Exhibit were omitted and have been filed
separately with the Secretary of the Commission pursuant to
Canmax's Application requesting confidential treatment
under Rule 406 under the Securities Act of 1933, as
amended.
II-6
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated December 19, 1996, included in the Joint Proxy
Statement/Prospectus of Canmax, Inc. that is made a part of the Registration
Statement on Form S-4 and Prospectus of Canmax Inc. for the registration of
6,700,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
Dallas, Texas
August 8, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Joint Proxy Statement/Prospectus
constituting part of the Registration Statement on Form S-4 of
Canmax, Inc. of our report dated November 8, 1996 relating to the
financial statements of Auto-Gas Systems, Inc., which appears in such
Joint Proxy Statement/Prospectus. We consent to the reference to us
under the heading "Experts" in such Joint Proxy Statement/Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
FT. WORTH, TEXAS
AUGUST 12, 1997