<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(A) of
the Securities Exchange Act of 1934 (Amendment No. 2)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
CANMAX INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$7,625,000
-----------------------------------------------------------------------
(5) Total fee paid:
$1,525
-----------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
CANMAX INC.
150 WEST CARPENTER FREEWAY
IRVING, TX 75039
------------------------
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 7, 1998
------------------------
To the Shareholders of
CANMAX INC.:
NOTICE IS HEREBY given that the 1998 Annual Meeting of Shareholders (the
"Meeting") of Canmax Inc. (the "Company") will be held at Summerfield Suites,
5901 N. MacArthur, Irving, TX 75039 on December 7, 1998 at 10:00 a.m., for the
following purposes:
1. To elect 5 Directors to serve until the 1999 Annual Meeting of
Shareholders and until their successors are duly elected and qualified;
2. To consider and vote upon a proposal to approve and adopt the sale for
cash (the "Proposed Sale") to Affiliated Computer Services, Inc., a
Delaware corporation (the "Buyer"), of substantially all of the assets
and certain liabilities of Canmax Retail Systems, Inc. ("CRSI"), a
wholly-owned subsidiary of the company which develops and provides retail
automation software to the convenience store and retail petroleum market
(the "Software Business") pursuant to an Asset Purchase Agreement, dated
as of September 3, 1998, among the Company, CRSI and the Buyer (as
amended, the "Agreement"), the full text of which is attached as EXHIBIT
A to the accompanying proxy statement.
3. To approve the merger of the Company into a wholly-owned subsidiary of
the Company to be organized under the laws of the State of Delaware
("Canmax-Delaware") in order to effect the change of the Company's state
of incorporation from Wyoming to Delaware (the "Reincorporation"),
pursuant to an Agreement and Plan of Merger in the form attached as
EXHIBIT C to the accompanying proxy statement (the "Reincorporation
Merger Agreement"). Upon the consummation of the Reincorporation, the
Company shall continue its operations as a Delaware corporation under a
commercially attractive name to be selected by the Board of Directors for
Canmax-Delaware prior to the Reincorporation.
4. In connection with the Reincorporation to approve and adopt provisions
of the Certificate of Incorporation of Canmax-Delaware ("Delaware
Certificate") in the form attached as EXHIBIT D to the attached proxy
statement which provisions would (i) authorize up to 10 million shares of
a new class of undesignated Preferred Stock ("Blank Check Preferred
Stock"), which would allow the Board of Directors of the Company to
issue, without further shareholder action, one or more series of
Preferred Stock, ("Delaware Certificate Proposal One") (ii) require that
all shareholder actions be taken at a shareholders meeting ("Delaware
Certificate Proposal Two") (iii) provide that officers and directors of
the company shall receive indemnification from the Company to the fullest
extent permitted by Delaware law ("Delaware Certificate Proposal Three");
and (iv) require the vote of the holders of 66 2/3% of the voting power
of the Company to amend the provisions of (ii) and (iii) above, or to
amend or repeal the Delaware Bylaws, if shareholders ever seek to amend
the Delaware Bylaws ("Delaware Certificate Proposal Four", and together
with the foregoing proposals the "Delaware Certificate Proposals"). In
addition, shareholders will be asked to consider and adopt the bylaws of
Canmax-Delaware in the form attached as EXHIBIT E to the attached Proxy
Statement ("Delaware Bylaws Proposal").
5. To consider and act upon a proposal to ratify the selection of King,
Griffin & Adamson P.C., to serve as independent auditors for its current
fiscal year; and
<PAGE>
6. To transact such other business as may properly come before the Meeting
or any adjournments thereof.
The Board of Directors has fixed the close of business on September 28, 1998
as the record date for the determination of Shareholders entitled to notice of
and to vote at the Meeting or any adjournments thereof.
A list of shareholders of the Company entitled to notice of and to vote at
the Meeting will be available for examination at the Meeting and during ordinary
business hours from November 19, 1998 to the date of the Meeting at the
principal offices of the Company at the address set forth above.
Approval of the Proposed Sale, the Reincorporation and the adoption of each
of the Delaware Certificate Proposals and the Delaware Bylaws Proposal requires
the affirmative vote of the holders of a majority of the outstanding Common
Stock of the Company.
You are cordially invited to attend the Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING REGARDLESS OF
THE NUMBER OF SHARES YOU HOLD. YOU ARE INVITED TO ATTEND THE MEETING IN PERSON,
BUT WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE. IF YOU DO ATTEND THE MEETING,
YOU MAY, IF YOU PREFER, REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON.
By Order of the Board of Directors,
/s/ Debra L. Burgess
Debra L. Burgess
SECRETARY
November 17, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTRODUCTION............................................................................................... 1
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS............................................................ 1
THE MEETING................................................................................................ 2
Time, Date and Place of Meeting.......................................................................... 2
Purpose of the Meeting; Recommendation of the Board of Directors......................................... 2
Record Date and Outstanding Shares....................................................................... 3
Intentions to Vote....................................................................................... 3
Voting of Proxies; Revocation............................................................................ 3
Vote Required; Dissenters Rights......................................................................... 3
Proxy Solicitation and Expenses.......................................................................... 4
ELECTION OF DIRECTORS AND MANAGEMENT INFORMATION........................................................... 4
Roger D. Bryant........................................................................................ 4
Debra L. Burgess....................................................................................... 5
W. Thomas Rinehart..................................................................................... 5
Robert M. Fidler....................................................................................... 5
Nick DeMare............................................................................................ 5
Meetings of the Board of Directors....................................................................... 5
Committees Of The Board Of Directors..................................................................... 5
Compensation Of Directors................................................................................ 6
Significant Employees.................................................................................... 6
Lynn G. Chianese....................................................................................... 6
Ivor J. Flannery....................................................................................... 6
Richard Stephens....................................................................................... 6
Scott R. Matthews...................................................................................... 6
Michael C.F. McQuarrie................................................................................. 6
Security Ownership Of Certain Beneficial Owners, Directors And Management................................ 7
Certain Relationships And Related Transactions........................................................... 8
Executive Compensation................................................................................... 10
Employment And Change Of Control Agreements.............................................................. 11
Stock Options............................................................................................ 13
Option Grants In Last Fiscal Year........................................................................ 14
Compensation Committee Interlocks And Insider Participation.............................................. 15
Compensation Committee Report............................................................................ 15
Determination Of CEO And Executive Officer Compensation.................................................. 16
Stock Performance Graph.................................................................................. 17
Compliance With Section 16(a) of the Exchange Act........................................................ 18
THE PROPOSED SALE.......................................................................................... 18
General.................................................................................................. 18
Canmax................................................................................................... 18
Use of Proceeds; Plans for Future Operations After the Proposed Sale..................................... 19
Affiliated Computer Services, Inc........................................................................ 20
Background of the Proposed Sale.......................................................................... 20
The Company's Reasons for the Proposed Sale; Recommendation of the Board of Directors.................... 22
Regulatory Approvals..................................................................................... 23
Material Federal Income Tax Consequences................................................................. 23
Accounting Treatment..................................................................................... 23
Expenses and Other Fees.................................................................................. 23
THE AGREEMENT.............................................................................................. 23
Purchase Price; Deferred Payments; Net Working Capital Adjustment........................................ 23
The Closing.............................................................................................. 25
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Purchased Assets and Assumed Liabilities................................................................. 25
Representations and Warranties........................................................................... 26
Indemnification.......................................................................................... 26
Conditions of the Proposed Sale.......................................................................... 27
No Shop Provisions....................................................................................... 27
Covenants Pending Closing................................................................................ 27
Termination.............................................................................................. 28
REINCORPORATION PROPOSAL................................................................................... 29
General.................................................................................................. 29
Principal Features Of The Reincorporation And The Merger................................................. 29
Principal Reasons for the Reincorporation................................................................ 30
Possible Disadvantages of Reincorporation................................................................ 32
ADOPTION OF DELAWARE CERTIFICATE PROPOSALS AND DELAWARE BYLAWS PROPOSAL.................................... 32
DELAWARE CERTIFICATE PROPOSAL ONE: AUTHORIZATION OF BLANK CHECK PREFERRED.................................. 33
General.................................................................................................. 33
Principal Reasons for Authorization...................................................................... 33
Possible Disadvantages of Authorization.................................................................. 33
DELAWARE CERTIFICATE PROPOSAL TWO: ELIMINATION OF SHAREHOLDER CONSENTS..................................... 34
General.................................................................................................. 34
Reasons for Proposal..................................................................................... 34
Possible Disadvantages of Proposal....................................................................... 34
DELAWARE CERTIFICATE PROPOSAL THREE: INDEMNIFICATION....................................................... 34
General.................................................................................................. 34
Reasons for Proposal..................................................................................... 34
Possible Disadvantages of Proposal....................................................................... 35
DELAWARE CERTIFICATE PROPOSAL FOUR: SUPERMAJORITY VOTING REQUIREMENTS TO AMEND OR REPEAL CERTAIN PROVISIONS
OF THE CERTIFICATE OF INCORPORATION OR BYLAWS............................................................ 35
General.................................................................................................. 35
Reasons for Proposal..................................................................................... 35
Possible Disadvantages of Proposal....................................................................... 35
DELAWARE BYLAWS PROPOSAL................................................................................... 36
General.................................................................................................. 36
Delaware Bylaws; Call of Special Meeting of Shareholders................................................. 36
Delaware Bylaws; Advance Notice Requirement to Present Proposals at an Annual Meeting of Shareholders.... 36
Delaware Bylaws; Advance Notice Requirement to Nominate Individuals for Directorships.................... 37
INTERESTED PARTIES......................................................................................... 37
AMENDMENT, DEFERRAL OR TERMINATION OF THE REINCORPORATION MERGER AGREEMENT................................. 37
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION..................................................... 38
DISSENTERS' RIGHTS......................................................................................... 38
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS...................................... 39
Market for Common Stock.................................................................................. 39
Market Prices Of Canmax Common Stock..................................................................... 39
Dividends................................................................................................ 40
Holders of Records....................................................................................... 40
COMPARATIVE PER SHARE DATA................................................................................. 41
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
BOOK VALUE PER SHARE....................................................................................... 42
PRO FORMA SELECTED FINANCIAL DATA.......................................................................... 43
SELECTED CONSOLIDATED FINANCIAL DATA....................................................................... 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 45
General.................................................................................................. 45
Results Of Operations--1997 Versus 1996.................................................................. 46
Revenue................................................................................................ 46
Gross Margin........................................................................................... 46
Expenses............................................................................................... 47
Results Of Operations--1996 Versus 1995.................................................................. 48
Revenue................................................................................................ 48
Gross Margin........................................................................................... 48
Expenses............................................................................................... 49
Results Of Operations for Periods Ended July 31, 1997 and 1998........................................... 49
Revenue................................................................................................ 51
Expenses............................................................................................... 52
USCommunications....................................................................................... 52
Liquidity And Sources Of Capital......................................................................... 53
Product Development.................................................................................... 54
Acquisitions........................................................................................... 54
Significant Customers.................................................................................. 54
Nasdaq Delisting....................................................................................... 55
New Accounting Standards............................................................................... 55
Impact of Year 2000.................................................................................... 56
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS.......................................................... 56
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................................................... 58
SHAREHOLDER PROPOSALS...................................................................................... 58
OTHER MATTERS.............................................................................................. 58
INDEX TO FINANCIAL STATEMENTS.............................................................................. F-1
APPENDICES
A. ASSET PURCHASE AGREEMENT
B. COMPARISON OF WYOMING AND DELAWARE CORPORATION LAW
C. AGREEMENT AND PLAN OF MERGER (REINCORPORATION)
D. CERTIFICATE OF INCORPORATION
E. BYLAWS
F. WYOMING DISSENTERS' STATUTES
</TABLE>
iii
<PAGE>
PROXY STATEMENT
---------------------
CANMAX INC.
150 WEST CARPENTER FREEWAY
IRVING, TEXAS 75039
------------------------
1998 ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 7, 1998
------------------------
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Canmax Inc., a Wyoming
corporation (the "Company" or "Canmax"), for use at the 1998 Annual Meeting of
Shareholders (the "Meeting") to be held at 10:00 A.M., on December 7, 1998 at
Summerfield Suites, 5901 N. MacArthur, Irving, TX 75039, and at any adjournments
thereof.
This Proxy Statement, the accompanying proxy card and the Annual Report of
the Company are first being mailed on or about November 17, 1998, to all
shareholders of the Company. Although the Annual Report and this Proxy Statement
are being mailed together, the Annual Report shall not be deemed a part of this
Proxy Statement.
At the Meeting, the Company's Shareholders will elect directors of the
Company to serve until the next annual meeting of Shareholders and will consider
and vote upon a proposal to sell (the "Proposed Sale"), for an initial payment
of $4.0 million plus deferred payments of up to $3.625 million (which the
Company estimates will be at least $3.0 million), substantially all of the
assets of the Company's wholly-owned subsidiary Canmax Retail Systems, Inc.
("CRSI") through which the Company develops retail automation software (the
"Software Business"), a proposal to reincorporate the Company in Delaware (the
"Reincorporation") and certain proposals to adopt provisions of the Certificate
of Incorporation of Canmax-Delaware (the "Delaware Certificate") and Bylaws of
Canmax-Delaware (the "Delaware Bylaws").
The Board of Directors of the Company has approved the Proposed Sale, the
Reincorporation, each proposal to adopt provisions of the Delaware Certificate
and the Delaware Bylaws Proposal and recommends that holders of Common Stock
vote FOR the approval of the Proposed Sale, the Reincorporation, each Delaware
Certificate Proposal and the Delaware Bylaws Proposal.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements including
statements containing the words "believes," "anticipates," "expects" and words
of similar import. These statements involve known and unknown risks and
uncertainties that may cause the Company's actual results or outcomes to be
materially different from those anticipated and discussed herein. Important
factors that the Company believes might cause such differences are discussed in
the cautionary statements accompanying the forward-looking statements in this
Proxy Statement. In assessing forward-looking statements contained herein,
readers are urged to read carefully all cautionary statements contained in this
Proxy Statement.
1
<PAGE>
THE MEETING
TIME, DATE AND PLACE OF MEETING
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Directors of the Company for use at the Meeting of
Shareholders to be held at 10:00 a.m. on December 7, 1998 at Summerfield Suites,
5901 N. MacArthur, Irving, TX 75039.
PURPOSE OF THE MEETING; RECOMMENDATION OF THE BOARD OF DIRECTORS
At the Meeting, the Company's Shareholders will elect directors of the
Company to serve until the next annual meeting of Shareholders.
At the Meeting, holders of the Company's Common Stock will be asked to
consider and vote upon the Proposed Sale to Affiliated Computer Services, Inc.
("Buyer") of substantially all of the assets of the Company's Software Business
pursuant to the terms of the Agreement. See "The Proposed Sale." A copy of the
executed Agreement is included in this Proxy Statement as EXHIBIT A. The
Agreement provides for the sale of the Software Business for $4.0 million in
cash plus up to an additional $3.625 million in cash contingent upon the future
revenues arising from the Software Business. The Agreement contains customary
representations and warranties by the Company, and restricts the ability of the
Company to consider other offers, other than certain offers believed by the
Board of Directors to be more favorable from a financial point of view than the
offer contemplated by the Agreement (a "Superior Proposal"). If the Agreement is
terminated as the result of the Board's recommendation of a Superior Proposal
that is consummated within nine months of the date of termination, the Company
has agreed to pay to Buyer a fee of $300,000.
Upon the consummation of the Proposed Sale, the Company's business
operations will be concentrated in the telecommunications industry and will
initially be comprised of its current business of selling prepaid long distance
telephone cards. Following the consummation of the Proposed Sale, the Company
will no longer participate in the retail software industry. See "Use of
Proceeds; Plans for Future Operations After the Proposed Sale."
THE BOARD OF DIRECTORS HAS APPROVED THE PROPOSED SALE AND RECOMMENDS A VOTE FOR
APPROVAL OF THE PROPOSED SALE.
At the Meeting, holders of the Company's Common Stock will consider and act
upon a proposal to merge the Company into a wholly-owned subsidiary of the
Company to be formed under the laws of the State of Delaware ("Canmax-Delaware")
pursuant to the Reincorporation Agreement attached as EXHIBIT C and to approve
the Delaware Certificate and the Delaware Bylaws attached as EXHIBITS D and E.
The proposed Delaware Certificate (i) authorizes the creation of a new class of
Preferred Stock of the Company (ii) requires that all shareholder action be
taken at a shareholders meeting (iii) provides that officers and directors of
the Company shall receive indemnification to the fullest extent permitted by
Delaware Law, and (iv) requires the vote of the holders of 66- 2/3% of the
voting power of the Company to amend (ii) or (iii) above or to amend the Bylaws
if shareholders seek to amend the Bylaws. Shareholders are being asked to
approve each of these proposals (the "Delaware Certificate Proposals") and to
adopt the Delaware Bylaws. The Reincorporation and adoption of the Delaware
Certificate and Bylaws involve many changes to the rights of Shareholders, which
changes are set forth under the caption "The Reincorporation Proposal" and in
the "Comparison of Wyoming and Delaware Corporate Law" attached as EXHIBIT B to
this Proxy Statement which Shareholders are encouraged to read in its entirety.
THE BOARD OF DIRECTORS HAS APPROVED THE REINCORPORATION AND RECOMMENDS A VOTE
FOR APPROVAL OF THE REINCORPORATION.
THE BOARD OF DIRECTORS HAS APPROVED THE ADOPTION OF EACH THE CERTIFICATE
PROPOSALS AND THE BYLAWS PROPOSAL AND RECOMMENDS A VOTE FOR EACH OF THESE
PROPOSALS.
2
<PAGE>
At the Meeting, the Company's Shareholders will be asked to consider and
vote upon the a proposal to ratify the Board of Directors selection of
independent auditors to serve the Company in its current fiscal year.
RECORD DATE AND OUTSTANDING SHARES
The Board of Directors of the Company has fixed the close of business on
September 28, 1998 as the record date (the "Record Date") for the determination
of shareholders entitled to notice of, and to vote at, the Meeting or any
adjournment thereof. Accordingly, only holders of record of the Company's Common
Stock, no par value per share (the "Common Stock"), at the close of business on
the Record Date will be entitled to vote at the Meeting, either by proxy or in
person. As of the Record Date, there were 6,611,005 shares of Common Stock of
the Company outstanding. Each share of Common Stock entitles the holder to one
vote. There is no cumulative voting and there are no other voting securities of
the Company outstanding.
INTENTIONS TO VOTE
The members of the Board of Directors of the Company, which hold an
aggregate of 13.2% of the outstanding shares of Common Stock of the Company (or
988,280 shares, assuming the exercise in full of outstanding warrants and
options to acquire shares of Company common stock exercisable on or before
December 22, 1998), have indicated to the Company that they intend to vote their
shares in favor of the Proposed Sale, the Reincorporation, each of the Delaware
Certificate Proposals and the Delaware Bylaws Proposal. See "Ownership of Common
Stock by Management."
VOTING OF PROXIES; REVOCATION
All properly executed proxies received by the Company prior to the Meeting
and not revoked will be voted in accordance with the instructions marked
thereon. Unless instructions to the contrary are marked thereon, proxies will be
voted "FOR" the election as directors of those persons named below, "FOR" the
Proposed Sale, "FOR" the Company's proposed merger into Canmax-Delaware, "FOR"
the adoption of each of the Delaware Certificate Proposals, "FOR" the adoption
of the Delaware Bylaws Proposal and "FOR" the ratification of the Board of
Directors' selection of independent auditors for the Company's current fiscal
year. The Board of Directors of the Company knows of no business other than that
mentioned herein, which will be presented for consideration at the Meeting. If
any material other matters are presented at the Meeting, the Company intends to
resolicit proxies. If any nonmaterial other matter is properly presented, the
proxy holders will be entitled to vote on any such other matters properly
presented to the Meeting and it is the intention of the persons named in the
enclosed proxy to vote in accordance with their best judgment. Any shareholder
may revoke his or her proxy at any time prior to the exercise thereof by giving
written notice to the Secretary of the Company at the Company's address
indicated above, by submitting a duly executed proxy bearing a later date, or by
attending the Annual Meeting and expressing a desire to vote in person.
Attendance at the Meeting will not, in itself, constitute revocation of a proxy.
VOTE REQUIRED; DISSENTERS RIGHTS
Pursuant to the Bylaws of the Company, the Proposed Sale, Reincorporation
and Delaware Certificate Proposals must be approved by the affirmative vote of
the holders of a majority of the outstanding shares of Common Stock. Abstentions
and broker non-votes will have the effect of a "no" vote with respect to the
approval of these proposals. Pursuant to the Wyoming Business Corporation Act
(the "WBCA"), holders of Company Common Stock who do not vote in favor of the
proposals and comply with the detailed provisions contained in Article 13 of the
WBCA will be entitled to dissent and seek the payment of the fair value of their
shares of Canmax-Wyoming. See "Dissenters Rights." A copy of Article 13 of the
WBCA is reproduced as EXHIBIT F to this Proxy Statement. Shareholders wishing to
dissent should read such materials carefully. A vote for the proposals will
result in a waiver of any shareholder's dissenters' rights. A vote against the
proposals without otherwise complying with the additional notice and other
3
<PAGE>
provisions of Article 13 of the WBCA will not effectively exercise a dissenting
shareholder's dissenters' rights. BECAUSE AN EXECUTED PROXY CARD WILL BE VOTED
FOR THE APPROVAL AND ADOPTION OF THE PROPOSALS UNLESS OTHERWISE SPECIFIED, A
SHAREHOLDER RETURNING A SIGNED BUT UNMARKED PROXY CARD WILL WAIVE HIS OR HER
RIGHT TO DISSENT FROM THE PROPOSALS.
PROXY SOLICITATION AND EXPENSES
The accompanying proxy is being solicited on behalf of the Board of
Directors of the Company. All expenses of this solicitation, including the cost
of preparing, assembling, and mailing this proxy soliciting material and Notice
of Meeting of Shareholders, will be paid by the Company. Solicitation of holders
of Common Stock by mail, telephone, facsimile or by personal solicitation may be
done by directors, officers and regular employees of the Company, for which they
will receive no additional compensation. Brokerage houses and other nominees,
fiduciaries and custodians nominally holding shares of Common Stock as of the
Record Date will be requested to forward proxy soliciting material to the
beneficial owners of such shares, and will be reimbursed by the Company for
their reasonable out-of-pocket expenses.
ELECTION OF DIRECTORS AND MANAGEMENT INFORMATION
Five directors are to be elected at the Meeting, to serve until the
Company's next annual meeting of shareholders and until their respective
successors are elected and qualified, or until their earlier resignation or
removal. Each of the nominees listed below currently serves as a director of the
Company and was elected to the Board of Directors at the Company's 1997 Annual
Meeting of Shareholders. Under the Bylaws of the Company and consistent with
Wyoming law, directors shall be elected by plurality vote at each annual meeting
of shareholders and, accordingly, abstentions and "broker non-votes" will have
no effect on the election of directors. A broker non-vote occurs if a broker or
other nominee does not have discretionary authority and has not received
instructions with respect to a particular item. Shareholders may not cumulate
their votes in the election of directors.
Unless authority to vote for one or more nominees is withheld, the enclosed
proxy will be voted "FOR" the election of all of the nominees listed below.
Although the Board of Directors does not contemplate that any of the nominees
will be unable to serve, if such a situation arises prior to the Meeting, the
persons named in the enclosed proxy will vote for the election of such other
person(s) as may be nominated by the Board of Directors.
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 Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------------- --- ---------------------------------------------------------------
<S> <C> <C>
Roger D. Bryant............................ 55 President, Chief Executive Officer, and Director
Debra L. Burgess........................... 40 Executive Vice President, Chief Operating Officer, Secretary
and Director
W. Thomas Rinehart......................... 57 Director
Robert M. Fidler........................... 59 Director
Nick DeMare................................ 43 Director
</TABLE>
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), 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 currently serves as a director of Field Point
Petroleum Corporation. 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.
4
<PAGE>
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 also serves as the Company's Chief
Financial Officer. 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.
W. THOMAS RINEHART has served as a director of Canmax 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.
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 1994 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.
NICK DEMARE, has served as a director of Canmax since January 1991. Since
May, 1991, Mr. DeMare has been the President and Chief Financial Officer of
Chase Management Ltd., where his overall responsibility includes providing a
broad range of administrative, management and financial services to private and
public companies with varied interests in mineral exploration and development,
precious and base metals production, oil and gas, venture capital and computer
software. Mr. DeMare has served and continues to serve on the boards of a number
of Canadian public companies and on the board of directors of North Lily Mining
Co., a mining company. Mr. DeMare is a Chartered Accountant (Canada).
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors held nine meetings during the fiscal year ended
October 31, 1997. The Board of Directors has two standing committees: an Audit
Committee and a Compensation Committee. There is no standing nominating
committee. Each of the directors attended at least 75% of the meetings of the
Board of Directors and any committee on which such director served.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit and Compensation Committee for 1997 each consisted of Nick DeMare,
Robert M. Fidler, W. Thomas Rinehart and Gerald R. Seay through April 21, 1997,
at which time the Board of Directors elected to have each such committee
comprised of two members.
From April 21, 1997 through the remainder of the Company's 1997 fiscal year,
the Audit Committee consisted of Nick DeMare and C. William Robertson. The Board
of Directors appointed John Melideo as a member of the Audit Committee to
succeed Mr. Robertson following Mr. Robertson's resignation from the Company's
Board of Directors on January 30, 1998. Mr. Melideo was appointed as a director
pursuant to the terms of the Agreement and Plan of Merger (the "USC Merger
Agreement") among the Company, a wholly owned subsidiary of the Company and
USCommunication Services, Inc. ("USC") dated January 30, 1998, and resigned as a
director and member of the audit committee on June 15, 1998 upon the rescission
of the USC Merger Agreement. On July 1, 1998, Mr. Rinehart joined Mr. DeMare as
a member of the Audit Committee. The Audit Committee makes recommendations to
the Board of Directors or Management concerning the engagement of the Company's
independent public accountants and matters relating to the Company's financial
statements, the Company's accounting principles and its system of internal
accounting controls. The Audit Committee also reports its recommendations to the
Board of Directors as to the approval of the financial statements of the
Company. Two meetings of the Audit Committee were held during the fiscal year
ended October 31, 1997.
5
<PAGE>
The Compensation Committee consists of Robert M. Fidler and W. Thomas
Rinehart. The Compensation Committee is responsible for considering and making
recommendations to the Board of Directors regarding executive compensation and
is also responsible for administration of the Company's stock option and
executive incentive compensation plans. Three meetings of the Compensation
Committee were held during the fiscal year ended October 31, 1997.
COMPENSATION OF DIRECTORS
Each director who is not an officer of the Company receives a fee of $1,500
for each Board meeting attended in person. Directors are not compensated for
attending committee meetings or participating in meetings by telephone. Further,
all directors participate in the Company's Stock Option Plan and are awarded
non-qualified stock options for 5,000 shares of Common Stock for service on the
Board of Directors.
SIGNIFICANT EMPLOYEES
A brief description of the business experience and position of certain
significant employees of the Company and its subsidiaries who are not also
directors is provided below.
LYNN G. CHIANESE is Vice President of Customer Services of Canmax Retail
Systems Inc., ("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.
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 RIM Technology, a
software development company which developed point of sale systems for the
retail petroleum industry.
RICHARD STEPHENS is Vice President of Development of CRSI and has served in
that capacity since April 1995. Previously, he spent seven years with the Wayne
Division of Dresser Industries Inc., a manufacturer of fuel dispensing
equipment, as Manager--Systems Software, responsible for developing point of
sale systems and applications.
SCOTT R. MATTHEWS is Vice President of Telecommunications Development/Sales
and Marketing and has served in that capacity since April 1998. From February
1996 to March 1998, Mr. Matthews was the Vice President of Sales and Marketing
at Galaxy Communications, Inc., a telecommunications company. Mr. Matthews
previously served as the Director of Sales of ATCALL, Inc., a telecommunications
company.
MICHAEL C.F. MCQUARRIE is the Vice President of Professional Services and
has served in that capacity since March of 1998. Since 1997, Mr. McQuarrie has
also been responsible for overseeing the development of CRSI's Windows NT based
software products. Mr. McQuarrie joined Canmax in 1982 and has held positions of
increasing responsibility.
6
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT
The following table sets forth certain information as of October 22, 1998,
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 and each nominee for election
as a director, (iii) each Named Executive Officer and (iv) all executive
officers and directors of Canmax as a group. 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.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OF CLASS(1)
- ---------------------------------------- -------------- -----------
<S> <C> <C>
Dodge Jones Foundation ................. 1,000,000 15.1%
400 Pine Street, Suite 900
Abilene, Texas 79601
Joseph E. Canon ........................ 1,000,000(2) 15.1%
Dodge Jones Foundation
P.O. Box 176
Abilene, Texas 79601
Founders Equity Group, Inc. ............ 2,788,364(3) 32.7%
2602 McKinney, Suite 220
Dallas, Texas 75204
Thomas J. Spackman, Jr. ................ 2,788,364(4) 32.7%
2602 McKinney, Suite 220
Dallas, TX 75204
Kennedy Capital Management, Inc. ....... 370,184(5) 5.6%
10829 Olive Boulevard
St. Louis, MO 63141
Roger D. Bryant (6) .................... 540,000(7) 7.6%
Nick DeMare ............................ 46,880(8) *
Chase Management
1090 West Georgia Street, Suite 1305
Vancouver, BC V6E 3V7
W. Thomas Rinehart ..................... 101,600(9) 1.5%
700 Freeling Drive
Sarasota, Florida 34242
Debra L. Burgess (6) ................... 274,800(10) 4.0%
Ivor J. Flannery (6) ................... 83,468(11) 1.3%
Robert M. Fidler ....................... 25,000(12) *
987 Laguna Road
Pasadena, California 91105
Richard Stephens (6) ................... 25,000(13) *
All Executive Officers and Directors as 1,096,748(14) 14.5%
a group (10 persons) ...................
</TABLE>
- ------------------------
* Less than 1.0%
(1) Based upon 6,611,005 shares of Canmax Common Stock outstanding as of
October 22, 1998.
7
<PAGE>
(2) Includes 1,000,000 shares held by Dodge Jones Foundation, of which Mr.
Canon serves as the Executive Director. As such, Mr. Canon exercises voting
power over all such shares.
(3) Includes 50,000 shares subject to presently exercisable warrants and
1,875,000 shares subject to presently convertible debentures issued under
the Loan Agreement.
(4) Includes 2,788,364 shares beneficially owned by Founders Equity Group,
Inc., of which Mr. Spackman serves as president. As such, Mr. Spackman
exercises sole voting and dispositive of power over all such shares. The
Schedule 13D filings by Founders identify Mr. Spackman and Scotty D. Cook
as the President and Chairman, respectively, of Founders.
(5) Based upon the Schedule 13G filed on February 10, 1998, which states that
Kennedy Capital Management, Inc. has sole voting power with regard to
350,110 shares and sole dispositive power with regard to 370,184 shares.
(6) The business address for Canmax executives is 150 West Carpenter Freeway,
Irving, Texas 75039.
(7) Includes 290,000 shares of Common Stock which may be acquired through the
exercise of stock options which are exercisable within 60 days of December
22, 1998 ("Vested Options") and 250,000 shares subject to presently
exercisable warrants.
(8) Includes 36,600 Vested Options.
(9) Includes 35,000 Vested Options.
(10) Includes 127,800 Vested Options and 125,000 shares subject to presently
exercisable warrants.
(11) Includes 35,250 Vested Options.
(12) Includes 20,000 Vested Options.
(13) Includes 25,000 Vested Options.
(14) Includes 569,650 Vested Options and 375,000 shares subject to presently
exercisable warrants.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the first quarter of 1995, a director, W. Thomas Rinehart advanced
Canmax $250,000. This advance was unsecured and bore interest at the rate of
10%. The principal balance was due on demand and could be repaid by Canmax from
time to time. Principal payments of $95,765 (together with accrued interest
thereon) 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
Electronic Data Systems ("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 a registration statement
relating to the proposed Merger of Canmax with Auto-Gas Systems, Inc., which
merger was subsequently abandoned. 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 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. The
closing price for Canmax Common Stock on August 25, 1997 was $2.375. In
addition, in May of 1997, Canmax retained Founders to provide advisory services
regarding the proposed Merger with Auto-Gas Systems, Inc., and agreed to pay to
Founders a fee of $25,000 for such services. The fee for such services was
determined by arms'-length negotiations; however, the Company did not solicit
other advisors to provide such services.
8
<PAGE>
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.
On October 30, 1997, a shareholder, Founders Equity Group, Inc.
("Founders"), advanced Canmax $100,000. The advance was unsecured and had an
interest rate of 12%. On November 6, 1997, Canmax repaid principal and interest
of $100,230, which fully satisfied Canmax's obligation.
On December 15, 1997, Canmax executed a convertible loan agreement (the
"Original Agreement") with Founders providing for financing of up to $500,000 at
an interest rate of 10% per annum. Advances under the Original Agreement were
secured by a lien on all of the Company's assets. Indebtedness outstanding under
the Original Agreement was convertible, at the option of Founders, into shares
of Canmax Common Stock at a conversion price of $1.25 per share, subject to
adjustment for certain events, and was redeemable at the option of Canmax at
110% of par. The closing price for Canmax Common Stock on December 12, 1997 was
$1.25.
On February 11, 1998, Canmax and Founders executed a loan commitment letter
(the "Loan Commitment") which provided for a multiple advance loan of up to $2
million upon terms similar to the Original Agreement; however, indebtedness
outstanding under the Loan Commitment was convertible into shares of Canmax
Common Stock at a conversion price equal to the average closing prices of the
Canmax Common Stock over the five-day trading period immediately preceding the
date of each advance. As consideration for the Loan Commitment, Canmax paid a
commitment fee of $10,000. On February 24, 1998, Founders advanced $150,000
under the Loan Commitment which was convertible into shares of Canmax Common
Stock at a conversion price equal to $1.025.
As of March 31, 1998, Founders (and certain of its affiliates) entered into
the First Restated Loan Agreement (the "Loan Agreement") which consolidated all
rights and obligations of Canmax to Founders under the Original Agreement and
the Loan Commitment. Amounts advanced under the Loan Agreement bear interest at
the rate of 12% per annum, are secured by a lien on all of the Company's assets
and are convertible into shares of Canmax Common Stock, at the option of
Founders, at $.80 per share. The closing price of Canmax Common Stock on March
30, 1998 was $.75. On August 25, 1998, Founders agreed to release its lien on
all of the Company's assets upon the consummation of the Proposed Sale. As
consideration for the release, the Company agreed, upon the consummation of the
Proposed Sale, to repay $1.0 million of the $1.5 million currently outstanding
under the Loan Agreement, and to allow Founders to convert the remaining
$500,000 plus all accrued but unpaid interest outstanding under the Loan
Agreement into shares of Canmax Common Stock at a conversion price of $.50 per
share. The closing price of Canmax Common Stock on August 24, 1998 was $.593.
The interest rate, conversion prices and exercise prices for the Company's
various transactions with Founder's were determined by arms'-length
negotiations; however, because of Company's financial position and the timing of
the Company's liquidity needs throughout these periods, as well as the
unavailability of traditional bank financing during these periods, the Company
did not seek alternative sources of financing. The Company believes that the
terms of such financing were fair; however the Company did not make any attempt
to determine whether such terms were comparable to what would have been
obtainable from disinterested, third-parties.
On February 5, 1998, Founders and the Company entered into an agreement
pursuant to which Founders agreed to provide financial advisory and consulting
services to the Company. Founders was publicly known as a significant
shareholder and financial supporter of the Company and was approached by agents
representing Company X (see "the Proposed Sale--Background of the Proposed
Sale") to determine whether the Company would be interested in selling the
Software Business. The Company agreed to retain Founders to assist it in
evaluating such an offer and in negotiating any agreement that might result
therefrom. Under the terms of the agreement, the Company agreed to pay to
Founders a fee equal to 3% of the value of the consideration received in any
sale or merger of any division or subsidiary of the Company. Subsequently, the
Company reestablished discussions with Buyer, and Founders provided advice and
counseling during the negotiation of the Proposed Sale. As a result of this
agreement, Founders will receive $120,000 of the initial proceeds of the
Proposed Sale. Founders has agreed to forego any
9
<PAGE>
further payments that may be attributable to the Company's receipt of deferred
payments in connection with the Proposed Sale. However, Founder's did not
deliver any formal advisory or fairness opinion to the Board. The fee for
Founder's services was determined by arms'-length negotiations; however, the
Company did not solicit other advisors to provide said services and therefore
the Company did not determine whether the fees were comparable to that which
would have been obtainable from disinterested, third-parties.
Upon consummation of the Proposed Sale, a "Change of Control" will have
occurred under the employment agreements with Mr. Bryant and Ms. Burgess, which
entitle them to receive certain benefits upon certain terminations of their
employment following a "Change of Control." These benefits include the
requirement that the Company pay to Mr. Bryant a lump sum payment equal to one
year's base salary (currently $200,000) if he voluntarily terminates his
employment within ninety (90) days following a Change of Control. Mr. Bryant has
informed the Company of his current intent to continue his employment with the
Company. Further, Mr. Bryant would be entitled to receive a lump sum payment
equal to two years base salary and benefits plus an amount equal to any bonuses
pay during the preceding twelve months if he were terminated without "cause"
following a Change of Control. In addition, upon a Change of Control, Ms.
Burgess would be entitled to receive a lump sum payment equal to one year's base
salary (currently $165,000) if she voluntarily terminated her employment within
ninety (90) days following a Change of Control, or a lump sum payment equal to
her base salary and benefits for a period of one year plus an amount equal to
fifty percent (50%) of any bonuses paid during the preceding twelve months if
she were terminated without "cause" following a Change of Control. Ms. Burgess
has informed the Company of her current intent to continue her employment with
the Company. See "Election of Directors and Management Information--Employment
and Change of Control Agreements." In addition, the Board of Directors is
seeking to obtain the approval of the Company's shareholders for the
reincorporation and certain proposals to amend the Company's charter documents.
The approval of these proposals may result in additional indemnification
protections for the Company's directors and officers. Such proposals may also
expand the ability of the Company's Board of Directors to require that potential
acquirers of the Company negotiate with the Board of Directors to consummate an
acquisition or business combination, thereby reducing the likelihood of certain
takeovers or acquisitions that are not approved by the Company's Board of
Directors. These proposals may result in the inability of a potential acquirer
to acquire control the Company and/or replace existing management.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by Canmax and its
subsidiaries during the years ended October 31, 1997, 1996 and 1995 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 $100,000.
10
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) COMPENSATION OPTIONS(#) COMPENSATION(2)
- ------------------------------------ --------- --------- ----------- ------------- ------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Roger D. Bryant .................... 1997 185,000 -- -- 45,000 538
President and CEO 1996 169,750 73,920 18,733(4) 210,000 --
1995 10,000 -- 35,000 --
Debra L. Burgess ................... 1997 140,000 -- -- 35,000 69
Executive Vice President 1996 118,542 40,320 -- 69,000 --
Chief Operating Officer 1995 104,260 4,000 -- 15,800 --
Secretary
Philip M. Parsons (3) .............. 1997 125,000 -- -- 25,000 65
Executive Vice President 1996 108,750 36,960 -- 55,000 --
Chief Financial Officer 1995 36,070 4,000 -- 10,000 --
Treasurer
Ivor Flannery ...................... 1997 110,000 -- -- 23,000 --
Vice President-- 1996 94,050 21,056 -- 15,000 --
Advanced Research (5) 1995 91,055 12,750 -- --
Richard Stephens ................... 1997 110,000 -- -- 15,000 --
Vice President-- 1996 94,000 21,056 -- 20,000 --
Development (5) 1995 52,724 4,500 -- 5,000 --
</TABLE>
- ------------------------
(1) Reflects bonus earned during the fiscal year but paid during the next year.
(2) Reflects compensation associated with supplemental long-term disability
insurance.
(3) Mr. Parsons resigned as a director and officer of the Company effective
April 9, 1998.
(4) Reflects compensation associated with relocation expenses incurred by Mr.
Bryant.
(5) Reflects positions held with Canmax's subsidiary, CRSI.
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
Mr. Bryant and Ms. Burgess serve as executive officers of CRSI pursuant to
written employment agreements that commenced July 1, 1997 and were amended
effective upon their renewal on July 1, 1998. Each employment agreement provides
for certain benefits and protections upon a "Change of Control," which is
defined to occur (i) at any time a person becomes a "beneficial owner" of 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
shareholders of Canmax was approved by at least two-thirds of all directors then
serving, or (iii) at any time the shareholders of Canmax approve an agreement to
sell or dispose of all or substantially all of the assets of CRSI or Canmax.
Each employment agreement also permits CRSI or Canmax 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 employees, customers or clients of Canmax or CRSI
during the 2-year period following any voluntary termination by the executive or
termination for Cause.
11
<PAGE>
The July 1, 1997 employment agreements with Mr. Bryant and Ms. Burgess
provided for the issuance of warrants ("1997 Performance Warrants") to each
executive as additional employment compensation. Each 1997 Performance Warrant
expires 10 years from the date of issuance and, prior to the amendments to the
employment agreements and 1997 Performance Warrants effective July 1, 1998, was
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 vesting of the 1997 Performance Warrants was
conditioned on the Company's achievement of certain financial targets or upon
the occurrence of a Change of Control. The 1997 Performance Warrants vested on
January 30, 1998 as a result of the Company's issuance of shares of common stock
and warrants as consideration for its acquisition of USCommunication Services,
Inc. ("USC"). Effective July 20, 1998, the Compensation Committee reduced the
exercise price of the 1997 Performance Warrants from $2.25 per share to $0.53
per share, the closing price of the Canmax Common Stock on July 17, 1998, the
trading date preceding the date that the Compensation Committee repriced the
1997 Performance Warrants. In addition, on such date the Compensation Committee
also issued to Mr. Bryant and Ms. Burgess additional performance warrants (the
"1998 Performance Warrants") having an exercise price of $0.53 per share and a
10 year expiration period, the vesting of which is dependent either upon the
Company's recording of revenues in excess of $50 million in any period of twelve
consecutive months with positive earnings during such twelve-month period or
upon a Change of Control (other than a Change of Control arising from the
Proposed Sale).
Mr. Bryant's employment agreement expires June 30, 2000. Mr. Bryant is
entitled to receive an annual base salary of $200,000 and to participate in any
bonus programs established by the Canmax Board. Pursuant to his employment
agreement, Mr. Bryant has also been granted 1997 Performance Warrants to acquire
250,000 shares of Canmax Common Stock and 1998 Performance Warrants to acquire
an additional 100,000 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, 1999. Ms. Burgess is
entitled to receive an annual base salary of $165,000 and to participate in any
bonus programs established by the Canmax Board. Pursuant to her employment
agreement, Ms. Burgess has also been granted 1997 Performance Warrants to
acquire 125,000 shares of Canmax Common Stock and 1998 Performance Warrants to
acquire 200,000 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 was a party to an employment agreement similar to the agreements
of Mr. Bryant and Ms. Burgess, which provided for an annual base salary of
$125,000 and the grant of 1997 Performance Warrants to acquire 100,000 shares of
Canmax Common Stock. Mr. Parsons' employment agreement and 1997 Performance
Warrants terminated upon his resignation on April 9, 1998.
On June 12, 1998, the Company and CRSI executed employment contracts with
Lynn G. Chianese, Ivor J. Flannery, Richard Stephens and Michael McQuarrie, each
a vice president of CRSI, which requires the Company to give six months prior
written notice of any termination of the employment of each person without
cause. Pursuant to these employment contracts, Mr. McQuarrie is entitled to
receive an annualized base salary of $96,000, Ms. Chianese is entitled to
receive an annualized base salary of $100,000, and Messers. Flannery and
Stephens are each entitled to receive an annualized base salary of $110,000. In
the event the Company terminates any such employee without cause upon less than
six months prior written notice, each such employee shall be entitled, for a
period of six months from the date of delivery of notice
12
<PAGE>
of termination without cause, (i) to continue to receive the base salary in
effect at the time of termination in accordance with the Company's regular
payroll cycle, (ii) to receive monthly payments equal to one-twelfth of any
bonuses paid during the 12-month period preceding the date of termination, and
(iii) to continue to participate in all regular employee benefit plans of the
Company. Each employment contract provides that if such employee is
involuntarily terminated (other than for "cause") in contemplation of, or within
six months following, a Change of Control, then the employee shall be entitled
to receive a lump sum severance payment equal to fifty percent (50%) of the
employee's annualized base salary in effect at the time of the involuntary
termination plus 50% of any bonuses paid during the preceding 12 month period.
Each employment contract provides that the employee would also be entitled to
continue to participate in any employee benefit plans for a period of six months
following the date of termination, and that upon a Change of Control any
unvested options held by such employee would be immediately vested and
exercisable. In addition, Mr. Flannery and Mr. Matthews have each been granted
1998 Performance Warrants to acquire 100,000 shares of Canmax Common Stock.
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 2.3 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. On February
26, 1998, the Board of Directors increased the number of shares issuable under
the Stock Option Plan from 1.2 million shares to 2.3 million shares so that
stock options previously granted by the Board in excess of those permitted by
the Stock Option Plan could be covered by the Plan. As of September 14, 1998,
1,121,990 shares of Canmax Common Stock had been issued under the Stock Option
Plan, 1,094,650 shares remain subject to outstanding options under the Stock
Option Plan, and 83,360 shares were available under the Stock Option Plan.
13
<PAGE>
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, 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------------ ANNUAL RATES OF
% OF TOTAL STOCK PRICE
NUMBER OF OPTIONS APPRECIATION FOR
SECURITIES GRANTED TO OPTION TERM (1)
UNDERLYING OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION --------------------
NAME GRANTED FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ----------------------------- ------------------- ------------- ----------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Roger D. Bryant.............. 5,000 1.88 4/30/02 2,597 5,739
13,333 1.88 4/30/03 8,525 19,340
13,333 1.88 4/30/04 10,204 23,781
13,334 1.88 4/30/05 11,969 28,667
------ --------- ---------
45,000 17% 33,295 77,527
Debra L. Burgess............. 5,000 2.13 5/11/99 1,092 2,236
5,000 1.88 4/30/02 2,597 5,739
8,333 1.88 4/30/03 5,328 12,087
8,333 1.88 4/30/04 6,378 14,863
8,334 1.88 4/30/05 7,480 17,918
------ --------- ---------
35,000 13% 22,875 52,843
Philip M. Parsons............ 5,000 1.88 4/30/02 2,597 5,739
6,666 1.88 4/30/03 4,262 9,669
6,667 1.88 4/30/04 5,103 11,891
6,667 1.88 4/30/05 5,984 14,334
------ --------- ---------
25,000 9% 17,946 41,633
Ivor J. Flannery............. 8,000 2.13 5/11/99 1,746 3,578
5,000 1.88 4/30/03 3,197 7,253
5,000 1.88 4/30/04 3,827 8,918
5,000 1.88 4/30/05 4,488 10,750
------ --------- ---------
23,000 9% 13,258 30,499
Richard Stephens............. 5,000 1.88 4/30/03 3,197 7,253
5,000 1.88 4/30/04 3,827 8,918
5,000 1.88 4/30/05 4,488 10,750
------ --------- ---------
15,000 6% 11,512 26,921
</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 1997 or prior
years.
14
<PAGE>
The following table sets forth information with respect to each exercise of
stock options during fiscal 1997, 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 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED "IN-THE-MONEY"
OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)
SHARES ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Roger D. Bryant............ -- -- 150,000 140,000 -- --
Debra L. Burgess........... -- -- 77,800 50,000 -- --
Philip M. Parsons.......... -- -- 45,000 45,000 -- --
Ivor J. Flannery........... -- -- 26,500 22,500 -- --
Richard Stephens........... -- -- 15,000 25,000 -- --
</TABLE>
On October 31, 1997, there were 1,017,700 outstanding stock options with a
weighted average exercise price of $2.23 per share.
LONG TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
The following table sets forth information with respect to long term
incentive plan awards to the Named Executive Officers during fiscal year ended
October 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE OR OTHER ESTIMATED FUTURE
SHARES UNDERLYING PERIOD UNTIL MATURATION PAYOUTS UNDER NON-STOCK
NAME WARRANTS (#) OR PAYOUT PRICE-BASED PLANS (#)
- ----------------------------------------------- ----------------- ----------------------- -----------------------
<S> <C> <C> <C>
Roger D. Bryant................................ 250,000 (1) 250,000
Debra L. Burgess............................... 125,000 (1) 125,000
Philip M. Parsons.............................. 100,000 (1) 100,000
</TABLE>
- ------------------------
(1) The long-term incentive plan awards to Mr. Bryant, Ms. Burgess and Mr.
Parsons relate to the 1997 Performance Warrants issued under each of their
employment agreements. See "Employment and Change of Control Agreements".
Under the terms of the 1997 Performance Warrants, vesting of such warrants
is dependent upon the earlier of (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.
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 1997, Canmax's Compensation Committee consisted of two outside
directors; Messrs., Fidler, 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").
15
<PAGE>
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 1997, 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 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 1997, 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.
Additionally, on July 17, 1997, the Compensation Committee approved
employment agreements for certain executives. The employment agreements provide
for the issuance of warrants to each executive as additional compensation. The
warrants were intended to align the interests of the executive officers with
those of the shareholders by providing incentive compensation based on the
performance of the Company and to retain key executive management by providing
protection against a change in control.
COMPENSATION COMMITTEE:
Robert M. Fidler (Chairman)
W. Thomas Rinehart
16
<PAGE>
STOCK PERFORMANCE GRAPH
Securities and Exchange Commission rules require that a line graph
performance presentation be provided comparing cumulative total shareholder
return with a performance indicator of a broad market index and a nationally
recognized industry index. The following performance graph compares the
cumulative total shareholder return on the Company's stock with the Nasdaq Stock
Market Total Return Index (Nasdaq Index) and the Nasdaq Computer and Data
Processing Services Stocks Total Return Index (Industry Index).
The Company's stock traded on the Nasdaq SmallCap market tier of The Nasdaq
Stock Market from February 10, 1994 through June 8, 1998 on which date it was
delisted from the Nasdaq SmallCap market. The Company's stock currently trades
on the over-the-counter bulletin board. The comparison assumes that $100 was
invested on February 10, 1994 in the Company's shares and in each of the
indices. Past performance is not necessarily an indicator of future performance.
COMPARISON OF THREE YEARS ENDED OCTOBER 31, 1997
CUMULATIVE TOTAL RETURN
CANMAX INC., NASDAQ STOCK MARKET INDEX AND NASDAQ COMPUTER AND DATA PROCESSING
SERVICES INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
INDEX
YEAR NASDAQ INDEX INDUSTRY INDEX CANMAX
<S> <C> <C> <C>
Feb-94 $100.00 $100.00 $100.00
Oct-95 $132.90 $174.99 $21.43
Oct-96 $156.96 $203.20 $11.07
Oct-97 $206.72 $273.71 $9.64
</TABLE>
The data set forth in the above graph and related table was obtained from
the Nasdaq Stock Market. All Canmax share data is based on the last closing
price of the month. The total return calculation is based upon weighting at the
beginning of the period.
17
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who own more than 10%
of the Company's common stock to file with the SEC initial reports of ownership
and reports of changes in ownership of common stock and other equity securities
of the Company. Officers, directors and greater than 10% shareholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) reports they file. To the Company's knowledge, based solely on the review
of the copies of such reports filed during the fiscal year ended October 31,
1997, all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were complied with, except (i)
Mr. Roger D. Bryant, Mr. Philip M. Parsons and Ms. Debra L. Burgess each filed
one late report concerning their receipt of the Performance Warrants, (ii) the
Dodge Jones Foundation has not filed a Form 3 to report their 10% ownership
interest in the Company, (iii) neither Mr. Bernet, Ms. Delia O'Donnell nor the
trustee of the voting trust for the former shareholders of USC have filed Form
3's reporting their receipt of shares of Company Common Stock on January 30,
1998 as a result of the Merger Agreement, and (iv) each of the Company's
officers and directors filed late their Form 5 Annual Statement of Beneficial
Ownership of Securities Report that was due on or about December 15, 1997.
THE PROPOSED SALE
THE TERMS AND CONDITIONS OF THE PROPOSED SALE ARE CONTAINED IN THE
AGREEMENT, A COPY OF WHICH IS ATTACHED TO THIS PROXY STATEMENT AS EXHIBIT A AND
IS INCORPORATED HEREIN BY REFERENCE. The description in this Proxy Statement of
the terms and conditions of the Proposed Sale is qualified in its entirety by,
and made subject to, the more complete information set forth in the Agreement.
Capitalized terms used in this Proxy Statement but not defined herein shall have
the meaning ascribed to such terms in the Agreement. SHAREHOLDERS OF THE COMPANY
ARE URGED TO CAREFULLY READ THE AGREEMENT IN ITS ENTIRETY.
GENERAL
The Agreement, which was executed and delivered by the Company, CRSI and the
Buyer on September 3, 1998, provides for the sale for cash of substantially all
of the assets of CRSI, which assets constitute the Company's Software Business
(the "Purchased Assets"), and the assumption by the Buyer of certain liabilities
of the CRSI (the "Assumed Liabilities"). CRSI will receive an initial payment of
$4.0 million at Closing and is expected to receive additional payments of up to
$3.625 million, payable in quarterly installments over a twelve month period
following the Closing. The amount of the additional payments will be based upon
the revenues attributable to the Software Business over such period. The Company
estimates that these additional payments will exceed $3.0 million based upon the
Company's current and anticipated revenues attributable to its Software
Business. There can be no guarantee that the Company's estimate of the aggregate
purchase price resulting from such payments will prove correct. Further, Buyer
(or the CRSI) will pay to the other within 45 days following the Closing an
amount equal to the surplus (deficit) of the CRSI's net working capital
(generally defined as current assets minus current liabilities of the CRSI,
subject to certain agreed adjustments) as compared to an agreed base amount.
Notwithstanding the Closing of the Proposed Sale, CRSI shall remain liable to
Buyer for certain indemnity obligations relating to the Software Business. See
"The Agreement."
CANMAX
The Company currently operates two distinct businesses in the software and
telecommunications industries. Specifically, (a) the Company conducts the
Software Business through CRSI and (b) operates its telecommunications business
(the "Telecommunications Business") through Canmax Telecom, Inc., a wholly owned
subsidiary of the Company. For the fiscal year ended October 31, 1997, the
Software Business accounted for all of the Company's revenues. If the Proposed
Sale is approved by the shareholders and the sale of the Software Business to
Buyer is consummated, the Company will no longer engage in the development of
retail automation software and will pursue its recently launched
Telecommunications Business. Upon the consummation of the Proposed Sale, the
Company will no longer engage in the
18
<PAGE>
Software Business, which business accounted for all of the Company's revenues
(approximately $12.7 million for the fiscal year ended October 31, 1997), cost
and expenses (approximately $12.6 million for the fiscal year ended October 31,
1997) and earnings (approximately $87,000 for the fiscal year ended October 31,
1997) for all fiscal years prior to October 31, 1997. For the nine months ended
July 31, 1998, the Software Business accounted for approximately $5.8 million
(or 87.5%) of the Company's revenues and approximately $6.9 million (or 83%) of
the Company's total cost and expenses.
Approximately 25 of the Company's current employees (out of approximately
140 total employees) will remain with the Company if the Proposed Sale is
consummated. All other employees will be offered employment with Buyer on terms
at least as attractive as those currently held with the Company. Of the
employees remaining with the Company, approximately 10 perform administrative
and financial functions, and another 10 have experience in telecommunications
and/or telemarketing.
The Company's principal business and principal office is located at 150 West
Carpenter Freeway, Irving, Texas 75039. The Company's telephone number at this
address is (972) 541-1600.
Upon consummation of the Proposed Sale the Company plans to relocate into
significantly smaller offices, further reducing operating expenses. The Company
has identified office space and is in the process of negotiating a lease
agreement with regard to the same, the effectiveness of which will be contingent
upon the consummation of the Proposed Sale.
USE OF PROCEEDS; PLANS FOR FUTURE OPERATIONS AFTER THE PROPOSED SALE
The net proceeds to the Company from the sale of the Software Business,
after deducting estimated transaction expenses of $250,000, are expected to be
approximately $6.75 million, of which $3.0 million are expected to be received
from future contingent payments. The actual net proceeds derived from the sale
of the Software Business may be more or less than this amount depending on the
size of certain deferred payments. See "The Agreement--Purchase Price; Deferred
Payments; Net Working Capital Adjustment." Approximately $1.0 million of the
estimated net proceeds from the Proposed Sale will be used by the Company to
repay the Founders loan and an additional $170,000 will be used by the Company
to repay certain accrued obligations and amounts payable. The remaining $5.58
million of estimated net proceeds will be used by the Company in the
implementation of its business plan to grow the telecommunications business
internally and through specific strategic acquisitions. While the Company has no
current agreements or negotiations underway with respect to any acquisition, it
routinely evaluates acquisition transactions and strategic business alliances.
Following the Proposed Sale, Canmax's core business operations will be in
the telecommunications industry, and will initially be focused on the provision
of prepaid telecommunication services. In late 1997, the Company decided to
enter the telecommunications market place by acquiring a telecommunications
company (which acquisition was later rescinded), and in April of 1998 the
Company hired Scott R. Matthews as the Vice President of Telecommunications to
develop its in-house telecommunications capabilities. Since that time, an
additional 5 people with telecommunications backgrounds (3 of whom are at the
management level) have joined the Company, along with 4 additional people with
marketing and telemarketing backgrounds. The Company believes that it now has
the core personnel necessary to operate in the prepaid telecommunications
industry, and has initially focused its business on the sale of prepaid
long-distance cards. The Company also expects to enter other segments of the
prepaid telecommunications industry, such as dial tone and supporting hardware
services and the sale of prepaid enabling hardware and cellular services. The
Company's entry into these additional industry segments will be dictated by the
Company's development of its capabilities and capacities in these areas and
market factors. To be successful in the Telecommunications Business, the Company
will need to establish new distribution channels and a new customer base for its
telecommunications products. Although the Company intends to continue to market
its telecommunications products to the convenience store and retail petroleum
industries in which it conducted its Software Business, the existing customer
contracts for the Software Business do not provide for the sale of
telecommunications products, and the Company's prior relationship in the
convenience store and retail petroleum industries do not necessarily provide the
Company any advantages in future marketing efforts. Industry estimates indicate
that the market for prepaid phone cards
19
<PAGE>
in the United States in 1997 was in excess of $1.5 billion, and projects the
growth of this industry to an excess of $5 billion by the year 2000.
The Company's prepaid long distance services are currently being offered
across a system maintained by PT-1 Communications, Inc. pursuant to an agreement
between the Company and PT-1 which provides favorable pricing to the Company and
allows it to compete on a global basis in the prepaid telecommunications market.
The Company also expects to leverage its experience in the retail software
industry with its telecommunications operations to allow it to offer point of
sale activation for its prepaid telecommunications products. Although the
Company believes that its personnel and the proceeds from the Proposed Sale will
position it to be successful in its new line of business, the Company has no
significant history of operations in the telecommunications industry and
therefore the Company's entry into the new line of business is subject to risks
similar to other emerging companies, such as its limited operating history in
this industry segment, its dependence upon existing management and certain key
employees, the presence of competition from various sources (some of which may
have substantially greater financial resources than the Company) and continuing
changes in governmental regulations affecting the telecommunications industry
generally.
Following the consummation of the Proposed Sale, the shareholders of the
Company will retain their equity interest in the Company. The Proposed Sale will
not result in any changes in the rights of the Company's shareholders. As
indicated above, the Company does not anticipate distributing the proceeds
derived from the sale of the Software Business to its shareholders but intends
instead to invest such proceeds in future operations.
AFFILIATED COMPUTER SERVICES, INC.
The Buyer, Affiliated Computer Services, Inc., is a publicly held company
that provides information technology services and electronic funds transfer
processing throughout the United States and in Europe and Mexico. On June 30,
1998, Buyer reported having working capital in excess of $198 million. The
Company understands that Buyer will fund the acquisition of the Software
Business from either its existing working capital resources or existing banking
facilities. Buyer is not an affiliate of the Company, any of its executive
officers or directors or any of its principal shareholders. The Buyer's
principal business and principal office is located at 2828 N. Haskell Ave.,
Dallas, Texas 75204 and its telephone number is 214-841-6111.
BACKGROUND OF THE PROPOSED SALE
Historically, the Company has promoted its Software Business and has not
viewed it as being for sale. In recent years however, the Company has had
increasing difficulty both in expanding and in achieving continuing
profitability with the Software Business. Factors contributing to this
difficulty have included the dependence of the Software Business on certain
large customers; the lack of any medium or smaller customers for which the
systems developed by the Company might be adapted; and the Company's inability
to raise capital to develop additional products or services beyond its
traditional software base. These factors are partially attributable to the
demand on the Company's resources necessary to service The Southland
Corporation, the major customer of the Software Business.
In view of these factors, in 1997 the Board began to develop strategies to
reposition the Company to enter into the telecommunications marketplace. The
Company desired to build on its existing expertise in software development and
customer service in the area of financial and other transaction processing, as
well as on its understanding of, and relationships with, the convenience store
market. The Company selected prepaid phone card/telecommunications industry as a
high growth industry with low barriers to entry to launch its new line of
business.
In January, 1998 the Company concluded a merger with USCommunication
Services, Inc. ("USC") which the Company believed would give it access to the
telecommunications market. Certain capabilities of USC, along with distribution
channels, failed to meet the expectations of the Company. When significant
pending contracts failed to materialize, the Company realized that it was
unlikely to receive full value for the consideration that it had committed to
the acquisition. On June 15, 1998 the Company signed an
20
<PAGE>
agreement effective May 27, 1998 in terms of which the USC merger was rescinded
by the mutual agreement of the Company and USC. During its experience with USC,
the Company decided to develop its in house capabilities to expand its
telecommunications operations. The Company believes that, if provided sufficient
capital to achieve market presence, the Company will be a strong competitor in
the industry and that experience in software development and customer service
will permit it to develop efficient applications that may allow the immediate
on-site activation of prepaid phone cards at the time of their purchase. The
Company also expects to enter other segments of the telecommunications industry.
As the Company was launching its entry into the telecommunications market,
it received an unsolicited offer to purchase the Software Business from a
privately held company ("Company X") that develops products using technology
similar to that used by CRSI. Conversations with Company X led the Company to
believe that Company X might present an offer to purchase the Software Business
in the range that the Board of Directors would recommend to the Shareholders,
and therefore the Company delayed its annual meeting so that any proposal to be
considered at the 1998 annual meeting of shareholders (rather than incur the
cost associated with a special meeting of shareholders to consider any such
proposal). The Company also recognized that the range of values discussed as the
proposed sales price for the Software Business would provide substantial funding
for the expansion of the Telecommunications Business. Therefore, the Company
agreed to enter into discussions with Company X regarding the possible sale of
its Software Business. In addition, Affiliated Computer Services, Inc., the
Buyer in the Proposed Sale, had previously expressed an interest in purchasing
the Software Business. In April of 1998, the Company contacted the Buyer to
determine whether the Buyer was still interested in acquiring the Software
Business. In late May of 1998, the Company commenced negotiations with the
Buyer.
Company X ultimately presented a letter of intent to the Company in April,
the terms of which included a proposal to acquire the stock of CRSI for a total
sale price in the range of six million dollars. The Company continued to
negotiate the terms of the sale and requested that the terms of any offer be
approved by the Board and any controlling shareholders of Company X prior to the
Company's consideration of any final offer. Although the Company continued
discussions with Company X throughout April and May of 1998, the requested
approvals were not obtained and it became apparent to the Company that although
certain representatives of Company X were interested in pursuing a transaction
with the Company, Company X would not receive the Board and shareholder
approvals necessary to complete a transaction.
In June of 1998, the Buyer came forward with a tentative proposal to
purchase the assets of CRSI under terms more attractive than those of Company X.
On July 20, 1998, the Company entered into an exclusive negotiation and
confidentiality agreement with the Buyer to continue exploratory discussions
concerning a possible transaction between the two companies. As the parties
neared agreement on terms acceptable to the Company, the Company also requested
that the Buyer substantially complete any due diligence prior to the
consummation of negotiations. Throughout June, July and August, the Company and
the Buyer continued to negotiate the scope of representations and warranties to
be included in the Agreement, certain covenants and the timing and amount of the
initial payment and deferred payments of the purchase price.
On September 3, 1998, a definitive agreement was signed with the Buyer for
the sale of substantially all of the assets of CRSI. Terms included an initial
payment of $4 million, and deferred payments of up to an additional $3.625
million based on revenues of the acquired business over the twelve month period
following closing. Based on current revenue run rates and projections, the
Company expects to receive at least $7 million from this transaction. Although
the Company had never actually marketed the sale of the Software Business, it
had received expressions of interest to acquire the Software Business from time
to time, resulting in only two serious suitors. Buyer's offer was approximately
27% higher than the offer proposed by Company X (assuming that the deferred
payments contemplated by each company were received in full), and 17% higher if
management's minimum expectations are received from Buyer. Further, on September
3, 1998, the date that the Agreement was executed, the Company's market
capitalization was approximately $3.5 million, as compared to the $7.0 million
anticipated to be received from the Proposed Sale. In light of these factors and
the other factors considered by the Board discussed
21
<PAGE>
below (see "--The Company's Reasons for the Proposed Sale; Recommendation of the
Board of Directors"), the Company believes that the consideration to be received
from the proposed sale to be fair to the shareholders from a financial point of
view.
THE COMPANY'S REASONS FOR THE PROPOSED SALE; RECOMMENDATION OF THE BOARD OF
DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY BELIEVES THAT THE PROPOSED SALE IS IN
THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD
OF DIRECTORS HAS APPROVED THE PROPOSED SALE AND RECOMMENDS THAT THE COMPANY'S
SHAREHOLDERS VOTE FOR THE APPROVAL OF THE PROPOSED SALE.
As described above under "Background of the Proposed Sale," the decision of
the Company's Board to approve the Proposed Sale and the Agreement followed
months of exploring and analyzing the advantages and disadvantages of
redeploying the Company's assets. In making its recommendation to the
shareholders of the Company, the Board considered a number of factors, including
the following:
(1) The Company's overall goals and future business plans.
(2) The current financial condition and future prospects for the Software
Business given, in particular, the Company's limited customer base and
resources required for development and marketing efforts necessary to
attract additional customers, as well as the uncertainty regarding the
continuing business relationship with Southland following the expiration
of the current agreement in December of 1998.
(3) The changing and highly competitive nature of the industry and the
Company's expectations regarding trends in this industry.
(4) The financial strength of the Buyer, which will enable it to close on an
expedited basis without any financing or significant due diligence
contingencies.
(5) The Buyer's historic business relationship with Southland, which the
Board believes allowed the Buyer to more fairly value the Software
Business than other potential bidders that may be concerned about the
concentration of revenues in one customer and the prospects of continuing
a relationship with that customer. Further, the Company believes that the
Buyer is best positioned to realize future value from the Southland
relationship, thereby increasing the probability of the Company receiving
the maximum amount in deferred payments.
(6) The higher return anticipated from the redeployment of Company assets in
the Telecommunications Business, and the need to move quickly to secure a
competitive position in the new, rapidly growing prepaid phone card
segment of the industry.
(7) The reduced risk of a loss of customers and employees attributable to
the expedited timing of the closing and financing strength of the Buyer.
(8) The relative value of the consideration offered by other interested
parties, in particular, the approximate 27% premium to the offer by
Company X (assuming that all deferred payments are received in full), or
17% premium to the offer by the Company X if management's minimum
expected deferred payments are received from Buyer.
(9) The substantial premium expected to be received by the Company compared
to the market value of the Company's outstanding Common Stock.
The foregoing discussion of the information and factors considered by the
Board is not intended to be exhaustive, but includes all material factors
considered by the Board. The Board did not attempt to quantify or otherwise
assign relative weights to the specific factors it considered or determine that
any factor was of particular importance. A determination of various weightings
would, in view of the Board of Directors, be impractical. Rather, the Board
viewed its position and recommendations as being based on the totality of the
information presented to, and considered by, the Board. In addition, individual
members of the Board may have given different weight to different factors.
22
<PAGE>
REGULATORY APPROVALS
Consummation of the Agreement does not require any regulatory approvals
other than the federal filings required under applicable U.S. securities laws in
connection with this Proxy Statement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
THIS SECTION IS A SUMMARY OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES TO
THE COMPANY AND THE SHAREHOLDERS OF THE COMPANY FROM THE PROPOSED SALE. EXCEPT
WHERE SPECIFICALLY NOTED, THIS SUMMARY DOES NOT APPLY TO STATE OR LOCAL TAXES.
THE SUMMARY IS BASED UPON THE INTERNAL REVENUE CODE OF 1986, AS AMENDED,
JUDICIAL DECISIONS, UNITED STATES TREASURY DEPARTMENT REGULATIONS PROMULGATED
THEREUNDER, ADMINISTRATIVE RULINGS OF THE UNITED STATES TREASURY DEPARTMENT, AND
OTHER INTERPRETATIONS THEREOF, ANY OF WHICH COULD BE CHANGED AT ANY TIME. NO
RULING HAS BEEN OR WILL BE REQUESTED FROM THE INTERNAL REVENUE SERVICE WITH
RESPECT TO ANY CONSEQUENCES RESULTING FROM THE PROPOSED SALE.
The Proposed Sale will not have any federal income tax consequences to the
Company's shareholders. Upon consummation of the Proposed Sale, the Company will
recognize a gain equal to the net proceeds (the sum of the consideration
received less expenses of the Proposed Sale) less the closing net book value of
the assets sold and liabilities assumed. The Company expects any gain
attributable to deferred payments of purchase price to be recognized on the
"installment sales method" as and when received. The Company currently had in
excess of $20.3 million of net operating losses as of October 31, 1997 available
to offset the anticipated approximate $1.9 million to $5.9 million gain
resulting from the Proposed Sale (depending upon the amount of any deferred
revenue payments), and therefore does not anticipate any material tax liability
arising from the Proposed Sale.
ACCOUNTING TREATMENT
For financial reporting purposes, the Proposed Sale will be recorded as a
sale of a segment of the Company's business and reported as a discontinued
operation.
EXPENSES AND OTHER FEES
Each party will bear its own expenses in respect of the Proposed Sale,
whether or not consummated.
THE AGREEMENT
The following is a brief summary of certain provisions of the Agreement,
which summary is complete in all material respects. THIS DESCRIPTION IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE AGREEMENT, A
COPY OF WHICH IS ATTACHED TO THIS PROXY STATEMENT AS EXHIBIT A AND IS
INCORPORATED HEREIN BY REFERENCE. THE TERMS NOT OTHERWISE DEFINED IN THIS
SUMMARY OR ELSEWHERE IN THIS PROXY STATEMENT HAVE THE MEANINGS SET FORTH IN THE
AGREEMENT. ALL SHAREHOLDERS ARE URGED TO CAREFULLY READ THE AGREEMENT IN ITS
ENTIRETY.
PURCHASE PRICE; DEFERRED PAYMENTS; NET WORKING CAPITAL ADJUSTMENT
Pursuant to the terms of the Agreement, in consideration of the transfer to
the Buyer of all of the "Purchased Assets" (which include substantially all of
the assets relating to the Software Business), the Buyer has agreed to pay to
CRSI in cash an amount (the "Purchase Price") equal to an initial installment of
$4,000,000, subject to the adjustments set forth below (the "Initial
Installment") and subsequent installments ("Deferred Payments") calculated as
described below at each Deferred Payment Date (as defined below). In addition,
the Buyer has agreed to assume certain liabilities arising from the Software
Business. Following the Closing, Buyer and the Company are to calculate the Net
Working Capital (as defined below) as of the Closing and Company shall receive
from (or pay to) the Buyer an amount equal to
23
<PAGE>
the amount by which the Net Working Capital as of the Closing exceeds (or is
less than) an agreed "base amount" of approximately $530,000. Generally, the
term "Net Working Capital" means, as of the Closing, an amount equal to (i) the
current assets of CRSI (other than cash and cash equivalents, which are to be
retained by the Company) minus (ii) the current liabilities of CRSI (but
specifically excluding any liabilities of Canmax).
The Initial Installment is to be increased by the amounts of certain
refundable deposits (approximately $50,000) under contracts being assigned to
the Buyer. The Initial Installment is to be reduced by the lesser of $25,000 or
50% of the cost of the year 2000 compliance audit conducted by the Buyer (as
further described below). Further, to the extent that the Buyer's year 2000
compliance audit indicates that remedial actions are necessary to cause
specified hardware or software products or applications to become year 2000
compliant, the Company may elect to either remedy any non-compliant items prior
to Closing or, in certain instances, place the full amount of the estimated cost
to achieve compliance in an escrow to be used to remedy such identified items of
non-compliance following the Closing. The Company believes that its products and
applications are year 2000 compliant in all material respects.
The Deferred Payments will be calculated during the twelve month period
commencing on the first day of the calendar month following the Closing (the
"Deferred Period Commencement Date"). Within thirty days after the end of the
third, sixth, ninth, and twelfth month following the Deferred Period
Commencement Date (each such date being a "Deferred Payment Date"), Buyer is to
deliver to CRSI a written statement calculating the revenues attributable to the
Business (as defined below) for each preceding three month period, determined in
accordance with generally accepted accounting principles, along with the payment
of the Deferred Payment due as calculated by Buyer. As used in the Agreement,
the term "Business" means the business historically conducted by CRSI, which
includes, without limitation, the development, sale or marketing of retail
automation software, the installation of software support for such products,
help-desk services and other support services. Each Deferred Payment is
calculated, on each Deferred Payment Date, based upon the cumulative level or
revenue attributable to the Business from the Deferred Period Commencement Date
through the end of each three month period preceding a Deferred Payment date,
and equals (a) the sum of (i) 75% of all such revenues greater than $4 million
and less than or equal to $7 million plus (ii) 13.75% of all such revenues
greater than $7 million or less than or equal to $17 million, minus (b) the sum
of any Deferred Payments previously made by the Buyer. If CRSI disputes any
calculation of the amount of any Deferred Payment and such dispute cannot be
resolved among the parties, the independent public accountants for each party
are to mutually designate a third independent public accountant to resolve such
dispute and the determination of such designated party will be conclusive and
binding on all parties.
The Company expects to receive (or pay) any Net Working Capital adjustment
within 45 days following the Closing. The amount of any Net Working Capital
adjustment received (or paid) by the Company may fluctuate depending upon the
cash received by the Company from its customers and cash payments made by the
Company. Based upon historic averages of the Company's net working capital, the
Company anticipates receiving an additional $200,000 to $300,000 as a result of
the Net Working Capital adjustment. The Net Working Capital adjustment is
determined based upon the Net Working Capital report to be delivered by CRSI to
the Buyer within thirty days after the Closing which sets forth CRSI's
determination of the Net Working Capital of the Software Business as of the
Closing. The Net Working Capital adjustment will be determined by the difference
between the Net Working Capital as of the Closing Date and $530,019. If such Net
Working Capital is less than $530,019, then CRSI must refund such difference to
the Buyer within fifteen (15) days of the final determination of the Net Working
Capital. If, on the other hand, the Net Working Capital is greater than
$530,019, then Buyer shall pay to CRSI the difference within fifteen (15) days
of such final determination. If the Buyer rejects the Net Working Capital
report, it will have 10 days after receipt thereof to notify CRSI of the nature
of such disagreement. Thereafter, any disputed amounts which cannot be agreed to
by the independent public accountants to the parties jointly within 90 days from
the Closing Date shall be determined by a third independent public accountant
selected by the independent accounts for each party. The determination made by
the designated party regarding adjustments to the Purchase Price shall be final
and binding on the parties. As of July 31, 1998, the current assets of CRSI (for
purposes of determining Net Working Capital) were
24
<PAGE>
approximately $1.948 million and the current liabilities of CRSI (for purposes
of determining Net Working Capital) were approximately $1.251 million, resulting
in the Net Working Capital as of such date being approximately $697,000. Based
upon the calculation as of such date, Company would receive a payment from Buyer
of approximately $167,000 as a result of the Net Working Capital adjustment.
Management of the Company and CRSI believe that the ultimate amount received
by CRSI for the sale of the Purchased Assets will be approximately $7 million to
$7.7 million following the payment of the Deferred Payments and Net Working
Capital adjustments. The actual Purchase Price may, however, be more or less
than this amount.
THE CLOSING
It is anticipated that the closing (the "Closing") of the Proposed Sale will
take place on or about December 7, 1998, if the Proposed Sale is approved by the
shareholders of the Company. The Closing Date must occur no later than December
22, 1998, following which date either party may terminate the Agreement.
PURCHASED ASSETS AND ASSUMED LIABILITIES
The Purchased Assets generally include all of the assets of CRSI which
constitute the operating assets of the Software Business of the Company,
including, but not limited to, accounts receivable, inventory, equipment, real
property, fixtures, furnishings, leasehold rights, leasehold improvements,
vehicles, prepaid assets, contract rights, licenses, permits, customers,
prospects and marketing lists, sales data, records, computer software and
software licenses, proprietary information, intellectual property, trade
secrets, patents, patent applications, patent licenses, trademarks and trade
names (including without limitation, all rights to the name "Canmax" and
derivations thereof), copyrights, goodwill associated with such intellectual
property, material and manufacturing specifications, drawings and designs owned
by the CRSI or acquired by CRSI prior to the Closing.
At the Closing, the Buyer will assume the following "Assumed Liabilities":
(i) all liabilities and obligations of CRSI that accrue, become owing or arise
on or after the Closing Date under assumed contracts; (ii) certain obligations
related to employees of CRSI hired by the Buyer; (iii) all liabilities arising
out of events or occurrences on or after the Closing Date which relate to or
arise out of the Software Business or the Assets; (iv) all of the accounts
payable or other liabilities existing on the Closing Date that are explicitly
identified and included in the calculation of Net Working Capital; (v) any sales
tax resulting from the consummation of the Agreement or transactions
contemplated thereby; (vi) all present or future liabilities or obligations of
Buyer to any broker, finder or agent for any brokerage fees, finder's fees or
commissions with respect to the transactions contemplated by the Agreement; and
(vii) other specified liabilities. The Company estimates that the amount of
liabilities to be assumed as of the Closing Date will be approximately $1.25
million, which amount may vary based upon fluctuations in Net Working Capital.
At the Closing, the Company will assign, and the Buyer will assume, certain
contracts relating to the operation of the Software Business (the "Assumed
Contracts"). In general, the Buyer will perform all post-Closing obligations and
realize all post-Closing benefits under the Assumed Contracts, subject to the
terms of the Agreement.
Except as otherwise provided in the Agreement, the Buyer will not assume any
other liabilities of CRSI the Company of any nature, currently existing or
incurred in the future, including, without limitation, the following "Excluded
Liabilities": (i) any liability or obligation relating to any excluded assets;
(ii) except to the extent included in the calculation of Net Working Capital,
any liability or obligation that has accrued, become owing or has arisen prior
to the Closing Date under the Assumed Contracts; (iii) except to the extent
included in the calculation of Net Working Capital, any liability or obligation
of the Company for federal, state, local or foreign taxes associated with the
Purchased Assets or the Software Business for any period prior to the Closing
Date; (iv) any liability relating to (a) any claim relating to employee benefits
and similar matters, except to the extent of the accrued vacation liabilities or
other liabilities for any employee hired by Buyer (b) CRSI's termination of
employment of any employee on or prior to the Closing Date or because of Buyer's
acquisition of the Purchased Assets under the Agreement
25
<PAGE>
(including any such termination deemed to have occurred upon the transfer of any
such employee from CRSI to Buyer), or (c) any claims arising from employees
other than employees hired by Buyer; (v) any liability, whether made before or
after the Closing Date, against CRSI, Buyer, or any affiliate or either,
alleging damage to the environment or any liability for environmental cleanup
costs, or any liabilities for damage to the environment or for environmental
cleanup costs, which arises out of occurrences, circumstances or actions
associated with the Purchased Assets or the operation of the Software Business
by CRSI prior to the Closing Date; (vi) any liability for failure or alleged
failure to comply with, or any violation or alleged violation of, any law, rule,
regulation, statute, ordinance, permit, judgment, injunction, order, decree,
license or other governmental authorization or approval applicable to CRSI or
the Purchased Assets, which failure or violation occurred or was alleged to have
occurred prior to the Closing Date; (vii) any present or future liability or
obligation of CRSI to any broker, finder or agent for any brokerage fees,
finder's fees or commissions with respect to the transactions contemplated by
the Agreement; (viii) any lawsuit, claim or proceeding of any nature existing at
or prior to the Closing or arising out of any act or transaction of CRSI or the
Company prior to the Closing that is related to CRSI, the Purchased Assets or
the Software Business; and (ix) any liabilities of the Company.
REPRESENTATIONS AND WARRANTIES
The Agreement contains various representations and warranties of CRSI and
the Company including, among others, representations and warranties related to
corporate organization and similar corporate matters; authorization and
enforceability; year 2000 compliance matters; ownership, condition and title to
assets and properties; non-contravention of transactions contemplated by the
Proposed Sale of the Company's and CRSI's certificate of incorporation or
by-laws, and non-violation of laws and material agreements; required consents
and approvals; absence of undisclosed liabilities and certain changes since July
31, 1998; tax matters; absence of legal proceedings; compliance with laws,
licenses and permits pertaining to the Software Business; environmental matters;
labor matters; employee plans; material contracts; customers; accounts
receivable; intellectual property rights; and the absence of competitive or
illegal activities by the Company or its affiliates.
The Agreement contains various representations and warranties of the Buyer
including, among others, representations and warranties related to corporate
organization and similar corporate matters; authorization and enforceability;
non-contravention of transactions contemplated by the Proposed Sale of the
Buyer's certificate of incorporation or by-laws, and non-violation of laws and
binding agreements; consents and approvals.
INDEMNIFICATION
The Company and CRSI have agreed to indemnify, defend and hold harmless
Buyer and Buyer's Parties from and against any and all losses, liabilities,
obligations, payments, damages, costs and expenses arising out of or due to,
directly or indirectly (i) any inaccuracy in or breach of any of the
representations, warranties, covenants or agreements of the Company or CRSI
contained in the Agreement or in any agreement, document or instrument executed
and delivered pursuant thereto or in connection therewith; (ii) CRSI's failure
to discharge any excluded liability; (iii) any failure by CRSI to discharge any
closing cost for which it is responsible; and (iv) liabilities deriving from
certain employee and related matters.
Neither CRSI nor the Company is obligated to indemnify unless and until
Buyer and Buyer's Parties claims exceed $25,000 in the aggregate and in no event
shall the indemnification obligations of the Company or CRSI exceed the Purchase
Price.
The Buyer has agreed to indemnify, defend and hold harmless the Company and
the Company's affiliates from and against any and all losses, damages, costs and
expenses arising out of or due to, directly or indirectly (i) any inaccuracy in
or breach of any of the representations, warranties, covenants or agreements of
the Buyer contained in the Agreement or in any agreement, document or instrument
executed and delivered pursuant thereto in connection therewith; (ii) Buyers
failure to discharge any Assumed Liability; and (iii) failure by Buyer to
discharge any closing cost for which it is responsible.
26
<PAGE>
The representations, warranties and indemnification obligations of the
parties survive the Closing for a period of one year other than representations
and warranties for tax matters, which survive for a period of seven years. If
any claim for indemnification remains unresolved Buyer may withhold payment of
amounts otherwise due and payable under the Agreement up to an amount equal to
the estimated losses.
CONDITIONS OF THE PROPOSED SALE
The obligations of the Buyer to close under the Agreement are subject to the
satisfaction (or waiver) by the Buyer of the following conditions at or prior to
the Closing: (i) all representations and warranties of the Company and CRSI are
true and correct in all material respects; (ii) the Company and CRSI shall have
performed and complied in all material respects with all covenants and
agreements and satisfied the conditions and closing delivery obligations
specified in the Agreement; (iii) no pending or threatened litigation exists to
restrain or prohibit or obtain damages with regard to the agreement or
consummation of the transactions contemplated thereby; (iv) all necessary
contractual and governmental consents shall have been obtained; (v) any liens on
the Purchase Assets shall have been released (other than liens arising from
assumed liabilities); and (vi) CRSI shall have delivered to the Buyer an
occasional sales affidavit.
The obligations of Canmax and CRSI to close under the Agreement are subject
to the satisfaction (or waiver) of the following conditions at or prior to
Closing: (i) all representations and warranties of the Buyer contained in the
Agreement must be true and correct in all material respects; (ii) Buyer shall
have performed and complied in all material respects with the covenants and
agreements and satisfied the conditions and other delivery obligations set forth
in the Agreement; (iii) no pending or threatened litigation exists to restrain
or prohibit or obtain damages or other relief with regard to the Agreement or
the consummation of the transactions contemplated thereby; (iv) all necessary
governmental consents and authorizations shall have been obtained; (v) the
Company must have obtained the required shareholder approval for the sale of the
Purchased Assets; and (vi) the Company or CRSI shall have obtained specified
estoppel certificates and consents with regard to the Assumed Contracts to be
transferred to the Buyer.
NO SHOP PROVISIONS
Pursuant to the Agreement, the Company and CRSI have agreed to negotiate
exclusively and in good faith with Buyer until the earlier of the Closing or
October 31, 1998 and not to encourage or solicit any inquiries or accept any
proposals by, or engage in any discussions or negotiations with any other person
concerning a sale of any substantial portion of the business or assets of CRSI
(and "Acquisition Proposal"); provided that nothing contained in the Agreement
shall prohibit the respective boards of directors or the Company or CRSI, to the
extent such board determines in good faith that such action is required to
comply with its fiduciary duties to its shareholders, from furnishing non-public
information to, or entering into discussions or negotiations with, any person
regarding an unsolicited bona fide written Acquisition Proposal to the extent
that such board believes that such Acquisition proposal would, if consummated,
result in a transaction more favorable from a financial point of view than the
transaction contemplated by the Agreement (a "Superior Proposal"), or complying
with its obligation to make recommendations to the Company's shareholders with
regard to certain tender offers.
COVENANTS PENDING CLOSING
Pursuant to the Agreement, prior to the Closing, CRSI has agreed and the
Company has agreed to cause CRSI, (i) to operate in the ordinary course of
business and consistent with past practices, and to use its best efforts to
preserve the goodwill of CRSI and of its employees, customers, suppliers and
other persons having business dealings with CRSI; (ii) except as contemplated by
the Agreement, not to engage in any transaction outside of the ordinary course
of business; (iii) not to increase the compensation of any employee designated
by the Company to be hired by Buyer, or to hire additional employees to be so
designated without Buyer's consent; (iv) to maintain all insurance policies and
permits required for CRSI to carry on its business; (v) to maintain books of
account and records in the usual, regular, and ordinary manner and consistent
with past practices; (vi) to pay all taxes prior to the date any lien attaches
to the Purchased Assets; (vii) not to take any action that would result in a
breach of the representations and
27
<PAGE>
warranties of the Company or CRSI in the Agreement; and (viii) to permit
representatives of the Buyer to have full access at all reasonable times, and in
a manner so as not to interfere with its normal business operations, to all
premises, properties, personnel, books, records, contracts, and documents of or
pertaining to the Software Business.
The Agreement requires the Buyer to make offers of employment to each
employee designated by the Company upon terms and conditions as the Buyer shall
agree with each employee so designated; provided that such terms and conditions
shall be at least as favorable that such employee currently has with CRSI. In
particular, the Company expects Messrs. McQuarrie and Stephens and Ms. Chianese
to become employees of the Buyer following the Closing. The Company's other
executive officers are expected to remain with the Company. In addition,
following the Closing, the Company and CRSI shall have a nonexclusive license to
use, copy and modify certain intellectual property that is being sold to the
Buyer, and Buyer has agreed to allow the Company and CRSI to use the name
"Canmax" for a period of 120 days following the Closing Date. Further, the Buyer
has agreed to sublease a portion of the Company's corporate offices for a
specified period following the Closing, in return for which the Buyer shall pay
all rents and expenses due under the Company's current office lease.
During the twenty (20) day period following the date of the Agreement, the
Buyer is permitted to test the source codes for any computer software or
applications developed and used by the Company in connection with the Software
Business and any third party software imbedded in such applications or software
to determine whether or not such computer software and applications are year
2000 compliant. The cost and expenses of such testing are to be borne by the
Buyer; provided that at Closing, the Buyer shall be entitled to receive a credit
equal to the lesser of 50% of the cost of such testing or $25,000. Within 20
days following the date of the Agreement, Buyer is to deliver to CRSI a written
notice of any items of computer software or applications developed and used by
the Company in connection with the Software Business that are not Year 2000
compliant, and within 25 days of the date of the Agreement, Buyer is required to
deliver to CRSI a cost estimate for remedying any non-compliance (the
"Compliance Estimate"). If the Compliance Estimate is less than $75,000, then
CRSI shall have the opportunity to either cure such non-compliance prior to
closing or escrow the amount of the Compliance Estimate at the Closing (which
amount shall be available to the Buyer to remedy any such non-compliance
following the Closing). If the amount of the Cost Estimate exceeds $75,000, then
CRSI may either remedy such non-compliance or escrow the amount of the
Compliance Estimate, provided that such escrow does not, in the Buyer's sole
discretion, create adverse accounting consequences to the Buyer. If the
Compliance Estimate exceeds $200,000, the Company shall have the right, in
addition to the right set forth above, to terminate the Agreement. The Company
is not aware that any of the products identified for testing are not year 2000
compliant, and does not expect the Compliance Estimate to exceed $75,000. Buyer
was to have delivered to the Company a notice of any non-compliant software on
or before September 23, 1998 and a compliance estimate on or before September
28, 1998. Buyer has completed its testing, and no such notices or estimates were
delivered. The Company does not expect to incur any material expenses as a
result of the compliance audit.
Pursuant to the Agreement the Company, CRSI and the Buyer have agreed to
take all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by the Agreement. The Buyer has further
agreed to use its reasonable efforts to maintain and promote the Software
Business and to cause all revenues to be kept separate for a period of one year
following the Deferred Period Commencement Date.
TERMINATION
The Agreement may be terminated and the transactions contemplated thereby
abandoned at any time prior to the Closing Date (i) by written consent of CRSI
and the Buyer, (ii) by the Buyer or CRSI, if the conditions to Closing are not
fulfilled or waived by December 22, 1998; (iii) by either CRSI or the Buyer if a
court of competent jurisdiction shall have issued a non-appealable final order
or taken other action having the effect of permanently restraining or otherwise
prohibiting the transactions contemplated by the Agreement; (iv) by the Company
if the year 2000 Compliance Estimate exceeds $200,000; or (v) by either
28
<PAGE>
the Company or CRSI if (a) the Board of Directors of the Company, in the
exercise of its fiduciary obligations to its shareholders, shall have withdrawn
or modified its recommendation of the Agreement or the transactions contemplated
thereby; or (b) the Board of Director of the Company shall have recommended to
its shareholders a Superior Proposal; provided that if the Agreement is
terminated as a result of the recommendation of a Superior Proposal that is
consummated within nine months of the date of termination, the Company or CRSI
shall pay to the Buyer a fee of $300,000.
REINCORPORATION PROPOSAL
GENERAL
The Board of Directors of the Company has approved and recommends that the
shareholders approve the proposed merger of the Company into a wholly owned
subsidiary organized under the laws of the State of Delaware for the purpose of
changing the Company's state of incorporation from the State of Wyoming to the
State of Delaware (the "Reincorporation"). The Board of Directors believes that
the Reincorporation will result in significant advantages as more fully
described in the section entitled--Principal Reasons For The Reincorporation And
The Merger below.
The following discussion summarizes certain aspects of the proposed
Reincorporation of the Company from the State of Wyoming to the State of
Delaware pursuant to the Agreement and Plan of Merger (the "Reincorporation
Merger Agreement") between the Company and a wholly owned subsidiary to be
incorporated under the laws of the State of Delaware ("Canmax-Delaware"). This
summary is not intended to be complete and is subject to, and qualified in its
entirety by, reference to (i) the "Comparison Of Wyoming And Delaware Corporate
Law" attached as EXHIBIT B to this Proxy Statement, (ii) the Reincorporation
Merger Agreement, a copy of which is attached to this Proxy Statement as EXHIBIT
C, (iii) the Certificate of Incorporation of Canmax-Delaware ("Delaware
Certificate"), a copy of which is attached to this Proxy Statement as EXHIBIT D,
(iv) the Bylaws of Canmax-Delaware ("Delaware Bylaws"), a copy of which is
attached to this Proxy Statement as EXHIBIT E and (v) the WBCA Dissenters'
Statue, a copy of which is attached to this Proxy Statement as EXHIBIT F. Copies
of the Articles of Incorporation and the Bylaws of the Company each as amended,
("Wyoming Articles" and "Wyoming Bylaws," respectively) are available for
inspection at the principal executive office of the Company and copies will be
sent to shareholders, without charge, upon oral or written request directed to
Canmax Inc., 150 W. Carpenter Frwy., Irving, Texas 75039, Attention: Corporate
Secretary, (972) 541-1600. In this discussion of the Reincorporation, the terms
"Company" or "Canmax-Wyoming" refer to the existing Wyoming corporation and the
term "Canmax-Delaware" refers to the new Delaware corporation which is the
proposed successor to Canmax-Wyoming.
PRINCIPAL FEATURES OF THE REINCORPORATION AND THE MERGER
The Reincorporation will be effected by the merger (the "Merger") of
Canmax-Wyoming with and into Canmax-Delaware, which will be incorporated under
the Delaware General Corporation Law ("DGCL") for purposes of the Merger.
Canmax-Delaware will be the surviving corporation in the Merger. Canmax-Wyoming
will cease to exist as a result of the Merger.
Upon completion of the Merger, each outstanding share of Common Stock, no
par value per share, of Canmax-Wyoming will be converted into one share of
Common Stock, $.001 par value, of Canmax-Delaware. As a result, the existing
shareholders of Canmax-Wyoming will automatically become shareholders of
Canmax-Delaware, Canmax-Wyoming will cease to exist and Canmax-Delaware will
continue to operate the business of the Company under a commercially attractive
name to be selected for Canmax-Delaware by the Board prior to the
Reincorporation. Canmax-Wyoming stock certificates will be deemed to represent
the same number of Canmax-Delaware shares as were represented by such
Canmax-Wyoming stock certificates prior to the Reincorporation. IT WILL NOT BE
NECESSARY FOR SHAREHOLDERS TO EXCHANGE THEIR CANMAX-WYOMING STOCK CERTIFICATES
FOR
29
<PAGE>
CANMAX-DELAWARE STOCK CERTIFICATES. Following the Reincorporation, previously
outstanding Canmax-Wyoming stock will constitute "good delivery" in connection
with sales through a broker, or otherwise, of shares of Canmax-Delaware.
The Reincorporation will not result in any change to the daily business
operations of the Company or the present location of the principal executive
offices of the Company in Irving, Texas. The consolidated financial condition
and results of operations of Canmax-Delaware immediately after the consummation
of the Reincorporation will be identical to that of Canmax-Wyoming immediately
prior to the consummation of the Reincorporation. In addition, at the effective
time of the Merger, the Board of Directors of Canmax-Delaware will consist of
those persons who were directors of the Company immediately prior to the Merger.
In addition, the individuals serving as executive officers of Canmax-Wyoming
immediately prior to the Merger (other than certain employees hired by the
Buyer) will serve as executive officers of Canmax-Delaware upon the
effectiveness of the Merger.
Pursuant to the Reincorporation Merger Agreement, each option or right to
purchase a share of Canmax-Wyoming Common Stock outstanding immediately prior to
the effective time of the Merger will become an option or right to purchase a
share of Canmax-Delaware Common Stock upon the same terms and conditions as
existed immediately prior to the effective time of the Merger. Future options
and rights, if any, granted under the Company's Stock Option Plan or otherwise
will be for shares of Canmax-Delaware Common Stock. The terms of the Company's
Stock Option Plan and all currently outstanding options to purchase
Canmax-Wyoming Common Stock are set forth under the captions "Executive
Compensation--Stock Option Plan." A vote for approval and adoption of the
Reincorporation Merger Agreement and the Reincorporation will constitute
approval of the assumption by Canmax-Delaware of the Company's Stock Option Plan
and agreements of Canmax-Wyoming, and the substitution of shares of
Canmax-Delaware Common Stock for shares of Canmax-Wyoming Common Stock as the
security to be received upon exercise of options, if any, granted in the future
under the Company's Stock Option Plan of Canmax-Wyoming.
PRINCIPAL REASONS FOR THE REINCORPORATION
As the Company plans for the future, Board of Directors and management
believe that it is essential to be able to draw upon well established principles
of corporate governance in making legal and business decisions. The prominence
and predictability of Delaware corporate law provide a reliable foundation on
which the Company's governance decisions can be based. The Company believes that
the shareholders will benefit from the responsiveness of Delaware corporate law
to their needs and to those of the corporation they own.
For many years the State of Delaware has followed a policy of encouraging
incorporation in that state and, in furtherance of that policy, has adopted
comprehensive, modern and flexible corporate laws which are periodically updated
and revised to meet changing business needs. As a result, many corporations have
been initially incorporated in Delaware or have subsequently reincorporated in
Delaware in a manner similar to that proposed by the Company. Because of
Delaware's prominence as a state of incorporation for many corporations, the
Delaware courts have developed considerable expertise in dealing with corporate
issues and a substantial body of case law has developed construing the DGCL and
establishing public policies with respect to corporations incorporated in
Delaware. Consequently, the DGCL is comparatively well known and understood. It
is anticipated that, as in the past, the DGCL will continue to be interpreted
and explained in a number of significant court decisions. The Board of Directors
believes that reincorporation in Delaware should provide greater predictability
with respect to the Company's corporate affairs.
In addition, the Delaware Secretary of State is particularly flexible,
expert and responsive in its administration of the filings required for mergers,
acquisitions and other corporate transactions. Delaware has become a preferred
domicile for most major corporations in the United States and Delaware law and
Delaware law and administrative practices have become comparatively well-known
and widely understood.
30
<PAGE>
As a result of these factors, it is anticipated that Delaware law will provide
greater efficiency, predictability and flexibility in the Company's legal
affairs than presently available under Wyoming law.
The Board believes that the proposed Reincorporation under Delaware law will
enhance the Company's ability to attract and retain qualified directors and
officers as well as encourage directors and officers to continue to make
independent decisions in good faith on behalf of the Company. The law of
Delaware offers greater certainty and stability from the perspective of those
who serve as corporate officers and directors. To date, the Company has not
experienced difficulty in retaining directors or officers. However, as a result
of the significant potential liability and relatively small compensation
associated with service as a director, the Company believes that the better
understood, and comparatively stable, corporate environment afforded by Delaware
will enable it to compete more effectively with other public companies, most of
which are incorporated in Delaware, in the recruitment of talented and
experienced directors and officers. The parameters of director and officer
liability are more extensively addressed in Delaware court decisions and
therefore are better defined and better understood than under Wyoming law.
The Board believes that Delaware law strikes an appropriate balance with
respect to personal liability of directors and officers, and that
Reincorporation in Delaware will enhance the Company's ability to recruit and
retain directors and officers in the future, while providing appropriate
protection for shareholders from possible abuses by directors and officers. In
this regard, it should be noted that directors' personal liability is not, and
can not be, eliminated under Delaware law for intentional misconduct, bad faith
conduct or any transaction from which the director derives an improper personal
benefit, or for violations of federal laws such as federal securities laws.
The Board of Directors has not viewed the increased protections permitted
under the DGCL as a reason for recommending the Reincorporation. Shareholders
should note however that since members of the Board of Directors will receive
the benefit of expanded indemnification provisions and limitations on liability,
the Board of Directors may be viewed as having a personal interest in the
approval of the Reincorporation at the potential expense of shareholders.
As a Delaware corporation, Canmax-Delaware would qualify for the provisions
of Section 203 of DGCL (the "Delaware Business Combination Statute"), which
regulates certain business combinations between a corporation and an "Interested
Shareholder" thereof. With certain exceptions, section 203 prevents a person who
acquires 15% or more of the voting stock of a Delaware corporation (an
"Interested Shareholder") from effecting a merger or certain other business
combinations with such corporation for three years, unless the corporation's
board of directors, prior to the date the acquiror becomes an Interested
Shareholder, approves either the business combination or the transaction that
results in the acquiror's becoming an Interested Shareholder. Although Article
18 of the WBCA (the "Wyoming Business Combination Statute") is a somewhat
similar statute that regulates such transactions, the Wyoming Business
Combination Statute is only applicable to corporations with substantial business
operations within Wyoming. Canmax-Wyoming does not have sufficient operations
within the State of Wyoming to qualify for the protections of the Wyoming
Business Combination Statute. Therefore, the statute is not currently applicable
to Canmax-Wyoming. If the Company reincorporates in Delaware, the Delaware
Business Combination Statute, which has no comparable residency requirements,
would be applicable to the Company. While the Reincorporation Proposal is not
being recommended in response to any specific effort of which the Company is
aware to accumulate the Company's shares or to obtain control of the Company,
the Board believes that the provisions of the Delaware Business Combination
Statute will enhance the Board's ability to assure more equitable treatment of
the Company's shareholders in the event that a possible take over attempt. For a
more complete description of the Delaware Business Combinations Statute, see
"State Takeover Statutes" of EXHIBIT B attached to this Proxy Statement.
31
<PAGE>
POSSIBLE DISADVANTAGES OF REINCORPORATION
As a result of the Merger, the Company would have the benefit of the
Delaware Business Combination Statute which may deter certain acquisitions of
the Company in transactions that are not approved by the Board of Directors. In
addition, the DGCL has been publicly criticized on the grounds that it does not
afford minority shareholders all the same substantive rights and protections
that are available under the laws of a number of other states (including
Wyoming). For example, if the Reincorporation is consummated, the Company will
not be required in the future under the DGCL to obtain shareholder approval, or
to grant class voting and appraisal rights, in connection with certain kinds of
mergers and corporate reorganizations which under Wyoming law would be subject
to those requirements. For information regarding those and other material
differences between the WBCA and the DGCL, see EXHIBIT B attached to this Proxy
Statement. The Board of Directors believes that the advantages of the
Reincorporation to the Company and its Shareholders outweigh its possible
disadvantages.
SHAREHOLDERS ARE URGED TO READ THE SUMMARY OF CERTAIN SIGNIFICANT
DIFFERENCES IN THE PROVISIONS OF THE WBCA AND THE DGCL AFFECTING THE RIGHTS AND
INTERESTS OF SHAREHOLDERS SET FORTH IN EXHIBIT B ATTACHED TO THIS PROXY
STATEMENT.
ADOPTION OF DELAWARE CERTIFICATE PROPOSALS
AND DELAWARE BYLAWS PROPOSAL
In connection with the Reincorporation, Shareholders of the Company are
being asked to approve certain provisions of the Delaware Certificate set forth
in its entirety in EXHIBIT D hereto which differ from the current provisions of
the Wyoming Articles and alter the rights currently given to shareholders under
the Wyoming Articles and Wyoming Bylaws. The proposed provisions include (i) the
Delaware Certificate would authorize up to 10 million shares of a new class of
undesignated Preferred Stock, which would allow the Board of Directors of the
Company to issue, without further shareholder action, one or more series of
Preferred Stock (ii) the proposed Delaware Certificate will eliminate the
ability of shareholders to take action by written consent thus requiring that
all shareholder action be taken at a meeting of shareholders; (iii) the Delaware
Certificate will permit directors and officers to be indemnified to the fullest
extent permitted by Delaware law; and (iv) the Delaware Certificate will require
a two-thirds vote of the shareholders to amend the provisions described in (ii)
and (iii) above and, if shareholder action is ever sought to amend the Delaware
Bylaws, to amend the Delaware Bylaws. In addition Shareholders are being
requested to adopt the Delaware Bylaws set forth in EXHIBIT E hereto. The
Delaware Bylaws will eliminate any authority of shareholders to call a special
meeting of the Company and will impose certain notice requirements on
shareholders seeking to present proposals at annual meetings of shareholders and
seeking to nominate directors. Shareholders should further be aware that
following the Reincorporation, changes to the Bylaws (including changes to the
provisions adopted pursuant to this Proxy Statement) may be repealed by the
Board of Directors without Shareholder approval. Shareholders should review the
sections describing the principal provisions of the Delaware Certificate and
Bylaws below and EXHIBIT B for a more complete summary of material differences
in the rights of shareholders of Canmax-Wyoming compared to the rights available
to shareholders of Canmax-Delaware.
APPROVAL AND ADOPTION OF THE REINCORPORATION MERGER AGREEMENT AND THE
DELAWARE ARTICLES AND BYLAWS WILL AFFECT CERTAIN RIGHTS OF SHAREHOLDERS.
ACCORDINGLY, SHAREHOLDERS ARE URGED TO READ CAREFULLY THIS ENTIRE PROXY
STATEMENT AND THE EXHIBITS TO THE PROXY STATEMENT BEFORE VOTING.
32
<PAGE>
DELAWARE CERTIFICATE PROPOSAL ONE:
AUTHORIZATION OF BLANK CHECK PREFERRED
GENERAL
The Wyoming Articles presently do not authorize any class of equity
securities other than the Common Stock. The proposed Delaware Certificate would
authorize the issuance by the Company of up to 10 million shares of preferred
stock, par value $.001 per share (the "Preferred Stock").
PRINCIPAL REASONS FOR AUTHORIZATION
The Board of Directors believes that the authorization of the Preferred
Stock is in the best interests of the Company and its shareholders and believes
that it is advisable to authorize such shares and have them available in
connection with possible future transactions, such as financings, strategic
alliances, acquisitions and other uses not presently determinable and as may be
deemed to be feasible and in the best interests of the Company. In addition, the
Board of Directors believes that it is desirable that the Company have the
flexibility to issue shares of Preferred Stock without further shareholder
action, except as otherwise provided by law.
The Preferred Stock will have such designations, preferences, conversion
rights, cumulative, relative, participating, optional or other rights, including
voting rights, qualifications, limitations or restrictions thereof as may be
determined by the Board of Directors. Thus, if the Delaware Certificate is
approved, the Board of Directors would be entitled to authorize the creation and
issuance of up to 10 million shares of Preferred Stock in one or more series
with such limitations and restrictions as may be determined in the Board's sole
discretion, without further authorization by the Company's shareholders.
POSSIBLE DISADVANTAGES OF AUTHORIZATION
It is not possible to determine the actual effect of the Preferred Stock on
the rights of the shareholders of the Company until the Board of Directors
determines the rights of the holders of a series of the Preferred Stock.
However, such effects might include (i) restrictions on the payments of
dividends to holders of the Common Stock; (ii) dilution of voting power to the
extent that the holders of shares of Preferred Stock are given voting rights;
(iii) dilution of the equity interests and voting power if the Preferred Stock
is convertible into Common Stock; and (iv) restrictions upon any distribution of
assets to the holders of the Common Stock upon liquidation or dissolution and
until the satisfaction of any liquidation preference granted to the holders of
Preferred Stock. Shareholders will not have preemptive rights to subscribe for
shares of Preferred Stock.
The Board of Directors is required by Delaware law to make any determination
to issue shares of Preferred Stock based upon its judgment as advisable and in
the best interests of the shareholders and the Company. Although the Board of
Directors has no present intention of doing so, it could issues shares of
Preferred Stock (within the limits imposed by applicable law) that could,
depending on the terms of such series, make more difficult or discourage an
attempt to obtain control of the Company by means of a merger, tender offer,
proxy contest or other means, when, in the judgment of the Board of Directors,
such action would be in the best interests of the shareholders and the Company.
The issuance of shares of Preferred Stock could be used to create voting or
other impediments or to discourage persons seeking to gain control of the
Company, for example, by the sale of Preferred Stock to purchasers favorable to
the Board of Directors. In addition, the Board of Directors could authorize
holders of a series of Preferred Stock to vote either separately as a class or
with the holders of the Common Stock on any merger, sale or exchange of assets
by the Company or any other extraordinary corporate transaction. The existence
of the additional authorized shares could have the effect of discouraging
unsolicited takeover attempts. The issuance of new shares could also be used to
dilute the stock ownership of the person or entity seeking to obtain control of
the Company should the Board of Directors consider the action of such entity or
person not to be in the best interests of the shareholders and the Company. Such
issuance of Preferred Stock could also have the effect of diluting the earnings
per share and book value per share of the Common Stock.
33
<PAGE>
THE BOARD OF DIRECTORS HAS APPROVED DELAWARE CERTIFICATE PROPOSAL ONE AND
RECOMMENDS THAT SHAREHOLDERS VOTE FOR THIS PROPOSAL.
DELAWARE CERTIFICATE PROPOSAL TWO:
ELIMINATION OF SHAREHOLDER CONSENTS
GENERAL
Under the Wyoming Articles and Bylaws any action to be taken or which may be
taken at an annual or special meeting of shareholders may be taken without prior
notice and without a vote if a consent in writing setting forth the action so
taken is signed by the holders of outstanding stock of the Company having not
less than the minimum number of votes which would have been necessary to
authorize such action at a meeting in which all shares entitled to vote thereon
were present. The Delaware Certificate would eliminate the ability of the
shareholders to take action without a meeting of stockholders.
REASONS FOR PROPOSAL
Under Delaware law, when shareholders are to take action at a meeting, a
corporation must give written notice of the meeting to all shareholders entitled
to vote, even when one shareholder or group will have a majority of the votes to
be cast. This prior notice allows minority shareholders to take whatever action
they deem appropriate to protect their interests, including seeking to persuade
majority shareholders to follow a different course, selling their shares or
litigation. If action is taken by majority holders by written consent, no prior
notice is necessary and minority holders may not have any opportunity to protect
their interests. The primary purpose of this provision is to prevent shareholder
action without prior notice to all shareholders.
POSSIBLE DISADVANTAGES OF PROPOSAL
The proposed provision will have the effect of preventing the shareholders
of the Company from taking action at any time other than an annual meeting (or a
special meeting authorized by the Board of Directors or other authorized
persons) to replace directors, amend the Certificate of Incorporation or take
any other action authorized to be taken by shareholders under Delaware law. Such
a provision may have the effect of discouraging potential purchasers from
attempting to acquire control of the Company or, in some cases, may discourage
the accumulation of large blocks of Common Stock.
THE BOARD OF DIRECTORS HAS APPROVED DELAWARE CERTIFICATE PROPOSAL TWO AND
RECOMMENDS THAT SHAREHOLDERS VOTE FOR THIS PROPOSAL.
DELAWARE CERTIFICATE PROPOSAL THREE:
INDEMNIFICATION
GENERAL
The Delaware Certificate would, to the fullest extent permitted under
applicable law as from time to time in effect, (i) require indemnification
(including advancement of expenses) of the Company's directors and officers and
(ii) at the option of the Board of Directors in any particular case, the
Company's employees and agents.
REASONS FOR PROPOSAL
The Board of Directors believe that this proposal is desirable in order for
the Company to be able to continue to attract and retain responsible individuals
to serve as its directors and officers, in light of the present difficult
environment in which such persons, particularly directors, must serve. In recent
years, investigations, claims, actions, suits or proceedings (including
derivative actions) seeking to impose liability on directors and officers of
corporations have become increasingly common. Such proceedings can be extremely
expensive, whatever their eventual outcome. In view of the costs and
uncertainties of litigation in
34
<PAGE>
general, it is often prudent to settle proceedings in which claims against a
director or officer are made. Settlement amounts, even if immaterial to the
corporation involved and minor compared to the enormous amounts frequently
claimed, often exceed the financial resources of most individual director or
officer defendants. As a result, an individual may conclude that potential
exposure to the costs and risks of proceedings in which he or she may become
involved may exceed any benefit to him or her from serving as a director or
officer of a corporation.
POSSIBLE DISADVANTAGES OF PROPOSAL
The proposed provision will have the effect of expanding the scope of
actions for which the Company indemnifies its directors and officers and will
permit the Board of Directors to extend such indemnification benefits to the
Company's employees and agents. The expansion or extension of such benefits may
result in additional expenses to the Company than presently provided for under
the Company's Wyoming Articles and Bylaws.
THE BOARD OF DIRECTORS HAS APPROVED DELAWARE CERTIFICATE PROPOSAL THREE AND
RECOMMENDS THAT SHAREHOLDERS VOTE FOR THIS PROPOSAL.
DELAWARE CERTIFICATE PROPOSAL FOUR:
SUPERMAJORITY VOTING REQUIREMENTS TO AMEND OR REPEAL CERTAIN PROVISIONS
OF THE CERTIFICATE OF INCORPORATION OR BYLAWS
GENERAL
The Delaware Certificate requires that, to amend, repeal or adopt any
provision inconsistent with Delaware Certificate Proposal Two (Elimination of
Stockholder Consents) or Delaware Certificate Proposal Three (Indemnification),
the affirmative vote of at least 66 2/3% of the outstanding shares of Common
Stock of the Company shall be required. The Delaware Certificate also requires
the same threshold for the shareholders to amend the Bylaws, if Shareholders are
seeking to amend the Bylaws.
REASONS FOR PROPOSAL
Under the DGCL, amendments to the Certificate of Incorporation would
generally require the approval of the holders of a majority of the outstanding
stock entitled to vote thereon, but the law also permits a corporation to
include provisions in its charter documents which require a greater vote than
the vote otherwise required by law for any corporate action. The requirement of
an increased shareholder vote is designed to prevent a person holding or
controlling a majority, but less than 66 2/3%, of the shares of the Company from
avoiding the requirements of the proposed amendments by simply repealing them.
Further, the Board of Directors of the Company deems it advisable and in the
best interests of the Company and its shareholders to provide that the Company's
Bylaws may not be amended by the shareholders unless such action is approved by
the affirmative vote of the holders of not less than 66 2/3% of the voting power
of all shares of stock of the Company entitled to vote thereon. The Bylaws may
still be amended without shareholder approval by the Board of Directors
consistent with the provisions of applicable Delaware law and the express
permission given in the Delaware Certificate.
POSSIBLE DISADVANTAGES OF PROPOSAL
The super-majority voting requirement for certain amendments to the Delaware
Certificate or the Delaware Bylaws may deter potential acquisitions of the
Company in transactions that are not approved by or negotiated with the Board.
Further, these provisions also make it more difficult for shareholders to repeal
the indemnification benefits extended to the Company's directors and officers.
THE BOARD OF DIRECTORS HAS APPROVED DELAWARE CERTIFICATE PROPOSAL FOUR AND
RECOMMENDS THAT SHAREHOLDERS VOTE FOR THIS PROPOSAL.
35
<PAGE>
DELAWARE BYLAWS PROPOSAL
GENERAL
In connection with the Reincorporation and the adoption of the Delaware
Certificate, Shareholders are also being asked to approve the Delaware Bylaws,
which differ in certain respects from the Bylaws of Canmax-Wyoming. These
differences are summarized below. In addition, shareholders should be aware that
following the Reincorporation, the Bylaws of Canmax-Delaware may be further
amended by the Board of Directors of the Company, without the need for further
shareholder action.
DELAWARE BYLAWS; CALL OF SPECIAL MEETING OF SHAREHOLDERS
The Wyoming Bylaws of the Company provide that special meetings of the
shareholders may be called by the Board of Directors or the shareholders of the
Company owning at least 10% of the shares entitled to vote on an issue. The
Delaware Bylaws eliminate any authority for the shareholders of the Company to
call special meetings for any reason. The Board of Directors of the Company
believes that this change will insulate the management of the Company from
requests for special meetings, allowing it to concentrate on business functions.
By design, a shareholder will not be able to force shareholder consideration of
a proposal over the opposition of the Board by calling a special meeting of
shareholders prior to such time as the Board believes such consideration to be
appropriate.
Stockholders should recognize that this provision will apply to any reason
that shareholders may have to call a special meeting. It will prevent
shareholders from calling a special meeting even when a majority desires to do
so.
DELAWARE BYLAWS; ADVANCE NOTICE REQUIREMENT TO PRESENT PROPOSALS AT AN ANNUAL
MEETING OF SHAREHOLDERS.
The Delaware Bylaws proposed by the Board of Directors of the Company
contain a provision that the only business that may be conducted at any annual
meeting of the shareholders is business that has been brought before the annual
meeting by, or at the direction of, the majority of the directors or by any
shareholder of the Company who provides timely notice of the proposal in writing
to the Secretary of the Company. To be timely, a shareholder's notice must be
delivered to, or mailed to and received at, the principal executive offices of
the Company no later than ninety (90) days prior to the scheduled meeting,
regardless of any postponements, deferrals or adjournments of that meeting to a
later date. However, if less than one hundred (100) days notice or prior
disclosure of the date of the scheduled meeting is given, notice by the
shareholders must be delivered or received not later than the close of business
on the tenth (10th) day following the earlier of the day on which such notice of
the date of the scheduled annual meeting was mailed or the day on which public
disclosure was made. The shareholder's notice to the Secretary must set forth in
writing each matter the shareholder proposes to bring before the annual meeting
including: a brief description thereof and the reasons for conducting such
business at the annual meeting; the names and addresses, as they appear on the
corporate books, of shareholders supporting such proposal; the class and number
of shares of the Company's stock which are beneficially owned by the supporting
shareholders on the date of the presenting shareholder's notice; and any
material interest of the presenting or supporting shareholders in such proposal.
The proposed provision in the Delaware Bylaws provides an orderly procedure
for the notification of the Board of Directors of business which is to be
presented at shareholders' meetings. This will enable the Board of Directors to
plan such meetings and also, to the extent it deems it necessary and desirable,
to inform the shareholders, prior to the meeting, of any new business that will
be presented at the meeting. The Board will also be able to make a
recommendation or statement of its position so as to enable shareholders to
better determine whether they desire to attend the meeting or grant a proxy to
the Board of Directors as to the disposition of any such business.
The Delaware Bylaws may limit to some degree the ability of shareholders to
initiate discussion at a shareholders meeting. It will also preclude the
conducting of business at a particular meeting if the proper
36
<PAGE>
notice procedures have not been followed. This will also have the effect of
discouraging belated attempts by third parties to begin ill-considered,
disruptive discussions at shareholders meetings.
DELAWARE BYLAWS; ADVANCE NOTICE REQUIREMENT TO NOMINATE INDIVIDUALS FOR
DIRECTORSHIPS
The Delaware Bylaws provide that, subject to any existing rights of holders
of the Preferred Stock then outstanding, only persons who are nominated in
accordance with the procedures specified therein shall be eligible for election
as directors. Written notice of a shareholder nomination must be made to the
Secretary of the Company not less than ninety (90) days prior to the scheduled
meeting, regardless of any postponements, deferrals or adjournments of that
meeting to a later date. If, however, less than one hundred (100) days notice or
prior public disclosure of the date of the scheduled meeting is given, notice by
the shareholder must be so delivered or received not later than the close of
business on the tenth (10th) day following the earlier of the day on which such
notice of the date of the scheduled annual meeting was mailed or the day on
which public disclosure was made. This notice must set forth the name, age,
business address and residence address of the person being nominated, a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations that are to be made by the
shareholder, such information regarding each nominee purposed by such
shareholder as would have been required to be included in a Proxy Statement
filed pursuant to the proxy rules of the Securities and Exchange Commission had
such requirements been applicable and each nominee been nominated, or intended
to be nominated, by the Board of Directors and the consent of each nominee to
serve as the director of the Company if so elected.
Without this provision in the Delaware Bylaws, a shareholder could nominate
any person for election as a director, without prior notice to the Board or
other shareholders, at any meeting called for the purpose of electing directors.
The advance notice requirement, by preventing shareholder nominations from the
floor at an annual meeting of shareholders, affords the Board a meaningful
opportunity to consider the qualifications of the proposed nominees and, to the
extent it deems it necessary or desirable, to inform shareholders about such
qualifications.
Although the Delaware Bylaws do not give the Board any power to approve or
disapprove shareholder nominations for directors, they will preclude shareholder
nominations if proper procedures are not followed. Although the Board does not
believe that the Delaware Bylaws will have a significant impact on any attempt
by a third party to obtain control of the Company, it is possible that it may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors, or otherwise attempting to obtain control of
the Company or effect a change in management, without regard to whether this
would be beneficial to the Company and its shareholders.
THE BOARD OF DIRECTORS HAS APPROVED THE DELAWARE BYLAW PROPOSAL AND RECOMMENDS
THAT SHAREHOLDERS VOTE FOR THIS PROPOSAL.
INTERESTED PARTIES
Except as described above with regard to potential benefits to be received
by the officers and directors of the Company arising from the liability
limitation and indemnification provisions under the DGCL, no director or
executive officer of the Company has any interest, direct or indirect, in the
Merger, the proposed Reincorporation, or the Certificate/Bylaws Proposals other
than any interest arising from the ownership of securities of the Company.
AMENDMENT, DEFERRAL OR TERMINATION OF THE REINCORPORATION
MERGER AGREEMENT
If approved by the shareholders at the Annual Meeting, it is anticipated
that the Reincorporation will become effective at the earliest practicable date.
However, the Reincorporation Merger Agreement provides that it may be amended,
modified or supplemented before or after approval by the shareholders of the
Company; but no such amendment, modification or supplement may be made if it
would have a
37
<PAGE>
material adverse effect upon the rights of the Company's shareholders unless it
has been approved by the shareholders. The Reincorporation Merger Agreement also
provides that the Company may terminate and abandon the Merger or defer its
consummation for a reasonable period, notwithstanding shareholder approval, if
in the opinion of the Board of Directors or, in the case of deferral, of an
authorized officer, such action would be in the best interests of the Company
and its shareholders.
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The Company believes that, for federal income tax purposes, no gain or loss
will be recognized by the holders of Common Stock as a result of the
consummation of the Reincorporation and no gain or loss will be recognized by
Canmax-Wyoming or Canmax-Delaware. Each holder of Common Stock will have the
same basis in the Canmax-Delaware Common Stock received pursuant to the
Reincorporation (other than those who exercise dissenters' rights) as such
shareholder had in the Common Stock held immediately prior to the
Reincorporation, and the shareholder's holding period with respect to the
Canmax-Delaware Common Stock will include the period during which such
shareholder held the corresponding Common Stock, so long as the Common Stock was
held as a capital asset at the time of consummation of the Reincorporation.
ALTHOUGH IT IS NOT ANTICIPATED THAT STATE OR LOCAL INCOME TAX CONSEQUENCES
TO SHAREHOLDERS WILL VARY FROM THE FEDERAL INCOME TAX CONSEQUENCES DESCRIBED
ABOVE, SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE EFFECT OF
THE REINCORPORATION UNDER STATE, LOCAL OR FOREIGN INCOME TAX LAWS.
The Company also believes that it will not recognize gain or loss for
Federal income tax purposes as a result of the Merger, and that Canmax-Delaware
will succeed without adjustment to the tax attributes of the Company.
Shareholders should be aware that franchise taxes in the State of Delaware are
likely to be higher than those in the State of Wyoming. Based on the Company's
present financial position, the estimated annual franchise tax in the State of
Delaware will be approximately $1,500 greater than the amount of tax paid last
year to the State of Wyoming.
A dissenting shareholder who receives payment for his shares upon exercise
of his rights of dissent may recognize capital gain or loss for federal income
tax purposes, measured by the difference between the basis for his shares and
the amount of the payment received. Shareholders who may dissent and seek cash
payment for their shares should consult with their tax advisors.
DISSENTERS' RIGHTS
Holders of Common Stock of Canmax-Wyoming will have the right to dissent and
seek the payment of "fair value" of their shares with regard to both the
Proposed Sale, the Reincorporation Proposal and the adoption of the Delaware
Certificate. Pursuant to Article 13 of the WBCA, holders of record of Canmax-
Wyoming Common Stock who object and who follow the procedures prescribed by
Article 13 of the WBCA will be entitled to receive a cash payment equal to the
"fair value" of the shares of Canmax-Wyoming Common Stock held by them. Set
forth below is a summary of the procedures holders of Canmax-Wyoming Common
Stock must follow in order to exercise their dissenters' rights under the WBCA.
This summary does not purport to be complete and is qualified in its entirety by
reference to Article 13 of the WBCA (a copy of which, as of the date hereof, is
attached to this Proxy Statement as EXHIBIT F) and to any amendments to, or
modifications of, such provisions as may be adopted after the date hereof.
Any holder of shares of Common Stock of Canmax-Wyoming contemplating a
possibility of objecting to the Proposals should carefully review the text of
EXHIBIT F (particularly the specified procedural steps required to perfect their
dissenters' rights) and should consult as appropriate with such holder's legal
counsel. The dissenters' rights will be lost if the procedural requirements of
Article 13 of the WBCA are not fully and precisely satisfied.
38
<PAGE>
A record shareholder may assert dissenters' rights to fewer than all shares
registered in his name only if he dissents with respect to all shares
beneficially owned by a beneficial holder for whom he acts as nominee and
notifies the Company in writing of the name and address of each person on whose
behalf he has such dissenters' rights. A beneficial holder may assert
dissenters' right as to shares held on his behalf only if he submits to the
Company the record holder's written consent to the dissent not later than the
time the beneficial shareholder asserts dissenters' rights and does so with
respect to all shares to which he is beneficial owner.
Under Article 13 of the WBCA, any shareholder who desires to assert
dissenters' rights shall deliver to the Company before the vote is taken written
notice of his intent to demand payment for his shares if the proposed action is
effected and shall not vote his shares in favor of the proposed action. If the
proposed corporate action is effected, the Company shall deliver a written
dissenters' notice to all shareholders who properly exercised their dissenters'
rights within ten (10) days after the corporate action is effected. Such notice
from Company shall include, among other items, a form for demanding payment (and
deliver certificates representing shares of Canmax-Wyoming), as well as a date
not less than thirty (30) days and not more than sixty (60) days after the date
of the Company's delivery of the initial dissenters' notice by which the Company
must receive the payment demand. A shareholder who demands payment and deposits
his share certificates in accordance with the terms of the Company's payment
demand shall be entitled to receive from the Company the amount that the Company
estimates to be the "fair value" of the shares plus accrued interest. Such
payment is to be accompanied by specified financial information regarding the
Company, a statement of the Company's estimate of the fair value of the shares
and an explanation of how any accrued interest was calculated. If a dissenting
shareholder disagrees with the Company's calculation of the "fair value" for the
shares tendered, he may notify the corporation in writing of his own estimate of
fair value or reject the Company's offer and demand payment of fair value of his
shares. If a dissenting shareholder waives his rights to contest the Company's
determination of "fair value," he must notify the Company of his demand of
payment of a different value in writing within thirty (30) days after the
Company made or offered payment for his shares.
If a demand for payment remains unsettled, the Company may commence a
proceeding within sixty (60) days after receiving the payment demand and
petition the court to determine the fair value of the shares and accrued
interest. If the Company does not commence a proceeding within the sixty day
period, it must pay to each dissenting shareholder the amount demanded by such
shareholder.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
MARKET FOR COMMON STOCK
Canmax has only one class of shares, common stock without par value, which
was traded on the Nasdaq SmallCap Market tier of the Nasdaq Stock Market until
June 8, 1998. Canmax Common Stock was then delisted and is now traded on the OTC
Bulletin Board.
MARKET PRICES 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 for the period in which the Common Stock traded thereon
and as reported by dealers appearing as market makers on the OTC Bulletin board
for the period in which the common Stock traded on the over-the-counter market.
All per share amounts have been retroactively adjusted to reflect a one-for-five
reverse stock split of Canmax's
39
<PAGE>
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.
<TABLE>
<CAPTION>
CANMAX COMMON STOCK
CLOSING PRICES
--------------------
HIGH LOW
--------- ---------
<S> <C> <C>
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.................................................................... $ 2.50 $ 1.38
FISCAL 1998
First Quarter..................................................................... $ 1.50 $ 0.88
Second Quarter.................................................................... $ 1.13 $ .63
Third Quarter..................................................................... $ .72 $ .28
Fourth Quarter.................................................................... $ .65 $ .32
FISCAL 1999
First Quarter (through November 10, 1998)......................................... $ .31 $ .31
</TABLE>
The range of the high and low bid quotations per share of Common Stock on
September 2, 1998 (the date preceding the Agreement) was $.53 and $.48,
respectively. The only bid quotation on November 10, 1998 (the latest
practicable date trading prior to the printing of this Proxy Statement) was
$.31.
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 retain future earnings for
reinvestment in its business. Additionally, dividends are restricted to less
than 5% of net operating income in accordance with the terms of the Founders
Loan Agreement.
HOLDERS OF RECORDS
There were 448 shareholders of record as at September 28, 1998, and
approximately 2,790 beneficial shareholders.
40
<PAGE>
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following tabulation reflects the historical net income (loss) per share
from continuing operations in comparison with the pro forma net income (loss)
per share from continuing operations after giving effect to the Proposed Sale
and discontinued operations resulting therefrom and settlement of $1.5 million
of outstanding debentures in connection therewith. The information presented in
this tabulation should be read in conjunction with the description of the
Proposed Sale contained in this Proxy Statement and the pro forma financial
statements appearing elsewhere herein and the Company's consolidated financial
statements.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
OCTOBER 31, ENDED JULY
1997 31, 1998
------------- -------------
<S> <C> <C>
Basic net income (loss) per share--continuing operations:
Historical........................................................................... $ 0.01 $ (0.39)
Pro Forma............................................................................ $ 0.00 $ (0.18)
Diluted net income (loss) per share--continuing operations:
Historical........................................................................... $ 0.01 $ (0.39)
Pro Forma............................................................................ $ 0.00 $ (0.18)
</TABLE>
41
<PAGE>
BOOK VALUE PER SHARE
(UNAUDITED)
The following tabulation reflects the historical net book value per share of
the Company's Common Stock in comparison with the pro forma net book value per
share of the Company's Common Stock after giving effect to the Proposed Sale and
discontinued operations resulting therefrom, settlement of $1.5 million of
debentures in connection therewith, transaction costs of approximately $250,000
and the settlement of certain accrued obligations and accounts payable of
$170,000 at July 31, 1998 based on 6,611,005 basic shares outstanding and
9,009,205 diluted shares outstanding for the historical net book value and
7,893,745 basic shares and 8,416,945 diluted shares outstanding for the pro
forma net book value. The information presented in this tabulation should be
read in conjunction with the description of the Proposed Sale contained in this
Proxy Statement and the pro forma financial statements (elsewhere herein) and
the Company's consolidated financial statements.
<TABLE>
<CAPTION>
AS OF JULY 31, 1998
------------------------
HISTORICAL PRO FORMA
----------- -----------
<S> <C> <C>
Book Value Per Share
Basic............................................................... $ 0.14 $ 0.43
Diluted(1).......................................................... $ 0.13 $ 0.43
</TABLE>
- ------------------------
(1) Reflects conversion of options and warrants for 523,200 shares of the
Company's common stock for proceeds of $271,406, and conversion of the
$1,500,000 debenture. The number of shares included in the calculation (a)
of the diluted historical amount assumes the settlement of $1.5 million of
debentures at $.80 per share and (b) of the diluted pro forma amount assumes
the repayment of $1.0 million of $1.5 million of debentures in cash and the
conversion of $0.5 million plus accrued interest at $.50 per share.
42
<PAGE>
PRO FORMA SELECTED FINANCIAL DATA
(UNAUDITED)
The following unaudited pro forma selected financial data for the fiscal
year ended October 31, 1997, and the nine month period ended July 31, 1998 and
as of July 31, 1998 were derived from the unaudited pro forma statements of
operations and the unaudited pro forma balance sheet included elsewhere in this
Proxy Statement. This pro forma selected financial data should be read in
conjunction with the description of the Proposed Sale contained in this Proxy
Statement and the pro forma statements appearing elsewhere herein.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
------------------------------------
FISCAL YEAR
ENDED
OCTOBER 31, NINE MONTHS ENDED
1997(1) JULY 31, 1998(2)
---------------- ------------------
<S> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:
Revenues................................................................... $ -- $ 110,722
Costs of prepaid phone cards............................................... -- (226,630)
Operating expenses......................................................... (29,525) (239,884)
Interest and financing..................................................... -- (17,464)
Loss on disposal of USCommunication........................................ -- (1,155,385)
---------------- ------------------
Net income (loss).......................................................... (29,525) (1,528,641)
---------------- ------------------
---------------- ------------------
Net income (loss) per share, basic......................................... $ (0.00) $ (0.18)
---------------- ------------------
---------------- ------------------
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
JULY 31, 1998(3)
--------------------
<S> <C>
PRO FORMA BALANCE SHEET DATA:
Total assets................................................................................ $ 3,528,222
Working Capital............................................................................. 2,863,519
Non-current obligations..................................................................... --
Shareholders' equity........................................................................ 3,369,199
</TABLE>
(1) Reflects the historical information of Canmax for the year ended October 31,
1997, the effect of the sale of substantially all the assets and operations
of the retail system subsidiary and the settlement of $1.5 million of
outstanding debentures as if the transaction occurred on November 1, 1996.
(2) Reflects the historical information of Canmax for the nine months ended July
31, 1998, the effect of the sale of substantially all the assets and
operations of the retail system subsidiary and the settlement of $1.5
million of outstanding debentures as if the transaction occurred on November
1, 1997.
(3) Reflects the historical information of Canmax as of July 31, 1998, the
effect of the sale of substantially all the assets and operations of the
retail system subsidiary and the settlement of $1.5 million of outstanding
debentures as if the transaction occurred on July 31, 1998. Further reflects
transaction costs of $250,000 and settlement of certain accrued obligations
and accounts payable of $170,000.
43
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following are selected consolidated financial data of the Company on a
consolidated basis for the fiscal years ended October 31, 1993, 1994, 1995, 1996
and 1997, and the nine-month periods ended July 31, 1997 and 1998. The selected
consolidated financial data presented below should be read in conjunction with
the consolidated financial statements of the Company, together with the Notes to
consolidated financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED OCTOBER 31, ENDED JULY 31,
----------------------------------------------------- --------------------
1997 1996 1995 1994 1993 1998 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA:
Revenue................................. $ 12,736 $ 12,264 $ 8,996 $ 9,675 $ 4,659 $ 6,583 $ 9,089
Cost of software licenses, product
revenue and development revenue....... 5,337 4,489 4,352 3,219 1,411 3,754 6,242
Cost of prepaid phone cards............. -- -- -- -- -- 792 --
Operating expenses...................... 7,291 7,604 8,328 8,305 4,361 3,635 3,645
Interest expense, net................... 21 28 50 66 29 101 13
Writedown of capitalized software....... -- -- -- 4,127 -- -- --
Gain on disposal of USCommunications.... -- -- -- -- -- (1,155) --
Net Income (loss)....................... 87 143 (3,734) (6,042) (1,142) (2,854) (811)
Net Income (loss) per share
Basic................................. $ 0.01 $ 0.02 $ (0.79) $ (1.54) $ (0.31) $ (0.39) $ (0.15)
Diluted............................... $ 0.01 $ 0.02 $ (0.79) $ (1.54) $ (0.31) $ (0.39) $ (0.15)
SELECTED BALANCE SHEET DATA:
Total Assets............................ $ 4,707 $ 5,650 $ 4,702 $ 5,328 $ 6,883 $ 4,499 $ 3,433
Working Capital (deficiency)............ 793 208 (469) 146 526 (813) (401)
Non-current obligations................. 178 256 265 1,375 146 144 218
Shareholders' equity.................... 2,220 2,075 1,719 1,910 4,045 934 1,264
</TABLE>
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company currently operates two distinct businesses, the Software
Business and the Telecommunications Business. For the fiscal year ended October
31, 1997, the Software Business accounted for all of the Company's revenues. On
September 3, 1998, the Company entered into the Agreement pursuant to which,
subject to the approval of its shareholders at the Meeting, the Software
Business would be sold to Affiliated Computer Services, Inc. A description of
the Agreement, the assets to be sold and the liabilities to be retained is set
forth under the headings "The Agreement" and "The Proposed Sale." A copy of the
Agreement is attached hereto as EXHIBIT A. If the Proposed Sale is approved by
the shareholders and the sale of the Software Business to Buyer is consummated,
the Company will no longer engage in the development of retail automation
software and will pursue its recently launched Telecommunications Business. Upon
consummation of the Proposed Sale, the Company will no longer engage in the
Software Business, which business accounted for all of the Company's revenues
(approximately $12.7 million for the fiscal year ended October 31, 1997), cost
and expenses (approximately $12.6 million for the fiscal year ended October 31,
1997) and earnings (approximately $87,000 for the fiscal year ended October 31,
1997) for all fiscal years prior to October 31, 1997. For the nine months ended
July 31, 1998, the Software Business accounted for approximately $5.8 million
(or 87.5%) of the Company's revenues and approximately $6.9 million (or 83.0%)
of the Company's total cost and expenses.
Approximately 25 of the Company's current employees (out of approximately
140 total employees) will remain with the Company if the Proposed Sale is
consummated. All other employees will be offered employment with Buyer on terms
at least as attractive as those currently held with the Company. Of the
employees to remain with the Company, approximately 10 provide administrative
and financial services, and another 10 provide telecommunication and/or
telemarketing services to the Company. To be successful in the
Telecommunications Business, the Company will need to establish new distribution
channels and a new customer base for its telecommunications products. Although
the Company intends to continue to market its telecommunications products to the
convenience store and retail petroleum industries in which it conducted its
Software Business, the existing customer contracts for the Software Business do
not provide for the sale of telecommunications products, and the Company's prior
relationship in the convenience store and retail petroleum industries do not
necessarily provide the Company any advantages in future marketing efforts. If
the Proposed Sale is consummated, the Company plans to relocate into
significantly smaller offices, further reducing operating expenses. The
Company's current office lease is on a month to month basis and will be
terminated without termination fees. All significant equipment and similar
leases would be assumed by Buyer. There are no remaining leasehold improvements
or similar costs in the Company's balance sheet at July 31, 1998.
45
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUE
--------------------------------------
PERCENTAGE
FISCAL YEAR ENDED OCTOBER 31, INCREASE (DECREASE)
-------------------------------------- --------------------------
1997 1996 1995 1997 1996
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Software licenses and product revenue.................. 15.1% 15.5% 34.8 % 1.2 % (39.2)%
Development............................................ 68.3% 64.7% 42.2 % 9.6 % 108.9 %
Service agreements..................................... 16.6% 19.8% 23.0 % (13.0)% 17.2 %
----- ----- -----
100.0% 100.0% 100.0 % 3.9 % 36.3 %
----- ----- -----
COSTS AND EXPENSES:
Costs of software licenses and product revenue......... 6.1% 12.5% 26.4 % (49.8)% (34.3)%
Costs of development revenues.......................... 35.8% 24.1% 26.0 % 54.8 % 46.8 %
Customer service....................................... 17.7% 18.9% 26.2 % (2.9)% (1.6)%
Product development.................................... 4.8% 10.5% 26.7 % (52.3)% (46.4)%
Sales and marketing.................................... 4.8% 3.6% 7.4 % 38.1 % (33.6)%
General and administrative............................. 29.9% 29.0% 32.3 % 7.3 % 22.4 %
Interest and financing................................. 0.2% 0.2% 0.6 % (26.0)% (44.4)%
----- ----- -----
99.3% 98.8% 141.5 % 4.4 % (4.8)%
----- ----- -----
Net income (loss)...................................... 0.7% 1.2% (41.5)% (38.8)% 103.8 %
</TABLE>
The following discussion and analysis of financial condition and results of
operations covers the nine month periods ended July 31, 1998 and 1997 and the
years ended October 31, 1997, 1996 and 1995 and should be read in conjunction
with the Company's Financial Statements and the Notes thereto included in this
Proxy Statement and in the Annual Report delivered with this Proxy Statement.
RESULTS OF OPERATIONS--1997 VERSUS 1996
REVENUE
For the year ended October 31, 1997, Canmax had revenues of $12,736,223, an
increase of $472,363 or 3.9% over 1996. During 1997, The Southland Corporation
(Southland) and NCR Corporation (NCR) accounted for approximately 92% of
Canmax's total revenue as compared with approximately 83% for the comparable
period of 1996.
Software licenses and product revenue for the year ended October 31, 1997
increased by 1.2% from $1,901,302 in 1996 to $1,924,897 in 1997. This increase
was primarily due to increased software and hardware sales to Southland during
the first nine months of 1997 for the planned implementation by Southland of a
Windows NT solution that commenced in December, 1997 and the sale to Southland
in October, 1997 of the right to use, possess and modify the source code of the
software developed by Canmax for Southland, for a one-time license fee of $1.0
million. These increases were partially offset by a decline in sales of software
and hardware components to other customers and a decrease in software and
hardware sales to Southland resulting from the completion of one phase of a UNIX
store upgrade which commenced during 1995 and concluded during the first quarter
of 1996.
Development revenue for the year ended October 31, 1997 increased $763,823
or 9.6% from $7,940,515 in 1996 to $8,704,338 in 1997. Development revenue from
the base contract with Southland continued to decline from approximately
$1,564,000 in 1996 to approximately $799,000 during the same period in 1997, in
accordance with the terms of the contract. Additionally, during 1996, Canmax
recognized development revenues of approximately $2,165,000 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. Also during 1996, Canmax recognized approximately
$3,920,000 of development revenue for work performed under an agreement which
commenced in May, 1996 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 (the "Southland
Windows NT development project"). Canmax recognized revenues of approximately
$7,560,000 during 1997 related to the Southland Windows NT development project.
Modifications to
46
<PAGE>
original project requirements increased total project revenues from $9.5 million
to $11.5 million. The Southland Windows NT development project was completed in
October, 1997. Additionally, during the fourth quarter of 1997, Canmax provided
development and other resources to Southland on an as-needed basis. Canmax
recognized approximately $254,000 of development revenue related to this effort.
Service agreements revenue for the year ended October 31, 1997 decreased
$315,055 or 13.0% from $2,422,043 in 1996 to $2,106,988 in 1997. 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 from Southland locations by the 24
hour/7 day a week help desk, which caused a decline in revenue due to the
structure of the support contract with Southland.
GROSS MARGIN
Gross margin, as a percentage of software licenses and product revenue, was
59.9% for the year ended October 31, 1997 as compared with 30.5% for the same
period in 1996, prior to 1996 inventory writedowns of $217,623. Gross margin on
software sales for 1997 was 66.4% compared with 23.9% for the same period in
1996, excluding 1996 inventory writedowns. The increase was due to the effects
of the higher margin source code sale to Southland in October, 1997. This
increase in margin was partially offset by a decrease in margin resulting from
increased sales of lower margin purchased software during the reporting period
coupled with a decline in sales of Canmax's higher margin proprietary software.
Gross margin on hardware sales for 1997 was 37.6% compared with 32.8% for the
same period in 1996, excluding 1996 inventory writedowns. The increase in margin
resulted from a change in the mix of hardware components sold. Included in the
cost of revenues of software licenses and product revenue for 1996 was a one
time writedown of $105,763 for software inventory that Canmax determined was
necessary due to the limited likelihood of future sales of that item. Further,
also included in cost of revenues of software licenses and product revenue for
1996 was a one time writedown of inventory of $111,860 that Canmax determined
was required to reflect the inventory at net realizable value.
Gross margin on development revenues for 1997 was 47.6% for the year ended
October 31, 1997 as compared with 62.9% for the same period in 1996. This
decrease was partially due to lower anticipated profit margins on the Southland
Windows NT development project as compared to the NCR/Southland development
project in progress in 1996, the preliminary (non scanning) point of sale
software application in UNIX as well as changes in cost estimates of the
Southland Windows NT development project. 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 Southland Windows NT development project
throughout the life of the project which was completed in October of 1997. No
such requirements were necessary or incurred for the NCR/Southland UNIX based
project which was completed in July 1996.
Gross margin on development revenue for the fourth quarter of 1997 was 67.5%
as compared to (51.9)% for the third quarter of 1997. This increase was
primarily related to changes in project cost estimates and accounting for the
additional work effort undertaken in the third quarter of 1997. During the third
quarter of 1997, Canmax undertook a significant work effort to support the
extended testing of the Southland Windows NT development project for an interim
period up to pilot implementation. This expanded work effort was out of the
scope of the original contract. Accordingly, at the end of the third quarter,
Canmax increased its cost estimates used to compute development project revenue
under the percentage-of-completion method and expensed all costs incurred
related to the additional work effort, including approximately $854,000 for the
work effort performed during the third quarter of 1997. Canmax subsequently
negotiated approximately $981,000 of additional revenue related to this work
effort. Therefore, as the Southland Windows NT development project was completed
in October, 1997, Canmax recognized approximately $543,000 of remaining revenue
under the percentage-of-completion method and approximately $981,000 of the
approved change control during the fourth quarter of 1997.
EXPENSES
Customer service costs for the year ended October 31, 1997 decreased by 2.9%
compared with the same period in 1996. The decline in costs was due to lower
operating costs for the service arising from increased efficiencies and lower
overall expenditure levels.
47
<PAGE>
Product development costs declined $672,463 or 52.3% from $1,286,966 in 1996
to $614,503 in 1997. The reduction was due to a significant increase in funded
development projects which resulted in development expenditures being included
in cost of revenues. Additionally, there was an increase in software development
costs capitalized. During the first quarter of 1996, Canmax capitalized $128,874
of software development costs relating to a new credit card processing network
interface as compared with $209,202 of such costs capitalized in the fourth
quarter of 1997 relating to Canmax's next generation Windows based project which
was scheduled for release in the first calendar quarter of 1998.
General and administrative expenses increased $258,225 or 7.3% from
$3,555,042 in 1996 to $3,813,267 in 1997. This net increase was primarily due to
Canmax expensing approximately $360,000 of merger related costs during October,
1997 upon termination of the proposed merger with Auto Gas Systems, Inc.
Sales and marketing expenses increased by $167,864 or 38.1% from $440,581 in
1996 to $608,445 in 1997. These increases were due to increased headcount and
advertising and marketing expenditures aimed at generating interest in existing
products as well as Canmax's new Windows based product scheduled for release in
the first calendar quarter of 1998.
For the year ended October 31, 1997 Canmax recorded no tax provision as net
operating loss carryforwards of approximately $20.3 million would offset any tax
liability related to fiscal year 1997.
As a result of the foregoing, Canmax generated net income of $87,331, or
$0.01 per share, for the year ended October 31, 1997 as compared with net income
of $142,614, or $0.02 per share, for the year ended October 31, 1996.
RESULTS OF OPERATIONS--1996 VERSUS 1995
REVENUE
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 was 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 $1,901,302, a decrease of $1,226,133, or 39.2% over 1995. The decrease was
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 $7,940,515, an
increase of $4,139,307, or 108.9% 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 approximately $2,165,000 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. 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 $9.5 million in revenues was 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.
Service agreements revenue for the year ended October 31, 1996 was
$2,422,043, an increase of $354,599, or 17.2%, over 1995. This improvement
resulted 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
48
<PAGE>
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.
GROSS MARGIN
Gross margin as a percentage of software license, product and development
revenue was 56.6% 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 23.9% 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 62.9% compared with 47.1% for the same period in 1995. The improvement was a
result of improved profit margins negotiated on Canmax's development projects.
EXPENSES
For the year ended October 31, 1996, customer service costs decreased 1.6%
compared with the same period in 1995.
For the year ended October 31, 1996, product development costs declined from
$2,401,306 for the same period in 1995 to $1,286,966, a reduction of 46.4%.
General and administrative expenses increased 22.4% 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.
For the year ended October 31, 1996, Canmax recorded no tax provision as net
operating loss carryforwards of approximately $19.1 million would offset any tax
liability related to fiscal year 1996.
49
<PAGE>
RESULTS OF OPERATIONS FOR PERIODS ENDED JULY 31, 1997 AND 1998
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
REVENUES
--------------------------
NINE MONTHS ENDED JULY 31, PERCENTAGE
INCREASE (DECREASE)
-------------------------- -------------------
1998 1997 1998
------------ ------------ -------------------
<S> <C> <C> <C>
REVENUES:
Software licenses and product revenue......................... 6.0 % 9.6 % (54.8)%
Development................................................... 50.6 % 73.6 % (50.2)%
Service agreements............................................ 31.0 % 16.8 % 32.9 %
Prepaid phone cards........................................... 1.7 % -- % -- %
Prepaid phone cards--USCommunication.......................... 10.7 % -- % -- %
----- ----- ------
100.0 % 100.0 % (27.6)%
----- ----- ------
COSTS AND EXPENSES:
Costs of software licenses and product revenue................ 2.4 % 5.8 % (69.4)%
Costs of development revenues................................. 29.9 % 40.7 % (46.9)%
Customer service.............................................. 24.7 % 17.3 % 3.7 %
Product development........................................... -- % 4.9 % -- %
Prepaid phone cards........................................... 3.4 % -- % -- %
Prepaid phone cards--USCommunication.......................... 8.6 % -- % -- %
Sales and marketing........................................... 7.3 % 4.6 % 16.3 %
General and administrative.................................... 29.4 % 27.8 % (23.9)%
Selling, general and administrative--USCommunication.......... 7.6 % -- % -- %
Depreciation and amortization................................. 11.1 % 7.7 % (3.8)%
Interest and financing........................................ 1.5 % 0.1 % 660.0 %
----- ----- ------
125.8 % 108.9 % (16.3)%
Loss on disposal of USCommunication........................... 17.6 % -- % -- %
----- ----- ------
Net income (loss)............................................. (43.4)% (8.9)% 251.8 %
</TABLE>
50
<PAGE>
In the later part of fiscal 1996, the Company decided that it was critical
that it expand its market beyond one vertical market and one large customer.
After evaluating a number of alternative strategies, the Company decided that
the rapidly expanding telecommunications market presented an opportunity to
utilize some of the technology and support capabilities that it had developed
through its Software Business. The Company chose to make its entry into the
Telecommunications industry via the prepaid long distance markets. The Company
hopes to be able to establish significant revenues and valuable distribution
channels in this market, from which to launch other telecommunications products,
utilizing its technology base to enhance its competitive position.
Since launching its Telecommunications Business, the Company has established
sales and marketing activities in four principle marketing channels for its
prepaid phone card program. These channels include (a) wholesale and distributor
accounts, (b) direct sales to retail stores, (c) telemarketing sales to retail
stores, and (d) promotional and specialty marketing.
On January 30, 1998, the Company acquired USCommunications. Effective May
27, 1998, the Company and principals of USC agreed to rescind the USC
acquisition and that the economic benefits and burdens of any revenues received
or expenses incurred following May 27, 1998 would accrue to USC. The statement
of operations for the nine months ended July 31, 1998 includes the operations of
USCommunications since its acquisition through May 27, 1998. Activity during the
third quarter through the disposition date is not material to the condensed
consolidated financial statements and is not included therein.
The Company recently announced its establishment of a strategic relationship
with PT-1 Communications, Inc., the nations largest prepaid card provider. This
relationship enables the Company to pursue its rapid growth plan in the prepaid
market prior to the commitment of large facilities investments. The Company
plans to commit approximately $1.0 million in capital investments for fiscal
1999 to its Telecommunications Business, and plans to be able to internally fund
additional infrastructure development through operations. The Telecommunications
Business was launched during the second quarter of 1998, and the Company's
results of operations from the Telecommunications Business are reflected in the
results of operations for the period ended July 31, 1998.
REVENUE
During the third quarter of 1998, Canmax had revenues of $2,643,174, an
increase of $1,288,728 or 95% over the third quarter of 1997. This increase
included $161,141 through USCommunications and $110,722 of Canmax Telecom, Inc.
prepaid calling cards. During the third quarter of 1998, The Southland
Corporation (Southland) and NCR Corporation (NCR) accounted for approximately
80% of the Company's total revenue as compared with approximately 81.4% for the
comparable period of 1997. For the nine months ended July 31, 1998 Canmax had
revenues of $6,582,521, a decrease of $2,506,099 or 27.6% over the comparable
period in 1997. For the nine months ended July 31, 1998, Southland and NCR
accounted for approximately 93% of the Company's total revenue as compared to
approximately 92.1% for the comparable period of 1997. The decline in revenue is
due to a decrease in development sales to Southland which was partially offset
by revenue generated by the recently acquired telecommunications business.
Development revenue for the three-month period ended July 31, 1998 increased
$938,257 or 155.4% from $603,731 to $1,541,988. This increase was due primarily
to the additional resources provided to Southland during the completion of
testing and preparation for rollout of the new POS and ordering and distribution
system. Additional developers and production support personnel were utilized, as
well as the physical relocation of testing facilities from Southland
headquarters to Canmax.
For the nine months ended July 31, 1998 development revenue decreased
$3,355,448 or 50.2%, from $6,685,579 in 1997 to $3,330,131 in 1998. This
decrease was due primarily to the completion of a large development for the
Southland Corporation that took place in 1997, and no comparable project
occurred for the same period in 1998.
51
<PAGE>
Service agreement revenue for the three months ended July 31, 1998 and 1997
increased $185,748 or 34.6% from $536,709 to $722,457, respectively. For the
nine months ended July 31, 1998, service agreement revenue increased $504,906 or
32.9% from $1,534,274 in 1997 to $2,039,180 in 1998. This increase resulted
primarily from increases in calls received from The Southland Corporation.
Revenue generated by USCommunications for the 3 months and 9 months ended
July 31, 1998 was $161,141, and $709,525, respectively, representing 6.1% and
10.8% of total revenue. Revenue for Canmax Telecom prepaid phone card was
$110,722 for the 3 months and 9 months ended July 31, 1998. The Company entered
the telecommunications market in 1998. These revenues represent 4.2% of the
total revenue for the 3 months ended July 31, 1998.
See discussion in "Liquidity and Sources of Capital" for future trends and
status of contracts.
EXPENSES
Customer service costs for the three months ended July 31, 1998 increased by
$165,723 or 31% compared with the same period in 1997. For the nine months ended
July 31, 1998, customer service costs increased $58,061 or 3.7% from $1,570,183
in 1997 to $1,628,244 in 1998. The increase in cost is due to additional staff
and expenditures associated with the increased revenue from The Southland
Corporation.
Development costs decreased $148,878 or 17.3% for the three months ended
July 31, 1998 compared to the comparable period in 1997, and decreased
$1,737,109 or 47% for the nine months ended July 31, 1998 compared to the same
period in 1997. The decrease in costs for the three month period ended July 31,
1998 compared to the same period in 1997 was due primarily to the elimination of
a number of expensive software consultants that were necessary during the 1997
period. The reduction in costs during this period in which revenues were
significantly increased is due primarily to the fact that the work during the
1998 period was performed on a time and materials basis (which allowed for the
recognition of revenue in the current period) while work during the 1997 period
was performed on a deliverable basis (for which revenue could not be recognized
until a later period).
Costs and expenses related to USCommunications revenue for the 3 months and,
9 months ended July 31, 1998 was $121,523 and $565,151, respectively. This
represents 4.1% and 6.8% of the total operating expenses for the 3 months and 9
months ended July 31, 1998, respectively. Cost related to the Canmax Telecom
prepaid calling card for the 3 months and 9 months ended July 31, 1998 was
$110,722.
General and administrative costs decreased $604,120 or 24% for the nine
months ended July 31, 1998 compared to the same period in 1997. This decrease in
costs was primarily due to two factors: (a) reduction in staff for the 1998
period, and (b) significantly higher legal and accounting costs in the 1997
period associated with efforts to acquire AutoGas Systems, Inc.
Interest and financing expenses increased $39,572 or 658% for the three
months ended July 31, 1998 compared to the same period in 1997, and increased
$87,521 or 660% for the nine months ended July 31, 1998 compared to the same
period in 1997. This increase was principally associated with indebtedness
outstanding under the Loan Agreement that was entered into during the 1998
period.
USCOMMUNICATIONS
On June 15, 1998, the Company and USCommunications signed an agreement
effective May 27, 1998 to rescind the purchase of USCommunications. Revenues,
phone card cost of revenues, and other expenses for the period from acquisition
through disposition, May 27, 1998 amounted to $709,525, $565,151 and $499,970,
respectively. The Company recorded a loss on disposal of $1,155,385.
For the three month and nine month periods ended July 31, 1998 and July 31,
1997 Canmax recorded no tax provision due to adequate net operating loss
carryforwards.
As a result of the foregoing, Canmax incurred a net loss of $1,492,385 or
$0.23 per share, for the three months ended July 31, 1998 as compared with net
loss of $1,470,694 or $0.22 per share (basic), for the three months ended July
31, 1997.
52
<PAGE>
For the nine months ended July 31, 1998, Canmax incurred a net loss of
$2,854,315 or $0.39 per share as compared with net loss of $811,428 or $0.15 per
share, for the same period in 1997.
LIQUIDITY AND SOURCES OF CAPITAL
At July 31, 1998, the Company had cash and cash equivalents of approximately
$161,000, down from $778,000 for the same period in 1997, a decline of $617,000.
The decrease was primarily due to operating shortfalls and funds provided to
USCommunications.
Cash used by operating activities totaled $79,000 for the nine months ended
July 31, 1998. Cash used was comprised of the Company's net loss of $2.9
million, adjusted for: loss on disposal of USCommunications of $1.2 million,
depreciation and capitalized software and intellectual property rights
amortization of $730,000; and net changes in operating assets and liabilities of
$558,000. Cash provided by operating activities in the first nine months of 1997
totaled $428,000.
Cash used in investing activities for the nine months ended July 31, 1998
totaled $1,123,000 and was primarily comprised of funds provided to
USCommunications in the form of a note receivable of $697,000 and capitalized
software costs of $418,000. Cash used in investing activities for the nine
months ended July 31, 1997 totaled $340,000.
Cash provided by financing activities for the nine months ended July 31,
1998 totaled $1,234,000 and was primarily comprised of $1.5 million of
borrowings from the convertible debentures, reduced by note, shareholder advance
repayments, and lease payments of $266,000. Cash used by financing activities
for the same period in 1997 totaled $220,000.
Current assets totaled $2,609,000 at the end of the third quarter of 1998,
resulting in negative working capital of $813,000. Cash and cash equivalents
totaled $161,000 at the end of the third quarter of 1998. Accounts receivable
totaled $1,946,000 and represent 75% of current assets. Accounts receivables
were primarily comprised of Southland Corporation. The note receivable totaled
$697,000 at July 31, 1998 and consists of the funds provided to USC.
Net property and equipment totaled $597,000 at the end of the third quarter
of 1998. The majority of property and equipment is comprised of furniture,
fixtures and computer equipment. Net intangible assets totaled $758,000 at the
end of the third quarter of 1998 and were primarily comprised of capitalized
software costs.
Current liabilities totaled $3,422,000 and long-term liabilities totaled
$144,000 at the end of the third quarter of 1998. The majority of liabilities
were comprised of convertible debentures, accounts payable and accrued
liabilities.
At October 31, 1997, Canmax had working capital of $792,807. For the fiscal
year ended October 31, 1997, Canmax used cash from operating activities of
$306,463. Canmax maintained liquidity during fiscal 1997 primarily by utilizing
cash generated from operating activities.
At October 31, 1996 and 1995 Canmax had a net working capital surplus
(deficiency) of $208,466 and (468,653), respectively. During the years ended
October 31, 1996 and 1995 Canmax provided (used) cash from operating activities
of $888,220 and ($1,529,593), respectively.
Canmax maintained liquidity during fiscal 1996 primarily from net proceeds
arising from the sale of Common Stock from the exercise of stock options which
provided cash of $208,940 during the second quarter of 1996 and from cash
provided by operating activities during the third and fourth quarter of 1996.
Canmax maintained liquidity during fiscal 1995 primarily from the receipt of
proceeds from the sale of common shares and exercise of stock options, the
conversion of certain EDS development obligations into shares of Common Stock
and the proceeds received from shareholder advances.
In connection with the rescission Canmax's acquisition of USC, USC executed
a note payable to Canmax in the amount of $724,660. The USC note matures on June
15, 2001, and is payable in monthly installments on the fifteenth day of each
month. Monthly payments for November and December of 1998
53
<PAGE>
are $15,000 and monthly payments thereafter through the maturity date are
approximately $20,000. The USC note is secured by a lien on all of USC's assets.
Pursuant to the terms of the USC note, USC has the right to receive a ten
percent (10%) prepayment discount if the note is repaid on or before December
31, 1998. As of November 10, 1998, approximately $550,000 remained outstanding
under the note. USC has informed Canmax that it intends to repay the note on or
before December 31, 1998. The Company has no reason to believe at this time that
the USC note will not be collected.
On September 3, 1998, Canmax entered into an agreement to sell substantially
all of its assets used in the retail software business to the Buyer for a cash
consideration comprised of an initial deposit of $4.0 million and deferred
payments of up to $3.625 million. The Company expects that the aggregate cash
proceeds to be received from this transaction will exceed $7.0 million. If the
Proposed Sale is consummated, the Company has reached an agreement with Founders
Equity Group, Inc., pursuant to which the Company would repay $1.0 million of
the outstanding $1.5 million principal outstanding under the Loan Agreement,
with the remaining portion to be converted into shares of Canmax Common Stock at
a conversion price of $.50 per share. The Company plans to commit approximately
$1.0 million for capital investments in the Telecommunications Business for
fiscal 1999, and plans to internally fund additional infrastructure development
through operations of the Telecommunications Business. If the Proposed Sale is
not consummated, to maintain liquidity during fiscal 1998, Canmax must (i)
increase revenue with low cost/rapid entry into the telecommunications market
and/or (ii) utilize existing loan agreements or obtain additional lines of
credit. Canmax believes that it will meet its liquidity needs in 1998 either (a)
from proceeds of the Proposed Sale and (b) through cash generated from its
telecommunications business, and, if necessary, through utilization of its
existing Loan Agreement. As of September 1, 1998, approximately $1.5 million was
outstanding under the Loan Agreement. See "Election of Directors and Management
Information--Certain Relationships and Related Transactions."
PRODUCT DEVELOPMENT
To complete development of the next generation Windows based product, Canmax
is performing additional development effort that is not funded by work currently
being performed for Southland Corporation. Costs necessary to perform the
additional development and to bring the new product to market are estimated to
range from $200,000 to $500,000.
If the Proposed Sale is not consummated, Canmax believes that it may be
necessary to raise additional capital to complete development of its next
generation product for its Software Business 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 utilize existing lines of credit, delay new product development or
restructure operations to reduce costs. Such financing could have a dilutive
effect on the shareholders of Canmax.
ACQUISITIONS
Canmax continues to review an acquisition strategy within its
Telecommunications Business. From time to time Canmax will review acquisition
candidates with products, technologies or other services that could enhance
Canmax 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 and may result in a decrease to Canmax
working capital depending on the amount, timing and nature of the consideration
to be paid. Canmax is not currently a party to any agreements, negotiations or
understandings regarding any material acquisitions.
SIGNIFICANT CUSTOMERS
The Southland Corporation ("Southland") has accounted for 95% of the Revenue
of Canmax in prior periods, and is expected to become a customer of the Buyer
following the Closing of the Proposed Sale. Canmax's current contract with
Southland expires in December of 1998. Pursuant to the terms of the
54
<PAGE>
existing contractual agreements with Southland, Southland agreed to purchase no
less than $4 million of hardware, software maintenance, help desk, development
and other services from Canmax on or before December 7, 1998. As of July 31,
1998, Southland had purchased in excess of $5 million of such products and
services and had fully satisfied its obligations under the agreement. Although
discussions have been held with Southland regarding the renegotiation of the
Southland agreement, the Company has not reached any agreement with Southland
regarding future services and no negotiations are currently taking place. There
can be no assurances either that Canmax will continue to provide services to or
receive revenue from Southland after the expiration of the existing contracts in
December, 1998 or, if Canmax enters into new agreements with Southland extending
beyond December, 1998, the amount of revenues Canmax will receive thereunder.
The Company believes that CRSI will continue to do business with Southland after
the expiration of the current contract in December 1998. However, the Company's
weak financial position could cause a decline in revenues, as Southland may
choose to utilize the services of other financially stronger partners for
portions of development and support projects which have previously been provided
primarily by CRSI. 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 October of 1997, Canmax completed 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. Canmax continues to develop a
generic version of its C-Serve software that runs under the Microsoft Windows
family of operating systems. This product would be transferred to the Buyer if
the Proposed Sale is consummated. Due to periodic fluctuations in billing and
collection cycles in the Southland relationship, Canmax's accounts receivable as
a percentage of its total assets will fluctuate; however, Canmax does not
anticipate any material problems in collecting its accounts receivable with
Southland. Any material adverse change in the ability of Southland to pay the
amounts owed to Canmax would result in a write down in such receivables (beyond
any reserves currently established therefore) and, if significant, could have a
material adverse effect on Canmax.
NASDAQ DELISTING
On June 8, 1998, Canmax Common Stock was delisted from the Nasdaq SmallCap
Market for a failure to meet the minimum net tangible asset requirement for
continued listing. Canmax Common Stock now trades on the OTC Bulletin Board. The
delisting of Canmax Common Stock may adversely affect the liquidity of the
Canmax Common Stock, the operations of Canmax and the ability of Canmax to raise
capital in the future.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS
No. 130"), which establishes new guidance for the reporting and display of
comprehensive income and its components. SFAS No. 130 requires that the
Company's foreign currency translation adjustment be included in other
comprehensive income. The provisions of SFAS No. 130 have been applied to the
prior period presentation. The Company is not required to adopt these Statements
until November 1, 1998 and does not expect the adoption of these standards to
result in material changes to previously reported amounts.
In July 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Statement expands certain reporting
and disclosure requirements for segments from current standards. In February
1998, the FASB issued Statement #132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits." This Statement revises employers' disclosures
about pension and other postretirement benefit plans. It does not change the
measurement or recognition of those plans. The Company is not required to adopt
these Statements until November 1, 1998 and does not expect the adoption of
these standards to result in material changes to previously reported amounts.
55
<PAGE>
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 97-2, "Software Revenue Recognition" (SOP 97-2), which supercedes Statement
of Position No. 91-1. SOP 97-2 will be effective for all transactions entered
into by Canmax subsequent to October 31, 1998. Canmax is currently evaluating
the impact that SOP 97-2 will have on software license revenue transactions
entered into subsequent to October 31, 1998.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No. 98-1
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1), which will be effective for all transactions entered
into by the Company subsequent to October 31, 1999. The Company is currently
evaluating the impact that SOP 98-1 will have on software developed or obtained
for internal use subsequent to October 31, 1999.
In June 1998, the Financial Accounting Standards Board issued Standard No.
133 "Accounting for Derivative Instruments and Hedging Activities." The Standard
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. The new
Standard is effective for all fiscal quarters of all fiscal years beginning
after June 15, 1999. The Company does not expect the adoption of the new
Standard to have a material impact on its financial position or results of
operations.
IMPACT OF YEAR 2000
Canmax has completed an assessment of the impact of Year 2000 issues on its
internal systems and determined that the cost for any modifications or
replacements will be immaterial and not exceed $50,000. Canmax has initiated
communications with all of its significant suppliers and customers to determine
the extent to which Canmax's internal systems and developed software products
are vulnerable to those third parties failure. In connection with the Proposed
Sale, Canmax and Buyer conducted a Year 2000 compliance audit of software and
systems developed by Canmax. Such audit did not reveal any material items of
noncompliance, and Canmax does not expect to incur any material expenses to
cause its developed software and systems to become Year 2000 compliant.
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, 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
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 in both the software and telecommunications
industry, potential need for additional financing to fund product development,
capital expenditure financing, general economic conditions, product demand,
manufacturing efficiencies, and the consummation of the Proposed Sale and
payments to be received in connection therewith.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Audit Committee has recommended, and the Board of Directors has
approved, King, Griffin & Adamson P.C. to serve as independent auditors of the
Company for the fiscal year ending October 31, 1998, and recommends ratification
by the shareholders of such appointment. Such ratification requires the
affirmative vote of the holders of a majority of the Common Stock of the Company
entitled to vote on this matter and represented in person or by proxy at the
Meeting. Abstentions on this proposal will have the same legal effect as a vote
against this proposal. Broker non-votes will have no effect on the outcome of
the vote on this proposal.
56
<PAGE>
In the event the appointment is not ratified, the Board of Directors will
consider the appointment of other independent auditors. The Board of Directors
may terminate the appointment of King, Griffin & Adamson P.C. as the Company's
independent auditors without the approval of the shareholders of the Company if
the Board of Directors deems such termination necessary or appropriate. A
representative of King, Griffin & Adamson P.C. is expected to attend the Meeting
and will have the opportunity to make a statement, if such representative
desires to do so, and will be available to respond to appropriate questions.
Ernst & Young LLP ("E&Y") served as independent auditors of the Company for
the fiscal year most recently completed and until July 13, 1998. By letter dated
July 13, 1998, E&Y resigned as the independent accountants of the Company.
E&Y's reports for either of the Company's fiscal years ended October 31,
1997 and October 31, 1996 did not contain any adverse opinion or a disclaimer of
opinion, and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
During the Company's two most recent fiscal years and the subsequent interim
periods preceding the resignation of E&Y, there were no disagreements with E&Y
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which disagreements, if not resolved
to the satisfaction of E&Y, would have caused E&Y to make reference to the
subject matter of the disagreement in connection with its report.
During Company's two most recent fiscal years and the subsequent interim
periods preceding the resignation of E&Y, E&Y did not advise the Company (i)
that the internal controls necessary for the Company to develop reliable
financial statements did not exist; (ii) that information had come to E&Y's
attention that led it to no longer be able to rely on management's
representations, or that made it unwilling to be associated with the financial
statements prepared by management; (iii) of the need to expand significantly the
scope of its audits or that information had come to E&Y's attention that if
further investigated may have (A) materially impacted the fairness or
reliability of either a previously issued audit report or the underlying
financial statements, or the financial statements issued or to be issued
covering such fiscal periods subsequent to the date of the most recent financial
statements covered by an audit report (including information that may have
prevented it from rending an unqualified audit report on those financial
statements), or (B) caused it to be unwilling to rely on management's
representations or be associated with the Company's financial statements, and
due to E&Y's resignation (due to audit scope limitations or otherwise) or for
any other reason, E&Y did not so expand the scope of its audit or conduct such
further investigation; or (iv) that information had come to E&Y's attention that
it had concluded materially impacted the fairness or reliability of either (A)
previously issued audit reports or the underlying financial statements, or (B)
the financial statements issued or to be issued covering the fiscal periods
subsequent to the date of the most recent financial statements covered by an
audit report (including information that, unless resolved to E&Y's satisfaction,
would prevent it from rendering an unqualified audit report on those financial
statements), and due to E&Y's resignation, the issue was not resolved to E&Y's
satisfaction prior to its resignation.
On July 15, 1998, the Company engaged King, Griffin & Adamson P.C. ("KG&A")
as its independent principal accountants to audit its financial statements for
the fiscal year ending October 31, 1998. Neither the Company nor anyone on its
behalf has consulted KG&A prior to July 15, 1998 regarding either (a) the
application of accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might be rendered on
the Company's financial statements, and no written report was provided to
Company or oral advice was provided that KG&A concluded was an important factor
considered by the Company in reaching a decision as to the accounting, auditing
or financial reporting issue, or (b) any matter that was either the subject of a
disagreement with E&Y or any event that would otherwise be reportable arising
from the Company's prior relationship with E&Y.
57
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The information in the Annual Report on Form 10-K for the fiscal year ended
October 31, 1997 filed by the Company with the Commission pursuant to the
Exchange Act is incorporated by reference in this Proxy Statement.
SHAREHOLDER PROPOSALS
Any shareholder who wishes to submit a proposal for inclusion in the
Company's proxy material and for presentation at the Company's 1999 Annual
Meeting of Shareholders must forward such proposal to the Secretary of the
Company at the address indicated on the first page of this proxy statement, so
that the Secretary receives it no later than December 1, 1998.
OTHER MATTERS
The Board of Directors is not aware of any other matters that are to be
presented for action at the Meeting. However, if any other matters properly come
before the Meeting or any adjournment(s) thereof, it is intended that the
enclosed proxy will be voted in accordance with the judgment of the persons
voting the proxy.
<TABLE>
<S> <C> <C>
By Order of the Board of Directors.
By: /s/ DEBRA L. BURGESS
-----------------------------------------
Debra L. Burgess
SECRETARY
November 17, 1998
</TABLE>
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Pro Forma Consolidated Financial Statements (Unaudited)
Balance Sheet as of July 31, 1998........................................................................ F-3
Statement of Operations for the nine months ended July 31, 1998.......................................... F-4
Statement of Operations for the nine months ended October 31, 1997....................................... F-5
Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets as of July 31, 1998 and October 31, 1997..................................... F-6
Statements of Operations for the three and nine months ended July 31, 1998 and
July 31, 1997.......................................................................................... F-7
Statements of Cash Flows for the three and nine months ended July 31, 1998 and
July 31, 1997.......................................................................................... F-8
Notes to the Financial Statements........................................................................ F-9
</TABLE>
F-1
<PAGE>
CANMAX INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
In September 1998, Canmax Inc. ("Canmax") entered into a definitive
agreement for the sale of substantially all of the assets and operations of its
retail systems subsidiary for $4 million in cash consideration and deferred
payments up to an additional $3.625 million, based upon future revenues from the
sold business. The historical financial statements prior to the acquisition
transactions include the assets and operations of its retail systems subsidiary.
The pro forma unaudited consolidated balance sheet at July 31, 1998 gives
effect to the sale of the assets of the retail systems subsidiary. The unaudited
consolidated statements of operations for the nine months ended July 31, 1998
and year ended October 31, 1997 give effect to the sale of the assets and
operations of the retail systems subsidiary effective November 1, 1997 and
November 1, 1996, respectively. This includes the effect on interest expense
resulting from the settlement of the convertible debt as it relates to the pro
forma unaudited consolidated statement of operations for the nine month period
ended July 31, 1998. The disposal of the retail systems subsidiary will be
accounted for as discontinued operations.
The pro forma unaudited consolidated financial information is not
necessarily indicative of the results of operations that would have been
reported had such events occurred on the dates specified, nor is it necessarily
indicative of the future results of the consolidated entities. The pro forma
unaudited financial information does not give effect to the receipt of any
payments of deferred revenue, which payments the Company anticipates will exceed
$3 million. The pro forma unaudited consolidated financial statements should be
read in conjunction with the historical financial statements of the Company.
F-2
<PAGE>
CANMAX INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
JULY 31, 1998
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------------------
HISTORICAL (a) (b) PRO FORMA
-------------- ------------------- ------------------- -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.................................. $ 160,971 $ 4,000,000 $ (1,497,500) $ 2,663,471
Accounts receivable................... 1,941,540 (1,858,866) -- 82,674
Inventory............................. 69,648 (39,223) -- 30,425
Note receivable--current.............. 245,972 -- -- 245,972
Prepaid expenses and other............ 190,782 (190,782) -- --
-------------- ------------------- ------------------- -------------
Total current assets.............. 2,608,913 1,911,129 (1,497,500) 3,022,542
PROPERTY AND EQUIPMENT, net............. 596,882 (542,191) -- 54,691
CAPITALIZED SOFTWARE COSTS, net......... 740,030 (740,030) -- --
INTELLECTUAL PROPERTY RIGHTS, net....... 18,055 (18,055) -- --
NOTE RECEIVABLE--LONG TERM.............. 450,989 -- -- 450,989
OTHER ASSETS............................ 84,479 (84,479) -- --
-------------- ------------------- ------------------- -------------
TOTAL ASSETS............................ $ 4,499,348 $ 526,374 $ (1,497,500) $ 3,528,222
-------------- ------------------- ------------------- -------------
-------------- ------------------- ------------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Convertible debentures--shareholder... $ 1,500,000 $ -- $ (1,500,000) $ --
Accounts payable...................... 664,639 (438,300) (170,000) 56,339
Accrued liabilities................... 532,458 (383,600) (81,369) 67,489
Deferred revenue...................... 581,085 (545,890) -- 35,195
Current portion of lease obligation... 108,129 (108,129) -- --
Current portion of long-term debt..... 35,195 (35,195) -- --
-------------- ------------------- ------------------- -------------
Total current liabilities......... 3,421,506 (1,511,114) (1,751,369) 159,023
LEASE OBLIGATION........................ 119,262 (119,262) -- --
LONG-TERM DEBT.......................... 24,885 (24,885) -- --
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock........................ 24,858,809 -- 641,369 25,500,178
Accumulated deficit................. (23,925,114) 2,181,635 (387,500) (22,130,979)
-------------- ------------------- ------------------- -------------
Total stockholders' equity
(deficit)....................... 933,695 2,181,635 253,869 3,369,199
-------------- ------------------- ------------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)...................... $ 4,499,348 $ 526,374 $ (1,497,500) $ 3,528,222
-------------- ------------------- ------------------- -------------
-------------- ------------------- ------------------- -------------
</TABLE>
- ------------------------
(a) To reflect the sale of substantially all of the assets of the retail systems
subsidiary for $4,000,000 to be paid in cash, resulting in a gain from the
sale of $2,181,635.
(b) To reflect settlement of the convertible debenture of $1,500,000, accrued
interest of $81,369, closing fees of $120,000 and other fees of $17,500 for
cash of $1,077,500 and common stock of 1,282,740 in connection with the
closing of the sale of substantially all of the assets of the retail systems
subsidiary. The common stock is valued at $0.50 per share. Further reflects
transaction expenses of approximately $250,000 and the settlement of certain
accrued obligations and accounts payable of $170,000.
F-3
<PAGE>
CANMAX INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED JULY 31, 1998
<TABLE>
<CAPTION>
(c)
RETAIL PRO FORMA (e)
HISTORICAL SYSTEMS ADJUSTMENTS USC PRO FORMA
-------------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Software licenses and product......... $ 392,963 $ 392,963 $ -- $ --
Development........................... 3,330,131 3,330,131 -- --
Customer service...................... 2,039,180 2,039,180 -- --
Prepaid phone cards--USC
Communication....................... 709,525 -- -- (709,525) 1,430,856
Prepaid phone cards and other......... 110,722 -- -- 110,722
-------------- ------------- ------------- ----------- -----------
Total revenues.................... 6,582,521 5,762,274 -- (709,525) 110,722
COSTS AND EXPENSES
Software licenses and product......... 160,643 160,643 -- --
Development........................... 1,964,893 1,964,893 -- --
Customer service...................... 1,628,244 1,628,244 -- --
Prepaid phone cards and other......... 226,630 -- -- 226,630
Prepaid phone cards--USC
Communications...................... 565,151 -- -- (565,151) --
Product development................... -- -- -- --
Sales and marketing................... 481,392 354,617 -- 126,775
General and administrative............ 1,923,478 1,837,990 -- 85,488
Selling general and administrative--US
Communication....................... 499,970 -- -- (499,970) --
Depreciation and amortization......... 730,269 645,553 -- (57,095) 27,621
Interest and financing................ 100,781 -- (83,317)(d) 17,464
-------------- ------------- ------------- ----------- -----------
Total cost of revenues............ 8,281,451 6,591,940 (83,317) (1,122,216) 483,978
-------------- ------------- ------------- ----------- -----------
Gain on disposal of USC
Communication....................... (1,155,385) -- -- (1,155,385)
-------------- ------------- ------------- ----------- -----------
NET INCOME (LOSS)....................... $ (2,854,315) $ (829,666) $ 83,317 412,691 $(1,528,641)
-------------- ------------- ------------- ----------- -----------
-------------- ------------- ------------- ----------- -----------
BASIC EARNINGS (LOSS) PER SHARE $ (0.39) $ (0.18)
-------------- -----------
-------------- -----------
</TABLE>
- ------------------------
(c) To reflect the sale of substantially all of the assets and operations of the
retail systems subsidiary as if the sale occurred on November 1, 1997
(d) To reflect the reduction of interest expense related to the reduction of the
convertible debenture of $1,500,000 at a rate of 12% annually.
(e) The pro forma statement of operations includes the operations and related
expenses of the prepaid phone card business only. The majority of overhead
including officers expenses for the periods presented was incurred in the
retail systems business.
F-4
<PAGE>
CANMAX INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
(f)
RETAIL PRO FORMA
HISTORICAL SYSTEMS ADJUSTMENTS PRO FORMA
-------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
REVENUES
Software licenses and product......... $ 1,924,897 $ 1,924,897 $ -- $ --
Development 8,704,338 8,704,338 -- --
Customer service...................... 2,106,988 2,106,988 -- --
-------------- -------------- ------------- -----------
Total revenues...................... 12,736,223 12,736,223 -- --
COSTS AND EXPENSES
Software licenses and product......... 772,502 772,502 -- --
Development........................... 4,564,441 4,564,441 -- --
Customer service...................... 2,254,986 2,254,986 -- --
Product development................... 614,503 614,503 -- --
Sales and marketing................... 608,445 608,445 -- --
General and administrative............ 3,813,267 3,813,267 29,525(g) 29,525
Interest and financing................ 20,748 20,748 -- --
-------------- -------------- ------------- -----------
Total cost of revenues.............. 12,648,892 12,648,892 29,525 29,525
-------------- -------------- ------------- -----------
NET INCOME (LOSS)....................... $ 87,331 $ 87,331 $ (29,525) $ (29,525)
-------------- -------------- ------------- -----------
-------------- -------------- ------------- -----------
BASIC EARNINGS (LOSS) PER SHARE......... $ 0.01 $ (0.00)
-------------- -----------
-------------- -----------
</TABLE>
- ------------------------
(f) To reflect the sale of substantially all of the assets and operations of the
retail systems subsidiary as if the sale occurred on November 1, 1996.
(g) To reflect the general and administrative costs for directors, legal, and
accounting fees and filing costs related to operating the Company as if the
sale occurred on November 1, 1996. Of the 24 Canmax employees that are
continuing in the telecom business, 5 were employed as of October 31, 1997.
Their related compensation amounted to $498,750. However, at that time all
services were related to the retail systems subsidiary, and is reflected in
(f).
F-5
<PAGE>
CANMAX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash................................................................... $ 160,971 $ 128,871
Accounts receivable, net............................................... 1,941,540 2,751,264
Inventory.............................................................. 69,648 46,615
Note receivable--current............................................... 245,972 --
Prepaid expenses and other 190,782 175,494
------------ ------------
Total current assets................................................. 2,608,913 3,102,244
Property and equipment at cost less accumulated depreciation and
amortization of $3,219,862 in 1998 and $2,732,749 in 1997.............. 596,882 962,175
Capitalized software costs, net of accumulated amortization of $1,012,832
in 1998 and $839,721 in 1997........................................... 740,030 494,786
Intellectual property rights, net of accumulated amortization of $652,117
in 1998 and $639,617 in 1997........................................... 18,055 30,556
Note receivable--long term............................................... 450,989 --
Other assets............................................................. 84,479 117,717
------------ ------------
$ 4,499,348 $ 4,707,478
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Convertible debentures--shareholder.................................... $ 1,500,000 $ --
Accounts payable....................................................... 664,639 878,241
Accrued liabilities.................................................... 532,458 867,233
Deferred revenue....................................................... 581,085 269,404
Current portion of lease obligation.................................... 108,129 159,364
Current portion of long-term debt...................................... 35,195 35,195
Advance from shareholder............................................... -- 100,000
------------ ------------
Total current liabilities............................................ 3,421,506 2,309,437
Lease obligations........................................................ 119,262 127,051
Long-term debt........................................................... 24,885 51,056
Shareholders' equity:
Common stock, no par value, 44,169,100 shares authorized; 6,611,005
shares issued and outstanding in 1998 and 1997, respectively......... 24,858,809 23,290,733
Accumulated deficit.................................................... (23,925,114) (21,070,799)
------------ ------------
Total shareholders' equity........................................... 933,695 2,219,934
------------ ------------
$ 4,499,348 $ 4,707,478
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
CANMAX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED JULY 31, ENDED JULY 31,
---------------------------- ---------------------------
1998 1997 1998 1997
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Software licenses and product revenue................ $ 106,866 $ 214,006 $ 392,963 $ 868,767
Development.......................................... 1,541,988 603,731 3,330,131 6,685,579
Customer service..................................... 722,457 536,709 2,039,180 1,534,274
Prepaid phone cards--US Communication................ 161,141 -- 709,525 --
Prepaid phone cards.................................. 110,722 -- 110,722 --
------------- ------------- ------------- ------------
2,643,174 1,354,446 6,582,521 9,088,620
------------- ------------- ------------- ------------
COSTS AND EXPENSES:
Software licenses and product revenue................ 29,856 166,860 160,643 525,506
Development.......................................... 709,965 858,843 1,964,893 3,702,002
Customer service..................................... 706,246 540,523 1,628,244 1,570,183
Prepaid phone cards.................................. 226,630 -- 226,630 --
Prepaid phone cards--US Communications............... 121,523 -- 565,151 --
Product development.................................. -- 145,238 -- 444,130
Sales and marketing.................................. 187,475 170,568 481,392 413,893
General and administrative........................... 676,166 693,445 1,923,478 2,527,598
Selling, general and administrative--US
Communication...................................... -- -- 499,970 --
Depreciation and amortization........................ 276,731 243,653 730,269 703,476
Interest and financing (including interest expense of
$36,658, $0, $83,317 and $0 to a shareholder)...... 45,582 6,010 100,781 13,260
------------- ------------- ------------- ------------
2,980,174 2,825,140 8,281,451 9,900,048
------------- ------------- ------------- ------------
Loss on disposal of US Communication (1,155,385) -- (1,155,385) --
------------- ------------- ------------- ------------
NET INCOME (LOSS)...................................... $ (1,492,385) $ (1,470,694) $ (2,854,315) $ (811,428)
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
BASIC EARNINGS (LOSS) PER SHARE........................ $ (0.20) $ (0.22) $ (0.39) $ (0.15)
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
DILUTED EARNINGS (LOSS) PER SHARE...................... $ (0.20) $ (0.22) $ (0.39) $ (0.15)
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
WEIGHTED AVERAGE SHARES OUTSTANDING.................... 7,294,338 6,611,005 7,361,005 5,563,143
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
</TABLE>
See accompanying notes.
F-7
<PAGE>
CANMAX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED JULY 31,
-----------------------
1998 1997
----------- ----------
<S> <C> <C>
Operating activities:
Net loss......................................................... $(2,854,315) $ (811,428)
Adjustments to reconcile net loss to net cash provided (used) in
operating activities:
Depreciation and amortization.................................... 730,269 703,476
Change in bad debt reserve....................................... (23,348) 8,793
Loss from operations of US Communication......................... 355,596 --
Loss on disposal of USCommunications............................. 1,155,385 --
Changes in assets and liabilities:
Accounts receivable.............................................. 832,624 1,451,792
Inventory........................................................ (23,033) 345,940
Prepaid expenses and other....................................... (15,288) 49,086
Accounts payable................................................. (213,601) (1,037,180)
Accrued liabilities.............................................. (334,775) 8,328
Deferred revenue................................................. 311,681 (290,076)
----------- ----------
Net cash provided (used) in operating activities................... (78,805) 428,731
Investing activities:
Purchase of property and equipment............................... (40,769) (103,294)
Capitalized software costs....................................... (418,356) --
Payments of notes receivable..................................... (696,961) --
Decrease in other assets......................................... 33,238 (236,651)
----------- ----------
Net cash used in investing activities............................ (1,122,848) (339,945)
Financing activities:
Proceeds from convertible debentures--shareholders............... 1,500,000 --
Payments made on lease obligation................................ (85,385) (98,556)
Repayment of shareholder advance................................. (100,000) (95,765)
Repayment on borrowing........................................... (80,862) (25,327)
----------- ----------
Net cash provided (used) in by financing activities.............. 1,233,753 (219,648)
----------- ----------
Effect of exchange rate changes on cash............................ -- 121
----------- ----------
Net increase (decrease) in cash.................................... 32,100 (130,741)
Cash at beginning of period........................................ 128,871 908,772
----------- ----------
Cash at end of period.............................................. $ 160,971 $ 778,031
----------- ----------
----------- ----------
</TABLE>
F-8
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONDENSED 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 three month and nine
month period ended July 31, 1998 are not necessarily indicative of the results
that may be expected for the year ending October 31, 1998. For further
information, refer to the consolidated financial statements and footnotes
thereto included in Canmax's annual report on Form 10-K for the year ended
October 31, 1997. The accompanying statement of operations for the nine months
ended July 31, 1998 includes the operations of USCommunications since its
acquisition through May 27, 1998.
On June 5, 1998, Canmax, Inc., ("Canmax" or the "Company"), established a
wholly owned subsidiary, Canmax Telecom, Inc., to focus on the
telecommunications marketplace.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
INVENTORY
Inventory consists primarily of computer hardware and purchased software.
REVENUE RECOGNITION
Phone cards--Revenue recognition originates from customer usage of prepaid
calling cards. The Company sells cards to retailers and distributors at a fixed
price. When the retailer or distributor is invoiced, deferred revenue is
recognized. The Company recognizes revenue, and reduces the deferred revenue
account, as the customer utilizes calling time and upon expiration of cards
containing unused calling time.
EARNINGS PER SHARE
Basic earnings per share of common stock is based upon the weighted average
number of common shares actually outstanding during each period. Diluted
earnings per share of common stock includes the impact of outstanding dilutive
stock options. As the Company incurred a net loss for the three months and the
nine months ended July 31, 1997 and 1998, there were no adjustments for
potentially dilutive securities as the adjustments would have been antidilutive.
CURRENT AND PENDING ACCOUNTING CHANGES
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS
No. 130"), which establishes new guidance for the reporting and display of
comprehensive income and its components. SFAS No. 130 requires that the
Company's foreign currency translation adjustment be included in other
comprehensive income. The provisions of SFAS No. 130 have been applied to the
prior period presentation. The Company is not required to adopt these Statements
until November 1, 1998 and does not expect the adoption of these standards to
result in material changes to previously reported amounts.
In July 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This
F-9
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE A--BASIS OF PRESENTATION (CONTINUED)
Statement expands certain reporting and disclosure requirements for segments
from current standards. In February 1998, the FASB issued Statement #132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits." This
Statement revises employers' disclosures about pension and other postretirement
benefit plans. It does not change the measurement or recognition of those plans.
The Company is not required to adopt these Statements until November 1, 1998 and
does not expect the adoption of these standards to result in material changes to
previously reported amounts.
In October 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
No. 97-2, "Software Revenue Recognition" (SOP 97-2), which supercedes Statement
of Position No. 91-1. SOP 97-2 will be effective for all transactions entered
into by the Company subsequent to October 31, 1998. The Company is currently
evaluating the impact that SOP 97-2 will have on software license revenue
transactions entered into subsequent to October 31, 1998.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued a Statement of Position No.
98-1 "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1), which will be effective for all transactions entered
into by the Company subsequent to October 31, 1999. The Company is currently
evaluating the impact that SOP 98-1 will have on software developed or obtained
for internal use subsequent to October 31, 1999.
In June 1998, the Financial Accounting Standards Board issued Standard No.
133 "Accounting for Derivative Instruments and Hedging Activities." The Standard
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. The new
Standard is effective for all fiscal quarters of all fiscal years beginning
after June 15, 1999. The Company does not expect the adoption of the new
Standard to have a material impact on its financial position or results of
operations.
NOTE B--RELATED PARTY ADVANCES AND CONVERTIBLE DEBENTURES
ADVANCES FROM SHAREHOLDERS
On October 30, 1997, a shareholder, Founders Equity Group, Inc.
("Founders"), advanced Canmax $100,000. The advance was unsecured and had an
interest rate of 12%. On November 6, 1997, Canmax repaid principal and interest
of $100,230, which fully satisfied Canmax's obligation.
CONVERTIBLE DEBENTURES TO SHAREHOLDERS
On December 15, 1997, Canmax executed a convertible loan agreement (the
"Original Agreement") with a shareholder, Founders which provided financing of
up to $500,000. Funds obtained under the loan agreement are collateralized by
all assets of Canmax and bear interest at 10%. Required payments are for
interest only and are due monthly beginning February 1, 1998. Borrowings under
the loan agreement mature January 1, 1999, unless otherwise redeemed or
converted.
Under the terms of the loan agreement, Founders may exercise its right at
any time to convert all, or in multiples of $25,000, any part of the borrowed
funds into Canmax Common Stock at a conversion price of $1.25 per share. The
conversion price is subject to adjustment for certain events and transactions as
specified in the loan agreement. Additionally, the outstanding principal amount
is redeemable at the option of Canmax at 110% of par.
F-10
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE B--RELATED PARTY ADVANCES AND CONVERTIBLE DEBENTURES (CONTINUED)
On February 11, 1998, Canmax and Founders executed a loan commitment letter
(the "Loan Commitment") which provided for multiple advance loans of up to $2
million upon terms similar to the Original Agreement; however, indebtedness
outstanding under the Loan Commitment was convertible into shares of Canmax
Common Stock at a conversion price equal to the average closing prices of the
Canmax Common Stock over the five-day trading period immediately preceding the
date of each advance. As consideration for the Loan Commitment, Canmax paid a
commitment fee of $10,000.
As of March 31, 1998, Founders (and certain of its affiliates) entered into
the First Restated Loan Agreement (the "Loan Agreement") which consolidated all
rights and obligations of Canmax to Founders under the Original Agreement and
the Loan Commitment. Amounts advanced under the Loan Agreement bear interest at
the rate of 12% per annum, are secured by a lien on all of the Company's assets
and are convertible into shares of Canmax Common Stock, at the option of
Founders, at $0.80 per share. On August 25, 1998, Founders agreed to release its
lien on all of the Company's assets upon the consummation of the Proposed Sale
(see Subsequent Events). As consideration for the release, the Company agreed,
upon the consummation of the Proposed Sale, to repay $1.0 million of the $1.5
million currently outstanding under the Loan Agreement, and to allow Founders to
convert the remaining $0.5 million plus accrued but unpaid interest outstanding
under the Loan Agreement into shares of Canmax Common Stock at a conversion
price of $0.50 per share.
On February 5, 1998, Founders and the Company entered into a financial
consulting agreement pursuant to which Founders agreed to provide financial
advisory and consulting services to the Company, and the Company agreed to pay
to Founders a fee equal to 3% of the value of the consideration received in any
sale or merger of any division or subsidiary of the Company. As a result of this
agreement, Founders will receive $120,000 of the initial proceeds of the
Proposed Sale, should it be consummated. Founders has agreed to forego any
further payments that may be attributable to the Company's receipt of deferred
payments in connection with the Proposed Sale.
Interest expense related to Founders was $83,317 for the nine months ended
July 31, 1998.
NOTE C--ACQUISITIONS AND REVERSALS
USCOMMUNICATIONS ACQUISITION AND REVERSAL
On January 30, 1998, the Company acquired USC in a transaction recorded
under the purchase method. The total purchase price of the acquisition was
$2,952,204. In May of 1998, the Company and principals of USC agreed to rescind
the USC acquisition and that the economic benefits and burdens of any revenues
received or expenses incurred following May 27, 1998 would accrue to USC. On
June 15, 1998, the Company and USCommunications executed definitive documents to
reflect the rescission of the acquisition of USCommunications. The Company
recovered 1.5 million shares, and warrants to purchase an additional 4.5 million
shares as a result of this reversal. Cash payments made on behalf of
USCommunications will be recovered through a note receivable in the original
principal amount of $724,660. Although the Company was initially unsure of USC's
ability to repay the note receivable, the Company has collected approximately
$175,000 on the note since the rescission. These collections have taken the form
of offsets against amounts owed by the Company to USC for prepaid long distance
calling cards issued by the Company which were run across USC's telephone
calling card platform. PT-1 Communications, Inc. now provides the calling card
platform for the Company's prepaid phone card customers and therefore the
Company does not expect to continue to accrue amounts to offset against payments
otherwise owing by USC. The offset arrangement was not provided for at the time
of the rescission (or in the note) and the
F-11
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE C--ACQUISITIONS AND REVERSALS (CONTINUED)
arrangement has been agreed to on a month-to-month basis by Canmax and USC. USC
has periodically informed the Company of its intent to repay the note on or
before December 31, 1998. The Company has no reason to believe at this time that
the USC note will not be collected. The two board members who were elected as
part of the acquisition agreement have resigned.
The Company recognized a loss on the disposition of $1,155,385. The loss on
disposal is calculated as the difference between the fair value of common stock
and warrants returned by USC and the net investment in USC, which amount was
further reduced by the accrued operating losses of USC ($234,369) recognized by
the Company.
ACQUISITION OF TALK TIME INC.
On June 16, 1998, the Company acquired the assets of Talk Time, a wholesale
distributor of prepaid calling cards to convenience stores in the Rocky Mountain
and Oklahoma Regions. The asset purchase agreement provides for the acquisition
of certain assets for assumption of obligations approximating $54,000. In
addition the owner of Talk Time received 50,000 warrants to purchase 50,000
shares of the Company's common stock for $1 per share. The value of these
warrants using the Black-Scholes method approximates the fair value assigned by
management to the net assets acquired of $3,000. The following assumptions were
used in the Black-Scholes model; dividend yield of 0%, expected volatility of
112%, risk free interest rate of 6% over a 2 year period and an expected life of
2 years.
NOTE D--SHAREHOLDERS' EQUITY
STOCK OPTION PLAN
On February 26, 1998, the Board of Directors increased the number of shares
issuable under Canmax's stock option plan (the "Stock Option Plan") from 1.2
million shares to 2.3 million shares so that stock options previously granted by
the Board in excess of those permitted by the Stock Option Plan could be covered
by the Plan. As of February 27, 1998, 1,121,990 shares of Canmax Common Stock
have been issued under the Stock Option Plan, 1,074,650 shares remain subject to
outstanding options under the Stock Option Plan, and 103,360 shares were
available for future grants under the Stock Option Plan.
NOTE E--NASDAQ LISTING
On August 25, 1997, the U.S. Securities and Exchange Commission, 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. Canmax was delisted from the NASDAQ SmallCap Market, and is now
traded on the OTC Bulletin Board. The delisting of Canmax Common Stock may
adversely affect the liquidity of the Canmax Common Stock, the operations of
Canmax and the ability of Canmax to raise capital in the future.
NOTE F--RESTATEMENT
The Company has restated financial information throughout this filing to
reflect a change in its revenue recognition policy related to revenues generated
by its former subsidiary USCommunications. In the previously reported results
USCommunications recorded revenue related to its sale of prepaid calling cards
at the time of sale. The results as currently reported record revenue and the
related costs of revenue as the minutes are used. In addition, these financial
statements include an adjustment to recognize an accounting loss on disposal of
USCommunications, such loss being computed as the difference between
F-12
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE F--RESTATEMENT (CONTINUED)
the fair value of common stock and warrants received back in connection with the
disposition (using share prices as of May 27, 1998, the change of control date).
Previously the Company had recorded the disposition as a rescission with no loss
recorded related to the disposition.
A summary of the significant effects of the restatement are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JULY 31, 1998 NINE MONTHS ENDED
--------------------------- JULY 31, 1998
AS ----------------------------
PREVIOUSLY AS PREVIOUSLY
REPORTED AS RESTATED REPORTED AS RESTATED
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues from prepaid phone cards,
internet kiosk, long distance
reselling,
and other....................... $ -- $ 161,141 $ 1,430,856 $ 709,525
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Cost of prepaid phone cards....... $ -- $ 121,523 $ 1,165,255 $ 565,151
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Gain (loss) on disposal of
USCommunication................. $ 234,369 $ (1,155,385) $ 234,369 $ (1,155,385)
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Net income (loss)................. $ (75,415) $ (1,492,385) $ (1,286,239) $ (2,854,315)
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Basic earnings (loss) per
share........................... $ (.01) $ (.20) $ (.19) $ (.39)
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
Diluted earnings (loss) per
share........................... $ (.01) $ (.20) $ (.19) $ (.39)
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1998
------------------------------
AS PREVIOUSLY
REPORTED AS RESTATED
-------------- --------------
<S> <C> <C>
Balance Sheet Data:
Accumulated deficit....................... $ (22,357,038) $ (23,925,114)
-------------- --------------
-------------- --------------
Common Stock.............................. $ 23,290,733 $ 24,858,809
-------------- --------------
-------------- --------------
</TABLE>
NOTE G--SUBSEQUENT EVENTS
In August 1998, the Company entered into an agreement with PT-1
Communications, Inc. ("PT-1"). The agreement provides for PT-1 to supply long
distance telecom and debit services to the Company for use in the Company's
subsidiary's, Canmax Telecom Inc., marketing and distribution of domestic and
international prepaid long distance calling cards.
In September 1998, the Company entered into a definitive agreement for the
sale of substantially all of the assets and operations of its retail systems
subsidiary for $4 million in cash consideration and deferred payments up to an
additional $3.625 million, based upon future revenues from the sold business.
The proposed sale will be recorded as a sale of a segment of the Company's
business and reported as a
F-13
<PAGE>
CANMAX INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE G--SUBSEQUENT EVENTS (CONTINUED)
discontinued operation. In connection with the closing of the sale, the
convertible debentures to shareholders and related accrued will be settled for
$1,077,500 in cash and 1,282,740 shares of the company's common stock. The
common stock amount was determined by using $0.50 per share, which approximates
the current trading price
NOTE H--SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITY
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED JULY 31,
----------------------
<S> <C> <C>
1998 1997
---------- ----------
Property and Equipment acquired by assuming notes payable and capital
leases.............................................................. $ 81,051 $ 133,157
---------- ----------
---------- ----------
Note receivable offset against accounts payable....................... $ 27,700 $ --
---------- ----------
---------- ----------
Note receivable issued in connection with disposal of USC
Communications...................................................... $ 234,369 $ --
---------- ----------
---------- ----------
Interest Paid......................................................... $ 29,396 $ 13,260
---------- ----------
---------- ----------
</TABLE>
F-14
<PAGE>
EXHIBIT A
ASSET PURCHASE AGREEMENT
BY AND AMONG
AFFILIATED COMPUTER SERVICES, INC.
("BUYER")
CANMAX INC.
("PARENT")
AND
CANMAX RETAIL SYSTEMS, INC.
(THE "COMPANY")
DATED SEPTEMBER 3, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
ARTICLE I Purchase of Assets...................................................................... 1
1.1 Purchase of Assets...................................................................... 1
1.2 Excluded Assets......................................................................... 1
1.3 Assumed Liabilities..................................................................... 2
1.4 Liabilities Not Being Assumed........................................................... 2
1.5 Consideration........................................................................... 3
1.6 Closing................................................................................. 5
1.7 Closing Deliveries...................................................................... 5
1.8 Further Assurances...................................................................... 5
ARTICLE II Representations and Warranties of the Company and Parent................................ 6
2.1 Organization............................................................................ 6
2.2 Authority............................................................................... 6
2.3 Year 2000 Matters....................................................................... 6
2.4 Title to Assets......................................................................... 7
2.5 Condition of Assets..................................................................... 7
2.6 No Violation............................................................................ 7
2.7 Governmental Consents................................................................... 7
2.8 [RESERVED].............................................................................. 7
2.9 Absence of Undisclosed Liabilities...................................................... 7
2.10 Absence of Material Adverse Change...................................................... 7
2.11 Taxes................................................................................... 8
2.12 Litigation.............................................................................. 8
2.13 Compliance with Laws.................................................................... 8
2.14 Permits................................................................................. 8
2.15 Environmental Matters................................................................... 9
2.16 Employee Matters........................................................................ 10
2.17 Employee Benefit Plans.................................................................. 10
2.18 Ownership of the Company................................................................ 11
2.19 Material Agreements..................................................................... 11
2.20 Customers............................................................................... 12
2.21 Accounts Receivable..................................................................... 12
2.22 Intellectual Property Rights............................................................ 12
2.23 [RESERVED].............................................................................. 13
2.24 Competing Interests..................................................................... 13
2.25 Illegal or Unauthorized Payments; Political Contributions............................... 13
ARTICLE III Representations and Warranties of Buyer................................................. 13
3.1 Organization............................................................................ 13
3.2 Authority............................................................................... 13
3.3 No Violation............................................................................ 13
3.4 Governmental Consents................................................................... 13
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
ARTICLE IV Covenants and Agreements................................................................ 13
4.1 Conduct of Business..................................................................... 13
4.2 No-Shop Provisions...................................................................... 14
4.3 Access and Information.................................................................. 14
4.4 Supplemental Disclosure................................................................. 14
4.5 Fulfillment of Conditions by the Company and Parent..................................... 15
4.6 Fulfillment of Conditions by Buyer...................................................... 15
4.7 Transaction Costs....................................................................... 15
4.8 Employee Matters........................................................................ 15
4.9 Continuation of the Business............................................................ 16
4.10 Retained Rights......................................................................... 17
4.11 Use of Canmax Name...................................................................... 17
4.12 Sublease................................................................................ 17
4.13 Year 2000 Audit......................................................................... 17
ARTICLE V Closing Conditions...................................................................... 18
5.1 Conditions to Obligations of Buyer...................................................... 18
5.2 Conditions to Obligations of the Company and Parent..................................... 18
ARTICLE VI Indemnification......................................................................... 19
6.1 Indemnification of Buyer................................................................ 19
6.2 Indemnification of Seller............................................................... 19
6.3 Survival................................................................................ 20
6.4 Waiver.................................................................................. 20
6.5 Remedies Not Exclusive.................................................................. 20
6.6 Offset.................................................................................. 20
ARTICLE VII Miscellaneous........................................................................... 21
7.1 Termination............................................................................. 21
7.2 Notices................................................................................. 21
7.3 Attorneys' Fees and Costs............................................................... 22
7.4 Further Assurances...................................................................... 22
7.5 No Brokers.............................................................................. 22
7.6 Counterparts............................................................................ 22
7.7 Assignment.............................................................................. 22
7.8 Entire Agreement........................................................................ 22
7.9 Governing Law........................................................................... 22
7.10 Jurisdiction and Venue.................................................................. 23
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SCHEDULES
1.1 Southland Assets
1.2 Excluded Assets
1.3 Assumed Liabilities
1.5(a) Deposits to be Reimbursed
1.5(c) Sample Net Working Capital Calculation
2.4 Assets
2.6 Required Consents
2.16 Designated Employees
2.17 Employee Benefit Plans
2.19 Material Agreements
2.20 Customers
2.21 Accounts Receivable
2.22 Intellectual Property
4.8(b) Accrued Vacation Liability
4.10 Software License
</TABLE>
iii
<PAGE>
EXHIBIT A
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is made and entered into as
of September 3, 1998, by and among Affiliated Computer Services, Inc., a
Delaware corporation ("Buyer"), Canmax Inc., a Wyoming corporation ("Parent"),
and Canmax Retail Systems, Inc., a Texas corporation (the "Company").
WHEREAS, the Company desires to sell substantially all of its assets to
Buyer, and Buyer desires to purchase such assets from the Company, on the terms
and subject to the conditions set forth in this Agreement;
WHEREAS, Parent will receive substantial direct and indirect benefits from
the transactions contemplated by this Agreement, and Buyer has required that
Parent enter into this Agreement as a condition to Buyer's execution hereof;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
PURCHASE OF ASSETS
1.1 PURCHASE OF ASSETS. At the Closing (as defined in SECTION 1.6), the
Company agrees to sell, transfer, assign and deliver to Buyer, and Buyer agrees
to purchase and take, all rights of the Company in and to the Assets (as defined
below), on the terms and subject to the conditions set forth in this Agreement.
Subject to the provisions of SECTION 1.2, the "Assets" mean all tangible and
intangible assets of the Company, including, without limitation, accounts
receivable, inventory, equipment, real property, fixtures, furnishings,
leasehold rights, leasehold improvements, vehicles, prepaid assets, contract
rights, licenses, permits, customer, prospect and marketing lists, sales data,
records, computer software and software licenses, proprietary information,
intellectual property, trade secrets, patents, patent applications, patent
licenses, trademarks and trade names (including without limitation, all rights
to the name "Canmax" and derivations thereof), copyrights, goodwill associated
with such intellectual property, material and manufacturing specifications,
drawings and designs owned by the Company or acquired by the Company after the
date hereof and prior to the Closing, and specifically including (without
limitation):
(a) the assets described on SCHEDULE 2.4;
(b) the Assumed Contracts (as defined in SECTION 1.3);
(c) any Permits (as defined in SECTION 2.14); and
(d) the Registered Intellectual Property (as defined in SECTION 2.22).
In addition, the Company shall deliver to Buyer possession of the assets listed
on SCHEDULE 1.1 (the "Southland Assets") that are owned by The Southland
Corporation ("Southland") but in the possession of the Company. Prior to
Closing, the Company shall notify Southland of its proposed delivery of the
Southland Assets to Buyer at Closing, and Buyer acknowledges that the Southland
Assets shall not constitute any part of the Assets and agrees to accept such
assets subject to Southland's superior rights to the same.
1.2 EXCLUDED ASSETS. Notwithstanding the provisions of SECTION 1.1, the
Assets will exclude the following (the "Excluded Assets"):
(a) the minute books, corporate seal and stock records of the Company;
(b) the consideration to be paid by Buyer to the Company pursuant to
SECTION 1.5;
(c) any rights in the Software License (as defined in SECTION 4.10);
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 1
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
(d) all rights under any Material Agreement (as defined in SECTION
2.19(A)) other than the Assumed Contracts (as defined in SECTION 1.3);
(e) all cash and cash equivalents, banks accounts, safe deposit boxes,
lockbox arrangements, post office boxes and similar assets and arrangements
(consistent with SECTION 1.5(C)); and
(f) all of the assets listed in SCHEDULE 1.2.
1.3 ASSUMED LIABILITIES. At Closing, Buyer shall deliver to the Company an
Assumption Agreement (the "Assumption Agreement"), pursuant to which Buyer shall
assume, pay, perform and discharge (when and as they become due) the following
liabilities (collectively, the "Assumed Liabilities"):
(a) all liabilities and obligations of the Company that accrue, become
owing or arise on or after the Closing Date under the Assumed Contracts;
(b) the obligations related to the Transferred Employees (as defined in
SECTION 4.8) which are specified as obligations of Buyer in SECTION 4.8,
including, without limitation, the Accrued Vacation Liabilities (as defined
in SECTION 4.8), which Accrued Vacation Liabilities shall be treated as
provided in subsections (iv) and (vi) of Section 4.8(b);
(c) any liability arising out of events or occurrences on or after the
Closing Date which relate to or arise out of the Business (as defined in
SECTION 1.5(B)) or the Assets;
(d) all of the accounts payable or other liabilities existing on the
Closing Date of Parent or the Company that are explicitly identified and
included in the calculation of Net Working Capital (as defined in SECTION
1.5(C)) as of the Closing Date;
(e) any sales tax resulting from the consummation of this Agreement or
transactions contemplated hereby;
(f) any present or future liability or obligation of Buyer to any
broker, finder or agent for any brokerage fees, finder's fees or commissions
with respect to the transactions contemplated by this Agreement; and
(g) any liabilities set forth on SCHEDULE 1.3 (excluding Parent Payables
and Telecom payables).
1.4 LIABILITIES NOT BEING ASSUMED. Buyer shall not assume or be
responsible for any of the following liabilities or obligations of Company
(collectively, the "Excluded Liabilities");
(a) any liability or obligation relating to the Excluded Assets;
(b) except to the extent included as an Assumed Liability (and
explicitly identified) pursuant to SECTION 1.3(D), any liability or
obligation that has accrued, become owing or has arisen prior to the Closing
Date under the Assumed Contracts;
(c) except to the extent included as an Assumed Liability (and
explicitly identified) pursuant to SECTION 1.3(D), any liability or
obligation of the Company for federal, state, local or foreign taxes
associated with the Assets or the Business for any period prior to the
Closing Date;
(d) any liability relating to (i) any claim relating to employee
benefits and similar matters attributable to periods prior to the Closing
Date or attributed to any period with respect to employees who are not
Transferred Employees, except to the extent of the Accrued Vacation
Liabilities or other liabilities for any Transferred Employee as provided in
SECTION 4.8, (ii) the Company's termination of employment of any employee of
the Company on or prior to the Closing Date or because of Buyer's
acquisition of the Assets under this Agreement (including any such
termination deemed to have occurred upon the transfer of any such employee
from the Company to Buyer), or (iii) any claims arising from employees other
than Transferred Employees;
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 2
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
(e) any liability, whether made before or after the Closing Date,
against the Company, Buyer, or any affiliate or either, alleging damage to
the environment or any liability for environmental cleanup costs, or any
liabilities for damage to the environment or for environmental cleanup
costs, which arises out of occurrences, circumstances or actions associated
with the Assets or the operation of the Business by the Company prior to the
Closing Date;
(f) any liability for failure or alleged failure to comply with, or any
violation or alleged violation of, any law, rule, regulation, statute,
ordinance, permit, judgment, injunction, order, decree, license or other
governmental authorization or approval applicable to the Company or the
Assets, which failure or violation occurred or was alleged to have occurred
prior to the Closing Date;
(g) any present or future liability or obligation of the Company to any
broker, finder or agent for any brokerage fees, finder's fees or commissions
with respect to the transactions contemplated by this Agreement;
(h) any lawsuit, claim or proceeding of any nature existing at or prior
to the Closing or arising out of any act or transaction of the Company or
Parent, or arising out of facts or circumstances that existed at or prior to
the Closing that is related to the Company, the Assets or the operation of
the Company's business;
(i) any liabilities of Parent; and
(j) all other liabilities, whether known, unknown, contingent or fixed
of the Company which are not specifically listed in SECTION 1.3 above.
1.5 CONSIDERATION. As consideration in full for the acquisition of the
Assets from the Company, Buyer will pay the Company the following amounts
(collectively, the "Purchase Price") by wire transfer of immediately available
funds to an account specified in writing by the Company to Buyer at least two
(2) days prior to the due date for such payment:
(a) CLOSING PAYMENT. At Closing, an amount equal to (i) $4 million plus
(ii) an amount equal to the sum of the deposits listed on SCHEDULE 1.5(A)
minus (iii) the Audit Credit, as defined in SECTION 4.13.
(b) DEFERRED PAYMENTS. On each Deferred Payment Date (as defined
below), the applicable Deferred Payment (as defined below).
(i) For purposes of this SECTION 1.5(B), all Deferred Payments shall
be calculated with regard to revenues of the Business (as defined below)
during the twelve month period commencing on the first day of the
calendar month following the Closing (the "Deferred Period Commencement
Date"). Within thirty days after the end of the third, sixth, ninth and
twelfth month following the Deferred Payment Commencement Date (the
thirtieth day following the end of each such three-month period being
referred to as a "Deferred Payment Date"), Buyer will deliver a written
statement to the Company calculating the revenues of Buyer attributable
to the Business (as defined below) for each preceding three month period,
as determined in accordance with generally accepted accounting principles
consistently applied, along with the payment of the Deferred Payment due
as calculated by Buyer. As used herein, the term "Business" means the
business historically conducted by the Company, which includes, without
limitation, the development, sale or marketing of retail automation
software (including, without limitation, its "C-Serve" family of software
products), the installation of software support for such products,
"help-desk" services and other support services associated with such
products and services.
(ii) As used herein, the term "Deferred Payment" shall mean an
amount, calculated on each Deferred Payment Date based upon the
cumulative level of revenue attributable to the Business from the
Deferred Period Commencement Date through the end of each three month
period preceding a Deferred Payment Date, equal to (A) the sum of (I) 75%
of all such revenues
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 3
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
greater than $4 million and less than or equal to $7 million, plus (II)
13.75% of all such revenues greater than $7 million and less than or
equal to $17 million, MINUS (ii) the sum of any Deferred Payments
previously made under this SECTION 1.5(B)(II). The Company shall have the
right to dispute any calculation by Buyer of the amount of any Deferred
Payment at any time during the three (3) month period following the last
Deferred Payment Date. Buyer and the Company agree to use reasonable good
faith efforts to resolve any disputes regarding the calculation of the
revenues attributable to the Business. In the event that the parties
cannot reach agreement on such calculation, the independent accountants
for each party shall mutually select a third independent public
accountant (the "Designated Party") to resolve such dispute and the
determination of the Designated Party shall be conclusive and binding on
the parties. All costs and expenses of the Designated Party shall be
shared equally by the Company and Buyer. In addition, the Company shall
have the right to have its independent accountants audit the books and
records of Buyer relating to the Business; provided that the Company
shall be entitled to exercise this audit right only one time and only
during the three (3) month period following the last Deferred Payment
Date. If the Company's auditors determine that the calculation of the
aggregate Deferred Payments paid or payable under this Agreement have
been understated by 5% or more and either (A) Buyer agrees to pay such
amount or (B) such finding is confirmed by the Designated Party, then the
fees and expenses of the Company's accountants in performing such audit
shall be reimbursed or paid for by Buyer. Otherwise, such audit fees and
expenses shall be borne by the Company.
(c) NET WORKING CAPITAL ADJUSTMENT. Within thirty (30) days following
the Closing Date, the Company's accountants shall furnish Buyer with a
report (the "Net Working Capital Report") which shall set forth in
reasonably detail the Net Working Capital (as defined below) of the Business
as of the Closing Date. As used herein, the term "Net Working Capital" shall
mean, as of the Closing Date, an amount equal to (i) the current assets of
the Company (other than cash and cash equivalents to the extent that such
cash and cash equivalents do not relate to liquidation of long term assets
after the date hereof except in the ordinary course of business and
consistent with past practice) minus (ii) the current liabilities of the
Company (but specifically excluding any liabilities of Parent), calculated
consistent with and subject to the adjustments set forth in SCHEDULE 1.5(C).
The Net Working Capital Report shall indicate the procedures employed by the
Company's accountants in preparing the Net Working Capital Report and shall
contain such other financial information and methods of calculation as may
be reasonably necessary for Buyer to evaluate the accuracy thereof. Buyer
shall have a period of ten (10) days after its receipt of the Net Working
Capital Report to notify the Company of its election to accept or reject
(and in the case of a rejection, there shall be included in such notice the
reasons for such rejection in reasonable detail) of the Net Working Capital
Report. In the event no notice is received by the Company during such ten
(10) day period, the Net Working Capital Report and any required adjustments
resulting therefrom shall be deemed accepted by Buyer. If Buyer timely
rejects the Net Working Capital Report, the Company's accountants and
Buyer's accountants shall promptly (and in any event within thirty (30) days
following the date upon which Buyer rejects the Net Working Capital Report)
attempt to make a joint determination of the Net Working Capital of the
Business as of the Closing Date and such determination and any required
adjustments therefrom shall be final and binding on the parties hereto. In
the event that such accountants are unable to agree upon the Net Working
Capital determination as provided herein within ninety (90) days from the
Closing Date, such dispute shall be resolved by the Designated Party (as
defined in and selected in accordance with SECTION 1.5(B)(II)). The
determination of the Designated Party and any required adjustments resulting
therefrom shall be final and binding on all parties hereto. If the Net
Working Capital Report reflects a Net Working Capital as of the Closing Date
of less than the Base Amount (as defined below), then the Company and/or
Parent shall refund the difference between Base Amount and the Net Working
Capital within fifteen (15) days of the final determination of the Net
Working Capital. If the Net Working Capital as of the Closing Date exceeds
Base Amount, then Buyer
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 4
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
shall pay to the Company an amount equal to the Net Working Capital minus
Base Amount within fifteen (15) days after the determination of the Net
Working Capital. As used herein, the term "Base Amount" shall mean the net
working capital of the Company as of July 31, 1998, minus the payables of
Parent as of such date (the "Parent Payables"), in each case as calculated
and set forth in SCHEDULE 1.5(C).
1.6 CLOSING. The Closing of the transactions contemplated by this
Agreement (the "Closing") will take place at 10:00 a.m. at the offices of the
Buyer, 2828 North Haskell Avenue, Dallas, Texas 75204, within three (3) business
days following Parent's receipt of shareholder approval for the transactions
contemplated hereby, but no later than November 30, 1998, or at such other time
and place as the parties may agree (the "Closing Date").
1.7 CLOSING DELIVERIES. At the Closing, the parties will deliver to the
other the following documents as specified below, each of which will be duly
executed by the parties thereto and will be in form and substance reasonably
satisfactory to the recipient thereof:
(a) Buyer will deliver the initial installment of the Purchase Price in
accordance with SECTION 1.4(A);
(b) Buyer will deliver to the Company an Assumption Agreement, in a form
reasonably acceptable to the Company and Buyer;
(c) the Company will execute a Bill of Sale conveying the Assets to
Buyer, in a form reasonably acceptable to the Company and Buyer;
(d) the Company will provide any certificates of title or other
conveyance documents that may be necessary to effect or record the transfer
of any Assets to Buyer;
(e) the Company will provide the originals or copies of all of the
Company's books, records, ledgers, disks, proprietary information and other
data and all other written or electronic depositories of information
relating to the Assets;
(f) the Company and Parent will deliver to Buyer a closing certificate,
in a form reasonably acceptable to the Company and Buyer;
(g) Buyer will deliver to the Company and Parent a closing certificate,
in a form reasonably acceptable to the Company and Buyer;
(h) the Company will deliver the release referred to in SECTION 2.4(VI);
and
(i) the Company will deliver to Buyer an occasional sales affidavit.
1.8 FURTHER ASSURANCES. At or after the Closing, and without further
consideration, the Company and the Parent will execute and deliver to Buyer such
further instruments of conveyance and transfer as Buyer may reasonably request
in order more effectively to convey and transfer the Assets to Buyer and to put
Buyer in operational control of the business of the Company, or for aiding,
assisting, collecting and reducing to possession any of the Assets and
exercising rights with respect thereto.
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 5
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND PARENT
The Company and Parent, jointly and severally, hereby represent and warrant
to Buyer as follows:
2.1 ORGANIZATION. The Company is a corporation duly organized, validly
existing and in good standing under the laws of Texas and has full corporate
power to own its properties and to conduct its business as presently conducted.
The Company is duly authorized, qualified or licensed to do business and is in
good standing as a foreign corporation in each state or other jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect (as
defined below). As used herein, the term "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 business associated with the Assets (taken as a
whole), other than either general economic changes or regulatory or competitive
changes that affect an industry generally, over which the Company has no
control; (ii) the ability of the Company or Parent to perform its obligations
under this Agreement, or (iii) the validity or enforceability of this Agreement.
2.2 AUTHORITY. The Company and Parent have all requisite power and
authority to execute, deliver and perform under this Agreement and all other
agreements and instruments required to be executed and delivered by the Company
or Parent hereunder (collectively, the "Company Documents"), subject to
shareholder approval as set forth in SECTION 5.2(E) (the "Required Approval").
Subject to Parent's receipt of the Required Approval, the execution, delivery
and performance by the Company and Parent of each Company Document (to the
extent the Company or Parent is a party thereto) have been duly authorized by
all necessary action, corporate or otherwise, on the part of the Company and
Parent. Subject to the receipt of the Required Approval, this Agreement has
been, and at the Closing the other Company Documents will be, duly executed and
delivered by the Company and Parent (to the extent each is a party thereto).
Subject to the receipt of the Required Approval, this Agreement is, and, upon
execution and delivery by the Company and Parent at the Closing, each of the
other Company Documents will be, a legal, valid and binding agreement of the
Company and Parent (to the extent each is a party thereto), enforceable against
the Company and Parent in accordance with their respective terms.
2.3 YEAR 2000 MATTERS. The Company has no contractual obligation to make
the source code developed by the Company and sold to The Southland Corporation
Year 2000 Compliant. The Company has reviewed publicly available information
provided by certain providers of hardware and software used by the Company in
connection with the Business, and such publicly available information sets forth
the "Year 2000" certifications or warranties ("Third Party Statements") of such
providers, with regard to items marked in SCHEDULE 2.4 and SCHEDULE 2.22 (the
"Y2K Items"), that are indicated in such schedules. The Company has no knowledge
(as defined in SECTION 2.15) that any Third Party Statements regarding the Y2K
Items are incorrect or that any of the Y2K Items or any of the applications
marked as "Y2K Compliant" in SCHEDULE 2.22 are not Year 2000 Compliant. For
purposes of this Agreement, the term "Year 2000 Compliant" means, with respect
to computer hardware and computer software and applications, that such items (i)
will operate and produce data before, on or after January 1, 2000 (including
taking into effect that such year is a leap year), accurately and without delay,
interruption or error relating to the fact that the time at which the date on
which such items are operating is on or after 12:00 a.m. on January 1, 2000, or
(ii) will accept, calculate, process, maintain, write an output, accurately and
without delay, interruption or error, any functions referring a time or date
after 12:00 a.m. on January 1, 2000, or both, whether before, on or after 12:00
a.m. on January 1, 2000, and any time period determined or to be determined
based on any such time or date, or both. Neither the Company nor Parent makes
any representations or warranties whether any Assets are Year 2000 Compliant
other than the limited representation and warranty set forth in this SECTION 2.3
with regard to the items or applications so marked in SCHEDULE 2.4 and SCHEDULE
2.22.
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 6
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
2.4 TITLE TO ASSETS. Set forth in SCHEDULE 2.4 is a complete list of (a)
all real property currently owned by the Company; (b) all real property
currently leased or otherwise used by the Company; (c) each vehicle owned or
leased by the Company; and (d) each asset of the Company with a book value or
fair market value greater than $5,000. The Company has good and marketable title
to all of the Assets and owns all of the Assets free and clear of any
liabilities, obligations, liens, claims, security interests, encumbrances or
contingencies of any nature (collectively, "Liens"), other than (i) Liens for
current taxes not yet due and payable; (ii) deposits under workmen's
compensation, unemployment insurance or social security laws, or to secure
statutory obligations or surety or similar bonds; (iii) statutory liens imposed
by law incurred in the ordinary course of business or for obligations not yet
due to carriers, warehousemen, laborers or materialmen; (iv) the interest or
title of any lessor in property pursuant to a lease of real or personal property
under Assumed Contracts; (v) minor imperfections of title and encumbrances that
do not materially detract from or interfere with the present use or value of
such properties; and (vi) any Liens held by Founders Equity Group, Inc. or its
affiliates (the "Senior Lender") to be released at Closing. The execution and
delivery of the Company Documents by the Company and Parent at the Closing will
convey to and vest in Buyer good and marketable title to the Assets, free and
clear of any Liens except the Assumed Liabilities and the Liens described in
clauses (i) and (ii) above.
2.5 CONDITION OF ASSETS. The Assets constitute all assets used by the
Company in the conduct of its business, except for the Excluded Assets or assets
held under leases or licenses disclosed pursuant to SECTION 2.19. All
facilities, machinery, equipment, fixtures, vehicles and other tangible property
owned, leased or used by the Company in the Business are in good operating
condition and repair, normal wear and tear excepted, are reasonably fit and
useable for the purposes for which they are being used, are adequate and
sufficient for the Company's business and conform in all material respects with
all applicable laws, rules and regulations.
2.6 NO VIOLATION. Subject to the receipt of the Required Approval and the
consents for the transfer of the Assumed Contracts set forth on SCHEDULE 2.6,
neither the execution or delivery of the Company Documents nor the consummation
of the transactions contemplated thereby, including, without limitation, the
sale of the Assets to Buyer, will conflict with or result in the breach of any
term or provision of, or violate, or constitute a default under, or result in
the creation of any Lien on the Assets pursuant to, or relieve any third party
of any obligation to the Company or give any third party the right to terminate
or accelerate any obligation under, any charter provision, bylaw, Material
Agreement (as defined in SECTION 2.19(A)), Permit (as defined in SECTION 2.14),
order, law or regulation to which the Company or Parent is a party or by which
the Company, Parent or any of their respective assets is in any way bound or
obligated.
2.7 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
governmental or quasi-governmental agency, authority, commission, board or other
body (collectively, a "Governmental Body") is required on the part of the
Company or Parent in connection with the transfer of any Permits or other Assets
to Buyer or any of the other transactions contemplated by this Agreement.
2.8 [RESERVED]
2.9 ABSENCE OF UNDISCLOSED LIABILITIES. The Company has no Liabilities
except for the Assumed Liabilities and Excluded Liabilities. The Company has no
liabilities required to be recorded under generally accepted accounting
principles other than (i) liabilities disclosed in the Company's balance sheet
previously delivered to Buyer dated July 31, 1998 (subject to adjustments to
reflect the reclassification of certain items of cost and expense), (ii) normal
or recurring liabilities incurred since the July 31, 1998 in the ordinary course
of business consistent with past practices, or (iii) liabilities which,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect.
2.10 ABSENCE OF MATERIAL ADVERSE CHANGE. Since July 31, 1998 and except as
specifically contemplated by this Agreement, there has not been: (a) any change
in the condition (financial or otherwise),
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 7
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
results of operations, business, prospects, assets or Liabilities of the Company
or with respect to the manner in which the Company conducts its business or
operations that could reasonably be anticipated to have a Material Adverse
Effect; (b) any breach or default (or event that with notice or lapse of time
would constitute a breach or default), termination or threatened termination
under any Material Agreement; (c) any theft, damage, destruction, casualty loss,
condemnation or eminent domain proceeding affecting the Assets and not covered
by insurance that could reasonably be anticipated to have a Material Adverse
Effect; (d) any sale, assignment or transfer of any material assets of the
Company, except in the ordinary course of business and consistent with past
practices; (e) any waiver by the Company of any material rights related to the
Company's business, operations or assets; (g) any other transaction, agreement
or commitment entered into by the Company or Parent affecting the Company's
business, operations or assets, except in the ordinary course of business and
consistent with past practices; or (h) any agreement or understanding to do or
resulting in any of the foregoing.
2.11 TAXES. Except for the accrued sales tax liability described in
SCHEDULE 1.5(C) or other tax liabilities included in the calculation of Net
Working Capital as of the Closing Date, all required federal, state, local and
other tax returns, notices and reports (including without limitation income,
property, sales, use, franchise, withholding, social security and unemployment
tax returns) relating to or involving transactions with the Company or Parent
have been accurately prepared and duly and timely filed, and all taxes required
to be paid with respect to the periods covered by any such returns have been
timely paid or adequately reserved for by Parent in its consolidated financial
statements. No tax deficiency has been proposed or assessed against the Company
or Parent, and the Company and Parent have not executed any waiver of any
statute of limitations on the assessment or collection of any tax. No tax audit,
action, suit, proceeding, investigation or claim is now pending or, to the
knowledge of the Company or Parent, threatened against the Company or Parent,
and no issue or question has been raised (and is currently pending) by any
taxing authority in connection with any of the Company's or Parent's tax returns
or reports. Each of the Company and Parent has withheld or collected from each
payment made to each of its employees the full amount of all taxes required to
be withheld or collected therefrom and has paid the same to the proper tax
receiving officers or authorized depositories.
2.12 LITIGATION. There are currently no pending or, to the knowledge of
the Company or Parent, threatened lawsuits, administrative proceedings or
reviews, or formal or informal complaints or investigations by any individual,
corporation, partnership, Governmental Body or other entity (collectively, a
"Person") against or relating to the Company or any of its directors, employees
or agents (in their capacities as such) or to which any of the Assets are
subject, which could reasonably be anticipated to have a Material Adverse
Effect. The Company is not subject to or bound by any currently existing
judgment, order, writ, injunction or decree.
2.13 COMPLIANCE WITH LAWS. The Company is currently complying with and has
at all times complied with, and the use, operation and maintenance of the Assets
comply with and have at all times complied with, and neither the Company, the
Assets nor the use, operation or maintenance of the Assets is in violation or
contravention of, any applicable statute, law, ordinance, decree, order, rule or
regulation of any Governmental Body, including, without limitation, all federal,
state and local laws relating to occupational health and safety, employment and
labor matters; except, in each case, to the extent that such noncompliance or
partial compliance could not reasonably be anticipated to have a Material
Adverse Effect.
2.14 PERMITS. The Company owns or possesses from each appropriate
Governmental Body all right, title and interest in and to all permits, licenses,
authorizations, approvals, quality certifications, franchises or rights
(collectively, "Permits") issued by any Governmental Body necessary to conduct
its business, except with the failure to own or possess such Permit could not
reasonably be anticipated to have a Material Adverse Effect. No loss or
expiration of any such Permit is pending or, to the knowledge of the Company or
Parent, threatened or reasonably foreseeable, other than expiration in
accordance with the terms thereof of Permits that may be renewed in the ordinary
course of business without lapsing.
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 8
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
2.15 ENVIRONMENTAL MATTERS.
(a) The only real property owned, leased or otherwise used by the
Company since 1992 is the Company's corporate headquarters located at 150 W.
Carpenter Freeway, Irving, Texas 75039 (the "HQ Property") held under a
commercial lease described in SCHEDULE 2.19. The Company has never disposed
of, released or transported Hazardous Substances.
(b) Without limiting the generality of the other representations and
warranties set forth in this ARTICLE II: (i) the Company has conducted its
business in compliance with all applicable Environmental Laws, including,
without limitation, by having all Permits required under any Environmental
Laws for the operation of its business; (ii) to the Company's knowledge,
none of the real property owned or leased by the Company contains any
Hazardous Substance in amounts exceeding the levels permitted by applicable
Environmental Laws; (iii) the Company has not received any notices, demand
letters or requests for information from any Governmental Body or other
Person indicating that the Company may be in violation of, or liable under,
any Environmental Law or relating to any of the Assets or the HQ Property;
(iv) no reports have been filed, or are required to be filed, by the Company
concerning the release of any Hazardous Substance or the threatened or
actual violation of any Environmental Law; (v) to the Company's knowledge,
no Hazardous Substance has been disposed of, released or transported in
violation of any applicable Environmental Law from any real property owned
or leased by the Company or as a result of any activity of the Company; (vi)
there have been no environmental investigations, studies, audits, tests,
reviews or other analyses regarding compliance or noncompliance with any
Environmental Law conducted by or which are in the possession of the Company
relating to the activities of the Company, any of real property owned or
leased by the Company or the HQ Property that have not been delivered to
Buyer prior to the date hereof; (vii) to the Company's knowledge, there are
no underground storage tanks on, in or under any real property owned or
leased by the Company, and no underground storage tanks have been closed or
removed from any of such properties; (viii) to the Company's knowledge,
there is no asbestos or asbestos containing material present in any of the
properties owned by the Company, and no asbestos has been removed from any
of such properties; and (ix) neither the Company nor any of the Assets are
subject to any material Liabilities or expenditures relating to any suit,
settlement, court order, administrative order, regulatory requirement,
judgment or claim asserted or arising under any Environmental Law.
(c) As used herein, "Environmental Law" means any federal, state, local
or foreign law, statute, ordinance, rule, regulation, code, legal doctrine,
Permit, license, authorization, approval, consent, order, judgment, decree,
injunction, requirement or agreement with any Governmental Body relating to
(i) the protection, preservation or restoration of the environment
(including without limitation air, water vapor, surface water, groundwater,
drinking water, surface land, subsurface land, plant and animal life or any
other natural resource) or to human health or safety or (ii) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and in effect on the date of the
Closing.
(d) As used herein, "Hazardous Substance" means any substance presently
or hereafter listed, defined, designated or classified as hazardous, toxic,
radioactive or dangerous, or otherwise regulated, under any Environmental
Law. Hazardous Substance includes any substance to which exposure is
regulated by any Governmental Body or any Environmental Law, including
without limitation any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial
substance or petroleum or any derivative or by-product thereof, radon,
radioactive material, asbestos or asbestos containing material, urea
formaldehyde, foam insulation, lead or polychlorinated biphenyls.
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 9
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
(e) As used in this Agreement, the term "knowledge" means the current
actual knowledge of any executive vice president, president or the chief
executive officer of the Company, without imposing upon any such person of
any duty of inquiry with regard to such facts or circumstances.
2.16 EMPLOYEE MATTERS. Set forth in SCHEDULE 2.16 is a complete list of
all current Designated Employees of the Company, including date of employment,
current title and compensation, and date and amount of last increase in
compensation. Except as set forth in SCHEDULE 2.19, the Company has no
collective bargaining, union or labor agreements, contracts or other
arrangements with any group of employees, labor union or employee
representative. Neither the Company nor Parent knows of any organization effort
currently being made or threatened by or on behalf of any labor union with
respect to employees of the Company. The Company has not experienced, and
neither the Company nor Parent knows or has reasonable grounds to know of any
basis for, any strike, material labor trouble, work stoppage, slow down or other
interference with or impairment of the business of the Company. Following the
Closing and except as provided in SECTION 4.8 with regard to Accrued Vacation
Liabilities, Buyer will have no Liabilities whatsoever under or resulting from
(a) the employment by Buyer of any employee of the Company and relating to such
employee's services to or employment by the Company prior to the Closing; (b)
the termination (by the Company) of the employment of any of the Company's
employees; or (c) the failure of Buyer to offer to employ any of the Company's
employees other than the Designated Employees.
2.17 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 2.17 lists all "employee pension benefit plans," as defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), ever maintained or contributed to (or required to be
contributed to) by the Company or any Affiliate (the "Pension Plans"). As
used in this SECTION 2.17, "Affiliate" means any corporation, trade or
business the employees of which, together with the employees of the Company,
are required to be treated as employed by a single employer under the
provisions of ERISA or Section 414 of the Internal Revenue Code of 1986, as
amended (the "Code").
(b) SCHEDULE 2.17 lists each "employee welfare benefit plan" (as defined
in Section 3(1) of ERISA) that the Company or any Affiliate maintains,
contributes to or is required to contribute to on behalf of any employee or
former employee, including any multiemployer welfare plan (the "Welfare
Benefit Plans"), and sets forth the amount of any Liability of the Company
or any Affiliate for any payment past due with respect to each Welfare
Benefit Plan as of the date of the Closing. No voluntary employees'
beneficiary association or other funding arrangement (other than insurance
contracts) are being used to fund or implement any Welfare Benefit Plan. The
Company has not made any written or oral representations to any employee or
former employee promising or guaranteeing any employer payment or funding
for the continuation of benefits or coverage under any Welfare Benefit Plan
for any period of time beyond the end of the current plan year (except to
the extent required under Code Section 4980B).
(c) SCHEDULE 2.17 lists each plan or policy providing for "fringe
benefits" (including but not limited to vacation, paid holidays, personal
leave, employee discount, educational benefit or similar program), and any
other deferred compensation, bonus, stock option, employee stock purchase,
severance, group insurance, disability, unemployment, supplemental
unemployment, layoff, consulting or stock appreciation rights plan, and any
other similar plan, policy, arrangement, commitment or understanding
(whether written or oral) not required to be listed under paragraph (a) or
(b) above that is maintained by the Company for employees or provides
benefits or describes policies or procedures applicable to any employee,
former employee, director or former director of the Company (the "Employee
Benefit Plans").
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 10
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
(d) SCHEDULE 2.17 lists and specifically identifies each multiemployer
plan (as defined in Section 3(37) of ERISA) to which the Company or any
Affiliate contributes or has at any time contributed or had an obligation to
contribute (the "Multiemployer Plans").
(e) Neither the Company nor any Affiliate maintains, or has ever
maintained, contributed to, been required to contribute to or had any
employees participating in, any "defined benefit plan" (as defined in
Section 3(35) of ERISA).
(f) The Pension Plans, the Welfare Benefit Plans and the Employee
Benefit Plans and related trusts and insurance contracts, including any
Multiemployer Plans (collectively, the "Plans"), are legally valid and
binding and in full force and effect. All of the Plans comply currently, and
have complied in the past, both as to form and operation, with the
provisions of all laws, rules and regulations governing or applying to such
Plans; all necessary governmental approvals for the Pension Plans and the
Welfare Benefit Plans have been obtained; and a favorable determination as
to the qualification under the Code of each of the Pension Plans and each
amendment thereto has been made by the Internal Revenue Service, and nothing
has occurred since the date of such determination letters that could
adversely affect the qualification of such plans or the tax exempt status of
the related trust. All reports and filings required by any Governmental Body
(including without limitation Form 5500 Annual Reports, Summary Annual
Reports and Summary Plan Descriptions) with respect to each Plan have been
timely and completely filed, and have been distributed to participants as
required by applicable law. Neither the Company, any Affiliate or any plan
fiduciary of any Plan has engaged in any transaction in violation of Section
406(a) or (b) of ERISA or any "prohibited transaction" (as defined in Code
Section 4975(c)(1)) that would subject the Company to any taxes, penalties
or other Liabilities resulting from such transaction. None of the Plans is
being audited or investigated by any Governmental Body.
(g) The Company has no Liabilities to any Person with respect to any
Plan, except for (i) Liabilities that are fully funded by assets set aside
in trust or irrevocably dedicated for that purpose, the fair market value of
which assets exceed the Liabilities to which they are set aside or
dedicated, and (ii) Liabilities that have been fully accrued on the
Financial Statements. Following the Closing and except as provided in
SECTION 4.8, Buyer will have no Liabilities whatsoever under or resulting
from the Plans or the termination by the Company of any employee of the
Company from any Plan and will have no obligation to continue or replace any
of the Plans.
(h) True and complete copies of the following documents have been
delivered to Buyer: (i) each Plan and each related trust agreement or
annuity contract (or other funding instrument); (ii) the most recent
determination letter issued by the Internal Revenue Service with respect to
each Pension Plan; (iii) Annual Reports on Form 5500 Series required to be
filed with any Governmental Body for each Welfare Benefit Plan and each
Pension Plan for the two (2) most recent plan years; and (iv) the three (3)
most recent actuarial reports for each Pension Plan.
2.18 OWNERSHIP OF THE COMPANY. Subject to the lien of the Senior Lender on
the capital stock of the Company, Parent owns all of the issued and outstanding
capital stock of the Company. There are no outstanding options, warrants,
convertible securities or other rights, agreements, arrangements or commitments
obligating the Company, Parent or any other Person to issue or sell any
securities or ownership interests in the Company. There are no stockholders'
agreements, voting agreements, voting trusts or similar agreements binding on
Parent or applicable to any of the Company's capital stock. All of the
outstanding capital stock of the Company has been offered and sold in compliance
with all applicable securities laws, rules and regulations.
2.19 MATERIAL AGREEMENTS.
(a) SCHEDULE 2.19 lists each agreement and arrangement (whether written
or oral and including all amendments thereto) to which the Company is a
party or a beneficiary or by which the Company
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 11
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
or any of its assets is bound and that is material to the Company
(collectively, the "Material Agreements"), including, without limitation (i)
any real estate leases; (ii) any contracts that have accounted for revenues
of more than $10,000 during the one year period preceding the date of this
Agreement; (iii) any agreement evidencing, securing or otherwise relating to
any indebtedness for which the Company is liable; (iv) any capital or
operating leases or conditional sales agreements relating to vehicles,
equipment or other assets of the Company; (v) any supply or manufacturing
agreements or arrangements pursuant to which the Company is entitled or
obligated to acquire any assets from a third party; (vi) any employment,
consulting, noncompetition, separation, collective bargaining, union or
labor agreements or arrangements; (vii) any agreement with or for the
benefit of any stockholder, director, officer or employee of the Company, or
any affiliate or family member thereof; and (viii) any other agreement or
arrangement pursuant to which the Company could be required to make or
entitled to receive aggregate payments in excess of $10,000 in the twelve
month period commencing November 1, 1998. SCHEDULE 2.19 also indicates which
Material Agreements are "Assumed Contracts" for purposes of SECTION 1.3(A).
(b) The Company has delivered to Buyer a copy of each Material
Agreement. Except as described in SCHEDULE 2.19, (i) each Material Agreement
is valid, binding and in full force and effect and enforceable in accordance
with its terms; (ii) the Company has performed all of its obligations under
each Material Agreement, and there exists no breach or default (or event
that with notice or lapse of time would constitute a breach or default) by
either the Company or, to the Company's knowledge, any other party to, any
Material Agreement; (iii) there has been no termination or notice of default
or, to the knowledge of the Company or Parent, any threatened termination
under any Material Agreement; and (iv) no consent of any Person is required
in connection with the transactions contemplated by this Agreement in order
to transfer the Company's rights to Buyer under any of the Assumed
Contracts.
2.20 CUSTOMERS. Set forth in SCHEDULE 2.20 is a complete list of each
customer of the Company that has accounted or is expected to account for more
than $10,000 of revenues during the one year period ending October 31, 1998 (the
"Material Customers").
2.21 ACCOUNTS RECEIVABLE. SCHEDULE 2.21 sets forth the accounts receivable
of the Company, and the payments and rights to receive payments related thereto.
The amounts of all accounts receivable, unbilled invoices and other debts due or
recorded in the records and books of account of the Company as being due to the
Company as of July 31, 1998 (less the amount of any provision or reserve
therefor made in the respective records and books of account of the Company,
which provision or reserve has been computed in accordance with past practice
and is reasonably believed to be adequate) constitute valid claims against third
parties not affiliated with the Company arising in bona fide transactions in the
ordinary course of the business of the Company.
2.22 INTELLECTUAL PROPERTY RIGHTS. Set forth in SCHEDULE 2.22 is a
complete list of all registered patents, trademarks, service marks, trade names
and copyrights, and applications for and licenses (to or from the Company) with
respect to any of the foregoing (collectively, "Registered Intellectual
Property"), owned by the Company or with respect to which the Company has any
rights. The Company has the right to use all Registered Intellectual Property
and other computer software and software licenses, intellectual property,
proprietary information, trade secrets, trademarks, trade names, copyrights,
material and manufacturing specifications, drawings and designs (collectively,
"Intellectual Property") used by the Company or necessary in connection with the
operation of the Company's business, without infringing on or otherwise acting
adversely to the rights or claimed rights of any Person, and neither the Company
nor Parent are obligated to pay any royalty or other consideration to any Person
in connection with the use of any such Intellectual Property, other than
reasonable and customary license fees that may be associated with third party
retail software. To the knowledge of the Company or Parent, no person is
infringing the rights of the Company in any of its Intellectual Property.
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 12
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
2.23 [RESERVED]
2.24 COMPETING INTERESTS. None of the Company, Parent or any director,
officer, relative or affiliate of any of the foregoing owns, directly or
indirectly, an interest in any Person that is a competitor, customer or supplier
of the Company or that otherwise has material business dealings with the
Company.
2.25 ILLEGAL OR UNAUTHORIZED PAYMENTS; POLITICAL CONTRIBUTIONS. Neither
the Company nor any of its officers, directors, employees, agents or other
representatives or, to the knowledge of the Company or Parent, any other
business entity or enterprise with which the Company is or has been affiliated
or associated, has, directly or indirectly, made or authorized any payment,
contribution or gift of money, property or services, whether or not in
contravention of applicable law, (a) as a kickback or bribe to any Person or (b)
to any political organization, or the holder of or any aspirant to any elective
or appointive public office, except for personal political contributions not
involving the direct or indirect use of funds of the Company. The Company has
not violated any federal or state antitrust statutes, rules or regulations,
including without limitation those relating to unfair competition, price fixing,
bid rigging or collusion.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company and the Parent as follows:
3.1 ORGANIZATION. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of Delaware.
3.2 AUTHORITY. Buyer has all requisite power and authority to execute,
deliver and perform under this Agreement. The execution, delivery and
performance of this Agreement by Buyer has been duly authorized by all necessary
action, corporate or otherwise, on the part of Buyer. This Agreement has been
duly executed and delivered by Buyer and is a legal, valid and binding agreement
of Buyer, enforceable against Buyer in accordance with its terms.
3.3 NO VIOLATION. The execution, delivery and performance of this
Agreement by Buyer will not conflict with or result in the breach of any term or
provision of, or violate or constitute a default under any charter provision or
bylaw or under any material agreement, instrument, order, law or regulation to
which Buyer is a party or by which Buyer is in any way bound or obligated.
3.4 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
Governmental Body is required on the part of Buyer in connection with the
transactions contemplated by this Agreement.
ARTICLE IV
COVENANTS AND AGREEMENTS
4.1 CONDUCT OF BUSINESS. Prior to the Closing, the Company will, and
Parent will cause the Company to, (a) operate in the ordinary course of business
and consistent with past practices and use its best efforts to preserve the
goodwill of the Company and of its employees, customers, suppliers, Governmental
Bodies and others having business dealings with the Company; (b) except as
contemplated by this Agreement, not engage in any transaction outside the
ordinary course of business, including without limitation by making any material
expenditure, investment or commitment or entering into any material agreement or
arrangement of any kind; (c) not (i) increase in the compensation of any officer
or employee of the Company listed as a Designated Employee (as defined in
SECTION 4.8), or (ii) hire any employee to be included as a Designated Employee
(as defined in SECTION 4.8), in each case without the prior written approval of
Buyer (which shall not be unreasonably withheld or delayed); provided that if
Buyer fails to respond to any written request for such approval within one
business day, then Buyer shall be deemed to have approved to such increase in
compensation or hiring; (d) maintain all insurance policies and all Permits that
are required for the Company to carry on its business; (e) maintain books of
account and
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 13
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
records in the usual, regular and ordinary manner and consistent with past
practices; (f) pay all sales and other taxes prior to the date any tax lien
attaches to the Assets; and (g) not take any action that would result in a
breach (as of the Closing) of the representations and warranties set forth in
ARTICLE II.
4.2 NO-SHOP PROVISIONS. Until the earlier of the Closing or October 31,
1998, (a) the Company and Parent will each negotiate exclusively and in good
faith with Buyer with respect to the sale of the Company; (b) neither the
Company nor Parent will, directly or indirectly (through agents or otherwise),
encourage or solicit any inquiries or accept any proposals by, or engage in any
discussions or negotiations with or furnish any information to, any other Person
concerning a sale of a substantial portion of the assets or business of the
Company, whether through an asset sale, stock sale, merger or otherwise (each,
an "Acquisition Proposal"); and (c) the Company and Parent will promptly
communicate to Buyer the material substance of any Acquisition Proposal that may
be received by any of them; provided that nothing contained in this Agreement
shall prevent Parent or the Company, or their respective Boards of Directors, to
the extent that such Board of Directors determines in good faith that such
action is required to comply with its fiduciary duties to its shareholders from
(i) furnishing non-public information to, or entering into discussions or
negotiations with, any person or entity in connection with an unsolicited bona
fide written Acquisition Proposal by such person or entity or recommending an
unsolicited bona fide written Acquisition Proposal by such person or entity to
the shareholders of such party, if and only to the extent that (A) the Board of
Directors of such party believes in its good faith reasonable judgment that such
Acquisition Proposal is reasonably capable of being completed on the terms
proposed and, after taking into account the strategic benefits anticipated to be
derived from the transaction contemplated by this Agreement and the long-term
prospects of Parent and Company as a combined company, would, if, consummated,
result in a transaction more favorable over the long-term from a financial point
of view than the transaction contemplated by this Agreement (any such more
favorable Acquisition Proposal being referred to in this Agreement as a
"Superior Proposal") and the Board of Directors of such party determines in good
faith that such action is necessary for such Board of Directors to comply with
its fiduciary duties to shareholders under applicable law and (B) prior to
furnishing such non-public information to, who are entering into discussions or
negotiations with, such person or entity, such Board of Directors receives from
such person or entity an executed confidentiality agreement with terms no less
favorable to such party than those contained in the Exclusive Negotiation and
Confidentiality Agreement dated July 20, 1998 between the Company, Parent and
Buyer (as amended, the "Confidentiality Agreement"), such non-public information
has been previously delivered to the Board of Directors of Buyer and the Company
or Parent advises Buyer in writing of such disclosure or negotiations, including
the party to whom disclosed or with whom discussions or negotiations will occur;
or (ii) complying with Rules 14d-9 and 14e-2 promulgated under the Securities
Exchange Act of 1934, as amended, with regard to an Acquisition Proposal.
4.3 ACCESS AND INFORMATION. From and after the date hereof, the Company
and Parent will permit Buyer and its representatives to have reasonable access
to the Company's directors, officers, employees, agents, assets and properties
and all relevant books, records and documents of or relating to the business and
assets of the Company during normal business hours and will furnish to Buyer
such information, financial records and other documents relating to the Company
and its operations and business as Buyer may reasonably request. The Company and
Parent will permit Buyer and its representatives reasonable access to the
Company's accountants, auditors, customers, suppliers and Governmental Bodies
having dealings with the Company for consultation or verification of any
information obtained by Buyer and will use their respective best efforts to
cause such Persons to cooperate with Buyer and its representatives in such
consultation and in verifying such information. Unless otherwise required by
law, Buyer will hold any such information which is non-public in confidence and
in accordance with the Confidentiality Agreement, the confidentiality provisions
of which shall continue in effect (and are hereby extended) until the
consummation of the transactions contemplated by this Agreement.
4.4 SUPPLEMENTAL DISCLOSURE. The Company and Parent will promptly
supplement or amend each of the Schedules hereto with respect to any matter that
arises or is discovered after the date hereof that, if
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 14
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
existing or known at the date hereof, would have been required to be set forth
or listed in the Schedules hereto; provided that, for purposes of determining
the rights and obligations of the parties hereunder (other than the obligations
of the Company and Parent under this SECTION 4.4), any such supplemental or
amended disclosure will not be deemed to have been disclosed to Buyer unless (a)
such supplemental or amended disclosure is consistent with the actions
contemplated by SECTION 4.1 above, or (b) Buyer otherwise expressly consents in
writing.
4.5 FULFILLMENT OF CONDITIONS BY THE COMPANY AND PARENT. The Company and
Parent agree not to take any action that would cause the conditions on the
obligations of the parties to effect the transactions contemplated hereby not to
be fulfilled, including, without limitation, by taking or causing to be taken
any action that would cause the representations and warranties made by the
Company and Parent herein not to be true and correct as of the Closing. The
Company and Parent will take all reasonable steps within their power to cause to
be fulfilled the conditions precedent to Buyer's obligations to consummate the
transactions contemplated hereby that are dependent on the actions of the
Company or Parent.
4.6 FULFILLMENT OF CONDITIONS BY BUYER. Buyer agrees not to take any
action that would cause the conditions on the obligations of the parties to
effect the transactions contemplated hereby not to be fulfilled, including
without limitation by taking or causing to be taken any action that would cause
the representations and warranties made by Buyer herein not to be true and
correct as of the Closing. Buyer will take all reasonable steps within its power
to cause to be fulfilled the conditions precedent to the obligations of the
Company and Parent to consummate the transactions contemplated hereby that are
dependent on the actions of Buyer.
4.7 TRANSACTION COSTS. Parent and the Company will pay all attorneys',
accountants', finders', brokers', investment banking and other fees, costs and
expenses incurred by the Company or Parent in connection with the preparation,
negotiation, execution and performance of this Agreement or any of the
transactions contemplated by this Agreement. Buyer will pay all attorneys',
accountants', finders', brokers', investment banking and other fees, costs and
expenses that it incurs in connection with the preparation, negotiation,
execution and performance of this Agreement or any of the transactions
contemplated by this Agreement, including without limitation any sales, use,
transfer, excise or other taxes arising out of the sale of the Assets.
4.8 EMPLOYEE MATTERS.
(a) EMPLOYEES HIRED AND NOT HIRED BY BUYER.
(i) DEFINITIONS. In this Agreement, "Designated Employees" means (A)
each of the employees of the Company identified on SCHEDULE 2.16 and (B)
any employees hired following the date hereof and approved or deemed
approved by Buyer as a "Designated Employee" as provided in SECTION
4.1(C)(II), and "Transferred Employees" means all Designated Employees
that accept an offer of employment from Buyer at Closing.
(ii) HIRING OF TRANSFERRED EMPLOYEES. Buyer shall offer employment
as of the Closing Date to all Designated Employees. Employment shall be
upon terms and conditions as Buyer shall agree with each Designated
Employee prior to the Closing Date; PROVIDED, HOWEVER, that such terms
and conditions shall be at least as favorable as those that such
Designated Employee currently has with the Company.
(iii) COMMUNICATIONS WITH EMPLOYEES. During the period from the date
of this Agreement until the Closing Date, Buyer may (after prior notice
to the Company) contact any Designated Employees, review their personnel
records (with each such employee's permission, as necessary) and extend
to such Designated Employees offers of employment with Buyer subject to
and following the Closing. The Company shall provide access to and
information concerning such Designated Employees as Buyer may reasonably
request. Nothing contained in this paragraph shall confer upon any person
the right to remain an employee of Buyer or any of its affiliates, or
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 15
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
the right to prevent Buyer from changing the terms and conditions of
employment of any person following the Closing Date.
(iv) EMPLOYEES NOT HIRED. Except as set forth above, no other
employees of the Company shall be hired by Buyer or its affiliates.
(b) LIABILITIES AND OBLIGATIONS WITH RESPECT TO EMPLOYEES.
(i) BENEFITS UNDER PENSION PLANS. As of the Closing Date, all
Transferred Employees shall cease to accrue benefits under all Pension
Plans maintained by the Company. The Company agrees to retain the
responsibilities for payment of all benefits accrued by any participant
or beneficiary under such Pension Plans. The Company shall retain all
liability under Pension Plans as to employees not hired by Buyer.
(ii) WELFARE BENEFIT PLANS. As of the Closing Date, each Transferred
Employee shall cease participating in all Welfare Benefit Plans
maintained by the Company. The Company shall be responsible for all
claims incurred by any person under such Welfare Benefit Plans, and, in
addition, shall be responsible for benefits payable with respect to
disabilities incurred by any person prior to the Closing Date, whether or
not claim is made for such benefits prior to the Closing Date. The
Company shall retain all liability under Welfare Benefit Plans as to
employees not hired by Buyer.
(iii) LIABILITY UNDER EMPLOYEE BENEFIT PLANS. The Company shall be
responsible for any and all liability incurred prior to or as of the
Closing Date under any Employee Benefit Plan for all Transferred
Employees. The Company shall retain all liability for such benefits as to
employees not hired by Buyer.
(iv) DISCRIMINATION CLAIMS; VACATION BENEFITS. The Company shall be
responsible for any liability with respect to any claims of
discrimination brought by any Transferred Employee under state or federal
law; provided such claims arose or termination occurred prior to the
Closing Date. Buyer shall assume the liability of the Company for accrued
vacation benefits with respect to any Transferred Employee attributable
to periods of service prior to the Closing Date ("Accrued Vacation
Liabilities"), and in this regard shall allow such Transferred Employee
to use such accrued vacation benefits following the Closing, consistent
(in accordance with SECTION 4.8(VI) with Buyer's policies for Buyer's
employees at the same or similar level. The Accrued Vacation Liabilities
for the Designated Employees through July 31, 1998 is set forth in
SCHEDULE 4.8(B). The Company shall retain all liability for
discrimination claims, and for vacation benefits as to employees not
hired by Buyer.
(v) OTHER LAWS RELATED TO EMPLOYEES. As to all Employees, whether or
not hired by Buyer, the Company shall be responsible for complying with
all obligations and liabilities arising under COBRA (including providing
adequate notice, and maintaining insurance for those Employees electing
to continue insurance coverage) and the Workers Adjustment and Retraining
Notification Act of 1988 ("WARN ACT") (including providing timely notice
of termination).
(vi) PARTICIPATION IN BUYER'S BENEFIT PLANS. Buyer shall take all
actions necessary or appropriate to permit the Transferred Employees to
participate as soon as practical after the Closing Date in the employee
benefit programs of Buyer for which they are eligible. For this purpose,
the Transferred Employees service with the Company shall be counted as
service with Buyer to the maximum extent possible.
4.9 CONTINUATION OF THE BUSINESS. Following the Closing Date and for a
period of one year following the Deferred Period Commencement Date, Buyer shall
use reasonable efforts to maintain and promote the Business, and shall cause all
revenues arising from the Business to be accounted for separate and apart from
Buyer's other business segments.
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 16
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
4.10 SOFTWARE LICENSE. Following the Closing, the Company and Parent shall
have a non-exclusive license to use, copy and modify the source code for certain
Intellectual Property owned by the Company or the Parent set forth in SCHEDULE
4.10 that is being transferred to Buyer (the "Software License"); provided that
such use shall not be in competition with the Business (as defined in SECTION
1.5(B)); provided further that the Company or the Parent may sell "run-time"
licenses derived from or using such Software License, subject to the
restrictions set forth in the preceding clause.
4.11 USE OF CANMAX NAME. Company and Parent shall, within one hundred
twenty (120) days following the Closing, cause the corporate name of each entity
to be changed to delete any derivation of the name "Canmax" and Buyer hereby
grants to Parent and the Company a limited license to use the name "Canmax" and
derivations thereof during such one hundred twenty (120) day period.
4.12 SUBLEASE. Following the Closing, Buyer shall sublease the HQ Property
(other than portions of the premises currently occupied by employees of the
Company or Parent other than Designated Employees) from the Company and shall
pay to the Company on the first day of each month and amount equal to the sum of
all payments due by the Company under the existing lease for the HQ Property
(the "Prime Lease"), which payments include, without limitation, base rent,
utilities and real and personal property taxes. The sublease shall continue
until terminated by Buyer upon 90 days prior written notice to the Company,
unless the Prime Lease is earlier terminated by the landlord thereunder (the
"Prime Landlord"). Following the date of this Agreement, the Company shall give
Buyer prompt written notice of its receipt of any termination notice from the
Prime Landlord under the Prime Lease, and without the prior written approval of
Buyer, the Company will not terminate the Prime Lease. Buyer hereby assumes and
agrees, for the benefit of the Company and the Parent, to comply with and be
bound by all of the provisions of the Prime Lease which are to be observed or
performed following the date hereof by the Company as a tenant thereunder.
Further, Buyer and the Company agree that all rights and obligations between
Buyer and the Company hereunder shall be governed as if Buyer were the tenant
under the Prime Lease and the Company were the landlord under the Prime Lease.
4.13 YEAR 2000 AUDIT. For a period of 20 days following the date of this
Agreement, Buyer may test, or cause to be tested, the source codes for any
computer software and applications both developed by the Company and used by the
Company in connection with the Business ("Company Products") and any third party
software embedded in any such applications or software ("Third Party Products"),
which test(s) will be intended to determine whether or not such computer
software and applications are Year 2000 Compliant (as defined in SECTION 2.3).
During the period preceding the Closing Date, Buyer may continue to test any
previously identified noncompliant Company Product (and any remedial efforts to
cure such noncompliance) or Third Party Product. The cost and expenses of such
testing shall be borne by Buyer; provided that at Closing, Buyer shall be
entitled to receive a credit (the "Audit Credit") against the payment to be made
in SECTION 1.5(A) equal to the lesser of (a) fifty percent of the cost for such
testing and (b) Twenty Five Thousand Dollars ($25,000). If an affiliate of Buyer
is used to conduct such tests, such affiliate will be compensated at its
standard commercial rates for such testing. Within 20 days following the date of
this Agreement, Buyer shall deliver to the Company written notice of any items
of Company Product that are not Year 2000 Compliant. Within 25 days following
the date of this Agreement, Buyer shall deliver to the Company a written cost
estimate for causing such items of Company Product to become Year 2000 Compliant
(the "Compliance Estimate"). If the Compliance Estimate is less than or equal to
$75,000, then the Company shall have the right to either (a) at its sole cost
and expense, elect to cause such items of Company Product to be Year 2000
Compliant by the Closing Date, or (b) not remedy such noncompliance and escrow
the amount of the Compliance Estimate with an escrow agent reasonably acceptable
to Buyer to be used to remedy such noncompliance. If the Compliance Estimate
exceeds $75,000, then the Company shall have the right to either (i) at its sole
cost and expense, elect to cause such Company Product to be Year 2000 Compliant
by the Closing Date, (ii) not remedy such noncompliance and escrow the amount of
the Compliance Estimate with an escrow agent reasonably acceptable to Buyer to
be used to remedy such noncompliance; provided that the Company shall not have
the right to escrow
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 17
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
any Compliance Estimate in excess of $75,000 if Buyer determines that the escrow
of such amounts will have adverse accounting consequences to Buyer in its sole
discretion; provided further that if the Compliance Estimate exceeds $200,000,
the Company shall have the right, in addition to the rights set forth above, to
terminate this Agreement.
ARTICLE V
CLOSING CONDITIONS
5.1 CONDITIONS TO OBLIGATIONS OF BUYER. The obligations of Buyer under
this Agreement are subject to the satisfaction at or prior to the Closing of the
following conditions, but compliance with any such conditions may be waived by
Buyer in writing:
(a) All representations and warranties of the Company and Parent
contained in this Agreement are true and correct (i) in all respects (with
regard to representations and warranties subject to materiality or Material
Adverse Effect qualifications) and (ii) 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 such case
when made, and shall be true and correct in all such respects as is
originally made on and as of the Closing.
(b) The Company and Parent have performed and complied in all material
respects with all the covenants and agreements and satisfied the conditions
required by this Agreement to be performed, complied with or satisfied by
them at or prior to the Closing, including, without limitation, the delivery
of all items required to be delivered by them pursuant to SECTION 1.7.
(c) There is no pending or threatened litigation in any court or any
proceeding before or by any Governmental Body against Parent, the Company or
Buyer to restrain or prohibit or obtain damages or other relief with respect
to this Agreement or the consummation of the transactions contemplated
hereby.
(d) All necessary contractual and governmental consents, approvals,
orders or authorizations have been obtained and all necessary contractual or
governmental notices have been given.
(e) The Company and Parent have delivered to Buyer executed UCC-3
Termination Statements or other releases satisfactory to Buyer to evidence
the release of all Liens on the Assets (other than Liens arising from
Assumed Liabilities).
(f) The Company will deliver to Buyer an occasional sales affidavit.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND PARENT. The obligations
of the Company and Parent under this Agreement are subject to the satisfaction
at or prior to the Closing of the following conditions, but compliance with any
such conditions may be waived by the Company in writing:
(a) All representations and warranties of Buyer contained in this
Agreement are true and correct (i) in all respects (with regard to
representations and warranties subject to materiality qualifications) and
(ii) in all respects other than the failure of which could not reasonably be
anticipated to have a material adverse effect on Buyer (with regard to
representations and warranties not subject to materiality qualifications),
in each when made, and shall be true and correct in all such respects as if
originally made on and as of the Closing Date.
(b) Buyer has performed and complied in all material respects with the
covenants and agreements and satisfied the conditions required by this
Agreement to be performed, complied with or satisfied by it at or prior to
the Closing, including without limitation the delivery of all items required
to be delivered by Buyer pursuant to SECTION 1.9.
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 18
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
(c) There is no pending or threatened litigation in any court or any
proceeding before or by any Governmental Body against Parent, the Company or
Buyer to restrain or prohibit or obtain damages or other relief with respect
to this Agreement or the consummation of the transactions contemplated
hereby.
(d) All necessary governmental consents, approvals, orders or
authorizations have been obtained and all necessary governmental notices
have been given.
(e) Parent must have obtained the affirmative vote from the requisite
amount of stockholders under Wyoming law to approve the sale of the Assets.
(f) Parent or the Company shall have obtained (i) an estoppel
certificate from The Southland Corporation with regard to the contractual
arrangements between Parent, the Company and Southland in a form reasonably
acceptable to Buyer and the Company, and (ii) any necessary consents from
third parties for the assignment of any Assumed Contract to Buyer, which
consents are set forth on SCHEDULE 2.6.
ARTICLE VI
INDEMNIFICATION
6.1 INDEMNIFICATION OF BUYER. The Company and Parent will jointly and
severally indemnify and hold Buyer, its subsidiaries and their respective
directors, officers, employees and agents (collectively, the "Buyer Parties")
harmless from any and all liabilities, obligations, claims, contingencies,
damages, costs and expenses, including all court costs and reasonable attorneys'
fees (collectively, "Buyer Claims"), that any Buyer Party may suffer or incur as
a result of or relating to:
(a) the breach or inaccuracy, or any alleged breach or inaccuracy, of
any of the representations, warranties, covenants or agreements made by the
Company or Parent in this Agreement or pursuant hereto;
(b) the Company's failure to discharge any Excluded Liability;
(c) the Company's failure to discharge any closing cost for which the
Company is to be responsible pursuant to the terms of this Agreement; or
(d) any wages, salaries or other compensation and any other Liabilities
of any nature (other than Accrued Vacation Liability to be assumed by Buyer
and any accrued salary or other benefit amounts reflected in the calculation
of the Net Working Capital as of the Closing Date), including without
limitation any Liabilities under any Plan, to any director, officer,
employee, agent or representative of the Company in connection with their
services to or employment by the Company or their termination by the Company
either prior to or after the Closing.
Neither Parent nor the Company shall be obligated to indemnify any Buyer Parties
pursuant to this SECTION 10.2 or otherwise be liable to any Buyer Party for any
reason hereunder or with respect to the transactions contemplated hereby unless
and until the Buyer claims, exceed, in the aggregate, $25,000, after which time
the Buyer claims in excess of $25,000 shall be indemnified. In no event shall
the indemnification obligations of Parent and Company exceed the Purchase Price.
6.2 INDEMNIFICATION OF PARENT AND THE COMPANY. Buyer will indemnify and
hold Parent and the Company, their respective subsidiaries and their respective
directors, officers, employees and agents (collectively, the "Seller Parties")
harmless from any and all liabilities, obligations, claims, contingencies,
damages, costs and expenses, including all court costs and reasonable attorneys'
fees (collectively, the "Seller Claims") that any Seller Party may suffer or
incur as a result of or relating to:
(a) the breach or inaccuracy, or any alleged breach or inaccuracy, of
any of the representations, warranties, covenants or agreements made by the
Buyer and this Agreement or pursuant hereto;
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 19
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
(b) Buyer's failure to discharge any Assumed Liability; or (c) Buyer's
failure to discharge any closing cost for which Buyer is to be responsible
pursuant to the terms of this Agreement.
6.3 SURVIVAL. All representations, warranties and indemnification
obligations made in or pursuant to this Agreement will survive for a period of
one year following the Closing, except that representations, warranties and
indemnification obligations made in or pursuant to this Agreement with respect
to federal state, local and other taxes will survive for a period of seven years
following Closing. All statements contained in any schedule, certificate or
other writing delivered in connection with this Agreement or the transactions
contemplated hereby will constitute representations and warranties under this
Agreement.
6.4 WAIVER. No waiver by any party of any default or breach by another
party of any representation, warranty, covenant or condition contained in this
Agreement, any exhibit or any document, instrument or certificate contemplated
hereby shall be deemed to be a waiver of any subsequent default or breach by
such party of the same or any other representation, warranty, covenant or
condition. No act, delay, omission or course of dealing on the part of any party
in exercising any right, power or remedy under this Agreement or at law or in
equity shall operate as a waiver thereof or otherwise prejudice any of such
party's rights, powers and remedies. All remedies, whether at law or in equity,
shall be cumulative and the election of any one or more shall not constitute a
waiver of the right to pursue other available remedies.
6.5 REMEDIES NOT EXCLUSIVE. The remedies provided in this Article shall
not be exclusive of any other rights or remedies available to one party against
the other, either at law or in equity.
6.6 OFFSET. Subject to the provisions of this Section 6.6, any and all
amounts owing or to be paid by Buyer to the Company or Parent, hereunder or
otherwise, shall be subject to offset and reduction PRO TANTO by any amounts
that may be owing at any time by the Company or Parent to Buyer in respect of
any failure or breach of any representation, warranty or covenant of the Company
or Parent under or in connection with this Agreement or any other agreement with
Buyer or any transaction contemplated hereby or thereby, as reasonably
determined by Buyer. If Buyer determines that such offset is appropriate,
written notice (an "Offset Notice") shall be given to the Company and Parent of
such determination at least thirty (30) days prior to the due date of Buyer's
payment to be reduced, along with a detailed explanation of the circumstance(s)
that Buyer believes entitles it to reduce the Deferred Payment otherwise owing
to the Company. During the ten-day period following Buyer's delivery of an
Offset Notice, the Company and the Buyer shall negotiate in good faith to
resolve such dispute. If such dispute cannot be resolved within such ten-day
period, then the parties shall either (a) mutually agree to refer the matter to
the Designated Party (as defined in SECTION 1.5 and selected in accordance with
the provisions of that section) for resolution, or (b) commence an action to
have the matter resolved by a court of competent jurisdiction, in which case the
amount of the disputed payment shall be deposited with such court. If the
conditions upon which the reduction is based are cured by the Company or Parent
within three (3) days prior to the due date of Buyer's payment, as determined by
Buyer, the amount of such payment shall not be so reduced.
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 20
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
ARTICLE VII
MISCELLANEOUS
7.1 TERMINATION. This Agreement and the transactions contemplated hereby
may be terminated and abandoned (a) at any time prior to the Closing by mutual
written consent of Buyer and the Company; (b) by either Buyer or the Company if
a condition to performance by the terminating party hereunder has not been
satisfied or waived prior to November 30, 1998; (c) by either the Company or
Buyer if a court of competent jurisdiction or other governmental entity shall
have issued a non-appealable final order, decree or ruling or taking any other
non-appealable final action, in each case, having the effect of permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby; (d) by the Company as provided in SECTION 4.13; or (e) by Parent or the
Company, if (i) the Board of Directors of Parent, in the exercise of its
fiduciary obligations to the shareholders of Parent, shall have withdrawn or
modified its recommendation of this Agreement or the transactions contemplated
hereby; or (ii) the Board of Directors of Parent shall have recommended to the
shareholders of Parent a Superior Proposal; provided that if this Agreement is
terminated by Parent or the Company as a result of the recommendation to such
shareholders of a Superior Proposal that is consummated within nine (9) months
of the date of termination, Parent or the Company shall pay to Buyer a fee equal
to $300,000. Notwithstanding the foregoing clause (b), (i) Buyer may not
terminate this Agreement if the event giving rise to its termination right
results from Buyer's willful failure to perform or observe any of its covenants
or agreements set forth herein or if Buyer is, at such time, in breach of this
Agreement, and (ii) the Company may not terminate this Agreement if the event
giving rise to its termination right results from the willful failure of the
Company or Parent to perform or observe any of its covenants or agreements set
forth herein or if the Company or Parent is, at such time, in breach of this
Agreement.
7.2 NOTICES. All notices that are required or may be given pursuant to
this Agreement must be in writing and delivered personally, by a recognized
courier service, by a recognized overnight delivery service, by telecopy or by
registered or certified mail, postage prepaid, to the parties at the following
addresses (or to the attention of such other person or such other address as any
party may provide to the other parties by notice in accordance with this SECTION
7.2):
IF TO BUYER:
Affiliated Computer Services, Inc.
2828 North Haskell Avenue
Dallas, Texas 75204
Attention: General Counsel
Fax: 214/823-5746
WITH A COPY TO:
Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attention: David G. Luther, Jr.
Fax: 214/939-5849
IF TO THE COMPANY OR PARENT:
Canmax Inc./Canmax Retail Systems, Inc.
150 W. Carpenter Freeway
Irving, Texas 75039
Attention: Roger D. Bryant
Fax: 972-281-2385
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 21
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
WITH A COPY TO:
Arter & Hadden LLP
1717 Main Street
Suite 4100
Dallas, Texas 75201
Attention: William L. Rivers
Fax: 214-741-7139
Buyer may specify a different recipient for any approvals sought pursuant to
SECTION 4.1(C) upon written notice to the Company. Any such notice or other
communication will be deemed to have been given and received (whether actually
received or not) on the day it is personally delivered or delivered by courier
or overnight delivery service or sent by telecopy or, if mailed, when actually
received.
7.3 ATTORNEYS' FEES AND COSTS. If attorneys' fees or other costs are
incurred to secure performance of any obligations hereunder, or to establish
damages for the breach thereof or to obtain any other appropriate relief,
whether by way of prosecution or defense, the prevailing party will be entitled
to recover reasonable attorneys' fees and costs incurred in connection
therewith.
7.4 FURTHER ASSURANCES. Each party agrees to execute any and all documents
and to perform such other acts as may be necessary or expedient to further the
purposes of this Agreement and the transactions contemplated hereby.
7.5 NO BROKERS. Except for any consulting fees payable by the Company to
the Senior Lender (for which the Company shall be solely responsible), each
party to this Agreement represents to the other party that it has not incurred
and will not incur any liability for any other brokerage fees or agents'
commissions in connection with this Agreement or the transactions contemplated
hereby, and agrees that it will indemnify and hold harmless the other party
against any claim for brokerage and finders' fees or agents' commissions in
connection with the negotiation or consummation of the transactions contemplated
by this Agreement.
7.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts for the convenience of the parties hereto, all of which together
will constitute one and the same instrument.
7.7 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or
obligations hereunder will be assigned or delegated by the Company, Parent or
Buyer, without the prior written consent of the other parties; except that Buyer
may assign its rights and obligations under this Agreement to any direct or
indirect subsidiary of Buyer provided that Buyer guarantees the performance of
the obligations of such subsidiary hereunder. This Agreement is not intended to
confer any rights or benefits to any Person (including without limitation any
employees of the Company) other than the parties hereto.
7.8 ENTIRE AGREEMENT. This Agreement and the related documents contained
as Exhibits and Schedules hereto or expressly contemplated hereby contain the
entire understanding of the parties relating to the subject matter hereof and
supersede all prior written or oral and all contemporaneous oral agreements and
understandings relating to the subject matter hereof. This Agreement cannot be
modified or amended except in writing signed by the party against whom
enforcement is sought. The Exhibits and Schedules to this Agreement are hereby
incorporated by reference into and made a part of this Agreement for all
purposes. Unless otherwise expressly stated in this Agreement, no right or
remedy described or provided in this Agreement is intended to be exclusive or to
preclude a party from pursuing other rights and remedies to the extent available
under this Agreement, at law or in equity.
7.9 GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS,
WITHOUT GIVING EFFECT TO ANY CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT
REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 22
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
7.10 JURISDICTION AND VENUE.
(a) Any judicial proceeding brought by or against any of the parties to this
Agreement on any dispute arising out of this Agreement or any matter related
hereto shall be brought in any Federal or State court sitting in the County of
Dallas, State of Texas, and by execution and delivery of this Agreement, each of
the parties to this Agreement accepts for itself the exclusive jurisdiction and
venue of the aforesaid courts as trial courts, and irrevocably agrees to be
bound by any final non-appealable judgment rendered in connection with this
Agreement.
(b) The parties hereby expressly and irrevocably agree and consent that any
suit, Agreement and the transactions contemplated herein shall be instituted
exclusively in any State or Federal court sitting in the County of Dallas, State
of Texas, and, by the execution and delivery of this Agreement, the parties
expressly waive any objection which any party may have now or hereafter to the
laying of the venue or to the jurisdiction of any such suit, action or
proceeding, and irrevocably submit generally and unconditionally to the
jurisdiction of any such court in any such suit, action or proceeding.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
AFFILIATED COMPUTER SERVICES, INC.
By: /s/ JOHN H. REXFORD
-----------------------------------------
Name: John H. Rexford
Title: Senior Vice President
CANMAX INC.
By: /s/ ROGER D. BRYANT
-----------------------------------------
Name: Roger D. Bryant
Title: President
CANMAX RETAIL SYSTEMS, INC.
By: /s/ ROGER D. BRYANT
-----------------------------------------
Name: Roger D. Bryant
Title: President
[The Schedules to this Agreement are listed on page (iii) of this Exhibit A.
Said Schedules do not contain any material information and have been omitted
from this Exhibit A.]
- --------------------------------------------------------------------------------
EXHIBIT A -- ASSET PURCHASE AGREEMENT -- PAGE 23
(CANMAX/AFFILIATED COMPUTERS)
<PAGE>
FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT
This First Amendment to Asset Purchase Agreement (this "Amendment") is made
and entered into as of November 10, 1998, by and among Affiliated Computer
Services, Inc., a Delaware corporation ("Buyer"), Canmax Inc. a Wyoming
corporation ("Parent"), and Canmax Retail Systems, Inc., a Texas corporation
(the "Company").
RECITALS:
A. Buyer, Parent and the Company have previously entered into that certain
Asset Purchaser Agreement dated as of September 3, 1998 (the "Original
Agreement"), pursuant to which the Company agreed to sell substantially all of
its assets to Buyer.
B. The Original Agreement contemplated a closing date on or before November
30, 1998.
C. The parties desire to amend the Original Agreement to provide for a
closing to occur on or before December 22, 1998, and is further provided herein.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and agreements contained herein, the parties hereto agree as follows:
1. DEFINITIONS. All capitalized terms used in this Amendment and not
otherwise defined shall have the meaning set forth in the Original Agreement.
2. EXTENSION OF CLOSING DATE. Section 1.6 and subpart (b) of Section 7.1
of the Agreement are hereby amended by substituting the date December 22, 1998
for the date November 30, 1998 within such sections, such that the Closing Date
and the date by which the conditions to Closing shall have occurred is extended
from November 30, 1998 to December 22, 1998.
3. COUNTERPARTS. This Agreement may be executed in one or more
counterparts all of which together will constitute one in the same instrument.
4. EFFECT OF AMENDMENT. Except as specifically amended by the terms of
this Amendment, the terms and provisions in the Original Agreement shall remain
in full force and effect, and the Original Agreement and this Amendment shall be
construed as one agreement.
<PAGE>
Executed as of the date first written above.
AFFILIATED COMPUTER SERVICES, INC.
By: /s/ JEFFREY A. RICH
-----------------------------------------
Name: Jeffrey A. Rich
Its: President and COO
CANMAX INC.
By: /s/ ROGER D. BRYANT
-----------------------------------------
Name: Roger D. Bryant
Its: President
CANMAX RETAIL SYSTEMS, INC.
By: /s/ ROGER D. BRYANT
-----------------------------------------
Name: Roger D. Bryant
Its: President
<PAGE>
EXHIBIT B
COMPARISON OF WYOMING AND DELAWARE CORPORATION
The rights of the shareholders of Canmax Inc., a Wyoming corporation
("Canmax-Wyoming") are governed by the Wyoming Business Corporation Act
("WBCA"). The former shareholders of Canmax-Wyoming will become stockholders of
a Delaware corporation to be formed as a wholly-owned subsidiary of
Canmax-Wyoming ("Canmax-Delaware") upon the consummation of the merger of
Canmax-Wyoming into Canmax-Delaware (the "Merger"). As stockholders of
Canmax-Delaware, the shareholders' rights will differ in certain respects (in
some cases materially) from those presently held such rights are set forth in
the WBCA, the Articles of Incorporation of Canmax-Wyoming (the "Canmax-Wyoming
Articles") and the bylaws of Canmax-Wyoming (the "Canmax-Wyoming Bylaws").
Certain differences and similarities between the rights of stockholders of
Canmax-Delaware and those of Canmax-Wyoming are set forth below. This summary is
not intended to be relied upon as an exhaustive list of the differences or
detailed description and analysis of the provisions discussed and is qualified
in its entirety by the WBCA, the Canmax-Wyoming Articles, the Canmax-Wyoming
Bylaws, Delaware General Corporation Law ("DGCL"), the Certificate of
Incorporation of Canmax-Delaware (the "Canmax-Delaware Certificate") and the
bylaws of Canmax-Delaware (the "Canmax-Delaware Bylaws").
AUTHORIZED CAPITAL
The Canmax-Wyoming Articles authorize an aggregate of 44,169,100 shares of
Canmax-Wyoming Common Stock.
The Canmax-Delaware Certificate authorizes an aggregate of 44,169,100 shares
of Canmax-Delaware Common Stock.
BUSINESS COMBINATIONS
Under the DGCL, the Canmax-Delaware Articles and the Canmax-Delaware Bylaws,
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, share exchange,
consolidation or sale, lease or exchange of all or substantially all of a
corporation's assets to be consummated. The Canmax-Wyoming Bylaws require the
approval of the holders of a majority of the outstanding stock for such actions.
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,
- --------------------------------------------------------------------------------
EXHIBIT B -- COMPARISON OF WYOMING AND DELAWARE CORPORATION LAW -- PAGE 1
<PAGE>
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).
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-Wyoming will be entitled to exercise dissenters' rights
in connection with the proposed Merger and the Proposed Sale.
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 twelve
(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.
Canmax-Delaware has not adopted an amendment to the Canmax-Delaware Articles
or Canmax-Delaware Bylaws electing not to be governed by Section 203 of the
DGCL. Therefore, Canmax-Delaware will be entitled to the protections of Section
203 of the DGCL.
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
- --------------------------------------------------------------------------------
EXHIBIT B -- COMPARISON OF WYOMING AND DELAWARE CORPORATION LAW -- PAGE 2
<PAGE>
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 two-thirds (2/3)
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-Wyoming has not adopted an amendment to either the Canmax-Wyoming
Articles or the Canmax-Wyoming Bylaws electing not to be governed by Section
17-18-104 of the WMSA; however, Canmax-Wyoming 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 1/8 of such voting power; (ii)
1/3 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-Wyoming who is also a director of a Qualified Corporation. Canmax-Wyoming
has not taken any corporate action to opt out of the Wyoming Control Share
Acquisition Statute; however Canmax-Wyoming 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 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
- --------------------------------------------------------------------------------
EXHIBIT B -- COMPARISON OF WYOMING AND DELAWARE CORPORATION LAW -- PAGE 3
<PAGE>
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-Wyoming has not made an election to opt out of the
Shareholder Takeover Protection Statute; however, Canmax-Wyoming 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 Canmax-Delaware Certificate
requires a 2/3 vote of the shareholders to amend any provisions in the Delaware
Certificate eliminating the ability of shareholders to act by written consent or
curtailing the indemnification protections set forth in the Delaware
Certificate.
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.
Neither the Canmax-Wyoming Articles nor Canmax-Wyoming Bylaws 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
Canmax-Delaware Certificate vests in its Board of Directors the power to adopt,
alter, amend, or repeal the Bylaws.
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
- --------------------------------------------------------------------------------
EXHIBIT B -- COMPARISON OF WYOMING AND DELAWARE CORPORATION LAW -- PAGE 4
<PAGE>
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-Wyoming 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
Canmax-Delaware 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-Wyoming 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 Canmax-Delaware 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-Wyoming 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 Canmax-Delaware 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-Wyoming 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 Canmax-Delaware Certificate
eliminates the ability of stockholders to act by written consent.
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
- --------------------------------------------------------------------------------
EXHIBIT B -- COMPARISON OF WYOMING AND DELAWARE CORPORATION LAW -- PAGE 5
<PAGE>
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-Wyoming 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 Canmax-Delaware Bylaws permit
the Board of Directors or the 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-Wyoming 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 Canmax-Delaware
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-Wyoming 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 Canmax-Delaware Certificate does not fix the
number of directors. The Canmax-Delaware Bylaws permit the Board of Directors to
establish the number of directors, not less than three, by action of the Board.
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. Canmax-Delaware 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-Wyoming
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-Wyoming Bylaws further state that
directors shall be natural persons who are eighteen years of age or older, but
need not be residents of Wyoming or shareholders of Canmax-Wyoming.
- --------------------------------------------------------------------------------
EXHIBIT B -- COMPARISON OF WYOMING AND DELAWARE CORPORATION LAW -- PAGE 6
<PAGE>
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-Wyoming 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 Canmax-Delaware 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-Wyoming 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 Canmax-Delaware Certificate nor the Canmax-Delaware 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 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
- --------------------------------------------------------------------------------
EXHIBIT B -- COMPARISON OF WYOMING AND DELAWARE CORPORATION LAW -- PAGE 7
<PAGE>
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-Wyoming
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
Canmax-Delaware 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 Canmax-Delaware 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 Canmax-Delaware 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
- --------------------------------------------------------------------------------
EXHIBIT B -- COMPARISON OF WYOMING AND DELAWARE CORPORATION LAW -- PAGE 8
<PAGE>
brought by or in the right of a corporation, indemnification shall be limited to
reasonable expenses 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-Wyoming Articles nor the Canmax-Wyoming 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-Wyoming pursuant to
the foregoing provisions, Canmax-Wyoming 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
Canmax-Delaware 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
- --------------------------------------------------------------------------------
EXHIBIT B -- COMPARISON OF WYOMING AND DELAWARE CORPORATION LAW -- PAGE 9
<PAGE>
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 prior to May 22, 1987. Neither the Canmax-Wyoming Articles
nor the Canmax-Wyoming Bylaws provide provisions for limiting personal liability
of directors.
- --------------------------------------------------------------------------------
EXHIBIT B -- COMPARISON OF WYOMING AND DELAWARE CORPORATION LAW -- PAGE 10
<PAGE>
EXHIBIT C
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Merger Agreement") is entered into on
this day of , 1998 by and between CANMAX INC., a Wyoming
corporation ("Canmax-Wyoming") and , a
Delaware corporation (hereinafter referred to as "Canmax-Delaware").
R E C I T A L S:
WHEREAS, Canmax-Wyoming is a corporation duly organized and existing under
the laws of the State of Wyoming;
WHEREAS, Canmax-Delaware is a corporation duly organized and existing under
the laws of the State of Delaware;
WHEREAS, on the date hereof, the authorized capital of Canmax-Wyoming
consists of 44,169,100 shares of common stock, no par value per share
("Canmax-Wyoming Common Stock"), of which 8,111,005 shares are issued and
outstanding;
WHEREAS, on the date hereof, the authorized capital of Canmax-Delaware
consists of 44,169,100 shares of common stock, par value $.001 per share
("Canmax-Delaware Common Stock"), of which 100 shares are issued and outstanding
and 10,000,000 shares of preferred stock, par value $0.001 per share, of which
no shares are issued and outstanding;
WHEREAS, the respective Boards of Directors of Canmax-Wyoming and
Canmax-Delaware have determined that it is advisable and in the best interests
of each such corporation that Canmax-Wyoming merge with and into Canmax-Delaware
upon the terms and subject to the conditions of this Merger Agreement for the
purpose of effecting the reincorporation of Canmax-Wyoming in the State of
Delaware, and the respective Boards of Directors of Canmax-Wyoming and
Canmax-Delaware have, by resolutions duly adopted, approved and adopted this
Merger Agreement; and
WHEREAS, the parties intend by this Merger Agreement to effect a
"reorganization" under Section 368 of the Internal Revenue Code of 1986, as
amended.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and agreements contained herein, the parties hereto agree as follows:
A G R E E M E N T S:
1. MERGER. At the Effective Time (as hereinafter defined), Canmax-Wyoming
shall be merged with and into Canmax-Delaware (the "Merger"). Canmax-Delaware
shall be the surviving corporation of the Merger (hereinafter sometimes referred
to as the "Surviving Corporation"), and the separate corporate existence of
Canmax-Wyoming shall cease. The Merger shall become effective upon the filing of
a Certificate of Merger with the Secretary of State of the State of Delaware and
the Secretary of State of the State of Wyoming. The date and time when the
Merger shall become effective is herein referred to as the "Effective Time."
2. GOVERNING DOCUMENTS.
a. The Certificate of Incorporation of Canmax-Delaware as it may be
amended or restated subject to applicable law, and as in effect immediately
prior to the Effective Time, shall constitute the Certificate of
Incorporation of the Surviving Corporation without further change or
amendment until thereafter amended in accordance with the provisions thereof
and applicable law.
- --------------------------------------------------------------------------------
EXHIBIT C -- AGREEMENT AND PLAN OF MERGER -- PAGE 1
(CANMAX REINCORPORATION)
<PAGE>
b. The Bylaws of Canmax-Delaware as in effect immediately prior to the
Effective Time shall constitute the Bylaws of the Surviving Corporation
without change or amendment until thereafter amended in accordance with the
provisions thereof and applicable law.
c. As of the Effective Time, the Certificate of Incorporation of
Canmax-Delaware shall be automatically amended, without further requirement
of filing to change the name of the surviving corporation to:
" "
3. OFFICERS AND DIRECTORS. The persons who are officers and directors of
Canmax-Wyoming immediately prior to the Effective Time shall, after the
Effective Time, be the officers and directors of the Surviving Corporation,
without change until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Certificate of Incorporation and Bylaws and
applicable law.
4. RIGHTS, PRIVILEGES, ETC. At the Effective Time, the separate corporate
existence of Canmax-Wyoming shall cease, and the Surviving Corporation shall
possess all the rights, privileges, powers and franchises of a public or private
nature and be subject to all the restrictions, disabilities and duties of
Canmax-Wyoming; and all the rights, privileges, powers and franchises of
Canmax-Wyoming on whatever account, as well for share subscriptions and all
other things in action, shall be vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all and every other
interest shall be thereafter as effectively the property of the Surviving
Corporation as the same were of Canmax-Wyoming, and the title to any real estate
vested by deed or otherwise shall not revert or be in any way impaired by reason
of the Merger, but all rights of creditor and liens upon any property of Canmax-
Wyoming shall be reserved unimpaired, and all debts, liabilities and duties of
Canmax-Wyoming shall thenceforth attach to the Surviving Corporation and may be
enforced against it to the same extent as if such debts, liabilities and duties
had been incurred or contracted by it; PROVIDED, HOWEVER, that such liens upon
property of Canmax-Wyoming will be limited to the property affected thereby
immediately prior to the Merger. All corporate acts, plans, policies,
agreements, arrangements, approvals and authorizations of Canmax-Wyoming, its
shareholders, Board of Directors and committees thereof, officers and agents
which were valid and effective immediately prior to the Effective Time, shall be
taken for all purposes as the acts, plans, policies, agreements, arrangements,
approvals and authorizations of the Surviving Corporation, its shareholders,
Board of Directors and committees thereof, respectively, and shall be as
effective and binding thereon as the same were with respect to Canmax-Wyoming.
5. CONVERSION OF SHARES. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder thereof:
a. Each share of Canmax-Wyoming Common Stock outstanding immediately
prior to the Effective Time shall, except as provided in Section 9 hereof,
be converted into, and shall become, one fully paid and nonassessable share
of Canmax-Delaware Common Stock.
b. Each share of Canmax-Wyoming Common Stock held in the treasury of
Canmax-Wyoming immediately prior to the Effective Time shall be
automatically converted into one share of Canmax-Delaware Common Stock,
which shares shall continue to be retained and held by Canmax-Delaware in
the treasury thereof.
c. Each option, warrant, purchase right, convertible debt instrument or
other security of Canmax-Wyoming issued and outstanding immediately prior to
the Effective Time shall be changed and converted into and shall be an
identical security of Canmax-Delaware, and the same number of shares of
Canmax-Delaware Common Stock shall be reserved for purposes of the exercise
of such option, warrant, purchase right, convertible debt instrument or
other securities as is equal to the number of shares of Canmax-Wyoming
Common Stock so reserved at the Effective Time; and
- --------------------------------------------------------------------------------
EXHIBIT C -- AGREEMENT AND PLAN OF MERGER -- PAGE 2
(CANMAX REINCORPORATION)
<PAGE>
d. Each share of Canmax-Delaware Common Stock issued and outstanding
immediately prior to the Effective Time shall be canceled and retired, and
no payment shall be made with respect thereto, and such shares shall resume
the status of unauthorized and unissued shares of Canmax-Delaware Common
Stock.
6. STOCK CERTIFICATES. At and after the Effective Time, all of the
outstanding certificates which immediately prior to the Effective Time
represented shares of Canmax-Wyoming Common Stock shall be deemed for all
purposes to evidence ownership of, and to represent shares of, Canmax-Delaware
Common Stock into which the shares of Canmax-Wyoming Common Stock formerly
represented by such certificates have been converted as herein provided. The
registered owner on the books and records of Canmax-Wyoming or its transfer
agent of any such outstanding stock certificate shall, until such certificate
shall have been surrendered for transfer or otherwise accounted for to the
Surviving Corporation or its transfer agent, have and be entitled to exercise
any voting or other rights with respect to and to receive any dividends and
other distributions upon the shares of Canmax-Delaware Common Stock evidenced by
such outstanding certificate as above provided. Nothing contained herein shall
be deemed to require the holder of any shares of Canmax-Wyoming Common Stock to
surrender the certificate or certificates representing such shares in exchange
for a certificate or certificates representing shares of Canmax-Delaware Common
Stock.
7. OPTIONS. Each right in or to, or option to purchase, shares of
Canmax-Wyoming Common Stock, granted under Canmax-Wyoming's Stock Option Plan
(the "Plan") and otherwise, which is outstanding immediately prior to the
Effective Time, shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and become a right in or to, or an
option to purchase at the same option price per share, the same number of shares
of Canmax-Delaware Common Stock, upon the same terms and subject to the same
conditions as set forth in the Plan or otherwise as in effective at the
Effective Time. The same number of shares of Canmax-Delaware Common Stock shall
be reserved for purposes of the outstanding options as is equal to the number of
shares of Canmax-Wyoming Common Stock, upon the same terms and subject to the
same conditions as set forth in the Plan or otherwise as in effect at the
Effective Time. The same number of shares of Canmax-Delaware Common Stock shall
be reserved for purposes of the outstanding options as is equal to the number of
shares of Canmax-Wyoming Common Stock so reserved as of the Effective Time. As
of the Effective Time, the Surviving Corporation hereby assumes the Plan and all
obligations of Canmax-Wyoming under the Plan including the outstanding rights or
options or portions thereof granted pursuant to the Plan and otherwise.
8. OTHER EMPLOYEE BENEFIT PLANS. As of the Effective Time, the Surviving
Corporation hereby assumes all obligations of Canmax-Wyoming under any and all
employee benefit plans in effect as of the Effective Time or with respect to
which employee rights or accrued benefits are outstanding as of the Effective
Time.
9. DISSENTING SHAREHOLDERS.
a. Notwithstanding the provisions of Section 5.a. hereof, any
outstanding shares of Canmax-Wyoming Common Stock held by a shareholder who
shall have elected to dissent from the Merger and who shall have exercised
and perfected his right to dissent with respect to such shares in accordance
with Article 13 of the Wyoming Business Corporation Act (a "Dissenting
Shareholder") shall not be converted into shares of Wyoming-Delaware Common
Stock as a result of the Merger, but such Dissenting Shareholders shall be
entitled to receive in lieu thereof only such consideration as shall be
provided in such Article 13, except that shares of Canmax-Wyoming Common
Stock outstanding immediately prior to the Effective Time and held by a
Dissenting Shareholder who shall thereafter withdraw his election to dissent
from the Merger or lose his right to dissent from the Merger as provided in
such Article 13 shall be deemed converted, as of the Effective Time, into
such number of shares of Canmax-Wyoming Common Stock as such holder
otherwise would have been entitled to receive as a result of the Merger.
- --------------------------------------------------------------------------------
EXHIBIT C -- AGREEMENT AND PLAN OF MERGER -- PAGE 3
(CANMAX REINCORPORATION)
<PAGE>
b. Canmax-Delaware hereby agrees that it may be served with process in
the State of Wyoming in any proceeding to enforce any obligation or the
rights of a Dissenting Shareholder arising from the Merger. Canmax-Delaware
appoints the Secretary of State of Wyoming as its agent to accept service of
process for any such proceeding and a copy of such process shall be mailed
by the Secretary of State of the State of Wyoming to Canmax-Delaware at 150
West Carpenter Freeway, Irving, Texas 75039, Attention: Corporate Secretary.
10. GOVERNING LAW. This Merger Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
11. AMENDMENT. Subject to applicable law and subject to the rights of
Canmax-Wyoming's shareholders further to approve any amendment which would have
a material adverse effect on such shareholders, this Merger Agreement may be
amended, modified or supplemented by written agreement of the parties hereto at
any time prior to the Effective Time with respect to any of the terms contained
herein.
12. DEFERRAL OR ABANDONMENT. At any time prior to the Effective Time, this
Merger Agreement maybe terminated and the Merger may be abandoned or the time of
consummation of the Merger may be deferred for a reasonable time by the Board of
Directors of either Canmax-Wyoming or Canmax-Delaware or both, notwithstanding
approval of this Merger Agreement by the shareholders of Canmax-Wyoming or the
stockholders of Canmax-Delaware, or both, if circumstances arise which, in the
opinion of the Board of Directors of Canmax-Wyoming or Canmax-Delaware, make the
Merger inadvisable or such deferral of the time of consummation thereof
advisable.
13. COUNTERPARTS. This Merger Agreement may be executed in any number of
counterparts, each of which shall constitute an original document but all of
which together shall constitute one and the same Agreement.
14. FURTHER ASSURANCES. From time to time, as and when required or
requested by either Canmax-Wyoming or Canmax-Delaware, as applicable, or by its
respective successors and assigns, there shall be executed and delivered on
behalf of the other corporation, or by its respective successors and assigns,
such deeds, assignments and other instruments, and there shall be taken or
caused to be taken by it all such further and other action, as shall be
appropriate or necessary in order to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation the title to and possession of all
property, interests, assets, rights, privileges, immunities, powers, franchise
and authority of Canmax-Wyoming and otherwise to carry out the purposes of this
Merger Agreement, and the officers and directors of each corporation are fully
authorized in the name and on behalf of such corporation or otherwise, to take
any and all such action and to execute and deliver any and all such deeds,
assignments and other instruments.
- --------------------------------------------------------------------------------
EXHIBIT C -- AGREEMENT AND PLAN OF MERGER -- PAGE 4
(CANMAX REINCORPORATION)
<PAGE>
IN WITNESS WHEREOF, Canmax-Wyoming and Canmax-Delaware have caused this
Merger Agreement to be signed by their respective duly authorized officers and
delivered this day of , 1998.
CANMAX INC.,
a Wyoming corporation
By: /s/ ROGER D. BRYANT
-----------------------------------------
Name: Roger D. Bryant
Title: Chief Executive Officer
---------------------------------------------
a Delaware corporation
By: /s/ ROGER D. BRYANT
-----------------------------------------
Name: Roger D. Bryant
Title: Chief Executive Officer
- --------------------------------------------------------------------------------
EXHIBIT C -- AGREEMENT AND PLAN OF MERGER -- PAGE 5
(CANMAX REINCORPORATION)
<PAGE>
EXHIBIT D
CERTIFICATE OF INCORPORATION
OF
------------------------
FIRST: The name of the Corporation is
(the "Corporation").
SECOND: The name and mailing address of the Incorporator of the
Corporation is William L. Rivers, c/o Arter & Hadden LLP, 1717 Main Street,
Suite 4100, Dallas, Texas 75201.
THIRD: The address of its registered office in the State of Delaware
is 1209 Orange Street, in the City of Wilmington, County of New Castle 19801.
Its registered agent at such address is The Corporation Trust Company.
FOURTH: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The aggregate number of shares of all classes of stock which
the corporation shall have authority to issue is Fifty Four Million One Hundred
Sixty Nine Thousand One Hundred (54,169,100) shares, consisting of (A) Forty
Four Million One Hundred Sixty Nine Thousand One Hundred (44,169,100) shares of
common stock, par value $0.001 per share (the "Common Stock"), and (B) Ten
Million (10,000,000) shares of preferred stock, par value $0.001 per share (the
"Preferred Stock").
The designations, powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and restrictions
thereof with respect to the Common Stock and the Preferred Stock are as follows:
(A) COMMON STOCK.
Each holder of the Common Stock of the corporation shall be entitled to one
vote for every share of Common Stock outstanding in his name on the books of the
corporation. Except for and subject to those rights expressly granted to the
holders of the Preferred Stock or except as may be provided by the laws of the
State of Delaware, the holders of Common Stock shall have exclusively all other
rights of stockholders including, without limitation, (i) the right to receive
dividends, when and as declared by the Board of Directors out of assets legally
available therefor, and (ii) in the event of any distribution of assets upon
liquidation, dissolution or winding up of the corporation or otherwise, the
right to receive ratably and equally with all holders of all Common Stock all
the assets and funds of the corporation remaining after the payment to the
holders of the Preferred Stock of the specific amounts that they are entitled to
receive upon such liquidation, dissolution or winding up of the corporation, if
any.
(B) PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated in the resolution or resolutions
providing for the establishment of such series adopted by the Board of Directors
of the corporation as hereinafter provided. Except as otherwise expressly stated
in the resolution or resolutions providing for the establishment of a series of
Preferred Stock, any shares of Preferred Stock that may be redeemed, purchased
or acquired by the corporation may be reissued except as otherwise expressly
provided by law. Different series of Preferred Stock shall not be construed to
constitute different classes of stock for the purpose of voting by classes
unless expressly provided in the
- --------------------------------------------------------------------------------
EXHIBIT D -- CERTIFICATE OF INCORPORATION -- PAGE 1
<PAGE>
resolution or resolutions providing for the establishment thereof. The Board of
Directors of the corporation is hereby expressly authorized to issue, from time
to time, shares of Preferred Stock in one or more series, and, in connection
with the establishment of any such series by resolution or resolutions, to
determine and fix the number of shares constituting that series and the
distinctive designation of that series and to determine and fix such voting
powers, full or limited, or no voting powers, and such other powers,
designations, preferences and relative, participating, optional and other
rights, and the qualifications, limitations and restrictions thereof, including,
without limitation, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated in such resolution or
resolutions, all to the fullest extent permitted by the DGCL. Without limiting
the generality of the foregoing, the resolution or resolutions providing for the
establishment of any series of Preferred Stock may, to the extent permitted by
law, provide that such series shall be superior to, rank equally with or be
junior to the Preferred Stock of any other series. Except as otherwise expressly
provided in the resolution or resolutions providing for the establishment of any
series of Preferred Stock, no vote of the holders of shares of Preferred Stock
or Common Stock shall be a prerequisite to the issuance of any shares of any
series of the Preferred Stock authorized by and complying with the conditions of
this Certificate of Incorporation.
SEVENTH: In furtherance and not in limitation of the powers conferred on
it by the laws of the State of Delaware, the Board of Directors is expressly
authorized to adopt, amend or repeal the Bylaws of the Corporation.
EIGHTH: No action required to be taken or which may be taken at any
annual or special meeting of stockholders of the corporation may be taken
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
NINTH: No director of the Corporation shall be personally liable to
the Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director of the Corporation; PROVIDED, HOWEVER, that the
foregoing is not intended to eliminate or limit the liability of a director of
the Corporation for (i) any breach of a 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 law, (iii) a
violation of Section 174 of the Delaware General Corporation Law, or (iv) any
transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this Article NINTH shall apply to or have any effect
on the liability or alleged liability of any director of the Corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment.
TENTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law, as that section may be
amended and supplemented from time to time, indemnify any director or officer of
the Corporation (and any director, trustee or officer of any corporation,
business trust or other entity to whose business the Corporation shall have
succeeded) which it shall have power to indemnify under that Section against any
expenses, liabilities or other matter referred to in or covered by that Section.
The indemnification provided for in this Article TENTH (a) shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement or vote of stockholders or disinterested directors or
otherwise, both as to action in their official capacities and as to action in
another capacity while holding such office, (b) shall continue as to a person
who has ceased to be a director or officer and (c) shall inure to the benefit of
the heirs, executors and administrators of such a person. To assure
indemnification under this Article TENTH of all such persons who are determined
by the Corporation or otherwise to be or to have been "Fiduciaries" of any
employee benefit plan of the Corporation which may exist from time to time and
which is governed by the Act of Congress entitled "Employee Retirement Income
Security Act of 1974," as amended from time to time, such Section 145 shall, for
the purposes of this Article, be interpreted as follows: an "other enterprise"
shall be deemed to include such an employee benefit plan; the Corporation shall
be deemed to have requested a person to serve an employee benefit plan where the
performance by such person of his duties to the Corporation also imposes duties
on, or otherwise involves services by, such person to the plan or
- --------------------------------------------------------------------------------
EXHIBIT D -- CERTIFICATE OF INCORPORATION -- PAGE 2
<PAGE>
participants or beneficiaries of the plan; excise taxes assessed on a person
with respect to an employee benefit plan pursuant to such Act of Congress shall
be deemed "fines;" and action taken or omitted by a person with respect to an
employee benefit plan in the performance of such person's duties for a purpose
reasonably believed by such person to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the Corporation.
ELEVENTH: Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of at least 66 2/3% of the
outstanding shares of the Common Stock of the corporation shall be required to
amend or repeal Articles EIGHTH and TENTH of this Certificate of Incorporation
or to adopt any provision inconsistent therewith. Further, the affirmative vote
of at least 66 2/3% of the outstanding shares of the Common Stock of the
corporation shall be required to amend or repeal the Bylaws of the corporation,
if the stockholders of the corporation are required by the DGCL, the Certificate
of Incorporation or the Bylaws to vote thereon. Except as provided herein, the
Corporation reserves the right to amend, alter, change or repeal any provision
contained in this Certificate of Incorporation in the manner now or hereafter
prescribed by the laws of the State of Delaware, and all rights herein conferred
are granted subject to this reserve power.
TWELFTH: Meetings of stockholders may be held within or without the State
of Delaware as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the Delaware General Corporation Law)
outside the State of Delaware at such place or places as may be designated form
time to time by the Board of Directors or in the Bylaws of the Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand this day of
, 1998, and affirm the statements contained therein as true under
penalties of perjury.
______________________________________
William L. Rivers
INCORPORATOR
- --------------------------------------------------------------------------------
EXHIBIT D -- CERTIFICATE OF INCORPORATION -- PAGE 3
<PAGE>
EXHIBIT E
BYLAWS
OF
------------------------
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1.1. The registered office of the Corporation shall be in the City
of Wilmington, County of New Castle, State of Delaware.
SECTION 1.2. The Corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1. ANNUAL MEETINGS. The annual meeting of the stockholders for
the election of directors and for the transaction of such other business as may
properly come before the meeting shall be held at such place within or without
the State of Delaware, and at such hour of the day as the Board of Directors
shall determine by resolution.
SECTION 2.2. SPECIAL MEETINGS. Special meetings of the stockholders for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by order of the President, and shall
be called by the President or Secretary at the request in writing of a majority
of the Board of Directors or the whole Executive Committee. Special meetings of
the stockholders of the Corporation may not be called by any other person or
persons. Special meetings of the stockholders shall be held at such place within
or without the State of Delaware, on such date, and at such time as may be
designated by the person or persons calling the meeting.
SECTION 2.3. NOTICE OF MEETINGS. Written notice of every meeting of
stockholders, stating the time, place and purposes thereof, shall be given
personally or by mail at least ten (10), but not more than sixty (60), days
(except as otherwise provided by law) before the date of such meeting to each
person who appears on the stock transfer books of the Corporation as a
stockholder and who is entitled to vote at such meeting. If such notice is
mailed, it shall be directed to such stockholder at his address as it appears on
the stock transfer books of the Corporation.
SECTION 2.4. QUORUM. At any meeting of the stockholders the holders of a
majority of the shares of the Corporation entitled to vote at such meeting,
present in person or represented by proxy, shall constitute a quorum for all
purposes, except where otherwise provided by law or in the Certificate of
Incorporation. A quorum, once established, shall not be broken by the withdrawal
of enough votes to leave less than a quorum and the votes present may continue
to transact business until adjournment, provided that any action (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
SECTION 2.5. ADJOURNMENTS. If at any meeting of stockholders a quorum
shall fail to attend in person or by proxy, the holders of a majority of the
shares present in person or by proxy and entitled to vote at such meeting may
adjourn the meeting from time to time until a quorum shall attend, and thereupon
any business may be transacted which might have been transacted at the meeting
as originally called. Notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken, provided, however, that if the adjournment is for more
- --------------------------------------------------------------------------------
EXHIBIT E -- BYLAWS -- PAGE 1
<PAGE>
than thirty (30) days or if after the adjournment a new record date is fixed,
notice of the adjourned date shall be given.
SECTION 2.6. ORGANIZATION. The Chairman of the Board, if one is elected,
and in his absence the President, and in their absence the Vice President, shall
call meetings of the stockholders to order and shall act as chairman thereof.
The Secretary or an Assistant Secretary of the Corporation shall act as
secretary at all meetings of the stockholders when present, and, in the absence
of both, the presiding officer may appoint any person to act as secretary. The
chairman of any meeting of stockholders shall determine the order of business
and the procedure at the meeting, including such regulation of the manner of
voting and the conduct of discussion as he may deem appropriate in his
discretion.
SECTION 2.7. VOTING. At each meeting of the stockholders, each holder of
the shares of Common Stock shall be entitled to one vote on such matter for each
such share and may exercise such voting right either in person or by proxy
appointed by an instrument in writing subscribed by such stockholder or his duly
authorized attorney. No such proxy shall be voted or acted upon after three (3)
years from its date unless the proxy provides for a longer period. Voting need
not be by ballot. All elections of directors shall be decided by a plurality
vote and all questions decided and actions authorized by a majority vote, except
as otherwise required by law.
SECTION 2.8. INSPECTORS. At any meeting of stockholders, inspectors of
election may be appointed by the presiding officer of the meeting for the
purpose of opening and closing the polls, receiving and taking charge of the
proxies, and receiving and counting the ballots or the vote of stockholders
otherwise given. The inspectors shall be appointed by the presiding officer of
the meeting, shall be sworn to faithfully perform their duties, and shall in
writing certify to the returns. No candidate for election as director shall be
appointed or act as inspector.
SECTION 2.9. STOCKHOLDER LIST. At least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of such stockholder,
shall be prepared and held open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours for said ten (10)
days either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at the meeting during the whole time thereof, and may be inspected by
any stockholder who is present.
SECTION 2.10. BUSINESS TO BE TRANSACTED AT MEETINGS. At a meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before a special meeting,
business must be specified in the notice of the meeting (or any supplement
thereto). To be properly brought before an annual meeting, business must be (a)
specified in the notice of the meeting (or any supplement thereto) given by or
at the direction of the Board of Directors, (b) otherwise properly brought
before the meeting by or at the direction of the Board of Directors or (c)
otherwise properly brought before the meeting by a stockholder. For business to
be properly brought before an annual meeting by a stockholder, the stockholder
must, in addition to any requirements imposed by federal securities law or other
laws, have given timely notice thereof in writing to the secretary of the
Corporation. To be timely for an annual meeting, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation, no later than ninety (90) days prior to the scheduled meeting,
regardless of any postponements, deferrals or adjournments of that meeting to a
later date; provided, however, if less than one hundred (100) days notice or
prior public disclosure of the date of the scheduled meeting is given, notice by
the stockholders must be so delivered or received not later than the close of
business on the tenth (10(th)) day following the earlier of the day on which
such notice of the date of the scheduled annual meeting was mailed or the day on
which public disclosure was made. A stockholder's notice to the secretary with
regard to an annual meeting shall set forth as to each matter that the
stockholder proposes to bring before the meeting, (a) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such
- --------------------------------------------------------------------------------
EXHIBIT E -- BYLAWS -- PAGE 2
<PAGE>
business at the annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholders supporting such proposal, (c) the class
and number of shares of the Corporation that are beneficially owned by the
supporting stockholders on the date of the presenting stockholders' notice and
(d) any material interest of the presenting or supporting stockholders in such
business. The Chairman of the meeting may refuse to bring before a meeting any
business not properly brought before the meeting in compliance with this
section.
ARTICLE III
DIRECTORS
SECTION 3.1. FUNCTIONS AND NUMBER. The property, business and affairs of
the Corporation shall be managed and controlled by a board of directors, who
need not be stockholders, citizens of the United States or residents of the
State of Delaware. The number of members which shall constitute the Board of
Directors shall be such number, not less than three, determined by resolution of
the Board of Directors or by the stockholders at an annual or special meeting
held for that purpose, but no decrease in the Board of Directors shall have the
effect of shortening the term of an incumbent director. The first Board of
Directors shall consist of three (3) members, such number to constitute the
first whole Board of Directors. The use of the phrase "whole Board" herein
refers to the total number of directors which the Corporation would have if
there were no vacancies. Except as otherwise provided by law or in these Bylaws
or in the Certificate of Incorporation, the directors shall be elected by the
stockholders entitled to vote at the annual meeting of stockholders of the
Corporation, and shall be elected to serve until the next annual meeting of
stockholders and until their successors shall be elected and shall qualify.
SECTION 3.2. REMOVAL. Any director may be removed, with or without cause,
by the affirmative vote of the holders of a majority of the then outstanding
shares of Common Stock.
SECTION 3.3. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation or in these Bylaws, vacancies among the directors, whether caused
by resignation, death, disqualification, removal, an increase in the authorized
number of directors or otherwise, may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
SECTION 3.4. PLACE OF MEETING. The directors may hold their meetings and
may have one or more offices and keep the books of the Corporation (except as
otherwise may at any time be provided by law) at such place or places within or
without the State of Delaware as the Board may from time to time determine.
SECTION 3.5. ANNUAL MEETING. The newly elected Board may meet for the
purpose of organization, the election of officers and the transaction of other
business, at such time and place within or without the State of Delaware as
shall be fixed as provided in Section 3.7 of this Article for special meetings
of the Board of Directors.
SECTION 3.6. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such time and place within or without the State of Delaware as
the Board of Directors shall from time to time by resolution determine and no
notice of such regular meetings shall be required.
SECTION 3.7. SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be held whenever called by the direction of the President or a majority of
the directors then in office. The Secretary or some other officer or director of
the Corporation shall give notice to each director of the time and place of each
special meeting by mailing the same at least five (5) days before the meeting or
by telexing, telegraphing or telephoning the same not later than the day before
the meeting, at the residence address of each director or at his usual place of
business. Special meetings of the Board shall be held at such place within or
without the State of Delaware as shall be specified in the call for the meeting.
Unless expressly required by statute, by the Certificate of Incorporation or by
the Bylaws, neither the business to be transacted at, nor the purpose of, any
special meeting of the Board of Directors need be specified in the notice of a
meeting.
- --------------------------------------------------------------------------------
EXHIBIT E -- BYLAWS -- PAGE 3
<PAGE>
SECTION 3.8. QUORUM. Except as otherwise provided by law or in the
Certificate of Incorporation, a majority of the directors in office shall
constitute a quorum for the transaction of business. A majority of those present
at the time and place of any regular or special meeting, if less than a quorum
be present, may adjourn from time to time without notice, until a quorum be had.
The act of a majority of directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
provided by law or in the Certificate of Incorporation.
SECTION 3.9. COMPENSATION. The Board of Directors shall have the authority
to fix by resolution the compensation of directors.
SECTION 3.10. ORGANIZATION. At all meetings of the Board of Directors, the
President, or in his absence the Vice President if he is a member of the Board,
or in their absence, a chairman chosen by the directors shall preside. The
Secretary or an Assistant Secretary of the Corporation shall act as secretary at
all meetings of the Board of Directors when present, and, in the absence of
both, the presiding officer may appoint any person to act as secretary.
SECTION 3.11. TELEPHONE MEETINGS. Any member of the Board of Directors may
participate in any meeting of such Board by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in any meeting pursuant to
this provision shall constitute presence in person at such meeting.
SECTION 3.12. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at any meeting of the Board of Directors, or any committee thereof, may
be taken without a meeting if all the members of the Board consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board.
SECTION 3.13. NOMINATION OF DIRECTOR CANDIDATES. Subject to the rights of
the holders of Preferred Stock or any other class of capital stock of the
Corporation (other than Common Stock) or any series of any of the foregoing that
has been outstanding, nominations for the election of directors may be made by
the Board of Directors, by any duly appointed committee thereof or by any
stockholder entitled to vote for the election of directors. Any stockholder
entitled to vote for the election of directors at any meeting may nominate
persons for election as directors only if written notice of such stockholder's
intent to make such nomination is given, either by personal delivery or by
United States Mail, postage prepaid, to the Secretary of the Corporation not
later than ninety (90) days prior to the scheduled meeting, regardless of any
postponements, deferrals or adjournments of that meeting to a later date;
PROVIDED, HOWEVER, if less than one hundred (100) days notice or prior public
disclosure of the date of the scheduled meeting is given, notice by the
stockholders must be so delivered or received not later than the close of
business on the tenth (10(th)) day following the earlier of the day on which
such notice of the date of the scheduled annual meeting was mailed or the day on
which public disclosure was made. Each such notice shall set forth: (a) the
name, age, business address and residence address of the person or persons
intended to be nominated; (b) a representation that the stockholder is a holder
of record of stock of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (c) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would have been required
to be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had such requirements been applicable and
each nominee been nominated, or intended to be nominated, by the Board of
Directors; and (e) the consent of each nominee to serve as a director of the
Corporation if so elected. The Chairman of the meeting may refuse to acknowledge
the nomination of any person not made in compliance with this section.
- --------------------------------------------------------------------------------
EXHIBIT E -- BYLAWS -- PAGE 4
<PAGE>
ARTICLE IV
COMMITTEES
SECTION 4.1. EXECUTIVE COMMITTEE. The Board of Directors, by a resolution
passed by a vote of a majority of the whole Board, may appoint an Executive
Committee of one or more directors, which to the extent permitted by law and in
said resolution shall, during the intervals between the meetings of the Board of
Directors, in all cases where special directions shall not have been given by
the Board, have and exercise the powers of the Board of Directors, including
those powers enumerated in these Bylaws which are not specifically reserved to
the Board of Directors, in the management of the property, business and affairs
of the Corporation; provided, however, that the Executive Committee shall not
have any power or authority to amend the Certificate of Incorporation, to adopt
any agreement of merger or consolidation, to recommend to the stockholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, to recommend to the stockholders a dissolution of the
Corporation or a revocation of dissolution, to amend the Bylaws of the
Corporation, to declare a dividend, to authorize the issuance of stock or to
adopt a certificate of ownership and merger. The Executive Committee shall have
power to authorize the seal of the Corporation to be affixed to all papers which
may require it. The Board of Directors shall appoint the Chairman of the
Executive Committee. The members of the Executive Committee shall receive such
compensation and fees as from time to time may be fixed by the Board of
Directors.
SECTION 4.2. ALTERNATES AND VACANCIES. The Board of Directors may
designate one or more directors as alternate members of the Executive Committee
who may replace any absent or disqualified member at any meeting of the
Executive Committee. In the absence or disqualification of a member of the
Executive Committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. All other
vacancies in the Executive Committee shall be filled by the Board of Directors
in the same manner as original appointments to such Committee.
SECTION 4.3. COMMITTEES TO REPORT TO BOARD. The Executive Committee shall
keep regular minutes of its proceedings and all action by the Executive
Committee shall be reported to the Board of Directors at its meeting next
succeeding such action.
SECTION 4.4. PROCEDURE. The Executive Committee shall fix its own rules of
procedure, and shall meet where and as provided by such rules or by resolution
of the Board of Directors. The presence of a majority of the then appointed
number of each committee created pursuant to this Article IV shall constitute a
quorum and in every case an affirmative vote by a majority of the members of the
committee present and not disqualified from voting shall be the act of the
committee.
SECTION 4.5. OTHER COMMITTEES. From time to time the Board of Directors by
a resolution adopted by a majority of the whole Board may appoint any other
committee or committees for any purpose or purposes, to the extent lawful, which
shall have such powers as shall be determined and specified by the Board of
Directors in the resolution of appointment.
SECTION 4.6. TERMINATION OF COMMITTEE MEMBERSHIP. In the event any person
shall cease to be a director of the Corporation, such person shall
simultaneously therewith cease to be a member of any committee appointed by the
Board of Directors, or any subcommittee thereof.
ARTICLE V
OFFICERS
SECTION 5.1. EXECUTIVE OFFICERS. The executive officers of the Corporation
may consist of a Chairman of the Board, a President and Chief Executive Officer,
one or more Vice Presidents, a Treasurer and a Secretary, all of whom shall be
elected annually by the Board of Directors. Unless otherwise provided in the
resolution of election, each officer shall hold office until the next annual
election of
- --------------------------------------------------------------------------------
EXHIBIT E -- BYLAWS -- PAGE 5
<PAGE>
directors and until his successor shall have been qualified. Any two of such
offices may be held by the same person.
SECTION 5.2. SUBORDINATE OFFICERS. The Board of Directors may appoint one
or more Assistant Secretaries, one or more Assistant Treasurers and such other
subordinate officers and agents as it may deem necessary or advisable, for such
term as the Board of Directors shall fix in such appointment, who shall have
such authority and perform such duties as may from time to time be prescribed by
the Board.
SECTION 5.3. COMPENSATION. The Board of Directors shall have the power to
fix the compensation of all officers, agents and employees of the Corporation,
which power, as to other than elected officers, may be delegated as the Board of
Directors shall determine.
SECTION 5.4. REMOVAL. All officers, agents and employees of the
Corporation shall be subject to removal, with or without cause, at any time by
affirmative vote of the majority of the whole Board of Directors whenever, in
the judgment of the Board of Directors, the best interests of the Corporation
will be served thereby. The power to remove agents and employees, other than
officers or agents elected or appointed by the Board of Directors, may be
delegated as the Board of Directors shall determine.
SECTION 5.5. CHAIRMAN OF THE BOARD. If a Chairman of the Board is elected,
he shall be chosen from among the members of the Board of Directors and shall
preside at all meetings of the directors and the stockholders of the
Corporation. The Chairman of the Board shall, in general, have supervisory power
over the President and all other officers of the Corporation.
SECTION 5.6. THE PRESIDENT. The President shall be the chief operating
officer of the Corporation and shall have the general powers and duties of
supervision and management of the Corporation. The President shall also be the
chief executive officer of the Corporation and, in the absence of the Chairman
of the Board, shall preside at all meetings of the stockholders and directors at
which he is present. The President shall also perform such other duties as may
from time to time be assigned to him by the Board of Directors.
SECTION 5.7. VICE PRESIDENTS. Each Vice President shall perform such
duties and shall have such authority as from time to time may be assigned to him
by the Board of Directors or the President.
SECTION 5.8. THE TREASURER. The Treasurer shall have the general care and
custody of all the funds and securities of the Corporation which may come into
his hands and shall deposit the same to the credit of the Corporation in such
bank or banks or depositories as from time to time may be designated by the
Board of Directors or by an officer or officers authorized by the Board of
Directors to make such designation, and the Treasurer shall pay out and dispose
of the same under the direction of the Board of Directors. He shall have general
charge of all securities of the Corporation and shall in general perform all
duties incident to the position of Treasurer.
SECTION 5.9. THE SECRETARY. The Secretary shall keep the minutes of all
proceedings of the Board of Directors and the minutes of all meetings of the
stockholders and also, unless otherwise directed by such committee, the minutes
of each standing committee, in books provided for that purpose, of which he
shall be the custodian; he shall attend to the giving and serving of all notices
for the Corporation; he shall have charge of the seal of the Corporation, of the
stock certificate books and such other books and papers as the Board of
Directors may direct; and he shall in general perform all the duties incident to
the office of Secretary and such other duties as may be assigned to him by the
Board of Directors.
SECTION 5.10. VACANCIES. All vacancies among the officers for any cause
shall be filled only by the Board of Directors.
SECTION 5.11. BONDING. The Board of Directors shall have power to require
any officer or employee of the Corporation to give bond for the faithful
discharge of his duties in such form and with such surety or sureties as the
Board of Directors may deem advisable.
- --------------------------------------------------------------------------------
EXHIBIT E -- BYLAWS -- PAGE 6
<PAGE>
ARTICLE VI
STOCK
SECTION 6.1. FORM AND EXECUTION OF CERTIFICATES. The shares of stock of
the Corporation shall be represented by certificates in such form as shall be
approved by the Board of Directors; provided that the Board of Directors of the
Corporation may provide by resolution that some or all of any or all classes or
series of its stock shall be uncertificated shares. Any such resolution shall
not apply to shares represented by a certificate until such certificate is
surrendered to the Corporation; and, notwithstanding the adoption of such a
resolution by the Board of Directors, every holder of stock represented by
certificates and every holder of uncertificated shares shall be entitled to a
certificate or certificates representing his shares upon delivery of a written
request therefor to the Secretary of the Corporation. The certificates shall be
signed by the President or the Vice President and the Treasurer or the Secretary
or an Assistant Treasurer or Assistant Secretary, except that where any such
certificates shall be countersigned by a transfer agent and by a registrar, the
signatures of any of the officers above specified, and the seal of the
Corporation upon such certificates, may be facsimiles, engraved or printed. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon such certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of its issue.
SECTION 6.2. REGULATIONS. The Board of Directors may make such rules and
regulations consistent with any governing statute as it may deem expedient
concerning the issue, transfer and registration of certificates of stock and
concerning certificates of stock issued, transferred or registered in lieu or
replacement of any lost, stolen, destroyed or mutilated certificates of stock.
SECTION 6.3. FIXING OF RECORD DATE. For the purpose of determining the
stockholders entitled to notice of, and to vote at, any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or for the purpose of determining stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a date as the record date for any such
determination of stockholders, and all persons who are stockholders of record on
the date so fixed, and no others, shall be entitled to notice of, and to vote
at, such meeting or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or to receive payment of any dividend or
other distribution or allotment of any rights, or to exercise any rights in
respect of any change, conversion or exchange of stock or to take any other
lawful action, as the case may be. Such record date shall not be more than sixty
(60) days nor less than ten (10) days before the date of any such meeting, nor
more than sixty (60) days prior to any other action, provided that any record
date established by the Board of Directors may not precede the date of the
resolution establishing the record date. The record date for determining
stockholders entitled to consent to corporate actions in writing shall not be
more than ten (10) days after the date upon which the resolution fixing the
record date was adopted. If no record date is established prior to an action
undertaken by consent, the record date shall be, if no action of the Board of
Directors is required, the first date on which a signed written consent setting
forth the action taken is delivered to the corporation. If action by the Board
of Directors is required, the record date shall be the close of business on the
day the board adopts the resolution taking the prior action.
SECTION 6.4. TRANSFER AGENT AND REGISTRAR. The Board of Directors may
appoint a transfer agent or transfer agents and a registrar or registrars for
any or all classes of the capital stock of the Corporation, and may require
stock certificates of any or all classes to bear the signature of either or
both.
- --------------------------------------------------------------------------------
EXHIBIT E -- BYLAWS -- PAGE 7
<PAGE>
ARTICLE VII
SEAL
SECTION 7.1. SEAL. The seal of the Corporation shall be circular in form
and contain the name of the Corporation, the year of its organization, and the
words "CORPORATE SEAL, DELAWARE", which seal shall be in charge of the Secretary
to be used as directed by the Board of Directors.
ARTICLE VIII
FISCAL YEAR
SECTION 8.1. FISCAL YEAR. The fiscal year of the Corporation shall end
October 31 of each year unless otherwise fixed by resolution of the Board of
Directors.
ARTICLE IX
WAIVER OF NOTICE
SECTION 9.1. WAIVER OF NOTICE. Any person may waive any notice required to
be given by law, in the Certificate of Incorporation or under these Bylaws by
attendance in person, or by proxy if a stockholder, at any meeting, except when
such person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened, or by a writing signed by the person or
persons entitled to said notice, whether before or after the time stated in said
notice, which waiver shall be deemed equivalent to such notice. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders, directors, or members of a committee appointed by the Board
of Directors need be specified in any written waiver of notice.
ARTICLE X
CHECKS, NOTES, DRAFTS, CONTRACTS, VOTING OF SECURITIES, ETC.
SECTION 10.1. CHECKS, NOTES, DRAFTS, ETC. All checks, notes, drafts or
other orders for the payment of money of the Corporation shall be signed,
endorsed or accepted in the name of the Corporation by such officer, officers,
person or persons as from time to time may be designated by the Board of
Directors or by an officer or officers authorized by the Board of Directors to
make such designation.
SECTION 10.2. EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of Directors
may authorize any officer or officers, agent or agents, in the name and on
behalf of the Corporation, to enter into or execute and deliver any and all
deeds, bonds, mortgages, contracts and other obligations or instruments, and
such authority may be general or confined to specific instances.
SECTION 10.3. PROVISION REGARDING CONFLICTS OF INTERESTS. No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors
or the committee, and the Board or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less
than a quorum; or
(b) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the shareholders; or
- --------------------------------------------------------------------------------
EXHIBIT E -- BYLAWS -- PAGE 8
<PAGE>
(c) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee thereof, or the shareholders.
Common or interested directors may be counted in determining the presence of
a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
SECTION 10.4. VOTING OF SECURITIES OWNED BY THE CORPORATION. Subject
always to the specific directions of the Board of Directors, any share or shares
of stock or other securities issued by any other corporation and owned or
controlled by the Corporation may be voted, whether by written consent as set
forth hereinbelow or at any meeting of such other corporation, by the President
of the Corporation, or in the absence of the President, by any Vice President of
the Corporation who may be present at such meeting or available to sign such
written consent. Whenever in the judgment of the President, or in his absence,
of any Vice President, it shall be desirable for the Corporation to execute a
proxy or give a consent with respect to any share or shares of stock or other
securities issued by any other corporation and owned by the Corporation, such
proxy or consent shall be executed in the name of the Corporation by the
President or one of the Vice Presidents of the Corporation without necessity of
any authorization by the Board of Directors. Any person or persons so designated
as the proxy or proxies of the Corporation shall have full right, power and
authority to vote the share or shares of stock or other securities issued by
such other corporation and owned by the Corporation.
ARTICLE XI
INDEMNIFICATION
SECTION 11.1. INDEMNIFICATION. Each person who was or is made a party or
is threatened to be made a party to or is involved in any threatened, pending or
completed action suit or proceeding, whether civil, criminal or investigative (a
"proceeding"), by reason of the fact that he or a person for whom he is the
legal representative is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, trustee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise (including service with
respect to employee benefit plans) whether the basis of such proceeding is
alleged action in his official capacity as a director, officer, employee or
agent, or in any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the Corporation to the
fullest extent permitted by the Delaware General Corporation Law against all
expenses, liability and loss (including attorneys' fees, judgments, fines,
special excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith. Such
right shall be a contract right and shall include the right to require
advancement by the Corporation of attorneys' fees and other expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that the payment of such expenses incurred by a director or officer of
the Corporation in his capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of such proceeding, shall be made by the
Corporation only upon delivery to the corporation of an undertaking, by or on
behalf of such director or officer, to repay all amount so advanced if it should
be determined ultimately that such director or officer is not entitled to be
indemnified under this section or otherwise.
SECTION 11.2. INDEMNIFICATION NOT EXCLUSIVE. The indemnification and
advancement of expenses provided by this Article XI shall not be deemed
exclusive of any other rights to which a person seeking indemnification may be
entitled under the Certificate of Incorporation, any agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall 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.
- --------------------------------------------------------------------------------
EXHIBIT E -- BYLAWS -- PAGE 9
<PAGE>
SECTION 11.3. INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee, trustee or agent of another
corporation, partnership, joint venture, trust or other enterprise (including
service with respect to employee benefit plans) against any liability assessed
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to indemnify
him against such liability under the provisions of this Article XI.
- --------------------------------------------------------------------------------
EXHIBIT E -- BYLAWS -- PAGE 10
<PAGE>
EXHIBIT F
WYOMING DISSENTERS' STATUTES
Set forth herein is a reproduction of Article 13 of the Wyoming Business
Corporation Act (the "WBCA").
ARTICLE 13. DISSENTERS' RIGHTS
SUBARTICLE A. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
17-16-1301 DEFINITIONS.--(a) As used in this article:
(i) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder;
(ii) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving, new, or acquiring corporation by merger,
consolidation, or share exchange of that issuer;
(iii) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under W.S. 17-16-1302 and who exercises that right when and in
the manner required by W.S. 17-16-1320 through 17-16-1328;
(iv) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable;
(v) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans, or, if none, at a rate that is fair and
equitable under all the circumstances;
(vi) "Record shareholder" means the person in whose names shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation;
(vii) "Shareholder" means the record shareholder or the beneficial
shareholder.
17-16-1302 RIGHT TO DISSENT.--(a) A shareholder is entitled to dissent from,
and to obtain payment of the fair value of his shares in the event of, any of
the following corporate actions:
(i) Consummation of a plan of merger or consolidation to which the
corporation is a party if:
(A) Shareholder approval is required for the merger or the consolidation by
W.S. 17-16-1103 or 17-6-1111 or the articles of incorporation and the
shareholder is entitled to vote on the merger or consolidation; or
(B) The corporation is a subsidiary that is merged with its parent under
W.S. 17-16-1104.
(ii) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
(iii) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
(1) year after the date of sale;
(iv) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
- --------------------------------------------------------------------------------
EXHIBIT F -- WYOMING DISSENTERS' STATUTES -- PAGE 1
<PAGE>
(B) Creates, alters or abolishes a right in respect of redemption, including
a provision respecting a sinking fund for the redemption or repurchase, of the
shares;
(C) Alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter, or to
cumulate votes, other than a limitation by dilution through issuance of shares
or other securities with similar voting rights; or
(E) Reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under W.S.
17-16-604.
(F) Any corporate action taken pursuant to a shareholder vote to the extent
the articles of incorporation, bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
17-16-1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--(a) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one (1) person and notifies the corporation in writing
of the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares held
on his behalf only if:
(i) He submits to the corporation the record shareholder's written consent
to the dissent not later than the time the beneficial shareholder asserts
dissenters' rights; and
(ii) He does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the vote.
SUBARTICLE B. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
17-16-1320 NOTICE OF DISSENTERS' RIGHTS.--(a) If proposed corporate action
creating dissenters' rights under W.S. 17-16-1302 is submitted to a vote at a
shareholders' meeting, the meeting notice shall state that shareholders are or
may be entitled to assert dissenters' rights under this article and be
accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under W.S. 17-16-1302 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in W.S. 17-16-1322.
17-16-1321 NOTICE OF INTENT TO DEMAND PAYMENT.--(a) If proposed corporate
action creating dissenters' rights under W.S. 17-16-1302 is submitted to a vote
at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights shall deliver to the corporation before the vote is taken written notice
of his intent to demand payment for his shares if the proposed action is
effectuated and shall not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a) of
this section is not entitled to payment for his shares under this article.
17-16-1322 DISSENTERS' NOTICE.--(a) If proposed corporate action creating
dissenters' rights under W.S. 17-16-1302 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of W.S. 17-16-1321.
- --------------------------------------------------------------------------------
EXHIBIT F -- WYOMING DISSENTERS' STATUTES -- PAGE 2
<PAGE>
(b) The dissenters' notice shall be sent no later than ten (10) days after
the corporate action was taken, and shall:
(i) State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
(ii) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(iii) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(iv) Set a date by which the corporation shall receive the payment demand,
which date may not be fewer than thirty (30) nor more than sixty (60) days after
the date the notice required by subsection (a) of this section is delivered; and
(v) Be accompanied by a copy of this article.
17-16-1323 DUTY TO DEMAND PAYMENT.--(a) A shareholder sent a dissenters'
notice described in W.S. 17-16-1322 shall demand payment, certify whether he
acquired beneficial ownership of the shares before the date required to be set
forth in the dissenters' notice pursuant to W.S. 17-16-1322(b)(iii), and deposit
his certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) of this section retains all other rights of a shareholder
until these rights are cancelled or modified by the taking of the proposed
corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
17-16-1324 SHARE RESTRICTIONS.--(a) The corporation may restrict the
transfer of uncertificated shares from the date the demand for their payment is
received until the proposed corporate action is taken or the restrictions
released under W.S. 17-16-1326.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
cancelled or modified by the taking of the proposed corporate action.
17-16-1325 PAYMENT.--(a) Except as provided in W.S. 17-16-1327, as soon as
the proposed corporate action is taken, or upon receipt of a payment demand, the
corporation shall pay each dissenter who complied with W.S. 17-16-1323 the
amount the corporation estimates to be the fair value of his shares, plus
accrued interest.
(b) The payment shall be accompanied by:
(i) The corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen (16) months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;
(ii) A statement of the corporation's estimate of the fair value of the
shares;
(iii) An explanation of how the interest was calculated;
(iv) A statement of the dissenter's rights to demand payment under W.S.
17-16-1328; and
(v) A copy of this article.
17-16-1326 FAILURE TO TAKE ACTION.--(a) If the corporation does not take the
proposed action within sixty (60) days after the date set for demanding payment
and depositing share certificates, the
- --------------------------------------------------------------------------------
EXHIBIT F -- WYOMING DISSENTERS' STATUTES -- PAGE 3
<PAGE>
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under W.S. 17-16-1322 and repeat the payment demand
procedure.
17-16-1327 AFTER-ACQUIRED SHARES.--(a) A corporation may elect to withhold
payment required by W.S. 17-16-1325 from a dissenter unless he was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment under
W.S. 17-16-1328.
17-16-1328 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.--
(a) A dissenter may notify the corporation in writing of his own estimate of the
fair value of his shares and amount of interest due, and demand payment of his
estimate, less any payment under W.S. 17-16-1325, or reject the corporation's
offer under W.S. 17-16-1327 and demand payment of the fair value of his shares
and interest due, if:
(i) The dissenter believes that the amount paid under W.S. 17-16-1325 or
offered under W.S. 17-16-1327 is less than the fair value of his shares or that
the interest due is incorrectly calculated;
(ii) The corporation fails to make payment under W.S. 17-16-1325 within
sixty (60) days after the date set for demanding payment; or
(iii) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty (60) days after the date set for demanding
payment.
(b) A dissenter waives his right to demand payment under this section unless
he notifies the corporation of his demand in writing under subsection (a) of
this section within thirty (30) days after the corporation made or offered
payment for his shares.
SUBARTICLE C. JUDICIAL APPRAISAL OF SHARES
17-16-1330 COURT ACTION.--(a) If a demand for payment under W.S. 17-16-1328
remains unsettled, the corporation shall commence a proceeding within sixty (60)
days after receiving the payment demand and petition the court to determine the
fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty (60) day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the district court of
the county where a corporation's principal office, or if none in this state, its
registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
- --------------------------------------------------------------------------------
EXHIBIT F -- WYOMING DISSENTERS' STATUTES -- PAGE 4
<PAGE>
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) of this section is plenary and exclusive. The court may appoint
one (1) or more persons as appraisers to receive evidence and recommend decision
on the question of fair value. The appraisers have the powers described in the
order appointing them, or in the amendment to it. The dissenters are entitled to
the same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for:
(i) The amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation; or
(ii) The fair value, plus accrued interest, of his after-acquired shares for
which the corporation elected to withhold payment under W.S. 17-16-1327.
17-16-1331 COURT COSTS AND COUNSEL FEES.--(a) The court in an appraisal
proceeding commenced under W.S. 17-16-1330 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under W.S. 17-16-1328.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(i) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of W.S. 17-16-1320 through 17-16-1328; or
(ii) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by this article.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
- --------------------------------------------------------------------------------
EXHIBIT F -- WYOMING DISSENTERS' STATUTES -- PAGE 5
<PAGE>
CANMAX INC.
ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 7, 1998
This proxy is solicited on behalf of the Board of Directors
The undersigned hereby constitutes and appoints Roger D. Bryant and Debra L.
Burgess, or either of them, as the true and lawful attorneys and proxies of the
undersigned, with full power of substitution, to represent the undersigned and
to vote all of the shares of Common Stock of Canmax Inc. (the "Company"), that
the undersigned is entitled to vote at the Annual Meeting of Shareholders of the
Company to be held on December 7, 1998 and at any adjournments thereof.
<TABLE>
<S> <C> <C> <C>
1. Election of FOR All nominees named below WITHHOLD AUTHORITY TO VOTE FOR ALL
Directors (EXCEPT AS MARKED TO THE CONTRARY) / / NOMINEES NAMED BELOW / /
</TABLE>
Nominees: Roger D. Bryant, Debra L. Burgess, Nick DeMare, Robert M. Fidler, W.
Thomas Rinehart
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE
THE NOMINEE'S NAME ON THE LINE BELOW.)
- --------------------------------------------------------------------------------
2. To approve and adopt the sale for cash to Affiliated Computer Services,
Inc., of substantially all of the assets and certain liabilities of Canmax
Retail Systems, Inc., pursuant to the Asset Purchase Agreement, dated September
3, 1998, as amended.
FOR / / AGAINST / / ABSTAIN / /
3. To approve the merger of the Company into a wholly-owned subsidiary to be
organized under the laws of Delaware in order to effect the change the Company's
state of incorporation from Wyoming to Delaware.
FOR / / AGAINST / / ABSTAIN / /
4. To approve and adopt provisions of the Certificate of Incorporation of
Canmax Delaware ("Delaware Certificate") which would authorize 10 million shares
of preferred stock, par value $.001 of the Company.
FOR / / AGAINST / / ABSTAIN / /
5. To approve and adopt provisions of the Delaware Certificate which would
require all shareholder action to be taken at a shareholder meeting.
FOR / / AGAINST / / ABSTAIN / /
<PAGE>
6. To approve and adopt provisions of the Delaware Certificate which would
permit officers and directors of the Company to receive indemnification to the
fullest extent permitted by law.
FOR / / AGAINST / / ABSTAIN / /
7. To approve and adopt provisions of the Delaware Certificate that would
require a 66 2/3% vote of shareholders to amend the foregoing provisions No. 5
and No. 6 and to amend the Delaware Bylaws when shareholder amendments are
sought.
FOR / / AGAINST / / ABSTAIN / /
8. To approve and adopt the Delaware Bylaws as described in the accompanying
Proxy Statement.
FOR / / AGAINST / / ABSTAIN / /
9. To ratify the selection of King, Griffin & Adamson P.C. to serve as
independent public accountants for the Company for the 1998 fiscal year.
FOR / / AGAINST / / ABSTAIN / /
10. In their discretion, to vote upon such other business as may properly come
before the meeting or any adjournments thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFIC DIRECTIONS ARE GIVEN,
THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS, "FOR" EACH OF THE
PROPOSALS SET FORTH HEREIN AND IN THE DISCRETION OF THE PROXY HOLDERS ON ALL
OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING.
Please sign exactly as the name appears on the certificate or certificates
representing shares to be voted by this proxy. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by president or other
authorized person. If a partnership, please sign in partnership name by
authorized person.
Dated: ______________________________
_____________________________________
Signature of Shareholder
_____________________________________
Signature (if jointly owned)
PLEASE MARK, SIGN, DATE AND RETURN
THIS PROXY PROMPTLY USING THE
ENCLOSED ENVELOPE.
