SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 Rule 14a-11(c) or Rule 14a-12
EMPS CORPORATION
----------------
(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.
[X] 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: Common
2) Aggregate number of securities to which transaction applies: 27,089,700
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): $.90, which is equal to the average
of the bid and the ask price of the Registrant's securities on April 22, 2001.
4) Proposed maximum aggregate value of transaction: $24,380,730
5) Total fee paid: $2,243.03
[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:_________________________________________________________
EMPS CORPORATION
875 DONNER WAY, UNIT 705
SALT LAKE CITY, UTAH 84108
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
A special meeting of stockholders of EMPS Corporation will be held at
the offices of Poulton & Yordan, 136 East South Temple, Suite 1700-A, Salt Lake
City, Utah on May 29, 2002, at 10:00 a.m., local time, for the following
purposes:
1. To ratify an Agreement and Plan of Reorganization, dated as of
February 28, 2002, between EMPS Corporation, a Nevada
corporation, and Caspian Services Group Limited, a British
Virgin Islands corporation, whereby EMPS Corporation shall
acquire all of the issued and outstanding common shares of
Caspian Services Group Limited in exchange for 27,089,700
restricted common shares of EMPS Corporation and Caspian
Services Group Limited shall be become a wholly owned
subsidiary if EMPS;
2. To elect three Directors to the Company's Board of Directors.
The Directors will be elected to serve for a period of one
year and until their successors shall have been elected and
qualified;
3. To ratify our EMPS Corporation 2002 Stock Option Plan for
purposes of Sections 162(m) and 422 of the Internal Revenue
Code;
4. To ratify the selection of David T. Thomson, P.C. as
independent auditor of EMPS Corporation for the 2002 fiscal
year; and
5. To transact any other business as may properly come before the
meeting or at any adjournment thereof.
Our board of directors has fixed the close of business on April 15,
2002 as the record date for determining stockholders entitled to notice of, and
to vote at, the meeting. Only stockholders of record at the close of business on
April 15, 2002 will be entitled to notice of, and to vote at, the special
meeting of stockholders. A list of stockholders eligible to vote at the meeting
will be available for inspection at the meeting and for a period of ten days
prior to the meeting during regular business hours at our corporate
headquarters, 875 Donner Way, Unit 705, Salt Lake City, Utah 84108.
All of our stockholders are cordially invited to attend the meeting in
person. Whether or not you expect to attend the special meeting of stockholders,
your proxy vote is important. To assure your representation at the meeting,
please sign and date the enclosed proxy card and return it promptly in the
enclosed envelope, which requires no additional postage if mailed in the
United States. Should you receive more than one proxy because your shares are
registered in different names or addresses, each proxy should be signed and
returned to assure that all your shares will be voted. You may revoke your proxy
at any time prior to the meeting. If you attend the meeting and vote by ballot,
your proxy will be revoked automatically and only your vote at the meeting will
be counted.
YOUR VOTE IS IMPORTANT
IF YOU ARE UNABLE TO BE PRESENT PERSONALLY, PLEASE MARK, SIGN AND DATE
THE ENCLOSED PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS, AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
By order of the board of directors,
/s/ LOUIS NAEGLE
------------------------------
LOUIS NAEGLE
President
May 7, 2002
EMPS CORPORATION
875 DONNER WAY, UNIT 705
SALT LAKE CITY, UTAH 84108
PROXY STATEMENT
GENERAL
Solicitation of Proxies. The accompanying proxy is solicited by and on
behalf of our Board of Directors (the "Board") in connection with the Special
Meeting of Stockholders (the "Special Meeting") to be held at 10:00 a.m., local
time, on May 29, 2002, and at any adjournments thereof. The Special Meeting will
be held at the law offices of Poulton & Yordan, 136 East South Temple, Suite
1700-A, Salt Lake City, Utah. Our principal executive offices are located at 875
Donner Way, Unit 705, Salt Lake City, Utah 84108. This proxy statement and the
enclosed proxy are being mailed on or about May 8, 2002 to stockholders of
record as of the close of business on April 15, 2002.
Cost of Solicitation. We will bear the costs of soliciting proxies. In
addition to the use of the mails, our directors or officers may solicit proxies
by telephone, telegram, facsimile, cable or personal contact. Upon request, we
will reimburse brokers, dealers, banks and trustees, or their nominees, for
reasonable expenses incurred by them in forwarding proxy material to beneficial
owners of shares of our Common Stock.
Outstanding Voting Shares. Stockholders of record will be entitled to
vote at the Special Meeting. As of April 15, 2002 there were 2,910,300 shares of
Common Stock outstanding and entitled to notice and to vote. Each share of
Common Stock is entitled to one vote on each matter presented to the
stockholders.
Vote Required for Approval. Shares of Common Stock will vote with
respect to each proposal. Under our Bylaws, Proposals 1, 2, 3, 4 and 5 each
requires the affirmative vote of a majority of the votes eligible to be voted by
holders of shares represented at the Special Meeting in person or by proxy. With
respect to Proposal 2 votes may be cast by a stockholder in favor of the nominee
or withheld. With respect to Proposals 1, 3, 4 and 5 votes may be cast by a
stockholder in favor or against the Proposals or a stockholder may elect to
abstain. Votes withheld and abstentions will be counted for quorum purposes and
are deemed to be present for purposes of the respective proposals, they will
have the same effect as a vote against each matter.
Under the NASD Rules of Fair Practice, brokers who hold shares in
street name have the authority, in limited circumstances, to vote on certain
items when they have not received instructions from beneficial owners. A broker
will only have such authority if (i) the broker holds the shares as executor,
administrator, guardian, trustee or in a similar representative or
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fiduciary capacity with authority to vote or (ii) the broker is acting under the
rules of any national securities exchange of which the broker is also a member.
Broker abstentions or non- votes will be counted for purposes of determining the
presence or absence of a quorum at the meeting. Abstentions are counted in
tabulations of the votes cast on proposals presented to stockholders, but broker
non-votes are not counted for purposes of determining whether a proposal has
been approved
Voting Your Proxy. Proxies in the accompanying form, properly executed
and received at our principle executive office prior to the Special Meeting and
not revoked, will be voted as directed. In the absence of direction from the
stockholder, properly executed proxies received prior to the Special Meeting
will be voted FOR Proposals 1, 2, 3, 4 and 5. You may revoke your proxy by
giving written notice of revocation to our Secretary at any time before it is
voted, by submitting a later-dated proxy or by attending the Special Meeting and
voting your shares in person. Stockholders are urged to sign and date the
enclosed proxy and return it as promptly as possible in the envelope enclosed
for that purpose.
Revocability of Proxies. Any person giving a proxy pursuant to this
solicitation has the power to revoke it at any time before it is voted. It may
be revoked by filing with our Secretary a written notice of revocation or a duly
executed proxy bearing a later date at our principal executive office at 875
Donner Way, Unit 705, Salt Lake City, Utah 84108, Attention: Secretary, or your
proxy may be revoked by attending the meeting and voting in person. Please note,
however, that attendance at the meeting will not by itself revoke a proxy.
Furthermore, if the shares are held of record by a broker, bank or other nominee
and the stockholder wishes to vote at the meeting, the stockholder must obtain
from the record holder a proxy issued in the stockholder's name.
Dissenters' Right of Appraisal. Pursuant to Nevada corporation law, the
actions contemplated to be taken at the Special Meeting do not create appraisal
or dissenters' rights.
Security Ownership of Directors and Executive Officers. The following
table sets forth the beneficial ownership our Common Stock as of April 15, 2002,
for each director and nominee, our President, the other executive officers, and
for all directors and executive officers as a group.
- --------------------------------------------------------------------------------
Options Currently
Exercisable
Name Common Stock or within 60 days
- --------------------------------------------------------------------------------
Louis Naegle 0 0
Timothy L. Adair 0 0
Mirgali Kunayev* 0 0
Paul A. Roberts* 0 0
Marat Cherdabayev 0 0
All directors and executive
officers as a group (2) 0 0
- --------------------------------------------------------------------------------
* Of the 27,089,700 restricted common shares to be issued to the Caspian
shareholders pursuant to the Agreement, 14,086,644 will be issued to Petroleum
Group Services Limited and 3,250,764 will be isssued to Mr. Roberts. Beneficial
ownership of the shares to be issued to Petroleum Group Services Limited may be
attributed to Mr. Kunayev.
2
Security Ownership of Certain Beneficial Owners. As of April 15, 2002,
our records and other information made available by outside sources indicated
that the following stockholders were beneficial owners of more than five percent
of our outstanding shares of Common Stock.
- --------------------------------------------------------------------------------
Name Shares Percent of Class
- --------------------------------------------------------------------------------
Particle Separation Technologies L.C. 2,400,000 86%
3500 Pine Valley Road
Woodland, Utah 84036
- --------------------------------------------------------------------------------
The Stephen & Jill Smoot Family Trust is the beneficial owner of
Particle Separation Technologies, L.C. Therefore, shares that are in the
registered name of Particle Separation Technologies, L.C., are counted as shares
owned by The Stephen & Jill Smoot Family Trust. Stephen Smoot and Jill Smoot are
the trustees of the Stephen & Jill Smoot Family Trust, which was established for
the benefit of their six children. As trustees, Mr. and Mrs. Smoot have voting
and investment power over the shares held in the Trust and may be deemed to be
the beneficial owners of the shares held by the Trust.
Meetings and Committees of the Board. Our Board currently has no
standing Committees.
During 2001 there were six meetings of the Board. All Directors
attended 75% of the meetings of the Board.
Compensation of Directors and Officers. To date, no Director of Officer
has received any compensation for his services to our company. We currently have
not adopted any type of Director or Officer compensation plan.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. For this
purpose any statements contained in this Proxy Statement that are not statements
of historical fact may be deemed to be forward- looking statements. Without
limiting the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "estimate" or "continue" or comparable terminology is intended to
identify forward-looking statements. These statements by their nature involve
substantial risks
3
and uncertainties, and actual results may differ materially depending on a
variety of factors, many of which are not within our company's control. These
factors include but are not limited to economic conditions generally and in the
industries in which our company may participate; competition within our chosen
industry, including competition from much larger competitors; technological
advances and failure by our company to successfully develop business
relationships.
PROPOSAL ONE:
RATIFY AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN
EMPS CORPORATION AND CASPIAN SERVICES GROUP, LIMITED
You are being asked to ratify the Agreement and Plan of Reorganization,
(the "Agreement") dated February 28, 2002, between the Company and Caspian
Services Group, Limited, a privately-held British Virgin Islands corporation
("Caspian"), pursuant to which we will issue our Common Stock in exchange for
all of the issued and outstanding shares of Caspian Common Stock. A copy of the
Agreement and Plan of Reorganization is attached as Exhibit A to this Proxy
Statement.
Pursuant to the Agreement, Caspian will sell, assign, transfer and
deliver to us 100% of the issued and outstanding Caspian Common stock, in
exchange we will issue to the shareholders of Caspian an aggregate of 27,089,700
shares of our restricted Common Stock such that the Caspian shareholders will
own 90% of the total issued and outstanding shares of our Common Stock
immediately after the Closing. Caspian shall become our wholly owned subsidiary.
GENERAL
The following information describes material aspects of the
reorganization. This description does not provide a complete description of all
the terms and conditions of the Agreement. It is qualified in its entirety by
the text of the Agreement and Plan of Reorganization, which is attached as
Exhibit A to this Proxy Statement, and is incorporated herein by this reference.
You are urged to read the Exhibit in its entirety.
Plan of Reorganization.
The Agreement provides that upon closing, Caspian shareholders will
own, in the aggregate, ninety percent (90%) of the stock of our company on a
fully diluted basis. The total number of our shares to be issued to Capian
shareholders is 27,089,700. No fractional shares of our Common Stock will be
issued in connection with the Agreement. Each share of our Common Stock issued
and outstanding immediately prior to Closing of the Agreement will remain
outstanding and be unaffected by the Agreement.
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Effective Time of the Agreement.
The Agreement will be pursuant to the applicable provisions of the laws
of Nevada and the British Virgin Islands with respect to stock issuance and in
accordance with the Agreement. The Effective Time will occur as promptly as
practicable after ratification by the shareholders, election of the new
directors and all other conditions to the Agreement have been satisfied or
waived. It is anticipated that the Agreement will be consummated in May or June
2002.
Certain Tax Consequences.
The Agreement and Plan of Reorganization is intended to be a tax-free
reorganization in which no gain or loss will be recognized by our shareholders.
Contact Information.
If you have any questions about the Agreement or how to submit your
proxy, or if you need additional copies of this Proxy Statement or the enclosed
proxy card or voting instructions, you should contact:
EMPS Corporation
Attn: Louis Naegle
875 Donner Way, Unit 705
Salt Lake City, Utah 84108.
Telephone: (801) 582-7600 Fax: (801) 582-8600
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.
Information about Caspian Services Group, Limited
Caspian was incorporated in the British Islands on December 22, 1999,
and has been primarily engaged in providing services to the oil and gas industry
in the Republic of Kazakhstan. Caspian carries out its primary business
activities from its branch located in Aktau, Kazakhstan, which has been
registered with the Ministry of Justice of the Republic of Kazakhstan since
April of 2000. Caspian currently employs 32 persons.
In recent years, the Republic of Kazakhstan has undergone substantial
political and economic changes which have created an emerging market. As a
result, Kazakhstan in general, has been successful in attracting investment
interest from oil and gas exploration and development companies. We believe that
the current infrastructure in Kazakhstan is insufficient to support and service
the new interest and investments being made by the oil and gas companies. We
hope to position Caspian to provide a range of services to these oil and gas
companies.
5
The current services provided by Caspian include the chartering of a
fleet of three specialized shallow draft vessels; the Baskunchak, Caspian Yelena
and Caspian Maria (collectively the "Vessels"). Baskunchak and Caspian Yelena
are currently in operation and Caspian Maria is expected to arrive and commence
operations in the second quarter of 2002. The Vessels are uniquely suited to
work in the shallow waters of the northeast Caspian Sea. These Vessels are
chartered by, and provide support services to, oil and gas contractors in the
Kazakh sector of the North Caspian Sea. The associated support services include
maintenance and upkeep of the Vessels, staffing the Vessels with a marine crew,
accommodations and meals on the Vessels, laundry and other related services to
those on the Vessels.
In addition, Caspian is a partner in two joint ventures located in the
Port of Bautino on the Caspian Sea. The Port of Bautino is the northernmost bay
in the Caspian Sea that does not freeze during the winter months.
Caspian's first joint venture in the Port of Bautino is a water
desalinization plant which purifies, bottles and markets and sells water. The
second joint venture is a development company which is constructing a hotel that
the joint venture will manage and operate. Caspian expects the first phase of
the hotel to be completed by the end of the second quarter of 2002.
Caspian plans to expand its marine fleet to include supply, work and
survey vessels as well as barges and tug boats. As part of a natural progression
Caspian plans to develop a marine base on real property it currently owns in the
Port of Bautino. Eventually Caspian desires to also develop an emergency
response service that would react to offshore oil spills on the Caspian Sea.
Finally, Caspian is considering the development of an offshore seismic
exploration program.
Caspian's competition includes varying local companies to large
worldwide corporations. We expect competition to be intense. Caspian's offshore
division currently has no known local competition, but does have to compete with
many larger foreign companies. We believe that Caspian has an advantage over
these larger companies because it has extensive experience operating vessels in
the Caspian Sea and conducting business within and complying with the laws and
regulations of the Republic of Kazakhstan. In addition, Caspian has developed
strong relationships with government authorities and other local companies.
Information about EMPS Corporation
EMPS Corporation was incorporated under the laws of the state of Nevada
on July 14, 1998, for the purpose of researching and developing commercial
applications for patented technology for a high frequency eddy current separator
("HFECS"). We are working to develop a prototype primarily for use in
commercially separating nonmagnetic particulate materials for use in recovering
metals at foundries and smelters. We anticipate our HFECS prototype will be
capable of separating one ton of particles per hour.
6
Currently, no known system or method exists in industry for
commercially separating nonmagnetic fine particulate material, such as gold,
from other materials without chemicals, heat or water. These methods are
expensive and potentially can be environmentally unsafe. Our HFECS technology
uses novel principles that allow separation of electrically conductive,
nonmagnetic fine particles in a laboratory setting. The HFECS technology
accomplishes electrodynamic separation of nonmagnetic free-flowing materials by
introducing the material into a region of magnetic field gradient that
fluctuates with time. The variable field induces magnetic dipoles in the
conducting particles of the material, producing electrodynamic forces that
deflect the electrically conductive particles from the imposed magnetic field.
Therefore, when feed material is passed through the magnetic field, the
conducting particles are separated from the feed material.
During fiscal 2000, we filed an application for a research grant with
the Department of Energy, through its Office of Industrial Technologies 2000
Invention and Innovations Program. We were awarded a research grant in the
amount of one hundred ninety-nine thousand dollars ($199,000) on or about
January 16, 2001. This grant is only to be used to research and develop the
HFECS particle separation technology. In 2001, we entered into an agreement with
Altaire Holdings, L.C., to assist in the design, fabrication and testing of the
initial prototype. Altaire Holdings is an electronic lab in Ogden, Utah. It is
estimated that the work to be done by Altaire Holdings will cost about $62,000.
As of December 31, 2001, we had spent approximately $62,000 of the grant money,
of which $42,000 was paid to Altaire Holdings and $20,000 in project management
fees were paid to Stephen Smoot, a related party. In 2001, we also entered into
a Subcontract Agreement with the University of Utah Department of Metallurgical
Engineering, which will continue in effect until August 2003. Pursuant to this
Agreement, the University of Utah will test equipment design and implementation,
test the working prototype and perform all necessary data analysis and computer
modeling. The University of Utah will also assess and develop a plan for
commercializing the HFECS technology. The University of Utah will receive
$104,968. As of December 31, 2001, the University of Utah had performed no
services.
On January 30, 2001, our company formed a wholly owned subsidiary, EMPS
Research Corporation, a Utah corporation ("ERC"). On February 14, 2001, in
exchange for 1,000,000 restricted common shares of ERC, we assigned our three
patents to ERC. Since that time, ERC has managed the research and development of
the test prototype equipment for our company.
Our common stock is publicly traded on the NASD Over-the-Counter
Bulletin Board under the symbol "EPSC".
Plan for Future Operations After the Reorganization
Following the reorganization, we will maintain our principle executive
offices in Salt Lake City, Utah. Caspian will maintain its offices in Almaty,
Kazakhstan and will continue to pursue its current business operations. We will
also continue the development and marketing of our HFECS technology, through our
wholly owned subsidiary EMPS Research Corporation. The operations of EMPS
Research Corporation will also remain in Utah.
7
Basis for Board Recommendation of Approval
Our Board of Directors voted unanimously to approve and adopt the
Agreement and Plan of Reorganization and determined that the Agreement and the
reorganization are advisable, fair to and in the best interest of our company
and our stockholders.
In reaching its decision to recommend the Agreement, our Board
concluded that the opportunities available in Kazakhstan and the Caspian Sea
region provide an excellent business opportunity for us and our shareholders. As
our company is publicly traded, our Board also believes the reorganization may
provide a source of funds for future capital expenditures not currently
available to Caspian. For these reasons, the Board believes this Agreement and
Plan of Reorganization provides an opportunity for achieving increased
stockholder value.
Risk Factors
Current our shareholders will face substantial dilution of their
ownership interest in our company as a result of the Agreement and Plan of
Reorganization.
To date, we have not been profitable and Caspian realized only minimal
profits during the past fiscal year. Both companies, as well as the combined
company, will be dependent for a significant period of time on additional
investment capital to fund operating expenses and development costs before
achieving profitability. The Company believes it will be able fund its operating
expenses for fiscal year 2002 out of funds received from its initial public
offering and moneys to be received under its Department of Energy grant. Since
its inception, Caspian has covered its operating expense shortfall through
additional contributions from its control shareholders. Although no formal
agreement has been entered between the Company and the Caspian control
shareholders, it is anticipated that any shortfall for fiscal year 2002 will be
covered by additional contributions from such shareholders unless funds are
recieved from other funding sources. Because the combined entity will have
greater capital requirements, the fund- raising burden may be greater. While it
is anticipated that the combined entity will be more attractive to investors for
a variety of reasons, there can be no guarantee that the combined entity will be
able to meet its funding needs. In part, this is because the availability of
funds is a result of a variety of factors, many of which are beyond our control,
including volatility in the public capital markets. Our success may also be
affected by general economic conditions.
We face the risk that our competitors have longer operating histories,
larger customer bases, greater brand recognition and significantly greater
financial, marketing, technical, management and other resources than we do. Some
of our competitors have and may continue to dedicate substantially more
resources to business development than we can. We expect that our competition
will further intensify in the future. Increased competition may result in
reduced operating margins, loss of market share and diminished future potential
for profitability.
Combining the management, and corporate cultures of two companies can
be a source of conflict and often results in the departure of employees who may
be important to the success of the combined company. Of particular concern in
this instance is the fact that our current
8
operations are and will remain in Utah, while Caspian's principle operations are
and will remain in Kazakhstan and the Caspian Sea region. There is the
possibility for significant barriers to integration such as language and time
and cultural differences. The extent to which these problems may arise is
difficult to predict. It is equally difficult to predict the extent to which
problems that arise can be effectively resolved. We hope that the new board
members nominated for election will be capable of competently addressing and
resolving such conflicts as they arise.
We will also be subject to the risks of war, sabotage and terrorism.
The impact that the terrorist attacks of September 11, 2001 may have on the
energy industry in general and on Caspian in particular, is not known at this
time. Uncertainty surrounding retaliatory military strikes or a sustained
military campaign may affect the operations of Caspian in unpredictable ways,
including changes in the insurance markets, disruptions of fuel supplies and
markets, particularly oil, and the possibility that infrastructure facilities,
including pipelines, production facilities, refineries, electric generation,
transmission and distribution facilities, could be direct targets or, or
indirect casualties of, an act of terror. War or risk of war may also have an
adverse effect on the economy.
Instability in the financial markets as a result of war, sabotage or
terrorism could also affect our ability to raise capital and could also
adversely affect the oil, gas and power industries and restrict their future
growth.
While there we face significant risks, it is the conclusion of
management that the benefits associated with the Agreement and Plan of
Reorganization outweigh the risks. No assurance, however, can be given that we
will ultimately be successful.
Financial Information
Prior to entering into the Agreement and Plan of Reorganization with
Caspian, we had minimal assets and revenues during the most recent fiscal year.
Pro forma financial statements, which serve to state the results of the fiscal
year end as if the two companies had combined operations, would not differ in
any material way from the financial statements of our company. Therefore
combined pro forma financial statements are not included.
Following are the most recent audited financial statements of EMPS
Corporation and for Caspian Services Group, Limited for the year ended December
31, 2001:
9
EMPS CORPORATION AND SUBSIDIARY
(Development Stage Companies)
CONSOLIDATED FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITOR'S REPORT
EMPS CORPORATION AND SUBSIDIARY
(Development Stage Companies)
F-1
CONTENTS
PAGE
Independent Auditor's Report F-3
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-5
Consolidated Statement of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F-11
F-2
Independent Auditor's Report
Board of Directors
EMPS CORPORATION
I have audited the accompanying consolidated balance sheets of EMPS Corporation
and subsidiary (development stage companies) as of December 31, 2001 and 2000
and the related consolidated statements of operations, stockholders' equity and
cash flows for the years ended December 31, 2001 and 2000 and the period from
inception (July 14, 1998) to December 31, 2001. These financial statements are
the responsibility of the Company's management. My responsibility is to express
an opinion on these financial statements based on my audits.
I conducted my audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that I plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audits provide a reasonable
basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of EMPS Corporation and
subsidiary (development stage companies) at December 31, 2001 and 2000, and the
consolidated results of their operations and their consolidated cash flows for
the years ended December 31, 2001 and 2000 and the period from Inception (July
14, 1998) to December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America.
/s/ David T. Thomson, P.C.
Salt Lake City, Utah
January 30, 2002
F-3
EMPS CORPORATION AND SUBSIDIARY
(Development Stage Companies)
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, December 31,
2001 2000
--------------- --------------
CURRENT ASSETS:
Cash on hand $ 40,835 $ 50,012
Prepaid Expenses 1,050 -
------------ -----------
Total Current Assets 41,885 50,012
------------ -----------
OTHER ASSETS
Deferred offering costs - 5,472
Patents, net of amortization of $180 and $130 4,601 670
------------ -----------
Total Other Assets 4,601 6,142
------------ -----------
TOTAL ASSETS $ 46,486 $ 56,154
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 59,810 $ 26,138
Accrued interest payable - 514
Franchise tax payable 100 -
Deferred revenue 3,231 -
Due to Parent - 5,051
------------ -----------
Total Current Liabilities 63,141 31,703
------------ -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock; $.001 par value, 50,000,000
shares authorized, 865,100, and 850,000
shares issued and outstanding respectively 865 850
Additional paid-in capital 32,630 26,907
Deficit accumulated during the development stage (50,150) (3,306)
------------ -----------
Total Stockholders' Equity (Deficit) (16,655) 24,451
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 46,486 $ 56,154
============ ===========
F-4
EMPS CORPORATION AND SUBSIDIARY
(Development Stage Companies)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the For the Cumulative
Year Ended Year Ended During The
December 31, December 31, Development
2001 2000 Stage
----------------- ----------------- ----------------
REVENUE $ - $ - $ -
EXPENSES
General and administrative 47,610 795 48,994
Amortization expense 184 54 414
--------- -------- ---------
Total Expenses 47,794 849 49,408
--------- -------- ---------
NET INCOME (LOSS) FROM OPERATIONS (47,794) (849) (49,408)
OTHER INCOME (EXPENSE)
Grant revenue, net of grant expenses of $62,157,
$-0-, and $62,157 - - -
Interest income 978 22 1,000
Other income 51 - 51
Interest expense (79) (446) (684)
--------- -------- ---------
Total income (expense) 950 (424) 367
--------- -------- ---------
NET INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (46,844) (1,273) (49,041)
Cumulative effect of accounting change
for organization costs - - (1,109)
--------- -------- ---------
NET INCOME (LOSS) $ (46,844) $ (1,273) $ (50,150)
========= ======== =========
EARNINGS (LOSS) PER SHARE BEFORE ACCOUNTING CHANGE $ (0.05) $ (0.00) $ (0.06)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - - (0.00)
--------- -------- ---------
EARNINGS (LOSS) PER SHARE $ (0.05) $ (0.00) $ (0.06)
========= ======== =========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 863,842 804,167 819,905
========= ======== =========
F-5
EMPS CORPORATION AND SUBSIDIARY
(Development Stage Companies)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The For The Cumulative
Year Ended Year Ended During The
December 31, December 31, Development
2001 2000 Stage
--------------- --------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash from grant $ 68,228 $ - $ 68,228
Cash from interest received 978 22 1,000
Cash from other income 50 - 50
Cash paid for interest (79) - (79)
Cash paid for grant expenses (62,157) - (62,157)
Cash paid for expense (21,171) (245) (21,663)
--------- -------- ---------
Total cash used in operating activities (14,151) (223) (14,621)
--------- -------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Patents (4,115) - (4,115)
Organization costs - - (1,000)
--------- -------- ---------
Total cash used in investing activities (4,115) - (5,115)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributed to the Company - - 1,000
Advances (payments) from Parent (5,051) 1,340 -
Sale of common stock for cash 15,100 50,000 65,100
Deferred offering costs (960) (1,105) (5,529)
--------- -------- ---------
Total cash provided by financing activities 9,089 50,235 60,571
--------- -------- ---------
NET INCREASE (DECREASE) IN CASH (9,177) 50,012 40,835
CASH - BEGINNING OF PERIOD 50,012 - -
--------- -------- ---------
CASH - END OF PERIOD $ 40,835 $ 50,012 $ 40,835
========= ========= ========
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES
NET INCOME (LOSS) $ (46,844) $ (1,273) $ (50,150)
--------- -------- ---------
Adjustment to reconcile net income (loss) to net
cash provided (used) by operating activities
Cumulative effect of accounting change - - 1,109
Amortization of organization and patent costs 185 54 414
Change in assets and liabilities
(Increase) in prepaid expense (1,050) - (1,050)
Increase in deferred revenue 3,231 - 3,231
Increase (decrease) in accrued interest (514) 386 -
Increase in franchise tax payable 100 - 100
Increase (decrease) in accounts payable 30,741 610 31,725
------- ---- ------
Total Adjustments 32,693 1,050 35,529
------- ------ ------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ (14,151) $ (223) $ (14,621)
========= ======== =========
NONCASH TRANSACTIONS
Part of consideration to purchase Subsidiary shares $ - $ - $ 2,636
========= ======== =========
Accounts payable for organizations costs $ - $ - $ 209
========= ======== =========
Accounts payable for deferred offering costs $ - $ 19,838 $ 29,670
========= ======== =========
Commons stock issued for assignment of patents $ - $ - $ 800
========= ======== =========
F-6
EMPS CORPORATION AND SUBSIDIARY
(Development Stage Companies)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
Accumulated
Common Stock Additional During The
------------------------ Paid-in Development
Shares Amount Capital Stage
------------ ------------ ------------ ----------------
BALANCE, July 14, 1998 (inception) - $ - $ - $ -
Shares issued to parent in exchange for assignment
of patents at par value of $.001 per share,
July 14, 1998 800,000 800 - -
Capital contributed to the Company to pay costs - 1,000
Net income (loss) from inception (July 14, 1998) to
December 31, 1998 - - - (120)
------- ----- -------- ---------
BALANCE, December 31, 1998 800,000 800 1,000 (120)
Net income (loss) for the year ended
December 31, 1999 - - - (1,913)
------- ----- -------- ---------
BALANCE, December 31, 1999 800,000 800 1,000 (2,033)
Issuance of shares for cash pursuant to
public offering of common stock at $1.00
per share on December 25, 2000 50,000 50 49,950 -
Offering costs associated with shares issued - - (24,043) -
Net income (loss) for the year ended
December 31, 2000 - - - (1,273)
------- ----- -------- ---------
BALANCE, December 31, 2000 850,000 850 26,907 (3,306)
Issuance of shares for cash pursuant to the completion
of a public offering of common stock at $1.00
per share on January 31, 2001 15,100 15 15,085 -
Offering costs associated with shares issued
issued - - (9,362) -
Net income (loss) for the year ended
December 31, 2001 - - - (46,844)
------- ----- -------- ---------
BALANCE, December 31, 2001 865,100 $ 865 $ 32,630 $ (50,150)
======= ===== ======== =========
F-7
EMPS CORPORATION AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - EMPS Corporation (The Company) was organized under the
laws of the State of Nevada on July 14, 1998 and has elected a fiscal
year end of December 31st. The Company was formed for the purpose of
furthering development and marketing of patented technology for
commercially separating nonmagnetic particulate material from other
materials without heat or water. On January 31, 2001, the Company
formed a wholly owned subsidiary by issuing cash and other
consideration for all of the issued and outstanding shares of EMPS
Research Corporation (Research) (See note 9). The Company and its
Subsidiary have not commenced planned principle operations and are
considered development stage companies as defined in SFAS No. 7. The
Company has acquired three patents having to do with the business
purpose outlined above.
Financial statements - The accompanying financial statements include
only the accounts of EMPS Corporation and it's wholly-owned subsidiary
(Research) and are not presented on a consolidated basis with Particle
Separation Technologies, L.C., (PST) which is its Parent Company. At
December 31, 2001 and 2000, PST owned 92.5%, and 94% of the common
stock of EMPS Corporation respectively.
Consolidation Policy - The consolidated balance sheet, statement of
operations, and statement of cash flows at December 31, 2001, include
the accounts of the Company and it's wholly-owned subsidiary
(Research). The consolidated statement of operations and statements of
cash flows at December 31, 2001 and 2000 excludes the Research
financial information because Research was not in existence at that
time. Intercompany transactions and balances have been eliminated in
consolidation.
Net Earnings Per Share - The computation of net income (loss) per share
of common stock is based on the weighted average number of shares
outstanding during the period presented.
Organization Costs - The Company was amortizing its organization costs,
which reflected amounts expended to organize the Company, over sixty
(60) months using the straight-line method. In 1998, the Accounting
Standards Executive Committee (AsSEC) of the American Institute of
Certified Public Accountants issued Statement of Position (SOP) 98-5,
"Reporting on the Cost of Start-up Activities." The SOP requires costs
of start-up activities and organization costs to be expensed as
incurred. During 1999, the Company adopted the SOP and recognized a
charge for the cumulative effect of accounting change of $1,109.
Assignment of Patent Rights - The Company is amortizing its cost
associated with the acquisition of its patents over a remaining life of
12.8 years using the straight-line method. This life is the legally
remaining protected lives of the patents. Amortization expense shown
from 1999 forward is for patents only.
Income Taxes - Due to losses at December 31, 2001 and 2000, no
provisions for income taxes has been made. There are deferred income
taxes resulting from income and expense items being reported for
financial accounting and tax reporting purposes in different periods.
The difference arises from the accelerating of the write-off of
organization costs for financial statement purposes as compared to
amortizing over 60 months for tax purposes.
F-8
EMPS CORPORATION AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Cash and Cash Equivalents - For purposes of the statement of cash
flows, the Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents. The Company did not have non-cash investing activities
during 2001 and 2000.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Grant revenue recognition - The DOE grant is funded on a cost
reimbursement basis and payments received from the grant are treated as
earned and recognized as revenue at the time expenditures reimbursable
under the grant are made by the Company. The grant has provisions for
advance payments. A grant receivable is recorded if expenditures exceed
amounts received under the grant and deferred revenue is recorded if
payments exceed costs expended under the grant.
Reclassification - Certain accounts have been reclassified to conform
with current presentation.
NOTE 2 - EQUITY TRANSACTIONS
The Company on July 14, 1998 issued 800,000 of $.001 par value common
stock to PST to acquire Patents to technology explained above in the
organization footnote. The stock was valued at par value for a total
acquisition cost of $800 (see Note 4). At December 31, 1998 $1,000 was
contributed to the Company to pay certain cost to organize the Company.
The Company has recorded the contributed capital as additional paid-in
capital in its financial statements.
Effective January 31, 2001, the Company completed a public offering of
its common stock. The stock was sold at $1.00 per share. The Company
sold 65,100 shares of its common stock for a total of $65,100. The
direct costs of the offering were $33,405.
NOTE 3 - RELATED PARTY TRANSACTIONS
PST (see financial statements - note 1) is providing free office space
to the Company; the free rent has been determined to have only nominal
value. At December 31, 2000, PST had paid in behalf of the Company
certain accounting, legal and other professional fees, and other minor
expenses in the amount of $5,051. These were treated as short-term
advances and had accrued interest at 9% per annum until payment was
made in 2001.
The Company has no employees. Starting in the first quarter of 2001 and
through the second quarter of 2001, compensation was paid to the
project manager of the government grant issued to Research (see note 8)
in the amount of $20,000. The project manager is a related party to
Research through PST.
F-9
EMPS CORPORATION AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RELATED PARTY TRANSACTIONS - CONTINUED
As of December 31, 2001 and 2000 no compensation was paid or accrued to
any officers or directors of the Corporation holding Research's stock
due to the fact that it is of only nominal value.
NOTE 4 - ASSIGNMENTS OF PATENTS TO THE COMPANY
As outlined above, PST has assigned patents for its technology to the
Company in exchange for common stock of the Company. The term of the
assignment is for the length of time covered under the letters of
Patent. At the time of the assignment, the costs of the patents were
recorded at no more than the cost of the patents to PST. During the
year ending December 31, 2001, the Company paid, using cash, additional
legal fees on the third patent for a cost of $1,970. These patents were
then assigned to Research. (See Note 9).
NOTE 5 - STOCK OPTION PLAN
The Company has adopted a stock option plan. The total number of shares
of common stock reserved and available for distribution under the Plan
shall be 400,000 shares. At December 31, 2001 and 2000 no options have
been granted. The Company can grant incentive stock options or
non-qualified stock options. The grant-holding period, the term of the
grant, the grant exercise price, when the grant can be exercisable, and
the method of exercise are detailed in the stock option plan.
NOTE 6 - INCOME TAXES
At December 31, 2001 and 2000, the Company had net federal operating
losses (NOL) of $47,285 and $2,681, which can be carried forward to
offset operating income. The Company's NOL's will expire between the
years 2021 and 2018. Valuation allowances of $7,519 and $496 have been
established for deferred tax assets associated with the above NOL's for
2001 and 2000 and for the amortizing of organization costs for tax
purposes from 2000 forward. The change in the NOL allowances for 2001
and 2000 was $7,023 and $191.
NOTE 7 - DEPARTMENT OF ENERGY AWARD
The Department of Energy (DOE), through its Office of Industrial
Technologies (OIT) 2000 Inventions and Innovation (I&I) Program has
awarded a grant to Research. Research's application was titled
"Development of a High-Frequency Eddy-Current Separator". The grant was
approved in the amount of $199,000. The project period is from February
1, 2001 to January 1, 2003. Specific amounts have been subcontracted to
two entities to assist in the research to be conducted under the grant.
Through December 31, 2001, Research has incurred grant expenses in the
amount of $62,157.
F-10
EMPS CORPORATION AND SUBSIDIARY
(Development Stage Companies)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - FORMATION OF WHOLLY OWNED SUBSIDIARY
On January 31, 2001, the Company formed EMPS Research Corporation
(Research) as a wholly owned Subsidiary by giving cash and other
consideration in exchange for 1,000,000 shares of Research common
stock. Research was incorporated on January 31, 2001 in the State of
Utah. The Company owns all of the issued and outstanding common shares
of Research (1,000,000 shares). The consideration given by the Company
to Research for its shares was $2,100 of cash, payment of organization
costs of $264 on behalf of Research, and the assignment of three
Patents owned by the Company to Research at their book value
(historical costs) at time of assignment in the amount of $2,636. Thus,
the Company paid a total price of $5,000 for the 1,000,000 shares of
common stock of Research.
NOTE 9 - SUBSEQUENT EVENTS
Subsequent to December 31, 2001, the Company's board of directors
adopted a resolution to increase the authorized capital stock of the
Company from 50 million shares of common stock to 150 million shares
and also authorized the Company to increase its total issued and
outstanding shares of common stock by effecting a three-for-one forward
stock split. The Company's total issued and outstanding common stock
immediately following the forward split was 2,595,300 shares. The par
value of the common stock will remain at $.001 per share.
Also subsequent to December 31, 2001, the Company had the following
stock and debt transactions. The Company sold 60,000 shares of
restricted common stock for cash at a price of $ .30 per share for a
total amount of $18,000. The Company pursuant its Stock Option Plan and
by resolution of the Board of Directors approved a grant and issuance
of 140,000 common shares as complete and full payment of all
outstanding legal fees to its legal counsel. The shares issued are to
be valued at fair market value at time of issuance. The amount owed to
legal counsel at December 31, 2001 was $55,664. After this transaction
the Company has available for distribution under the Stock Option Plan
260,000 shares.
F-11
Caspian Services Group Limited
Financial Statements
For the year ended December 31, 2001 and
the period from December 22, 1999
(Inception date) to December 31, 2000
with Reports of Independent Auditors
F-12
Caspian Services Group Limited
Financial Statements
For the year ended December 31, 2001 and
the period from December 22, 1999 (Inception date) to December 31, 2000
Contents
Report of Independent Auditors..............................................F-14
Financial Statements
Balance Sheets..............................................................F-15
Statements of Operations....................................................F-16
Statements of Cash Flows....................................................F-17
Statements of Changes in Shareholders' Deficiency...........................F-18
Notes to the Financial Statements....................................F-19 - F-32
F-13
Ernst & Young
st. Furmanova 273
Almaty 480099 Kazakhstan
Phone: 7(3272) 585 960
7(3272) 585 969
Fax: 7(3272) 585 961
Report of Independent Auditors
To the Shareholders of Caspian Services Group Limited
We have audited the accompanying balance sheets of Caspian Services Group
Limited (the "Company") as of December 31, 2001 and 2000 and the related
statements of operations, changes in shareholder's deficiency and cash flows for
the year ended December 31, 2001 and the period from December 22, 1999
(Inception date) to December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audit.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Caspian Services Group Limited
at December 31, 2001 and 2000, and the results of its operations and its cash
flows for the year ended December 31, 2001 and the period from December 22, 1999
(Inception date) to December 31, 2000 in conformity with accounting principles
generally accepted in the United States.
Without modification of our opinion we draw attention to the Note 3 in the
accompanying financial statements which indicates that these financial
statements have been prepared on a going concern basis. The Company is dependent
on the continued support of its shareholders and at December 31, 2001 had an
excess of current liabilities over current assets of US$ 1,742 thousand. These
factors raise substantial doubt that the Company will be able to continue as a
going concern.
Ernst & Young Kazakhstan
Almaty
March 6, 2002
F-14
Caspian Services Group Limited
Balance Sheets
As at December 31,
(In thousands of US dollars)
ASSETS Notes 2001 2000
--------- --------- ---------
Current Assets
Cash and cash equivalents 4 $ 214 $ 129
Trade accounts receivable, net of allowance
for doubtful debts of $37 and nil as of
December 31, 2001 and 2000 5 296 134
Due from related parties 6 105 -
Advances paid and other current assets 7 138 26
--------- ---------
753 289
--------- ---------
Non-Current Assets
Investments 8 85 -
Property and equipment, net 9 5,792 1,389
--------- ---------
5,877 1,389
--------- ---------
Total Assets 6,630 1,678
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current Liabilities
Due to related party 10 468 394
Accounts payable and accrued expenses 11 777 327
Short-term loan 12 - -
Current portion of long-term debt 13 1,250 -
Long-Term Liabilities
Related parties' long-term debt 13 5,052 1,941
Shareholders' Deficiency
Common stock (50,000 common shares authorized,
100 issued, but unpaid, US$ 1 par value) 1 - -
Accumulated deficit (917) (984)
--------- ---------
(917) (984)
--------- ---------
Total Shareholders' Deficiency and Liabilities $ 6,630 $ 1,678
========= =========
Accounting policies and explanatory notes on pages 6 to 19 form an
integral part of the financial statements.
F-15
Caspian Services Group Limited
Statements of Operations and Comprehensive Income
For the year ended December 31, 2001 and
the period from December 22, 1999 (Inception date) to December 31, 2000
(in thousands of US dollars)
Notes 2001 2000
--------- --------- ---------
Revenues
Charter revenue $ 2,473 $ 1,887
Mobilization/demobilization fee 195 84
Accommodation and meals 441 327
Other revenues 88 -
--------- ---------
Total revenues 3,197 2,298
--------- ---------
Costs and expenses
Payroll and related taxes expenses (896) (581)
Costs of food (113) (221)
Costs of fuel (71) (31)
Technical and marketing services expense (240) (580)
Insurance (114) (65)
Depreciation (168) (86)
Freight charges (1) (88)
Travel and entertainment expenses (219) (62)
Telephone expense (38) (39)
Taxes (108) (128)
Bad debt expense (37) -
Other operating expenses (442) (281)
--------- ---------
Total costs and expenses (2,447) (2,162)
Income from operating activities 750 136
Other income/(loss)
Investments' impairment loss 8 (11) (1,000)
Finance cost (249) -
Other income - 27
--------- ---------
Net income/(loss) before income tax 490 (837)
--------- ---------
Income tax 14 (423) (147)
--------- ---------
Net income/(loss) $ 67 $ (984)
========= =========
The Company does not have any items, other than net income/(loss), that qualify
as comprehensive income items. Accordingly, net income/(loss) is equivalent to
comprehensive income for the periods presented.
Accounting policies and explanatory notes on pages 6 to 19 form an
integral part of the financial statements.
F-16
Caspian Services Group Limited
Statements of Cash Flows
For the year ended December 31, 2001 and
the period from December 22, 1999 (Inception date) to December 31, 2000
(in thousands of US dollars)
2001 2000
--------- ---------
Operating activities:
Net loss $ 67 $ (984)
Adjustments:
Depreciation 168 86
Bad debt expense 37 -
Investments' impairment loss 11 1,000
--------- ---------
283 102
Changes in operating assets and liabilities:
Trade accounts receivable (199) (134)
Due from related parties (105) -
Other current assets (112) (26)
Due to related party 74 394
Accounts payable and accrued expenses 450 327
--------- ---------
Net cash provided by operating activities 391 663
--------- ---------
Investing activities:
Investments (96) (1,000)
Purchases of property and equipment (4,571) (1,475)
--------- ---------
Net cash used by investing activities (4,667) (2,475)
--------- ---------
Financing activities:
Cash proceeds from related parties' long-term debt 4,361 1,941
Cash proceeds from short-term loan - 300
Repayments of short-term loan - (300)
--------- ---------
Net cash provided by financing activities 4,361 1,941
--------- ---------
Net increase in cash and cash equivalents 85 129
Cash and cash equivalents at the beginning of the period 129 -
--------- ---------
Cash and cash equivalents at the end of the year $ 214 $ 129
========= =========
Supplementary information:
Interest paid 192 15
Income tax paid 129 147
Accounting policies and explanatory notes on pages 6 to 19 form an
integral part of the financial statements.
F-17
Caspian Services Group Limited
Statement of Changes in Shareholders' Deficiency
For the year ended December 31, 2001 and
the period from December 22, 1999 (Inception date) to December 31, 2000
(in thousands of US dollars)
Common Accumulated Total
Stock Deficit
As at December 22, 1999 (Inception date) $ - $ - $ -
Net loss for the period - (984) (984)
As at December 31, 2000 $ - $ (984) $ (984)
Net income for the period - 67 67
As at December 31, 2001 $ - $ (917) $ (917)
Accounting policies and explanatory notes on pages 6 to 19 form an
integral part of the financial statements.
F-18
Caspian Services Group Limited
Notes to the Financial Statements
For the year ended December 31, 2001 and
the period from December 22, 1999 (Inception date) to December 31, 2000 (all
amounts are in thousands of US dollars unless otherwise stated)
1. Corporate Information
Caspian Services Group Limited (the "Company") was incorporated in the British
Virgin Islands on December 22, 1999. The Company has opened a branch (the
"Branch") in Aktau, Kazakhstan. The Branch was registered with the Ministry of
Justice of the Republic of Kazakhstan on April 12, 2000 to carry out the
activities of the Company. The Company and its Branch employed 32 people as of
December 31, 2001 (2000: 28 people).
The shareholders of the Company and their shareholdings are as follows:
December 31,
2001 and 2000
---------------
Mohul Nominees Ltd 64%
Elcan Nominees Ltd 36%
Mohul Nominees Limited was incorporated in the States of Jersey on October 23,
1992.
Elcan Nominees Limited was incorporated in the States of Jersey on October 23,
1992.
The total registered share capital of the Company at December 31, 2001 is US$ 50
thousand with 50,000 ordinary shares authorized and 100 shares issued. Share
capital is not paid in as of December 31, 2001. The nominal value of a share is
US$ 1.
The principal activities of the Company consist of the maintenance of a vessel
"Baskunchak" (the "Vessel"), charter of the Vessel to the Bechtel-Enka Joint
Venture and to Agip Kazakhstan North Caspian Operating Company N.V. (the
"Contractors"), companies registered in Kazakhstan, and provision of associated
support services to the Contractors in the Kazakh Sector of the North Caspian
Sea. The associated support services are as follows:
- Maintenance and upkeep of the Vessel;
- Staffing of the Vessel with the Company's marine crew;
- Provision of accommodation and meals for the Contractor's and Company's
personnel on the Vessel;
- Provision of laundry and related services to the personnel on the Vessel.
A Baskunchak Vessel Charter Contract was concluded between the Company and
Bechtel-Enka J.V. on August 1, 2001. The minimum guaranteed period of charter
terminated on October 31, 2001. In accordance with a term extension of contract
made on October 30, 2001, the parties agreed to continue the agreement until the
end of 2001. On March 6, 2002 the Company and Agip Kazakhstan North Caspian
Operating Company N.V. signed a letter of intention on charter of the vessel
Baskunchak for 2002.
The Company purchased another two vessels: "Caspian Yelena" and "Caspian Maria",
in September and November 2001. The Caspian Maria was not put into operation
during the year, as she was not transported into Kazakhstan before the year end.
The vessel is scheduled to commence operations at the end of April 2002. She is
currently moored in the Black See port of Azov in readiness for the opening of
the Volga-Don canal in mid April. The Caspian Yelena effective on hire date
commenced 26 November 2001.
F-19
Caspian Services Group Limited
Notes to the Financial Statements (continued)
(all amounts are in thousands of US dollars unless otherwise stated)
2. Current Economic Environment
General
In recent years, Kazakhstan has undergone substantial political and economic
change. As an emerging market, Kazakhstan does not possess a well-developed
business infrastructure, which generally exists in a more mature free market
economy. As a result, operations carried out in Kazakhstan can involve
significant risks, which are not typically associated with those in developed
markets. Instability in the market reform process could subject the Company to
unpredictable changes in the basic business infrastructure in which it currently
operates. Uncertainties regarding the political, legal, tax or regulatory
environment, including the potential for adverse changes in any of these factors
could significantly affect the Company's ability to operate commercially.
Management is unable to estimate what changes may occur or the resulting effect
on any such changes on the Company's financial condition or future results of
operations.
3. Summary of Significant Accounting Policies
Basis of presentation
These financial statements include the financial position, results of operations
and cash flows of the "Company" without consolidating the financial statements
of the Company's subsidiary CJSC "Bauta" ("Bauta"). The Company bought 54% of
interest in Bauta in September 2000. Bauta was established on February 27, 1998
under the laws of the Republic of Kazakhstan and owns and operates a water
desalinization plant in the port Bautino, on the Caspian Sea in Kazakhstan.
Investments in Bauta are accounted for at the lower of the equity accounted
amount and the recoverable amount.
The reason for the non-consolidation of Bauta is that the Company does not
exercise control over the operating and financial policies of Bauta. Moreover
the Company has no decision-making powers to obtain the majority of the benefits
of the activities of Bauta nor retains the majority of the ownership risks
incident to the activities of Bauta (Note 8).
The Company bought 50% of interest in Bautino Development Company LLP
("Bautino") in April 2001 from Arkashelf LLP. Bautino was established on June
22, 2000 under the laws of the Republic of Kazakhstan and is currently
constructing a hotel in the port Bautino, on the Caspian Sea in Kazakhstan. The
owner of the remaining 50% of interest in Bautino is Caspian Group Ltd, a
company established under the laws of the British Virgin Island. Investments in
Bautino are accounted for at the lower of the equity-accounted amount and the
recoverable amount.
These financial statements have been prepared in accordance with United States
generally accepted accounting principles (US GAAP).
Comparative information
The Company was established on December 22, 1999 and started its activities in
2000. Consequently, comparative information of these financial statements
presented the results of the Company's operations from the date of inception
until December 31, 2000.
Reporting currency and foreign currencies' remeasurement
The Company's functional currency is the US dollar because a significant portion
of its revenues, costs, property and equipment purchased, and debt and trade
liabilities are either priced, incurred, payable or otherwise measured in US
dollars. Accordingly, transactions and balances not already measured in US
dollars (primarily Kazakh Tenge - "KZT") have been remeasured into US dollars in
accordance with the relevant provisions of SFAS 52.
F-20
Caspian Services Group Limited
Notes to the Financial Statements (continued)
(all amounts are in thousands of US dollars unless otherwise stated)
3. Summary of Significant Accounting Policies (continued)
Reporting currency and foreign currencies' remeasurement (continued)
Under SFAS 52 revenues, costs, capital and non-monetary assets and liabilities
are remeasured at historical exchange rates prevailing on the transaction dates.
Monetary assets and liabilities are remeasured at exchange rates prevailing on
the balance sheet date. Exchange gains and losses arising from remeasurement of
monetary assets and liabilities that are not denominated in US dollars are
credited or charged to operations.
In Kazakhstan official exchange rates are determined daily by the National Bank
of the Republic of Kazakhstan ("NBK") and are considered to be a reasonable
approximation of market rates. NBK rates have been used for translation purposes
in these financial statements.
The exchange rate at March 6, 2002 for one US dollar was 152.05 KZT (December
31, 2001: 150.20 KZT, at December 31, 2000: 144.50 KZT).
Use of estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Going concern
The financial statements have been prepared on a going concern basis, which is
dependent on the shareholders' and other related parties' ability to continue to
provide financial support to the Company to sustain its operations for the
foreseeable future. The Company at December 31, 2001 has an excess of current
liabilities over current assets and negative shareholders' equity. There is
therefore substantial doubt that the Company will be able to continue as a going
concern and, therefore may be unable to realize its assets and discharge its
liabilities in the normal course of business.
These financial statements do not include any adjustments relating to the
recoverability and classification of assets, or to the amount and classification
of liabilities that may be necessary if the Company is unable to continue as a
going concern.
Cash and cash equivalents
Cash and cash equivalents are defined as cash on hand, demand deposits and
short-term, highly liquid investments readily convertible to known amounts of
cash and subject to insignificant risk of changes in value, i.e., cash on hand
and bank deposits with less than three months to maturity.
Trade and other receivables
Trade receivables, which generally have 30-90 day terms, are recognized and
carried at original invoice amount less an allowance for any uncollectible
amounts. An estimate for doubtful debts is made when collection of the full
amount is no longer probable. Bad debts are written-off as incurred. Receivables
from related parties are recognized and carried at cost. Bills of exchange and
promissory notes which are held to maturity are measured at amortized cost using
the effective interest rate method. Those that do not have a fixed maturity are
carried at cost, being the fair value of the consideration given.
F-21
Caspian Services Group Limited
Notes to the Financial Statements (continued)
(all amounts are in thousands of US dollars unless otherwise stated)
3. Summary of Significant Accounting Policies (continued)
Trade and settlement date accounting
All "regular way" purchases of financial assets are recognized on the "trade
date", i.e., the date that the entity commits to purchase the asset. All regular
way sales of financial assets are recognized on the "settlement date", i.e., the
date the asset is delivered to the counterparty. Regular way purchases or sales
are purchases or sales of financial assets that require delivery of assets
within the time frame generally established by regulation or convention in the
market place.
Impairment and uncollectibility of assets
An assessment is made at each balance sheet date to determine whether there is
objective evidence that an asset or group of assets may be impaired. If such
evidence exists, the estimated recoverable amount of that asset is determined
and any impairment loss recognized for the difference between the recoverable
amount and the carrying amount.
Property and equipment
Property and equipment with useful lives greater than one year are shown in the
financial statements at historical cost less accumulated depreciation.
Cost includes purchase price, duties, and directly attributable costs of
bringing the property and equipment to working conditions for their intended
use.
Assets start to be depreciated as soon as an asset is put into operation. The
vessels are depreciated on a straightline basis over their estimated useful
lives as follows:
Vessels 10 years
Long-lived assets
In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of", long-lived assets held and used by
the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. For purposes of evaluating the recoverability of long-lived assets,
the recoverability test is performed using undiscounted net cash flows of the
individual assets and consolidated cash flows for long-lived assets, not
identifiable individually.
Investments in subsidiaries
Investments in the Company's subsidiaries are accounted for under the equity
method of accounting and are carried in the balance sheet at the lower of the
equity-accounted amount and the recoverable amount, and the pro rata share of
income (loss) of associates is included in income. The Company's investments in
unconsolidated subsidiaries consist of a 54% ownership interest in CJSC "Bauta",
acquired during 2000 (Note 8) and of a 50% ownership interest in Bautino
Development Company, acquired during 2001 (Note 8).
Trade and accounts payable
Liabilities for trade and other amounts payable, are carried at cost, which is
the fair value of the consideration to be paid in the future for goods and
services received, whether or not billed to the Company.
F-22
Caspian Services Group Limited
Notes to the Financial Statements (continued)
(all amounts are in thousands of US dollars unless otherwise stated)
3. Summary of Significant Accounting Policies (continued)
Loans and borrowing
All loans and borrowings are initially recognized at cost, being the fair value
of the consideration received and including acquisition charges associated with
the borrowing / loan.
Recognition of income
Sales are recognized when services are supplied to third parties and are
recorded net of VAT.
Expense recognition
Expenses are recognized in the period in which the product or service is
delivered or incurred.
Income taxes
The provision (benefit) for income taxes includes income taxes currently payable
and those deferred. Under SFAS 109, "Accounting for Income Taxes", deferred tax
assets and liabilities are recognized for the future tax consequences of
temporary differences between the financial statement carrying amounts of assets
and liabilities and their respective tax bases. Deferred tax assets are also
recognized for the estimated future effects of tax loss carry forwards. Deferred
tax assets are reduced by a valuation allowance for any tax benefits for which
it is more likely than not, that such tax benefits will not be realized.
Lease accounting
Operating lease payments due are recorded as operating lease revenues. The cost
of equipment is recorded as an investment in leasing operations (property and
equipment in the balance sheet) and this cost, less estimated residual value, is
depreciated using the straight-line method over the term of the lease. Any
allowance for doubtful operating lease accounts receivable is charged to expense
and is recorded as a reduction of the lease accounts receivable carrying value.
Related parties
Related parties include the Company's shareholders, investee companies and other
entities which have either the ability to control the Company or can exercise
significant influence over the Company in making financial and operating
decisions.
Payables to related parties are carried at cost.
Environmental costs
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue generation, are expensed.
Liabilities are recorded when environmental assessments and/or remedial efforts
are probable, and the cost can be reasonably estimated based on ongoing
engineering studies, discussions with the environmental authorities and
assumptions as to the areas that may have to be remediated along with the nature
and extent of the remediation that may be required.
F-23
Caspian Services Group Limited
Notes to the Financial Statements (continued)
(all amounts are in thousands of US dollars unless otherwise stated)
3. Summary of Significant Accounting Policies (continued)
Comprehensive income
SFAS No. 130, "Reporting Comprehensive Income", requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income but as an adjustment to
shareholders' equity. The Company does not have any items, other than net
income, that qualify as comprehensive income items. Accordingly, net income is
equivalent to comprehensive income for the year presented.
Recent accounting pronouncements
Accounting for derivative instruments and hedging activities
In 2000, the Financial Accounting Standards Board ("FASB") issued SFAS 137:
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement 1 133", which defers the effective date of FASB
Statement 1 133, Accounting for Derivative Instruments and Hedging Activities,
to all fiscal quarters of all fiscal years beginning after June 15, 2000.
The Company is currently assessing the impact of this statement on its results
of operations, financial position and cash flows.
4. Cash and Cash Equivalents
December 31, December 31,
2001 2000
--------------- ---------------
Current accounts held with banks in Kazakhstan $ 198 $ 98
Current account held with Royal Bank of Scotland 12 11
Cash in hand 4 20
--------------- ---------------
$ 214 $ 129
=============== ===============
The above balances are denominated in various currencies as follows:
December 31, December 31,
2001 2000
--------------- ---------------
US Dollars $ 210 $ 127
Kazakhstan Tenge 4 2
--------------- ---------------
$ 214 $ 129
=============== ===============
F-24
Caspian Services Group Limited
Notes to the Financial Statements (continued)
(all amounts are in thousands of US dollars unless otherwise stated)
5. Trade Accounts Receivable
December 31, December 31,
2001 2000
--------------- ---------------
Trade accounts receivable $ 333 $ 134
Allowance for bad and doubtful debts (37) -
--------------- ---------------
$ 296 $ 134
=============== ===============
The Company's trade accounts receivable are denominated in US dollars.
6. Related Parties Receivable
The amount of US$ 105 thousand is represented by a receivable for consulting
services provided to GIS-Center LLP, a company incorporated in Kazakhstan on
January 22, 1998 (US$ 100 thousand), and a receivable from CJSC Bauta (US$ 5
thousand).
7. Advances Paid and Other Current Assets
December 31, December 31,
2001 2000
--------------- ---------------
Advances to employees $ 104 $ -
Deferred expenses 34 26
--------------- ---------------
$ 138 $ 26
=============== ===============
The Company's advances to employees and deferred expenses are denominated in US
dollars.
8. Investments
December 31, December 31,
2001 2000
--------------- ---------------
Investments $ 1,096 $ 1,000
Impairment of investment (1,011) (1,000)
--------------- ---------------
$ 85 $ -
=============== ===============
The Company bought 54% of the outstanding issued common share capital interest
in CJSC Bauta ("Bauta") in September 2000. Bauta was established on February 27,
1998 under the laws of the Republic of Kazakhstan and owns and operates a water
desalinization plant in the port of Bautino in West Kazakhstan.
The reason for non-consolidation of Bauta's financial statements is that the
Company's control over Bauta will be temporary. The Company does not exercise
control over the operating and financial policies of Bauta. Moreover the Company
has no decision-making powers to obtain the majority of the benefits of the
activities of Bauta nor retains the majority of the ownership risks incident to
the activities of Bauta.
Investments in Bauta are accounted for under the equity method of accounting and
are carried in the balance sheet at the lower of the equity-accounted amount and
the recoverable amount.
F-25
Caspian Services Group Limited
Notes to the Financial Statements (continued)
(all amounts are in thousands of US dollars unless otherwise stated)
8. Investments (continued)
Summarized information as to assets, liabilities and results of operations of
Bauta consisted of the following as of December 31, 2001 and 2000 and for the
years then ended:
December 31, December 31,
2001 2000
--------------- ---------------
Assets $ 2,909 $ 3,027
Liabilities $ 4,719 $ 4,550
Net loss $ 353 $ 222
The Company has provided 5,400 common shares in Bauta as a collateral under
Credit Agreement (Note 13).
The Company bought a 50% interest in Bautino Development Company LLP ("Bautino")
in April 2001. Bautino was established on June 22, 2000 under the laws of the
Republic of Kazakhstan and is currently constructing a hotel in the port of
Bautino, on the Caspian Sea in Kazakhstan. Investments in Bautino Development
Company are accounted for at the lower of the equity-accounted amount and the
recoverable amount.
Summarized information as to assets, liabilities and results of operations of
Bautino consisted of the following as of December 31, 2001 and for the year then
ended:
December 31, December 31,
2001 2000
--------------- ---------------
Assets $ 737 N/A
Liabilities $ 567 N/A
Net loss $ 25 N/A
9. Property and Equipment
December 31, December 31,
2001 2000
--------------- ---------------
Machinery and Machinery and
equipment equipment
Cost as at December 31, 2000 and
December 22, 1999 (Inception date) $ 1,475 $ -
Additions of Vessels 4,571 1,475
Disposals - -
--------------- ---------------
Cost as at December 31, 2001 and 2000 $ 6,046 $ 1,475
--------------- ---------------
Accumulated depreciation as at December 31, 2000
and December 22, 1999 (Inception date) $ (86) $ -
Depreciation expense (168) (86)
--------------- ---------------
Accumulated depreciation as at December 31, 2001
and 2000 (254) (86)
--------------- ---------------
Net book value as at as at December 31, 2001
and 2000 $ 5,792 $ 1,389
=============== ===============
F-26
Caspian Services Group Limited
Notes to the Financial Statements (continued)
(all amounts are in thousands of US dollars unless otherwise stated)
9. Property and Equipment (continued)
In accordance with the Vessel Charter Contracts concluded between the Company
and the Contractors the Company leases the Vessel and provides Associated
Support Services ("Services") to the Contractors to support the Contractor's
operations in the Caspian Sea (Note 1).
The Company purchased another two vessels: "Caspian Yelena" and "Caspian Maria",
in September and November 2001 for US$ 2,523 thousand and US$ 2,048 thousand
respectively.
The Company has provided the vessels "Baskunchak", "Caspian Yelena", "Caspian
Maria" as collateral under a Credit Agreement (Note 13).
During the year the Company's analysis indicated that there was no impairment of
its long-lived assets.
10. Due to Related Party
Amount due to related parties are represented by a liability amounting to US$
428 thousand (2000: US$ 394 thousand) to Conaught Finance International Limited
for management and technical services and a liability amounting to US$ 40
thousand (2000: nil) to Techgrand Company Limited, incorporated in Hong Kong on
January 14, 1986, for consulting on investing and marketing services (Note 15).
11. Accounts Payable and Accrued Expenses
December 31, December 31,
2001 2000
--------------- ---------------
Trade accounts payable $ 207 $ 26
Taxes other than income taxes 403 236
Interest payable 57 -
Accrued expenses 110 65
--------------- ---------------
$ 777 $ 327
=============== ===============
The Company's trade accounts payable, interest payable and accrued expenses are
denominated in US dollars. Taxes payable are denominated in Kazakh tenge.
12. Short-Term Loan
In accordance with the Credit Agreement dated June 6, 2000, between CJSC "ABN
AMRO Bank Kazakhstan" ("Bank") and the Company, the Bank provides the Company
with a credit line for working capital purposes. The amount of the credit line
is US$ 300 thousand. Interest rate is 6% plus LIBOR per annum.
The loan was fully repaid on November 15, 2000.
F-27
Caspian Services Group Limited
Notes to the Financial Statements (continued)
(all amounts are in thousands of US dollars unless otherwise stated)
13. Related Parties' Long-Term Debt
Interest free loans
Loans from related parties comprised of the following as at December 31,
December 31, December 31,
2001 2000
--------------- ---------------
Petroleum Group Services Limited $ 490 $ 490
Mars International Limited 1,072 1,050
Satco International Ltd 166 167
Mr. L. Garrard - 4
Mr. Y. Kurguzkin 374 230
--------------- ---------------
$ 2,102 $ 1,941
=============== ===============
The Company received interest free unsecured loans from its shareholders and
other related parties in 2001 and in 2000. In accordance with the loan
agreements the total amount of the loans at December 31, 2001 was US$ 2,052
thousand (2000: US$ 1,941 thousand). The loans have no specific repayment terms.
The Company received all loans for the purpose of supporting its operations. All
loans are denominated in US dollars.
Arkashelf Ltd's loan
The Company received a loan from Arkashelf Ltd in September 2001. Arkashelf Ltd
itself received a credit line from Bank CenterCredit in accordance with a Credit
Agreement dated August 16, 2001, and concluded between Bank CenterCredit and
Arkashelf Ltd. The Company subsequently drew down this loan for the purchase,
transportation to Kazakhstan and modernization of the vessels "Caspian Yelena"
and "Caspian Maria". The total amount drawn down totaled US$ 4,200 thousand.
Maturity date of the loan is August 2004. Principal is payable starting June
2002. Interest is payable monthly at the rate of 16% per annum. The Company has
provided the vessels "Baskunchak", "Caspian Yelena", "Caspian Maria" and 5,400
common shares in Bauta as collateral under Credit Agreement (Notes 8, 9).
December 31, December 31,
2001 2000
--------------- ---------------
Liability falling due within one year $ 1,250 $ -
Liability falling due after one year 2,950 $ -
--------------- ---------------
$ 4,200 $ -
=============== ===============
Maturities of the Company's loan for the years ending December 31 are as
follows:
2002 1,250
2003 1,550
2004 1,400
Total 4,200
F-28
Caspian Services Group Limited
Notes to the Financial Statements (continued)
(all amounts are in thousands of US dollars unless otherwise stated)
14. Income Tax
The following is a reconciliation of the income tax expense to the amount that
would arise by applying 30% to the income before income taxes reported in the
Company's financial statements for the year ended December 31, 2001 and the
period from December 22, 1999 to December 31, 2000:
December 31, December 31,
2001 2000
--------------- ---------------
GAAP Income tax expense computed on
accounting income before taxes at the
statutory tax rates of 30% $ 147 $ (251)
Permanent Differences:
Non deductible expenses 160 72
Temporary Differences:
Investments' impairment loss 3 300
Difference between book and tax value of
fixed assets 102 26
Bad debt expense 11
---------------- --------------
116 326
Income tax expense reported in the
accompanying financial statements: $ 423 $ 147
================ ==============
Current $ 423 $ 147
Deferred $ - $ -
The deferred tax balances are calculated by applying the statutory tax rate of
30% in effect at the balance sheet dates to the temporary differences arising
between the tax base of assets and liabilities and the amounts reported in the
accompanying financial statements, and are comprised of the following as of
December 31, December 31,
2001 2000
--------------- ---------------
Deferred Tax Assets:
Difference between book and tax value of
fixed assets $ 128 $ 26
Investments' impairment loss 303 300
Bad debt expense 11 -
--------------- ---------------
Net Deferred Tax Asset as at December 31, 442 326
Valuation Allowance (442) (326)
--------------- ---------------
Net Deferred Tax Assets $ - $ -
=============== ===============
F-29
Caspian Services Group Limited
Notes to the Financial Statements (continued)
(all amounts are in thousands of US dollars unless otherwise stated)
15. Related Parties' Transactions
For the significant related parties transactions refer to the Notes 6, 8, 10 and
13.
Other transactions with related parties during the period are represented by the
following:
o Management and technical services received from Conaught Finance
International Limited, amounting to US$ 120 thousand.
o Administration services (transportation, hotel and tickets
reservation, VISA assistance, interpreter services, etc.) received from
Service Help Company LLC amounting to US$ 86 thousand.
o The Company also rendered consulting services for GIS-Center LLP
amounting to US$ 100 thousand.
o The Company received services provided by Techgrand Limited Company,
amounting to US$ 120,000.
16. Financial Instruments
Fair values
The fair value of the Company's financial instruments are considered to be
approximately equivalent to their carrying values.
Concentration of credit risks
Financial instruments which potentially expose the Company to concentration of
credit risk consist primarily of cash in banks and trade accounts receivable.
The Company places its bank balances in reputable banks. The balances are mainly
denominated in US dollars.
During the periods ended December 31, 2001 the Company's revenue from the
provision of services to Bechtel Enka (first half of 2001 to Boskalis
International B.V.) amounted to 90% of total revenue of the Company (2000: to
Boskalis International B.V. 100%).
Currency risks
The Vessel Charter Contract is fixed in US dollars.
17. Contingencies and Commitments
Contingencies
Legislation and regulations regarding taxation, foreign currency transactions
and licensing of foreign currency loans in the Republic of Kazakhstan continue
to evolve as the central Government manages the transformation from a command to
a market-oriented economy. The various legislation and regulations are not
always clearly written and their interpretation is subject to the opinions of
the local tax inspectors. Instances of inconsistent opinions between local,
regional and national tax authorities are not unusual.
The current regime of penalties and interest related to reported and discovered
violations of Kazakhstan's laws, decrees and related regulations are severe.
Penalties include confiscation of the amounts at issue (for currency law
violations), as well as fines of generally 100% of the taxes unpaid. Interest is
assessable at rates of generally 0.3% per day. As a result, penalties and
interest can result in amounts that are multiples of any unreported taxes.
The Company believes that it has paid or accrued all taxes that are applicable.
Where practice concerning the provision of taxes is unclear, the Company has
accrued tax liabilities based on management's best estimate.
F-30
Caspian Services Group Limited
Notes to the Financial Statements (continued)
(all amounts are in thousands of US dollars unless otherwise stated)
17. Contingencies and Commitments (continued)
Contingencies (continued)
The Company policy is to accrue contingencies in the accounting period in which
a loss is deemed probable and the amount is reasonably determinable.
Because of the uncertainties associated with the Kazakh tax and legal systems,
the ultimate amount of taxes, penalties and interest, if any, assessed may be in
excess of the amount expensed to date and accrued at December 31, 2001. Although
such amounts are possible and may be material, it is the opinion of the
Company's management that these amounts are either not probable, not reasonably
determinable, or both.
The Company's operations and financial position will continue to be affected by
Kazakh political developments, including the application of existing and future
legislation and tax regulations. The Company does not believe that these
contingencies, as related to its operations, are any more significant than those
of similar enterprises in Kazakhstan.
Environmental costs
Liabilities are recorded when environmental assessments and/or remedial efforts
are probable, and the cost can be reasonably estimated based on ongoing
engineering studies, discussions with the environmental authorities and
assumptions as to the areas that may have to be remediated along with the nature
and extent of the remediation that may be required. Ultimate cost to the Company
is primarily dependent upon factors beyond its control such as the scope and
methodology of the remedial action requirements to be established by
environmental and public health authorities, new law or government regulations
and the outcome of any potential related litigation.
Commitments
In accordance with the Vessel Charter Contract concluded between the Company and
the Contractor on July 1, 2001 the charter period is three years plus two
one-year options.
18. Subsequent Events
Vessel Charter
On March 6, 2002 the Company and Agip Kazakhstan North Caspian Operating Company
N.V. signed a letter of intention on the charter of the vessel Baskunchak for
2002.
Loans
On January 7, 2002 the Company received an unsecured loan from Mr. L. Garrard,
the shareholder, amounting to US$ 92 thousand for the purpose of supporting its
operations, at the rate of 15% per annum. The loan has no specific repayment
terms.
On February 1, 2002 the Company received an interest free loan amounting to US$
100 thousand from Kingsgrove Industries Ltd., a company, incorporated in British
Virgin Islands, for the purpose of supporting its working capital. The loan was
fully repaid on February 6, 2002.
On February 6, 2002 the Company received an unsecured loan from Mr. E.
Kurguzkin, the shareholder, amounting to US$ 100 thousand for the purpose of
supporting its operations, at the rate of 15% per annum. The loan has no
specific repayment terms.
F-31
Caspian Services Group Limited
Notes to the Financial Statements (continued)
(all amounts are in thousands of US dollars unless otherwise stated)
18. Subsequent Events (continued)
Reorganization
In accordance with the Agreement and Plan of Reorganization (the "Agreement"),
concluded in February 2002 by and between EMPS Corporation, a Nevada corporation
("EMPS"), the Company and shareholders of the Company, all outstanding shares of
the Company will be acquired by EMPS in exchange for shares of EMPS. Following
the reorganization, the Company will be a wholly owned subsidiary of EMPS.
F-32
OUR BOARD RECOMMENDS A VOTE "FOR" PROPOSAL ONE
RATIFYING THE AGREEMENT AND PLAN OF REORGANIZATION
DATED FEBRUARY 28, 2002, BETWEEN EMPS CORPORATION AND
CASPIAN SERVICES GROUP LIMITED
PROPOSAL TWO:
ELECTION OF DIRECTORS
The election of the Board will take place at the Special Meeting. Our
current Board contains two members. In accordance with our Articles of
Incorporation, our Board will be increased in size to three.
Each of the following persons, none of whom are currently members of
our Board of Directors, has been nominated as a director for one year and until
his successor is chosen and qualified.
Mirgali Kunayev. Mr. Kunayev has been a Vice President for Caspian
Services Group, Limited since 2000. Mr. Kunayev's primary responsibilities
include marine oil operations support, construction of infrastructure within the
Caspian region and negotiation of service contracts. From 1998 to 2000, Mr.
Kunayev was the President of OJSC Kazakhstancaspishelf. During that time he
worked collaboratively on the international project JNOC-KazakhOil with
geophysical companies including, JGI, Schlumberger, Western Geophysical and PGS.
From 1995 to 1998, Mr. Kunayev served as President of International Geophysics,
Ltd. He was primarily responsible to oversee geological-geophysical operations
and exploratory drilling. In January 2002, Mr. Kunayev earned a Ph.D. under the
discipline of Geological and Mineralogical Science from the Moscow Geological
University in Moscow, Russia. Mr. Kunayev is 45 years old.
Paul A. Roberts. Mr. Roberts has worked for Caspian Services Group,
Limited since 2001. He was appointed President and Chairman of the Board of
Caspian Services in February 2002 where he oversees Caspian's operations. Prior
to that time, Mr. Roberts was a Vice President. As such, he was responsible for
business development, financial planning, contracts, marketing and operations in
Kazakhstan and Central Asia. In this position, he worked closely with government
authorities and state and local businesses. From 1999 to 2001, Mr. Roberts was
an Area Manager for PGS Onshore, Inc., in Almaty Kasakhstan. As Area Manager, he
was responsible for seismic exploration. He also performed many of the same
duties he performed in his capacity as Vice President of Caspian. From 1997 to
1999, Mr. Roberts was the Resident Manager for PetroAlliance (WGS) in Almaty,
Kazakhstan. He was responsible for land and marine seismic exploration. He also
oversaw business and financial planning, contract negotiations and operations in
Kazakhstan and Central Asia. Mr. Roberts is 45 years old.
Marat Cherdabayev. Since January 2001, Mr. Cherdabayev has worked in
the Department of Project Finance at OJSC Kazakhtelecom in Almaty, Kazakhstan.
He currently serves as the Head of Project Planning and Monitoring, with
responsibility for analyzing the financial feasibilty of investment projects.
From October 2000 to January 2001, Mr. Cherdabayev served as the Advisor to the
President of TNS Plus, a private telecommunications company in Almaty,
Kazakhstan. In that capacity, he developed and advised the president on
marketing strategies, marketing analysis and optimization issues. From January
1999 to June 1999, Mr. Cherdabayev was a Mutual Fund Accountant for State Street
Corporation, in Boston,
10
Massachusetts. His primary duties included producing and verifying daily
financial statements, monitoring general ledger activity and pricing and
reconciling five mutual funds on a daily basis. From January 1998 to June 1998,
Mr. Cherdabayev was a Financial Reporting Assistant at Boston Edison in Boston
Massachusetts. Mr. Cherdabayev graduated with a Bachelor of Science in Business
Adminstration from Northeastern University in June 2000. Mr. Cherdabayev is 27
years old.
We do not expect that any of the nominees will become unavailable for
election as a director, but, if for any reason that should occur prior to the
Special Meeting, the persons named in the proxy will vote for such substitute
nominee, if any, as may be recommended by Management.
There were no material transactions between our company and any of our
officers, any director or nominee for election as director, any stockholder
holding more than 5% of our Common Stock or any relative or spouse of any of the
foregoing persons.
OUR BOARD RECOMMENDS A VOTE "FOR" EACH OF THE
NOMINEES LISTED ABOVE
PROPOSAL THREE
RATIFY THE EMPS CORPORATION 2002 STOCK OPTION PLAN
Description of EMPS Corporation 2002 Stock Option Plan
We adopted the EMPS Corporation 2002 Stock Option Plan, effective March
15, 2002, subject to shareholder approval (the "Plan"), a copy of which will be
available for inspection at the Company's principal executive offices for a
period of ten days preceding the date of the Special Meeting. Under the Plan,
our key employees, advisors and consultants, (including directors and officers
who are employees) may be granted options to purchase shares of our Common
Stock.
The Plan permits the granting of 1,000,000 shares of Common Stock at a
price equal to one hundred percent (100%) of the fair market value of the Common
Stock on the date that the option is granted provided, however, that the price
shall not be less than the par value of the Common Stock which is subject to the
option. Further, no Incentive Stock Option may be granted to an employee owning
Common Stock having more than 10% of the voting power of our company unless the
option price for such employee's option is at least 110% of the fair market
value of the Common Stock subject to the option at the time the option is
granted and the option is not exercisable after the expiration of five years
from the date of granting. The par value of our Common Stock is presently $.001
per share. No option may be granted under the Plan after the tenth anniversary
of the adoption of the Plan. Unless otherwise specified by our Board, options
granted under the Plan are Incentive Stock Options under the provisions and
subject to the limitations of Section 422 of the Internal Revenue Code.
11
Administration of the Plan
The Plan shall be administered by our Board until such time as a
Compensation Committee is appointed. Subject to the provisions of the Plan, our
Board determines the employees who will receive options under the Plan, the
number of shares subject to each option and the terms of those options, and
interprets the Plan and makes such rules of procedure as our Board may deem
proper.
Upon the granting of any option, the optionee must enter into a written
agreement with us setting forth the terms upon which the option may be
exercised. Such an agreement will set forth the length of the term of the option
and the timing of its exercise as determined by our Board. The Compensation
Committee, or if there is none, our Board, in its sole discretion will determine
the vesting schedule and exercise dates of any equity security granted under the
Plan at the time each grant is made. No equity security granted under the plan
shall be exercisable within six months of the date of grant without approval of
our the Compensation Committee or our Board. In no event shall the length of an
option extend beyond ten years from the date of its grant. An optionee may
exercise an option by delivering payment to us in cash.
Under the Plan, if the employment of any person to whom an option has
been granted is terminated for any reason other than the death or disability of
the optionee, the option shall automatically terminate. If the termination is by
reason of retirement, the optionee may exercise such portion of the option as
has vested, within three months of termination or within the remaining term of
the option, whichever is shorter. If the optionee dies while employed by us or
our subsidiaries, or during a period after termination of employment in which
the optionee could exercise an option, the optionee's beneficiary may exercise
the option within one year of the date of the optionee's death but in no event
may the option be exercised later than the date on which the option would have
expired if the optionee had lived. If the termination is by reason of
disability, the optionee may exercise the option, in whole or in part, at any
time within one year following such termination of employment but in no event
may the option be exercised later than the date on which the option would have
expired had the optionee not become disabled.
Federal Income Tax Consequences
With respect to the tax effects of non-qualified stock options, since
the options granted under the Plan do not have a "readily ascertainable fair
market value" within the meaning of the Federal income tax laws, an optionee of
an option will realize no taxable income at the time the option is granted. When
a non-qualified stock option is exercised, the optionee will generally be deemed
to have received compensation, taxable at ordinary income tax rates, in an
amount equal to the excess of the fair market value of the shares of our Common
Stock on the date of exercise of the option over the option price. We will
withhold income and employment taxes in connection with the optionee's
recognition of ordinary income as a result of the exercise by an optionee of a
non-qualified stock option. We generally can claim an ordinary deduction in the
fiscal year which includes the last day of the taxable year of the optionee
which includes the exercise date or the date on which the optionee recognizes
income. The amount of such deduction will be equal to the ordinary income
recognized by the optionee. When stock acquired
12
through the exercise of a non-qualified stock option is sold, the difference
between the optionee's basis in the shares and the sale price will be taxed to
the optionee as a capital gain (or loss).
With respect to the tax effects of Incentive Stock Options, the
optionee does not recognize any taxable income when the option is granted or
exercised. If no disposition of shares issued to an optionee pursuant to the
exercise of an Incentive Stock Option is made by the optionee within two years
after the date the option was granted or within one year after the shares were
transferred to the optionee, then (a) upon sale of such shares, any amount
realized in excess of the option price (the amount paid for the shares) will be
taxed to the optionee as long- term capital gain and any loss sustained will be
a long-term capital loss and (b) we will be allowed no deduction for Federal
income tax purposes. The exercise of an Incentive Stock Option will give rise to
an item of tax preference that may result in alternative minimum tax liability
for the optionee.
If shares of Common Stock acquired upon the exercise of an Incentive
Stock Option are disposed of prior to the expiration of the two year and one
year holding periods described above (a "Disqualifying Disposition") generally
(a) the optionee will realize ordinary income in the year of disposition in an
amount equal to the excess (if any) of the fair market value of the shares at
exercise (or, if less, the amount realized upon the sale of such shares) over
the option price thereof, and (b) we will be entitled to deduct such amount,
subject to applicable withholding requirements. Any further gain realized will
be taxed as short-term or long-term capital gain and will not result in any
deduction by our company. A Disqualifying Disposition will eliminate the item of
tax preference associated with the exercise of the Incentive Stock Option.
Changes in Plan
The Plan may be terminated, suspended, or modified at any time by our
Board, but no amendment increasing the maximum number of shares for which
options may be granted (except to reflect a stock split, stock dividend or other
distribution), reducing the option price of outstanding options, extending the
period during which options may be granted, otherwise materially increasing the
benefits accruing to optionees or changing the class of persons eligible to be
optionees shall be made without first obtaining approval by a majority of our
shareholders. No termination, suspension or modification of the Plan shall
adversely affect any right previously acquired by the optionee or other
beneficiary under the Plan.
Options granted under the Plan may not be transferred other than by
will or by the laws of descent and distribution and, during the optionee's
lifetime may be exercised only by the optionee. All of the Options previously
issued under the prior plan remain unchanged and outstanding.
OUR BOARD RECOMMENDS A VOTE "FOR" PROPOSAL THREE TO
RATIFY THE EMPS CORPORATION 2002 STOCK OPTION PLAN
13
PROPOSAL FOUR
APPROVAL OF INDEPENDENT ACCOUNTANTS
The firm of David T. Thomson, P.C. served as our auditors for the
fiscal year ended December 31, 2001. Our Board has selected the firm of David T.
Thomson, P.C., to continue in that capacity for 2002 and is submitting this
matter to shareholders for their ratification.
In the event of a negative vote, a selection of other auditors will be
made by our Board. A representative of David T. Thomson, P.C., is not expected
to be present at the Special Meeting. In the event a representative is present
he or she will be given an opportunity to make a statement if he or she desires
and if present, he or she is expected to be available to respond to appropriate
questions. Notwithstanding approval by the shareholders, our Board reserves the
right to replace the auditors at any time.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL FOUR,
RATIFYING THE APPOINTMENT OF DAVID T. THOMSON, P.C.,
AS INDEPENDENT ACCOUNTANTS FOR 2002.
OTHER MATTERS
We know of no other matters that are to be presented for action at the
Special Meeting other than those set forth above. If any other matters properly
come before the Special Meeting, the persons named in the enclosed proxy form
will vote the shares represented by proxies in accordance with their best
judgment on such matters.
WHERE STOCKHOLDERS CAN FIND MORE INFORMATION
We filed an Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2001 with the Securities and Exchange Commission. Stockholders may
obtain, without charge, a copy of the Form 10-KSB (without exhibits) from us by
requesting a copy in writing or by telephone at the following address:
EMPS Corporation
875 Donner Way, Unit 705
Salt Lake City, Utah 84108
(801) 582-7600
Attention: Investor Relations
14
The exhibits to the Form 10-KSB are available upon payment of charges
that approximate reproduction costs. If you would like to request documents,
please do so by May 22, 2002, to receive them before the Special Meeting.
By order of the board of directors,
/s/ LOUIS NAEGLE
-----------------------------
LOUIS NAEGLE
President
May 7, 2002
STOCKHOLDERS ARE REQUESTED TO MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN
IT IN THE ENCLOSED, SELF-ADDRESSED ENVELOPE.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. YOUR PROMPT
RESPONSE WILL BE HELPFUL, AND YOUR COOPERATION WILL BE APPRECIATED.
15
EMPS CORPORATION
PROXY
The undersigned appoints Louis Naegle and Timothy L. Adair, with power
of substitution, to represent and to vote on behalf of the undersigned all of
the shares of common stock, par value $.001 per share ("Common Stock"), of EMPS
Corporation, (the "Company") which the undersigned is entitled to vote at the
special meeting of stockholders to be held at the law offices of Poulton &
Yordan, 136 East South Temple, Suite 1700-A, Salt Lake City, Utah, at 10:00
a.m., local time, on May 29, 2002, and at any adjournments or postponements
thereof, hereby revoking all proxies heretofore given with respect to such
stock, upon the following proposals more fully described in the notice of, and
joint proxy statement and prospectus relating to, the meeting (receipt whereof
is hereby acknowledged).
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSALS DESCRIBED IN THE
PROXY STATEMENT.
IF A PROXY IS SIGNED AND DATED BUT NOT MARKED, YOU WILL BE DEEMED TO HAVE VOTED
"FOR" THE PROPOSALS DESCRIBED IN THE PROXY STATEMENT.
1. To ratify an Agreement and Plan of Reorganization, dated as of February
28, 2002, among EMPS Corporation, a Nevada corporation, and Caspian
Services Group, Limited, a British Virgin Islands corporation, whereby
EMPS Corporation shall acquire all of the issued and outstanding common
shares of Caspian Services Group, Limited in exchange for 27,089,700
restricted common shares of EMPS Corporation and Caspian Services
Group, Limited shall be become a wholly owned subsidiary if EMPS
Corporation:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To elect the following directors to our Board of Directors to serve for
a period of one year and until their successors shall have been elected
and qualified.
Mirgali Kunayev [ ] FOR [ ] ABSTAIN
Paul A. Roberts [ ] FOR [ ] ABSTAIN
Marat Cherdabayev [ ] FOR [ ] ABSTAIN
3. To ratify our EMPS Corporation 2002 Stock Option Plan fo purposes of
Sections 162(m) and 422 of the Internal Revenue Code:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To ratify the selection of David T. Thomson, P.C. as independent
auditor of EMPS Corporation for the 2002 fiscal year; and
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Authority to vote in their discretion on such other business as may
properly come before the meeting:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned stockholder. If you do not sign and return
this proxy card or attend the meeting and vote by ballot, your shares cannot be
voted. If you wish to vote in accordance with the board of directors'
recommendations, just sign where indicated. You need not mark any boxes.
Please sign your name below exactly as it appears hereon. When shares
of Common Stock are held of record by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. If a corporation, please sign in full corporate name as its
authorized officer. If a partnership, please sign in partnership name as its
authorized person.
Dated: May _______, 2002
___________________________
Signature (Title, if any)
___________________________
Signature if held jointly
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
2
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization ("the Agreement"), dated as
of the 28th day of February, 2002, by and between EMPS Corporation, a Nevada
corporation ("EMPS") and Caspian Services Group Limited, a British Virgin
Islands corporation ("Caspian") and the shareholders of Caspian, Mohul Nominees
Limited and Elcan Nominees Limited ("Shareholders"), with reference to the
following:
A. EMPS is a Nevada corporation organized in 1998. EMPS has authorized
capital stock of 150,000,000 shares, $.001 par value, of which 2,910,300 shares
are currently issued and outstanding. The common shares of EMPS are registered
under section 12(g) of the Securities Exchange Act of 1934 and are traded on the
OTCBB under the symbol EPSC. EMPS has a wholly owned subsidiary, EMPS Research
Corporation, a Utah Corporation ("EMPS Research").
B. Caspian is a privately held corporation organized under the laws of
the British Virgin Islands on December 22, 1999.
C. The respective Boards of Directors of EMPS and Caspian and the
shareholders of Caspian have deemed it advisable and in the best interests of
the Parties that Caspian be acquired by EMPS, pursuant to the terms and
conditions set forth in this Agreement.
D. The Parties propose to enter into this Agreement which provides
among other things that all of the outstanding shares of Caspian be acquired by
EMPS, in exchange for shares of EMPS and such additional items as more fully
described in the Agreement.
E. The parties desire the transaction to qualify as a tax-free
reorganization under Section 368 (a)(1)(B) of the Internal Revenue Code of 1986,
as amended.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
THE ACQUISITION
1.01 At the Closing, a total of 100 common shares, which represents all
of the outstanding shares of Caspian shall be acquired by EMPS in exchange for
27,089,700 restricted common shares of EMPS. The shares of EMPS to be issued in
this transaction shall be issued as set forth in Exhibit A to this Agreement.
1.02 At the Closing, the Caspian shareholders will deliver certificates
for the outstanding shares of Caspian, duly endorsed so as to make EMPS the sole
holder thereof, free and clear of all claims and encumbrances and EMPS shall
deliver a transmittal letter directed to the transfer agent
1
of EMPS directing the issuance of shares to the shareholders of Caspian as set
forth on Exhibit A of this Agreement.
1.03 Following the reorganization, there will be a total of 30,000,000
shares, $.001 par value, issued and outstanding in EMPS.
1.04 Following the reorganization, Caspian will be a wholly owned
subsidiary of EMPS.
ARTICLE 2
THE CLOSING
2.01 The consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at 136 East South Temple, Suite
1700-A, Salt Lake City, UT 84111 on or before ________________, (the "Closing
Date") or at such other place or date and time as may be agreed to in writing by
the parties hereto.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF EMPS
EMPS hereby represents and warrants to Caspian as follows:
3.01 EMPS shall deliver to Caspian, on or before Closing, each of the
following:
(a) Financial Statements. Audited financial statements of EMPS
including, but not limited to, balance sheets and profit and loss
statements from inception to its fiscal year ended December 31, 2001,
prepared in accordance with United States generally accepted accounting
principles and which fairly present the financial condition of EMPS at
the dates thereof. (Schedule A)
(b) Property. An accurate list and description of all
property, real or personal, owned by EMPS of a value equal to or
greater than $1,000.00. (Schedule B.)
(c) Liens and Liabilities. A complete and accurate list of all
material liens, encumbrances, easements, security interests or similar
interests in or on any of the assets listed on Schedule A. (Schedule
C.) A complete and accurate list of all debts, liabilities and
obligations of EMPS incurred or owing as of the date of this Agreement.
(Schedule C.1.)
(d) Leases and Contracts. A complete and accurate list
describing all material terms of each lease (whether of real or
personal property) and each contract, promissory note, mortgage,
license, franchise, or other written agreement to which EMPS is a party
which involves or can reasonably be expected to involve aggregate
future payments or receipts by EMPS (whether by the terms of such
lease, contract, promissory note, license, franchise or other written
agreement or as a result of a guarantee of the payment of or indemnity
against the failure to pay same) of $1,000.00 or more annually during
the twelve-month period ended
2
December 31, 2001, or any consecutive twelve-month period thereafter,
except any of said instruments which terminate or are cancelable
without penalty during such twelve-month period. (Schedule D.)
(e) Loan Agreements. Complete and accurate copies of all loan
agreements and other documents with respect to obligations of EMPS for
the repayment of borrowed money. (Schedule E.)
(f) Consents Required. A complete list of all agreements
wherein consent to the transaction herein contemplated is required to
avoid a default thereunder; or where notice of such transaction is
required at or subsequent to closing, or where consent to an
acquisition, consolidation, or sale of all or substantially all of the
assets is required to avoid a default thereunder. (Schedule F.)
(g) Articles and Bylaws. Complete and accurate copies of the
Certificate and Articles of Incorporation and Bylaws of EMPS together
with all amendments thereto to the date hereof. (Schedule G.)
(h) Shareholders. A complete list of all persons or entities
holding capital stock of EMPS or any rights to subscribe for, acquire,
or receive shares of the capital stock of EMPS (whether warrants,
calls, options, or conversion rights), including copies of all stock
option plans whether qualified or nonqualified, and other similar
agreements. (Schedule H.)
(i) Officers and Directors. A complete and current list of all
Officers and Directors of EMPS. (Schedule I.)
(j) Salary Schedule. A complete and accurate list (in all
material respects) of the names and the current salary rate for each
present employee of EMPS who received $1,000.00 or more in aggregate
compensation from EMPS whether in salary, bonus or otherwise, during
the year 2001, or who is presently scheduled to receive from EMPS a
salary in excess of $1,000.00 during the year ending December 2001,
including in each case the amount of compensation received or scheduled
to be received, and a schedule of the hourly rates of all other
employees listed according to departments. (Schedule J.)
(k) Litigation. A complete and accurate list (in all material
respects) of all material civil, criminal, administrative, arbitration
or other such proceedings or investigations (including without
limitations unfair labor practice matters, labor organization
activities, environmental matters and civil rights violations) pending
or, to the knowledge of EMPS threatened, which may materially and
adversely affect EMPS. (Schedule K.)
(l) Tax Returns. Accurate copies of all Federal and State tax
returns for EMPS for the last fiscal year. (Schedule L.)
3
(m) Agency Reports. Copies of all material reports or filings
(and a list of the categories of reports or filings made on a regular
basis) made by EMPS under ERISA, EEOC, FDA and all other governmental
agencies (federal, state or local) during the last fiscal year.
(Schedule M.)
(n) Banks. A true and complete list (in all material
respects), as of the date of this Agreement, showing (1) the name of
each bank in which EMPS has an account or safe deposit box, and (2) the
names and addresses of all signatories. (Schedule N.)
(o) Jurisdictions Where Qualified. A list of all jurisdictions
wherein EMPS is qualified to do business and is in good standing.
(Schedule O.)
(p) Subsidiaries. A complete list of all subsidiaries of EMPS.
(Schedule P.) The term "Subsidiary" or "Subsidiaries" shall include
corporations, unincorporated associations, partnerships, joint
ventures, or similar entities in which EMPS has an interest, direct or
indirect.
(q) Union Matters. An accurate list and description (in all
material respects) of all union contracts and collective bargaining
agreements of EMPS, if any. (Schedule Q.)
(r) Employee and Consultant Contracts. A complete and accurate
list of all employee and consultant contracts which EMPS may have,
other than those listed in the schedule on Union Matters. (Schedule R.)
(s) Employee Benefit Plans. Complete and accurate copies of
all salary, stock options, bonus, incentive compensation, deferred
compensation, profit sharing, retirement, pension, group insurance,
disability, death benefit or other benefit plans, trust agreements or
arrangements of EMPS in effect on the date hereof or to become
effective after the date thereof, together with copies of any
determination letters issued by the Internal Revenue Service with
respect thereto. (Schedule S.)
(t) Insurance Policies. A complete and accurate list (in all
material respects) and a description of all material insurance policies
naming EMPS as an insured or beneficiary or as a loss payable payee or
for which EMPS has paid all or part of the premium in force on the date
hereof, specifying any notice or other information possessed by EMPS
regarding possible claims thereunder, cancellation thereof or premium
increases thereon, including any policies now in effect naming EMPS as
beneficiary covering the business activities of EMPS. (Schedule T.)
(u) Customers. A complete and accurate list (in all material
respects) of the customers of EMPS, including presently effective
contracts of EMPS to be assigned to EMPS, accounting for the principle
revenues of EMPS, indicating the dollar amounts of gross income of each
such customer for the period ended December 31, 2001. (Schedule U.)
4
(v) Licenses and Permits. A complete list of all licenses,
permits and other authorizations of EMPS. (Schedule V.)
3.02 Organization, Standing and Power. EMPS is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada with all requisite corporate power to own or lease its properties and
carry on its businesses as are now being conducted.
3.03 Qualification. EMPS is duly qualified and is licensed as a foreign
corporation authorized to do business in each jurisdiction wherein it conducts
its business operations. Such jurisdictions, which are the only jurisdictions in
which EMPS is duly qualified and licensed as a foreign corporation, are shown in
Schedule O.
3.04 Capitalization of EMPS. The authorized capital stock of EMPS
consists of 150,000,000 shares of Common Stock, $.001 par value, of which the
only shares issued and outstanding will be 2,910,300, which shares were or will
be duly authorized, validly issued and fully paid and nonassessable. There are
no preemptive rights with respect to the EMPS stock.
3.05 Authority. The execution and delivery of this Agreement and
consummation of the transactions contemplated herein have been duly authorized
by all necessary corporate actions, including but not limited to duly and
validly authorized action and approval by the Board of Directors, on the part of
EMPS. This Agreement constitutes the valid and binding obligation of EMPS
enforceable against it in accordance with its terms, subject to the principles
of equity applicable to the availability of the remedy of specific performance.
This Agreement has been duly executed by EMPS and the execution and delivery of
this Agreement and the consummation of the transactions contemplated by this
Agreement shall not result in any breach of any terms or provisions of EMPS's
Certificate and Articles of Incorporation or Bylaws or of any other agreement,
court order or instrument to which EMPS is a party or bound by.
3.06 Absence of Undisclosed Liabilities. EMPS has no material
liabilities of any nature, whether fixed, absolute, contingent or accrued, which
were not reflected on the financial statements set forth in Schedule A or
otherwise disclosed in this Agreement or any of the Schedules or Exhibits
attached hereto.
3.07 Absence of Changes. Since December 31, 2001 there has not been any
material adverse change in the condition (financial or otherwise), assets,
liabilities, earnings or business of EMPS, except for changes resulting from
completion of those transactions described in Section 5.01.
3.08 Tax Matters. All taxes and other assessments and levies which EMPS
is required by law to withhold or to collect have been duly withheld and
collected, and have been paid over to the proper government authorities or are
held by EMPS in separate bank accounts for such payment or are represented by
depository receipts, and all such withholdings and collections and all other
payments due in connection therewith (including, without limitation, employment
taxes, both the employee's and employer's share) have been paid over to the
government or placed in a separate and
5
segregated bank account for such purpose. There are no known deficiencies in
income taxes for any periods and further, the representations and warranties as
to absence of undisclosed liabilities contained in Section 3.06 includes any and
all tax liabilities of whatsoever kind or nature (including, without limitation,
all federal, state, local and foreign income, profit, franchise, sales, use and
property taxes) due or to become due, incurred in respect of or measured by EMPS
income or business prior to the Closing Date.
3.09 Options, Warrants, etc. Except as otherwise described in Schedule
H, there are no outstanding options, warrants, calls, commitments or agreements
of any character to which EMPS or its shareholders are a party or by which EMPS
or its shareholders are bound, or are a party, calling for the issuance of
shares of capital stock of EMPS or any securities representing the right to
purchase or otherwise receive any such capital stock of EMPS.
3.10 Title to Assets. Except for liens set forth in Schedule C, EMPS is
the sole unconditional owner of, with good and marketable title to, all assets
listed in the schedules as owned by it and all other property and assets are
free and clear of all mortgages, liens, pledges, charges or encumbrances of any
nature whatsoever.
3.11 Agreements in Force and Effect. Except as set forth in Schedules D
and E, all material contracts, agreements, plans, promissory notes, mortgages,
leases, policies, licenses, franchises or similar instruments to which EMPS is a
party are valid and in full force and effect on the date hereof, and EMPS has
not breached any material provision of, and is not in default in any material
respect under the terms of, any such contract, agreement, plan, promissory note,
mortgage, lease, policy, license, franchise or similar instrument which breach
or default would have a material adverse effect upon the business, operations or
financial condition of EMPS.
3.12 Legal Proceedings, Etc. Except as set forth in Schedule K, there
are no civil, criminal, administrative, arbitration or other such proceedings or
investigations pending or, to the knowledge of either EMPS or the shareholders
thereof, threatened, in which, individually or in the aggregate, an adverse
determination would materially and adversely affect the assets, properties,
business or income of EMPS. EMPS has substantially complied with, and is not in
default in any material respect under, any laws, ordinances, requirements,
regulations or orders applicable to its businesses.
3.13 Governmental Regulation. To the knowledge of EMPS and except as
set forth in Schedule K, EMPS is not in violation of or in default with respect
to any applicable law or any applicable rule, regulation, order, writ or decree
of any court or any governmental commission, board, bureau, agency or
instrumentality, or delinquent with respect to any report required to be filed
with any governmental commission, board, bureau, agency or instrumentality which
violation or default could have a material adverse effect upon the business,
operations or financial condition of EMPS.
3.14 Brokers and Finders. EMPS shall be solely responsible for payment
to any broker or finder retained by EMPS for any brokerage fees, commissions or
finders' fees in connection with the transactions contemplated herein.
6
3.15 Accuracy of Information. No representation or warranty by EMPS
contained in this Agreement and no statement contained in any certificate or
other instrument delivered or to be delivered to Caspian pursuant hereto or in
connection with the transactions contemplated hereby (including without
limitation all Schedules and exhibits hereto) contains or will contain any
untrue statement of material fact or omits or will omit to state any material
fact necessary in order to make the statements contained herein or therein not
misleading.
3.16 Subsidiaries. Except as listed in Schedule P, EMPS does not have
any other subsidiaries or own capital stock representing ten percent (10%) or
more of the issued and outstanding stock of any other corporation.
3.17 Consents. Except as listed in Schedule F, no consent or approval
of, or registration, qualification or filing with, any governmental authority or
other person is required to be obtained or accomplished by EMPS or any
shareholder thereof in connection with the consummation of the transactions
contemplated hereby.
3.18 Improper Payments. Neither EMPS, nor any person acting on behalf
of EMPS has made any payment or otherwise transmitted anything of value,
directly or indirectly, to (a) any official or any government or agency or
political subdivision thereof for the purpose of influencing any decision
affecting the business of EMPS (b) any customer, supplier or competitor of EMPS
or employee of such customer, supplier or competitor, for the purpose of
obtaining, retaining or directing business for EMPS or (c) any political party
or any candidate for elective political office nor has any fund or other asset
of EMPS been maintained that was not fully and accurately recorded on the books
of account of EMPS.
3.19 Copies of Documents. EMPS has made available for inspection and
copying by Caspian and its duly authorized representatives, and will continue to
do so at all times, true and correct copies of all documents which it has filed
with the Securities and Exchange Commission and all other governmental agencies
which are material to the terms and conditions contained in this Agreement.
Furthermore, all filings by EMPS with the Securities and Exchange Commission,
and all other governmental agencies, including but not limited to the Internal
Revenue Service, have contained information which is true and correct, to the
best knowledge of the Board of Directors of EMPS, in all material respects and
did not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements made therein not misleading or
which could have any material adverse effect upon the financial condition or
operations of EMPS or adversely effect the objectives of this Agreement with
respect to Caspian including, but not limited to, the issuance and subsequent
trading of the shares of common stock of EMPS to be received hereby, subject to
compliance by the shareholders of Caspian with applicable law.
7
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
CASPIAN SERVICES GROUP LIMITED
Caspian hereby represents and warrants to EMPS as follows:
4.01 Caspian shall deliver to EMPS, on or before Closing, the
following:
(a) Financial Statements. Audited financial statements of
Caspian from its inception, through December 31, 2001, prepared in
accordance with United States generally accepted accounting principles
and which fairly present the financial condition of Caspian at the
dates thereof. (Schedule AA)
(b) Property. An accurate list and description of all
property, real or personal owned by Caspian of a value equal to or
greater than $1,000.00. (Schedule BB)
(c) Liens and Liabilities. A complete and accurate list of all
material liens, encumbrances, easements, security interests or similar
interests in or on any of the assets listed on Schedule AA. (Schedule
CC.) A complete and accurate list of all debts, liabilities and
obligations of Caspian incurred or owing as of the date of this
Agreement. (Schedule CC.1.)
(d) Leases and Contracts. A complete and accurate list
describing all material terms of material leases (whether of real or
personal property) and each contract, promissory note, mortgage,
license, franchise, or other written agreement to which Caspian is a
party which involves or can reasonably be expected to involve aggregate
future payments or receipts by Caspian (whether by the terms of such
lease, contract, promissory note, license, franchise or other written
agreement or as a result of a guarantee of the payment of or indemnity
against the failure to pay same) of $1,000.00 or more annually during
the twelve-month period ended December 31, 2001 or any consecutive
twelve-month period thereafter, except any of said instruments which
terminate or are cancelable without penalty during such twelve-month
period. (Schedule DD.)
(e) Loan Agreements. Complete and accurate copies of all loan
agreements and other documents with respect to obligations of Caspian
for the repayment of borrowed money. (Schedule EE.)
(f) Consents Required. A complete list of all agreements
wherein consent to the transaction herein contempla
ted is required to
avoid a default thereunder; or where notice of such transaction is
required at or subsequent to closing, or where consent to an
acquisition, consolidation, or sale of all or substantially all of the
assets is required to avoid a default thereunder. (Schedule FF.)
8
(g) Articles and Bylaws. Complete and accurate copies of the
Articles of Incorporation and Bylaws of Caspian, together with all
amendments thereto to the date hereof. (Schedule GG.)
(h) Shareholders. A complete list of all persons or entities
holding capital stock of Caspian or any rights to subscribe for,
acquire, or receive shares of the capital stock of Caspian (whether
warrants, calls, options, or conversion rights), including copies of
all stock option plans whether qualified or nonqualified, and other
similar agreements. (Schedule HH.)
(i) Officers and Directors. A complete and current list of all
officers and Directors of Caspian. (Schedule II.)
(j) Salary Schedule. A complete and accurate list (in all
material respects) of the names and the current salary rate or each
present employee of Caspian who received $1,000 or more in aggregate
compensation from Caspian whether in salary, bonus or otherwise, during
the year 2001, or who is presently scheduled to receive from Caspian a
salary in excess of $1,000.00 during the year ending December 31, 2001,
including in each case the amount of compensation received or scheduled
to be received, and a schedule of the hourly rates of all other
employees listed according to departments. (Schedule JJ.)
(k) Litigation. A complete and accurate list (in all material
respects) of all material civil, criminal, administrative, arbitration
or other such proceedings or investigations (including without
limitations unfair labor practice matters, labor organization
activities,
environmental matters and civil rights violations) pending or, to the
knowledge of Caspian threatened, which may materially and adversely
affect Caspian. (Schedule KK.)
(l) Tax Returns. Accurate copies of all tax returns of Caspian
filed in the British Virgin Islands or Kazakhstan through the period
ended December 31, 2001. (Schedule LL.)
(m) Agency Reports. Copies of all material reports or filings
(and a list of the categories of reports or filings made on a regular
basis) made by Caspian with any governmental agencies in the British
Virgin Islands or Kazakhstan. (Schedule MM.)
(n) A true and complete list (in all material respects), as of
the date of this Agreement, showing (1) the name of each bank in which
Caspian has an account or safe deposit box, and (2) the names and
addresses of all signatories. (Schedule NN.)
(o) Jurisdictions Where Qualified. A list of all jurisdictions
wherein Caspian is qualified to do business and is in good standing.
(Schedule OO.)
(p) Subsidiaries. A complete list of all subsidiaries of
Caspian. (Schedule PP.) The term "Subsidiary" or "Subsidiaries" shall
include corporations, unincorporated associations,
9
partnerships, joint ventures, or similar entities in which Caspian has
an interest, direct or indirect.
(q) Union Matters. An accurate list and description (in all
material respects of union contracts and collective bargaining
agreements of Caspian, if any. (Schedule QQ.)
(r) Employee and Consultant Contracts. A complete and accurate
list of all employee and consultant contracts which Caspian may have,
other than those listed in the schedule on Union Matters. (Schedule
RR.)
(s) Employee Benefit Plans. Complete and accurate copies of
all salary, stock option, bonus, incentive compensation, deferred
compensation, profit sharing, retirement, pension, group insurance,
disability, death benefit or other benefit plans, trust agreements or
arrangements of Caspian in effect on the date hereof or to become
effective after the date thereof, together with copies of any
determination letters issued by the Internal Revenue Service with
respect thereto. (Schedule SS.)
(t) Insurance Policies. A complete and accurate list (in all
material respects) and description of all material insurance policies
naming Caspian as an insured or beneficiary or as a loss payable payee
or for which Caspian has paid all or part of the premium in force on
the date hereof, specifying any notice or other information possessed
by Caspian regarding possible claims thereunder, cancellation thereof
or premium increases thereon, including any policies now in effect
naming Caspian as beneficiary covering the business activities of
Caspian. (Schedule TT.)
(u) Customers. A complete and accurate list (in all material
respects) of the customers of Caspian, including all presently
effective contracts of Caspian to be assigned to Caspian, accounting
for the principle revenues of Caspian, indicating the dollar amounts of
gross revenues of each such customer for the period ended December 31,
2001. (Schedule UU.)
(v) Licenses and Permits. A complete list of all licenses,
permits and other authorizations of Caspian. (Schedule VV.)
4.02 Organization, Standing and Power. Caspian is a corporation duly
organized, validly existing and in good standing under the laws of the British
Virgin Islands with all requisite corporate power to own or lease its properties
and carry on its business as is now being conducted and has a registered
corporate office in Kazakhstan with all requisite corporate power to own or
lease its properties and carry on its business as is now being conducted.
4.03 Qualification. Caspian is duly qualified and licensed as a foreign
corporation authorized to do business in each jurisdiction wherein it conducts
business operations. Such jurisdictions, which
10
are the only jurisdictions in which Caspian is duly qualified and licensed as a
foreign corporation, is shown in Schedule OO.
4.04 Capitalization of Caspian. The authorized capital stock of Caspian
consists of 50,000 shares of Common Stock, par value $1.00 per share, of which
the only shares issued and outstanding are 100 shares issued to the shareholders
listed on Schedule HH, which shares were duly authorized, validly issued and
fully paid and nonassessable. There are no preemptive rights with respect to the
Caspian stock.
4.05 Authority. The execution and delivery of this Agreement and
consummation of the transactions contemplated herein have been duly authorized
by all necessary corporate action, including but not limited to duly and validly
authorized action and approval by the Board of Directors, on the part of
Caspian. This Agreement constitutes the valid and binding obligation of Caspian,
enforceable against it in accordance with its terms, subject to the principles
of equity applicable to the availability of the remedy of specific performance.
This Agreement has been duly executed by Caspian and the execution and delivery
of this Agreement and the consummation of the transactions contemplated by this
Agreement shall not result in any breach of any terms or provisions of Caspian's
Articles of Incorporation or Bylaws or of any other agreement, court order or
instrument to which Caspian is a party or bound.
4.06 Absence of Undisclosed Liabilities. Caspian has no material
liabilities of any nature, whether fixed, absolute, contingent or accrued, which
were not reflected on the financial statements set forth in Schedule AA or
otherwise disclosed in this Agreement or any of the Schedules or Exhibits
attached hereto.
4.07 Absence of Changes. Since the date of inception, there has not
been any material adverse change in the condition (financial or otherwise),
assets, liabilities, earnings or business of Caspian, except for changes
resulting from completion of those transactions described in Section 5.02.
4.08 Tax Matters. All taxes and other assessments and levies which
Caspian is required by law to withhold or to collect have been duly withheld and
collected, and have been paid over to the proper government authorities or are
held by Caspian in separate bank accounts for such payment or are represented by
depository receipts, and all such withholdings and collections and all other
payments due in connection therewith (including, without limitation, employment
taxes, both the employee's and employer's share) have been paid over to the
government or placed in a separate and segregated bank account for such purpose.
There are no known deficiencies in income taxes for any periods and further, the
representations and warranties as to absence of undisclosed liabilities
contained in Section 4.06 includes any and all tax liabilities of whatsoever
kind or nature (including, without limitation, all federal, provincial, local
and foreign income, profit, franchise, sales, use and property taxes) due or to
become due, incurred in respect of or measured by Caspian income or business
prior to the Closing Date.
11
4.09 Options, Warrants, etc. Except as otherwise described in Schedule
HH, there are no outstanding options, warrants, calls, commitments or agreements
of any character to which Caspian or its shareholders are a party or by which
Caspian or its shareholders are bound, or are a party, calling for the issuance
of shares of capital stock of Caspian or any securities representing the right
to purchase or otherwise receive any such capital stock of Caspian.
4.10 Title to Assets. Except for liens set forth in Schedule CC,
Caspian is the sole and unconditional owner of, with good and marketable title
to, all the assets and patents listed in the schedules as owned by them and all
other property and assets are free and clear of all mortgages, liens, pledges,
charges or encumbrances of any nature whatsoever.
4.11 Agreements in Force and Effect. Except as set forth in Schedules
DD and EE, all material contracts, agreements, plans, promissory notes,
mortgages, leases, policies, licenses, franchises or similar instruments to
which Caspian is a party are valid and in full force and effect on the date
hereof, and Caspian has not breached any material provision of, and is not in
default in any material respect under the terms of, any such contract,
agreement, plan, promissory note, mortgage, lease, policy, license, franchise or
similar instrument which breach or default would have a material adverse effect
upon the business, operations or financial condition of Caspian.
4.12 Legal Proceedings, Etc. Except as set forth in Schedule KK, there
are no civil, criminal, administrative, arbitration or other such proceedings or
investigations pending or, to the knowledge of Caspian, threatened, in which,
individually or in the aggregate, an adverse determination would materially and
adversely affect the assets, properties, business or income of Caspian. Caspian
has substantially complied with, and is not in default in any material respect
under, any laws, ordinances, requirements, regulations or orders applicable to
its businesses.
4.13 Governmental Regulation. To the knowledge of Caspian and except as
set forth in Schedule KK, Caspian is not in violation of or in default with
respect to any applicable law or any applicable rule, regulation, order, writ or
decree of any court or any governmental commission, board, bureau, agency or
instrumentality, or delinquent with respect to any report required to be filed
with any governmental commission, board, bureau, agency or instrumentality which
violation or default could have a material adverse effect upon the business,
operations or financial condition of Caspian. .
4.14 Broker and Finders. Caspian shall be solely responsible for
payment to any broker or finder retained by Caspian for any brokerage fees,
commissions or finders' fees in connection with the transactions contemplated
herein.
4.15 Accuracy of Information. No representation or warranty by Caspian
contained in this Agreement and no statement contained in any certificate or
other instrument delivered or to be delivered to EMPS pursuant hereto or in
connection with the transactions contemplated hereby (including without
limitation all Schedules and Exhibits hereto) contains or will contain any
untrue
12
statement of a material fact or omits or will omit to state any material fact
necessary in order to make the statements contained herein or therein not
misleading.
4.16 Subsidiaries. Except as listed in Schedule PP, Caspian does not
have any other subsidiaries or own capital stock representing ten percent (10%)
or more of the issued and outstanding stock of any other corporation.
4.17 Consents. Except as listed in Schedule FF, no consent or approval
of, or registration, qualification or filing with, any other governmental
authority or other person is required to be obtained or accomplished by Caspian
or any shareholder thereof, in connection with the consummation of the
transactions contemplated hereby.
4.18 Improper Payments. No person acting on behalf of Caspian has made
any payment or otherwise transmitted anything of value, directly or indirectly,
to (a) any official or any government or agency or political subdivision thereof
for the purpose of influencing any decision affecting the business of Caspian ,
or (b) any political party or any candidate for elective political office, nor
has any fund or other asset of Caspian been maintained that was not fully and
accurately recorded on the books of account of Caspian.
4.19 Copies of Documents. Caspian has made available for inspection and
copying by EMPS and its duly authorized representatives, and will continue to do
so at all times, true and correct copies of all documents which it has filed
with any governmental agencies which are material to the terms and conditions
contained in this Agreement. Furthermore, all filings by Caspian with
governmental agencies, including but not limited to any taxing authority, have
contained information which is true and correct in all material respects and did
not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements made therein not misleading or
which could have any material adverse effect upon the financial condition or
operations of Caspian or adversely affect the objectives of this Agreement.
4.20 Investment Intent of Shareholders. Each shareholder of Caspian
represents and warrants to EMPS that the shares of EMPS being acquired pursuant
to this Agreement are being acquired for his own account and for investment and
not with a view to the public resale or distribution of such shares and further
acknowledges that the shares being issued have not been registered under the
Securities Act and are "restricted securities" as that term is defined in Rule
144 promulgated under the Securities Act and must be held indefinitely unless
they are subsequently registered under the Securities Act or an exemption from
such registration is available.
ARTICLE 5
CONDUCT AND TRANSACTIONS PRIOR TO THE
EFFECTIVE TIME OF THE ACQUISITION
5.01 Conduct and Transactions of EMPS. During the period from the date
hereof to the date of Closing, EMPS shall:
13
(a) Conduct its operations in the ordinary course of business,
including but not limited to, paying all obligations as they mature,
complying with all applicable tax laws, filing all tax returns required
to be filed and paying all taxes due;
(b) Maintain its records and books of account in a manner that
fairly and correctly reflects its income, expenses, assets and
liabilities;
EMPS shall not during such period, except in the ordinary course of
business, without the prior written consent of Caspian:
(a) Except as otherwise contemplated or required by this
Agreement, sell, dispose of or encumber any of its properties or
assets;
(b) Declare or pay any dividends on shares of its capital
stock or make any other distribution of assets to the holders thereof;
(c) Except as set forth in paragraph 5.01(c) above, issue,
reissue or sell, or issue options or rights to subscribe to, or enter
into any contract or commitment to issue, reissue or sell, any shares
of its capital stock or acquire or agree to acquire any shares of its
capital stock;
(d) Except as otherwise contemplated and required by this
Agreement, amend its Articles of Incorporation or merge or consolidate
with or into any other corporation or sell all or substantially all of
its assets or change in any manner the rights of its capital stock or
other securities;
(e) Except as contemplated or required by this Agreement, pay
or incur any obligation or liability, direct or contingent, of more
than $1,000, excluding the acquisitions identified in Paragraph B of
this Agreement;
(f) Incur any indebtedness for borrowed money, assume,
guarantee, endorse or otherwise become responsible for obligations of
any other party, or make loans or advances to any other party,
excluding the acquisitions identified in Paragraph B of this Agreement;
(g) Make any material change in its insurance coverage;
(h) Increase in any manner the compensation, direct or
indirect, of any of its officers or executive employees; except in
accordance with existing employment contracts;
(i) Enter into any agreement or make any commitment to any
labor union or organization;
14
(j) Make any capital expenditures, excluding the acquisitions
identified in Paragraph B of this Agreement.
5.02 Conduct and Transactions of Caspian. During the period from the
date hereof to the date of Closing, Caspian shall:
(a) Obtain an investment letter from each shareholder of
Caspian in a form substantially like that attached hereto as Exhibit B.
(b) Conduct the operations of Caspian in the ordinary course
of business.
Caspian shall not during such period, except in the ordinary course of
business, without the prior written consent of EMPS:
(a) Except as otherwise contemplated or required by this
Agreement, sell, dispose of or encumber any of the properties or assets
of Caspian;
(b) Declare or pay any dividends on shares of its capital
stock or make any other distribution of assets to the holders thereof;
(c) Issue, reissue or sell, or issue options or rights to
subscribe to, or enter into any contract or commitment to issue,
reissue or sell, any shares of its capital stock or acquire or agree to
acquire any shares of its capital stock;
(d) Except as otherwise contemplated and required by this
Agreement, amend its Articles of Incorporation or merge or consolidate
with or into any other corporation or sell all or substantially all of
its assets or change in any manner the rights of its capital stock or
other securities;
(e) Except as otherwise contemplated and required by this
Agreement, pay or incur any obligation or liability, direct or
contingent, of more than $1,000;
(f) Incur any indebtedness for borrowed money, assume,
guarantee, endorse or otherwise become responsible for obligations of
any other party, or make loans or advances to any other party;
(g) Make any material change in its insurance coverage;
(h) Increase in any manner the compensation, direct or
indirect, of any of its officers or executive employees; except in
accordance with existing employment contracts;
(i) Enter into any agreement or make any commitment to any
labor union or organization;
15
(j) Make any material capital expenditures.
(k) Allow any of the foregoing actions to be taken by any
subsidiary of Caspian.
ARTICLE 6
RIGHTS OF INSPECTION
6.01 During the period from the date of this Agreement to the date of
Closing of the acquisition, EMPS and Caspian agree to use their best efforts to
give the other party, including its representatives and agents, full access to
the premises, books and records of each of the entities, and to furnish the
other with such financial and operating data and other information including,
but not limited to, copies of all legal documents and instruments referred to on
any schedule or exhibit hereto, with respect to the business and properties of
EMPS or Caspian, as the case may be, as the other shall from time to time
request; provided, however, if there are any such investigations: (1) they shall
be conducted in such manner as not to unreasonably interfere with the operation
of the business of the other parties and (2) such right of inspection shall not
affect in any way whatsoever any of the representations or warranties given by
the respective parties hereunder. In the event of termination of this Agreement,
EMPS and Caspian will each return to the other all documents, work papers and
other materials obtained from the other party in connection with the
transactions contemplated hereby, and will take such other steps necessary to
protect the confidentiality of such material.
ARTICLE 7
CONDITIONS TO CLOSING
7.01 Conditions to Obligations of Caspian. The obligation of Caspian to
perform this Agreement is subject to the satisfaction of the following
conditions on or before the Closing unless waived in writing by Caspian.
(a) Representations and Warranties. There shall be no
information disclosed in the schedules delivered by EMPS which in the
opinion of Caspian would materially adversely affect the proposed
transaction and intent of the parties as set forth in this Agreement.
The representations and warranties of EMPS set forth in Article 3
hereof shall be true and correct in all material respects as of the
date of this Agreement and as of the Closing as though made on and as
of the Closing, except as otherwise permitted by this Agreement.
(b) Performance of Obligations. EMPS shall have in all
material respects performed all agreements required to be performed by
it under this Agreement and shall have performed in all material
respects any actions contemplated by this Agreement prior to or on the
Closing and EMPS shall have complied in all material respects with the
course of conduct required by this Agreement.
16
(c) Corporate Action. EMPS shall have furnished minutes,
certified copies of corporate resolutions and/or other documentary
evidence satisfactory to counsel for Caspian that EMPS has submitted
with this Agreement and any other documents required hereby to such
parties for approval as provided by applicable law.
(d) Consents. Execution of this Agreement by the shareholders
of Caspian and any consents necessary for or approval of any party
listed on any Schedule delivered by EMPS whose consent or approval is
required pursuant thereto shall have been obtained.
(e) Financial Statements. Caspian shall have been furnished
with audited financial statements of EMPS including, but not limited
to, balance sheets and profit and loss statements from inception
through the fiscal year end December 31, 2001. Such financial
statements shall have been prepared in conformity with United States
generally accepted accounting principles on a basis consistent with
those of prior periods and fairly present the financial position of
EMPS as of the periods stated.
(f) Statutory Requirements. All statutory requirements for the
valid consummation by EMPS of the transactions contemplated by this
Agreement shall have been fulfilled.
(g) Governmental Approval. All authorizations, consents,
approvals, permits and orders of all federal and state governmental
agencies required to be obtained by EMPS for consummation of the
transactions contemplated by this Agreement shall have been obtained.
(h) Changes in Financial Condition of EMPS. There shall not
have occurred any material adverse change in the financial condition or
in the operations of the business of EMPS, except expenditures in
furtherance of this Agreement, excluding the acquisitions identified in
Paragraph B of this Agreement.
(i) Absence of Pending Litigation. EMPS is not engaged in or
threatened with any suit, action, or legal, administrative or other
proceedings or governmental investigations pertaining to this Agreement
or the consummation of the transactions contemplated hereunder.
(j) Authorization for Issuance of Stock. Caspian shall have
received in form and substance satisfactory to counsel for Caspian a
letter instructing and authorizing the Registrar and Transfer Agent for
the shares of common stock of EMPS issue stock certificates
representing ownership of EMPS common stock to Caspian shareholders in
accordance with the terms of this Agreement and a letter from said
Registrar and Transfer Agent acknowledging receipt of the letter of
instruction and stating to the effect that the Registrar and Transfer
Agent holds adequate supplies of stock certificates necessary to comply
with the letter of instruction and the terms and conditions of this
Agreement.
17
7.02 Conditions to Obligations of EMPS. The obligation of EMPS to
perform this Agreement is subject to the satisfaction of the following
conditions on or before the Closing unless waived in writing by EMPS.
(a) Representations and Warranties. There shall be no
information disclosed in the schedules delivered by Caspian, which in
the opinion of EMPS, would materially adversely affect the proposed
transaction and intent of the parties as set forth in this Agreement.
The representations and warranties of Caspian set forth in Article 4
hereof shall be true and correct in all material respects as of the
date of this Agreement and as of the Closing as though made on and as
of the Closing, except as otherwise permitted by this Agreement.
(b) Performance of Obligations. Caspian shall have in all
material respects performed all agreements required to be performed by
it under this Agreement and shall have performed in all material
respects any actions contemplated by this Agreement prior to or on the
Closing and Caspian shall have complied in all respects with the course
of conduct required by this Agreement.
(c) Corporate Action. Caspian shall have furnished minutes,
certified copies of corporate resolutions and/or other documentary
evidence satisfactory to Counsel for EMPS that Caspian has submitted
with this Agreement and any other documents required hereby to such
parties for approval as provided by applicable law.
(d) Consents. Any consents necessary for or approval of any
party listed on any Schedule delivered by Caspian, whose consent or
approval is required pursuant thereto, shall have been obtained.
(e) Financial Statements. EMPS shall have been furnished with
audited financial statements of Caspian including, but not limited to,
balance sheets and profit and loss statements from inception through
the fiscal year end December 31, 2001. Such financial statements shall
have been prepared in conformity with United States generally accepted
accounting principles on a basis consistent with those of prior periods
and fairly present the financial position of Caspian as of the periods
stated.
(f) Statutory Requirements. All statutory requirements for the
valid consummation by Caspian of the transactions contemplated by this
Agreement shall have been fulfilled.
(g) Governmental Approval. All authorizations, consents,
approvals, permits and orders of all federal and state governmental
agencies required to be obtained by Caspian for consummation of the
transactions contemplated by this Agreement shall have been obtained.
(h) Employment Agreements. Existing Caspian employment
agreements will have been delivered to counsel for EMPS.
18
(i) Changes in Financial Condition of Caspian. There shall not
have occurred any material adverse change in the financial condition or
in the operations of the business of Caspian, except expenditures in
furtherance of this Agreement.
(j) Absence of Pending Litigation. Caspian is not engaged in
or threatened with any suit, action, or legal, administrative or other
proceedings or governmental investigations pertaining to this Agreement
or the consummation of the transactions contemplated hereunder.
(k) Shareholder Approval. The Caspian shareholders shall have
approved the Agreement and Plan of Reorganization.
ARTICLE 8
MATTERS SUBSEQUENT TO CLOSING
8.01 Covenant of Further Assurance. The parties covenant and agree that
they shall, from time to time, execute and deliver or cause to be executed and
delivered all such further instruments of conveyance, transfer, assignments,
receipts and other instruments, and shall take or cause to be taken such further
or other actions as the other party or parties to this Agreement may reasonably
deem necessary in order to carry out the purposes and intent of this Agreement.
ARTICLE 9
NATURE AND SURVIVAL OF REPRESENTATIONS
9.01 All statements contained in any written certificate, schedule,
exhibit or other written instrument delivered by EMPS or Caspian pursuant
hereto, or otherwise adopted by EMPS, by its written approval, or by Caspian by
its written approval, or in connection with the transactions contemplated
hereby, shall be deemed representations and warranties by EMPS or Caspian as the
case may be. All representations, warranties and agreements made by either party
shall survive for the period of the applicable statute of limitations and until
the discovery of any claim, loss, liability or other matter based on fraud, if
longer.
ARTICLE 10
TERMINATION OF AGREEMENT AND ABANDONMENT OF REORGANIZATION
10.01 Termination. Anything herein to the contrary notwithstanding,
this Agreement and any agreement executed as required hereunder and the
acquisition contemplated hereby may be terminated at any time before the Closing
as follows:
(a) By mutual written consent of the Boards of Directors of
EMPS and Caspian.
19
(b) By the Board of Directors of EMPS if any of the conditions
set forth in Section
7.02 shall not have been satisfied by the Closing Date.
(c) By the Board of Directors of Caspian if any of the
conditions set forth in Section 7.01 shall not have been satisfied by
the Closing Date.
10.02 Termination of Obligations and Waiver of Conditions; Payment of
Expenses. In the event this Agreement and the acquisition are terminated and
abandoned pursuant to this Article 10 hereof, this Agreement shall become void
and of no force and effect and there shall be no liability on the part of any of
the parties hereto, or their respective directors, officers, shareholders or
controlling persons to each other. Each party hereto will pay all costs and
expenses incident to its negotiation and preparation of this Agreement and any
of the documents evidencing the transactions contemplated hereby, including
fees, expenses and disbursements of counsel.
ARTICLE 11
EXCHANGE OF SHARES; FRACTIONAL SHARES
11.01 Exchange of Shares. At the Closing, EMPS shall issue a letter to
the transfer agent of EMPS with a copy of the resolution of the Board of
Directors of EMPS authorizing and directing the issuance of EMPS shares as set
forth on Exhibit A to this Agreement.
11.02 Restrictions on Shares Issued to Caspian. Due to the fact that
Caspian will receive shares of EMPS common stock in connection with the
acquisition which have not been registered under the1933 Act by virtue of the
exemption provided in Section 4(2) of such Act, those shares of EMPS will
contain the following legend:
The shares represented by this certificate have not been registered
under the Securities Act of 1933. The shares have been acquired for
investment and may not be sold or offered for sale in the absence of an
effective Registration Statement for the shares under the Securities
Act of 1933 or an opinion of counsel to the Corporation that such
registration is required.
ARTICLE 12
MISCELLANEOUS
12.01 Construction. This Agreement shall be construed and enforced in
accordance with the laws of the State of Utah excluding the conflicts of laws.
12.02 Notices. All notices necessary or appropriate under this
Agreement shall be effective when personally delivered or deposited in the
United States mail, postage prepaid, certified or
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registered, return receipt requested, and addressed to the parties last known
address which addresses are currently as follows:
If to "EMPS" If to "Caspian "
EMPS Corporation Caspian Services Group Limited
875 Donner Way P.O. Box 544, 14 Britannia Place,
Unit 705 Bath Street
Salt Lake City, Utah 84108 St. Helier, Jersey JE 4 SU
Channel Islands
With copies to:
Ronald L. Poulton, Esq.
136 East South Temple, Suite 1700-A
Salt Lake City, UT 84111
12.03 Amendment and Waiver. The parties hereby may, by mutual agreement
in writing signed by each party, amend this Agreement in any respect. Any term
or provision of this Agreement may be waived in writing at any time by the party
which is entitled to the benefits thereof, such waiver right shall include, but
not be limited to, the right of either party to:
(a) Extend the time for the performance of any of the
obligations of the other;
(b) Waive any inaccuracies in representations by the other
contained in this Agreement or in any document delivered pursuant
hereto;
(c) Waive compliance by the other with any of the covenants
contained in this Agreement, and performance of any obligations by the
other; and
(d) Waive the fulfillment of any condition that is precedent
to the performance by the party so waiving of any of its obligations
under this Agreement. Any writing on the part of a party relating to
such amendment, extension or waiver as provided in this Section 12.03
shall be valid if authorized or ratified by the Board of Directors of
such party.
12.04 Remedies not Exclusive. No remedy conferred by any of the
specific provisions of this Agreement is intended to be exclusive of any other
remedy, and each and every remedy shall be cumulative and shall be in addition
to every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise. The election of any one or more remedies by
EMPS or Caspian shall not constitute a waiver of the right to pursue other
available remedies.
12.05 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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12.06 Benefit. This Agreement shall be binding upon, and inure to the
benefit of, the respective successors and assigns of EMPS and Caspian and its
shareholders.
12.07 Entire Agreement. This Agreement and the Schedules and Exhibits
attached hereto, represent the entire agreement of the undersigned regarding the
subject matter hereof, and supersedes all prior written or oral understandings
or agreements between the parties.
12.08 Each Party to Bear its Own Expense. EMPS and Caspian shall each
bear their own respective expenses incurred in connection with the negotiation,
execution, closing, and performance of this Agreement, including counsel fees
and accountant fees.
12.09 Captions and Section Headings. Captions and section headings used
herein are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement.
Executed as of the date first written above.
"EMPS" "Caspian "
EMPS Corporation Caspian Services Group Limited
a Nevada corporation a British Virgin Islands corporation
By: /s/ Louis Naegle By: /s/ Paul Roberts
------------------------------ --------------------------------
Louis Naegle, President Paul Roberts, President
"Shareholders" "Shareholders"
Mohul Nominees Limited Elcan Nominees Limited
By: /s/ K. Carter By: /s/ I.A.G. Moodie
------------------------------ --------------------------------
K. Carter, Director I.A.G. Moodie, Director
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EXHIBIT A
Name of Shareholder Caspian Shares Owned EMPS Shares to be Issued
Elcan Nominees Limited 36 9,752,292
EMPS Corporation shares to be
issued as follows:
Paul Roberts 3,250,764
Laird Garrard 3,250,764
Dora International Ltd. 3,250,764
Mohul Nominees Limited 64 17,337,408
EMPS Corporation shares to be
issued as follows:
Techgrand Company, Ltd 3,250,764
Petroleum Group Services Ltd 14,086,644