<PAGE>
As Filed with the Securities and Exchange Commission on February 12, 1997
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10/A
(AMENDMENT NO. 2)
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities
Exchange Act of 1934
SLH CORPORATION
(name of registrant as specified in its charter)
Commission File No. 0-21911
Kansas 43-1764632
(State of incorporation or organization) (IRS Employer Identification No.)
2600 Grand Boulevard
Suite 500
Kansas City, Missouri 64108
(Address, including zip code, of principal executive offices)
816-842-7000
(Registrant's telephone number, including area code)
Securities to be registered pursuant to Section 12(b)
of the Act:
Title of each class Name of exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
None None
Securities to be registered pursuant to Section 12(g)
of the Act:
Common Stock, $0.01 par value
(Title of Class)
Preferred Share Purchase Rights
(Title of Class)
===============================================================================
<PAGE>
SLH CORPORATION
INFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
Item Item
No. Caption Location in Information Statement
- ----- ------- ---------------------------------
1. Business "SUMMARY;" "RISK FACTORS;" "INTRODUCTION;"
"THE DISTRIBUTION -- Background and Reasons
for the Distribution;" "BUSINESS AND
PROPERTIES;" and "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
2. Financial Information "SUMMARY;" "RISK FACTORS;" "SLH OPERATIONS
SELECTED HISTORICAL COMBINED FINANCIAL
INFORMATION;" "SLH OPERATIONS UNAUDITED PRO
FORMA COMBINED FINANCIAL INFORMATION;"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS;" and "FINANCIAL STATEMENTS."
3. Properties "BUSINESS AND PROPERTIES."
4. Security Ownership of
Certain Owners and
Management. "THE DISTRIBUTION -- No Market for Company
Common Stock;" "MANAGEMENT OF THE COMPANY;"
"EXECUTIVE COMPENSATION" and "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF
COMPANY COMMON STOCK."
5. Directors and Executive
Officers "SUMMARY;" "RISK FACTORS;" "ARRANGEMENTS
BETWEEN SEAFIELD AND THE COMPANY RELATING TO
THE DISTRIBUTION;" "MANAGEMENT OF THE
COMPANY;" and "LIABILITY AND INDEMNIFICATION
OF DIRECTORS AND OFFICERS."
6. Executive Compensation. "ARRANGEMENTS BETWEEN SEAFIELD AND THE
COMPANY RELATING TO THE DISTRIBUTION;"
"MANAGEMENT OF THE COMPANY;" and "EXECUTIVE
COMPENSATION."
7. Certain Relationships and
Related Transactions "SUMMARY;" "INTRODUCTION;" "THE DISTRIBUTION
-- Background and Reasons for the
Distribution;" "RISK FACTORS;" "ARRANGEMENTS
BETWEEN SEAFIELD AND THE COMPANY RELATING TO
THE DISTRIBUTION;" "MANAGEMENT OF THE
COMPANY; "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS;" "EXECUTIVE COMPENSATION;" and
"FINANCIAL STATEMENTS."
2
<PAGE>
Item Item
No. Caption Location in Information Statement
- ----- ------- ---------------------------------
8. Legal Proceedings "BUSINESS AND PROPERTIES -- Legal Matters."
9. Market Price of and
Dividends on the
Registrant's Common
Equity and Related
Stockholder Matters "SUMMARY;" "THE DISTRIBUTION -- No Market
for Company Common Stock;" and "RISK
FACTORS."
10. Recent Sales of
Unregistered Securities. None
11. Description of Registrant's
Securities to be Registered "DESCRIPTION OF COMPANY CAPITAL STOCK;"
"CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN
PROVISIONS OF THE ARTICLES OF
INCORPORATION, THE BYLAWS, THE RIGHTS, AND
KANSAS LAW."
12. Indemnification of
Directors and Officers "LIABILITY AND INDEMNIFICATION OF DIRECTORS
AND OFFICERS."
13. Financial Statements and
Supplementary Data "SUMMARY;" "SLH OPERATIONS SELECTED
COMBINED HISTORICAL FINANCIAL INFORMATION;"
"SLH OPERATIONS UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION;"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS;" and "FINANCIAL STATEMENTS."
14. Disagreements with
Accountants on
Accounting and Financial
Disclosure. None
15. Financial Statements and
Exhibits.
(a) Financial Statements
and Schedules
(1) Financial Statements: "FINANCIAL STATEMENTS" and "INDEX
TO FINANCIAL STATEMENTS."
(2) Financial Statement Schedules:
Auditors' Report on Financial Statement Schedules
III. SLH Operations Schedule III Real Estate and
Accumulated Depreciation as of December 31, 1995.
SLH Operations Schedule III Real Estate and
Accumulated - Reconciliation between years.
3
<PAGE>
All other schedules are omitted because they are not
applicable or the information is contained in the
Combined Financial Statements or notes thereto.
(b) Exhibits:
Exhibit
Number Description
2(a) Copy of Distribution Agreement [incorporated by
reference to Exhibit 2(a) to Form 10/A of the Company
dated February 3, 1997].
2(b) Form of Blanket Assignment, Bill of Sale, Deed and
Assumption Agreement [incorporated by reference to
Exhibit D to Exhibit 2 (a)].
3(a) Articles of Incorporation of SLH Corporation
[incorporated by reference to Exhibit 3(a) to the Form
10 of the Company filed December 24, 1996].
3(b) Bylaws of SLH Corporation [incorporated by reference to
Exhibit 3(b) to the Form 10 of the Company filed
December 24, 1996].
4 Copy of Rights Agreement dated as of January 31, 1997.
8 Opinion of Lathrop & Gage L.C. with regard to certain
tax matters [incorporated by reference to Exhibit 8
to Form 10/A of the Company dated February 3, 1997].
10(a)Form of Facilities Management and Interim Services
Agreement [incorporated by reference to Exhibit A to
Exhibit 2(a)].
10(b)Form of Tax Sharing Agreement [incorporated by
reference to Exhibit C to Exhibit 2 (a)].
10(c)Copy of SLH Corporation 1997 Stock Incentive Plan.
10(d)Form of Employment Agreements with certain executive
officers of SLH [(incorporated by reference to Exhibit
B to Exhibit 2(a)].
21 Subsidiaries of SLH Corporation
Scout Development Corporation (Missouri)
Scout Development Corporation of New Mexico
(Missouri)
BMA Resources, Inc. (Missouri)
27 Financial Data Schedule
4
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this pre-effective amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized.
SLH CORPORATION
s/James R. Seward
By ___________________________
James R. Seward, President
February 12, 1997
5
<PAGE>
[LOGO]
SEAFIELD CAPITAL CORPORATION
2600 Grand Boulevard, Suite 500
P. O. Box 410949
Kansas City, Missouri 64141
February 13, 1997
Dear Shareholder:
I am pleased to inform you that the Board of Directors of Seafield
Capital Corporation has approved a distribution to our shareholders of all the
outstanding shares of common stock of SLH Corporation. The stock distribution
will be made to holders of record of Seafield Capital Corporation common stock
on February 24, 1997. You will receive one share of SLH Corporation common stock
for every four shares of Seafield Capital Corporation common stock you hold on
the record date.
As a result of the distribution you will own shares in two separate and
very different companies. Seafield Capital Corporation will be focused on its
core businesses -- operating its current laboratory testing business and
healthcare businesses consisting of LabOne, Inc., and its subsidiaries and
Response Oncology, Inc. SLH Corporation will concentrate on managing, developing
and disposing of its Real Estate and Energy Businesses and Miscellaneous Assets.
The Seafield Board believes that the separation of the Real Estate and
Energy Businesses and Miscellaneous Assets from Seafield's other core businesses
will provide investors a sharper focus as to the particular merits of each of
those investments and thereby provide Seafield shareholders with a better
recognition of the value of each of those investments. In addition, the
Distribution will permit SLH to pursue strategies for the management and
development of its relatively illiquid and developmental assets without
conflicting with Seafield's strategies for its laboratory testing and healthcare
businesses.
Following the Distribution, your Board of Directors expects that it
will maintain the quarterly cash dividend on Seafield Capital Corporation common
stock at current levels. SLH does not intend to pay regular annual or quarterly
cash dividends. We have received an opinion from our counsel that the
Distribution will be a taxable transaction. After the Distribution we will
report to you our determination of the fair market value of the amount of the
Distribution received by you for tax purposes on IRS Form 1099-DIV.
The enclosed Information Statement explains the proposed distribution
in detail and provides financial and other important information regarding SLH
Corporation. We urge you to read it carefully. Holders of Seafield Capital
Corporation common stock are not required to take any action to participate in
the distribution. A shareholder vote is not required in connection with this
matter and, accordingly, your proxy is not being sought.
Sincerely,
s/W.Thomas Grant II
W. Thomas Grant II
Chairman of the Board
<PAGE>
SLH CORPORATION
2600 Grand Boulevard
Suite 500
Kansas City, Missouri 64108
February 13, 1997
Dear Stockholder:
We would like to take this opportunity to welcome you as a stockholder
and introduce you to your company.
SLH Corporation is engaged in the business of managing, developing and
disposing of Real Estate and Energy Businesses and Miscellaneous Assets to be
received by SLH from Seafield in the Distribution described in Mr. Grant's
letter. The real estate assets consist of the remaining inventory from three
high end condominium developments in Santa Fe, New Mexico and Juno Beach,
Florida, a seven story parking garage in Reno, Nevada, a 49.9% interest in a
small shopping center in Gillette, Wyoming (the "Shopping Center Interest");
undeveloped land in Houston and Fort Worth, Texas and Olathe, Kansas. Energy
assets consist of a significant ownership interest in Syntroleum Corporation,
which is the developer and owner of a patented process and several related
proprietary technologies for the conversion of natural gas into synthetic liquid
fuels and four oil and gas general partnerships which have working interests in
producing wells in the Gulf of Mexico. Miscellaneous Assets consist primarily of
three venture capital investments. The Company will also be assuming certain
Transfer Liabilities which are described in the Information Statement.
There is no current public market for the common stock of the Company.
Although it is anticipated that the SLH Common Stock will initially trade in the
over-the-counter market after the Distribution with quotations being published
in the OTC Bulletin Board and the NQB Pink Sheets, there is no assurance that an
active market will develop following the Distribution.
The Company is engaged in the sale of all of its assets in the ordinary
course other than Syntroleum. Following the liquidation of non-Syntroleum
assets, the Company plans to continue to promote the management, growth and
development of Syntroleum or it may engage in a merger or some other transaction
that would effectively dispose of all of its assets. Management's objective is
to realize the highest value for its various assets and businesses in the most
cost effective manner possible.
Sincerely,
s/P. Anthony Jacobs s/James R. Seward
P. Anthony Jacobs James R. Seward
Chairman of the Board President and Chief
Executive Officer
<PAGE>
INFORMATION STATEMENT
SLH CORPORATION
Common Stock
(Par Value $0.01 Per Share)
Preferred Share Purchase Rights
This Information Statement is being furnished to shareholders of
Seafield Capital Corporation ("Seafield") in connection with the distribution
(the "Distribution") by Seafield to its shareholders of all of the outstanding
shares of common stock of its wholly owned subsidiary, SLH Corporation (the
"Company"), along with the associated preferred share purchase rights (the
"Rights").
The Distribution will be effected on March 3, 1997 (the
"Distribution Date"), and shares of Company common stock ("Company Common
Stock") will be distributed to the holders of record of Seafield common stock as
of February 24, 1997 (the "Record Date"), on the basis of one share of common
stock of the Company for each four (4) shares of Seafield common stock held. No
consideration will be paid by shareholders of Seafield for the shares of common
stock of the Company to be received by them in the Distribution, nor will they
be required to surrender or exchange shares of Seafield in order to receive
common stock of the Company. Seafield has received an opinion from its counsel
to the effect that the Distribution will be a taxable distribution for Federal
income tax purposes.
There is no current public market for the common stock of the Company.
Although it is anticipated that the SLH Common Stock will initially trade in the
over-the-counter market after the Distribution with quotations being published
in the OTC Bulletin Board and the NQB Pink Sheets, there is no assurance that an
active market will develop following the Distribution.
In reviewing this Information Statement, you should carefully consider
the matters described under the caption "RISK FACTORS at page 13."
-------------------------------------
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THIS DISTRIBUTION.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
--------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------------------
THIS INFORMATION STATEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. ANY SUCH OFFERING MAY
ONLY BE MADE BY MEANS OF A SEPARATE PROSPECTUS PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT
AND OTHERWISE IN COMPLIANCE
WITH APPLICABLE LAW.
-------------------------------
The date of this Information Statement is February 13 , 1997.
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION.................................................... 3
SUMMARY.................................................................. 4
The Company............................................................ 4
The Distribution....................................................... 5
SLH Operations Summary Financial Information.......................... 10
RISK FACTORS............................................................ 13
INTRODUCTION............................................................ 16
THE DISTRIBUTION........................................................ 17
Background and Reasons for the Distribution........................... 17
The Appraisal......................................................... 19
Manner of Effecting the Distribution.................................. 19
Material Federal Income Tax Consequences of the Distribution.......... 20
No Market for Company Common Stock.................................... 23
Company Common Stock Dividend Policy.................................. 24
Conditions and Termination............................................ 25
ARRANGEMENTS BETWEEN SEAFIELD AND THE COMPANY
RELATING TO THE DISTRIBUTION.......................................... 25
Distribution Agreement................................................ 25
Interim Services Agreement............................................ 27
Tax Sharing Agreement................................................. 27
BUSINESS AND PROPERTIES................................................. 28
Overview .......................................................... 28
Strategy .......................................................... 29
Management and Disposition of Real Estate Assets...................... 30
Business and Management of Energy Assets ............................ 31
Oil and Gas Properties................................................ 34
Miscellaneous Assets and Liabilities.................................. 35
Company Employees..................................................... 35
Company Properties.................................................... 35
Regulation - Possible Application of the Investment Company Act
of 1940............................................................. 35
Legal Matters......................................................... 37
CAPITALIZATION.......................................................... 39
SLH OPERATIONS UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION ................................................ 40
SLH OPERATIONS SELECTED HISTORICAL COMBINED
FINANCIAL DATA........................................................ 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................. 43
Results of Operations................................................. 43
Liquidity and Capital Resources....................................... 46
MANAGEMENT OF THE COMPANY .............................................. 47
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................... 48
2
<PAGE>
EXECUTIVE COMPENSATION.................................................. 49
Compensation of Directors............................................. 49
Compensation of Executive Officers................................... 49
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF
COMPANY COMMON STOCK.................................................. 52
By Management......................................................... 52
By Others .......................................................... 53
DESCRIPTION OF COMPANY CAPITAL STOCK.................................... 54
CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE OF
INCORPORATION, THE BYLAWS, THE RIGHTS, AND KANSAS LAW................. 54
Classified Board of Directors......................................... 54
Number of Directors, Filling Vacancies and Removal.................... 55
Stockholder Action.................................................... 55
Advance Notice Provisions for Stockholder Nominations and
Stockholder Proposals.............................................. 56
Company Preferred Stock............................................... 57
Business Combinations................................................. 58
Amendment of Certain Provisions of the Articles of Incorporation
and Bylaws......................................................... 59
Rights .......................................................... 59
Antitakeover Legislation.............................................. 61
Comparison with Rights of Holders of Seafield Common Stock............ 62
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS................. 63
Limitation of Liability of Directors.................................. 63
Indemnification of Directors and Officers............................. 63
INDEPENDENT AUDITORS.................................................... 65
SLH OPERATIONS AND SLH CORPORATION INDEX TO FINANCIAL STATEMENTS........F-1
Annex A Opinion of George K. Baum & Company, dated February 12, 1997.
AVAILABLE INFORMATION
SLH Corporation (the "Company") has filed a Registration Statement on Form
10 (the "Registration Statement") with the Securities and Exchange Commission
(the "Commission") under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with respect to the Company Common Stock (as defined and
described herein) and the Rights (as defined and described herein). This
Information Statement does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information, reference is made hereby to the Registration Statement and such
exhibits and schedules. Statements contained herein concerning any documents are
not necessarily complete and, in each instance, reference is made to the copies
of such documents filed as exhibits to the Registration Statement. Each such
statement is qualified in its entirety by such reference. Copies of these
documents may be inspected without charge at the principal office of the
Commission at 450 5th Street, N.W., Washington, D.C. 20549, and at the Regional
Offices of the Commission at 7 World Trade Center, Suite 1300, New York, New
York 10048 and at Northwestern Atrium Center, Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661 and copies of all or any part thereof may be
obtained from the Commission upon payment of the charges prescribed by the
Commission. Copies of this material should also be available through the
internet at the SEC EDGAR Archive, the address of which is
http://www.sec.gov/cgi-bin/srch-edgar.
<PAGE>
Following the Distribution, the Company will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the Commission. The Company will also be subject to the proxy
solicitation requirements of the Exchange Act and, accordingly, will furnish
audited financial statements to its stockholders in connection with its annual
meetings of stockholders.
NO PERSON IS AUTHORIZED BY SEAFIELD OR THE COMPANY TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION
STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED.
3
SUMMARY
This summary is qualified by the more detailed information set forth
elsewhere in this Information Statement, which should be read in its entirety.
THE COMPANY
The Company is primarily engaged in the business of managing, developing
and disposing of Real Estate and Energy Businesses and Miscellaneous assets to
be acquired from Seafield immediately prior to the Distribution (the "Transfer
Assets"). Real Estate Assets reflect the remaining assets of a discontinued real
estate development business that was conducted by Seafield in association with a
previously owned life insurance company that was sold in 1990. The Energy and
Miscellaneous assets also reflect a variety of insurance company assets that
were retained by Seafield following the sale of that insurance business. The
Company is engaged in the sale of all of its assets in an orderly manner other
than its interest in Syntroleum Corporation. See "BUSINESS AND PROPERTIES --
Management and Disposition of Real Estate Assets;" "BUSINESS AND PROPERTIES --
Business and Management of Energy Assets" and "BUSINESS AND PROPERTIES --
Miscellaneous Assets and Liabilities."
Real Estate assets, as of September 30, 1996, consist of (a) the remaining
inventory from three high end condominium developments located in Santa Fe, New
Mexico (comprising 31 completed homes that have been priced for sale between
$225,000 and $750,000; "Quail Run") and Juno Beach, Florida (primarily
comprising three homes that have been priced for sale between $800,000 and $3.0
million, the "Juno Beach Homes"); (b) a seven story parking garage in Reno,
Nevada (the "Reno Parking Garage"); (c) a 49.9% interest in a community shopping
center in Gillette, Wyoming (the "Shopping Center Interest"); and (d)
approximately 1,147 acres of undeveloped land, with 370 acres in Houston, Texas,
approximately 547 acres in the vicinity of the Alliance Airport, in Ft. Worth,
Texas, 205 acres in West Ft. Worth, Texas, 9 other acres in Corinth, Texas and
16 acres at the intersection of 119th Street and Interstate 35 in the southern
portion of the Kansas City metropolitan area (the "Undeveloped Land"). The Total
Real Estate Inventory had an aggregate carrying value as of September 30, 1996,
of approximately $ 26.6 million.
Energy assets consist of a 32.5% interest in Syntroleum Corporation
("Syntroleum") and minority interests in four oil and gas general partnerships
which have working interests in producing wells in the Gulf of Mexico (the "Oil
& Gas Properties").
<PAGE>
Syntroleum is the developer and owner of a patented process and several
related proprietary technologies ("Syntroleum(R) Process") for the conversion of
natural gas into synthetic liquid hydrocarbons which can be further processed
into fuels such as diesel, kerosene (used by jet aircraft) and naphtha and
related non fuel chemical feedstocks and lubricants. Syntroleum is currently
engaged in negotiations for the licensing of the Syntroleum(R) Process with
major oil companies. Because Syntroleum continues to be in the developmental
phase of its operations, no assurances can be given that it will be able to
successfully conclude any license or agreement on a favorable basis or that a
commercially viable Syntroleum(R) Process plant will be constructed and
successfully operated.
The Company also owns other assets consisting primarily of (a) three
investments in privately held venture capital limited partnerships having an
aggregate carrying value at September 30, 1996, of $1,364,538, (b) a common
stock interest in Oclassen Pharmaceuticals, Inc. (with a carrying value of $2.5
million), a privately owned pharmaceutical manufacturer, which is proposed to be
converted into approximately 183,673 shares of the common stock of Watson
Pharmaceuticals, a publicly traded company, trading in the shares of which
closed on January 31, 1997, at $44.81 per share, and (c) a preferred stock
interest in Norian Corporation, a privately owned developer of proprietary bone
substitute technology which had a carrying value of approximately $1.0 million
at September 30, 1996, ("Miscellaneous Assets").
The Company will assume liabilities relating to the Transfer Assets as well
as certain contingent Seafield liabilities (the "Transfer Liabilities"),
including Seafield's liability for disputed income taxes which the Internal
Revenue Service
4
claims to be owed by Seafield for its 1986, 1987, 1988, 1989 and 1990 tax years
and which the State of California claims to be owed for the 1987, 1988 and 1989
years (the "Tax Claims"). The Tax Claims amount to approximately $14.6 million,
plus interest. Although the Company believes that a combination of defenses
against the claims and contested offsetting tax losses generated by a real
estate project sold at a loss in 1990, could result in a positive outcome, the
Company can not provide any assurance that its defense of such claims will be
successful. See "BUSINESS - Legal Matters."
The Company is engaged in the sale of all of its assets in an orderly
manner other than Syntroleum. Following the liquidation of non Syntroleum
assets, the Company plans to continue to promote the management, growth and
development of Syntroleum or it may engage in a merger or some other transaction
that would effectively dispose of all of its assets.
The Company's historical operating results during the past four years
reflect the sale or other disposition of a number of real estate assets and
other significant Seafield investments, all of which have culminated in net
capital loss carryforwards at Seafield in the approximate amount of $13.0
million. It is the intent of Seafield to utilize such losses in connection with
the Distribution to offset as much as possible any gains that Seafield is
required to recognize for Federal income tax purposes as a result of making the
distribution. However, none of such losses may be applied against any ordinary
income that Seafield shareholders will realize as the result of their receipt of
shares of Company Common Stock in the Distribution.
<PAGE>
As a result of the Distribution, Seafield will own no shares of Company
Common Stock and the Company will operate as an independent publicly traded
company. The Company's principal executive offices are located at 2600 Grand
Boulevard, Suite 500, P.O. Box 410949, Kansas City, Missouri 64141, and its
telephone number is (816) 842- 7000.
THE DISTRIBUTION
Distributing Company............ Seafield Capital Corporation, a Missouri
corporation ("Seafield"). Immediately after
the Distribution, Seafield will own no
shares of Common Stock of the Company and
the Company will operate as an independent,
publicly owned corporation.
Shares to be Distributed......... Approximately 1,620,862 shares of common
stock, par value $0.01 per share ("Company
Common Stock"), of SLH CORPORATION, a Kansas
corporation (the "Company"), based on
approximately 6,483,448 shares of common
stock, par value $1.00 per share, of
Seafield ("Seafield Common Stock") currently
outstanding.
Distribution Ratio............... One share of Company Common Stock for each
four (4) shares of Seafield Common Stock. No
consideration will be paid by Seafield's
shareholders for the shares of Company
Common Stock to be received in the
Distribution. See "THE DISTRIBUTION --
Manner of Effecting the Distribution."
No Fractional Shares............. No fractional shares of Common Stock will be
distributed. All fractional share interests
will be aggregated and sold by the
Distribution Agent and the cash proceeds
distributed to those
5
shareholders otherwise entitled to a
fractional interest. See "THE DISTRIBUTION
-- Manner of Effecting the Distribution."
Appraisal of Company Common Stock. In connection with the decision of the
Seafield Board to effect the Distribution,
George K. Baum & Company ("GKB") has
appraised the fair market value of the
Company Common Stock on a pro forma basis in
the hands of Seafield Shareholders as if the
distribution had occurred on September 30,
1996, at a price of $27.25 per share. The
appraisal of the Company Common Stock is not
based on any actual transactions in the
Company Common Stock, is based on a number
of estimates and judgments and is subject to
a number of assumptions, all of which are
<PAGE>
generally described under "THE DISTRIBUTION
- The Appraisal." In addition the appraisal
does not take into account changes occurring
subsequent to September 30, 1996, which may
affect the actual value of the Company Stock
on the Distribution Date. Accordingly, no
assurance can be given that the appraised
value will reflect the actual prices at
which the Company Common Stock will trade on
the date of the distribution or following
the development of a market for the Company
Common Stock. See "THE DISTRIBUTION --
Listing and Trading of Company Common
Stock;" "THE DISTRIBUTION -- The Appraisal,"
and "RISK FACTORS."
Federal Income Tax Consequences
To Seafield Shareholders...... Seafield has received an opinion from its
counsel to the effect that the Distribution
will be a taxable event to Seafield's
shareholders for Federal income tax
purposes. The amount of the Distribution
received by each Seafield shareholder will
be treated as a dividend (i.e., as ordinary
income) to such shareholder to the extent of
such shareholder's pro rata share of
Seafield's current and accumulated earnings
and profits. The amount of the Distribution
received by each Seafield shareholder that
is not treated as a dividend will first be
treated as a return of capital to the extent
of such shareholder's basis in its Seafield
Common Stock, and then generally as capital
gain. The amount of the Distribution
received by each Seafield shareholder for
Federal income tax purposes will be the fair
market value of the SLH Common Stock
received by such shareholder as of the
Distribution Date. Seafield will make a
determination of the fair market value of
the SLH Common Stock as of the Distribution
Date after such date based on a number of
factors that will include, without
limitation, the trading price of SLH Common
Stock at or near the Distribution Date and
information and advice to be received by
Seafield from GKB. Prior to January 31,
1998, Seafield will report the amount of the
Distribution received by each shareholder to
such shareholder and to the IRS on IRS Form
1099-DIV. There is no assurance that the IRS
or the courts will agree with the amount
determined by Seafield. Seafield
shareholders are urged to consult their own
tax advisors as to the specific tax
consequences to them of the Distribution.
6
<PAGE>
See "THE DISTRIBUTION -- Material Federal
Income Tax Consequences of the
Distribution."
Federal Income Tax Consequences
To Seafield................... Seafield has received an opinion from its
counsel to the effect that the Distribution
may be a taxable event to Seafield for
Federal income tax purposes. Seafield will
recognize gain upon the Distribution equal
to the excess, if any, of the fair market
value of the SLH Common Stock on the
Distribution Date over Seafield's tax basis
in such stock. Seafield will not recognize
any loss upon the Distribution, even if its
tax basis in the SLH Common Stock that is
distributed to its shareholders exceeds the
fair market value of such stock on the
Distribution Date. See "THE DISTRIBUTION --
Material Federal Income Tax Consequences of
the Distribution."
Purpose and Reasons for the
Distribution.................. The Seafield Board concluded that the
Distribution was in the best interests of
Seafield Shareholders since it would
separate the Company's assets from
Seafield's other core businesses and thereby
provide investors a sharper focus as to the
particular merits of each of those
investments and provide greater recognition
of the value of the Company's assets. The
Seafield Board has also considered a variety
of strategic alternatives for its remaining
core businesses, including the possibility
of a merger into LabOne, the sale of one or
more of its other core businesses and the
sale of Seafield as a whole. Although no
such transactions have been agreed upon or
are under negotiation, it is believed that
the transfer of the Transfer Assets and
Transfer Liabilities to the Company will
better position Seafield for any such
alternative while at the same time
permitting the Company to pursue a long
term strategy for the development,
management and disposition of its relatively
illiquid and developmental assets. Seafield
believes that the Distribution is a strategy
superior to an immediate sale of those
Businesses and Assets. The present transfer
of those assets to the Company will permit
their sale or other disposition on a more
orderly basis thereby increasing the
opportunities to maximize their net present
<PAGE>
value. See "THE DISTRIBUTION -- Background
and Reasons for the Distribution."
Relationship with Seafield
after the Distribution........ As a result of the Distribution, the Company
will cease to be a subsidiary of or
otherwise affiliated with Seafield and will
thereafter operate as an independent,
publicly held company. However, as indicated
under "Management" certain executive
officers and directors of Seafield will be
the executive officers and directors of the
Company, and will continue in such dual
capacities for an indefinite period of time.
The Company and Seafield have also entered
into certain agreements providing for (a)
the sharing of certain facilities and
services, (b) the orderly separation of
Seafield and the Company and the making of
the Distribution, and (c) the allocation of
certain tax and other
7
liabilities. See "TRANSACTIONS BETWEEN THE
COMPANY AND SEAFIELD;" "MANAGEMENT;""CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS;" and
EXECUTIVE COMPENSATION."
Risk Factors..................... Stockholders should consider the factors
discussed under " RISK FACTORS."
No Market For Company Common
Stock......................... There is no current public market for the
common stock of the Company. Although it is
anticipated that the SLH Common Stock will
initially trade in the over-the-counter
market after the Distribution with
quotations being published in the OTC
Bulletin Board and the NQB Pink Sheets,
there is no assurance that an active market
will develop following the Distribution.
Although GKB has appraised the Company
Common Stock as of September 30, 1996 at
$27.25 per share on a pro forma basis, there
can be no assurance that the Common Stock
will trade at or near that price on and
after the Distribution Date. See "THE
DISTRIBUTION -- No Market For Company Common
Stock" and "RISK FACTORS."
Trading Market Seafield Common
Stock......................... Seafield Common Stock will continue to be
listed and traded on the NASDAQ National
Market System of the National Association of
Securities Dealers, Inc. ("NMS") after the
Distribution.
<PAGE>
Record Date...................... February 24, 1997 (the "Record Date").
Distribution Date................ March 3, 1997 (the "Distribution Date").
On, or as soon as practicable after, the
Distribution Date, American Stock Transfer 7
Trust Company, as distribution agent, will
commence mailing certificates representing
shares of Company Common Stock to holders of
record as of the Record Date of Seafield
Common Stock. Seafield shareholders will not
be required to make any payment or to take
any other action to receive their Company
Common Stock. See "THE DISTRIBUTION --
Manner of Effecting the Distribution."
Distribution Agent............... American Stock Transfer & Trust Company, 40
Wall Street, 46th Floor, New York, N.Y.
10005. Telephone (718) 921-8200.
Conditions to the Distribution... The Distribution is conditioned upon, among
other things, completion of the transfer of
the Transfer Assets and assumption by the
Company of the Transfer Liabilities, and the
receipt of certain consents. Any of the
conditions to the Distribution may be
waived, at any time prior to the
Distribution Date, for any reason, in the
sole discretion of the Board of Directors of
Seafield (the "Seafield Board"). Even if all
conditions are satisfied, the Seafield Board
has reserved the right to abandon, defer or
modify the Distribution and the related
transactions described herein at any time
prior to the Distribution Date for
8
any reason. See "THE DISTRIBUTION --
Conditions and Termination."
Principal Businesses to Be
Retained by Seafield.......... Following the Distribution, Seafield will
continue to operate its current laboratory
testing business and healthcare business
consisting of LabOne, Inc. and its
subsidiaries ("LabOne") and Response
Oncology, Inc. ("Response"). See
"INTRODUCTION" and "ARRANGEMENTS BETWEEN
SEAFIELD AND THE COMPANY RELATING TO THE
DISTRIBUTION -- Distribution Agreement."
Interests of Certain Persons
in the Distribution........... P. Anthony Jacobs, CFA, James R. Seward,
CFA, and Steven K. Fitzwater, who are the
President and Chief Operating Officer,
<PAGE>
Executive Vice President and Chief Financial
Officer, and Vice President and Chief
Accounting Officer o f Seafield,
respectively, will also be the Chairman,
President and Chief Executive Officer, and
Vice President and Chief Financial and
Accounting Officer of the Company,
respectively. In their capacities as
officers of the Company they have entered
into certain employment agreements that will
provide them effective as of the
Distribution Date with certain options to
purchase shares of the Company's Common
Stock and certain other benefits described
under "EXECUTIVE COMPENSATION -- Employment
and Change in Control Arrangements."
Management of the Company........ Effective as of the Distribution, the Board
of Directors of the Company (the "Company
Board") will consist of W. Thomas Grant II
who is currently Chairman and Chief
Executive Officer of Seafield, P. Anthony
Jacobs, CFA who is presently a director and
the Chief Operating Officer of Seafield and
who will serve as the Chairman of the Board
of the Company, James R. Seward, CFA who is
presently a director and the Chief Financial
Officer of Seafield and who will serve as
the President and Chief Executive Officer of
the Company, Steven K. Fitzwater who is
presently the Chief Accounting Officer of
Seafield and who will be the Chief Financial
and Accounting Officer, Secretary and
Treasurer of the Company and other
individuals who are currently directors of
Seafield. See "MANAGEMENT OF THE COMPANY"
and "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
Preferred Share Purchase Rights
of the Company................ The Company has adopted a preferred share
purchase rights plan, effective as of the
Distribution Date. Certificates issued in
the Distribution representing shares of
Company Common Stock will also represent an
equivalent number of associated Rights. See
"CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN
PROVISIONS OF THE ARTICLES OF INCORPORATION,
THE BYLAWS, THE RIGHTS, AND KANSAS LAW."
9
<PAGE>
Certain Antitakeover Effects of
Certain Provisions of the
Articles of Incorporation
and Bylaws.................... Certain provisions of the Company's Articles
of Incorporation (the "Articles of
Incorporation") and Bylaws, as amended, as
each will be in effect as of the
Distribution, may have the effect of making
more difficult an acquisition of control of
the Company in a transaction not approved by
the Company Board. See "CERTAIN ANTITAKEOVER
EFFECTS OF CERTAIN PROVISIONS OF THE
ARTICLES OF INCORPORATION, THE BYLAWS, THE
RIGHTS, AND KANSAS LAW." The Articles of
Incorporation would, in some circumstances,
eliminate certain liabilities of the Company
directors in connection with the performance
of their duties. See "LIABILITY AND
INDEMNIFICATION OF DIRECTORS AND OFFICERS."
Post-Distribution Dividend
Policy........................ Under the Distribution Agreement, the Company
will be restricted from paying dividends
until the second anniversary of the
Distribution Date. However, Seafield expects
to continue its current dividend of $0.30
per quarter.
Transfer Agent and Registrar..... American Stock Transfer & Trust Company, 40
Wall Street, 46th Floor, New York, N.Y.
10005. Telephone (718) 921-8200.
10
<PAGE>
SLH OPERATIONS
SUMMARY FINANCIAL INFORMATION
The following table sets forth a summary of selected historical combined
financial data for the Company. The historical financial information presented
reflects periods during which the Company did not exist but rather reflects the
financial information of Seafield's businesses and assets that will be
transferred to the Company in connection with the Distribution as well as
related liabilities to be assumed by the Company. References to the "Company"
herein for time periods prior to the Distribution mean the Transfer Assets,
Transfer Liabilities and related businesses as managed and conducted by Seafield
prior to the Distribution ("SLH Operations") and, for time periods following the
Distribution, mean the Company as capitalized by Seafield with the Transfer
Assets and Transfer Liabilities pursuant to the Distribution Agreement (the
"Distribution Agreement") between Seafield and the Company. The historical
financial information presented may not necessarily be indicative of the results
of operations or financial condition that would have been obtained if the
Company had been a separate, independent company during the periods shown.
Neither should the information be deemed to be indicative of the Company's
future performances as an independent company. The financial information should
be read in conjunction with the Company's Combined Financial Statements and the
notes thereto found elsewhere in this Information Statement. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
<TABLE>
(unaudited)
Nine months ended
September 30, Years ended December 31,
------------- ------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(in thousands)
<C> <C> <C>
Statement of Operations Data
Real estate sales ............ $ 12,801 7,390 10,485 10,932 16,297 33,067 17,689
Real estate rentals and other 576 723 1,001 1,059 1,173 1,701 1,404
-------- ------ -------- -------- -------- -------- --------
Total Revenues .......... 13,377 8,113 11,486 11,991 17,470 34,768 19,093
-------- ------ -------- -------- -------- -------- --------
Cumulative effect of change in
accounting principle (1) (1,400) -- -- -- -- -- --
Net loss ..................... (4,903) (2,575) (11,232) (6,545) (4,166) (5,904) (3,431)
Balance Sheet Data
Current assets ............... $ 3,657 N/A 4,432 3,707 6,006 1,538 1,200
Real estate held for sale .... 24,132 N/A 35,073 40,998 39,047 50,703 75,832
Investment securities ........ 4,879 N/A 5,136 6,161 6,624 6,990 6,279
Investment in oil and gas
partnerships and interests 4,102 N/A 5,255 6,703 8,543 11,427 11,668
Total assets ................. 37,937 N/A 51,638 64,627 70,155 84,471 109,074
Current liabilities .......... 683 N/A 365 239 2,150 1,186 1,977
Long-term debt .............. 1,194 N/A 1,289 2,689 1,153 1,153 781
Stockholders' equity ......... 35,802 N/A 49,686 61,147 66,438 81,271 104,849
- --------
</TABLE>
(1) Adoption of statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long- Lived Assets and Long-Lived Assets to be
Disposed Of."
11
<PAGE>
SLH OPERATIONS
SUMMARY OF PRO FORMA FINANCIAL DATA
(Unaudited)
The following unaudited summary pro forma financial data make adjustments
to the historical balance sheet as if the Distribution had occurred on September
30, 1996. See "PRO FORMA FINANCIAL DATA" for a discussion of the principal
adjustments involved in the preparation of the pro forma financial information.
There are no material adjustments to be made with respect to a presentation of
pro forma statements of operations for the nine months ended September 30, 1996,
and the year ended December 31, 1995. Accordingly, historical statements of
operations presented in the SLH Operations Statements of Operations on page F-4
and the historical "Summary of Operations Data" for those periods shown on the
preceding page fairly reflect pro forma results as if the Distribution had
occurred on January 1, 1996 and January 1, 1995. Pro forma per share loss before
cumulative effect of a change in accounting principle was $(2.16) for the nine
months ended September 30, 1996 and $(6.93) for the year ended December 31,
1995 computed on 1,620,862 shares being issued and outstanding for the
entire periods. The pro forma financial statements of the Company may not
reflect the future results of operations or financial condition of the Company
or what the results of operations would have been if the Company had been a
separate independent company during such period. See "PRO FORMA COMBINED
FINANCIAL INFORMATION."
(unaudited)
September 30, 1996
------------------
(in thousands,
except per share
data)
Balance Sheet Data
Current assets ....................................... $14,457
Real estate held for sale ............................ 24,132
Investment securities ................................ 4,879
Investment in oil and gas partnerships and interests . 4,102
Total assets ......................................... 48,737
Current liabilities .................................. 2,433
Long-term debt ....................................... 1,194
Stockholders' equity ................................. 43,652
Stockholders' equity per share (1,620,862
shares outstanding) ............................... 26.93
12
<PAGE>
RISK FACTORS
Readers should be aware of the following risk factors to which the Company
has been subject in the past, is currently and may in the future be subject, and
which could materially adversely affect the performance of the Company. The
Company also cautions readers that, in addition to the historical information
included herein, this Information Statement includes certain forward-looking
statements and information that are based on management's beliefs as well as on
assumptions made by and information currently available to management. When used
in this Information Statement, the words "anticipate," "intend," "plan,"
"believe," "estimate" and similar expressions are intended to identify
forward-looking statements. Such statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions, including,
but not limited to, the following factors which could cause the Company's future
results and stockholder values to differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company.
No Prior Market for Company Common Stock . There is no current public
market for the Company Common Stock. Although it is anticipated that the Company
Common Stock will initially trade in the over-the-counter market after the
Distribution with quotations being published in the OTC Bulletin Board and the
NQB Pink Sheets, following the Distribution the Company Common Stock will not be
listed on a stock exchange and transactions and quotations in the Company Common
Stock will not be reported by the National Association of Securities Dealers,
Inc. through NASDAQ. Accordingly, there can be no assurance that an active
trading market for the Common Stock will develop or be sustained following the
Distribution nor can their be any assurance as to the prices at which the
Company Common Stock will trade following the Distribution.
Potential Volatility of Company Stock Price. Until the Company Common Stock
is fully distributed and an orderly market develops, the prices at which the
Company Common Stock trades may fluctuate significantly. Although GKB has
provided the Seafield Board with its opinion as to the market value of Company
Common Stock as of September 30, 1996, on a pro forma basis, there can be no
assurance that the appraised value will have any relationship to the prices at
which Company Common Stock will trade following the Distribution. Prices for the
Company Common Stock will be determined in the trading markets, to the extent
that one exists, and may be influenced by many factors, including the depth and
liquidity of the market for Company Common Stock, investor perceptions of the
Company and its plan to liquidate the bulk of its non Syntroleum assets and
thereafter possibly engage in a merger or some other transaction that would
effectively dispose of all of its assets. In addition, there is no assurance
that the combined prices of the Company Common Stock and the Seafield Common
Stock following the Distribution will be equal to or greater than the trading
price of Seafield Common Stock prior to the Distribution.
Because Seafield shareholders generally will be obligated to pay Federal
income taxes on the distribution it is possible that there may be a larger
number of sellers of Company Common Stock than buyers following the Distribution
due to the needs of shareholders to generate the cash necessary to make tax
payments. This circumstance could also tend to depress the market price of the
Company Common Stock.
A substantial amount of the total value of the Company's assets will also
consist of shares of the Common Stock of Syntroleum. Although these securities
<PAGE>
are not publicly traded, members of the oil and gas industry have shown interest
in the development of plants and technology for the conversion of natural gas
into liquid fuels and specialty products. Such interest could contribute
significantly to the volatility of prices for Company Common Stock following the
Distribution. See "RISK FACTORS -- Risks Associated With Syntroleum."
No Assurance that GKB Appraised Value of Company Common Stock at September
30, 1996, will reflect Market Prices Following the Distribution. The GKB
Appraisal of the Company Common Stock that was provided to the Seafield Board in
connection with its consideration of the Distribution only reflects GKB's
estimate of the fair market value of the Company Common Stock as of September
30, 1996. Except as specified in the Appraisal, the Appraisal does not take into
account changes occurring since September 30, 1996. The Appraisal is also based
on a number of judgments and assumptions and therefore no assurance can be given
that the Appraisal reflects the amounts
13
the Company may realize upon a disposition of the assets or the prices at which
the Company Common Stock will be traded on or following the Distribution Date.
See "THE DISTRIBUTION -- The Appraisal."
No Representations or Warranties as to the Transfer Assets or Liabilities.
The Distribution Agreement and Assignment generally provide that Seafield is
transferring the Transfer Assets and Transfer Liabilities to the Company without
representation or warranty "as is, where is." Accordingly, any loss arising out
of any imperfection in the Transfer Assets or unanticipated liability inherent
in the Transfer Liabilities will be the loss or liability of the Company and not
that of Seafield following the Distribution.
Potential Losses on Real Estate Assets. Seafield has incurred substantial
losses in connection with its real estate development activities. Although, the
Company does not plan to engage in any further real estate development
activities other than those necessary to maximize the value of the existing real
estate assets, there can be no assurance that the Company will be able to
realize the carrying values of the real estate assets as reflected in the
Financial Statements.
Minority Ownership of Syntroleum. Although the Company owns approximately
32.5% of Syntroleum, is the largest stockholder of Syntroleum, has substantial
representation on the Syntroleum board of directors and key committees of that
board of directors and participate actively in the financing, management and
development of that business, Syntroleum is not majority owned by the Company
and therefore the Company does not have the absolute right to manage, control or
veto the taking of certain actions including, without limitation a merger, sale
of all or substantial all of the assets of such entity, the declaration of
dividends or the issuance of additional capital stock. In addition a
stockholders' agreement among the Syntroleum Stockholders restricts the transfer
of the Company's holdings of Syntroleum Common Stock. Accordingly, Syntroleum
may take actions or omit to take actions that are not deemed by the Company
Board to be in the best interests of the Company's stockholders.
Regulation - Possible Application of the Investment Company Act of 1940
Although the Company believes that immediately following the Distribution
it will not be an investment company under the Investment Company Act of 1940
(the "1940 Act"), certain circumstances could occur that would subject the
<PAGE>
Company to investment company regulation. For example, if more than 40% of the
Company's assets consist of investment securities and the Company's percentage
ownership interest in Syntroleum should drop below 25% or if the amount of the
Company's Miscellaneous assets and other securities held by the Company should
become greater than 45% of the Company's total assets or if the income derived
from such securities exceeds 45% of the Company's net income after taxes, and if
such ratio is not corrected within a year, then the Company could become subject
to regulation by the SEC under the 1940 Act. Such regulation could significantly
and adversely affect the Company's activities. In order to minimize the
likelihood of such event, the Company intends to take such action as may be
appropriate to maintain its primary control over Syntroleum and to reinvest the
proceeds of sales of its Real Estate and Miscellaneous assets to the extent
necessary in Government securities and other operating assets pending any merger
or other disposition of the Company's assets and businesses.
No Arms-Length Negotiation of Distribution and Related Agreements. The
Company and Seafield have entered into a number of agreements for the purpose of
effecting the Distribution and defining the ongoing relationship between them.
These agreements consist of the Distribution Agreement, Interim Services
Agreement and Tax Sharing Agreement described under "ARRANGEMENTS BETWEEN
SEAFIELD AND THE COMPANY RELATING TO THE DISTRIBUTION" as well as compensation
arrangements described under "EXECUTIVE COMPENSATION." These agreements have
been developed by Seafield in connection with its strategy to create the Company
and cause its stock to be distributed to Seafield shareholders in the
Distribution. Accordingly, none of the agreements are the result of arm's-length
negotiation between independent parties. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
Possible Conflicts with Seafield after the Distribution. Following the
Distribution certain executive officers and directors of Seafield will be the
executive officers and directors of the Company, and will continue in such dual
capacities for an indefinite period of time. Because the management of both
Seafield and the Company will be
14
essentially identical following the Distribution conflicts may arise with
respect to the operation and effect of the Distribution Agreement, the Interim
Services Agreement and the Tax Sharing Agreement mentioned above. Conflicts may
also occur with respect to the negotiation of any additional agreements which
may well arise between Seafield and the Company. Although Seafield and the
Company plan to utilize independent directors who have no affiliation with the
Company to resolve any material issue that may arise between Seafield and the
Company following the Distribution, such resolutions may not reflect the results
of arms-length negotiations. Accordingly, conflicts arising out of the
management of both Seafield and the Company by the same persons could have an
adverse affect on the Company and its stockholders if not properly resolved. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Impact of Possible Contingent Liabilities and Tax Claims. Under the
Distribution and Assignment Agreements the Company will assume all of Seafield's
liability for the Tax Claims asserted by the Internal Revenue Service and the
State of California discussed elsewhere (which have a possible exposure of up to
$14.6 million plus interest) and any other claims made against Seafield or
liabilities of Seafield arising out of Seafield's operation and ownership of the
Transfer Assets. Although the Company and Seafield believe that the financial
statements of the Company reflect proper accruals for such contingent
<PAGE>
liabilities and Tax Claims, no assurance can be given that the accruals will be
adequate or that claims for which no accruals have been established will be
asserted that could have a material adverse affect on the financial condition
and results of operation of the Company following the Distribution.
See "BUSINESS AND PROPERTIES -- Legal Matters."
Company Policy to Not Pay Dividends. It is anticipated that the Company
will not pay regular annual or quarterly cash dividends following the
Distribution. The Company plans to reinvest amounts derived from the sale of
Real Estate and Miscellaneous assets and oil and gas properties in Government
securities, and in corporate debt and equity securities and money market
instruments to the extent that such investments will not subject the Company to
regulation as an Investment Company under the 1940 Act. The Company may also
make additional investments in Syntroleum or in existing real estate assets. As
further assurance for the Company's obligations in connection with the
Distribution, the Company has agreed that it will not pay any dividends in cash
or property or redeem any of its capital stock for a period of two years
following the Distribution Date, without the consent of the Seafield Board.
Unavailability of Seafield's Financial and Other Resources. Prior to the
distribution Seafield provided substantial financial support to Syntroleum.
However, following the Distribution the Company will no longer be a wholly owned
subsidiary of Seafield and will no longer be able to rely on Seafield for
financial support. Nor will the Company be able to benefit from its relationship
with Seafield to obtain credit for the purpose of supporting its operations.
Although the Company expects to generate excess cash flows from the liquidation
of its real estate and Miscellaneous assets, its assumption of the Tax Claims
and its assumption of other contingent liabilities may preclude the use of any
such resources to promote its Energy business.
Dependence upon Key Personnel. The Company is dependent upon the ability
and experience of its executive officers. The Company currently has employment
contracts with three of the Company's executive officers. The loss of the
services of any or all of its executive officers or the Company's inability in
the future to attract and retain management and other key personnel could have a
material adverse effect on the Company. Furthermore, the Company does not carry
key man insurance on any of such persons.
Certain Antitakeover Effects of Certain Provisions of the Articles of
Incorporation and Bylaws. Certain provisions of the Company's Articles of
Incorporation and Bylaws, may have the effect of making more difficult an
acquisition of control of the Company in a transaction not approved by the
Company Board. See "CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE
ARTICLES OF INCORPORATION, THE BYLAWS, THE RIGHTS, AND KANSAS LAW." The Articles
of Incorporation would, in some circumstances, eliminate certain liabilities of
the Company directors in connection with the performance of their duties. See
"LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS."
Risks Associated with Syntroleum. Syntroleum is a small developmental
venture having September 30, 1996, unaudited accumulated deficit of $3.3 million
and net shareholders' equity of $1.4 million. Unaudited losses from
15
<PAGE>
operations for the nine months ended September 30, 1996, were $766,000. The
Syntroleum(R) Process developed by Syntroleum is in direct competition with
processes developed by a number of major oil companies which have substantially
greater financial and technical resources relative to those available to
Syntroleum. Furthermore, the Syntroleum(R) Process has not been tested in a
plant designed to produce commercially viable quantities and such testing can
not occur until a plant has been developed and constructed, which could take up
to two years from the commencement of construction. Although, Syntroleum has
entered into joint development and license agreements with Texaco, these
agreements do not assure that the development process will be completed or that
Texaco will use its license rights to build a plant using the Syntroleum(R)
Process. Until a plant using the Syntroleum(R) Process is constructed and placed
in profitable operation, Syntroleum will not have assurance of the commercial
feasibility of its process or whether it will be able to successfully compete
with processes developed by companies having much greater financial resources.
Accordingly, there can be no assurance that the Company or its stockholders will
realize the amount of the appraised value of the Company's interest in
Syntroleum.
INTRODUCTION
On December 24, 1996, Seafield announced that its Board of Directors (the
"Seafield Board") had approved a proposal for a strategic restructuring to
separate Seafield into two publicly-traded companies by means of a taxable
dividend distribution to Seafield's shareholders (the "Distribution"). The
Distribution will be effected by contributing Seafield's Real Estate and Energy
businesses and Miscellaneous Assets (the "Transfer Assets") together with
certain associated liabilities (the "Transfer Liabilities"), to SLH CORPORATION,
a newly formed Kansas corporation (the "Company") and a wholly owned subsidiary
of Seafield and by thereafter distributing the Company Common Stock and
associated Rights pro rata to Seafield shareholders. The date of the
Distribution is expected to be March 3, 1997 (the "Distribution Date").
References to the "Company" herein for time periods prior to the Distribution
mean the Transfer Assets, Transfer Liabilities and related businesses as managed
and conducted by Seafield prior to the Distribution ("SLH Operations") and, for
time periods following the Distribution, mean the Company as capitalized by
Seafield with the Transfer Assets and Transfer Liabilities pursuant to the
Distribution Agreement (the "Distribution Agreement") between Seafield and the
Company.
Seafield has received an opinion from its counsel to the effect that the
Distribution will be a taxable event for Federal income tax purposes (the "Tax
Opinion"). The amount of the Distribution for Federal income tax purposes will
be the fair market value of the SLH Common Stock distributed as of the
Distribution Date. The amount of the distribution will be treated as a dividend
of ordinary income to the extent of each Seafield shareholder's pro rata share
of Seafield's current and accumulated earnings and profits, then as a non
taxable return of capital to the extent of the Seafield shareholder's basis in
the Seafield Common Stock, with any remaining amount generally being taxed as a
capital gain. Special rules may apply to certain shareholders, including
corporate shareholders, shareholders who are dealers, shareholders subject to
back-up withholding and foreign shareholders. The fair market value of the
Company Common Stock will be determined by Seafield after the Distribution as of
the Distribution Date based on a number of factors that will include, without
limitation, the trading price of Company Common Stock at or near the
Distribution Date and information and advice received by Seafield from GKB. GKB
has been engaged by the Seafield Board to advise it in connection with the
<PAGE>
Distribution and to appraise the value of the Company Common Stock. After this
determination is made Seafield will report the amount of the Distribution
received by each shareholder to such shareholder and to the IRS on IRS Form
1099-DIV. Seafield shareholders are urged to consult their own tax advisors as
to the specific tax consequences to them of the Distribution. See "THE
DISTRIBUTION -- Material Federal Income Tax Consequences of the Distribution."
The Distribution is conditioned upon, among other things, completion of the
transfer of the Transfer Assets and assumption by the Company of the Transfer
Liabilities, and the receipt of certain consents. Any of the conditions to the
Distribution may be waived, at any time prior to the Distribution Date, for any
reason, in the sole discretion of the Seafield Board. See "THE DISTRIBUTION --
Conditions and Termination."
The Distribution will be effected by distributing to holders of the common
stock, par value $1 per share, of Seafield ("Seafield Common Stock"), all of the
outstanding common stock, par value $0.01 per share, of the Company
16
("Company Common Stock"), including the associated preferred share purchase
rights (the "Rights") at the rate of one share of Company Common Stock for each
four shares of Seafield Common Stock. Prior to the Distribution Date, the
Company will deliver certificates for the shares of Company Common Stock to
American Stock Transfer & Trust Company as the distribution agent (the
"Distribution Agent") for transfer and distribution to the holders of Seafield
Common Stock as of the Record Date (as defined herein) for the Distribution. The
Distribution will occur on March 3, 1997, unless sooner terminated by the
Seafield Board.
The Company's principal executive offices are located at 2600 Grand
Boulevard, Suite 500, P.O. Box 410949, Kansas City, Missouri 64141, and its
telephone number is (816) 842-7000. Shareholders of Seafield with inquiries
relating to the Distribution should contact Ms. Kimberly Schaefer at that
address and phone number.
NO ACTION IS REQUIRED BY SEAFIELD SHAREHOLDERS IN ORDER TO RECEIVE THE
COMPANY COMMON STOCK TO WHICH THEY WILL BE ENTITLED IN THE DISTRIBUTION UPON
PAYMENT OF THE DIVIDEND.
THE DISTRIBUTION
Background and Reasons for the Distribution
In late 1990 Seafield began a transformation process from an insurance
company to a holding company with a new focus. Seafield's principal assets after
the sale of its insurance subsidiary consisted of a majority ownership of a
publicly traded laboratory testing business ("LabOne") a significant interest in
a publicly traded cancer management business ("Response"), the Real Estate
business, Energy assets, including Syntroleum, several venture capital
investments and a significant amount of cash. The strategy of Seafield was
deployment of resources into developing businesses that provide services to the
healthcare and insurance industries. The sources of cash for these investments
were the proceeds from the sale of the insurance company, gains on securities
transactions, real estate sales from real estate operations and the sale of
other assets that did not support the strategic focus on the healthcare and
insurance industries. By 1995 Seafield had made considerable progress consistent
<PAGE>
with that focus by increasing its ownership in LabOne to over 80% and its
interest in Response to approximately 60% and had sold and disposed of several
majority owned investments. In 1996, after also considering a sale of the
Transfer Assets, the Seafield Board decided to further pursue its focus on the
healthcare and laboratory testing industries by spinning off Seafield's
remaining Real Estate and Energy Businesses and Miscellaneous Assets to
shareholders in the Distribution.
The Seafield Board concluded that the Distribution was in the best
interests of Seafield Shareholders since it would separate the Company's assets
from Seafield's other core businesses and thereby provide investors a sharper
focus as to the particular merits of each of those investments and provide
greater recognition of the value of the Company's assets. The Seafield Board has
also considered a variety of strategic alternatives for its remaining core
businesses, including the possibility of a merger into LabOne, the sale of one
or more of its other core businesses and the sale of Seafield as a whole.
Although no such transactions have been agreed upon or are under negotiation, it
is believed that the transfer of the Transfer Assets and Transfer Liabilities to
the Company will better position Seafield for any such alternative while at the
same time permitting the Company to pursue a long term strategy for the
development, management and disposition of its relatively illiquid and
developmental assets. Seafield believes that the Distribution is a strategy
superior to an immediate sale of those Businesses and Assets. The present
transfer of those assets to the Company will permit their sale or other
disposition on a more orderly basis thereby increasing the opportunities to
maximize their net present value. Seafield believes that realization of
Syntroleum's potential will likely take at least two years and if Seafield were
to affect a near-term sale of the other Transfer Assets, Seafield would likely
receive an unacceptably low value.
It is believed that the Distribution at this time will further Seafield's
commitment to enhancing shareholder values, because it should enable Seafield
shareholders to have the market value of their interests in Seafield more
closely reflect the true value of the underlying assets. The Seafield Board
believes that the market has not fully recognized the
17
value of the Seafield Common Stock due to the fact that the Company's Real
Estate and Energy Businesses and Miscellaneous Assets have been combined with
Seafield's core healthcare and laboratory testing businesses. A comparison over
several years of Seafield's market capitalization with the aggregate of the
public trading market values of Seafield's holdings of LabOne and Response
indicates that investors have ignored or attributed little value to the Real
Estate and Energy Businesses and Miscellaneous Assets in pricing Seafield Common
Stock. By separating the Company's assets from Seafield's publicly traded core
businesses into Seafield Common Stock and Company Common Stock, it is believed
that investors may be better able to ascertain the value of each of those
assets. After the Distribution, Seafield will consist of two publicly traded
core businesses that already have common stock values that are readily
ascertainable. This should enable investors to gain a more accurate perception
of the value of the Seafield Common Stock. For a similar reason, the transfer of
the Real Estate and Energy Businesses and Miscellaneous Assets into a publicly
traded entity that contains no other assets should facilitate the public
recognition of the value of those assets. Since the first public announcement of
the proposed Distribution, the public trading market values of Seafield's
holdings of LabOne and Response have remained in a narrow range. During the same
period, Seafield's market capitalization has increased more than ten percent
<PAGE>
(10%). However, there is no assurance that the combined prices of the Company
Common Stock and the Seafield Common Stock following the Distribution will be
equal to or greater than the trading price of Seafield Common Stock prior to the
Distribution.
The Distribution would also permit the Company to pursue strategies for the
management and development of a variety of illiquid and developmental assets
that would not conflict with Seafield's strategies for the laboratory testing
and healthcare businesses. Seafield's business plan for its Real Estate and
Energy businesses and Miscellaneous assets has been to realize the value of the
real estate assets in an orderly manner and to grow the other businesses and
assets to maturity and to then dispose of them in an orderly manner over an
indefinite period of time. Although it is contemplated that many of the Real
Estate and Miscellaneous assets may be successfully disposed of over the next
two to three years, a longer period will likely be required for Syntroleum.
Syntroleum is beginning to emerge from 12 years of developing its Syntroleum(R)
Process. However, a commercially viable processing plant using the Syntroleum(R)
Process has not been constructed or placed in operation and a considerable
amount of time and additional capital funding may be necessary to move
Syntroleum from a start-up venture to a second stage operating enterprise.
Following the Distribution the Company plans to sell all of its assets,
other than Syntroleum, in an orderly manner and under circumstances that would
enable the Company to take advantage of opportunities to maximize the net
amounts recoverable from each asset. Concurrent with these activities the
Company will continue to assist Syntroleum with its efforts to license the
Syntroleum Process, market its catalyst and to ultimately construct and operate
plants for the conversion of natural gas into synthetic liquid hydrocarbons.
These activities will include assistance with strategic planning and the
acquisition of debt and or equity financing for the construction of one or more
Syntroleum plants. That assistance may also include further investment by the
Company in Syntroleum or directly in one or more Syntroleum plants. Following
the liquidation of non Syntroleum assets, the Company expects to continue to
promote the management, growth and development of Syntroleum or it may engage in
a merger or some other transaction that would effectively dispose of all of its
assets. The Company's primary source of revenue to support operations will be
derived from the operation and sale of non Syntroleum assets and available cash.
Excess proceeds may be used to prepare assets for ultimate sale, and, depending
on the progress made by Syntroleum, for possible further investment in
Syntroleum or in one or more Syntroleum plants. See "BUSINESS AND PROPERTIES --
Strategy."
The Seafield Board chose to have the Company assume the liability, if any,
with respect to the $14.6 million of Tax Claims of the Internal Revenue Service
and the State of California for a number of reasons. The liabilities have no
relation to Seafield's current core laboratory testing and cancer management
businesses while the historical basis for the largest single component of the
Tax Claims is an issue relating to a tax loss from the sale of an interest in
a real estate partnership. That component derives from the real estate
business being transferred to the Company. As a consequence, the personnel
familiar with and responsible for the settlement and resolution of the claims
consist entirely of personnel of the Company's Real Estate subsidiary and other
Company officers. Finally, notwithstanding Seafield's and the Company's belief
that adequate accruals have been made for the liability, if any, respecting
the Tax Claims, there is necessarily uncertainty as to the ultimate outcome;
by having the Company assume such liability, Seafield will be able
18
<PAGE>
to pursue various strategic alternatives for its core businesses, including
alternatives which involve third parties, without such third parties having a
concern for the ultimate outcome of the Tax Claims. For the foregoing reasons,
the Seafield Board concluded that the Tax Claims could be more favorably managed
in the interests of all Seafield shareholders by the Company.
The Seafield Board recognized in its planning that the Distribution would
result in a transaction taxable both to Seafield and Seafield shareholders.
However, due to the nature of the Company's businesses and the amount and
duration of Seafield's holdings thereof, Seafield and the Company are not
positioned to effect the Distribution on a tax free basis. The Board has
considered that Seafield's net capital losses and its tax basis in Company
Common Stock (and prior to their transfer to the Company, in the Transfer
Assets) will significantly reduce the amount of taxable gains to Seafield that
would otherwise be recognized. Accordingly, it concluded that the benefits of
the restructuring would more than offset any negative tax consequences of the
restructuring. See "THE DISTRIBUTION - Material Federal Income Tax Consequences
of the Distribution."
For the reasons stated above, the Seafield Board believes that the
Distribution is in the best interests of Seafield and its shareholders.
The Appraisal
In connection with its deliberations relating to the Distribution the
Seafield Board engaged GKB to appraise the fair market value of the Company
Common Stock to be distributed in the Distribution as if the Distribution Date
had occurred at the close of business on September 30, 1996 (the "Appraisal").
The Appraisal was commissioned so that the Board would have a basis for
estimating the tax impact of the Distribution on Seafield shareholders and on
Seafield in order to determine whether the Distribution should be effected. The
GKB opinion is appended to this Information Statement as Annex A. The Appraisal
concludes that if the Distribution had occurred as of the close of business on
September 30, 1996, each share of the 1,620,862 shares to be distributed in the
Distribution would have had a fair market value of $27.25 per share. As
described in the Appraisal, GKB's opinion is based upon the financial statements
of the Company included in this Information Statement, GKB's inspection of the
Transfer Assets and Transfer Liabilities, interviews of management of the
Company and of Syntroleum, and an examination of documents, books and records
relating to the Transfer Assets and Liabilities.
The Appraisal does not take into account changes occurring since September
30, 1996, other than the matters referred to under "MANAGEMENTS' DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Recent
Developments." Except as stated in that section, the Company is not aware of any
material change in the financial condition or results of operations of the
Company since September 30, 1996.
The Appraisal is also based on a number of judgements and assumptions and
therefore no assurance can be given that the Appraisal reflects the amounts the
Company may realize upon a disposition of the assets, the prices at which the
Company Common Stock will be traded on or following the Distribution Date or the
tax consequences of the transaction to any Seafield Shareholder or to Seafield.
<PAGE>
Manner of Effecting the Distribution
It is expected that the Distribution will be consummated on March 3,
1997, the Distribution Date. At the time of the Distribution, share certificates
for Company Common Stock will be delivered to American Stock Transfer & Trust
Company, as Distribution Agent, for mailing. On or as soon as practicable after
the Distribution Date, the Distribution Agent will commence mailing the share
certificates to holders of Seafield Common Stock as of the close of business on
February 24, 1997 (the "Record Date") on the basis of one share of Company
Common Stock and associated Right for each four (4) shares of Seafield Common
Stock held on the Record Date. All such shares of Company Common Stock will be
validly issued, fully paid, nonassessable and free of preemptive rights. See
"DESCRIPTION OF COMPANY CAPITAL STOCK."
19
No certificates or scrip representing fractional shares of Company Common
Stock will be issued to Seafield shareholders as part of the Distribution. The
Distribution Agent will aggregate fractional shares into whole shares and sell
them in the open market at then prevailing prices on behalf of holders who
otherwise would be entitled to receive fractional share interests, and such
persons will receive instead a cash payment in the amount of their pro rata
share of the total sale proceeds. Proceeds from sales of fractional shares will
be paid by the Distribution Agent based upon the average gross selling price per
share of Common Stock of all such sales. Seafield will bear the cost of
commissions incurred in connection with such sales. Such sales are expected to
be made as soon as practicable after the Record Date. None of Seafield, the
Company or the Distribution Agent will guarantee any minimum sale price for the
shares of Company Common Stock, and no interest will be paid on the proceeds.
No vote of Seafield shareholders is being requested since such vote is not
required under the General and Business Corporation Law of Missouri. Although
that law does require a shareholder vote in connection with the disposition of
all or substantially all of Seafield's assets, a vote is not required in this
case because the total amount of assets to be transferred to the Company amount
to only a small percentage of Seafield's total assets and do not constitute a
Seafield core business. The total amount of the assets to be transferred to the
Company in the Distribution, based on the unaudited pro forma combined Balance
Sheet as of September 30, 1996, is approximately $48.7 million. At the same date
Seafield's total assets were approximately $280 million at September 30, 1996.
NO HOLDER OF SEAFIELD COMMON STOCK WILL BE REQUIRED TO PAY ANY CASH OR
OTHER CONSIDERATION FOR THE SHARES OF COMPANY COMMON STOCK TO BE RECEIVED IN THE
DISTRIBUTION OR TO SURRENDER OR EXCHANGE SHARES OF SEAFIELD COMMON STOCK OR TO
TAKE ANY OTHER ACTION IN ORDER TO RECEIVE COMPANY COMMON STOCK. THE DISTRIBUTION
WILL NOT AFFECT THE NUMBER OF, OR THE RIGHTS ATTACHING TO, OUTSTANDING SHARES OF
SEAFIELD COMMON STOCK.
Material Federal Income Tax Consequences of the Distribution
Introduction. The discussion set forth below is a summary of the material
tax consequences respecting the Distribution. The discussion does not purport to
be a complete analysis of all of the potential tax effects of the Distribution
or of ownership of Company Common Stock (including the Rights) following the
Distribution. The discussion is limited to United States Federal income tax
matters. The discussion is based upon the Internal Revenue Code of 1986,
Treasury regulations, Internal Revenue Service ("IRS") rulings, and judicial
<PAGE>
decisions now in effect, all of which are subject to change at any time,
possibly with retroactive effect, by legislative, judicial, or administrative
action.
The discussion does not address the tax consequences of receipt of the
Distribution to taxpayers which are subject to special rules that do not apply
to taxpayers generally, such as life insurance companies, tax-exempt
organizations, regulated investment companies, S corporations, financial
institutions, broker-dealers in securities, foreign entities, and nonresident
alien individuals.
The discussion insofar as it relates to legal matters is a summary of the
Tax Opinion provided by Lathrop & Gage L.C., to the Seafield Board, a copy of
which is appended as an exhibit to the Registration Statement. The Tax Opinion
is based on certain factual representations and assumptions concerning Seafield
and the Company. Seafield is not aware of any present facts or circumstances
which would cause such representations and assumptions to be untrue. Seafield
has not sought, and it does not intend to seek, a ruling from the IRS as to any
of the matters covered by the discussion. Lathrop & Gage L.C. has reviewed this
summary and its opinion states the opinion of that firm that this summary is
correct in all material respects.
THE TAX CONSEQUENCES OF RECEIVING THE DISTRIBUTION AND OWNING COMPANY
COMMON STOCK (INCLUDING RIGHTS) MAY VARY DEPENDING ON A HOLDER'S PARTICULAR
SITUATION. SEAFIELD SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX
ADVISORS REGARDING THE TAX CONSEQUENCES TO THEM OF RECEIPT OF THE DISTRIBUTION
20
AND OWNERSHIP OF COMPANY COMMON STOCK (INCLUDING RIGHTS), INCLUDING BUT NOT
LIMITED TO THE APPLICATION TO THEM OF FEDERAL ESTATE AND GIFT, STATE, LOCAL,
FOREIGN, AND OTHER TAX LAWS.
Receipt of the Distribution by Seafield Shareholders. The Distribution will
be a taxable event to Seafield's shareholders for Federal income tax purposes.
The amount of the Distribution received by each Seafield shareholder for Federal
income tax purposes will be the fair market value of the SLH Common Stock
(including the Rights) received by such shareholder as of the Distribution Date
(including the fair market value of fractional shares). The amount of the
Distribution received by each Seafield shareholder will be treated as a dividend
(i.e., as ordinary income) to such shareholder to the extent of such
shareholder's pro rata share of Seafield's current and accumulated earnings and
profits as computed for Federal income tax purposes. The amount of the
Distribution received by each Seafield shareholder that is not treated as a
dividend will first be treated as a nontaxable return of capital to the extent
of such shareholder's basis in its Seafield Common Stock, and then as an amount
received by such shareholder from the sale or exchange of property. The amount
that is treated as received by a Seafield shareholder from the sale or exchange
of property will generally be a capital gain, and the capital gain will be
long-term capital gain if the shareholder has held its Seafield stock for more
than one year. For purposes of determining the amount of the Distribution
received by a Seafield shareholder that constitutes a dividend, the
shareholder's pro rata share of Seafield's current and accumulated earnings and
profits will be based on the shareholder's percentage ownership of Seafield
Common Stock.
<PAGE>
Based on Seafield's current level of accumulated earnings and profits it is
believed that all or a substantial amount of the Distribution will result in the
recognition by Seafield's shareholders of ordinary income.
Each Seafield shareholder for Federal income tax purposes will acquire an
initial tax basis in such shareholder's Company Common Stock equal to the fair
market value of the property, i.e., the value of the Company Common Stock
(including the Rights), that is received by such shareholder as of the
Distribution Date. Each Seafield shareholder's holding period for Company Common
Stock received in the Distribution will begin on the Distribution Date. Also,
certain special rules, that permit a deduction for certain dividends received by
a corporation, will generally apply in the case of corporations that receive the
Distribution, as described below under the caption "Special Rules Applicable to
Corporate Shareholders -- Deduction for Dividends Received."
As mentioned above, the amount of the Distribution received by each
Seafield shareholder for Federal income tax purposes will be the fair market
value of the property, i.e., the value of the Company Common Stock (including
the Rights), that is received by such shareholder as of the Distribution Date
(including the fair market value of fractional shares). Seafield will make a
determination of the fair market value of the SLH Common Stock as of the
Distribution Date after such date based on a number of factors that will
include, without limitation, the trading price of SLH Common Stock at or near
the Distribution Date and information and advice to be received by Seafield from
GKB. Prior to January 31, 1998 Seafield will report the amount of the
Distribution received by each shareholder to such shareholder and to the IRS on
IRS Form 1099-DIV.
There is no assurance that the IRS or the courts will agree that the amount
of the Distribution received by a Seafield shareholder is the amount determined
by Seafield, and it is possible that the IRS and the courts will ultimately
determine that Seafield's shareholders, or some of them, received a larger
Distribution for Federal income tax purposes than the amounts reported to them
by Seafield. If the IRS were to challenge the amount of the Distribution
reportable by any Seafield shareholder on such shareholder's Federal income tax
return, then such shareholder would have to bear the expense and effort of
defending against or otherwise resolving such challenge.
Special Rules Applicable to Corporate Shareholders -- Deduction for
Dividends Received. A corporate holder of Seafield Common Stock will generally
be entitled, in computing its taxable income for the tax year in which the
Distribution occurs, to a deduction in an amount equal to 70 percent of the
amount of the Distribution received by it that constitutes a dividend. This
deduction does not apply to any portion of the Distribution that constitutes a
return of capital or taxable gain, and it is subject to several limitations as
described in the following paragraphs.
21
<PAGE>
The dividends received deduction will be available only for dividends
received on shares of Seafield Common Stock that the corporate holder has held
for at least 46 days, or at least 91 days if the Distribution is deemed to be
attributable to a period or periods aggregating more than 366 days. A holder's
holding period for these purposes generally will be reduced by periods during
which: (i) the holder has an option to sell, is under a contractual obligation
to sell, or has made (but not closed) a short sale of substantially identical
stock or securities; (ii) the holder is the grantor of an option to purchase
substantially identical stock or securities; or (iii) the holder's risk of loss
with respect to the shares is considered diminished by reason of the holding of
one or more positions in substantially similar or related property.
In addition to the foregoing, no dividends received deduction will be
allowed to a corporate holder of Seafield Common Stock for a dividend received
by such holder with respect to such stock to the extent that the holder is
obligated (whether pursuant to a short sale or otherwise) to make related
payments with respect to positions in substantially similar or related property.
The dividends received deduction allowed to a corporate holder of Seafield
Common Stock with respect to all dividends received by such holder during the
tax year in which the Distribution occurs, and not simply the amount of the
Distribution that is a dividend or other dividends received by such holder from
Seafield, will be limited to a specified proportion of the holder's adjusted
taxable income for such year. Also, the dividends received deduction allowed to
a corporate holder may be reduced or eliminated in accordance with the rules set
forth in Section 246A of the Code if the holder has indebtedness that is
directly attributable to its investment in portfolio stock, such as the Seafield
Common Stock.
Special rules may apply to a corporate holder of Seafield Common Stock if
the amount of the Distribution received by such holder is considered to be an
"extraordinary dividend" within the meaning of Section 1059 of the Code. If the
amount of the Distribution received by a corporate holder constitutes an
extraordinary dividend with respect to such holder's Seafield Common Stock, and
if the holder has not held such stock for more than two years before Seafield
declared, announced, or agreed to the amount or payment of such dividend,
whichever is earliest, then the holder's basis in the stock will be reduced (but
not below zero) by any non-taxed portion of the dividend, which generally is the
amount of the dividends received deduction. For purposes of determining if
Seafield Common Stock has been held for more than two years, rules similar to
those that are applicable to determining how long such stock has been held for
purposes of the dividends received deduction will apply. Upon the sale or
disposition of Seafield Common Stock, any part of the non-taxed portion of an
extraordinary dividend that has not been applied to reduce basis because of the
limitation on reducing basis below zero will be treated as gain from the sale or
exchange of such stock.
The amount of the Distribution received by a corporate holder of Seafield
Common Stock generally will constitute an "extraordinary dividend" if the amount
received by such holder: (i) equals or exceeds five percent of the holder's
adjusted basis in the stock, treating all dividends having ex-dividend dates
within an 85-day period as one dividend; or (ii) exceeds 20 percent of the
holder's adjusted basis in the stock (determined without regard to any reduction
for the non-taxed portion of other extraordinary dividends), treating all
dividends having ex-dividend dates within a 365-day period as one dividend. A
holder may elect to use the fair market value of the stock, rather than its
adjusted basis, for purposes of applying the five percent and 20 percent
limitations, if the holder is able to establish such fair market value to the
satisfaction of the IRS.
<PAGE>
In addition to the foregoing rules which limit the dividends received
deduction, a corporate holder of Seafield Common Stock in general may, for
purposes of computing its alternative minimum tax liability, be required to
include in its alternative minimum taxable income the amount of any dividends
received deduction allowed in computing regular taxable income.
Payment of the Distribution by Seafield. Distributions of property made by
Seafield to its shareholders with respect to their stock, such as the
Distribution, must in certain circumstances be treated as if Seafield sold the
property in a taxable sale at its fair market value. This rule will apply to the
Distribution if Seafield's tax basis in the distributed property is less than
the fair market value of the property at the Distribution Date. Seafield
estimates that if the fair market value of the Company Common Stock (including
the Rights) distributed in the Distribution exceeds Seafield's tax basis in such
property at the Distribution Date, the Distribution will be treated as a taxable
sale to Seafield and
22
Seafield will recognize gain on the Distribution in an amount equal to the
excess of the fair market value of the distributed property on the Distribution
Date over Seafield's tax basis on such property. If, however, Seafield's tax
basis in the Company Common Stock (including the Rights) exceeds the fair market
value of such property on the Distribution Date, then no gain or loss will be
recognized by Seafield on the Distribution. As described above, the amount of
the Distribution (i.e., the fair market value of the property that is
distributed) will be determined by Seafield after the Distribution based on a
number of factors that will include, without limitation, the trading price of
Company Common Stock at or near the Distribution Date and information and advice
to be received by Seafield from GKB.
Seafield's estimated tax basis in the assets to be distributed in the
Distribution would be approximately $70.0 million, on a pro forma basis if the
Distribution were to have occurred on September 30, 1996. Accordingly, if the
amount of the Distribution is ultimately determined to be equal to the
approximate $44.2 million September 30, 1996, appraised value of all of the
Company Common Stock and if Seafield's tax basis remains the same, then, under
such circumstances, no gain or loss should be recognized by Seafield on the
Distribution. However, no assurance can be given that the actual values and
actual tax basis will be consistent with those values at September 30, 1996, and
therefore no assurance can be given as to the actual impact of the Distribution
on Seafield until after the Distribution.
Tax Consequences of Distribution to the Company. The Distribution by
Seafield to its shareholders, although consisting of Company Common Stock and
the Rights, will have no tax consequences to the Company. Immediately preceding
the Distribution, however, Seafield will transfer the Transfer Assets and
Transfer Liabilities to the Company and, in exchange, the Company will issue to
Seafield the Company Common Stock (including the Rights) to Seafield that will
be distributed by Seafield in the Distribution. In that transaction the Company
will acquire a tax basis in the Transfer Assets that, in general, is equal to
Seafield's tax basis in such assets increased by any gain recognized by Seafield
on such transaction. It is anticipated that Seafield will not recognize any gain
on the transfer of the Transfer Assets and Transfer Liabilities to the Company,
and therefore it is anticipated that the Company's tax basis in the Transfer
Assets will be the same as Seafield's tax basis in such assets.
<PAGE>
Tax Reporting. As indicated above, the amount of the Distribution received
by each Seafield shareholder will be determined by Seafield after the
Distribution is made based on a number of factors that will include, without
limitation, the trading price of Company Common Stock at or near the
Distribution Date and information and advice received by Seafield from GKB.
After this determination is made (and not later than January 31, 1998) Seafield
will report the amount of the dividend received by each shareholder to such
shareholder and to the IRS on IRS Form 1099- DIV.
Backup Withholding. Under Section 3406 of the Code and applicable
regulations thereunder, a holder of Seafield Common Stock may be subject to
backup withholding at the rate of 31 percent with respect to the amount of the
Distribution paid to such holder on such stock. If: (i) the shareholder
("payee") fails to furnish or certify a taxpayer identification number to the
payor; (ii) the IRS notifies the payor that the taxpayer identification number
furnished by the payee is incorrect; (iii) there has been a "notified payee
underreporting" described in Section 3406(c) of the Code; or (iv) there has been
a "payee certification failure" described in Section 3406(d) of the Code, then
Seafield generally will be required to withhold an amount equal to 31 percent of
the amount of the Distribution paid to such shareholder with respect to such
Shareholder's Seafield Common Stock. Any amounts withheld under the backup
withholding rules from a payment to a shareholder will be allowed as a credit
against the shareholder's Federal income tax liability or as a refund.
No Market for Company Common Stock
There is no current public market for the Company Common Stock. Although it
is anticipated that the Company Common Stock will initially trade in the
over-the-counter market after the Distribution with quotations being published
in the OTC Bulletin Board and the NQB Pink Sheets, following the Distribution
the Company Common Stock will not be listed on a stock exchange and transactions
and quotations in the Company Common Stock will not be reported by the National
Association of Securities Dealers, Inc. through NASDAQ. Accordingly, there can
be no assurance that an active trading market for the Common Stock will develop
or be sustained following the Distribution nor can there
23
be any assurance as to the prices at which the Company Common Stock will trade
following the Distribution. Prices at which Company Common Stock may trade prior
to the Distribution on a "when-issued" basis (see the following paragraph) or
after the Distribution cannot be predicted. Until the Company Common Stock is
fully distributed and an orderly market develops, the prices at which trading in
such stock occurs may fluctuate significantly. The prices at which the Company
Common Stock will trade will be determined by the marketplace, and may be
influenced by many factors, including, among others, the proportional value of
the Company's asset base, cash flows, profits or other measure of value in
relation to the prices of the Seafield Common Stock prior to the Distribution,
the depth and liquidity of the market for such shares, investors' perceptions of
the Company and the economic sectors in which it participates, the Company's
policy to not pay dividends, and general economic and market conditions. Such
prices may also be affected by certain provisions of the Company's Articles of
Incorporation (the "Articles of Incorporation") and Bylaws, as amended (the
"Bylaws"), as each will be in effect following the Distribution, that are
substantially similar to existing provisions of Seafield's Articles of
Incorporation and Bylaws, as well as the Rights, which may make the acquisition
of control of the Company without the approval of the Board of Directors of the
<PAGE>
Company (the "Company Board") more difficult than would be the case in the
absence of such provisions. See "CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN
PROVISIONS OF THE ARTICLES OF INCORPORATION, THE BYLAWS, THE RIGHTS, AND KANSAS
LAW."
In "when-issued" trading, contracts for the purchase and sale of shares of
stock are made prior to the issuance of such shares in the same manner as
currently issued shares, except that when-issued contracts are settled by
delivery of and payment for the shares on a date chosen by the particular
exchange on which such shares are to be listed. Ordinarily, in connection with a
distribution of stock such as described in this Information Statement, the date
fixed for settlement of when-issued contracts relating to such stock is the
fourth business day after distribution of such stock. Shareholders who may wish
to effect a when-issued trade in Company Common Stock should consult their
brokers for additional details.
Based on the number of record holders of Seafield Common Stock as of
November 30, 1996, the Company will initially have approximately 1,792
shareholders of record. Approximately 1.6 million shares of Company Common Stock
will be outstanding based on the number of shares of Seafield Common Stock
outstanding as of November 30, 1996. The transfer agent and registrar for the
Company Common Stock will be American Stock Transfer & Trust Company, 40 Wall
Street, 46th Floor, New York, N.Y. 10005. Telephone (718) 921-8200. For certain
information regarding options to purchase Company Common Stock that are expected
to be outstanding after the Distribution, see "EXECUTIVE COMPENSATION."
Shares of Company Common Stock and associated Rights distributed to
Seafield shareholders in the Distribution will be freely transferable, except
for securities received by persons who may be deemed to be "affiliates" of the
Company under the Securities Act of 1933, as amended (the "Securities Act").
Persons who may be deemed to be affiliates of the Company after the Distribution
generally include individuals or entities that control, are controlled by, or
are under common control with, the Company and may include certain officers and
directors of the Company as well as principal shareholders of the Company, if
any. Persons who are affiliates of the Company will be permitted to sell their
shares of Company Common Stock only pursuant to an effective registration
statement under the Securities Act or an exemption from the registration
requirements of the Securities Act, such as an exemption afforded by Rule 144
thereunder.
Company Common Stock Dividend Policy
It is anticipated that the Company will not pay regular annual or quarterly
cash dividends following the Distribution. The Company plans to reinvest amounts
derived from the sale of Real Estate and Miscellaneous assets in Government
securities, and in corporate debt and equity securities and money market
instruments to the extent that such investments will not subject the Company to
regulation as an Investment Company under the 1940 Act. The Company may also
make additional investments in Syntroleum or in existing real estate assets. As
further assurance for the Company's obligations in connection with the
Distribution, the Company has agreed that it will not pay any dividends in cash
or property or redeem any of its capital stock for a period of two years
following the Distribution Date, without the consent
24
<PAGE>
of the Seafield Board. That covenant will also limit the extent to which the
Company may pay dividends or otherwise effect a complete liquidation prior to
such date.
It is anticipated that, following the Distribution, Seafield will initially
pay quarterly cash dividends at the current quarterly rate of $0.30 per share of
Seafield Common Stock.
Conditions and Termination
The Distribution is conditioned upon (1) certain transactions (including
transfers of certain assets and liabilities to the Company contemplated by the
Distribution Agreement) having been consummated in all material respects (see
"ARRANGEMENTS BETWEEN SEAFIELD AND THE COMPANY RELATING TO THE DISTRIBUTION --
Distribution Agreement"); (2) the Registration Statement on Form 10 (the
"Registration Statement") having been filed with the Securities and Exchange
Commission (the "Commission") and having become effective and no stop order
being in effect with respect thereto; (3) all authorizations, consents,
approvals and clearances of all federal, state, local and foreign governmental
agencies required to permit the valid consummation of the transactions
contemplated by the Distribution Agreement having been obtained, without any
conditions being imposed that would have a material adverse effect, and all
statutory requirements for such valid consummation having been fulfilled; (4)
Seafield having provided the NMS with prior written notice of the Record Date as
required by the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and the rules and regulations of the NMS; (5) no preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a government, regulatory or administrative agency or
commission, and no statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, being in effect preventing the payment of
the Distribution; and (6) the Distribution being payable in accordance with
applicable law. To the knowledge of the Company, the only material governmental
authorizations required to permit the valid consummation of the transactions
contemplated by the Distribution Agreement is the effectiveness of the
Registration Statement. Even if all the above conditions are satisfied, the
Distribution Agreement may be amended or terminated, and the Distribution may be
abandoned, at any time prior to the Distribution Date for any reason, in the
sole discretion of the Seafield Board.
ARRANGEMENTS BETWEEN SEAFIELD AND THE COMPANY RELATING TO THE DISTRIBUTION
For the purpose of structuring the Distribution and certain of the
relationships between Seafield and the Company after the Distribution, Seafield
and the Company have entered into the Distribution Agreement, a Facilities
Sharing and Interim Services Agreement (the "Interim Services Agreement")," and
a Tax Sharing Agreement (the "Tax Sharing Agreement") and will enter into a
Blanket Assignment, Bill of Sale, Deed and Assumption Agreement (the
"Assignment"). All of these are described below and are included as exhibits to
the Registration Statement filed with the Commission, of which this Information
Statement is a part. The following summaries are qualified in their entirety by
reference to the agreements as filed. None of these agreements are the result of
arms-length negotiation. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Distribution Agreement and Assignment
The Distribution Agreement and Assignment provide for, among other things,
the principal corporate transactions required to effect the Distribution and
<PAGE>
certain other matters governing the relationship between Seafield and the
Company with respect to or in consequence of the Distribution.
Transfer Assets and Liabilities. Subject to certain exceptions described
below, the Distribution Agreement contains provisions designed principally to
place with the Company (1) the Transfer Assets and the personnel currently
involved in the management of those assets and (2) and the Transfer Liabilities,
which include Seafield's financial responsibility for known and contingent or
unknown liabilities which relate directly to the Real Estate, Energy and
Miscellaneous businesses and assets as conducted on the Distribution Date and
certain other liabilities of Seafield described in the Distribution Agreement,
including Seafield's obligations under the Tax Claims described under "BUSINESS
- - Legal Matters."
25
As security for the Company's obligations in connection with the
Distribution, the Company has agreed in the Distribution Agreement that it will
not pay any dividends in cash or property or redeem any of its capital stock for
a period of two years following the Distribution Date, without the consent of
the Seafield Board. That covenant will also limit the extent to which the
Company may pay dividends or otherwise effect a complete liquidation prior to
such date.
Contingent Claims and Insurance. There is pending litigation which will be
the responsibility of the Company following the Distribution. See "BUSINESS AND
PROPERTIES -- Legal Matters." Under the Distribution Agreement, the Company will
be entitled to the benefit of insurance coverage under Seafield policies, to the
extent such insurance coverage existed and is available, for claims relating to
the ownership or operation of the Transfer Assets by Seafield prior to the
Distribution Date subject to, among other things, the obligation to reimburse
Seafield for increases in insurance premiums as a result of payments for such
claims.
Employee Benefits. The Distribution Agreement and Assignment contain a
number of provisions relating to current and former employees. The provisions
generally contemplate that the Company will assume no obligations or liabilities
with respect to employee plans or benefits prior to the Distribution Date and
that after the Distribution Date, the Company will be responsible for providing
employee benefits for certain Seafield personnel, primarily consisting of
employees of Scout Development Corporation, that become employees of the Company
through its acquisition of Scout. The agreements also contemplate that the
Company will contract with Seafield for executive and administrative services as
described under the Interim Services Agreement described below.
The Distribution Agreement provides that the following actions will be
taken with respect to Seafield employee benefit plans: (a) as soon as
practicable after the Distribution Date, Seafield and the Company will cause the
Seafield Pension and 401(k) Plans to distribute to Company employees their
interests in those plans; (b) The Seafield Stock Purchase Plan will continue in
effect and will remain a retained liability of Seafield; (c ) obligations under
the Seafield Stock Option Plans will remain a liability of Seafield; (d)
obligations of Seafield under Seafield Supplemental Retirement Agreements,
Seafield Severance Agreements, Seafield Termination Compensation Agreements and
Seafield Indemnification Agreements (as defined in the Distribution Agreement)
shall continue to be a retained liability of Seafield; and (e) the Company shall
assume and be responsible for the obligations of Seafield to any Company
employee with respect to accident and health insurance and similar benefits.
<PAGE>
No adjustments will be made under the Seafield Stock Option Plans with
respect to the Distribution. Accordingly, the holders of options to purchase
Seafield Common Stock under the Seafield Stock Option Plans may wish to consider
the desirability of exercising those options at least 5 business days prior to
the Record Date for the Distribution. However, persons intending to exercise
options should understand that the Seafield Board may terminate the Distribution
at any time prior to the Distribution Date and therefore there can be no
assurance that a timely exercise of any option under the Seafield Stock Option
Plans will entitle the holder of purchased shares to receive shares of the
Company Common Stock.
The Distribution Agreement provides that Seafield and the Company will take
all action necessary to cause the Company to provide to each officer of the
Company employment agreements and participation in a new Company Stock Incentive
Plan, as defined and described in "EXECUTIVE COMPENSATION."
No Representations or Warranties. The Distribution Agreement and Assignment
provide that Seafield is transferring the Transfer Assets and Transfer
Liabilities to the Company without representation or warranty "as is, where is,"
except as otherwise expressly provided.
Conditions. The Distribution Agreement provides that the Distribution is
subject to a number of conditions which are described under "THE DISTRIBUTION --
Conditions and Termination." The Distribution Agreement may be amended or
terminated, and the Distribution may be abandoned, or conditions thereto may be
waived, at any time prior to the Distribution Date for any reason, in the sole
discretion of the Seafield Board.
26
Interim Services Agreement
At present all of Seafield's operations are conducted by 17 employees from
13,674 square feet of leased offices at 2600 Grand Boulevard, Kansas City,
Missouri (the "Lease"). Under the Distribution and Assignment Agreements
Seafield will transfer the Lease to the Company and all Seafield employees will
remain employees of Seafield (the "Seafield Personnel") except 15 employees of
Scout Development Corporation and its subsidiaries (the "Company Personnel"). In
particular, Messrs. Jacobs, Seward, and Fitzwater and other administrative
personnel will remain officers and employees of Seafield while also serving the
Company under the Interim Services Agreement.
On or prior to the Distribution Date Seafield and the Company will enter
into the Interim Services Agreement for the purpose of permitting Seafield and
the Company to continue to jointly use their respective personnel and facilities
until either party elects to terminate the arrangement. Under the arrangement,
Seafield agrees to provide to the Company during the term of the arrangement all
services required by the Company for the operation of the offices of the
Company's Chairman, Chief Executive Officer, Chief Financial Officer and Chief
Accounting Officer together with clerical and administrative services, but not
including services required exclusively by Scout Development Corporation and its
subsidiaries. In exchange for those services, the Company agrees to provide the
retained Seafield Personnel with office facilities and equipment sufficient for
the conduct of Seafield's activities. Following the Distribution, Seafield and
the Company will review the amount of personnel and facilities used under the
arrangement and each will reimburse the other to the extent that the exchange of
facilities for services is not equivalent.
<PAGE>
Tax Sharing Agreement
Generally. In connection with the Distribution the Company and Seafield
will enter into a Tax Sharing Agreement which provides, among other things, for
the allocation among the parties thereto of Federal, state, local, and foreign
tax liabilities for all periods through the Distribution Date. Though valid as
between the parties thereto, the Tax Sharing Agreement is not binding on the IRS
and does not affect the joint and several liability of Seafield and its
subsidiaries to the IRS for all Federal taxes owed to the IRS by such
corporations.
Prior Tax Agreement. Seafield and all of its subsidiaries are currently
members of a consolidated group of corporations that files consolidated Federal
income tax returns, and all of these corporations are parties to a tax sharing
agreement dated August 1, 1990 that governs their relationship as members of
this consolidated group (the "Prior Tax Agreement"). The Tax Sharing Agreement
modifies and amplifies the Prior Tax Agreement in certain respects and expressly
provides that the Prior Tax Agreement, as so modified and amplified, will
continue in full force and effect with respect to all tax returns for periods
beginning prior to the Distribution Date that are otherwise covered by such
Prior Tax Agreement.
Under the Prior Tax Agreement each member of the Seafield consolidated
group is essentially liable for the amount of Federal income tax that it would
pay if it filed a separate Federal income tax return. As a result of the
continuation of the Prior Tax Agreement, among other things, Seafield will be
responsible and liable for all Federal income tax liability attributable to it
as the payor of the Distribution. See "THE DISTRIBUTION -- Material Federal
Income Tax Consequences of the Distribution -- Payment of the Distribution by
Seafield." Also under the Prior Tax Agreement as continued in effect by the Tax
Sharing Agreement, each subsidiary of the Company will be liable to Seafield and
will pay to Seafield after the Distribution Date an amount equal to any Federal
income tax liability attributable to income generated by the subsidiary prior to
such date and Seafield will be liable to the Company and will pay to the Company
after the Distribution Date an amount equal to any Federal income tax savings
attributable to losses generated by the subsidiary prior to such date..
Other Matters. The Tax Sharing Agreement generally provides that the
parties will cooperate with each other in the preparation and filing of tax
returns and with regard to handling post-filing audits and similar proceedings.
The Tax Sharing Agreement expressly provides that it does not deal with the
liability of the parties with respect to the Tax Claims
27
or any tax liabilities that arise out of or are related to the Tax Claims, since
such liability is the subject of the Distribution Agreement and the Assignment.
BUSINESS AND PROPERTIES
Overview
The Company is primarily engaged in the business of managing, developing
and disposing of Real Estate and Energy businesses and Miscellaneous assets to
be acquired from Seafield immediately prior to the Distribution (the "Transfer
Assets"). Real Estate Assets reflect the remaining assets of a discontinued real
estate development business that was conducted by Seafield in association with a
previously owned life insurance company that was sold in 1990. The Energy and
Miscellaneous assets also reflect a variety of insurance company assets that
<PAGE>
were retained by Seafield following the sale of that insurance business. The
Company is engaged in the sale of all of its assets in an orderly manner other
than its interest in Syntroleum Corporation. See "BUSINESS AND PROPERTIES --
Management and Disposition of Real Estate Assets;" "BUSINESS AND PROPERTIES --
Business and Management of Energy Assets" and "BUSINESS AND PROPERTIES --
Miscellaneous Assets and Liabilities."
Real Estate assets, as of September 30, 1996, consist of (a) the remaining
inventory from three high end condominium developments located in Santa Fe, New
Mexico (comprising 31 completed homes that have been priced for sale between
$225,000 and $750,000; "Quail Run") and Juno Beach, Florida (primarily
comprising three homes that have been priced for sale between $800,000 and $3.0
million, the "Juno Beach Homes"); (b) a seven story parking garage in Reno,
Nevada (the "Reno Parking Garage"); (c) a 49.9% interest in a community shopping
center in Gillette, Wyoming (the "Shopping Center Interest"); and (d)
approximately 1,147 acres of undeveloped land, with 370 acres in Houston, Texas,
approximately 547 acres in the vicinity of the Alliance Airport, in Ft. Worth,
Texas, 205 acres in West Ft. Worth, Texas, 9 other acres in Corinth, Texas and
16 acres at the intersection of 119th Street and Interstate 35 in the southern
portion of the Kansas City metropolitan area (the "Undeveloped Land"). The Total
Real Estate Inventory had an aggregate carrying value as of September 30, 1996,
of approximately $ 26.6 million.
Energy assets consist of a 32.5% interest in Syntroleum Corporation
("Syntroleum") and minority interests in four oil and gas general partnerships
which have working interests in producing wells in the Gulf of Mexico (the "Oil
& Gas Properties").
Syntroleum is the developer and owner of a patented process and several
related proprietary technologies ("Syntroleum(R) Process") for the conversion of
natural gas into synthetic liquid hydrocarbons which can be further processed
into fuels such as diesel, kerosene (used by jet aircraft) and naphtha and
related non fuel chemical feedstocks and lubricants. Syntroleum is currently
engaged in negotiations for the licensing of the Syntroleum(R) Process with
major oil companies. Because Syntroleum continues to be in the developmental
phase of its operations, no assurances can be given that it will be able to
successfully conclude any license or agreement on a favorable basis or that a
commercially viable Syntroleum(R) Process plant will be constructed and
successfully operated.
The Company also owns other assets consisting primarily of (a) three
investments in privately held venture capital limited partnerships having an
aggregate book value at September 30, 1996, of $1,364,538, (b) a common stock
interest in Oclassen Pharmaceuticals, Inc. a privately owned pharmaceutical
manufacturer, which is proposed to be converted into approximately 183,673
shares of the common stock of Watson Pharmaceuticals, a publicly traded company,
trading in the shares of which closed on January 31, 1997, at $44.81 per share,
and (c) a preferred stock interest in Norian Corporation, a privately owned
developer of proprietary bone substitute technology which had a carrying value
of approximately $1.0 million at September 30, 1996, ("Miscellaneous Assets").
The Company will assume liabilities relating to the Transfer Assets as well
as certain contingent Seafield liabilities ("Transfer Liabilities"), including
Seafield's liability for disputed income taxes which the Internal Revenue
Service claims to be owed by Seafield for its 1986, 1987, 1988, 1989 and 1990
tax years and which the State of California
28
<PAGE>
claims to be owed for the 1987, 1988 and 1989 years (the "Tax Claims"). The Tax
Claims amount to approximately $14.6 million, plus interest. Although the
Company believes that a combination of defenses against the claims and contested
offsetting tax losses generated by a real estate project sold at a loss in 1990,
could result in a positive outcome, the Company can not provide any assurance
that its defense of such claims will be successful. See "BUSINESS - Legal
Matters."
The Company is engaged in the sale of all of its assets in an orderly
manner other than Syntroleum. Following the liquidation of non Syntroleum
assets, the Company plans to continue to promote the management, growth and
development of Syntroleum or it may engage in a merger or some other transaction
that would effectively dispose of all of its assets.
The Company's historical operating results during the past four years
reflect the sale or other disposition of a number of real estate assets and
other significant Seafield investments, all of which have culminated in net
capital loss carryforwards at Seafield in the approximate amount of $ 13.0
million. It is the intent of Seafield to utilize such losses in connection with
the Distribution to offset as much as possible any gains that Seafield is
required to recognize for Federal income tax purposes as a result of making the
distribution. However, none of such losses may be applied against any ordinary
income that Seafield shareholders will realize as the result of their receipt of
shares of Company Common Stock in the Distribution.
As a result of the Distribution, Seafield will own no shares of Company
Common Stock and the Company will operate as an independent publicly traded
company. The Company's principal executive offices are located at 2600 Grand
Boulevard, Suite 500, P.O. Box 410949, Kansas City, Missouri 64141, and its
telephone number is (816) 842- 7000.
Strategy
Following the Distribution the Company plans to sell all of its assets,
other than Syntroleum, in an orderly manner and under circumstances that would
enable the Company to take advantage of opportunities to maximize the net
amounts to be derived from each asset. Although the Company does not expect to
engage in further Real Estate development activities, it may utilize available
cash to further improve undeveloped real estate on hand if the improvement would
be expected to enhance its ultimate marketablity on a profitable basis.
Concurrent with these activities the Company will continue to assist Syntroleum
with its efforts to license the Syntroleum Process, market its catalyst and to
ultimately construct and operate plants for the conversion of natural gas into
synthetic liquid hydrocarbons. These activities will include assistance with
strategic planning and the acquisition of debt and or equity financing for the
construction of one or more Syntroleum plants. That assistance may also include
further investment by the Company in Syntroleum or directly in one or more
Syntroleum plants. Following the liquidation of non Syntroleum assets, the
Company expects to continue to promote the management, growth and development of
Syntroleum or it may engage in a merger or some other transaction that would
effectively dispose of all of its assets.
The Company's primary source of revenue to support operations will be
derived from the operation and sale of non Syntroleum assets and available cash.
In addition to the support of current operations, those proceeds are expected to
be used to prepare assets for ultimate sale, as is possible with respect to the
<PAGE>
Company's undeveloped real estate. Depending on the progress made by Syntroleum
it is expected that such proceeds may also be used for possible further
investment in Syntroleum or in one or more Syntroleum plants, none of which are
presently under development. Pending any such use, the proceeds of sale and
available cash will be invested in government securities or possibly in other
marketable debt or equity securities or money market instruments to the extent
that any such investments would not cause the Company to become an investment
company under the Investment Company Act of 1940.
29
Management and Disposition of Real Estate Assets
Real Estate assets are owned and operated by Scout Development Corporation
and its wholly owned subsidiary Scout Development Corporation of New Mexico
(collectively, "Scout"). Scout and its assets will be a wholly owned subsidiary
of the Company in connection with the Distribution. Scout was initially formed
in 19__ to acquire, develop and manage improved and unimproved real estate as a
means of investing assets of Seafield's insurance business, which was then
Seafield's primary business. However, in 1992 following the 1990 disposition by
Seafield of the insurance business, the real estate development operations were
discontinued. Since then Scout has concentrated on bringing to completion all of
its development projects and on the disposition of all of its real estate assets
in an orderly manner that would maximize the value of each asset. By the end of
1995 substantially all real estate development activities had been concluded and
Scout was engaged primarily in the disposition of its assets.
Real Estate assets at September 30, 1996 primarily consist of (a) the
remaining inventory of three high end condominium developments comprising 34
homes in the Quail Run and Juno Beach Developments (the "Homes"); (b) the Reno
Parking Garage; (c) the Shopping Center Interest in Gillette, Wyoming and (d)
the approximately 1,147 acres of undeveloped real estate consisting of the
Houston, Fort Worth and Kansas City Tracts (the "Undeveloped Land").
The following table shows the carrying value of the inventory of the
Company's Real Estate Assets as of September 30, 1996:
REAL ESTATE INVENTORY
Carrying value as of
Asset Location September 30, 1996
The 34 Residential Condominiums ..... Santa Fe New Mexico
and Juno Beach, Fla $ 16,503,000
The Reno Parking Garage ............. Reno, Nevada 3,008,000
The Houston Tract ................... Houston, Texas 2,017,000
The Fort Worth Tracts ............... Ft Worth, Texas 2,956,000
The Kansas City Tract ............... Olathe, Kansas 2,381,000
------------
26,865,000
The Shopping Center Interest ........ Gillette, Wyoming (280,000)
------------
Total ........................... $ 26,585,000
The Quail Run and Juno Beach residential condominium developments consist
of inventory remaining from real estate development projects commenced by Scout.
<PAGE>
The Juno Beach homes consist of two exclusive ocean front homes, each of which
are listed for sale at $3.0 million, a third home within another project in the
same area listed for sale at $800,000 and three marina boat slips. The Quail Run
properties consist of 31 homes ranging in listing prices from $225,000 to
$750,000. The Company is actively involved in the marketing of these properties
and anticipates that approximately two years will be required to complete all
home sales. Following the disposition of these newly constructed homes, the
Company will continue to have warranty obligations. None of the home properties
are subject to any mortgage or material encumbrance.
The Reno Parking Garage is a seven story 850-space parking garage located
in downtown Reno, Nevada. Scout owns the building unencumbered except for a
ground lease which expires on February 28, 2023 and which calls for annual lease
payments in the amount of $294,000. The building contains a total of 144,500
square feet of leasable parking space. Parking revenue totaled approximately
$744,000 or $875 per space or $5.15 per square foot in 1995. In addition, 8,258
square feet located on the ground floor of the garage is leased to a retail
tenant under a 15-year lease. Revenue from the retail lease during 1995 was
$133,800 or $16.20 per square foot. In addition to basic rent, the retail
30
tenant is responsible for its pro rata share of real estate taxes and insurance.
During 1995, $5,200 was collected from the retail tenant for taxes and
insurance. Scout is presently actively marketing the property for sale.
The Shopping Center Interest consists of a 49.9% joint venture interest in
a retail shopping center containing approximately 163,000 square feet of net
leasable area and 14 acres of undeveloped land in Gillette, Wyoming. At the end
of 1995, the center was 75% occupied. Rental revenue totaled $686,000 for 1995.
The average annual gross rental per occupied square foot was $6.10. In addition
to rental revenue, tenants are responsible for their share of common area
maintenance (CAM). During 1995, CAM collections from tenants totaled $77,000.
The property is subject to industrial revenue refunding bonds pursuant to a
refinancing in 1996 in the amount of $6.17 million that are secured by a bank
letter of credit and guaranteed by Scout. The letter of credit is secured by a
$3.15 million Treasury Note pledged by Seafield to the issuer of the letter of
credit; the Treasury Note is included in the Transfer Assets and will be owned
by the Company following the Distribution.
The Undeveloped Land consists of an aggregate of approximately 1,147 acres
of undeveloped land, with 370 acres in Houston, Texas, approximately 547 acres
in the vicinity of the Alliance Airport, in Ft. Worth, Texas, 205 acres in West
Ft. Worth, Texas, 9 other acres in Corinth, Texas, and 16 acres at the
intersection of 119th Street and Interstate 35 in the southern portion of the
Kansas City metropolitan area. The 547 acre Ft. Worth tract was sold after
September 30, 1996. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Recent Developments." The zoning for the
tracts other than the Kansas City Tract varies from residential to light
commercial, with the Kansas City Tract being zoned for commercial use. None of
the property is developed, none is encumbered with any mortgages, except for a
$1.2 million non recourse mortgage on the Kansas City Tract, and all is being
actively marketed as is.
The Company does not plan to engage in further development of any of the
Real Estate Assets except to the extent necessary to maximize the value of the
properties on hand. Following the disposition of all properties it intends to
terminate its real estate operations.
The Company also owns an interest in certain contingent accounts receivable
of Tenenbaum & Associates, Inc. ("TAI"), a real estate tax consulting firm, the
<PAGE>
business of which was sold in 1995. The carrying value of the receivables at
September 30, 1996, was $800,000. The Company also has and is actively marketing
a leasehold interest in approximately 14,985 square feet of space located on the
second floor of an office building in Kansas City, Missouri that was formerly
occupied by TAI and that was vacant as of November 30, 1996. The lease, which
expires on May 31, 2000, calls for rents of approximately $19,318 per month,
subject to yearly increases of approximately $850.
Environmental. Scout is subject to the following United States
environmental laws: Clean Air Act, Comprehensive Environmental Response,
Compensation, and Liability Act, Emergency Planning and Community Right-to-Know
Act, Federal Water Pollution Control Act, Oil Pollution Act of 1990, Resource
Conservation and Recovery Act, Safe Drinking Water Act and Toxic Substances
Control Act, all as amended. Scout is also subject to the United States
environmental regulations promulgated under these acts, and also is subject to
state and local environmental regulations which have their foundation in the
foregoing United States environmental laws.
As is the case with many companies, Scout faces exposure to actual or
potential claims and lawsuits involving environmental matters. However, no such
claims are presently pending and Scout has not suffered, and does not anticipate
that it will suffer, a material adverse effect as a result of any past action by
any governmental agency or other party, or as a result of compliance with such
environmental laws and regulations.
Business and Management of Energy Assets
General
The Company's Energy assets consist of Syntroleum and interests in four oil
and gas partnerships that have working interests in producing wells in the Gulf
of Mexico. These assets are owned by BMA Resources, Inc., a wholly owned
subsidiary of Seafield that will become a wholly owned subsidiary of the Company
in connection with the Distribution ("BMA Resources"). BMA Resources was formed
by Seafield to acquire, hold and develop properties in connection
31
with its insurance business that was sold in 1990. Since that sale BMA Resources
has disposed of all of its assets other than Syntroleum and the Oil and Gas
Interests. Following the Distribution the Company intends to promote the
continued development of Syntroleum. The Company does not intend to acquire
additional oil and gas interests with the exception of additional capital
expenditures in existing partnerships for the purpose of further developing
proven reserves.
Syntroleum
Syntroleum Background. The Company owns 5,950,000 shares of Syntroleum
Common Stock, which constitutes approximately 32.5% of all outstanding shares.
The shares were acquired by the Company over a number of years for an aggregate
of approximately $2.1 million. Syntroleum is the developer and owner of a
patented process and several related proprietary technologies ("Syntroleum(R)
Process") for the conversion of natural gas into synthetic liquid hydrocarbons
which can be further processed into fuels such as diesel, kerosene (used by jet
aircraft) and naphtha and related non fuel chemical feedstocks and lubricants.
<PAGE>
Syntroleum is a privately owned corporation that was founded in 1984 by
Kenneth Agee. Mr. Agee is a chemical engineer who is the inventor of most of
Syntroleum's proprietary technology, the Chairman and Chief Executive Officer
and a principal stockholder of Syntroleum. Syntroleum built an initial two
barrel per day pilot plant in 1990- 1991 with the proceeds of the Company's
first significant investment in 1988. In 1995 Syntroleum substantially up graded
the pilot plant to conduct additional tests. Recently, Syntroleum entered into a
joint development agreement and master license agreement with Texaco. Under the
joint development agreement Texaco and Syntroleum have agreed to pool resources
for the refinement of certain aspects of the Syntroleum(R) Process. Under the
master license agreement Syntroleum has granted Texaco a nonexclusive license to
use the Syntroleum(R) Process outside North America (United States, Canada and
Mexico), China and India for the construction of processing plants and the
production of liquid fuels.
Syntroleum's strategy is to license the Syntroleum(R) Process on a non
exclusive basis to producers of natural gas and oil and gas processors in
exchange for license fees and royalties, to market the principal catalyst used
in the Syntroleum(R) Process to plant operators (the " Catalyst") and to
construct and operate its own plants in the United States and other parts of the
world for the production of chemical feedstocks and lubricants.
The Syntroleum(R) Process. Syntroleum's Syntroleum(R) Process essentially
involves two catalytic reactions - the first reaction converts natural gas into
synthesis gas ("syngas"). In the syngas reaction, natural gas consisting
primarily of methane, is combined at high temperature with air, consisting
primarily of oxygen and nitrogen, in a proprietary reactor utilizing a
commercially available catalyst to form syngas. The resulting syngas consists
primarily of carbon monoxide and hydrogen that is "diluted" with nitrogen. The
second reaction converts the syngas into hydrocarbons which are primarily liquid
at room temperature through a catalytic reaction commonly referred to as the
Fischer- Tropsch reaction. In the Fischer-Tropsch reaction, the syngas flows
into a reactor containing a proprietary catalyst developed by Syntroleum. As the
syngas passes over the catalyst, it is converted into hydrocarbons of various
molecular weights, with by-product water and carbon dioxide also being produced.
The hydrocarbons and water drain from the reactor vessel and are subsequently
separated. Both reactions generate considerable amounts of heat. The nitrogen
helps to remove a portion of the heat from the reactor and is ultimately vented
into the atmosphere. The Syntroleum(R) Process contemplates that a portion of
the excess heat energy will be used in the compression energy necessary for the
syngas and Fischer-Tropsch reactions, with any remaining surplus heat energy
being converted for commercial sale if circumstances permit. Energy integration
is a key component of the capital efficiency of the Syntroleum(R) Process and is
the subject of several patent applications that Syntroleum has in process.
The Syntroleum(R) Process involves a number of unique characteristics that
differentiate it from competing processes developed or under development by a
number of large companies. The Syntroleum(R) Process utilizes oxygen directly
from the atmosphere for the syngas reaction while others utilize pure oxygen to
create a syngas that is free of nitrogen. This difference significantly reduces
costs and equipment to produce syngas in the Syntroleum(R) Process. The
Syntroleum(R) Process also utilizes a unique catalyst under development by
Syntroleum for use in the Fischer-
32
Tropsch conversion reaction. The Catalyst
produces hydrocarbon molecules that are primarily in the liquid fuels range.
This reduces subsequent processing where the desired product is a liquid fuel.
Syntroleum has also developed a catalyst which produces a very waxy synthetic
crude oil which requires further processing in order to produce a liquid fuel. A
<PAGE>
third major difference relates to the use of nitrogen in the Syntroleum(R)
Process rather than eliminating it prior to the initial syngas reaction as with
competing processes. The combination of these and other features have led
Syntroleum to believe that plants using its proprietary Syntroleum(R) Process
may be constructed at a capital cost significantly less than those based on
competing processes of comparable size. In addition, Syntroleum believes that
the Syntroleum(R) Process will permit the construction of relatively small cost
effective processing plants that may be used on ships, barges and offshore
platforms for the conversion of gas production from small fields in remote
locations.
Patents and Properties. Syntroleum holds the following patents relating to
the Syntroleum(R) Process: United States Patent No. 4,833,170 issued May 23,
1989 and No. 4,973,453 issued November 27, 1990. These patents were granted for
a term of seventeen years from the date of issuance. Patent applications were
subsequently filed in Argentina, Australia, Canada, China, India, Malaysia,
Mexico, Netherlands, Nigeria, Norway, Pakistan, United Kingdom and Venezuela.
Subsequent patents have been granted in Australia, Canada, China, India,
Malaysia, Mexico, Nigeria, Norway, Pakistan and the United Kingdom. The
applications in Argentina, Netherlands and Venezuela are still pending.
Syntroleum also has several additional patent applications filed and others
in progress.
Syntroleum owns a prototype two barrel per day pilot plant located on 2
acres in Tulsa, Oklahoma and leases 2,500 square feet of laboratory and office
space and 4,500 square feet of executive office space in Tulsa.
Available Natural Gas and Demand for the Syntroleum(R) Process. Syntroleum
believes that a significant demand exists for cost effective gas to liquids
plants due to the availability of large quantities of natural gas in remote
regions of the world that are not currently marketable because the distance to a
market makes them uneconomical to transport as natural gas. When crude oil is
associated with unmarketable natural gas, it is frequently flared or re-injected
in order to produce the associated oil. However, in many countries flaring is
not allowed by law and re-injection is frequently not an economical option.
Natural gas may also be unmarketable due to the nature or quantity of impurities
in the gas, such as excessive quantities of carbon dioxide, nitrogen or hydrogen
sulfide. A cost effective Syntroleum plant may be a viable option in many of
these cases.
In the Syntroleum(R) Process certain impurities such as nitrogen and carbon
dioxide do not have to be removed in order for the gas to be used as a viable
feedstock. The liquid hydrocarbon or "Syncrude" that results from the
Syntroleum(R) Process is free from sulfur, metals, aromatics, nitrogen, salt and
other impurities that may be found in crude oil. These and other characteristics
make the Syncrude a valuable blending stock for upgrading natural crude oil
products.
Products. Depending on the catalyst used and the design of the plant the
Syntroleum(R) Process will produce short chain liquid hydrocarbons that can be
upgraded into liquid fuels such as diesel, kerosene (for jet fuel) and naphtha
(for use in gasoline production). These may be differentiated from existing
commodity fuels because they are free of sulfur, metals, particulates and
aromatics and may therefore be marketed at premium prices as a blending agent in
US and European markets and as a substitute for LNG (liquefied natural gas).
Other proprietary catalysts may be used to produce longer chain hydrocarbons
that can be further processed to produce synthetic lubricants, waxes and
petrochemical feedstocks.
<PAGE>
Competition-Early Stage Development. The Syntroleum(R) Process is in direct
competition with processes developed by or under development by a number of
major oil companies which have substantially greater financial and technical
resources relative to those available to Syntroleum. Furthermore, the
Syntroleum(R) Process has not been tested in a plant designed to produce
commercial quantities and such testing can not occur until a plant has been
developed, which could take up to two years from the commencement of
construction. Although, Syntroleum has entered into a joint development
agreement with Texaco, that agreement does not assure that the development
process will be completed or that Texaco will use its license rights to build a
plant using the Syntroleum(R) Process. Accordingly,
33
until a plant is constructed and placed in profitable operation, Syntroleum will
not have assurance of the commercial feasibility of its process or whether it
will be able to successfully compete with processes developed by companies
having much greater financial resources.
No Market for Syntroleum Common Stock. Syntroleum's capital stock consists
of a single class of Common Stock, 18,311,057 shares of which were outstanding
at September 30, 1996. There is no public market for the Syntroleum Common
Stock. It is privately held by approximately 114 stockholders under agreements
which restrict the transfer of the stock. Transfers are not permitted except to
certain affiliates and in connection with sales to other third parties after the
stock has first been offered to Syntroleum and then to the other Syntroleum
stockholders. During 1996 Syntroleum has sold shares in two private transactions
at $7.42 per share, the largest of which transactions involved a catalyst
supplier who purchased a portion of the shares for $1.0 million in cash and
agreed to purchase the balance at $7.42 per share through the delivery of $7.0
million of catalyst and other non cash consideration.
Syntroleum Financial Condition and Results of Operations. As of September
30, 1996, Syntroleum had unaudited accumulated deficit of $3.3 million and net
shareholders' equity of $1.4 million. Unaudited losses from operations for the
nine months ended September 30, 1996, were $766,000.
Syntroleum Management and Employees. Syntroleum's officers consist of :
Mr Kenneth Agee, age 39, who has been Chairman and Chief Executive
Officer since inception and who is a licensed professional engineer and
the inventor of most of Syntroleum's proprietary technology.
Mr. Mark A. Agee, age 43, who has been the President and Chief
Operating Officer of Syntroleum since January 1996, Vice President and
Chief Financial Officer from January 1994 until December, 1996 and who
is the brother of Kenneth Agee. From 1989 to 1993 Mr. Agee was the
President and Chief Executive Officer of Convergent Communications,
Inc., a private telecommunications company that was sold in 1993.
Mr. Peter Snyder, age 51 has been Vice President of Marketing since
January 1996. From 1990 to 1995 he was the President of C& C Petroleum
and Chemicals Group , a wax and lubricants marketing company.
Mr. Larry J. Weick, age 48 has been employed as Vice President of
Project Development since January 1996. From 1993 to 1996 he was a
consultant for natural gas and electric utilities. Previously he was
<PAGE>
employed for twelve years in finance, planning and business development
for ARCO.
Mr. Randall M. Thompson, age 38, has been the Vice President and Chief
Financial Officer since December 1996. From 1994 to December 1996 he
was a Vice President of Tenneco Energy and from 1983 to 1994 was
Planning and Evaluation Manager for Atlantic Richfield Company.
The Syntroleum Board consists of eight directors, two of which are officers
of the Company, being Mr. Seward and Mr. Jacobs, Mr. Frank. M. Bumstead, a
Director of a Seafield Subsidiary, Mr. Kenneth Agee and Mr. Mark Agee, who are
Syntroleum officers, and three other non employee directors, consisting of Mr.
Alvin Albe, Mr. Robert Rosene, Jr., and Mr. Ted Sheridan.
At November 30, 1996, Syntroleum had 8 full time and 8 part time employees.
Oil and Gas Properties
BMA Resources owns minority general partnership interests in four oil and
gas general partnerships, which were formed from 1987 to 1989, with the purpose
of engaging in the business of acquiring, exploring and developing oil and gas
prospects. The partnerships have working interests in producing wells in the
Gulf of Mexico and have a combined carrying value of $4,102,122 as of September
30, 1996.
34
Miscellaneous Assets and Liabilities
The Company also owns other assets consisting primarily of (a) three
investments in privately held venture capital limited partnerships having an
aggregate book value at September 30, 1996, of $1,364,538, (b) a common stock
interest in Oclassen Pharmaceuticals, Inc., a privately owned pharmaceutical
manufacturer, which is proposed to be converted into approximately 183,673
shares of the common stock of Watson Pharmaceuticals, a publicly traded company
, trading in the shares of which closed on January 31, 1997 at $44.81 per share,
and (c ) a preferred stock interest in Norian Corporation, a privately owned
developer of proprietary bone substitute technology, which had a carrying value
of approximately $1.0 million at September 30, 1996. These assets were acquired
by Seafield in connection with its Insurance Business that was sold in 1990.
Following the Distribution, the Company plans to liquidate all of these
investments in an orderly manner with the view to maximizing their value to
stockholders.
The Company will assume certain contingent Seafield liabilities, including
Seafield's liability for disputed income taxes which the Internal Revenue
Service and the State of California claims to be owed by Seafield for its 1986,
1987, 1988, 1989 and 1990 tax years (the "Tax Claims"). The Tax Claims amount to
approximately $ 14.6 million, plus interest. Although the Company believes that
a combination of defenses against the claims and contested offsetting tax losses
generated by a real estate project sold at a loss in 1990, could result in a
positive outcome, the Company can not provide any assurance that its defense of
such claims will be successful. The Company has accrued for the estimated
settlement with the IRS in the accompanying combined financial statements and
has established on the pro forma balance sheet herein appropriate accruals for
the California state income tax liability plus interest. See "BUSINESS - Legal
Matters."
Company Employees
<PAGE>
As of the Distribution, Date it is anticipated that the Company and Scout,
but not including Syntroleum will employ approximately 15 individuals, none of
of whom will be covered by collective bargaining agreements. All of its
employees other than 12 property management employees of Scout provide
management, financial, accounting, tax, administrative and other services with
respect to its assets.
The Company believes that relations with its employees are good.
Company Properties
The Company's headquarters occupy approximately 13,700 square feet of
leased space in a building at 2600 Grand Boulevard, Suite 500, P.O. Box 410949,
Kansas City, Missouri 64141. The term of this lease expires on April 1, 2002,
subject to an option to cancel the lease on April 1, 1999. Owned real estate is
described under "Management and Disposition of Real Estate Assets."
Regulation - Possible Application of the Investment Company Act of 1940
Generally, and subject to certain exceptions, an issuer of securities is an
"investment company" under the Investment Company Act of 1940 (the "1940 Act")
if, among other criteria, it is engaged in or proposes to engage in the business
of investing, owning, holding or trading of securities and it owns or proposes
to acquire investment securities having a value exceeding 40% of the value of
such issuer's total assets (exclusive of government securities and cash items)
on an unconsolidated basis. "Investment securities" for purposes of this
definition, includes stock of non-majority owned companies, so the Company's
holding of Syntroleum would be part of its investment securities. Although the
value of the Company's investment securities as of September 30, 1996, based in
part on appraisals furnished by GKB, do not exceed 40% of the value of its total
assets (exclusive of government securities and cash), the Company could meet
this definition of an investment company in the future as its real estate assets
are sold and if the value of Syntroleum increases.
However, under a rule adopted under the 1940 Act by the Securities and
Exchange Commission (the "SEC"), an issuer generally will not be deemed to be an
investment company under the 1940 Act if (a) no more than 45% of the value of
the issuer's total assets (exclusive of government securities and cash items)
consists of, and no more than 45% of the issuer's net income after taxes (for
the last four fiscal quarters combined) is derived from, securities other than
35
(a) government securities, (b) securities issued by certain employees'
securities companies, (c) securities issued by majority owned subsidiaries of
the issuer and (d) securities issued by companies other than investment
companies which are controlled primarily by the issuer and through which the
issuer engages in a business other than that of investing, reinvesting, owning,
holding or trading in securities (the "45% Rule"). Under the 1940 Act an issuer
is presumed to be in control of another company if it holds more than 25% of the
voting stock of the company. The Company believes that Syntroleum is "primarily
controlled" by the Company based on the amount of actual control exercised by
the Company over Syntroleum's business and the amount of its ownership of voting
stock in Syntroleum. Accordingly, the Company believes that its only assets that
are securities for purposes of the 45% test are its Miscellaneous Assets. Based
in part on appraisals furnished by GKB, the Company's Board believes that the
value of those assets as of September 30, 1996, would be less than 15% of the
Company's total assets as of that date, exclusive of government securities and
<PAGE>
cash items, that the income from such assets in the future will be less than 45%
of the Company's anticipated net income in the future and that the Company
should therefore be well within the parameters of the 45% test and not subject
to regulation under the 1940 Act.
Nevertheless, if the Company's percentage ownership interest in Syntroleum
should drop below 25% or if the amount of the Company's Miscellaneous Assets and
other securities that do not fall within the exclusion should become greater
than 45% of the Company's total assets (other than government securities and
cash) or if the income derived from such securities exceeds 45% of the Company's
net income after taxes, and if the Company can not meet the 40% test, then the
Company could become subject to regulation by the SEC under the 1940 Act, which
regulation could significantly and adversely affect the Company's activities. In
order to minimize the likelihood of such event and to stay within the
requirements of the 45% Rule, the Company intends to take such action as may be
reasonable and appropriate in order to maintain its primary control over
Syntroleum and to reinvest the proceeds of sales of its Real Estate,
Miscellaneous Assets and Oil and Gas properties in government securities and
other operating assets pending any merger or other disposition of the Company's
assets and businesses.
If the Company does fail to meet the requirements of the 40% or 45% Rules,
it may nevertheless avoid regulation under the 1940 Act if it meets the
requirements of another SEC rule applicable to "transient" investment companies.
Under this rule, a company will not, for a period of one year, be deemed an
investment company, even though it fails the test under the 45% Rule, if it has
a bona fide intent to be engaged primarily, and as soon as reasonably possible
(and in any event by the end of the one-year period), in a non-investment
company business or, under an SEC statement respecting the rule, a bona fide
intent to liquidate within such period of time. The transient investment company
rule is frequently relied on by companies which have received a substantial
amount of cash through a sale of significant assets or through a securities
offering; they typically need time to expand their business or to start up or
acquire a new operating business.
Under the transient investment company rule, a company's intent to engage
primarily in a non-investment company business must be evidenced by appropriate
resolutions of its board of directors and by its business activities. The
Company's board of directors has adopted a resolution evidencing its intent to
engage primarily in a non-investment company business, and the Company presently
believes that its business activities will demonstrate the intent required for
it to fall within the rule.
If, in the future, the Company meets the definition of an investment
company under the 1940 Act and does not fit within any exceptions to regulation
under such Act, the Company may be able to elect to become a business
development company ("BDC") rather than register as an investment company.
Generally, to be eligible to elect BDC status, a company must be operated for
the purpose of making investments in, and make available significant managerial
assistance to companies, which do not have a liquid public market for their
securities. Such portfolio companies are termed "eligible portfolio companies."
An eligible portfolio company generally is a U.S. company that is not an
investment company and that (i) does not have a class of securities registered
on an exchange or included in the Federal Reserve Board's over-the-counter
margin list; (ii) is actively controlled by a BDC and has an affiliate of a BDC
on its board of directors; or (iii) meets such other criteria as may be
established by the Commission.
36
<PAGE>
Under the 1940 Act, BDCs, are subject to certain of the rules relating to
registered investment companies and to certain complex rules relating only to
BDCs but they generally have greater flexibility than registered investment
companies do in such areas as capital structure, portfolio diversification,
transactions with affiliates and employee compensation matters (such as stock
options or profit sharing plans). On the other hand, BDCs are more limited than
registered investment companies in the types of investments they may make. BDCs
may acquire only certain prescribed qualifying assets and certain assets
necessary for their operations (such as interests in real estate and leasehold
improvements, office furniture, equipment and facilities) unless, at the time of
acquisition, at least 70% of the value of the BDC's assets consists of
"qualifying securities." "Qualifying securities" include privately acquired
securities of companies that were eligible portfolio companies at the time the
BDC acquired such securities; securities of eligible portfolio companies
controlled by the BDC; and cash items, U.S. government securities and high
quality short-term debt. BDCs are also subject to restrictions on the nature of
the transactions in which, and the persons from whom, securities can be
purchased in order for the securities to be considered qualifying securities.
The Company currently expects that if it would be required to register as
an investment company, it would consider whether to elect BDC status. No
assurance can be given that BDC status will be, or will continue to be,
available to the Company. In addition, even if the Company were able to maintain
such status, the restrictions applicable to BDCs could significantly and
adversely affect the Company's activities.
Legal Matters
Under the Distribution Agreement and Assignment and Assumption Agreement,
the Company will assume the rights and obligations of Seafield with respect to
the legal matters described below.
Internal Revenue Service Audits. Seafield has received notices of proposed
adjustments (Revenue Agent's Reports) from the Internal Revenue Service (IRS)
with respect to 1986-1990 federal income taxes. These notices claim total
federal income taxes due for the entire five year period in the approximate net
amount of $13,867,000, exclusive of interest thereon.
The substantive issues raised in these notices for the years 1986-1990 are
primarily composed of the former television subsidiaries' amortization of film
rights, the sale of the stock of a former television station, certain insurance
company tax issues and a $27 million loss on the sale of a real estate
partnership interest.
The IRS' denial of film right amortization equates to approximately $10.5
million of the $13.9 million in additional taxes; provided that if the IRS were
to prevail on the amortization issues, the tax basis in the television stations
would be increased. This would have the effect of reducing income taxes in
connection with the sale of the television stations.
With respect to the loss on the sale of the real estate partnership
interest, the IRS has claimed that the sale did not occur during 1990, but
rather occurred after 1990. If the sale did not occur in 1990, then 1990 losses
could not be carried back to 1987, to reduce Seafield's significant taxable
income in 1987.
Seafield has filed protests regarding the 1986-1990 notices of proposed
adjustments. Seafield is currently pursuing a compromise with the Appeals
<PAGE>
Division of the IRS for the 1986-1989 years. The 1990 issues have not yet
been formally addressed at the Appeals Division but Seafield is advised by IRS
representatives that tax issues in all years under audit will be addressed
together. Resolution of these tax disputes may reasonably be expected during
1997, but is not certain.
The Company is assuming from Seafield all contingent tax liabilities and is
acquiring all rights to refunds as well as any interest thereon related to these
tax years (the "Tax Claims") and liabilities and refunds related to any issues
raised by the IRS for years 1986-1990 whose resolution may extend to tax years
beyond the 1990 tax year. Based upon the advice of counsel, the Company believes
that it will prevail on the 1990 loss carryback issue. In addition,
37
there are meritorious defenses or pending favorable compromises for many of the
other substantive issues. The Company believes that adequate accruals for these
income tax liabilities have been made.
California Tax Issues. In December 1996, the California state auditor sent
Seafield an audit report covering the 1987-1989 taxable years. The State of
California has determined to include, as a "unitary taxpayer," all majority
owned non-life insurance subsidiaries and joint ventures of Seafield. The
auditor's report has been forwarded to the California Franchise Tax Board for
action. A billing is expected to be made to Seafield within six months from the
submission of the report by the auditor. The total amount of California state
income taxes due for the 1987-1989 years is expected to be approximately
$750,000, exclusive of interest. The Company is assuming all potential tax
liabilities and interest thereon regarding the California audit for the
1987-1989 taxable years. The Company believes that it has established on the pro
forma balance sheet herein appropriate accruals for the California state income
tax liability.
The Company believes that final resolution of the above Tax Claims after
taking into account offsetting claims for refunds and amounts accrued, should
not have a material adverse effect on the Company's financial position.
Claim Against Skidmore, Owings & Merrill, et al. In 1986, a lawsuit was
initiated in the Circuit Court of Jackson County, Missouri by Seafield's former
insurance subsidiary (i.e., Business Men's Assurance Company of America) against
Skidmore, Owings & Merrill ("SOM") which is an architectural and engineering
firm, and a construction firm to recover costs incurred to remove and replace
the facade on the former home office building. Because the removal and
replacement costs had been incurred prior to the sale of the insurance
subsidiary, Seafield negotiated with the buyer for an assignment of the cause of
action from the insurance subsidiary. Under the Distribution Agreement Seafield
has assigned to the Company all of its rights to any recoveries and the Company
has assumed any costs relating to the prosecution of any of the above described
claims. Thus any recovery will be for the benefit of the Company and all costs
incurred in connection with the litigation will be paid by the Company. Any
ultimate recovery will be recognized as income when received and would be
subject to income taxes. In September 1993, the Missouri Court of Appeals
reversed a $5.7 million judgment granted in 1992 in favor of Seafield; the Court
of Appeals remanded the case to the trial court for a jury trial limited to the
question of whether or not the applicable statute of limitations barred the
claim. The Appeals Court also set aside $1.7 million of the judgment originally
granted in 1992. In July 1996, the case was retried to a judge. On January 21,
<PAGE>
1997, the judge entered a judgment in favor of Seafield. The amount of that
judgment, together with interest is approximately $5.8 million. Although the
Company believes the judgment will be appealed, counsel for the Company expects
that it will be difficult for the defendants to cause the judgment to be
reversed. If appealed, the final outcome would not be expected for at least
another year.
CLAIM AGAINST SCOUT. On January 30, 1997, Scout Development Corporation was
served with a complaint filed in the District Court of Tarrant County, Texas by
the parents of a 36 week old fetus who did not survive an automobile accident at
an intersection in Fort Worth, Texas, the view of which is alleged to have been
obstructed by weeds growing on property that is alleged to have been owned by
Scout. The Company expects to deny liability, has turned the matter over to its
insurance carrier and believes that if it has any liability, it is adequately
covered by an existing policy of insurance.
38
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited historical and pro forma
capitalization of the Company as of September 30, 1996. The unaudited pro forma
capitalization reflects the transfer to the Company of the Transfer Assets and
Transfer Liabilities including: (i) the assumption by the Company of certain
federal and state tax and related interest claims of Seafield; (ii) the
assumption by the Company of the estimated assets and liabilities of Tenenbaum;
and (iii) the distribution of the shares to Seafield's stockholders. The
accounting for this transfer of assets and liabilities represents a
reorganization of companies under common control and, accordingly, all assets
and liabilities will be reflected at their historical carrying value.
The table should be read in conjunction with the Company's financial
statements and the notes thereto and the unaudited pro forma combined financial
information and notes thereto included elsewhere herein. The unaudited pro forma
information set forth below does not necessarily reflect the capitalization of
the Company in the future or as it would have been had the capitalization
occurred on September 30, 1996.
September 30, 1996
------------------
Historical Adjustments Pro Forma
---------- ----------- ---------
(in thousands)
Stockholders' Equity:
Preferred Stock of $0.01 par value with $100
liquidation preference. Authorized
1,000,000 shares; none issued ........... $ -- -- --
Common Stock of $0.01 par value. Authorized
30,000,000 shares; issued 1,620,862 shares -- 16 16
Paid-in Capital ............................... -- 43,636 43,636
Total Combined Equity ......................... 35,802 (35,802) --
------- ------- -------
Total Stockholders' Equity ............... 35,802 7,850 43,652
------- ------- -------
Total Capitalization ..................... $35,802 7,850 43,652
======= ======= =======
SLH OPERATIONS
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited Pro Forma Combined Balance Sheet of the Company as
of September 30, 1996 has been prepared pursuant to the Distribution Agreement
to reflect the transfer to the Company of the Transfer Assets and Transfer
Liabilities including: (i) the assumption by the Company of certain federal and
state tax and related interest claims of Seafield; (ii) the assumption by the
Company of the estimated assets and liabilities of Tenenbaum; and (iii) the
distribution of the shares to Seafield's stockholders. The accounting for this
transfer of assets and liabilities represents a reorganization of companies
under common control and, accordingly, all assets and liabilities will be
reflected at their historical carrying value.
The unaudited Pro Forma Combined Balance Sheet has been prepared as if the
transactions had occurred on September 30, 1996. The pro forma financial
information set forth below is unaudited and not necessarily indicative of the
results that would actually have occurred if the transactions had been
consummated as of September 30, 1996 or results which may be obtained in the
future.
<PAGE>
The pro forma adjustments, as described in the Notes to the Pro Forma
Combined Balance Sheet, are based on available information and upon certain
assumptions that management believes are reasonable. The unaudited Pro Forma
Combined Financial Information should be read in conjunction with the Company's
financial statements and the notes thereto, "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and the other
financial information included elsewhere herein.
There are no material adjustments to be made with respect to a presentation
of pro forma statements of operations for the nine months ended September 30,
1996, and the year ended December 31, 1995. Accordingly, historical statements
of operations presented in the SLH Operations Statements of Operations presented
at page F-4 fairly reflect pro forma results as if the Distribution had occurred
on January 1, 1996 and January 1, 1995. For this reason separate pro forma
statements of operations are not included in this Information Statement.
39
Pro forma per share loss before cumulative effect of a change in accounting
principle was $(2.16) for the nine months ended September 30, 1996 and based
$(6.93) for the year ended December 31, 1995 computed on 1,620,862 shares being
issued and outstanding for the entire periods.
<PAGE>
SLH OPERATIONS
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
September 30, 1996
Historical Adjustments Pro Forma
---------- ------------------ ---------
ASSETS (in thousands)
<C> <C> <C>
Current assets:
Cash and cash equivalents ..................... $ -- 6,860 (a) 6,860
Short-term investments ........................ -- 3,140 (a) 3,140
Accounts and notes receivable ................. 582 582
Real estate under contract .................... 2,733 2,733
Other current assets .......................... 342 800 (d) 1,142
------- ------ ------
Total current assets ..................... 3,657 10,800 14,457
Real estate held for sale ......................... 24,132 24,132
Investment securities ............................. 4,879 4,879
Investment in affiliates:
Oil and gas partnerships and interests ........ 4,102 4,102
Other ......................................... (180) (180)
Property, plant and equipment, net ................ 488 488
Intangible assets, net ............................ 769 769
Deferred income taxes ............................. 47 47
Other assets ...................................... 43 43
------ ------ ------
$ 37,937 10,800 48,737
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................. $ 160 160
Income tax payable ............................ -- 750 (b) 750
Other current liabilities ..................... 523 1,000 (b) 1,523
------ ------ ------
Total current liabilities ................ 683 1,750 2,433
Notes payable ..................................... 1,194 1,194
Deferred income taxes.............................. 183 183
Other liabilities ................................. 75 1,200 (c)(d) 1,275
------ ------ ------
Total liabilities ........................ 2,135 2,950 5,085
Stockholders' equity: ------ ------ ------
Preferred stock of $0.01 par value with $100
liquidation preference. Authorized 1,000,000
shares; none issued ........................ -- -- --
Common stock of $0.01 par value. Authorized
30,000,000 shares; issued 1,620,862 shares .. -- 16 (e) 16
Paid-in capital ............................... -- 35,786 (e) 43,636
10,000 (a)
(1,750) (b)
(700) (c)
300 (d)
Combined equity ............................... 35,802 (35,802) (e) --
------ ------ ------
Total stockholders' equity ............... 35,802 7,850 43,652
------ ------ ------
$ 37,937 10,800 48,737
40 ====== ====== ======
</TABLE>
<PAGE>
Notes to Pro Forma Combined Financial Information:
(a) Represents the cash and short-term investments, consisting of U. S.
Treasury obligations, to be transferred to the Company on the date of
distribution.
(b) Represents the estimated state tax liability and accrued interest assumed
by the Company.
(c) Represents contractual lease obligation for the Seafield office space
(approximately $700,000 through April 1999). The lease to be assumed from
Seafield expires in April 2002 with a right to cancel in April 1999. The
lease has been accounted for as an operating lease.
(d) Represents estimated Tenenbaum assets ($800,000) and liabilities ($500,000)
assumed by the Company.
(e) Represents the issuance of 1,620,862 shares of $.01 par value stock to
Seafield's stockholders and the reclassification of the combined equity in
excess of par value to the paid-in capital account.
41
<PAGE>
SLH OPERATIONS
SELECTED HISTORICAL COMBINED
FINANCIAL INFORMATION
The following table sets forth selected historical combined financial data
for the Company. The historical financial information presented reflects periods
during which the Company did not exist but rather reflects the financial
information of Seafield's businesses and assets that will be transferred to the
Company in connection with the Distribution as well as related liabilities to be
assumed by the Company. The historical financial information presented may not
necessarily be indicative of the results of operations or financial condition
that would have been obtained if the Company had been a separate, independent
company during the periods shown. Neither should the information be deemed to be
indicative of the Company's future performances as an independent company. The
financial information should be read in conjunction with the Company's Combined
Financial Statements and the notes thereto found elsewhere in this Information
Statement. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS." Earnings per share data are presented elsewhere in this
Information Statement and on a pro forma basis only. See "PRO FORMA FINANCIAL
DATA."
<TABLE>
(unaudited)
Nine months ended
September 30, Years ended December 31,
------------- ------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(in thousands)
<C> <C> <C> <C> <C>
Statement of Operations Data
Real estate sales ............. $ 12,801 7,390 10,485 10,932 16,297 33,067 17,689
Real estate rentals and other . 576 723 1,001 1,059 1,173 1,701 1,404
-------- ------ -------- -------- -------- -------- --------
Total Revenues ................ 13,377 8,113 11,486 11,991 17,470 34,768 19,093
-------- ------ -------- -------- -------- -------- --------
Cumulative effect of change in
accounting principle (1) ... (1,400) -- -- -- -- -- --
Net loss ...................... (4,903) (2,575) (11,232) (6,545) (4,166) (5,904) (3,431)
Balance Sheet Data
Current assets ................ $ 3,657 N/A 4,432 3,707 6,006 1,538 1,200
Real estate held for sale ..... 24,132 N/A 35,073 40,998 39,047 50,703 75,832
Investment securities ......... 4,879 N/A 5,136 6,161 6,624 6,990 6,279
Investment in oil and gas
partnerships and interests 4,102 N/A 5,255 6,703 8,543 11,427 11,668
Total assets .................. 37,937 N/A 51,638 64,627 70,155 84,471 109,074
Current liabilities ........... 683 N/A 365 239 2,150 1,186 1,977
Long-term debt ............... 1,194 N/A 1,289 2,689 1,153 1,153 781
Stockholders' equity .......... 35,802 N/A 49,686 61,147 66,438 81,271 104,849
- --------
</TABLE>
(1) Adoption of statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of."
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations covers periods when Company's assets were owned by
Seafield and operated as part of Seafield. It should be read in conjunction with
the Company's Historical Combined Financial Statements and Notes thereto
included elsewhere herein. It covers the years ended December 31, 1995, 1994 and
1993, and the nine months ended September 30, 1996 and 1995. The Company is
engaged in the sale of all of its assets in an orderly manner other than
Syntroleum.
Results of Operations
Summary of Combined Financial Results
(unaudited)
Nine months ended
September 30, Year ended December 31,
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(in thousands)
Total revenues ..... $ 13,377 8,113 11,486 11,991 17,470
Loss from operations (3,968) (2,913) (12,180) (8,903) (3,681)
Net loss ........... (4,903) (2,575) (11,232) (6,545) (4,166)
Nine Months 1996 Compared to Nine Months 1995. Real estate revenues were
$13.4 million in 1996's first nine months compared with $8.1 million in 1995's
first nine months. The real estate sales revenues in 1996 include the sale of 34
residential units in Florida and New Mexico ($11.9 million); 20 acres of land in
Oklahoma ($275,000) and 1.5 acres of land in Kansas ($580,000). In 1995's first
nine months, real estate sales revenue included the sale of 18 residential units
or lots in Florida, Missouri and New Mexico ($5.5 million) and 125 acres of land
in Kansas and Texas ($1.8 million). Real estate rental and other revenues
decreased from $723,000 in 1995's first nine months to $576,000 in 1996
primarily relating to Reno parking garage rentals.
At September 30, 1996, real estate holdings include residential land,
undeveloped land, single-family housing and commercial structures located in the
following states: Florida, Kansas, Nevada, New Mexico, Texas and Wyoming, all of
which are listed for sale. The total acreage consisted of approximately 1,150
acres and approximately 71 lots or units for sale. Real estate operations are
influenced from period to period by several factors including seasonal sales
cycles for projects in Florida and New Mexico.
Cost of the real estate sales in 1996 totaled $12.7 million, compared with
a cost of approximately $7.5 million in 1995, reflecting the mix of real estate
sold during each period as discussed above in the revenue analysis. Real estate
operating expenses totaled $1.9 million in 1996, compared with $2.4 million in
1995. The decrease is attributable to a reduction in expenses associated with
the substantial completion of the residential projects and a reduction of
depreciation in 1996 as real estate available for sale is not depreciated under
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which was implemented effective January 1,
1996.
<PAGE>
Adoption of SFAS No. 121 on January 1, 1996 resulted in an impairment loss
on real estate held for sale of $1.4 million which is included in the
accompanying unaudited statement of operations for the nine months ended
September 30, 1996 as the cumulative effect of a change in accounting principle.
This impairment loss resulted primarily from discounting expected future cash
flows in estimating fair values less cost to sell of certain real estate
properties.
An additional impairment loss on real estate held for sale of $1.5 million
was recorded as of September 30, 1996. This impairment loss resulted from
changes in estimated expected future cash flows based primarily on lower
expected sales prices on certain properties based on appraisals and other
current market conditions.
43
General and administrative expenses have been included in the statements of
operations based on management's estimate of what expenses would have been
incurred had the Company operated on a stand alone basis. Such amounts are not
materially different than what are expected for future periods.
The above factors produced a loss from operations of $4 million in 1996,
compared with $2.9 million in 1995.
Investment income in 1996 increased to $399,000 from $302,000 in 1995. The
1996 income primarily reflects cash received in excess of basis from two venture
capital funds while 1995's income consists of interest on notes receivable from
the sale of real estate.
Equity in affiliates' operations produced a loss of $572,000 in 1996,
compared with a loss of $106,000 in 1995. During 1996, the oil and gas
operations recorded affiliated losses of $440,000, compared to a $59,000 loss
in 1995, reflecting variances in operating results of the oil and gas general
partnership interests and increased costs recorded by Syntroleum. Syntroleum is
a developmental venture which is expected to incur losses throughout its
development stage. See "Business and Management of Syntroleum."
Gain on sale of affiliates in 1995 consists of the Company's net gain of
$111,000 on the sale of a partnership interest in a commercial real estate
property in Colorado.
Interest expense decreased to $81,000 in 1996 from $156,000 in 1995
reflecting retirement of a real estate note payable in 1995.
Equity in earnings of venture capital investment funds totaled
$790,000 in 1996 while 1995 produced a loss of $291,000. These funds invested in
development stage companies which may cause earnings to be subject to
significant variations.
Tax expense of $71,000 was recorded in 1996 compared with tax benefits of
$478,000 in 1995. Because the Company is a party to a tax sharing agreement with
other Seafield entities, benefits were recorded in 1995 for utilization of the
Company's losses by Seafield. In 1996, valuation allowances were provided on the
tax benefits because utilization within the Seafield group was not expected.
The net loss in 1996 of $4.9 million and $2.6 million in 1995 reflect the
above results of operations.
1995 Compared to 1994. Real estate revenues in 1995 were $11.5 million
compared with $12 million in 1994. The real estate sales revenues in 1995
include the sale of 29 residential units or lots in Florida, Missouri, New
<PAGE>
Mexico and Texas ($7.9 million) and 302 acres of land in Kansas and Texas ($2.6
million). The 1994 real estate sales revenue included the sale of 47 residential
units or lots in Florida, New Mexico and Texas ($10.4 million) and land in
California ($500,000). Real estate rental and other revenues decreased $58,000
to $1 million in 1995 reflecting the sale of a rental property in 1994.
At the end of 1995, real estate holdings include residential land,
undeveloped land, single family housing and commercial structures. The total
acreage consisted of approximately 1,165 acres and 99 lots or units for sale.
Cost of the real estate sales totaled approximately $10.9 million in both
1995 and 1994. Real estate operating expenses totaled $3.2 million in 1995,
compared with $4 million in 1994. The decrease primarily reflects termination
costs in 1994 associated with a real estate project.
During 1995, a $7.9 million net realizable value provision on real estate
was recorded. The loss reflected decreases in sales prices during 1995.
Management believed the decline was other than temporary and therefore recorded
a loss provision on the affected sales inventory. Likewise, in 1994, a $4.4
million loss was recorded on Texas land held for sale when conditions indicated
that a decline was occurring in the market for this type of sale inventory.
Management regularly analyzes market trends and adjusts the carrying values when
an impairment condition is indicated.
General and administrative expenses include a $1.5 million estimate in both
1995 and 1994 of Seafield's actual costs. Management estimates that the Company
will incur approximately $1.5 million of expenses annually when the Company
operates on a stand alone basis.
44
The above factors produced a loss from operations of $12.2 million in 1995,
compared with $8.9 million in 1994.
Investment income in 1995 was $278,000 compared to $1,127,000 in 1994. The
1994 increase included the recognition of deferred interest income on a real
estate note receivable.
Equity in affiliates' operation produced a loss of $267,000 in 1995,
compared with earnings of $254,000 in 1994. During 1995, the oil and gas
operations recorded affiliated losses of $209,000, compared to earnings of
$373,000 in 1994, reflecting variances in operating results of the oil and
gas general partnership interests and increased costs recorded by Syntroleum.
See Notes to Consolidated Financial Statements for additional information
regarding operations accounted for on the equity method.
Gain on sale of affiliates in 1995 reflects the Company's net gain of
$111,000 on the sale of a partnership interest in a commercial property in
Colorado.
Interest expense, all associated with real estate, decreased slightly to
$189,000 in 1995 from $222,000 in 1994 reflecting decreases in notes payable.
Equity in losses of venture capital investments were approximately the same
in 1995 and 1994. Variance in results are expected as these funds have
investment in development stage companies.
<PAGE>
Tax benefits of approximately $1.3 million were recorded in 1995 and $1.4
million in 1994. Because the Company is a party to a tax sharing agreement with
other Seafield entities, benefits were recorded for utilization of the Company's
losses by Seafield. In 1995, valuation allowances were provided on some tax
benefits because it was not expected Seafield could realize utilization of the
Company's losses.
The net loss in 1995 of $11.2 million and $6.5 million in 1994 reflect the
above results of operations.
1994 Compared to 1993. Real estate revenues in 1994 were $12 million,
compared with $17.5 million in 1993. In 1994, the sale of real estate assets
included the sale of 47 residential units or lots in Florida, New Mexico and
Texas ($10.4 million), and land in California ($500,000). In 1993, the real
estate sales included the sale of 84 residential units or lots in Florida, New
Mexico and Texas ($15.9 million) and land in Tennessee ($360,000). Real estate
rental and other revenues decreased $114,000 in 1994 to approximately $1.1
million reflecting utilization variances at the Reno parking garage and
decreased rentals of other rental property.
Cost of the real estate sales in 1994 totaled $10.9 million, compared with
a cost of approximately $16.1 million in 1993, reflecting the mix of real estate
sold during each year. Real estate operating expenses totaled $4 million in
1994, compared with $3.5 million in 1993. The increase primarily reflects
termination costs in 1994 associated with a real estate project.
During 1994, management's periodic review of real estate indicated a market
decline that was other than a temporary decline. Therefore, management recorded
a net realized loss provision of $4.4 million on Texas land inventory.
General and administrative expenses include management's estimation of
costs totaling $1.5 million in both 1994 and 1993.
The above factors produced a loss from operations in 1994 of $8.9 million,
compared to $3.7 million in 1993.
Investment income totaled $1.1 million in 1994, compared with $151,000 in
1993. During 1994, income was recorded representing recognition of deferred
interest income on a real estate note receivable.
Equity in affiliates' operations produced earnings of $254,000 in 1994,
compared with a loss of $1.3 million in 1993. During 1994, the oil and gas
operations recorded affiliated earnings of $373,000, compared to a loss of
$926,000 in 1994, primarily reflecting variances in operating results of the oil
and gas general partnership interests. See Notes to Consolidated Financial
Statements for additional information regarding operations accounted for on the
equity method.
45
The Company sold a partnership interest in an apartment complex in Georgia
comprising the loss of $372,000 on sale of affiliates in 1993.
Interest expense in 1994 of $222,000 reflects the consolidation of real
estate debt previously accounted for by the equity method.
Other expense in 1993 consisted of a $1.5 million provision for expected
litigation costs related to termination of a real estate partnership.
<PAGE>
Equity in results of venture capital investment were a loss of $233,000 in
1994 and earnings of $19,000 in 1993 reflecting these funds investment in
development stage operations.
Tax benefits of approximately $1.4 million were recorded in 1994 compared
with $2.5 million in 1993. Because the Company is a party to a tax sharing
agreement with other Seafield entities, benefits were recorded for utilization
of the Company's losses by Seafield.
The net loss in 1994 of $6.5 million and $4.2 million in 1993 reflect the
above results of operations.
Liquidity and Capital Resources
The Company has no liquidity at September 30, 1996. However, as discussed
in the "Pro Forma Financial Data" section, Seafield will transfer $6.9 million
to the Company on the Distribution Date. Also, approximately $3.1 million of
short-term investments (consisting of a U.S. Treasury Note which is pledged to a
bank for a real estate letter of credit), will be transferred to the Company on
the Distribution Date. Additionally, any cash generated from the sale of the
Company's assets prior to the Distribution Date will be transferred to the
Company on the Distribution Date.
The residential condominiums projects were substantially complete by the
end of 1995. The $7.2 million cash provided from operations in 1996's first nine
months reflects decreased real estate expenditures totaling $1.4 million which
compares to 1995's first nine months of $10.1 million. The cash provided by real
estate sales increased from $6.7 million in 1995's first nine months to $10.6
million in 1996.
Management anticipates that cash received as capitalization will be
adequate to fund Seafield liabilities that the Company is assuming. The
capitalization would increase the Company's combined historical equity from
approximately $35.8 million at September 30, 1996 to approximately $43.7
million.
Debt associated with real estate totaled $1.2 million at September 30, 1996
and is due in December 1997. This consolidated debt is non-recourse. The Company
is obligated under recourse debt (with an unpaid balance of $6.2 million) of an
affiliate accounted for on the equity method. The Company's obligation on this
recourse debt is secured by a $3.1 million U.S. Treasury Note to be transferred
to the Company at the Distribution Date . See Notes to Combined Financial
Statements for additional information.
Management anticipates that future additions to property, plant and
equipment will be minimal. During 1997, Management estimates that construction
and disposal costs to complete real estate projects in development will be
approximately $2 million. The Company's financing requirements through date of
distribution have been met by Seafield. The Company may seek its own credit
facilities but management expects cash flow from operations and the sale of
assets will be sufficient to fund cash needs.
Recent Developments.
On January 21, 1997, the Circuit Court of Jackson County, Missouri entered
a judgment favorable to the Company in the claim against Skidmore, Owings &
Merrill that is described under "Legal Matters." The amount of the judgment,
together with accrued interest at December 31, 1996, is approximately $5.8
<PAGE>
million. Although the Company expects the judgment to be appealed, the Company
has been advised by its Counsel that it will be difficult for the defendants to
cause the judgment to be reversed. If appealed, the final outcome would not be
expected for at least another year.
46
Since September 30, 1996, the Company generated approximately $2.4 million
from sales of residential real estate and $2.0 million from the sale of the 547
acre Fort Worth, Texas tract of undeveloped real estate, $1.5 million of which
the Company financed with a three year secured note. Approximately $1.0 million
was also received with respect to the Tenenbaum accounts receivable that are
described under "BUSINESS AND PROPERTIES -- Management and Disposition of Real
Estate Assets."
Except as outlined above and elsewhere herein, the Company is not aware of
any material change in the financial condition or results of operations of the
Company since September 30, 1996.
MANAGEMENT OF THE COMPANY
Directors and Officers
The following persons will serve the Company in the capacities indicated,
effective on or before the date of the Distribution:
Name Age Position
- ---- --- --------
James R. Seward, CFA 44 President, Chief Executive Officer and
Class A Director
P. Anthony Jacobs, CFA 55 Chairman of the Board and Class A
Director.
Steven K. Fitzwater 50 Vice President, Chief Accounting and
Financial Officer, Treasurer and Secretary
and Class C Director
Lan C. Bentsen 49 Class C Director
W. D. Grant 80 Class B Director
W.T. Grant II 46 Class B Director
Michael E. Herman 55 Class A Director
David W. Kemper 46 Class B Director
Mr. Seward has been a director of Seafield since 1990, the Executive Vice
President of Seafield since May 1993; Senior Vice President of Seafield from
August 1990 to May 1993 and Chief Financial Officer of Seafield since 1990. Mr.
Seward also is a director of Syntroleum, LabOne and Response.
Mr. Jacobs has been a director of Seafield since 1987, the President of
Seafield since May 1993 and Chief Operating Officer of Seafield since 1990. He
is also a director of Response, Syntroleum, Inc., LabOne, and Trenwick Group,
Inc..
Mr. Fitzwater has been the Vice President, Chief Accounting Officer and
Secretary of Seafield since 1990.
Mr. Bentsen has been a Seafield director since 1986 and has been Managing
Partner of Remington Partners (Investments) since 1995; prior to its sale in
1994, Mr. Bentsen was Chairman and Chief Executive Officer of Sovereign National
Management, Inc. (property management).
<PAGE>
Mr. W. D. Grant has been a consultant to Seafield since August 1990; he
was Chairman of the Board of Seafield until May 1993. Mr. W.D. Grant also is a
director of LabOne, Inc. and Boatmen's First National Bank of Kansas City.
Mr. W. T. Grant II has been a director of Seafield since 1980, the Chairman
and Chief Executive Officer of Seafield since May 1993; and President of
Seafield prior to May 1993. Since November 1995, Mr. Grant has also served as
President, Chairman of the Board and Chief Executive Officer of LabOne, Inc.
Mr. Grant also is a director of AMC Entertainment, Inc., Commerce Bancshares,
Inc., Kansas City Power & Light Company, and Response Oncology, Inc.
Michael E. Herman has been a Seafield director since 1991 and has been
engaged in private investments since 1990 (partner Herman Family Trading
Company); he has been President of Kansas City Royals Baseball Team (major
league baseball) since 1993; and Chairman of the Finance Committee of Ewing
Marion Kauffman Foundation since 1990. Mr. Herman also is a director of
Boatmen's First National Bank of Kansas City, Cerner Corporation, Janus Capital
Corporation and Agouron Pharmaceuticals, Inc.
47
Mr. Kemper has been Chairman of the Board, President and Chief Executive
Officer of Commerce Bancshares, Inc. (bank holding company) and Chairman and
Chief Executive Officer and a director of Commerce Bank, N.A. (St. Louis)
for more than the past five years. Mr. Kemper also is a director of Ralcorp
Holdings, Inc., Wave Technologies International, Inc. and Tower Properties
Company.
The Articles of Incorporation and Bylaws provide that the Company Board
will be divided into three classes of directors, with the classes to be as
nearly equal in number as possible, and that, of the initial directors of the
Company following the Distribution as identified above, the Class A directors
will continue to serve until the 2000 Annual Meeting of Stockholders, the Class
B Directors will continue to serve until the 1998 Annual Meeting of Stockholders
and the Class C Directors will continue to serve until the 1999 Annual Meeting
of Stockholders. Starting with the 1997 Annual Meeting of Stockholders, which
was held in January 1997, one class of directors will be elected each year for a
three-year term. The Bylaws provide that beginning in 1998 annual meetings of
stockholders shall be held on the second Wednesday in May or such other date as
may be fixed by resolution of the Company Board. The first annual meeting for
which proxies will be solicited from stockholders is expected to be held on May
13, 1998. See "CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE
ARTICLES OF INCORPORATION, THE BYLAWS, THE RIGHTS, AND KANSAS LAW -- Classified
Board of Directors."
Certain Board Committees
The Company Board has established an Executive Committee consisting of
Messrs Seward, Jacobs, Fitzwater and Grant II, an Audit Committee consisting of
Messrs. Kemper, Bentsen and W.D. Grant, and a Nominating Committee and
Compensation Committee consisting of Messrs. Bentsen, Kemper and Herman. The
specific duties of such committees will be established at a meeting of the
Company Board following the Distribution.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and Seafield have entered into a number of agreements for the
<PAGE>
purpose of effecting the Distribution and defining the ongoing relationship
between them. These agreements consist of the Distribution Agreement, Interim
Services Agreement and Tax Sharing Agreement described under "ARRANGEMENTS
BETWEEN SEAFIELD AND THE COMPANY RELATING TO THE DISTRIBUTION" as well as
compensation arrangements described under "EXECUTIVE COMPENSATION." These
agreements have been developed by Seafield in connection with its strategy to
create the Company and cause its stock to be distributed to Seafield
shareholders in the Distribution. Accordingly, none of the agreements are the
result of arm's-length negotiation between independent parties.
P. Anthony Jacobs, CFA, James R. Seward, CFA, and Steven K. Fitzwater, who
are the President and Chief Operating Officer, Executive Vice President and
Chief Financial Officer, and Vice President and Chief Accounting Officer of
Seafield, respectively, are the Chairman, President and Chief Executive Officer,
and Vice President and Chief Financial and Accounting Officer of the Company,
respectively. All but one of the directors of the Company are also directors of
Seafield. Following the Distribution these officers and directors of the Company
will continue in such dual capacities with Seafield and the Company for an
indefinite period of time. Because the management of both Seafield and the
Company will be essentially identical following the Distribution, conflicts may
arise with respect to the operation and effect of the agreements and
arrangements described above and also with respect to the negotiation of any
additional agreements which may well arise between Seafield and the Company.
Although Seafield and the Company plan to utilize independent directors who have
no affiliation with the Company to resolve any material issue that may arise
between Seafield and the Company following the Distribution, such resolutions
may not reflect the results of actual arms-length negotiations. Accordingly,
conflicts arising out of the management of both Seafield and the Company by the
same persons could have an adverse affect on the Company and its stockholders if
not properly resolved.
48
EXECUTIVE COMPENSATION
Compensation of Directors
Nonemployee directors of the Company will receive compensation consisting
of annual cash retainers, meeting fees and stock option awards.
Cash Compensation. It is expected that directors who are not employees of
the Company will initially be paid an annual retainer for Company Board service
of $1,000 per quarter, a fee of $500 for each Company Board meeting attended.
Directors who are employees of the Company and Messrs Seward, Jacobs and
Fitzwater will not be paid any fee or additional remuneration for services as
members of the Company Board or any committee thereof.
Directors' Stock Options. Pursuant to the SLH CORPORATION 1997 Stock
Incentive Plan (the " SLH Stock Option Plan"), all of the above named directors
of the Company other than Messrs. Seward, Jacobs and Fitzwater will, upon the
date of the Distribution receive options to purchase 16,200 shares of the
Company's Common Stock at the fair market value of such stock as of the close of
business on such date.
Compensation of Executive Officers
The following table summarizes compensation paid to all of the Company's
Executive Officers for services rendered to Seafield during 1996 . Under the
<PAGE>
Interim Services Agreement, all of the Company's Executive Officers will remain
full time employees of Seafield after the Distribution Date, until the earlier
of the termination of that agreement and the cessation of their full time
employment with Seafield. Pursuant to that agreement, Seafield will make their
services and the services of certain other Seafield employees available to the
Company on an as needed basis in exchange for Seafield's use of the Company's
offices , equipment and other facilities. See "THE DISTRIBUTION Interim Services
Agreement." Upon any termination of the arrangement during 1997 it is expected
that each of Messrs. Seward, Jacobs and Fitzwater will receive a base salary
from the Company in the amount of $75,000, $75,000 and $60,000, respectively ,
auto allowances and usual health insurance, vacation and other benefits
customarily provided to all salaried employees. Each of Messrs. Jacobs, Seward
and Fitzwater will also participate in the 1997 SLH Stock Incentive Plan to the
extent indicated in Note 2 to the table. The principal positions listed in the
footnotes to the table are those which will be held by the Named Executive
Officers with the Company as of the Distribution Date.
SUMMARY COMPENSATION TABLE
<TABLE>
Long-Term
Compensation
Awards
------------
Securities
Name and Annual Compensation Underlying All Other
Principal Position Year Salary($)(1) Bonus($) Options(#)(2) Compensation($)(3)
- ------------------ ---- ------------ -------- ------------- ------------------
<C> <C> <C> <C> <C>
James R. Seward, CFA...... 1996 $147,290 $ -- -- $ 21,105
President and Chief
Executive Officer
P. Anthony Jacobs, CFA.....1996 249,590 -- -- $ 42,220
Chairman of the Board
Steven K. Fitzwater........1996 94,266 -- -- $ 9,936
Vice President - Chief
Financial Officer, Chief
Accounting Officer, and
Secretary
- ----------------
</TABLE>
(1) Consists of cash compensation paid by Seafield for all services rendered
to Seafield during 1996. At the Distribution Date, it is anticipated
that each Executive Officer's annual rate of salary will by
49
the same as the 1996 amount shown in the Summary Compensation Table;
however, under the Interim Services agreement, that part of it which is
attributable to services rendered to Seafield will be allocated to
Seafield and the remaining part for services to the Company. Following
termination of the Interim Services Agreement, the Executive Officers
will be compensated by the Company at the following annual rates: James
R. Seward: $75,000; P. Anthony Jacobs: $75,000 and Steven K. Fitzwater:
$60,000.
<PAGE>
(2) As of the Distribution Date, Messrs. Seward, Jacobs and Fitzwater will
be granted options to purchase 65,000, 65,000 and 40,500 shares,
respectively, of the Company Common Stock. All such options will be
nonqualified stock options with exercise prices equal to the fair market
value of the Company Common Stock on the Distribution Date; all options
will have ten year terms and will become exerciseable in equal
installments as follows: one fourth on the Distribution Date and one-
fourth on each of the first, second and third anniversary dates of the
Distribution Date. See "EXECUTIVE COMPENSATION - SLH Stock Incentive
Plan."
(3) Information is not available for 1996. The amounts shown in the table
under "all other compensation" are for 1995 and are expected to
approximate amounts for 1996. The amounts include contributions paid or
accrued to the named executive officers' accounts in Seafield's 401(k)
Plan ("401(k)" and Money Purchase Pension Plan ("MPP"), pursuant to a
Supplemental Retirement Agreement ("SERP") with the executive and for
term life insurance for the executive.
Employment Agreements
Each of the Executive Officers named in the Summary Compensation Table
is a party to an Employment Agreement with the Company. Each Employment
Agreement provides for employment of the Executive Officer for an initial term
commencing on the date the Executive Officer ceases to be employed by Seafield
under the Interim Services Agreement on behalf of the Company and ending on the
third anniversary of the Distribution Date. The term of the Employment
Agreements is automatically extended for successive one year periods unless a
notice of non- extension is given by either party at least twelve months prior
to the end of the then current term.
Compensation does not commence under the Employment Agreement until the
date the Executive Officer ceases to be employed by Seafield under the Interim
Services Agreement. Base compensation, which is initially at the rates per annum
set forth above under "Compensation of Executive Officers," is subject to
adjustment annually by the Company Board, provided that base salary may not be
decreased by more than five percent year to year. The Employment Agreements
provide that an Executive Officer's full time is not required and such Executive
Officer is entitled to pursue other employment or business opportunities
simultaneously with his duties to the Company.
The employment of each of the Company's Executive Officers is subject
to termination for cause, which is defined as including willful misconduct with
respect to an Executive Officer's duties, or the perpetration of a fraud,
embezzlement, or other act of dishonesty, or a breach of trust or fiduciary duty
which materially adversely affects the Company or its stockholders or the other
employment or business activities of such Executive Officer conflicting with the
Company's business. The Employment Agreements provide that the Executive
Officers will not compete with the Company during the term of the Employment
Agreements and, if an Executive Officer is terminated with cause or voluntarily
terminates his employment, for a period of one year thereafter.
SLH Stock Incentive Plan
The Company has adopted a stock incentive plan, which provides for the
granting of stock options respecting Company Common Stock to officers, employees
and non-employee directors of the Company. Pursuant to the stock option plan,
the initial non-employee directors of the Company will be granted options
<PAGE>
respecting 16,200 shares of Company common stock, effective on the Distribution
Date. Non-employee directors who first become directors of the Company after the
distribution date would be granted stock options respecting 16,200 shares of
Company common stock
50
effective on the date such a non-employee director first assumes office as a
director of the Company. Each option granted to a non-employee director pursuant
to the terms of the stock incentive plan will have a term of ten years, will
provide for an exercise price equal to 100% of the fair market value of the
Company Common Stock on the Distribution Date and will become exercisable in
four installments as follows: one-fourth on the date of grant and one fourth on
each of the first, second and third anniversaries of the date of grant.
Non-employee directors are entitled to receive additional grants of stock
options under the stock option plan, but only subject to approval of such
subsequent grants by Company stockholders. The Company does not presently expect
that non-employee directors will be granted options other than those described
above.
Except for grants of stock options to non-employee directors as
discussed above (which grants are provided for in the stock option plan itself),
stock option grants will be administered by the Nominating and Compensation
Committee of the Company Board ("Committee"). The Committee shall consist of two
or more non-employee directors. The Committee has authority to issue stock
options to officers and employees, with such terms and provisions as the
Committee shall determine. The stock incentive plan limits the number of shares
of Company Common Stock with respect to which stock options may be granted to
260,000 in the aggregate and further limits the number of shares of Company
Common Stock which may be subject to stock options granted to any one individual
to 65,000. Stock options granted to officers or employees may be either
incentive stock options (ISO's) or non-qualified stock options (NQSO's), at the
discretion of the Committee. Except in the case of officers or employees who are
beneficial owners of more than ten percent of the voting power of Company Common
Stock (which is not expected to be the case with any of the Company's officers
or employees), options, including both NQSO's and ISO's, may be granted with an
exercise price not less than 100% of the fair market value of the underlying
shares on the date of grant. Options granted to officers and employees may not
expire later than the tenth anniversary of the date of grant and no options may
be granted after December 31, 2001. Options granted to officers and employees
may contain such vesting schedule as is deemed appropriate by the Committee. The
options initially granted to officers and employees and referred to in the
Summary Compensation Table above all provide for vesting in four equal
installments as follows: one-fourth on the date of grant and one-fourth on each
of the first, second and third anniversaries of the date of grant.
All options held by officers and employees expire six months after an
option holder's employment with the Company terminates; provided, however, that
except in the case of an ISO, the period is extended to twelve months in the
case of a holder's death or disability and is extended to three years in the
case of a holder's retirement. A non-employee director's options terminate
ninety days after his term as a director terminates, except that said period is
extended to twelve months if the non-employee director dies while in office or
during the ninety days thereafter. Generally, options which are exercisable
following termination of an option holder's employment or the expiration of a
non-employee director's term as a director may be exercised only to the extent
exercisable on the date employment terminates or the term as a non-employee
<PAGE>
director expires. However, vesting shall be accelerated in the event of an
option holder's death, or in the case of options granted other than to
non-employee directors, disability or retirement.
All unvested options shall become immediately exercisable in the event
of one or more of the following: (i) acquisition of beneficial ownership of 25%
or more of the voting power of Company common stock by any person other than
descendants of W. D. Grant's father; (ii) a change in the composition of the
Company Board such that a majority of the Board is comprised of persons other
than the initial directors and future directors nominated by the initial
directors or persons who have been nominated by the initial directors; (iii)
consummation of a merger or consolidation involving the Company; or (iv)
adoption of a plan of complete liquidation and dissolution by the Company Board
and the Company's stockholders.
Except in the case of ISOs, payment of the exercise price for options
may, at the holder's election, be made either in cash, in the form of shares of
Company Common Stock previously owned by the option holder, or by way of the
Company withholding shares otherwise issuable upon the exercise of an option
with a fair market value at the time of exercise equal to the exercise price.
51
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS OF COMPANY COMMON STOCK
By Management
The following table sets forth the number of shares of Company Common
Stock expected to be beneficially owned following the Distribution, directly or
indirectly, by each director, each Named Executive Officer and all directors and
executive officers as a group, based upon the beneficial ownership by such
persons of Seafield Common Stock as of November 30, 1996. A list of the
individuals who are expected to be executive officers of the Company immediately
following the Distribution is set forth under "MANAGEMENT OF THE COMPANY."
Except as otherwise indicated, each individual named is expected to have sole
investment and voting power with respect to the securities shown.
Amount and Nature of
Name Beneficial Ownership (1)(2)(11) Percentage(12)
---- ------------------------------- -------------
James R. Seward (9) ............ 25,197 1.5%
P. Anthony Jacobs (8) .......... 28,716 1.8%
Steven K. Fitzwater ............ 13,584 --
Lan C. Bentsen (3) ............. 5,969 --
W. D. Grant (4) ................ 314,511 19.4%
W.T. Grant II (5) .............. 40,374 2.5%
Michael E. Herman (6) .......... 5,819 --
David W. Kemper (7) ............ 4,654 --
All Directors and Officers
as a group of eight (10) ..... 431,230 25.6%
- ----------
<PAGE>
(1) A beneficial owner of a security includes a person who, directly or
indirectly, has or shares voting or investment power with respect to
such security. Voting power is the power to vote or direct the voting
of the security and investment power is the power to dispose or direct
the disposition of the security. Each person listed has stated that he,
either alone or with his spouse, has sole voting power and sole
investment power with respect to the shares shown as beneficially
owned, except as otherwise indicated.
(2) Shares of Company Common Stock shown as beneficially owned include
shares issuable upon the exercise of stock options that will be
exercisable on the Distribution Date or that become exercisable within
60 days thereafter, as follows: Lan C. Bentsen, 4,050 shares, W. D.
Grant, 4,050 shares; W. T. Grant II, 4,050 shares; Michael E. Herman,
4,050 shares; David W. Kemper, 4,050 shares; P. Anthony Jacobs, 16,250
shares, James R. Seward, 16,250 shares; Steven K. Fitzwater, 10,125
shares, and all directors and executive officers as a group, 62,875
shares.
(3) Includes 355 shares held by a family trust for the benefit of Mr.
Bentsen's children, as to which he disclaims beneficial ownership. An
unaffiliated person is trustee with sole voting and investment powers.
(4) Includes 59,490 shares held by a family trust for which W. D. Grant
serves as a co-trustee and in that capacity shares voting and
investment powers with UMB Bank, Kansas City, N.A.; also including
6,712 shares owned by W. D. Grant's wife, as to which he disclaims
beneficial ownership.
(5) Includes 7,593 shares held by W. T. Grant II as custodian for his
children; includes 11,250 shares held in a family trust for which W.
T. Grant II serves as a co-trustee with Laura Gamble and in that
capacity shares voting and investment powers; also includes 2,896
shares owned by the wife of W. T. Grant II, as to which he disclaims
beneficial ownership. Reflects the cashless exercise by W.T. Grant in
January 1997, of a Seafield stock option resulting in his acquisition
of 555 Seafield shares.
52
(6) Includes 50 shares owned by the Herman Family Trading Company of which
Mr. Herman is a general partner and approximately 73% owner.
(7) Includes 489 shares held in a family trust for which Mr. Kemper serves
as a trustee, and in that capacity shares voting power and has sole
investment power.
(8) Includes 250 shares owned by the wife and 50 shares owned by the son of
P. Anthony Jacobs as to which he disclaims beneficial ownership.
(9) Includes 375 shares held in a family trust for which Mr. Seward serves
as a co-trustee with his mother, and in that capacity shares voting and
investment powers.
(10) Includes (i) 62,875 shares of Company Common Stock issuable upon the
exercise of stock options granted under the SLH 1997 Stock Incentive
Plan that will be exercisable on the Distribution Date or that become
exercisable within 60 days thereafter.
<PAGE>
(11) Includes as to each of the following individuals, the following numbers
of shares held in their respective accounts under the Seafield Capital
Corporation 401(k) Plan and Trust, as to which shares the individual
shares investment power, but does not have voting power: James R.
Seward, 160 shares; P. Anthony Jacobs, 446 shares; Steven K. Fitzwater,
131 shares; and W.T. Grant II, 265 shares (plus, in the case of
both Messrs. Fitzwater and Seward, the balance of the shares in the
Seafield 401(K) Plan as to which each shares voting power as a member
of the Seafield 401(K) Plan Administrative Committee; the Seafield
401(K) Plan own an aggregate of 5,858 shares).
(12) The percentages represent the total number of shares of Common Stock
shown in the adjacent column divided by the number of issued and
outstanding shares of Seafield Common Stock as of November 30, 1996,
divided by the Distribution Ratio of one share of Company Common Stock
for each four shares of Seafield Common Stock ( 1,620,862 shares),
plus, in each instance, all shares of Common Stock issuable to the
person or group named upon the exercise of stock options granted under
the SLH Corporation Stock Option Plan for 1997 that will be exercisable
on the Distribution Date or that became exercisable within 60 days
thereafter. Percentages of less than one percent are omitted.
By Others
The following table sets forth each person or entity (other than
persons set forth in the preceding table) that is expected to beneficially own
more than 5% of the Company Common Stock outstanding immediately following the
Distribution, based upon the ownership of Seafield Common Stock as known to the
Company as of November 30, 1996:
Amount and Nature of
Name Beneficial Ownership Percentage(1)
---- -------------------- ------------
Twentieth Century Companies, Inc.(2)..... 97,325 6.0%
4500 Main Street
P.O. Box 418210
Kansas City, Missouri 64141-9210
- -------------------
(1) The percentages represent the total number of shares of Common Stock
shown in the adjacent column divided by the number of issued and
outstanding shares of Seafield Common Stock as of November 30, 1996,
divided by the Distribution Ratio of one share of Company Common Stock
for each four shares of Seafield Common Stock ( 1,620,862 shares).
53
(2) As reported in a Schedule 13G filing as of December 31, 1995.
DESCRIPTION OF COMPANY CAPITAL STOCK
Under the Articles of Incorporation, the total number of shares of all
classes of stock that the Company has authority to issue is 31,000,000
consisting of 1,000,000 shares of Company Preferred Stock, and 30,000,000 shares
of Company Common Stock. No shares of Company Preferred Stock are being issued
in connection with the Distribution. An aggregate of up to approximately
1,620,862 shares of Company Common Stock is expected to be distributed in the
Distribution, based on the number of shares of Seafield Common Stock outstanding
<PAGE>
on November 30, 1996 (the actual number will depend upon the number of shares of
Seafield Common Stock outstanding as of the Record Date). The Company plans to
have authorized and reserved for issuance 50,000 shares of Company Junior
Participating Preferred Stock (as defined herein) in connection with the Rights
to be issued by the Company in connection with the Distribution.
The holders of Company Common Stock are entitled to one vote per share on
all matters voted on by the stockholders, including the elections of directors,
and, except as otherwise required by law or provided in any resolution (a
"Preferred Stock Designation") adopted by the Company Board with respect to any
series of Company Preferred Stock, the holders of such shares exclusively
possess all voting power. The Articles of Incorporation do not provide for
cumulative voting in the election of directors. Subject to any preferential
rights of any outstanding series of Company Preferred Stock, the holders of
Company Common Stock are entitled to such dividends as may be declared from time
to time by the Company Board from funds available therefor, and upon liquidation
are entitled to receive pro rata all assets of the Company available for
distribution to such holders. All shares of Company Common Stock received in the
Distribution will be fully paid and nonassessable and the holders thereof will
not have any preemptive rights. See "CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN
PROVISIONS OF THE ARTICLES OF INCORPORATION, THE BYLAWS, THE RIGHTS, AND KANSAS
LAW."
The Company Board is authorized to provide for the issuance of shares of
Company Preferred Stock, in one or more series, to establish the number of
shares in each series and to fix the designation, powers, preferences and rights
of each such series and the qualifications, limitations or restrictions thereof.
See "CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE ARTICLES OF
INCORPORATION, THE BYLAWS, THE RIGHTS, AND KANSAS LAW -- Company Preferred
Stock."
CERTAIN ANTITAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE ARTICLES
OF INCORPORATION, THE BYLAWS, THE RIGHTS, AND KANSAS LAW
The Articles of Incorporation, the Bylaws and the Rights contain certain
provisions that could make more difficult the acquisition of the Company by
means of a tender offer, a proxy contest or otherwise. The description set forth
below is intended as a summary of the material terms of such provisions and is
qualified in its entirety by reference to the Articles of Incorporation and the
Bylaws, and the Rights Agreement, which are filed as exhibits to the
Registration Statement.
Classified Board of Directors
The Articles of Incorporation and Bylaws provide that the Company Board
will be divided into three classes of directors, with the classes to be as
nearly equal in number as possible. The Company Board consists of the persons
referred to under "MANAGEMENT OF THE COMPANY." The Articles of Incorporation and
the Bylaws provide that one-third of the initial directors will serve until the
1998 Annual Meeting of Stockholders (Class B), approximately one-third will
continue to serve until the 1999 Annual Meeting of Stockholders (Class C) and
approximately one-third will continue to serve until the 2000 Annual Meeting of
Stockholders (Class A). At each Annual Meeting of Stockholders, one class of
directors will be elected each year for a three-year term. The initial Class B
directors, Messrs. Gamble, Grant II and Robinson will serve until the 1998
Annual Meeting of Stockholders; the initial Class C directors, Messrs. Fitzwater
and Bentsen will serve until the 1999 Annual Meeting of Stockholders and the
Class A directors,
54
<PAGE>
Messrs. Seward, Jacobs and Herman, who were elected at the January 1997 Annual
Meeting, will serve until the 2000 Annual Meeting of Stockholders.
The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the Company Board. At
least two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the Company Board. Such a delay may
help ensure that the Company's directors, if confronted by a holder attempting
to force a proxy contest, a tender or exchange offer, or an extraordinary
corporate transaction, would have sufficient time to review the proposal as well
as any available alternatives to the proposal and to act in what they believe to
be the best interests of the stockholders. The classification provisions will
apply to every election of directors, however, regardless of whether a change in
the composition of the Company Board would be beneficial to the Company and its
stockholders and whether or not a majority of the Company's stockholders believe
that such a change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of the Company, even though such an attempt might
be beneficial to the Company and its stockholders. The classification of the
Company Board could thus increase the likelihood that incumbent directors will
retain their positions. In addition, because the classification provisions may
discourage accumulations of large blocks of the Company's stock by purchasers
whose objective is to take control of the Company and remove a majority of the
Company Board, the classification of the Company Board could tend to reduce the
likelihood of fluctuations in the market price of Company Common Stock that
might result from accumulations of large blocks. Accordingly, stockholders could
be deprived of certain opportunities to sell their shares of Company Common
Stock at a higher market price than might otherwise be the case.
Number of Directors, Filling Vacancies and Removal
The Articles of Incorporation provide that, subject to any rights of
holders of Company Preferred Stock to elect additional directors under specified
circumstances, the number of directors will be fixed in the manner provided in
the Bylaws. The Bylaws provide that, subject to any rights of holders of Company
Preferred Stock to elect directors under specified circumstances, the number of
directors will be fixed from time to time exclusively pursuant to a resolution
adopted by directors constituting a majority of the total number of directors
that the Company would have if there were no vacancies on the Company Board (the
"Whole Board"), but must consist of not more than eleven nor less than three
directors. In addition, the Articles of Incorporation and Bylaws provide that,
subject to any rights of holders of Company Preferred Stock, and unless the
Company Board otherwise determines, any vacancies or newly created directorships
will be filled only by the affirmative vote of a majority of the remaining
directors, though less than a quorum. Accordingly, absent an amendment to the
Articles of Incorporation and Bylaws, the Company Board could prevent any
stockholder from enlarging the Company Board and filling the new directorships
with such stockholder's own nominees.
Under the Kansas General Corporation Code (the "KGCC"), unless otherwise
provided in the Articles of Incorporation, directors serving on a classified
board may only be removed by the stockholders for cause. In addition, the
Articles of Incorporation and the Bylaws provide that directors may be removed
only for cause and only upon the affirmative vote of holders of at least 80% of
the voting power of all the then outstanding shares of stock entitled to vote
generally in the election of directors ("Voting Stock"), voting together as a
single class.
<PAGE>
Stockholder Action
The Articles of Incorporation and the Bylaws provide that, subject to the
rights of any holders of Company Preferred Stock, stockholder action can be
taken only at an annual or special meeting of stockholders or by unanimous
written consent of all stockholders. The Bylaws provide that, subject to the
rights of holders of any series of Company Preferred Stock, special meetings of
stockholders can be called only by the Chairman of the Company Board or by the
Company Board pursuant to a resolution adopted by a majority of the Whole Board.
Stockholders are not permitted to call a special meeting or to require that the
Company Board call a special meeting of stockholders. Moreover, the
55
business permitted to be conducted at any special meeting of stockholders is
limited to the business brought before the meeting pursuant to the notice of
meeting given by the Company.
The provisions of the Articles of Incorporation and the Bylaws may have the
effect of delaying consideration of a stockholder proposal until the next annual
meeting unless a special meeting is called by the Chairman or at the request of
a majority of the Whole Board. Moreover, a stockholder could not force
stockholder consideration of a proposal over the opposition of the Chairman and
the Company Board by calling a special meeting of stockholders prior to the time
the Chairman or a majority of the Whole Board believes such consideration to be
appropriate.
Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals
The Bylaws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors, or bring other business
before an annual meeting of stockholders of the Company (the "Stockholder Notice
Procedure").
The Stockholder Notice Procedure provides that only individuals who are
nominated by, or at the direction of, the Company Board, or by a stockholder who
has given timely written notice to the Secretary of the Company prior to the
meeting at which directors are to be elected, will be eligible for election as
directors of the Company. The Stockholder Notice Procedure provides that at an
annual meeting only such business may be conducted as has been brought before
the meeting by, or at the direction of, the Chairman or the Company Board, or by
a stockholder who has given timely written notice to the Secretary of the
Company of such stockholder's intention to bring such business before such
meeting. Under the Stockholder Notice Procedure, for notice of stockholder
nominations to be made at an annual meeting to be timely, such notice must be
received by the Company not less than seventy days nor more than ninety days
prior to the first anniversary of the previous year's annual meeting (or, if the
date of the annual meeting is advanced by more than twenty days, or delayed by
more than seventy days, from such anniversary date, not earlier than the
ninetieth day prior to such meeting and not later than the later of (1) the
seventieth day prior to such meeting and (2) the tenth day after public
announcement of the date of such meeting is first made) provided that, with
respect to the annual meeting to be held in 1998 the anniversary date shall be
deemed to be May 13, 1998. Notwithstanding the foregoing, in the event that the
number of directors to be elected is increased and there is no public
announcement naming all of the nominees for director or specifying the size of
the increased Company Board made by the Company at least eighty days prior to
the first anniversary of the preceding year's annual meeting, a stockholder's
<PAGE>
notice will be timely, but only with respect to nominees for any new positions
created by such increase, if it is received by the Company not later than the
tenth day after such public announcement is first made by the Company. Under the
Stockholder Notice Procedure, for notice of a stockholder nomination to be made
at a special meeting at which directors are to be elected to be timely, such
notice must be received by the Company not earlier than the ninetieth day before
such meeting and not later than the later of (1) the seventieth day prior to
such meeting and (2) the tenth day after public announcement of the date of such
meeting is first made.
Under the Stockholder Notice Procedure, a stockholder's notice to the
Company proposing to nominate an individual for election as a director must
contain certain information, including, without limitation, the identity and
address of the nominating stockholder, the class and number of shares of stock
of the Company which are owned by such stockholder, and all information
regarding the proposed nominee that would be required to be included in a proxy
statement soliciting proxies for the proposed nominee. Under the Stockholder
Notice Procedure, a stockholder's notice relating to the conduct of business
other than the nomination of directors must contain certain information about
such business and about the proposing stockholders, including, without
limitation, a brief description of the business the stockholder proposes to
bring before the meeting, the reasons for conducting such business at such
meeting, the name and address of such stockholder, the class and number of
shares of stock of the Company beneficially owned by such stockholder, and any
material interest of such stockholder in the business so proposed. If the
Chairman of the Board or other officer presiding at a meeting determines that a
person was not nominated, or other business was not brought before the meeting,
in accordance with the Stockholder Notice Procedure, such person will not be
eligible for election as a director, or such business will not be conducted at
such meeting, as the case may be.
56
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure will afford the Company Board an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Company Board, to inform stockholders about such
qualifications. By requiring advance notice of other proposed business, the
Stockholder Notice Procedure will also provide a more orderly procedure for
conducting annual meetings of stockholders and, to the extent deemed necessary
or desirable by the Company Board, will provide the Company Board with an
opportunity to inform stockholders, prior to such meetings, of any business
proposed to be conducted at such meetings, together with any recommendations as
to the Company Board's position regarding action to be taken with respect to
such business, so that stockholders can better decide whether to attend such a
meeting or to grant a proxy regarding the disposition of any such business.
Although the Bylaws do not give the Company Board any power to approve or
disapprove stockholder nominations for the election of directors or proposals
for action, they may have the effect of precluding a contest for the election of
directors or the consideration of stockholder proposals if the proper procedures
are not followed, and of discouraging or deterring a third party from conducting
a solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to the Company and its stockholders.
<PAGE>
Company Preferred Stock
The Articles of Incorporation authorizes the Company Board to establish one
or more series of Company Preferred Stock and to determine, with respect to any
series of Company Preferred Stock, the terms and rights of such series,
including (1) the designation of the series, (2) the number of shares of the
series, which number the Company Board may thereafter (except where otherwise
provided in the Preferred Stock Designation) increase or decrease (but not below
the number of shares thereof then outstanding), (3) whether dividends, if any,
will be cumulative or noncumulative and the dividend rate and the preferences,
if any, of the series, (4) the dates at which dividends, if any, will be
payable, (5) the redemption rights and price or prices, if any, for shares of
the series, (6) the terms and amounts of any sinking fund provided for the
purchase or redemption of shares of the series, (7) the amounts payable on
shares of the series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, (8) whether the shares
of the series will be convertible into or exchangeable for shares of any other
class or series, or any other security, of the Company or any other corporation,
and, if so, the specification of such other class or series or such other
security, the conversion or exchange price or prices or rate or rates, any
adjustments thereof, the date or dates as of which such shares shall be
convertible or exchangeable and all other terms and conditions upon which such
conversion or exchange may be made, (9) restrictions on the issuance of shares
of the same series or of any other class or series, and (10) the voting rights,
if any, of the holders of such series.
Seafield and the Company believe that the ability of the Company Board to
issue one or more series of Company Preferred Stock will provide the Company
with flexibility in structuring possible future financings and acquisitions, and
in meeting other corporate needs which might arise. The authorized shares of
Company Preferred Stock, as well as shares of the Company Common Stock, will be
available for issuance without further action by the Company's stockholders,
unless such action is required by the rules of any stock exchange or automated
quotation system on which the Company's securities may be listed or traded.
However, the Company's Common Stock is not expected to be initially listed with
any stock exchange or automated quotation system. Accordingly, until any such
listing, such listing rules will not apply to the Company Preferred Stock. If
the approval of the Company's stockholders is not required for the issuance of
shares of Company Preferred Stock or the Company Common Stock, the Company Board
may determine not to seek stockholder approval.
Although the Company Board has no intention at the present time of doing
so, it could issue a series of Company Preferred Stock that could, depending on
the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. The Company Board will make any determination to issue
such shares based on its judgment as to the best interests of the Company and
its stockholders. The Company Board, in so acting, could issue Company Preferred
Stock having terms that could discourage an acquisition attempt through which an
acquiror may be able to change the composition of the Company Board, including a
tender offer or other transaction that some, or a majority
57
of, the Company's stockholders might believe to be in their best interests or in
which stockholders might receive a premium for their stock over the then current
market price of such stock.
<PAGE>
Business Combinations
The Articles of Incorporation provide that certain "business combinations"
(as defined in the Articles of Incorporation) must be approved by the holders of
at least 66 2/3% of the voting power of the shares not owned by an "interested
shareholder" (as defined in the Articles of Incorporation, the beneficial owner
of 10% or more of the outstanding Voting Stock), unless the business
combinations are approved by certain continuing directors who were directors
before an acquiror became an Interested Stockholder or meet certain requirements
regarding price and procedure.
Generally, a "business combination" is defined in the Articles of
Incorporation as (i) any merger or consolidation of the Company (which includes
subsidiaries) with any Interested Stockholder (which includes an affiliate of an
Interested Stockholder); or (ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of transactions)
to or with any Interested Stockholder of any assets of the Company having an
aggregate Fair Market Value (as defined) of $10,000,000 or more; or (iii) the
issuance or transfer by the Company of any securities of the Company to any
Interested Stockholder, in exchange for property having an aggregate Fair Market
Value of $10,000,000 or more; or (iv)the adoption of any plan or proposal for
the liquidation or dissolution of the Company proposed by or on behalf of an
Interested Stockholder; or (v) any reclassification of securities, or
recapitalization of the Company, or any merger or consolidation of the Company
with any of its Subsidiaries or any other transaction which has the effect,
directly or indirectly, of increasing the proportionate share of the outstanding
shares of any class of equity or convertible securities of the Company which are
directly or indirectly owned by any Interested Stockholder.
An Interested Stockholder is generally defined as any Person (other than
the Company) who or which: (i) itself, or along with its Affiliates, is the
Beneficial Owner, directly or indirectly, of more than 10% of the then
outstanding voting stock of the Company; or (ii) is an affiliate of the Company
and at any time within the two-year period immediately prior to the date in
question was itself, or along with its affiliates, the beneficial owner,
directly or indirectly, of 10% or more of the then outstanding voting stock of
the Company; or (iii) is an assignee of or has otherwise succeeded to any voting
stock of the Company which was at any time within the two-year period
immediately prior to the date in question beneficially owned by an Interested
Stockholder, if such assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933.
To satisfy the price and procedure requirements, the following criteria
must be satisfied: (i) the aggregate amount of the cash and the fair market
value of consideration other than cash, to be received per share by holders of
the Company's capital stock shall be at least equal to the highest of certain
amounts paid by the Interested Stockholder in certain transactions preceding the
announcement of the transaction; (ii) generally, the consideration to be
received by holders of a particular class of outstanding voting stock shall be
in cash or in the same form as the Interested Stockholder has previously paid
for shares of such class of voting stock; (iii) after such Interested
Stockholder has become an Interested Stockholder and prior to the consummation
of the business combination certain actions or omissions shall not have occurred
with respect to dividends and the Interested Stockholder shall not have become
the beneficial owner of any additional Voting Stock except as part of the
transaction which results in such Interested Stockholder becoming an Interested
Stockholder; (iv) after the Interested Stockholder has become an Interested
<PAGE>
Stockholder, the Interested Stockholder shall not have received the benefit,
directly or indirectly (except proportionately as a shareholder), of any loans,
advances, guarantees, pledges or other financial assistance or any tax credits
or other tax advantages provided by the Company, whether in anticipation of or
in connection with such Business Combination or otherwise; and (v) a proxy or
information statement describing the proposed Business Combination and complying
with the requirements of the Securities Exchange Act of 1934 and the rules and
regulations thereunder (or any subsequent provisions replacing such Act, rules
or regulations) shall be mailed to stockholders of the Company at least thirty
(30) days prior to the
58
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such Act or
subsequent provisions).
Amendment of Certain Provisions of the Articles of Incorporation and Bylaws
Under the KGCC, the stockholders have the right to adopt, amend or repeal
the bylaws and, with the approval of the board of directors, the articles of
incorporation of a corporation. In addition, if the articles of incorporation so
provide, the bylaws may be adopted, amended or repealed by the board of
directors. The Articles of Incorporation provide that, in addition to approval
by the Company Board, the affirmative vote of the holders of at least 80% of the
voting power of the outstanding shares of Voting Stock, voting together as a
single class, is required to amend provisions of the Articles of Incorporation
relating to the number, election and term of the Company's directors; the
filling of vacancies on the Company Board; the removal of directors and the
amendment of the Bylaws. Approval by the Company Board, together with the vote
of the holders of a majority of the voting power of the outstanding shares of
Voting Stock, is required to amend all other provisions of the Articles of
Incorporation. The Articles of Incorporation further provides that the Bylaws
may be amended by the Company Board or by the affirmative vote of the holders of
at least 80% of the voting power of the outstanding shares of Voting Stock,
voting together as a single class. The Articles of Incorporation also provides
that, in addition to approval by the Company Board, the affirmative vote of the
holders of at least 66 2/3% of the voting power of the outstanding shares of
Voting Stock, including the affirmative vote of the holders of at least 66 2/3%
of the voting power of the outstanding shares of Voting Stock not owned directly
or indirectly by an interested stockholder or any affiliate thereof, is required
to amend provisions of the Articles of Incorporation regarding certain business
combinations. These super majority voting requirements will have the effect of
making more difficult any amendment by stockholders of the Bylaws or of any of
the provisions of the Articles of Incorporation described above, even if a
majority of the Company's stockholders believe that such amendment would be in
their best interests.
Rights
The Company Board has declared a dividend of one preferred share purchase
right (each a "Right" and, collectively, the "Rights"), effective as of the
Distribution Date, to be paid on the Distribution Date in respect of each share
of the Company Common Stock to the holder of record thereof as of the close of
business on the Distribution Date. Each Right will entitle the registered holder
to purchase from the Company one one-hundredth of a share of junior
participating preferred stock, par value $0.01 per share ("Company Junior
Preferred Stock") of the Company at a price of $125.00 per one one-hundredth of
<PAGE>
a share (the "Purchase Price"), subject to adjustment. The terms of the Rights
are set forth in a Rights Agreement (the "Rights Agreement") between the
Company and American Stock Transfer & Trust Company (the "Rights Agent").
Until the earlier to occur of (1) ten days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 25% or more of the then
outstanding shares of the Company Common Stock or (2) ten business days (or such
later date as may be determined by action of Company Board prior to such time as
any person or group becomes an Acquiring Person) following the commencement of,
or announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 25% or more of the outstanding shares of Company Common Stock (the
earlier of such dates being called the "Rights Distribution Date"), the Rights
will be evidenced by the certificates representing shares of Company Common
Stock.
The Rights Agreement will provide that until the Rights Distribution Date
(or earlier redemption or expiration of the Rights), the Rights will be
transferred with and only with the shares of Company Common Stock. Until the
Rights Distribution Date (or earlier redemption or expiration of the Rights),
certificates representing shares of Company Common Stock will contain a notation
incorporating the terms of the Rights by reference. Until the Rights
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates representing shares of Company Common
Stock will also constitute the transfer of the Rights associated with the shares
of Company Common Stock represented by such certificate. As soon as practicable
following the Rights Distribution Date, separate
59
certificates evidencing the Rights ("Rights Certificates") will be mailed to
holders of record of the shares of Company Common Stock as of the close of
business on the Rights Distribution Date and such separate Rights Certificates
alone will evidence the Rights.
The Rights will not be exercisable until the Rights Distribution Date. The
Rights will expire on August 15, 2006 (the "Final Expiration Date"), unless the
Final Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
The Purchase Price payable, and the number of shares of Company Junior
Preferred Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution (1) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the shares of Company Junior Preferred Stock, (2) upon the
grant to holders of the shares of Company Junior Preferred Stock of certain
rights or warrants to subscribe for or purchase shares of Company Junior
Preferred Stock at a price, or securities convertible into shares of Company
Junior Preferred Stock with a conversion price, less than the then-current
market price of the shares of Company Junior Preferred Stock or (3) upon the
distribution to holders of the shares of Company Junior Preferred Stock of
evidences of indebtedness or assets (excluding regular periodic cash dividends
paid out of earnings or retained earnings or dividends payable in shares of
Company Junior Preferred Stock) or of subscription rights or warrants (other
than those referred to above).
<PAGE>
The number of outstanding Rights and the number of one one-hundredths of a
share of Company Junior Preferred Stock issuable upon exercise of each Right are
also subject to adjustment in the event of a stock split of Company Common Stock
or a stock dividend on Company Common Stock payable in Company Common Stock or
subdivisions, consolidations or combinations of Company Common Stock occurring,
in any such case, prior to the Rights Distribution Date.
Shares of Company Junior Preferred Stock purchasable upon exercise of the
Rights will not be redeemable. Each share of Company Junior Preferred Stock will
be entitled to a minimum preferential quarterly dividend payment of $1.00 per
share but will be entitled to an aggregate dividend equal to 100 times the
dividend declared per share of Company Common Stock. In the event of
liquidation, the holders of the Junior Preferred Stock will be entitled to a
minimum preferential liquidation payment of $100 per share but will be entitled
to an aggregate payment equal to 100 times the payment made per share of Company
Common Stock. Each share of Company Junior Preferred Stock will have 100 votes,
together with Company Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which Company Common Stock is exchanged,
each share of Company Junior Preferred Stock will be entitled to receive an
amount equal to 100 times the amount received per share of Company Common Stock.
These rights are protected by customary antidilution provisions.
Because of the nature of the dividend, liquidation and voting rights of
Company Junior Preferred Stock, the value of the one one-hundredth interest in a
share of Company Junior Preferred Stock purchasable upon exercise of each Right
should approximate the value of one share of Company Common Stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provision will be made so that each holder
of a Right, other than Rights beneficially owned by the Acquiring Person (which
will thereafter be void), will thereafter have the right to receive upon
exercise thereof at the then current exercise price that number of shares of
Company Common Stock having a market value of two times the exercise price of
the Right (such right being referred to as a "Flip-in Right"). In the event
that, at any time on or after the date that any person has become an Acquiring
Person, the Company is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are sold,
proper provision will be made so that each holder of a Right will thereafter
have the right to receive, upon the exercise thereof at the then current
exercise price of the Right, that number of shares of common stock of the
acquiring company which at the time of such transaction will have a market value
of two times the exercise price of the Right.
60
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person and prior to the acquisition by such person or group
of 50% or more of the outstanding shares of Company Common Stock, the Company
Board may exchange the Rights (other than Rights owned by such person or group
which will have become void), in whole or in part, at an exchange ratio of one
share of Company Common Stock, or one one-hundredth of a share of Company Junior
Preferred Stock, per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Company Junior Preferred Stock will
be issued (other than fractions which are integral multiples of one
one-hundredth of a share of Company Junior Preferred Stock, which may, at the
<PAGE>
election of the Company, be evidenced by depositary receipts) and in lieu
thereof, an adjustment in cash will be made based on the market price of the
shares of Company Junior Preferred Stock on the last trading day prior to the
date of exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 25% or more of the outstanding
shares of Company Common Stock, the Company Board may redeem the Rights in
whole, but not in part, at a price of $.01 per Right (the "Redemption Price").
The redemption of the Rights may be made effective at such time, on such basis
and with such conditions as the Company Board in its sole discretion may
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
The terms of the Rights may be amended by the Company Board without the
consent of the holders of the Rights, including an amendment to lower (1) the
threshold at which a person becomes an Acquiring Person and (2) the percentage
of Company Common Stock proposed to be acquired in a tender or exchange offer
that would cause the Rights Distribution Date to occur, to not less than the
greater of (1) the sum of .001% and the largest percentage of the outstanding
Company Common Stock then known to the Company to be beneficially owned by any
person or group of affiliated or associated persons and (2) 10%, except that,
from and after such time as any person or group of affiliated or associated
persons becomes an Acquiring Person, no such amendment may adversely affect the
interests of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
The Rights will have certain antitakeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
and thereby effect a change in the composition of the Company Board on terms not
approved by the Company Board, including by means of a tender offer at a premium
to the market price, other than an offer conditioned on a substantial number of
Rights being acquired. The Rights should not interfere with any merger or
business combination approved by the Company Board since the Rights may be
redeemed by the Company at the Redemption Price prior to the time that a person
or group has become an Acquiring Person.
The foregoing summary of certain terms of the Rights is qualified in its
entirety by reference to the form of the Rights Agreement, a copy of which has
been filed as an exhibit to the Registration Statement. The Rights are being
registered under the Exchange Act, together with Company Common Stock, pursuant
to the Registration Statement in which this Information Statement is included.
In the event that the Rights become exercisable, the Company will register the
shares of the Company Junior Preferred Stock for which the Rights may be
exercised, in accordance with applicable law.
Antitakeover Legislation
Section 17-12,101 of the KGCC provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any business combination
with any "interested stockholder" for a three-year period following the time
that such stockholder becomes an interested stockholder unless (1) prior to such
time, the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
61
<PAGE>
interested stockholder, (2) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain shares), or
(3) on or subsequent to such time, the business combination is approved by the
board of directors of the corporation and by the affirmative vote of at least 66
2/3% of the outstanding voting stock which is not owned by the interested
stockholder. Except as specified in Section 17-12,100 of the KGCC, an interested
stockholder is defined to include any person that is (a) the owner of 15% or
more of the outstanding voting stock of the corporation, or (b) an affiliate or
associate of the corporation that was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within three years
immediately prior to the relevant date and the affiliates and associates of any
such person.
In addition, Section 1286 through Section 1298 of the KGCC (the "Control
Share Act") contain provisions which provide that "control shares" of an issuing
public corporation acquired in a control share acquisition have (a) voting
rights only to the extent approved by the stockholders under certain specified
circumstances, (b) may be redeemed by the issuing public corporation under
certain circumstances and (c ) provides, under certain specified circumstances,
shareholders who dissent from an action granting control shares voting rights
the right to have the dissenting holder's shares purchased by the Corporation at
a "fair value" which may not be less than the highest price paid per share by
the acquiring person in the control share acquisition. A control share
acquisition is the acquisition of voting power of an issuing public corporation
within the following ranges of voting power: (a) one -fifth or more but less
than one third of all voting power, (b) one-third or more but less than a
majority of all the voting power, or (c ) a majority or more of all voting
power. An issuing public corporation is one having one hundred shareholders or
more, its principal place of business, its principal office or substantial
assets within Kansas; and either more than 10% of its shareholders resident in
Kansas, 2,500 shareholders resident in Kansas or more than 10% of its shares
owned by Kansas residents. The Company intends to locate its principal place of
business in Kansas at such time as it is able to terminate, assign or sublease
the lease of office space in Missouri that it presently occupies as its
executive offices. Upon such relocation the Company believes that it will be an
issuing public corporation immediately following the Distribution.
Under certain circumstances, Section 17-12,101 of the KGCC makes it more
difficult for a person who would be an "interested stockholder" or an acquiring
person to effect various business combinations with a corporation for a
three-year period, although the stockholders may elect to exclude a corporation
from the restrictions imposed thereunder. In addition the Control Share Act may
make it more difficult for a person to acquire a controlling interest in the
Company. The Articles of Incorporation do not exclude the Company from the
restrictions imposed under Section 17- 12,101 of the KGCC or under the Control
Share Act. It is anticipated that the provisions of Section 17-12,101 and the
Control Share Act of the KGCC may encourage companies interested in acquiring
the Company to negotiate in advance with the Company Board, because the
stockholder approval requirement would be avoided if a majority of the directors
then in office approve either the business combination or the transaction which
results in the stockholder becoming an interested stockholder.
Comparison with Rights of Holders of Seafield Common Stock
Seafield's charter documents are substantially similar to the Articles of
Incorporation and Bylaws of the Company with respect to (1) classification of
<PAGE>
the board of directors; (2) inability of stockholders to call special meetings;
(3) advance notice requirements for stockholder nominations and proposals; (4)
the super majority voting requirement to amend provisions of the Articles of
Incorporation relating to the prohibition of stockholder action without a
meeting, the number, election and term of the Company's directors, or the
removal of directors; (5) the super majority voting requirement for stockholders
to amend the Bylaws related to classification of the Company Board or
establishing the size of the Company Board; (6) the elimination of director
liability in certain circumstances; and (7) the application of Section 17-12,101
and the Control Share Act of the KGCC.
62
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Limitation of Liability of Directors.
The Articles of Incorporation provide that a director of the Company will
not be personally liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (1) for any
breach of the director's duty of loyalty to the Company or its stockholders, (2)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (3) under Section 17-6424 of the KGCC, which
concerns unlawful payments of dividends, stock purchases or redemptions, or (4)
for any transaction from which the director derived an improper personal
benefit.
While the Articles of Incorporation provides directors with protection from
awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the Articles of Incorporation will have no
effect on the availability of equitable remedies such as an injunction or
rescission based on a director's breach of his or her duty of care. The
provisions of the Articles of Incorporation described above apply to an officer
of the Company only if he or she is a director of the Company and is acting in
his or her capacity as director, and do not apply to officers of the Company who
are not directors.
Indemnification of Directors and Officers.
The Articles of Incorporation provides that each person who is or was or
had agreed to become a director or officer of the Company, or each such person
who is or was serving or who had agreed to serve at the request of the Company
as a director or officer of another corporation, partnership, joint venture,
trust or other enterprise (including the heirs, executors, administrators or
estate of such person), will be indemnified by the Company, in accordance with
the Bylaws, to the fullest extent permitted from time to time by the KGCC, as
the same exists or may hereafter be amended (but, if permitted by applicable
law, in the case of any such amendment, only to the extent that such amendment
permits the Company to provide broader indemnification rights than said law
permitted the Company to provide prior to such amendment) or any other
applicable laws as presently or hereafter in effect. The Company may, by action
of the Company Board, provide indemnification to employees and agents of the
Company, and to persons serving as employees or agents of another corporation,
partnership, joint venture, trust or other enterprise, at the request of the
Company, with the same scope and effect as the foregoing indemnification of
directors and officers. The Company may be required to indemnify any person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
<PAGE>
authorized by the Company Board or is a proceeding to enforce such person's
claim to indemnification pursuant to the rights granted by the Articles of
Incorporation or otherwise by the Company. In addition, the Company may enter
into one or more agreements with any person providing for indemnification
greater or different than that provided in the Articles of Incorporation.
The Bylaws provide that each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit, or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that he or she or a person of whom he or
she is the legal representative is or was a director or officer of the Company
or is or was serving at the request of the Company as a director or officer of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such Proceeding is alleged action in an official capacity as a
director or officer or in any other capacity while serving as a director or
officer, will be indemnified and held harmless by the Company to the fullest
extent authorized by the KGCC as the same exists or may in the future be amended
(but, if permitted by applicable law, in the case of any such amendment, only to
the extent that such amendment permits the Company to provide broader
indemnification rights than said law permitted the Company to provide prior to
such amendment), against all expense, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to
be paid in settlement) reasonably incurred or suffered by such person in
connection therewith and such indemnification will continue as to a person who
has ceased to be a director or officer and will inure to the benefit of his or
her heirs, executors and administrators; provided, however, except as described
in the second following paragraph with respect to Proceedings to enforce rights
to indemnification, the Company will indemnify any such person seeking
63
indemnification in connection with a Proceeding (or part thereof) initiated by
such person only if such Proceeding (or part thereof) was authorized by the
Company Board.
Pursuant to the Bylaws, to obtain indemnification, a claimant is to submit
to the Company a written request for indemnification. Upon such written request
by a claimant, a determination, if required by applicable law, with respect to
the claimant's entitlement to indemnification will be made, if requested by the
claimant, by independent legal counsel, or if the claimant does not so request,
by the Company Board by a majority vote of the disinterested directors even
though less than a quorum or, if there are no disinterested directors or the
disinterested directors so direct, by independent legal counsel in a written
opinion to the Company Board, or if the disinterested directors so direct, by
the stockholders of the Company. In the event the determination of entitlement
to indemnification is to be made by independent legal counsel at the request of
the claimant, the independent legal counsel will be selected by the Company
Board unless there shall have occurred within two years prior to the date of the
commencement of the action, suit or proceeding for which indemnification is
claimed a Change of Control, in which case the independent legal counsel will be
selected by the claimant unless the claimant requests that such selection be
made by the Company Board.
Pursuant to the Bylaws, if a claim described in the preceding paragraph is
not paid in full by the Company within thirty days after a written claim
pursuant to the preceding paragraph has been received by the Company, the
claimant may at any time thereafter bring suit against the Company to recover
<PAGE>
the unpaid amount of the claim and, if successful in whole or in part, the
claimant will be entitled to be paid also the expense of prosecuting such claim.
The Bylaws provide that it will be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
Proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Company) that the claimant has not
met the standard of conduct which makes it permissible under the KGCC for the
Company to indemnify the claimant for the amount claimed, but the burden of
proving such defense will be on the Company. Neither the failure of the Company
(including the disinterested directors, independent legal counsel or
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
KGCC, nor an actual determination by the Company (including the disinterested
directors, independent legal counsel or stockholders) that the claimant has not
met such applicable standard of conduct, will be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct. However, the Company will be bound by a determination pursuant to the
procedures set forth in the Bylaws that the claimant is entitled to
indemnification in any suit brought by a claimant pursuant to the Bylaws.
The Bylaws provide that the right to indemnification and the payment of
expenses incurred in defending a Proceeding in advance of its final disposition
conferred in the Bylaws will not be exclusive of any other right which any
person may have or may in the future acquire under any statute, provision of the
Articles of Incorporation, the Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise. The Bylaws permit the Company to maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the Company or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether or not
the Company would have the power to indemnify such person against such expense,
liability or loss under the KGCC. The Company intends to obtain directors' and
officers' liability insurance providing coverage to its directors and officers.
In addition, the Bylaws authorize the Company, to the extent authorized from
time to time by the Company Board, to grant rights to indemnification and rights
to be paid by the Company the expenses incurred in defending any Proceeding in
advance of its final disposition, to any employee or agent of the Company to the
fullest extent of the provisions of the Bylaws with respect to the
indemnification and advancement of expenses of directors and officers of the
Company.
The Bylaws provide that the right to indemnification conferred therein is a
contract right and includes the right to be paid by the Company the expenses
incurred in defending any Proceeding in advance of its final disposition, except
that if the KGCC requires, the payment of such expenses incurred by a director
or officer in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a Proceeding, will be made only upon
delivery to the Company of an undertaking by or on behalf of such director or
64
officer, to repay all amounts so advanced if it is ultimately determined that
such director or officer is not entitled to be indemnified under the Bylaws or
otherwise.
<PAGE>
INDEPENDENT AUDITORS
The Company Board has appointed KPMG Peat Marwick LLP as the Company's
independent auditors to audit the Company's financial statements for the fiscal
year 1996. KPMG Peat Marwick LLP has served as Seafield's auditors throughout
the periods covered by the financial statements included in this Information
Statement.
65
<PAGE>
SLH OPERATIONS
AND
SLH CORPORATION
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors with Respect to SLH Operations........... F-2
SLH Operations Combined Balance Sheets as of September 30, 1996 and
December 31, 1995 and 1994.......................................... F-3
SLH Operations Combined Statements of Operations for the nine months
ended September 30, 1996 and 1995 and the years ended
December 31, 1995, 1994 and 1993.................................... F-4
SLH Operations Statements of Combined Equity............................ F-5
SLH Operations Combined Statements of Cash Flows for the nine months
ended September 30, 1996 and 1995 and the years ended
December 31, 1995, 1994 and 1993.................................... F-6
Notes to SLH Operations Combined Financial Statements................... F-7
Report of Independent Auditors with Respect to SLH Corporation.......... F-22
SLH Corporation Balance Sheet as of December 20, 1996................... F-23
Notes to SLH Corporation Balance Sheet.................................. F-23
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Seafield Capital Corporation:
We have audited the combined balance sheets of SLH Operations as of
December 31, 1995 and 1994 and the related combined statements of operations,
equity and cash flows for each of the years in the three-year period ended
December 31, 1995. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of SLH Operations at
December 31, 1995 and 1994 and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles.
s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Kansas City, Missouri
December 20, 1996
F-2
<PAGE>
<TABLE>
SLH OPERATIONS
COMBINED BALANCE SHEETS
(unaudited)
September 30, December 31,
1996 1995 1994
---- ---- ----
(in thousands)
ASSETS
Current assets:
<S> <C> <C> <C>
Accounts and notes receivable ........ $ 582 69 633
Real estate under contract ........... 2,733 3,868 2,516
Other current assets ................. 342 495 558
-------- -------- --------
Total current assets ............ 3,657 4,432 3,707
Real estate held for sale ................ 24,132 35,073 40,998
Investment securities .................... 4,879 5,136 6,161
Investment in affiliates:
Oil and gas partnerships and interests 4,102 5,255 6,703
Other ................................ (180) 123 (185)
Property, plant and equipment ............ 488 630 881
Notes receivable ......................... -- 22 3,978
Intangible assets ........................ 769 839 322
Deferred income taxes .................... 47 118 79
Other assets ............................. 43 10 1,983
-------- -------- --------
$ 37,937 51,638 64,627
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................... $ 160 115 107
Other current liabilities ............ 523 250 132
-------- -------- --------
Total current liabilities ....... 683 365 239
Notes payable ............................ 1,194 1,289 2,689
Deferred income taxes..................... 183 183 183
Other liabilities ........................ 75 115 369
-------- -------- --------
Total liabilities ............... 2,135 1,952 3,480
-------- -------- --------
Total combined equity .................... 35,802 49,686 61,147
-------- -------- --------
$ 37,937 51,638 64,627
======== ======== ========
See accompanying notes to combined financial statements.
</TABLE>
F-3
<PAGE>
SLH OPERATIONS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
(unaudited)
Nine Months Ended
September 30, Years Ended December 31,
------------- ------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<C> <C> <C> <C> <C>
REVENUES (in thousands)
Real estate sales ................... $ 12,801 7,390 10,485 10,932 16,297
Real estate rentals and other ....... 576 723 1,001 1,059 1,173
-------- -------- -------- -------- --------
Total revenues .................. 13,377 8,113 11,486 11,991 17,470
COSTS AND EXPENSES
Real Estate:
Cost of sales ................... 12,720 7,461 10,984 10,897 16,133
Operating expense ............... 1,930 2,400 3,217 4,048 3,470
Provision for loss on real estate
held for sale .............. 1,500 -- 7,901 4,400 --
General and administrative .......... 1,195 1,165 1,564 1,554 1,548
-------- -------- -------- -------- --------
Loss from operations ............ (3,968) (2,913) (12,180) (8,908) (3,681)
Investment income--net ................. 399 302 278 1,127 151
Equity in net earnings (loss)
of affiliates ........................ (572) (106) (267) 254 (1,260)
Gain (loss) on sale of affiliates ...... -- 111 111 -- (372)
Interest expense ....................... (81) (156) (189) (222) --
Provision for litigation costs ......... -- -- -- -- (1,500)
Equity in net earnings (loss) of
venture capital investment funds .... 790 (291) (249) (233) 19
-------- -------- -------- -------- --------
Loss before income taxes
and cumulative effect ........ (3,432) (3,053) (12,496) (7,982) (6,643)
-------- -------- -------- -------- --------
Taxes on income (benefits):
Current ............................. -- (435) (1,225) (1,638) (2,272)
Deferred ............................ 71 (43) (39) 201 (205)
-------- -------- -------- --------
Total ........................... 71 (478) (1,264) (1,437) (2,477)
-------- -------- -------- -------- --------
Loss before cumulative effect of
change in accounting principle ...... (3,503) (2,575) (11,232) (6,545) (4,166)
Cumulative effect of change in
accounting principle ................ (1,400) -- -- -- --
-------- -------- -------- -------- --------
NET LOSS ............................... $ (4,903) (2,575) (11,232) (6,545) (4,166)
======== ======== ======== ======== ========
See accompanying notes to combined financial statements.
</TABLE>
F-4
<PAGE>
SLH OPERATIONS
STATEMENT OF COMBINED EQUITY
(in thousands)
Balance, December 31, 1992....................................... $81,271
Net loss...................................................... (4,166)
Distributions to Seafield Capital Corporation................. (10,667)
------
Balance, December 31, 1993....................................... 66,438
Net loss...................................................... (6,545)
Capital contributions from Seafield Capital Corporation....... 1,254
------
Balance, December 31, 1994....................................... 61,147
Net loss...................................................... (11,232)
Capital contributions from Seafield Capital Corporation....... (229)
------
Balance, December 31, 1995....................................... 49,686
Net loss (unaudited).......................................... (4,903)
Distributions to Seafield Capital Corporation................. (8,981)
------
Balance, September 30, 1996 (unaudited).......................... $35,802
======
See accompanying notes to combined financial statements.
F-5
<PAGE>
<TABLE>
SLH OPERATIONS
COMBINED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended September 30, Years Ended December 31,
------------------------------ -----------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(in thousands)
<C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss .................................... (4,903) (2,575) (11,232) (6,545) (4,166)
Adjustments to reconcile net loss
to net cash provided (used) by operations
Cumulative effect of change in
accounting principle ............. 1,400 -- -- -- --
Depreciation and amortization ........ 297 429 582 641 784
Equity in net (earnings)
loss of affiliates ............... 572 106 267 (254) 1,260
Equity in net (earnings) loss of
venture capital investment
funds ............................... (790) 291 249 233 (19)
(Gain) loss on sale of affiliates ..... -- (111) (111) -- 372
Provision for loss on sale of
real estate ....................... 1,500 -- 7,901 4,400 --
Sales of real estate ..................10,612 6,669 9,890 9,400 14,239
Collections of notes receivable from
sales of real estate ............. 14 205 4,132 658 1,612
Increase of notes receivable from
sales of real estate .............. -- -- -- (138) (236)
Additions to real estate held
for sale ..........................(1,436) (10,145) (12,637) (10,991) (6,551)
Provision for litigation costs ........ -- -- -- -- 1,500
Change in accounts receivable ......... (527) (776) 352 (122) (387)
Change in accounts payable ............ 45 131 8 (419) (407)
Increase in deposits .................. 225 -- -- -- --
Income taxes and other ................ 195 53 566 (1,032) (606)
------ ------ ------ ------ ------
Net cash provided (used)by
operations .......................... 7,204 (5,723) (33) (4,169) 7,395
------ ------ ------ ------ ------
INVESTING ACTIVITIES
Investments in affiliates .................... (44) (1,000) (1,000) (114) (250)
Distributions from affiliates ................ 872 1,147 1,447 2,314 1,941
Additions to property, plant and
equipment, net ............................ (25) (13) (21) (112) (63)
Collections of other notes receivable ........ 22 29 35 159 209
Proceeds from sale of affiliates ............. -- 425 425 -- 850
Proceeds from sales of leased land ........... -- -- -- 438 200
Investments in venture capital investment funds -- -- -- (120) (280)
Distributions from venture capital
investment funds .......................... 1,047 219 776 350 665
------ ------ ------ ------ ------
Net cash provided by investing
activities ............................ 1,872 807 1,662 2,915 3,272
------ ------ ------ ------ ------
<PAGE>
FINANCING ACTIVITIES
Payments of principal on long-term debt ...... (95) (247) (1,400) -- --
Net transactions with Seafield
Capital Corporation .......................(8,981) 5,163 (229) 1,254 (10,667)
------ ------ ------ ------ ------
Net cash provided (used) by
financing activities ..................(9,076) 4,916 (1,629) 1,254 (10,667)
------ ------ ------ ------ ------
Net change in cash and
cash equivalents ...................... -- -- -- -- --
Cash and cash equivalents -
beginning of period ....................... -- -- -- -- --
------ ------ ------ ------
Cash and cash equivalents - end of period $ .. -- -- -- -- --
====== ====== ====== ======
Supplemental disclosures of cash flow information: Cash paid (received) during
the year for:
Interest .................................$ 81 156 189 222 --
====== ======= ======= ====== ======
Income taxes, net .......................$ -- (435) (1,224) (1,638) (2,272)
====== ======= ======= ====== ======
Supplemental disclosure of non-cash transactions:
Acquired in purchase of partnership interest
Real Estate ..........................$ -- -- -- -- 3,292
====== ====== ======= ====== ======
Notes Payable ........................$ -- -- -- -- 1,536
====== ====== ======= ====== ======
See accompanying notes to combined financial statements.
</TABLE>
F-6
<PAGE>
SLH OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993 and September 30, 1996 and 1995
Note 1 - Summary of Significant Accounting Policies
Principles of Combination and Basis of Presentation
Pursuant to a Distribution Agreement between Seafield Capital Corporation
(Seafield) and SLH Corporation, Seafield will transfer certain assets (the
Transfer Assets) and liabilities (the Transfer Liabilities), including two
wholly-owned subsidiaries, Scout Development Corporation (Scout) and BMA
Resources, Inc. (Resources), to SLH Corporation (SLH). The Transfer Assets and
Transfer Liabilities will be reflected in SLH Corporation's financial statements
at Seafield's historical cost. Stock of SLH Corporation will then be distributed
to the shareholders of Seafield (the Distribution).
The accompanying combined financial statements present the financial
position, results of operations and cash flows of the business, assets and
liabilities comprising the Transfer Assets and Transfer Liabilities which relate
directly to the businesses transferred (SLH Operations or the Company). Other
Transfer Assets and Transfer Liabilities are discussed in Note 11. The Company
is primarily engaged in the business of managing, developing and disposing of
real estate and energy businesses and other assets consisting of stock
investments of privately-held corporations and limited partnership interests in
privately-held venture capital funds.
Scout's assets consist of partially developed and undeveloped land,
residential development projects and commercial property. Resources has
investments in oil and gas partnerships and Syntroleum Corporation (Syntroleum),
a development-stage company with a process for the conversion of natural gas
into synthetic liquid hydrocarbons which can be further processed into fuels,
such as diesel, kerosene and naphtha. All significant intercompany transactions
have been eliminated in combination.
The financial information included herein may not necessarily reflect the
financial position and results of operations of the Company in the future or
what these amounts would have been if it had been a separate, stand-alone entity
during the periods presented.
Use of Estimates in the Preparation of Financial Statements
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.
Significant assumptions include estimates of fair value less cost to sell
assets to be disposed of, principally real estate properties. Management
utilizes a variety of sources in estimating fair values including recent sales
of comparable assets, internal appraisals based on current market conditions,
discounted cash flows, and, to a lesser extent, independent appraisals.
Significant assumptions used in discounting cash flows include the amount and
<PAGE>
timing of expected cash flows and the discount rate. Management estimates the
amount and timing of cash flows as described above. Discount rates estimated to
be commensurate with the risk involved for individual properties are selected
based on current economic conditions and industry practices. The amounts the
Company will ultimately realize could materially differ from the carrying
amounts in the accompanying combined balance sheets.
F-7
General and administrative expenses have been included in the
statements of operations based on management's estimate of what expenses would
have been incurred had the Company operated on a stand alone basis for all
periods presented. Such amounts are not materially different than what are
expected for future periods. The estimated expense is approximately $1.1 million
for the nine months ended September 30, 1996 and 1995 and approximately $1.5
million for 1995, 1994 and 1993.
Cash and Cash Equivalents
All highly liquid investments with an original maturity of three months or
less when purchased are considered to be cash equivalents.
Real Estate and Other Long-lived Assets
Real estate sales are recognized when consummated. Profit is recognized
using the full accrual method when the down payment, continuing investment, and
transfer of risk criteria have been satisfied. Payments received from buyers
prior to recording of a sale are recorded as deposits. Real estate rentals and
other revenues are accrued in the period when earned.
Prior to January 1, 1996, real estate held for sale was valued at the lower
of cost, including development costs less allowances for depreciation, or
market. Development costs which are incurred during the period of development or
construction are capitalized. Capitalized costs are charged to operations as
properties or units are sold or, in the case of income producing properties, are
amortized as part of the depreciation charges.
During 1994 and 1995, the Company made provisions for loss on real estate
held for sale of $4.4 million and $7.9 million, respectively. The provisions
resulted from changes in net realizable value based upon management's analysis
of recent sales transactions and other current market conditions.
With the adoption of SFAS 121, long-lived assets to be disposed of are
reported at the lower of carrying amount or fair value less costs to sell. Any
impairment loss is recognized as the amount by which the carrying amount of the
asset exceeds the fair value of the asset less cost to sell. The best evidence
of fair value is quoted market prices. When quoted market prices are not
available, the estimate of fair value is based on the best information available
including prices for similar assets or discounted cash flows of estimated
expected future cash flows. Assets to be held and used in operations are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. If the sum of the
expected future cash flows (undiscounted and without interest charges) of the
asset is less than the carrying amount of the asset, an impairment would be
recognized as the difference between the carrying amount and estimated fair
value.
<PAGE>
Adoption of SFAS 121 on January 1, 1996 resulted in an impairment loss on
real estate held for sale of $1.4 million which is included in the accompanying
unaudited statement of operations for the nine months ended September 30, 1996
as the cumulative effect of a change in accounting principle. This impairment
loss resulted primarily from discounting expected future cash flows in
estimating fair values less cost to sell of certain real estate properties.
An additional impairment loss on real estate held for sale of $1.5 million
was recorded as of September 30, 1996. This impairment loss resulted from
changes in estimated expected future cash flows based primarily on lower
expected sales prices on certain properties based on appraisals and other
current market conditions.
Investment Securities
Investment securities consisting of stock investments of two privately-held
corporations (representing 4.8% and 1.9% ownership) are accounted for at cost.
Investment in limited partnership interests in privately-held venture capital
funds (representing 3.7%, 7.6% and 9.3% ownership) are accounted for using the
equity method. Fair Values are not
F-8
readily determinable; however, management believes the estimated fair value of
each investment exceeds its carrying value.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost with depreciation
provided over the useful lives. Upon sale or retirement, the costs and related
accumulated depreciation are eliminated from the accounts. Any resulting gains
or losses are included in the results of operations.
Oil and Gas Investments
Investments in oil and gas partnerships are accounted for using the equity
method as they are less than 50% owned and the Company is a noncontrolling
investor. The Company uses the full cost method of accounting for oil and gas
properties. Under this method, all costs incurred in acquisition and development
are capitalized. Depletion is computed on the units of production method based
on all proven reserves. All general operating costs are expensed as incurred.
Intangible Assets
Goodwill is recorded at acquisition as the excess of cost over fair value
of net assets acquired and is being amortized on a straight-line basis over
periods up to twenty years. Goodwill is presented net of accumulated
amortization of $266,000, $195,000 and $135,000 at September 30, 1996, December
31, 1995 and 1994, respectively. On a periodic basis, the Company estimates the
fair value of the business to which goodwill relates in order to ensure that the
carrying value of goodwill has not been impaired.
Income Taxes
Income taxes are accounted for as if the Company filed separate tax returns
pursuant to tax sharing agreements among Seafield and its subsidiaries. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
<PAGE>
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Unaudited Interim Period Financial Statements
The accompanying combined financial statements and related footnote
information as of and for the nine months ended September 30, 1996 and 1995 is
unaudited. In the opinion of management, the unaudited combined financial
statements contain all adjustments necessary to present fairly the financial
position as of September 30, 1996 and the results of operations and cash flows
for the nine months ended September 30, 1996 and 1995. All such adjustments were
of a normal recurring nature except for the effect of adoption of SFAS 121 as
described under "Real Estate and Other Long-Lived Assets" elsewhere in Note 1 of
Notes to the Combined Financial Statements. Interim results are not necessarily
indicative of operating results for the entire year.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" is required to be implemented for fiscal years
beginning after December 15, 1995. The Company does not plan to adopt an
optional accounting treatment based on the estimated fair value of employee
stock options allowed by Statement No. 123. However, presentation of pro forma
disclosures of net earnings and earnings per share as if the optional accounting
method had been utilized will be required.
F-9
Note 2 - Real Estate Held for Sale
A summary of real estate held for sale follows:
(unaudited)
December 31,
September 30,--------------
1996 1995 1994
---- ---- ----
(in thousands)
Land investments/developments ...................... $26,522 27,831 32,572
Commercial building
Gross amount ...................................... 5,296 5,296 5,296
Less accumulated depreciation ..................... 1,293 1,293 1,081
------- ------ ------
4,003 4,003 4,215
------- ------ ------
Residential developments
Gross amount: Land ................................ 2,088 2,697 2,927
Buildings/improvements .... 26,237 34,074 28,058
------- ------ ------
28,325 36,771 30,985
------- ------ ------
58,850 68,605 67,772
Less valuation allowance for write-downs ........... 29,085 29,664 24,258
Less valuation allowance for impairments ........... 2,900 -- --
------- ------ ------
26,865 38,941 43,514
Less real estate under contract .................... 2,733 3,868 2,516
------- ------ ------
Net real estate .................................... $24,132 35,073 40,998
======= ====== ======
<PAGE>
A summary of real estate revenues follows (dollars in thousands):
<TABLE>
(unaudited)
Nine Months Ended
September 30, Years Ended December 31,
---------------------------------- -------------------------------------------
1996 1995 1995 1994 1993
----------------- -------------- -------------- ------------ -------------
Units/ Units/ Units/ Units/ Units/
Amount Acres Amount Acres Amount Acres Amount Acres Amounts Acres
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate sales:
Condominiums
and homes ................. $11,946 34 5,416 15 7,348 24 9,165 29 15,646 61
Improved lots ................ -- -- 136 3 546 5 1,267 18 291 23
Undeveloped
land ...................... 855 21.5 1,838 125 2,591 302
Leased land
investments ............... -- -- -- -- -- 500 1 360 6
------ ------ ------ ------ ------
Total real
estate sales .............. 12,801 7,390 10,485 10,932 16,297
Real estate rentals and other:
Lease revenue ................ 100 100 134 169 201
Commercial parking
operations ................ 462 580 744 793 818
Other ........................ 14 43 123 97 154
------ ------ ------ ------ ------
Total real estate
rentals and other ......... 576 723 1,001 1,059 1,173
Total real estate
revenues .................. $13,377 8,113 11,486 11,991 17,470
====== ====== ====== ======= ======
</TABLE>
F-10
Note 3 - Investment in Oil and Gas Partnerships and Interests
The Company's investment in oil and gas consists principally of four oil
and gas general partnership interests and prior to 1996, oil and gas working
interests. The oil and gas partnerships represent 36% and 40% interests in
general partnerships. These partnerships are accounted for on the equity method
as they are less than 50% owned and the Company is a noncontrolling investor.
Equity in operations of oil and gas partnerships are generally recorded
based on periods ended within one month of the Company's accounting period.
Shown below is unaudited combined financial information for the oil and gas
investments:
<PAGE>
Nine Months
Ended September 30, Years Ended December 31,
------------------ -----------------------
Results of Operations 1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(in thousands)
Oil and gas revenue .......... $ 4,920 4,074 6,344 8,989 13,990
Net income (loss) ............ (524) (438) (647) 1,386 (1,011)
The Company's equity in net
earnings (loss) ......... (226) 24 (70) 464 (851)
Cash distributions received from the partnerships were $871,000 and
$1,048,000 during the nine months ended September 30, 1996 and 1995 and
$1,348,000, $2,264,000 and $1,860,000 in 1995, 1994 and 1993, respectively.
December 31,
September 30, ------------
1996 1995 1994
---- ---- ----
Financial Position (in thousands)
Current Assets ............................ $ 7,158 5,146 4,198
Oil and gas ............................... 5,429 10,359 15,494
------ ------ ------
Total assets ......................... 12,587 15,505 19,692
------ ------ ------
Current liabilities ....................... 28 27 25
Other liabilities ......................... 1,283 1,297 1,297
------ ------ ------
Total liabilities .................... 1,311 1,324 1,322
------ ------ ------
The Company's investment in oil and
gas partnerships and interests ....... 4,102 5,255 6,703
The Company's proportional interest in oil and gas reserves of partnerships
accounted for by the equity method (in equivalent barrels) is 440,000 and
507,000 as of December 31, 1995 and 1994. The Company's proportional share of
standardized measure of discounted future net cash flows from these reserves is
$3,593,000 and $4,276,000 at December 31, 1995 and 1994, respectively.
The Company's proportional share of net capitalized costs relating to oil
and gas producing activities of partnerships accounted for by the equity method
is $4,028,000 and $6,081,000 at December 31, 1995 and 1994, respectively. The
Company's proportional share of costs capitalized was $368,000, $417,000 and
$492,000 in 1995, 1994 and 1993, respectively.
F-11
<PAGE>
Note 4 - Investment in Other Affiliates
The Company's 32.5% (at September 30, 1996) investment in Syntroleum (a
development stage enterprise) is accounted for on the equity method. Equity in
operations of Syntroleum is generally recorded based on periods with a one to
two month delay of the Company's accounting period, depending upon the
availability of financial information.
Syntroleum is the developer and owner of a patented process and several
related proprietary technologies ("Syntroleum(R) Process") for the conversion of
natural gas into synthetic liquid hydrocarbons which can be further processed
into fuels such as diesel, kerosene (used by jet aircraft) and naptha and
related non fuel chemical feedstocks and lubricants. Sale of the Company's
common shares of Syntroleum is subject to certain restrictions pursuant to
shareholder agreements which require that a selling shareholder first offer the
shares to be sold to Syntroleum and if Syntroleum does not accept the offer,
then to the other Syntroleum shareholders.
Summarized unaudited financial information for Syntroleum is shown below.
Cumulative
Amounts From Nine Months
Inception* Ended September 30, Years Ended December 31,
--------- ------------------ -----------------------
Results of Operations 1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(in thousands)
Revenue ................$ 297 188 41 41 68 --
Net income (loss) ...... (3,365) (829) (261) (426) (307) (251)
The Company's
equity in net
earnings (loss) ..... (1,465) (214) (83) (139) (91) (75)
- ----------------
* November 15, 1984 to September 30, 1996.
December 31,
September 30, ------------
1996 1995 1994
---- ---- ----
(in thousands)
Financial Position
Current assets ................................... $1,398 500 21
Other assets ..................................... 1,129 431 98
------ --- ---
Total assets ................................ 2,527 931 119
------ --- ---
Current liabilities .............................. 153 4 11
Long-term borrowings ............................. 1,000 -- --
------ --- ---
Total liabilities ........................... 1,153 4 11
------ --- ---
The Company's investment in Syntroleum ...... 100 313 30
<PAGE>
Total investment in Syntroleum is presented on the combined balance sheet
as follows:
December 31,
September 30, ------------
1996 1995 1994
---- ---- ----
(in thousands)
Investment in affiliate $ 100 313 30
Intangible asset - goodwill, net 769 839 322
------- ------ ------
Total $ 869 1,152 352
======= ====== ======
F-12
The Company is a 49.9% partner in a general partnership which owns a
shopping center. Prior to September 1995, the Company was also a 49.9% partner
in a general partnership which owned a commercial building. Prior to September
1994, the Company was a 50% partner in a general partnership which owned land.
In December 1993, the Company sold its 99% partnership interest in an apartment
complex. All of these partnerships are accounted for on the equity method.
Summarized unaudited financial information for these partnerships is shown
below.
Nine Months
Ended September 30, Years Ended December 31,
------------------ -----------------------
Results of Operations 1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(in thousands)
Revenue ............................ $ 586 557 764 956 1,184
Net loss ........................... (240) (137) (160) (255) (542)
The Company's equity in net
loss of affiliates .............. (132) (47) (58) (119) (334)
December 31,
September 30, ------------
1996 1995 1994
---- ---- ----
Financial Position
(in thousands)
Current assets.................. $ 233 514 641
Real estate .................. 5,259 5,466 7,032
Other assets .................. 209 229 283
------ ------ ------
Total assets............... 5,701 6,209 7,956
------ ------ ------
Short-term borrowings........... -- 130 120
Other current liabilities....... 94 292 293
Long-term borrowings............ 6,170 6,170 7,102
Other long-term liabilities..... -- -- 8
------ ------ ------
Total liabilities.......... 6,264 6,592 7,523
------ ------ ------
The Company's investment in
real estate affiliates..... (280) (190) (215)
F-13
<PAGE>
Note 5 - Property, Plant and Equipment and Accounts and Notes Receivable
A summary of property, plant and equipment follows:
(unaudited)
December 31,
Rate of September 30, ------------
Depreciation 1996 1995 1994
------------- ---- ---- ----
(in thousands)
Property, plant and equipment...... 5%-33% $ 2,579 2,554 2,533
Less accumulated depreciation...... 2,091 1,924 1,652
------- ------ ------
$ 488 630 881
======= ====== ======
A summary of accounts and notes receivable follows:
(unaudited)
December 31,
September 30, ------------
1996 1995 1994
---- ---- ----
(in thousands)
Accounts receivable......................... $ 582 55 408
Notes receivable............................ -- 36 4,203
------- ------ ------
582 91 4,611
Less current portion........................ 582 69 633
------- ------ ------
$ -- 22 3,978
======= ====== ======
Interest rates on notes receivable were 6% to 10% in 1995 and 1994.
Note 6 - Notes Payable
Notes payable are as follows:
(unaudited)
December 31,
September 30, ------------
1996 1995 1994
---- ---- ----
(in thousands)
8.625% loan, secured by real estate,
final maturity in December 1997........ $ 1,194 1,289 1,536
6.25% note, unsecured....................... -- -- 1,153
------- ------ ------
$ 1,194 1,289 2,689
======= ====== ======
The 8.625% loan requires semiannual payments of interest only and a lump
sum payment of any outstanding principal on December 31, 1997. If portions of
the secured property are sold prior to December 31, 1997, the Company is
required to pay certain minimum release prices to the lender for the partial
release of the property from the mortgage lien.
<PAGE>
The Company is obligated under recourse debt (with an unpaid balance of
$6,170,000 at December 31, 1995) of an affiliate accounted for on the equity
method (see Note 5). The Company's obligation on this recourse debt is secured
by a $3,130,000 U.S. Treasury note to be transferred to the Company as part of
the Distribution and is not reflected in the accompanying combined balance
sheets.
F-14
Note 7 - Other Assets and Liabilities
The components of other current assets, other current liabilities and other
liabilities follow:
(unaudited)
December 31,
September 30, ------------
1996 1995 1994
---- ---- ----
(in thousands)
Other Current Assets
Prepaid expenses............................$ 234 386 264
Restricted cash ............................ 108 109 294
--- --- ---
Total .................................$ 342 495 558
=== === ===
Other Current Liabilities
Accrued property tax........................$ 241 191 52
Deposits on real estate sale contracts ..... 225 -- --
Deferred income ............................ 47 47 30
Other....................................... 10 12 50
--- --- ---
Total .................................$ 523 250 132
=== === ===
Other Liabilities
Deferred income.............................$ 71 106 170
Interest payable ........................... -- -- 186
Other....................................... 4 9 13
--- --- ---
Total .................................$ 75 115 369
=== === ===
F-15
Note 8 - Income Taxes
The real estate assets, energy assets, and other miscellaneous assets of
the Company were acquired from Seafield, and were included in Seafield's
consolidated U.S. federal income tax returns. The income tax provisions and tax
liabilities have been calculated as if the Company had filed separate returns,
utilizing a tax sharing agreement with Seafield.
During 1995, the Company generated approximately $1 million in current
capital losses that exceeded capital gains. These losses are carried forward
through the year 2000. Future realization of these tax assets or any existing
<PAGE>
deductible temporary differences or carryforwards ultimately depend on
sufficient taxable income of the appropriate character occurring within the
carryover period. When it becomes more likely than not that a deferred tax asset
will not be realized, a valuation allowance is accrued against that deferred tax
asset.
The components of the provision (benefit) for income taxes on income from
the Company are as follows:
(unaudited)
Nine months ended Years ended
September 30, December 31,
------------- ------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
Current: ............ (In thousands)
Federal ........ $-- (443) (1,234) (1,480) (2,276)
State .......... -- 8 9 (158) 4
----- ------ ------ ------ ------
-- (435) (1,225) (1,638) (2,272)
----- ------ ------ ------ ------
Deferred:
Federal ........ -- -- -- -- --
State .......... 71 (43) (39) 201 (205)
----- ------ ------ ------ ------
71 (43) (39) 201 (205)
----- ------ ------ ------ ------
$ 71 (478) (1,264) (1,437) (2,477)
===== ====== ====== ====== ======
The reconciliation of income tax computed at federal statutory tax rates to
income tax expense is as follows:
(unaudited)
Nine months ended Years ended
September 30, December 31,
------------- ------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(in thousands)
Computed expected tax
expense (benefit)............... $ (1,167) (1,038) (4,249) (2,714) (2,259)
State income taxes, net of federal
benefit and changes in state
valuation allowances............ 47 (23) (20) 28 (132)
Goodwill amortization.............. 24 11 20 16 15
Tax benefits not available for
subsidiary losses............... 73 28 47 31 26
Increase (decrease) in federal taxes
due to valuation allowances..... 1,091 621 2,845 1,518 (919)
Other, net........................... 3 (77) 93 (316) 792
------ ------ ------ ------ ------
Actual income tax expense (benefit) $ 71 (478) (1,264) (1,437) (2,477)
====== ====== ====== ====== ======
Effective tax rates.................. 1% (16%) (10%) (18%) (37%)
F-16
<PAGE>
The significant components of deferred income tax assets and liabilities
are as follows:
(unaudited)
Nine months ended
September 30, December 31,
1996 1995 1994
---- ---- ----
(in thousands)
Current deferred income tax assets (liabilities):
Excess book expense accruals .................. $ 490 229 --
Other, net .................................... 12 12 87
-------- ------- ------
Gross current deferred income tax assets ...... 502 241 87
Current valuation allowance ................... (502) (241) (87)
-------- ------- ------
Net current deferred income tax assets ........ -- -- --
-------- ------- ------
Non-current deferred income tax assets (liabilities):
Excess book expense accruals .................. 266 267 257
Excess book partnership expenses .............. 200 200 187
Excess book oil and gas expenses .............. 5 225 378
Real estate valuation allowances and
other basis differences .................. 7,771 7,282 4,886
Excess book depreciation and amortization ..... 175 238 247
Alternative minimum tax credit ................ 157 157 --
Other, net .................................... 29 42 76
Capital loss carryforwards .................... 1,495 337 --
Federal audit adjustment carryback ............ 535 535 --
State net operating loss carryforwards ........ 2,990 3,026 2,733
-------- ------- ------
Gross non-current deferred income tax assets .. 13,623 12,309 8,764
Valuation allowance for non-current deferred
income tax assets ........................ (13,759) (12,374) (8,868)
-------- ------- ------
Net non-current deferred income tax assets
(liabilities)................................. (136) (65) (104)
-------- ------- ------
Net deferred income tax assets (liabilities)... $ (136) (65) (104)
======== ======= ======
Presented on the balance sheet as:
Deferred income tax asset $ 47 118 79
Deferred income tax liability (183) (183) (183)
-------- -------- -------
$ (136) (65) (104)
======== ======== =======
Included in SLH Operations, on a historical basis, are deferred income tax
liabilities that have been accrued for potential Internal Revenue Service (IRS)
audit adjustments to Seafield's 1986-1990 federal income tax years. Please refer
to footnote 11 for additional information regarding this matter. Also, included
in SLH Operations, on a historical basis, are deferred income tax assets
resulting from refund claims filed by Seafield for the 1990 taxable year. This
<PAGE>
refund claim results primarily from taxable losses generated by the sale of a
real estate partnership in 1990. These deferred income tax liabilities and
assets are both classified as non-current. The IRS audit issues for all five
years will be settled contemporaneously. Therefore, the assets and liabilities
for these years have been netted for balance sheet presentation purposes. The
gross accruals are as follows for each of the balance sheet dates presented:
In thousands
Deferred income tax liability for IRS adjustments (7,782)
Deferred income tax asset for 1990 loss carryback 7,599
-----
Net deferred tax liability for IRS adjustments (183)
======
The federal and state valuation allowances increased during the nine months
ending September 30, 1996 by $1,646,000, increased during 1995 by approximately
$3,660,000 and increased by $706,000 during 1994. The federal and state
valuation allowances as of December 31, 1993 were $8,249,000.
F-17
<PAGE>
Note 9 - Lease Commitments
Office space, equipment, land and buildings are leased under various,
noncancelable leases that expire over the next several years. Rental expense,
including an allocation of Seafield's total lease expense, was $279,000 during
the nine month periods ended September 30, 1996 and 1995 and was $372,000,
$352,000 and $325,000 for 1995, 1994 and 1993, respectively.
Total future minimum lease payments under these agreements as of December
31, 1995 are as follows:
Year Amount
(in thousands)
1996 $ 552
1997 543
1998 538
1999 355
2000 294
Thereafter 6,512
Included above is annual rent for the ground lease on a parking garage in
Reno, Nevada of $294,000. The lease agreement provides for increases every five
years based on the Consumer Price Index and expires in 2023.
Note 10 - Fair Value of Financial Instruments
The estimated fair values of the Company's significant financial
instruments at December 31, 1995 are summarized as follows:
Estimated
Carrying Amount Fair Value
--------------- ----------
(in thousands)
Accounts and notes receivable..................$ 69 69
Investment securities - not practical to
estimate fair value 5,136 --
Note payable................................... 1,289 1,092
The fair value of accounts and notes receivable approximate cost because of
the short-term maturity of these financial instruments. The estimated fair value
of the note payable was calculated by discounting scheduled cash flows using
estimated market discount rates.
At December 31, 1995, the Company owned (a) three equity investments in
privately held venture capital limited partnerships having an aggregate carrying
value of $1.6 million, (b) a common stock interest in Oclassen Pharmaceuticals,
Inc., a privately owned pharmaceutical manufacturer, which had a carrying value
of $2.5 million and (c) a preferred stock interest in Norian Corporation, a
privately owned developer of proprietary bone substitute technology, which had a
carrying value of approximately $1 million. Investment in these closely-held
enterprises was made on a principal-to-principal basis at negotiated values.
Therefore, it is not practical to estimate fair value for these investments at
December 31, 1995.
During 1996, Watson Pharmaceuticals, a publicly traded company, proposed a
merger which would convert the Company's stock ownership of Oclassen
Pharmaceuticals into 183,673 shares of Watson. The trading price of Watson on
January 31, 1997 was $44.81.
F-18
<PAGE>
Note 11- Subsequent Events and Contingencies
Transfer of Certain Assets and Liabilities from Seafield
On the date of the Distribution, Seafield will transfer to the Company the
Transfer Assets and Transfer Liabilities pursuant to a Distribution Agreement
and a Blanket Assignment, Bill of Sale, Deed and Assumption Agreement (the
Agreements). These Agreements also provide for the Company to receive cash and a
U.S. Treasury note, rights with respect to claims in pending litigation and to
incur obligations described below which are not reflected in the accompanying
combined financial statements.
Employee Benefits
The Agreements contain a number of provisions relating to employees. The
provisions generally contemplate that the Company will assume no obligations or
liabilities with respect to Seafield employee plans or benefits prior to the
Distribution Date and that after the Distribution Date, the Company will be
responsible for providing employee benefits for Seafield personnel that become
employees of the Company.
The Agreements provide that the Company will provide each executive officer
of the Company employment agreements and participation in a new stock incentive
plan.
Tax Agreements
Through the Distribution Date, the results of the operations of the Company
will be included in Seafield's consolidated Federal income tax returns. As part
of the Distribution, the Company and Seafield will enter into a Tax Sharing
Agreement which provides, among other things, for the allocation among the
parties of Federal, state, local and foreign tax liabilities for all periods
through the Distribution Date. In general, the Tax Sharing Agreement provides
that the Company will be liable for all Federal, state, local and foreign tax
liabilities, including any such liabilities resulting from the audit or other
adjustment to previously filed tax returns, which are attributable to the
Company, and that Seafield will be responsible for all other such taxes, except
for the tax liabilities arising out of or that are related to the tax claims as
described below.
Interim Services Agreement
On or prior to the Distribution Date, Seafield and the Company will enter
into the Interim Services Agreement for the purpose of permitting Seafield and
the Company to continue to jointly use their respective personnel and
facilities. Under the arrangement, Seafield agrees to provide to the Company
services required by the Company for its executive and administrative
operations. In exchange for those services, the Company agrees to provide the
retained Seafield personnel with office facilities and equipment sufficient for
the conduct of Seafield's activities. Following the Distribution, Seafield and
the Company will review the amount of personnel and facilities used under the
arrangement and each will reimburse the other to the extent that the exchange of
facilities for services is not equivalent.
Claims in Pending Litigation
In 1986, a lawsuit was initiated in the Circuit Court of Jackson County,
Missouri by Seafield's former insurance subsidiary (i.e., Business Men's
Assurance Company of America) against Skidmore, Owings & Merrill (SOM) which is
<PAGE>
an architectural and engineering firm, and a construction firm to recover costs
incurred to remove and replace the facade on the former home office building.
Because the removal and replacement costs had been incurred prior to the sale of
the insurance subsidiary, Seafield negotiated with the buyer for an assignment
of the cause of action from the insurance subsidiary. Pursuant to the
Distribution Agreement this lawsuit will be assigned to the Company. Thus, any
recovery will be for the benefit of the Company and all future costs incurred in
connection with the litigation will be paid by the Company. Any ultimate
recovery will be recognized as income when received and would be subject to
income taxes. In September 1993, the Missouri Court of Appeals reversed a $5.7
million judgment granted in 1992 in
F-19
favor of Seafield; the Court of Appeals remanded the case to the trial
court for a jury trial limited to the question of whether or not the applicable
statute of limitations barred the claim. The Appeals Court also set aside $1.7
million of the judgment originally granted in 1992. In July 1996, this case was
retried to a judge. On January 21,1997, the judge entered a judgment in favor of
Seafield. The amount of that judgment, together with interest is approximately
$5.8 million. Although the Company believes the judgment will be appealed,
counsel for the Company expects that it will be difficult for the defendants to
cause the judgment to be reversed. If appealed, the final outcome would not be
expected for at least another year.
Tax Issues
Internal Revenue Service Audits. Seafield has received notices of proposed
adjustments (Revenue Agent's Reports) from the Internal Revenue Service (IRS)
with respect to 1986-1990 federal income taxes. These notices claim total
federal income taxes due for the entire five year period in the approximate net
amount of $13,867,000, exclusive of interest thereon.
The substantive issues raised in these notices for the years 1986-1990 are
primarily composed of the former television subsidiaries' amortization of film
rights, the sale of the stock of a former television station, certain insurance
company tax issues and a $27 million loss on the sale of a real estate
partnership interest.
The IRS' denial of film right amortization equates to approximately $10.5
million of the $13.9 million in additional taxes; provided that if the IRS were
to prevail on the amortization issues, the tax basis in the television stations
would be increased. This would have the effect of reducing income taxes in
connection with the stations' sales; all have been sold.
With respect to the loss on the sale of the real estate partnership
interest, the IRS has claimed that the sale did not occur during 1990, but
rather occurred after 1990. If the sale did not occur in 1990, then 1990 losses
could not be carried back to 1987, to reduce Seafield's significant taxable
income in 1987.
Seafield has filed protests regarding the 1986-1990 notices of proposed
adjustments. Seafield is currently pursuing a compromise with the Appeals
Division of the IRS for the 1986-1989 years. The 1990 issues have not yet been
formally addressed at the Appeals Division but Seafield is advised by IRS
representatives that tax issues in all years under audit will be addressed
<PAGE>
together. Resolution of these tax disputes may reasonably be expected during
1997, but is not certain.
The Company is assuming from Seafield all contingent tax liabilities and is
acquiring all rights to refunds as well as any interest thereon related to these
tax years (the "Tax Claims") and liabilities and refunds related to any issues
raised by the IRS for years 1986-1990 whose resolution may extend to tax years
beyond the 1990 tax year. Based upon the advice of counsel, the Company believes
that it will prevail on the 1990 loss carryback issue. In addition, there are
meritorious defenses or pending favorable compromises for many of the other
substantive issues. The Company believes that adequate accruals for these income
tax liabilities have been made in the accompanying Combined Financial
Statements.
California Tax issues. In December 1996, the California state auditor sent
Seafield an audit report covering the 1987-1989 taxable years. The State of
California has determined to include, as a "unitary taxpayer," all majority
owned non-life insurance subsidiaries and joint ventures of Seafield. The
auditor's report has been forwarded to the California Franchise Tax Board for
action. A billing is expected to be made to Seafield within six months from the
submission of the report by the auditor. The total amount of California state
income taxes due for the 1987-1989 years is expected to be approximately
$750,000, exclusive of interest. The Company is assuming all potential tax
liabilities and interest thereon regarding the California audit for the
1987-1989. The Company believes that it has established on the pro forma balance
sheet herein appropriate accruals for the California state income tax liability.
F-20
The Company believes that final resolution of the above Tax Claims after
taking into account offsetting claims for refunds and amounts reserved, should
not have a material adverse effect on the Company's financial position, results
of operations or liquidity..
Other
In 1995, Tenenbaum & Associates, Inc., a former 80%-owned subsidiary of
Seafield, sold certain assets, distributed the remaining net assets to
shareholders and filed for dissolution. Ongoing activity for this investment
relates to collecting accounts receivable and monitoring unbilled revenue
accounts. Seafield also assumed an office lease that expires in 2000. Seafield
accounts for Tenenbaum activity on a cost recovery basis. In conjunction with
the Distribution, the Company will record accounts receivable estimated at
$800,000 and a lease liability of $500,000 to reflect the estimated fair value
of the lease based on a discounted cash flow analysis.
CLAIM AGAINST SCOUT. On January 30, 1997, Scout Development Corporation was
served with a complaint filed in the District Court of Tarrant County, Texas by
the parents of a 36 week old fetus who did not survive an automobile accident at
an intersection in Fort Worth, Texas, the view of which is alleged to have been
obstructed by weeds growing on property that is alleged to have been owned by
Scout. The Company expects to deny liability, has turned the matter over to its
insurance carrier and believes that if it has any liability, it is adequately
covered by an existing policy of insurance.
F-21
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
SLH Corporation:
We have audited the balance sheet of SLH Corporation as of December 20,
1996. This balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of SLH Corporation as of December
20, 1996 in conformity with generally accepted accounting principles.
s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Kansas City, Missouri
December 20, 1996
F-22
<PAGE>
SLH CORPORATION
Balance Sheet
December 20, 1996
ASSETS
Cash ............................................................. $100
----
Total assets ................................................ $100
====
STOCKHOLDERS' EQUITY:
Preferred stock of $.01 par value with $100 liquidation
preference, Authorized 1,000,000 shares;
none issued ................................................ $--
Common stock of $.01 par value
Authorized 30,000,000 shares;
issued 100 shares ........................................... 1
Paid-in capital .................................................. 99
----
Total stockholders' equity .................................. $100
====
The accompanying notes are an integral part of this balance sheet.
Notes to Balance Sheet
Note 1. Organization
SLH Corporation (SLH) was formed on December 5, 1996 to acquire certain
assets and liabilities of Seafield Capital Corporation.
Note 2. Distribution
On the date of Distribution, pursuant to the Distribution Agreement,
Seafield Capital Corporation will transfer to SLH the Transfer Assets and
Transfer Liabilities. There will be a distribution of one share of SLH stock for
each four shares of Seafield stock.
SLH will also enter into a Tax Sharing Agreement and an Interim Services
Agreement and assume certain liabilities and contingencies. See Note 11 of Notes
to Combined Financial Statements of SLH Operations.
Note 3. Stock Incentive Plan
SLH has adopted a stock incentive plan which provides for the granting of
stock options of SLH Common Stock to officers, employees and non-employee
directors of SLH. Except for grants of stock options to non-employee directors,
stock option grants will be administered by the Nominating and Compensation
Committee of the Board of Directors. The Committee has authority to issue stock
options to officers and employees with such terms and provisions as the
Committee shall determine. The stock incentive plan limits the number of shares
<PAGE>
of SLH Common Stock with respect to which stock options may be granted to
260,000 in the aggregate. Pursuant to the stock option plan, the initial
non-employee directors of SLH will be granted options totaling 81,000 shares of
SLH common stock effective on the Distribution Date. The officers and employees
will be granted options totaling 178,600 shares effective on the Distribution
Date. Each option initially granted to non-employee directors and officers and
employees will have a term of ten years, will provide for an exercise price
equal to 100% of the fair market value of SLH
F-23
Common Stock on the Distribution Date and will become exercisable in four
installments as follows: one-fourth on the date of grant and one-fourth on each
of the first, second and third anniversaries of the date of grant.
Note 4. Preferred Stock Purchase Rights
The SLH Board of Directors has declared a dividend of one preferred share
purchase right, effective and to be paid as of the Distribution Date, on each
share of SLH Common Stock. Each Right will entitle the registered holder to
purchase from SLH one one-hundredth of a share of junior participating preferred
stock, par value $0.01 per share with a $100 liquidation preference, at a price
of $125.00 per one one-hundredth of a share, subject to adjustment.
Note 5. Dividend Policy
Under the Distribution Agreement with Seafield Capital Corporation, SLH
will be restricted from paying dividends, in cash or property, for a period of
two years following the Distribution Date.
F-24
<PAGE>
Annex A
George K. Baum & Company
Investment Bankers
Member Twelve Wyandotte Plaza
New York Stock Exchange 120 West 12th Street
Chicago Stock Exchange Kansas City, Missouri 64105
Telephone (816) 474-1100
February 12, 1997
Board of Directors
Seafield Capital Corporation
c/o Mr. P. Anthony Jacobs
President & COO
2600 Grand Avenue, Suite 500
P.O. Box 419949
Kansas City, Missouri 64141
Gentlemen:
You have asked George K. Baum & Company ("GKB") to render our opinion as to
the Fair Market Value of the Common Stock of SLH Corporation, a Kansas
corporation ("SLH") to be distributed to the shareholders of Seafield Capital
Corporation ("Seafield") pursuant to a Distribution Agreement between Seafield
and SLH dated as of December 20, 1996 (the "Distribution Agreement") and
following the transfer by Seafield to SLH of the Transfer Assets and Transfer
Liabilities described in the Distribution Agreement as if the Distribution had
occurred as of September 30, 1996. Our opinion of the Fair Market Value of the
Stock is based in part on the Form 10 of SLH filed with the Securities and
Exchange Commission on December 24, 1996, and dated December 21, 1996,
Pre-Effective Amendment No. 1 thereto dated February 3, 1997, Pre-Effective
Amendment No. 2 thereto and the financial statements of SLH included in the
Information Statement thereof, and in particular the unaudited balance sheet of
SLH as of September 30, 1996, and related statements of operations for the nine
months then ended, all of which have been prepared by SLH and reviewed by KPMG
Peat Marwick LLP (the "Form 10"). For purposes of this opinion "Fair Market
Value" means the price at which property would change hands between a willing
seller and a willing buyer when neither is under compulsion and when both have
reasonable knowledge of the relevant facts.
We understand that in connection with the Asset transfer from Seafield
to SLH and the subsequent distribution of one share of SLH stock for each four
shares of Seafield Common Stock, that the distribution is conditioned upon,
among other things, completion of the transfer of the Transfer Assets and
assumption by SLH of the Transfer Liabilities. Any of the conditions to the
distribution may be waived, at any time prior to the proposed distribution date
of February 28, 1997, for any reason, in the sole discretion of the Board of
Directors of Seafield. Even if all conditions are satisfied, the Board of
Directors of Seafield has reserved the right to abandon, defer or modify the
distribution and the related transaction as described in the Form 10 at any time
prior to February 28, 1997 for any reason.
In rendering our opinion, GKB has, among other things, (i) reviewed
information put together by Seafield and SLH management of the
assets/liabilities to be spun-off to SLH dated July 1996, (ii) visited the
<PAGE>
following assets and/or properties that are proposed to be spun-off to SLH: (1)
a small shopping center in Gillette, Wyoming; (2) a seven story parking garage
in center downtown Reno, Nevada; (3) Quail Run, an exclusive residential real
estate development in Santa Fe, New Mexico; (4) undeveloped real estate
consisting of one 370 acre tract in Houston, Texas; (5) undeveloped real estate
consisting of three tracts totaling 761 acres in Fort Worth, Texas; (6) 16 acres
of commercially zoned property in southern Johnson County, Kansas; and (7)
Syntroleum Corporation's ("Syntroleum") headquarters and pilot plant in Tulsa,
Oklahoma; (iii) reviewed appraisals of the following properties: (1) Power Basin
Shopping Center, Gillette, Wyoming, prepared as of February 22, 1996; (2)
undeveloped real estate, 370 acres in Houston, Texas as of November 20, 1996;
(iv) reviewed real estate offering material on the following properties: (1)
Power Basin Shopping Center, Gillette, Wyoming; (2) the Prairie Vista and
Springview tracts, totaling 547 acres, Fort Worth, Texas; and (3) a single
tract, totaling 205 acres, Fort Worth, Texas, (v) interviewed Syntroleum's
management as to Syntroleum's business and possible future trends, and reviewed
projections prepared by Syntroleum management as well as, various 1996
funding/pricing transactions with Syntroleum's common stock and various
contracts and other documents, (vi) reviewed certain correspondence from the
general partners of (1) First Century Partnership III, dated October 28, 1996 as
to values as of September 30, 1996 for the equity partnership and (2) Bundy
Partners, Westgate Partners, and Bentel Partners, dated May 13, 1996 as to
values as of December 31, 1995 for those oil and gas partnerships, (vii)
reviewed preliminary prospectus on Norian Corporation ("Norian") which was
scheduled to go public
Board of Directors
Seafield Capital Corporation
February 12, 1997
Page 2
in June/July of 1996 but was called off due to market pricing conditions (SLH
owns 181,250 shares of Norian), (viii) reviewed certain internal financial
analyses and forecasts prepared by Seafield management; (ix) reviewed certain
documents relevant to the Tax Claims described in the Information Statement; (x)
reviewed various other documents relating to SLH and its businesses, assets and
liabilities; and reviewed the January 21, 1997, Judgment, and Conclusions of Law
and related January 22, 1997 correspondence from Shughart, Thompson & Kilroy to
Seafield relating to the case of BMA v. Bruce Graham in the Circuit Court of
Jackson County, Missouri (the "Marble Law Suit"). GKB also held discussions with
members of the senior management regarding SLH's proposed assets' past and
current operations, financial condition and future prospects. In addition, GKB
reviewed Seafield's closing stock price as of the end of the month from January
1995 through November 1996 and deducted the market value of LabOne, Response,
and cash to see what value the market was placing on the proposed assets to be
spun-off into SLH.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of all of the financial and other information used by
us as the basis of our opinion. It should be noted that this opinion is based,
in part, on economic, market and other conditions as in effect on, and
information made available to us prior to October 1, 1996, and does not
represent an opinion as to what value SLH Stock actually will have if and when
the distribution is consummated. Such actual value could be affected by changes
in such market conditions, general economic conditions and other factors which
generally influence the price of securities. Furthermore, any valuation of
<PAGE>
securities is only an approximation, subject to uncertainties and contingencies
all of which are difficult to predict and beyond the control of the firm
preparing such valuation.
GKB, as part of its investment banking business, is regularly engaged
in the evaluation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and for corporate planning and other purposes. In the
ordinary course of our business, we may, from time to time, effect transactions
for the accounts of our customers in securities of Seafield and receive
customary compensation in connection therewith. Prior to Seafield's engagement
of Baum & Company on October 7, 1996, to render financial advisory and
investment banking services to Seafield, we had not previously been engaged to
provide investment banking services to Seafield , except for underwriting
activities with respect to a $6 million bond offering early in 1996.
It is understood that this opinion may be included in any statement or
written communication distributed to holders of SLH Stock in connection with the
distribution; provided that this opinion, any summary of this opinion, any
excerpt of this opinion, and any reference to our services to Seafield may be
used in such statement or otherwise only with our prior written approval.
This opinion is essentially an update of our prior opinion dated February
3, 1997. The purpose of the update is to take into account the changes in the
financial statements contained in Pre-Effective Amendment No. 2 to the Form 10.
Based upon and subject to the foregoing, including the various
assumptions and limitations set forth herein, it is our opinion that the Fair
Market Value per share of SLH's Common Stock, including the associated preferred
share purchase rights, as if the Distribution had occurred at the close of
business on September 30, 1996, is $27.25 per share.
Respectfully submitted,
s/George K. Baum & Company
GEORGE K. BAUM & COMPANY
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
The Board of Directors and Stockholders
Seafield Capital Corporation:
Under the date of December 20, 1996, we reported on the combined
balance sheets of SLH Operations as of December 31, 1995 and 1994 and the
related combined statements of operations, equity and cash flows for each of the
years in the three-year period ended December 31, 1995, which are included in
SLH Corporation's registration statement on Form 10 to be filed with the
Securities and Exchange Commission. In connection with our audits of the
aforementioned combined financial statements, we also audited the related
combined financial statement schedule in the registration statement. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic combined financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Kansas City, Missouri
December 20, 1996
S-1
<PAGE>
<TABLE>
SLH OPERATIONS
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
Costs Capitalized Gross Amount
Initial Cost Subsequentat which Carried
to Company to Acquisition at December 31, 1995
Buildings Buildings Date
& Improve-Improve- Carrying & Improve- (1) Accum. Tax Constr. Date Depr.
Description Land ments ments Costs Land ments Total Reserves Depr. Basis Began Acquired Life
- ----------- ---- ------ ----- ----- ---- ----- ----- -------- ---- ----- ----- -------- ----
(in thousands)
Land Investments/
Developments:
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Houston, TX $ 6,158 49 1,014 1,553 4,463 -- 4,463 890 -- 4,615 -- 1974 --
Tulsa, OK 754 -- -- -- 754 -- 754 589 -- 754 -- 1980 --
Ft. Worth, TX 11,501 -- 91 -- 7,720 -- 7,720 5,506 -- 7,495 -- 1986 --
Ft. Worth, TX 3,886 -- -- -- 3,886 -- 3,886 3,487 -- 3,886 -- 1986 --
Ft. Worth, TX 2,770 -- -- 42 2,812 -- 2,812 2,642 -- 1,932 -- 1984 --
Ft. Worth, TX 4,633 -- -- -- 4,633 -- 4,633 4,364 -- 2,203 -- 1989 --
Ft. Worth, TX 1,000 -- -- -- 665 -- 665 631 -- 665 -- 1986 --
Olathe, KS 3,292 -- 46 -- 2,898 -- 2,898 -- -- 2,681 -- 1991 --
Commercial:
Reno, NV -- 5,277 19 -- -- 5,296 5,296 643 1,293 4,572 -- 1989 20 yrs
Residential:
Juno Beach, FL 13,740 -- 32,969 2,689 1,328 6,363 7,691 1,643 -- 5,340 1985 1983 --
Santa Fe, NM 4,576 -- 65,122 14,200 1,369 27,711 29,080 9,269 -- 23,044 1987 1985 --
------- ----- ------ ------ ------ ------ ------ ------ ------ ------
$52,310 5,326 99,261 18,484 30,528 39,370 69,898 29,664 1,293 57,187
======= ===== ====== ====== ====== ====== ====== ===== ======
Reserves (29,664)
---------
Net real estate before depreciation 40,234
Less accumulated depreciation (1,293)
---------
Net real estate 38,941
Less current portion (3,868)
---------
Real estate, net of current portion $ 35,073
=========
- --------------
</TABLE>
(1) Reserves have been established to reflect lower net realizable values
based on periodic evaluation of changes in market conditions, recent
sales prices and appraisals.
S-2
<PAGE>
SLH OPERATIONS
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
RECONCILIATION BETWEEN YEARS
A) Reconciliations of total real estate carrying values for the three years
ended December 31, 1995 are as follows:
1995 1994 1993
---- ---- ----
(In thousands)
Balance at beginning of year ....................... $44,595 44,550 52,438
Additions during year:
Improvements ................................. 12,637 10,991 6,551
Consolidate joint venture .................... -- 3,292 --
------- ------ ------
57,232 58,833 58,989
Deductions during year:
Value of real estate sold ..................... 9,890 9,838 14,439
Provision for loss on sale of real estate .... 7,108 4,400 --
------- ------ ------
16,998 14,238 14,439
------- ------ ------
Balance at end of year ............................. $40,234 44,595 44,550
======= ====== ======
A) Reconciliations of accumulated depreciation for the three years ended
December 31, 1995 are as follows:
1995 1994 1993
---- ---- ----
(In thousands)
Balance at beginning of year ....................... $ 1,081 868 655
Additions during year - depreciation ............... 212 213 213
------ ----- -----
1,293 1,081 868
Deductions during year - accumulated
depreciation of real estate sold ................. -- -- --
----- ----- -----
Balance at end of year ........................... $ 1,293 1,081 868
===== ===== =====
S-3
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
2(a) Copy of Distribution Agreement [incorporated by reference to
Exhibit 2(a) to Form 10/A of the Company dated February 3, 1997].
2(b) Form of Blanket Assignment, Bill of Sale, Deed and Assumption
Agreement [incorporated by reference to Exhibit D to Exhibit 2
(a)].
3(a) Articles of Incorporation of SLH Corporation [incorporated by
reference to Exhibit 3(a) to the Form 10 of the Company filed
December 24, 1996].
3(b) Bylaws of SLH Corporation [incorporated by reference to Exhibit
3(b) to the Form 10 of the Company filed December 24, 1996].
4 Copy of Rights Agreement dated as of January 31, 1997.
8 Opinion of Lathrop & Gage L.C. with regard to certain tax matters
[incorporated by reference to Exhibit 8 to Form 10/A of the
Company dated February 3, 1997]..
10(a)Form of Facilities Management and Interim Services Agreement
[incorporated by reference to Exhibit A to Exhibit 2(a)].
10(b)Form of Tax Sharing Agreement [incorporated by reference to
Exhibit C to Exhibit 2 (a)].
10(c)Copy of SLH Corporation 1997 Stock Incentive Plan.
10(d)Form of Employment Agreements with certain executive officers of
SLH [(incorporated by reference to Exhibit B to Exhibit 2(a)].
21 Subsidiaries of SLH Corporation
Scout Development Corporation (Missouri)
Scout Development Corporation of New Mexico (Missouri)
BMA Resources, Inc. (Missouri)
27 Financial Data Schedule
<PAGE>
Exhibit 4
RIGHTS AGREEMENT
between
SLH CORPORATION
and
AMERICAN STOCK TRANSFER & TRUST COMPANY
Rights Agent
Dated as of January 31, 1997
<PAGE>
TABLE OF CONTENTS
Section 1. Certain Definitions . . . . . . . . . . . . . . . . . . . 1
Section 2. Appointment of Rights Agent . . . . . . . . . . . . . . . 4
Section 3. Issue of Right Certificates . . . . . . . . . . . . . . . 4
Section 4. Form of Right Certificates . . . . . . . . . . . . . . . . 6
Section 5. Countersignature and Registration . . . . . . . . . . . . 6
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificates . . . . . . . . . . . . . . . . . . . . . . . 7
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 8. Cancellation and Destruction of Right Certificates . . . . 9
Section 9. Availability of Preferred Shares . . . . . . . . . . . . . 9
Section 10. Preferred Shares Record Date . . . . . . . . . . . . . . . 9
Section 11. Adjustment of Purchase Price, Number of Shares
or Number of Rights . . . . . . . . . . . . .. . . . . .10
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares . . . . . . . . . . . . . . . . . . . . . . . .16
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power . . . . . . . . . . . . . . . . . . . . . .16
Section 14. Fractional Rights and Fractional Shares . . . . . . . . .17
Section 15. Rights of Action . . . . . . . . . . . . . . . . . . . . .18
Section 16. Agreement of Right Holders . . . . . . . . . . . . . . . .19
Section 17. Right Certificate Holder Not Deemed a Stockholder . . . .19
Section 18. Concerning the Rights Agent . . . . . . . . . . . . . . .19
Section 19. Merger or Consolidation or Change of Name of
Rights Agent . . . . . . . . . . . . . . . . . . . . . . .20
Section 20. Duties of Rights Agent . . . . . . . . . . . . . . . . . .20
-i-
<PAGE>
Section 21. Change of Rights Agent . . . . . . . . . . . . . . . . . .22
Section 22. Issuance of New Right Certificates . . . . . . . . . . . .23
Section 23. Redemption . . . . . . . . . . . . . . . . . . . . . . . .23
Section 24. Exchange . . . . . . . . . . . . . . . . . . . . . . . . .24
Section 25. Notice of Certain Events . . . . . . . . . . . . . . . . .25
Section 26. Notices . . . . . . . . . . . . . . . . . . . . . . . . .26
Section 27. Supplements and Amendments . . . . . . . . . . . .. . . .26
Section 28. Successors . . . . . . . . . . . . . . . . . . . . . . . .27
Section 29. Benefits of this Agreement . . . . . . . . . . .. . . . .27
Section 30. Severability . . . . . . . . . . . . . . . . . . . . . . .27
Section 31. Governing Law . . . . . . . . . . . . . . . .. . . . . .27
Section 32. Counterparts . . . . . . . . . . . . . . . . . . . . . . .27
Section 33. Descriptive Headings . . . . . . . . . . . . . . . . . . .27
Exhibit A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Exhibit B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
Exhibit C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
-ii-
<PAGE>
RIGHTS AGREEMENT
Agreement, dated as of January 31, 1997, between SLH Corporation, a Kansas
corporation (the "Company"), and American Stock Transfer & Trust Company (the
"Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each Common Share
(as hereinafter defined) of the Company outstanding as of the close of business
on February 24, 1997 (the "Record Date"), each Right representing the
right to purchase one one-hundredth of a Preferred Share (as hereinafter
defined), upon the terms and subject to the conditions herein set forth, and has
further authorized and directed the issuance of one Right with respect to each
Common Share that shall become outstanding between the Record Date and the
earliest of the Distribution Date, the Redemption Date and the Final Expiration
Date (as such terms are hereinafter defined).
Accordingly, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is hereinafter
defined) who or which, together with all Affiliates and Associates (as such
terms are hereinafter defined) of such Person, shall be the Beneficial Owner (as
such term is hereinafter defined) of 25% or more of the Common Shares of the
Company then outstanding, but shall not include the Company, any Subsidiary (as
such term is hereinafter defined) of the Company, any employee benefit plan of
the Company or of any Subsidiary of the Company, or any entity holding Common
Shares for or pursuant to the terms of any such plan. For the purpose of
determining whether any Person is an "Acquiring Person," the percentage of
Common Shares as to which such Person, and the Affiliates and Associates of such
Person, is the Beneficial Owner shall be (i) the percentage of the outstanding
Common Shares as to which such Person (but excluding the Affiliates and
Associates of such Person) is the Beneficial Owner as of the Record Date
(calculated by dividing (A) the number of Common Shares as to which such Person
(but excluding the Affiliates and Associates of such Person) is the Beneficial
Owner on the Record Date by (B) the number of Common Shares outstanding on the
Record Date), plus (ii) the percentage that represents the additional Common
Shares as to which such Person, or any Affiliate or Associate of such Person,
first became the Beneficial Owner on any date after the Record Date (calculated
by dividing (A) the number of additional Common Shares as to which such Person,
or any Affiliate or Associate of such Person, became the Beneficial Owner on any
date by (B) the number of Common Shares outstanding on such date), and minus
(iii) the percentage that represents the Common Shares as to which such Person,
or any Affiliate or Associate of such Person, ceases to be the Beneficial Owner
on any date after the Record Date (calculated by dividing (A) the number of
Common Shares as to which such Person, or any Affiliate or
<PAGE>
Associate of such Person, ceases to be the Beneficial Owner on any date by
(B) the number of Common Shares outstanding on such date). In determining the
percentage of Common Shares as to which any Person, is the Beneficial Owner
there shall be excluded any Common Shares as to which such Person, or any
Affiliate or Associate of such Person, or any Affiliate or Associate of such
Person, became the Beneficial Owner after the Record Date (i) by reason of the
operation of the laws of descent and distribution or as the result of any
transaction or arrangement entered into for bona fide estate planning purposes
(including, without limitation, transfers by will or the establishment,
modification, operation of the terms of, or the termination of any trust or
similar arrangement), as determined in the sole discretion of the Board of
Directors of the Company; (ii) a "qualified domestic relations order" as defined
by the Internal Revenue Code of 1986, as amended; (iii) any acquisition by gift
or similar transaction; or (iv) pursuant to the terms of any Company-sponsored
benefit plan (including, without limitation, any stock purchase, savings,
option, bonus, stock appreciation, profit-sharing, thrift, incentive, pension or
similar plan). Notwithstanding the foregoing, if the Board of Directors of the
Company determines in good faith that a Person who would otherwise be an
"Acquiring Person", as defined pursuant to the foregoing provisions of this
paragraph (a), has become such inadvertently, and such Person divests as
promptly as practicable a sufficient number of Common Shares so that such Person
would no longer be an "Acquiring Person," as defined pursuant to the foregoing
provisions of this paragraph (a), then such Person shall not be deemed to be an
"Acquiring Person" for any purposes of this Agreement.
(b) "Affiliate" and "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect
on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of and shall be deemed
to "beneficially own" any securities:
i. which such Person or any of such Person's Affiliates or Associates
beneficially owns, directly or indirectly;
ii. which such Person or any of such Person's Affiliates or Associates has
(A) the right to acquire (whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement, arrangement or
understanding (other than customary agreements with and between underwriters and
selling group members with respect to a bona fide public offering of
securities), or upon the exercise of conversion rights, exchange rights, rights
(other than these Rights), warrants or options, or otherwise; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or to beneficially
own, securities tendered pursuant to a tender or exchange offer made by or on
behalf of such Person or any
2
<PAGE>
of such Person's Affiliates or Associates until such tendered securities
are accepted for purchase or exchange; or (B) the right to vote pursuant to any
agreement, arrangement or understanding; provided, however, that a Person shall
not be deemed the Beneficial Owner of, or to beneficially own, any security if
the agreement, arrangement or understanding to vote such security (1) arises
solely from a revocable proxy or consent given to such Person in response to a
public proxy or consent solicitation made pursuant to, and in accordance with,
the applicable rules and regulations promulgated under the Exchange Act and (2)
is not also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
iii. which are beneficially owned, directly or indirectly, by any other
Person with which such Person or any of such Person's Affiliates or Associates
has any agreement, arrangement or understanding (other than customary agreements
with and between underwriters and selling group members with respect to a bona
fide public offering of securities) for the purpose of acquiring, holding,
voting (except to the extent contemplated by the proviso to Section 1(c)(ii)(B))
or disposing of any securities of the Company. Notwithstanding anything in this
definition of Beneficial Ownership to the contrary, the phrase "then
outstanding," when used with reference to a Person's Beneficial Ownership of
securities of the Company, shall mean the number of such securities then issued
and outstanding together with the number of such securities not then actually
issued and outstanding which such Person would be deemed to own beneficially
hereunder.
(d) "Business Day" shall mean any day other than a Saturday, a Sunday, or a
day on which banking institutions in Missouri are authorized or obligated by law
or executive order to close.
(e) "Close of business" on any given date shall mean 5:00 P.M., Kansas
City, Missouri time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., Kansas City, Missouri time, on the next
succeeding Business Day.
(f) "Common Shares" when used with reference to the Company shall mean the
shares of common stock, par value $0.01 per share, of the Company. "Common
Shares" when used with reference to any Person other than the Company shall mean
the capital stock (or equity interest) with the greatest voting power of such
other Person or, if such other Person is a Subsidiary of another Person, the
Person or Persons which ultimately control such first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth in Section 3
hereof.
3
<PAGE>
(h) "Final Expiration Date" shall have the meaning set forth in Section
7 hereof.
(i) "Person" shall mean any individual, firm, corporation or other entity,
and shall include any successor (by merger or otherwise) of such entity.
(j) "Preferred Shares" shall mean shares of Series A Junior Participating
Preferred Stock, par value $0.01 per share, of the Company having the rights and
preferences set forth in the Form of Certificate of Designations attached to
this Agreement as Exhibit A.
(k) "Redemption Date" shall have the meaning set forth in Section 7 hereof.
(l) "Shares Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by
the Company or an Acquiring Person that an Acquiring Person has become such. In
the event of a public announcement by any Person that such Person, alone or in
combination with any Affiliate or Associate of such Person, is the Beneficial
Owner of 25% or more of the then outstanding Common Shares, such Person shall be
deemed an Acquiring Person, unless such Person within five business days of such
public announcement shall establish to the satisfaction of the Board of
Directors of the Company that such Person is not an Acquiring Person.
(m) "Subsidiary" of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issue of Right Certificates.
(a) Until the earlier of (i) the tenth day after the Shares Acquisition
Date or (ii) the tenth business day (or such later date as may be determined by
action of the Board of Directors prior to such time as any Person becomes an
Acquiring Person) after the date of the commencement by any Person (other than
the Company, any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company or any entity holding Common Shares
for or pursuant to the terms of any such plan) of, or of the first public
announcement of the intention of any Person (other than the
4
<PAGE>
Company, any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company or any entity holding Common Shares
for or pursuant to the terms of any such plan) to commence, a tender or exchange
offer the consummation of which would result in any Person becoming the
Beneficial Owner of Common Shares aggregating 25% or more of the then
outstanding Common Shares (including any such date which is after the date of
this Agreement and prior to the issuance of the Rights; the earlier of such
dates being herein referred to as the "Distribution Date"), (x) the Rights will
be evidenced (subject to the provisions of Section 3(b) hereof) by the
certificates for Common Shares registered in the names of the holders thereof
(which certificates shall also be deemed to be Right Certificates) and not by
separate Right Certificates, and (y) the right to receive Right Certificates
will be transferable only in connection with the transfer of Common Shares. As
soon as practicable after the Distribution Date, the Company will prepare and
execute, the Rights Agent will countersign, and the Company will send or cause
to be sent (and the Rights Agent will, if requested, send) by first-class,
insured, postage-prepaid mail, to each record holder of Common Shares as of the
close of business on the Distribution Date, at the address of such holder shown
on the records of the Company, a Right Certificate, in substantially the form of
Exhibit B hereto (a "Right Certificate"), evidencing one Right for each Common
Share so held. As of the Distribution Date, the Rights will be evidenced solely
by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the Company
will send a copy of a Summary of Rights to Purchase Preferred Shares, in
substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of Common Shares as of
the close of business on the Record Date, at the address of such holder shown on
the records of the Company. With respect to certificates for Common Shares
outstanding as of the Record Date, until the Distribution Date, the Rights will
be evidenced by such certificates registered in the names of the holders
thereof. Until the Distribution Date (or the earlier of the Redemption Date or
the Final Expiration Date), the surrender for transfer of any certificate for
Common Shares outstanding on the Record Date, with or without a copy of the
Summary of Rights attached thereto, shall also constitute the transfer of the
Rights associated with the Common Shares represented thereby.
(c) Certificates for Common Shares which become outstanding (including,
without limitation, reacquired Common Shares referred to in the last sentence of
this paragraph (c)) on or after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date shall have
impressed on, printed on, written on or otherwise affixed to them the following
legend: This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between SLH Corporation, and
American Stock Transfer & Trust Company, dated as of January 31, 1997 (the
"Rights Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive offices of
SLH. 5
<PAGE>
(d) Corporation. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates and will no
longer be evidenced by this certificate. SLH Corporation, will mail to the
holder of this certificate a copy of the Rights Agreement without charge after
receipt of a written request therefor. Under certain circumstances, as set forth
in the Rights Agreement, Rights issued to any Person who becomes an Acquiring
Person (as defined in the Rights Agreement) may become null and void. With
respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby. In
the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed canceled and retired so that the Company shall not
be entitled to exercise any Rights associated with the Common Shares which are
no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates (and the
forms of election to purchase Preferred Shares and of assignment to be printed
on the reverse thereof) shall be substantially the same as Exhibit B hereto and
may have such marks of identification or designation and such legends, summaries
or endorsements printed thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage. Subject to the
provisions of Section 22 hereof, the Right Certificates shall entitle the
holders thereof to purchase such number of one one-hundredths of a Preferred
Share as shall be set forth therein at the price per one one-hundredth of a
Preferred Share set forth therein (the "Purchase Price"), but the number of such
one one-hundredths of a Preferred Share and the Purchase Price shall be subject
to adjustment as provided herein.
Section 5. Countersignature and Registration. The Right Certificates shall
be executed on behalf of the Company by its Chairman of the Board, its Chief
Executive Officer, its President, any of its Vice Presidents, or its Treasurer,
either manually or by facsimile signature, shall have affixed thereto the
Company's seal or a facsimile thereof, and shall be attested by the Secretary or
an Assistant Secretary of the Company, either manually or by facsimile
signature. The Right Certificates shall be manually countersigned by the Rights
Agent and shall not be valid for any purpose unless countersigned. In case any
officer of the Company who shall have signed any of the Right Certificates shall
cease to be such officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Right Certificates,
nevertheless, may be countersigned by the Rights Agent and issued and delivered
by the Company with the same force and effect as though the person who signed
such Right Certificates had not ceased to be such officer of the Company; and
any Right Certificate may be signed on behalf of the Company by any person who,
<PAGE>
at the actual date of the execution of such Right Certificate,
6
shall be a proper officer of the Company to sign such Right Certificate,
although at the date of the execution of this Rights Agreement any such person
was not such an officer.
Following the Distribution Date, the Rights Agent will keep or cause to be
kept, at its principal office, books for registration and transfer of the Right
Certificates issued hereunder. Such books shall show the names and addresses of
the respective holders of the Right Certificates, the number of Rights evidenced
on its face by each of the Right Certificates and the date of each of the Right
Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject
to the provisions of Section 14 hereof, at any time after the close of business
on the Distribution Date, and at or prior to the close of business on the
earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Right Certificate or other Right Certificates,
entitling the registered holder to purchase a like number of one one- hundredths
of a Preferred Share as the Right Certificate or Right Certificates surrendered
then entitled such holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Right Certificate or Right
Certificates shall make such request in writing delivered to the Rights Agent,
and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the principal office of the
Rights Agent. Thereupon the Rights Agent shall countersign and deliver to the
person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.
<PAGE>
(a) The registered holder of any Right Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein) in whole or in part at
any time after the Distribution Date upon surrender of the Right Certificate,
with the form of election to purchase on the reverse side thereof duly executed,
to the Rights Agent at the principal office of the Rights Agent, together with
payment of the Purchase Price for each
7
one one-hundredth of a Preferred Share as to which the Rights are
exercised, at or prior to the earliest of (i) the close of business on January
31, 2007 (the "Final Expiration Date"), (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption Date"), or (iii) the
time at which such Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each one one-hundredth of a Preferred Share
purchasable pursuant to the exercise of a Right shall initially be $125.00, and
shall be subject to adjustment from time to time as provided in Section 11 or 13
hereof and shall be payable in lawful money of the United States of America in
accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable Rights,
with the form of election to purchase duly executed, accompanied by payment of
the Purchase Price for the shares to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check, cashier's
check or money order payable to the order of the Company, the Rights Agent shall
thereupon promptly
i. (A) requisition from any transfer agent of the Preferred Shares
certificates for the number of Preferred Shares to be purchased and the Company
hereby irrevocably authorizes its transfer agent to comply with all such
requests, or (B) requisition from the depositary agent depositary receipts
representing such number of one one-hundredths of a Preferred Share as are to be
purchased (in which case certificates for the Preferred Shares represented by
such receipts shall be deposited by the transfer agent with the depositary
agent) and the Company hereby directs the depositary agent to comply with such
request;
ii. when appropriate, requisition from the Company the amount of cash to be
paid in lieu of issuance of fractional shares in accordance with Section 14
hereof;
iii. after receipt of such certificates or depositary receipts, cause the
same to be delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder; and
<PAGE>
iv. when appropriate, after receipt, deliver such cash to or upon the order
of the registered holder of such Right Certificate.
d. In case the registered holder of any Right Certificate shall exercise
less than all the Rights evidenced thereby, a new Right Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent to the registered
8
holder of such Right Certificate or to his duly authorized assigns, subject
to the provisions of Section 14 hereof.
Section 8. Cancellation and Destruction of Right Certificates. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
canceled Right Certificates to the Company, or shall, at the written request of
the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Availability of Preferred Shares. The Company covenants and
agrees that it will cause to be reserved and kept available out of its
authorized and unissued Preferred Shares or any Preferred Shares held in its
treasury, the number of Preferred Shares that will be sufficient to permit the
exercise in full of all outstanding Rights in accordance with Section 7. The
Company covenants and agrees that it will take all such action as may be
necessary to ensure that all Preferred Shares delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such Preferred Shares
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable shares.
The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any certificates or depositary receipts for Preferred Shares upon the exercise
of any Rights until any such tax shall have been paid (any such tax being
<PAGE>
payable by the holder of such Right Certificate at the time of surrender)
or until it has been established to the Company's reasonable satisfaction that
no such tax is due.
Section 10. Preferred Shares Record Date. Each person in whose name any
certificate for Preferred Shares is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the Preferred
Shares represented thereby on, and such certificate shall be dated, the date
upon which the Right Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and any applicable transfer taxes) was made;
provided, however, that if the date of such surrender and payment is a date upon
which the Preferred Shares transfer books of the Company are closed, such person
shall be deemed to have
9
become the record holder of such shares on, and such certificate shall be dated,
the next succeeding Business Day on which the Preferred Shares transfer books of
the Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Right Certificate shall not be entitled to any rights of a holder of
Preferred Shares for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number of
Rights. The Purchase Price, the number of Preferred Shares covered by each Right
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date of this
Agreement (A) declare a dividend on the Preferred Shares payable in Preferred
Shares, (B) subdivide the outstanding Preferred Shares, (C) combine the
outstanding Preferred Shares into a smaller number of Preferred Shares or (D)
issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price in effect
at the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification, and the number and kind of
shares of capital stock issuable on such date, shall be proportionately adjusted
so that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if such
Right had been exercised immediately prior to such date and at a time when the
Preferred Shares transfer books of the Company were open, he would have owned
upon such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification; provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right be less
than the aggregate par value of the shares of capital stock of the Company
<PAGE>
issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event any Person
becomes an Acquiring Person, each holder of a Right shall thereafter have a
right to receive, upon exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-hundredths of a Preferred
Share for which a Right is then exercisable, in accordance with the terms of
this Agreement and in lieu of Preferred Shares, such number of Common Shares of
the Company as shall equal the result obtained by (x) multiplying the then
current Purchase Price by the number of one one-hundredths of a Preferred Share
for which a Right is then exercisable and dividing that product by (y) 50% of
the then current per share market price of the Company's Common Shares
(determined pursuant to Section 11(d) hereof) on the date of the occurrence of
such event. In the event that any Person shall become an Acquiring Person and
the Rights shall then
10
be outstanding, the Company shall not take any action which would eliminate or
diminish the benefits intended to be afforded by the Rights.
From and after the occurrence of such event, any Rights that are or were
acquired or beneficially owned by any Acquiring Person (or any Associate or
Affiliate of such Acquiring Person) shall be void and any holder of such Rights
shall thereafter have no right to exercise such Rights under any provision of
this Agreement. No Right Certificate shall be issued pursuant to Section 3 that
represents Rights beneficially owned by an Acquiring Person whose Rights would
be void pursuant to the preceding sentence or any Associate or Affiliate
thereof; no Right Certificate shall be issued at any time upon the transfer of
any Rights to an Acquiring Person whose Rights would be void pursuant to the
preceding sentence or any Associate or Affiliate thereof or to any nominee of
such Acquiring Person, Associate or Affiliate; and any Right Certificate
delivered to the Rights Agent for transfer to an Acquiring Person whose Rights
would be void pursuant to the preceding sentence shall be canceled.
(iii) In the event that there shall not be sufficient Common Shares issued
but not outstanding or authorized but unissued to permit the exercise in full of
the Rights in accordance with the foregoing subparagraph (ii), the Company shall
take all such action as may be necessary to authorize additional Common Shares
for issuance upon exercise of the Rights. In the event the Company shall, after
good faith effort, be unable to take all such action as may be necessary to
authorize such additional Common Shares, the Company shall substitute, for each
Common Share that would otherwise be issuable upon exercise of a Right, a number
of Preferred Shares or fraction thereof such that the current per share market
price of one Preferred Share multiplied by such number or fraction is equal to
the current per share market price of one Common Share as of the date of
issuance of such Preferred Shares or fraction thereof.
(b) In case the Company shall fix a record date for the issuance of
<PAGE>
rights, options or warrants to all holders of Preferred Shares entitling
them (for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Shares (or shares having the same rights,
privileges and preferences as the Preferred Shares ("equivalent preferred
shares")) or securities convertible into Preferred Shares or equivalent
preferred shares at a price per Preferred Share or equivalent preferred share
(or having a conversion price per share, if a security convertible into
Preferred Shares or equivalent preferred shares) less than the then current per
share market price of the Preferred Shares (as defined in Section 11(d)) on such
record date, the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of
Preferred Shares outstanding on such record date plus the number of Preferred
Shares which the aggregate offering price of the total number of Preferred
Shares and/or equivalent preferred shares so to be offered (and/or the aggregate
initial conversion price of the convertible securities so to be offered) would
purchase at such
11
current market price and the denominator of which shall be the number of
Preferred Shares outstanding on such record date plus the number of additional
Preferred Shares and/or equivalent preferred shares to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent. Preferred Shares owned by or held for the account
of the Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then current per share market price of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by the
<PAGE>
Board of Directors of the Company, whose determination shall be described
in a statement filed with the Rights Agent) of the portion of the assets or
evidences of indebtedness so to be distributed or of such subscription rights or
warrants applicable to one Preferred Share and the denominator of which shall be
such current per share market price of the Preferred Shares; provided, however,
that in no event shall the consideration to be paid upon the exercise of one
Right be less than the aggregate par value of the shares of capital stock of the
Company to be issued upon exercise of one Right. Such adjustments shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Purchase Price shall again be adjusted to be
the Purchase Price which would then be in effect if such record date had not
been fixed.
(d) (i) For the purpose of any computation hereunder, the "current per
share market price" of any security (a "Security" for the purpose of this
Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the 30 consecutive Trading Days
(as such term is hereinafter defined) immediately prior to such date; provided,
however, that in the event that the current per share market price of the
Security is determined during a period following the
12
announcement by the issuer of such Security of (A) a dividend or
distribution on such Security payable in shares of such Security or securities
convertible into such shares, or (B) any subdivision, combination or
reclassification of such Security and prior to the expiration of 30 Trading Days
after the ex-dividend date for such dividend or distribution, or the record date
for such subdivision, combination or reclassification, then, and in each such
case, the current per share market price shall be appropriately adjusted to
reflect the current market price per share equivalent of such Security. The
closing price for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Security is not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national exchange on which the Security is listed or
admitted to trading or, if the Security is not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ") or such other system then in use, or, if on any
such date the Security is not quoted by any such organization, the average of
the closing bid and asked prices as furnished by a professional market maker
making a market in the Security selected by the Board of Directors of the
Company. The term "Trading Day" shall mean a day on which the principal national
securities exchange on which the Security is listed or admitted to trading is
open for the
<PAGE>
transaction of business or, if the Security is not listed or admitted to trading
on any national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the "current per share
market price" of the Preferred Shares shall be determined in accordance with the
method set forth in Section 11(d)(i). If the Preferred Shares are not publicly
traded, the "current per share market price" of the Preferred Shares shall be
conclusively deemed to be the current per share market price of the Common
Shares as determined pursuant to Section 11(d)(i) (appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof), multiplied by one hundred. If neither the Common Shares nor
the Preferred Shares are publicly held or so listed or traded, "current per
share market price" shall mean the fair value per share as determined in good
faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to
13
the nearest one one-millionth of a Preferred Share or one ten-thousandth of
any other share or security as the case may be. Notwithstanding the first
sentence of this Section 11(e), any adjustment required by this Section 11 shall
be made no later than the earlier of (i) three years from the date of the
transaction which requires such adjustment or (ii) the date of the expiration of
the right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a) hereof,
the holder of any Right thereafter exercised shall become entitled to receive
any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (c), inclusive, and the
provisions of Sections 7, 9, 10 and 13 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
<PAGE>
Section 11(i), upon each adjustment of the Purchase Price as a result of
the calculations made in Sections 11(b) and (c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Purchase Price, that number of one
one-hundredths of a Preferred Share (calculated to the nearest one one-millionth
of a Preferred Share) obtained by (i) multiplying (x) the number of one
one-hundredths of a share covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share purchasable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of
Rights, indicating the record
14
date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least 10 days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein and shall be registered in
the names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of one one-hundredths of a Preferred Share issuable upon the exercise of
the Rights, the Right Certificates theretofore and thereafter issued may
<PAGE>
continue to express the Purchase Price and the number of one one-hundredths
of a Preferred Share which were expressed in the initial Right Certificates
issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below one one-hundredth of the then par value, if any, of the
Preferred Shares issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of such event the
issuing to the holder of any Right exercised after such record date of the
Preferred Shares and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those
15
adjustments expressly required by this Section 11, as and to the extent
that it in its sole discretion shall determine to be advisable in order that any
consolidation or subdivision of the Preferred Shares, issuance wholly for cash
of any Preferred Shares at less than the current market price, issuance wholly
for cash of Preferred Shares or securities which by their terms are convertible
into or exchangeable for Preferred Shares, dividends on Preferred Shares payable
in Preferred Shares or issuance of rights, options or warrants referred to
hereinabove in Section 11(b), hereafter made by the Company to holders of its
Preferred Shares shall not be taxable to such stockholders.
(n) In the event that at any time after the date of this Agreement and
prior to the Distribution Date, the Company shall (i) declare or pay any
dividend on the Common Shares payable in Common Shares or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (A) the
number of one one-hundredths of a Preferred Share purchasable after such event
upon proper exercise of each Right shall be determined by multiplying the number
of one one-hundredths of a Preferred Share so purchasable immediately prior to
such event by a fraction, the numerator of which is the number of Common Shares
<PAGE>
outstanding immediately before such event and the denominator of which is
the number of Common Shares outstanding immediately after such event, and (B)
each Common Share outstanding immediately after such event shall have issued
with respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(n) shall be made successively whenever such a
dividend is declared or paid or such a subdivision, combination or consolidation
is effected.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Section 11 or 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment,
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Common Shares or the
Preferred Shares a copy of such certificate and (c) mail a brief summary thereof
to each holder of a Right Certificate in accordance with Section 25 hereof.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning
Power. In the event, directly or indirectly, at any time after a Person has
become an Acquiring Person, (a) the Company shall consolidate with, or merge
with and into, any other Person, (b) any Person shall consolidate with the
Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged for
stock or other securities of any other Person (or the Company) or cash or any
other property, or (c) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person other than the
16
Company or one or more of its wholly-owned Subsidiaries, then, and in each
such case, proper provision shall be made so that (i) each holder of a Right
(except as otherwise provided herein) shall thereafter have the right to
receive, upon the exercise thereof at a price equal to the then current Purchase
Price multiplied by the number of one one-hundredths of a Preferred Share for
which a Right is then exercisable, in accordance with the terms of this
Agreement and in lieu of Preferred Shares, such number of Common Shares of such
other Person (including the Company as successor thereto or as the surviving
corporation) as shall equal the result obtained by (A) multiplying the then
current Purchase Price by the number of one one-hundredths of a Preferred Share
for which a Right is then exercisable and dividing that product by (B) 50% of
the then current per share market price of the Common Shares of such other
Person (determined pursuant to Section 11(d) hereof) on the date of consummation
of such consolidation, merger, sale or transfer; (ii) the issuer of such Common
Shares shall thereafter be liable for, and shall assume, by virtue of such
consolidation, merger, sale or transfer, all the obligations and duties of the
<PAGE>
Company pursuant to this Agreement; (iii) the term "Company" shall
thereafter be deemed to refer to such issuer; and (iv) such issuer shall take
such steps (including, but not limited to, the reservation of a sufficient
number of its Common Shares in accordance with Section 9 hereof) in connection
with such consummation as may be necessary to assure that the provisions hereof
shall thereafter be applicable, as nearly as reasonably may be, in relation to
the Common Shares thereafter deliverable upon the exercise of the Rights. The
Company shall not consummate any such consolidation, merger, sale or transfer
unless prior thereto the Company and such issuer shall have executed and
delivered to the Rights Agent a supplemental agreement so providing. The Company
shall not enter into any transaction of the kind referred to in this Section 13
if at the time of such transaction there are any rights, warrants, instruments
or securities outstanding or any agreements or arrangements which, as a result
of the consummation of such transaction, would eliminate or substantially
diminish the benefits intended to be afforded by the Rights. The provisions of
this Section 13 shall similarly apply to successive mergers or consolidations or
sales or other transfers.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of Rights or to
distribute Right Certificates which evidence fractional Rights. In lieu of such
fractional Rights, there shall be paid to the registered holders of the Right
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated
17
transaction reporting system with respect to securities listed or admitted
to trading on the New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights are listed or
admitted to trading or, if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by NASDAQ or such other system then in use or, if on any such date
the Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Rights selected by the Board of Directors of the Company. If on any such
date no such market maker is making a market in the Rights, the fair value of
the Rights on such date as determined in good faith by the Board of Directors of
<PAGE>
the Company shall be used.
(b) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-hundredth
of a Preferred Share) upon exercise of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share). Fractions of
Preferred Shares in integral multiples of one one-hundredth of a Preferred Share
may, at the election of the Company, be evidenced by depositary receipts,
pursuant to an appropriate agreement between the Company and a depositary
selected by it; provided, that such agreement shall provide that the holders of
such depositary receipts shall have all the rights, privileges and preferences
to which they are entitled as beneficial owners of the Preferred Shares
represented by such depositary receipts. In lieu of fractional Preferred Shares
that are not integral multiples of one one-hundredth of a Preferred Share, the
Company shall pay to the registered holders of Right Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one Preferred Share. For the purposes of
this Section 14(b), the current market value of a Preferred Share shall be the
closing price of a Preferred Share (as determined pursuant to the second
sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise.
(c) The holder of a Right by the acceptance of the Right expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such
18
Right Certificate in the manner provided in such Right Certificate and in
this Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
will be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of the obligations of
any Person subject to, this Agreement.
<PAGE>
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the principal
office of the Rights Agent, duly endorsed or accompanied by a proper instrument
of transfer; and
(c) the Company and the Rights Agent may deem and treat the person in whose
name the Right Certificate (or, prior to the Distribution Date, the associated
Common Shares certificate) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any notations of ownership or
writing on the Right Certificate or the associated Common Shares certificate
made by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be affected by
any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No holder,
as such, of any Right Certificate shall be entitled to vote, receive dividends
or be deemed for any purpose the holder of the Preferred Shares or any other
securities of the Company which may at any time be issuable on the exercise of
the Rights represented thereby, nor shall anything contained herein or in any
Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to pay to the
Rights Agent reasonable compensation for all services rendered by it hereunder
and, from time to time, on demand of the Rights Agent, its reasonable expenses
and counsel fees and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or
19
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent in connection with the acceptance and administration of this
<PAGE>
Agreement, including the costs and expenses of defending against any claim
of liability in the premises.
The Rights Agent shall be protected and shall incur no liability for, or in
respect of any action taken, suffered or omitted by it in connection with, its
administration of this Agreement in reliance upon any Right Certificate or
certificate for the Preferred Shares or Common Shares or for other securities of
the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to be
signed, executed and, where necessary, verified or acknowledged, by the proper
person or persons, or otherwise upon the advice of counsel as set forth in
Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights Agent. Any
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the stock transfer or
corporate trust powers of the Rights Agent or any successor Rights Agent, shall
be the successor to the Rights Agent under this Agreement without the execution
or filing of any paper or any further act on the part of any of the parties
hereto; provided, that such corporation would be eligible for appointment as a
successor Rights Agent under the provisions of Section 21 hereof. In case at the
time such successor Rights Agent shall succeed to the agency created by this
Agreement, any of the Right Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Right Certificates so countersigned;
and in case at that time any of the Right Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Right
Certificates either in the name of the predecessor Rights Agent or in the name
of the successor Rights Agent; and in all such cases such Right Certificates
shall have the full force provided in the Right Certificates and in this
Agreement.
In case at any time the name of the Rights Agent shall be changed and at
such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the duties
and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound: 20
<PAGE>
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any other
Person only for its own negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment in
the terms of the Rights (including the manner, method or amount thereof)
provided for in Section 3, 11, 13, 23 or 24, or the ascertaining of the
existence of facts that would require any such change or adjustment (except with
respect to the exercise of Rights evidenced by Right Certificates after actual
notice that such change or adjustment is required); nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Preferred Shares to be issued pursuant to
this Agreement or any Right Certificate or as to whether any Preferred Shares
will, when issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
<PAGE>
the provisions of this Agreement.
21
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Chief Executive Officer, the President,
any Vice President, the Secretary or the Treasurer of the Company, and to apply
to such officers for advice or instructions in connection with its duties, and
it shall not be liable for any action taken or suffered by it in good faith in
accordance with instructions of any such officer or for any delay in acting
while waiting for those instructions.
(h) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting in any
other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares or Preferred Shares by registered or certified mail, and to
the holders of the Right Certificates by first-class mail. The Company may
remove the Rights Agent or any successor Rights Agent upon 30 days' notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of the Common Shares or Preferred Shares by
registered or certified mail, and to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the Company),
then the registered holder of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States or
<PAGE>
of the State of Missouri (or of any other state of the United States so long as
such corporation is authorized to do business as a banking institution in the
State of Missouri), in good standing, having an office in the State of Missouri,
which is authorized under such laws
22
to exercise corporate trust or stock transfer powers and is subject to
supervision or examination by federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $50 million. After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares or Preferred Shares, and mail a notice thereof in writing to
the registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Right Certificates evidencing Rights in such form as
may be approved by its Board of Directors to reflect any adjustment or change in
the Purchase Price and the number or kind or class of shares or other securities
or property purchasable under the Right Certificates made in accordance with the
provisions of this Agreement.
Section 23. Redemption.
(a) The Board of Directors of the Company may, at its option, at any time
prior to such time as any Person becomes an Acquiring Person, redeem all but not
less than all the then outstanding Rights at a redemption price of $.01 per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"). The redemption of the Rights
by the Board of Directors may be made effective at such time, on such basis and
with such conditions as the Board of Directors in its sole discretion may
establish.
(b) Immediately upon the action of the Board of Directors of the Company
ordering the redemption of the Rights pursuant to paragraph (a) of this Section
23, and without any further action and without any notice, the right to exercise
the Rights will terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price. The Company shall promptly
<PAGE>
give public notice of any such redemption; provided, however, that the
failure to give, or any defect in, any such notice shall not affect the validity
of such redemption. Within 10 days after such action of the Board of Directors
ordering the redemption of the Rights, the Company shall mail a notice of
redemption to all the holders of the then outstanding Rights at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares. Any notice which is
23
mailed in the manner herein provided shall be deemed given, whether or not
the holder receives the notice. Each such notice of redemption will state the
method by which the payment of the Redemption Price will be made. Neither the
Company nor any of its Affiliates or Associates may redeem, acquire or purchase
for value any Rights at any time in any manner other than that specifically set
forth in this Section 23 or in Section 24 hereof, and other than in connection
with the purchase of Common Shares prior to the Distribution Date.
Section 24. Exchange.
(a) The Board of Directors of the Company may, at its option, at any time
after any Person becomes an Acquiring Person, exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights that have
become void pursuant to the provisions of Section 11(a)(ii) hereof) for Common
Shares at an exchange ratio of one Common Share per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such exchange ratio being hereinafter referred
to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board of
Directors shall not be empowered to effect such exchange at any time after any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any such Subsidiary, or any entity holding Common
Shares for or pursuant to the terms of any such plan), together with all
Affiliates and Associates of such Person, becomes the Beneficial Owner of 50% or
more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of the Company
ordering the exchange of any Rights pursuant to paragraph (a) of this Section 24
and without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of such
Rights shall be to receive that number of Common Shares equal to the number of
such Rights held by such holder multiplied by the Exchange Ratio. The Company
shall promptly give public notice of any such exchange; provided, however, that
the failure to give, or any defect in, such notice shall not affect the validity
of such exchange. The Company promptly shall mail a notice of any such exchange
to all of the holders of such Rights at their last addresses as they appear upon
the registry books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of exchange will state the
<PAGE>
method by which the exchange of the Common Shares for Rights will be
effected and, in the event of any partial exchange, the number of Rights which
will be exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than Rights which have become void pursuant to the
provisions of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares issued
but not outstanding or authorized but unissued to permit any exchange of Rights
as contemplated
24
in accordance with this Section 24, the Company shall take all such action
as may be necessary to authorize additional Common Shares for issuance upon
exchange of the Rights. In the event the Company shall, after good faith effort,
be unable to take all such action as may be necessary to authorize such
additional Common Shares, the Company shall substitute, for each Common Share
that would otherwise be issuable upon exchange of a Right, a number of Preferred
Shares or fraction thereof such that the current per share market price of one
Preferred Share multiplied by such number or fraction is equal to the current
per share market price of one Common Share as of the date of issuance of such
Preferred Shares or fraction thereof.
(d) The Company shall not be required to issue fractions of Common Shares
or to distribute certificates which evidence fractional Common Shares. In lieu
of such fractional Common Shares, the Company shall pay to the registered
holders of the Right Certificates with regard to which such fractional Common
Shares would otherwise be issuable an amount in cash equal to the same fraction
of the current market value of a whole Common Share. For the purposes of this
paragraph (d), the current market value of a whole Common Share shall be the
closing price of a Common Share (as determined pursuant to the second sentence
of Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
exchange pursuant to this Section 24.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose (i) to pay any dividend payable in
stock of any class to the holders of its Preferred Shares or to make any other
distribution to the holders of its Preferred Shares (other than a regular
quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares
rights or warrants to subscribe for or to purchase any additional Preferred
Shares or shares of stock of any class or any other securities, rights or
options, (iii) to effect any reclassification of its Preferred Shares (other
than a reclassification involving only the subdivision of outstanding Preferred
Shares), (iv) to effect any consolidation or merger into or with, or to effect
any sale or other transfer (or to permit one or more of its Subsidiaries to
effect any sale or other transfer), in one or more transactions, of 50% or more
of the assets or earning power of the Company and its Subsidiaries (taken as a
whole) to, any other Person, (v) to effect the liquidation, dissolution or
<PAGE>
winding up of the Company, or (vi) to declare or pay any dividend on the
Common Shares payable in Common Shares or to effect a subdivision, combination
or consolidation of the Common Shares (by reclassification or otherwise than by
payment of dividends in Common Shares), then, in each such case, the Company
shall give to each holder of a Right Certificate, in accordance with Section 26
hereof, a notice of such proposed action, which shall specify the record date
for the purposes of such stock dividend, or distribution of rights or warrants,
or the date on which such reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution, or winding up is to take place and the date
of participation therein by the holders of the Common Shares and/or Preferred
Shares, if any such date is to be fixed, and such notice shall be so given in
the
25
case of any action covered by clause (i) or (ii) above at least 10 days
prior to the record date for determining holders of the Preferred Shares for
purposes of such action, and in the case of any such other action, at least 10
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares and/or Preferred
Shares, whichever shall be the earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof shall occur,
then the Company shall as soon as practicable thereafter give to each holder of
a Right Certificate, in accordance with Section 26 hereof, a notice of the
occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Right Certificate to
or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
SLH Corporation
2600 Grand Boulevard
Suite 500
Kansas City, Missouri 64108
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Company or by the holder
of any Right Certificate to or on the Rights Agent shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, New York 10005
<PAGE>
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from time to time
supplement or amend this Agreement without the approval of any holders of Right
Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions with respect to the Rights
which the Company may deem necessary or desirable, any such supplement or
amendment to be evidenced by a writing signed by the Company and the Rights
Agent;
26
provided, however, that from and after such time as any Person becomes an
Acquiring Person, this Agreement shall not be amended in any manner which would
adversely affect the interests of the holders of Rights. Without limiting the
foregoing, the Company may at any time prior to such time as any Person becomes
an Acquiring Person amend this Agreement to lower the thresholds set forth in
Sections 1(a) and 3(a) to not less than the greater of (i) the sum of .001% and
the largest percentage of the outstanding Common Shares then known by the
Company to be beneficially owned by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or any
Subsidiary of the Company, or any entity holding Common Shares for or pursuant
to the terms of any such plan) and (ii) 10%.
Section 28. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Rights Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Shares) any legal or equitable right, remedy
or claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Shares).
Section 30. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
<PAGE>
Kansas and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
27
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested, all as of the day and year first above written.
SLH CORPORATION
s/James R. Seward
By: ______________________________
Print Name: __James R. Seward_____
Title: President and Chief Executive
Officer
ATTEST:
s/Steven K. Fitzwater
By: ______________________________
Print Name: Steven K. Fitzwater
Title: Chief Financial Officer, Vice President,
Chief Accounting Officer, Secretary/Treasurer
AMERICAN STOCK TRANSFER & TRUST COMPANY
s/Herbert J. Lammer
By: ______________________________
Print Name: Herbert J. Lammer
Title: Vice President
ATTEST:
s/Geraldine M. Zarbo
By: ______________________________
Print Name: Geraldine M. Zarbo
Title: Vice-President
28
<PAGE>
Exhibit A
FORM OF CERTIFICATE OF DESIGNATIONS OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK OF
SLH CORPORATION
(Pursuant to Section 17-6401 of the Kansas General Corporation Code)
SLH Corporation, a corporation organized and existing under the General
Corporation Code of the State of Kansas (hereinafter called the "Corporation"),
hereby certifies that the following resolution was adopted by the Board of
Directors of the Corporation as required by Section 17-6401 of the General
Corporation Code at a meeting duly called and held on _____________, 1997:
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of this Corporation (hereinafter called the "Board of Directors" or
the "Board") in accordance with the provisions of the Certificate of
Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, par value $0.01 per share (the "Preferred Stock"), of the Corporation and
hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 50,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions. (A) Subject to the rights of the
holders of any shares of any series of Preferred Stock (or any similar stock)
ranking prior and superior to the Series A Preferred Stock with respect to
dividends, the holders of shares of Series A Preferred Stock, in preference to
the holders of Common Stock, par value $0.01 per share (the "Common Stock"), of
the Corporation, and of any other junior stock, shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the first day
of March, June, September and December in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $1 or (b) subject to the
provision for adjustment hereinafter set forth, 100 times 29
<PAGE>
the aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In the event the Corporation shall at any time declare
or pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event. (B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the
Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be
cumulative on outstanding shares of Series A Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the date
fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights: (A) Subject to the provision for
adjustment hereinafter set forth, each share of Series A Preferred Stock shall
<PAGE>
entitle the holder thereof to 100 votes on all matters submitted to a vote
of the stockholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in shares of
Common Stock,
30
or effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of shares of
Common Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event shall be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Series A Preferred Stock and the holders of shares
of Common Stock and any other capital stock of the Corporation having general
voting rights shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation. (C) Except as set forth herein, or as
otherwise provided by law, holders of Series A Preferred Stock shall have no
special voting rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other
dividends or distributions payable on the Series A Preferred Stock as provided
in Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A
Preferred Stock outstanding shall have been paid in full, the Corporation shall
not:
(i) declare or pay dividends, or make any other distributions, on any
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on any
shares of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, except dividends
paid ratably on the Series A Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares of
any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
<PAGE>
such junior stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any shares
of Series A Preferred Stock, or any shares of stock ranking on a parity with the
Series A Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to all
holders of such shares upon
31
such terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or classes. (B) The
Corporation shall not permit any subsidiary of the Corporation to purchase or
otherwise acquire for consideration any shares of stock of the Corporation
unless the Corporation could, under paragraph (A) of this Section 4, purchase or
otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock unless,
prior thereto, the holders of shares of Series A Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Series A Preferred Stock shall be
entitled to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount to be
distributed per share to holders of shares of Common Stock, or (2) to the
holders of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
<PAGE>
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under the proviso in clause
(1) of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in
32
any such case each share of Series A Preferred Stock shall at the same time
be similarly exchanged or changed into an amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 100 times the aggregate
amount of stock, securities, cash and/or any other property (payable in kind),
as the case may be, into which or for which each share of Common Stock is
changed or exchanged. In the event the Corporation shall at any time declare or
pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount set forth in the preceding sentence
with respect to the exchange or change of shares of Series A Preferred Stock
shall be adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall not
be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with respect to
the payment of dividends and the distribution of assets, junior to all series of
any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Certificate of Incorporation of the Corporation
shall not be amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series A Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations is executed on behalf
of the Corporation by its Chairman of the Board and attested by its Secretary
this ____ day of ____________ , 1997.
________________________________
Chairman of the Board
ATTEST:
________________________________
Secretary
33
<PAGE>
Exhibit B
RIGHT CERTIFICATE OF
SLH CORPORATION
NOT EXERCISABLE AFTER JANUARY 31, 2007 OR EARLIER IF REDEMPTION OR EXCHANGE
OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE
ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
This certifies that ________________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of January 31, 1997 (the "Rights Agreement"), between SLH
Corporation, a Kansas corporation (the "Company"), and American Stock Transfer &
Trust Company (the "Rights Agent"), to purchase from the Company at any time
after the Distribution Date (as such term is defined in the Rights Agreement)
and prior to 5:00 P.M., Kansas City, Missouri time, on January 31, 2007 at the
principal office of the Rights Agent, or at the office of its successor as
Rights Agent, one one-hundredth of a fully paid non-assessable share of Series A
Junior Participating Preferred Stock, par value $0.01 per share (the "Preferred
Shares"), of the Company, at a purchase price of $125.00 per one one-hundredth
of a Preferred Share (the "Purchase Price"), upon presentation and surrender of
this Right Certificate with the Form of Election to Purchase duly executed. The
number of Rights evidenced by this Right Certificate (and the number of one
one-hundredths of a Preferred Share which may be purchased upon exercise hereof)
set forth above, and the Purchase Price set forth above, are the number and
Purchase Price as of _______________, 1997, based on the Preferred Shares as
constituted at such date. As provided in the Rights Agreement, the Purchase
Price and the number of one one-hundredths of a Preferred Share which may be
purchased upon the exercise of the Rights evidenced by this Right Certificate
are subject to modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned offices of the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall 34
<PAGE>
be exercised in part, the holder shall be entitled to receive upon
surrender hereof another Right Certificate or Right Certificates for the number
of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate (i) may be redeemed by the Company at a redemption price of
$.01 per Right or (ii) may be exchanged in whole or in part for Preferred Shares
or shares of the Company's Common Stock, par value $0.01 per share.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Preferred Shares or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal. Dated as of ________________, 199__.
SLH CORPORATION
By: ______________________________
Title: ___________________________
ATTEST:
By: ______________________________
35
<PAGE>
Countersigned:
__________________________________
By: ______________________________
Authorized Signature
ATTEST:
By: ______________________________
36
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED _______________ hereby sells, assigns and transfers unto
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint _______________ Attorney, to
transfer the within Right Certificate on the books of the within-named Company,
with full power of substitution.
Dated: ______________________
__________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a bank,
stockbroker, savings and loan association or credit union with membership in an
approved signature guarantee medallion program) pursuant to Rule 17Ad-15 of the
Securities Exchange Act of 1934.
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
__________________________________
Signature
37
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights represented by the Right
Certificate.)
To: SLH CORPORATION
The undersigned hereby irrevocably elects to exercise __________________
Rights represented by this Right Certificate to purchase the Preferred Shares
issuable upon the exercise of such Rights and requests that certificates for
such Preferred Shares be issued in the name of: ____________________________
(Please insert social security or other identifying number) _________________
____________________________________________ (Please print name and address).
If such number of Rights shall not be all the Rights evidenced by this
Right Certificate, a new Right Certificate for the balance remaining of such
Rights shall be registered in the name of and delivered to: _________________
(Please insert social security or other identifying number ) ________________
____________________________________________ (Please print name and address).
Dated: ______________________
__________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a bank,
stockbroker, savings and loan association or credit union with membership in an
approved signature guarantee medallion program) pursuant to Rule 17Ad-15 of the
Securities Exchange Act of 1934.
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
__________________________________
Signature
NOTICE: The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever. In the event the certification set forth above in the
Form of Assignment or the Form of Election to Purchase, as the case may be, is
not completed, the Company and the Rights Agent will deem the beneficial owner
of the Rights evidenced by this Right Certificate to be an Acquiring Person or
an Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
38
<PAGE>
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On ________________, 1997, the Board of Directors of SLH Corporation (the
"Company") declared a dividend of one preferred share purchase right (a "Right")
for each outstanding share of common stock, par value $0.01 per share (the
"Common Shares"), of the Company. The dividend is payable on ________________,
1997 (the "Record Date") to the stockholders of record on that date. Each Right
entitles the registered holder to purchase from the Company one one-hundredth of
a share of Series A Junior Participating Preferred Stock, par value $0.01 per
share (the "Preferred Shares"), of the Company at a price of $125.00 per one
one-hundredth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and American Stock
Transfer & Trust Company, as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") have acquired beneficial ownership of 25% or more of the outstanding
Common Shares or (ii) 10 business days (or such later date as may be determined
by action of the Board of Directors prior to such time as any person or group of
affiliated persons becomes an Acquiring Person) following the commencement of,
or announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 25% or more of the outstanding Common Shares (the earlier of such dates
being called the "Distribution Date"), the Rights will be evidenced, with
respect to any of the Common Share certificates outstanding as of the Record
Date, by such Common Share certificate with a copy of this Summary of Rights
attached thereto.
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights), the Rights will be transferred with and
only with the Common Shares. Until the Distribution Date (or earlier redemption
or expiration of the Rights), new Common Share certificates issued after the
Record Date upon transfer or new issuance of Common Shares will contain a
notation incorporating the Rights Agreement by reference. Until the Distribution
Date (or earlier redemption or expiration of the Rights), the surrender for
transfer of any certificates for Common Shares outstanding as of the Record
Date, even without such notation or a copy of this Summary of Rights being
attached thereto, will also constitute the transfer of the Rights associated
with the Common Shares represented by such certificate. As soon as practicable
following the Distribution Date, separate certificates evidencing the Rights
("Right Certificates") will be mailed to holders of record of the Common Shares
as of the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
<PAGE>
expire on January 31, 2007 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or
39
unless the Rights are earlier redeemed or exchanged by the Company, in each
case, as described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then-current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be entitled to an aggregate
dividend of 100 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per Common Share. Each Preferred
Share will have 100 votes, voting together with the Common Shares. Finally, in
the event of any merger, consolidation or other transaction in which Common
Shares are exchanged, each Preferred Share will be entitled to receive 100 times
the amount received per Common Share. These rights are protected by customary
antidilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation and
voting rights, the value of the one one-hundredth interest in a Preferred Share
purchasable upon exercise of each Right should approximate the value of one
Common Share.
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group has become an Acquiring Person, proper
<PAGE>
provision will be made so that each holder of a Right will thereafter have
the right to receive, upon the exercise thereof at the then current exercise
price of the Right, that number of shares of common stock of the acquiring
company which at the time of such transaction will have a market value of two
times the exercise price of the Right. In the event that any person or group of
affiliated or associated persons becomes an Acquiring Person, proper provision
shall be made so that each holder of a Right, other than Rights
40
beneficially owned by the Acquiring Person (which will thereafter be void),
will thereafter have the right to receive upon exercise that number of Common
Shares having a market value of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
Common Shares, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by such person or group which will have become void),
in whole or in part, at an exchange ratio of one Common Share, or one
one-hundredth of a Preferred Share (or of a share of a class or series of the
Company's preferred stock having equivalent rights, preferences and privileges),
per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional Preferred Shares will be issued (other than
fractions which are integral multiples of one one-hundredth of a Preferred
Share, which may, at the election of the Company, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 25% or more of the outstanding
Common Shares, the Board of Directors of the Company may redeem the Rights in
whole, but not in part, at a price of $.01 per Right (the "Redemption Price").
The redemption of the Rights may be made effective at such time on such basis
with such conditions as the Board of Directors in its sole discretion may
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an amendment
to lower certain thresholds described above to not less than the greater of (i)
the sum of .001% and the largest percentage of the outstanding Common Shares
then known to the Company to be beneficially owned by any person or group of
affiliated or associated persons and (ii) 10%, except that from and after such
time as any person or group of affiliated or associated persons becomes an
<PAGE>
Acquiring Person no such amendment may adversely affect the interests of the
holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. A copy of the Rights Agreement has been filed
with the Securities and Exchange Commission as an Exhibit to a Registration
Statement on Form 10 dated ________________, 1997.
41
A copy of the Rights Agreement is available free of charge from the
Company. This summary description of the Rights does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement, which is
hereby incorporated herein by reference.
42
<PAGE>
<PAGE>
SLH CORPORATION
1997 STOCK INCENTIVE PLAN
1. PURPOSE
The SLH Corporation 1997 Stock Incentive Plan is designed to enable Non-Employee
Directors of and qualified executive, managerial, supervisory and professional
officers and employees of the Company and its Subsidiaries to acquire or
increase their ownership of the $.01 par value common stock of the Company on
reasonable terms. The opportunity so provided is intended to foster in
participants a strong incentive to exert maximum effort for the continued
success and growth of the Company and its Subsidiaries and the enhancement of
stockholders' interests, to aid in retaining individuals who exert such efforts
and to assist in attracting the best available individuals in the future.
2. DEFINITIONS
When used herein, the following terms shall have the meaning set forth below:
2.1 "Board" means the Board of Directors of SLH Corporation.
2.2 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.3 "Committee" means the members of the Board's Nominating and
Compensation Committee. Each Committee member shall be, at any time that an
Option is granted hereunder, a Non-Employee Director.
2.4 "Company" means SLH Corporation.
2.5 "Director" means a member of the Board.
2.6 "Distribution Date" means the date on which Shares are distributed
by Seafield Capital Corporation to is shareholders.
2.7 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2.8 "Fair Market Value" means with respect to the Company's Shares, the
average of the closing "bid" and "asked" prices of the Shares, as reported on
the OTC Bulletin Board, or, if not so reported, the closing sales price as
reported by any other appropriate reporting system of general circulation, on
the date for which the value is to be determined, or if there is no closing
"bid" and "asked" price or sales price on such date, then on the first day
following such date for which there is a closing "bid" and "asked" price or on
the last day prior to such date for which prices for Shares were so reported;
provided, for the determination of fair market value on the Distribution Date,
Fair Market Value shall be the value determined by Seafield Capital Corporation
("Seafield") as the value of a Share for income tax purposes in connection with
the distribution by Seafield of Shares to its shareholders pursuant to the
Distribution Agreement between the Company and Seafield.
<PAGE>
2.9 "Grantee" means a person to whom an Option is granted.
2.10 "Incentive Stock Option" or "ISO" means an Option awarded under the
Plan which meets the terms and conditions established by Code Section 422 and
applicable regulations thereunder for such an Option.
2.11 "Non-Employee Director" means a Director who is a "Non-Employee
Director" within the meaning of both (i) Rule 16b-3 under the Exchange Act or
any successor rule of similar import, and (ii) Section 162(m) of the Code and
applicable regulations thereunder.
2.12 "Non-Qualified Stock Option" or "NQSO" means an Option awarded
under the Plan which by its terms and conditions is not an ISO.
2.13 "Option" means the right to purchase, at a price, for a term, under
conditions, and for cash or other considerations fixed either by the Plan or by
the Committee in accordance with such restrictions as the Plan and the Committee
impose, a number of Shares specified by the Plan or the Committee, as the case
may be. An Option can be either an ISO or NQSO or a combination thereof.
2.14 "Plan" means the Company's 1997 Stock Incentive Plan.
2.15 "Securities Act" means the Securities Act of 1933, as amended.
2.16 "Shares" means shares of the Company's $.01 par value common stock
or, if by reason of the adjustment provisions hereof any rights under an Option
granted under the Plan pertain to any other security, such other security.
2.17 "Subsidiary" means any business, whether or not incorporated, in
which the Company, at the time an Option is granted or in other cases at the
time of reference, owns directly or indirectly not less than 50% of the equity
interest.
2.18 "Successor" means the legal representative of the estate of a
deceased Grantee or the person or persons who shall acquire the right to
exercise an Option, by bequest or inheritance or by reason of the death of the
Grantee, as provided in accordance with Section 8 hereof.
2.19 "Tax Date" means the date on which the amount of tax to be withheld
with respect to an Option is determined.
2.20 "Term" means the period during which a particular Option may be
exercised.
2
<PAGE>
3. ADMINISTRATION OF THE PLAN
3.1 The Plan shall be administered by the Committee, comprised from
time to time of not fewer than two members, each of whom shall be Non-Employee
Directors.
3.2 The Committee shall have plenary authority, subject to provisions
of the Plan (including without limitation the provisions of Section 6 hereof
respecting Options granted the Non-Employee Directors pursuant to Section 6.2),
to determine when and to whom Options shall be granted, the Term of each Option,
the number of Shares covered by it, the participation by Grantees in other
plans, and any other terms or conditions of each such Option. The number of
Shares, the Term and the other terms and conditions of a particular Option need
not be the same, even as to similarly situated Grantees. The Committee's
actions in granting Options and fixing their size, Term, and other terms and
conditions shall be final and conclusive on all persons. Notwithstanding
anything in the Plan to the contrary, the maximum number of Shares with respect
to which Options may be granted under the Plan to any individual other than a
Non-Employee Director is 65,000.
3.3 The Committee shall have the sole responsibility for construing and
interpreting the Plan, for establishing and amending such rules and regulations
as it deems necessary or desirable for the proper administration of the Plan,
and for resolving all questions arising under the Plan. Any decision or action
taken by the Committee arising out of or in connection with the construction,
administration, interpretation and effect of the Plan and of its rules and
regulations shall, to the extent permitted by law, be within its absolute
discretion, except as otherwise specifically provided herein, and shall be
conclusive and binding upon all Grantees, all Successors, and any other person,
whether that person is claiming under or through any Grantee or otherwise.
3.4 The Committee shall designate one of its members as Chairman. It
shall hold its meetings at such times and places as it may determine. A
majority of its members shall constitute a quorum, and all determinations of the
Committee shall be made by a majority of its members. Any determination reduced
to writing and signed by all members shall be fully as effective as
if it had been made by a majority vote at a meeting duly called and held. The
Committee may appoint a Secretary, who need not be a member of the Committee.
The Committee may make such rules and regulations for the conduct of its
business as it shall deem advisable.
3.5 Service on the Committee shall constitute service as a Director, so
3
<PAGE>
that the members of the Committee shall be entitled to indemnification and
reimbursement as Directors pursuant to its Bylaws and to any agreements between
the Company and its Directors providing for indemnification.
3.6 The Committee shall regularly inform the Board as to its actions
with respect to all Options under the Plan and the Terms and conditions of such
Option grants in a manner, at such times, and in such form as the Board may
reasonably request.
4. ELIGIBILITY
Options may be granted under the Plan only to either (a) employees of the
Company or a Subsidiary who have executive, managerial, supervisory or
professional responsibilities or (b) Non-Employee Directors; provided that only
NQSOs may be granted to Non-Employee Directors. Officers shall be employees for
this purpose, whether or not they are also Directors. Options may be granted to
eligible employees and Non-Employee Directors whether or not they have received
prior Options under the Plan or under any previously adopted plan, and whether
or not they are participants in other benefit plans of the Company or any
Subsidiary.
5. SHARES SUBJECT TO PLAN
The Company hereby reserves 260,000 Shares for issuance in connection with
Options under the Plan, subject to adjustment under Section 17. The Shares so
issued may be unreserved Shares held in the treasury, however acquired, or
Shares which are authorized but unissued. Any Shares subject to issuance upon
exercise of Options but which are not issued because of a surrender, lapse,
expiration or termination of any such Option prior to issuance of the Shares,
any Shares withheld by the Company as payment of the exercise price pursuant to
Section 11.4 or pursuant to a tax withholding election permitted under Section
19.2 hereof, and any Shares owned by a Grantee which are used in the exercise of
an Option under Section 11.3 hereof shall be deemed issued under the Plan.
6. GRANTING OF OPTIONS
6.1 Subject to the terms of the Plan, the Committee may from time to
time grant Options to persons eligible under Section 4 above; provided that if
Options are granted to a Non-Employee Director either for more than 16,200
Shares or with a grant date other than either the Distribution Date (in the case
4
<PAGE>
of Non-Employee Directors who are first appointed or elected on the date this
Plan is first approved by the Board) or on the later of the Distribution Date
and the date a Non-Employee Director first assumes office as a Director (in the
case of any Non-Employee Director who first assumes office as a Director after
the date this Plan is first approved by the Board), such grant shall be subject
to approval by the Company's stockholders.
6.2 Each person who is a Non-Employee Director as of the Distribution
Date shall, as of the Distribution Date, receive a grant of Options respecting
16,200 Shares, and each Non-Employee Director who first becomes a Director after
the Distribution Date shall, upon first becoming a Director, receive a grant of
Options respecting 16,200 Shares, in all cases without further action by the
Committee, the Board or otherwise.
6.3 Pursuant to Code Section 422 and applicable regulations, an Option shall
not be deemed to be an ISO to the extent that the aggregate Fair Market Value,
as determined on the date or dates of grant, of Shares with respect to which
such ISOs are exercisable for the first time by any individual during any
calendar year (under all stock option incentive plans of the Company or a
Subsidiary) exceeds $100,000. ISOs which first become exercisable during a
calendar year shall be taken into account in the order granted. Options that
exceed the $100,000 limit shall be treated as NQSOs.
6.4 The purchase price of each Share subject to an Option (other than
Options granted to Non-Employee Directors pursuant to Section 6.2 hereof) shall
be fixed by the Committee, provided the purchase price for all Options shall not
be less than 100% of the Fair Market Value of the Shares on the date the Option
is granted. The purchase price of each Share subject to an Option granted to a
Non-Employee Director pursuant to Section 6.2 hereof shall be 100% of the Fair
Market Value of the Shares on the effective grant date of such Option.
6.5 Notwithstanding Section 6.4 above, pursuant to Code Section 422 and
applicable regulations, the minimum purchase price of an ISO shall be 110% of
the Fair Market Value of the Shares on the date the ISO is granted with respect
to Grantees who at the time of grant are deemed to own 10% or more of the voting
power of the Company's outstanding Shares.
6.6 Each Option (other than an Option granted to Non-Employee Directors
pursuant to Section 6.2 hereof) shall expire and all rights to purchase Shares
thereunder shall cease on the date fixed by the Committee. Options
granted to Non-Employee Directors pursuant to Section 6.2 hereof shall expire on
the tenth anniversary of the effective date of grant.
6.7 Notwithstanding Section 6.6 above, pursuant to Code Section 422 and
applicable regulations, ISO Options shall expire and all rights to purchase
Shares thereunder shall cease no later than the fifth anniversary of the date on
which the Option was granted with respect to Grantees who at the time of grant
are deemed to own 10% or more the voting power of the Company, and no later than
the tenth anniversary of the date on which the Option was granted with respect
to other Grantees.
6.8 Each Option (other than Options granted to Non-Employee Directors
pursuant to Section 6.2 hereof) shall become exercisable at the time, and for
the number of Shares, fixed by the Committee. Options granted to Non-Employee
Directors pursuant to Section 6.2 hereof shall become exercisable in four equal
installments: one-fourth on the effective date of grant and one-fourth on each
of the first, second and third anniversaries of the effective date of grant.
5
<PAGE>
7. NON-TRANSFERABILITY OF RIGHTS
No ISO and no rights under any ISO shall be assignable or transferable otherwise
than by will or the laws of descent and distribution and, except to the extent
otherwise provided in Section 11, the rights and the benefits of any such Option
may be exercised and received, respectively, during the lifetime of the Grantee
only by him or by his guardian or legal representative.
8. DEATH, DISABILITY, RETIREMENT AND OTHER TERMINATION OF EMPLOYMENT
8.1 Subject to the terms of the Plan, the Committee may make such
provisions concerning exercise or lapse of Options upon the Grantee's death,
disability, retirement, or other termination of employment as it shall in its
discretion determine, provided:
(i) no provision shall extend the Term of an Option,
(ii) except upon a Grantee's death or disability no provision shall
permit an ISO to be exercised after the date three months following the
Grantee's termination of employment,
(iii) no provision shall permit an Option to be exercised after the
date which is twelve months following a Grantee's death or disability,
(iv) no provision shall permit a NQSO to be exercised after the date
which is three years following the Grantee's retirement from the Company or a
Subsidiary,
(v) except upon a Grantee's death, disability or retirement, no
provision shall permit an NQSO to be exercised after the date which is six
months following a Grantee's termination of employment,
(vi) Options granted to a Non-Employee Director pursuant to Section
6.2 hereof shall expire to the extent unexercised on the date which is 90 days
after the date said Non-Employee Director's term as a Director shall terminate;
provided further, that in the event of the death of a Non-Employee Director
during such person's term as a Director or during the 90-day period following
expiration of such term, such Options shall expire to the extent unexercised by
such person's Successor on that date which is 12 months after the date of death,
and
(vii) No provision representing disability or retirement shall be
made a part of any option granted to a Non-Employee Director pursuant to
Section 6.2 hereof, except to the extent provided for in clause (vi) above.
6
<PAGE>
For purposes of this Section 8, the term "disability" shall mean the inability
of the Grantee to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or to last for a continuous period of not less than twelve
months, based on the opinion of a qualified physician (or other medical
certificate) and other evidence acceptable to the Committee, and the term
"retirement" shall mean normal retirement at or after attaining age 65.
8.2 Unless the Committee determines otherwise (but only with respect to
Options granted other than to Non-Employee Directors pursuant to Section 6.2
hereof), Options which pursuant to their terms are exercisable following
termination of a Grantee's employment or the expiration of a Non-Employee
Director's term as a Director:
(i) may be exercised only to the extent exercisable upon the date
such employment terminates, or such term as a Director expires if such
termination or expiration is other than by reason of the Grantee's death, or, in
the case of Options granted other than to Non-
Employee Directors pursuant to Section 6.2 hereof, disability or retirement, and
(ii) shall be accelerated if not yet vested and shall be exercisable
in full,free and clear of all restrictions if such termination or expiration is
by reason of the Grantee's death or, in the case of Options granted other than
to Non-Employee Directors pursuant to Section 6.2 hereof, disability or
retirement.
8.3 Each Grantee may name, from time to time, any beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit or rights under the Plan is to be paid or transferred in case of his
death before he receives any or all of such benefit or exercises such rights.
Each designation will revoke all prior designations by the same Grantee, shall
be in a form prescribed by the Committee, and will be effective only when filed
by the Grantee in writing with the Committee during his lifetime. In the
absence of any such designation, benefits or rights remaining unpaid or
unexercised at the Grantee's death shall be paid to or shall be exercisable by
his estate, subject to the terms hereof.
8.4 Transfers of employment between the Company and a Subsidiary, or
between Subsidiaries, shall not constitute termination of employment for
purposes of any Option. The Committee may specify in the terms and conditions
of an Option grant whether any authorized leave of absence or absence for
military or governmental service or for any other reason shall constitute a
termination of employment for purposes of the Option and the Plan.
7
<PAGE>
9. PROVISIONS RELATING TO CHANGE IN CONTROL OR EXTRAORDINARY CORPORATE
TRANSACTION
Notwithstanding any provision in this Plan to the contrary, all outstanding
Options shall become exercisable immediately if any of the following events
occur, unless, in the case of Options granted other than to Non-Employee
Directors pursuant to Section 6.2 hereof, otherwise determined by the Committee:
(1) Any "person" (as defined in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing twenty-five percent (25%) or more of the combined voting power of
the Company's then outstanding securities, provided that this provision shall
not apply to the direct, indirect or beneficial ownership of Shares by
descendants of W.T. Grant or their spouses, or
(2) At any time there shall cease to be a majority of the Board
comprised as follows: individuals who on the date this Plan is adopted by the
Board constitute the Board and any new Director(s) whose election by the Board
or nomination for election by the Company's shareholders was approved by a vote
of at least two-thirds (2/3) of the Directors then still in office who either
were Directors on the date this Plan is adopted by the Board or whose election
or nomination for election was previously so approved, or
(3) Any merger or consolidation involving the Company, provided that if
the Company is the surviving entity in a merger then with respect to any Grantee
whose employment with the surviving entity in such merger is confirmed for the
then remaining term of his employment agreement, if any, such merger shall not
be considered a merger for purposes of this Section 9, or
(4) The adoption or approval by the Company's Board and stockholders of
a plan of complete liquidation and dissolution of the Company.
Any Options not exercised prior to consummation of a transaction referred to in
(3) or (4) above shall terminate upon consummation of such transaction, unless,
in the case of Options granted other than to Non-Employee Directors pursuant to
Section 6.2 hereof, otherwise determined by the Committee.
10. WRITING EVIDENCING OPTIONS
Each Option granted under the Plan shall be evidenced by a writing which may,
but need not, be in the form of an agreement to be signed by the Grantee. The
writing shall set forth the nature and size of the Option grant, its Term, the
other terms and conditions thereof, other than those set forth in the Plan, and
such other information as the Committee directs. Acceptance of, or receipt of
the benefits of, an Option grant by the Grantee shall be conclusively presumed
to be assent to the terms and conditions set forth therein, whether or not the
8
<PAGE>
writing is in the form of an agreement to be signed by the Grantee.
11. EXERCISE OF RIGHTS UNDER OPTIONS
11.1 A person entitled to exercise an Option may do so by delivery of a
written notice to that effect specifying the number of Shares with respect to
which the Option is being exercised and any other information the Committee may
prescribe.
11.2 The notice of exercise shall be accompanied by payment in full of
the purchase price for any Shares to be purchased, with such payment being made
in cash or in Shares having a Fair Market Value at that time
equivalent to the purchase price of such Shares to be purchased, or a
combination thereof.
11.3 In lieu of delivery of a stock certificate or certificates
evidencing Shares tendered by the Grantee in payment of the purchase price in
exercising an NQSO (but not on ISO), the Grantee may furnish a notarized
statement executed by the Grantee, in such form as prescribed by the Committee,
as payment for all or a portion of the purchase price for such Shares. The
statement shall recite the number of Shares being purchased by the Grantee
pursuant to the Option and the number of Shares owned by the Grantee which
otherwise could be freely delivered as payment of the purchase price by the
Grantee based on their Fair Market Value at that time. The Grantee will then be
issued a certificate for new Shares equal to the number of Shares- acquired by
the Grantee hereunder upon exercise of the Option, less the number of Shares
owned by the Grantee and described in the notarized statement. No Shares shall
be issued upon exercise of an Option until full payment has been made therefor.
11.4 In lieu of payment by the Grantee in cash or in Shares or by
delivery of a notarized statement of ownership pursuant to Sections 11.2 and
11.3, respectively, the Grantee may elect to pay all or part of the purchase
price for Shares pursuant to an exercise of an NQSO (but not an ISO) by
requesting the Company to reduce the number of Shares otherwise issuable to the
Grantee upon the exercise of the Option by the number of Shares with a Fair
Market Value at that time sufficient to pay the exercise price. Any such
election shall be made by delivering written notice thereof to the Company,
together with such information and documents as the Committee may prescribe.
11.5 Upon exercise of an Option but before a distribution of Shares in
satisfaction thereof, the Grantee may request in writing that the Shares to be
issued in satisfaction of the Option exercise be issued in the name of the
Grantee and another person as joint tenants with right of survivorship or as
tenants in common.
11.6 All notices or requests to the Company provided for herein shall be
delivered to the Secretary of the Company.
9
<PAGE>
12. EFFECTIVE DATE OF THE PLAN AND DURATION
12.1 The Plan shall become effective on the Distribution Date, subject
to approval by any governmental body having jurisdiction over the Company with
respect to this Plan within the time limits applicable to any such governmental
approvals.
12.2 The Plan shall remain in effect until all Options have been
exercised in accordance herewith, but no Options may be granted under the Plan
after December 31, 2001. The terms of any Option may be amended at any time
prior to the end of its Term in accordance with the Plan.
13. DATE OF OPTION GRANT
The date of an Option grant shall be the date on which the Committee's
determination to grant the same is final, or such later date as shall be
specified by the Committee in connection with its determination; provided that
the date of grant for an Option granted pursuant to Section 6.2 hereof shall be
as specified in Section 6.
14. SHAREHOLDER STATUS
No person shall have any rights as a shareholder by virtue of the grant of an
Option under the Plan, except with respect to Shares actually issued to that
person.
15. POSTPONEMENT OR NON-EXERCISE
The Company shall not be required to issue any certificate or certificates for
Shares upon the exercise of an Option granted under the Plan prior to (i) the
obtaining of any approval from any governmental agency which the Company shall,
in its sole discretion, determine to be necessary or advisable, (ii) the taking
of any action in order to comply with restrictions or regulations incident to
the maintenance of a public market for its Shares; and (iii) the completion of
any registration or other qualification of such Shares under any state or
Federal law or rulings or regulations of any governmental body which the Company
shall, in its sole discretion, determine to be necessary or advisable. The
Company shall not be obligated by virtue of any terms and conditions of any
Option or any provisions of the Plan to recognize the exercise of an Option or
to sell or issue shares in violation of the Securities Act or the law of any
government having jurisdiction thereof. Any postponement or delay by the
Company in recognizing the exercise of any Option or in issuing any Shares
hereunder shall not extend the Term of an Option and neither the Company nor its
directors or officers shall have any obligation or liability to the Grantee of
an Option, to a Successor or to any other person with respect to any Shares as
to which the Option shall lapse because of such postponement.
10
<PAGE>
16. TERMINATION, SUSPENSION OR MODIFICATION OF PLAN
The Board may terminate, suspend or modify the Plan at any time and in any
manner, provided, however, that to the extent stockholder approval is required
by the Code (including without limitation, pursuant to Sections 162 or 422
thereof)
or regulations promulgated thereunder, or is required by regulations issued
under the Securities Act or the Exchange Act, in order to create or preserve
Company or Grantee benefits or rights under or with respect to Options, the
Board shall not, without authorization of the stockholders, effect any change
(other than through adjustment for changes in capitalization or as otherwise
herein provided) which:
(i) increases the aggregate number of Shares for which Options may be
granted under the Plan or increases in the maximum number of Shares for which
Options may be granted to any one Grantee;
(ii) lowers the minimum option price;
(iii) lengthens the maximum period during which an Option may be
exercised;
(iv) materially modifies the requirements as to eligibility to
participate in the Plan;
(v) extends the period of time during which Options may be granted;
or
(vi) materially increases the benefits of the Plan accruing to
Grantees.
Notwithstanding the foregoing, (i) the Board may amend the Plan, without
stockholder authorization, to comply with section 16(b) of the Exchange Act or
regulations issued thereunder, to effect registration of the Plan or securities
issuable thereunder under the Securities Act or the laws of any state, or to
obtain any required regulatory approval and (ii) if amendments to the Code or to
the Securities Act or Exchange Act, or regulations issued thereunder, are
adopted after the date of adoption of the Plan, which amendments permit
termination, suspension or modification of the Plan, including but not limited
to the changes referred to above, without stockholder approval, no authorization
by the Company's stockholders of any Board action hereunder shall be required.
No termination, suspension or modification of the Plan shall adversely affect
any right acquired by any Grantee or any Successor under an Option granted
before the date of such termination, suspension or modification unless such
Grantee or Successor shall consent but it shall be conclusively presumed that
any adjustment for changes in capitalization as provided for herein does not
adversely affect any such right.
17. ADJUSTMENTS FOR CHANGES IN CAPITALIZATION
17.1 In the event of a recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation, rights offering,
reorganization or liquidation, or any other change in the corporate structure or
shares
11
<PAGE>
of the Company, the Committee shall (i) make equitable adjustments, to protect
against dilution or enlargement, in the number and kind of Shares authorized by
the Plan and, with respect to outstanding Options, in the number and kind of
Shares covered thereby and in the Option price, and (ii) make such arrangements,
which shall be binding upon the holders of unexpired Options for the
substitution of new Options for any unexpired Options then outstanding under the
Plan or for the assumption of any such unexpired Options.
17.2 The grant of any Option pursuant to the Plan shall not affect in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets, or the business, assets or stock of a Subsidiary.
18. NON-UNIFORM DETERMINATION
The Committee's determination under the Plan including, without limitation,
determination of the persons to receive Options, the form, amount and type of
Options (i.e., ISOs or NQSOs) the terms and provisions of Options and the
written material evidencing such Options, any amendments to the terms and
provisions of any Options, and the granting or rejecting of applications for
delivery of Shares or affidavits of ownership in lieu of cash payments, need not
be uniform and may be made selectively among otherwise eligible employees or
Non-Employee Directors whether or not such employees or Non-Employee Directors
are similarly situated.
19. TAXES
19.1 The Company may pay, withhold or require a Grantee to remit to it
amounts sufficient to satisfy the Company's federal, state, local or other tax
withholding obligations attributable to any Option exercise, after giving notice
to the Grantee, and the Company may defer issuance of Shares in connection with
an Option exercise if any such tax, charge or assessment may be pending, until
indemnified to its satisfaction.
19.2 In connection with the exercise of an NQSO, a Grantee may make an
irrevocable election to have Shares otherwise issuable withheld, or tender back
to the Company Shares received, or deliver to the Company previously-acquired
Shares, having a Fair Market Value at the time sufficient to satisfy all or part
of the Company's total federal, state, local and other tax withholding
obligations associated with the transaction.
20. TENURE
Nothing in the Plan or in any agreement entered into pursuant to the Plan shall
12
<PAGE>
confer upon any Grantee the right to continue in the employment of the Company
or any Subsidiary or affect any right which the Company or Subsidiary has to
terminate the employment of such participant. An employee terminated for cause,
as determined by the Company, shall forfeit all of his rights under the Plan,
except as to Options already exercised.
21. APPLICATION OF PROCEEDS
The proceeds received by the Company from the sale of its shares under the Plan
shall be used for general corporate purposes of the Company and its
Subsidiaries.
22. OTHER ACTIONS
Nothing in the Plan shall be construed to limit the authority of the Company to
exercise its corporate rights and powers, including, by way of illustration and
not by way of limitation, the right to grant options for proper corporate
purposes otherwise than under the Plan to any employee or any other person,
firm, corporation, association or other entity, or to grant options to, or
assume options of, any person in connection with the acquisition by purchase,
lease, merger, consolidation or otherwise, of all or any part of the business
and assets of any person, firm, corporation, association or other entity.
23. GENDER AND NUMBER
Except when otherwise indicated by the context, words in the masculine gender
when used in the Plan shall include the feminine gender, the singular shall
include the plural, and the plural shall include the singular.
24. REQUIREMENTS OF LAW, GOVERNING LAW
The granting of Options and the issuance of shares of Stock shall be subject to
all applicable laws, rules and regulations, and to such approvals by any
governmental agencies or national securities exchanges and self-regulating
entities as may be required. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Kansas.
25. EFFECT ON OTHER PLANS
Participation in this Plan shall not affect an employee's eligibility to
participate in any other benefit or incentive plan of the Company or a
Subsidiary. Any Options granted pursuant hereto shall not be used in determining
the benefits provided under any other plan of the Company or a Subsidiary unless
specifically provided therein.
<PAGE>
15
<PAGE>
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
Exhibit 27
SLH Corporation Financial Data Schedule
This schedule contains summary financial information extracted from
the Form 10/A for the periods ended September 30, 1996 and December 31, 1995
and is qualified in its entirety by reference to such Form 10.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> SEP-30-1996 DEC-31-1995
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 582 69
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,657 4,432
<PP&E> 2,579 2,554
<DEPRECIATION> 2,091 1,924
<TOTAL-ASSETS> 37,937 51,638
<CURRENT-LIABILITIES> 683 365
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 35,802 49,686
<TOTAL-LIABILITY-AND-EQUITY> 37,937 51,638
<SALES> 12,801 10,485
<TOTAL-REVENUES> 13,377 11,486
<CGS> 12,720 10,984
<TOTAL-COSTS> 14,650 14,201
<OTHER-EXPENSES> 1,195<F1> 1,564<F1>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 81 189
<INCOME-PRETAX> (3,432) (12,496)
<INCOME-TAX> 71 (1,264)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> (1,400) 0
<NET-INCOME> (4,903) (11,232)
<EPS-PRIMARY> 0 <F2> 0 <F2>
<EPS-DILUTED> 0 <F2> 0 <F2>
<FN>
<F1>Represents general and administrative expenses
<F2>Computation not applicable.
</FN>
</TABLE>
