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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
THE PETROLEUM PLACE, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 7389 84-1491583
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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5299 DTC PARKWAY, SUITE 815
ENGLEWOOD, CO 80111
(303) 694-5350
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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GARY R. VICKERS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
THE PETROLEUM PLACE, INC.
5299 DTC PARKWAY, SUITE 815
ENGLEWOOD, CO 80111
(303) 694-5350
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies To:
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JAMES C.T. LINFIELD, ESQ. RICHARD J. WILKIE, ESQ.
LAURA M. MEDINA, ESQ. SETH R. MOLAY, P.C.
JONATHON J. TAYLOR, ESQ. JOHN T. GOODGAME, ESQ.
COOLEY GODWARD LLP AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
2595 CANYON BOULEVARD, SUITE 250 1900 PENNZOIL PLACE -- SOUTH TOWER
BOULDER, CO 80302-6737 711 LOUISIANA STREET
(303) 546-4000 HOUSTON, TEXAS 77002
(713) 220-5800
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED
TITLE OF SECURITIES MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
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Common Stock, $.001 par value............................... $100,000,000 $26,400
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(1) Includes shares that the underwriters have the option to purchase solely to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH
WE ARE PERMITTED BY US FEDERAL SECURITIES LAWS TO OFFER THESE SECURITIES
USING THIS PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY
THEM UNTIL THE DOCUMENTATION FILED WITH THE SEC RELATING TO THESE
SECURITIES HAS BEEN DECLARED EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES OR OUR SOLICITATION OF YOUR OFFER TO
BUY THESE SECURITIES IN ANY JURISDICTION WHERE THAT WOULD NOT BE
PERMITTED OR LEGAL.
SUBJECT TO COMPLETION -- MAY 19, 2000
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PROSPECTUS
, 2000
[LOGO]
SHARES OF COMMON STOCK
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THE PETROLEUM PLACE, INC.:
- - We are a leading energy Internet marketplace serving the upstream petroleum
industry. Our services enable the online discovery, evaluation, acquisition,
divestiture and processing of petroleum properties.
- - The Petroleum Place, Inc.
5299 DTC Parkway, Suite 815
Englewood, CO 80111
(303) 694-5350
www.PetroleumPlace.com
PROPOSED SYMBOL & MARKET:
- - PPLC/Nasdaq National Market
THE OFFERING:
- - The underwriters have an option to purchase an additional shares of
common stock from us to cover over-allotments.
- - This is our initial public offering, and no public market currently exists for
our shares.
- - We anticipate that the initial public offering price will be between $ and
$ per share.
- - We plan to use the proceeds from this offering for working capital, potential
acquisitions, repayment of outstanding borrowings and other general corporate
purposes.
- - Closing: , 2000.
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Per Share Total
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Public offering price: $ $
Underwriting fees:
Proceeds to The Petroleum Place, Inc.:
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THIS INVESTMENT INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 5.
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Neither the SEC nor any state securities commission has approved or disapproved
of these securities or determined if this prospectus is truthful or complete.
Nor have they made, nor will they make, a determination whether anyone should
buy these securities. Any representation to the contrary is a criminal offense.
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DONALDSON, LUFKIN & JENRETTE SALOMON SMITH BARNEY
BANC OF AMERICA SECURITIES LLC
DLJDIRECT INC.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 1
Risk Factors.......................... 5
Forward-Looking Statements............ 15
Corporate Information................. 16
Use of Proceeds....................... 17
Dividend Policy....................... 17
Dilution.............................. 18
Capitalization........................ 19
Unaudited Pro Forma Consolidated
Financial Statements................ 20
Selected Consolidated Financial
Data................................ 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 27
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Business.............................. 33
Management............................ 45
Certain Relationships and Related
Transactions........................ 54
Principal Stockholders................ 55
Description of Capital Stock.......... 57
Shares Eligible for Future Sale....... 61
Underwriting.......................... 63
Legal Matters......................... 66
Experts............................... 66
Where You Can Find Additional
Information......................... 66
Index to Financial Statements......... F-1
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You should rely only on the information contained in this prospectus or to
which we have referred you. Neither we nor any underwriter has authorized anyone
to provide you with information that is different. This prospectus is not an
offer to sell nor is it seeking an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted. The information contained
in this prospectus is correct only as of the date of this prospectus, even if
this prospectus is delivered to you after the prospectus date, or you buy our
common stock after the prospectus date.
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights some of the information found in greater detail
elsewhere in this prospectus. In addition to this summary, we urge you to read
the entire prospectus carefully, especially the risks of investing in our common
stock discussed under "Risk Factors" and the financial statements and
accompanying notes before you decide to buy our common stock.
OUR COMPANY
Petroleum Place is a leading energy Internet marketplace serving the
upstream petroleum industry. Through PetroleumPlace.com, which was launched in
1995, we seek to bring price and process efficiencies to each stage of the oil
and gas property transaction lifecycle, streamlining the discovery, evaluation,
acquisition, divestiture and processing of petroleum properties. Our marketplace
and solutions include the following key components:
- floor and Internet oil and gas property auctions conducted through the
leading oil and gas property auction exchange in North America;
- electronic catalogs of our auction properties, sophisticated electronic
data rooms and a members-only listing service for properties, all
accessible through our web site;
- enterprise resource planning software, including accounting, billing and
land and production management software systems for the upstream
petroleum industry;
- geotechnical data and analysis tools delivered over the Internet; and
- content, community and e-commerce solutions for the worldwide petroleum
industry.
We currently operate the largest oil and gas property auction exchange in
North America. The value of properties sold annually at our auctions has grown
from approximately $3.0 million in 1993 to approximately $162.9 million in
fiscal 1999. For the first eight months of fiscal 2000, we handled property
transactions with a value of approximately $138.5 million and have current
commitments to sell an additional estimated $135.0 million in oil and gas
properties by the end of fiscal 2000.
To increase the sales of our products and services and become the leading
Internet marketplace for the petroleum industry, we intend to build upon our
existing relationships with the integrated and large independent petroleum
companies that currently use our services, some of which have made equity
investments in us. The proven reserves reported by our petroleum industry equity
investors had an estimated aggregate value of $25.2 billion as of December 31,
1999. We also intend to cross-sell our services to the 41,300 unique monthly
visitors to our Internet marketplace, our qualified prospect base of 16,600
industry professionals and our paying subscriber base of 135 energy companies.
Each stage of the transaction lifecycle has traditionally been costly,
cumbersome and time-consuming, burdened by data-intensive, paper-based
processes. The lack of a central marketplace to efficiently execute property
transactions and the lack of back office interconnectivity to process them
results in poor market liquidity and long transaction cycles. We intend to
streamline the oil and gas property transaction lifecycle by pursuing the
following strategies:
- Leverage our Established Auction Exchange into the Leading Internet
Marketplace for the Petroleum Industry. Through the credibility we have
established during our eight years in the auction business, we believe we
can drive rapid adoption of our Internet-based auction format for
petroleum properties, which will attract a larger pool of buyers and
sellers, thereby increasing the volume and size of properties sold
through auctions.
- Become the Leading ASP for Geotechnical Data and Applications. We intend
to aggregate and provide both property-related geotechnical data and the
relevant analytical software, which will provide substantial workflow
efficiencies in the property discovery and evaluation process.
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- Create Broad Interconnectivity Among Upstream Trading Partners. We plan
to offer XML-enabled software solutions to link the back office systems
of our installed base of 150 independent petroleum companies with their
respective trading partners through the Internet.
- Establish an Internet Marketplace for New and Used Oilfield Equipment. We
intend to capitalize on our database of over 8,500 items of pre-owned
oilfield equipment to establish a central marketplace for new and used
oilfield equipment.
- Drive Adoption of Our Solutions Internationally. We intend to leverage
our existing Canadian customer base to expand the distribution and use of
our products and services to the Canadian market. We believe that
properties in the North Sea are similarly suited for our marketplace.
THE OFFERING
Common stock offered by
us......................... shares
Common stock outstanding
after this offering........ shares
Use of proceeds............ For working capital, potential acquisitions,
repayment of outstanding borrowings and other
general corporate purposes. Please see "Use of
Proceeds" for more information regarding our
planned use of the proceeds from this offering.
Proposed Nasdaq National
Market Symbol.............. PPLC
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of March 31, 2000. It also
reflects:
- the issuance of 16,856 shares of common stock in connection with our
acquisition of all the assets of Strata Web Systems Ltd. in April 2000;
- the issuance of 164,916 shares of Series C preferred stock in April and
May 2000;
- the pending acquisition of Paradigm Technologies, Inc. for aggregate
consideration of $28.4 million, consisting of $12.0 million in cash and
151,216 shares of Series D preferred stock with an estimated value of
$16.4 million, assuming the price per share of this offering exceeds a
specified minimum; and
- the automatic conversion of all outstanding series of preferred stock
into common stock on a one-for-one basis upon completion of this offering
assuming the price per share of this offering exceeds a specified
minimum.
In addition to the shares of common stock to be outstanding after this
offering, there are:
- 345,892 shares that could be issued upon the exercise of options
outstanding as of March 31, 2000 at a weighted average exercise price of
$0.75 per share; and
- 28,522 shares that could be issued upon the exercise of warrants
outstanding as of March 31, 2000 at a weighted average exercise price of
$38.66 per share.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables summarize the consolidated financial data for our
business. You should read this data together with "Unaudited Pro Forma
Consolidated Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," our consolidated financial
statements and accompanying notes, including the unaudited interim and pro forma
financial information which appear later in this prospectus and other financial
statements and notes in this prospectus. The historical financial information
for the periods ended on or prior to May 31, 1999 reflects the financial
information of the Clearinghouse, our Predecessor Company, in which we acquired
a controlling interest in June 1999. The accompanying financial information of
the Predecessor Company for periods ending on or prior to May 31, 1999 is not
comparable in all material respects with our financial information subsequent to
May 31, 1999, since that financial information reports financial position and
results of operations on a different basis of accounting.
The pro forma statements of operations data reflect the following as if the
transactions had occurred on October 1, 1998, the beginning of our last full
fiscal year:
- the acquisition of all the outstanding shares of capital stock of the
Clearinghouse in June 1999 and August 1999;
- the acquisition of all the outstanding shares of capital stock of
TradeBank in September 1999;
- the acquisition of specified assets, including PetroleumPlace.com, from
World Web Technologies in September 1999;
- the acquisition of all the assets of Strata Web; and
- the pending acquisition of Paradigm for aggregate consideration of $28.4
million, consisting of $12.0 million in cash and 151,216 shares of Series
D preferred stock with an estimated value of $16.4 million, assuming the
price per share of this offering exceeds a specified minimum.
The pro forma balance sheet data gives effect to:
- the acquisition of all the assets of Strata Web;
- the issuance of 164,916 shares of Series C preferred stock, at a price of
$59.12 per share, in April and May 2000 for aggregate consideration of
$9.8 million; and
- the pending acquisition of Paradigm for aggregate consideration of $28.4
million, consisting of $12.0 million in cash and 151,216 shares of Series
D preferred stock with an estimated value of $16.4 million, assuming the
price per share of this offering exceeds a specified minimum.
The pro forma as adjusted balance sheet data gives effect to:
- the automatic conversion of all outstanding series of preferred stock
into common stock on a one-for-one basis upon completion of this offering
assuming the price per share of this offering exceeds a specified
minimum; and
- our receipt of the estimated net proceeds from the sale of shares of
common stock in this offering at an assumed initial public offering price
of $ per share, after deducting estimated underwriting discounts and
commissions and offering expenses.
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PREDECESSOR COMPANY PETROLEUM PLACE
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PRO FORMA
JAN. 28, 1999 --------------------------
FISCAL YEAR ENDED SIX MONTHS EIGHT MONTHS (INCEPTION) SIX MONTHS FISCAL
SEPTEMBER 30, ENDED ENDED THROUGH ENDED YEAR ENDED SIX MONTHS
----------------- MARCH 31, MAY 31, SEPT. 30, MARCH 31, SEPTEMBER 30, ENDED
1997 1998 1999 1999 1999 2000 1999 MARCH 31,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 2000
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CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue
Net commission revenue... $ 5,270 $ 6,323 $ 4,776 $ 5,547 $ 2,069 $ 4,108 $ 7,616 $ 4,108
Software, maintenance and
integration............ -- -- -- -- -- -- 11,352 6,352
Other revenue............ 270 362 277 316 104 303 1,078 708
------- ------- ------- ------- ------- -------- ------- --------
Total revenue........ 5,540 6,685 5,053 5,863 2,173 4,411 20,046 11,168
Cost of revenue............ 1,979 2,763 1,759 2,290 961 1,848 8,754 5,179
------- ------- ------- ------- ------- -------- ------- --------
Gross profit....... 3,561 3,922 3,294 3,573 1,212 2,563 11,292 5,989
------- ------- ------- ------- ------- -------- ------- --------
Operating expenses
Sales, marketing,
development, general
and administrative..... 1,403 1,497 1,207 1,566 1,505 4,019 8,695 7,185
Depreciation and
amortization........... 51 96 35 47 1,179 3,262 9,409 6,053
------- ------- ------- ------- ------- -------- ------- --------
Total operating
expense............ 1,454 1,593 1,242 1,613 2,684 7,281 18,104 13,238
------- ------- ------- ------- ------- -------- ------- --------
Income (loss) from
operations....... 2,107 2,329 2,052 1,960 (1,472) (4,718) (6,812) (7,249)
Other income (expense),
net...................... (1) (2) -- -- (113) 203 (343) 245
------- ------- ------- ------- ------- -------- ------- --------
Income (loss)
before minority
interest and
taxes............ 2,106 2,327 2,052 1,960 (1,585) (4,515) (7,155) (7,004)
Income taxes............... -- -- -- -- (37) -- (37) --
Minority interest.......... -- -- -- -- (4,549) -- -- --
------- ------- ------- ------- ------- -------- ------- --------
Net income
(loss)........... $ 2,106 $ 2,327 $ 2,052 $ 1,960 $(6,171) $ (4,515) $(7,192) $ (7,004)
======= ======= ======= ======= ======= ======== ======= ========
Earnings (loss) per share--
basic and diluted........ $210.64 $232.70 $205.22 $196.00 $(12.34) $ (9.03) $(13.92) $ (13.55)
Weighted average common
shares outstanding....... 10,000 10,000 10,000 10,000 500,000 500,000 516,856 516,856
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AS OF MARCH 31, 2000
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $53,108 $ 51,355
Current assets.............................................. 53,509 53,880
Total assets................................................ 73,639 102,873
Current liabilities......................................... 4,486 6,669
Long-term debt, excluding current portion................... 6,811 6,811
Total stockholders' equity.................................. 62,341 89,192
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RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the following information about these risks, together
with the other information contained in this prospectus, before you decide
whether to buy our common stock. If any of the events described in the following
risks actually occur, our business, financial condition and operating results
could be harmed. In such case, the trading price of our common stock could
decline, and you may lose all or part of your investment.
RISKS ASSOCIATED WITH OUR BUSINESS
OUR BUSINESS MODEL IS NOT PROVEN AND MAY NOT BE SUCCESSFUL.
Our business-to-business e-commerce model is based on the development of
our Internet marketplace for the purchase and sale of interests in oil and gas
properties, equipment, geotechnical information and industry-specific software
and content. Auctions conducted on the Internet, particularly the auction of oil
and gas properties, is a new and unproven method. Until recently, our auction
business depended upon attracting sellers and buyers to a physical location and
conducting auctions through an oral bid system. We may not achieve or sustain
revenue growth or generate any profits from our business model. Our growth
strategy depends upon our ability to, among other things:
- generate price and process efficiencies for our customers;
- achieve high rates of adoption by migrating a significant portion of our
existing live auction business to the Internet, as well as increasing the
number of new auction participants, including broadening the acceptance
of auctions and e-brokered transactions as a means of divestiture;
- maintain an adequate inventory of high value oil and gas properties for
divestiture through our auctions and e-brokered transactions;
- develop or acquire online content, including additional geotechnical
data, that will be useful to participants in the petroleum industry and
help enable Internet sales of oil and gas property interests;
- achieve a high rate of adoption of our application service provider, or
ASP, services, in which users of industry-specific software rent and use
the software through our web site rather than purchase and install the
software on their servers;
- gain the adoption by our existing enterprise resource planning system
customers of newer Internet technologies, such as extensible markup
language, or XML, to effect electronic interconnectivity between trading
partners; and
- generate significant revenue from our Internet-enabled solutions.
The success of our business will require, among other things, that we
develop and market solutions that achieve broad market acceptance by petroleum
companies and industry professionals. Our solutions, services and brand may not
achieve broad market acceptance. For example, purchasers may continue to acquire
oil and gas properties, data, software applications and services and conduct
transactions through existing methods rather than use our Internet-based
solutions as a result of:
- their comfort with existing methods;
- direct relationships with sellers;
- the costs and resources required to switch purchasing and information
gathering methods;
- security and privacy concerns; or
- general reticence about conducting business and performing research over
the Internet.
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OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO EVALUATE OUR
BUSINESS AND OUR PROSPECTS.
We were formed in January 1999 and have a limited operating history upon
which to evaluate the merits of investing in our common stock. Due to our
limited operating history, we believe that period-to-period comparisons of our
revenue and results of operations are not meaningful. As a result, you should
not rely on our revenue or results of operations for any prior period as an
indication of future performance or prospects. Prior to investing in our common
stock, you should consider the risks and difficulties that we face as a young
company in a new and rapidly evolving market. Some of these specific risks and
difficulties include:
- we may be unable to significantly increase and maintain customer adoption
and use of our Internet-based solutions;
- our growth strategy depends substantially on Internet solutions that have
been present in the market for a limited time and may not be successful;
- we may not be able to effectively integrate and manage the businesses and
technologies that we have acquired to date;
- we may be unable to develop and enhance our brand;
- we may be unable to maintain existing relationships or establish new
relationships with data providers, software application providers and
buyers and sellers of oil and gas properties;
- we depend substantially on revenue from auction sales and we may be
unable to significantly increase revenue from auction sales or generate
significant revenue from other sources;
- we may be unable to adapt to rapidly changing technologies and developing
markets;
- we may be unable to effectively manage our rapidly expanding operations
and the increasing use of our services; and
- we may be unable to attract, retain and motivate qualified personnel.
THE MARKET FOR PETROLEUM INDUSTRY BUSINESS-TO-BUSINESS E-COMMERCE SOLUTIONS IS
VERY COMPETITIVE AND WE MAY BE UNABLE TO COMPETE EFFECTIVELY.
The market for petroleum industry business-to-business e-commerce solutions
is intensely competitive, evolving and subject to rapid technological change. We
face competition from other traditional oil and gas service companies, property
brokers and auction houses, as well as from existing or new Internet companies
operating in or expanding into our vertical market. Many of our current and
potential competitors have longer operating histories, significantly greater
financial, technical, marketing and other resources than us, significantly
greater name recognition and a larger installed base of customers. In addition,
current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address customer needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share.
We also face the risk that existing and potential customers may choose to
create or finance their own online petroleum industry marketplace, or that
existing and potential customers may choose to partner with another Internet
business-to-business e-commerce company, which could result in decreased use of
our services. Many of our existing customers are large energy companies with
access to many resources, and some have already entered into Internet ventures
specific to other areas of the petroleum industry.
WE INTEND TO GROW OUR BUSINESS BY ACQUIRING OTHER COMPANIES OR TECHNOLOGIES.
IF WE ARE UNABLE TO SUCCESSFULLY IDENTIFY, ACQUIRE AND INTEGRATE NEW COMPANIES
OR TECHNOLOGIES, OUR BUSINESS WILL BE HARMED.
We have grown our business primarily through the acquisition of other
companies and assets and plan to continue this growth strategy for the
foreseeable future. If we are unsuccessful in identifying, acquiring and
integrating other companies, we may not achieve our anticipated levels of
growth. A substantial portion of
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our current revenue is derived from businesses or technologies that we have
acquired. Although we continually evaluate acquisition opportunities, we may be
unable to identify suitable acquisition candidates or successfully negotiate or
finance any future acquisitions. We may also be unable to effectively integrate
any acquired companies.
Acquiring other companies or technologies involves many risks and
difficulties, including:
- diversion of management's attention from our existing business;
- increased fixed costs, which could cause profits to decrease;
- assumption of unknown material liabilities of acquired companies;
- large write-offs and amortization expenses related to goodwill and other
intangible assets;
- difficulty in integrating an acquired company's personnel and culture
with our personnel and culture;
- difficulty in integrating an acquired company's accounting and
information systems with our accounting and information systems;
- difficulty in maintaining standards, controls, procedures and policies
across the combined companies;
- issuances of equity securities that may dilute your interest in our
company;
- incurring additional debt; and
- disruption of our ongoing business and operations, which could, among
other things, impair our reputation and our relationships with customers
and employees and potentially cause the loss of our own key employees or
those of an acquired company.
WE ANTICIPATE FUTURE LOSSES, WHICH MAY CAUSE THE MARKET PRICE OF OUR STOCK TO
DECREASE.
We may not achieve profitability in the future or sustain any future
profitability, which would cause the price of our stock to decrease. We incurred
net losses in fiscal 1999 and for the six months ended March 31, 2000. We expect
to incur losses for the foreseeable future as a result of the amortization of
the purchase price of our acquisitions, amortization of deferred compensation
expenses and our efforts to develop our Internet marketplace. Our profitability
will depend on whether we can significantly increase revenue while controlling
expenses. As a new company implementing a new business plan, we need to build
awareness of our brand, generate traffic to our Internet marketplace and gain
the acceptance of participants in the petroleum industry. We will incur
significant marketing expenses in attempting to accomplish these objectives. If
our marketing efforts are unsuccessful and do not generate a corresponding
increase in revenue, then our losses will increase.
FACTORS OUTSIDE OUR CONTROL, INCLUDING CHANGES IN THE ECONOMIC CONDITION OF
THE PETROLEUM INDUSTRY, MAY HARM OUR TRANSACTION SERVICES AND OUR OPERATING
RESULTS AND PROFITABILITY.
The success of our transaction services is dependent upon achieving market
liquidity through the participation of a substantial number of buyers and
sellers. This market liquidity can vary widely and depends upon many factors
outside of our control, including:
- fluctuations in the price of oil and gas;
- expectations of buyers and sellers regarding future oil and gas prices;
- spending plans and specific acquisition or divestiture programs of
petroleum companies;
- seasonal and cyclical trends that influence asset purchase and sale
decisions for the petroleum industry; and
- the continued growth of auctions as a means of acquiring and divesting
oil and gas properties.
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FAILURE TO MANAGE OUR GROWTH COULD RESULT IN INEFFICIENT OPERATIONS.
Our planned rapid expansion could strain our infrastructure, management,
internal controls and financial systems. We may not be able to effectively
manage our present growth or any future expansion, which could cause substantial
increases in our operating costs without corresponding increases in our revenue.
To support our growth, we will need to continue to hire qualified employees in
all areas of our business. This planned rapid growth could strain our ability to
integrate and properly train our new employees. Inadequate integration and
training of our employees may result in an inefficient workforce and may harm
our operating results.
OUR STRATEGY OF DISTRIBUTING SOFTWARE AND ANALYSIS TOOLS AS AN APPLICATION
SERVICE PROVIDER IS UNPROVEN AND MAY NOT BE SUCCESSFUL.
We intend to establish ourselves as an ASP serving the software needs of
industry professionals, as well as the general enterprise resource planning
needs of the upstream petroleum industry. The ASP model is a new and unproven
distribution strategy, particularly in our marketplace. We have limited
experience in distributing software as an ASP. To fully implement our ASP model,
we will need to develop additional technology, as well as establish
relationships with developers and distributors of software products, which we
may be unable to do on a cost-effective basis, if at all. If we are unable to
implement our ASP model, or if our ASP distribution model does not generate
sufficient revenue to cover the costs of creating, deploying and supporting this
distribution model, our operating results will be harmed. In addition, ASP
revenue accounting generally recognizes revenue over the life of the particular
contract. Therefore, it may take a significant amount of time to build a large
enough revenue base to cover our fixed costs.
OUR STRATEGY OF ESTABLISHING BACK OFFICE INTERCONNECTIVITY FOR TRADING
PARTNERS WITHIN THE PETROLEUM INDUSTRY IS UNPROVEN AND MAY NOT BE SUCCESSFUL.
As part of our business strategy, we intend to establish electronic links
connecting selected enterprise resource planning systems of our clients,
including their accounting, procurement and property management systems, with
those of their suppliers, customers and other business partners. We may not be
able to effectively implement this strategy because it is subject to a number of
risks and uncertainties, including:
- this business strategy is new and unproven and may not be adopted by
petroleum industry participants;
- we have no experience in establishing back office interconnectivity among
industry participants;
- we must develop a solution that incorporates the features and
functionality that our customers require;
- we depend on the general acceptance of the XML standard for document
transmission over the Internet; and
- we will need to develop or acquire new technology to implement this
strategy.
Any of these risks or uncertainties could prevent us from successfully
effecting a back office interconnectivity solution, which would harm our
operating results.
IF WE DO NOT HIRE AND RETAIN QUALIFIED STAFF, OUR BUSINESS WILL NOT GROW AS
EXPECTED.
If we cannot attract, retain, manage and motivate skilled employees, the
growth of our business will be limited. The programmers and network engineers
that are necessary to deploy our Internet strategies are highly trained
professionals that are in considerable demand consistent with the rapid
expansion of the Internet. Additionally, our auction professionals include
auctioneers, sales professionals, geologists, engineers and landmen that are
highly sought after by other auction companies and energy companies.
Our ability to obtain oil and gas properties for auction is often dependent
upon the relationships of our individual employees with our clients. Changes in
personnel within our company or within our client companies could impair our
ability to obtain these properties. We typically do not enter into employment or
non-competition agreements with our employees.
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<PAGE> 12
WE MAY NOT BE ABLE TO SUCCESSFULLY OPERATE OUR BUSINESS IF OUR NEWLY FORMED
MANAGEMENT TEAM DOES NOT WORK EFFECTIVELY TOGETHER.
Our management team was formed in 1999 and has had a limited time to work
together. If our management team is unable to work together effectively, our
business could be harmed. We believe that our success will depend on the
continued services of our key senior management personnel, especially Gary
Vickers, our founder, president and chief executive officer. The loss of any
member of our senior management team could significantly disrupt our operations.
OUR FUTURE REVENUE IS UNPREDICTABLE AND OUR QUARTERLY OPERATING RESULTS MAY
FLUCTUATE, WHICH MAY CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE.
Our limited operating history and the emerging nature of the
business-to-business e-commerce market make it very difficult for us to
accurately forecast our revenue. We plan our operating expenditures based on
anticipated revenue. As a result of the uncertainties associated with the risk
factors described in this section, we may be unable to accurately forecast our
revenue. Because we have many fixed operating expenses, if revenue in a
particular period does not meet expectations, we will experience an unexpected
increase in losses. Due to the nature of applying new technologies to an
existing enterprise, period-to-period comparisons of our operating results are
not a good indication of our future performance. It is likely that our operating
results in some quarters will be below market expectations. In this event, the
price of our common stock is likely to decline.
A SMALL NUMBER OF OUR CUSTOMERS ACCOUNT FOR A HIGH PERCENTAGE OF OUR REVENUE
AND THE LOSS OF A MAJOR CUSTOMER COULD HURT OUR OPERATING RESULTS AND CAUSE
OUR STOCK PRICE TO DECLINE.
A small number of customers account for a high percentage of our revenue.
The loss of any of these major customers could result in lower than expected
revenue and cause our stock price to decline. For the fiscal year ended
September 30, 1999 and for the six months ended March 31, 2000, one customer,
Anadarko Petroleum, accounted for 16.5% and 10.6% of our revenue, respectively.
A small number of customers may contribute a significant percentage of our
revenue in any particular period. Most customers do not have any obligation to
purchase additional services from us or to continue to use our current services.
The loss of any major customer could substantially affect our operating results
and harm our business.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL TO FUND ACQUISITIONS WHEN
NEEDED.
We believe that our cash resources, without the proceeds of this offering,
will be sufficient to fund our operations for at least the next twelve months.
When combined with the net proceeds of this offering, we will be able to take
greater advantage of the opportunity to acquire or invest in complementary
businesses, technologies, services and products, as well as repay existing debt.
Additional financing may not be available on a timely basis, in sufficient
amounts or on terms acceptable to us. Additional financing may also dilute the
equity ownership of existing stockholders.
If we cannot obtain adequate funds on acceptable terms, we may be unable
to:
- fund our capital requirements;
- take advantage of strategic opportunities;
- respond to competitive pressures; or
- develop or enhance our services.
WE MAY BE SUBJECT TO SUBSTANTIAL GOVERNMENT REGULATIONS, INCLUDING REGULATIONS
REGARDING THE SALE OF OIL AND GAS PROPERTIES AND THE SALE OF SECURITIES, AND
OUR BUSINESS MAY BE HARMED IF WE ARE NOT IN COMPLIANCE WITH THESE REGULATIONS.
Changes in the regulations or licensing requirements of the auction
business could increase the complexity and costs of conducting auctions and
decrease our ability to attract sellers and buyers.
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<PAGE> 13
Government regulation of auctions varies from jurisdiction to jurisdiction.
Numerous states have regulations regarding the manner in which auctions may be
conducted and the potential liability of auctioneers. In addition, we are
required to obtain a license in various jurisdictions with respect to some of
the oil and gas properties we sell at auction.
The Clearinghouse is a registered broker-dealer with the Securities and
Exchange Commission, or the SEC. As such, it must be in compliance with all
state and federal securities laws applicable to the sale of oil and gas
properties by auction. The laws regulating the sale of interests in oil and gas
properties change from time to time. Moreover, the laws concerning the sale of
such interests over the Internet are not well defined. Changes in or new
interpretations of federal or state securities laws could decrease our ability
to operate our business. Further, a claim of securities law violation brought
against us by a buyer or seller participating in one of our auctions or by a
state or regulatory agency could result in a sanction against us or revocation
of our license by the SEC or similar state agency. This would significantly
impair our ability to operate our business.
Due to the increasing popularity and use of the Internet, laws and
regulations may be adopted with respect to the Internet covering issues such as
user privacy, pricing, intellectual property, content, taxation, distribution
and the characteristics and quality of products and services. In particular,
states and other taxing jurisdictions may attempt to impose sales taxes on the
purchase of goods and services over the Internet. Regulations like these could
limit growth in use of the Internet or decrease the acceptance of the Internet
as a commercial medium. Our Internet operations also may be subject to other
federal, state, local or foreign laws, regulations and policies, either now
existing or that may be adopted in the future. These laws or regulations could
subject us to significant liability, prevent us from offering certain Internet
products or services or otherwise have an adverse effect on our business.
IF WE CANNOT ACCURATELY ADD PROPERTY DATA TO OUR ELECTRONIC DATA ROOMS, WE MAY
LOSE SALES AND CUSTOMERS, WHICH WOULD ADVERSELY AFFECT OUR REVENUE.
Currently, we are responsible for loading information about the oil and gas
properties to be auctioned or sold in brokered transactions into our electronic
data rooms and categorizing the information for search purposes. This process
entails a number of risks, including dependence on property sellers to provide
us with accurate, complete and current information about their property. Timely
loading of this data into our electronic data rooms depends upon a number of
factors, including the file formats of the data provided to us by sellers and
our ability to further automate and expand our operations to accurately load
this data into our electronic data rooms. We may be unable to automate the
loading and updating of seller data on our system in a timely manner. If sellers
do not provide us with accurate, complete and current information about the
properties we offer for auction or broker, our electronic data rooms may be less
useful to our customers and users and may expose us to liability. Although we
screen seller information before we make it available in electronic data rooms,
the information available in our electronic data rooms may not always be
accurate, complete, current or comply with governmental regulations. This could
expose us to liability or result in decreased adoption and use of our online
auction or e-brokered transaction solutions, which could reduce our revenue and
therefore have a negative effect on our results of operations.
THE PRIOR S-CORPORATION STATUS OF OUR SUBSIDIARIES COULD RESULT IN FUTURE TAX
LIABILITY.
Prior to their acquisition by us, two of our subsidiaries were
S-corporations for federal income tax purposes. Unlike a C-corporation, an
S-corporation generally is not subject to income tax at the corporate level.
Although we are a C-corporation, our ownership of these subsidiaries could
expose us to liabilities from the subsidiaries' previous tax activities if the
S-corporation status were denied by the Internal Revenue Service for any period
prior to our acquisition of these companies.
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<PAGE> 14
WE FACE RISKS ASSOCIATED WITH OUR PLANNED INTERNATIONAL EXPANSION THAT MAY
HARM OUR BUSINESS AND LIMIT OUR GROWTH PROSPECTS.
We intend to further expand into international markets and to expend
significant financial and managerial resources to do so. In particular, we
intend to facilitate the purchase and sale of oil and gas properties in Canada
and potentially the North Sea, as well as build upon our existing relationships
with our investors based in the Middle East. If we are not able to do so, we may
not be able to expand internationally, which may harm our business and limit our
growth prospects. If our revenue from these and other international operations
do not exceed the expense of establishing and maintaining these operations, our
business will suffer.
We have limited experience in international operations and may not be able
to compete effectively in international markets. We face risks inherent in
conducting business internationally, such as:
- varying technology standards from country to country;
- uncertain protection of intellectual property rights;
- inconsistent regulations and unexpected changes in regulatory
requirements;
- difficulties and costs of staffing and managing international operations;
- lack of well-developed Internet infrastructure internationally;
- difficulties in collecting accounts receivable and longer collection
periods;
- political and economic instability;
- wage and price controls;
- fluctuations in currency exchange rates;
- linguistic and cultural differences;
- imposition of currency exchange controls; and
- potentially adverse tax consequences.
Any of these factors could harm our international operations and,
consequently, our business and operating results.
TWO OF OUR SIGNIFICANT STOCKHOLDERS, INCLUDING ONE CONTROLLED BY OUR PRESIDENT
AND CHIEF EXECUTIVE OFFICER, HAVE INVESTED IN OUR COMPETITORS, SUPPLIERS OR
CUSTOMERS, WHICH COULD CAUSE THEM TO ACT AGAINST OUR BEST INTERESTS.
Two of our significant stockholders, Vickers Energy Services, LLC and
Anschutz Family Investment Company, LLC, maintain equity investments in our
competitors, suppliers or customers. Gary Vickers, our president and chief
executive officer, controls Vickers Energy Services. These investments may
present these stockholders with a conflict between our best interests and the
best interests of a competitor, supplier or customer. In this case, these
stockholders may not vote their shares with a view towards our best interests.
After completion of this offering, Vickers Energy Services will own % of our
outstanding common stock and Anschutz Family Investment Company will own %.
RISKS ASSOCIATED WITH OUR TECHNOLOGY
OUR BUSINESS IS DEPENDENT UPON OUR ABILITY TO DEVELOP AND DEPLOY NEW PRODUCTS
AND SERVICES.
The business-to-business e-commerce market is characterized by rapidly
changing technologies and frequent new product and service introductions. If we
fail to introduce new technologies or to improve our existing technology in
response to industry developments, we may lose customers, which would lead to a
loss of revenue.
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<PAGE> 15
We are in the process of developing new products and services for our
customers, such as delivering software applications through our Internet
marketplace, further enhancing our interactive data delivery services and
providing back office integration tools, as well as integrating acquired
technology. There are a number of risks associated with these projects,
including:
- we may not complete the technical innovations for Internet commerce or
other software applications in a timely manner;
- we may be unable to attract or retain required technical and management
personnel to develop and manage these projects;
- we might not accurately determine the features and functionality required
by our customers and develop the wrong products; or
- we may encounter technical challenges that we can not overcome with
existing technology.
Any one of the above could delay the timing of a product or service release
or decrease the quality of our products and services and, thereby, decrease
market acceptance of our products.
FAILURES OF HARDWARE SYSTEMS OR SOFTWARE COULD UNDERMINE CUSTOMER CONFIDENCE
IN THE RELIABILITY OF OUR PRODUCTS AND SERVICES, WHICH COULD HARM OUR BUSINESS
AND REPUTATION.
There are a number of circumstances that can lead to a customer having an
unsatisfactory experience with our solutions.
- Many of our products and services require our customers to access our web
site through the Internet. To do so, they must be connected to the
Internet and have sufficiently current hardware, operating system
software, web browsers and other software. Because of the complex nature
of software and hardware and the rapidly evolving nature of technology, a
customers' system may become incompatible with our products or services.
As a result, a customer may be unable to access our products or services
or their access may be interrupted or delayed while using our products or
services.
- A significant disruption in our Internet services or the Internet service
of our customers could seriously undermine their confidence in our
business. During a disruption, participants may lose their online
connection for an extended period of time and be unable to access our
Internet marketplace.
- Many of our products and services depend on complex software that is both
internally developed and licensed from third parties. Complex software
often contains defects, particularly when first introduced or when new
versions are released. Although we test our software, we may not discover
software defects that affect current or planned services or enhancements
until after they are deployed. These defects could cause service
interruptions.
Any of these events could lead to customer dissatisfaction with one or more of
our solutions, damage our reputation, increase our service costs, cause us to
lose revenue, delay market acceptance, result in legal proceedings against us or
divert our development resources, any of which could cause our business to
suffer.
OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY MAY NEGATIVELY AFFECT
OUR COMPETITIVE POSITION.
If we are unable to adequately protect our proprietary rights, our
business, financial condition and operating results could be harmed. If we
resort to legal proceedings to enforce our proprietary rights, the proceedings
could be burdensome and expensive and the outcome could be uncertain.
Trademarks, service marks, trade secrets, copyrights and other proprietary
rights are important to our success and competitive position. Our efforts to
protect our proprietary rights may be inadequate and may not prevent others from
claiming violations by us of their proprietary rights. Current trade secret,
copyright and trademark laws offer only limited protection. Further, effective
trademark, copyright and trade secret
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<PAGE> 16
protection may not be available in every country in which our services are made
available and policing unauthorized use of our proprietary information is
difficult.
WE MAY BE UNABLE TO LICENSE NECESSARY TECHNOLOGIES ON COMMERCIALLY REASONABLE
TERMS OR AT ALL.
We are dependent on the technology we license from third-party providers,
which enable us to deliver our solutions. We may need to license additional
technologies to remain competitive, which we may not be able to do on
commercially reasonable terms or at all. Our inability to license such
technology could delay the development of our services until equivalent
technology can be identified, licensed and integrated. Any delays could cause
our business and operating results to suffer. In addition, we may not be able to
integrate any licensed technology into our services. These third-party licenses
may expose us to increased risks, including risks related to the integration of
new technology, the diversion of resources from the development of our own
proprietary technology and our inability to generate revenue from new technology
sufficient to offset associated acquisition and maintenance costs.
WE MAY BE SUBJECT TO CLAIMS ALLEGING INTELLECTUAL PROPERTY INFRINGEMENT.
We may be subject to claims alleging that we have infringed third party
proprietary rights, which could divert management's attention and disrupt our
business. If we were to discover that we have infringed third party rights, we
may not be able to obtain permission to use those rights on commercially
reasonable terms. If we resort to legal proceedings to enforce our proprietary
rights or defend against alleged infringements, the proceedings could be
burdensome and expensive and could involve a high degree of risk. Any of these
events could harm our business.
OUR COMPUTER AND TELECOMMUNICATIONS SYSTEMS ARE IN A SINGLE LOCATION, WHICH
MAKES THEM MORE VULNERABLE TO DAMAGE OR INTERRUPTION.
Substantially all of our computer and telecommunications systems are
located in Englewood, Colorado. These systems are vulnerable to damage or
interruption from fire, flood, power loss, telecommunications failure, break-ins
and similar events. Although we have business interruption insurance, this
coverage may not adequately compensate us for lost business. Although we have
implemented network security measures, our systems are vulnerable to computer
viruses, physical or electronic break-ins and similar disruptions. These
disruptions could lead to interruptions, delays, loss of data or the inability
to effect and confirm transactions. Any of these occurrences could have a
material adverse effect on our revenue and profitability.
CAPACITY CONSTRAINTS COULD LIMIT OUR GROWTH.
We may generate a high volume of traffic and transactions through our
Internet marketplace. Although we are currently expanding and upgrading our
Internet systems, any substantial increase above the expected traffic volume and
participant numbers will require us to further expand and upgrade our
technology, transaction processing systems and network infrastructure. We may be
unable to accurately project the rate or timing of any increases or to expand
and upgrade our systems and infrastructure to accommodate any increases in a
timely manner. The satisfactory performance, reliability and availability of our
web site, processing systems and network infrastructure will be critical to our
ability to attract large numbers of buyers and sellers and successfully execute
their transactions.
We depend on third parties to provide us with Internet capacity and other
services. One or more of our third party providers may fail to provide us with
the capacity or other services we require. The failure of any of these
third-party systems or any interruption of the services that these third parties
provide to us could result in an interruption of our Internet auctions or other
online services. Any disruption that results in the unavailability of our
services or reduced customer access to our portal would diminish the
attractiveness of our Internet auctions or other online services.
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<PAGE> 17
IF OUR SECURITY SYSTEM IS BREACHED, OUR BUSINESS AND REPUTATION COULD SUFFER.
Our activities involve the storage and transmission of proprietary
information, such as technical and financial information about properties and
potential buyers of these properties and security breaches could damage our
reputation and expose us to a risk of loss or litigation. We rely on encryption
and authentication technology licensed from third parties in an effort to secure
transmission of confidential information. Advances in computer capabilities, new
discoveries in the field of cryptography or other events or developments may
result in a compromise of the methods we use to protect customer transaction
data. Anyone who is able to avoid our security measures or those of our business
partners could misappropriate our proprietary information or cause interruptions
in our Internet operations. We may need to spend significant funds or other
resources to protect against the threat of security breaches or to address
problems caused by breaches, which may not be effective.
Despite the implementation of security measures, our networks and those of
our business partners may be vulnerable to unauthorized access, computer viruses
and other disruptions. Internet service providers have in the past experienced,
and may in the future experience, interruptions in service as a result of the
accidental or intentional actions of Internet users, employees or others.
Additionally, concerns over the security of transactions conducted on the
Internet may inhibit the growth of the Internet as a means of conducting
commercial transactions.
RISKS ASSOCIATED WITH THIS OFFERING
AN ACTIVE TRADING MARKET MAY NOT DEVELOP FOR OUR COMMON STOCK.
Prior to this offering, there has been no public market for our common
stock. We cannot predict the extent to which a trading market will develop or
how active that market might become. The initial public offering price of our
common stock will be determined through negotiations between us and the
representatives of the underwriters and may not be indicative of prices that
will prevail in the trading market. Further, you may be unable to resell your
shares at or above the initial public offering price.
OUR OFFICERS, DIRECTORS AND MAJOR STOCKHOLDERS AND THEIR AFFILIATES WILL
CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER OUR BUSINESS AFTER THE OFFERING.
Upon completion of this offering, our executive officers, directors and
major stockholders will, in the aggregate, beneficially own approximately % of
our common stock. These stockholders, if they vote together, will be able to
significantly influence matters that our stockholders must approve, including
electing directors and approving significant corporate transactions. This
concentration of ownership may also have the effect of delaying or preventing us
from effecting a change in control, which could cause our stock price to
decline.
OUR STOCK PRICE MAY BE VOLATILE, EXPOSING US TO EXPENSIVE AND TIME-CONSUMING
SECURITIES CLASS ACTION LITIGATION.
The stock market in general, and the stock prices of Internet-related
companies in particular, have recently experienced extreme volatility, which has
often been unrelated to the operating performance of any particular company or
companies. There has been no prior public market for our stock, and if market or
industry-based fluctuations continue, our stock price could decline below our
initial public offering price regardless of our actual operating performance. In
the past, securities class action litigation has often been brought against
companies following periods of volatility in their stock prices. We may in the
future be the target of similar litigation. Securities litigation could result
in substantial costs and divert our management's time and resources, which could
harm our business. In addition, an active market for our stock may not develop
after this offering.
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<PAGE> 18
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD CAUSE OUR STOCK
PRICE TO FALL AND DECREASE THE VALUE OF YOUR INVESTMENT.
The market price of our common stock could fall if our stockholders sell
substantial amounts of common stock, including shares issued upon the exercise
of outstanding options and warrants, in the public market following this
offering. Such sales might also make it more difficult for us to sell equity
securities in the future at a time and price that we deem appropriate. After
this offering, there will be shares of our common stock outstanding.
Restrictions under the securities laws and certain lock-up agreements limit the
number of shares of common stock that may be sold in the public market. However,
Donaldson, Lufkin & Jenrette may, in its sole discretion, release all or some
portion of the securities subject to lock-up agreements. Some stockholders are
entitled to certain registration rights. The exercise of such rights could
adversely affect the market price of our common stock.
THE ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY
NEGATIVELY AFFECT THE PRICE OF OUR COMMON STOCK.
Certain provisions of our certificate of incorporation and Delaware law may
make it more difficult for a third party to acquire control of us, even if a
change of control would be beneficial to stockholders. These provisions include:
- the issuance of up to million shares of preferred stock by our
board of directors without stockholder approval;
- the inability to engage in a business combination with any interested
stockholder for a period of three years from the date such person became
an interested stockholder;
- a staggered board of directors, in which stockholders elect only a
minority of the board each year;
- advance notification procedures for matters to be brought before
stockholder meetings;
- a limitation on who may call stockholder meetings; and
- a prohibition on stockholder action by written consent.
These provisions could diminish the opportunities for a stockholder to
participate in tender offers, including tender offers at a price above the
then-current market value of our common stock.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about us and our industry.
Our actual results could differ materially from those anticipated in these
forward looking statements as a result of factors more fully described in the
"Risk Factors" section and elsewhere in this prospectus.
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CORPORATE INFORMATION
We were incorporated in Delaware in January 1999 under the name Energy
Auction Exchange, Inc. In December 1999 we changed our name to The Petroleum
Place, Inc. Our principal executive office is located at 5299 DTC Parkway, Suite
815, Englewood, Colorado 80111 and our telephone number is (303) 694-5350. The
information contained on our web site, www.PetroleumPlace.com, does not
constitute part of this prospectus.
Unless the context in which such terms are used would require a different
meaning, all references to "Petroleum Place," "we," "our" or "us" refer to The
Petroleum Place, Inc. and its subsidiaries, including the Clearinghouse for
periods prior to its acquisition. Our subsidiaries include The Oil & Gas Asset
Clearinghouse, Inc., which we refer to as the "Clearinghouse," EAEDP, Inc.,
which we refer to as "PetroleumPlace.com," TradeBank, Inc., which we refer to as
"TradeBank" and EAESW, Inc., which we refer to as "Strata Web." We refer to
Paradigm Technologies, Inc. as "Paradigm." Our trademarks include "The Oil & Gas
Asset Clearinghouse." We have applied for federal registration of the following
trademarks; "Selective Offerings" and "Data Room Explorer." Each other
trademark, trade name or service mark appearing in this prospectus belongs to
its holder.
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USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares in this
offering at an assumed initial public offering price of $ per share, after
deducting estimated underwriting discounts and commissions and offering
expenses, will be $ . If the underwriters' over-allotment option is
exercised in full, we estimate that we will receive approximately $ in net
proceeds from this offering.
The principal reasons for this offering are to raise funds for working
capital, potential acquisitions, repayment of outstanding borrowings and other
general corporate purposes, as well as to provide a means of incentive to our
professionals through stock options, create a public market for our common stock
and facilitate future access to the public markets.
We expect to use approximately $7.6 million of the net proceeds to repay
all of our outstanding borrowings under our credit facilities with Citicorp
U.S.A., Inc., which bear interest at a variable rate, 9.0% as of March 31, 2000.
These credit facilities mature upon the earlier to occur of the closing of this
offering and July 2004. The proceeds of these borrowings were used to finance a
portion of our acquisition of the Clearinghouse and for working capital.
We plan to use the remaining proceeds from this offering for working
capital and for other general corporate purposes, including:
- continued development of our web site;
- expansion of our sales and marketing activities; and
- broaden our product and service offerings.
We may use a portion of the net proceeds to acquire or invest in
complementary businesses, technologies, services or products. Other than the
pending Paradigm acquisition, we have no specific agreements or commitments with
respect to any acquisition or investment and we are not currently engaged in any
negotiations with respect to any other acquisition.
Our management will retain broad discretion in the allocation of the net
proceeds of this offering. You will not have the opportunity to evaluate the
economic, financial or other information upon which we base our decisions on how
to use the proceeds. Pending these uses, the net proceeds of this offering will
be invested in short-term, investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain all future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends for the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of our board of directors and will be
dependent on our financial condition, operating results, capital requirements
and such other factors as the board of directors deems relevant.
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DILUTION
Our pro forma net tangible book value as of March 31, 2000, which includes
the issuance of 16,856 shares of common stock in connection with our acquisition
of all the assets of Strata Web in April 2000, the sale of 164,916 shares of
Series C preferred stock at a price of $59.12 per share in April and May 2000
and the issuance of 151,216 shares of Series D preferred stock in connection
with our pending acquisition of Paradigm, was $41.0 million, or $ per
share. Pro forma net tangible book value per share represents the amount of our
total pro forma tangible assets, reduced by the amount of our total pro forma
liabilities, divided by the number of shares of common stock outstanding,
assuming the conversion of all outstanding series of preferred stock into common
stock. Common stock issuable upon the conversion of the Series C and Series D
preferred stock is based upon an assumed offering price of $ . Dilution in
pro forma net tangible book value per share represents the difference between
the amount paid per share by purchasers of shares of common stock in this
offering and the pro forma net tangible book value per share of common stock
immediately after the completion of this offering. After giving effect to the
sale of the million shares of common stock offered by us at an initial
public offering price of $ per share, and after deducting estimated
underwriting discounts and commissions and offering expenses payable by us, our
pro forma net tangible book value at March 31, 2000 would have been $ , or
$ per share of common stock. This represents an immediate increase in pro
forma net tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors purchasing shares at the
initial public offering price. The following table illustrates this dilution on
a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share before this
offering............................................... $
Increase per share attributable to new investors..........
--------
Pro forma net tangible book value per share after this
offering..................................................
--------
Pro forma dilution per share to new investors...............
========
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 2000,
the differences between the existing stockholders and new investors with respect
to the number of shares of common stock and preferred stock purchased from us,
the total consideration paid to us and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 4,043,627 % $99,342,177 % $24.57
New investors...........................
--------- ----- ----------- -----
Total......................... 100.0% $ %
========= ===== =========== =====
</TABLE>
The preceding table assumes no exercise of any outstanding stock options or
warrants after March 31, 2000. As of March 31, 2000, there were outstanding
options to purchase 345,892 shares of common stock at a weighted average
exercise price of $0.75 per share and warrants to purchase 28,522 shares of
common stock at a weighted average exercise price of $38.66 per share. There
will be further dilution to the extent any of our options or warrants are
exercised. Please see "Management -- Stock Plans" for a discussion of our
employee benefit plans and "Description of Securities" for a discussion of our
outstanding warrants.
18
<PAGE> 22
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of March 31, 2000. You should read this data along with
"Unaudited Pro Forma Consolidated Financial Statements," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and accompanying notes, which appear later
in this prospectus and other financial statements and accompanying notes
included in this prospectus. This information is presented:
- on an actual basis;
- on a pro forma basis to give effect to:
- the issuance of 16,856 shares of common stock in connection with our
acquisition of all the assets of Strata Web;
- the issuance of 164,916 shares of Series C preferred stock at a price of
$59.12 per share in April and May 2000 for total gross consideration of
$9.8 million; and
- the pending acquisition of Paradigm, for aggregate consideration of
$28.4 million consisting of $12.0 million in cash and 151,216 shares of
Series D preferred stock, with an estimated value of $16.4 million
assuming the price per share of this offering exceeds a specified
minimum.
- on a pro forma as adjusted basis to give effect to:
- the automatic conversion of all outstanding series of preferred stock
into common stock on a one-for-one basis upon completion of this
offering assuming the price per share of this offering exceeds a
specified minimum;
- our receipt of the estimated net proceeds from the sale of the
shares of common stock in this offering at an assumed initial public
offering price of $ per share, after deducting estimated
underwriting discounts and commissions and offering expenses; and
- an increase in our authorized common stock to shares and an
increase in our undesignated preferred stock to shares effective
immediately prior to the closing of this offering.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
----------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.................................. $ 53,108 $ 51,355 $
======== ======== ========
Long-term debt, excluding current portion.................. $ 6,811 $ 6,811 $
--------
Stockholders' equity
Convertible preferred stock, par value $0.001 per share,
6,500,000 shares authorized actual and pro forma;
shares authorized pro forma as adjusted
Series A, 1,906,137 shares issued and outstanding
actual and pro forma, none issued and outstanding
pro forma as adjusted............................... 14,275 14,275
Series B, 455,120 shares issued and outstanding actual
and pro forma, none issued and outstanding pro forma
as adjusted......................................... 8,647 8,647
Series C, 849,382 shares issued and outstanding
actual, 1,014,298 shares issued and outstanding pro
forma, none issued and outstanding pro forma as
adjusted............................................ 47,521 56,888
Series D, no shares issued and outstanding actual,
151,216 shares issued and outstanding pro forma,
none issued and outstanding pro forma as adjusted... -- 16,429
Common stock, par value $0.001 per share, 15,000,000
shares authorized actual and pro forma, 516,856
outstanding actual and pro forma; shares
authorized pro forma as adjusted, none outstanding pro
forma as adjusted..................................... 1 1
Additional paid-in capital............................ 7,647 8,644
Warrants outstanding.................................. 559 617
Unearned stock based compensation..................... (5,623) (5,623)
Retained earnings (deficit)........................... (10,686) (10,686)
-------- -------- --------
Total stockholders' equity....................... 62,341 89,192
-------- -------- --------
Total capitalization............................. $ 69,152 $ 96,003 $
======== ======== ========
</TABLE>
19
<PAGE> 23
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following presents our unaudited pro forma consolidated balance sheet
as of March 31, 2000, and unaudited pro forma consolidated statements of
operations for the fiscal year ended September 30, 1999 and for the six months
ended March 31, 2000. The unaudited pro forma consolidated balance sheet as of
March 31, 2000 gives effect to the acquisition of Strata Web and the pending
acquisition of Paradigm as well as the issuance of 164,916 shares of Series C
preferred stock at a price of $59.12 per share in April and May 2000 for
aggregate consideration of $9.8 million as if they were completed as of that
date. The unaudited pro forma consolidated statements of operations give effect
to the following as if they occurred on October 1, 1998, the beginning of our
last full fiscal year.
- The acquisition of the Clearinghouse, which we completed in two stages,
80% of the outstanding shares of capital stock in June 1999 and the
remaining 20% in August 1999. We paid an aggregate purchase price of
$25.4 million as follows:
- $16.8 million in cash; and
- the issuance of 455,120 shares of our Series B preferred stock, valued
at $8.6 million.
The purchase price was allocated as follows:
- $585,000 to acquired net tangible assets;
- $4.6 million to minority interest expense, representing the excess
consideration over the related fair market value of the 20% acquired in
August 1999;
- $3.0 million to an employment agreement with a key employee to be
amortized over six years;
- $3.0 million to the acquired customer list to be amortized over five
years; and
- $14.3 million to goodwill to be amortized over ten years.
- The acquisition of all the outstanding shares of capital stock of
TradeBank in September 1999 at an aggregate purchase price of
approximately $650,000 as follows:
- $348,000 in cash;
- the issuance of warrants to purchase an aggregate of 10,000 shares of
our common stock at an exercise price of $0.75 per share, which were
valued at $234,000; and
- the assumption of $68,000 in net liabilities.
The purchase price was allocated to the acquired customer list and will be
amortized over three years.
- The acquisition of several assets, including the predecessor of
PetroleumPlace.com, from World Web Technologies, in September 1999 for an
aggregate purchase price of $538,000. The purchase price was allocated as
follows:
- $247,000 to acquired software to be amortized over three years; and
- $291,000 to acquired customer lists to be amortized over three years.
- The acquisition of all the assets of Strata Web in April 2000 in exchange
for 16,856 shares of our common stock valued at approximately $1.0
million and the assumption of specified liabilities. The purchase price
was allocated as follows:
- $37,000 to acquired net tangible assets;
- $231,000 to acquired software to be amortized over two years;
- $231,000 to the acquired customer list to be amortized over two years;
and
- $498,000 to goodwill to be amortized over ten years.
20
<PAGE> 24
- The pending acquisition of all the outstanding shares of capital stock of
Paradigm for an estimated aggregate purchase price of $28.4 million as
follows:
- $12.0 million in cash; and
- 151,216 shares of our Series D preferred stock with an estimated value
of $16.4 million assuming the price per share of this offering exceeds a
specified minimum.
We plan to allocate the purchase price as follows:
- $826,000 to acquired net tangible assets;
- $7.5 million to acquired software to be amortized over three years;
- $7.5 million to the acquired customer list to be amortized over five
years; and
- $12.6 million to goodwill to be amortized over ten years.
The unaudited pro forma consolidated balance sheet and statements of
operations are being presented for informational purposes only and do not
represent what our results of operations or financial position will be as of any
future date or for any future period. You should read this financial information
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements and
accompanying notes located in this prospectus.
21
<PAGE> 25
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
PETROLEUM PRO FORMA
PLACE STRATA WEB PARADIGM ADJUSTMENTS NOTES PRO FORMA
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............. $ 53,108 $ 7 $1,990 $ 9,750 1 $ 51,355
(12,000) 3(a)
(1,500) 3(b)
Accounts receivable................... 377 118 1,889 -- 2,384
Other current assets.................. 24 1 116 -- 141
-------- ----- ------ -------- --------
Total current assets........ 53,509 126 3,995 (3,750) 53,880
Property and equipment, net........... 691 37 263 -- 991
Intangible assets, net................ 19,383 -- 2,250 960 2(a) 47,946
25,353 3(c)
Other assets.......................... 56 -- 47 (47) 3(d) 56
-------- ----- ------ -------- --------
Total assets................ $ 73,639 $ 163 $6,555 $ 22,516 $102,873
======== ===== ====== ======== ========
LIABILITIES
Accounts payable...................... $ 2,709 $ 62 $ 222 $ -- $ 2,993
Accrued expenses...................... 688 303 663 325 1 1,740
(239) 2(a)
Payable to affiliates................. 122 -- -- -- 122
Deferred revenue...................... 126 -- 787 -- 913
Deferred rent, current................ -- -- 59 -- 59
Notes payable, current................ 825 -- -- -- 825
Notes payable with related party,
current............................. 17 -- -- -- 17
-------- ----- ------ -------- --------
Total current liabilities... 4,487 365 1,731 86 6,669
Line of credit........................ 2,200 -- -- -- 2,200
Notes payable......................... 4,603 615 -- (615) 2(a) 4,603
Notes payable -- related party........ 8 -- -- -- 8
Other long-term liabilities........... -- -- 201 -- 201
-------- ----- ------ -------- --------
Total liabilities........... 11,298 980 1,932 (529) 13,681
-------- ----- ------ -------- --------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock:
Series A............................ 14,275 -- -- -- 14,275
Series B............................ 8,647 -- -- -- 8,647
Series C............................ 47,521 -- -- 9,367 1 56,888
Series D............................ -- -- -- 16,429 3(e) 16,429
Common stock.......................... 1 34 20 (34) 2(a)
(20) 3(f) 1
Additional paid-in capital............ 7,647 -- 911 997 2(b) 8,644
(911) 3(f)
Warrants.............................. 559 -- -- 58 1 617
Unearned compensation................. (5,623) -- -- -- (5,623)
Treasury stock........................ -- -- (845) 845 3(f) --
Retained earnings (deficit)........... (10,686) (851) 4,537 851 2(b) (10,686)
(4,537) 3(f)
-------- ----- ------ -------- --------
Total stockholders' equity
(deficit)................. 62,341 (817) 4,623 23,045 89,192
-------- ----- ------ -------- --------
Total liabilities and
stockholders' equity...... $ 73,639 $ 163 $6,555 $ 22,516 $102,873
======== ===== ====== ======== ========
</TABLE>
Footnotes on following page.
22
<PAGE> 26
1. In April and May 2000, we issued an additional 164,916 shares of our
Series C preferred stock at a price of $59.12 per share, for an aggregate
consideration of $9.8 million. Offering costs were $325,000 and 3,298 warrants
valued at $58,000.
2. We made the following adjustments to reflect the acquisition of Strata
Web in exchange for 16,856 shares of our common stock:
(a) adjustments to reflect assets and/or liabilities not acquired or
assumed as part of the purchase, elimination of Strata Web's accumulated
deficit and allocation of remaining purchase price to an intangible; and
(b) adjustment to reflect the value of the common stock issued as
consideration for purchase of the assets acquired.
3. We recorded the following adjustments to reflect the pending acquisition
of Paradigm:
(a) to reflect the payment of $12.0 million in cash to the
stockholders of Paradigm;
(b) adjustment to reflect cash excluded from the acquisition;
(c) $28.4 million, representing the estimated total purchase price of
Paradigm, less $826,000 of net assets acquired and the revaluation of $2.3
million of intangible assets;
(d) the revaluation of $47,000 of other assets;
(e) 151,216 shares of Series D preferred stock, with an estimated
value of $16.4 million assuming the price per share of this offering
exceeds a specified minimum; and
(f) the elimination of $20,000 of common stock and related additional
paid-in capital of $911,000, $845,000 of treasury stock and $4.5 million of
accumulated retained earnings associated with the historical Paradigm
financial statements.
23
<PAGE> 27
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR OUR FISCAL YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PETROLEUM CLEARING- PRO FORMA
PLACE HOUSE TRADEBANK STRATA WEB PARADIGM ADJUSTMENTS NOTES PRO FORMA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Net commission revenue........ $ 2,069 $5,547 $ -- $ -- $ -- $ -- $ 7,616
Software, maintenance and
integration................. -- -- -- -- 11,352 -- 11,352
Other revenue................. 104 316 270 388 -- -- 1,078
-------- ------ ---- ----- ------- ------- --------
Total revenue............... 2,173 5,863 270 388 11,352 -- 20,046
Cost of revenue................. 961 2,290 -- 112 5,391 -- 8,754
-------- ------ ---- ----- ------- ------- --------
Gross profit............ 1,212 3,573 270 276 5,961 -- 11,292
-------- ------ ---- ----- ------- ------- --------
Operating expenses
Sales, marketing, development,
general and
administrative.............. 1,505 1,566 192 572 4,860 -- 8,695
Depreciation and
amortization................ 1,179 47 -- -- 659 7,524 1 9,409
-------- ------ ---- ----- ------- ------- --------
Total operating expenses.... 2,684 1,613 192 572 5,519 7,524 18,104
-------- ------ ---- ----- ------- ------- --------
Income (loss) from
operations............ (1,472) 1,960 78 (296) 442 (7,524) (6,812)
Other income (expense), net..... (113) -- -- (32) 238 (436) 2 (343)
-------- ------ ---- ----- ------- ------- --------
Income (loss) before
minority interest and
income taxes.......... (1,585) 1,960 78 (328) 680 (7,960) (7,155)
Income taxes.................... (37) -- -- -- -- -- (37)
Minority interest............... (4,549) -- -- -- -- 4,549 3 --
-------- ------ ---- ----- ------- ------- --------
Net income (loss)....... $ (6,171) $1,960 $ 78 $(328) $ 680 $(3,411) $ (7,192)
======== ====== ==== ===== ======= ======= ========
Loss per share -- basic and
diluted....................... $ (12.34) $ (13.92)
Weighted average common shares
outstanding................... 500,000 16,856 4 516,856
</TABLE>
The unaudited pro forma consolidated statement of operations for the fiscal
year ended September 30, 1999 reflects the following pro forma adjustments:
1. Additional amortization of $1.8 million due to the acquisition of
the Clearinghouse; $208,000 related to the acquisition of TradeBank;
$280,000 related to the acquisition of all the assets of Strata Web; $5.3
million related to the pending acquisition of Paradigm; and $22,000 related
to the establishment of our credit facilities with Citicorp U.S.A., Inc.
2. Adjustments to reflect additional interest expense in the amount of
$482,000 as the proceeds were used in the acquisition of the Clearinghouse
and to eliminate the interest expense related to the conversion of notes
payable to Series A preferred stock in the amount of $46,000.
3. Adjustments to eliminate the minority interest expense to reflect
the acquisition of all of the outstanding shares of the Clearinghouse.
4. Adjustment to reflect the additional shares of common stock issued
in exchange for all the assets of Strata Web.
24
<PAGE> 28
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
PETROLEUM PRO FORMA
PLACE STRATA WEB PARADIGM ADJUSTMENTS NOTES PRO FORMA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue
Net commission revenue........ $ 4,108 $ -- $ -- $ -- $ 4,108
Software, maintenance and
integration................ -- -- 6,352 -- 6,352
Other revenue................. 303 405 -- -- 708
-------- ----- ------ ------- --------
Total revenue.............. 4,411 405 6,352 -- 11,168
Cost of revenue................. 1,848 114 3,217 -- 5,179
-------- ----- ------ ------- --------
Gross profit.......... 2,563 291 3,135 -- 5,989
-------- ----- ------ ------- --------
Operating expenses
Sales, marketing, development
and general and
administrative............. 4,019 370 2,796 -- 7,185
Depreciation and
amortization............... 3,262 20 -- 2,771 1 6,053
-------- ----- ------ ------- --------
Total operating expenses... 7,281 390 2,796 2,771 13,238
-------- ----- ------ ------- --------
Income (loss) from
operations.......... (4,718) (99) 339 (2,771) (7,249)
Other income (expense), net..... 203 (37) 79 -- 245
-------- ----- ------ ------- --------
Income (loss) before
income taxes........ (4,515) (136) 418 (2,771) (7,004)
Income taxes.................... -- -- -- -- --
-------- ----- ------ ------- --------
Net income (loss)..... $ (4,515) $(136) $ 418 $(2,771) $ (7,004)
======== ===== ====== ======= ========
Loss per share -- basic and
diluted....................... $ (9.03) $ (13.55)
Weighted average common shares
outstanding................... 500,000 16,856 2 516,856
</TABLE>
The unaudited pro forma consolidated statement of operations for the six
months ended March 31, 2000 reflects the following adjustments:
1. Additional amortization of $2.6 million related to the pending
acquisition of Paradigm and $140,000 related to the acquisition of all the
assets of Strata Web.
2. Adjustment to reflect the additional shares of common stock issued
in exchange for all of the assets of Strata Web.
25
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL DATA
You should read this data together with "Unaudited Pro Forma Consolidated
Financial Statements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and related notes, included in this prospectus.
The following table provides our consolidated financial information. We
have derived the consolidated statement of operations data for fiscal year end
September 30, 1999 and our consolidated balance sheet as of September 30, 1999
from our consolidated financial statements that have been audited by Arthur
Andersen LLP, our independent auditors, and are included elsewhere in this
prospectus. We have derived the consolidated statement of operations data for
the fiscal years ended September 30, 1997, 1998 and the eight months ended May
31, 1999 and our consolidated balance sheets as of September 30, 1998 and May
31, 1999 from the consolidated financial statements of the Clearinghouse, our
Predecessor Company, which have been audited by Arthur Andersen LLP, and are
included elsewhere in this prospectus. The statement of operations for the
fiscal year ended September 30, 1995 and 1996 and balance sheet data as of
September 30, 1995, 1996 and 1997 for the Clearinghouse and the consolidated
balance sheet and the consolidated statement of operations as of and for the six
months ended March 31, 2000 have been derived from the unaudited financial
statements not included in this prospectus that have been prepared on the same
basis as the audited financial statements and, in our opinion, contain all
adjustments necessary for a fair presentation of the financial position and
results of operations for this period. Historical results are not necessarily
indicative of the results to be expected in the future and results for interim
periods are not necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY PETROLEUM PLACE
----------------------------------------------------------- ------------------------
JAN. 28,
SIX EIGHT 1999
MONTHS MONTHS (INCEPTION) SIX MONTHS
FISCAL YEAR ENDED SEPTEMBER 30, ENDED ENDED THROUGH ENDED
------------------------------------- MARCH 31, MAY 31, SEPT. 30, MARCH 31,
1995 1996 1997 1998 1999 1999 1999 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenue
Net commission revenue................. $ 2,900 $ 3,320 $ 5,270 $ 6,323 $ 4,776 $5,547 $ 2,069 $ 4,108
Software, maintenance and
integration.......................... -- -- -- -- -- -- -- --
Other revenue.......................... 106 184 270 362 277 316 104 303
------- ------- ------- ------- ------- ------- ------- --------
Total revenue...................... 3,006 3,504 5,540 6,685 5,053 5,863 2,173 4,411
Cost of revenue.......................... 672 1,348 1,979 2,763 1,759 2,290 961 1,848
------- ------- ------- ------- ------- ------- ------- --------
Gross profit..................... 2,334 2,156 3,561 3,922 3,294 3,573 1,212 2,563
------- ------- ------- ------- ------- ------- ------- --------
Operating expenses
Sales, marketing, development, general
and administrative................... 1,403 922 1,403 1,497 1,207 1,566 1,505 4,019
Depreciation and amortization.......... -- 25 51 96 35 47 1,179 3,262
------- ------- ------- ------- ------- ------- ------- --------
Total operating expenses........... 1,403 947 1,454 1,593 1,242 1,613 2,684 7,281
------- ------- ------- ------- ------- ------- ------- --------
Income (loss) from operations.... 931 1,209 2,107 2,329 2,052 1,960 (1,472) (4,718)
Other income (expense), net.............. -- (1) (1) (2) -- -- (113) 203
------- ------- ------- ------- ------- ------- ------- --------
Income (loss) before minority
interest and taxes............. 931 1,208 2,106 2,327 2,052 1,960 (1,585) (4,515)
Income taxes............................. -- -- -- -- -- -- (37) --
Minority interest........................ -- -- -- -- -- -- (4,549) --
------- ------- ------- ------- ------- ------- ------- --------
Net income (loss)................ $ 931 $ 1,208 $ 2,106 $ 2,327 $ 2,052 $1,960 $(6,171) $ (4,515)
======= ======= ======= ======= ======= ======= ======= ========
Earnings (loss) per share, basic and
diluted................................ $ 93.08 $120.83 $210.64 $232.70 $205.22 $196.00 $(12.34) $ (9.03)
Weighted average common shares
outstanding............................ 10,000 10,000 10,000 10,000 10,000 10,000 500,000 500,000
Dividends per weighted average common
share outstanding...................... $ 20.00 $ 80.00 $170.00 $215.38 $150.00 $280.00 -- --
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY PETROLEUM PLACE
---------------------------------------- ---------------------
AS OF SEPTEMBER 30, AS OF AS OF AS OF
----------------------------- MAY 31, SEPT. 30, MARCH 31,
1995 1996 1997 1998 1999 1999 2000
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $342 $710 $1,013 $ 395 $524 $ 3,325 $53,108
Current assets.............................................. 368 762 1,084 1,536 688 3,527 53,509
Total assets................................................ 418 832 1,228 1,650 793 24,816 73,639
Current liabilities......................................... 91 96 86 178 220 1,590 4,486
Long-term debt obligations, excluding current portion....... -- -- -- -- -- 5,808 6,811
Total stockholders' equity.................................. 327 735 1,142 1,333 493 17,351 62,341
</TABLE>
26
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
"Selected Financial Data" and the financial statements and notes attached to
those statements included elsewhere in this prospectus. This discussion contains
certain forward-looking statements that involve risks and uncertainties. Please
see "Risk Factors" and "Forward-Looking Statements" included elsewhere in this
prospectus.
OVERVIEW
We are a leading energy Internet marketplace serving the upstream petroleum
industry. Through PetroleumPlace.com, we enable the online discovery,
evaluation, acquisition, divestiture and processing of petroleum properties.
Since our inception in January 1999, we have grown primarily through the
acquisition of companies, assets and technologies that have allowed us to reduce
the time to market for our solutions. In view of the rapidly evolving nature of
our business, our limited operating history and the number of our acquisitions
since inception, we believe that period-to-period comparisons of our revenue and
operating results, including our operating expenses as a percent of total
revenue, are not meaningful and should not be relied upon as an indication of
future performance. Since our inception we have made the following acquisitions,
each of which was accounted for using the purchase method of accounting:
- the Clearinghouse in June and August 1999;
- TradeBank in September 1999;
- specified assets, including PetroleumPlace.com, from World Web
Technologies in September 1999; and
- all the assets of Strata Web in April 2000.
We also have signed a definitive agreement to acquire Paradigm, which we
expect to close in the summer of 2000.
REVENUE AND EXPENSES
COMMISSION REVENUE
We derive a substantial portion of our revenue from our transaction
services, consisting primarily of commissions earned on the sale of petroleum
properties via traditional auctions, Internet auctions and e-brokered
transactions. Our auction commissions are recognized upon the sale of particular
petroleum properties at completion of the auction. Our commissions are based
upon the gross proceeds of the sale. Commissions can range from 3% to 10% for
auction properties based upon transaction size and from 1% to 2% for e-brokered
transactions, depending upon the characteristics of the property offered.
Immediately after an auction, we escrow significant cash balances as a
result of collecting the sale price from auction buyers on the date of auction.
Approximately 14 days after the sale, we settle auction sales by paying the
amount due to the seller, net of any outstanding loan balances owed by the
seller on the property and less our commission for selling the property. We
retain the interest earned on cash held in escrow between the auction date and
the settlement date as partial compensation for our transaction services.
We also earn revenue from professional services provided to our customers
in connection with a sale, including developing electronic data rooms and
facilitating the conveyance of title from seller to buyer. This revenue is
recognized at the same time as the related commission revenue.
SOFTWARE, MAINTENANCE AND INTEGRATION REVENUE
Subsequent to our acquisition of Paradigm, our software, maintenance and
integration revenue will be comprised of accounting software license and
maintenance fees and fees charged for integrating a customer's disparate data
sources into a useable data environment over the Internet. Software revenue is
recognized when
27
<PAGE> 31
persuasive evidence of an arrangement exists, the product is delivered, our fee
is determinable and collectibility is probable. Maintenance revenue is
recognized ratably over the period of the maintenance contract and integration
revenue is recognized as services are provided. Revenue from our professional
services is earned as our technical consulting personnel work on a customer's
site to develop software or other routines to tie external data with a
customer's accounting, asset management or geotechnical information systems.
These services are billed on a project or time-and-materials basis and are
recognized over the term of the development agreement.
OTHER REVENUE
We derive revenue from data sales through our Internet marketplace. Revenue
from data sales is earned at the time the data is purchased at our web site.
We also receive revenue from companies that advertise on our web site.
These advertisements include listings of petroleum service providers, listings
of surplus equipment for sale and banner advertisements. Advertising can be
purchased through an annual subscription or through a placement fee for a
particular time period.
We also receive revenue from subscription fees paid by our customers that
subscribe to our various Internet services. Subscriptions are usually paid
annually or semi-annually in advance of service and are recognized over the
service period.
COST OF REVENUE
Our cost of revenue consists of direct costs incurred relating to the
operation of an auction, the cost to support and distribute our back office
accounting software and the technical personnel costs necessary to integrate
disparate data sources over the Internet and to implement our other solutions.
The auction costs consist of pre-auction advertising and consulting, customer
support, facility rental and conveyance and pre-auction advertising.
OPERATING EXPENSES
Sales and marketing expense includes the costs associated with attracting
properties for auction, the cost of selling our accounting software and the
costs associated with acquiring new subscribers, members, advertisers and other
users of our other Internet services. These expenses include salaries, sales
commissions, advertising and general marketing and promotional expenses. Sales
and marketing expense are expected to increase substantially as our user base
increases. Additionally, we plan to increase advertising as we continue to roll
out our integrated Internet marketplace.
Research and development expense consists primarily of personnel costs and
related benefits, and are expected to increase as our operations expand.
General and administrative expense consists primarily of personnel and
related benefits, as well as rent, consulting and professional fees. These costs
are expected to increase as we expand our infrastructure.
Amortization expense primarily relates to the amortization of goodwill and
other intangibles acquired in our various acquisitions. We have accounted for
all acquisitions using the purchase method of accounting. With this method, the
difference between the aggregate acquisition consideration and the fair market
value of tangible assets acquired is considered to be identifiable intangible
assets or goodwill. Our general policy is to amortize these intangible assets
over their anticipated useful lives of three years for acquired software, five
years for customer lists and ten years for goodwill. Employment contracts and
non-competition agreements are amortized over the life of the specific contract.
Amortization expense is expected to increase as we make additional acquisitions
and will vary according to the purchase price and the nature of the assets we
acquire. If our future revenue or business does not indicate the recovery of
goodwill or other intangibles, we would record an impairment charge that could
be substantial.
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Depreciation expense primarily relates to our furniture, fixtures and
equipment and is recognized, using the straight-line method, based on the
estimated useful lives of the assets ranging from three years to five years.
Depreciation expense is expected to increase as we acquire additional equipment
to support our Internet efforts.
We recorded gross unearned compensation of $5.2 million in connection with
certain stock options granted through September 30, 1999. We expensed $360,000
associated with our unearned compensation during fiscal 1999. The unearned
compensation amounts are being amortized over the four-year vesting period of
the options consistent with the method described in Financial Accounting
Standards Board Interpretation No. 28 over the vesting period for individual
options. We recorded an additional $2.4 million of gross unearned compensation
during the six months ended March 31, 2000, and expensed $1.7 million of
unearned compensation during this period.
The following table sets forth the expected amortization charges associated
with total unearned compensation and other intangibles through 2004:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------
2000 2001 2002 2003 2004
<S> <C> <C> <C> <C> <C>
Amortization of unearned
compensation................... $3,517,000 $2,120,000 $1,130,000 $ 481,000 $ 35,000
Amortization of intangibles...... 4,819,000 7,625,000 7,501,000 6,136,000 4,473,000
</TABLE>
We incurred a net loss of $6.2 million from January 28, 1999 (inception)
through September 30, 1999 and a net loss of $4.5 million for the six months
ended March 31, 2000 and had an accumulated deficit of $10.7 million as of March
31, 2000. We expect to increase spending on sales and marketing as we expand our
sales force and increase promotional and advertising expenditures. We also
expect higher general and administrative, research and development and
engineering expenses as we expand our infrastructure to support expected growth
and as we implement our new business strategies with respect to back office
integration and ASP distribution of our software products. As a result of these
increases, as well as non-cash charges discussed above, we expect to continue to
incur significant losses on a quarterly and annual basis for the foreseeable
future.
RESULTS OF OPERATIONS
JANUARY 28, 1999 (INCEPTION) THROUGH SEPTEMBER 30, 1999
Revenue. Revenue was approximately $2.2 million for the period from
inception through September 30, 1999. Revenue consisted primarily of commissions
earned on $165.0 million worth of property transactions, related services and
the interest earned on cash held in escrow between the auction date and the
settlement date.
Cost of Revenue. Cost of revenue was approximately $961,000 for the period
from inception through September 30, 1999. Cost of revenue consisted primarily
of rental of the facility where the monthly property auctions were held, the
salaries of employees involved in the preparation of properties for sale and the
conveyance of properties upon the sale.
Sales, Marketing, Development, General and Administrative. Sales,
marketing, development, general and administrative costs were approximately $1.5
million for the period from inception through September 30, 1999. Costs consist
primarily of salaries as well as travel, infrastructure, advertising and other
promotional costs. We expect to significantly increase the number of employees,
as well as advertising and promotional spending in this area as we further
expand our Internet marketplace.
Depreciation and Amortization. Depreciation and amortization expense was
$1.2 million for the period from inception through September 30, 1999.
Depreciation and amortization expense consisted of $791,000 from the
amortization of intangible assets related to acquisitions we made during the
period, $360,000 from the amortization of unearned compensation related to the
grants of certain stock options during the period and $28,000 of depreciation
for furniture, fixtures and equipment.
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Minority Interest. Minority interest expense was $4.5 million for the
period from inception through September 30, 1999. Minority interest expense was
principally related to the settlement of a put option held by Clearinghouse
minority shareholders in excess of the fair market value of the underlying
assets.
SIX MONTHS ENDED MARCH 31, 2000 COMPARED TO SIX MONTHS ENDED MARCH 31, 1999
FOR THE PREDECESSOR COMPANY
Revenue. Total revenue decreased to $4.4 million for the six months ended
March 31, 2000 as compared to $5.1 million recorded by our Predecessor Company
for the same period in 1999. The decrease was primarily the result of lower
commission revenue related to a decrease in the total value of properties sold
during the period, which was due primarily to volatile oil prices during the six
months ended March 31, 2000. The total value of properties sold during the six
months ended March 31, 2000 was $94.0 million, a decrease from $111.0 million
during the same period in 1999. Periods of extreme oil price volatility can
cause both buyers and sellers to postpone acquisition or divestiture decisions
until oil prices stabilize.
Cost of Revenue. Cost of revenue remained steady at $1.8 million for the
six months ended March 31, 2000 compared to the same period in 1999. For the
periods discussed, the majority of cost of revenue related to fixed technical
personnel costs and fixed auction costs including facility rental, conveyance
and advertising.
Sales, Marketing, Development, General and Administrative. Sales,
marketing, development, general and administrative expense increased to $4.0
million for the six months ended March 31, 2000 from $1.2 million recorded by
our Predecessor Company for the same period in 1999. The increase was primarily
related to the development of our web site and auction technology, a general
increase in marketing expense and increased general and administrative expenses
as we expanded our operations. These expenses included salaries and related
benefits, rent and professional fees.
Depreciation and Amortization. Depreciation and amortization increased to
$3.3 million for the six months ended March 31, 2000 from $35,000 recorded by
our Predecessor Company for the same period in 1999. The increase was primarily
due to the amortization of the purchase price of the Clearinghouse and TradeBank
acquisitions and the amortization of the unearned compensation from common stock
options granted in August and December 1999.
FISCAL YEAR ENDED SEPTEMBER 30, 1998 FOR THE PREDECESSOR COMPANY COMPARED TO
FISCAL YEAR ENDED SEPTEMBER 30, 1997 FOR THE PREDECESSOR COMPANY
Revenue. Total revenue increased to $6.7 million in fiscal 1998 from $5.5
million in fiscal 1997. The total value of properties sold increased to $128.0
million in fiscal 1998 from $111.0 million in fiscal 1997, which, in turn,
resulted in commission revenue increasing to $6.3 million in fiscal 1998 from
$5.3 million in fiscal 1997. The increase was primarily attributable to the
increased participation by large independent and major oil companies in our oil
and gas property auctions. Additionally, interest income earned on sale proceeds
held in escrow increased to $362,000 in fiscal 1998 from $270,000 in fiscal
1997.
Cost of Revenue. Total cost of revenue increased to $2.8 million in fiscal
1998 from $2.0 million in fiscal 1997. For the periods discussed, the majority
of cost of revenue related to fixed technical personnel costs and fixed auction
costs including facility rental, conveyance and advertising. The increase is the
primary the result of increasing technical staff in expectation of the growing
value of properties sold at auction.
Sales, Marketing, Development, General and Administrative. Sales,
marketing, development, general and administrative expense increased to $1.5
million in fiscal 1998 from $1.4 million in fiscal 1997. The increase was
attributable to an increase in sales and marketing expense in order to boost the
number and value of properties sold at auction and increased commissions related
to transacting a higher volume of properties.
Depreciation and Amortization. Depreciation and amortization increased to
$96,000 in fiscal 1998 from $51,000 in fiscal 1997 related to the addition of
$67,000 of property and equipment purchased to support the growth of our
business.
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EIGHT MONTHS ENDED MAY 31, 1999 FOR THE PREDECESSOR COMPANY COMPARED TO EIGHT
MONTHS ENDED MAY 31, 1998 FOR THE PREDECESSOR COMPANY
<TABLE>
<CAPTION>
EIGHT MONTHS
ENDED MAY 31,
---------------
1998 1999
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenue............................................. $4,735 $5,863
Cost of revenue........................................... 1,725 2,290
Gross margin.............................................. 3,010 3,573
Sales, marketing, development, general and
administrative......................................... 1,283 1,566
Depreciation and amortization............................. 73 47
Net income................................................ 1,654 1,960
</TABLE>
Revenue. Total revenue increased to $5.9 million for the eight months ended
May 31, 1999 from $4.7 million for the eight months ended May 31, 1998. This
increase was due primarily to the increase in the total value of property
transactions to approximately $125.0 million for the eight months ended May 31,
1999 from approximately $98.0 million for the eight months ended May 31, 1998.
Cost of Revenue. Cost of revenue increased to $2.3 million for the eight
months ended May 31, 1999 from $1.7 million for the eight months ended May 31,
1998. This increase was primarily related to the addition of technical and other
administrative personnel in anticipation of increasing future property
transactions.
Sales, Marketing, Development, General and Administrative. Sales,
marketing, development, general administrative expense increased to $1.6 million
for the eight months ended May 31, 1999 from $1.3 million for the eight months
ended May 31, 1998. The increase is related to the addition of general sales and
marketing resources and infrastructure in order to support and grow the value of
property transactions.
Depreciation and Amortization. Depreciation and amortization expense
decreased to $47,000 for the eight months ended May 31, 1999 from $73,000 for
the eight months ended May 31, 1998. The decrease was primarily the result of
assets becoming fully depreciated.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily from sales of
our preferred stock and, to a lesser extent, bank debt. Net cash provided by
financing activities was $51.2 million for the six months ended March 31, 2000.
Financing activities since inception consisted of:
- From March to June 1999, we raised an aggregate of $14.3 million from the
sale of shares of our Series A preferred stock and upon conversion of
debt;
- In July 1999, we obtained a credit facility from Citicorp U.S.A., Inc. in
the amount of $9.0 million. The primary facility is a $6.0 million term
loan and bears interest at a variable rate, 9.0% at March 31, 2000. As of
March 31, 2000, $5.4 million was outstanding under this facility. We used
the proceeds from this facility primarily to refinance loans made to
former Clearinghouse shareholders in an aggregate amount of $5.0 million,
as well as for additional working capital. In addition, Citicorp U.S.A.,
Inc. extended a short-term working capital line of credit in the amount
of $3.0 million that bears interest at a variable rate, 9.0% at March 31,
2000, to fund working capital and provide for future acquisitions. At
March 31, 2000, $2.2 million was outstanding under this line of credit.
Both the credit facility and revolving line of credit mature on the
earlier to occur of the closing of this offering or July 2004.
Accordingly, we intend to use $7.6 million of the net proceeds from this
offering to repay the outstanding borrowings; and
- From March to May 2000, we raised aggregate net proceeds of $57.3 million
from the sale of shares of our Series C preferred stock.
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Net cash used in operating activities was $1.0 million and $75,000 for the
six months ended March 31, 2000 and for the period from January 28, 1999
(inception) through September 30, 1999, respectively.
Net cash used by investing activities was $427,000 and $12.4 million for
the six months ended March 31, 2000 and the period from January 28, 1999
(inception) through September 30, 1999, respectively. Net cash used by
investment activities consisted primarily of our acquisitions during the period
from January 28, 1999 (inception) to September 30, 1999 of the Clearinghouse,
TradeBank and PetroleumPlace.com.
The Clearinghouse, prior to its acquisition by us, had historically paid
distributions to its shareholders as an S-corporation. The Clearinghouse is no
longer eligible for S-corporation status and, therefore, no additional
distributions will be required. Similarly, Paradigm is currently an
S-corporation and has historically paid distributions to its stockholders. Upon
closing, Paradigm's S-corporation status will terminate and no additional
distributions will be required.
As of March 31, 2000, we had $53.1 million in cash and cash equivalents and
$49.0 million in working capital. Our working capital requirements relate
primarily to cash needed to fund the development of the business, including the
integration of the assets we have acquired via acquisition. We believe that our
cash resources, without the proceeds of this offering, will be sufficient to
fund our operations for at least the next twelve months. When combined with the
net proceeds of this offering, we will be able to take greater advantage of the
opportunity to acquire or invest in complementary businesses, technologies,
services and products, as well as repay existing debt. To raise additional
funds, we will need to sell additional equity or incur additional debt. The sale
of additional equity securities could result in more dilution to our
stockholders. Incurring additional debt could result in greater interest expense
and impair our cash flow. If we are not successful in raising additional funds,
if required, our business will be harmed.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We currently are exposed to market risks related to changes in interest
rates because our long-term debt has floating interest rates. Upon the closing
of this offering, a portion of the proceeds will be used to pay all of our
outstanding bank debt. The remaining proceeds from this offering will be
invested in short-term financial instruments. The value of these financial
instruments will be affected by fluctuations in interest rates and could fall in
value if interest rates rise. Additionally, our future borrowings may have a
variable component that will fluctuate as interest rates change.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective, as amended, for all
fiscal quarters of fiscal years beginning after June 15, 2000. This statement
establishes accounting and reporting standards for derivative instruments,
including some derivative instruments embedded in other contracts, and for
hedging securities. To the extent we begin to enter into these transactions in
the future, we will adopt the statement's disclosure requirements in our
financial statements for the year ending December 31, 2000.
In December 1999, the staff of the SEC released Staff Accounting Bulletin
("SAB") 101, "Revenue Recognition" to provide guidance on the recognition,
presentation and disclosure of revenues in financial statements. We believe that
our revenue recognition practices are in conformity with SAB 101.
In March 2000, the Emerging Issues Task Force reached consensus on Issue
No. 00-2, "Accounting for Website Development Costs." The guidance of this
consensus must be applied to our financial statements beginning after July 1,
2000.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN No. 44"). The
interpretation clarifies the application of Accounting Principles Board Opinion
No. 25 for certain issues related to equity based instruments issued to
employees. FIN No. 44 is effective on July 1, 2000, except for certain
transactions, and will be applied on a prospective basis. Management believes
that FIN No. 44 will not have a significant impact on its financial statements.
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BUSINESS
OVERVIEW
Petroleum Place is a leading energy Internet marketplace serving the
upstream petroleum industry. Through PetroleumPlace.com, we provide products and
services that enable the online discovery, evaluation, acquisition, divestiture
and processing of petroleum properties.
Our marketplace and solutions include the following key components:
- floor and Internet oil and gas property auctions conducted through the
leading oil and gas property auction exchange in North America;
- enterprise resource planning software, including accounting, billing and
land and production management software systems, for the upstream
petroleum industry;
- geotechnical data and analysis tools delivered over the Internet; and
- content, community and e-commerce solutions for the worldwide petroleum
industry through PetroleumPlace.com, which was launched in 1995.
We seek to bring price and process efficiency to each stage of the oil and
gas property transaction lifecycle by providing a broad range of integrated and
Internet-enabled services. The transaction lifecycle, which has historically
been cumbersome, costly and time-consuming, consists of four components:
- the discovery of a property for sale or purchase;
- the evaluation and due diligence of the property, both technical and
financial;
- the transaction or exchange of ownership interest; and
- the processing of the transaction, which begins with the property
conveyance, and also includes:
- notification of interested parties;
- ongoing accounting and billing;
- production and land management; and
- procurement.
TRANSACTION LIFECYCLE
[TRANSACTION LIFECYCLE GRAPHIC]
[Depicted here is a graphical representation of the petroleum property
transaction lifecycle. The graphic is a series of arrows forming a circle, with
the terms "Discover," "Evaluate," "Transact" and "Process" superimposed on the
top, right, bottom and left sides, respectively, of the circle. Next to those
terms are the following:
Discover: TradeBank, Property Listing, E-catalogs
Evaluate: Strata Web, Data Resales, Electronic Data Room, Software and
Tools (ASP)
Transact: Clearinghouse, Auctions, Internet Auctions, E-brokered
Transactions, Reverse Auctions and RFQs
Process: Paradigm, Accounting and Billing, Conveyance, Web
Interconnectivity, Procurement]
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To increase the sales of our services that address each stage of the
transaction lifecycle, we intend to build upon our existing relationships with
integrated and large independent energy companies that currently use one or more
of our services, some of which have made an equity investment in us. We also
intend to cross-sell our range of services to our 41,300 unique monthly visitors
to the marketplace, our qualified prospect base of 16,600 industry professionals
and our paying subscriber base of 135 energy companies.
INDUSTRY BACKGROUND
GROWTH OF BUSINESS-TO-BUSINESS COMMERCE ON THE INTERNET
The rapid rise of the Internet as a medium of communication and exchange
has profoundly changed the modern business landscape. Business-to-business
e-commerce solutions typically focus on improving the efficiency of companies by
replacing various fundamental paper-based transactions with electronic
communications. According to the Gartner Group, business-to-business e-commerce
will increase from $145 billion in 1999 to $7.3 trillion in 2004. This expected
growth has given rise to a variety of electronic marketplaces that bring
together buyers and sellers in an efficient manner, allow access to technical
information and provide a forum for participants to share ideas. These
marketplaces are growing in popularity because they offer the potential to bring
together large numbers of buyers and sellers and reduce paperwork and
transaction costs. We believe that the decision to employ a particular
marketplace represents a significant commitment, and the cost of switching to an
alternative marketplace is high. These solutions are particularly valuable to
industries, such as the petroleum industry, which are characterized by a large
number of industry participants, significant dependence on information exchange
and large transaction volume.
THE PETROLEUM INDUSTRY
The petroleum industry is a data-intensive, complex global industry. The
industry consists of three distinct sectors: upstream, midstream and downstream.
Upstream activities include exploring for, producing and selling crude oil,
natural gas and gas liquids. Midstream activities typically encompass the
gathering, transportation and storage of crude oil, natural gas and gas liquids.
Downstream activities include refining crude oil into petroleum products,
trading crude oil and petroleum products and distributing and marketing refined
products. Within the upstream sector, the exploration and production divisions
of oil and gas companies are chartered with finding, developing and managing the
production of oil and gas reserves. Petroleum companies need to continually add
new reserves of oil and gas at a faster rate than existing reserves are
depleted. Optimizing a portfolio of oil and gas reserves is an ongoing process
whereby petroleum companies explore for, evaluate, develop, manage and divest
petroleum properties.
Discovering and Evaluating Oil and Gas Reserves
Exploring for and developing petroleum reserves is a risky, capital
intensive endeavor. While petroleum itself is a commodity, petroleum properties
are unique assets whose perceived value is primarily based on data gathered to
quantify the recoverable volume of in-ground petroleum reserves. In order to
value these assets, companies spend substantial amounts of time and resources
gathering and analyzing geotechnical, engineering, financial and land-related
data.
Buying, Selling and Trading Oil and Gas Reserves
In addition to finding and developing new oil and gas reserves, companies
also buy, sell and trade existing properties containing proven reserves, as well
as unproven properties with strong prospects for oil and gas discovery. These
properties often move from one petroleum company to another through business
combinations or through the acquisition and divestiture, or A&D, of specific oil
and gas properties. Properties that cannot be efficiently operated by one
company are often attractive to other companies that have specialization in a
particular attribute of the property, such as geographic location or production
technique.
Recent consolidation among petroleum companies has accelerated the
availability of properties for divestiture as companies review their combined
portfolios. According to industry sources, during 1998, the
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North American petroleum industry recorded $82 billion of such transactions, of
which we estimate $13 billion involved asset divestiture packages.
Managing Petroleum Properties
Property portfolio management involves constant review of the production
and financial performance of the component properties, in an attempt to focus
capital resources on properties with the highest potential for return.
Properties that are deemed to be non-core or marginal are often divested. In
addition to reviewing property performance, an upstream petroleum company incurs
substantial administrative burdens in managing the revenue and production cost
reporting related to specific properties.
INEFFICIENCIES OF THE UPSTREAM PETROLEUM INDUSTRY
The discovery, evaluation, acquisition and processing of properties within
the upstream petroleum industry are typically cumbersome, costly and
time-consuming and are characterized by the following:
- Data-Intensive, Paper-Based Process. Large amounts of geotechnical,
engineering, land-related, financial and accounting data must be compiled
and integrated from disparate, non-standardized, paper-based and digital
sources in order to evaluate and manage properties.
- Long Transaction Cycle. Traditional methods of acquiring or divesting oil
and gas properties through a broker are labor-intensive, typically
require six months to one year to complete and may not result in the
optimal price for the buyer or the seller.
- Lack of a Central Marketplace. A large amount of the oil and gas
properties and equipment that are available for sale at any given time
remain unsold or are sold for less than their perceived value because no
central marketplace exists for the purchase and sale of such properties
and equipment.
- Geographic Dispersion of Resources. Many new exploration and development
projects are conducted in remote parts of the world, which creates
significant costs and numerous inefficiencies in the management of an
upstream business.
- Lack of Back Office Interconnectivity. The ability of companies to
exchange data electronically and effect transactions in an efficient
manner is currently limited by the numerous incompatible back office
land, production and accounting systems.
BUSINESS STRATEGY
Our objective is to become the leading Internet marketplace for the
petroleum industry. Through our integrated product and service offerings, we
intend to streamline the transaction lifecycle. We plan to achieve this
objective by pursuing the following strategies:
LEVERAGE OUR ESTABLISHED AUCTION EXCHANGE INTO THE LEADING INTERNET
MARKETPLACE FOR THE PETROLEUM INDUSTRY
We are leveraging our position as the largest oil and gas property auction
exchange in North America to develop the premier Internet marketplace for
trading in petroleum properties. Through the credibility established by the
volume of properties exchanged during our eight years in the auction business,
we believe that we can drive rapid adoption of our Internet-based auction format
for petroleum properties. We believe that an Internet-based auction format will
attract a larger pool of buyers and sellers on a more frequent basis, which will
increase the volume and size of properties sold through auctions. In addition,
we intend to facilitate the sale of higher valued, more complex properties
through our e-brokered transaction services.
BECOME THE LEADING ASP FOR GEOTECHNICAL DATA AND APPLICATIONS
As a leading marketplace serving the upstream petroleum industry, we
believe we are uniquely positioned to gather, aggregate, evaluate and resell
strategic production, engineering and seismic data to our customers. We
currently integrate data from multiple databases and present it in a graphical
format that is easy to use and understand by our users through our geographic
information system interface. We are in the
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<PAGE> 39
process of expanding our offerings by adding new data sources and new data
types, as well as expanding the depth and breadth of software products and tools
available on an as-needed, pay-per-use basis for geotechnical and financial
analysis through strategic partnerships with software and data providers. We
believe our ability to provide both property-related geotechnical data and the
relevant analytical software to support the evaluation of property transactions
will provide substantial workflow efficiencies with respect to the property
discovery and evaluation process.
CREATE BROAD INTERCONNECTIVITY AMONG UPSTREAM TRADING PARTNERS
In order to improve back office processes, we intend to create broad
interconnectivity among upstream trading partners. We plan to offer software
solutions to link the back office systems of our installed base of 150
independent petroleum companies with their respective trading partners through
the Internet using XML. XML provides an Internet data format standard that
allows various enterprise resource planning systems to communicate with each
other. In particular, we plan to streamline the labor intensive,
industry-specific functions such as property conveyance, joint interest billing
and royalty receipt and disbursement.
We also intend to apply the ASP distribution model to our enterprise
resource planning product and many of its 30 specific modules. We will host,
manage and deploy our software through our data centers, relieving our customers
of the cost and administrative burden of purchasing and updating software and
hardware, security, back-up and integration with other databases. Customers
using our ASP products will benefit from full integration with other trading
partners, allowing producing properties to be marketed, transacted and conveyed
seamlessly and with minimal paperwork.
ESTABLISH AN INTERNET MARKETPLACE FOR NEW AND USED OILFIELD EQUIPMENT
We intend to capitalize on our database of over 8,500 items of pre-owned
equipment and establish procurement services for new and used equipment.
According to an Arthur Andersen report, the upstream petroleum industry had
approximately $48.0 billion of capital expenditures in North America in 1998, a
substantial portion of which represented the acquisition of new and used
oilfield equipment. Because no established central marketplace for oilfield
equipment exists, a substantial amount of a petroleum company's equipment sits
idle at any given time or is underutilized. We intend to use auctions, reverse
auctions and requests for quotation in order to effectively match potential
sellers and buyers.
DRIVE ADOPTION OF OUR SOLUTIONS INTERNATIONALLY
Our Internet-based products and services eliminate geographic barriers and
decrease the time and expense required to transact business internationally. We
intend to leverage our existing Canadian customer base to expand the
distribution and use of our products and services, particularly our transaction
services, to the Canadian market. In addition, we believe that North Sea
properties are similarly suited for an online A&D marketplace. We also intend to
explore opportunities in the Middle East, building upon our existing
relationship with our stockholders based in that region. Over time, we believe
we can facilitate property transactions for exploration and development projects
sponsored by national oil companies and governments worldwide, specifically
through the use of comprehensive electronic data rooms for large exploration
prospects.
EXTEND AND BUILD UPON OUR AUCTION CUSTOMER BASE AND OUR PETROLEUM INDUSTRY
EQUITY INVESTORS
We intend to cross-sell our range of services to our 41,300 unique monthly
visitors to the marketplace, our qualified prospect base of 16,600 industry
professionals and our paying subscriber base of 135 energy companies. We also
intend to build upon our existing relationships with integrated and large
independent energy companies that currently use one or more of our services,
some of which have made an equity investment in us, such as El Paso Energy, EOG
Resources, Forest Oil, Occidental Petroleum, Ocean Energy and Tom Brown, Inc.
Our strategic equity investors reported aggregate proven reserves with an
estimated value of $25.2 billion as of December 31, 1999.
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OUR SOLUTIONS
Our solutions streamline the transaction lifecycle by enabling buyers and
sellers to efficiently discover, evaluate, transact and process petroleum
properties and other industry-related goods and services.
DISCOVERING AND EVALUATING PROPERTY
We offer a series of products and services to improve the workflow of
industry professionals in the discovery and evaluation of petroleum properties
and prospects. Because larger and more complex transactions typically require
more sophisticated data and analytical tools, our service offerings are designed
to meet these needs and include:
E-Catalog. We offer our entire oil and gas property auction catalog online,
which typically contains 1,500 to 2,000 petroleum properties for each auction.
Our e-catalog contains an advanced search and query tool that allows the user to
locate properties by specific attributes, including name of operator, name of
seller, location, field, production rate and type and amount of ownership
interest. Our e-catalog also offers an online "shopping cart" feature that
allows the user to purchase due diligence information for each auction lot,
including a detailed data book that can be viewed in hard copy or in digital
scanned format. This information can be integrated with various analytical
applications to allow the user to evaluate properties online. The user can view
wells on a map together with other pertinent spatial data, including landgrid
and lease boundaries, pipeline facilities, active rig locations and seismic
data. In addition, our e-catalog can be integrated with various petroleum
engineering tools. Using this integrated approach, the user's workflow cycle
time is greatly reduced.
Electronic Data Rooms. Our electronic data rooms replace traditional,
physical data rooms while providing the seller with broader exposure of its
property, reducing the cost of distributing selling materials and updates, and
allowing a potential buyer to conduct due diligence at substantially lower cost.
Material traditionally available only in a physical data room is accessible
online at PetroleumPlace.com. Our electronic data rooms consist of a series of
secure web pages that illuminate the property through a combination of
narratives, maps, three-dimensional displays, tables and graphs containing
geological data, geophysical data, well logs, engineering reports, financial and
ownership data organized in a comprehensive selling package.
We employ a variety of techniques to present relevant data in the
electronic data room, including static and dynamic image display, interactive
document management and navigation, three-dimensional visualization and the
online geographic information system. We may include in our electronic data
rooms geophysical and/or geological software applications that we intend to
offer as an ASP. This gives qualified buyers the opportunity to access and
interpret the project data remotely through their Internet browser and evaluate
the information using tools familiar to them.
Exclusive Online Property Database. We also provide an exclusive online
properties listing service called TradeBank, a members-only service. This
service contains listings for over 21,000 properties for sale, trade or
exchange. Our members, which include many major oil companies, gain access to
the listings on an annual subscription basis. The estimated market value of the
listed properties was approximately $1.0 billion at March 31, 2000.
We intend to implement a request for quotation, or RFQ, process into our
TradeBank database. The RFQ process creates a detailed buyer profile which
allows us to match specific property requirements of buyers with existing
inventory in the TradeBank database and to also proactively notify buyers when
appropriate properties are added to the database. In addition, we intend to use
our geographic information system, as well as other third party applications, to
present the TradeBank data to our members via an ASP model.
Data Sales. We aggregate and sell petroleum industry data obtained from a
variety of public and private sources, as well as from the seller of a
particular property, to facilitate the due diligence evaluation process. A
portion of this data and information is readily available from other sources,
some is in the public domain but difficult to access, some is privately owned
and the remainder is derived or extracted from other data. We integrate this
data and present it in a graphical format that is easy to access and understand
by our users through use of a geographic information system interface that
guides the user to a particular area of interest.
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Analysis Tools and Software Hosted and Sold Online. We are an ASP for
various geoscientific and financial analysis software. We intend to offer
software tools through our site on an as-needed, pay-per-use basis to facilitate
the economic evaluation, risk analysis and portfolio management of properties.
By pre-packaging the data with various analysis tools for the property being
offered, we are streamlining the workflow process of property discovery and
evaluation process.
TRANSACTION SERVICES
We offer a broad range of services to market and exchange oil and gas
properties. Our Internet marketplace provides sellers with broad exposure for
their properties, fair market pricing from competitive bids and a more timely
and efficient completion of the transaction than can be achieved through
traditional means.
Our transaction services include property auctions, including floor and
Internet auctions, Internet-enabled brokered transactions, which we refer to as
e-brokered transactions, and our electronic data rooms. We typically use our
auction services to sell mature producing properties and our e-brokered
transactions to enable the sale of more complex, higher-valued properties. Our
ability to market properties through both auctions and e-brokered transactions
uniquely positions us to organize a large property package for sale utilizing a
combination of services to achieve the highest return for the seller.
We employ a team of petroleum engineers, landmen, geoscientists and
professional sales and marketing personnel to conduct the following property
transaction process:
- Capturing the Asset for Sale. We secure an agreement to sell a property
and determine the combination of our services that is most likely to
maximize value for the seller.
- Illuminating the Asset. We highlight a property's features, especially
its upside potential, through our electronic data rooms, which also
include supporting data and tools to assist the potential buyer in online
analysis.
- Selling and Closing. Depending on the nature of the property, we will
conduct a hybrid floor and Internet auction, an Internet-only auction or
an e-brokered transaction.
- Settling the Transaction. We facilitate the conveyance of the property,
which involves settling with the seller, clearing title, paying all
necessary taxes and transfer fees, and transferring title to the property
to the buyer.
We handled property transactions with a value of approximately $162.9
million during fiscal 1999 and with a value of approximately $138.5 million in
the first eight months of fiscal 2000. In fiscal 1999, over 1,300 bidders
participated in our auctions and we facilitated the sale and conveyance of over
2,800 lots consisting of an aggregate of over 14,000 wells. As of May 17, 2000,
we had existing commitments to sell an estimated $135.0 million in oil and gas
properties through our transaction services, which we anticipate will be sold by
the end of fiscal 2000.
Auctions and Internet Auctions. We operate the largest oil and gas property
auction house in North America. In March 2000, we introduced our hybrid floor
and Internet auctions, which enable Internet bidders to simultaneously
participate in our live floor auctions. Through their Internet browser, a
registered bidder can follow the auction, study vital information on the
property and submit bids and monitor the bids of other auction participants in
real time. We also conduct auctions that occur solely on the Internet, which
substantially reduce the set-up costs and eliminate the volume limitations and
geographic barriers to participation of physical property auctions.
We believe that the addition of Internet bidders will further improve
market liquidity by eliminating geographic barriers to participation. We believe
that the establishment of a centralized Internet hub for oil and gas property
transactions will significantly increase the number of buyers and sellers
participating in our auctions, thereby further enhancing market liquidity.
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E-Brokered Transactions. In addition to our established auction services,
we believe that a significant opportunity exists to market higher-valued,
complex properties through Internet-enabled e-brokered transactions. Complex
properties often contain unproven or undeveloped reserves of oil and gas and are
valued based on various subjective factors relating to the estimated size of the
potential reserves. Our e-brokered transactions enable sellers to efficiently
provide detailed information on these complex properties and provide buyers with
the time required to sufficiently review this information and negotiate the sale
with the seller. The addition of e-brokered transactions to our Internet
marketplace better enables us to sell large property packages that often contain
a mix of proven and unproven reserves.
Our e-brokered transactions, which significantly improve the efficiency of
the traditional broker-assisted process, consist of the following:
- Conduct Internal Property Analysis. We analyze the property package and
organize it into parcels which are best suited for disposition through
auction and those which are more suited to an e-brokered transaction.
- Build Electronic Data Room. Using our proprietary web-based technology,
we build an electronic data room that provides prospective buyers with
both summary level and detailed information on oil and gas properties and
prospects for sale.
- Target Prospective Buyers. We use our database to match interested buyers
with a particular property and notify prospective buyers via e-mail.
- Facilitate Due Diligence Process. We enable potential buyers to conduct
online due diligence through an interactive electronic data room combined
with online analysis tools without having to travel to a physical data
room.
- Target Pool of Buyers. We have the ability to direct our selling efforts
toward potential buyers who have shown a high level of interest in a
particular property through their electronic data room use. We then
qualify prospective buyers and narrow the field of buyers through
preliminary bidding.
- Facilitate Closing and Conveyance. We facilitate the final negotiations
and the closing through either face-to-face negotiations between buyer
and seller or an auction format.
[E-BROKERED TRANSACTION GRAPHIC]
[Pictured here is a graphical depiction of our e-brokered transaction
service as compared to the traditional brokered sale process. The first graphic,
captioned "Traditional Brokered Sale - 6 to 12 Months," depicts the following
stages of a brokered sale, with arrows leading from one stage to the next:
Aggregate Data (collect data from seller); Publish Offering Document (prepare
offering document and print); Identify Prospective Buyers (develop prospective
buyer list from seller and broker contacts); Mail Confidential Info (distribute
printed offering document); Follow-up Visits (on-site due diligence by buyer,
face to face meetings); and Negotiate and Close.
The second graphic, captioned "E-brokered Sale - 45 to 90 Days," depicts
the following stages of an e-brokered sale, with each stage represented by an
arrow which leads to the next stage: Conduct Property Analysis (we analyze
property package and determine the optimal disposition strategy); Build EDR (we
build an electric data room of maps, narrative and summary level and detailed
data); Target Prospective Buyers (we use our qualified prospect database of
16,600 industry professionals to match prospective buyers with the seller);
On-Line Due Diligence (use interactive EDR, data and analysis tools to verify
and validate property); Target Buyers (direct sales efforts to prospective
buyers with high interest); and Negotiate and Close (E-auction or negotiated
close -- Qualifying auction, final negotiations and close via auction through
traditional method).]
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PROCESS MANAGEMENT PRODUCTS AND SERVICES
We also provide technology products and services to support the ongoing
management of an upstream petroleum business. We offer a range of products to
facilitate the processing of a transaction through the back office systems of
buyers, sellers and traders of petroleum properties. Our products include
Excalibur, an enterprise resource planning software package, and DataMap, a
geographic information system.
Excalibur is a back office enterprise resource planning system designed to
facilitate management of businesses in the upstream petroleum industry and is
currently installed in over 150 upstream petroleum companies. We plan to further
distribute Excalibur by offering it as a software application service delivered
over the Internet. It includes more than 30 applications specific to the
accounting, billing, financial analysis and land, royalty and production
management functions of a petroleum company. We are developing a modified
version of Excalibur with XML capabilities to integrate the back office systems
of our customers with their trading partners.
DataMap provides a link from external public geotechnical and financial
databases to the customer's internal proprietary geotechnical and engineering
databases via the Internet. Accessing external and internal data through a
common map interface provides the customer with real-time data integration with
which it can perform analysis and continually monitor its portfolio of reserves.
We also provide professional technical services that enable our customers
to define, develop and implement network-based information systems that leverage
the capabilities of the PetroleumPlace.com marketplace. We integrate our
Internet solutions with a customer's intranet, which allows the customer to
integrate external publicly available data with their internal proprietary
geophysical, financial and accounting data.
CONTENT AND COMMUNITY FEATURES OF PETROLEUMPLACE.COM
During April 2000, PetroleumPlace.com was accessed by 41,300 unique
visitors who viewed over 288,000 pages. The site also received 3.1 million hits.
In addition to serving as the marketplace for our current products and services,
PetroleumPlace.com includes many elements of content and community, some of
which may become revenue opportunities as our business matures. These elements
include:
EnergyGate. EnergyGate, our online industry magazine, provides the user
with access to information about specific acquisition and divestitures of
properties and merger transactions and the broad range of events and issues
affecting the upstream petroleum industry. We also provide content in the form
of columns and interviews presenting the viewpoints of industry and government
leaders, analysts and commentators. Our editor-in-chief, who has over 20 years
of industry journalism experience, aggregates and categorizes the third-party
content available on EnergyGate and also routinely contributes editorial
content.
Petroleum Directory Services. Our petroleum directory allows users to
search and select from a list of over 8,600 service listings to the oil and gas
industry from around the world. The most basic listings are free, with
preferential listings and banner advertisements available for a fee.
Industry Employment. Our industry employment database contains a listing of
career opportunities posted by energy industry employers from around the world,
as well as over 950 industry-specific resumes.
Financial Information. Our financial information section provides access to
most of the major indices covering the financial state of the global petroleum
industry, including real-time oil and gas prices, weekly postings of crude oil
and propane-butane prices and a forecast of gasoline, oil and natural gas prices
of major regional energy producing areas.
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CUSTOMERS
The following customers have sold petroleum properties in at least two of
our auctions.
INTEGRATED ENERGY COMPANIES
Amerada Hess
BP Amoco
Chevron
Conoco
Fina Oil & Chemical
Marathon Oil Company
Mobil
Oxy USA
Phillips
Shell
Spirit Energy
Texaco
TotalFinaElf
LARGE INDEPENDENT PETROLEUM COMPANIES
Altura Energy
Anadarko Petroleum
Burlington Resources
Devon Energy Corp.
EOG Resources
Kerr McGee
Ocean Energy
Pioneer Exploration
Union Pacific Resources
OTHER INDEPENDENT PETROLEUM COMPANIES
Anderman
Bevo Production
Broughton Petroleum
BWAB Incorporated
Chesapeake Exploration
Chisholm Exploration
Citation Oil & Gas
Continental Resources
Cross Timbers Oil
Diasu Energy
Diverse Energy
Durango Production
Eland Energy
Ensign Oil & Gas
Five States
Forest Oil
Hamill Resources
Matthew Fatheree
Merit Energy
Oneok Exploration
Parks & Luttrell
Petro-Hunt
Questar Exploration and Production
Range Resources
Samedan Oil
Samson Resources
Southwestern Energy
Swift Energy
Synergy
Unit Petroleum
Vintage Petroleum
Whiting Petroleum
SALES AND MARKETING
SALES STRATEGY
To locate properties to auction or sell through e-brokered transactions, we
call on the A&D departments of major and independent oil companies, as well as
financial institutions and investment banking firms that specialize in brokering
petroleum industry transactions. We help the customer design a divestiture
program utilizing the most effective combination of our e-brokered and auction
transaction services.
To discover opportunities to sell our enterprise resource planning software
packages and Internet integration solutions, we call on our existing customer
base, as well as leads we receive from customers, inquiries in response to
tradeshows and advertisements.
We intend to open additional sales and service offices in oil producing
regions in the United States and Canada. We also intend to expand our direct
sales force as we expand the services we offer and the markets we serve.
MARKETING STRATEGY
To find qualified participants for our auctions, we are able to leverage
our qualified prospect database of approximately 16,600 industry professionals.
We produce a printed catalog of available properties that we distribute to our
customer base. This information is also available electronically at
PetroleumPlace.com with added search, sort and cross-reference capabilities,
which will replace the printed catalog over time.
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To find qualified buyers for our e-brokered transactions, we match our
property database to the specified criteria of our potential buyers. We
stimulate the interest of potential buyers by providing a convenient method to
conduct due diligence through the use of our electronic data rooms.
We also conduct a variety of marketing programs to educate our target
market, create awareness and attract visitors to PetroleumPlace.com. We use
traditional marketing methods, including advertisements, direct mail, trade
shows, speaking engagements and public relations programs aimed at key industry
press. As we expand our products and services, we plan to use product managers
to develop and execute the marketing strategies for their particular product or
service. In addition, our portal contains advertisements and other marketing
programs designed to encourage visitors to learn about and use our other
services.
STRATEGIC RELATIONSHIPS AND KEY SERVICE PROVIDERS
We seek to enter into strategic relationships and work with key service
providers to expand our services and product offerings. Our strategic
relationships and key service providers include:
QWEST COMMUNICATIONS INTERNATIONAL
Qwest Communications International provides us with various
telecommunications solutions that help us conduct our simultaneous Internet and
floor auctions. Qwest has also developed a series of telecommunications and
hosting facilities that provide software and data distribution solutions and
offsite information technologies infrastructure. We intend to leverage this
relationship in order to assist us with the deployment of our ASP model.
AUTODESK
Autodesk is a leading developer of design and digital content creation
technologies. We are a Unique Application Reseller of their web-based MapGuide
product, which we use to connect our multiple data sources to our customers.
MapGuide is an open architecture geographical information system that allows us
to organize our data solutions in a distributed infrastructure environment that
ties our customer directly with a data source over our web site. This structure
is more efficient for both the data user and provider as it does not involve us
hosting and managing the databases on our site and ensures current information
for the customer.
J.D. EDWARDS
J.D. Edwards is the developer of OneWorld, a leading enterprise resource
planning system for large and mid-sized businesses. We have a joint development
and marketing arrangement with J.D. Edwards that provides for the development
and integration of many of our modules with the Financial, Foundation and Job
Costing modules of OneWorld. This integrated solution set gives us a platform
independent, multi-currency and multi-lingual product to meet the international
accounting and management needs of large independent and major producers. This
agreement provides us with exclusive rights to market the various OneWorld
offerings to the upstream petroleum industry in North America and non-exclusive
rights worldwide.
TECHNOLOGY
We have designed our Internet marketplace and supporting infrastructure to
be robust, flexible and expandable to support new products and increased
traffic. For the period from January 28, 1999 (inception) through September 30,
1999, we spent $152,000 on research and development and we spent $442,000 in the
six months ended March 31, 2000 on research and development. We maintain full
system backups and have emergency recovery procedures and facilities available.
We have a fully redundant server configuration with redundant power and
high-speed network connections providing theoretical 100% availability. Our
production server configurations use a load balancing clustering solution to
split web traffic among our web servers and a separate database clustering
service for the database and file servers. Our external network traffic is
managed by distribution systems connected to Cisco routers and 3COM switches.
The infrastructure is secured by Cisco router firewalls. As we continue to grow
our need for greater stability, scalability and flexibility will increase. We
are actively pursuing partnerships with technology vendors to meet the growing
demand for our services.
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INTELLECTUAL PROPERTY
We regard our copyrights, service marks, trademarks, trade secrets and
similar intellectual property as a contributing factor to our success and rely
on trademark and copyright law, trade secret protection and confidentiality
and/or license agreements with our employees, customers, partners and others to
protect our proprietary rights. It may be possible for unauthorized third
parties to copy portions of our products or reverse engineer to obtain and use
information that we regard as proprietary. Many end-user license provisions
protecting against unauthorized use may be unenforceable under the laws of a
number of jurisdictions and foreign countries. Our efforts to protect our
proprietary rights in the United States or abroad may not be adequate or
competing companies may independently develop similar technology.
We also license technology and content from third parties and may need to
license additional technology and content in the future. We cannot be certain
that third-party licenses will be available to us on commercially reasonable
terms or at all or that we will be able to successfully integrate the technology
into our products and services. Licensing may expose us to increased risks,
including risks associated with the assimilation of new technology, the
diversion of resources from the development of our own proprietary technology
and our inability to generate revenue from new technology sufficient to offset
associated acquisition and maintenance costs. The inability to obtain any of
these licenses could result in delays in product and service development until
equivalent technology can be identified, licensed and integrated. Any delays in
services could cause our business, financial condition and operating results to
suffer.
COMPETITION
The business-to-business e-commerce market for the petroleum industry is
intensely competitive and rapidly evolving. We face competition from numerous
companies, some of which have more experience and greater financial resources
than we do. We expect to face competition from several classes of competitors,
including:
- existing companies offering traditional oil and gas acquisition and
divestiture services such as investment banking firms and brokers and
other auction houses that are moving or may move their business to the
Internet;
- existing companies that provide goods and services to the energy industry
and view the Internet as a more efficient distribution model, including
large established companies such as Schlumberger, Halliburton and Baker
Hughes;
- Internet companies that have established sites that are pursuing various
e-commerce initiatives in the areas of equipment resale and MRO
procurement, such as Ariba, CommerceOne and FreeMarkets; and
- existing and new Internet companies that specialize in bringing
e-commerce to the petroleum industry, such as Indigopool.com, a
Schlumberger company, Oil & Gas Online.com, a VerticalNet company, Oil
Online.com, Oil-Gasoline.com, OilProperties.com, NetworkOil.com,
penn/NET, a PennWell company, Petro-Web.com and WorldOil.com.
In addition, several competitive initiatives have been announced recently
by consortiums and companies with substantially greater resources than us. These
announcements include an electronic procurement exchange that includes 14 major
oil and chemical companies, including Royal Dutch/Shell, BP Amoco, Dow Chemical,
Mitsubishi, Conoco, Occidental Petroleum, TotalFinaElf and Repsol YPF. This
exchange will use CommerceOne's Marketsite platform. Chevron, Texaco and Ariba
have announced that they are creating a similar supply procurement exchange
called Petrocosm.com. Chevron, EDS, Raytheon and The Information Store have also
recently announced the formation of UpstreamInfo.com, an e-business
business-to-business portal and application service provider to the upstream
petroleum industry.
GOVERNMENT REGULATION
Regulation of the auction business varies from jurisdiction to
jurisdiction. Numerous states have regulations regarding the manner in which
auctions may be conducted and the liability of auctioneers in conducting such
auctions. In addition, we may be subject to requirements of the Securities and
Exchange Commission with respect to the properties we sell at auction. We are
currently a registered broker/dealer
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holding a Series 37 license with the SEC. We believe we are in full compliance
with the requirements thereof. We do not believe we are required to hold this
license to conduct our business.
As we begin to conduct business over the Internet, we will be subject to
regulations relating to Internet or other online services. Our intentional or
unintentional failure to comply with any current or future laws and regulations
could result in an injunction to cease a specific practice or activity and could
subject us to civil and/or criminal penalties.
FACILITIES
Our corporate headquarters are located in Denver, Colorado. We also have
offices in Calgary, Alberta, Canada; Dallas, Texas; Houston, Texas; and Oklahoma
City, Oklahoma.
All of our facilities are leased from third parties. The lease for our
headquarters covers approximately 3,700 square feet, plus an additional 500
square feet at a secondary location. This lease expires on September 30, 2000.
Our Clearinghouse subsidiary leases approximately 25,000 square feet of
space in Houston, Texas in which it maintains its corporate offices and
operations center. This lease expires on October 15, 2009.
Upon the completion of our acquisition of Paradigm, we will lease an
additional aggregate 40,000 square feet of space in Denver and Houston.
We believe our primary facilities are in good operating condition and
adequately serve our current and anticipated near-term business needs.
EMPLOYEES
At April 30, 2000, we had 70 employees, including 26 in sales and
marketing, ten in operations, ten in geotechnical services, 15 in software
development and nine in finance and administration. We are not party to any
collective bargaining agreements. We believe that our relationship with our
employees is satisfactory.
Following the closing of the acquisition of Paradigm, we will add
approximately 97 employees.
LEGAL PROCEEDINGS
From time to time, we may be subject to legal proceedings arising out of
our operations. We are not currently a party to any legal proceedings, which if
determined adversely to us would have a material adverse effect on our
operations or financial condition.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES
Our executive officers, directors and other key employees are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH US
<S> <C> <C>
Executive Officers and Directors
Gary R. Vickers...................... 40 President, Chief Executive Officer and Director
Richard E. Herrmann.................. 36 Senior Vice President of Geotechnology and
Business Development
Jeffrey M. Holben.................... 36 Chief Financial Officer, Vice President of
Finance, Treasurer and Secretary
Eric G. Edwards...................... 42 Vice President of Operations
Kenneth R. Olive, Jr. ............... 48 President and Chief Executive Officer of the
Clearinghouse and Director
Michael F. Bennet(1)(2).............. 35 Director
Marc Cummins(1)(2)................... 40 Director
Thomas G. Washing(1)................. 58 Director
Other Key Employees
Kimberly A. Pickett.................. 33 Director of Marketing
Ramki Thurimella..................... 41 Director of Engineering
</TABLE>
- ------------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
EXECUTIVE OFFICERS AND DIRECTORS
Gary R. Vickers has served as president and chief executive officer and as
a director since founding our company in January 1999. In November 1998, Mr.
Vickers founded Vickers Energy Services LLC to pursue opportunities in applying
web-based electronic commerce to the energy industry. Prior to founding Vickers
Energy Services LLC, Mr. Vickers served as a consultant to the IHS Energy Group
Companies after their acquisitions of Petroleum Information Corp., Dwights
Energy Data and Petro Consultants. From August 1993 until November 1998, Mr.
Vickers served as president and chairman of Creative Programming and Technology
Ventures, Inc., a publicly-traded software technology company specializing in
the development and publication of advanced platform interactive game
technology.
Richard E. Herrmann has served as senior vice president of geotechnology
and business development since September 1999. From April 1995 to August 1999,
Mr. Herrmann served as director of geotechnology and project manager at
GeoGraphix, Inc., an oil and gas software subsidiary of Halliburton Corp. From
1987 to 1995, Mr. Herrmann was an exploration geophysicist and development
geologist with Chevron USA. Mr. Herrmann holds an M.S. in exploration geophysics
from Stanford University and a B.S. in earth, atmospheric and planetary sciences
from the Massachusetts Institute of Technology.
Jeffrey M. Holben has served as chief financial officer, vice president of
finance, treasurer and secretary since September 1999. From October 1998 to
September 1999, Mr. Holben served as vice president and chief financial officer
at Avalon Imaging, Inc., a vision automation company. From July 1993 to October
1998, he served as director of finance at GeoGraphix, Inc., an oil and gas
software subsidiary of Halliburton Corp. Mr. Holben holds an M.B.A. from Notre
Dame University and a B.S. in finance from the University of Denver.
Eric G. Edwards has served as vice president of operations since November
1999 and served as a consultant to the Company from March 1999 until joining us
in his current capacity. From September 1997 to March 1999, Mr. Edwards served
as president of Call US, Inc., a company that provided third party technical
services to the software industry. From September 1995 to October 1997, he
served as senior vice president and chief financial officer of Pacer/CATS/CCS, a
Wembley-Ticketmaster joint venture which
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provided software for the stadium and movie theatre ticket business. From
January 1991 to September 1995, Mr. Edwards was a principal in Upside
Management, a business strategy and development consulting company. Mr. Edwards
holds a B.S. in accounting from the University at Albany, State University of
New York.
Kenneth R. Olive, Jr. has served as a director since October 1999 and as
president and chief executive officer of the Clearinghouse since founding that
company in December 1992. Mr. Olive has held positions in the oil industry since
1969, beginning as an oilfield roustabout. He managed onshore and offshore oil
and gas properties throughout the world for a number of companies including
Pennzoil Company, Columbia Gas Development and Case-Pomeroy Oil Corporation. Mr.
Olive holds a B.B.A. in marketing from Texas Tech University.
Michael F. Bennet has served as a director since May 1999. Since November
1997, Mr. Bennet has been employed by, and currently serves as vice president
of, Anschutz Investment Company. In that role, he undertakes and directs private
equity investments ranging from start-up venture capital to large public market
transactions. From November 1995 to October 1997, Mr. Bennet served as a special
assistant and counsel to Deputy Attorney General Jamie Gorelick of the U.S.
Department of Justice. From January to September 1995, Mr. Bennet was an
attorney with the Washington, D.C. law firm of Wilmer, Cutler & Pickering. Mr.
Bennet also serves as a director of Forcenergy, Inc., an oil and gas exploration
and production company. Mr. Bennet holds a J.D. from Yale Law School and a B.A.
in history from Wesleyan University.
Marc Cummins has served as a director since March 2000. Since January 1999,
Mr. Cummins has served as a general partner of Catterton Partners, a private
equity investment firm and as chairman of Channel Capital Group, an investor in
business-to-business e-commerce. From 1981 to 1998, Mr. Cummins served as an
investment banker with Donaldson, Lufkin & Jenrette Securities Corporation, most
recently as managing director of the Retail and Specialty Distribution
Investment Banking Group. Mr. Cummins holds an M.B.A. from The Wharton School of
the University of Pennsylvania and a B.A. in economics from Middlebury College.
Thomas G. Washing has served as a director since April 1999. Since
September 1996, Mr. Washing has been a managing director of Sequel Venture
Partners, a venture capital firm specializing in emerging growth technology
companies in the fields of information technology, health care and
telecommunications. From April 1994 to September 1996, Mr. Washing was a private
investor and consultant to a number of technology companies. From January 1986
to April 1994, Mr. Washing served as a partner in the private equity investment
firm of Hill, Carmen & Washing. Mr. Washing holds a J.D. from the University of
Michigan Law School and a B.A. from Dartmouth College.
OTHER KEY EMPLOYEES
Kimberly A. Pickett has served as director of marketing since February
2000. From December 1998 to February 2000, Ms. Pickett served as a product
manager for Oracle Corporation. From March 1998 to November 1998, Ms. Pickett
served as vice president, business development and marketing at Qubit
Technology, a start-up company developing a non-PC Internet appliance. From July
1997 to March 1998, Ms. Pickett was a marketing manager at Microsoft
Corporation. From October 1991 to July 1997, Ms. Pickett held various positions
with GeoGraphix, Inc., including most recently as director of marketing. Ms.
Pickett holds a B.S. in business administration from the University of Colorado
at Boulder.
Ramki Thurimella has served as director of engineering since August 1999.
From 1991 to December 1999, Dr. Thurimella was a faculty member in the
department of mathematics and computer science at the University of Denver. In
this capacity, he conducted a variety of projects, including the implementation
of heuristics to store and deliver continuous media from secondary storage,
efficient multimedia indexing, evaluation of distributed technologies for
virtual enterprises and object-oriented installation tools for enterprise
resource planning software. Dr. Thurimella has done pioneering work in the areas
of design and analysis of algorithms that appeared in many national and
international journals. He is also a recipient of funding from the National
Science Foundation. Dr. Thurimella holds a Ph.D. in computer science from The
University of Texas at Austin and an M.S. in computer science from the Indian
Institute of Technology.
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<PAGE> 50
CLASSIFIED BOARD OF DIRECTORS
We currently have five directors. In April 2000, our board of directors
approved, subject to stockholder approval, our restated certificate of
incorporation to provide for, among other things, a classified board of
directors. The restated certificate of incorporation states that the terms of
office of the board of directors will be divided into three classes:
- class I, consisting of Mr. Washing, whose term will expire at the annual
meeting of stockholders to be held in 2001;
- class II, consisting of Messrs. Olive and Cummins, whose terms will
expire at the annual meeting of stockholders to be held in 2002; and
- class III, consisting of Messrs. Vickers and Bennet, whose terms will
expire at the annual meeting of stockholders to be held in 2003.
At each annual meeting of stockholders beginning with the 2001 annual
meeting, the successors to directors whose terms expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election and until their successors have been elected.
BOARD COMMITTEES
AUDIT COMMITTEE
Our audit committee consists of Messrs. Bennet, Cummins and Washing. The
audit committee makes recommendations to the board of directors regarding the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by our independent auditors and evaluates our
internal accounting procedures.
COMPENSATION COMMITTEE
Our compensation committee consists of Messrs. Bennet and Cummins. The
compensation committee reviews and approves compensation and benefits for our
executive officers. The compensation committee also administers our compensation
and stock plans and makes recommendations to the board of directors regarding
such matters.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the compensation committee has been an officer or employee of
Petroleum Place at any time. None of our executive officers serves as a member
of the board of directors or compensation committee of any other company that
has one or more executive officers serving as a member of our board of directors
or compensation committee.
DIRECTOR COMPENSATION
Other than reimbursing directors for customary and reasonable expenses
incurred in attending board of directors and committee meetings, we do not
currently compensate our directors.
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<PAGE> 51
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to our president and chief executive officer for services rendered in all
capacities to us during fiscal 1999. Throughout this prospectus we refer to this
person as our named executive officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION ------------------
---------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS COMPENSATION
<S> <C> <C> <C> <C>
Gary R. Vickers
President and Chief Executive Officer...... $233,384 -- 61,328 --
</TABLE>
OPTION GRANTS IN FISCAL 1999
The following table sets forth information regarding options granted to the
named executive officer during fiscal 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
PERCENT OF STOCK PRICE
TOTAL OPTIONS APPRECIATION
NUMBER OF GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE --------------------
NAME GRANTED FISCAL 1999 PER SHARE EXPIRATION DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Gary R. Vickers...... 61,328 18.9% $0.75 May 31, 2009 $12,708 $28,081
</TABLE>
The percent of total options granted to employees in the above table is
based on 323,738 total options granted to employees in fiscal 1999. Our board of
directors may reprice options under the terms of our stock option plans.
Options were granted at an exercise price equal to the fair market value of
our common stock, as determined by our board of directors on the date of grant.
In making this determination, the board of directors considered a number of
factors, including:
- our historical and prospective future revenue and profitability;
- our cash balance and rate of cash consumption;
- the development and size of the market for our services;
- the status of our financing activities;
- the stability of our management team; and
- the breadth of our service offerings.
The amounts reflected in the "Potential Realizable Value" column of the
foregoing table are calculated assuming that the fair market value of the common
stock on the date of the grant as determined by the board of directors
appreciates at the indicated annual rate compounded annually for the entire term
of the option, and that the option is exercised and the common stock received
therefor is sold on the last day of the term of the option for the appreciated
price. The 5% and 10% rates of appreciation are mandated by the rules of the SEC
and do not represent our estimate or projection of future increases in the price
of the common stock.
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<PAGE> 52
FISCAL 1999 OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth information concerning the value realized
upon exercise of options during fiscal 1999 and the number and value of
unexercised options held by the named executive officer at September 30, 1999.
The value of the unexercised in-the-money options is based on the fair market
value of our common stock as of September 30, 1999, determined by the board of
directors in the manner discussed above to be $0.75 per share, minus the per
share exercise price, multiplied by the number of shares underlying the option.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Gary R. Vickers.......... -- -- -- 61,328 -- --
</TABLE>
STOCK PLANS
AMENDED AND RESTATED 1999 EQUITY INCENTIVE PLAN.
Our board of directors adopted our Amended and Restated 1999 Equity
Incentive Plan on May 25, 1999 and our stockholders approved it on June 24,
1999.
Administration. The board administers the incentive plan unless it
delegates administration to a committee. The board has the authority to
construe, interpret and amend the incentive plan as well as to determine:
- the grant recipients;
- the grant dates;
- the number of shares subject to the award;
- the exercisability and vesting of the award;
- the exercise price;
- the type of consideration; and
- the other terms of the award.
Share Reserve. We have reserved a total of 1,250,000 shares of our common
stock for issuance under the incentive plan, of which options to purchase
345,892 shares had been granted as of March 31, 2000. The share reserve for the
plan is scheduled to increase each January 1 during the term of the incentive
plan by the lesser of:
- 3% of the total number of shares of the common stock outstanding on such
January 1; and
- 3% of the total number of shares of the common stock outstanding on the
effective date of this offering.
However, the automatic increase is subject to reduction by the board. If
the recipient of a stock award does not purchase the shares subject to his or
her stock award before the stock award expires or otherwise terminates, the
shares that are not purchased again become available for issuance under the
incentive plan.
Eligibility. The board may grant incentive stock options that qualify under
Section 422 of the Internal Revenue Code to our employees and to the employees
of our affiliates. The board may also grant
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<PAGE> 53
nonstatutory stock options, stock bonuses and restricted stock purchase awards
to our employees, directors and consultants as well as to the employees,
directors and consultants of our affiliates.
- A stock option is a contractual right to purchase a specified number of
our shares at a specified price (exercise price) for a specified period
of time.
- An incentive stock option is a stock option that has met the
requirements of Section 422 of the Internal Revenue Code. This type of
option is free from regular tax at both the date of grant and the date
of exercise. However, the difference between the fair market value on
the date of exercise and the exercise price is an item of alternative
minimum tax unless there is a disqualifying disposition in the year of
exercise. If two holding period tests are met- two years between grant
date and sale date and one year between exercise date and sale date- all
profit on the sale of our shares acquired by exercising the incentive
stock option is long-term capital gain income. However, if either of the
holding periods is not met, there has been a disqualifying disposition,
and a portion of any profit will be taxed at ordinary income rates.
- A nonstatutory stock option is a stock option that either does not meet
the Internal Revenue Code criteria for qualifying incentive stock
options or is not intended to be an incentive stock option. It triggers
a tax upon exercise. This type of option requires payment of state and
federal income tax and, if applicable, FICA/FUTA on the difference
between the exercise price and the fair market value on the exercise
date.
- A restricted stock purchase award consists of our offer to sell our
shares at a price either at or near the fair market value of the shares.
A stock bonus, on the other hand, is a grant of our shares at no cost to
the recipient in consideration for past services rendered.
Under some conditions, the board may grant an incentive stock option to a
person who owns or is deemed to own stock possessing more than 10% of our total
combined voting power or the total combined voting power of an affiliate of
ours. The exercise price of an incentive stock option in such cases must be at
least 110% of the fair market value of the stock on the grant date and the
option term may not exceed five years.
Limits on Option Grants. There are limits on the number of shares that the
board may grant under an option.
- Section 162(m) of the Internal Revenue Code, among other things, denies a
deduction to publicly-held corporations for compensation paid to the
chief executive officer and the four highest compensated officers in a
taxable year to the extent that the compensation for each officer exceeds
$1,000,000. When we become subject to Section 162(m), in order to prevent
options granted under the incentive plan from being included in
compensation, the board may not grant options under the incentive plan to
an employee covering an aggregate of more than 250,000 shares in any
calendar year.
- In addition, an employee may not receive incentive stock options that
exceed the $100,000 per year limitation set forth in Section 422(d) of
the Internal Revenue Code. In calculating the $100,000 per year
limitation, we determine the aggregate number of shares under all
incentive stock options granted to that employee that will become
exercisable for the first time during a calendar year. For this purpose,
we include incentive stock options granted under the incentive plan as
well as under any other stock plans that our affiliates or we maintain.
We then determine the aggregate fair market value of the stock as of the
grant date of the option. Taking the options into account in the order in
which they were granted, we treat only the options covering the first
$100,000 worth of stock as incentive stock options. We treat any options
covering stock in excess of $100,000 as nonstatutory stock options.
Option Terms. The board may grant incentive stock options with an exercise
price of 100% or more of the fair market value of a share of our common stock on
the grant date. The exercise price of nonstatutory stock options may be 50% or
more of fair market value. If the value of our shares declines thereafter, the
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<PAGE> 54
board may offer optionholders the opportunity to replace their outstanding
higher-priced options with new lower-priced options. To the extent required by
Section 162(m) of the Internal Revenue Code, the old repriced option is deemed
to be canceled and a new option granted, but both options will be counted
against the Section 162(m) limit discussed above.
The maximum option term is ten years. Subject to this limitation, the board
may provide for exercise periods of any length in individual option grants.
However, generally an option terminates three months after the optionholder's
service to our affiliates and to us terminates. If this termination is due to
the optionholder's disability, the exercise period generally is extended to 12
months. If this termination is due to the optionholder's death or if the
optionholder dies within three months after his or her service terminates, the
exercise period generally is extended to 18 months following the optionholder's
death.
The board may provide for the transferability of nonstatutory stock options
but not incentive stock options. However, the optionholder may designate a
beneficiary to exercise either type of option following the optionholder's
death. If the optionholder does not designate a beneficiary, the optionholder's
option rights will pass by his or her will or by the laws of descent and
distribution.
Terms of Other Stock Awards. The board determines the purchase price of
other stock awards. However, the board may award stock bonuses in consideration
of past services without a purchase payment. Shares that we sell or award under
the incentive plan may, but need not be, restricted and subject to a repurchase
option in our favor in accordance with a vesting schedule that the board
determines. The board, however, may accelerate the vesting of the restricted
stock.
Other Provisions. Transactions not involving our receipt of consideration,
including a merger, consolidation, reorganization, stock dividend and stock
split, may change the class and number of shares subject to the Incentive Plan
and to outstanding awards. In that event, the board will appropriately adjust
the Incentive Plan as to the class and the maximum number of shares subject to
the Incentive Plan, to the cap on the number of shares available for incentive
stock options and to the Section 162(m) limit. It also will adjust outstanding
awards as to the class, number of shares and price per share subject to the
awards.
If we dissolve or liquidate, then outstanding stock awards will terminate
immediately prior to this event. However, we treat outstanding stock awards
differently in the following situations:
- a sale of substantially all of our assets;
- a merger or consolidation in which the stockholders immediately prior to
such transaction own less than 50% of the voting power of the surviving
entity following the transaction; or
- any transaction or series of related transactions in which in excess of
50% of our voting power is transferred.
In these situations, the surviving entity will either assume or replace all
outstanding awards under the incentive plan. If it declines to do so, then
generally the vesting and exercisability of the awards will accelerate.
In addition, if a participant's service either is involuntarily terminated
without cause or is voluntarily terminated for good reason within 12 months
after one of the listed transactions, then any vesting of an award, and, if
applicable, the exercisability of the award, will accelerate.
Plan Termination. The incentive plan will terminate in 2010 unless the
board terminates it sooner.
2000 EMPLOYEE STOCK PURCHASE PLAN
On April 14, 2000, the board adopted, subject to stockholder approval, the
2000 Employee Stock Purchase Plan, authorizing the issuance of 150,000 shares of
common stock pursuant to purchase rights granted to our employees or to
employees of any affiliate of ours. The purchase plan is intended to qualify as
an employee stock purchase plan within the meaning of Section 423 of the
Internal Revenue Code. As of the
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<PAGE> 55
date hereof, no shares of common stock had been purchased under the purchase
plan. The share reserve for the plan is scheduled to increase each January 1
during the term of the purchase plan by the lesser of:
- 3% of the total number of shares of the common stock outstanding on such
January 1; and
- 3% of the total number of shares of the common stock outstanding on the
effective date of this offering.
However, the board may designate a smaller increase as of any January 1.
The purchase plan is administered by the board, but such administration may
be delegated to the compensation committee. The purchase plan provides a means
by which employees may purchase our common stock through payroll deductions. The
purchase plan is implemented by offerings of rights to eligible employees.
Generally, all regular employees, including executive officers, who work at
least 20 hours per week and are customarily employed by us or by one of our
affiliates for at least five months per calendar year may participate in the
purchase plan and may authorize payroll deductions of up to 15% of their
earnings for the purchase of stock under the purchase plan. Under the plan, we
may specify offerings with a duration of not more than 27 months, and may
specify shorter purchase periods within each offering. The first offering will
begin on the effective date of this offering and be approximately 26 months in
duration with purchases occurring every six months. Unless otherwise determined
by the board, common stock is purchased for accounts of employees participating
in the purchase plan at a price per share equal to the lower of:
- 85% of the fair market value of a share of our common stock on the date
of commencement of participation in this offering; and
- 85% of the fair market value of a share of our common stock on the date
of purchase.
Eligible employees may be granted rights only if the rights, together with
any other rights granted under employee stock purchase plans, do not permit such
employee's rights to purchase stock to accrue at a rate which exceeds $25,000 of
the fair market value of such stock for each calendar year in which such rights
are outstanding. No employee is eligible for the grant of any rights under the
purchase plan if immediately after these rights are granted, the employee has
voting power over 5% or more of our outstanding capital stock, measured by vote
or value.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
We have entered into an employment agreement with Gary R. Vickers, our
president and chief executive officer and one of our directors, which expires on
June 1, 2004. Under the agreement, we are obligated to pay Mr. Vickers an annual
base salary of at least $186,000, current benefits and a bonus based on
performance goals. If Mr. Vickers' employment is terminated by us without cause
or by Mr. Vickers due to a constructive termination, then we are obligated to
provide Mr. Vickers with a severance payment equal to two times Mr. Vickers
then-current base salary.
We have entered into an employment agreement with Kenneth R. Olive, Jr.,
one of our directors, with respect to his position as president and chief
executive officer of the Clearinghouse, which expires on June 1, 2004. Under the
agreement, we are obligated to pay Mr. Olive an annual base salary of at least
$162,500, current benefits and a bonus based on performance goals. If Mr.
Olive's employment is terminated by us without cause or by Mr. Olive due to a
constructive termination, then we are obligated to provide Mr. Olive with a
severance payment equal to two times Mr. Olive's then-current base salary.
Under the terms of the employment agreements of Mr. Vickers and Mr. Olive,
cause is generally defined as:
- a breach by the executive of his duty of loyalty as a member of the board
of directors;
- the commission of a felony, a crime involving moral turpitude or any
other act causing material harm to us;
- the failure of the executive to use his best efforts to follow the
directions of the board of directors;
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<PAGE> 56
- the current illegal use of drugs; or
- the good faith determination by the board of directors that any two
consecutive years of operating losses are the result of substandard
performance by the executive.
Under the terms of these employment agreements, constructive termination is
generally defined as:
- the assignment of duties materially inconsistent with normal duties
associated with the executive's then-current position;
- conduct by the board of directors having the purpose of forcing the
resignation of the executive or preventing the executive from performing
his duties;
- a material breach by us of the executive's employment agreement; or
- a default or decrease in the executive's compensation.
We have entered into a letter agreement with Jeffrey M. Holben, our chief
financial officer, vice president of finance, treasurer and secretary. Under the
agreement, if Mr. Holben's employment is terminated by us without cause or if
his employment is terminated due to any merger, acquisition or corporate event,
we are obligated to provide Mr. Holben with a severance payment equal to nine
months of his then-current base salary. Under the terms of the letter agreement,
cause is generally defined as the commission by Mr. Holben of acts involving
gross misconduct that are seriously detrimental to our interests, operations,
reputation or credit.
Additionally, pursuant to our Amended and Restated 1999 Equity Incentive
Plan, outstanding options will fully vest if not assumed by the surviving entity
following a change in control.
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<PAGE> 57
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PURCHASES OF CAPITAL STOCK
Since our inception, the following executive officers, directors and
holders of more than 5% of our voting securities purchased securities in the
amounts and as of the dates shown.
<TABLE>
<CAPTION>
SERIES A SERIES C
COMMON PREFERRED PREFERRED
PURCHASER STOCK STOCK STOCK
<S> <C> <C> <C>
Directors and Executive Officers
Gary R. Vickers........................................... 500,000 - -
Marc Cummins(1)........................................... - - 152,233
5% or Greater Stockholders
Anschutz Family Investment Company LLC(2)................. - 515,069 15,879
Sequel Limited Partnership II, L.P.(3).................... - 535,671 16,915
Vickers Energy Services, LLC(4)........................... - 666,666
Price Per Share............................................. $ 0.01 $ 7.50 $ 59.12
Date of Purchase............................................ 1/99 2/99 3/00
</TABLE>
- ------------------------------
(1) Consists of shares of Series C preferred stock purchased by Channel P2, LLC
and Channel P2 Group, LLC. Mr. Cummins, one of our directors, is a managing
member of Channel P2, LLC and Channel P2 Group, LLC.
(2) Mr. Bennet, one of our directors, is vice president of Anschutz Investment
Company LLC, an affiliate of Anschutz Family Investment Company LLC.
(3) Includes shares of Series A preferred stock and Series C preferred stock
purchased by Sequel Entrepreneurs Fund II, L.P., an affiliate of Sequel
Limited Partnership II, L.P. Mr. Washing, one of our directors, is a
managing member of Sequel Venture Partners II, LLC, which is the general
partner of Sequel Limited Partnership II, L.P., and Sequel Entrepreneurs
Fund II, L.P.
(4) Mr. Vickers, our president and chief executive officer and one of our
directors, is sole manager of Vickers Energy Services, LLC.
We have entered into an amended and restated investors' rights agreement
with each of the purchasers of preferred stock shown above. This agreement
provides that these and other stockholders will have registration rights with
respect to the shares of common stock issuable upon conversion of their
preferred stock upon completion of this offering. See "Description of Capital
Stock -- Registration Rights" for a further description of these rights.
DISTRIBUTIONS OF S-CORPORATION
In fiscal 1999, our wholly-owned subsidiary, the Clearinghouse, paid
S-corporation distributions in the amount of $2.8 million to its shareholders.
Mr. Olive, the president and chief executive officer of the Clearinghouse, who
serves as one of our directors, received $938,280 in the fiscal 1999
distributions.
ACQUISITION OF THE CLEARINGHOUSE AND ISSUANCE OF SERIES B PREFERRED STOCK
On June 1, 1999, we acquired 80% of the outstanding shares of capital stock
of the Clearinghouse for approximately $16.8 million and, in August 1999, we
acquired the remaining 20% of the outstanding shares in exchange for 455,120
shares of our Series B preferred stock. The fair market value of the 455,120
shares of our Series B preferred stock was approximately $8.6 million, as
determined by our board of directors. We purchased from Mr. Olive 1,851 shares
of the Clearinghouse for an aggregate purchase price of $3.75 million and 3,000
shares of the Clearinghouse in exchange for 341,340 shares of our Series B
preferred stock in the acquisition.
We have entered into an amended and restated investors' rights agreement
with Mr. Olive and the other holders of Series B preferred stock. This agreement
provides that these and other stockholders will have registration rights with
respect to the shares of common stock issuable upon conversion of their
preferred stock upon completion of this offering.
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<PAGE> 58
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of March 31, 2000 for:
- each person or group of affiliated persons known to us to own
beneficially more than five percent of our common stock;
- each of our directors;
- our named executive officer listed in the summary compensation table; and
- all of our directors and executive officers as a group.
In accordance with the rules of the SEC, the following table gives effect
to the shares of common stock that could be issued upon the exercise of
outstanding options within 60 days of March 31, 2000. Unless otherwise indicated
in the footnotes below and subject to community property laws where applicable,
the following individuals have sole voting and investment control with respect
to the shares beneficially owned by them.
We have calculated percent of shares beneficially owned based on 4,043,714
shares of common stock outstanding before this offering and shares of
common stock outstanding after this offering. An asterisk indicates ownership of
less than one percent.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF SHARES
SHARES BENEFICIALLY OWNED
BENEFICIALLY --------------------------------
BENEFICIAL OWNERS OWNED BEFORE OFFERING AFTER OFFERING
<S> <C> <C> <C>
Gary R. Vickers(1)................................... 1,000,000 24.7% %
Anschutz Family Investment Company LLC(2)............ 530,948 13.1
Sequel Limited Partnership II, L.P.(3)............... 552,586 13.7
Vickers Energy Services, LLC(4)...................... 500,000 12.4
Michael F. Bennet(5)................................. 532,355 13.2
Marc Cummins(6)...................................... 152,233 3.8
Kenneth R. Olive, Jr. ............................... 341,340 8.4
Thomas G. Washing(7)................................. 552,586 13.7
All executive officers and directors as a group
(8 persons)(8)..................................... 3,078,514 76.1
</TABLE>
- ------------------------------
(1) Includes 50,000 shares held by Mr. Vickers' wife, Kerry Vickers, and 500,000
shares held by Vickers Energy Services, LLC. Mr. Vickers is managing member
of Vickers Energy Services, LLC and may be deemed to be an indirect
beneficial owner of these shares. Mr. Vickers disclaims beneficial ownership
of these shares, except to the extent of his pecuniary interest therein. Mr.
Vickers' address is The Petroleum Place, Inc., 5299 DTC Parkway, Suite 815,
Englewood, Colorado 80111.
(2) The address of Anschutz Family Investment Company LLC is 555 17th Street,
Suite 2400, Denver, Colorado 80202.
(3) Includes 17,967 shares held by Sequel Entrepreneurs Fund II, L.P., an
affiliate of Sequel Limited Partnership II, L.P. The address of Sequel
Limited Partnership II, L.P., and Sequel Entrepreneurs Fund II, L.P., is
4430 Arapahoe Avenue, Suite 220, Boulder, Colorado 80303.
(4) The address of Vickers Energy Services, LLC is 7900 East Union Avenue, Suite
1100, Denver, Colorado 80237.
(5) Includes 530,948 shares held by Anschutz Family Investment Company LLC. Mr.
Bennet is vice president of Anschutz Investment company LLC, an affiliate of
Anschutz Family Investment Company LLC, and may be deemed to be the indirect
beneficial owner of these shares. Mr. Bennet disclaims beneficial ownership
of these shares, except to the extent of his pecuniary interest therein.
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<PAGE> 59
(6) Consists of 138,363 shares held by Channel P2, LLC and 13,870 shares held by
Channel P2 Group, LLC. Mr. Cummins is a managing member of Channel P2, LLC,
and Channel P2 Group, LLC and may be deemed to be the indirect beneficial
owner of these shares. Mr. Cummins disclaims beneficial ownership of these
shares, except to the extent of his pecuniary interest therein.
(7) Consists of 534,619 shares held by Sequel Limited Partnership II, L.P., and
17,967 shares held by Sequel Entrepreneurs Fund II, L.P. The sole general
partner of Sequel Limited Partnership II, L.P., and Sequel Entrepreneurs
Fund II, L.P., is Sequel Venture Partners II, LLC. Mr. Washing is a managing
member of Sequel Venture Partners II, LLC and may be deemed to be the
indirect beneficial owner of these shares. Mr. Washing disclaims beneficial
ownership of these shares, except to the extent of his pecuniary interest
therein.
(8) Includes shares included pursuant to note 1 and notes (5) through (7).
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<PAGE> 60
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of shares of common stock, par
value $0.001 per share, and shares of preferred stock, par value $0.001 per
share.
The following description of our securities reflects changes that will be
made to our certificate of incorporation and bylaws upon the closing of this
offering. We have filed our restated certificate of incorporation and amended
and restated bylaws as exhibits to the registration statement of which this
prospectus is a part.
COMMON STOCK
As of March 31, 2000, there were 4,039,375 shares of common stock
outstanding and held of record by 84 stockholders and 377,712 shares issuable
upon the exercise of outstanding options and warrants. Upon the closing of this
offering, there will be shares of common stock outstanding, assuming no
exercise of the underwriters' over-allotment option.
Holders of common stock are entitled to one vote for each share on all
matters submitted to a vote of stockholders. Holders of common stock are not
entitled to cumulative voting rights in the election of directors. Accordingly,
minority stockholders will not be able to elect directors on the basis of their
votes alone. Subject to preferences that may be applicable to any
then-outstanding shares of preferred stock, holders of common stock are entitled
to receive ratably such dividends as may be declared by our board of directors.
In the event we liquidate, dissolve or wind up our affairs, holders of common
stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preferences of any then-outstanding shares of
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights.
PREFERRED STOCK
Our board of directors is authorized, without further stockholder approval,
to issue up to an aggregate of shares of preferred stock in one or more
series. The board of directors may fix or alter the designations, preferences,
rights, including dividend, conversion, voting and liquidation rights, and any
qualifications, limitations or restrictions of the shares of each series. The
issuance of preferred stock could:
- adversely affect the voting power of holders of common stock;
- adversely affect the likelihood that the holders of common stock will
receive dividend payments and payments upon liquidation; and
- delay, defer or prevent a change in control.
We have no present plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
The holders of 3,526,747 shares of common stock to be issued upon the
automatic conversion of our outstanding preferred stock upon the closing of this
offering are entitled to registration rights. We refer to these shares of common
stock as "registrable securities." Under the terms of an agreement between us
and these stockholders, beginning 90 days following the closing of this
offering, holders of more than 30% of the common stock that will have been
converted from our Series A and Series C preferred stock, the "senior
registrable securities," may require that we register their shares for public
resale if the aggregate offering price of the shares to be sold is at least
$15,000,000. We are not obligated to register these shares after we have
effected two such registrations under the agreement. Additionally, the holders
of more that 30% of the registrable securities may require that we register
their shares for public resale on Form S-3 or similar short-form registration
statement provided that the value of the securities to be registered is at least
$1,000,000. We are not obligated to effect more than two such S-3 registrations
in any 12 month period. Furthermore, if we elect to register any of our common
stock on a form that would be suitable for registration of the registrable
securities, we will give the holders of registrable securities notice of such
registration and include any shares
57
<PAGE> 61
of registrable securities requested for inclusion, subject however to the right
of the underwriter, if any, to reduce the number of shares proposed to be
registered in view of market conditions. We are generally required to bear all
of the expenses of any of these registrations, except underwriting discounts and
commissions. All registration rights will terminate three years after the
closing of this offering or at such time as a holder of registrable securities
may sell all such registrable securities in any 90 day period under Rule 144
under the Securities Act.
The holders of 16,856 shares of common stock issued in connection with the
acquisition of all of the assets of Strata Web are entitled to registration
rights. We refer to these shares of common stock as "Strata Web securities." We
will give the holders of Strata Web securities notice of the filing of a
registration statement for purposes of an initial public offering and include
any shares of Strata Web securities requested for inclusion, subject however, to
the right of the underwriter, if any, to reduce the number of shares proposed to
be registered in view of market conditions. If we fail to give proper notice of
the filing of such registration by June 30, 2001, then the holders of Strata Web
securities may require us to repurchase up to $500,000 of Strata Web securities.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE
OF INCORPORATION AND BYLAWS
Following the closing of this offering, we will be subject to the
provisions of Section 203 of the Delaware General Corporation Law, which
generally prohibits a publicly-held Delaware corporation from engaging in a
business combination with an interested stockholder for a period of three years
after the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained that status with the
approval of the corporation's board of directors or unless the business
combination is approved in a prescribed manner. Business combinations include
mergers, asset sales and other transactions resulting in a financial benefit to
the interested stockholder. With certain exceptions, an interested stockholder
is a person who, together with affiliates and associates, owns, or within three
years did own, 15% or more of a corporation's voting stock. This statute could
prohibit or delay the accomplishment of mergers or other takeover or
change-in-control attempts and, accordingly, may discourage attempts to acquire
us.
The following provisions of our restated certificate of incorporation and
amended and restated bylaws that will become effective upon the closing of this
offering may have an anti-takeover effect and may delay or prevent a tender
offer or takeover attempt that a stockholder might consider to be in its best
interest, including attempts that might result in a premium over the market
price for the common stock:
Classified Board of Directors. Our board of directors will be divided into
three classes. The directors in class I will hold office until the first annual
meeting of stockholders following this offering, the directors in class II will
hold office until the second annual meeting of stockholders following this
offering, and the directors in class III will hold office until the third annual
meeting of stockholders following this offering. After each such election, the
directors in that class will serve for terms of three years. The classification
system of electing directors may tend to discourage a third party from making a
tender offer or otherwise attempting to obtain control of us and may maintain
the incumbency of the board of directors, since such classification generally
increases the difficulty of replacing a majority of the directors.
Board of Director Vacancies. The board of directors will be authorized to
fill vacant directorships and to increase the size of the board of directors.
This may deter a stockholder from removing incumbent directors and
simultaneously gaining control of the board of directors by filling the
resulting vacancies with its own nominees.
Stockholder Action; Special Meetings of Stockholders. Our stockholders will
not be permitted to take action by written consent, but only at duly called
annual or special meetings of stockholders. In addition, special meetings of
stockholders may be called only by the chairman of the board, the chief
executive officer or a majority of the board of directors.
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<PAGE> 62
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Stockholders seeking to bring business before an annual meeting of
stockholders, or to nominate candidates for election as directors at an annual
meeting of stockholders, must deliver a written notice to our principal
executive offices within a prescribed time period. Our amended and restated
bylaws also set forth specific requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from bringing
matters before an annual meeting of stockholders or from making nominations for
the election of directors at an annual meeting of stockholders.
Authorized but Unissued Shares. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to limitations imposed by the Nasdaq National
Market. We may use these additional shares for a variety of corporate purposes,
including future public offerings to raise additional capital, acquisitions and
employee benefit plans. The existence of authorized but unissued and unreserved
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our bylaws provide that we will indemnify our directors, officers,
employees and agents to the fullest extent permitted by Delaware law. In
addition, our certificate of incorporation provides that, to the fullest extent
permitted by Delaware law, our directors will not be liable for monetary damages
for breach of the directors' fiduciary duty to us and our stockholders. This
provision of the certificate of incorporation does not eliminate the duty of
care. In appropriate circumstances equitable remedies such as an injunction or
other forms of non-monetary relief are available under Delaware law. This
provision also does not affect a director's responsibilities under any other
laws, such as the federal securities laws.
Each director will continue to be subject to liability for:
- breach of the director's duty of loyalty;
- acts or omissions not in good faith or involving intentional misconduct;
- knowing violations of law;
- any transaction from which the director derived an improper personal
benefit;
- improper transactions between the director and us; and
- improper distributions to stockholders and improper loans to directors
and officers.
We intend to enter into indemnity agreements with each of our directors and
executive officers under which each director and executive officer will be
indemnified against expenses and losses incurred for claims brought against them
by reason of their being a director or executive officer of ours. Our board of
directors has authorized our officers to investigate and obtain directors' and
officers' liability insurance.
There is no pending litigation or proceeding involving any of our directors
or officers as to which indemnification is being sought. We are not aware of any
pending or threatened litigation that may result in claims for indemnification
by any of our directors or officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and control persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the SEC, such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable.
59
<PAGE> 63
LISTING
We have applied for listing of the common stock on the Nasdaq National
Market under the trading symbol "PPLC."
TRANSFER AGENT AND REGISTRAR
We have appointed to serve as the transfer agent and registrar
for the common stock.
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<PAGE> 64
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. We cannot predict what effect, if any, market sales of shares or the
availability of shares for sale will have on the market price of our common
stock prevailing from time to time. Nevertheless, sales of substantial amounts
of common stock in the public market, or the perception that such sales could
occur, could adversely affect the market price of the common stock and could
impair our future ability to raise capital through the sale of our equity
securities.
Upon the closing of this offering, we will have a total of shares of
common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of options or warrants. Of the outstanding
shares, the shares being sold in this offering will be freely tradable,
except that any shares held by our affiliates, as that term is defined under the
Securities Act, may generally only be sold in compliance with the limitations of
Rule 144 as described below.
SALES OF RESTRICTED SHARES
The remaining 4,043,714 shares of common stock held by our existing
stockholders were issued and sold by us in reliance on exemptions from the
registration requirements of the Securities Act. All of these shares will be
subject to "lock-up" agreements providing that the stockholder will not offer,
sell or otherwise dispose of any of the shares of common stock owned by them for
a period of 180 days after the date of this offering. However, the holders of
these restricted shares (other than our employees) may offer, sell or otherwise
dispose of 25% of their shares if the last recorded sale price on the Nasdaq
National Market is at least twice the price per share in the initial public
offering for 20 of the 30 trading days ending on the later of the last trading
day of the 90-day period after the date of this prospectus or the second trading
day after the first public release of our quarterly results. These stockholders
may also offer, sell or otherwise dispose of an additional 25% of their shares
135 days after the date of this prospectus if the last recorded sale price on
the Nasdaq National Market is at least twice the price per share in the initial
public offering for 20 of the 30 trading days ending on the last trading day of
the 135-day period after the date of this prospectus. However, Donaldson, Lufkin
& Jenrette Securities Corporation, may in its sole discretion, at any time
without notice, release all or any portion of the shares subject to lock-up
agreements. Upon expiration of the lock-up agreements, no shares will become
eligible for sale pursuant to Rule 144(k), shares will become eligible for
sale under Rule 144 and shares will become eligible for sale under Rule
701.
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET
(LISTED BY DATE UPON WHICH SHARES BECOME SALEABLE)
<TABLE>
<CAPTION>
NUMBER OF
DATE SHARES COMMENTS
<S> <C> <C>
At the effective date.............................. All shares restricted under lock-up
provision
90 days after the effective date or second trading
day following first public release of quarterly
earnings (1)..................................... Shares saleable under Rules 701 and
144
135 days after the effective date (1).............. Shares saleable under Rule 144
180 days after the effective date (expiration of
lock-up)......................................... Shares saleable under Rule 144
</TABLE>
- ------------------------------
(1) The number of shares listed may be offered, sold or traded provided that the
last recorded sale price per share for 20 or the 30 trading days ending on
that date is at least twice the initial public offering price per share.
After the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register all of the shares of
common stock issued or reserved for future issuance under our stock plans. Based
upon the number of shares subject to outstanding options as of March 31, 2000
and currently reserved for issuance under these plans, this registration
statement would cover approximately 1,250,000 shares. Shares registered under
that registration statement will generally be available for sale in the open
market immediately after our lock-up agreements expire. As of March 31, 2000,
options and purchase
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<PAGE> 65
rights to acquire a total of 377,712 shares of our common stock are outstanding
under our stock plans, of which 10,000 are currently exercisable.
RULE 144
In general, under Rule 144, a person, or persons whose shares are required
to be aggregated, including an affiliate, who has beneficially owned shares for
at least one year is entitled to sell, within any three-month period commencing
90 days after the date of this prospectus, a number of shares that does not
exceed the greater of
- 1% of the then-outstanding shares of common stock (approximately
shares immediately after this offering); and
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the date on which notice of that sale is filed.
RULE 144(k)
Under Rule 144(k), a person who is deemed to have not been our affiliate at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, is entitled to sell
such shares without having to comply with the manner of sale, public
information, volume limitation or notice filing provisions of rule 144.
RULE 701
In general, under Rule 701, any of our employees, directors, officers,
consultants or advisors who purchase shares from us in connection with a
compensatory stock or option plan or other written agreement before the
effective date of this offering is entitled to sell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with the holding period and notice filing requirements of Rule 144 and,
in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice filing provisions of Rule 144. However,
holders of shares that would otherwise be saleable under Rule 701 are subject to
the contractual restrictions described above which restrict the sale or
disposition of such shares for 180 days following the effective date.
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of this prospectus, other
than the grant of options and purchase rights under our stock plans and the
issuance of common stock pursuant to those plans.
Following this offering, some of our stockholders will have rights to have
their shares of common stock registered for resale under the Securities Act.
Please refer to our discussion in "Description of Securities -- Registration
Rights" for further discussion of these registration rights.
62
<PAGE> 66
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement,
dated , 2000, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Smith Barney Inc.,
Banc of America Securities LLC and DLJdirect Inc. have severally agreed to
purchase from us the number of shares of common stock set forth opposite their
names below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
Salomon Smith Barney Inc. ..................................
Banc of America Securities LLC..............................
DLJdirect Inc. .............................................
--------
Total............................................. $
========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock in
this offering are conditioned on approval by their counsel of legal matters
concerning this offering and satisfaction of conditions precedent by us. The
underwriters are obligated to purchase and accept delivery of all the shares of
common stock in this offering, other than those shares covered by the
over-allotment option described below, if any are purchased.
The underwriters initially propose to offer some of the shares of common
stock directly to the public at the initial public offering price set forth on
the cover page of this prospectus and some of the shares to dealers at the
initial public offering price less a concession not in excess of $ per
share. The underwriters may allow, and those dealers may re-allow, to certain
other dealers a concession not in excess of $ per share on sales to other
dealers. After the initial offering of the common stock to the public, the
representatives may change the public offering price and concessions. The
underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
An electronic prospectus will be available on the web site maintained by
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation. In addition, other dealers purchasing shares from DLJdirect in this
offering have agreed to make a prospectus in electronic format available on web
sites maintained by each of these dealers. Other than the prospectus in
electronic format, the information on these web sites relating to the offering
is not part of this prospectus and has not been approved or endorsed by us or
the underwriters, and should not be relied on by prospective investors.
The following table shows the underwriting fees to be paid by us in
connection with this offering. This information is presented assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of our common stock.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
<S> <C> <C>
Per share................................................... $ $
Total....................................................... $ $
</TABLE>
We will pay the offering expenses, estimated to be approximately $
million. We will pay to the underwriters underwriting discounts and commissions
in an amount equal to the public offering price per share of common stock less
the amount the underwriters pay to us for each share of common stock sold by us.
We have granted to the underwriters an option, exercisable within 30 days
after the date of this prospectus, to purchase up to additional shares
of common stock at the initial public offering price less the underwriting
discounts and commissions. The underwriters may exercise this option solely to
cover
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<PAGE> 67
over-allotments, if any, made in connection with this offering. To the extent
the underwriters exercise this option, each underwriter will be obligated, upon
satisfaction of certain conditions, to purchase a number of additional shares
approximately proportionate to that underwriter's initial purchase commitments.
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act, or to contribute to payments that the
underwriters may be required to make in respect thereof.
For a period ending 180 days from the date of this prospectus, subject to
exceptions, we and our executive officers and directors have agreed not to,
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation:
- offer, pledge, sell, contract to sell or sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock,
regardless of whether any of the transactions described above is to be settled
by delivery of common stock or such other securities, in cash, or otherwise.
However, 25% of the shares of common stock subject to the restrictions described
above (other than shares owned by employees) will be released from these
restrictions if the last reported sale price of the common stock on the Nasdaq
National Market is at least twice the initial public offering price for 20 of
the 30 consecutive trading days ending on the later of the last trading day of
the 90-day period after the date of this prospectus or the second trading day
following the first public release of our quarterly results. These shares will
be released on the later to occur of the 91st day period after the date of this
prospectus and the second trading day after the first public release of our
quarterly results. An additional 25% of the shares subject to the restrictions
described above will be released from these restrictions if the reported last
sale price of the common stock on the Nasdaq National Market is at least twice
the initial public offering price for 20 of the 30 consecutive trading days
ending on the last trading day of the 135-day period after the date of this
prospectus.
In addition, during the lock-up period, we have also agreed not to file any
registration statement relating to, and each of our executive officers,
directors and stockholders have agreed not to make any demand for, or exercise
any right relating to, the registration of any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
Affiliates and employees of Donaldson, Lufkin & Jenrette Securities
Corporation beneficially own shares of our common stock constituting
approximately 3.8% of our outstanding common stock on an as-converted basis.
Prior to this offering, no public market has existed for our common stock.
We will negotiate the initial public offering price for our common stock with
the representatives, but the price may not reflect the market price for our
common stock after this offering. The factors considered in determining the
initial public offering price include:
- the history of and prospects for our industry in which we compete;
- our past and present operations;
- our historical results of operations;
- our prospects for future operational results;
- the recent market prices of securities of generally comparable companies;
and
- the general conditions of the securities market at the time of this
offering.
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<PAGE> 68
Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "PPLC" upon official notification of issuance.
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
included in this offering in any jurisdiction where action for that purpose is
required. The shares included in this offering may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisements in connection with the offer and sale of any shares of common
stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons who receive this prospectus are
advised to inform themselves about and to observe any restrictions relating to
this offering and the distribution of this prospectus. This prospectus is not an
offer to sell or a solicitation of an offer to buy any shares of common stock in
any jurisdiction where that would not be permitted or legal.
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may over-allot this offering,
creating a syndicate short position. The underwriters may bid for and purchase
our shares of common stock in the open market to cover such syndicate short
positions or to stabilize the price of our common stock. In addition, the
underwriting syndicate may reclaim selling concessions from syndicate members
and selected dealers if they repurchase previously distributed common stock in
syndicate covering transactions, in stabilizing transactions or otherwise, or if
Donaldson, Lufkin & Jenrette Securities Corporation receives a report which
indicates that the clients of such syndicate members have "flipped" our common
stock. These activities may stabilize or maintain the market price of the common
stock above independent market levels. The underwriters are not required to
engage in these activities and may end any of these activities at any time.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 5% of the shares of common stock offered by this
prospectus for sale to our officers, directors, employees and their family
members and to business associates, including customers, consultants and other
friends. These persons must commit to purchase after the registration statement
has become effective but before the open of business on the following business
day. The number of shares available for sale to the general public will be
reduced to the extent these persons purchase the reserved shares.
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<PAGE> 69
LEGAL MATTERS
Cooley Godward LLP, Boulder, Colorado will pass upon the validity of the
shares of common stock offered hereby. Akin, Gump, Strauss, Hauer & Feld, L.L.P.
will pass upon certain legal matters in connection with the offering for the
underwriters.
EXPERTS
The audited financial statements of The Petroleum Place, Inc., The Oil &
Gas Asset Clearinghouse, Inc. and TradeBank, Inc. included in this prospectus
and elsewhere in this registration statement to the extent and for the periods
indicated in their reports have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The financial statements of Paradigm Technologies, Inc. included in this
prospectus have been audited by Hein + Associates LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 (including
exhibits, schedules and amendments) under the Securities Act with respect to the
common stock to be sold in this offering. This prospectus does not contain all
of the information in the registration statement. For further information about
us and our common stock, please refer to the registration statement. Statements
contained in this prospectus as to the contents of any contract, agreement or
other document are not necessarily complete. In each instance, please refer to
the copy of that contract, agreement or document filed as an exhibit to the
registration statement.
You may read and copy all or any portion of the registration statement or
any other information we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings, including the registration statement, are also available
to you on the SEC's web site at www.sec.gov.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended. In
accordance with those requirements, we will file periodic reports, proxy
statements and other information with the SEC.
We intend to furnish our stockholders with annual reports containing
audited financial statements and with quarterly reports for the first three
quarters of each year containing interim financial information.
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<PAGE> 70
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE PETROLEUM PLACE, INC.
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statements of Stockholders' Equity........... F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-8
THE OIL AND GAS ASSET CLEARINGHOUSE, INC. (Predecessor
Company)
Report of Independent Public Accountants.................. F-24
Balance Sheets............................................ F-25
Statements of Income...................................... F-26
Statements of Stockholders' Equity........................ F-27
Statements of Cash Flows.................................. F-28
Notes to Financial Statements............................. F-29
TRADEBANK, INC.
Report of Independent Public Accountants.................. F-32
Balance Sheets............................................ F-33
Statements of Operations.................................. F-34
Statements of Stockholders' Equity........................ F-35
Statements of Cash Flows.................................. F-36
Notes to Financial Statements............................. F-37
PARADIGM TECHNOLOGIES, INC.
Report of Independent Public Accountants.................. F-39
Balance Sheets............................................ F-40
Statements of Income...................................... F-41
Statements of Stockholders' Equity........................ F-42
Statements of Cash Flows.................................. F-43
Notes to Financial Statements............................. F-44
</TABLE>
F-1
<PAGE> 71
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Petroleum Place, Inc.:
We have audited the accompanying consolidated balance sheet of THE
PETROLEUM PLACE, INC. (a Delaware corporation) and subsidiaries as of September
30, 1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for the period from January 28, 1999 (inception) through
September 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Petroleum Place, Inc.
and subsidiaries as of September 30, 1999, and the results of their operations
and their cash flows for the period from January 28, 1999 (inception) through
September 30, 1999 in conformity with accounting principles generally accepted
in the United States.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado,
March 2, 2000.
F-2
<PAGE> 72
THE PETROLEUM PLACE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY AT
MARCH 31,
SEPTEMBER 30, MARCH 31, 2000
1999 2000 SEE NOTE 2
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 3,324,961 $53,108,186
Accounts receivable................................. 128,232 376,940
Other current assets................................ 74,096 24,312
----------- -----------
Total current assets........................ 3,527,289 53,509,438
Property and equipment, net......................... 397,131 691,194
Intangible assets, net.............................. 20,818,777 19,382,625
Other assets........................................ 72,315 55,373
----------- -----------
Total assets................................ $24,815,512 $73,638,630
=========== ===========
LIABILITIES
CURRENT LIABILITIES:
Accounts payable.................................... $ 390,273 $ 2,709,036
Accrued expenses.................................... 155,811 687,935
Payable to affiliated entities...................... 118,240 121,675
Deferred revenue.................................... 100,738 125,797
Notes payable, current portion...................... 785,714 825,123
Related party note payable, current portion......... 39,398 16,667
----------- -----------
Total current liabilities................... 1,590,174 4,486,233
Line of credit...................................... 800,000 2,200,000
Notes payable, long-term portion.................... 5,000,000 4,603,448
Related party note payable, long-term portion....... 8,128 7,707
Other long-term liabilities......................... 66,507 --
----------- -----------
Total liabilities........................... 7,464,809 11,297,388
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value; 3,000,000 shares
authorized;
Series A preferred stock; 2,000,000 shares
authorized, 1,906,137 shares issued and
outstanding actual, no shares outstanding pro
forma.......................................... 14,275,411 14,275,411 $ --
Series B preferred stock, 500,000 shares
authorized, 455,120 issued and outstanding
actual, no shares outstanding pro forma........ 8,647,280 8,647,280 --
Series C preferred stock, 1,300,00 shares
authorized, 849,382 issued and outstanding
actual, no shares outstanding pro forma........ -- 47,521,049 --
Common stock $0.001 par value, 12,000,000 shares
authorized; 500,000 shares issued and
outstanding, shares outstanding pro
forma............................................ 500 500
Additional paid-in capital.......................... 5,187,972 7,646,958
Warrants outstanding................................ 233,800 558,676
Unearned compensation............................... (4,823,224) (5,622,781)
Accumulated deficit................................. (6,171,036) (10,685,851)
----------- ----------- -----------
Total stockholders' equity.................. 17,350,703 62,341,242 $
----------- ----------- -----------
Total liabilities and stockholders'
equity.................................... $24,815,512 $73,638,630
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 73
THE PETROLEUM PLACE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 28, 1999 SIX MONTHS
(INCEPTION) TO ENDED
SEPTEMBER 30, MARCH 31,
1999 2000
(UNAUDITED)
<S> <C> <C>
REVENUE:
Net commission revenue.................................... $ 2,069,425 $ 4,107,493
Interest and other revenue................................ 103,913 303,181
----------- -----------
Total revenue..................................... 2,173,338 4,410,674
COST OF REVENUE (excludes stock based compensation, see Note
9)........................................................ 961,255 1,847,635
----------- -----------
Gross profit...................................... 1,212,083 2,563,039
----------- -----------
OPERATING EXPENSES:
Sales and marketing (excludes stock based compensation,
see
Note 9)................................................ 260,937 786,274
Research and development (excludes stock based
compensation, see Note 9).............................. 151,582 441,565
General and administrative (excludes stock based
compensation, see Note 9).............................. 1,092,831 2,791,842
Depreciation.............................................. 27,757 127,053
Amortization of intangibles............................... 790,910 1,474,908
Amortization of unearned compensation expense (see Note
9)..................................................... 360,248 1,659,429
----------- -----------
Total operating expenses.......................... 2,684,265 7,281,071
----------- -----------
LOSS FROM OPERATIONS........................................ (1,472,182) (4,718,032)
INVESTMENT AND OTHER INCOME................................. 101,540 453,270
INTEREST EXPENSE ON CONVERTIBLE NOTES, related party........ (46,040) --
INTEREST EXPENSE............................................ (168,662) (250,053)
----------- -----------
LOSS BEFORE MINORITY INTEREST AND INCOME TAXES.............. (1,585,344) (4,514,815)
INCOME TAX EXPENSE.......................................... (36,587) --
MINORITY INTEREST........................................... (4,549,105) --
----------- -----------
NET LOSS.................................................... $(6,171,036) $(4,514,815)
=========== ===========
NET LOSS PER SHARE:
Basic and diluted......................................... $ (12.34) $ (9.03)
=========== ===========
Weighted average shares -- basic and diluted.............. 500,000 500,000
=========== ===========
Unaudited Pro Forma Data (Note 1)
Pro Forma Loss Per Common and Common Equivalent Share..... $ $
=========== ===========
Shares Used in Computing Pro Forma Net Loss per Common and
Common Equivalent Share................................
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 74
THE PETROLEUM PLACE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
----------------------- -------------------- --------------------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, inception................. -- $ -- $ -- $ -- -- $ -- -- $ --
Issuance of common stock for cash
at $0.01 per share on January 28,
1999............................. -- -- -- -- -- -- 500,000 500
Issuance of Series A preferred
stock to founder for cash at
$7.50 per share on February 28,
1999............................. 666,666 4,999,995 -- -- -- -- -- --
Issuance of Series A preferred
stock for cash at $7.50 per share
on May 24, 1999.................. 33,333 249,998 -- -- -- -- -- --
Issuance of Series A preferred
stock through conversion of
promissory note and conversion of
accrued interest at $7.50 per
share on June 1, 1999............ 1,058,472 7,938,540 -- -- -- -- -- --
Issuance of Series A preferred
stock for cash at $7.50 per share
on June 1, 1999.................. 133,333 999,998 -- -- -- -- -- --
Issuance of Series A preferred
stock for cash at $7.50 per share
on June 14, 1999................. 14,333 107,498 -- -- -- -- -- --
Offering costs on Series A
preferred stock.................. -- (20,618) -- -- -- -- -- --
Issuance of Series B preferred
stock to minority shareholders of
the Clearinghouse at $19.00 per
share on August 4, 1999.......... -- -- 455,120 8,647,280 -- -- -- --
Issuance of warrants in conjunction
with the acquisition of
TradeBank........................ -- -- -- -- -- -- -- --
Unearned compensation recorded upon
grant of options................. -- -- -- -- -- -- -- --
Amortization of unearned
compensation..................... -- -- -- -- -- -- -- --
Net loss........................... -- -- -- -- -- -- --
--------- ----------- ------- ---------- ------- ----------- ------- ----
BALANCES, as of September 30,
1999............................... 1,906,137 14,275,411 455,120 8,647,280 -- -- 500,000 500
Issuance of Series C preferred
stock for cash of $59.12 per
share
(unaudited)...................... -- -- -- -- 849,382 50,215,582 -- --
Offering costs on Series C
preferred stock (unaudited)...... -- -- -- -- -- (2,694,533) -- --
Unearned compensation recorded upon
grant of options (unaudited)..... -- -- -- -- -- -- -- --
Amortization of unearned
compensation (unaudited)......... -- -- -- -- -- -- -- --
Net loss (unaudited)............... -- -- -- -- -- -- --
--------- ----------- ------- ---------- ------- ----------- ------- ----
BALANCES, as of March 31, 2000
(unaudited)........................ 1,906,137 $14,275,411 455,120 $8,647,280 849,382 $47,521,049 500,000 $500
========= =========== ======= ========== ======= =========== ======= ====
<CAPTION>
ADDITIONAL TOTAL
PAID-IN WARRANTS UNEARNED ACCUMULATED STOCKHOLDERS'
CAPITAL OUTSTANDING COMPENSATION DEFICIT EQUITY
<S> <C> <C> <C> <C> <C>
BALANCES, inception................. $ -- $ -- $ -- $ -- $ --
Issuance of common stock for cash
at $0.01 per share on January 28,
1999............................. 4,500 -- -- -- 5,000
Issuance of Series A preferred
stock to founder for cash at
$7.50 per share on February 28,
1999............................. -- -- -- -- 4,999,995
Issuance of Series A preferred
stock for cash at $7.50 per share
on May 24, 1999.................. -- -- -- -- 249,998
Issuance of Series A preferred
stock through conversion of
promissory note and conversion of
accrued interest at $7.50 per
share on June 1, 1999............ -- -- -- -- 7,938,540
Issuance of Series A preferred
stock for cash at $7.50 per share
on June 1, 1999.................. -- -- -- -- 999,998
Issuance of Series A preferred
stock for cash at $7.50 per share
on June 14, 1999................. -- -- -- -- 107,498
Offering costs on Series A
preferred stock.................. -- -- -- -- (20,618)
Issuance of Series B preferred
stock to minority shareholders of
the Clearinghouse at $19.00 per
share on August 4, 1999.......... -- -- -- -- 8,647,280
Issuance of warrants in conjunction
with the acquisition of
TradeBank........................ -- 233,800 -- -- 233,800
Unearned compensation recorded upon
grant of options................. 5,183,472 -- (5,183,472) -- --
Amortization of unearned
compensation..................... -- -- 360,248 -- 360,248
Net loss........................... -- -- -- (6,171,036) (6,171,036)
---------- ---------- ----------- ------------ -----------
BALANCES, as of September 30,
1999............................... 5,187,972 233,800 (4,823,224) (6,171,036) 17,350,703
Issuance of Series C preferred
stock for cash of $59.12 per
share
(unaudited)...................... -- -- -- -- 50,215,582
Offering costs on Series C
preferred stock (unaudited)...... -- 324,876 -- -- (2,369,657)
Unearned compensation recorded upon
grant of options (unaudited)..... 2,458,986 -- (2,458,986) -- --
Amortization of unearned
compensation (unaudited)......... -- -- 1,659,429 -- 1,659,429
Net loss (unaudited)............... -- -- -- (4,514,815) (4,514,815)
---------- ---------- ----------- ------------ -----------
BALANCES, as of March 31, 2000
(unaudited)........................ $7,646,958 $ 558,676 $(5,622,781) $(10,685,851) $62,341,242
========== ========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 75
PAGE 1 OF 2
THE PETROLEUM PLACE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 28, 1999 SIX MONTHS
(INCEPTION) TO ENDED
SEPTEMBER 30, MARCH 31,
1999 2000
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (6,171,036) $(4,514,815)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation and amortization.......................... 818,667 1,601,961
Amortization of unearned compensation.................. 360,248 1,659,429
Minority interest in the Clearinghouse operations...... (48,175) --
Minority interest expense related to the 20% minority
interest of the Clearinghouse........................ 4,597,280 --
Interest converted to Series A preferred stock......... 46,040 --
Changes in current assets and liabilities --
Accounts receivable.................................. (27,233) (248,708)
Prepaid assets....................................... (1,427) 49,786
Other assets......................................... (61,076) (16,283)
Accounts payable and accrued expenses................ 319,314 484,665
Deferred revenue..................................... (14,001) 25,058
Other liabilities.................................... 106,448 (66,507)
------------ -----------
Net cash used in operating activities............. (74,951) (1,025,414)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (330,786) (386,403)
Purchase of the Clearinghouse, net of $524,379 of cash
acquired and $5,000,000 note........................... (11,127,145) --
Purchase of TradeBank, net of $2,991 of cash acquired,
$60,072 of holdback cash, and $47,526 note payable..... (236,937) (21,073)
Purchase of Discovery Place assets........................ (500,000) (19,172)
Acquisition costs incurred................................ (180,982) --
------------ -----------
Net cash used in investing activities............. $(12,375,850) $ (426,648)
------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 76
PAGE 2 OF 2
THE PETROLEUM PLACE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
JANUARY 28, 1999 ENDED
(INCEPTION) TO MARCH 31,
SEPTEMBER 30, 1999 2000
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of Series A preferred stock, net of
$20,618 of offering costs............................... $ 6,336,871 $ --
Proceeds from sale of common stock........................ 5,000 --
Proceeds from convertible promissory notes -- related
party................................................... 7,892,500 --
Proceeds from sale of Series C preferred stock............ -- 50,215,582
Proceeds from debt........................................ 6,800,000 1,400,000
Principal payments on debt................................ (214,286) (380,295)
Repayment of note payable to the Clearinghouse
shareholders............................................ (5,000,000) --
Capital contributed by minority interest holders of the
Clearinghouse........................................... 87,500 --
Debt financing costs...................................... (131,823) --
----------- -----------
Net cash provided by financing activities.......... 15,775,762 51,235,287
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 3,324,961 49,783,225
CASH AND CASH EQUIVALENTS, at beginning of period........... -- 3,324,961
----------- -----------
CASH AND CASH EQUIVALENTS, at end of period................. $ 3,324,961 $53,108,186
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest.................................... $ 212,499 $ 236,871
=========== ===========
Cash paid for income taxes................................ $ -- $ --
=========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of promissory notes to Series A preferred
stock................................................... $ 7,892,500 $ --
=========== ===========
Note issued to the Clearinghouse shareholders upon
purchase of 80% Interest................................ $ 5,000,000 $ --
=========== ===========
Issuance of Series B preferred stock as consideration for
the 20% minority interest of the Clearinghouse,
excluding charge to minority interest expense........... $ 4,050,000 $ --
=========== ===========
Note issued to TradeBank shareholder upon purchase........ $ 47,526 $ --
=========== ===========
Warrants issued to TradeBank shareholders upon purchase... $ 233,800 $ --
=========== ===========
Unearned compensation..................................... $ 5,183,472 $ 2,458,986
=========== ===========
Warrants issued as commission for issuance of Series C
preferred stock......................................... $ -- $ 324,876
=========== ===========
Accrued offering costs relating to the issuance of the
Series C preferred stock................................ $ -- $ 2,369,657
=========== ===========
</TABLE>
In the acquisition of the 80% ownership interest in the Clearinghouse
(fully consolidated) and the 100% interest in TradeBank during the period from
January 28, 1999 (inception) to September 30, 1999, Petroleum Place acquired the
following, which have been recorded at their respective estimated fair values:
<TABLE>
<CAPTION>
CLEARINGHOUSE TRADEBANK
<S> <C> <C>
Accounts receivable......................................... $ 90,999 $ 10,000
Prepaid expenses............................................ 72,669 --
Other assets................................................ 11,239 --
Property and equipment...................................... 94,102 --
Accounts payable............................................ 60,077 4,637
Accrued liabilities......................................... 160,056 2,000
Deferred revenue............................................ -- 100,738
Deferred rent............................................... 80,508 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 77
THE PETROLEUM PLACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
The Petroleum Place, Inc. ("Petroleum Place" or the "Company") was
incorporated on January 28, 1999 ("Inception") as a Delaware corporation.
Through the Company's Internet marketplace, the Company enables the online
discovery, evaluation, acquisition, divesture and processing of petroleum
properties. To finance these activities, as well as provide for the initial
corporate and working capital needs through September 30, 1999, Petroleum Place
raised approximately $14.3 million in equity financing and secured a $9.0
million credit facility (comprised of a $6.0 million senior term-loan and a $3.0
working capital revolving note.)
The Company's revenue comes from various operating subsidiaries, all of
which were acquired during 1999. These subsidiaries include The Oil & Gas Asset
Clearinghouse, Inc. (the "Clearinghouse"), EAEDP, Inc. ("PetroleumPlace.com")
and TradeBank Inc. ("TradeBank"). The consolidated statement of operations
includes all activities of Petroleum Place since Inception, the Clearinghouse
since June 1, 1999, TradeBank since September 15, 1999 and PetroleumPlace.com
since September 28, 1999. As a result, the consolidated statement of operations
does not reflect the revenue stream of the Company and its subsidiaries for a
full fiscal year.
In March 2000, Petroleum Place closed on the sale of 849,382 shares of
Series C preferred stock at a price of $59.12 per share resulting in total gross
proceeds to the Company of $50.2 million. Offering costs associated with this
offering totaled $2.7 million, including $325,000, which approximate fair value
allocated to warrants for the purchase of 18,522 shares of Series C preferred
stock at an exercise price of $59.12 per warrant.
The Company is subject to various risks and uncertainties frequently
encountered by companies in the new and rapidly evolving market for
Internet-based products and services. Such risks and uncertainties include, but
are not limited to, its limited operating history for internet-based products
and services, evolving and unpredictable technology and market demands and the
management of rapid growth. To address these risks, the Company must, among
other things, maintain and increase its customer base, implement and
successfully execute its business and marketing strategy, continue to develop
and upgrade its technology, provide superior customer service, attract, retain
and motivate qualified personnel and secure the capital needed to support its
operations and anticipated growth. There can be no guarantee that the Company
will be successful in addressing such risks. The Company believes that its cash
on hand at March 31, 2000 will be sufficient to fund its operations for at least
the next twelve months.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
as of 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.
UNAUDITED FINANCIAL INFORMATION
The financial statements as of March 31, 2000 and for the six months then
ended are unaudited and have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, the
unaudited interim financial statements reflect all adjustments, consisting
solely of normal recurring adjustments necessary for a fair presentation of
F-8
<PAGE> 78
THE PETROLEUM PLACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the unaudited interim financial statements on a basis consistent with the
audited statements. These financial statements and are not necessarily
indicative of the results to be obtained for a full year.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The financial statements are consolidated and include the accounts of the
Company and its majority owned subsidiaries (see Note 2). As of September 30,
1999 and March 31, 2000, the Company's subsidiaries included the Clearinghouse,
PetroleumPlace.com and TradeBank, all of which are wholly owned as of these
dates. All significant intercompany balances and transactions have been
eliminated in consolidation. For the period from June 1, 1999 through August 4,
1999, 20% of the Clearinghouse was not owned by the Company, and the minority
interest share of operations for that period have been reflected in the
statement of operations for the period from Inception to September 30, 1999.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist primarily of deposits in money market funds.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are deposited with financial institutions
that the Company believes to be of high credit quality. The Company's accounts
receivable are derived from revenue earned from customers located in the United
States and Canada.
During the period from Inception to September 30, 1999 and the six months
ended March 31, 2000, commissions earned from one customer accounted for
$622,498 or 16% and $395,302 (unaudited) or 11% (unaudited) of net revenues,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, and accounts payable are carried at cost, which
approximates their fair value because of the short-term maturity of these
instruments. All bank debt is variable rate debt, and as such its recorded value
approximates its fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at historical cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets, generally three years.
INTANGIBLE ASSETS
Identifiable intangible assets resulting from the acquisition of the
Clearinghouse, TradeBank, and PetroleumPlace.com were estimated by management to
be primarily associated with employment contracts (including non-competition
agreements) and customer lists. Any additional intangible assets, not
specifically identifiable, were allocated to goodwill. Recorded goodwill and
other intangible assets are amortized on a straight-line basis over the
estimated periods of benefit, which range from three to ten years. See Note 2 --
Acquisitions.
F-9
<PAGE> 79
THE PETROLEUM PLACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
Revenues are derived primarily from commissions earned upon the sale of oil
and gas properties at auctions held by the Clearinghouse. Revenues are
recognized upon the completion of the auction as a percentage of the seller's
sales price. The Clearinghouse does not, under any circumstances, take title to
any property listed for sale at its auctions. Additional revenues are earned
through subscriptions and sales of petroleum related data. Subscription revenues
are earned over the subscription period applicable to the service provided, and
sales of data are recognized upon purchase by customers. Interest income is
earned on amounts held in escrow by the Clearinghouse.
RESEARCH AND DEVELOPMENT
Research and development includes expenses incurred by the Company to
develop and enhance the Company's web site and related supporting technology
infrastructure. Research and development costs are expensed as incurred.
ADVERTISING EXPENSE
Advertising costs are expensed as incurred and totaled $17,134 and $124,618
(unaudited) during the period from Inception to September 30, 1999 and for the
six months ended March 31, 2000, respectively.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25 ("APB
No. 25"), "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." Unearned compensation
expense has been recorded for the difference, if any, on the date of the grant,
between the estimated fair market value of the Company's stock for financial
reporting purposes and the exercise price of the grant. The Company uses the
intrinsic value-based method to account for all of its employee stock-based
compensation plans. Expense associated with stock-based compensation is being
amortized consistent with the method described in Financial Accounting Standards
Board Interpretation No. 28 ("FIN 28") over the vesting period for the
individual options.
INCOME TAXES
Income taxes are accounted for using an asset and liability approach, which
requires the recognition of taxes payable or refundable for the current period
and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax liabilities and assets are
based on provisions of the enacted tax law; the effects of future changes in tax
laws or rates are not anticipated. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that, based on
available evidence, are not expected to be realized.
NET INCOME (LOSS) PER SHARE
The Company computes net income (loss) per share in accordance with SFAS
No. 128, "Earnings per Share" ("SFAS No. 128") and SEC Staff Accounting Bulletin
No. 98 ("SAB 98"). Under the provision of SFAS No. 128 and SAB 98, basic net
income (loss) per share is computed by dividing the net income (loss) available
to common stockholders for the period by the weighted average number of common
shares outstanding during the period. Diluted net income (loss) per share is
computed by dividing the net income (loss) for the period by the weighted
average number of common and common equivalent shares outstanding
F-10
<PAGE> 80
THE PETROLEUM PLACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
during the period. Common equivalent shares are composed of incremental common
shares issuable upon the exercise of stock options and warrants and upon
conversion of preferred stock, and are included in diluted net income (loss) per
share to the extent such shares are dilutive. As the Company is in a net loss
position for the period from Inception to September 30, 1999 and the six months
ended March 31, 2000, there are no dilutive securities. However, at September
30, 1999 potential dilutive securities include 323,738 options granted to
employees, 10,000 warrants and 1,906,137 shares of Series A and Series B
preferred stock that are convertible to common stock on a 1:1 ratio upon the
consummation of certain events. As of March 31, 2000 additional, potential
dilutive securities include 849,382 (unaudited) shares of Series C preferred
stock convertible to common stock on a 1:1 ratio, however the conversion ratio
of the Series C shares can be adjusted as defined in the stock purchase
agreement and 18,522 (unaudited) warrants to purchase Series C preferred stock
and 22,154 (unaudited) options to purchase common stock.
The following table sets forth the computation of basic and diluted net
loss per share for the period from Inception to September 30, 1999 and the six
months ended March 31, 2000 (unaudited):
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
INCEPTION TO ENDED
SEPTEMBER 30, MARCH 31,
1999 2000
<S> <C> <C>
Numerator:
Net loss attributable to common stockholders........... $(6,171,036) $(4,514,815)
=========== ===========
Denominator:
Weighted average shares................................ 500,000 500,000
----------- -----------
Denominator for basic calculation...................... 500,000 500,000
Weighted average effect of dilutive securities-
Series A, Series B and Series C Preferred Stock..... -- --
Employee stock options.............................. -- --
Warrants outstanding................................ -- --
----------- -----------
Denominator for diluted calculation...................... 500,000 500,000
=========== ===========
Net loss per share:
Basic and diluted...................................... $ (12.34) $ (9.03)
=========== ===========
</TABLE>
PRO FORMA SHAREHOLDERS' EQUITY (UNAUDITED)
If the offering contemplated by this prospectus is consummated, all of the
preferred stock will be converted into common stock. The unaudited pro forma
balance sheet as of March 31, 2000 reflects the conversion of outstanding
preferred stock into (unaudited) shares of common stock.
PRO FORMA NET LOSS PER COMMON SHARE AND EQUIVALENT (UNAUDITED)
Pro forma net loss per share for the year ended September 30, 1999 and the
six months ended March 31, 2000 is computed using the net loss and weighted
average number of common shares outstanding, including the pro forma effects of
the assumed conversion of the Company's preferred stock into shares of the
Company's common stock if such conversion occurred on the date of original
issuance. The resulting pro forma adjustment includes an increase in the
weighted average shares used to compute basic and diluted net loss per share of
and shares for the period from Inception through September 30, 1999
and the six months ended March 31, 2000, respectively. The pro forma effects of
these transactions are unaudited.
F-11
<PAGE> 81
THE PETROLEUM PLACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As a portion of the proceeds of the offering contemplated by this
prospectus will be used to repay the Citicorp U.S.A., Inc. debt (see Note 4),
the following pro forma information for the period from Inception to September
30, 1999 and the six month period ended March 31, 2000, is presented:
<TABLE>
<CAPTION>
UNAUDITED
----------------------------
PERIOD FROM SIX MONTHS
INCEPTION TO ENDED
SEPTEMBER 30, MARCH 31,
1999 2000
<S> <C> <C>
Net loss from continuing operations........................ $(6,171,036) $(4,514,815)
Adjustment to reflect pro forma repayment of Citicorp debt
from proceeds on October 1, 1998......................... 212,499 236,871
----------- -----------
Pro forma net loss from continuing operations.............. $(5,958,537) $(4,277,944)
=========== ===========
Pro forma weighted average shares outstanding.............. 500,000 500,000
Add: Additional pro forma shares required to retire
Citicorp debt (assuming $ per share).................
----------- -----------
Total pro forma shares...........................
Pro forma loss per share:..................................
=========== ===========
</TABLE>
COMPREHENSIVE LOSS
Comprehensive loss, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive loss and net loss
and comprehensive loss are the same.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
established accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The statement is effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. The statement is not expected to have a
significant impact on the Company's financial statements.
In December 1999, the staff of the Securities Exchange Commission released
Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition" to provide guidance
on the recognition, presentation and disclosure of revenues in financial
statements. The Company believes that its revenue recognition practices are in
conformity with SAB 101.
In March 2000, the Emerging Issues Task Force reached consensus on Issue
No. 00-2, "Accounting for Website Development Costs." The guidance of this
consensus must be applied to the Company's financial statements beginning after
July 1, 2000.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN No. 44"). The
Interpretation clarifies the application of APB No. 25 for certain issues
related to equity based instruments issued to employees. FIN No. 44 is effective
on July 1, 2000, except for certain transactions, and will be applied on a
prospective basis. Management believes that FIN No. 44 will not have a
significant impact on its financial statements.
F-12
<PAGE> 82
THE PETROLEUM PLACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS:
On June 1, 1999, the Company acquired 80% of the outstanding shares of the
Clearinghouse, which coordinates and conducts auctions of oil and gas properties
using a live bid process. The total purchase price for the 80% acquisition of
$16,794,391 was paid in the form of cash of $11,651,524, debt of $5,000,000 and
includes capitalized acquisition costs of $142,867. This debt was subsequently
paid in full, (see Note 4). The Clearinghouse acquisition has been accounted for
using the purchase method of accounting and accordingly, the purchase price of
approximately $16.8 million has been allocated to the tangible and intangible
assets acquired and liabilities assumed on the basis of their respective fair
values, as estimated by management, on the acquisition date. As part of the
original acquisition, the remaining 20% minority shareholders of the
Clearinghouse received a put option, whereby these minority shareholders of the
Clearinghouse could put their remaining shares to Petroleum Place for a fixed
number of shares of Petroleum Place Series B preferred stock and Petroleum Place
received a call with the same terms. Based on the terms of this put agreement,
the 20% minority owners of the Clearinghouse could be issued shares of Petroleum
Place with a value in excess of the underlying fair value of the remaining 20%
of the Clearinghouse business. Petroleum Place recognized a charge to income,
included in minority interest, of $4,597,280 representing the fair value of the
Series B preferred shares that were transferred to the 20% minority owners of
the Clearinghouse in excess of the fair value of the 20% interest in the
Clearinghouse obtained by Petroleum Place.
The call option for the 20% portion of the Clearinghouse exercised by
Petroleum Place on August 4, 1999, and resulted in the Petroleum Place issuing
455,120 shares of Series B preferred stock, valued at $19.00 per share for total
consideration of $8,647,280. The purchase of the remaining 20% of the
Clearinghouse was recorded at estimated fair value of $4,050,000 as a
step-acquisition accounted for using the purchase method of accounting. The
estimated fair value of assets acquired, liabilities assumed, and consideration
paid in the transactions with the Clearinghouse (including the 80% and the 20%
purchases) are as follows:
<TABLE>
<S> <C>
Consideration:
Cash to former Clearinghouse shareholders............ $ 9,951,524
Cash placed in escrow................................ 1,700,000
Debt issued to former Clearinghouse shareholders..... 5,000,000
Series B Preferred Stock issued to the 20% minority
Clearinghouse shareholders........................ 8,647,280
Acquisition costs incurred by Petroleum Place........ 142,867
-----------
25,441,671
Less -- net assets acquired:
Property and equipment............................... (94,102)
Working capital...................................... (559,739)
Net long-term liabilities............................ 69,269
-----------
24,857,099
Expense to minority interest for value of shares
issuable in excess of fair market value of
interest acquired................................. (4,597,280)
-----------
Goodwill and other intangible assets................. $20,259,819
===========
</TABLE>
Of the $20,259,819, $3.0 million was allocated to an employment agreement
with a key employee which includes non-competition provisions to be amortized
over six years, $3.0 million was allocated to customer lists to be amortized
over five years, and the remaining $14,259,819, was allocated to goodwill to be
amortized over ten years. The acquisition was structured as an asset purchase
for tax purposes, thereby allowing the basis of the assets and liabilities
acquired to be recorded at their fair value for tax purposes.
F-13
<PAGE> 83
THE PETROLEUM PLACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As part of the acquisition of 80% of the outstanding shares of the
Clearinghouse, the Company retained $1,700,000 of the purchase price and placed
the funds with a third-party escrow agent. This escrowed amount supports the
representations and warranties made by the Clearinghouse during the purchase
and, if the Company does not make a claim, will be released to the selling
shareholders on a pro rata basis in two payments: $850,000 on June 1, 2000 and
$850,000 on June 1, 2001. If any of these amounts are refunded to Petroleum
Place, goodwill will be reduced by the amount of cash received.
On September 15, 1999, Petroleum Place acquired 100% of the common stock
outstanding of TradeBank, a Texas corporation, for a purchase price of $581,326.
This purchase consideration consisted of cash, a non-interest bearing note
payable valued at a discounted amount of $47,526 ($39,398 payable in fiscal 2000
and $8,128 payable in fiscal 2001) and two warrants with a contractual term of
ten years, which allow the seller to purchase 5,000 shares of Petroleum Place
common stock at an exercise price of $0.75 per share. These warrants were valued
at $233,800 using the Black-Scholes option pricing method. The assumptions used
in the Black-Scholes model were as follows:
<TABLE>
<S> <C>
Estimated market price per share of the Clearinghouse
common stock on the date of grant........................ $ 23.98
Risk free interest rate.................................... 5.6%
Dividend yield............................................. 0.0%
Expected volatility........................................ 50%
Contractual term........................................... 10 years
</TABLE>
This acquisition has been accounted for using the purchase method of
accounting. The estimated fair value of assets acquired, liabilities assumed and
consideration paid in the transaction with TradeBank are as follows:
<TABLE>
<S> <C>
Consideration:
Cash to former TradeBank shareholders................... $300,000
$50,000 note (discounted value)......................... 47,526
Warrants of Petroleum Place............................. 233,800
--------
581,326
Working capital deficit assumed......................... 68,604
--------
Customer lists............................................ $649,930
========
</TABLE>
The customer lists have been assigned a life of three years and will be
amortized over that life. Included in cash to former TradeBank shareholders is a
holdback of $60,072 which is recorded as a payable to affiliated entity.
On September 28, 1999, Petroleum Place acquired certain assets from a
subsidiary of World Web Technologies (referred to as PetroleumPlace.com) that
operates an internet portal for a cash purchase price of $500,000. Acquisition
costs of $38,115 were also capitalized. The acquisition has been accounted for
using the purchase method of accounting. The purchase price was allocated to
customer lists with an estimated life of three years.
The following unaudited pro forma consolidated financial information
reflects the results of operations for the two fiscal years ended September 30,
1999 as if the Clearinghouse and TradeBank acquisitions, defined as businesses,
had occurred at the beginning of each fiscal year, and after giving effect to
purchase accounting adjustments, amortization of goodwill and acquired
intangibles and adding back the excess minority interest charge related to the
excess paid over the underlying fair value. PetroleumPlace.com is not included
in the unaudited pro forma consolidated financial information or the results of
operations for the period from Inception to September 30, 1999.
F-14
<PAGE> 84
THE PETROLEUM PLACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
These unaudited pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of what operating results
would have been had the acquisitions actually taken place on the first day of
the fiscal year presented, and may not be indicative of future operating
results:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
SEPTEMBER 30,
-------------------------
1998 1999
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenue..................................................... $6,949,200 $ 8,246,700
========== ===========
Income (loss) from operations............................... $ 236,000 $(1,418,200)
========== ===========
Net loss.................................................... $ (247,000) $(2,049,400)
========== ===========
Net loss per share --
Basic and diluted......................................... $ (0.49) $ (4.10)
========== ===========
Weighted average shares................................... 500,000 500,000
========== ===========
</TABLE>
3. BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 2000
(UNAUDITED)
<S> <C> <C>
PROPERTY AND EQUIPMENT, net:
Computer equipment and software.......................... $ 275,666 $ 442,551
Office equipment......................................... 79,698 317,122
Furniture and fixtures................................... 68,124 223,343
Leasehold improvements................................... 1,400 --
----------- -----------
424,888 983,016
Less: Accumulated depreciation and amortization.......... (27,757) (291,822)
----------- -----------
$ 397,131 $ 691,194
=========== ===========
INTANGIBLE ASSETS, net:
Employment contracts including non-competition
agreements............................................ $ 3,000,000 $ 3,000,000
Customer lists........................................... 3,941,065 3,941,065
Software................................................. 246,980 246,980
Goodwill................................................. 14,289,819 14,336,469
Loan costs............................................... 131,823 137,115
----------- -----------
21,609,687 21,661,629
Less: Accumulated amortization........................... (790,910) (2,279,004)
----------- -----------
$20,818,777 $19,382,625
=========== ===========
</TABLE>
F-15
<PAGE> 85
THE PETROLEUM PLACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. DEBT:
CONVERTIBLE PROMISSORY NOTES
During the period from Inception to September 30, 1999, the Company issued
a series of Convertible Promissory Notes bearing interest at 5.0%. The notes
were issued on the following dates to Series A preferred stockholders for the
following amounts:
<TABLE>
<CAPTION>
DATE ISSUED AMOUNT OF NOTES
<S> <C>
March 25, 1999........................................ $2,942,500
March 30, 1999........................................ 57,500
April 30, 1999........................................ 4,000,000
May 25, 1999.......................................... 892,500
</TABLE>
Each of these Convertible Promissory Notes together with accrued interest
totaling $46,040 were subsequently converted into 1,058,472 shares of Series A
preferred stock on June 1, 1999.
LOAN AND SECURITY AGREEMENT
On July 28, 1999, Petroleum Place entered into a Loan and Security
Agreement with Citicorp U.S.A., Inc. ("Citicorp"). This agreement is comprised
of two separate facilities. The first facility is the Senior Term Loan Facility
("Term Loan") which has a face amount of $6,000,000. Repayment of the Term Loan
is in 59 equal monthly installments commencing on August 1, 1999 with full
repayment of any unpaid principal amount on July 27, 2004. The full amount was
borrowed and the proceeds were used for repayment of the Clearinghouse purchase
note and for general corporate purposes.
The second facility is the Working Capital Facility (the "Working Capital
Line"), which has an available line of credit of $3,000,000. Amounts drawn on
the Working Capital Line are fully repayable on the earlier of the completion of
an initial public offering and July 27, 2004. A fee of 0.25% is due to the bank
for non-use of the available line of credit. During the period from inception
(January 28, 1999) to September 30, 1999 and the six months ended March 31,
2000, $800,000 and $2.2 million, respectively, had been drawn under this
facility. As of March 31, 2000, Petroleum Place has $800,000 available for drawn
under the Working Capital Line.
Each facility bears interest at varying rates based on elections made by
the Company for borrowings under either a prime rate plus applicable margin or a
LIBOR rate plus an applicable margin. As of September 30, 1999 and as of March
31, 2000, the interest rate on the Term Loan was 8.25% and 9.0%, respectively.
The weighted average interest rate for borrowings under the Working Capital Line
was 8.25% and 8.52% for the period from Inception to September 30, 1999 and the
six months ended March 31, 2000, respectively.
The borrowings with Citicorp are secured by substantially all of the
Company's assets, including its investments in subsidiaries and subjects the
Company to financial and non-financial covenants.
F-16
<PAGE> 86
THE PETROLEUM PLACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of September 30, 1999, the future payments under the Term Loan and the
Working Capital Line are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------------
WORKING
TERM LOAN CAPITAL LINE
<S> <C> <C>
Fiscal Year Ended September 30,
2000...................................................... $ 785,714 $ --
2001...................................................... 857,143 --
2002...................................................... 857,141 --
2003...................................................... 857,141 --
2004...................................................... 2,428,575 800,000
---------- --------
5,785,714 800,000
Less current portion........................................ (785,714) --
---------- --------
Long-term portion...................................... $5,000,000 $800,000
========== ========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases office space and equipment under non-cancelable
operating leases with various expiration dates through the year 2009. Rent
expense for the period from Inception to September 30, 1999 and the six months
ended March 31, 2000 totaled $148,089 and $371,362, respectively.
Future minimum lease payments under non-cancelable operating leases,
including lease commitments entered into subsequent to September 30, 1999 are as
follows:
<TABLE>
<S> <C>
Fiscal Year Ended September 30,
2000.................................................. $ 622,925
2001.................................................. 537,843
2002.................................................. 535,797
2003.................................................. 533,751
2004.................................................. 528,340
Thereafter............................................ 2,861,719
----------
Total minimum lease payments.......................... $5,620,375
==========
</TABLE>
LITIGATION
In December 1999, the Company's subsidiary, the Clearinghouse, received a
notice from a third party asserting a claim that the Clearinghouse had violated
certain duties to the third party in connection with an auction transaction. The
Company and the Clearinghouse, however, are not parties to any lawsuit involving
this third party. It is the opinion of the Company's management that the
Clearinghouse has no responsibility in this matter and that they will vigorously
defend this claim. Accordingly, no liability has been established by the Company
related to this claim.
Additionally, the former stockholders of TradeBank are subject to an
ongoing legal dispute. Petroleum Place held back $60,072 of cash, which has been
accrued, from the former TradeBank shareholders as part of the purchase
transaction, to be used to pay any amounts resulting from this claim. The
Company's management and former TradeBank stockholders believe that the claim is
without merit and intend to vigorously defend this action.
F-17
<PAGE> 87
THE PETROLEUM PLACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The provision for income taxes consists of the following for the period
from Inception to September 30, 1999:
<TABLE>
<S> <C>
Current:
Federal................................................. $ --
State................................................... 36,587
-------
36,587
Deferred:
Federal................................................. --
State................................................... --
-------
$36,587
=======
</TABLE>
The following is a reconciliation of the difference between the actual
provision for income taxes and the provision computed by applying the federal
statutory rate of 34% to loss before income taxes for the period from Inception
to September 30, 1999:
<TABLE>
<S> <C>
Benefit at statutory rate.............................. $(2,098,152)
Unearned compensation.................................. 134,011
Other.................................................. 20,331
Valuation allowance.................................... 2,165,229
State taxes, net of federal benefit.................... (184,832)
-----------
$ 36,587
===========
</TABLE>
Deferred tax assets and liabilities are recognized for the future tax
consequences of differences between the carrying amounts of assets and
liabilities and their respective tax bases using enacted tax rates in effect for
the year in which the differences are expected to reverse. Deferred tax assets
and liabilities consist of the following as of September 30, 1999:
<TABLE>
<S> <C>
Current deferred tax assets and liabilities:
Deferred revenue..................................... $ 41,195
Long-term deferred tax assets (liabilities)
Property and equipment............................... (12,607)
Intangibles.......................................... 1,798,199
Net operating loss carryforward...................... 338,442
Valuation allowance.................................... (2,165,229)
-----------
Net deferred tax asset (liability)..................... $ --
===========
</TABLE>
The net deferred income tax asset has been reduced by a valuation allowance
as the Company's management cannot be assured at the current time that
utilization of this net deferred tax asset is more likely than not. The Tax
Reform Act of 1986 contains provisions which limit the net operating loss
carryforwards available to be used in any given year if certain events occur,
including significant charges in owner interests.
F-18
<PAGE> 88
THE PETROLEUM PLACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. PREFERRED STOCK:
The Company's Certificate of Incorporation, as amended, authorized the
Company to issue 6,500,000 shares of preferred stock. There are 2,000,000 shares
of preferred stock designated as Series A preferred, 500,000 shares designated
as Series B preferred and 1,300,000 shares of preferred stock designated as
Series C preferred. The Series A preferred shares, Series B preferred
stockholders and Series C preferred stockholders are entitled to receive, when
and if declared by the Board, cash dividends at the rate of 10% of the original
issuance price, as defined, per annum on each share of Series A preferred,
Series B preferred and Series C preferred (as adjusted for stock splits and
other specified events). No dividends have been declared. The following items
describe the additional rights of the Series A preferred, Series B preferred and
Series C preferred stockholders:
<TABLE>
<S> <C>
Voting Rights -- Series A preferred, Series B preferred and Series C
preferred shares vote with the shares of the common stock
and not as a separate class based on the conversion ratio in
effect at the time of a vote.
A separate vote of each of the Series A preferred, the
Series B preferred and the Series C preferred stockholders
is required if there are at least 200,000 shares of Series A
preferred, 200,000 shares of Series B preferred and 150,000
shares of Series C preferred stockholders remaining
outstanding for specific transactions including: amendment
to the Articles of Incorporation; any change in the number
of members of the Board to less than three; any redemption,
repurchase, payment of dividends with respect to common
stock; any change in the number of common or preferred
shares authorized; any agreement of the Company regarding
the acquisition of, or the sale of substantially all of the
assets of the Company; any new authorization of shares.
Election of Board -- Series A preferred stockholders as a class may select two
board members, common stockholders may elect three board
members, and the combined group of common and preferred
(Series A, B and C) stockholders may elect any other
members.
Liquidation -- Upon any liquidation, the holders of Series A preferred
stock are entitled to the greater of (i) the original issue
price of the Series A preferred shares plus all declared and
unpaid dividends or (ii) all amounts the Series A preferred
stockholders would have received upon conversion to common
stock, immediately prior to liquidation. The holders of such
Series B preferred stock are entitled to the greater of (i)
the original issue price of the Series B preferred shares
plus all declared and unpaid dividends or (ii) all amounts
the Series B preferred stockholders would have received upon
conversion to common stock, immediately prior to
liquidation. The holders of Series C preferred stock are
entitled to the greater of (i) the original issue price of
the Series C preferred shares plus all declared and unpaid
dividends or (ii) all amounts the Series C preferred
stockholders would have received upon conversion to common
stock, immediately prior to liquidation. If, upon any such
liquidation the assets of the Company shall be insufficient
to make payment in full to all holders of preferred stock as
described above, then such assets shall be distributed among
the holders of preferred stock ratably in proportion to the
full amounts to which they would otherwise be respectively
entitled.
</TABLE>
F-19
<PAGE> 89
THE PETROLEUM PLACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
Conversion -- Conversion is at the option of the holder (Series A, Series
B and Series C), at any time, into common shares based upon
the applicable conversion rate. The conversion rate for
Series A, Series B and Series C preferred is a one-to-one
conversion rate subject to certain adjustments for the sale
of any shares below the Series A, Series B and Series C
preferred conversion prices.
Conversion is automatic at the then-effective Series A
conversion price and Series B conversion price upon (1) the
affirmative election of the holders of at least a majority
of the outstanding preferred shares (Series A and Series B
together) or (2) upon the closing of a firmly underwritten
initial public offering of at least $15 million (gross
proceeds). All declared and unpaid dividends, if any shall
be paid at the time of automatic conversion. The shares
shall be converted to common stock, then all dividends
declared and unpaid shall be paid in cash, if funds are
legally available or in common stock based on equivalent
fair value.
Conversion is automatic at the then-effective Series C
conversion price upon (1) the affirmative election of the
holders of at least a majority of the outstanding shares of
Series C preferred stock or (2) immediately upon the closing
of a firmly underwritten initial public offering in which
its gross proceeds are at least $35 million and in which the
initial public offering price is at least $103.46 if the
closing occurs during 2000 or $118.24 if the closing occurs
after December 31, 2000 subject to any adjustments. If the
price per share in the Company's initial public offering is
less than the above stated prices, the Series C conversion
price shall be adjusted and shall be equal to 57.14% of the
Public Offering Price. Upon such conversion, any declared
and unpaid dividends shall be paid in cash, if funds are
legally available or in common stock based on equivalent
fair value. This conversion adjustment feature results in a
contingent deemed dividend to the holders of the Series C
preferred in the form of a beneficial conversion feature.
Should this adjustment feature be invoked, the Company would
record a deemed dividend of $44.8 million as a charge
against net income available to common shareholders.
</TABLE>
8. COMMON STOCK:
The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 15,000,000 shares of common stock. As of March 31, 2000, there
were 500,000 shares outstanding.
As of March 31, 2000, the Company had reserved shares of common stock for
future issuance as follows, (unaudited):
<TABLE>
<S> <C>
Conversion of Series A preferred stock................... 1,906,137
=========
Conversion of Series B preferred stock................... 455,120
=========
Conversion of Series C preferred stock................... 849,382*
=========
Exercise of options under stock option plan.............. 500,000
=========
Warrants issued to former TradeBank shareholders......... 10,000
=========
Warrants issued to underwriters.......................... 18,522
=========
</TABLE>
F-20
<PAGE> 90
THE PETROLEUM PLACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- ---------------
* Subject to the conversion adjustment feature discussed above.
9. EMPLOYEE BENEFIT PLANS:
STOCK OPTION PLANS
On June 24, 1999, the Company's Board of Directors adopted the 1999 Equity
Incentive Plan (the "Plan") which reserved 500,000 shares of Common Stock for
issuance. In March 2000 the Company increased the shares reserved for issuance
to 833,000 and then to 1,250,000 in April 2000. The Plan provides for the
granting of stock options to employees, directors, and consultants of the
Company. Options granted under the Plan may be either incentive stock options
("ISO"), nonstatutory stock options ("NSO"), stock appreciation rights ("SARs"),
stock bonuses and rights to acquire restricted stock. ISOs may be granted only
to Company employees (including officers and directors who are also employees).
NSOs, SARs, stock bonuses and rights to acquire restricted stock may be granted
to Company employees and consultants.
Options under the Plans may be granted for periods of up to ten years.
Other than as described below, grants are to be made at a price equal to the
estimated fair value of the shares on the date of grant, as determined by the
Board of Directors, provided, however, that the exercise price of an ISO granted
to a 10% shareholder may not be less than 110% of the estimated fair value of
the shares on the date of grant; such shares are not exercisable after the
expiration of five years from the date of grant. The exercise price of each NSO
shall not be less than 50% of the fair market value of the stock on the date the
option is granted.
The following table summarizes activity under the Plan for the period from
Inception to September 30, 1999 and to March 31, 2000 (unaudited):
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE MINIMUM VALUE
EXERCISE PER OPTION OF
SHARES PRICE OPTIONS GRANTED
<S> <C> <C> <C>
Granted during the period from Inception to
September 30, 1999............................... 323,738 $0.75 $15.70
------- ----- ======
Outstanding as of September 30, 1999............... 323,738 0.75
Granted during the six months ended March 31, 2000
(unaudited)...................................... 50,815 0.75 $48.73
======
Forfeiture......................................... (28,661) --
------- -----
Outstanding as of March 31, 2000 (unaudited)....... 345,892 $0.75
======= =====
Options exercisable as of September 30, 1999....... -- $ --
======= ===== ======
Options exercisable as of March 31, 1999
(unaudited)........................................ 4,339 $0.75
======= =====
</TABLE>
The following table summarizes information about fixed stock options
outstanding as of September 30, 1999 and March 31, 2000 (unaudited):
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE WEIGHTED
SHARES REMAINING AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
<S> <C> <C> <C> <C>
September 30, 1999................. $0.75 323,738 9.8 years $0.75
March 31, 2000 (unaudited)......... $0.75 345,892 9.4 years $0.75
</TABLE>
F-21
<PAGE> 91
THE PETROLEUM PLACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE DISCLOSURES
The Company calculated the minimum fair value of each option grant on the
date of grant using the Black-Scholes option pricing model as prescribed by SFAS
No. 123 using the following assumptions during the period from Inception to
September 30, 1999 and for the six months ended March 31, 2000:
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
INCEPTION ENDED
TO SEPTEMBER 30, MARCH 31,
1999 2000
(UNAUDITED)
<S> <C> <C>
Risk-free interest rates................................. 5.5 - 5.7% 6.1%
Expected lives (in years)................................ 4 years 4 years
Dividend yield........................................... 0.0% 0.0%
Expected volatility...................................... 0.001% 0.001%
</TABLE>
The pro forma compensation cost associated with the Company's stock-based
compensation plans, determined using the minimum value method prescribed by SFAS
No. 123, results in a pro forma charge of $2,200 and $6,600 (unaudited) to the
reported net loss during the period from Inception to September 30, 1999 and the
six month period ended March 31, 2000, respectively.
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
INCEPTION ENDED
TO SEPTEMBER 30, MARCH 31,
1999 2000
(UNAUDITED)
<S> <C> <C>
Loss per share as reported................................. $(12.34) $(9.03)
Pro forma adjustment....................................... -- (0.01)
------- ------
Pro forma net loss per share............................... $(12.34) $(9.04)
======= ======
</TABLE>
UNEARNED STOCK-BASED COMPENSATION
In connection with certain stock option grants during the period from
Inception to September 30, 1999 and the six month period ended March 31, 2000,
the Company recognized unearned compensation totaling $5,183,472, and $2,458,986
(unaudited), respectively, which is being amortized over the four year vesting
periods of the related options in accordance with FIN 28. Amortization expense
recognized during the period from Inception to September 30, 1999, and the six
month period ended March 31, 2000, totaled $360,248 and $1,659,429 (unaudited),
respectively.
The Company has classified this expense as stock based compensation in the
accompanying statements of operations. The allocation of this expense to the
statement of operations captions is as follows:
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
INCEPTION ENDED
TO SEPTEMBER 30, MARCH 31,
1999 2000
(UNAUDITED)
<S> <C> <C>
Cost of revenue........................................... $ 28,379 $ 133,195
Sales and marketing....................................... 57,839 280,677
Research and development.................................. 114,955 620,753
General and administrative................................ 159,075 624,804
-------- ----------
$360,248 $1,659,429
======== ==========
</TABLE>
F-22
<PAGE> 92
THE PETROLEUM PLACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SUBSEQUENT EVENTS (UNAUDITED):
ACQUISITION OF STRATA WEB SYSTEMS LTD.
In April 2000, the Company acquired all the assets of Strata Web Systems
Ltd. ("Strata Web"), an electronic data distribution and services company based
in Calgary, Alberta. Under the terms of this acquisition, the Company granted
16,856 shares of its common stock to Tricom Partners of Calgary, Alberta, a
venture capital firm that owned the outstanding shares of Strata Web. Based on
the estimated fair value of the Company's common stock on the date of the
acquisition, the common stock used in the transaction was valued at $996,527.
The purchase price was allocated $36,830 to net assets acquired, $231,010 to
software acquired and $231,010 to acquired customer lists, both with a life of
two years, and the remaining $497,677 to goodwill with a life of ten years. The
acquisition will be accounted for using the purchase method of accounting.
ACQUISITION OF PARADIGM TECHNOLOGIES, INC.
Subsequent to the end of the second quarter of 2000, the Company entered
into a definitive agreement to purchase 100% of the stock of Paradigm
Technologies, Inc. ("Paradigm"), a back office software accounting system
provider for the oil and gas industry. Under the terms of this agreement, the
shareholders of Paradigm will receive $12.0 million in cash and 151,216 shares
of Series D preferred stock with an estimated total value of $16.4 million
assuming the price per share of this offering exceeds a specified minimum price
per share. The Company has not yet set a closing date for this transaction and
therefore there can be no assurance that the transaction will close.
F-23
<PAGE> 93
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Oil & Gas Asset Clearinghouse, Inc.:
We have audited the accompanying balance sheets of THE OIL & GAS ASSET
CLEARINGHOUSE, INC. (a Texas corporation) as of September 30, 1998 and May 31,
1999, and the related statements of income, stockholders' equity and cash flows
for each of the two years ended September 30, 1998 and the eight month period
from October 1, 1998 through May 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Oil & Gas Asset
Clearinghouse, Inc. as of September 30, 1998 and May 31, 1999 and the results of
its operations and its cash flows for each of the two years in the period ended
September 30, 1998 and the eight month period from October 1, 1998 through May
31, 1999 in conformity with accounting principles generally accepted in the
United States.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado,
February 15, 2000.
F-24
<PAGE> 94
THE OIL & GAS ASSET CLEARINGHOUSE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MAY 31,
1998 1999
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 395,270 $ 524,379
Accounts receivable....................................... 1,103,595 90,999
Prepaid expenses.......................................... 37,229 72,669
---------- ---------
Total current assets.............................. 1,536,094 688,047
---------- ---------
PROPERTY AND EQUIPMENT:
Furniture and fixtures.................................... 116,749 119,916
Office equipment.......................................... 175,313 210,139
---------- ---------
292,062 330,055
Less: accumulated depreciation............................ (189,088) (235,953)
---------- ---------
102,974 94,102
---------- ---------
MEMBERSHIP IN EXCHANGE...................................... 11,239 11,239
---------- ---------
Total assets...................................... $1,650,307 $ 793,388
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 77,562 $ 60,077
Accrued expenses.......................................... 100,023 160,055
---------- ---------
Total current liabilities......................... 177,585 220,132
---------- ---------
LONG-TERM DEFERRED RENT..................................... 140,014 80,508
---------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.10 par value, 1,000,000 shares
authorized; 10,000 issued and outstanding.............. 1,000 1,000
Additional paid-in capital................................ 37,168 37,168
Retained earnings......................................... 1,294,540 454,580
---------- ---------
Total stockholders' equity........................ 1,332,708 492,748
---------- ---------
Total liabilities and stockholders' equity........ $1,650,307 $ 793,388
========== =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-25
<PAGE> 95
THE OIL & GAS ASSET CLEARINGHOUSE, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
EIGHT
FISCAL YEARS ENDED MONTH PERIOD SIX MONTHS
SEPTEMBER 30, ENDED ENDED
------------------------- MAY 31, MARCH 31,
1997 1998 1999 1999
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Net commission revenue.................. $ 5,269,865 $ 6,322,594 $ 5,546,531 $ 4,776,036
Other associated revenues............... 270,102 361,931 316,499 277,019
----------- ----------- ----------- -----------
Total revenues.................. 5,539,967 6,684,525 5,863,030 5,053,055
COST OF COMMISSIONS....................... (1,978,573) (2,762,533) (2,289,595) (1,759,041)
----------- ----------- ----------- -----------
Gross profit.................... 3,561,394 3,921,992 3,573,435 3,294,014
OPERATING EXPENSES........................ (1,454,325) (1,592,975) (1,613,223) (1,241,629)
----------- ----------- ----------- -----------
Income from operations.......... 2,107,069 2,329,017 1,960,212 2,052,385
OTHER EXPENSE............................. (693) (2,055) (172) (172)
----------- ----------- ----------- -----------
NET INCOME................................ $ 2,106,376 $ 2,326,962 $ 1,960,040 $ 2,052,213
=========== =========== =========== ===========
BASIC AND DILUTED EARNINGS PER SHARE...... $ 210.64 $ 232.70 $ 196.00 $ 205.22
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES......... 10,000 10,000 10,000 $ 10,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-26
<PAGE> 96
THE OIL & GAS ASSET CLEARINGHOUSE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------- TOTAL
SHARES AMOUNT ADDITIONAL RETAINED STOCKHOLDERS'
------ ------ PAID-IN CAPITAL EARNINGS EQUITY
<S> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1996................... 10,000 $1,000 $19,105 $ 715,021 $ 735,126
Net income......................... -- -- -- 2,106,376 2,106,376
Distributions...................... -- -- -- (1,700,000) (1,700,000)
------ ------ ------- ----------- -----------
SEPTEMBER 30, 1997................... 10,000 1,000 19,105 1,121,397 1,141,502
Net income......................... -- -- -- 2,326,962 2,326,962
Distributions...................... -- -- -- (2,153,819) (2,153,819)
Contributions...................... -- -- 18,063 -- 18,063
------ ------ ------- ----------- -----------
SEPTEMBER 30, 1998................... 10,000 1,000 37,168 1,294,540 1,332,708
Net income......................... -- -- -- 1,960,040 1,960,040
Distributions...................... -- -- -- (2,800,000) (2,800,000)
------ ------ ------- ----------- -----------
MAY 31, 1999......................... 10,000 $1,000 $37,168 $ 454,580 $ 492,748
====== ====== ======= =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-27
<PAGE> 97
THE OIL & GAS ASSET CLEARINGHOUSE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED EIGHT MONTH SIX MONTHS
SEPTEMBER 30, PERIOD ENDED ENDED
----------------------------- MAY 31, MARCH 31,
1997 1998 1999 1999
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 2,106,376 $ 2,326,962 $ 1,960,040 $ 2,052,213
Adjustments to reconcile net income to
cash flows provided by operating
activities:
Depreciation........................... 51,085 95,817 46,865 35,015
(Increase) decrease in accounts
receivable.......................... (6,290) (1,053,426) 1,012,596 (104,815)
(Increase) decrease in prepaid
expenses............................ (13,492) (15,837) (35,440) 30,472
Increase (decrease) in accounts
payable............................. 4,200 47,528 (17,485) 25,689
Increase (decrease) in accrued
expenses............................ (14,376) 43,854 60,032 113,030
Increase (decrease) in deferred rent
liability........................... -- 140,014 (59,506) (52,505)
----------- ----------- ----------- -----------
Net cash flows provided by operating
activities............................. 2,127,503 1,584,912 2,967,102 2,099,099
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment.... (124,406) (66,766) (37,993) (34,184)
----------- ----------- ----------- -----------
Net cash flows used by investing
activities............................. (124,406) (66,766) (37,993) (34,184)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Distributions to stockholders.......... (1,700,000) (2,153,819) (2,800,000) (1,500,000)
Contributions from stockholders........ -- 18,063 -- --
----------- ----------- ----------- -----------
Net cash flows used by financing
activities............................. (1,700,000) (2,135,756) (2,800,000) (1,500,000)
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ 303,097 (617,610) 129,109 564,915
Cash and cash equivalents, beginning of
year................................... 709,783 1,012,880 395,270 395,270
----------- ----------- ----------- -----------
Cash and cash equivalents, end of
period................................. $ 1,012,880 $ 395,270 $ 524,379 $ 960,185
=========== =========== =========== ===========
Supplemental information:
Interest paid.......................... $ 182 $ -- $ 172 $ 172
=========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-28
<PAGE> 98
THE OIL & GAS ASSET CLEARINGHOUSE, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS:
The Oil & Gas Asset Clearinghouse, Inc. ( the "Company" or the
"Clearinghouse") was incorporated in the state of Texas on September 13, 1993.
The Company is a broker/dealer engaged in the marketing and sale of oil and gas
properties in the United States. The Company utilizes auction sales, sealed bid
and negotiated sales, property due diligence and data room services in its
operations. The Company's primary revenues are commissions earned on the sale of
properties.
On June 1, 1999, 80% of the common stock of the Company was sold to The
Petroleum Place, Inc. ("Petroleum Place") for a total purchase price of $16.8
million. The total purchase price was comprised of a base purchase amount of
$16.2 million, delivered working capital of $451,524 and legal fees incurred by
Petroleum Place of $142,867. As a result of the purchase of 80% of the
Clearinghouse common stock, the tax status of the Company changed to a
Subchapter C corporation. The remaining 20% of the Clearinghouse common stock
was purchased by Petroleum Place effective August 4, 1999 pursuant to the
exercise of Petroleum Place's call provision which allowed Petroleum Place to
purchase the remaining 20% minority interest 30 or more days after the original
purchase on June 1, 1999. As consideration for the remaining 20% of the
Clearinghouse common stock, the 20% minority shareholders received 455,120
shares of Petroleum Place Series B Preferred Stock valued at $19.00 per share.
As a result, the Clearinghouse is now a wholly owned subsidiary of Petroleum
Place.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
as of the date of the financial statements and the repeated amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
UNAUDITED FINANCIAL INFORMATION
The financial statements for the six months ended March 31, 1999 are
unaudited and have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly they do not include all of the
information and footnotes required by generally accepted accounting principles
for financial statements. In the opinion of management the unaudited interim
financial statements reflect all adjustments, consisting solely of normal
recurring adjustments necessary for a fair presentation of the unaudited interim
financial statements on a basis consistent with the audited statements. These
financial statements are not necessarily indicative of the results to be
obtained for a full year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist primarily of deposits in money market funds.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures that
significantly increase the useful lives of assets are capitalized. The cost of
repairs and maintenance are charged to operations as incurred. For financial
reporting purposes, the Company provides for depreciation using the
straight-line method over estimated useful lives of three to five years.
F-29
<PAGE> 99
THE OIL & GAS ASSET CLEARINGHOUSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
MEMBERSHIP IN EXCHANGE
The exchange membership is carried at cost. Management estimates no
permanent impairment of value of the membership.
INCOME TAXES
The Company has elected Subchapter S Corporation status under the
provisions of the Internal Revenue Code. Under this election, all taxable income
passes to the shareholders, with no tax liability to the Company. Accordingly,
no provision for Federal income taxes has been made.
REVENUE RECOGNITION
Revenues are derived primarily from commissions earned upon the sale of oil
and gas properties at auction. Revenues are recognized upon the completion of
the auction, as a percentage of the seller's sales price. The Clearinghouse does
not, under any circumstances, take title to any property listed for sale at its
auction.
Operating revenue includes commissions, filing fees and fees for negotiated
sales. The Company also receives reimbursement for sales taxes, file shipping
charges, preparation of data packages and a fixed percentage of the auction
costs from the sellers at auction. As these reimbursements offset operating
expenses, they are included in the costs of sales to reduce the costs of the
auction.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade receivables. The Company places its temporary cash investments with
high credit quality financial institutions. The balance, at times, may exceed
federally insured limits. Concentrations of credit risk with respect to trade
receivables are limited due to the Company's large number of customers and the
methodology in place for collecting from its customers.
3. STOCKHOLDERS' EQUITY:
During fiscal 1997 and 1998, the period from October 1, 1998 to May 31,
1999 and the six months ended March 31, 1999 the Board of Directors approved
cash distributions to the Company's stockholders totaling $1,700,000,
$2,153,819, $2,800,000 and $1,500,000 (unaudited), respectively. These funds
were distributed on a pro rata basis in proportion to each stockholder's
weighted-average percentage ownership of the Company's common stock.
4. NET CAPITAL:
Pursuant to the net capital provisions of Rule 15c3-1 under the Securities
Exchange Act of 1934, the Company is required to maintain a minimum net capital
as defined under such provisions. The provisions also require that the ratio of
aggregate indebtedness to net capital, both as defined, shall not exceed 15 to
1. Net capital and the related net capital ratio may fluctuate on a daily basis.
At September 30, 1998 and May 31, 1999, the Company had net capital of $67,747
and $215,568, respectively.
5. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company's operating lease commitments include office equipment through
March 2004 and office space under an agreement expiring in March 2002.
F-30
<PAGE> 100
THE OIL & GAS ASSET CLEARINGHOUSE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company received a lease incentive of $210,021, which was recorded as
deferred rent and is being amortized over the life of the lease. Future minimum
rental payments are as follows:
<TABLE>
<S> <C>
Fiscal Year --
1999.................................................... $ 95,992
2000.................................................... 164,558
2001.................................................... 164,558
2002.................................................... 48,608
2003.................................................... 9,276
Thereafter.............................................. 1,933
--------
Total........................................... $484,925
========
</TABLE>
Rent expense for the years ended September 30, 1997 and 1998, the eight
month period ended May 31, 1999 and the six months ended March 31, 1999
(unaudited) was $90,161, $109,837, $75,891 and $67,972 (unaudited),
respectively.
LITIGATION
In December 1999, the Company received notice from a third party asserting
a claim that the Company had violated certain duties to the third party in
connection with an auction transaction. The Company, however, is not party to
any lawsuit involving this third party. It is the opinion of the Company's
management that the Company has no responsibility in this matter and that they
will vigorously defend this claim. Accordingly, no liability has been
established by the Company related to this claim.
6. MAJOR CUSTOMERS:
Commissions earned from customers in excess of 10% were:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30, SIX MONTHS
---------------------------------- EIGHT MONTHS ENDED MARCH 31,
1998 ENDED 1999 1999
1997 (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Customer A........... $782,108 15% $-- -- $629,628 11% $629,628 13%
Customer B........... -- -- -- -- 815,110 15% 815,110 17%
Customer C........... -- -- -- -- -- -- 490,626 10%
</TABLE>
F-31
<PAGE> 101
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TradeBank, Inc.:
We have audited the accompanying balance sheets of TRADEBANK, INC. (a Texas
corporation) as of December 31, 1997 and 1998, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TradeBank, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States.
Denver, Colorado,
May 9, 2000.
/s/ ARTHUR ANDERSEN LLP
F-32
<PAGE> 102
TRADEBANK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1997 1998 1999
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash..................................................... $ 43,891 $ 31,136 $ 17,226
Accounts receivable...................................... 40,000 45,000 55,000
--------- --------- ---------
Total current assets............................. 83,891 76,136 72,226
--------- --------- ---------
EQUIPMENT:
Computer equipment....................................... 3,144 3,144 3,144
Accumulated depreciation................................. (3,144) (3,144) (3,144)
--------- --------- ---------
Total equipment.................................. -- -- --
--------- --------- ---------
OTHER ASSETS:
Goodwill................................................. 150,000 150,000 150,000
Accumulated amortization................................. (67,500) (97,500) (112,500)
--------- --------- ---------
Total other assets............................... 82,500 52,500 37,500
--------- --------- ---------
Total assets..................................... $ 166,391 $ 128,636 $ 109,726
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable......................................... $ -- $ 8,000 $ 15,500
Payable to affiliate..................................... -- 25,000 25,000
Deferred revenue......................................... 147,144 207,500 183,249
--------- --------- ---------
Total current liabilities........................ 147,144 240,500 223,749
--------- --------- ---------
CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value, 1,000,000 shares
authorized, 1,000 shares issued and outstanding....... 10 10 10
Additional paid-in capital............................... 245,960 245,960 245,960
Accumulated deficit...................................... (226,723) (357,834) (359,993)
--------- --------- ---------
Total stockholders' equity (deficit)............. 19,247 (111,864) (114,023)
--------- --------- ---------
Total liabilities and stockholders' equity
(deficit)...................................... $ 166,391 $ 128,636 $ 109,726
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE> 103
TRADEBANK, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTH PERIODS
DECEMBER 31, ENDED JUNE 30,
--------------------- -------------------------
1997 1998 1998 1999
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
MEMBERSHIP FEE INCOME............................ $ 206,190 $ 264,644 $ 117,684 $149,251
--------- --------- --------- --------
OPERATING EXPENSES:
Selling, general and administrative............ 195,765 187,132 102,086 79,910
Compensation charge for stock transfer loan to
an employee from the sole stockholder....... 95,970 -- -- --
Failed merger attempt.......................... -- 109,123 109,123 --
Maintenance fees............................... -- 30,000 -- 30,000
Commissions.................................... -- 17,500 -- 11,500
Amortization................................... 30,000 30,000 15,000 15,000
--------- --------- --------- --------
Total operating expenses............... 321,735 373,755 226,209 136,410
--------- --------- --------- --------
NET INCOME (LOSS)................................ $(115,545) $(109,111) $(108,525) $ 12,841
========= ========= ========= ========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE...... $ (115.55) $ (109.11) $ (108.53) $ 12.84
========= ========= ========= ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES......... 1,000 1,000 1,000 1,000
========= ========= ========= ========
DIVIDENDS PAID................................... $ 15,000 $ 22,000 $ -- $ 15,000
========= ========= ========= ========
DIVIDENDS PAID PER SHARE......................... $ 15.00 $ 22.00 $ -- $ 15.00
========= ========= ========= ========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE> 104
TRADEBANK, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C>
BALANCES at December 31, 1996......... 1,000 $10 $149,990 $ (96,178) $ 53,822
Distributions....................... -- -- -- (15,000) (15,000)
Stock transfer to an employee from
the sole shareholder............. -- -- 95,970 -- 95,970
Net loss............................ -- -- -- (115,545) (115,545)
----- --- -------- --------- ---------
BALANCES at December 31, 1997......... 1,000 10 245,960 (226,723) 19,247
Distributions....................... -- -- -- (22,000) (22,000)
Net loss............................ -- -- -- (109,111) (109,111)
----- --- -------- --------- ---------
BALANCES at December 31, 1998......... 1,000 10 245,960 (357,834) (111,864)
Distributions (unaudited)........... -- -- -- (15,000) (15,000)
Net income (unaudited).............. -- -- -- 12,841 12,841
----- --- -------- --------- ---------
BALANCES at June 30, 1999
(unaudited)......................... 1,000 $10 $245,960 $(359,993) $(114,023)
===== === ======== ========= =========
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE> 105
TRADEBANK, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTH PERIODS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- -------------------------
1997 1998 1998 1999
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................ $(115,545) $(109,111) $(108,525) $12,841
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities --
Compensation charge recorded on transfer of
stock to an employee from sole
shareholder................................. 95,970 -- -- --
Amortization.................................. 30,000 30,000 15,000 15,000
Net change in --
Accounts receivable......................... (10,000) (5,000) (5,000) (10,000)
Deferred revenue............................ 21,311 60,356 31,128 (24,251)
Accounts payable............................ -- 8,000 -- 7,500
--------- --------- --------- -------
Net cash provided by (used in) operating
activities............................... 21,736 (15,755) (67,397) 1,090
--------- --------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance from stockholder......................... -- 25,000 25,000 --
Distributions.................................... (15,000) (22,000) -- (15,000)
--------- --------- --------- -------
Net cash provided by (used in) financing
activities............................... (15,000) 3,000 25,000 (15,000)
--------- --------- --------- -------
NET INCREASE (DECREASE) IN CASH.................... 6,736 (12,755) (42,397) (13,910)
CASH, beginning of year............................ 37,155 43,891 43,891 31,136
--------- --------- --------- -------
CASH, end of year.................................. $ 43,891 $ 31,136 $ 1,494 $17,226
========= ========= ========= =======
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE> 106
TRADEBANK, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
TradeBank, Inc. (the "Company" or "TradeBank") was formed on September 29,
1995 and is a petroleum property listing service based in Dallas, Texas.
TradeBank compiles, organizes and markets a property database listing of oil and
gas properties in which its members have interests. Entities operating within
the oil and gas industry subscribe for a membership with TradeBank to access
information in the TradeBank database.
On September 15, 1999, the TradeBank stockholders sold 100% of their common
stock to The Petroleum Place, Inc. ("Petroleum Place") for $300,000 in cash,
$50,000 in the form of a note payable and warrants to purchase 10,000 shares of
Petroleum Place common stock.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
as of the date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ from
those estimates.
UNAUDITED FINANCIAL INFORMATION
The financial statements as of June 30, 1998 and 1999 and for the six month
periods ended June 30, 1998 and 1999 are unaudited and have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted according principles for complete financial statements. In
the opinion of management the unaudited interim financial statements reflect all
adjustments, consisting solely of normal recurring adjustments necessary for a
fair presentation of the unaudited financial statements on a basis consistent
with the audited statements. These financial statements are not necessarily
indicative of the results to be obtained for a full year.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist primarily of deposits in money market funds.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are deposited with financial institutions
that the Company believes to be of high credit quality. The Company's accounts
receivable are derived from customers located in the United States.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and deferred revenue, are carried at cost,
which approximates their fair value because of the short-term maturity of these
instruments.
F-37
<PAGE> 107
TRADEBANK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
EQUIPMENT
Equipment is stated at historical cost. Depreciation of equipment is
provided using the straight-line method over three years. There was no
depreciation expense for any period presented, as the related assets were fully
depreciated but still in use.
REVENUE RECOGNITION
The Company invoices its members the month prior to their membership
renewal date. The Company classifies the dues as deferred revenue when invoiced
and recognizes the revenue ratably over the membership term.
INCOME TAXES
The Company has elected Subchapter S corporation status under the
provisions of the Internal Revenue Code. Under this election, all taxable income
passes to the shareholders, with no tax liability to the Company. Accordingly,
no provision for income taxes has been made.
GOODWILL
Goodwill represents the amount paid by the Company for the business concept
and is being amortized on a straight-line basis over five years. Amortization
expense charged to operations for the years ended December 31, 1997 and 1998 was
$30,000 a year and was $15,000 (unaudited) for each of the six month periods
ended June 30, 1998 and 1999.
2. FAILED MERGER ATTEMPT:
During the first half of 1998, TradeBank incurred $109,123 of costs
associated with a failed merger attempt with a company. These costs were
expensed in the six month period ended June 30, 1998.
During the period from July 1, 1998 to June 30, 1999, TradeBank entered
into an agreement to pay to this company a maintenance fee related to
maintaining the TradeBank property listing web site for $5,000 per month.
Additionally, TradeBank agreed to pay a commission to this company of 10% for
all new and renewal TradeBank memberships during this period. During the year
ended December 31, 1998, and the six month period ended June 30, 1999, TradeBank
recorded $17,500 and $11,500 (unaudited) of costs related to the commissions
obligation.
3. CONTINGENCIES:
TradeBank's stockholders are subject to an ongoing legal dispute. TradeBank
management believes this claim is without merit and intends to vigorously defend
this action.
4. STOCKHOLDERS' EQUITY:
On July 1, 1997, the sole stockholder of TradeBank transferred 500 of the
1,000 shares of stock owned by him to an employee. The Company recorded a
compensation charge of $95,970 on this date, which represented the estimated
fair value of the 500 shares of TradeBank stock.
Distributions of $15,000, $22,000 and $15,000 (unaudited) were paid to the
stockholders of TradeBank in the years ended December 31, 1997 and 1998 and the
six month period ended June 30, 1999 (unaudited).
F-38
<PAGE> 108
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Paradigm Technologies, Inc.
Denver, Colorado
We have audited the accompanying balance sheets of Paradigm Technologies, Inc.
as of December 31, 1998 and 1999, and the related statements of income,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Paradigm Technologies, Inc. as
of December 31, 1998 and 1999, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
/s/ Hein + Associates LLP
Denver Colorado
March 3, 2000
F-39
<PAGE> 109
PARADIGM TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999 MARCH 31, 2000
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $2,041,908 $1,118,733 $ 1,989,787
Marketable securities................................ 529,961 -- --
Trade accounts receivable, net of allowance for
doubtful accounts of $90,000, $106,650 and $88,388
(unaudited), respectively......................... 1,397,894 1,806,727 1,888,941
Inventory............................................ 17,895 7,740 13,693
Other current assets................................. 81,588 58,523 102,222
---------- ---------- -----------
Total current assets......................... 4,069,246 2,991,723 3,994,643
PROPERTY AND EQUIPMENT:
Computer equipment................................... 1,233,261 1,317,215 1,235,700
Office furniture and other........................... 241,560 241,560 236,684
---------- ---------- -----------
1,474,821 1,558,775 1,472,384
Less accumulated depreciation........................ (1,189,369) (1,326,888) (1,209,311)
---------- ---------- -----------
Property and equipment, net.................. 285,452 231,887 263,073
CAPITALIZED SOFTWARE, net of amortization of $0,
$521,448 and $730,828 (unaudited), respectively...... 1,554,216 2,283,483 2,250,004
OTHER ASSETS........................................... 45,835 45,981 46,783
---------- ---------- -----------
TOTAL ASSETS................................. $5,954,749 $5,553,074 $ 6,554,503
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable..................................... $ 201,680 $ 252,006 $ 221,701
Accrued liabilities.................................. 475,978 382,090 663,097
Deferred income...................................... 423,697 519,233 787,371
Deferred rent -- current portion..................... 70,487 78,356 58,767
---------- ---------- -----------
Total current liabilities.................... 1,171,842 1,231,685 1,730,936
DEFERRED RENT.......................................... 274,228 201,079 201,079
OTHER LONG-TERM LIABILITIES............................ -- 74,933 --
---------- ---------- -----------
Total liabilities............................ 1,446,070 1,507,697 1,932,015
COMMITMENTS (Notes 4 and 5)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 3,000,000 shares
authorized, 2,010,480 shares issued............... 20,105 20,105 20,105
Additional paid-in capital........................... 484,871 727,207 910,692
Retained earnings.................................... 4,876,173 4,156,371 4,536,549
Less treasury stock, 1,264,858, 1,244,283 and
1,230,536 (unaudited) shares, at cost,
respectively...................................... (872,470) (858,306) (844,858)
---------- ---------- -----------
Total stockholders' equity................... 4,508,679 4,045,377 4,622,488
---------- ---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY... $5,954,749 $5,553,074 $ 6,554,503
========== ========== ===========
</TABLE>
See accompanying notes to these financial statements.
F-40
<PAGE> 110
PARADIGM TECHNOLOGIES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------- -----------------------
1998 1999 1999 2000
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Consulting and maintenance............... $ 7,938,189 $ 8,557,299 $2,295,219 $2,360,561
Software sales and upgrades.............. 3,257,902 2,245,479 507,328 760,247
Sales of computer equipment.............. 748,413 548,938 173,281 266,694
----------- ----------- ---------- ----------
Total revenues................... 11,944,504 11,351,716 2,975,828 3,387,502
COSTS AND EXPENSES:
Cost of computer equipment and
software.............................. 1,095,773 861,330 234,552 309,572
Software support......................... 2,918,986 3,345,030 794,046 991,463
Technical support........................ 1,088,495 1,184,761 294,387 386,621
Research and development................. 2,005,516 2,658,726 416,063 858,883
Selling and marketing.................... 874,429 878,053 193,283 242,952
General and administrative............... 2,292,210 1,739,464 471,412 169,986
Pension and profit sharing............... 216,018 242,146 60,556 62,869
----------- ----------- ---------- ----------
Total expenses................... 10,491,427 10,909,510 2,464,299 3,022,346
----------- ----------- ---------- ----------
INCOME FROM OPERATIONS..................... 1,453,077 442,206 511,529 365,156
OTHER INCOME (EXPENSE):
Interest income.......................... 136,481 121,787 16,422 17,856
Miscellaneous............................ 117,116 116,205 1,984 7,703
Gain (loss) on disposition of investments
and equipment......................... 1,683 -- (10,537)
----------- ----------- ---------- ----------
255,280 237,992 18,406 15,022
----------- ----------- ---------- ----------
NET INCOME................................. $ 1,708,357 $ 680,198 $ 529,935 $ 380,178
=========== =========== ========== ==========
</TABLE>
See accompanying notes to these financial statements.
F-41
<PAGE> 111
PARADIGM TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1998 TO DECEMBER 31, 1999
AND FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
<S> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1998............ $20,105 $484,871 $3,967,816 $(872,470) $3,600,322
Distributions to stockholders...... -- -- (800,000) -- (800,000)
Net income......................... -- -- 1,708,357 -- 1,708,357
------- -------- ---------- --------- ----------
BALANCES, DECEMBER 31, 1998.......... 20,105 484,871 4,876,173 (872,470) 4,508,679
Employee stock purchases........... -- 242,336 -- 14,164 256,500
Distributions to stockholders...... -- -- (1,400,000) -- (1,400,000)
Net income......................... -- -- 680,198 -- 680,198
------- -------- ---------- --------- ----------
BALANCES, DECEMBER 31, 1999.......... 20,105 727,207 4,156,371 (858,306) 4,045,377
Employee stock purchases
(unaudited)..................... -- 117,250 -- 9,750 127,000
Repurchase of treasury stock
(unaudited)..................... -- (4,736) -- (264) (5,000)
Issuance of stock for acquisition
of Antares (unaudited).......... -- 70,971 -- 3,962 74,933
Net income (unaudited)............. -- -- 380,178 -- 380,178
------- -------- ---------- --------- ----------
BALANCES, MARCH 31, 2000
(UNAUDITED)........................ $20,105 $910,692 $4,536,549 $(844,858) $4,622,488
======= ======== ========== ========= ==========
</TABLE>
See accompanying notes to these financial statements.
F-42
<PAGE> 112
PARADIGM TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------- -----------------------
1998 1999 1999 2000
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 1,708,357 $ 680,198 $ 529,935 $ 380,178
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization......... 181,481 658,967 35,953 234,000
Loss on disposition of equipment...... 1,683 -- -- 10,537
Allowance for bad debts............... 90,000 16,650 (381) (18,262)
Changes in operating assets and
liabilities:
(Increase) decrease in:
Trade accounts receivable........ 60,230 (425,483) (453,203) (63,952)
Inventory........................ (11,009) 10,155 (16,617) (5,953)
Other............................ 10,069 22,919 1,529 (44,501)
Increase (decrease) in:
Accounts payable and accrued
liabilities.................... (137,781) (43,562) (13,886) 250,702
Deferred income.................. 48,501 95,536 125,403 268,138
Deferred rent.................... 344,715 (65,280) (15,342) (19,589)
----------- ----------- ---------- ----------
Net cash provided by operating
activities..................... 2,296,246 950,100 193,391 991,298
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment...... (119,912) (83,954) (28,635) (66,723)
Capitalized software..................... (878,045) (675,782) (270,263) (175,141)
Proceeds from sale or maturity of
investments........................... -- 529,961 -- --
Purchase of Antares...................... -- (500,000) -- --
Repurchase of treasury stock............. -- -- -- (5,380)
Purchase of investments.................. (27,659) -- -- --
----------- ----------- ---------- ----------
Net cash used in investing
activities..................... (1,025,616) (729,775) (298,898) (247,244)
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to stockholders............ (800,000) (1,400,000) -- --
Proceeds from the sale of stock.......... -- 256,500 -- 127,000
----------- ----------- ---------- ----------
Net cash (used in) provided by
financing activities........... (800,000) (1,143,500) -- 127,000
----------- ----------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................. 470,630 (923,175) (105,507) 871,054
CASH AND CASH EQUIVALENTS, beginning of
year..................................... 1,571,278 2,041,908 2,041,908 1,118,733
----------- ----------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of year..... $ 2,041,908 $ 1,118,733 $1,936,401 $1,989,787
=========== =========== ========== ==========
NONCASH INVESTING AND FINANCING
TRANSACTIONS:
Accrued payable for Antares
acquisition........................... $ -- $ 74,933 $ -- $ --
=========== =========== ========== ==========
</TABLE>
See accompanying notes to these financial statements.
F-43
<PAGE> 113
PARADIGM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations -- Paradigm Technologies, Inc. (the "Company") is
engaged in buying and selling computer hardware and software, developing and
marketing computer software, and providing software consulting services to
customers in the oil and gas industry.
Revenue Recognition -- Revenue from the sale of computer hardware and
software is generally recognized upon delivery. Timesharing, consulting, and
maintenance revenues are recognized as the services are performed.
Deferred Income -- Deferred income is a result of payments received in
advance for the sale of computer hardware, software, and maintenance agreements.
Inventory -- Inventory represents computer equipment and software purchased
for resale and is stated at the lower of cost, determined by the specific
identification method, or market.
Marketable Securities -- Marketable securities consist of an investment in
a certificate of deposit (CD). The carrying amount of the CD approximated the
fair market value at December 31, 1998.
Property and Equipment -- Property and equipment is stated at cost.
Depreciation is computed using straight-line and accelerated methods over the
estimated useful lives, generally five years, of the respective assets.
Depreciation expense of $135,406 and $137,519 was charged to operations for the
years ended December 31, 1998 and 1999, respectively.
Maintenance and repairs are charged to operations as incurred. When assets
are retired, or otherwise disposed of, the property accounts are relieved of
costs and accumulated depreciation and any resulting gain or loss is credited or
charged to income.
Impairment of Long-Lived Assets -- In the event that facts and
circumstances indicate that the carrying value of long-lived assets may be
impaired, an evaluation of recoverability would be performed. If an evaluation
is required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down to market value or discounted cash flow value is required.
Software License Agreement -- The Company has entered into an agreement
with another software company to provide an upstream oil and gas exploration
package that is sold with the other company's software solution. Both companies
share in the revenue of the software package based on various percentages
determined by who initiates the sale and where the sale takes place. The Company
has minimum sales quotas in order for the agreement to continue.
Software Development Costs -- In accordance with Statement of Financial
Accounting Standards (SFAS) No. 86, Accounting for the Cost of Computer Software
to be Sold, Leased or Otherwise Marketed, software development costs, which
consist primarily of salaries and related costs, purchased software, contract
labor costs, and other direct expenses, are expensed as research and development
costs prior to the establishment of technological feasibility. Technological
feasibility for the Company's software products is generally based upon
achievement of a detailed program design free of high risk development issues.
After technological feasibility is established for a product, all software
development costs are capitalized until the product is ready for delivery.
Subsequent software maintenance costs are expensed as operating costs as
incurred. Amortization of capitalized computer software costs is provided on a
product-by-product basis at the greater of the amount computed using the ratio
of current gross revenues for a product to the total of current and anticipated
future gross revenues or the straight-line method over the remaining estimated
useful economic life of the product (generally, for three years). The Company
has capitalized $1,554,216 and
F-44
<PAGE> 114
PARADIGM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
$2,804,931 in software development costs at December 31, 1998 and 1999,
respectively. Amortization of completed software development costs was $0 and
$521,448 in 1998 and 1999, respectively.
Cash Equivalents -- The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents.
Income Taxes -- Effective April 1, 1987, the Company elected to be treated
as an "S" corporation under Subchapter S of the Internal Revenue Code, and is no
longer a taxable entity. Accordingly, no provision or liability for income taxes
is recorded by the Company, other than an expense for Texas franchise taxes
which totaled approximately $48,000 and $1,198 for 1998 and 1999, respectively.
Deferred Rent -- Rent expense is recognized on the straight-line basis over
the term of office leases. The difference between rent expense and actual
payments made is recorded as deferred rent.
Use of Estimates -- The preparation of the Company's financial statements
in conformity with generally accepted accounting principles requires the
Company's management to make estimates and assumptions that affect the amounts
reported in these financial statements and accompanying notes. Actual results
could differ from those estimates.
Unaudited Information -- The information set forth in these financial
statements as of March 31, 2000 and for the three-month periods ended March 31,
2000 and 1999, is unaudited. This information reflects all adjustments,
consisting only of normal recurring adjustments, that, in the opinion of
management, are necessary to present fairly the financial position and results
of operations of the Company for these periods. Results of operations for the
interim periods are not necessarily indicative of the results of operations for
the full fiscal year.
2. ACCRUED LIABILITIES:
Included in accrued liabilities are the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
<S> <C> <C>
Accrued salaries and bonuses................................ $225,080 $307,922
Accrued commissions payable................................. 86,213 16,130
Accrued pension and profit sharing expense.................. 116,017 37,146
Accrued Texas franchise tax................................. 22,553 1,198
Other accrued liabilities................................... 26,115 19,694
-------- --------
$475,978 $382,090
======== ========
</TABLE>
3. LINE-OF-CREDIT:
The Company has a $250,000 revolving line-of-credit from a bank which
matures April 30, 2000. The line-of-credit bears interest at the bank's prime
rate (8.5% at December 31, 1999). As of December 31, 1999 and 1998, the Company
had no outstanding borrowings under this line-of-credit. The line-of-credit is
collateralized by the Company's accounts receivable, inventory, equipment, and
contract rights, and is guaranteed by certain officers/directors/stockholders of
the Company.
4. COMMITMENT AND CONTINGENCIES:
It is the policy of the Company to generally act as a self-insurer for
certain insurable risks consisting of employee health insurance programs.
F-45
<PAGE> 115
PARADIGM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
The Company leases certain office space under long-term noncancelable
operating leases. The leases provide for annual escalations for utilities, taxes
and service costs. Rent expense for the years ended December 31, 1998 and 1999
was $595,698 and $697,521, respectively.
At December 31, 1999, future minimum payments due under noncancelable
operating leases with remaining terms of one year or more consist of the
following:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
<S> <C>
2000.................................................. $ 721,334
2001.................................................. 708,498
2002.................................................. 708,498
2003.................................................. 372,253
Thereafter............................................ --
----------
$2,510,583
==========
</TABLE>
5. PENSION AND PROFIT SHARING PLANS:
The Company has a defined contribution pension plan covering all full-time
employees with one or more years of service with the Company. The Company
contributes an amount equal to 4.3% of each participant's compensation, up to
the Social Security compensation base, and 8.6% of compensation in excess of
this base. Employees become fully "vested" in employer contributions after 6
years of service. The employer contributions to the plan for the years ended
December 31, 1998 and 1999 were $216,018 and $242,146, respectively.
The Company also has a contributory profit sharing plan covering all
full-time employees with six or more months of service. There were no
discretionary employer contributions to the plan for the years ended December
31, 1998 and 1999.
6. CONCENTRATION OF CREDIT RISK:
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as contracted.
Concentrations of credit risk (whether on or off balance sheet) that arise from
financial instruments exist for groups of customers or counterparties when they
have similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly effected by changes in economic or other
conditions described below. In accordance with SFAS No. 105, Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk, the credit risk
amounts shown do not take into account the value of any collateral or security.
The Company operates in one industry segment, oil and gas software and
software consulting. A geographic concentration exists because the Company's
customers are generally located in the Southwestern and Western United States.
Financial instruments that subject the Company to credit risk consist
principally of accounts receivable. The Company generally does not require
collateral from its customers.
At December 31, 1999, the Company maintained cash balances with a
commercial bank which were approximately $618,495 in excess of FDIC insurance
limits. Additionally, the Company had approximately $399,141 in a money market
mutual fund that was not insured.
Sales to Significant Customers -- The Company had no sales to a single
customer greater than 10% of gross revenues in 1999. The Company had sales to a
single customer of $1,276,373 (11% of gross revenues) for 1998.
F-46
<PAGE> 116
PARADIGM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
7. RELATED PARTIES:
During 1998, certain stockholders of the Company purchased an interest in
one of the Company's customers. Sales to this customer were $118,151 and $66,366
for 1998 and 1999, respectively. As of December 31, 1998 and 1999, the related
Company's accounts receivable balance was $44,700 and $37,767, respectively.
8. EQUITY:
On January 1, 1999, under a non-compensatory stock purchase plan, the
Company received $217,500 from 17 employees who participated in purchasing
16,663 shares of the Company's common stock from treasury stock. Under the plan,
employees can sell their shares back to the Company at any time and are required
to sell their shares to the Company if they leave the Company. The Company will
return the initial stock contribution plus 5% interest if the shares are sold
back to the Company within 2 years of issuance. Shares sold back to the Company
after 2 years from issuance will receive the fair market value of the shares at
that time.
In January 1999, the Company received $39,000 from an officer of the
Company for 3,912 shares of the Company's common stock from treasury stock.
9. ACQUISITION OF ANTARES ENERGY SOLUTIONS, LLC (ANTARES):
In November 1999, the Company acquired substantially all of the assets of
Antares Energy Solutions L.L.C. (Antares) for $500,000 and a restricted right to
receive 5,742 shares of common stock valued at $74,933. Antares, a software
development company, owned and operated an upstream oil and gas software
product. The Antares acquisition has been recorded using the purchase method of
accounting and the operating results of Antares were included in the Company's
consolidated results of operations commencing October 1, 1999.
The purchase agreement stipulates that the three former owners of Antares
(who at closing, became employees of Paradigm) have a restricted right to
receive in proportion to their membership interest in Antares, an additional
12,300 shares of the Company's common stock. The Company is treating the
issuance of these shares as compensation expense and is expensing this cost over
the 3-year service period.
The restricted right is subject to the following vesting schedule:
1. 4,100 shares of the stock shall be issued on the first anniversary
of the effective date.
2. 4,100 shares of the stock shall be issued on the second anniversary
of the effective date.
3. 4,100 shares of the stock shall be issued on the third anniversary
of the effective date.
If a member is not employed on the vesting dates specified in subparagraphs
a, b, or c, above, then Paradigm shall not be required to issue the shares of
stock otherwise distributable to such employee. In the event of a sale or change
in ownership of the Company, the shares immediately vest and compensation will
be recorded for the outstanding shares at the date of acquisition.
F-47
<PAGE> 117
PARADIGM TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
The following pro-forma presentation has been prepared as if the Antares
acquisition had occurred on January 1, 1998.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
PRO-FORMA (UNAUDITED) 1998 1999
<S> <C> <C>
Net sales.................................................. $12,926,901 $12,190,688
Net income................................................. 2,028,281 1,083,340
</TABLE>
The pro-forma amounts presented above include adjustments to historical
amounts for amortization of revalued software. The pro-forma information is not
necessarily indicative of the results of operations of the combined company had
these events occurred on January 1, 1998.
10. SUBSEQUENT EVENTS (UNAUDITED):
Subsequent to December 31, 1999, under a non-compensatory stock purchase
plan, the Company received $127,000 from 12 employees who participated in
purchasing 8,388 shares of the Company's common stock from treasury stock.
F-48
<PAGE> 118
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 2000
[LOGO]
SHARES OF COMMON STOCK
----------------------------
PROSPECTUS
----------------------------
DONALDSON, LUFKIN & JENRETTE
SALOMON SMITH BARNEY
BANC OF AMERICA SECURITIES LLC
DLJDIRECT INC.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales hereunder after the date of this prospectus shall create an implication
that the information contained herein or the affairs of The Petroleum Place,
Inc. have not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus), all
dealers that effect transactions in these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE> 119
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discount and commissions, payable by the registrant in connection
with the sale of the common stock being registered hereby. All amounts shown are
estimates, except the SEC registration fee, the NASD filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 26,400.00
NASD filing fee............................................. 10,500.00
Nasdaq National Market listing application fee.............. 90,000.00
Blue Sky fees and expenses.................................. 10,000.00
Printing and engraving expenses............................. 200,000.00
Legal fees and expenses..................................... 500,000.00
Accounting fees and expenses................................ 200,000.00
Transfer agent and registrar fees........................... 10,000.00
Miscellaneous expenses...................................... 49,800.00
-------------
Total............................................. $1,096,700.00
=============
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our bylaws provide that we will indemnify our directors, officers,
employees and agents to the fullest extent permitted by Delaware law. In
addition, our certificate of incorporation provides that, to the fullest extent
permitted by Delaware law, our directors will not be liable for monetary damages
for breach of the directors' fiduciary duty to us and our stockholders. This
provision of the certificate of incorporation does not eliminate the duty of
care. In appropriate circumstances equitable remedies such as an injunction or
other forms of non-monetary relief are available under Delaware law. This
provision also does not affect a director's responsibilities under any other
laws, such as the federal securities laws.
Each director will continue to be subject to liability for:
- breach of the director's duty of loyalty to the Petroleum Place;
- acts or omissions not in good faith or involving intentional misconduct;
- knowing violations of law;
- any transaction from which the director derived an improper personal
benefit;
- improper transactions between the director and the Petroleum Place; and
- improper distributions to stockholders and improper loans to directors
and officers.
We intend to enter into indemnity agreements with each of our directors and
executive officers under which each director and executive officer will be
indemnified against expenses and losses incurred for claims brought against them
by reason of their being a director or executive officer of the Petroleum Place.
Our board of directors has authorized our officers to investigate and obtain
directors' and officers' liability insurance.
There is no pending litigation or proceeding involving a director or
officer of The Petroleum Place, Inc. as to which indemnification is being
sought. We are not aware of any pending or threatened litigation that may result
in claims for indemnification by any director or officer.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and control persons pursuant to the
foregoing provisions, or otherwise. We have been
II-1
<PAGE> 120
advised that, in the opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Described below is information regarding all securities that have been
issued by us during the past three years.
On January 29, 1999, we issued and sold 500,000 shares of our common stock
to Gary R. Vickers, our founder, chief executive officer, president and one of
our directors for an aggregate purchase price of $5,000. We relied on the
exemption provided by Rule 701 under the Securities Act.
On June 1, 1999, we issued and sold an aggregate of 1,906,137 shares of our
Series A preferred stock to six accredited investors at a purchase price of
$7.50 per share for cash proceeds in the aggregate amount of $14.3 million. From
March to May 1999, we raised $7.9 million in the form of convertible promissory
notes, which on June 1, 1999, converted into shares of our Series A preferred
stock. From February to June 1999, we raised $6.4 million from the sale of
shares of our Series A preferred stock. We relied on the exemption provided by
Rule 506 under the Securities Act.
On September 13, 1999, we issued two warrants to two accredited investors,
each to purchase 5,000 shares of our common stock at an exercise price of $0.75
per share. We relied on the exemption provided by Rule 506 under the Securities
Act.
In conjunction with the purchase of the Clearinghouse, we issued 455,120
shares of our Series B preferred stock to nine accredited investors in exchange
for 4,000 shares of common stock of the Clearinghouse. These shares of Series B
preferred stock had a fair market value of $8.6 million. We relied on the
exemption provided by Rule 506 under the Securities Act.
In March, April and May 2000, we issued and sold an aggregate of 1,010,070
shares of our Series C preferred stock to 53 accredited investors at a purchase
price of $59.12 per share for an aggregate purchase price of $59.7 million. We
relied on the exemption provided by Rule 506 under the Securities Act.
In March, 2000, we issued warrants to Donaldson, Lufkin & Jenrette
Securities Corporation, an accredited investor, to purchase up to 18,522 shares
of our Series C preferred stock at an exercise price of $59.12 per share. We
relied on the exemption provided by Rule 506 under the Securities Act.
On April 1, 2000, we issued 16,856 shares of our common stock to four
accredited investors in exchange for all the assets of Strata Web. These shares
of common stock had an aggregate fair market value of approximately $1.0
million. We relied on the exemption provided by Rule 506 under the Securities
Act.
On April 30, 2000, we issued a warrant to Donaldson, Lufkin & Jenrette
Securities Corporation, an accredited investor, to purchase up to 3,298 shares
of our Series C preferred stock at an exercise price of $59.12 per share. We
relied on the exemption provided by Rule 506 under the Securities Act.
On various dates between January 1999 and April 14, 2000, we authorized the
grant of stock options to employees and officers to purchase an aggregate of
413,253 shares of its common stock at exercise prices ranging from $0.75 per
share to $50.00 per share. Of these option grants, no shares have been
exercised. We relied on the exemption provided by Rule 701 of the Securities
Act.
The recipients of the above-described securities represented their
intention to acquire the securities for investment only and not with a view for
distribution thereof. Appropriate legends were affixed to the stock certificates
issued in such transactions. All recipients had adequate access, through
employment or other relationships, to information about us.
II-2
<PAGE> 121
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement.
2.1 -- Stock Purchase Agreement among The Petroleum Place and
the Shareholders of The Oil & Gas Asset Clearinghouse,
Inc., dated June 1, 1999.
2.2 -- Stock Purchase Agreement among The Petroleum Place and
the Shareholders of TradeBank, Inc., dated September 15,
1999.
2.3 -- Asset Purchase Agreement by and among EAEDP, Inc., World
Web Technologies Inc., Frank Verhagen, Michael Lazar, Kim
Lerner and Jean Brockman, dated September 20, 1999.
2.4 -- Asset Purchase Agreement among EAESW, Inc., Strata Web
Systems Ltd., Jimmy W. Chow, William S. Klym, Alberta
International Capital Ltd. and Armstrong Holdings Ltd.
dated April 1, 2000.
2.5 -- Agreement and Plan of Merger by and among The Petroleum
Place, Paradigm Technologies, Inc., and the stockholders
of Paradigm Technologies, Inc., dated May 17, 2000.
3.1* -- Restated Certificate of Incorporation.
3.2* -- Certificate of Amendment to Restated Certificate of
Incorporation.
3.3* -- Form of Restated Certificate of Incorporation to become
effective upon the closing of this offering.
3.4 -- Bylaws.
3.5 -- Amended and Restated Bylaws to become effective upon the
closing of this offering.
4.1 -- Reference is made to Exhibits 3.1 through 3.4.
4.2* -- Specimen stock certificate representing shares of common
stock of The Petroleum Place.
5.1* -- Opinion of Cooley Godward LLP regarding the legality of
the securities being registered.
10.1 -- Amended and Restated 1999 Equity Incentive Plan.
10.2 -- 2000 Employee Stock Purchase Plan.
10.3 -- Third Amended and Restated Investors' Rights Agreement,
among The Petroleum Place and certain of its
stockholders, dated March 2, 2000.
10.4 -- Form of Indemnity Agreement to be entered into between
The Petroleum Place and each of its directors and
executive officers.
10.5 -- Series A Preferred Stock Purchase Agreement, among The
Petroleum Place and the parties named therein dated
February 28, 1999.
10.6 -- Series B Preferred Stock Purchase Agreement, among The
Petroleum Place and the parties named therein, dated
December 30, 1999.
10.7 -- Series C Preferred Stock Purchase Agreement, among The
Petroleum Place and the parties named therein, dated
March 2, 2000.
10.8 -- Warrant to purchase 5,000 shares of the common stock of
The Petroleum Place, issued to Michael Allen on September
28, 1999.
10.9 -- Warrant to purchase 5,000 shares of the common stock of
The Petroleum Place, issued to Steve Fitzgerald on
September 28, 1999.
</TABLE>
II-3
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.10* -- Warrant to purchase 18,522 shares of Series C preferred
stock of The Petroleum Place, issued to Donaldson, Lufkin
& Jenrette Securities Corporation on March 2, 2000.
10.11* -- Warrant to purchase 3,298 shares of Series C preferred
stock of The Petroleum Place, issued to Donaldson, Lufkin
& Jenrette Securities Corporation on April 30, 2000.
10.12 -- Employment Agreement between The Oil & Gas Asset
Clearinghouse, Inc. and Kenneth R. Olive, Jr., dated June
1, 1999.
10.13 -- Employment Agreement between The Petroleum Place and Gary
R. Vickers, dated June 1, 1999, as amended.
10.14 -- Letter Agreement between The Petroleum Place and Jeffrey
M. Holben, dated September 21, 1999.
10.15 -- Loan and Security Agreement between The Petroleum Place
and Citicorp U.S.A., Inc., dated July 28, 1999.
10.16 -- Office Lease Agreement dated May 12, 2000 between The
Petroleum Place and Prentice Point Limited Partnership.
10.17 -- Office Lease Agreement dated August 18, 1999 between The
Petroleum Place and McCaslin Greenspoint I, Ltd.
21.1 -- List of Subsidiaries of Registrant.
23.1* -- Consent of Cooley Godward LLP (included in Exhibit 5.1).
23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of Hein + Associates LLP.
24.1 -- Powers of attorney (included on Page II-5).
27 -- Financial Data Schedule.
</TABLE>
- ------------------------------
* To be filed by amendment.
(b) Financial Statement Schedules.
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE> 123
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 124
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Denver,
County of Denver, State of Colorado, on May 19, 2000.
By: /s/ GARY R. VICKERS
----------------------------------
Gary R. Vickers
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Gary R. Vickers and Jeffrey M. Holben,
and each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place, and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments, exhibits thereto and other documents in connection
therewith) to this Registration Statement and any subsequent registration
statement filed by the registrant pursuant to Rule 462(b) of the Securities Act
of 1933, as amended, which relates to this Registration Statement, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GARY R. VICKERS President, Chief Executive May 19, 2000
- ----------------------------------------------------- Officer and Director
Gary R. Vickers (Principal Executive Officer)
/s/ JEFFREY M. HOLBEN Vice President of Finance, Chief May 19, 2000
- ----------------------------------------------------- Financial Officer, Treasurer
Jeffrey M. Holben and Secretary (Principal
Financial and Accounting
Officer)
/s/ MICHAEL F. BENNET Director May 19, 2000
- -----------------------------------------------------
Michael F. Bennet
/s/ MARC CUMMINS Director May 19, 2000
- -----------------------------------------------------
Marc Cummins
/s/ KENNETH R. OLIVE JR. Director May 19, 2000
- -----------------------------------------------------
Kenneth R. Olive Jr.
/s/ THOMAS G. WASHING Director May 19, 2000
- -----------------------------------------------------
Thomas G. Washing
</TABLE>
II-6
<PAGE> 125
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement.
2.1 -- Stock Purchase Agreement among The Petroleum Place and
the Shareholders of The Oil & Gas Asset Clearinghouse,
Inc., dated June 1, 1999.
2.2 -- Stock Purchase Agreement among The Petroleum Place and
the Shareholders of TradeBank, Inc., dated September 15,
1999.
2.3 -- Asset Purchase Agreement by and among EAEDP, Inc., World
Web Technologies Inc., Frank Verhagen, Michael Lazar, Kim
Lerner and Jean Brockman, dated September 20, 1999.
2.4 -- Asset Purchase Agreement among EAESW, Inc., Strata Web
Systems Ltd., Jimmy W. Chow, William S. Klym, Alberta
International Capital Ltd. and Armstrong Holdings Ltd.
dated April 1, 2000.
2.5 -- Agreement and Plan of Merger by and among The Petroleum
Place, Paradigm Technologies, Inc., and the stockholders
of Paradigm Technologies, Inc., dated May 17, 2000.
3.1* -- Restated Certificate of Incorporation.
3.2* -- Certificate of Amendment to Restated Certificate of
Incorporation.
3.3* -- Form of Restated Certificate of Incorporation to become
effective upon the closing of this offering.
3.4 -- Bylaws.
3.5 -- Amended and Restated Bylaws to become effective upon the
closing of this offering.
4.1 -- Reference is made to Exhibits 3.1 through 3.4.
4.2* -- Specimen stock certificate representing shares of common
stock of The Petroleum Place.
5.1* -- Opinion of Cooley Godward LLP regarding the legality of
the securities being registered.
10.1 -- Amended and Restated 1999 Equity Incentive Plan.
10.2 -- 2000 Employee Stock Purchase Plan.
10.3 -- Third Amended and Restated Investors' Rights Agreement,
among The Petroleum Place and certain of its
stockholders, dated March 2, 2000.
10.4 -- Form of Indemnity Agreement to be entered into between
The Petroleum Place and each of its directors and
executive officers.
10.5 -- Series A Preferred Stock Purchase Agreement, among The
Petroleum Place and the parties named therein dated
February 28, 1999.
10.6 -- Series B Preferred Stock Purchase Agreement, among The
Petroleum Place and the parties named therein, dated
December 30, 1999.
10.7 -- Series C Preferred Stock Purchase Agreement, among The
Petroleum Place and the parties named therein, dated
March 2, 2000.
10.8 -- Warrant to purchase 5,000 shares of the common stock of
The Petroleum Place, issued to Michael Allen on September
28, 1999.
10.9 -- Warrant to purchase 5,000 shares of the common stock of
The Petroleum Place, issued to Steve Fitzgerald on
September 28, 1999.
</TABLE>
<PAGE> 126
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.10* -- Warrant to purchase 18,522 shares of Series C preferred
stock of The Petroleum Place, issued to Donaldson, Lufkin
& Jenrette Securities Corporation on March 2, 2000.
10.11* -- Warrant to purchase 3,298 shares of Series C preferred
stock of The Petroleum Place, issued to Donaldson, Lufkin
& Jenrette Securities Corporation on April 30, 2000.
10.12 -- Employment Agreement between The Oil & Gas Asset
Clearinghouse, Inc. and Kenneth R. Olive, Jr., dated June
1, 1999.
10.13 -- Employment Agreement between The Petroleum Place and Gary
R. Vickers, dated June 1, 1999, as amended.
10.14 -- Letter Agreement between The Petroleum Place and Jeffrey
Holben, dated September 21, 1999.
10.15 -- Loan and Security Facility Agreement between The
Petroleum Place and Citicorp U.S.A., Inc., dated July 28,
1999.
10.16 -- Office Lease Agreement dated May 12, 2000 between The
Petroleum Place and Prentice Point Limited Partnership.
10.17 -- Office Lease Agreement dated August 18, 1999 between The
Petroleum Place and McCarlin Greenspoint I, Ltd.
21.1 -- List of Subsidiaries of Registrant.
23.1* -- Consent of Cooley Godward LLP (included in Exhibit 5.1).
23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of Hein + Associates LLP.
24.1 -- Powers of attorney (included on Page II-5).
27 -- Financial Data Schedule.
</TABLE>
- ------------------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
AMONG
ENERGY AUCTION EXCHANGE, INC.
AND
THE SHAREHOLDERS OF
THE OIL & GAS ASSET CLEARINGHOUSE, INC.
JUNE 1, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
1. Definitions..............................................................................................1
2. Purchase and Sale of the Shares..........................................................................7
(a) Basic Transaction...............................................................................7
(b) Determination of Adjusted Purchase Price........................................................7
(c) Payment of Adjusted Purchase Price. ............................................................7
(d) Post-Closing Adjusted Purchase Price Adjustments................................................8
(e) Allocation of Purchase Price Among the Sellers..................................................8
(f) The Closing.....................................................................................8
(g) Deliveries at the Closing. .....................................................................9
(h) Cash Distribution. .............................................................................9
(i) Escrow..........................................................................................9
3. Representations and Warranties Concerning the Transaction................................................9
(a) Representations and Warranties of the Sellers...................................................9
(i) Authorization of Transaction..........................................................10
(ii) Noncontravention......................................................................10
(iii) Brokers' Fees.........................................................................10
(iv) OGAC Shares...........................................................................10
(b) Representations and Warranties of the Buyer. ..................................................11
(i) Organization of the Buyer.............................................................11
(ii) Authorization of Transaction..........................................................11
(iii) Noncontravention......................................................................11
(iv) Brokers' Fees.........................................................................11
(v) Investment............................................................................11
4. Representations and Warranties Concerning OGAC..........................................................12
(a) Organization, Qualification, and Corporate Power...............................................12
(b) Capitalization.................................................................................12
(c) Noncontravention...............................................................................12
(d) Brokers' Fees..................................................................................13
(e) Title to Assets................................................................................13
(f) Subsidiaries...................................................................................13
(g) Financial Statements...........................................................................13
(h) Events Subsequent to Most Recent Fiscal Year End...............................................13
(i) Undisclosed Liabilities. ......................................................................15
(j) Legal Compliance...............................................................................16
(k) Tax Matters....................................................................................16
(l) Real Property..................................................................................17
(m) Intellectual Property..........................................................................18
(n) Tangible Assets................................................................................20
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
(o) Contracts......................................................................................20
(p) Notes Receivable...............................................................................21
(q) Powers of Attorney.............................................................................21
(r) Insurance......................................................................................21
(s) Litigation.....................................................................................22
(t) Employees......................................................................................22
(u) Employee Benefits..............................................................................22
(v) Environmental, Health, and Safety Matters......................................................23
(w) Certain Business Relationships with OGAC.......................................................24
(x) Disclosure.....................................................................................24
(y) Year 2000......................................................................................24
(z) Broker-Dealer..................................................................................25
(aa) Filings........................................................................................25
(bb) Auctioneers....................................................................................25
(cc) Board Attendance...............................................................................26
(dd) Qualification and Registration.................................................................26
(ee) Sellers' Representative........................................................................26
5. Pre-Closing Covenants...................................................................................26
(a) General........................................................................................26
(b) Notices and Consents...........................................................................26
(c) Operation of Business..........................................................................26
(d) Preservation of Business.......................................................................26
(e) Full Access....................................................................................26
(f) Notice of Developments.........................................................................27
(g) Exclusivity....................................................................................27
(h) Confidentiality Agreements.....................................................................27
(i) Broker/Dealer Insurance........................................................................27
6. Post-Closing Covenants..................................................................................28
(a) General........................................................................................28
(b) Litigation Support. ...........................................................................28
(c) Transition.....................................................................................28
(d) Confidentiality................................................................................28
(e) Sellers' Representative Covenant Not to Compete................................................29
(f) Sellers Covenant Not to Compete................................................................29
7. Conditions to Obligation to Close.......................................................................30
(a) Conditions to Obligation of the Buyer..........................................................30
(b) Conditions to Obligation of the Sellers. ......................................................32
8. Remedies for Breaches of This Agreement.................................................................33
(a) Survival of Representations and Warranties.....................................................33
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
(b) Indemnification Provisions for Benefit of the Buyer............................................34
(c) Indemnification Provisions for Benefit of the Sellers..........................................35
(d) Matters Involving Third Parties................................................................36
(e) Determination of Adverse Consequences. ........................................................37
(f) Other Indemnification Provisions...............................................................37
9. Certain Tax Matters.....................................................................................37
(a) S Corporation Status...........................................................................37
(b) Tax Periods Ending on or Before the Closing Date...............................................38
(c) Cooperation on Tax Matters.....................................................................38
(d) Tax Sharing Agreements.........................................................................38
(e) Certain Taxes..................................................................................38
10. Termination.............................................................................................39
(a) Termination of Agreement.......................................................................39
(b) Effect of Termination..........................................................................39
11. Miscellaneous...........................................................................................40
(a) Press Releases and Public Announcements........................................................40
(b) No Third-Party Beneficiaries...................................................................40
(c) Entire Agreement...............................................................................40
(d) Succession and Assignment......................................................................40
(e) Counterparts...................................................................................41
(f) Headings.......................................................................................41
(g) Notices. ......................................................................................41
(h) Governing Law..................................................................................42
(i) Amendments and Waivers.........................................................................42
(j) Severability...................................................................................42
(k) Expenses.......................................................................................42
(l) Construction...................................................................................42
(m) Incorporation of Exhibits, Annexes, and Schedules..............................................42
(n) Specific Performance...........................................................................42
(o) Submission to Jurisdiction.....................................................................43
(p) Execution......................................................................................43
</TABLE>
iii
<PAGE> 5
EXHIBITS, ANNEXES AND SCHEDULES
Exhibit A--Financial Statements
Exhibit B--Form of Employment Agreement
Exhibit C--Form of Voting Agreement
Exhibit D--Form of Shareholders Agreement
Exhibit E--Form of Stock Option Plan
Exhibit F--Form of Promissory Note
Exhibit G--Form of Opinion of Counsel to the Sellers
Exhibit H--Form of Opinion of Counsel to the Buyer
Exhibit I--Form of Release
Exhibit J--Form of Security Agreement
Exhibit K--Form of Stock Option Agreement
Annex I--Exceptions to the Buyer's Representations and Warranties
Concerning the Transaction
Disclosure Schedule--Exceptions to the Sellers' Representations and Warranties
Concerning the Transaction and the Representations and Warranties
Concerning OGAC
Purchase Price Adjustment Schedule
iv
<PAGE> 6
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is entered into on
June 1, 1999, by and among Energy Auction Exchange, Inc., a Delaware corporation
(the "Buyer"), and Kenneth R. Olive, Jr., Allan C. King, Allan G. King, Duane H.
King, Gwendolyn King Kinney, David R. King, Robert E. Zimmerman, Jr., R.E.
Zimmerman and Michael W. O'Shaughnessy, each an individual (collectively the
"Sellers"). The Buyer and the Sellers are referred to collectively herein as the
"Parties."
RECITALS
The Sellers in the aggregate own all of the outstanding capital stock
of The Oil & Gas Asset Clearinghouse, Inc., a Texas corporation ("OGAC").
This Agreement contemplates a transaction in which the Buyer will
purchase from the Sellers, and the Sellers will sell to the Buyer, 8,000 shares
of the outstanding capital stock of OGAC (the "Shares") in return for cash.
AGREEMENT
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. Definitions.
"Accountant" has the meaning set forth in Section 2(d) below.
"Actual Adjustment" has the meaning set forth in Section 2(d) below.
"Additional Payment" has the meaning set forth in Section 2(d) below.
"Adjusted Purchase Price" has the meaning set forth in Section 2(b)
below.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504(a) or any similar group defined under a similar provision of
state, local or foreign law.
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"Agreement" has the meaning set forth in the preface above.
"Annual Financial Statements" has the meaning set forth in Section 4(g)
below.
"Applicable Rate" means the prime rate of interest as published from
time to time in the Denver, Colorado edition of the Wall Street Journal.
"Balance Sheet" means the statement of financial condition of OGAC as
of December 31, 1998 included in the Annual Financial Statements.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"Basket" has the meaning set forth in Section 8(b)(iv) below.
"Breach Notice" has the meaning set forth in Section 5(f) below.
"Buyer" has the meaning set forth in the preface above.
"CERCLA" has the meaning set forth in Section 4(v)(v) below.
"Closing" has the meaning set forth in Section 2(f) below.
"Closing Date" has the meaning set forth in Section 2(f) below.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of
ERISA and Code Section 4980B.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, par value $.10 per share, of
OGAC.
"Confidential Information" means any information concerning the
businesses and affairs of OGAC that is not already generally available to the
public.
"Controlled Group" has the meaning set forth in Code Section 1563.
"Current Assets" means the current assets of OGAC as determined in
accordance with GAAP.
"Current Liabilities" means the current liabilities of OGAC as
determined in accordance with GAAP.
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"Defense Notice" has the meaning set forth in Section 8(d)(ii) below.
"Deposit" has the meaning given such term in the Letter of Intent.
"Disclosure Schedule" has the meaning set forth in Section 3(a) below.
"Distribution" has the meaning set forth in Section 2(f) below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement, (b) qualified defined
contribution retirement plan or arrangement which is an Employee Pension Benefit
Plan, (c) qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multiemployer Plan), or (d)
Employee Welfare Benefit Plan or material fringe benefit or other retirement,
bonus, or incentive plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Employment Agreement" has the meaning set forth in Section 7(a)(viii)
below.
"Environmental, Health, and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, and all common law concerning public health and
safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation, each as amended and as now in
effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means each entity which is treated as a single
employer with OGAC for purposes of Code Section 414.
"Estimate" has the meaning set forth in Section 2(b) below.
"Final Date" has the meaning set forth in Section 2(f) below.
"Final Purchase Price" means the Adjusted Purchase Price, plus or minus
the Actual Adjustment, as the case may be.
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"Financial Statements" has the meaning set forth in Section 4(g) below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Gross Purchase Price" has the meaning set forth in Section 2(b) below.
"Indemnified Party" has the meaning set forth in Section 8(d)(i) below.
"Indemnifying Party" has the meaning set forth in Section 8(d)(i)
below.
"Independent Accountant" has the meaning set forth in Section 2(d)
below.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier profiles, lists and information, historic auction
information and statistics, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software, databases, profile
information, source codes and system processes (including data and related
documentation), (g) all other proprietary rights, including Internet web sites,
and (h) all copies and tangible embodiments thereof (in whatever form or
medium).
"Interim Financial Statements" has the meaning set forth in Section
4(g) below.
"Knowledge" means actual knowledge after reasonable investigation.
"Letter of Intent" means the letter dated March 1, 1999 from Vickers
Energy Services, LLC to OGAC, and accepted and agreed to by OGAC and the Sellers
on March 1, 1999, as amended by those certain amendment letters thereto dated
March 31, 1999, April 1, 1999, April 12, 1999 and April 13, 1999, regarding the
transaction contemplated by this Agreement.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
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"Litigation Expenses" has the meaning set forth in Section 8(b)(ii)(C)
below.
"LTD Policy" has the meaning set forth in Section 4(u)(i) below.
"Material Adverse Effect" means a material adverse effect on the
business, financial condition, operations, results of operations, properties or
assets of OGAC.
"Most Recent Fiscal Year End" means December 31, 1998.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"NASD" means the National Association of Securities Dealers, Inc.
"Non-Compete Period" has the meaning set forth in Section 6(f) below.
"OGAC" has the meaning set forth in the Recitals above.
"OGAC Share" means any share of the common stock, par value $.10 per
share, of OGAC.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Other Party" has the meaning set forth in Section 5(f) below.
"Parties" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, a governmental entity (or any
department, agency, or political subdivision thereof) or any other entity.
"Prepayment Amount" has the meaning set forth in Section 2(i) below.
"Prohibited Transaction" has the meaning set forth in ERISA Section 406
and Code Section 4975.
"Promissory Note" has the meaning set forth in Section 2(c) below.
"Purchase Price Adjustment" has the meaning set forth in Section 2(b)
below.
"Purchase Price Adjustment Schedule" has the meaning set forth in
Section 2(b) below.
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"Release" has the meaning set forth in Section 7(a)(xiv) below.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Reports" has the meaning set forth in Section 4(aa) below.
"Restated Shareholders Agreement" has the meaning set forth in Section
3(a)(iv) below.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Agreement" has the meaning set forth in Section 7(b)(xii)
below.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Sellers" has the meaning set forth in the preface above.
"Sellers' Representative" means Kenneth R. Olive, Jr.
"Shareholders Agreement" has the meaning set forth in Section 7(a)(x)
below.
"Shares" has the meaning set forth in the Recitals above.
"Stock Option Agreement" has the meaning set forth in Section 7(a)(xv)
below.
"Stock Option Plan" has the meaning set forth in Section 7(a)(xi)
below.
"SWDA" has the meaning set forth in Section 4(v)(v) below.
"System" has the meaning set forth in Section 4(y) below.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property,
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sales, use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 8(d)(i) below.
"Voting Agreement" has the meaning set forth in Section 7(a)(ix) below.
"Year 2000 Compliant" has the meaning set forth in Section 4(y) below.
2. Purchase and Sale of the Shares.
(a) Basic Transaction. On and subject to the terms and conditions of
this Agreement, the Buyer agrees to purchase from the Sellers, and the Sellers
agree to sell to the Buyer, the Shares for the consideration specified below in
this Section 2.
(b) Determination of Adjusted Purchase Price. The cash purchase price
for the purchase of the Shares shall be $16,200,000 (the "Gross Purchase
Price"). The Gross Purchase Price shall be subject to adjustment as described
below in this Section 2(b) to arrive at the adjusted cash purchase price for the
purchase of the Shares (the "Adjusted Purchase Price") to be paid by the Buyer
to the Sellers at the Closing in the manner set forth in Sections 2(c), (d) and
(e) below. The Gross Purchase Price shall be increased on a dollar-for-dollar
basis by the amount by which Current Assets on the Closing Date exceed Current
Liabilities on the Closing Date and by the amount of the other items set forth
on the purchase price adjustment schedule (the "Purchase Price Adjustment
Schedule") attached hereto (collectively, the "Purchase Price Adjustment") to
arrive at the Adjusted Purchase Price. An estimate reasonably acceptable to the
Buyer detailing the sources and amounts of Current Assets and Current
Liabilities on the Closing Date and any other items included in the Purchase
Price Adjustment (the "Estimate") shall be delivered by the Sellers to the Buyer
at least two (2) business days prior to the Closing Date for purposes of
calculating the Adjusted Purchase Price to be paid at the Closing.
(c) Payment of Adjusted Purchase Price. At the Closing, the Buyer shall
pay the Adjusted Purchase Price to the Sellers by (i) delivery to the Sellers'
Representative of a promissory note substantially in form and substance as set
forth in Exhibit F attached hereto (the "Promissory Note") in the principal
amount of $5,000,000, (ii) instructing Bank One Denver to deliver the Deposit to
the Sellers' Representative, and (iii) delivery to the Sellers' Representative
of cash payable by wire transfer or delivery of other immediately available
funds of the balance of the Adjusted Purchase Price after deducting the payments
set forth in subsections (i) and (ii) above.
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(d) Post-Closing Adjusted Purchase Price Adjustments. Within forty-five
(45) days after the Closing Date, the Sellers' Representative shall instruct
Simonton, Kutac & Barnidge, L.L.P. (the "Accountant") to determine the actual
Purchase Price Adjustment as of the Closing Date (the "Actual Adjustment") and
the amount of accounts receivable included in the Actual Adjustment which have
not been collected by OGAC as of the date of the Accountant's determination of
the Actual Adjustment . Within twenty (20) days thereafter, the Accountant shall
provide its determination of the Actual Adjustment to the Buyer and the Sellers'
Representative. If the Buyer and the Sellers' Representative agree with the
Accountant's determination, such determination shall be binding upon the Buyer
and the Sellers. If the Buyer and the Sellers' Representative do not agree with
the Accountant's determination, the Buyer shall instruct ______________ (the
"Independent Account") to, within twenty (20) days thereafter, determine the
Actual Adjustment and the amount of accounts receivable included in the Actual
Adjustment which have not been collected by OGAC as of the date of the
Independent Accountant's determination of the Actual Adjustment and such
determination shall be binding upon the Buyer and the Sellers. Any accounting
fees and expenses related to the Accountant's and/or the Independent
Accountant's determination of the Actual Adjustment shall be paid one-half by
the Buyer and one-half by the Sellers. If the Actual Adjustment is determined to
be less than the Estimate, the Sellers shall promptly pay to the Buyer by wire
transfer or other immediately available funds within five (5) business days of
the Accountant's or Independent Accountant's, as the case may be, determination
of the Actual Adjustment an amount equal to the difference between the Estimate
and the Actual Adjustment to give effect to the final computation of the
Adjusted Purchase Price. If the Actual Adjustment is determined to be greater
than the Estimate, the Buyer shall pay to the Sellers' Representative by wire
transfer or other immediately available funds within five (5) business days of
the Accountant's determination of the Actual Adjustment an amount equal to the
difference between the Actual Adjustment and the Estimate (the "Additional
Payment") to give effect to the final computation of the Adjusted Purchase
Price. If the Accountant or the Independent Accountant, as the case may be,
determines that the amount of Current Assets included in the Estimate includes
accounts receivable which were not collected as of the date of the determination
of the Actual Adjustment, such accounts receivable shall be assigned by OGAC to
the Sellers' Representative and the Sellers shall promptly pay to OGAC by wire
transfer or other immediately available funds an amount equal to the aggregate
amount of such accounts receivable .
(e) Allocation of Purchase Price Among the Sellers. The Adjusted
Purchase Price and the Additional Payment, if any, shall be allocated among the
Sellers as determined by the Sellers' Representative. Each Seller hereby
acknowledges that the Buyer shall satisfy its obligation to deliver the Adjusted
Purchase Price and the Additional Payment, if any, to the Sellers by delivering
the Adjusted Purchase Price and the Additional Payment, if any, to the Sellers'
Representative.
(f) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Jacobs Chase Frick
Kleinkopf & Kelley LLC, 1050 17th Street, Suite 1500, Denver, Colorado 80265, on
such date and time as the Buyer and the Sellers' Representative may mutually
determine (the "Closing Date"); provided, however, that the Closing shall take
place no later than June 1, 1999 (the "Final Date"); provided, further, that (i)
upon the
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written notice of the Buyer to the Sellers' Representative the Final Date may be
extended for up to thirty (30) days but in no case prior to June 11, 1999, or
(ii) upon written notice to the other Party, either Party may extend the Final
Date until such time as the NASD shall have approved the transactions
contemplated by this Agreement, but in no event shall such extension be beyond
August 31, 1999.
(g) Deliveries at the Closing. At the Closing, (i) the Sellers will
deliver to the Buyer the various certificates, instruments, and documents
referred to in Section 7(a) below, (ii) the Buyer will deliver to the Sellers'
Representative the various certificates, instruments, and documents referred to
in Section 7(b) below, (iii) the Sellers will deliver to the Buyer stock
certificates representing the Shares, endorsed in blank or accompanied by duly
executed assignment documents, and (iv) the Buyer will deliver to the Sellers'
Representative the consideration specified in Section 2(c) above.
(h) Cash Distribution. The Parties agree that prior to the Closing,
OGAC may distribute cash on hand to the Sellers (the "Distribution").
(i) Escrow. In order to facilitate the post-closing adjustments
described in Section 2(d) above and the indemnification provisions described in
Section 8 below, the Parties agree that if the Buyer prepays the entire
principal amount of, and all interest then due under the Promissory Note (the
"Prepayment Amount") within ninety (90) days of the Closing Date (excluding any
set-off pursuant to Section 14 of the Promissory Note), the Buyer shall deposit
$1,700,000 of the Prepayment Amount (which amount shall not include any set-off
pursuant to Section 14 of the Promissory Note which has not been finally
settled) with an escrow agent to be mutually agreed upon by the Buyer and the
Sellers' Representative pursuant to an escrow agreement to be mutually agreed
upon and entered into by the Buyer and the Sellers' Representative; provided,
however, that such escrow agreement shall provide that (i) the escrow agent
shall not distribute any funds from the escrow account created thereby except
pursuant to written instructions jointly executed by the Buyer and the Sellers'
Representative or pursuant to a final court order, and (ii) $850,000 (less the
amount (A) of any claim for indemnification by the Buyer pursuant to Section 8
below which has not been finally settled, (B) of any finally settled claim for
indemnification by the Buyer pursuant to Section 8 below which has been paid out
of such escrow or has not been paid, and (C) owing to the Buyer pursuant to
Section 2(d) above which has been paid out of such escrow or has not been paid)
of the funds in the escrow account shall be distributed on the first anniversary
of the Closing Date and the remainder of the funds in the escrow account (less
the amount (X) of any claim for indemnification by the Buyer pursuant to Section
8 below which has not been finally settled, (Y) of any finally settled claim for
indemnification by the Buyer pursuant to Section 8 below which has not been
paid, and (Z) owing to the Buyer pursuant to Section 2(d) above which has not
been paid) shall be distributed on the second anniversary of the Closing Date.
3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Sellers. Each of the Sellers
severally represents and warrants to the Buyer that the statements contained in
this Section 3(a) are true and
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correct as of the date of this Agreement and will be true and correct as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 3(a)) with
respect to himself or herself, except as set forth in the disclosure schedule
attached hereto (the "Disclosure Schedule"). The Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this Section 3(a) and in Section 4 below.
(i) Authorization of Transaction. The Seller has full power
and authority to execute and deliver this Agreement and to perform his
or her obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of the Seller, enforceable in accordance
with its terms and conditions, except as such enforcement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally. Except as set forth in
Section 3(a) of the Disclosure Schedule, the Seller need not give any
notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency, including,
without limitation, the SEC and the NASD, in order to consummate the
transactions contemplated by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which the Seller is subject , (B) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Seller is a party or by
which he or she is bound or to which any of his or her assets is
subject, or (C) result in a breach of any confidentiality,
non-competition or similar agreement to which the Seller is a party.
(iii) Brokers' Fees. Except as set forth in Section 3(a) of
the Disclosure Schedule, the Seller has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which
the Buyer could become liable or obligated.
(iv) OGAC Shares. The Seller holds of record and owns
beneficially the number of OGAC Shares set forth next to his or her
name in Section 4(b) of the Disclosure Schedule, free and clear of any
restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, Security Interests,
options, warrants, purchase rights, contracts, commitments, equities,
claims, and demands. The Seller is not a party to any option, warrant,
purchase right, or other contract or commitment that could require the
Seller to sell, transfer, or otherwise dispose of any capital stock of
OGAC. The Seller is not a party to any voting trust, proxy, or other
agreement or understanding with respect to the voting of any capital
stock of OGAC (other than the Restated Shareholders Agreement dated as
of
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April 28, 1998 by and among OGAC, the Sellers and their spouses, and
Lawrence J. Harrison, Jr. and his spouse (the "Restated Shareholders
Agreement")).
(b) Representations and Warranties of the Buyer. The Buyer represents
and warrants to the Sellers that the statements contained in this Section 3(b)
are true and correct as of the date of this Agreement and will be true and
correct as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section
3(b)), except as set forth in Annex I attached hereto.
(i) Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(ii) Authorization of Transaction. The Buyer has full power
and authority (including full corporate power and authority) to execute
and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of
the Buyer, enforceable in accordance with its terms and conditions,
except as such enforcement may be limited by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights
generally. Except as set forth in Section 3(b) of Annex I, the Buyer
need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency, including, without limitation, the SEC and the NASD, in order
to consummate the transactions contemplated by this Agreement.
(iii) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which the Buyer is subject or any provision of its charter or
bylaws, (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under
any agreement, contract, lease, license, instrument, or other
arrangement to which the Buyer is a party or by which it is bound or to
which any of its assets is subject, or (C) result in a breach of any
confidentiality, non-competition or similar agreement to which the
Buyer or Gary R. Vickers or any of his Affiliates is a party.
(iv) Brokers' Fees. The Buyer has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which
any Seller could become liable or obligated.
(v) Investment. The Buyer is acquiring the Shares solely for
its own account for investment purposes and not with a view to or for
sale in connection with any distribution thereof within the meaning of
the Securities Act. Buyer is an "accredited investor" as defined in
Regulation D under the Securities Act.
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4. Representations and Warranties Concerning OGAC. The Sellers
represent and warrant to the Buyer that the statements contained in this Section
4 are true and correct as of the date of this Agreement and will be true and
correct as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section 4),
except as set forth in the Disclosure Schedule.
(a) Organization, Qualification, and Corporate Power. OGAC is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. OGAC is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required, except where the failure to be so
qualified individually or in the aggregate would not have a Material Adverse
Effect. OGAC and its employees (contract or otherwise) have full power and
authority (including with respect to OGAC, full corporate power and authority)
and all licenses, permits, and authorizations, including, without limitation all
such licenses, permits and authorizations required by the SEC and the NASD,
necessary to carry on the businesses in which it is engaged, and to own and use
the properties owned and used by it, except where the failure to have any such
licenses, permits or authorizations individually or in the aggregate would not
have a Material Adverse Effect. OGAC has made available to the Buyer correct and
complete copies of all such licenses, permits and authorizations. Section 4(a)
of the Disclosure Schedule lists the directors and officers of OGAC and the
jurisdictions in which OGAC is duly authorized to conduct business and is in
good standing. OGAC has delivered to the Buyer correct and complete copies of
the charter and bylaws of OGAC (as amended to date). The minute books
(containing the records of meetings of the stockholders, the board of directors,
and any committees of the board of directors), the stock certificate books, and
the stock record books of OGAC are correct and complete. OGAC is not in default
under or in violation of any provision of its charter or bylaws.
(b) Capitalization. The entire authorized capital stock of OGAC
consists of 1,000,000 OGAC Shares, of which 10,000 OGAC Shares are issued and
outstanding. All of the issued and outstanding OGAC Shares have been duly
authorized, are validly issued, fully paid, and nonassessable, and are held of
record by the respective Sellers as set forth in Section 4(b) of the Disclosure
Schedule. There are no outstanding or authorized options, warrants, purchase
rights, subscription rights, conversion rights, exchange rights, or other
contracts or commitments that could require OGAC to issue, sell, or otherwise
cause to become outstanding any of its capital stock. There are no outstanding
or authorized stock appreciation, phantom stock, profit participation, or
similar rights with respect to OGAC. There are no voting trusts, proxies, or
other agreements or understandings with respect to the voting of the capital
stock of OGAC (other than the Restated Shareholders Agreement). Section 4(b) of
the Disclosure Schedule sets forth (i) the record holders of the OGAC Shares and
the number of OGAC Shares to be held by each such record holder immediately
subsequent to the Closing and (ii) the pro rata portion of the Adjusted Purchase
Price delivered to the Sellers' Representative at Closing to which such Seller
is entitled.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute,
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regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any governmental agency, or court to which OGAC is subject or any
provision of the charter or bylaws of OGAC, (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which OGAC is a party or by which it is bound or to which any of
its assets is subject (or result in the imposition of any Security Interest upon
any of its assets), or (iii) result in a breach of any confidentiality, non-
competition or similar agreement to which OGAC is a party. Except as set forth
in Section 4(c) of the Disclosure Schedule, OGAC does not need to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency, including, without
limitation, the SEC or the NASD, in order for the Parties to consummate the
transactions contemplated by this Agreement.
(d) Brokers' Fees. Except as set forth in Section 4(d) of the
Disclosure Schedule, OGAC has no Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
(e) Title to Assets. OGAC has good and indefeasible title to, or a
valid leasehold interest in, the properties and assets used in its business,
located on its premises, or shown on the Balance Sheet or acquired after the
date thereof, free and clear of all Security Interests, except for properties
and assets disposed of in the Ordinary Course of Business since the Most Recent
Fiscal Year End and certain personal items of employees of de minimis value.
(f) Subsidiaries. OGAC has no subsidiaries.
(g) Financial Statements. Attached hereto as Exhibit A are the
following financial statements (collectively the "Financial Statements"): (i)
audited statements of financial condition, income, changes in shareholders'
equity, and cash flow as of and for the fiscal years ended December 31, 1996,
1997, and 1998 for OGAC (collectively, the "Annual Financial Statements"); and
(ii) unaudited statements of financial condition, income, changes in
shareholders' equity, and cash flows as of and for the four-month period ended
April 30, 1999 for OGAC (the "Interim Financial Statements"). The Financial
Statements (including the notes thereto) have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered thereby,
present fairly the financial condition of OGAC as of such dates and the results
of operations of OGAC for such periods and are consistent with the books and
records of OGAC; provided, however, that the Interim Financial Statements are
subject to normal year-end adjustments (which will not be material individually
or in the aggregate) and lack footnotes and other presentation items.
(h) Events Subsequent to Most Recent Fiscal Year End. Except for
changes in laws or regulations of general applicability and changes in general
economic conditions, since the Most Recent Fiscal Year End there has not been
any Material Adverse Effect. Without limiting the generality of the foregoing
and except in the Ordinary Course of Business or as set forth in Section 4(h) of
the Disclosure Schedule, since that date:
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(i) OGAC has not sold, leased, transferred, or assigned any of
its assets, tangible or intangible, with a fair market value in excess
of $10,000;
(ii) OGAC has not entered into, amended or terminated any
agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) involving more than
$10,000;
(iii) no party (including OGAC) has accelerated, terminated,
modified, or canceled any agreement, contract, lease, or license (or
series of related agreements, contracts, leases, and licenses)
involving more than $10,000 to which OGAC is a party or by which it is
bound;
(iv) OGAC has not imposed any Security Interest upon any of
its assets, tangible or intangible;
(v) OGAC has not made any capital expenditure (or series of
related capital expenditures) involving more than $10,000;
(vi) OGAC has not made any capital investment in, any loan to,
or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions)
involving more than $10,000;
(vii) OGAC has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness
for borrowed money or capitalized lease obligation either involving
more than $5,000 singly or $10,000 in the aggregate;
(viii) OGAC has not delayed or postponed the payment of
accounts payable and other Liabilities;
(ix) OGAC has not canceled, compromised, waived, or released
any right or claim (or series of related rights and claims) involving
more than $10,000;
(x) OGAC has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the
charter or bylaws of OGAC;
(xii) OGAC has not issued, sold, or otherwise disposed of any
of its capital stock, or granted any options, warrants, or other rights
to purchase or obtain (including upon conversion, exchange, or
exercise) any of its capital stock;
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(xiii) OGAC has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in
cash or in kind), other than distributions for payment by the
shareholders of Taxes with respect to OGAC and the Distribution, except
in accordance with past business practices, or redeemed, purchased, or
otherwise acquired any of its capital stock;
(xiv) OGAC has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property which
individually or in the aggregate would have a Material Adverse Effect;
(xv) OGAC has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees (other
than the payment of compensation for services rendered to OGAC or
reimbursement of expenses in accordance with the policies of OGAC);
(xvi) OGAC has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms
of any existing such contract or agreement;
(xvii) OGAC has not granted any increase in the base
compensation of any of its directors, officers, and employees;
(xviii) OGAC has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan,
contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any
other Employee Benefit Plan);
(xix) OGAC has not made any other change in employment terms
for any of its directors, officers, and employees;
(xx) OGAC has not made or pledged to make any charitable or
other capital contribution;
(xxi) to the Knowledge of the Sellers, there has not been any
other material occurrence, event, incident, action, failure to act, or
transaction involving OGAC; and
(xxii) OGAC has not committed to any of the foregoing.
(i) Undisclosed Liabilities. OGAC has no Liability (and there is no
Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability), except for (i) Liabilities which are disclosed or
reserved for in the Annual Financial Statements for the Most Recent Fiscal Year
End and the Interim Financial Statements and (ii) Liabilities which have arisen
after the date of the Interim Financial Statements in the Ordinary Course of
Business (none of which results from, arises out of, relates to, is in the
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nature of, or was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law by OGAC).
(j) Legal Compliance. OGAC has complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), except for violations of such laws which
individually or in the aggregate would not have a Material Adverse Effect, and
no action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against OGAC alleging any failure
so to comply.
(k) Tax Matters.
(i) OGAC has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all material
respects. All Taxes owed by OGAC (whether or not shown on any Tax
Return) have been paid (other than sales taxes not yet due and
payable). OGAC is not currently the beneficiary of any extension of
time within which to file any Tax Return.
(ii) OGAC has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third
party.
(iii) There is no material dispute or claim concerning any Tax
Liability of OGAC either (A) claimed or raised by any authority in
writing or (B) as to which the Sellers have Knowledge. Section 4(k) of
the Disclosure Schedule lists all federal, state, local, and foreign
income Tax Returns filed with respect to OGAC for taxable periods ended
on or after December 31, 1992, indicates those Tax Returns that have
been audited, and indicates those Tax Returns that currently are the
subject of audit. OGAC has delivered to the Buyer correct and complete
copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by OGAC since
December 31, 1992.
(iv) OGAC has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) OGAC has not filed a consent under Code Section 341(f)
concerning collapsible corporations. OGAC has not made any material
payments, is not obligated to make any material payments, and is not a
party to any agreement that under certain circumstances could obligate
it to make any material payments that will not be deductible under Code
Section 280G. OGAC has not been a United States real property holding
corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii). OGAC is
not a party to any Tax allocation or sharing agreement. OGAC (A) has
not been a member of an Affiliated Group filing a consolidated federal
income Tax Return (other than a group the common parent of which
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was OGAC) or (B) has no Liability for the Taxes of any Person (other
than OGAC) under Reg. Section 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
(vi) Except as set forth in Section 4(k) of the Disclosure
Schedule, OGAC (and any predecessor of OGAC) has been a validly
electing S corporation within the meaning of Code Sections 1361 and
1362 at all times during its existence and OGAC will be an S
corporation up to and including the Closing Date.
(l) Real Property.
(i) OGAC owns no real property.
(ii) Section 4(l) of the Disclosure Schedule lists and
describes briefly all real property leased or subleased to OGAC. The
Sellers have delivered to the Buyer correct and complete copies of the
leases and subleases listed in Section 4(l) of the Disclosure Schedule
(as amended to date). With respect to each lease and sublease listed in
Section 4(l) of the Disclosure Schedule:
(A) the lease or sublease is legal, valid, binding,
enforceable by OGAC, and in full force and effect;
(B) the lease or sublease will continue to be legal,
valid, binding, enforceable by OGAC, and in full force and
effect on identical terms following the consummation of the
transactions contemplated hereby;
(C) OGAC is not in material breach or default under
the lease or sublease;
(D) to the Knowledge of the Sellers, no other party
to the lease or sublease is in breach or default and no event
has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination,
modification or acceleration thereunder;
(E) neither OGAC nor, to the Knowledge of the
Sellers, any other party to the lease or sublease has
repudiated any provision thereof;
(F) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(G) with respect to each sublease, the
representations and warranties set forth in subsections (A)
through (F) above are true and correct with respect to the
underlying lease;
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(H) OGAC has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
(I) all facilities leased or subleased thereunder
have received all approvals of governmental authorities
(including licenses and permits) required in connection with
the operation thereof and have been operated and maintained in
accordance with applicable laws, rules, and regulations in all
material respects; and
(J) all facilities leased or subleased thereunder are
supplied with utilities and other services necessary for the
operation of said facilities.
(m) Intellectual Property.
(i) OGAC owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property
necessary or desirable for the operation of the businesses of OGAC as
presently conducted. Each item of Intellectual Property owned or used
by OGAC immediately prior to the Closing hereunder will be owned or
available for use by OGAC on identical terms and conditions immediately
subsequent to the Closing hereunder. OGAC has taken all commercially
reasonable efforts in order to maintain and protect each item of
Intellectual Property that it owns or uses.
(ii) To the Knowledge of Sellers, OGAC has not interfered
with, infringed upon, misappropriated, or otherwise come into conflict
with any Intellectual Property rights of third parties. None of the
Sellers and the directors and officers (and employees with
responsibility for Intellectual Property matters) of OGAC has ever
received any charge, complaint, claim, demand, or notice alleging any
such interference, infringement, misappropriation, or violation
(including any claim that OGAC must license or refrain from using any
Intellectual Property rights of any third party). To the Knowledge of
the Sellers, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of OGAC.
(iii) No patents or registrations have been issued to OGAC
with respect to any of its Intellectual Property and OGAC has no
pending patent application or application for registration with respect
to any of its Intellectual Property. Section 4(m) of the Disclosure
Schedule identifies each license, agreement, or other permission which
OGAC has granted to any third party with respect to any of its
Intellectual Property (together with any exceptions). OGAC has made
available to the Buyer correct and complete copies of all such
licenses, agreements, and permissions (as amended to date) and of all
other written documentation evidencing ownership and prosecution (if
applicable) of each such item, including, without limitation, legal
opinions regarding licenses, permits and authorizations to carry on the
businesses in which it is engaged. Section 4(m) of the Disclosure
Schedule also identifies each trade name, unregistered trademark or
Internet web site used by OGAC
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in connection with any of its businesses. With respect to each item of
Intellectual Property required to be identified in Section 4(m) of the
Disclosure Schedule:
(A) Except as set forth in Section 4(m) of the
Disclosure Schedule, OGAC possesses all right, title, and
interest in and to the item, free and clear of any Security
Interest, license, or other restriction;
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or, to the Knowledge of the Sellers, is threatened which
challenges the legality, validity, enforceability, use, or
ownership of the item; and
(D) OGAC has never agreed to indemnify any Person for
or against any interference, infringement, misappropriation,
or other conflict with respect to the item.
(iv) Section 4(m) of the Disclosure Schedule identifies each
item of Intellectual Property that any third party owns and that OGAC
uses pursuant to license, sublicense, agreement, or permission, other
than off-the-shelf software, each with a cost of less than $2,000. OGAC
has delivered to the Buyer correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to
date). With respect to each item of Intellectual Property required to
be identified in Section 4(m) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable by
OGAC, and in full force and effect;
(B) the license, sublicense, agreement, or permission
will continue to be legal, valid, binding, enforceable by
OGAC, and in full force and effect on identical terms
following the consummation of the transactions contemplated
hereby;
(C) OGAC is not in material breach or default under
the license, sublicense, agreement or permission;
(D) to the Knowledge of the Sellers, no other party
to the license, sublicense, agreement or permission is in
breach or default, and no event has occurred which with notice
or lapse of time would constitute a breach or default or
permit termination, modification or acceleration thereunder;
(E) neither OGAC nor, to the Knowledge of the
Sellers, any other party to the license, sublicense,
agreement, or permission has repudiated any provision thereof;
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(F) with respect to each sublicense, the
representations and warranties set forth in subsections (A)
through (E) above are true and correct with respect to the
underlying license;
(G) to the Knowledge of the Sellers, the underlying
item of Intellectual Property is not subject to any
outstanding injunction, judgment, order, decree, ruling, or
charge;
(H) to the Knowledge of the Sellers, no action, suit,
proceeding, hearing, investigation, charge, complaint, claim,
or demand is pending or is threatened which challenges the
legality, validity, or enforceability of the underlying item
of Intellectual Property; and
(I) OGAC has not granted any sublicense or similar
right with respect to the license, sublicense, agreement, or
permission.
(n) Tangible Assets. OGAC owns or leases all buildings, machinery,
equipment, and other tangible assets necessary for the conduct of its businesses
as presently conducted. Each such tangible asset is free from material defects
(patent and latent), has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal wear and
tear), and is suitable for the purposes for which it presently is used.
(o) Contracts. Section 4(o) of the Disclosure Schedule lists the
following contracts and other agreements to which OGAC is a party:
(i) any agreement (or group of related agreements) involving
consideration in excess of $10,000 in the aggregate or involving the
performance or receipt of services over a period of time in excess of
one year;
(ii) any agreement concerning a partnership or joint venture;
(iii) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any indebtedness
for borrowed money, or any capitalized lease obligation, in excess of
$10,000 or under which it has imposed a Security Interest on any of its
assets, tangible or intangible;
(iv) any agreement concerning confidentiality or
noncompetition;
(v) any agreement with any of the Sellers and their
Affiliates;
(vi) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors,
officers, and employees;
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(vii) any collective bargaining agreement;
(viii) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $40,000 or providing severance benefits;
(ix) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees outside the
Ordinary Course of Business (other than advances of reimbursable
expenses); and
(x) any agreement under which the consequences of a default or
termination could have a Material Adverse Effect.
OGAC has made available to the Buyer a correct and complete copy of each written
agreement listed in Section 4(o) of the Disclosure Schedule (as amended to date)
and a written summary setting forth the terms and conditions of each oral
agreement referred to in Section 4(o) of the Disclosure Schedule. With respect
to each such agreement: (A) the agreement is legal, valid, binding, enforceable
by OGAC, and in full force and effect; (B) the agreement will continue to be
legal, valid, binding, enforceable by OGAC, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) OGAC is not in material breach or default under the agreement; (D)
to the Knowledge of the Sellers, no other party is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default or permit termination, modification or acceleration under the
agreement; and (E) neither OGAC nor, to the Knowledge of the Sellers, any other
party has repudiated any provision of the agreement.
(p) Notes Receivable. All notes receivable of OGAC shown on the Balance
Sheet are reflected properly on its books and records, are valid receivables
subject to no setoffs or counterclaims and arose in the Ordinary Course of
Business. To the Knowledge of the Sellers, all such notes receivable are
collectible in accordance with their terms at the recorded amounts, subject only
to the reserve for bad debts as reflected on the Balance Sheet, as adjusted for
the passage of time through the Closing Date in accordance with the past custom
and practice of OGAC.
(q) Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of OGAC.
(r) Insurance.
(i) Section 4(r) of the Disclosure Schedule sets forth a
complete and correct list of (A) all current policies of insurance
(including property, casualty, liability and workers' compensation
coverage and bond and surety arrangements) maintained by OGAC and (B)
all other "occurrence" basis insurance policies obtained by OGAC at any
time with respect to its business. Except as set forth in Section 4(r)
of the Disclosure Schedule, with respect to
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each such insurance policy: (V) the policy is legal, valid, binding,
enforceable by OGAC, and in full force and effect; (W) the policy will
continue to be legal, valid, binding, enforceable by OGAC, in full
force and effect on identical terms following the consummation of the
transactions contemplated hereby; (X) OGAC is not in material breach or
default under the policy (including with respect to the payment of
premiums or the giving of notices); (Y) to the Knowledge of the
Sellers, no other party to the policy is in breach or default
(including with respect to the payment of premiums or the giving of
notices), and no event has occurred which with notice or lapse of time
would constitute a breach or default or permit termination,
modification or acceleration under the policy; and (Z) neither OGAC
nor, to the Knowledge of the Sellers, any other party to the policy has
repudiated any provision thereof. Section 4(r) of the Disclosure
Schedule describes any self-insurance arrangements affecting OGAC.
(ii) All of the insurance is sufficient for compliance in all
material respects with requirements of applicable law and of all
contracts to which OGAC is a party. OGAC has not failed to give any
notice or to present any claim under the insurance policies in a due
and timely fashion. No notice of cancellation, termination, reduction
in coverage or increase in premium (other than in the Ordinary Course
of Business) has been received with respect to any of the insurance
policies (other than deductibles under the listed policies).
(s) Litigation. Section 4(s) of the Disclosure Schedule sets forth each
instance in which OGAC (i) is subject to any outstanding injunction, judgment,
order, decree, ruling, or charge or (ii) is a party or, to the Knowledge of the
Sellers, is threatened to be made a party to any action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator.
(t) Employees. To the Knowledge of the Sellers, no executive, key
employee, or group of employees (contract or otherwise) has any plans to
terminate employment with OGAC. To the actual knowledge of the Sellers (without
any investigation or inquiry), no executive, key employee or group of employees
(contract or otherwise) will terminate employment with OGAC upon learning of the
transactions contemplated by this Agreement. OGAC is not a party to or bound by
any collective bargaining agreement, nor has it experienced any strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes. OGAC has not committed any unfair labor practice. The Sellers have no
Knowledge of any organizational effort presently being made or threatened by or
on behalf of any labor union with respect to employees of OGAC.
(u) Employee Benefits.
(i) Except for the Group Long Term Disability insurance policy
set forth on Section 4(r) of the Disclosure Schedule (the "LTD
Policy"), neither OGAC nor any ERISA Affiliate maintains or ever has
maintained or contributes, ever has contributed, or ever has been
required to contribute to any Employee Benefit Plan.
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(A) The LTD Policy complies in form and in operation
in all material respects with the applicable requirements of
ERISA, the Code, and other applicable laws.
(B) All required reports and descriptions, if any,
have been timely filed and distributed appropriately with
respect to the LTD Policy, except where the failure to file or
distribute such reports and descriptions would not have a
Material Adverse Effect. The requirements of COBRA, if any,
have been met with respect to the LTD Policy.
(C) All premiums or other payments for all periods
ending on or before the Closing Date have been paid with
respect to the LTD Policy.
(D) The Sellers have delivered to the Buyer correct
and complete copies of the LTD Policy and all documents,
instruments and agreements related thereto.
(ii) None of OGAC and the other members of the Controlled
Group that includes OGAC contributes to, ever has contributed to, or
ever has been required to contribute to any Multiemployer Plan or has
any Liability (including withdrawal liability as defined in ERISA
Section 4201) under any Multiemployer Plan.
(iii) OGAC does not maintain and never has maintained or
contribute, never has contributed, or never has been required to
contribute to any Employee Welfare Benefit Plan providing medical,
health, or life insurance or other welfare-type benefits for current or
future retired or terminated employees, their spouses, or their
dependents (other than in accordance with COBRA).
(v) Environmental, Health, and Safety Matters.
(i) OGAC is in compliance in all material respects with all
Environmental, Health, and Safety Requirements.
(ii) Without limiting the generality of the foregoing, OGAC
has obtained and is in compliance in all material respects with, all
permits, licenses and other authorizations that are required pursuant
to applicable Environmental, Health, and Safety Requirements for the
occupation of its facilities and the operation of its business. A list
of all such permits, licenses and other authorizations is set forth in
Section 4(v)(ii) of the Disclosure Schedule.
(iii) OGAC has not received any written or oral notice, report
or other information regarding any actual or alleged violation of
applicable Environmental, Health, and Safety Requirements, or any
liabilities or potential liabilities of OGAC pursuant to applicable
Environmental, Health and Safety Requirements (whether accrued,
absolute, contingent, unliquidated or otherwise), including any
investigatory, remedial or corrective obligations,
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relating to OGAC or its facilities arising under applicable
Environmental, Health, and Safety Requirements.
(iv) To the actual knowledge of the Sellers (without any
investigation or inquiry), no asbestos-containing material in any form
or condition exists at any property or facility owned or operated by
OGAC.
(v) Except for materials, wastes and substances incidental to
OGAC's Ordinary Course of Business which are managed and handled by
OGAC while in OGAC's possession or control in accordance with
applicable Environmental, Health and Safety Requirements, OGAC has not
treated, stored, disposed of, arranged for the disposal of,
transported, handled, or released any hazardous substance, or owned or
operated any property or facility in a manner that has given or would
give rise to liabilities of OGAC, including any liability for response
costs, corrective action costs, personal injury, property damage,
natural resources damages or attorney fees, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), the Solid Waste Disposal Act, as amended
("SWDA") or any other applicable Environmental, Health, and Safety
Requirements.
(vi) Neither this Agreement nor the consummation of the
transaction that is the subject of this Agreement will result in any
obligations for site investigation or cleanup, or notification to or
consent of government agencies or third parties, pursuant to any of the
so-called "transaction-triggered" or "responsible property transfer"
Environmental, Health, and Safety Requirements.
(vii) OGAC has not either expressly or by operation of law,
assumed or undertaken any liability, including without limitation any
obligation for corrective or remedial action, of any other Person
relating to Environmental, Health, and Safety Requirements which OGAC
would not already have absent such assumption or undertaking.
(w) Certain Business Relationships with OGAC. Except as set forth in
Section 4(w) of the Disclosure Schedule, none of the Sellers and their
Affiliates has been involved in any material business arrangement or
relationship with OGAC (other than normal compensation arrangements for
employees and reimbursement of expenses) within the past twelve (12) months, and
none of the Sellers and their Affiliates owns any material asset, tangible or
intangible, which is used in the business of OGAC.
(x) Disclosure. The representations and warranties contained in this
Section 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
(y) Year 2000. To the Knowledge of the Sellers, there is no matter
which will prevent each system, comprising of software, hardware, databases or
embedded control systems
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(microprocessor controlled, robotic or other device) owned, leased or within the
control of OGAC (collectively, a "System"), that constitutes any part of, or is
used in connection with the use, operation or enjoyment of any material tangible
or intangible asset or real property of OGAC to, by September 30, 1999 (i) be
designed (or modified) to be used prior to and after January 1, 2000, (ii)
operate without error arising from the creation, recognition, acceptance,
calculation, display, reporting, storage, retrieval, accessing, comparison,
sorting, manipulation, processing or other use of dates, or date-based,
date-dependent or date-related data, including, but not limited to, century
recognition, day-of-the-week recognition, leap years, date values and interfaces
of date functionalities, provided that external date data is received in the
proper format, and (iii) not be materially and adversely affected by the advent
of the year 2000 or subsequent years, the advent of the twenty-first century or
the transition from the twentieth century through the year 2000 and into the
twenty-first century (collectively, items (i) through (iii) are referred to
herein as "Year 2000 Compliant"). All licenses for the use of any material
system-related software, hardware, databases or embedded control system are
certified by the manufacturer to be Year 2000 Compliant and to contain the
capabilities required to be Year 2000 Compliant within OGAC computer systems
(hardware and software), or the licenses permit OGAC or a third party to make
all modifications, bypasses, de-bugging, work-arounds, repairs, replacements,
conversions or corrections necessary to permit the System to operate compatibly,
in conformance with their respective specifications, and to be Year 2000
Compliant. The Sellers have no reason to believe that OGAC may incur material
expenses arising from or relating to the failure of any of its Systems as a
result of not being Year 2000 Compliant.
(z) Broker-Dealer. OGAC is duly qualified or registered to do business
as a broker-dealer with the SEC, the NASD and in each jurisdiction which
requires such qualification or registration in connection with the business of
OGAC. Section 4(z) of the Disclosure Schedule lists each such jurisdiction, any
jurisdiction in which such qualification or registration is currently pending
and any jurisdiction in which OGAC does business as a broker-dealer pursuant to
an exemption from the requirements for qualification or registration as a
broker-dealer in such jurisdiction.
(aa) Filings. OGAC has filed with the SEC, the NASD and in each
jurisdiction which so requires, all focus reports and other reports, statements
and filings required to be filed, and OGAC has made available to the Buyer
copies of all such reports, statements and filings (the "Reports"). The Reports
did not (as of their respective filing dates) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(bb) Auctioneers. Section 4(bb) of the Disclosure Schedule sets forth
the jurisdictions in which OGAC or any employee of OGAC is duly authorized to
conduct business as an auctioneer. OGAC and such employees have obtained and
complied with, and is in compliance in all material respects with, all permits,
licenses and other authorizations that are required to conduct business as an
auctioneer and a list of all such permits, licenses and authorizations is set
forth in Section 4(bb) of the Disclosure Schedule, copies of which have been
delivered to the Buyer by OGAC.
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(cc) Board Attendance. Immediately following the Closing, no Person
other than the then members of the board of directors of OGAC shall have the
right to attend any meeting of the board of directors of OGAC or any committee
thereof.
(dd) Qualification and Registration. Any officer, director, manager or
employee of OGAC (whether full-time, part-time, contract or leased) whose
functions with respect to OGAC require such Person to be qualified or registered
as a broker/dealer, principal or representative under federal or state laws,
rules or regulations or with the SEC or the NASD is so qualified or registered.
(ee) Sellers' Representative. The Sellers' Representative is authorized
to take the actions set forth in this Agreement on behalf of the Sellers and the
Buyer and OGAC shall have no Liability to the Sellers for any act or failure to
act of the Sellers' Representative.
5. Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing:
(a) General. Each of the Parties will use commercially reasonable
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions set
forth in Section 7 below).
(b) Notices and Consents. Each of the Parties will (and the Sellers
will cause OGAC to) give any notices to, make any filings with, and use
commercially reasonable efforts to obtain any authorizations, consents, and
approvals of governments, governmental agencies and other third parties in
connection with the matters referred to in Sections 3(a)(i), 3(a)(ii), 3(b)(ii),
3(b)(iii) and 4(c) above.
(c) Operation of Business. The Sellers will not cause or permit OGAC to
engage in any practice, take any action, or enter into any transaction outside
the Ordinary Course of Business. Without limiting the generality of the
foregoing, the Sellers will not cause or permit OGAC to (i) declare, set aside,
or pay any dividend or make any distribution with respect to its capital stock
(other than distributions for payment by shareholders of Taxes with respect to
OGAC and the Distribution), except in accordance with past business practices or
redeem, purchase, or otherwise acquire any of its capital stock or (ii)
otherwise engage in any practice, take any action, or enter into any transaction
of the sort described in Section 4(h) above.
(d) Preservation of Business. The Sellers will cause OGAC to use
commercially reasonable efforts to keep its business and properties
substantially intact, including its present operations, physical facilities,
working conditions, and relationships with lessors, licensors, suppliers,
customers, and employees.
(e) Full Access. Each of the Sellers will promptly permit, and the
Sellers will cause OGAC to promptly permit, representatives of the Buyer to have
full access upon reasonable notice
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to all premises, properties, personnel, books, records (including Tax records),
contracts, and documents of or pertaining to OGAC, other than those subject to
attorney-client privilege, in which event an explanation thereof shall be
provided to the Buyer. Notwithstanding the foregoing, Buyer shall first obtain
the consent of the Sellers' Representative prior to any discussions with OGAC's
employees, advisors, independent auditors or other representatives of OGAC
(other than Sellers' Representative and OGAC's legal counsel and investment
advisors).
(f) Notice of Developments. Each Party will give prompt written notice
(a "Breach Notice") to the other Party (the "Other Party") of any development or
information which results in a breach of any of his, her or its own
representations, warranties and covenants as set forth in this Agreement. No
disclosure by any Party pursuant to this Section 5(f), however, shall be deemed
to amend or supplement Annex I or the Disclosure Schedule, as the case may be,
or to prevent or cure any misrepresentation, breach of warranty, or breach of
covenant; provided, however, that if the Other Party determines to waive the
applicable closing conditions in Sections 7(a)(i) - (ii) or Sections 7(b)(i) -
(ii), as the case may be, and to effect the Closing after receipt of a Breach
Notice, the Breach Notice shall be deemed to amend and supplement Annex I or the
Disclosure Schedule, as the case may be, and to prevent and cure any
misrepresentation, breach of warranty, or breach of covenant with respect to the
matters set forth in the Breach Notice, and the Party delivering the Breach
Notice shall have no Liability to the Other Party solely with respect to the
matters set forth in the Breach Notice.
(g) Exclusivity. During the period commencing on the date of this
Agreement through the earliest to occur of (i) the Closing Date, or (ii) the
termination of this Agreement pursuant to Section 10 below, none of the Sellers
will (and the Sellers will not cause or permit OGAC to) (x) solicit, initiate,
or encourage the submission of any proposal or offer from any Person relating to
the acquisition of any capital stock or other voting securities, or any
substantial portion of the assets, of OGAC (including any acquisition structured
as a merger, consolidation, or share exchange) or any financing of OGAC, (y)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing, or (z) vote their OGAC Shares in favor of any such acquisition
structured as a merger, consolidation, or share exchange. The Sellers will
notify the Buyer immediately if any Person makes any proposal, offer, inquiry,
or contact with respect to any of the foregoing, and shall indicate to the Buyer
in reasonable detail the identity of the offeror and the terms and conditions of
any proposal or offer or any such inquiry or contact.
(h) Confidentiality Agreements. The Sellers will use commercially
reasonable efforts to cause OGAC to enter into confidentiality agreements
reasonably satisfactory in form and substance to the Buyer with Daniel A.
Sodersten, W. Keith Gibbs, Ronald K. Barnes, Lawrence J. Harrison, Jr., and Jeff
Robertson.
(i) Broker/Dealer Insurance. The Sellers will cause OGAC to use
commercially reasonable efforts to obtain broker/dealer professional liability
insurance coverage in force
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subsequent to the Closing with substantially the same coverage as the coverage
in force prior to the Closing.
6. Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing:
(a) General. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 8 below).
(b) Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving OGAC, each of the other Parties will cooperate
with him, her or it and his, her or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense, all
at the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Section 8 below).
(c) Transition. None of the Sellers will take any action that is
designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate of OGAC from maintaining the
same business relationships with OGAC after the Closing as it maintained with
OGAC prior to the Closing. Each of the Sellers will refer all customer inquiries
relating to the businesses of OGAC to OGAC from and after the Closing and
continuing during the Non-Compete Period.
(d) Confidentiality. Each of the Sellers will treat and hold as such
all of the Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to
the Buyer or destroy, at the request and option of the Buyer, all tangible
embodiments (and all copies) of the Confidential Information which are in his,
her or its possession. In the event that any of the Sellers is requested or
required (by oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or similar
process) to disclose any Confidential Information, that Seller will notify the
Buyer promptly of the request or requirement so that the Buyer may seek an
appropriate protective order or waive compliance with the provisions of this
Section 6(d). If, in the absence of a protective order or the receipt of a
waiver hereunder, any of the Sellers is, on the advice of counsel, compelled to
disclose any Confidential Information to any tribunal or else stand liable for
contempt, that Seller may disclose the Confidential Information to the tribunal;
provided, however, that the disclosing Seller shall use his, her or its
reasonable best efforts to obtain, at the request and expense of the
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Buyer, an order or other assurance that confidential treatment will be accorded
to such portion of the Confidential Information required to be disclosed as the
Buyer shall designate. The foregoing provisions shall not apply to any
Confidential Information which is generally available to the public immediately
prior to the time of disclosure.
(e) Sellers' Representative Covenant Not to Compete. With respect to
the Sellers' Representative, for the period set forth in Section 7(c) of the
Employment Agreement, he shall not directly or indirectly own, manage, control,
participate in, consult with, render services for, be employed by or in any
manner engage in providing (a) third party acquisition and/or divestiture
advisory, marketing or brokerage services with respect to oil and gas
properties, (b) third party reserve engineering transaction or other technical
services in support of the acquisition and/or divestiture of oil and gas
properties, and (c) third party sell side sealed bid, negotiated sale or
brokerage services for the oil and gas exploration and production industry, that
compete with the business of OGAC or its subsidiaries; provided, however, that
(i) no owner of less than one percent (1%) of the outstanding stock of any
publicly-traded corporation shall be deemed to engage solely by reason thereof
in any of its businesses, and (ii) the Sellers' Representative shall be entitled
to be engaged in the acquisition and/or divestiture of oil and gas properties as
an owner or operator for his or her own account, for the account of an entity
wholly-owned by the Sellers' Representative or for the account of an employer
engaged in the acquisition and/or divestiture of oil and gas properties as part
of such employer's Ordinary Course of Business. If the final judgment of a court
of competent jurisdiction declares that any term or provision of this Section
6(e) is invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
(f) Sellers Covenant Not to Compete. With respect to the Sellers other
than the Sellers' Representative, for a period of five years from and after the
Closing Date (the "Non-Compete Period"), none of such Sellers will directly or
indirectly own, manage, control, participate in, consult with, render services
for, be employed by or in any manner engage in the business of (a) conducting
oral bid or Internet or electronic related auctions of oil and gas properties,
(b) providing third party or outsourced reserve engineering transaction or other
technical services in support of the acquisition and/or divestiture of oil and
gas properties, and (c) third party or outsourced sell side sealed bid,
negotiated sale or brokerage services for the oil and gas exploration and
production industry (collectively, the "Business"), that compete with the
business of OGAC or its subsidiaries; provided, however, that (i) no owner of
less than one percent (1%) of the outstanding stock of any publicly traded
corporation shall be deemed to engage solely by reason thereof in the Business,
(ii) each such Seller shall be entitled to be engaged in the acquisition and/or
divestiture of oil and gas properties as an owner or operator for his or her own
account, for the account of an entity wholly-owned by such Seller or for the
account of an employer engaged in the acquisition and/or divestiture of oil and
gas properties as part of such employer's Ordinary Course of Business, and (iii)
this Section 6(f) shall
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not apply to any activities of such Seller related to his/her performance of
his/her duties as an officer or director of any company (and its successor and
assigns) engaged in the oil and gas business if such Seller was acting in such
capacity prior to the date of this Agreement. If the final judgment of a court
of competent jurisdiction declares that any term or provision of this Section
6(f) is invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
7. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section
3(a) and Section 4 above shall be true and correct in all material
respects at and as of the Closing Date;
(ii) the Sellers shall have performed and complied with all of
their covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of the Buyer to own the
Shares and to control OGAC, or (D) have a Material Adverse Effect (and
no such injunction, judgment, order, decree, ruling, or charge shall be
in effect);
(iv) OGAC shall have no long term liabilities other than rent
obligations under the real property leases set forth on Section
4(l)(ii) of the Disclosure Schedule which are not yet due and payable;
(v) OGAC's Current Assets shall be greater than or equal to
its Current Liabilities;
(vi) the Sellers shall have delivered to the Buyer a
certificate to the effect that each of the conditions specified above
in Section 7(a)(i)-(v) is satisfied in all respects;
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(vii) the Parties and OGAC shall have received all material
authorizations, consents, and approvals of governments, governmental
agencies and other third parties referred to in Section 5(b) above;
(viii) the relevant parties shall have entered into and
delivered the Employment Agreement substantially in form and substance
as set forth in Exhibit B attached hereto (the "Employment Agreement")
and the same shall be in full force and effect;
(ix) the relevant parties shall have entered into and
delivered the Voting Agreement substantially in form and substance as
set forth in Exhibit C attached hereto (the "Voting Agreement") and the
same shall be in full force and effect;
(x) the relevant parties shall have entered into and delivered
the Shareholders Agreement substantially in form and substance as set
forth in Exhibit D attached hereto (the "Shareholders Agreement") and
the same shall be in full force and effect;
(xi) The board of directors and shareholders of OGAC shall
have adopted The Oil & Gas Asset Clearinghouse, Inc. 1999 Equity
Incentive Plan substantially in form and substance as set forth in
Exhibit E attached hereto (the "Stock Option Plan") and the same shall
be in full force and effect;
(xii) the Buyer shall have received from counsel to the
Sellers an opinion in form and substance as set forth in Exhibit G
attached hereto, addressed to the Buyer, and dated as of the Closing
Date;
(xiii) the Buyer shall have received the resignations,
effective as of the Closing, of each director of OGAC other than the
Sellers' Representative;
(xiv) the relevant parties shall have entered into and
delivered the Release of Claims substantially in form and substance as
set forth in Exhibit I attached hereto (the "Release") and the same
shall be in full force and effect;
(xv) Gary R. Vickers shall have received a grant of options to
purchase 61,328 shares of Common Stock under the Stock Option Plan
pursuant to the Stock Option Agreement substantially in form and
substance as set forth in Exhibit K attached hereto (the "Stock Option
Agreement") and the same shall be in full force and effect; and
(xvi) all actions to be taken by the Sellers in connection
with consummation of the transactions contemplated hereby, including,
without limitation, the deliveries required by Section 2(g)(iii) above,
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the Buyer.
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The Buyer may waive any condition specified in this Section 7(a) if it executes
a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Sellers. The obligation of the
Sellers to consummate the transactions to be performed by them in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section
3(b) above shall be true and correct in all material respects at and as
of the Closing Date;
(ii) the Buyer shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect);
(iv) the Buyer shall have delivered to the Sellers'
Representative a certificate to the effect that each of the conditions
specified above in Section 7(b)(i)-(iii) is satisfied in all respects;
(v) the Parties and OGAC shall have received all material
authorizations, consents, and approvals of governments, governmental
agencies and other third parties referred to in Section 5(b) above;
(vi) the relevant parties shall have entered into and
delivered the Employment Agreement and the same shall be in full force
and effect;
(vii) the relevant parties shall have entered into and
delivered the Shareholders Agreement and the same shall be in full
force and effect;
(viii) the board of directors and shareholders of OGAC shall
have adopted the Stock Option Plan and the same shall be in full force
and effect;
(ix) the Buyer shall have entered into and delivered the
Promissory Note and the same shall be in full force and effect;
(x) the relevant parties shall have entered into and delivered
the Release and the same shall be in full force and effect;
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(xi) the Sellers' Representative shall have received from
counsel to the Buyer an opinion in form and substance as set forth in
Exhibit H attached hereto, addressed to the Sellers, and dated as of
the Closing Date;
(xii) the relevant parties shall have entered into and
delivered the Security Agreement substantially in form and substance as
set forth in Exhibit J attached hereto (the "Security Agreement") and
the same shall be in full force and effect;
(xiii) Kenneth R. Olive, Jr. shall have received a grant of
options to purchase 61,328 shares of Common Stock under the Stock
Option Plan pursuant to the Stock Option Agreement and the same shall
be in full force and effect;
(xiv) the Buyer shall have delivered to the Sellers'
Representative copies of the Buyer's Restated Certificate of
Incorporation, Bylaws, any shareholders agreements to which the Buyer
is a party and such other documents reasonably requested by the
Sellers' Representative evidencing the equity ownership and control of
the Buyer, each certified by an officer of the Buyer as the true and
correct copies thereof, and such documents shall be reasonably
satisfactory in form and substance to the Sellers' Representative;
(xv) the Buyer shall not have caused OGAC to incur any debt,
the proceeds of which are used to pay any portion of the Adjusted
Purchase Price at Closing; and
(xvi) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby, including,
without limitation, the deliveries required by Section 2(g)(iv) above,
and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to the Sellers'
Representative.
The Sellers' Representative may waive any condition specified in this Section
7(b) if he executes a writing so stating at or prior to the Closing.
8. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties. All of the
representations and warranties of the Sellers contained in Sections 4(a)-(j) and
Sections 4(l)-(ee) above shall survive the Closing hereunder (even if the Buyer
knew or had reason to know of any misrepresentation or breach of warranty at the
time of Closing) and continue in full force and effect for a period of two (2)
years thereafter. All of the other representations , warranties and covenants of
the Parties contained in this Agreement (including the representations and
warranties of the Sellers contained in Section 4(k) above) shall survive the
Closing (even if the damaged Party knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and continue in
full force and effect forever thereafter (subject to any applicable statutes of
limitations or such other limitations as set forth in this Agreement).
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(b) Indemnification Provisions for Benefit of the Buyer.
(i) Subject to Section 5(f) and Section 10(b) hereof, in the
event any of the Sellers breaches (or in the event any third party
alleges facts that, if true, would mean any of the Sellers has
breached) any of his or her representations, warranties, and covenants
contained herein, and, if there is an applicable survival period
pursuant to Section 8(a) above, provided that the Buyer makes a written
claim for indemnification against the Sellers pursuant to Section 11(g)
below within such survival period, then each of the Sellers agrees to
indemnify the Buyer from and against the entirety of any Adverse
Consequences the Buyer and OGAC may suffer through and after the date
of the claim for indemnification (including any Adverse Consequences
the Buyer may suffer after the end of any applicable survival period)
resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach); provided, however, that
any such liability of the Sellers resulting from, arising out of,
relating to, in the nature of, or caused by the breach (or alleged
breach) of the representations and warranties set forth in Section 2(a)
or Section 3(a) shall be several and not joint.
(ii) Each of the Sellers jointly and severally agrees to
indemnify the Buyer from and against the entirety of (A) any costs and
expenses incurred by OGAC to become Year 2000 Compliant and any Adverse
Consequences the Buyer may suffer resulting from, arising out of,
relating to, in the nature of, or caused by becoming Year 2000
Compliant; (B) any Liability or obligation of OGAC or the Sellers to
pay any fees, commissions costs, expenses, indemnity or other payments
to any broker, finder or agent with respect to the transactions
contemplated by this Agreement, including, without limitation, the
Letter Agreements set forth on Section 3(a) and Section 4(d) of the
Disclosure Schedule and any Adverse Consequences the Buyer may suffer
resulting from, arising out of, relating to, in the nature of, or
caused by any such Liability or obligation; and (C) any court costs and
attorneys fees and expenses incurred by OGAC resulting from, arising
out of, relating to, in the nature of or caused by the litigation
matters set forth on Section 4(s) of the Disclosure Schedule (the
"Litigation Expenses"); provided, however, that if at the time the
Buyer makes a claim for indemnification for the Litigation Expenses (X)
the Promissory Note is still outstanding, such indemnification shall
not exceed $1,700,000, (Y) the escrow account described in Section
(2)(i) above exists, such indemnification shall not exceed the balance
of the escrow account at that time, (Z) the Promissory Note is not
outstanding and the escrow account does not exist, the Buyer shall be
entitled to no indemnification with respect to the Litigation Expenses.
(iii) Each of the Sellers jointly and severally agrees to
indemnify the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer resulting from, arising out of,
relating to, in the nature of or caused by (A) any Taxes that OGAC may
owe or be deemed to owe for periods up to and including the Closing
Date in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party or
any fringe benefits or contributions, penalties or fines with respect
to any
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Employee Benefit Plan that OGAC may owe or be deemed to owe for periods
up to and including the Closing Date; and (B) any actions of
Administaff Companies, Inc., with respect to the employees of the
Company (full time, part time, contract, leased or otherwise) for
periods up to and including the Closing Date.
(iv) Each of the Sellers jointly and severally agrees to
indemnify the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any successor liability
incurred by OGAC as a result of the failure of The OGA Clearinghouse,
Inc., a Texas corporation, to be qualified or registered as a
broker/dealer under federal or state laws, rules or regulations or with
the SEC or the NASD.
(v) Each of the Sellers jointly and severally agrees to
indemnify the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any claim of EBCO U.S.A.,
Incorporated that OGAC committed copyright, trade dress or other
Intellectual Property infringements or otherwise misappropriated
confidential information prior to the Closing.
(vi) Notwithstanding anything in this Agreement to the
contrary, no Seller shall be liable pursuant to Section 8(b) for any
amount in the aggregate in excess of such Seller's pro rata portion of
the Adjusted Purchase Price as set forth in Section 4(b) of the
Disclosure Schedule (subject to a pro rata adjustment based upon the
Actual Adjustment); provided, further, that no Seller shall be liable
pursuant to Section 8(b)(i) for any amount unless and until the
aggregate amounts of all claims for indemnification against all of the
Sellers pursuant to Sections 8(b)(i) and 8(b)(ii)(C) exceed $50,000 in
the aggregate (the "Basket"), in which case the Buyer shall be entitled
to recover the full amount of such claims, including the amounts
included in the Basket, pursuant to the terms of this Agreement
(subject to the limitation set forth above in this Section 8(b)(vi)).
(c) Indemnification Provisions for Benefit of the Sellers. Subject to
Section 5(f) and Section 10(b) hereof, in the event the Buyer breaches (or in
the event any third party alleges facts that, if true, would mean the Buyer has
breached) any of its representations, warranties, and covenants contained
herein, and, if there is an applicable survival period pursuant to Section 8(a)
above, provided that the Sellers make a written claim for indemnification
against the Buyer pursuant to Section 11(g) below within such survival period,
then the Buyer agrees to indemnify the Sellers from and against the entirety of
any Adverse Consequences the Sellers may suffer through and after the date of
the claim for indemnification (including any Adverse Consequences the Sellers
may suffer after the end of any applicable survival period) resulting from,
arising out of, relating to, in the nature of, or caused by the breach (or the
alleged breach). Notwithstanding anything in this Agreement to the contrary, the
Buyer shall not be required to pay to Sellers in the aggregate pursuant to this
Section 8(c) or otherwise under this Agreement any amount in excess of the Final
Purchase Price plus reasonable attorneys' fees incurred by the Sellers in
connection with the enforcement of the obligations of the Buyer pursuant to
Sections 2(c), 2(d), 6(a), 6(b) and 8(c) of this Agreement;
35
<PAGE> 41
provided, further, that the Buyer shall not be liable pursuant to this Section
8(c) for any amount unless and until the aggregate amounts of all claims for
indemnification against the Buyer pursuant to this Section 8(c) exceed the
Basket, in which case the Sellers shall be entitled to recover the full amount
of such claims, including the amounts included in the Basket, pursuant to the
terms of this Agreement (subject to the limitation set forth above in this
Section 8(c)).
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim")
which may give rise to a claim for indemnification against any other
Party (the "Indemnifying Party") under this Section 8, then the
Indemnified Party shall within twenty (20) days notify each
Indemnifying Party thereof in writing; provided, however, that no delay
on the part of the Indemnified Party in notifying any Indemnifying
Party shall relieve the Indemnifying Party from any obligation
hereunder unless (and then solely to the extent) the Indemnifying Party
thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as (A)
the Indemnifying Party notifies the Indemnified Party in writing (the
"Defense Notice") within fifteen (15) days after the Indemnified Party
has given notice of the Third Party Claim that the Indemnifying Party
will indemnify the Indemnified Party from and against the entirety of
any Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim, and (B) the Indemnifying Party conducts the defense
of the Third Party Claim actively and diligently. If the Indemnifying
Party delivers a Defense Notice, the Indemnified Party shall cooperate
with the Indemnifying Party and the Indemnifying Party's counsel in the
defense of the Third Party Claim, including, without limitation,
furnishing the Indemnifying Party with any books, records or
information reasonably requested by the Indemnifying Party.
(iii) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 8(d)(ii)
above, (A) the Indemnified Party may retain separate co-counsel at its
sole cost and expense and participate in the defense of the Third Party
Claim; provided, however, that the Indemnifying Party shall control the
defense of the Third Party Claim, (B) the Indemnified Party will not
consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of
the Indemnifying Party, and (C) the Indemnifying Party will not consent
to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably); provided, however,
that the Indemnifying Party may, without the Indemnified Party's prior
written consent, settle or compromise any such Third Party Claim or
consent to entry of any judgment with respect to any such Third Party
Claim that requires only the payment of money damages by the
Indemnifying Party with no injunction or other equitable relief and
36
<PAGE> 42
that includes as an unconditional term thereof the release by the third
party of the Indemnified Party from any and all liability in respect of
such Third Party Claim.
(iv) In the event the Indemnifying Party does not conduct the
defense of the Third Party Claim actively and diligently, however, (A)
the Indemnified Party may defend against, and consent to the entry of
any judgment or enter into any settlement with respect to, the Third
Party Claim in any manner it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from,
any Indemnifying Party in connection therewith), (B) the Indemnifying
Parties will reimburse the Indemnified Party promptly and periodically
for the costs of defending against the Third Party Claim (including
reasonable attorneys' fees and expenses), and (C) the Indemnifying
Party will remain responsible for any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this Section 8.
(e) Determination of Adverse Consequences. The Parties shall take into
account the time value of money (using the Applicable Rate as the discount rate
or the interest rate, as the case may be) in determining Adverse Consequences
for purposes of this Section 8. All indemnification payments under this Section
8 shall be deemed adjustments to the Final Purchase Price.
(f) Other Indemnification Provisions. Except for any remedy of specific
performance to which any Party may be entitled, including, without limitation,
as set forth in Section 11(n) below, the indemnification provision set forth in
this Section 8 shall provide the sole and exclusive rights and remedies under
which a Party may assert a claim against another Party with respect to (i) any
and all breaches of any representations or warranties contained herein made to
the Party asserting the claim, (ii) any and all breaches of covenants contained
herein made to the Party asserting the claim or (iii) any other claims, actions,
demands, loss, cost, expense, liability, penalty or other damage relating to or
arising out of this Agreement. Each of the Sellers hereby agrees that he, she or
it will not make any claim for indemnification against OGAC by reason of the
fact that he, she or it was a shareholder, director, officer, employee, or agent
of any such entity or was serving at the request of any such entity as a
partner, trustee, director, officer, employee, or agent of another entity
(whether such claim is for judgments, damages, penalties, fines, costs, amounts
paid in settlement, losses, expenses, or otherwise and whether such claim is
pursuant to any statute, charter document, bylaw, agreement, or otherwise) with
respect to any action, suit, proceeding, complaint, claim, or demand brought by
the Buyer against such Seller (whether such action, suit, proceeding, complaint,
claim, or demand is pursuant to this Agreement, applicable law, or otherwise).
9. Certain Tax Matters.
(a) S Corporation Status. The Sellers will not (and will not cause OGAC
to) revoke OGAC's election to be taxed as an S corporation within the meaning of
Code Sections 1361 and 1362. The Sellers will not (and will not cause OGAC to)
take or allow any action that would result
37
<PAGE> 43
in the termination of OGAC's status as a validly electing S corporation within
the meaning of Code Sections 1361 and 1362.
(b) Tax Periods Ending on or Before the Closing Date. The Buyer shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for OGAC for all periods ending on or prior to the Closing Date which are filed
after the Closing Date. The Buyer shall permit the Sellers' Representative to
review and comment on each such Tax Return described in the preceding sentence
prior to filing and shall make such revisions to such Tax Returns as are
reasonably requested by the Sellers' Representative. To the extent permitted by
applicable law, the Sellers shall include any income, gain, loss, deduction or
other tax items for such periods on their Tax Returns in a manner consistent
with the Schedule K-1s furnished by OGAC to the Sellers for such periods.
(c) Cooperation on Tax Matters.
(i) The Buyer, OGAC and the Sellers shall cooperate fully, as
and to the extent reasonably requested by each other, in connection
with the filing of Tax Returns pursuant to this Section 9 and any
audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other's request)
the provision of records and information which are reasonably relevant
to any such audit, litigation or other proceeding and making employees
available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. OGAC
and the Sellers agree (A) to retain all books and records with respect
to Tax matters pertinent to OGAC relating to any taxable period
beginning before the Closing Date until the expiration of the statute
of limitations (and, to the extent notified by the Buyer or the
Sellers, any extensions thereof) of the respective taxable periods, and
to abide by all record retention agreements entered into with any
taxing authority, and (B) to give the other reasonable written notice
prior to transferring, destroying or discarding any such books and
records and, if the other so requests, OGAC or the Sellers, as the case
may be, shall allow the other to take possession of such books and
records.
(ii) The Buyer and the Sellers further agree, upon request, to
use their best efforts to obtain any certificate or other document from
any governmental authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including,
but not limited to, with respect to the transactions contemplated
hereby).
(d) Tax Sharing Agreements. All tax sharing agreements or similar
agreements with respect to or involving OGAC shall be terminated as of the
Closing Date and, after the Closing Date, OGAC shall not be bound thereby or
have any liability thereunder.
(e) Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be paid by the
Sellers when due, and the Sellers will, at their own expense, file all necessary
Tax Returns and other documentation with respect to all such transfer,
documentary, sales,
38
<PAGE> 44
use, stamp, registration and other Taxes and fees, and, if required by
applicable law, the Buyer will, and will cause its affiliates to, join in the
execution of any such Tax Returns and other documentation.
10. Termination.
(a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(i) the Buyer and the Sellers' Representative may terminate
this Agreement by mutual written consent at any time prior to the
Closing;
(ii) the Buyer may, in its sole discretion, terminate this
Agreement by giving written notice to the Sellers' Representative on or
prior to May 21, 1999;
(iii) the Buyer may terminate this Agreement by giving written
notice to the Sellers' Representative at any time prior to the Closing
(A) in the event any of the Sellers has breached any material
representation, warranty, or covenant contained in this Agreement in
any material respect, the Buyer has notified the Sellers'
Representative of the breach, and the breach has continued without cure
for a period of fifteen (15) days after the notice of breach or (B) if
the Closing shall not have occurred on or before the Final Date, or any
extension thereof as provided in Section 2(f) above, by reason of the
failure of any condition precedent under Section 7(a) hereof (unless
the failure results primarily from the Buyer itself breaching any
representation, warranty, or covenant contained in this Agreement); and
(iv) the Sellers' Representative may terminate this Agreement
by giving written notice to the Buyer at any time prior to the Closing
(A) in the event the Buyer has breached any material representation,
warranty, or covenant contained in this Agreement in any material
respect, the Sellers' Representative has notified the Buyer of the
breach, and the breach has continued without cure for a period of
fifteen (15) days after the notice of breach or (B) if the Closing
shall not have occurred on or before the Final Date, or any extension
thereof as provided in Section 2(f) above, by reason of the failure of
any condition precedent under Section 7(b) hereof (unless the failure
results primarily from any of the Sellers themselves breaching any
representation, warranty, or covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 10(a) above, all rights and obligations of the Parties
hereunder shall terminate without any Liability of any Party to any other Party
(except for any Liability of any Party then in breach); provided, however, that
the distribution of the Deposit as set forth in this Section 10(b) shall be the
sole Liability of any Party for termination of this Agreement pursuant to
Section 10(a)(i) or Section 10(a)(ii) above; provided further, that if a Breach
Notice is delivered which relates to a matter which occurred , arose or was
discovered subsequent to the date of this Agreement and prior to the Closing
39
<PAGE> 45
and such matter (i) did not occur or arise as a result of a breach of a covenant
contained in Section 5 above by the Party delivering the Breach Notice, and (ii)
is not itself a breach, as of the date of this Agreement, of any representation,
warranty or covenant contained in this Agreement, the Other Party may elect to
terminate this Agreement pursuant to Section 10(a)(iii) or Section 10(a)(iv)
above, as the case may be, based upon the matter set forth in the Breach Notice,
in which event the Party delivering the Breach Notice shall have no Liability to
the Other Party other than the distribution of the Deposit as set forth in this
Section 10(b). If the Agreement is terminated pursuant to Section 10(a)(i) or
Section 10(a)(iii) above, the Buyer shall be entitled to retain the Deposit. If
the Agreement is terminated pursuant to Section 10(a)(ii) or Section 10(a)(iv)
above, the Sellers shall be entitled to receive the Deposit. If the Agreement is
terminated pursuant to Section 10(a)(iii)(B) or Section 10(a)(iv)(B) solely due
to the failure to obtain the approval of the transactions contemplated by this
Agreement by the NASD (a) due to information regarding the Buyer provided to the
NASD, the Seller shall be entitled to receive the Deposit, or (b) for any other
reason, the Buyer shall be entitled to retain the Deposit, and neither Party
shall have any Liability to the other Party for such termination other than the
distribution of the Deposit as set forth in this sentence.
11. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
Buyer and the Sellers' Representative; provided, however, that any Party may
make any public disclosure it believes in good faith is required by applicable
law or any listing or trading agreement concerning its publicly-traded
securities (in which case the disclosing Party will use its reasonable best
efforts to advise the other Parties prior to making the disclosure).
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof; provided, however, that the Confidentiality Agreement dated March 1,
1999 by and between Vickers Energy Services, LLC and OGAC shall survive until
the Closing, at which time it shall terminate and be of no further force and
effect.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his,
her or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Sellers' Representative; provided, however, that
the Buyer may (i) assign any or all of its rights and interests hereunder to one
or more of its Affiliates and (ii) designate one or more of its Affiliates to
perform its obligations hereunder (in any
40
<PAGE> 46
or all of which cases the Buyer nonetheless shall remain responsible for the
performance of all of its obligations hereunder).
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The Section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
<TABLE>
<S> <C>
If to the Sellers or the Copy to:
Sellers' Representative:
Kenneth R. Olive, Jr. Locke Liddell & Sapp LLP
263 N. Sam Houston Parkway E. 3400 Chase Commerce Tower
Suite 100 600 Travis
P.O. Box 671787 Houston, Texas 77002-3095
Houston, Texas 77267-1787 Attn: Kevin Peter, Esq.
Telephone No.: 281-873-4600 Telephone No.: 713-226-1235
Fax No.: 281-873-0055 Fax No. 713-223-2717
If to the Buyer: Copy to:
Energy Auction Exchange, Inc. Jacobs Chase Frick Kleinkopf & Kelley, LLC
7900 East Union Avenue 1050 Seventeenth Street, Suite 1500
Suite 1100 Denver, Colorado 80265
Denver, Colorado 80237 Attn: Darren R. Hensley, Esq.
Attn: Gary R. Vickers Telephone No.: 303-685-4800
Telephone No.: 303-694-5350 Fax No.: 303-685-4869
Fax No.: 303-694-5326
</TABLE>
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
41
<PAGE> 47
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Colorado without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Colorado or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Colorado.
(i) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Sellers' Representative. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Each of the Parties and OGAC will bear his, her or its
own costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby. The
Sellers agree that OGAC has not borne or will not bear any of the Sellers' costs
and expenses (including any of their legal fees and expenses) in connection with
this Agreement or any of the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(m) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(n) Specific Performance. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of
42
<PAGE> 48
the Parties agrees that the other Parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in any
action instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 11(o) below), in addition to any other remedy to which they may
be entitled, at law or in equity.
(o) Submission to Jurisdiction. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in Denver, Colorado, in any
action or proceeding arising out of or relating to this Agreement and agrees
that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each Party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other Party with respect thereto. The
Sellers appoint the Sellers' Representative as his or her agent to receive on
his or her behalf service or of copies of the summons and complaint and any
other process that might be served in the action or proceeding. Any Party may
make service on any other Party by sending or delivering a copy of the process
(i) to the Party to be served at the address and in the manner provided for the
giving of notices in Section 11(g) above or (ii) if to the Sellers in care of
the Sellers' Representative at the address and in the manner provided for the
giving of notices in Section 11(g) above. Nothing in this Section 11(o),
however, shall affect the right of any Party to serve legal process in any other
manner permitted by law or at equity. Each Party agrees that a final judgment in
any action or proceeding so brought shall be conclusive and may be enforced by
suit on the judgment or in any other manner provided by law or at equity.
(p) Execution. The Parties shall be entitled to rely on delivery by
facsimile machine of an executed copy of this Agreement and such facsimile copy
shall be effective to create a valid and binding agreement among the parties in
accordance with the terms hereof.
* * * * *
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<PAGE> 49
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the date first above written.
ENERGY AUCTION EXCHANGE, INC.
/s/
----------------------------------
By:
-----------------------------
Its:
------------------------------
/s/ Kenneth R. Olive, Jr.
----------------------------------
Kenneth R. Olive, Jr.
/s/ Allan C. King
----------------------------------
Allan C. King
Allan G. King
----------------------------------
Allan G. King
/s/ Duane H. King
----------------------------------
Duane H. King
/s/ Gwendolyn King Kinney
----------------------------------
Gwendolyn King Kinney
/s/ David R. King
----------------------------------
David R. King
/s/ Robert E. Zimmerman, Jr.
----------------------------------
Robert E. Zimmerman, Jr.
/s/ R.E. Zimmerman
----------------------------------
R.E. Zimmerman
/s/ Michael W. O'Shaughnessy
----------------------------------
Michael W. O'Shaughnessy
44
<PAGE> 50
EXHIBIT A
FINANCIAL STATEMENTS
<PAGE> 51
EXHIBIT B
FORM
OF
EMPLOYMENT AGREEMENT
<PAGE> 52
EXHIBIT C
FORM
OF
VOTING AGREEMENT
<PAGE> 53
EXHIBIT D
FORM
OF
SHAREHOLDERS AGREEMENT
<PAGE> 54
EXHIBIT E
FORM
OF
STOCK OPTION PLAN
<PAGE> 55
EXHIBIT F
FORM
OF
PROMISSORY NOTE
<PAGE> 56
EXHIBIT G
FORM
OF
OPINION OF COUNSEL TO THE SELLERS
<PAGE> 57
EXHIBIT H
FORM
OF
OPINION OF COUNSEL TO THE BUYER
<PAGE> 58
EXHIBIT I
FORM
OF
RELEASE
<PAGE> 59
EXHIBIT J
FORM
OF
SECURITY AGREEMENT
<PAGE> 60
EXHIBIT K
FORM
OF
STOCK OPTION AGREEMENT
<PAGE> 61
ANNEX I
EXCEPTIONS TO THE BUYER'S
REPRESENTATIONS AND WARRANTIES
CONCERNING THE TRANSACTION
<PAGE> 62
ANNEX I
Section 3(b)
In connection with the transactions contemplated by this Agreement,
OGAC must notify the NASD of the contemplated change in ownership of OGAC
pursuant to the NASD Continued Membership Application process (the "Process").
In connection with the Process, the Buyer and its officers, directors and
shareholders may be required to supply information to, attend interviews with,
give notices to, make filings with or obtain the authorization, consent or
approval of the NASD. The Buyer may also be required to take similar actions in
the states where OGAC is registered (or such registration is pending) as a
broker-dealer.
<PAGE> 63
DISCLOSURE SCHEDULE
EXCEPTIONS TO THE SELLERS' REPRESENTATIONS
AND WARRANTIES CONCERNING THE TRANSACTION
AND THE REPRESENTATIONS AND WARRANTIES
CONCERNING OGAC
<PAGE> 64
PURCHASE PRICE ADJUSTMENT SCHEDULE
<PAGE> 1
EXHIBIT 2.2
===============================================================
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
ENERGY AUCTION EXCHANGE, INC.
AND
THE SHAREHOLDERS OF TRADEBANK, INC.
DATED AS OF SEPTEMBER 15, 1999
===============================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE I PURCHASE AND SALE................................................................1
1.1 Sale and Purchase of Stock..............................................1
1.2 Closing.................................................................2
1.3 Adjustments to Purchase Price; Payment of Holdback Amount...............2
1.4 Closing Deliveries......................................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS...............................3
2.1 Title to Stock..........................................................3
2.2 Capital Stock of the Company............................................4
2.3 Authorization...........................................................4
2.4 Due Organization........................................................4
2.5 No Conflicts; Approvals.................................................4
2.6 Financial Statements....................................................4
2.7 No Undisclosed Liabilities..............................................5
2.8 Material Contracts and Commitments......................................5
2.9 Insurance Policies......................................................5
2.10 Employee Benefit Plans..................................................6
2.11 Conformity with Law; Litigation.........................................6
2.12 Taxes...................................................................6
2.13 No Material Adverse Changes.............................................7
2.14 Title to Assets.........................................................8
2.15 Brokers and Finders.....................................................8
2.16 Accounts Receivable.....................................................8
2.17 Environmental ..........................................................8
2.18 Intellectual Property...................................................9
2.19 Year 2000 Compliance....................................................9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.................................10
3.1 Authorization; Enforceability..........................................10
3.2 Due Organization.......................................................10
3.3 No Conflicts...........................................................10
3.4 No Other Representations...............................................11
ARTICLE IV RESTRICTIVE COVENANTS...........................................................11
4.1 Confidential Information...............................................11
4.2 Noncompetition; Non-Solicitation.......................................11
4.3 Enforcement............................................................12
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
ARTICLE V INDEMNIFICATION................................................................................13
5.1 Indemnification by the Shareholders...................................................13
5.2 Indemnification by the Purchaser......................................................13
5.3 Notice and Defense of Third Party Claims..............................................13
5.4 Survival of Representations and Warranties; Limitations...............................14
5.5 Payment; Interest.....................................................................15
5.6 Right of Offset.......................................................................15
ARTICLE VI CERTAIN TAX MATTERS............................................................................15
6.1 Section 338(h)(10) Election...........................................................15
6.2 Allocation of Purchase Price Among Assets of the Company..............................16
6.3 S Corporation Status..................................................................16
6.4 Tax Periods Ending on or before the Closing Date......................................16
6.5 Cooperation on Tax Matters............................................................16
ARTICLE VII MISCELLANEOUS..................................................................................17
7.1 Fitzgerald's Position at TradeBank....................................................17
7.2 Cooperation...........................................................................17
7.3 Successors and Assigns................................................................17
7.4 Entire Agreement......................................................................17
7.5 Counterparts..........................................................................17
7.6 Notices...............................................................................17
7.7 Governing Law and Jurisdiction........................................................18
7.8 Exercise of Rights and Remedies.......................................................18
7.9 Headings..............................................................................19
7.10 Severability..........................................................................19
7.11 Expenses..............................................................................19
7.12 Construction..........................................................................19
7.13 Incorporation of Exhibits, Annexes, and Schedules.....................................19
7.14 Specific Performance..................................................................19
EXHIBITS
Exhibit A - Definitions
Exhibit B - Form of Warrant
Exhibit C - Form of Employment Agreement
Exhibit D - Environmental Laws
</TABLE>
(ii)
<PAGE> 4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of
September 15, 1999, by and between Energy Auction Exchange, Inc., a Delaware
corporation (the "Purchaser"), and Michael Allen ("Allen") and Steve Fitzgerald
("Fitzgerald") (Allen and Fitzgerald are each a "Shareholder" and collectively,
the "Shareholders").
W I T N E S S E T H:
WHEREAS, the Shareholders are the owners of an aggregate of 1,000
shares of common stock, par value $0.01 per share of TradeBank, Inc., a Texas
corporation (the "Company"), constituting all the issued and outstanding shares
of capital stock of the Company (the "Stock");
WHEREAS, the Purchaser desires to acquire the Stock from the
Shareholders, and the Shareholders desire to sell the Stock to the Purchaser,
upon the terms and subject to the conditions hereinafter set forth; and
WHEREAS, capitalized terms not otherwise defined herein shall have the
meaning set forth in Exhibit A attached hereto.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE AND SALE
1.1 SALE AND PURCHASE OF STOCK.
(a) Subject to the terms and conditions of this Agreement, the
Shareholders hereby sell, assign, transfer and deliver to the Purchaser, and the
Purchaser hereby purchases and acquires from the Shareholders, the Stock.
(b) The cash purchase price to be paid by the Purchaser for
the Stock shall be $350,000 (the "Purchase Price"), subject to adjustment as set
forth in Section 1.3. In addition, each Shareholder will receive a warrant to
purchase up to 5,000 shares of common stock, par value $0.001 per share
("Purchaser Common Stock"), of the Purchaser in the form attached hereto as
Exhibit B (the "Warrant"). The aggregate consideration for the Stock shall be
paid to the individual Shareholders as follows:
(i) To Allen: (A) the sum of $120,000 payable at the Closing
by delivery of immediately available funds to an account
designated by Allen, and (B) a Warrant to purchase up to 5,000
shares of Purchaser Common Stock.
<PAGE> 5
(ii) To Fitzgerald: (A) the sum of $120,000 payable at the
Closing by delivery of immediately available funds to an
account designated by Fitzgerald; (B) the aggregate sum of
$50,000 (the "Deferred Payment Amount") payable in four
installments as follows: $25,000 on January 3, 2000, $8,333.33
on each of April 3 and July 3, 2000, and $8333.34 on October
3, 2000; and (C) a Warrant to purchase up to 5,000 shares of
Purchaser Common Stock.
At the Closing, the Purchaser shall retain from the aggregate Purchase
Price the sum of $60,000 (the "Holdback Amount") which shall be invested in a
savings account or other interest bearing account and be payable to the
Shareholders in accordance with the provisions of Section 1.3.
1.2 CLOSING. The consummation of the purchase and sale of Stock
and the other transactions contemplated by this Agreement (the "Closing") shall
take place on the date hereof at the offices of Locke Liddell & Sapp LLP, 3400
Chase Tower, 600 Travis, Houston, Texas. The date and time at which the Closing
occurs is referred to as the "Closing Date."
1.3 ADJUSTMENTS TO PURCHASE PRICE; PAYMENT OF HOLDBACK AMOUNT.
(a) Within thirty (30) days after the Closing Date, the
Purchaser shall instruct Belew Averitt LLP (the "Accountant") to determine the
actual net working capital of the Company as of the Closing Date (the "Closing
Net Working Capital Amount"). Within twenty (20) days thereafter, the Accountant
shall provide the parties with its calculation of the Closing Net Working
Capital Amount which shall be binding on the parties. If the Closing Net Working
Capital Amount should be a negative number, the Shareholders shall promptly pay
to the Purchaser by wire transfer or other immediately available funds the
amount by which the Current Liabilities of the Company as of the Closing Date
exceeds the Current Assets of the Company as of the Closing Date (the "NWC
Adjustment").
(b) Until such time as the Holdback Amount has been paid by
the Purchaser to the Shareholders, the parties hereby agree that the Purchaser
shall be entitled to deduct from the Holdback Amount (i) the amount of any
indemnification obligation of the Shareholders as set forth in Article V of this
Agreement and/or (ii) the amount of the NWC Adjustment. Upon the later to occur
of (a) final settlement or resolution of the litigation matters described on
Schedule 2.11 of the Disclosure Schedule or (b) final determination of the NWC
Adjustment, the Purchaser shall pay to the Shareholders any remaining portion of
the Holdback Amount, including accrued interest; provided, however, that the
Purchaser shall be entitled to retain from such Holdback Amount the amount of
any claim for indemnification by the Purchaser pursuant to Article V which has
not been fully and finally settled.
1.4 CLOSING DELIVERIES.
(a) At the Closing, the Purchaser shall:
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<PAGE> 6
(i) deliver to the Shareholders the cash portion
of the Purchase Price as described in Section
1.1(b);
(ii) execute and deliver to each of Allen and
Fitzgerald a Warrant; and
(iii) execute and deliver to Fitzgerald an
Employment Agreement in the form attached
hereto as Exhibit C.
(b) At the Closing:
(i) the Shareholders shall deliver to the
Purchaser certificates representing the
Stock, along with appropriate instruments for
the transfer of such certificates to the
Purchaser duly executed by each Shareholder
and in form and substance satisfactory to the
Purchaser;
(ii) Fitzgerald shall execute and deliver to the
Purchaser an Employment Agreement in the form
attached hereto as Exhibit C;
(iii) the Shareholders shall deliver to the
Purchaser all of the Company's leases,
contracts, agreements, books, records and
other data relating to the business and
operations of the Company, including, without
limitation, the minute books and stock
ledgers of the Company;
(iv) each Shareholder shall resign from the Board
of Directors of the Company; and
(v) the Shareholders shall execute and deliver to
the Purchaser such other documents and
instruments as may be reasonably required by
the Purchaser.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each Shareholder jointly and severally represents and warrants to the
Purchaser that the following matters set forth in this Article II are true and
correct as of the date hereof.
2.1 TITLE TO STOCK. Each Shareholder is the record and beneficial
holder of outstanding shares of Stock in the amount set forth opposite such
Shareholder's name on Schedule 2.1 of the Disclosure Schedule. Each Shareholder
holds all such shares of Stock free and clear of any liens, liabilities,
obligations, claims, pledges, security interests, restrictions or encumbrances
of any kind ("Liens"). Each Shareholder hereby is transferring title to such
shares of Stock to the Purchaser free and clear of any adverse claims.
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<PAGE> 7
2.2 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company consists of 1,000,000 shares of common stock, par value $.01 per share,
of which 1,000 shares are issued and outstanding and no shares are held in
treasury. All of the issued and outstanding shares of the Company's common stock
have been duly authorized and are validly issued, fully paid and nonassessable.
Immediately following the Closing there will be no outstanding options,
warrants, rights, agreements, contracts, calls, commitments, written demands of
any character, or requirements of any applicable laws, which would obligate the
Company to issue any of its securities, including securities convertible into or
evidencing the right to purchase any securities of the Company.
2.3 AUTHORIZATION; ENFORCEABILITY. Each Shareholder has all necessary
power, authority and capacity to execute and deliver this Agreement and the
other documents and instruments to be delivered pursuant hereto and to
consummate the sale of the Stock. This Agreement has been duly and validly
executed and delivered by each Shareholder and constitutes the legal, valid and
binding obligation of each Shareholder, enforceable against each Shareholder in
accordance with its terms, subject to applicable bankruptcy, reorganization,
insolvency and similar laws from time to time in effect and general principles
of equity.
2.4 DUE ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas and
has all requisite corporate power and authority to own or lease its properties
and to conduct its business as now, owned, leased or conducted, and is duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions in which the nature of its business as now conducted or the
character of the property owned or leased by it makes such qualification
necessary. Each such jurisdiction is set forth on Schedule 2.4 of the Disclosure
Schedule. The Company has no subsidiaries. The Company has provided to the
Purchaser true, correct and complete copies of the Articles of Incorporation and
Bylaws of the Company.
2.5 NO CONFLICTS; APPROVALS. The execution, delivery and performance of
this Agreement by the Shareholders will not (a) conflict with or result in a
breach of any provision of the Articles of Incorporation or Bylaws of the
Company, (b) result in any conflict with, breach of, or default (or give rise to
any right to termination, cancellation or acceleration or loss of any right or
benefit) under or require any consent or approval which has not been obtained
with respect to any of the terms, conditions or provisions of any contract or
agreement to which any Shareholder or the Company is a party or by which any of
them is bound or (c) violate any Legal Requirement applicable to any Shareholder
or the Company. No action, consent or approval by, or filing by the Shareholders
or the Company with, any court or governmental body or agency is required in
connection with the execution, delivery or performance by the Shareholders of
this Agreement, except for any such action, consent, approval or filing which
has been obtained or made prior to the date hereof.
2.6 FINANCIAL STATEMENTS. The Shareholders have provided the Purchaser
with true and correct copies of the unaudited balance sheet (the "Balance
Sheet") of the Company as of June 30, 1999 (the "Balance Sheet Date") and
December 31, 1998, and the unaudited statements of income for the periods then
ended. The foregoing financial statements are collectively referred to as the
4
<PAGE> 8
"Company's Financial Statements". The Company's Financial Statements have been
prepared in accordance with GAAP consistently applied, present fairly the
financial condition of the Company as of such date and the results of operations
for the periods covered thereby, and are consistent with the books and records
of the Company. As of the Closing Date, the Company has no long term
indebtedness, obligations or other liabilities.
2.7 NO UNDISCLOSED LIABILITIES. Except as set forth on Schedule 2.7 of
the Disclosure Schedule, the Company has no Liabilities (and there is no Basis
for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand against the Company or either Shareholder),
except for (i) Liabilities which are disclosed or reserved for in the Company's
Financial Statements and (ii) Liabilities which have arisen after the Balance
Sheet Date in the ordinary course of business consistent with past practice
(both in nature and amount) (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement or violation of any Legal Requirement by the
Company or either Shareholder).
2.8 MATERIAL CONTRACTS AND COMMITMENTS. Except as set forth on Schedule
2.8 of the Disclosure Schedule, the Company is not a party to nor bound by any
(i) employment, consulting or severance contract, including any golden parachute
arrangement within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"); (ii) collective bargaining or union agreement;
(iii) bonus, stock option, incentive compensation plan, non-qualified stock
purchase plan or other fringe benefit plan or program; (iv) contract to purchase
or sell or option granted to a third party to purchase any real property, or
lease of any real property; (v) lease with respect to or contract or option to
purchase or sell any material equipment otherwise than in the ordinary course of
business; (vi) contract or commitment for capital expenditures requiring
payments of $5,000 or more; (vii) contract or commitment for the purchase of
materials or supplies or for the performance of services for its benefit; (viii)
joint venture or partnership agreement; (ix) product warranty, product service
or software service contract; (x) agreement for money borrowed or loaned
involving a principal amount in excess of $5,000; (xi) security agreement or
guarantee with respect to any obligation; (xii) agreement for the sale of goods
or for the performance of services by it; (xiii) sales representation,
distribution or agency agreement; (xiv) non-competition or confidentiality
agreement for the benefit of or obligating the Company; (xv) any license,
consortium or revenue sharing agreement where the revenue therefrom is expected
to be greater than $5,000; or (xvi) any contract or commitment other than the
foregoing (whether oral or written) not made in the ordinary course of business
consistent with past practice. All agreements, contracts and commitments listed
on to the Disclosure Schedule in response to this Section 2.8, unless specified
on the Disclosure Schedule to the contrary, are legal, valid and binding on the
parties thereto and are in full force and effect, and no party is in default or
breach in any material respect thereunder.
2.9 INSURANCE POLICIES. Schedule 2.9 of the Disclosure Schedule sets
forth a list of all current insurance policies or binders maintained on behalf
of the Company, showing the name of the carrier, the policy number, and the
general nature of the coverage afforded, all of which are in full force and
effect and copies of which have been previously made available to the Purchaser
for its review and evaluation. Each policy is legal, valid, binding, enforceable
by the Company and in full
5
<PAGE> 9
force and effect, and will continue to be legal, valid, binding, enforceable by
the Company and in full force and effect under identical terms following the
consummation of the transactions contemplated hereby. The Company is not in
breach or default under any such policy (including with respect to the payment
of premiums or the giving of notices). All of the insurance is sufficient for
compliance with requirements of applicable law and of all contracts to which the
Company is a party.
2.10 EMPLOYEE BENEFIT PLANS. Except as set forth on Schedule 2.10 of
the Disclosure Schedule, the Company does not currently sponsor, maintain or
contribute, nor has it ever sponsored, maintained or contributed to, or been
required to contribute to (i) any employee benefit plan within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (including without limitation employee benefit plans, such as foreign
plans, which are not subject to the provisions of ERISA), or any other similar
plans, programs or arrangements.
2.11 CONFORMITY WITH LAW; LITIGATION. The Company is not in violation
or default (and has not been in violation or default since its inception) of any
Legal Requirement or Governmental Authorization, except which would not
reasonably be expected to have a Material Adverse Effect. The consummation of
the transactions contemplated by the Agreement will not constitute a default or
violation under any Legal Requirement or Governmental Authorization applicable
to the Company, except which would not reasonably be expected to have a Material
Adverse Effect. Schedule 2.11 of the Disclosure Schedule sets forth all
Governmental Authorizations held by the Company which are necessary to permit
the Company to own, operate, use and maintain its assets in the manner in which
they are now operated and maintained. Except as set forth on Schedule 2.11 of
the Disclosure Schedule, there are no claims, actions, suits or other
proceedings pending or, to the knowledge of the Shareholders, threatened against
the Company.
2.12 TAXES. The Company has filed all Tax Returns that it was required
to file. All such Tax Returns were correct and complete in all respects. All
Taxes owed by the Company (whether or not shown on any Tax Return) have been
paid. The Company is not currently the beneficiary of any extension of time
within which to file any Tax Return. No claim has ever been made by an authority
in a jurisdiction where the Company does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction. There are no Liens on any of the
assets of the Company that arose in connection with any failure (or alleged
failure) to pay any Tax. The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other third party.
Neither of the Shareholders nor any director or officer (or employee responsible
for Tax matters) of the Company expects any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. There is no dispute
or claim concerning any Tax Liability of the Company either (i) claimed or
raised by any authority in writing or (ii) as to which any Shareholder, director
or officer (or employees responsible for Tax matters) of the Company has
Knowledge based upon personal contacts with any agent of such authority.
Schedule 2.12 of the Disclosure Schedule lists all federal, state, local and
foreign income Tax Returns filed with respect to the Company for taxable periods
ended on or after December 31, 1993, indicates those Tax Returns that have been
audited and indicates those Tax Returns that currently are the subject of audit.
The Shareholders have delivered
6
<PAGE> 10
to the Purchaser correct and complete copies of all federal income Tax Returns,
examination reports and statements of deficiencies assessed against or agreed to
by the Company since December 31, 1993. The Company has not waived any statute
of limitations in respect to Taxes or agreed to an extension of time with
respect to a Tax assessment or deficiency. The Company has not filed a consent
under Section 341(f) of the Code concerning collapsible corporations. The
Company has not made any payments, is not obligated to make any payments and is
not party to any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under Section 280G of the Code.
The Company has not been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable
periods specified in Section 897(c)(1)(A)(ii) of the Code. The Company has
disclosed on its federal income Tax Return all positions taken therein that
could give rise to a substantiated understatement for federal income Tax within
the meaning of Section 6662 of the Code. The Company is not a party to any Tax
allocation or sharing agreement. The Company (i) has not been a member of an
affiliated group filing a consolidated federal income Tax Return and (ii) has no
Liability for the Taxes of any Person (other than the companies themselves )
under Reg. Section 1.1502-6 (or any similar provision of state, local or foreign
law), as a transferee or successor, by contract or otherwise. The unpaid Taxes
of the Company (i) did not, as of the Balance Sheet Date, exceed the reserve for
Tax Liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax Income) set forth on the face of the
Balance Sheet (rather than in any notes thereto) and (ii) do not exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company in filing its Tax
Returns. The Company has been a validly electing S corporation within the
meaning of Sections 1361 and 1362 of the Code at all times during its existence,
and the Company will be an S corporation up to and including the Closing Date.
The Company does not have any built-in gains under Section 1374 of the Code and
the Company will not be liable for any Tax under Section 1374 of the Code in
connection with the deemed sale of the Company's assets caused by the Section
338(h)(10) Election. The Company has not, in the past ten years, (i) acquired
assets from another corporation in a transaction in which the Company's Tax
basis for the acquired assets was determined, in whole or in part, by reference
to the Tax basis of the acquired assets (or any other property) in the hands of
the transferor or (ii) acquired the stock of any corporation which is a
qualified subchapter S subsidiary.
2.13 NO MATERIAL ADVERSE CHANGES. Except as set forth on Schedule 2.13
of the Disclosure Schedule, since the Balance Sheet Date the Company has not (i)
issued or sold any of its capital stock or any corporate debt obligations (other
than checks, drafts, bills and notes issued in the ordinary course of its
business consistent with past practice); (ii) sold or granted any option,
warrant or other right to purchase any of its capital stock; (iii) declared or
set aside or paid any dividend or made any other distribution in respect of its
capital stock, or, directly or indirectly, purchased, redeemed or otherwise
acquired any shares of such stock; (iv) made any payments or distributions
pursuant to any tax sharing agreements or arrangements; (v) acquired,
transferred or disposed of, or agreed to acquire, transfer or dispose of, any
assets except in the ordinary course of business consistent with past practice;
(vi) incurred any Liabilities, except in the ordinary course of business
consistent with past practice (both in nature and amount); (vii) subjected any
assets to any liens, other than liens for taxes not yet due and payable; (viii)
paid or performed any obligations except in the ordinary course of business
consistent with past practice; (ix) made any general wage
7
<PAGE> 11
or salary increase or increased the annual salary of any officer of the Company
or instituted any employee welfare, retirement, benefit or similar plan or
arrangement or change thereto; (x) suffered any damage, destruction or casualty
loss in excess of $5,000, whether or not covered by insurance; (xi) guaranteed
or assumed responsibility for any indebtedness or the performance of any other
obligations other than those of the Company; (xii) operated the business of the
Company other than in, or entered into any material transactions or arrangements
(including those effected for tax purposes) outside, the ordinary course of
business consistent with past practice, or (xiii) suffered any Material Adverse
Effect.
2.14 TITLE TO ASSETS. The Company owns, licenses or leases all assets
necessary for the operation of its business as now conducted. The Company does
not own any real property. Each asset is free from material defects (patent and
latent), is in good operating condition and repair and is suitable for the
purposes for which it presently is used. Except as set forth above or on
Schedule 2.14 of the Disclosure Schedule, no Shareholder, employee, agent,
consultant, officer or director of the Company has any interest in any property,
tangible or intangible, real, personal or mixed, including without limitation
patents, patent applications, inventions, invention disclosures, copyrights,
trademarks, service marks or trade names, currently used in and necessary for
the operation of the business of the Company as currently conducted, other than
any such property having a value which is de minimis and except for the normal
rights of a shareholder.
2.15 BROKERS AND FINDERS. Neither the Shareholders nor the Company has
employed any broker, agent or finder or incurred any liability for any brokerage
fees, commissions or finders' fees in connection with the sale of the Stock.
2.16 ACCOUNTS RECEIVABLE. All accounts receivable of the Company which
are reflected in the Balance Sheet, and all such accounts receivable which have
arisen since the date thereof and are reflected on the accounting records of the
Company, have arisen only from bona fide transactions in the ordinary course of
business of the Company and are current and collectible, except to the extent of
the recorded allowance for doubtful accounts with respect to accounts receivable
as reflected in the Company's accounting records as of the Closing Date.
2.17 ENVIRONMENTAL MATTERS. The operation, use, condition and
maintenance of all of the Company's Business Facilities before the date hereof
have been and are currently in compliance with applicable Environmental Laws.
There are no, nor have there been any, Environmental Claims pending or
threatened against the Company or any of its Business Facilities relating to or
arising out of the use, presence, or handling of Materials of Environmental
Concern or the compliance of the Company with Requirements of Environmental
Laws, and there is no basis for any such Environmental Claims; and there are no
present nor have there been any past events, conditions, circumstances, facts,
activities, practices, incidents or plans relating to or arising out of the
Company's business or its Business Facilities which will prevent or interfere
with compliance with Requirements of Environmental Laws by the Company or any of
its Business Facilities or the Purchaser after the Closing Date, or which may
give rise to any common law or statutory liability under Environmental Laws or
form the basis of an Environmental Claim against the Company or any of its
Business Facilities after the Closing Date. The Company has in effect all
Environmental
8
<PAGE> 12
Permits necessary to conduct its business and to operate all of its current
Business Facilities. No Materials of Environmental Concern have been released
(and no release is threatened) on, under, from or about any Business Facility
except in compliance with applicable Environmental Laws; none of the off-site
locations where Materials of Environmental Concern generated from any Business
Facility of the Seller or for which the Seller has arranged for their disposal
is subject to a claim under Environmental Laws; Seller has not been named as a
potentially responsible party under CERCLA, as amended, or comparable
Environmental Laws; no consents, approvals or notifications required under any
Environmental Laws (including without limitation applicable Environmental
Permits) must be obtained or given to consummate the transactions contemplated
by this Agreement; no underground storage tanks exist or have existed at any
Business Facility.
2.18 INTELLECTUAL PROPERTY. (a) Except as set forth in Schedule 2.18,
the Company does not require the use of any Intellectual Property Assets for its
business or operations. Schedule 2.18 lists (i) all Intellectual Property Assets
the Company owns or is licensed or otherwise has the right to use and/or which
the Company uses in its business, (ii) whether the Company owns, is licensed or
otherwise has the right to use each such item and (iii) all license fees, rents,
royalties or other charges that the Company is required or obligated to pay with
respect to the Intellectual Property Assets.
(b) The Intellectual Property Assets are valid and subsisting and not
unenforceable in whole or part, and the Company has sole, full and clear title
to the Intellectual Property Assets except as noted in Schedule 2.18, free and
clear of all Liens (either as licensee or licensor), including claims or rights
of the Shareholders, employees, agents, consultants or other parties involved in
the development or creation of such Intellectual Property Assets.
(c) Except as set forth in any license or other agreements or other
reason listed in Schedule 2.18, the Company has the right and license to use,
sublicense, assign, modify and transfer the Intellectual Property Assets free
and clear of any Liens none of the Intellectual Property Assets is dependent
upon any other intellectual property in order to be freely operated or utilized
and the Company and the Purchaser may use all Intellectual Property Assets after
the Closing to the same extent as the Company used them prior to the Closing,
without any Liens.
(d) Neither the Company nor any of its officers or directors (i) is
currently in receipt of any notice of any violation of, and is not violating or
infringing upon and has not for the last six years violated or infringed, the
rights of any other person or entity in any Intellectual Property Assets, or
other intangible property right or asset, or (ii) has conducted any acts of
unfair competition under applicable law governing the Intellectual Property
Assets. No other person or entity is infringing any intellectual property rights
of the Company with respect to the Intellectual Property Assets.
2.19 YEAR 2000 COMPLIANCE. Each system, comprising of software,
hardware, databases or embedded control systems (microprocessor controlled,
robotic or other device) owned, leased or otherwise controlled by the Company
(collectively, a "System"), that constitutes any part of, or is used in
connection with the use, operation or enjoyment of any of the assets of the
Company (i) is designed (or has been modified) to be used prior to and after
January 1, 2000, (ii) will operate
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without error arising from the creation, recognition, acceptance, calculation,
display, reporting, storage, retrieval, accessing, comparison, sorting,
manipulation, processing or other use of dates, or date-based, date-dependent or
date-related data, including, but not limited to, century recognition,
day-of-the-week recognition, leap years, date values and interfaces of date
functionalities, provided that external date data is received in the proper
format, and (iii) will not be materially and adversely affected by the advent of
the year 2000 or subsequent years, the advent of the twenty-first century or the
transition from the twentieth century through the year 2000 and into the
twenty-first century (collectively, items (i) through (iii) are referred to
herein as "Year 2000 Compliant"). All licenses for the use of any system-related
software, hardware, databases or embedded control system are certified by the
manufacturer to be Year 2000 Compliant and to contain the capabilities required
to be Year 2000 Compliant within the Company's computer systems (hardware and
software), or the licenses permit the Company or a third party to make all
modifications, bypasses, de-bugging, work- arounds, repairs, replacements,
conversions or corrections necessary to permit the System to operate compatibly,
in conformance with their respective specifications, and to be Year 2000
Compliant. To Knowledge of the Shareholders, each service provider which is
material to the business operations of the Company (including, without
limitation, internet service providers) is Year 2000 Compliant.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to each Shareholder that
the following matters set forth in this Article III are true and correct as of
the date hereof.
3.1 AUTHORIZATION; ENFORCEABILITY. The Purchaser has the corporate
power and authority to execute and deliver this Agreement and the other
documents and instruments to be delivered pursuant hereto and to consummate the
purchase of the Stock. The Purchaser's execution, delivery and performance of
this Agreement and the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of the
Purchaser. This Agreement has been duly and validly executed and delivered by
the Purchaser and constitutes the legal, valid and binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms,
subject to applicable bankruptcy, reorganization, insolvency and similar laws
from time to time in effect and general principles of equity.
3.2 DUE ORGANIZATION. The Purchaser is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
and it is duly authorized, qualified and licensed under all applicable laws to
carry on its business in the places and in the manner now conducted, except
where the failure to be so authorized, qualified or licensed would not have a
material adverse effect on its business.
3.3 NO CONFLICTS; APPROVALS. The execution, delivery and performance of
this Agreement by the Purchaser will not (a) conflict with or result in a breach
of any provision of the charter or bylaws of the Purchaser, (b) result in any
conflict with, breach of, or default (or give rise
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to any right to termination, cancellation or acceleration or loss of any right
or benefit) under or require any consent or approval which has not been obtained
with respect to any of the terms, conditions or provisions of any material
contract or agreement to which the Purchaser is a party or by which it is bound
or (c) violate any order, law, rule or regulation applicable to the Purchaser or
by which it is bound. No action, consent or approval by, or filing by the
Purchaser with, any court or governmental body or agency is required in
connection with the execution, delivery or performance by the Purchaser of this
Agreement, except for any such action, consent, approval or filing which has
been obtained or made prior to the date hereof.
3.4 NO OTHER REPRESENTATIONS. The Purchaser makes no representations or
warranties, expressed or implied, of any nature whatsoever except as
specifically set forth in this Article III.
ARTICLE IV
RESTRICTIVE COVENANTS
4.1 CONFIDENTIAL INFORMATION. The Shareholders acknowledge that the
information, observations and data concerning the business, affairs and/or
operating results of the Company, including, without limitation, lists of
customers and prospective customers, pricing strategies, trade secrets,
technical data, historic auction information and statistics, sales and marketing
data, business and marketing plans and proposals, system processes, technology
and financial information, and any and all physical embodiments thereof
(collectively, "Confidential Information"), are the property of the Company.
Each Shareholder agrees that he shall not disclose to any unauthorized person or
use for his own account any Confidential Information without the prior written
consent of the Purchaser. Each Shareholder shall promptly deliver to Purchaser
or, at the request and option of the Purchaser, destroy all memoranda, notes,
plans, records, reports, computer tapes and software and other documents and
data (and copies thereof) relating to the Confidential Information, which he may
then possess or have under his control. In the event that either Shareholder is
requested or required (by oral question or request for information or documents
in any legal proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, such Shareholder will
notify the Purchaser promptly of the request or requirement so that the Purchase
may seek an appropriate protective order or waive compliance with the provisions
of this Section 4.1. If, in the absence of a protective order or the receipt of
a waiver hereunder, either Shareholder is, on the advice of counsel, compelled
to disclose any Confidential Information to any tribunal or else stand liable
for contempt, such Shareholder may disclose the Confidential Information to the
tribunal; provided, however, that the disclosing Shareholder shall use his
reasonable best efforts to obtain, at the request and expense of the Purchaser,
an order or other assurance that confidential treatment will be accorded to such
portion of the Confidential Information required to be disclosed as the
Purchaser shall designate.
4.2 NONCOMPETITION; NON-SOLICITATION.
(a) Each Shareholder hereby agrees that for a period of five
(5) years following the Closing Date (the "Noncompete Period"), he shall not
directly or indirectly own, manage,
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<PAGE> 15
control, participate in, consult with, render services for, be employed by or in
any manner engage in any business which competes with the business of the
Company as in effect as of the Closing Date; provided, however, that nothing
herein shall prohibit a Shareholder from being a passive owner of not more than
1% of the outstanding stock of any class of a corporation which is publicly
traded, so long as such Shareholder has no active participation in the business
of such corporation.
(b) During the Noncompete Period, neither Shareholder shall directly or
indirectly (i) induce or attempt to induce any employee of the Company or any
Affiliate to leave the employ of the Company or such Affiliate, as the case may
be, or in any way interfere with the relationship between the Company or any
Affiliate and any employee thereof, (ii) hire any person who was an employee of
the Company at any time prior to the Closing Date, or (iii) induce or attempt to
induce any customer, supplier, licensee or other business relation of the
Company or any Affiliate to cease doing business with or decrease the amount of
business done with the Company or such Affiliate, as the case may be, or in any
way interfere with the relationship between any such customer, supplier,
licensee or business relation and the Company or any Affiliate.
4.3 ENFORCEMENT.
(a) In the event that any provision of this Article IV shall be held
invalid, illegal, void, inoperative or unenforceable by a court of competent
jurisdiction by reason of the geographic or business scope or the duration of
such provision, such invalidity, illegality or unenforceability shall attach
only to the scope or duration of such provision and shall not affect or render
invalid, illegal, void, inoperative or unenforceable any other provision of this
Agreement, and to the fullest extent permitted by law, this Agreement shall be
construed as if the geographic or business scope of the duration of such
provision had been more narrowly drafted so as not to be invalid, illegal, void,
inoperative, or unenforceable.
(b) Each of the Shareholders agrees that the Purchaser's remedy at law
for any breach of this Article IV is inadequate and that in the event of any
such breach by any Shareholder, the Purchaser shall be entitled to injunctive
relief against such Shareholder, in addition to any other remedy at law, in
equity or under this Agreement to which the Purchaser may be entitled. Without
limiting the generality of the preceding sentence, the parties acknowledge and
agree that it is impossible to measure in money all of the damages that would
accrue to the Purchaser by reason of any breach of this Article IV. Each of the
Shareholders waives in advance any claim or defense, in any action or proceeding
that may in the future be commenced by the Purchaser to enforce this Article IV,
that the Purchaser has an adequate remedy at law, and each of the Shareholders
agrees not to urge in any such action that an adequate remedy at law exists.
(c) Notwithstanding anything herein to the contrary, this Article IV is
for the benefit of the Purchaser and each of its subsidiaries or affiliates
which currently exists or which is established at any time during the
Noncompetition Period and may be enforced by any such entity as if it had been a
named party to this Agreement.
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ARTICLE V
INDEMNIFICATION
5.1 INDEMNIFICATION BY THE SHAREHOLDERS. Subject to the terms,
conditions and limitations set forth in this Agreement, the Shareholders shall
jointly and severally indemnify and hold harmless the Purchaser Indemnified
Parties from and against and in respect of all Section 5.1 Damages (defined
below). "Section 5.1 Damages" shall include without limitation any claim,
action, demand, loss, cost, expense, liability, penalty, and other damage,
including without limitation, attorneys' fees and other costs and expenses
reasonably incurred in investigating, and attempting to avoid, or in opposing
the imposition thereof (collectively, "Loss"), resulting to any Purchaser
Indemnified Party arising out of or resulting from (i) any inaccurate
representation or warranty by a Shareholder in Article II of this Agreement,
(ii) the breach or default in the performance by the Shareholders of any of the
obligations to be performed by the Shareholders hereunder; (iii) any costs and
expenses incurred by the Company or the Buyer to become Year 2000 Compliant and
any Loss resulting from, arising out of, relating to, in the nature of, or
caused by becoming Year 2000 Compliant; (iv) any Taxes the Company or either
Shareholder may owe or be deemed to owe for periods up to and including the
Closing Date, including without limitation, Taxes made or brought against the
Shareholders or the Company by reason of the agreements or transactions
contemplated hereby; (v) those litigation matters described on Schedule 2.11 of
the Disclosure Schedule; or (vi) any Liability, litigation or third party claim
arising out of or relating to the conduct of the business by the Company or the
ownership of its assets on or prior to the Closing Date, whether or not
disclosed to the Purchaser and whether or not the Purchaser had knowledge
thereof.
5.2 INDEMNIFICATION BY THE PURCHASER. Subject to the terms, conditions
and limitations set forth in this Agreement, the Purchaser shall indemnify and
hold harmless each Shareholder from and against and in respect of all Section
5.2 Damages (defined below). "Section 5.2 Damages" shall include without
limitation any Loss resulting to any Shareholder from (i) any inaccurate
representation or warranty by the Purchaser in Article III of this Agreement, or
(ii) the breach or default in the performance by the Purchaser of any of the
obligations to be performed by the Purchaser hereunder.
5.3 NOTICE AND DEFENSE OF THIRD PARTY CLAIMS.
(a) If any judicial, administrative, arbitration, or
investigatory proceeding or other proceeding, claim or controversy
(collectively, a "Proceeding") shall be brought or asserted by a third party
against an indemnified party or any successor thereto (the "Indemnified Party")
in respect of which indemnity may be sought under this Article from an
indemnifying person or any successor thereto (the "Indemnifying Party") pursuant
to a Proceeding, then the Indemnified Party shall within twenty (20) days notify
each Indemnifying Party thereof in writing; provided, however, that no delay on
the part of the Indemnified Party in notifying any Indemnifying Party shall
relieve the Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
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<PAGE> 17
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Proceeding with counsel of its choice reasonably
satisfactory to the Indemnified Party so long as (A) the Indemnifying Party
notifies the Indemnified Party in writing (the "Defense Notice") within fifteen
(15) days after the Indemnified Party has given notice of the Proceeding that
the Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Loss the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Proceeding, and (B) the
Indemnifying Party conducts the defense of the Proceeding actively and
diligently. If the Indemnifying Party delivers a Defense Notice, the Indemnified
Party shall cooperate with the Indemnifying Party and the Indemnifying Party's
counsel in the defense of the Proceeding, including, without limitation,
furnishing the Indemnifying Party with any books, records or information
reasonably requested by the Indemnifying Party.
(c) So long as the Indemnifying Party is conducting the
defense of the Proceeding in accordance with Section 5.3(b) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the Proceeding; provided, however, that the
Indemnifying Party shall control the defense of the Proceeding, (B) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Proceeding without the prior written consent
of the Indemnifying Party, and (C) the Indemnifying Party will not consent to
the entry of any judgment or enter into any settlement with respect to the
Proceeding without the prior written consent of the Indemnified Party; provided,
however, that the Indemnifying Party may, without the Indemnified Party's prior
written consent, settle or compromise any such Proceeding or consent to entry of
any judgment with respect to any such Proceeding that requires only the payment
of money damages by the Indemnifying Party with no injunction or other equitable
relief and that includes as an unconditional term thereof the release by the
third party of the Indemnified Party from any and all liability in respect of
such Proceeding.
(d) In the event the Indemnifying Party does not conduct the
defense of the Proceeding actively and diligently, however, (A) the Indemnified
Party may defend against, and consent to the entry of any judgment or enter into
any settlement with respect to, the Proceeding in any manner it reasonably may
deem appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith), (B) the
Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Proceeding (including
reasonable attorneys' fees and expenses), and (C) the Indemnifying Party will
remain responsible for any Loss the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Proceeding to
the fullest extent provided in this Article V.
5.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; LIMITATIONS. The
parties hereto agree that all of their respective representations and warranties
contained in this Agreement shall survive for a period of three years after the
Closing Date, except that the representations in Section 2.1 (Title to Stock),
Section 2.2 (Capitalization), Section 2.3 (Authority), Section 2.10 (Employee
Benefit Plans), Section 2.12 (Taxes), Section 2.14 (Title to Assets), and
Section 2.17 (Environmental Matters) shall survive for a period ending on the
date 90 days after the expiration of the appropriate statute of limitation, if
any, with respect to any claim covered by the
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<PAGE> 18
representations and warranties in such Sections, as the same may be tolled or
extended from time to time by the Purchaser or any other Person. An Indemnifying
Person shall have no liability under this Article unless notice of a claim for
indemnity specifically describing the facts on which the claim is based shall
have been given within three years after the Closing Date, except that any such
notice of a claim for indemnity based on a breach of the representations and
warranties contained in Section 2.1 (Title to Stock), Section 2.2
(Capitalization), Section 2.3 (Authority), Section 2.10 (Employee Benefit
Plans), Section 2.12 (Taxes), Section 2.14 (Title to Assets), and Section 2.17
(Environmental Matters) or relating to the indemnification obligations set forth
in Section 5.1(iv) at any time prior to the expiration of 90 days after the
expiration of the appropriate statute of limitation, if any, with respect
thereto, as the same may be tolled or extended from time to time by the
Purchaser or any other Person.
5.5 PAYMENT; INTEREST. The Indemnifying Party shall make any payment
required to be made under this Article in cash and on demand. Any Losses or
other payments required to be paid by an Indemnifying Party under this Article
which are not paid within five business days of receipt by the Indemnifying
Party of the Indemnified Party's demand therefor shall thereafter be deemed
delinquent, and the Indemnifying Party shall pay to the Indemnified Party
immediately upon demand, interest at the rate of 10% per annum, not to exceed
the maximum nonusurious rate allowed by applicable law, from the date such
payment becomes delinquent to the date of payment of such delinquent sums.
5.6 RIGHT OF OFFSET. In addition to the right of set off against the
Holdback Amount as contemplated by Section 1.3, upon written notice to
Fitzgerald specifying in reasonable detail the justification therefor, the
Purchaser may set off against the Deferred Payment Amount the amount of any Loss
which triggers the Shareholders' indemnification obligations provided in Section
5.1 hereof. The exercise of such right of set off by the Purchaser shall not
constitute an election of remedies nor limit the Purchaser in any manner in the
enforcement of any other remedies that may be available to it.
ARTICLE VI
CERTAIN TAX MATTERS
6.1 SECTION 338(h)(10) ELECTION. Each of the Shareholders will join
with the Purchaser in making an election under Section 338(h)(10) of the Code
(and any corresponding election under state, local and foreign tax law) with
respect to the purchase and sale of the Stock hereunder ("Section 338(h)(10)
Election"). The Shareholders will include any income, gain, loss, deduction, or
other tax item resulting from the Section 338(h)(10) Election on their Tax
Returns to the extent permitted by applicable law. The Shareholders shall also
pay any Tax imposed on the Company attributable to the making of the Section
338(h)(10) Election, including, but not limited to, (i) any Tax imposed under
Section 1374 of the Code, (ii) any tax imposed under Treasury Department
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<PAGE> 19
Regulation 1.338(h)(10)-1(e)(5), or (iii) any state, local or foreign Tax
imposed on the Company's gain, and the Shareholders shall indemnify the
Purchaser and the Company against any Loss arising out of any failure to pay any
such Taxes.
6.2 ALLOCATION OF PURCHASE PRICE AMONG ASSETS OF THE COMPANY. The
Purchaser and the Shareholders agree that the Adjusted Purchase Price and the
liabilities of the Company (plus other relevant items) will be allocated to the
assets of the Company for all purposes (including Tax and financial accounting)
pursuant to an allocation schedule to be provided to the Shareholders by the
Purchaser within sixty (60) days of the Closing Date. The Purchaser, the Company
and the Shareholders will file all Tax Returns (including amended returns and
claims for refund) and information reports in a manner consistent with such
allocation.
6.3 S CORPORATION STATUS. The Shareholders will not (and will not cause
the Company to) revoke the Company's election to be taxed as an S corporation
within the meaning of Sections 1361 and 1362 of the Code. The Shareholders will
not (and will not cause the Company to) take or allow any action that would
result in the termination of the Company's status as a validly electing
S corporation within the meaning of Sections 1361 and 1362 of the Code.
6.4 TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. The Purchaser
shall prepare or cause to be prepared and file or cause to be filed all Tax
Returns for the Company for all periods ending on or prior to the Closing Date
which are filed after the Closing Date. The Purchaser shall permit the
Shareholders to review and comment on each such Tax Return described in the
preceding sentence prior to filing and shall make such revisions to such Tax
Returns as are reasonably requested by the Shareholders. To the extent permitted
by applicable law, the Shareholders shall include any income, gain, loss,
deduction or other tax items for such periods on their Tax Returns in a manner
consistent with the Schedule K-1s furnished by the Company to the Shareholders
for such periods. The Shareholders shall reimburse the Purchaser for any Taxes
of the Company with respect to such periods within five (5) business days after
payment by the Purchaser or the Company of such Taxes to the extent such Taxes
are not reflected in the reserve for Tax Liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) shown on the face of the Balance Sheet.
6.5 COOPERATION ON TAX MATTERS. The Purchaser, the Company and the
Shareholders shall cooperate fully, as and to the extent reasonably requested by
each other, in connection with the filing of Tax Returns pursuant to this
Article VI and any audit, litigation or other proceeding with respect to Taxes.
Such cooperation shall include the retention and (upon the other's request) the
provision of records and information which are reasonably relevant to any such
audit, litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder. The Purchaser, the Company and the Shareholders
agree (A) to retain all books and records with respect to Tax matters pertinent
to the Company relating to any taxable period beginning before the Closing Date
until the expiration of the statute of limitations (and, to the extent notified
by the Purchaser or the Shareholders, any extensions thereof) of the respective
taxable periods, and to abide by all record retention agreements entered into
with any taxing authority, and (B) to give the other reasonable
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<PAGE> 20
written notice prior to transferring, destroying or discarding any such books
and records and, if the other so requests, the Company or the Shareholders, as
the case may be, shall allow the other to take possession of such books and
records. The Purchaser and the Shareholders further agree, upon request, to use
their best efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby).
ARTICLE VII
MISCELLANEOUS
7.1 FITZGERALD'S POSITION AT TRADEBANK. The Purchaser and Fitzgerald
hereby agree that during the Employment Period (as such term is defined by the
Employment Agreement), Fitzgerald shall also serve as the President of the
Company, with such authorities, powers, functions and duties as determined by
the Board of Directors of the Company.
7.2 COOPERATION. The Shareholders and the Purchaser shall each deliver
or cause to be delivered to the other on the Closing Date, and at such other
times and places as shall be reasonably agreed to, such additional instruments
as the other may reasonably request for the purpose of consummating the
transactions contemplated by this Agreement.
7.3 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder shall be binding upon and shall inure to the benefit of the
parties hereto, their successors and assigns.
7.4 ENTIRE AGREEMENT. This Agreement (including the Disclosure
Schedule) and the documents and instruments delivered pursuant hereto constitute
the entire agreement and understanding between the Shareholders and the
Purchaser and supersede any prior agreement and understanding relating to the
subject matter of this Agreement. This Agreement may be modified or amended only
by a written instrument executed by the Shareholders and the Purchaser.
7.5 COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
7.6 NOTICES. All notices or communications required or permitted
hereunder shall be in writing and may be given (i) by depositing the same in
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, (ii) by a reputable
overnight courier service, (iii) by facsimile (immediately confirmed by
telephone) or (iv) by delivering the same in person to an officer or agent of
such party. Notices shall be deemed to have been given (a) if sent by United
States mail, on the third day following mailing, (b) if sent by overnight
courier, on the business day following delivery by the sending party to the
courier service, (c) if sent by facsimile, on the day the facsimile is confirmed
as having been received or (d) if delivered in person, when delivered. Notices
shall be addressed as follows:
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(a) If to the Shareholders:
Steve Fitzgerald
305 Highland Oaks Circle
Southlake, Texas 76092
Telephone: 817/481-3604
and
Michael Allen
Two Turtle Creek Village
3838 Oak Lawn, Suite 1222
Dallas, Texas 75219
Telephone: 214/522-9434
(b) If to the Purchaser:
Energy Auction Exchange, Inc.
7900 East Union Avenue, Suite 1100
Denver, Colorado 80237
Attn: Gary R. Vickers
Telephone: 303/694-5350
Facsimile: 303/694-5376
with a copy (which shall not constitute notice) to:
Locke Liddell & Sapp LLP
3400 Chase Tower
600 Travis
Houston, Texas 77002
Attn: Kevin N. Peter
Telephone: 713/226-1235
Facsimile: 713/223-3717
7.7 GOVERNING LAW AND JURISDICTION. This Agreement shall be governed by
and construed in accordance with the laws of the State of Texas, without regard
to its conflict of law principles. Any and all suits, legal actions or
proceedings against any party to this Agreement arising out of this Agreement or
the transactions contemplated hereby shall be brought in the United States
District Court for the Southern District of Texas or in any court of appropriate
jurisdiction in Harris County, Texas and each party submits to and accepts the
jurisdiction of such courts for the purpose of any such suit, legal action or
proceeding.
7.8 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any
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<PAGE> 22
breach or default by any other party under this Agreement shall impair any such
right, power or remedy, nor shall it be construed as a waiver of or acquiescence
in any such breach or default, or of or in any similar breach or default
occurring later; nor shall any waiver of any single breach or default be deemed
a waiver of any other breach of default occurring before or after that waiver.
7.9 HEADINGS. The Section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
7.10 SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
7.11 EXPENSES. The Purchaser, on the one hand, and the Shareholder, on
the other hand, will bear their own costs and expenses (including legal fees and
expenses) incurred in connection with this Agreement and the transactions
contemplated hereby. The Shareholders agree that the Company has not borne or
will not bear any of the Shareholders' costs and expenses (including any of
their legal fees and expenses) in connection with this Agreement or any of the
transactions contemplated hereby.
7.12 CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
party has not breached shall not detract from or mitigate the fact that the
party is in breach of the first representation, warranty, or covenant.
7.13 INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits
and Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
7.14 SPECIFIC PERFORMANCE. Each of the parties acknowledges and agrees
that the other parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
parties and the matter (subject to the provisions set forth in Section 7.7), in
addition to any other remedy to which they may be entitled, at law or in equity.
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<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
"SHAREHOLDERS"
/s/ Michael Allen
--------------------------------------
Michael Allen
/s/ Steve Fitzgerald
--------------------------------------
Steve Fitzgerald
"PURCHASER"
ENERGY AUCTION EXCHANGE, INC.
By: /s/ Gary R. Vickers
-----------------------------------
Gary R. Vickers, President
<PAGE> 24
EXHIBIT A
DEFINITIONS
"Affiliate" shall have the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act of 1934, as amended.
"Balance Sheet" shall have the meaning set forth in Section 2.6.
"Balance Sheet Date" shall have the meaning set forth in Section 2.6.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"Business Facility" shall mean any property, equipment, fixture or
building leased, operated, owned, managed, or controlled in any manner by the
Company or which the Company or any of its organizational predecessors formerly
leased operated, owned, managed, or controlled in any manner.
"CERCLA" means the Comprehensive Environmental Response Compensation
and Liability Act, 42 U.S.C. Section 9601 et. seq.
"Closing" shall have the meaning set forth in Section 1.2.
"Code" shall have the meaning set forth in Section 2.8.
"Company's Financial Statements" shall have the meaning set forth in
Section 2.6.
"Current Assets" means the current assets of the Company as determined
in accordance with GAAP.
"Current Liabilities" means the current liabilities of the Company as
determined in accordance with GAAP.
"Disclosure Schedule" shall mean the disclosure schedules attached to
this Agreement.
"Disposal" (or "disposed") shall have the meaning specified in RCRA.
"Environmental Claim" means any Proceeding; claim; litigation; demand;
action; cause of action; suit; loss; cost, including, but not limited to,
attorneys' fees, diminution in value, expert's fees; damage; punitive damage;
fine; penalty; expense; Liability; criminal liability; judgment; governmental or
private investigation and testing; notification of status of being potentially
responsible for clean-up of any facility or for being in violation or in
potential violation of any
A-1
<PAGE> 25
Requirement of Environmental Law; proceeding; lien; personal injury or death of
any person; or property damage, whether threatened, sought, brought or imposed,
that is related to or that seeks to recover Damages related to, or seeks to
impose liability regarding the Company or its operations or any Business
Facility for: (i) improper use or treatment of wetlands, pinelands or other
protected land or wildlife; (ii) noise; (iii) radioactive materials (including
naturally occurring radioactive materials ["NORM"]); (iv) explosives; (v)
pollution, contamination, preservation, protection, decontamination, remediation
or clean-up of the air, surface water, groundwater, soil or protected lands;
(vi) solid, gaseous or liquid waste generation, handling, discharge, release,
threatened release, treatment, storage, recycling, disposal or transportation;
(vii) exposure of persons or property to Materials of Environmental Concern and
the effects thereof; (viii) the release, threatened release, generation,
extraction, mining, manufacture, processing, distribution in commerce, use,
transfer, transportation, recycling, treatment, storage, disposal or Remediation
of Materials of Environmental Concern; (ix) injury to, death of or threat to the
health or safety of any person or persons caused directly or indirectly by
Materials of Environmental Concern; (x) destruction caused directly or
indirectly by Materials of Environmental Concern or the release or threatened
release of any Materials of Environmental Concern on any property (whether real
or personal); (xi) the implementation of spill prevention and/or disaster plans
relating to Materials of Environmental Concern; (xii) community right-to-know
and other disclosure laws; or (xiii) maintaining, disclosing or reporting
information to governmental authorities under any Environmental Law. The term,
"Environmental Claim" also includes, without limitation, any Damages incurred in
testing for the need for Remediation or for breach or violation of any
Requirements of Environmental Laws; monitoring or responding to efforts to
require Remediation and any claim based upon any asserted or actual breach or
violation of any Requirements of Environmental Law.
"Environmental Laws" means the laws described on Exhibit D attached
hereto and incorporated herein for all purposes and any and all other laws,
rules, regulations, ordinances, orders or guidance documents now or hereafter in
effect of any applicable Governmental Authority, board or authority or any
judicial or administrative decision relating thereto or any Environmental Permit
issued thereunder that relate in any manner to health, worker protection, the
environment, or a community's right to know.
"Environmental Permits" means any permit, license, registration, waste
identification number, approval, or other authorization or application for any
of the foregoing relating to the business or operations of the Company, or any
Business Facility required by any Environmental Law.
"GAAP" means United States generally accepted accounting principles,
consistently applied.
"Governmental Authority" means any foreign governmental authority, the
United States of America, any State of the United States of America, any local
authority and any political subdivision of any of the foregoing, any
multi-national organization or body, any agency, department, commission, board,
bureau, court or other authority of any of the foregoing, or any
quasi-governmental or private body exercising, or purporting to exercise, any
executive, legislative, judicial, administrative, police, regulatory or taxing
authority or power of any nature.
A-2
<PAGE> 26
"Governmental Authorization" means any permit, environmental permit,
license, franchise, approval, certificate, consent, ratification, permission,
confirmation, endorsement, waiver, certification, registration, qualification or
other authorization issued, granted, given or otherwise made available by or
under the authority of any Governmental Authority or pursuant to any Legal
Requirement.
"Holdback Amount" shall have the meaning set forth in Section 1.1(b).
"Intellectual Property Assets" shall include the Company's names, all
fictitious business names, trade names, brand names, registered and unregistered
trademarks, service marks and applications, all patents and patent applications,
all copyrights in both published works and unpublished works, and all
inventions, processes, formulas, patterns, designs, know-how, trade secrets,
confidential information, software (both source code and object code), technical
information, process technology, plans, drawings, blue prints, and other similar
intangible or intellectual property owned, used or licensed by the Company as
licensee or licensor.
"Knowledge" means actual knowledge after reasonable investigation.
"Legal Requirement" means any law, statute, ordinance, decree,
requirement, Order, treaty, proclamation, convention, rule or regulation (or
interpretation of any of the foregoing) of, and the terms of any, Governmental
Authorization issued by, any Governmental Authority.
"Liability" or "Liabilities" means any liability (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, and whether due or to
become due), including any liability for Taxes.
"Liens" shall have the meaning set forth in Section 2.1.
"Loss" shall have the meaning set forth in Section 5.1.
"Material Adverse Effect" shall mean any material adverse change in the
financial condition, assets, Liabilities (absolute, accrued, contingent or
otherwise), reserves, business, prospects or results of operations of the
Company.
"Materials of Environmental Concern" means: (i) those substances
included within the statutory and/or regulatory definitions of "hazardous
substance," "hazardous waste," "extremely hazardous substance," "regulated
substance," "hazardous materials," or "toxic substances," under any
Environmental Law; (ii) any material, waste or substance which is or contains:
(A) petroleum, oil or a fraction or constituent thereof, (B) asbestos, (C)
polychlorinated biphenyls, (D) formaldehyde, (E) explosives, or (F) radioactive
materials (including naturally occurring radioactive material); (iii) solid
wastes (as defined under the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq., and its implementing regulations) that post imminent and
substantial endangerment to health or the environment; (iv) any material, waste
or substance designated, classified or regulated as a "Class I" or "Class II"
waste under Title 30 of the Texas Administrative
A-3
<PAGE> 27
Code; and (v) such other substances, materials, or wastes that are or become
classified or regulated as hazardous or toxic under any applicable federal,
state or local law or regulation. To the extent that the laws or regulations of
any applicable state or local jurisdiction establish a meaning for any term
defined herein through reference to federal Environmental Laws which is broader
than the meaning under such federal Environmental Laws, such broader meaning
shall apply.
"Net Working Capital" means Current Assets less Current Liabilities.
"Option Agreement" shall have the meaning set forth in Section
1.1(b)(ii).
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, a governmental entity (or any
department, agency, or political subdivision thereof) or any other entity.
"Purchase Price" shall have the meaning set forth in Section 1.1(b).
"Purchaser Common Stock" shall have the meaning set forth in Section
1.1(b).
"Purchaser Indemnified Parties" shall mean the Purchaser, and each of
the Purchaser's subsidiaries, stockholders, Affiliates, officers, directors,
employees, counsel, agents, successors, assigns, heirs and legal and personal
representatives.
"RCRA" means the Resource Conservation and Recovery Act, 42
U.S.C. Sections 6901 et seq.
"Release" (or "released") shall have the meaning specified in CERCLA.
"Remediation" means any action necessary to bring about compliance with
the Requirements of Environmental Law including (i) the removal and disposal or
containment (if containment is practical under the circumstances and is
permissible within Requirements of Environmental Law) or monitoring of any and
all Materials of Environmental Concern at any Business Facility; (ii) the taking
of reasonably necessary precautions to protect against the release or threatened
release of Materials of Environmental Concern at, on, in, about, under, within
or near the air, soil, surface water, groundwater or soil vapor at any Business
Facility or any surrounding areas thereof; (iii) any action necessary to
mitigate the usurpation of wetlands, pinelands or other protected land or
reclaim the same or to protect and preserve wildlife species; (iv) any action
necessary to meet the requirements of an Environmental Permit or (v) any other
action reasonably required to satisfy Requirements of Environmental Law imposed
upon the Company, any Business Facility and/or any operation thereon.
"Requirements of Environmental Law" means all requirements, conditions,
restrictions or stipulations of Environmental Laws imposed upon or related to
the Company, any Business Facility or any operation conducted on any Business
Facility.
"Stock" shall have the meaning set forth in Section 5.1.
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<PAGE> 28
"System" shall have the meaning set forth in Section 2.19.
"Tax" means any tax (including, but not limited to, any income tax,
franchise tax, capital gains tax, gross receipts tax, value-added tax, surtax,
excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax,
property tax, inventory tax, occupancy tax, withholding tax or payroll tax, and
any related charge or amount (including any fine, penalty or interest), imposed,
assessed or collected by or under the authority of any federal, state or local
taxing authority.
"Tax Return" means any return (including any information return),
report, statement, declaration, schedule, notice, notification, form,
certificate or other document or information filed with or submitted to, or
required to be filed with or submitted to, any Governmental Authority in
connection with the determination, assessment, collection or payment of any tax
or in connection with the administration, implementation or enforcement of or
compliance with any Legal Requirement relating to any tax.
"Warrant" shall have the meaning set forth in Section 1.1(b)(i).
"Year 2000 Compliant" shall have the meaning set forth in Section 2.19.
A-5
<PAGE> 29
EXHIBIT B
FORM OF WARRANT
<PAGE> 30
EXHIBIT C
FORM OF EMPLOYMENT AGREEMENT
<PAGE> 31
EXHIBIT D
ENVIRONMENTAL LAWS
A. FEDERAL
Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. Sections 9601 et seq.
Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.
Clean Water Act, 33 U.S.C. Section 1251 et seq.
Safe Drinking Water Act, 42 U.S.C. Sections 300f-300j.
Clean Air Act, 42 U.S.C. Section 7401 et seq.
Solid Waste Disposal Act, 42 U.S.C. Sections 6901 et. seq.
The Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq.
Hazardous Materials Transportation Act, 49 APP. U.S.C. Section 1801 et seq.
Emergency Planning and Community Right to Know Act of 1986, 42
U.S.C. Section 11001 et seq.
Occupational Health and Safety Act of 1970, 29 U.S.C. Section 651, et seq.
B. TEXAS
Texas Health & Safety Code
Texas Natural Resources Code
Texas Water Code
The laws cited above shall be deemed to include any amendments to them and
regulations promulgated under them from time to time.
<PAGE> 1
EXHIBIT 2.3
ASSET PURCHASE AGREEMENT
BY
AND
AMONG
EAEDP, INC.,
AND
WORLD WEB TECHNOLOGIES INC.,
AND
FRANK VERHAGEN, MICHAEL LAZAR,
KIM LERNER AND JEAN BROCKMAN
SEPTEMBER 20, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page #
------
<S> <C> <C>
1. Definitions..............................................................................................1
2. Basic Transaction........................................................................................5
(a) Purchase and Sale of Assets.....................................................................5
(b) Assumption of Liabilities.......................................................................5
(c) Purchase Price..................................................................................6
(d) The Closing.....................................................................................6
(e) Deliveries at the Closing.......................................................................6
(f) Allocation......................................................................................6
3. Representations and Warranties of the Seller.............................................................6
(a) Organization and Corporate Power................................................................6
(b) Authorization of Transaction....................................................................6
(c) Noncontravention................................................................................7
(d) Title to Assets.................................................................................7
(e) Financial Statements. ..........................................................................8
(f) Events Subsequent to Most Recent Fiscal Year End................................................8
(g) Undisclosed Liabilities.........................................................................9
(h) Legal Compliance................................................................................9
(i) Tax Matters.....................................................................................9
(j) Intellectual Property..........................................................................10
(k) Tangible Assets................................................................................11
(l) Contracts......................................................................................11
(m) Notes and Accounts Receivable..................................................................12
(n) Powers of Attorney.............................................................................13
(o) Litigation.....................................................................................13
(p) Employee Benefits..............................................................................13
(q) Guaranties.....................................................................................13
(r) Certain Business Relationships with the Division...............................................13
(s) Year 2000......................................................................................13
(t) Customers......................................................................................14
(u) Software.......................................................................................14
(v) Disclosure.....................................................................................14
4. Representations and Warranties of the Buyer.............................................................14
(a) Organization of the Buyer......................................................................15
(b) Authorization of Transaction...................................................................15
(c) Noncontravention...............................................................................15
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
5. Pre-Closing Covenants...................................................................................15
(a) General........................................................................................15
(b) Notices and Consents...........................................................................16
(c) Operation of Business..........................................................................16
(d) Preservation of Business.......................................................................16
(e) Full Access....................................................................................16
(f) Notice of Developments.........................................................................16
(g) Exclusivity....................................................................................16
(h) Server Test....................................................................................17
6. Post-Closing Covenants..................................................................................17
(a) General........................................................................................17
(b) Litigation Support.............................................................................17
(c) Transition.....................................................................................17
(d) Confidentiality................................................................................17
(e) Covenant Not to Compete........................................................................18
(f) Advisory Board.................................................................................18
(g) Proprietary Software...........................................................................19
7. Conditions to Obligation to Close.......................................................................19
(a) Conditions to Obligation of the Buyer..........................................................19
(b) Conditions to Obligation of the Seller and the Seller Stockholders.............................21
8. Remedies for Breaches of This Agreement.................................................................21
(a) Survival of Representations and Warranties.....................................................21
(b) Indemnification Provisions for Benefit of the Buyer............................................22
(c) Indemnification Provisions for Benefit of the Seller...........................................22
(d) Matters Involving Third Parties................................................................23
(e) Determination of Adverse Consequences..........................................................24
(f) Other Indemnification Provisions...............................................................24
9. Termination.............................................................................................24
(a) Termination of Agreement.......................................................................24
(b) Effect of Termination..........................................................................25
10. Miscellaneous...........................................................................................25
(a) Press Releases and Public Announcements........................................................25
(b) No Third-Party Beneficiaries...................................................................25
(c) Entire Agreement...............................................................................25
(d) Succession and Assignment......................................................................26
(e) Counterparts...................................................................................26
(f) Headings.......................................................................................26
(g) Notices........................................................................................26
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
(h) Governing Law..................................................................................27
(i) Amendments and Waivers.........................................................................27
(j) Severability...................................................................................27
(k) Expenses.......................................................................................28
(l) Construction...................................................................................28
(m) Incorporation of Exhibits and Schedules........................................................28
(n) Tax Matters....................................................................................28
(o) Execution......................................................................................28
(p) Specific Performance...........................................................................29
(q) Dispute Notification and Resolution Procedure..................................................29
(r) Submission to Jurisdiction.....................................................................30
</TABLE>
Exhibit A--Bill of Sale and Assignment
Exhibit B--Allocation Schedule
Exhibit C--Financial Statements and Projections
Exhibit D--Noncompete Geographic Area
Exhibit E--Form of Noncompete Agreement
Exhibit F--Form of Transitional Services Agreement
Disclosure Schedule--Exceptions to Representations and Warranties
iii
<PAGE> 5
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of
September 20, 1999, by and among EAEDP, Inc., a Colorado corporation (the
"Buyer"), World Web Technologies Inc., an Alberta corporation (the "Seller"),
and Frank Verhagen, an individual, Michael Lazar, an individual, Kim Lerner, an
individual, and Jean Brockman, an individual (collectively, the "Seller
Stockholders"). The Buyer, the Seller and the Seller Stockholders are each
referred to individually herein as a "Party" and collectively as the "Parties."
This Agreement contemplates a transaction in which the Buyer will
purchase all of the assets related to the Seller's Discovery Place web site
(www.discoveryplace.com) and directly related business in return for cash.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. Definitions.
"Acquired Assets" means all right, title, and interest in and to all of
the assets constituting the Business, including without limitation all (a)
Intellectual Property in connection with the Energy Industry and the Seller's
right, title, and interest in and to the name "Discovery Place," goodwill
associated therewith, licenses and sublicenses granted and obtained with respect
thereto, and rights thereunder, remedies against infringements thereof, and
rights to protection of interests therein under the laws of all jurisdictions,
(b) agreements, contracts, instruments, Security Interests, other similar
arrangements, and rights thereunder, (c) accounts, notes, and other receivables,
(d) claims, deposits, prepayments, refunds, causes of action, choses in action,
rights of recovery, rights of set off, and rights of recoupment (including any
such item relating to the payment of taxes), (e) approvals, permits, licenses,
orders, registrations, certificates, variances, and similar rights obtained from
governments and governmental agencies, (f) books, records, ledgers, account
histories, files, documents, correspondence, lists, customer lists, drawings,
specifications, creative materials, advertising and promotional materials,
studies, reports, and other printed or written materials, (g) software, source
codes, and all software development tools necessary to maintain and modify the
software, including without limitation Publishing Software MC20, Surplus
Equipment Software, Crude Oil Pricing Software, Prospects and Properties
Software, Closing Stock Quotes Software, Alberta Public Offerings Software
(including map search of current offerings and process data files), ?pageedit
PHP Software, Analyzer Software, C++ code, Perl code and script, database
administration and code, SQL code and applications, SQL statements within Perl
code, and any integration software relative thereto and any other applicable
proprietary software, software code, and tools and applications (collectively,
"Proprietary Software"), each in connection with the Energy Industry, (h) a hard
disk containing working copies of software, source codes, and software
development tools necessary to maintain and modify the software, including
without limitation Linux 2.0.36, RedHat 5.2, Apache 1.3.6, MySQL 3.22.21, Perl
5.005.02, PHP 3.07, and any other applicable open source software, software
code, and tools and applications (collectively, the "Open
<PAGE> 6
Source Software" and, with the Proprietary Software, the "Software"), (i) the
URL for the Discovery Place web site (www.discoveryplace.com), (j) databases,
(k) physical mediums required for the Seller to deliver the Software to the
Buyer, including without limitation hard drives, disks, tapes and other storage
mediums, and (l) all electronic data associated with customers of the Business
(i.e., graphics, graphic design logos, written content); provided, however, that
the Acquired Assets shall not include (A) the corporate charter, qualifications
to conduct business as a foreign corporation, arrangements with registered
agents relating to foreign qualifications, taxpayer and other identification
numbers, seals, minute books, stock transfer books, blank stock certificates,
and other documents relating to the organization, maintenance, and existence of
the Seller as a corporation, (B) any of the rights of the Seller under this
Agreement (or under any side agreement between the Seller on the one hand and
the Buyer on the other hand entered into on or after the date of this
Agreement), (C) the Proprietary Software or Intellectual Property in connection
with any industries other than the Energy Industry, or (D) any other real or
personal property of the Seller.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses.
"Advisory Board" has the meaning set forth in Section 6(f) below.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Agreement" has the meaning set forth in the preface above.
"Applicable Rate" means the prime rate of interest as set forth from
time to time in the Denver, Colorado edition of the Wall Street Journal.
"Arbitrator" has the meaning set forth in Section 10(q)(iii)(C) below.
"Basket" has the meaning set forth in Section 8(b)(i) below.
"Bill of Sale" has the meaning set forth in Section 2(e)(iii)(A) below.
"Business" means the Seller's Discovery Place web site
(www.discoveryplace.com) and all directly related business including, without
limitation, the Acquired Assets, members, advertisers, subscribers, and
customers and accounts receivable related to the Energy Industry; provided,
however, that the Business shall not include the Seller's Internet access
dial-up customers.
"Buyer" has the meaning set forth in the preface above.
"Claim Notice" has the meaning set forth in Section 10(q)(i) below.
2
<PAGE> 7
"Claimant" has the meaning set forth in Section 10(q)(i) below.
"Claims" has the meaning set forth in Section 10(q) below.
"Closing" has the meaning set forth in Section 2(d) below.
"Closing Date" has the meaning set forth in Section 2(d) below.
"Confidential Information" means any information concerning the
businesses and affairs of the Division, the Buyer and the Buyer's Affiliates
that is not already generally available to the public.
"Customer Software" has the meaning set forth in Section 3(u) below.
"Database" has the meaning set forth in Section 3(u)(A) below.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Division" means the Seller with respect to the Business.
"EAE" has the meaning set forth in Section 6(f) below.
"Employee Benefit Plans" has the meaning set forth in Section 3(p)
below.
"Energy Industry" means the energy and related services industries,
including, without limitation, the petroleum, natural gas, electricity, power,
wind or any alternative energy form industries.
"Excepted Intellectual Property" has the meaning set forth in Section
3(j)(i) below.
"Financial Statements" has the meaning set forth in Section 3(e) below.
"Income Tax" means any federal, state, provincial, municipal, local, or
foreign income tax, including any interest, penalty, or addition thereto,
whether disputed or not.
"Income Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Income Taxes, including
any schedule or attachment thereto, and including any amendment thereof.
"Indemnified Party" has the meaning set forth in Section 8(d) below.
"Indemnifying Party" has the meaning set forth in Section 8(d) below.
3
<PAGE> 8
"Intellectual Property" means, with respect to the Business, (a) all
inventions (whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereto, and all patents, patent applications, and
patent disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos and trade names, together with
all translations, adaptations, derivations, and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrightable
works, all copyrights, and all applications, registrations, and renewals in
connection therewith, (d) all trade secrets and confidential business
information (including ideas, research and development, know-how, formulas,
compositions, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (e) all computer software (including data and related
documentation), source codes, tools, middleware, and graphic templates, (f) all
other proprietary rights, and (g) all copies and tangible embodiments thereof
(in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Most Recent Financial Statements" has the meaning set forth in Section
3(e) below.
"Most Recent Fiscal Month End" has the meaning set forth in Section
3(e) below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 3(e)
below.
"Noncompete Agreement" has the meaning set forth in Section 7(a)(vii)
below.
"Notified Party" has the meaning set forth in Section 10(q)(i) below.
"Open Source Software" has the meaning set forth in the definition of
"Acquired Assets" above.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency) with respect to the Division.
"Other Acquisition Transaction" has the meaning set forth in Section
5(g) below.
"Party(ies)" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Proprietary Software" has the meaning set forth in the definition of
"Acquired Assets" above.
4
<PAGE> 9
"Purchase Price" has the meaning set forth in Section 2(c) below.
"Securities Exchange Act" means the U.S. Securities Exchange Act of
1934, as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
"Seller Most Recent Financial Statements" has the meaning set forth in
Section 3(e) below.
"Seller Stockholder" has the meaning set forth in the preface above.
"Software" has the meaning set forth in the definition of "Acquired
Assets" above.
"Subsidiary" means any entity with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient equity securities to control such
entity.
"System" has the meaning set forth in Section 3(s) below.
"Third Party Claim" has the meaning set forth in Section 8(d) below.
"Transaction Documents" has the meaning set forth in Section 3(b)
below.
"Transitional Services Agreement" has the meaning set forth in Section
7(a)(viii) below.
"Year 2000 Compliant" has the meaning set forth in Section 3(s) below.
2. Basic Transaction.
(a) Purchase and Sale of Assets. On and subject to the terms
and conditions of this Agreement, the Buyer agrees to purchase from the Seller,
and the Seller agrees to sell, transfer, convey, and deliver to the Buyer, all
of the Acquired Assets at the Closing for the consideration specified below in
this Section 2. The Parties agree that the transfer of copyrights included in
the Acquired Assets shall be irrevocable.
(b) Assumption of Liabilities. The Buyer will not assume or
have any responsibility with respect to any obligation or liability of the
Seller other than obligations of the
5
<PAGE> 10
Division under contracts and agreements set forth on Section 3(l) of the
Disclosure Schedule arising, incurred, for or in connection with any period
subsequent to the Closing Date.
(c) Purchase Price. The Buyer agrees to pay to the Seller at
the Closing US$500,000 (the "Purchase Price") by delivery of cash payable by
certified check.
(d) The Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Jacobs
Chase Frick Kleinkopf & Kelley, LLC, 1050 17th Street, Suite 1500, Denver,
Colorado 80265, commencing at 9:00 a.m. local time on September 28, 1999 or such
other date as the Parties may mutually determine (the "Closing Date").
(e) Deliveries at the Closing. At the Closing, (i) the Seller
and the Seller Stockholders will deliver to the Buyer the various certificates,
instruments, and documents referred to in Section 7(a) below; (ii) the Buyer
will deliver to the Seller the various certificates, instruments, and documents
referred to in Section 7(b) below; (iii) the Seller will execute, acknowledge
(if appropriate), and deliver to the Buyer (A) the Bill of Sale and Assignment
substantially in the form attached hereto as Exhibit A (the "Bill of Sale") and
(B) such other instruments of sale, transfer, conveyance, and assignment as the
Buyer and its counsel reasonably may request; and (iv) the Buyer will deliver to
the Seller the consideration specified in Section 2(c) above.
(f) Allocation. The Parties agree to allocate the Purchase
Price (and all other capitalizable costs) among the Acquired Assets for all
purposes (including financial accounting and tax purposes) in accordance with
the allocation schedule attached hereto as Exhibit B; provided, however, that
the Buyer may amend such allocation schedule prior to the Closing with the
consent of the Seller, such consent not to be unreasonably withheld.
3. Representations and Warranties of the Seller. The Seller represents
and warrants to the Buyer that the statements contained in this Section 3 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section 3),
except as set forth in the disclosure schedule accompanying this Agreement (the
"Disclosure Schedule"). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs and subparagraphs
contained in this Section 3 and the paragraphs and subparagraphs corresponding
thereto in this Section 3 shall reference the Disclosure Schedule.
(a) Organization and Corporate Power. The Seller is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Seller has full corporate
power and authority and all licenses, permits and authorizations necessary to
carry on the Business and to own and use the properties owned and used by it.
Section 3(a) of the Disclosure Schedule lists all such licenses, permits and
authorizations.
(b) Authorization of Transaction. The Seller and the Seller
Stockholders have full power and authority (including, with respect to the
Seller, full corporate power and authority) to
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execute and deliver this Agreement, the Bill of Sale, the Noncompete Agreement
and the Transitional Services Agreement (collectively, the "Transaction
Documents") and to perform their obligations under the Transaction Documents.
Without limiting the generality of the foregoing, the board of directors of the
Seller and the Seller Stockholders have duly authorized the execution, delivery,
and performance of the Transaction Documents by the Seller. This Agreement and,
when executed and delivered, the other Transaction Documents constitute the
valid and legally binding obligations of the Seller and the Seller Stockholders,
as the case may be, enforceable in accordance with their terms and conditions,
except as the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting enforcement of creditors' rights generally and the
application of general principles of equity.
(c) Noncontravention. Neither the execution and the delivery
of the Transaction Documents, nor the consummation of the transactions
contemplated thereby (including the assignments referred to in Section 2 above),
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Seller or the Seller Stockholders are
subject or any provision of the charter or bylaws of the Seller, or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Seller or the Seller Stockholders
are a party or by which they are bound or to which any of their assets are
subject (or result in the imposition of any Security Interest upon any of their
assets), except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, failure to give notice, or Security
Interest would not have a material adverse effect on the business, financial
condition, operations, results of operations, or future prospects of the
Division or on the ability of the Parties to consummate the transactions
contemplated by the Transaction Documents. Except as set forth on Section 3(c)
of the Disclosure Schedule, the Seller and the Seller Stockholders do not need
to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government, governmental agency or third party in
order for the Parties to consummate the transactions contemplated by the
Transaction Documents (including the assignments referred to in Section 2
above), except where the failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a material adverse effect on
the business, financial condition, operations, results of operations, or future
prospects of the Division or on the ability of the Parties to consummate the
transactions contemplated by the Transaction Documents.
(d) Title to Assets. The Seller has good and marketable title
to all of the Acquired Assets, free and clear of any Security Interest or
restriction on transfer. No person has any agreement, option, understanding or
commitment or any right or privilege (whether by law, preemptive or contractual)
which is capable of becoming an agreement, option, or commitment for the
purchase or other acquisition from the Seller of any of the Acquired Assets, or
any right or interest therein. The Acquired Assets and the assets and services
to be provided to the Buyer by the Seller pursuant to the Transitional Services
Agreement will allow the Buyer to carry on the Business
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in the same manner and to the same extent as it has been carried on by the
Seller prior to the date of this Agreement.
(e) Financial Statements. Attached hereto as Exhibit C are the
following financial statements (collectively, the "Financial Statements"): (i)
unaudited consolidated statement of income as of and for the twelve (12) months
ended December 31, 1998 (the "Most Recent Fiscal Year End") for the Division;
(ii) unaudited consolidated statement of income (the "Most Recent Financial
Statements") as of and for the eight (8) months ended August 31, 1999 (the "Most
Recent Fiscal Month End") for the Division; (iii) unaudited consolidated balance
sheets and statements of income as of and for the fiscal years ended October 31,
1996, October 31, 1997 and October 31, 1998 for the Seller; and (iv) unaudited
consolidated balance sheet and statement of income (the "Seller Most Recent
Financial Statements") as of and for the ten (10) months ended August 31, 1999.
The Financial Statements (including the notes thereto) have been prepared on a
consistent basis throughout the periods covered thereby and present fairly the
financial condition of the Division and the Seller, as the case may be, as of
such dates and the results of operations of the Division and the Seller, as the
case may be, for such periods; provided, however, that the Most Recent Financial
Statements and Seller Most Recent Financial Statements are subject to normal
year-end adjustments (which will not be material individually or in the
aggregate) and lack footnotes and other presentation items. Exhibit C also
includes the Seller's most recent financial projections for the Division.
(f) Events Subsequent to Most Recent Fiscal Year End. Since
the Most Recent Fiscal Year End, there has not been any material adverse change
in the business, financial condition, operations or results of operations of the
Division taken as a whole. Without limiting the generality of the foregoing,
since that date:
(i) the Division has not sold, leased, transferred,
or assigned any assets, tangible or intangible, outside the Ordinary
Course of Business;
(ii) the Division has not entered into any agreement,
contract, lease, or license outside the Ordinary Course of Business;
(iii) no party (including the Division) has
accelerated, terminated, made material modifications to, or canceled
any agreement, contract, lease, or license to which the Division is a
party or by which it is bound;
(iv) the Division has not imposed any Security
Interest upon any of the Acquired Assets;
(v) the Division has not made any capital
expenditures outside the Ordinary Course of Business;
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(vi) the Division has not made any material capital
investment in, or any material loan to, any other Person outside the
Ordinary Course of Business;
(vii) the Division has not created, incurred,
assumed, or guaranteed any indebtedness for borrowed money and
capitalized lease obligations;
(viii) the Division has not granted any license or
sublicense of any rights under or with respect to any Intellectual
Property;
(ix) the Division has not experienced any material
damage, destruction, or loss (whether or not covered by insurance) to
its property;
(x) the Division has not made any loan to, or entered
into any other transaction with, any of the directors, officers, and
employees of the Seller and its Subsidiaries;
(xi) the Division has not adopted, amended, modified,
or terminated any bonus, profit-sharing, incentive, severance, or other
plan, contract, or commitment for the benefit of any of the directors,
officers, and employees of the Seller, or taken any such action with
respect to any other Employee Benefit Plan; and
(xii) the Division has not committed to any of the
foregoing.
(g) Undisclosed Liabilities. The Division has no liability
(whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due, including any liability for taxes), except for
(i) liabilities set forth on the face of the Most Recent Financial Statements
(rather than in any notes thereto) and (ii) liabilities which have arisen after
the Most Recent Fiscal Month End in the Ordinary Course of Business and which
are set forth on Section 3(g) of the Disclosure Schedule.
(h) Legal Compliance. The Division has complied with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against it alleging any failure so to comply, except
where the failure to comply would not have a material adverse effect on the
business, financial condition, operations, results of operations, or future
prospects of the Division.
(i) Tax Matters.
(i) The Seller has filed all Income Tax Returns that
it was required to file. All such Income Tax Returns were correct and
complete in all material respects. All Income
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Taxes owed by the Seller and due (whether or not shown on any Income
Tax Return) have been paid. The Seller currently is not the beneficiary
of any extension of time within which to file any Income Tax Return.
(ii) There is no material dispute or claim concerning
any Income Tax liability of the Seller (A) claimed or raised by any
authority in writing or (B) as to which any of the Seller Stockholders
and the directors and officers of the Seller has Knowledge based upon
personal contact with any agent of such authority.
(iii) Section 3(i)(iii) of the Disclosure Schedule
lists all federal, state, provincial, municipal, local, and foreign
Income Tax Returns filed by the Seller for taxable periods ended on or
after October 31, 1992, indicates those Income Tax Returns that have
been audited, and indicates those Income Tax Returns that currently are
the subject of audit. The Seller has delivered to the Buyer correct and
complete copies of all federal Income Tax Returns, examination reports,
and statements of deficiencies assessed against or agreed to by the
Seller since October 31, 1992. The Seller has not waived any statute of
limitations in respect of Income Taxes or agreed to any extension of
time with respect to an Income Tax assessment or deficiency.
(j) Intellectual Property.
(i) Except with respect to the name "Discovery Place"
and the URL for the Discovery Place web site (www.discoveryplace.com)
(collectively, the "Excepted Intellectual Property"), the Division has
not interfered with, infringed upon, misappropriated, or violated any
intellectual property rights of third parties, and none of the Seller
Stockholders and the directors and officers of the Seller and its
Subsidiaries has ever received any charge, complaint, claim, demand, or
notice alleging any such interference, infringement, misappropriation,
or violation (including any claim that the Division must license or
refrain from using any intellectual property rights of any third
party). To the Knowledge of any of the Seller Stockholders and the
directors and officers of the Seller and its Subsidiaries, (A) with
respect to the Excepted Intellectual Property, the Division has not
interfered with, infringed upon, misappropriated, or violated any
intellectual property rights of third parties, and (B) except as set
forth on Section 3(j)(i)(B) of the Disclosure Schedule, no third party
has interfered with, infringed upon, misappropriated, or violated any
intellectual property rights of the Division.
(ii) Section 3(j)(ii) of the Disclosure Schedule
identifies each patent, trademark, copyright or other Intellectual
Property registration which has been issued to the Division with
respect to any of its Intellectual Property, identifies each pending
application or application for registration which the Division has made
with respect to any of its Intellectual Property, and identifies each
license, agreement, or other permission which the Division has granted
to any third party with respect to any of its Intellectual Property
(together with any exceptions). The Seller has delivered to the Buyer
correct and complete
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copies of all such patents, registrations, applications, licenses,
agreements, and permissions (as amended to date). Section 3(j)(ii) of
the Disclosure Schedule also identifies each trade name or unregistered
trademark used by the Division in connection with the Business. With
respect to each item of Intellectual Property required to be identified
in Section 3(j)(ii) of the Disclosure Schedule:
(A) the Division possesses all right, title,
and interest in and to the item, free and clear of any
Security Interest, license, or other restriction;
(B) the item is not subject to any
outstanding injunction, judgment, order, decree, ruling, or
charge;
(C) no royalty or other fee is required to
be paid by the Division with respect to such item;
(D) there are no restrictions on the ability
of the Division or any successor or assignee thereof to use
and exploit all rights associated with such item;
(E) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or, to the Knowledge of any of the Seller Stockholders and the
directors and officers of the Seller and its Subsidiaries, is
threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(F) the Division has never agreed to
indemnify any Person for or against any interference,
infringement, misappropriation, or other conflict with respect
to the item.
(iii) Except for the Open Source Software, the
Division does not use any item of intellectual property owned by a
third party pursuant to license, sublicense, agreement, or permission.
(k) Tangible Assets. The tangible assets included in the
Acquired Assets are free from material defects (patent and latent), have been
maintained in accordance with normal industry practice, and are in good
operating condition and repair (subject to normal wear and tear).
(l) Contracts. Section 3(l) of the Disclosure Schedule lists
the following contracts and other agreements to which the Division is a party
and the respective expiration dates thereof:
(i) any agreement (or group of related agreements)
for the lease of personal property to or from any Person;
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(ii) any agreement (or group of related agreements)
for the purchase or sale of supplies, products, or other personal
property, or for the furnishing or receipt of services, including any
subscription, advertising or other form of customer agreements;
(iii) any agreement concerning a partnership, joint
venture or other business venture or combination;
(iv) any agreement (or group of related agreements)
under which it has created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any capitalized lease obligation or
under which it has imposed a Security Interest on any of its assets,
tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any agreement involving any of the Seller
Stockholders or their Affiliates (other than the Seller);
(vii) any agreement under which the consequences of a
default or termination could have a material adverse effect on the
business, financial condition, operations, results of operations, or
future prospects of the Division; or
(viii) any other material agreement (or group of
related agreements which together are material).
The Seller has delivered to the Buyer a correct and complete copy of
each written agreement listed in Section 3(l) of the Disclosure Schedule (as
amended to date) and a written summary setting forth the material terms and
conditions of each oral agreement referred to in Section 3(l) of the Disclosure
Schedule. With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect; (B) no party is in
breach or default, and no event has occurred which with notice or lapse of time
would constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement; and (C) no party has repudiated any provision
of the agreement.
(m) Notes and Accounts Receivable. All notes and accounts
receivable of the Division are reflected properly on its books and records, are
valid receivables subject to no setoffs or counterclaims, are current and
collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts with respect to the
Division set forth on the face of the Most Recent Financial Statements (rather
than in any notes thereto) as adjusted for operations and transactions through
the Closing Date in accordance with the past custom and practice of the
Division.
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(n) Powers of Attorney. To the Knowledge of any of the Seller
Stockholders and the directors and officers of the Seller and its Subsidiaries,
there are no outstanding powers of attorney executed on behalf of the Division.
(o) Litigation. Section 3(o) of the Disclosure Schedule sets
forth all instances in which the Division (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party or, to
the Knowledge of any of the Seller Stockholders and the directors and officers
of the Seller and its Subsidiaries, is threatened to be made a party to any
action, suit, proceeding, hearing, or investigation of, in, or before any court
or quasi-judicial or administrative agency of any federal, state, provincial,
municipal, local, or foreign jurisdiction or before any arbitrator or mediator.
(p) Employee Benefits. The consummation of the transactions
contemplated by this Agreement will not in any way result in the Buyer or its
Affiliates incurring any liability whatsoever in connection with retirement,
pension, bonus, stock purchase, profit sharing, stock option, deferred
compensation, severance or termination pay, insurance, medical, hospital,
dental, vision care, drug, sick leave, disability, salary contributions, legal
benefits, unemployment benefits, vacation, incentive or other compensation plan
or arrangement or other employee benefit which the Seller or any of its
Affiliates maintains or ever has maintained or contributes, ever has
contributed, or ever has been required to contribute to for the benefit of their
respective employees or former employees (collectively, "Employee Benefit
Plans").
(q) Guaranties. The Division is not a guarantor or otherwise
responsible for any liability or obligation (including indebtedness) of any
other Person.
(r) Certain Business Relationships with the Division. None of
the Seller Stockholders and their Affiliates has been involved in any material
business arrangement or relationship with the Division within the past 12
months, and none of the Seller Stockholders and their Affiliates owns any asset,
tangible or intangible, which is used in the business of the Division.
(s) Year 2000. To the Knowledge of any of the Seller
Stockholders and the directors and officers of the Seller and its Subsidiaries,
there is no matter which will prevent each system, comprising of software,
hardware, databases or embedded control systems (microprocessor controlled,
robotic or other device) owned, leased or within the control of the Division
(collectively, a "System"), that constitutes any part of, or is used in
connection with the use, operation or enjoyment of any material tangible or
intangible asset or real property of the Division to (i) be designed to be used
prior to and after January 1, 2000, (ii) operate without error arising from the
creation, recognition, acceptance, calculation, display, reporting, storage,
retrieval, accessing, comparison, sorting, manipulation, processing or other use
of dates, or date-based, date-dependent or date-related data, including, but not
limited to, century recognition, day-of-the-week recognition, leap years, date
values and interfaces of date functionalities, provided that external date data
is received in the proper format, and (iii) not be adversely affected by the
advent of the year 2000 or subsequent years, the advent of the twenty-first
century or the transition from the twentieth century
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through the year 2000 and into the twenty-first century (collectively, items (i)
through (iii) are referred to herein as "Year 2000 Compliant"). All licenses for
the use of any System are certified by the manufacturer to be Year 2000
Compliant and to contain the capabilities required to be Year 2000 Compliant
within the Division computer systems (hardware and software), or the licenses
permit the Division or a third party to make all modifications, bypasses,
de-bugging, work-arounds, repairs, replacements, conversions or corrections
necessary to permit the System to operate compatibly, in conformance with their
respective specifications, and to be Year 2000 Compliant. The Seller
Stockholders and the directors and officers of the Seller and its Subsidiaries
have no reason to believe that the Division may incur material expenses arising
from or relating to the failure of any of its Systems as a result of not being
Year 2000 Compliant.
(t) Customers. Section 3(t) of the Disclosure Schedule sets
forth a true and complete list of all customers of the Division as of the date
of this Agreement and, except as set forth on Section 3(t) of the Disclosure
Schedule, the Seller is not aware of any customer that may cease doing business
with the Division subsequent to the Closing. The Seller Stockholders and the
directors and officers of the Seller and its Subsidiaries have no Knowledge of
any facts which could reasonably be expected to result in the loss of any
customers or sources of revenue of the Division.
(u) Software. The Software is functional, able and adequate to
carry on the Business as it is currently being conducted without material bugs
or impediments, including without limitation (A) interfacing to the Discovery
Place MySQL database (the "Database") containing the listing information for the
Discovery Place web site, (B) allowing access to the Database through
browser-based forms and allowing Database listings to be created, edited and
deleted with such forms, (C) converting the information within the Database into
an interlinked set of HTML pages that comprise the Discovery Place web site, (D)
using the member listings contained within the Database to generate advertising
banners shown randomly throughout the Discovery Place web site, (E) allowing a
browser-based user to search for information within the Database based upon
information in the title of the listing and the categories in which the listing
is contained, and (F) generating readership statistics for the Discovery Place
web site and collating such statistics into a set of HTML documents. The Seller
has good and marketable title to, and is the original developer, and sole owner
of, the Proprietary Software and source codes associated therewith, free and
clear of any Security Interest or restrictions on transfer, and no other Person
has any right, title or interest whatsoever in the Proprietary Software and
source codes associated therewith. Section 3(u) of the Disclosure Schedule sets
forth (i) any off the shelf software used in connection with the Business, and
(ii) all customer-owned software developed by the Seller and used in connection
with the Business ("Customer Software").
(v) Disclosure. The representations and warranties contained
in this Section 3 do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this Section 3 not misleading.
4. Representations and Warranties of the Buyer. The Buyer represents
and warrants to the Seller that the statements contained in this Section 4 are
correct and complete as of the date of
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this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Section 4).
(a) Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(b) Authorization of Transaction. The Buyer has full power and
authority (including full corporate power and authority) to execute and deliver
the Transaction Documents and to perform its obligations under the Transaction
Documents. This Agreement and, when executed and delivered, the other
Transaction Documents constitute the valid and legally binding obligations of
the Buyer, enforceable in accordance with their terms and conditions, except as
the enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting enforcement of creditors' rights generally and the application of
general principles of equity.
(c) Noncontravention. Neither the execution and the delivery
of the Transaction Documents, nor the consummation of the transactions
contemplated thereby (including the assignments referred to in Section 2 above),
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any provision of
its charter or bylaws or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Buyer is a party or by which it is bound or to which any of its assets are
subject, except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, failure to give notice, or Security
Interest would not have a material adverse effect on the ability of the Parties
to consummate the transactions contemplated by the Transaction Documents. The
Buyer does not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government, governmental agency or
third party in order for the Parties to consummate the transactions contemplated
by the Transaction Documents (including the assignments referred to in Section 2
above), except where the failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a material adverse effect on
the ability of the Parties to consummate the transactions contemplated by the
Transaction Documents.
5. Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use its reasonable best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions set
forth in Section 7 below).
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(b) Notices and Consents. The Seller and the Seller
Stockholders will give any notices to third parties, and the Seller and the
Seller Stockholders will use their reasonable best efforts to obtain any third
party consents in connection with the matters referred to in Section 3(c) above.
Each of the Parties will give any notices to, make any filings with, and use its
reasonable best efforts to obtain any authorizations, consents, and approvals of
governments and governmental agencies in connection with the matters referred to
in Section 3(c) and Section 4(c) above.
(c) Operation of Business. The Seller will not cause or permit
the Division to engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business. Without limiting the
generality of the foregoing, the Seller will not cause or permit the Division to
engage in any practice, take any action, or enter into any transaction of the
sort described in Section 3(f) above.
(d) Preservation of Business. The Seller will cause the
Division to keep its business and properties substantially intact, including its
present operations, physical facilities, working conditions, and relationships
with lessors, licensors, suppliers, customers, and employees and shall operate
the Division in the Ordinary Course of Business.
(e) Full Access. The Seller will permit (and will cause the
Division to permit) representatives of the Buyer to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Division, to all premises, properties, personnel,
books, records (including tax records), contracts, and documents of or
pertaining to the Division. The Buyer will treat and hold as such any
Confidential Information it receives from any of the Seller Stockholders, the
Seller, and its Subsidiaries in the course of the reviews contemplated by this
Section 5(e), will not use any of the Confidential Information except in
connection with this Agreement, and, if this Agreement is terminated for any
reason whatsoever, will return to the Seller all tangible embodiments (and all
copies) of the Confidential Information which are in its possession.
(f) Notice of Developments. Each of the Parties will give
prompt written notice to the other Parties of any material adverse development
causing a breach of any of its own representations and warranties in Section 3
and Section 4 above. No disclosure by any Party pursuant to this Section 5(f),
however, shall be deemed to amend or supplement the Disclosure Schedule or to
prevent or cure any misrepresentation, breach of warranty, or breach of
covenant.
(g) Exclusivity. Neither the Seller nor the Seller
Stockholders shall, nor shall they authorize or permit any of the officers,
directors or employees of the Seller or any investment banker, financial
advisor, attorney, accountant or other representative retained by the Seller or
the Seller Stockholders to, initiate, solicit, negotiate or encourage (including
by way of furnishing information), or take any other action to facilitate or
entertain, any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any proposal or offer to acquire all or any
substantial part of the Business, or all or substantially all of the capital
stock of the Seller, whether by merger, purchase of assets, exchange offer or
otherwise, whether for cash, securities or any other consideration or
combination thereof (any such transaction being referred to herein as an "Other
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Acquisition Transaction") or agree to endorse or recommend any such Other
Acquisition Transaction. In the event that a Person makes an unsolicited offer
to enter into an Other Acquisition Transaction, the Seller or the Seller
Stockholders, as the case may be, shall promptly inform the Buyer as to that
fact and shall furnish to the Buyer the specifics thereof in writing.
(h) Server Test. The Seller shall cause Frank Verhagen, at the
Seller's cost and expense, to be at the offices of the Buyer in Denver,
Colorado, on September 27-28, 1999, to deliver to the Buyer a server containing
copies of all Software and Customer Software and to assist and consult with the
Buyer regarding such server and software and the testing thereof. During such
testing, the Seller and Frank Verhagen shall cause such server and software to
operate to the satisfaction of the Buyer in its sole discretion.
6. Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing.
(a) General. In case at any time after the Closing any further
action is necessary to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 8 below).
The Seller acknowledges and agrees that from and after the Closing the Buyer
will be entitled to possession of all documents, books, records (including tax
records), agreements, and financial data of any sort relating to the Division.
(b) Litigation Support. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Division, the other Parties will cooperate
with the contesting or defending Party and its counsel in the contest or
defense, make available its personnel, and provide such testimony and access to
its books and records as shall be necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending Party
(unless the contesting or defending Party is entitled to indemnification
therefor under Section 8 below).
(c) Transition. Neither the Seller nor the Seller Stockholders
will take any action that is designed or intended to have the effect of
discouraging any lessor, licensor, customer, supplier, or other business
associate of the Division from maintaining the same business relationships with
the Buyer after the Closing as it maintained with the Division prior to the
Closing.
(d) Confidentiality. The Seller and the Seller Stockholders
shall treat and hold as such all of the Confidential Information, refrain from
using any of the Confidential Information except in connection with this
Agreement and the Transitional Services Agreement, and deliver
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promptly to the Buyer or destroy, at the request and option of the Buyer, all
tangible embodiments (and all copies) of the Confidential Information which are
in their possession, other than Seller's copies of (i) financial records of the
Division which the Seller is required by applicable law to maintain, and (ii)
the Proprietary Software and Intellectual Property for which the Seller retains
ownership pursuant to the definition of "Acquired Assets" in Section 1 above. In
the event that the Seller or the Seller Stockholders are requested or required
(by oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or similar
process) to disclose any Confidential Information, such Person will notify the
Buyer promptly of the request or requirement so that the Buyer may seek an
appropriate protective order or waive compliance with the provisions of this
Section 6(d). If, in the absence of a protective order or the receipt of a
waiver hereunder, the Seller or the Seller Stockholders are, on the advice of
counsel, compelled to disclose any Confidential Information to any tribunal or
else stand liable for contempt, such Person may disclose the Confidential
Information to the tribunal; provided, however, that such Person shall use
reasonable best efforts to obtain, at the reasonable request of the Buyer, an
order or other assurance that confidential treatment will be accorded to such
portion of the Confidential Information required to be disclosed as the Buyer
shall designate.
(e) Covenant Not to Compete. For a period of five (5) years
from and after the Closing Date, the Seller and the Seller Stockholders shall
not directly or indirectly own any interest in, operate, provide services
similar to, manage, control, participate in, consult with, render services for,
be employed by, serve as an officer or director of an entity engaged in, advise
any Person engaged in, or in any manner engage in web-based information and
transaction services for the Energy Industry in the geographic areas set forth
on Exhibit D attached hereto; provided, however, that (i) no owner of less than
1% of the outstanding stock of any publicly traded corporation shall be deemed
to engage solely by reason thereof in any of its businesses, and (ii) the period
of Kim Lerner's covenant not to compete shall be for a period of two (2) years
from and after the Closing Date. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this Section 6(e) is invalid
or unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
(f) Advisory Board. For a period of two (2) years from the
Closing Date, each of Frank Verhagen and Michael Lazar shall, at the request of
Energy Auction Exchange, Inc., a Delaware corporation and the parent corporation
of the Buyer ("EAE"), serve, with no compensation, as a member of EAE's advisory
board (the "Advisory Board") to offer technical guidance and advice to EAE. EAE
may use, publish and/or distribute, as EAE shall determine, a biographical
background of each of Frank Verhagen and Michael Lazar in connection with their
membership on the Advisory Board.
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(g) Proprietary Software.
(i) The Buyer agrees that it shall use the
Proprietary Software only in connection with the Energy Industry and
that during the time that the Buyer owns such Proprietary Software,
only the Buyer and/or its Affiliates shall own the source code for such
Proprietary Software for use in connection with the Energy Industry and
the Buyer and/or its Affiliates shall not license the source code for
such Proprietary Software to any other Person.
(ii) The Seller agrees that it shall not use the
Proprietary Software in any way in connection with the Energy Industry.
(iii) The Buyer and the Seller agree that if either
transfers its ownership interest in, or licenses the Proprietary
Software, as a condition to such transfer or license the respective
transferee or licensee, as the case may be, shall agree to be bound by
the terms and provisions of this Section 6(g) as if such Person were a
party to this Agreement.
7. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of
the Buyer to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in
Section 3 above shall be true and correct in all material respects at
and as of the Closing Date;
(ii) the Seller and the Seller Stockholders shall
have performed and complied with all of their covenants hereunder in
all material respects through the Closing;
(iii) the Seller and the Seller Stockholders shall
have given notices to third parties and procured all of the third party
consents specified in Section 5(b) above;
(iv) no action, suit, or proceeding shall be pending
before any court or quasi-judicial or administrative agency of any
federal, state, provincial, municipal, local, or foreign jurisdiction
or before any arbitrator or mediator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation, or (C) affect adversely the right of
the Buyer to own the Acquired Assets or to operate the Business;
(v) the Seller and the Seller Stockholders shall have
delivered to the Buyer a certificate to the effect that each of the
conditions specified above in Section 7(a)(i)-(iv) is satisfied in all
respects;
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<PAGE> 24
(vi) the Seller, the Seller Stockholders and the
Buyer shall have received all authorizations, consents, and approvals
of governments and governmental agencies referred to in Section 5(b)
above;
(vii) the Seller Stockholders shall have entered into
Noncompete Agreements in substantially the form of Exhibit E attached
hereto (the "Noncompete Agreement") and the same shall be in full force
and effect;
(viii) the Seller shall have entered into the
Transitional Services Agreement substantially in the form of Exhibit F
attached hereto (the "Transitional Services Agreement") and the same
shall be in full force and effect;
(ix) the Seller shall have delivered to the Buyer
digital copies of the Software, Customer Software and all other
available information used in connection with the Business (i.e.,
customer lists, business plans etc.) and hard copies of all other
information, files, records, books, agreements, documents, instruments
and similar items used in connection with the Business;
(x) the Seller shall have executed the Bill of Sale
and the same shall be in full force and effect;
(xi) the Buyer shall have completed a due diligence
review of the Division, which review shall be satisfactory to the Buyer
in its sole discretion;
(xii) The Seller shall have delivered to the Buyer a
server with copies of all Software and Customer Software, and the
testing of such server and software shall be satisfactory to the Buyer
in its sole discretion;
(xiii) no material adverse change shall have occurred
with respect to the business, financial condition, operations, results
of operations or future prospects of the Division or the ability of the
Parties to consummate the transactions contemplated by this Agreement;
and
(xiv) all actions to be taken by the Seller and the
Seller Stockholders in connection with consummation of the transactions
contemplated hereby and all certificates, instruments, and other
documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to the Buyer.
The Buyer may waive any condition specified in this Section 7(a) if it
executes a writing so stating at or prior to the Closing.
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<PAGE> 25
(b) Conditions to Obligation of the Seller and the Seller
Stockholders. The obligation of the Seller and the Seller Stockholders to
consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in
Section 4 above shall be true and correct in all material respects at
and as of the Closing Date;
(ii) the Buyer shall have performed and complied with
all of its covenants hereunder in all material respects through the
Closing;
(iii) no action, suit, or proceeding shall be pending
before any court or quasi-judicial or administrative agency of any
federal, state, provincial, municipal, local, or foreign jurisdiction
or before any arbitrator or mediator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement
or (B) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect);
(iv) the Buyer shall have delivered to the Seller a
certificate to the effect that each of the conditions specified above
in Section 7(b)(i)-(iii) is satisfied in all respects;
(v) the Seller, the Seller Stockholders and the Buyer
shall have received all material authorizations, consents, and
approvals of governments and governmental agencies referred to in
Section 5(b) above;
(vi) the Buyer shall have entered into the
Transitional Services Agreement substantially in the form of Exhibit F
attached hereto and the same shall be in full force and effect; and
(vii) all actions to be taken by the Buyer in
connection with consummation of the transactions contemplated hereby
and all certificates, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Seller.
The Seller and the Seller Stockholders may waive any condition
specified in this Section 7(b) if they execute a writing so stating at or prior
to the Closing.
8. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties. All of the
representations and warranties of the Seller, the Seller Stockholders and the
Buyer contained in this Agreement shall survive the Closing (even if the damaged
Party knew or had reason to know of any misrepresentation
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<PAGE> 26
or breach of warranty at the time of Closing) and continue in full force and
effect for a period of one (1) year thereafter.
(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event the Seller or the Seller
Stockholders breach any of their (i) representations and warranties
contained in this Agreement, and, if there is an applicable survival
period pursuant to Section 8(a) above, provided that the Buyer makes a
written claim for indemnification against the Seller or the Seller
Stockholders, as the case may be, pursuant to Section 10(g) below
within such survival period, or (ii) covenants contained in this
Agreement, and the Buyer makes a written claim for indemnification
against the Seller or the Seller Stockholders, as the case may be,
pursuant to Section 10(g) below, then the Seller and the Seller
Stockholders, jointly and severally, agree to indemnify the Buyer from
and against the entirety of any Adverse Consequences the Buyer may
suffer through and after the date of the claim for indemnification
(including any Adverse Consequences the Buyer may suffer after the end
of any applicable survival period) resulting from, arising out of,
relating to, in the nature of, or caused by the breach; provided,
however, that (A) the Seller and the Seller Stockholders shall not have
any obligation to indemnify the Buyer from and against any Adverse
Consequences resulting from, arising out of, relating to, in the nature
of, or caused by the breach of any representation, warranty or covenant
of the Seller or the Seller Stockholders until the Buyer has suffered
Adverse Consequences by reason of all such breaches in excess of
US$50,000 in the aggregate (the "Basket"), in which case the Buyer
shall be entitled to recover the full amount of such claims, including
the amounts included in the Basket, pursuant to this Agreement, and (B)
there shall be a US$500,000 aggregate ceiling on the obligation of the
Seller and the Seller Stockholders to indemnify the Buyer from and
against Adverse Consequences resulting from, arising out of, relating
to, in the nature of, or caused by such breaches of the
representations, warranties or covenants of the Seller or the Seller
Stockholders.
(ii) The Seller and the Seller Stockholders, jointly
and severally, agree to indemnify the Buyer from and against the
entirety of any Adverse Consequences the Buyer may suffer resulting
from, arising out of, relating to, in the nature of, or caused by any
(A) liability of the Seller (including any liability of the Seller that
becomes a liability of the Buyer under any bulk transfer law of any
jurisdiction, under any common law doctrine of de facto merger or
successor liability, or otherwise by operation of law), (B) liability
of the Business arising, incurred, for or in connection with any period
on or prior to the Closing Date, or (C) breach of the terms and
provisions of the Transitional Services Agreement.
(c) Indemnification Provisions for Benefit of the Seller.
(i) In the event the Buyer breaches any of its (i)
representations and warranties contained in this Agreement, and, if there is an
applicable survival period pursuant to Section 8(a) above, provided that the
Seller makes a written claim for indemnification against the Buyer pursuant to
Section 10(g) below within such survival period, or (ii) covenants contained in
this Agreement, and the Seller makes a written claim for indemnification against
the
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<PAGE> 27
Buyer pursuant to Section 10(g) below, then the Buyer and EAE agree to indemnify
the Seller from and against the entirety of any Adverse Consequences the Seller
may suffer through and after the date of the claim for indemnification
(including any Adverse Consequences the Seller may suffer after the end of any
applicable survival period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach; provided, however, that (A) the Buyer and
EAE shall not have any obligation to indemnify the Seller from and against any
Adverse Consequences resulting from, arising out of, relating to in the nature
of, or caused by the breach of any representation, warranty or covenant of the
Buyer until the Seller has suffered Adverse Consequences by reason of all such
breaches in excess of the Basket, in which case the Seller shall be entitled to
recover the full amount of such claims, including the amounts in the Basket,
pursuant to this Agreement, and (B) there shall be a US$100,000 aggregate
ceiling on the obligation of the Buyer and EAE to indemnify the Seller from and
against Adverse Consequences resulting from, arising out of, relating to, in the
nature of, or caused by such breaches of the representations, warranties or
covenants of the Buyer.
(ii) The Buyer and EAE agree to indemnify the Seller
from and against the entirety of any Adverse Consequences the Seller may suffer
resulting from, arising out of, relating to, in the nature of, or caused by the
Buyer and/or its Affiliates transferring ownership of or licensing the source
code for the Proprietary Software for use in connection with the Energy Industry
in breach of the Buyer's covenant contained in Section 6(g) above; provided,
however, that (A) the Buyer and EAE shall not have any obligation to indemnify
the Seller from and against any Adverse Consequences resulting from, arising out
of, relating to in the nature of, or caused by such breach of the Buyer's
covenant until the Seller has suffered Adverse Consequences by reason of such
breach in excess of the Basket, in which case the Seller shall be entitled to
recover the full amount of such claims, including the amounts in the Basket,
pursuant to this Agreement, and (B) there shall be a US$200,000 aggregate
ceiling on the obligation of the Buyer and EAE to indemnify the Seller from and
against Adverse Consequences resulting from, arising out of, relating to, in the
nature of, or caused by such breach of the Buyer's covenant contained in Section
6(g) above.
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim")
which may give rise to a claim for indemnification against any other
Party (the "Indemnifying Party") under this Section 8, then the
Indemnified Party shall promptly notify the Indemnifying Party thereof
in writing; provided, however, that no delay on the part of the
Indemnified Party in notifying the Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
(ii) The Indemnifying Party will have the right to
assume the defense of the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party at any time within
fifteen (15) days after the Indemnified Party has given notice of the
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Third Party Claim; provided, however, that the Indemnifying Party must
conduct the defense of the Third Party Claim actively and diligently
thereafter in order to preserve its rights in this regard; provided
further that the Indemnified Party may retain separate co-counsel at
its sole cost and expense and participate in the defense of the Third
Party Claim.
(iii) So long as the Indemnifying Party has assumed
and is conducting the defense of the Third Party Claim in accordance
with Section 8(d)(ii) above, (A) the Indemnifying Party will not
consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of
the Indemnified Party (not to be withheld unreasonably) unless the
judgment or proposed settlement involves only the payment of money
damages by the Indemnifying Party and does not impose an
injunction or other equitable relief upon the Indemnified Party, and
(B) the Indemnified Party will not consent to the entry of any judgment
or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnifying Party (not to be
withheld unreasonably).
(iv) In the event the Indemnifying Party does not
assume and conduct the defense of the Third Party Claim in accordance
with Section 8(d)(ii) above, however, (A) the Indemnified Party may
defend against, and consent to the entry of any judgment or enter into
any settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, the Indemnifying Party in
connection therewith), and (B) the Indemnifying Party will remain
responsible for any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of,
or caused by the Third Party Claim to the fullest extent provided in
this Section 8.
(e) Determination of Adverse Consequences. The Parties shall
make appropriate adjustments for tax consequences and insurance coverage and
take into account the time cost of money (using the Applicable Rate as the
discount rate) in determining Adverse Consequences for purposes of this Section
8. All indemnification payments under this Section 8 shall be deemed adjustments
to the Purchase Price.
(f) Other Indemnification Provisions. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable, or common law remedy any Party may have for breach of any
representation, warranty, or covenant with respect to the Division or the
transactions contemplated by this Agreement.
9. Termination.
(a) Termination of Agreement. Certain of the Parties may
terminate this Agreement as provided below:
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(i) the Buyer and the Seller may terminate this
Agreement by mutual written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving
written notice to the Seller at any time prior to the Closing (A) in
the event the Seller has breached any material representation,
warranty, or covenant contained in this Agreement in any material
respect, the Buyer has notified the Seller of the breach, and the
breach has continued without cure for a period of fifteen (15) days
after the notice of breach, or (B) if the Closing shall not have
occurred on or before September 30, 1999, by reason of the failure of
any condition precedent under Section 7(a) hereof (unless the failure
results primarily from the Buyer itself breaching any representation,
warranty, or covenant contained in this Agreement); and
(iii) the Seller may terminate this Agreement by
giving written notice to the Buyer at any time prior to the Closing (A)
in the event the Buyer has breached any material representation,
warranty, or covenant contained in this Agreement in any material
respect, the Seller has notified the Buyer of the breach, and the
breach has continued without cure for a period of fifteen (15) days
after the notice of breach, or (B) if the Closing shall not have
occurred on or before September 30, 1999, by reason of the failure of
any condition precedent under Section 7(b) hereof (unless the failure
results primarily from the Seller itself breaching any representation,
warranty, or covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this
Agreement pursuant to Section 9(a) above, all rights and obligations of the
Parties hereunder shall terminate without any liability of any Party to any
other Party (except for any liability of any Party then in breach); provided,
however, that the confidentiality provisions contained in Section 5(e) above
shall survive termination.
10. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall
issue any press release or public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
other Parties; provided, however, that any Party may make any public disclosure
it believes in good faith is required by applicable law (in which case the
disclosing Party will use its reasonable best efforts to advise the other
Parties prior to making the disclosure).
(b) No Third-Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
(c) Entire Agreement. This Agreement (including any ancillary
documents referred to herein) constitutes the entire agreement between the
Parties and supersedes any prior
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understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(d) Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Parties; provided, however, that the Buyer may (i) assign
any or all of its rights and interests hereunder to one or more of its
Affiliates, and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
(e) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then three
(3) business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to the Seller or the Seller Stockholders:
World Web Technologies Inc.
#410, 1010 - 1st Street S.W.
Calgary, Alberta
Canada T2R 1K4
Attn: Frank Verhagen
Facsimile No: (403) 777-9304
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If to the Buyer:
EAEDP, Inc.
7900 East Union Avenue
Suite 100
Denver, Colorado 80237
USA
Attn: Gary R. Vickers
Facsimile No.: (303) 694-5326
With a copy to:
Jacobs Chase Frick Kleinkopf & Kelley LLC
1050 Seventeenth Street, Suite 1500
Denver, Colorado 80265
USA
Attn: Darren R. Hensley, Esq.
Telephone No.: (303) 685-4800
Facsimile No.: (303) 685-4869
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(h) Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Colorado without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Colorado or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Colorado.
(i) Amendments and Waivers. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the Parties hereto. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(j) Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the
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<PAGE> 32
remaining terms and provisions hereof or the validity or enforceability of the
offending term or provision in any other situation or in any other jurisdiction.
(k) Expenses. Each of the Parties hereto will bear their own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state,
provincial, local, municipal or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The word "including" shall mean including without
limitation.
(m) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
(n) Tax Matters.
(i) The Seller will be responsible for the
preparation and filing of all Income Tax Returns for the Division for
all periods as to which Income Tax Returns are due before and after the
Closing Date (including the consolidated, unitary, and combined Income
Tax Returns for the Seller which include the operations of the Division
for any period ending on or before the Closing Date). The Seller will
make all payments required with respect to any such Income Tax Return.
(ii) The Buyer will be responsible for the
preparation and filing of all Income Tax Returns for the Division for
all periods as to which Income Tax Returns are due after the Closing
Date (other than for Income Taxes with respect to periods for which the
consolidated, unitary, and combined Income Tax Returns of the Seller
will include the operations of the Division as set forth in Section
10(n)(i) above). The Buyer will make all payments required with respect
to any such Income Tax Return; provided, however, that the Seller will
reimburse the Buyer concurrently therewith to the extent any payment
the Buyer is making relates to the operations of the Division for any
period ending on or before the Closing Date.
(o) Execution. The Parties shall be entitled to rely on
delivery by facsimile machine of an executed copy of this Agreement and such
facsimile copy shall be effective to create a valid and binding agreement among
the Parties in accordance with the terms hereof.
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<PAGE> 33
(p) Specific Performance. Each of the Parties acknowledges and
agrees that the other Parties hereto would be damaged irreparably in the event
any of the provisions of this Agreement are not performed in accordance with
their specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties hereto shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in any
action instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 10(r) below), in addition to any other remedy to which they may
be entitled, at law or in equity.
(q) Dispute Notification and Resolution Procedure. Any
disputes or claims (collectively, "Claims") arising out of or related to this
Agreement or a breach hereof shall be subject to the following provisions:
(i) Any Party with a Claim (the "Claimant") shall
notify any other Party against whom the Claimant has a Claim (the "Notified
Party") in writing of the Claim, which writing shall describe the nature of the
Claim and the proposed remedy (the "Claim Notice").
(ii) Within a reasonable period of time after receipt
of the Claim Notice, which period shall not exceed sixty (60) days, the Notified
Party and the Claimant shall meet at a mutually-acceptable location to discuss
the Claim. The Notified Party and the Claimant shall negotiate in good faith in
an attempt to resolve the Claim.
(iii) If the Claimant and the Notified Party cannot
resolve the Claim pursuant to the procedures described in subparagraphs (q)(i)
and (ii) above, either the Claimant or the Notified Party may commence binding
arbitration with the American Arbitration Association. The following rules and
procedures shall apply in all cases unless the parties to the arbitration agree
otherwise:
(A) The provider shall be the American
Arbitration Association. The proceeding shall be governed by the rules
and procedures of the Arbitrator, subject to the modification described
herein.
(B) The proceeding shall be held in Denver,
Colorado.
(C) There shall be one arbitrator (the
"Arbitrator") mutually acceptable to the parties to the arbitration;
provided, however, that if the parties to the arbitration cannot
mutually agree upon an Arbitrator within fifteen (15) days of the
submission of the Claim to arbitration, the American Arbitration
Association shall select the Arbitrator.
(iv) The Arbitrator shall be an attorney or retired
judge.
29
<PAGE> 34
(v) The Arbitrator in his or her discretion may order
such discovery as any party to the arbitration may request, including
without limitation production of documents and depositions.
(vi) If the parties to the arbitration agree, the
Arbitrator may retain a neutral expert to advise the Arbitrator on
technical matters.
(vii) The rules of evidence need not be followed at
the arbitration hearing, provided that the Arbitrator shall follow
substantive rules of law in rendering his or her decision. Any party to
the arbitration may request a stenographic record of the arbitration
hearing.
(viii) The Arbitrator may award such legal and
equitable damages as may be rendered in a court of law, including
without limitation money damages and injunctive relief.
(ix) The Arbitrator shall render a written decision
within thirty (30) days of the closing of the arbitration hearing
unless an extension is granted by all parties to the arbitration. The
decision shall contain findings of fact and conclusions of law. The
decision shall be final and binding on the parties to the arbitration
and may be enforced in any court of competent jurisdiction.
(x) The Arbitrator shall have the discretion to award
costs and attorneys' fees to the party that the Arbitrator has
determined is the prevailing party.
(r) Submission to Jurisdiction. Each of the Parties submits to
the jurisdiction of any state or federal court sitting in Denver, Colorado, in
any action or proceeding arising out of or relating to Section 10(p) above or
the enforcement of an arbitration decision pursuant to Section 10(q) above and
agrees that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each Party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other Party with respect thereto. Any
Party may make service on any other Party by sending or delivering a copy of the
process to the Party to be served at the address and in the manner provided for
the giving of notices in Section 10(g) above. Nothing in this Section 10(r),
however, shall affect the right of any Party to serve legal process in any other
manner permitted by law or at equity. Each Party agrees that a final judgment in
any action or proceeding so brought shall be conclusive and may be enforced by
suit on the judgment or in any other manner provided by law or at equity.
* * * * *
30
<PAGE> 35
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
WORLD WEB TECHNOLOGIES INC.
/s/
---------------------------------------
By:
----------------------------------
Its:
----------------------------------
EAEDP, INC.
/s/
---------------------------------------
By:
----------------------------------
Its:
----------------------------------
SELLER STOCKHOLDERS:
/s/ Frank Verhagen
---------------------------------------
Frank Verhagen
/s/ Michael Lazar
---------------------------------------
Michael Lazar
/s/ Kim Lerner
---------------------------------------
Kim Lerner
/s/ Jean Brockman
---------------------------------------
Jean Brockman
31
<PAGE> 36
EXHIBIT A
BILL OF SALE AND ASSIGNMENT
<PAGE> 37
EXHIBIT B
ALLOCATION SCHEDULE
<TABLE>
<CAPTION>
Asset Allocation
----- ----------
<S> <C>
1. Software US$252,500
2. Hardware US$500
3. All other Acquired Assets US$247,000
</TABLE>
<PAGE> 38
EXHIBIT C
FINANCIAL STATEMENTS AND PROJECTIONS
<PAGE> 39
EXHIBIT D
NONCOMPETE GEOGRAPHIC AREA
I. United States and Districts
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
<PAGE> 40
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
II. Mexico States and Federal Districts
Aguascalientes
Baja California
Baja California Sur
Campeche
Chiapas
Chihuahua
Coahuila de Zaragoza
Colima
Distrito Federal
Durango
Guanajuato
Guerrero
Hidalgo
Jalisco
Mexico
Michoacan de Ocampo
Morelos
Nayarit
Nuevo Leon
Oaxaca
Puebla
Queretaro de Arteaga
Quintana Roo
San Luis Potosi
Sinaloa
Sonora
Tabasco
Tamaulipas
<PAGE> 41
Tlaxcala
Veracruz-Llave
Yucatan
Zacatecas
III. Canada Provinces and Territories
Alberta
British Columbia
Manitoba
New Brunswick
Newfoundland
Northwest Territories
Nova Scotia
Nunavut
Ontario
Prince Edward Island
Quebec
Saskatchewan
Yukon Territory
<PAGE> 42
EXHIBIT E
FORM OF NONCOMPETE AGREEMENT
<PAGE> 43
EXHIBIT F
FORM OF TRANSITIONAL SERVICES AGREEMENT
<PAGE> 1
EXHIBIT 2.4
ASSET PURCHASE AGREEMENT
BY
AND
AMONG
EAESW, INC.,
THE PETROLEUM PLACE, INC.,
STRATA WEB SYSTEMS LTD.,
JIMMY W. CHOW,
WILLIAM S. KLYM,
ALBERTA INTERNATIONAL CAPITAL LTD.
AND
ARMCO HOLDINGS LTD.
APRIL 1, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page #
------
<S> <C> <C>
1. Definitions..............................................................................................1
2. Basic Transaction........................................................................................7
(a) Purchase and Sale of Assets.....................................................................7
(b) Assumption of Liabilities.......................................................................7
(c) Purchase Price..................................................................................8
(d) The Closing.....................................................................................8
(e) Deliveries at the Closing.......................................................................8
(f) Allocation......................................................................................8
(g) ETA Election....................................................................................8
(h) Income Tax Election.............................................................................8
3. Representations and Warranties of the Seller.............................................................8
(a) Organization and Corporate Power................................................................9
(b) Authorization of Transaction....................................................................9
(c) Noncontravention................................................................................9
(d) Title to Assets................................................................................10
(e) Financial Statements...........................................................................10
(f) Events Subsequent to Most Recent Fiscal Year End...............................................10
(g) Undisclosed Liabilities........................................................................11
(h) Legal Compliance...............................................................................12
(i) Tax Matters....................................................................................12
(j) Intellectual Property..........................................................................13
(k) Tangible Assets................................................................................16
(l) Contracts......................................................................................16
(m) Notes and Accounts Receivable..................................................................17
(n) Powers of Attorney.............................................................................17
(o) Litigation.....................................................................................17
(p) Employee Benefits..............................................................................17
(q) Guaranties.....................................................................................18
(r) Certain Business Relationships with the Seller.................................................18
(s) Year 2000......................................................................................18
(t) Customers......................................................................................18
(u) Software and Databases.........................................................................19
(v) Brokers' Fees..................................................................................19
(w) Subsidiaries...................................................................................19
(x) Environmental, Health, and Safety Matters......................................................19
(y) Employees......................................................................................20
(z) Insurance......................................................................................20
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
(aa) Real Property..................................................................................21
(bb) Investment in Common Stock.....................................................................22
(cc) Residency......................................................................................23
(dd) GST Registration...............................................................................23
(ee) Stock Ownership................................................................................23
(ff) Disclosure.....................................................................................23
4. Representations and Warranties of the Buyer and EAE.....................................................24
(a) Organization of the Buyer and EAE..............................................................24
(b) Authorization of Transaction...................................................................24
(c) Noncontravention...............................................................................24
(d) Brokers' Fees..................................................................................24
(e) Financial Statements...........................................................................25
(f) Undisclosed Liabilities........................................................................25
(g) Legal Compliance...............................................................................25
(h) Tax Matters....................................................................................25
(i) Subsidiaries...................................................................................26
(j) Environmental, Health, and Safety Matters......................................................26
(k) Residency. ....................................................................................27
(l) Capitalization.................................................................................27
(m) Purchase Shares................................................................................27
(n) Disclosure.....................................................................................27
5. Pre-Closing Covenants...................................................................................28
(a) General........................................................................................28
(b) Notices and Consents...........................................................................28
(c) Operation of Business..........................................................................28
(d) Preservation of Business.......................................................................28
(e) Full Access....................................................................................28
(f) Notice of Developments.........................................................................29
(g) Exclusivity....................................................................................29
6. Post-Closing Covenants..................................................................................29
(a) General........................................................................................29
(b) Litigation Support.............................................................................29
(c) Transition.....................................................................................30
(d) Confidentiality................................................................................30
(e) Covenant Not to Compete........................................................................30
(f) Resales of Common Stock........................................................................31
(g) Employees......................................................................................31
(h) Reimbursement for WCB Liability................................................................32
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
(i) Name...........................................................................................33
(j) Piggyback Registrations........................................................................33
(k) Put Right......................................................................................34
7. Conditions to Obligation to Close.......................................................................36
(a) Conditions to Obligation of the Buyer and EAE..................................................36
(b) Conditions to Obligation of the Seller and the Seller Stockholders.............................37
8. Remedies for Breaches of This Agreement.................................................................38
(a) Survival of Representations and Warranties.....................................................38
(b) Indemnification Provisions for Benefit of the Buyer and EAE....................................39
(c) Indemnification Provisions for Benefit of the Seller...........................................40
(d) Matters Involving Third Parties................................................................41
(e) Determination of Adverse Consequences..........................................................42
(f) Other Indemnification Provisions...............................................................42
9. Termination.............................................................................................42
(a) Termination of Agreement.......................................................................42
(b) Effect of Termination..........................................................................43
10. Miscellaneous...........................................................................................43
(a) Press Releases and Public Announcements........................................................43
(b) No Third-Party Beneficiaries...................................................................43
(c) Entire Agreement...............................................................................43
(d) Succession and Assignment......................................................................43
(e) Counterparts...................................................................................44
(f) Headings.......................................................................................44
(g) Notices........................................................................................44
(h) Governing Law..................................................................................45
(i) Amendments and Waivers.........................................................................45
(j) Severability...................................................................................45
(k) Expenses.......................................................................................45
(l) Construction...................................................................................46
(m) Incorporation of Exhibits and Schedules........................................................46
(n) Tax Matters....................................................................................46
(o) Execution......................................................................................46
(p) Specific Performance...........................................................................46
(q) Dispute Notification and Resolution Procedure..................................................47
(r) Submission to Jurisdiction.....................................................................48
</TABLE>
iii
<PAGE> 5
EXHIBITS
Exhibit A--Bill of Sale and Assignment
Exhibit B--Allocation Schedule
Exhibit C--Seller Financial Statements and Projections
Exhibit D--EAE Financial Statements
Exhibit E--Noncompete Geographic Area
Exhibit F--Form of Noncompete Agreement
Exhibit G--Name Agreement
SCHEDULES
Schedule 1(a) -- Acquired Assets
Schedule 1(b) -- Assumed Liabilities
Disclosure Schedule--Exceptions to Representations and Warranties
iv
<PAGE> 6
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as of
April 1, 2000, by and among EAESW, Inc., a Colorado corporation (the "Buyer"),
The Petroleum Place, Inc., a Delaware corporation f/k/a Energy Auction Exchange,
Inc. ("EAE"), Strata Web Systems Ltd., an Alberta corporation (the "Seller"),
and Jimmy W. Chow, an individual, William S. Klym, an individual, Alberta
International Capital Ltd., an Alberta corporation, and Armco Holdings Ltd., an
Alberta corporation (collectively, the "Seller Stockholders"). The Buyer, EAE,
the Seller and the Seller Stockholders are each referred to individually herein
as a "Party" and collectively as the "Parties."
This Agreement contemplates a transaction in which the Buyer will
purchase all of the assets of the Business (as hereinafter defined) from the
Seller in return for shares of Common Stock (as hereinafter defined).
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. Definitions.
"Acquired Assets" means all right, title, and interest in and to all of
the assets constituting the Business as set forth on Schedule 1(a) attached
hereto, including without limitation all (a) real property, leaseholds,
subleaseholds therein, improvements, fixtures and fittings thereon, and
easements, rights-of-way and other appurtenants thereto (such as appurtenant
rights in and to public streets), (b) tangible personal property (such as
machinery, equipment, inventories, parts and furniture) (c) Intellectual
Property and the name "Strata Web" (and any variations thereof), goodwill
associated therewith, licenses and sublicenses granted and obtained with respect
thereto, and rights thereunder, remedies against infringements thereof, and
rights to protection of interests therein under the laws of all jurisdictions,
(d) leases, subleases and rights thereunder, (e) agreements, contracts,
licenses, indentures, mortgages, instruments, Security Interests, guaranties,
other similar arrangements, and rights thereunder, (f) accounts, notes, and
other receivables, (g) past, present or future claims, deposits, prepayments,
refunds, causes of action (including, without limitation, any claim against
PetroWeb, Petroleum Exchange, Inc., or Hunters Petroleum Exchange Ltd., and any
copyright infringement claims), choses in action, rights of recovery, rights of
set off, and rights of recoupment (including, without limitation, any such item
relating to the payment of taxes), (h) approvals, permits, licenses, orders,
registrations, certificates, variances, and similar rights obtained from
governments and governmental agencies, (i) books, records, ledgers, account
histories, files, documents, correspondence, lists, customer lists, drawings,
specifications, creative materials, advertising and promotional materials,
studies, reports, and other printed or written materials, (j) Cash, (k)
software, source codes, and all software development tools necessary to maintain
and modify the software, (l) a hard disk containing working copies of software,
source codes, and software development tools necessary to maintain and modify
the software, (m) the URL for the Seller's web site (www.strataweb.com) and the
domain names "strataweb.com," "strataplace.com"
<PAGE> 7
and "stratatrak.com," (n) databases, (o) physical mediums required for the
Seller to deliver the software to the Buyer, including without limitation hard
drives, disks, tapes and other storage mediums, and (p) all electronic data
associated with customers of the Business; provided, however, that the Acquired
Assets shall not include (A) the corporate charter, qualifications to conduct
business as a foreign corporation, arrangements with registered agents relating
to foreign qualifications, taxpayer and other identification numbers, seals,
minute books, stock transfer books, blank stock certificates, and other
documents relating to the organization, maintenance, and existence of the Seller
as a corporation, (B) any of the rights of the Seller under this Agreement (or
under any side agreement between the Seller on the one hand and the Buyer and/or
EAE on the other hand entered into on or after the date of this Agreement or (C)
any other real or personal property of the Seller.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Agreement" has the meaning set forth in the preface above.
"Applicable Rate" means the prime rate of interest as set forth from
time to time in the Denver, Colorado edition of the Wall Street Journal.
"Arbitrator" has the meaning set forth in Section 10(q)(iii)(C) below.
"Associates" has the meaning set forth in the Business Corporation Act
(Alberta).
"Assumed Liabilities" means, all as set forth on Schedule 1(b) attached
hereto, (a) all liabilities of the Seller set forth on the face of the Most
Recent Financial Statements (rather than in any notes thereto), (b) all
liabilities of the Seller which have arisen after the Most Recent Fiscal Month
End in the Ordinary Course of Business (other than any liability resulting from,
arising out of, relating to, in the nature of, or caused by any breach of
contract, breach of warranty, tort, infringement, violation of law, or
environmental matter, including without limitation those arising under
Environmental, Health, and Safety Requirements), and (c) all obligations of the
Seller under the agreements, contracts, leases, licenses, and other arrangements
referred to in the definition of Acquired Assets either (i) to furnish goods,
services, and other non-Cash benefits to another party after the Closing,
including, without limitation, warranty and maintenance services, or (ii) to pay
for goods, services, and other non-Cash benefits that another party will furnish
to it after the Closing; provided, however, that the Assumed Liabilities shall
not include (A) any liability of the Seller for Taxes, (B) any liability of the
Seller for transfer, sales, use, and other taxes arising in connection with the
consummation of the transactions contemplated hereby, (C) any liability of the
Seller for the
2
<PAGE> 8
unpaid taxes of any Person (other than the Seller) as a transferee or successor,
by contract, or otherwise, (D) any obligation of the Seller to indemnify any
Person (including any of the Seller Stockholders) by reason of the fact that
such Person was a director, officer, employee, or agent of any of the Seller or
was serving at the request of the Seller as a partner, trustee, director,
officer, employee, or agent of another entity (whether such indemnification is
for judgments, damages, penalties, fines, costs, amounts paid in settlement,
losses, expenses, or otherwise and whether such indemnification is pursuant to
any statute, charter document, bylaw, agreement, or otherwise), (E) any
liability of the Seller for costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby, (F) any liability or
obligation of the Seller under this Agreement (or under any side agreement
between the Seller on the one hand and the Buyer and/or EAE on the other hand
entered into on or after the date of this Agreement), (G) any liabilities or
obligations of the Seller to TCEnet Inc. or its Affiliates, officers, directors,
stockholders or employees or their respective Affiliates (except as otherwise
set forth in this Agreement) or the successors or assigns thereto, or (H) any
liabilities not specifically set forth on Schedule 1(b) attached hereto.
"Basket" has the meaning set forth in Section 8(b)(i) below.
"Bill of Sale" has the meaning set forth in Section 2(e)(iii)(A) below.
"Business" means the use of geographic information systems technology
to implement Internet and/or Internet mapping solutions for the Energy Industry.
"Buyer" has the meaning set forth in the preface above.
"Cash" means cash and cash equivalents (including marketable securities
and short term investments) on hand or in banks or other depositories.
"Claim Notice" has the meaning set forth in Section 10(q)(i) below.
"Claimant" has the meaning set forth in Section 10(q)(i) below.
"Claims" has the meaning set forth in Section 10(q) below.
"Closing" has the meaning set forth in Section 2(d) below.
"Closing Date" has the meaning set forth in Section 2(d) below.
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Common Stock" means the common stock, par value $.001 per share, of
EAE.
3
<PAGE> 9
"Confidential Information" means any information concerning the
businesses and affairs of the Seller, the Buyer, the Buyer's Affiliates, EAE and
EAE's Affiliates that is not already generally available to the public other
than through a breach of the terms of this Agreement.
"Database" has the meaning set forth in Section 3(u)(A) below.
"Directed Selling Effort" includes any activity undertaken for the
purpose of, or that could reasonably be expected to have the effect of,
conditioning the market in the United States for the Common Stock, including,
but not limited to, the placement of an advertisement in a publication with a
general circulation (as defined in Regulation S) in the United States that
refers to the offering of the Common Stock.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Dissenting Stockholders" has the meaning set forth in Section 3(g)
below.
"EAE" has the meaning set forth in the preface above.
"EAE Financial Statements" has the meaning set forth in Section 4(e)
below.
"EAE Most Recent Financial Statements" has the meaning set forth in
Section 4(e) below.
"Employee Benefit Plans" has the meaning set forth in Section 3(p)
below.
"Energy Industry" means the energy and related services industries,
including, without limitation, the petroleum, natural gas, electricity, power,
wind or any alternative energy form industries.
"Environmental, Health, and Safety Requirements" shall mean all
federal, state, provincial, municipal, local and foreign statutes, regulations,
ordinances and similar provisions having the force or effect of law, all
judicial and administrative orders and determinations, and all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any hazardous
materials, substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation.
"ETA" means Part IX of the Excise Tax Act (Canada), as amended.
"Financial Statements" has the meaning set forth in Section 3(e) below.
4
<PAGE> 10
"GAAP" means Canadian generally accepted accounting principles as in
effect from time to time.
"GST" means goods and services tax under the Excise Tax Act (Canada),
as amended.
"Indemnified Party" has the meaning set forth in Section 8(d) below.
"Indemnifying Party" has the meaning set forth in Section 8(d) below.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos
and trade names, and corporate names, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals in
connection therewith, (c) all copyrightable works, all copyrights, and all
applications, registrations, and renewals in connection therewith, (d) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, technical data, designs,
drawings, specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), (e) all computer
software (including data and related documentation), source codes, tools,
middleware, and graphic templates, (f) all other proprietary rights, and (g) all
copies and tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Market Stand-Off" has the meaning set forth in Section 3(f)(iv) below.
"Most Recent Financial Statements" has the meaning set forth in Section
3(e) below.
"Most Recent Fiscal Month End" has the meaning set forth in Section
3(e) below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 3(e)
below.
"Name Agreement" has the meaning set forth in Section 7(a)(xiii) below.
"Noncompete Agreement" has the meaning set forth in Section 7(a)(vii)
below.
"Notified Party" has the meaning set forth in Section 10(q)(i) below.
"Option Plan" means the Energy Auction Exchange, Inc. 1999 Equity
Incentive Plan.
5
<PAGE> 11
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency) with respect to the Business.
"Other Acquisition Transaction" has the meaning set forth in Section
5(g) below.
"Party(ies)" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, a governmental entity (or any
department, agency, or political subdivision thereof) or any other entity
whatsoever.
"Piggyback Registration" has the meaning set forth in Section 6(j)(i)
below.
"Preferred Stock" has the meaning set forth in Section 4(l) below.
"Purchase Price" has the meaning set forth in Section 2(c) below.
"Purchase Shares" has the meaning set forth in Section 2(c) below.
"Registration Expenses" has the meaning set forth in Section 6(j)(iii)
below.
"Regulation S" has the meaning set forth in Section 3(bb)(i)(A) below.
"Securities Act" means the United States Securities Act of 1933, as
amended.
"Securities Exchange Act" means the United States Securities Exchange
Act of 1934, as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
"Seller Statement" has the meaning set forth in Section 8(c)(iii)
below.
"Seller Stockholders" has the meaning set forth in the preface above.
6
<PAGE> 12
"Subsidiary" means any entity with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the equity securities or has the
power to vote or direct the voting of sufficient equity securities to control
such entity.
"System" has the meaning set forth in Section 3(s) below.
"Tax" means any federal, state, provincial, municipal, local, or
foreign tax, including any interest, penalty, or addition thereto, whether
disputed or not.
"Tax Act" means the Income Tax Act (Canada), as amended.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 8(d) below.
"Transaction Documents" has the meaning set forth in Section 3(b)
below.
"U.S. Persons" has the meaning set forth in Regulation S.
"WCA" has the meaning set forth in Section 6(h) below.
"WCB" has the meaning set forth in Section 6(h) below.
"WCB Certificate" has the meaning set forth in Section 6(h) below.
"Year 2000 Compliant" has the meaning set forth in Section 3(s) below.
2. Basic Transaction.
(a) Purchase and Sale of Assets. On and subject to the terms
and conditions of this Agreement, the Buyer agrees to purchase from the Seller,
and the Seller agrees to sell, assign, transfer, convey, and deliver to the
Buyer, all of the Acquired Assets at the Closing for the consideration specified
below in this Section 2. The Parties agree that the transfer of copyrights
included in the Acquired Assets shall be irrevocable.
(b) Assumption of Liabilities. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to assume and become responsible
for all of the Assumed Liabilities from and after the Closing. Neither the Buyer
nor EAE will assume or have any responsibility, however, with respect to any
other obligation of the Seller not included within the definition of Assumed
Liabilities.
7
<PAGE> 13
(c) Purchase Price. The Buyer agrees to pay to the Seller
US$1,500,000 (the "Purchase Price") at the Closing by delivery of 16,856 shares
of Common Stock to the Seller or Seller's nominee or nominees designated in
writing (the "Purchase Shares").
(d) The Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Macleod
Dixon, 3700 Canterra Tower, 400 Third Avenue S.W., Calgary, Alberta, Canada T2P
4H2, commencing at 9:00 a.m. local time on April 1, 2000 or such other date as
the Parties may mutually determine (the "Closing Date").
(e) Deliveries at the Closing. At the Closing, (i) the Seller
and the Seller Stockholders will deliver to the Buyer and EAE the various
certificates, instruments, and documents referred to in Section 7(a) below; (ii)
the Buyer and EAE will deliver to the Seller (or the Seller's nominee or
nominees designated in writing) the various certificates, instruments, and
documents referred to in Section 7(b) below; (iii) the Seller will execute,
acknowledge (if appropriate), and deliver to the Buyer (A) the Bill of Sale and
Assignment substantially in the form attached hereto as Exhibit A (the "Bill of
Sale") and (B) such other instruments of sale, transfer, conveyance, and
assignment as the Buyer and its counsel reasonably may request; and (iv) the
Buyer will deliver to the Seller the consideration specified in Section 2(c)
above.
(f) Allocation. The Parties agree to allocate the Purchase
Price (and all other capitalizable costs) among the Acquired Assets for all
purposes (including financial accounting and tax purposes) in accordance with
the allocation schedule attached hereto as Exhibit B and to report the sale and
purchase of the Acquired Assets for all such purposes in a manner consistent
with such allocation; provided, however, that the Buyer may amend such
allocation schedule prior to the Closing with the consent of the Seller, such
consent not to be unreasonably withheld.
(g) ETA Election. The Buyer and the Seller shall, on the
Closing Date, elect jointly under subsection 167(1) of the ETA, in the form
prescribed for the purposes of that subsection, in respect of the sale and
transfer of the Acquired Assets hereunder. The Buyer shall file such election
with Revenue Canada, Excise not later than the day on which it is required to
file its GST return for its reporting period which includes the Closing Date.
(h) Income Tax Election. The Buyer and the Seller agree to
jointly elect in the prescribed form under Section 22 of the Tax Act as to the
sale of all accounts receivable, trade accounts, notes receivable, book debts
and other debts due or accruing due to the Seller and forming part of the
Acquired Assets and described in Section 22 of the Tax Act, and to designate in
such election an amount equal to the portion of the Purchase Price allocated to
such assets pursuant to Section 2(f) hereof as the consideration paid by the
Buyer therefor.
3. Representations and Warranties of the Seller. The Seller and the
Seller Stockholders represent and warrant, severally, but not jointly, to the
Buyer and EAE that the statements contained in this Section 3 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
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substituted for the date of this Agreement throughout this Section 3), except as
set forth in the disclosure schedule accompanying this Agreement (the
"Disclosure Schedule"); provided, however, that the representations and
warranties provided herein by the Seller Stockholders are provided based on the
best knowledge (without investigation), information and belief of such Seller
Stockholders. The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs and subparagraphs
contained in this Section 3 and the paragraphs and subparagraphs corresponding
thereto in this Section 3 shall reference the Disclosure Schedule.
(a) Organization and Corporate Power. The Seller is a
corporation duly organized, validly existing, and in good standing under the
laws of the Province of Alberta. The Seller has full corporate power and
authority and all licenses, permits and authorizations necessary to carry on the
Business and to own and use the properties owned and used by it. Section 3(a) of
the Disclosure Schedule lists all such licenses, permits and authorizations.
(b) Authorization of Transaction. The Seller and the Seller
Stockholders have taken all corporate actions necessary and have full power and
authority (including, with respect to the Seller and the Seller Stockholders
which are corporations, full corporate power and authority) to execute and
deliver this Agreement, the Bill of Sale, the Noncompete Agreement and any other
documents or instruments contemplated by this Agreement (collectively, the
"Transaction Documents") and to perform their obligations under the Transaction
Documents. Without limiting the generality of the foregoing, the board of
directors and stockholders of the Seller have duly authorized the execution,
delivery, and performance of the Transaction Documents by the Seller. This
Agreement and, when executed and delivered, the other Transaction Documents
constitute the valid and legally binding obligations of the Seller and the
Seller Stockholders, as the case may be, enforceable in accordance with their
terms and conditions, except as the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting enforcement of creditors'
rights generally and the application of general principles of equity.
(c) Noncontravention. Neither the execution and the delivery
of the Transaction Documents, nor the consummation of the transactions
contemplated thereby (including the assignments referred to in Section 2 above),
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Seller or the Seller Stockholders are
subject or any provision of the articles or bylaws or resolutions of the board
of directors (or any committee thereof) or stockholders of the Seller, or (ii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Seller or the Seller Stockholders
are a party or by which they are bound or to which any of their assets are
subject (or result in the imposition of any Security Interest upon any of their
respective assets), except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, failure to give notice,
or Security Interest would not have a material adverse effect on the business,
financial condition, operations, results of operations, or future prospects of
the Business or on the ability of the Parties to consummate the transactions
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contemplated by the Transaction Documents. Except as set forth on Section 3(c)
of the Disclosure Schedule, the Seller and the Seller Stockholders do not need
to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government, governmental agency or third party in
order for the Parties to consummate the transactions contemplated by the
Transaction Documents (including the assignments referred to in Section 2
above), except where the failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a material adverse effect on
the business, financial condition, operations, results of operations, or future
prospects of the Business or on the ability of the Parties to consummate the
transactions contemplated by the Transaction Documents.
(d) Title to Assets. The Seller has good and marketable title
to, or a valid leasehold interest in, all of the Acquired Assets, free and clear
of any Security Interest or restriction on transfer. No person has any
agreement, option, understanding or commitment or any right or privilege
(whether by law, preemptive or contractual) which is capable of becoming an
agreement, option, or commitment for the purchase or other acquisition from the
Seller of any of the Acquired Assets, or any right or interest therein. The
Acquired Assets will allow the Buyer to carry on the Business in the same manner
and to the same extent as it has been carried on by the Seller prior to the date
of this Agreement.
(e) Financial Statements. Attached hereto as Exhibit C are the
following financial statements of the Seller (collectively, the "Financial
Statements"): (i) audited consolidated balance sheets and statements of income,
changes in stockholders' equity and cash flow as of and for the fiscal years
ended September 30, 1997, September 30, 1998 and September 30, 1999 (the "Most
Recent Fiscal Year End"); and (ii) unaudited consolidated balance sheet and
statements of income, changes in stockholders' equity and cash flow (the "Most
Recent Financial Statements") as of and for the four (4) months ended January
31, 2000 (the "Most Recent Fiscal Month End"). The Financial Statements
(including the notes thereto) have been prepared in accordance with GAAP applied
on a consistent basis throughout the periods covered thereby, present fairly the
financial condition of the Seller as of such dates and the results of operations
of the Seller for such periods; provided, however, that the Most Recent
Financial Statements are subject to normal year-end adjustments (which will not
be material individually or in the aggregate). Exhibit C also includes the
Seller's most recent financial projections.
(f) Events Subsequent to Most Recent Fiscal Year End. Since
the Most Recent Fiscal Year End, there has not been any material adverse change
in the business, financial condition, operations, results of operations or
future prospects of the Seller. Without limiting the generality of the
foregoing, since that date:
(i) the Seller has not sold, leased, transferred, or
assigned any assets, tangible or intangible, outside the Ordinary
Course of Business;
(ii) the Seller has not entered into any agreement,
contract, lease, or license outside the Ordinary Course of Business;
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(iii) no party (including the Seller) has
accelerated, terminated, made material modifications to, or canceled
any agreement, contract, lease, or license to which the Seller is a
party or by which it is bound;
(iv) the Seller has not imposed any Security Interest
upon any of its assets, tangible or intangible;
(v) the Seller has not made any capital expenditures
outside the Ordinary Course of Business;
(vi) the Seller has not made any capital investment
in, or any loan to, any other Person outside the Ordinary Course of
Business;
(vii) the Seller has not created, incurred, assumed,
or guaranteed any indebtedness for borrowed money and capitalized lease
obligations;
(viii) except for any contracts or agreements set
forth on Section 3(l) of the Disclosure Schedule, the Seller has not
granted any license or sublicense of any rights under or with respect
to any Intellectual Property;
(ix) the Seller has not experienced any material
damage, destruction, or loss (whether or not covered by insurance) to
its property;
(x) except as set forth on Section 3(f)(x) of the
Disclosure Schedule, the Seller has not made any loan to, or entered
into any other transaction with, any of its directors, officers, and
employees;
(xi) the Seller has not adopted, amended, modified,
or terminated any bonus, profit-sharing, incentive, severance, or other
plan, contract, or commitment for the benefit of any of the directors,
officers, and employees of the Seller, or taken any such action with
respect to any other Employee Benefit Plan;
(xii) the Seller has not made any material change in
the employment term for any of its directors, officers and employees
outside the Ordinary Course of Business; and
(xiii) the Seller has not committed to any of the
foregoing.
(g) Undisclosed Liabilities. The Seller has no liability
(whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due, including any liability for taxes), except for
(i) liabilities set forth on the face of the Most Recent Financial Statements
(rather than in any notes thereto), (ii) liabilities which have arisen after the
Most Recent Fiscal Month End in the Ordinary Course of Business and which are
set forth on Section 3(g) of the
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Disclosure Schedule, and (iii) liabilities to Dissenting Stockholders of the
Seller (the "Dissenting Stockholders") in connection with the transactions
contemplated by this Agreement for the fair market value of the capital stock of
the Seller owned by them and severance and shareholder loan amounts, if any, in
connection with Dissenting Stockholders.
(h) Legal Compliance. The Seller has complied with all laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, provincial,
municipal, local, and foreign governments (and all agencies thereof) applicable
to the Business or the Acquired Assets, and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against it alleging any failure so to comply, except where
the failure to comply would not have a material adverse effect on the business,
financial condition, operations, results of operations, or future prospects of
the Seller.
(i) Tax Matters.
(i) The Seller has duly filed on a timely basis all
Tax Returns that it was required to file. All such Tax Returns were
correct and complete in all material respects. All Taxes, and all
assessments, governmental charges, penalties, interest and fines with
respect to same, owed by the Seller and due (whether or not shown on
any Tax Return) have been paid. The Seller currently is not the
beneficiary of any extension of time within which to file any Tax
Return.
(ii) There is no material dispute or claim concerning
any Tax liability of the Seller (A) claimed or raised by any authority
in writing or (B) as to which any of the Seller Stockholders and the
directors and officers of the Seller has Knowledge based upon personal
contact with any agent of such authority.
(iii) Section 3(i)(iii) of the Disclosure Schedule
lists all federal, state, provincial, municipal, local, and foreign Tax
Returns filed by the Seller for taxable periods ended on or after
September 30, 1992, indicates those Tax Returns that have been audited,
and indicates those Tax Returns that currently are the subject of
audit. The Seller has delivered to the Buyer correct and complete
copies of all Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Seller since
September 30, 1992. The Seller has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with
respect to an Tax assessment or deficiency.
(iv) The Seller is not a party to any tax allocation
or sharing agreement.
(v) The unpaid Taxes of the Seller (A) did not, as of
the Most Recent Fiscal Month End, exceed by any material amount the
reserve for Tax liability (rather than any reserve for deferred taxes
established to reflect timing differences between book and tax income)
set forth on the face of the Most Recent Financial Statements (rather
than in any
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notes thereto) and (B) will not exceed by any material amount that
reserve as adjusted for operations and transactions through the Closing
Date in accordance with the past custom and practice of the Seller in
filing its Tax Returns.
(vi) The Seller has withheld from each payment made
to any of its past or present employees, officers or directors, and to
any non-resident of Canada, the amount of all taxes and other
deductions required to be withheld therefrom, and has paid the same to
the proper tax or other receiving officers within the time required
under any applicable legislation.
(vii) The Seller has remitted to the appropriate
taxing authorities, when required by law to do so, all amounts
collected by it on account of GST.
(j) Intellectual Property.
(i) The conduct of the Business and the use of the
Intellectual Property does not interfere with, infringe upon,
misappropriate, violate or otherwise come into conflict with any
intellectual property rights of third parties, and none of the Seller
Stockholders or the directors and officers of the Seller has ever
received any charge, complaint, claim, demand, or notice alleging any
such interference, infringement, misappropriation, violation or
conflict (including any claim that the Seller must license or refrain
from using any intellectual property rights of any third party). Except
as set forth on Section 3(j)(i) of the Disclosure Schedule, to the
Knowledge of any of the Seller Stockholders or the directors and
officers of the Seller, no third party has interfered with, infringed
upon, misappropriated, violated or otherwise come into conflict with
any intellectual property rights of the Seller.
(ii) Section 3(j)(ii) of the Disclosure Schedule
identifies each patent, trademark, copyright or other Intellectual
Property registration which has been issued to the Seller with respect
to any of its Intellectual Property, identifies each pending
application or application for registration which the Seller has made
with respect to any of its Intellectual Property, and identifies each
license, agreement, or other permission which the Seller has granted to
any third party with respect to any of its Intellectual Property
(together with any exceptions). The Seller has delivered to the Buyer
correct and complete copies of all such patents, registrations,
applications, licenses, agreements, and permissions (as amended to
date). Section 3(j)(ii) of the Disclosure Schedule also identifies each
trade name or unregistered trademark used by the Seller in connection
with the Business. With respect to each item of Intellectual Property
required to be identified in Section 3(j)(ii) of the Disclosure
Schedule:
(A) the Seller possesses all right, title,
and interest in and to the item, free and clear of any
Security Interest, license, or other restriction;
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(B) the item is not subject to any
outstanding injunction, judgment, order, decree, ruling, or
charge;
(C) no royalty or other fee is required to
be paid by the Seller with respect to such item;
(D) there are no restrictions on the ability
of the Seller or any successor or assignee thereof to use and
exploit all rights associated with such item;
(E) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or, to the Knowledge of any of the Seller Stockholders and the
directors and officers of the Seller, is threatened which
challenges the legality, validity, enforceability, use, or
ownership of the item;
(F) the Seller has never agreed to indemnify
any Person for or against any interference, infringement,
misappropriation, violation or other conflict with respect to
the item;
(G) any license, agreement or permission
covering the item is legal, valid, binding and enforceable,
and in full force and effect;
(H) any license, agreement or permission
covering the item will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms
following consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in
Section 2 above);
(I) no party to any license, agreement or
permission covering the item is in breach or default, and no
event has occurred which with notice or lapse of time would
constitute a breach or default or permit termination,
modification, or acceleration thereunder; and
(J) no party to any license, agreement or
permission covering the item has repudiated any provision
thereof.
(iii) Section 3(j)(iii) of the Disclosure Schedule
identifies each item of Intellectual Property that any third party owns
and that the Seller uses pursuant to license, sublicense, agreement, or
permission. The Seller has delivered to the Buyer correct and complete
copies of all such licenses, sublicenses, agreement, and permissions
(as amended to date). With respect to each item of Intellectual
Property required to be identified in Section 3(j)(iii) of the
Disclosure Schedule:
(A) the license, sublicense, agreement, or
permission covering the item is legal, valid, binding,
enforceable, and in full force and effect;
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(B) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated
hereby (including the assignments and assumptions referred to
in Section 2 above);
(C) no party to the license, sublicense,
agreement, or permission is in breach or default, and no event
has occurred which with notice or lapse of time would
constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) no party to the license, sublicense,
agreement, or permission has repudiated any provision
thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in subsections (A)
through (D) above are true and correct with respect to the
underlying license;
(F) the underlying item of Intellectual
Property is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending
or, to the Knowledge of any of the Seller Stockholders and the
directors and officers of the Seller, is threatened which
challenges the legality, validity, or enforceability of the
underlying item of Intellectual Property; and
(H) the Seller has not granted any
sublicense or similar right with respect to the license,
sublicense, agreement, or permission.
(iv) To the Knowledge of the Seller Stockholders and
the directors and officers of the Seller, the Seller will not interfere
with, infringe upon, misappropriate, violate, or otherwise come into
conflict with, any Intellectual Property rights of third parties as a
result of the continued operation of its businesses as presently
conducted and as presently proposed to be conducted.
(v) The Seller owns or has the right to use pursuant
to license, sublicense, agreement, or permission all intellectual
property necessary or desirable for the operation of the Business as
presently conducted and as presently proposed to be conducted. Each
item of Intellectual Property owned or used by the Seller immediately
prior to the Closing hereunder will be owned or available for use by
the Buyer on identical terms and conditions immediately subsequent to
the Closing hereunder. The Seller has taken all necessary and
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desirable action to maintain and protect each item of Intellectual
Property that it owns or uses.
(k) Tangible Assets. The tangible assets included in the
Acquired Assets are free from material defects (patent and latent), have been
maintained in accordance with normal industry practice, and are in good
operating condition and repair (subject to normal wear and tear).
(l) Contracts. Section 3(l) of the Disclosure Schedule lists
the following contracts and other agreements to which the Seller is a party and
the respective expiration dates thereof:
(i) any agreement (or group of related agreements)
for the lease of personal property to or from any Person;
(ii) any agreement (or group of related agreements)
for the purchase or sale of supplies, products, or other personal
property, or for the furnishing or receipt of services, including any
subscription, advertising or other form of customer agreements;
(iii) any agreement concerning a partnership, joint
venture or other business venture or combination;
(iv) any agreement (or group of related agreements)
under which it has created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any capitalized lease obligation or
under which it has imposed a Security Interest on any of its assets,
tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any agreement involving any of the Seller
Stockholders or their Affiliates;
(vii) any profit sharing, stock option, stock
purchase, stock appreciating deferred compensation, severance or other
plan or arrangement for the benefit of its current or former directors,
officers and employees;
(viii) any agreement for the employment of any
individual, including consulting arrangements;
(ix) any collective bargaining agreement;
(x) any agreement under which the consequences of a
default or termination could have a material adverse effect on the
business, financial condition, operations, results of operations, or
future prospects of the Seller; or
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(xi) any other material agreement (or group of
related agreements which together are material).
The Seller has delivered to the Buyer a correct and complete copy of
each written agreement listed in Section 3(l) of the Disclosure Schedule (as
amended to date) and a written summary setting forth the material terms and
conditions of each oral agreement referred to in Section 3(l) of the Disclosure
Schedule including, without limitation, the term of any warranty or maintenance
service requirements of the Seller thereunder, the amount paid for such services
and when such payment was made. With respect to each such agreement: (A) the
agreement is legal, valid, binding, enforceable, and in full force and effect;
(B) the agreement will continue to be legal, valid, binding, enforceable and in
full force and effect on identical terms following the consummation of the
transactions contemplated hereby (including the assignments and assumptions
referred to in Section 2 above); (C) no party is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default, or permit termination, modification, or acceleration, under the
agreement; and (D) no party has repudiated any provision of the agreement.
(m) Notes and Accounts Receivable. All notes and accounts
receivable of the Seller, including the aging thereof, are set forth on Section
3(m) of the Disclosure Schedule. The notes and accounts receivable set forth on
Section 3(m) of the Disclosure Schedule are reflected properly on its books and
records, are valid receivables subject to no setoffs or counterclaims, are
current and collectible, and will be collected in accordance with their terms at
their recorded amounts, subject only to the reserve for bad debts set forth on
the face of the Most Recent Financial Statements (rather than in any notes
thereto) as adjusted for operations and transactions through the Closing Date in
accordance with the past custom and practice of the Seller.
(n) Powers of Attorney. To the Knowledge of any of the Seller
Stockholders and the directors and officers of the Seller, there are no
outstanding powers of attorney executed on behalf of the Seller.
(o) Litigation. Section 3(o) of the Disclosure Schedule sets
forth all instances in which the Seller (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party or, to
the Knowledge of any of the Seller Stockholders and the directors and officers
of the Seller, is threatened to be made a party to any action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi-judicial or
administrative agency of any federal, state, provincial, municipal, local, or
foreign jurisdiction or before any arbitrator or mediator, otherwise than an
action or proceeding which may arise as a result of Dissenting Stockholders of
the Seller.
(p) Employee Benefits. The consummation of the transactions
contemplated by this Agreement will not in any way result in the Buyer, EAE or
their Affiliates incurring any liability whatsoever in connection with
retirement, pension, bonus, stock purchase, profit sharing, stock option,
deferred compensation, severance or termination pay, insurance, medical,
hospital, dental, vision care, drug, sick leave, disability, salary
contributions, legal benefits, unemployment benefits,
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incentive or other compensation plan or arrangement or other employee benefit
which the Seller or any of its Affiliates maintains or ever has maintained or
contributes, ever has contributed, or ever has been required to contribute to
for the benefit of their respective employees or former employees (collectively,
"Employee Benefit Plans").
(q) Guaranties. The Seller is not a guarantor or otherwise
responsible for any liability or obligation (including indebtedness) of any
other Person.
(r) Certain Business Relationships with the Seller. Except as
set forth on Section 3(r) of the Disclosure Schedule or as disclosed in the
Financial Statements, none of the Seller Stockholders and their Affiliates has
been involved in any material business arrangement or relationship with the
Seller within the past twelve (12) months, and none of the Seller Stockholders
and their Affiliates owns any asset, tangible or intangible, which is used in
the business of the Seller.
(s) Year 2000. To the Knowledge of any of the Seller
Stockholders and the directors and officers of the Seller and its Subsidiaries,
there is no matter which will prevent each system, comprising of software,
hardware, databases or embedded control systems (microprocessor controlled,
robotic or other device) owned, leased or within the control of the Seller
(collectively, a "System"), that constitutes any part of, or is used in
connection with the use, operation or enjoyment of any material tangible or
intangible asset or real property of the Seller to (i) be designed to be used
prior to and after January 1, 2000, (ii) operate without error arising from the
creation, recognition, acceptance, calculation, display, reporting, storage,
retrieval, accessing, comparison, sorting, manipulation, processing or other use
of dates, or date-based, date-dependent or date-related data, including, but not
limited to, century recognition, day-of-the-week recognition, leap years, date
values and interfaces of date functionalities, and (iii) not be adversely
affected by the advent of the year 2000 or subsequent years, the advent of the
twenty-first century or the transition from the twentieth century through the
year 2000 and into the twenty-first century (collectively, items (i) through
(iii) are referred to herein as "Year 2000 Compliant"). All licenses for the use
of any System are certified by the manufacturer to be Year 2000 Compliant and to
contain the capabilities required to be Year 2000 Compliant within the Seller
computer systems (hardware and software), or the licenses permit the Seller or a
third party to make all modifications, bypasses, de-bugging, work-arounds,
repairs, replacements, conversions or corrections necessary to permit the System
to operate compatibly, in conformance with their respective specifications, and
to be Year 2000 Compliant. The Seller Stockholders and the directors and
officers of the Seller and its Subsidiaries have no reason to believe that the
Seller may incur material expenses arising from or relating to the failure of
any of its Systems as a result of not being Year 2000 Compliant.
(t) Customers. Section 3(t) of the Disclosure Schedule sets
forth a true and complete list of all customers of the Seller as of the date of
this Agreement and, except as set forth on Section 3(t) of the Disclosure
Schedule, the Seller is not aware of any material customer that may cease doing
business with the Business subsequent to the Closing. The Seller Stockholders
and the directors and officers of the Seller have no Knowledge of any facts
which could reasonably be expected to result in the loss of any customers or
sources of revenue of the Seller. Section 3(t) of
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the Disclosure Schedule sets forth a list of the customers of the Seller for
which the Seller has work in process as of the date of this Agreement, the
description of the work in process and the status thereof, and the required
completion date of such work in process.
(u) Software and Databases. The Seller's software and
databases are (i) functional, able and adequate to carry on the Business as it
is currently being conducted without material bugs or impediments, (ii)
structurally sound, and (iii) free of errors and corruption.
(v) Brokers' Fees. Neither the Seller nor the Seller
Stockholders has any liability or obligation to pay any fees or commissions to
any broker, finder or agent with respect to the transactions contemplated by
this Agreement for which the Buyer or EAE could become liable or obligated.
(w) Subsidiaries. The Seller has no Subsidiaries.
(x) Environmental, Health, and Safety Matters.
(i) The Seller has complied and is in compliance, in
each case in all material respects, with all Environmental, Health, and
Safety Requirements.
(ii) Without limiting the generality of the
foregoing, the Seller and its Affiliates have obtained, have complied,
and are in compliance with, in each case in all material respects, all
permits, licenses and other authorizations that are required pursuant
to Environmental, Health, and Safety Requirements for the occupation of
its facilities and the operation of its business; a list of all such
permits, licenses and other authorizations is set forth on Section
3(x)(ii) of the Disclosure Schedule.
(iii) Neither the Seller nor its Affiliates have
received any written or oral notice, report or other information
regarding any actual or alleged violation of Environmental, Health, and
Safety Requirements, or any liabilities or potential liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise)
including any investigatory, remedial or corrective obligations,
relating to any of them or their facilities arising under
Environmental, Health, and Safety Requirements.
(iv) Except as set forth on Section 3(x)(iv) of the
Disclosure Schedule, none of the following exists at any property or
facility owned or operated by the Seller: (1) underground storage
tanks, (2) asbestos-containing material in any friable and damaged form
or condition, (3) materials or equipment containing polychlorinated
biphenyls, or (4) landfills, surface impoundments, or disposal areas.
(v) None of the Seller or any of its predecessors or
Affiliates has treated, stored, disposed of, arranged for or permitted
the disposal of, transported, handled, or released any substance,
including without limitation any hazardous substance, or owned or
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operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or would
give rise to material liabilities, including any material liability for
response costs, corrective action costs, personal injury, property
damage, natural resources damages or attorney fees.
(vi) Neither this Agreement nor the consummation of
the transaction that is the subject of this Agreement will result in
any obligations for site investigation or cleanup, or notification to
or consent of government agencies or third parties, pursuant to any of
the so-called "transaction-triggered" or "responsible property
transfer" Environmental, Health, and Safety Requirements.
(y) Employees. Section 3(y) of the Disclosure Schedule sets
forth the name, years of service, current compensation, accrued vacation and
sick leave, any bonus or additional compensation earned or paid during the last
fiscal year and the current fiscal year, benefits and whether an employment
contract is in effect for each employee of Seller. To the Knowledge of any of
the Seller Stockholders and the directors and officers of the Seller, no
executive, key employee, or significant group of employees plan to terminate
employment with the Seller during the next twelve (12) months. The Seller is not
a party to or bound by any collective bargaining agreement, nor has it
experienced any strike or material grievance, claim of unfair labor practices,
or other collective bargaining dispute within the past three (3) years. The
Seller has not committed any material unfair labor practice. None of the Seller
Stockholders and the directors and officers of the Seller has any Knowledge of
any organizational effort presently being made or threatened by or on behalf of
any labor union with respect to employees of the Seller.
(z) Insurance. Section 3(z) of the Disclosure Schedule sets
forth the following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) with respect to which the Seller is a
party, a named insured, or otherwise the beneficiary of coverage:
(i) the name, address, and telephone number of the
agent;
(ii) the name of the insurer, the name of the
policyholder, and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether
the coverage is on a claims made, occurrence, or other basis) and
amount (including a description of how deductibles and ceilings are
calculated and operate) of coverage; and
(v) a description of any retroactive premium
adjustments or other material loss-sharing arrangements.
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With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) neither the Seller nor
any other party to the policy is in breach or default (including with respect to
the payment of premiums or the giving of notices), and no event has occurred
which, with notice or the lapse of time, would constitute such a breach or
default, or permit termination, modification, or acceleration, under the policy;
and (C) no party to the policy has repudiated any provision thereof. Section
3(z) of the Disclosure Schedule describes any self- insurance arrangements
affecting the Seller.
(aa) Real Property.
(i) The Seller owns no real property.
(ii) 3(aa)(ii) of the Disclosure Schedule lists and
describes briefly all real property leased or subleased to the Seller.
The Seller has delivered to the Buyer correct and complete copies of
the leases and subleases listed in Section 3(aa)(ii) of the Disclosure
Schedule (as amended to date). With respect to each material lease and
sublease listed in Section 3(aa)(ii) of the Disclosure Schedule:
(A) the lease or sublease is legal, valid,
binding, enforceable, and in full force and effect in all
respects;
(B) the lease or sublease will continue to
be legal, valid, binding, enforceable and in full force and
effect on identical terms following the consummation of the
transactions contemplated hereby (including the assignments
and assumptions referred to in Section 2 above);
(C) no party to the lease or sublease is in
breach or default, and no event has occurred which, with
notice or lapse of time, would constitute a breach or default
or permit termination, modification, or acceleration
thereunder;
(D) no party to the lease or sublease has
repudiated any provision thereof;
(E) there are no disputes, oral agreements,
or forbearance programs in effect as to the lease or sublease;
(F) the Seller has not assigned,
transferred, conveyed, mortgaged, deeded in trust, or
encumbered any interest in the leasehold or subleasehold; and
(G) all facilities leased or subleased
thereunder have received all approvals of governmental
authorities (including licenses and permits) required in
connection with the operation thereof, and have been operated
and maintained in accordance with applicable laws, rules, and
regulations in all respects.
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(bb) Investment in Common Stock.
(i) The Seller hereby acknowledges and agrees that:
(A) the Purchase Shares have not been
registered under the Securities Act or under any securities
laws of any state in the United States and, therefore, cannot
be resold without registration under the Securities Act unless
an exemption from registration is available or registration is
not required pursuant to Regulation S under the Securities Act
("Regulation S");
(B) the Seller has been advised to consult
its own legal advisors with respect to applicable resale
restrictions and the Seller is solely responsible for
compliance with applicable resale restrictions;
(C) the certificates representing the
Purchase Shares will bear a legend restricting their transfer
pursuant to applicable securities legislation in the Province
of Alberta, and stating that such shares have not been
registered under the Securities Act or the securities laws of
any state of the United States and that transfer is prohibited
except in accordance with the provisions of Regulation S,
pursuant to registration under the Securities Act, or pursuant
to an available exemption from registration; and
(D) the Seller must file a report on Form 21
under the Securities Act (Alberta) with the Alberta Securities
Commission within ten (10) days of a disposition of all or any
part of the Purchase Shares.
(ii) The Seller has no intention to distribute either
directly or indirectly any of the Purchase Shares in the United States
or to U.S. Persons.
(iii) The Seller is not a U.S. Person and is not
acquiring the Purchase Shares for the account or benefit of any U.S.
Person.
(iv) No offers to sell the Purchase Shares were made
by any Person to the Seller while the Seller was in the United States.
(v) The Seller was outside the United States at the
time of execution and delivery of this Agreement.
(vi) The Seller is not aware of any Directed Selling
Efforts having been made in the United States with respect to the
Purchase Shares by the Buyer or EAE, any affiliates of the Buyer or EAE
or any person acting on behalf of any of the foregoing. In addition,
the Seller, its affiliates, and persons acting on behalf of any of them
have not made
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and will not make, any Directed Selling Efforts in the United States
with respect to the Purchase Shares.
(vii) The Seller is a corporation resident in the
Province of Alberta and is not a resident of any other jurisdiction
where the Purchase Shares may not be legally offered or sold.
(viii) The Seller is acquiring the Purchase Shares as
principal and the Purchase Shares have an aggregate acquisition cost to
the Seller of not less than Cdn. $100,000.
(ix) The Seller has been independently advised as to
the applicable restrictions imposed in respect of the resale of the
Purchase Shares under applicable securities legislation and confirms
that:
(A) no representation has been made by the
Buyer or EAE respecting the resale of the Purchase Shares; and
(B) the Seller is aware of the risks and
other characteristics of the Purchase Shares and of the fact
that the Seller may not be able to resell the Purchase Shares
except in accordance with certain limited exemptions under
applicable securities legislation and regulatory policies.
(cc) Residency. The Seller is a resident of Canada for the
purposes of the Tax Act.
(dd) GST Registration. The Seller is a registrant for purposes
of the ETA whose registration number is 896187358RT001.
(ee) Stock Ownership. All of the issued and outstanding shares
of capital stock of the Seller are legally and beneficially owned as set forth
on Section 3(ee) of the Disclosure Schedule. Except as set forth on Section
3(ee) of the Disclosure Schedule, there are no outstanding subscriptions,
options, rights, warrants or other agreements or commitments obligating the
Seller to sell or issue any additional shares of capital stock of, or any
securities of any class of, the Seller or any securities convertible into or
exchangeable for any shares of the capital stock of the Seller.
(ff) Disclosure. The representations and warranties contained
in this Section 3 do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this Section 3 not misleading. There has been no event,
transaction or information that has come to the attention of the Seller or the
Seller Stockholders that has not been disclosed to the Buyer in writing that
could reasonably be expected to have a material adverse effect on the assets,
business, earnings, prospects, properties or condition (financial or otherwise)
of the Business.
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<PAGE> 29
4. Representations and Warranties of the Buyer and EAE. The Buyer and
EAE represent and warrant, jointly and severally, to the Seller and the Seller
Stockholders that the statements contained in this Section 4 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 4).
(a) Organization of the Buyer and EAE. Each of the Buyer and
EAE is a corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation.
(b) Authorization of Transaction. Each of the Buyer and EAE
has full power and authority (including full corporate power and authority) to
execute and deliver the Transaction Documents to which it is a party and to
perform its obligations under such Transaction Documents. This Agreement and,
when executed and delivered, the other Transaction Documents to which the Buyer
or EAE is a party constitute the valid and legally binding obligations of the
Buyer or EAE, as the case may be, enforceable in accordance with their terms and
conditions, except as the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting enforcement of creditors' rights generally
and the application of general principles of equity.
(c) Noncontravention. Neither the execution and the delivery
of the Transaction Documents, nor the consummation of the transactions
contemplated thereby (including the assignments referred to in Section 2 above),
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer or EAE is subject or any
provision of their charter or bylaws or (ii) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Buyer or EAE is a party or by which either is bound or
to which any of their assets are subject, except where the violation, conflict,
breach, default, acceleration, termination, modification, cancellation, failure
to give notice, or Security Interest would not have a material adverse effect on
the ability of the Parties to consummate the transactions contemplated by the
Transaction Documents. Neither the Buyer nor EAE needs to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government, governmental agency or third party in order for the Parties to
consummate the transactions contemplated by the Transaction Documents (including
the assignments referred to in Section 2 above), except where the failure to
give notice, to file, or to obtain any authorization, consent, or approval would
not have a material adverse effect on the ability of the Parties to consummate
the transactions contemplated by the Transaction Documents.
(d) Brokers' Fees. Neither the Buyer nor EAE has any liability
or obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement for which the Seller
could become liable or obligated.
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(e) Financial Statements. Attached hereto as Exhibit D are the
following financial statements of EAE (collectively, the "EAE Financial
Statements"): (i) audited consolidated balance sheet and statements of income,
changes in stockholders' equity and cash flow as of and for the fiscal year
ended September 30, 1999; and (ii) unaudited consolidated balance sheet and
statements of income, changes in stockholders' equity and cash flow as of and
for the three (3) months ended December 31, 1999 (the "EAE Most Recent Financial
Statements"). The EAE Financial Statements (including the notes thereto) have
been prepared in accordance with United States generally accepted
accounting principles as in effect from time to time applied on a consistent
basis throughout the periods covered thereby, present fairly the financial
condition of EAE as of such dates and the results of operations of EAE for such
periods; provided, however, that the EAE Most Recent Financial Statements are
subject to normal year-end adjustments.
(f) Undisclosed Liabilities. EAE has no material liability
(whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due, including any liability for taxes), except for
(i) liabilities set forth on the face of the EAE Most Recent Financial
Statements (rather than in any notes thereto) and (ii) liabilities which have
arisen after December 31, 1999 in the ordinary course of EAE's business.
(g) Legal Compliance. The Buyer and EAE have complied with all
laws (including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of federal, state, provincial,
municipal, local, and foreign governments (and all agencies thereof) applicable
to their respective businesses, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against them alleging any failure so to comply, except where the
failure to comply would not have a material adverse effect on the business,
financial condition, operations or results of operations of the Buyer and EAE
taken as a whole.
(h) Tax Matters.
(i) The Buyer and EAE have duly filed on a timely
basis all Tax Returns that each was required to file. All such Tax
Returns were correct and complete in all material respects. All Taxes,
and all assessments, governmental charges, penalties, interest and
fines with respect to same, owed by the Buyer and EAE and due (whether
or not shown on any Tax Return) have been paid. The Buyer and EAE
currently are not the beneficiary of any extension of time within which
to file any Tax Return.
(ii) There is no material dispute or claim concerning
any Tax liability of the Buyer or EAE (A) claimed or raised by any
authority in writing or (B) as to which the directors and officers of
the Buyer or EAE, as the case may be, has knowledge based upon personal
contact with any agent of such authority.
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<PAGE> 31
(iii) Neither the Buyer nor EAE is a party to any tax
allocation or sharing agreement.
(iv) The unpaid Income Taxes of EAE (A) did not, as
of December 31, 1999, exceed by any material amount the reserve for Tax
liability (rather than any reserve for deferred taxes established to
reflect timing differences between book and tax income) set forth on
the face of the EAE Most Recent Financial Statements (rather than in
any notes thereto) and (B) will not exceed by any material amount that
reserve as adjusted for operations and transactions through the Closing
Date in accordance with the past custom and practice of EAE in filing
its Tax Returns.
(v) EAE and the Buyer have withheld from each payment
made to any of their past or present employees, officers or directors,
the amount of all taxes and other deductions required to be withheld
therefrom, and have paid the same to the proper tax or other receiving
officers within the time required under any applicable legislation.
(i) Subsidiaries. The Buyer has no Subsidiaries. EAE has no
Subsidiaries other than The Oil & Gas Asset Clearinghouse, Inc., TradeBank,
Inc., EAEDP, Inc., and the Buyer.
(j) Environmental, Health, and Safety Matters.
(i) The Buyer and EAE have complied and are in
compliance, in each case in all material respects, with all
Environmental, Health, and Safety Requirements.
(ii) Without limiting the generality of the
foregoing, the Buyer and EAE have obtained, have complied, and are in
compliance with, in each case in all material respects, all permits,
licenses and other authorizations that are required pursuant to
Environmental, Health, and Safety Requirements for the occupation of
their facilities and the operation of their business.
(iii) Neither the Buyer nor EAE have received any
written or oral notice, report or other information regarding any
actual or alleged violation of Environmental, Health, and Safety
Requirements, or any liabilities or potential liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise) including any
investigatory, remedial or corrective obligations, relating to any of
them or their facilities arising under Environmental, Health, and
Safety Requirements.
(iv) None of the following exists at any property or
facility owned or operated by the Buyer or EAE: (1) underground storage
tanks, (2) asbestos-containing material in any friable and damaged form
or condition, (3) materials or equipment containing polychlorinated
biphenyls, or (4) landfills, surface impoundments, or disposal areas.
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<PAGE> 32
(v) Neither the Buyer nor EAE has treated, stored,
disposed of, arranged for or permitted the disposal of, transported,
handled, or released any substance, including without limitation any
hazardous substance, or owned or operated any property or facility (and
no such property or facility is contaminated by any such substance) in
a manner that has given or would give rise to material liabilities,
including any material liability for response costs, corrective action
costs, personal injury, property damage, natural resources damages or
attorney fees.
(k) Residency. The Buyer is a corporation organized under the
laws of the State of Colorado with its principle place of business in the State
of Colorado. EAE is a corporation organized under the laws of the State of
Delaware with its principle place of business in the State of Colorado.
(l) Capitalization. As of the date hereof, the authorized
capital stock of EAE consists of 21,500,000 shares, 15,000,000 shares of which
are Common Stock and 6,500,000 shares of which are preferred stock, par value
$.001 per share ("Preferred Stock"). As of the date hereof, 2,000,000 shares of
Preferred Stock have been designated as Series A Preferred Stock, 1,906,137 of
which shares are issued and outstanding; 500,000 shares of Preferred Stock have
been designated as Series B Preferred Stock, 455,120 of which shares are issued
and outstanding, 1,500,000 shares of Preferred Stock have been designated as
Series C Preferred Stock, 761,169 of which shares are issued and outstanding. As
of the date hereof and excluding the Purchase Shares, 500,000 shares of Common
Stock are issued and outstanding. Except for 833,333 shares of Common Stock
reserved for issuance under the Option Plan, 3,122,426 shares of Common Stock
reserved for issuance upon the conversion of the Preferred Stock, 10,000 shares
of Common Stock reserved for issuance upon the exercise of warrants, the
Purchase Shares and any shares of Common Stock to be issued in an initial public
offering, as of the date hereof there are no outstanding subscriptions, options,
rights, warrants or other agreements or commitments obligating EAE to sell or
issue any additional shares of Common Stock, Preferred Stock or any securities
of any class of EAE or any securities convertible into or exchangeable for
shares of Common Stock or Preferred Stock.
(m) Purchase Shares. The Purchase Shares, when issued and
delivered to the Seller pursuant to the terms of this Agreement, will be validly
issued, fully paid and non-assessable, free and clear of all Security Interests.
(n) Disclosure. The representations and warranties contained
in this Section 4 do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading. There has been no event,
transaction or information that has come to the attention of the Buyer or EAE
that has not been disclosed to the Seller in writing that could reasonably be
expected to have a material adverse effect on the assets, business, earnings,
properties or condition (financial or otherwise) of the business of the Buyer
and EAE taken as a whole.
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5. Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use its reasonable best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions set
forth in Section 7 below).
(b) Notices and Consents. The Seller and the Seller
Stockholders will give any notices to third parties, and the Seller and the
Seller Stockholders will use their reasonable best efforts to obtain any third
party consents in connection with the matters referred to in Section 3(c) above.
Each of the Parties will give any notices to, make any filings with, and use its
reasonable best efforts to obtain any authorizations, consents, and approvals of
governments and governmental agencies in connection with the matters referred to
in Section 3(c) and Section 4(c) above.
(c) Operation of Business. The Seller will not engage in any
practice, take any action, or enter into any transaction outside the Ordinary
Course of Business. Without limiting the generality of the foregoing, the Seller
will not (i) except for payments to Dissenting Stockholders for the fair market
value of the capital stock of the Seller owned by them, declare, set aside, or
pay any dividend or make any distribution with respect to its capital stock or
redeem, purchase, or otherwise acquire any of its capital stock, (ii) pay any
amount to any third party with respect to any liability or obligation (including
any costs and expenses the Seller has incurred or may incur in connection with
this Agreement and the transactions contemplated hereby) which would not
constitute an Assumed Liability if in existence as of the Closing, or (iii)
engage in any practice, take any action, or enter into any transaction of the
sort described in Section 3(f) above.
(d) Preservation of Business. The Seller will keep the
Business and the Acquired Assets substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees and shall operate the
Business in the Ordinary Course of Business, and shall use its best efforts to
preserve for the Buyer the goodwill of supplies, customers and others having
business relations with the Seller.
(e) Full Access. The Seller will permit representatives of the
Buyer and EAE to have full access at all reasonable times, and in a manner so as
not to interfere with the normal business operations of the Seller, to all
premises, properties, personnel, books, records (including tax records),
contracts, and documents of or pertaining to the Seller. The Buyer and EAE will
treat and hold as such any Confidential Information it receives from any of the
Seller Stockholders and the Seller in the course of the reviews contemplated by
this Section 5(e), will not use any of the Confidential Information except in
connection with this Agreement, and, if this Agreement is terminated for any
reason whatsoever, will return to the Seller all tangible embodiments (and all
copies) of the Confidential Information which are in its possession.
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(f) Notice of Developments. Each of the Parties will give
prompt written notice to the other Parties of any material adverse development
causing a breach of any of its own representations and warranties in Section 3
and Section 4 above. No disclosure by any Party pursuant to this Section 5(f),
however, shall be deemed to amend or supplement the Disclosure Schedule or to
prevent or cure any misrepresentation, breach of warranty, or breach of
covenant.
(g) Exclusivity. Neither the Seller nor the Seller
Stockholders shall, nor shall they authorize or permit any of the officers,
directors or employees of the Seller or any investment banker, financial
advisor, attorney, accountant or other representative retained by the Seller or
the Seller Stockholders to, initiate, solicit, negotiate or encourage (including
by way of furnishing information), or take any other action to facilitate or
entertain, any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any proposal or offer to acquire all or any
substantial part of the Business, or all or substantially all of the capital
stock of the Seller, whether by merger, purchase of assets, exchange offer or
otherwise, whether for cash, securities or any other consideration or
combination thereof (any such transaction being referred to herein as an "Other
Acquisition Transaction") or agree to endorse or recommend any such Other
Acquisition Transaction. In the event that a Person makes an unsolicited offer
to enter into an Other Acquisition Transaction, the Seller or the Seller
Stockholders, as the case may be, shall promptly inform the Buyer as to that
fact and shall furnish to the Buyer the specifics thereof in writing.
6. Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing.
(a) General. In case at any time after the Closing any further
action is necessary to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents, and the obtaining of consents) as any
other Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to indemnification
therefor under Section 8 below). The Seller acknowledges and agrees that from
and after the Closing the Buyer will be entitled to possession of all documents,
books, records (including tax records), agreements, and financial data of any
sort relating to the Business.
(b) Litigation Support. In the event and for so long as any
Party actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction involving
the Business, the other Parties will cooperate with the contesting or defending
Party and its counsel in the contest or defense, make available its personnel,
and provide such testimony and access to its books and records as shall be
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under Section 8 below).
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(c) Transition. Neither the Seller nor the Seller Stockholders
will take any action that is designed or intended to have the effect of
discouraging any lessor, licensor, customer, supplier, or other business
associate of the Seller from maintaining the same business relationships with
the Buyer after the Closing as it maintained with the Seller prior to the
Closing and will use their reasonable best efforts to assist the Buyer in
collecting all notes and accounts receivable of the Seller purchased by the
Buyer pursuant to this Agreement.
(d) Confidentiality. The Seller and the Seller Stockholders
shall treat and hold as such all of the Confidential Information, refrain from
using any of the Confidential Information except in connection with this
Agreement, and deliver promptly to the Buyer or destroy, at the request and
option of the Buyer, all tangible embodiments (and all copies) of the
Confidential Information which are in their possession, other than the Seller's
copies of financial records which the Seller is required by applicable law to
maintain. In the event that the Seller or the Seller Stockholders are requested
or required (by oral question or request for information or documents in any
legal proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, such Person will
notify the Buyer promptly of the request or requirement so that the Buyer may
seek an appropriate protective order or waive compliance with the provisions of
this Section 6(d). If, in the absence of a protective order or the receipt of a
waiver hereunder, the Seller or the Seller Stockholders are, on the advice of
counsel, compelled to disclose any Confidential Information to any tribunal or
else stand liable for contempt, such Person may disclose the Confidential
Information to the tribunal; provided, however, that such Person shall use
reasonable best efforts to obtain, at the reasonable request of the Buyer, an
order or other assurance that confidential treatment will be accorded to such
portion of the Confidential Information required to be disclosed as the Buyer
shall designate. Notwithstanding the foregoing, the Seller or the Seller
Stockholders may disclose any information required to be disclosed to any
federal, provincial or local government or governmental branch, board, agency,
or instrumentality necessary to comply with any disclosure requirements of such
governmental entities with jurisdiction in respect of the securities of the
Seller or the Seller Stockholders.
(e) Covenant Not to Compete. As an inducement for the Buyer
and EAE to enter into this Agreement, for a period of three (3) years from and
after the Closing Date, the Seller and the Seller Stockholders shall not
directly or indirectly own any interest in, operate, provide services similar
to, manage, control, participate in, consult with, render services for, be
employed by, serve as an officer or director of an entity engaged in, advise any
Person engaged in, or in any manner engage in the use of geographic information
systems technology to implement Internet and/or Internet mapping solutions for
the Energy Industry in the geographic areas set forth on Exhibit E attached
hereto; provided, however, that (i) no owner of less than 1% of the outstanding
stock of any publicly traded corporation shall be deemed to engage solely by
reason thereof in any of its businesses and (ii) the use of the software (as
defined in the license agreement by and between the Seller and TCEnet Inc.)
pursuant to the terms of such license agreement or a sublicense agreement (as
defined in such license agreement) shall not be deemed a breach of this Section
6(e). In the event of any breach of this Section 6(e), the time period of the
breached covenant shall be extended for the period of such breach. The parties
each recognize and acknowledge that the scope, duration and area
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limitations set forth in this Section 6(e) are reasonable and are required for
the protection of the Buyer, EAE and their Affiliates. If the final judgment of
a court of competent jurisdiction declares that any term or provision of this
Section 6(e) is invalid or unenforceable, the Parties agree that the court
making the determination of invalidity or unenforceability shall have the power
to reduce the scope, duration, or area of the term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified after the
expiration of the time within which the judgment may be appealed.
(f) Resales of Common Stock. The Seller hereby acknowledges
and agrees to the following as to any resale of the Purchase Shares by the
Seller:
(i) the Purchase Shares are deemed to be "restricted
securities" as defined in Rule 144 under the Securities Act and will
continue to be so deemed;
(ii) the Seller shall resell the Purchase Shares only
in accordance with (A) the provisions of Regulation S, pursuant to
registration under the Securities Act, or pursuant to an available
exemption from registration, and shall not engage in hedging
transactions with regard to such securities unless in compliance with
the Securities Act and (B) applicable securities legislation in the
Province of Alberta;
(iii) EAE shall not register any transfer of the
Purchase Shares not made in accordance with the provisions of Section
6(f)(ii) above; and
(iv) During the 180-day period following the
effective date of a registration statement of EAE filed under the
Securities Act, the Seller and its transferees or assignees shall not,
to the extent requested by EAE and its managing underwriter, sell or
otherwise transfer or dispose of (other than to donees who agree to be
similarly bound) any Common Stock held by the Seller and its
transferees or assignees at any time during such period; provided,
however, that all officers and directors of EAE enter into similar
agreements. In order to enforce the provisions of the foregoing
sentence, EAE may impose stop-transfer instructions with respect to the
Common Stock held by the Seller and its transferees or assignees. The
provisions of this Section 6(f)(iv) shall terminate two (2) years after
the effective date of EAE's first firm commitment underwritten public
offering of the Common Stock.
(g) Employees.
(i) The Seller will terminate all of its employees
engaged in the Business as of the Closing Date. It is the intention of
the Buyer to hire all of the persons employed by the Seller as of the
Closing Date on the same terms and conditions as the other employees of
the Buyer and EAE and at the same salaries such persons were being paid
by the Seller
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as of the Closing Date. It is understood, however, that no one will
become an employee of the Buyer until such person has completed the
normal interview process identical to that required by the Buyer and
EAE of all of the Buyer's and EAE's other employees and has executed
the Buyer's standard non-disclosure and non-compete agreement for
employees of the Buyer.
(ii) The Seller will remain responsible for all
liabilities for employee compensation and benefits accrued or otherwise
arising out of services rendered prior to the Closing Date; provided,
however, that the Buyer will pay any amounts due to employees of the
Seller as of the Closing Date for any accrued vacation, sick leave or
other leave.
(iii) All of the Seller's employees who are
terminated by the Seller as of Closing Date and who are hired within 90
days after the date of Closing by the Buyer shall, for the purpose of
accruing vacation and sick leave and for other benefits as employees of
the Buyer be given credit for the same length of service at the Buyer
as they had as employees of the Seller. Notwithstanding the immediately
preceding sentence, such former employees of the Seller shall not
receive service credit for purposes of eligibility, vesting or accruing
benefits under any pension plan of the Buyer. The Parties intend that
no former employees of the Seller will receive any duplication of
benefits pursuant to this Section 6(g)(iii).
(iv) The Buyer shall take any such actions as are
necessary in order to (A) waive any limitations regarding pre-existing
conditions and eligibility waiting periods under any Employee Benefit
Plan maintained by it or that may apply to the employees of the Seller
that will be considered for employment by the Buyer, and (B) provide
each employee of the Seller whom the Buyer employs with credit for any
co-payments and deductibles paid prior to the Closing Date for the
calendar year in which the Closing Date occurs, in satisfying any
applicable deductible or out-of-pocket requirements under any Employee
Benefit Plans that such employees are eligible to participate in after
the Closing Date.
(v) The Seller shall work in cooperation with the
Buyer to encourage all of its employees to begin the Buyer's customary
employment application process and accept employment with the Buyer.
(vi) For greater certainty, the Buyer shall have no
obligations to or any liability for any employee of the Seller who does
not accept an offer of employment from the Buyer, and the Seller and
the Seller Stockholders shall indemnify and hold the Buyer harmless
against any such obligations or liability.
(h) Reimbursement for WCB Liability. The parties acknowledge
and agree that the Buyer has demanded of the Seller that the Seller deliver to
the Buyer pursuant to subsection 128(1) of the Workers' Compensation Act
(Alberta) (the "WCA") a certificate from the Workers' Compensation Board (the
"WCB") under the
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<PAGE> 38
WCA stating that the WCB has no claim under the WCA against the Seller (the "WCB
Certificate"). In the event that the Seller is unable for any reason to deliver
the WCB Certificate to the Buyer at or prior to Closing, the Seller and the
Seller Stockholders hereby covenant and agree to reimburse the Buyer for any and
all amounts for which the Buyer becomes liable to pay the WCB pursuant to
subsection 128(2) of the WCA as a result of the failure of the Seller to provide
the WCB Certificate.
(i) Name. As of the Closing Date, the Seller and the Seller
Stockholders and their Associates and Affiliates shall cease to use the name
"Strata Web" or any variations thereof. Within sixty (60) days after the Closing
Date, the Seller shall file any and all necessary documentation with the
appropriate governmental authorities to change its name and the names of its
Associates and Affiliates and take all appropriate actions such that the Seller
and its Associates and Affiliates do not use the name "Strata Web" or any
variations thereof in connection with their businesses. The Seller shall
promptly notify the Buyer of all such filings and documentation.
(j) Piggyback Registrations.
(i) EAE shall notify the Seller in writing as set
forth in Section 10(g) below at least twenty (20) days prior to the
filing of a registration statement under the Securities Act for
purposes of an initial public offering of Common Stock and will afford
the Seller an opportunity to include in such registration statement all
or part of the Purchase Shares held by the Seller ("Piggyback
Registration"). Such notice shall also state if the Piggyback
Registration is an underwritten offering. If the Seller desires to
include in such Piggyback Registration all or any part of the Purchase
Shares held by it, the Seller shall within ten (10) days after receipt
of the above-described notice from EAE, so notify the Seller in
writing. Such notice from the Seller shall state the number of Purchase
Shares to be included in such Piggyback Registration and the intended
method of disposition of such Purchase Shares by the Seller.
(ii) If the Piggyback Registration is an underwritten
offering, the right of the Seller to include any or all of the Purchase
Shares held by it in such Piggyback Registration shall be conditioned
upon the Seller's participation in such underwriting and the inclusion
of the Purchase Shares in the underwriting to the extent provided
herein. The Seller shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by EAE. Notwithstanding any other provision of this
Agreement, if the underwriter determines in good faith that marketing
factors require a limitation of the number of shares to be
underwritten, the number of shares that may be included in the
underwriting shall be allocated as follows: (A) first, to EAE, (B)
second, to all stockholders of EAE as of the Closing other than the
Seller, (C) third, to the Seller, and (D) fourth, to all other
stockholders of EAE. EAE shall have the right to terminate or withdraw
any Piggyback Registration initiated by it prior to the effectiveness
of such Piggyback Registration whether or not the Seller has elected to
include the Purchase Shares in such Piggyback Registration.
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(iii) All expenses incident to EAE's performance of
or compliance with this Section 6(j), including, without limitation,
all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws, printing expenses, messenger and delivery
expenses, and fees and disbursements of counsel for EAE and all
independent certified public accountants, underwriters (excluding
discounts and commissions) and other Persons retained by EAE
("Registration Expenses") will be borne by EAE; provided, however, that
Registration Expenses shall not include underwriting discounts and
commissions with respect to the Purchase Shares and any expenses of the
Seller in connection with the Piggyback Registration, including,
without limitation, costs and expenses of legal counsel.
(iv) In connection with a Piggyback Registration, EAE
shall furnish to the Seller such number of copies of the registration
statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary
prospectus) and such other documents as the Seller may reasonably
request in order to facilitate the disposition of the Purchase Shares
included in such Piggyback Registration.
(v) In connection with a Piggyback Registration, EAE
shall not be required to (A) qualify generally to do business in any
jurisdiction where it would not otherwise by required to qualify but
for the Piggyback Registration, (B) subject itself to taxation in any
such jurisdiction, or (C) consent to general service of process in any
such jurisdiction.
(vi) The Seller may not participate in any Piggyback
Registration which is underwritten unless the Seller (A) agrees to sell
securities on the basis provided in any underwriting arrangements
approved by EAE, and (B) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other
documents required under the terms of such underwriting arrangements.
(k) Put Right.
(i) If prior to June 30, 2001 EAE fails to notify the
Seller, in writing (as set forth in Section 10(g)), that it has filed
and has an effective registration statement under the Securities Act
for purposes of an initial public offering of Common Stock, then the
Seller, at its sole election, may make a one-time demand that the Buyer
repurchase all or part of their 16,856 shares of Common Stock. This
repurchase of shares will be at a per share price calculated as the
ratio of the 16,856 shares of common stock over the total number of
fully diluted outstanding shares of EAE (for this purpose,
fully-diluted shall include the assumption that all options and
warrants available in any option plan are issued and exercisable)
multiplied by the fair market value of EAE and then discounted by 20%
to reflect the non-liquid nature of the privately held stock. The
maximum amount paid by EAE under this provision will be $500,000USD,
and any excess shall be paid in shares of Common Stock.
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(ii) The fair market value of EAE will be determined
by good faith negotiation between the Seller and the Buyer. If,
however, the parties cannot agree on the fair market value of EAE, then
the Seller and the Buyer shall within ten (10) days mutually select an
investment banker to determine the fair market value of EAE. If the
Seller and the Buyer are unable to mutually select an investment
banker, each party shall select an investment banker and the selected
investment bankers shall appoint a third investment banker (the
"Independent Investment Banker") who shall determine the fair market
value of EAE.
(iii) The Seller and the Buyer shall, within five (5)
days of the selection of the Independent Investment Banker, each submit
to the Independent Investment Banker estimates of the fair market value
of EAE. The Independent Investment Banker shall, within twenty (20)
days following receipt of such proposed fair market values, either (i)
select the fair market value proposed by the Seller or the Buyer or
(ii) determine a different fair market value which is between the
proposed fair market values. If the Independent Investment Banker
selects a fair market value proposed by the Seller or the Buyer as the
fair market value of the shares, such value shall be the fair market
value. If the Independent Investment Banker selects another value (the
"Banker's Value") as the fair market value, the fair market value of
the shares shall equal the arithmetic mean of the Banker's Value and
the fair market value proposed by the Seller or the Buyer which is
nearest to the Banker's Value. The Independent Investment Banker shall
not be advised of how the Banker's Value will be used to calculate the
fair market value or that the Banker's Value may be adjusted in
calculating the fair market value.
(iv) The fees and expenses of the Independent
Investment Banker shall be borne equally by the Seller on the one hand
and the Buyer on the other hand. Notwithstanding the foregoing, the
fair market value determination shall take into consideration, among
other factors, any actual comparable stock transactions with respect to
the capital stock of EAE, including without limitation the stock
purchase herein contemplated or other relevant transactions, as well as
any contribution of intangible assets.
(v) This one-time option for the Seller shall cease
at the earlier of: (a) the filing with the United States Securities and
Exchange Commission to register shares of Common Stock for an initial
public offering; (b) a merger, sale of the capital stock or sale of
substantially all of the assets of EAE, after which transaction the
person (or persons) having voting control of EAE or substantially all
of its assets (as the case may be), is different than prior to such
transaction; provided that the consideration provided in such
transaction is cash or publicly-traded securities or a combination
thereof; or (c) the failure of the Seller to file notice with EAE of
its intent to exercise this option by September 30, 2001.
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7. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer and EAE. The
obligation of the Buyer and EAE to consummate the transactions to be performed
by them in connection with the Closing is subject to satisfaction of the
following conditions:
(i) the representations and warranties set forth in
Section 3 above shall be true and correct in all material respects at
and as of the Closing Date;
(ii) the Seller and the Seller Stockholders shall
have performed and complied with all of their covenants hereunder in
all material respects through the Closing;
(iii) the Seller and the Seller Stockholders shall
have given notices to third parties and procured all of the third party
consents specified in Section 5(b) above;
(iv) no action, suit, or proceeding shall be pending
before any court or quasi-judicial or administrative agency of any
federal, state, provincial, municipal, local, or foreign jurisdiction
or before any arbitrator or mediator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation, or (C) affect adversely the right of
the Buyer to own the Acquired Assets or to operate the Business;
(v) the Seller and the Seller Stockholders shall have
delivered to the Buyer a certificate to the effect that each of the
conditions specified above in Section 7(a)(i)-(iv) is satisfied in all
respects;
(vi) the Seller, the Seller Stockholders, the Buyer
and EAE shall have received all authorizations, consents, and approvals
of governments and governmental agencies referred to in Section 5(b)
above;
(vii) the Seller Stockholders shall have executed and
delivered to the Buyer Noncompete Agreements in substantially the form
of Exhibit F attached hereto (the "Noncompete Agreement") and the same
shall be in full force and effect;
(viii) the Seller shall have delivered to the Buyer
digital copies of the Seller's software and all other available
information used in connection with the Business (i.e., customer lists,
business plans etc.) and hard copies of all other information, files,
records, books, agreements, documents, instruments and similar items
used in connection with the Business;
(ix) the Seller shall have executed and delivered to
the Buyer the Bill of Sale and the same shall be in full force and
effect;
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(x) the Buyer shall have completed a due diligence
review of the Seller, which review shall be satisfactory to the Buyer
in its sole discretion;
(xi) the Seller shall have delivered to the Buyer a
server with copies of all of the Seller's software;
(xii) the Seller shall have executed and delivered to
the Buyer Registrant Name Change Agreements in the form prescribed by
Network Solutions, Inc. transferring registered ownership of the domain
names "strataweb.com", "strataplace.com" and "stratatrak.com" to the
Buyer and the same shall be in full force and effect;
(xiii) the Seller shall have executed and delivered
to the Buyer the Name Assignment and Agreement in substantially the
form of Exhibit G attached hereto (the "Name Agreement") and the same
shall be in full force and effect;
(xiv) the Seller shall have executed and delivered to
the Buyer a side letter reasonably satisfactory to the Buyer regarding
any potential legal claims the Seller may have against PetroWeb,
Petroleum Exchange, Inc. or Hunters Petroleum Exchange Ltd. and the
same shall be in full force and effect;
(xv) no material adverse change shall have occurred
with respect to the business, financial condition, operations, results
of operations or future prospects of the Seller or the ability of the
Parties to consummate the transactions contemplated by this Agreement;
and
(xvi) all actions to be taken by the Seller and the
Seller Stockholders in connection with consummation of the transactions
contemplated hereby and all certificates, instruments, and other
documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to the Buyer and EAE.
The Buyer and EAE may waive any condition specified in this Section
7(a) if they execute a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Seller and the Seller
Stockholders. The obligation of the Seller and the Seller Stockholders to
consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in
Section 4 above shall be true and correct in all material respects at
and as of the Closing Date;
(ii) the Buyer and EAE shall have performed and
complied with all of their covenants hereunder in all material respects
through the Closing;
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(iii) no action, suit, or proceeding shall be pending
before any court or quasi-judicial or administrative agency of any
federal, state, provincial, municipal, local, or foreign jurisdiction
or before any arbitrator or mediator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement
or (B) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect);
(iv) the Buyer and EAE shall have delivered to the
Seller a certificate to the effect that each of the conditions
specified above in Section 7(b)(i)-(iii) is satisfied in all respects;
(v) EAE shall have executed and delivered to the
Seller stock certificates representing the Purchase Shares;
(vi) the Seller, the Seller Stockholders, the Buyer
and EAE shall have received all material authorizations, consents, and
approvals of governments and governmental agencies referred to in
Section 5(b) above;
(vii) all actions to be taken by the Buyer and EAE in
connection with consummation of the transactions contemplated hereby
and all certificates, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Seller; and
(viii) the consummation of the sale of all of the
issued and outstanding shares of the Seller owned by TCEnet Inc. to Alberta
International Capital Ltd. and all other ancillary transactions thereto.
The Seller and the Seller Stockholders may waive any condition
specified in this Section 7(b) if they execute a writing so stating at or prior
to the Closing.
8. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties. All of the
representations and warranties of the Seller, the Seller Stockholders, the Buyer
and EAE contained in this Agreement shall survive the Closing (even if the
damaged Party knew or had reason to know of any misrepresentation or breach of
warranty at the time of Closing) and continue in full force and effect for a
period of two (2) years thereafter.
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(b) Indemnification Provisions for Benefit of the Buyer and
EAE.
(i) In the event the Seller or the Seller
Stockholders breach any of their (i) representations and warranties
contained in this Agreement, and, if there is an applicable survival
period pursuant to Section 8(a) above, provided that the Buyer or EAE
makes a written claim for indemnification against the Seller or the
Seller Stockholders, as the case may be, pursuant to Section 10(g)
below within such survival period, or (ii) covenants contained in this
Agreement, and the Buyer or EAE makes a written claim for
indemnification against the Seller or the Seller Stockholders, as the
case may be, pursuant to Section 10(g) below, then the Seller and the
Seller Stockholders, severally, but not jointly, agree to indemnify the
Buyer and EAE from and against the entirety of any Adverse Consequences
the Buyer and EAE may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences the Buyer and
EAE may suffer after the end of any applicable survival period)
resulting from, arising out of, relating to, in the nature of, or
caused by the breach; provided, however, that (A) the Seller and the
Seller Stockholders shall not have any obligation to indemnify the
Buyer or EAE from and against any Adverse Consequences resulting from,
arising out of, relating to, in the nature of, or caused by the breach
of any representation, warranty or covenant of the Seller or the Seller
Stockholders until the Buyer and EAE, jointly, have suffered Adverse
Consequences by reason of all such breaches in excess of US$50,000 in
the aggregate (the "Basket"), in which case the Buyer and EAE shall be
entitled to recover the full amount of such claims, including the
amounts included in the Basket, pursuant to this Agreement, and (B)
there shall be an aggregate ceiling equal to the amount of the Purchase
Price on the obligation of the Seller and the Seller Stockholders to
indemnify the Buyer and EAE from and against Adverse Consequences
resulting from, arising out of, relating to, in the nature of, or
caused by such breaches of the representations, warranties or covenants
of the Seller or the Seller Stockholders.
(ii) The Seller and the Seller Stockholders, jointly
and severally, agree to indemnify the Buyer and EAE from and against
the entirety of any Adverse Consequences the Buyer and EAE may suffer
resulting from, arising out of, relating to, in the nature of, or
caused by any (A) liability of the Seller or the Seller Stockholders
other than Assumed Liabilities (including any liability of the Seller
or the Seller Stockholders that becomes a liability of the Buyer or EAE
under any bulk transfer law of any jurisdiction, under any common law
doctrine of de facto merger or successor liability, or otherwise by
operation of law), (B) liability of the Business arising, incurred, for
or in connection with any period on or prior to the Closing Date
(including, but not limited to, any claim asserted by Colby Ruff), (C)
claims by any third party with respect to the Intellectual Property,
(D) failure of the Seller to obtain the WCB Certificate, or (E) claims
asserted by Dissenting Stockholders (including any severance or loan
amounts).
(iii) The Seller and the Seller Stockholders, jointly
and severally, agree, to the extent permitted by law, to indemnify EAE,
its directors and officers and each Person
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who controls EAE (within the meaning of the Securities Act) against the
entirety of any Adverse Consequences such persons may suffer resulting
from, arising out of, relating to, in the nature of, or caused by any
untrue or alleged untrue statement of a material fact contained in the
registration statement, prospectus or preliminary prospectus with
respect to a Piggyback Registration or any amendment thereof or
supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that such untrue
statement or omission is contained in any Seller Statement.
(iv) The Seller and the Seller Stockholders may
satisfy any indemnification liability hereunder by payment to Buyer
and/or EAE, as the case may be, in cash or shares of Common Stock,
which shall be valued as of the Closing Date.
(c) Indemnification Provisions for Benefit of the Seller.
(i) In the event the Buyer or EAE breach any of their
(i) representations and warranties contained in this Agreement, and, if
there is an applicable survival period pursuant to Section 8(a) above,
provided that the Seller makes a written claim for indemnification
against the Buyer or EAE, as the case may be, pursuant to Section 10(g)
below within such survival period, or (ii) covenants contained in this
Agreement, and the Seller makes a written claim for indemnification
against the Buyer or EAE, as the case may be, pursuant to Section 10(g)
below, then the Buyer and EAE, jointly and severally, agree to
indemnify the Seller from and against the entirety of any Adverse
Consequences the Seller may suffer through and after the date of the
claim for indemnification (including any Adverse Consequences the
Seller may suffer after the end of any applicable survival period)
resulting from, arising out of, relating to, in the nature of, or
caused by the breach; provided, however, that (A) the Buyer and EAE
shall not have any obligation to indemnify the Seller from and against
any Adverse Consequences resulting from, arising out of, relating to in
the nature of, or caused by the breach of any representation, warranty
or covenant of the Buyer or EAE until the Seller has suffered Adverse
Consequences by reason of all such breaches in excess of the Basket, in
which case the Seller shall be entitled to recover the full amount of
such claims, including the amounts in the Basket, pursuant to this
Agreement, and (B) there shall be a US$100,000 aggregate ceiling on the
obligation of the Buyer and EAE to indemnify the Seller from and
against Adverse Consequences resulting from, arising out of, relating
to, in the nature of, or caused by such breaches of the
representations, warranties or covenants of the Buyer or EAE.
(ii) The Buyer and EAE, jointly and severally, agree
to indemnify the Seller from and against the entirety of any Adverse
Consequences the Seller may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any Assumed Liability.
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(iii) The Buyer and EAE, jointly and severally, agree
to indemnify, to the extent permitted by law, the Seller, its officers
and directors and each Person who controls the Seller (within the
meaning of the Securities Act) against the entirety of any Adverse
Consequences such persons may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any untrue or alleged
untrue statement of a material fact contained in any registration
statement, prospectus or preliminary prospectus with respect to a
Piggyback Registration or any amendment thereof or supplement thereto
or any omission or alleged untrue statement of a material fact required
to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or contained in
any information furnished in writing to EAE by Seller (a "Seller
Statement") or by the Seller's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements
thereto after EAE has furnished the Seller with a sufficient number of
copies of the same.
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim")
which may give rise to a claim for indemnification against any other
Party (the "Indemnifying Party") under this Section 8, then the
Indemnified Party shall promptly notify the Indemnifying Party thereof
in writing; provided, however, that no delay on the part of the
Indemnified Party in notifying the Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
(ii) The Indemnifying Party will have the right to
assume the defense of the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party at any time within
fifteen (15) days after the Indemnified Party has given notice of the
Third Party Claim; provided, however, that the Indemnifying Party must
conduct the defense of the Third Party Claim actively and diligently
thereafter in order to preserve its rights in this regard; provided
further that the Indemnified Party may retain separate co-counsel at
its sole cost and expense and participate in the defense of the Third
Party Claim.
(iii) So long as the Indemnifying Party has assumed
and is conducting the defense of the Third Party Claim in accordance
with Section 8(d)(ii) above, (A) the Indemnifying Party will not
consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of
the Indemnified Party (not to be withheld unreasonably) unless the
judgment or proposed settlement involves only the payment of money
damages by the Indemnifying Party and does not impose an injunction or
other equitable relief upon the Indemnified Party, and (B) the
Indemnified Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without
the prior written consent of the Indemnifying Party (not to be withheld
unreasonably).
41
<PAGE> 47
(iv) In the event the Indemnifying Party does not
assume and conduct the defense of the Third Party Claim in accordance
with Section 8(d)(ii) above, however, (A) the Indemnified Party may
defend against, and consent to the entry of any judgment or enter into
any settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, the Indemnifying Party in
connection therewith), and (B) the Indemnifying Party will remain
responsible for any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of,
or caused by the Third Party Claim to the fullest extent provided in
this Section 8.
(e) Determination of Adverse Consequences. The Parties shall
make appropriate adjustments for tax consequences and insurance coverage and
take into account the time cost of money (using the Applicable Rate as the
discount rate) in determining Adverse Consequences for purposes of this Section
8. All indemnification payments under this Section 8 shall be deemed adjustments
to the Purchase Price.
(f) Other Indemnification Provisions. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable, or common law remedy any Party may have for breach of any
representation, warranty, or covenant with respect to the Business or the
transactions contemplated by this Agreement.
9. Termination.
(a) Termination of Agreement. Certain of the Parties may
terminate this Agreement as provided below:
(i) the Buyer and the Seller may terminate this
Agreement by mutual written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving
written notice to the Seller at any time prior to the Closing (A) in
the event the Seller or the Seller Stockholders have breached any
material representation, warranty, or covenant contained in this
Agreement in any material respect, the Buyer has notified the Seller of
the breach, and the breach has continued without cure for a period of
fifteen (15) days after the notice of breach, or (B) if the Closing
shall not have occurred on or before March 31, 2000, by reason of the
failure of any condition precedent under Section 7(a) hereof (unless
the failure results primarily from the Buyer or EAE breaching any
representation, warranty, or covenant contained in this Agreement);
(iii) the Seller may terminate this Agreement by
giving written notice to the Buyer at any time prior to the Closing (A)
in the event the Buyer has breached any material representation,
warranty, or covenant contained in this Agreement in any material
respect, the Seller has notified the Buyer of the breach, and the
breach has continued without
42
<PAGE> 48
cure for a period of fifteen (15) days after the notice of breach, or
(B) if the Closing shall not have occurred on or before March 31, 2000,
by reason of the failure of any condition precedent under Section 7(b)
hereof (unless the failure results primarily from the Seller or the
Seller Stockholders breaching any representation, warranty, or covenant
contained in this Agreement); or
(iv) the Buyer or the Seller may terminate this
Agreement by giving written notice to the other if the Closing shall
not have occurred on or before February 29, 2000.
(b) Effect of Termination. If any Party terminates this
Agreement pursuant to Section 9(a) above, all rights and obligations of the
Parties hereunder shall terminate without any liability of any Party to any
other Party (except for any liability of any Party then in breach); provided,
however, that the confidentiality provisions contained in Section 5(e) above
shall survive termination.
10. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall
issue any press release or public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
other Parties; provided, however, that any Party may make any public disclosure
it believes in good faith is required by applicable law or stock exchange rule
(in which case the disclosing Party will use its reasonable best efforts to
advise the other Parties prior to making the disclosure).
(b) No Third-Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
(c) Entire Agreement. This Agreement (including any ancillary
documents referred to herein) constitutes the entire agreement between the
Parties and supersedes any prior understandings, agreements, or representations
by or between the Parties, written or oral, to the extent they related in any
way to the subject matter hereof.
(d) Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Parties; provided, however, that the Buyer may (i) assign
any or all of its rights and interests hereunder to one or more of its
Affiliates, and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
43
<PAGE> 49
(e) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. Execution counterparts of
this Agreement may be delivered by facsimile.
(f) Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then three
(3) business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to the Seller or the Seller Stockholders:
Strata Web Systems Ltd.
600-940 - 6th Avenue S.W.
Calgary, Alberta
Canada T2P 3T1
Attn: Greg Hess
Facsimile No: (403) 237-9898
with a copy to:
Armstrong Perkins Hudson, Barristers and Solicitors
1600 Canada Place
407 - 2nd Street S.W.
Calgary, Alberta
T2P 2Y3
Canada
Attn: Michael J. Perkins, Esq.
Facsimile No: (403) 262-7896
If to the Buyer or EAE:
The Petroleum Place, Inc.
7900 East Union Avenue
Suite 1100
Denver, Colorado 80237
USA
Attn: Gary R. Vickers
Facsimile No.: (303) 694-5326
44
<PAGE> 50
With a copy to:
Jacobs Chase Frick Kleinkopf & Kelley LLC
1050 Seventeenth Street, Suite 1500
Denver, Colorado 80265
USA
Attn: Matthew R. Perkins, Esq.
Telephone No.: (303) 685-4800
Facsimile No.: (303) 685-4869
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(h) Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Colorado without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Colorado or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Colorado.
(i) Amendments and Waivers. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the Parties hereto. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(j) Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(k) Expenses. Each of the Parties hereto will bear their own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby. The Seller agrees
that it has not paid any amount to any third party, and will not pay any amount
to any third party until after the Closing, with respect to any of the costs and
expenses of the Seller and the Seller Stockholders (including any of their legal
fees, agency fees and expenses) in connection with this Agreement or any of the
transactions contemplated hereby.
45
<PAGE> 51
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state,
provincial, local, municipal or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The word "including" shall mean including without
limitation.
(m) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
(n) Tax Matters.
(i) The Seller will be responsible for the
preparation and filing of all Tax Returns for the Business for all
periods as to which Tax Returns are due before and after the Closing
Date which include the operations of the Business for any period ending
on or before the Closing Date. The Seller will make all payments
required with respect to any such Income Tax Return.
(ii) The Buyer will be responsible for the
preparation and filing of all Tax Returns for the Business for all
periods as to which Tax Returns are due after the Closing Date (other
than for Taxes with respect to periods for which the consolidated,
unitary, and combined Tax Returns of the Seller will include the
operations of the Business as set forth in Section 10(n)(i) above). The
Buyer will make all payments required with respect to any such Tax
Return; provided, however, that the Seller will reimburse the Buyer
concurrently therewith to the extent any payment the Buyer is making
relates to the operations of the Business for any period ending on or
before the Closing Date.
(o) Execution. The Parties shall be entitled to rely on
delivery by facsimile machine of an executed copy of this Agreement and such
facsimile copy shall be effective to create a valid and binding agreement among
the Parties in accordance with the terms hereof.
(p) Specific Performance. Each of the Parties acknowledges and
agrees that the other Parties hereto would be damaged irreparably in the event
any of the provisions of this Agreement are not performed in accordance with
their specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties hereto shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in any
action instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 10(r) below), in addition to any other remedy to which they may
be entitled, at law or in equity.
46
<PAGE> 52
(q) Dispute Notification and Resolution Procedure. Any
disputes or claims (collectively, "Claims") arising out of or related to this
Agreement or a breach hereof shall be subject to the following provisions:
(i) Any Party with a Claim (the "Claimant") shall
notify any other Party against whom the Claimant has a Claim (the "Notified
Party") in writing of the Claim, which writing shall describe the nature of the
Claim and the proposed remedy (the "Claim Notice").
(ii) Within a reasonable period of time after receipt
of the Claim Notice, which period shall not exceed sixty (60) days, the Notified
Party and the Claimant shall meet at a mutually-acceptable location to discuss
the Claim. The Notified Party and the Claimant shall negotiate in good faith in
an attempt to resolve the Claim.
(iii) If the Claimant and the Notified Party cannot
resolve the Claim pursuant to the procedures described in subparagraphs (q)(i)
and (ii) above, either the Claimant or the Notified Party may commence binding
arbitration with the American Arbitration Association. The following rules and
procedures shall apply in all cases unless the parties to the arbitration agree
otherwise:
(A) The provider shall be the American
Arbitration Association. The proceeding shall be governed by the rules
and procedures of the Arbitrator, subject to the modification described
herein.
(B) The proceeding shall be held in Denver,
Colorado.
(C) There shall be one arbitrator (the
"Arbitrator") mutually acceptable to the parties to the arbitration;
provided, however, that if the parties to the arbitration cannot
mutually agree upon an Arbitrator within fifteen (15) days of the
submission of the Claim to arbitration, the American Arbitration
Association shall select the Arbitrator.
(iv) The Arbitrator shall be an attorney or retired
judge.
(v) The Arbitrator in his or her discretion may order
such discovery as any party to the arbitration may request, including
without limitation production of documents and depositions.
(vi) If the parties to the arbitration agree, the
Arbitrator may retain a neutral expert to advise the Arbitrator on
technical matters.
(vii) The rules of evidence need not be followed at
the arbitration hearing, provided that the Arbitrator shall follow
substantive rules of law in rendering his or her
47
<PAGE> 53
decision. Any party to the arbitration may request a stenographic
record of the arbitration hearing.
(viii) The Arbitrator may award such legal and
equitable damages as may be rendered in a court of law, including
without limitation money damages and injunctive relief.
(ix) The Arbitrator shall render a written decision
within thirty (30) days of the closing of the arbitration hearing
unless an extension is granted by all parties to the arbitration. The
decision shall contain findings of fact and conclusions of law. The
decision shall be final and binding on the parties to the arbitration
and may be enforced in any court of competent jurisdiction.
(x) The Arbitrator shall have the discretion to award
costs and attorneys' fees to the party that the Arbitrator has
determined is the prevailing party.
(r) Submission to Jurisdiction. Each of the Parties submits to
the jurisdiction of any state or federal court sitting in Denver, Colorado, in
any action or proceeding arising out of or relating to Section 10(p) above or
the enforcement of an arbitration decision pursuant to Section 10(q) above and
agrees that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each Party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other Party with respect thereto. Any
Party may make service on any other Party by sending or delivering a copy of the
process to the Party to be served at the address and in the manner provided for
the giving of notices in Section 10(g) above. Nothing in this Section 10(r),
however, shall affect the right of any Party to serve legal process in any other
manner permitted by law or at equity. Each Party agrees that a final judgment in
any action or proceeding so brought shall be conclusive and may be enforced by
suit on the judgment or in any other manner provided by law or at equity.
* * * * *
48
<PAGE> 54
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
SELLER:
STRATA WEB SYSTEMS LTD.
/s/
----------------------------------------
By:
-----------------------------------
Its:
-----------------------------------
BUYER:
EAESW, INC.
/s/ Gary R. Vickers
----------------------------------------
By: Gary R. Vickers
Its: President
EAE:
THE PETROLEUM PLACE, INC.
/s/ Gary R. Vickers
----------------------------------------
By: Gary R. Vickers
Its: President
<PAGE> 55
SELLER STOCKHOLDERS:
/s/ Jimmy W. Chow
----------------------------------------
Jimmy W. Chow
/s/ William S. Klym
----------------------------------------
William S. Klym
ALBERTA INTERNATIONAL CAPITAL LTD.
/s/
----------------------------------------
By:
-----------------------------------
Its:
-----------------------------------
ARMCO HOLDINGS LTD.
/s/
----------------------------------------
By:
-----------------------------------
Its:
-----------------------------------
<PAGE> 56
EXHIBIT A
BILL OF SALE AND ASSIGNMENT
<PAGE> 57
EXHIBIT B
ALLOCATION SCHEDULE
<TABLE>
<CAPTION>
Asset Allocation
----- ----------
<S> <C>
1.
2.
3.
</TABLE>
<PAGE> 58
EXHIBIT C
SELLER FINANCIAL STATEMENTS AND PROJECTIONS
<PAGE> 59
EXHIBIT D
EAE FINANCIAL STATEMENTS
<PAGE> 60
EXHIBIT E
NONCOMPETE GEOGRAPHIC AREA
I. United States and Districts
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
<PAGE> 61
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
II. Mexico States and Federal Districts
Aguascalientes
Baja California
Baja California Sur
Campeche
Chiapas
Chihuahua
Coahuila de Zaragoza
Colima
Distrito Federal
Durango
Guanajuato
Guerrero
Hidalgo
Jalisco
Mexico
Michoacan de Ocampo
Morelos
Nayarit
Nuevo Leon
Oaxaca
Puebla
Queretaro de Arteaga
Quintana Roo
San Luis Potosi
Sinaloa
Sonora
<PAGE> 62
Tabasco
Tamaulipas
Tlaxcala
Veracruz-Llave
Yucatan
Zacatecas
III. Canada Provinces and Territories
Alberta
British Columbia
Manitoba
New Brunswick
Newfoundland
Northwest Territories
Nova Scotia
Nunavut
Ontario
Prince Edward Island
Quebec
Saskatchewan
Yukon Territory
<PAGE> 63
EXHIBIT F
FORM OF NONCOMPETE AGREEMENT
<PAGE> 64
EXHIBIT G
NAME AGREEMENT
<PAGE> 1
EXHIBIT 2.5
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 17, 2000
BY AND AMONG
PETROLEUM PLACE, INC.
(THE "PURCHASER")
PP/PT ACQUISITION CORPORATION
(THE "MERGERSUB")
PARADIGM TECHNOLOGIES, INC.
(THE "COMPANY")
AND
CERTAIN STOCKHOLDERS OF
PARADIGM TECHNOLOGIES, INC.
(THE "SELLERS")
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................................1
Section 1.1 Certain Definitions...........................................................1
Section 1.2 Terms Generally...............................................................9
ARTICLE II MERGER........................................................................9
Section 2.1 The Merger....................................................................9
Section 2.2 Closing; Effective Time.......................................................9
Section 2.3 Effect of the Merger..........................................................10
Section 2.4 Certificate of Incorporation; Bylaws..........................................10
Section 2.5 Directors and Officers........................................................10
Section 2.6 Surrender of Certificates; Purchase of Company Common Stock; Effect of
Merger on Company Common Stock................................................10
Section 2.7 Delivery of Merger Consideration; Closing Deliveries..........................11
Section 2.8 Stock Transfer Books..........................................................12
Section 2.9 Adjustment to Merger Consideration............................................12
Section 2.10 Intended Tax Consequences.....................................................14
Section 2.11 Taking of Necessary Action; Further Action....................................15
Section 2.12 Withholding...................................................................15
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS.....................15
Section 3.1 Corporate Organization........................................................15
Section 3.2 Ownership of Shares...........................................................15
Section 3.3 Authorization, Etc............................................................16
Section 3.4 No Conflict...................................................................16
Section 3.5 Governmental Consents; HSR....................................................16
Section 3.6 Capital Stock.................................................................17
Section 3.7 Company Financial Statements..................................................17
Section 3.8 Absence of Certain Changes or Events..........................................17
Section 3.9 No Undisclosed Liabilities....................................................20
Section 3.10 Property, Assets; Inventory...................................................20
Section 3.11 Intellectual Property.........................................................21
Section 3.12 Tax Matters...................................................................22
Section 3.13 Real Property.................................................................23
Section 3.14 Material Contracts............................................................24
Section 3.15 Relationship with Suppliers & Customers.......................................26
Section 3.16 Notes and Accounts Receivable; Bank Accounts..................................26
Section 3.17 Insurance.....................................................................26
Section 3.18 Employees.....................................................................27
Section 3.19 Employee Benefits.............................................................27
Section 3.20 Environmental Compliance......................................................30
Section 3.21 Litigation and Claims, Compliance with Laws...................................30
Section 3.22 Affiliate Transactions........................................................31
Section 3.23 Records.......................................................................31
Section 3.24 Brokers, Finders, Etc.........................................................32
Section 3.25 Competing Business............................................................32
Section 3.26 Representations and Warranties Generally......................................32
Section 3.27 Other Information.............................................................32
Section 3.28 Investment Representations....................................................32
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER...................................33
Section 4.1 Organization..................................................................33
Section 4.2 Authorization, Etc............................................................33
Section 4.3 Brokers' Fees.................................................................34
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 4.4 Capital Stock.................................................................34
Section 4.5 No Conflict...................................................................34
Section 4.6 Purchaser Financial Statements................................................34
Section 4.7 Absence of Certain Changes or Events..........................................35
Section 4.8 No Undisclosed Liabilities....................................................35
Section 4.9 Property, Assets; Inventory...................................................35
Section 4.10 Relationship with Suppliers & Customers.......................................35
Section 4.11 Notes and Accounts Receivable; Bank Accounts..................................35
Section 4.12 HSR...........................................................................35
Section 4.13 Litigation; Compliance with Laws..............................................36
Section 4.14 Other Information.............................................................36
ARTICLE V SELLERS' AND THE COMPANY'S OBLIGATIONS BEFORE CLOSING.........................37
Section 5.1 General.......................................................................37
Section 5.2 Access........................................................................37
Section 5.3 Operation of Business.........................................................37
Section 5.4 Preservation of Business; Insurance...........................................37
Section 5.5 Notices and Consents..........................................................38
Section 5.6 Exclusivity...................................................................38
Section 5.7 Delivery of Schedules; Notice of Developments; Update of Schedules............38
Section 5.8 Confidentiality...............................................................38
Section 5.9 Financial Statements..........................................................39
Section 5.10 Company Obligations; Affiliate Agreements.....................................39
Section 5.11 Termination of ERISA Plans....................................................39
Section 5.12 Employee Confidentiality Agreements...........................................39
Section 5.13 Due Diligence.................................................................40
ARTICLE VI PURCHASER'S OBLIGATIONS BEFORE CLOSING........................................40
Section 6.1 Due Diligence.................................................................40
Section 6.2 Access........................................................................40
Section 6.3 Confidentiality...............................................................40
Section 6.4 Nonsolicitation...............................................................40
Section 6.5 General.......................................................................41
ARTICLE VII CONDITIONS PRECEDENT TO PURCHASER'S PERFORMANCE...............................41
Section 7.1 Representations and Warranties True...........................................41
Section 7.2 Performance...................................................................41
Section 7.3 No Material Adverse Change....................................................41
Section 7.4 Consents......................................................................42
Section 7.5 No Proceedings, Injunctions, Etc..............................................42
Section 7.6 Sellers' and Officer's Certificates...........................................42
Section 7.7 Redemption of Certain Stockholders of the Company.............................42
Section 7.8 Employee Confidentiality Agreements...........................................42
Section 7.9 Opinion of Sellers' Counsel...................................................42
Section 7.10 Employment and Non-Competition Agreements.....................................42
Section 7.11 Investors' Rights Agreement...................................................43
Section 7.12 Stockholder Approval..........................................................43
ARTICLE VIII CONDITIONS PRECEDENT TO SELLERS' PERFORMANCE..................................43
Section 8.1 Representations and Warranties True...........................................43
Section 8.2 Performance...................................................................43
Section 8.3 No Proceedings, Injunctions, Etc..............................................43
Section 8.4 No Material Adverse Effect....................................................43
Section 8.5 Purchaser's Certificate.......................................................44
Section 8.6 Opinion of Purchaser's Counsel................................................44
Section 8.7 Redemption of Certain Shareholders of the Company.............................44
Section 8.8 Restated Certificate of Incorporation.........................................44
ARTICLE IX POST-CLOSING COVENANTS........................................................44
Section 9.1 General.......................................................................44
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 9.2 Litigation Support............................................................44
Section 9.3 Tax Matters..................................................................45
Section 9.4 Public Disclosure; Confidentiality............................................45
Section 9.5 Cooperation with Initial Public Offering......................................45
Section 9.6 Sellers' Representative.......................................................45
Section 9.7 Company Employees.............................................................46
Section 9.8 Redemption Notes..............................................................46
Section 9.8 Employee Confidentiality Agreements...........................................46
ARTICLE X INDEMNIFICATION...............................................................46
Section 10.1 Indemnification by Sellers....................................................46
Section 10.2 Indemnification by Purchaser..................................................46
Section 10.3 Procedures for Third-Party Claims.............................................47
Section 10.4 Procedures for Direct Claims..................................................48
Section 10.5 Limitations of Indemnification Obligations....................................49
Section 10.6 Survival of Representations, Warranties and Covenants.........................50
ARTICLE XI TERMINATION...................................................................50
Section 11.1 Termination of Agreement......................................................50
Section 11.2 Effect of Termination.........................................................51
ARTICLE XII MISCELLANEOUS.................................................................51
Section 12.1 Fees and Expenses.............................................................51
Section 12.2 Entire Agreement..............................................................52
Section 12.3 Amendments....................................................................52
Section 12.4 Taxes.........................................................................52
Section 12.5 Governing Law; Consent to Jurisdiction; Service of Process....................52
Section 12.6 Representation by Counsel.....................................................52
Section 12.7 Assignment....................................................................52
Section 12.8 Headings......................................................................53
Section 12.9 Notices.......................................................................53
Section 12.10 Counterparts..................................................................54
Section 12.11 Severability..................................................................54
Section 12.12 Specific Performance..........................................................54
Section 12.13 Legal Fees and Expenses.......................................................54
</TABLE>
iii
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as of May
17, 2000, is entered into by and among Petroleum Place, Inc., a Delaware
corporation (the "Purchaser"), PP/PT Acquisition Corporation, a Delaware
corporation and wholly-owned subsidiary of Purchaser (the "MergerSub"), Paradigm
Technologies, Inc., a Delaware corporation (the "Company"), and each of J. Brian
Searles ("Searles"), J. Brian & Dian J. Searles ("Joint Searles"), Wilmer W.
Thieme ("Thieme"), Joseph C. Craven ("Craven"), L. Allen Rankin, Jr. ("Rankin"),
Darrell G. Jones ("Jones"), Scott Kramer ("Kramer") and John V. Zagnoli
("Zagnoli") (Searles, Joint Searles, Thieme, Craven, Rankin, Jones, Kramer and
Zagnoli are hereinafter individually referred to as a "Seller" and collectively
referred to as the "Sellers" and Searles and Thieme are collectively referred to
as the "Principal Sellers").
RECITALS
A. The Boards of Directors of Purchaser, MergerSub, and the Company
believe it is in the best interests of their respective companies and the
stockholders of their respective companies that MergerSub and the Company
combine into a single company through the merger of MergerSub and the Company
(the "Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, all issued and
outstanding shares of common stock of the Company, $.01 par value per share (the
"Company Common Stock"), shall be exchanged for cash and shares of the $.001 par
value Series D Preferred Stock of Purchaser (the "Purchaser Series D Stock") in
the amounts and on the terms set forth herein.
C. The Company, Purchaser, MergerSub and Sellers desire to make certain
representations and warranties and other agreements in connection with the
Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(D) of
the Code.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Definitions. As used in this Agreement, the
following capitalized terms shall have the meanings set forth or as referenced
below:
"Actions" shall mean any litigation and proceedings of any nature,
whether at law or in equity, before any court, arbitrator, arbitration panel or
Governmental Authority.
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"Adjustment Notice" shall have the meaning set forth in Section
2.9(b)(ii) of this Agreement.
"Affiliate" of a designated Person shall mean any Person which,
directly or indirectly, controls, is controlled by or is under common control
with such designated Person.
"Auditor" shall have the meaning set forth in Section 2.9(b)(iii) of
this Agreement.
"Auditor's Report" shall have the meaning set forth in Section
2.9(b)(iii) of this Agreement.
"Balance Sheet" shall have the meaning set forth in Section 3.7 of this
Agreement.
"Balance Sheet Date" shall mean December 31, 1999.
"Certificate of Merger" shall have the meaning set forth in Section 2.1
of this Agreement.
"Closing" shall have the meaning set forth in Section 2.2 of this
Agreement.
"Closing Balance Sheet" shall have the meaning set forth in Section
2.9(b)(i) of this Agreement.
"Closing Cash Payment" shall have the meaning set forth in Section
2.6(b) of this Agreement.
"Closing Date" shall have the meaning set forth in Section 2.2 of this
Agreement.
"Closing Stock Payment" shall have the meaning set forth in Section
2.6(b) of this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning set forth in the initial paragraph of
this Agreement.
"Company Common Stock" shall have the meaning set forth in Recital B of
this Agreement.
"Company Custom Software" means the software developed and customized
by employees, consultants, and independent contractors of the Company for
Company's internal use and/or provided to Company customers, including any
documentation relating to such software, but does not include the Company
Software.
"Company Financial Statements" shall have the meaning set forth in
Section 3.7 of this Agreement.
"Company Litigation" shall mean any litigation, legal action,
arbitration, proceeding, material demand, material claim or investigation
pending, or to the Knowledge of Sellers threatened, planned or reasonably
probable, against, affecting or brought by or against the any of
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<PAGE> 7
Sellers, the Company, the Company's present or former employees or independent
contractors affiliated at any time with Sellers or the Company.
"Company Software" means the software developed by employees,
consultants, and independent contractors of the Company which is owned by the
Company, is provided to Company customers and/or is for Company's internal use,
which has not been customized by the Company for a specific Company Customer,
including any documentation relating to such software, but does not include the
Company Custom Software.
"Contracts" shall mean all contracts, agreements, indentures, licenses,
leases, commitments, arrangements, sales orders and purchase orders of every
kind, whether written or oral.
"Damages" shall mean, collectively, losses, Liabilities, Liens, costs,
damages, claims and expenses (including reasonable fees and disbursements of
counsel, consultants or experts and expenses of investigation) and, without
limiting the generality of the foregoing, with regard to environmental matters
shall also include specifically response costs, corrective action costs, natural
resource damages, costs to comply with orders or injunctions, damages or awards
for property damage or personal injury, fines, penalties and costs for testing,
remediation or cleanup costs, including those related to administrative review
of site remediation.
"DGCL" shall mean the Delaware General Corporation Law.
"Direct Claim" shall have the meaning set forth in Section 10.4 of this
Agreement.
"Dollars" and "$" shall mean United States dollars.
"Effective Time" shall have the meaning set forth in Section 2.2 of
this Agreement.
"Employment Agreement" shall have the meaning set forth in Section 7.10
of this Agreement.
"Environmental Claim" shall mean any suit, action, litigation,
proceeding, investigation, prosecution, order, citation, claim, complaint,
order, directive citation, notice of responsibility, notice of potential
responsibility, information request or notice (written or oral) by any Person
alleging potential liability for Damages arising out of, based on or resulting
from or relating to (a) the use, handling, storage, treatment, disposal,
recycling, generation, presence, Release or threatened Release into the
environment of any Hazardous Substances at any location, whether or not owned or
operated by the Company, including, but not limited to, the disposal, Release,
or threatened Release of any Hazardous Substances generated or transported by or
for the Company at any off-site location or (b) circumstances forming the basis
of any violation or alleged violation of any Environmental Law or Damages
thereunder.
"Environmental Laws" shall mean all federal, state, local and municipal
Laws in existence, enacted or in effect at or prior to Closing relating to
pollution or protection of public
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<PAGE> 8
health and safety, the workplace and the environment, including, without
limitation, Laws relating to emissions, discharges, releases or threatened
releases of Hazardous Substances or otherwise relating to the generation,
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, labeling, advertising, sale, display or handling of Hazardous
Substances. "Environmental Laws" shall include, but not be limited to the
following statutes and all rules and regulations relating thereto, all as
amended and modified from time to time:
(a) The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("SARA") 42 U.S.C. Sections 9601-9675; the
Resource Conservation and Recovery Act of 1976 ("RCRA") 42 U.S.C.
Sections 6901-6991; the Clean Water Act 33 U.S.C. Section 1321 et seq.;
the Clean Air Act 42 U.S.C. Section 7401 et seq.; the Federal
Insecticide, Fungicide and Rodenticide Act ("FIFRA") 7 U.S.C. Section
136 et seq.; the Toxic Substances Control Act ("TSCA") 15 U.S.C.
Sections 2601-2671; and the Food, Drug and Cosmetic Act ("FDCA"), and
(b) all similar state and local laws, statutes, codes,
ordinances, regulations and rules.
"Environmental Liabilities" shall mean Damages relating to or arising
in any way from Environmental Laws, Environmental Claims or both.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" shall have the meaning set forth in Section 3.19(a)
of this Agreement.
"Escrow Agreement" shall have the meaning set forth in Section 2.9(a)
of this Agreement.
"Final Net Working Capital" shall have the meaning set forth in Section
2.9(b) of this Agreement.
"First Amendment to the Third Amended and Restated Investors' Rights
Agreement shall have the meaning set forth in Section 7.11 of this Agreement."
"FY 1997" shall mean the fiscal year ended December 31, 1997.
"FY 1998" shall mean the fiscal year ended December 31, 1998.
"FY 1999" shall mean the fiscal year ended December 31, 1999 in the
case of the Company and September 30, 1999 in the case of Purchaser.
"GAAP" shall mean generally accepted accounting principles, as in
effect in the United States, from time to time.
"Governmental Authority" shall mean any agency, public or regulatory
authority, instrumentality, department, commission, court, ministry, tribunal or
board of any government,
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<PAGE> 9
whether foreign or domestic and whether national, federal, provincial, state,
regional, local or municipal.
"Hazardous Substances" shall mean those materials that are regulated by
or form the basis of liability under Environmental Laws and includes, without
limitation, (a) all substances identified under any Environmental Law as a
pollutant, contaminant, hazardous substance, liquid, industrial or solid or
hazardous waste, hazardous material or toxic substance, dangerous substance or
dangerous good, (b) petroleum or petroleum derived substance or waste, (c)
asbestos or asbestos-containing material, (d) PCBs or PCB-containing materials
or fluids, (e) any other substance with respect to which a Governmental
Authority may require environmental investigation or remediation and (f) any
radioactive material or substance.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and any regulations promulgated thereunder.
"Indebtedness" of any Person shall mean (a) all indebtedness of such
Person for borrowed money or for the deferred purchase price of property or
services (other than current trade liabilities incurred in the ordinary course
of business and payable in accordance with customary practices) and including
earn-out or similar contingent purchase amounts, (b) any other indebtedness of
such Person which is evidenced by a note, bond, debenture or similar instrument,
(c) all obligations of such Person under lease, (d) all obligations of such
Person in respect of acceptances issued or created for the account of such
Person, (e) all liabilities secured by any Lien on any property owned by such
Person even though such Person has not assumed or otherwise become liable for
the payment thereof and (f) all guarantees by such Person of obligations of
others.
"Indemnifying Party" shall mean any Person or Persons required to
provide indemnification under this Agreement.
"Indemnitee" shall mean any Person or Persons entitled to
indemnification under this Agreement.
"Intellectual Property" shall mean all intellectual property rights
used in or reasonably necessary for the business of the Company as currently
conducted or as presently contemplated by the Company to be conducted, including
all inventions, improvements thereto, patents, patent applications and patent
disclosures, trademarks, trademark registrations and applications, service
marks, service mark registrations and applications domain names, logos, designs,
proprietary rights, slogans and general intangibles of like nature, together
with all goodwill related to the foregoing, trade names and corporate names,
copyrights, copyright registrations and applications, mask works, moral rights,
computer programs, product plans, technology, process engineering, drawings,
schematic drawings, secret processes, proprietary knowledge, including without
limitation, customer and supplier lists, business and marketing plans and
proposals, trade secrets, know-how, confidential confirmation, proprietary
processes and formulae all rights and filings with respect to the foregoing, and
all reissues, extensions and removals thereof.
"Investigation" shall mean any investigation of any nature by any
Governmental Authority.
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<PAGE> 10
"Knowledge" with respect to any particular representation or warranty
contained in this Agreement shall be deemed to be followed by the phrase "after
due inquiry" and (i) when used to apply to the "Knowledge" of the Company or the
"Knowledge" of any of Sellers, shall mean the actual knowledge or conscious
awareness after due inquiry of Sellers or any employee of the Company with
managerial or substantial responsibility for the subject matter of such
representation or warranty and (ii) when used to apply to the "Knowledge" of
Purchaser, shall mean the actual knowledge or conscious awareness after due
inquiry of any employee of Purchaser with managerial or substantial
responsibility for the subject matter of such representation or warranty.
"Laws" shall mean statutes, common laws, rules, ordinances,
regulations, codes, licensing requirements, orders, judgments, injunctions,
decrees, licenses, permits and bylaws of a Governmental Authority.
"Liabilities" shall mean debts, liabilities, commitments, obligations,
duties and responsibilities of any kind and description, whether absolute or
contingent, monetary or non-monetary, direct or indirect, known or unknown or
matured or unmatured, or of any other nature.
"Lien" shall mean any security interest, deed of trust, lien,
superlien, mortgage, claim, charge, pledge, restriction, option, encroachment,
reservation, order, decree, judgment, charge, contract right, equitable interest
or encumbrance of any nature and in the case of securities any put, call or
similar right of a third party with respect to such securities.
"Material Adverse Effect" or "Material Adverse Change" as it concerns
the Company shall mean, with respect to the same or any similar events, acts,
conditions or occurrences, whether individually or in the aggregate, a material
adverse effect on or change in (a) any of the business, condition (financial or
otherwise), operations, assets or liabilities of the Company taken as a whole,
(b) the legality or enforceability against the Company or Sellers of this
Agreement or (c) the ability of the Company or any Seller to perform his, her or
its obligations and to consummate the transactions under this Agreement. For
purposes of clause (a) of this definition and without limiting the generality of
the foregoing, an effect or change with respect to the same or any similar
event(s), act(s), condition(s) or occurrence(s) individually or in the aggregate
with respect to which the Company would reasonably be expected to have $50,000
in the aggregate or more in Damages being asserted against, imposed upon or
sustained by the Company shall constitute a Material Adverse Effect or Change.
"Material Adverse Effect" or "Material Adverse Change" as it concerns
Purchaser shall mean, with respect to the same or any similar events, acts,
conditions or occurrences, whether individually or in the aggregate, a material
adverse effect on or change in (a) any of the business, condition (financial or
otherwise), operations, assets or liabilities of Purchaser or its Subsidiaries
taken as a whole, (b) the legality or enforceability against Purchaser of this
Agreement or (c) the ability of Purchaser to perform its obligations and to
consummate the transactions under this Agreement. For purposes of clause (a) of
this definition and without limiting the generality of the foregoing, an effect
or change with respect to the same or any similar event(s), act(s), condition(s)
or occurrence(s) individually or in the aggregate with respect to which
Purchaser or its Subsidiaries would reasonably be expected to have $250,000 in
the aggregate or more in
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<PAGE> 11
Damages being asserted against, imposed upon or sustained by Purchaser or its
Subsidiaries shall constitute a Material Adverse Effect or Change.
"Material Contract" shall have the meaning set forth in Section 3.14(a)
of this Agreement.
"Merger" shall have the meaning set forth in Recital A of this
Agreement.
"MergerSub" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Merger Consideration" shall have the meaning set forth in Section
2.6(b) of this Agreement.
"Net Working Capital" shall mean an amount equal to the Company's
current assets minus current liabilities determined in accordance with GAAP
applied on a consistent basis.
"Notice of Settlement" shall have the meaning set forth in Section
10.3(c) of this Agreement.
"Notice to Contest" shall have the meaning set forth in Section 10.3(c)
of this Agreement.
"Notice to Defend" shall have the meaning set forth in Section 10.3(a)
of this Agreement.
"PBGC" shall have the meaning set forth in Section 3.19(d) of this
Agreement.
"Percentage Interest" of a Seller shall mean a fraction, the numerator
of which is the number of shares of Company Common Stock owned by such Seller as
of the date of this Agreement, and the denominator of which is the number of
shares of Company Common Stock owned by all Sellers as of the date of this
Agreement, all as shown on EXHIBIT C hereto.
"Person" shall mean any natural person, corporation, business trust,
joint venture, association, company, firm, partnership or other entity or
government or Governmental Authority.
"Plans" shall have the meaning set forth in Section 3.19(a) of this
Agreement.
Principal Sellers shall have the meaning set forth in the introductory
paragraph to this Agreement.
"Purchaser" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Purchaser Financial Statements" shall have the meaning set forth in
Section 4.6 of this Agreement.
"Purchaser Indemnitee" shall have the meaning set forth in Section 10.1
of this Agreement.
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<PAGE> 12
"Purchaser Litigation" shall mean any litigation, legal action,
arbitration, proceeding, material demand, material claim or investigation
pending, or to the Knowledge of Purchaser threatened, planned or reasonably
probable, against, affecting or brought by or against Purchaser or any of its
Subsidiaries.
"Purchaser's Opinion" shall have the meaning set forth in Section 8.6
of this Agreement.
"Purchaser's Proposed Final Net Working Capital" shall have the meaning
set forth in Section 2.9(b)(i) of this Agreement.
"Purchaser Series D Stock" shall have the meaning set forth in Recital
B of this Agreement.
"Real Property" shall have the meaning set forth in Section 3.13 of
this Agreement.
"Redemption Notes" means promissory notes issued by the Company to its
stockholders other than Sellers, in redemption for their Company Common Stock,
the total principal amount of which shall not exceed $922,118.32. The Redemption
Notes shall not bear interest prior to a default, and shall be due in full upon
consummation of the Merger.
"Release" shall mean the spilling, leaking, disposing, discharging,
emitting, depositing, injecting, leaching, escaping or any other release or
threatened release, however defined, and whether intentional or unintentional,
of any Hazardous Material.
"Retirement Plan" shall have the meaning set forth in Section 5.11 of
this Agreement.
"Revised Schedules" shall have the meaning set forth in Section 5.7(b)
of this Agreement.
"Sellers" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"Shareholders' Representative" shall have the meaning set forth in
Section 9.6 of this Agreement.
"Sellers' Opinion" shall have the meaning set forth in Section 7.9 of
this Agreement.
"SPD" shall have the meaning set forth in Section 3.19(b)(iv) of this
Agreement.
"Subsidiary" shall mean any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned by the Company.
"Surviving Corporation" shall have the meaning set forth in Section 2.1
of this Agreement.
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<PAGE> 13
"Tax Returns" shall mean all returns, declarations, reports, forms,
estimates, information returns, statements or other documents (including any
related or supporting information) filed or required to be filed with or
supplied to any Governmental Authority in connection with any Taxes.
"Taxes" shall mean all taxes, charges, fees, duties, levies, penalties
or other assessments, including, without limitation, income, gross receipts,
excise, real and personal property, sales, transfer, license, payroll,
withholding, social security, franchise, unemployment insurance, workers'
compensation, employer health tax or other taxes, imposed by any Governmental
Authority and shall include any interest, penalties or additions to tax
attributable to any of the foregoing.
"Third Party Claim" shall have the meaning set forth in Section 10.3(a)
of this Agreement.
"Third Party Products" shall have the meaning set forth in Section
3.11(f) of this Agreement.
"Verification Period" shall have the meaning set forth in Section
2.9(b)(ii) of this Agreement.
Section 1.2 Terms Generally. The definitions in Section 1.1 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include," "includes" and "including" shall
be deemed to be followed by the phrase "without limitation" even if not actually
followed by such phrase unless the context expressly provides otherwise. All
references herein to Annexes, Articles, Sections, paragraphs, Exhibits and
Schedules shall be deemed references to this Agreement unless the context shall
otherwise require. Unless otherwise expressly defined, terms defined in the
Agreement shall have the same meanings when used in any section, Exhibit or
Schedule and terms defined in any section, Exhibit or Schedule shall have the
same meanings when used in the Agreement or in any other section, Exhibit or
Schedule. The words "herein," "hereof," "hereto" and "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any particular
provision of this Agreement.
ARTICLE II
MERGER
Section 2.1 The Merger. At the Effective Time (as defined in Section
2.2) and subject to and upon the terms and conditions of this Agreement, the
Certificate of Merger attached hereto as EXHIBIT A (the "Certificate of Merger")
and the applicable provisions of the DGCL, the Company shall be merged with and
into MergerSub, the separate corporate existence of the Company shall cease and
MergerSub shall continue as the surviving corporation of the Merger. MergerSub
as the surviving corporation after the Merger is hereinafter sometimes referred
to as the "Surviving Corporation."
Section 2.2 Closing; Effective Time. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place as soon as
practicable after the satisfaction or
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<PAGE> 14
waiver of each of the conditions set forth in Articles VII and VIII below or at
such other time as the parties agree (the "Closing Date"). The Closing shall
take place at the offices of Purchaser, or at such other location as the parties
agree. In connection with the Closing, the parties shall cause the Merger to be
consummated by filing the Certificate of Merger with the Secretary of State of
the State of Delaware, in accordance with the relevant provisions of the DGCL.
The "Effective Time" of the Merger shall be 12:01 a.m. on the day following the
day on which the Articles of Merger are filed.
Section 2.3 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Certificate of Merger and
the applicable provisions of the DGCL. At the Effective Time, all the property,
rights, privileges, powers and franchises of the Company and MergerSub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and MergerSub shall become the debts, liabilities and duties of the
Surviving Corporation.
Section 2.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of
MergerSub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by the DGCL and the Certificate of Incorporation.
(b) At the Effective Time, the Bylaws of MergerSub, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by the DGCL, the
Certificate of Incorporation of the Surviving Corporation and such Bylaws.
Section 2.5 Directors and Officers At the Effective Time, the directors
of the Surviving Corporation shall be Gary R. Vickers, Jeffrey M. Holben and J.
Brian Searles, in each case until their respective successors are duly elected
or appointed and qualified.
Section 2.6 Surrender of Certificates; Purchase of Company Common
Stock; Effect of Merger on Company Common Stock.
(a) At Closing, Sellers shall surrender to Purchaser for
cancellation certificates, properly endorsed for transfer or accompanied by duly
executed stock powers, representing all of the issued and outstanding shares of
Company Common Stock held by the Sellers immediately prior to the Effective
Time.
(b) At Closing, Purchaser shall deliver (i) cash in the amount
of $11,077,882 (the "Closing Cash Payment"), by wire transfer of immediately
available federal funds to such account(s) as Sellers may reasonably designate
and (ii) 151,216 shares of Purchaser Series D Stock (the "Closing Stock
Payment," and, together with the Closing Cash Payment the "Merger
Consideration"). The Purchaser Series D Stock shall have the rights and
preferences as set forth in the Restated Certificate of Incorporation of
Purchaser, a form of which is attached hereto as EXHIBIT B.
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<PAGE> 15
(c) At the Effective Time, and without any further action by
any of the parties, all shares of Company Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares of Company
Common Stock shall cease to have any rights with respect thereto other than the
right to receive his pro rata share of the Merger Consideration. All shares of
Company Common Stock held in the treasury of the Company immediately prior to
the Effective Time shall be canceled and extinguished and no payment shall be
made with respect thereto.
Section 2.7 Delivery of Merger Consideration; Closing Deliveries. At
the Closing, subject to Section 2.9:
(a) Purchaser shall pay or cause to be delivered to each
Seller the Merger Consideration to the extent attributable to the Company Common
Stock owned by such Seller as of the Effective Time, as set forth on EXHIBIT C.
(b) Each certificate of Company Common Stock shall be
delivered to MergerSub and canceled, and, simultaneously with such delivery and
cancellation, the consideration into which such capital stock shall have been
converted in the Merger shall be delivered to the persons entitled thereto under
this Agreement. From and after the Effective Time, each certificate which prior
to the Effective Time represented shares of capital stock of the Company shall
be deemed to represent only the right to receive the consideration contemplated
herein, and the Sellers shall cease to have any rights with respect to the
shares of capital stock formerly represented thereby, except as otherwise
provided herein or by law.
(c) If any certificate representing shares of Company Common
Stock shall have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the Seller claiming such certificate to be lost, stolen or
destroyed and, if required by the Surviving Corporation or Purchaser, the
posting by such person of a bond, in such reasonable amount as the Surviving
Corporation or Purchaser may direct as indemnity against any claim that may be
made against them with respect to such certificate, pursuant this Section 2.7,
the Merger Consideration will be issued to the Seller claiming such lost
certificate.
(d) Sellers shall deliver or cause to be delivered to
Purchaser the following:
(i) certificates representing the issued and
outstanding shares of Company Common Stock duly endorsed by the appropriate
Seller, for transfer to Purchaser or accompanied by duly executed stock powers,
in either case executed in blank and otherwise in form acceptable for transfer
on the books of the Company;
(ii) closing certificates as set forth in Section
7.6;
(iii) Sellers' Opinion as set forth in Section 7.9;
(iv) stock books, stock ledgers, minute books and
corporate seals of the Company;
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(v) a copy of the Certificate of Incorporation of the
Company, certified by the Secretary of State of Delaware, and a Certificate of
Good Standing from the respective Secretary of State of the States of Delaware,
Texas and Colorado with respect to the Company, each dated not more than five
(5) days before the Closing;
(vi) a certificate executed by the Secretary of the
Company, dated as of the Closing Date, certifying that attached copies of the
Company's bylaws and resolutions of the Company's Board of Directors authorizing
the transaction are true, correct and complete, and that such bylaws and
resolutions were duly adopted and have not been amended or rescinded;
(vii) any approvals required pursuant to Section 7.4;
(viii) the Employment Agreements, executed by
Searles, Thieme and Jones as set forth in Section 7.10;
(ix) the First Amendment to the Third Amended &
Restated Investors' Rights Agreement, executed by the Sellers, as set forth in
Section 7.11; and
(x) the Escrow Agreement, executed by all Sellers.
(e) In addition to the delivery of the Merger Consideration
pursuant to Section 2.7(a), Purchaser shall deliver or cause to be delivered to
Sellers the following:
(i) closing certificates as set forth in Section 8.5;
(ii) Purchaser's Opinion as set forth in Section 8.6;
(iii) a copy of the Certificate of Incorporation of
the Purchaser, certified by the Secretary of State of Delaware and a Certificate
of Good Standing from the Secretary of State of the State of Delaware, each
dated not more than five (5) days before the Closing;
(iv) the Employment Agreements executed by Purchaser;
(v) the Escrow Agreement, executed by Purchaser and
the Escrow Agent;
(vi) the First Amendment to the Third Amended and
Restated Investors' Rights Agreement, executed by Purchaser and the other
parties thereto (other than the Sellers); and
(vii) stock option grants to all Sellers and
Redemption Note holders.
Section 2.8 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company with respect to all shares of capital stock of the
Company shall be closed and no further registration of transfers of such shares
of capital stock shall thereafter be made on the records of the Company.
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<PAGE> 17
Section 2.9 Adjustment to Merger Consideration.
(a) At the Closing, $1,125,000 in cash and 16,436 shares of
the Purchaser Series D Stock, which shares are included in the aggregate number
of shares described in Section 2.6(b)(ii), and which cash and shares otherwise
would be deliverable as provided in Section 2.6(b) (such cash and shares
together representing $2,500,000) shall be deposited into an escrow account
pursuant to the Escrow Agreement attached as EXHIBIT D (the "Escrow Agreement").
As provided in the Escrow Agreement, a portion of the cash and Purchaser Series
D Stock held pursuant to the Escrow Agreement shall be returned to Purchaser,
and in the case of Purchaser Series D Stock cancelled, as appropriate to account
for (i) the amount of any post-closing adjustment pursuant to Section 2.9(b)
below and (ii) amounts covered by the indemnity provisions of Section 10 below.
(b) Net Working Capital and Merger Consideration Adjustment.
As of December 31, 1999, the Net Working Capital of the Company was $1,760,038.
After the Closing, there shall be a final determination of Net Working Capital
as of the Effective Time (the "Final Net Working Capital") as follows:
(i) Within 60 days following the date of Closing,
Purchaser shall deliver to Sellers' Representative (A) a consolidated balance
sheet reflecting the assets and liabilities of the Company as of the Effective
Time (the "Closing Balance Sheet") and (B) the work papers supporting the
Closing Balance Sheet. The Closing Balance Sheet shall be prepared in accordance
with GAAP applied on a consistent basis. In addition, Purchaser shall deliver to
Sellers' Representative, along with the Closing Balance Sheet, a calculation of
the Final Net Working Capital, based on the information contained in the Closing
Balance Sheet (the "Purchaser's Proposed Final Net Working Capital").
(ii) Sellers' Representative shall have thirty (30)
days from receipt of the Closing Balance Sheet (the "Verification Period") to
verify Purchaser's Proposed Final Net Working Capital. Any disagreements as to
the Closing Balance Sheet or Purchaser's Proposed Final Net Working Capital
shall be described in a written notice to Purchaser within the Verification
Period (an "Adjustment Notice"), setting forth (A) Sellers' Representative's
objections to Purchaser's Proposed Final Net Working Capital, (B) Sellers'
Representative's determination of the Closing Balance Sheet and (C) Sellers'
Representative's proposed calculation of the Final Net Working Capital. If
Sellers' Representative does not deliver an Adjustment Notice to Buyer within
the Verification Period, the Closing Balance Sheet shall be deemed final and
binding on all parties and the Final Net Working Capital shall be equal to
Purchaser's Proposed Final Net Working Capital. The Merger Consideration shall
then be subject to potential adjustment in accordance with subparagraph (iv)
below.
(iii) If Sellers' Representative delivers an
Adjustment Notice and Purchaser and Sellers' Representative are unable to agree
upon the amount of any adjustment to the Merger Consideration within fifteen
(15) days after delivery of such Adjustment Notice, then a nationally recognized
independent public accounting firm to be mutually agreed upon by Purchaser and
Sellers' Representative (the "Auditor") shall be requested to conduct a review
and determine any amounts in dispute between the parties relating to the
calculation of the Final Net Working Capital. The Auditor shall be instructed in
performing the review that Purchaser and
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Sellers' Representative shall each be provided with copies of any and all
correspondence and drafts distributed to any party and that the review shall be
done as soon as is practicable. Purchaser and Sellers' Representative shall be
granted reasonable access to all documents made available to the Auditor by the
other party, provided that any information contained in the documents shall be
subject to the confidentiality provisions set forth in this Agreement. Prior to
the Auditor's issuance of its final determination, Purchaser and Sellers'
Representative shall have the opportunity to provide the Auditor with input and
any additional information that they deem relevant, provided that the Auditor
shall not be required to use any such input or information in connection with
its review and determination. The Auditor shall promptly deliver copies of its
report to Purchaser and Sellers' Representative, setting forth its determination
of any amount due between the parties relating to the calculation of the Final
Net Working Capital (the "Auditor's Report"). The Auditor's Report will be
conclusive and binding upon all parties to this Agreement; the Final Net Working
Capital shall be calculated based on the determinations set forth in the
Auditor's Report; and the Merger Consideration shall then be subject to
potential adjustment in accordance with subparagraph (iv) below. Fifty percent
of the costs and expenses of the Auditor and the Auditor's Report contemplated
by this paragraph shall be borne by Sellers, and the remainder shall be borne by
Purchaser.
(iv) Adjustments to the Merger Consideration shall be
made as set forth below, and any payments due under this Section 2.9(b)(iv)
shall be made on the later of (X) thirty (30) days after the end of the
Verification Period or (Y) in the event of delivery of an Adjustment Notice,
thirty (30) days after the delivery of the Auditor's Report.
(A) in the event the Final Net Working
Capital is greater than zero but less than $500,000 (in each case less
the principal amount of the Redemption Notes outstanding immediately
prior to the Closing), no adjustment shall be made;
(B) in the event the Final Net Working
Capital is less than zero (less the principal amount of the Redemption
Notes outstanding at or following the Closing), Sellers shall deliver
to Purchaser in immediately available funds an amount equal to the
difference between zero (less the principal amount of the Redemption
Notes outstanding immediately prior to the Closing) and the Final Net
Working Capital; and
(C) in the event the Final Net Working
Capital is greater than $500,000 (less the principal amount of the
Redemption Notes outstanding immediately prior to the Closing),
Purchaser shall deliver to Sellers in immediately available funds pro
rata in accordance with their Percentage Interest an amount equal to
the difference between the Final Net Working Capital and $500,000 (less
the principal amount of the Redemption Notes outstanding immediately
prior to the Closing).
Section 2.10 Intended Tax Consequences. It is intended by the parties
that the Merger shall constitute a reorganization within the meaning of Section
368 of the Code. The Company and Sellers shall be solely responsible for all tax
planning, and for obtaining advice with respect to the federal and state income
tax consequences to the Company and Sellers of the Merger and all related
transactions. The Company and Sellers are not relying on Purchaser, MergerSub or
any advisors to Purchaser or MergerSub for any tax advice with respect to the
Merger or related transactions, and shall have no claim against Purchaser,
MergerSub, or any officers, directors,
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employees or advisors of Purchaser with respect to any tax consequences of the
Merger or any related transactions. Purchaser and MergerSub shall be solely
responsible for all tax planning, and for obtaining advice with respect to the
federal and state income tax consequences to Purchaser and MergerSub of the
Merger and all related transactions. Purchaser and MergerSub are not relying on
the Company, Sellers or any advisors to the Company and Sellers for any tax
advice with respect to the Merger or related transactions, and shall have no
claim against the Company and Sellers, or any officers, directors, employees or
advisors of the Company with respect to any tax consequences of the Merger or
any related transactions.
Section 2.11 Taking of Necessary Action; Further Action. If at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest (a) the Surviving Corporation
with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of the Company and MergerSub or (b) the
Sellers with the Merger consideration as described in Sections 2.6 and 2.7, but
subject to Section 2.9, the officers and directors of the Company, Purchaser and
MergerSub are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action, so long
as such action is not inconsistent with this Agreement.
Section 2.12 Withholding. Each of the Surviving Corporation and
Purchaser shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of shares of Company
Common Stock such amounts as it is required to deduct and withhold with respect
to the making of such payment under the Code or any provision of applicable
state, local or foreign tax laws. To the extent that amounts are so withheld by
the Surviving Corporation or Purchaser, as the case may be, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to such holder in respect of which such deduction and withholding was made by
the Surviving Corporation or Purchaser, as the case may be.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS
The Company and each of the Principal Sellers jointly and severally
represent and warrant to Purchaser as set forth in this Article III. The
Sellers, other than the Principal Sellers, severally represent and warrant to
Purchaser as set forth in this Article III.
Section 3.1 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has no Subsidiaries, and does not have a direct or
indirect ownership interest in any Person. The Company is qualified to do
business in the jurisdictions set forth in Schedule 3.1. The Company has the
power and authority (corporate and otherwise) to own, lease and operate its
respective properties and assets and to carry on its business as now being
conducted and is duly qualified or licensed to do business as a foreign
corporation in good standing in the jurisdictions in which the ownership, lease
or operation of its property or the conduct of its business requires such
qualification. The Company has delivered to Purchaser complete and correct
copies of the Company's charter documents and all amendments thereto to the date
hereof.
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Section 3.2 Ownership of Shares. The shares of Company Common Stock are
owned in accordance with Schedule 3.2. The Company Common Stock owned by Sellers
is owned free and clear of all Liens, other than restrictions imposed by federal
and state securities laws. Other than the Company Common Stock, there is no
other class or series of capital stock of the Company. There are no outstanding
subscriptions, options, warrants, puts, calls, rights, exchangeable or
convertible securities or other contracts, commitments, understandings,
restrictions, arrangements or agreements of any character relating to the
issuance, sale, transfer or voting of any issued or unissued Company Common
Stock or other securities of the Company, including any rights of conversion or
exchange under any outstanding securities or other instruments or otherwise
obligating the Company to issue, transfer, sell, purchase, redeem or otherwise
acquire any such securities. All outstanding shares of Company Common Stock have
been validly issued and are fully paid, nonassessable and free of preemptive or
similar rights. The Company is not a sponsor of or party to any phantom stock
plans, stock appreciation rights plans, phantom stock agreements or stock
appreciation rights agreements.
Section 3.3 Authorization, Etc. The Company and each Seller has full
power and authority to execute, deliver and perform its obligations under this
Agreement and the documents and instruments contemplated hereby and to carry out
the transactions contemplated hereby and thereby. The Company and each of
Sellers has duly approved and authorized the execution and delivery of this
Agreement and the documents and instruments contemplated hereby and the
consummation of the transactions contemplated hereby and thereby, and except for
the consents to the Merger of the stockholders other than the Sellers, no other
corporate proceedings or other action on the part of the Company or any of
Sellers are necessary to approve and authorize the execution, delivery and
performance by the Company and each of Sellers of this Agreement and the
documents and instruments contemplated hereby or the consummation by the Company
and Sellers of the transactions contemplated hereby or thereby. This Agreement
constitutes a legal, valid and binding agreement of the Company and each of
Sellers, enforceable against the Company and each of Sellers in accordance with
its terms, except that (a) such enforcement may be subject to applicable
bankruptcy, insolvency or other similar laws, now or hereafter in effect,
affecting creditors' rights generally and (b) the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
Section 3.4 No Conflict. Except as set forth in Schedule 3.4, neither
the execution, delivery or performance of this Agreement or the other documents
and instruments to be executed and delivered by the Company or Sellers pursuant
hereto, nor the consummation by the Company or Sellers of the transactions
contemplated hereby or thereby, nor compliance by the Company or Sellers with
any of the provisions hereof or thereof will (a) conflict with or result in any
breach of any provision of the Certificate of Incorporation, Bylaws or similar
organizational documents of the Company, (b) constitute a change in control
under or require the consent from or the giving of notice to a third party,
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
amendment, cancellation or acceleration) under, or result in the creation of any
Lien upon or affecting any of the Company's assets or properties pursuant to,
any of the terms, conditions or provisions of any contractual obligation of the
Company, (c) violate any order, writ, injunction, decree, statute, rule or
regulation of any Governmental Authority applicable to the Company or Sellers or
to which any of their properties or assets may be bound or (d) result in
triggering of
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any right of first refusal or other right under any agreement to which the
Company or Sellers is a party.
Section 3.5 Governmental Consents; HSR.
(a) No consent, order or authorization of, or registration,
declaration or filing with, any Governmental Authority is required in connection
with the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby by Sellers and the Company.
(b) Currently and at all times up until the time of the
Closing, (i) the Company is its own ultimate parent entity (as the term
"ultimate parent entity" is defined in the HSR Act), (ii) the total assets of
the Company and all entities under the control of the Company (as the term
"control" is defined in the HSR Act) are less than $100 million (as determined
in accordance with the HSR Act) and (iii) the annual net sales of the Company
and all entities under the control of the Company (as the term "control" is
defined in the HSR Act) are less than $100 million (as determined in accordance
with the HSR Act).
Section 3.6 Capital Stock. As of the date hereof, the authorized
capital stock of the Company consists of 3,000,000 shares of Company Common
Stock, of which 792,245 shares are issued and outstanding and owned by in
accordance with Schedule 3.2. As of the Closing date, the authorized capital
stock of the Company shall consist of 3,000,000 shares of Company Common Stock,
of which 761,159 shares shall be issued and outstanding, all of which shall be
owned of record by Sellers as indicated in EXHIBIT C. There are no outstanding
subscriptions, options, warrants, calls, rights, contracts, commitments,
understandings, restrictions or arrangements relating to the issuance, sale,
transfer or voting of any Company Common Stock, including any rights of
conversion or exchange under any outstanding securities or other instruments.
All outstanding shares of Company Common Stock have been validly issued and are
fully paid, nonassessable and free of preemptive or similar rights.
Section 3.7 Company Financial Statements. The Company has delivered to
Purchaser the Company Financial Statements. For the purposes of this Agreement,
"Company Financial Statements" shall mean: (a) an audited balance sheet for FY
1999 (the "Balance Sheet") as of December 31, 1999 (the "Balance Sheet Date"),
and the related statement of income and cash flows for the fiscal year then
ended; (b) an audited balance sheet for FY 1998 as of December 31, 1998 and the
related statements of income and cash flow for the fiscal year then ended; (c)
an audited balance sheet for FY 1997 as of December 31, 1997 and the related
statements of income and cash flow for the fiscal year then ended and (d) a
balance sheet as of March 31, 2000 and the related statements of income and cash
flow for the period then ended. The Company Financial Statements are (x) in
accordance with the books and records of the Company (which books and records
are correct and complete), (y) correct and complete in all material respects and
(z) fairly present the financial position of the Company and its results of
operations as of and for the periods indicated in accordance with GAAP and have
been prepared in accordance with GAAP consistently applied.
Section 3.8 Absence of Certain Changes or Events. Except as set forth
on Schedule 3.8, since the Balance Sheet Date (a) the Company has conducted its
business only in
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the ordinary course and consistent with past practice, (b) there have not been
any developments or events which have had or could reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect and (c) except
as contemplated in this Agreement, the Company has not:
(i) adopted any amendment to its Certificate of
Incorporation, Bylaws or similar organization documents;
(ii) (A) sold, leased, transferred or disposed of any
assets or rights other than in the ordinary course of business consistent with
past practice, which assets or rights do not involve more than $25,000 in the
aggregate (B) incurred any Lien thereupon, except for Liens incurred in the
ordinary course of business consistent with past practice which Liens would not
in the aggregate exceed $25,000, (C) acquired or leased any assets or rights
other than assets or rights in the ordinary course of business consistent with
past practice, that individually or in the aggregate would involve more than
$25,000 or (D) entered into any commitment or transaction with respect to (A),
(B) or (C) above;
(iii) (A) incurred, assumed or refinanced any
Indebtedness or (B) made any loans, advances or capital contributions to, or
investments in, any Person;
(iv) paid, discharged or satisfied any liability,
obligation, or Lien other than payment, discharge or satisfaction of (A)
Indebtedness as it matures and become due and payable or (B) liabilities,
obligations or Liens in the ordinary course of business consistent with past and
prudent business practices;
(v) (A) changed any of the accounting or tax
principles, practices or methods used by the Company, except as required by
changes in applicable Tax Laws or (B) changed reserve amounts or policies;
(vi) entered into any employment contract or other
arrangement or made any change in the compensation payable or to become payable
to any Seller or any of the Company's officers, employees, agents, consultants
or Persons acting in a similar capacity (other than general increases in wages
to employees who are not officers or Persons acting in a similar capacity or
Affiliates in the ordinary course consistent with past practice), or to Persons
providing management services, entered into or amended any employment,
severance, consulting, termination or other agreement or employee benefit plan
or made any loans to any of its Affiliates, officers, employees, agents or
consultants or Persons acting in a similar capacity or made any change in its
existing borrowing or lending arrangements for or on behalf of any of such
Persons pursuant to an employee benefit plan or otherwise;
(vii) paid or made any accrual or arrangement for
payment of any pension, retirement allowance or other employee benefit pursuant
to any existing plan, agreement or arrangement to any Affiliate, officer,
employee or Person acting in a similar capacity; or paid or agreed to pay or
made any accrual or arrangement for payment to any Affiliate, officers,
employees or Persons acting in a similar capacity of any amount relating to
unused vacation days, except payments and accruals made in the ordinary course
consistent with past practice; granted, issued, accelerated or accrued salary or
other payments or benefits
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pursuant to any pension, profit-sharing, bonus, extra compensation, incentive,
deferred compensation, stock purchase, stock option, stock appreciation right,
group insurance, severance pay, retirement or other employee benefit plan,
agreement or arrangement, or any employment or consulting agreement with or for
the benefit of any Affiliate, officer, employee, agent or consultant or Person
acting in a similar capacity, whether past or present; or amended in any
material respect any such existing plan, agreement or arrangement in a manner
consistent with the foregoing;
(viii) entered into any collective bargaining
agreement;
(ix) made any payments (other than regular
compensation payable to officers and employees or Persons acting in a similar
capacity of the Company in the ordinary course consistent with past practice),
loans, advances or other distributions or entered into any transaction,
agreement or arrangement with, Sellers, Company's Affiliates, officers,
employees, agents, consultants or Persons acting in a similar capacity,
stockholders of their Affiliates, associates or family members;
(x) made or authorized any capital expenditures,
except in the ordinary course of business consistent with past and prudent
business practices not in excess of $25,000 individually or $100,000 in the
aggregate;
(xi) incurred any Taxes, except in the ordinary
course of business consistent with past and prudent business practices;
(xii) settled or compromised any Tax liability or
agreed to any adjustment of any Tax attribute or made any election with respect
to Taxes;
(xiii) failed to duly and timely file any Tax Return
with the appropriate Governmental Authorities required to be filed by it in a
true and complete and correct form or to timely pay all Taxes shown to be due
thereon;
(xiv) (A) entered into, amended, renewed or permitted
the automatic renewal of, terminated or waived any right under, any Material
Contract, or, except in the ordinary course of business consistent with past and
prudent business practices, any other agreements or (B) took any action or
failed to take any action that, with or without either notice or lapse of time,
would constitute a default under any Material Contract;
(xv) (A) made any change in its working capital
practices generally, including accelerating any collections of cash or accounts
receivable or deferring payments or (B) failed to make timely accruals,
including with respect to accounts payable and liabilities incurred in the
ordinary course of business;
(xvi) failed to renew (at levels consistent with
presently existing levels), terminated or amended or failed to perform any of
its obligations or permitted any material default to exist or caused any
material breach under, or entered into (except for renewals in the ordinary
course of business consistent with past and prudent business practices), any
material policy of insurance;
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(xvii) experienced any material damage, destruction,
or loss to its property not covered by insurance;
(xviii) disposed of or permitted to lapse any
material Intellectual Property;
(xix) other than to employees and except in the
ordinary course of business consistent with past and prudent business practices
pursuant to appropriate confidentiality agreements, and except as required by
any Law or any existing agreements set forth on Schedule 3.14 or as may be
reasonably necessary to secure or protect intellectual or other property rights
of the Company, provided any confidential information to any Person other than
Purchaser;
(xx) suffered total or significant partial loss of
the business of any customers;
(xxi) made any material change in the normal
operating balances of the Company's inventory;
(xxii) changed the compensation levels applicable to
any class of Company employees; or
(xxiii) paid any bonuses payable or to become payable
to any of Sellers or any of the Company's officers, employees, agents,
consultants or Persons acting in a similar capacity.
Section 3.9 No Undisclosed Liabilities. The Company has no Liabilities
that would be material to the Company taken as a whole, except for such
Liabilities as (a) are set forth on Schedule 3.9 hereto, (b) are reflected on
the Company Financial Statements or (c) were incurred since the Balance Sheet
Date in the ordinary course of business consistent with past and prudent
business practices and which individually and in the aggregate have not had and
could not reasonably be expected to have a Material Adverse Effect.
Section 3.10 Property; Inventory.
(a) The Company owns, or otherwise has a valid leasehold
interest providing sufficient and legally enforceable rights to use, all of the
property and assets necessary or otherwise material to the conduct of its
business. The Company has good and marketable title to all assets reflected on
the Company Financial Statements or acquired since the Balance Sheet Date, free
and clear of all Liens, other than immaterial assets disposed of since the
Balance Sheet Date in the ordinary course of business consistent with past and
prudent business practices. Such assets are in good operating condition and
repair (ordinary wear and tear excepted), have been reasonably maintained
consistent with standards generally followed in the industry, are suitable for
their present uses and, in the case of owned structures, are structurally sound.
(b) Schedule 3.10 sets forth by office location as of the
Balance Sheet Date, a complete and accurate list of all furniture, equipment,
automobiles and all other tangible personal property (including its net book
value) owned by, in the possession of, or used by the Company in connection with
its business as currently conducted and which have an initial book value in
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excess of $2,500 per item. No such tangible personal property is held under any
lease, security agreement, conditional sales contract, or other title retention
or security arrangement or subject to any Liens, or is located other than in the
possession of the Company.
(c) The Company's inventory consists of raw materials and
consignment and finished goods salable by the Company in the ordinary course of
business. The Company Financial Statements reflect an adequate reserve for all
the Company's inventory that is slow-moving, as determined in accordance with
the Company's customary practices, or is obsolete, damaged or defective.
Section 3.11 Intellectual Property.
(a) Schedule 3.11(a) sets forth: (i) all registered and
unregistered trademarks, service marks, trade names, maskworks, registered and,
to the Company's and Sellers' Knowledge, all unregistered copyrights, including
the jurisdictions in which each such Intellectual Property right has been
registered or in which any application for such registration has been filed and
(ii) all current written and to the best of Company's and Sellers' Knowledge,
oral license, sublicense, franchise and other agreements under which the Company
licenses the Company Intellectual Property to third parties or pursuant to which
the Company is authorized to use a third party's Intellectual Property. Schedule
3.11(a) sets forth whether the Company is the sole owner or joint owner or
licensee of each item of Intellectual Property identified therein, and any
license fees, royalties or similar compensation which, are payable or are due in
the future from the Company.
(b) The Company either owns or has adequate rights to use all
of the Intellectual Property that is necessary to and currently used for its
business as now conducted, and the Company Software is free and clear of Liens
and, to the Company's Knowledge, all other Company Intellectual Property is free
and clear of Liens. The Company has previously furnished to Purchaser evidence
of either ownership by the Company of or license rights to use its Intellectual
Property. The Company Software and the Company Custom Software do not contain
any third party Intellectual Property.
(c) There are no pending or, to the Company's Knowledge,
threatened claims against the Company alleging that the conduct of its business
infringes any Intellectual Property rights of others. The Intellectual Property
of the Company is not subject to any outstanding injunction, judgment, order,
decree, ruling or charge. To the Company's and Sellers' Knowledge, Company has
not engaged in unfair competition against any third party and the business of
the Company as now conducted does not infringe any third party Intellectual
Property rights.
(d) To of the Company's and Sellers' Knowledge, no third party
is infringing upon any of the Company's Intellectual Property, and the Company
has not notified any third party that it believes such third party is
interfering with, infringing, or misappropriating any of the Company's
Intellectual Property or engaging in any act of unfair competition. The Company
represents and warrants that it has the right to bring an action for the
infringement of all of its Intellectual Property.
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(e) Any third party to which the Company has disclosed or
allowed access to the proprietary and confidential Intellectual Property of the
Company has executed a confidentiality and nondisclosure agreement with respect
to such Intellectual Property.
(f) To the Company's and Sellers' Knowledge, any hardware,
software or firmware licensed or purchased by the Company from third parties and
all Company Software utilized by the Company internally or licensed or sold by
the Company to third parties, accurately processes date/time data (including but
not limited to, calculating, comparing, and sequencing) from, into, and between
the twentieth and twenty-first centuries, and the years 1999 and 2000 and leap
year calculations when either (i) used as a standalone application or (ii)
integrated into or otherwise used in conjunction with the third party hardware,
software, firmware and data ("Third Party Products") with which such Company
Software or Company Custom Software, as the case may be, was designed or
intended to operate.
(g) The consummation of the transactions contemplated hereby
will not result in the loss or impairment of the right of Purchaser or its
successors to own or use any of the Intellectual Property currently owned or
used by the Company nor will it require the consent of any Governmental
Authority or third party in respect of any such Intellectual Property and no
present or former employee, or officer of the Company has any right, title, or
interest, directly or indirectly, in whole or in part, in any Intellectual
Property.
Section 3.12 Tax Matters.
(a) The Company has timely filed with the appropriate
governmental agencies complete and accurate Tax Returns required to be filed by
it in respect of all applicable Taxes of the Company required to be paid through
the date hereof, and will timely file any such Tax Return required to be filed
by it prior to the Effective Time with respect to all applicable Taxes required
to be paid through the Effective Time. All such Tax Returns were prepared in
compliance with applicable law and all Taxes due, or claimed to be due by any
taxing authority, pursuant thereto (whether or not shown as due on any Tax
Return) have been paid. In addition, all Taxes due or claimed to be due by any
taxing authority (whether or not shown on any Tax Return), prior to the
Effective Time for which the Company may be liable in its own right or as a
transferee of the assets of, or successor to, any corporation, person,
association, partnership, joint venture or other entity, have been paid on a
timely basis, or an adequate reserve has been established therefor. The Company
is currently not the beneficiary of any extension of time within which to file
any Tax Return. No claim has ever been made by an authority in a jurisdiction
where the Company does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no security interests on any of the
assets of the Company that arose in connection with any failure (or alleged
failure) to pay any Tax. Schedule 3.12(a) sets forth all of the Taxes paid by
the Company since January 1, 1998, the type of such Taxes, the amount of such
Taxes and the authority to which such Taxes were paid.
(b) The Company has withheld and paid all Taxes that the
Company is required to withhold and pay in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder or other third
party.
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(c) To the Knowledge of Sellers, there is no basis for any Tax
authority to assess any additional Taxes for any period for which Tax Returns
have been filed. There is no action, suit, proceeding, audit, investigation,
assessment, dispute or claim concerning any Tax liability of the Company, either
(i) claimed or raised by any authority delivered to the Company in writing or
(ii) based upon personal contact with any agent of such authority.
(d) Sellers will make available to Purchaser at the Company's
corporate offices prior to Closing correct and complete copies of all federal,
state, local and foreign income Tax Returns and all written communications from
the Internal Revenue Service or other Tax authorities relating to any such Tax
Returns, examination reports and statements of deficiencies assessed against or
agreed to by the Company since December 31, 1993.
(e) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency, and no power of attorney granted by the Company with
respect to any Tax matter is currently in force.
(f) The Company is not obligated to make any payments, and is
not a party to any agreement that under any circumstances could obligate it to
make any payments that will not be deductible under Section 280G of the Code.
The Company has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
Tax within the meaning of Section 6662 of the Code. The Company is not a party
to any Tax allocation or sharing agreement. The Company, (i) has not been a
member of an affiliated group filing a consolidated federal income Tax Return,
(ii) is not and has not ever been a partner in a partnership or an owner of an
interest in an entity treated as a partnership for federal income tax purposes
and (iii) has no liability for the Taxes of any person (other than the Company)
under Treas. Reg. Section 1.1502-6 (or any similar provision of state, local or
foreign law), as a transferee or successor, by contract or otherwise.
(g) The unpaid Taxes of the Company do not exceed the reserve
for Tax liability (rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) set forth on the face of
the Balance Sheet (rather than in any notes thereto) as adjusted for the passage
of time through the Effective Time in accordance with the past custom and
practice of the Company in filing its Tax Returns.
(h) The Company has been a validly electing S corporation
within the meaning of Sections 1361 and 1362 of the Code since its formation,
and will be an S corporation up to and including the Effective Time. The Company
has not in the past 10 years (i) acquired assets from another corporation in a
transaction in which the Company's tax basis for the acquired assets was
determined in whole or in part by reference to the tax basis of the acquired
assets (or any other property) in the hands of the transferor or (ii) acquired
the stock of any corporation that is a qualified subchapter S subsidiary.
Section 3.13 Real Property.
(a) Schedule 3.13(a) lists all real property owned, leased or
subleased to the Company (the "Real Property"), and in the case of leased real
property, identifies the lessor, rental rate, lease term, expiration date and
existence of a renewal option. Sellers have delivered
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to Purchaser correct and complete copies of the leases and subleases listed in
Schedule 3.13(a), as such leases or subleases have been amended to date. The
current use of the Real Property by the Company does not violate the certificate
of occupancy thereof or any local zoning or similar land use or other Laws and
none of the structures on the Real Property encroaches upon real property of
another Person, and no structure of any other Person encroaches upon any Real
Property. The Company has not received notice of any pending or threatened
condemnation proceeding, or of any sale or other disposition in lieu of
condemnation, affecting any of the Real Property. Each parcel of Real Property
abuts on or has direct vehicular access to a public road. With respect to each
lease and sublease listed, except as otherwise indicated in Schedule 3.13(a):
(i) the lease or sublease is in full force and effect
and will remain in full force and effect on identical terms after the Closing,
without the need to obtain the consent of any party thereto;
(ii) the Company is in possession of the leased
premises and all rental and other obligations of the Company are current;
(iii) the Company is not in breach or default (or has
not received notice of breach or default), and no event has occurred which, with
notice or lapse of time, would constitute a breach or default or permit
termination, modification or acceleration under such lease or sublease;
(iv) to the Knowledge of Sellers, no party has
repudiated any provision of such lease or sublease;
(v) there are no disputes, oral agreements or
forbearance programs in effect as to the lease or sublease to which the Company
is a party;
(vi) the Company has not assigned, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold
or subleasehold;
(vii) all facilities leased or subleased thereunder
have received all approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof by the Company and
have been operated and maintained by the Company in compliance with applicable
laws, except to the extent that the failure to receive any such approval,
license or permit for any such facility, or to operate and maintain any such
facility in compliance with applicable laws would not have a Material Adverse
Effect on such facility or the Company's use of such facility as currently used;
and
(viii) the properties on which all facilities leased
or subleased thereunder reside are used in a manner consistent with applicable
zoning, and all such facilities leased or subleased have all requisite permits,
to allow the Company to operate all retail and distribution aspects of its
business thereon and therein in full compliance with applicable laws and
contractual obligations.
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Section 3.14 Material Contracts.
(a) Schedule 3.14 lists (without duplication) each of the
following contracts and other agreements (or, in the case of oral contracts,
summaries thereof) to which the Company is a party or by or to which the Company
or any of its assets or properties is bound or subject (such contracts and
agreements being "Material Contracts"):
(i) any advertising, market research and other
marketing agreements;
(ii) any employment, severance, noncompetition,
consulting or other agreements of any nature with any current or former
stockholder, partner, officer or employee of the Company or any Affiliate of any
of such Persons;
(iii) any agreements relating to the making of any
loan or advance by the Company;
(iv) any agreements providing for the indemnification
by the Company of any Person;
(v) any agreements with any Governmental Authority
except those entered into in the ordinary course of business which are not
material to the Company;
(vi) any contracts, agreements and other arrangements
for the sale of assets or for the furnishing of services, goods or products by
or to the Company, including supply agreements, (A) with firm commitments having
a value in excess of $10,000 or (B) having a term which is greater than six
months and which is not terminable by the Company on less than 90 days' notice
without the payment of any termination fee or similar payment;
(vii) any broker, distributor, dealer, representative
or agency agreements;
(viii) any agreements (including settlement
agreements) currently in effect pursuant to which the Company licenses the right
to use any Intellectual Property to any Person or from any Person, and research
and development agreements;
(ix) any confidentiality agreements entered into by
the Company during the period commencing five years prior to the date hereof
pursuant to which confidential information has been provided to a third party or
by which the Company was restricted from providing information to third parties;
(x) any voting trust or similar agreements relating
to any of the Company Common Stock to which any of Sellers or the Company is a
party;
(xi) any joint venture, partnership or similar
documents or agreements;
(xii) any agreements that limit or purport to limit
the ability of the Company to own, operate, sell, transfer, pledge or otherwise
dispose of any assets;
(xiii) any agreements by which the Company is or may
be obligated to provide software upgrades or other modifications; and
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(xiv) all other agreements, contracts or commitments
not made in the ordinary course of business which are material to the Company.
(b) Each Material Contract is legal, valid and binding on and
enforceable against the Company and the other parties thereto and is in full
force and effect. Upon consummation of the transactions contemplated by this
Agreement, to the Knowledge of Sellers, each Material Contract shall remain in
full force and effect without any loss of benefits thereunder and without the
need to obtain the consent of any party thereto to the transactions contemplated
by this Agreement. The Company is not (and with the giving of notice or lapse of
time would not be) in material breach of, or material default under, any
Material Contract and, to the Knowledge of Sellers, no other party thereto is in
material breach of, or material default under, any Material Contract. The
Company has not received any written notice that any Material Contract is not
enforceable against any party thereto, that any Material Contract has been
terminated before the expiration of its term or that any party to a Material
Contract intends to terminate such Material Contract prior to the termination
date specified therein, or that any other party is in breach of, or default
under, any Material Contract. True and complete copies of all Material Contracts
or, in the case of oral agreements, if any, written summaries thereof have been
delivered to Purchaser.
Section 3.15 Relationship with Suppliers & Customers. To the Knowledge
of Sellers, except as set forth in Schedule 3.15, the Company currently has good
relationships with its suppliers and customers. The Company currently is not in
dispute with any current or former supplier of material to the Company or any
customer of the Company, and since December 31, 1998, no supplier to or customer
of the Company has notified the Company that it will stop doing business, or
reduce its business, with the Company, the cessation or reduction of which
business would have a Material Adverse Effect. Schedule 3.15 lists the ten (10)
largest (in terms of dollar volume) customers and suppliers of the Company
during each of the two (2) immediately preceding fiscal years of the Company.
Section 3.16 Notes and Accounts Receivable; Bank Accounts. Schedule
3.16 sets forth, as of the Balance Sheet Date, all notes and accounts receivable
of the Company. Except as set forth in Schedule 3.16, all notes and receivables
of the Company reflected on the Company Financial Statements or created after
the Balance Sheet Date arose from valid transactions in the ordinary course of
business and are valid receivables not subject to setoffs or counterclaims, are
current and collectible and will be collected in accordance with their terms at
their recorded amounts, subject to any reserves for bad debts reflected in the
Company Financial Statements. The Company has historically maintained a level of
accounts payable and accounts receivable appropriate to service its respective
operations and has not manipulated the payment terms of such accounts as to
materially deviate from the terms originally extended to or received from a
third party. Sellers will deliver to Purchaser no later than the Closing Date a
revised schedule of all notes and accounts receivable of the Company as of one
business day prior to the Closing Date. Schedule 3.16 also sets forth (a) all
related party notes and accounts receivable (including those that will be repaid
or offset prior to Closing) and (b) all bank accounts maintained by the Company.
Section 3.17 Insurance. Schedule 3.17 sets forth a complete and
accurate list as of the date hereof of all primary, excess and umbrella
policies, bonds and other forms of insurance
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owned or held by or on behalf of or providing insurance coverage to the Company
and its business, properties and assets (or its officers, salespersons, agents
or employees or Persons acting in a similar capacity) and the extent, if any, to
which the limits of liability under such policies have been exhausted. True and
complete copies of such policies have been delivered to Purchaser. All such
policies are in full force and effect and all such policies in such amounts will
be outstanding and in full force and effect without interruption until the
Closing. The Company has not received notice of default under any such policy,
nor has it received written notice of any pending or threatened termination of
cancellation, coverage limitation or reduction, or material premium increase
with respect to any such policy. Schedule 3.17 sets forth a complete and
accurate summary of all of the self-insurance coverage provided by the Company.
No letters of credit have been posted and no cash has been restricted to support
any reserves for insurance on the Balance Sheet.
Section 3.18 Employees.
(a) Except as set forth in Schedule 3.18, to the Knowledge of
Sellers, no executive, key employee or group of employees has any plans to
terminate employment with the Company. The Company is not a party to or bound by
any collective bargaining agreement nor has the Company experienced any strikes,
grievances, claims of unfair labor practices or other collective bargaining
disputes. The Company has not taken any action, or omitted to take any action,
that would result in any unfair labor practice except any such action or
omission that would not result in a Material Adverse Effect. No organizational
effort is presently being made or, to the Knowledge of Sellers, is threatened by
or on behalf of any labor union with respect to employees of the Company. All of
the Company's current procedures, policies and training practices with respect
to employee matters, including, without limitation, those relating to the hiring
and termination of employees and worker safety, conform with applicable Laws to
which the Company is subject, except for any such nonconformance that would not
result in a Material Adverse Effect. No offer to any employee of the Company to
purchase any portion of the capital stock or assets of the Company remains
outstanding, nor has any discussion taken place regarding such a transaction or
any similar transaction. The Company is not subject to any claim for overdue
overtime compensation due to any employee, and no such claim has been
threatened.
(b) The Company has not received a notice of any violation of
any immigration and naturalization laws relating to employment and employees and
has properly completed and maintained all applicable forms (including, but not
limited to, I-9 forms) and, to the Knowledge of Sellers, the Company is in
compliance with all such immigration and naturalization laws and there are no
citations, investigations, administrative proceedings or formal complaints of
violations of the immigration or naturalization laws pending or threatened
before the Immigration and Naturalization Service of any federal, state or
administrative agency or court against or involving the Company or any of
Sellers.
Section 3.19 Employee Benefits.
(a) Schedule 3.19(a) contains a true and complete list of each
employment, bonus, deferred compensation, incentive compensation, stock
purchase, stock option, stock appreciation right or other stock-based incentive,
severance, change-in-control, or termination pay, hospitalization or other
medical, disability, life or other insurance, supplemental
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unemployment benefits, profit-sharing, pension, or retirement plan, program,
agreement or arrangement, and each other employee benefit plan, program,
agreement or arrangement, sponsored, maintained or contributed to or required to
be contributed to by the Company or an Affiliate of the Company, whether or not
incorporated (an "ERISA Affiliate"), that together with the Company would be
deemed a "single employer" within the meaning of Section 4001(b)(1) of ERISA,
for the benefit of any current or former employee or director of the Company or
any ERISA Affiliate (the "Plans"). Schedule 3.19(a) identifies each of the Plans
that is an "employee welfare benefit plan," or "employee pension benefit plan"
as such terms are defined in Sections 3(1) and 3(2) of ERISA (such plans being
hereinafter referred to collectively as the "ERISA Plans"). Neither the Company
nor any ERISA Affiliate has any formal plan or commitment, whether legally
binding or not, to create any additional Plan or modify or change any existing
Plan that would affect any current or former employee or director of the Company
or any ERISA Affiliate.
(b) With respect to each of the Plans, the Company has
heretofore delivered to Purchaser true and complete copies of each of the
following documents, as applicable:
(i) a copy of the Plan documents (including all
amendments thereto) for each written Plan or a written description of any Plan
that is not otherwise in writing;
(ii) a copy of the annual report or Internal Revenue
Service Form 5500 Series, if required under ERISA, with respect to each ERISA
Plan for the last three Plan years ending prior to the date of this Agreement
for which such a report was filed;
(iii) a copy of the actuarial report, if required
under ERISA, with respect to each ERISA Plan for the last three Plan years
ending prior to the date of this Agreement;
(iv) a copy of the most recent Summary Plan
Description ("SPD"), together with all summaries of material modification issued
with respect to such SPD, if required under ERISA, with respect to each ERISA
Plan, and all other material employee communications relating to each ERISA
Plan;
(v) if the Plan is funded through a trust or any
other funding vehicle, a copy of the trust or other funding agreement (including
all amendments thereto) and the latest financial statements thereof, if any;
(vi) all contracts relating to the Plans with respect
to which the Company or any ERISA Affiliate may have any liability, including
insurance contracts, investment management agreements, subscription and
participation agreements and record keeping agreements; and
(vii) the most recent determination letter received
from the IRS with respect to each Plan that is intended to be qualified under
Section 401(a) of the Code.
(c) No liability under Title IV of ERISA has been incurred by
the Company or any ERISA Affiliate since the Balance Sheet Date that has not
been satisfied in full, and no condition exists that presents a material risk of
such a liability.
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(d) The Pension Benefit Guarantee Corporation (the "PBGC") has
not instituted proceedings pursuant to Section 4042 of ERISA to terminate any of
the ERISA Plans subject to Title IV of ERISA; and no condition exists that
presents a material risk that such proceedings will be instituted by the PBGC.
(e) With respect to each of the ERISA Plans that is subject to
Title IV of ERISA, the present value of accumulated benefit obligations under
such Plan, as determined by the Plan's actuary based upon the actuarial
assumptions used for funding purposes in the most recent actuarial report
prepared by such Plan's actuary with respect to such Plan, did not, as of its
latest valuation date, exceed the then current value of the assets of such Plan
allocable to such accumulated benefit obligations.
(f) Neither the Company nor any ERISA Affiliate, any of the
ERISA Plans, any trust created thereunder, or to the Knowledge of Sellers, any
trustee or administrator thereof has engaged in a transaction or has taken or
failed to take any action in connection with which the Company or any ERISA
Affiliate could be subject to any material liability for either a civil penalty
assessed pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to
Section 4975(a) or (b), 4976 or 4980B of the Code.
(g) All contributions and premiums which the Company or any
ERISA Affiliate is required to pay under the terms of each of the ERISA Plans
and Section 412 of the Code, have, to the extent due, been paid in full or
properly recorded on the financial statements or records of the Company and none
of the ERISA Plans or any trust established thereunder has incurred any
"accumulated funding deficiency" (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, as of the last day of the most recent
fiscal year of each of the ERISA Plans ended prior to the date of this
Agreement. No lien has been imposed under Section 412(n) of the Code or Section
302(f) of ERISA on the assets of the Company or any ERISA Affiliate and no event
or circumstance has occurred that is reasonably likely to result in the
imposition of any such Lien on any such assets on account of any ERISA Plan.
(h) None of the ERISA Plans is a "multiemployer plan," as such
term is defined in Section 3(37) of ERISA.
(i) Each of the Plans has been operated and administered in
all material respects in accordance with applicable Laws, including but not
limited to ERISA and the Code.
(j) Each of the ERISA Plans that is intended to be "qualified"
within the meaning of Section 401(a) of the Code is so qualified. The Company
has applied for and received a currently effective determination letter from the
IRS stating that it is so qualified, and no event has occurred with would affect
such qualified status.
(k) Any fund established under an ERISA Plan that is intended
to satisfy the requirements of section 501(c)(9) of the Code has so satisfied
such requirements.
(l) No amounts payable under any of the Plans or any other
contract, agreement or arrangement with respect to which the Company or any
ERISA Affiliate may have any liability could fail to be deductible for federal
income tax purposes by virtue of Section 280G of the Code.
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(m) No Plan provides benefits, including death or medical
benefits (whether or not insured) with respect to current or former employees of
any of the Company or any ERISA Affiliate after retirement or other termination
of service (other than (i) coverage mandated by applicable Laws, (ii) death
benefits or retirements benefits under any "employee pension plan," as that term
is defined in Section 3(2) of ERISA, (iii) deferred compensation benefits
accrued as liabilities on the books of the Company or an ERISA Affiliate, or
(iv) benefits, the full direct cost of which is borne by the current or former
employee (or beneficiary thereof)).
(n) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee, officer or
director of the Company or any ERISA Affiliate to severance pay, unemployment
compensation or any other similar termination payment or (ii) except as set
forth on Schedule 3.19(n), accelerate the time of payment or vesting or increase
the amount of or otherwise enhance any benefit due any such employee, officer or
director.
(o) There are no pending or, to the Knowledge of Sellers,
threatened or anticipated, claims by or on behalf of any Plan, by an employee or
beneficiary under any such Plan, or otherwise involving any such Plan (other
than routine claims for benefits).
Section 3.20 Environmental Compliance.
(a) The Company is in compliance with, and has no liability
under, the Environmental Laws (and such compliance includes, but is not limited
to, the possession by Company of all permits required under applicable
Environmental Laws, and compliance with the terms and conditions thereof).
(b) There are no existing or pending, or to the Knowledge of
Sellers or the Company, threatened Environmental Claims against the Company or
any person or entity whose liability for any Environmental Claims the Company
has assumed or retained either contractually or by operation of law.
(c) There have been no spills or Releases of Hazardous
Substances at any of the facilities owned, operated or leased by the Company,
nor any spills or Releases at any property formerly owned, operated, or leased
by the Company during the period of such ownership, operation, or tenancy.
(d) There are no consent decrees, consent orders, judgments,
judicial or administrative orders, or Liens relating to any Environmental Laws
which regulate, obligate, or bind the Company.
Section 3.21 Litigation and Claims, Compliance with Laws.
(a) Schedule 3.21(a) sets forth all Company Litigation as of
the date hereof, including the name of the claimant, the date of the alleged act
or omission, a detailed narrative as to the nature of the alleged act or
omission, the date the matter was referred to an insurance carrier of the
Company (if referred), the estimated amount of exposure, the amount the Company
has reserved, or the amount of the Company's claim and estimated expenses of the
Company in connection with such matters. Neither the Company, nor the Company's
assets or properties, are
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subject to any order, consent decree, settlement or similar agreement with any
Governmental Authority. There is no judgment, injunction, decree, order or other
determination of an arbitrator or Governmental Authority specifically applicable
to the Company or any of its properties or assets. There is no Company
Litigation relating to alleged unlawful discrimination or sexual harassment. As
of the date hereof, there is no Company Litigation which seeks to prevent
consummation of the transactions contemplated hereby or which seeks material
damages in connection with the transactions contemplated hereby.
(b) Except as set forth in Schedule 3.21(b), the Company has
complied and is in compliance with all Laws applicable to the Company and its
business except where the failure to be in compliance would not reasonably be
expected to have a Material Adverse Effect. Except as set forth in Schedule
3.21(b), the Company holds all material licenses, permits and other
authorizations of Governmental Authorities necessary to conduct its business as
now being conducted or, under currently applicable Laws, to continue to conduct
its business as now being conducted. Except as set forth in Schedule 3.21(b),
there is no intent to make any changes in the conduct of the business of the
Company that will result in or cause the Company to be in noncompliance with
applicable Laws or that will require changes in or a loss of any such licenses,
permits or other authorizations or an increase in any expenses related thereto
except where such noncompliance, change, loss or increase would not reasonably
be expected to have a Material Adverse Effect. Such licenses, permits and other
authorizations as aforesaid held by the Company are valid and in full force and
effect, and there are no (i) Actions pending, or to the Knowledge of Sellers,
threatened or (ii) Investigations to the Knowledge of Sellers pending or
threatened that could result in the termination, impairment or nonrenewal
thereof.
Section 3.22 Affiliate Transactions. Schedule 3.22 lists all
agreements, arrangements and currently proposed agreements and arrangements, by
or between the Company, on the one hand, with or for the benefit of any current
or former stockholder, partner, officer or other Affiliate of the Company or any
of such Person's Affiliates, or any entity in which any such Person has a direct
or indirect material interest. Schedule 3.22 lists all payments of any kind
since January 1, 1999, from the Company, to or for the benefit of any current or
former partner, officer or other Affiliate of the Company or any of such
Person's Affiliates, or any entity in which any such Person has a direct or
indirect material interest. All outstanding debts and other obligations of the
Company to any Affiliate were incurred in return for fair and adequate
consideration paid or delivered by them in cash or other property. All debts of
any Sellers or the Company's officers or the respective Affiliates of the
Company to the Company are reflected on the Company Financial Statements.
Section 3.23 Records.
(a) The corporate minute books of the Company contain complete
and accurate records of all actions taken by stockholders of the Company and the
Board of Directors and all committees thereto of the Company. Complete and
accurate copies of all such minute books have been delivered by the Company to
Purchaser. All officers and directors of the Company have been properly elected.
(b) The accounting books and records of the Company are
complete and correct, have been maintained in accordance with applicable Laws
and good business practices
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and accurately reflect the basis for the financial condition and results of
operations of the Company set forth in the financial statements delivered to
Purchaser.
Section 3.24 Brokers, Finders, Etc. Neither the Company nor Sellers
have employed, or are subject to the valid claim of, nor has the Company or
Sellers incurred any Liability that would be payable by the Company, for any
brokerage, finder's or other fees or commissions of any broker, finder or other
financial intermediary in connection with the transactions contemplated by this
Agreement.
Section 3.25 Competing Business. Sellers have no direct or indirect
interest of any nature whatever in any Person which competes with, conducts any
business similar to, has any arrangement or agreement with, or is involved in
any way with, any business similar to the business of the Company.
Section 3.26 Representations and Warranties Generally. The
representations and warranties contained in any particular section of this
Article III are not exclusive as to any particular subject matter covered by
such section and different sections may apply different tests to the same or
similar matters. One Schedule may specifically cross reference other applicable
sections or parts thereof of the Schedules without repeating disclosure that
applies to more than one section.
Section 3.27 Other Information. No representation or warranty of the
Company or Sellers in this Agreement, nor any statement, certificate or other
document furnished or to be furnished by the Company or Sellers to Purchaser
pursuant to this Agreement, nor the exhibits and schedules hereto, contains any
untrue statement of a material fact, or omits to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
Section 3.28 Investment Representations Each Seller understands that
neither the Purchaser Series D Stock nor the shares into which such stock may be
converted have been registered under the Securities Act. Each Seller also
understands that the shares of Purchaser Series D Stock are being offered
pursuant to an exemption from registration contained in the Securities Act based
in part upon each Seller's representations as set forth below:
(a) Each Seller has substantial experience in evaluating and
investing in private placement transactions of securities in companies similar
to Purchaser so that it is capable of evaluating the merits and risks of
obtaining Purchaser Series D Stock as a portion of the Merger Consideration and
has the capacity to protect his, her or its own interests. Each Seller must bear
the economic risk of obtaining Purchaser Series D Stock as a portion of the
Merger Consideration indefinitely unless the Purchaser Series D Stock (or the
shares into which such stock may be converted) are registered pursuant to the
Securities Act, or an exemption from registration is available. Each Seller
understands that there is no assurance that any exemption from registration
under the Securities Act will be available and that, even if available, such
exemption may not allow such Seller to transfer all or any portion of the
Purchaser Series D Stock or the shares into which such stock may be converted
under the circumstances, in the amounts or at the times such Seller might
propose.
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(b) Each Seller is acquiring the Purchaser Series D Stock for
such Seller's own account for investment only, and not with a view towards their
distribution.
(c) Each Seller represents that by reason of his, her or its,
or of its management's, business or financial experience, Seller has the
capacity to evaluate the risks and merits of the transactions contemplated in
this Agreement. Further, each Seller is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement.
(d) Each Seller represents that he, she or it is an accredited
investor within the meaning of Regulation D under the Securities Act.
(e) Each Seller acknowledges and agrees that the Purchaser
Series D Stock, and any shares into which such stock may be converted, must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Each Seller has been
advised or is aware of the provisions of Rule 144 promulgated under the
Securities Act, which permits limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things, the availability of certain current public information about such
Seller, the resale occurring following the required holding period under Rule
144 and the number of shares being sold during any three-month period not
exceeding specified limitations.
(f) Each Seller resides in the state or province identified in
the address of such Seller set forth on Schedule 3.28(f).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Sellers as follows:
Section 4.1 Organization. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Section 4.2 Authorization, Etc. Purchaser has full corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and the documents and instruments contemplated hereby and to carry out the
transactions contemplated hereby and thereby. Purchaser has duly approved and
authorized the execution and delivery of this Agreement and the documents and
instruments contemplated hereby and the consummation of the transactions
contemplated hereby and thereby, and (except for the consents of Purchaser's
stockholders with respect to the Merger) no other corporate proceedings on the
part of Purchaser is necessary to approve and authorize the execution, delivery
and performance by Purchaser of this Agreement and the documents and instruments
contemplated hereby and the consummation by Purchaser of the transactions
contemplated hereby and thereby. This Agreement constitutes a legal, valid and
binding agreement of Purchaser, enforceable against Purchaser in accordance with
its terms, except that (a) such enforcement may be subject to applicable
bankruptcy, insolvency or other similar laws, now or hereafter in effect,
affecting creditors' rights generally, and (b) the remedy of specific
performance and injunctive and other forms of equitable relief
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may be subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
Section 4.3 Brokers' Fees. Purchaser has no liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which Sellers could become
liable or obligated.
Section 4.4 Capital Stock. As of the date of this Agreement, the
authorized capital stock of Purchaser consists of 15,000,000 shares of common
stock, par value $.001 per share, of which 516,856 shares are issued and
outstanding and 1,250,000 shares of which are reserved or will be reserved in
the future for issuance to key employees, consultants and others affiliated with
Purchaser or a subsidiary thereof pursuant to stock grant, stock purchase and/or
option plans or any other stock incentive program, arrangement or agreement
approved by the Company's Board of Directors and 6,500,000 shares of preferred
stock, par value $.001 per share, of which 2,000,000 shares are designated
Series A Preferred Stock, 1,906,137 of which are issued and outstanding, 500,000
of which are designated Series B Preferred Stock, 455,120 of which are issued
and outstanding, 1,300,000 have been designated Series C Preferred Stock,
1,010,070 of which are issued and outstanding. Purchaser has issued warrants to
purchase 10,000 shares of common stock and warrants to purchase 16,492 shares of
Series C Preferred Stock. Purchaser has granted options to purchase 384,592
shares of common stock. Except as otherwise set forth herein, there are no
outstanding subscriptions, options, warrants, calls, rights, contracts,
commitments, understandings, restrictions or arrangements relating to the
issuance, sale, transfer or voting of any capital stock of Purchaser, including
any rights of conversion or exchange under any outstanding securities or other
instruments. All outstanding shares of capital stock have been validly issued
and are fully paid, nonassessable and free of preemptive or similar rights.
Section 4.5 No Conflict. Except as set forth in Schedule 4.5, neither
the execution, delivery or performance of this Agreement or the other documents
and instruments to be executed and delivered by Purchaser pursuant hereto, nor
the consummation by Purchaser of the transactions contemplated hereby or
thereby, nor compliance by Purchaser with any of the provisions hereof or
thereof will (a) conflict with or result in any breach of any provision of the
Certificate of Incorporation, Bylaws or similar organizational documents of
Purchaser, (b) constitute a change in control under or require the consent from
or the giving of notice to a third party, result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration)
under, or result in the creation of any Lien upon or affecting any of
Purchaser's assets or properties pursuant to, any of the terms, conditions or
provisions of any contractual obligation of the Company or (c) violate any
order, writ, injunction, decree, statute, rule or regulation of any Governmental
Authority applicable to Purchaser or to which any of its properties or assets
may be bound.
Section 4.6 Purchaser Financial Statements. Purchaser has delivered to
the Company Purchaser Financial Statements. For the purposes of this Agreement,
"Purchaser Financial Statements" shall mean: (a) an audited consolidated balance
sheet of Purchaser for FY 1999 as of September 30, 1999, and the related
statement of income and cash flows for the period then ended and (b) a balance
sheet as of March 31, 2000 and the related statements of income and cash flow
for the quarter then ended. Except as set forth on Schedule 4.6, Purchaser
Financial
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Statements have been (a) prepared in accordance with GAAP, applied on a
consistent basis throughout the periods covered thereby, (b) present fairly the
financial condition and results of operations of Purchaser and its wholly-owned
subsidiaries as of the dates and for the periods specified therein, (c) be
correct and complete in all material respects and (d) be consistent with the
books and records of Purchaser (which books and records are and will be correct
and complete).
Section 4.7 Absence of Certain Changes or Events. Except as set forth
on Schedule 4.7, since the date of the Purchaser Financial Statements (a)
Purchaser and its Subsidiaries have conducted their business only in the
ordinary course and consistent with past practice and (b) there have not been
any developments or events which have had or could reasonably be expected to
have, individually or in the aggregate a Material Adverse Effect.
Section 4.8 No Undisclosed Liabilities. Neither Purchaser nor any of
its Subsidiaries have any Liabilities that would be material to Purchaser taken
as a whole, except for such Liabilities as (a) are set forth on Schedule 4.8
hereto, (b) are reflected on the Purchaser Financial Statements or (c) were
incurred since the date of the Purchaser Financial Statements in the ordinary
course of business consistent with past and prudent business practices and which
individually and in the aggregate have not had and could not reasonably be
expected to have a Material Adverse Effect.
Section 4.9 Property; Inventory. Purchaser and its Subsidiaries own, or
otherwise have a valid leasehold interest providing sufficient and legally
enforceable rights to use, all of the property and assets necessary or otherwise
material to the conduct of its business. Except as set forth on Schedule 4.9,
Purchaser has good and marketable title to all assets reflected on the Purchaser
Financial Statements or acquired following the date thereof, free and clear of
all Liens, other than immaterial assets disposed of since the date of the
Purchaser Financial Statements in the ordinary course of business consistent
with past and prudent business practices. Such assets are in good operating
condition and repair (ordinary wear and tear excepted), have been reasonably
maintained consistent with standards generally followed in the industry, are
suitable for their present uses and, in the case of owned structures, are
structurally sound.
Section 4.10 Relationship with Suppliers & Customers. To the Knowledge
of Purchaser, except as set forth in Schedule 4.10, Purchaser and its
Subsidiaries currently have good relationships with their suppliers and
customers. Neither Purchaser nor any of its Subsidiaries is currently in dispute
with any current or former supplier of material to Purchaser, it Subsidiaries or
any customer of Purchaser or its Subsidiaries, and since December 31, 1998, no
supplier to or customer of Purchaser or its Subsidiaries has notified Purchaser
or its Subsidiaries that it will stop doing business, or reduce its business,
with Purchaser or its Subsidiaries, the cessation or reduction of which business
would have a Material Adverse Effect.
Section 4.11 Notes and Accounts Receivable . Except as set forth in
Schedule 4.11, all notes and receivables of Purchaser and its Subsidiaries
reflected on the Purchaser Financial Statements or created thereafter arose from
valid transactions in the ordinary course of business and are valid receivables
not subject to setoffs or counterclaims, are current and collectible and will be
collected in accordance with their terms at their recorded amounts, subject to
any reserves for bad debts reflected in the Purchaser Financial Statements.
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Section 4.12 HSR. Currently and at all times up until the time of the
Closing, (i) Purchaser is its own ultimate parent entity (as the term "ultimate
parent entity" is defined in the HSR Act and its implementing regulations), (ii)
the total assets of Purchaser and all entities under the control of Purchaser
(as the term "control" is defined in the HSR Act) are less than $100 million (as
determined in accordance with the HSR Act) and (iii) the annual net sales of
Purchaser and all entities under the control of Purchaser (as the term "control"
is defined in the HSR Act) are less than $100 million (as determined in
accordance with the HSR Act).
Section 4.13 Litigation; Compliance with Laws
(a) Schedule 4.13(a) sets forth all Purchaser Litigation as of
the date hereof, including the name of the claimant, the date of the alleged act
or omission, a detailed narrative as to the nature of the alleged act or
omission, the date the matter was referred to an insurance carrier of Purchaser
(if referred), the estimated amount of exposure, the amount Purchaser has
reserved, or the amount of Purchaser's claim and estimated expenses of Purchaser
in connection with such matters. Neither Purchaser, nor Purchaser's assets or
properties, are subject to any order, consent decree, settlement or similar
agreement with any Governmental Authority. There is no judgment, injunction,
decree, order or other determination of an arbitrator or Governmental Authority
specifically applicable to Purchaser or any of its properties or assets. There
is no Purchaser Litigation relating to alleged unlawful discrimination or sexual
harassment. As of the date hereof, there is no Purchaser Litigation which seeks
to prevent consummation of the transactions contemplated hereby or which seeks
material damages in connection with the transactions contemplated hereby.
(b) Except as set forth in Schedule 4.13(b), Purchaser has
complied and is in compliance with all Laws applicable to Purchaser and its
business except where the failure to be in compliance would not reasonably be
expected to have a Material Adverse Effect. Except as set forth in Schedule
4.13(b), Purchaser holds all material licenses, permits and other authorizations
of Governmental Authorities necessary to conduct its business as now being
conducted or, under currently applicable Laws, to continue to conduct its
business as now being conducted. Except as set forth in Schedule 4.13(b), there
is no intent to make any changes in the conduct of the business of Purchaser
that will result in or cause Purchaser to be in noncompliance with applicable
Laws or that will require changes in or a loss of any such licenses, permits or
other authorizations or an increase in any expenses related thereto except where
such noncompliance, change, loss or increase would not reasonably be expected to
have a Material Adverse Effect. Such licenses, permits and other authorizations
as aforesaid held by Purchaser are valid and in full force and effect, and there
are no (i) Actions pending, or to the Knowledge of Purchaser, threatened or (ii)
Investigations pending or, to the Knowledge of Purchaser, threatened that could
result in the termination, impairment or nonrenewal thereof.
Section 4.14 Other Information. No representation or warranty of
Purchaser in this Agreement, nor any statement, certificate or other document
furnished or to be furnished by Purchaser to the Company or any Seller pursuant
to this Agreement, contains any untrue statement of a material fact, or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
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ARTICLE V
SELLERS' AND THE COMPANY'S OBLIGATIONS BEFORE CLOSING
Sellers and the Company covenant that from the date of this Agreement
until the Closing:
Section 5.1 General. Each of Sellers and the Company will use his or
its commercially reasonable efforts to take all action and to do all things
necessary in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction of the closing conditions
set forth in Article VII below).
Section 5.2 Access. Commencing on the date of the execution of this
Agreement and continuing for the shorter of ninety (90) days following the date
hereof or until the Closing Date, Purchaser and its counsel, accountants and
other representatives shall have access during business hours of the Company to
all properties, books, accounts, records, contracts and documents of or relating
to the Company. The Company shall, and Sellers shall cause the Company to,
furnish or cause to be furnished to Purchaser and its representatives all data
and information concerning the business, finances and properties of the Company
that may reasonably be requested to complete its due diligence review pursuant
to Section 6.1 of this Agreement.
Section 5.3 Operation of Business. The Company shall, and Sellers will
cause the Company to, carry on its business and activities diligently and in
substantially the same manner as they previously have been carried out and,
except as expressly contemplated by this Agreement, shall not make or institute
any unusual or novel methods of manufacture, purchase, sale, lease, management,
accounting or operation that vary materially from those methods used by the
Company as of the date of this Agreement. Without limiting the generality of the
foregoing, except as specifically contemplated by this Agreement, during the
period from the date of this Agreement to the Closing Date, the Company will not
and Sellers shall not cause or permit the Company to (a) declare, set aside, or
pay any dividend or make any distribution with respect to its capital stock or
redeem, purchase or otherwise acquire any of its capital stock or (b) otherwise
engage in any practice, take any action or enter into any transaction of the
type described in Section 3.8 above, other than in the ordinary course of
business. Notwithstanding the foregoing and subject to the Net Working Capital
requirements set forth in Section 2.9(b) hereof, at or prior to Closing, the
Company shall be permitted to (x) pay bonuses to employees in an aggregate
amount not to exceed $500,000, (y) make a distribution to stockholders in an
aggregate amount not to exceed $1,000,000 and (z) enter into binding agreements
with the stockholders who are not Sellers to redeem or repurchase such
stockholders' Company Common Stock and in conjunction therewith issue the
Redemption Notes.
Section 5.4 Preservation of Business; Insurance. Except as contemplated
by this Agreement, the Company will, and Sellers will cause the Company to, keep
its business and properties substantially intact, including its present
operations, physical facilities, working conditions and relationships with
lessors, lessees, licensors, licensees, suppliers, customers and employees, and
to continue to carry its existing insurance, subject to variations in amounts
required by the ordinary operations of its business.
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Section 5.5 Notices and Consents. The Company will, and Sellers will
cause the Company to, use its best efforts to obtain consent to the Merger from
each third-party to any Material Contract under which such consent is required.
Section 5.6 Exclusivity. Until the earliest of (a) the Closing Date, or
(b) the termination (for whatever reason) of this Agreement, neither the Company
nor Sellers shall solicit, initiate or encourage any other bids for the sale of
all or any portion of the equity or assets of the Company or enter into any
other negotiations for the sale of all or any portion of the equity or assets of
the Company without the written consent of Purchaser. The Company shall, and
Sellers shall cause the Company to, notify Purchaser immediately if any person
makes any proposal, inquiry or contact with respect to any of the foregoing.
Section 5.7 Delivery of Schedules; Notice of Developments; Update of
Schedules.
(a) The Company will, and Sellers will cause the Company to,
give prompt written notice to Purchaser of any development causing a breach of
any of the representations and warranties in Article III above. No disclosure by
the Company or Sellers pursuant to this Section 5.7, however, shall be deemed to
amend or supplement the Schedules, unless set forth in the Revised Schedules (as
defined below) in accordance with and subject to the terms of subparagraph (b)
of this Section 5.7, or to prevent or cure any misrepresentation or breach of
warranty; provided, however, if Purchaser determines not to terminate this
Agreement pursuant to Section 11.1 and to consummate the transactions
contemplated hereby despite the existence of a misrepresentation or breach of
warranty of which Purchaser has been informed in writing by the Company or
Sellers, the facts giving rise to such misrepresentation or breach may be set
forth in the Revised Schedules (as defined below) at Closing and such disclosure
shall be deemed to amend or supplement the Schedules for purposes of curing such
misrepresentation or breach of warranty.
(b) At least three (3) business days prior to the Closing
Date, the Company shall, and Sellers shall cause the Company to, deliver to
Purchaser revised Schedules (the "Revised Schedules") which shall amend and
revise the Schedules to reflect events or developments which have occurred since
the date hereof to the date of delivery of the Revised Schedules and would have
been appropriate subject matter for the Schedules in accordance with
representations and warranties set forth in Article III. Notwithstanding
anything herein to the contrary, the Revised Schedules are not intended and
shall not be used or interpreted to correct misstatements or omissions in the
Schedules as of the date of execution of this Agreement unless Purchaser
determines not to terminate this Agreement pursuant to Section 11.1 and to
consummate the transactions contemplated hereby despite the existence of such
misstatements or omissions in the Schedules of which Purchaser has been informed
in writing by the Company or Sellers, in which case the facts giving rise to
such misstatements or omission may be set forth in the Revised Schedules at
Closing and such disclosure shall be deemed to amend or supplement the Schedules
for purposes of curing such misstatements or omission. Notwithstanding the
foregoing, such amendment or supplementation shall not affect the application of
Section 7.3 hereof to any Damages resulting from such facts underlying such
misstatements or omissions.
Section 5.8 Confidentiality. Each Seller and the Company agree that,
unless and until the Closing has been consummated, each Seller, the Company and
its officers and directors and
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other representatives of Sellers and the Company shall hold in strict confidence
(except as necessary to consummate the Merger and the other transactions
contemplated by this Agreement), and shall not use to the detriment of
Purchaser, (a) any data or information with respect to the business of Purchaser
obtained in connection with this transaction or Agreement or (b) the terms or
existence of this Agreement. If the transactions contemplated by this Agreement
are not consummated, the Company and each Seller will return to Purchaser all
data and information that Purchaser may reasonably request, including, but not
limited to, worksheets, tests, reports, manuals, lists, memoranda and other
documents prepared by or made available to Sellers in connection with this
transaction. The foregoing shall not preclude Sellers or the Company from (x)
the use or disclosure of such information which currently is known generally to
the public or which subsequently has come into the public domain, other than by
way of disclosure by any of Sellers or the Company in violation of this
Agreement or (y) the disclosure of such information to the extent required by
law or court order, provided that, to the extent practicable, prior to such
disclosure required by law or court order, Sellers or the Company will give
Purchaser prior written notice of the nature of the required disclosure.
Section 5.9 Financial Statements. The Company shall promptly prepare at
the end of each month, and in any event within 10 days after the prior month's
end, promptly deliver to Purchaser the balance sheet, income statement and
statement of cash flows, prepared consistently with the practices used in
preparation of the Company Financial Statements, of the Company for each month
ended between the date of this Agreement and the Closing Date.
Section 5.10 Company Obligations; Affiliate Agreements.
(a) At or prior to the Closing, the Company shall, and Sellers
shall cause the Company and each of his or her respective Affiliates to, repay
any Indebtedness or other amounts owing from such Persons to the Company.
(b) Prior to the Closing, Sellers shall cause all agreements,
(except for the Leases which shall be amended or renewed on terms mutually
acceptable to the parties) between any Sellers or their Affiliates, on the one
hand, and the Company, on the other hand to be terminated in all respects such
that there is no liability thereunder on the part of the Company. Each Seller
agrees severally to indemnify Purchaser and the Surviving Corporation for any
cost or expense incurred in connection with the obligations specified in this
Section 5.10.
Section 5.11 Termination of ERISA Plans. Prior to the Closing Date, the
Company shall (a) adopt a resolution dated no later than the day prior to
Closing terminating its Money Purchase Pension Plan (the "Retirement Plan"),
which resolution shall be effective at least one day prior to the Closing Date,
(b) provide the applicable advance notice to all participants required by Law
regarding the termination of the Retirement Plan and (c) for the period up to
and including the termination date of the Retirement Plan, contribute to its
Retirement Plan all employee deferrals and any related matching or other
employer contributions necessary or required to maintain the tax qualified
status of the Retirement Plan and any contributions required pursuant to the
terms of the Retirement Plan.
Section 5.12 Employee Confidentiality Agreements. Prior to the Closing
Date, Principal Sellers shall use their best efforts to cause each officer,
employee, contract employee and contract computer programmer to execute an
agreement with the Company regarding confidentiality and proprietary information
substantially in the form required by Purchaser.
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Section 5.13 Due Diligence. Sellers shall conduct a due diligence
investigation of Purchaser which investigation commenced upon the signing of the
letter of intent and shall be completed by Sellers by the end of the day on May
31, 2000.
ARTICLE VI
PURCHASER'S OBLIGATIONS BEFORE CLOSING
Purchaser covenants that from the date of this Agreement until the
Closing:
Section 6.1 Due Diligence. Purchaser shall conduct a due diligence
investigation of the Company (including, without limitation, a review of the
information, documents and other matters identified on the Schedules or
delivered pursuant to the terms of this Agreement and investigations of the
Company's customers) which commenced upon the signing of the letter of intent
and shall be completed by Purchaser by the sooner of the Closing Date or ninety
(90) days following the date hereof.
Section 6.2 Access. Commencing on the date of the execution of this
Agreement and continuing through May 31, 2000, the Company and Sellers and their
counsel, accountants and other representatives shall have access during business
hours of Purchaser to all properties, books, accounts, records, contracts and
documents of or relating to Purchaser. Purchaser shall furnish or cause to be
furnished to the Company and Sellers and their representatives all data and
information concerning the business, finances and properties of Purchaser that
may reasonably be requested to complete their due diligence review pursuant to
Section 5.13 of this Agreement.
Section 6.3 Confidentiality. Purchaser agrees that, unless and until
the Closing has been effected, Purchaser and its officers, directors and other
representatives shall hold in strict confidence, and shall not disclose or use
to the detriment of Sellers or the Company, (a) any and all data and information
with respect to the business of the Company or Sellers obtained in connection
with this Agreement, or (b) the terms or existence of this Agreement. If the
transactions contemplated by this Agreement are not consummated, Purchaser will
return to the Company all data and information that the Company may reasonably
request, including, but not limited to, worksheets, tests, reports, manuals,
lists, memoranda and other documents prepared by or made available to Purchaser
in connection with this transaction. The foregoing shall not preclude Purchaser
from (x) the use or disclosure of such information which currently is known
generally to the public or which subsequently has come into the public domain,
other than by way of disclosure by any of Purchaser in violation of this
Agreement or (y) the disclosure of such information to the extent required by
law or court order, provided that, to the extent practicable, prior to such
disclosure required by law or court order, Purchaser will give the Company prior
written notice of the nature of the required disclosure.
Section 6.4 Nonsolicitation. Purchaser agrees that, commencing as of
the date of this Agreement and continuing for a period of three (3) years
thereafter, unless and until the Closing has been effected, neither Purchaser
nor any of its Subsidiaries, Affiliates, officers, directors and
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other representatives shall (a) induce or attempt to induce any employee or
independent contractor of the Company to leave the employ of the Company or (b)
hire any person who was an employee or independent contractor of the Company.
Notwithstanding the foregoing, Purchaser shall not be prohibited from making
general job postings and job announcements in the ordinary course of business
and shall not be prohibited from hiring any person who responds thereto.
Section 6.5 General. Purchaser will use its commercially reasonable
efforts to take all action and to do all things necessary in order to consummate
and make effective the transactions contemplated by this Agreement (including
satisfaction of the closing conditions set forth in Article VIII below).
ARTICLE VII
CONDITIONS PRECEDENT TO PURCHASER'S PERFORMANCE
The obligations of Purchaser to effect the Merger are subject to the
satisfaction, at or before the Closing, of all the conditions set out below.
Except as specifically set forth below, Purchaser may waive any or all of these
conditions in whole or in part without prior notice.
Section 7.1 Representations and Warranties True. Except as otherwise
permitted by this Agreement, (a) all representations and warranties by the
Company or Sellers in this Agreement, or in any written statement that shall be
delivered to Purchaser by the Company or Sellers under this Agreement, that are
qualified by materiality shall be true in all respects on and as of the Closing
Date as though made at that time and (b) all representations and warranties by
the Company or Sellers in this Agreement, or in any written statement that shall
be delivered to Purchaser by the Company or Sellers under this Agreement that
are not qualified by materiality shall be true in all material respects on and
as of the Closing Date as though made at that time.
Section 7.2 Performance. With respect to all covenants, agreements and
conditions that are not qualified by materiality, the Company and Sellers shall
have performed, satisfied and complied, in all material respects with all such
covenants, agreements and conditions required by this Agreement to be performed
or complied with by them, or any of them, on or before the Closing Date. With
respect to all covenants, agreements and conditions that are qualified by
materiality, the Company and Sellers shall have performed, satisfied and
complied, in all respects with all such covenants, agreements and conditions
required by this Agreement to be performed or complied with by them, or any of
them, on or before the Closing Date.
Section 7.3 No Material Adverse Change. During the period from the
Balance Sheet Date to the Closing Date, there shall not have been any Material
Adverse Change in the financial condition or the results of operations of the
Company or the relationship between the Company and any significant customers,
and the Company shall not have sustained any loss or damage to its assets,
whether or not insured, that materially affects its ability to conduct a
material part of its business. Notwithstanding any other provision of this
Agreement to the contrary, any breaches of the representations, warranties or
covenants set forth herein or the occurrence of any event which could result in
a Material Adverse Effect shall not be deemed a failure to satisfy the
conditions set forth in Sections 7.1, 7.2, 7.3, and 7.4 if the aggregate Damages
that could reasonably be expected to result from all such breaches and events do
not exceed $250,000, and
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conversely if the aggregate Damages resulting from such breaches and events
exceeds $250,000, the conditions set forth in Sections 7.1, 7.2, 7.3, and 7.4
shall be deemed not to have been satisfied and such failure to satisfy the
conditions set forth in Sections 7.1, 7.2, 7.3 and 7.4 cannot be waived by
Purchaser. Nothing set forth in this Section 7.3 shall be interpreted as a
waiver of any breach of any representation, warranty or covenant in this
Agreement, and, notwithstanding any other provision contained in this Agreement
to the contrary, Sellers shall indemnify, defend, and hold harmless Purchaser
against, and in respect of, any Damages resulting from such breaches and events,
as contemplated by this Section 7.3, dollar for dollar and without regard to the
deductible set forth in Section 10.5(b).
Section 7.4 Consents. The Company and Sellers shall have procured all
of the third-party authorizations and consents described in Section 5.5 above.
Section 7.5 No Proceedings, Injunctions, Etc. No action, suit or
proceeding shall be pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local or foreign jurisdiction
wherein an unfavorable injunction, judgment, order, decree ruling or charge
would (a) prevent consummation of any of the transactions contemplated by this
Agreement, (b) cause any of the transactions contemplated by this Agreement to
be rescinded or voided following consummation or (c) affect adversely the right
of the Company to own its assets and to operate its business (and no such
injunction, judgment, order, decree, ruling, or charge shall be in effect).
Section 7.6 Sellers' and Officer's Certificates. The Principal Sellers
and the Chief Executive Officer of the Company shall have delivered to Purchaser
certificates to the effect that each of the conditions specified above in
Sections 7.1 through 7.5 have been satisfied.
Section 7.7 Redemption of Certain Stockholders of the Company. The
Company shall have made binding arrangements with all of its stockholders (other
than Sellers) to redeem their Company Common Stock in exchange for the
Redemption Notes. All of the issued and outstanding shares of Company Common
Stock shall be held by the Sellers and there shall be no other holders thereof.
Section 7.8 Employee Confidentiality Agreements. Each officer,
employee, contract employee and contract computer programmer of the Company
shall have executed an agreement with the Company regarding confidentiality and
proprietary information substantially in the form required by Purchaser. No
current officer, employee, contract employee or contract computer programmer of
the Company shall have excluded works or inventions from his or her assignment
of inventions.
Section 7.9 Opinion of Sellers' Counsel. Purchaser shall have received
from Ducker, Montgomery & Lewis, P.C., or other counsel to Sellers reasonably
acceptable to Purchaser, an opinion, addressed to Purchaser and dated as of the
Closing (the "Sellers' Opinion"), in form and substance substantially as set
forth in EXHIBIT E.
Section 7.10 Employment and Non-Competition Agreements. Each of
Searles, Thieme and Jones shall have executed a three (3) year employment
agreement (the "Employment Agreement"). The Employment Agreement for Searles
shall be in substantially the form set
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forth on EXHIBIT F-1 hereto. The Employment Agreement for Thieme shall be in
substantially the form set forth on EXHIBIT F-2 hereto. The Employment Agreement
for Jones shall be in substantially the form set forth on EXHIBIT F-3 hereto.
Section 7.11 Investors' Rights Agreement. At Closing, Sellers shall
have executed the first amendment to the Purchaser's investors' rights agreement
(the "First Amendment to the Third Amended and Restated Investors' Agreement")
in the form of EXHIBIT G attached hereto.
Section 7.12 Stockholder Approval. The stockholders of Purchaser shall
have duly approved the Merger and the Restated Certificate of Incorporation.
ARTICLE VIII
CONDITIONS PRECEDENT TO SELLERS' PERFORMANCE
The obligation of the Company and Sellers to effect the Merger are
subject to the satisfaction at or before the Closing of all the conditions set
out below. The Company may waive any or all of these conditions in whole or in
part without prior notice.
Section 8.1 Representations and Warranties True. Except as otherwise
permitted by this Agreement, (a) all representations and warranties by Purchaser
in this Agreement, or in any written statement that shall be delivered to the
Company or Sellers by Purchaser under this Agreement, that are qualified by
materiality shall be true in all respects on and as of the Closing Date as
though made at that time and (b) all representations and warranties by Purchaser
in this Agreement, or in any written statement that shall be delivered to the
Company or Sellers by Purchaser under this Agreement that are not qualified by
materiality shall be true in all material respects on and as of the Closing Date
as though made at that time.
Section 8.2 Performance. With respect to all such covenants, agreements
and conditions that are not qualified by materiality, Purchaser shall have
performed, satisfied and complied, in all material respects with all such
covenants, agreements and conditions required by this Agreement to be performed
or complied with by it, on or before the Closing Date. With respect to all
covenants, agreements and conditions that are qualified by materiality,
Purchaser shall have performed, satisfied and complied, in all respects with all
such covenants, agreements and conditions required by this Agreement to be
performed or complied with by it, on or before the Closing Date.
Section 8.3 No Proceedings, Injunctions, Etc. No action, suit or
proceeding shall be pending or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local or foreign jurisdiction
wherein an unfavorable injunction, judgment, order, decree ruling or charge
would (a) prevent consummation of any of the transactions contemplated by this
Agreement, (b) cause any of the transactions contemplated by this Agreement to
be rescinded or voided following consummation or (c) affect adversely the right
of Purchaser to own its assets and to operate its business (and no such
injunction, judgment, order, decree, ruling, or charge shall be in effect)..
Section 8.4 No Material Adverse Change. During the period from the date
of the Purchaser Financial Statements to the Closing Date, there shall not have
been any Material Adverse Change in the financial condition or the results of
operations of Purchaser or the
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relationship between Purchaser and any significant customers, and Purchaser
shall not have sustained any loss or damage to its assets, whether or not
insured, that materially affects its ability to conduct a material part of its
business.
Section 8.5 Purchaser's Certificate. Purchaser shall have delivered to
Sellers' Representative a certificate to the effect that each of the conditions
specified above in Sections 8.1 through 8.4 have been satisfied.
Section 8.6 Opinion of Purchaser's Counsel. Sellers shall have received
from Hogan & Hartson L.L.P., counsel to Purchaser, an opinion, addressed to
Sellers and dated as of the Closing (the "Purchaser's Opinion"), in form and
substance substantially as set forth in EXHIBIT H.
Section 8.7 Redemption of Certain Shareholders of the Company. The
Company shall have made binding arrangements with all of its stockholders (other
than Sellers) to redeem their Company Common Stock in exchange for the
Redemption Notes. All of the issued and outstanding shares of Company Common
Stock shall be held by the Sellers and there shall be no other holders thereof.
Section 8.8 Restated Certificate of Incorporation. The Restated
Certificate of Incorporation of Purchaser shall have been duly adopted by all
requisite corporate action on the part of Purchaser, and such Certificate shall
have been duly filed with the Delaware Secretary of State.
ARTICLE IX
POST-CLOSING COVENANTS
The parties agree as following with respect to the period following the
Closing.
Section 9.1 General. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
including obtaining any third-party consents not obtained prior to Closing, each
of the parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other party
reasonably may request, at the sole cost and expense of the requesting party
(unless the requesting party is entitled to indemnification therefor under
Article X below). Sellers acknowledge and agree that from and after the Closing,
Purchaser will be entitled to possession of all documents, books, records
(including Tax records), agreements, and financial data of any sort relating to
the Company. Following the Closing, from time to time upon request, Purchaser
shall provide Sellers access during normal business hours, on reasonable prior
notice to such documents, books, records, agreements, and financial data of the
Company with respect to it is operations prior to the Closing, for any
legitimate purpose related to this Agreement and/or Tax matters of any Seller.
Section 9.2 Litigation Support. In the event that and for so long as
any party actively is contesting or defending against any action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand
(including Tax audits) in connection with (a) any transaction contemplated under
this Agreement or (b) any fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident, action, failure to act,
or transition on or prior
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to the Closing Date involving the Company, each of the other parties will
cooperate with such party and its counsel in the contest or defense, make
available its personnel, and provide such testimony and access to its books and
records as shall be necessary in connection with the contest or defense, all at
the sole cost and expense of the contesting or defending party (unless the
contesting or defending party is entitled to indemnification therefor under
Article X below).
Section 9.3 Tax Matters. Sellers and Purchaser agree to provide each
other with such cooperation and information as either of them reasonably may
request of the other in relation to (a) preparation of any Tax Return of the
Company or with respect to the Company's operations, (b) determining any Taxes
or right to a refund of Taxes of the Company or with respect to the Company's
operations, or (c) responding to any audit or examination of Tax Returns of the
Company or with respect to the Company's operations.
Section 9.4 Public Disclosure; Confidentiality. From and after the
Closing Date, each Seller shall keep confidential all information relating to
the Company and its operations. The foregoing shall not preclude any Seller from
(a) the use or disclosure of such information which currently is known generally
to the public or which subsequently has come into the public domain, other than
by way of disclosure by any of Sellers in violation of this Agreement or (b) the
disclosure of such information to the extent required by law or court order,
provided that, to the extent practicable, prior to such disclosure required by
law or court order, Sellers will give Purchaser prior written notice of the
nature of the required disclosure.
Section 9.5 Cooperation with Initial Public Offering. Each Seller shall
use his or her reasonable best efforts to cooperate with Purchaser, the
Surviving Corporation and their respective representatives and agents in
connection with any proposed initial public offering of capital stock of the
Surviving Corporation or Purchaser after the Closing Date, including, but not
limited to, providing, organizing and preparing information regarding the
Company and participating in underwriter due diligence sessions and investor
meetings at such times as are requested by the underwriters of such public
offering.
Section 9.6 Sellers' Representative.
(a) Sellers hereby appoint Searles as their initial Sellers'
Representative under this Agreement. Sellers may remove Searles (and any
successor to Searles) as Sellers' Representative at any time for any reason, by
a written consent executed by one or more Sellers owning a majority of the
Sellers' respective Percentage Interests. In the event of any such removal, or
in the event of the death, disability or resignation of any Sellers'
Representative, Sellers shall appoint a replacement Sellers' Representative by a
majority vote of their Percentage Interests, notice of which replacement shall
be delivered to Purchaser. Sellers shall indemnify and hold Sellers'
Representative harmless from any and all claims arising out of Sellers'
Representative's actions and inactions related to this Agreement, severally (not
jointly) on a pro rata basis in accordance with each Seller's Percentage
Interest, absent willful misconduct or gross negligence by Sellers'
Representative.
(b) In all dealings post-Closing with Sellers under or related
to this Agreement Purchaser shall be entitled to rely exclusively and
conclusively upon all notices, instructions, waivers, settlements and other
decisions by Sellers' Representative, each of which shall be
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binding on all Sellers regardless of any protest, purported revocation of
authority or other actions or demands by any Seller. Each Seller hereby
irrevocably appoints the then-current Sellers' Representative as their
attorney-in-fact to execute such documents and take such other actions as such
Sellers' Representative may deem necessary or appropriate in connection with
this Agreement.
Section 9.7 Company Employees. Purchaser shall use commercially
reasonable efforts to provide Company employees with full credit for time served
as an employee of the Company for purposes of Purchaser's severance policy,
vacation guidelines and other benefit plans.
Section 9.8 Redemption Notes. At or immediately following the Closing,
Purchaser shall cause the Redemption Notes to be paid in full in accordance with
the terms thereof.
Section 9.9 Employee Confidentiality Agreements. Following the Closing
Date, Principal Sellers shall use their best efforts to cause each officer,
employee, contract employee and contract computer programmer, who has not done
so prior to the Closing, to execute an agreement with the Company regarding
confidentiality and proprietary information substantially in the form required
by Purchaser.
ARTICLE X
INDEMNIFICATION
Section 10.1 Indemnification by Sellers. Subject to the procedures and
limitations set forth in this Article X, Principal Sellers agree, jointly and
severally, and Sellers (other than Principal Sellers) agree, severally, to
indemnify Purchaser and every Affiliate (and their respective officers,
directors, shareholders, agents and representatives) of Purchaser (which shall
specifically include the Company) (each a "Purchaser Indemnitee") against and
hold them harmless from any and all Damages (but not including consequential,
punitive or incidental Damages) which may be asserted against, imposed upon or
sustained by a Purchaser Indemnitee by reason of or arising out of the breach,
default, inaccuracy or failure of any of the warranties, representations,
covenants or agreements of the Company or Sellers contained in this Agreement or
in any certificate or instrument required to be delivered pursuant hereto. In
addition to the foregoing, Principal Sellers agree, jointly and severally, and
Sellers (other than Principal Sellers) agree severally to indemnify Purchaser
Indemnitees against and hold them harmless from any and all Damages which may be
asserted against, imposed upon or sustained by a Purchaser Indemnitee as a
result of any of the following, if and to the extent based upon or arising out
of events or omissions occurring prior to the Effective Time or facts or
circumstances in existence as of the Effective Time: (a) Liability for Taxes for
any period up to and including the Closing; (b) Litigation; (c) Environmental
Liabilities; (d) any product liability claim; (e) Liabilities pursuant to the
Occupational Health & Safety Act or any laws relating to health and safety and
(f) any Liabilities resulting from (I) infringements or claimed infringements on
the Company's Intellectual Property or (II) infringements or claimed
infringements by the Company on the Intellectual Property of a third party.
Section 10.2 Indemnification by Purchaser. From and after Closing,
Purchaser agrees to indemnify Sellers and hold them harmless from and against
any and all Damages (but not
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including consequential, punitive or incidental Damages) which may be asserted
against, imposed upon or sustained by Sellers at any time by reason of or
arising out of the breach, default, inaccuracy or failure of any warranties,
representations, conditions, covenants or agreements of Purchaser contained in
this Agreement or in any certificate, instrument or document delivered pursuant
hereto.
Section 10.3 Procedures for Third-Party Claims.
(a) If any Indemnitee receives written notice of the assertion
of any claim or of the commencement of any action or proceeding by any entity
who is not a party to this Agreement (a "Third Party Claim") against or
affecting such Indemnitee, and if such assertion were presumed to be true
(regardless of the actual outcome) then a party could be obligated to provide
indemnification under this Agreement as a result of or in connection with such
claim, action or proceeding, such Indemnitee will give such Indemnifying Party
reasonably prompt written notice thereof, but in any event no later than thirty
(30) calendar days after receipt of such written notice of such Third Party
Claim; provided, however, that failure to give notice as provided in this
paragraph (a) shall not relieve the Indemnifying Party of its indemnification
obligations under this Article X except to the extent that such Indemnifying
Party is actually prejudiced by such failure. Said written notice to the
Indemnifying Party shall set forth the basis of the Third Party Claim in
reasonable detail and include copies of all pertinent correspondence relating to
such Third Party Claim. The Indemnifying Party will have the right to assume and
control the defense of any Third Party Claim at such Indemnifying Party's sole
expense and by such Indemnifying Party's own counsel (which counsel must be
reasonably satisfactory to the Indemnitee), by giving written notice to the
Indemnitee (the "Notice to Defend") no later than thirty (30) calendar days
after receipt of the above-described notice of such Third Party Claim. The
Indemnitee also will have the right to participate in the defense of any Third
Party Claim assisted by counsel of its own choosing, but all fees and expenses
of such counsel shall be paid by the Indemnitee. The Indemnifying Party and the
Indemnitee will cooperate with each other in good faith in such defense and make
available all employees and books and records in its control as reasonably
deemed necessary with respect to such defense (but not to the extent that would
require waiver of any privilege). The Indemnifying Party and the Indemnitee
agree to keep each other apprised of any material developments with respect to
any Third Party Claim as such developments become known. If the Indemnitee does
not receive from the Indemnifying Party a Notice to Defend with respect to a
Third Party Claim or a written notice of objection to the claim for
indemnification specifying in reasonable detail the basis for the objection
within the thirty (30) day period described above, the Indemnitee may, at its
option, elect to solely defend the Third Party Claim assisted by counsel of its
own choosing, and the Indemnifying Party will be liable for all reasonable costs
and expenses, and all settlement amounts (subject to and in accordance with
paragraph (c) below of this Section 10.3) or other liabilities, losses, damages
and injuries paid or incurred in connection therewith to the extent such claim
is or would have been indemnifiable under this Agreement if such claim is or had
been proved.
(b) If, within the thirty (30) day period set forth in
paragraph (a) above of this Section 10.3, an Indemnitee receives a Notice to
Defend from an Indemnifying Party with respect to any Third Party Claim, the
Indemnifying Party will not be liable for any legal expenses of the Indemnitee
incurred after receipt by the Indemnitee of such Notice to Defend.
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(c) In the event there is a dispute between the Indemnifying
Party and Indemnitee concerning whether a Third Party Claim should be contested,
settled or compromised, it shall be settled, compromised or contested, in
accordance with the next succeeding sentences; provided, however, that the
Indemnitee, or its respective successors or assigns, shall neither be required
to refrain from paying or satisfying any claim which has matured by court
judgment or decree, unless appeal is taken thereafter and proper appeal bond
posted by the Indemnifying Party, nor shall the Indemnitee be required to
refrain from paying or satisfying any Third Party Claim after and to the extent
that such Third Party Claim has resulted in an unstayed injunction. The
Indemnifying Party shall not, without the Indemnitee's prior written consent,
not to be unreasonably withheld, settle or compromise any action or claim or
consent to the entry of any judgment with respect to any action, claim or
proceeding for anything other than money damages paid by the Indemnifying Party
unless the settlement does not involve the imposition of any liability or
obligation on the Indemnitee or any restriction on its activities. The
Indemnifying Party may, without the Indemnitee's written consent, settle or
compromise any such action or claim or consent to entry of any judgment with
respect to any such action or claim which requires solely the payment of money
damages by the Indemnifying Party. Subject to the foregoing, in the event that
the Indemnifying Party, on the one hand, or the Indemnitee, on the other hand,
has reached a good faith, bona fide settlement, agreement or compromise, subject
only to approval hereunder, with any claimant regarding a matter which may be
the subject of indemnification hereunder and desires to settle on the basis of
such agreement or compromise, such party who desires to so settle or compromise
shall notify the other party in writing of its desire setting forth the terms of
such settlement or compromise (the "Notice of Settlement"). The Third Party
Claim may be settled or compromised on such basis unless within twenty (20)
calendar days of the receipt of the Notice of Settlement the party who issued
the Notice of Settlement receives a notice from the other party of its desire to
continue to contest the matter (the "Notice to Contest") and, in such case:
(i) Should the Indemnitee deliver a Notice to
Contest, the claim shall be so contested and the liability of the Indemnifying
Party shall be limited as provided in clause (iii) below;
(ii) If the settlement or compromise could result in
a further claim for indemnification being made against the Indemnifying Party
and if the Indemnifying Party delivers the Notice to Contest, the claim shall be
so contested and the liability of the Indemnitee shall be limited as provided in
clause (iii) below; and
(iii) If a matter is contested as provided in clauses
(i) or (ii) above and is later adjudicated, settled, compromised or otherwise
disposed of and such adjudication, compromise, settlement or disposition results
in a liability, loss, damage or injury in excess of the amount for which one
party desired previously to settle the matter, then the liability of such party
shall be limited to such lesser proposed settlement amount (plus reasonable
attorneys' fees and expenses to the date of the proposed but unapproved
settlement to the extent provided for in paragraphs (a) and (b) above) and the
party contesting the matter shall be solely responsible for any additional
amount.
Section 10.4 Procedures for Direct Claims. Any claim for which an
Indemnitee intends to assert a right to indemnifiable Damages under this
Agreement which does not result from
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a Third-Party Claim (a "Direct Claim") shall be asserted by giving each
Indemnifying Party reasonably prompt written notice thereof, and each
Indemnifying Party shall have a period of forty-five (45) calendar days from the
receipt thereof within which to respond to such Direct Claim. If any
Indemnifying Party does not so respond within such forty-five (45) calendar day
period, such Indemnifying Party shall be deemed to have rejected such claim, in
which event the Indemnitee shall be free to pursue such remedies as may be
available to the Indemnitee pursuant to this Agreement. A failure to give timely
notice as provided in this Section 10.4 shall not affect the rights or
obligations of any party hereunder except and only to the extent that, as a
result of such failure, any party which was entitled to receive such notice was
deprived of its right to recover any payment under its applicable insurance
coverage, incurred an obligation or liability which otherwise would have been
avoided, or was otherwise actually prejudiced. The Indemnifying Party and the
Indemnitee agree to keep each other apprised of any material developments with
respect to any Direct Claim as such developments become known.
Section 10.5 Limitations of Indemnification Obligations.
(a) All the representations and warranties made by Purchaser
or Sellers in this Agreement shall survive until twenty-four (24) months
following the Closing Date; provided, however, that the representations and
warranties in Sections 3.11, 3.12, 3.18, 3.19, 3.20 and 3.21 shall survive until
the expiration of the applicable statutes of limitation; provided, further, that
the representations and warranties in Sections 3.1, 3.2, 3.3, 3.4, 3.6, 3.28,
4.1, 4.2, 4.4 and 4.5 shall survive without termination and shall not be subject
to any of the limitations set forth in Sections 10.5(b) and (c) below. In the
event notice of any claim for indemnification under Section 10.3(a) hereof shall
have been given within the applicable survival period, the representations and
warranties that are the subject of such indemnification claim shall survive
until such time as such claim is finally resolved. The covenants and agreements
of the parties set forth in this Agreement and the indemnification obligations
of the parties hereunder shall survive indefinitely except as expressly provided
herein.
(b) A Purchaser Indemnitee shall not have any right to
indemnification under this Agreement until the aggregate of all amounts claimed
by all Purchaser Indemnitees exceeds $250,000 and in such event the
indemnification obligations of the respective Indemnifying Parties hereunder
shall apply to all Damages in excess of such amount. Notwithstanding anything to
the contrary herein, in no event shall the liability of an individual Seller
(other than the Principal Sellers) exceed such Seller's portion of the Merger
Consideration deposited in escrow pursuant to the Escrow Agreement; provided,
however, that the foregoing limitation shall not apply in the event Damages
result from any breach of the representations and warranties contained in
Sections 3.2, 3.3, 3.4, 3.22, 3.25, 3.27 or 3.28.
(c) A Seller Indemnitee shall not have any right to
indemnification under this Agreement until the aggregate of all amounts claimed
by all Seller Indemnitees exceeds $250,000 and, in such event, the respective
Indemnifying Parties shall be liable only for the amount in excess of such
amount.
(d) If at any time any matter as to which a Purchaser
Indemnitee has asserted a claim under this Article X is pending or unresolved,
at the time any payment is due from Purchaser or the Surviving Corporation,
Purchaser or the Surviving Corporation shall have the
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right, in addition to other rights and remedies and methods of recovery (whether
under this Agreement, the Escrow Agreement, the provisions of this Article X
and/or applicable laws), to withhold from such payment an amount equal to the
maximum amount reasonably recoverable under such claim until such matters are
resolved. If and when it is finally determined that such claim is covered by
this Article X, the amount of such claims may be offset against the retained
payments and the remainder thereof shall be delivered to Sellers pursuant to
this Agreement.
(e) Purchaser agrees that all Damages recoverable under this
Article X shall be recoverable first pursuant to the Escrow Agreement unless and
until the cash and securities held in escrow thereunder are exhausted. To the
extent Damages exceed the amounts represented by the cash and securities held
under the Escrow Agreement, an Indemnified Person shall have the right to pursue
recovery from the Principal Sellers or Sellers, as applicable, hereunder.
(f) Except in the case of fraud or intentional
misrepresentation, the provisions and procedures set forth in this Article X and
in the Escrow Agreement shall constitute the parties' exclusive rights and
remedies for any breach of this Agreement.
Section 10.6 Survival of Representations, Warranties and Covenants. The
representations, warranties, covenants, indemnities, conditions and agreements
contained herein are and will be deemed to be continuing representations,
warranties, covenants, indemnities, conditions and agreements that survive the
Closing and remain in full force and effect regardless of any investigations or
knowledge of or on behalf of any party, but subject to the applicable
limitations contained in Section 10.5.
ARTICLE XI
TERMINATION
Section 11.1 Termination of Agreement.
The parties may terminate this Agreement as provided below:
(a) Either Purchaser or the Company may terminate this
Agreement by mutual written consent at any time prior to the Closing.
(b) Purchaser may terminate this Agreement by giving written
notice to Shareholders' Representative at any time prior to the Closing (i) in
the event the Company or any Seller has breached any representation, warranty or
covenant contained in this Agreement in any material respect, Purchaser has
notified the Company and the Seller, if applicable, of the breach, and the
breach has continued without cure for a period the shorter of thirty (30) days
after the notice of breach or the Closing Date or (ii) if the Closing shall not
have occurred on or before ninety (90) days following the date hereof, by reason
of the failure of any condition precedent under Article VII hereof (unless the
failure results primarily from Purchaser itself breaching any representation,
warranty or covenant contained in this Agreement).
(c) Purchaser, in its sole and absolute discretion, may
terminate this Agreement by giving written notice to Shareholders'
Representative during the ninety (90) day period following the date hereof. If
Purchaser terminates this Agreement pursuant to this Section 11.1(c) during the
sixty (60) day period following the date hereof, Purchaser shall pay the Company
a termination fee of $100,000. If Purchaser terminates this Agreement pursuant
to this Section 11.1(d) at any time on or after sixty-one (61) days following
the date hereof through ninety (90) days following the date hereof, Purchaser
shall pay the Company a termination fee of $150,000. If Purchaser fails to give
notice pursuant to this Section 11.1(c) and the ninety (90) day period hereunder
lapses without the Closing having occurred, Purchaser shall pay the Company a
termination fee of $150,000. Notwithstanding anything to the contrary in this
Section 11.1, if the parties agree to terminate this Agreement pursuant to
Section 11.1(a), Purchaser terminates this Agreement pursuant to Section 11.1(b)
or the Company terminates this Agreement pursuant to Sections 11.1(d) or
11.1(e), Purchaser shall not be liable for any termination fee.
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(d) The Company may terminate this Agreement by giving written
notice to Purchaser at any time prior to the Closing (i) in the event Purchaser
has breached any representation, warranty or covenant contained in this
Agreement in any material respect, the Company has notified Purchaser of the
breach, and the breach has continued without cure for a period the shorter of
thirty (30) days after the notice of breach or the Closing Date or (ii) if the
Closing shall not have occurred on or before ninety (90) days following the date
hereof by reason of the failure of any condition precedent under Article VIII
hereof (unless the failure results primarily from the Company or any Sellers
themselves breaching any representation, warranty or covenant contained in this
Agreement).
(e) The Company may terminate this agreement if any Principal
Seller is not satisfied in all material respects with the results of his due
diligence review of Purchaser and Purchaser's operations; provided, however,
that if the Company does not exercise the termination right contained in this
Section 11.1(e) on or before June 1, 2000, such termination right shall lapse.
Section 11.2 Effect of Termination. If any party terminates this
Agreement pursuant to Section 11.1 above, all rights and obligations of the
parties hereunder hereof shall terminate without any liability of any party to
any other party. Nothing set forth in this Section 11.2 shall mitigate or
otherwise compromise the rights or obligations of the parties under Section
12.12 or in the event of a breach of the terms or provisions of this Agreement
generally.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Fees and Expenses. Except as contemplated by this
Agreement, until Closing, all costs and expenses incurred in connection with
negotiating and preparing this Agreement and the consummation of the
transactions contemplated hereby shall be paid by the party incurring such
expenses. Notwithstanding the foregoing, Purchaser shall pay legal and
accounting fees, not to exceed $50,000 in the aggregate, incurred by the Company
in connection with this transaction and such fees shall be paid by Purchaser
within thirty (30) days after receipt of such invoices from Shareholders'
Representative; provided, however, that Purchaser shall not be obligated to pay
such fees if the Agreement is terminated pursuant to Sections 11.1(a), 11.1(b),
11.1(d) or 11.1(e).
Section 12.2 Entire Agreement. This Agreement, which also includes the
Annexes, Schedules and Exhibits hereto, sets forth the entire agreement and
understanding among the parties and merges and supersedes all prior discussions,
agreements and understandings of every kind and nature (including the Letter of
Intent among the parties) among them as to the subject matter hereof, and no
party shall be bound by any condition, definition, warranty or representation
other than as expressly provided for in this Agreement or as may be on a date on
or subsequent to the date hereof duly set forth in writing signed by each party
which is to be bound thereby.
Section 12.3 Amendments. This Agreement (including the Annexes,
Disclosure Schedules and Exhibits hereto) shall not be changed, modified or
amended except by a writing signed by each party to be charged, and this
Agreement may not be discharged except by performance in accordance with its
terms or by a writing signed by each party to be charged. The rights and
remedies of the parties hereunder are cumulative and not exclusive of any other
right or remedy any party may have. No failure or delay by any party hereto in
exercising any right, power or privilege shall operate as a waiver of any such
right, power or privilege, except as expressly set forth in this Agreement. No
waiver of any default shall constitute a waiver of any
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other or any subsequent default. No single or partial exercise of any right,
power or privilege shall preclude the further or other exercise of the same or
other right, power or privilege.
Section 12.4 Taxes. Any Taxes in the nature of a sales or transfer tax,
any stock transfer tax or any other taxes that may be or may become payable by
Sellers including, but not limited to, any Taxes resulting from or ensuing as a
consequence of the consummation of any transaction contemplated hereby shall be
paid by Sellers, and Sellers shall indemnify and hold harmless Purchaser from
and against all such Taxes.
Section 12.5 Governing Law; Consent to Jurisdiction; Service of
Process. This Agreement and its validity, construction and performance shall be
governed in all respects by the laws of the State of Colorado without giving
effect to principles of conflicts of law. Purchaser, each Seller and the Company
hereby agree and consent to be subject to the exclusive jurisdiction of the
federal and state courts of Colorado located in Denver, Colorado in any suit,
action or proceeding seeking to enforce any provision of, or based on any matter
arising out of or in connection with, this Agreement or the transactions
contemplated hereby. Each party hereby irrevocably consents to the service of
any and all process in any such suit, action or proceeding by the delivery of
such process to such party at the address and in the manner provided in Section
12.9.
Section 12.6 Representation by Counsel. Each party and its counsel
cooperated in the drafting and preparation of this Agreement and the documents
referred to herein. Accordingly, any rule of law or any legal decision that
would require interpretation of any ambiguities in this Agreement against the
party that drafted it is of no application and is hereby expressly waived by
each party.
Section 12.7 Assignment. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors,
legal representatives and permitted assigns. The Agreement may not be assigned
by Sellers except with the prior written consent of Purchaser. Purchaser may
assign this Agreement only to an Affiliate of Purchaser. Nothing herein
contained shall confer or is intended to confer on any third party or entity
which is not a party to this Agreement any rights under this Agreement, except
for Purchaser and its Affiliates which are acknowledged to be third party
beneficiaries and Purchaser Indemnitees who are acknowledged to be third party
beneficiaries under Article X.
Section 12.8 Headings. The headings in the Articles, Sections,
paragraphs, Exhibits, Schedules and sections of this Agreement are inserted for
convenience of reference only and shall not constitute a part hereof.
Section 12.9 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by an overnight courier service, such as
FedEx, to the parties at the following addresses (or at such other address for a
party as shall be specified by like notice):
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(a) if to Purchaser, to:
Petroleum Place, Inc.
7900 E. Union Avenue, Suite 1100
Denver, CO 80237
Attn: Jeff Holben
Telephone: (303) 694-5350
Facsimile: (303) 694-5372
with a copy in the same manner to:
Hogan & Hartson L.L.P.
1200 17th Street, Suite 1500
Denver, Colorado 80202
Attention: Steven A. Cohen
Telephone: (303) 899-7300
Facsimile: (303) 899-7333
(b) if to Sellers, to:
Paradigm Technologies, Inc.
1099 18th Street, Suite 2400
Denver, CO 80202
Attn: J. Brian Searles
Telephone: (303) 292-0990
Facsimile: (303) 292-1812
with a copy in the same manner to:
Law Office of Reed & Reed, P.C.
1919 14th Street, Suite 330
Boulder, CO 80302
Attn: Scott Reed
Telephone: (303) 413-0691
Facsimile: (303) 413-0645
Ducker, Montgomery & Lewis, P.C.
1560 Broadway, Suite 1500
Denver, CO 80202
Attn: Robert C. Montgomery
Telephone: (303) 861-2828
Facsimile: (303) 861-4017
Section 12.10 Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
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Section 12.11 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, unenforceable or against its regulatory
policy, 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 12.12 Specific Performance. The parties hereto agree that if
any of the provisions of this Agreement are not performed in accordance with
their specific terms or are otherwise breached, irreparable damage would occur,
no adequate remedy at law would exist and damages would be difficult to
determine, and that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or equity.
Section 12.13 Legal Fees and Expenses. In the event that any
arbitration or legal action is brought for the enforcement of this Agreement, or
because of any alleged dispute, breach, default or misrepresentation in
connection with any of the provisions of this Agreement, the successful or
prevailing party shall be entitled to recover reasonable attorneys' fees and
other costs incurred in said action or proceeding, in addition to any other
relief to which such party may be entitled.
[SIGNATURE PAGES FOLLOW]
54
<PAGE> 59
SIGNATURES
IN WITNESS WHEREOF, Purchaser and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized
and each Seller has signed this Agreement as of the date first written above.
PURCHASER
PETROLEUM PLACE, INC.
By: /s/
------------------------------------
Name:
-------------------------------
Title:
------------------------------
MERGERSUB
PP/PT ACQUISITION CORPORATION
By: /s/
------------------------------------
Name:
-------------------------------
Title:
------------------------------
COMPANY
PARADIGM TECHNOLOGIES, INC.
By: /s/
------------------------------------
Name:
-------------------------------
Title:
------------------------------
SELLERS
/s/ J. Brian Searles
---------------------------------------
J. Brian Searles, individually and
jointly with Dian J. Searles
/s/ Dian J. Searles
---------------------------------------
Dian J. Searles
/s/ Wilmer W. Thieme
---------------------------------------
Wilmer W. Thieme
55
<PAGE> 60
/s/ Joseph C. Craven
---------------------------------------
Joseph C. Craven
/s/ L. Allen Rankin, Jr.
---------------------------------------
L. Allen Rankin, Jr.
/s/ Darrell G. Jones
---------------------------------------
Darrell G. Jones
/s/ Scott Kramer
---------------------------------------
Scott Kramer
/s/ John V. Zagnoli
---------------------------------------
John V. Zagnoli
56
<PAGE> 61
EXHIBIT LIST
<TABLE>
<CAPTION>
Exhibits
- --------
<S> <C>
A. Certificate of Merger
B. Form of Restated Certificate of Incorporation of Purchaser
C. Sellers' Ownership of the Company; Allocation of Merger Consideration
D. Escrow Agreement
E. Sellers' Opinion
F-1 Searles Employment Agreement
F-2 Thieme Employment Agreement
F-3 Jones Employment Agreement
G. First Amendment to the Third Amended and Restated Investors' Rights
Agreement
H. Purchaser's Opinion
</TABLE>
<PAGE> 1
EXHIBIT 3.4
BYLAWS
OF
THE PETROLEUM PLACE, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
ARTICLE I Offices..............................................................1
Section 1. Registered Office............................................1
Section 2. Other Offices................................................1
ARTICLE II Corporate Seal.......................................................1
Section 3. Corporate Seal...............................................1
ARTICLE III Stockholders' Meetings...............................................1
Section 4. Place of Meetings............................................1
Section 5. Annual Meeting...............................................1
Section 6. Special Meetings.............................................2
Section 7. Notice of Meetings...........................................3
Section 8. Quorum.......................................................3
Section 9. Adjournment and Notice of Adjourned Meetings.................4
Section 10. Voting Rights................................................4
Section 11. Joint Owners of Stock........................................4
Section 12. List of Stockholders.........................................5
Section 13. Action Without Meeting.......................................5
Section 14. Organization.................................................5
ARTICLE IV Directors............................................................6
Section 15. Number and Term of Office....................................6
Section 16. Powers.......................................................6
Section 17. Term of Directors............................................6
Section 18. Vacancies....................................................6
Section 19. Resignation..................................................7
Section 20. Removal......................................................7
Section 21. Meetings.....................................................7
(a) Annual Meetings........................................7
(b) Regular Meetings.......................................8
(c) Special Meetings.......................................8
(d) Telephone Meetings.....................................8
(e) Notice of Meetings.....................................8
(f) Waiver of Notice.......................................8
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 22. Quorum and Voting.................................................8
Section 23. Action Without Meeting............................................9
Section 24. Fees and Compensation.............................................9
Section 25. Committees........................................................9
(a) Executive Committee..........................................9
(b) Other Committees.............................................9
(c) Term.........................................................9
(d) Meetings....................................................10
Section 26. Organization.....................................................10
ARTICLE V Officers..................................................................10
Section 27. Officers Designated..............................................10
Section 28. Tenure and Duties of Officers....................................11
(a) General.....................................................11
(b) Duties of Chairman of the Board of Directors................11
(c) Duties of President.........................................11
(d) Duties of Vice Presidents...................................11
(e) Duties of Secretary.........................................11
(f) Duties of Chief Financial Officer...........................12
Section 29. Delegation of Authority..........................................12
Section 30. Resignations.....................................................12
Section 31. Removal..........................................................12
ARTICLE VI Execution Of Corporate Instruments And Voting Of Securities Owned
By The Corporation............................................................12
Section 32. Execution of Corporate Instruments...............................12
Section 33. Voting of Securities Owned by the Corporation....................13
ARTICLE VII Shares Of Stock...........................................................13
Section 34. Form and Execution of Certificates...............................13
Section 35. Lost Certificates................................................14
Section 36. Transfers........................................................14
Section 37. Fixing Record Dates..............................................14
Section 38. Registered Stockholders..........................................15
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE VIII Other Securities Of The Corporation..............................................15
Section 39. Execution of Other Securities.............................................15
ARTICLE IX Dividends........................................................................16
Section 40. Declaration of Dividends..................................................16
Section 41. Dividend Reserve..........................................................16
ARTICLE X Fiscal Year......................................................................16
Section 42. Fiscal Year...............................................................16
ARTICLE XI Indemnification..................................................................16
Section 43. Indemnification of Directors, Executive Officers, Other Officers,
Employees and Other Agents.............................................................16
(a) Directors and Executive Officers.....................................16
(b) Other Officers, Employees and Other Agents...........................17
(c) Expenses.............................................................17
(d) Enforcement..........................................................17
(e) Non-Exclusivity of Rights............................................18
(f) Survival of Rights...................................................18
(g) Insurance............................................................18
(h) Amendments...........................................................19
(i) Saving Clause........................................................19
(j) Certain Definitions..................................................19
ARTICLE XII Notices..........................................................................20
Section 44. Notices...................................................................20
(a) Notice to Stockholders...............................................20
(b) Notice to Directors..................................................20
(c) Affidavit of Mailing.................................................20
(d) Time Notices Deemed Given............................................20
(e) Methods of Notice....................................................20
(f) Failure to Receive Notice............................................20
</TABLE>
iii.
<PAGE> 5
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
(g) Notice to Person with Whom Communication Is Unlawful.................21
(h) Notice to Person with Undeliverable Address..........................21
ARTICLE XIII Amendments.......................................................................21
Section 45. Amendments................................................................21
ARTICLE XIV Loans To Officers................................................................21
Section 46. Loans to Officers.........................................................21
Section 47. Right of First Refusal....................................................22
</TABLE>
iv.
<PAGE> 6
BYLAWS
OF
THE PETROLEUM PLACE, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware, as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the principal office of the corporation required
to be maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be: (A)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (B) otherwise properly
1.
<PAGE> 7
brought before the meeting by or at the direction of the Board of Directors, or
(C) otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
later than the close of business on the sixtieth (60th) day nor earlier than the
close of business on the ninetieth (90th) day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the event that
no annual meeting was held in the previous year or the date of the annual
meeting has been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to such
annual meeting or, in the event public announcement of the date of such annual
meeting is first made by the corporation fewer than seventy (70) days prior to
the date of such annual meeting, the close of business on the tenth (10th) day
following the day on which public announcement of the date of such meeting is
first made by the corporation. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting: (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of the corporation which are beneficially owned by the stockholder, (iv) any
material interest of the stockholder in such business and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934
Act"), in his capacity as a proponent to a stockholder proposal. Notwithstanding
the foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholders' meeting,
stockholders must provide notice as required by the regulations promulgated
under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this paragraph (b). The chairman of the annual meeting
shall, if the facts warrant, determine and declare at the meeting that business
was not properly brought before the meeting and in accordance with the
provisions of this paragraph (b), and, if he should so determine, he shall so
declare at the meeting that any such business not properly brought before the
meeting shall not be transacted.
(c) For purposes of this Section 5, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation
may be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer or President, (iii) the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
2.
<PAGE> 8
authorized directorships at the time any such resolution is presented to the
Board of Directors for adoption) or (iv) by the holders of shares entitled to
cast not less than thirty percent (30%) of the votes at the meeting, and shall
be held at such place, on such date, and at such time as they or he shall fix.
(b) If a special meeting is properly called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within sixty (60) days after the receipt of the request, the person or
persons properly requesting the meeting may set the time and place of the
meeting and give the notice. Nothing contained in this paragraph (b) shall be
construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by law, the Certificate of Incorporation or these Bylaws, all
action taken by the holders of a majority of the vote cast, excluding
abstentions at any meeting at which a quorum is present and shall be valid and
binding upon the corporation;
3.
<PAGE> 9
provided, however, that directors shall be elected by a plurality of the votes
of the shares present in person or represented by proxy at the meeting and
entitled to vote on the election of directors. Where a separate vote by a class
or classes or series is required, except where otherwise provided by the statute
or by the Certificate of Incorporation or these Bylaws, a majority of the
outstanding shares of such class or classes or series, present in person or
represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and, except where otherwise provided by
statute or by the Certificate of Incorporation or these Bylaws, the affirmative
vote of the majority (plurality, in the case of the election of directors) of
the votes cast, excluding abstentions, by the holders of shares of such class or
classes or series shall be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a proxy granted in accordance
with Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the proxy
provides for a longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the Delaware General Corporation Law, Section 217(b). If
the instrument filed with the Secretary shows that any such tenancy is held in
unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
4.
<PAGE> 10
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the Delaware General Corporation Law if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such section
shall state, in lieu of any statement required by such section concerning any
vote of stockholders, that written notice has been given in accordance with
Section 228 of the Delaware General Corporation Law.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the
Board of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote,
5.
<PAGE> 11
present in person or by proxy, shall act as chairman. The Secretary, or, in his
absence, an Assistant Secretary directed to do so by the President, shall act as
secretary of the meeting.
(b) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject to
such rules and regulations of the Board of Directors, if any, the chairman of
the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are necessary, appropriate or convenient for the proper conduct of the
meeting, including, without limitation, establishing an agenda or order of
business for the meeting, rules and procedures for maintaining order at the
meeting and the safety of those present, limitations on participation in such
meeting to stockholders of record of the corporation and their duly authorized
and constituted proxies and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall consist of one or more members, the number
thereof to be determined by resolution of the Board of Directors from time to
time.
Directors need not be stockholders unless so required by the Certificate of
Incorporation. If for any cause, the directors shall not have been elected at an
annual meeting, they may be elected as soon thereafter as convenient at a
special meeting of the stockholders called for that purpose in the manner
provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. TERM OF DIRECTORS. Subject to the rights of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, directors shall be elected at each annual meeting of stockholders
for a term of one year. Each director shall serve until his successor is duly
elected and qualified or until his death, resignation or removal. No decrease in
the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal
6.
<PAGE> 12
or other causes and any newly created directorships resulting from any increase
in the number of directors shall, unless the Board of Directors determines by
resolution that any such vacancies or newly created directorships shall be
filled by stockholders, be filled only by the affirmative vote of a majority of
the directors then in office, even though less than a quorum of the Board of
Directors. Any director elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the director for which the
vacancy was created or occurred and until such director's successor shall have
been elected and qualified. A vacancy in the Board of Directors shall be deemed
to exist under this Bylaw in the case of the death, removal or resignation of
any director.
(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
Delaware General Corporation Law.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 20. REMOVAL. Subject to any limitations imposed by applicable
law, the Board of Directors or any director may be removed from office at any
time (i) with cause by the affirmative vote of the holders of a majority of the
voting power of all then-outstanding shares of voting stock of the corporation
entitled to vote at an election of directors or (ii) without cause by the
affirmative vote of the holders of sixty six and two-thirds (66-2/3%) of the
voting power of all then-outstanding shares of voting stock of the corporation,
entitled to vote at an election of directors.
SECTION 21. MEETINGS
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an annual
meeting of the Board of Directors shall be necessary and such meeting shall be
held for the purpose of electing officers and transacting such other business as
may lawfully come before it.
7.
<PAGE> 13
(b) REGULAR MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, regular meetings of the Board of Directors may be
held at any time or date and at any place within or without the State of
Delaware which has been designated by the Board of Directors and publicized
among all directors. No formal notice shall be required for a regular meeting of
the Board of Directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors,
or of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, postage prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time, a quorum of the Board of Directors shall
consist of a majority of the exact number of directors fixed from time to time
by the Board of Directors in accordance with the Certificate of Incorporation;
provided, however, at any meeting, whether a quorum be present or otherwise, a
majority of the directors present may adjourn from time to time until the time
fixed for the next regular meeting of the Board of Directors, without notice
other than by announcement at the meeting.
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(b) At each meeting of the Board of Directors at which a
quorum is present, all questions and business shall be determined by the
affirmative vote of a majority of the directors present, unless a different vote
be required by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
Delaware General Corporation Law to be submitted to stockholders for approval,
or (ii) adopting, amending or repealing any bylaw of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, from time to
time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to any requirements of any
outstanding series of Preferred Stock, the provisions of subsections (a) or (b)
of this Bylaw may at any time increase or decrease the number of members of a
committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the
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committee or from the Board of Directors. The Board of Directors may at any time
for any reason remove any individual committee member and the Board of Directors
may fill any committee vacancy created by death, resignation, removal or
increase in the number of members of the committee. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee, and,
in addition, in the absence or disqualification of any member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, (if a director) or, in the absence of any such person, a chairman of
the meeting chosen by a majority of the directors present, shall preside over
the meeting. The Secretary, or in his absence, any Assistant Secretary directed
to do so by the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers
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and agents with such powers and duties as it shall deem necessary. The Board of
Directors may assign such additional titles to one or more of the officers as it
shall deem appropriate. Any one person may hold any number of offices of the
corporation at any one time unless specifically prohibited therefrom by law. The
salaries and other compensation of the officers of the corporation shall be
fixed by or in the manner designated by the Board of Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume
and perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record all
acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings of
the stockholders and of all meetings of the Board of Directors and any committee
thereof requiring notice. The Secretary shall perform all other duties given him
in these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
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(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into
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contracts on behalf of the corporation, except where otherwise provided by law
or these Bylaws, and such execution or signature shall be binding upon the
corporation.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
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SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the Delaware General Corporation Law.
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall, subject to applicable law, not be more than sixty (60) nor less than
ten (10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which date shall not be more than ten (10) days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors. Any stockholder of record seeking to have the
stockholders authorize or take corporate action by written consent shall, by
written notice to the Secretary, request the Board of
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Directors to fix a record date. The Board of Directors shall promptly, but in
all events within ten (10) days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record date has been
fixed by the Board of Directors within ten (10) days of the date on which such a
request is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date shall be not more than
sixty (60) days prior to such action. If no record date is fixed, the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on
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such bond, debenture or other corporate security may be the imprinted facsimile
of the signatures of such persons. Interest coupons appertaining to any such
bond, debenture or other corporate security, authenticated by a trustee as
aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the
corporation or such other person as may be authorized by the Board of Directors,
or bear imprinted thereon the facsimile signature of such person. In case any
officer who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such officer before the bond, debenture
or other corporate security so signed or attested shall have been delivered,
such bond, debenture or other corporate security nevertheless may be adopted by
the corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased to
be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation and applicable law.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall
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have the meaning defined in Rule 3b-7 promulgated under the 1934 Act) to the
fullest extent not prohibited by the Delaware General Corporation Law or any
other applicable law; provided, however, that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
executive officers; and, provided, further, that the corporation shall not be
required to indemnify any director or executive officer in connection with any
proceeding (or part thereof) initiated by such person unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board of Directors of the corporation, (iii) such
indemnification is provided by the corporation, in its sole discretion, pursuant
to the powers vested in the corporation under the Delaware General Corporation
Law or any other applicable law or (iv) such indemnification is required to be
made under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The
corporation shall have power to indemnify its other officers, employees and
other agents as set forth in the Delaware General Corporation Law. The Board of
Directors shall have the power to delegate the determination of whether
indemnification shall be given to any such person except executive officers to
such officers or other persons as the Board of Directors shall determine.
(c) EXPENSES. The corporation shall advance to any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director or
executive officer, of the corporation, or is or was serving at the request of
the corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph
(e) of this Bylaw, no advance shall be made by the corporation to an executive
officer of the corporation (except by reason of the fact that such executive
officer is or was a director of the corporation, in which event this paragraph
shall not apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and promptly
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding, or (ii) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, that the facts known
to the decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of the
corporation.
(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
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enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law or any other applicable law for the corporation
to indemnify the claimant for the amount claimed. In connection with any claim
by an executive officer of the corporation (except in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such executive officer is or was a director of the corporation)
for advances, the corporation shall be entitled to raise a defense as to any
such action clear and convincing evidence that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation, or with respect to any criminal action or
proceeding that such person acted without reasonable cause to believe that his
conduct was lawful. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel or its 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 has met the applicable
standard of conduct set forth in the Delaware General Corporation Law or any
other applicable law, nor an actual determination by the corporation (including
its Board of Directors, independent legal counsel or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that claimant has not met the applicable
standard of conduct. In any suit brought by a director or executive officer to
enforce a right to indemnification or to an advancement of expenses hereunder,
the burden of proving that the director or executive officer is not entitled to
be indemnified, or to such advancement of expenses, under this Article XI or
otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such person
may have or hereafter acquire under any applicable statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law or any other applicable law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation or any other applicable law, upon
approval by the Board of Directors, may purchase insurance on behalf of any
person required or permitted to be indemnified pursuant to this Bylaw.
18.
<PAGE> 24
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law. If this Section
43 shall be invalid due to the application of the indemnification provisions of
another jurisdiction, then the corporation shall indemnify each director and
executive officer to the full extent under applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed
and shall include, without limitation, the investigation, preparation,
prosecution, defense, settlement, arbitration and appeal of, and the giving of
testimony in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed
and shall include, without limitation, court costs, attorneys' fees, witness
fees, fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include
19.
<PAGE> 25
any service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to
any director may be given by the method stated in subsection (a), or by
overnight delivery service, facsimile, telex or telegram, except that such
notice other than one which is delivered personally shall be sent to such
address as such director shall have filed in writing with the Secretary, or, in
the absence of such filing, to the last known post office address of such
director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by
a duly authorized and competent employee of the corporation or its transfer
agent appointed with respect to the class of stock affected, specifying the name
and address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing, and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of
time within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
20.
<PAGE> 26
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever
notice is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, these Bylaws may be amended or repealed and new Bylaws adopted by the
stockholders entitled to vote. The Board of Directors shall also have the power,
if such power is conferred upon the Board of Directors by the Certificate of
Incorporation, to adopt, amend, or repeal Bylaws (including, without limitation,
the amendment of any Bylaw setting forth the number of Directors who shall
constitute the whole Board of Directors).
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its
21.
<PAGE> 27
subsidiaries, whenever, in the judgment of the Board of Directors, such loan,
guarantee or assistance may reasonably be expected to benefit the corporation.
The loan, guarantee or other assistance may be with or without interest and may
be unsecured, or secured in such manner as the Board of Directors shall approve,
including, without limitation, a pledge of shares of stock of the corporation.
Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of
guaranty or warranty of the corporation at common law or under any statute.
SECTION 47. RIGHT OF FIRST REFUSAL. No stockholder shall sell, assign,
pledge, or in any manner transfer any of the shares of the Common Stock and
Preferred Stock of the corporation or any right or interest therein, whether
voluntarily or by operation of law, or by gift or otherwise, except by a
transfer which meets the requirements hereinafter set forth in this bylaw:
(a) If the stockholder desires to sell or otherwise transfer any of his
shares of Common Stock, then the stockholder shall first give written notice
thereof to the corporation. The notice shall name the proposed transferee and
state the number of shares to be transferred, the proposed consideration and all
other terms and conditions of the proposed transfer.
(b) For a period of ten (10) days following receipt of such notice, the
corporation shall have the option to purchase all or any portion of the shares
specified in the notice at the price and upon the terms set forth in such
notice. In the event of a gift, property settlement or other transfer in which
the proposed transferee is not paying the full price for the shares, and that is
not otherwise exempted from the provisions of this Section 47, the price shall
be deemed to be the fair market value of the stock at such time as determined in
good faith by the Board of Directors. In the event the corporation elects to
purchase all or any portion of the shares, it shall give written notice to the
transferring stockholder of its election and settlement for said shares shall be
made as provided below in paragraph (d).
(c) The corporation may assign its rights hereunder.
(d) In the event the corporation and/or its assignee(s) elect to
acquire any of the shares of the transferring stockholder as specified in said
transferring stockholder's notice, the Secretary of the corporation shall so
notify the transferring stockholder and settlement thereof shall be made in cash
within twenty (20) days after the Secretary of the corporation receives said
transferring stockholder's notice; provided, that, if the terms of payment set
forth in said transferring stockholder's notice were other than cash against
delivery, the corporation and/or its assignee(s) shall pay for said shares on
the same terms and conditions set forth in said transferring stockholder's
notice.
(e) In the event the corporation and/or its assignee(s) do not elect to
acquire all of the shares specified in the transferring stockholder's notice,
said transferring stockholder may, within the ninety (90)-day period following
the expiration of the option rights granted to the corporation and/or its
assignees(s) herein, transfer the shares specified in said transferring
stockholder's notice which were not acquired by the corporation and/or its
assignee(s) as specified in said transferring stockholder's notice. All shares
so sold by said transferring stockholder shall continue to be subject to the
provisions of this bylaw in the same manner as before said transfer.
22.
<PAGE> 28
(f) Anything to the contrary contained herein notwithstanding, the
following transactions shall be exempt from the provisions of this bylaw:
(1) A stockholder's transfer of any or all shares
held either during such stockholder's lifetime or on death by will or intestacy
to such stockholder's immediate family or to any custodian or trustee for the
account of such stockholder or such stockholder's immediate family. "Immediate
family" as used herein shall mean spouse, lineal descendant, father, mother,
brother, or sister of the stockholder making such transfer.
(2) A stockholder's pledge or mortgage of any shares
with a commercial lending institution or other party.
(3) A stockholder's transfer of any or all of such
stockholder's shares to the corporation or to any other stockholder of the
corporation.
(4) A stockholder's transfer of any or all of such
stockholder's shares to a person who, at the time of such transfer, is an
officer or director of the corporation.
(5) A corporate stockholder's transfer of any or all
of its shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate stockholder, or pursuant to a sale of all or substantially all of the
stock or assets of a corporate stockholder.
(6) A corporate stockholder's transfer of any or all
of its shares to any or all of its stockholders.
(7) A transfer by a stockholder which is a limited or
general partnership or a limited liability company to any or all of its partners
or former partners or members or retired members or a transfer by a partnership
to an affiliated partnership or a transfer by a limited liability company to an
affiliated partnership or member controlled by such limited liability company.
In any such case, the transferee, assignee or other recipient
shall receive and hold such stock subject to the provisions of this bylaw, and
there shall be no further transfer of such stock except in accord with this
bylaw. Notwithstanding the foregoing, any transfer made pursuant to the
provisions of f(2) above shall cease to be subject to the provisions of this
Section 47.
(g) Any sale or transfer, or purported sale or transfer, of securities
of the corporation shall be null and void unless the terms, conditions and
provisions of this bylaw are strictly observed and followed.
(h) The foregoing right of first refusal shall terminate upon the date
securities of the corporation are first offered to the public pursuant to a
registration statement filed with, and
23.
<PAGE> 29
declared effective by, the United States Securities and Exchange Commission
under the Securities Act of 1933, as amended.
(i) The certificates representing shares of stock of the corporation
shall bear on their face the following legend so long as the foregoing right of
first refusal remains in effect:
"The shares represented by this certificate are subject to a
right of first refusal in favor of the corporation and/or its
assignee(s), as provided in the bylaws of the corporation."
24.
<PAGE> 1
EXHIBIT 3.5
AMENDED AND RESTATED BYLAWS
OF
THE PETROLEUM PLACE, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
ARTICLE I Offices..................................................1
Section 1. Registered Office........................................1
Section 2. Other Offices............................................1
ARTICLE II Corporate Seal...........................................1
Section 3. Corporate Seal...........................................1
ARTICLE III Stockholders' Meetings...................................1
Section 4. Place Of Meetings........................................1
Section 5. Annual Meetings..........................................1
Section 6. Special Meetings.........................................3
Section 7. Notice Of Meetings.......................................4
Section 8. Quorum...................................................5
Section 9. Adjournment And Notice Of Adjourned Meetings.............5
Section 10. Voting Rights............................................5
Section 11. Joint Owners Of Stock....................................5
Section 12. List Of Stockholders.....................................6
Section 13. Action Without Meeting...................................6
Section 14. Organization.............................................6
ARTICLE IV Directors................................................7
Section 15. Number And Term Of Office................................7
Section 16. Powers...................................................7
Section 17. Classes of Directors.....................................7
Section 18. Vacancies................................................7
Section 19. Resignation..............................................8
Section 20. Removal..................................................8
Section 21. Meetings.................................................8
Section 22. Quorum And Voting........................................9
Section 23. Action Without Meeting..................................10
Section 24. Fees And Compensation...................................10
Section 25. Committees..............................................10
Section 26. Organization............................................11
ARTICLE V Officers................................................11
Section 27. Officers Designated.....................................11
Section 28. Tenure And Duties Of Officers...........................12
Section 29. Delegation Of Authority.................................13
Section 30. Resignations............................................13
Section 31. Removal.................................................13
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
ARTICLE VI Execution Of Corporate Instruments And Voting Of Securities
Owned By The Corporation.................................................13
Section 32. Execution Of Corporate Instruments.......................................13
Section 33. Voting Of Securities Owned By The Corporation............................14
ARTICLE VII Shares Of Stock..........................................................14
Section 34. Form And Execution Of Certificates.......................................14
Section 35. Lost Certificates........................................................14
Section 36. Transfers................................................................15
Section 37. Fixing Record Dates......................................................15
Section 38. Registered Stockholders..................................................15
ARTICLE VIII Other Securities Of The Corporation......................................16
Section 39. Execution Of Other Securities............................................16
ARTICLE IX Dividends................................................................16
Section 40. Declaration Of Dividends.................................................16
Section 41. Dividend Reserve.........................................................16
ARTICLE X Fiscal Year..............................................................17
Section 42. Fiscal Year..............................................................17
ARTICLE XI Indemnification..........................................................17
Section 43. Indemnification Of Directors, Executive Officers, Other Officers,
Employees And Other Agents...............................................17
ARTICLE XII Notices..................................................................20
Section 44. Notices..................................................................20
ARTICLE XIII Amendments...............................................................21
Section 45. Amendments...............................................................21
ARTICLE XIV Loans To Officers........................................................22
Section 46. Loans To Officers........................................................22
</TABLE>
ii.
<PAGE> 4
AMENDED AND RESTATED BYLAWS
OF
THE PETROLEUM PLACE, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETINGS.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors. Nominations of persons
for election to the Board of Directors of the corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders: (i) pursuant to the corporation's notice of meeting of
stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by
any stockholder of the corporation who was a stockholder of record at the time
of giving of notice provided for in the following paragraph, who is entitled to
vote at the meeting and who complied with the notice procedures set forth in
Section 5.
1.
<PAGE> 5
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of Section 5(a) of these
Bylaws, (i) the stockholder must have given timely notice thereof in writing to
the Secretary of the corporation, (ii) such other business must be a proper
matter for stockholder action under the Delaware General Corporation Law
("DGCL"), (iii) if the stockholder, or the beneficial owner on whose behalf any
such proposal or nomination is made, has provided the corporation with a
Solicitation Notice (as defined in this Section 5(b)), such stockholder or
beneficial owner must, in the case of a proposal, have delivered a proxy
statement and form of proxy to holders of at least the percentage of the
corporation's voting shares required under applicable law to carry any such
proposal, or, in the case of a nomination or nominations, have delivered a proxy
statement and form of proxy to holders of a percentage of the corporation's
voting shares reasonably believed by such stockholder or beneficial owner to be
sufficient to elect the nominee or nominees proposed to be nominated by such
stockholder, and must, in either case, have included in such materials the
Solicitation Notice, and (iv) if no Solicitation Notice relating thereto has
been timely provided pursuant to this section, the stockholder or beneficial
owner proposing such business or nomination must not have solicited a number of
proxies sufficient to have required the delivery of such a Solicitation Notice
under this Section 5. To be timely, a stockholder's notice shall be delivered to
the Secretary at the principal executive offices of the Corporation not later
than the close of business on the ninetieth (90th) day nor earlier than the
close of business on the one hundred twentieth (120th) day prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced more than thirty (30)
days prior to or delayed by more than thirty (30) days after the anniversary of
the preceding year's annual meeting, notice by the stockholder to be timely must
be so delivered not earlier than the close of business on the one hundred
twentieth (120th) day prior to such annual meeting and not later than the close
of business on the later of the ninetieth (90th) day prior to such annual
meeting or the tenth (10th) day following the day on which public announcement
of the date of such meeting is first made. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth: (A) as to each person whom the stockholder proposed to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "1934 Act") and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (B) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (C) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the corporation's books, and of
such beneficial owner, (ii) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner, and
2.
<PAGE> 6
(iii) whether either such stockholder or beneficial owner intends to deliver a
proxy statement and form of proxy to holders of, in the case of the proposal, at
least the percentage of the corporation's voting shares required under
applicable law to carry the proposal or, in the case of a nomination or
nominations, a sufficient number of holders of the corporation's voting shares
to elect such nominee or nominees (an affirmative statement of such intent, a
"Solicitation Notice").
(c) Notwithstanding anything in the second sentence of Section
5(b) of these Bylaws to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the corporation
at least one hundred (100) days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Section 5 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section
5, in order to include information with respect to a stockholder proposal in the
proxy statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation
may be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption)
3.
<PAGE> 7
(b) If a special meeting is properly called by any person or
persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board of Directors, the
Chief Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
(c) Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the corporation's notice of meeting (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Bylaws who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 6(c). In the event
the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 5(b) of these Bylaws shall be delivered
to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
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SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by statute, the Certificate of Incorporation or these Bylaws,
in all matters other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Except as otherwise provided by statute, the Certificate of Incorporation or
these Bylaws, directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by the statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes cast
by the holders of shares of such class or classes or series shall be the act of
such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the
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Secretary is given written notice to the contrary and is furnished with a copy
of the instrument or order appointing them or creating the relationship wherein
it is so provided, their acts with respect to voting shall have the following
effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1)
votes, the act of the majority so voting binds all; (c) if more than one (1)
votes, but the vote is evenly split on any particular matter, each faction may
vote the securities in question proportionally, or may apply to the Delaware
Court of Chancery for relief as provided in the DGCL, Section 217(b). If the
instrument filed with the Secretary shows that any such tenancy is held in
unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING. No action shall be taken by the
stockholders except at an annual or special meeting of stockholders called in
accordance with these Bylaws, and no action shall be taken by the stockholders
by written consent.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the
Board of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject to
such rules and regulations of the Board of Directors, if any, the chairman of
the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are necessary, appropriate or convenient for the proper conduct of the
meeting, including, without limitation, establishing an agenda or order of
business for the meeting, rules and procedures for maintaining order at the
meeting and the safety of those present, limitations on participation in such
meeting to stockholders of record of the corporation and their duly authorized
and constituted proxies and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
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ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. CLASSES OF DIRECTORS. Subject to the rights of the holders
of any series of Preferred Stock to elect additional directors under specified
circumstances, the directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the adoption
and filing of the Certificate of Incorporation providing for a classified Board
of Directors, the term of office of the Class I directors shall expire and Class
I directors shall be elected for a full term of three years. At the second
annual meeting of stockholders following the adoption and filing of the
Certificate of Incorporation providing for a classified Board of Directors, the
term of office of the Class II directors shall expire and Class II directors
shall be elected for a full term of three years. At the third annual meeting of
stockholders following the adoption and filing of the Certificate of
Incorporation providing for a classified Board of Directors, the term of office
of the Class III directors shall expire and Class III directors shall be elected
for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote
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of a majority of the directors then in office, even though less than a quorum of
the Board of Directors. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the director
for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified. A vacancy in the Board of
Directors shall be deemed to exist under this Section 18 in the case of the
death, removal or resignation of any director.
(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 20. REMOVAL.
(a) Neither the Board of Directors nor any individual director
may be removed without cause.
(b) Subject to any limitation imposed by law, any individual
director or directors may be removed with cause by the affirmative vote of a
majority of the voting power of the corporation entitled to vote at an election
of directors.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an annual
meeting of the Board of Directors shall be necessary and such meeting shall be
held for the purpose of electing officers and transacting such other business as
may lawfully come before it.
(b) REGULAR MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, regular meetings of the Board of Directors may be
held at any time or date and at any place within or without the State of
Delaware which has been designated by the Board of Directors and publicized
among all directors. No formal notice shall be required for regular meetings of
the Board of Directors.
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(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors,
or of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(b) At each meeting of the Board of Directors at which a
quorum is present, all questions and business shall be determined by the
affirmative vote of a majority of the directors present, unless a different vote
be required by law, the Certificate of Incorporation or these Bylaws.
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SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or
repealing any bylaw of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, from time to
time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to any requirements of any
outstanding series of preferred Stock and the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members of
a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate
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members of any committee, who may replace any absent or disqualified member at
any meeting of the committee, and, in addition, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President (if a director), or if the President is absent, the
most senior Vice President (if a director), or, in the absence of any such
person, a chairman of the meeting chosen by a majority of the directors present,
shall preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
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SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers, as
the Board of Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume
and perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record all
acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings of
the stockholders and of all meetings of the Board of Directors and any committee
thereof requiring notice. The Secretary shall perform all other duties given him
in these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the
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order of the Board of Directors, shall have the custody of all funds and
securities of the corporation. The Chief Financial Officer shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time. The President may direct the Treasurer or any
Assistant Treasurer, or the Controller or any Assistant Controller to assume and
perform the duties of the Chief Financial Officer in the absence or disability
of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and
each Controller and Assistant Controller shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE
CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
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SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
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SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the DGCL.
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall, subject to applicable law, not be more than sixty (60) nor less than
ten (10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date shall be not more than
sixty (60) days prior to such action. If no record date is fixed, the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
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ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation and applicable law.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
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ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the DGCL or any
other applicable law; provided, however, that the corporation may modify the
extent of such indemnification by individual contracts with its directors and
executive officers; and, provided, further, that the corporation shall not be
required to indemnify any director or executive officer in connection with any
proceeding (or part thereof) initiated by such person unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board of Directors of the corporation, (iii) such
indemnification is provided by the corporation, in its sole discretion, pursuant
to the powers vested in the corporation under the DGCL or any other applicable
law or (iv) such indemnification is required to be made under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The
corporation shall have power to indemnify its other officers, employees and
other agents as set forth in the DGCL or any other applicable law. The Board of
Directors shall have the power to delegate the determination of whether
indemnification shall be given to any such person except executive officers to
such officers or other persons as the Board of Directors shall determine.
(c) EXPENSES. The corporation shall advance to any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director or
executive officer, of the corporation, or is or was serving at the request of
the corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Section 43 or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Section 43, no advance shall be made by the corporation to
an executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the
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corporation in which event this paragraph shall not apply) in any action, suit
or proceeding, whether civil, criminal, administrative or investigative, if a
determination is reasonably and promptly made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Section 43 to a director or executive officer shall
be enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
DGCL or any other applicable law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its 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 has met the applicable standard of
conduct set forth in the DGCL or any other applicable law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct. In any suit
brought by a director or executive officer to enforce a right to indemnification
or to an advancement of expenses hereunder, the burden of proving that the
director or executive officer is not entitled to be indemnified, or to such
advancement of expenses, under this Section 43 or otherwise shall be on the
corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any applicable statute, provision of the Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or
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agents respecting indemnification and advances, to the fullest extent not
prohibited by the Delaware General Corporation Law, or by any other applicable
law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the DGCL or
any other applicable law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Section 43.
(h) AMENDMENTS. Any repeal or modification of this Section 43
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Section 43 that
shall not have been invalidated, or by any other applicable law. If this Section
43 shall be invalid due to the application of the indemnification provisions of
another jurisdiction, then the corporation shall indemnify each director and
executive officer to the full extent under any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed
and shall include, without limitation, the investigation, preparation,
prosecution, defense, settlement, arbitration and appeal of, and the giving of
testimony in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed
and shall include, without limitation, court costs, attorneys' fees, witness
fees, fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Section 43 with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
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(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Section 43.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to
any director may be given by the method stated in subsection (a), or by
overnight delivery service, facsimile, telex or telegram, except that such
notice other than one which is delivered personally shall be sent to such
address as such director shall have filed in writing with the Secretary, or, in
the absence of such filing, to the last known post office address of such
director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by
a duly authorized and competent employee of the corporation or its transfer
agent appointed with respect to the class of stock affected, specifying the name
and address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing, and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
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(f) FAILURE TO RECEIVE NOTICE. The period or limitation of
time within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the DGCL, the certificate shall state, if such is the fact and if
notice is required, that notice was given to all persons entitled to receive
notice except such persons with whom communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever
notice is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the DGCL, the certificate need not state that notice was not given
to persons to whom notice was not required to be given pursuant to this
paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the voting stock of the
corporation entitled to vote. The Board of Directors shall also have the power
to adopt, amend, or repeal Bylaws.
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ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
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EXHIBIT 10.1
THE PETROLEUM PLACE, INC.
AMENDED AND RESTATED 1999 EQUITY INCENTIVE PLAN
ADOPTED APRIL 14, 2000
APPROVED BY STOCKHOLDERS MAY ___, 2000
TERMINATION DATE: APRIL 13, 2010
1. PURPOSES.
(a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible recipients of Stock Awards may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock appreciation rights, (iv) stock bonuses and (v) rights to
acquire restricted stock.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates. The Plan is amended and restated from the Energy Auction Exchange,
Inc. 1999 Equity Incentive Plan that was adopted by the Board on May 25, 1999,
and approved by the stockholders of the Company on June 24, 1999.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means The Petroleum Place, Inc., a Delaware corporation.
(g) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors of the Company who are not compensated
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by the Company for their services as Directors or Directors of the Company who
are merely paid a director's fee by the Company for their services as Directors.
(h) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director of the
Company will not constitute an interruption of Continuous Service. The Board or
the chief executive officer of the Company, in that party's sole discretion, may
determine whether Continuous Service shall be considered interrupted in the case
of any leave of absence approved by that party, including sick leave, military
leave or any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an
Affiliate. Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute "employment" by
the Company or an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the day
of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
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(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "LISTING DATE" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system.
(q) "NON-EMPLOYEE DIRECTOR" means a Director of the Company who either
(i) is not a current Employee or Officer of the Company or its parent or a
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or a subsidiary for services rendered as a Consultant or
in any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act ("REGULATION S-K")), does not possess an interest
in any other transaction as to which disclosure would be required under Item
404(a) of Regulation S-K and is not engaged in a business relationship as to
which disclosure would be required under Item 404(b) of Regulation S-K; or (ii)
is otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(s) "OFFICER" means (i) before the Listing Date, any person designated
by the Company as an officer and (ii) on and after the Listing Date, a person
who is an officer of the Company within the meaning of Section 16 of the
Exchange Act and the rules and regulations promulgated thereunder.
(t) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(v) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(w) "OUTSIDE DIRECTOR" means a Director of the Company who either (i)
is not a current employee of the Company or an "affiliated corporation" (within
the meaning of Treasury Regulations promulgated under Section 162(m) of the
Code), is not a former employee of the Company or an "affiliated corporation"
receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an "affiliated
corporation" at any time and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in any
capacity other than as a Director or (ii) is otherwise considered an "outside
director" for purposes of Section 162(m) of the Code.
3.
<PAGE> 4
(x) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
(y) "PLAN" means this Petroleum Place Inc. Amended and Restated 1999
Equity Incentive Plan.
(z) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(aa) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(bb) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock appreciation right, a stock bonus and a right to acquire
restricted stock.
(cc) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(dd) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; what type or combination of types of Stock Award shall
be granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive stock pursuant to a Stock Award; and the number of shares with respect
to which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in
Section 12.
(iv) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company which are not in conflict with the provisions of the Plan.
4.
<PAGE> 5
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan
to a Committee or Committees of one or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY
TRADED. At such time as the Common Stock is publicly traded, in the discretion
of the Board, a Committee may consist solely of two or more Outside Directors,
in accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors, the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or (2) delegate
to a committee of one or more members of the Board who are not Non-Employee
Directors the authority to grant Stock Awards to eligible persons who are not
then subject to Section 16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Stock Awards shall not exceed in the aggregate one million two hundred fifty
thousand (1,250,000) shares of Common Stock ("Reserved Shares"). As of each
January 1, beginning with January 1, 2001, and continuing through and including
January 1, 2010, the number of Reserved Shares will be increased automatically
by the lesser of three percent (3.0%) of (i) the total number of shares of the
Company's Common Stock outstanding on such January 1 or (ii) the total number of
shares of the Company's Common Stock outstanding on the effective date of the
Company's initial public offering; provided that the Board may designate a
smaller number by which the Reserved Shares shall be increased as of any
particular January 1.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the stock not acquired under such Option shall revert to
and again become available for issuance under the Plan. Shares subject to stock
appreciation rights exercised in accordance with the Plan shall not be available
for subsequent issuance under the Plan.
(c) SOURCE OF SHARES. The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.
5.
<PAGE> 6
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may
be granted only to Employees. Stock Awards other than Incentive Stock Options
may be granted to Employees, Directors and Consultants.
(b) TEN PERCENT STOCKHOLDERS. No Ten Percent Stockholder shall be
eligible for the grant of an Incentive Stock Option unless the exercise price of
such Option is at least one hundred ten percent (110%) of the Fair Market Value
of the Common Stock at the date of grant and the Option is not exercisable after
the expiration of five (5) years from the date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in stock, no employee shall be eligible to
be granted Stock Awards covering more than two hundred fifty thousand (250,000)
shares of the Common Stock during any calendar year. This subsection 5(c) shall
not apply prior to the Listing Date and, following the Listing Date, this
subsection 5(c) shall not apply until (i) the earliest of: (1) the first
material modification of the Plan (including any increase in the number of
shares reserved for issuance under the Plan in accordance with Section 4); (2)
the issuance of all of the shares of Common Stock reserved for issuance under
the Plan; (3) the expiration of the Plan; or (4) the first meeting of
stockholders at which Directors of the Company are to be elected that occurs
after the close of the third calendar year following the calendar year in which
occurred the first registration of an equity security under Section 12 of the
Exchange Act; or (ii) such other date required by Section 162(m) of the Code and
the rules and regulations promulgated thereunder.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and a separate certificate or certificates will be issued for shares
purchased on exercise of each type of Option. The provisions of separate Options
need not be identical, but each Option shall include (through incorporation of
provisions hereof by reference in the Option or otherwise) the substance of each
of the following provisions, subject to such modifications as the Board shall
deem appropriate:
(a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option
may be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price
of each Nonstatutory Stock Option shall be not less than fifty percent (50%) of
the Fair Market Value of
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the stock subject to the Option on the date the Option is granted.
Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with
an exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(d) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other Common Stock) with the Participant or (3) in any
other form of legal consideration that may be acceptable to the Board; provided,
however, that at any time that the Company is incorporated in Delaware, payment
of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory
Stock Option shall be transferable to the extent provided in the Option
Agreement. If the Nonstatutory Stock Option does not provide for
transferability, then the Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing, the Optionholder may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionholder, shall thereafter be
entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments which may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder
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<PAGE> 8
may exercise his or her Option (to the extent that the Optionholder was entitled
to exercise it as of the date of termination) but only within such period of
time ending on the earlier of (i) the date three (3) months following the
termination of the Optionholder's Continuous Service (or such longer or shorter
period specified in the Option Agreement), or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified in
the Option Agreement or the Plan, the Option shall terminate.
(i) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the termination of
the Optionholder's Continuous Service (other than upon the Optionholder's death
or Disability) would be prohibited at any time solely because the issuance of
shares would violate the registration requirements under the Securities Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in subsection 6(a) or (ii) the expiration of a period of
three (3) months after the termination of the Optionholder's Continuous Service
during which the exercise of the Option would not be in violation of such
registration requirements.
(j) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination (or such longer or shorter period specified in the
Option Agreement) or (ii) the expiration of the term of the Option as set forth
in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.
(k) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous Service for a
reason other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise the Option as of the date of death) by the
Optionholder's estate, by a person who acquired the right to exercise the Option
by bequest or inheritance or by a person designated to exercise the option upon
the Optionholder's death pursuant to subsection 6(e) or 6(f), but only within
the period ending on the earlier of (1) the date eighteen (18) months following
the date of death (or such longer or shorter period specified in the Option
Agreement) or (2) the expiration of the term of such Option as set forth in the
Option Agreement. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate.
(l) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares subject to the Option prior to the full vesting of the Option. Any
unvested shares so purchased may be subject to an unvested share repurchase
option in favor of the Company or to any other restriction the Board determines
to be appropriate.
8.
<PAGE> 9
(m) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionholder of
the intent to transfer all or any part of the shares received upon the exercise
of the Option. Except as expressly provided in this subsection 6(n), such right
of first refusal shall otherwise comply with any applicable provisions of the
Bylaws of the Company.
(n) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board to make or not to make grants of Options hereunder, the Board shall have
the authority (but not an obligation) to include as part of any Option Agreement
a provision entitling the Optionholder to a further Option (a "RE-LOAD OPTION")
in the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Any such Re-Load Option shall (i) provide for a number of shares equal to the
number of shares surrendered as part or all of the exercise price of such
Option; (ii) have an expiration date which is the same as the expiration date of
the Option the exercise of which gave rise to such Re-Load Option; and (iii)
have an exercise price which is equal to one hundred percent (100%) of the Fair
Market Value of the Common Stock subject to the Re-Load Option on the date of
exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option
shall be subject to the same exercise price and term provisions heretofore
described for Options under the Plan.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on the exercisability of Incentive Stock
Options described in subsection 10(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares under subsection 4(a) and
the "Section 162(m) Limitation" on the grants of Options under subsection 5(c)
and shall be subject to such other terms and conditions as the Board may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such
form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus agreements may change from
time to time, and the terms and conditions of separate stock bonus agreements
need not be identical, but each stock bonus agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:
(i) CONSIDERATION. A stock bonus shall be awarded in
consideration for past services actually rendered to the Company or an Affiliate
for its benefit.
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<PAGE> 10
(ii) VESTING. Shares of Common Stock awarded under the stock
bonus agreement may, but need not, be subject to a share repurchase option in
favor of the Company in accordance with a vesting schedule to be determined by
the Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the Company may reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the stock bonus
agreement.
(iv) TRANSFERABILITY. Rights to acquire shares under the stock
bonus agreement shall be transferable by the Participant only upon such terms
and conditions as are set forth in the stock bonus agreement, as the Board shall
determine in its discretion, so long as stock awarded under the stock bonus
agreement remains subject to the terms of the stock bonus agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
(i) PURCHASE PRICE. The purchase price under each restricted
stock purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. The purchase price shall
not be less than fifty percent (50%) of the stock's Fair Market Value on the
date such award is made or at the time the purchase is consummated.
(ii) CONSIDERATION. The purchase price of stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other arrangement with the Participant; or (iii) in any
other form of legal consideration that may be acceptable to the Board in its
discretion; provided, however, that at any time that the Company is incorporated
in Delaware, payment of the Common Stock's "par value," as defined in the
Delaware General Corporation Law, shall not be made by deferred payment.
(iii) VESTING. Shares of Common Stock acquired under the
restricted stock purchase agreement may, but need not, be subject to a share
repurchase option in favor of the Company in accordance with a vesting schedule
to be determined by the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the Company may repurchase
or otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.
(v) TRANSFERABILITY. Rights to acquire shares under the
restricted stock purchase agreement shall be transferable by the Participant
only upon such terms and conditions
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as are set forth in the restricted stock purchase agreement, as the Board shall
determine in its discretion, so long as stock awarded under the restricted stock
purchase agreement remains subject to the terms of the restricted stock purchase
agreement.
(c) STOCK APPRECIATION RIGHTS.
(i) AUTHORIZED RIGHTS. The following three types of stock
appreciation rights shall be authorized for issuance under the Plan:
(1) TANDEM RIGHTS. A "Tandem Right" means a stock
appreciation right granted appurtenant to an Option which is subject to the same
terms and conditions applicable to the particular Option grant to which it
pertains with the following exceptions: The Tandem Right shall require the
holder to elect between the exercise of the underlying Option for shares of
Common Stock and the surrender, in whole or in part, of such Option for an
appreciation distribution. The appreciation distribution payable on the
exercised the Tandem Right shall be in cash (or, if so provided, in an
equivalent number of shares of Common Stock based on Fair Market Value on the
date of the Option surrender) in an amount up to the excess of (A) the Fair
Market Value (on the date of the Option surrender) of the number of shares of
Common Stock covered by that portion of the surrendered Option in which the
Optionholder is vested over (B) the aggregate exercise price payable for such
vested shares.
(2) CONCURRENT RIGHTS. A "Concurrent Right" means a
stock appreciation right granted appurtenant to an Option which applies to all
or a portion of the shares of Common Stock subject to the underlying Option and
which is subject to the same terms and conditions applicable to the particular
Option grant to which it pertains with the following exceptions: A Concurrent
Right shall be exercised automatically at the same time the underlying Option is
exercised with respect to the particular shares of Common Stock to which the
Concurrent Right pertains. The appreciation distribution payable on an exercised
Concurrent Right shall be in cash (or, if so provided, in an equivalent number
of shares of Common Stock based on Fair Market Value on the date of the exercise
of the Concurrent Right) in an amount equal to such portion as determined by the
Board at the time of the grant of the excess of (A) the aggregate Fair Market
Value (on the date of the exercise of the Concurrent Right) of the vested shares
of Common Stock purchased -under the underlying Option which have Concurrent
Rights appurtenant to them over (B) the aggregate exercise price paid for such
shares.
(3) INDEPENDENT RIGHTS. An "Independent Right" means
a stock appreciation right granted independently of any Option but which is
subject to the same terms and conditions applicable to a Nonstatutory Stock
Option with the following exceptions: An Independent Right shall be denominated
in share equivalents. The appreciation distribution payable on the exercised
Independent Right shall be not greater than an amount equal to the excess of (a)
the aggregate Fair Market Value (on the date of the exercise of the Independent
Right) of a number of shares of Company stock equal to the number of share
equivalents in which the holder is vested under such Independent Right, and with
respect to which the holder is exercising the Independent Right on such date,
over (b) the aggregate Fair Market Value (on the date of the grant of the
Independent Right) of such number of shares of Company stock. The appreciation
distribution payable on the exercised Independent Right shall be in cash or, if
so
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provided, in an equivalent number of shares of Common Stock based on Fair Market
Value on the date of the exercise of the Independent Right.
(ii) RELATIONSHIP TO OPTIONS. Stock appreciation rights
appurtenant to Incentive Stock Options may be granted only to Employees. The
"Section 162(m) Limitation" provided in subsection 5(c) and any authority to
reprice Options shall apply as well to the grant of stock appreciation rights.
(iii) EXERCISE. To exercise any outstanding stock appreciation
right, the holder shall provide written notice of exercise to the Company in
compliance with the provisions of the Stock Award Agreement evidencing such
right. Except as provided in subsection 5(c) regarding the "Section 162(m)
Limitation," no limitation shall exist on the aggregate amount of cash payments
that the Company may make under the Plan in connection with the exercise of a
stock appreciation right.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any stock issued or issuable pursuant to any such
Stock Award. If, after reasonable efforts, the Company is unable to obtain from
any such regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for failure to issue and
sell stock upon exercise of such Stock Awards unless and until such authority is
obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have
the power to accelerate the time at which a Stock Award may first be exercised
or the time during which a Stock Award or any part thereof will vest in
accordance with the Plan, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.
(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such Stock Award unless
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and until such Participant has satisfied all requirements for exercise of the
Stock Award pursuant to its terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, subject to the terms
of any employment agreement with such Employee, (ii) the service of a Consultant
pursuant to the terms of such Consultant's agreement with the Company or an
Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring stock under any Stock Award, (i) to give
written assurances satisfactory to the Company as to the Participant's knowledge
and experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Stock Award; and (ii) to give written assurances
satisfactory to the Company stating that the Participant is acquiring the stock
subject to the Stock Award for the Participant's own account and not with any
present intention of selling or otherwise distributing the stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (iii) the issuance of the shares upon the exercise or acquisition
of stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act or (iv) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means (in addition to the Company's
right to withhold from any compensation paid to the Participant by the Company)
or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares from the shares of the Common Stock
otherwise issuable to the participant as a result of the exercise or acquisition
of stock under the Stock
13.
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Award; or (iii) delivering to the Company owned and unencumbered shares of the
Common Stock.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of stock subject to such outstanding Stock Awards. The Board
shall make such adjustments, and its determination shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a transaction "without receipt of consideration" by the
Company.)
(b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then all outstanding Stock Awards
shall terminate immediately prior to such event.
(c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER. In the event of (i) a sale, lease or other disposition of all or
substantially all of the assets of the Company, (ii) a consolidation or merger
of the Company with or into any other corporation or other entity or person, or
any other corporate reorganization, in which the stockholders of the Company
immediately prior to such consolidation, merger or reorganization, own less than
50% of the outstanding voting power of the surviving entity (or its parent)
following the consolidation, merger or reorganization or (iii) any transaction
(or series of related transactions involving a person or entity, or a group of
affiliated persons or entities) in which in excess of fifty percent (50%) of the
Company's outstanding voting power is transferred (the transactions set forth in
Sections 11(c)(ii) or (iii) hereof are hereinafter referred to as an
"ACQUISITION"), then any surviving corporation or acquiring corporation shall
assume any Stock Awards outstanding under the Plan or shall substitute similar
stock awards (including an award to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 11(c)) for those
outstanding under the Plan. With respect to Participants who were Employees of
the Company immediately prior to such Acquisition (a "CONTINUING EMPLOYEE"), in
the event any surviving corporation or acquiring corporation assumes Stock
Awards outstanding under the Plan or substitutes similar stock awards and a
Continuing Employee is either not offered employment by the surviving or
acquiring corporation (which employment shall not result in any reduction in the
Participant's salary or aggregate benefits in effect at the time of the
Acquisition) or such Continuing Employee is terminated for any reason other than
for Cause (as defined herein) or such Continuing Employee voluntarily terminates
his or her employment for Good Reason (as defined herein) within twelve (12)
months of the effective date of the Acquisition, then with respect to Stock
Awards held by such Continuing Employee, the vesting of such Stock Awards (and,
if applicable, the time during which such Stock Awards may be exercised) shall
be
14.
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accelerated in full immediately prior to such termination. In the event any
surviving corporation or acquiring corporation refuses to assume such Stock
Awards or to substitute similar stock awards for those outstanding under the
Plan, then with respect to Stock Awards held by Participants whose Continuous
Service has not terminated, the vesting of such Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall be
accelerated in full, and the Stock Awards shall terminate if not exercised (if
applicable) at or prior to such event. With respect to any other Stock Awards
outstanding under the Plan, such Stock Awards shall terminate if not exercised
(if applicable) prior to such event.
As used herein, "CAUSE" shall mean (i) conviction of any felony or any
crime involving moral turpitude or dishonesty; (ii) participation in a fraud or
act of dishonesty against the Company; (iii) willful and material breach of any
Company policies; (iv) intentional damage to the Company's property; (v)
material breach of any Proprietary Information and Inventions Agreement with the
Company or its Affiliates; or (vi) willful misfeasance or nonfeasance of duty
that materially injures the reputation, business or business relationships of
the Company. Physical or mental disability shall not constitute "cause". As used
herein, "GOOD REASON" shall mean (i) a reduction in compensation; (ii) a
relocation of the principal worksite location to a location more than thirty
(30) miles from the principal worksite immediately prior to the Acquisition; or
(iii) for an executive officer, a material reduction in responsibilities, title
or authority as in effect immediately prior to the Acquisition.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the
Board may amend the Plan in any respect the Board deems necessary or advisable
to provide eligible Employees with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted
before amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the Participant and (ii) the
Participant consents in writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under
15.
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any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the Participant and (ii) the Participant
consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan
shall not impair rights and obligations under any Stock Award granted while the
Plan is in effect except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Stock Award shall be exercised (or, in the case of a stock bonus, shall be
granted) unless and until the Plan has been approved by the stockholders of
the Company, which approval shall be within twelve (12) months before or after
the date the Plan is adopted by the Board.
15. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation
of this Plan shall be governed by the law of the State of Colorado, without
regard to such state's conflict of laws rules.
16.
<PAGE> 1
EXHIBIT 10.2
THE PETROLEUM PLACE INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY THE BOARD OF DIRECTORS ON APRIL 14, 2000
APPROVED BY THE STOCKHOLDERS ON MAY ___, 2000
1. PURPOSE.
(a) The purpose of this Employee Stock Purchase Plan (the
"Plan") is to provide a means by which employees of The Petroleum Place, Inc., a
Delaware corporation (the "Company"), and its Affiliates, as defined in
subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be
given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the
services of its employees, to secure and retain the services of new employees,
and to provide incentives for such persons to exert maximum efforts for the
success of the Company.
(d) The Company intends that the rights to purchase stock of
the Company granted under the Plan be considered options issued under an
"employee stock purchase plan" as that term is defined in Section 423(b) of the
Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors
(the "Board") of the Company unless and until the Board delegates administration
to a Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase
stock of the Company shall be granted and the provisions of each offering of
such rights (which need not be identical).
(ii) To designate from time to time which Affiliates
of the Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the
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exercise of this power, may correct any defect, omission or inconsistency in the
Plan, in a manner and to the extent it shall deem necessary or expedient to make
the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company and its Affiliates and to carry out the intent that the
Plan be treated as an "employee stock purchase plan" within the meaning of
Section 423 of the Code.
(c) The Board may delegate administration of the Plan to a
Committee of the Board composed of two (2) or more members, all of the members
of which Committee may be, in the discretion of the Board, Non-Employee
Directors and/or Outside Directors. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan. For purposes of the Plan:
(i) "NON-EMPLOYEE DIRECTOR" means a Director who
either (i) is not a current Employee or Officer of the Company or its parent or
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or subsidiary for services rendered as a consultant or in
any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act ("Regulation S-K")), does not possess an interest
in any other transaction as to which disclosure would be required under Item
404(a) of Regulation S-K, and is not engaged in a business relationship as to
which disclosure would be required under Item 404(b) of Regulation S-K; or (ii)
is otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(ii) "OUTSIDE DIRECTOR" means a Director who either
(i) is not a current employee of the Company or an "affiliated corporation"
(within the meaning of the Treasury regulations promulgated under Section 162(m)
of the Code), is not a former employee of the Company or an "affiliated
corporation" receiving compensation for prior services (other than benefits
under a tax qualified pension plan), was not an officer of the Company or an
"affiliated corporation" at any time, and is not currently receiving direct or
indirect remuneration from the Company or an "affiliated corporation" for
services in any capacity other than as a Director, or (ii) is otherwise
considered an "outside director" for purposes of Section 162(m) of the Code.
(d) Any interpretation of the Plan by the Board of any
decision made by it under the Plan shall be final and binding on all persons.
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<PAGE> 3
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to rights
granted under the Plan shall not exceed in the aggregate one hundred fifty
thousand (150,000) shares of the Company's common stock (the "Common Stock"). As
of each January 1, beginning with January 1, 2001, and continuing through and
including January 1, 2010, the number of Reserved Shares will be increased
automatically by the lesser of three percent (3%) of (i) the total number of
shares of the Company's Common Stock outstanding on such January 1 or (ii) the
total number of shares of the Company's Common Stock outstanding on the
effective date of the Company's initial public offering; provided that the Board
may designate a smaller number by which the Reserved Shares shall be increased
as of any particular January 1.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
(a) The Board or the Committee may from time to time grant or
provide for the grant of rights to purchase Common Stock of the Company under
the Plan to eligible employees (an "Offering") on a date or dates (the "Offering
Date(s)") selected by the Board or the Committee. Each Offering shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate, which shall comply with the requirements of Section
423(b)(5) of the Code that all employees granted rights to purchase stock under
the Plan shall have the same rights and privileges. The terms and conditions of
an Offering shall be incorporated by reference into the Plan and treated as part
of the Plan. The provisions of separate Offerings need not be identical, but
each Offering shall include (through incorporation of the provisions of this
Plan by reference in the document comprising the Offering or otherwise) the
period during which the Offering shall be effective, which period shall not
exceed twenty-seven (27) months beginning with the Offering Date, and the
substance of the provisions contained in paragraphs 5 through 8, inclusive.
(b) If an employee has more than one (1) right outstanding
under the Plan, unless he or she otherwise indicates in agreements or notices
delivered hereunder, a right with a lower exercise price (or an earlier-granted
right if two (2) rights have identical exercise prices), will be exercised to
the fullest possible extent before a right with a higher exercise price (or a
later-granted right if two (2) rights have identical exercise prices) will be
exercised.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or,
as the Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be greater than two (2)
years. In addition, unless
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<PAGE> 4
otherwise determined by the Board or the Committee and set forth in the terms of
the applicable Offering, no employee of the Company or any Affiliate shall be
eligible to be granted rights under the Plan unless, on the Offering Date, such
employee's customary employment with the Company or such Affiliate is for at
least twenty (20) hours per week and at least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person
who, during the course of an Offering, first becomes an eligible employee of the
Company or designated Affiliate will, on a date or dates specified in the
Offering which coincides with the day on which such person becomes an eligible
employee or occurs thereafter, receive a right under that Offering, which right
shall thereafter be deemed to be a part of that Offering. Such right shall have
the same characteristics as any rights originally granted under that Offering,
as described herein, except that:
(i) the date on which such right is granted shall be
the "Offering Date" of such right for all purposes, including determination of
the exercise price of such right;
(ii) the period of the Offering with respect to such
right shall begin on its Offering Date and end coincident with the end of such
Offering; and
(iii) the Board or the Committee may provide that if
such person first becomes an eligible employee within a specified period of time
before the end of the Offering, he or she will not receive any right under that
Offering.
(c) No employee shall be eligible for the grant of any rights
under the Plan if, immediately after any such rights are granted, such employee
owns stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of any Affiliate. For
purposes of this subparagraph 5(c), the rules of Section 424(d) of the Code
shall apply in determining the stock ownership of any employee, and stock which
such employee may purchase under all outstanding rights and options shall be
treated as stock owned by such employee.
(d) An eligible employee may be granted rights under the Plan
only if such rights, together with any other rights granted under "employee
stock purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock of
the Company or any Affiliate to accrue at a rate which exceeds twenty five
thousand dollars ($25,000) of fair market value of such stock (determined at the
time such rights are granted) for each calendar year in which such rights are
outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall
be eligible to participate in Offerings under the Plan; provided, however, that
the Board may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
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<PAGE> 5
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to
an Offering made under the Plan, shall be granted the right to purchase up to
the number of shares of Common Stock of the Company purchasable with a
percentage designated by the Board or the Committee not exceeding fifteen
percent (15%) of such employee's Earnings (as defined in subparagraph 7(a))
during the period which begins on the Offering Date (or such later date as the
Board or the Committee determines for a particular Offering) and ends on the
date stated in the Offering, which date shall be no later than the end of the
Offering. The Board or the Committee shall establish one (1) or more dates
during an Offering (the "Purchase Date(s)") on which rights granted under the
Plan shall be exercised and purchases of Common Stock carried out in accordance
with such Offering.
(b) In connection with each Offering made under the Plan, the
Board or the Committee may specify a maximum number of shares that may be
purchased by any employee as well as a maximum aggregate number of shares that
may be purchased by all eligible employees pursuant to such Offering. In
addition, in connection with each Offering that contains more than one (1)
Purchase Date, the Board or the Committee may specify a maximum aggregate number
of shares which may be purchased by all eligible employees on any given Purchase
Date under the Offering. If the aggregate purchase of shares upon exercise of
rights granted under the Offering would exceed any such maximum aggregate
number, the Board or the Committee shall make a pro rata allocation of the
shares available in as nearly a uniform manner as shall be practicable and as it
shall deem to be equitable.
(c) The purchase price of stock acquired pursuant to rights
granted under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of
the fair market value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of
the fair market value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan
pursuant to an Offering by delivering an enrollment agreement to the Company
within the time specified in the Offering, in such form as the Company provides.
Each such agreement shall authorize payroll deductions of up to the maximum
percentage specified by the Board or the Committee of such employee's Earnings
during the Offering. "Earnings" is defined as an employee's regular salary or
wages (including amounts thereof elected to be deferred by the employee, that
would otherwise have been paid, under any arrangement established by the Company
that is intended to comply with Section 125, Section 401(k), Section 402(e)(3),
Section 402(h) or section 403(b) of the Code, and also including any deferrals
under a non-qualified deferred compensation plan or arrangement established by
the Company), and also, if determined by the Board or the Committee and set
forth in the terms of the Offering, may include any or all of the following: (i)
overtime pay, (ii) commissions, (iii) bonuses, incentive pay, profit sharing and
other
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<PAGE> 6
remuneration paid directly to the employee, and/or (iv) other items of
remuneration not specifically excluded pursuant to the Plan. Earnings shall not
include the cost of employee benefits paid for by the Company or an Affiliate,
education or tuition reimbursements, imputed income arising under any group
insurance or benefit program, traveling expenses, business and moving expense
reimbursements, income received in connection with stock options, contributions
made by the Company or an Affiliate under any employee benefit plan, and similar
items of compensation, as determined by the Board or the Committee.
Notwithstanding the foregoing, the Board or Committee may modify the definition
of "Earnings" with respect to one or more Offerings as the Board or Committee
determines appropriate. The payroll deductions made for each participant shall
be credited to an account for such participant under the Plan and shall be
deposited with the general funds of the Company. A participant may reduce
(including to zero) or increase such payroll deductions, and an eligible
employee may begin such payroll deductions, after the beginning of any Offering
only as provided for in the Offering. A participant may make additional payments
into his or her account only if specifically provided for in the Offering and
only if the participant has not had the maximum amount withheld during the
Offering.
(b) At any time during an Offering, a participant may
terminate his or her payroll deductions under the Plan and withdraw from the
Offering by delivering to the Company a notice of withdrawal in such form as the
Company provides. Such withdrawal may be elected at any time prior to the end of
the Offering except as provided by the Board or the Committee in the Offering.
Upon such withdrawal from the Offering by a participant, the Company shall
distribute to such participant all of his or her accumulated payroll deductions
(reduced to the extent, if any, such deductions have been used to acquire stock
for the participant) under the Offering, without interest, and such
participant's interest in that Offering shall be automatically terminated. A
participant's withdrawal from an Offering will have no effect upon such
participant's eligibility to participate in any other Offerings under the Plan
but such participant will be required to deliver a new enrollment agreement in
order to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan
shall terminate immediately upon cessation of any participating employee's
employment with the Company and any designated Affiliate, for any reason, and
the Company shall distribute to such terminated employee all of his or her
accumulated payroll deductions (reduced to the extent, if any, such deductions
have been used to acquire stock for the terminated employee), under the
Offering, without interest.
(d) Rights granted under the Plan shall not be transferable by
a participant other than by will or the laws of descent and distribution, or by
a beneficiary designation as provided in paragraph 14, and during a
participant's lifetime, shall be exercisable only by such participant.
8. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant
Offering, each participant's accumulated payroll deductions and other additional
payments specifically provided for in the Offering (without any increase for
interest) will be applied to the purchase of whole
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<PAGE> 7
shares of stock of the Company, up to the maximum number of shares permitted
pursuant to the terms of the Plan and the applicable Offering, at the purchase
price specified in the Offering. No fractional shares shall be issued upon the
exercise of rights granted under the Plan. The amount, if any, of accumulated
payroll deductions remaining in each participant's account after the purchase of
shares which is less than the amount required to purchase one share of Common
Stock on the final Purchase Date of an Offering shall be held in each such
participant's account for the purchase of shares under the next Offering under
the Plan, unless such participant withdraws from such next Offering, as provided
in subparagraph 7(b), or is no longer eligible to be granted rights under the
Plan, as provided in paragraph 5, in which case such amount shall be distributed
to the participant after such final Purchase Date, without interest. The amount,
if any, of accumulated payroll deductions remaining in any participant's account
after the purchase of shares which is equal to the amount required to purchase
one or more whole shares of Common Stock on the final Purchase Date of an
Offering shall be distributed in full to the participant after such Purchase
Date, without interest.
(b) No rights granted under the Plan may be exercised to any
extent unless the shares to be issued upon such exercise under the Plan
(including rights granted thereunder) are covered by an effective registration
statement pursuant to the Securities Act of 1933, as amended (the "Securities
Act") and the Plan is in material compliance with all applicable state, foreign
and other securities and other laws applicable to the Plan. If on a Purchase
Date in any Offering hereunder the Plan is not so registered or in such
compliance, no rights granted under the Plan or any Offering shall be exercised
on such Purchase Date, and the Purchase Date shall be delayed until the Plan is
subject to such an effective registration statement and such compliance, except
that the Purchase Date shall not be delayed more than twelve (12) months and the
Purchase Date shall in no event be more than twenty-seven (27) months from the
Offering Date. If on the Purchase Date of any Offering hereunder, as delayed to
the maximum extent permissible, the Plan is not registered and in such
compliance, no rights granted under the Plan or any Offering shall be exercised
and all payroll deductions accumulated during the Offering (reduced to the
extent, if any, such deductions have been used to acquire stock) shall be
distributed to the participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such rights, provided that the Company shall not be
obligated to keep available shares in excess of the limits set forth or
described in paragraphs 3 and 6 of the Plan and any corresponding or additional
limits set forth in an Offering.
(b) The Company shall seek to obtain from each federal, state,
foreign or other regulatory commission or agency having jurisdiction over the
Plan such authority as may be required to issue and sell shares of stock upon
exercise of the rights granted under the Plan. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such rights
unless and until such authority is obtained.
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10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the
Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any
of the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights under the Plan are recorded in the books of the Company (or
its transfer agent).
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")
(b) In the event of: (1) a dissolution or liquidation of the
Company; (2) a lease, sale, or other disposition of all or substantially all of
the assets of the Company; (3) a merger or consolidation in which the Company is
not the surviving corporation; (4) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; (5) the
acquisition by any person, entity or group within the meaning of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any comparable successor provisions (excluding any employee benefit
plan, or related trust, sponsored or maintained by the Company or any Affiliate
of the Company) of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor rule) of securities
of the Company representing at least fifty percent (50%) of the combined voting
power entitled to vote in the election of directors; or (6) the individuals who,
as of the date of the adoption of this Plan, are members of the Board (the
"Incumbent Board"; (if the election, or nomination for election by the Company's
stockholders, of a new director was approved by a vote of at least fifty percent
(50%) of the members of the Board then comprising the Incumbent Board, such new
director shall upon his or her election be considered a member of the Incumbent
Board) cease for any reason to constitute at least fifty percent (50%) of the
Board; then the Board in its sole discretion may take any action or arrange for
the taking of any action among the following: (i) any surviving or acquiring
corporation may assume outstanding rights or substitute similar rights for those
under the Plan, (ii) such rights may continue in full force and
8
<PAGE> 9
effect, or (iii) all participants' accumulated payroll deductions may be used to
purchase Common Stock immediately prior to or within a reasonable period of time
following the transaction described above and the participants' rights under the
ongoing Offering terminated.
13. AMENDMENT OF THE PLAN OR OFFERINGS.
(a) The Board at any time, and from time to time, may amend
the Plan or the terms of one or more Offerings. However, except as provided in
paragraph 12 relating to adjustments upon changes in stock, no amendment shall
be effective unless approved by the stockholders of the Company within twelve
(12) months before or after the adoption of the amendment, where the amendment
will:
(i) Increase the number of shares reserved for rights
under the Plan;
(ii) Modify the provisions as to eligibility for
participation in the Plan or an Offering (to the extent such modification
requires stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act, or any comparable
successor rule ("Rule 16b-3"); or
(iii) Modify the Plan or an Offering in any other way
if such modification requires stockholder approval in order for the Plan to
obtain employee stock purchase plan treatment under Section 423 of the Code or
to comply with the requirements of Rule 16b-3.
It is expressly contemplated that the Board may amend the Plan or an Offering in
any respect the Board deems necessary or advisable to provide eligible employees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to employee stock
purchase plans and/or to bring the Plan and/or rights granted under an Offering
into compliance therewith.
(b) The Board may, in its sole discretion, submit any
amendment to the Plan or an Offering for stockholder approval.
(c) Rights and obligations under any rights granted before
amendment of the Plan or Offering shall not be impaired by any amendment of the
Plan, except with the consent of the person to whom such rights were granted, or
except as necessary to comply with any laws or governmental regulations, or
except as necessary to ensure that the Plan and/or rights granted under an
Offering comply with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if applicable, from the
participant's account under the Plan in the event of such participant's death
subsequent to the end of an Offering but prior to delivery to the participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death during an Offering.
9
<PAGE> 10
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice in the form prescribed by the Company.
In the event of the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living (or if an entity, is otherwise
in existence) at the time of such participant's death, the Company shall deliver
such shares and/or cash to the executor or administrator of the estate of the
participant, or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its sole discretion, may deliver such
shares and/or cash to the spouse or to any one (1) or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may determine.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion, may suspend or terminate the
Plan at any time. The Plan shall automatically terminate if all the shares
subject to the Plan pursuant to subparagraph 3(a) are issued. No rights may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the
Plan is in effect shall not be impaired by suspension or termination of the
Plan, except as expressly provided in the Plan or with the consent of the person
to whom such rights were granted, or except as necessary to comply with any laws
or governmental regulation, or except as necessary to ensure that the Plan
and/or rights granted under an Offering comply with the requirements of Section
423 of the Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the same day on which the Company's
registration statement under the Securities Act with respect to the initial
public offering of shares of the Company's Common Stock becomes effective (the
"Effective Date"), but no rights granted under the Plan shall be exercised
unless and until the Plan had been approved by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted by the
Board or the Committee, which date may be prior to the Effective Date.
17. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation
of this Plan shall be governed by the law of the State of Colorado, without
regard to such state's conflict of laws rules.
10
<PAGE> 1
EXHIBIT 10.3
- --------------------------------------------------------------------------------
THE PETROLEUM PLACE, INC.
THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
March 2, 2000
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. GENERAL..................................................................1
1.1 Definitions.....................................................1
1.2 Amendment and Restatement of Prior Agreement....................3
2. RESTRICTIONS ON TRANSFER.................................................3
2.1 Restrictions on Transfer........................................3
2.2 "Market Stand Off" Agreement....................................4
2.3 Co-Sale Right...................................................5
2.4 Transfers Exempt from Co-Sale Right.............................6
2.5 Prohibited Transfers............................................7
2.6 Assignment of Co-Sale Rights....................................8
2.7 Termination of Co-Sale Rights...................................8
3. REGISTRATION.............................................................8
3.1 Demand Registration.............................................8
3.2 Piggyback Registrations........................................10
3.3 Form S-3 Registration..........................................10
3.4 Registration Expenses..........................................11
3.5 Obligations of the Company.....................................12
3.6 Termination of Registration Rights.............................12
3.7 Furnish Information............................................13
3.8 Delay of Registration..........................................13
3.9 Assignment of Registration Rights..............................13
3.10 Amendment or Waiver of Registration Rights.....................13
3.11 Indemnification................................................14
3.12 Rule 144 Reporting.............................................16
4. COVENANTS OF THE COMPANY................................................16
4.1 Basic Financial Information and Reporting......................16
4.2 Inspection Rights..............................................17
4.3 Confidentiality of Records.....................................17
4.4 Reservation of Common Stock....................................17
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
4.5 SEC Compliance................................................17
4.6 Proprietary Information and Inventions Agreement..............17
4.7 Directors' Liability and Indemnification......................18
4.8 Advisory Board................................................18
4.9 Indemnification and Advancement...............................18
4.10 Assignment of Company's Rights................................19
4.11 Option Vesting................................................19
4.12 Redemption....................................................19
4.13 Termination of Covenants......................................19
5. PREEMPTIVE RIGHTS......................................................19
5.1 Subsequent Offerings..........................................19
5.2 Exercise of Rights............................................19
5.3 Issuance of Equity Securities to Other Investors..............20
5.4 Termination of Preemptive Rights..............................20
5.5 Transfer of Preemptive Rights.................................20
5.6 Excluded Securities...........................................20
6. VOTING.................................................................21
6.1 Voting. ......................................................21
6.2 Election of Directors.........................................21
6.3 Board of Directors of Subsidiaries............................22
6.4 Termination of Voting Provisions..............................22
7. MISCELLANEOUS..........................................................22
7.1 Governing Law.................................................22
7.2 Successors and Assigns........................................22
7.3 Severability..................................................22
7.4 Amendment and Waiver..........................................22
7.5 Notices, Etc..................................................23
7.6 Attorneys' Fees...............................................23
7.7 Titles and Subtitles..........................................23
7.8 Complete Agreement............................................23
7.9 Counterparts..................................................23
7.10 Survival......................................................23
7.11 Delays or Omissions...........................................24
7.12 Entire Agreement..............................................24
</TABLE>
ii.
<PAGE> 4
THE PETROLEUM PLACE, INC.
THIRD AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
This THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the
"AGREEMENT") is entered into as of the 2nd day of March, 2000, by and among THE
PETROLEUM PLACE, INC. a Delaware corporation (the "COMPANY"), the holders of the
Company's Series A Preferred Stock (the "SERIES A STOCK") set forth on Exhibit A
hereto, the holders of the Company's Series B Preferred Stock (the "SERIES B
STOCK") set forth on Exhibit A hereto, the holders of the Company's Series C
Preferred Stock (the "SERIES C STOCK") set forth on Exhibit A hereto and for the
purpose of Section 2 and 6 below, Gary R. Vickers (the "FOUNDER"). The holders
of the Series A Stock, the holders of the Series B Stock and the holders of the
Series C Stock collectively shall be referred to hereinafter as the "INVESTORS"
and each individually as an "INVESTOR."
WHEREAS, the Company has granted registration rights, information
rights and certain other rights pursuant to that certain Second Amended and
Restated Investors' Rights Agreement, dated as of December 30, 1999 (the "PRIOR
AGREEMENT");
WHEREAS, the Company proposes to sell and issue shares of its Series C
Stock pursuant to the Series C Preferred Stock Purchase Agreement of even date
herewith (the "PURCHASE AGREEMENT"); and
WHEREAS, as a condition of entering into the Purchase Agreement, the
prospective purchasers have requested that the Company extend to them
registration rights, information rights and other rights as set forth below, and
the Company and the parties to the Prior Agreement are willing to amend the
rights given to them pursuant to the Prior Agreement by replacing such rights in
their entirety with the rights set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and the Purchase Agreement, the parties mutually agree as follows:
1. GENERAL
1.1 DEFINITIONS.
(a) "COMMON STOCK" shall mean the common stock, $.001 par
value per share, of the Company.
(b) "EQUITY SECURITIES" shall mean (i) any Common Stock or
Preferred Stock, (ii) any security convertible into any Common Stock or
Preferred Stock (including any option to purchase such a convertible security),
(iii) any security carrying any warrant or right to subscribe to or purchase any
Common Stock or Preferred Stock or (iv) any such warrant or right.
(c) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended.
<PAGE> 5
(d) "FORM S-3" means such form under the Securities Act as in
effect on the date hereof or any successor registration form under the
Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
(e) "HOLDER" means any Investor owning of record Registrable
Securities that have not been sold to the public or any assignee of record of
such Registrable Securities in accordance with Section 3.9 hereof.
(f) "INITIAL OFFERING" shall mean the Company's first firm
commitment underwritten public offering of its securities registered under the
Securities Act.
(g) "PREFERRED STOCK" shall mean the preferred stock, $.001
par value per share, of the Company.
(h) The terms "REGISTER," "REGISTERED," and "REGISTRATION"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and the declaration or ordering
of effectiveness of such registration statement or document.
(i) The term "REGISTRABLE SECURITIES" shall mean (a) Common
Stock of the Company issued or issuable upon conversion of the Shares, (b) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
the securities referred to in clause (a) above and (c) any Common Stock acquired
by the Investor subsequent to the date hereof. Notwithstanding the foregoing,
Registrable Securities shall not include any securities sold by a person to the
public either pursuant to a registration statement or Rule 144 or sold in a
private transaction in which the transferor's rights under Section 3 of this
Agreement with respect to such registration rights are not assigned.
(j) "REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the
number of shares determined by calculating the total number of shares of the
Company's Common Stock that are Registrable Securities and either (i) are then
issued and outstanding or (ii) are issuable pursuant to then exercisable or
convertible securities.
(k) "RULE 144" shall mean Rule 144 of the rules and
regulations promulgated under the Securities Act.
(l) "SEC" means the Securities and Exchange Commission.
(m) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
(n) "SENIOR HOLDER" means any Investor owning of record Senior
Registrable Securities that have not been sold to the public or any assignee of
record of such Senior Registrable Securities in accordance with Section 3.9
hereof.
(o) The term "SENIOR REGISTRABLE SECURITIES" shall mean (a)
Common Stock of the Company issued or issuable upon conversion of the Series A
Stock and Series C Stock and
2.
<PAGE> 6
(b) any Common Stock of the Company issued as (or issuable upon the conversion
or exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of, the securities referred to in clause (a) above. Notwithstanding
the foregoing, Senior Registrable Securities shall not include any securities
sold by a person to the public either pursuant to a registration statement or
Rule 144 or sold in a private transaction in which the transferor's rights under
Section 3 of this Agreement with respect to such registration rights are not
assigned.
(p) "SENIOR REGISTRABLE SECURITIES THEN OUTSTANDING" shall be
the number of shares determined by calculating the total number of shares of the
Company's Common Stock that are Senior Registrable Securities and either (i) are
then issued and outstanding or (ii) are issuable pursuant to then exercisable or
convertible securities.
(q) "SHARES" shall mean the Company's Series A Stock, Series B
Stock and Series C Stock held by the Investors listed on Exhibit A hereto and
their permitted assigns.
1.2 AMENDMENT AND RESTATEMENT OF PRIOR AGREEMENT. The undersigned
parties who constitute the requisite parties necessary to amend the Prior
Agreement hereby agree that, effective upon the date hereof, the Prior Agreement
is null and void and superseded by the rights and obligations set forth in this
Agreement, and any application of preemptive rights (including any notice
requirements) set forth in Section 5 of the Prior Agreement as to the issuance
of the Company's Series C Stock is waived by the undersigned Investors on behalf
of each and every Investor.
2. RESTRICTIONS ON TRANSFER
2.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of all or
any portion of the Shares or Registrable Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 2.1 unless and until:
(i) There is then in effect a registration statement
under the Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement; or
(ii) (A) Such Holder shall have complied with the
provision of this Section 2 regarding Co-Sale Rights, (B) such Holder shall have
notified the Company of the proposed disposition and shall have furnished the
Company with a detailed statement of the circumstances surrounding the proposed
disposition and (C) if reasonably requested by the Company, such Holder shall
have furnished the Company with an opinion of counsel, reasonably satisfactory
to the Company, that such disposition will not require registration of such
shares under the Securities Act. It is agreed that the Company will not require
opinions of counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(iii) Notwithstanding the provisions of paragraphs
(i) and (ii) above, no such registration statement or opinion of counsel shall
be necessary for a transfer by a Holder which is (A) a partnership to any or all
of its partners or former partners, (B) a corporation to its
3.
<PAGE> 7
stockholders in accordance with their interest in the corporation, (C) a limited
liability company to its members or former members in accordance with their
membership interests, (D) by a trust to its beneficiaries in accordance with
their interests in the trust or (E) to the Holder's family member or trust for
the benefit of an individual Holder; provided, that the transferee will be
subject to the terms of this Agreement to the same extent as if he were an
original Holder hereunder.
(b) Each certificate representing Shares or Registrable
Securities shall (unless otherwise permitted by the provisions of the Agreement)
be stamped or otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required under applicable state securities
laws or as provided elsewhere in this Agreement):
First Legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED.
Second Legend:
THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED EXCEPT IN COMPLIANCE
WITH THE THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT, DATED
MARCH 2, 2000, COPIES OF WHICH ARE ON FILE AT THE OFFICE OF THE ISSUER.
(c) The Company shall reissue promptly unlegended certificates
at the request of any holder thereof if the holder shall have obtained an
opinion of counsel (which counsel may be counsel to the Company) reasonably
acceptable to the Company to the effect that the securities proposed to be
disposed of may lawfully be so disposed of without registration, qualification
or legend or if the sale of Shares or Registrable Securities occurred pursuant
to Section 2.1(a)(ii) and the Company did not require an opinion of counsel,
also if the securities proposed to be disposed are saleable under Rule 144(k) of
the Securities Act the Company shall promptly remove the First Legend stated
above in Section 2.2(b) upon the request of a Holder.
(d) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with respect
to such securities shall be removed upon receipt by the Company of an order of
the appropriate blue sky authority authorizing such removal.
2.2 "MARKET STAND OFF" AGREEMENT. Each Holder hereby agrees that
during the one hundred eighty (180) day period following the effective date of a
registration statement of the
4.
<PAGE> 8
Company filed under the Securities Act pertaining to the Initial Offering, it
shall not, to the extent requested by the Company and the managing underwriter,
sell or otherwise transfer or dispose of (other than to donees who agree to be
similarly bound) any Common Stock of the Company held by it at any time during
such period except Common Stock included in such registration or Common Stock
purchased in the Initial Offering or otherwise in the public market; provided,
that all officers and directors of the Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such one hundred eighty (180) day
period.
2.3 CO-SALE RIGHT.
(a) If an Investor or the Founder proposes to sell or transfer
any of his Equity Securities (a "SELLING HOLDER") then the Selling Holder shall,
after compliance with any right of first refusal contained in the Company's
Bylaws, promptly give written notice (the "NOTICE") simultaneously to the
Company and to the Investors prior to the closing of such sale or transfer. The
Notice shall describe in reasonable detail the proposed sale or transfer
including, without limitation, the number of Equity Securities to be sold or
transferred, the percentage such number of shares constitutes with respect to
the aggregate number of shares of Common Stock (on an as-if-converted to Common
Stock basis) then held by such Selling Holder, the nature of such sale or
transfer, the consideration to be paid and the name and address of each
prospective purchaser or transferee. In the event that the sale or transfer is
being made pursuant to the provisions of Sections 2.4(a), the Notice shall state
under which provision the sale or transfer is being made.
(b) Each Investor shall have the right, exercisable upon
written notice to such Selling Holder within ten (10) business days after the
Notice, to participate in such sale of Equity Securities on the same terms and
conditions. Such notice shall indicate the number of shares of Equity Securities
(on an as-if-converted to Common Stock basis) such Investor wishes to sell under
its right to participate. Subject to the provisions of subsection (c) below, to
the extent one or more of the Investors exercises such right of participation in
accordance with the terms and conditions set forth below, the number of Equity
Securities that such Selling Holder may sell in the transaction shall be
correspondingly reduced.
(c) Each electing Investor (a "PARTICIPANT") may sell all or
any part of that number of shares equal to the product obtained by multiplying
(i) the aggregate number of Equity Securities covered by the Notice by (ii) a
fraction the numerator of which is the number of shares of stock owned by such
Participant at the time of the sale or transfer and the denominator of which is
the total number of shares of Common Stock owned by such Selling Holder and the
number of shares of stock (on an as-if-converted to Common Stock basis) owned by
such electing Participants at the time of the sale or transfer.
(d) Each Participant shall effect its participation in the
sale by promptly delivering to the Selling Holder for transfer to the
prospective purchaser one or more certificates, properly endorsed for transfer,
which represent:
5.
<PAGE> 9
(i) the type and number of shares of Common Stock
which such Participant elects to sell; or
(ii) that number of shares of Preferred Stock which
is at such time convertible into the number of shares of Common Stock which such
Participant elects to sell; provided, however, that if the prospective purchaser
objects to the delivery of Preferred Stock in lieu of Common Stock, such
Participant shall convert such Preferred Stock into Common Stock and deliver
Common Stock as provided in Section 2.3(d)(i) above. The Company agrees to make
any such conversion concurrent with the actual transfer of such shares to the
purchaser.
(e) The stock certificate or certificates that the Participant
delivers to such Selling Holder pursuant to Section 2.3(d) shall be transferred
to the prospective purchaser in consummation of the sale of the Common Stock
pursuant to the terms and conditions specified in the Notice, and such Selling
Holder shall concurrently therewith remit to such Participant that portion of
the sale proceeds to which such Participant is entitled by reason of its
participation in such sale. To the extent that any prospective purchaser or
purchasers prohibits such assignment or otherwise refuses to purchase shares or
other securities from a Participant exercising its rights of co-sale hereunder,
such Selling Holder shall not sell to such prospective purchaser or purchasers
any Equity Securities unless and until, simultaneously with such sale, such
Selling Holder shall purchase such shares or other securities from such
Participant on the same terms and conditions specified in the Notice. Any
prospective purchaser shall furnish the Investors with a written agreement to be
bound by and comply with all provisions of Section 2.3.
(f) In the event that the prospective purchaser(s) purchase(s)
fewer shares than set forth in the Notice, the shares sold by the Selling Holder
and the Participants shall be reduced pro rata calculated pursuant to Section
2.3(c), based on the number of shares they would have been entitled to sell had
the purchaser(s) purchased all the shares set forth in the Notice.
(g) The exercise or non-exercise of the rights of the
Participants hereunder to participate in one or more sales of Equity Securities
made by a Selling Holder shall not adversely affect their rights to participate
in subsequent sales of Equity Securities subject to Section 2(a).
(h) If none of the Investors elects to participate in the sale
of the Equity Securities subject to the Notice, such Selling Holder may, not
later than sixty (60) days following delivery to the Company of the Notice,
enter into an agreement providing for the closing of the transfer of the Equity
Securities covered by the Notice within thirty (30) days of such agreement on
terms and conditions not more favorable to the transferor than those described
in the Notice. Any proposed transfer on terms and conditions more favorable than
as described in the Notice by the Selling Holder, shall again be subject to the
co-sale rights of the Investors and shall require compliance by such Selling
Holder with the procedures described in this Section 2.3.
2.4 TRANSFERS EXEMPT FROM CO-SALE RIGHT.
(a) Notwithstanding the foregoing, the co-sale rights of the
Investors contained in Sections 2.3 and 2.5 shall not apply to any transfer or
transfers by a Selling Holder which, in the aggregate, over the term of this
Agreement, amount to no more than five percent (5%) of the Equity Securities
held by each Selling Holder as of the date hereof, or to a transfer
6.
<PAGE> 10
by a Selling Holder which is (A) a partnership to any or all of its partners or
former partners, (B) a corporation to its stockholders in accordance with their
interest in the corporation, (C) a limited liability company to its members or
former members in accordance with their membership interests, (D) by a trust to
its beneficiaries in accordance with their interests in the trust, (E) an
Investor to an affiliate of such Investor or (F) to the Selling Holder's family
member or trust for the benefit of an individual Selling Holder; provided, that
the transferee will be subject to the terms of this Agreement to the same extent
as if he were an original Holder hereunder.
(b) Notwithstanding the foregoing, the provisions of Section
2.3 shall not apply to the sale of any Equity Securities to the public pursuant
to a registration statement filed with, and declared effective by, the
Securities and Exchange Commission under the Securities Act.
(c) This Agreement is subject to, and shall in no manner limit
the right which the Company may have to repurchase securities from a Selling
Stockholder pursuant to any right of first refusal set forth in the Bylaws of
the Company.
2.5 PROHIBITED TRANSFERS.
(a) In the event that a Selling Holder should sell any Equity
Securities in contravention of the co-sale rights of each Investor under this
Agreement (a "PROHIBITED TRANSFER"), each Investor, in addition to such other
remedies as may be available at law, in equity or hereunder, shall have the put
option provided below, and the Selling Holders shall be bound by the applicable
provisions of such option.
(b) In the event of a Prohibited Transfer, each Investor shall
have the right to sell to such Selling Holder the type and number of shares of
Equity Securities equal to the number of shares each Investor would have been
entitled to transfer to the purchaser under Section 2.3(c) hereof had the
Prohibited Transfer been effected pursuant to and in compliance with the terms
hereof. Such sale shall be made on the following terms and conditions:
(i) The price per share at which the shares are to be
sold to such Selling Holder shall be equal to the price per share paid by the
purchaser to such Selling Holder in such Prohibited Transfer. Such Selling
Holder shall also reimburse each Investor for any and all fees and expenses,
including legal fees and expenses, incurred pursuant to the exercise or the
attempted exercise of the Investor's rights under Section 2.3 and this Section
2.5.
(ii) Within thirty (30) business days after the date
on which an Investor received notice of the Prohibited Transfer or otherwise
became aware of the Prohibited Transfer, such Investor shall, if exercising the
option created hereby, deliver to the Selling Holder the certificate or
certificates representing shares to be sold, each certificate to be properly
endorsed for transfer.
(iii) The Selling Holder shall, upon receipt of the
certificate or certificates for the shares to be sold by an Investor, pursuant
to this Section 2.5(b), pay the aggregate purchase price therefor and the amount
of reimbursable fees and expenses, as specified in Section 4(b)(i), in cash or
by other means acceptable to the Investor.
7.
<PAGE> 11
(iv) Notwithstanding the foregoing, any attempt by a
Selling Holder to transfer Equity Securities in violation of Section 2 hereof
shall be voidable at the option (which option must be exercised within fifteen
(15) business days after the date on which an Investor received notice of a
Prohibited Transfer) of fifty percent (50%) in interest of the Investors if the
Investors do not elect to exercise the put option set forth in this Section 2.5,
and the Company agrees it will not effect such a transfer nor will it treat any
alleged transferee as the holder of such shares without the written consent of a
majority in interest of the Investors.
2.6 ASSIGNMENT OF CO-SALE RIGHTS.
(a) The Investors may assign their co-sale rights described
herein to a subsidiary, parent, general partner, limited partner, retired
partner, member, former member or other affiliated entity.
2.7 TERMINATION OF CO-SALE RIGHTS.
(a) All Co-Sale Rights contained in Section 2 of this
Agreement shall expire and terminate as to each Investor on the effective date
of the registration statement pertaining to the Initial Offering.
3. REGISTRATION
3.1 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 3.1, if the
Company shall receive a written request from the Senior Holders of more than
thirty percent (30%) of the Senior Registrable Securities then outstanding on an
as-converted basis (the "INITIATING HOLDERS") that the Company file a
registration statement under the Securities Act covering the registration of
Senior Registrable Securities having an aggregate offering price to the public
of at least $15,000,000, then the Company shall, within twenty (20) days of the
receipt thereof, give written notice of such request to all Senior Holders, and
subject to the limitations of this Section 3.1, use its best efforts to effect,
as soon as practicable, the registration under the Securities Act of all Senior
Registrable Securities that the Senior Holders request to be registered.
(b) If the Initiating Holders intend to distribute the Senior
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 3.1 and the Company shall include such information in the written
notice referred to in Section 3.1(a). In such event, the right of any Senior
Holder to include its Senior Registrable Securities in such registration shall
be conditioned upon such Senior Holder's participation in such underwriting and
the inclusion of such Senior Holder's Registrable Securities in the underwriting
(unless otherwise mutually agreed by a majority in interest of the Initiating
Holders and such Senior Holder) to the extent provided herein. All Senior
Holders proposing to distribute their securities through such underwriting shall
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by a majority in interest of the
Initiating Holders (which underwriter or underwriters shall be reasonably
acceptable to the Company). Notwithstanding any other provision of this Section
3.1, if the underwriter advises the Company that marketing factors require a
limitation of the number of securities to be underwritten, the
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Company will include in such registration all Senior Registrable Securities
requested to be included therein prior to the inclusion of any other securities
(including, without limitations, any securities offered by the Company). If the
underwriter advises the Company that marketing factors require a decrease in the
number of Senior Registrable Securities requested to be included in such
registration, then the Company shall so advise all Senior Holders of Senior
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares that may be included in the underwriting shall be
allocated to the Senior Holders of such Senior Registrable Securities on a pro
rata basis based on the total number of Senior Registrable Securities held by
all such Senior Holders (including Initiating Holders). If due to limitations
imposed by the underwriters the Senior Holders are unable to include at least
50% of all Senior Registrable Securities requested to be included in a
registration under this Section 3.1, then upon vote or written consent of a
majority of the Senior Holders all Senior Registrable Securities shall be
withdrawn from such underwriting. Any Senior Registrable Securities excluded or
withdrawn from such underwriting shall be withdrawn from the registration.
(c) The Company shall not be required to effect a registration
pursuant to this Section 3.1:
(i) prior to the earlier of (i) the consummation by
the Company of its Initial Offering and (ii) March 2, 2004; or
(ii) after the Company has filed two (2) registration
statements pursuant to this Section 3.1, and either: (A) such registration has
been declared or ordered effective; or (B) the request for such registration has
been subsequently withdrawn by the Initiating Holders, unless the withdrawal is
based upon (1) material information concerning the Company of which the
Initiating Holders were not aware at the time of such request or (2) a majority
vote of the Initiating Holders pursuant to Section 3.1(b); or
(iii) during the period starting with the date of
filing of, and ending on the date ninety (90) days following the closing of the
Company's Initial Offering; provided, that the Company makes best efforts to
cause such registration statement to become effective as soon as practicable; or
(iv) if within thirty (30) days of receipt of a
written request from Initiating Holders pursuant to Section 3.1(a), the Company
gives notice to the Senior Holders of the Company's intention to make an Initial
Offering within ninety (90) days and it files a registration statement within
such 90 day period; or
(v) if the Company shall furnish to Senior Holders
requesting a registration statement pursuant to this Section 3.1, a certificate
signed by the Chairman of the Board stating that in the good faith judgment of
the Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such registration statement to be effected at
such time, in which event the Company shall have the right to defer such filing
for a period of not more than ninety (90) days after receipt of the request of
the Initiating Holders; provided, that the right to delay a request hereunder or
under Section 3.3(c) shall be exercised by the Company not more than once in any
twelve (12) month period.
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3.2 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders
of Registrable Securities in writing at least thirty (30) days prior to the
filing of any registration statement under the Securities Act for purposes of a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company and to offerings of securities of the Company initiated by any party
exercising its demand registration rights, but excluding registration statements
relating to employee benefit plans and corporate reorganizations or other
transactions under Rule 145 of the Securities Act) and will afford each such
Holder an opportunity to include in such registration statement all or part of
such Registrable Securities held by such Holder. Each Holder desiring to include
in any such registration statement all or any part of the Registrable Securities
held by it shall, within fifteen (15) days after receipt of the above-described
notice from the Company, so notify the Company in writing. Such notice shall
state the intended method of disposition of the Registrable Securities by such
Holder. If a Holder decides not to include all of its Registrable Securities in
any registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
If the registration statement under which the Company gives notice
under this Section 3.2 is for an underwritten offering, the Company shall so
advise the Holders of Registrable Securities. In such event, the right of any
such Holder to be included in a registration pursuant to this Section 3.2 shall
be conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this
Agreement, if the underwriter determines in good faith that marketing factors
require a limitation of the number of shares to be underwritten, the number of
shares that may be included in the underwriting shall be allocated as follows:
(i) first, to the Company, (ii) second, to the Holders on a pro rata basis based
on the total number of Registrable Securities held by the Holders and (iii)
third, to any stockholder of the Company (other than a Holder) on a pro rata
basis. No such reduction shall reduce the securities being offered by the
Company for its own account to be included in the registration and underwriting.
In no event will shares of any other selling stockholder be included in such
registration which would reduce the number of shares which may be included by
the Holders, without the written consent of Holders of a majority of the
Registrable Securities proposed to be sold in the offering. The Company shall
have the right to terminate or withdraw any registration initiated by it under
this Section 3.2 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration. The
registration expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 3.4 hereof.
3.3 FORM S-3 REGISTRATION. In case the Company shall receive a
written request from the Holders of more than thirty percent (30%) of the
Registrable Securities then outstanding on an as-converted basis that the
Company effect a registration on Form S-3 (or any successor to Form S-3) or any
similar short-form registration statement and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
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(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any Holder or Holders
joining in such request as are specified in a written request given within
fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 3.3:
(i) if Form S-3 (or any successor or similar form) is
not available for such offering by the Holders; or
(ii) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than $1,000,000; or
(iii) if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of Directors of the Company
stating that, in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than ninety (90) days after receipt of the
request of the Holder or Holders under this Section 3.3; provided, that the
right to delay a request hereunder of under Section 3.1(c)(v) shall be exercised
by the Company not more than once in any twelve (12) month period, or
if the Company has already effected two (2)
registrations in any twelve (12) month period on Form S-3 for the Holders
pursuant to this Section 3.3, or
(iv) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall file a Form
S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders.
3.4 REGISTRATION EXPENSES. The Company shall bear all fees and
expenses incurred in connection with any registration under this Agreement,
including without limitation all registration, filing, qualification, printers'
and accounting fees, fees and disbursements of counsel to the Company,
reasonable fees and disbursements of a single special counsel for the Holders,
not to exceed $20,000, except that each participating Holder shall bear its
proportionate share of all amounts payable to underwriters in connection with
such offering for discounts and commissions. The Company shall not, however, be
required to pay for expenses of any registration proceeding begun pursuant to
Sections 3.1 or 3.3, the request of which has been
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subsequently withdrawn by the Holders, unless the withdrawal is based upon
material information concerning the Company of which the Holders initiating the
registration request were not aware at the time of such request. If the Holders
are required to pay their registration expenses, such expenses shall be borne by
the holders of securities (including Registrable Securities) requesting such
registration in proportion to the number of shares for which registration was
requested.
3.5 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to one hundred twenty (120) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided, that, the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, in form and substance reasonably acceptable to the Holders with
the managing underwriter(s) of such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such an
agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing.
3.6 TERMINATION OF REGISTRATION RIGHTS. The right of any Holder to
request inclusion of Registrable Securities in any registration pursuant to this
Section 3 shall terminate when both (i) all Registrable Securities held by and
issuable to such Holder (and its affiliates,
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partners and former partners) may be sold under Rule 144 during any ninety (90)
day period and (ii) the Company has completed its Initial Offering and is
subject to the provisions of the Exchange Act.
3.7 FURNISH INFORMATION.
(a) The selling Holders shall furnish to the Company such
information regarding themselves, the Registrable Securities held by them and
the intended method of disposition of such securities as shall be legally
required to effect the registration of their Registrable Securities; provided
that the if the Holders do not provide such information, then the Company has no
obligation to proceed with any such registration.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 3.1 if, due to the operation of
subsection 3.1(b), the anticipated aggregate offering price of the Registrable
Securities to be included in the registration does not equal or exceed the
number of shares or the anticipated aggregate offering price required to
originally trigger the Company's obligation to initiate such registration as
specified in Section 3.1.
3.8 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 3.
3.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 3 may be
assigned by a Holder to a transferee or assignee of Registrable Securities which
(a) is a subsidiary, parent, general partner, limited partner, retired partner,
member, former member, affiliate or trust beneficiaries of a Holder, (b) is a
Holder's family member or trust or other entity for the benefit of an individual
Holder or a family member or (c) acquires at least fifty thousand (50,000)
shares of Registrable Securities (as adjusted for stock dividends, stock splits
and combinations); provided, however, (A) the transferor shall, within ten (10)
days after such transfer, furnish to the Company written notice of the name and
address of such transferee or assignee and the securities with respect to which
such registration rights are being assigned and (B) such transferee shall agree
to be subject to all restrictions set forth in this Agreement. For all purposes
under this Agreement, all shares held by the Investors or their transferees
shall be aggregated with those held by their respective affiliates.
3.10 AMENDMENT OR WAIVER OF REGISTRATION RIGHTS. Any provision of
this Section 3 may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders of
at least a majority of the Registrable Securities then outstanding; provided,
that any amendment that would alter or change the rights of the Series A Stock,
the Series B Stock or the Series C Stock as set forth herein and does not apply
equally to each of the Series A Stock, the Series B Stock and the Series C Stock
shall require the approval of the holders of a majority of each of the Series B
Stock and the Series C Stock voting separately as a class. Any amendment or
waiver effected in accordance with this Section 3.10 shall be binding upon each
Holder and the Company. By acceptance of any benefits under this Agreement,
Holders of Registrable Securities hereby agree to be bound by the provisions
hereunder.
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3.11 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 3.1, 3.2 or 3.3:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, members, officers, directors,
employees, agents and affiliates and legal counsel of each Holder, any
underwriter (as defined in the Securities Act) for such Holder and each person,
if any, who controls such Holder or underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any of the following statements, omissions or violations
(collectively a "VIOLATION") by the Company: (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will reimburse each such
Holder, partner, member, officer, employee, agent, affiliate, director, legal
counsel, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 3.11(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld, nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for inclusion in the
registration statement by such Holder, partner, member, officer, employee,
agent, affiliate, director, underwriter or controlling person of such Holder.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration, qualification or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers,
and legal counsel and each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other Holder selling
securities under such registration statement or any of such other Holder's
partners, directors, officers, legal counsel or any person who controls such
other Holder, against any losses, claims, damages or liabilities (joint or
several) to which the Company or any such director, officer, legal counsel,
controlling person, underwriter or other such Holder, or partner, director,
officer, legal counsel or controlling person of such other Holder may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation arises directly from and
in conformity with written information furnished by such Holder under an
instrument duly executed by such Holder and stated to be specifically for
inclusion in the registration statement; and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
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<PAGE> 18
officer, legal counsel, controlling person, underwriter or other Holder, or
partner, officer, director, legal counsel or controlling person of such other
Holder in connection with investigating or defending any such loss, claim,
damage, liability or action if it is judicially determined that there was such a
Violation; provided, however, that the indemnity agreement contained in this
Section 3.11(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld;
provided further, that in no event shall any indemnity under this Section
3.11(b) exceed the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 3.11 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 3.11, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or reasonably likely differing interests between such indemnified
party and any other party represented by such counsel in such proceeding.
(d) If the indemnification provided for in this Section 3.11
is held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, that, in no event shall any contribution by a
Holder hereunder exceed the net proceeds from the offering received by such
Holder.
(e) The obligations of the Company and Holders under this
Section 3.11 shall survive completion of any offering of Registrable Securities
in a registration statement. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.
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3.12 RULE 144 REPORTING. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public.
(b) File with the SEC, in a timely manner, all reports and
other documents required of the Company under the Exchange Act;
(c) So long as a Holder owns any Registrable Securities,
furnish to such Holder forthwith upon request: a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144 of
the Securities Act, and of the Exchange Act (at any time after it has become
subject to such reporting requirements); a copy of the most recent annual or
quarterly report of the Company; and such other reports and documents as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.
4. COVENANTS OF THE COMPANY
4.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(a) The Company will maintain true books and records of
account in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established and administered in
accordance with generally accepted accounting principles consistently applied,
and will set aside on its books all such proper accruals and reserves as shall
be required under generally accepted accounting principles consistently applied.
(b) So long as an Investor (together with its affiliates or
other investment companies with a common investment adviser) shall own not less
than one hundred thousand (100,000) shares of Registrable Securities (as
adjusted for stock splits, stock dividends, recapitalizations and the like) (a
"MAJOR INVESTOR"), as soon as practicable after the end of each fiscal year of
the Company, and in any event within one hundred twenty (120) days thereafter,
the Company will furnish each such Major Investor an audited consolidated
balance sheet of the Company, as at the end of such fiscal year, an audited
consolidated statement of income and an audited consolidated statement of cash
flows of the Company, for such year, all prepared in accordance with generally
accepted accounting principles and setting forth in each case, in comparative
form, the figures for the previous fiscal year, all in reasonable detail. After
completion of such financial statements, Investors (other than Major Investors)
will be provided a copy of such yearly audited financial statements upon
request.
(c) The Company will furnish each Major Investor, as soon as
practicable after the end of the first, second and third quarterly accounting
periods in each fiscal year of the Company, and in any event within forty-five
(45) days thereafter, an unaudited consolidated balance sheet of the Company as
of the end of each such quarterly period, an unaudited consolidated statement of
income and an unaudited consolidated statement of cash flows of the
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Company for such period and for the current fiscal year to date, prepared in
accordance with generally accepted accounting principles, with the exception
that no notes need be attached to such statements and year-end audit adjustments
may not have been made.
(d) The Company will furnish each Major Investor (i) at least
thirty (30) days prior to the beginning of each fiscal year an annual operating
plan for such fiscal year (and as soon as available, any subsequent revisions
thereto) and (ii) as soon as practicable after the end of each month, and in any
event within thirty (30) days thereafter, an unaudited consolidated balance
sheet of the Company as of the end of each such month and an unaudited
consolidated statement of income and an unaudited consolidated statement of cash
flows of the Company for such month and for the current fiscal year to date.
4.2 INSPECTION RIGHTS. Each Major Investor shall have the right to
visit and inspect any of the properties of the Company or any of its
subsidiaries, and to discuss the affairs, finances and accounts of the Company
or any of its subsidiaries with its officers, and to review such information as
is reasonably requested all at such reasonable times and as often as may be
reasonably requested; provided, however, that the Company shall not be obligated
under this Section 4.2 with respect to a competitor of the Company or with
respect to information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.
4.3 CONFIDENTIALITY OF RECORDS. Each Investor agrees to use, and
to use its best efforts to insure that its authorized representatives uses, the
same degree of care as such Investor uses to protect its own confidential
information to keep confidential any information furnished to it which the
Company identifies as being confidential or proprietary (so long as such
information is not in the public domain), except that such Investor may disclose
such proprietary or confidential information to any partner, subsidiary,
investment adviser, director, parent or affiliate of such Investor for the
purpose of evaluating its investment in the Company as long as such partner,
subsidiary, investment advisor, director, parent or affiliate is advised of the
confidentiality provisions of this Section 4.3.
4.4 RESERVATION OF COMMON STOCK. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the conversion
of the Preferred Stock, all Common Stock issuable from time to time upon such
conversion.
4.5 SEC COMPLIANCE. During any time that the Company is subject to
the reporting requirements of the Exchange Act, the Company shall timely file
all required reports pursuant to the Exchange Act. Additionally, the Company
shall make available to Investors the information contemplated by Rule 144A. At
such time that any stock held by an Investor is eligible for transfer pursuant
to Rule 144(k), the Company shall, upon the request of such Investor, remove any
restrictive legend from the applicable stock certificate at no cost to such
Investor.
4.6 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. The Company
shall require all employees and consultants to execute and deliver a Proprietary
Information and Inventions Agreement.
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4.7 DIRECTORS' LIABILITY AND INDEMNIFICATION. The Company's
Restated Certificate of Incorporation and Bylaws shall provide (a) for
elimination of the liability of director to the maximum extent permitted by law
and (b) for indemnification of directors for acts on behalf of the Company to
the maximum extent permitted by law.
4.8 ADVISORY BOARD. At the discretion of the Company's Board of
Directors, the Company may establish an advisory board and the members of such
advisory board may receive stock options or other stock equivalents of the
Company which options and stock equivalents need not vest in accordance with the
provisions of Section 4.11 below.
4.9 INDEMNIFICATION AND ADVANCEMENT.
(a) The Company hereby agrees to hold harmless and indemnify
the Investors, the Investors' direct and indirect subsidiaries, affiliated
entities and corporations, and each of their partners, members, officers,
directors, employees, stockholders, agents, affiliates and representatives
(collectively, referred to as the "INVESTOR INDEMNITEES") against any and all
expenses (including attorneys' fees), damages, judgments, fines, amounts paid in
settlements, or any other amounts that a Investor Indemnitee incurs as a result
of any claim or claims made against it in connection with any threatened,
pending or completed action, suit, arbitration, investigation or other
proceeding arising out of, or relating to the Investors' actions in connection
with any transaction undertaken in connection with this Agreement.
(b) The Company shall reimburse, promptly following request
therefor, all reasonable expenses incurred by a Investor Indemnitee in
connection with any threatened, pending or completed action, suit, arbitration,
investigation or other proceeding arising out of, or relating to, the Investors'
actions in connection with any transaction undertaken in connection with this
Agreement, provided, however, that no Investor Indemnitee shall be entitled to
reimbursement in connection with acts, conduct or omissions as to which there
has been a final adjudication that such Investor Indemnitee engaged in
intentional misconduct, or in knowing and culpable violation of the law.
(c) The Company's indemnity obligations set forth above are
subject to the Investors providing prompt written notice of a claim. The Company
shall control the defense of any such action and, at its discretion, may enter
into a stipulation of discontinuance or settlement thereof; provided that the
Company may not discontinue any action or settle any claim in a manner that does
not unconditionally release the Investors without the Investors' prior written
approval. The Investors shall, at the Company's expense and reasonable request,
cooperate with the Company in any such defense and shall make available to the
Company at the Company's expense all those persons, documents (excluding
attorney/client or attorney work product materials) reasonably required by the
Company in the defense of any such action. The Purchasers may, at their expense,
assist in such defense.
(d) The Company's liability to any Investor Indemnitee under
this Section 4.9 shall be limited to the amount received by the Company from
such Investor Indemnitee, and the Company's aggregate cumulative liability under
this Section 4.9 shall be limited to the amount received by the Company pursuant
to the transactions contemplated by this Agreement.
18.
<PAGE> 22
4.10 ASSIGNMENT OF COMPANY'S RIGHTS. In the event the Company
elects not to exercise, in whole or in part, its right of first refusal set
forth in Section 47 of the Company's Bylaws, the Company shall assign to the
Investors the portion of such right that is not exercised. The Company shall
notify each Investor of such assignment promptly, but in no event later than
three (3) days following the Company's receipt of a notice of proposed transfer
from a holder of Common Stock pursuant to Section 47 of the Company's Bylaws
(the "TRANSFER NOTICE"). Each Investor shall have the right and option to
purchase up to its pro rata share (as described in Section 5.1 below) of the
securities subject to such assigned right of first refusal. Any purchases made
by the Investor pursuant to the exercise of the foregoing right shall be made in
accordance with the terms set forth in Section 47 of the Company's Bylaws and in
the Transfer Notice.
4.11 OPTION VESTING. Unless otherwise approved by the Board of
Directors (including the representatives of the Investors), all stock options
and other stock equivalents issued after the date of this Agreement to
employees, directors, consultants and other service providers shall be subject
to vesting that is no less favorable to the Company than as follows: (i)
twenty-five percent (25%) of such stock shall vest at the end of the first
twelve (12) months following such person's services commencement date with the
Company and (ii) seventy-five percent (75%) of such stock shall vest monthly
thereafter over thirty-six (36) months.
4.12 REDEMPTION. In the event the Company shall redeem or
otherwise purchase any shares of the Series A Stock, then the other holders of
Preferred Stock will have the right to participate in any such redemption or
purchase on a pro rata basis, subject to the same terms and conditions as the
shares of Series A Stock.
4.13 TERMINATION OF COVENANTS. All covenants of the Company
contained in Section 4 of this Agreement shall expire and terminate as to each
Investor on the effective date of the registration statement pertaining to the
Initial Offering.
5. PREEMPTIVE RIGHTS
5.1 SUBSEQUENT OFFERINGS. Each Investor shall have a preemptive
right to purchase up to its pro rata share of all Equity Securities that the
Company may, from time to time, propose to sell and issue after the date of this
Agreement, other than the Equity Securities excluded by Section 5.6 hereof. Each
Investor's pro rata share is equal to the ratio of (A) the number of shares of
the Company's Common Stock (including all shares of Common Stock issued or
issuable upon conversion of the Shares) of which such Investor is deemed to be a
holder immediately prior to the issuance of such Equity Securities to (B) the
total number of shares of the Company's outstanding Common Stock on a
fully-diluted basis (including all shares of Common Stock issued or issuable
upon the exercise of outstanding options, warrants or convertible securities)
immediately prior to the issuance of the Equity Securities.
5.2 EXERCISE OF RIGHTS. If the Company proposes to issue any
Equity Securities, it shall give each Investor written notice of its intention,
describing the Equity Securities, the price and the terms and conditions upon
which the Company proposes to issue the same. Each Investor shall have fifteen
(15) business days from the giving of such notice to agree to purchase its pro
rata share of the Equity Securities for the price and upon the terms and
conditions specified in the notice by giving written notice to the Company and
stating therein the quantity of
19.
<PAGE> 23
Equity Securities to be purchased. Notwithstanding the foregoing, the Company
shall not be required to offer or sell such Equity Securities to any Investor
who would cause the Company to be in violation of applicable federal securities
laws by virtue of such offer or sale.
5.3 ISSUANCE OF EQUITY SECURITIES TO OTHER INVESTORS. If not all
of the Investors elect to purchase their pro rata share of the Equity
Securities, then the Company shall promptly notify in writing the Investors who
do so elect and shall offer such Investors the right to acquire such
unsubscribed shares. The Investors shall have five (5) business days after
receipt of such notice to notify the Company of its election to purchase all or
a portion thereof of the unsubscribed shares. If the Investors fail to exercise
in full their preemptive rights, the Company shall have ninety (90) days
thereafter to sell the Equity Securities in respect of which the Investor's
rights were not exercised, at a price and upon general terms and conditions
materially no more favorable to the purchasers thereof than specified in the
Company's notice to the Investors pursuant to Section 5.2 hereof. If the Company
has not sold such Equity Securities within ninety (90) days of the notice
provided pursuant to Section 5.2, the Company shall not thereafter issue or sell
any Equity Securities, without first offering such securities to the Investors
in the manner provided above.
5.4 TERMINATION OF PREEMPTIVE RIGHTS. The preemptive rights
established by this Section 5 shall not apply to, and shall terminate upon, the
effective date of the registration statement pertaining to an Initial Offering.
5.5 TRANSFER OF PREEMPTIVE RIGHTS. The preemptive rights of each
Investor under this Section 5 may be transferred to the same parties, subject to
the same restrictions, as any transfer of registration rights pursuant to
Section 3.9.
5.6 EXCLUDED SECURITIES. The preemptive rights established by this
Section 5 shall have no application to any of the following Equity Securities:
(a) shares of Common Stock (and/or options, warrants or other
Common Stock purchase rights issued pursuant to such options, warrants or other
rights) (as adjusted for stock splits, recapitalizations and the like) issued or
to be issued to employees, officers or directors of, or consultants or advisors
to the Company or any subsidiary, pursuant to stock purchase or stock option
plans or other arrangements that are approved by the Board of Directors
(including the Series C designee);
(b) stock issued pursuant to any rights or agreements
outstanding as of the date of this Agreement, options, warrants and convertible
promissory notes outstanding as of the date of this Agreement; and stock issued
pursuant to any such rights or agreements granted after the date of this
Agreement, provided, that the preemptive rights established by this Section 5
applied with respect to the initial sale or grant by the Company of such rights
or agreements;
(c) any Equity Securities issued for consideration other than
cash pursuant to a merger, consolidation, acquisition or similar business
combination, including up to 16,856 shares of Common Stock that may be issued in
the acquisition of StrataWeb;
(d) shares of Common Stock issued in connection with any stock
split, stock dividend or recapitalization by the Company;
20.
<PAGE> 24
(e) shares of Common Stock issued upon conversion of the
Shares;
(f) any Equity Securities that are issued by the Company
pursuant to a registration statement filed under the Securities Act;
(g) shares of capital stock, or other securities, or warrants,
rights, options or other convertible securities (as adjusted for stock splits,
stock dividends, recapitalizations and the like), issued pursuant to any
equipment leasing arrangement, commercial credit arrangement or debt financing
from a bank or similar financial institution;
(h) shares of Series C Stock issued pursuant to the Purchase
Agreement; and
(i) warrants to purchase up to 110,148 (as adjusted for stock
splits, stock dividends, recapitalizations and the like) shares of Series C
Stock at an exercise price of $59.12 (as adjusted for stock splits, stock
dividends, recapitalizations and the like) per share (and the shares of Common
Stock issuable upon the exercise thereof).
6. VOTING
6.1 VOTING. The Investors and the Founder agree to hold all shares
of capital stock of the Company subject to, and to vote such shares in
accordance with, the provisions of this Agreement.
6.2 ELECTION OF DIRECTORS. Each Holder hereby agrees to take all
actions necessary or appropriate to call, or cause the Company and the
appropriate officers and directors of the Company to call, an annual meeting
(and when circumstances so require, a special meeting) of the stockholders of
the Company and to vote all Shares owned or held of record by such Holder at any
such meeting and at any other annual or special meeting of stockholders in favor
of, or take all actions by written consent in lieu of any such meeting as may be
necessary or appropriate to cause, the election as members of the Board of
Directors of those individuals so designated in accordance with, and to
otherwise effect the intent of, this Section 6.2.
(a) At each election of directors in which the holders of
Common Stock, voting together as a separate class, are entitled to elect three
(3) directors of the Company pursuant to Article IV(E)(2)(e) of the Company's
Restated Certificate of Incorporation, the holders of Common Stock shall vote
their respective shares so as to elect three (3) designees of Gary R. Vickers.
(b) At each election of directors in which the Series A
Holders, voting together as a separate class on an as-converted basis, are
entitled to elect two (2) directors of the Company pursuant to Article
IV(E)(2)(e) of the Company's Restated Certificate of Incorporation, the holders
of Series A Stock shall vote their respective Shares so as to elect one (1)
person designated by Anschutz Family Investment Company LLC and one (1) person
designated by Sequel Limited Partnership II.
(c) At each election of directors in which the Series C
Holders, voting together as a separate class on an as-converted basis, are
entitled to elect one (1) directors of the Company pursuant to Article
IV(E)(2)(e) of the Company's Restated Certificate of
21.
<PAGE> 25
Incorporation, the holders of Series C Stock shall vote their respective Shares
so as to elect one (1) person designated by Catterton Partners IV L.P., which
person shall initially be Marc Cummins.
(d) At each election of directors in which the holders of
Common Stock and Preferred Stock, voting together as a separate class on an
as-converted basis, are entitled to elect directors, the holders of Common Stock
and Preferred Stock shall vote their respective shares so as to elect persons
who are mutually acceptable to all the existing members of the Board of
Directors; provided, that if such existing members of the Board of Directors are
unable to agree on the designees, then the holders of Common Stock and Preferred
Stock shall vote their respective shares so as to elect at least one (1) person
designated by Gary R. Vickers.
6.3 BOARD OF DIRECTORS OF SUBSIDIARIES. Upon the request of the
Series C Designee, the Company shall cause the Series C Designee to be appointed
to the Board of Directors of each or any of the Company's subsidiaries.
6.4 TERMINATION OF VOTING PROVISIONS. The provisions of this
Section 6 shall expire and terminate as to each Series A Holder and Series B
Holder and Founder on the effective date of the registration statement
pertaining to the Initial Offering and as to each Series C Holder on the
effective date of the registration statement pertaining to the Company's
Qualified Public Offering (as defined in the Company's Restated Certificate of
Incorporation).
7. MISCELLANEOUS
7.1 GOVERNING LAW. This Agreement shall be construed and enforced
in accordance with the laws of the State of Colorado without regard to its
conflict-of-laws rules; provided, however, that all matters of corporate law
shall be governed by Delaware General Corporation Law.
7.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.
7.3 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
7.4 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this Agreement may
be amended or modified only upon the written consent of the Company and the
holders of a majority of the Registrable Securities; provided, that no such
amendment or modification which applies
22.
<PAGE> 26
specifically to an Investor's or Founder's right to designate a member of the
Board of Directors as set forth in Section 6 shall be binding on such Investor
or Founder, as applicable, without a written instrument signed by such Investor
or Founder, as applicable; and further provided, that any amendment that would
alter or change the rights of the Series A Stock, the Series B Stock or the
Series C Stock as set forth herein and does not apply pari passu to each of the
Series A Stock, the Series B Stock and the Series C Stock shall require the
approval of the holders of a majority of each of the Series B Stock and the
Series C Stock voting separately as a class.
(b) Except as otherwise expressly provided, the obligations of
the Company and the rights of the Holders under this Agreement may be waived
only with the written consent of a majority of the Registrable Securities;
provided, that no such waiver which applies specifically to an Investor's or
Founder's right to designate a member of the Board of Directors as set forth in
Section 6 shall be binding on such Investor or Founder, as applicable, without a
written instrument signed by such Investor or Founder, as applicable.
7.5 NOTICES, ETC. All notices required or permitted hereunder
shall be deemed effectively given: (i) upon personal delivery to the party to be
notified, (ii) when sent by confirmed telex or facsimile if sent during normal
business hours of the recipient; if not, then on the next business day, (iii)
five (5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (iv) one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address set forth on the signature pages hereto or Exhibit
A hereto or at such other address as such party may designate by ten (10) days
advance written notice to the other parties hereto.
7.6 ATTORNEYS' FEES. If legal action is brought to enforce or
interpret this Agreement, the prevailing party shall be entitled to recover from
the losing party all fees, costs and expenses of enforcing any rights of such
prevailing party under or with respect to this Agreement, including without
limitation, such reasonable fees and expenses of attorneys and accountants,
which shall include, without limitation, all fees, costs and expenses of
appeals.
7.7 TITLES AND SUBTITLES. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
7.8 COMPLETE AGREEMENT. This Agreement constitutes the entire
agreement and supersedes all other prior and contemporaneous agreements and
undertakings, both written and oral, between the parties hereto with regard to
the subject matter hereof.
7.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.10 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the
23.
<PAGE> 27
transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such certificate or
instrument.
7.11 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under the Agreement or
any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not
alternative.
7.12 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Purchase Agreement and the other documents delivered pursuant
thereto constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and no party shall be liable or bound
to any other in any manner by any representations, warranties, covenants and
agreements except as specifically set forth herein and therein.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
24.
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
COMPANY: INVESTORS:
/s/
THE PETROLEUM PLACE, INC. -----------------------------------
7900 East Union Avenue, Suite 1100
Denver, CO 80237
By: /s/ Gary R. Vickers By:
--------------------------------------- --------------------------------
Gary R. Vickers
President and Chief Executive Officer Name:
------------------------------
Title:
-----------------------------
THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 29
EXHIBIT A
THE PETROLEUM PLACE, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<TABLE>
<S> <C>
NAME AND ADDRESS Energetic Investors LLC
- ---------------- Feldman Sherb Ehrlich & Co., P.C.
805 Third Avenue
SERIES A PREFERRED HOLDERS New York, NY 10022-7513
Vickers Energy Services, LLC Attn: Jay R. Horowitz
7900 East Union Avenue, Suite 1100
Denver, CO 80237 SERIES B PREFERRED HOLDERS
Kenneth R. Olive, Jr.
KERS & Co. 2410 Pleasant Creek Dr.
Polo Club Office Park Kingwood, Texas 22345
1223 N. Rock Road
Building H, Suite 100 Allan C. King
Wichita, KS 67206 800 Bering Drive, Suite 305
Attention: Thomas Triplett Houston, Texas 77057
Vickers O&G.com, L.P. Allan G. King
8480 E. Orchard Road 705 Camelot Lane
Suite 6100 Houston, Texas 77024
Greenwood Village, CO 80111
Attention: Jack A. Vickers Duane H. King
9821 Katy Freeway, Suite 800
Anschutz Family Investment Company LLC Houston, Texas 77024
555 17th Street
Suite 2400 Gwendolyn King Kinney
Denver, CO 80202 800 Bering Drive, Suite 305
Attention: Scott Carpenter Houston, Texas 77057
A.C.E. Investment Partnership David R. King
555 17th Street 1802 Forest Trail
Suite 2400 Austin, Texas 78703
Denver, CO 80202
Attention: Scott Carpenter Robert E. Zimmerman, Jr.
1616 S. Voss, Suite 830
Sequel Limited Partnership II Houston, Texas 77057
4430 Arapahoe Avenue
Suite 220 R.E. Zimmerman
Boulder, CO 80303 5005 Woodway, Suite 300
Attention: Tom Washing Houston, Texas 77056
Greenwood Gulch Ventures, LLC Michael W. O'Shaughnessy
7367 Shoreham Drive P.O. Box 29
Castle Rock, CO 80104 Denver, Colorado 80201
Attn: Donald D. Rosenkrans, Jr.
</TABLE>
<PAGE> 30
<TABLE>
<S> <C>
SERIES C PREFERRED HOLDERS Damac Investors (XVI) Inc.
Craiguir Chambers, P.O. Box 71
Anschutz Family Investment Company LLC Road Town, Tortola
555 17th Street British Virginia Island
Suite 2400
Denver, CO 80202 W. Greg Osborn
Attention: Scott Carpenter 3201 Ash Street
Palo Alto, CA 94306
A.C.E. Investment Partnership Tel: (650) 493-5310
555 17th Street
Suite 2400 Howard E. Dallmar
Denver, CO 80202 1390 Garden Lane
Attention: Scott Carpenter Menlo Park, CA 94025
Tel: (650) 323-8317
Channel P2, LLC
Nine Greenwich Office Park J. Walter Hoskins
Greenwich, CT 06830 6184 Franciscan Way
San Jose, CA 9512
Channel P2 Group, LLC Tel: (408) 997-1880
Nine Greenwich Office Park
Greenwich, CT 06830 Founders III, LLC
711 Fifth Avenue, 14th Floor
PCG Ventures LLC New York, NY 10022
45 West 67th Street, 31st Floor
New York, NY 10023 The Goldman Sachs Group, Inc.
85 Broad Street, 19th Floor
Cornerstone Ventures, LP New York, NY 10004
11001 West 120th Avenue, Suite 310
Broomfield, CO 80021 Seligman Communications and Information
Fund, Inc.
BV Ventures, Ltd 100 Park Avenue, Seventh Floor
11001 West 120th Avenue, Suite 310 New York, NY 10017
Broomfield, CO 80021
Seligman New Technologies Fund, Inc.
Damac Technology Partners, LP 100 Park Avenue, Seventh Floor
P.O. Box 309 New York, NY 10017
Ugland House
South Church Street, George Town Seligman Investment Opportunities (Master)
Grand Cayman, Cayman Island Fund- NTV Portfolio
100 Park Avenue, Seventh Floor
Damac Investors (XV) Inc. New York, NY 10017
Craiguir Chambers, P.O. Box 71
Road Town, Tortola NIG-Petro, Ltd.
British Virginia Island 299 Park Avenue
New York, NY 10171-0023
</TABLE>
A-2
<PAGE> 31
<TABLE>
<S> <C>
NeoCarta Ventures, L.P. Wasserstein Adelson Ventures
Two Embarcadero Center, Suite 460 31 West 52nd Street, 27th Floor
San Francisco, CA 94111 New York, NY 10019
NeoCarta Scout Fund, L.L.C. Ronald Emerick
Two Embarcadero Center, Suite 460 Two Embarcadero Center, Suite 2320
San Francisco, CA 94111 San Francisco, CA 94111
Partech U.S. Partners IV LLC Richard P. Kiphart
50 California Street, Suite 3200 Two Embarcadero Center, Suite 2320
San Francisco, CA 94111 San Francisco, CA 94111
Axa U.S. Growth Fund LLC WB Internet Fund 2000, LLC
50 California Street, Suite 3200 Two Embarcadero Center, Suite 2320
San Francisco, CA 94111 San Francisco, CA 94111
Parallel Capital I LLC WB Internet Fund 2000 QP, LLC
50 California Street, Suite 3200 Two Embarcadero Center, Suite 2320
San Francisco, CA 94111 San Francisco, CA 94111
Parallel Capital II LLC Winfield Capital Corp.
50 California Street, Suite 3200 237 Mamaroneck Avenue
San Francisco, CA 94111 White Plains, NY 10605
Double Black Diamond II LLC Byron Trott
50 California Street, Suite 3200 [Address]
San Francisco, CA 94111
45th Parallel LLC Eric P. Grubman
50 California Street, Suite 3200 120 Hobart Avenue
San Francisco, CA 94111 Summit, NJ 07901
Sequel Limited Partnership II David M. Leuschen
4430 Arapahoe Avenue 146 Central Park West
Suite 220 New York, NY 10023
Boulder, CO 80303
Attention: Tom Washing Pierre Lapeyre
160 Park Avenue, #34
Sequel Entrepreneurs' Fund II LP New York, NY 10128
4430 Arapahoe Avenue
Suite 220 Doug McKensie
Boulder, CO 80303 152 Indian Head Road
Attention: Tom Washing Riverside, CT 06878
</TABLE>
A-3
<PAGE> 1
EXHIBIT 10.4
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of ____, 2000 by
and between THE PETROLEUM PLACE, INC., a Delaware corporation (the
"Corporation"), and _____ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in
his/her capacity as [Officer/Director] of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as
[Officer/Director] of the Corporation, the Corporation has determined and agreed
to enter into this Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
[Officer/Director] after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of
the Corporation or under separate contract, if any such contract exists, as
[Officer/Director] of the Corporation or as a director, officer or other
fiduciary of an affiliate of the Corporation (including any employee benefit
plan of the Corporation) faithfully and to the best of his ability so long as he
is duly elected and qualified in accordance with the provisions of the Bylaws or
other applicable charter documents of the Corporation or such affiliate;
provided, however, that Agent may at any time and for any reason resign from
such position (subject to any contractual obligation that Agent may have assumed
apart from this Agreement) and that the Corporation or any affiliate shall have
no obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold
harmless and indemnify Agent to the fullest extent authorized or permitted by
the provisions of the Bylaws and the Code, as the same may be amended from time
to time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).
<PAGE> 2
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of
the indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Agent becomes legally obligated to pay because of any claim
or claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Agent by the Corporation under the non-exclusivity provisions of the Code and
Section 43 of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
(b) on account of Agent's conduct that was knowingly
fraudulent or deliberately dishonest or that constituted willful misconduct;
(c) on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Corporation or resulted in any personal profit or
advantage to which Agent was not legally entitled;
(d) for which payment is actually made to Agent under a valid
and collectible insurance policy or under a valid and enforceable indemnity
clause, bylaw or agreement, except in respect of any excess beyond payment under
such insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect,
both the Corporation and Agent have been advised that the Securities and
Exchange Commission believes that indemnification for liabilities arising under
the federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof)
initiated by Agent, or any proceeding by Agent against the Corporation or its
directors, officers, employees or other agents, unless (i) such indemnification
is expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the Corporation, (iii) such indemnification is
provided by the Corporation, in its sole discretion, pursuant to the powers
vested in the Corporation under the Code, or (iv) the proceeding is initiated
pursuant to Section 9 hereof.
2.
<PAGE> 3
5. CONTINUATION OF INDEMNITY. All agreements and obligations of
the Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and amounts
paid in settlement and any other amounts that Agent becomes legally obligated to
pay in connection with any action, suit or proceeding referred to in Section 3
hereof even if not entitled hereunder to indemnification for the total amount
thereof, and the Corporation shall indemnify Agent for the portion thereof to
which Agent is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30)
days after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at
its own expense;
(b) except as otherwise provided below, the Corporation may,
at its option and jointly with any other indemnifying party similarly notified
and electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded that there may be a conflict of interest
between the Corporation and Agent in the conduct of the defense of such action
or (iii) the Corporation shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of Agent's
separate counsel shall be at the expense of the Corporation. The Corporation
shall not be entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of the Corporation or as to which Agent shall have made
the conclusion provided for in clause (ii) above; and
3.
<PAGE> 4
(c) the Corporation shall not be liable to indemnify Agent
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted
by this Agreement to Agent shall be enforceable by or on behalf of Agent in any
court of competent jurisdiction if (i) the claim for indemnification or advances
is denied, in whole or in part, or (ii) no disposition of such claim is made
within ninety (90) days of request therefor. Agent, in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof that Agent is not entitled to
indemnification because of the limitations set forth in Section 4 hereof.
Neither the failure of the Corporation (including its Board of Directors or its
stockholders) to have made a determination prior to the commencement of such
enforcement action that indemnification of Agent is proper in the circumstances,
nor an actual determination by the Corporation (including its Board of Directors
or its stockholders) that such indemnification is improper shall be a defense to
the action or create a presumption that Agent is not entitled to indemnification
under this Agreement or otherwise. In any such enforcement action, the burden of
proof shall be on the Corporation to prove that Agent is not entitled to such
indemnification or advance, as the case may be.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by
this Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall
continue after Agent has ceased to be a director, officer, employee or other
agent of the Corporation or to serve at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise and shall inure
to the benefit of Agent's heirs, executors and administrators.
4.
<PAGE> 5
(b) The Corporation shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) upon delivery if delivered by hand to the party to whom such
communication was directed or (ii) upon the third business day after the date on
which such communication was mailed if mailed by certified or registered mail
with postage prepaid:
(a) If to Agent, at the address indicated on the signature
page hereof.
(b) If to the Corporation, to
The Petroleum Place, Inc.
5299 DTC Parkway, Suite 820
Englewood, CO 80111
or to such other address as may have been furnished to Agent by the Corporation.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
5.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
THE PETROLEUM PLACE, INC.
By:
-----------------------------------------
Gary R. Vickers
Title: President and Chief Executive Officer
AGENT
--------------------------------------------
Address:
--------------------------------------------
--------------------------------------------
<PAGE> 1
EXHIBIT 10.5
ENERGY AUCTION EXCHANGE, INC.
SERIES A PREFERRED STOCK
PURCHASE AGREEMENT
FEBRUARY 28, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
1. AGREEMENT TO SELL AND PURCHASE.............................................................1
1.1 Authorization of Shares...........................................................1
1.2 Sale and Purchase.................................................................1
2. CLOSING, DELIVERY AND PAYMENT..............................................................1
2.1 Closing...........................................................................1
2.2 Delivery..........................................................................2
2.3 Subsequent Sale of Shares.........................................................2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................................2
3.1 Organization, Good Standing and Qualification.....................................2
3.2 Capitalization; Voting Rights.....................................................2
3.3 Authorization; Binding Obligations................................................3
3.4 Liabilities.......................................................................3
3.5 Title to Properties and Assets; Liens, Etc........................................3
3.6 Intellectual Property.............................................................3
3.7 Compliance with Other Instruments.................................................3
3.8 Litigation........................................................................3
3.9 Proprietary Information and Inventions Agreement..................................4
3.10 Offering Valid....................................................................4
3.11 Compliance with Laws..............................................................4
3.12 Material Contracts................................................................4
3.13 Disclosure........................................................................4
3.14 Permits...........................................................................4
3.15 Balance Sheet.....................................................................4
3.16 Changes...........................................................................5
3.17 Obligation of Chief Executive Officer.............................................5
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS...........................................6
4.1 Requisite Power and Authority.....................................................6
4.2 Investment Representations........................................................6
(a) Purchaser Bears Economic Risk............................................6
(b) Acquisition for Own Account..............................................6
(c) Purchaser Can Protect Its Interest.......................................6
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
(d) Accredited Investor....................................................................7
(e) Rule 144...............................................................................7
(f) Residence..............................................................................7
4.3 Transfer Restrictions...........................................................................7
5. CONDITIONS TO CLOSING....................................................................................7
5.1 Conditions to Purchasers' Obligations at Each Closing...........................................7
(a) Representations and Warranties True; Performance of Obligations........................7
(b) Legal Investment.......................................................................7
(c) Consents, Permits, and Waivers.........................................................7
(d) Filing of Restated Certificate.........................................................8
(e) Investors' Rights Agreement............................................................8
(f) Board of Directors.....................................................................8
(g) Proceedings and Documents..............................................................8
(h) Execution of Clearinghouse Agreement...................................................8
5.2 Conditions to Obligations of the Company........................................................8
(a) Representations and Warranties True....................................................8
(b) Performance of Obligations.............................................................8
(c) Filing of Restated Certificate.........................................................8
(d) Investors' Rights Agreement............................................................8
(e) Consents, Permits, and Waivers.........................................................8
6. COVENANT OF THE COMPANY..................................................................................9
6.1 Grant of More Favorable Terms...................................................................9
7. MISCELLANEOUS............................................................................................9
7.1 Governing Law...................................................................................9
7.2 Survival........................................................................................9
7.3 Successors and Assigns..........................................................................9
7.4 Entire Agreement................................................................................9
7.5 Severability...................................................................................10
7.6 Amendment and Waiver...........................................................................10
7.7 Notices........................................................................................10
7.8 Expenses.......................................................................................10
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
7.9 Attorneys' Fees................................................................................10
7.10 Titles and Subtitles...........................................................................10
7.11 Counterparts...................................................................................10
7.12 Broker's Fees..................................................................................10
7.13 Exculpation Among Purchasers...................................................................11
</TABLE>
iii.
<PAGE> 5
INDEX OF EXHIBITS
<TABLE>
<S> <C>
Schedule of Purchasers Exhibit A
Restated Certificate of Incorporation Exhibit B
Investors' Rights Agreement Exhibit C
</TABLE>
<PAGE> 6
ENERGY AUCTION EXCHANGE, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (the "AGREEMENT") is
entered into as of this 28th day of February, 1999, by and among ENERGY AUCTION
EXCHANGE, INC., a Delaware corporation (the "COMPANY"), and each of those
persons and entities, severally and not jointly, whose names are set forth on
the Schedule of Purchasers attached hereto as Exhibit A (which persons and
entities are hereinafter collectively referred to as "PURCHASERS" and each
individually as a "PURCHASER").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of an
aggregate of two million (2,000,000) shares of its Series A Preferred Stock (the
"SERIES A STOCK");
WHEREAS, Vickers Energy Services, LLC desires to purchase an aggregate
of six hundred sixty-six thousand six hundred sixty-six (666,666) shares of
Series A Stock, $.001 par value (the "SHARES") on the terms and conditions set
forth herein;
WHEREAS, the Company desires to issue and sell the Shares to Purchasers
on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE
1.1 AUTHORIZATION OF SHARES. On or prior to the First Closing (as
defined in Section 2 below), the Company shall have authorized (i) the sale and
issuance to Purchasers of the Series A Stock and (ii) the issuance of such
shares of Common Stock to be issued upon conversion of the Series A Stock (the
"CONVERSION SHARES"). The Series A Stock and the Conversion Shares shall have
the rights, preferences, privileges and restrictions set forth in the Restated
Certificate of Incorporation of the Company, in the form attached hereto as
Exhibit B (the "RESTATED CERTIFICATE").
1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof, at
the First Closing (as hereinafter defined), the Company hereby agrees to issue
and sell to each Purchaser, severally and not jointly, and each Purchaser agrees
to purchase from the Company, severally and not jointly, the number of Shares
set forth opposite such Purchaser's name on Exhibit A at a purchase price of
Seven Dollars and Fifty Cents ($7.50) per share.
2. CLOSING, DELIVERY AND PAYMENT
2.1 CLOSING. The initial closing of the sale and purchase of the Shares
under this Agreement (the "FIRST CLOSING") shall take place on the date hereof,
at the offices of Cooley Godward LLP, 2595 Canyon Boulevard, Suite 250, Boulder,
Colorado 80302, or at such other time or place as the Company and Purchasers may
mutually agree. The closing of the sale and
1.
<PAGE> 7
purchase of the shares of Series A Stock under Section 2.3 below shall take
place at such time(s) and place(s) as the Company and Purchasers participating
therein shall mutually agree (each, a "SUBSEQUENT CLOSING") (the First Closing
and any Subsequent Closing are collectively referred to herein as a "CLOSING"
and each such date is referred to as a "CLOSING DATE").
2.2 DELIVERY. At each Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchasers certificates representing the
number of Shares to be purchased at each Closing by each Purchaser, against
payment of the purchase price therefor by check or wire transfer made payable to
the order of the Company or conversion of outstanding promissory notes.
2.3 SUBSEQUENT SALE OF SHARES. The Company may sell up to the balance
of the authorized shares of Series A Stock not sold at the First Closing. Except
as otherwise set forth herein, all such sales shall be made on the terms and
conditions set forth in this Agreement. Any shares of Series A Stock sold
pursuant to this Section 2.3 shall be deemed to be "Shares" for all purposes
under this Agreement and any purchasers thereof shall be deemed to be
"Purchasers" for all purposes under this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the Schedule of Exceptions delivered to the
Purchasers, the Company hereby represents and warrants to each Purchaser as
follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement and the Investors' Rights Agreement, in the form attached hereto
as Exhibit C (the "INVESTORS' RIGHTS AGREEMENT"), to issue and sell the Shares
and the Conversion Shares and to carry out the provisions of this Agreement, the
Investors' Rights Agreement, and the Restated Certificate and to carry on its
business as presently conducted and as presently proposed to be conducted.
3.2 CAPITALIZATION; VOTING RIGHTS. The authorized capital stock of the
Company, immediately prior to the Closing, will consist of (a) five million
(5,000,000) shares of Common Stock, five hundred thousand (500,000) shares of
which are issued and outstanding, and up to twenty percent (20%) of the
outstanding shares of capital stock of the Company which are reserved or will be
reserved in the future for issuance by the Company or a subsidiary thereof to
key employees, consultants and others affiliated with the Company or a
subsidiary thereof pursuant to stock grant, stock purchase and/or option plans
or any other stock incentive program, arrangement or agreement approved by the
Company's Board of Directors and (b) two million (2,000,000) shares of Preferred
Stock, all of which are designated Series A Preferred Stock, none of which are
issued and outstanding. All issued and outstanding shares of the Company's
Common Stock (i) have been duly authorized and validly issued, (ii) are fully
paid and nonassessable and (iii) were issued in compliance with all applicable
state and federal laws concerning the issuance of securities. The rights,
preferences, privileges and restrictions of the Shares are as stated in the
Restated Certificate. The Conversion Shares have been duly and validly reserved
for issuance. Except as may be granted pursuant to this Agreement, there are no
2.
<PAGE> 8
outstanding options, warrants, rights (including conversion or preemptive rights
and rights of first refusal), proxy or stockholder agreements, or agreements of
any kind for the purchase or acquisition from the Company of any of its
securities. When issued in compliance with the provisions of this Agreement and
the Restated Certificate, the Shares and the Conversion Shares will be validly
issued, fully paid and nonassessable and will be free of any liens or
encumbrances.
3.3 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for the
authorization of this Agreement and the Investors' Rights Agreement, the
performance of all obligations of the Company hereunder and thereunder at the
Closing and the authorization, sale, issuance and delivery of the Shares
pursuant hereto and the Conversion Shares pursuant to the Restated Certificate
has been taken or will be taken prior to the Closing. The Agreement and the
Investors' Rights Agreement, when executed and delivered, will be valid and
binding obligations of the Company enforceable in accordance with their terms.
3.4 LIABILITIES. The Company has no liabilities and, to its knowledge,
knows of no contingent liabilities not otherwise disclosed to the Purchasers,
except current liabilities incurred in the ordinary course which have not been,
either in any individual case or in the aggregate, materially adverse to the
financial condition or operating results of the Company.
3.5 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good
and marketable title to its properties and assets, and good title to its
leasehold interests, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge.
3.6 INTELLECTUAL PROPERTY. The Company owns or possesses sufficient
legal rights to all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information and other proprietary rights and processes necessary
for its business as now conducted and as proposed to be conducted. The Company
has not received any communications alleging that it has violated or, by
conducting its business as proposed would violate, any proprietary rights of any
other person, nor is the Company aware of any basis for the foregoing.
3.7 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery, and
performance of and compliance with this Agreement and the Investors' Rights
Agreement, and the issuance and sale of the Shares pursuant hereto and of the
Conversion Shares pursuant to the Restated Certificate, will not, with or
without the passage of time or giving of notice, result in any such material
violation, or be in conflict with or constitute a default under any such term,
or result in the creation of any mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of the Company or the suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license,
authorization or approval applicable to the Company, its business or operations
or any of its assets or properties.
3.8 LITIGATION. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the Company
which might result, either individually or in the aggregate, in any material
adverse change in the assets, condition, affairs or prospects of the Company.
3.
<PAGE> 9
3.9 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. Each current
employee, officer, consultant and contractor of the Company has executed a form
of Proprietary Information and Inventions Agreement.
3.10 OFFERING VALID. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Section 4.2 hereof, the offer, sale
and issuance of the Shares and the Conversion Shares will be exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws.
3.11 COMPLIANCE WITH LAWS. The Company's business has been conducted in
compliance with all applicable laws and regulations of governmental authorities,
except for such violations that have been cured or that, individually or in the
aggregate, may not reasonably be expected to have a material adverse effect on
the business, operations, financial condition or prospects of the Company.
3.12 MATERIAL CONTRACTS. Except for transactions contemplated by this
Agreement, the Company is not a party to (and is not otherwise bound by) any of
the following: (i) any employment or consulting contract, (ii) any agreement
providing for the issuance or repurchase of any securities of the Company, (iii)
any agreement in respect of registration rights, preemptive rights, rights of
first refusal, voting rights or other rights of security holders, (iv) any
agreement evidencing or providing for any indebtedness for borrowed money or (v)
any other agreement that could reasonably be deemed material to the Company,
except the Letter of Intent, by and between the Company and The Oil & Gas Asset
Clearinghouse, Inc., dated as of March 1, 1999, and the definitive agreements
that are executed in connection therewith (the "DEFINITIVE CLEARINGHOUSE
AGREEMENTS").
3.13 DISCLOSURE. Neither this Agreement nor any schedule hereto, nor
any written disclosure document furnished by or on behalf of the Company to the
Purchaser or counsel to the Purchaser in connection with the transactions
contemplated by this Agreement, when read together, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that this representation and warranty shall not apply to any information
contained within any of the foregoing relating to future events or the projected
future financial performance of the Company, including any financial projections
or descriptions of potential strategic or business relationships between the
Company and third parties.
3.14 PERMITS. The Company has all franchises, permits, licenses and
other authority necessary for its business as now being conducted and believes
it can obtain, without undue burden or expense, any similar authority for its
business as planned to be conducted. The Company is not in default in any
material respect under any such franchise, permit, license or other authority.
3.15 BALANCE SHEET. The Company has delivered to each Purchaser an
unaudited balance sheet (the "BALANCE SHEET") as of February 28, 1999 (the
"STATEMENT DATE"). The
4.
<PAGE> 10
Balance Sheet, together with notes thereto, presents an as-if consolidation
statement of Vickers Energy Services, LLC and the Company as of such date and is
complete and correct in all material respects.
3.16 CHANGES. Except in connection with the Definitive Clearinghouse
Agreements, since the Statement Date, there has not been, to the Company's
knowledge:
(a) Any change in the assets, liabilities, financial condition
or operations of the Company from that reflected in the Balance Sheet, other
than changes in the ordinary course of business, none of which individually or
in the aggregate has had or is expected to have a material adverse effect on
such assets, liabilities, financial condition or operations of the Company;
(b) Any resignation or termination of any key officers of the
Company; and the Company, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
(c) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(d) Any direct or indirect loans made by the Company to any
stockholder, employee, officer or director of the Company, other than advances
made in the ordinary course of business;
(e) Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(f) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(g) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business; and
(h) Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets.
3.17 OBLIGATION OF CHIEF EXECUTIVE OFFICER. Gary Vickers, the Company's
President and Chief Executive Officer, will devote a majority of his business
time to the conduct of the business of the Company.
5.
<PAGE> 11
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby represents and warrants to the Company as follows
(such representations and warranties do not lessen or obviate the
representations and warranties of the Company set forth in this Agreement):
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement and the Investors' Rights Agreement and to carry out their provisions.
All action on Purchaser's part required for the lawful execution and delivery of
this Agreement and the Investors' Rights Agreement have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Investors' Rights Agreement will be valid and binding
obligations of Purchaser, enforceable in accordance with their terms, except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights,
(ii) general principles of equity that restrict the availability of equitable
remedies and (iii) to the extent that the enforceability of the indemnification
provisions of the Investors' Rights Agreement may be limited by applicable laws.
4.2 INVESTMENT REPRESENTATIONS. Purchaser understands that neither the
Shares nor the Conversion Shares have been registered under the Securities Act.
Purchaser also understands that the Shares are being offered and sold pursuant
to an exemption from registration contained in the Securities Act based in part
upon Purchaser's representations contained in the Agreement. Purchaser hereby
represents and warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment indefinitely unless the Shares (or the Conversion Shares) are
registered pursuant to the Securities Act, or an exemption from registration is
available. Purchaser understands that the Company has no present intention of
registering the Shares, the Conversion Shares or any shares of its Common Stock.
Purchaser also understands that there is no assurance that any exemption from
registration under the Securities Act will be available and that, even if
available, such exemption may not allow Purchaser to transfer all or any portion
of the Shares or the Conversion Shares under the circumstances, in the amounts
or at the times Purchaser might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the
Shares and the Conversion Shares for Purchaser's own account for investment
only, and not with a view towards their distribution.
(c) PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents
that by reason of its, or of its management's, business or financial experience,
Purchaser has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement. Further, Purchaser is aware of no
publication of any advertisement in connection with the transactions
contemplated in the Agreement.
6.
<PAGE> 12
(d) ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
(e) RULE 144. Purchaser acknowledges and agrees that the
Shares, and, if issued, the Conversion Shares must be held indefinitely unless
they are subsequently registered under the Securities Act or an exemption from
such registration is available. Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the
availability of certain current public information about the Company, the resale
occurring following the required holding period under Rule 144 and the number of
shares being sold during any three-month period not exceeding specified
limitations.
(f) RESIDENCE. If the Purchaser is an individual, then the
Purchaser resides in the state or province identified in the address of the
Purchaser set forth on Exhibit A; if the Purchaser is a partnership,
corporation, limited liability company or other entity, then the office or
offices of the Purchaser in which its investment decision was made is located at
the address or addresses of the Purchaser set forth on Exhibit A.
4.3 TRANSFER RESTRICTIONS. Each Purchaser acknowledges and agrees that
the Shares and, if issued, the Conversion Shares are subject to restrictions on
transfer as set forth in the Investors' Rights Agreement.
5. CONDITIONS TO CLOSING
5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS AT EACH CLOSING. Purchasers'
obligations to purchase the Shares at each Closing are subject to the
satisfaction, at or prior to each such Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. With respect to the First Closing, the representations and
warranties made by the Company in Section 3 hereof shall be true and correct in
all material respects as of such Closing Date with the same force and effect as
if they had been made as of such Closing Date, and the Company shall have
performed all obligations and conditions herein required to be performed or
observed by it on or prior to such Closing. With respect to any Subsequent
Closing, the Company shall have delivered an updated Schedule of Exceptions, and
the representation and warranties made by the Company in Section 3 hereof, as
modified by such revised Schedule of Exceptions, shall be true and correct in
all material respects as of such Closing Date, and the Company shall have
performed all obligations and conditions herein required to be performed or
observed by it on or prior to such Closing.
(b) LEGAL INVESTMENT. On the Closing Date, the sale and
issuance of the Shares and the proposed issuance of the Conversion Shares shall
be legally permitted by all laws and regulations to which Purchasers and the
Company are subject.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the
7.
<PAGE> 13
transactions contemplated by the Agreement and the Investors' Rights Agreement
(except for such as may be properly obtained subsequent to the Closing).
(d) FILING OF RESTATED CERTIFICATE. The Restated Certificate
shall have been filed with the Secretary of State of the State of Delaware.
(e) INVESTORS' RIGHTS AGREEMENT. An Investors' Rights
Agreement, substantially in the form attached hereto as Exhibit C, shall have
been executed and delivered by the parties thereto.
(f) BOARD OF DIRECTORS. Upon the Closing, the authorized size
of the Board of Directors of the Company shall be three (3) members and the
Board shall consist of Gary R. Vickers, with two (2) vacancies existing.
(g) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchasers and their
special counsel, and the Purchasers and their special counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
(h) EXECUTION OF CLEARINGHOUSE AGREEMENT. The Definitive
Clearinghouse Agreements shall have been executed by all parties thereto.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's obligation
to issue and sell the Shares at the Closing is subject to the satisfaction, on
or prior to such Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties made by the Purchasers in Section 4 hereof shall be true and
correct in all material respects at the date of each Closing, with the same
force and effect as if they had been made on and as of said date.
(b) PERFORMANCE OF OBLIGATIONS. Purchasers shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by Purchasers on or before each Closing.
(c) FILING OF RESTATED CERTIFICATE. The Restated Certificate
shall have been filed with the Secretary of State of the State of Delaware.
(d) INVESTORS' RIGHTS AGREEMENT. An Investors' Rights
Agreement, substantially in the form attached hereto as Exhibit C, shall have
been executed and delivered by the Purchasers.
(e) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the
Investors' Rights Agreement (except for such as may be properly obtained
subsequent to the Closing).
8.
<PAGE> 14
6. COVENANT OF THE COMPANY
6.1 GRANT OF MORE FAVORABLE TERMS. No Purchaser of preferred stock of
the Company shall receive different terms than are set forth in this Agreement,
the Investors' Rights Agreement and the Restated Certificate of Incorporation,
unless all Purchasers receive an equivalent benefit on a share for share basis.
If the Company now or hereafter proposes to extend different terms to a
Purchaser of preferred stock of the Company, each Purchaser will be notified
prior to the date of the transaction and provided full details thereof,
including copies of all relevant documentation. The Company shall offer to
extend equivalent rights and benefits to each Purchaser, by amendment to this
Agreement, the Investors' Rights Agreement and/or the Restated Certificate of
Incorporation, or in such other fashion that is appropriate under the
circumstances and satisfactory in the reasonable opinion of such Purchaser. This
provision, however, shall not apply to any strategic relationships, licensing
transactions or commercial agreements entered into between the Company and a
subsequent Purchaser that are part of a broader strategic relationship, so long
as the terms of the rights granted to such Purchaser with respect to their
preferred stock are not more favorable than those granted to the Purchasers
hereunder. The provisions of this Section 6.1 shall terminate upon the earlier
to occur of: (i) the sale and issuance by the Company of an aggregate of two
million (2,000,000) (as adjusted for stock splits, stock dividends and the like)
shares of Series A Stock (inclusive of the Shares sold at the First Closing);
and (ii) the sale and issuance of shares of preferred stock in which the gross
proceeds to the Company are at least $1,000,000 and the price per share is more
than $7.50 (as adjusted for stock splits, stock dividends and the like) (a
"SENIOR SALE"). Furthermore, the provisions of this Section 6.1 shall have no
application to a Senior Sale.
7. MISCELLANEOUS
7.1 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Colorado without regard to its
conflict-of-laws rules.
7.2 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by any Purchaser and the
closing of the transactions contemplated hereby. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.
7.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, including the Investors' Rights Agreement, and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and no party
shall be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein and
therein.
9.
<PAGE> 15
7.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
7.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and holders of a majority of the Shares (treated
as if converted and including any Conversion Shares into which the Shares have
been converted that have not been sold to the public).
(b) The obligations of the Company and the rights of the
holders of the Shares and the Conversion Shares under the Agreement may be
waived only with the written consent of the holders of a majority of the Shares
(treated as if converted and including any Conversion Shares into which the
Shares have been converted that have not been sold to the public).
7.7 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified; (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Company at the address as set forth on the signature page hereof and to
Purchaser at the address as set forth on Exhibit A hereto or at such other
address as the Company or Purchaser may designate by ten (10) days advance
written notice to the other parties hereto.
7.8 EXPENSES. The Company shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
the Agreement. The Company shall reimburse the reasonable fees and expenses in
an amount not to exceed $5,000.00 of one special counsel to the Purchasers
incurred in connection with the negotiation, execution, delivery and performance
of this Agreement and the transactions contemplated thereby.
7.9 ATTORNEYS' FEES. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
7.10 TITLES AND SUBTITLES. The titles of the sections and subsections
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
7.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.12 BROKER'S FEES. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto
10.
<PAGE> 16
is or will be entitled to any broker's or finder's fee or any other commission
directly or indirectly in connection with the transactions contemplated herein.
Each party hereto further agrees to indemnify each other party for any claims,
losses or expenses incurred by such other party as a result of the
representation in this Section 7.12 being untrue.
7.13 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that it
is not relying upon any person, firm, or corporation, other than the Company and
its officers and directors, in making its investment or decision to invest in
the Company. Each Purchaser agrees that no Purchaser nor the respective
controlling persons, officers, directors, partners, agents, or employees of any
Purchaser shall be liable for any action heretofore or hereafter taken or
omitted to be taken by any of them in connection with the Shares and Conversion
Shares.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
11.
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed the SERIES A
PREFERRED STOCK PURCHASE AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY: PURCHASERS:
ENERGY AUCTION EXCHANGE, INC.
By: /s/ Gary R. Vickers By: /s/
------------------------------------- ----------------------------
Gary R. Vickers
President and Chief Name:
Executive Officer --------------------------
Title:
-------------------------
7900 East Union Avenue, Suite 1100 Address:
Denver, CO 80237 ------------------------
--------------------------------
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 18
PURCHASERS:
ANSCHUTZ FAMILY INVESTMENT COMPANY LLC
By: /s/ Craig Slater
---------------------------------
Craig Slater
Title:
------------------------------
Address:
----------------------------
------------------------------------
A.C.E. INVESTMENT PARTNERSHIP
By: /s/
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Address:
----------------------------
------------------------------------
SERIES A PREFERRRED STOCK PURCHASE AGREEMENT
<PAGE> 19
EXHIBIT A
SCHEDULE OF PURCHASERS
FIRST CLOSING
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES AGGREGATE PURCHASE PRICE
- ---------------- ------ ------------------------
<S> <C> <C>
Vickers Energy Services, LLC 666,666 $4,999,995.00
7900 East Union Avenue, Suite 1100
Denver, CO 80237
</TABLE>
SUBSEQUENT CLOSING
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES AGGREGATE PURCHASE PRICE
- ---------------- ------ ------------------------
<S> <C> <C>
Anschutz Family Investment Company LLC 515,069 $ 3,863,017.50(1)
555 17th Street
Suite 2400
Denver, CO 80202
Attention: Scott Carpenter
A.C.E. Investment Partnership 22,065 $ 165,487.50(2)
555 17th Street
Suite 2400
Denver, CO 80202
Attention: Scott Carpenter
Sequel Limited Partnership II 535,671 $ 4,017,532.50(3)
4430 Arapahoe Avenue
Suite 220
Boulder, CO 80303
Attention: Thomas G. Washing
Greenwood Gulch Ventures, LLC 33,333 $ 249,997.50
7367 Shoreham Drive
Castle Rock, CO 80104
Attn: Donald D. Rosenkrans, Jr
Energetic Investors LLC 133,333 $ 999,997.50
Feldman Sherb Ehrlich & Co., P.C
805 Third Avenue
New York, NY 10022-7513
Attn: Jay R. Horowitz
</TABLE>
- --------
1 Includes interest in the aggregate amount of $28,020.88
2 Includes interest in the aggregate amount of $496.25
3 Includes interest in the aggregate amount of $17,534.24
<PAGE> 20
EXHIBIT B
RESTATED CERTIFICATE OF INCORPORATION
<PAGE> 21
EXHIBIT C
INVESTORS' RIGHTS AGREEMENT
<PAGE> 1
EXHIBIT 10.6
================================================================================
STOCK PURCHASE AGREEMENT
among:
ENERGY AUCTION EXCHANGE, INC.,
a Delaware corporation;
and
KENNETH R. OLIVE, JR.
ALLAN C. KING
ALLAN G. KING
DUANE H. KING
GWENDOLYN KING KINNEY
DAVID R. KING
ROBERT E. ZIMMERMAN, JR.
R.E. ZIMMERMAN
MICHAEL W. O'SHAUGHNESSY
-------------------------------
Dated as of December 30, 1999
-------------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1. SALE AND PURCHASE OF SHARES; RELATED TRANSACTIONS....................1
1.1 Sale and Purchase of Shares..........................................1
1.2 Purchase Price.......................................................1
1.3 Closing..............................................................2
1.4 Exchange of Certificates.............................................2
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS...........2
2.1 Execution, Delivery and Performance of Agreement; Authority..........3
2.2 Noncontravention.....................................................3
2.3 Brokers' Fees........................................................3
2.4 Company Shares.......................................................3
2.5 Investment Representations...........................................4
(a) Selling Shareholder Bears Economic Risk.....................4
(b) Acquisition for Own Account.................................4
(c) Selling Shareholder Can Protect Its Interest................4
(d) Accredited Investor.........................................4
(e) Rule 144....................................................4
(f) Residence...................................................5
2.6 Transfer Restrictions................................................5
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER......................5
3.1 Due Organization.....................................................5
3.2 Execution, Delivery and Performance of Agreement; Authority..........5
3.3 Capitalization.......................................................5
3.4 Purchaser's Series B Stock...........................................5
3.5 Noncontravention.....................................................6
SECTION 4. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER.................6
4.1 Accuracy of Representations..........................................6
4.2 Performance of Covenants.............................................6
4.3 Consents.............................................................6
4.4 Agreements and Documents.............................................6
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
4.5 Securities Law Compliance............................................6
4.6 No Restraints........................................................7
4.7 No Proceedings.......................................................7
4.8 Corporate Approvals..................................................7
SECTION 5. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING SHAREHOLDERS......7
5.1 Accuracy of Representations..........................................7
5.2 Performance of Covenants.............................................7
5.3 Agreements and Documents.............................................7
5.4 No Restraints........................................................8
5.5 Corporate Approvals..................................................8
SECTION 6. INDEMNIFICATION, ETC.................................................8
6.1 Survival of Representations, Etc.....................................8
6.2 Indemnification by Selling Shareholders..............................8
6.3 Indemnification by the Purchaser.....................................9
SECTION 7. MISCELLANEOUS PROVISIONS.............................................9
7.1 Further Assurances...................................................9
7.2 Fees and Expenses....................................................9
7.3 Attorneys' Fees......................................................9
7.4 Notices.............................................................10
7.5 Confidentiality.....................................................10
7.6 Headings............................................................11
7.7 Counterparts........................................................11
7.8 Governing Law.......................................................11
7.9 Successors and Assigns..............................................11
7.10 Remedies Cumulative; Specific Performance...........................11
7.11 Amendments and Waiver...............................................11
7.12 Severability........................................................11
7.13 Parties in Interest.................................................12
7.14 Entire Agreement....................................................12
7.15 Construction........................................................12
</TABLE>
ii.
<PAGE> 4
EXHIBITS
Exhibit A - Allocation of Purchase Price and Issuance Instructions
Exhibit B - Second Amended and Restated Investors Rights Agreement
Exhibit C - Amended and Restated Certificate of Incorporation of Purchaser
iii.
<PAGE> 5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("AGREEMENT") is made and entered into as
of December 30, 1999, by and among ENERGY AUCTION EXCHANGE, INC., a Delaware
corporation (the "PURCHASER"), and the following shareholders of The Petroleum
Clearinghouse, Inc. (the "COMPANY"): Kenneth R. Olive, Jr., Allan C. King, Allan
G. King, Duane H. King, Gwendolyn King Kinney, David R. King, Robert E.
Zimmerman, Jr., R.E. Zimmerman and Michael W. O'Shaughnessy (collectively the
"SELLING SHAREHOLDERS", and each a "SELLING SHAREHOLDER").
RECITALS
A. The Selling Shareholders own an aggregate of four thousand
(4,000) shares of Common Stock (collectively, the "SHARES") of the Company,
which constitute all of the issued and outstanding capital stock and options,
warrants or other rights to purchase capital stock of the Company other than the
shares of Common Stock acquired by the Purchaser pursuant to that certain Stock
Purchase Agreement, dated June 1, 1999, among the Purchaser, the Company and the
Selling Shareholders (the "PRIOR PURCHASE AGREEMENT").
B. On August 4, 1999, the Selling Shareholders and the Purchaser
reached an agreement regarding the number of shares of Series B Stock that would
be issued in exchange for the Shares.
C. The Selling Shareholders wish to sell the Shares to the Purchaser
on the terms set forth in this Agreement (the "ACQUISITION") and in accordance
with the terms of the agreement reached on August 4, 1999 and that certain
Shareholders Agreement, dated June 1, 1999, among the Purchaser, the Company and
the Selling Shareholders (the "SHAREHOLDERS AGREEMENT").
AGREEMENT
The parties to this Agreement agree as follows:
SECTION 1. SALE AND PURCHASE OF SHARES; RELATED TRANSACTIONS
1.1 SALE AND PURCHASE OF SHARES. At the Closing (as hereinafter
defined), the Selling Shareholders shall sell, assign, transfer and deliver the
Shares to the Purchaser, and the Purchaser shall purchase the Shares from the
Selling Shareholders on the terms and subject to the conditions set forth in
this Agreement.
1.2 PURCHASE PRICE. Subject to Section 1.4, at the Closing, by virtue
of the Acquisition and without any further action on the part of the Purchaser
or the Selling Shareholders, the Shares are converted into the right to receive
an aggregate of four hundred fifty-five thousand one hundred twenty (455,120)
shares of Series B Preferred Stock of Purchaser (the "SERIES B STOCK") which are
convertible into shares of the Purchaser's common stock (the "CONVERSION
SHARES"), in accordance with the amounts set forth on Exhibit A hereto. The
Series B Stock to be issued pursuant to this Section 1.2(a) shall be referred to
as the "PURCHASE PRICE."
1.
<PAGE> 6
1.3 CLOSING.
(a) The closing of the sale of the Shares to the Purchaser (the
"CLOSING") shall take place at the offices of Cooley Godward LLP, 2595 Canyon
Boulevard, Suite 250, Boulder, Colorado 80302 on December 30, 1999 or at such
other place or time as the parties may agree (the "CLOSING DATE").
(b) At the Closing, the parties shall have executed and delivered
each of the agreements required to be executed and delivered pursuant to
Sections 4.4 and 5.3.
1.4 EXCHANGE OF CERTIFICATES.
(a) At the Closing, the Selling Shareholders will deliver to the
Purchaser stock certificates representing the Shares, endorsed in blank or
accompanied by duly executed assignment documents and the buyer will deliver
certificates representing shares of Series B Stock in the names and amounts set
forth on Exhibit A.
(b) The shares of Series B Stock to be issued in the Acquisition
shall be characterized as "restricted securities" for purposes of Rule 144 under
the Securities Act, and each certificate representing any of such shares shall
bear a legend identical or similar in effect to the following legend (together
with any other legend or legends required by applicable state securities laws or
otherwise):
First Legend:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED."
Second Legend:
"THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED EXCEPT
IN COMPLIANCE WITH THE SECOND AMENDED AND RESTATED INVESTORS'
RIGHTS AGREEMENT, DATED DECEMBER 30, 1999, COPIES OF WHICH ARE ON
FILE AT THE OFFICE OF THE ISSUER."
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS
Each of the Selling Shareholders severally represents and warrants to
the Purchaser that the statements contained in this Section 2 are true and
correct as of the date of this Agreement with respect to himself or herself.
2.
<PAGE> 7
2.1 EXECUTION, DELIVERY AND PERFORMANCE OF AGREEMENT; AUTHORITY. The
Selling Shareholder has the full legal right, power and authority to enter into
this Agreement and the related agreements referred to herein to which it is a
party and to carry out the transactions contemplated hereby. All proceedings
required to be taken by the Selling Shareholder to authorize the execution,
delivery and performance of this Agreement and the Second Amended and Restated
Investors' Rights Agreement, of even date herewith (the "RIGHTS AGREEMENT") to
which it is a party have been properly taken. Each of this Agreement and the
Rights Agreement constitute valid and binding obligations of the Selling
Shareholder, enforceable against the Selling Shareholder in accordance with
their terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies. The Selling
Shareholder need not give any notice to, make any filing with, or obtain any
authorization, consent or approval of any government or governmental agency,
including, without limitation, the SEC, in order to consummate the transactions
contemplated by this Agreement, except for any required filings with the NASD.
2.2 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(a) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency or court to which the Selling Shareholder is subject, (b)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which the Selling Shareholder is a party or
by which he or she is bound or to which any of his or her assets is subject, or
(c) result in a breach of any confidentiality, non-competition or similar
agreement to which the Selling Shareholder is a party.
2.3 BROKERS' FEES. The Selling Shareholder has no liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement for which the
Purchaser could become liable or obligated.
2.4 COMPANY SHARES. The Selling Shareholder holds of record and owns
beneficially the number of Shares set forth next to his or her name in Exhibit
A, free and clear of any restrictions on transfer (other than any restrictions
under the Shareholders Agreement, the Securities Act and state securities laws),
taxes, security interests, options, warrants, purchase rights, contracts,
commitments, equities, claims and demands. The Selling Shareholder is not a
party to any option, warrant, purchase right or other contract or commitment
that could require the Selling Shareholder to sell, transfer or otherwise
dispose of any capital stock of the Company (other than the Shareholders
Agreement). The Selling Shareholder is not a party to any voting trust, proxy or
other agreement or understanding with respect to the voting of any capital stock
of the Company (other than the Shareholders Agreement). The Shares constitute
all of the issued and outstanding shares of capital stock of the Company and all
rights to acquire shares other than the shares of capital stock and rights to
acquire capital stock held by the Purchaser pursuant to the Prior Purchase
Agreement and the Shareholders Agreement and other than any shares issued or
rights to acquire shares that have occurred on or after June 1, 1999 and have
been approved by the Purchaser.
3.
<PAGE> 8
2.5 INVESTMENT REPRESENTATIONS. The Selling Shareholder understands
that neither the Series B Stock nor the Conversion Shares have been registered
under the Securities Act of 1933, as amended (the "SECURITIES ACT"). The Selling
Shareholder also understands that the shares of Series B Stock are being offered
and sold pursuant to an exemption from registration contained in the Securities
Act based in part upon the Selling Shareholder's representations contained in
the Agreement. Each Selling Shareholder hereby represents and warrants as
follows:
(a) SELLING SHAREHOLDER BEARS ECONOMIC RISK. The Selling
Shareholder has substantial experience in evaluating and investing in private
placement transactions of securities in companies similar to the Purchaser so
that it is capable of evaluating the merits and risks of its investment in the
Purchaser and has the capacity to protect its own interests. Selling Shareholder
must bear the economic risk of this investment indefinitely unless the shares of
Series B Stock (or the Conversion Shares) are registered pursuant to the
Securities Act, or an exemption from registration is available. The Selling
Shareholder understands that the Purchaser has no present intention of
registering the Series B Stock, the Conversion Shares or any shares of its
Common Stock. The Selling Shareholder also understands that there is no
assurance that any exemption from registration under the Securities Act will be
available and that, even if available, such exemption may not allow Selling
Shareholder to transfer all or any portion of the Series B Stock (or the
Conversion Shares) under the circumstances, in the amounts or at the times
Selling Shareholder might propose.
(b) ACQUISITION FOR OWN ACCOUNT. The Selling Shareholder is
acquiring the Series B Stock (or the Conversion Shares) for Selling
Shareholder's own account for investment only, and not with a view towards their
distribution.
(c) SELLING SHAREHOLDER CAN PROTECT ITS INTEREST. The Selling
Shareholder represents that by reason of its, or of its management's, business
or financial experience, the Selling Shareholder has the capacity to protect its
own interests in connection with the transactions contemplated in this
Agreement. Further, the Selling Shareholder is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement.
(d) ACCREDITED INVESTOR. The Selling Shareholder represents that
it is an accredited investor within the meaning of Regulation D under the
Securities Act.
(e) RULE 144. The Selling Shareholder acknowledges and agrees
that the Series B Stock, and, if issued, the Conversion Shares must be held
indefinitely unless they are subsequently registered under the Securities Act or
an exemption from such registration is available. The Selling Shareholder has
been advised or is aware of the provisions of Rule 144 promulgated under the
Securities Act, which permits limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things, the availability of certain current public information about the
Purchaser, the resale occurring following the required holding period under Rule
144 and the number of shares being sold during any three-month period not
exceeding specified limitations.
4.
<PAGE> 9
(f) RESIDENCE. The Selling Shareholder resides in the state or
province identified in the address of the Selling Shareholder set forth on
Exhibit A.
2.6 TRANSFER RESTRICTIONS. The Selling Shareholder acknowledges and
agrees that the Series B Stock and, if issued, the Conversion Shares are subject
to restrictions on transfer as set forth in the Second Amended and Restated
Investors' Rights Agreement of even date herewith (the "RIGHTS AGREEMENT").
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Selling Shareholders as
follows:
3.1 DUE ORGANIZATION. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all necessary power and authority to conduct its business in the manner
in which its business is currently being conducted and to own and use its assets
in the manner in which its assets are currently owned and used.
3.2 EXECUTION, DELIVERY AND PERFORMANCE OF AGREEMENT; AUTHORITY. The
Purchaser has the full legal right, power and authority to enter into this
Agreement and the related agreements referred to herein to which it is a party
and to carry out the transactions contemplated hereby. All proceedings required
to be taken by the Purchaser to authorize the execution, delivery and
performance of this Agreement and the Rights Agreement to which it is a party
have been properly taken. Each of this Agreement and the Rights Agreement to
which the Purchaser is a party constitute valid and binding obligations of the
Purchaser, enforceable against the Purchaser in accordance with their terms,
subject to (i) laws of general application relating to bankruptcy, insolvency
and the relief of debtors and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.
3.3 CAPITALIZATION. The authorized capital stock of the Purchaser,
immediately prior to the closing, will consist of (a) fifteen million
(15,000,000) shares of Common Stock, five hundred thousand (500,000) of which
are issued and outstanding, five hundred thousand (500,000) of which are
reserved for issuance pursuant to the Purchaser's 1999 Equity Incentive Plan and
ten thousand (10,000) of which are reserved for issuance pursuant to outstanding
warrants and (b) three million (3,000,000) shares of Preferred Stock, 2,000,000
of which are designated Series A Preferred Stock, 1,906,137 of which are issued
and outstanding; and 500,000 of which are designated Series B Preferred Stock,
none of which are issued and outstanding.
3.4 PURCHASER'S SERIES B STOCK. The Purchaser's Series B Stock will,
upon delivery to the Selling Shareholders, be duly authorized, validly issued,
fully paid and nonassessable, with no personal liability attaching to the
ownership thereof (except as otherwise set forth herein), other than liabilities
imposed upon stockholders generally by the provisions of the Delaware General
Corporation Law and will not be subject to any other restrictions, except as may
be imposed by applicable law or as set forth in this Agreement, the Investors'
Rights Agreement or the Purchaser's Restated Certificate of Incorporation.
5.
<PAGE> 10
3.5 NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(a) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any government,
governmental agency or court to which the Purchaser is subject, (b) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which the Purchaser is a party or by which he
or she is bound or to which any of his or her assets is subject, or (c) result
in a breach of any confidentiality, non-competition or similar agreement to
which the Purchaser is a party.
3.6 BROKERS FEES. The Purchaser has no liability or obligation to pay
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement for which the Purchaser could become
liable or obligated.
SECTION 4. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER
The obligation of the Purchaser to effect the transactions contemplated
hereby are subject to the satisfaction, at or prior to the Closing, of each of
the following conditions (any of which may be waived by the Purchaser, in whole
or in part, in accordance with Section 7.12):
4.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by the Selling Shareholders in this Agreement shall have been
accurate in all material respects as of the Closing Date.
4.2 PERFORMANCE OF COVENANTS. Each covenant or obligation that any of
the Selling Shareholders is required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all material
respects.
4.3 CONSENTS. All consents required to be obtained in connection with
the this Agreement and the Rights Agreement shall have been obtained and shall
be in full force and effect.
4.4 AGREEMENTS AND DOCUMENTS. The Purchaser shall have received the
following agreements and documents, each of which shall be in full force and
effect:
(a) the Rights Agreement, substantially in the form of Exhibit B;
and
(b) such other documents as the Purchaser may reasonably request
in good faith for the purpose of (i) evidencing the accuracy of any
representation or warranty made by the Selling Shareholders, (ii) evidencing the
compliance by the Selling Shareholders with, or the performance by the Selling
Shareholders of, any covenant or obligation set forth in this Agreement, (iii)
evidencing the compliance with any applicable federal or state securities law,
(iv) evidencing the satisfaction of any condition set forth in this Section 4 or
(iv) otherwise facilitating the consummation or performance of any of the
transactions contemplated hereby.
4.5 SECURITIES LAW COMPLIANCE. All applicable requirements of the
Securities Act and any applicable state securities laws shall have been
satisfied.
6.
<PAGE> 11
4.6 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the
Acquisition shall have been issued by any court of competent jurisdiction and
remain in effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Acquisition that makes consummation of the Acquisition
illegal.
4.7 NO PROCEEDINGS. No person shall have commenced or threatened to
commence any proceeding challenging or seeking the recovery of a material amount
of damages in connection with the Acquisition or seeking to prohibit or limit
the exercise by the Purchaser of any material right pertaining to its ownership
of the Shares.
4.8 CORPORATE APPROVALS. This Agreement and the Rights Agreement
shall have been approved by all necessary corporate action on the part of the
Purchaser and the Selling Shareholders.
SECTION 5. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING SHAREHOLDERS
The obligations of the Selling Shareholders to effect this Agreement
are subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by the Agent (as defined in
Section 7.1), in whole or in part, in accordance with Section 7.13):
5.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by the Purchaser in this Agreement shall have been accurate in
all material respects as of the date of this Agreement, and shall be accurate in
all respects as of the Closing Date as if made at the Closing Date.
5.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations
that the Purchaser is required to comply with or to perform at or prior to the
Closing shall have been complied with and performed in all material respects.
5.3 AGREEMENTS AND DOCUMENTS. The Selling Shareholders shall have
received the following agreements and documents:
(a) the Rights Agreement, substantially in the form of Exhibit B;
(b) an as filed copy of the Restated Certificate of Incorporation
of the Purchaser, substantially in the form of Exhibit C, executed by the
Purchaser; and
(c) such other documents as the Selling Shareholders may
reasonably request in good faith for the purpose of (i) evidencing the accuracy
of any representation or warranty made by the Purchaser, (ii) evidencing the
compliance by the Purchaser with, or the performance by the Purchaser of, any
covenant or obligation set forth in this Agreement, (iii) evidencing the
compliance with any applicable federal or state securities law, (iv) evidencing
the satisfaction of any condition set forth in this Section 5 or (iv) otherwise
facilitating the consummation or performance of any of the transactions
contemplated hereby.
7.
<PAGE> 12
5.4 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the
Acquisition shall have been issued by any court of competent jurisdiction and
remain in effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Acquisition that makes consummation of the Acquisition
illegal.
5.5 CORPORATE APPROVALS. This Agreement and the Rights Agreement
shall have been approved by all necessary corporate action on the part of the
Purchaser.
SECTION 6. INDEMNIFICATION, ETC.
6.1 SURVIVAL OF REPRESENTATIONS, ETC.
(a) The representations, warranties and covenants of each party
pursuant to this Agreement shall survive the Closing and shall expire on the
first anniversary of the Closing Date; provided, however, (i) that fraud claims
shall survive for the statute of limitations applicable to claims based on such
matters, (ii) claims under Sections 2.4 and 2.5 hereof shall survive
indefinitely and (iii) that if, at any time prior to the first anniversary of
the Closing Date, any party seeking indemnification under this Section 6 (an
"INDEMNIFIED PARTY") (acting in good faith) delivers to the party from whom such
indemnification is sought (an "INDEMNIFYING PARTY") a written notice alleging
the existence of a breach of any of the representations and warranties made by
the Indemnifying Party or a breach of any covenant contained herein (and setting
forth in reasonable detail the basis for such Indemnified Party's belief that
such a breach may exist) and asserting a claim for recovery under Section 6.2 or
Section 6.3, whichever is applicable, based on such alleged breach, then the
claim asserted in such notice shall survive the first anniversary of the Closing
until such time as such claim is fully and finally resolved.
(b) The representations, warranties, covenants and obligations of
each Indemnifying Party, and the rights and remedies that may be exercised by
each Indemnified Party, shall not be limited or otherwise affected by or as a
result of investigation made by any Indemnified Party or any of their
Representatives.
6.2 INDEMNIFICATION BY SELLING SHAREHOLDERS.
(a) Subject to the provisions of this Section 6, the Selling
Shareholders, severally and not jointly, shall indemnify and hold harmless each
of the Purchaser Indemnitees from and against the amount of any Damages incurred
by any of the Purchaser Indemnitees directly or indirectly as a result of (i)
any breach of a representation or warranty of any of the Selling Shareholders
contained in Section 2 hereof and (ii) any breach of any covenant or obligation
contained herein. "DAMAGES" shall include any loss, damage, injury, reduced
value, liability, claim, demand, settlement, judgment, award, fine, penalty,
tax, fee (including any legal fee, expert fee, accounting fee or advisory fee),
charge, cost (including any cost of investigation or enforcement costs) or
expense of any nature, net of insurance recoveries. Throughout this Agreement
the term "PURCHASER INDEMNITEES" shall mean the following persons: (a) the
Purchaser; (b) the Purchaser's current and future affiliates (including the
Company but excluding the Selling Shareholders); (c) the respective officers,
directors, employees, agents, attorneys, accountants, advisors and
representatives (the "REPRESENTATIVES") of the persons referred to in
8.
<PAGE> 13
clauses "(a)" and "(b)" above; and (d) the respective successors and assigns of
the persons referred to in clauses "(a)", "(b)" and "(c)" above.
(b) The Selling Shareholders acknowledge and agree that, if there
is any breach as provided in Section 6.2(a), then the Purchaser itself shall be
deemed, by virtue of its ownership of the capital stock of the Company, to have
incurred Damages as result of such breach or liability. Nothing contained in
this Section 6.2(b) shall have the effect of (i) limiting the circumstances
under which the Purchaser may otherwise be deemed to have incurred Damages for
purposes of this Agreement, (ii) limiting the other type of Damages that the
Purchaser may deemed to have incurred (whether in connection with any such
breach or liability or otherwise) or (iii) limiting the rights of the Company or
any of the other Purchaser Indemnitees under this Section 6.2.
6.3 INDEMNIFICATION BY THE PURCHASER. Subject to the provisions of
this Section 6, the Purchaser shall indemnify and hold harmless each of the
Selling Shareholder Indemnitees from and against the amount of any Damages
incurred by any of the Selling Shareholder Indemnitees directly or indirectly as
a result of (i) any breach of a representation or warranty of the Purchaser
contained in Section 3 hereof or in any instrument delivered pursuant to this
Agreement or (ii) any breach of any covenant or obligation contained herein.
Throughout this Agreement the term "SELLING SHAREHOLDER INDEMNITEES" shall mean
the following persons: (a) the Selling Shareholder; and (d) the respective
successors and assigns of the Selling Shareholder.
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 FURTHER ASSURANCES. Each party hereto shall execute and cause to
be delivered to each other party hereto such instruments and other documents,
and shall take such other actions as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the transactions contemplated hereby.
7.2 FEES AND EXPENSES. Subject to Section 6, each party to this
Agreement shall bear and pay all fees, costs and expenses (including legal fees
and accounting fees) that have been incurred or that are incurred in the future
by such party in connection with the transactions contemplated hereby, including
all fees, costs and expenses incurred by such party in connection with or by
virtue of (a) the investigation and review conducted by the Purchaser and its
Representatives with respect to the Company's business (and the furnishing of
information to the Purchaser and its Representatives in connection with such
investigation and review), (b) the negotiation, preparation and review of this
Agreement and all agreements, certificates, opinions and other instruments and
documents delivered or to be delivered in connection with the transactions
contemplated hereby, (c) the preparation and submission of any filing or notice
required to be made or given in connection with any of the transactions
contemplated hereby and the obtaining of any consent required to be obtained in
connection with any of the transactions contemplated hereby and (d) the
consummation of the Acquisition.
7.3 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
9.
<PAGE> 14
7.4 NOTICES. Any notice or other communication required or permitted
to be delivered to any party under this Agreement shall be in writing and shall
be deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to the Purchaser:
Energy Auction Exchange, Inc.
7900 E. Union Ave., Suite 1100
Denver, Colorado 80237
Attention: Gary R. Vickers
Facsimile: (303) 694-5326
with a copy to:
Cooley Godward LLP
2595 Canyon Blvd., Suite 250
Boulder, Colorado 80302
Attention: James C.T. Linfield, Esq.
Facsimile: (303) 546-4099
if to the Agent:
Kenneth R. Olive, Jr.
390 Benmar, Suite 100
P.O. Box 671787
Houston, Texas 77060
Facsimile: (281) 873-0055
if to any of the Individual Selling Shareholders:
to the appropriate address set forth on Exhibit A
with a copy to:
Locke Liddell & Sapp LLP
3400 Chase Tower
600 Travis
Houston, Texas 77002-3095
Attention: Kevin Peter, Esq.
Facsimile: (713)223-3717
7.5 CONFIDENTIALITY. Without limiting the generality of anything
contained in this Agreement on and at all times after the Closing Date, each
party shall keep confidential, and shall not use or disclose to any other
person, any non-public document or other non-public
10.
<PAGE> 15
information in such party's possession that relates to the business of the
Selling Shareholders, the Company or the Purchaser.
7.6 HEADINGS. The bold-faced section headings contained in this
Agreement are for convenience of reference only, shall not be deemed to be a
part of this Agreement and shall not be referred to in connection with the
construction or interpretation of this Agreement.
7.7 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
7.8 GOVERNING LAW. This Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of
Colorado (without giving effect to principles of conflicts of laws).
7.9 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon: the
Selling Shareholders and their respective personal representatives, executors,
administrators, estates, heirs, successors and assigns (if any); and the
Purchaser and its successors and assigns (if any). This Agreement shall inure to
the benefit of: the Selling Shareholders; the Purchaser; the Indemnitees; and
the respective successors and assigns (if any) of the foregoing. The Purchaser
may freely assign any or all of its rights under this Agreement (including its
indemnification rights under Section 6), in whole or in part, to any other
person without obtaining the consent or approval of any other party hereto or of
any other person.
7.10 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and
remedies of the parties hereto shall be cumulative (and not alternative). The
parties to this Agreement agree that, in the event of any breach or threatened
breach by any party to this Agreement of any covenant, obligation or other
provision set forth in this Agreement for the benefit of any other party to this
Agreement, such other party shall be entitled (in addition to any other remedy
that may be available to it) to (a) a decree or order of specific performance or
mandamus to enforce the observance and performance of such covenant, obligation
or other provision, and (b) an injunction restraining such breach or threatened
breach.
7.11 AMENDMENTS AND WAIVER.
(a) This Agreement may be amended or modified only upon the
written consent of the Purchaser and the holders of a majority of the Series B
Stock (treated as if converted and including any Conversion Shares into which
the shares of Series B Stock have been converted that have not been sold to the
public).
(b) The obligations of the Purchaser and the rights of the
holders of the Series B Stock and the Conversion Shares under the Agreement may
be waived only with the written consent of the holders of a majority of the
Series B Stock (treated as if converted and including any Conversion Shares into
which the shares of Series B Stock have been converted that have not been sold
to the public).
7.12 SEVERABILITY. In the event that any provision of this Agreement,
or the application of any such provision to any person or set of circumstances,
shall be determined to be
11.
<PAGE> 16
invalid, unlawful, void or unenforceable to any extent, the remainder of this
Agreement, and the application of such provision to persons or circumstances
other than those as to which it is determined to be invalid, unlawful, void or
unenforceable, shall not be impaired or otherwise affected and shall continue to
be valid and enforceable to the fullest extent permitted by law.
7.13 PARTIES IN INTEREST. Except for the provisions of Section 6, none
of the provisions of this Agreement is intended to provide any rights or
remedies to any person other than the parties hereto and their respective
successors and assigns (if any).
7.14 ENTIRE AGREEMENT. This Agreement and the other agreements
referred to herein set forth the entire understanding of the parties hereto
relating to the subject matter hereof and thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter hereof and thereof.
7.15 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of this
Agreement and Exhibits to this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
12.
<PAGE> 17
The parties hereto have caused this Agreement to be executed and
delivered as of the date first set forth above.
PURCHASER: ENERGY AUCTION EXCHANGE, INC.,
a Delaware corporation
By: /s/ Gary R. Vickers
-----------------------------------------
Gary R. Vickers
President and Chief Executive Officer
SELLING SHAREHOLDERS: /s/ Kenneth R. Olive, Jr.
--------------------------------------------
Kenneth R. Olive, Jr.
/s/ Allan C. King
--------------------------------------------
Allan C. King
/s/ Allan G. King
--------------------------------------------
Allan G. King
/s/ Duane H. King
--------------------------------------------
Duane H. King
/s/ Gwendolyn King Kinney
--------------------------------------------
Gwendolyn King Kinney
/s/ David R. King
--------------------------------------------
David R. King
/s/ Robert E. Zimmerman, Jr.
--------------------------------------------
Robert E. Zimmerman, Jr.
/s/ R.E. Zimmerman
--------------------------------------------
R.E. Zimmerman
/s/ Michael W. O'Shaughnessy
--------------------------------------------
Michael W. O'Shaughnessy
13.
<PAGE> 18
EXHIBIT A
ALLOCATION OF PURCHASE PRICE
<TABLE>
<CAPTION>
AGGREGATE SHARES OF
NAME OF SELLING SHAREHOLDER SERIES B STOCK
- ------------------------------------------ ---------------------------------
<S> <C>
Kenneth R. Olive, Jr. 341,340
2410 Pleasant Creek Drive
Kingwood, TX 22345
Allen C. King 12,743
800 Bering Drive, Suite 305
Houston, Texas 77057
Allan G. King 17,522
705 Camelot Lane
Houston, Texas 77024
Duane H. King 28,445
9821 Katy Freeway, Suite 800
Houston, Texas 77024
Gwendolyn King Kinney 6,827
800 Bering Drive, Suite 305
Houston, Texas 77057
David R. King 4,551
1802 Forest Trail
Austin, Texas 78703
Robert E. Zimmerman, Jr. 21,846
1616 S. Voss, Suite 830
Houston, Texas 77057
R.E. Zimmerman 10,923
5005 Woodway, Suite 300
Houston, Texas 77056
Michael W. O'Shaughnessy 10,923
P.O. Box 29
Denver, Colorado 80201
</TABLE>
<PAGE> 19
EXHIBIT B
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE> 1
EXHIBIT 10.7
THE PETROLEUM PLACE, INC.
SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
MARCH 2, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. AGREEMENT TO SELL AND PURCHASE...............................................1
1.1 Authorization of Series C Stock.....................................1
1.2 Sale and Purchase...................................................1
2. CLOSING, DELIVERY AND PAYMENT................................................1
2.1 Closing.............................................................1
2.2 Delivery............................................................2
2.3 Subsequent Sale of Shares...........................................2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................2
3.1 Organization, Good Standing and Qualification.......................2
3.2 Subsidiaries........................................................3
3.3 Capitalization; Voting Rights.......................................3
3.4 Authorization; Binding Obligations..................................3
3.5 Financial Statements................................................4
3.6 Liabilities.........................................................4
3.7 Agreements; Action..................................................4
3.8 Obligations to Related Parties......................................5
3.9 Changes.............................................................5
3.10 Title to Properties and Assets; Liens, Etc..........................6
3.11 Intellectual Property...............................................7
3.12 Compliance with Other Instruments...................................7
3.13 Litigation..........................................................7
3.14 Tax Returns and Payments............................................8
3.15 Employees...........................................................8
3.16 Proprietary Information and Inventions Agreement....................8
3.17 Obligations of Management...........................................8
3.18 Registration Rights.................................................9
3.19 Compliance with Laws; Permits.......................................9
3.20 Environmental and Safety Laws.......................................9
3.21 Offering Valid......................................................9
3.22 Disclosure..........................................................9
3.23 Small Business Concern.............................................10
3.24 Investment Company.................................................10
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.............................10
4.1 Requisite Power and Authority.......................................10
4.2 Investment Representations..........................................10
4.3 Transfer Restrictions...............................................11
5. CONDITIONS TO CLOSING........................................................11
5.1 Conditions to Purchasers' Obligations at Each Closing...............11
5.2 Conditions to Obligations of the Company............................13
6. MISCELLANEOUS................................................................13
6.1 Governing Law.......................................................13
6.2 Survival............................................................14
6.3 Successors and Assigns..............................................14
6.4 Entire Agreement....................................................14
6.5 Severability........................................................14
6.6 Amendment and Waiver................................................14
6.7 Notices.............................................................14
6.8 Expenses............................................................14
6.9 Attorneys' Fees.....................................................15
6.10 Titles and Subtitles................................................15
6.11 Counterparts........................................................15
6.12 Broker's Fees.......................................................15
6.13 Exculpation Among Purchasers........................................15
</TABLE>
ii.
<PAGE> 4
PETROLEUM PLACE, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (the "AGREEMENT") is
entered into as of this 2nd day of March, 2000, by and among PETROLEUM PLACE,
INC., a Delaware corporation (the "COMPANY"), and each of those persons and
entities, severally and not jointly, whose names are set forth on the Schedule
of Purchasers attached hereto as Exhibit A (which persons and entities are
hereinafter collectively referred to as "PURCHASERS" and each individually as a
"PURCHASER").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of an
aggregate of one million one hundred eighty-four thousand thirty-two (1,184,032)
shares of its Series C Preferred Stock (the "SERIES C STOCK");
WHEREAS, the Purchasers desire to purchase an aggregate of seven
hundred sixty-one thousand one hundred sixty seven (761,167) shares of Series C
Stock (the "SHARES") on the terms and conditions set forth herein;
WHEREAS, the Company desires to issue and sell the Shares to Purchasers
on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE
1.1 AUTHORIZATION OF SERIES C STOCK. On or prior to the First Closing
(as defined in Section 2 below), the Company shall have authorized (i) the sale
and issuance to Purchasers of the Series C Stock and (ii) the issuance of such
shares of Common Stock to be issued upon conversion of the Series C Stock (the
"CONVERSION SHARES"). The Series C Stock and the Conversion Shares shall have
the rights, preferences, privileges and restrictions set forth in the Restated
Certificate of Incorporation of the Company, in the form attached hereto as
Exhibit B (the "RESTATED CERTIFICATE").
1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof, at
the First Closing (as hereinafter defined), the Company hereby agrees to issue
and sell to each Purchaser, severally and not jointly, and each Purchaser agrees
to purchase from the Company, severally and not jointly, the number of Shares
set forth opposite such Purchaser's name on Exhibit A at a purchase price of
Fifty-Nine Dollars and Twelve Cents ($59.12) per share.
2. CLOSING, DELIVERY AND PAYMENT
2.1 CLOSING. The initial closing of the sale and purchase of the Shares
under this Agreement (the "FIRST CLOSING") shall take place within five (5)
business days of the date hereof
1.
<PAGE> 5
after all the closing conditions under Section 5 hereof have been satisfied or
waived or as otherwise agreed to by the parties, at the offices of Cooley
Godward LLP, 2595 Canyon Boulevard, Suite 250, Boulder, Colorado 80302, or at
such other place as the Company and Purchasers may mutually agree. The
closing(s) of the sale and purchase of the shares of Series C Stock under
Section 2.3 below shall take place at such time(s) and place(s) as the Company
and Purchasers participating therein shall mutually agree (each, a "SUBSEQUENT
CLOSING") (the First Closing and any Subsequent Closing are collectively
referred to herein as a "CLOSING" and each such date is referred to as a
"CLOSING Date").
2.2 DELIVERY. At each Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchasers certificates representing the
number of Shares to be purchased at each Closing by each Purchaser, against
payment of the purchase price therefor by check or wire transfer made payable to
the order of the Company.
2.3 SUBSEQUENT SALE OF SHARES. At any time on or before the 60th day
following the First Closing, the Company may sell up to the balance of the
authorized shares of Series C Stock not sold at the First Closing. Except as
otherwise set forth herein, all such sales shall be made on the terms and
conditions set forth in this Agreement by execution of counterpart signature
pages to this Agreement and the Investors' Rights Agreement (as defined in
Section 3.1 below). The rights of the Purchasers in the First Closing as set
forth herein shall not be modified by any Subsequent Closing. Any shares of
Series C Stock sold pursuant to this Section 2.3 shall be deemed to be "Shares"
for all purposes under this Agreement and any purchasers thereof shall be deemed
to be "Purchasers" for all purposes under this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the Schedule of Exceptions delivered by the
Company to the Purchasers at the First Closing, or at any Subsequent Closing, as
the case may be, the Company hereby represents and warrants to each Purchaser as
follows (except with respect to Section 3.3, throughout this Section 3 the
"Company" refers to The Petroleum Place, Inc. and each of its Subsidiaries (as
defined in the Schedule of Exceptions)):
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and each Subsidiary of the Company is a corporation
duly organized, validly existing and in good standing under the laws of its
respective state of incorporation. The Company has all requisite corporate power
and authority to own and operate its properties and assets, to execute and
deliver this Agreement and the Investors' Rights Agreement, in the form attached
hereto as Exhibit C (the "INVESTORS' RIGHTS AGREEMENT"), to issue and sell the
Shares and the Conversion Shares and to carry out the provisions of this
Agreement, the Investors' Rights Agreement, and the Restated Certificate and to
carry on its business as presently conducted and as presently proposed to be
conducted. The Company is duly qualified and is authorized to do business and is
in good standing as a foreign corporation in all jurisdictions in which the
nature of its activities and of its properties (both owned and leased) make such
qualifications necessary, except for those jurisdictions in which failure to do
so would not have a material adverse effect on the Company or its business.
2.
<PAGE> 6
3.2 SUBSIDIARIES. Except as set forth in the Schedule of Exceptions,
the Company owns no equity securities of any other corporation, limited
partnership or similar entity. The Company is not a participant in any joint
venture, partnership or similar arrangement. The Company is the owner of all of
the issued and outstanding capital stock of each of the subsidiaries.
3.3 CAPITALIZATION; VOTING RIGHTS. The authorized capital stock of the
Company, immediately prior to the Closing, will consist of (a) fifteen million
(15,000,000) shares of Common Stock, five hundred thousand (500,000) shares of
which are issued and outstanding, and eight hundred thirty-three thousand
(833,000) shares of which are reserved or will be reserved in the future for
issuance to key employees, consultants and others affiliated with the Company or
a subsidiary thereof pursuant to stock grant, stock purchase and/or option plans
or any other stock incentive program, arrangement or agreement approved by the
Company's Board of Directors and (b) six million five hundred thousand
(6,500,000) shares of Preferred Stock, two million (2,000,000) of which are
designated Series A Preferred Stock, one million nine hundred six thousand one
hundred thirty-seven (1,906,137) of which are issued and outstanding, five
hundred thousand (500,000) of which are designated Series B Preferred Stock,
four hundred fifty-five thousand one hundred twenty (455,120) of which are
issued and outstanding, and one million five hundred thousand (1,500,000) of
which are designated Series C Preferred Stock, none of which are issued and
outstanding. All issued and outstanding shares of the Company's Common Stock and
Preferred Stock (i) have been duly authorized and validly issued, (ii) are fully
paid and nonassessable and (iii) were issued in compliance with all applicable
state and federal laws concerning the issuance of securities. The rights,
preferences, privileges and restrictions of the Shares are as stated in the
Restated Certificate. The Conversion Shares have been duly and validly reserved
for issuance. Except as may be granted pursuant to this Agreement, there are no
outstanding options, warrants, rights (including conversion or preemptive rights
and rights of first refusal), proxy or stockholder agreements, or agreements of
any kind for the purchase or acquisition from the Company of any of its
securities. The Shares and the Conversion Shares have been duly authorized and,
when issued in compliance with the provisions of this Agreement and the Restated
Certificate will be validly issued, fully paid and nonassessable and will be
free of any liens or encumbrances; provided, however, that the Shares and the
Conversion Shares may be subject to restrictions on transfer under state and/or
federal securities laws as set forth herein or as otherwise required by such
laws at the time the transfer is proposed.
3.4 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for the
authorization of this Agreement and the Investors' Rights Agreement, the
performance of all obligations of the Company hereunder and thereunder at the
Closing and the authorization, sale, issuance and delivery of the Shares
pursuant hereto and the Conversion Shares pursuant to the Restated Certificate
has been taken or will be taken prior to the Closing. The Agreement and the
Investors' Rights Agreement, when executed and delivered, will be valid and
binding obligations of the Company enforceable in accordance with their terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; (ii) general principles of equity that restrict the
availability of equitable remedies; and (iii) to the extent that the
enforceability of the indemnification provisions in the Investors' Rights
Agreement may be limited by applicable
3.
<PAGE> 7
federal securities laws. The sale of the Shares and the subsequent conversion of
the Shares into Conversion Shares are not and will not be subject to any
preemptive rights or rights of first refusal that have not been properly waived
or complied with.
3.5 FINANCIAL STATEMENTS. The Company has delivered to each Purchaser
(i) its audited balance sheet as at September 30, 1999 and audited statement of
income and cash flows for the twelve months ending September 30, 1999 and (ii)
its unaudited balance sheet as of January 31, 2000 (the "STATEMENT DATE") and
unaudited statement of income for the four month period ending on the Statement
Date (collectively, the "FINANCIAL STATEMENTS"). The Financial Statements,
together with the notes thereto, are complete and correct in all material
respects, have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated,
except as disclosed therein, and present fairly the financial condition and
position and operating results of the Company as of September 30, 1999 and the
Statement Date; provided, however, that the unaudited financial statements are
subject to normal recurring year-end audit adjustments (which are not expected
to be material), and do not contain all footnotes required under generally
accepted accounting principles.
3.6 LIABILITIES. The Company has no material liabilities and, to its
knowledge, knows of no material contingent liabilities not disclosed to the
Purchasers in writing, except current liabilities incurred in the ordinary
course which have not been, either in any individual case or in the aggregate,
materially adverse to the financial condition or operating results of the
Company.
3.7 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated hereby and
agreements between the Company and its employees with respect to the sale of the
Company's Common Stock, there are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates,
stockholders or their respective affiliates.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or to its knowledge by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $100,000, or (ii) the license of any patent, copyright,
trade secret or other proprietary right to or from the Company (other than
licenses arising from the purchase of "off the shelf" or other standard
products), or (iii) provisions restricting or affecting the development,
manufacture or distribution of the Company's products or services, or (iv)
indemnification by the Company with respect to infringements of proprietary
rights.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities (other than with respect to dividend obligations,
distributions, indebtedness and other obligations incurred in the ordinary
course of business or as disclosed in the Financial Statements) individually in
excess of $100,000 or, in the case of indebtedness and/or liabilities
individually less than $100,000, in excess of $150,000 in the aggregate, (iii)
made any loans or advances to any person, other than ordinary advances for
travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its inventory in the ordinary course of
business.
4.
<PAGE> 8
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Company has not engaged in the past six (6) months in
any discussion with any representative of any corporation or corporations or
other entity regarding the liquidation, dissolution or winding up of the Company
or regarding any Acquisition or Asset Transfer, as those terms are defined in
the Restated Certificate.
3.8 OBLIGATIONS TO RELATED PARTIES. There are no obligations of the
Company to officers, directors, stockholders, or employees of the Company or any
of their respective affiliates other than (a) for payment of salary for services
rendered, (b) reimbursement for reasonable expenses incurred on behalf of the
Company and (c) for other standard employee benefits made generally available to
all employees (including stock option agreements outstanding under any stock
option plan approved by the Board of Directors of the Company). No officer,
director or, to the Company's knowledge, stockholder, or any member of their
immediate families or any of their respective affiliates, are indebted to the
Company or have any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation which competes with the
Company, except that officers, directors and/or stockholders of the Company may
own stock in publicly traded companies which may compete with the Company. No
such officer, director or stockholder, or any member of their immediate families
is, directly or indirectly, interested in any material contract with the Company
(other than such contracts as relate to any such person's ownership of capital
stock or other securities of the Company). The Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
3.9 CHANGES. Since September 30, 1999, there has not been:
(a) Any change in the assets, liabilities, financial condition
or operations of the Company from that reflected in the Financial Statements,
other than changes in the ordinary course of business, none of which
individually or in the aggregate has had or is expected to have a material
adverse effect on such assets, liabilities, financial condition or operations of
the Company;
(b) Any resignation or termination of any key officers of the
Company; and the Company, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
5.
<PAGE> 9
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) Any direct or indirect loans made by the Company to any
stockholder, employee, officer or director of the Company, other than advances
made in the ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company
is a party or by which it is bound which materially and adversely affects the
business, assets, liabilities, financial condition, operations or prospects of
the Company, including compensation agreements with the Company's employees; or
(m) Any other event or condition of any character that, either
individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects of
the Company. For purposes of this subsection (m), a material and adverse effect
shall only be deemed to occur if its monetary impact exceeds, or with the
passage of time, will exceed $100,000.
3.10 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good
and marketable title to its properties and assets, and good title to its
leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (i) those resulting from taxes which have not
yet become delinquent, (ii) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially impair the
operations of the Company and (iii) those that have otherwise arisen in the
ordinary course of business. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. The Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
6.
<PAGE> 10
3.11 INTELLECTUAL PROPERTY. The Company owns or possesses sufficient
legal rights to all trademarks, service marks, trade names, copyrights, trade
secrets and licenses, and to the knowledge of the Company, to all patents,
information and other proprietary rights and processes necessary for or used in
its business as now conducted and as proposed to be conducted, without any known
infringement of the rights of others. There are no outstanding options, licenses
or agreements of any kind relating to the foregoing, nor is the Company bound by
or a party to any options, licenses or agreements of any kind with respect to
the patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes of any other
person or entity other than such licenses or agreements arising from the
purchase of "off the shelf" or standard products. To the Company's knowledge,
the Company has not violated or, by conducting its business as proposed, would
not violate any of the patents, trademarks, service marks, trade names,
copyrights or trade secrets or other proprietary rights of any other person or
entity. The Company is not aware that any of its employees is obligated under
any contract (including licenses, covenants or commitments or any nature) or
other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the Company's
business by the employees of the Company, nor the conduct of the Company's
business as proposed, will, to the Company's knowledge, conflict with or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any employee is now
obligated. The Company does not believe it is or will be necessary to utilize
any inventions, trade secrets or proprietary information of any of its employees
made prior to their employment by the Company, except for inventions, trade
secrets or proprietary information that have been assigned to the Company.
3.12 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation
or default of any term of its Restated Certificate or Bylaws, or of any
provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order, writ, statute, rule or regulation applicable to the Company which
would materially and adversely affect the business, assets, liabilities,
financial condition, operations or prospects of the Company. The execution,
delivery, and performance of and compliance with this Agreement and the
Investors' Rights Agreement, and the issuance and sale of the Shares pursuant
hereto and of the Conversion Shares pursuant to the Restated Certificate, will
not, with or without the passage of time or giving of notice, result in any such
material violation, or be in conflict with or constitute a default under any
such term, or result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of the Company or the suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license,
authorization or approval applicable to the Company, its business or operations
or any of its assets or properties.
3.13 LITIGATION. There is no action, suit, proceeding or investigation
pending or to the Company's knowledge currently threatened against the Company
that questions the validity of this Agreement and the Investors' Rights
Agreement or the right of the Company to enter into any of such agreements, or
to consummate the transactions contemplated hereby or thereby, or which might
result, either individually or in the aggregate, in any material adverse change
in the assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company, nor is
the Company aware that there is any basis for the foregoing. The foregoing
includes, without limitation, actions pending or threatened (or
7.
<PAGE> 11
any basis therefor known to the Company) involving the prior employment of any
of the Company's employees, their use in connection with the Company's business
of any information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
3.14 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and all other
taxes due and payable by the Company on or before the Closing have been paid or
will be paid prior to the time they become delinquent. The Company has not been
advised (i) that any of its returns, federal, state or other, have been or are
being audited as of the date hereof, or (ii) of any deficiency in assessment or
proposed judgment to its federal, state or other taxes. The Company has no
knowledge of any liability of any tax to be imposed upon its properties or
assets as of the date of this Agreement that is not adequately provided for in
the Financial Statements.
3.15 EMPLOYEES. The Company has no collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company. No
employee has any agreement or contract, written or verbal, regarding his
employment. To the Company's knowledge, no employee of the Company, nor any
consultant with whom the Company has contracted, is in violation of any term of
any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company because of the nature of the business to be conducted
by the Company; and to the Company's knowledge the continued employment by the
Company of its present employees, and the performance of the Company's contracts
with its independent contractors, will not result in any such violation. The
Company has not received any notice alleging that any such violation has
occurred. No employee of the Company has been granted the right to continued
employment by the Company or to any material compensation following termination
of employment with the Company. The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate their
employment with the Company, nor does the Company have a present intention to
terminate the employment of any officer, key employee or group of key employees.
3.16 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. Each current
employee, officer and consultant of the Company has executed a Proprietary
Information and Inventions Agreement. To the knowledge of the Company, no
employee is in material violation of his or her Proprietary Information and
Inventions Agreement.
3.17 OBLIGATIONS OF MANAGEMENT. Each officer of the Company is
currently devoting one hundred percent (100%) of his business time to the
conduct of the business of the Company. The Company is not aware that any
officer or key employee of the Company is planning to work less than full time
at the Company in the future.
8.
<PAGE> 12
3.18 REGISTRATION RIGHTS. Except as required pursuant to the Investors'
Rights Agreement, the Company is presently not under any obligation, and has not
granted any rights, to register (as defined in Section 1 of the Investors'
Rights Agreement) any of the Company's presently outstanding securities or any
of its securities that may hereafter be issued.
3.19 COMPLIANCE WITH LAWS; PERMITS. The Company is not in violation of
any applicable statute, rule, regulation, order or restriction of any domestic
or foreign government or any instrumentality or agency thereof in respect of the
conduct of its business or the ownership of its properties which violation would
materially and adversely affect the business, assets, liabilities, financial
condition, operations or prospects of the Company. No governmental orders,
permissions, consents, approvals or authorizations are required to be obtained
and no registrations or declarations are required to be filed in connection with
the execution and delivery of this Agreement and the issuance of the Shares or
the Conversion Shares, except such as has been duly and validly obtained or
filed, or with respect to any filings that must be made after the Closing, as
will be filed in a timely manner. The Company has all franchises, permits,
licenses and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects or financial condition of the Company
and believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted.
3.20 ENVIRONMENTAL AND SAFETY LAWS. The Company is not in violation of
any applicable statute, law or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation.
3.21 OFFERING VALID. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Section 4.2 hereof, the offer, sale
and issuance of the Shares and the Conversion Shares will be exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws. Neither the
Company nor any agent on its behalf has solicited or will solicit any offers to
sell or has offered to sell or will offer to sell all or any part of the Shares
to any person or persons so as to bring the sale of such Shares by the Company
within the registration provisions of the Securities Act or any state securities
laws.
3.22 DISCLOSURE. Neither this Agreement nor any schedule hereto, nor
any written disclosure document furnished by or on behalf of the Company to the
Purchasers or counsel to the Purchasers (including all documents, agreements,
certificates and instruments delivered in accordance with the terms of this
Agreement) in connection with the transactions contemplated by this Agreement,
when read together, contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances under which they were made, not
misleading; provided, however, that this representation and warranty shall not
apply to any information contained within any of the foregoing relating to
future events or the projected future financial performance of the Company,
including any financial projections or descriptions of potential strategic or
business relationships between the Company and third parties. Any such financial
projections or descriptions of potential strategic or business relationships
which have been provided to the Purchasers were prepared in good faith by the
Company.
9.
<PAGE> 13
3.23 SMALL BUSINESS CONCERN. The Company is a "small business" within
the meaning of the Small Business Investment Act of 1958, as amended (the "Small
Business Act"). The information delivered by the Company on Small Business
Administration Forms 480, 652 and 1031 in connection herewith is accurate and
complete. The Company is not ineligible for financing by any Federal licensee
(under the Small Business Act) pursuant to Section 107.720 of Title 13 of the
Federal Regulation. The Company acknowledges that Wasserstein Adelson Ventures,
L.P. is a Federal licensee under the Small Business Act.
3.24 INVESTMENT COMPANY. The Company is not an "investment company" or
a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended (the "1940 Act").
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby represents and warrants to the Company as follows
(such representations and warranties do not lessen or obviate the
representations and warranties of the Company set forth in this Agreement):
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement and the Investors' Rights Agreement and to carry out their provisions.
All action on Purchaser's part required for the lawful execution and delivery of
this Agreement and the Investors' Rights Agreement have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Investors' Rights Agreement will be valid and binding
obligations of Purchaser, enforceable in accordance with their terms, except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights,
(ii) general principles of equity that restrict the availability of equitable
remedies and (iii) to the extent that the enforceability of the indemnification
provisions of the Investors' Rights Agreement may be limited by applicable laws.
4.2 INVESTMENT REPRESENTATIONS. Purchaser understands that neither the
Shares nor the Conversion Shares have been registered under the Securities Act.
Purchaser also understands that the Shares are being offered and sold pursuant
to an exemption from registration contained in the Securities Act based in part
upon Purchaser's representations contained in the Agreement. Purchaser hereby
represents and warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment indefinitely unless the Shares (or the Conversion Shares) are
registered pursuant to the Securities Act, or an exemption from registration is
available. Purchaser understands that the Company has no present intention of
registering the Shares (except as
10.
<PAGE> 14
provided for in the Investors' Rights Agreement), the Conversion Shares or any
shares of its Common Stock. Purchaser also understands that there is no
assurance that any exemption from registration under the Securities Act will be
available and that, even if available, such exemption may not allow Purchaser to
transfer all or any portion of the Shares or the Conversion Shares under the
circumstances, in the amounts or at the times Purchaser might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the
Shares and the Conversion Shares for Purchaser's own account for investment
only, and not with a view towards their distribution.
(c) PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents
that by reason of its, or of its management's, business or financial experience,
Purchaser has the capacity to evaluate the risks and merits of the transactions
contemplated in this Agreement. Further, Purchaser is aware of no publication of
any advertisement in connection with the transactions contemplated in the
Agreement.
(d) ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
(e) RULE 144. Purchaser acknowledges and agrees that the
Shares, and, if issued, the Conversion Shares must be held indefinitely unless
they are subsequently registered under the Securities Act or an exemption from
such registration is available. Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the
availability of certain current public information about the Company, the resale
occurring following the required holding period under Rule 144 and the number of
shares being sold during any three-month period not exceeding specified
limitations.
(f) RESIDENCE. If the Purchaser is an individual, then the
Purchaser resides in the state or province identified in the address of the
Purchaser set forth on Exhibit A; if the Purchaser is a partnership,
corporation, limited liability company or other entity, then the office or
offices of the Purchaser in which its investment decision was made is located at
the address or addresses of the Purchaser set forth on Exhibit A.
4.3 TRANSFER RESTRICTIONS. Each Purchaser acknowledges and agrees that
the Shares and, if issued, the Conversion Shares are subject to restrictions on
transfer as set forth in the Investors' Rights Agreement and the Company's
Bylaws.
5. CONDITIONS TO CLOSING
5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS AT EACH CLOSING. Purchasers'
obligations to purchase the Shares at each Closing are subject to the
satisfaction, at or prior to each such Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. With respect to the First Closing, the representations and
warranties made by the Company in Section 3 hereof shall be true and correct in
all material respects as of such Closing Date with the
11.
<PAGE> 15
same force and effect as if they had been made as of such Closing Date, and the
Company shall have performed all obligations and conditions herein required to
be performed or observed by it on or prior to such Closing. With respect to any
Subsequent Closing, the Company shall have delivered an updated Schedule of
Exceptions, and the representation and warranties made by the Company in Section
3 hereof, as modified by such revised Schedule of Exceptions, shall be true and
correct in all material respects as of such Closing Date, and the Company shall
have performed all obligations and conditions herein required to be performed or
observed by it on or prior to such Closing.
(b) LEGAL INVESTMENT. On the Closing Date, the sale and
issuance of the Shares and the proposed issuance of the Conversion Shares shall
be legally permitted by all laws and regulations to which Purchasers and the
Company are subject.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the
Investors' Rights Agreement (except for such as may be properly obtained
subsequent to the Closing).
(d) FILING OF RESTATED CERTIFICATE. The Restated Certificate
shall have been filed with the Secretary of State of the State of Delaware.
(e) INVESTORS' RIGHTS AGREEMENT. An Investors' Rights
Agreement, substantially in the form attached hereto as Exhibit C, shall have
been executed and delivered by the parties thereto.
(f) LEGAL OPINION. The Purchasers shall have received from
legal counsel to the Company an opinion addressed to them, dated as of the
Closing Date, in a form reasonably acceptable to the Purchasers.
(g) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchasers and their
special counsel, and the Purchasers and their special counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
(h) COMPLIANCE WITH SECURITIES LAWS. All federal and state
securities filings required in connection with the transactions contemplated by
this Agreement shall have been made or obtained except those filings which may
properly be made or obtained after Closing.
(i) NO MATERIAL ADVERSE CHANGE. There shall not have been any
material adverse change in the business, financial condition or prospects of the
Company.
(j) RESERVATION OF CONVERSION SHARES. The Conversion Shares
shall be duly authorized and reserved for issuance upon the conversion of the
Series C Stock.
12.
<PAGE> 16
(k) MANAGEMENT RIGHTS LETTER. A Management Rights Letter,
substantially in the form attached hereto as Exhibit D, shall have been executed
and delivered by the parties thereto.
(l) OFFICER'S CERTIFICATE. The Purchasers shall have received
a certificate of the President of the Company certifying that the conditions in
this Section 5.1(a), (c) and (d) have been satisfied as of the date of the First
Closing and any Subsequent Closing.
(m) SBA FORMS. The Company shall have completed, executed, and
delivered to each Investor a Size Status Declaration on SBA Form 480, an
Assurance of Compliance on SBA Form 652 and an SBA Sideletter, and shall have
completed and delivered to each Investor Parts A and B of a Portfolio Financing
Report on SBA Form 1031.
(n) DIRECTOR AND OFFICER INSURANCE. The Company shall obtain
Director and Officer Insurance in an amount not less than $3,000,000 within 60
days of the Closing Date.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's obligation
to issue and sell the Shares at each Closing is subject to the satisfaction, on
or prior to such Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties made by the Purchasers in Section 4 hereof shall be true and
correct in all material respects at the date of each Closing, with the same
force and effect as if they had been made on and as of said date.
(b) PERFORMANCE OF OBLIGATIONS. Purchasers shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by Purchasers on or before each Closing.
(c) FILING OF RESTATED CERTIFICATE. The Restated Certificate
shall have been filed with the Secretary of State of the State of Delaware.
(d) INVESTORS' RIGHTS AGREEMENT. An Investors' Rights
Agreement, substantially in the form attached hereto as Exhibit C, shall have
been executed and delivered by the Purchasers.
(e) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the
Investors' Rights Agreement (except for such as may be properly obtained
subsequent to the Closing).
6. MISCELLANEOUS
6.1 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Colorado without regard to its
conflict-of-laws rules; provided, however, that all matters of corporate law
shall be governed by Delaware General Corporation Law.
13.
<PAGE> 17
6.2 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by any Purchaser and the
closing of the transactions contemplated hereby. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.
6.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, including the Investors' Rights Agreement, and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and no party
shall be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein and
therein.
6.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
6.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and holders of a majority of the Shares (treated
as if converted and including any Conversion Shares into which the Shares have
been converted that have not been sold to the public).
(b) The obligations of the Company and the rights of the
holders of the Shares and the Conversion Shares under the Agreement may be
waived only with the written consent of the holders of a majority of the Shares
(treated as if converted and including any Conversion Shares into which the
Shares have been converted that have not been sold to the public).
6.7 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified; (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) business day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be sent
to the Company at the address as set forth on the signature page hereof and to
Purchaser at the address as set forth on Exhibit A hereto or at such other
address as the Company or Purchaser may designate by ten (10) days advance
written notice to the other parties hereto.
6.8 EXPENSES. The Company shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
the Agreement. The Company
14.
<PAGE> 18
shall reimburse the reasonable fees and expenses of one special counsel to the
Purchasers and one special counsel to the holders of the Company's Series A
Preferred Stock (the "Series A Special Counsel") incurred in connection with the
negotiation, execution, delivery and performance of this Agreement and the
transactions contemplated thereby, provided that the amount to be reimbursed to
the Series A Special Counsel shall not exceed $3,500.
6.9 ATTORNEYS' FEES. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
6.10 TITLES AND SUBTITLES. The titles of the sections and subsections
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.12 BROKER'S FEES. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 6.12 being untrue.
6.13 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that it
is not relying upon any person, firm, or corporation, other than the Company and
its officers and directors, in making its investment or decision to invest in
the Company. Each Purchaser agrees that no other Purchaser nor the respective
controlling persons, officers, directors, partners, agents, or employees of any
such Purchaser shall be liable for any action heretofore or hereafter taken or
omitted to be taken by any of them in connection with the Shares and Conversion
Shares.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
15.
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have executed the SERIES C
PREFERRED STOCK PURCHASE AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY: PURCHASERS:
PETROLEUM PLACE, INC. /s/
----------------------------------
By: /s/ Gary R. Vickers By:
----------------------------- -------------------------------
Gary R. Vickers
President and Chief Executive Officer Name:
-----------------------------
Title:
----------------------------
7900 East Union Avenue, Suite 1100 Address:
Denver, CO 80237 --------------------------
----------------------------------
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE> 20
EXHIBIT A
SCHEDULE OF PURCHASERS
FIRST CLOSING
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES AGGREGATE PURCHASE PRICE
- ---------------- -------- ------------------------
<S> <C> <C>
Anschutz Family Investment 15,879 $ 938,766.48
Company LLC
A.C.E. Investment Partnership 1,036 61,248.32
Channel P2, LLC 138,363 8,180,000.00
Channel P2 Group, LLC 13,870 820,000.00
PCG Ventures LLC 33,830 2,000,029.60
Cornerstone Ventures, LP 16,915 1,000,014.80
BV Ventures, Ltd. 16,915 1,000,014.80
Damac Technology Partners, LP 50,744 2,999,985.28
Damac Investors (XV) Inc. 16,915 1,000,014.80
Damac Investors (XVI) Inc. 15,225 900,102.00
W. Greg Osborn 169 9,991.28
Howard E. Dallmar 845 49,956.40
J. Walter Hoskins 676 39,965.12
Founders III, LLC 33,830 2,000,029.60
The Goldman Sachs Group, Inc. 33,830 2,000,029.60
Seligman Communications and 16,915 1,000,014.80
Information Fund, Inc.
Seligman New Technologies Fund, 68,505 4,050,015.60
Inc.
Seligman Investment Opportunities 16,069 949,999.28
(Master) Fund NTV Portfolio
NIG-Petro, Ltd. 16,914 999,955.68
NeoCarta Ventures, L.P. 60,893 3,599,994.16
NeoCarta Scout Fund, L.L.C 6,766 400,005.92
Partech U.S. Partners IV LLC 16,915 1,000,014.80
Axa U.S. Growth Fund LLC 11,840 699,980.80
Parallel Capital I LLC 25,372 1,499,992.64
Parallel Capital II LLC 25,372 1,499,992.64
</TABLE>
<PAGE> 21
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES AGGREGATE PURCHASE PRICE
- ---------------- -------- ------------------------
<S> <C> <C>
Double Black Diamond II LLC 3,383 200,002.96
45th Parallel LLC 1,692 100,031.04
Sequel Limited Partnership II 16,365 967,498.80
Sequel Entrepreneurs Fund II, LP 550 32,516.00
Wasserstein Adelson Ventures 33,830 2,000,029.60
Ronald Emerick 2,960 174,995.20
Richard P. Kiphart 1,268 74,964.16
WB Internet Fund 2000, LLC 5,767 340,945.04
WB Internet Fund 2000 QP, LLC 6,920 409,110.40
Winfield Capital Corp. 25,372 1,499,992.64
Byron Trott 3,384 200,062.08
Eric P. Grubman 1,691 99,971.92
David M. Leuschen 1,691 99,971.92
Pierre Lapeyre 846 50,015.52
Doug MacKenzie 845 49,956.40
Total 761,167 $45,000,178.08
</TABLE>
A-2
<PAGE> 22
SUBSEQUENT CLOSINGS
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES AGGREGATE PURCHASE PRICE
- ---------------- -------- ------------------------
<S> <C> <C>
Chesapeake Energy Corporation 33,830 $2,000,029.60
Hydrocarbon Investors, LLC 2,706 159,978.72
Oxy Energy Services, Inc. 33,829 1,999,970.48
Ocean Energy Inc. 17,000 1,005,040.00
William Transier 425 25,126.00
John D. Schiller 425 25,126.00
Unocal Capital, Inc. 50,744 2,999,985.28
El Paso Field Services Company 42,286 2,499,948.32
Online Energy Solutions, Inc. 33,829 1,999,970.48
Forest Oil Corporation 16,238 19,982.56
David H. Keyte 338 19,982.56
Robert S. Boswell 338 19,982.56
Tom Brown, Inc. 16,915 1,000,014.80
Total
</TABLE>
A-3
<PAGE> 23
EXHIBIT B
RESTATED CERTIFICATE OF INCORPORATION
<PAGE> 24
EXHIBIT C
INVESTORS' RIGHTS AGREEMENT
<PAGE> 1
EXHIBIT 10.8
September 28, 1999
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE 5,000 SHARES
OF COMMON STOCK OF
ENERGY AUCTION EXCHANGE, INC.
(VOID AFTER SEPTEMBER 27, 2004)
This certifies that MICHAEL ALLEN or its assigns (the "HOLDER"), for
value received, is entitled to purchase from ENERGY AUCTION EXCHANGE, INC., a
Delaware corporation (the "COMPANY"), having a place of business at 7900 East
Union Avenue, Suite 1100, Denver, Colorado 80237, up to a maximum of five
thousand (5,000) fully paid and nonassessable shares (the "SHARES") of the
Company's common stock (the "COMMON STOCK") at a price of Seventy-Five Cents
($0.75) per share (the "STOCK PURCHASE PRICE") at any time or from time to time
up to and including 5:00 p.m. (Colorado time) on the earlier to occur of (i)
the closing of the initial public offering of the Company's Common Stock
pursuant to a registration statement under the Securities Act of 1933, as
amended, or (ii) September 27, 2004, such earlier day being referred to herein
as the "EXPIRATION DATE", upon surrender to the Company at its principal office
(or at such other location as the Company may advise the Holder in writing)
this Warrant properly endorsed with the Notice of Exercise and Investment
Representation Statement attached hereto duly filled in and signed and, if
applicable, payment in cash or by check of the aggregate Stock Purchase Price
for the number of shares for which this Warrant is being exercised determined
in accordance with the provisions hereof. The Stock Purchase Price and the
number of shares purchasable hereunder are subject to adjustment as provided in
Section 3 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
(a) GENERAL. This Warrant is exercisable at the option of the holder
of record hereof, at any time or from time to time, up to the Expiration Date
for all or any part of the shares of Common Stock (but not for a fraction of a
share) which may be purchased hereunder.
(b) ISSUANCE OF CERTIFICATES. The Company agrees that the shares of
Common Stock purchased under this Warrant shall be and are deemed to be issued
to the Holder hereof as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered,
properly endorsed, the completed, executed Notice of Exercise delivered and
payment made for such shares. Certificates for the shares of Common Stock so
purchased, together with any other securities or property to which the Holder
hereof is entitled upon such
1.
<PAGE> 2
exercise, shall be delivered to the Holder hereof by the Company at the
Company's expense within a reasonable time after the rights represented by this
Warrant have been so exercised. In case of a purchase of less than all the
shares which may be purchased under this Warrant, the Company shall cancel this
Warrant and execute and deliver a new Warrant or Warrants of like tenor for the
balance of the shares purchasable under the Warrant surrendered upon such
purchase to the Holder hereof within a reasonable time. Each stock certificate
so delivered shall be in such denominations of Common Stock as may be requested
by the Holder hereof and shall be registered in the name of such Holder.
(c) NET ISSUE EXERCISE. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Common Stock
is greater than the Stock Purchase Price (at the date of calculation as set
forth below), in lieu of exercising this Warrant for cash, the Holder may elect
to receive shares equal to the value (as determined below) of this Warrant (or
the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with the properly endorsed Notice of
Exercise and notice of such election in which event the Company shall issue to
the Holder a number of shares of Common Stock computed using the following
formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock purchasable
under the Warrant or, if only a portion of the Warrant is
being exercised, the portion of the Warrant being canceled
(at the date of such calculation)
A = the fair market value of one share of the Company's Common
Stock (at the date of such calculation)
B = Stock Purchase Price (as adjusted to the date of such
calculation)
For purposes of the above calculation, the fair market value of one
share of Common Stock shall be determined by the Company's Board of Directors
in good faith; provided, however, that in the event the Holder exercises this
Warrant in connection with the Company's initial public offering of its Common
Stock, the fair market value per share shall be the product of (i) the per
share offering price to the public of the Company's initial public offering and
(ii) the number of shares of Common Stock being exercised; and, provided,
further, that following the Company's initial public offering of its Common
Stock, the fair market value per share shall be the average of the closing
prices quoted on any exchange or the Nasdaq Stock Market, whichever is
applicable, on which the Common Stock is listed for the ten (10) trading days
prior to the date of determination of fair market value.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants and
agrees that all shares of Common Stock which may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance, be duly authorized,
validly issued, fully paid and nonassessable and free from all preemptive
rights of any stockholder and free of all taxes,
2.
<PAGE> 3
liens and charges with respect to the issue thereof. The Company further
covenants and agrees that, during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times
have authorized and reserved, for the purpose of issue or transfer upon
exercise of the subscription rights evidenced by this Warrant, a sufficient
number of shares of authorized but unissued Common Stock, or other securities
and property, when and as required to provide for the exercise of the rights
represented by this Warrant. The Company will take all such action as may be
necessary to assure that such shares of Common Stock may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of any domestic securities exchange upon which the Common Stock
may be listed; provided, however, that the Company shall not be required to
effect a registration under federal or state securities laws with respect to
such exercise. The Company will not take any action which would result in any
adjustment of the Stock Purchase Price (as set forth in Section 3 hereof) if
the total number of shares of Common Stock issuable after such action upon
exercise of all outstanding warrants, together with all shares of Common Stock
then outstanding and all shares of Common Stock then issuable upon exercise of
all options and upon the conversion of all convertible securities then
outstanding, would exceed the total number of shares of Common Stock then
authorized by the Company's Restated Certificate of Incorporation.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock Purchase
Price and the number of shares purchasable upon the exercise of this Warrant
shall be subject to adjustment from time to time upon the occurrence of certain
events described in this Section 3. Upon each adjustment of the Stock Purchase
Price, the Holder of this Warrant shall thereafter be entitled to purchase, at
the Stock Purchase Price resulting from such adjustment, the number of shares
obtained by multiplying the Stock Purchase Price in effect immediately prior to
such adjustment by the number of shares purchasable pursuant hereto immediately
prior to such adjustment, and dividing the product thereof by the Stock
Purchase Price resulting from such adjustment.
(a) SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall at
any time subdivide its outstanding shares of Common Stock into a greater number
of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
(b) DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the Holders of Common
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to
receive, without payment therefor,
(i) Common Stock or any shares of stock or other securities
which are at any time directly or indirectly convertible into or exchangeable
for Common Stock, or any rights or options to subscribe for, purchase or
otherwise acquire any of the foregoing by way of dividend or other
distribution,
(ii) any cash paid or payable otherwise than as a cash
dividend, or
3.
<PAGE> 4
(iii) Common Stock or additional stock or other securities or
property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement, (other than shares of
Common Stock issued as a stock split or adjustments in respect of which shall
be covered by the terms of Section 3(a) above), then and in each such case, the
Holder hereof shall, upon the exercise of this Warrant, be entitled to receive,
in addition to the number of shares of Common Stock receivable thereupon, and
without payment of any additional consideration therefor, the amount of stock
and other securities and property (including cash in the cases referred to in
clause (ii) above and this clause (iii)) which such Holder would hold on the
date of such exercise had he been the holder of record of such Common Stock as
of the date on which holders of Common Stock received or became entitled to
receive such shares or all other additional stock and other securities and
property.
(c) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE.
If any recapitalization, reclassification or reorganization of the capital
stock of the Company, or any consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets or
other transaction shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities, or other assets or property,
then, as a condition of such recapitalization, reclassification,
reorganization, consolidation, merger or sale, lawful and adequate provisions
shall be made by the Company whereby the Holder hereof shall thereafter have
the right to purchase and receive (in lieu of the shares of the Common Stock of
the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby) such shares of stock, securities or
other assets or property as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby; provided,
however, that in the event the value of the stock, securities or other assets
or property (determined in good faith by the Board of Directors of the Company)
issuable or payable with respect to one share of the Common Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby is in excess of the Stock Purchase Price hereof
effective at the time of a merger and securities received in such
reorganization, if any, are publicly traded, then this Warrant shall expire
unless exercised prior to such recapitalization, reclassification,
reorganization, consolidation, merger or sale of assets. The Company will not
effect any such reorganization, consolidation, merger or sale of assets unless,
prior to the consummation thereof, the successor corporation (if other than the
Company) or such corporation's parent resulting from such consolidation or the
corporation purchasing such assets shall assume by written instrument, executed
and mailed or delivered to the registered Holder hereof at the last address of
such Holder appearing on the books of the Company, the obligation to deliver to
such Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to purchase.
4. CERTAIN EVENTS AND NOTICES.
(a) CERTAIN EVENTS. If any change in the outstanding Common Stock of
the Company or any other event occurs as to which the other provisions of
Section 3 or Section 4 are not strictly applicable or if strictly applicable
would not fairly protect the purchase rights of the Holder of the Warrant in
accordance with such provisions, then the Board of Directors of the Company
shall make an adjustment in the number and class of shares available under the
4.
<PAGE> 5
Warrant, the Stock Purchase Price or the application of such provisions, so as
to protect such purchase rights as aforesaid. The adjustment shall be such as
will give the Holder of the Warrant upon exercise for the same aggregate Stock
Purchase Price the total number, class and kind of shares as he would have
owned had the Warrant been exercised prior to the event and had he continued to
hold such shares until after the event requiring adjustment.
(b) NOTICES OF CHANGE.
(i) Immediately upon any adjustment in the number or class of
shares subject to this Warrant and of the Stock Purchase Price, the Company
shall give written notice thereof to the Holder, setting forth in reasonable
detail and certifying the calculation of such adjustment.
(ii) The Company shall give written notice to the Holder at
least ten business days prior to the date on which the Company closes its books
or takes a record for determining rights to receive any dividends or
distributions.
(iii) The Company shall also give written notice to the
Holder at least 20 days prior to the consummation of a reorganization,
reclassification, consolidation, merger or sale of all or substantially all of
the assets of the Company.
Any such notice shall be signed by the Company's chief financial
officer and shall state the Stock Purchase Price resulting from such adjustment
and the increase or decrease, if any, in the number of shares purchasable at
such price upon the exercise of this Warrant or the amount of securities to be
received by the Company's stockholders, as applicable, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
5. ISSUE TAX. The issuance of certificates for shares of Common Stock upon the
exercise of the Warrant shall be made without charge to the Holder of the
Warrant for any issue tax (other than any applicable income taxes) in respect
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance
and delivery of any certificate in a name other than that of the then Holder of
the Warrant being exercised.
6. CLOSING OF BOOKS. The Company will at no time close its transfer books
against the transfer of any warrant or of any shares of Common Stock issued or
issuable upon the exercise of any warrant in any manner which interferes with
the timely exercise of this Warrant.
7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing contained in
this Warrant shall be construed as conferring upon the Holder hereof the right
to vote or to consent or to receive notice as a stockholder of the Company or
any other matters or any rights whatsoever as a stockholder of the Company. No
dividends or interest shall be payable or accrued in respect of this Warrant or
the interest represented hereby or the shares purchasable hereunder until, and
only to the extent that, this Warrant shall have been exercised. No provisions
hereof, in the absence of affirmative action by the holder to purchase shares
of Common Stock, and no mere enumeration herein of the rights or privileges of
the holder hereof, shall give rise to any liability of such Holder for the
Stock Purchase Price or as a stockholder of the Company, whether such liability
is asserted by the Company or by its creditors.
5.
<PAGE> 6
8. WARRANTS TRANSFERABLE. Subject to compliance with applicable federal and
state securities laws, this Warrant and all rights hereunder are transferable,
in whole or in part, without charge to the holder hereof (except for transfer
taxes), upon surrender of this Warrant properly endorsed. Each taker and holder
of this Warrant, by taking or holding the same, consents and agrees that this
Warrant, when endorsed in blank, shall be deemed negotiable, and that the
holder hereof, when this Warrant shall have been so endorsed, may be treated by
the Company, at the Company's option, and all other persons dealing with this
Warrant as the absolute owner hereof for any purpose and as the person entitled
to exercise the rights represented by this Warrant, or to the transfer hereof
on the books of the Company any notice to the contrary notwithstanding; but
until such transfer on such books, the Company may treat the registered owner
hereof as the owner for all purposes.
9. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the holder of this Warrant and of the holder of
shares of Common Stock issued upon exercise of this Warrant, referred to in
Section 8 shall survive the exercise of this Warrant.
10. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
11. NOTICES. Any notice, request or other document required or permitted to be
given or delivered to the holder hereof or the Company shall be delivered or
shall be sent by certified mail, postage prepaid, to each such holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.
12. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Common Stock issuable upon the exercise of this Warrant
shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof.
13. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of the
several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of Colorado.
14. LOST WARRANTS. The Company represents and warrants to the Holder hereof
that upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction, or mutilation of this Warrant and, in the case of any
such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
6.
<PAGE> 7
15. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise of
this Warrant. The Company shall, in lieu of issuing any fractional share, pay
the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
7.
<PAGE> 8
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officer, thereunto duly authorized this 28th day of September,
1999.
ENERGY AUCTION EXCHANGE, INC.
a Delaware corporation
By: /s/ Gary R. Vickers
-------------------------------------
Gary R. Vickers
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.9
September 28, 1999
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE 5,000 SHARES
OF COMMON STOCK OF
ENERGY AUCTION EXCHANGE, INC.
(VOID AFTER SEPTEMBER 27, 2004)
This certifies that STEVE FITZGERALD or its assigns (the "HOLDER"), for
value received, is entitled to purchase from ENERGY AUCTION EXCHANGE, INC., a
Delaware corporation (the "COMPANY"), having a place of business at 7900 East
Union Avenue, Suite 1100, Denver, Colorado 80237, up to a maximum of five
thousand (5,000) fully paid and nonassessable shares (the "SHARES") of the
Company's common stock (the "COMMON STOCK") at a price of Seventy-Five Cents
($0.75) per share (the "STOCK PURCHASE PRICE") at any time or from time to time
up to and including 5:00 p.m. (Colorado time) on the earlier to occur of (i) the
closing of the initial public offering of the Company's Common Stock pursuant to
a registration statement under the Securities Act of 1933, as amended, or (ii)
September 27, 2004, such earlier day being referred to herein as the "EXPIRATION
DATE", upon surrender to the Company at its principal office (or at such other
location as the Company may advise the Holder in writing) this Warrant properly
endorsed with the Notice of Exercise and Investment Representation Statement
attached hereto duly filled in and signed and, if applicable, payment in cash or
by check of the aggregate Stock Purchase Price for the number of shares for
which this Warrant is being exercised determined in accordance with the
provisions hereof. The Stock Purchase Price and the number of shares purchasable
hereunder are subject to adjustment as provided in Section 3 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
(a) GENERAL. This Warrant is exercisable at the option of the
holder of record hereof, at any time or from time to time, up to the Expiration
Date for all or any part of the shares of Common Stock (but not for a fraction
of a share) which may be purchased hereunder.
(b) ISSUANCE OF CERTIFICATES. The Company agrees that the shares
of Common Stock purchased under this Warrant shall be and are deemed to be
issued to the Holder hereof as the record owner of such shares as of the close
of business on the date on which this Warrant shall have been surrendered,
properly endorsed, the completed, executed Notice of Exercise delivered and
payment made for such shares. Certificates for the shares of Common Stock so
purchased, together with any other securities or property to which the Holder
hereof is entitled upon such
1.
<PAGE> 2
exercise, shall be delivered to the Holder hereof by the Company at the
Company's expense within a reasonable time after the rights represented by this
Warrant have been so exercised. In case of a purchase of less than all the
shares which may be purchased under this Warrant, the Company shall cancel this
Warrant and execute and deliver a new Warrant or Warrants of like tenor for the
balance of the shares purchasable under the Warrant surrendered upon such
purchase to the Holder hereof within a reasonable time. Each stock certificate
so delivered shall be in such denominations of Common Stock as may be requested
by the Holder hereof and shall be registered in the name of such Holder.
(c) NET ISSUE EXERCISE. Notwithstanding any provisions herein to
the contrary, if the fair market value of one share of the Company's Common
Stock is greater than the Stock Purchase Price (at the date of calculation as
set forth below), in lieu of exercising this Warrant for cash, the Holder may
elect to receive shares equal to the value (as determined below) of this Warrant
(or the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with the properly endorsed Notice of
Exercise and notice of such election in which event the Company shall issue to
the Holder a number of shares of Common Stock computed using the following
formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be
issued to the Holder
Y = the number of shares of Common Stock
purchasable under the Warrant or, if only a
portion of the Warrant is being exercised, the
portion of the Warrant being canceled (at the
date of such calculation)
A = the fair market value of one share of the
Company's Common Stock (at the date of such
calculation)
B = Stock Purchase Price (as adjusted to the date
of such calculation)
For purposes of the above calculation, the fair market value of one
share of Common Stock shall be determined by the Company's Board of Directors in
good faith; provided, however, that in the event the Holder exercises this
Warrant in connection with the Company's initial public offering of its Common
Stock, the fair market value per share shall be the product of (i) the per share
offering price to the public of the Company's initial public offering and (ii)
the number of shares of Common Stock being exercised; and, provided, further,
that following the Company's initial public offering of its Common Stock, the
fair market value per share shall be the average of the closing prices quoted on
any exchange or the Nasdaq Stock Market, whichever is applicable, on which the
Common Stock is listed for the ten (10) trading days prior to the date of
determination of fair market value.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants
and agrees that all shares of Common Stock which may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any stockholder and free of all taxes,
2.
<PAGE> 3
liens and charges with respect to the issue thereof. The Company further
covenants and agrees that, during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized
and reserved, for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant, a sufficient number of shares of
authorized but unissued Common Stock, or other securities and property, when and
as required to provide for the exercise of the rights represented by this
Warrant. The Company will take all such action as may be necessary to assure
that such shares of Common Stock may be issued as provided herein without
violation of any applicable law or regulation, or of any requirements of any
domestic securities exchange upon which the Common Stock may be listed;
provided, however, that the Company shall not be required to effect a
registration under federal or state securities laws with respect to such
exercise. The Company will not take any action which would result in any
adjustment of the Stock Purchase Price (as set forth in Section 3 hereof) if the
total number of shares of Common Stock issuable after such action upon exercise
of all outstanding warrants, together with all shares of Common Stock then
outstanding and all shares of Common Stock then issuable upon exercise of all
options and upon the conversion of all convertible securities then outstanding,
would exceed the total number of shares of Common Stock then authorized by the
Company's Restated Certificate of Incorporation.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Stock Purchase Price resulting from such adjustment.
(a) SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
(b) DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the Holders of Common
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
(i) Common Stock or any shares of stock or other
securities which are at any time directly or indirectly convertible into or
exchangeable for Common Stock, or any rights or options to subscribe for,
purchase or otherwise acquire any of the foregoing by way of dividend or other
distribution,
(ii) any cash paid or payable otherwise than as a cash
dividend, or
3.
<PAGE> 4
(iii) Common Stock or additional stock or other securities
or property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement, (other than shares of
Common Stock issued as a stock split or adjustments in respect of which shall be
covered by the terms of Section 3(a) above), then and in each such case, the
Holder hereof shall, upon the exercise of this Warrant, be entitled to receive,
in addition to the number of shares of Common Stock receivable thereupon, and
without payment of any additional consideration therefor, the amount of stock
and other securities and property (including cash in the cases referred to in
clause (ii) above and this clause (iii)) which such Holder would hold on the
date of such exercise had he been the holder of record of such Common Stock as
of the date on which holders of Common Stock received or became entitled to
receive such shares or all other additional stock and other securities and
property.
(c) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any recapitalization, reclassification or reorganization of the capital
stock of the Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets or other
transaction shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities, or other assets or property, then, as
a condition of such recapitalization, reclassification, reorganization,
consolidation, merger or sale, lawful and adequate provisions shall be made by
the Company whereby the Holder hereof shall thereafter have the right to
purchase and receive (in lieu of the shares of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby) such shares of stock, securities or other assets or
property as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby; provided, however, that in the event the value of
the stock, securities or other assets or property (determined in good faith by
the Board of Directors of the Company) issuable or payable with respect to one
share of the Common Stock of the Company immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby is in excess of
the Stock Purchase Price hereof effective at the time of a merger and securities
received in such reorganization, if any, are publicly traded, then this Warrant
shall expire unless exercised prior to such recapitalization, reclassification,
reorganization, consolidation, merger or sale of assets. The Company will not
effect any such reorganization, consolidation, merger or sale of assets unless,
prior to the consummation thereof, the successor corporation (if other than the
Company) or such corporation's parent resulting from such consolidation or the
corporation purchasing such assets shall assume by written instrument, executed
and mailed or delivered to the registered Holder hereof at the last address of
such Holder appearing on the books of the Company, the obligation to deliver to
such Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to purchase.
4. CERTAIN EVENTS AND NOTICES.
(a) CERTAIN EVENTS. If any change in the outstanding Common Stock
of the Company or any other event occurs as to which the other provisions of
Section 3 or Section 4 are not strictly applicable or if strictly applicable
would not fairly protect the purchase rights of the Holder of the Warrant in
accordance with such provisions, then the Board of Directors of the Company
shall make an adjustment in the number and class of shares available under the
4.
<PAGE> 5
Warrant, the Stock Purchase Price or the application of such provisions, so as
to protect such purchase rights as aforesaid. The adjustment shall be such as
will give the Holder of the Warrant upon exercise for the same aggregate Stock
Purchase Price the total number, class and kind of shares as he would have owned
had the Warrant been exercised prior to the event and had he continued to hold
such shares until after the event requiring adjustment.
(b) NOTICES OF CHANGE.
(i) Immediately upon any adjustment in the number or
class of shares subject to this Warrant and of the Stock Purchase Price, the
Company shall give written notice thereof to the Holder, setting forth in
reasonable detail and certifying the calculation of such adjustment.
(ii) The Company shall give written notice to the Holder
at least ten business days prior to the date on which the Company closes its
books or takes a record for determining rights to receive any dividends or
distributions.
(iii) The Company shall also give written notice to the
Holder at least 20 days prior to the consummation of a reorganization,
reclassification, consolidation, merger or sale of all or substantially all of
the assets of the Company.
Any such notice shall be signed by the Company's chief financial
officer and shall state the Stock Purchase Price resulting from such adjustment
and the increase or decrease, if any, in the number of shares purchasable at
such price upon the exercise of this Warrant or the amount of securities to be
received by the Company's stockholders, as applicable, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
5. ISSUE TAX. The issuance of certificates for shares of Common Stock upon
the exercise of the Warrant shall be made without charge to the Holder of the
Warrant for any issue tax (other than any applicable income taxes) in respect
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the then Holder of the
Warrant being exercised.
6. CLOSING OF BOOKS. The Company will at no time close its transfer books
against the transfer of any warrant or of any shares of Common Stock issued or
issuable upon the exercise of any warrant in any manner which interferes with
the timely exercise of this Warrant.
7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a stockholder of
the Company or any other matters or any rights whatsoever as a stockholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such Holder for the Stock Purchase Price or as a stockholder of the Company,
whether such liability is asserted by the Company or by its creditors.
5.
<PAGE> 6
8. WARRANTS TRANSFERABLE. Subject to compliance with applicable federal
and state securities laws, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the holder hereof (except
for transfer taxes), upon surrender of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that this Warrant, when endorsed in blank, shall be deemed negotiable,
and that the holder hereof, when this Warrant shall have been so endorsed, may
be treated by the Company, at the Company's option, and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented by this Warrant, or to
the transfer hereof on the books of the Company any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered owner hereof as the owner for all purposes.
9. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the holder of this Warrant and of the holder of
shares of Common Stock issued upon exercise of this Warrant, referred to in
Section 8 shall survive the exercise of this Warrant.
10. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
11. NOTICES. Any notice, request or other document required or permitted to
be given or delivered to the holder hereof or the Company shall be delivered or
shall be sent by certified mail, postage prepaid, to each such holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.
12. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Common Stock issuable upon the exercise of this Warrant
shall survive the exercise and termination of this Warrant. All of the covenants
and agreements of the Company shall inure to the benefit of the successors and
assigns of the holder hereof.
13. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of the
several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of Colorado.
14. LOST WARRANTS. The Company represents and warrants to the Holder hereof
that upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction, or mutilation of this Warrant and, in the case of any
such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
6.
<PAGE> 7
15. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share, pay
the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
7.
<PAGE> 8
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officer, thereunto duly authorized this 28th day of September,
1999.
ENERGY AUCTION EXCHANGE, INC.
a Delaware corporation
By: /s/ Gary R. Vickers
----------------------------------------
Gary R. Vickers
President and Chief Executive Officer
<PAGE> 9
NOTICE OF EXERCISE
Date: _________________, _____
Energy Auction Exchange, Inc.
7900 East Union Avenue, Suite 1100
Denver, CO 80237
Attn: President
Ladies and Gentlemen:
[ ] The undersigned hereby elects to exercise the warrant issued to it by
Energy Auction Exchange, Inc. (the "COMPANY") and dated September ___,
1999 (the "WARRANT") and to purchase thereunder
__________________________________ shares of the Common Stock of the
Company (the "SHARES") at a purchase price of
___________________________________________ Dollars ($__________) per
Share or an aggregate purchase price of
__________________________________ Dollars ($__________) (the "PURCHASE
PRICE").
[ ] The undersigned hereby elects to convert _______________________
percent (____%) of the value of the Warrant pursuant to the provisions
of Section 1(c) of the Warrant.
Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
-----------------------------------
(name)
-----------------------------------
-----------------------------------
(address)
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
The undersigned also makes the representations set forth on the attached
Investment Representation Letter.
Very truly yours,
--------------------------------
By:
-----------------------------
Title:
--------------------------
<PAGE> 10
INVESTMENT REPRESENTATION STATEMENT
TO: ENERGY AUCTION EXCHANGE, INC.
With respect to the __________ shares of Common Stock (the "SHARES") of ENERGY
AUCTION EXCHANGE, INC. (the "COMPANY") which the undersigned ("PURCHASER") has
purchased from the Company today, the Purchaser hereby represents and warrants
as follows:
1. The Purchaser acknowledges that he has received no formal
prospectus or offering memorandum describing the business and operations of the
Company. He has, however, by virtue of his relationship with the Company, been
given access to all information that he believes is material to his decision to
purchase the Shares. The Purchaser has had the opportunity to ask questions of,
and receive answers from, representatives of the Company concerning its business
operations. Any questions raised by the Purchaser have been answered to his
satisfaction.
2. The Shares are being acquired by the Purchaser for his
account, for investment purposes only, and not with a view to the distribution
or resale thereof.
3. No representations or promises have been made concerning the
marketability or value of the Shares. The Purchaser understands that there is
currently no market for the transfer of the Shares. The Purchaser further
acknowledges that, because the Shares have not been registered under the
Securities Act of 1933, as amended (the "ACT"), or applicable state securities
laws and cannot be resold unless they are subsequently registered under the Act
or applicable state securities laws, or an exemption from registration is
available, the Purchaser must continue to bear the economic risk of his
investment in the Shares for an indefinite period of time. Specifically, the
Purchaser agrees that the Shares may not be transferred until the Company has
received an opinion of counsel reasonably satisfactory to it that the proposed
transfer will not violate federal or state securities laws. The Company has not
agreed or represented to the Purchaser that the Shares will be purchased or
redeemed from the Purchaser at any time in the future. The Purchaser further
understands that a notation will be made on the appropriate records of the
Company and on the stock certificate representing the Shares so that the
transfers of Shares will not be effected on those records without compliance
with the restrictions referred to above.
Date: By:
------------------------- -----------------------------------
Name:
---------------------------------
Title:
--------------------------------
2.
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made as of June 1,
1999, by and between The Oil & Gas Asset Clearinghouse, Inc., a Texas
corporation (the "Company"), and Kenneth R. Olive, Jr., an individual
("Executive").
RECITALS
WHEREAS, the execution and delivery of this Agreement by the
Company and Executive are conditions to the purchase of shares of the Company's
common stock, par value $.10 per share ("Common Stock"), by Energy Auction
Exchange, Inc., a Delaware corporation, pursuant to a Stock Purchase Agreement
dated as of June 1, 1999 (the "Stock Purchase Agreement");
WHEREAS, the Company desires to employ Executive as the
President and Chief Executive Officer of the Company, and Executive desires to
accept such employment on the terms and conditions hereinafter set forth;
WHEREAS, in the course of his employment, Executive will or
has gained knowledge of the business, affairs, and operating results of the
Company and any subsidiaries, will be or has been trained in highly specialized
skills at the expense of the Company in the operation and management of the
business of the Company and the marketing and sale of the Company's services
through the use of techniques, systems, forms and methods used and devised by
the Company, and will have or has access to lists of the Company's clients and
prospective clients and their needs, pricing and capabilities; and
WHEREAS, the confidential information, customer lists,
databases and trade secrets of the Company are unique and valuable to the
Company and the Company would suffer irreparable harm if Executive were to
divulge such confidential information or trade secrets to those in competition
with the Company or use such knowledge, information and business acumen in
competition with the Company.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Employment. The Company shall employ Executive, and
Executive accepts employment with the Company, upon the terms and conditions set
forth in this Agreement for the period beginning on the date of this Agreement
and ending as provided in Section 4 hereof (the "Employment Period").
<PAGE> 2
2. Position and Duties.
(a) Except as set forth in this Agreement, during the
Employment Period Executive shall serve as the President and Chief Executive
Officer of the Company. Executive understands and agrees that the Company's
board of directors (the "Board") may at any time appoint a person other than
Executive as the President of the Company, and thereafter Executive shall serve
as the Chief Executive Officer of the Company during the remainder of the
Employment Period. The Board shall not require Executive to conduct his primary
business activities outside of a 50-mile radius from the Company's current
principal executive offices, other than for reasonable business travel.
(b) Executive shall report to the Board, and Executive shall
devote his best efforts and his full business time and attention (except for
permitted vacation periods and reasonable periods of illness or other
incapacity) to the business and affairs of the Company and its subsidiaries;
provided, however, that nothing in this Agreement shall preclude Executive from
serving as a director or member of a committee of any organization involving no
conflict of interest with the interests of the Company, engaging in charitable
and community activities or managing his personal investments, if such
activities do not materially interfere with the regular performance of his
duties and responsibilities under this Agreement. Executive shall perform his
duties and responsibilities to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner.
(c) All funds and property received by Executive on behalf of
the Company or its affiliates shall be received and held by Executive in trust
for the Company or its affiliates, as the case may be, and Executive shall
account for and remit all such funds and property to the Company or its
affiliates, as the case may be.
3. Base Salary and Benefits.
(a) During the Employment Period, Executive's base salary
shall be $165,220 per annum or such higher rate as the Board may designate from
time to time (the "Base Salary"), which salary shall be payable in regular
installments in accordance with the Company's general payroll practices. During
the Employment Period, the Base Salary shall not be reduced below $165,220 per
annum without the prior written consent of Executive; provided, however, that
Executive agrees to consider in good faith a reduction of the Base Salary below
$165,220 per annum in the event the financial performance of the Company should
so warrant.
(b) Exhibit A attached hereto sets forth all of the Company's
employee benefit programs in which Executive participated immediately prior to
the execution of this Agreement and the extent of such participation (the
"Benefits"). During the Employment Period, Executive shall be entitled to
participate in all of the Company's employee benefit programs for which senior
executive employees of the Company are generally eligible; provided, however,
that during the Employment Period, Executive shall be entitled at a minimum to
receive the Benefits.
-2-
<PAGE> 3
(c) During the Employment Period, the Company shall reimburse
Executive for all reasonable expenses incurred by him in the course of
performing his duties under this Agreement which are consistent with the
Company's policies in effect from time to time with respect to travel,
entertainment and other business expenses, subject to the Company's requirements
with respect to reporting and documentation of such expenses.
(d) In addition to the Base Salary, Executive shall be
eligible to receive a bonus following the end of each fiscal year during the
Employment Period. Such bonuses shall be paid upon the attainment of certain
performance goals as mutually agreeable to Executive and the Board and are
expected to be consistent with the Company's past practices with respect to
performance bonuses; provided, however, that the award of such bonuses shall
ultimately be determined by the Board based on the Company's performance.
Notwithstanding the foregoing, Executive shall be paid a minimum bonus for each
fiscal year commensurate with any such bonuses paid to other senior executive
officers of the Company for such fiscal year; provided, however, that Executive
agrees to consider in good faith a reduction in Executive's bonus in the event
the financial performance of the Company should so warrant. Each such bonus for
any fiscal year shall be paid by the end of the first quarter of the following
fiscal year.
(e) The Company shall have the right to withhold any and all
amounts due and payable to Executive pursuant to the terms of this Agreement and
to apply such amounts to any amounts owed by Executive to (i) the Company or
(ii) Energy Auction Exchange, Inc., a Delaware corporation, pursuant to the
terms of the Stock Purchase Agreement.
4. Term.
(a) Unless renewed by the mutual written agreement of the
Company and Executive, the Employment Period shall end on the fifth anniversary
of the date of this Agreement (the "Fifth Anniversary"); provided that (i) the
Employment Period shall terminate prior to such date upon Executive's
resignation, death, Permanent Disability (as defined below) or resignation due
to Constructive Termination (as defined below) and (ii) the Employment Period
may be terminated by the Company at any time prior to such date for Cause (as
defined below) or without Cause.
(b) If the Employment Period is terminated by Executive's
resignation due to Constructive Termination or by the Company without Cause,
Executive shall be entitled to receive that portion of his then current Base
Salary earned through the date of such termination, plus an additional amount
equal to two (2) times his then current Base Salary (the "Severance Payment");
provided, however, that if Executive has materially breached the provisions of
Sections 5, 6 or 7 hereof, Executive shall not be entitled to the Severance
Payment until such breach, if capable of being cured, is cured by Executive.
(c) If the Employment Period is terminated by the Company for
Cause or is terminated by Executive pursuant to Section 4(a)(i) above other than
by Executive's resignation due
-3-
<PAGE> 4
to Constructive Termination, Executive shall be entitled to receive that portion
of his then current Base Salary earned through the date of termination.
(d) The amount of any Base Salary payable pursuant to Sections
4(b) or (c) hereof shall be payable in accordance with the Company's general
payroll practices, and any Severance Payment shall be payable in one lump sum
payment within 60 days following termination of the Employment Period.
(e) Except as otherwise required by law, all of Executive's
rights to employee benefits and bonuses hereunder (if any) accruing after the
termination of the Employment Period shall cease upon such termination.
(f) For purposes of this Agreement, "Cause" shall mean (i) a
breach of Executive's duty of loyalty to the Company or any of its subsidiaries
as a member of the Board or the board of any subsidiary or any act of fraud
against the Company or any of its subsidiaries, (ii) the commission by Executive
of a felony, a crime involving moral turpitude or other act causing material
harm to the Company's or any of its subsidiaries' standing and reputation, (iii)
Executive's failure or refusal to commence his reasonable best efforts, without
proper legal cause, to follow the directions of the Board after Executive has
been given written notice thereof and fifteen (15) days have elapsed within
which Executive has not executed his reasonable best efforts to follow such
directions of the Board, (iv) Executive's current illegal use of drugs, or (v)
Executive's substandard performance as described below. In the event the Company
incurs operating losses in two (2) consecutive fiscal years, the Board shall be
deemed to have initial grounds to remove Executive for substandard performance.
If the Board (excluding Executive) determines in good faith that such operating
losses of the Company are the result of Executive's substandard performance, the
Board shall give written notice thereof to Executive, and Executive shall have
thirty (30) days to prepare for a meeting with the Board, at which time
Executive may present information with respect to market conditions or any other
factors which Executive deems relevant in assessing the cause of such operating
losses, including, without limitation, evidence that Executive has followed the
directives of the Board in the performance of his duties. After due
consideration of such factors, if the Board (excluding Executive) again
determines in good faith that such operating losses of the Company are the
result of Executive's substandard performance and not the result of other
factors, Executive may be terminated by the Board for Cause. The parties hereby
acknowledge and agree that the determination of whether the criteria for Cause
has been met shall be arbitrable in accordance with the American Arbitration
Association employment dispute rules.
(g) For purposes of this Agreement, "Constructive Termination"
shall mean (i) the assignment to Executive by the Board of duties materially
inconsistent with the normal duties associated with the position of President
and Chief Executive Officer, or Chief Executive Officer, as the case may be
pursuant to Section 2(a) above, of the Company, (ii) the occurrence of material
acts or conduct on the part of the Board which have as their purpose forcing the
resignation of Executive or preventing him from performing his duties and
responsibilities pursuant to this Agreement, (iii) a material breach by the
Company of any provision of this Agreement which is not
-4-
<PAGE> 5
cured within fifteen (15) days after written notice thereof is delivered by
Executive to the Company, or (iv) a default or decrease in the payment to
Executive of the compensation set forth in Section 3 above, except as permitted
herein.
(h) For purposes of this Agreement, "Permanent Disability"
shall mean the inability of Executive to effectively and efficiently perform the
essential functions of his position (with or without reasonable accommodation
from the Company) by reason of mental or physical impairment during (i) any
continuous period of one hundred twenty (120) days, or (ii) one hundred eighty
(180) days in the aggregate during any 12-month period.
5. Confidential Information. Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
(including those obtained while employed by the Company prior to the date of
this Agreement) concerning the business, affairs or operating results of the
Company or any subsidiary, including, without limitation, customer lists,
databases, profile information, source codes, system processes, buyer and seller
lists, profiles and information, and historic property sale information and
statistics ("Confidential Information") are the property of the Company or such
subsidiary, as the case may be. Therefore, Executive agrees that he shall not
disclose to any unauthorized person or use for his own account any Confidential
Information without the prior written consent of the Board (excluding
Executive), unless and to the extent that the aforementioned matters become
generally known to and available for use by the public other than as a result of
Executive's acts or omissions to act. Executive shall deliver to the Company at
the termination of the Employment Period, or at any other time the Company may
request, all memoranda, notes, plans, records, reports, computer tapes and
software and other documents and data (and copies thereof) relating to the
Confidential Information, Work Product (as defined below) or the business of the
Company or any subsidiary which he may then possess or have under his control.
6. Inventions and Patents. Executive agrees that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports, and all similar or related information which relates to the
Company's or any of its subsidiaries' business, research and development or
existing or future products or services and which are conceived, developed or
made by Executive while employed by the Company or any of its subsidiaries
("Work Product") belong to the Company or such subsidiary, as the case may be.
Executive will promptly disclose such Work Product to the Board and perform all
actions reasonably requested by the Board (whether during or after the
Employment Period), at the expense of the Company, to establish and confirm such
ownership (including, without limitation, assignments, consents, powers of
attorney and other instruments).
7. Non-Compete, Non-Solicitation.
(a) Executive acknowledges that in the course of his
employment with the Company he has and will become familiar with the Company's
trade secrets and with other confidential information concerning the Company and
its subsidiaries and that his services have been
-5-
<PAGE> 6
and will be of special, unique and extraordinary value to the Company and its
subsidiaries. Therefore, and in connection with Executive's sale of Common Stock
pursuant to the terms of the Stock Purchase Agreement, Executive agrees that,
during the Noncompete Period (as determined pursuant to Section 7(c) below), he
shall not directly or indirectly own, manage, control, participate in, consult
with, render services for, be employed by or in any manner engage in providing
(a) third party acquisition and/or divestiture advisory, marketing or brokerage
services with respect to oil and gas properties, (b) third party reserve
engineering transaction or other technical services in support of the
acquisition and/or divestiture of oil and gas properties, and (c) third party
sell side sealed bid, negotiated sale or brokerage services for the oil and gas
exploration and production industry, the same or similar to those provided by
Executive to the Company during the Employment Period that result in competition
with the business of the Company or its subsidiaries in the counties or parishes
set forth on Exhibit B attached hereto (the "Noncompete Area"); provided,
however, that (i) Executive may engage in the acquisition and/or divestiture of
oil and gas properties as an owner or operator for his own account, for the
account of an entity wholly-owned by Executive or for the account of an employer
engaged in the acquisition and/or divestiture of oil and gas properties as part
of such employer's ordinary course of business, and (ii) Executive may own for
investment purposes not more than one percent (1%) of the outstanding stock of
any class of a competing corporation which is publicly traded, so long as
Executive has no active participation in the business of such corporation.
(b) During the Noncompete Period, Executive shall not directly
or indirectly through another entity (i) induce or attempt to induce any
employee of the Company or of any subsidiary of the Company with whom Executive
has contact during the Employment Period to leave the employ of the Company or
such subsidiary, as the case may be, to perform the same or similar services or
functions in the Noncompete Area as such employee performed for the Company or
such subsidiary, as the case may be, (ii) hire any person who was an employee of
the Company or of any subsidiary of the Company with whom Executive has contact
during the Employment Period to perform the same or similar services or
functions in the Noncompete Area as such employee performed for the Company or
such subsidiary, as the case may be, or (iii) induce or attempt to induce any
customer, supplier, licensee or other business relation of the Company or of any
subsidiary of the Company in the Non-Compete Area with whom Executive has
contact during the Employment Period to cease doing business with the Company or
such subsidiary, as the case may be.
(c) The Noncompete Period shall be determined as follows:
(i) If termination of the Employment Period
occurs on or prior to the fourth anniversary
of the date of this Agreement (the "Fourth
Anniversary"), then the Noncompete Period
shall begin on the date of this Agreement
and shall expire on the date which is two
(2) years after the date of such
termination; provided, however, that in no
event shall the Noncompete Period extend
beyond the Fifth Anniversary pursuant to
this Section 7(c)(i).
-6-
<PAGE> 7
(ii) If termination of the Employment Period
occurs after the Fourth Anniversary, then
the Noncompete Period shall begin on the
date of this Agreement and shall expire on
the sixth anniversary of the date of this
Agreement.
8. Enforcement.
(a) If, at the time of enforcement of Sections 5, 6 or 7
hereof, a court holds that the restrictions stated herein are unreasonable under
circumstances then existing, the parties hereto agree that the maximum period,
scope or geographical area reasonable under such circumstances shall be
substituted for the stated period, scope or area. Because Executive's services
are unique and because Executive has access to Confidential Information and Work
Product, the parties hereto agree that money damages would be an inadequate
remedy for any breach of this Agreement. Therefore, in the event a breach or
threatened breach of this Agreement, the Company or its successors or assigns
may, in addition to other rights and remedies existing in their favor, apply to
any court of competent jurisdiction for specific performance and/or injunctive
or other relief in order to enforce, or prevent any violations of, the
provisions hereof (without posting a bond or other security).
(b) The existence of any claim, demand, action or cause of
action by Executive against the Company or any affiliate of the Company, whether
predicted upon this Agreement or otherwise, shall not constitute a defense to
the enforcement by the Company of its rights under this Agreement.
9. Executive Representations, Warranties and Covenants.
Executive hereby represents and warrants to the Company that (i) the execution,
delivery and performance of this Agreement by Executive does not and will not
conflict with, breach, violate or cause a default under any contract, agreement,
instrument, order, judgment or decree to which Executive is a party or by which
he is bound, (ii) Executive is not a party to or bound by any employment
agreement, noncompete agreement or confidentiality agreement with any other
person or entity and (iii) upon the execution and delivery of this Agreement by
the Company, this Agreement shall be the valid and binding obligation of
Executive, enforceable in accordance with its terms. Executive hereby agrees
that during the Employment Period Executive shall take all such actions as are
reasonably necessary for Executive to maintain his status as the designated
principal of the Company pursuant to federal and state laws, rules and
regulations and the rules and regulations of the U.S. Securities and Exchange
Commission (the "SEC") and the National Association of Securities Dealers, Inc.
(the "NASD").
10. Survival. Sections 2(c), 3, 4, 5, 6, 7, 8, 9 and 12 hereof
shall survive and continue in full force in accordance with their terms
notwithstanding any termination of the Employment Period.
-7-
<PAGE> 8
11. Notices. Any notice provided for in this Agreement shall
be in writing and shall be either personally delivered, sent by facsimile, sent
by nationally recognized overnight courier service or mailed by first class
mail, return receipt requested, to the recipient at the address below indicated:
Notices to Executive:
Kenneth R. Olive, Jr.
2410 Pleasant Creek Drive
Kingwood, Texas 77345
Notices to the Company:
The Oil & Gas Asset Clearinghouse, Inc.
263 N. Sam Houston Parkway E.
Suite 100
Houston, Texas 77060
Attn: Chairman
Fax: (281) 873-0055
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered,
sent or mailed.
12. Further Assurances. Executive agrees that, upon
termination of this Agreement for any reason, Executive shall cooperate with the
Company, perform and all reasonable acts and execute, acknowledge and deliver
any and all documents which may be reasonably necessary for Executive or the
Company to comply with federal and state laws, rules and regulations and the
rules and the regulations of the SEC and the NASD with respect to such
termination.
13. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
14. Complete Agreement. This Agreement, those documents
expressly referred to herein and other documents of even date herewith embody
the complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject
-8-
<PAGE> 9
matter hereof in any way. The Restated Employment Agreement dated April 28, 1998
by and between the Company and Executive is hereby terminated and of no further
force and effect.
15. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
16. Successors and Assigns. This Agreement is intended to bind
and inure to the benefit of and be enforceable by Executive, the Company and
their respective heirs, successors and assigns, except that Executive may not
assign his rights or delegate his obligations hereunder without the prior
written consent of the Company. The obligations, or any portion thereof, of the
Company as set forth herein may be assigned to or performed through a personnel
management service or similar entity which provides personnel management and/or
staffing services to the Company; provided, however, that no such assignment to
or performance by such service or entity shall relieve the Company from primary
liability hereunder for such obligations.
17. Choice of Law. THIS AGREEMENT SHALL BE GOVERNED BY THE
INTERNAL LAW, AND NOT THE LAWS OF CONFLICTS, OF THE STATE OF TEXAS.
18. Amendment and Waiver. The provisions of this Agreement may
be amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
19. Headings. The headings of the sections of this Agreement
are inserted for convenience only and shall not be deemed to constitute a part
of this Agreement.
20. Construction. The parties hereto have participated jointly
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Agreement.
* * * * *
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
THE OIL & GAS ASSET CLEARINGHOUSE, INC.
/s/
-------------------------------
By:
---------------------------
Its:
--------------------------
/s/ Kenneth R. Olive, Jr.
-------------------------------
Kenneth R. Olive, Jr.
-10-
<PAGE> 11
EXHIBIT A
EMPLOYEE BENEFIT PROGRAMS AND PARTICIPATION
A-1
<PAGE> 12
EXHIBIT B
NONCOMPETE AREA
TEXAS COUNTIES
<TABLE>
<S> <C> <C> <C>
Anderson Colorado Hale Lipscomb
Andrews Comanche Hamilton Live Oak
Angelina Concho Hansford Loving
Aransas Cooke Hardeman Lubbock
Archer Cottle Hardin Lynn
Armstrong Crane Harris Madison
Atascosa Crockett Harrison Marion
Austin Culberson Haskell Martin
Bandera Dallas Hemphill Matagorda
Bastrop Dawson Hidalgo Maverick
Baylor Denton Hockley McCullock
Bee De Witt Hood McLennan
Bell Dimmitt Houston McMullen
Bexar Donley Howard Menard
Blanco Duval Hunt Midland
Borden Eastland Hutchinson Milam
Bowie Ector Irion Mills
Brazoria Edwards Jack Montague
Brazos Falls Jackson Montgomery
Briscoe Fayette Jasper Moore
Brooks Fisher Jefferson Morris
Brown Foard Jim Hogg Motley
Burleson Fort Bend Jim Wells Nacogdoches
Caldwell Franklin Jones Navarro
Calhoun Freestone Kaufman Newton
Callahan Frio Kendall Nolan
Cameron Gaines Kenedy Nueces
Camp Galveston Kent Ochiltree
Carson Garza Kimble Orange
Cass Glasscock King Palo Pinto
Chambers Gollad Kieberg Panola
Cherokee Gonzales Lamb Parker
Clay Gray Lavaca Pecos
Cockran Grayson Lee Polk
Coke Gregg Leon Potter
Coleman Grimes Liberty Rains
Collingsworth Guadalupe Limestone Reagan
</TABLE>
B-1
<PAGE> 13
<TABLE>
<S> <C>
Real Wichita
Red River Wilbarger
Reeves Willacy
Refugio Williamson
Roberts Wilson
Robertson Winkler
Rockwall Wise
Runnels Wood
Rusk Yoakum
Sabine Zapata
San Augustine Zavala
San Jacinto
San Patricio
Schleicher
Scurry
Shackelford
Shelby
Sherman
Smith
Starr
Stephens
Sterling
Stonewall
Sutton
Tarrant
Taylor
Terrell
Terry
Throckmorton
Titus
Travis
Tyler
Upshur
Upton
Val Verde
Van Zandt
Victoria
Waller
Ward
Washington
Webb
Wharton
Wheeler
</TABLE>
B-2
<PAGE> 14
OKLAHOMA COUNTIES
<TABLE>
<S> <C>
Adair Noble
Alfalfa Nowata
Atoka Okfuskee
Beaver Oklahoma
Beckham Okmulgee
Blaine Osage
Bryan Pawnee
Caddo Payne
Canadian Pittsburg
Carter Pontotoc
Cleveland Pottawatomie
Coal Pushmataha
Comanche Roger Mills
Cotton Rogers
Craig Seminole
Creek Stephens
Custer Texas
Dewey Tulsa
Ellis Washington
Garfield Woodward
Garvin
Grady
Greer
Harper
Haskell
Hughes
Jefferson
Johnson
Kay
Kingfisher
Kiowa
LeFlore
Lincoln
Logan
Love
McClain
McIntosh
Major
Marshall
Muskogee
</TABLE>
B-3
<PAGE> 15
LOUISIANA PARISHES
<TABLE>
<S> <C>
Acadia Tangipahoa
Allen Tensas
Ascension Terrebonne
Assumption Union
Avoyelles Vermillion
Bienville Washington
Bossier West Baton Rouge
Caddo West Feliciana
Calcasieu
Caldwell
Cameron
Claiborne
DeSoto
East Baton Rouge
East Feliciana
Evangeline
Franklin
Iberia
Iberville
Jackson
Jefferson Davis
Lafayette
Lafourche
Lincoln
Livingston
Orleans
Quachita
Plaquemines
Pointe Coupee
Red River
Richland
Sabine
Saint Bernard
Saint Charles
Saint Helena
Saint James
Saint John the Baptist
Saint Landry
Saint Martin
Saint Mary
</TABLE>
B-4
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made as of June __,
1999, by and between The Oil & Gas Asset Clearinghouse, Inc., a Texas
corporation (the "Company"), and Gary R. Vickers, an individual ("Executive").
RECITALS
WHEREAS, the Company desires to employ Executive as the
Chairman of the Board and Executive Vice President of Technology of the Company,
and Executive desires to accept such employment on the terms and conditions
hereinafter set forth;
WHEREAS, the Company has agreed with Employee that within
twenty-four (24) months of the date hereof, the Company shall offer Employee the
position of President of the Company although Employee shall be under no
obligation to accept such position;
WHEREAS, in the course of his employment, Executive will or
has gained knowledge of the business, affairs, and operating results of the
Company and any subsidiaries, will be trained at the expense of the Company in
the operation and management of the business of the Company and the marketing
and sale of the Company's services through the use of certain proprietary
systems of the Company, and will have access to lists of the Company's clients
and prospective clients and their needs, pricing and capabilities; and
WHEREAS, the data obtained by Executive while employed by the
Company concerning the business, affairs or operating results of the Company or
any of its subsidiaries, including, without limitation, customer lists,
databases, proprietary source codes, system processes, trade secrets, buyer and
seller lists, profiles and information and historic property sale information
and statistics ("Confidential Information") is unique and valuable to the
Company and the Company would suffer irreparable harm if Executive were to
divulge such Confidential Information to those in competition with the Company
or use such knowledge, information and business acumen in competition with the
Company.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Employment. The Company shall employ Executive, and
Executive accepts employment with the Company, upon the terms and conditions set
forth in this Agreement for the period beginning on the date of this Agreement
and ending as provided in Section 4 hereof (the "Employment Period").
<PAGE> 2
2. Position and Duties.
(a) Except as set forth in this Agreement, during the
Employment Period Executive shall serve as the Chairman of the Board and
Executive Vice President of Technology of the Company. The Company's board of
directors (the "Board") shall not require Executive to conduct his primary
business activities outside of Executive's offices in Denver, Colorado, other
than for reasonable business travel.
(b) Executive shall report to the Board and shall perform his
duties and responsibilities to the best of his abilities in a diligent,
trustworthy, businesslike and efficient manner.
(c) All funds and property received by Executive on behalf of
the Company or its affiliates shall be received and held by Executive in trust
for the Company or its affiliates, as the case may be, and Executive shall
account for and remit all such funds and property to the Company or its
affiliates, as the case may be.
3. Base Salary and Benefits.
(a) During the Employment Period, Executive's base salary
shall be $186,000 per annum or such higher rate as the Board may designate from
time to time (the "Base Salary"), which salary shall be payable in regular
installments in accordance with the Company's general payroll practices. During
the Employment Period, the Base Salary shall not be reduced below $186,000 per
annum without the prior written consent of Executive; provided, however, that
Executive agrees to consider in good faith a reduction of the Base Salary below
$186,000 per annum in the event the financial performance of the Company should
so warrant.
(b) During the Employment Period, Executive shall be entitled
to participate in all of the Company's employee benefit programs for which
senior executive employees of the Company are generally eligible; provided,
however, that during the Employment Period, Executive shall be entitled at a
minimum to receive the benefits set forth on Exhibit A attached hereto. If the
benefits set forth in Exhibit A are not available to Executive due to his job
location in Denver, Colorado rather than Houston, Texas, the Company shall
provide benefits substantially similar to the benefits set forth in Exhibit A to
Executive in Denver, Colorado.
(c) During the Employment Period, the Company shall reimburse
Executive for all reasonable expenses incurred by him in the course of
performing his duties under this Agreement which are consistent with the
Company's policies in effect from time to time with respect to travel,
entertainment and other business expenses, subject to the Company's requirements
with respect to reporting and documentation of such expenses.
(d) In addition to the Base Salary, Executive shall be
eligible to receive a bonus following the end of each fiscal year during the
Employment Period. Such bonuses shall be paid
-2-
<PAGE> 3
upon the attainment of certain performance goals as mutually agreeable to
Executive and the Board and are expected to be consistent with the Company's
past practices with respect to performance bonuses; provided, however, that the
award of such bonuses shall ultimately be determined by the Board based on the
Company's performance. Notwithstanding the foregoing, Executive shall be paid a
minimum bonus for each fiscal year commensurate with any such bonuses paid to
Mr. Kenneth R. Olive, Jr. and other senior executive officers of the Company for
such fiscal year, less $20,000; provided, however, that Executive agrees to
consider in good faith a reduction in Executive's bonus in the event the
financial performance of the Company should so warrant. Each such bonus for any
fiscal year shall be paid by the end of the first quarter of the following
fiscal year.
(e) The Company shall have the right to withhold any and all
amounts due and payable to Executive pursuant to the terms of this Agreement and
to apply such amounts to any amounts owed by Executive to the Company.
4. Term.
(a) Unless renewed by the mutual written agreement of the
Company and Executive, the Employment Period shall end on the fifth anniversary
of the date of this Agreement (the "Fifth Anniversary"); provided that (i) the
Employment Period shall terminate prior to such date upon Executive's
resignation, death, Permanent Disability (as defined below) or resignation due
to Constructive Termination (as defined below) and (ii) the Employment Period
may be terminated by the Company at any time prior to such date for Cause (as
defined below) or without Cause.
(b) If the Employment Period is terminated by Executive's
resignation due to Constructive Termination or by the Company without Cause,
Executive shall be entitled to receive that portion of his then current Base
Salary earned through the date of such termination, plus an additional amount
equal to two (2) times his then current Base Salary (the "Severance Payment");
provided, however, that, if Executive has materially breached the provisions of
Sections 5, 6 or 7 hereof, Executive shall not be entitled to the Severance
Payment until such breach, if capable of being cured, is cured by Executive.
(c) If the Employment Period is terminated by the Company for
Cause or is terminated by Executive pursuant to Section 4(a)(i) above other than
by Executive's resignation due to Constructive Termination, Executive shall be
entitled to receive that portion of his then current Base Salary earned through
the date of termination.
(d) The amount of any Base Salary payable pursuant to Sections
4(b) or (c) hereof shall be payable in accordance with the Company's general
payroll practices, and any Severance Payment shall be payable in one lump sum
payment within 60 days following termination of the Employment Period.
-3-
<PAGE> 4
(e) Except as otherwise required by law, all of Executive's
rights to employee benefits and bonuses hereunder (if any) accruing after the
termination of the Employment Period shall cease upon such termination.
(f) For purposes of this Agreement, "Cause" shall mean (i) a
breach of Executive's duty of loyalty to the Company or any of its subsidiaries
as a member of the Board or the board of any subsidiary or any act of fraud
against the Company or any of its subsidiaries, (ii) the commission by Executive
of a felony, a crime involving moral turpitude or other act causing material
harm to the Company's or any of its subsidiaries' standing and reputation, (iii)
Executive's failure or refusal to commence his reasonable best efforts, without
proper legal cause, to follow the directions of the Board after Executive has
been given written notice thereof and fifteen (15) days have elapsed within
which Executive has not executed his reasonable best efforts to follow such
directions of the Board, (iv) Executive's current illegal use of drugs, or (v)
Executive's substandard performance as described below. In the event the Company
incurs operating losses in two (2) consecutive fiscal years, the Board shall be
deemed to have initial grounds to remove Executive for substandard performance.
If the Board (excluding Executive) determines in good faith that such operating
losses of the Company are the result of Executive's substandard performance, the
Board shall give written notice thereof to Executive, and Executive shall have
thirty (30) days to prepare for a meeting with the Board, at which time
Executive may present information with respect to market conditions or any other
factors which Executive deems relevant in assessing the cause of such operating
losses, including, without limitation, evidence that Executive has followed the
directives of the Board in the performance of his duties. After due
consideration of such factors, if the Board (excluding Executive) again
determines in good faith that such operating losses of the Company are the
result of Executive's substandard performance and not the result of other
factors, Executive may be terminated by the Board for Cause. The parties hereby
acknowledge and agree that the determination of whether the criteria for Cause
has been met shall be arbitrable in accordance with the American Arbitration
Association employment dispute rules.
(g) For purposes of this Agreement, "Constructive Termination"
shall mean (i) the assignment to Executive by the Board of duties materially
inconsistent with the normal duties associated with the position of Chairman of
the Board and Executive Vice President of Technology of the Company, (ii) the
occurrence of material acts or conduct on the part of the Board which have as
their purpose forcing the resignation of Executive or preventing him from
performing his duties and responsibilities pursuant to this Agreement, (iii) a
material breach by the Company of any provision of this Agreement which is not
cured within fifteen (15) days after written notice thereof is delivered by
Executive to the Company, or (iv) a default or decrease in the payment to
Executive of the compensation set forth in Section 3 above, except as permitted
herein.
(h) For purposes of this Agreement, "Permanent Disability"
shall mean the inability of Executive to effectively and efficiently perform the
essential functions of his position (with or without reasonable accommodation
from the Company) by reason of mental or physical impairment during (i) any
continuous period of one hundred twenty (120) days, or (ii) one hundred eighty
(180) days in the aggregate during any 12-month period.
-4-
<PAGE> 5
5. Confidential Information. Executive acknowledges that the
Confidential Information is the property of the Company or its subsidiaries, as
the case may be. Therefore, Executive agrees that he shall not disclose to any
unauthorized person or use for his own account any Confidential Information
without the prior written consent of the Board (excluding Executive), unless and
to the extent that the aforementioned matters become generally known to and
available for use by the public other than as a result of Executive's acts or
omissions to act. Executive shall deliver to the Company at the termination of
the Employment Period, or at any other time the Company may request, all
memoranda, notes, plans, records, reports, computer tapes and software and other
documents and data (and copies thereof) relating to the Confidential
Information, Work Product (as defined below) or the business of the Company or
any subsidiary which he may then possess or have under his control.
6. Inventions and Patents. Executive agrees that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information which relates to the
Company's or any of its subsidiaries' business, research and development or
existing or future products or services and which are conceived, developed or
made by Executive while employed by the Company or any of its subsidiaries
("Work Product") belong to the Company or such subsidiary, as the case may be.
Executive will promptly disclose such Work Product to the Board and perform all
actions reasonably requested by the Board (whether during or after the
Employment Period), at the expense of the Company, to establish and confirm such
ownership (including, without limitation, assignments, consents, powers of
attorney and other instruments).
7. Non-Solicitation.
(a) During the Non-Solicitation Period (as determined pursuant
to Section 7(b) below), Executive shall not directly or indirectly through
another entity (i) induce or attempt to induce any employee of the Company or of
any subsidiary of the Company with whom Executive has contact during the
Employment Period to leave the employ of the Company or such subsidiary, as the
case may be, to perform the same or similar services or functions as such
employee performed for the Company or such subsidiary, as the case may be, (ii)
hire any person who was an employee of the Company or of any subsidiary of the
Company with whom Executive has contact during the Employment Period to perform
the same or similar services or functions as such employee performed for the
Company or such subsidiary, as the case may be, or (iii) induce or attempt to
induce any customer, supplier, licensee or other business relation of the
Company or of any subsidiary of the Company with whom Executive has contact
during the Employment Period to cease doing business with the Company or such
subsidiary, as the case may be.
(b) The Non-Solicitation Period shall be determined as
follows:
(i) If termination of the Employment Period
occurs on or prior to the fourth anniversary
of the date of this Agreement (the "Fourth
Anniversary"), then the Non-Solicitation
Period shall begin on the
-5-
<PAGE> 6
date of this Agreement and shall expire on
the date which is two (2) years after the
date of such termination; provided, however,
that in no event shall the Non-Solicitation
Period extend beyond the Fifth Anniversary
pursuant to this Section 7(b)(i).
(ii) If termination of the Employment Period
occurs after the Fourth Anniversary, then
the Non-solicitation Period shall begin on
the date of this Agreement and shall expire
on the sixth anniversary of the date of this
Agreement.
8. Enforcement.
(a) If, at the time of enforcement of Sections 5, 6 or 7
hereof, a court holds that the restrictions stated herein are unreasonable under
circumstances then existing, the parties hereto agree that the maximum period,
scope or geographical area reasonable under such circumstances shall be
substituted for the stated period, scope or area. Because Executive's services
are unique and because Executive has access to Confidential Information and Work
Product, the parties hereto agree that money damages would be an inadequate
remedy for any breach of this Agreement. Therefore, in the event a breach or
threatened breach of this Agreement, the Company or its successors or assigns
may, in addition to other rights and remedies existing in their favor, apply to
any court of competent jurisdiction for specific performance and/or injunctive
or other relief in order to enforce, or prevent any violations of, the
provisions hereof (without posting a bond or other security).
(b) The existence of any claim, demand, action or cause of
action by Executive against the Company or any affiliate of the Company, whether
predicted upon this Agreement or otherwise, shall not constitute a defense to
the enforcement by the Company of its rights under this Agreement.
9. Executive Representations, Warranties and Covenants.
Executive hereby represents and warrants to the Company that (i) the execution,
delivery and performance of this Agreement by Executive does not and will not
conflict with, breach, violate or cause a default under any contract, agreement,
instrument, order, judgment or decree to which Executive is a party or by which
he is bound, (ii) Executive is not a party to or bound by any employment
agreement, noncompete agreement or confidentiality agreement with any other
person or entity, and (iii) upon the execution and delivery of this Agreement by
the Company, this Agreement shall be the valid and binding obligation of
Executive, enforceable in accordance with its terms.
10. Survival. Sections 2(c), 3, 4, 5, 6, 7, 8, 9 and 12 hereof
shall survive and continue in full force in accordance with their terms
notwithstanding any termination of the Employment Period.
11. Notices. Any notice provided for in this Agreement shall
be in writing and shall be either personally delivered, sent by facsimile, sent
by nationally recognized overnight courier
-6-
<PAGE> 7
service or mailed by first class mail, return receipt requested, to the
recipient at the address below indicated:
Notices to Executive:
Gary R. Vickers
7900 East Union Avenue, Suite 1100
Denver, Colorado 80237
Fax: (303) 694-5326
Notices to the Company:
The Oil & Gas Asset Clearinghouse, Inc.
263 N. Sam Houston Parkway E.
Suite 100
Houston, Texas 77060
Attn: President
Fax: (281) 873-0055
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered,
sent or mailed.
12. Further Assurances. Executive agrees that, upon
termination of this Agreement for any reason, Executive shall cooperate with the
Company, perform and all reasonable acts and execute, acknowledge and deliver
any and all documents which may be reasonably necessary for Executive or the
Company to comply with federal and state laws, rules and regulations and the
rules and the regulations of the SEC and the NASD with respect to such
termination.
13. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
14. Complete Agreement. This Agreement, those documents
expressly referred to herein and other documents of even date herewith embody
the complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
-7-
<PAGE> 8
15. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
16. Successors and Assigns. This Agreement is intended to bind
and inure to the benefit of and be enforceable by Executive, the Company and
their respective heirs, successors and assigns, except that Executive may not
assign his rights or delegate his obligations hereunder without the prior
written consent of the Company. The obligations, or any portion thereof, of the
Company as set forth herein may be assigned to or performed through a personnel
management service or similar entity which provides personnel management and/or
staffing services to the Company; provided, however, that no such assignment to
or performance by such service or entity shall relieve the Company from primary
liability hereunder for such obligations.
17. Choice of Law. THIS AGREEMENT SHALL BE GOVERNED BY THE
INTERNAL LAW, AND NOT THE LAWS OF CONFLICTS, OF THE STATE OF TEXAS.
18. Amendment and Waiver. The provisions of this Agreement may
be amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
19. Headings. The headings of the sections of this Agreement
are inserted for convenience only and shall not be deemed to constitute a part
of this Agreement.
20. Construction. The parties hereto have participated jointly
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Agreement.
21. Executive and EAE. The Company hereby acknowledges and
agrees that Executive is an officer of Energy Auction Exchange, Inc., a Delaware
corporation and the parent entity of the Company ("EAE"), and in the future may
be an officer or employee of affiliates of EAE and Executive, and in connection
therewith, nothing in this Agreement shall be construed to limit the ability of
Executive and EAE and their affiliates to own, operate, invest in, manage,
control, participate in, consult with, render services for, be employed by or
otherwise engage in businesses which may or may not compete with the business of
the Company and such activities shall not be deemed a breach of the provisions
of this Agreement by Executive so long as Executive does not breach the
provisions of Sections 5, 6 and 7.
* * * * *
-8-
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
THE OIL & GAS ASSET CLEARINGHOUSE, INC.
----------------------------------
By:
-----------------------------
Its:
-----------------------------
----------------------------------
Gary R. Vickers
-9-
<PAGE> 10
EXHIBIT A
EMPLOYEE BENEFIT PROGRAMS
ADMINISTAFF'S BENEFIT PACKAGE
Medical
Life Insurance
Accidental Death/Dismemberment
Managed Pharmacy Program
Dental
Vision
Employee Assistance Program
Healthy Beginnings
Adoption Assistance
Credit Union
Education Assistance
Voluntary Term and Universal Life Insurance
Administaff 401(k) Plan & Trust
OGAC LONG TERM DISABILITY INSURANCE
A-1
<PAGE> 1
EXHIBIT 10.14
ENERGY AUCTION EXCHANGE
7900 East Union Avenue, Suite 1100
Denver, Colorado 80237
303.694.5350
- --------------------------------------------------------------------------------
September 21, 1999
Jeffrey M. Holben
2755 S. St. Paul Street
Denver, Colorado 80210
Dear Jeff:
This letter will confirm the verbal offer for the position of Chief Financial
Officer, Vice President - Finance with Energy Auction Exchange, Inc (EAE). As
agreed, your start date will be September 30, 1999 and your starting full-time
salary will be $10,000 per month.
The Company's payroll and benefits program are handled through ADMINISTAFF, Inc.
a Texas Professional Services Company, with district offices in over 40 cities
throughout America. Benefits include direct deposit of paycheck, an employer
paid (no waiting period) medical-dental-vision program for each employee,
employer paid life insurance coverage up to $50,000 of annual salary and
voluntary participation in a 401(k) retirement plan. An ADMINISTAFF benefits
package will be provided to you for review prior to your start date and will
include other optional features. In addition, our Company offers a starting
vacation package of three weeks annually.
In addition to the above salary and benefits, EAE. will make available to you
options for shares of its holding company stock. The recently issued Energy
Auction Exchange, Inc. Series A Preferred Stock issuance was completed at $7.50
per share and the strike price on the options is currently $.75. EAE would like
to offer you the option to purchase 20,000 shares at this $.75 strike price.
Options granted will vest over a four-year period in equal installments at the
end of each year of employment. Your first 25% will vest on September 30, 2000.
Additionally, upon your termination by EAE for any reason other than Just Cause
(as described below), EAE agrees to pay you a lump-sum severance equal to nine
(9) months of your then current salary. EAE also agrees to pay this severance if
you voluntarily or involuntarily lose your job during any merger, acquisition or
other corporate event. For purposes of this paragraph, Just Cause is defined as
the commission by an employee of acts involving gross misconduct (such as, but
not limited to dishonesty and neglect of duty), which is seriously detrimental
to the interests, operations, reputation or credit of the Company.
<PAGE> 2
The above offer is not to be considered a contract for guaranteeing employment
for any specific duration. As an at-will employee, both you and the company have
the right to terminate your employment at any time. Nothing within the terms of
this offer letter shall be construed as an employment agreement whether
expressed or implied.
If you accept this offer, please acknowledge by signing and returning the
enclosed copy. We are excited to have you as part of the EAE team and look
forward to the substantial contribution we believe you will make towards the
future of the Company.
Respectfully,
/s/ Gary R. Vickers
Gary R. Vickers
CEO and President
Accepted by:
/s/ Jeffrey M. Holben
- --------------------------------------
Jeffrey M. Holben Date
<PAGE> 1
EXHIBIT 10.15
LOAN AND SECURITY AGREEMENT
Dated as of July 28, 1999
Between
ENERGY AUCTION EXCHANGE, INC.
as the Borrower
and
CITICORP U.S.A., Inc.
as the Lender
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Article I. INTERPRETATION OF THIS AGREEMENT.......................................................................1
1.1 Definitions............................................................................................1
1.2 Accounting Terms......................................................................................15
1.3 Other Terms...........................................................................................15
1.4 Computation of Time Periods...........................................................................15
Article II. LOANS AND OTHER FINANCIAL ACCOMMODATIONS.............................................................15
2.1 The Term Loan Facility................................................................................15
2.2 Working Capital Facility..............................................................................16
2.3 Notice of Borrowing; Making the Loans.................................................................17
2.4 Prepayments; Reserves.................................................................................18
2.5 Interest. ...........................................................................................18
2.6 Prepayment Provisions; Breakage Costs.................................................................19
2.7 Increased Costs; .....................................................................................19
2.8 Payments and Computations.............................................................................20
2.9 Taxes.................................................................................................21
2.10 Reserved..............................................................................................23
2.11 Conversions...........................................................................................23
2.12 Fees..................................................................................................24
Article III. [RESERVED]..........................................................................................24
Article IV. COLLATERAL...........................................................................................24
4.1 Grant of Security Interest............................................................................24
4.2 Intentionally Omitted.................................................................................25
4.3 Perfection and Protection of Security Interest........................................................25
4.4 Location of Collateral. ..............................................................................26
4.5 Title to, Liens on, and Sale and Use of Collateral. .................................................26
4.6 Access and Examination; Appraisals. .................................................................26
4.7 Intentionally Omitted.................................................................................26
4.8 Collection of Receivables. ..........................................................................27
4.9 Equipment. ..........................................................................................27
4.10 Contract Rights. ...................................................................................27
4.11 Right to Cure. ......................................................................................28
4.12 Power of Attorney. ..................................................................................28
4.13 The Lender's Rights, Duties and Liabilities. ........................................................29
Article V. BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES.....................................................29
5.1 Books and Records. ..................................................................................29
5.2 Financial Information. .............................................................................30
5.3 Notices to the Lender. ..............................................................................31
Article VI. GENERAL WARRANTIES AND REPRESENTATIONS...............................................................32
6.1 Authorization, Validity, and Enforceability of this Agreement and the Loan
Documents.............................................................................................32
6.2 Validity and Priority of Security Interest. .........................................................33
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
6.3 Organization and Qualification. .....................................................................33
6.4 Corporate Name; Prior Transactions. ..................................................................33
6.5 Subsidiaries and Affiliates. ........................................................................33
6.6 Financial Statements and Projections. ...............................................................34
6.7 Intentionally Omitted.................................................................................34
6.8 Debt. ...............................................................................................34
6.9 Real Property; Leases. ..............................................................................34
6.10 Proprietary Rights. .................................................................................34
6.11 Intentionally Omitted.................................................................................34
6.12 Litigation. .........................................................................................34
6.13 Restrictive Agreements. .............................................................................35
6.14 Labor Disputes. .....................................................................................35
6.15 Environmental, Health and Safety Laws. ..............................................................35
6.16 No Violation of Law. ................................................................................35
6.17 No Default. .........................................................................................35
6.18 ERISA.................................................................................................36
6.19 Taxes. ..............................................................................................37
6.20 Investment Act. .....................................................................................37
6.21 Margin Securities.....................................................................................37
6.22 Disclosure. .........................................................................................38
Article VII. COVENANTS...........................................................................................38
7.1 Taxes and Other Obligations. ........................................................................38
7.2 Corporate Existence and Good Standing. ..............................................................38
7.3 Compliance with Law and Agreements....................................................................38
7.4 Maintenance of Property. ............................................................................39
7.5 Insurance.............................................................................................39
7.6 Intentionally Omitted.................................................................................40
7.7 Environmental, Health and Safety Laws. ..............................................................40
7.8 ERISA.................................................................................................40
7.9 Mergers, Consolidations or Sales. ...................................................................41
7.10 Restricted Payments; Capital Change. ................................................................41
7.11 Transactions Affecting Collateral or Obligations. ...................................................41
7.12 Guaranties. .........................................................................................41
7.13 Debt. ...............................................................................................42
7.14 Prepayment. .........................................................................................42
7.15 Transactions with Affiliates. .......................................................................42
7.16 Business Conducted. .................................................................................42
7.17 Liens. ..............................................................................................42
7.18 Sale and Leaseback Transactions.......................................................................42
7.19 New Subsidiaries. ...................................................................................43
7.20 Restricted Investments. .............................................................................43
7.21 Reserved..............................................................................................43
7.22 Consolidated Debt Service Coverage Ratio. ...........................................................43
7.23 Consolidated Leverage Ratio. ........................................................................43
7.24 Year 2000. ..........................................................................................43
7.25 Use of Proceeds. ....................................................................................43
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Article VIII. CONDITIONS OF LENDING..............................................................................44
8.1 Conditions Precedent to Making of Loans...............................................................44
8.2 Conditions Precedent to Each Loan.....................................................................45
Article IX. DEFAULT; REMEDIES....................................................................................46
9.1 Events of Default.....................................................................................46
9.2 Remedies..............................................................................................48
Article X. TERMINATION...........................................................................................49
Article XI. AMENDMENTS; ASSIGNMENTS; SUCCESSORS..................................................................49
11.1 Amendments and Waivers. .............................................................................49
11.2 Participations........................................................................................49
11.3 Assignments...........................................................................................50
Article XII. MISCELLANEOUS.......................................................................................51
12.1 Cumulative Remedies; No Prior Recourse to Collateral. ...............................................51
12.2 No Implied Waivers. .................................................................................51
12.3 Severability. .......................................................................................51
12.4 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.................................51
12.5 Survival of Representations and Warranties. .........................................................52
12.6 Other Security and Guaranties. ......................................................................53
12.7 Fees and Expenses. ..................................................................................53
12.8 Notices...............................................................................................53
12.9 Indemnity.............................................................................................54
12.10 Waiver of Notices. ..................................................................................55
12.11 Counterparts. .......................................................................................55
12.12 Captions. ...........................................................................................55
12.13 Confidentiality.......................................................................................55
12.14 Set-Off. ...........................................................................................56
</TABLE>
iii
<PAGE> 5
EXHIBITS
EXHIBIT A - Form of Notice of Borrowing
EXHIBIT B - Form of Term Note
EXHIBIT C - Form of Working Capital Note
EXHIBIT D Form of Notice of Conversion
SCHEDULES
Schedule 1.1-B - Existing Liens
Schedule 4.4 - List of Collateral Locations
Schedule 6.4 - List of Prior Names
Schedule 6.5 - Subsidiaries and Affiliates
Schedule 6.8 - Debt
Schedule 6.9 - Leases; Real Property
Schedule 6.10 - Proprietary Rights
Schedule 6.12 - Litigation
Schedule 6.14 - Labor Disputes
Schedule 6.15 - Environmental Matters
Schedule 6.18 - Employee Benefit Plans
Schedule 7.15 - Affiliate Transactions
iv
<PAGE> 6
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (the "Agreement") is dated as of July
28, 1999 between CITICORP U.S.A., Inc. (the "Lender") and ENERGY AUCTION
EXCHANGE, INC. (the "Borrower"). In consideration of the mutual conditions and
agreements set forth in this Agreement, and for good and valuable
consideration, the receipt of which is hereby acknowledged, the Borrower and
the Lender hereby agree as follows.
Article I.
INTERPRETATION OF THIS AGREEMENT
1.1 Definitions. As used herein:
"Account Debtor" means each Person obligated in any way on or in
connection with an Account.
"Accounts" means, with respect to any Person, all of such Person's now
owned or hereafter acquired or arising accounts, contract rights, and any other
rights to payment for the sale or lease of goods or rendition of services
whether or not they have been earned by performance.
"Affiliate" means with respect to any Person: (i) any Person which,
directly or indirectly, controls, is controlled by or is under common control
with such first Person; (ii) any Person which beneficially owns or holds,
directly or indirectly, ten percent (10.0%) or more of any class of Voting
Stock of such first Person; or (iii) any Person, ten percent (10.0%) or more of
any class of the Voting Stock (or if such Person is not a corporation, ten
percent (10.0%) or more of the equity interest) of which is beneficially owned
or held, directly or indirectly, by such first Person. Control (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used herein, means the possession, directly or indirectly, of the
power in any form to direct or cause the direction of the management and
policies of the Person in question.
"Applicable Margin" shall mean, at any time of determination, with
respect to the interest rate payable on each of the Loans, the percentage set
forth below for such Loan opposite the applicable Debt to Cash Flow Ratio as at
the end of the Borrower's most recently ended second or fourth fiscal quarter,
as the case may be:
(a) for the Term Loan Facility:
<TABLE>
<CAPTION>
DEBT TO CASH FLOW RATIO EURODOLLAR RATE BASE RATE
----------------------- --------------- ---------
<S> <C> <C>
< 2.0 to 1.0 1.75% (-0.50%)
> or = 2.0 to 1.0 and < 2.5 to 1.0 2.00% (-0.25%)
> or = 2.5 to 1.0 and < 3.0 to 1.0 2.25% 0%
> or = 3.0 to 1.0 < 4.0 to 1.0 2.50% 0%
> or = 4.0 to 1.0 2.75% 0%
</TABLE>
<PAGE> 7
(b) for the Working Capital Facility:
<TABLE>
<CAPTION>
DEBT TO CASH FLOW RATIO EURODOLLAR RATE BASE RATE
----------------------- --------------- ---------
<S> <C> <C>
< 2.0 to 1.0 2.25% 0%
---------------
> or = 2.0 to 1.0 and < 2.5 to 1.0 2.50% 0%
---------------
> or = 2.5 to 1.0 and < 3.0 to 1.0 2.75% 0%
---------------
> or = 3.0 to 1.0 and < 4.0 to 1.0 3.00% 0.25%
---------------
> or = 4.0 to 1.0 3.25% 0.50%
---------------
</TABLE>
(c) Initially, the Applicable Margin shall be (a) 0% for Base Rate
Loans and 2.75% for Eurodollar Rate Loans under the Term Loan Facility and (b)
0% for Base Rate Loans and 3.25% for Eurodollar Rate Loans under the Working
Capital Facility and each such Applicable Margin shall remain in effect until
September 30, 2000. Thereafter, the Applicable Margin shall be determined by the
Lender each September 30 and March 31 thereafter (the "Rate Determination Date")
based upon the information set forth in previously delivered or concurrently
delivered audited or unaudited financial statements delivered pursuant to
Section 5.2 for each fiscal period ended June 30 and December 31 of each year
(each a "Determining Financial Statement"). Except as hereinafter provided, any
change in the Applicable Margin shall take effect on the Business Day following
the Rate Determination Date provided the Borrower has made delivery to the
Lender of the applicable Determining Financial Statement, and the Applicable
Margin, as so determined, shall remain in effect until the earlier of (i) the
Business Day next following the next Rate Determination Date provided the
Borrower has made delivery to the Lender of a subsequent Determining Financial
Statement evidencing a Debt to Cash Flow Ratio requiring either a higher or
lower Applicable Margin from that then in effect or (ii) the day on which
Borrower fails to deliver to the Lender the applicable Determining Financial
Statement within the time provided by Section 5.2(a) or Section 5.2(b), as the
case may be, the Applicable Margin shall be deemed to be based upon an assumed
Debt to Cash Flow Ratio of equal to or greater than 4.0 to 1.0 and such
Applicable Margin shall be effective on the date such Determining Financial
Statement was required to have been delivered and shall remain in effect until
the Business Day following the Business Day of delivery to the Lender of a
Determining Financial Statement reflecting a Debt to Cash Flow Ratio for which a
lower Applicable Margin would be applicable. Notwithstanding any other provision
of this Agreement, during any period that an Event of Default exists, the
Applicable Margin for a Debt to Cash Flow Ratio of > or = 4.0 to 1.00 shall be
effective.
"Arrangement Fee" has the meaning specified in Section 2.12(a).
"Bankruptcy Code" shall mean Title 11 of the United States Code (11
U.S.C. Section 101 et seq.), as amended from time to time and any successor
statute.
"Base Rate" means, at any time, a fluctuating interest rate per annum
as shall be in effect from time to time, which rate per annum shall at all
times be equal to the rate of interest announced publicly by Citibank, N.A. in
New York, New York, from time to time, as its base rate.
"Base Rate Loan" means a Loan which bears interest as provided in
Section 2.5(a).
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<PAGE> 8
"Benefit Plan" shall mean a defined benefit plan as defined in Section
3(35) of ERISA (other than a Multiemployer Plan) in respect of which the
Borrower or any ERISA Affiliate is or within the immediately preceding six (6)
years was an "employer" as defined in Section 3(5) of ERISA.
"Borrowing" means a borrowing consisting of Loans of the same type
made on the same day by the Lender.
"Business Day" means a day on which banks are not required or
authorized to close in New York City and, if the applicable day relates to a
Eurodollar Rate Loan, a day on which dealings are carried on in the London
interbank market and banks are open for business in London.
"Capital Expenditures" shall mean with respect to any Person, for any
period, the aggregate of all expenditures, whether paid in cash or accrued as
liabilities during that period and including that portion of Capital Leases
that is capitalized on the balance sheet of such Person during such period
that, in conformity with GAAP, is required to be included in or reflected by
the property, plant or equipment or similar fixed asset accounts reflected in
the combined and consolidated balance sheet of such Person (including equipment
which is purchased simultaneously with the trade-in of existing equipment owned
by such Person to the extent of the gross amount of such purchase price less
the book value of the equipment being traded in at such time), but excluding
expenditures made in connection with the replacement or restoration of assets,
to the extent reimbursed or financed from insurance proceeds paid on account of
the loss of or damage to the assets being replaced or restored, or from awards
of compensation arising from the taking by condemnation of eminent domain of
such assets being replaced.
"Capital Lease" shall mean, as applied to any Person, any lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of such Person.
"Cash Interest Expense" means, with respect to any Person, for any
period, total interest expense, whether paid or accrued (including the interest
component of Capital Leases), of such Person, including, without limitation,
all commissions, discounts and other fees and charges owed with respect to
letters of credit and net costs under Interest Rate Contracts, but excluding,
however, interest expense not payable in cash (including amortization of
discount), all as determined in conformity with GAAP.
"Change in Control" shall mean (a) Gary R. Vickers individually or any
trust created for the benefit of said individual or his spouse or descendants
(provided in connection with any trust the voting rights of any stock deposited
in such trust is retained by such individual as trustee) or any entity over
which such individual shall have control shall cease to own, directly or
indirectly, (legally or beneficially), free and clear of all liens or other
encumbrances), at least 51% of the outstanding Voting Stock of the Borrower,
(b) the Borrower shall cease to own at least 80% of the Voting Stock of OGAC.
"Closing Date" shall mean the date all of the conditions precedent set
forth in Article VIII hereof are fulfilled with respect to the Term Loan and
any Working Capital Loan initially requested by Borrower.
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<PAGE> 9
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral" shall have the meaning ascribed to it in Section 4.1.
"Commitment" shall mean the Lender's obligation to make the Working
Capital Loans under Section 2.2 up to the Working Capital Amount.
"Consolidated Debt Service Coverage Ratio" shall mean, for any period,
for the Borrower and its Subsidiaries on a consolidated basis, the ratio of (i)
EBITDA, minus unfinanced Capital Expenditures net of purchase money and Capital
Lease obligations with respect thereto, to the extent permitted hereunder and
made during such period, to (ii) Fixed Charges during such period.
"Consolidated Leverage Ratio" shall mean, at any time of
determination, with respect to the Borrower and its Subsidiaries on a
consolidated basis, the ratio of total liabilities to Net Worth.
"Contaminant" shall mean any waste, pollutant, hazardous substance,
toxic substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, or any constituent of any such substance or waste.
"Contract Rights" means all of the Borrower's right, title and
interest in, to and under any and all contracts and all other agreements
relating to the Borrower's business or its Property, whether such contracts or
agreements are currently in effect or executed by the Borrower after the date
hereof, together with any and all extensions, modifications, amendments and
renewals thereof, any and all payments or rents to be paid to the Borrower
under any such contracts and agreements, and all benefits and advantages to be
derived therefrom. Contract Rights shall, include, without limitation, any and
all rights of the Borrower under the Stock Purchase Agreement, the Shareholder
Agreement and all other documents executed in connection therewith and any
leases or subleases (whether as a lessor/sublessor or lessee/sublessee) to
which the Borrower is a party and all rents payable by any lessees/sublessees
under such leases or subleases and all claims for money due or to become due to
the Borrower under agreements and bills pursuant to which the Borrower
purchased any Property and all rights and claims of the Borrower now or
hereafter existing: (i) under any insurance, indemnities, warranties, and
guarantees provided for or arising out of or in connection with any of the
foregoing agreements; (ii) for any damages arising out of or for breach or
default under or in connection with any of the foregoing agreements; (iii) to
all other amounts from time to time paid or payable under or in connection with
any of the foregoing agreements; or (iv) to exercise or enforce any and all
covenants, remedies, powers and privileges thereunder.
"Conversion Date" shall have the meaning ascribed to it in Section
2.11(a).
"Credit Facility" means either the Term Loan Facility or the Working
Capital Facility.
"Debt" means all liabilities, obligations and indebtedness of the
Borrower and its Subsidiaries on a consolidated basis owing to any Person, of
any kind or nature, now or hereafter owing, arising, due or payable, howsoever
evidenced, created, incurred, acquired or owing, whether primary, secondary,
direct, contingent, fixed or otherwise, without duplication, and including,
without in any way limiting the generality of the foregoing: (i) the Borrower's
or any
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<PAGE> 10
Subsidiary's liabilities and obligations to trade creditors; (ii) all of the
Obligations; (iii) all of the Borrower's obligations for borrowed money; (iv)
all obligations and liabilities of any Person secured by any Lien on the
Borrower's or any Subsidiary's Property, even though the Borrower or such
Subsidiary shall not have assumed or become liable for the payment thereof;
provided, however, that all such obligations and liabilities which are limited
in recourse to such Property shall be included in Debt only to the extent of
the value of such Property as shown on a consolidated balance sheet of the
Borrower and its Subsidiaries prepared in accordance with GAAP; (v) all
obligations or liabilities created or arising under any Capital Lease or
conditional sale or other title retention agreement with respect to Property
used or acquired by the Borrower or any Subsidiary, even if the rights and
remedies of the lessor, seller or lender thereunder are limited to repossession
of such Property; provided, however, that all such obligations and liabilities
which are limited in recourse to such Property shall be included in Debt only
to the extent of the value of such Property as shown on a consolidated balance
sheet of the Borrower and its Subsidiaries prepared in accordance with GAAP;
(vi) all accrued Plan liabilities; (vii) all obligations and liabilities under
Guaranties; and (viii) deferred taxes. Notwithstanding the foregoing, for
purposes of calculating or determining Debt, if the Borrower or any Subsidiary
are jointly and severally liable for the entire amount of any liability,
obligation or indebtedness or the Borrower or any Subsidiary is a guarantor of
any liability, obligation or indebtedness of the Borrower or Subsidiary, such
liability, obligation or indebtedness shall only be included in determining
Debt for the Borrower on a consolidated basis as the Debt of the Borrower or
Subsidiary, as the case may be, that is primarily liable therefor.
"Debt to Cash Flow Ratio" means for any period with respect to the
Borrower and its Subsidiaries on a consolidated basis at any time of
determination, the ratio of (a) Funded Indebtedness to (b) EBITDA for the 12
consecutive month period ended at such time.
"Default" means any event or condition which, with notice, the passage
of time or both, would constitute an Event of Default.
"Default Rate" means a per annum interest rate equal to the sum of (a)
the interest rate otherwise applicable from time to time plus (b) two percent
(2.00%). Each Default Rate shall be adjusted simultaneously with any change in
the applicable interest rate.
"DOL" shall mean the United States Department of Labor and any
successor department or agency.
"Dollars" and "$" shall mean the lawful money of the United States of
America.
"EBITDA" shall mean with respect to any Person, for any period, the
sum of the amounts for such period, of (i) Net Income, plus (ii) depreciation
and amortization expense, plus (iii) Cash Interest Expense, plus (iv) accrued
federal and state income taxes plus (v) extraordinary losses as determined in
accordance with GAAP which have been included in the determination of Net
Income, minus (vi) extraordinary gains as determined in accordance with GAAP
which have been included in the determination of Net Income.
"Eligible Assignee" means either (a) a commercial bank organized under
the laws of the United States, or any state thereof, and having a combined
capital and surplus of at least $100,000,000; (b) a commercial bank organized
under the laws of any other country or a political subdivision of any such
country, and having a combined capital and surplus of at least
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<PAGE> 11
$100,000,000, provided that such bank is acting through a branch or agency
located in the United States; or (c) a Person organized under the United
States, or any state thereof, that is primarily engaged in the business of
commercial banking and that is (i) a subsidiary of Lender, (ii) a subsidiary of
a Person of which Lender is a subsidiary, or (iii) a Person of which Lender is
a subsidiary.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating
to (i) the protection of the environment, (ii) the effect of the environment on
human health, (iii) emissions, discharges or releases of pollutants,
contaminants, hazardous substances or wastes into surface water, ground water
or land, or (iv) the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, hazardous
substances or wastes or the clean-up or other remediation thereof.
"Equipment" means, with respect to any Person, all of such Person's
now owned and hereafter acquired machinery, equipment, furniture, furnishings,
fixtures, and other tangible personal property, including, without limitation,
trade fixtures, and office equipment, as well as all of such types of property
leased by such Person and all of such Person's rights and interests with
respect thereto under such leases (including, without limitation, options to
purchase); together with all present and future additions and accessions
thereto, replacements therefor, component and auxiliary parts and supplies used
or to be used in connection therewith, and all substitutes for any of the
foregoing, and all manuals, drawings, instructions, warranties and rights with
respect thereto; wherever any of the foregoing is located.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute.
"ERISA Affiliate" shall mean, with respect to any Person, any (i)
corporation which is a member of the same controlled group of corporations
(within the meaning of Section 414(b) of the Code) as the such Person, or (ii)
partnership or other trade or business (whether or not incorporated) under
common control (within the meaning of Section 414(c) of the Code) with such
Person, or (iii) member of the same affiliated service group (within the
meaning of Section 414(m) of the Code) as such Person, any corporation
described in clause (i) above or any partnership or trade or business described
in clause (ii) above.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D.
"Eurodollar Rate" means, for any Interest Period applicable to a
Eurodollar Rate Loan, an interest rate per annum equal to the rate per annum
obtained by dividing (i) the rate per annum at which deposits in Dollars are
offered by the principal office of Citibank, N.A. in London, England to prime
banks in the London interbank market at 11:00 a.m. (London time) two Business
Days before the first day of such Interest Period in an amount substantially
equal to such Eurodollar Rate Loan and for a period equal to such Interest
Period by (ii) a percentage equal to 100% minus the Eurodollar Rate Reserve
Percentage for such Interest Period. The Eurodollar Rate for the Interest
Period for each Eurodollar Rate Loan comprising part of the same Borrowing
shall be determined by the Lender two Business Days before the first day of
such Interest Period.
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<PAGE> 12
"Eurodollar Rate Loan" means a Loan or portion thereof which bears
interest as provided in Section 2.5(b).
"Eurodollar Rate Reserve Percentage" for the Interest Period for any
Eurodollar Rate Loan means the reserve percentage applicable during such
Interest Period (or if more than one such percentage shall be so applicable,
the daily average of such percentages for those days in such Interest Period
during which any such percentage shall be so applicable) under regulations
issued from time to time by the Federal Reserve Board for determining the
maximum reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for the Lender with respect
to liabilities or assets consisting of or including Eurocurrency Liabilities
having a term equal to such Interest Period.
"Event of Default" shall mean any of the events listed in Section 9.1.
"Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System and any successor thereto.
"Fiscal Year" shall mean the fiscal year of the Borrower, which shall
be the twelve-month period ending on the last day of December, or such other
period as the Borrower may designate and the Lender shall approve in writing.
"Fixed Charges" shall mean, for any period, for the Borrower and its
Subsidiaries on a consolidated basis, the amounts for such period of (i) Cash
Interest Expense, plus (ii) scheduled principal payments due under the Term
Note and other Funded Indebtedness (including the principal component of
Capital Lease obligations).
"Funded Indebtedness" shall mean, without duplication, at any time of
determination, the average principal amount outstanding under the Working
Capital Facility during the most recently ended 12 consecutive months plus all
Debt of the Borrower and its Subsidiaries on a consolidated basis at such time
except for (a) Debt described in clauses (i), (iv), (vi) and (viii) of the
definition of Debt, (b) Debt outstanding under the Working Capital Facility,
and (c) Subordinated Indebtedness.
"Funding Date" means the date the Term Loan or any Working Capital
Loan is to be made hereunder.
"GAAP" shall mean generally accepted accounting principles set forth
in the rules, regulations, statements, opinions and pronouncements of the
American Institute of Certified Public Accountants and of the Financial
Accounting Standards Board (or agencies with similar functions of comparable
stature and authority within the accounting profession), which, subject to
Section 5.1, are applicable to the circumstances as of the date of
determination.
"General Intangibles" shall mean and include with respect to any
Person, all of such Person's now owned and hereafter acquired causes in action,
causes of action and all other intangible personal property of every kind and
nature (other than Accounts), including, without limitation, limited
partnership interests, membership interests, corporate and other business
records, inventions, designs, patents, patent applications, service marks,
trademarks, trademark applications, trade names, trade secrets, goodwill,
registrations, copyrights, licenses, franchises, customer lists, reversions
from any Benefit Plan, tax refunds, tax refund claims, rights and claims
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<PAGE> 13
against carriers, shippers, franchisees, lessors and lessees, and rights to
indemnification, business interruption insurance and proceeds thereof,
property, casualty or any similar type of insurance and any proceeds thereof,
proceeds of insurance covering the lives of key employees on which such Person
is beneficiary, and any letter of credit, guarantee, claim, security interest
or other security held by or granted to the Borrower to secure payment by an
Account Debtor of any of the Accounts.
"Good Faith" shall mean honesty in fact in the conduct or transaction
concerned, without regard to whether standards which might be deemed
commercially reasonable have been observed.
"Governmental Authority" shall mean any nation or government, any
federal, state, city, town, municipality, county, local or other political
subdivision thereof or thereto and any department, commission, board, bureau,
instrumentality, agency or other entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government.
"Guaranty" means, with respect to any Person, all obligations of such
Person which in any manner directly or indirectly guarantee or assure, or in
effect guarantee or assure, the payment or performance of any indebtedness,
dividend or other obligation of any other Person (the "guaranteed
obligations"), or to assure or in effect assure the holder of the guaranteed
obligations against loss in respect thereof, including, without limitation, any
such obligations incurred through an agreement, contingent or otherwise: (a) to
purchase the guaranteed obligations or any property constituting security
thereof; (b) to advance or supply funds for the purchase or payment of the
guaranteed obligations or to maintain a working capital or other balance sheet
condition; (c) to lease property or to purchase any debt or equity securities
or other property or services.
"Indemnitees" shall have the meaning ascribed to it in Section 12.9.
"Interest Period" means, for each Eurodollar Rate Loan, the period
commencing on the date of such Loan or the conversion thereof and ending on the
last day of the period selected by the Borrower pursuant to the provisions
below. The duration of each such Interest Period shall be one, three or six
months as the Borrower may select, upon notice received by the Lender in
accordance with Section 2.3(b) or Section 2.11, as the case may be; provided,
however, that:
(i) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur
on the next succeeding Business Day; provided, however, that
if such extension would cause the last day of such Interest
Period to occur in the next following calendar month, the
last day of such Interest Period shall occur on the next
preceding Business Day; and
(ii) the Borrower shall not select an Interest
Period for any Loan that ends after the applicable
Termination Date for the Credit Facility under which such
Loan is made.
"Interest Rate Contracts" shall mean interest rate insurance product
agreements providing interest rate protection.
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<PAGE> 14
"Inventory" shall mean and include, with respect to any Person, all of
such Person's now owned and hereafter acquired goods, materials, supplies,
merchandise and other personal property furnished under any contract of service
or intended for sale or lease, including, without limitation, work in process,
finished goods and materials, parts and supplies of any kind, nature or
description which are used or consumed in such Person's business or are or
might be used in connection with the manufacture, packing, shipping,
advertising, selling or finishing of such goods, merchandise and other personal
property, or are used in connection with the provision of services in such
Person's business, all returned or repossessed goods now, or at any time or
times hereafter, in the possession or under the control of such Person or
Lender, and all documents of title or documents representing the same.
"IRS" shall mean the Internal Revenue Service, or any successor
thereto.
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, deposit arrangement, security interest, encumbrance for the payment
of money, lien (statutory or other), preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever,
including, without limitation, any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease, any financial lease
having substantially the same economic effect as any of the foregoing and the
filing of any financing statement (other than a financing statement filed by a
"true" lessor pursuant to Section 9-408 of the Code or other comparable law of
any jurisdiction) naming the owner of the asset to which such Lien relates as
debtor under the Code or other comparable law of any jurisdiction.
"Loan" shall mean a Term Loan or a Working Capital Loan.
"Loan Documents" shall mean this Agreement and all other agreements,
instruments and documents, including, without limitation, any other security
agreements, notes, warrants, guaranties, mortgages, deeds of trust,
subordination agreements, pledges, powers of attorney, consents, assignments,
collateral assignments, letter agreements, contracts, notices, leases,
amendments, financing statements, letter of credit applications and
reimbursement agreements, and all other writings heretofore, now, or hereafter
executed by or on behalf of the Borrower or any of its Affiliates and delivered
to the Lender in connection with or relating to this Agreement (including,
without limitation, any Interest Rate Contract entered into by the Borrower
with Lender or any Affiliate of Lender), together with all agreements,
instruments and documents referred to therein or contemplated thereby, in each
case, as amended from time to time.
"Mandatory Prepayment" shall have the meaning ascribed to it in
Section 2.4(b).
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA which is, or within the immediately preceding six
(6) years was, contributed to by either Borrower or an ERISA Affiliate.
"Net Income" shall mean with respect to any Person, for any period,
the net earnings (or loss) after taxes of such Person for such period taken as
a single accounting period determined in conformity with GAAP.
"Net Worth" shall mean with respect to any Person, as at any date of
determination, the amount by which total assets of such Person exceed total
liabilities of such Person.
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<PAGE> 15
"Notes" shall mean each and every Term Note and Working Capital Note
and any other note or notes executed by a Borrower pursuant to this Agreement.
"Notice of Borrowing" shall mean a notice substantially in the form of
EXHIBIT A attached hereto and made a part hereof.
"Non-Use Fee" shall have the meaning set forth in Section 2.12.
"Notice of Conversion" shall have the meaning provided in Section
2.11(a).
"Obligations" shall mean and include all loans, advances, debts,
liabilities, obligations, covenants and duties owing to the Lender, any
Affiliate of the Lender, any Indemnitee or any of their respective successors
and assigns, by the Borrower under or in connection with this Agreement and all
of the other Loan Documents, present or future, whether or not evidenced by any
note, guaranty or other instrument whether or not for the payment of money,
whether arising by reason of an extension of credit, opening or amendment of a
letter of credit (or payment of any draft drawn thereunder), loan, guaranty,
indemnification, foreign exchange or interest rate swap transactions or in any
other manner, whether direct or indirect (including those acquired by
assignment), absolute or contingent, due or to become due, now existing or
hereafter arising and however acquired. The term includes, without limitation,
all interest, charges, expenses, fees, attorneys' fees and disbursements and
paralegals' fees, any other sums chargeable to Borrower under this Agreement or
any other Loan Document.
"OGA" shall mean OGA Clearinghouse I, L.L.C., a Delaware limited
liability company.
"OGAC" shall mean The Oil & Gas Asset Clearinghouse, Inc, a Texas
corporation.
"OGAC Entities" shall mean collectively OGAC, OGA and OGACLP.
"OGACLP" shall mean OGAC, L.P., a Texas limited partnership.
"Other Taxes" shall have the meaning ascribed to it in Section 2.9(b).
"Participating Lender" means any Person who shall have been granted
the right by Lender to participate in the financing provided pursuant to this
Agreement and who shall have entered into a participation agreement with
Lender.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
Person succeeding to the functions thereof.
"Pending Loans" shall mean, at any time, the aggregate principal
amount of all Working Capital Loans requested in any Notice(s) of Borrowing
previously received by the Lender but not yet advanced at such time.
"Permitted Liens" means the Liens reflected on SCHEDULE 1.1-B attached
hereto and incorporated herein by this reference and any of the following Liens
created after the date hereof:
(i) Liens for taxes not yet payable;
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<PAGE> 16
(ii) statutory Liens for taxes in an amount not to
exceed $100,000 provided that the payment of such taxes which
are due and payable is being contested in Good Faith and by
proper proceedings diligently pursued, and that reserves or
other appropriate provision, if any, as shall be required by
GAAP shall have been made therefor and that a stay of
enforcement of any such Lien is in effect;
(iii) Liens in favor of the Lender;
(iv) Liens upon Equipment granted or assumed in
connection with the acquisition of such Equipment after the
date hereof (including, without limitation, pursuant to
Capital Leases), provided, that (a) the Debt incurred to
finance each such acquisition is permitted by Section 7.13,
and (b) each such Lien attaches only to the Equipment
acquired with the Debt secured thereby;
(v) deposits under workmen's compensation,
unemployment insurance, social security and other similar
laws, or to secure the performance of bids, tenders or
contracts (other than for the repayment of borrowed money) or
to secure indemnity, performance or other similar bonds for
the performance of bids, tenders or contracts (other than for
the repayment of borrowed money) or to secure statutory
obligations or surety or appeal bonds, or to secure
indemnity, performance or other similar bonds in the ordinary
course of business;
(vi) Liens which arise by operation of law under
Article 2 of the UCC in favor of unpaid sellers of goods or
prepaying buyers of goods, or liens in items of any
accompanying documents or proceeds of either arising by
operation of law under Article 4 of the UCC in favor of a
collecting bank;
(vii) Liens arising by operation of law securing the
claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like Persons, provided that
the payment thereof is not at the time required by Section
7.1;
(viii) Liens arising from judgments, decrees or
attachments to the extent and only so long as such judgment,
decree or attachment has not caused or resulted in an Event
of Default;
(ix) easements, reservations, rights-of-way,
restrictions, minor defects or irregularities in title and
other similar Liens affecting real property not interfering
in any material respect with the ordinary conduct of the
business of Borrower and its Subsidiaries.
(x) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of
customs duties in connection with the importation of goods;
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<PAGE> 17
(xi) Liens arising solely by virtue of any statutory
or common law provision relating to banker's liens, rights of
setoff or similar rights and remedies as to deposit accounts
or other funds maintained with a creditor depository
institution;
(xii) extensions or renewals of any Lien described
in this definition; and
(xiii) Liens incurred in connection with Debt
otherwise permitted under this Agreement.
"Person" shall mean and include any person, employee, individual, sole
proprietorship, partnership, joint venture, trust, limited liability company,
unincorporated organization, association, corporation, institution, entity,
party or Governmental Authority.
"Plan" shall mean an employee benefit plan defined in Section 3(3) of
ERISA in respect of which the Borrower or an ERISA Affiliate is, or within the
immediately preceding six (6) years was, an "employer" as defined in Section
3(5) of ERISA.
"Pledge Agreements" shall mean collectively, the Stock Pledge
Agreement and the Pledge and Security Agreement.
"Pledge and Security Agreement" shall mean that certain Pledge and
Security Agreement of even date herewith executed by each of the OGAC Entities
in favor of the Lender.
"Property" shall mean, with respect to the Borrower or any Subsidiary,
any real or personal property, plant, building, facility, structure, equipment
or unit, or other asset owned, leased or operated by such Person and any of its
Subsidiaries, including, without limitation, such Person's Equipment and
Inventory.
"Proprietary Rights" means, with respect to any Person, all of such
Person's now owned and hereafter arising or acquired: licenses, franchises,
permits, patents, patent rights, copyrights, works which are the subject matter
of copyrights, trademarks, service marks, trade secrets, trade names, trade
styles, patent, trademark and service mark applications, and all licenses and
rights related to any of the foregoing, and all other rights under any of the
foregoing, all extensions, renewals, reissues, divisions, continuations, and
continuations-in-part of any of the foregoing, and all rights to sue for past,
present and future infringement of any of the foregoing.
"Regulation D" shall mean Regulation D of the Federal Reserve Board as
in effect from time to time.
"Regulation T" shall mean Regulation T of the Federal Reserve Board as
in effect from time to time.
"Regulation U" shall mean Regulation U of the Federal Reserve Board as
in effect from time to time.
"Regulation X" shall mean Regulation X of the Federal Reserve Board as
in effect from time to time.
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"Release" shall mean any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment or into or out of any Property, including the
movement of Contaminants through or in the air, soil, surface water,
groundwater or Property.
"Remedial Action" shall mean actions required to (i) clean up, remove,
treat or in any other way address Contaminants in the indoor or outdoor
environment; (ii) prevent the Release or threat of Release or minimize the
further Release of Contaminants so they do not migrate or endanger or threaten
to endanger public health or welfare or the indoor or outdoor environment; or
(iii) perform pre-remedial studies and investigations and post-remedial
monitoring and care.
"Reportable Event" shall mean any of the events described in Section
4043 of ERISA.
"Restricted Investment" means any acquisition of property by the
Borrower or any of its Subsidiaries in exchange for cash or other property,
whether in the form of an acquisition of stock, debt security, or other
indebtedness or obligation, or the purchase or acquisition of any other
property, or by loan, advance, capital contribution, or subscription, except
acquisitions of the following: (i) fixed assets to be used in the business of
the Borrower or a Subsidiary; (ii) goods held for use in the provision of
services by the Borrower or a Subsidiary in the ordinary course of business;
(iii) current assets arising from the rendition of services in the ordinary
course of business of the Borrower or a Subsidiary; (iv) direct obligations of
the United States of America, or any agency thereof, or obligations guaranteed
by the United States of America, provided that such obligations mature within
one year from the date of acquisition thereof; (v) certificates of deposit
maturing within one year from the date of acquisition, bankers' acceptances,
Eurodollar bank deposits, or overnight bank deposits, in each case issued by,
created by, or with a bank or trust company organized under the laws of the
United States or any state thereof having capital and surplus aggregating at
least $100,000,000; and (vi) commercial paper given the highest rating by a
national credit rating agency and maturing not more than 90 days from the date
of creation thereof.
"Restricted Payment" shall mean, with respect to any Person, (i) any
dividend or other distribution, direct or indirect, on account of any shares of
any class of capital stock of such Person now or hereafter outstanding, except
a dividend payable solely in shares of the issuer, (ii) any redemption,
retirement, sinking fund or similar payment, purchase or other acquisition for
value, direct or indirect, of any shares of any class of capital stock of such
Person now or hereafter outstanding, and (iii) any payment made to redeem,
purchase, repurchase or retire, or to obtain the surrender of or any
outstanding warrants, options or other rights to acquire shares of any class of
capital stock of such Person now or hereafter outstanding (other than the
issuance of common stock) upon the exercise of any such warrants, options or
rights to acquire such stock.
"SEC" shall mean the Securities and Exchange Commission and any
successor agency.
"Securities" shall mean any stock, shares, voting trust certificates,
partnership interests (whether general or limited), bonds, debentures, notes or
other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as
"securities", whether certificated or uncertificated, or any certificates of
interest, shares, or participation in temporary or interim certificates for the
purchase or acquisition of, or any right to subscribe to, purchase or acquire
any of the foregoing, but shall not include the Notes or any other evidence of
the Obligations.
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"Shareholders Agreement" shall mean that certain Shareholders
Agreement dated as of June 1, 1999 among, the Borrower, OGAC and the other
shareholders of OGAC.
"Solvent" means when used with respect to any Person that (i) the fair
saleable value of all such Person's Property as a going concern, is in excess
of the total amount of its debts (including contingent liabilities); (ii) it is
able to pay its debts as they mature; (iii) it does not have unreasonably small
capital for the business in which it is engaged or for any business or
transaction in which it is about to engage; and (iv) it is not "insolvent" as
such term is defined in Section 101(31) of the Bankruptcy Code.
"Stock Pledge Agreement" shall mean that certain Pledge Agreement of
even date herewith executed by Borrower, OGAC and OGA in favor of the Lender.
"Stock Purchase Agreement" shall mean that certain Stock Purchase
Agreement dated as of June 1, 1999 among Borrower and the shareholders of OGAC.
"Subordinated Indebtedness" shall mean with respect to the Borrower
and its Subsidiaries that portion of any unsecured Funded Indebtedness of the
Borrower and its subsidiaries that is incurred on terms and conditions approved
in writing by the Lender and is subordinated, in a manner approved in writing
by the Lender, as to right and time of payment of principal and interest
thereon to any and all of the Obligations.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which more than fifty percent (50.0%) of the voting power of
the outstanding securities or interests of any class or classes, is at the
time, directly or indirectly through one or more intermediaries, owned by one
or more of such Person and/or one or more of its Subsidiaries.
"Taxes" shall have the meaning ascribed to it in Section 2.9(a).
"Term Loan" means the Loan described in Section 2.1(a).
"Termination Date" shall mean July 27, 2004.
"Term Loan Facility" shall mean the credit facility provided under
Section 2.1.
"Term Note" shall have the meaning ascribed to it in Section 2.1(b).
"Termination Event" shall mean (i) a Reportable Event with respect to
any Benefit Plan; (ii) the withdrawal of the Borrower or any ERISA Affiliate
from a Benefit Plan during a plan year in which the Borrower or such ERISA
Affiliate was a "substantial employer" as defined in Section 4001(a)(2) of
ERISA; (iii) the imposition of an obligation on the Borrower or any ERISA
Affiliate under Section 4041 of ERISA to provide affected parties written
notice of intent to terminate a Benefit Plan in a distress termination
described in Section 4041(c) of ERISA; (iv) the institution by the PBGC of
proceedings to terminate a Benefit Plan; (v) any event or condition which might
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Benefit Plan; or (vi) the partial
or complete withdrawal of the Borrower or any ERISA Affiliate from a
Multiemployer Plan.
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"Third Party Collateral" shall mean any property of any Person, other
than the Borrower, which, pursuant to the terms of any of the Loan Documents,
secures the payment and performance of any portion of the Obligations.
"UCC" means the Uniform Commercial Code (or any successor statute) of
the State of Colorado or of any other state the laws of which are required by
Section 9-103 thereof to be applied in connection with the issue of perfection
of security interests.
"Voting Stock" means securities of any class or classes of a
corporation, the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors (or
Persons performing similar functions).
"Working Capital Amount" shall mean $3,000,000, as such amount may be
reduced from time to time pursuant to Section 9.2 of this Agreement.
"Working Capital Facility" shall mean the credit facility provided
under Section 2.2.
"Working Capital Loans" shall have the meaning ascribed to it in
Section 2.2(a).
"Working Capital Note" shall have the meaning ascribed to it in
Section 2.2(b).
1.2 Accounting Terms. Any accounting terms used in this Agreement
which are not specifically defined shall have the meanings customarily given
them in accordance with GAAP.
1.3 Other Terms. All other terms contained in this Agreement shall,
unless the context indicates otherwise, have the meanings provided for by the
UCC to the extent the same are defined therein.
1.4 Computation of Time Periods. For purposes of this Agreement, in
the computation of periods of time from a specified date to a later specified
date, unless otherwise specified, the word "from" means "from and including"
and the words "to" and "until" each means "to and including."
Article II.
LOANS AND OTHER FINANCIAL ACCOMMODATIONS
2.1 The Term Loan Facility.
(a) Amount of Term Loan. Subject to the terms and conditions
of this Agreement and in reliance upon the representations and
warranties of the Borrower herein set forth, the Lender hereby agrees
to loan to Borrower an amount equal to $6,000,000 (the "Term Loan").
Upon satisfaction of the applicable conditions set forth in Article
VIII hereof, the Lender shall make the proceeds of the Term Loan
available to the Borrower by transferring same day funds to an account
designated in writing by the Borrower. Initially, the Term Loan shall
be made as a Base Rate Loan.
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(b) Term Note. The Term Loan shall be evidence by a
promissory note, substantially in the form of EXHIBIT B attached
hereto and made a part hereof (the "Term Note").
(c) Use of Proceeds. Borrower shall use the proceeds of the
Term Loan only for the purpose of funding or refinancing of a portion
of the purchase price for its purchase of the stock of OGAC pursuant
to the terms of the Stock Purchase Agreement and to otherwise fund
working capital and for other corporate purposes.
(d) Repayment. The Term Loan shall be repaid in fifty-nine
consecutive monthly installments of $71,428.51 commencing on August 1,
1999 and on the first Business Day of each month thereafter and a
final installment on the Termination Date equal to the entire unpaid
principal balance of the Term Loan at such time.
2.2 Working Capital Facility.
(a) Availability.
(i) Subject to the terms and conditions of this
Agreement and in reliance upon the representations and
warranties of the Borrower herein set forth, the Lender
hereby agrees to make revolving loans ("Working Capital
Loans") to the Borrower from time to time at Borrower's
request during the period from the date hereof to the
Termination Date, in an amount which shall not exceed the
amount, if any, by which the Working Capital Amount exceeds
the aggregate amount of the outstanding Loans and Pending
Loans requested under this Section at such time.
(ii) Subject to all of the terms and conditions of
this Agreement, Working Capital Loans may be voluntarily
prepaid pursuant to Section 2.4(a), and any amounts so
prepaid, may be reborrowed, up to the amount available under
this Section 2.2(a) at the time of such Borrowing.
(iii) Working Capital Loans made on any Funding Date
which constitute Eurodollar Rate Loans shall be in the
aggregate minimum amount of $500,000.00 and integral
multiples of $100,000 in excess of that amount. Working
Capital Loans made on any Funding Date which constitute Base
Rate Loans shall be in the aggregate minimum amount of
$50,000.00 and integral multiples of $10,000 in excess of
that amount.
(b) Working Capital Note. The Working Capital Loans shall be
evidenced by a promissory note (a "Working Capital Note")
substantially in the form of EXHIBIT C attached hereto and made a
part. The Working Capital Note shall be dated as of the Funding Date
for the Term Loan and shall mature on the Termination Date.
(c) Use of Proceeds. Subject to the terms and conditions
contained herein, the Borrower shall use the proceeds of the Working
Capital Loans for working capital and other general corporate
purposes.
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(d) Repayment. All outstanding Working Capital Loans shall be
paid in full on the Termination Date.
2.3 Notice of Borrowing; Making the Loans.
(a) Each Loan shall be made on notice, given by the Borrower
to the Lender in writing not later than 11:00 a.m. (New York time) on
(A) the third Business Day prior to the date of the proposed
Borrowing, in the case of a request for a Eurodollar Rate Loan, and
(B) the Business Day of the proposed Borrowing, in the case of a
request for a Base Rate Loan. Each such notice of a borrowing (a
"Notice of Borrowing") shall be substantially in the form of EXHIBIT A
attached hereto. Any Notice of Borrowing must specify the requested
(i) date of such Loan, (ii) type of Loan, (iii) aggregate amount of
such Loan, (iv) applicable Interest Period for such Loan if such Loan
is a Eurodollar Rate Loan, and (v) the account or accounts to which
the proceeds of such Loan are to be disbursed. Upon fulfillment of the
applicable conditions set forth in Article VIII, the Lender will make
such funds available to the Borrower in such deposit account
maintained with the Lender as the Borrower shall designate.
(b) Anything in paragraph (a) above to the contrary
notwithstanding,
(i) if the Lender shall, at least one Business Day
before the date of any requested Borrowing, notify the
Borrower that the introduction of or any change in or in the
interpretation of any law or regulation makes it unlawful, or
that any central bank or other Governmental Authority makes
it unlawful, for the Lender to perform its obligations
hereunder to make Eurodollar Rate Loans; or
(ii) if the Lender is unable, after reasonable
efforts, due to prevailing market conditions, to provide
timely information for the determination of the Eurodollar
Rate, or is otherwise unable to determine the Eurodollar Rate
at any time, or
(iii) if the Lender has reasonably determined that
the Eurodollar Rate is inadequate to compensate the Lender,
then, in any such event, the right of the Borrower to select
Eurodollar Rate Loans shall be suspended as of the date,
reasonably designated by the Lender until the Lender shall
notify the Borrower that the circumstances causing such
suspension no longer exist, and each Loan shall be a Base
Rate Loan.
(c) Each Notice of Borrowing shall be irrevocable and binding on the
Borrower.
(d) The Borrower shall notify the Lender in writing of the names of
the officers and employees authorized to request any Loans on behalf of
Borrower, and shall provide the Lender with a specimen signature of each such
officer or employee. The Lender shall be entitled to rely conclusively on such
officer's or employee's authority to request a Loan on behalf of the Borrower,
until the Lender receives written notice to the
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contrary. Notwithstanding the foregoing, the Lender shall have no duty to
verify the authenticity of the signature appearing on any written Notice of
Borrowing.
2.4 Prepayments; Reserves.
(a) Voluntary Prepayments. Subject to Section 2.6, the
Borrower may (i) at any time prepay the Working Capital Loans in whole
or in part, subject to Section 2.6, and (ii) upon not less than two
(2) Business Days' prior written or telephonic notice confirmed
promptly in writing to the Lender, at any time and from time to time,
prepay the Term Loan in whole or in part, in an aggregate minimum
amount of $50,000 and integral multiples of $10,000 in excess of that
amount; provided, however, that the Borrower may prepay the Term Loan
in full without regard to such minimum amount. Any notice of
prepayment given to the Lender under this Section 2.4(a) shall specify
the date of prepayment, the aggregate principal amount of the
prepayment and which Loans such prepayment is to be applied against.
To the extent that any voluntary prepayment is made against the Term
Note, such voluntary prepayments shall be applied to the installments
due under the Term Note in the inverse order of maturity until paid in
full. Notice of prepayment having been delivered as provided herein,
the principal amount of the Loans specified in such notice shall
become due and payable on the prepayment date.
(b) Mandatory Prepayments. All Obligations shall become
immediately due and payable, at the option of the Lender upon the
occurrence of a Change in Control, whereupon the Borrower shall repay
the Term Loan and the Working Capital Loans in full together with all
accrued but unpaid interest thereon and the Commitment shall
terminate.
(c) Termination of Commitment. The Borrower may at any time,
subject to Section 2.6 below, upon two (2) Business Days prior written
notice to the Lender, terminate the Commitment.
2.5 Interest. The Borrower shall pay interest on the unpaid principal
amount of each Loan from the date of such Loan until such principal amount
shall be paid in full, at the following intervals and at the following rates
per annum:
(a) Base Rate Loans. If such Loan is a Base Rate Loan, a rate
per annum equal to the Applicable Margin for Base Rate Loans at the
time of determination plus the Base Rate in effect from time to time,
payable, in arrears, on the first day of each calendar month and on
the date such Base Rate Loan shall be paid in full; and
(b) Eurodollar Rate Loans. If such Loan is a Eurodollar Rate
Loan, a rate per annum equal at all times during the Interest Period
for such Loan to the Eurodollar Rate for such Interest Period plus the
Applicable Margin at the time of determination, payable, in arrears,
on the first day of each calendar month, or, if earlier, on the date
such Eurodollar Rate Loan shall be paid in full;
provided, however, that, from and after the occurrence of an Event of
Default and unless and until such Event of Default is cured or waived, (i) the
Borrower shall not be entitled to elect that any portion of any Loan be a
Eurodollar Rate Loan; and (ii) the Borrower shall pay interest
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on the unpaid principal amount of all Loans at the Default Rate, such interest
being payable on demand.
2.6 Prepayment Provisions; Breakage Costs.
(a) The Borrower shall not voluntarily prepay any Loans other
than Base Rate Loans. If the Borrower repays any Eurodollar Rate Loan
prior to the last day of the applicable Interest Period for any reason
or fails to borrow a Eurodollar Rate Loan once requested, the Borrower
shall pay to the Lender the amount of any cost, loss or expense
incurred by the Lender as a result of the repayment of a Eurodollar
Rate Loan prior to the last day of the Interest Period applicable to
such Loan including, without limitation, any cost or expense incurred
by Lender by reason of the liquidation and reemployment of deposits or
other funds acquired by the Lender to fund the Eurodollar Rate Loan
being prepaid.
(b) If the Borrower prepays the Term Loan for any reason,
prior to the second anniversary date of the Closing Date, the Borrower
shall pay to Lender a prepayment fee equal to (i) during the first
year after the Closing Date, 2% of the amount prepaid and (ii) during
the second year after the Closing Date, 1% of the amount prepaid. If
the Borrower terminates the Commitment as a result of obtaining
refinancing from a Person other than the Lender prior to the second
anniversary of the Closing Date, the Borrower should pay a termination
fee equal to (i) during the first year after the Closing Date, 2% of
the Working Capital Amount and (ii) during the second year after the
Closing Date, 1% of the Working Capital Amount.
2.7 Increased Costs; Increased Capital. In the event that the Lender
determines that compliance with any United States (including any state,
political subdivision, territory or possession thereof) or foreign law,
regulation, treaty, directive or guideline, currently or hereafter in effect,
or the interpretation or application thereof, or the compliance with any
request, guideline or directive (whether or not having the force of law) from
any United States or foreign central bank or any other Governmental Authority:
(a) imposes, modifies or holds applicable any reserve,
special deposit, compulsory loan or similar requirement against, or
imposes any other conditions with respect to assets held by, or
deposits or other liabilities in or for the account of, advances or
loans by, or other credit or commitment therefor extended by, or any
other acquisition of funds by, any office of the Lender which is not
otherwise included or accounted for in any determination of the
Eurodollar Rate or any interest payable hereunder; or
(b) affects or would affect the amount of capital required or
expected to be maintained by the Lender or any corporation controlling
the Lender and the Lender determines that the amount of such capital
is increased by or based upon the existence of the Lender's
obligations to make, maintain or fund the Eurodollar Loans;
and the result is to increase (as reasonably determined by the Lender)
the cost to the Lender of (i) agreeing to make, making, funding, renewing or
maintaining the Eurodollar Loans hereunder, or (ii) agreeing to maintain, or
its maintenance of, the Commitment hereunder, or to reduce any amount
receivable in respect of any of the foregoing, or to reduce (as determined by
the Lender) the rate of return on the Lender's or such controlling
corporation's capital (taking
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into account the policies of the Lender or corporation with regard to capital)
("Increased Cost"), then, in any such case, the Borrower agrees to pay to the
Lender upon the Lender's demand any additional amount as may be necessary to
compensate fully the Lender for such additional cost, reduced amount
receivable, or reduced rate of return as reasonably determined by the Lender to
place the Lender in the same economic position as if such compliance had not
occurred. The Lender will promptly notify the Borrower, in writing, of the
occurrence of any of the events described in this Section 2.7. Notwithstanding
the foregoing, Lender agrees that if there is any Increased Cost with respect
to which Borrower would be obligated to compensate Lender pursuant to this
Section 2.7, Lender shall use reasonable efforts to select an alternative
lending office which would not result in any such Increased Cost to Lender;
provided, however, that Lender shall not be obligated to select an alternative
lending office if Lender determines in good faith that (i) as a result of such
selection Lender would be in violation of any applicable law, regulation,
treaty, or guideline, or would incur additional costs or expenses or (ii) such
selection would be inadvisable for regulatory reasons or inconsistent with the
interests of Lender. Notwithstanding anything to the contrary contained in this
Section 2.7, Borrower shall not be obligated to indemnify or reimburse Lender
for any Increased Costs hereunder (x) which arose or were incurred during or
are otherwise attributable to any period of time more than 180 days prior to
the date on which Lender delivered its written statement for indemnification or
reimbursement for such Increased Costs, or (ii) if such Increased Costs, or
substantially the same type of costs, are not also imposed on other borrowers
of such Lender who entered into similar credit facilities with a similar
pricing, taken as a whole, who have agreed to pay such costs, at the same time.
2.8 Payments and Computations.
(a) All payments of principal, interest and fees hereunder
and under the Notes payable to the Lender shall be made without
condition or reservation of right and in same day funds and delivered
to the Lender not later than 1:00 p.m. (New York time) on the date due
to such account of the Lender as the Lender may designate; and funds
received by the Lender after that time shall be deemed to have been
paid on the next succeeding Business Day.
(b) The Borrower hereby authorizes the Lender and unless the
Borrower has arranged for another means of timely payment satisfactory
to the Lender, the Lender shall, if and to the extent any payment is
due hereunder, to make a Working Capital Loan to Borrower which shall
be a Base Rate Loan in the amount of such payment. In addition, the
Borrower hereby authorizes the Lender, if and to the extent payment is
due hereunder and unless the Borrower has arranged for another means of
timely payment satisfactory to the Lender, the Lender shall charge from
time to time against the Borrower's accounts with the Lender any amount
so due. The Lender shall notify the Borrower of any such Loan or
charge; provided, however, that the failure to give such notice shall
not limit or otherwise affect the obligation of the Borrower to make
any payment when due hereunder.
(c) All computations of interest and fees shall be calculated
on the basis of a year of 360 days for the actual number of days
(including the first day but excluding the last day) occurring in the
period for which such interest or fees are payable. Each determination
by the Lender of an interest rate hereunder shall be conclusive and
binding for all purposes, absent manifest error.
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(d) Whenever any payment hereunder shall be stated to be due
on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or the
Non-Use Fee, as the case may be; provided, however, if such extension
would cause payment of interest on or principal of Eurodollar Rate
Loans to be made in the next following calendar month, such payment
shall be made on the next preceding Business Day.
2.9 Taxes.
(a) Any and all payments by the Borrower hereunder shall be
made, in accordance with Section 2.8, free and clear of and without
deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect
thereto, excluding taxes imposed on the Lender's income, and franchise
taxes imposed on the Lender, by the jurisdiction under the laws of
which the Lender is organized or any political subdivision thereof
(all such nonexcluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as
"Taxes"). If the Borrower shall be required by law to deduct any Taxes
from or in respect of any sum payable hereunder to the Lender, (i) the
sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to
additional sums payable under this Section 2.9) the Lender receives an
amount equal to the sum it would have received had no such deductions
been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant taxing
authority or other appropriate authority in accordance with applicable
law.
(b) In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made
hereunder or under the Notes or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or the
Notes (but specifically excluding, any taxes due as a result of any
assignment or participation made by the Lender as permitted by the
terms of Section 11.2 hereof) (hereinafter referred to as "Other
Taxes").
(c) The Borrower agrees to indemnify the Lender for the full
amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable
under this Section 2.9) paid by the Lender and any liability
(including penalties, interest and expenses) arising therefrom or with
respect thereto. Any amounts due from the Borrower in accordance with
the foregoing indemnification shall be paid to the Lender within
thirty (30) days from the date the Lender makes written demand
therefor. Notwithstanding the foregoing, however, the Lender agrees
that it shall not pay any Taxes or Other Taxes if it has received
written notice from the Borrower that the Borrower is contesting the
same and for so long as the Borrower continues to contest the same in
accordance with the terms of Section 7.1 provided that such failure to
pay does not adversely affect the Lender's ability to obtain or
maintain a perfected security interest in any of the Borrower's
Property or any of the Lender's rights and remedies hereunder.
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(d) If the Lender shall request, within 30 days after the
date of any payment of Taxes, the Borrower will furnish to the Lender,
at its address referred to on the signature page hereto, the original
or a certified copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement
of the Borrower hereunder, the agreements and obligations of the
Borrower contained in this Section 2.9 shall survive the payment in
full of principal and interest hereunder and under the Notes.
(f) Each Lender or Purchaser that is not a United States
person (as such term is defined in Section 7701(a)(30) of the Code),
shall submit to the Borrower when it becomes a Lender or Purchaser
hereunder duly completed and signed copies of (i) Internal Revenue
Services ("IRS") Form 1001 (relating to such Lender and entitling it
to a complete exemption from United States withholding on all amounts
to be received by such Lender, including fees, under this Agreement)
and, if necessary to prevent backup withholding, IRS Form W-8
(relating to the foreign status exemption from United States federal
income tax backup withholding), (ii) IRS Form 4224 (relating to all
amounts to be received by such Lender, including fees, under this
Agreement) and, if necessary to prevent backup withholding, IRS Form
W-9 (certification of taxpayer indemnification number), or (iii) IRS
Form W-8 (relating to the exemption from United States federal income
tax withholding on payments of portfolio interest under Section 871(h)
or Section 881(c) of the Code), together with any certificate or
statement of exemption required under the Code or the regulations
issued thereunder to establish that such Lender or Purchaser is not
subject to deduction or withholding of United States federal income
tax with respect to any payments to such Lender or any interest
payable under any of the Loan Documents. Thereafter and from time to
time, each such Lender or Purchaser, to the extent legally entitled to
do so, shall submit to the Borrower such additional duly completed and
signed copies of the previously provided forms (or such successor
forms as shall be adopted from time to time by the relevant United
States taxing authorities) as may be (i) requested by the Borrower
from such Lender or Purchaser and (ii) required under then-current
United States law or regulations to avoid United States withholding
taxes on payment in respect of amounts to be received by such Lender
or Purchaser, including fees, under this Agreement. Upon the request
of the Borrower, each Lender or Purchaser that is a United States
person (as such term is defined in Section 7701(a)(30) of the Code)
shall submit to the Borrower a certificate to the effect that it is
such a United States person. If any Lender or Purchaser determines
that it is unable to submit to the Borrower any form or certificate
that such Lender or Purchaser is obligated to submit pursuant to this
Section, or that such Lender or Purchaser is required to withdraw or
cancel any such form or certificate previously submitted, such Lender
or Purchaser shall promptly notify the Borrower of such fact.
(g) If any Lender or Purchaser shall obtain a credit with
respect to all or part of any tax indemnified by Borrower pursuant to
this Section 2.9, then, to the extent such items have not previously
been taken into account in computing the amount of any payment
pursuant to this sentence or the amount of indemnification payable
under this Section 2.9, such Lender or Purchaser shall promptly pay to
Borrower an amount equal to the amount of such credit, reduced by the
amount of any prior payments by such Lender or Purchaser to, or for
the benefit of, Borrower arising from the same claim. All computations
required hereunder shall be made by such Lender or Purchaser acting
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reasonably and in good faith and the results of such computations
shall be delivered to Borrower.
(h) Without affecting its right under this Section 2.9 or any
other provision of this Agreement, each Lender and Purchaser agrees
that if Borrower is obligated to pay taxes as are imposed on or
measured by the net income, net profits, or franchise taxes of such
Lender or Purchaser pursuant to this Section 2.9, such Lender or
Purchaser shall use reasonable efforts to select an alternative
lending office which would not result in any such tax or which would
result in a reduction of any such tax.
2.10 Reserved.
2.11 Conversions.
(a) On the terms and subject to the conditions of this
Agreement and provided that no Event of Default shall have occurred
and be continuing, upon written notice to the Lender in substantially
the form of EXHIBIT D attached hereto and made a part hereof (the
"Notice of Conversion"), the Borrower may convert all or any portion
not less than $500,000 of the Term Loan or any Working Capital Loan
which is (i) a Eurodollar Rate Loan to a Base Rate Loan upon
expiration of the applicable Interest Period, (ii) continue any
Eurodollar Rate Loan as a Eurodollar Rate Loan upon the expiration of
the applicable Interest Period, or (iii) convert any Base Rate Loan to
a Eurodollar Rate Loan at any time (any such date on which any Loan is
to be converted being referred to herein as a "Conversion Date"). Such
Notice of Conversion shall be delivered to the Lender prior to 1:00
p.m. (New York time) three (3) Business Days prior to the proposed
Conversion Date if conversion to, or continuation of, a Eurodollar
Rate Loan is requested, and prior to 11:00 a.m. (New York time) on the
proposed Conversion Date if conversion to a Base Rate Loan is
requested. Each proposed Conversion Date shall be a Business Day.
(b) If the Borrower shall fail to give notice of the duration
of the proposed Interest Period with respect to a proposed conversion
of an outstanding Base Rate Loan or a continuation of a Eurodollar
Rate Loan, the Borrower shall be deemed not to have elected to convert
the Base Rate Loan or continue the Eurodollar Rate Loan. If the
Borrower shall fail to give a timely and complete Notice of Conversion
with respect to an outstanding Eurodollar Rate Loan in accordance with
this Section 2.11, the Borrower shall be deemed to have elected to
convert such outstanding Eurodollar Rate Loan to a Base Rate Loan on
the last day of the applicable Interest Period.
(c) Any Notice of Conversion given or deemed to have been
given pursuant to this Section 2.11 shall be irrevocable.
(d) Each Eurodollar Rate Loan shall be converted to a Base
Rate Loan at the end of the then applicable Interest Period if (i) an
Event of Default has occurred and is continuing, or (ii) the Lender
shall be unable to determine the Eurodollar Rate or shall have deemed
the Eurodollar Rate to be inadequate or unfair (as provided in Section
2.3(b)). If the making or maintaining of Eurodollar Rate Loans shall
be unlawful, impossible, inadequate or unfair (as provided in Section
2.3(b)), all Eurodollar Rate Loans then outstanding shall be converted
into Base Rate Loans on either (i) the last day of the Interest Period
or Interest Periods applicable to such Loans if the Lender may
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lawfully continue to maintain and fund such Loans until such day, or
(ii) immediately, if the Lender may not lawfully continue to fund and
maintain such Loans.
(e) Notwithstanding any provision in this Agreement to the
contrary, Borrower shall have no more than ten (10) different Interest
Periods outstanding for Eurodollar Rate Loans at any time; provided,
however, in the event Lender permits additional Interest Periods, the
Borrower shall pay to Lender an additional fee of $250 per Interest
Period.
2.12 Fees.
(a) The Borrower shall pay to the Lender an arrangement fee
(the "Arrangement Fee") in the amount of Sixty Thousand Dollars
($60,000) of which $30,000 was paid with the acceptance of the
applicable commitment letter and $30,000 shall be payable on the
Closing Date.
(b) As additional compensation for Lender's costs and risks
in making the Working Capital Loans available to Borrower, Borrower
agrees to pay to Lender in arrears, on the first Business Day of each
calendar quarter prior to the Termination Date and on the Termination
Date, a fee for Borrower's non-use of available funds under the
Working Capital Facility (the "Non-Use Fee") in an amount equal to
0.25% per annum (calculated on the basis of a 360 day year for actual
days elapsed) on the difference between (i) the Working Capital Amount
and (ii) the daily average of the amount of the Working Capital Loans
outstanding during the period for which the Non-Use Fee is due.
Article III.
[RESERVED]
Article IV.
COLLATERAL
4.1 Grant of Security Interest.
(a) To secure the prompt, complete, payment and performance
of all Obligations, the Borrower hereby grants to the Lender a
continuing security interest in, and lien on, all of the Borrower's
right, title and interest in any of the following property, whether
now owned or existing or hereafter acquired or arising and wherever
located:
(i) all Accounts, Contract Rights, letters of
credit, chattel paper, instruments, notes, documents, and
documents of title;
(ii) General Intangibles;
(iii) Inventory;
(iv) Equipment;
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(v) all moneys, Securities and other investment
property;
(vi) deposit accounts, credits, and balances with
and other claims against the Lender or any of its affiliates
or any other financial institution with which the Borrower
maintains deposits;
(vii) all books, records and other property relating
to or referring to any of the foregoing, including, without
limitation, all books, records, ledger cards, data processing
records, computer software and other property and general
intangibles at any time evidencing or relating to any of the
foregoing; and
(viii) all accessions to, substitutions for and
replacements, products and proceeds of any of the foregoing,
including, but not limited to, proceeds of any insurance
policies, claims against third parties, and condemnation or
requisition payments with respect to all or any of the
foregoing.
All of the foregoing, together with all other property in
which the Lender may at any time be granted a Lien to secure
the Obligations, is herein collectively referred to as the
"Collateral."
(b) All of the Obligations shall be secured by all of the
Collateral.
4.2 Intentionally Omitted.
4.3 Perfection and Protection of Security Interest.
(a) The Borrower shall, at its expense, perform all steps
reasonably requested by the Lender at any time to perfect, maintain,
protect, and enforce its Liens in the Collateral including, without
limitation: (i) executing and filing financing or continuation
statements, and amendments thereof, in form and substance satisfactory
to the Lender; (ii) delivering to the Lender the originals of all
instruments, documents, and chattel paper, and all other Collateral of
which the Lender determines it should have physical possession in
order to perfect and protect the Lender's security interest therein,
duly endorsed or assigned to the Lender without restriction; (iii)
delivering to the Lender warehouse receipts covering any portion of
the Collateral located in warehouses and for which warehouse receipts
are issued; (iv) delivering to the Lender all letters of credit on
which the Borrower is named beneficiary; and (v) taking such other
steps as are deemed necessary by the Lender to maintain and protect
its Liens. To the extent permitted by applicable law, the Lender may
file, without the Borrower's signature, one or more financing
statements disclosing its Liens. The Borrower agrees that a carbon,
photographic, photostatic, or other reproduction of this Agreement or
of a financing statement is sufficient as a financing statement.
(b) If any Collateral is at any time in the possession or
control of any warehouseman, bailee or any agent of the Borrower, then
the Borrower shall notify the Lender thereof and shall notify such
Person of the Lender's security interest in such Collateral and, upon
the Lender's request, instruct such Person to hold all such Collateral
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for the Lender's account subject to the Lender's instructions. If at
any time significant operations of the Borrower's business are
operated on or any significant Collateral is located on any premises
that are not owned by the Borrower, then the Borrower shall use Good
Faith efforts to obtain, at the request of the Lender, attornment
agreements in form and substance satisfactory to the Lender with the
owner or lessor of such premises.
(c) From time to time, the Borrower shall, upon the Lender's
request, execute and deliver confirmatory written instruments pledging
to the Lender the Collateral, but the Borrower's failure to do so
shall not affect or limit the Lender's security interest or the
Lender's other rights in and to the Collateral. So long as the
Commitment is in effect or any of the Obligations remain outstanding,
the Lender's Liens shall continue in full force and effect in all
Collateral.
4.4 Location of Collateral. Borrower represents and warrants to Lender
that: (a) SCHEDULE 4.4 attached hereto and incorporated herein by this
reference is a correct and complete list of the Borrower's chief executive
office, the location of its books and records, the locations of its property,
and the locations of all of its other places of business; and (b) SCHEDULE 4.4
attached hereto correctly identifies any of such facilities and locations that
are not owned by the Borrower and to the best of the Borrower's knowledge, sets
forth the names of the owners and lessors or sublessors of, and the holders of
any mortgages on, such facilities and locations. The Borrower covenants and
agrees that it will not maintain any of its property at any location other than
those listed for it on SCHEDULE 4.4 attached hereto, unless it gives the Lender
at least five (5) days' prior written notice thereof and executes any and all
financing statements and other documents that the Lender requests in connection
therewith.
4.5 Title to, Liens on, and Sale and Use of Collateral. The Borrower
represents and warrants to the Lender and agrees with the Lender that: (a) all
Collateral is and will continue to be owned by the Borrower or the grantor
thereof, free and clear of all Liens whatsoever, except for Permitted Liens;
(b) the Borrower will, and will cause each of its Subsidiaries, to use, store,
and maintain the Collateral with all reasonable care and will use the
Collateral for lawful purposes only; and (c) the Borrower will not, and will
not permit any of its Subsidiaries, without the Lender's prior written approval
(which will not be unreasonably withheld), sell, or dispose of or permit the
sale or disposition of any Collateral, except for sales of Inventory in the
ordinary course of business, and Equipment as permitted by Section 4.9. The
inclusion of proceeds in the Collateral shall not be deemed to constitute the
Lender's consent to any sale or other disposition of the Collateral except as
expressly permitted herein.
4.6 Access and Examination; Appraisals. The Lender may at all
reasonable times (and at any time when a Default or Event of Default exists)
have access to, examine, audit, make extracts from, copy and inspect Borrower's
and its Subsidiaries records, files, and books of account and the Collateral,
and discuss the Borrower's affairs with the Borrower's officers and management.
Borrower will deliver to the Lender any instrument necessary for the Lender to
obtain records from any service bureau or any other Person or Governmental
Authority maintaining records for the Borrower.
4.7 Intentionally Omitted.
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4.8 Collection of Receivables. The Lender may at any time after the
occurrence and during the continuance of an Event of Default, by giving the
Borrower written notice, elect to require that the Accounts be paid directly to
the Lender. In such event, Borrower shall, and shall permit the Lender to,
promptly notify the account debtors or obligors under the Accounts of the
Lender's interest therein and direct such account debtors or obligors to make
payment of all amounts then or thereafter due under the Accounts directly to
the Lender. Upon receipt of any such notice from the Lender, Borrower shall
thereafter hold in trust for the Lender, all amounts and proceeds received by
it with respect to the Accounts and other Collateral and immediately and at all
times thereafter deliver to the Lender all such amounts and proceeds in the
same form as so received, whether by cash, check, draft or otherwise, with any
necessary endorsements. After the occurrence and during the continuance of an
Event of Default, the Lender may require all cash proceeds of the Collateral to
be deposited in a special noninterest bearing cash collateral account with the
Lender and held there as security for the Obligations. The Borrower shall
thereafter have no control whatsoever over said cash collateral account. The
Lender may, from time to time, apply the collected balances in said cash
collateral account to the payment of the Obligations whether or not the
Obligations shall then be due.
4.9 Equipment. The Borrower represents and warrants to the Lender and
agrees with the Lender that all of the Equipment owned or leased by the
Borrower is and will be used or held for use in the Borrower's business (which
includes the lease of such equipment to third parties from time to time), and
is and will be fit for such purposes. The Borrower will use the Equipment in a
careful and proper manner and will comply with and conform to all governmental
laws, rules and regulations relating thereto. The Borrower shall keep and
maintain its Equipment in good operating condition and repair (ordinary wear
and tear excepted) and in Borrower's reasonable business judgment, shall make
all necessary replacements thereof so that the condition and operating
efficiency thereof will at all times be maintained and preserved, reasonable
wear and tear excepted. The Borrower shall promptly inform the Lender of any
material additions to or deletions from the Equipment. Borrower shall not
permit any Equipment to become a fixture to real property or an accession to
other personal property, unless the Lender has a valid and perfected Lien in
such real or personal property. Except for occasional sales of Equipment, the
proceeds of which represent the fair market value therefor and do not exceed in
the aggregate for any Fiscal Year $100,000, the Borrower shall not, without the
Lender's prior written consent, sell, lease as a lessor, or otherwise dispose
of any of the Equipment other than worn out or obsolete Equipment.
4.10 Contract Rights. The Borrower shall fully perform all of its
material obligations under each material contract to which it is a party and
shall enforce all of its rights and remedies thereunder as it deems appropriate
in its business judgment; provided, however, that the Borrower shall not take
any action or fail to take any action with respect to the Contract Rights
which, in the Borrower's business judgment, exercised in Good Faith, would
result in a waiver or other loss of any material right or remedy of the
Borrower thereunder. Without limiting the generality of the foregoing, the
Borrower shall take all action necessary or appropriate to permit, and shall
not take any action which would have any material adverse effect upon, the full
enforcement of all indemnification rights under the Contract Rights. Except in
the ordinary course of business and consistent with past practices, the
Borrower shall not, without the Lender's prior written consent, modify, amend,
supplement, compromise, satisfy, release, or discharge any of the Contract
Rights, any collateral securing the same, any Person liable directly or
indirectly with respect thereto, or any agreement relating to any of the
Contract Rights or the
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collateral therefor. The Borrower shall notify the Lender in writing, promptly
after the Borrower becomes aware thereof, of any event or fact which could give
rise to a claim by it for indemnification under any of the Contract Rights, and
shall diligently pursue such right and report to the Lender on all further
developments with respect thereto. If an Event of Default exists and the
Borrower has not cured or is unable to cure such Event of Default, then the
Lender may directly enforce any material right in the Contract Rights in its
own or the Borrower's name and may enter into such settlements or other
agreements with respect thereto as the Lender determines. In any suit,
proceeding or action brought by the Lender under any Contract Rights for any
sum owing thereunder or to enforce any provision thereof, the Borrower shall
indemnify and hold the Lender harmless from and against all expense, loss or
damage suffered by reason of any defense, setoff, counterclaims, recoupment, or
reduction of liability whatsoever of the obligor thereunder arising out of a
breach by the Borrower of any obligation thereunder or arising out of any other
agreement, indebtedness or liability at any time owing from the Borrower to or
in favor of such obligor or its successors other than expense, loss or damage
resulting from Lender's gross negligence or willful misconduct. All such
obligations of the Borrower shall be and remain enforceable only against the
Borrower and shall not be enforceable against the Lender. Notwithstanding any
provision hereof to the contrary, the Borrower shall at all times remain liable
to observe and perform all of its duties and obligations under the Contract
Rights, and the Lender's exercise of any of its rights with respect to the
Collateral shall not release the Borrower from any of such duties and
obligations. The Lender shall not be obligated to perform or fulfill any of the
Borrower's duties or obligations under the Contract Rights or to make any
payment thereunder, or to make any inquiry as to the nature or sufficiency of
any payment or property received by it thereunder or the sufficiency of
performance by any party thereunder, or to present or file any claim, or to
take any action to collect or enforce any performance, any payment of any
amounts, or any delivery of any property. Notwithstanding any provision in this
Section 4.10 to the contrary, provided no Event of Default has occurred and is
continuing, the Lender shall not be permitted to waive or release on behalf of
the Borrower any rights that the Borrower may have (whether at law or in
equity) against any other party to the Contract Rights.
4.11 Right to Cure. The Lender may, in its discretion and at any time
after at least ten (10) days prior written notice, for the Borrower's account
and at the Borrower's expense, pay any amount not being disputed by Borrower in
Good Faith or do any act required of the Borrower hereunder or reasonably
requested by the Lender to preserve, protect, maintain or enforce the
Obligations, the Collateral or the Lender's Liens therein, and which the
Borrower fails to pay or do, including, without limitation, payment of any
judgment against the Borrower, any insurance premium, any warehouse charge, any
landlord's claim, and any other Lien upon or with respect to the Collateral.
All payments that the Lender makes under this Section 4.11 and all
out-of-pocket costs and expenses that the Lender pays or incurs in connection
with any action taken by it hereunder shall be payable on demand. Any payment
made or other action taken by the Lender under this Section 4.11 shall be
without prejudice to any right to assert an Event of Default hereunder and to
proceed thereafter as herein provided.
4.12 Power of Attorney. The Borrower hereby appoints the Lender and
the Lender's designees as the Borrower's attorney, with power, if an Event of
Default has occurred and is continuing, to send requests for verification of
accounts to customers or account debtors and after an Event of Default has
occurred and is continuing: (a) to endorse the Borrower's name on any checks,
notes, acceptances, money orders, or other forms of payment or security that
come
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into the Lender's possession; (b) to sign the Borrower's name on any invoice,
bill of lading, or other document of title relating to any Collateral, on
drafts against customers, on assignments of Accounts, on notices of assignment,
financing statements and other public records; (c) to notify the post office
authorities to change the address for delivery of the Borrower's mail to an
address designated by the Lender and to receive, open and dispose of all mail
addressed to the Borrower; and (d) to do all things necessary to carry out this
Agreement. The Borrower ratifies and approves all acts of such attorney.
Neither the Lender nor the attorney will be liable for any acts or omissions or
for any error of judgment or mistake of fact or law except to the extent of the
Lender's gross negligence or willful misconduct. This power, being coupled with
an interest, is irrevocable until the Commitment has been terminated and the
Obligations have been fully satisfied.
4.13 The Lender's Rights, Duties and Liabilities. The Borrower assumes
all responsibility and liability arising from or relating to the use, sale or
other disposition of the Collateral except for liability resulting from the
Lender's or any of its respective attorney's gross negligence or willful
misconduct. The Lender and its officers, directors, employees, and agents shall
not be liable or responsible in any way for the safekeeping of any of the
Collateral except to the extent of the Lender's gross negligence or willful
misconduct with respect thereto, or for any loss or damage thereto, or for any
diminution in the value thereof, or for any act of default of any warehouseman,
carrier, forwarding agency or other person whomsoever, all of which shall be at
the Borrower's sole risk. The Obligations shall not be affected by any failure
of the Lender to take any steps to perfect its Liens or to collect or realize
upon the Collateral, nor shall loss of or damage to the Collateral release the
Borrower from any of the Obligations. After the occurrence of and during the
continuance of a Default or Event of Default, the Lender may (but shall not be
required to), without notice to or consent from the Borrower, sue upon or
otherwise collect, extend the time for payment of, modify or amend the terms
of, compromise or settle for cash, credit, or otherwise upon any terms, grant
other indulgences, extensions, renewals, compositions, or releases, and take or
omit to take any other action with respect to the Collateral, any security
therefor, any agreement relating thereto, any insurance applicable thereto, or
any Person liable directly or indirectly in connection with any of the
foregoing, without discharging or otherwise affecting the liability of the
Borrower for the Obligations or under this Agreement or any other agreement now
or hereafter existing between the Lender and the Borrower.
Article V.
BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES
5.1 Books and Records. The Borrower shall maintain, at all times,
correct and complete books, records and accounts in which complete, correct and
timely entries are made of its transactions in a manner necessary to insure
that the audited financial statements required to be delivered pursuant to
Section 5.2(a) shall be prepared in accordance with GAAP. The Borrower shall,
by means of appropriate entries, reflect in such accounts and in all financial
statements proper liabilities and reserves for all taxes and proper provision
for depreciation and amortization of its Property and bad debts, all in
accordance with GAAP. The Borrower shall maintain at all times books and
records pertaining to the Collateral in such detail, form and scope as the
Lender shall reasonably require, including, but not limited to, records of (a)
all payments received and all credits and extensions granted with respect to
the Accounts; and (b) all other dealings affecting the Collateral.
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5.2 Financial Information. The Borrower shall promptly furnish to the
Lender all such financial information as the Lender shall reasonably request,
and notify its auditors and accountants that the Lender is authorized to obtain
such information directly from them. Without limiting the foregoing, the
Borrower will furnish to the Lender, in such detail as the Lender shall
request, the following:
(a) As soon as available, but in any event not later than
ninety (90) days after the close of each Fiscal Year, a copy of the
unaudited consolidating and the audited consolidated balance sheets,
related statements of income and operations, shareholders' equity
(only for consolidated statements) and cash flows for the Borrower and
its consolidated Subsidiaries for such Fiscal Year, and the
accompanying notes thereto, setting forth in each case in comparative
form figures for the previous Fiscal Year and the budgeted figures for
the current Fiscal Year, all in reasonable detail, fairly presenting
the financial position and the results of operations of the Borrower
and its consolidated Subsidiaries as at the date thereof and for the
Fiscal Year then ended, and prepared in accordance with GAAP. Such
statements shall be examined in accordance with generally accepted
auditing standards by and accompanied by a report thereon unqualified
as to scope of independent certified public accountants selected by
the Borrower and reasonably satisfactory to the Lender.
(b) As soon as available, but in any event not later than
forty-five (45) days after the close of each fiscal quarter other than
the fourth quarter of a Fiscal Year, a copy of the unaudited
consolidating and consolidated balance sheets of the Borrower and its
consolidated Subsidiaries as at the end of such quarter, and the
related consolidating and consolidated statements of income and
operations, shareholders' equity (only for consolidation) and cash
flows for the Borrower and its consolidated Subsidiaries for the last
month of such quarter and for the period from the beginning of the
Fiscal Year to the end of such quarter, together with the accompanying
notes thereto, all in reasonable detail, setting forth in each case in
comparative form the budgeted figures for the current Fiscal Year,
fairly presenting the financial position and results of operation of
the Borrower and its consolidated Subsidiaries as at the date thereof
and for such periods, prepared in accordance with GAAP. Such
statements shall be certified to be correct by the chief financial or
accounting officer of the Borrower, subject to normal year-end
adjustments.
(c) With each of the audited and unaudited financial
statements delivered pursuant to Sections 5.2(a) and 5.2(b), a
certificate of the chief executive or chief financial officer of the
Borrower (i) setting forth in reasonable detail the calculations
required to establish that the Borrower was in compliance with its
covenants set forth in Section 7.22 and Section 7.23 during the period
covered in such financial statements and as at the end thereof, and
(ii) stating that, except as explained in reasonable detail in such
certificate, (A) all of the representations and warranties of the
Borrower contained in this Agreement and the other Loan Documents are
correct and complete as at the date of such certificate as if made at
such time, (B) the Borrower is, at the date of such certificate, in
compliance with all of its covenants and agreements in this Agreement
and the other Loan Documents, and (C) no Default or Event of Default
then exists or existed during the period covered by such financial
statements. If such certificate discloses that a representation or
warranty is not correct or complete, or that a covenant has not been
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complied with, or that a Default or Event of Default existed or
exists, such certificate shall set forth what action the Borrower has
taken or proposes to take with respect thereto.
(d) Such additional information as the Lender may from time
to time reasonably request regarding the financial and business
affairs of the Borrower or any Subsidiary, including, without
limitation, projections of future operations on both a consolidated
and consolidating basis.
5.3 Notices to the Lender. The Borrower shall notify the Lender in
writing of the following matters at the following times:
(a) Immediately after becoming aware thereof, any Default or
Event of Default.
(b) Immediately after becoming aware thereof, the assertion
by a holder or holders of Debt in an outstanding principal amount in
excess of $100,000 in the aggregate at any one time that a default
exists with respect thereto or that the Borrower is not in compliance
with the terms thereof, or the threat or commencement by such holder
of any enforcement action because of such asserted default or
non-compliance.
(c) Immediately after becoming aware thereof, any material
adverse change in the Borrower's Property, business, operations, or
condition (financial or otherwise) or any material decrease in the
Borrower' Accounts.
(d) Immediately after becoming aware thereof, any pending or
threatened action, suit, proceeding, or counterclaim by any Person, or
any pending or threatened investigation by a Governmental Authority,
which may materially and adversely affect the Collateral, the
repayment of the Obligations, the Lender's rights under the Loan
Documents, or the Borrower's Property, business, operations, or
condition (financial or otherwise).
(e) Immediately after becoming aware thereof, any violation
of any law, statute, regulation, or ordinance of Governmental
Authority applicable to the Borrower, any Subsidiary, or their
respective properties which may materially and adversely affect the
Collateral, the repayment of the Obligations, the Lender's rights
under the Loan Documents, or the Borrower's Property, business,
operations, or condition (financial or otherwise).
(f) Any change in the Borrower's name, state of
incorporation, or form of organization, at least ten (10) days prior
thereto.
(g) Any Termination Event with respect to a Plan within
fifteen (15) days after the Borrower knows or has reason to know
thereof, and any other Reportable Event, within forty (40) days after
the Borrower knows or has reason to know thereof, in each case
accompanied by any materials required to be filed with the PBGC with
respect thereto; immediately after the receipt by the Borrower or any
ERISA Affiliate of any notice concerning the imposition of any
withdrawal liability under Title IV of ERISA with respect to a Benefit
Plan or a Multiemployer Plan; within ten (10) days after the
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Borrower or any ERISA Affiliate fails to make a required installment
or any other required payment under Section 412 of the Code on or
before the due date for such installment or payment, a notification of
such failure; the establishment of any Plan not existing at the
Closing Date, or any increase in the benefits of any existing Plan or
the commencement of contributions by the Borrower to any Plan to which
the Borrower was not contributing at the Closing Date, within
fifty-five (55) days after the end of the fiscal quarter in which such
event occurs; within fifteen (15) days after the Borrower or an ERISA
Affiliate knows or has reason to know (i) a Multiemployer Plan has
been terminated, (ii) the administration or plan sponsor of a
Multiemployer Plan intends to terminate a Multiemployer Plan or (iii)
the PBGC has instituted or will institute proceedings under Section
4042 of ERISA to terminate a Multiemployer Plan; within forty-five
(45) days after the Borrower or an ERISA Affiliate knows or has reason
to know that a prohibited transaction (defined in Section 406 of ERISA
and Section 4975 of the Code) has occurred; immediately after filing
with the IRS a funding waiver request for any Plan, in each case
accompanied by a copy of such request and, subsequent thereto, copies
of all communications received by the Borrower or an ERISA Affiliate
with respect to such request; or immediately after becoming aware
thereof, any other event or condition regarding a Plan or the
Borrower's or an ERISA Affiliate's compliance with ERISA which may
materially and adversely affect the Borrower's Property, business,
operation, or condition (financial or otherwise).
Each notice given under this Section shall describe the subject matter
thereof in reasonable detail, and shall set forth the action that the Borrower
have taken or propose to take with respect thereto.
Article VI.
GENERAL WARRANTIES AND REPRESENTATIONS
The Borrower warrants and represents to Lender that all of the
Borrower's representations and warranties contained in this Agreement and the
other Loan Documents are true at the time of the Borrower' execution of this
Agreement, and shall survive the execution, delivery and acceptance hereof by
the parties hereto and the closing of the transactions described herein or
related hereto. Each request for a Loan hereunder shall constitute a
representation and warranty by Borrower, with the same effect as a certificate
delivered by the Borrower in writing, that all of the representations and
warranties made herein (other than representations and warranties which
expressly speak as of a certain date), are true and correct in all respects as
of the date of such request. Borrower warrants and represents to Lender that:
6.1 Authorization, Validity, and Enforceability of this Agreement and
the Loan Documents. Each of the Borrower and OGAC has the corporate power and
authority to execute, deliver and perform this Agreement and the other Loan
Documents, to incur the Obligations, and to grant to the Lender, Liens upon,
and security interests in, the Collateral. Each of the Borrower and OGAC has
taken all necessary corporate action (including, without limitation, obtaining
approval of its stockholders, if necessary) to authorize its execution,
delivery, and performance of this Agreement and the other Loan Documents. No
consent, approval, or authorization of, or declaration or filing with, any
Governmental Authority, and no consent of any other Person, is required in
connection with the Borrower's execution, delivery, and performance of this
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Agreement and the other Loan Documents, except for those already duly obtained.
Each of this Agreement and the other Loan Documents has been duly executed and
delivered by the Borrower and OGAC, and constitutes the legal, valid and
binding obligation of the Borrower and OGAC, enforceable against them in
accordance with their respective terms. The Borrower's and OGAC's execution,
delivery, and performance of the Loan Documents to which they are respectively
a party do not and will not conflict with, or constitute a violation or breach
of, or constitute a default under, or result in the creation or imposition of
any Lien upon the Property of the Borrower or OGAC by reason of the terms of
(a) any contract, mortgage, Lien, lease, agreement, indenture, or instrument to
which the Borrower or any of its Subsidiaries is a party or which is binding
upon it or its Property, (b) any judgment, law, statute, rule or governmental
regulation applicable to the Borrower or any of its Subsidiaries, or (c) the
Certificate of Incorporation or By-laws of the Borrower or any of its
Subsidiaries.
6.2 Validity and Priority of Security Interest. To the best of the
Borrower's knowledge, the provisions of this Agreement and the other Loan
Documents create legal and valid Liens on all the Collateral in the Lender's
favor, and upon filing of the financing statements referenced on the closing
list with the appropriate filing offices and the delivery of the "Pledged
Shares" to the Lender as contemplated by the Borrower Pledge Agreement, such
Liens constitute perfected (to the extent that a lien can be perfected by
filing a UCC-1 financing statement or, in the case of the Pledged Shares, to
the extent that filing can be perfected by delivery or control thereof) and
continuing Liens on all the Collateral, having priority over all other Liens on
the Collateral except for Permitted Liens, and enforceable against the Borrower
and all third parties.
6.3 Organization and Qualification. The Borrower and each of its
Subsidiaries (a) is duly incorporated and organized and validly existing in
good standing under the laws of the State of its incorporation, (b) is
qualified to do business as a foreign corporation and is in good standing in
all states where the failure of the Borrower to qualify to do business would
have a material adverse effect on the Borrower's or any of its Subsidiaries
ability to collect its Accounts or otherwise conduct its business or own or
lease Property in such state, and (c) has all requisite power and authority to
conduct its business and to own its Property.
6.4 Corporate Name; Prior Transactions. None of the Borrower or its
Subsidiaries has, during the past five (5) years, been known by or used any
other corporate or fictitious name, or been a party to any merger or
consolidation, or acquired all or substantially all of the assets of any
Person, or acquired any of its property outside of the ordinary course of
business, except as set forth on SCHEDULE 6.4 attached hereto and incorporated
herein by this reference.
6.5 Subsidiaries and Affiliates. SCHEDULE 6.5 attached hereto and
incorporated herein by this reference is a correct and complete list of the
name and relationship to the Borrower and OGAC and all of their respective
Subsidiaries and other Affiliates as of the date hereof. Each Subsidiary is (a)
duly incorporated and organized and validly existing in good standing under the
laws of its state of incorporation set forth on SCHEDULE 6.5 attached hereto,
and (b) qualified to do business as a foreign corporation and in good standing
in the states set forth opposite its name on SCHEDULE 6.5 attached hereto,
which are the only states where the failure of such Subsidiary to qualify to do
business would have a material adverse effect on such Subsidiary's ability to
collect its Accounts or otherwise conduct its business or own or lease Property
in such state.
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6.6 Financial Statements and Projections. The Borrower has delivered
to the Lender its and OGAC's audited balance sheets and the related statements
of income and operations, shareholders equity and cash flow for the Fiscal Year
ended December 31, 1998, and the unaudited balance sheets and the related
statements of income and operations, shareholders equity and cash flow for the
Fiscal Year to date period ended March 31, 1999. All such financial statements
have been prepared in accordance with GAAP and present accurately and fairly in
all material respects each of such entities' financial position as at the dates
thereof and its results of operations for the periods then ended. Since
December 31, 1998, there has been no event or circumstance which is likely to
have a material adverse affect on the financial condition or operations of the
businesses of such entities.
6.7 Intentionally Omitted.
6.8 Debt. After giving effect to the making of the Term Loan and the
Working Capital Loans to be made on the Closing Date, the Borrower and its
Subsidiaries have no Debt, except (a) the Obligations, (b) Debt set forth on
SCHEDULE 6.8 attached hereto, (c) trade payables and other contractual
obligations arising in the ordinary course of business and (d) Debt permitted
under Section 7.13.
6.9 Real Property; Leases. To the best of Borrower's knowledge,
SCHEDULE 6.9 attached hereto and incorporated herein by this reference sets
forth a correct and complete list of all real property owned by the Borrower
and its Subsidiaries, all leases and subleases of real or personal property by
the Borrower and its Subsidiaries as lessee or sublessee, and all leases and
subleases of real or personal property by the Borrower and its Subsidiaries as
lessor or sublessor. To the best of Borrower's knowledge, each of such leases
and subleases is valid and enforceable in accordance with its terms and is in
full force and effect, and no default by any party to any such lease or
sublease which is material to the business or operations of the Borrower
exists.
6.10 Proprietary Rights. SCHEDULE 6.10 attached hereto and
incorporated herein by this reference sets forth a correct and complete list of
all of the Proprietary Rights of the Borrower and its Subsidiaries. None of the
Proprietary Rights of the Borrower and its Subsidiaries is subject to any
licensing agreement or similar arrangement except as set forth on SCHEDULE 6.10
attached hereto. To the best of the Borrower's knowledge, none of the
Proprietary Rights of the Borrower and its Subsidiaries infringes on or
conflicts with any other Person's property, and no other Person's property
infringes on or conflicts with the Proprietary Rights. The Proprietary Rights
described on SCHEDULE 6.10 attached hereto constitute all of the property of
such type necessary to the current and anticipated future conduct of the
businesses of the Borrower and its Subsidiaries.
6.11 Intentionally Omitted.
6.12 Litigation. Except as set forth on SCHEDULE 6.12 attached hereto
and incorporated herein by this reference, there is no pending or (to the best
of the Borrower's knowledge) threatened, action, suit, proceeding, or
counterclaim by any Person, or investigation by any Governmental Authority, or
any basis for any of the foregoing, which may materially and adversely affect
the Collateral, the repayment of the Obligations, the Lender's rights under the
Loan Documents, or the Borrower's and its Subsidiaries Property, business,
operations, or condition (financial or otherwise), taken as a whole.
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6.13 Restrictive Agreements. Neither the Borrower nor any of its
Subsidiaries is a party to any contract or agreement, and is not subject to any
charter or other corporate restriction, which affects its ability to execute,
deliver, and perform its obligations under the Loan Documents and repay the
Obligations or which materially and adversely affects or, insofar as the
Borrower can reasonably foresee, could materially and adversely affect, the
Borrower's or any of its Subsidiaries Property, business, operations, or
condition (financial or otherwise), or would in any respect materially and
adversely affect the Collateral, the repayment of the Obligations, the Lender's
rights under the Loan Documents, or the Borrower's or any of its Subsidiaries
Property, business, operations, or condition (financial or otherwise), taken as
a whole.
6.14 Labor Disputes. Except as set forth on SCHEDULE 6.14, there is no
collective bargaining agreement or other labor contract covering employees of
the Borrower or any of its Subsidiaries; no such collective bargaining
agreement or other labor contract is scheduled to expire during the term of
this Agreement and, to the best of the Borrower's knowledge, no union or other
labor organization is seeking to organize, or to be recognized as, a collective
bargaining unit of employees of the Borrower or any of its Subsidiaries or for
any similar purpose, and there is no pending or (to the best of the Borrower's
knowledge) threatened, strike, work stoppage, material unfair labor practice
claim, or other material labor dispute against or affecting the Borrower, or
any of its Subsidiaries or their respective employees.
6.15 Environmental, Health and Safety Laws. Except as disclosed on
SCHEDULE 6.15 attached hereto, in the ordinary course of its business, the
officers of the Borrower consider the effect of Environmental Laws on the
business of the Borrower and its Subsidiaries, in the course of which they
identify and evaluate potential risks and liabilities accruing to the Borrower
due to Environmental Laws. On the basis of this consideration, the Borrower has
concluded that compliance with Environmental Laws cannot reasonably be expected
to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary has
received any notice to the effect that its operations are not in material
compliance with any of the requirements of applicable Environmental Laws or are
the subject of any federal or state investigation evaluating whether any
remedial action is needed to respond to a release of any toxic or hazardous
waste or substance into the environment, which noncompliance or remedial action
could reasonably be expected to have a Material Adverse Effect.
6.16 No Violation of Law. Neither the Borrower nor any of its
Subsidiaries is in violation of any law, statute, regulation, ordinance,
judgment, order, or decree applicable to it which violation would in any
respect materially and adversely affect the Collateral, the repayment of the
Obligations, the Lender's rights under the Loan Documents, or the Borrower's
nor any of its Subsidiaries Property, business, operations, or condition
(financial or otherwise), taken as a whole.
6.17 No Default. Neither the Borrower nor any of its Subsidiaries is
in default with respect to any note, indenture, loan agreement, mortgage,
lease, deed, or other agreement to which it is a party or by which it is bound,
which default would materially and adversely affect the Collateral, the
repayment of the Obligations, any Lender's rights under the Loan Documents, or
the Borrower's or any of its Subsidiary's Property, business, operations, or
condition (financial or otherwise).
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6.18 ERISA.
(a) Neither the Borrower nor any ERISA Affiliate has or
contributes to any Plan other than those listed on SCHEDULE 6.18
attached hereto and incorporated herein by this reference.
(b) Except as provided on SCHEDULE 6.18 attached hereto, no
Benefit Plan has been terminated or partially terminated or is
insolvent or in reorganization, nor have any proceedings been
instituted to terminate or reorganize any Plan.
(c) Neither the Borrower nor any ERISA Affiliate has
withdrawn from any Multiemployer Plan in a complete or partial
withdrawal, nor has a condition occurred which if continued would
result in a complete or partial withdrawal.
(d) Neither the Borrower nor any ERISA Affiliate has incurred
any withdrawal liability, including contingent withdrawal liability,
to any Benefit Plan pursuant to Title IV of ERISA as of December 31,
1995.
(e) Neither the Borrower nor any ERISA Affiliate has any
liability to the PBGC other than for required insurance premiums which
have been paid when due.
(f) No Reportable Event has occurred with respect to a
Benefit Plan.
(g) No Benefit Plan has an "accumulated funding deficiency"
(whether or not waived) as defined in Section 302 of ERISA or in
Section 412 of the Code.
(h) Except as provided on SCHEDULE 6.18 attached hereto, to
the best of the Borrower's knowledge each Plan is in substantial
compliance with ERISA, and neither the Borrower nor any ERISA
Affiliate has received any notice asserting that a Plan is not in
compliance with ERISA.
(i) Except as provided on SCHEDULE 6.18 attached hereto, each
Plan which is intended to be a qualified Plan has been determined by
the IRS to be qualified under Section 401(a) of the Code as currently
in effect and neither the Borrower nor any ERISA Affiliate knows or
has reason to know why each such plan should not continue to be so
qualified, and each trust related to such Plan has been determined to
be exempt from federal income tax under Section 501(a) of the Code.
(j) Except as provided on SCHEDULE 6.18 attached hereto,
neither the Borrower nor any ERISA Affiliate maintains or contributes
to any employer welfare benefit plan within the meaning of Section
3(1) of ERISA which provides lifetime benefits to retirees.
(k) Neither the Borrower nor any ERISA Affiliate has failed
to make a required installment under subsection of Section 412 of the
Code or any other payment required under Section 412 of the Code on or
before the due date for such installment or other payment.
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(l) Neither the Borrower nor any ERISA Affiliate is required
to provide security to a Benefit Plan under Section 401(a)(29) of the
Code due to a Plan amendment that results in an increase in current
liability for the plan year.
(m) To the best of Borrower's knowledge, neither the
Borrower, nor any ERISA Affiliate, nor any other "party-in-interest"
or "disqualified person" has engaged in a "prohibited transaction," as
such terms are defined in Section 4975 of the Code and Section 406 of
ERISA, in connection with any Plan or any other employee benefit plan
to which the Borrower or any ERISA Affiliate is, or within the
immediately preceding six (6) years was, an "employer" as defined in
Section 3(5) of ERISA or has taken or failed to take any action which
would constitute or result in a Termination Event.
(n) To the best of Borrower's knowledge, neither the Borrower
nor any ERISA Affiliate has failed to comply with the health care
continuation coverage requirements of Section 4980B of the Code in
respect of employees and former employees of the Borrower or such
ERISA Affiliate and their dependant and beneficiaries which alone or
in the aggregate would subject the Borrower or such ERISA Affiliate to
any material liability.
(o) To the best knowledge of the Borrower or any ERISA
Affiliate after due inquiry, the consummation of the transactions
contemplated by the Acquisition shall not result in any liability to
the Borrower or any ERISA Affiliate under any employment-related
agreement, contract or arrangement, whether written or oral, including
without limitation, any severance pay agreement. The liability of the
Borrower or any ERISA Affiliate to make payments to any employee on
account of termination of employment under individual employment or
severance agreements does not in the aggregate give rise to any
material liability to the Borrower or such ERISA Affiliate.
6.19 Taxes. The Borrower has filed all tax returns and other reports
which it was required by law to file on or prior to the date hereof and has
paid all taxes assessments, fees, and other governmental charges, and penalties
and interest, if any, against it or its Property, income, or franchise, that
are due and payable except where the failure to do so could not, individually
or in the aggregate, have a material adverse effect on the business,
operations, properties, assets or condition (financial or otherwise) of the
Borrower.
6.20 Investment Act. The Borrower is not an "investment company" nor
an "affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act
of 1940, as amended (15 U.S.C. Section 80(a)(l), et seq.). The making of the
Working Capital Loans, the Term Loan, and other financial accommodations
hereunder by the Lender, the application of the proceeds and repayment thereof
by the Borrower and the consummation of the other transactions contemplated by
this Agreement and the Loan Documents do not violate any provisions of such Act
or any rule, regulation or order issued by the Securities and Exchange
Commission thereunder.
6.21 Margin Securities. The Borrower does not own any "margin
security" (as that term is defined in Regulations U) and the proceeds of the
Working Capital Loans, the Term Loan, and the other financial accommodations
made pursuant to this Agreement will be used only for the purposes contemplated
hereunder. None of the transactions contemplated by this Agreement, or the Loan
Documents will violate Regulations T, U or X. None of the Working
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Capital Loans, the Term Loan, or the other financial accommodations hereunder
will be used, directly or indirectly, for the purpose of purchasing or carrying
any margin security, for the purpose of reducing or retiring any Debt or other
Person's indebtedness which was originally incurred to purchase or carry any
margin security, or for any other purpose which might cause any such loan or
other financial accommodation to be considered a "purpose credit" within the
meaning of Regulation T, U or X. The Borrower will neither take nor permit any
agent acting on its behalf to take any action which might cause any
transaction, obligation or right created by this Agreement, or any document or
instrument delivered pursuant hereto, to violate any regulation of the Federal
Reserve Board.
6.22 Disclosure. Neither this Agreement nor any document or statement
furnished to the Lender by or on behalf of the Borrower or in contemplation of
this Agreement or in connection herewith contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make
the statements contained herein or therein not materially misleading.
Article VII.
COVENANTS
The Borrower covenants that, so long as any of the Obligations remain
outstanding or the Commitment is in effect unless the Lender shall otherwise
consent in writing:
7.1 Taxes and Other Obligations. The Borrower shall, and shall cause
each of its Subsidiaries to (a) file when due all tax returns and other reports
which it is required to file (taking into account any allowed extensions), (b)
pay, or provide for the payment, when due, of all taxes, fees, assessments and
other governmental charges against it or upon its Property, income and
franchises, make all required withholding and other tax deposits, and establish
adequate reserves for the payment of all such items, and provide to the Lender,
upon request, satisfactory evidence of its timely compliance with the foregoing
and (c) pay when due all claims of materialmen, mechanics, carriers,
warehousemen, landlords and other like Persons, and all other indebtedness owed
by it and perform and discharge in a timely manner all other obligations
undertaken by it; provided, however, that the Borrower and its Subsidiaries
need not pay any tax, fee, assessment, governmental charge, or Debt, or
discharge any other obligation, that any of them is contesting in Good Faith by
appropriate proceedings diligently pursued, and for which adequate reserves are
maintained, so long as no Lien, other than a Permitted Lien, results from such
non-payment.
7.2 Corporate Existence and Good Standing. The Borrower shall, and
shall cause each of its Subsidiaries to, maintain its corporate existence and
its qualification and good standing in all states necessary to conduct its
business and own its Property, and shall obtain and maintain all licenses,
permits, franchises and governmental authorizations necessary to conduct its
business and own its Property.
7.3 Compliance with Law and Agreements. The Borrower shall, and shall
cause each of its Subsidiaries to, comply with the terms and provisions of each
judgment, law, statute, rule, and governmental regulation applicable to it and
each contract, mortgage, lien, lease, indenture, order, instrument, agreement,
or document to which it is a party or by which it is bound, the failure to
comply with which, whether considered individually or when aggregated with all
other
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failures, is likely to have a material adverse effect on the ability of the
Borrower to perform its obligations under this Agreement, or on the business,
operations, properties or condition (financial or otherwise) of the Borrower,
taken as a whole; provided, however, that the Borrower shall have the right to
contest the imposition of such laws, rules, regulations, court orders, decrees
and governmental agency orders if such contest is made in Good Faith and
diligently pursued by proper proceedings, adequate reserves with respect
thereto have been established in accordance with GAAP, and such contest could
not reasonably be expected to have a material adverse affect on the ability of
the Borrower to perform its obligations under this Agreement, or the business,
operations, properties or condition (financial or otherwise) of the Borrower,
taken as a whole.
7.4 Maintenance of Property. The Borrower shall, and shall cause each
of its Subsidiaries to, maintain all of its Property necessary and useful in
its business in good operating condition and repair, ordinary wear and tear
excepted.
7.5 Insurance.
(a) The Borrower shall maintain, and shall cause each of its
Subsidiaries to maintain, with financially sound and reputable
insurers, insurance against loss or damage by fire with extended
coverage; public liability and third party property damage; and such
other hazards or of such other types as is customary for Persons
engaged in the same or similar business, as the Lender shall
reasonably specify, in amounts, and under policies reasonably
acceptable to the Lender.
(b) The Borrower shall cause the Lender to be named in each
such policy as secured party or mortgagee and lender's loss payee or
additional insured, as appropriate, in a manner acceptable to the
Lender. Each policy of insurance shall contain a clause or endorsement
requiring the insurer to give not less than thirty (30) days' prior
written notice to the Lender in the event of cancellation of the
policy for any reason whatsoever and a clause or endorsement stating
that the interest of the Lender shall not be impaired or invalidated
by any act or neglect of the Borrower, any of its Subsidiaries, or the
owner of any premises for purposes more hazardous than are permitted
by such policy. All premiums for such insurance shall be paid by the
Borrower or their Subsidiaries when due, and certificates of insurance
and, if requested, photocopies of the policies shall be delivered to
the Lender.
(c) The Borrower shall promptly notify the Lender of any
material loss, damage, or destruction to the Collateral or arising
from its use, whether or not covered by insurance. In the absence of
any Default or Events of Default, the Borrower shall have the right to
determine, whether and to what extent such proceeds shall be used for
repair or replacement. If, however, any Default or Event of Default
shall be continuing, the Lender may determine, in its sole discretion,
whether the proceeds shall be used for repair or replacement. If
neither an Event of Default nor a Default exists, the Borrower or its
Subsidiary, as the case may be, may negotiate a settlement regarding
such proceeds with the insurance company and the Lender shall forward
such proceeds to the Borrower. If, however, an Event of Default or a
Default exists, the Lender shall collect the insurance proceeds
directly and neither the Borrower nor its Subsidiary, as the case may
be, shall
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enter into any settlement agreement with the applicable insurance
company without the prior written consent of Lender, which consent
shall not be unreasonably withheld.
(d) If an Event of Default shall exist, Lender may, and if a
decision to not rebuild or replace is made, the Lender shall, apply
the proceeds of insurance to the payment of the Obligations.
7.6 Intentionally Omitted.
7.7 Environmental, Health and Safety Laws. The Borrower shall, and
shall cause each of its Subsidiaries to, conduct its business in compliance in
all material respects with all health and safety laws and Environmental Laws
applicable to it, including, without limitation, those relating to the
generation, handling, use, storage, and disposal of hazardous and toxic wastes
and substances. The Borrower shall, and shall cause each of its Subsidiaries
to, take prompt and appropriate action to respond to any non-compliance with
health and safety laws and Environmental Laws and shall regularly report to the
Lenders on such response. Without limiting the generality of the foregoing,
whenever the Borrower gives notice to the Lender pursuant to Section 5.3(g),
the Borrower shall, at the Lender's request and the Borrower's expense (a)
cause an independent environmental engineer acceptable to the Lender to conduct
such tests of the site where the noncompliance or alleged non-compliance with
Environmental Laws has occurred and prepare and deliver to the Lender a report
setting forth the results of such tests, a proposed plan for responding to any
environmental problems described therein, and an estimate of the costs thereof,
and (b) provide to the Lender a supplemental report of such engineer whenever
the scope of the environmental problems, or the response thereto or the
estimated costs thereof, shall change.
7.8 ERISA.
(a) For each Plan adopted by the Borrower or any ERISA
Affiliate, the Borrower or such ERISA Affiliate shall (i) use its best
efforts to seek and receive a determination letter from the IRS that
such Plan is qualified under Section 401(a) of the Code (unless such
Plan is a master or prototype plan), and (ii) from and after the
adoption of any such Plan, use its best efforts to cause such Plan to
be qualified under Section 401(a) of the Code and to be administered
in all material respects in accordance with the requirements of ERISA
and Section 401(a) of the Code, and (iii) not take any action which
would cause such Plan not to be qualified under Section 401(a) of the
Code or not to be administered in all material respects in accordance
with the requirements of ERISA and Section 401(a) of the Code.
(b) The Borrower shall not, and shall not permit any ERISA
Affiliate, to:
(i) Engage in any transaction for which an exemption
is not available or has not been previously obtained from the
DOL in connection with which the Borrower or any ERISA
Affiliate could be subject to either a civil penalty assessed
pursuant to Section 502(i) of ERISA or tax imposed by Section
4975 of the Code;
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(ii) Permit to exist any accumulated funding
deficiency (whether or not waived), as defined in Section 302
of ERISA and Section 412 of the Code;
(iii) Fail to pay timely required contributions or
annual installments due with respect to any waived funding
deficiency to any Benefit Plan;
(iv) Fail to make any payments to any Multiemployer
Plan which the Borrower or any ERISA Affiliate may be
required to make under any agreement relating to such
Multiemployer Plan, or any law pertaining thereto;
(v) Terminate or permit an ERISA Affiliate to
terminate a Benefit Plan or withdraw or partially withdraw
from, or permit an ERISA Affiliate to withdraw or partially
withdraw from, any Multiemployer Plan and fail to pay any
liability of the Borrower or an ERISA Affiliate under Title
IV of ERISA;
(c) Fail to pay any required installment under subsection of
Section 412 of the Code or any other payment required under Section
412 of the Code on or before the due date for such installment or
other payment; or
(i) Amend a Benefit Plan resulting in an increase in
current liability for the plan year such that the Borrower or
an ERISA Affiliate is required to provide security to such
Benefit Plan under Section 401(a)(29) of the Code.
7.9 Mergers, Consolidations or Sales. Neither the Borrower nor any of
its Subsidiaries shall enter into any transaction of merger, reorganization, or
consolidation, or transfer, sell, assign, lease, or otherwise dispose of all or
any material part of its Property, or wind up, liquidate or dissolve, or agree
to do any of the foregoing, except for sales of Equipment as otherwise
permitted hereunder.
7.10 Restricted Payments; Capital Change. Neither the Borrower nor any
of its Subsidiaries shall (a) directly or indirectly declare or make, or incur
any liability to make, any Restricted Payment, except dividends to the Borrower
by OGAC or any other Subsidiary wholly owned by the Borrower or by one or more
other Subsidiaries that are wholly owned by the Borrower or (b) make any change
in its capital structure which could adversely affect the repayment of the
Obligations.
7.11 Transactions Affecting Collateral or Obligations. Neither the
Borrower nor any of its Subsidiaries shall enter into any transaction which
materially and adversely affects the Collateral or the Borrower's ability to
repay the Obligations.
7.12 Guaranties. Neither the Borrower nor any of its Subsidiaries
shall make, issue, or become liable on any guaranty, except guaranties in favor
of the Lender.
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7.13 Debt. Neither the Borrower nor any Subsidiary shall incur or
maintain any Debt, other than, (a) the Obligations; (b) trade payables and
contractual obligations to suppliers, customers and others incurred in the
ordinary course of business, including real property leases which are not
Capital Leases; (c) Debt incurred to finance the purchase of Equipment
constituting Capital Expenditures, so long as (i) the aggregate principal
amount of such Debt at any time outstanding (regardless of when the same
becomes due and payable) shall not exceed $300,000, (ii) the rate at which
interest accrues on such Debt does not exceed the market rate of interest for
similar transactions at such time, and (iii) such Debt would not, after giving
effect to such Debt on a pro forma basis, cause any Default or Event of
Default; (d) other Debt existing on the Closing Date and reflected on SCHEDULE
6.8 hereof; and (e) extensions, renewals, refundings, refinancings,
modifications, amendments and restatements of any of the items in (c) or (d)
above.
7.14 Prepayment. The Borrower shall not voluntarily prepay (a) any
Funded Indebtedness, except the Obligations in accordance with the terms hereof
unless such prepayment, after giving effect to such prepayment on a proforma
basis, does not cause any Default or Event of Default or (b) any Subordinated
Indebtedness.
7.15 Transactions with Affiliates. Except as set forth below, neither
the Borrower nor any of its Subsidiaries shall sell, transfer, distribute, or
pay any money or its Property, including, but not limited to, any fees or
expenses of any nature (including, but not limited to, any fees or expenses for
management services), to any Affiliate of the Borrower, or lend or advance
money or its Property to any Affiliate of the Borrower, or invest in (by
capital contribution or otherwise) or purchase or repurchase any stock or
indebtedness, or any of its Property, of any Affiliate of the Borrower, or
become liable on any Guaranty of the indebtedness, dividends, or other
obligations of any Affiliate of the Borrower except (a) actual expenses
incurred and approved in advance in writing by the Lender; (b) those
transactions described on Schedule 7.15 hereof; (c) reimbursement of actual and
reasonable out-of-pocket expenses incurred by employees or directors of the
Borrower in the ordinary course of the Borrower's business; (d) Guaranties in
favor of the Lender; (e) transactions in the ordinary course of Borrower's or
its Subsidiaries' business and upon fair and reasonable terms, no less
favorable to Borrower than would obtain in a comparable arm's length
transaction with a person not an Affiliate of Borrower and (f) certain
inter-company loans in connection with any investment set forth in Section
7.20(d), provided the Lender consents to such loan, which consent shall not be
unreasonably withheld and the note evidencing such loan shall be endorsed to
the Lender.
7.16 Business Conducted. The Borrower and its Subsidiaries shall not
engage, directly or indirectly in any line of business other than the
businesses in which the Borrower and the OGAC Entities are engaged in on the
Closing Date and any business related or incidental thereto or in facilitation
thereof.
7.17 Liens. Neither the Borrower nor any of its Subsidiaries shall
create, incur, assume, or permit to exist any Lien on any Property now owned or
hereafter acquired by any of them, except Permitted Liens.
7.18 Sale and Leaseback Transactions. Neither the Borrower nor any of
its Subsidiaries shall directly or indirectly, enter into any arrangement with
any Person providing for the Borrower or a Subsidiary to lease or rent Property
that the Borrower or a Subsidiary has or
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will sell or otherwise transfer to such Person if such property represents a
substantial portion of such entity's assets.
7.19 New Subsidiaries. The Borrower shall not, directly or indirectly,
organize or acquire any Subsidiary except as otherwise permitted under Section
7.20.
7.20 Restricted Investments. Neither the Borrower nor any of its
Subsidiaries shall make any Restricted Investment other than (a) investments in
OGAC which shall be assigned to the Lender, (b) investments in EBCO in the form
of loans not to exceed $900,000 in the aggregate and in the form of equity in
the amount of $1,250,000, provided such equity constitutes at least 50% of the
equity of EBCO and provided further that Lender receives financial statements
of EBCO satisfactory to Lender, (c) investments in Strataweb Systems Corp. of
Canada in the form of equity in the amount of $500,000 provided such equity
constitutes at least 51% of the equity in Strataweb Systems; (d) other equity
investments, not to exceed in the aggregate $2,000,000, and (e) any other
investment for which the Borrower has obtained the Lender's consent to such
investment, which consent shall not be unreasonably withheld, provided that
after giving effect to such investments in clauses (b) (c), (d) or (e), (w) no
Default or Event of Default exists, (x) the interest representing such
investment is pledged to the Lender, (y) no additional indebtedness shall be
incurred other than as permitted in above, and (z) the Lender will be granted a
guaranty of the Obligations from each such entity and lien on all of such
entity's assets.
7.21 Reserved.
7.22 Consolidated Debt Service Coverage Ratio. The Borrower and its
consolidated Subsidiaries on a consolidated basis shall maintain as at the end
of each fiscal quarter for the 12 consecutive month then ended a Consolidated
Debt Service Coverage Ratio not less than 1.50 to 1.0, provided that the
Borrower and its consolidated Subsidiaries shall maintain for the fiscal
quarter for the shorter period from June 1, 1999 (the "Inception Date") to
September 30, 1999, a Consolidated Debt Service Coverage Ratio not less than
1.20 to 1.0.
7.23 Consolidated Leverage Ratio. The Borrower and its Subsidiaries on
a consolidated basis shall maintain as at the end of each fiscal quarter for
the 12 consecutive month then ended a Consolidated Leverage Ratio not greater
than 1.0 to 1.0.
7.24 Year 2000. The Borrower will take and will cause its Subsidiaries
to take all such actions as are reasonably necessary to successfully implement
a realistic and achievable program for remediating Year 2000 Issues on a timely
basis and to assure that Year 2000 Issues will not have a material adverse
effect. At the reasonable request of the Lender, the Borrower will provide a
description of such program, together with any updates or progress report with
respect thereto. For purposes of this Section 7.24, "Year 2000 Issues" means
anticipated costs, problems and uncertainties associated with the inability of
certain computer applications to effectively handle data including dates on and
after January 1, 2000, as such inability affects the business, operations and
financial condition of the Borrower and its Subsidiaries.
7.25 Use of Proceeds. The Borrower can, and will cause each Subsidiary
to, use the proceeds (i) of the Term Loan to fund or refinance a portion of the
acquisition of OGAC and to otherwise fund the working capital and for other
corporate purposes and (ii) of the Working Capital Loans to fund working
capital and for other corporate purposes.
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Article VIII.
CONDITIONS OF LENDING
8.1 Conditions Precedent to Making of Loans. The obligation of the
Lender to make the initial Loans is subject to the following conditions
precedent having been satisfied in a manner satisfactory to the Lender:
(a) The Borrower shall have performed and complied with all
covenants, agreements and conditions contained herein which are
required to be performed or complied with by the Borrower before or on
the Funding Date for the Term Loan and any Working Capital Loans
initially requested by Borrower (including, without limitation, the
execution and deliver of the Term Note and the Working Capital Note).
(b) The Lender shall have received a certificate dated the
Closing Date and signed by the president or a vice president and the
chief financial officer or treasurer of Borrower certifying that the
conditions specified in this Section 8.1 have been fulfilled.
(c) The Borrower shall have caused the following to be
delivered to the Lender, all such items to be in form and substance
satisfactory to the Lender, and to be executed by all parties thereto
when the nature of such items so requires:
(i) a copy of this Agreement and each of the Term
Note and the Working Capital Note duly executed by the
Borrower;
(ii) the Pledge Agreements duly executed by the
parties thereto;
(iii) UCC financing statement and other documents
Lender requires to perfect the security interests granted in
the Collateral;
(iv) a UCC lien, tax lien and judgment search
against each of the Borrower and OGAC with results
satisfactory to the Lender;
(v) such officer's certificates, certificates of
incumbency and certified resolutions of Borrower and each of
the OGAC Entities evidencing the requisite authority of each
such entity to execute, deliver and perform the Loan
Documents to which they are a party;
(vi) a copy of each of the Stock Purchase Agreement,
the Investors Agreement and Shareholder Agreement, in each
case, in form and substance satisfactory to the Lender and
certified to be a true and correct copy and in full force and
effect by an officer of Borrower;
(vii) a certificate of an officer of Borrower
certifying that the transactions contemplated under the Stock
Purchase Agreement have been consummated in accordance with
the terms thereof;
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(viii) a proforma balance sheet of the Borrower and
OGAC on a consolidated basis, after giving effect to the
making of the initial Loans hereunder;
(ix) copies of the organizational documents of the
Borrower and each of the OGAC Entities certified by the
Secretary of State of the state of its organization;
(x) evidence of insurance as required under this
Agreement;
(xi) interim financial statements for each of the
Borrower and OGAC as at May 31, 1999 together with
projections of cash flow for the period through the
Termination Date, satisfactory to the Lender;
(xii) a financial condition certificate in form and
substance satisfactory to the Lender executed by the chief
financial officer of OGAC;
(xiii) a satisfactory opinion of Borrower's counsel;
and
(xiv) a satisfactory opinion of the OGAC Entities'
counsel.
(d) All proceedings taken in connection with the execution of
this Agreement, the Notes, all other Loan Documents and all documents
and papers relating thereto shall be satisfactory to the Lender. The
Lender shall have received copies of such documents and papers as the
Lender may reasonably request in connection therewith, all in form and
substance satisfactory to the Lender.
(e) The Borrower shall have paid to the Lender the balance of
the arrangement fee as well as all costs and expenses incurred as of
the Closing Date which the Borrower is obligated to pay pursuant to
the terms of Section 12.7 hereof.
The acceptance by the Borrower of any Loan made on the Closing Date
shall be deemed to be a representation and warranty made by the Borrower to the
effect that all of the conditions to the making of such Loan set forth in this
Section 8.1 have been satisfied, with the same effect as delivery to the Lender
of a certificate signed by the president and chief financial officer of the
Borrower, dated the Closing Date, to such effect.
8.2 Conditions Precedent to Each Loan. The obligation of the Lender
to make each Loan including the initial Loans on the Closing Date shall be
subject to the satisfaction of further conditions precedent that on the date of
any such extension of credit:
(a) with respect to a request for Working Capital Loans, the
Borrower shall be in compliance with Section 5.2(a) and a duly
executed Notice of Borrowing, or telecopy or telex notice in lieu
thereof, as and when required pursuant to Section 2.3(a); and
(b) the following statements shall be true, and the
acceptance by the Borrower of any extension of credit shall be deemed
to be a statement to the effect set forth in clauses (ii) and (iii),
with the same effect as the delivery to the Lender of a certificate
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signed by the president and chief financial officer of the Borrower,
dated the date of such extension of credit, stating that:
(i) The representations and warranties contained in
this Agreement and the other Loan Documents are correct in
all material respects on and as of the date of such extension
of credit as though made on and as of such date;
(ii) no event has occurred and is continuing, or
would result from such extension of credit, which constitutes
a Default or an Event of Default; and
(c) the Lender shall have received such other approvals,
opinions or documents as it may reasonably request in Good Faith.
Article IX.
DEFAULT; REMEDIES
9.1 Events of Default. It shall constitute an event of default ("Event
of Default") if any one or more of the following shall occur for any reason:
(a) any failure to pay the principal of or interest or
premium on any of the Obligations within three (3) days of when due,
whether upon demand or otherwise;
(b) any representation or warranty made by the Borrower in
this Agreement, or by the Borrower, the OGAC Entities or any of their
Subsidiaries in any of the other Loan Documents, any financial
statement, or any certificate furnished by the Borrower at any time to
the Lender shall prove to be untrue in any material respect as of the
date on which made;
(c) any failure by the Borrower to comply with any of the
covenants set forth in Article VII of this Agreement except for the
covenants set forth in Sections 7.1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.7,
7.8, 7.24 and 7.25;
(d) any failure by the Borrower, the OGAC Entities or any of
their respective Subsidiaries to comply with any of the covenants and
agreements contained in this Agreement (including, without limitation,
Sections 7.1, 7.2, 7.3, 7.4, 7.7, 7.8, 7.24 and 7.25), the other Loan
Documents, or any other agreement entered into at any time to which
the Borrower, the OGAC Entities or any of their respective
Subsidiaries and the Lender are party, for more than thirty (30) days
after notice of such failure by the Lender to the Borrower; provided,
however, that no such grace period shall apply, and an Event of
Default shall exist promptly upon such failure to comply, if such
failure to comply may not, in the Lender's reasonable determination,
be cured by the Borrower during such grace period; or if any such
agreement, instrument or document shall terminate (other than in
accordance with its terms or the terms hereof or with the written
consent of the Lender) or become void or unenforceable without the
written consent of the Lender;
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(e) failure of the Borrower or any of its Subsidiaries to pay
when due (whether by acceleration or otherwise) any Debt aggregating
in excess of $100,000; or the default by the Borrower or any of its
Subsidiaries with respect to any Debt in an outstanding principal
amount in excess of $250,000 under any agreement or instrument under
or pursuant to which any such Debt or indebtedness may have been
issued, created, assumed, or guaranteed by the Borrower and such
default shall continue for more than the period of grace, if any,
therein specified, if the effect thereof (with or without the giving
of notice or further lapse of time or both) is to accelerate, or to
permit the holders of any such Debt or indebtedness to accelerate, the
maturity of any such Debt; or any such Debt or indebtedness shall be
declared due and payable or be required to be prepaid (other than by a
regularly scheduled required prepayment) prior to the stated maturity
thereof unless and during such time the Borrower is contesting such
Debt in good faith by appropriate proceedings and has established
reserves required in accordance with GAAP;
(f) the Borrower, OGAC or any of their Subsidiaries shall (i)
file a voluntary petition in bankruptcy or file a voluntary petition
or an answer or otherwise commence any action or proceeding seeking
reorganization, arrangement or readjustment of its debts or for any
other relief under the federal Bankruptcy Code, as amended, or under
any other bankruptcy or insolvency act or law, state or federal, now
or hereafter existing, or consent to, approve of, or acquiesce in, any
such petition, action or proceeding; (ii) apply for or acquiesce in
the appointment of a receiver, assignee, liquidator, sequestrator,
custodian, trustee or similar officer for it or for all or any part of
its Property; (iii) make an assignment for the benefit of creditors;
(iv) take any corporate action in furtherance of any of the foregoing
or (v) be unable generally to pay its debts as they become due;
(g) an involuntary petition shall be filed or an action or
proceeding otherwise commenced seeking reorganization, arrangement or
readjustment of the Borrower's or any of its Subsidiaries debts or for
any other relief under the federal Bankruptcy Code, as amended, or
under any other bankruptcy or insolvency act or law, state or federal,
now or hereafter existing and such petition, action or proceeding is
not dismissed within sixty (60) days thereafter;
(h) a receiver, assignee, liquidator, sequestrator,
custodian, trustee or similar officer for the Borrower, the OGAC
Entities or any of their Subsidiaries or for all or any part of their
Property shall be appointed; or a warrant of attachment, execution or
similar process shall be issued against any material part of the
Property of the Borrower, the OGAC Entities or any of their
Subsidiaries;
(i) the Borrower shall file a certificate of dissolution
under applicable state law or shall be liquidated, dissolved or
wound-up or shall commence or have commenced against it any action or
proceeding for dissolution, winding-up or liquidation, or shall take
any corporate action in furtherance thereof;
(j) any guaranty of, subordination to, or material security
for, the Obligations shall be terminated, revoked or declared void or
invalid or fail to be perfected;
(k) one or more final judgments for the payment of money
aggregating in excess of $100,000 shall be rendered against the
Borrower, OGAC or any of their Subsidiaries which is not discharged in
full or stayed within thirty (30) days from the date
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of entry thereof unless such judgments are (i) covered by the
liability insurance as confirmed in writing by the insurance company
carrying such insurance, or (ii) the subject of an obligation of any
Person (other than the Borrower or any Affiliate of the Borrower) to
indemnify the Borrower against whom such judgment is rendered provided
the terms of such indemnification and the creditworthiness of the
indemnitor are satisfactory to the Lender in its sole discretion; or
(l) any event occurs which materially and adversely affects
the operations and financial condition of the Borrower and its
Subsidiaries taken as a whole.
9.2 Remedies.
(a) If an Event of Default exists, the Lender may, without
notice to or demand on the Borrower, do one or more of the following,
in addition to the actions described in the preceding sentence, at any
time or times and in any order: (i) terminate the Commitment and (ii)
declare any or all Obligations to be immediately due and payable
(provided, however that upon the occurrence of any Event of Default
described in Sections 9.1(f), 9.1(g), 9.1(h), or 9.1(i), all
Obligations shall automatically become immediately due and payable
without notice or demand of any kind); and (iii) pursue its other
rights and remedies under the Loan Documents and applicable law.
(b) If an Event of Default exists: (i) the Lender shall have,
in addition to all other rights, the rights and remedies of a secured
party under the UCC; (ii) the Lender may, at any time, take possession
of the Collateral and keep it on the Borrower's premises, at no cost
to the Lender, or remove any part of it to such other place or places
as the Lender may desire, or the Borrower shall, upon the Lender's
demand, at the Borrower's cost, assemble the Collateral and make it
available to the Lender at a place reasonably convenient to the
Lender; and (iii) the Lender may sell and deliver any Collateral at
public or private sales, for cash, upon credit or otherwise, at such
prices and upon such terms as the Lender deems advisable, in its sole
discretion, and may, if the Lender deems it reasonable, postpone or
adjourn any sale of the Collateral by an announcement at the time and
place of sale or of such postponed or adjourned sale without giving a
new notice of sale. Without in any way requiring notice to be given in
the following manner, the Borrower agrees that any notice by the
Lender of sale, disposition or other intended action hereunder or in
connection herewith, whether required by the UCC or otherwise, shall
constitute reasonable notice to the Borrower if such notice is mailed
by registered or certified mail, return receipt requested, postage
prepaid, or is delivered personally against receipt, at least ten (10)
Business Days prior to such action to the Borrower's address specified
in or pursuant to Section 12.8. If any Collateral is sold on terms
other than payment in full at the time of sale, no credit shall be
given against the Obligations until the Lender receives payment, and
if the buyer defaults in payment, the Lender may resell the Collateral
without further notice to the Borrower. In the event the Lender seeks
to take possession of all or any portion of the Collateral by judicial
process, the Borrower irrevocably waives: (i) the posting of any bond,
surety or security with respect thereto which might otherwise be
required; (ii) any demand for possession prior to the commencement of
any suit or action to recover the Collateral; and (iii) any
requirement that the Lender retain possession and not dispose of any
Collateral until after trial or final judgment. The Borrower agrees
that the Lender has no obligation
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to preserve rights to the Collateral or marshal any Collateral for the
benefit of any Person. The Lender is hereby granted a license or other
right to use, without charge, the Borrower's labels, patents,
copyrights, name, trade secrets, trade names, trademarks, and
advertising matter, or any similar property, in completing production
of, advertising or selling any Collateral, and the Borrower's rights
under all licenses and all franchise agreements shall inure to the
Lender's benefit. The proceeds of sale shall be applied by Lender
against the principal and/or interest of any Loans and/or any other
Obligations, whether or not then due, in such order of application as
the Lender may determine. The Lender will return any excess to the
Borrower or such other Person as shall be legally entitled thereto and
the Borrower shall remain liable for any deficiency.
(c) After the occurrence and during the continuance of an
Event of Default, the Borrower hereby waive all rights to notice and
hearing prior to the exercise by the Lender of the Lender's rights to
repossess the Collateral without judicial process or to replevy,
attach or levy upon the Collateral without notice or hearing.
Article X.
TERMINATION
This Agreement shall terminate at such time as all of the Obligations
have been indefeasibly paid and satisfied in full and the Commitment shall have
been terminated, unless earlier terminated as provided herein.
Article XI.
AMENDMENTS; ASSIGNMENTS; SUCCESSORS
11.1 Amendments and Waivers. No amendment or modification of any
provision of this Agreement shall be effective without the written agreement of
the Lender and the Borrower, and no termination or waiver of any provision of
this Agreement, or consent to any departure by the Borrower therefrom, shall in
any event be effective without the written concurrence of the Lender, which the
Lender shall have the right to grant or withhold at its sole discretion. Any
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which it was given. No notice to or demand on the Borrower
in any case shall entitle the Borrower to any other or further notice or demand
in similar or other circumstances.
11.2 Participations.
(a) Permitted Participants, Effect. Upon notice to the
Borrower (which notice shall include the identity of each Participant
(as defined below)), the Lender may, in the ordinary course of its
business and in accordance with applicable law, at any time sell to
one or more banks or other entities ("Participants") participating
interests in any Loan owing to the Lender, any Note held by the
Lender, the Commitment of the Lender or any other interest of the
Lender under the Loan Documents. In the event of any such sale by a
Lender of participating interests to a Participant, the Lender's
obligations under the Loan Documents shall remain unchanged, the
Lender shall remain solely responsible to the other parties hereto for
the performance of such obligations, the Lender shall remain the owner
of its Loans and the holder of any Note issued to it in evidence
thereof for all
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purposes under the Loan Documents, all amounts payable by the Borrower
under this Agreement shall be determined as if the Lender had not sold
such participating interests, and the Borrower and the Lender shall
continue to deal solely and directly with the Lender's rights and
obligations under the Loan Documents.
(b) Voting Rights. The Lender shall retain the sole right to
approve, without the consent of any Participant, any amendment,
modification or waiver of any provision of the Loan Documents other
than any amendment, modification or waiver with respect to any Loan or
the Commitment in which such Participant has an interest which
forgives principal, interest or fees or reduces the interest rate or
fees payable with respect to any such Loan or Commitment, extends the
Working Capital Termination Date, postpones any date fixed for any
regularly scheduled payment of principal of, or interest or fees on,
any such Loan or Commitment, releases any guarantor of any such Loan
or releases all or substantially all of the Collateral securing any
such Loan.
(c) Benefit of Setoff. The Borrower agrees that each
Participant shall be deemed to have the right of setoff provided in
Section 12.14 in respect of its participating interest in amounts
owing under the Loan Documents to the same extent as if the amount of
its participating interest were owing directly to it as the Lender
under the Loan Documents, provided that the Lender shall retain the
right of setoff provided in Section 12.14 with respect to the amount
of participating interests sold to each Participant. The Lender agrees
to share with each Participant, and each Participant, by exercising
the right of setoff provided in Section 12.14, agrees to share with
the Lender, any amount received pursuant to the exercise of its right
of setoff, such amounts to be shared as if each Participant were a
Lender.
11.3 Assignments.
(a) Permitted Assignments. The Lender may, in the ordinary
course of its business and in accordance with applicable law, at any
time assign to one or more banks or other entities which are Eligible
Assignees ("Purchasers") all or any part of its rights and obligations
under the Loan Documents. Such assignment shall be in such form as may
be agreed to by the parties thereto and shall be in a minimum amount
of $3,000,000. The consent of the Borrower shall be required prior to
an assignment becoming effective with respect to a Purchaser which is
not an Affiliate thereof; provided, however, that if a Default has
occurred and is continuing, the consent of the Borrower shall not be
required. Such consent shall not be unreasonably withheld or delayed.
(b) Effect, Effective Date. Upon (i) delivery to the Lender
of an assignment, together with any consents required by Section 11.3,
and (ii) the delivery of an intercreditor agreement in form
satisfactory to both the Lender and Borrower which agreement shall
provide for the appointment of one of the Lenders as agent who shall
act as representative for all such Lenders in dealings with the
Borrower, such assignment shall become effective on the effective date
specified in such assignment. On and after the effective date of such
assignment, such Purchaser shall for all purposes be a Lender party to
this Agreement and any other Loan Document executed by or on behalf of
the Lender and shall have all the rights and obligations of a Lender
under the Loan Documents, to the same extent as if it were an original
party hereto, and no further
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consent or action by the Borrower, or the Lender shall be required to
release the transferor Lender with respect to the percentage of the
Commitment and Loans assigned to such Purchaser. Upon the consummation
of any assignment to a Purchaser pursuant to this Section 11.3, the
transferor Lender, the Lender and the Borrower shall, if the Purchaser
desires that its Loans be evidenced by Notes, make appropriate
arrangements so that new Notes or, as appropriate, replacement Notes
are issued to such transferor Lender and new Notes or, as appropriate,
replacement Notes, are issued to such Purchaser, in each case in
principal amounts reflecting their respective portion of the
Commitment, as adjusted pursuant to such assignment.
Article XII.
MISCELLANEOUS
12.1 Cumulative Remedies; No Prior Recourse to Collateral. The
enumeration herein of the Lender's rights and remedies is not intended to be
exclusive, and such rights and remedies are in addition to and not by way of
limitation of any other rights or remedies that the Lender may have under the
UCC or other applicable law. The Lender shall have the right, in its sole
discretion, to determine which rights and remedies are to be exercised and in
which order. The exercise of one right or remedy shall not preclude the
exercise of any others, all of which shall be cumulative. The Lender may,
without limitation, proceed directly against the Borrower to collect the
Obligations without any prior recourse to the Collateral.
12.2 No Implied Waivers. No act, failure or delay by the Lender shall
constitute a waiver of any of its rights and remedies. No single or partial
waiver by the Lender of any provision of this Agreement or any other Loan
Document, or of breach or default hereunder or thereunder, or of any right or
remedy which the Lender may have, shall operate as a waiver of any other
provision, breach, default, right or remedy or of the same provisions, breach,
default, right or remedy on a future occasion. No waiver by the Lender shall
affect its rights to require strict performance of this Agreement.
12.3 Severability. If any provision of this Agreement shall be
prohibited or invalid, under applicable law, it shall be ineffective only to
such extent, without invalidating the remainder of this Agreement.
12.4 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND
LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE
INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS) OF THE
STATE OF NEW YORK.
(b) SUBJECT ONLY TO THE EXCEPTION IN THE NEXT SENTENCE, THE
BORROWER AND THE LENDER HEREBY AGREE TO THE EXCLUSIVE JURISDICTION OF
THE FEDERAL COURT OF THE SOUTHERN DISTRICT OF NEW YORK AND WAIVE ANY
OBJECTION BASED ON VENUE OR FORUM NON CONVENIENS WITH RESPECT TO ANY
ACTION INSTITUTED THEREIN, AND AGREE THAT ANY DISPUTE CONCERNING THE
RELATIONSHIP BETWEEN THE LENDER AND THE BORROWER OR THE CONDUCT OF ANY
51
<PAGE> 57
PARTY IN CONNECTION WITH THIS AGREEMENT OR OTHERWISE SHALL BE HEARD
ONLY IN THE COURTS DESCRIBED ABOVE. NOTWITHSTANDING THE FOREGOING THE
LENDER SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST
THE BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION
THE LENDER DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE
COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS.
(c) THE BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY
BE MADE BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THE
BORROWER AT ITS ADDRESS SET FORTH IN SECTION 12.8 AND SERVICE SO MADE
SHALL BE DEEMED TO BE COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL
HAVE BEEN SO DEPOSITED IN THE U.S. MAILS. THE BORROWER HEREBY CONSENTS
TO SERVICE OF PROCESS AS AFORESAID.
(d) THE BORROWER AND THE LENDER HEREBY WAIVE ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (I)
ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR (II) IN ANY
WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO OR ANY OF THEM IN RESPECT TO THIS AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED, IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN
CONTRACT OR TORT OR OTHERWISE. THE LENDER AND BORROWER HEREBY AGREE
AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) NOTHING IN THIS SECTION 12.4 SHALL AFFECT THE RIGHT OF
THE LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR AFFECT THE RIGHT OF THE LENDER TO BRING ANY ACTION OR PROCEEDING
AGAINST THE BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION.
12.5 Survival of Representations and Warranties. All of the Borrower's
representations, and warranties contained in this Agreement shall survive the
execution, delivery, and acceptance thereof by the parties, notwithstanding any
investigation by the Lender or any of its respective agents.
52
<PAGE> 58
12.6 Other Security and Guaranties. The Lender, may, without notice or
demand and without affecting the Borrower's obligations hereunder, from time to
time: (a) take from any Person and hold collateral (other than the Collateral)
for the payment of all or any part of the Obligations and exchange, enforce or
release such collateral or any part thereof; and (b) accept and hold any
endorsement or guaranty of payment of all or any part of the Obligations and
release or substitute the Borrower or any such endorser or guarantor, or any
Person who has given any Lien in any other collateral as security for the
payment of all or any part of the Obligations, or any other Person in any way
obligated to pay all or any part of the Obligations.
12.7 Fees and Expenses. The Borrower shall pay to the Lender within
ten (10) days of demand all reasonable costs and expenses that Lender pays or
incurs in connection with the negotiation, preparation, consummation,
enforcement, and termination of this Agreement and the other Loan Documents,
including, without limitation: (a) reasonable attorneys' and paralegals' fees
and disbursements of counsel to the Lender; (b) reasonable costs and expenses
(including reasonable attorneys' and paralegals' fees and disbursements) for
any amendment, supplement, waiver, consent, or subsequent closing in connection
with the Loan Documents and the transactions contemplated thereby; (c) costs
and expenses of lien and title searches and title insurance; (d) taxes, fees
and other charges for recording any mortgages, filing financing statements and
continuations, and other actions to perfect, protect, and continue the Lender's
Liens; (e) sums paid or incurred to pay any amount or take any action required
of the Borrower under the Loan Documents that the Borrower fails to pay or
take; (f) reasonable costs of inspections, and verifications of the Collateral,
including, without limitation, due diligence appraisals, travel, lodging, and
meals for inspections of the Collateral and the Borrower's operations by the
Lender's agents up to one (1) time during any Fiscal Year and whenever an Event
of Default exists; (g) costs and expenses (which shall not exceed the Lender's
costs and expenses customarily charged to other customers) of forwarding loan
proceeds, collecting checks and other items of payment, and establishing and
maintaining the Concentration Account; (h) costs and expenses of preserving and
protecting the Collateral; and (i) costs and expenses (including attorneys' and
paralegals' fees and disbursements) paid or incurred to obtain payment of the
Obligations, enforce the Lender's Liens, sell or otherwise realize upon the
Collateral, and otherwise enforce the provisions of the Loan Documents, or to
defend any claims made or threatened against the Lender arising out of the
transactions contemplated hereby (including without limitation, preparations
for and consultations concerning any such matters). The foregoing shall not be
construed to limit any other provisions of the Loan Documents regarding costs
and expenses to be paid by the Borrower. All of the foregoing costs and
expenses may be paid from the proceeds of Working Capital Loans as described in
Section 2.8(b).
12.8 Notices. Except as otherwise provided herein, all notices,
demands and requests that any party is required or elects to give to any other
party shall be in writing, or by a telecommunications device capable of
creating a written record, and any such notice shall become effective (a) upon
personal delivery thereof, (b) on the Business Day following the Business Day
on which it was delivered to an overnight mail or courier service with charges
prepaid, (c) five (5) days after it shall have been mailed by United States
mail, first class, certified or registered, with postage prepaid, or (d) in the
case of notice by a telecommunication device, upon acknowledgement of receipt
when properly transmitted, in each case addressed with respect to each party as
set forth below:
53
<PAGE> 59
If to the Lender: Citicorp U.S.A., Inc.
153 East 53rd Street, 25th Floor
New York, New York 10043
Attn: Maryrose Balick
Telephone: 212-559-9938
Telecopy: 212-793-7964
with a copy to: Sonnenschein Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606-6404
Attention: Victoria A. Gilbert, Esq.
Telephone: 312-876-8000
Telecopy: 312-876-7934
If to the Borrower: Energy Auction Exchange, Inc.
7900 East Union Avenue, Suite 1100
Denver, Colorado 80237
Attention: Gary Vickers
Telephone: 303-694-5350
Telecopy: 303-694-5326
with a copy to: Cooley Godward LLP
2595 Canyon Boulevard, Suite 250
Boulder, Colorado 80302-6737
Attention: James C.T. Linfield, Esq.
Telephone: 303-546-4000
Telecopy: 303-546-4099
or to such other address as each party may designate for itself by
like notice. Failure or delay in delivering copies of any notice, demand,
request, consent, approval, declaration or other communication to the persons
designated above to receive copies shall not adversely affect the effectiveness
of such notice, demand, request, consent, approval, declaration or other
communication. Any notices, demands or consents required or permitted to be
given to or by the Borrower will be valid and binding on all Borrower if given
to or by, as the case may be, the Borrower.
12.9 Indemnity. The Borrower agrees to (a) reimburse the Lender for
any costs and expenses (including, without limitation, reasonable attorneys'
and paralegals' fees and expenses) incurred by the Lender in defending any suit
brought against it by the Borrower or any other Person in connection with the
transactions contemplated by this Agreement or the Loan Documents, and (b)
indemnify and hold the Lender, and its officers, directors, employees,
attorneys and agents (collectively, the "Indemnitees") harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever incurred by the Indemnitees, whether direct, indirect or
consequential, as a result of or arising from or relating to any proceeding by
any Person, whether threatened or initiated, asserting any claim for legal or
equitable remedy against any Person under any statute or regulation (including,
without limitation, any federal or state securities or commercial laws or under
any common law or equitable cause or otherwise,
54
<PAGE> 60
including any liability and costs under Environmental Laws or common law
principles arising from or in connection with the past, present or future
operations of the Borrower or their predecessors in interest, or the past,
present or future environmental condition of the Borrower's Property, the
presence of asbestos-containing materials at or on such Property, or the
release or threatened release of any contaminant into the environment from such
Property), in any way arising from or in connection with the negotiation,
preparation, execution, delivery, enforcement, performance and administration
of this Agreement or any other document executed in connection herewith,
provided that the Borrower shall have no obligation hereunder with respect to
indemnified liabilities arising from the gross negligence or willful misconduct
of any Indemnitee seeking such indemnification. To the extent that the
indemnity set forth in this Section 12.9 may be unenforceable because it is
violative of any law or public policy, Borrower shall pay the maximum portion
which it is permitted to pay under applicable law. Any Indemnitee will promptly
notify the Borrower of the commencement of any legal proceeding which may give
rise to any indemnified liability under the foregoing indemnity and shall
permit the Borrower to participate in the defense of such Indemnitee in any
such proceeding. The foregoing indemnity shall survive the payment of the
Obligations and the termination of this Agreement. All of the foregoing fees,
costs and expenses shall be part of the Obligations, payable upon demand, and
secured by the Collateral.
12.10 Waiver of Notices. Unless otherwise expressly provided herein,
each Borrower waives presentment, protest and notice of demand or dishonor and
protest as to any instrument, as well as any and all other notices to which it
might otherwise be entitled. No notice to or demand on the Borrower which the
Lender may elect to give shall entitle the Borrower to any or further notice or
demand in the same, similar or other circumstances.
12.11 Counterparts. This Agreement may be executed in any number of
counterparts, and by the Lender and the Borrower in separate counterparts, each
of which shall be an original, but all of which shall together constitute one
and the same agreement.
12.12 Captions. The captions contained in this Agreement are for
convenience only, are without substantive meaning and should not be construed
to modify, enlarge, or restrict any provision.
12.13 Confidentiality. The Lender hereby agrees that it will use
reasonable efforts to keep confidential any information from time to time
supplied to it by the Borrower under this Agreement unless such information was
already known to the Lender on a nonconfidential basis at the time it was
received or was obtained from a third party on a nonconfidential basis, or was,
is or becomes publicly available; provided, however, that nothing herein shall
affect the disclosure of any such information to: (a) the extent required by
statute, rule, regulation or judicial process; (b) provided that all such
persons agree to keep such information confidential in accordance with this
Section 12.13 (i) counsel for the Lender or to its accountants; (ii) bank
examiners and auditors; and (iii) any transferee or prospective transferee of
any Note; or (c) any other Person in connection with any litigation to which
the Lender is a party; provided, further, that the Lender hereby agrees that it
will notify the Borrower in writing of any request for information under
clauses (a) and (c) above or with respect to any other request for information
not enumerated in this Section 12.13 at least five (5) Business Days before
complying with any such request, unless such notice is specifically prohibited
by applicable law, court order or governmental authority. If the terms of any
request for information subject to the last proviso of
55
<PAGE> 61
the preceding sentence do not provide a reasonably sufficient time to give the
Borrower five (5) Business Days' notice, the Lender will use its best efforts
to seek additional time for compliance in order to permit such notice and in
any event will notify the Borrower of such request as soon as practicable.
12.14 Set-Off. In addition to, and without limitation of, any rights
of the Lender under applicable law, if the Borrower becomes insolvent, however
evidenced, or any Default occurs, any and all deposits (including all account
balances, whether provisional or final and whether or not collected or
available) and any other Debt at any time held or owing by the Lender or for
the credit or account of the Borrower may be offset and applied toward the
payment of the Obligations owing to the Lender, whether or not the Obligations,
or any part hereof, shall then be due.
56
<PAGE> 62
IN WITNESS WHEREOF, the parties have entered into this Agreement on
the date first above written.
ENERGY AUCTION EXCHANGE, INC.
By: /s/
------------------------------------
Title:
----------------------------------
CITICORP U.S.A., INC.
By: /s/
------------------------------------
Title:
----------------------------------
57
<PAGE> 63
NOTICE OF BORROWING
July 28, 1999
Citicorp U.S.A., Inc.
909 Third Avenue, 22nd Floor
New York, NY 10013
Attention: Maryrose Balick
Ladies and Gentlemen:
Reference is made to the Loan and Security Agreement dated as of July
28, 1999 by and between Energy Auction Exchange, Inc. (referred to herein as the
"Borrower") and Citicorp U.S.A., Inc. (the "Lender") (as amended from time to
time, the "Loan Agreement"). Capitalized terms used herein have the meanings
specified in the Loan Agreement.
The undersigned hereby deliveries this Notice of Borrowing pursuant to
Section 2.3 of the Loan Agreement as follows:
(i) The date of borrowing of the proposed Loan is July ___, 1999.
(ii) The aggregate amount of the proposed Loan which is to be the
Term Loan is $6,000,000.
(iii) The aggregate amount of the proposed Loan which is to be the
Working Capital Loan is $________.
(iv) The proposed Loan to be made pursuant to Section 2.3 shall be
a Base Rate Loan.
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the proposed
borrowing, before and after giving effect thereto and to the application of the
proceeds therefrom:
(a) the representations and warranties contained in Article
VI of the Loan Agreement are true and correct as though made on the
date hereof (except to the extent such representations and warranties
relate to an earlier date, in which case they are true and correct as
of such date); and
(b) no Default or Event of Default has occurred and is
continuing, or would result from such proposed borrowing.
ENERGY AUCTION EXCHANGE, INC.
By:
------------------------
Title:
----------------------
<PAGE> 64
TERM NOTE
US$6,000,000 Dated: July 28, 1999
FOR VALUE RECEIVED, the undersigned, ENERGY AUCTION EXCHANGE, INC., a
Delaware corporation (referred to herein as the "Borrower"), hereby promises to
pay to the order to Citicorp U.S.A., Inc. (the "Lender") the principal amount
of Six Million and 00/100 Dollars ($6,000,000). Capitalized terms used herein
have the meanings specified for such terms in the Loan Agreement (as defined
below).
In addition to Mandatory Prepayments required under Section 2.4, the
Borrower shall pay such amounts under this Term Note to result in the
outstanding principal amount of the Term Loan to be reduced to zero by the
Termination Date on the schedule set forth below: by the amount of $71,428.51
commencing on August 1, 1999 and continuing on a monthly basis to and including
July 1, 2004, and a final installment on the Termination Date equal to the
entire unpaid principal balance of the Term Loan at such time.
The Borrower promises to pay interest on the unpaid principal amount
of the Term Loan from the Closing Date until such principal amount is paid in
full, at such interest rates, and payable at such times, as are specified in
the Loan Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Citicorp U.S.A., Inc. at its office or branch at 153 East
53rd Street, New York, New York 10043 or at such other offices as the Lender
may subsequently designate in writing, in same day funds. All payments made on
account of principal hereof shall be recorded by the Lender and, prior to any
transfer hereof, endorsed on the grid attached hereto which is part of this
Term Note.
This Term Note is the Term Note referred to in, and is entitled to the
benefits of, the Loan and Security Agreement dated as of July 28, 1999 (the
"Loan Agreement") by and between the Borrower and the Lender. The Loan
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon
the terms and conditions therein specified.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 65
IN WITNESS WHEREOF, the undersigned has entered into this Term Note on
the date first stated above.
ENERGY AUCTION EXCHANGE, INC.
By: /s/
------------------------------
Title:
--------------------------
-2-
<PAGE> 66
Type Amount Interest Amount Principal
of of Period of Unpaid Notation
Date Loan Loan (if applicable) Principal Paid Balance made by
- ---- ---- ----- --------------- -------------- --------- --------
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-3-
<PAGE> 67
WORKING CAPITAL NOTE
US$3,000,000 Dated: July 28, 1999
FOR VALUE RECEIVED, the undersigned, ENERGY AUCTION EXCHANGE,
INC., a Delaware corporation (referred to herein as the "Borrower"), hereby
promises to pay to the order of Citicorp U.S.A., Inc. (the "Lender") the
principal amount of each Working Capital Loan (as defined in the Loan Agreement
referred to below) made by the Lender to the Borrower pursuant to the Loan
Agreement (as defined below) when required by the Loan Agreement and in full on
the Termination Date (as defined in the Loan Agreement). Capitalized terms used
herein have the meanings specified in the Loan Agreement (as defined below).
The Borrower promises to pay interest on the unpaid principal
amount of each Working Capital Loan from the date of such Working Capital Loan
until such principal amount is paid in full, at such interest rates, and
payable at such times, as are specified in the Loan Agreement.
Both principal and interest are payable in lawful money of
the United States of America to Citicorp U.S.A., Inc., at its office or branch
at 153 East 53rd Street, 25th Floor, New York, NY 10043, or at such other
office as the Lender may subsequently designate in writing, in same day funds.
Each Working Capital Loan made by the Lender to the Borrowers and the maturity
thereof, and all payments made on account of principal thereof, shall be
recorded by the Lender and, prior to any transfer hereof, endorsed on the grid
attached hereto which is part of this Working Capital Note.
This Working Capital Note is the Working Capital Note
referred to in, and is entitled to the benefits of, the Loan and Security
Agreement dated as of July 28, 1999 (the "Loan Agreement") by and between the
Borrower and the Lender. The Loan Agreement, among other things, (i) provides
for the making of Working Capital Loans by the Lender to the Borrower from time
to time in an aggregate amount not to exceed at any time outstanding the U.S.
dollar amount first above mentioned, the indebtedness of the Borrower resulting
from each such Working Capital Loan being evidenced by this Working Capital
Note, and (ii) contains provisions for acceleration of the maturity hereof upon
the happening of certain stated events and also for prepayments on account of
principal hereof prior to the maturity hereof upon the terms and conditions
therein specified.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 68
IN WITNESS WHEREOF, the undersigned has entered into this
Working Capital Note on the date first stated above.
ENERGY AUCTION EXCHANGE, INC.
By: /s/
--------------------------
Title:
-----------------------
-2-
<PAGE> 69
Type Amount Interest Amount Principal
of of Period of Unpaid Notation
Date Loan Loan (if applicable) Principal Paid Balance made by
- ---- ---- ----- --------------- -------------- --------- --------
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<PAGE> 70
FORM OF NOTICE OF CONVERSION
--------- --, ----
Citibank, N.A.
153 East 53rd Street
New York, NY 10043
Attention: Maryrose Balick
Ladies and Gentlemen:
Reference is made to the Loan and Security Agreement dated as of July
28, 1999 between Energy Auction Exchange, Inc. (the "Borrower") and Citicorp
USA, Inc. (the "Lender") (as amended from time to time, the "Loan Agreement").
Capitalized terms used herein have the meanings specified in the Loan
Agreement.
The undersigned, on behalf of the Borrowers, hereby delivers this
Notice of Conversion pursuant to Section 2.11 of the Loan Agreement that:
the undersigned hereby requests to [convert] [continue] an
aggregate principal amount of $____________ of the outstanding Loans
which are currently [Base Rate Loans] [Eurodollar Rate Loans with an
Interest Period expiring on __________] to Eurodollar Rate Loans on
_________ ___, ____. [The Interest Period for such Eurodollar Rate
Loan is requested to be a ___ [one] [three] [six] month period.]
The undersigned hereby certifies that no Default or Event of Default
has occurred and is continuing, or would result from such proposed borrowing.
ENERGY AUCTION EXCHANGE, INC.
By:
-----------------------------------
Name:
--------------------------------
Title:
--------------------------------
<PAGE> 1
EXHIBIT 10.16
OFFICE LEASE
BETWEEN
PRENTICE POINT LIMITED PARTNERSHIP,
A DELAWARE LIMITED PARTNERSHIP
(AS LANDLORD)
AND
ENERGY AUCTION EXCHANGE, INC.,
A DELAWARE CORPORATION
(AS TENANT)
<PAGE> 2
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. PRINCIPAL TERMS........................................................1
2. GENERAL COVENANTS......................................................2
3. TERM...................................................................2
4. RENT...................................................................2
5. COMPLETION OR REMODELING OF THE PREMISES...............................3
6. OPERATING EXPENSES/REAL ESTATE TAXES...................................3
7. SERVICES...............................................................6
8. QUIET ENJOYMENT........................................................7
9. DEPOSIT................................................................7
10. CHARACTER OF OCCUPANCY.................................................7
11. MAINTENANCE, ALTERATIONS AND REENTRY BY LANDLORD.......................7
12. ALTERATIONS AND REPAIRS BY TENANT......................................8
13. MECHANICS' LIENS.......................................................8
14. SUBLETTING AND ASSIGNMENT..............................................9
15. DAMAGE TO PROPERTY....................................................10
16. INDEMNITY TO LANDLORD.................................................10
17. SURRENDER AND NOTICE..................................................10
18. INSURANCE, CASUALTY, AND RESTORATION OF PREMISES......................10
19. CONDEMNATION..........................................................11
20. DEFAULT BY TENANT.....................................................11
21. DEFAULT BY LANDLORD...................................................13
22. SUBORDINATION AND ATTORNMENT..........................................13
23. REMOVAL OF TENANT'S PROPERTY..........................................14
24. HOLDING OVER: TENANCY MONTH-TO-MONTH..................................14
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
25. PAYMENTS AFTER TERMINATION..............................................14
26. STATEMENT OF PERFORMANCE................................................14
27. MISCELLANEOUS...........................................................14
28. AUTHORITIES FOR ACTION AND NOTICE.......................................16
29. PARKING.................................................................16
30. SUBSTITUTE PREMISES.....................................................16
31. BROKERAGE...............................................................16
32. LEGAL FEES; PREPARATION OF LEASE........................................16
33. COUNTERPARTS............................................................16
34. ADDENDUM/EXHIBITS.......................................................17
35. OPTION TO EXTEND........................................................17
</TABLE>
<PAGE> 4
LEASE AGREEMENT
THIS LEASE, dated as of May 12, 2000, is by and between PRENTICE POINT
LIMITED PARTNERSHIP, a Delaware limited partnership ("Landlord") and ENERGY
AUCTION EXCHANGE, INC., a Delaware corporation ("Tenant").
W I T N E S S E T H :
1. PRINCIPAL TERMS. Capitalized terms, first appearing in quotations in
this Section, elsewhere in the Lease or any Exhibits, are definitions of such
terms as used in the Lease and Exhibits and shall have the defined meaning
whenever used.
<TABLE>
<S> <C> <C> <C>
1.1 "BUILDING": Prentice Point, 5299 DTC Boulevard, Englewood, CO 80111
1.2 "PREMISES": Suite #815
1.3 "INITIAL TERM": 1 year, 0 months
"Commencement Date": October 1, 1999
"Expiration Date": September 30, 2000
"Delivery Date": No later than September 10, 1999
1.4 "MINIMUM RENT": Period Annual Monthly
------ ------ -------
Months 1-12 $90,846.00 $7,570.50
1.5 OPERATING EXPENSES/ Base Operating Expenses: calendar year 1999
REAL ESTATE TAXES: Base Real Estate Taxes: calendar year 1999
Pro Rata Share: 1.8477%
1.6 "DEPOSIT": $15,000.00
1.7 "PERMITTED USE": General business offices
1.8 "GUARANTOR": None
1.9 PARKING: 14 spaces ("Tenant's Maximum")
1.10 LANDLORD'S NOTICE ADDRESS: Prentice Point Limited Partnership
c/o Boston Financial
437 Madison Avenue, 18th Floor
New York, NY 10022
Attn: Legal Coordinator
copy to: Prentice Point Limited Partnership
c/o Boston Financial
101 Arch Street
Boston, MA 02110-1106
Attn: General Counsel
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
and copy to: Isaacson, Rosenbaum, Woods & Levy, P.C.
633 17th Street, Suite 2200
Denver, CO 80202-3622
Attn: David L. Kuosman, Esq.
and copy to: Mr. Randall G. Frisk
Boston Financial Group
211 East Ocean Boulevard, Suite 241
Long Beach, CA 90802
and copy to: Prentice Point Limited Partnership
5299 South DTC Boulevard
Englewood, CO 80111
Attn: Building Manager
1.11 LANDLORD'S TAX I.D.: 84-1269269
1.12 TENANT'S NOTICE ADDRESS:
Precommencement Address: 7900 E. Union Avenue, Suite 1100
Denver, CO 80237
Post Commencement Address: 5299 DTC Blvd., Suite 815
Englewood, CO 80111
1.13 TENANT'S TAX I.D.: 84-1491583
----------
1.14 LANDLORD'S BROKER: Venture Group Real Estate, LLC
1.15 COOPERATING BROKER: Frederick Ross Company
1.16 ATTACHMENTS: [check if applicable]
x Exhibit A - Diagram of Premises
-----
x Exhibit B - Real Property
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x Exhibit C - Premises Completion
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x Exhibit D - Form of First Amendment
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x Exhibit E - Rules and Regulations
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</TABLE>
2. GENERAL COVENANTS. Tenant covenants and agrees to pay Rent and
perform the obligations hereafter set forth and in consideration therefor
Landlord leases to Tenant the Premises as depicted on the plat attached as
EXHIBIT A, together with a non-exclusive right, subject to the provisions
hereof, to use plazas, common areas, or other areas on the real property legally
described on Exhibit B (the "Real Property") designated by Landlord for the
exclusive or non- exclusive use of the tenants of the Building ("Common Areas").
The Building, Real Property, Common Areas, and appurtenances are hereinafter
collectively sometimes called the "Building Complex."
3. TERM. The Initial Term of the Lease commences at 12:01 a.m. on the
Commencement Date and terminates at 12:00 midnight on the Expiration Date (the
Initial Term together with any extensions thereof is herein referred to as the
"Term.").
4. RENT. Subject to the provisions below, commencing on the
Commencement Date and on the first day of each month thereafter, Tenant shall
pay Minimum Rent in the amount stated in Section 1.4, in advance without notice
(all amounts, including Minimum Rent, to be paid by Tenant pursuant to this
Lease as the context requires are sometimes referred to collectively as
"Rent(s)"). Rents shall be paid without set off, abatement, or diminution, at
the management office in the Building, or at such other place as Landlord from
time to time designates in writing.
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5. COMPLETION OR REMODELING OF THE PREMISES.
5.1 Landlord shall, at Landlord's cost and expense, prior to delivering
the Premises to Tenant steam clean all existing carpet in the Premises (the
"Finish Work"). Except as provided in herein, Landlord has no obligation for the
completion or remodeling of the Premises, and Tenant accepts the Premises in its
"as is" condition on the Commencement Date. If Landlord is delayed in delivering
the Premises to Tenant due to Landlord's inability to timely complete the Finish
Work or due to the failure of a prior occupant to vacate, then the Commencement
Date will be postponed to the date Landlord delivers the Premises to Tenant
(hereafter the "Delivery Date"). If the Delivery Date is on other than the first
day of the month, then the Commencement Date will be the first day of the month
following the Delivery Date but all provisions hereof, including Tenant's
obligation to pay Rent (prorated for a partial month), will be in effect as of
the Delivery Date. The postponement of Tenant's obligation to pay Rent is in
full settlement of all claims which Tenant may otherwise have by reason of such
delay. If the Commencement Date is delayed, the Expiration Date shall be
extended so that the Term will continue for the full period set forth in Section
1.3. As soon as the Term commences, Landlord and Tenant agree to execute an
amendment to this Lease in the form attached as EXHIBIT D, setting forth the
exact Delivery Date, Commencement Date and Expiration Date. Notwithstanding the
foregoing, in the event Tenant elects to conduct certain Alterations in the
Premises in accordance with the provisions of Article 12 hereof, then Landlord
shall reimburse to Tenant up to Three Thousand Dollars ($3,000.00) toward the
cost of the Alterations, provided Tenant has completed installation or
construction of the Alterations in the Premises and Tenant has provided lien
waivers or other satisfactory evidence to Landlord that the Alterations were
completed in a lien-free fashion.
5.2 Taking possession of the Premises by Tenant is conclusive evidence
that the Premises are in the condition agreed between Landlord and Tenant and
acknowledgment by Tenant of satisfactory completion of any work which Landlord
has agreed to perform.
6. OPERATING EXPENSES/REAL ESTATE TAXES. Tenant shall pay Operating
Expense Rent and Tax Rent as additional Rent hereunder in accordance with the
following:
6.1 Definitions. The additional terms below have the following meanings
in this Lease:
(1) "Base Operating Expenses" means an amount equal to the
Operating Expenses for the calendar year set forth in Section 1.5, as determined
by Landlord in accordance with this Section. Tenant acknowledges Landlord has
not made any representations or warranties that the Base Operating Expenses will
equal any specified amounts (any estimates provided by Landlord are non-binding
estimates only).
(2) "Base Real Estate Taxes" means an amount equal to the Real
Estate Taxes for the calendar year set forth in Section 1.5, as determined by
Landlord in accordance with this Section. Tenant acknowledges Landlord has not
made any representations or warranties that the Base Real Estate Taxes will
equal any specified amounts (any estimates provided by Landlord are non-binding
estimates only).
(3) "Landlord's Accountants" means that individual or firm employed
by Landlord from time to time to keep the books and records for the Building
Complex, and/or to prepare the federal and state income tax returns for Landlord
with respect to the Building Complex, which books and records shall be certified
to by a representative of Landlord. All determinations made hereunder shall be
made by Landlord's Accountants unless otherwise stated.
(4) "Tenant's Pro Rata Share" means the percentage set forth in
Section 1.5.
(5) "Operating Expense Year" means each calendar year during the
Term, except that the first Operating Expense Year begins on the Commencement
Date and ends on December 31 of such year and the last Operating Expense Year
begins on January 1 of the calendar year in which this Lease expires or is
terminated and ends on the date of such expiration or termination. If an
Operating Expense Year is less than twelve (12) months, Operating Expenses for
such year shall be prorated.
(6) "Operating Expenses" means all operating expenses of any kind
or nature which are in Landlord's reasonable judgment necessary, appropriate, or
customarily incurred in connection with the operation and maintenance of the
Building Complex. Operating Expenses include, but are not limited to, the
following:
(a) Costs of supplies, including costs of relamping and
replacing ballasts in all Building standard tenant lighting;
(b) Costs of energy for the Building Complex, including costs
of propane, butane, natural gas, steam, electricity, solar energy and fuel
oils, coal or any other energy sources;
(c) Costs of water and sanitary and storm drainage services;
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(d) Costs of janitorial and security services;
(e) Costs of general maintenance, repairs, and replacements
including costs under HVAC and other mechanical maintenance contracts; and
repairs and replacements of equipment used in maintenance and repair work;
(f) Costs of maintenance, repair and replacement of
landscaping;
(g) Insurance premiums for the Building Complex, including
all-risk or multi-peril coverage, together with loss of rent endorsement;
the part of any claim paid under the deductible portion of any insurance
policy carried by Landlord; public liability insurance; and any other
insurance carried by Landlord on any component parts of the Building
Complex;
(h) All labor costs, including wages, costs of worker's
compensation insurance, payroll taxes, fringe benefits, including pension,
profit-sharing and health, and legal fees and other costs incurred in
resolving any labor dispute;
(i) Professional building management fees, costs and expenses,
including costs of office space and storage space required by management
for performance of its services;
(j) Legal, accounting, inspection, and other consulting fees
(including fees for consultants for services designed to produce a
reduction in Operating Expenses or improve the operation, maintenance or
state of repair of the Building Complex);
(k) Costs of capital improvements and structural repairs and
replacements to the Building Complex to conform to changes subsequent to
the date of issuance of the shell and core certificate of occupancy for the
Building in any Applicable Laws (herein "Required Capital Improvements");
and the costs of any capital improvements and structural repairs and
replacements designed primarily to reduce Operating Expenses (herein "Cost
Savings Improvements"). Expenditures for Required Capital Improvements and
Cost Savings Improvements will be amortized at a market rate of interest
over the useful life of such capital improvement (as determined by
Landlord's Accountants); however, the amortized amount of any Cost Savings
Improvement will be limited in any year to the resulting reduction in
Operating Expenses; and
(l) Costs incurred for Landlord's Accountants including costs
of any experts and consultants engaged to assist in making the
computations;
"Operating Expenses" do not include:
(i) Costs of work, including painting and decorating, which
Landlord performs for any tenant other than work of a kind and scope which
Landlord is obligated to furnish to all tenants whose leases contain a
rental adjustment provision similar to this one;
(ii) Costs of repairs or other work occasioned by fire,
windstorm or other insured casualty to the extent of insurance proceeds
received;
(iii) Leasing commissions, advertising expenses, and other
costs incurred in leasing space in the Building;
(iv) Costs of repairs or rebuilding necessitated by
condemnation;
(v) Interest on borrowed money or debt amortization, except
as specifically set forth above; or
(vi) Depreciation on the Building Complex.
(7) "Real Estate Taxes" means all real and personal property
taxes and assessments levied against the Building Complex by any governmental or
quasi-governmental authority, including taxes, assessments, surcharges, or
service or other fees of a nature not presently in effect which are hereafter
levied on the Building Complex as a result of the use, ownership or operation of
the Building Complex or for any other reason, whether in lieu of or in addition
to, any current real estate taxes and assessments. However, any taxes which are
levied on the rent of the Building Complex will be determined as if the Building
Complex were Landlord's only real property. In no event do taxes and assessments
include any federal or state income taxes levied or assessed on Landlord.
Expenses for tax consultants to contest taxes or assessments are also included
as Real Estate Taxes. Real Estate Taxes also include special assessments,
license taxes, business license fees, business license taxes, commercial rental
taxes, levies, charges, penalties or taxes, imposed by any authority against the
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Premises, Building Complex or any legal or equitable interest of Landlord.
Special assessments are deemed payable in such number of installments permitted
by law, whether or not actually so paid, and include any applicable interest on
such installments. Real Estate Taxes (other than special assessments) are
computed on an accrual basis based on the year in which they are levied, even
though not paid until the following Operating Expense Year;
(8) "Tax Year" means each calendar year during the Term,
except that the first Tax Year begins on the Commencement Date and ends on
December 31 of such year and the last Tax Year begins on January 1 of the
calendar year in which this Lease expires or is terminated and ends on the date
of such expiration or termination. If a Tax Year is less than twelve (12)
months, Real Estate Taxes for such year shall be prorated.
6.2 Computation and Payment of Operating Expense Rent.
6.2.1 If the actual Operating Expenses payable by Landlord for
any Operating Expense Year exceed the Base Operating Expenses ("Excess Operating
Expenses"), Tenant shall pay its Pro Rata Share of the Excess Operating Expenses
("Operating Expense Rent") to Landlord as provided herein. Following the end of
each Operating Expense Year, Landlord shall submit a statement ("Operating
Expense Statement") to Tenant setting forth the following:
(1) The total Operating Expense Rent payable by Tenant for
the just completed Operating Expense Year;
(2) The total amount Tenant has paid as Estimated Operating
Expense Rent (hereafter defined) during the just
completed Operating Expense Year;
(3) The difference, if any, between the total Operating
Expense Rent set forth in item (1) above and the
Estimated Operating Expense Rent previously paid as set
forth in item (2) above ("Operating Expense Rent
Shortfall");
(4) Tenant's Pro Rata Share of Landlord's estimate of
Excess Operating Expenses for the new Operating Expense
Year ("Estimated Operating Expense Rent") determined in
accordance with this Paragraph; and
(5) The amount of the Retroactive Adjustment, if any, in
accordance with the following.
6.2.2 Commencing on the Commencement Date, Tenant shall pay,
at the same time as monthly Minimum Rent is paid, 1/12 of the Estimated
Operating Expense Rent. To the extent an Operating Expense Statement reflects an
Operating Expense Rent Shortfall Tenant will pay such shortfall within 30 days
after receipt of the Operating Expense Statement (or receive a credit for the
difference against the next due Rent, as the case may be). Until Tenant receives
an Operating Expense Statement, Tenant shall continue to pay the Estimated
Operating Expense Rent for the prior Operating Expense Year. However, Tenant is
responsible for payment (or is eligible for a credit, as the case may be) of any
difference between the old Estimated Operating Expense Rent paid for any period
of the new Operating Expense Year and the new Estimated Operating Expense Rent
payable for that same period ("Retroactive Adjustment"). Tenant shall commence
payment of the new Estimated Operating Expense Rent beginning on the first day
of the month following the month in which Tenant receives the Operating Expense
Statement, at which time the Tenant shall also pay Landlord or deduct from the
next- due Rent, as the case may be, the Retroactive Adjustment. If, during any
Operating Expense Year, there is a change in the information on which Tenant's
Estimated Operating Expense Rent is based so that the prior estimate is no
longer accurate, Landlord may revise the estimate and there shall be a
corresponding adjustment to the Estimated Operating Expense Rent for the balance
of the Operating Expense Year following notice to Tenant.
6.3 Computation and Payment of Tax Rent.
6.3.1 If the actual Real Estate Taxes payable by Landlord for
any Tax Year exceed the Base Real Estate Taxes ("Excess Taxes"), Tenant shall
pay its Pro Rata Share of the Excess Taxes ("Tax Rent") to Landlord as provided
herein. Following the end of each Tax Year, Landlord shall submit a statement
("Tax Statement") to Tenant setting forth the following:
(1) The total Tax Rent payable by Tenant for the just
completed Tax Year;
(2) The amount Tenant has paid as Estimated Tax Rent
(hereafter defined) during the just completed Tax Year;
(3) The difference, if any, between the total Tax Rent set
forth in item (1) above and the Estimated Tax Rent
previously paid as set forth in item (2) above ("Tax
Rent Shortfall");
(4) Tenant's Pro Rata Share of Landlord's estimate of
Excess Taxes for the new Tax Year ("Estimated Tax
Rent") determined in accordance with this Paragraph;
and
(5) The amount of the Retroactive Adjustment, if any, in
accordance with the following.
6.3.2 Commencing with the first month of the second Tax Year,
Tenant shall pay, at the same time as monthly Minimum Rent is paid, 1/12 of the
Estimated Tax Rent. To the extent a Tax Statement reflects a Tax Rent Shortfall,
Tenant will pay such shortfall within 30 days after receipt of the Tax Statement
(or receive a credit for the difference against the next due Rent, as the case
may be). Until Tenant receives a Tax Statement, Tenant shall continue to pay the
Estimated Tax Rent for the prior Tax Year. However, Tenant is responsible for
payment (or is eligible for a credit, as the case may be)
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of any difference between the old Estimated Tax Rent paid for any period of the
new Tax Year and the new Estimated Tax Rent payable for that same period
("Retroactive Adjustment"). Tenant shall commence payment of the new Estimated
Tax Rent beginning on the first day of the month following the month in which
Tenant receives the Tax Statement, at which time the Tenant shall also pay
Landlord or deduct from the next-due Rent, as the case may be, the Retroactive
Adjustment. If, during any Tax Year, there is a change in the information on
which Tenant's Estimated Tax Rent is based so that the prior estimate is no
longer accurate, Landlord may revise the estimate and there shall be a
corresponding adjustment to the Estimated Tax Rent for the balance of the Tax
Year following notice to Tenant.
6.4 Miscellaneous. If any lease entered into by Landlord with any
tenant in the Building is on a so-called "net" basis, or provides for a separate
basis of computation for any Operating Expenses or Real Estate Taxes with
respect to its leased premises, Landlord's Accountants may modify the
computation of Base Operating Expenses, Base Real Estate Taxes, Tenant's Pro
Rata Share, Operating Expenses and Real Estate Taxes for a particular Operating
Expense Year and/or Tax Year (as applicable) to eliminate or modify any
Operating Expenses and/or Real Estate Taxes which are paid for in whole or in
part by such tenant. If the Building is not fully occupied during any particular
Operating Expense Year or Tax Year, Landlord's Accountants may adjust those
Operating Expenses and Real Estate Taxes which are affected by occupancy for the
particular Operating Expense Year or Tax Year to reflect 100% occupancy.
Furthermore, in making any computations contemplated hereby, Landlord's
Accountants may make such other modifications to the computations as are
required in their judgment to achieve the intention of the parties hereto. In no
event will any decrease in Rent pursuant to any provision hereof result in a
reduction of Rent below the Minimum Rent. Delay by Landlord in submitting any
statement for any Operating Expense Year or Tax Year does not affect the
provisions of this Section or constitute a waiver of Landlord's rights for such
Operating Expense Year, Tax Year, or any subsequent Operating Expense Years or
Tax Years.
6.5 Dispute. If Tenant disputes an adjustment submitted by Landlord or
a proposed increase or decrease in an Estimated Operating Expense Rent or
Estimated Tax Rent, Tenant shall give Landlord notice of such dispute within 30
days after Tenant's receipt of the adjustment. If Tenant does not give Landlord
timely notice, Tenant waives its right to dispute the particular adjustment. If
Tenant timely objects, Tenant may engage, at its expense, its own certified
public accountants ("Tenant's Accountants") to verify the accuracy of the
statement complained of or the reasonableness of the estimated increase or
decrease. If Tenant's Accountants determine that an error has been made,
Landlord's Accountants and Tenant's Accountants shall endeavor to agree upon the
matter, failing which such matter shall be submitted to an independent certified
public accountant selected by Landlord, with Tenant's reasonable approval, for a
determination which will be conclusive and binding upon Landlord and Tenant.
Tenant agrees that all information obtained or generated in connection with such
audit shall be kept confidential and may not be disclosed to any other tenants
or third parties. Notwithstanding the pendency of any dispute, Tenant shall
continue to pay Landlord the amount of the Estimated Operating Expense Rent or
Estimated Tax Rent being disputed or adjustment determined by Landlord's
Accountants until the adjustment has been determined to be incorrect. If it is
determined that any portion of the Operating Expenses and/or Real Estate Taxes
were not properly chargeable to Tenant, then Landlord shall promptly credit or
refund the appropriate sum to Tenant.
7. SERVICES.
7.1 Subject to the provisions below, Landlord agrees, without charge,
in accordance with standards determined by Landlord from time to time for the
Building: (1) to furnish running water at those points of supply for general use
of tenants of the Building; (2) during Ordinary Business Hours to furnish to
interior Common Areas heated or cooled air (as applicable), electrical current,
janitorial services, and maintenance; (3) during Ordinary Business Hours to
furnish heated or cooled air to the Premises for standard office use provided
the recommendations of Landlord's engineer regarding occupancy and use of the
Premises are complied with by Tenant; (4) to furnish, subject to availability
and capacity of building systems, unfiltered treated chilled water for use in
Tenant's packaged HVAC systems provided that such systems are approved by
Landlord, including strainers, pumping systems and controls; (5) to provide,
during Ordinary Business Hours, the general use of passenger elevators for
ingress and egress to and from the Premises (at least one such elevator shall be
available at all times except in the case of emergencies or repair); (6) to
provide janitorial services for the Premises to the extent of the Initial Tenant
Finish (including window washing of the outside of exterior windows); and (7) to
cause electric current to be supplied to the Premises for Tenant's Standard
Electrical Usage (items (1) through (7) are collectively called "Services").
"Tenant's Standard Electrical Usage" means weekly electrical consumption in an
amount determined by (i) multiplying 3.5 watts/square foot by 59 hours and (ii)
multiplying the product thereof by the number of rentable square feet in the
Premises. "Ordinary Business Hours" means 7:00 a.m. to 6:00 p.m. Monday through
Friday and 9:00 a.m. to 12:00 p.m. on Saturdays, Legal Holidays excepted. "Legal
Holidays" mean New Year's Day, Martin Luther King Day, Presidents' Day, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day, and such
other national holidays hereafter established by the United States Government.
7.2 "Excess Usage" means any usage of electricity (1) during other
than Ordinary Business Hours; (2) in an amount in excess of Tenant's Standard
Electrical Usage; or (3) for Special Equipment or for standard HVAC services
during other than Ordinary Business Hours. "Special Equipment" means (a) any
equipment consuming more than 0.5 kilowatts at rated capacity, (b) any equipment
requiring a voltage other than 120 volts, single phase, or (c) equipment that
requires the use of self-contained HVAC units. If Tenant desires Excess Usage,
Landlord will use reasonable efforts to supply the same. Tenant shall reimburse
Landlord for all Landlord's costs of providing services for Excess Usage,
including costs for materials,
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additional wear and tear on equipment, utilities, and labor (including fringe
and overhead costs). Computation of such costs will be made by Landlord's
engineer, based on his engineering survey of Tenant's Excess Usage. Tenant shall
also reimburse Landlord for all costs of supplementing the Building HVAC System
and/or extending or supplementing any electrical service, as Landlord determines
is necessary, as a result of Tenant's Excess Usage. Prior to installation or use
of Special Equipment or operation of the Premises for extended hours on an
ongoing basis, Tenant shall notify Landlord of such intended installation or use
and obtain Landlord's consent. Not less than 48 hours' prior notice shall be
given Landlord of Tenant's request for such services. Tenant may request that
Landlord install at Tenant's cost a check meter and/or flow meter to determine
the cost of Tenant's Excess Usage. Tenant shall also pay the cost of replacing
light bulbs and/or tubes and ballast used in all lighting in the Premises other
than that provided by Landlord to all tenants of the Building.
7.3 If Tenant requires janitorial services other than those included
as standard Services, Tenant shall separately pay for such services monthly upon
billings by Landlord, or Tenant shall, at Landlord's option, separately contract
for such services with the same company used by Landlord to furnish janitorial
services to the Building.
7.4 Landlord may discontinue, reduce, or curtail Services (either
temporarily or permanently) when necessary due to accident, repairs,
alterations, strikes, lockouts, Applicable Laws, or any other happening beyond
Landlord's reasonable control. Landlord is not liable for damages to Tenant or
any other party as a result of any interruption, reduction, or discontinuance of
Services (either temporary or permanent) nor shall the occurrence of any such
event be construed as an eviction of Tenant, cause or permit an abatement,
reduction or setoff of Rent, or operate to release Tenant from Tenant's
obligations.
7.5 Tenant shall promptly notify Landlord of any accidents or defects
in the Building of which Tenant becomes aware, including defects in pipes,
electric wiring, and HVAC equipment, and of any condition which may cause injury
or damage to the Building or any person or property therein.
8. QUIET ENJOYMENT. So long as an Event of Default has not occurred, Tenant
is entitled to the quiet enjoyment and peaceful possession of the Premises
subject to the provisions of this Lease.
9. DEPOSIT. Tenant has deposited and will keep on deposit at all times
during the Term with Landlord the Deposit as security for the payment and
performance of Tenant's obligations under this Lease. If, at any time, Tenant is
in default, Landlord has the right to use the Deposit, or so much thereof as
necessary, in payment of Rent, in reimbursement of any expense incurred by
Landlord, and in payment of any damages incurred by Landlord by reason of such
default. In such event, Tenant shall on demand of Landlord forthwith remit to
Landlord a sufficient amount in cash to restore the Deposit to the original
amount. If the entire Deposit has not been utilized, the remaining amount will
be refunded to Tenant or to whoever is then the holder of Tenant's interest in
this Lease, without interest, within 60 days after full performance of this
Lease by Tenant. Landlord may commingle the Deposit with other funds of
Landlord. Landlord may deliver the Deposit to any purchaser of Landlord's
interest in the Premises and Landlord shall be discharged from further liability
therefor. Tenant agrees that if a Mortgagee succeeds to Landlord's interest in
the Premises by reason of foreclosure or deed in lieu of foreclosure, Tenant has
no claim against the Mortgagee for the Deposit or any portion thereof unless
such Mortgagee has actually received the same from Landlord. If claims of
Landlord exceed the Deposit, Tenant shall remain liable for the balance.
10. CHARACTER OF OCCUPANCY. Tenant shall occupy the Premises for the
Permitted Use and for no other purpose, and use it in a careful, safe, and
proper manner and pay on demand for any damage to the Premises caused by misuse
or abuse by Tenant, Tenant's agents or employees, or any other person entering
upon the Premises under express or implied invitation of Tenant (collectively,
"Tenant's Agents"). Tenant, at Tenant's expense, shall comply with all
applicable federal, state, city, quasi-governmental and utility provider laws,
codes, rules, and regulations now or hereafter in effect ("Applicable Laws")
which impose any duty upon Landlord or Tenant with respect to the occupation or
alteration of the Premises. Tenant shall not commit or permit waste or any
nuisance on or in the Premises. Tenant agrees not to store, keep, use, sell,
dispose of or offer for sale in, upon or from the Premises any article or
substance prohibited by any insurance policy covering the Building Complex nor
shall Tenant keep, store, produce or dispose of on, in or from the Premises or
the Building Complex any substance which may be deemed an infectious waste or
hazardous substance under any Applicable Laws, except customary office and
cleaning supplies.
11. MAINTENANCE, ALTERATIONS AND REENTRY BY LANDLORD.
11.1 Landlord will (i) make repairs and replacements to HVAC,
mechanical, life safety and electrical systems in the Premises (to the extent
such systems are Building standard) deemed necessary by Landlord for normal
operations of the Building Complex; and (ii) provide upkeep, maintenance, and
repairs to all Common Areas. Except as provided in this Section or otherwise
expressly required in this Lease, Landlord is not required to make improvements
or repairs to the Premises during the Term.
11.2 Landlord or Landlord's agents may at any time enter the Premises
for examination and inspection, if Landlord elects, to perform any obligations
of Tenant which Tenant fails to perform, to perform such cleaning, maintenance,
janitorial
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services, repairs, replacements, additions, or alterations as Landlord deems
necessary for the safety, improvement, or preservation of the Premises or other
portions of the Building Complex, or as required by Applicable Laws. Landlord or
Landlord's agents may also show the Premises to prospective tenants, purchasers
and Mortgagees. Any such reentry does not constitute an eviction or entitle
Tenant to abatement of Rent. Landlord may make such alterations or changes in
other portions of the Building Complex as Landlord desires so long as such
alterations and changes do not unreasonably interfere with Tenant's occupancy of
the Premises. Landlord may use the Common Areas and one or more street entrances
to the Building Complex as may be necessary in Landlord's judgment to complete
such work.
12. ALTERATIONS AND REPAIRS BY TENANT.
12.1 Tenant shall not make any alterations to the Premises during the
Term, including installation of equipment or machinery which requires
modifications to existing electrical outlets or increases Tenant's usage of
electricity beyond Tenant's Standard Electrical Usage (collectively
"Alterations") without in each instance first obtaining the written consent of
Landlord. Landlord's consent or approval of the plans, specifications and
working drawings for any Alterations shall not constitute any warranty or
representation by Landlord (and shall not impose any liability on Landlord) as
to their completeness, design sufficiency, or compliance with Applicable Laws.
Tenant shall at its cost: pay all engineering and design costs incurred by
Landlord as to all Alterations, obtain all governmental permits and approvals
required, and cause all Alterations to be completed in compliance with
Applicable Laws and requirements of Landlord's insurance. All such work relating
to Alterations shall be performed in a good and workmanlike manner, using new
materials and equipment at least equal in quality to the Initial Tenant Finish.
All Alterations, repair and maintenance work performed by Tenant shall be done
at Tenant's expense by Landlord's employees or, with Landlord's prior consent
and subject to any conditions imposed by Landlord, by other persons requested by
Tenant; however, if such work is not performed by Landlord's employees, Tenant
shall pay Landlord a supervisory fee upon receipt of an invoice. If Landlord
authorizes such persons to perform work, Tenant shall deliver to Landlord prior
to commencement certificates issued by insurance companies qualified to do
business in the State of Colorado, evidencing that worker's compensation, public
liability insurance, and property damage insurance (in amounts, with companies
and on forms satisfactory to Landlord) are in force and maintained by all
contractors and subcontractors engaged to perform such work. All liability
policies shall name Landlord, Building Manager, and Mortgagee as additional
insureds. Each certificate shall provide that the insurance may not be canceled
or modified without 10 days' prior written notice to Landlord and Mortgagee.
Landlord also has the right to post notices in the Premises in locations
designated by Landlord stating that Landlord is not responsible for payment for
such work and containing such other information as Landlord deems necessary. All
such work shall be performed in a manner which does not unreasonably interfere
with Landlord or other tenants of the Building, or impose additional expense
upon Landlord in the operation of the Building Complex.
12.2 Tenant shall keep the Premises in as good order, condition, and
repair and in an orderly state, as on the Commencement Date, loss by fire or
other casualty or ordinary wear excepted.
12.3 All Alterations, including partitions, paneling, carpeting,
drapes or other window coverings, and light fixtures (but not including movable
office furniture not attached to the Building), are deemed a part of the real
estate and the property of Landlord and remain upon and be surrendered with the
Premises at the end of the Term, whether by lapse of time or otherwise, unless
Landlord notifies Tenant no later than 15 days prior to the end of the Term that
it elects to have Tenant remove all or part of such Alterations, and in such
event, Tenant shall at Tenant's expense promptly remove the Alterations
specified and restore the Premises to its prior condition, reasonable wear and
tear excepted.
13. MECHANICS' LIENS. Tenant shall pay for all work done on the Premises by
Tenant or at its request (other than the Initial Tenant Finish) of a character
which may result in liens on Landlord's or Tenant's interest and Tenant will
keep the Premises free of all mechanics' liens, and other liens on account of
such work. Tenant indemnifies, defends, and saves Landlord harmless from all
liability, loss, damage, or expenses, including attorneys' fees, on account of
any claims of laborers, materialmen or others for work performed or for
materials or supplies furnished to Tenant or persons claiming under Tenant. If
any lien is recorded against the Premises or Building or any suit affecting
title thereto is commenced as a result of such work, or supplying of materials,
Tenant shall cause such lien to be removed of record within 5 days after notice
from Landlord. If Tenant desires to contest any claim, Tenant must furnish
Landlord adequate security of at least 150% of the amount of the claim, plus
estimated costs and interest and, if a final judgment establishing the validity
of any lien is entered, Tenant shall immediately pay and satisfy the same. If
Tenant fails to proceed as aforesaid, Landlord may pay such amount and any
costs, and the amount paid, together with reasonable attorneys' fees incurred,
shall be immediately due Landlord upon notice.
14. SUBLETTING AND ASSIGNMENT.
14.1 Tenant shall not sublet any part of the Premises nor assign or
otherwise transfer this Lease or any interest herein (sometimes referred to as
"Transfer," and the subtenant or assignee may be referred to as "Transferee")
without the consent of Landlord first being obtained, which consent will not be
unreasonably withheld provided that: (1) Tenant complies with the provisions of
Section 14.4; (2) Landlord declines to exercise its rights under Section 14.3;
(3) the Transferee is engaged in a business and the portion of the Premises will
be used in a manner which is in keeping with the then standards
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of the Building and does not conflict with any exclusive use rights granted to
any other tenant of the Building Complex; (4) the Transferee has reasonable
financial worth in light of the responsibilities involved; (5) Tenant is not in
default at the time it makes its request; (6) the Transferee is not a
governmental or quasi-governmental agency; (7) the Transferee is not a tenant or
currently negotiating a lease with Landlord in any Building owned by Landlord in
the Denver metropolitan area (including the Building Complex); and (8) the rent
to be paid by the Transferee is not less than the Rent paid by Tenant for such
space and is not less than 85% of the rental rate then being offered by Landlord
for similar space in the Building. Transfer includes a sale by Tenant of
substantially all of its assets or stock if Tenant is a publicly traded
corporation, a merger of Tenant with another corporation, the transfer of 25% or
more of the stock in a corporate tenant whose stock is not publicly traded, or
transfer of 25% or more of the beneficial ownership interests in a partnership
or limited liability company tenant.
14.2 Following any Transfer in accordance with this Section 14,
Landlord may, after default by Tenant, collect rent from the Transferee or
occupant and apply the net amount collected to the Rent, but no Transfer or
collection will be deemed an acceptance of the Transferee or occupant as Tenant
or release Tenant from its obligations. Consent to a Transfer shall not relieve
Tenant from obtaining Landlord's consent to any other Transfer. Notwithstanding
Landlord's consent to a Transfer, Tenant shall continue to be liable for its
obligations. If Tenant collects any rent or other amounts from a Transferee in
excess of the Rent for any monthly period, Tenant shall pay Landlord the excess
monthly, as and when received.
14.3 Notwithstanding the above, if Tenant requests Landlord's consent
to sublet 25% or more of the Premises, Landlord may refuse to grant such consent
in its sole discretion and terminate this Lease as to the portion of the
Premises with respect to which such consent was requested; provided, however, if
Landlord does not consent and elects to terminate the Lease as to such portion,
Tenant may within 15 days after notice from Landlord to this effect withdraw
Tenant's request for consent. If such termination occurs, it shall be effective
on the date designated in a notice from Landlord and shall not be more than 30
days following such notice.
14.4 Tenant must notify Landlord at least 90 days prior to the desired
date of the Transfer ("Tenant's Notice"). Tenant's Notice shall describe the
portion of the Premises to be transferred and the terms and conditions. Landlord
has, without obligation, 60 days following receipt of Tenant's Notice to sublet
the space on Tenant's behalf or to exercise its rights pursuant to Section 14.3
if Tenant's Notice discloses that 25% or more of the Premises is involved. If
the space covered by Tenant's Notice is subleased by Landlord, rent and other
sums due from the subtenant will be paid to Tenant directly and Landlord has no
responsibility for the performance by such subtenant of its obligations under
its sublease with Tenant. If Landlord is unwilling or unable to locate a
subtenant (and, if applicable, declines to exercise its rights under Section
14.3), Landlord will notify Tenant not later than 60 days after receipt of
Tenant's Notice and Tenant shall be free to sublet the specified portion of the
Premises to any third party on terms substantially identical to those described
in Tenant's Notice, subject to Landlord's consent as set forth above. If Tenant
does not sublet such portion of the Premises within 60 days following Landlord's
notice to Tenant, Tenant must reoffer the Premises to Landlord in accordance
with the provisions hereof prior to subleasing to a third party.
14.5 All documents utilized by Tenant to evidence a Transfer are
subject to approval by Landlord. Tenant shall pay Landlord's expenses, including
reasonable attorneys' fees, of determining whether to consent and in reviewing
and approving the documents. Tenant shall provide Landlord with such information
as Landlord reasonably requests regarding a proposed subtenant, including
financial information.
14.6 If a trustee or debtor in possession in bankruptcy is entitled to
assume control over Tenant's rights under this Lease and assigns such rights to
any third party notwithstanding the provisions hereof, the rent to be paid by
such party shall be increased to the current Minimum Rent (if greater than that
being paid for the Premises) which Landlord charges for comparable space in the
Building as of the date of such third party's occupancy. If Landlord is entitled
under the Bankruptcy Code to "Adequate Assurance" of future performance of this
Lease, the parties agree that such term includes the following:
(1) Any assignee must demonstrate to Landlord's reasonable
satisfaction a net worth (as defined in accordance with generally accepted
accounting principles consistently applied) at least as large as the net worth
of Tenant on the Commencement Date increased by 7%, compounded annually, for
each year thereafter through the date of the proposed assignment. Tenant's
financial condition was a material inducement to Landlord in executing this
Lease.
(2) The assignee must assume and agree to be bound by the
provisions of this Lease.
15. DAMAGE TO PROPERTY. Tenant agrees Landlord is not liable for any injury
or damage, either proximate or remote, occurring through or caused by fire,
water, steam, or any repairs, alterations, injury, accident, or any other cause
to the Premises, to any furniture, fixtures, Tenant improvements, or other
personal property of Tenant kept or stored in the Premises, or in other parts of
the Building Complex, whether by reason of the negligence or default of
Landlord, other occupants, any other person, or otherwise; and the keeping or
storing of all property of Tenant in the Premises and Building Complex is at the
sole risk of Tenant.
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16. INDEMNITY TO LANDLORD.
16.1 Tenant agrees to indemnify, defend, and hold Landlord and
Building Manager harmless from all liability, costs, or expenses, including
attorneys' fees, on account of damage to the person or property of any third
party, including any other tenant in the Building Complex, to the extent caused
by the negligence or breach of this Lease by the Tenant or Tenant's Agents.
16.2 Tenant shall maintain throughout the Term a commercial general
liability policy, including protection against death, personal injury and
property damage, issued by an insurance company qualified to do business in the
State of Colorado, with a single limit of not less than $1,000,000.00. Such
policy shall name Landlord, Building Manager, and Mortgagee as additional
insureds, be primary to any other similar insurance of such additional insureds,
and provide that it may not be canceled or modified without at least 20 days'
prior notice to Landlord and Mortgagee. The minimum limits of such insurance do
not limit the liability of Tenant hereunder. Prior to occupancy of the Premises,
and prior to expiration of the then-current policy, Tenant shall deliver
certificates evidencing that insurance required under this Lease is in effect.
17. SURRENDER AND NOTICE. Upon the expiration or other termination of this
Lease, Tenant shall immediately quit and surrender to Landlord the Premises
broom clean, in good order and condition, ordinary wear and tear and loss by
fire or other casualty excepted, and Tenant shall remove all of its movable
furniture and other effects, all telephone cable and related equipment in the
Building installed for Tenant, and such Alterations, as Landlord requires. If
Tenant fails to timely vacate the Premises as required, Tenant is responsible to
Landlord for all resulting costs and damages of Landlord, including any amounts
paid to third parties who are delayed in occupying the Premises.
18. INSURANCE, CASUALTY, AND RESTORATION OF PREMISES.
18.1 Landlord shall maintain casualty insurance for the Building
Complex, the shell and core of the Building and the Premises in such amounts,
from such companies, and on such terms and conditions, including insurance for
loss of Rent as Landlord deems appropriate, from time to time.
18.2 Tenant shall maintain throughout the Term "all risk" or
"multi-peril" insurance for the full replacement cost of Tenant's property and
betterments in the Premises, including tenant finish in excess of the Initial
Tenant Finish.
18.3 If the Building is damaged by fire or other casualty which
renders the Premises wholly untenantable or the damage is so extensive that an
architect selected by Landlord certifies in writing to Landlord and Tenant
within 60 days of said casualty that the Premises cannot, with the exercise of
reasonable diligence, be made fit for occupancy within 180 working days from the
happening thereof, then, at the option of Landlord or Tenant exercised in
writing to the other within 30 days of such determination, this Lease shall
terminate as of the occurrence of such damage. In the event of termination,
Tenant shall pay Rent duly apportioned up to the time of such casualty and
forthwith surrender the Premises and all interest. If Tenant fails to do so,
Landlord may reenter and take possession of the Premises and remove Tenant. If,
however, the damage is such that the architect certifies that the Premises can
be made tenantable within such 180-day period or neither Landlord or Tenant
elects to terminate the Lease despite the extent of damage, then the provisions
below apply.
18.4 If the Premises are damaged by fire or other casualty that does
not render it wholly untenantable or require a repair period in excess of 180
days, Landlord shall with reasonable promptness except as hereafter provided
repair the Premises to the extent of the Initial Tenant Finish.
18.5 If the Building is damaged (though the Premises may not be
affected, or if affected, can be repaired within 180 days) and within 60 days
after the damage Landlord decides not to reconstruct or rebuild the Building,
then, notwithstanding anything contained herein, upon notice to that effect from
Landlord within said 60 days, Tenant shall pay the Rent apportioned to such
date, this Lease shall terminate from the date of such notice, and both parties
discharged from further obligations except as otherwise expressly provided.
18.6 Landlord and Tenant waive all rights of recovery against the
other and its respective officers, partners, members, agents, representatives,
and employees for loss or damage to its real and personal property kept in the
Building Complex, or for loss of business arising out of or related the use and
occupancy of the Premises which is capable of being insured against under all
risk or multi-peril insurance, including coverage for damage due to water
leakage. Tenant also waives all such rights of recovery against Building
Manager. Each party shall, upon obtaining the property damage insurance required
by this Lease, notify the insurance carrier that the foregoing waiver is
contained in this Lease and use reasonable efforts to obtain an appropriate
waiver of subrogation provision in the policies.
18.7 Rent shall abate during any period of repair and restoration to
the extent of any recovery by Landlord under its loss of rent insurance related
to the Premises in the same proportion that the part of the Premises rendered
untenantable bears to the whole.
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19. CONDEMNATION. If the Premises or substantially all of it or any portion
of the Building Complex which renders the Premises untenantable is taken by
right of eminent domain, or by condemnation (which includes a conveyance in lieu
of a taking), this Lease, at the option of either Landlord or Tenant exercised
by notice to the other within 30 days after the taking, shall terminate and Rent
shall be apportioned as of the date of the taking. Tenant shall forthwith
surrender the Premises and all interest in this Lease, and, if Tenant fails to
do so, Landlord may reenter and take possession of the Premises. If less than
all the Premises is taken, Landlord shall promptly repair the Premises as nearly
as possible to its condition immediately prior to the taking, unless Landlord
elects not to rebuild under Section 18.5. Landlord shall receive the entire
award or consideration for the taking.
20. DEFAULT BY TENANT.
20.1 Each of the following events is an "Event of Default":
(1) Any failure by Tenant to pay Rent on the due date unless
such failure is cured within 3 days after the due date;
(2) Tenant vacates or abandons the Premises;
(3) This Lease or Tenant's interest is transferred whether
voluntarily or by operation of law except as permitted in Section 14;
(4) This Lease or any part of the Premises is taken by process
of law and is not released within 15 days after a levy;
(5) Commencement by Tenant of a proceeding under any provision
of federal or state law relating to insolvency, bankruptcy, or reorganization
("Bankruptcy Proceeding");
(6) Commencement of a Bankruptcy Proceeding against Tenant,
unless dismissed within 60 days after commencement;
(7) The insolvency of Tenant or execution by Tenant of an
assignment for the benefit of creditors; the convening by Tenant of a meeting of
its creditors or any significant class thereof for purposes of effecting a
moratorium upon or extension or composition of its debts; or the failure of
Tenant generally to pay its debts as they mature;
(8) The admission in writing by Tenant (or any general partner
of Tenant if Tenant is a partnership), that it is unable to pay its debts as
they mature or it is generally not paying its debts as they mature;
(9) Tenant fails to take possession of the Premises on the
Commencement Date;
(10) Tenant fails to perform any of its other obligations and
non-performance continues for 30 days after notice by Landlord or, if such
performance cannot be reasonably had within such 30 day period, Tenant does not
in good faith commence performance within such 30 day period and diligently
proceed to completion; provided, however, Tenant's right to cure shall not
exceed the period provided by Applicable Law.
20.2 Remedies of Landlord. If an Event of Default occurs, Landlord
may then or at any time thereafter, either:
(1) (a) Without further notice except as required by
Applicable Laws, reenter and repossess the Premises or any part and expel Tenant
and those claiming through or under Tenant and remove the effects of both
without being deemed guilty of any manner of trespass and without prejudice to
any remedies for arrears of Rent or preceding breach of this Lease. Should
Landlord reenter or take possession pursuant to legal proceedings or any notice
provided for by Applicable Law, Landlord may, from time to time, without
terminating this Lease, relet the Premises or any part, either alone or in
conjunction with other portions of the Building Complex, in Landlord's or
Tenant's name but for the account of Tenant, for such periods (which may be
greater or less than the period which would otherwise have constituted the
balance of the Term) and on such conditions and upon such other terms (which may
include concessions of free rent and alteration and repair of the Premises) as
Landlord, in its sole discretion, determines and Landlord may collect the rents
therefor. Landlord is not in any way responsible or liable for failure to relet
the Premises, or any part thereof, or for any failure to collect any rent due
upon such reletting. No such reentry or repossession or notice from Landlord
shall be construed as an election by Landlord to terminate this Lease unless
specific notice of such intention is given Tenant. Landlord reserves the right
following any reentry and/or reletting to exercise its right to terminate this
Lease by giving Tenant notice, in which event this Lease will terminate as
specified in the notice.
(b) If Landlord takes possession of the Premises without
terminating this Lease, Tenant shall pay Landlord (i) the Rent which would be
payable if repossession had not occurred, less (ii) the net proceeds, if any, of
any reletting of the Premises after deducting all of Landlord's expenses
incurred in connection with such reletting, including all
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repossession costs, brokerage commissions, attorneys' fees, expenses of
employees, alteration, and repair costs (collectively "Reletting Expenses"). If,
in connection with any reletting, the new lease term extends beyond the Term or
the premises covered thereby include other premises not part of the Premises, a
fair apportionment of the rent received from such reletting and the Reletting
Expenses, will be made in determining the net proceeds received from the
reletting. In determining such net proceeds, rent concessions will also be
apportioned over the term of the new lease. Tenant shall pay such amounts to
Landlord monthly on the days on which the Rent would have been payable if
possession had not been retaken, and Landlord is entitled to receive the same
from Tenant on each such day; or
(2) Give Tenant notice of termination of this Lease on the
date specified and, on such date, Tenant's right to possession of the Premises
shall cease and the Lease will terminate except as to Tenant's liability as
hereafter provided as if the expiration of the term fixed in such notice were
the end of the Term. If this Lease terminates pursuant to this Section, Tenant
remains liable to Landlord for damages in an amount equal to the Rent which
would have been owing by Tenant for the balance of the Term had this Lease not
terminated, less the net proceeds, if any, of reletting of the Premises by
Landlord subsequent to termination after deducting Reletting Expenses. Landlord
may collect such damages from Tenant monthly on the days on which the Rent would
have been payable if this Lease had not terminated and Landlord shall be
entitled to receive the same from Tenant on each such day. Alternatively, if
this Lease is terminated, Landlord at its option may recover forthwith against
Tenant as damages for loss of the bargain and not as a penalty an amount equal
to the worth at the time of termination of the excess, if any, of the Rent
reserved in this Lease for the balance of the Term over the then Reasonable
Rental Value of the Premises for the same period plus all Reletting Expenses.
"Reasonable Rental Value" is the amount of rent Landlord can obtain for the
remaining balance of the Term.
20.3 Recapture of Rent Concessions and Tenant Improvement Allowances.
In the Event of Default by Tenant, in addition to all other rights and remedies,
Landlord shall be entitled to receive from Tenant all sums, the payment of which
may previously have been waived or abated by Landlord, or which may have been
paid by Landlord pursuant to any agreement to grant Tenant a rental abatement or
other monetary inducement or concession, including but not limited to any tenant
improvement or finish allowance or moving allowance, together with interest
thereon from the date or dates such amounts were paid by Landlord or would have
been due from Tenant but for the abatement, at the rate of eighteen percent
(18%) per annum, until paid; it being understood and agreed that such concession
or abatement was made on the condition and basis that Tenant fully perform all
obligations and covenants under the Lease for the entire term.
20.4 Cumulative Remedies. Suits to recover Rent and damages may be
brought by Landlord, from time to time, and nothing herein requires Landlord to
await the date the Term would expire had there been no Event of Default or
termination, as the case may be. Each right and remedy provided for in this
Lease is cumulative and non-exclusive and in addition to every other right or
remedy now or hereafter existing at law or equity, including suits for
injunctive relief and specific performance. The exercise or beginning of the
exercise by Landlord of one or more rights or remedies shall not preclude the
simultaneous or later exercise by Landlord of other rights or remedies. All
costs incurred by Landlord to collect any Rent and damages or to enforce this
Lease are also recoverable from Tenant. If any suit is brought because of an
alleged breach of this Lease, the prevailing party is also entitled to recover
from the other party all reasonable attorneys' fees and costs incurred in
connection therewith.
20.5 No Waiver. No failure by Landlord to insist upon strict
performance of any provision or to exercise any right or remedy upon a breach
thereof, and no acceptance of full or partial Rent during the continuance of any
breach constitutes a waiver of any such breach or such provision, except by
written instrument executed by Landlord. No waiver shall affect or alter this
Lease but each provision hereof continues in effect with respect to any other
then existing or subsequent breach thereof.
20.6 Bankruptcy. Nothing contained in this Lease limits Landlord's
right to obtain as liquidated damages in any bankruptcy or similar proceeding
the maximum amount allowed by law at the time such damages are to be proven,
whether such amount is greater, equal to, or less than the amounts recoverable,
either as damages or Rent, referred to in any of the preceding provisions of
this Section. Notwithstanding anything in this Section to the contrary, any
proceeding described in Section 20.1(5),(6),(7) and (8) is an Event of Default
only when such proceeding is brought by or against the then holder of the
leasehold estate under this Lease.
20.7 Late Payment Charge. Any Rent not paid within 3 days after the
due date shall thereafter bear interest at 5 percentage points above the Prime
Rate or the highest rate permitted by law, whichever is lower, until paid.
Further, if such Rent is not paid within 3 days after the due date, Tenant
agrees Landlord will incur additional administrative expenses, the amount of
which will be difficult to determine; Tenant therefore shall also pay Landlord a
late charge for each late payment of 5% of such payment. Any amounts paid by
Landlord to cure a default of Tenant which Landlord has the right but not the
obligation to do, shall, if not repaid by Tenant within 3 days of demand by
Landlord, thereafter bear interest at 5 percentage points above the Prime Rate
until paid. "Prime Rate" means that rate announced by Wells Fargo Bank, N.A., or
its successor, as its prime rate on the date closest to the date interest
commences.
20.8 Waiver of Jury Trial. Tenant and Landlord waive any right to a
trial by jury in suits arising out of or concerning the provisions of this
Lease.
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21. DEFAULT BY LANDLORD. In the event of any alleged default on the part of
Landlord, Tenant shall give notice to Landlord and afford Landlord a reasonable
opportunity to cure such default. Such notice shall be ineffective unless a copy
is simultaneously also delivered in the manner required in this Lease to any
holder of a mortgage and/or deed of trust affecting all or any portion of the
Building Complex (collectively, "Mortgagee"), provided that prior to such notice
Tenant has been notified (by way of notice of Assignment of Rents and Leases, or
otherwise), of the address of a Mortgagee. If Landlord fails to cure such
default within the time provided, then Mortgagee shall have an additional 30
days following a second notice from Tenant or, if such default cannot be cured
within that time, such additional time as may be necessary provided within such
30 days, Mortgagee commences and diligently pursues a cure (including
commencement of foreclosure proceedings if necessary to effect such cure).
Tenant's sole remedy will be equitable relief or actual damages but in no event
is Landlord or any Mortgagee responsible for consequential damages or lost
profit incurred by Tenant as a result of any default by Landlord.
22. SUBORDINATION AND ATTORNMENT.
22.1 This Lease will be subordinate to any mortgage, deed of trust and
related documents now or hereafter placed upon the Building Complex (including
all advances made thereunder), and to all amendments, renewals, replacements, or
restatements thereof (collectively, "Mortgage"), unless Landlord or Mortgagee
advises Tenant that it will not be subordinate. Tenant agrees that no
documentation other than this Lease is required to evidence such subordination.
22.2 If any Mortgagee elects to have this Lease superior to the lien
of its Mortgage and gives notice to Tenant, this Lease will be deemed prior to
such Mortgage whether this Lease is dated prior or subsequent to the date of
such Mortgage or the date of recording thereof.
22.3 In confirmation of subordination or superior position, as the
case may be, Tenant will execute such documents as may be required by Mortgagee
and, if it fails to do so within 10 days after demand, Tenant hereby irrevocably
appoints Landlord as Tenant's attorney-in-fact in Tenant's name, place, and
stead to do so.
22.4 Tenant hereby attorns to all successor owners of the Building,
whether such ownership is acquired by sale, foreclosure of a Mortgage, or
otherwise.
22.5 If it becomes necessary to foreclose the Mortgage, Mortgagee
shall neither terminate the Lease nor join Tenant in summary or foreclosure
proceedings so long as Tenant is not in default under any of the terms,
covenants, or conditions of the Lease. If Mortgagee succeeds to the interest of
Landlord under the Lease, Mortgagee shall not be: (a) liable for any act or
omission of any prior landlord (including Landlord); (b) liable for the return
of any security deposit unless such deposit has been delivered to the Mortgagee
by Landlord or is in an escrow fund available to Mortgagee; (c) subject to any
offsets or defenses that Tenant might have against any prior landlord (including
Landlord); (d) bound by any Rent or additional Rent that Tenant might have paid
for more than the current month to any prior landlord (including Landlord); (e)
personally liable under the Lease, Mortgagee's liability thereunder being
limited to its interest in the Real Property; or (f) bound by any notice of
termination given by Landlord to Tenant without Mortgagee's prior written
consent thereto.
22.6 Tenant acknowledges that a current Mortgagee requires that Rent
payable to Landlord under this Lease be paid directly by Tenant to Mortgagee
upon a default by Landlord under the Mortgage. After receipt of notice from
Mortgagee to Tenant, at the address set forth above (or at such other address of
which Mortgagee has been notified in writing), Tenant shall pay to Mortgagee all
monies due or to become due to Landlord under the Lease. Tenant shall have no
responsibility to ascertain whether such demand by Mortgagee is permitted under
the Mortgage, or to inquire into the existence of a default. Landlord hereby
waives any right, claim, or demand it may now or hereafter have against Tenant
by reason of such payment to Mortgagee, and any such payment shall discharge the
obligations of Tenant to make such payment to Landlord.
23. REMOVAL OF TENANT'S PROPERTY.
23.1 All movable personal property of Tenant not removed from the
Premises upon vacation, abandonment, or termination of this Lease shall be
conclusively deemed abandoned and may be sold, or otherwise disposed of by
Landlord without notice to Tenant and without obligation to account; Tenant
shall pay Landlord's expenses in connection with such disposition.
23.2 Subject to any purchase money security interests granted by
Tenant, Tenant conveys to Landlord all of Tenant's property at any time situated
on the Premises (and all replacements) as security for the performance of its
obligations; Tenant shall execute such documents as Landlord requires to
evidence and perfect Landlord's security interest, and for this purpose this
Lease is considered a security agreement covering such personal property. Upon
the occurrence of an Event of Default, Landlord may exercise all rights of a
secured party under the Colorado Uniform Commercial Code. Such security interest
is prior and superior to any other security interest except a purchase money
security interest. Tenant's property shall not be removed from the Premises
without Landlord's consent unless such property is replaced with an item of
equal or greater value.
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24. HOLDING OVER: TENANCY MONTH-TO-MONTH. If, after the expiration or
termination of this Lease, Tenant remains in possession of the Premises and
continues to pay rent without a written agreement as to such holding over, even
though Landlord accepts such rent, such possession is a tenancy from
month-to-month, subject to all provisions hereof but at a monthly rent
equivalent to 200% of the monthly Rent paid by Tenant immediately prior to such
expiration or termination. Rent shall continue to be payable in advance on the
first day of each calendar month. Such tenancy may be terminated by either party
upon 10 days' notice prior to the end of any monthly period. Nothing contained
herein obligates Landlord to accept rent tendered after the expiration of the
Term or relieves Tenant of its liability under Section 17.
25. PAYMENTS AFTER TERMINATION. No payments by Tenant after expiration or
termination of this Lease or after any notice (other than a demand for payment
of money) by Landlord to Tenant reinstates, continues, extends the Term, or
affects any notice given to Tenant prior to such payments. After notice,
commencement of a suit, or final judgment granting Landlord possession of the
Premises, Landlord may collect any amounts due or otherwise exercise Landlord's
remedies without waiving any notice or affecting any suit or judgment.
26. STATEMENT OF PERFORMANCE. Tenant agrees at any time upon not less than
10 days' notice to execute and deliver to Landlord a written statement
certifying that this Lease is unmodified and in full force and effect (or, if
there have been modifications, that the same is in full force and effect as
modified stating the modifications); that there have been no defaults by
Landlord or Tenant (or, if there have been defaults, setting forth the nature
thereof); the date to which Rent has been paid in advance and such other
information as Landlord requests. Such statement may be relied upon by a
prospective purchaser of Landlord's interest or Mortgagee. Tenant's failure to
timely deliver such statement is conclusive upon Tenant that: (i) this Lease is
in full force and effect without modification except as may be represented by
Landlord; (ii) there are no uncured defaults in Landlord's performance; and
(iii) not more than 1 month's Rent has been paid in advance. Upon request,
Tenant will furnish Landlord an appropriate resolution confirming that the party
signing the statement is authorized to do so.
27. MISCELLANEOUS.
27.1 Transfer by Landlord. The term "Landlord" means so far as
obligations of Landlord are concerned, only the owner of the Building at the
time in question and, if any transfer of the title occurs, Landlord herein named
(and in the case of any subsequent transfers, the then grantor) is automatically
released from and after the date of such transfer of all liability as respects
performance of any obligations of Landlord thereafter to be performed. Any funds
in Landlord's possession at the time of transfer in which Tenant has an interest
will be turned over to the grantee and any amount then due Tenant under this
Lease will be paid to Tenant.
27.2 No Merger. The termination or mutual cancellation of this Lease
will not work a merger, and such termination or cancellation will at the option
of Landlord either terminate all subleases or operate as an automatic assignment
to Landlord of such subleases.
27.3 Common Area Use. Landlord may use any of the Common Areas for
the purposes of completing or making repairs or alterations in any portion of
the Building Complex.
27.4 Independent Covenants. This Lease is to be construed as though
the covenants between Landlord and Tenant are independent and not dependent and
Tenant is not entitled to any setoff of the Rent against Landlord if Landlord
fails to perform its obligations; provided, however, the foregoing does not
impair Tenant's right to commence a separate suit against Landlord for any
default by Landlord so long as Tenant complies with Section 21.
27.5 Validity of Provisions. If any provision is invalid under present
or future laws, then it is agreed that the remainder of this Lease is not
affected and that in lieu of each provision that is invalid, there will be added
as part of this Lease a provision as similar to such invalid provision as may be
possible and is valid and enforceable.
27.6 Captions. The caption of each Section is added for convenience
only and has no effect in the construction of any provision of this Lease.
27.7 Construction. The parties waive any rule of construction that
ambiguities are to be resolved against the drafting party. Any words following
the words "include," "including," "such as," "for example," or similar words or
phrases shall be illustrative only and are not intended to be exclusive, whether
or not language of non-limitation is used.
27.8 Applicability. Except as otherwise provided, the provisions of
this Lease are applicable to and binding upon Landlord's and Tenant's respective
heirs, successors and assigns. Such provisions are also considered to be
covenants running with the land to the fullest extent permitted by law.
27.9 Authority. Tenant and the party executing this Lease on behalf of
Tenant represent to Landlord that such party is authorized to do so by requisite
action of Tenant and agree, upon request, to deliver Landlord a resolution,
similar document, or opinion of counsel to that effect.
14
<PAGE> 18
27.10 Severability. If there is more than one party which is the
Tenant, the obligations imposed upon Tenant are joint and several.
27.11 Acceptance of Keys, Rent or Surrender. No act of Landlord or its
representatives during the Term, including any agreement to accept a surrender
of the Premises or amend this Lease, is binding on Landlord unless such act is
by a partner, member or officer of Landlord, as the case may be, or other party
designated in writing by Landlord as authorized to act. The delivery of keys to
Landlord or its representatives will not operate as a termination of this Lease
or a surrender of the Premises. No payment by Tenant of a lesser amount than the
entire Rent owing is other than on account of such Rent nor is any endorsement
or statement on any check or letter accompanying payment an accord and
satisfaction. Landlord may accept payment without prejudice to Landlord's right
to recover the balance or pursue any other remedy available to Landlord.
27.12 Building Name and Size. Landlord may as it relates to the
Building and Building Complex: change the name, increase the size by adding
additional real property, construct other buildings or improvements, change the
location and/or character, or make alterations or additions. If additional
buildings are constructed or the size is increased, Landlord and Tenant shall
execute an amendment which incorporates any necessary modifications to Tenant's
Pro Rata Share. Tenant may not use the Building's name for any purpose other
than as part of its business address.
27.13 Diminution of View. Tenant agrees that no diminution of light,
air, or view from the Building entitles Tenant to any reduction of Rent under
this Lease, results in any liability of Landlord, or in any way affects Tenant's
obligations.
27.14 Limitation of Liability. Notwithstanding anything to the
contrary contained in this Lease, Landlord's liability is limited to Landlord's
interest in the Building.
27.15 Non-Reliance. Tenant confirms it has not relied on any
statements, representations, or warranties by Landlord or its representatives
except as set forth herein.
27.16 Written Modification. No amendment or modification of this
Lease is valid or binding unless in writing and executed by the parties.
27.17 Lender's Requirements. Tenant will make such modifications to
this Lease as may hereafter be required to conform to any lender's requirements,
so long as such modifications do not increase Tenant's obligations or materially
alter its rights.
27.18 Effectiveness. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option to lease and
it is not effective unless and until execution and delivery by both Landlord and
Tenant.
27.19 Survival. This Lease, notwithstanding expiration or termination,
continues in effect as to any provisions requiring observance or performance
subsequent to termination or expiration.
27.20 Time of Essence. Time is of the essence herein.
27.21 Rules and Regulations. If rules and regulations are attached
hereto, they are a part of this Lease and Tenant agrees that Tenant and Tenant's
Agents shall at all times abide by such rules and regulations.
27.22 Recording. Tenant will not record this Lease. Recording of the
Lease by or on behalf of Tenant is an Event of Default.
28. AUTHORITIES FOR ACTION AND NOTICE.
28.1 Unless otherwise provided, Landlord may act through Landlord's
Building Manager or other designated representatives from time to time.
28.2 All notices or other communications required or desired to be
given to Landlord must be in writing and shall be deemed received when delivered
personally to any officer, partner, or member of Landlord (depending upon the
nature of Landlord) or the manager of the Building (the "Building Manager")
whose office is in the Building, or when deposited in the United States mail,
postage prepaid, certified or registered, return receipt requested, addressed as
provided in Section 1.10. All notices or communications required or desired to
be given to Tenant shall be in writing and deemed duly served when delivered
personally to any officer, employee, partner, or member of Tenant (depending
upon the nature of Tenant), individually if a sole proprietorship, or manager of
Tenant whose office is in the Building, or when deposited in the United States
mail, postage prepaid, certified or registered, return receipt requested,
addressed as provided in Section 1.12. Either party may designate in writing
served as above provided a different address to which notice is to be mailed.
The foregoing does not prohibit notice from being given as provided in Rule 4 of
Colorado Rules of Civil Procedure, as amended from time to time.
15
<PAGE> 19
29. PARKING. Landlord will make available parking spaces up to Tenant's
Maximum set forth in Section 1.9, if any, for Tenant's use during the term
hereof. Tenant shall notify Landlord on or before the Commencement Date of the
number of parking spaces up to Tenant's Maximum it will initially require and,
thereafter, Tenant shall give Landlord written notice at least 30 days prior to
the date that Tenant shall require the use of any parking spaces in addition to
those initially accepted, the total of which shall not exceed Tenant's Maximum.
Tenant shall pay the monthly rate in effect for each parking space utilized as
such rate may change from time to time. The monthly parking rates are currently
as follows: $65.00 for an assigned reserved space, $40 for an unassigned covered
space, and $20 for an unassigned deck (uncovered) space. Landlord reserves the
right to determine the type of parking spaces allocated for Tenant's use. Tenant
will receive one monthly bill for all spaces taken which shall be paid in the
same manner and at the same place as Minimum Rent for the Premises. Tenant has
no rights to use parking spaces except as provided in this Section. The right
granted to Tenant to use any space is a license only and Landlord's inability to
make any space available at any time for reasons beyond Landlord's reasonable
control is not a material breach by Landlord of its obligations hereunder. The
abatement of Tenant's obligation to pay for unavailable spaces during any period
of unavailability constitutes Tenant's sole remedy. If Tenant fails to timely
pay a parking bill, in addition to being a default under the Lease, Tenant may,
at Landlord's option, forfeit its right to all parking spaces. All vehicles
parked in the parking garage and the personal property therein shall be at the
sole risk of Tenant, Tenant's Agents and the users of such spaces and Landlord
shall have no liability for loss or damage thereto for whatever cause.
30. SUBSTITUTE PREMISES. Landlord has the right at any time upon 30 days'
prior notice to Tenant to substitute other space within the Building, including
substantially comparable tenant finish, for the Premises (the "Substitute
Premises"). Tenant shall relocate to the Substitute Premises on the date
specified in Landlord's notice which will be no sooner than 30 days after
notice. Landlord will pay all reasonable expenses incurred by Tenant to move its
furniture, fixtures, and equipment to the Substitute Premises. The suite number
designation and Exhibit A shall be deemed revised to reflect the description of
the Substitute Premises. Except for such revisions, the provisions of this Lease
are applicable to the Substitute Premises which are the Premises following
Tenant's move.
31. BROKERAGE. Tenant represents it has not employed any broker with
respect to this Lease and has no knowledge of any broker's involvement in this
transaction except those listed in Sections 1.14 and 1.15 (collectively, the
"Brokers"). Tenant shall indemnify Landlord against any expense incurred by
Landlord as a result of any claim for commissions or fees by any other broker,
finder, or agent, whether or not meritorious, employed by Tenant or claiming by,
through, or under Tenant, other than the Brokers. Tenant acknowledges Landlord
is not liable for any representations by the Brokers regarding the Premises,
Building, Building Complex, or this Lease.
32. LEGAL FEES; PREPARATION OF LEASE. Tenant acknowledges that if Landlord
incurs legal fees in connection with the preparation and negotiation of this
Lease in excess of $1,854.00, the amount of such excess shall, at Landlord's
option, be payable to Landlord as a one-time payment of additional Rent promptly
upon the final determination of Landlord's legal fees.
33. COUNTERPARTS. This Lease may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Any one or more counterpart signature
pages may be removed from one counterpart of the Lease and annexed to another
counterpart of the Lease to form a completely executed original instrument
without impairing the legal effect of the signature thereon.
34. ADDENDUM/EXHIBITS. Any Addenda or Exhibits referred to herein are
attached hereto and incorporated herein by reference.
35. OPTION TO EXTEND. Landlord grants Tenant an option (the "Option") to
extend the term of the Lease for one (1) additional term of three (3) years (the
"Option Term"). The Option applies only to the Premises and is on the following
conditions:
35.1 Notice of Tenant's interest in exercising the Option must be given to
Landlord no earlier than twelve (12) months and no later than six (6) months
prior to the Expiration Date ("Tenant's Notice"). Not later than thirty (30)
days after receiving Tenant's Notice, Landlord will notify Tenant of the Minimum
Rent applicable during the Option Term in accordance with subsection 35.5 below
("Landlord's Notice").
35.2 Tenant has 15 days after receipt of Landlord's Notice to exercise the
Option by delivering notice of exercise to Landlord. If Tenant timely exercises
the Option, the Term will be deemed extended on the terms of this Section and
the parties will execute an amendment evidencing the extension.
35.3 Unless Landlord is timely notified by Tenant in accordance with
subparagraphs 35.1 and 35.2 above, it will be conclusively deemed that Tenant
has not exercised the Option and the Lease will expire in accordance with its
terms on the Expiration Date.
35.4 Tenant's rights pursuant to this Paragraph are personal to Tenant and
may not be assigned. Tenant's right to exercise the Option is conditioned on:
(i) Tenant not being in default at the time of exercise or at the time of
commencement of the
16
<PAGE> 20
Option Term; (ii) Tenant not having subleased or vacated more than 25% of the
Premises or assigned its interest under the Lease as of the commencement of the
Option Term; and (iii) Tenant having the financial ability to perform its
obligations under the Option Term. Upon an assignment of the Lease, this
Paragraph is null and void.
35.5 The Option granted hereunder will be upon the terms of the Lease,
except that the Minimum Rent during the Option Term will be the rate at which
Landlord would lease space in the Building comparable to the Premises to third
parties if such space were available for leasing for a lease term paralleling
the Option Term, but in no event will the Minimum Rent be less than the Rent in
effect immediately prior to commencement of the Option Term. Such Rent may
include escalations and pass-throughs.
35.6 After exercise, or failure to exercise the Option, Tenant shall have
no further rights to extend the Term.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day and
year first above written and it is effective upon delivery of a fully-executed
copy to Tenant.
<TABLE>
<S> <C>
ENERGY AUCTION EXCHANGE, INC., a Delaware PRENTICE POINT LIMITED PARTNERSHIP, a
corporation Delaware limited partnership
By: PRENTICE POINT, INC., General Partner
By: /s/
-----------------------------------------
Print Name: By: /s/ Charles McIntyre
--------------------------------- -----------------------------------------
Print Title: Charles McIntyre, Vice President
--------------------------------
"Landlord"
ATTEST:
By: /s/
-----------------------------------------
Print Name:
---------------------------------
Print Title:
--------------------------------
"Tenant"
</TABLE>
17
<PAGE> 21
EXHIBIT A TO LEASE
DIAGRAM OF PREMISES
<PAGE> 22
EXHIBIT B TO LEASE
REAL PROPERTY
Parcel 1:
That part of Lot 3, Block 2, A RESUBDIVISION OF BLOCK 6, DENVER
TECHNOLOGICAL CENTER FILING NO. 2, described as follows:
Beginning at the Northeast corner of said Block 2;
thence Southerly along the Easterly line of said Block 2, the same being the
Westerly line of South Wabash Street, a distance of 437.78 feet to a point of
curvature; thence along a curve to the right with a radius of 75.00 feet and a
central angle of 2(degree)59'53" an arc distance of 3.92 feet; thence along a
curve to the right whose tangent makes an angle to the right of 26(degree)06'30"
from the tangent of the preceding curve and having a radius of 80.00 feet and a
central angle of 77(degree)04'05" an arc distance of 107.61 feet to a point of
tangency; thence along the tangent to the aforesaid curve 141.62 feet; thence at
a deflection angle of 14(degree)28'39" to the left 120.00 feet to a point on the
Northeasterly line of East Prentice Avenue; thence Northwesterly along said
Northeasterly line at East Prentice a distance of 32.60 feet; thence
Northeasterly at an angle of 88(degree)18'38" to the right a distance of 438.06
feet to the North line of said Block 2; thence Easterly at an angle of
74(degree)47'33" to the right and along said North line, a distance of 270.00
feet to the point of beginning,
County of Arapahoe,
State of Colorado.
Parcel 2:
That part of Lot 3, Block 2, A RESUBDIVISION OF BLOCK 6, DENVER
TECHNOLOGICAL CENTER FILING NO. 2, described as follows:
Commencing at the Northeast corner of said Block 2;
thence Westerly along the North line of said Block 2, a distance of 270.00 feet
to the TRUE POINT OF BEGINNING; thence continuing along said North line of Block
2, a distance of 98.43 feet; thence Southwesterly at a deflection angle of
89(degree)16'39" to the left 203.35 feet; thence on an angle to the left of
90(degree)00'00", a distance of 45.57 feet; thence on an angle to the left of
75(degree)30'54", a distance of 211.31 feet to the TRUE POINT OF BEGINNING,
County of Arapahoe, State of Colorado.
Parcel 3:
An easement for ingress and egress granted in First Amended and Restated Cross
Easement Agreement by and between The Dow Chemical Company and Prentice Point,
Ltd. recorded September 8, 1989, in Book 5769, at Page 19, County of Arapahoe,
State of Colorado.
Parcel 4:
A license to construct, operate, maintain, repair and replace a concrete
courtyard across the City of Aurora's Rampart Waterline Easement, as granted by
the City of Aurora, Colorado, pursuant to a License Agreement dated August 16,
1985 and recorded September 10, 1985 in Book 4541 at page 336, as assigned to
Prentice Point Associates, L.P., a California limited partnership by Assignment
thereof recorded June 3, 1994 in Book 7581 at Page 122, as assigned to Prentice
Point Limited Partnership, a Delaware limited partnership, by Assignment thereof
recorded January 1, 1997, at Reception No. R7003471.
County of Arapahoe,
State of Colorado.
<PAGE> 23
EXHIBIT C
PREMISES COMPLETION
[Intentionally Deleted]
<PAGE> 24
EXHIBIT D TO LEASE
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE (this "Amendment") is made this
day of , 1999 by and between PRENTICE POINT LIMITED PARTNERSHIP, a Delaware
limited partnership ("Landlord"), and ENERGY AUCTION EXCHANGE, INC., a Delaware
corporation ("Tenant").
WITNESSETH
WHEREAS, Landlord and Tenant are parties to a Office Lease dated _____
("Lease") for premises located at Suite 815 on the eighth floor of the building
known as Prentice Point (the "Premises").
WHEREAS, the parties desire to confirm certain terms of the Lease, and
to amend the Lease accordingly.
NOW THEREFORE, in consideration of the agreements herein contained,
the parties hereto agree as follows:
1. Incorporation of Recitals. The recitals set forth in the
WHEREAS clauses above are incorporated herein and made part of this Amendment to
the same extent as if set forth herein in full.
2. Confirmation of Certain Terms. Notwithstanding anything to
the contrary in the Lease, Landlord and Tenant hereby certify as follows:
2.1 The Delivery Date under Section 5 of the Lease occurred
on _____________________, 19___.
2.2 The Commencement Date under the Lease is
____________________, 19___.
2.3 The Expiration Date under the Lease is
____________________, 19___.
2.4 The initial monthly Minimum Rent due under the Lease is
$_______________________.
2.5 The Finish Work is completed in accordance with Section
5.1 and 5.2 of the Lease, and Landlord has no further obligations with respect
to the Finish Work to be performed at the Premises.
2.7 As of the date hereof, all obligations of Landlord under
the Lease have been performed, including payment of all sums owed by Landlord to
Tenant in connection with the Lease.
3. Ratification of Lease. All terms and conditions of the Lease
are hereby ratified and affirmed, as modified by this Amendment.
4. Capitalized Terms. All capitalized terms in this Amendment
shall have the same meanings as in the Lease unless expressly provided otherwise
herein.
IN WITNESS WHEREOF, Landlord and Tenant do hereby execute this
Amendment as of the day and year first above written.
PRENTICE POINT LIMITED PARTNERSHIP, a
Delaware limited partnership
By: PRENTICE POINT, INC., General Partner
By:
---------------------------------------
Charles McIntyre, Vice President
"Landlord"
<PAGE> 25
ENERGY AUCTION EXCHANGE, INC., a Delaware
corporation
By:
-----------------------------------------
Print Name:
---------------------------------
Print Title:
--------------------------------
ATTEST:
By:
-----------------------------------------
Print Name:
---------------------------------
Print Title:
--------------------------------
"Tenant"
2
<PAGE> 26
EXHIBIT E TO LEASE
RULES AND REGULATIONS
The following rules and regulations have been formulated for the safety and
well-being of all tenants of the Building and to insure compliance with
governmental and other requirements. Strict adherence to these rules and
regulations is necessary to guarantee that each and every tenant will enjoy a
safe and undisturbed occupancy of its premises in the Building. Any continuing
violation of these rules and regulations by Tenant shall constitute a default by
Tenant under the Lease.
Landlord may, upon request of any tenant, waive the compliance by such
tenant of any of the following rules and regulations, provided that (i) no
waiver shall be effective unless signed by Landlord's authorized agent, (ii) any
such waiver shall not relieve such tenant from the obligation to comply with
such rule or regulation in the future unless otherwise agreed to by Landlord,
(iii) no waiver granted to any tenant shall relieve any other tenant from the
obligation of complying with these rules and regulations, unless such other
tenant has received a similar written waiver from Landlord, and (iv) any such
waiver shall not relieve such tenant from any liability to Landlord for any loss
or damage occasioned as a result of such tenant's failure to comply.
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors, roof, halls and other parts of the Building not
exclusively occupied by any tenant shall not be obstructed or encumbered by any
tenant or used for any purpose other than ingress and egress to and from each
tenant's premises. Landlord shall have the right to control and operate the
public portions of the Building, and the facilities furnished for common use of
the tenants, in such manner as Landlord deems best for the benefit of the
tenants generally. No tenant shall permit the visit to its premises of persons
in such numbers or under such conditions as to interfere with the use and
enjoyment of the entrances, corridors, elevators and other public portions or
facilities of the Building by other tenants.
2. No awnings or other projections shall be attached to the outside walls
of the Building without the prior written consent of Landlord. No drapes,
blinds, shades or screens shall be attached to or hung in, or used in connection
with, any window or door of the Premises, without the prior written consent of
Landlord. All awnings, projections, curtains, blinds, shades, screens and other
fixtures must be of a quality, type, design and color, and attached in the
manner approved by Landlord.
3. No showcases or other articles shall be put in front of or affixed to
any part of the exterior of the Building or any tenant's premises, nor placed in
the halls, corridors or vestibules without the prior written consent of
Landlord.
4. The water and wash closets and other plumbing fixtures shall not be used
for any purposes other than those for which they were constructed, and no
debris, rubbish, rags or other substances shall be thrown therein. All damage
resulting from any misuse of the fixtures shall be borne by the tenant who, or
whose servants, employees, agents, visitors or licensees, shall have caused the
same.
5. There shall be no marking, painting, drilling into or defacement of the
Building or any part of any tenant's premises that is visible from public areas
of the Building. Tenants shall not construct, maintain, use or operate within
their respective premises any electrical device, wiring or apparatus in
connection with a loud speaker system or other sound system, except as
reasonably required as part of a communication system approved prior to the
installation thereof by Landlord. No such loud speaker or sound system shall be
constructed, maintained, used or operated outside the premises of any tenant.
6. No bicycles or vehicles and no animals, birds or pets of any kind shall
be brought into or kept in or about the Building or any tenant's premises,
except that this rule shall not prohibit the parking of bicycles or vehicles in
areas specifically designated therefor by Landlord. No cooking or heating of
food shall be done or permitted by any tenant on its premises except for food
prepared in portable microwave ovens (provided that no odors are emitted such as
in the preparation of popcorn). No tenant shall cause or permit any unusual or
objectionable odors to be produced upon or permeate from its premises.
7. No space in the Building shall be used for the manufacture of goods for
sale in the ordinary course of business, or for the sale at auction of
merchandise, goods or property of any kind. Furthermore, the use of its premises
by any tenant shall not be changed without the prior approval of Landlord.
8. No tenant shall make any unseemly or disturbing noises or disturb or
interfere with the occupants of the Building or neighboring buildings or
premises or those having business with them, whether by the use of any musical
instrument, radio, talking machine, whistling, singing, or in any other way. No
tenant shall throw anything out of the doors or windows or into or down the
corridors or stairs of the Building.
9. No flammable, combustible or explosive fluid, chemical or substance
shall be brought into or kept upon the Premises.
<PAGE> 27
10. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any tenant, nor shall any changes be made in any
existing locks or the locking mechanism therein, without Landlord's approval.
The doors leading to the corridors or main halls shall be kept closed during
business hours except as they may be used for ingress or egress. Each tenant
shall, upon the termination of its tenancy, restore to Landlord all keys of
stores, offices, storage and toilet rooms either furnished to, or otherwise
procured by, such tenant, and in the event of the loss of any keys so furnished,
such tenant shall pay to Landlord the replacement cost thereof. Tenant's key
system shall be separate from that for the rest of the Building.
11. Landlord reserves the right to inspect all freight to be brought into
the Building and to exclude from the Building all freight which violates any of
these rules and regulations of the Lease.
12. Landlord reserves the right to exclude from the Building at all times
any person who is not known or does not properly identify himself or herself to
the Building management or watchman, if any, on duty. Landlord may, at its
option, require all persons admitted to or leaving the Building between the
hours of 6:00 p.m. and 7:00 a.m., Monday through Friday, and at any hour on
Saturdays, Sundays and legal holidays, to register. Each tenant shall be
responsible for all persons for whom it authorizes entry in the Building, and
shall be liable to Landlord for all acts or omissions of such persons.
13. The Premises shall not, at any time, be used for lodging or sleeping or
for any immoral or illegal purposes.
14. Tenant assumes full responsibility for protecting the Premises from
theft, and each tenant, before closing and leaving the Premises at any time,
shall see that all doors and windows are closed and locked, and all lights
turned off.
15. Landlord's employees shall not perform any work or do anything outside
of their regular duties, unless under special instruction from the management of
the Building. The requirements of tenants will be attended to only upon
application to Landlord, and any such special requirements shall be billed to
Tenant (and paid when the next installment of rent is due) in accordance with
the schedule of charges maintained by Landlord from time to time or at such
charge as is agreed upon in advance by Landlord and Tenant.
16. Canvassing, soliciting and peddling in the Building and on the Property
are prohibited and each tenant shall cooperate to prevent the same. Peddlers,
solicitors and beggars shall be reported to the Building manager or as Landlord
otherwise requests.
17. There shall not be used in any space, or in the public halls of the
Building, either by any tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards. Tenant shall be responsible to Landlord for any loss or damage
resulting from any deliveries made by or for Tenant to the Building.
18. Mats, trash or other objects shall not be placed in the public
corridors of the Building.
19. Landlord does not maintain suite finishes which are non-standard, such
as kitchens, bathrooms, wallpaper, special lights, etc. However, should the need
arise for repairs of items not maintained by Landlord, Landlord will arrange for
the work to be done at Tenant's expense.
20. Drapes installed by Landlord for the use of Tenant or drapes installed
by Tenant, with Landlord's approval, which are visible from the exterior of the
Building, must be cleaned by Tenant at least once a year, without notice, at the
tenant's own expense.
21. The Building directory located in the Building lobby as provided by
Landlord shall be available to Tenant solely to display its name and location in
the Building, which display shall be as directed by Landlord.
22. Tenant shall not cause any unnecessary janitorial labor or services by
reason of Tenant's carelessness or indifference in the preservation of good
order and cleanliness.
23. Tenant shall not install linoleum, tile, carpet or other floor covering
so that the same shall be affixed to the floor of the Premises in any manner
except as approved by Landlord.
24. No furniture, packages, supplies, equipment or merchandise will be
received in the Building or carried up or down in the elevators, except between
such hours and in such elevators and under such other conditions as shall be
designated by Landlord.
25. Tenant shall not waste heat or air-conditioning and shall cooperate
fully with Landlord to assure the most effective operation of the Building's
heating and air-conditioning, and shall refrain from attempting to adjust any
controls other than room thermostats installed for Tenant's use.
2
<PAGE> 28
26. Landlord shall have sole power and discretion to control the quantity,
size, location, and design of all tenant identification signage. No such signage
shall be erected without Landlord's written consent.
27. The loading dock area is exclusively reserved for authorized traffic
and Tenant shall not use same for temporary parking.
28. No eating, drinking, sleeping, or loitering shall be permitted in the
lobby areas.
29. Landlord may from time to time alter or amend these Rules and
Regulations, and Tenant shall comply with the Amended Rules and Regulations.
3
<PAGE> 1
EXHIBIT 10.17
HERITAGE PARK
OFFICE LEASE AGREEMENT
BETWEEN
McCASLIN GREENSPOINT I, LTD, A TEXAS LIMITED PARTNERSHIP
AS LANDLORD
AND
OGAC, L.P., A TEXAS LIMITED PARTNERSHIP
AS TENANT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
HERITAGE PARK ....................................................................... 1
McCaslin Greenspoint I, Ltd, a Texas Limited Partnership ................... 1
HERITAGE PARK 1
1. Definitions ................................................................. 1
(a ) "Base Amount" ............................................................... 1
(b) "Base Rental" ...................................................... 1
(c) "Basic Operating Costs" ............................................ 1
(d) "Broker" ........................................................... 1
(e) "Building" ......................................................... 1
(f) "Building Standard" ................................................ 1
(g) "Commencement Date" ................................................ 1
(h) "Common Areas" ..................................................... 1
(i) "Complex" .......................................................... 2
(j) "Initial Improvements" ............................................. 2
(k) "Lease Term" ....................................................... 2
(l) "Lease Year" ....................................................... 2
(m) "Market Area" ...................................................... 2
(n) "Normal Business Holidays" ......................................... 2
(o) "Normal Business Hours" ............................................ 2
(p) "Parking Areas" .................................................... 2
(q) "Premises" ......................................................... 2
(r) "Rent Commencement Date" ........................................... 2
(s) "Rentable Area" .................................................... 2
(t) "Security Deposit" ................................................. 2
(u) "Service Areas" .................................................... 2
(v) "Tenant's Share" ................................................... 3
2. Lease Grant ................................................................ 3
3. Lease Term; Acceptance of Premises .......................................... 3
4. Use ......................................................................... 3
5. Payment of Rent ............................................................. 3
6. Basic Operating Costs ....................................................... 3
7. Late Payments; Dishonored Checks ............................................ 9
8. Security Deposit ............................................................ 10
9. Services to be Furnished by Landlord ........................................ 10
10. Graphics ................................................................... 12
11. Telecommunications .......................................................... 13
</TABLE>
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<TABLE>
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12. Repair and Maintenance by Landlord .......................................... 14
13. Maintenance by Tenant ....................................................... 14
14. Repairs by Tenant ........................................................... 14
15. Alterations, Additions, Improvements ........................................ 14
16. Laws and Regulations; Disability Laws; Building Rules ....................... 15
17. Entry by Landlord .......................................................... 16
18. Assignment and Subletting ................................................... 16
19. Mechanic's Liens ............................................................ 18
20. Property Insurance .......................................................... 18
21. Liability Insurance ......................................................... 19
22. INDEMNITY ................................................................... 19
23. WAIVER OF SUBROGATION RIGHTS ................................................ 20
24. Casualty Damage ............................................................. 20
25. Condemnation ................................................................ 21
26. DAMAGES FROM CERTAIN CAUSES ................................................. 21
27. Default by Tenant ........................................................... 22
28. Default by Landlord ......................................................... 24
29. Quiet Enjoyment ............................................................. 24
30. [Intentionally Deleted] ..................................................... 24
31. Holding Over ................................................................ 24
32. Change of Building Name or Common Areas ..................................... 24
33. Subordination to Mortgage; Estoppel Agreement ............................... 24
34. Landlord's Lien ............................................................. 25
35. Attorney's Fees ............................................................. 25
36. No Implied Waiver ........................................................... 25
37. Independent Obligations ..................................................... 26
38. Recourse Limitation ......................................................... 26
</TABLE>
ii
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<TABLE>
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39. Notices ..................................................................... 26
40. Severability ................................................................ 26
41. Recordation ................................................................. 26
42. Governing Law ............................................................... 26
43. Force Majeure ............................................................... 26
44. Time of Performance ......................................................... 26
45. Transfers by Landlord ....................................................... 26
46. Commissions ................................................................. 27
47. Effect of Delivery of This Lease ............................................ 27
48. WAIVER OF WARRANTIES AND ACCEPTANCE OF CONDITION ............................ 27
49. Merger of Estates ........................................................... 27
50. Survival of Indemnities and Covenants ....................................... 27
51. Headings .................................................................... 27
52. Entire Agreement; Amendments ................................................ 27
53. Exhibits .................................................................... 28
Exhibit "A" - Land Description
Exhibit "B" - Floor Plan
Exhibit "C" - Rules and Regulations
Exhibit "D" - Tenant Improvements Agreement
Exhibit "D-1" - Landlord's Work
Exhibit "E" - Parking
Exhibit "E-1" - Parking Diagram
Exhibit "F" - Confidentiality Agreement
Exhibit "G" - Right of First Refusal
Exhibit "G-1" - Refusal Space
Exhibit "H" - Renewal Option
Exhibit "H-1" - Arbitration
Exhibit "F" - Confidentiality Agreement
54. Joint and Several Liability ................................................. 28
55. Multiple Counterparts ....................................................... 28
56. Rooftop Communications Equipment ............................................ 28
57. Financial Covenants ......................................................... 29
</TABLE>
iii
<PAGE> 5
HERITAGE PARK
OFFICE LEASE AGREEMENT
THIS OFFICE LEASE AGREEMENT ("Lease") is executed effective as of
August 18, 1999, between MCCASLIN GREENSPOINT I, LTD, A TEXAS LIMITED
PARTNERSHIP ("Landlord"), and OGAC, L.P., a Texas limited partnership
("Tenant").
W I T N E S S E T H:
1. Definitions. As used in this Lease, the following terms shall
have the meanings set forth below:
(a) "Base Amount" means $6.50 per square foot of
Rentable Area times the number of square feet of Rentable Area in the Building.
(b) "Base Rental" means (i) for the first sixty (60)
months of the Lease Term, $21.00 per square foot of Rentable Area in the
Premises for an annual total of $524,475.00, payable in advance in equal
monthly installments of $43,706.25; (ii) for months sixty-one (61) through
ninety-five (95) of the Lease Term, $22.50 per square foot of Rentable Area in
the Premises for an annual total of $561,937.50, payable in advance in equal
monthly installments of $46,828.12; and (iii) for months ninety-six (96)
through one hundred twenty (120) of the Lease Term, $23.50 per square foot of
Rentable Area in the Premises for an annual total of $586,912.50, payable in
advance in equal monthly installments of $48,909.38. The Base Rental for any
partial month at the beginning of the Lease Term shall be pro-rated and paid at
the rental rate applicable during the first full month of the Lease Term. Any
such pro-rated Base Rental shall be due upon receipt of an invoice from
Landlord. The Base Rental due for the first (1st) full month of the Lease Term
shall be deposited with Landlord by Tenant contemporaneously with the delivery
by Tenant to Landlord of this Lease.
(c) "Basic Operating Costs" shall have the meaning given
to such term in Section 6.
(d) "Broker" means Cushman Realty Corporation.
(e) "Building" means the office building situated upon
the real property located at 390 Benmar Drive in Houston, Texas ("Land"), a
legal description of which is attached as Exhibit "A." The Rentable Area of the
Building is hereby deemed to be 103,982 square feet.
(f) "Building Standard" means the level of service or
type of equipment standard in the Building or the type, brand and/or quality of
materials Landlord designates from time to time to be the minimum quality to be
used in the Building or the exclusive type, grade or quality of material to be
used in the Building. In each case, "Building Standard" shall at all times be
at least equal to the level of service, type of equipment, and type, or quality
of materials being provided in or to comparable buildings of similar age in the
Market Area, as reasonably determined by Landlord.
(g) "Co-Broker" means McCaslin Commercial.
(h) "Commencement Date" means the earlier of (1) the
date that Tenant actually occupies the Premises (including for the purpose of
performing the Work in accordance with the Tenant Improvements Agreement
attached hereto as Exhibit "D"), or (2) the Rent Commencement Date.
(i) "Common Areas" means all areas, spaces, facilities
and equipment (whether or not located within the Building) made available by
Landlord for the common and joint use of Landlord, Tenant
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 1
<PAGE> 6
and others designated by Landlord using or occupying space in the Building,
including, but not limited to, tunnels, loading docks, walkways, sidewalks and
driveways necessary for access to the Building, Parking Areas, Building
lobbies, atriums, landscaped areas, public corridors, public rest rooms,
Building stairs, elevators open to the public, service elevators (provided that
such service elevators shall be available only for tenants of the Building and
others designated by Landlord), drinking fountains and any such other areas and
facilities within the Complex, if any, as are designated by Landlord from time
to time as Common Areas.
(j) "Complex" means the Land, the Building, and the
Parking Areas.
(k) "Initial Improvements" means those improvements to
the Premises to be constructed according to the Tenant Improvements Agreement
attached to this Lease as Exhibit "D" ("Tenant Improvements Agreement"). If no
Tenant Improvements Agreement is attached to this Lease, no Initial
Improvements are being provided by Landlord and Tenant is taking the Premises
"as is" and with all faults.
(l) "Lease Term" means one hundred twenty (120) months
commencing with the Rent Commencement Date, plus any partial month at the
beginning of the Lease Term.
(m) "Lease Year" means a period of twelve (12)
consecutive calendar months. The first Lease Year shall begin on the 1st day of
the month following the Rent Commencement Date unless the Rent Commencement
Date occurs on the 1st day of a month, in which event the first Lease Year
shall begin on the Rent Commencement Date.
(n) "Market Area" means the area within a 3-mile radius
from the Complex.
(o) "Normal Business Holidays" means New Years Day,
Memorial Day, July 4th (Independence Day), Labor Day, Thanksgiving, and
Christmas Day.
(p) "Normal Business Hours" for the Building means
7:00 a.m. to 6:00 p.m. Mondays through Fridays and 8:00 a.m. to 1:00 p.m. on
Saturdays, exclusive of Normal Business Holidays.
(q) "Parking Areas" means those areas and structures
located upon the Land as of the date hereof and designated by Landlord to be
used for vehicular parking.
(r) "Premises" means the suite of offices, known as
Suite No. 100, located upon the ground floor of the Building and outlined on
the floor plan(s) attached to this Lease as Exhibit "B." The Rentable Area of
the Premises is hereby deemed to be 24,975 square feet, irrespective of whether
the same should be more or less as a result of variations resulting from later
re-measurement or actual construction and completion of the Premises for
occupancy.
(s) Rent Commencement Date means October 15, 1999.
(t) "Rentable Area" of the Premises means the usable
area within the Premises (i.e., the gross area enclosed by the surface of the
exterior glass walls, the mid-point of any walls separating portions of the
Premises from those of adjacent tenants, the slab penetration line of all walls
separating the Premises from Service Areas and the corridor side of walls
separating the Premises from Common Areas), which is defined to be the number
of square feet set forth in Section 1(e) above.
(u) "Security Deposit" means the sum of $43,706.25.
(v) "Service Areas" means those areas, spaces,
facilities and equipment serving the Building (whether or not located within
the Building), but to which Tenant and other occupants of the Building will not
have access, including, but not limited to, mechanical, telephone, electrical,
janitorial and similar rooms.
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 2
<PAGE> 7
(w) "Tenant's Share" means twenty-four and 2/100 percent
(24.02%) which is the proportion which the Rentable Area of the Premises bears
to the Rentable Area of the Building.
2. Lease Grant. Upon the terms of this Lease, Landlord leases to
Tenant, and Tenant leases from Landlord, the Premises and the non-exclusive
right to use the Common Areas, subject to all of the terms and conditions of
this Lease (including the Rules and Regulations).
3. Lease Term; Acceptance of Premises. This Lease shall continue
in force during a period beginning on the effective date of this Lease (though
the Lease Term shall not commence and no Rent shall accrue until the Rent
Commencement Date) and continuing until the expiration of the Lease Term,
unless this Lease is sooner terminated or extended to a later date under any
other term or provision hereof. By its execution of this Lease, Tenant accepts
the Premises in its existing condition (Tenant having inspected the Premises
prior to executing this Lease) without any obligation on the part of Landlord
for any tenant improvements (except as set forth in Exhibit "D-1" attached
hereto) or for any repairs, other than as expressly provided herein.
4. Use. The Premises shall be used for general office and
ancillary purposes, and Tenant (and its permitted assignees or subtenants)
shall use and maintain the Premises in a lawful and proper manner. Such
permitted use shall expressly include, but shall not be limited to, the
operation and sharing of computer facilities, conference facilities, storage,
employee lunchroom (including a kitchen and vending machines for the sole
non-commercial use of Tenant, its employees, and visitors) and coffee bars and
executive and other dining areas (including service facilities in support
thereof, and fixtures, appliances and equipment normally associated therewith,
such as microwave ovens, refrigerators ice making machines for use of Tenant's
employees and its visitors), photocopying and reproduction equipment and
facilities, public data review rooms and other uses incident thereof. Tenant
shall be permitted to install and use in the Premises physical fitness training
rooms and related equipment including, but not limited to, showers, saunas and
separate bathrooms, for the non-commercial use of Tenant's employees and
guests, provided, however, that the noise, vibration and other effects thereof
shall not disturb other tenants. In addition, Tenant shall have the right to
load and unload client data boxes and equipment to the Premises during business
hours, but any use of the lobby of the Building for such purpose shall be done
in a manner to minimize interference with other Tenants.
5. Payment of Rent. The term "Rent" shall mean, collectively,
the Base Rental, the Tenant's Share of the Basic Operating Costs as provided in
Section 6 which exceed the Base Amount, the cost of lighting in excess of
Building Standard or Miscellaneous Power in excess of the Building Standard
Electrical Design Load as provided in Section 9(a)(6), after-hours HVAC and
other services as provided in Section 9(a)(9), and all other sums of money
becoming due and payable to Landlord under this Lease. Except as otherwise
expressly provided in this Lease, the Rent shall be due and payable to Landlord
in advance in monthly installments on the first day of each calendar month
during the Lease Term, at Landlord's address as provided on the signature page
of this Lease or to such other person or at such other address as Landlord may
from time to time designate in writing upon not less than ten (10) days notice.
Landlord may, at its option, bill Tenant for Rent, but no delay or failure by
Landlord in providing such a bill shall relieve Tenant from the obligation to
pay the Base Rental on the first (1st) day of each month as provided herein.
All payments shall be in the form of a check unless otherwise agreed by
Landlord, provided that payment by check shall not be deemed made if the check
is not duly honored with good funds. The Rent shall be paid without notice,
demand, abatement, deduction or offset, except as otherwise expressly provided
in this Lease. If the Lease Term commences on other than the first day of a
calendar month, then the installment of Base Rental for such partial month
shall be prorated as provided in Section 1(b). If the Lease Term commences or
ends at any time other than the first day of a calendar year, the Tenant's
Share of the Basic Operating Costs which exceed the Base Amount shall be
prorated for such year according to the number of days of the Lease Term in
such year.
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 3
<PAGE> 8
6. Basic Operating Costs.
(a) In addition to the Base Rental, Tenant shall also
pay Tenant's Share of the amount, if any, by which the Basic Operating Costs
during any calendar year of the Lease Term exceed the Base Amount. Prior to the
commencement of the Lease Term, and prior to the commencement of each calendar
year during the Lease Term, Landlord may, at its option, provide Tenant with a
then current estimate of Basic Operating Costs for the upcoming calendar year,
and thereafter Tenant shall pay, as additional rental, in monthly installments
in accordance with Section 5, one-twelfth (1/12th) of Tenant's Share of the
difference between Landlord's estimate of the Basic Operating Costs for the
calendar year in question and the Base Amount. The failure of Landlord to
estimate Basic Operating Costs and bill Tenant on a monthly basis shall in no
event relieve Tenant of its obligation to pay the Tenant's Share of increases
over the Base Amount. If the Building is not at least ninety-five percent (95%)
occupied during any year of the Lease Term (including the calendar year in
which the Lease Term commences), those Basic Operating Costs which actually
vary with occupancy in the Building shall be "grossed up" by increasing such
variable components of Basic Operating Costs to the amount which Landlord
reasonably projects would have been incurred had the Building been ninety-five
percent (95%) occupied during such year, such amount to be annualized for any
partial year.
(b) By April 1 of each calendar year during Tenant's
occupancy (including the calendar year following the year in which the Lease
Term is terminated), or as soon thereafter as possible, Landlord shall furnish
to Tenant a statement specifying the amount of Basic Operating Costs and
Tenant's Share of Basic Operating Costs payable by Tenant for the prior
calendar year (the "Statement"), and within thirty (30) days thereafter an
appropriate adjustment shall be made between Landlord and Tenant to reflect any
overpayment or underpayment of Basic Operating Costs for the prior calendar
year because of any difference between the amount, if any, collected by
Landlord from Tenant for Tenant's Share of Basic Operating Costs (which exceed
the Base Amount) and the actual amount of Tenant's Share of Basic Operating
Costs (which exceed the Base Amount). In the event of an underpayment by
Tenant, Tenant shall pay the amount of such underpayment to Landlord within
thirty (30) days following delivery of the Statement. In the event of an
overpayment by Tenant, within thirty (30) days following the delivery of the
Statement, Landlord shall, if no Event of Default exists hereunder, make a cash
payment to Tenant in the amount of such overpayment, or, if an Event of Default
exists hereunder, credit such overpayment against delinquent Rent and make a
cash payment to Tenant for the balance. In the event Landlord fails to provide
such Statement within one (1) year following the end of a calendar year,
Landlord shall be deemed to have waived its right to provide such Statement or
charge Tenant for any additional Basic Operating Costs for such year (except to
the extent Landlord was not aware and had no reasonable reason to be aware of
an additional Basic Operating Cost until after said calendar year, which
additional Basic Operating Cost Tenant shall remain obligated for so long as
Landlord advises Tenant thereof within ninety (90) days after Landlord becomes
aware of same).
(c) "Basic Operating Costs" means all reasonable and
direct and, except to the extent excluded in subsection (d) below, indirect
costs and expenses incurred in each calendar year of operating, maintaining,
repairing, managing and, to the extent specifically provided below, owning the
Complex, including without limitation, the following:
(1) Wages and salaries of all employees engaged
in the direct operation and maintenance of the Complex, employer's social
security taxes, unemployment taxes or insurance and any other taxes which may
be levied on such wages, salaries, other compensation and the cost of medical,
disability and life insurance and pension or retirement benefits for such
employees;
(2) Cost of leasing or purchasing all supplies,
tools, equipment and materials used in the operation, maintenance, repair and
management of the Complex;
(3) Cost of electrical utilities for all areas
of the Complex including, without limitation, electrical utilities used for
lighting, and heating, ventilating and air conditioning, and the cost of all
other utilities for the Complex (both interior and exterior) including water
and sewage for the Complex;
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 4
<PAGE> 9
(4) Cost of all maintenance and service
agreements for the Complex, including, but not limited to, janitorial service,
pest control, security service, traffic control equipment leasing, energy
management system leasing, landscape maintenance, alarm service, window
cleaning, metal finishing and elevator maintenance;
(5) Cost of all insurance relating to the
Complex, including, but not limited to, fire and extended coverage insurance,
rental interruption insurance and liability insurance applicable to the Complex
and Landlord's personal property used in the maintenance, repair or operation
of the Complex, plus the cost of all deductible payments made by Landlord in
connection therewith (but only to the extent not already deducted as a Basic
Operating Cost);
(6) All taxes and assessments and governmental
charges, whether federal, state, county or municipal and whether they be by
taxing districts or authorities presently taxing the Complex or by others,
subsequently created or otherwise, and any other taxes, association dues and
assessments attributable to the Complex or its operation, excluding, however,
federal and state income taxes, franchise taxes, inheritance, estate, gift,
corporation, net profits or any similar tax for which Landlord becomes liable
and/or which may be imposed upon or assessed against Landlord ("Taxes"). The
term "Taxes" shall not include any ad valorem taxes attributable to increases
in assessed or appraised value of the Complex based upon a sale of the Complex
by Landlord to any entity controlled by, under common control with, or
controlling Landlord. If the amount of Taxes payable for any calendar year,
including the Base Amount, is changed by final determination of legal
proceedings, settlement, or otherwise, such changed amount shall be the Taxes
for such year;
(7) Cost of repairs and general maintenance
for the Complex (excluding such repairs and general maintenance paid by
insurance proceeds or by Tenant or other third parties);
(8) Legal expenses incurred with respect to
the Complex which relate directly to the operation of the Complex and which
benefit all of the tenants of the Complex generally, such as legal proceedings
to abate offensive activities or uses or reduce property taxes, but excluding
legal expenses related to the collection of Rent or the sale, leasing or
financing of the Complex;
(9) Fees for management services, whether
provided by an independent management company, by Landlord or by any affiliate
of Landlord, but only to the extent that the costs of such services do not
exceed the greater of (i) three percent (3%) of the aggregate base rental paid
by all tenants in the Complex, or (ii) competitive costs for comparable
services in comparable buildings of the class, type, size, age and location as
the Building, in the Market Area;
(10) Expenses incurred in order to comply with
any federal, state or municipal law, code or ordinance, or regulation which was
not promulgated, or which was promulgated but not applicable to the Complex, as
of the date of this Lease;
(11) Amortization of the cost of installation of
capital investment items which (A) either (i) reduce (or avoid increases in)
Basic Operating Costs, or (ii) promote safety, or (B) may be required in order
to comply with any federal, state or municipal law, code or ordinance, or
regulation which was not promulgated, or which was promulgated but was not
applicable to the Complex, as of the date of this Lease. All costs of such
capital investment items shall be amortized, together with an amount equal to
interest at ten percent (10%) per annum, with the amortization schedule being
determined in accordance with generally accepted accounting principles and in
no event to extend beyond the remaining useful life of the Building; and
(12) Costs of ad valorem tax consultants.
(d) Notwithstanding anything to the contrary in this
Lease, Basic Operating Costs shall not include any expenses or costs for the
following items:
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 5
<PAGE> 10
(1) Costs of repairs, replacements or other
work occasioned by (A) fire, windstorm or other casualty to the extent same are
of a capital nature (as more particularly described in subsection (d)(5)
below), or (B) the exercise by governmental authorities of the right of eminent
domain.
(2) Leasing commissions, attorney's fees,
costs, disbursements and other expenses incurred by Landlord or its agents in
connection with negotiations for leases with tenants, other occupants or
prospective tenants or other occupants of the Complex, and similar costs
incurred in connection with disputes with and/or enforcement of any leases with
tenants, other occupants, or prospective tenants or other occupants of the
Complex.
(3) "Tenant allowances", "tenant concessions",
work letters, and other costs or expenses (including permit, license and
inspection fees) incurred in completing, fixturing, furnishing, renovating or
otherwise improving, decorating or redecorating space for tenants or other
occupants of the Building, or vacant, leasable space in the Building, including
space planning/interior architecture fees for same.
(4) Depreciation, other "non-cash" expense
items or amortization, except for amortization charges as provided for in
subsection (c) (11) above.
(5) Costs of a capital nature, except as
provided for in subsection (c) (11) above, including, but not limited to,
capital additions, capital improvements, capital repairs, capital maintenance,
capital alterations, capital replacements, capital equipment and capital tools,
and/or capital redesign, all in accordance with generally accepted accounting
principles, consistently applied.
(6) Costs in connection with services
(including electricity), items or other benefits of a type which are not
standard for the Building and which are not available to Tenant without
specific charge therefor, but which are provided to another tenant or occupant
of the Building, whether or not such other tenant or occupant is specifically
charged therefor by Landlord, but only to the extent Tenant does not request or
accept such service.
(7) Services, items and benefits for which
Tenant or any other tenant or occupant of the Building specifically reimburses
Landlord or for which Tenant or any other tenant or occupant of the Building
pays third persons.
(8) Costs or expenses (including fines,
penalties and legal fees) incurred due to the violation by Landlord, its
employees, agents and/or contractors, any tenant (other than Tenant) or other
occupant of the Building, of any terms and conditions (other than by Tenant) of
this Lease or of the leases of other tenants in the Building, and/or of any
valid, applicable laws, rules regulations and codes of any federal, state,
county, municipal or other governmental authority having jurisdiction over the
Complex that would not have incurred but for such violation by Landlord, its
employees, agents and/or contractors, it being intended that each party shall
be responsible for the costs resulting from its own violation of such leases
and laws, rules, regulations and codes as same shall pertain to the Complex.
(9) Penalties for late payment by Landlord,
including, without limitation, taxes, equipment leases, etc., except to the
extent caused by Tenant's default under this Lease.
(10) Payments in respect of overhead and/or
profit to any subsidiary or Affiliate (hereinafter defined) of Landlord, or to
any other party, as a result of a non-competitive selection process for
services (other than the management fee) on or to the Complex, or for goods,
supplies or other materials, to the extent that the costs of such services,
goods, supplies and/or materials exceed the costs that would have been paid had
the services, goods, supplies or materials been provided by parties
unaffiliated with Landlord, or by third parties, of similar skill, competence
and experience, on a competitive basis.
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 6
<PAGE> 11
(11) Payments of principal, finance charges or
interest on debt or amortization on any mortgage, deed of trust or other debt,
and rental payments (or increases in same) under any ground or underlying lease
or leases (except to the extent the same may be made to pay or reimburse, or
may be measured by, real estate taxes).
(12) Income or franchise taxes payable by
Landlord.
(13) Except for the management fee and except as
provided in subsection (c) above, costs of Landlord's general overhead and
general administrative expenses (individual, partnership or corporate, as the
case may be), which costs would not be chargeable as an operating expense in
accordance with generally accepted accounting principles, consistently applied.
(14) Compensation paid to clerks, attendants or
other persons in commercial concessions (such as a snack bar, restaurant or
newsstand), if any, operated by Landlord or any subsidiary or Affiliate of
Landlord.
(15) Rentals and other related expenses, if any,
incurred in leasing air conditioning systems, elevators or other equipment
ordinarily considered to be of a capital nature, except equipment which is used
in providing janitorial services and which is not affixed to the Building.
(16) Costs incurred in installing, operating,
maintaining and owning any specialty items or services not normally installed,
operated and maintained in buildings comparable to the Building and not
necessary for Landlord's operation, repair and maintenance of, and the
providing of required services for, the Building and/or any associated parking
facilities, including, but not limited to, any observatory, beacon(s),
broadcasting facilities (other than the Building's music system, and life
support and security systems), luncheon club, athletic or recreational club,
helicopter pad, child care center, concierge, kiosks, promotions, displays,
etc.
(17) Costs in connection with the ownership,
operation and maintenance of any off-site garage facilities associated with the
Building, and costs in connection with the operation and maintenance of any
parking facilities in the basement of the Building.
(18) Costs or expenses for sculpture, paintings
or other works of art, including costs incurred with respect to the purchase,
ownership, leasing, showing, promotion, and securing of same.
(19) Costs for which Landlord is fully
compensated or fully reimbursed by insurance or other means of recovery.
(20) Costs of correcting or repairing
construction defects in the Building and/or any associated parking facilities,
and/or equipment or the replacement of defective equipment to the extent such
costs are not caused by Tenant (or Tenant's employees, agents or contractors)
in connection with the Work to be performed by Tenant (or Tenant's employees,
agents or contractors) under the Tenant Improvements Agreement and to the
extent such costs are covered by warranties of manufacturers, suppliers or
contractors, or are otherwise borne by parties other than Landlord.
(21) Contributions to operating expense
reserves.
(22) Initial costs of interior and exterior
landscaping (but reasonable subsequent costs shall be included in Basic
Operating Costs).
(23) Contributions to charitable organizations.
(24) Costs incurred in removing the property of
former tenants and/or other occupants of the Building.
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 7
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(25) Consulting costs and expenses incurred by
Landlord, except to the extent same relate exclusively to the improved
management or operation of the Building.
(26) The costs of any "tap fees" or one-time
lump sum sewer or water connection fees for the Building.
(27) Costs or fees relating to the defense of
Landlord's title to or interest in the Complex, or any part thereof.
(28) Except as provided in subsection (c) above,
any other expense which, under generally accepted accounting principles,
consistently applied, would not be considered to be a normal maintenance or
operating expense of the Building.
The term "Affiliate" shall mean and refer to any person or entity
controlling, controlled by, or under common control with another such person or
entity. "Control", as used herein, shall mean the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of such controlled person or entity; the ownership, directly or
indirectly, of at least fifty-one percent (51%) of the voting securities of, or
possession of the right to vote, in the ordinary direction of its affairs, at
least fifty-one percent (51%) of the voting interest in, any person or entity
shall be presumed to constitute such control. In the case of Landlord, the term
Affiliate shall include any person or entity controlling or controlled by or
under common control with any general partner of Landlord or any general
partner of Landlord's general partner.
(f) If there exists any dispute as to the calculation of
Basic Operating Costs or Tenant's Share of Basic Operating Costs (a "Dispute"),
the events, errors, acts or omissions giving rise to the Dispute shall not
constitute a breach or default by Landlord nor shall Landlord be liable to
Tenant except as specifically provided below. If there is a Dispute, Tenant
shall so notify Landlord in writing within thirty (30) days after receipt of
the Statement. Such notice shall specify the items in Dispute. Subject to the
satisfaction of the conditions specified below, Landlord shall thereafter
provide Tenant with such supplementary information regarding the items in
Dispute as may be reasonably requested by Tenant in an effort to resolve such
Dispute. Notwithstanding the existence of a Dispute, Tenant shall timely pay
the amount in dispute as and when required under this Lease, provided such
payment shall be without prejudice to Tenant's position. Landlord shall not be
required to provide any supplementary information to Tenant unless all sums
shown to be due by Tenant on the Statement are paid in full. If a Dispute is
resolved in favor of Tenant, Landlord shall, within thirty (30) days
thereafter, refund any overpayment to Tenant, together with interest from the
time of such overpayment at ten percent (10%) per annum. If Landlord and Tenant
are unable to resolve such Dispute, such Dispute shall be referred to a
mutually satisfactory third party certified public accountant for final
resolution, subject to the audit rights of Tenant contained in subsection (g)
below. The cost of such certified public accountant shall be paid by the party
found to be least accurate (in terms of dollars in dispute). The determination
of such certified public accountant shall be final and binding, subject to the
audit rights of Tenant contained in subsection (g) below, and final settlement
shall be made within thirty (30) days after receipt of such accountant's
decision. If Tenant fails to dispute the calculation of Tenant's Share of Basic
Operating Costs in accordance with the procedures and within the time periods
specified in this subsection (f), or request an audit of the Basic Operating
Costs in accordance with the procedures and within the time periods specified
in subsection (g) below, the Statement shall be considered final and binding
for the calendar year in question.
(g) Tenant, at Tenant's expense, shall have the right,
no more frequently than once per calendar year, following thirty (30) days'
prior written notice (such written notice to be given within sixty (60) days
following Tenant's receipt of the Statement) to Landlord, to audit Landlord's
books and records relating to Basic Operating Costs for the immediately
preceding calendar year only; provided that such audit must be concluded within
sixty (60) days after the date Landlord first makes available its books and
records to Tenant's auditors for such purposes; and provided further that such
audit does not unreasonably interfere
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with the conduct of Landlord's business. Without limitation upon the foregoing,
Tenant's right to audit Landlord's books and records shall be subject to the
following conditions:
(1) Such audit shall be conducted during normal
business hours and at the location where Landlord maintains its books and
records;
(2) Tenant shall deliver to Landlord a copy of
the results of such audit within five (5) business days after its receipt by
Tenant;
(3) No audit shall be permitted if Tenant is
in default under this Lease after notice and failure to cure within the
applicable grace period, if any, as provided for below, excluding any failure
by Tenant to pay an amount in Dispute;
(4) Tenant shall reimburse Landlord within ten
(10) days following written demand for the cost of all copies requested by
Tenant's auditor;
(5) Such audit must be conducted by an
independent accounting or audit firm reasonably acceptable to Landlord that is
not being compensated by Tenant on a contingency fee basis and which has agreed
with Landlord in writing to keep the results of such audit confidential by
executing and delivering to Landlord a confidentiality agreement in the form of
Exhibit "F" attached to this Lease. Tenant must also sign and deliver to
Landlord such confidentiality agreement;
(6) No subtenant will have the right to audit;
(7) If for any calendar year an assignee of
Tenant (as permitted by this Lease) has audited or given notice of an audit,
Tenant will be prohibited from auditing such calendar year, unless in the case
of an audit having been noticed but not yet performed by such assignee, the
assignee withdraws its audit notice, and, similarly, if Tenant has audited such
calendar year or given such notice, the foregoing restrictions of this Section
6(g)(6) will apply to the assignee's right to audit; and
(8) Any assignee's audit right will be limited
to the period after the effective date of the assignment.
Unless Landlord in good faith disputes the results of such audit, an
appropriate adjustment shall be made between Landlord and Tenant to reflect any
overpayment or underpayment of Basic Operating Costs within thirty (30) days
after delivery of such audit to Landlord. In the event of an overpayment by
Tenant, within thirty (30) days following the delivery of such audit, Landlord
shall, if no Event of Default exists hereunder, make a cash payment to Tenant
in the amount of such overpayment, or, if an Event of Default exists hereunder,
credit such overpayment against delinquent Rent and make a cash payment to
Tenant for the balance; and if such audit reflects an overstatement of Basic
Operating Costs of five percent (5%) or more, then in addition to refunding
such overpayment to Tenant, Landlord shall reimburse Tenant for the actual
costs incurred by Tenant in conducting such audit. If Landlord in good faith
disputes the results of any such audit, the parties shall in good faith attempt
to resolve any disputed items. If Landlord and Tenant are able to resolve such
dispute, final settlement shall be made within thirty (30) days thereafter. If
the parties are unable to resolve any such dispute, any sum on which there is
no longer dispute shall be paid and any remaining disputed items shall be
referred to a mutually satisfactory third party certified public accountant for
final resolution. The cost of such certified public accountant shall be paid by
the party found to be least accurate (in terms of dollars in dispute). The
determination of such certified public accountant shall be final and binding
and final settlement shall be made within thirty (30) days after receipt of
such accountant's decision.
7. Late Payments; Dishonored Checks.
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(a) If any installment of Rent is not received within
five (5) business days after the date due (without in any way implying
Landlord's consent to such late payment), Tenant, to the extent permitted by
law, agrees to pay, in addition to such installment of Rent, a late payment
charge equal to five percent (5%) of the installment of Rent due, it being
understood that such late payment charge shall be for the purpose of
reimbursing Landlord for the additional costs and expenses which Landlord
presently expects to incur in connection with the handling and processing of
late payments. Notwithstanding the foregoing, the late payment charge shall
increase to ten percent (10%) of the installment of Rent due if Tenant becomes
responsible for a late payment charge more than twice during any consecutive
twelve (12) month period. Such charge shall revert to five percent (5%) after
Tenant has paid Rent for twelve (12) consecutive months without incurring a
late charge. In the event of any such late payment(s) by Tenant, the additional
costs and expenses so resulting to Landlord will be difficult to ascertain
precisely and the foregoing charge constitutes a reasonable and good faith
estimate by the parties of the extent of such additional costs and expenses.
Acceptance of such late charge by Landlord shall in no event constitute a
waiver of Tenant's default with respect to such overdue amount, nor prevent
Landlord from exercising any other rights or remedies granted hereunder unless
such default is otherwise cured within the time period provided in this Lease.
(b) In addition to the late payment charge contained in
Section 7(a), all Rent, if not paid within thirty (30) days of the date due,
shall, at the option of Landlord, and to the extent permitted by law, bear
interest from the date due until paid at the lesser of (1) the rate of eighteen
percent (18%) per annum and (2) the maximum rate of interest then permissible
for a commercial loan to Tenant in the State of Texas (the "Default Rate").
(c) If any check is tendered by Tenant and not duly
honored with good funds, Tenant shall, in addition to any other remedies
available to Landlord under this Lease, pay Landlord a "NSF" fee of $25.00.
8. Security Deposit. The Security Deposit shall be deposited
with Landlord by Tenant contemporaneously with the delivery by Tenant to
Landlord of this Lease. The Security Deposit shall be held by Landlord without
liability for interest and as security for the performance by Tenant of
Tenant's covenants and obligations under this Lease, it being expressly
understood that the Security Deposit shall not be considered an advance payment
of Rent or a measure of Tenant's liability for damages in case of default by
Tenant. Landlord may, from time to time, without prejudice to any other remedy,
use the Security Deposit to the extent necessary to make good any arrearages of
Rent or to satisfy any other covenant or obligation of Tenant hereunder.
Following any such application of the Security Deposit, Tenant shall pay to
Landlord on demand the amount so applied in order to restore the Security
Deposit to its original amount. On the two (2) year anniversary of the Rent
Commencement Date (as may be extended below, the Security Deposit Return Date),
if there exists no Event of Default by Tenant under this Lease and no event has
occurred which, upon the giving of notice or the expiration of any applicable
notice or grace period, could result in an Event of Default by Tenant
hereunder, the balance of the Security Deposit remaining after any such
application shall be returned by Landlord to Tenant. Notwithstanding the
foregoing, if at anytime prior to Landlords return of the Security Deposit to
Tenant there should occur an Event of Default by Tenant hereunder, then the
Security Deposit Return Date shall be extended by one (1) year for each such
Event of Default that may occur. If the Security Deposit has not otherwise been
returned to Tenant as of the termination of this Lease, and if Tenant is not in
default at the termination of this Lease, the balance of the Security Deposit
remaining after any such application shall be returned by Landlord to Tenant
within thirty (30) days following the termination of this Lease. If Landlord
transfers its interest in the Complex during the term of this Lease, Landlord
may assign the Security Deposit to the transferee and upon assumption by such
transferee of liability for the Security Deposit, Landlord shall have no
further liability for the return of such Security Deposit.
9. Services to be Furnished by Landlord.
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(a) So long as no Event of Default exists under the
Lease pursuant to which Landlord has exercised one or more remedies under
Section 27, Landlord agrees to furnish Tenant the following services:
(1) Facilities for hot and cold water at those
points of supply provided for general use of other tenants in the Building and
as necessary to service any kitchen facilities within the Premises approved by
Landlord and provided solely for the use of Tenant and its employees, and
central heat and air conditioning in season, during Normal Business Hours, at
such temperatures and in such amounts as are considered to be standard for
similar Class A office buildings within the Market Area or as required by
governmental authority (including energy conservation requirements). If Tenant
will require water supply other than as provided in the preceding sentence, or
if Tenant requires chilled water in connection with any supplemental air
conditioning equipment servicing the Premises, Landlord may install separate
meters at the cost of Tenant. Landlord may elect to have all charges for the
water services (including chilled water) separately metered to the Premises
billed directly to Tenant and Landlord shall make a corresponding adjustment to
Tenant's Share of Basic Operating Costs.
(2) Routine maintenance and electric lighting
service for all Common Areas and Service Areas in the manner and to the extent
standard for Class A office buildings in the Market Area.
(3) Janitor service, five (5) days per week,
exclusive of Normal Business Holidays, at a level comparable to that provided
in similar Class A office buildings within the Market Area.
(4) All Building Standard flourescent and
incandescent bulb and ballast replacement in the Premises, the Common Areas and
the Service Areas.
(5) Limited access to the Building during other
than Normal Business Hours through the use of master entry cards and/or keys.
Tenant shall receive three (3) master entry cards and/or keys for each one
thousand (1,000) square feet of Rentable Area in the Premises. Tenant shall
reimburse Landlord for the cost (plus applicable sales tax) of each additional
card and/or key and for each replacement card and/or key for any card and/or
key lost by or stolen from Tenant. Tenant agrees to surrender all master entry
cards and/or keys in its possession upon the expiration or earlier termination
of this Lease. Any lost cards and/or keys shall be canceled. LANDLORD SHALL
HAVE NO LIABILITY TO TENANT, ITS EMPLOYEES, AGENTS, CONTRACTORS, INVITEES, OR
LICENSEES FOR LOSSES DUE TO THEFT OR BURGLARY (OTHER THAN THEFT OR BURGLARY
COMMITTED BY EMPLOYEES OR CONTRACTORS OF LANDLORD), OR FOR DAMAGES DONE BY
UNAUTHORIZED PERSONS ON THE PREMISES OR THE COMPLEX. Tenant shall cooperate
fully in Landlord's efforts to control access in the Building and shall follow
all regulations promulgated by Landlord with respect thereto which are adopted
in accordance with Exhibit "C".
(6) Electricity and proper facilities to
furnish (A) Building Standard lighting (which shall be defined as an average
load of two (2) watts per square foot multiplied by the number of Normal
Business Hours in each month), and (B) sufficient electrical power for normal
office machines (including electric typewriters, desk-top computer facilities
and desk-top word processing facilities) and other machines of similar
electrical consumption ("Miscellaneous Power"), provided that Tenant's
Miscellaneous Power requirements shall not exceed eight (8) watts per square
foot of connected load (the "Building Standard Electrical Design Load"). If
Tenant will require, or is consuming, special lighting in excess of Building
Standard or Miscellaneous Power in excess of the Building Standard Electrical
Design Load, Tenant shall reimburse Landlord for the cost of any additional
equipment, such as transformers, risers and supplemental air conditioning
equipment, which Landlord's engineer reasonably deems necessary to accommodate
such above standard consumption (without implying any obligation on the part of
Landlord to accommodate such use), and Landlord may install separate meters to
all or a portion of the Premises at the cost of Tenant. If separate utility
meters are provided to the Premises, Landlord may elect to have all charges for
the utilities separately metered to the Premises billed directly to Tenant and
Landlord shall make a corresponding adjustment to Tenant's Share of Basic
Operating Costs.
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(7) Passenger elevator service in common with
other tenants of the Building for ingress to and egress from the floor(s) upon
which the Premises are situated, twenty-four (24) hours a day, seven (7) days a
week, and non-exclusive freight elevator service to the Premises during Normal
Business Hours and at other times upon reasonable prior notice to Landlord and
approval of the Building manager (however, all of the foregoing shall be
subject to the Rules and Regulations for the Building and temporary cessation
for ordinary repair and maintenance and during times when life safety systems
override normal Building operating systems).
(8) Heating and air conditioning during Normal
Business Hours in quantities which maintain temperatures which are standard for
Class A office buildings in the Market Area.
(9) Heating and air conditioning during other
than Normal Business Hours shall be furnished only upon the prior request of
Tenant, and Tenant shall reimburse Landlord for the actual cost incurred by
Landlord to provide such service provided, however, there shall be a two (2)
hour minimum charge when such service is requested and the after-hours HVAC
rate may be adjusted, from time to time, to reflect increases in the actual
costs incurred by Landlord in providing such service. If any other tenant
within the same HVAC zone as the Premises also requests after hours heating or
air conditioning during the same period as Tenant, Landlord shall equitably
allocate the cost thereof among all tenants within the same zone requesting
such service.
(b) If Landlord agrees to provide any other additional
services at the specific request of Tenant, without implying any obligation on
the part of Landlord to do so, the provision of such services shall, unless
otherwise specifically agreed in writing, be subject to the availability of
building personnel, and, if the provision of any such service requires Landlord
to incur out-of-pocket cost, Tenant shall reimburse Landlord for the cost of
providing such service (plus an administrative charge equal to ten percent
(10%) of cost plus applicable sales tax) within ten (10) days following receipt
of invoice. Unless Landlord has agreed with Tenant to the contrary in writing,
Landlord may discontinue the provision of such additional service at any time
upon thirty (30) days advance written notice (or immediately upon the
occurrence of an Event of Default).
(c) The unintentional failure by Landlord to any extent to
furnish services hereunder or any cessation thereof shall not render Landlord
liable in any respect for damages (including, without limitation, business
interruption damages) to either person or property, nor be construed as an
eviction of Tenant, nor work an abatement of Rent, nor relieve Tenant from
fulfillment of any covenant or agreement hereof. Should any of such services be
interrupted, Landlord shall use reasonable diligence to restore the same
promptly, but Tenant shall have no claim for rebate of Rent, damages or
eviction on account thereof. Notwithstanding the foregoing, subject to Section
24 (Casualty Damage) and Section 25 (Condemnation), if there is a failure or
interruption of the Essential Services (defined below) for any period exceeding
five (5) consecutive days, and provided such failure is caused by and within
the reasonable control of Landlord and is not caused by Tenant or any Tenant
Related Party (as defined in Section 22(b)), Landlord shall allow Tenant an
equitable abatement of Rent (based on the severity of the failure or
interruption) effective from the sixth (6th) day following the earlier to occur
of (i) the date on which Tenant first provided Landlord with written notice of
the interruption of such service, and (ii) the date on which Landlord first
acquired actual knowledge of the interruption of such service, until such
Essential Services are restored. As used herein, the term "Essential Services"
means and refers to the following services: water, heating, ventilation and air
conditioning, and electricity. Notwithstanding the foregoing, if and to the
extent there is an interruption of Essential Services and Landlord would be
entitled to receive proceeds from rent loss insurance carried by Landlord (to
the extent actually carried by Landlord) should Landlord give Tenant an
abatement of rent due to said interruption, then in that event Landlord shall
file a claim for rent loss insurance proceeds and Tenant shall receive an
equitable abatement of Rent equal to the rent loss insurance proceeds actually
received by Landlord.
(d) Landlord covenants that as of the Rent Commencement
Date all computer controlled facility components for the operation of the core
systems of the Building will be "Year 2000
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 12
<PAGE> 17
Compliant," meaning that such components will correctly process, calculate,
compare and sequence data from, into and between the twentieth and the
twenty-first centuries, including leap year calculations, except where the
failure of such components would not materially alter Tenant's ability to
utilize the Building. For the purposes of the immediately preceding sentence,
all "computer controlled facility components" include, but are not limited to,
all programmable thermostats, HVAC controllers, auxiliary elevator controllers,
utility monitoring and control systems, fire detection and suppression systems,
alarm and security systems.
(e) Notwithstanding anything herein to the contrary,
Landlord shall not be responsible for furnishing any service to the Premises to
the extent Tenant is obligated therefor under the Tenant Improvements Agreement
or to the extent any portion of the Work (as defined in the Tenant Improvements
Agreement) has not been completed and furnishing such service cannot reasonably
be provided by Landlord until such Work has been completed.
10. Graphics. Landlord shall, at Landlord's sole cost, provide
and install (i) one (1) Building Standard identification sign per floor within
the Premises and add Tenant's name and suite number to the Building directory
in the lobby, and (ii) one exterior monument complying with the requirements of
the Greenspoint Management District (the "Base Building Signage"). If and to
the extent the Greenspoint Management District permits the names of tenants to
be included on the exterior monument sign, approximately 25% of the portion of
the surface area reserved for tenant identification shall be reserved for
Tenant's name. Any other interior or exterior signage requested by Tenant in
addition to the Base Building Signage shall be subject to the prior approval of
Landlord (not to be unreasonably withheld) and shall be provided at the cost of
Tenant. All such additional interior or exterior signage shall be in the
standard graphics for the Building and no others shall be used or permitted
without Landlord's prior written consent. Tenant, at its sole cost and expense,
shall remove all non-standard building signage upon the termination of this
Lease and repair any damage caused by such removal.
11. Telecommunications.
(a) If Tenant wishes to utilize the services of a telephone
or telecommunications provider whose equipment is not servicing the Building as
of the date Tenant desires to utilize such services ("Provider"), no such
Provider shall be permitted to install its lines or other equipment within the
Building without first securing the prior written consent of Landlord, which
consent shall be at Landlord's sole and absolute discretion.
(b) Without limiting the generality of the foregoing,
Landlord will not unreasonably withhold its consent to a Provider if all of the
following conditions are satisfied to Landlord's satisfaction in a written
agreement between Provider and Landlord or by any other means acceptable to
Landlord in its reasonable judgment.
(1) Landlord shall incur no expense whatsoever
with respect to any aspect of Provider's provision of its services, including,
without limitation, the costs of installation, materials, utilities (including
the cost of any separate meters) and service;
(2) Prior to commencement of any work in or
about the Building by Provider, Provider shall supply Landlord with such
written indemnities, insurance verifications, financial statements, and such
other items as Landlord reasonably deems to be necessary to protect its
financial interests and the interest of the Building relating to the proposed
activities of the Provider;
(3) Prior to the commencement of any work in or
about the Building by the Provider, the Provider shall agree to abide by the
Rules and Regulations and such other requirements as are reasonably determined
by Landlord to be necessary to protect the interest of the Building, the
tenants in the Building, and the Landlord, including, without limitation,
providing security in such form and amount as determined by Landlord;
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 13
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(4) Landlord reasonably determines that there
is sufficient space in the Building for the placement of all of the Provider's
equipment and materials;
(5) The Provider is licensed and reputable; and
(6) Provider agrees to compensate Landlord for
space used in the Building for the storage and maintenance of the Provider's
equipment and for all costs that may be incurred by Landlord in arranging for
access by the Provider's personnel, security for Provider's equipment, and any
other such costs as Landlord may expect to incur.
(c) Landlord's consent under this section shall not be
deemed any kind of warranty or representation by Landlord, including, without
limitation, any warranty or representation as to the suitability, competence,
or financial strength of Provider.
(d) Tenant acknowledges and agrees that all telephone
and telecommunications services desired by Tenant shall be ordered and utilized
at the sole risk and expense of Tenant. (e) Tenant agrees that to the extent
service by Provider is interrupted, curtailed, or discontinued, Landlord shall
have no obligation or liability with respect thereto and it shall be the sole
obligation of Tenant at its expense to obtain substitute service.
(f) The provisions of this Section 11 may be enforced
solely by the Tenant and Landlord, and are not for the benefit of any other
party; specifically, without limitation, no telephone or telecommunications
provider shall be deemed a third party beneficiary of this Lease.
12. Repair and Maintenance by Landlord. Except as provided in
Section 14 below or as provided below in this Section 12, Landlord shall be
responsible for the maintenance and repair of exterior and load-bearing walls,
floors (but not floor coverings), mechanical, electrical, plumbing and HVAC
systems and equipment which are Building Standard, security and fire prevention
and detection systems, the roof of the Building, the Common Areas (including
restrooms located on any full floors leased by Tenant), the Service Areas and
the Parking Areas. In no event shall Landlord be responsible for the
maintenance or repair of improvements made by or at the request of Tenant which
are not Building Standard. Additionally, in no event shall Landlord be
responsible for the maintenance or repair of the Initial Improvements to the
extent the need for such repairs arises because of the failure of Tenant to
complete the Initial Improvements or to otherwise perform its obligations in
accordance with the Tenant Improvements Agreement. All requests for repairs
must be submitted to Landlord in writing, except in the case of an emergency.
The cost of repairs and maintenance by Landlord pursuant to this Section 12 are
included in Basic Operating Costs, except to the extent excluded by Section
6(d).
13. Maintenance by Tenant. Tenant shall maintain the Premises in
a clean and orderly condition and shall not commit or allow any waste to be
committed on any portion of the Premises, and at the termination of this Lease
shall deliver up the Premises to Landlord in as good condition as at the
Commencement Date (as improved under the Tenant Improvements Agreement),
ordinary wear and tear and damage by fire or casualty loss excepted.
14. Repairs by Tenant. Subject to the provisions of Section 23,
24, and 25 below, Tenant shall, at Tenant's cost, repair or replace any damage
to the Premises (including doors and door frames, interior windows and any
kitchen equipment such as dishwashers, sinks, refrigerators, trash compactors
and plumbing and other mechanical systems related thereto) that is not caused
by Landlord and any damage to the Complex, or any part thereof, caused by
Tenant or any employee, officer, contractor, agent, subtenant, guest, licensee
or invitee of Tenant (except that with respect to any such damage outside of
the Premises or below floor coverings, above ceilings or behind walls or
columns, such damage shall be repaired by Landlord, but at the cost of Tenant
(plus an administrative charge equal to ten percent (10%) of cost); provided if
Tenant fails to make such repairs or replacements within thirty (30) days after
receipt
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 14
<PAGE> 19
of written notice from Landlord, Landlord may, at Landlord's option, make such
repairs or replacements at the cost of Tenant (plus an administrative charge
equal to ten percent (10%) of cost). The cost of all repairs performed by
Landlord pursuant to this Section 14 shall be payable by Tenant to Landlord
within ten (10) days following Tenant's receipt of an invoice as additional
Rent. Notwithstanding anything contained herein to the contrary, if any such
damage is covered by Landlord's insurance, in whole or in part, Tenant's
liability under this Section 14 shall be limited to the deductible payable by
Landlord and any portion of such cost not covered by Landlord's insurance. In
connection with repairs by Tenant, Tenant shall provide Landlord with a copy of
the contractor agreement regarding such repairs, copies of certificates of
insurance evidencing contractor coverage satisfactory to Landlord, copies of
"as-built" plans and specifications and other information or documentation
reasonably required by Landlord.
15. Alterations, Additions, Improvements.
(a) Except for the Initial Improvements (which shall be
governed by the Tenant Improvements Agreement), Tenant will make no alteration,
change, improvement, replacement or addition to the Premises (collectively,
"Alterations"), without the prior written consent of Landlord, which consent
shall not be unreasonably withheld with respect to interior Alterations which
will not affect, in any material, adverse way, the mechanical, electrical,
plumbing, HVAC and/or structural components of the Building ("Non-Structural
Alterations"). Landlord may, at its option, require Tenant to submit plans and
specifications to Landlord for approval prior to commencing any Alterations.
All Alterations (other than Non-Structural Alterations) shall be performed by a
contractor on Landlord's approved list (a copy of which may be obtained from
the Building manager). All Alterations shall be done in a good and workmanlike
manner and in compliance with all applicable laws and ordinances, including,
but not limited to, Title III of the Americans With Disabilities Act of 1990 or
Tex. Civ. Stat. Ann. art. 9102 (collectively, the "Disability Laws") and the
Texas Architectural Barrier Statute. Tenant shall require that any contractors
used by Tenant carry a commercial liability (including builder's risk)
insurance policy in such amounts as Landlord may reasonably require and provide
proof of such insurance to Landlord prior to the commencement of any
Alterations. TENANT SHALL INDEMNIFY AND HOLD LANDLORD HARMLESS FROM, AND
REIMBURSE LANDLORD FOR AND WITH RESPECT TO, ANY AND ALL COSTS AND EXPENSES
(INCLUDING REASONABLE ATTORNEYS' FEES), DEMANDS, CLAIMS, CAUSES OF ACTION AND
LIENS ARISING FROM AND IN CONNECTION WITH ANY ALTERATIONS PERFORMED BY TENANT.
All persons performing work in the Building at the request of Tenant shall
register with the Building manager prior to initiating any work. Upon
completion of any Alterations, Tenant shall provide Landlord with a copy of its
building permit, final inspection tag and, if plans and specifications were
required by Landlord, final "as built" plans and specifications. Except for the
Initial Improvements (which shall be governed by the Tenant Improvements
Agreement), all installations and improvements now or hereafter placed on the
Premises at the request of Tenant shall be at Tenant's cost and if Landlord
performs such installations or improvements on Tenant's behalf, such cost (plus
a construction management fee equal to five percent (5%) of hard costs) shall
be payable by Tenant to Landlord within ten (10) days following Tenant's
receipt of an invoice as additional Rent.
(b) Upon the termination of this Lease, Tenant may
remove its trade fixtures, custom file cabinets, office supplies and movable
office furniture and equipment not attached to the Building provided (1) such
removal is made prior to the termination or expiration of the Lease Term; (2)
Tenant is not then in default in the timely performance of any obligation or
covenant under this Lease; and (3) Tenant promptly repairs all damage caused by
such removal. All other property at the Premises, any Alterations to the
Premises, and any other articles attached or affixed to the floor, wall, or
ceiling of the Premises shall, immediately upon installation, be deemed the
property of Landlord and shall be surrendered with the Premises at the
termination or expiration of this Lease, without payment or compensation
therefor. If, however, Landlord so requests in writing, Tenant will, at
Tenant's sole cost and expense, prior to the termination or expiration of the
Lease Term, remove any and all trade fixtures, office supplies and office
furniture and equipment placed or installed by Tenant in the Premises, and any
non-Building Standard Alterations (other than the Initial Improvements)
installed by Tenant or installed by Landlord at Tenant's
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<PAGE> 20
request in the Premises and which Landlord designated in writing to Tenant as
being subject to removal at the time of approval, and will repair any damage
caused by such removal.
16. Laws and Regulations; Disability Laws; Building Rules.
(a) Tenant, at Tenant's sole cost and expense, shall
comply with all current and subsequent federal, state, municipal and other laws
and ordinances applicable to the use of the Premises, the employees, agents,
visitors and invitees of Tenant, and the business conducted in the Premises by
Tenant, including, without limitation, all environmental laws and regulations;
will not engage in any activity which would cause Landlord's fire and extended
coverage insurance to be canceled or the rate increased (or, at Landlord's
option, Tenant will pay any such increase); and will not commit any act which
is a nuisance or annoyance to Landlord or to other tenants in the Building or
which might, in the reasonable judgment of Landlord, appreciably damage
Landlord's goodwill or reputation, or tend to injure or depreciate the value of
the Building. Without limiting the foregoing, Tenant shall not place or permit
to remain within the Premises any "hazardous materials" as such term is now or
hereafter defined under applicable environmental laws, except cleaning
supplies, copier toner or other similar type products commonly found in
commercial office space, provided such items are properly labeled, stored and
disposed of in accordance with all applicable governmental requirements.
Notwithstanding the foregoing, except for Tenant's obligations under the Tenant
Improvements Agreement, nothing in this Section 16(a) shall be construed as
requiring Tenant to be responsible for any legal requirements applicable to the
structural portions of the Premises, any restrooms within the Building (other
than restrooms constructed by or at the special request of Tenant) or the
Building Standard mechanical, electrical, plumbing or HVAC systems, unless the
failure to comply with any such legal requirements is caused by Tenant or
anyone acting for Tenant.
Landlord shall comply with all current and subsequent
federal, state, municipal and other laws and ordinances applicable to the
Complex as a whole or applicable to the Common Areas or any other portions of
the Complex which Landlord is obligated to repair and maintain including,
without limitation, environmental laws and regulations.
(b) Tenant, at its sole cost, shall be responsible for
compliance with Disability Laws with respect to (1) the Premises (excluding the
Initial Improvements, if any), (2) the Initial Improvements if Tenant engaged
the architect that prepared the Plans and Specifications, (3) all Alterations
made to the Premises or any other acts of Tenant after the Commencement Date,
(4) all requirements of Disability Laws that relate to the employer-employee
relationship or that are necessitated by the special needs of any employee,
agent, visitor or invitee of Tenant and that are not required to be provided
generally, including, without limitation, requirements related to auxiliary
aids and graphics installed by or on behalf of Tenant (other than Base Building
Signage), and (5) all requirements of Disability Laws that relate to private
restrooms constructed by or at the special request of Tenant. Landlord, at its
sole cost, shall be responsible for compliance with Disability Laws with
respect to the Common Areas (including restrooms located upon full floors
leased by Tenant) and the Service Areas and the Initial Improvements if
Landlord engaged the architect that prepared the Plans and Specifications.
Neither party shall be in default under this Section 16(b) for its failure to
comply with Disability Laws so long as the responsible party is either
contesting in good faith, and by legal means, the enforcement of Disability
Laws, or undertaking diligent efforts to comply with Disability Laws.
(c) Tenant will comply with the Rules and Regulations of
the Building as adopted and altered by Landlord from time to time in accordance
with Paragraph 25 of Exhibit "C" and will cause all of its agents, employees,
contractors, invitees and visitors to do so. All changes to such rules and
regulations will be sent by Landlord to Tenant in writing. The current rules
and regulations for the Building are attached hereto as Exhibit "C". Landlord
shall have no liability to Tenant or any other person for its failure to
enforce the Rules and Regulations. To the extent of any conflict between said
Rules and Regulations and the other provisions of this Lease, the other
provisions of this Lease shall control.
17. Entry by Landlord. Tenant agrees to permit Landlord and its
employees, agents, contractors or representatives to enter into and upon any
part of the Premises at all reasonable hours upon reasonable
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 16
<PAGE> 21
prior notice (and in the case of emergencies at all times and without notice)
to inspect the same, or to show the Premises to prospective purchasers,
mortgagees, insurers or, during the last twelve (12) months of the Term,
prospective tenants, or to clean or make repairs, alterations or additions
thereto, and Tenant shall not be entitled to any abatement or reduction of Rent
by reason thereof. Landlord shall use reasonable efforts to minimize any
disruption to the conduct of Tenant's business by reason of any such entry. No
notice shall be required with respect to entry by Landlord, or its employees,
agents or contractors to perform janitorial services.
18. Assignment and Subletting.
(a) Tenant shall not assign this Lease or sublease the
Premises or any part thereof or mortgage, pledge or hypothecate its leasehold
interest or grant any concession or license within the Premises (any such
assignment, sublease, mortgage, pledge, hypothecation, or grant of a concession
or license being hereinafter referred to in this Section 18 as a "Transfer")
without the prior written consent of Landlord (which consent shall not be
unreasonably withheld, conditioned, or delayed, but Landlord shall be entitled
to consider all relevant factors such as, by way of example and not limitation,
net worth, credit history and intended use of the assignee), and any attempt to
effect a Transfer without such consent of Landlord shall be void and of no
effect. In order for Tenant to make a Transfer, Tenant must request in writing
Landlord's consent at least fifteen (15) days in advance of the date on which
Tenant desires to make a Transfer and pay Landlord a $750.00 fee to be applied
toward Landlord's legal fees and other costs incurred in reviewing such request
(the "Review Fee"). Such request shall include the name of the proposed
assignee or sublessee, current financial information on the proposed assignee
or sublessee and the terms of the proposed Transfer (including the date Tenant
desires to make such Transfer). Landlord shall, within fifteen (15) days
following receipt of such request, notify Tenant in writing that Landlord
elects (1) in the case of an assignment of this Lease, to terminate this Lease
as of the date Tenant desires to make such Transfer as specified in Tenant's
request to Landlord, in which event Tenant will be relieved of all further
obligations hereunder, (2) to permit Tenant to assign or sublet such space in
accordance with the terms provided to Landlord, or (3) to refuse consent to
Tenant's requested Transfer and to continue this Lease in full force and effect
as to the entire Premises. If Landlord shall fail to notify Tenant in writing
of such election within such fifteen (15) day period, Landlord shall be deemed
to have elected option (3) above. If Landlord elects to exercise option (2)
above, Tenant agrees to provide, at its expense, direct access from any sublet
space or concession area to a public corridor of the Building, and such other
improvements, alterations or additions as may be required by applicable law.
The prohibition against a Transfer contained herein shall be construed to
include a prohibition against any Transfer by merger, sale of assets, sale of a
controlling interest in stock or operation of law. Notwithstanding the
foregoing or anything else to the contrary in this Lease, Tenant shall have the
right, subject to Section 18(b), without Landlord's consent, to assign this
Lease or sublet all or any portion of the Premises to any person or entity who
controls, is controlled by, or is under common control with the original Tenant
named in this Lease or to any entity which acquires all, or substantially, all
of Tenant's assets and Tenant's general partner's assets in a single
transaction or a series of transactions (an "Affiliate Transfer"). The term
"control" shall mean with respect to a corporation, the right to exercise,
directly or indirectly, more than fifty percent (50%) of the voting rights
attributable to the shares of the controlled corporation, and with respect to a
person or entity that is not a corporation, the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of the controlled person or entity. Tenant shall provide Landlord with
written notice of any Affiliate Transfer within ten (10) days after the
effective date thereof.
(b) Notwithstanding that the prior express written
consent of Landlord to a Transfer may have been obtained under the provisions
of Section 18(a) or that such permission is not required, the following shall
apply to all Transfers (including Affiliate Transfers):
(1) In the event of an assignment or sublease,
Tenant shall (A) in the case of an assignment, cause the assignee to expressly
assume in writing and to agree to perform all of the covenants, duties and
obligations of Tenant hereunder, and such assignee shall be jointly and
severally liable therefor along with Tenant and Tenant's general partner; and
(B) agree with Landlord that, except in
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 17
<PAGE> 22
the case of an Affiliate Transfer, if the rent or other consideration due and
payable by a sublessee or assignee under any such permitted sublease or
assignment exceeds the Rent for the portion of the Premises so transferred,
then Tenant shall pay Landlord as additional rental hereunder fifty percent
(50%) of all such excess rental and other consideration after deducting from
such excess all actual and reasonable costs incurred by Tenant in entering into
such assignment or sublease or immediately upon receipt thereof by Tenant from
such transferee;
(2) No usage of the Premises different from
the usage herein provided to be made by Tenant shall be permitted, and all of
the terms and provisions of this Lease shall continue to apply after a
Transfer; and
(3) Tenant and Tenant's general partner will
nevertheless remain directly and primarily liable for the performance of all
the covenants, duties and obligations of Tenant hereunder (including, without
limitation, the obligation to pay Rent), and Landlord shall be permitted to
enforce the provisions of this Lease against the undersigned Tenant and
Tenant's general partner or any transferee, or both, without demand upon or
proceeding in any way against any other persons.
(c) The consent by Landlord to a particular Transfer
shall not be deemed a consent to any other subsequent Transfer. If this Lease,
the Premises or the Tenant's leasehold interest therein, or if any portion of
the foregoing is transferred, or if the Premises are occupied in whole or in
part by anyone other than Tenant without the prior consent of Landlord as
provided herein, Landlord may nevertheless collect rent from the transferee or
other occupant and apply the net amount collected to the Rent payable
hereunder, but no such transaction or collection of rent or application thereof
by Landlord shall be deemed a waiver of the provisions hereof or a release of
Tenant from the further performance by Tenant of its covenants, duties and
obligations hereunder.
(d) Notwithstanding anything to the contrary contained
herein, if Tenant, as a debtor-in-possession (the "DIP"), or a trustee for the
estate in bankruptcy of Tenant (the "Trustee"), assumes this Lease and proposes
to assign this Lease, or sublet the Premises (or any portion thereof), pursuant
to the provisions of the Federal Bankruptcy Code, 11 U.S.C. Sections 101 et
seq. (the "Bankruptcy Code") to any person, partnership, corporation or other
entity (the "Proposed Assignee"), then such assumption of this Lease and any
such assignment or sublease shall be subject to all of the following:
(1) If the rental agreed upon between the DIP
or the Trustee, as the case may be, and the Proposed Assignee under any
proposed assignment or sublease of the Premises (or any part thereof) is
greater than the rental rate that Tenant must pay Landlord hereunder for that
portion of the Premises that is subject to such proposed assignment or
sublease, or if any consideration shall be received by the DIP or the Trustee,
as the case may be, in connection with any such proposed assignment or
sublease, then all such excess rental or such consideration shall be paid or
delivered to Landlord, and shall not constitute property of the DIP, the
Trustee, or of the estate of Tenant, as the case may be, within the meaning of
the Bankruptcy Code; and
(2) Any proposed assignment or sublease of this
Lease by the DIP or the Trustee, as the case may be, pursuant to provisions of
the Bankruptcy Code shall provide adequate assurance of future performance
under this Lease by the Proposed Assignee, which adequate assurance shall
include, as a minimum, the following: (A) any Proposed Assignee of the Lease
shall deliver to Landlord a security deposit in an amount equal to at least
three (3) months Base Rental accruing under this Lease; (B) any Proposed
Assignee of the Lease shall provide to Landlord an unaudited financial
statement, certified to be accurate by such Proposed Assignee or by an officer,
director or partner thereof and dated no later than six (6) months prior to the
effective date of such proposed assignment or sublease, which financial
statement shall show the Proposed Assignee to have a net worth equal to at
least the Rent that shall accrue under this Lease for the next year of the
Term, (C) any Proposed Assignee shall pay all Rent not previously paid under
this Lease including all payments which have been suspended, mitigated,
nullified or reduced to a claim of any kind against Tenant or the Tenant's
property, by operation of law or otherwise; and (D) any
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<PAGE> 23
Proposed Assignee shall assume Tenant's obligation to pay Landlord's attorneys'
fees pursuant to Section 35 hereof.
This Section 18(d) shall not apply to any assignment or sublease other
than pursuant to the provisions of the Bankruptcy Code, nor shall it in any way
limit Landlord's rights to damages or other relief in a proceeding under the
Bankruptcy Code.
19. Mechanic's Liens. Tenant will not permit any mechanic's
liens, materialmen's liens or other liens to be placed upon the Premises or the
Complex for any work performed by or at the request of Tenant, or any assignee,
sublessee or licensee of Tenant, and nothing in this Lease shall be deemed or
construed in any way as constituting the consent or request of Landlord,
express or implied, by inference or otherwise, to any person for the
performance of any labor or the furnishing of any materials to the Premises, or
any part thereof, nor as giving Tenant any right, power, or authority to
contract for or permit the rendering of any services or the furnishing of any
materials that would give rise to any mechanic's or other liens against the
Premises or the Complex. If any such lien is attached to the Premises or the
Complex and not discharged by payment, bonding or otherwise within fifteen (15)
days after receipt of written notice from Landlord, then, in addition to any
other right or remedy of Landlord, Landlord may, but shall not be obligated to,
discharge the same. Any amount paid by Landlord for the aforesaid purpose shall
be paid by Tenant to Landlord on demand as additional Rent and bear interest at
the Default Rate until paid.
20. Property Insurance. Landlord shall maintain a policy or
policies of all risk extended coverage insurance on the portion of the Complex
that is the property of Landlord, including Alterations by Tenant that have
become the property of Landlord, in an amount equal to not less than ninety
percent (90%) of the replacement cost. Such insurance shall be maintained at
the expense of Landlord (as a part of the Basic Operating Costs), and payments
for losses thereunder shall be made solely to Landlord or the mortgagees of
Landlord as their interests shall appear. If insurance premiums for the Complex
increase due to: (1) the Initial Improvements to the Premises in excess of
Building Standard or any subsequent improvements made by Tenant to the Premises
(such improvements to be made only in accordance with this Lease) or made by
Landlord at Tenant's request, or (2) as a result of Tenant's use, Landlord may
elect to invoice Tenant directly for such increased premiums rather than
including same in Basic Operating Costs, in which event, Tenant will pay such
invoice within ten (10) days of receipt. Notwithstanding the foregoing,
Landlord shall not be required to maintain insurance with respect to the
Initial Improvements to the extent Tenant of Tenant's Contractor are
responsible therefor in accordance with the Tenant Improvements Agreement.
21. Liability Insurance.
(a) Landlord shall (as a part of Basic Operating Costs)
maintain a policy or policies of commercial general liability insurance
covering the Building and all Common Areas and Service Areas, but excluding the
Premises, insuring against claims for personal or bodily injury or death or
property damage occurring upon, in or about the Building or Common Areas and
Service Areas (including contractual indemnity and liability coverage)
affording protection to the limit of not less than $2,000,000.00 combined
single limit in respect to injury or death to any number of persons or property
damage arising out of any one occurrence. Landlord's insurance shall contain an
endorsement that Landlord's insurance is primary for claims arising out of an
incident or event occurring within the Common Areas. Landlord's insurance shall
include coverage for the contractual liability of Landlord to indemnify Tenant
pursuant to Section 22(b) below. Notwithstanding the foregoing, Landlord shall
not be required to maintain insurance with respect to the Initial Improvements
to the extent Tenant of Tenant's Contractor are responsible therefor in
accordance with the Tenant Improvements Agreement.
(b) Tenant shall maintain a policy or policies of
commercial general liability insurance covering the Premises and Tenant's use
thereof against claims for personal or bodily injury or death or property
damage occurring upon, in or about the Premises (including contractual
indemnity and liability coverage) with the premiums thereon fully paid on or
before the due date, issued by and binding upon an
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 19
<PAGE> 24
insurance company licensed to do business in the State of Texas and having an
A.M. Best Rating of "A-VI" or better. Such insurance shall provide minimum
protection of not less than $2,000,000.00 combined single limit primary
coverage per occurrence of bodily injury, property damage or combination
thereof. Tenant's insurance shall contain an endorsement that Tenant's
insurance is primary for claims arising out of an incident or event occurring
within the Premises. Tenant's insurance shall contain a provision naming
Landlord (and any mortgagee designated by Landlord) as an additional insured to
the extent of Tenant's indemnification obligations hereunder and include
coverage for the contractual liability of Tenant to indemnify Landlord pursuant
to Section 22(a) below. Tenant shall, prior to occupancy of the Premises and at
Landlord's request from time to time, provide Landlord with a current
certificate of insurance evidencing Tenant's compliance with this Section 21.
Tenant shall obtain the agreement of Tenant's insurers to notify Landlord that
a liability insurance policy is due to be canceled or expire at least thirty
(30) days prior to such cancellation or expiration.
22. INDEMNITY. TENANT SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS
LANDLORD AND ANY OFFICER, DIRECTOR, PARTNER OR EMPLOYEE OF LANDLORD (HEREIN
COLLECTIVELY CALLED A "LANDLORD RELATED PARTY") FROM AND AGAINST ANY AND ALL
LIABILITIES, OBLIGATIONS, DAMAGES, CLAIMS, SUITS, LOSSES, CAUSES OF ACTION,
LIENS, JUDGMENTS AND EXPENSES (INCLUDING COURT COSTS, ATTORNEY'S FEES AND COSTS
OF INVESTIGATION) OF ANY KIND, NATURE OR DESCRIPTION RESULTING FROM ANY
INJURIES TO OR DEATH OF ANY PERSON OR ANY DAMAGE TO PROPERTY WHICH ARISES, OR
IS CLAIMED TO ARISE FROM: (1) AN INCIDENT OR EVENT WHICH OCCURRED WITHIN OR ON
THE PREMISES AND WHICH IS NOT CAUSED BY LANDLORD, ITS AGENTS, CONTRACTORS OR
EMPLOYEES; OR (2) THE OPERATION OR CONDUCT OF TENANT'S BUSINESS WITHIN THE
PREMISES OR THE USE OF THE PARKING SPACES ALLOCATED TO TENANT PURSUANT TO
EXHIBIT "E" BY TENANT OR ITS EMPLOYEES, AGENTS, SUBTENANTS, LICENSEES AND
VISITORS (COLLECTIVELY, THE "CLAIMS"), EVEN IF THE CLAIM IS THE RESULT OF OR
CAUSED BY THE NEGLIGENT ACTS OR OMISSIONS OF ANY LANDLORD RELATED PARTY TO THE
EXTENT, BUT NO FURTHER, THAT THE CLAIM OF NEGLIGENCE IS BASED UPON LANDLORD'S
FAILURE TO ENFORCE THIS LEASE OR MONITOR AND SUPERVISE TENANT'S ACTIVITIES IN
THE COMPLEX. IF ANY SUCH CLAIM IS MADE AGAINST ANY LANDLORD RELATED PARTY,
TENANT SHALL, AT TENANT'S SOLE COST AND EXPENSE, DEFEND SUCH CLAIM BY OR
THROUGH ATTORNEYS REASONABLY ACCEPTABLE TO LANDLORD. The indemnity obligations
of Tenant under this section shall not apply to a claim arising out of the
gross negligence or intentional misconduct of any Landlord Related Party.
23. WAIVER OF SUBROGATION RIGHTS. NOTWITHSTANDING ANYTHING IN
THIS LEASE TO THE CONTRARY, TO THE EXTENT THAT AND SO LONG AS THE SAME IS
PERMITTED UNDER THE LAWS AND REGULATIONS GOVERNING THE WRITING OF INSURANCE
WITHIN THE STATE OF TEXAS, ALL INSURANCE CARRIED BY EITHER LANDLORD OR TENANT
SHALL PROVIDE FOR A WAIVER OF RIGHTS OF SUBROGATION AGAINST LANDLORD AND TENANT
ON THE PART OF THE INSURANCE CARRIER. UNLESS THE WAIVERS CONTEMPLATED BY THIS
SENTENCE ARE NOT OBTAINABLE FOR THE REASONS DESCRIBED IN THIS SECTION 23,
LANDLORD AND TENANT EACH HEREBY WAIVE ANY AND ALL RIGHTS OF RECOVERY, CLAIMS,
ACTIONS OR CAUSES OF ACTION AGAINST THE OTHER, ITS AGENTS, OFFICERS, OR
EMPLOYEES, FOR ANY LOSS OR DAMAGE TO PROPERTY OR ANY INJURIES TO OR DEATH OF
ANY PERSON WHICH IS COVERED OR WOULD HAVE BEEN COVERED UNDER THE INSURANCE
POLICIES REQUIRED UNDER THIS LEASE. THE FOREGOING RELEASE SHALL NOT APPLY TO
LOSSES OR DAMAGES IN EXCESS OF ACTUAL OR REQUIRED POLICY LIMITS (WHICHEVER IS
GREATER) NOR TO ANY DEDUCTIBLE (UP TO A MAXIMUM OF $10,000) APPLICABLE UNDER
ANY POLICY OBTAINED BY THE WAIVING PARTY. THE FAILURE OF EITHER PARTY (THE
"DEFAULTING PARTY") TO TAKE OUT OR MAINTAIN ANY INSURANCE POLICY REQUIRED UNDER
THIS LEASE SHALL BE A DEFENSE TO ANY CLAIM ASSERTED BY THE DEFAULTING PARTY
AGAINST THE OTHER PARTY HERETO BY REASON OF ANY LOSS SUSTAINED BY THE
DEFAULTING PARTY THAT WOULD HAVE BEEN COVERED BY ANY SUCH REQUIRED POLICY. THE
WAIVERS SET FORTH IN THE IMMEDIATELY
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 20
<PAGE> 25
PRECEDING SENTENCE SHALL BE IN ADDITION TO, AND NOT IN SUBSTITUTION FOR, ANY
OTHER WAIVERS, INDEMNITIES, OR EXCLUSIONS OF LIABILITIES SET FORTH IN THIS
LEASE.
24. Casualty Damage. If the Premises or any part thereof shall be
damaged by fire or other casualty, Tenant shall give prompt written notice
thereof to Landlord. In case the Building shall be so damaged by fire or other
casualty that substantial alteration or reconstruction of the Building shall,
in the judgment of an independent architect selected by Landlord, be required
(whether or not the Premises shall have been damaged by such fire or other
casualty), or if any mortgagee under a first mortgage or first deed of trust
covering the Building should require that the insurance proceeds payable as a
result of such fire or other casualty be used to retire the mortgage debt, or
in the event of the occurrence of a casualty which is not insured under the all
risk extended coverage insurance required to be carried by Landlord pursuant to
the terms of Section 20, Landlord may, at its option, so long as Landlord is
similarly terminating all other leases in the Building that are similarly
affected by the casualty, terminate this Lease by notifying Tenant in writing
of such termination within fifteen (15) days after the date of Landlord's
receipt of the estimated cost of reconstruction or determination by a mortgagee
to take the proceeds, in which event the Rent hereunder shall be abated as of
the date of such damage. If Landlord does not elect to terminate this Lease, as
soon as practicable, but no more than ninety (90) days after the date of such
damage, Landlord shall commence to repair and restore the Building and shall
proceed with reasonable diligence to restore the Building to substantially the
same condition which it was in immediately prior to the happening of the fire
or other casualty, except that Landlord shall not be required to rebuild,
repair, or replace any part of Tenant's furniture, fixtures and equipment
removable by Tenant under the provisions of this Lease or any Alterations to
the Premises made by Tenant which were not approved by Landlord in writing, and
Landlord shall not in any event be required to spend for such work an amount in
excess of the insurance proceeds actually received by Landlord as a result of
the fire or other casualty plus any deductible amounts thereunder.
Additionally, Landlord shall not be required to rebuild, repair, or replace the
Initial Improvements (as defined in the Tenant Improvements Agreement) to the
extent Tenant of Tenant's Contractor are responsible therefor in accordance
with the Tenant Improvements Agreement. If Landlord determines that insurance
proceeds will be insufficient to restore the Building as required by this
Section 24, Landlord may, at its option, elect to either (1) terminate this
Lease by written notice to Tenant, or (2) provide the extra funds necessary to
complete the restoration. If Landlord did not originally construct any
Alterations to be repaired, the time for Landlord to commence and complete such
repairs shall be extended by the amount of time necessary for Landlord to
obtain detailed working drawings of the Alterations to be repaired. If Landlord
does not either commence the repairs to the Building within the time required
herein, or complete the repairs to the Building within one hundred eighty (180)
days after the date of such damage, Tenant may terminate the Lease by written
notice thereof to Landlord given no later than thirty (30) days following the
date on which Landlord was to commence or complete such repairs, as the case
may be. Landlord shall not be liable for any inconvenience or annoyance to
Tenant or injury to the business of Tenant resulting in any way from such
damage or the repair thereof, except that, subject to the provisions of the
next sentence, Landlord shall allow Tenant an equitable abatement of Rent
during the time and to the extent the Premises or portions thereof are unfit
for occupancy and Tenant is not conducting normal business operations from such
portions of the Premises or access to the Premises has been materially impaired
for more than seven (7) days. If the Premises or any other portion of the
Complex is damaged by fire or other casualty resulting from the intentional
acts of Tenant or any employee, officer, contractor, agent, subtenant, or
licensee of Tenant, the Rent hereunder shall not be abated during the repair of
such damage, and Tenant shall remain liable for the payment thereof.
25. Condemnation. If the whole or substantially the whole of the
Building, more than 25% of the Parking Areas, or ingress and egress routes to
the Complex from publicly dedicated streets, or (ii) the whole or such portion
of the Premises as shall render the remainder reasonably unfit for Tenant's
use, shall be taken for any public or quasi-public use, by right of eminent
domain or otherwise, or sold in lieu of condemnation, then this Lease shall
terminate as of the date when physical possession of the Building or the
Premises are taken by the condemning authority. If this Lease is not so
terminated upon any such taking or sale, the Base Rental payable hereunder
shall be diminished by an amount representing that portion of Base Rental
applicable to the portion of the Premises subject to such taking or sale, and
Landlord shall to
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 21
<PAGE> 26
the extent Landlord deems feasible, restore the Building and the Premises to
substantially their former condition, except that Landlord shall not be
required to rebuild, repair, or replace any Alterations to the Premises made by
Tenant which were not approved by Landlord in writing, nor shall Landlord in
any event be required to spend for such work an amount in excess of the amount
received by Landlord as compensation for such taking. All amounts awarded upon
a taking of any part or all of the Land, Building or the Premises shall belong
to Landlord, and Tenant shall not be entitled to and expressly waives all
claims to any such compensation except that Tenant may make a separate claim
upon the condemning authority for expenses related to relocation and the
unamortized cost of leasehold improvements paid for by Tenant. The rights of
Tenant to such award shall expressly survive the termination of this Lease.
26. DAMAGES FROM CERTAIN CAUSES. NOTWITHSTANDING ANYTHING
CONTAINED IN THIS LEASE TO THE CONTRARY, AND SUBJECT TO THE TERMS OF SECTION
23, NEITHER LANDLORD NOR ANY LANDLORD RELATED PARTY SHALL BE LIABLE FOR DAMAGES
TO TENANT OR ANY PARTY CLAIMING THROUGH TENANT FOR ANY INJURY TO OR DEATH OF
ANY PERSON OR DAMAGE TO PROPERTY OR FOR INTERRUPTION OR DAMAGE TO BUSINESS
RESULTING FROM ANY OF THE FOLLOWING REASONS: (A) ANY ACT, OMISSION OR
NEGLIGENCE OF TENANT OR TENANT'S EMPLOYEES, AGENTS, CONTRACTORS, OFFICERS,
SUBTENANTS, ASSIGNEES, LICENSEES, INVITEES OR CUSTOMERS; (B) ANY ACT, OMISSION
OR NEGLIGENCE OF ANY OTHER TENANT WITHIN THE BUILDING, OR ANY OF THEIR
RESPECTIVE EMPLOYEES, AGENTS, CONTRACTORS, TENANTS, ASSIGNEES, LICENSEES,
INVITEES OR CUSTOMERS; (C) THE REPAIR, ALTERATION, MAINTENANCE, DAMAGE OR
DESTRUCTION OF THE PREMISES OR ANY OTHER PORTION OF THE BUILDING (INCLUDING THE
CONSTRUCTION OF LEASEHOLD IMPROVEMENTS FOR OTHER TENANTS OF THE BUILDING)
EXCEPT TO THE EXTENT CAUSED BY THE NEGLIGENCE OR WILLFUL MISCONDUCT OF LANDLORD
OR ANY LANDLORD RELATED PARTY; (D) VANDALISM, THEFT, BURGLARY AND OTHER
CRIMINAL ACTS (OTHER THAN THOSE COMMITTED BY LANDLORD'S EMPLOYEES); (E) ANY
DEFECT IN OR FAILURE OF EQUIPMENT, PIPES, WIRING, HEATING OR AIR CONDITIONING
EQUIPMENT, STAIRS, ELEVATORS, OR SIDEWALKS; THE BURSTING OF ANY PIPES OR THE
LEAKING, ESCAPING OR FLOWING OF GAS, WATER, STEAM, ELECTRICITY, OR OIL; BROKEN
GLASS; OR THE BACKING UP OF ANY DRAINS, EXCEPT TO THE EXTENT CAUSED BY THE
NEGLIGENCE OR WILLFUL MISCONDUCT OF LANDLORD OR ANY LANDLORD RELATED PARTY OR
THE FAILURE OF LANDLORD TO PERFORM ITS MAINTENANCE OBLIGATIONS HEREUNDER; (F)
INJURY DONE OR OCCASIONED BY WIND, SNOW, RAIN OR ICE, FIRE, ACT OF GOD, PUBLIC
ENEMY, INJUNCTION, RIOT, STRIKE, INSURRECTION, WAR, COURT ORDER, REQUISITION,
ORDER OF ANY GOVERNMENTAL BODY OR AUTHORITY, OR (G) ANY OTHER CAUSE BEYOND THE
REASONABLE CONTROL OF LANDLORD. UNDER NO CIRCUMSTANCES SHALL LANDLORD BE LIABLE
FOR DAMAGES RELATED TO BUSINESS INTERRUPTION OR LOSS OF PROFITS. THE PROVISIONS
OF THIS SECTION 26 SHALL NOT LIMIT THE OBLIGATIONS OF LANDLORD OR THE RIGHTS OF
TENANT UNDER THIS LEASE NOT INVOLVING A CLAIM FOR DAMAGES.
27. Default by Tenant.
(a) The following events shall be deemed to be events of
default by Tenant under this Lease (hereinafter called an "Event of Default"):
(1) Tenant shall fail to timely pay any Rent
and such failure shall continue for a period of five (5) days after written
notice of such default shall have been delivered to Tenant; provided however,
once Landlord has given Tenant two (2) such notices during any twelve (12)
month period (whether as to one or more than one failures to pay) it shall not
be required to give further notice and thereafter the failure or refusal by
Tenant to timely make any payment of Rent when due hereunder within the
following twelve (12) months shall be an Event of Default without further
notice;
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<PAGE> 27
(2) Tenant shall fail to comply with any
provision of this Lease or any other agreement between Landlord and Tenant not
requiring the payment of Rent, all of which terms, provisions and covenants
shall be deemed material, and such failure shall continue for a period of
thirty (30) days after written notice of such failure is delivered to Tenant
or, if such failure cannot reasonably be cured within such thirty (30) day
period, Tenant shall fail to commence to cure such failure within such thirty
(30) day period and/or shall thereafter fail to prosecute such cure diligently
and continuously to completion within ninety (90) days of the date of
Landlord's notice of default;
(3) Tenant or Tenant's general partner takes
any action to, or notifies Landlord that Tenant or Tenant's general partner
intends to file a petition under any section or chapter of the United States
Bankruptcy Code, as amended from time to time, or under any similar law or
statute of the United States or any state thereof; or a petition shall be filed
against Tenant or Tenant's general partner under any such statute and not be
dismissed within sixty (60) days thereafter;
(4) a receiver or trustee shall be appointed
for Tenant's leasehold interest in the Premises or for all or a substantial
part of the assets of Tenant or Tenant's general partner;
(5) Tenant abandons all or any substantial
portion of the Premises (although mere vacancy by Tenant shall not alone be an
Event of Default); and
(6) Tenant shall default in the performance of
its obligations under the Tenant Improvements Agreement and such default
continues for a period of thirty (30) days following written notice to Tenant.
(b) Upon the occurrence of any Event of Default,
Landlord may, at its option and without further notice to Tenant and without
judicial process, in addition to all other remedies given hereunder or by law
or equity, do any one or more of the following: (1) terminate this Lease, in
which event Tenant shall immediately surrender possession of the Premises to
Landlord; (2) enter upon and take possession of the Premises and expel or
remove Tenant therefrom, with or without having terminated this Lease; (3)
apply all or any portion of the Security Deposit to cure such Event of Default;
(4) change or re-key all locks to entrances to the Premises, and Landlord shall
have no obligation to give Tenant a new key to the Premises until such Event of
Default is cured; (5) remove from the Premises any furniture, fixtures,
equipment or other personal property of Tenant, without liability for trespass
or conversion, and store such items either in the Complex or elsewhere at the
sole cost of Tenant and without liability to Landlord, and (6) enter upon the
Premises and perform Tenant's obligations under this Lease (including under the
Tenant Improvements Agreement) and charge Tenant additional rent to cover the
cost of Landlord's performance (but Landlord shall have no obligation to
perform Tenant's obligations). Landlord may retain control over all such
property for the purpose of foreclosing the security interest created by
Section 34. Any of such furniture, fixtures, equipment or personal property not
claimed within thirty (30) days from the date of removal shall be deemed
abandoned.
(c) Exercise by Landlord of any one or more remedies
hereunder shall not constitute forfeiture or an acceptance of surrender of the
Premises by Tenant, it being understood that such surrender can be effected
only by the written agreement of Landlord and Tenant.
(d) If Landlord terminates this Lease by reason of an
Event of Default, Tenant shall pay to Landlord the sum of (1) the cost of
recovering the Premises, (2) the unpaid Rent and all other indebtedness accrued
hereunder to the date of such termination, (3) the total Rent which Landlord
would have received under this Lease for the remainder of the Lease Term minus
the Fair Market Rental Value (hereinafter defined) of the Premises for the same
period, both discounted to present value at the Prime Rate (hereinafter
defined) in effect upon the date of determination, and (4) any other damages or
relief which Landlord may be entitled to at law or in equity. For the purposes
of this section, "Fair Market Rental Value" shall be the rental rate that would
be received from a comparable tenant for a comparable lease for premises and
other properties of equivalent quality, size, condition and location as the
Premises, taking into
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 23
<PAGE> 28
account any free rent or other concessions, which are generally prevailing in
the market place after Tenant's default, market conditions and the period of
time the Premises may reasonably be expected to remain vacant before Landlord
is able to re-let the Premises to a suitable new tenant. For purposes of this
section, "Prime Rate" shall mean the per annum rate of interest announced or
published from time to time by Guaranty Federal Bank (or its successors or
assigns) as its prime commercial lending rate.
(e) If Landlord repossesses the Premises without
terminating this Lease, then Tenant shall pay to Landlord (1) the cost of
recovering the Premises, (2) the unpaid Rent and other indebtedness accrued to
the date of such repossession, and (3) the total Rent which Landlord would have
received under this Lease for the remainder of the Lease Term minus any net
sums thereafter received by Landlord through reletting the Premises during such
period after deducting expenses incurred by Landlord in connection with such
reletting for advertising costs, brokerage commissions, architectural fees,
tenant improvement costs and allowances and any other allowances or concessions
provided by Landlord (amortized pro rata over the term of such new lease).
Re-entry by Landlord will not affect the obligations of Tenant for the
unexpired term of this Lease. Tenant shall not be entitled to any excess of
Rent obtained by reletting over the Rent herein reserved. Actions to collect
amounts due by Tenant may be brought on one or more occasions, without the
necessity of Landlord's waiting until the expiration of the Lease Term. In
addition, Landlord may at any time following repossession of the Premises
without termination of the Lease elect to terminate the Lease and pursue the
remedies available to Landlord pursuant to Section 27(d) above in lieu of the
remedies available to Landlord pursuant to this Section 27(e).
(f) Upon termination of the Lease or repossession of the
Premises for an Event of Default, Landlord shall not be obligated to relet or
attempt to relet the Premises.
(g) If Tenant should fail to make any payment, perform
any obligation, or cure any default hereunder within ten (10) days after
receipt of written notice thereof, Landlord, without obligation to do so and
without thereby waiving such failure or default, may make such payment, perform
such obligation, and/or remedy such other default for the account of Tenant
(and enter the Premises for such purpose), and Tenant shall, within ten (10)
days following written demand, pay all costs, expenses and disbursements
(including attorneys' fees) incurred by Landlord in taking such remedial
action, plus, at the option of Landlord, interest thereon at the Default Rate.
28. Default by Landlord. Landlord shall be in default under this
Lease if Landlord fails to perform any of its obligations hereunder and such
failure continues for a period of thirty (30) days after Tenant delivers
written notice of such failure to Landlord and to the holder(s) of any
indebtedness or other obligations secured by any mortgage or deed of trust
affecting the Premises, the name and address of which have been provided to
Tenant in writing, provided that if such failure cannot reasonably be cured
within such thirty (30) day period, Landlord shall not be in default hereunder
as long as Landlord or such holder(s) commences the remedying of such failure
within such thirty-day period and diligently prosecutes the same to completion
and completes the same within ninety (90) days or such longer period of time as
may be reasonably necessary so long as Landlord is diligently prosecuting the
same, during which time Landlord and such holder(s), or either of them, their
agents or employees, shall be entitled to enter upon the Premises and do
whatever may be necessary to remedy such failure. In no event shall either
party be liable for consequential, special or punitive damages by reason of a
failure to perform (or a default) under this Lease, except for Landlord's
remedies in Section 27.
29. Quiet Enjoyment. Tenant, on paying all sums herein called for
and performing and observing all of its covenants and agreements hereunder,
shall and may peaceably and quietly occupy and use the Premises during the
Lease Term subject to the provisions of this Lease, all matters of record
affecting the Complex and applicable governmental laws, rules, and regulations;
and Landlord agrees to warrant and forever defend Tenant's right to such
occupancy against the claims of any and all persons whomsoever lawfully
claiming the same or any part thereof, subject only to the provisions of this
Lease, all matters of record affecting the Complex and all applicable
governmental laws, rules, and regulations.
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 24
<PAGE> 29
30. [Intentionally Deleted]
31. Holding Over. Should Tenant continue to occupy the Premises
after the expiration of the Lease Term without the prior written consent of
Landlord, such occupancy shall be a tenancy at will under all of the terms,
covenants and conditions of this Lease, but at a daily Base Rental equal to the
sum found by dividing one hundred and fifty percent (150%) of the Base Rental
for the final month of the Lease Term by thirty (30), plus any sums due
pursuant to Section 6. Tenant shall also pay any and all damages sustained by
Landlord as a result of such holdover. If Tenant consists of more than one
person or entity, and if any of the persons or entities comprising Tenant
continue to occupy the Premises after the expiration of the Lease Term, all
other persons or entities comprising Tenant shall be deemed to have consented
to such occupancy and shall continue to be jointly and severally liable for all
of the terms, covenants and conditions contained in this Lease during the
holdover term.
32. Change of Building Name or Common Areas.
(a) Landlord reserves the right at any time to change
the name of the Building upon thirty (30) days advance written notice.
(b) Landlord hereby reserves the right to repair,
change, redecorate, alter, improve, or renovate any part of the Common Areas
(including, but not limited to, those located on any full floor leased by
Tenant), without being held guilty of an actual or constructive eviction of
Tenant or breach of any express or implied warranty and without an abatement of
Rent. In exercising such right, Landlord will use reasonable efforts to
minimize any interruption to the conduct of Tenant's business.
33. Subordination to Mortgage; Estoppel Agreement.
(a) This Lease shall be subordinate to any mortgage,
deed of trust or other lien now existing or hereafter placed upon the Premises,
or upon the Complex and to any renewals, modifications, consolidations,
refinancings, and extensions thereof, and, subject to Landlord providing Tenant
with a subordination, non-disturbance and attornment agreement from Landlord's
lender, to deed of trust liens hereafter placed against the Building or the
Complex, but Tenant agrees that any such mortgagee or deed of trust beneficiary
shall have the right at any time to subordinate such mortgage, deed of trust or
other lien to this Lease on such terms and subject to such conditions as such
mortgagee or deed of trust beneficiary may deem appropriate in its discretion.
If any proceedings are brought for the foreclosure of, or in the event of the
exercise of the power of sale under, any such mortgage, deed of trust or other
lien, Tenant agrees, without further action hereunder, to attorn to the
purchaser upon such foreclosure (or any deed in lieu of foreclosure) and
recognize such purchaser as the Landlord under this Lease. Landlord is hereby
irrevocably vested with full power and authority to subordinate this Lease to
any mortgage, deed of trust or other lien now existing or hereafter placed upon
the Premises or the Complex and Tenant agrees upon demand to execute such
further instruments subordinating this Lease or attorning to the holder of any
such liens as Landlord may reasonably request.
(b) Landlord agrees to obtain from Landlord's lender, a
subordination, non-disturbance and attornment agreement on such lender's form.
(c) Tenant agrees that it will from time to time within
ten (10) days after written request by Landlord execute and deliver to such
persons as Landlord shall request an estoppel agreement in recordable form
certifying that this Lease is unmodified and in full force and effect (or if
there have been modifications, that the same is in full force and effect as so
modified), stating the dates to which Rent and other charges payable under this
Lease have been paid, stating the Landlord is not in default hereunder (or if
Tenant alleges a default stating the nature of such alleged default) and
further stating such other matters as Landlord shall reasonably require.
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<PAGE> 30
34. Landlord's Lien. Tenant hereby grants to Landlord a lien and
security interest in all property of Tenant now or hereafter placed in or upon
the Premises and such property shall be and remain subject to such lien and
security interest of Landlord for payment of all rent and other sums agreed to
be paid by Tenant under this Lease. The provisions of this section relating to
such lien and security interest shall constitute a Security Agreement under and
subject to the Texas Business and Commerce Code so that Landlord shall have and
may enforce a security interest in all property of Tenant now or hereafter
placed in or on the Premises, in addition and cumulative of the landlord's
liens and rights provided by law or by the other terms and provisions of this
Lease. Landlord may enforce this landlord's lien immediately upon a breach of
this Lease by Tenant (whether an Event of Default shall exist or not) if Tenant
is vacating or is threatening to vacate the Premises. Tenant agrees to execute
as debtor such financing statement or statements as Landlord may now or
hereafter request. Landlord may at its election at any time file a copy of this
page of the Lease and the signature page of this Lease as a Financing
Statement. The Debtor shall be Tenant and the Secured Party shall be Landlord.
35. Attorney's Fees. Tenant must pay to Landlord on demand all
attorney's fees, costs and expenses incurred by Landlord in recovery of any
Rent or enforcement of Landlord's rights under this Lease. Further, if Landlord
or Tenant employs an attorney to assert or defend any action arising out of the
breach of any term, covenant or provision of this Lease, or to bring legal
action for the unlawful detainer of the Premises, the prevailing party shall be
entitled to recover from the non-prevailing party attorney's fees and costs of
suit incurred in connection therewith. For purposes of this Section 35, a party
shall be considered to be the "prevailing party" to the extent that (1) such
party initiated the litigation and substantially obtained the relief which it
sought (whether by judgment, voluntary agreement or action of the other party,
trial, or alternative dispute resolution process), (2) such party did not
initiate the litigation and did not receive judgment in its favor, but the
party receiving the judgment did not substantially obtain the relief which it
sought, or (3) the other party to the litigation withdrew its claim or action
without having substantially received the relief which it was seeking.
36. No Implied Waiver. The failure of either party to insist at
any time upon the strict performance of any covenant or agreement in this Lease
or to exercise any right, power or remedy contained in this Lease shall not be
construed as a waiver or a relinquishment thereof for the future. The
acceptance by Landlord of late payments shall not be construed as a waiver by
Landlord of the requirement for timely payment nor create a course of dealing.
No payment by Tenant or receipt by Landlord of a lesser amount than the monthly
installment of Rent due under this Lease shall be deemed to be other than on
account of the earliest Rent due hereunder, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment as Rent
be deemed an accord and satisfaction, and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
Rent or pursue any other remedy provided in this Lease.
37. Independent Obligations. The obligation of Tenant to pay Rent
hereunder and the obligation of Tenant to perform Tenant's other covenants and
duties hereunder constitute independent unconditional obligations to be
performed at all times provided for hereunder. Except as expressly provided in
this Lease, Tenant waives and relinquishes all rights which Tenant might have
to claim any nature of lien against or withhold, abate or deduct from, or
offset against Rent.
38. Recourse Limitation. Tenant agrees to look solely to
Landlord's equity in the Complex for the recovery of any judgment against
Landlord, and Landlord shall not personally be liable for any deficiency. The
provision contained in the foregoing sentence shall not limit any right that
Tenant might otherwise have to obtain specific performance of Landlord's
obligations under this Lease.
39. Notices. Any notice under the Lease must be in writing, and
shall be given or be served by (a) personal delivery, (b) delivery via a
recognized overnight courier, (c) depositing the same in the United States
mail, postage prepaid, certified mail, return receipt requested, addressed to
the party to be notified at the address stated in this Lease or such other
address in the continental United States of which notice has been given to the
other party in the manner provided herein, or (d) via facsimile with either
electronic
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 26
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or telephonic verification of receipt so long as the original of the facsimile
notice is deposited in the United States mail within three (3) days thereafter.
Notice by personal delivery or overnight courier shall be effective upon
receipt, notice by mail shall be effective upon deposit in the United States
mail in the manner above described and notice by facsimile shall be effective
upon electronic or telephonic verification of receipt.
40. Severability. If any term or provision of this Lease, or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Lease shall be valid and enforced to the fullest
extent permitted by law.
41. Recordation. Tenant agrees not to record this Lease or any
memorandum hereof.
42. Governing Law. This Lease and the rights and obligations of
the parties hereto shall be interpreted, construed, and enforced in accordance
with the laws of the State of Texas. This Lease is performable in, and the
exclusive venue for any action brought with respect hereto, shall be in Harris
County, Texas.
43. Force Majeure. Whenever a period of time is herein prescribed
for the taking of any action by Landlord or Tenant, the party responsible for
taking such action shall not be liable or responsible for, and there shall be
excluded from the computation of such period of time, any delays due to
strikes, riots, acts of God, shortages of labor or materials, war, governmental
laws, regulations or restrictions, or any other cause whatsoever beyond the
control of the party responsible for taking such action; provided, however, the
provisions of this Section 43 shall never be construed as allowing an extension
with respect to the payment of money.
44. Time of Performance. Except as otherwise expressly provided
herein, time is of the essence under this Lease, including all Exhibits.
45. Transfers by Landlord. Landlord shall have the right to
transfer and assign, in whole or in part, all its rights and obligations
hereunder and in the Complex, and in such event and upon the assumption by the
transferee of the obligations of Landlord hereunder, Landlord shall be released
from any further obligations accruing after the date of transfer, and Tenant
agrees to look solely to such successor in interest of Landlord for the
performance of such obligations.
46. Commissions. Landlord and Tenant agree that the Broker and
Co-Broker are the only brokers involved in the procurement, negotiation or
execution of this Lease, whose commission shall be paid by Landlord pursuant to
a separate commission agreement. Landlord and Tenant hereby agree to defend,
indemnify and hold each other harmless against any loss, claim, expense or
liability with respect to any commissions or brokerage fees claimed on account
of the execution and/or renewal of this Lease or the expansion of the Premises
due to any action of the indemnifying party (provided that Tenant's indemnity
shall not extend to the claims of Broker or Co-Broker, except to the extent
Tenant has a separate agreement with Broker).
47. Effect of Delivery of This Lease. Landlord has delivered a
copy of this Lease to Tenant for Tenant's review only, and the delivery hereof
does not constitute an offer to Tenant or an option. This Lease shall not be
effective until a copy of this Lease executed by both Landlord and Tenant is
delivered by Landlord to Tenant.
48. WAIVER OF WARRANTIES AND ACCEPTANCE OF CONDITION. TENANT
ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS
LEASE (INCLUDING THE TENANT IMPROVEMENTS AGREEMENT), NEITHER LANDLORD NOR ANY
LANDLORD RELATED PARTY HAS MADE ANY REPRESENTATION OR WARRANTY, EITHER
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 27
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EXPRESS OR IMPLIED, AS TO THE HABITABILITY, MERCHANTABILITY, SUITABILITY,
QUALITY, CONDITION OR FITNESS FOR ANY PARTICULAR PURPOSE WITH REGARD TO THE
PREMISES OR THE COMPLEX AND THAT THIS LEASE CONSTITUTES THE FULL AND FINAL
AGREEMENT OF LANDLORD AND TENANT WITH RESPECT TO THE LEASE OF SPACE IN THE
BUILDING BY TENANT. EXCEPT FOR ANY WARRANTY SET OUT IN THE TENANT IMPROVEMENTS
AGREEMENT AND ANY OTHER WARRANTIES OF LANDLORD SET FORTH IN THIS LEASE, TENANT
HEREBY WAIVES, TO THE EXTENT PERMITTED BY LAW, ANY CLAIM OR CAUSE OF ACTION
BASED UPON ANY WARRANTIES, EITHER EXPRESS OR IMPLIED, AS TO HABITABILITY,
MERCHANTABILITY, SUITABILITY, QUALITY, CONDITION OR FITNESS FOR ANY PARTICULAR
PURPOSE WITH REGARD TO THE PREMISES OR THE COMPLEX. TENANT FURTHER REPRESENTS
AND WARRANTS TO LANDLORD THAT TENANT HAS HAD AN OPPORTUNITY TO MEASURE THE
ACTUAL DIMENSIONS OF THE PREMISES AND THE BUILDING AND AGREES TO THE SQUARE
FOOTAGE CALCULATIONS SET FORTH IN SECTIONS 1(e) AND 1(r) OF THIS LEASE FOR ALL
PURPOSES. TENANT'S TAKING POSSESSION OF THE PREMISES SHALL BE CONCLUSIVE
EVIDENCE THAT (a) TENANT HAS INSPECTED (OR HAS CAUSED TO BE INSPECTED) THE
PREMISES AND THE COMPLEX, (b) TENANT ACCEPTS THE PREMISES AND THE COMPLEX AS
BEING IN GOOD AND SATISFACTORY CONDITION AND SUITABLE FOR TENANT'S PURPOSES,
AND (c) THE PREMISES AND THE COMPLEX FULLY COMPLY WITH LANDLORD'S COVENANTS AND
OBLIGATIONS HEREUNDER (OTHER THAN ANY PUNCH LIST ITEMS, IF ANY, WITH REGARD TO
LANDLORD'S WORK REGARDING THE INITIAL IMPROVEMENTS AS SET FORTH IN EXHIBIT
D-1). TENANT SHALL HAVE THE RIGHT FOR SIX (6) MONTHS FOLLOWING THE COMMENCEMENT
DATE TO PROVIDE LANDLORD WITH WRITTEN NOTICE OF ALLEGED DEFECTS IN THE
PERFORMANCE OF THE WORK FOR WHICH LANDLORD IS RESPONSIBLE PURSUANT TO EXHIBIT
D-1 OR LATENT DEFECTS IN OR AFFECTING THE PREMISES TO THE EXTENT TENANT IS NOT
RESPONSIBLE FOR SAME UNDER THE TENANT IMPROVEMENTS AGREEMENT OR OTHERWISE.
FAILURE OF TENANT TO DELIVER WRITTEN NOTICE OF DEFECTIVE WORK OR LATENT DEFECTS
WITHIN SUCH SIX (6) MONTH PERIOD SHALL CONSTITUTE A WAIVER OF ANY FURTHER
CLAIMS OF TENANT RELATING TO THE WORK OF LANDLORD SET FORTH IN EXHIBIT D-1 AND
THE CONDITION OF THE PREMISES OR THE COMPLEX AS OF THE COMMENCEMENT DATE.
NOTWITHSTANDING THE FOREGOING, NOTHING CONTAINED IN THIS SECTION 48 SHALL LIMIT
THE RIGHT OF TENANT TO ENFORCE THE REPAIR AND MAINTENANCE OBLIGATIONS OF
LANDLORD UNDER THIS LEASE OR THE OBLIGATIONS OF LANDLORD UNDER SECTIONS 24 AND
25.
49. Merger of Estates. The voluntary or other surrender of this
Lease by Tenant or a mutual cancellation thereof, shall not constitute a
merger; and upon such surrender or cancellation of this Lease, Landlord shall
have the option, in Landlord's sole discretion, to (a) either terminate all or
any existing subleases or subtenancies, or (b) assume Tenant's interest in any
or all subleases or subtenancies.
50. Survival of Indemnities and Covenants. Any and all
indemnities of Tenant and any and all covenants of Tenant not fully performed
on the date of the expiration or termination of this Lease shall survive such
expiration or termination.
51. Headings. Descriptive headings are for convenience only and
shall not control or affect the meaning or construction of any provision of
this Lease.
52. Entire Agreement; Amendments. This Lease, including the
exhibits and addenda, if any, listed in Section 53 below, embodies the entire
agreement between the parties hereto with relation to the transaction
contemplated hereby, and there have been and are no covenants, agreements,
representations, warranties or restrictions between the parties hereto other
than those specifically set forth herein. Any amendment or modification of this
Lease must be in writing and signed by Landlord and Tenant.
53. Exhibits. The following exhibits are attached hereto and
incorporated herein and made a part of this Lease for all purposes:
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Exhibit "A" - Land Description
Exhibit "B" - Floor Plan
Exhibit "C" - Rules and Regulations
Exhibit "D" - Tenant Improvements Agreement
Exhibit "D-1" - Landlord's Work
Exhibit "E" - Parking
Exhibit "E-1" - Parking Diagram
Exhibit "F" - Confidentiality Agreement
Exhibit "G" - Right of First Refusal
Exhibit "G-1" - Refusal Space
Exhibit "H" - Renewal Option
Exhibit "H-1" - Arbitration
54. Joint and Several Liability. If Tenant consists of more than
one person or entity, the obligations of such parties under this Lease shall be
joint and several.
55. Multiple Counterparts. This Lease may be executed in multiple
counterparts, each of which shall constitute an original instrument, but all of
which shall constitute one and the same agreement.
56. Rooftop Communications Equipment. Without liability for
rental or any other charges therefor, except as expressly stated hereunder,
Tenant shall be permitted, at its sole cost and expense, to use the roof of the
Building to install and operate thereon up to two (2) microwave dishes/earth
satellite disks (not to exceed 10' in diameter) and up to two (2) whip antennae
(collectively as "Rooftop Communications Equipment"), in locations as selected
by Tenant and approved by Landlord, provided the same (a) complies with all
applicable governmental rules and regulations as well as applicable codes, (b)
is within the allowable structural loading of the Building, (c) will not, in
Landlord's reasonable judgment, adversely effect the exterior appearance of the
Building, and (d) does not require roof penetrations other than as may be
expressly permitted by Landlord's roof contractor so as to not affect
Landlord's roof warranty. Tenant may use the Rooftop Communications Equipment
so long as in accordance with applicable laws and regulations.
Tenant shall be permitted to select a contractor of its
choice (subject to Landlord's approval) to undertake the installation of the
Rooftop Communications Equipment, except that Landlord reserves the right to
require Tenant to use or involve Landlord's roof contractor if Landlord deems
it necessary to preserve the roof warranty or to otherwise maintain the
integrity of the roof. In addition, Tenant shall be permitted to construct
equipment enclosures, if required, in locations and in form approved by
Landlord, for accommodation of the Rooftop Communications Equipment. Tenant
shall also have the right to install necessary conduit and sleeving from the
roof to the points of connection within the Premises. Tenant shall be
responsible for all costs of installation (including structural reinforcing),
repairs and maintenance (to both the equipment and the Building itself,
including the roof) with respect to the Rooftop Communications Equipment. Upon
termination of this Lease, Tenant shall remove such equipment and repair any
damage to the roof and Building. Tenant shall indemnify, defend and hold
Landlord harmless from and against any cost, expense, liability, damage or
other obligation arising from or in connection with the Rooftop Communications
Equipment (which indemnity shall survive the termination of this Lease). If
said Rooftop Communications Equipment is not removed, and all damage repaired,
within 30 days after termination of this Lease, then said equipment shall
become the property of Landlord and Tenant shall pay Landlord the cost to
remove same and to repair any damage to the roof and Building.
In the event Landlord is not able to provide either the
microwave dish/earth satellite disks and/or whip antennae capacities referenced
above, Landlord shall be obligated to use reasonable efforts (without cost to
Landlord) to provide such capability in another location adequate to provide
for Tenant's transmission requirements substantially in accordance with the
above terms and conditions.
57. Financial Covenants. Upon Landlord's request from time to
time, but not more often than once every twelve (12) months, Tenant and
Tenant's general partner shall each provide to Landlord copies
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 29
<PAGE> 34
of its most current financial statements and such other financial information
as Landlord may reasonably request.
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 30
<PAGE> 35
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of
the date first above written.
<TABLE>
<S> <C>
LANDLORD:
MCCASLIN GREENSPOINT I, LTD., a Texas limited partnership
By: McCaslin Development I Limited, a Texas limited
partnership, general partner
By: McCaslin Development Company, a Texas
corporation, general partner
By: /s/
-----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Address
- ----------------------------
- ----------------------------
- ----------------------------
Attn:
----------------------------
TENANT:
Address Prior to
Commencement Date: OGAC, L.P., a Texas limited partnership
- ----------------------------
By: THE OIL AND GAS ASSET CLEARINGHOUSE, INC., a
- ---------------------------- Texas corporation, general partner
- ----------------------------
Attn:
----------------------
Address Subsequent to By: /s/ Kenneth R. Olive
Commencement Date: -----------------------------------------
Kenneth R. Olive, President
Premises
Attn: :
----------------------------
</TABLE>
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 31
<PAGE> 36
EXHIBIT "A"
LAND DESCRIPTION
FIELD NOTES FOR 299,477 SQUARE FEET OR 6.875 ACRES OF LAND BEING ALL OF
UNRESTRICTED RESERVE "B", GREENBRIAR PLACE AS RECORDED IN VOLUME 292, PAGE 62,
HARRIS COUNTY MAP RECORDS; SAID 6.875 ACRES OF LAND BEING THE SAME PROPERTY
DESCRIBED IN DEED DATED JULY 14, 1998 TO CALDWELL WATSON INVESTMENTS,
L.P.,RECORDED UNDER HARRIS COUNTY CLERK'S FILE NO. T144593, OFFICIAL PUBLIC
RECORDS OF REAL PROPERTY, LOCATED IN THE W. SEVEY SURVEY, ABSTRACT NO. 699,
HARRIS COUNTY, TEXAS: (Bearings are referenced to the plat of Greenbriar Place)
BEGINNING at a 5/8 inch iron rod found at the intersection of the westerly
right-of-way line of Imperial Valley Drive (100 feet wide per Harris County
Clerk's File No. D619883) and the common line of Restricted Reserve "A" of
Greenbriar Place and said Unrestricted Reserve "B" for the northeast corner of
said Restricted Reserve "A" and a called 3.7862 acre tract described in deed
date January 5, 1998 to ITW Mortgage Investments III, Inc., recorded under
Harris County Clerk's File No. S800758 and the southeast corner of the herein
described tract;
THENCE, North 76(degree)16'25" West, along the common line of said Restricted
Reserve "A" and said Unrestricted Reserve "B", a distance of 600.22 feet (called
600.59 feet) to a 5/8 inch iron rod found in the easterly right-of-way line of
Ronan Road (60 feet wide per Volume 292, Page 62, Harris County Map Records) for
the northwest corner of said Restricted Reserve "A" and the southwest corner of
the herein described tract;
THENCE along the easterly right-of-way line of Ronan Road, the following
courses and distances:
North 13(degree)42'24" East (called North 13(degree)43'35" East), a
distance of 5.00 feet to a 5/8 iron rod found for a point of curvature
of a curve to the left;
In a northerly direction, with said curve to the left, having a radius
of 430.00 feet, an arc length of 189.99 feet (called 190.43 feet), a
central angle of 25(degree)18'55" (called 25(degree)22'24"), and a
chord which bears North 01(degree)02'56" East , 188.45 feet to a 5/8
inch iron rod found for a point of tangency;
North 11(degree)36'31" West (called North 11(degree)38'49" West), a
distance of 50.09 feet (called 50.00 feet) to a 3/8 inch iron rod with
cap set for a point of curvature of a curve to the right;
In a northerly direction, with said curve to the right, having a radius
of 370.00 feet, an arc length of 164.88 feet (called 165.12 feet), a
central angle of 25(degree)31'56" (called 25(degree)34'10"), and a
chord which bears North 01(degree)09'27' East, 163.52 feet to a 5/8
inch iron rod found for a point of tangency;
North 13(degree)55'25" East (called North 13(degree)55'21" East), a
distance of 33.29 feet to a 3/8 inch iron rod with cap set in the
southerly cutback line of Benmar Drive (60 feet wide per Volume 225,
Page 72, Harris County Map Records) for the most westerly northwest
corner of the herein described tract;
THENCE, North 59(degree)10'20" East (called North 58(degree)40'25" East), along
said cutback line, a distance of 14.26 feet (called 14.20 feet) to a 5/8 inch
iron rod found in the southerly right-of-way line of said Benmar Drive for the
most northerly northwest corner of the herein described tract, said point also
being in a non tangent curve to the left whose center bears North
13(degree)18'59" East, 4,030.00 feet;
THENCE in an easterly direction, along the southerly right-of-way line of said
Benmar Drive, with said curve to the left, having a radius of 4,030.00 feet, an
arc length of 647.93 feet (called 648.17 feet), a central angle
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 32
<PAGE> 37
of 09(degree)12'42" (called 09(degree)12'55"), and a chord which bears South
81(degree)17'22" East, 647.23 feet to a 5/8 inch iron rod found for the point of
tangency;
THENCE, South 85(degree)53'43" East (called South 85(degree)38'11" East), along
the southerly right-of-way line of said Benmar Drive, a distance of 20.50 feet
to a 3/8 inch iron rod with cap set in the westerly cutback line of Imperial
Valley Drive for the most northerly northeast corner of the herein described
tract;
THENCE, South 39(degree)49'48" East, along said cutback line, a distance of
13.37 feet (called 13.94 feet) to a 3/8 inch iron rod with cap set in the
westerly right-of-way line of Imperial Valley Drive for the most easterly
northeast corner of the herein described tract, said point also being in a
non-tangent curve to the right whose center bears North 83(degree)50'04" West,
1,450.00 feet;
THENCE in a southerly direction along the westerly right-of-way line of Imperial
Valley Drive, with said curve to the right, having a radius of 1,450.00 feet, an
arc length of 191.35 feet (called 191.12 feet), a central angle of
07(degree)33'40" (called 07(degree)33'07"), and a chord which bears South
09(degree)56'46" West, 191.21 feet to a 3/8 inch iron rod with cap set for a
point of tangency;
THENCE, South 13(degree)43'36" West, along the westerly right-of-way line of
Imperial Valley Drive, a distance of 298.29 feet to the POINT OF BEGINNING and
containing 299,477 square feet or 6.875 acres of land.
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 33
<PAGE> 38
EXHIBIT "B"
FLOOR PLAN
[Immediately to Follow]
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 34
<PAGE> 39
EXHIBIT "C"
RULES AND REGULATIONS
1. Sidewalks, doorways, vestibules, halls, stairways, and
similar areas shall not be obstructed nor shall refuse, furniture, boxes or
other items be placed therein by Tenant or its officers, agents, servants, and
employees, or used for any purpose other than ingress and egress to and from
the Premises, or for going from one part of the Building or Complex to another
part of the Building or Complex. Tenant shall be responsible, at its sole cost,
for the removal of any large boxes or crates not used in the ordinary course of
business. Nothing shall be swept or thrown into the corridors, halls, elevator
shafts or stairways. Canvassing, soliciting, distributing handbills,
advertising and peddling in the Building and Complex are prohibited.
2. Plumbing fixtures and appliances shall be used only for the
purpose for which constructed, and no unsuitable material shall be placed
therein. Any stoppage or damage to any such fixtures or appliances from misuse
on the part of Tenant or Tenant's officers, agents, contractors, employees,
guests and customers shall be paid by Tenant, and Landlord shall not in any
case be responsible therefor.
3. No signs, directories, posters, advertisements, or notices
visible to the public shall be painted or affixed on or to any of the windows
or doors, or in corridors or other parts of the Building, except in such color,
size, and style, and in such places, as shall be first approved in writing by
Landlord. Landlord shall have the right to remove all unapproved signs,
directories, posters, advertisements or notices following reasonable prior
notice to Tenant at the expense of Tenant.
4. Tenant shall not do, or permit anything to be done in or
about the Building or Complex, or bring or keep anything therein, that will in
any way increase the rate of fire or other insurance on the Building, or on
property kept therein or otherwise increase the possibility of fire or other
casualty. No cooking, including grills or barbecues, shall be permitted within
the Premises or on any patio adjoining the Premises (other than cooking through
the use of a microwave oven).
5. Landlord shall have the power to prescribe the weight and
position of heavy equipment or objects which may overstress any portion of the
floor. All damage done to the Building by the improper placing of such heavy
items will be repaired at the sole expense of Tenant. Tenant shall notify the
Building manager when safes or other heavy equipment are to be taken in or out
of the Building and the moving shall be done only after written permission is
obtained from Landlord on such conditions as Landlord shall require.
6. Corridor doors, when not in use, shall be kept closed.
7. All movement of furniture and equipment into and out of the
Building shall be scheduled through the Building manager and conducted outside
of Normal Business Hours if the Building contains at least one other tenant
(except as otherwise provided in Section 4 of the Lease). Any delivery after
Normal Business Hours must be coordinated with the Building manager.
8. Tenant shall cooperate with Landlord's employees in keeping
the Premises neat and clean.
9. Tenant shall not cause or permit any improper noises in the
Building, or allow any unpleasant odors to emanate from the Premises, or
otherwise interfere, injure or annoy in any way other tenants, or persons
having business with them.
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 35
<PAGE> 40
10. No animals or birds shall be brought into or kept in or about
the Building, except those assisting the disabled.
11. No machinery of any kind, other than ordinary office machines
such as copiers, fax machines, personal computers and related mainframe
equipment, electric typewriters and word processing equipment, shall be
operated on the Premises without the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed.
12. Tenant shall not use or keep in the Building any flammable or
explosive fluid or substance (including Christmas trees and ornaments), or any
illuminating materials without the prior written approval of the Building
manager.
13. No bicycles, motorcycles or similar vehicles will be allowed
in the Building.
14. No nails, hooks, or screws (other than those necessary for
hanging artwork, diplomas, posterboards, etc. on interior walls) shall be
driven into or inserted in any part of the Building (including doors) except as
approved by Landlord.
15. Landlord has the right to evacuate the Building in the event
of an emergency or catastrophe. Tenant shall cause its officers, partners and
employees to participate in any fire safety or emergency evacuation drills
scheduled by Landlord.
16. No food and/or beverages shall be prepared, cooked or
distributed from the Premises without the prior written approval of Landlord,
which approval shall not be unreasonably withheld or delayed; however, Tenant
shall be permitted to install refrigerators, microwave ovens, coffee machines
and vending machines for the use of its own employees and guests.
17. No additional or replacement locks shall be placed upon any
doors without the prior written approval of Landlord, which approval shall not
be unreasonably withheld or delayed. All necessary keys shall be furnished by
Landlord, and the same shall be surrendered upon termination of this Lease and
Tenant shall then give Landlord an explanation of the combination of all locks
on doors or vaults. No duplicates of keys shall be made by Tenant.
18. Tenant will not locate furnishings or cabinets adjacent to
mechanical or electrical access panels or over air conditioning outlets so as
to prevent operating personnel from servicing such units as routine or
emergency access may require. The cost of moving such furnishings for
Landlord's access will be at Tenant's expense. Tenant shall instruct all of its
employees to refrain from any attempts to adjust thermostats. The lighting and
air conditioning equipment of the Building will remain the exclusive charge of
personnel designated by Landlord.
19. No portion of the Building shall be used for the purpose of
lodging rooms.
20. Prior written approval, which approval shall not be
unreasonably withheld or delayed, must be obtained for installation of window
shades, blinds, drapes or any other window treatment or object that may be
visible from the exterior of the Building or affect the heating and cooling of
the Building. Landlord will control all internal lighting that may be visible
from the exterior of the Building and shall have the right to change any
unapproved lighting following reasonable prior notice to Tenant at Tenant's
expense.
21. No supplemental heating, air ventilation or air conditioning
equipment, including space heaters and fans, shall be installed or used by
Tenant without the prior written consent of Landlord.
22. No smoking shall be permitted within the Premises or anywhere
else within the Complex other than those smoking areas designated by the
Building manager and such smoking areas shall
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 36
<PAGE> 41
not be designated at the entrance of the Building or at either the southwest or
northwest corners of the Building.
23. No unattended children shall be allowed within the Complex.
24. During other than Normal Business Hours, Building Access will
be limited and be by entry card or key entry together with Landlord's
registration procedures.
25. Landlord reserves the right to rescind any of these rules and
regulations and make such other and further rules and regulations as in its
judgment shall from time to time be necessary or advisable for the operation of
the Building or the Complex, providing that such rules and regulations are in
writing and uniformly enforced against all other tenants of the Building. Such
rules and regulations shall be binding upon Tenant upon delivery to Tenant of
notice thereof in writing.
26. In the event of any inconsistency between these rules and
regulations and the terms of the Lease, the terms of the Lease shall control.
27. Landlord acknowledges that at any given time Tenant will have
a large number of boxes that will need to be disposed of by the janitorial
service for the Building, and said disposal shall be at no additional charge to
Tenant so long as the boxes are broken down and flattened by Tenant before said
boxes are placed outside of the Premises.
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 37
<PAGE> 42
EXHIBIT "D"
TENANT IMPROVEMENTS AGREEMENT
This Tenant Improvements Agreement (the "Tenant Improvements
Agreement") describes and specifies the rights and obligations of Landlord and
Tenant with respect to the design, construction and payment for the completion
of the Initial Improvements within the Premises.
1. Definitions. Terms which are defined in the Lease shall have
the same meaning in this Tenant Improvements Agreement. Additionally, as used
in this Tenant Improvements Agreement, the following terms (when delineated
with initial capital letters) shall have the respective meaning indicated for
each as follows:
(a) Change Costs means any increase in the Cost of the
Work attributable to any change in the scope of the Work requested or
made necessary by Tenant or its representatives, including, without
limitation, (1) a direction by Tenant to add to, modify or omit any
item of Work contained in the Space Plan or the Plans and
Specifications, (2) any additional architectural or engineering
services, (3) any changes to materials in the process of fabrication,
(4) the cancellation or modification of supply or fabricating
contracts, or (5) the removal or alteration of any Work completed or
in process.
(b) Construction Allowance means THREE HUNDRED
SEVENTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE AND NO/100 DOLLARS
($374,625.00), which has been computed and agreed to at the rate of
FIFTEEN AND NO/100 DOLLARS ($15.00) per square foot of Rentable Area
within the Premises, based on 24,975 square feet. The Construction
Allowance may be increased by up to an additional FIVE AND NO/100
DOLLARS ($5.00) per square foot of Rentable Area as provided in
Paragraph 12 below, which amount shall be reimbursed to Landlord as
provided in Paragraph 12 below.
(c) Construction Manager means any third party engaged
by Tenant to manage or inspect the performance of the Work. The choice
of Construction Manager shall be subject to the prior written approval
of Landlord, such approval not to be unreasonably withheld.
(d) Contractor means the general contractor selected by
Tenant and approved by Landlord to perform the Work. The choice of
Contractor shall be subject to the prior written approval of Landlord,
such approval not to be unreasonably withheld.
(e) Cost of the Work means the actual, out-of-pocket
costs of performing the Work. The Cost of the Work shall include all
permit fees, including, without limitation, any fee payable to the
Texas Department of Licensing and Regulation (or any successor
thereto).
(f) Design/Test Fit Allowance means THIRTY-THREE
THOUSAND TWO HUNDRED SIXTEEN AND 75/100 DOLLARS ($33,216.75), which
has been computed and agreed to at the rate of ONE AND 33/100 DOLLARS
($1.33) per square foot of Rentable Area within the Premises, based on
24,975 square feet.
(g) Excess Amount means the amount by which the Cost of
the Work exceeds the Construction Allowance.
(h) Plans and Specifications means the detailed
construction documents for the Initial Improvements dated ____, 1999,
prepared by __________ . If no Plans and Specifications have been
agreed upon by Landlord and Tenant as of the execution date of this
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 38
<PAGE> 43
Lease, "Plans and Specifications" shall mean the Plans and
Specifications described in Paragraph 2 below.
(i) Space Plan means the space plan dated ______________,
1999, prepared by ____________________, and showing the general
configuration of the Initial Improvements. If no Space Plan has been
agreed upon by Landlord and Tenant as of the execution date of this
Lease, "Space Plan" shall mean the Space Plan described in Paragraph 2
below.
(j) Work means all materials and labor to be added to
the existing improvements in the Premises, if any, in order to
complete the installation of the Initial Improvements within the
Premises for Tenant in accordance with the Plans and Specifications,
including, without limitation, all air balancing and other mechanical
adjustments to Building equipment serving the Premises. Tenant
acknowledges and agrees that only Building Standard materials may be
utilized in the performance of the Work unless otherwise approved by
Landlord in writing. The Work shall not include the purchase and
installation of any voice and data cabling, telephone or other
communications equipment unless specifically included on the Plans and
Specifications.
(k) Working Days means all days of the week other than
Saturday, Sunday, and legal holidays.
2. Approval of Design Professionals; Space Plan and Plans and
Specifications. All construction and design professionals engaged by Tenant,
including, without limitation, Contractor, architects, engineers and interior
designers shall be subject to the prior written approval of Landlord, such
approval not to be unreasonably withheld. Not later than thirty (30) days
following the execution of this Lease (if not already submitted and agreed upon
as described in subsection 1(h) above), Tenant shall submit to Landlord for
Landlord's approval, complete plans, specifications and working drawings (the
"Initial Plans and Specifications") for the Initial Improvements sufficient for
obtaining all necessary permits and completion of the construction of all
Initial Improvements and to permit Landlord's informed evaluation of the
intended form, construction and specifications of the Initial Improvements. The
Initial Plans and Specifications shall specifically include, without
limitation, depictions of the proposed location of all heating, ventilation and
air conditioning duct work and stacks, roof penetrations, partitions, doors,
room finish schedules, wall colors, locations of electrical outlets and phone
outlets and all other relevant details as to the Initial Improvements, any
special electricity or other utility needs by location and general description
of need, location and description of special plumbing requirements, and special
architectural features. The plans and specifications for all aspects of the
Initial Improvements shall be prepared by a licensed architect, engineer and/or
space planner who has been approved in writing by Landlord. If Landlord has any
objections to the Initial Plans and Specifications, Landlord shall within five
(5) business days after receipt thereof notify Tenant in writing of the
revisions that Landlord will require before consenting to the Plans and
Specifications. If Landlord's objections pertain only to a portion of the Plans
and Specifications, Tenant may proceed with permitting of the balance of the
Plans and Specifications. As promptly as reasonably possible thereafter, but
not more than ten (10) business days after Landlord's notice, Tenant shall
submit to Landlord the Initial Plans and Specifications incorporating the
revisions required by Landlord. Those revisions shall be subject to Landlord's
approval, such approval to be granted or denied within one (1) business day
after Landlord's receipt thereof. The foregoing process shall be implemented
repeatedly as necessary (but Tenant covenants to submit construction documents
acceptable to Landlord not later than the date set forth above in this
paragraph) until Landlord shall have approved the Initial Plans and
Specifications. The Initial Plans and Specifications for the Initial
Improvements, together with all revisions thereto, once approved by Landlord in
accordance with this Tenant Improvements Agreement, are referred to herein as
the "Plans and Specifications."
3. Construction Schedule. Tenant's submission of the Initial
Plans and Specifications shall also include a date flow chart providing a
schedule (the "Construction Schedule") of the anticipated dates of completion
of the various phases of construction of the Initial Improvements. The
Construction Schedule
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 39
<PAGE> 44
shall be in such detail as to permit Landlord to identify the scheduled dates
of completion of each material phase of construction of the Initial
Improvements under the Plans and Specifications. Within ten (10) days after
Landlord's receipt thereof, Landlord may require that Tenant modify the
Construction Schedule to provide such additional detail as Landlord may deem
necessary. All references in this Tenant Improvements Agreement to the
Construction Schedule shall refer to that item in the form approved by Landlord
in accordance with this Paragraph 3.
4. Accomplishment of Improvements to the Premises. As otherwise
provided below, Tenant shall construct or cause to be constructed all of the
Initial Improvements in a good and workmanlike manner, in accordance with the
Plans and Specifications, the Construction Schedule and all applicable federal,
state and local laws, ordinances, rules and regulations, including, but not
limited to, Title III of the Americans With Disabilities Act of 1990 or Tex.
Civ. Stat. Ann. art. 9102 and the Texas Architectural Barrier Statute. Except
as expressly provided otherwise herein, Tenant shall have complete
responsibility for all aspects of the construction of the Initial Improvements
and the proper and timely completion thereof in accordance with this Tenant
Improvements Agreement. In any event, Tenant shall cause all of the Initial
Improvements to be substantially completed on or before September 30, 1999 (the
"Completion Deadline") in accordance with the Plans and Specifications,
provided that Tenant's failure to do so shall not cause a delay of the Rent
Commencement Date. Tenant shall assume responsibility for the satisfactory
performance of all work by the Contractor, including, without limitation, (i)
the completion of any such work which is prerequisite to occupancy on a
schedule agreed upon with Landlord, (ii) the conformance of the workmanship of
the Contractor and all subcontractors to the Plans and Specifications, (iii)
all necessary cooperation and coordination by the Contractor and all
subcontractors with Landlord so as to cause no interference with the business
of other tenants in the Complex, if any, and (iv) for release of all liens,
claims of liens, or potential claims of liens arising from any work done by the
Contractor or any subcontractor engaged by the Contractor. If at any time the
entry or performance by the Contractor or any subcontractors shall interfere
with other tenants or violate the terms hereof, Landlord may withdraw the
license granted herein to use the Contractor or such subcontractor, as the case
may be, and exclude access to the Complex upon twenty-four (24) hours written
notice to Tenant. Prior to commencing work, Tenant or the Contractor shall
provide Landlord with a copy of the original contract(s) under which all work
for the Initial Improvements will be performed. Landlord shall have the right
to review and approve the original contract(s) prior to commencement of work.
The Contractor and all subcontractors selected by Tenant shall provide and
maintain Workmen's Compensation and public liability insurance for bodily
injury and property damage in amounts and with companies and on forms
satisfactory to Landlord, which policies of insurance shall name Landlord as an
additional insured. Additionally, Tenant or the Contractor shall provide and
maintain during the course of construction of the Initial Improvements
builder's completed value risk insurance against "all risks of physical loss,"
including collapse and transit coverage, with deductibles not to exceed
$10,000.00, in non-reporting form, covering the total value of all work
performed and equipment, supplies, and materials furnished in connection with
the construction of the Initial Improvements, and containing a rent loss
endorsement. Certificates evidencing such insurance shall be furnished to
Landlord prior to commencing work. Except to the extent the same is caused by
the gross negligence or willful misconduct of Landlord, Landlord shall not be
liable in any way for any injury, loss or damage which may occur to any of
Tenant's decorations or installations during construction of the Initial
Improvements, the same being solely at Tenant's risk. TENANT SHALL INDEMNIFY
AND FOREVER HOLD HARMLESS THE LANDLORD AGAINST ANY AND ALL CLAIMS, LIABILITIES,
DAMAGES OR CAUSES OF ACTION ARISING OUT OF THE PERFORMANCE OF ANY WORK BY
TENANT, THE CONTRACTOR AND ALL OTHER CONTRACTORS AND SUBCONTRACTORS SELECTED BY
TENANT OR THE CONTRACTOR OR FROM TENANT'S FAILURE TO COMPLY WITH THE TERMS OF
THIS TENANT IMPROVEMENTS AGREEMENT. While in or upon the Premises and the
Complex for the purposes of performing work hereunder, Tenant and the
Contractor shall comply with all terms and provisions of the Lease, which shall
govern the relationship of the parties except as expressly provided otherwise
herein. Notwithstanding any other provision herein, if any construction of the
Initial Improvements requires roof penetrations or penetration, drilling or
cutting into the load bearing walls, exterior walls or other structural support
of the Buildings, then Landlord shall have the right to designate, in
Landlord's sole discretion, the contractor performing such work.
Notwithstanding any other provision in the Lease to the contrary, all charges
for utilities consumed by Tenant or the
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 40
<PAGE> 45
Contractors, agents or employees in connection with the construction and
installation of the Initial Improvements, including electricity, water and
sewer, shall be paid by Landlord.
5. Building Permits and Certificates of Occupancy. Tenant shall
obtain all permits and approvals from all appropriate governmental authorities
with respect to the construction of the Initial Improvements. Tenant shall also
obtain prior to the Completion Deadline, or such earlier date as the Initial
Improvements may be substantially completed, a final Certificate of Occupancy
permitting occupancy and use of the Premises for the uses permitted under the
Lease, provided that Tenant's failure to do so shall not cause a delay of the
Rent Commencement Date. Landlord shall reasonably cooperate with Tenant, at no
cost to Landlord (except as expressly provided otherwise below), in connection
with Tenant's efforts to obtain all necessary approvals and permits and the
Certificate of Occupancy for the Premises. If any permit or Certificate of
Occupancy is withheld by an applicable municipal authority by reason of the
noncompliance of any portion of the Complex (other than any portion of the
Complex that is within the Premises) with any applicable law, ordinance, rule
or regulation, Landlord, shall, at its cost, cause such noncompliance to be
corrected; provided, however, Landlord shall not in any event be obligated to
make any improvement or modification to the Complex which is a prerequisite to
the issuance of any permit or Certificate of Occupancy because of the nature of
the improvements contemplated in the Plans and Specifications or Tenant's
intended use of the Premises.
6. Failure to Complete. If, as of the Completion Deadline, all
of the Initial Improvements have not been completed in accordance with the
Plans and Specifications, Landlord may, but shall not be obligated to, at
Tenant's cost, proceed to perform any and all construction necessary to
complete the Initial Improvements in accordance with the Plans and
Specifications and as may be necessary to enable Landlord to obtain a
Certificate of Occupancy for the Premises. Landlord may offset against the
Leasehold Improvement Allowance any costs incurred by Landlord pursuant to this
Paragraph 6. To the extent any costs incurred by Landlord pursuant to this
Paragraph 6 exceed the Leasehold Improvement Allowance that would otherwise be
payable to Tenant, such costs shall be payable by Tenant to Landlord as
additional Rent under the Lease promptly upon being invoiced therefor.
7. Construction Inspections. During all phases of the
construction of the Initial Improvements, Landlord shall be entitled to inspect
and monitor the construction of the Initial Improvements in order to ensure
Tenant's performance thereof in accordance with the Plans and Specifications
and the Construction Schedule. Tenant shall provide Landlord with access to the
Premises for such purposes and shall cause Tenant's agents and contractors to
consult and cooperate with Landlord in such manner and upon such frequency as
Landlord may reasonably request. Notwithstanding the foregoing, Landlords's
inspections shall not imply that the Plans and Specifications comply with
applicable federal, state and local statutes, codes, ordinances and other
regulations and shall not impose any liability on Landlord or relieve Tenant
from any obligations hereunder.
8. Approval of Plans and Specifications. Except as otherwise
provided herein, with respect to any and all provisions in this Tenant
Improvements Agreement which provide for or require Landlord's consent or
approval, Landlord shall not unreasonably withhold such approval; provided,
however, among the factors that Landlord may consider in determining whether to
grant or withhold its consent under this Tenant Improvements Agreement are,
without limitation, Landlord's judgment, in its sole and absolute discretion,
as to the effect that the requested plans and specifications or modifications
or additions thereto, any proposed contractor or subcontractor, or other matter
with respect to which Landlord's consent is requested would have on (i) the
structural integrity of the Building or the Premises, (ii) the aesthetic
appearance of the Building or the Premises, (iii) the safety of persons and
property within the Complex, (iv) the compliance of the Complex and the
Premises with applicable laws, ordinances, rules and regulations, and (v) such
other factors as Landlord may reasonably deem pertinent. To the extent any
approval of consent requested of Landlord is not given by Landlord as evidenced
by written notice from Landlord to Tenant within ten (10) days after Landlord's
receipt of such request, such approval or consent shall be deemed to be denied
by Landlord.
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 41
<PAGE> 46
9. Compliance with Applicable Laws. Tenant acknowledges that
Landlord's approval of the Plans and Specifications does not imply that the
Plans and Specifications comply with, and Landlord has no responsibility for
compliance of the Plans and Specifications with applicable federal, state and
local statutes, codes, ordinances and other regulations.
10. Reimbursement of Construction Allowance; Payment of Excess
Amount. Initially, Tenant shall pay for, or the Contractor shall incur on
behalf of Tenant, all costs and expenses necessary to complete the Initial
Improvements, including the costs of labor, materials, preparation of all plans
and specifications, and management and overhead expenses. However, subject to
the conditions set forth below, Landlord will reimburse Tenant, by making
payment directly to the Contractor, for certain of the costs and expenses
incurred in constructing the Initial Improvements in an amount up to but not
exceeding the Construction Allowance. Landlord's reimbursement to Tenant shall
be on a periodic basis as set forth below:
(a) Tenant may submit or cause the Contractor to submit
applications for progress payments (each, an "Application for Payment"),
substantially in the form of the standard AIA G702 Application and Certificate
for Payment or in such other form as Landlord may reasonably require, no more
often than monthly, on or before the fifth (5th) day of each month during the
construction of the Initial Improvements. Each Application for Payment shall be
for the aggregate out-of-pocket cost of the Initial Improvements constructed
during the preceding month less ten percent (10%) retainage until final payment
as set forth below. The costs and expenses for which reimbursement is requested
shall be segregated and detailed within a schedule attached to each Application
for Payment in a manner satisfactory to Landlord.
(b) Each Application for Payment shall be certified by
Tenant, the Contractor and, if applicable, Tenant's Architect as to the matters
contained therein.
(c) Concurrent with each Application for Payment, Tenant
or the Contractor shall furnish the following to Landlord: (a) partial waivers
of liens (and full waivers of liens with the final Application for Payment) in
a form acceptable to Landlord from all contractors and subcontractors
performing the work (under contracts with a cost in excess of $1,000) with
respect to which the Application for Payment is submitted such waiver to be for
work completed through the date of the immediately preceding Application for
Payment (except for the final application for payment, which shall be for all
work), and (b) copies of all invoices and other documentation supporting all
amounts for which reimbursement is requested in the Application for Payment, as
referred to in the schedule of costs and expenses attached thereto.
(d) Any payment due to the Contractor hereunder shall be
reduced by an amount of up to 150% of the amount of any mechanics' or
materialmen's lien or lien claim arising from or related to the construction of
the Initial Improvements, until such lien or lien claim is removed of record
and/or bonded.
(e) Within fifteen (15) days after Tenant's submission
of an Application for Payment to Landlord as required herein, Landlord shall
make payment to the Contractor of the amount requested therein; provided,
however, Landlord shall be entitled to make such exceptions as Landlord may
reasonably deem appropriate with respect to those items set forth in the
Application for Payment which are incomplete, insufficiently described or not
supported by partial lien waivers (and full lien waivers with the final
Application for Payment) supporting invoices or other documentation as required
above. If Landlord makes any exceptions to an Application for Payment, Landlord
shall provide Tenant and the Contractor with a written explanation of the same.
(f) Notwithstanding any provision contained herein to
the contrary, Landlord shall not be obligated to make any payment to the
Contractor hereunder if any one or more of the following conditions exist: (i)
Tenant is in default in the performance of any of its obligations under this
Tenant Improvements Agreement or an Event of Default exists under the Lease
(but if and when such default is cured, Landlord shall make such payment to
Contractor); or (ii) any part of such payment is attributable to work which is
defective or not performed in accordance with the Plans and Specifications;
provided, however, that such payment shall be made as to the part thereof
attributable to work which is performed in accordance with the
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 42
<PAGE> 47
Plans and Specifications and is not defective, and if and when the defective
work is corrected, payment shall be made therefor.
(g) Landlord shall not be obligated to make any payment
under the final Application for Payment until the last to occur of (i)
Landlord's receipt from Tenant of a final Certificate of Occupancy issued by
the City of Houston or other municipal or governmental agency authorized to
issue a Certificate of Occupancy for the Premises, (ii) Landlord's receipt of
invoices or other evidence reasonably satisfactory to it confirming the amount
expended or incurred by Tenant for the Initial Improvements, (iii) Landlord's
approval of the Initial Improvements as having been substantially completed
(excepting only usual punch-list items) substantially in accordance with the
Plans and Specifications, which approval shall not be unreasonably withheld,
(iv) Landlord's receipt of a final lien waiver in a form acceptable to Landlord
covering the release of all mechanics' and materialmen's liens arising from, or
potential mechanic's and materialmen's liens that could arise from, the
construction of the Initial Improvements, (v) an affidavit from Tenant and the
Contractor that such final lien waiver includes and covers all materials and
services for which a lien could be filed, provided that Tenant may, if any
subcontractor or supplier refuses to furnish a release in full, furnish a
surety bond satisfactory to Landlord to indemnify Landlord, its successors and
assigns, against any mechanics' or materialmen's lien, (vi) Landlord's receipt
of final as-built plans and specifications certified by Tenant's architect or
engineer as accurately depicting the Premises with the completed Initial
Improvements, and (vii) the date that is thirty (30) days after the date on
which the Initial Improvements have been substantially completed. In no event
shall any allowance or reimbursement from Landlord exceed the Construction
Allowance.
(h) The Construction Allowance may not be used for any
purpose other than for payment of the Cost of the Work, except as provided in
Paragraph 13 below. No portion of the Construction Allowance may be applied
against Rent.
(i) The Excess Amount, if any, shall be paid by Tenant.
Tenant shall, prior to the commencement of the Work, provide Landlord with an
estimate, prepared by the Contractor, of the Excess Amount, and if Tenant's
estimate of the Excess Amount should change from time to time, Tenant shall
advise Landlord of same in writing.
(j) Notwithstanding anything herein to the contrary,
Landlord's obligation to fund the Construction Allowance shall terminate and be
of no further force or effect with respect to any Application for Payment not
received by Landlord, and with respect to any Work not substantially completed,
on or before December 31, 1999. The cost of any Work not completed on or before
December 31, 1999 or for which an Application for Payment is not received by
Landlord on or before December 31, 1999 shall be borne by Tenant without any
right of reimbursement from Landlord.
11. Design Allowance. Upon written request from Tenant, Landlord
shall reimburse to Tenant the lesser of the Design Allowance or Tenant's cost
of preparing the Plans and Specifications, such cost to be evidenced by
supporting invoices, paid receipts and final lien waivers submitted to
Landlord. The Design Allowance may not be used for any purpose other than for
reimbursement towards Tenant's cost of the Plans and Specifications. No portion
of the Design Allowance may be applied against Rent. Notwithstanding anything
herein to the contrary, Landlord's obligation to fund the Design Allowance
shall terminate and be of no further force or effect with respect to any
written request for payment (and supporting invoices, paid receipts and final
lien waivers) not received by Landlord, or with respect to the Plans and
Specifications, not substantially completed, on or before December 31, 1999.
The cost of any Plans and Specifications not completed on or before December
31, 1999 or for which a request for payment (and supporting invoices, paid
receipts and final lien waivers) is not received by Landlord on or before
December 31, 1999 shall be borne by Tenant without any right of reimbursement
from Landlord.
12. Additional Construction Allowance; Amortized over Initial
Lease Term. At Tenant's option, to be exercised by delivery of written notice
to Landlord within ninety (90) days after the execution of the Lease, the
Construction Allowance may be increased by up to an additional FIVE AND NO/100
DOLLARS
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 43
<PAGE> 48
($5.00) per square foot of Rentable Area. If Tenants elects to increase the
Construction Allowance as provided above, then, notwithstanding anything in the
Lease or in this Tenant Improvements Agreement to the contrary, any sums in
excess of ONE HUNDRED TWENTY-FOUR THOUSAND EIGHT HUNDRED SEVENTY-FIVE AND
NO/100 DOLLARS ($124,875.00) that are funded by Landlord (the "Reimbursable
Portion of the Construction Allowance") shall accrue interest and shall be
reimbursed to Landlord as follows:
Commencing with the next monthly payment of Base Rental due under the
Lease after Landlord's funding of the Reimbursable Portion of the
Construction Allowance or any portion thereof, Tenant shall pay to
Landlord, as additional Rent under the Lease, an amount necessary to
fully amortize said Reimbursable Portion of the Construction Allowance
(plus interest thereon at the rate of 10% per annum accrued from the
date of advance of the same to Tenant) in equal monthly payments, at
ten percent (10.0%) interest per annum, over the remaining initial
Lease Term (but not any Renewal Term), and Tenant shall pay a like
amount to Landlord along with each subsequent monthly payment of Base
Rental during the remaining initial Lease Term. If the Reimbursable
Portion of the Construction Allowance is funded by Landlord in more
than one payment, the amount of the equal, monthly payments necessary
to fully amortize the Reimbursable Portion of the Construction
Allowance shall increase from time to time as necessary to fully
amortize the Reimbursable Portion of the Construction Allowance over
the then-remaining initial Lease Term.
Notwithstanding anything herein to the contrary, Landlord's obligation
to fund the Reimbursable Portion of the Construction Allowance shall terminate
and be of no further force or effect if a written request therefor is not
received by Landlord within thirty (30) days after the Commencement Date of the
Lease.
13. Moving Allowance. Provided that the Initial Improvements have
been substantially completed in accordance with this Tenant Improvements
Agreement and Tenant has occupied the Premises and all Work has been paid for,
and provided that no Event of Default shall then exist under this Lease, to the
extent there remain excess funds available under the Construction Allowance,
Landlord shall pay to Tenant, upon Tenant's written request, a moving allowance
(the "Moving Allowance") in an amount equal to the actual relocation costs
incurred by Tenant in moving from Tenant's current location to the Building.
The Moving Allowance shall be paid within thirty (30) days following the later
of (i) the date upon which Tenant actually commences the conduct of its
business in the Premises, and (ii) the date on which all supporting invoices
have been submitted to Landlord. All requests for the Moving Allowance must be
supported by invoices and paid receipts or other evidence of relocation cost
reasonably satisfactory to Landlord. As used herein, the term "relocation
costs" shall mean sums paid for professional movers, printing of new stationery
and business cards, cabling and phone installation costs, and such other
reasonably related costs and expenses as shall be approved by Landlord.
Notwithstanding anything herein to the contrary, Landlord's obligation to fund
the Moving Allowance shall terminate and be of no further force or effect with
respect to any written request for payment (and supporting invoices) not
received by Landlord on or before December 31, 1999. Any relocation costs for
which a request for payment (and supporting invoices) is not received by
Landlord on or before the Completion Deadline shall be borne by Tenant without
any right of reimbursement from Landlord. In no event shall Landlord be
obligated to pay the Moving Allowance or any portion thereof beyond the amount
of funds available, if any, in the Construction Allowance.
14. Default. The amounts payable by Tenant to Landlord hereunder
shall constitute Rent, and Tenant's failure to make any such payment when due,
and any other failure to perform its obligations hereunder, shall constitute an
Event of Default under the Lease, entitling Landlord, subject to any applicable
notice and/or grace periods provided in the Lease, to exercise any or all of
its remedies under the Lease or this Tenant Improvements Agreement. Nothing
contained in the previous sentence shall be construed to extend the Rent
Commencement Date, the Completion Deadline or any other date specified in this
Tenant Improvements Agreement or the Lease; provided, however, if Tenant is
unable to perform the applicable
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 44
<PAGE> 49
obligations of Tenant due solely to a default by Landlord of its obligations
under the Lease, then the applicable date shall be extended by the number of
days which are attributable to such default by Landlord.
15. Change Orders. All changes and modifications in the Work from
that contemplated in the Plans and Specifications, whether or not such change
or modification gives rise to a Change Cost, must be evidenced by a written
Change Order executed by both Landlord and Tenant. In that regard, Tenant shall
submit to Landlord such information as Landlord shall require with respect to
any Change Order requested by Tenant. After receipt of a requested Change
Order, together with such information as Landlord shall require with respect
thereto, Landlord shall return to Tenant either Landlord's written approval
thereof, or a statement disapproving such requested Change Order and stating
the reasons for disapproval.
16. Notices. All notices required or contemplated hereunder
shall be given to the parties in the manner specified for giving notices under
the Lease.
17. Building Condition. Except as expressly set forth below and
elsewhere within the Lease with respect to repairs which are the obligation of
Landlord, Tenant accepts the Premises in its existing condition, with no
repairs, construction, conditioning or modification of the Premises being
required of Landlord other than those items ("Landlord's Work") described on
Exhibit D-1 attached hereto and made part hereof for all purposes. Landlord
hereby covenants and agrees to complete Landlord's Work by the respective dates
set forth on Exhibit D-1. If a delay in the completion of Landlord's Work
beyond the applicable deadline(s) set forth in Exhibit D-1 results in a delay
in Tenant's ability to commence its Work, then for each day Landlord delays in
completing the Landlord's Work beyond the applicable deadline(s) set forth in
Exhibit D-1, the Completion Deadline shall be extended one day. Landlord
covenants and agrees that the Landlord's Work shall be completed in a good and
workmanlike fashion substantially in accordance with the plans and
specifications therefor which are described on Exhibit D-1 attached hereto.
Notwithstanding the foregoing, Tenant acknowledges and agrees that the portion
of the Landlord's Work with respect to renovation of the main lobby of the
Building will not be complete on or prior to October 1, 1999 and that Tenant
shall have no remedy as a consequence thereof.
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 45
<PAGE> 50
EXHIBIT "D-1"
LANDLORD'S WORK
[Immediately to Follow]
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 46
<PAGE> 51
EXHIBIT "E"
PARKING
This Exhibit "E" ("Parking Exhibit") describes and specifies Tenant's
nonexclusive right to use up to (i) one (1) parking space for each 255.5 square
feet of Rentable Area from time to time within the Premises (the "Spaces")
located within the Parking Areas, of which fifteen (15) Spaces shall be
reserved canopy Spaces ("Reserved Spaces") at the location outlined in Exhibit
"E-1" attached hereto.
1. Definitions. The terms which are defined in the Lease shall
have the same meaning in this Parking Exhibit.
2. Grant and Rental Fee. Provided no Event of Default has
occurred and is continuing under the Lease, Tenant shall be permitted the
nonexclusive use of the Spaces during the Lease Term at a monthly rate of
$25.00 per Reserved Space (together with any applicable tax thereon) and
subject to such terms, conditions, and regulations as are, from time to time,
promulgated by Landlord.
3. Unavailability of Spaces. If all or a portion of the Spaces
become unavailable to Tenant due to casualty damage, flooding, condemnation or
repairs, Landlord shall use reasonable efforts to provide Tenant with
reasonably satisfactory alternative parking arrangements until the use of such
Spaces is restored. Notwithstanding anything contained herein to the contrary,
Tenant shall have no right to terminate this Lease by reason of such loss of
available parking.
4. Risk. All motor vehicles (including all contents thereof)
shall be parked in the Spaces at the sole risk of Tenant, its employees,
agents, invitees and licensees, it being expressly agreed and understood that
Landlord has no duty to insure any of such motor vehicles (including the
contents thereof), and that Landlord is not responsible for the protection and
security of such vehicles. LANDLORD SHALL HAVE NO LIABILITY WHATSOEVER FOR ANY
PROPERTY DAMAGE AND/OR PERSONAL INJURY WHICH MIGHT OCCUR IN THE PARKING AREAS
OR ON THE SURFACE PARKING AREAS ON THE PROPERTY OR AS A RESULT OF OR IN
CONNECTION WITH THE PARKING OF MOTOR VEHICLES IN ANY OF THE SPACES. THE
INDEMNITY PROVISIONS OF SECTION 22 OF THE LEASE SHALL APPLY TO THIS PARKING
EXHIBIT.
5. Rules and Regulations. In its use of the Spaces, Tenant shall
follow the following rules and regulations for the Parking Areas, as the same
may be amended or supplemented from time to time in accordance with the terms
of Exhibit "C".
(a) Cars must be parked entirely within the stall lines
painted on the floor;
(b) All directional signs and arrows must be observed;
(c) The speed limit shall be five (5) miles per hour;
(d) Parking is prohibited in areas not striped for
parking, aisles, areas where "no parking" signs are
posted, in cross hatched areas and in such other
areas as may be designated by Landlord or Landlord's
agent(s) including, but not limited to, areas
designated as "Visitor Parking" or reserved spaces
not rented under this Exhibit;
(e) Every parker is required to park and lock his own
car;
(f) Spaces which are designated for small, intermediate
or full-sized cars shall be so used. No intermediate
or full-size cars shall be parked in parking spaces
limited to compact cars; and
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 47
<PAGE> 52
(g) No vehicle may be stored in the Parking Areas. Any
vehicle remaining in the Parking Areas
uninterruptedly for five (5) business days is deemed
to have been stored in the Parking Areas.
6. Default. Upon the occurrence of an Event of Default by Tenant
under the Lease, Landlord shall be entitled to terminate Tenant's right to
utilize the Spaces.
7. Access. Landlord shall be entitled to utilize whatever access
device Landlord deems necessary (including but not limited to the issuance of
parking stickers or access cards), to assure that only authorized persons are
using the Parking Areas.
8. Parking. Except for the Reserved Spaces, the Parking Areas of
the Complex are provided for the nonexclusive and common use of Landlord, all
tenants of the Building, and their respective guests and invitees. Utilization
of the Parking Areas (other than the Reserved Spaces) is subject to
availability. Tenant, its employees, customers and invitees have no right to
park in the parking areas that may be reserved for other Tenants. If any person
shall wrongfully park in any of the Parking Areas or the parking areas of other
tenants, Landlord shall be entitled and is hereby authorized to place a wheel
lock or other device restricting mobility upon such vehicle or have any such
vehicle towed away, at the sole risk and expense of the vehicle owner.
9. Parking for Data Boxes. In addition to the Reserved Spaces,
Tenant shall have a reserved parking space of approximately 9 ft. by 18 ft., as
outlined on Exhibit "E-1" attached hereto, for use by Tenant in loading and
unloading of data boxes and equipment. Such space shall not be utilized for
such purpose for a continuous period of more than two hours at any given time.
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 48
<PAGE> 53
EXHIBIT "E-1"
PARKING DIAGRAM
[Immediately to Follow]
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 49
<PAGE> 54
EXHIBIT "F"
CONFIDENTIALITY AGREEMENT
CONFIDENTIALITY AGREEMENT, dated as of _____________, by _____________,
a ________________ ("Tenant"), and _______________________________ ("Auditor").
WITNESSETH THAT:
WHEREAS, in connection with that certain Lease (the "Lease") dated
_________________, between _________________ ("Landlord") and Tenant, Tenant has
the right to hire an independent accounting firm to audit Landlord's books and
records pertaining to Basic Operating Costs (defined in the Lease); and
WHEREAS, it is expected that in connection with such audit, Tenant and
Auditor will receive or have access to Confidential Information (defined
below); and
WHEREAS, as a condition of Tenant's audit right, Landlord requires
that Tenant and Auditor keep confidential the Confidential Information.
NOW, THEREFORE, in consideration of and as a condition of Tenant's
audit right and in consideration of payment by Tenant for Auditor's services
for performing the audit, and for other good and valuable consideration, the
receipt, sufficiency and adequacy of which are hereby acknowledged, Auditor and
Tenant agree as follows:
1. Auditor and Tenant acknowledge that information which Auditor
and Tenant may receive in connection with such audit is nonpublic, confidential
or proprietary relating to Landlord, its business operations and the Complex,
and that Landlord may be irreparably damaged if Auditor and Tenant's
confidential knowledge of this material were disclosed to or utilized on behalf
of any other person (including Auditor and Tenant), firm, corporation or any
other tenant of the Complex. Auditor and Tenant agree that any information
given to Auditor or Tenant by Landlord during the course of such audit is, and
shall remain property owned by Landlord, and neither Auditor nor Tenant shall
have any right in or to such information other than to use the information for
the purposes set forth in the Lease.
2. Auditor and Tenant agree to keep confidential and agree to
cause their employees, associates, agents and advisors to keep confidential any
information belonging to Landlord or its affiliates and any information not
generally known to the public about the business and affairs of Landlord,
including, without limitation, (a) all books, manuals, records, memoranda,
projections, business plans, tenant lists, cost information, contractual
relationships and (b) other information, whether computerized, written or oral,
relating specifically or generally to operating costs, the Complex and business
operations of Landlord (the "Confidential Information").
3. Auditor and Tenant each hereby represent and warrant that its
internal policies, procedures and practices are adequate to safeguard against
any breach of this Agreement by it or its employees, associates, agents and
advisors and Auditor and Tenant each agree to maintain such internal policies,
procedures and practices as are necessary to adequately safeguard against a
breach of this Agreement.
4. "To Keep Confidential", as used herein, means that the
information or document, including the content, substance or effect of such
information or document, (a) shall not be disclosed, discovered or distributed
by Auditor or Tenant to any other person, firm, organization or entity,
including any associate, agent, advisor or affiliate of Auditor or Tenant and
any other tenant of the Complex, (b) shall not be utilized by either Auditor or
Tenant for any purpose other than as described in the Lease.
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 50
<PAGE> 55
5. Notwithstanding anything to the contrary herein, if Auditor
or Tenant is required in legal, arbitration, governmental or regulatory
proceedings, Auditor or Tenant may disclose only that portion of the
Confidential Information which its counsel advises in writing that it is
legally compelled to disclose and will exercise its good faith efforts to
obtain assurance that confidential treatment will be accorded such Confidential
Information.
6. Auditor and Tenant acknowledge that the subject matter of
this Agreement is unique and that an adequate remedy at law would not be
available for breach of the obligations specified herein. Accordingly, in the
event of a breach or threatened breach by Auditor or Tenant of the provisions
of this Agreement, Landlord shall, in addition to any other rights and remedies
available to it, at law or in equity, Landlord shall be entitled to injunctive
relief by a court or agency of competent jurisdiction enjoining and restraining
the violating party from committing or continuing any violation of this
Agreement.
7. Any waiver by Landlord of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach of the same of any other provision hereof.
8. In case any one or more of the provisions or parts of a
provision contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provision or part of a provision
of this Agreement; and this Agreement shall, to the fullest extent possible, be
reformed and construed as if such invalid or illegal or unenforceable
provision, or part of a provision, had never been contained herein, and such
provision or part shall be reformed so that it would be valid, legal and
enforceable to the maximum extent possible.
9. This Agreement shall be binding upon Tenant and Auditor and
their successors and assigns.
10. This Agreement may be amended or modified in whole or in
part, only by an instrument in writing signed by Landlord, Tenant and Auditor.
11. This Agreement shall be construed in accordance with and
governed for all purposes by the laws of the State of Texas, without regard to
conflicts of law principles. Venue for any action arising herefrom shall be in
Harris County, Texas, and the parties hereto submit themselves to the
jurisdiction of the state and federal courts of Harris County, Texas.
IN WITNESS WHEREOF, Tenant and Auditor have duly executed this
Agreement as of the date first above written.
TENANT:
-----------------------------------
a
---------------------------------
By:
------------------------------
Name:
-----------------------------
Title:
----------------------------
Date:
----------------------------
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 51
<PAGE> 56
AUDITOR:
-----------------------------------
a
---------------------------------
By:
------------------------------
Name:
-----------------------------
Title:
----------------------------
Date:
----------------------------
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 52
<PAGE> 57
EXHIBIT "G"
RIGHT OF FIRST REFUSAL / PREFERENTIAL RIGHT
A. Right of First Refusal. If and on each occasion, commencing
on the date that is nine (9) months after the Rent Commencement Date and
thereafter during the remaining Lease Term, Landlord shall receive an offer
which Landlord is willing to accept (the "Offer") to lease vacant space within
the area of the Building outlined on Exhibit "G-1" attached hereto (the
"Refusal Space") and provided that this Lease is in full force and effect and
there is no uncured Event of Default under this Lease, Tenant shall have a
right of first refusal (the "Right of First Refusal") to lease all (but not
part of) the Refusal Space that is the subject of the Offer (the "Subject
Space") upon the same terms and conditions contained in the Offer; provided,
however, the lease term for the Subject Space shall be the same as the
remaining Lease Term of this Lease, and if the remaining Lease Term is shorter
than the lease term stated in the Offer, all allowances, concessions or other
costs to be paid by Landlord shall be proportionately reduced or the rental
rate in the Offer shall be adjusted upward by Landlord in accordance with its
standard pricing procedures (which shall provide for the recovery on a level
basis through the remaining Lease Term of all Landlord allowances or costs at
ten percent (10%) interest) to take into account the shorter period within
which Landlord may recover any allowances, concessions or other costs to be
paid by Landlord as set forth in the Offer. If the lease term stated in the
Offer is for a period less than Tenant's remaining Lease Term, then all
allowances, concessions or other costs to be paid by Landlord shall be
proportionately increased or the rental rate in the Offer shall be adjusted
downward by Landlord in accordance with its standard pricing procedures (which
shall provide for the recovery on a level basis through the remaining Lease
Term of all Landlord allowances or costs at ten percent (10%) interest) to take
into account the longer period within which Landlord may recover any
allowances, concessions or other costs to be paid by Landlord as set forth in
the Offer. If Tenant elects to lease the Subject Space, Tenant shall notify
Landlord in writing within five (5) business days after Tenant receives written
notice of the Offer (including a statement of the material terms and conditions
thereof), and then Tenant will work with Landlord on a good faith basis to
promptly execute an amendment to the Lease adding the Subject Space to the
Lease, on the terms provided in the Offer but subject to the exceptions herein
stated, within then (10) business days of Tenant submitting such notice. In
that event:
(1) Tenant's Actual Share of Operating Costs shall be
increased proportionately.
(2) Tenant shall be granted up to one (1) parking space
for each two hundred and fifty-five (255) square feet of Net Rentable
Area added to the Premises pursuant to the Right of First Refusal.
(3) Tenant's obligation to pay Base Rent for the Subject
Space shall commence on the earlier of (a) the date that Tenant
occupies the Subject Space and begins conducting business therefrom,
and (b) the date which is ninety (90) days after an amendment to the
Lease is executed.
If, within five (5) business days after Tenant receives written notice of the
Offer (including a statement of the material terms and conditions thereof),
Tenant does not notify Landlord in writing that Tenant elects to lease the
Subject Space, then Landlord shall have one hundred twenty (120) days to enter
into a lease with the prospective tenant who made the Offer on substantially
the same terms and conditions contained therein. If Landlord has not entered
into a lease with said prospective tenant as of the expiration of said one
hundred twenty (120) day period, the Right of First Refusal shall again be
applicable to the Subject Space. In addition, if the Subject Space is less than
all of the Refusal Space, Tenant's failure to exercise the Right of First
Refusal with respect to the Subject Space shall not prejudice its Right of
First Refusal with respect to the remainder of the Refusal Space. Additionally,
should the Subject Space or any part thereof again become available during the
Lease Term after same has been leased to a third party tenant, then the Right
of First Refusal shall survive with respect to a subsequent Offer made for such
space. Except as provided above in this paragraph, the failure of Tenant to
exercise the Right of First Refusal within the time period
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 53
<PAGE> 58
set forth herein shall constitute a waiver and termination of the Right of
First Refusal with respect to the particular Offer (meaning the proposed lease
and any rights of extension or renewal contained therein or later added). This
Right of First Refusal is personal to Tenant and is not assignable to any third
parties, including but not limited to any assignee or sublessee of Tenant. This
Right of First Refusal shall not be effective until the date which is nine (9)
months after the Rent Commencement Date, and any Offer that Landlord may
receive prior to such date shall not be subject to the terms hereof.
B. Preferential Right. Provided that no Event of Default by
Tenant has occurred and is continuing under the Lease, Tenant, at all times
during the Lease Term and any renewal thereof (except as provided below), shall
have the right to lease any space that Landlord makes available in the Building
on a direct lease basis (by virtue of a current tenant moving out, terminating
its lease or space that has not been previously leased or committed and that
Landlord has chosen to make available for tenant leasing) (the "Preferential
Right") on the following terms and conditions.
(1) Tenant may from time to time deliver to Landlord a
written request to lease particular space within the Building (a
"Tenant Inquiry"), and if Landlord has made said space available for
lease and is not then negotiating with another potential tenant for
said space, then Landlord will advise Tenant in writing of same and
will include in such notice the subject floor, date that it will be
available for occupancy, rentable square footage, demising lines,
existing floor plan (if built-out) and all other relevant physical
information along with the Landlord's determination of Market Rental
Rate (as defined in the Renewal Option attached to the Lease as
Exhibit "H") (a "Lease Proposal"). Tenant shall have ten (10) business
days after Landlord's submission to Tenant of a Lease Proposal to
advise Landlord in writing of its desire to lease any such space, and
if Tenant expresses a desire to lease such space then Tenant will work
with Landlord on a good faith basis to promptly execute an amendment
to the Lease adding any such space, on the terms proposed by Landlord
(subject to the provisions of paragraph (2) below), within then (10)
business days of Tenant submitting such notice.
(2) All space that may be leased by Tenant pursuant to
the Preferential Right will be leased for the remaining Lease Term and
on the same terms and conditions as the Lease, except that:
(a) Base Rental and any concessions,
allowances or other costs to be paid by Landlord for the
additional space shall be at the then prevailing Market
Rental Rate for the remaining Lease Term (with due
consideration given to the current built-out state, if any,
of the additional space and the length of the remaining Lease
Term), unless Tenant exercises such option within the initial
twelve (12) months of the Lease Term, in which case Base
Rental and any concessions, allowances or other costs to be
paid by Landlord for the additional space shall be upon the
same terms and conditions as set forth in the Lease.
Notwithstanding the foregoing, if such space has been
previously built-out, then such space will be provided on an
"AS IS" basis in vacuumed, broom-cleaned condition, with all
of the prior tenant's personal property removed therefrom,
and with no further finish-out obligations on the part of
Landlord except for any leasehold improvements that may be
needed per the Market Rental Rate definition submitted by
Landlord as part of the Lease Proposal to clean and refurbish
said space (i.e., recarpeting, repainting, etc.).
(c) Tenant's Actual Share of Operating
Costs shall be increased proportionately.
(d) Tenant shall be granted up to one
(1) parking space for each two hundred and fifty-five (255)
square feet of Net Rentable Area added to the Premises
pursuant to the Preferential Right.
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 54
<PAGE> 59
(e) Tenant's obligation to pay Base
Rent for any space leased pursuant to the Preferential Right
shall commence on the earlier of (a) the date that Tenant
occupies the additional space and begins conducting business
therefrom, and (b) the date which is ninety (90) days after
an amendment to the Lease is executed.
(3) Notwithstanding anything herein to the contrary, the
Preferential Right shall cease and be of no further force or effect
during the final three (3) years of the Lease Term and, if applicable,
during the final three (3) years of the First Renewal Term and the
Second Renewal Term, respectively (as defined in Exhibit "H" to this
Lease), unless (i) with respect to the final three (3) years of the
initial Lease Term, Tenant has exercised its Option to renew (as
defined in Exhibit "H" to this Lease) for the First Renewal Term, and
(ii) with respect to the final three (3) years of the First Renewal
Term, Tenant has exercised its Option to renew for the Second Renewal
Term.
(4) The Preferential Right to lease is personal to
Tenant and is not assignable to any third parties, including, but not
limited to, any assignee or sublessee of Tenant.
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 55
<PAGE> 60
EXHIBIT "G-1"
REFUSAL SPACE
[Immediately to Follow]
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 56
<PAGE> 61
EXHIBIT "H"
RENEWAL OPTION
Provided that, at the time of Tenant's exercise of the Option (defined
below) and upon the commencement of the First Renewal Term (defined below),
this Lease is in full force and effect and there is no Event of Default under
this Lease, Tenant shall have the option ("Option") to renew this Lease for up
to one hundred twenty (120) additional months, as follows:
Tenant may, by notifying Landlord of its election in writing not less
than two hundred seventy (270) days prior to the end of the Lease Term, renew
this Lease for an additional term ("First Renewal Term") beginning on the date
next following the expiration date of the Lease Term and continuing, at
Tenant's option, either (a) for sixty (60) months thereafter or (b) for one
hundred twenty (120) months thereafter. Such renewal shall include the
Premises, as well as any other space within the Building then being leased by
Tenant as of the date of exercise of the Option. The renewal of this Lease will
be upon the same terms, covenants, and conditions applicable during the Lease
Term, as provided in the Lease, except that (a) the Base Rental payable during
the First Renewal Term shall be an amount equal to the existing "Market Rental
Rate" (as defined below) as of the date on which the First Renewal Term
commences, (b) the defined term "Lease Term" shall be deemed to include the
"First Renewal Term", (c) no concessions applicable during the initial Lease
Term (such as construction allowances, moving allowances or free rent) shall be
applicable during the First Renewal Term, and (d) Tenant shall possess no
further renewal options (other than as provided below).
If, and only if, the First Renewal Term is for five (5) years (rather
than for ten (10) years), then Tenant may, by notifying Landlord of its
election in writing not less than two hundred seventy (270) days prior to the
end of the First Renewal Term, renew this Lease for an additional term ("Second
Renewal Term") beginning on the date next following the expiration date of the
Lease Term and continuing for sixty (60) months thereafter. Such renewal shall
include the Premises, as well as any other space within the Building then being
leased by Tenant as of the date of exercise of the Option. The renewal of this
Lease will be upon the same terms, covenants, and conditions applicable during
the Lease Term and the First Renewal Term, as provided in the Lease, except
that (a) the Base Rental payable during the Second Renewal Term shall be an
amount equal to the existing "Market Rental Rate" (as defined below) as of the
date on which the Second Renewal Term commences, (b) the defined term "Lease
Term" shall be deemed to include the "Second Renewal Term", (c) no concessions
applicable during the initial Lease Term or during the First Renewal Term (such
as construction allowances, moving allowances or free rent) shall be applicable
during the Second Renewal Term, and (d) Tenant shall possess no further renewal
options.
"Market Rental Rate" shall mean the rental rate charged for space of
comparable, office buildings in the Market Area during the previous six (6)
months with tenants of a size and having a financial condition comparable to
that of Tenant, taking into consideration the following:
1. location, quality and age of the building;
2. use and size of the space in question;
3. location and/or floor level within the building;
4. extent of leasehold improvement allowance (considering
existing improvements);
5. abatement (including with respect to base rental operating
expenses and ad valorem/real estate taxes, and parking
charges);
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 57
<PAGE> 62
6. parking charges or inclusion of same in rental;
7. lease takeovers/assumptions;
8. club memberships;
9. relocation allowances;
10. refurbishment and repainting allowances;
11. any and all other concessions or inducements;
12. extent of services provided or to be provided;
13. distinction between "gross" and "net" lease;
14. base year or dollar amount for escalation purposes (both
operating costs and ad valorem/real estate taxes);
15. any other adjustments (including by way of indexes) to base
rental;
16. credit standing and financial stature of the tenant;
17. term or length of lease;
18. any other relevant term or condition in making such "fair
market value" rental rate determination.
In each and every instance under the terms of this Lease in which the
Market Rental Rate is used to determine the rental rate charged by Landlord to
Tenant, that determination shall also provide for all other relevant economic
factors listed above (unless this Lease specifically provides otherwise). By
way of example, but not limitation, the Market Rental Rate assessment shall
determine not only the rental rate, but also the amount of rent, the amount of
direct tenant concessions, such as lease takeovers, club memberships, or cash
payments, and any and all other relevant economic factors.
Within thirty (30) days after receipt of Tenant's renewal notice (and
any required supporting information), Landlord shall notify Tenant in writing
of the Market Rental Rate. Within thirty (30) days thereafter, Tenant shall
notify Landlord that Tenant either (a) accepts Landlord's renewal terms, in
which event the parties shall promptly enter into an amendment to this Lease
incorporating such terms, or (b) reject Landlord's renewal terms, in which
event the determination of the Market Rental Rate shall be decided by
arbitration in accordance with the procedures attached hereto as Exhibit "H-1".
The failure of Tenant to exercise the Option within the time period
set forth herein shall constitute a waiver and termination of such Option. This
Option is personal to Tenant and is not assignable to any third parties,
including but not limited to any assignee or sublessee of Tenant.
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 58
<PAGE> 63
EXHIBIT "H-1"
Arbitration
In the event of a dispute as to Market Rent, such dispute shall be
determined by arbitration with the Landlord and Tenant sharing equally the
costs and expenses incurred by the Arbitrators in the conduct of the
arbitration proceeding. All reasonable attorneys' fees incurred in the
arbitration shall be charged to and paid by the unsuccessful party and awarded
by the Arbitrators as additional sums to the prevailing party to the
arbitration; provided, however, in the event that it is not clear which party
prevailed and which party was unsuccessful, such attorneys' fees shall be
charged and paid according to an allocation made by the Arbitrators. Such
arbitration shall take place in Houston, Texas by a board of three (3)
arbitrators, in accordance with the Commercial Arbitration Rules then obtaining
of the American Arbitration Association (or, if such association shall not then
be in existence, such other organization, if any, as shall then have become the
successor of said association and if there shall be no successor of said
association and if there shall be no successor, then in accordance with the
then prevailing provisions of the laws of the State of Texas relative to
arbitration). The party desiring such arbitration shall give notice to that
effect to the other party. As soon as possible, but in any event within the
next ten (10) days after the two arbitrators are selected (one each by Landlord
and Tenant), the two arbitrators so selected shall select a third arbitrator.
Each arbitrator, if reasonably possible, shall have a recognized expertise in
the subject matter of the arbitration. If any party fails to timely so nominate
an arbitrator, the other may request the director of the regional office of the
American Arbitration Association (or the successor organization, or if no such
successor organization exists, then to an organization composed of persons
similar professional qualifications) which encompasses the Houston area (the
"Director") to do so instead of the failing party. In the event the two (2)
arbitrators fail to appoint or agree upon such arbitrator within such ten (10)
day period, a third arbitrator shall be selected by Landlord and Tenant if they
so agree upon such third arbitrator within a further period of ten (10) days.
If Landlord and Tenant cannot agree upon the third arbitrator, Landlord and
Tenant shall request the Director to do so. In the event of the failure,
refusal or inability of any arbitrator to act, a new arbitrator shall be
appointed in his stead, which appointment shall be made in the same manner as
herein before provided. At the request of either party, the arbitrators shall
authorize the service of subpoenas for the production of documents or
attendance of witnesses.
Within twenty (20) days after their appointment, the arbitrators so
chosen shall hold a hearing at which each party may submit evidence, to be
heard and cross examine witnesses, with each party having at least ten (10)
days advance notice of the hearing. The hearing shall be conducted such that
each of Landlord and Tenant shall have reasonably adequate time to present oral
evidence or argument, but either party may present whatever written evidence it
deems appropriate prior to the hearing (with copies of any such written
evidence being sent to the other party).
The decision of the arbitrators so chosen shall be given within a
period of ten (10) days after the conclusion of such hearing. The decision in
which any two (2) arbitrators so appointed and acting hereunder concur shall in
all cases be binding and conclusive upon the parties and shall be the basis for
a judgment entered in any court of competent jurisdiction. Landlord and Tenant
may at any time by mutual written agreement discontinue arbitration proceedings
and themselves agree upon any such matter submitted to arbitration.
If the decision of the arbitrators under this Article shall be held by
a court of competent jurisdiction to be unenforceable for any reason (Landlord
and Tenant hereby affirmatively stating it is their intent and agreement that
the decision of the arbitrators will be legally enforceable as to them), then
the matter submitted to arbitration shall be subject to litigation.
Office Lease Agreement - Heritage Park (OGAC, L.P.) - Page 59
<PAGE> 1
EXHIBIT 21.1
State of Name(s) under which
Subsidiary Incorporation Entity does Business
The Oil & Gas Asset Texas The Oil & Gas Asset
Clearinghouse, Inc. Clearinghouse
TradeBank, Inc. Texas Trade Bank
EAEDP, Inc. Colorado The Petroleum Place
EAESW, Inc. Colorado The Petroleum Place
PP/PT Acquisition Corporation Delaware Paradigm Technologies
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Denver, Colorado,
May 17, 2000.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.
/s/ HEIN + ASSOCIATES LLP
Denver, Colorado,
May 18, 2000.
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