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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number
1-9812
TENERA, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3213541
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Market, Spear Tower, Suite 1850, San Francisco, California 94105-1018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 536-4744
----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Common Stock
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
--------- ----------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy as information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of March 1, 2000, the aggregate market value of the Registrant's Common
Stock held by nonaffiliates of the Registrant was $10,717,937 based on the last
transaction price as reported on the American Stock Exchange. This calculation
does not reflect a determination that certain persons are affiliates of the
Registrant for any other purposes.
The number of shares outstanding on March 1, 2000 was 9,933,759.
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PART I
Item 1. Business
General
TENERA, Inc. ("TENERA" or the "Company"), a Delaware corporation, is the
parent company of the subsidiaries described below.
TENERA Rocky Flats, LLC ("Rocky Flats"), a Colorado limited liability
company, was formed in 1995 to provide consulting and management services in
connection with participation in the Performance Based Integrating Management
Contract ("Rocky Flats Contract") at the DOE's Rocky Flats Environmental
Technology Site ("Site").
In 1997, the Company formed TENERA Energy, LLC ("Energy"), a Delaware
limited liability company, to consolidate its commercial electric power utility
business into a separate legal entity.
In November 1997, the Company consummated the sale of all of the assets
("Asset Sale") of its TENERA Technologies, LLC ("Mass Transportation")
subsidiary (see Notes 1 and 8 to Consolidated Financial Statements).
In 1999, the Company formed TENERA GoTrain.Net, LLC ("GoTrain.Net"), a
Delaware limited liability company, to engage in the joint venture design,
development, marketing, sale and maintenance of a web-based Corporate Distance
Learning Center ("CDLC"). The joint venture operation was established with its
minority interest partner, SoBran, Inc., an Ohio corporation, specializing in
Internet technologies. The CDLC is a robust, fully scaleable application tool
for managing all levels of training needs, from corporate universities to the
individual learner. The CDLC is also the Internet delivery platform for TENERA's
line of interactive, multi-media, regulatory-driven training products and
services (Technology Enhanced Training or "TET").
In February 2000, the Company purchased the Internet-based development and
support services business of SoBran, Inc., to provide support for TENERA's
Technology Enhanced Training Services group ("TET Group") and for its line of
Internet-based, regulatory-driven training products and services. The
acquisition also included SoBran's minority interest in TENERA GoTrain.Net, LLC.
The Company's subsidiaries provide a broad range of professional
consulting, management, and technical services, along with business-to-business
(B2B) delivery of web-based driven training services ("TET Courses"), to solve
complex management, engineering, environmental, and safety challenges associated
with the operation, asset management, and maintenance of electric generating
plants, federal government properties, and capital intensive industries.
TENERA provides services and TET Courses to assist its commercial electric
power generation clients with respect to nuclear and fossil plant operations,
maintenance, and safety. This includes accelerated change management,
organizational diagnostics and effectiveness, online, interactive compliance and
regulatory-driven training applications, strategic business management, risk
management, and ecological services. For its governmental clients, TENERA
provides the Department of Energy ("DOE") and DOE prime contractors with
assistance in devising, implementing, and monitoring strategies to improve
performance and cost effectiveness from an operational, safety, and
environmental perspective at DOE-owned nuclear reactor sites and national
research laboratories.
TENERA has developed expertise in providing solutions to complex technical
and regulatory issues facing the commercial electric power generation industry.
Over the past several years, commercial electric utilities have experienced
increased competitive pressure due to continued deregulation. For example,
utilities are no longer able to recover capital expenditures through rate
increases, due to increasing competition from independent power producers,
alternative energy production, and cogeneration. During the same period,
utilities and independent power producers have responded to continued regulatory
pressures to comply with complex safety and environmental guidelines. Safety
problems and environmental issues have also emerged at government-owned weapons
production facilities. The end of the "Cold War" has prompted DOE to shut down
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many of its aging weapons production facilities and begin the challenging task
of dismantling, disposal, and clean-up of the facilities. A massive program is
underway throughout the DOE complex of nuclear weapons production facilities and
national laboratories to implement this new shutdown mission, while complying
with health, safety, and environmental requirements similar to those applicable
to commercial facilities, principally in the areas of hazardous wastes,
decontamination, decommissioning, and remediation. Electric power generators, as
well as a variety of other industries, have been subjected to extensive
regulation regarding environmentally safe handling of hazardous materials.
Responding to this shift in national defense mission, as well as the
associated emerging regulatory compliance issues, the Company, using its joint
venture operation and strategic alliances, created the CDLC and a suite of
regulatory-driven training courses for delivery to its clients in a productive
and cost-effective manner, interactively via the Internet.
It has been TENERA's strategy to provide solutions to these issues by
providing clients with a high level of professional skills and a broad range of
scientific, technological, and management resources. These include software and
databases, which are used either in support of consulting projects or as the
basis for development of stand alone software products and systems. The Company
assists its clients in the initial identification and analysis of a problem, the
implementation of a feasible solution that the client believes will be sensitive
to business and public interest constraints, and the ongoing monitoring of that
solution.
Background
The Company's principal markets are the DOE-owned nuclear materials
production sites and national research laboratories, and the electric power
generation industry, including regulated and deregulated producers. The emerging
market for the Company's TET Courses includes those commercial operations that
are subject to compliance with federally mandated regulatory training
requirements.
The Company's largest business area, DOE-owned nuclear weapons production
sites, faces close scrutiny resulting from public concern over health, safety,
and the environment. The Company believes that DOE's new mission of closing
aging weapons plants, coupled with increased enforcement of environmental laws
and regulations continues to be prompted by publicity and public awareness of
environmental problems and health hazards posed by hazardous materials and toxic
wastes. The dismantlement and cleanup of the aging DOE weapons complex
represents a significant market for the Company's service offerings.
The DOE has begun the implementation of programs to address safety
problems and environmental concerns, which have emerged at its nuclear
facilities. These programs are designed to bring the operations into compliance
with a variety of health, safety, and environmental requirements, similar to
those applicable to the commercial electric utility industry. The DOE's
decontamination, decommissioning, and remediation programs are also aimed at
achieving significant cleanup of its hazardous waste production and storage
facilities and the partial shutdown of nuclear operations at a number of its
sites
The electric utility industry has undergone considerable change in recent
years and faces a complex mix of economic and regulatory pressures. There is
continuing deregulation of the production and distribution of electricity,
accompanied by the desire of utilities to meet demand for electricity through
higher operating efficiency. Some of the Company's largest electric utility
clients have responded to a more competitive environment by implementation of
significant cost control measures and activity in the merger and acquisition
arena.
Economic pressures have resulted in certain changes in the focus of
electric utility management. For example, the ratemaking process now represents
a significant area of risk to utilities. This has highlighted the importance of
careful planning and documentation in connection with rate case preparation.
Furthermore, utilities appear to be shifting their emphasis to ongoing
performance reviews in making their rate base decisions, related to such
measures as plant capacity factors. These changes in the ratemaking process
subject the utilities to substantial economic penalties for extended plant
outages and have stimulated actions by them to assure more reliable operations.
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The markets for electric utility and DOE facility professional services
and software products cover a broad range of activities. Typical markets include
waste management, outage support, operating plant services, licensing support,
safety and health management, maintenance and information services,
decommissioning consulting, risk assessment, quality assurance and control,
organizational effectiveness, engineering support, records management, fuel
related services, plant security, and surplus asset disposal.
The market for the Company's emerging technology enhanced training
services is broad and encompasses those commercial operations that are subject
to compliance and regulatory-driven training requirements. The Company's initial
market penetration has been focused in the electric utility industry.
Traditionally a marketplace for instructor-led training, the Company believes
that Internet-based training will grow significantly over the next few years as
an important resource to meet the needs of this market.
Services and Products
The Company provides its services by utilizing its professional skills and
technological resources in an integrated approach, which combines strategic
consulting, technical, and project management capabilities with software systems
and databases. Services performed by the Company typically include one or more
of the following: consultation with the client to determine the nature and scope
of the problem, identification and evaluation of the problem and its impact,
development and design of a process for correcting the problem, preparation of
business plans, preparation of reports for obtaining regulatory agency permits,
and analysis in support of regulatory and legal proceedings. The Company
operates in one business segment providing services, which cover these general
areas: strategic consulting, management, and technical services.
The following table reflects the percentage of revenues derived for each
of these areas for the period indicated during the fiscal years ended December
31, 1997 through 1999:
<TABLE>
<CAPTION>
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Year Ended December 31,
--------------------------------------
1999 1998 1997
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<S> <C> <C> <C>
Consulting, Management, and Technical Services ........................ 100.0% 100.0% 86.4%
Software Services, Products, and Systems* ............................. 0% 0% 13.6%
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</TABLE>
* Reflects only 10 months of revenues in 1997 due to the Asset Sale.
Consulting and Management Services. The Company's consulting and
management services involve determining a solution to client problems and
challenges in the design, operation, and management of large facilities. Focus
is also placed on providing expertise in the wide range of disciplines required
to resolve complex legal and regulatory issues and offering executives guidance
in strategic planning and implementing a coordinated, effective response to such
issues. The Company applies its professional skills, software, and specialized
databases to all aspects of these problems and challenges in the following
general areas:
o Strategic business management
o Organizational effectiveness and change management
o Web-based technology enhanced training services
o Risk management
o Environmental and ecological issues at DOE and electric
utility facilities
o Operations and maintenance performance improvement
o Plant safety
o Nuclear safety and criticality at DOE facilities
o Engineering design review and verification
o Company/organized labor union consulting
o Surplus property management and disposal services
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Marketing and Clients
Marketing. The Company's marketing strategy emphasizes its ability to
offer a broad range of services designed to meet the needs of its clients in a
timely and cost-efficient manner. The Company can undertake not only small tasks
requiring a few professionals but also the management, staffing, design, and
implementation of major projects which may last for many months and involve
large numbers of professionals and subcontractors in several geographic
locations. Characteristic of TENERA's marketing strategy are significant
projects in which initial contracts have been only a fraction of the ultimate
sale.
The Company provides financial incentives to attract senior technical
professionals with extensive utility industry experience and to encourage these
individuals to market the complete range of TENERA's services throughout
existing and potential customer organizations.
TENERA's marketing efforts are facilitated by the technical reputation and
industry recognition often enjoyed by its professional staff. TENERA's
reputation in the electric power industry and as a DOE contractor often leads to
invitations to participate at an early stage in the conceptualization of a
project. During this phase, the Company assists clients in developing an
approach for efficiently and productively solving a problem. If new services or
products are developed for a client, they generally are marketed to other
clients with similar needs.
The Company's reputation also leads to invitations to participate in
multi-company teams assembled to bid on large DOE or utility projects.
Clients. During the year ended December 31, 1999, TENERA provided services
to over 35 clients involving over 55 contracts. During the year ended December
31, 1998, TENERA provided services to over 35 clients involving over 65
contracts. Over 80% of TENERA's clients during the year ended December 31, 1999,
had previously used its services.
During the year ended December 31, 1999, three clients, Kaiser-Hill
Company, LLC ("Kaiser-Hill"), prime contractor of the Rocky Flats Contract,
Rocky Mountain Remediation Services, LLC ("RMRS"), a prime subcontractor of the
Rocky Flats Contract, and Safe Sites of Colorado, LLC ("Safe Sites"), a prime
subcontractor of the Rocky Flats Contract, accounted for 75% of the Company's
total revenue (Kaiser-Hill - 32%; RMRS - 26%; Safe Sites - 17%). During the year
ended December 31, 1998, two clients accounted for 64% of the Company's total
revenue (Kaiser-Hill - 37%; Safe Sites - 27%;). The Company has maintained
working relationships with Kaiser-Hill, RMRS, and Safe Sites for five years,
during which time various contracts have been completed and replaced with new or
follow-on contracts. There can be no assurance that these relationships will be
maintained at current levels or beyond the existing contracts, and the loss of
these clients would have a material adverse effect on the Company (see
"Operating Risks").
Operations
The Company primarily contracts for its services in one of three ways:
time and materials ("T & M"), time and materials plus incentive fee ("TMIF"), or
fixed price. T & M and TMIF contracts, which cover the majority of TENERA's
revenues, are generally billed monthly by applying a multiplier factor to
specific labor costs or by use of a fixed hourly labor rate charged to each
project. T & M and TMIF contracts are generally structured to include
"not-to-exceed" ceilings; however, if after initial review or after work has
started, it is noted that additional work is required, the contract normally can
be renegotiated to include such additional work and to increase the contract
ceiling accordingly. Also, prior to the Asset Sale, the Company received license
and annual maintenance fees from contracts involving software products. During
the year ended December 31, 1997, such fees amounted to $600,000.
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Fixed-price contracts are generally applicable where TENERA has been
requested to deliver services and/or products previously developed by it or
deliverable to multiple customers. At December 31, 1999, of the total
outstanding contracts, less than 10% were fixed-price.
TENERA generally receives payments on amounts billed 30 to 90 days after
billing, except for retention under contracts. Since the majority of TENERA's
clients are utility companies, DOE, or DOE prime contractors, TENERA
historically has experienced a low percentage of losses due to poor credit
risks.
Backlog
As of December 31, 1999, TENERA had contracted a backlog of approximately
$15.3 million, all of which is cancelable by the clients. The Rocky Flats and
Energy subsidiaries account for $14.9 million and $.4 million, respectively, of
the backlog. Contracted backlog represents the aggregate of the remaining value
of those active contracts entered into by TENERA for services which are limited
by a contractual amount and does not include any estimates of open-ended
services contracts or unfunded backlog that may result from additions to
existing contracts.
Since all outstanding contracts are cancelable, there is no assurance that
the revenues from these contracts will be realized by the Company. If any
contract is canceled, there is no assurance that the Company will be successful
in replacing such contract.
Competition
The market for consulting and management services is highly competitive
and TENERA competes with several larger firms with significantly greater
resources. The primary competitive factor in the market for consulting and
management services is price, and certain of TENERA's competitors are able to
offer similar services at prices that are lower than those offered by TENERA
(see "Operating Risks").
Research and Development
It has been TENERA's policy to undertake development projects of software,
systems, and data bases only if they can be expected to lead directly to
proprietary products that may be generally marketable. A portion of TENERA's
research and development effort may be funded through customer-sponsored
projects, although the rights to the systems and databases generally remain with
TENERA. Because TENERA's research and development activities involve the
integration of customer-funded, cost sharing, and TENERA-funded projects, it is
not possible to segregate on a historical basis all of the specific costs
allocable as research and development costs. In 1999 and 1998, TENERA spent in
excess of $100,000 annually on software development related to its TET and
consulting services businesses, in contrast to expending in excess of $1.5
million in 1997 on software development related to its Mass Transportation
business prior to the Asset Sale.
Patents and Licenses
The Company does not hold any patents material to its business. TENERA
relies upon trade secret laws and contracts to protect its proprietary rights in
software systems and databases. The service and license agreements under which
clients acquire certain rights to access and use TENERA's software technology
generally restrict the clients' use of the systems to their own operations and
prohibit disclosure to others.
Personnel
At December 31, 1999, the Company employed a total of 164 consultants,
engineers, and scientists and a supporting administrative staff of 23 employees.
Eight employees hold doctorates and 52 employees hold master's degrees. TENERA
also retains the services of numerous independent contractors in order to
fulfill specific needs for particular projects. None of TENERA's employees are
represented by a labor union.
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Item 2. Properties
The Company's headquarters are located in San Francisco, California, and
consist of approximately 13,500 square feet of leased office space, expiring in
October 2000. TENERA also leases approximately 6,500 square feet in Louisville,
Colorado, expiring in October 2000 and approximately 3900 square feet in
Knoxville, Tennessee, expiring in December 2000. Additionally, TENERA maintains
a 900 square feet project office in San Luis Obispo, California on a
month-to-month lease basis. As a result of the Asset Sale, TENERA vacated its
office space in Hartford, Connecticut, and is subleasing the space until lease
expiration in May 2000.
The Company believes that its facilities are well maintained and adequate
for its current needs. However, the Company expects to face a substantially
higher lease rate upon expiration of its San Francisco lease in October 2000,
which may result in relocation of its headquarters.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Shares of the Company's Common Stock are listed for trading on AMEX under
the symbol TNR. The first trading day on AMEX was June 30, 1995, at which time
10,417,345 shares were outstanding. There were approximately 500 shareholders of
record as of March 1, 2000.
<TABLE>
<CAPTION>
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1999 1998 1997
------------------------- ------------------------- -------------------------
Price Range of Price Range of Price Range of
TENERA, Inc. Shares TENERA, Inc. Shares TENERA, Inc. Shares
------------------------- ------------------------- -------------------------
High Low High Low High Low
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<S> <C> <C> <C> <C> <C> <C>
First Quarter ...... $ 2.00 $ 1.0625 $ 0.875 $ 0.50 $ 0.9375 $ 0.625
Second Quarter ..... 1.625 1.00 1.00 0.5625 0.8125 0.50
Third Quarter ...... 1.50 1.00 1.6875 0.6875 0.625 0.50
Fourth Quarter ..... 1.125 0.75 2.75 0.75 0.8125 0.50
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</TABLE>
The Board of Directors of the Company determines the amount of cash
dividends which the Company may make to shareholders after consideration of
projected cash requirements and a determination of the amount of retained funds
necessary to provide for growth of the Company's business. The Company has made
no distributions since 1991. The Company does not anticipate resumption of
dividends in the foreseeable future.
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Item 6. Selected Financial Data
The following consolidated selected financial data of the Company for the
five prior years should be read in conjunction with the consolidated financial
statements and related notes included elsewhere.
TENERA, INC.
FINANCIAL HIGHLIGHTS
(In thousands, except per share and statistical amounts)
<TABLE>
<CAPTION>
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Year Ended December 31,
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1999 1998 1997 1996 1995
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<S> <C> <C> <C> <C> <C>
OPERATIONS DATA
Revenue ......................................... $37,922 $27,445 $21,121 $24,003 $25,545
Operating Income (Loss) ......................... 2,336 1,874 (2,139) (1,382) 1,203
Net Earnings (Loss) ............................. 1,342 1,674 (1,890) (1,080) 898
Earnings (Loss) per Share-- Basic ............... 0.13 0.17 (0.19) (0.11) 0.07
Earnings (Loss) per Share-- Diluted ............. 0.13 0.16 (0.19) (0.11) 0.07
Weighted Average Shares-- Basic.................. 10,050 10,124 10,123 10,248 9,920
Weighted Average Shares-- Diluted................ 10,409 10,450 10,123 10,248 10,014
CASH FLOW DATA
Net Cash Provided (Used) by Operating Activities $ 631 $ 906 $(2,681) $ 2,954 $ (286)
Net Increase (Decrease) in Cash and Cash Equivalents 132 1,069 (1,672) 2,490 (469)
FINANCIAL POSITION AT DECEMBER 31
Cash and Cash Equivalents ....................... 3,493 3,361 2,292 3,964 1,474
Working Capital ................................. 5,467 4,474 2,831 4,555 5,836
Total Assets .................................... 10,710 9,206 6,052 7,940 10,087
Total Liabilities ............................... 4,950 4,538 3,065 3,062 3,912
Stockholders' Equity............................. 5,760 4,668 2,987 4,878 6,175
OTHER INFORMATION
Number of Employees ............................. 187 196 187 208 270
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</TABLE>
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Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
TENERA, INC.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
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Percent of Revenue
-----------------------------------------
Year Ended December 31,
-----------------------------------------
1999 1998 1997
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<S> <C> <C> <C>
Revenue ............................................................. 100.0% 100.0% 100.0%
Direct Costs ........................................................ 77.4 75.5 61.7
General and Administrative Expenses ................................. 16.4 19.7 38.5
Software Development Costs........................................... -- -- 7.2
Special Item Income ................................................. -- 1.1 1.7
Litigation Judgment Cost............................................. -- (0.1) 4.5
Other Income ........................................................ * 0.8 0.1
--------- --------- ----------
Operating Income (Loss) .......................................... 6.2 6.8 (10.1)
Interest Income, Net ................................................ 0.3 0.5 0.5
--------- --------- ----------
Net Earnings (Loss) Before Income Tax Expense (Benefit).............. 6.5% 7.3% (9.6)%
========= ========= ==========
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</TABLE>
* Less than 0.05%
Year Ended December 31, 1999 versus Year Ended December 31, 1998
The Company's increased revenue in its Rocky Flats subsidiary resulted in
net earnings, before income tax expense of $2,455,000, compared to net earnings
of $1,653,000 in 1998 before income tax expense, special item, and adjustment to
litigation judgment costs.
The revenue increase in 1999 is primarily the result of increased Rocky
Flats Contract activity. For 1999, the concentration of revenue from the
government sector increased to 81% of total revenue from 78% in 1998. Revenue
concentration from the government sector is expected to remain high in 2000. The
number of clients served during 1999 totaled over 35, approximately the same as
1998.
Direct costs were higher in 1999, primarily as a result of increased
revenue generation and the related use of subcontractor teams under the Rocky
Flats Contract. Gross margins decreased to 23%, in 1999 from 25% in 1998, mainly
due to an increase in the proportion of revenue derived from lower margin
government projects.
General and administrative costs were higher compared to a year ago,
primarily reflecting increased costs associated with the development of TET
Courses and the establishment of GoTrain.Net, and higher performance bonuses to
employees based on higher operating income. However, general and administrative
expenses, as a percentage of revenue, decreased to 16% in 1999 from 20% in 1998.
The special item of $300,000 in 1998, reflects the additional realized
gain from the Asset Sale associated with the repayment of the Promissory Note
(see Notes 1 and 8 to Consolidated Financial Statements).
The litigation judgment cost adjustment in 1998 relates to the settlement
of litigation for $50,000 less than the amount accrued in 1997 (see Note 7 to
Consolidated Financial Statements).
Other income in 1999 was immaterial. Other income in 1998 reflects certain
accounting and administrative services provided on a temporary basis to the
purchaser in the Asset Sale. These services ceased during the fourth quarter of
1998.
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Net interest income in 1999 and 1998 represents earnings from the
investment of cash balances in short-term, high-quality, government and
corporate debt instruments. The lower net interest income in 1999, as compared
to a year ago, primarily reflects lower interest rates. The Company had no
borrowings under its line of credit during 1999 and 1998.
Year Ended December 31, 1998 versus Year Ended December 31, 1997
The Company's increased revenue in its Rocky Flats subsidiary, lower
overall general and administrative expenses, and the elimination of significant
ongoing development costs as a result of the Asset Sale in the fourth quarter of
1997, resulted in net earnings, before income tax expense, special item, and
adjustment to litigation judgment costs, of $1,653,000, compared to a loss of
$1,434,000 in 1997 before income tax benefit, special item, and accrual for
litigation judgment costs.
The revenue increase in 1998 was primarily the result of increased Rocky
Flats Contract activity, partially offset by the absence of Mass Transportation
revenue as a result of the Asset Sale. For 1998, the concentration of revenue
from the government sector increased to 78% of total revenue from 53% in 1997.
Approximately one-half of the increase in revenue concentration related to the
loss of Mass Transportation revenue as a result of the Asset Sale. The other
one-half of the revenue concentration increase was due to higher levels of Rocky
Flats Contract activity versus 1997. The number of clients served during the
year decreased to 35 from 40 (excluding 20 clients associated with the Mass
Transportation business) in 1997.
Direct costs were higher in 1998, primarily as a result of increased
revenue generation and the related use of subcontractor teams under the Rocky
Flats Contract. Gross margins decreased to 25%, in 1998 from 38% in 1997, mainly
due to an increase in the proportion of revenue derived from lower margin
government projects.
General and administrative costs were lower compared to the prior year,
primarily reflecting increased utilization of employees on billable contracts
and reduced corporate and subsidiary administrative staffs. General and
administrative expenses also decreased, as a percentage of revenue, to 20% in
1998 from 39% in 1997.
Due to the Asset Sale, the Company's software product development
expenditures were not material in 1998, as compared to $1,531,000 in 1997.
Effective November 14, 1997, the Company consummated the sale of all of
the assets related to the Mass Transportation business for $1,300,000 in cash, a
promissory note in the amount of $300,000, a warrant to acquire 4% of the then
outstanding shares of the buyer's common stock, exercisable upon the occurrence
of an initial public offering or a change of control (as defined in the
warrant), plus the assumption of all liabilities associated with the Mass
Transportation business. The Mass Transportation subsidiary was not expected to
produce profitable results in the subsequent twelve months due to the
anticipated high level of investment needs to develop its products and for its
business development activities. The special item of $355,000 in 1997 reflected
the realized gain (exclusive of the effect of the note and warrant) from the
Asset Sale (see Notes 1 and 8 to Consolidated Financial Statements). The note
was repaid in full in February 1998, and an additional gain of $300,000 was
reported in 1998 as a special item. In December 1999, the warrant was exchanged
for convertible preferred stock equivalent to 4% ownership of the buyer on a
fully diluted basis under the capital structure at the time of the exchange, and
a redemption right equal to $525,000 in the event of the buyer's liquidation
(see Note 8 to Consolidated Financial Statements).
On February 10, 1998, the Company was notified by the Superior Court for
Alameda County of the trial judge's decision against the defendants in the
action entitled PLM Financial Services, Inc. v TERA Corporation, et al. (Case
No. 743 439-0, the "PLM Litigation"), in which TENERA and others were named as
defendants. Damages were not specified in the Court's decision, but based on
exposure estimates by the Company's counsel, the Company accrued litigation
judgment expenses of $950,000 in 1997 related to this matter. In May 1998, the
Company settled the case for $950,000 in cash, of which approximately $50,000
was paid by a co-defendant, TERA Corporation Liquidating Trust. The litigation
judgment cost adjustment of $50,000 in 1998 reflected the lower amount paid by
the Company versus the accrual established in 1997 (see Note 7 to Consolidated
Financial Statements).
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Other income in 1998 reflected temporary accounting and administrative
services provided to the buyer in the Asset Sale. These services ceased during
the fourth quarter of 1998. Other income in 1997 reflects gains on the sale of
assets related to facility downsizing.
Net interest income in 1998 and 1997 represents earnings from the
investment of cash balances in short-term, high-quality, government and
corporate debt instruments. The higher net interest income in 1998, as compared
to a year ago, primarily reflects larger average cash balances. The Company had
no borrowings under its line of credit during 1998 and 1997.
Liquidity and Capital Resources
Cash and cash equivalents increased by $132,000 during 1999. The increase
was due to cash provided by operations ($631,000), partially offset by the net
acquisition of equipment ($249,000) and the repurchase of the Company's Common
Stock ($250,000).
Receivables increased by $1,127,000 from December 31, 1998, primarily due
to an increase in revenue in 1999. The allowance for sales adjustments decreased
$2,000 from December 31, 1998.
Accounts payable increased by $598,000 since the end of 1998, primarily
associated with higher direct costs supporting increased revenues. Accrued
compensation and related expenses decreased by $86,000 during 1999, primarily
reflecting lower usage of self-insured medical benefits in 1999.
No cash dividend was declared in 1999.
The impact of inflation on project revenue and costs of the Company was
minimal.
At December 31, 1999, the Company had available $2,500,000 of a $3,000,000
revolving loan facility with its lender which expires in May 2000. The Company
expects to renew on substantially the same terms. The Company has no outstanding
borrowing against the line; however, $500,000 was assigned to support standby
letters of credit.
Management believes that cash expected to be generated by operations, the
Company's working capital, and its loan facility are adequate to meet its
anticipated liquidity needs through the next twelve months.
Impact of Year 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed approximately $40,000 during 1999 in connection with remediating its
systems. The Company is not aware of any material problems resulting from Year
2000 issues, either with its products, its internal systems, or the products and
services of third parties. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the year 2000 to ensure that any latent Year 2000 matters that may arise are
addressed promptly (see "Operating Risks").
Operating Risks
Statements contained in this report which are not historical facts, are
forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
the risks and uncertainties which could cause actual results to differ
materially from those projected, including those risks and uncertainties
discussed below.
Reliance on Major Customers; Concentration of Revenue from the Government
Sector. During fiscal 1999, three customers, Kaiser-Hill, RMRS, and Safe Sites,
accounted for approximately 75% of the Company's total revenues, and during
1998, two customers, Kaiser-Hill and Safe Sites, accounted for approximately 64%
of the Company's total revenues. Additionally, for 1999, the concentration of
11
<PAGE>
the Company's total revenue from the government sector increased to 81% of total
revenue from 78% in 1998. This level of concentration of revenues from the lower
margin government sector is expected to continue and possibly increase in the
future. Further, all outstanding customer contracts are cancelable upon notice
by either party, and therefore, there can be no assurance that relationships
with customers will be maintained at existing levels, or at all. The
discontinuation or material reduction of business relations with any of these
customers would have a material adverse impact on TENERA's business (see Item 1,
"Business -- Marketing and Clients").
History of Losses; Uncertainty of Future Profitability. Although the
Company had net earnings of $0.8 million in 1992, $1.7 million in 1998, and $1.3
million in 1999, net (losses) over the period 1991 through 1997 were $(6.4
million) in 1991, $(0.3 million) in 1993, $(1.2 million) in 1994, $0.9 million
in 1995, $(1.1 million) in 1996, $(1.9 million) in 1997. There can be no
assurance of the level of earnings, if any, that the Company will be able to
derive in the future.
Uncertainty Regarding Industry Trends and Customer Demand. As a result of
the slowdown in the construction of power plants and the absence of new power
plants scheduled for construction, as well as the gradual deregulation of the
production and distribution of electricity, the market for engineering services
relating to licensing and construction of power plants has contracted, and the
market for services related to efficient and profitable operation of existing
capacity has expanded. There can be no assurance that (i) TENERA will have the
financial and other resources necessary to successfully research, develop,
introduce, and market new products and services, (ii) if, or when, such new
products or services are introduced, they will be favorably accepted by current
or potential customers, or (iii) TENERA will be otherwise able to fully adjust
its services and products to meet the changing needs of the industry (see Item
1, "Business -- Background").
Uncertainty of Access to Capital. Management currently believes that cash
expected to be generated from operations, the Company's working capital, and its
available loan facility, are adequate to meet its anticipated near-term needs.
If cash from operations is less than currently anticipated, TENERA may need to
seek other sources of capital. There can be no guarantee that such sources will
be available in sufficient amounts or on terms favorable to TENERA, or at all.
Reliance on Key Personnel. Due to the nature of the consulting and
professional services business, the Company's success depends, to a significant
extent, upon the continued services of its officers and key technical personnel
and the ability to recruit additional qualified personnel. The Company
experienced a historically high rate of turnover as revenue and earnings began
to decline in 1991 and thereafter. Further loss of such officers and technical
personnel, and the inability to recruit sufficient additional qualified
personnel, could have a material adverse effect on the Company.
Government Contracts Audits. The Company's United States government
contracts are subject in all cases to audit by governmental authorities. In
1994, an audit was concluded, which began in 1991, of certain of its government
contracts with the DOE relating to the allowability of certain employee
compensation costs. The Company made a special charge to earnings in 1991 for a
$2.4 million provision for the potential rate adjustments then disputed by the
Company and the government. As a result of resolving certain issues in the
dispute, the Company recognized increases to earnings of $500,000 in 1994 and
$250,000 in 1996. Cash payments to clients associated with the settlement, which
are estimated to be between $400,000 and $500,000, which were accrued for in the
1991 Special Charge to earnings, are expected to be made as government contracts
with individual clients are closed out. There can be no assurance that no
additional charges to earnings of the Company may result from future audits of
the Company's government contracts.
Competition. The market for management and consulting services is highly
competitive and TENERA competes with several larger firms with significantly
greater resources. Significant competitive factors in the market for engineering
and management services are price and the ability to offer new products and
services designed to meet changing customer demand. A number of TENERA's
competitors are able to offer such services at prices that are lower than those
offered by TENERA, and to devote far greater resources toward the development of
new products and services. This competition has had, and is expected to continue
to have, a material adverse impact on TENERA's business.
12
<PAGE>
Year 2000 Issue. The Company has corrected its known internal Year 2000
system problems and has received notification from key vendors and clients that
their systems are Year 2000 compliant. Furthermore, the Company has not
experienced any material problems subsequent to the date change. However, the
Company has no control over the systems of third parties and it is possible that
Year 2000 problems may occur at a later date, which could materially affect the
Company's business operations and financial condition. For example, if a major
client has a Year 2000 problem with its accounts payable system, payment of the
Company's invoices could be delayed, adversely affecting cash flow.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
The Company has minimal exposure to market and interest risk as the
Company invests its excess cash in instruments, which mature within 90 days from
the date of purchase. The Company does not have any derivative instruments.
13
<PAGE>
Item 8. Financial Statements and Supplementary Data
TENERA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue .................................................... $ 37,922 $ 27,445 $ 21,121
Direct Costs ............................................... 29,351 20,718 13,038
General and Administrative Expenses ........................ 6,236 5,416 8,131
Software Development Costs ................................. -- -- 1,531
Special Item Income ........................................ -- 300 355
Litigation Judgment Cost ................................... -- (50) 950
Other Income ............................................... 1 213 35
------------- ------------ ------------
Operating Income (Loss).................................. 2,336 1,874 (2,139)
Interest Income, Net ....................................... 119 129 110
------------- ------------ ------------
Net Earnings (Loss) Before Income Tax Expense (Benefit).. 2,455 2,003 (2,029)
Income Tax Expense (Benefit)............................... 1,113 329 (139)
------------- ------------ ------------
Net Earnings (Loss)......................................... $ 1,342 $ 1,674 $ (1,890)
============= ============ ============
Net Earnings (Loss) per Share-- Basic ...................... $ 0.13 $ 0.17 $ (0.19)
============= ============ ============
Net Earnings (Loss) per Share-- Diluted .................... $ 0.13 $ 0.16 $ (0.19)
============= ============ ============
Weighted Average Number of Shares Outstanding-- Basic....... 10,050 10,124 10,123
============= ============ ============
Weighted Average Number of Shares Outstanding-- Diluted..... 10,409 10,450 10,123
============= ============ ============
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
14
<PAGE>
TENERA, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
December 31,
-----------------------------
1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ............................................... $ 3,493 $ 3,361
Receivables, less allowances of $1,298 (1998 - $1,300)
Billed ................................................................ 3,587 2,692
Unbilled .............................................................. 2,968 2,734
Other current assets .................................................... 369 225
------------ ------------
Total Current Assets ................................................ 10,417 9,012
Property and Equipment, Net ................................................ 293 194
------------ ------------
Total Assets ...................................................... $ 10,710 $ 9,206
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable......................................................... $ 3,112 $ 2,514
Accrued compensation and related expenses ............................... 1,838 1,924
Income taxes payable .................................................... -- 100
------------ ------------
Total Current Liabilities ........................................... 4,950 4,538
Stockholders' Equity
Common Stock, $0.01 par value, 25,000,000 authorized, 10,417,345 issued . 104 104
Paid in capital, in excess of par ....................................... 5,699 5,699
Retained earnings (Accumulated deficit).................................. 507 (835)
Treasury stock-- 483,586 shares (1998 - 287,942 shares) ................. (550) (300)
------------ ------------
Total Stockholders' Equity .......................................... 5,760 4,668
------------ ------------
Total Liabilities and Stockholders' Equity ........................ $ 10,710 $ 9,206
============ ============
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
15
<PAGE>
TENERA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Paid-In Retained
Capital in Earnings
Common Excess (Accumulated Treasury
Stock of Par Deficit) Stock Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1996 ...... $ 104 $ 5,698 $ (619) $ (305) $ 4,878
Repurchase of 1,694 Shares -- -- -- (1) (1)
Net Loss ............... -- -- (1,890) -- (1,890)
------------- ------------- ------------- -------------- ---------------
December 31, 1997 ...... 104 5,698 (2,509) (306) 2,987
Issuance of 6,250 Shares -- 1 -- 6 7
Net Earnings ........... -- -- 1,674 -- 1,674
------------- ------------- ------------- -------------- ---------------
December 31, 1998 ...... 104 5,699 (835) (300) 4,668
Repurchase of 195,644 Shares -- -- -- (250) (250)
Net Earnings ........... -- -- 1,342 -- 1,342
------------- ------------- ------------- -------------- ---------------
December 31, 1999 ...... $ 104 $ 5,699 $ 507 $ (550) $ 5,760
============= ============= ============= ============== ===============
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
16
<PAGE>
TENERA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)...................................... $ 1,342 $ 1,674 $ (1,890)
Adjustments to reconcile net earnings (loss) to
cash provided (used) by operating activities:
Depreciation .......................................... 151 108 231
Gain on sale of equipment ............................. (1) (2) (21)
Gain on sale of Mass Transportation business .......... -- (300) (355)
Decrease in allowance for sales adjustments ........... (2) (58) (146)
Changes in assets and liabilities:
Receivables ......................................... (1,127) (1,999) (1,243)
Other current assets ................................ (144) 10 222
Accounts payable .................................... 598 1,876 (128)
Accrued compensation and related expenses ........... (86) 447 (301)
Litigation judgment accrual ......................... -- (950) 950
Income taxes payable ................................ (100) 100 --
------------- ------------ ------------
Net Cash Provided (Used) by Operating Activities .. 631 906 (2,681)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment ................... (250) (146) (311)
Proceeds from sale of equipment ......................... 1 2 21
Proceeds from sale of Mass Transportation business ...... -- 300 1,300
------------- ------------ ------------
Net Cash (Used) Provided by Investing Activities . (249) 156 1,010
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of Common Stock .............................. (250) -- (1)
Issuance of common stock from Treasury................... -- 7 --
------------- ------------ ------------
Net Cash (Used) Provided by Financing Activities .. (250) 7 (1)
------------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......
132 1,069 (1,672)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .............
3,361 2,292 3,964
------------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................... $ 3,493 $ 3,361 $ 2,292
============= ============ ============
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
17
<PAGE>
TENERA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Note 1. Organization
TENERA, Inc.(the "Company"), a Delaware corporation, is the parent company
of the subsidiaries described below.
TENERA Rocky Flats, LLC ("Rocky Flats"), a Colorado limited liability
company, was formed by the Company in 1995, to provide consulting services in
connection with participation in the Performance Based Integrating Management
Contract ("Rocky Flats Contract") at the Department of Energy's ("DOE") Rocky
Flats Environmental Technology Site. In May 1997, the Company's other government
business was consolidated within the Rocky Flats subsidiary. This business
provides consulting and management services to the DOE directly and through
subcontracts with DOE prime contractors. These services provide assistance to
DOE-owned nuclear facilities in devising, implementing, and monitoring
strategies to upgrade from an operational, safety, and environmental
perspective.
TENERA Energy, LLC ("Energy"), a Delaware limited liability company, was
formed by the Company in May 1997, to consolidate its commercial electric power
utility business into a separate legal structure. The Energy subsidiary provides
consulting, management services, and technology enhanced training programs in
organizational effectiveness and organizational development, environmental
outsourcing and monitoring, risk analysis and modeling, and business process
improvement.
TENERA Technologies, LLC ("Mass Transportation"), a Delaware limited
liability company, was formed by the Company in May 1997 to consolidate its mass
transportation business into a separate legal entity. Before the Asset Sale
described below, Mass Transportation provided computerized maintenance
management software and consulting to the mass transit industry. On November 14,
1997, the Company consummated the sale of all of the assets ("Asset Sale")
related to the Mass Transportation business, to Spear Technologies, Inc.
("Spear"), a California corporation newly formed by former members of the
Company's management (see Note 8).
TENERA GoTrain.Net, LLC ("GoTrain.Net"), a Delaware limited liability
company, was formed by the Company in October 1999, as a joint venture operation
to design, develop, market, and maintain a web-based Corporate Distance Learning
Center ("CDLC"). The joint venture was established with its minority interest
partner, SoBran, Inc., an Ohio corporation specializing in Internet
technologies. In February 2000, the Company purchased the Internet-based
development and support business of SoBran, Inc., including SoBran's minority
interest in GoTrain.Net.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation. The accompanying consolidated financial statements
include the accounts of the Company and its subsidiaries. All intercompany
accounts and transactions have been eliminated.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ materially from
these estimates.
Cash and Cash Equivalents. Cash and cash equivalents consist of demand
deposits, money market accounts, and commercial paper issued by companies with
strong credit ratings. Cash and cash equivalents are carried at cost, which
approximates fair value. The Company includes in cash and cash equivalents, all
short-term, highly liquid investments, which mature within three months of
acquisition.
Concentrations of Credit Risk and Credit Risk Evaluations. Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist primarily of cash and cash equivalents and accounts receivable.
Cash and cash equivalents consist principally of demand deposit, money market
accounts, and commercial paper issued by companies with strong credit ratings.
Cash and cash equivalents are held with various domestic financial institutions
18
<PAGE>
with high credit standing. The Company has not experienced any significant
losses on its cash and cash equivalents. The Company conducts business with
companies in various industries primarily in the United States. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral. Allowances are maintained for potential credit issues, and
such losses to date have been within management's expectations.
Property and Equipment. Property and equipment are stated at cost
($2,587,000 and $2,382,000 at December 31, 1999 and 1998, respectively), net of
accumulated depreciation ($2,294,000 and $2,188,000 at December 31, 1999 and
1998, respectively). Depreciation is calculated using the straight-line method
over the estimated useful lives, which range from three to five years.
Revenue. The Company primarily offers its services to the United States
electric power industry and the DOE. Revenue from time-and-material and cost
plus fixed-fee contracts is recognized when costs are incurred; from fixed-price
contracts, on the basis of percentage of work completed (measured by costs
incurred relative to total estimated project costs).
The Company performs credit evaluations of these clients and normally does
not require collateral. Reserves are maintained for potential sales adjustments
and credit losses; such losses to date have been within management's
expectations. Actual revenue and cost of contracts in progress may differ from
management estimates and such differences could be material to the financial
statements.
During 1999, three clients accounted for 32%, 26%, and 17% of total
revenue. In 1998, two clients accounted for 37%, and 27% of the Company's total
revenue, and in 1997, three clients accounted for 43%, 14%, and 10% of total
revenue.
Income Taxes. The Company uses the liability method to account for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities. Deferred tax assets and liabilities are measured using enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. The Company is a C Corporation subject to federal and state statutory
income tax rates for income earned. Due to a net loss in 1997, an income tax
benefit was recorded for that year. During 1998, a provision for income taxes
was made after taking into account net operating loss carryforwards from
previous years. In 1999, a provision for federal and state income taxes was made
at a combined rate of 45% (see Note 5).
Accounting for Stock-Based Compensation. The Company accounts for employee
stock options in accordance with Accounting Principles Board Opinion No. 25
("APB 25") and has provided the pro forma disclosures required by Statement of
Financial Standards No. 123, "Accounting for Stock-Based Compensation," ("FAS
123") in Note 4.
Per Share Computation. Basic earnings (loss) per share is computed by
dividing net earnings (loss) by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities by adding other common stock equivalents, including stock
options, warrants and convertible preferred stock, in the weighted average
number of common shares outstanding for a period, if dilutive. Due to the loss
from operations in 1997, loss per share is based on the weighted average number
of common shares only, as the effect of including equivalent shares from stock
options would be anti-dilutive.
19
<PAGE>
The following table sets forth the computation of basic and diluted (loss)
earnings per share as required by Financial Accounting Standards Board Statement
No. 128:
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net earnings (loss) ..................................... $ 1,342 $ 1,674 $ (1,890)
Denominator:
Denominator for basic earnings per share--
weighted-average shares outstanding....................... 10,050 10,124 10,123
Effect of dilutive securities:
Employee & Director stock options (Treasury stock
method) .................................................... 359 326 --
Denominator for diluted earnings per share--
weighted-average common and common equivalent shares ..... 10,409 10,450 10,123
============= ============ ============
Basic earnings (loss) per share ........................... $ 0.13 $ 0.17 $ (0.19)
============= ============ ============
Diluted earnings (loss) per share ......................... $ 0.13 $ 0.16 $ (0.19)
============= ============ ============
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Comprehensive Income (Loss). The Company does not have material components
of other comprehensive income. Therefore, comprehensive income (loss) is equal
to net earnings (loss) reported for all periods presented.
Disclosures about Segments of an Enterprise. The Financial Accounting
Standards Board Statement No. 131, "Disclosures about Segments of an Enterprise
and Related Information," (FAS 131"), which establishes standards for the way
public business enterprises report information about operating segments in
annual financial statements. The Company has one reportable operating segment
under this statement, which is providing services with respect to operations,
maintenance, safety, strategic business and risk management, and
environmental/ecological issues for electric utility and DOE facilities.
Recent Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"),
which establishes accounting and reporting standards for derivative instruments
and hedging activities. FAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The Company will be required to adopt FAS 133
effective January 1, 2001. Management of the Company does not believe the
adoption of this statement will have a material effect on the Company's
consolidated financial position, results of operations, or cash flows.
Note 3. Related Party Transactions
TERA Corporation Liquidating Trust ("Trust"). The Trust was established by
TERA Corporation ("Predecessor Corporation") in 1986, to facilitate the orderly
sale or other disposition of the remaining assets and satisfaction of all
remaining debts and liabilities of the Predecessor Corporation. As of May 31,
1998, the Trust was terminated after the total liquidation of its assets in
connection with the settlement of litigation with PLM Financial Services, Inc.
(see Note 7). The Company did not recognize any income or expense from the Trust
in 1999, 1998, and 1997.
20
<PAGE>
Note 4. Employee Benefit Plans
401(k) Savings Plan. The 401(k) Savings Plan is administered through a
trust that covers substantially all employees. Employees can contribute amounts
to the plan, not exceeding 15% of salary. Effective January 1, 1998, the Company
matches employee contributions equal to 50% of the first 4% of salary deferred.
The Company, at its discretion, may also contribute funds to the plan for the
benefit of employees. In 1999 and 1998, charges to earnings for the 401(k)
Savings Plan were $164,000 and $233,000, respectively. There were no charges to
earnings in 1997 for the 401(k) Savings Plan. During 1999, 1998, and 1997, no
discretionary amounts were contributed to the plan by the Company.
Stock Option Plans. The Company has elected to follow APB 25 and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FAS
123 requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Under the provisions of the Company's 1992 Option Plan, 1,500,000 shares
are reserved for issuance upon the exercise of options granted to key employees
and consultants. During 1999, options were granted for 285,000 shares at an
exercise price of $1.3625, the then fair market value, expiring on March 9,
2005. In 1998, options were granted for 300,000, 20,000 and 50,000 shares at an
exercise price of $0.725, $0.5875 and $0.675, respectively, the then fair market
values, expiring on February 19, 2004, April 20, 2004 and July 1, 2004,
respectively. In 1997, options were granted for 370,000 and 50,000 shares at an
exercise price of $0.70 and $0.65, respectively, the then fair market values,
expiring on March 12, 2003 and May 1, 2003, respectively. During 1999, options
for 94,000 shares were canceled due to employee terminations (660,750 and
122,500 in 1998 and 1997, respectively). Options for 6,250 shares were exercised
in 1998, but no options were exercised in 1999 and 1997. As of December 31,
1999, options for 1,272,500 shares were outstanding and options for 921,250
shares were exercisable.
Under the provisions of the 1993 Outside Directors Compensation and Option
Plan, which was approved by the Board of Directors, effective March 1, 1994, as
amended in 1998, 300,000 shares are reserved for issuance upon the exercise of
options granted to non-employee directors. During 1999, options were granted for
62,500 shares at an exercise price of $1.375, the then fair market value,
expiring on March 1, 2009. In 1998, options were granted for 37,500 and 25,000
shares at an exercise price of $0.5625 and $0.75, respectively, the then fair
market value, expiring on March 1, 2008 and July 1, 2008, respectively. In 1997,
options were granted for 32,000 shares at an exercise price of $0.6875, the then
fair market value, expiring on March 1, 2007. During 1999, 12,500 options were
forfeited (8,000 share options were canceled in 1998 and 12,500 in 1997). No
options were exercised in 1999, 1998, and 1997. As of December 31, 1999, options
for 254,000 shares were outstanding and 204,000 were exercisable.
21
<PAGE>
The combined stock option activity of the Company's two option plans is
summarized below:
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------- -------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--
Beginning of Year .. 1,285 $ 0.91 1,528 $ 0.98 1,211 $ 1.09
Granted ............ 347 1.36 432 0.70 452 0.69
Exercised .......... -- -- (6) 1.19 -- --
Forfeited .......... (106) 1.05 (669) 0.90 (135) 1.18
---------- ---------- ---------- ---------- ---------- ----------
Outstanding--
End of Year ........ 1,526 $ 1.00 1,285 $ 0.91 1,528 $ 0.98
========== ========== ========== ========== ========== ==========
Exercisable at
End of Year ........ 1,125 $ 0.99 811 $ 1.01 813 $ 1.09
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Exercise prices for options outstanding as of December 31, 1999, ranged
from $0.5625 to $1.75. The weighted-average remaining contractual life of those
options is 4.4 years.
Proforma Disclosures of the Effect of Stock-Based Compensation. Pro forma
information regarding net earnings (loss) and earnings (loss) per share is
required by FAS 123 for fiscal years beginning after December 31, 1994, and has
been determined as if the Company had accounted for its stock options under the
fair value method of FAS 123. The fair value for these options was estimated at
the date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1999, 1998, and 1997: risk-free interest rates
of 5.3% for the March 1999 grants; 5.0% each for the February, March, April, and
July 1998 grants; and 6.0% and 5.85%, respectively, for the March and May 1997
grants; dividend yield of 0% for all years; volatility factors of the expected
market price of the Company's common stock of 0.56, 0.48, and 0.51,
respectively; and a weighted-average expected life of the option of five years
for all employee grants and seven years for director grants.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, options valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting periods of the options. The
Company has elected to base its initial estimate of compensation expense on the
total number of options granted. Subsequent revisions to reflect actual
forfeitures are made in the period the forfeitures occur through a catch-up
adjustment.
22
<PAGE>
Pro forma information regarding the Company's net earnings (loss) and
earnings (loss) per share follows:
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Earnings (Loss)-- As Reported .......................... $ 1,342 $ 1,674 $ (1,890)
Pro Forma Net Earnings (Loss)--FAS 123 ..................... 1,278 1,672 (1,940)
Net Earnings (Loss) per Share-- As Reported Basic .......... $ 0.13 $ 0.17 $ (0.19)
============= ============ ============
Net Earnings (Loss) per Share-- As Reported Diluted ........ $ 0.13 $ 0.16 $ (0.19)
============= ============ ============
Pro Forma Net Earnings (Loss) per Share-- FAS 123 Basic .... $ 0.13 $ 0.17 $ (0.19)
============= ============ ============
Pro Forma Net Earnings (Loss) per Share-- FAS 123 Diluted .. $ 0.12 $ 0.16 $ (0.19)
============= ============ ============
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted-average grant-date fair value of options granted, which is
the value assigned to the options under FAS 123, was $0.75, $0.35, and $0.36 for
grants made during years ended December 31, 1999, 1998, and 1997, respectively.
Note 5. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31, 1999 and
1998, are as follows, using the liability method:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
December 31,
-----------------------------
1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Deferred Tax Assets
Contract provisions not currently deductible .......................... $ -- $ 466
Accrued expenses not currently deductible ............................. 771 427
Fixed assets .......................................................... 40 --
Other ................................................................. 15 --
------------ ------------
Total Current Gross Deferred Tax Assets ........................... 826 893
------------ ------------
Less: Valuation Allowance ............................................ (727) (772)
Current Deferred Tax Liabilities
Revenue differences related to timing ................................. 99 121
------------ ------------
Net Current Deferred Tax Liabilities .............................. $ -- $ --
============ ============
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
The current tax provision (benefit) for the years ended December 31, 1999,
1998, and 1997, are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal ..................................................... $ 927 $ 256 $ (137)
State ....................................................... 186 73 (2)
----------- ------------ ------------
Tax Provision (Benefit) ..................................... $ 1,113 $ 328 $ (139)
=========== ============ ============
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The valuation allowance decreased by $45,000, during the year ended
December 31, 1999, for those deferred tax assets, which may not be realized. The
decrease primarily relates to the reduction of employee vacation and holiday
accrual balances during 1999.
The provision (benefit) for income taxes differed from the amount computed
by applying the statutory federal and state income tax rate for the years ended
December 31, 1999, 1998, and 1997, as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal Statutory Rate ........................................... 34% 34% (34)%
State Taxes, Net of Federal Benefit .............................. 5% 2% (3)%
Permanent Differences ............................................ 1% 1% (2)%
Valuation Allowance .............................................. (2)% (21)% 39 %
Other ............................................................ 7% -- --
Net Operating Loss Carryback ..................................... -- -- (7)%
----------- ------------ ------------
Income Tax (Benefit) Provision ................................... 45% 16% (7)%
=========== ============ ============
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The Company paid income taxes of $1,363,000 in 1999 and $222,000 in 1998.
Note 6. Commitments and Contingencies
Leases. The Company occupies facilities under noncancelable operating
leases expiring at various dates through 2000. The leases call for proportionate
increases due to property taxes and certain other expenses. Rent expense
amounted to $349,000 for the year ended December 31, 1999 ($309,000 in 1998 and
$524,000 in 1997).
Minimum rental commitments under operating leases, principally for real
property, are as follows (in thousands):
(Year Ending December 31)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
2000 ......................................................................................... $ 458
============
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Revolving Loan Agreement. A loan agreement with a bank provides for a
revolving line of credit of $3,000,000, through May 2000. At December 31, 1999,
$2,500,000 was available under the credit line, and in addition, $500,000 was
24
<PAGE>
assigned to support standby letters of credit. Amounts advanced under the line
of credit are secured by the Company's eligible accounts receivable. Under the
agreement, the Company is obligated to comply with certain covenants related to
equity, quick ratio, debt/equity ratio, and profits. The interest rate under the
agreement is the bank's prime rate (8.5% at December 31, 1999). During 1999,
1998, and 1997, the Company paid no interest expense, as there were no
borrowings.
Note 7. Litigation Judgment
On November 4, 1994, PLM Financial Services, Inc. ("PLM") filed an action,
entitled PLM Financial Services, Inc. v. TERA Corporation, et al., Case No. 743
439-0, against TENERA, L.P. (the predecessor of the Company; the "Predecessor
Partnership"), among others, in the Superior Court of California for the County
of Alameda, seeking damages in excess of $4.6 million in unpaid equipment rent
and other unspecified damages allegedly owing to PLM under an equipment lease
dated September 29, 1984 between PLM and TERA Power Corporation ("TERA Power"),
a former subsidiary of TERA Corporation (the "Predecessor Corporation"). PLM
named the Predecessor Partnership in the action pursuant to a Guaranty dated
September 24, 1984 of the lease obligations of TERA Power made by the
Predecessor Corporation. Upon the liquidation of the Predecessor Corporation in
late 1986, the stock of TERA Power was transferred to the TERA Corporation
Liquidating Trust (the "Trust") and was thereafter sold to Delta Energy Projects
Phases II, IV, and VI pursuant to a stock purchase agreement dated May 31, 1991.
TERA Power asserted various defenses to the claims asserted by PLM in the action
and the trial in this matter was concluded in August 1997. In February 1998, the
trial judge issued a minute order rendering his decision against the defendants
in the action. Accordingly, for the year 1997, the Company accrued litigation
judgment expenses of $950,000 related to this matter. In April 1998, the trial
judge entered a judgment in the amount of approximately $830,000 plus costs and
attorney fees, against TERA Power and TENERA, as guarantor. Counsel for PLM had
advised counsel for TENERA that PLM had incurred costs and attorney fees
exceeding $600,000, and, if this matter was not settled, PLM would file a cost
bill and motion for attorney fees in the action for such amounts.
On May 1, 1998, the Company settled the case for $950,000 in cash, which
was less than the Company's total exposure in the litigation. Of this amount,
approximately $50,000 was paid by the Trust (to the extent of its assets) and
the remainder was paid by the Company.
Note 8. Special Items
On November 14, 1997, the Company consummated the sale of all of the
assets related to Mass Transportation' mass transportation business to Spear
Technologies, Inc., a California corporation newly formed by former members of
the Company's management. The Company received $1,300,000 in cash, a promissory
note in the amount of $300,000, and a warrant to acquire 4% of Spear's then
outstanding shares of common stock exercisable upon an initial public offering
or a change of control (as defined in the warrant). Spear also assumed all
liabilities associated with the Mass Transportation business. The special item
of $355,000 in 1997, reflects the gain on sale from the Asset Sale, exclusive of
the effect of the note and warrant. Full repayment of the note was contingent
upon a minimum amount of equity funding of the buyer, which had not occurred at
December 31, 1997. Therefore, the Company provided an allowance for the
potential uncollectability of the note in 1997. The note was repaid in full in
February 1998, and the additional gain of $300,000 was reported as a special
item in 1998. In December 1999, the warrant was exchanged for convertible
preferred stock, equivalent to 4% ownership of Spear on a fully diluted basis
under the capital structure at the time of the exchange, and a redemption right
equal to $525,000 in the event of Spear's liquidation. Neither the warrant nor
the preferred stock has been assigned any value in the financial statements as
the Company is not able to determine the recoverability of these assets.
25
<PAGE>
Note 9. Selected Quarterly Combined Financial Data (Unaudited)
A summary of the Company's quarterly financial results follows.
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Quarter Ended Quarter Ended
--------------------------------------------- ---------------------------------------------
12/31/99 9/30/99 6/30/99 3/31/99 12/31/98 9/30/98 6/30/98 3/31/98
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue ..... $ 9,065 $10,163 $ 9,412 $ 9,282 $ 7,887 $ 7,014 $ 6,453 $ 6,091
Direct Costs 6,881 7,970 7,215 7,285 6,060 5,363 4,797 4,498
General and
Administrative
Expenses .... 1,847 1,385 1,515 1,489 1,486 1,283 1,345 1,302
Special Item
Income ..... -- -- -- -- -- -- -- 300
Litigation
Judgment Cost -- -- -- -- -- -- (50) --
Other Income -- -- 1 -- 32 42 53 86
-------- -------- -------- -------- -------- -------- -------- --------
Operating
Income ...... 337 808 683 508 373 410 414 677
Interest
Income ...... 36 30 26 27 33 31 34 31
-------- -------- -------- -------- -------- -------- -------- --------
Net Earnings
Before Income
Tax Expense.. 373 838 709 535 406 441 448 708
Income Tax
Expense ..... 174 404 305 230 80 20 54 175
-------- -------- -------- -------- -------- -------- -------- --------
Net Earnings $ 199 $ 434 $ 404 $ 305 $ 326 $ 421 $ 394 $ 533
======== ======== ======== ======== ======== ======== ======== ========
Net Earnings Per
Share-- Basic $ 0.02 $ 0.04 $ 0.04 $ 0.03 $ 0.03 $ 0.04 $ 0.04 $ 0.05
======== ======== ======== ======== ======== ======== ======== ========
Net Earnings Per
Share-- Diluted $ 0.02 $ 0.04 $ 0.04 $ 0.03 $ 0.03 $ 0.04 $ 0.04 $ 0.05
======== ======== ======== ======== ======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
TENERA, Inc.
We have audited the accompanying consolidated balance sheets of TENERA,
Inc. at December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1999. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
TENERA, Inc. at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole presents fairly, in all material respects, the information set forth
therein.
/s/ ERNST & YOUNG LLP
Walnut Creek, California
January 21, 2000
27
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
28
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The following tables set forth certain information with respect to the
directors and executive officers of the Company.
The directors of the Company are as follows:
William A. Hasler, 58, has served as a Director of the Company since
his election in March 1992 and Chairman of the Board of the Company since
July 1998. Mr. Hasler is Co-Chief Executive Officer of Aphton Corporation,
a bio-technology firm. Previously, Mr. Hasler was dean of the Walter A.
Hass School of Business at the University of California, Berkeley. Prior
to his appointment as dean in 1991, Mr. Hasler was Vice Chairman of
Management Consulting for KPMG Peat Marwick from 1986 to 1991. Mr. Hasler
is also a director of Solectron Corporation., Aphton Corporation, Walker
Systems, and TCSI Corporation.
Jeffrey R. Hazarian, 44, has served as a Director of the Company
since his election in October 1996, and was named its Executive Vice
President in November 1997. He has also served as its Chief Financial
Officer and Corporate Secretary since 1992. Previously, Mr. Hazarian held
the position of Vice President of Finance from 1992 to 1997.
Thomas S. Loo, Esq., 56, was elected as a Director of the Company in
February 1997. He previously served as a Director of the Company from
August 1987 to September 1993. Mr.Loo has been a partner, since 1986, of
Bryan Cave LLP, general counsel to the Company. Mr.Loo has also served as
a director of Teknekron Corporation since March 1989.
Robert C. McKay, 48, has served as a Director of the Company since
his election in June 1997, and was appointed its Chief Executive Officer
and President in November 1997. Previously, Mr. McKay was Chief Operating
Officer of the Company since April 1997. He was elected Senior Vice
President of the Company in December 1992.
Andrea W. O'Riordan, 28, has served as Director of the Company since
her election in June 1998. Ms. O'Riordan is an Applications Marketing
Coordinator for Oracle Corporation. Prior to her joining Oracle
Corporation in 1996, Ms.O'Riordan was Marketing Coordinator,Latin America,
for a Reuters Company, from 1993 to 1995.
George L. Turin, Sc.D., 70, has served as a Director of the Company
since his election in March 1995. Previously, Mr. Turin served as a
Professor of Electrical Engineering and Computer Science at the University
of California at Berkeley from 1960 to 1990. Mr. Turin also served as Vice
President, Technology for Teknekron Corporation from 1988 to 1994.
Officers of the Company hold office at the pleasure of the Board of
Directors. There are no familial relationships between or among any of the
executive officers or directors of the Company.
29
<PAGE>
Item 11. Executive Compensation
The following tables set forth certain information covering compensation
paid by TENERA to the Chief Executive Officer and each of the Company's other
executive officers, whose total annual salary and bonus exceeded $100,000 (the
"named executives") for services to TENERA in all their capacities during the
fiscal years ended December 31, 1999, 1998, and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Annual Compensation Awards
------------------------------ -------------
Securities All Other
Name and Underlying Compensa-
Principal Position Year Salary Bonus(1) Options(2) tion(3)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Robert C. McKay, Jr. 1999 $ 223,958 $ 90,000 40,000 $ 3,200
Chief Executive Officer 1998 200,000 152,500 -- 3,200
President 1997 179,375 2,179 90,000 --
Jeffrey R. Hazarian 1999 181,064 67,500 40,000 3,200
Executive 1998 159,000 50,400 75,000 3,180
Vice President and 1997 145,875 25,000 -- --
Chief Financial Officer
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
(1) Includes $100,000 retention bonus paid to Mr. McKay in 1998 (see "Other
Compensation Arrangements" below). Mr. Hazarian's bonus amounts in 1999
and 1998 include accrued bonuses of $4,000 and $3,000, respectively, paid
in the beginning of the subsequent years.
(2) Reflects the number of options granted under the Company's 1992 Option
Plan. The options expire at the earlier of the end of the option period,
generally six years, or three months after employment termination.
(3) These amounts represent the amounts accrued for the benefit of the named
executives under the Company's 401(k) Plan.
</FN>
The following table sets forth certain information concerning options
granted during 1999 to the named executives:
OPTIONS GRANTS IN 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of Stock
Individual Grants Price Appreciation
for Option Term
---------------------------------------------------- -----------------------
% of Total
Number of Options
Securities Granted to Exercise
Underlying Employees or Base
Options in Fiscal Price Expiration
Name Granted Year ($/Share) Date 5% 10%
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert C. McKay, Jr. ..... 40,000 14.04 $ 1.3625 3/09/05 $ 18,535 $ 42,050
Jeffrey R. Hazarian....... 40,000 14.04 1.3625 3/09/05 18,535 42,050
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
Other Compensation Arrangements
The Company's 1992 Option Plan provides that options may become
exercisable over such periods as provided in the agreement evidencing the option
award. Options granted to date, including options granted to executive officers
and set forth in the above tables, generally call for vesting over a four-year
period. The 1992 Option Plan provides that a change in control of the Company
will result in immediate vesting of all options granted and not previously
vested.
Other than as set forth below for Mr. McKay, the Company has no employment
contracts or arrangements for its executive officers.
Mr. McKay, upon appointment to Chief Operating Officer in 1997, was
granted a retention bonus arrangement, amounting to $100,000, dependent upon his
continued employment through June 30, 1998. The bonus was paid to Mr. McKay in
1998 in accordance with the arrangement.
Directors Compensation
Except as described below, the directors of the Company are paid no
compensation by the Company for their services as directors. William A. Hasler,
Thomas S. Loo, Andrea W. O'Riordan, and George L. Turin as non-employee
directors, are paid a retainer of $1,000 per month. These non-employee directors
are also paid a fee of $1,000 for each meeting of the Board, and any Board
Committee meeting not held on the same day as a Board meeting, which they
attend. The 1993 Outside Directors Compensation and Option Plan was approved by
the Board effective March 1, 1994, as amended by the Board in 1998, and reserves
up to 300,000 options for issuance to non-employee directors. During 1999,
12,500 stock options were issued to each of Messrs. Hasler, Loo, Turin, Bunch
(resigned in July 1999), and Ms. O'Riordan. During 1998, 12,500 stock options
were granted to each of Messrs. Hasler, Loo, Turin, Bunch, and Ms. O'Riordan.
During 1997, 8,000 stock options were issued to each of Messrs. Hasler, Loo,
Turin, and Williams (resigned in December 1997). The options expire ten (10)
years after, vest one (1) year after the date of grant, and have an exercise
price equal to the fair market value of the shares of the Company's Common Stock
on the date of grant. Upon exercise of the options, a director may not sell or
otherwise transfer more than 50% of the shares until six (6) months after the
date on which the director ceases to be a director of the Company. Due to their
resignations, Mr. Bunch's 1999 options and Mr. Williams' 1997 options did not
vest and were forfeited.
Compensation Committee Interlocks and Insider Participation
During 1999, the Compensation Committee was composed of William A. Hasler,
Thomas S. Loo, Andrea W. O'Riordan, and George Turin. Thomas S. Loo is a partner
in the law firm of Bryan Cave LLP, general counsel to the Company and Teknekron
Corporation, and is a director of Teknekron Corporation. Andrea W. O'Riordan, a
director of the Company since June 29, 1998, is the daughter of Harvey E.
Wagner, the Company's largest stockholder by virtue of a limited partnership
interest in Incline Village Investment Group Limited Partnership (see Item 12).
Mr. Wagner is also the sole stockholder and a director of Teknekron Corporation.
31
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth certain information as of March 1, 2000,
with respect to beneficial ownership of the shares of Common Stock of the
Company by each person who is known by the Company to own beneficially more than
5% of the shares of Common Stock:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Approximate
Shares Percent
Beneficially Beneficially
Name and Address Owned Owned
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Harvey E. Wagner .......................................................... 3,708,658 37.3%(1)
P.O. Box 7463
Incline Village, NV 89450
Dr. Michael John Keaton Trust ............................................. 1,106,887 11.1%(2)
C/O Bryan Cave LLP
120 Broadway, Suite 500
Santa Monica, CA 90401
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
(1) Such shares are held of record by Incline Village Investment Group Limited
Partnership, a Georgia limited partnership, and were contributed to such
partnership by Mr. Wagner in exchange for a 99% limited partnership
interest. An additional 37,462 shares, as to which Mr. Wagner disclaims
beneficial ownership, were contributed to such partnership by Mr. Wagner's
spouse, Leslie Wagner, in exchange for a 1% general partner interest. Such
partnership has sole voting and investment power with respect to all such
shares. Mr. Wagner subsequently transferred a 14.7% limited partnership
interest in the partnership to Ms. O'Riordan, a director of the Company,
who disclaims beneficial ownership of all the shares held by such
partnership.
(2) Mr. Keaton has sole voting and investment power with respect to all shares
shown as beneficially owned by him, subject to community property laws
where applicable.
</FN>
32
<PAGE>
(b) Security Ownership of Management
The following table sets forth information as of March 1, 2000, with
respect to current beneficial ownership of shares of Common Stock by (i) each of
the directors of the Company, (ii) each of the named executive officers (see
Item 11. "Executive Compensation"), and (iii) all current directors and
executive officers as a group.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Shares Shares
Beneficially Acquirable Percentage
Name Owned(1) Within 60 Ownership(2)
Days(3)(4)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
William A. Hasler ............................................. 20,000 70,500(3) *
Jeffrey R. Hazarian ........................................... 7,186 156,250(4) 1.6%
Thomas S. Loo.................................................. -- 33,000(3) *
Robert C. McKay, Jr............................................ 1,789 225,500(4) 2.2%
Andrea W. O'Riordan (5)........................................ -- 25,000 *
George L. Turin................................................ 45,504 60,500(3) 1.0%
------------ ------------- ------------
All Directors and Executive Officers as a Group (6 persons) ... 74,479 570,750 6.1%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
(1) The persons named above have sole voting and investment power with respect
to all shares of Common Stock shown as beneficially owned by them, subject
to community property laws where applicable.
(2) Based on the number of shares outstanding at, or acquirable within 60 days
of March 1, 2000. Asterisks represent less than 1% ownership.
(3) Represents options under the Company's 1993 Outside Directors Compensation
and Option Plan which are exercisable on March 1, 2000, or within 60 days
thereafter.
(4) Represents options under the Company's 1992 Option Plan which are
exercisable on March 1, 2000, or within 60 days thereafter.
(5) Ms. O'Riordan is the daughter of Harvey E. Wagner, the Company's largest
stockholder by virtue of a limited partnership interest in Incline Village
Investment Group Limited Partnership (see Item 12(a), "Security Ownership
of Certain Beneficial Owners").
</FN>
Beneficial ownership as shown in the tables above has been determined in
accordance with Rule 13d-3 under the Exchange Act. Under this Rule, certain
securities may be deemed to be beneficially owned by more than one person (such
as where persons share voting power or investment power). In addition,
securities are deemed to be beneficially owned by a person if the person has the
right to acquire the securities (for example, upon exercise of an option or the
conversion of a debenture) within 60 days of the date as of which the
information is provided; in computing the percentage of ownership of any person,
the amount of securities outstanding is deemed to include the amount of
securities beneficially owned by such person (and only such person) by reason of
these acquisition rights. As a result, the percentage of outstanding shares of
any person as shown in the preceding tables do not necessarily reflect the
person's actual voting power at any particular date.
Item 13. Certain Relationships and Related Transactions
See "Compensation Committee Interlocks and Insider Participation."
33
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements
The following financial statements of the Company are filed with this
report and can be found in Part II, Item 8, on the pages indicated below:
PAGE
Consolidated Statements of Operations--
Years Ended December 31, 1999, 1998, and 1997 ................. 13
Consolidated Balance Sheets-- December 31, 1999 and 1998 ...... 14
Consolidated Statements of Stockholders' Equity--
Years Ended December 31, 1999, 1998, and 1997 ................. 15
Consolidated Statements of Cash Flows--
Years Ended December 31, 1999, 1998, and 1997 ................. 16
Notes to Consolidated Financial Statements .................... 17
Report of Independent Auditors ................................ 27
(a)(2) Financial Statement Schedules
The following financial statement schedules with respect to the Company
are filed in this report:
Schedule VIII-- Valuation and Qualifying Accounts and Reserves . 36
All other schedules are omitted because they are either not required or
not applicable.
(a)(3) Exhibits
2.1 Agreement and Plan of Merger dated as of June 6, 1995 among
the Registrant, Teknekron Technology MLP I Corporation,
TENERA, L.P., and TENERA Operating Company, L.P. (a form of
which is attached as Annex A to the Registrant's Consent
Solicitation Statement/Prospectus included in the Registration
Statement on Form S-4 (Registration No. 33-58393) declared
effective by the Securities and Exchange Commission ("SEC") on
June 2, 1995 (the "Registration Statement"), and is
incorporated herein by this reference).
2.2 Asset Acquisition Agreement dated November 14, 1997, between
the Registrant and Spear Technologies, Inc. (filed as Exhibit
2.1 to the Registrant's Form 8-K filed with the SEC on
November 14, 1997 and incorporated by reference herein (the
"Form 8-K")).
2.3(1) Series C Preferred Stock Purchase Agreement dated March __, 2000
between the Registrant and Spear Technologies, Inc.
2.4(1) Asset Acquisition Agreement dated February 10, 2000 between the
Registrant and SoBran, Inc.
3.1 Certificate of Incorporation of the Registrant dated October 27,
1994 (filed by incorporation by reference to Exhibit 3.3 to
the Registration Statement).
3.2 By-Laws of the Registrant (filed by incorporation by reference to
Exhibit 3.4 to the Registration Statement).
4.1 Form of Certificate of Common Stock of the Registrant (filed by
incorporation by reference to Exhibit 4.5 to the Registration
Statement).
------------------------------------
(1) Filed herewith.
34
<PAGE>
11.1 Statement regarding computation of per share earnings: See "Note
5 to Consolidated Financial Statements."
21.1(1) List of Subsidiaries of the Registrant.
23.1(1) Consent of Ernst & Young LLP, Independent Auditors.
27.1(1) Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the last
quarter of 1999.
(c) Exhibits (see Item 14(a)(3) above.)
(d) Financial Statement Schedules
The schedules listed in Item 14(a)(2) above should be used in conjunction
with the Consolidated Financial Statements of the Company for the year ended
December 31, 1999.
-----------------------------
(1) Filed herewith.
35
<PAGE>
SCHEDULE VIII
TENERA, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Additions Deductions
------------ ---------------------------
Balance Charged to
Beginning Costs and Credited to Balance at
Description of Year Expenses Special Item Other End of Year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Reserve for Sales Adjustment
and Credit Losses ............. $ 1,626 $ 36 $ 122 $ 182 $ 1,358
1998
Reserve for Sales Adjustment
and Credit Losses ............. 1,358 9 -- 67 1,300
1999
Reserve for Sales Adjustment
and Credit Losses ............. 1,300 -- -- 2 1,298
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 28, 2000
TENERA, INC.
By /s/ JEFFREY R. HAZARIAN
----------------------------------------
Jeffrey R. Hazarian
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ WILLIAM A. HASLER Director March 28, 2000
- --------------------------
(William A. Hasler)
Director, Chief Financial Officer,
Executive Vice President, and
Corporate Secretary
/s/ JEFFREY R. HAZARIAN (Principal Financial Officer) March 28, 2000
- --------------------------
(Jeffrey R. Hazarian)
/s/ THOMAS S. LOO Director March 28, 2000
- --------------------------
(Thomas S. Loo)
Director,
Chief Executive Officer, and President
/s/ ROBERT C. MCKAY (Principal Executive Officer) March 28, 2000
- --------------------------
(Robert C. McKay)
/s/ ANDREA W. O'RIORDAN Director March 28, 2000
- --------------------------
(Andrea W. O'Riordan)
Controller and Treasurer
/s/ JAMES A. ROBISON, JR. (Principal Accounting Officer) March 28, 2000
- --------------------------
(James A. Robison, Jr.)
/s/ GEORGE L. TURIN Director March 28, 2000
- --------------------------
(George L. Turin)
37
<PAGE>
EXHIBIT INDEX
Ex. 2.3 Series C Preferred Stock Purchase Agreement between the
Registrant and Spear Technologies, Inc.
Ex. 2.4 Asset Acquisition Agreement between the Registrant and SoBran,
Inc.
Ex. 21.1 List of Subsidiaries of the Registrant
Ex. 23.1 Consent of Ernst & Young LLP, Independent Auditors
Ex. 27.1 Financial Data Schedule
<PAGE>
Exhibit 2.3
SPEAR TECHNOLOGIES, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
March __, 2000
This Series C Preferred Stock Purchase Agreement (this "Agreement") is
entered into as of the date set forth above between Spear Technologies, Inc., a
California corporation (the "Company") and the undersigned purchaser
("Purchaser"). The parties hereby agree as follows:
SECTION 1
AUTHORIZATION AND SALE OF SECURITIES
Authorization. The Company has authorized the sale and issuance
pursuant to the terms and conditions hereof of up to _________________________
(...........) shares of its Series C Preferred Stock (the "Securities") having
the rights, restrictions, privileges and preferences set forth in the Second
Amended and Restated Articles of Incorporation (the "Restated Articles") to be
filed with the California Secretary of State in substantially the form
attached hereto as Exhibit A.
---------
Sale of Securities. Subject to the terms and conditions hereof, the
Company will issue and sell to Purchaser, and Purchaser will purchase from the
Company, the number of Securities set forth above in exchange for the
surrender of the warrant issued by the Company to Purchaser dated as of
November 14, 1997 (the "Warrant"). Surrender of the Warrant shall occur
immediately prior to the closing.
SECTION 2
CLOSING; DELIVERY
<PAGE>
Closing. The closing of the purchase by the Purchaser and the sale by
the Company of the Securities shall be held at the offices of Gray Cary Ware &
Freidenrich LLP, counsel to the Company, at 4365 Executive Drive, Suite 1600,
San Diego, CA, 92121, on March ___, 2000, or at such other time and place as
the Company and Purchaser may agree in writing. The closing referred to in
this Section 2.1 shall be hereinafter referred to as the "Closing" and the
date thereof shall be the "Closing Date."
Delivery. At the Closing, in exchange for the surrender of the
Warrant, the Company will issue the Securities and deliver to Purchaser a
certificate in such Purchaser's name representing the Securities.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Schedule of Exceptions attached hereto as
Exhibit C, the Company hereby represents and warrants to Purchaser that the
statements in the following paragraphs of this Section 3 are true and correct as
of the date of this Agreement:
<PAGE>
Organization and Standing. The Company is a corporation duly
incorporated and existing under the laws of the State of California and is in
good standing under such laws. The Company has the requisite corporate power
to own and operate its properties and assets, and to carry on its business as
presently conducted.
Authorization. All corporate action on the part of the Company, its
directors and shareholders necessary for the authorization, execution,
delivery and performance of this Agreement by the Company, the authorization,
sale, issuance and delivery of the Securities and the performance of the
Company's obligations hereunder has been taken prior to the Closing. This
Agreement, when executed and delivered by the Company, will constitute a valid
and binding obligation of the Company enforceable in accordance with its
terms, subject to (i) laws of general application relating to specific
performance, injunctive relief or other equitable remedies and (ii) applicable
bankruptcy, insolvency, reorganization or other laws of general application
relating to or affecting the enforcement of creditors' rights generally.
Valid Issuance of Stock. When issued, sold and delivered in
accordance with the terms of this Agreement for the consideration provided for
herein, the Securities shall be duly authorized, validly issued, fully paid
and non-assessable and shall be free of any liens or encumbrances, except
those liens or encumbrances arising as a result of the ownership of the
Securities by Purchaser. Shares of Common Stock sufficient to permit the
conversion of the Securities have been duly and validly reserved for issuance
and, upon issuance in accordance with the terms of the Restated Articles, will
be duly authorized, validly issued, fully paid and non-assessable.
Capitalization. Immediately prior to the Closing, the capitalization
of the Company will consist of the following:
Common Stock. A total of One Hundred Thirty Million
(130,000,000) authorized shares of Common Stock of which Eight Hundred
Sixty-four Thousand and Eighty-four (864,084) shares are issued and outstanding.
Preferred Stock. A total of Fifty-Nine Million (59,000,000)
authorized shares of Preferred Stock, consisting of Nine Million (9,000,000)
shares designated as Series A-1 Preferred Stock (the "Series A-1 Preferred"),
Seven Million Six Hundred Eleven Thousand Seven Hundred and Seventy-two
(7,611,772) shares of which are issued and outstanding, Forty-Five Million
(45,000,000) shares designated as Series B Preferred Stock (the "Series B
Preferred"),_______________ of which are issued and outstanding and Five Million
(5,000,000) shares of Series C Preferred Stock, (the "Series C Preferred"), none
of which are issued and outstanding.
<PAGE>
Options, Warrants and Convertible Notes. The Company has
reserved Twenty-Seven Million (27,000,000) shares of its Common Stock for future
issuance to employees, directors and officers of, and consultants to, the
Company under the 1998 Stock Option Plan (the "1998 Plan") as may be determined
by the Company's Board of Directors from time to time. Under the 1998 Plan,
there are options outstanding to purchase Five Million Five Thousand Six Hundred
Sixty-Eight (5,005,668) shares. In addition to the Warrant, additional warrants
are outstanding to purchase (i) up to One Million Two Hundred Twenty-Three
Thousand Eight Hundred One (1,223,801) shares of the Series A-1 Preferred at
$1.00 per share, (ii) up to Fifteen Million Five Thousand Five Hundred Fifty-One
(15,005,551) shares of Common Stock, and (iii) up to Three Million Sixty-Four
Thousand Ninety-Five (3,064,095) shares of the Series B Preferred.
Settlement Agreement. The Company has agreed to issue certain
holders of its Series A-1 Preferred Stock warrants to purchase shares of its
Common Stock for a nominal exercise price per share in the event it issues
shares of its stock of a type and at a price that would trigger the
anti-dilution provisions of the Restated Articles. The issuance of the Series B
Preferred Stock has triggered these provisions. The number of shares issuable
pursuant to these warrants is the difference between the number of shares of
Common Stock into which the shares of Series A-1 Preferred Stock held by these
parties or subject to warrants held by these parties (the "Subject Shares")
would convert if the Series A-1 Preferred Stock was entitled to full-ratchet
anti-dilution protection, or 21,000,000 shares, less the number of shares of
Common Stock into which the subject shares may convert under the
weighted-average anti-dilution provisions of the Restated Articles. Based on the
number of shares of the Series B Preferred Stock sold to date, the provisions of
the Restated Articles allow conversion of the Subject Shares into approximately
6,800,000 shares of Common Stock, resulting in an obligation to issue warrants
to these parties for approximately 14,200,000 shares of Common Stock.
Following the Closing, the rights, preferences and privileges of the
Securities will be as set forth in the Restated Articles and as provided by law.
<PAGE>
Subsidiaries. As of the date hereof, the Company does not presently
own or control, directly or indirectly, any equity interest in any other
corporation, partnership, trust, joint venture, association or other entity.
Governmental Consents. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with,
any federal, state or local governmental authority by the Company is required
in connection with the consummation of the transactions contemplated by this
Agreement except: (i) the filing of a Notice of Transaction pursuant to
Section 25102(f) of the California Corporate Securities Law of 1968, as
amended, and the rules thereunder (the "California Securities Law"), and (ii)
such other qualifications or filings under the Securities Act of 1933, as
amended, and the regulations thereunder (the "Securities Act") and all other
applicable securities laws as may be required in connection with the
transactions contemplated by this Agreement. All such qualifications and
filings will, in the case of qualifications, be effective on the Closing and
will, in the case of filings, be made within the time prescribed by law.
Compliance with Law and Charter Documents. The Company is not in
violation or default of any provisions of its Restated Articles or Bylaws, as
amended to date. To the Company's knowledge, the Company is in compliance in
all material respects with all applicable statutes, laws, regulations and
executive orders of the United States of America and all states, foreign
countries or other governmental bodies and agencies having jurisdiction over
the Company's business or properties, except as where the failure to be in
compliance therewith could not reasonably be expected to have a material
adverse effect on the business, property, financial condition or results of
operations (a "Material Adverse Effect") of the Company.
Registration Rights. Except as provided in the Rights Agreement dated
as of the date hereof and attached hereto as Exhibit B, the Company has not
granted or agreed to grant to any person or entity any rights (including
piggyback registration rights) to have any securities of the Company
registered with the United States Securities and Exchange Commission ("SEC")
or any other governmental authority, except those piggyback registration
rights granted to (i) Silicon Valley Bank in its warrant to purchase
Thirty-Four Thousand Eight Hundred (34,800) shares of Series A-1 Preferred and
Twenty-Five Thousand Two Hundred (25,200) shares of Common Stock and (ii) to
Purchaser, in the Warrant.
<PAGE>
Full Disclosure. This Agreement, the exhibits hereto, the Rights
Agreement and all other documents delivered by the Company to the Purchaser or
its attorneys or agents in connection herewith or therewith or with the
transactions contemplated hereby or thereby, do not contain any untrue
statement of a material fact nor, to the Company's knowledge, omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. Notwithstanding the foregoing, the projected quarterly
balance sheets, income statements and statements of cash flow for the years
2000 and 2001 (the "Projections") provided to the Purchaser were prepared by
the management of the Company in a good faith effort to describe the Company's
projected financial status at the applicable time period. The assumptions
applied in preparing the Projections appeared reasonable to management as of
the date they were prepared; however, there is no assurance that these
assumptions will prove to be valid or that the results set forth in the
Projections will be achieved. To the Company's knowledge, there are no facts
which (individually or in the aggregate) materially adversely affect the
business, assets, liabilities, financial condition, prospects or operations of
the Company that have not been set forth in the Agreement, the exhibits
hereto, the agreements referred to herein or in other documents delivered to
Purchaser or its attorneys or agents in connection herewith.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
IV.
Purchaser hereby represents and warrants as follows:
<PAGE>
Authorization. This Agreement constitutes Purchaser's valid and
legally binding obligation, enforceable in accordance with its terms except as
may be limited by (i) applicable bankruptcy, insolvency, reorganization or
other laws of general application relating to or affecting the enforcement of
creditors' rights generally and (ii) the effect of rules of law governing the
availability of equitable remedies. Purchaser represents that Purchaser has
full power and authority to enter into this Agreement.
Investment. Purchaser is acquiring the Securities for investment for
Purchaser's own account and not with the view to the public resale or
distribution thereof within the meaning of the Securities Act, and Purchaser
has no present intention of selling, granting any participation in, or
otherwise distributing the Securities. No other person has a direct or
indirect beneficial interest, in whole or in part, in such Securities.
Purchaser understands that the Securities have not been registered under the
Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act, which exemption depends upon, among other
things, the bona fide nature of Purchaser's investment intent as expressed
herein.
Relationship to Company; Sophistication. Purchaser (i) has a
preexisting business or personal relationship with the Company and/or any of
its officers, directors or controlling persons or (ii) by reason of
Purchaser's business or financial experience or the business or financial
experience of Purchaser's personal representative(s), if any, who are
unaffiliated with and who are not compensated, directly or indirectly, by the
Company or any affiliate or selling agent of the Company, has the capacity to
protect Purchaser's own interests in connection with Purchaser's acquisition
of the Securities.
Restrictions on Transfer. Purchaser acknowledges that the Securities
must be held indefinitely unless subsequently registered under the Securities
Act or the Company receives an opinion of counsel satisfactory to the Company
that such registration is not required. Purchaser is aware of the provisions
of Rule 144 promulgated under the Securities Act which permit limited resale
of stock purchased in a private placement subject to the satisfaction of
certain conditions, including, among other things, the existence of a public
market for the stock, the availability of certain current public information
about the Company, the resale occurring not less than one year after a party
has purchased and paid for the stock to be sold, the sale being through a
"broker's transaction" or in transactions directly with a "market maker" and
the number of shares of the stock being sold during any three-month period not
exceeding specified limitations. Purchaser further acknowledges and
understands that the Company may not be satisfying the current public
information requirement of Rule 144 at the time Purchaser wishes to sell the
Securities; and, if so, Purchaser would be precluded from selling the
Securities under Rule 144 even if the one year minimum holding period has been
satisfied.
No Public Market. Purchaser understands that no public market now
exists for the Securities issued by the Company, that there can be no
assurance that a public market will ever exist for the Securities and that the
Company is under no obligation to register the Securities.
<PAGE>
Exemption from Registration. Purchaser further acknowledges that, in
the event all of the requirements of Rule 144 are not met, compliance with
Regulation A or some other registration exemption will be required; and that,
although Rule 144 is not exclusive, the staff of the SEC has expressed its
opinion that persons proposing to sell private placement securities other than
in a registered offering and other than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, that such persons and the
brokers who participate in the transactions do so at their own risk, and that,
therefore, there is no assurance that any exemption from registration under
the Securities Act will be available or, if available, will allow such person
to dispose of, or otherwise transfer, all or any portion of the Securities.
Access to Data. Purchaser has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management and the opportunity to inspect Company facilities and such books
and records and material contracts as Purchaser deemed necessary to its
determination to purchase the Securities.
Experience. Purchaser and/or Purchaser's personal representative(s)
have such knowledge and experience in financial, tax and business matters so
as to enable Purchaser and/or Purchaser's personal representative(s) to
utilize the information made available to Purchaser and/or Purchaser's
personal representative(s) in connection with the offering of the Securities,
to evaluate the merits and risks of the prospective investment and to make an
informed investment decision with respect thereto. Each personal
representative, if any, to Purchaser, in connection with Purchaser's
investment in the Securities, has confirmed in writing the specific details of
any and all past, present or future relationships, actual or contemplated,
between Purchaser or Purchaser's affiliates and the Company or any of
Purchaser's affiliates.
Purchaser's Liquidity. Purchaser (i) has adequate means of providing
for Purchaser's current needs and possible personal contingencies, (ii) has no
need for liquidity in Purchaser's investment, (iii) is able to bear the
substantial economic risks of an investment in the Securities for an
indefinite period and (iv) at the present time, can afford a complete loss of
such investment. Purchaser's commitment to investments which are not readily
marketable is not disproportionate to Purchaser's net worth and Purchaser's
investment in the Securities will not cause Purchaser's overall commitment to
become excessive.
Offer and Sale. Purchaser understands that the sale of the Securities
has not been registered under the Securities Act in reliance upon an exemption
therefrom. Purchaser was not offered or sold the Securities, directly or
indirectly, by means of any form of general solicitation or general
advertisement, including the following: (i) any advertisement, article, notice
or other communication published in any newspaper, magazine or similar medium
or broadcast over television or radio or (ii) any seminar or other meeting
whose attendees had been invited by general solicitation or general
advertising.
<PAGE>
Risks. Purchaser is experienced in evaluating and investing in
high-risk technology companies such as the Company and by reason of
Purchaser's business and financial experience has the capacity to protect
Purchaser's own interests in connection with the acquisition of the Securities
and has the ability to bear the economic risk of Purchaser's investment.
Purchaser is aware that the Securities are highly speculative and that there
can be no assurance as to what return, if any, there may be. Purchaser is
aware that, subject to the provisions of the Restated Articles, the Company
may issue additional securities in the future which could result in the
dilution of Purchaser's ownership interest in the Company.
Investment Entity. Purchaser, if a corporation, partnership, trust or
other entity, is authorized and otherwise duly qualified to purchase and hold
the Securities; such entity has its principal place of business as set forth
on the signature page hereof; and such entity (i) has not been formed for the
specific purpose of acquiring Securities in the Company or (ii) each equity
owner thereof has executed and delivered simultaneously herewith a duly
completed Purchase Questionnaire.
Reliance. Purchaser has relied only upon the information provided to
him or her in writing by the Company, or information from books and records of
the Company. No oral representations have been made or oral information
furnished to Purchaser or his or her advisor(s) in connection with the
offering of the Securities which were not contained therein or were
inconsistent therewith.
SECTION 5
CONDITIONS TO PURCHASER'S OBLIGATIONS AT CLOSING
The obligations of Purchaser under Section 2 of this Agreement are
subject to the fulfillment or waiver, on or before the Closing, of each of the
following conditions, the waiver of which shall not be effective against any
Purchaser who does not consent to such waiver, which consent may be given by
written, oral or telephone communication to the Company or its counsel:
Representations and Warranties True. Each of the representations and
warranties of the Company contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.
<PAGE>
Performance. The Company shall have performed and complied in all
material respects with all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before the Closing and shall have obtained all approvals, consents and
qualifications necessary to complete the purchase and sale described herein.
Restated Articles Effective. The Restated Articles shall have been duly
adopted by the Company by all necessary corporate action of its Board of
Directors and shareholders, and shall have been duly filed with and accepted by
the Secretary of State of the State of California.
Securities Exemptions. The offer and sale of the Securities to
Purchaser pursuant to this Agreement shall be exempt from the registration
requirements of the Securities Act, the qualification requirements of the
California Securities Law and the registration and/or qualification
requirements of all other applicable state securities laws.
Rights Agreement. The Rights Agreement shall have been executed and
delivered by the parties thereto.
SECTION 6
CONDITIONS TO COMPANY'S OBLIGATIONS AT CLOSING
The Company's obligation to sell and issue the Securities at the
Closing is subject to the fulfillment or waiver by the Company of the following
conditions:
Representations and Warranties. The representations and warranties made
by the Purchaser in Section 4 hereof shall be true and correct when made and on
the Closing Date as if made on and as of the Closing Date.
Consents and Waivers. The Company shall have obtained any and all
consents and waivers necessary or appropriate for consummation of the
transactions contemplated by this Agreement.
Surrender of Warrant. Purchaser shall have delivered to the Company
the Warrant.
Restated Articles Effective. The Restated Articles shall have been duly
adopted by the Company by all necessary corporate action of its Board of
Directors and shareholders, and shall have been duly filed with and accepted by
the Secretary of State of the State of California.
Securities Exemptions. The offer and sale of the Securities to
Purchaser pursuant to this Agreement shall be exempt from the registration
requirements of the Securities Act, the qualifications requirements of the
California Securities Law and the registration and/or qualification requirements
of all other applicable state securities laws.
<PAGE>
SECTION 7
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES
Restrictions on Transferability. The Securities shall not be
transferable except upon the conditions specified in this Section 7. Purchaser
will cause any proposed transferee of the Securities held by Purchaser to
agree to take and hold such Securities subject to the provisions and upon the
conditions specified in this Section 7.
Restrictive Legends. Each certificate representing the Securities,
and any other securities issued in respect of the Securities upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar
event (except as otherwise permitted by the provisions of this Section 7)
shall be stamped or otherwise imprinted with legends in substantially the
following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS
MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY
TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION
IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH
ACT."
Any other legends required by applicable state securities laws.
The Company need not register a transfer of legended Securities and may
also instruct its transfer agent not to register the transfer of the Securities,
unless the conditions specified in each of the foregoing legends are satisfied.
<PAGE>
Removal of Legend and Transfer Restrictions. Any legend endorsed on a
certificate pursuant to Section 7.2 and the stop transfer instructions with
respect to such legended Securities shall be removed, and the Company shall
issue a certificate without such legend to the holder of such Securities if
such Securities are registered under the Securities Act and a prospectus
meeting the requirements of Section 10 of the Securities Act is available or
if such holder satisfies the requirements of Rule 144(k).
SECTION 8
MISCELLANEOUS
Governing Law. This Agreement shall be governed in all respects by
the internal laws of the State of California, without reference to principles
of conflict of laws or choice of law.
Survival. The representations, warranties, covenants and agreements
made herein shall survive the execution and delivery of this Agreement and the
Closing.
Successors and Assigns. Except as otherwise 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.
Entire Agreement; Amendment. This Agreement and the exhibits to this
Agreement constitute the full and entire understanding and agreement between
the parties with regard to the subjects hereof and thereof. Any term of this
Agreement may be amended and the observance of any term of this Agreement 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 Purchaser. Any amendment or waiver effected in accordance with this
section shall be binding upon the Company, Purchaser and each future holder of
the securities purchased hereunder.
Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand, messenger or
a nationally recognized overnight courier service, addressed (a) if to
Purchaser, at Purchaser's address set forth on Purchaser's signature page
hereto, or at such other address as Purchaser shall have furnished to the
Company in writing, (b) if to any other holder of any Securities, at such
address as such holder shall have furnished the Company in writing or, until
any such holder so furnishes an address to the Company, to and at the address
of the last holder of such Securities who has so furnished an address to the
Company or (c) if to the Company, at the following address:
<PAGE>
Spear Technologies, Inc.
One Market Street, Steuart Tower, Suite 700
San Francisco, CA 94105
Attention: President
Fax: (415) 836-8099
or at such other address as the Company shall have furnished to the Purchaser,
with a copy to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301-1809
Attn: Thomas W. Furlong
All such notices, requests and other communications will (i) if delivered
personally or by express courier to the address as provided in this Section, be
deemed given upon delivery, or (ii) if delivered by facsimile transmission to
the facsimile number as provided in this Section, be deemed given upon receipt.
Any party from time to time may change its address, facsimile number or other
information for the purpose of notices to that party by giving ten (10) days'
prior written notice specifying such change to the other party hereto.
<PAGE>
Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
Headings. The headings and captions used in this Agreement are used
for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules shall, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
No Finder's Fees. Each party represents that it neither is nor will
be obligated for any finder's or broker's fee or commission in connection with
this transaction. Purchaser agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of
a finders' or broker's fee (and any asserted liability) for which the
Purchaser or any of its officers, partners, employees, or representatives is
responsible. The Company agrees to indemnify and hold harmless Purchaser from
any liability for any commission or compensation in the nature of a finder's
or broker's fee (and any asserted liability) for which the Company or any of
its officers, employees or representatives is responsible.
Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision(s) shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as
if such provision(s) were so excluded and shall be enforceable in accordance
with its terms.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Series C
Preferred Stock Purchase Agreement as of the date first set forth above.
SPEAR TECHNOLOGIES, INC.
By: ________________________________
Michael Bealmear
President
<PAGE>
COUNTERPART SIGNATURE PAGE TO
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
PURCHASER:
Name: ______________________________
(Please print or type)
Signature:_____________________________
Address: _____________________________
_____________________________
<PAGE>
Exhibit A
SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION
<PAGE>
Exhibit B
SECOND AMENDED AND RESTATED RIGHTS AGREEMENT
SPEAR TECHNOLOGIES, INC.
SECOND AMENDED AND RESTATED RIGHTS AGREEMENT
This Second Amended and Restated Rights Agreement (the "Agreement") is
entered into as of the 1st day of December, 1999, by and among Spear
Technologies, Inc., a California corporation (the "Company"), the undersigned
parties purchasing shares of the Company's Series B Preferred Stock on the date
hereof (the "Investors"), the undersigned holders of the Series A-1 Preferred
Stock of the Company (the "Prior Rights Holders"), the undersigned holders of
the Common Stock of the Company (the "Founders"), Silicon Valley Bank ("SVB")
and Tenera, Inc. ("Tenera"). The Prior Rights Holders and the Investors are
sometimes collectively referred to herein as the "Purchasers."
RECITALS
A. The Prior Rights Holders hold shares of the Company's Series A-1
Preferred Stock.
B. The Company, the Prior Rights Holders and the Founders have entered
into that certain Amended and Restated Rights Agreement, dated as
of March 29, 1999 (the "Prior Rights Agreement"), pursuant to the
terms of which the Company granted certain registration and other
rights to the Prior Rights Holders and the Founders.
C. On November 14, 1997 the Company granted a warrant to purchase shares of its
Common Stock to Tenera (the "Tenera Warrant"). Simultaneously with the grant of
the Tenera Warrant, the Company agreed to provide "piggy-back" registration
rights for the shares of the Company's Common Stock underlying the Tenera
Warrant. On the date hereof, Tenera surrendered the Tenera Warrant to the
Company in exchange for shares of the Company's Series C Preferred Stock (the
"Tenera Stock").
D. On August 10, 1998, the Company granted a warrant to purchase shares of its
Series A Preferred Stock to SVB (the "SVB Warrant"). Simultaneously with the
grant of the SVB Warrant, the Company agreed to provide "piggy-back"
registration rights for the shares of the Company's Common Stock underlying the
SVB Warrant (such Common Stock being hereinafter referred to as the "SVB Warrant
Stock").
E. On the date hereof, the Company has sold shares of its Series B
Preferred Stock to the Investors pursuant to a Series B Stock
Purchase Agreement dated of even date herewith (the "Purchase
Agreement").
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F. By this Agreement, the Company and the Prior Rights Holders desire to
restate and amend the Prior Rights Agreement to provide certain
registration and other rights to the Investors, SVB and Tenera as set forth
herein, and to include in this agreement the separate rights granted to SVB
and Tenera, joining the Investors, SVB and Tenera as parties hereto.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties agree as follows:
Registration Rights.
Certain Definitions. As used in this Agreement, the following terms shall have
the following respective meanings:
"Affiliate" shall mean a person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, is under common control with, or is
a partner or a partner of a partner of a Holder.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Conversion Stock" shall mean the Common Stock issued or issuable upon
conversion of the Series A-1 Preferred Stock or the Series B Preferred Stock
held by the Purchasers, as well as shares of Common Stock received by holders of
the Series A Preferred Stock upon conversion of the Company's Series A Preferred
Stock into shares of Series A-1 Preferred Stock and Common Stock.
"Holder" shall mean any shareholder of the Company holding Registrable
Securities or securities convertible into Registrable Securities, and any person
holding Registrable Securities or securities convertible into Registrable
Securities to whom the rights under this Section 1 have been transferred in
accordance with Section 1.10.
"Initiating Holders" shall mean any Holder or Holders of at least fifty percent
(50%) of the Registrable Securities (adjusted after the original issuance
thereof for stock splits, stock dividends, recapitalizations and the like).
"Offered Stock" shall mean all Stock proposed to be Transferred by a Holder.
"Registrable Securities" shall mean (i) the Conversion Stock; (ii) the shares of
Common Stock underlying the Series A-1 Preferred Stock and the Common Stock
purchaseable pursuant to that certain warrant issued by the Company to Robert K.
Dahl on January 30, 1998; (iii) the shares of Common Stock purchaseable upon
exercise of warrants to purchase Common Stock issued by the Company to the
parties to the Settlement Agreement among the Company and certain holders of the
Series A-1 Preferred Stock (the "Settlement Agreement") and (iv) stock issued in
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respect of the stock referred to in (i) (ii) or (iii) as a result of a stock
split, stock dividend, recapitalization or the like, which has not been sold to
the public. Except for subsections 1.2 and 1.4, "Registrable Securities" shall
also include the common stock issuable upon conversion of the Tenera Stock.
Except for subsections 1.2, 1.4 and 4, "Registrable Securities" shall also
include the shares of Common Stock of the Company issued or issuable to the
Founders, the shares of Common Stock of the Company issued or issuable to those
officers and directors of the Company to whom the Board of Directors of the
Company by unanimous vote extends the registration rights contained in
subsection 1.3, and the SVB Warrant Stock.
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 the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses, except as otherwise stated
below, incurred by the Company in complying with Sections 1.2, 1.3 and 1.4
hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company) and the reasonable fees and disbursements of one counsel for all
Holders in the event of each registration provided for in Sections 1.2, 1.3 and
1.4 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling commissions
and stock transfer taxes applicable to the securities registered by the Holders
and, except as set forth above, all reasonable fees and disbursements of counsel
for the selling Holders.
"Stock" means and includes all shares of Common Stock issued and outstanding at
the relevant time plus (i) all shares of Common Stock that may be issued upon
exercise of any options, warrants and other rights of any kind that are then
exercisable, and (ii) all shares of Common Stock that may be issued upon
conversion of (A) any convertible securities, including, without limitation,
preferred stock and debt securities then outstanding, which are by their terms
then convertible into or exchangeable for Common Stock or (B) any such
convertible securities issuable upon exercise of options, warrants or other
rights that are then exercisable.
"Transfer" means and includes any sale, assignment, encumbrance, hypothecation,
pledge, conveyance in trust, gift, transfer by bequest, devise or descent, or
other transfer or disposition of any kind, including but not limited to
transfers to receivers, levying creditors, trustees or receivers in bankruptcy
proceedings or general assignees for the benefit of creditors, whether voluntary
or by operation of law, directly or indirectly, except:
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any bona fide pledge by a Holder if the pledgee executes a counterpart copy of
this Agreement and becomes bound thereby as a Holder;
any transfers of Stock by a Holder to such Holder's spouse, lineal descendant or
antecedent, father, mother, brother or sister of the Holder, the adopted child
or adopted grandchild of the Holder, or the spouse of any child, adopted child,
grandchild or adopted grandchild of the Holder, or to a trust or trusts for the
exclusive benefit of such Holder or such Holder's family members as described in
this Section, or transfers of Stock by a Holder by devise or descent, in all
cases if the transferee or other recipient executes a counterpart copy of this
Agreement and becomes bound thereby as a Holder;
any transfer of Stock by a Holder made: (A) pursuant to a merger or
consolidation of the Company with or into another corporation or corporations;
(B) pursuant to the winding up and dissolution of the Company; or (C) at, and
pursuant to, a firm commitment underwritten public offering; or
any transfer of Stock by a Holder to an Affiliate of such Holder, provided such
Affiliate agrees in writing to be bound by the provisions of this Agreement.
Requested Registration.
Request for Registration. In case the Company shall receive from Initiating
Holders a written request that the Company effect any registration with respect
to at least twenty-five percent (25%) of the then outstanding Registrable
Securities and the reasonably anticipated aggregate public offering price would
equal or exceed $5,000,000, the Company will:
promptly give written notice of the proposed registration, qualification or
compliance to all other Holders; and
as soon as practicable, use its best efforts to effect such registration,
qualification or compliance (including, without limitation, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such 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 received
by the Company within twenty (20) days after receipt of such written notice from
the Company; provided, however, that the Company shall not be obligated to take
any action to effect any such registration, qualification or compliance pursuant
to this Section 1.2:
in any particular jurisdiction in which the Company would be required to execute
a general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act;
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at any time prior to the later of three (3) months after the effective date of
the Company's initial public offering of its securities pursuant to a
registration statement declared effective under the Securities Act ("IPO"), or
three (3) years from the closing of the transactions contemplated by the
Purchase Agreement;
after the Company has effected two (2) such registrations pursuant to this
Section 1.2(a);
if the Company shall furnish to such Holders a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company or its Holders for a
registration statement to be filed in the near future, then the Company's
obligation to use its best efforts to register, qualify or comply under this
Section 1.2 shall be deferred for a period not to exceed one hundred twenty
(120) days from the date of receipt of written request from the Initiating
Holders, provided that the Company may not use this right or the right under
Section 1.4(b)(iv) more than once in any twelve (12) month period; and
within six (6) months following the effective date of a prior registered
offering of the Company's securities.
Subject to the foregoing clauses (A) through (E), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable, after receipt of the request or
requests of the Initiating Holders.
Underwriting. In the event that a registration pursuant to Section 1.2 is for a
registered public offering involving an underwriting, the Company shall so
advise the Holders as part of the notice given pursuant to Section 1.2(a)(i). In
such event, the right of any Holder to participate in such registration shall be
conditioned upon such Holder's participation in the underwriting arrangements
required by this Section 1.2, and the inclusion of such Holder's Registrable
Securities in the underwriting to the extent requested shall be limited to the
extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders, but subject to the
Company's reasonable approval. Notwithstanding any other provision of this
Section 1.2, if the managing underwriter advises the Initiating Holders in
writing that marketing factors require a limitation of the number of shares to
be underwritten, then the Company shall so advise all participating Holders and
the number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders thereof in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the registration
statement. No Registrable Securities excluded from the underwriting by reason of
the underwriter's marketing limitation shall be included in such registration.
To facilitate the allocation of shares in accordance with the above provisions,
the Company or the underwriters may round the number of shares allocated to any
Holder to the nearest 100 shares.
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If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice, on
or before the fifth day prior to the effectiveness of the registration
statement, to the Company, the managing underwriter and the Initiating Holders.
The Registrable Securities or other securities so withdrawn shall also be
withdrawn from registration, and such securities shall not be transferred in a
public distribution prior to ninety (90) days after the effective date of such
registration, or such other shorter period of time as the underwriters may
require.
If the underwriter has not limited the number of Registrable Securities
to be underwritten, the Company may include securities for its own account (or
for the account of other purchasers) in such registration if the managing
underwriter so agrees and if the number of Registrable Securities that would
otherwise have been included in such registration and underwriting will not
thereby be limited.
Company Registration.
Notice of Registration. If at any time or from time to time the Company shall
determine to register any of its securities, either for its own account or the
account of a security holder or holders, other than (i) a registration relating
solely to employee benefit plans, or (ii) a registration relating solely to a
Commission Rule 145 transaction, the Company will:
except in the case of a registration effected pursuant to Sections 1.2 or 1.4
hereof, promptly give to each Holder written notice thereof, and include in such
registration (and any related qualification under blue sky laws or other
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made within twenty (20)
days after receipt of such written notice from the Company, by any Holder; and
promptly give to each Holder of the Registrable Securities issued or issuable
upon conversion of the Tenera Stock written notice thereof, and include in such
registration (and any related qualification under blue sky laws or other
compliance), and in any underwriting involved therein, all the Registrable
Securities issued or issuable upon conversion of the Tenera Stock specified in a
written request or requests, made within twenty (20) days after receipt of such
written notice from the Company, by any such holder of Series C Preferred Stock.
Underwriting. If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to Sections
1.3(a)(i) or 1.3(a)(ii). In such event the right of any Holder to registration
pursuant to Section 1.3 shall be conditioned upon such Holder's participation in
such underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company, but subject
to the reasonable approval of Holders holding more than a majority of the
Registrable Securities to be included in such registration. Notwithstanding any
other provision of this Section 1.3, if the managing underwriter determines that
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marketing factors require limitation of the number of shares to be underwritten,
the managing underwriter may limit the Registrable Securities to be included in
such registration. The Company shall so advise all Holders and other holders
distributing their securities through such underwriting, and the number of
shares of securities that may be included in the registration and underwriting
(other than in behalf of the Company) shall be allocated among all Holders and
such other holders (provided that such other holders have contractual rights to
participate in such registration which are not subordinate to the Holders) in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities or other securities requested to be included in such registration by
such Holders and such other holders; provided, however, in no event shall the
amount of Registrable Securities of the Holders included in the offering be
reduced below twenty percent (20%) of the total amount of securities included in
such offering, unless such offering is the initial public offering of the
Company's securities in which case the Holders may be excluded entirely if the
underwriters make the determination described above or the Holders holding a
majority of the Registrable Securities consent in writing to such a reduction;
and provided, further, that the Registrable Securities held by the Founders
shall be reduced before any reduction in the Registrable Securities to be
offered by other Holders. To facilitate the allocation of shares in accordance
with the above provisions, the Company may round the number of shares allocated
to any Holder or holder to the nearest one hundred (100) shares. If any Holder
or holder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter. Except as set forth in Section 1.11, any securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration, and
shall not be transferred in a public distribution prior to ninety (90) days
after the effective date of the registration statement relating thereto, or such
other shorter period of time as the underwriters may require.
Registration on Form S-3.
If any Holder or Holders request that the Company file a registration statement
on Form S-3 (or any successor form to Form S-3) for a public offering of shares
of the Registrable Securities the reasonably anticipated aggregate price to the
public of which would exceed $5,000,000, and the Company is a registrant
entitled to use Form S-3 to register the Registrable Securities for such an
offering, the Company shall use its best efforts to cause such Registrable
Securities to be registered for the offering on such form and to cause such
Registrable Securities to be qualified in such jurisdictions as the Holder or
Holders may reasonably request. The substantive provisions of Section 1.2(b)
shall be applicable to each registration initiated under this Section 1.4.
Notwithstanding the foregoing, the Company shall not be obligated to take any
action pursuant to this Section 1.4:
in any particular jurisdiction in which the Company would be required to execute
a general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act;
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if the Company, within ten (10) days of the receipt of the request of the
Holders, gives notice of its bona fide intention to effect the filing of a
registration statement with the Commission within sixty (60) days of receipt of
such request (other than with respect to a registration statement relating to a
Rule 145 transaction, an offering solely to employees or any other registration
which is not appropriate for the registration of Registrable Securities);
within three (3) months of the effective date of any registration referred to in
Sections 1.2 and 1.3 above;
if the Company shall furnish to such Holder a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company or the Holder for
registration statements to be filed in the near future, then the Company's
obligation to use its best efforts to file a registration statement shall be
deferred for a period not to exceed one hundred twenty (120) days from the
receipt of the request to file such registration by such Holder, provided that
the Company may not use this right or the right under Section 1.2(a)(ii)(D) more
than once in any twelve month period; or
if the Company has effected one (1) registration pursuant to this subsection 1.4
within a twelve (12) month period from the date of such request.
Expenses of Registration. Unless otherwise stated, all Selling Expenses relating
to securities registered on behalf of the Holders shall be borne by the Holders
of such securities pro rata on the basis of the number of shares so registered.
All Registration Expenses incurred in connection with all registrations pursuant
to Sections 1.2, 1.3 and 1.4 shall be borne by the Company.
Registration Procedures. In the case of each registration, qualification or
compliance effected by the Company pursuant to this Section 1, the Company will
keep each Holder advised in writing as to the initiation of each registration
and as to the completion thereof. At its expense the Company will:
prepare and file with the Commission a registration statement with respect to
such securities and use its best efforts to cause such registration statement to
become and remain effective for at least one hundred eighty (180) days or until
the distribution described in the registration statement has been completed;
furnish to the Holders participating in such registration and to the
underwriters of the securities being registered such reasonable number of copies
of the registration statement, preliminary prospectus, final prospectus and such
other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities;
prepare and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection with such
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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;
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;
in the event of any underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the managing underwriter of such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such an
agreement;
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 in the light of the circumstances then existing; and
use its best efforts to furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this Section 1, on the date
that such Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 1, if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
Indemnification.
The Company will indemnify each Holder, each of Holder's officers and directors
and partners, and each person controlling such person within the meaning of
Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
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circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of the
Securities Act or any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such Holder,
each of Holder's officers and directors, and each person controlling such
Holder, each such underwriter and each person who controls any such underwriter,
for any legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable to any such person in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission (or alleged untrue
statement or omission), made in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder, controlling person or underwriter and stated to be specifically for use
therein or the preparation thereby.
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 the Company, each of its directors and officers, each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act, and each other such Holder, each of
its officers and directors and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company, such Holders, such directors, officers, persons,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein or
the preparation thereby. Notwithstanding the foregoing, the liability of each
Holder under this subsection (b) shall be limited to an amount equal to the net
proceeds received by such Holder from the sale of Registrable Securities held by
such Holder in such registration.
Each party entitled to indemnification under this Section 1.7 (the "Indemnified
Party") shall give notice to the party required to provide indemnification (the
"Indemnifying Party") promptly after such Indemnified Party has actual knowledge
of any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom, provided that counsel for the Indemnifying Party, who shall
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conduct the defense of such claim or litigation, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 1 unless the failure to give such notice is materially
prejudicial to an Indemnifying Party's ability to defend such action and
provided further, that the Indemnifying Party shall not assume the defense for
matters as to which there is a conflict of interest or separate and different
defenses. 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 a release from all liability in respect to such claim or
litigation.
Information by Holder. The Holders of securities included in any registration
shall furnish to the Company such information regarding such Holders, the
Registrable Securities held by them and the distribution proposed by such
Holders as the Company may request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Section 1.
Rule 144 Reporting. With a view to making available the benefits of certain
rules and regulations of the Commission which may at any time permit the sale of
the Registrable Securities to the public without registration, after such time
as a public market exists for the Common Stock of the Company, the Company
agrees to use its best efforts to:
Make and keep public information available, as those terms are understood and
defined in Rule 144 under the Securities Act, at all times after the effective
date that the Company becomes subject to the reporting requirements of the
Securities Act or the Securities Exchange Act of 1934, as amended (as amended,
the "Exchange Act").
Use its best efforts to file with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements);
So long as a Holder owns any Registrable Securities to furnish to the Holder
forthwith upon request a written statement by the Company as to its compliance
with the reporting requirements of said Rule 144 (at any time after ninety (90)
days after the effective date of the first registration statement filed by the
Company for an offering of its securities to the general public), and of the
Securities Act and 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 of the Company and
other information in the possession of or reasonably obtainable by the Company
as the Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing the Holder to sell any such securities
without registration.
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Transfer of Registration Rights. Subject to Section 3 hereof, the rights to
cause the Company to register securities granted to the Holder under sections
1.2, 1.3 and 1.4 may be assigned to a transferee or assignee (other than a
competitor as reasonably determined by the Company in good faith) in connection
with any transfer or assignment of Registrable Securities by the Holder provided
that the transferor provides the Company with written notice of the proposed
transfer, the transferee agrees to be bound by the terms of this Agreement, and:
(i) the transferee acquires all of the transferor's Registrable Securities not
sold to the public; (ii) the transferee acquires at least the lesser of all or
500,000 shares (subject to adjustments for stock splits, combinations, dividends
or the like) of the transferor's Registrable Securities not sold to the public;
or (iii) the transferee is a shareholder or Affiliate of the Holder.
Standoff Agreement. Each Holder agrees, in connection with the Company's initial
public offering of the Company's securities and upon request of the Company or
the underwriters managing any underwritten offering of the Company's securities,
not to sell, make any short sale of, loan, grant any option for the purchase of,
or otherwise dispose of any Registrable Securities (other than those included in
the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of not to exceed a period
commencing upon the effective date of such registration and ending one hundred
and eighty (180) days thereafter; provided, that the officers and directors of
the Company who own stock of the Company and all shareholders owning five
percent or more of any class or series of the Company's stock also agree to such
restrictions.
Termination. Any registration rights granted pursuant to this Section 1 shall
terminate with respect to any Holder at such date after the Company's initial
registered public offering when all remaining Registrable Securities held or
entitled to be held by such Holder may be sold under Rule 144 during any ninety
(90) day period.
Other Registration Rights. The Company shall not, without the prior written
consent of Holders of a majority of the Registrable Securities then outstanding
grant any registration rights superior to or on a parity with the rights granted
pursuant to this Section 1.
Purchaser Right of First Refusal Upon Issuance of Securities by the Company.
---------------------------------------------------------------------------
Right of First Refusal. The Company hereby grants to each Prior Rights Holder
and each Investor holding at least 1,000,000 shares of the Series B Preferred
Stock (as adjusted for any stock split, stock dividend, recapitalization, or
similar event) (a "Qualified Series B Holder") or any transferees pursuant to
Section 2.1(f) hereof (collectively, hereinafter, the "Rights Holders") the
right of first refusal to purchase all or part of its pro rata share of New
Securities (as defined in this Section 2.1) which the Company may, from time to
time, propose to sell and issue. For purposes of this right of first refusal, a
pro rata share for a Rights Holder is the ratio that the number of shares of
Conversion Stock and warrants to purchase Conversion Stock then held by such
Rights Holder bears to the number of shares of Stock then outstanding.
"Equity Securities" shall mean any securities having voting rights in the
election of the Board of Directors not contingent upon default, or any
securities evidencing an ownership interest in the Company, or any securities
<PAGE>
convertible into or exercisable for any shares of the foregoing, or any
securities issuable pursuant to any agreement or commitment to issue any of the
foregoing.
Except as set forth below, "New Securities" shall mean any Equity Securities,
whether now authorized or not, and rights, options or warrants to purchase said
Equity Securities. Notwithstanding the foregoing, "New Securities" does not
include (i) securities offered to the public generally pursuant to a
registration statement under the Securities Act; (ii) the Conversion Stock;
(iii) stock issued in connection with any stock split, stock dividend or
recapitalization by the Company, (iv) shares of Common Stock issued to officers,
directors, employees or consultants of the Company pursuant to stock grants,
stock purchase and stock option plans or other stock incentive programs,
agreements or arrangements approved by the Board of Directors, (v) shares of
Common Stock or Preferred Stock of the Company issued to or issuable to lenders
upon conversion, exercise or exchange of warrants in connection with loan or
lease agreements approved by the Board of Directors, (vi) shares of Common Stock
of the Company issued or issuable upon conversion, exercise or exchange of
warrants issued to the parties to the Settlement Agreement, (vii) securities
issued pursuant to the acquisition of all or part of another company by the
Company by merger or other reorganization, or by purchase or all or part of the
assets of another company, pursuant to a plan or arrangement approved by the
Board of Directors, (viii) securities issued in transactions with strategic
partners, (ix) shares of Series B Preferred sold pursuant to the Purchase
Agreement, as the same is amended from time to time, and (x) the Tenera Stock.
In the event the Company proposes to undertake an issuance of New Securities, it
shall give each Rights Holder written notice of its intention, describing the
type of New Securities, and the price and terms upon which the Company proposes
to issue the same. Each Rights Holder shall have ten (10) days from the date of
receipt of any such notice to agree to purchase up to its respective pro rata
share of such New Securities for the price and upon the applicable terms
specified in the notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased.
If, within ten (10) days from the date of receipt of the Company's written
notice a Rights Holder does not notify the Company that it desires to purchase
its pro rata share of the New Securities, those Rights Holders who have elected
to purchase their pro rata share of such New Securities (the
"Fully-participating Rights Holders") may elect to purchase their pro rata
portion of the New Securities not elected to be purchased. No later than five
(5) days after expiration of the ten (10) days after the receipt of the
Company's notice, the Company will send a second notice to the
Fully-participating Rights Holders providing notice of the number of shares of
the New Securities available for purchase pursuant to this over-allotment right
(the "Over-allotment Right"). Each of these Fully-participating Rights Holders
shall have an additional five (5) days after the date of the Company's second
notice to notify the Company that it elects to purchase its pro rata share of
New Securities so offered. Each Fully-participating Rights Holder's pro rata
share of such New Securities shall be the ratio that the number of shares of
Conversion Stock and warrants to purchase Conversion Stock then held by such
Fully-participating Rights Holder bears to the sum of the total number of shares
<PAGE>
of Conversion Stock plus Conversion Stock subject to warrants held by all
Fully-participating Rights Holders.
In the event a Fully-participating Rights Holder fails to exercise the right of
first refusal within said five (5) day period or if there are no
Fully-participating Rights Holders within ten (10) days of receipt of the
Company's initial notice, the Company shall have ninety (90) days thereafter to
sell or enter into an agreement (pursuant to which the sale of New Securities
covered thereby shall be closed, if at all, within sixty (60) days from the date
of said agreement) to sell the New Securities not elected to be purchased by
Rights Holders at the price and upon the terms no more favorable to the
purchasers of such securities than specified in the Company's original notice.
In the event the Company has not sold the New Securities within said ninety (90)
day period (or sold and issued New Securities in accordance with the foregoing
within sixty (60) days from the date of said agreement), the Company shall not
thereafter issue or sell any New Securities without first offering such
securities in the manner provided above.
The right of first refusal granted under this section shall expire upon the
closing of the earlier of (i) the first firm commitment underwritten offering of
the Company's securities to the public pursuant to an effective registration
statement under the Securities Act or (ii) a statutory share exchange,
consolidation or merger of this Company with or into any other corporation or
corporations (other than a wholly-owned subsidiary), or the sale, transfer or
other disposition of all or substantially all of the assets of this Company or
the consummation of any transaction or series of related transactions which
results in the Company's shareholders immediately prior to such transaction not
holding at least a majority of the voting power of the surviving or continuing
entity.
Subject to Section 3 hereof, the right of first refusal hereunder may be
assigned to a transferee or assignee (other than a competitor as reasonably
determined by the Company in good faith) in connection with any transfer or
assignment by a Purchaser of Registrable Securities provided that the transferor
provides the Company with written notice of the proposed transfer, transferee
agrees to be bound by the terms of this Agreement, and (i) the transferee
acquires all of the transferor's Registrable Securities not sold to the public;
(ii) the transferee acquires at least 500,000 shares (subject to adjustments for
stock splits, combinations, dividends or the like) of the transferor's
Registrable Securities, or (iii) the transferee is shareholder or Affiliate of
the Purchaser.
If the Board of Directors of the Company determines it to be in the best
interests of the Company, it may authorize completion of any issuance or series
of issuances of New Securities without first offering the Purchasers the
opportunity to exercise their rights pursuant to this section as long as
promptly following such issuances the Company offers each Purchaser the
opportunity to purchase such New Securities as it would have been entitled to
purchase pursuant to this section.
Company Right of First Refusal Upon Transfer by Holders. The Holders hereby
agree as follows:
<PAGE>
Notice of Proposed Transfer. Before any Holder may effect any Transfer of any
Stock, the Holder must give to the Company a written notice signed by the Holder
(the "Holder's Notice") stating (a) the Holder's bona fide intention to transfer
such Offered Stock; (b) the number of shares of the Offered Stock; (c) the name,
address and relationship, if any, to the Holder of each proposed purchaser or
other transferee; and (d) the bona fide cash price or, in reasonable detail,
other consideration, per share for which the Holder proposes to transfer such
Offered Stock (the "Offered Price"). Upon the request of the Company, the Holder
will promptly furnish such information to the Company as may be reasonably
requested to establish that the offer and proposed transferee are bona fide.
Right of First Refusal.
----------------------
Company's Right. Pursuant to this Agreement, the Company and its assignees shall
have the right of first refusal (the "Right of First Refusal") to purchase all
or any part of the Holder's Offered Stock, if the Company gives written notice
(the "Company's Exercise Notice") of the exercise of such right to the Holder
within thirty (30) days (the "Company's Refusal Period") after the date of the
Holder's Notice to the Company.
Purchase Price. The purchase price for the Offered Stock to be purchased by the
Company exercising its Right of First Refusal under this Agreement will be the
Offered Price, but will be payable as set forth in Section 3.2(c) hereof. If the
Offered Price includes consideration other than cash, the cash equivalent value
of the non-cash consideration will be determined by the Board of Directors of
the Company in good faith, which determination will be binding upon the Company
and the Holder absent fraud or error.
Payment. Payment of the purchase price for the Offered Stock purchased by the
Company exercising its Right of First Refusal will be made within seven (7) days
after the date of the Company's Exercise Notice. Payment of the purchase price
will be made, at the option of the Company (i) in cash (by cashier's check or
wire transfer), (ii) by cancellation of all or a portion of any outstanding
indebtedness of the Holder to the Company or (iii) by any combination of the
foregoing.
Rights as a Shareholder. If the Company or its assignees exercise the Right of
First Refusal to purchase all of the Offered Stock, then, upon the date the
notice of such exercise is given by the Company, the Holder will have no further
rights as a holder of such Offered Stock with respect to which a Right of First
Refusal has been exercised, except the right to receive payment for such Offered
Stock from the Company in accordance with the terms of this Agreement, and the
Holder will forthwith cause all certificate(s) evidencing such Offered Stock to
be surrendered to the Company for cancellation.
Holder's Right To Transfer. If the Company has not elected to purchase all of
the Offered Stock, then, the Holder may transfer any such remaining Offered
Stock permitted to be sold by the Holder, to any person named as a purchaser or
other transferee in the Holder's Notice, at the Offered Price or at a higher
price, provided that such transfer (i) is consummated within ninety (90) days
after the date of the Holder's Notice and (ii) is in accordance with all the
<PAGE>
terms of this Agreement. If the Offered Stock is not so transferred during such
ninety (90) day period, then the Holder may not transfer any of such Offered
Stock without complying again in full with the provisions of this Agreement.
Legend. All certificates representing any shares of Registrable Securities
shall have endorsed thereon the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT
OF FIRST REFUSAL IN FAVOR OF THE CORPORATION OR ITS ASSIGNEE SET FORTH
IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER, OR
HIS OR HER PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE CORPORATION.
The right to Holder's Notice and Right of First Refusal granted under this
Section 3 shall expire upon the closing of the earlier of (i) the first firm
commitment underwritten offering of the Company's securities to the public
pursuant to an effective registration statement under the Securities Act and
(ii) a statutory share exchange, consolidation or merger of this Company with or
into any other corporation or corporations (other than a wholly-owned
subsidiary), or the sale, transfer or other disposition of all or substantially
all of the assets of this Company or the consummation of any transaction or
series of related transactions which results in the Company's shareholders
immediately prior to such transaction not holding at least a majority of the
voting power of the surviving or continuing entity.
Information Rights.
------------------
Annual Financial Information. The Company shall deliver to each Holder within 90
days after the end of each fiscal year, income, shareholders' equity and cash
flow statements of the Company for such year, and a balance sheet of the Company
as of the end of such year, such year-end financial reports to be in reasonable
detail, prepared in accordance with generally accepted accounting principles
("GAAP"), and certified by independent public accountants of national standing
selected by the Company's Board of Directors.
Quarterly Financial Information. The Company shall deliver to each Holder within
45 days after the end of each quarter (except the last quarter of the fiscal
year), an unaudited quarterly report including a balance sheet, income statement
and cash flow analysis prepared in accordance with GAAP (except for required
footnotes), all in reasonable detail and signed, subject to changes resulting
from year-end audit adjustments, by the principal financial officer or chief
executive officer of the Company.
Monthly Financial Information. The Company shall deliver to each Holder of at
least 1,500,000 shares of Conversion Stock converted or convertible from the
Series A Preferred Stock or Series A-1 Preferred Stock (as adjusted for any
stock split, stock dividend, recapitalization, or similar event) (a "Qualified
Series A-1 Holder") and each Qualified Series B Holder within thirty (30) days
<PAGE>
after the monthly accounting period of the Company an unaudited monthly report
including a balance sheet, income statement and cash flow statement.
Annual Financial Plan. Prior to the end of the fiscal year, the Company shall
provide each Qualified Series A-1 Holder and each Qualified Series B Holder with
the Company's annual financial plan and operating budget for the next fiscal
year as approved by the Company's Board of Directors.
Inspection. The Company shall permit any Qualified Series A-1 Holder and
Qualified Series B Holder, at such Holder's expense, to visit and inspect the
Company's properties, to examine its books of account and records and to discuss
the Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by the Holder; provided, however, that the
Company shall not be obligated pursuant to this section to provide access to any
information which it reasonably considers to be a trade secret or similar
confidential information.
Termination of Information Covenants and Confidentiality of Information. The
covenants of the Company set forth in this section shall terminate as to all
Holders and be of no further force or effect (i) upon the consummation by the
Company of the IPO (as defined in subsection 1.2 above), or (ii) when the
Company first becomes subject to the periodic reporting requirements of Section
12(g) or 15(d) of the Exchange Act, whichever event shall first occur. Each
Holder agrees that it will keep confidential and will not disclose or divulge
any confidential, proprietary or secret information which such Holder may obtain
from the Company, and which the Company has prominently marked "confidential,"
"proprietary" or "secret," pursuant to financial statements, reports and other
materials submitted by the Company as required hereunder, unless such
information is or becomes known to the Holder from a source other than the
Company without violation of any rights of the Company, or is or becomes
publicly known, or unless the Company gives its written consent to the Holder's
release of such information, except that no such written consent shall be
required (and the Holder shall be free to release such information to such
recipient) if such information is to be provided to a Holder's counsel or
accountant (and the provision of such information is directly necessary in order
for such recipient to provide services to Holder), or to an officer, director or
partner of a Holder, provided that the Holder shall inform the recipient of the
confidential nature of such information, and such recipient agrees in writing in
advance of disclosure to treat the information as confidential.
Amendment, Restatement and Waiver of Rights of Prior Rights Holders;
Addition of Parties.
Amendment, Restatement of Prior Rights Agreement; Approval of Grant of Rights
to Investors. Pursuant to Section 6.5 of the Prior Rights Agreement, the parties
to this Agreement, among whom are holders of a majority of the "Registrable
Securities" as defined by the Prior Rights Agreement, on behalf of themselves
and all other holders of Registrable Securities under the Prior Rights
Agreement, hereby agree that (i) the Prior Rights Agreement is amended and
restated in its entirety by this Agreement, (ii) the registration rights, rights
<PAGE>
of first refusal and obligations of the holders of Registrable Securities under
the Prior Rights Agreement are exclusively as set forth in this Agreement, and
(iii) the Company is authorized to enter into this Agreement with Tenera, SVB
and the Investors, grant the Investors the registration rights and rights of
first refusal and first offer set forth in this Agreement, and grant Tenera and
SVB the registration rights set forth in Section 1.3 of this Agreement. The
parties to this Agreement agree that any parties added to the Purchase Agreement
subsequent to the date of this Agreement can be added as parties to this
Agreement with all of the rights and obligations of the Investors without
further approval by the parties to this Agreement.
Waiver of Right of First Refusal. Pursuant to Section 6.5 of the Prior Rights
Agreement, the parties to this Agreement, among whom are the holders of a
majority of "Registrable Securities" as defined in the Prior Rights Agreement,
on behalf of themselves and all other holders of such Registrable Securities,
waive any and all rights granted pursuant to Section 2 of the Prior Rights
Agreement with respect to the sale and issuance of up to thirty-eight million
(38,000,000) shares of Series B Preferred Stock to the Investors pursuant to the
Purchase Agreement in closings on or after the date hereof and the shares of
Series C Preferred stock to Tenera in exchange for tender to the Company of the
Tenera Warrant.
Miscellaneous.
-------------
Governing Law. This Agreement shall be governed in all respects by the laws of
the State of California as applied to transactions taking place between
California residents and wholly within the State of California.
Survival. The representations, warranties, covenants and agreements made herein
shall survive any investigation made by any party hereto and the closing of the
transactions contemplated hereby.
Successors and Assigns. Except as otherwise 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.
Determination of Share Amounts. To determine the number of Registrable
Securities held by a Holder for purposes of this Agreement, including without
limitation Sections 1.2, 1.3(b), 1.10, 1.13, 2.1(f), 4, and 6.5, all Registrable
Securities held by an Affiliate of the Holder shall be deemed held by such
Holder.
Entire Agreement; Amendment. This Agreement constitutes 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 party in any manner
by any warranties, representations or covenants except as specifically set forth
herein. With the written consent of the record or beneficial holders of at least
a majority of the Registrable Securities held by the Purchasers, the obligations
of the Company and the rights of the Holders under this Agreement may be waived
(either generally or in a particular instance, either retroactively or
prospectively, and either for a specified period of time or indefinitely), and
with the same consent the Company, when authorized by resolution of its Board of
<PAGE>
Directors, may enter into a supplementary agreement for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of this Agreement. Notwithstanding the foregoing, the rights of the holders of
the Series C Preferred Stock under Sections 1.3, 1.5, 1.6, 1.7 and 4 may not be
modified in a manner materially more adverse to such rights than to the rights
of the holders of the Series B Preferred Stock under the same sections without
the consent of holders of a majority of the outstanding shares of Series C
Preferred Stock. Upon the effectuation of each such waiver, consent, agreement
or amendment or modification, the Company shall promptly give written notice
thereof to the record holders of the Registrable Securities who have not
previously consented thereto in writing. This Agreement or any provision hereof
may be changed, waived, discharged or terminated only by a statement in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought, except to the extent provided in this Section 6.5.
Notices, etc. All notices and other communications required or permitted
hereunder shall be in writing and shall be delivered personally, via facsimile,
mailed by first class mail, postage prepaid, or delivered by courier or
overnight delivery, addressed (a) at such Holder's address as set forth in the
Company's records, or at such other address or facsimile number as the Holder
shall have furnished to the Company in writing or (b) if to the Company at One
Market Street, Steuart Tower, Suite 700, San Francisco, CA 94105, or such
address as the Company shall have furnished to the Holder in writing. All such
notices, requests and other communications will (i) if delivered personally or
by express courier to the address as provided in this Section, be deemed given
upon delivery, or (ii) if delivered by facsimile transmission to the facsimile
number as provided in this Section, be deemed given upon receipt.
Delays or Omissions. Except as expressly provided herein, no delay or omission
to exercise any right, power or remedy accruing to any Holder, upon any breach
or default of the Company under this Agreement, shall impair any such right,
power or remedy of such Holder nor shall it be construed to be a waiver of any
such breach or default, or an acquiescence therein, or of or in any similar
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any Holder of any breach or default under this
Agreement, or any waiver on the part of any Holder 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 any holder shall be cumulative
and not alternative.
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.
Severability. If any provision of this Agreement, or the application thereof,
shall for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to persons or
circumstances shall be interpreted so as best to reasonably effect the intent of
the parties hereto; the parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
<PAGE>
which will achieve to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
Titles and Subtitles. The titles and subtitles used in this Agreement are used
for convenience only and are not considered in construing or interpreting this
Agreement.
<PAGE>
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY"
SPEAR TECHNOLOGIES, INC.
By:___________________________________________
Title:________________________________________
(Company Signature Page to Second Amended and Restated Rights Agreement)
<PAGE>
COUNTERPART SIGNATURE PAGE TO
SPEAR TECHNOLOGIES, INC.
SECOND AMENDED AND RESTATED RIGHTS AGREEMENT
"FOUNDER"
If you are an individual, print your
name and sign below.
-------------------------------------
Name (Please Print)
-------------------------------------
Signature
<PAGE>
COUNTERPART SIGNATURE PAGE TO
SPEAR TECHNOLOGIES, INC.
SECOND AMENDED AND RESTATED RIGHTS AGREEMENT
"PRIOR RIGHTS HOLDER"
If you are an individual, print your
name and sign below.
-------------------------------------
Name (Please Print)
-------------------------------------
Signature
If you are signing on behalf of an
entity, please print the name of the
entity and sign below, indicating your
title.
-------------------------------------
Name (Please Print)
-------------------------------------
Signature
-------------------------------------
Title
<PAGE>
COUNTERPART SIGNATURE PAGE TO
SPEAR TECHNOLOGIES, INC.
SECOND AMENDED AND RESTATED RIGHTS AGREEMENT
"INVESTOR"
If you are an individual, print your
name and sign below.
-------------------------------------
Name (Please Print)
-------------------------------------
Signature
If you are signing on behalf of an
entity, please print the name of the
entity and sign below, indicating your
title.
-------------------------------------
Name (Please Print)
-------------------------------------
Signature
-------------------------------------
Title
<PAGE>
COUNTERPART SIGNATURE PAGE TO
SPEAR TECHNOLOGIES, INC.
SECOND AMENDED AND RESTATED RIGHTS AGREEMENT
"TENERA"
TENERA, INC.
By:___________________________________________
Title:________________________________________
"SVB"
SILICON VALLEY BANK
By:___________________________________________
Title:________________________________________
<PAGE>
Exhibit C
SCHEDULE OF EXCEPTIONS
<PAGE>
Exhibit 2.4
ASSET ACQUISITION AGREEMENT
This Asset Acquisition Agreement ("Agreement") is made and entered into
as of the 10th day of February, 2000, by and between TENERA, Inc., a Delaware
corporation ("Buyer") and SoBran, Inc., an Ohio corporation ("Seller").
RECITALS
Buyer desires to purchase substantially all assets of the
Internet-based development and support services business of the Seller
("Internet Business"), and Seller desires to sell said assets to Buyer on the
terms and conditions hereinafter set forth.
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the mutual covenants, promises and
agreements contained herein, the parties to this Agreement hereby agree as
follows:
1. PURCHASE AND SALE OF ASSETS
1.1. Sale and Transfer of Assets. Subject to the terms and conditions set
forth herein and as of the date of "Closing" (as hereinafter defined),
Seller hereby agrees to sell, transfer, convey and assign to Buyer the
entire right, title, and interest of Seller in and to substantially
all of the assets of the Internet Business including the assets and
properties described below (the "Assets"), as the same shall exist on
the Closing Date (as hereinafter defined), free and clear of all
liens, claims, liabilities, obligations, pledges, encumbrances,
adverse claims and security interests of every kind, nature and
description, except to the extent of those liabilities and obligations
expressly assumed by Buyer hereunder.
i. All of Seller's right, title and interest in and to all
executory customer licenses, contracts and proposals,
which shall be described on Schedule 1.1.i. attached
hereto (provided, however, that such customer consents in
writing to the assignment and transfer thereof to Buyer),
all work in process with respect thereto, and all rights
and preferences for any reasonable extensions on contracts
relating to current work being performed at the same sites
(collectively, the "Contracts");
ii. Those fixed operating assets specifically selected by the
Buyer, including the furniture and computer hardware and
software (the "Tangible Fixed Assets") located at the
Seller's offices in Knoxville, Tennessee, which the
parties agree are in good operating condition, all of
which are identified on Schedule 1.1.ii attached hereto;
<PAGE>
iii. All of the goodwill, trade secrets, proprietary and
technical data, intellectual property rights, know-how,
inventions, discoveries and trade names pertaining to or
used in connection with the Internet Business and the
Contracts including, without limitation, those identified
on Schedule 1.1.iii attached hereto;
iv. All of Seller's right, title, interest, goodwill, trade
secrets, proprietary and technical data, intellectual
property rights, know-how, inventions, discoveries and
trade names pertaining to or used in connection with the
ITRAC software program including the source code, object,
and all copies thereof, and all licenses or sublicenses
relating thereto;
v. All business records related to or pertaining to the
Assets including, without limitation, all originally
executed copies of the Contracts and copies of all related
records, all sales data, work sheets, accounts, bids,
supplier records, drawings, designs, specifications,
process information, performance data, software, programs
and all other data, documents, discs, tapes, information
and other records relating to or applicable to the
Contracts and the leases described in this Section 1.1,
provided, however, that Seller may retain copies thereof;
vi. All lease deposits and similar assets which are assignable
and can be utilized by Buyer in connection with the
Assets;
vii. All of Seller's right, title and interest in or to the
names of all Internet URL addresses owned by Seller other
than "SoBran-inc.com" and "SoBran.org.com", which shall be
described on Schedule 1.1.vii attached hereto;
viii. All of Seller's right, title and interest in or to TENERA
GoTrain.Net, LLC, a limited liability company, including,
without limitation, its equity ownership interest and its
obligations and rights as a provider of maintenance,
enhancement, and operational management of the GoTrain.Net
Corporate Distance Learning Center; and
ix. A sublease to Buyer approved by the lessor of the Seller's
premises ( the "Premises") as described in Schedule 1.1.ix
attached hereto.
1.2. Assets Not Transferred. Seller shall retain all cash, accounts
receivables and other assets not otherwise described in Section 1.1
hereof and the same are expressly excluded from the property sold to
Buyer.
1.3. Purchase Price. As payment for the sale and transfer of the Assets by
Seller to Buyer, upon the Closing Date, Buyer agrees to assume the
Assumed Liabilities (as hereinafter defined in Section 2.2) and agrees
to pay Seller the sum of Three Hundred Six Thousand Dollars ($306,795)
(the "Purchase Price"), which with respect to that portion of the
Purchase Price allocated pursuant to Section 1.5 hereunder to the
Tangible Fixed Assets is the net book value of the Tangible Fixed
<PAGE>
Assets on the books and records of Seller as of January 31, 2000,
determined in accordance with generally accepted accounting
principles.
1.4. Method of Payment. Buyer shall deliver to Seller at the Closing the
Purchase Price in immediately available funds.
1.5. Allocation of Purchase Price. The parties hereto agree that the
Purchase Price shall be allocated among the Assets as set forth in
Schedule 1.5 attached hereto. The parties declare and acknowledge that
these values were determined in good faith in arm's length bargaining.
Each party agrees to report the transaction for income tax purposes in
accordance with the allocation recited herein and that it will not
take any position inconsistent with this allocation except with the
written consent of the other party hereto. However, if the Internal
Revenue Service or the Franchise Tax Board takes a position with
respect to one party to this Agreement that is inconsistent with the
allocation herein, the other party may take a protective position
adopting the taxing authority's contention until the controversy is
finally resolved.
1.6. Sales Tax. Seller, on the one hand, and Buyer on other hand, hereby
agree to each pay one-half of any and all state and local sales taxes
which may be imposed upon the sale of Assets, however, nothing herein
shall be construed to be an agreement to pay income taxes of the other
Seller shall pay its prorated portion of state and local personal
property taxes payable with respect to the Assets up to and including
the Closing Date. Buyer shall have no responsibility concerning any
sales, property, business, occupation or similar tax or with respect
to taxes of any kind related to the Assets for any period prior to and
including the Closing. Seller shall have no responsibility concerning
any sales, property, business, occupation or similar tax or with
respect to taxes of any kind related to the Assets for any period
after the Closing.
1.7. Agreement to Subcontract. Until Seller shall have obtained the written
consent of the customer with respect to any Contract included on
Schedule 1.1.i hereto, Seller hereby agrees as of the Closing Date to
subcontract all services otherwise to be performed by Seller under all
such Contracts to Buyer at the billing/performance rates specified in
such Contract.
1.8. Agreement as to Certain Contracts. Notwithstanding anything contained
herein to the contrary, but subject to the provisions of Section 1.7
hereof, the parties agree that this Agreement shall not constitute an
agreement to assign any Contract or any claim, right or any benefit
arising thereunder or resulting therefrom if (i) an attempted
assignment thereof without the consent of a third party would
constitute a breach or cause a termination thereof or in any way limit
or otherwise adversely affect the rights of the Buyer or the Seller
thereunder, (ii) such consent has not been obtained by the Closing
Date, and (iii) such Contracts are not, either individually or in the
aggregate, material to the this transaction as determined by Buyer in
its sole discretion. If such consent is not obtained within forty-five
(45) days after the Closing Date, or an attempted assignment thereof
would not be effective or would adversely affect the rights
thereunder, the Seller will cooperate with Buyer in any reasonable
arrangement designed to provide for the enjoyment by Buyer of benefits
under such Contracts.
<PAGE>
1.9. Adjustment to Purchase Price. In the event that any Tangible Fixed
Assets cannot be delivered to Buyer, then the Purchase Price shall be
adjusted in accordance with the Seller's net book value of such assets
on the books and records of Seller as of January 31, 2000, and Buyer
reimbursed with respect thereto.
2. NON-ASSUMPTION OF LIABILITIES
2.1. Non-Assumption of Liabilities. It is expressly understood and agreed
that Buyer shall not be liable for and shall not assume any debt,
obligation and/or liability of Seller, whether known or unknown, fixed
or contingent, or whether or not incurred in connection with the
Assets, of any kind or nature other than those specifically assumed by
Buyer in Section 2.2 hereof. Except as set forth in Section 2.2
hereof, those liabilities not assumed by Buyer include, without
limitation, the following:
i. All vendor-related payables of Seller related to any of
the Assets for any and all periods (or portions thereof)
ending on or prior to the Closing Date, a complete list of
which Seller has specified on Schedule 2.1.i attached
hereto;
ii. Any liabilities or obligations of Seller relating to
salaries, wages, incentive compensation, wage withholding
taxes, workers' compensation, FICA, unemployment insurance
or any other compensation whatsoever for employees of
Seller for any and all periods whenever ending, except
with respect to the employees set forth on Schedule 4.1.c,
for any and all periods (or portions thereof) ending on or
prior to the Closing Date:
iii. Any profit-sharing, bonus, deferred compensation, stock
option, stock purchase, group insurance, liability
insurance, vacation pay, sick leave, travel or expense
accounts, allowances or reimbursements, salary
continuation, severance pay, pension, retirement, medical
or other plan, arrangement or agreement of Seller
providing employee benefits for any and all periods
whenever ending, except with respect to the employees set
forth on Schedule 4.1.c, for any and all periods (or
portions thereof) ending on or prior to the Closing Date;
iv. Except as set forth in Section 1.6 any liabilities or
obligations of Seller for federal, state, local or foreign
taxes, assessments, impositions, penalties or interest,
whether or not imposed or measured by income, for any and
all periods (or portions thereof) whenever ending;
v. Any liabilities or obligations of Seller with respect to
any claims, actions, suits or demands, or any legal,
administrative, arbitration or other proceedings or
judgments, with respect to any causes of action arising or
accruing on or before the date of closing; and
vi. For any other liabilities or obligations of Seller
whenever incurred or accrued, except with respect to any
such liabilities which are properly billable to a customer
Contract assumed by Buyer.
<PAGE>
2.2. Limited Assumption. Subject to the consummation of the Closing
hereunder, Buyer shall have the benefit of and shall assume on and as
of the Closing Date, and agrees to pay, perform and discharge the
following liabilities of Seller which are accrued immediately prior to
the Closing (the "Assumed Liabilities"):
i. All executory customer Contracts, with respect to which
the customer agrees in writing to such assumption by Buyer
within the time period specified in Section 1.8 hereof, as
identified on Schedule 1.1.i attached hereto;
ii. The performance of all lease obligations of Seller with respect to
sublease listed on Schedule 1.1.ix attached hereto.
3. REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of Seller. Seller hereby warrants and
represents, as of the Closing, the following, the truth and accuracy of
which shall constitute a condition precedent to Buyer's obligations
hereunder:
3.1.a. Organization and Good Standing. SoBran, Inc. is a corporation
duly organized and validly existing under the laws of the State
of Ohio, and has all necessary corporate powers and authority to
carry on its business as now owned and operated. Seller is
qualified as a foreign corporation and in good standing in each
jurisdiction in which the properties owned by it makes such
qualifications necessary, except where the failure to be so
qualified would not have a material adverse effect of the Assets.
3.1.b. Authority of Seller. Seller has the corporate power and is duly
authorized to enter into and consummate this Agreement and to
sell, transfer, assign and convey the Assets to Buyer. The
execution, deliver and consummation of this Agreement and the
consummation of this transaction has been duly authorized, and no
further corporate action will be necessary on the part of Seller
to make this Agreement valid and binding upon Seller in
accordance with its terms.
3.1.c. Title to Assets. Seller is the owner of and, at the Closing, will
have good and marketable title to, each and all of the Assets
free and clear of any mortgages, pledges, liens, charges,
encumbrances, options, claims or security interests of any kind
nature or description. On the Closing Date, all of the Assets
shall be in good operating condition and repair, ordinary wear
and tear excepted.
3.1.d. Trademarks and Patents. There are no trademark, patent or
copyright registrations or applications relating to the operation
of the Internet Business or the Assets or any trade names now
being used by Seller in connection with the Assets. Seller has
not been charged with infringement of any adversely held patent,
trademark, trade name or copyright, or with any other kind of
unfair competition related to any patent, trademark, trade name
or copyright. To the best of sellers current knowledge and
belief, use of Assets by Buyer will not infringe on intellectual
property rights of any third parties.
<PAGE>
3.1.e. Employment and Other Contracts. Seller is not a party to any
employment contracts which are not terminable at will, collective
bargaining agreements, or pension, bonus, profit-sharing, stock
option or other agreements or arrangements providing for vested
employee remuneration or benefits with respect to the employees
identified on Schedule 4.1.c hereto.
3.1.f. Compliance with Federal, State and Local Laws. . To the best of
Sellers current knowledge and belief, Seller has complied with
and is not in violation of any applicable federal, state or local
statute, law, regulation or ordinance relative to the Assets and
the execution and consummation of this Agreement is not in
violation of any federal, state or local statute, law regulation
or ordinance, or any charter document of Seller. The leasehold
premises that are a part of the Assets are in compliance with all
necessary licenses and regulations applicable thereto, and all
necessary licenses and permits or orders with respect thereto
have been obtained and are in effect.
3.1.g. Litigation. Seller has not been served with any summons,
compliant or notice to arbitrate and Seller's officers and
directors have no knowledge of any claim, suit, action,
governmental investigation, arbitration, legal, administrative or
other proceeding pending or threatened against or otherwise
relating to the employees set forth on Schedule 4.1.c, the Assets
or the transfer of, nor is Seller aware of any basis for such
claim. Not withstanding Sellers representation herein, Buyer
expressly acknowledges that Seller is currently involved in
litigation with Lockheed-Martin on a matter that may or may not
involve matters related to the assets subject to this Agreement.
3.1.h. Consents of Third Parties. Except as set forth on Schedule 3.1.h
attached hereto, no approval or consents of any person, entity or
governmental agency (including, without limitation, consents of
customers, lessors, financial institutions, and suppliers) other
than Seller is necessary to any of the transfers, assignments or
conveyances of the Assets to Buyer.
3.1.i. Material Agreements. There is no material default or event that,
with notice or lapse of time or both, would constitute a default
by any party to any of the Contracts or lease being transferred
and assigned to Buyer. Seller has received no notice that any
party to any of such Contract or lease intends to cancel or
terminate any of the Contracts or leases or to exercise any
option or options thereunder.
3.1.j. Material Misstatement or Omissions. No representations or
warranties by Seller in this Agreement nor any document,
statement, certificate or schedule furnished or to be furnished
to Buyer pursuant hereto, contain or will contain any untrue
statement of a material fact, or omits or will omit to state a
material fact necessary to make the statements or facts contained
therein not misleading.
3.1.k. Undisclosed Liabilities. . To the best of Sellers current
knowledge and belief, Seller has no liabilities whatsoever, known
or unknown, asserted or unasserted, liquidated or unliquidated,
accrued, absolute, contingent, or otherwise, and there is no
<PAGE>
basis for any claim against Seller in connection with the Assets
for any such liability.
3.1.l. Environmental. To best of Sellers current knowledge and belief,
all of the Assets currently or previously owned, leased,
operated, or used by the Seller, all current or previous
conditions on and uses of the Assets and all current or previous
ownership or operation of the Seller comply and have at all times
complied with, and do not cause, have not caused, and will not
cause liability to be incurred by the Seller under any
Environmental Law. Subject to the foregoing, Seller warrants and
represents the following:
i. Seller has properly obtained and is in compliance with all
Environmental Permits. No deficiencies have been asserted
by any such Government or authority with respect to such
items.
ii. There has been no spill, discharge, leak, leaching,
emission, migration, injection, disposal, escape, dumping,
or release of any kind on, beneath, above, or into the
Premises hereunder or into the environment surrounding the
Premises of any Hazardous Materials.
iii. There are and have been no Hazardous Materials stored,
disposed of, generated, manufactured, refined,
transported, produced, or treated at, upon, or from the
Premises.
iv. No expenditure will be required in order for the Seller to
comply with any Environmental Laws in effect at the time
of the Closing in connection with the operation or
continued operation of the Assets or the Premises in a
manner consistent with the current operation thereof by
the Seller.
3.1.m. Taxes. The Assets are and will not be encumbered by any Liens arising
out of any unpaid Taxes and there are no grounds for the assertion or
assessment of any Liens against the Assets in respect of any taxes.
i. To the best of sellers current knowledge and belief, there
is no action or proceeding or unresolved claim for
assessment or collection, pending or threatened, by, or
present or expected dispute with, any Government authority
for assessment or collection from Seller of any taxes of
any nature affecting the Assets.
3.2. Representations and Warranties of Buyer. Buyer hereby warrants and
represents, as of the Closing, the following, the truth and accuracy
of which shall constitute a condition precedent to Seller's obligations
hereunder:
3.2.a. Organization and Good Standing. Buyer is a corporation duly
organized and validly existing under the laws of the State of
Delaware, and has all necessary power and authority to enter into
and carry out the transactions contemplated hereunder.
3.2.b. Authority of Buyer. The execution of this Agreement by Buyer and
its delivery to Seller are duly authorized, and no further action
will be necessary on the part of Buyer to make this Agreement
<PAGE>
valid and binding upon Buyer in accordance with its terms. To the
best of Buyer's knowledge, there is not now pending or threatened
any litigation, claim or demand of any nature whatsoever against
Buyer which would prevent the performance of Buyer's obligations
hereunder. To the best of Buyer's knowledge, neither the
execution nor consummation of this Agreement is in violation of
any federal, state or local statute, law, regulation or
ordinance.
3.2.c. Material Misstatements or Omissions. No representations or
warranties by Buyer in this Agreement nor any document,
statement, certificate or schedule furnished or to be furnished
to Seller pursuant hereto, contains or will contain any untrue
statement of a material fact, or omits or will omit to state a
material fact necessary to make the statements or facts contained
therein not misleading.
4. COVENANTS AND OBLIGATIONS
4.1. Obligations and Covenants of Seller. Seller hereby covenants and agrees
as follows:
4.1.a. Conduct of Business. Subject to the provisions of this Agreement,
from and after the execution hereof until the Closing, Seller
agrees (i) to use its best efforts to preserve and maintain its
relationships with suppliers, customers and others having
business relations with Seller pertaining to the Assets so that
they will be preserved for Buyer on and after the Closing; (ii)
to use its best efforts to take all actions necessary or
appropriate to meet existing commitments which are being
transferred to Buyer as part of the Assets; (iii) it shall not
enter into or modify any Contracts being assigned to Buyer
hereunder without prior written consent of Buyer; and (iv) it
shall make no management decision which may either directly or
indirectly materially affect the Assets without the prior written
consent of Buyer.
4.1.b. Access to Premises and Information. Seller agrees that any
investigation or inquiry made by Buyer pursuant to the Agreement
shall not affect or lessen in any way the representation and
warranties made by Seller in the Agreement or their survival
after the Closing as provided herein. Seller agrees, without
further consideration, to deliver to Buyer at the Closing as part
of the Assets, copies of all records relating to the Assets,
including without limitation, corporate records, credit files and
payroll records, relating to the Contracts and the leases
described in Section 1.1 hereof and other information important
to the operation thereof.
4.1.c Employees and Compensation. Seller acknowledges that Buyer
intends to offer employment to those employees identified on
Schedule 4.1.c attached hereto after the Closing and Seller
agrees to cooperate in good faith with Buyer in effecting the
transfer of such employees who accept employment with Buyer.
Seller shall not terminate any employees identified on Schedule
4.1.c, nor decrease or grant any increase in salaries payable, or
to become payable by it, to any such employee, nor will Seller
increase or decrease benefits payable to any such employee under
any bonus or pension plan or other contract or commitment,
commitment, without Buyer's prior written consent. Seller shall
have the right, but not the obligation, to retain any employee
identified on Schedule 4.1.c who does not accept employment with
<PAGE>
Buyer. Seller acknowledges and agrees that all former employees
of Seller who are or will become employees of Buyer are subject
to no continuing confidentiality agreements or obligations
with respect to Seller or its current or former customers.
4.1.d. Consents to Others. As soon as reasonably practical after the
execution and delivery of this Agreement and in any event at or
prior to March 15, 2000, Seller shall use it best efforts to
obtain the consent of all necessary persons to the assignment and
transfer and subcontract to Buyer of any and all of the Assets,
including, without limitation, all Contracts, agreements and
leases of Seller herein provided to be assigned and transferred
to Buyer.
4.1.e. Leased Equipment Buyout. Equipment included in the Asset
Acquisition and currently under lease to SoBran will be handled
as follows: An amount equal to the lease buy-out value for the
equipment, listed on Schedule 4.1.e, will be deducted from the
agreed to price and placed into escrow. At such time as SoBran
performs a buyout of the leases for the equipment and provides
TENERA with appropriate documentation, the escrow funds will be
released.
4.2. Obligations and Covenants of Buyer. Buyer hereby covenants and agrees
as follows:
4.2.a. Cooperation in Securing Consents. Buyer shall use its best efforts to
assist Seller in obtaining the consent of all necessary persons to the
assignment and transfer to Buyer of any and all of the Assets.
5. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
5.1. Conditions Precedent. The obligations of Buyer hereunder are subject
to the satisfaction, at or prior to the Closing, of all of the
conditions set forth in this Article 5. The compliance with, or
occurrence of, any or all of such conditions may be waived in whole or
in part by Buyer in writing; provided, no such waiver of any condition
shall constitute a waiver by Buyer of any of its other rights or
remedies, at law or in equity, if Seller should be in default of any
its representations, warranties or covenants under this Agreement.
5.2. Seller's Performance. Seller shall have performed and complied with all
agreements and conditions required by this Agreement to be performed,
or complied with, by it prior to or at the Closing.
5.3. Officers' Certificates. Seller shall deliver to Buyer its certificate,
dated on the date of Closing, executed in its corporate name by its
president, vice president or treasurer, certifying in such detail as
Buyer may reasonably request, to the fulfillment of the conditions
specified in Section 5.2 hereof.
5.4. Corporate Approvals. Seller shall have obtained due authorization and
approval of the execution and delivery of this Agreement and shall have
taken all corporate action necessary or proper to effectuate the
fullfillment of the obligations of Seller to be performed hereunder
prior to the Closing.
5.5. Absence of Litigation. No action, suit or arbitration, administrative
or other legal proceeding which would in any manner affect Seller's
ability to consummate this Agreement shall have instituted or
<PAGE>
threatened at or prior to the Closing, except as expressly
acknowledged by the Seller within.
5.6. Form of Documents. The form and substance of all instruments and other
documents delivered to Buyer under this Agreement shall be satisfactory
in all respects to Buyer and its counsel.
5.7. Releases. Prior to the Closing Date, Seller shall have delivered to
Buyer the written release of all liens, security interests or
encumbrances relating to the Assets, executed by the holder of such
lien, security interest or other encumbrance. The releases shall be
satisfactory in substance and form to Buyer and its counsel.
5.8. Consents. All consents and approvals so specified on Schedule 3.1.h as
required on or before Closing shall have been obtained.
5.9. General Releases. Seller shall have duly executed the General Release
in the form attached hereto as Exhibit C, to be delivered to Buyer at
the Closing.
6. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
6.1. Conditions Precedent. The obligations of Seller hereunder are subject
to the satisfaction, at or prior to the Closing, of all of the
conditions set forth in this Article 6. The compliance with, or
occurrence of, any or all of such conditions may be waived in whole or
in part by Seller in writing; provided, no such waiver of any
condition shall constitute a waiver by Seller of any of its other
rights or remedies, at law or in equity, if Buyer should be in default
of any its representations, warranties or covenants under this
Agreement.
6.2. Buyer's Performance. Buyer shall have performed and complied with all
agreements and conditions required by this Agreement to be performed,
or complied with, by it prior to or at the Closing.
6.3. Officers' Certificates. Buyer shall deliver to Seller its certificate,
dated on the date of Closing, executed in its corporate name by its
corporate name by its president, vice president or treasurer,
certifying, in such detail as Seller may reasonably request, to the
to the fulfillment of the conditions specified in Section 6.2 hereof.
6.4. Corporate Approvals. Buyer shall have obtained due authorization and
approval of the execution and delivery of this Agreement and shall have
take all corporate action necessary or proper to effectuate the
fulfillment of the obligations of Buyer to be performed hereunder prior
to the Closing.
6.5. General Releases. Buyer shall have duly executed the General Release in
the form attached hereto as Exhibit D, to be delivered to Seller at the
Closing.
6.6. Absence of Litigation. No action, suit or arbitration, administrative
or other legal proceeding which would in any manner affect Buyer's
ability to consummate this Agreement shall have instituted or
threatened at or prior to the Closing.
7. CLOSING
<PAGE>
7.1. Time and Place. Unless otherwise agreed to by the parties hereto, the
Closing of the Agreement (herein referred to as the "Closing" shall be
coordinated through office of Bryan Cave LLP, Suite 300, 120 Broadway,
Santa Monica, California 90401, at 5:00 p.m. on February 9, 2000
(hereafter referred to as the "Closing Date").
7.2. Seller's Obligations at Closing. At the Closing and as a condition
thereto, Seller shall deliver, or cause to be delivered, to Buyer the
following (all documents shall be a form and substance satisfactory to
Buyer and its counsel):
i. A duly executed Bill of Sale in the form attached hereto as
Exhibit A, conveying title to, and possession of, the tangible Assets
to Buyer;
ii. The Certificate of Officers described in section 5.3 hereof;
iii. Certified resolutions duly executed evidencing authorization
and approval by the Seller's Board of Directors of the execution and
delivery of this Agreement and the consummation by Seller of the
transactions contemplated hereunder;
iv. All necessary instruments of assignment and transfer of the
Assets of any kind and description wherever situated;
v. The opinion of Seller's legal counsel, attesting to the effect
and attached hereto as Exhibit B;
vi. General Release in the form attached as Exhibit C duly
executed by Seller with respect to Buyer;
vii. A duly executed Assignment and Assumption conveying all of
Seller's rights, title, and interest to and in the intangible Assets to
Buyer; and
viii. Duly executed Sublease of Leasehold Interest conveying use of
Seller's leased premises described in Schedule 1.1.ix, along with the
written consent of the landlord.
Simultaneously with the consummation of the Closing, Seller shall put
Buyer (through it officers, agents and employees) into full possession
and enjoyment of all of the Assets. Buyer shall not acquire any title
to or property in the Assets until possession has been given to Buyer
in accordance with this paragraph, and, accordingly, all risks of loss
with respect to the Assets shall be borne by Seller until possession
has been given to Buyer.
7.3. Seller's Continuing Obligations. Upon request of Buyer, Seller shall,
from time to time after the Closing, duly execute, acknowledge and
deliver all such further assignments, conveyances and other instruments
of transfer and other assurances and documents, and shall take such
other action consistent with any terms of this Agreement, as reasonably
may be requested by Buyer for the purpose of better assigning,
transferring, granting, conveying or confirming to Buyer, or reducing
to possession any and all of the property to be conveyed and
transferred pursuant to this Agreement. Seller further agrees at the
request of Buyer to use its best efforts to prosecute or otherwise
enforce in its own name for the benefit of Buyer, but solely at Buyer's
<PAGE>
expense unless such prosecution or enforcement is necessitated by
default of Seller hereunder, any claims or rights which, or the
benefits of which, are transferred to Buyer pursuant to this Agreement
and which are required to be prosecuted or o therwise enforced in
Seller's name.
7.4. Buyer's Obligations at Closing. At the Closing and as a condition
thereto, Buyer shall deliver, or cause to be delivered, to Sellers, the
following (all documents shall in a form and substance satisfactory to
Seller and their counsel):
i. The Purchase Price in immediately available funds;
ii. The Certificate of Officers described in Section 6.3 hereof;
iii. Certified resolutions duly executed, evidencing authorization
and approval by the Board of Directors of Buyer of the execution and
delivery of this Agreement and the consummation of Buyer of the
transactions and contemplated hereunder; and
iv. General Release in the form attached hereto as Exhibit D duly
executed by Buyer.
8. INDEMNIFICATION AND OTHER CONTINUING COVENANTS
8.3. Indemnification of Buyer. For a period of one (1) year after the
Closing Date, Seller agrees to indemnify, defend with counsel of
Seller's choice and reasonably acceptable to Buyer, and hold Buyer
harmless against any and all claims, losses, liabilities, obligations,
costs and expenses (including reasonable attorneys' fees) which Buyer
may incur or suffer and which arise or result from or relate to (i) any
breach of or failure by Seller to perform any of its warranties,
representations, commitments, agreements, covenants or conditions
contained herein; (ii) any breach of or failure by Seller prior to the
Closing to perform any of the terms and conditions of the Contracts and
leases being transferred to Buyer, including without limitation, any
adjustments which may result upon audit or review by the customer upon
completion of the Contract which relate to any period prior to the
Closing; and (iii) any obligation, liability, cost or expense incurred
by Buyer which relate to, arise from or result from any liabilities of
Seller or related to the Assets other than those specifically assumed
by Buyer hereunder including, without limitation, any agreements or
promises made by Seller with respect to any employee of Seller;
provided, however, that Seller is promptly given notice of, and an
opportunity to defend, any action or claim asserted, brought or
threatened against Buyer, provided further that Buyer's failure to give
such notice shall not relieve Seller of its duty under this Agreement
to Buyer except to the extent Seller is actually materially prejudiced
or damaged thereby.
8.4. Indemnification of Seller. Buyer agrees to indemnify, defend with
counsel of Buyer's choice, and hold Seller harmless against any and all
claims, losses, liabilities, obligations, costs and expenses (including
reasonable attorneys' fees), which Seller may incur or suffer and which
arise or result from or relate to (i) any breach or failure by Buyer to
perform any of its warranties, representations commitments,
agreements, covenants or conditions contained herein; (ii) Buyer's
<PAGE>
ownership of the Assets after the Closing; and (iii) any breach or
failure by Buyer after the Closing to perform any of the terms and
conditions of the Contracts and leases being transferred to Buyer;
provided, however, that Buyer is promptly given notice of, and an
opportunity to defend, any action or claim asserted, brought or
threatened against Seller, provided further that Seller's failure to
give such notice shall not relieve Buyer of its duty under this
Agreement to Seller except to the extent Buyer is actually materially
prejudiced or damaged thereby.
8.5. Continuing Cooperation. The parties hereto agree to use their good
faith best commercially reasonable efforts to cooperate with one
another following the Closing to complete the transactions
contemplated herein. The parties agree to provide such services to one
another at such party's usual billing rates as may be requested from
time to time with respect to completion of the Contracts and the
transfer of the Assets as contemplated herein.
8.6. Competition and Solicitation. Seller agrees that it will not at any
time within the eighteen (18) month period immediately following the
Closing, directly or indirectly, through any subsidiary, affiliate or
otherwise, perform or engage in the specific business or services
being performed under the Contracts or otherwise competitive with the
Internet Business. Except as set forth herein, the parties agree that
there shall be no restriction on their ability to compete with each
other in all other respects.
Seller and Buyer each agree that for a period of three (3) years from
the Closing Date, it shall not, without the prior written consent of
the other, employ or attempt to employ, or solicit on behalf of
another for the purpose of employment, any employees of the other
(exclusive in the case of Buyer, of any employees identified on
Schedule 4.1.c hereto). In the event an employee of Buyer or Seller
voluntarily terminates his employment, the above-referenced three (3)
year period shall be reduced to one (1) year after such resignation
but in no event more that three (3) years after the Closing, with
respect to such employee.
8.7. Nondisclosure by Seller. Seller agrees not to disclose, divulge,
communicate or convey (unless Seller becomes legally compelled to
disclose the same) to the detriment of Buyer or for the benefit of,
any other person or persons, directly or indirectly, any of the terms
of the Contracts to persons who have nor previously received such
information which is confidential and constitutes trade secrets of the
Buyer.
9. MISCELLANEOUS
9.1. Brokerage and Finder's Fees. Each party represents and warrants that
all negotiations relating to this Agreement and the transactions
contemplated hereby have been carried on by each directly with the
other without intervention of any person other than their respective
employees and counsel.
9.2. Survival of Representations and Warranties. All statements contained
in any exhibit, schedule, document, certificate or other instrument
delivered by or on behalf of any party hereto in connection with the
transactions contemplated hereby shall be deemed to be representations
and warranties made pursuant to this Agreement by such party. The
representations and warranties contained in Article 3 hereinunder
<PAGE>
shall survive the Closing hereof for a period of one (1) year, and any
investigation made by any party or such party's representatives shall
not constitute a waiver thereof and no such representation or warranty
shall be merged into the Closing.
9.3. Notices. All notices or other communications provided for by this
Agreement shall be made in writing and shall be deemed properly
delivered when (i) delivered personally, or (ii) mailed, registered or
certified mail, postage prepaid, to the parties at the following
addresses (or to such address designated in writing by one party to
the other):
i. Addresses: Buyer:
TENERA, Inc.
One Market, Suite 1850 Spear Tower
San Francisco, CA 94105
Attention: Jeff Hazarian
Seller:
SoBran, Inc.
9514 Lee Highway Suite B
Fairfax, VA 22031
Attention: Amos Otis, Owner
9.4. Attorneys' Fees and Expenses. All attorneys' fees and other costs and
expenses incurred in connection with the transactions hereinabove
described, including preparation of this Agreement, shall be paid by
the respective parties hereto. In the event of default hereunder, the
defaulting party shall be liable to the non-defaulting party for all
expenses and costs incurred by the non-defaulting party in protecting
or enforcing its rights hereunder including but no limited to
reasonable fees and expenses of attorneys, accountants and experts,
and court costs.
9.5. Subject Headings. The subject heading of the articles, paragraphs and
subparagraphs of this Agreement are included solely for purposes of
convenience and reference only, and shall not be deemed to explain,
modify, limit, amplify or aid in the meaning, construction or
interpretation of any of the provisions of this Agreement.
9.6. Exhibits. All exhibits and schedules, attached hereto and referred to
herein, are an integral part of this Agreement and incorporated herein
by reference hereby.
9.7. Amendments. No supplement, modification or amendment of any term,
provision or condition of this Agreement shall be binding or
enforceable unless executed in writing by the parties hereto.
9.8. Entire Agreement and Waiver. This Agreement contains the entire
agreement between the parties hereto and supersedes all prior and
contemporaneous agreement, arrangements, negotiations, and
understanding between the parties hereto, relating to the subject
matter hereof. There are no other understandings, statements, promises
<PAGE>
or inducements, oral or otherwise, contrary to the terms of this
Agreement. No representations, warranties, covenants or conditions,
express or implied, whether by statute or otherwise, other than as set
forth herein have been made by any party hereto. No waiver of any
term, provision, or condition of this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be, or
shall constitute, a wavier of any other provision hereof, whether or
not similar, nor shall such waiver constitute a continuing waiver, and
no waiver shall be binding unless in writing and executed by the
parties.
9.9. Parties in Interest. Nothing in this Agreement, whether express or
implied, is intended to confer upon any person other than the parties
hereto and the parties to the related documents executed in connection
herewith and their respective heirs, representatives, successors and
permitted assigns, any rights or remedies under or by reason of this
Agreement, nor is anything in this Agreement intended to relieve or
discharge the liability of any other party hereto, nor shall any
provision hereof give any entity any right of subrogation against or
action over against any party.
9.10. Successors and Assigns. Neither this Agreement nor any of the rights
or obligations hereunder shall be assignable by any party hereto
without the written consent of all of the parties first obtained
(except as provided to the contrary with respect to licenses granted
by Seller), and any attempted assignment without such written consent
shall be void and confer no rights upon any third party. Subject to
the foregoing, this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs,
representatives, successors and permitted assigns.
9.11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.12. Applicable Law. The Parties agree and consent to personal jurisdiction
and service and venue in any federal or state court within the State
of California having subject matter jurisdiction, for the purposes of
any action, suit or proceeding arising out of or relating to this
Agreement. This Agreement shall be interpreted, governed and construed
under the laws of the State of California as if it were executed and
to be performed wholly within the State of California.
9.13. Further Documents. Each party agrees to execute and deliver, at any
time and from time to time, upon the request of another party, such
further instruments or documents as may be reasonably necessary or
appropriate to carry out the provisions contained herein, and to take
such other action as another party may reasonably request to
effectuate the purposes of this Agreement.
9.14. Reformation/severability. If any provision of this Agreement is
declared invalid by any tribunal, then such provision shall be deemed
automatically adjusted to the minimum extent necessary to conform to
the requirements for validity as declared at such time and, as so
adjusted, shall be deemed a provision of this Agreement as though
originally included herein. In the event that the provision
invalidated is of such a nature that it cannot be so adjusted, the
<PAGE>
provision shall be deemed deleted from this Agreement as though such
provision had never been included herein. In either case, the
remaining provisions of this Agreement shall remain in effect.
9.15. Interpretations and Definitions. The parties agree that each party and
its counsel have reviewed and revised this Agreement and that any rule
of construction to the effect that ambiguities are to resolve against
the drafting party shall not apply in the interpretation of this
Agreement. In this Agreement the neuter gender includes the feminine
and masculine and the singular number includes the plural and the
words "person, and "party" include corporation, partnership, firm,
trust or association whenever the context so requires.
9.16. Remedies Not Exclusive and Waiver. No remedy conferred by any of the
specific provisions of this Agreement is intended to be exclusive of
any other remedy and each and every remedy shall be cumulative and
shall be in addition to every other remedy given hereunder or now or
hereafter existing at law or in equity or by statute or otherwise. The
election of any one or more remedies shall not constitute a waiver of
the right to pursue other available remedies.
9.17. Materiality of Representations and Warranties. Each of the
representations and warranties contained in this Agreement, in any
attachment hereto, or any certificate delivered in connection
herewith, shall be considered a material warranty and representation
which was made as a substantial inducement to the execution of this
Agreement and any breach of any such representation and warranty shall
be considered a material breach of this Agreement.
Publicity. No statement concerning the transactions contemplated by this
Agreement shall be made or release to any medium of public communication
except with the prior written approval of Buyer and Seller (such approval
shall be not unreasonably withheld) and except to the extent that counsel
advises such party that disclosure is legally required.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SoBran, Inc.
By: ___/s/ Amos Otis_____________________
Its: ___President & CEO__________________
TENERA, Inc.
By: ____/s/ R.C. McKay___________________
Its: ___President & CEO__________________
<PAGE>
ASSET ACQUISITION AGREEMENT
Schedule 1.1.i.
"Schedule 1.1.i. All of Seller's right, title and interest in and to all
executory customer licenses, contracts and proposals, which shall be described
on Schedule 1.1.i. attached hereto (provided, however, that such customer
consents in writing to the assignment and transfer thereof to Buyer), all work
in process with respect thereto, and all rights and preferences for any
reasonable extensions on contracts relating to current work being performed at
the same sites (collectively, the "Contracts");"
No contracts are included in the scope of this asset acquisition. An extension
to a recently expired SoBran contract that provided support associated with the
ITrack software application and data maintenance program is anticipate to be
awarded to TENERA after closing of this acquisition.
<PAGE>
ASSET ACQUISITION AGREEMENT
Schedule 1.1.ii.
"Schedule 1.1.ii. - Those fixed operating assets specifically selected by
the Buyer, including the furniture and computer hardware and software (the
"Tangible Fixed Assets") located at the Seller's offices in Knoxville,
Tennessee, which the parties agree are in good operating condition, all of which
are identified on Schedule 1.1.ii attached hereto:"
<PAGE>
ASSET ACQUISITION AGREEMENT
Schedule 1.1.iii.
"Schedule 1.1.iii. - All of the goodwill, trade secrets, proprietary and
technical data, intellectual property rights, know-how, inventions, discoveries
and trade names pertaining to or used in connection with the Internet Business
and the Contracts including, without limitation, those identified on Schedule
1.1.iii attached hereto:"
Acquisition scope includes all architecture, programming, and coding associated
with the Internet Business including: software application programs, module
designs, electronic templates, and learning models; all process methods and
practices associated with development and application of software application
programs, course ware (i.e. ASP templates, interactive exercises) module
designs, electronic templates, and electronic models; course technical content
including digital photography, video materials, sound tracks, and other
supporting electronic and data files; all architecture, functionality,
programming, stored routines, and code that constitutes the GoTrain.net
Corporate Distance Learning Center (CDLC).
Acquisition scope also includes all architecture, programming, and coding
associated with the SoBran software and application program called ITrack
including all licenses, trademarks, registrations, architecture, functionality,
programming, stored routines, data and data files, and code.
<PAGE>
ASSET ACQUISITION AGREEMENT
Schedule 1.1.vii.
Schedule 1.1.vii - All of Seller's right, title and interest in or to the
names of all Internet URL addresses owned by Seller other than "SoBran-inc.com"
and "SoBran.org.com", which shall be described on Schedule 1.1.vii attached
hereto:
A. The Acquisition includes the following trade names: ITrack; GoTrain;
Corporate Distance Learning Center (CDLC)
B. The Acquisition includes the following Domain names: GoTrain.net;
e-lrn.net; elrn.net
<PAGE>
ASSET ACQUISITION AGREEMENT
Schedule 1.1.ix.
Schedule 1.1.ix - A sublease to Buyer approved by the lessor of the
Seller's premises (the "Premises") as described in Schedule 1.1.ix attached
hereto:
<PAGE>
ASSET ACQUISITION AGREEMENT
Schedule1.5
Schedule 1.5 - Allocation of Purchase Price. The parties hereto agree that
the Purchase Price shall be allocated among the Assets as set forth in this
Schedule. The parties declare and acknowledge that these values were
determined in good faith in arm's length bargaining. Each party agrees to
report the transaction for income tax purposes in accordance with the
allocation recited herein and that it will not take any position
inconsistent with this allocation except with the written consent of the
other party hereto. However, if the Internal Revenue Service or the
Franchise Tax Board takes a position with respect to one party to this
Agreement that is inconsistent with the allocation herein, the other party
may take a protective position adopting the taxing authority's contention
until the controversy is finally resolved.
<PAGE>
ASSET ACQUISITION AGREEMENT
Schedule 2.1.i
2.1.i - All vendor-related payables of Seller related to any of the Assets for
any and all periods (or portions thereof) ending on or prior to the Closing
Date, a complete list of which Seller has specified on Schedule 2.1.i attached
hereto;
<PAGE>
ASSET ACQUISITION AGREEMENT
Schedule 3.1.h
Schedule 3.1.h - Consents of Third Parties. Except as set forth on this Schedule
3.1.h, no approval or consents of any person, entity or governmental agency
(including, without limitation, consents of customers, lessors, financial
institutions, and suppliers) other than Seller is necessary to any of the
transfers, assignments or conveyances of the Assets to Buyer.
No Third Party Consents are required by the Seller to complete this Acquisition.
<PAGE>
ASSET ACQUISITION AGREEMENT
Schedule 4.1.c.
Schedule 4.1.c - Acquired Personnel List: Employees and Compensation. Seller
acknowledges that Buyer intends to offer employment to those employees
identified on Schedule 4.1.c attached hereto after the Closing and Seller agrees
to cooperate in good faith with Buyer in effecting the transfer of such
employees who accept employment with Buyer. Seller shall not terminate any
employees identified on Schedule 4.1.c, nor decrease or grant any increase in
salaries payable, or to become payable by it, to any such employee, nor will
Seller increase or decrease benefits payable to any such employee under any
bonus or pension plan or other contract or commitment, without Buyer's prior
written consent. Seller shall have the right, but not the obligation, to retain
any employee identified on Schedule 4.1.c who does not accept employment with
Buyer. Seller acknowledges and agrees that all former employees of Seller who
are or will become employees of Buyer are subject to no continuing
confidentiality agreements or obligations with respect to Seller or its current
or former customers.
SoBran Employees Acquired by TENERA
- ------------------------ ------------------------ ------------------------------
Name Social Security Number Job Title
- ------------------------ ------------------------ ------------------------------
Bivens, Jessica ###-##-#### Web Designer I
- ------------------------ ------------------------ ------------------------------
- ------------------------ ------------------------ ------------------------------
Boyle, Robert ###-##-#### Senior Web Developer
- ------------------------ ------------------------ ------------------------------
- ------------------------ ------------------------ ------------------------------
Harper, Serena ###-##-#### Web Designer II
- ------------------------ ------------------------ ------------------------------
- ------------------------ ------------------------ ------------------------------
Hinton, Daniel ###-##-#### Web Developer I
- ------------------------ ------------------------ ------------------------------
- ------------------------ ------------------------ ------------------------------
Holder, Nate (James) ###-##-#### Systems Administrator II
- ------------------------ ------------------------ ------------------------------
- ------------------------ ------------------------ ------------------------------
Hunt, Kathryn ###-##-#### Web Designer II
- ------------------------ ------------------------ ------------------------------
- ------------------------ ------------------------ ------------------------------
Job, David ###-##-#### Vice President, Operations
- ------------------------ ------------------------ ------------------------------
- ------------------------ ------------------------ ------------------------------
Lay, Chris ###-##-#### Web Designer I
- ------------------------ ------------------------ ------------------------------
- ------------------------ ------------------------ ------------------------------
Machanoff, Katie ###-##-#### Application Support
Administrator
- ------------------------ ------------------------ ------------------------------
- ------------------------ ------------------------ ------------------------------
McClanahan, Don ###-##-#### Senior Web Designer
- ------------------------ ------------------------ ------------------------------
- ------------------------ ------------------------ ------------------------------
McGhee, Angela ###-##-#### Web Designer II
- ------------------------ ------------------------ ------------------------------
- ------------------------ ------------------------ ------------------------------
Sinclair, Lesli ###-##-#### Web Designer II
- ------------------------ ------------------------ ------------------------------
- ------------------------ ------------------------ ------------------------------
Sparks, Carla ###-##-#### Web Developer II
- ------------------------ ------------------------ ------------------------------
<PAGE>
ASSET ACQUISITION AGREEMENT
Schedule 4.1.e.
Equipment Requiring SoBran Lease Buyout
Schedule 4.1.e: Leased Equipment Buyout. Equipment included in the Asset
Acquisition and currently under lease to SoBran will be handled as follows: An
amount equal to the lease buy-out value for the equipment, listed on Schedule
4.1.e, will be deducted from the agreed to price and placed into escrow. At such
time as SoBran performs a buyout of the leases for the equipment and provides
TENERA with appropriate documentation, the escrow funds will be released.
(2)Micron Four Micron Computer 36-month lease started 8/99
0241522059000 Work Stations with options to purchase.
Monthly charges $570.69 with
buyout of $13,590.45.
(half to be paid by TENERA)
(3)Kennesaw Miscellaneous furniture 36-month lease started 6/97
09-970620 with option to purchase.
Monthly charges $$ with
buyout of $664.70.
(5)Information Leasing Miscellaneous computer 36-month lease started in
Corporation and s/w gear some 1997. Buyout $3,500.
being applied to the
45199711 CDLC
(6)Information Leasing Miscellaneous 36-month lease started in
Corporation computer, HUB, and 1997. Buyout $1,125.
s/w gear some being
46719711 applied to the CDLC
(7)Information Leasing Miscellaneous computer 36-month lease started in
Corporation and s/w gear some 1997. Buyout $1,425.
being applied to the
48959711 CDLC
(8)Information Leasing Miscellaneous computer 36-month lease started in
Corporation and s/w gear some 1997. Buyout $1,200.
being applied to the
51899711 CDLC
<PAGE>
ASSET ACQUISITION AGREEMENT
EXHIBIT A
BILL OF SALE
SoBran Incorporated, an Ohio corporation, for valuable consideration,
receipt of which is hereby acknowledged, hereby sell and assign, and by this
Bill of Sale do grant, assign, convey, transfer, and deliver to TENERA Inc., a
Delaware corporation, its representatives, successors, and assigns the goods and
chattels described in this Asset Acquisition Agreement and presented as
Schedules 1.1.i, 1.1.ii, 1.1.iii, 1.1.iv, and 4.1.c and included herein and
incorporated by reference as though fully set forth herein, free and clear of
all defects of title, security interests, liens, mortgages, encumbrances, and
adverse claims.
IN WITNESS WHEREOF, duly authorized representatives of SoBran, Inc.
have executed this Bill of Sale this 11th day of February, 2000.
SoBran Inc.
-----------
By ___/s/Amos Otis____________
Title __President & CEO________
Notarized Witness
-----------------
By ____/s/Carol A. Malzahn_______
Name ________________________
<PAGE>
ASSET ACQUISITION AGREEMENT
EXHIBIT B
SELLER'S LEGAL COUNCIL OPINION
<PAGE>
ASSET ACQUISITION AGREEMENT
EXHIBIT C
MUTUAL GENERAL RELEASE
<PAGE>
Exhibit 21.1
TENERA Energy, LLC
TENERA Rocky Flats, LLC
TENERA Technologies, LLC
TENERA Colorado Corp.
TENERA GoTrain.Net, LLC
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-58982) pertaining to the 1992 Option Plan of TENERA, Inc., as
amended, and the Registration Statement (Form S-8 No. 333-77413) pertaining to
the 1993 Outside Director Compensation and Option Plan, Amended and Restated as
of March 1, 1998, of TENERA, Inc., of our report dated January 21, 2000, with
respect to the consolidated financial statements and schedule of TENERA, Inc.,
included in the Form 10-K for the year ended December 31, 1999.
ERNST & YOUNG LLP
Walnut Creek, California
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Dec-31-1999
<CASH> 3,493
<SECURITIES> 0
<RECEIVABLES> 7,853
<ALLOWANCES> 1,300
<INVENTORY> 0
<CURRENT-ASSETS> 10,417
<PP&E> 293
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,710
<CURRENT-LIABILITIES> 4,950
<BONDS> 0
<COMMON> 5,803
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,710
<SALES> 0
<TOTAL-REVENUES> 37,922
<CGS> 0
<TOTAL-COSTS> 29,351
<OTHER-EXPENSES> 6,235
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (119)
<INCOME-PRETAX> 2,455
<INCOME-TAX> 1,113
<INCOME-CONTINUING> 1,342
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,342
<EPS-BASIC> 0.13
<EPS-DILUTED> 0.13
</TABLE>
