File No. 70-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM U-1 APPLICATION
UNDER THE
PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
-----------------------------------------------
PUBLIC SERVICE COMPANY OF OKLAHOMA
212 East 6th Street
Tulsa, Oklahoma 74119-1212
(Names of company filing this statement and
address of principal executive office)
---------------------------------------------------
CENTRAL AND SOUTH WEST CORPORATION
(Name of top registered holding company parent)
---------------------------------------------------
William R. McKamey
General Manager
Public Service Company of Oklahoma
212 East 6th Street
Tulsa, Oklahoma 74119-1212
Wendy G. Hargus, Treasurer
Central and South West Corporation
1616 Woodall Rodgers Freeway
Dallas, Texas 75202
Joris M. Hogan, Esq.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
(Name and addresses of agents for service)
<PAGE>
Public Service Company of Oklahoma, an Oklahoma corporation
("PSO"), is a wholly-owned electric utility subsidiary of Central and South West
Corporation ("CSW"), a Delaware corporation and a registered holding company
under the Public Utility Holding Company Act of 1935, as amended (the "Act").
Item 1. Description of Proposed Transaction
PSO hereby requests authority to purchase shares of common
stock of SCIENTECH, Inc., an Idaho corporation ("SCIENTECH"), as described
below.
Business of SCIENTECH, Inc.
SCIENTECH is a privately owned company that provides services
(and some ancillary and minor products) to the nuclear utility industry (the
"utility business"), and under contracts relating to the nuclear industry with
the Department of Energy, the Department of Defense and the Nuclear Regulatory
Commission (the "government agency business"). Historically, SCIENTECH has
provided a majority of its services to government agencies in support of the
nuclear utility market. Over the past three years, however, SCIENTECH has
adopted a strategy of reducing its reliance upon government contracts and
applying its expertise to capture a greater share of the utility market. In
September 1996, SCIENTECH purchased a portion of the assets of Halliburton NUS
Company, a nuclear utility service provider. While a
<PAGE>
majority of SCIENTECH's $53 million of actual revenues for its fiscal year ended
January 31, 1997 came from government contracts, on a pro forma basis, including
the NUS acquisition, SCIENTECH's utility business would have accounted for
approximately 48% of total revenues of approximately $70 million, and government
contracts would also have accounted for approximately 48% of total revenues.
SCIENTECH's utility business services are aimed at electric
utilities, which are restructuring and outsourcing in an increasingly
competitive environment. In particular, SCIENTECH provides services (including
engineering and other services), systems (including security systems), and
instruments, which describe, regulate, monitor and enhance the safety and
reliability of plant operations and their environmental impacts. SCIENTECH's
diverse services and products are of particular value to U.S. electric
utilities. Nearly 40% of SCIENTECH's utility business involves the analysis and
evaluation of operational safety and risk using proprietary software.
Approximately 20% of SCIENTECH's utility business is associated with engineering
and operational support activities involving nuclear materials and facilities,
design and installation of microwave transmission systems, and training and
simulator instruction for nuclear power plants. Approximately 10% of SCIENTECH's
utility business is involved with the design and installation of enhanced
physical security systems, and another 10% of its utility business involves
support services related to environmental compliance and cleanup. Information
management and other network services
2
<PAGE>
provide 15% of revenues and involve power plant and nuclear plant support
services among others. The other 5% of its utility business is derived from
software sales which includes software used to support power plant operations.
SCIENTECH's government agency business consists principally of
work requiring skills in safety analysis and assessment, knowledge of safe and
secure handling of nuclear materials, technical review, technical policymaking,
and technical policy implementation. Principal customers are the Department of
Energy and the Nuclear Regulatory Commission in many utility oriented
activities. Recently, the Nuclear Regulatory Commission awarded SCIENTECH the
contract to promote, maintain, and service two different safety analysis
computer codes developed by the U.S. Government for nuclear power plants..
SCIENTECH has also applied some of its expertise to
applications outside of the government and utility industries. It has sold
environmental services to mining operations, internet services to non-utilities
and risk and reliability services to the industrial sector. These services
totaled approximately $2 million for the fiscal year ended January 31, 1997.
SCIENTECH also provides risk and reliability services
internationally. These services, which totaled approximately $1.3 million for
the fiscal year ended January 31, 1997, are being provided to Canada, Japan,
Korea, and former Soviet Block countries. Approximately 75% of these services
are being funded under contract with the Department of Energy and the Nuclear
3
<PAGE>
Regulatory Commission. Most of the remaining work is performed
under direct contract with Japanese and Canadian utilities.
The Proposed Transaction
PSO has entered into a Stock Purchase Agreement, dated as of
June 2, 1997 (the "Stock Purchase Agreement"), between Dr. Lawrence J.
Ybarrondo, Chairman of the Board of Directors and founder of SCIENTECH (and
certain related trusts and family members) (collectively, the "Sellers") and
PSO. Pursuant to the Stock Purchase Agreement, and subject to certain conditions
including receipt of an order from the Securities and Exchange Commission (the
"Commission") approving this Application, PSO shall purchase from the Sellers,
at a purchase price of $6.00 per share, or an aggregate purchase price of
$3,036,000, an aggregate of 506,000 shares of SCIENTECH common stock (the
"Shares"), representing approximately 25% of the outstanding capital stock of
SCIENTECH. The Shares shall consist of 70,000 shares of Class A Voting Common
Stock ("Class A Stock")(representing 4.5% of the Class A Voting Common Stock to
be outstanding immediately following the consummation of PSO's purchase of the
Shares) and 436,000 shares of Class B Nonvoting Common Stock ("Class B Stock",
and together with the Class A stock, the "Common Stock") (representing 100% of
the Class B Nonvoting Common Stock to be outstanding immediately following the
consummation of PSO's purchase of the Shares). In addition, PSO has been granted
an option (the "Option") to purchase, subject to and conditioned upon approval
by the Commission of this Application, an
4
<PAGE>
additional 206,000 shares of Class B Nonvoting Common Stock from the Sellers not
later than September 2, 1998, at a purchase price per share of $9.00.
SCIENTECH's capitalization as of June 2, 1997, consisted of 2,105,364 shares of
Class A Stock and no shares of Class B Stock.
Each share of Class A Stock entitles its holder to one vote on
any matter coming before the SCIENTECH shareholders for a vote. The holders of
Class B Stock shall not be entitled to vote on any matter coming before the
shareholders, except that no amendment to SCIENTECH's Articles of Incorporation
may be effected without the affirmative vote of holders of a majority of the
outstanding shares of Class B Stock. Each holder of Class A Stock shall have the
right at any time, at the option of such holder, to exchange each share of Class
A Stock, without payment of any further consideration, into one share of fully
paid Class B Stock, and each holder of Class B Stock shall have the right at any
time, at the option of such holder, to exchange each share of Class B Stock,
without payment of any further consideration, into one share of fully paid Class
A Stock. In all other respects, each share of Class A Stock and Class B Stock
issued and outstanding shall be identical. At no time will PSO own more than
4.9% of the outstanding Class A Stock.
PSO and the Sellers have also entered into an Escrow
Agreement, dated as of June 2, 1997 (the "Escrow Agreement"), pursuant to which
certificates representing the Shares and the purchase price therefor have been
deposited with an escrow agent until the Commission has acted on this
Application.
5
<PAGE>
PSO and each SCIENTECH shareholder have entered into a
Shareholders Agreement, dated as of June 2, 1997 (the "Shareholders Agreement"),
whereby the shareholders have agreed that for so long as PSO holds 10% or more
of the outstanding SCIENTECH Common Stock on a fully diluted basis (without
regard to the voting rights thereof), PSO shall have the right to designate one
member of the Board of Directors, which shall consist of a minimum of six
members, and which currently consists of 11 members. In addition, the
shareholders have agreed that in all cases where the number of directors is
greater than six, such additional directorships shall be filled only with
independent directors. Finally, SCIENTECH has agreed that, without first
obtaining PSO's consent, it will not issue any Common Stock, on a fully diluted
basis, at a price lower than $6.00 per share, proportionately adjusted to
reflect any stock dividend, stock split, combination of shares,
reclassification, recapitalization, automatic conversion, redemption or other
similar event affecting the number or character of outstanding shares of Common
Stock.
PSO has also entered into a Registration Rights Agreement,
dated as of June 2, 1997 (the "Rights Agreement"), among SCIENTECH and each of
its larger shareholders (not including SCIENTECH's Employee Stock Ownership
Plan). The Rights Agreement provides that at any time after February 1, 2001,
and before February 1, 2011, upon written request by the holders of at least 60%
of the outstanding Common Stock in the case of registration on any form other
than Form S-3, and 50% of the outstanding Common Stock in the case of
registration on Form S-3,
6
<PAGE>
SCIENTECH shall use its best efforts to register with the Commission the shares
which SCIENTECH has been so requested to register by such holders.
The Stock Purchase Agreement provides that, in the event that
approval or denial of this Application is not received from the Commission prior
to August 16, 1997, the Stock Purchase Agreement, the Escrow Agreement, the
Rights Agreement and the Shareholders Agreement shall be rescinded, the
certificates representing the Shares shall be returned to the Sellers, and the
purchase price shall be returned to PSO.
Services to the CSW System
SCIENTECH, through its subsidiaries, has performed a small
amount of work at the South Texas Project (STP), a nuclear generating facility
partially owned by a CSW subsidiary, Central Power and Light Company. Currently,
STP is subscribing to four informational database services provided by one of
SCIENTECH's subsidiaries. It also has an open work order for database
maintenance, although no work has been performed under this contract this year.
No other services are presently being provided by SCIENTECH to the CSW system.
After consummation of the proposed investment, SCIENTECH may provide additional
services or products to the CSW system, although no such services or products
have been identified.
7
<PAGE>
Request For Authority
PSO hereby requests authority to acquire the Shares as
described herein. To the extent that any other aspects of the proposed
investment requires authority from the Commission, PSO hereby requests the same.
PSO agrees to file semi-annual certificates of notification,
no later than sixty (60) days after the end of each semi-annual period,
concerning the business activities carried out pursuant to any order approving
this Application, which certificates of notification shall contain, inter alia,
the following information: (i) a description of the types of services performed
by SCIENTECH during the period; (ii) a description of any services provided to
PSO or CSW or any other CSW subsidiary by SCIENTECH during the period; (iii) a
statement of any dividends or interest paid to PSO, both for the period and
cumulatively, as a result of its equity interests in SCIENTECH; and (iv) a
statement regarding the purchase by PSO of any additional shares of SCIENTECH
pursuant to the Option.
8
<PAGE>
Item 2. Fees, Commissions and Expenses
PSO estimates that the approximate amount of fees and expenses payable
in connection with the transactions described herein is as follows:
Legal Fees and Expenses
Milbank, Tweed, Hadley & McCloy
New York, New York................... 5,000
Doerner, Saunders, Daniel
& Anderson
Tulsa, Oklahoma...................... $ 20,000
Miscellaneous and incidental
expenses including travel,
telephone and postage................ 500
--------
$ 25,500
========
Item 3. Applicable Statutory Provisions
General
Sections 9, 10 and 11 of the Act and Rule 23 under the Act are
or may be applicable to the proposed investment described herein. Section 9(a)
of the Act makes unlawful the acquisition by a subsidiary of a registered
holding company of "any securities . . . or any other interest in any business"
without the prior approval of the Commission under Section 10. Under Section
10(c)(1), the Commission may not approve an acquisition of securities or any
other interest in any business if the proposed acquisition is "detrimental to
the carrying out of the provisions of Section 11". Under Section 11(b)(1), the
Commission must limit the operations of public utility holding companies and
their subsidiaries to such other businesses as are
9
<PAGE>
reasonably incidental, or economically necessary or appropriate, to the
operations of such integrated public-utility system. The Commission may permit
as reasonably incidental, or economically necessary or appropriate, to the
operations of one or more integrated public-utility systems the retention of an
interest in any business (other than the business of a public-utility company as
such) which the Commission shall find necessary or appropriate in the public
interest or for the protection of investors or consumers and not detrimental to
the proper functioning of such system or systems.
The proposed investment by PSO in SCIENTECH satisfies the
requirements of Sections 9(a)(1) and 10 in that it is incidental, and
economically necessary or appropriate, to PSO's core business of generating,
transmitting and distributing electric energy. The proposed investment is also
appropriate in the public interest and is not detrimental to the proper
functioning of PSO or the CSW system. PSO's investment in SCIENTECH will be
small relative to PSO's total financial resources. Risks to the financial
position of PSO also will be limited because PSO will not be obligated to make
further capital contributions beyond its initial equity investment. PSO will not
seek recovery through higher rates from utility customers to compensate for
possible future losses or inadequate returns on capital invested in SCIENTECH,
so that PSO's shareholders will bear all risks associated with the proposed
investment.
Likewise, the proposed investment is consistent with
Rule 58 under the Act. Paragraph (b)(1)(vii) of Rule 58 would
10
<PAGE>
permit PSO to acquire the securities of a company primarily involved in the
"sale of technical, operational, management, and other similar kinds of services
and expertise, developed in the course of utility operations in such areas as
power plant and transmission system engineering, development, design and
rehabilitation; construction; maintenance and operation; ... environmental
licensing, testing and remediation; and other similar areas". Except for the
minor international element of its business, SCIENTECH would qualify as an
Energy Related Company under paragraph (b)(1)(vii) of Rule 58. In this regard,
it is noted that the Commission has permitted subsidiaries of registered holding
companies to engage in certain energy-related activities outside of the United
States. In Eastern Utilities Associates, Holding Co. Act Release No. 26135
(September 30, 1994), the SEC authorized EUA Cogenex Corporation, a subsidiary
of Eastern Utilities Associates, to engage in energy and demand-side management
activities in Canada based upon the SEC's determination that such activities are
"closely related" to EUA's core utility business. See, also, Northeast
Utilities, Holding Co. Act Release No. 26108 (August 19, 1994). As in the above
orders, the minor international element of SCIENTECH's business is
closely-related to PSO's core utility business.
The proposed investment also satisfies the two-pronged
"functional relationship" test established by the United States
Court of Appeals for the District of Columbia Circuit in Michigan
Consolidated Gas Co. v. SEC, 444 F.2d 913 (D.C. Cir. 1971), which
traditionally has been used by the Commission in applying Section
11
<PAGE>
11(b)(1) of the Act. Under the "functional relationship" test, an integrated
public-utility system may retain an interest in another business if (i) the
additional business is "reasonably incidental or economically necessary or
appropriate" to the integrated system, and (ii) the retention of the additional
business is in the public interest. Michigan Consolidated at 916. As discussed
in the preceding paragraphs, the proposed investment satisfies the first prong
of the "functional relationship" test in that it is reasonably incidental and
economically necessary and appropriate to PSO's core business. The proposed
investment is also consistent with the orders cited in the footnote to the
Commission's discussion of paragraph (b)(1)(vii) of Rule 58. (Holding Company
Act Release No. 35-26313 at note 27 (June 20, 1995).) These orders authorize a
variety of services to be rendered by new subsidiaries of the applicants to
non-affiliated electric utility companies and others: Southern Company, Holding
Company Act Release No. 22132 (July 17, 1981), authorizing the sale of
"management, technical and training services to non-affiliates"; American
Electric Power Company, Inc., Holding Company Act Release No. 22468 (April 28,
1982), authorizing the sale of "management, technical, and training expertise in
the open, competitive market to non-affiliated entities including domestic and
foreign governmental agencies, public utilities and other business concerns";
Middle South Utilities, Inc., Holding Company Act Release No. 22818 (January 11,
1983), as supplemented by Holding Company Act Release No. 23152 (December 5,
1983), authorizing the operation
12
<PAGE>
of "a consulting business for profit, marketing to nonaffiliates management,
technical, and training expertise developed by System companies"; and New
England Electric System, Holding Company Act Release No. 22719 (November 19,
1982), authorizing the offering of "energy management services on the open,
competitive market exclusively to non-affiliates, primarily the operators of
large institutional, commercial, residential or industrial buildings ...
including the installation of meters and controls on equipment, the modification
or replacement of inefficient
equipment, and the monitoring of energy consumption". Although
the aforementioned orders are referred to as authorizing
"consulting activities", they in fact authorize the provision of a wide variety
of services related to core electric utility operations to public utilities and
other customers without restriction by a so-called "50% limitation" discussed in
In the Matter of CSW Credit, Inc., Holding Company Act Release No. 25995 (March
2, 1995).
See, also, Eastern Utilities Associates, Holding Co. Act
Release No. 26232 (February 15, 1995), in which the Commission recognized that
the plain language of Section 11 of the Act is a sufficient basis on which to
grant authorization for the sale of services to non-affiliates, without a 50%
limitation, when those services constitute a close complement to the applicant's
core business. The services authorized by prior orders in the same matter
included demand-side management and energy management services (and the sale of
related products) and consulting services. The order also recognized that
changes in
13
<PAGE>
the utility industry (in that case the substitution of efficiencies in energy
use for the construction of additional generating capacity) could result in
expanded views of what constitutes a part of, or is closely related to, the core
business of a public utility company or system. Finally, PSO believes that its
maintenance of equity interests in SCIENTECH will be consistent with GPU Nuclear
Corporation, Holding Co. Act Release No. 26139 (October 7, 1994). In that order,
GPU Nuclear Corporation was authorized to offer to non-affiliates a wide range
of services to nuclear power plant operators similar to the services offered by
SCIENTECH and based on expertise, resources and facilities developed in the
course of GPU's core business operations.
To the extent any other sections of the Act may be applicable to
the proposed investment, PSO hereby requests appropriate orders thereunder.
Rule 54
No proceeds from the proposed investment will be used by CSW or
any subsidiary thereof for the direct or indirect acquisition of an interest in
an exempt wholesale generator, as defined in Section 32 of the Act ("EWG"), or a
foreign utility company, as defined in Section 33 of the Act ("FUCO"). Rule 54
promulgated under the Act states that in determining whether to approve the
issue or sale of a security by a registered holding company for purposes other
than the acquisition of an EWG or a FUCO, or other transactions by such
registered holding company or its subsidiaries other than with respect to EWGs
or FUCOs, the
14
<PAGE>
Commission shall not consider the effect of the capitalization or earnings of
any subsidiary which is an EWG or a FUCO upon the registered holding company
system if Rule 53(a), (b) and (c) are satisfied. As set forth below, all
applicable conditions set forth in Rule 53(a) are, and, assuming the
consummation of the transactions proposed herein, will be, satisfied and none of
the conditions set forth in Rule 53(b) exist or will exist as a result of the
transactions proposed herein.
CSW's "aggregate investment" (as defined under Rule 53(a) of the
Act) in EWGs and FUCOs as of March 31, 1997 was approximately $894 million, or
about 47% of CSW's "consolidated retained earnings" as of March 31, 1997. CSW
thus satisfies Rule 53(a)(1). CSW will maintain and make available the books and
records required by Rule 53(a)(2). No more than 2% of the employees of CSW's
operating subsidiaries will, at any one time, directly or indirectly, render
services to an EWG or FUCO in which CSW directly or indirectly owns an interest,
satisfying Rule 53(a)(3). And lastly, CSW will submit a copy of Item 9 and
Exhibits G and H of CSW's Form U5S to each of the public service commissions
having jurisdiction over the retail rates of CSW's operating utility
subsidiaries, satisfying Rule 53(a)(4).
None of the conditions described in Rule 53(b) exist with
respect to CSW or any of its subsidiaries, thereby satisfying such rule and
making Rule 53(c) inapplicable.
15
<PAGE>
Item 4. Regulatory Approval
No state regulatory authority and no federal regulatory
authority, other than the Commission under the Act, have jurisdiction over the
proposed transactions.
Item 5. Procedure
It is requested that the Commission issue and publish no later
than June 20, 1997, the requisite notice under Rule 23 with respect to the
filing of this Application, such notice to specify a date not later than July
14, 1997, as the date after which an order granting and permitting this
Application to become effective may be entered by the Commission and the
Commission enter not later than July 15, 1997, an appropriate order granting and
permitting this Application to become effective.
No recommended decision by a hearing officer or other
responsible officer of the Commission is necessary or required in this matter.
The Division of Investment Management of the Commission may assist in the
preparation of the Commission's decision in this matter. There should be no
thirty-day waiting period between the issuance and the effective date of any
order issued by the Commission in this matter, and it is respectfully requested
that any such order be made effective immediately upon the entry thereof. Item
6. Exhibits and Financial Statements
Exhibit 1 - Preliminary Opinion of Milbank, Tweed, Hadley & McCloy, counsel
to PSO.
Exhibit 2 - Final or "Past Tense" opinion of Milbank, Tweed, Hadley
16
<PAGE>
& McCloy, counsel to the Company (to be filed with
Certificate of Notification).
Exhibit 3 - Proposed Notice of Proceeding.
Exhibit 4 - Financial Statements of Public Service Company of Oklahoma,
as of March 31, 1997.
Exhibit 5 - Stock Purchase Agreement, dated as of June 2, 1997.
Exhibit 6 - Form of Amended and Restated Articles of Incorporation of
Scientech, Inc.
Exhibit 7 - Escrow Agreement, dated as of June 2, 1997.
Exhibit 8 - Shareholders' Agreement, dated as of June 2, 1997.
Exhibit 9 - Registration Rights Agreement, dated as of June 2, 1997.
Confidential
Exhibit 10- Financial Statements of SCIENTECH as at and for the fiscal
year ended January 31, 1997 (to be filed by amendment).
Item 7. Environmental Effects
The proposed transaction does not involve major federal action
having a significant effect on the human environment. To the best of PSO's
knowledge, no federal agency has prepared or is preparing an environmental
impact statement with respect to the proposed transaction.
17
<PAGE>
S I G N A T U R E
- - - - - - - - -
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, as amended, the undersigned company has duly caused this
document to be signed on its behalf by the undersigned thereunto duly
authorized.
Dated: June 12, 1997
PUBLIC SERVICE COMPANY
OF OKLAHOMA
By:/s/WILLIAM R. MCKAMEY
William R. McKamey
General Manager
18
<PAGE>
INDEX OF EXHIBITS
EXHIBIT TRANSMISSION
NUMBER EXHIBITS METHOD
1 Preliminary Opinion of Milbank, Electronic
Tweed, Hadley & McCloy, counsel
to the Company.
2 Final or "Past Tense" opinion of ---
Milbank, Tweed, Hadley & McCloy,
counsel to the Company (to be filed
with Certificate of Notification).
3 Proposed Notice of Proceeding. Electronic
4 Financial Statements of Public Electronic
Service Company of Oklahoma, as of
March 31, 1997.
5 Stock Purchase Agreement, dated Electronic
as of June 2, 1997.
6 Form of Amended and Restated Electronic
Article of Incorporation of
Scientech, Inc.
7 Escrow Agreement, dated as of Electronic
June 2, 1997.
8 Shareholders' Agreement, dated Electronic
as of June 2, 1997.
9 Registration Rights Agreement, Electronic
dated as of June 2, 1997.
10 Financial Statements of SCIENTECH ---
as at and for the fiscal year ended
January 31, 1997. (Confidential
Exhibit to be filed by amendment)
EXHIBIT 1
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
June 12, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Public Service Company of Oklahoma
Form U-1 Application
Dear Sirs:
We refer to the Form U-1 Application (the "Application") under
the Public Utility Holding Company Act of 1935, as amended (the "1935 Act"),
filed on the date hereof by Public Service Company of Oklahoma (the "Company"),
an Oklahoma corporation and a wholly-owned electric utility subsidiary of
Central and South West Corporation ("CSW"), a Delaware corporation and a
registered holding company. The Application relates to the Company's request for
authority under the 1935 Act to make an equity investment (the "Investment") in
SCIENTECH, Inc., an Idaho corporation, as more fully described in the
Application. We have acted as special counsel for the Company in connection with
the filing of the Application.
We have examined originals, or copies certified to our
satisfaction, of such corporate records of the Company, certificates of public
officials, certificates of officers and representatives of the Company and other
documents as we have deemed it necessary to require as a basis for the opinions
hereinafter expressed. In such examination we have assumed the genuineness of
all signatures and the authenticity of all documents submitted to us as
originals and the conformity with the originals of all documents submitted to us
as copies. As to various questions of fact material to such opinions we have,
when relevant facts were not independently established, relied upon certificates
by officers of the Company and other appropriate persons and statements
contained in the Application.
Based upon the foregoing, and having regard to legal
considerations which we deem relevant, we are of the opinion that, in the event
the proposed Investment is consummated in accordance with the Application, as it
may be amended, and subject to the assumptions and conditions set forth below:
<PAGE>
1. All state laws applicable to the proposed Investment as
described in the Application will have been complied with.
2. The consummation of the proposed Investment as described in
the Application will not violate the legal rights of the lawful holders
of any securities issued by the Company or any associate company of the
Company.
The opinions expressed above in respect of the proposed
Investment as described in the Application are subject to the following
assumptions or conditions:
a. The Investment shall have been duly authorized and
approved to the extent required by state law by
the Board of Directors of the Company.
b. The Securities and Exchange Commission shall have
duly entered an appropriate order or orders
granting and permitting the Application to become
effective with respect to the Investment described
therein.
c. The Investment shall have been accomplished in
accordance with required approvals,
authorizations, consents, certificates and orders
of any state commission or regulatory authority
with respect thereto and all such required
approvals, authorizations, consents, certificates
and orders shall have been obtained and remain in
effect at the closing thereof.
d. No act or event other than as described herein shall
have occurred subsequent to the date hereof which
would change the opinions expressed above.
We hereby consent to the use of this opinion as an exhibit to
the Application.
Very truly yours,
MILBANK, TWEED, HADLEY & McCLOY
EXHIBIT 3
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35- )
Filings Under the Public Utility Holding Company Act of 1935
("Act") _______________, 1996
Notice is hereby given that the following filing(s) has/have been
made with the Commission pursuant to provisions of the Act and rules promulgated
thereunder. All interested persons are referred to the application(s) and/or
declaration(s) for complete statements of the proposed transaction(s) summarized
below. The application(s) and/or declaration(s) and any amendment(s) thereto
is/are available for public inspection through the Commission's Office of Public
Reference.
Interested persons wishing to comment or request a hearing on the
application(s) and/or declaration(s) should submit their views in writing by
___________, 1996 to the Secretary, Securities and Exchange Commission,
Washington, D.C. 20549, and serve a copy on the relevant applicant(s) and/or
declarant(s) at the address(es) specified below. Proof of service (by affidavit
or, in case of an attorney at law, by certificate) should be filed with the
request. Any request for hearing shall identify specifically the issues of fact
or law that are disputed. A person who so requests will be notified of any
hearing, if ordered, and will receive a copy of any notice or order issued in
the manner. After said date, the application(s) and/or declaration(s), as filed
or as amended, may be granted and/or permitted to become effective.
<PAGE>
Public Service Company of Oklahoma (70-____)
Public Service Company of Oklahoma ("PSO"), an Oklahoma
corporation and a wholly-owned electric utility subsidiary of Central and South
West Corporation ("CSW"), a Delaware corporation and a registered holding
company under the Public Utility Holding Company Act of 1935, as amended (the
"Act"), located at 212 East 6th Street, Tulsa, Oklahoma 74119, has filed an
application pursuant to Sections 9, 10, and 11 of the Act and Rule 23
thereunder.
PSO is seeking authority to make an equity investment in
SCIENTECH, Inc., an Idaho corporation ("SCIENTECH"). SCIENTECH is a privately
owned company that provides services (and some ancillary and minor products) to
the nuclear utility industry (the "utility business"), and under contracts
relating to the nuclear industry with the Department of Energy, the Department
of Defense and the Nuclear Regulatory Commission (the "government agency
business"). SCIENTECH's services are aimed at electric utilities which are
restructuring and outsourcing in an increasingly competitive environment. In
particular, SCIENTECH provides services (including engineering and other
services), systems (including security systems), and instruments, which
describe, regulate, monitor and enhance the safety and reliability of plant
operations and their environmental impacts.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Jonathan G. Katz
Secretary
<PAGE>
PUBLIC SERVICE COMPANY OF OKLAHOMA EXHIBIT 4
INDEX TO
FINANCIAL STATEMENTS Page
Number
BALANCE SHEETS - PER BOOKS AND PRO FORMA AS OF MARCH 31, 1997 2
STATEMENT OF INCOME FOR THE TWELVE MONTHS ENDED MARCH 31, 1997 4
STATEMENT OF RETAINED EARNINGS FOR THE TWELVE MONTHS ENDED 5
MARCH 31, 1997
STATEMENTS OF LONG-TERM DEBT OUTSTANDING AS OF MARCH 31, 1997 6
STATEMENTS OF PREFERRED STOCK OUTSTANDING AS OF MARCH 31, 1997 7
PRO FORMA ADJUSTMENTS TO BALANCE SHEETS 8
STATEMENT OF CHANGES 9
CAPITALIZATION RATIOS - Per books and Pro forma 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11
<PAGE>
PUBLIC SERVICE COMPANY OF OKLAHOMA
BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF MARCH 31, 1997
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustment Forma
--------------------------
ASSETS
FIXED ASSETS
Electric utility plant
Production $903 $903
Transmission 370 370
Distribution 785 785
General 195 195
Construction work in progress 50 50
-------------------------
2,303 2,303
Less - Accumulated depreciation 1,004 1,004
-------------------------
1,299 1,299
-------------------------
CURRENT ASSETS
Cash and temporary cash investments 7 ($3) 4
Accounts receivable 22 22
Materials and supplies, at average cost 33 33
Fuel inventory 15 15
Accumulated deferred income taxes 4 4
Prepayments 2 2
-------------------------
83 (3) 80
-------------------------
DEFERRED CHARGES AND OTHER ASSETS 63 3 66
-------------------------
$1,445 $0 $1,445
=========================
<PAGE>
PUBLIC SERVICE COMPANY OF OKLAHOMA
BALANCE SHEETS
PER BOOKS AND PRO FORMA
AS OF MARCH 31, 1997
UNAUDITED
(Millions)
Per Pro Forma Pro
Books Adjustment Forma
--------------------------
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common stock, $15 par value;
authorized 11,000,000 shares;
issued 10,482,000 shares;
outstanding 9,013,000 shares $157 $157
Paid-in capital 180 180
Retained earnings 154 154
-------------------------
Total common stock equity 491 491
Preferred stock 20 20
Long-term debt 420 420
-------------------------
Total capitalization 931 931
-------------------------
CURRENT LIABILITIES
Long-term debt due within twelve months 0 0
Advances from affiliates 70 70
Payable to affiliates 21 21
Accounts payable 28 28
Payables to customers 15 15
Accrued taxes 17 17
Accrued interest 11 11
Other 5 5
-------------------------
167 167
-------------------------
DEFERRED CREDITS
Accumulated deferred income taxes 252 252
Investment tax credits 42 42
Income tax related regulatory
liabilities, net 45 45
Other 8 8
-------------------------
347 347
-------------------------
$1,445 $0 $1,445
=========================
<PAGE>
PUBLIC SERVICE COMPANY OF OKLAHOMA
STATEMENT OF INCOME
FOR THE TWELVE MONTHS MARCH 31, 1997
UNAUDITED
(Millions)
ELECTRIC OPERATING REVENUE $743
---------
OPERATING EXPENSES AND TAXES
Fuel 291
Purchased power 44
Other operating 122
Maintenance 38
Depreciation and amortization 78
Taxes, other than income 28
Income taxes 38
---------
639
---------
OPERATING INCOME 104
---------
OTHER INCOME AND DEDUCTIONS (35)
---------
INCOME BEFORE INTEREST CHARGES 69
---------
INTEREST CHARGES
Interest on long-term debt 31
Interest on short-term debt and other 4
---------
35
---------
NET INCOME 34
PREFERRED STOCK DIVIDENDS 1
---------
NET INCOME FOR COMMON STOCK $33
=========
<PAGE>
PUBLIC SERVICE COMPANY OF OKLAHOMA
STATEMENT OF RETAINED EARNINGS
FOR THE TWELVE MONTHS MARCH 31, 1997
UNAUDITED
(Millions)
RETAINED EARNINGS AT MARCH 31, 1996 $149
Add: Net income (loss) for common stock 33
---------
182
Deduct: Common stock dividends 28
---------
RETAINED EARNINGS AT MARCH 31, 1997 $154
=========
<PAGE>
PUBLIC SERVICE COMPANY OF OKLAHOMA
STATEMENT OF LONG-TERM DEBT OUTSTANDING
AS OF MARCH 31, 1997
UNAUDITED
(Millions)
First mortgage bonds -
Series K, 7-1/4%, due January 1, 1999 $25
Series L, 7-3/8%, due March 1, 2002 30
Series S, 7-1/4%, due July 1, 2003 65
Series T, 7-3/8%, due December 1, 2004 50
Series U, 6-1/4%, due April 1, 2003 35
Series V, 7-3/8%, due April 1, 2023 100
Series W, 6-1/2%, due June 1, 2005 50
Long-term note
Series A-1, 5.89%, due December 15, 2000 10
Series A-2, 5.91%, due March 1, 2001 6
Series A-3, 6.02%, due March 1, 2001 5
Series A-4, 6.02%, due March 1, 2001 9
Series A-5, 6.43%, due March 30, 2000 10
Installment sales agreements -
Pollution control bonds
Series A, 5.9%, due December 1, 2007 35
Series 1996 6.0%, due June 1, 2020 12 *
Unamortized discount (4)
Unamortized costs of reacquired debt (18)
--------
* Rounded down from 12,660,000 $420
--------
<PAGE>
PUBLIC SERVICE COMPANY OF OKLAHOMA
STATEMENT OF PREFERRED STOCK OUTSTANDING
AS OF MARCH 31, 1997
UNAUDITED
(Millions)
4.00% Series, 97,900 shares $10
4.24% Series, 100,000 shares 10
--------
$20
--------
<PAGE>
PUBLIC SERVICE COMPANY OF OKLAHOMA
PRO FORMA ADJUSTMENTS TO BALANCE SHEETS
AS OF MARCH 31, 1997
UNAUDITED
(Thousands)
DR CR
----------------
Deferred charges and other assets 3,036
Cash 3,036
(record PSO's equity investment in Scientech's common stock:
70,000 Class A shares; 436,000 Class B shares)
<PAGE>
PUBLIC SERVICE COMPANY OF OKLAHOMA
STATEMENT OF CHANGES
On April 24, 1997, PSO's business trust, PSO Capital I, sold to underwriters in
a negotiated offering $75 million, 8.00% Series A, Trust Originated Preferred
Securities due April 2037. The proceeds from the sale of these securities were
used by PSO to reimburse PSO's treasury for the cost of reacquiring
approximately $14.5 million of 4.00% Series and 4.24% Series preferred stock, to
provide working capital and for other general corporate purposes. Settlement of
the transaction occurred on May 2, 1997. PSO Capital I will be treated as a
subsidiary of PSO whose only assets are the approximately $73.3 million
principal subordinated debentures issued by PSO. In addition to PSO's obligation
under the subordinated debentures, PSO has also agreed to a obligation which
represents a full and unconditional guarantee of PSO Capital I's trust
obligations.
With the exception of the trust preferred security transaction described above,
there have been no significant changes in the financial statements of Public
Service Company of Oklahoma subsequent to March 31, 1997, other than in the
ordinary course of business. See PSO's Quarterly Report on Form 10-Q (included
with CSW's Combined Quarterly Report on Form 10-Q) for the quarter ended March
31, 1997.
<PAGE>
PUBLIC SERVICE COMPANY OF OKLAHOMA
CAPITALIZATION RATIOS
PER BOOKS AND PRO FORMA
AS OF MARCH 31, 1997
Common
Stock Preferred Long-term
Equity Stock Debt
------------------------------
Per books 52.7% 2.1% 45.1%
Pro forma (NO CHANGE) 52.7% 2.1% 45.1%
<PAGE>
PUBLIC SERVICE COMPANY OF OKLAHOMA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The notes to consolidated financial statements included in Public Service
Company of Oklahoma's Annual Report on Form 10-K (included in Central and South
West Corporation's 1996 Combined Annual Report on Form 10-K) are hereby
incorporated by reference and made a part of this report.
Page
Reference
1996 Combined Annual Report on Form 10-K pages 2-39 through 2-71
<TABLE> <S> <C>
<ARTICLE> OPUR1
<CIK> 0000081027
<NAME> PUBLIC SERVICE COMPANY OF OKLAHOMA
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> MAR-31-1997 MAR-31-1997
<BOOK-VALUE> PER-BOOK PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 1,299,535 1,299,535
<OTHER-PROPERTY-AND-INVEST> 12,769 15,805
<TOTAL-CURRENT-ASSETS> 82,755 79,719
<TOTAL-DEFERRED-CHARGES> 4,089 4,089
<OTHER-ASSETS> 45,700 45,700
<TOTAL-ASSETS> 1,444,848 1,444,848
<COMMON> 157,230 157,230
<CAPITAL-SURPLUS-PAID-IN> 180,000 180,000
<RETAINED-EARNINGS> 153,502 153,502
<TOTAL-COMMON-STOCKHOLDERS-EQ> 490,732 490,732
0 0
19,826 19,826
<LONG-TERM-DEBT-NET> 380,681 380,681
<SHORT-TERM-NOTES> 70,174 70,174
<LONG-TERM-NOTES-PAYABLE> 40,000 40,000
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 0 0
0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0
<LEASES-CURRENT> 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 443,435 443,435
<TOT-CAPITALIZATION-AND-LIAB> 1,444,848 1,444,848
<GROSS-OPERATING-REVENUE> 155,165 0
<INCOME-TAX-EXPENSE> 2,972 0
<OTHER-OPERATING-EXPENSES> 135,515 0
<TOTAL-OPERATING-EXPENSES> 138,487 0
<OPERATING-INCOME-LOSS> 16,678 0
<OTHER-INCOME-NET> (162) 0
<INCOME-BEFORE-INTEREST-EXPEN> 16,516 0
<TOTAL-INTEREST-EXPENSE> 8,753 0
<NET-INCOME> 7,763 0
204 0
<EARNINGS-AVAILABLE-FOR-COMM> 7,559 0
<COMMON-STOCK-DIVIDENDS> 0 0
<TOTAL-INTEREST-ON-BONDS> 7,011 0
<CASH-FLOW-OPERATIONS> (1,654) 0
<EPS-PRIMARY> 0.00 0.00
<EPS-DILUTED> 0.00 0.00
</TABLE>
STOCK PURCHASE AGREEMENT
AMONG
DR. LAWRENCE J. YBARRONDO AND CERTAIN RELATED TRUSTS
AND FAMILY MEMBERS
AND
PUBLIC SERVICE COMPANY OF OKLAHOMA
Dated as of June 2, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS
ARTICLE II PURCHASE AND SALE OF PURCHASED SECURITIES
SECTION 2.1 Purchase and Sale of Purchased Securities
SECTION 2.2 Closing
SECTION 2.3 Escrow
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
SELLERS
SECTION 3.1 Organization and Good Standing
SECTION 3.2 Authorization
SECTION 3.3 Enforceability
SECTION 3.4 Capitalization
SECTION 3.5 Subsidiaries
SECTION 3.6 Consents
SECTION 3.7 Reports and Financial Statements; Undisclosed
Liabilities
SECTION 3.8 Absence of Certain Developments
SECTION 3.9 Liens
SECTION 3.10 Indebtedness to and from Officers, Directors and
Others
SECTION 3.11 Insurance
SECTION 3.12 Tax Returns
SECTION 3.13 [Intentionally Left Blank]
SECTION 3.14 Title to Assets
SECTION 3.15 Material Contracts and Obligations
SECTION 3.16 Real Property - Owned
SECTION 3.17 Real and Personal Property - Leased
SECTION 3.18 Proprietary Rights
SECTION 3.19 Necessary Property; Condition of Property
SECTION 3.20 Necessary Licenses and Permits
SECTION 3.21 Compliance with Law
SECTION 3.22 Environmental Compliance
SECTION 3.23 Litigation
SECTION 3.24 No Material Adverse Changes
SECTION 3.25 Employee Benefit Plans
SECTION 3.26 Withholdings; Contracts; Labor Relations
SECTION 3.27 Governmental Regulations
SECTION 3.28 Corporate Documents, Books and Records
SECTION 3.29 Broker Costs
SECTION 3.30 Disclosure
<PAGE>
SECTION 3.31 Certain Agreements of Officers and Employees
SECTION 3.32 Registration Rights
ARTICLE IV PURCHASER'S REPRESENTATIONS
SECTION 4.1 Investment Intent
SECTION 4.2 Authorization
SECTION 4.3 Enforceability
SECTION 4.4 Exemption
SECTION 4.5 Restrictions on Resale
SECTION 4.6 Broker Costs
ARTICLE V CONDITIONS TO PURCHASER'S OBLIGATION
TO PURCHASE
SECTION 5.1 Related Agreements
SECTION 5.2 Charter Documents; Good Standing Certificates
SECTION 5.3 Proof of Corporate Action
SECTION 5.4 Incumbency Certificate
SECTION 5.5 Legal Opinions
SECTION 5.6 Legality; Governmental and Other Authorizations
SECTION 5.7 Due Diligence
SECTION 5.8 General
ARTICLE VI CONDITIONS TO THE SELLERS' OBLIGATIONS
SECTION 6.1 Representations
SECTION 6.2 Related Agreements
ARTICLE VII OPTION
SECTION 7.1 Grant of Option
SECTION 7.2 Exercise of Option
SECTION 7.3 Transfer or Shares
SECTION 7.4 No Rights as Shareholders
SECTION 7.5 Transfer or Assignment
SECTION 7.6 Adjustments for Stock Splits, Stock Dividends,
Recapitalizations, Automatic Conversion, etc.
SECTION 7.7 Adjustment for Reorganization, onsolidation,
Mergers, etc.
SECTION 7.8 Cooperation
-ii-
<PAGE>
ARTICLE VIII INDEMNITY
SECTION 8.1 Indemnification
SECTION 8.2 Survival of Obligations
ARTICLE IX GENERAL
SECTION 9.1 Notice
SECTION 9.2 Survival and Termination of Covenants,
Agreements, Representations and Warranties
SECTION 9.3 Amendments and Waivers
SECTION 9.4 Entire Agreement
SECTION 9.5 Governing Law
SECTION 9.6 Jurisdiction and Venue
SECTION 9.7 Successors and Assigns
SECTION 9.8 Headings
SECTION 9.9 Attorneys' Fees
SECTION 9.10 Severability
SECTION 9.11 Pronouns and Plurals
SECTION 9.12 Further Action
SECTION 9.13 Waiver
SECTION 9.14 Counterparts
SECTION 9.15 Construction
SECTION 9.16 Expenses
LIST OF EXHIBITS
EXHIBIT A Form of Articles of Incorporation
EXHIBIT B Form of Escrow Agreement
EXHIBIT C Form of Shareholders' Agreement
EXHIBIT D Form of Registration Rights Agreement
EXHIBIT E Form of Opinion of Sellers' Counsel
EXHIBIT F Form of Opinion of Company's Counsel
LIST OF SCHEDULES
SCHEDULE 2.1 Sellers
SCHEDULE 3.4(a) Capitalization and Ownership
SCHEDULE 3.4(b) Outstanding Rights and Options
SCHEDULE 3.5 Subsidiaries
SCHEDULE 3.6 Consents
-iii-
<PAGE>
SCHEDULE 3.7 Financial Statements
SCHEDULE 3.8 Certain Developments
SCHEDULE 3.9 Liens
SCHEDULE 3.10 Indebtedness to Officers and Directors
SCHEDULE 3.11 Insurance-Exceptions
SCHEDULE 3.15 Contracts
SCHEDULE 3.17 Real and Personal Property Leased
SCHEDULE 3.18 Proprietary Rights-Exceptions
SCHEDULE 3.20 Licenses-Exceptions
SCHEDULE 3.21(a) Violations of Law
SCHEDULE 3.21(b) Licenses
SCHEDULE 3.23 Litigation-Exceptions
SCHEDULE 3.24 Material Adverse Changes
SCHEDULE 3.25 Employee Benefit Plans
SCHEDULE 3.26 Employment Agreements
SCHEDULE 3.31(b) Certain Departing Employees
SCHEDULE 3.31(c) Key Employees
SCHEDULE 7.7 Option Securities Owned by Sellers
-iv-
EXHIBIT 5
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement") as of June 2, 1997, among
DR. LAWRENCE J. YBARRONDO and his Related Trusts and Family Members listed on
the signature page hereto (collectively the "Sellers", and individually, a
"Seller"); and PUBLIC SERVICE COMPANY OF OKLAHOMA, an Oklahoma corporation ("the
Purchaser").
WITNESSETH:
WHEREAS, Sellers own, in the aggregate, 1,018,329 shares of the Common
Stock, par value, $0.01 per share, of SCIENTECH, Inc., an Idaho Corporation (the
"Company"), all of which will be (upon the effectiveness of the amendment to the
Company's Articles of Incorporation described herein) Class A Voting Common
Stock; and
WHEREAS, the Sellers wish to sell to Purchaser, and Purchaser wishes to
purchase from Sellers, an aggregate of 506,000 shares of Common Stock of the
Company, of which amount 70,000 shares shall be Class A Voting Common Stock, and
436,000 shares shall be of Class B Nonvoting Common Stock; and
WHEREAS, Purchaser wishes to receive from Sellers, and Sellers wish to
grant to Purchaser, an option to purchase 206,000 shares of Common Stock from
Sellers, not later than September 2, 1998, certain additional shares of the
Common Stock of the Company;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
ARTICLE I
DEFINITIONS
For all purposes of this Agreement the following terms shall have the
meanings set forth in this Article I:
"Affiliate" means, as applied to the Company or any other specified
Person, any Person directly or indirectly controlling, controlled by or under
direct or indirect common control with the Company (or other specified Person)
and shall also include (a) any Person who is a director or beneficial owner of
at least 5% of the then outstanding equity securities of the Company (or other
specified Person) and Family Members of any such Person, (b) any Person of which
the Company (or other specified Person) or an Affiliate (as defined in clause
(a) above) of the Company (or other specified Person) shall, directly or
indirectly, either beneficially own at least 10% of the then outstanding equity
securities or constitute at least a 10% equity participant, and (c) in the case
of a specified Person who is an individual, any Family Member of such Person.
"Articles of Incorporation" means the Amended and Restated Articles of
Incorporation of the Company in the form of Exhibit A.
<PAGE>
"Balance Sheet" means the balance sheet referred to in the definition
of "Financial Statements".
"Balance Sheet Date" means the date of the latest Balance Sheet.
"Broker Costs" means any and all costs, fees and expenses of any
broker, finder or placement agent incurred by the Sellers or the Purchaser in
connection with the transactions contemplated herein.
"Capital Stock" means, as to any Person that is a corporation, the
authorized shares of such Person's capital stock, including all classes of
common, preferred, voting and nonvoting capital stock, and, as to any Person
that is not a corporation or an individual, the ownership interests in such
Person, including, without limitation, the right to share in profits and losses,
the right to receive distributions of cash and property, and the right to
receive allocations of items of income, gain, loss, deduction and credit and
similar items from such Person, whether or not such interests include voting or
similar rights entitling the holder thereof to exercise control over such
Person.
"Class A Stock" means the Class A Voting Common Stock, par value $0.01
per share, of the Company.
"Class B Stock" means the Class B Nonvoting Common Stock, par value
$0.01 per share, of the Company.
"Closing" has the meaning given such term in Section 2.2 of this
Agreement.
"Closing Date" has the meaning given such term in Section 2.2 of this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the Class A Stock and the Class B Stock.
"Company" means SCIENTECH, Inc., an Idaho corporation. It shall also
include its predecessor companies and any Subsidiaries which may now exist or be
established in the future.
"Contracts" has the meaning set forth in Section 3.15 of this Agreement.
"Employee Benefit Plan" means any employee benefit plan within the
meaning of ss.3(3) of ERISA maintained or contributed to by the Company or any
ERISA Affiliate, other than a Multiemployer Plan.
"Environmental Laws" has the meaning given such term in Section 3.22(c)
of this Agreement.
-2-
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, any
successor statute of similar import, and the rules and regulations thereunder,
collectively, and from time to time amended and in effect.
"ERISA Affiliate" means any Person which is treated as a single
employer with the Company under ss. 414 of the Code.
"Escrow Agent" Shall mean that individual identified as Escrow Agent in
the Escrow Agreement.
"Escrow Agreement" means that Escrow Agreement among Sellers, Purchaser
and the Escrow Agent in the form of Exhibit B hereof.
"Escrow Shares" means 506,000 shares of Common Stock deposited by
Sellers with the Escrow Agent pursuant to the Escrow Agreement and Section 2.3
hereof.
"Family Member" means, as applied to any individual, such individual's
spouse, or such individual's child, and each trust created for the exclusive
benefit of one or more of them.
"Financial Statements" means the audited balance sheet and statement of
income of the Company for the fiscal year ended January 31, 1996 and the
unaudited related balance sheet as of March 28, 1997 (the "Balance Sheet") and
statement of income for the period then ended for the Company.
"Founder" means Dr. Lawrence J. Ybarrondo or any of his Family Members.
"Generally accepted accounting principles" or "GAAP" means accounting
principles which are (a) consistent with the principles promulgated or adopted
by the Financial Accounting Standards Board and its predecessors and other
recognized principle setting bodies, in effect from time to time, (b) applied on
a basis consistent with prior periods, and (c) such that a certified public
accountant would, insofar as the use of accounting principles is pertinent, be
in a position to base an opinion as to financial statements in which such
principles have been properly applied.
"Guaranteed Pension Plan" means any employee pension benefit plan
within the meaning of ss.3(2) of ERISA maintained or contributed to by the
Company or any ERISA Affiliate, the benefits of which are guaranteed on
termination in full or in part by the Pension Benefit Guaranty Corporation
pursuant to Title IV of ERISA, other than a Multiemployer Plan.
"Hazardous Substance" has the meaning given such term in Section
3.22(b) of this Agreement.
"Indebtedness" means all obligations, contingent and otherwise, which
in accordance with GAAP should be classified on the obligor's balance sheet as
liabilities, or to which reference should be made by footnotes thereto,
including without limitation, in any event and
-3-
<PAGE>
whether or not so classified: (i) all debt and similar monetary obligations,
whether direct or indirect; (ii) all liabilities secured by any mortgage,
pledge, security interest, lien, charge or other encumbrance existing on
property owned or acquired subject thereto, whether or not the liability secured
thereby shall have been assumed; (iii) all guaranties, endorsements and other
contingent obligations whether direct or indirect in respect of Indebtedness or
performance of others, including any obligation to supply funds to or in any
manner to invest in, directly or indirectly, the debtor, to purchase
Indebtedness, or to assure the owner of Indebtedness against loss, through an
agreement to purchase goods, supplies or services for the purpose of enabling
the debtor to make payment of the Indebtedness held by such owner or otherwise,
and (iv) obligations to reimburse issuers of any letters of credit.
"Intangible Property" has the meaning given such term in Section 3.18
hereof.
"Licenses" has meaning given such term in Section 3.20 hereof.
"Lien" means (a) any encumbrance, mortgage, pledge, lien, charge or
other security interest of any kind upon any property or assets of any
character, or upon the income or profits therefrom; (b) any acquisition of or
agreement to have an option to acquire any property or assets upon conditional
sale or other title retention agreement, device or arrangement (including a
capitalized lease); or (c) any sale, assignment, pledge or other transfer for
security of any accounts, general intangibles or chattel paper, with or without
recourse.
"Material Adverse Effect" has the meaning given such term in Section
3.24 hereof.
"Multiemployer Plan" means a multiemployer plan within the meaning of
Section 3(37) of ERISA.
"Option Securities" means those shares of Common Stock of the Company
owned by Sellers which the Purchaser has an option to buy, pursuant to Article
VII of this Agreement.
"Per Share Price" has the meaning given such term in Section 2.1
hereof.
"Person" means an individual, partnership, corporation, association,
trust, joint venture, unincorporated organization, and any government,
governmental department or agency or political subdivision thereof.
"Purchased Securities" means an aggregate of 70,000 shares of Class A
Stock and 436,000 shares of Class B Stock to be purchased pursuant to this
Agreement.
"Purchase Price" has the meaning given such term in Section 2.1.
"Purchaser" means Public Service Company of Oklahoma, an Oklahoma
corporation.
-4-
<PAGE>
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of the date hereof among the Company, the Purchaser, and certain
shareholders of the Company in the form of Exhibit D hereto.
"Related Agreements" means the Articles of Incorporation, Escrow
Agreement, Shareholders' Agreement, and Registration Rights Agreement.
"Related Trusts" shall mean, collectively, the Ybarrondo Family Trust
B, the Ybarrondo Family Trust C-1, and the Ybarrondo Family Trust C-2, each
with Dr. L.J.Ybarrondo as Trustee.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Securities and
Exchange Commission thereunder, all as the same shall be in effect at the time.
"Sellers" shall mean the persons listed on Schedule 2.1.
"Shareholders' Agreement" means the Shareholders' Agreement dated as of
the date hereof among the Sellers, certain additional shareholders of the
Company, the Company and Purchaser, in the form of Exhibit C hereto.
"Subsidiary" means any Person which the Company now or hereafter shall
at the time own, directly or indirectly through a subsidiary, at least a
majority of the outstanding capital stock (or other beneficial interest)
entitled to vote generally; and the term "Subsidiaries" shall mean all of such
Persons collectively.
"Taxes" means (A) all net income, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property or windfall
profits taxes, or other taxes of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts imposed by any taxing
authority (domestic or foreign) upon the Company with respect to all periods or
portions thereof ending on or before the date hereof and/or (B) any liability of
the Company for the payment of any amounts of the type described in the
immediately preceding clause (A) as a result of being a member of an affiliated
or combined group.
ARTICLE II
PURCHASE AND SALE OF PURCHASED SECURITIES
2.1 Purchase and Sale of Purchased Securities. Subject to all of the
terms and conditions hereof and in reliance on the representations and
warranties set forth or referred to herein, at the Closing the Purchaser agrees
to purchase and the Sellers agree to sell the number of shares of Purchased
Securities set forth opposite each Seller's name in Schedule 2.1, at the price
of Six Dollars ($6.00) per share (the "Per Share Price"), or an aggregate price
of Three Million Thirty Six Thousand Dollars ($3,036,000) (the "Purchase
Price").
-5-
<PAGE>
2.2 Closing. The closing of the purchase and sale of the Purchased
Securities (the "Closing") will take place at the offices of the Company, at
8:00 a.m. Mountain Time on Monday, June 2, 1997, or at such other place, time
and date as the parties hereto may agree upon (the "Closing Date"). At the
Closing, the Sellers shall deliver to the Escrow Agent, the certificates
representing the Purchased Securities, properly endorsed in the name of
Purchaser, and the Purchaser shall deliver to the Escrow Agent the Purchase
Price by wire transfer, both to be held by the Escrow Agent, as provided in the
Escrow Agreement in the form of Exhibit B hereto.
2.3 Escrow. The obligation of the Purchaser to consummate the purchase
and the sale of the Purchased Securities is subject to and contingent upon
approval by the Securities and Exchange Commission ("SEC") under the Public
Utility Holding Company Act, of 1935, as amended, of the transactions provided
for in this Agreement without the imposition of any additional requirements or
conditions deemed to be material and adverse by the Purchaser in its sole
discretion. Pending consideration by the SEC of an application for such
approval, Purchaser and Sellers agree to deposit the Purchase Price and the
Escrow Shares with the Escrow Agent pursuant to the terms of the Escrow
Agreement. During the term of the Escrow Agreement, Sellers shall retain all
voting, dividend and distribution or other rights as a shareholder of the
Company with respect to the Escrow Shares.
(a) In the event the SEC disapproves of the purchase and sale
hereunder and the transactions contemplated hereby, or in the event no approval,
meeting the requirements set forth above in this Section 2.3, or denial is
received from the SEC within 75 days from the date hereof (or such later date as
may be agreed to in writing by Purchaser and Dr. L.J. Ybarrondo and communicated
to the Escrow Agent), (i) the Escrow Shares shall be returned to Sellers, (ii)
the Purchase Price shall be returned to Purchaser, (iii) this Agreement and all
Related Agreements shall be rescinded, and (iv) neither Purchaser nor Sellers
shall have any liability to the other whatsoever, except as otherwise provided
in Section 9.16.
(b) In the event of SEC approval, meeting the requirements set
forth above in this Section 2.3, of the purchase and sale hereunder and the
transactions contemplated hereby is completed within the time period described
above (i) Escrow Agent shall cause the Escrow Shares to be converted to
Purchased Securities in the name of the Purchaser, (ii) the Purchased Securities
shall be delivered to the Purchaser, (iii) the Purchase Price shall be paid to
Sellers, and (iv) this Agreement and all Related Agreements shall continue in
full force and effect.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
In order to induce the Purchaser to enter into this Agreement, the
Sellers hereby make the following representations and warranties to the
Purchaser, jointly and severally:
3.1 Organization and Good Standing. The Company is duly organized,
validly existing and in good standing in its jurisdiction of incorporation
and is duly qualified as a foreign
-6-
<PAGE>
corporation and authorized to do business in all other jurisdictions in which
the nature of its business or property makes such qualification necessary and
where the failure to so qualify would have a Material Adverse Effect.
3.2 Authorization. With respect to each Seller, the execution, delivery
and performance by the Seller of this Agreement and of each Related Agreement to
which the Seller is a party, and the sale by the Seller of the Purchased
Securities hereunder: (a) are within the Seller's power and authority; (b) have
been duly authorized by all necessary action; and (c) do not and will not
conflict with or result in any breach of any law, regulation, order, judgment,
writ, injunction, license, permit, agreement or instrument to which the Seller
is subject.
3.3 Enforceability. With respect to each Seller, the execution and
delivery by the Seller of this Agreement and of each of the Related Agreements
to which the Seller is a party, will result in legally binding obligations of
the Seller, enforceable against the Seller in accordance with the respective
terms and provisions hereof and thereof.
3.4 Capitalization.
(a) As soon as is reasonably practicable after Closing, the
Company shall amend its Articles of Incorporation in the form of Exhibit A. Upon
the filing of Exhibit A with the Idaho Secretary of State, the authorized
Capital Stock of the Company shall consist solely of 7,000,000 shares of Common
Stock, $0.01 par value per share, consisting of 6,000,000 shares of Class A
Voting Common Stock and 1,000,000 shares of Class B Nonvoting Common Stock.
Schedule 3.4(a) sets forth a table indicating the capitalization of the Company
immediately prior to the execution of this Agreement. All of the issued shares
of Capital Stock of the Company are issued and owned by the Persons listed on
Schedule 3.4(a) and have been duly authorized, are validly issued and
outstanding and are fully paid and non-assessable.
(b) Except as set forth on Schedule 3.4(b), there are no
material outstanding rights (either preemptive or other) or options to subscribe
for or purchase from the Company, or any material warrants or other agreements
providing for or requiring the issuance or purchase by the Company of, any
Capital Stock or any securities convertible into or exchangeable, for, or
exercisable into, its Capital Stock or any material voting trusts, proxies or
agreements relating to the voting of the Company's Capital Stock. For purposes
of this Section 3.4(b), "material" shall mean any agreement or agreements which,
individually or in the aggregate, would affect more than 5,000 shares of Capital
Stock of the Company.
3.5 Subsidiaries. All the Company's Subsidiaries are listed on
Schedule 3.5.
3.6 Consents. Except as set forth on Schedule 3.6, except as otherwise
required under applicable federal and state Securities Laws, the execution,
delivery and performance by the Sellers of this Agreement and of each Related
Agreement to which they are parties, the sale of the Purchased Securities, the
grant of the Option, and the sale of the Option Securities pursuant to the
exercise of the Option, do not and will not require the approval or consent of,
or any filing with, any governmental authority or agency or any other Person.
-7-
<PAGE>
3.7 Reports and Financial Statement; Undisclosed Liabilities.
(a) Complete and correct copies of the Financial
Statements are attached hereto as Schedule 3.7.
(b) Except as otherwise specifically disclosed therein, each
of the audited Financial Statements as of January 31, 1997 and for the year then
ended was prepared in accordance with GAAP applied on a basis consistent with
prior periods except as otherwise stated therein; each of the balance sheets
included in the audited Financial Statements fairly presents the financial
condition of the Company as at the close of business on the date thereof; and
each of the statements of income included in the audited Financial Statements
fairly presents the results of operations of the Company for the fiscal period
then ended. The Company has no liabilities or obligations of any nature, whether
absolute, accrued, contingent or otherwise, which are not fully reflected or
reserved against in audited Financial Statements, except for liabilities that
may have arisen in the ordinary and usual course of business and consistent with
past practice and that individually or in the aggregate do not have and could
not reasonably be expected to have a Material Adverse Effect.
(c) To the best of the Sellers' knowledge, except as otherwise
specifically disclosed therein, the Balance Sheet of the Company has been
prepared by management of the Company in good faith and in accordance with GAAP,
consistently applied. To the best of the Sellers' knowledge, the Company will
not have any material liabilities, contingent or otherwise, which are not
referred to in such Balance Sheet or in the notes thereto other than liabilities
incurred in the ordinary course of the Company's business since the Balance
Sheet Date, and liabilities not required to be disclosed in accordance with
GAAP.
(d) Since the Balance Sheet Date, there has been no material
adverse change in the business, assets, financial condition or prospects of the
Company.
3.8 Absence of Certain Developments. Except for entering into
this Agreement and except as disclosed on Schedule 3.8 hereof, since the
Balance Sheet Date:
(a) Except for minor variations which do not, either
individually or in the aggregate, have a material adverse effect on Purchaser's
rights, the Company has not whether or not in the ordinary course of business:
(i) issued any Capital Stock or other equity
interest or any right, options or warrants with respect thereto;
(ii) declared, set aside, paid to a reserve fund or
made any payment or distribution of cash or other property to its
stockholders or equity holders with respect to any class of its Capital
Stock or other equity interest or purchased or redeemed any shares of
its Capital Stock or other equity interests;
(iii) suffered any substantial loss to any of its
material assets;
-8-
<PAGE>
(iv) made any increases in the base compensation,
bonuses, paid vacation time allowed or fringe benefits for its
directors, officers, partners, employees or consultants, except for
normal periodic increases in base compensation for employees made
pursuant to established compensation policies;
(v) suffered damage, destruction or other casualty
loss, or forfeiture of, any property or assets, whether or not covered
by insurance, which has had or may reasonably be expected to have a
Material Adverse Effect;
(vi) made any capital expenditures, additions or
improvements or commitments for the same, except those which do not
exceed $500,000 in the aggregate;
(vii) entered into any contract, commitment or
agreement under which it has outstanding Indebtedness for borrowed
money or for the deferred purchase price of property in excess of
$500,000, or has the right or obligation to incur any such indebtedness
or obligation, or made any loan or advance to any Person other than
advances to employees for business expenses not exceeding $20,000 in
the aggregate;
(viii) paid any bonuses, deferred or otherwise, or
deferred any compensation to any of its directors, officers, partners
or employees except as reflected in the Financial Statements;
(ix) made any material change in accounting
procedures, policies or practices;
(x) mortgaged or pledged any of its properties or
assets, tangible or intangible, or subjected them to any Lien, except
Liens for current property taxes not yet due and payable and Liens on
personal property created in connection with equipment leases,
installment purchase contracts, conditional sales contracts, purchase
money mortgages and the like to secure Indebtedness incurred to acquire
property not exceeding $500,000 in the aggregate;
(xi) entered into any agreement or arrangement
granting any rights to purchase or lease any of its assets, properties
or rights or requiring the consent of any Person to the transfer,
assignment or lease of any such assets, properties or rights; or
(xii) entered into any agreement or understanding
to do any of the foregoing.
(b) Other than in the ordinary course of business
consistent with past practice, the Company has not:
(i) sold, leased, subleased, assigned or
transferred any of its tangible or intangible properties or assets, or
canceled, waived or compromised any debts or claims;
-9-
<PAGE>
(ii) entered into any other material transaction,
or any amendment of any contract, lease, agreement or license which is
material to its business; or
(iii) entered into any agreement or understanding
to do any of the foregoing.
3.9 Liens. The Company has no Liens upon any of its properties other
than the Liens which are listed on Schedule 3.9 hereto and Liens on personal
property created in connection with equipment leases, installment purchase
contracts, conditional sales contracts, purchase money mortgages and the like to
secure Indebtedness incurred to acquire property not exceeding $500,000 in the
aggregate.
3.10 Indebtedness to and from Officers, Directors and Others. Except as
set forth on Schedule 3.10 hereto, the Company is not indebted to any Founder,
director, officer, partner, manager, employee or consultant of the Company, or
to any Affiliate of the Company, except for amounts due as normal salaries,
wages or reimbursement of ordinary business expenses or routine employee
advances for expenses, which business expenses and employee advances do not
exceed $100,000 in the aggregate for all such Founders, directors, officers,
partners, managers, employees and consultants and not exceeding $15,000 for any
such Person. Except as set forth on Schedule 3.10, no Founder, director,
officer, partner, manager, employee or consultant of the Company nor any
Affiliate of the Company, is now, or on the Closing Date will be, indebted to
the Company except for ordinary business expense advances.
3.11 Insurance. A certificate of insurance listing all policies of
title, liability, fire, worker's compensation and other forms of insurance
(including bonds) insuring the properties, assets and operations of the business
of the Company has been provided to the Purchaser. Except as set forth on
Schedule 3.11 hereto, all such policies are in full force and effect, have been
underwritten by unaffiliated insurers and are sufficient for all applicable
requirements of law. All such policies shall continue in full force and effect
after the Closing Date with respect to occurrences which would have been covered
by such policies prior to the Closing Date, except to the extent the Company's
Board of Directors determines that such policies or coverages should be changed.
3.12 Tax Returns. The Company has filed all Tax returns and reports
which are required to be filed with any foreign, federal, state or local
governmental authority or agency and has paid all Taxes which have become due,
and made adequate provision for the payment of all Taxes that will become due,
under applicable foreign, federal, state or local governmental law or
regulations with respect to the periods in respect of which such returns and
reports were filed, and all assessments of Taxes. The Company and its management
knows of no additional assessments since the date of such returns and reports,
and there will be no additional assessments for which adequate reserves
appearing on the Balance Sheet have not been established. Each of the Company
and its Subsidiaries, if any, has made adequate provisions for all current
Taxes.
3.13 [This section is intentionally left blank].
-10-
<PAGE>
3.14 Title to Assets. The Company owns all of its respective assets,
and has good and marketable title with respect thereto, reflected in the Balance
Sheet of the Company and its Subsidiaries, as at the Balance Sheet Date, subject
to changes in the ordinary course of business since the Balance Sheet Date,
subject to no Liens other than those granted to First Union Bank of Virginia.
3.15 Material Contracts and Obligations.
(a) Attached hereto as Schedule 3.15 is a true, complete and
accurate list, categorized by subject matter, of all of the following material
outstanding contracts, plans, leases, and commitments and other agreements
(collectively "Contracts") entered into by the Company which are in writing or
have been orally agreed to by the Company:
(i) all Contracts for the purchase or sale of
services, materials, products or supplies which involve aggregate
payments by the Company of more than $750,000 or involve aggregate
payments to the Company of more than $750,000, or which were entered
into other than in the ordinary course of business of the Company;
(ii) all Contracts or arrangements providing for
stock options or stock purchases, bonuses, pensions, deferred or
incentive compensation, retirement or severance payments,
profit-sharing, insurance or other benefit plans or programs for the
Founder or any officer, consultant, director or employee of the
Company;
(iii) all Contracts for construction or for the
purchase of real estate, improvements, fixtures, equipment, machinery
and other items which under GAAP constitute capital expenditures and
which individually or in the aggregate for any related group of items
involve expenditures of the Company in excess of $500,000;
(iv) all Contracts relating to the rental or use of
equipment, vehicles, other personal property or fixtures, except for
Contracts individually involving payment of annual rentals or sums less
than $15,000 and in the aggregate for the Company less than $500,000;
(v) all Contracts relating in any way to direct or
indirect indebtedness for borrowed money or evidenced by a bond,
debenture, note or other evidence of indebtedness (whether secured or
unsecured) of or to the Company, including but not limited to,
indebtedness by way of lease or installment purchase arrangement,
guarantee, reimbursement obligations pertaining to letters of credit,
purchase price discount obligations, undertakings on which others rely
in extending credit, or otherwise, and all mortgages, pledges,
conditional sales contracts, chattel and purchase-money mortgages and
other security arrangements with respect to any real estate,
improvements, equipment, other personal property or fixtures, used or
owned by the Company, except in each case for contracts individually
involving less than $100,000;
-11-
<PAGE>
(vi) all Contracts substantially restricting the
Company from engaging in any line of business or competing with any
Person or in any geographical area, or from using or disclosing any
information in its possession (other than routine supplier and customer
confidentiality agreements);
(vii) all license agreements with annual costs in
excess of $250,000, either as licensor or licensee, other than licenses
for software;
(viii) all joint venture Contracts and other
Contracts involving a sharing of profits, revenue or cash flow;
(ix) all Contracts with any Affiliate of the
Company (other than the Related Agreements) and all Contracts not made
in the ordinary course of its business;
(x) all other Contracts, except those which are (A)
cancelable on 30 days' or less notice without any penalty or other
financial obligation or (B) if not so cancelable, involve annual
aggregate payments by or to the Company of $10,000 or less; or
(xi) all written Contracts of employment with any
officer, consultant, director or employee and any such oral Contracts
which are not terminable at will by the Company.
(b) Except as set forth on Schedule 3.15 hereto, all Contracts
required to be disclosed to the Purchaser pursuant to this Section 3.15 are
valid, binding and in full force and effect as to the Company, and neither the
Company nor, to the best of the Sellers's knowledge, any other party thereto, is
in material breach or violation of, or material default under, nor is there any
reasonable basis for a claim of such breach or violation by the Company or such
default by the Company under, the terms of any such Contract, and no event has
occurred which constitutes or, with the lapse of time or the giving of notice or
both, would constitute, such a material breach, violation or default by the
Company.
(c) Set forth on Schedule 3.15(c) is a list of all
Contracts having a funded remaining balance of $750,000 or more.
3.16 Real Property-Owned. The Company does not own any real
property.
3.17 Real and Personal Property - Leased. To the best of the Sellers'
knowledge, set forth in Schedule 3.17 hereto is a true and accurate description
of all real and material personal property leased by the Company, setting forth
(i) the name of the lessor and (ii) a description of the property leased. With
respect to such leases, the property described in such leases is presently used
by the Company as indicated in Schedule 3.17 as lessee under the terms of such
leases, and such leases are in full force and effect, and will be free and clear
of all Liens created by the Company except as set forth in Schedule 3.17 hereto,
and neither the Company is in default of the terms of any such lease in any
material respect nor, to the best of the Sellers'
-12-
<PAGE>
knowledge, is any lessor in default in any material respect under any such lease
nor have any events occurred which, with the giving of notice or the lapse of
time, or both, would be a default under any such lease. The Company has made
available the Purchaser a true and correct copy of all leases set forth on
Schedule 3.17.
3.18 Proprietary Rights. To the best of the Sellers' knowledge, except
as set forth on Schedule 3.18, the Company owns all material patents,
trademarks, trade names, service marks, logos, copyrights, including
applications therefor, inventions, formulas, methods and processes (all such
items being hereinafter referred to as "Intangible Property") presently used by
the Company without any infringement upon the proprietary rights of others; all
material patents, patent applications, registered trademarks, trademark
applications, trade names, service marks, logos, licenses and copyrights used or
owned by the Company in connection with its respective businesses are set forth
on Schedule 3.18 hereto and have been duly registered in, filed in, or issued by
the United States Patent Office, United States Register of Copyrights or the
corresponding offices of other jurisdictions, to the extent necessary to effect
lawful ownership of such intellectual property rights in the name of the
Company, and have been properly maintained or renewed in accordance with all
applicable provisions of applicable law; and Schedule 3.18 accurately sets forth
with respect to each patent, patent application, registered trademark, trademark
application, trade name, service mark, logo, license and copyright owned or used
by the Company in the conduct of its businesses, (i) the date of expiration, if
any, (ii) whether such ownership rights are exclusive and (iii) any licensee of
such rights. No royalties or fees are payable by the Company to any Person by
reason of the ownership or use of any of the Intangible Property. All items of
Intangible Property are valid and in good standing, and they are adequate and
sufficient to permit the Company to conduct its business as presently conducted,
and no other rights of any kind with respect to the Intangible Property are
required by the Company for its operations as presently conducted. Except as set
forth on Schedule 3.18, the Company has the sole and exclusive right to use the
Intangible Property and the Company has not entered into any licenses,
sublicenses or agreements relating to the use by any other Person of any
Intangible Property now in effect, and to the best of Seller's knowledge no
infringement exists upon the Intangible Property by any other Person. Except as
disclosed on Schedule 3.18 hereto, no charge or claim is pending or threatened,
nor has any charge or claim been made against the Company within the past five
years to the effect that the sale of any of its respective products or services
infringes upon or conflicts in any way with any rights or properties of the type
enumerated above owned or held by any other Person.
3.19 Necessary Property; Condition of Property. To the best of the
Sellers' knowledge, the properties and assets owned, leased by or licensed to
the Company, and reflected in the Balance Sheet, constitute all of the real and
personal properties, tangible and intangible, which are necessary, used or
useful in the conduct of its business in the manner and to the extent presently
conducted or as presently contemplated to be conducted. No other material real
or personal properties are required for the conduct of the business of the
Company as presently conducted.
3.20 Necessary Licenses. To the best of the Sellers' knowledge,
except as set forth on Schedule 3.20, the Company has all licenses, permits,
consents, concessions and other
-13-
<PAGE>
authorizations of governmental, regulatory or administrative agencies or
authorities, whether foreign, federal, state, or local (collectively
"Licenses"), required to own and lease its properties and assets and to conduct
its business as now conducted except where the failure to have such Licenses
would not have a Material Adverse Effect. Except as specified in Schedule 3.20
hereto, (or as expressly exempted by Schedule 3.6) no registrations, filings,
applications, notices, transfers, consents, approvals, audits, qualifications,
waivers or other action of any kind is required by virtue of the execution and
delivery of this Agreement, or of the consummation of the transactions
contemplated hereby (a) to avoid the loss of any such License, or any asset,
property or right pursuant to the terms thereof, or the violation or breach of
any law applicable thereto or (b) to enable the Company to hold and enjoy the
same after the Closing Date in the conduct of its business as conducted prior to
the Closing Date.
3.21 Compliance with Law.
(a) To the best of the Sellers' knowledge, except as may be
set forth on Schedule 3.21(a) hereto, the Company is not in default under or in
violation of any law (including, without limitation, laws relating to the
issuance or sale of securities, antitrust, zoning and building codes and
ordinances, occupational safety, the protection of the environment,
transportation, storage or disposal of hazardous waste, anti-pollution and air
and water quality laws), or any licenses, franchises, permits, authorizations or
concessions granted by, or any judgment, decree, writ, injunction or order of,
any governmental or regulatory authority, applicable to its business or any of
its properties or assets, except where such defaults and violations would not,
in the aggregate, have a Material Adverse Effect. The Company has not received
any notification alleging any violations of any of the foregoing within the last
five years with respect to which adequate corrective action has not been taken.
(b) To the best of Sellers' knowledge, no event has occurred
which (i) could result in the Company being found unqualified to hold, or which
permits, or after notice or lapse of time or both would permit, the revocation
or termination of any of the Licenses or the denial of an application for the
renewal thereof or (ii) would result in any impairment of the rights of the
Company as holder of any such License.
(c) To the best of the Seller's knowledge, no present or
former stockholder, officer, director, employee or agent of the Company, has in
order to assist the Company in obtaining or retaining any License or any
business for or with, or directing business to the Company offered, paid,
promised to pay or authorized the payment of any money, or offered, given,
promised to give, or authorized the giving of anything of value to (i) any
officer or employee of any government or any department, agency, instrumentality
thereof, or any person acting in an official capacity for or on behalf of any
such government or department, agency or instrumentality (such an officer or
employee being referred to as a "foreign official"), (ii) any foreign political
party or official thereof or any candidate for foreign political office, or
(iii) any person, while knowing that all or a portion of such money or thing of
value will be offered, given, or promised, directly or indirectly, to any
foreign official, to any foreign political party or official thereof, or to any
candidate for foreign political office, in each case, for purposes of the
following:
-14-
<PAGE>
(A) illegally or corruptly influencing any act or
decision of any such foreign official, political party or official
thereof, or candidate in such person's official capacity, or (ii)
inducing such foreign official, political party or official thereof, or
candidate to do or omit to do any act in violation of the lawful duty
of such person, or
(B) illegally or corruptly inducing such foreign
official, political party or official thereof, or candidate to use such
person's influence with a foreign government or instrumentality thereof
to affect or influence any act or decision of such government or
instrumentality.
There is not now, nor has there ever been, any employment of
or beneficial ownership of the Company by any governmental or political official
in any country in the world.
3.22 Environmental Compliance.
(a) To the best of the Sellers' knowledge, (i) the Company has
not generated, used, transported, treated, stored, released or disposed of, and
has not suffered or permitted anyone else to generate, use, transport, treat,
store, release or dispose of any "Hazardous Substance" (as hereinafter defined)
in violation of any "Environmental Laws" (as hereinafter defined); (ii) there
has not been any generation, use, transportation, treatment, storage, release or
disposal of any Hazardous Substance resulting from the conduct of the Company or
the use of any property or facility by the Company or to the best of the
Sellers's knowledge, any nearby or adjacent properties or facilities, which has
created or might reasonably be expected to create any liability on the part of
the Company under the Environmental Laws or which would require reporting to or
notification by the Company to any governmental entity; (iii) no asbestos which
is or has some reasonable likelihood of becoming friable or polychlorinated
biphenyl or underground storage tank is contained in or located at any facility
owned, leased or used by the Company; and (iv) any Hazardous Substance handled
or dealt with in any way in connection with the business of the Company, whether
before or during the ownership of the Company has been and is being handled or
dealt with in all respects in compliance with the Environmental Laws in effect
at the time such activities were being conducted.
(b) For purposes of this Agreement, the term "Hazardous
Substance" shall mean (but shall not be limited to) substances that are defined
or listed in, or otherwise classified pursuant to, any applicable Environmental
Laws as "hazardous substances," "hazardous materials" "hazardous wastes" or
"toxic substances," or any other formulation intended to define, list or
classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, radioactivity, carcinogenicity, reproductive toxicity
or "EP toxicity," and petroleum and drilling fluids, produced waters and other
wastes associated with the exploration, development, or production of crude oil,
natural gas or geothermal energy.
(c) For purposes of this Agreement, the term "Environmental
Laws" shall mean the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Resources Conservation and Recovery Act
of 1976, as amended, and any applicable statutes, regulations, rules,
ordinances, codes, licenses, permits, orders, approvals,
-15-
<PAGE>
plans, authorizations, concessions, and similar items of all governmental
authorities and all applicable judicial, administrative and regulatory decrees,
judgments and orders, any of which relate to the protection of human health or
the environment from the effects of Hazardous Substances, including, but not
limited to, those pertaining to reporting, licensing, permitting, investigating
and remediating emissions, discharges, releases or threatened releases of
Hazardous Substances into the air, surface water, groundwater or land, or
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Substances.
3.23 Litigation. To the best of the Sellers' knowledge, except as set
forth on Schedule 3.23 hereto, there is no suit, claim, action, proceeding or
investigation pending or threatened against the Company or any of its respective
assets or properties, including each Employee Benefit Plan at law or in equity
or before any governmental authority or instrumentality or before any arbitrator
of any kind, against the Founder, or any management director, officer, key
employee or the holder of more than five percent (5%) of the Capital Stock of
the Company, nor has there occurred any event or does there exist any condition
on the basis of which any litigation, proceeding or investigation might properly
be instituted and there is no reasonable basis for any such suit, claim, action,
proceeding or investigation. Except as set forth on Schedule 3.23 hereto,
neither the Company nor to the best knowledge of the Sellers, any Founder,
management director, officer, key employee or the holder of more than five
percent (5%) of the Capital Stock of the Company, nor, to the best knowledge of
the Sellers, any Employee Benefit Plan has been a party to any such suit, claim,
action, proceeding or investigation during the past two years involving its
business, assets or properties, nor has any such suit, claim, action, proceeding
or investigation been threatened by or against the Company.
3.24 No Material Adverse Changes. Except as set forth on Schedule 3.24
hereto, since the Balance Sheet Date, there has occurred no material adverse
change in the business, assets, properties (tangible and intangible),
operations, condition (financial or otherwise) or liabilities of the Company,
whether or not in the ordinary course of business, whether separately or in the
aggregate with other occurrences or developments, and whether insured against or
not (a "Material Adverse Effect"), and the Sellers have no knowledge of any
occurrence or development which might reasonably be expected to result in any
such Material Adverse Effect.
3.25 Employee Benefit Plans. Except as described on Schedule 3.25, the
Company does not maintain or operate any Employee Benefit Plan nor has any such
Plan been maintained or operated during the past three years. The Company does
not maintain or contribute to any Guaranteed Pension Plan or Multiemployer Plan.
With respect to each Employee Benefit Plan listed on Schedule 3.25, to the
extent applicable:
(a) Each such Employee Benefit Plan has been maintained and
operated in all material respects in compliance with its terms and with all
applicable provisions of the ERISA, the Code and all applicable regulations,
rulings and other authority issued thereunder;
(b) All contributions required by law to have been made under
each such Employee Benefit Plan (without regard to any waivers granted under
Section 412 of the Code)
-16-
<PAGE>
to any fund or trust established thereunder or in connection therewith have
been made by the due date thereof;
(c) Each such Employee Benefit Plan intended to qualify under
Section 401(a) of the Code is the subject of a favorable unrevoked determination
letter issued by the Internal Revenue Service as to its qualified status under
the Code, which determination letter may still be relied upon as to such tax
qualified status, and no circumstances have occurred that would adversely affect
qualified status of any such Employee Benefit Plan;
(d) No Benefit Plan is subject to Title IV of ERISA;
(e) None of such Employee Benefit Plans that are "employee
welfare benefit plans" as defined in Section 3(1) of ERISA provides for
continuing benefits or coverage for any participant or beneficiary of a
participant after such participant's termination of employment, except as
required by applicable law, including section 4980B of the Code or Section 601
of ERISA; and
(f) Neither the Company nor any trade or business (whether or
not incorporated) under common control with the Company within the meaning of
Section 4001 of ERISA has, or at any time has had, any obligation to contribute
to any "multiemployer plan" as defined in Section 3(37) of ERISA.
3.26 Withholdings; Contracts; Labor Relations. The Company has withheld
all amounts required by law or agreement to be withheld by it from the wages,
salaries and other payments to its employees and is not liable for any arrears
of wages or any taxes or penalties for failure to comply with any of the
foregoing. Except as set forth on Schedule 3.26 hereto, the Company is not a
party to any written employment agreement, arrangement or understanding with any
of its officers, employees, partners or shareholders. There are no collective
bargaining agreements covering any of the employees of the Company. The Company
has not breached or otherwise failed to comply in any material respect with any
provision of any collective bargaining agreement or other labor union contract
applicable to any of its employees. No consent of any union (or any similar
group or organization) is required in connection with the consummation of the
transactions contemplated hereby. There are no pending, threatened or
anticipated (a) employment discrimination charges or complaints against or
involving the Company before any federal, state, or local board, department,
commission or agency, (b) unfair labor practice charges or complaints, disputes
or grievances affecting the Company, (c) union representation petitions
respecting the employees of the Company, (d) efforts being made to organize any
of the employees of the Company or (e) strikes, slow downs, work stoppages, or
lockouts or threats thereof affecting the Company.
3.27 Governmental Regulations. The Company is not a "holding company",
or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935, as amended; nor is the Company an "investment company", or an "affiliated
person" or a "principal underwriter" of an "investment company", as such terms
are defined in the Investment Company Act of 1940,
-17-
<PAGE>
as amended. The Company is not now, nor has it been within the past five years,
a "United States real property holding corporation" as defined in Section 897 of
the Code.
3.28 Corporate Documents, Books and Records. Complete and correct
copies of the Articles of Incorporation and by-laws, and of all amendments
thereto, of the Company have been previously made available to the Purchaser,
and no changes in said documents will be made on or before the Closing Date
other than as disclosed to, and concurred to in writing by, the Purchaser. The
minute books of the Company contain accurate records of all meetings and
consents in lieu of meetings of the Board (and its committees) and shareholders
of the Company since incorporation. Except as reflected in such minute books,
there are no minutes of meetings or consents in lieu of meetings of the Board
(or its committees) or of the shareholders of the Company. The books and records
of the Company accurately reflect the transactions to which the Company is a
party or by which its properties are subject or bound, and such books and
records have been properly kept and maintained in all material respects.
3.29 Broker Costs. None of the Sellers are obligated for any
Broker Costs relating to the transactions contemplated by this Agreement.
3.30 Disclosure. No representation, warranty or statement made in this
Agreement, any Related Agreement, or any agreement, certificate, statement or
document furnished by or on behalf of the Sellers in connection with the
purchase of the Purchased Securities or the grant of the Option contains or will
contain any untrue statement of material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein, in light
of the circumstances in which they were made, not misleading.
3.31 Certain Agreements of Officers and Employees.
(a) No officer or key employee of the Company is, or is now
expected to be, in violation of any term of any employment contract, patent
disclosure agreement, proprietary information agreement, noncompetition
agreement, nonsolicitation agreement, or any other contract or agreement or
restrictive covenant relating to the right of any such officer or employee to be
an employee, to be employed by the Company, or because of the nature of the
business conducted or proposed to be conducted by the Company or relating to the
use of trade secrets or proprietary information of others, and to the Sellers'
best knowledge and belief, the continued employment of the Company's officers
and employees does not subject the Company or the Purchaser to any liability
with respect to any of the foregoing matters.
(b) Except as set forth on Schedule 3.31(b), to the best
knowledge of the Sellers, no officer of the Company, nor any key employee of the
Company whose termination, either individually or in the aggregate, would have a
Material Adverse Effect on the Company, has any present intention of terminating
his or her employment with the Company.
(c) For purposes of this Agreement, "key employee" means
any of the Persons described in Schedule 3.31(c).
-18-
<PAGE>
3.32 Registration Rights. Except for the rights granted to the
Purchaser pursuant to the Registration Rights Agreement, no Person has demand or
other registration rights to cause the Company to file any registration
statement under the Securities Act relating to the securities of the Company or
any right to participate in any such registration statement.
ARTICLE IV
PURCHASER'S REPRESENTATIONS
4.1 Investment Intent. The Purchaser hereby represents and warrants to
the Sellers that it is (i) an "accredited investor" as defined in Regulation D
of the Securities Act and (ii) it is acquiring the Purchased Securities and the
Option for investment and not with a view to the distribution thereof.
4.2 Authorization. The Purchaser hereby represents that this Agreement
and the Related Agreements to which it is a party have been executed by a duly
authorized Person on its behalf, and the execution, delivery and performance
hereof and thereof have been duly authorized by all appropriate action.
4.3 Enforceability. The Purchaser hereby represents that the execution
and delivery by the Purchaser of this Agreement and each of the Related
Agreements will result in legally binding obligations of the Purchaser
enforceable against it in accordance with the respective terms and provisions
hereof and thereof.
4.4 Exemption. The Purchaser understands that the Purchased Securities
and Option are not (and any Common Stock acquired on exercise of the Option at
the time of issuance will not be) registered under the Securities Act on the
grounds that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration under the Securities Act
pursuant to Section 4(1) thereof, and that the Company's reliance on such
exemption is predicated on the Purchaser's representations set forth herein.
4.5 Restrictions on Resale. The Purchaser understands that the
Purchased Securities and the Option Securities may not be sold, transferred, or
otherwise disposed of without registration under the Securities Act or an
exemption therefrom, and that in the absence of an effective registration
statement covering such Securities or an available exemption from registration
under the Securities Act, the Purchased Securities and the Option Securities
must be held indefinitely. The Purchaser agrees that in no event will it make a
transfer or disposition of any of the Purchased Securities or the Option
Securities (other than pursuant to an effective registration statement under the
Securities Act), unless and until (i) the Purchaser shall have notified the
Sellers of the proposed disposition and (ii) if requested by the Sellers, such
Purchaser shall have furnished to the Sellers at the expense of the Purchaser or
its transferee, an opinion of counsel reasonably satisfactory to the Sellers to
the effect that such transfer may be made without registration under the
Securities Act.
-19-
<PAGE>
4.6 Broker Costs. The Purchaser is not obligated for any Broker
Costs related to the transaction contemplated by this Agreement.
ARTICLE V
CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE
The Purchaser's obligation to purchase the Purchased Securities
pursuant to Section 2.1 of this Agreement is subject to compliance by the
Sellers with the agreements and representations herein contained, and to the
satisfaction, on or prior to the Closing Date, of the following conditions:
5.1 Related Agreements. Each of the Related Agreements shall have been
executed and delivered in the form provided for herein, and each of the Related
Agreements shall, subject only to the satisfaction of the conditions contained
in the Escrow Agreement, be in full force and effect and no term or condition
thereof shall have been amended, modified or waived except with the prior
written consent of the Purchaser. All covenants, agreements and conditions
contained in the Related Agreements which are to be performed or complied with
on or prior to the Closing Date shall have been performed or complied with in
all material respects, subject to the conditions contained in the Escrow
Agreement.
5.2 Charter Documents; Good Standing Certificates. The Purchaser shall
have received from the Sellers (a) a copy, certified by the Secretary of the
Company to be true and complete as of the Closing Date, of the by-laws thereof;
and (b) a certificate, dated not more than five days prior to the date hereof,
of the relevant governmental authority or other appropriate official of each
state in which the Company is qualified to do business, as to the Company's
corporate good standing in such state or qualification to do business, as the
case may be.
5.3 Proof of Corporate Action. The Purchaser shall have received from
the Company copies certified by the Secretary thereof to be true and complete as
of the Closing Date, of the records of all corporate action taken to authorize
the execution, delivery and performance of each of the Related Agreements to
which the Company is a party.
5.4 Incumbency Certificate. The Purchaser shall have received from the
Company an incumbency certificate, dated the Closing Date, signed by a duly
authorized officer thereof and giving the name and bearing a specimen signature
of each individual who shall be authorized to sign, in the name and on behalf of
the Company, each of the Related Agreements to which the Company is or is to
become a party, and to give notices and to take other action on behalf of the
Company under each of such documents.
5.5 Legal Opinions. The Purchaser shall have received (a) from Egger
Betts Austin Ahrens Treacy, counsel to the Sellers, a favorable opinion
substantially in the form of Exhibit E hereto, and (b) from Moffatt, Thomas,
Barrett, Rock & Fields, counsel to the Company, a favorable opinion in the form
of Exhibit F hereto.
-20-
<PAGE>
5.6 Legality; Governmental and Other Authorizations. The purchase of
the Purchased Securities, the Option, and the Option Securities by the
Purchaser, and the other transactions contemplated herein and in the Related
Agreements, shall have been approved by the Securities and Exchange Commission
as provided in Section 2.3. None of the transactions contemplated herein and in
the Related Agreements shall be prohibited by any law or governmental order or
regulation, nor shall they subject the Purchaser to any penalty, special tax, or
other onerous condition. All other necessary consents, approvals, licenses,
permits, orders and authorizations of, or registrations, declarations and
filings with, any governmental or administrative agency or of or with any other
Person, with respect to any of the transactions contemplated by this Agreement
or any of the Related Agreements, shall have been duly obtained or made and
shall be in full force.
5.7 Due Diligence. The Purchaser shall have completed its legal,
accounting and business due diligence review of the Company and the results
thereof shall have been satisfactory to the Purchaser. Not in limitation of the
foregoing, the Purchaser shall have completed review and been satisfied with all
of the terms, conditions and documentation relating to the capital structure of
the Company, including such amendments to the Company's Articles of
Incorporation, by-laws and other documents as shall be necessary to reflect the
terms of the Purchaser's proposed investment. Such review shall be completed
within two days after Purchaser's receipt of the Financial Statements.
5.8 General. All instruments and legal, governmental, administrative,
corporate and partnership proceedings in connection with the transactions
contemplated by this Agreement and the Related Agreements shall be satisfactory
in form and substance to the Purchaser, and the Purchaser shall have received
copies of all documents, including, without limitation, records of corporate or
other proceedings, the opinion of counsel contemplated in Section 5.5 hereof,
and any consents, licenses, approvals, permits and orders required to be secured
by the Sellers in connection with the transactions contemplated herein or which
the Purchaser may have requested in connection therewith.
ARTICLE VI
CONDITIONS TO THE SELLERS' OBLIGATIONS
The Sellers' obligation to sell the Purchased Securities to the
Purchaser pursuant to this Agreement is subject to compliance by the Purchaser
with the agreements herein contained, and to the satisfaction on or prior to the
Closing Date, of the following conditions:
6.1 Representations. The representations made by the Purchaser in
Article IV hereof shall be true and correct in all material respects when made
and shall be true and correct in all material respects as of the Closing Date.
6.2 Related Agreements. Each of the Related Agreements to which the
Purchaser is a party shall have been executed by the Purchaser. All covenants,
agreements and conditions contained in the Related Agreements which are to be
performed or complied with by the
-21-
<PAGE>
Purchaser on or prior to the Closing Date shall have been performed or complied
with by the Purchaser in all material respects.
ARTICLE VII
OPTION
7.1 Grant of Option. Subject to and conditioned upon receipt by the
Purchaser of SEC approval thereof under the Public Utility Holding Company Act
of 1935, the Purchaser shall have the right, upon the terms and subject to the
conditions set forth in this Article VII, at any time on or after the date
hereof and at or prior to 11:59 pm., Mountain time, on September 2, 1998 (the
"Expiration Time"), but not thereafter, to acquire from Sellers (in the amounts
set forth in Schedule 7.1) all, but not less than all, of 206,000 fully paid and
nonassessable shares of Class B Stock (the "Option Securities"), at a purchase
price per share (the "Option Price") of $9.00 (the "Option"). Such number of
shares, type of security and Option Price are subject to adjustment as provided
herein, and all references to "Option Securities" and "Option Price" herein
shall be deemed to include any such adjustment.
7.2 Exercise of Option. The purchase rights represented by this Option
are exercisable by the Purchaser at any time and from time to time at or prior
to the Expiration Time by delivering notice of exercise in writing to the
Sellers. The closing for the sale of the Option Securities shall occur at 10:00
a.m. Mountain time at the offices of the Company on the fifth day following
delivery of the notice to Sellers. At such closing, the Purchaser shall deliver
the Option Price for the Option Securities thereby purchased (by cash or by
check or bank draft payable to the order of Sellers), and the Sellers shall
deliver certificates evidencing the Option Securities, properly endorsed in the
name of Purchaser or its assignee. If Sellers do not own a sufficient number of
shares of Class B Stock at the time of receipt of such notice, they shall
promptly exercise their right under the Articles of Incorporation to convert a
sufficient number of shares of Class A Stock to Class B Stock to allow them to
perform their obligations hereunder.
7.3 Transfer of Shares. Certificates for shares purchased hereunder
shall be delivered to the Purchaser properly endorsed to Purchaser, within a
reasonable time after the date on which this Option shall have been exercised in
accordance with the terms hereof. The Sellers hereby represent and warrant that
all shares of Option Securities which may be transferred upon the exercise of
this Option will, upon such exercise, be duly and validly authorized and issued,
fully paid and nonassessable and free from all taxes, liens and charges in
respect of the issuance thereof.
7.4 No Rights as Shareholders. This Option does not entitle the
Purchaser to any voting, dividend, distribution or other rights as a
shareholder of the Company with respect to the Option Securities prior to the
exercise hereof.
7.5 Transfer or Assignment. Without the consent of Sellers,
the rights under this Option may be transferred to any direct or indirect
wholly-owned subsidiary of Purchaser's
-22-
<PAGE>
parent corporation, Central and South West Corporation, by providing notice of
transfer to Sellers.
7.6 Adjustment for Stock Splits, Stock Dividends, Recapitalizations,
Automatic Conversion, etc. The Option Price and the number and type of
securities and/or other property to which the Purchaser would be entitled upon
exercise of this Option shall be appropriately and proportionately adjusted to
reflect any stock dividend, stock split, combination of shares,
reclassification, recapitalization, automatic conversion, redemption or other
similar event affecting the number or character of outstanding shares of Common
Stock so that the number and type of securities and/or other property to which
the holder would be entitled upon exercise of this Option shall be equal to that
to which such holder would have been entitled at the time of such event if such
holder had exercised this Option immediately prior thereto.
7.7 Adjustment for Reorganization, Consolidation, Merger, etc. In case
of any consolidation or merger of the Company with or into any other
corporation, entity or person, or any other corporate reorganization, in which
the Company shall not be the continuing or surviving entity of such
consolidation, merger or reorganization, or any transaction in which in excess
of 50% of the company's voting power is transferred, or any sale of all or
substantially all of the assets of the Company (any such transaction being
hereinafter referred to as a "Reorganization"), then, in each case, the holder
of this Option, on exercise or conversion hereof at any time after the
consummation or effective date of such Reorganization, shall receive, in lieu of
the Option Securities transferrable on such exercise prior to the date of such
Reorganization, the stock and other securities and property (including cash) to
which such holder would have been entitled upon the date of such Reorganization
if such holder had exercised this Option immediately prior thereto.
7.8 Cooperation. The Sellers will not take any action, or vote their
shares of Common Stock to cause any amendment of the Company's Articles of
Incorporation or by-laws or to effect any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other action, if the effect of the action would avoid or seek
to avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Sellers, but will at all times in good faith assist
in the carrying out of all the provisions of this Option and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of the holder of the Option against impairment; provided, nothing herein
is intended to conflict with Dr. L.J. Ybarrondo's fiduciary responsibility to
the Company in his capacity as an officer and/or director of the Company, which
at all times shall take priority over the terms of this Section 7.8.
-23-
<PAGE>
ARTICLE VIII
INDEMNITY
8.1 Indemnification.
(a) Notwithstanding any disclosures made in the Schedules hereto,
Dr. L. J. Ybarrondo, Dr. Marilda Ybarrondo, the Ybarrondo Family Trust B, the
Ybarrondo Family Trust C-1, and the Ybarrondo Family Trust C-2 (collectively,
the "Indemnitors") jointly and severally hereby agree to indemnify, exonerate
and hold the Purchaser and its shareholders, officers, directors, employees and
agents (each, an "Indemnitee") free and harmless from and against any and all
actions, causes of action, suits, losses, liabilities, damages and expenses,
including, without limitation, reasonable attorneys' fees and disbursements
(collectively, "Damages"), arising out of or resulting from any failure by the
Sellers to comply with any of their covenants or any breach by the Sellers of
any of their representations and warranties in this Agreement, or any other
agreement contemplated hereby, except where such Damages are caused directly by
the actions of the Indemnitee in violation of its obligations under such
agreements.
(b) Subject to Section 8.1(c) the aggregate liability of the
Indemnitors for claims made under Section 8.1(a) shall not exceed $1,750,000. In
addition to the foregoing, the Indemnitors shall not be liable for any claim
made under Section 8.1(a) unless such claim exceeds $75,000; provided, when the
cumulative claims under Section 8.1(a) exceed $250,000 the Indemnitors shall be
liable for all such claims up to the $1,750,000 general limitation.
(c) The parties acknowledge that Purchaser has a right of
indemnification against the Company under Section 6.1 of the Registration Rights
Agreement that is similar to Purchaser's right of indemnification against the
Indemnitors under Article VIII of this Agreement. Purchaser agrees that its
aggregate recovery of Damages under said Section 6.1 of the Registration Rights
Agreement and Article VIII of this Agreement shall not exceed $3,500,000;
provided, however, the parties further agree that nothing herein shall affect
Purchaser's unconditional right to pursue indemnification against the
Indemnitors (jointly and severally) under Article VIII of this Agreement, the
Company under the Registration Rights Agreement, or any combination thereof, at
Purchaser's sole discretion.
8.2 Survival of Obligations. The obligations of the Sellers under this
Article VIII shall survive the transfer of the Purchased Securities, the Option,
or the Option Securities, and the termination of this Agreement; provided, in no
event may Purchaser initiate an action for indemnification under Section 8.1
after the fifth anniversary of the date of the Agreement.
-24-
<PAGE>
ARTICLE IX
GENERAL
9.1 Notices
(a) All demands, notices, requests, consents and other
communications required or permitted under this Agreement, any Related Agreement
or the Purchased Securities, the Option or the Option Securities shall be in
writing and shall be personally delivered or sent by facsimile machine (with a
confirmation copy sent by one of the other methods authorized in this Section),
commercial (including Fed Ex) or U.S. Postal Service overnight delivery service,
or deposited with the U.S. Postal Service mailed first class, registered or
certified mail, postage prepaid, as set forth below:
If to the Purchaser:
Public Service Company of Oklahoma
c/o CSW Business Ventures
Two West Second Street
Tulsa, Oklahoma 74103
Attention: David Thomison
Telephone: (918) 594-2278
Facsimile: (918) 594-3841
with a copy to:
Doerner, Saunders, Daniel & Anderson
320 South Boston, Suite 500
Tulsa, OK 74103
Attention: H. Wayne Cooper
Telephone: (918) 582-1211
Facsimile: (918) 591-5360
If to Sellers:
Dr. L. J. Ybarrondo
c/o SCIENTECH, Inc.
1690 International Way
Idaho Falls, Idaho 83404
-25-
<PAGE>
with a copy to:
Egger Betts Austin Ahrens Treacy
2300 City Center Bellevue
500 108th Avenue N.E.
Bellevue, Washington 98004
Attention: Ed Ahrens
Tel: (206) 450-3300
Fax: (206) 450-3310
and
Moffatt, Thomas, Barrett, Rock & Fields
101 South Capitol Boulevard
Boise, Idaho 83701
Attention: Paul Street
Tel: 208-345-2000
Fax: 208-385-5384
(b) Notices shall be deemed given upon the earlier to occur of
(i) receipt by the party to whom such notice is directed; (ii) if sent by
facsimile machine, on the day (other than a Saturday, Sunday or legal holiday in
the jurisdiction to which such notice is directed) such notice is sent if sent
(as evidenced by the facsimile confirmed receipt) prior to 4:00 p.m. Mountain
Time and, if sent after 4:00 p.m. Mountain Time, on the day (other than a
Saturday, Sunday or legal holiday in the jurisdiction to which such notice is
directed) after which such notice is sent; (iii) on the first business day
(other than a Saturday, Sunday or legal holiday in the jurisdiction to which
such notice is directed) following the day the same is deposited with the
commercial carrier if sent by commercial overnight delivery service; or (iv) the
fifth day (other than a Saturday, Sunday or legal holiday in the jurisdiction to
which such notice is directed) following deposit thereof with the U..S. Postal
Service as aforesaid. Each party, by notice duly given in accordance therewith
may specify a different address for the giving of any notice hereunder.
9.2 Survival and Termination of Covenants, Agreements, Representations
and Warranties. All covenants, agreements, representations and warranties made
herein or in any other document referred to herein or delivered to any party
pursuant hereto shall be deemed to have been relied on by each such party,
notwithstanding any investigation made by such party or on its behalf. All
representations and warranties made herein or in any of the Related Agreements
shall survive the execution and delivery of this Agreement and of the transfer
of the Purchased Securities, the Option, or Option Securities.
9.3 Amendments and Waivers. Except as otherwise expressly provided
herein, 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
Sellers and the Purchaser. Any amendment or waiver
-26-
<PAGE>
effected in accordance with this Section 9.3 shall be binding upon the Sellers
and the holder of any Purchased Securities sold pursuant to this Agreement.
9.4 Entire Agreement. This Agreement and the other agreements referred
to herein constitute the whole and entire agreement between the parties
pertaining to the subject matter hereof, and supersede all prior agreements or
understandings between the parties with respect thereto. This Agreement may not
be modified except by an instrument in writing signed by all parties.
9.5 Governing Law. The validity, construction and enforcement of, and
the remedies under, this Agreement shall be governed in accordance with the laws
of Idaho, except any choice of law provision of Idaho law shall not apply if the
law of a state or jurisdiction other than Idaho would apply thereby.
9.6 Jurisdiction and Venue. The parties to this Agreement agree that
jurisdiction and venue of any action brought to enforce, or to construe or
determine the validity of, any term or provision contained in this agreement
shall properly lie in the District Court of Bonneville County, Idaho, or the
United States District Court for the District of Idaho, or the District Court of
Tulsa County, Oklahoma, or the United States District Court for the Northern
District of Oklahoma. Such jurisdiction and venue are merely permissive;
jurisdiction and venue shall also continue to lie in any court where
jurisdiction and venue would otherwise be proper. The parties further agree that
the mailing by certified mail, return receipt requested, or the delivery by any
recognized expedited delivery service, of any process required by any such court
shall, when received, constitute valid and lawful service of process against
them, without the necessity for service by any other means otherwise provided by
statute or rule of court.
9.7 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective personal representatives, successors and permitted assigns. No party
may assign its, his or her obligations hereunder without the prior written
consent of all other parties; provided, notwithstanding any provision of this
Agreement or any Related Agreement to the contrary, without prior notice to or
consent of the Sellers, Purchaser may assign all of its rights and obligations
under this Agreement, or any or all of its Purchased Securities, Option, and
Option Securities purchased hereunder, to any Affiliate under the direct or
indirect control of Purchaser's parent corporation, Central and South West
Corporation.
9.8 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
9.9 Attorneys' Fees. If any action is brought to enforce, or to
construe or determine the validity of, any term or provision of this Agreement,
the prevailing party shall be entitled to reasonable attorneys' fees, costs, and
disbursements in addition to any other relief to which such party may be
entitled.
-27-
<PAGE>
9.10 Severability. If any provision of this Agreement is held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
9.11 Pronouns and Plurals. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
9.12 Further Action. The parties to this Agreement shall execute
and deliver all documents, provide all information and take or refrain from
taking action as may be necessary or appropriate to achieve the purposes of this
Agreement.
9.13 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach or any other covenant, duty, agreement or
condition.
9.14 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which shall constitute one and
the same instrument. Any signature delivered by facsimile transmission shall be
deemed a valid and binding signature for all purposes hereof.
9.15 Construction. All parties hereto having participated actively in
the negotiation and drafting of this Agreement, and each party having been
represented by counsel, the terms of this Agreement shall not be construed
against, nor more favorably to, any party, regardless of their responsibility
for its preparation.
9.16 Expenses. The Sellers on the one hand, and the Purchaser on the
other hand, agree to pay their separate costs and expenses (such as travel,
photocopy and telephone expenses and including the fees and expenses of counsel)
in connection with the documentation of the transactions contemplated by this
Agreement and the purchase of the Purchased Securities, and shall not be liable
for the other's expenses; provided, if the transactions contemplated hereby fail
to close for any reason other than breach by Sellers of any of their
representations, warranties or covenants herein, the Purchaser shall pay Sellers
$50,000, as full compensation for and liquidated damages in respect of their
expenses in connection with the transactions contemplated hereby.
-28-
<PAGE>
IN WITNESS WHEREOF, the Sellers and the Purchaser have executed this
Agreement as of the day and year first above written.
"Sellers"
DR. L. J. YBARRONDO
YBARRONDO FAMILY TRUST B
By:
Dr. L. J. Ybarrondo, Trustee
YBARRONDO FAMILY TRUST C-1
By:
Dr. L. J. Ybarrondo, Trustee
YBARRONDO FAMILY TRUST C-2
By:
Dr. L. J. Ybarrondo, Trustee
DR. MARILDA YBARRONDO
DR. ANA-BELEN YBARRONDO
-29-
<PAGE>
MICHEL W. YBARRONDO
LOREN A. YBARRONDO
"Purchaser"
PUBLIC SERVICE COMPANY OF OKLAHOMA
By:
Name:
Title:
-30-
Exhibit 6
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
of
SCIENTECH, Inc.
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned officers of SCIENTECH, Inc., an Idaho
Corporation, (the "Corporation") do hereby certify, pursuant to the provisions
of Sections 30-1-61 and 30-1-62 of the Idaho Business Corporation Act, that by
the consent of the shareholders and directors of said Corporation, dated the 2nd
day of June, 1997, the following Amended and Restated Articles of Incorporation
were adopted, which amend and supersede the prior Articles of Incorporation and
all amendments thereto in their entirety; and the Chief Executive Officer and
Secretary of the Corporation were duly authorized and directed to sign, verify,
file and do all things required by law to carry into effect the following
Amended and Restated Articles of Incorporation:
I.
The name of the Corporation is SCIENTECH, Inc.
II.
The Corporation shall exist in perpetuity.
III.
The purposes for which the Corporation is organized are the transaction
of any or all lawful business for which corporations may be incorporated under
the Idaho Business Corporation Act.
IV.
The aggregate number of shares which this Corporation shall have
authority to issue shall be 7,000,000, consisting of 6,000,000 shares of
nonassessable Class A Voting Common Stock have a par value of one cent ($.01)
per share (the "Class A Common Stock"), and 1,000,000 shares of nonassessable
Class B Nonvoting Common Stock having a par value of one cent ($.01) per share
(the "Class B Common Stock"). Each share of Class A Common Stock shall entitle
its holder to
<PAGE>
one (1) vote. The holders of Class B Common Stock shall not be entitled to vote
on any matter coming before the shareholders of the Corporation for a vote,
except that no amendment to the Corporation's Articles of Incorporation may be
effected without the affirmative vote of holders of a majority of the
outstanding shares of Class B Common Stock, and except as otherwise provided by
law. Each holder of Class A Common Stock shall have the right at any time, at
the option of such holder, to exchange each share of Class A Common Stock,
without the payment of any further consideration, into one (1) share of fully
paid Class B Common Stock, and vice versa.
Except as provided herein with respect to voting rights, each share of
Class A Common Stock and Class B Common Stock (collectively, hereinafter
referred to as "Common Stock") issued and outstanding shall be identical in all
respects, and no dividends shall be paid on any share of the Common Stock unless
the same dividend is paid on all shares of the Common Stock outstanding at the
time of such payment.
V.
The business of this Corporation shall be managed and conducted by a
Board of Directors, consisting of such number as may be designated by the
Bylaws. A majority of the directors must be present at a meeting to constitute a
quorum for the transaction of any business, and the act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
VI.
The Corporation shall, to the fullest extent permitted by Section
30-1-5 of the Idaho Business Corporation Act and to the fullest extent permitted
by Sections 30-1-851 through 859 of the Idaho Business Corporation Act which
becomes effective July 1, 1997, or the indemnification provisions of any
successor statute, indemnify every director, officer, employee or agent and such
person's heirs, executors, administrators, and personal representatives against
all judgments, penalties, fines, settlements and reasonable expenses actually
incurred by the person in connection with any threatened, pending or completed
action suit or proceeding, whether civil, criminal, administrative, or
investigative. The foregoing right of indemnification shall not be exclusive of
any other rights of indemnity to which any such person may be entitled under any
bylaw, agreement, vote of shareholders or disinterested directors or otherwise.
VII.
A director shall not be personally liable to the Corporation or its
shareholders for monetary damages for any action taken, or any failure to take
any action, as a director, except for:
the amount of financial benefit received by a director to
which he/she is not entitled;
<PAGE>
an intentional infliction of harm on the Corporation or the
shareholders;
a violation of Section 30-1-833 of the Idaho Business
Corporation Act; or
an intentional violation of criminal law.
VIII.
Preemptive rights shall not exist with respect to shares of stock or
securities convertible into shares of stock in the Company.
IX.
The right to cumulative voting in the election of directors shall not
exist with respect to shares of the stock of the Company.
X.
The Corporation hereby agrees to abide and be bound by the terms of the
Idaho Business Corporation Act, which becomes effective July 1, 1997.
The foregoing Amended and Restated Articles of Incorporation amend the
original Articles of Incorporation and all amendments thereto by:
Amending Article IV to provide for two classes of Common
Stock, consisting of Class A Voting Common Stock and a Class B
Nonvoting Common Stock, and an additional authorization of 1,000,000
shares of nonassessable nonvoting Common Stock, and to establish the
voting rights and convertibility of the above shares;
Amending Article V to provide that the Board of Directors
shall consist of such number of directors as may be specified in the
Bylaws; and to remove the supermajority of Lawrence J. Ybarrondo.
Adding Articles VI and VII to provide for indemnification of
directors, officers, and certain other persons, and to limit the
liability of directors, to the extent permitted by Idaho law;
Adding Article VIII to provide that there shall not be
preemptive rights with respect to shares of the Corporation;
Adding Article IX to provide that there shall be no cumulative
voting with respect to election of directors; and
<PAGE>
Adding Article X to agree to abide and be bound by the Idaho
Business Corporation Act, which becomes effective July 1, 1997.
Such amendments do effect a change in the stated capital of the
Corporation from 6,000,000 to 7,000,000 shares. The number of shares outstanding
at the time of such amendment was _____________shares, and ____ shares voted
against the amendments.
DATED this ________ day of __________________, 1997.
SCIENTECH, Inc.
By:
Chief Executive Officer
By:
Secretary
<PAGE>
STATE OF IDAHO )
) ss.
County of Bonneville )
DR. L.J. YBARRONDO, being first duly sworn, deposes and says:
That he is the Chief Executive Officer of SCIENTECH, Inc. an
Idaho corporation, and is one of the persons who executed the above and
foregoing Amended and Restated Articles of Incorporation of SCIENTECH, Inc., and
that the facts set forth in said Amended and Restated Articles of Incorporation
are true and correct.
Chief Executive Officer
SUBSCRIBED AND SWORN to before me this _____ day of __________,
1997.
NOTARY PUBLIC FOR IDAHO
Residing at
My Commission Expires
Exhibit 7
ESCROW AGREEMENT
ESCROW AGREEMENT (the "Agreement") made and entered into as of this 2nd
day of June, 1997, by and among PUBLIC SERVICE COMPANY OF OKLAHOMA, an Oklahoma
corporation (the "Purchaser"); DR. L. J. YBARRONDO, and certain of his Related
Trusts and Family Members listed on Schedule A hereto (collectively and
individually, "Sellers"); and FIRST UNION NATIONAL BANK OF VIRGINIA (the "Escrow
Agent"), regarding the purchase and sale of certain Common Stock of SCIENTECH,
Inc., an Idaho corporation ("the Company").
W I T N E S S E T H:
In consideration of the mutual promises, covenants, and conditions
hereinafter set forth, the parties agree as follows:
1. Recitals.
(a) Purchaser and Sellers have entered into a certain Stock
Purchase Agreement of even date (the "Purchase Agreement"), wherein Purchaser
has agreed to purchase and certain of the Sellers have agreed to sell 70,000
shares of Class A Voting Common Stock and 436,000 shares of Class B Nonvoting
Common Stock for a purchase price of $3,036,000 (the "Purchase Price"), which
shall be paid to Sellers in proportion to their ownership of Common Stock as set
forth in Schedule A.
(b) The purchase, sale and transfer under the Purchase
Agreement is subject to and contingent upon approval by the Securities and
Exchange Commission ("SEC") under the Public Utilities Holding Company Act of
1935, as amended, as provided for in the Purchase Agreement.
(c) Under the terms of the Purchase Agreement, the purchase,
sale and transfer of the subject shares may not be completed until the approval
described in Section 1(b) is obtained.
(d) The parties desire to escrow all such shares of Common
Stock and the Purchase Price with Escrow Agent pending such approval.
(e) The Escrow Agent has agreed to hold such shares and funds
and dispense of the property pursuant to the terms and conditions stated herein.
2. Deposit of Purchase Price. Upon execution and delivery of this
Agreement, Purchaser shall forward to the Escrow Agent copies of the executed
Purchase Agreement and all Related Agreements (as defined in the Purchase
Agreement), and a cashier's check or wire transfer in the amount of the Purchase
Price (i.e., $3,036,000). The Escrow Agent will hold such funds received by it
in a special account (the "Escrow Fund") entitled "Scientech 1997 Purchase
Agreement," and will maintain records of the funds deposited pursuant hereto.
<PAGE>
3. Deposit of Escrow Shares. Upon the execution and delivery of this
Agreement, Sellers shall deliver to the Escrow Agent certificates representing
an aggregate of 506,000 shares of Common Stock of the Company (collectively, the
"Escrow Shares"). Such certificates shall be accompanied by stock assignments
separate from the certificates, properly endorsed in favor of Purchaser. Upon
the effectiveness of the amendment to the Company's Articles of Incorporation,
as contemplated by the Purchase Agreement, the Escrow Shares shall become
506,000 shares of Class A Voting Common Stock of the Company. The Sellers shall
also furnish a request to the Company to convert 436,000 of the Escrow Shares
into a like number of shares of Class B Nonvoting Common Stock pursuant to the
terms of Section 7(a). The Escrow Agent shall hold the Escrow Shares and stock
assignments pending receipt of instructions pursuant to Section 7.
4. Deposit of Additional Shares. In the event that the Company shall
issue, whether by way of stock dividend, stock split or otherwise, any
additional common or preferred stock or other securities as a result of or
attributable to the registered ownership of the Escrow Shares, such common or
preferred stock or other securities shall constitute part of the "Escrow Shares"
under this Agreement and, if the same are received by Sellers, they will
immediately upon receipt thereof deposit and deliver the same to Escrow Agent,
together with stock assignments properly signed in favor of Purchaser.
5. Investment of Escrow Fund.
(a) The Escrow Agent will invest the Escrow Fund, and any
interest or income earned from the Escrow Fund, in (i) direct obligations of the
United States of America, and (ii) obligations for which the full faith and
credit of the United States of America is pledged to provide for the payment of
principal and interest, or a money market fund that invests exclusively in said
investments. The Escrow Agent shall not invest any funds in commercial paper.
The maturity date of such investment shall not exceed 30 days from the date of
such investment or reinvestment. All interest or other income earned by virtue
of such investment shall be hereafter referred to as "Escrow Income."
(b) In the event that the Company shall issue any cash
dividends on the Escrow Shares during the term of this Agreement, such dividends
shall be retained by the Escrow Agreement as "Escrow Dividends" under this
Agreement and, if the same is received by Sellers, they will immediately upon
receipt thereof deposit and deliver the same to Escrow Agent.
6. Voting Rights to Escrow Shares. Sellers shall retain all voting
rights with respect to the Escrow Shares during the term of this Agreement.
Purchaser shall have no rights whatsoever with respect to the Escrow Shares
except such rights as may attach, pursuant to Section 7, upon receipt by the
Purchaser of SEC approval of the transactions contemplated by the Purchase
Agreement, as provided in the Purchase Agreement.
7. Payment of Escrow Fund and Delivery of Escrow Shares. Subject to
the conditions set forth below, the Escrow Agent shall liquidate all investments
and pay and disburse the Escrow Fund and the Escrow Shares, as follows:
-2-
<PAGE>
(a) Upon receipt of notice by Purchaser that SEC approval of
the transactions contemplated by the Purchase Agreement has been obtained as
provided in the Purchase Agreement, the Escrow Agent shall deliver to the
Company the certificates representing the Escrow Shares, together with the
Sellers' signed stock assignments and request for conversion of 436,000 shares
of Class A Voting Common Stock into a like number of Class B Nonvoting Common
Stock, and upon the Escrow Agent's receipt of certificates representing 70,000
shares of Class A Voting Common Stock, 436,000 shares of Class B Nonvoting
Common stock, and such additional shares or securities that may have been
deposited with the Escrow Agent pursuant to Section 4, each in the name of
Purchaser (the "Purchased Securities"), Escrow Agent shall promptly deliver:
(i) to the Sellers, the Escrow Fund and all Escrow
Income; and
(ii)to the Purchaser, the certificates evidencing
the Purchased Securities and all Escrow Dividends.
(b) Upon receipt of notice by Purchaser that SEC approval has
been denied, or in the event approval is neither obtained nor denied within 75
days from the date hereof (or such later date as may be agreed to in writing by
Purchaser and Dr. L.J. Ybarrondo and communicated to Escrow Agent), the Escrow
Agent shall promptly deliver:
(i) to the Purchaser, the Escrow Fund and all Escrow
Income; and
(ii) to the Sellers, the certificates representing
the Escrow Shares, all accompanying stock assignments and requests for
conversion, and all Escrow Dividends.
8. Delivery Instructions. All deliveries by the Escrow Agent hereunder
shall be made to the recipient's address provided below unless the Escrow Agent
shall receive written instructions from the recipient at least five (5) days
prior to the date delivery is to be made.
9. Allocation of Purchase Price and Escrow Income Among Sellers. In the
event of payment of the Escrow Fund and the Escrow Income pursuant to Section
7(a), the Sellers shall be entitled to their pro rata share of the Escrow Fund
and the Escrow Income based upon their respective share ownership of Escrow
Shares, as set forth in Schedule A. No Seller shall receive any Escrow Income
until each Seller has furnished a duly executed IRS Form W-9 to the Escrow
Agent.
10. Limitation of Liability of the Escrow Agent. The Escrow Agent, as
part of the consideration for acceptance of this escrow agreement, shall not be
liable for any acts or omissions done in good faith or for any claims, demands,
losses or damages made or suffered by any party to this Agreement, excepting
such as may be arrived at through or caused by its willful misconduct or gross
negligence.
11. Expenses of Escrow Agent. The Escrow Agent shall be entitled to
reimbursement of its normal out-of-pocket expenses including, but not by way of
limitation, the fees and costs of attorneys or agents which it may find
necessary to engage in performance of its duties hereunder, all to be paid by
Purchaser; and the Escrow Agent shall have, and is hereby
-3-
<PAGE>
granted, a prior lien upon any property, cash or assets held hereunder, with
respect to its unpaid fees and nonreimbursed expenses, superior to the interests
of any other persons or entities.
12. Fee of Escrow Agent. A fee of $2,000.00 will be paid by the
Purchaser to the Escrow Agent as compensation for its services hereunder. It is
further agreed that a reasonable additional compensation will be paid to the
Escrow Agent by Purchaser for any unusual, extraordinary services that may be
required to render hereunder.
13. Protection of Escrow Agent. In consideration of this escrow by
Escrow Agent, Escrow Agent, Purchaser and Sellers agree that:
(a) Purchaser and Sellers may examine the Escrow Fund, the
Escrow Shares, the Escrow Dividends, the Escrow Income, or the accounts or other
records of the Escrow Agent relating thereto, at any time during business hours
at the office of Escrow Agent.
(b) Escrow Agent's duties and responsibilities shall be
limited to those expressly set forth in this Agreement, and Escrow Agent shall
not be subject to, nor obliged to recognize, any other agreement between, or
direction or instruction of, any or all of the parties hereto even though
reference thereto may be made herein; provided, however, this Agreement may be
amended at any time or times in accordance with the provisions below.
(c) No assignment of the interest of either of the Purchaser
or Sellers or their successors shall be binding upon Escrow Agent unless and
until written evidence of such assignment in form satisfactory to Escrow Agent
shall be filed with and accepted by Escrow Agent.
(d) In performing its duties hereunder, Escrow Agent may rely
on statements furnished to it by Purchaser, the Company and Sellers, or any
other evidence deemed by Escrow Agent to be reliable, and shall be entitled to
act on the advice of counsel.
(e) If any property held by Escrow Agent hereunder is
attached, garnished, or levied upon under the order of any court, or the
delivery thereof shall be stayed or enjoined by the order of any court, or if
any other order, judgment or decree shall be made or entered by any court any
part of such property, Escrow Agent is hereby expressly authorized to obey and
comply with all writs, orders or decrees so entered or issued, whether with or
without jurisdiction. Escrow Agent shall not be liable to any of the parties
hereto or their successors by reason of compliance with any such writ, order or
decree notwithstanding such writ, order or decree being subsequently reversed,
modified, annulled, set aside or vacated.
(f) Escrow Agent may, in its sole and absolute discretion,
deposit the Escrow Fund, the Escrow Shares, the Escrow Dividends and the Escrow
Income or so much thereof as remains in its hands with the then chief or
presiding judge of the United States District Court whose jurisdiction includes
either Idaho Falls, Idaho, or Tulsa, Oklahoma, and interplead the parties
hereto, and upon so depositing such property and filing its complaint in
interpleader, it shall be relieved of all liability under the terms hereof as to
the property so deposited and shall be entitled to recover in such interpleader
action, from the other parties hereto, its reasonable attorneys' fees and
related costs and expenses incurred in commencing and prosecuting such
-4-
<PAGE>
action and furthermore, the parties hereto for themselves their successors and
assigns, do hereby submit themselves to the jurisdiction of each said Court and
do hereby appoint the then Clerk, or acting Clerk, of each said Court as their
agent for the service of all process in connection with such proceedings.
(g) Notwithstanding anything herein to the contrary, Escrow
Agent shall be under no duty to monitor or enforce compliance by Purchaser or
Sellers with any term or provision of the Purchase Agreement or any other
agreement between the parties. The parties agree to hold Escrow Agent harmless
for actions taken by it in reliance upon statements furnished to it by Purchaser
or Sellers.
14. New Escrow Agent. If Escrow Agent shall decline or cease to act as
escrow agent, the parties shall have a period of 30 days to mutually agree upon
a successor which successor shall be deemed to be Escrow Agent for all purposes
of this Escrow Agreement. If a successor Escrow Agent has not been appointed and
has not accepted such appointment by the end of the 30-day period, Escrow Agent
may apply to a court of competent jurisdiction for the appointment of a
successor Escrow Agent, and the costs, expenses and reasonable attorneys' fees
which Escrow Agent incurs in connection with such a proceeding shall be paid out
of the Escrow Funds.
15. Construction of the Instruments by the Escrow Agent. In accepting
the funds deposited pursuant hereto, it is agreed and understood between the
parties hereto that the Escrow Agent will not be called upon to construe any
contract or instrument in connection herewith and shall be required to act in
respect to deposits herein made only as directed herein.
16. Notices.
(a) All demands, notices, requests, consents and other
communications required or permitted under this Agreement shall be in writing
and shall be personally delivered or sent by facsimile machine (with a
confirmation copy sent by one of the other methods authorized in this Section),
commercial (including FedEx) or U.S. Postal Service overnight delivery service
or deposited with the U.S. Postal Service mailed first class, registered or
certified mail, postage prepaid, as set forth below:
If to the Purchaser:
Public Service Company of Oklahoma
c/o CSW Business Ventures
Two West Second Street
Tulsa, Oklahoma 74103
Attention: David Thomison
Telephone: (918) 594-2278
Facsimile: (918) 594-3841
with a copy to:
-5-
<PAGE>
Doerner, Saunders, Daniel & Anderson
320 South Boston, Suite 500
Tulsa, OK 74103
Attention: H. Wayne Cooper
Telephone: (918) 582-1211
Facsimile: (918) 591-5360
If to Sellers, addressed to them at the addresses set forth on
Schedule A.
with a copy to:
Egger Betts Austin Ahrens Treacy
2300 City Center Bellevue
500 108th Avenue N.E.
Bellevue, Washington 98004
Attention: Ed Ahrens
Tel: (206) 450-3300
Fax: (206) 450-3310
and
Moffatt, Thomas, Barrett, Rock & Fields
101 South Capitol Boulevard
Boise, Idaho 83701
Attention: Paul Street
Tel: 208-345-2000
Fax: 208-385-5384
If to the Escrow Agent:
First Union National Bank of Virginia
Corporate Trust Administration,
901 East Cary Street, 2nd Floor
Richmond, Virginia 23219
Tel: 804-788-9660
Tel: 804-788-9661
(b) Notices shall be deemed given upon the earlier to occur of
(i) receipt by the party to whom such notice is directed; (ii) if sent by
facsimile machine, on the day (other than a Saturday, Sunday or legal holiday in
the jurisdiction to which such notice is directed) such notice is sent if sent
(as evidenced by the facsimile confirmed receipt) prior to 4:00 p.m. Mountain
Time and, if sent after 4:00 p.m. Mountain Time, on the day (other than a
Saturday, Sunday or legal holiday in the jurisdiction to which such notice is
directed) after which such notice is sent; (iii) on the first business day
(other than a Saturday, Sunday or legal holiday in the jurisdiction to which
such notice is directed) following the day the same is deposited with the
commercial carrier if sent by commercial overnight delivery service; or (iv) the
fifth day (other than a Saturday, Sunday or legal holiday in the jurisdiction to
which such notice is
-6-
<PAGE>
directed) following deposit thereof with the U..S. Postal Service as aforesaid.
Each party, by notice duly given in accordance therewith may specify a different
address for the giving of any notice hereunder.
17. Governing Law. The internal law, and not the law of conflicts, of
the State of Idaho shall govern all questions concerning the construction,
validity and interpretation of this Agreement, and performance of the
obligations imposed by this Agreement.
18. Jurisdiction and Venue. The parties hereto agree that any action
brought by either party with respect to this Agreement shall be brought within
the jurisdiction and venue of the courts of the United States of America and the
State of Idaho, in Bonneville County, Idaho.
19. Counterparts. This Agreement may be executed in separate
counterparts, by original or facsimile, each of which will be an original and
all of which taken together will constitute one and the same agreement.
20. Successors and Assigns; Binding Effect. This Agreement shall not be
assigned any party without the prior written consent of all other parties,
except that Purchaser may assign its rights to any entity wholly-owned directly
or indirectly by its parent corporation, Central and South West Corporation.
This Agreement shall be binding upon, and inure to the benefit of, the parties
hereto and their respective heirs, personal representatives, successors and
assigns.
21. Specific Performance. The obligations of the parties hereto
(including the Escrow Agent) are unique in that time is of the essence, and any
delay in performance hereunder by any party will result in irreparable harm to
the other party hereto. Accordingly, either party may seek specific performance
and/or injunctive relief before any court of competent jurisdiction in order to
enforce this Agreement or to prevent violations of the provisions hereof, and
neither party shall object to specific performance or injunctive relief as an
appropriate remedy. The Escrow Agent acknowledges its obligations, as well as
the obligations of Purchaser and Sellers hereunder, are subject to the equitable
remedy of specific performance and/or injunctive relief.
22. Amendment, Waiver, etc. This Agreement shall not be amended,
modified, altered or revoked without the prior written consent of both Purchaser
and Sellers; provided that no amendment or modification will be made to Sections
10 through 16 hereof without the written consent of Escrow Agent.
23. Meaning of Terms. Capitalized terms used but not defined herein
shall have the meanings ascribed to such terms in the Purchase Agreement.
24. Execution of Supplementary Documents. The parties agree, upon the
request of any other party, to execute any agreements, documents or instruments
consistent with this Escrow Agreement which are necessary to consummate the
transactions contemplated in this Escrow Agreement.
25. Invalid Provision. The invalidity or unenforceability of any
particular provision of this Escrow Agreement shall not affect the other
provisions of this Escrow Agreement, and
-7-
<PAGE>
this Escrow Agreement shall be construed as if such invalid or unenforceable
provision was omitted.
26. Entire Agreement. This Escrow Agreement and any documents or
instruments delivered pursuant to this Escrow Agreement constitute the entire
agreement and understanding between the parties and supersede any prior
agreement and understanding relating to the subject matter of this Escrow
Agreement.
27. Construction. All parties hereto having participated actively in
the negotiation and drafting of this Escrow Agreement, and each party having
been represented by counsel, the terms of this Escrow Agreement shall not be
construed against, nor more favorably to, any party, regardless of their
responsibility for its preparation.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
instrument as of the date first written above.
"Purchaser"
PUBLIC SERVICE COMPANY OF OKLAHOMA
By:
Name:
Title:
"Sellers"
DR. L. J. YBARRONDO
YBARRONDO FAMILY TRUST B
By:
Dr. L. J. Ybarrondo, Trustee
YBARRONDO FAMILY TRUST C-1
By:
Dr. L. J. Ybarrondo, Trustee
YBARRONDO FAMILY TRUST C-2
By:
Dr. L. J. Ybarrondo, Trustee
DR. MARILDA YBARRONDO
-9-
<PAGE>
DR. ANA-BELEN YBARRONDO
MICHEL W. YBARRONDO
LOREN A. YBARRONDO
"Escrow Agent"
FIRST UNION NATIONAL BANK OF VIRGINIA
By:
Name:
Title:
-10-
<PAGE>
SCHEDULE A
List of Sellers
Number of Number of Aggregate
Escrow Purchased Securities Purchase Price
Name and Address Shares To Be Purchased for Purchased Securities
Dr. L. J. Ybarrondo 300,000 70,000 Class A
230,000 Class B
300,000 Class A and B $1,800,000
Ybarrondo Family
Trust B
Ybarrondo Family
Trust C-1
Ybarrondo Family
Trust C-2 206,000 206,000 Class B 1,236,000
Dr. Marilda Ybarrondo
Dr. Ana-Belen Ybarrondo
Michel W. Ybarrondo
Loren A. Ybarrondo
The address for notice purposes for each Seller is:
Dr. L. J. Ybarrondo
c/o SCIENTECH, Inc.
1690 International Way
Idaho Falls, Idaho 83404
-11-
Exhibit 8
SHAREHOLDERS' AGREEMENT
THIS SHAREHOLDERS' AGREEMENT ("Agreement") is entered into as of June
2, 1997, by and among SCIENTECH, Inc., a corporation formed under the laws of
Idaho (the "Company"); and the Persons named in Schedule A hereto (the
"Shareholders").
RECITALS
WHEREAS, the Company has outstanding as of the date hereof 2,026,413
shares of Common Stock; and
WHEREAS, each Shareholder has or is expected to have a substantial
investment in the Company by reason of its ownership of the capital stock of the
Company as set forth on Schedule A; and
WHEREAS, the terms "Shareholder" or "Shareholders" as used herein shall
include the parties hereto other than the Company and shall include any future
holder of shares of Common Stock or other equity securities of the Company who
becomes a party to this Agreement; and
WHEREAS, the parties believe that it is in the best interest of the
Company and the Shareholders to make provision for matters relating to the
governance of the Company;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used herein in this Agreement, the following terms shall have the
following respective meanings:
"Affiliate" means, as applied to the Company or any other specified
Person, any Person directly or indirectly controlling, controlled by or under
direct or indirect common control with the Company (or other specified Person)
and shall also include (a) any Person who is a director or beneficial owner of
at least 5% of the then outstanding equity securities of the Company (or other
specified Person) and Family Members of any such Person, (b) any Person of which
the Company (or other specified Person) or an Affiliate (as defined in clause
(a) above) of the Company (or other specified Person) shall, directly or
indirectly, either beneficially own at least 10% of the then outstanding equity
securities or constitute at least a 10% equity participant, and (c) in the case
of a specified Person who is an individual, any Family Member of such Person.
"Approved Management Incentive Plan" shall mean any plan described on
Schedule 3.4(b) of the Stock Purchase Agreement, and any incentive stock plan or
other form of incentive compensation approved by the Company's Board of
Directors and PSO in writing.
<PAGE>
"Articles of Incorporation" means the Amended and Restated Articles of
Incorporation of the Company attached as Exhibit A to the Stock Purchase
Agreement.
"Common Stock" means the Class A Voting Common Stock, par value $.01
per share, and the Class B Nonvoting Common Stock, par value $.01 per share, of
the Company.
"Escrow Agreement" means that Escrow Agreement among Sellers, PSO and
the Escrow Agent named therein in the form of Exhibit B to the Stock Purchase
Agreement.
"Fully Diluted Basis" shall mean with respect to any shares of capital
stock of the Company the aggregate of (a) all of such shares which consist of
Common Stock, and (b) with respect to any other shares which are not Common
Stock, the number of shares of Common Stock into which such shares are
convertible at the time of determination of such Fully Diluted Basis, and (c)
with respect to any options, warrants or other rights to acquire shares of
Common Stock (or securities convertible into or exchangeable for Common Stock)
the maximum number of shares of Common Stock issuable at the time of such
determination in connection with the exercise of any such options, warrants or
other rights to subscribe, convert or exchange.
"Options" shall mean any rights, options, or warrants to purchase
shares of Common Stock from the Company, and securities of any type whatsoever
that are, or may become, convertible into, exercisable, exchangeable, or carry
rights to subscribe for any Common Stock of the Company.
"Person" shall mean an individual, partnership, corporation,
association, trust, joint venture, unincorporated organization and any
government, governmental department or agency or political subdivision thereof.
"PSO" shall mean Public Service Company of Oklahoma, an Oklahoma
corporation.
"Qualified IPO" shall mean a fully underwritten, firm commitment public
offering pursuant to an effective registration statement under the Securities
Act covering the offer and sale by the Company of Common Stock in which the
aggregate net proceeds to the Company after deducting underwriters' discounts
and commissions equals or exceeds $20,000,000 and in which the price per share
of Common Stock offered to the public equals or exceeds $10.00, such price to be
equitably adjusted in the event of any stock dividend, stock split, combination,
recapitalization or other similar event, and the listing of such Common Stock on
a nationally recognized U.S. exchange.
"Sellers" shall mean the persons listed on Schedule 2.1 of the Stock
Purchase Agreement.
"Shareholders" shall have the meaning given such term in the Recitals
to this Agreement.
"Stock Purchase Agreement" means that certain Agreement of even
date between Dr. L. J. Ybarrondo and his Related Trusts and Family Members (as
such terms are defined in the Stock Purchase Agreement) and PSO, as well as the
Exhibits and Schedules thereto when the circumstances so admit.
-2-
<PAGE>
"Transfer" shall mean, with respect to any security of the Company, any
transfer, sale, gift, exchange, assignment, pledge or other disposition by a
Shareholder and in the case of a Shareholder which is not an individual, a
Transfer of shares of Common Stock or other security held by such Shareholder
shall be deemed to have been made if any equity interest in such Shareholder is
directly or indirectly transferred, sold, given, exchanged, assigned, pledged or
disposed of to any other Person.
"Transferee" shall mean any Person who receives shares of Common Stock
by virtue of a Transfer.
ARTICLE II
AFFIRMATIVE COVENANTS OF THE COMPANY AND THE SHAREHOLDERS
2.1 Board Representation and Voting Agreement.
(a) The Shareholders hereby agree to amend the Bylaws of the
Company, and to take all other actions as may be necessary, to establish and
maintain the number of directors of the Board of Directors of the Company at a
minimum of six (6).
(b) For so long as PSO owns 10% or more of the outstanding
Common Stock of the Company on a Fully Diluted Basis, PSO shall have the right
to designate one (1) member of the Board of Directors. The Shareholders hereby
agree to cast their votes for, and the Company shall take all necessary steps to
nominate, the candidate for the Board of Directors designated by PSO, who
initially shall be David M. Thomison.
(c) In the event all parties to this Agreement agree to
increase the number of directors above six, the parties agree to fill such
vacancies only with independent industry executives.
(d) The Company agrees that, without the consent of PSO, it
will not issue any Common Stock on a Fully Diluted Basis at a price lower than
$6.00 per share, proportionately adjusted to reflect any stock dividend, stock
split, combination of shares, reclassification, recapitalization, automatic
conversion, redemption or other similar event affecting the number or character
of outstanding shares of Common Stock, and the Shareholders hereby agree to vote
their shares, and to take all other actions as may be necessary, to cause the
Company to comply with such covenant; provided, the provisions of this Section
2.1(d) shall not apply to (i) Options issued to any employees of the Company
pursuant to any Approved Management Incentive Plan; (ii) Common Stock issued
pursuant to the exercise of Options granted under any Approved Management
Incentive Plan; and (iii) shares of Class A Voting Common Stock issued to any
holder of shares of Class B Stock upon the conversion of any share of Class B
Nonvoting Common Stock to Class A Voting Common Stock, and vice versa;
(e) If at any time the number of authorized but unissued
shares of Class A Voting Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of the Class B Nonvoting Common Stock,
the Company and the Shareholders shall immediately take such corporate action as
may be necessary to increase its authorized but
-3-
<PAGE>
unissued shares of Class A Voting Common Stock to such number of shares as shall
be sufficient for such purpose.
(f) Each and every Transferee of the shares from any
Shareholder shall be bound by and subject to all the terms and conditions of
this Agreement. So long as this Agreement is in effect, the Company shall
require, as a condition precedent to the Transfer of any shares covered by this
Agreement, that the Transferee agrees in writing to be bound by, and subject to,
the terms and conditions of this Agreement and to ensure that his Transferees of
the shares shall be likewise bound.
2.2 Restrictive Legend. The Company and the Shareholders agree
that, so long as this Agreement is in effect, all share certificates in respect
of Common Stock or other voting securities, now or hereafter held by each
Shareholder will be stamped or otherwise imprinted with a legend in
substantially the following form:
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO AGREEMENTS,
COVENANTS AND RESTRICTIONS IN REGARD TO THE VOTING OF SUCH SHARES AND
THEIR TRANSFER, AS PROVIDED IN THE ARTICLES OF INCORPORATION AND BY THE
PROVISIONS OF A SHAREHOLDERS' AGREEMENT DATED JUNE 2, 1997 BY AND AMONG
THE COMPANY AND THE SHAREHOLDERS NAMED THEREIN, A COPY OF WHICH IS ON
FILE IN THE OFFICE OF THE SECRETARY OF THE COMPANY.
2.3 Director Expenses. The Company shall pay the reasonable
out-of-pocket travel, lodging and other related expenses of all directors
elected pursuant to the Articles of Incorporation and this Article II incurred
in connection with attendance at meetings of the Board or any committee thereof.
ARTICLE III
MISCELLANEOUS
3.1 Notices.
(a) All demands, notices, requests, consents and other
communications required or permitted under this Agreement, shall be in writing
and shall be personally delivered or sent by facsimile machine (with a
confirmation copy sent by one of the other methods authorized in this Section),
commercial (including FedEx) or U.S. Postal Service overnight delivery service,
or deposited with the U.S. Postal Service mailed first class, registered or
certified mail, postage prepaid, as set forth on Schedule A hereto.
(b) Notices shall be deemed given upon the earlier to occur of
(i) receipt by the party to whom such notice is directed; (ii) if sent by
facsimile machine, on the day (other than a Saturday, Sunday or legal holiday in
the jurisdiction to which such notice is directed) such notice is sent if sent
(as evidenced by the facsimile confirmed receipt) prior to 4:00 p.m. Mountain
Time and, if sent after 4:00 p.m. Mountain Time, on the day (other than a
Saturday,
-4-
<PAGE>
Sunday or legal holiday in the jurisdiction to which such notice is directed)
after which such notice is sent; (iii) on the first business day (other than a
Saturday, Sunday or legal holiday in the jurisdiction to which such notice is
directed) following the day the same is deposited with the commercial carrier if
sent by commercial overnight delivery service; or (iv) the fifth day (other than
a Saturday, Sunday or legal holiday in the jurisdiction to which such notice is
directed) following deposit thereof with the U.S. Postal Service as aforesaid.
Each party, by notice duly given in accordance therewith may specify a different
address for the giving of any notice hereunder.
3.2 Waivers and Amendments. The rights and obligations of the Company
and the rights and obligations of the Shareholders under this Agreement may not
be waived (either generally or in a particular instance, either retroactively or
prospectively, and either for a specified period of time or indefinitely) or
amended without the written consent of all Shareholders.
3.3 Entire Agreement. This Agreement and the other agreements referred
to herein constitute the whole and entire agreement between the parties
pertaining to the subject matter hereof, and supersede all prior agreements or
understandings between the parties with respect thereto. This Agreement may not
be modified except by an instrument in writing signed by all parties.
3.4 Governing Law. The validity, construction and enforcement of, and
the remedies under, this Agreement shall be governed in accordance with the laws
of Idaho, except any choice of law provision of Idaho law shall not apply if the
law of a state or jurisdiction other than Idaho would apply thereby.
3.5 Jurisdiction and Venue. The parties to this Agreement agree that
jurisdiction and venue of any action brought to enforce, or to construe or
determine the validity of, any term or provision contained in this agreement
shall properly lie in the District Court of Bonneville County, Idaho, or the
United States District Court for the District of Idaho, or the District Court of
Tulsa County, Oklahoma, or the United States District Court for the Northern
District of Oklahoma. Such jurisdiction and venue are merely permissive;
jurisdiction and venue shall also continue to lie in any court where
jurisdiction and venue would otherwise be proper. The parties further agree that
the mailing by certified mail, return receipt requested, or the delivery by any
recognized expedited delivery service, of any process required by any such court
shall, when received, constitute valid and lawful service of process against
them, without the necessity for service by any other means otherwise provided by
statute or rule of court.
3.6 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective personal representatives, successors and permitted assigns. No party
may assign its, his or her obligations hereunder without the prior written
consent of all other parties; provided, notwithstanding any provision of this
Agreement or in the Bylaws of the Company to the contrary, without prior notice
to or consent of the other parties to this Agreement, PSO may assign all of its
rights and obligations under this Agreement, or any or all of its shares of
Capital Stock of the Company, to any Affiliate under the direct or indirect
control of PSO's parent corporation, Central and South West Corporation. Each
Shareholder hereby agrees to vote its shares as necessary to
-5-
<PAGE>
effect any amendment to the Bylaws or take such other action as may be necessary
to permit PSO to effect such assignment.
3.7 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
3.8 Attorneys' Fees. If any action is brought to enforce, or to
construe or determine the validity of, any term or provision of this Agreement,
the prevailing party shall be entitled to reasonable attorneys' fees, costs, and
disbursements in addition to any other relief to which such party may be
entitled.
3.9 Severability. If any provision of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
3.10 Pronouns and Plurals. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
3.11 Further Action. The parties to this Agreement shall execute
and deliver all documents, provide all information and take or refrain from
taking action as may be necessary or appropriate to achieve the purposes of
this Agreement.
3.12 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach or any other covenant, duty, agreement or
condition.
3.13 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which shall constitute one and
the same instrument. Any signature delivered by facsimile transmission shall be
deemed a valid and binding signature for all purposes hereof.
3.14 Expenses. The parties hereto agree to pay their separate costs and
expenses (such as travel, photocopy and telephone expenses and including the
fees and expenses of counsel) in connection with the documentation of the
transactions contemplated by this Agreement and shall not be liable for the
other's expenses.
3.15 Termination. This Agreement shall terminate upon the
consummation of a Qualified IPO, or upon the unanimous consent of the parties.
3.16 Equitable Remedies. The parties hereto agree that irreparable harm
would occur in the event that any of the agreements and provisions this
Agreement were not performed fully by the parties hereto in accordance with its
specific terms or conditions or were otherwise breached, and that money damages
are an inadequate remedy for breach of the Agreement because of the difficulty
of ascertaining and quantifying the amount of damage that will be
-6-
<PAGE>
suffered by the parties hereto in the event that this Agreement is not performed
in accordance with its terms or conditions or is otherwise breached. It is
accordingly hereby agreed that the parties hereto shall be entitled to an
injunction or injunctions to restrain, enjoin and prevent breaches of this
Agreement by the other parties and to enforce specifically such terms and
provisions of this Agreement in any court of the United States or any state
having jurisdiction, such remedy being in addition to and not in lieu of, any
other rights and remedies to which the other parties are entitled to at law or
in equity.
3.17 Escrow. The effectiveness of this Agreement is subject to and
contingent upon approval, as provided therein, of the Stock Purchase Agreement,
and all transactions contemplated thereby, by the Securities and Exchange
Commission ("SEC") under the Public Utility Holding Company Act, of 1935, as
amended. Pending such approval, the parties agree to execute, deliver, and
deposit this Agreement with the Escrow Agent (as such term is defined in the
Stock Purchase Agreement) pursuant to the terms of the Escrow Agreement.
(a) In the event the SEC disapproves of the transactions
contemplated by the Stock Purchase Agreement, or in the event no approval, as
provided therein, or denial is received from the SEC within 75 days from the
date hereof (or such later date as may be agreed to in writing by PSO and Dr. L.
J. Ybarrondo and communicated to the Escrow Agent) (i) this Agreement shall be
rescinded, and (ii) no party hereto shall have any liability to any other party
whatsoever.
(b) In the event of SEC approval of the Stock Purchase
Agreement, as provided therein, and all transactions contemplated thereby, this
Agreement shall be delivered by the Escrow Agreement to all parties and shall
continue in full force and effect.
-7-
<PAGE>
In Witness Whereof, this Agreement has been executed as of the date
first above written.
"Company"
SCIENTECH, INC.
By:
Name:
Title:
"Shareholders"
PUBLIC SERVICE COMPANY OF OKLAHOMA
By:
Name:
Title:
DR. L. J. YBARRONDO
YBARRONDO FAMILY TRUST B
By:
Dr. L. J. Ybarrondo, Trustee
YBARRONDO FAMILY TRUST C-1
By:
Dr. L. J. Ybarrondo, Trustee
-8-
<PAGE>
YBARRONDO FAMILY TRUST C-2
By:
Dr. L. J. Ybarrondo, Trustee
DR. MARILDA YBARRONDO
DR. ANA-BELEN YBARRONDO
MICHEL W. YBARRONDO
LOREN A. YBARRONDO
KR ACQUISITION CORP.
By:
Bruce R. Robinson, Chairman
ROGER J. MATTSON
-9-
<PAGE>
SCHEDULE A
List of Shareholders
Name and Address Number of Shares
PSO 70,000 Class A
436,000 Class B
Dr. L. J. Ybarrondo 183,904 Class A
Ybarrondo Family Trust B 59,119 Class A
Ybarrondo Family Trust C-1 40,080 Class A
Ybarrondo Family Trust C-2 180,258 Class A
Dr. Marilda Ybarrondo 43,002 Class A
Dr. Ana-Belen Ybarrondo 1,990 Class A
Michel W. Ybarrondo 1,988 Class A
Loren A. Ybarrondo 1,988 Class A
KR Acquisition Corp. 298,500 Class A
Roger J. Mattson 118,189 Class A
-10-
Exhibit 9
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of June 2, 1997 among SCIENTECH, INC., an Idaho corporation (the
"Company");PUBLIC SERVICE COMPANY OF OKLAHOMA, an Oklahoma corporation
(hereinafter referred to as "PSO" or "Holder"); and DR. L. J. YBARRONDO; the
YBARRONDO FAMILY TRUST C-2, Dr. L. J. Ybarrondo Trustee; KR ACQUISITION CORP.,
a Delaware corporation; and ROGER J. MATTSON (collectively with PSO, the
"Holders").
ARTICLE I
RECITALS
1.1 Dr. L. J. Ybarrondo and his Related Trusts and certain of his
Family Members own or control an aggregate of 1,018,329 shares of Common Stock,
par value $.01 per share, of the Company, which ownership constitutes over 50%
of the outstanding voting stock of the Company. Upon the effectiveness of the
amendment to the Company's Articles of Incorporation contemplated by the Stock
Purchase Agreement, all such shares shall become shares of Class A Voting Common
Stock.
1.2 Dr. L. J. Ybarrondo desires to reduce his ownership in the
Company.
1.3 The Company desires to accommodate and facilitate the sale of
a portion of Dr. L. J. Ybarrondo's stock in order to diversify its shareholder
base.
1.4 PSO has reached an agreement with Dr. L. J. Ybarrondo to acquire
70,000 shares of Class A Voting Common Stock and 436,000 shares of Class B
Nonvoting Common Stock from Dr. L. J. Ybarrondo and the Ybarrondo Family Trust
C-2 (the "C-2 Trust") for consideration that Dr. L. J. Ybarrondo and PSO have
mutually agreed upon.
1.5 The Company desires Dr. L. J. Ybarrondo and the C-2 Trust to
convert 436,000 shares of Class A Voting Common Stock to Class B Nonvoting
Common Stock and to sell 70,000 shares of Class A Common Stock and 436,000
shares of Class B Nonvoting Common Stock to PSO to achieve its goal of
shareholder diversification and to obtain a working relationship with PSO, which
will provide certain synergistic opportunities to the Company as well as the
opportunity for the Company to expand into new geographic territories and new
market opportunities.
1.6 The Board of Directors of the Company has approved the sale by Dr.
L. J. Ybarrondo and the C-2 Trust of 70,000 shares of Class A Voting Common
Stock and 436,000 shares of Class B Nonvoting Common Stock to PSO for all of the
foregoing reasons, has waived its Right of First Refusal under Article VII,
Section 4 of the Company's Bylaws, and has authorized and approved the execution
and delivery of this Agreement to PSO as a material understanding by the Company
of the benefit it will realize as a result of the above described transaction.
<PAGE>
1.7 In consideration of the foregoing recitals which constitute
material consideration to the Company, the Company hereby makes the
representations, warranties and covenants contained herein to PSO, as an
inducement to PSO's acquisition of 70,000 shares of Class A Voting Common Stock
and 436,000 shares of Class B Nonvoting Common Stock from Dr. L. J. Ybarrondo
and the C-2 Trust and upon which the Company recognizes that PSO will rely in
making its acquisition of such shares.
ARTICLE II
DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
"Affiliate" means, as applied to the Company or any other specified
Person, any Person directly or indirectly controlling, controlled by or under
direct or indirect common control with the Company (or other specified Person)
and shall also include (a) any Person who is a director or beneficial owner of
at least 5% of the then outstanding equity securities of the Company (or other
specified Person) and Family Members of any such Person, (b) any Person of which
the Company (or other specified Person) or an Affiliate (as defined in clause
(a) above) of the Company (or other specified Person) shall, directly or
indirectly, either beneficially own at least 10% of the then outstanding equity
securities or constitute at least a 10% equity participant, and (c) in the case
of a specified Person who is an individual, any Family Member of such Person.
"Articles of Incorporation" means the Amended and Restated Articles of
Incorporation of the Company in the form of Exhibit A to the Stock Purchase
Agreement.
"Balance Sheet" means the balance sheet referred to in the definition
of "Financial Statements".
"Balance Sheet Date" means the date of the latest Balance Sheet.
"Broker Costs" means any and all costs, fees and expenses of any
broker, finder or placement agent incurred by the Sellers or PSO in connection
with the transactions contemplated herein.
"Capital Stock" means, as to any Person that is a corporation, the
authorized shares of such Person's capital stock, including all classes of
common, preferred, voting and nonvoting capital stock, and, as to any Person
that is not a corporation or an individual, the ownership interests in such
Person, including, without limitation, the right to share in profits and losses,
the right to receive distributions of cash and property, and the right to
receive allocations of items of income, gain, loss, deduction and credit and
similar items from such Person, whether or not such interests include voting or
similar rights entitling the holder thereof to exercise control over such
Person.
-2-
<PAGE>
"Class A Stock" means the Class A Voting Common Stock, par value $0.01
per share, of the Company.
"Class B Stock" means the Class B Nonvoting Common Stock, par value
$0.01 per share, of the Company.
"Closing" has the meaning given such term in Section 2.2 of the Stock
Purchase Agreement.
"Closing Date" has the meaning given such term in Section 2.2 of the
Stock Purchase Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Class A Stock and the Class B Stock.
"Company" means SCIENTECH, Inc., an Idaho corporation. It shall also
include its predecessor companies and any Subsidiaries which may now exist or be
established in the future.
"Contracts" has the meaning set forth in Section 3.15 of this Agreement.
"Employee Benefit Plan" means any employee benefit plan within the
meaning of ss.3(3) of ERISA maintained or contributed to by the Company or any
ERISA Affiliate, other than a Multiemployer Plan.
"Environmental Laws" has the meaning given such term in Section 3.22(c)
of this Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, any
successor statute of similar import, and the rules and regulations thereunder,
collectively, and from time to time amended and in effect.
"ERISA Affiliate" means any Person which is treated as a single
employer with the Company under ss. 414 of the Code.
"Escrow Agreement" means that Escrow Agreement among Sellers, PSO and
the Escrow Agent named therein in the form of Exhibit B to the Stock Purchase
Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute thereto, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect at the
time.
"Family Member" means, as applied to any individual, such individual's
spouse, or such individual's child, and each trust created for the exclusive
benefit of one or more of them.
-3-
<PAGE>
"Financial Statements" means the audited balance sheet and statement of
income of the Company for the fiscal year ended January 31, 1997 and the
unaudited related balance sheet as of March 28, 1997 (the "Balance Sheet") and
statement of income for the period then ended for the Company.
"Founder" means Dr. L. J. Ybarrondo, the Related Trusts and the Family
Members of Dr. L. J. Ybarrondo who are shareholders of the Company.
"Generally accepted accounting principles" or "GAAP" means accounting
principles which are (a) consistent with the principles promulgated or adopted
by the Financial Accounting Standards Board and its predecessors and other
recognized principle setting bodies, in effect from time to time, (b) applied on
a basis consistent with prior periods, and (c) such that a certified public
accountant would, insofar as the use of accounting principles is pertinent, be
in a position to base an opinion as to financial statements in which such
principles have been properly applied.
"Guaranteed Pension Plan" means any employee pension benefit plan
within the meaning of ss.3(2) of ERISA maintained or contributed to by the
Company or any ERISA Affiliate, the benefits of which are guaranteed on
termination in full or in part by the Pension Benefit Guaranty Corporation
pursuant to Title IV of ERISA, other than a Multiemployer Plan.
"Hazardous Substance" has the meaning given such term in Section
3.22(b) of this Agreement.
"Holders" means Public Service Company of Oklahoma; Dr. L. J.
Ybarrondo; the Ybarrondo Family Trust C-2, Dr. L. J. Ybarrondo, Trustee; KR
Acquisition Corp.; and Roger J. Mattson; and any other Person(s) holding
Registrable Securities to whom the registration rights have been assigned
pursuant to Section 7.8 of this Agreement, and shall be the singular or plural
where the circumstances of the case so require; provided, however, that any such
assignee shall only be a "Holder" if it gives written notice to that effect to
the Company and agrees to be bound by the terms of this Agreement.
"Indebtedness" means all obligations, contingent and otherwise, which
in accordance with GAAP should be classified on the obligor's balance sheet as
liabilities, or to which reference should be made by footnotes thereto,
including without limitation, in any event and whether or not so classified: (a)
all debt and similar monetary obligations, whether direct or indirect; (b) all
liabilities secured by any mortgage, pledge, security interest, lien, charge or
other encumbrance existing on property owned or acquired subject thereto,
whether or not the liability secured thereby shall have been assumed; (c) all
guaranties, endorsements and other contingent obligations whether direct or
indirect in respect of Indebtedness or performance of others, including any
obligation to supply funds to or in any manner to invest in, directly or
indirectly, the debtor, to purchase Indebtedness, or to assure the owner of
Indebtedness against loss, through an agreement to purchase goods, supplies or
services for the purpose of enabling the debtor to make payment of the
Indebtedness held by such owner or otherwise, and (d) obligations to reimburse
issuers of any letters of credit.
-4-
<PAGE>
"Intangible Property" has the meaning given such term in Section 3.18
hereof.
"Licenses" has meaning given such term in Section 3.20 hereof.
"Lien" means (a) any encumbrance, mortgage, pledge, lien, charge or
other security interest of any kind upon any property or assets of any
character, or upon the income or profits therefrom; (b) any acquisition of or
agreement to have an option to acquire any property or assets upon conditional
sale or other title retention agreement, device or arrangement (including a
capitalized lease); or (c) any sale, assignment, pledge or other transfer for
security of any accounts, general intangibles or chattel paper, with or without
recourse.
"Material Adverse Effect" has the meaning given such term in Section
3.24 hereof.
"Multiemployer Plan" means a multiemployer plan within the meaning of
Section 3(37) of ERISA.
"Option" means the option granted to PSO by certain of the Sellers to
purchase shares of Common Stock owned by such Sellers, pursuant to Article VII
of the Stock Purchase Agreement.
"Option Securities" means the 206,000 shares of Common Stock PSO may
purchase upon exercise of the Option.
"Person" means an individual, partnership, corporation, association,
trust, joint venture, limited liability company or other unincorporated
organization, and any government, governmental department or agency or political
subdivision thereof.
"PSO" means Public Service Company of Oklahoma, an Oklahoma corporation.
"Purchased Securities" means the securities purchased by PSO from
Sellers pursuant to the Stock Purchase Agreement.
"Registrable Securities" means (a) all Common Stock held by the Holders
from time to time (whether now owned or hereafter acquired); (b) any Common
Stock or other securities issued or issuable pursuant to the conversion of, or
with respect to, any Common Stock held by the Holders upon any stock split,
stock dividend, recapitalization, merger, consolidation, reorganization or
similar event; and (c) securities issued in replacement or exchange of any of
the securities issued in clauses (a) or (b) above.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with this Agreement, including, without limitation,
all registration, filing, listing and National Association of Securities
Dealers, Inc. ("NASD") fees, all fees and expenses of complying with securities
or blue sky laws, all word processing, duplicating and printing expenses, all
messenger and delivery expenses, the fees and expenses of the Company's legal
counsel and independent public accountants, including the expenses of any
special audits or "cold comfort" letters required by or incident to such
performance and compliance, and any fees and
-5-
<PAGE>
disbursements of underwriters customarily paid by issuers or sellers of
securities; provided, however, that Registration Expenses shall not include
underwriting discounts and commissions or any fees or expenses of legal counsel
or the independent public accountants of any Person other than the Company.
"Registration Rights Agreement" means this Agreement.
"Related Agreements" means the Stock Purchase Agreement and the
Exhibits thereto, including the Articles of Incorporation, Escrow Agreement,
Shareholders' Agreement, and Registration Rights Agreement.
"Related Trusts" shall mean, collectively, the Ybarrondo Family Trust
B, the Ybarrondo Family Trust C-1, and the Ybarrondo Family Trust C-2, each with
Dr. L. J. Ybarrondo as Trustee.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Securities and
Exchange Commission thereunder, all as the same shall be in effect at the time.
"Sellers" shall mean the persons listed on Schedule 2.1 of the Stock
Purchase Agreement.
"Shareholders' Agreement" means the Shareholders' Agreement dated as of
the date hereof among the Sellers, the Company and Holder, in the form of
Exhibit C to the Stock Purchase Agreement.
"Stock Purchase Agreement" means that certain Agreement between Dr. L.
J. Ybarrondo and Related Trusts and Family Members and Public Service Company of
Oklahoma, dated as of even date, as well as the Exhibits and Schedules thereto
when the circumstances so admit.
"Subsidiary" means any Person of which the Company now or hereafter
shall at the time own, directly or indirectly through a subsidiary, at least a
majority of the outstanding capital stock (or other beneficial interest)
entitled to vote generally; and the term "Subsidiaries" shall mean all of such
Persons collectively.
"Taxes" means (a) all net income, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property or windfall
profits taxes, or other taxes of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts imposed by any taxing
authority (domestic or foreign) upon the Company with respect to all periods or
portions thereof ending on or before the date hereof and/or (b) any liability of
the Company for the payment of any amounts of the type described in the
immediately preceding clause (a) as a result of being a member of an affiliated
or combined group.
-6-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce PSO to enter into this Agreement, the Company hereby
makes the following representations and warranties:
3.1 Organization and Good Standing. The Company is duly organized,
validly existing and in good standing in its jurisdiction of incorporation and
is duly qualified as a foreign corporation and authorized to do business in all
other jurisdictions in which the nature of its business or property makes such
qualification necessary and where the failure to so qualify would have a
Material Adverse Effect.
3.2 Authorization. The execution, delivery and performance by the
Company of this Agreement and of each Related Agreement to which the Company is
a party: (a) are within the Company's power and authority; (b) have been duly
authorized by all necessary corporate, shareholder and other proceedings, as the
case may be; and (c) do not and will not result in the creation of any Lien upon
any of the property of the Company or conflict with or result in any breach of
any provision of the Articles of Incorporation or by-laws of the Company or any
law, regulation, order, judgment, writ, injunction, license, permit, agreement
or instrument to which the Company is subject.
3.3 Enforceability. The execution and delivery by the Company of this
Agreement and of each of the Related Agreements to which it is a party, will
result in legally binding obligations of the Company, enforceable against it in
accordance with the respective terms and provisions hereof and thereof.
3.4 Capitalization.
(a) As soon as is reasonably practicable after Closing, the
Company shall amend its Articles of Incorporation in the form of Exhibit A. Upon
the filing of Exhibit A with the Idaho Secretary of State, the authorized
capital stock of the Company shall consist solely of 7,000,000 shares of Common
Stock, $0.01 par value per share, consisting of 6,000,000 shares of Class A
Voting Common Stock and 1,000,000 shares of Class B Nonvoting Common Stock.
Schedule 3.4(a) sets forth a table indicating the capitalization of the Company
immediately prior to the execution of this Agreement. All of the issued shares
of Capital Stock of the Company are issued and owned by the Persons listed on
Schedule 3.4(a) and have been duly authorized, are validly issued and
outstanding and are fully paid and non-assessable.
(b) Except as set forth on Schedule 3.4(b), there are no
material outstanding rights (either preemptive or other) or options to subscribe
for or purchase from the Company, or any material warrants or other agreements
providing for or requiring the issuance or purchase by the Company of, any
Capital Stock or any securities convertible into or exchangeable, for, or
exercisable into, its Capital Stock or any material voting trusts, proxies or
agreements relating to the voting of the Company's Capital Stock. For purposes
of this Section 3.4(b), "material" shall mean any agreement or agreements which,
individually or in the aggregate, would affect more than 5,000 shares of capital
stock of the Company.
-7-
<PAGE>
3.5 Subsidiaries. All the Company's Subsidiaries are listed on
Schedule 3.5.
3.6 Consents. Except as set forth in Schedule 3.6 hereto, or except as
otherwise required under applicable federal and state securities law, the
execution, delivery and performance by the Company of this Agreement and of each
Related Agreement to which it is a party, and the execution, delivery and
performance by the Sellers of the Stock Purchase Agreement and of each Related
Agreement to which they are parties, and the sale of the Purchased Securities
and the grant of the Option or Option Securities under the Stock Purchase
Agreement and the issuance of any Common Stock upon conversion of any of the
Purchased Securities or Option Securities do not and will not require the
approval or consent of, or any filing with, any governmental authority or agency
or any other Person.
3.7 Reports and Financial Statement; Undisclosed Liabilities.
(a) Complete and correct copies of the Financial
Statements are attached hereto as Schedule 3.7.
(b) Except as otherwise specifically disclosed therein, each
of the audited Financial Statements as of January 31, 1997 and for the year then
ended was prepared in accordance with GAAP applied on a basis consistent with
prior periods except as otherwise stated therein; each of the balance sheets
included in the audited Financial Statements fairly presents the financial
condition of the Company as at the close of business on the date thereof; and
each of the statements of income included in the audited Financial Statements
fairly presents the results of operations of the Company for the fiscal period
then ended. The Company has no liabilities or obligations of any nature, whether
absolute, accrued, contingent or otherwise, which are not fully reflected or
reserved against in the audited Financial Statements, except for liabilities
that may have arisen in the ordinary and usual course of business and consistent
with past practice and that individually or in the aggregate do not have and
could not reasonably be expected to have a Material Adverse Effect.
(c) To the best of the Company's knowledge, except as
otherwise specifically disclosed therein, the Balance Sheet of the Company has
been prepared by management of the Company in good faith and in accordance with
GAAP, consistently applied. To the best of the Company's knowledge, the Company
will not have any material liabilities, contingent or otherwise, which are not
referred to in such Balance Sheet or in the notes thereto other than liabilities
incurred in the ordinary course of the Company's business since the Balance
Sheet Date, and liabilities not required to be disclosed in accordance with
GAAP.
(d) Since the Balance Sheet Date, there has been no material
adverse change in the business, assets, financial condition or prospects of the
Company.
3.8 Absence of Certain Developments. Except for entering into this
Agreement and Related Agreements, as applicable, and except as disclosed on
Schedule 3.8 hereof, since the
Balance Sheet Date:
-8-
<PAGE>
(a) Except for minor variations which do not, either
individually or in the aggregate, have a material adverse effect on PSO's
rights, the Company has not, whether or not in the ordinary course of business:
(i) issued any Capital Stock or other equity
interest or any right, options or warrants with respect thereto;
(ii) declared, set aside, paid to a reserve fund or
made any payment or distribution of cash or other property to its
stockholders or equity holders with respect to any class of its Capital
Stock or other equity interest or purchased or redeemed any shares of
its Capital Stock or other equity interests;
(iii) suffered any substantial loss to any of its
material assets;
(iv) made any increases in the base compensation,
bonuses, paid vacation time allowed or fringe benefits for its
directors, officers, partners, employees or consultants, except for
normal periodic increases in base compensation for employees made
pursuant to established compensation policies;
(v) suffered damage, destruction or other casualty
loss, or forfeiture of, any property or assets, whether or not covered
by insurance, which has had or may reasonably be expected to have a
Material Adverse Effect;
(vi) made any capital expenditures, additions or
improvements or commitments for the same, except those which do not
exceed $500,000 in the aggregate;
(vii) entered into any contract, commitment or
agreement under which it has outstanding Indebtedness for borrowed
money or for the deferred purchase price of property in excess of
$500,000, or has the right or obligation to incur any such indebtedness
or obligation, or made any loan or advance to any Person other than
advances to employees for business expenses not exceeding $20,000 in
the aggregate;
(viii) paid any bonuses, deferred or otherwise, or
deferred any compensation to any of its directors, officers, partners
or employees except as reflected in the Financial Statements;
(ix) made any material change in accounting
procedures, policies or practices;
(x) mortgaged or pledged any of its properties or
assets, tangible or intangible, or subjected them to any Lien, except
Liens for current property taxes not yet due and payable and Liens on
personal property created in connection with equipment leases,
installment purchase contracts, conditional sales contracts, purchase
money mortgages and the like to secure Indebtedness incurred to acquire
property not exceeding $500,000 in the aggregate;
-9-
<PAGE>
(xi) entered into any agreement or arrangement
granting any rights to purchase or lease any of its assets, properties
or rights or requiring the consent of any Person to the transfer,
assignment or lease of any such assets, properties or rights; or
(xii) entered into any agreement or understanding
to do any of the foregoing.
(b) Other than in the ordinary course of business
consistent with past practice, the Company has not:
(i) sold, leased, subleased, assigned or
transferred any of its tangible or intangible properties or assets, or
canceled, waived or compromised any debts or claims;
(ii) entered into any other material transaction,
or any amendment of any contract, lease, agreement or license which is
material to its business; or
(iii) entered into any agreement or understanding
to do any of the foregoing.
3.9 Liens. The Company has no Liens upon any of its properties other
than the Liens which are listed on Schedule 3.9 hereto and Liens on personal
property created in connection with equipment leases, installment purchase
contracts, conditional sales contracts, purchase money mortgages and the like to
secure Indebtedness incurred to acquire property not exceeding $500,000 in the
aggregate.
3.10 Indebtedness to and from Officers, Directors and Others. Except as
set forth on Schedule 3.10 hereto, the Company is not indebted to any Founder,
director, officer, partner, manager, employee or consultant of the Company, or
to any Affiliate of the Company, except for amounts due as normal salaries,
wages or reimbursement of ordinary business expenses or routine employee
advances for expenses, which business expenses and employee advances do not
exceed $100,000 in the aggregate for all such Founders, directors, officers,
partners, managers, employees and consultants and not exceeding $15,000 for any
such Person. Except as set forth on Schedule 3.10, no Founder, director,
officer, partner, manager, employee or consultant of the Company nor any
Affiliate of the Company, is now, or on the Closing Date will be, indebted to
the Company except for ordinary business expense advances.
3.11 Insurance. Certificates of insurance listing all policies of
title, liability, fire, worker's compensation and other forms of insurance
(including bonds) insuring the properties, assets and operations of the business
of the Company have been provided to PSO. Except as set forth on Schedule 3.11
hereto, all such policies are in full force and effect, have been underwritten
by unaffiliated insurers and are sufficient for all applicable requirements of
law. All such policies shall continue in full force and effect after the Closing
Date with respect to occurrences which would have been covered by such policies
prior to the Closing Date, except to the extent the Company's Board of Directors
determines that such policies or coverages should be changed.
-10-
<PAGE>
3.12 Tax Returns. The Company has filed all Tax returns and reports
which are required to be filed with any foreign, federal, state or local
governmental authority or agency and has paid all Taxes which have become due,
and made adequate provision for the payment of all Taxes that will become due,
under applicable foreign, federal, state or local governmental law or
regulations with respect to the periods in respect of which such returns and
reports were filed, and all assessments of Taxes. The Company and its management
knows of no additional assessments since the date of such returns and reports,
and there will be no additional assessments for which adequate reserves
appearing on the Balance Sheet have not been established. The Company and its
Subsidiaries, if any, has made adequate provisions for all current Taxes.
3.13 [This section is intentionally left blank].
3.14 Title to Assets. The Company owns all of its respective assets,
and has good and marketable title with respect thereto, reflected in the Balance
Sheet of the Company and its Subsidiaries, as at the Balance Sheet Date, subject
to changes in the ordinary course of business since the Balance Sheet Date,
subject to no Liens other than those granted to First Union Bank of Virginia.
3.15 Material Contracts and Obligations.
(a) Attached hereto as Schedule 3.15 is a true, complete and
accurate list, categorized by subject matter, of all of the following material
outstanding contracts, plans, leases, and commitments and other agreements
(collectively "Contracts") entered into by the Company, which are in writing or
have been orally agreed to by the Company:
(i) all Contracts for the purchase or sale of
services, materials, products or supplies which involve aggregate
payments by the Company of more than $750,000 or involve aggregate
payments to the Company of more than $750,000, or which were entered
into other than in the ordinary course of business of the Company;
(ii) all Contracts or arrangements providing for
stock options or stock purchases, bonuses, pensions, deferred or
incentive compensation, retirement or severance payments,
profit-sharing, insurance or other benefit plans or programs for the
Founder or any officer, consultant, director or employee of the
Company;
(iii) all Contracts for construction or for the
purchase of real estate, improvements, fixtures, equipment, machinery
and other items which under GAAP constitute capital expenditures and
which individually or in the aggregate for any related group of items
involve expenditures of the Company in excess of $500,000;
(iv) all Contracts relating to the rental or use of
equipment, vehicles, other personal property or fixtures, except for
Contracts individually involving payment of annual rentals or sums less
than $75,000 and in the aggregate for the Company less than $750,000;
-11-
<PAGE>
(v) all Contracts relating in any way to direct or
indirect indebtedness for borrowed money or evidenced by a bond,
debenture, note or other evidence of indebtedness (whether secured or
unsecured) of or to the Company, including but not limited to,
indebtedness by way of lease or installment purchase arrangement,
guarantee, reimbursement obligations pertaining to letters of credit,
purchase price discount obligations, undertakings on which others rely
in extending credit, or otherwise, and all mortgages, pledges,
conditional sales contracts, chattel and purchase-money mortgages and
other security arrangements with respect to any real estate,
improvements, equipment, other personal property or fixtures, used or
owned by the Company, except in each case for contracts individually
involving less than $100,000;
(vi) all Contracts substantially restricting the
Company from engaging in any line of business or competing with any
Person or in any geographical area, or from using or disclosing any
information in its possession (other than routine supplier and customer
confidentiality agreements);
(vii) all license agreements with annual costs in
excess of $250,000, either as licensor or licensee, other than licenses
for software;
(viii) all joint venture Contracts and other
Contracts involving a sharing of profits, revenue or cash flow;
(ix) all Contracts with any Affiliate of the
Company (other than the Related Agreements) and all Contracts not made
in the ordinary course of its business;
(x) all other Contracts, except those which are (A)
cancelable on 30 days' or less notice without any penalty or other
financial obligation or (B) if not so cancelable, involve annual
aggregate payments by or to the Company of $75,000 or less; or
(xi) all written Contracts of employment with any
officer, consultant, director or employee and any such oral Contracts
which are not terminable at will by the Company.
(b) Except as set forth on Schedule 3.15 hereto, all Contracts
required to be disclosed to PSO pursuant to this Section 3.15 are valid, binding
and in full force and effect as to the Company, and neither the Company nor, to
the best of the Company's knowledge, any other party thereto, is in material
breach or violation of, or material default under, nor is there any reasonable
basis for a claim of such breach or violation by the Company or such default by
the Company under, the terms of any such Contract, and no event has occurred
which constitutes or, with the lapse of time or the giving of notice or both,
would constitute, such a material breach, violation or default by the Company.
(c) Set forth on Schedule 3.15(c) is a list of all
Contracts having a funded remaining balance of $750,000 or more.
3.16 Real Property Owned. The Company does not own any real
property.
-12-
<PAGE>
3.17 Real and Personal Property - Leased. To the best of the Company's
knowledge, set forth in Schedule 3.17 hereto is a true and accurate description
of all real and material personal property leased by the Company, setting forth
(a) the name of the lessor and (b) a description of the property leased. With
respect to such leases, the property described in such leases is presently used
by the Company as indicated in Schedule 3.17 as lessee under the terms of such
leases, and such leases are in full force and effect, and will be free and clear
of all Liens created by the Company except as set forth in Schedule 3.17 hereto,
and neither the Company is in default of the terms of any such lease in any
material respect nor, to the best of the Company's knowledge, is any lessor in
default in any material respect under any such lease nor have any events
occurred which, with the giving of notice or the lapse of time, or both, would
be a default under any such lease. The Company has made available to PSO a true
and correct copy of all leases set forth on Schedule 3.17.
3.18 Proprietary Rights. To the best of the Company's knowledge, except
as set forth on Schedule 3.18, the Company owns all material patents,
trademarks, trade names, service marks, logos, copyrights, including
applications therefor, inventions, formulas, methods and processes (all such
items being hereinafter referred to as "Intangible Property") presently used by
the Company without any infringement upon the proprietary rights of others; all
material patents, patent applications, registered trademarks, trademark
applications, trade names, service marks, logos, licenses and copyrights used or
owned by the Company in connection with its respective businesses are set forth
on Schedule 3.18 hereto and have been duly registered in, filed in, or issued by
the United States Patent Office, United States Register of Copyrights or the
corresponding offices of other jurisdictions, to the extent necessary to effect
lawful ownership of such intellectual property rights in the name of the
Company, and have been properly maintained or renewed in accordance with all
applicable provisions of applicable law; and Schedule 3.18 accurately sets forth
with respect to each patent, patent application, registered trademark, trademark
application, trade name, service mark, logo, license and copyright owned or used
by the Company in the conduct of its businesses, (i) the date of expiration, if
any, (ii) whether such ownership rights are exclusive and (iii) any licensee of
such rights. No royalties or fees are payable by the Company to any Person by
reason of the ownership or use of any of the Intangible Property. All items of
Intangible Property are valid and in good standing, and they are adequate and
sufficient to permit the Company to conduct its business as presently conducted,
and to the best of the Company's knowledge no other rights of any kind with
respect to the Intangible Property are required by the Company for its
operations as presently conducted. Except as set forth on Schedule 3.18, the
Company has the sole and exclusive right to use the Intangible Property and the
Company has not entered into any licenses, sublicenses or agreements relating to
the use by any other Person of any Intangible Property now in effect, and no
infringement exists upon the Intangible Property by any other Person. Except as
disclosed on Schedule 3.18 hereto, no charge or claim is pending or threatened,
nor has any charge or claim been made against the Company within the past five
years to the effect that the sale of any of its respective products or services
infringes upon or conflicts in any way with any rights or properties of the type
enumerated above owned or held by any other Person.
3.19 Necessary Property; Condition of Property. To the best of the
Company's knowledge, the properties and assets owned, leased by or licensed to
the Company, and reflected in the Balance Sheet, constitute all of the real and
personal properties, tangible and intangible, which are necessary, used or
useful in the conduct of its business in the manner and to the extent
-13-
<PAGE>
presently conducted or as presently contemplated to be conducted. No other
material real or personal properties are required for the conduct of the
business of the Company as presently conducted.
3.20 Necessary Licenses. To the best of the Company's knowledge, except
as set forth on Schedule 3.20, the Company has all licenses, permits, consents,
concessions and other authorizations of governmental, regulatory or
administrative agencies or authorities, whether foreign, federal, state, or
local (collectively "Licenses"), required to own and lease its properties and
assets and to conduct its business as now conducted except where the failure to
have such Licenses would not have a Material Adverse Effect. Except as specified
in Schedule 3.20 hereto (or exempted by Schedule 3.6), no registrations,
filings, applications, notices, transfers, consents, approvals, audits,
qualifications, waivers or other action of any kind is required by virtue of the
execution and delivery of this Agreement, or of the consummation of the
transactions contemplated hereby (a) to avoid the loss of any such License or
any asset, property or right pursuant to the terms thereof, or the violation or
breach of any law applicable thereto or (b) to enable the Company to hold and
enjoy the same after the Closing Date in the conduct of its business as
conducted prior to the Closing Date.
3.21 Compliance with Law.
(a) To the best of the Company's knowledge, except as may be
set forth on Schedule 3.21(a) hereto, the Company is not in default under, or in
violation of, any law (including, without limitation, laws relating to the
issuance or sale of securities, antitrust, zoning and building codes and
ordinances, occupational safety, the protection of the environment,
transportation, storage or disposal of hazardous waste, anti-pollution and air
and water quality laws), or any licenses, franchises, permits, authorizations or
concessions granted by, or any judgment, decree, writ, injunction or order of,
any governmental or regulatory authority, applicable to its business or any of
its properties or assets, except where such defaults and violations would not,
in the aggregate, have a Material Adverse Effect. The Company has not received
any notification alleging any violations of any of the foregoing within the last
five years with respect to which adequate corrective action has not been taken.
(b) To the best of the Company's knowledge, no event has
occurred which (i) could result in the Company being found unqualified to hold,
or which permits, or after notice or lapse of time or both would permit, the
revocation or termination of any of the Licenses or the denial of an application
for the renewal thereof or (ii) would result in any impairment of the rights of
the Company as holder of any such License.
(c) To the best of the Company's knowledge, no present or
former stockholder, officer, director, employee or agent of the Company, has in
order to assist the Company in obtaining or retaining any License or any
business for or with, or directing business to Company offered, paid, promised
to pay or authorized the payment of the money, or offered, given, promised to
give, or authorized the giving of anything of value to (i) any officer or
employee of any government or any department, agency, instrumentality thereof,
or any person acting in an official capacity for or on behalf of any such
government or department, agency or instrumentality (such an officer or employee
being referred to as a "foreign official"), (ii) any foreign political party or
official thereof or any candidate for foreign political office, or (iii) any
-14-
<PAGE>
person, while knowing that all or a portion of such money or thing of value will
be offered, given, or promised, directly or indirectly, to any foreign official,
to any foreign political party or official thereof, or to any candidate for
foreign political office, in each case, for purposes of the following:
(A) illegally or corruptly influencing any act or
decision of any such foreign official, political party or official
thereof, or candidate in such person's official capacity, or (ii)
inducing such foreign official, political party or official thereof, or
candidate to do or omit to do any act in violation of the lawful duty
of such person, or
(B) illegally or corruptly inducing such foreign
official, political party or official thereof, or candidate to use such
person's influence with a foreign government or instrumentality thereof
to affect or influence any act or decision of such government or
instrumentality.
There is not now, nor has there ever been, any employment of
or beneficial ownership of the Company by any governmental or political official
in any country in the world.
3.22 Environmental Compliance.
(a) To the best of the Company's knowledge, (i) the Company
has not generated, used, transported, treated, stored, released or disposed of,
and has not suffered or permitted anyone else to generate, use, transport,
treat, store, release or dispose of any "Hazardous Substance" (as hereinafter
defined) in violation of any "Environmental Laws" (as hereinafter defined); (ii)
there has not been any generation, use, transportation, treatment, storage,
release or disposal of any Hazardous Substance resulting from the conduct of the
Company or the use of any property or facility by the Company or to the best of
the Company's knowledge, any nearby or adjacent properties or facilities, which
has created or might reasonably be expected to create any liability on the part
of the Company under the Environmental Laws or which would require reporting to
or notification by the Company to any governmental entity; (iii) no asbestos
which is or has some reasonable likelihood of becoming friable or
polychlorinated biphenyl or underground storage tank is contained in or located
at any facility owned, leased or used by the Company; and (iv) any Hazardous
Substance handled or dealt with in any way in connection with the business of
the Company, whether before or during the ownership of the Company, has been and
is being handled or dealt with in all respects in compliance with the
Environmental Laws in effect at the time such activities were being conducted.
(b) For purposes of this Agreement, the term "Hazardous
Substance" shall mean (but shall not be limited to) substances that are defined
or listed in, or otherwise classified pursuant to, any applicable Environmental
Laws as "hazardous substances," "hazardous materials" "hazardous wastes" or
"toxic substances," or any other formulation intended to define, list or
classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, radioactivity, carcinogenicity, reproductive toxicity
or "EP toxicity," and petroleum and drilling fluids, produced waters and other
wastes associated with the exploration, development, or production of crude oil,
natural gas or geothermal energy.
-15-
<PAGE>
(c) For purposes of this Agreement, the term "Environmental
Laws" shall mean the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Resources Conservation and Recovery Act
of 1976, as amended, and any applicable statutes, regulations, rules,
ordinances, codes, licenses, permits, orders, approvals, plans, authorizations,
concessions, and similar items of all governmental authorities and all
applicable judicial, administrative and regulatory decrees, judgments and
orders, any of which relate to the protection of human health or the environment
from the effects of Hazardous Substances, including, but not limited to, those
pertaining to reporting, licensing, permitting, investigating and remediating
emissions, discharges, releases or threatened releases of Hazardous Substances
into the air, surface water, groundwater or land, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances.
3.23 Litigation. To the best of the Company's knowledge, except as set
forth on Schedule 3.23 hereto, there is no suit, claim, action, proceeding or
investigation pending or threatened against the Company or any of its respective
assets or properties, including each Employee Benefit Plan at law or in equity
or before any governmental authority or instrumentality or before any arbitrator
of any kind, against the Founder, or any management director, officer, key
employee or the holder of more than five percent (5%) of the capital stock of
the Company, nor has there occurred any event or does there exist any condition
on the basis of which any litigation, proceeding or investigation might properly
be instituted and there is no reasonable basis for any such suit, claim, action,
proceeding or investigation. Except as set forth on Schedule 3.23 hereto,
neither the Company nor to the knowledge of the Company, any Founder, management
director, officer, key employee or the holder of more than five percent (5%) of
the Capital Stock of the Company, nor, to the best knowledge of the Company nor
any Employee Benefit Plan has been a party to any such suit, claim, action,
proceeding or investigation during the past two years involving its business,
assets or properties, nor has any such suit, claim, action, proceeding or
investigation been threatened by or against the Company.
3.24 No Material Adverse Changes. Except as set forth on Schedule 3.24
hereto, since the Balance Sheet Date, there has occurred no material adverse
change in the business, assets, properties (tangible and intangible),
operations, condition (financial or otherwise) or liabilities of the Company,
whether or not in the ordinary course of business, whether separately or in the
aggregate with other occurrences or developments, and whether insured against or
not (a "Material Adverse Effect"), and the Company has no knowledge of any
occurrence or development which might reasonably be expected to result in any
such Material Adverse Effect.
3.25 Employee Benefit Plans. Except as described on Schedule 3.25, the
Company does not maintain or operate any Employee Benefit Plan nor has any such
Plan been maintained or operated during the past three years. The Company does
not maintain or contribute to any Guaranteed Pension Plan or Multiemployer Plan.
With respect to each Employee Benefit Plan listed on Schedule 3.25, to the
extent applicable:
(a) Each such Employee Benefit Plan has been maintained and
operated in all material respects in compliance with its terms and with all
applicable provisions of ERISA, the Code and all applicable regulations, rulings
and other authority issued thereunder;
-16-
<PAGE>
(b) All contributions required by law to have been made under
each such Employee Benefit Plan (without regard to any waivers granted under
Section 412 of the Code) to any fund or trust established thereunder or in
connection therewith have been made by the due date thereof;
(c) Each such Employee Benefit Plan intended to qualify under
Section 401(a) of the Code is the subject of a favorable unrevoked determination
letter issued by the Internal Revenue Service as to its qualified status under
the Code, which determination letter may still be relied upon as to such tax
qualified status, and no circumstances have occurred that would adversely affect
qualified status of any such Employee Benefit Plan;
(d) No Employee Benefit Plan is subject to Title IV of ERISA;
(e) None of such Employee Benefit Plans that are "employee
welfare benefit plans" as defined in Section 3(1) of ERISA provides for
continuing benefits or coverage for any participant or beneficiary of a
participant after such participant's termination of employment, except as
required by applicable law, including section 4980B of the Code or Section 601
of ERISA; and
(f) Neither the Company nor any trade or business (whether or
not incorporated) under common control with the Company within the meaning of
Section 4001 of ERISA has, or at any time has had, any obligation to contribute
to any "multiemployer plan" as defined in Section 3(37) of ERISA.
3.26 Withholding, Contracts and Labor Relations. The Company has
withheld all amounts required by law or agreement to be withheld by it from the
wages, salaries and other payments to its employees and is not liable for any
arrears of wages or any taxes or penalties for failure to comply with any of the
foregoing. Except as set forth on Schedule 3.26 hereto, the Company is not a
party to any written employment agreement, arrangement or understanding with any
of its officers, employees, partners or shareholders. There are no collective
bargaining agreements covering any of the employees of the Company. The Company
has not breached or otherwise failed to comply in any material respect with any
provision of any collective bargaining agreement or other labor union contract
applicable to any of its employees. No consent of any union (or any similar
group or organization) is required in connection with the consummation of the
transactions contemplated hereby. There are no pending, threatened or
anticipated (a) employment discrimination charges or complaints against or
involving the Company before any federal, state, or local board, department,
commission or agency, (b) unfair labor practice charges or complaints, disputes
or grievances affecting the Company, (c) union representation petitions
respecting the employees of the Company, (d) efforts being made to organize any
of the employees of the Company or (e) strikes, slow downs, work stoppages, or
lockouts or threats thereof affecting the Company.
3.27 Governmental Regulations. The Company is not a "holding company",
or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935, as amended; nor is the Company an "investment company", or an "affiliated
person" or a "principal underwriter" of an "investment company", as such terms
are defined in the Investment Company Act of 1940,
-17-
<PAGE>
as amended. The Company is not now, nor has it been within the past five years,
a "United States real property holding corporation" as defined in Section 897 of
the Code.
3.28 Corporate Documents, Books and Records. Complete and correct
copies of the Articles of Incorporation and by-laws, and of all amendments
thereto, of the Company and each of the predecessor companies have been
previously made available to PSO, and no changes in said documents will be made
on or before the Closing Date other than as disclosed to, and concurred to in
writing by, PSO. The minute books of the Company and each of the predecessor
companies contain accurate records of all meetings and consents in lieu of
meetings of the Board (and its committees) and shareholders of each corporation
since incorporation. Except as reflected in such minute books, there are no
minutes of meetings or consents in lieu of meetings of the Board (or its
committees) or of the shareholders of the Company. The books and records of the
Company accurately reflect the transactions to which the Company is a party or
by which its properties are subject or bound, and such books and records have
been properly kept and maintained in all material respects.
3.29 Broker Costs. Neither the Company nor, to the best of the
Company's knowledge, the Sellers, is obligated for any Broker Costs relating to
the transactions contemplated by the Stock Purchase Agreement.
3.30 Disclosure. No representation, warranty or statement made in this
Agreement, any Related Agreement, or any agreement, certificate, statement or
document furnished by or on behalf of the Company in connection with the
purchase of the Purchased Securities or grant of the Option contains or will
contain any untrue statement of material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein, in light
of the circumstances in which they were made, not misleading.
3.31 Certain Agreements of Officers and Employees.
(a) No officer or key employee of the Company is, or is now
expected to be, in violation of any term of any employment contract, patent
disclosure agreement, proprietary information agreement, noncompetition
agreement, nonsolicitation agreement, or any other contract or agreement or
restrictive covenant relating to the right of any such officer or employee to be
an employee, to be employed by the Company, or because of the nature of the
business conducted or proposed to be conducted by the Company or relating to the
use of trade secrets or proprietary information of others, and to the Company's
best knowledge and belief, the continued employment of the Company's officers
and employees does not subject the Company or PSO to any liability with respect
to any of the foregoing matters.
(b) Except as set forth on Schedule 3.31(b), to the best
knowledge of the Company, no officer of the Company, nor any key employee of the
Company whose termination, either individually or in the aggregate, would have a
Material Adverse Effect on the Company, has any present intention of terminating
his or her employment with the Company.
(c) For purposes of this Agreement, "key employee" means
any of the Persons described on Schedule 3.31(c).
-18-
<PAGE>
3.32 Registration Rights. Except for the rights granted to the Holders
pursuant to this Agreement, no Person has demand or other registration rights to
cause the Company to file any registration statement under the Securities Act
relating to the securities of the Company or any right to participate in any
such registration statement.
ARTICLE IV
REGISTRATION RIGHTS
4.1 Registration.
(a) Requested Registration. At any time after February 1,
2001, and before February 1, 2011, upon written request by the Holders of the
minimum number of Registrable Securities stated below that the Company effect
the registration under the Securities Act of all or part of the Registrable
Securities (a "Requested Registration"), the Company will use its best efforts,
consistent with practices customary in agreements of this nature, to register
under the Securities Act the Registrable Securities which the Company has been
so requested to register by the Holders within one hundred twenty (120) days
after receipt of such request or within sixty (60) days after receipt of such
request if the Company is qualified to file a registration statement on
Commission Form S-3 or any successor short-form registration statement
(collectively, "Commission Form S-3"); provided, however, that the Company shall
not be obligated to effect a Requested Registration pursuant to this Section
4.1(a) during the one hundred eighty (180) day period immediately following the
commencement of the Company's public offering of equity securities; and
provided, further, that (i) the Company shall not be obligated to effect a
Requested Registration of all or part of the Registrable Securities under cover
of any form other than Commission Form S-3, unless (A) the Holders of at least
60% of the Registrable Securities make such request, and (B) the number of
Registrable Securities in the Requested Registration exceeds 500,000 shares,
(ii) the Company shall not be obligated to effect a Requested Registration of
all or part of the Registrable Securities under cover of Commission Form S-3
unless (A) the Holders of in excess of at least 50% of the Registrable
Securities make such request, and (B) the number of Registrable Securities in
the Requested Registration exceeds 100,000 shares, and (iii) the number of
shares specified in (i) and (ii) shall be proportionately adjusted to reflect
any merger, consolidation, reorganization, stock dividend, stock split,
combination of shares, reclassification, recapitalization, automatic conversion,
redemption or other similar event affecting the number or character of
outstanding shares of Common Stock. The Company must effect up to six (6)
registrations pursuant to this Section 4.1(a) to the extent such registrations
may be effected on Commission Form S-3, but the Company shall not be obligated
to effect more than one (1) Requested Registration hereunder other than on
Commission Form S-3. In the event that the Holders of at least 60% of the
Registrable Securities decide to effect a Requested Registration through an
underwritten offering, the Company may include in such Requested Registration
other securities of the Company for sale, for the Company's account or for the
account of any other Person, if and to the extent that the managing underwriter
determines that the inclusion of such additional shares will not interfere with
the orderly sale of the underwritten securities at a price range reasonably
acceptable to those Holders whose Registrable Securities are to be included in
the registration statement. If the Holders of at least 60% of the Registrable
Securities do not desire to effect the Requested
-19-
<PAGE>
Registration through an underwritten offering, the Company may include in such
Requested Registration other securities of the Company for sale, for the
Company's account or for the account of any other Person. Upon receipt of a
written request pursuant to this subsection (a), the Company shall promptly give
written notice of such request to other Holders and the Company will be
obligated to include in the Requested Registration such number of Registrable
Securities of any other Holders joining in such request as are specified in a
written request by such other Holders received by the Company within 20 days
after the Company gives such written notice.
(b) Incidental Registration. If the Company for itself or any
of its security holders shall at any time or times after the date hereof, but
before February 1, 2011, determine to register under the Securities Act any
shares of its capital stock (other than: (i) the registration of an offer, sale
or other disposition of securities solely to employees (or any of their
successors or assignees) of, or other Persons (or any of their successors or
assignees) providing services to the Company or any Subsidiary pursuant to an
employee or similar benefit plan; or (ii) relating to a merger, acquisition or
other transaction of the type described in Rule 145 under the Securities Act or
a comparable or successor rule, registered on Form S-4 or similar or successor
forms), on each such occasion the Company will notify the Holders of such
determination at least thirty (30) days prior to the anticipated filing date of
such registration statement, and upon the request of the Holders given in
writing within twenty (20) days after the Company gives such notice, the Company
will use best efforts, consistent with practices customary in agreements of this
nature, as soon as practicable thereafter to cause any of the Registrable
Securities specified by the Holders to be included in such registration
statement to the extent such registration is permissible under the Securities
Act and subject to the conditions of the Securities Act (an "Incidental
Registration").
(c) Registration Statement Form. The Company shall, if
permitted by law,effect any registration requested under Section 4.1 by the
filing of a registration statement on Commission Form S-3.
(d) Expenses. The Company shall pay all Registration Expenses
incurred in connection with any Incidental Registration and any Requested
Registrations, except that each Holder shall be required to pay its pro rata
share of underwriting discounts and commissions and any Commission filing fees
and NASD fees.
(e) Effective Registration Statement. A Requested Registration
or an Incidental Registration requested pursuant to Section 4.1(a) or Section
4.1(b), respectively, shall not be deemed to have been effected unless it has
become effective with the Commission. Notwithstanding the foregoing, a
registration statement will not be deemed to have been effected if: (i) after it
has become effective with the Commission, such registration is interfered with
by any stop order, injunction, or other order or requirement of the Commission
or other government agency or any court proceeding for any reason other than a
misrepresentation or omission by Holders; or (ii) the conditions to closing
specified in the purchase agreement or underwriting agreement entered into in
connection with such registration are not satisfied by reason of some act or
omission by the Company.
-20-
<PAGE>
(f) Priority in Incidental Registration. If an Incidental
Registration is an underwritten registration initiated by the Company, and the
managing underwriters shall give written advice to the Company that, in their
opinion, market conditions dictate that no more than a specified maximum number
of securities (the "Underwriter's Maximum Number") could successfully be
included in such Incidental Registration, then: (i) the Company shall be
entitled to include in such registration that number of securities which the
Company proposes to offer and sell for its own account in such registration and
which does not exceed the Underwriter's Maximum Number; and (ii) the Company
will be obligated and required to include in such registration that number of
shares of Registrable Securities which shall have been requested by the holders
of registration rights under this Agreement and any other agreement hereinafter
entered into by the Company, pro rata based upon the total number of shares
requested to be included by all such holders, to the full extent of the
remaining portion of the Underwriter's Maximum Number.
(g) Right to Delay. Notwithstanding anything in Sections
4.1(a) and (b), the Company shall have the right to delay any registration of
Registrable Securities requested pursuant to Sections 4.1(a) and (b), or to
suspend the right of the Holders to sell or offer securities under any
previously effective registration statement, for up to ninety (90) days if such
registration (or offers or sales) would, in the judgment of the Company's Board
of Directors, substantially interfere with any material transaction being
considered at the time of receipt of the request from the Holders.
4.2 Registration Procedures.
(a) Company Duties. If and whenever the Company is required to
use best efforts consistent with practices customary in agreements of this
nature to effect the registration of any Registrable Securities under the
Securities Act as provided in Section 4.1, the Company, subject to the terms and
conditions of Section 4.1, will:
(i) prepare and file with the Commission the
requisite registration statement to effect such registration and use
best efforts consistent with practices customary in agreements of this
nature to cause such registration to become and remain effective for a
period of ninety (90) days;
(ii) permit the Holders to review such registration
statement and to provide for the insertion therein of material,
furnished to the Company in writing, which in the reasonable judgment
of the Holders and the Company and their counsel should be included;
(iii) prepare and file with the Commission such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep
such registration statement effective and to comply with the provisions
of the Securities Act with respect to the disposition of all securities
covered by such registration statement until the earlier of such time
as all of such securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set
forth in such registration statement or the expiration of ninety (90)
days after such registration statement becomes effective;
-21-
<PAGE>
(iv) furnish to the Holders such number of conformed
copies of such registration statement and of each such amendment and
supplement thereto (in each case including all exhibits), such number
of copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and
any other prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and such other
documents, as the purchaser or the Holders of Registrable Securities to
be sold under such registration statement may reasonably request;
(v) use best efforts consistent with practices
customary in agreements of this nature to register or qualify all
Registrable Securities covered by such registration statement under
such other United States state securities or blue sky laws of such
jurisdictions as the Holders of Registrable Securities to be sold under
registration statement shall reasonably request, to keep such
registration or qualification in effect for so long as such
registration under the Securities Act remains in effect, and take any
other action which may be reasonably necessary or advisable to enable
the Holders of Registrable Securities to be sold under such
registration statement to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such Holders,
except that the Company shall not for any such purpose be required to
(a) qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this
subdivision (v) be obligated to be so qualified, or (b) subject itself
to taxation in any such jurisdiction.
(vi) use best efforts consistent with practices
customary in agreements of this nature to cause all Registrable
Securities covered by such registration statement under the Securities
Act to be registered with or approved by such other United States state
governmental agencies or authorities as may be reasonably necessary to
enable the Holders of Registrable Securities to be sold under such
registration statement to consummate the intended disposition of such
Registrable Securities;
(vii) in the event of the issuance of any stop order
suspending the effectiveness of the registration statement under the
Securities Act, or of any order suspending or preventing the use of any
related prospectus or suspending the qualification of any Registrable
Securities included in such registration statement for sale in any
jurisdiction, the Company shall use best efforts consistent with
practices customary in agreements of this nature to obtain the
withdrawal of such order;
(viii) use best efforts consistent with practices
customary in agreements of this nature to furnish to the Holders of
Registrable Securities to be sold under such registration statement (1)
an opinion, dated the effective date of the registration statement, of
the independent counsel representing the Company for the purposes of
such registration (or, if there is no such independent counsel, the
opinion may be rendered by counsel who is an employee of the Company),
addressed to the underwriters, if any, and to the Holders making such
request, stating that such registration statement has become effective
under the Securities Act and that (a) to the knowledge of such counsel,
no stop order suspending the effectiveness thereof has been issued and
no proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act; (b)
-22-
<PAGE>
the registration statement, the related prospectus, and each amendment
or supplement thereto, comply as to form in all material respects with
the requirements of the Securities Act and the applicable rules and
regulations of the Commission thereunder (except that such counsel need
express no opinion as to financial statements or other financial or
statistical data or information contained therein); (c) such counsel
has no reason to believe that either the registration statement or the
prospectus, or any amendment or supplement thereto, contains any untrue
statement of a material fact or omits a material fact necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading; (d) the descriptions in the registration
statement or the prospectus, or any amendment or supplement thereto, of
all legal and governmental matters and contracts and other legal
documents or instruments are accurate in all material respects and
fairly present the information required to be presented; and (e) such
counsel does not know of any legal or governmental proceedings, pending
or contemplated, required to be described in the registration statement
or prospectus, or any amendment or supplement thereto, which are not
described as required nor of any contracts or documents or instruments
of a character required to be described in the registration statement
or prospectus, or any amendment or supplement thereto or to be filed as
exhibits to the registration statement which are not described and
filed as required; and (2) a letter, dated the effective date of the
registration statement, from the independent certified public
accountants of the Company, addressed to the underwriters, if any, and
to the Holders making such request, stating that they are independent
certified public accountants within the meaning of the Securities Act
and that in the opinion of such accountants, the financial statements
and other financial data of the Company included in the registration
statement or the prospectus, or any amendment or supplement thereto,
comply as to form in all material respects with the applicable
accounting requirements of the Securities Act.
Such opinion of counsel shall additionally cover such legal
matters with respect to the registration in respect of which such
opinion is being given as the Holders may reasonably request. Such
letter from the independent certified public accountants shall
additionally cover such other financial matters (including information
as to the period ending not more than five business days prior to the
date of such letter) with respect to the registration in respect of
which such letter is being given as the Holders may reasonably request;
(ix) immediately notify the Holders of Registrable
Securities included in 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 result of which the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
under which they were made, and at the request of the Holders promptly
prepare and furnish to the Holders a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such securities,
such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
-23-
<PAGE>
necessary to make the statements therein not misleading in the light
of the circumstances under which they were made;
(x) otherwise comply with all applicable rules and
regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than
eighteen months, beginning with the first full calendar month after the
effective date of such registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder, and not file any amendment or supplement to such
registration statement or prospectus to which any Holder shall have
reasonably objected in writing on the grounds that such amendment or
supplement does not comply in all material respects with the
requirements of the Securities Act or of the rules or regulations
thereunder, having been furnished with a copy thereof at least two
business days prior to the filing thereof;
(xi) provide a transfer agent (which may be the
Company) for all Registrable Securities covered by such registration
statement not later than the effective date of such registration
statement; and
(xii) list all Registrable Securities covered by such
registration statement on any securities exchange on which any of the
Registrable Securities are then listed.
(b) Duty of Holders to Supply Information. The Company may
require the Holders of Registrable Securities to be sold under such registration
statement, at the Company's expense, to furnish the Company with such
information and undertakings as it may reasonably request regarding the Holders
and the distribution of such securities as the Company may from time to time
reasonably request in writing.
(c) Additional Duties of Holders. Each Holder, by execution of
this Agreement, agrees (A) that upon receipt of any notice of the Company of the
happening of any event of the kind described in Section 4.2(a)(ix), such Holder
will forthwith discontinue its disposition of Registrable Securities pursuant to
the registration statement relating to such Registrable Securities until the
receipt by such Holder of the copies of the supplemented or amended prospectus
contemplated by Section 4.2(a)(ix) and, if so directed by the Company, will
deliver to the Company all copies other than permanent file copies, then in
possession of the Holder of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice, and (B) that it will
immediately notify the Company, at any time when a prospectus relating to the
registration of such Registrable Securities is required to be delivered under
the Securities Act, of the happening of any event as a result of which
information previously furnished by such Holder to the Company for inclusion in
such prospectus contains an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made. In the event the Company shall give any such notice, the period
referred to in Section 4.2(a)(iii) shall be extended by a number of days equal
to the number of days during the period from and including the giving of notice
pursuant to Section 4.2(a)(ix) to and including the date when such Holder shall
have received the copies of the supplemented or amended prospectus contemplated
by Section 4.2(a)(ix).
-24-
<PAGE>
4.3 Underwritten Offerings.
(a) Underwritten Offering. In connection with any underwritten
offering pursuant to a registration requested under Section 4.1(a), the Company
will enter into an underwriting agreement with the underwriters for such
offering, such agreement to be in form and substance reasonably satisfactory to
the Company and the Holders of at least 60% of the Registrable Securities
included in the registration in their reasonable judgment and to contain such
representations and warranties by the Company and the Holders and such other
terms as are customarily contained in agreements of that type, including,
without limitation, indemnities. The Holders shall be parties to such
underwriting agreement and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of Holders and that any or all of the conditions precedent to
the obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligations of the Holders. The Holders shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriters other than representations, warranties or agreements
regarding the Holders and their intended method of distribution and any other
representations required by law or as are customarily contained in agreements of
that type.
(b) Selection of Underwriters. If a Requested Registration
pursuant to Section 4.1(a) involves an underwritten offering, then the Company
shall select the underwriter from underwriting firms of national reputation.
(c) Holdback Agreements. Each Holder agrees, if so reasonably
required by the managing underwriter in a registration pursuant to Section 4.1,
not to effect any public sale or distribution of Registrable Securities or sales
of such Registrable Securities pursuant to Rule 144 or Rule 144A under the
Securities Act, during the seven (7) days prior to and the one hundred eighty
(180) days after any firm commitment underwritten registration pursuant to
Section 4.1 has become effective (except as part of such underwritten
registration) or, if the managing underwriter advises the Company that, in its
opinion, no such public sale or distribution should be effected for a period of
not more than one hundred eighty (180) days after such underwritten registration
in order to complete the sale and distribution of securities included in such
registration or facilitate such sale and distribution and the Company gives
notice to such effect to the Holder of such advice, the Holder shall not effect
any public sale or distribution of Registrable Securities or sales of such
Registrable Securities pursuant to Rule 144 or Rule 144A under the Securities
Act during such period after such underwritten registration, except as part of
such underwritten registration, whether or not the Holder participates in such
registration.
4.4 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act,
the Company will give the Holders of Registrable Securities to be sold under
such registration statement, the underwriters, if any, and their respective
counsel and accountants, drafts and final copies of such registration statement,
each prospectus included therein or filed with the Commission and each amendment
thereof or supplement thereto, at least 5 business days (or shorter if not
reasonably practicable) prior to the filing thereof with the Commission, and
will give each of them such access (subject to reasonable and customary
confidentiality restrictions) to its books and records and such opportunities to
discuss the business of the Company with its officers and the independent public
-25-
<PAGE>
accountants who have certified its financial statements as shall be necessary,
in the opinion of the Holders and such underwriters' respective counsel, to
conduct a reasonable investigation within the meaning of the Securities Act.
ARTICLE V
COVENANTS APPLICABLE TO THE COMPANY WHILE REGISTRABLE
SECURITIES ARE HELD BY THE HOLDERS
The Company covenants that, while any Registrable Securities are held
by the Holders, the Company will comply with the following provisions unless
otherwise approved by the Holders or otherwise specifically provided for in this
Article V.
5.1 Corporate Existence; Subsidiaries; Maintenance of Properties. The
Company will preserve and keep in full force and effect its corporate existence,
rights and franchises. The Company will not engage in any business other than
those presently conducted or now contemplated by such Persons and those
businesses substantially similar to the business now conducted or now
contemplated. The Company will maintain all of its properties used or useful in
the conduct of its business in good condition, repair and working order (normal
wear and tear excepted) and cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section 5.1 shall prevent the Company from
discontinuing the operation and maintenance of any of such properties if such
discontinuance is, in the judgment of the Company, desirable in the conduct of
such Person's business and does not cause a Material Adverse Effect.
5.2 Insurance. The Company will maintain with financially sound and
reputable insurance companies, funds or underwriters, insurance of the kinds,
covering the risks and in the relative proportionate amounts usually carried by
reasonable and prudent companies conducting businesses similar to that of the
Company except as otherwise determined by the Board.
5.3 Taxes. The Company will pay and discharge, or cause to be paid and
discharged, before the same shall become overdue, all Taxes, assessments and
other governmental charges imposed upon the Company and its respective real
properties, sales and activities, or any part thereof, or upon the income or
profits therefrom, as well as all claims for labor, materials, or supplies,
which if unpaid might by law become a Lien or charge upon any of its properties;
provided, however, that any such Tax, assessment, charge, levy or claim need not
be paid if the validity or amount thereof shall currently be contested in good
faith by appropriate proceedings and if the Company shall have set aside on its
books adequate reserves with respect thereto; and provided, further, that the
Company will pay or cause to be paid all such taxes, assessments, charges,
levies or claims forthwith upon the commencement of foreclosure on any lien
which may have attached as security therefor.
-26-
<PAGE>
5.4 Inspection of Properties and Books. With respect to each Holder,
the Company shall permit the Holder or any of its designated representatives to
visit and inspect any of the properties of the Company, to examine the books of
account of the Company (and to make copies thereof and extracts therefrom), and
to discuss the affairs, finances and accounts of the Company with, and to be
advised as to the same by, officers or partners of such Persons, upon reasonable
prior notice and during normal business hours, in a manner calculated not to
disrupt ongoing business activities and at such intervals as the Holder may
reasonably request; and provided that adequate provisions are made to honor and
protect the Company's obligation to third parties to safeguard its confidential
information.
5.5 Compliance with Laws; Contracts and Licenses. The Company will (a)
comply in all material respects with all applicable laws and regulations
wherever its business is conducted, (b) comply with the provisions of its
Articles of Incorporation, as amended from time to time, and bylaws, (c) comply
in all material respects with all agreements and instruments by which it or any
of its properties may be bound, (d) comply with all applicable decrees, orders,
and judgments and (e) comply in all material respects with all required
approvals, permits and licenses. If at any time while any Registrable Security
is outstanding, any License from any officer, agency or instrumentality of any
government shall become necessary or required in order that any of the Company
or its Subsidiaries may fulfill any of its obligations hereunder, each of the
Company and its Subsidiaries will promptly take or cause to be taken all
reasonable steps within its power to obtain such License and furnish Holders
with evidence thereof.
5.6 Financial and Other Information. The Company shall deliver to each
Holder the following (provided, however, that the Company shall not be obligated
to provide information that it deems in good faith to be proprietary or
confidential unless the Holder provides reasonable assurances in writing that it
will maintain the confidentiality of the information):
(a) as soon as practicable, but in any event within one
hundred twenty (120) days after the end of each fiscal year, an audited balance
sheet as of the fiscal year-end and audited statements of operations, sources
and uses of funds, and stockholders' equity for the fiscal year;
(b) as soon as practicable, but in any event within forty-five
(45) days after the end of each of the first three fiscal quarters, an unaudited
balance sheet of the Company as of the end of such fiscal quarter and an
unaudited statement of operations for such fiscal quarter;
(c) as soon as practicable, but in any event within thirty
(30) days after the end of each fiscal year of the Company, an annual budget and
business plan for the forthcoming year; and
(e) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as the Holder
may from time to time reasonably request.
5.7 Covenants Relating to Rule 144. 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
-27-
<PAGE>
securities of the Company to the public without registration after such time as
the Company is subject to the reporting requirements of the Exchange Act, the
Company agrees:
(a) 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 of the first registration under the Securities
Act filed by the Company for an offering of its securities to the general
public;
(b) 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, as amended (at any time after it has become, and so long as it is,
subject to such reporting requirements); and
(c) 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 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,
and so long as it is, 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 as a Holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing a Holder to sell any such
securities without registration.
5.8 Dilutive Issuances.
(a) The Company agrees that it will not, without the consent
of PSO, issue any shares of Common Stock on a Fully Diluted Basis at a price
lower than $6.00 per share, proportionately adjusted to reflect any stock
dividend, stock split, combination of shares, reclassification,
recapitalization, automatic conversion, redemption or other similar event
affecting the number or character of outstanding shares of Common Stock;
provided, the provisions of this Section 5.8 shall not apply to (i) Options
issued to any employees of the Company pursuant to any Approved Management
Incentive Plan; (ii) Common Stock issued pursuant to the exercise of Options
granted under any Approved Management Incentive Plan; and (iii) shares of Class
A Stock issued to the holder of shares of Class B Stock upon the conversion of
any share of Class B Stock to Class A Stock, and vice versa.
(b) As used in this Section 5.8, (i) "Fully Diluted Basis"
shall mean with respect to any shares of Capital Stock of the Company the
aggregate of (A) all of such shares which consist of Common Stock, and (B) with
respect to any other shares which are not Common Stock, the number of shares of
Common Stock into which such shares are convertible at the time of determination
of such Fully Diluted Basis, and (C) with respect to any Options, the maximum
number of shares of Common Stock issuable at the time of such determination in
connection with the exercise or conversion of any such Options; (ii) "Options"
shall mean any rights, options, or warrants to purchase shares of Common Stock
from the Company, and securities of any type whatsoever that are, or may become,
convertible into, exercisable, exchangeable, or carry rights to subscribe for
any Common Stock of the Company; and (iii)
-28-
<PAGE>
"Approved Management Incentive Plan" shall mean any incentive stock plan or
other form of incentive compensation approved by the Company's Board of
Directors and PSO in writing.
ARTICLE VI
INDEMNIFICATION AND CONTRIBUTION
6.1 Representations, Warranties and Covenants.
(a) Notwithstanding any disclosures made in the Schedules
hereto, the Company hereby agrees to indemnify, exonerate and hold each Holder
and its shareholders, officers, directors, employees and agents (each, an
"Indemnitee") free and harmless from and against any and all actions, causes of
action, suits, claims, losses, liabilities, damages and expenses, including,
without limitation, reasonable attorneys' fees and disbursements (collectively,
"Damages") arising out of or resulting from any failure by the Company to comply
with any of its covenants or any breach by the Company of any of its
representations and warranties in this Agreement or any other agreement
contemplated hereby, except where such Damages are caused directly by the
actions of the Indemnitee in violation of its obligations under such agreements.
(b) The aggregate liability of the Company for claims made
under Section 6.1(a) shall not exceed $3,500,000. In addition to the foregoing,
the Company shall not be liable for any claim made under Section 6.1(a) unless
such claim exceeds $75,000; provided, when the cumulative claims under Section
6.1(a) exceed $250,000, the Company shall be liable for all such claims up to
the $3,500,000 general limitation.
(c) The parties acknowledge that PSO has a right of
indemnification against certain of the Sellers under Article VIII of the Stock
Purchase Agreement (referred to therein as the "Indemnitors") that is similar to
PSO's right of indemnification against the Company under Section 6.1 of this
Agreement. PSO agrees that its aggregate recovery of Damages under said Article
VIII of the Stock Purchase Agreement and Section 6.1 of this Agreement shall not
exceed $3,500,000; provided, however, the parties further agree that nothing
herein shall affect PSO's unconditional right to pursue indemnification against
the Company under Section 6.1 of this Agreement, the Indemnitors (jointly and
severally) under Article VIII of the Stock Purchase Agreement, or any
combination thereof, at PSO's sole discretion.
6.2 Registration Rights.
(a) Indemnification by the Company. In the event of any
registration under the Securities Act pursuant to Section 4.1 of any Registrable
Securities covered by such registration, the Company will, and hereby does,
indemnify and hold harmless each Holder of Registrable Securities to be sold
under such registration statement, and each Person, if any, who controls any
such Holder within the meaning of the Securities Act (collectively, the
"Indemnified Parties"), against any losses, claims, damages or liabilities,
joint or several, to which the Holder or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions or proceedings, whether commenced or
-29-
<PAGE>
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein or any document incorporated therein by reference,
or any amendment or supplement thereto, 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, or arise out of any violation by the
Company of any rule or regulation promulgated under the Securities Act or state
securities law applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration, and the
Company will reimburse the Indemnified Parties for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided,
however, that the Company shall not be liable to any Indemnified Party in any
such case to the extent that any such loss, claim, damage, liability (or action
or proceeding in respect thereof) or expense arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such Indemnified
Party.
(b) Indemnification by the Holders. The Holders will, and
hereby do, indemnify and hold harmless (in the same manner and to the same
extent as set forth in Section 6.2(a)) the Company, each director of the
Company, each officer of the Company and each other person, if any, who controls
the Company within the meaning of the Securities Act, with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if, and
only if, such statement or alleged statement or omission or alleged omission was
made in reliance upon and in conformity with information furnished in writing to
the Company directly by such person or entity specifically for use therein.
(c) Other Indemnification. Indemnification similar to that
specified in Sections 6.2(a) and (b) (with appropriate modifications) shall be
given by the Company and each Holder of Registrable Securities included in any
registration statement with respect to any required registration or other
qualification of securities under any Federal or state law or regulation of any
governmental authority, other than the Securities Act.
6.3 Notices of Claims, etc. Promptly after receipt by an Indemnified
Party of notice of the commencement of any action or proceeding involving a
claim referred to in Sections 6.1 or 6.2, such Indemnified Party will, if a
claim in respect thereof is to be made against a party required to provide
indemnification (an "Indemnifying Party"), give written notice to the latter of
the commencement of such action or proceeding, provided, however, that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under Section 6.1 and 6.2,
except to the extent that the Indemnifying Party is actually prejudiced by such
failure to give notice. In case any such action or proceeding is brought against
an Indemnified Party, unless in such Indemnified Party's reasonable judgment a
conflict of interest between such Indemnified and Indemnifying Parties may exist
in respect of such claim, the Indemnifying Party shall be entitled to
participate in and to assume the
-30-
<PAGE>
defense thereof, jointly with any other Indemnifying Party similarly notified to
the extent that it may wish, with counsel reasonably satisfactory to such
Indemnified Party, and after notice from the Indemnifying Party to such
Indemnified Party of its election so to assume the defense thereof, the
Indemnifying Party shall not be liable to such Indemnified Party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No Indemnifying
Party shall consent to entry of any judgment or enter into any settlement
without the consent of the Indemnified Party which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
6.4 Contribution. If the indemnification provided for in this Article
VI is unavailable or insufficient to hold harmless an Indemnified Party, other
than because such indemnification by its terms is inapplicable, then each
Indemnifying Party shall contribute to the amount paid or payable to such
Indemnified Party as a result of the losses, claims, damages or liabilities
referred to in this Article VI an amount or additional amount, as the case may
be, in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party or parties on the one hand and the Indemnified Party on the
other in connection with the statements or omissions which resulted in such
losses, claims, demands or liabilities as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Indemnifying Party or parties on the one hand or the
Indemnified Party on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The parties agree that it would not be just and equitable
if contributions pursuant to this Section 6.4 were determined by pro rata
allocation or any other method of allocation which did not take into account the
equitable considerations referred to above. The amount payable to an Indemnified
Party as a result of the losses, claims, damages or liabilities referred to in
the first sentence of this Section 6.4 shall be deemed to include any legal or
other expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any action or claim which is the subject of this
Article VI. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
ARTICLE VII
MISCELLANEOUS
7.1 Specific Performance. The parties hereto acknowledge that there may
be no adequate remedy at law if any party fails to perform any of its
obligations hereunder and that each party may be irreparably harmed by any such
failure, and accordingly agree that each party, in addition to any other remedy
to which it may be entitled at law or in equity, shall be entitled to compel
specific performance of the obligations of any other party under this Agreement
in accordance with the terms and conditions of this Agreement.
-31-
<PAGE>
7.2 Notices.
(a) All demands, requests, notices and other communications
required or permitted to be given under this Agreement shall be in writing and
shall be deemed to have been duly given if delivered personally or sent by
United States first class mail, postage prepaid, and to the parties hereto at
the following address or at such other address as any party hereto shall
hereafter specify by notice to the other party hereto:
if to the Company, addressed to:
SCIENTECH, Inc.
1690 International Way
Idaho Falls, Idaho 83402
Tel: (208) 522-5500
Fax: (208) 522-6771
with a copy to:
Moffatt, Thomas, Barrett, Rock & Fields
101 South Capitol Boulevard
Boise, Idaho 83701
Attention: Paul Street
Tel: 208-345-2000
Fax: 208-385-5384
if to PSO, addressed to:
PUBLIC SERVICE COMPANY OF OKLAHOMA
c/o CSW Business Ventures
Two West Second Street
Tulsa, Oklahoma 74103
Attention: David Thomison
Telephone: (918) 594-2278
Facsimile: (918) 594-3841
with a copy to:
Doerner, Saunders, Daniel & Anderson
320 South Boston, Suite 500
Tulsa, Oklahoma 74103
Attention: H. Wayne Cooper
Tel: 918-581-1211
Fax: 918-591-5360
-32-
<PAGE>
if to any other Holder, addressed to:
c/o SCIENTECH, Inc.
1690 International Way
Idaho Falls, Idaho 83402
Attention: Dr. L. J. Ybarrondo
Tel: (208) 522-5500
Fax: (208) 522-6771
with a copy to:
Egger Betts Austin Ahrens Treacy
2300 City Center Bellevue
500 108th Avenue N.E.
Bellevue, Washington 98004
Attention: Ed Ahrens
Tel: (206) 450-3300
Fax: (206) 450-3310
(b) Notices shall be deemed given upon the earlier to occur of
(i) receipt by the party to whom such notice is directed; (ii) if sent by
facsimile machine, on the day (other than a Saturday, Sunday or legal holiday in
the jurisdiction to which such notice is directed) such notice is sent if sent
(as evidenced by the facsimile confirmed receipt) prior to 4:00 p.m. Mountain
Time and, if sent after 4:00 p.m. Mountain Time, on the day (other than a
Saturday, Sunday or legal holiday in the jurisdiction to which such notice is
directed) after which such notice is sent; (iii) on the first business day
(other than a Saturday, Sunday or legal holiday in the jurisdiction to which
such notice is directed) following the day the same is deposited with the
commercial carrier if sent by commercial overnight delivery service; or (iv) the
fifth day (other than a Saturday, Sunday or legal holiday in the jurisdiction to
which such notice is directed) following deposit thereof with the U..S. Postal
Service as aforesaid. Each party, by notice duly given in accordance therewith
may specify a different address for the giving of any notice hereunder.
7.3 Survival and Termination of Covenants, Agreements, Representations
and Warranties. All covenants, agreements, representations and warranties made
herein or in any other document referred to herein or delivered to any party
pursuant hereto shall be deemed to have been relied on by each such party,
notwithstanding any investigation made by such party or on its behalf. All
representations and warranties made herein or in any of the Related Agreements
shall survive the execution and delivery of this Agreement and of the transfer
of the Purchased Securities, the Option, or Option Securities; provided, in no
event may PSO initiate an action for indemnification arising out of a breach of
any representation or warranty under Article III after the fifth anniversary of
the date of this Agreement.
7.4 Amendments and Waivers. Except as otherwise expressly provided
herein, 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
parties hereto; provided, any amendment to Article IV may
-33-
<PAGE>
be made pursuant to a writing signed by the Company and Holders of 60% of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 7.4 shall be binding upon any assignee of such party.
7.5 Entire Agreement. This Agreement and the Related Agreements, as
applicable, referred to herein constitute the whole and entire agreement between
the parties pertaining to the subject matter hereof, and supersedes all prior
agreements or understandings between the parties with respect thereto.
7.6 Governing Law. The validity, construction and enforcement of, and
the remedies under, this Agreement shall be governed in accordance with the laws
of Idaho, except any choice of law provision of Idaho law shall not apply if the
law of a state or jurisdiction other than Idaho would apply thereby.
7.7 Jurisdiction and Venue. The parties to this Agreement agree that
jurisdiction and venue of any action brought to enforce, or to construe or
determine the validity of, any term or provision contained in this agreement
shall properly lie in the District Court of Bonneville County, Idaho, or the
United States District Court for the District of Idaho, or the District Court of
Tulsa County, Oklahoma, or the United States District Court for the Northern
District of Oklahoma. Such jurisdiction and venue are merely permissive;
jurisdiction and venue shall also continue to lie in any court where
jurisdiction and venue would otherwise be proper. The parties further agree that
the mailing by certified mail, return receipt requested, or the delivery by any
recognized expedited delivery service, of any process required by any such court
shall, when received, constitute valid and lawful service of process against
them, without the necessity for service by any other means otherwise provided by
statute or rule of court.
7.8 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Registration rights under this
Agreement are assignable to any transferee of Registrable Securities. No party
may assign its obligations hereunder without the prior written consent of the
other parties; provided, notwithstanding any provision of this Agreement or any
Related Agreement to the contrary, without prior notice to or consent of the
Company, PSO may assign all of its rights and obligations under this Agreement,
or any or all of its Purchased Securities, Option, and Option Securities
purchased under the Stock Purchase Agreement, to any Affiliate under the direct
or indirect control of PSO's parent corporation, Central and South West
Corporation.
7.9 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
7.10 Attorneys' Fees. If any action is brought to enforce, or to
construe or determine the validity of, any term or provision of this Agreement,
the prevailing party shall be entitled to reasonable attorneys' fees, costs, and
disbursements in addition to any other relief to which such party may be
entitled.
7.11 Severability. If any provision of this Agreement is held to
be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of
-34-
<PAGE>
the Agreement shall be interpreted as if such provision were so excluded and
shall be enforceable in accordance with its terms.
7.12 Pronouns and Plurals. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
7.13 Further Action. The parties to this Agreement shall execute
and deliver all documents, provide all information and take or refrain from
taking action as may be necessary or appropriate to achieve the purposes of
this Agreement.
7.14 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach or any other covenant, duty, agreement or
condition.
7.15 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which shall constitute one and
the same instrument. Any signature delivered by facsimile transmission shall be
deemed a valid and binding signature for all purposes hereof.
7.16 Construction. All parties hereto having participated actively in
the negotiation and drafting of this Agreement, and each party having been
represented by counsel, the terms of this Agreement shall not be construed
against, nor more favorably to, any party, regardless of their responsibility
for its preparation.
7.17 Expenses. The Company on the one hand, and each of the other
parties hereto on the other hand, agree to pay their separate costs and expenses
(such as travel, photocopy and telephone expenses and including the fees and
expenses of counsel) in connection with the documentation of the transactions
contemplated by this Agreement, and shall not be liable for the other's
expenses.
7.18 Escrow. The effectiveness of this Agreement is subject to and
contingent upon approval, as provided therein, of the Stock Purchase Agreement,
and all transactions contemplated thereby, by the Commission under the Public
Utility Holding Company Act, of 1935, as amended. Pending such approval, the
parties agree to execute, deliver, and deposit this Agreement with the Escrow
Agent (as such term is defined in the Stock Purchase Agreement) pursuant to the
terms of the Escrow Agreement.
(a) In the event the Commission disapproves of the
transactions contemplated by the Stock Purchase Agreement, or in the event no
approval, as provided therein, or denial is received from the Commission within
75 days from the date hereof (or such later date as may be agreed to in writing
by PSO and Dr. L. J. Ybarrondo and communicated to the Escrow Agent) (i) this
Agreement shall be rescinded, and (ii) no party hereto shall have any liability
to any other party whatsoever.
-35-
<PAGE>
(b) In the event of Commission approval, as provided therein,
of the Stock Purchase Agreement, and all transactions contemplated thereby, this
Agreement shall be delivered by the Escrow Agreement to all parties and shall
continue in full force and effect.
[Remainder of Page Intentionally Left Blank]
-36-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
"Company"
SCIENTECH, Inc.
By:
Name:
Title:
"Holders"
PUBLIC SERVICE COMPANY OF OKLAHOMA
By:
Name:
Title:
YBARRONDO FAMILY TRUST C-2
By:
Dr. L. J. Ybarrondo, Trustee
DR. L. J. YBARRONDO
-37-
<PAGE>
KR ACQUISITION CORP.
By:
Bruce Robinson, Chairman
ROGER J. MATTSON
-38-
