FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-20760
GREKA Energy Corporation
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(Exact name of registrant as specified in its charter)
Colorado 84-1091986
- - --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification No.)
630 Fifth Avenue, Suite 1501, New York, NY 10111
------------------------------------------------
(Address of principal executive office)
(212) 218-4680
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(Registrant's telephone number, including area code)
Not applicable
------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. X Yes No
--- ---
<PAGE>
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
As of November 15, 1999, GREKA Energy had 4,311,603 shares of Common Stock, no
par value per share, outstanding.
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION ............................................ 3
Item 1. Financial Statements ............................................. 3
Condensed Consolidated Balance Sheets as of September 30, 1999
(Unaudited) and December 31, 1998 .................................... 3
Condensed Consolidated Statements of Operations for the Nine and
Three Month Periods Ended September 30, 1999 and 1998 (Unaudited)..... 5
Condensed Consolidated Statements of Cash Flows for the Nine
Month Periods Ended September 30, 1999 and 1998 (Unaudited) ......... 6
Notes to Condensed Consolidated Financial Statements (Unaudited) ....... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................... 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 30
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................. 31
Item 2. Changes in Securities and Use of Proceeds......................... 32
Item 3. Defaults Upon Senior Securities................................... 32
Item 4. Submission of Matters to a Vote of Security Holders............... 32
Item 5. Other Information................................................. 32
Item 6. Exhibits and Reports on Form 8-K.................................. 33
SIGNATURE.................................................................. 34
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
GREKA ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30,
1999 December 31,
(Unaudited) 1998
------------ -------------
Current Assets
Cash and cash equivalents ............... $ 485,015 $ 250,212
Accounts receivable, net of
allowance for doubtful accounts
of $161,500(1999)and $74,000 (1998) .... 6,027,306 20,807
Inventories ............................. 7,337,608 --
Other current assets .................... 1,988,837 150,788
------------ -------------
Total Current Assets ............. 15,838,766 421,807
------------ -------------
Property and Equipment
Investment in limestone property,
at cost ................................ 3,699,304 3,500,000
Oil and gas properties (full
cost method) ........................... 24,796,168 3,445,816
Land, plant and equipment ............... 42,857,993 1,561,475
------------ -------------
71,353,465 8,507,291
Less accumulated depletion,
depreciation and impairment ............ (6,340,722) (4,081,340)
------------ -------------
Total Property and Equipment ..... 65,012,743 4,425,951
------------ -------------
Other Assets
Investment in Saba Petroleum Company .... -- 15,804,110
Other ................................... 1,998,532 154,937
------------ -------------
Total Other Assets ............... 1,998,532 15,959,047
------------ -------------
$ 82,850,041 $ 20,806,805
============ =============
The accompanying notes are an integral part of these financial statements.
3
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GREKA ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30,
1999 December 31,
(Unaudited) 1998
------------ -------------
Current Liabilities
Accounts payable and accrued
liabilities .............................. $ 11,062,902 $ 236,323
Income taxes payable ...................... 400,804 --
Current portion of long-term debt ......... 23,749,621 2,013,338
------------ -------------
Total Current Liabilities .......... 35,213,327 2,249,661
------------ -------------
Long-term Debt, net of current portion ......... 8,286,236 52,634
Other Liabilities .............................. 740,642 --
Preferred Stock of Subsidiary .................. 7,411,756 --
------------ -------------
16,438,684 52,634
------------ -------------
Commitments and contingencies
Stockholders' Equity
Common Stock, no par value, authorized
50,000,000 shares; issued and
outstanding 4,311,603 (1999) and
2,910,988 (1998) shares ................... 36,833,623 25,735,019
Accumulated comprehensive income .......... 63,982 --
Accumulated deficit ....................... (5,699,525) (7,230,509)
------------ -------------
Total Stockholders' Equity ................ 31,198,080 18,504,510
------------ -------------
$ 82,850,041 $ 20,806,805
============ =============
The accompanying notes are an integral part of these financial statements.
4
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<TABLE>
<CAPTION>
GREKA ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Three Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
Revenues
<S> <C> <C> <C> <C>
Oil and gas sales ......................... $ 7,572,548 $ 129,852 $ 2,877,134 $ 9,704
Refinery product sales and other........... 11,109,927 72,011 6,756,778 22,408
------------ ------------ ------------ ------------
Total Revenues ................... 18,682,475 201,863 9,633,912 32,112
------------ ------------ ------------ ------------
Expenses
Production costs .......................... 3,672,740 119,334 1,089,991 29,942
Refinery product cost
of sales .................................. 6,611,000 -- 4,545,349 --
General & administrative .................. 2,347,971 1,044,753 760,968 278,108
Depletion, depreciation
& amortization ............................ 2,830,334 226,225 1,111,148 116,859
------------ ------------ ------------ ------------
Total Expenses ............................ 15,462,045 1,390,312 7,507,456 424,909
------------ ------------ ------------ ------------
Operating income (loss) ................... 3,220,430 (1,188,449) 2,126,456 (392,797)
Other Income (Expenses)
Equity in pre-acquisition
loss of Saba .............................. (553,483) -- -- --
Other, net ................................ 650,516 -- (28,749) --
Interest expense .......................... (1,334,996) -- (688,675) --
------------ ------------ ------------ ------------
Other Income (Expense), Net ............... (1,237,963) -- (717,424) --
------------ ------------ ------------ ------------
Income (loss)
before income taxes ....................... 1,982,467 (1,188,449) 1,409,032 (392,797)
Provision for Colombia
taxes ..................................... 472,100 -- -- --
Minority interest in (Loss) of
Consolidated Subsidiary ................... (20,617) -- -- --
------------ ------------ ------------ ------------
Net Income (Loss) ......................... 1,530,984 (1,188,449) 1,409,032
Other Comprehensive Income -
net of tax Foreign currency
translation adjustments .......... 63,982 -- -- --
------------ ------------ ------------ ------------
Comprehensive Income (Loss) ............... $ 1,594,966 $ (1,188,449) $ 1,409,032 $ (392,797)
============ ============ ============ ============
NeT Earnings (Loss) per common share
Basic ..................................... $ 0.36 $ (0.76) $ 0.33 $ (0.25)
NeT Earnings (Loss) per common share
Fully Diluted ............................. $ 0.35 $ (0.76) $ 0.32 $ (0.25)
Weighted Average Common Shares Outstanding,
Basic and Diluted ......................... 4,255,737 1,570,981 4,290,079 1,570,981
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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<TABLE>
<CAPTION>
GREKA ENERGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
1999 1998
------------ ------------
Cash Flows from Operating Activities
<S> <C> <C>
Net income (loss) ......................... $ 1,530,984 $ (1,188,450)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depletion, depreciation and
amortization ............................... 2,830,334 226,225
Equity in pre-acquisition loss of Saba ....... 553,483 --
Minority interest in (loss) of
consolidated subsidiary .................... (20,617) --
Compensation expense attributable to the
issuance of Common Stock ................ 150,000 --
Changes in:
Accounts receivable ....................... (4,358,512) 7,952
Inventories ............................... (2,132,891) --
Other assets ................................. 197,693 (3,272)
Accounts payable and accrued
liabilities ................................ (643,627) (1,015,639)
------------ ------------
Net Cash Used In Operating
Activities ................................. (940,913) (1,973,184)
------------ ------------
Cash Flows from Investing Activities
Acquisition of inventory ...................... (1,000,000) --
Expenditures for property and equipment ....... (1,090,763) (1,180,560)
Proceeds from Sale of property................. 915,000 --
Expenditures for acquisition of Saba,
net of cash acquired ......................... 234,850 --
------------ ------------
Net Cash Used In
Investing Activities ........................ (940,913) (1,180,560)
------------ ------------
Cash Flows from Financing Activities
Increase in deferred financing costs .......... (330,348) --
Proceeds from notes payable and
long-term debt:
BNY Financial Corporation .................... 10,526,450 --
15% Debenture ................................ 1,000,000 --
Principal payments on notes payable and
long-term debt:
Bank One, Texas .............................. (6,000,000) --
BNY Financial Corporation .................... (2,021,838) --
Other ..................................... (105,395) (24,802)
Net proceeds from issuance of Common
Stock ..................................... -- 84,446
------------ ------------
Net Cash Provided By Financing
Activities ................................... 3,068,869 59,644
------------ ------------
Net Increase (Decrease) in Cash and
Cash Equivalents .......................... 234,803 (3,094,100)
Cash and Cash Equivalents at Beginning
of Period ................................. 250,212 3,932,647
------------ ------------
Cash and Cash Equivalents at End
of Period ......................................... $ 485,015 $ 1,838,547
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
GREKA ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
General
The accompanying unaudited condensed consolidated financial statements have been
prepared on a basis consistent with the accounting principles and policies
reflected in the financial statements for the year ended December 31, 1998, and
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's 1998 Form 10-KSB/A2. In the opinion of
management, the accompanying unaudited condensed consolidated financial
statements contain all adjustments (which, except as otherwise disclosed herein,
consist of normal recurring accruals only) necessary to present fairly the
Company's consolidated financial position as of September 30, 1999,and the
consolidated results of operations for the nine and three month periods ended
September 30, 1999 and 1998, and the consolidated cash flows for the nine month
periods ended September 30, 1999 and 1998.
Acquisition of Saba Petroleum Company
On October 8, 1998, the Company disclosed that it had acquired over five percent
of the outstanding common stock of Saba Petroleum Company ("Saba"), with the
intent to gain control of Saba.
In December, 1998, the Boards of Directors of both companies approved Greka's
proposal to acquire Saba. Under the acquisition agreement, Saba's stockholders
would receive one share of the Company's Common Stock for each six shares of
Saba's common stock outstanding.
In addition to the shares owned directly by the Company, 568,200 Saba shares
were owned by International Publishing Holding ("IPH"), a Company shareholder.
Such shares were subject to a call agreement by the Company at an exercise price
equal to 120% of the cost of such shares to IPH, payable in cash or common
shares of the Company. IPH had a put agreement that became effective April 1,
1999, and was exercised on such date. The Company has authorized the issuance of
140,886 shares to IPH in exchange for the shares of Saba owned directly by IPH.
During 1998, Greka acquired for cash and Greka Common Stock approximately 3.4
million common and 690 preferred shares of Saba at a total cost of approximately
$16.4 million. The acquisitions resulted in Greka owning 29.9% of the total
outstanding common shares of Saba. This investment was accounted for under the
equity method through March 24, 1999. Effective March 24, 1999, the Company,
through a wholly-owned subsidiary, acquired Saba in a transaction accounted for
as a purchase with an additional cost of approximately $10.5 million based upon
the issuance of 1,290,000 shares of GREKA Common Stock ($10.3 million) and other
expenditures ($0.2 million). The results of operations for Saba are included in
the Company's consolidated results of operations as of the acquisition date.
During 1998 and through March 24, 1999, the Company recorded cumulative equity
losses from Saba of approximately $1.1 million.
7
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NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Saba's principal assets at March 24, 1999, consisted of an asphalt refinery,
proved oil and gas reserves of 20,990 MBOE with estimated future net revenues,
discounted at 10% of $34.3 million (using prices as of April 1, 1999), unproven
oil and gas properties and various real estate holdings in California.
The Company's net acquisition cost of $25.8 million was allocated using the fair
value of each of Saba's assets and liabilities at the date of acquisition.
Acquisition
cost
Refinery $25,400
Oil and Gas Properties 28,628
Land 16,600
Other Assets 8,460
Liabilities and minority
interest (46,145)
Preferred Stock (7,188)
-------
Total $25,755
=======
The Company revised the allocation of the Saba acquisition cost during the
second and third quarter of 1999 based on new information and analyses performed
during the quarter. With additional information which may arise in the future,
the Company may further revise the allocation during the remainder of 1999.
Management's Plans
The Company's financial statements have been prepared on a going-concern basis
which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business.
During 1998, due to decreased prices for natural gas and crude oil in all
locations in which the Company does business, the Company incurred losses, due
primarily to reduced production and related oil and gas sales and a $3.2 million
non-cash ceiling writedown of its oil and gas assets without any reduction for
tax benefits. As a result of these factors, the reported net loss was $5.5
million, or $3.42 per share. The Company had also not made payments on two loans
from one of its primary stockholders, but had received extensions in the due
dates for repayments to May 31, 1999. In addition, the Company made a
substantial investment in, and subsequently acquired, Saba in March 1999. At the
time of the acquisition, Saba was not in compliance with certain requirements,
restrictions and other covenants in its 9% senior subordinated debentures ($3.6
million), its revolving ($15.6 million) and term ($4.5 million) bank loan
agreements, its loan from the operator of properties owned by the Company in
Colombia ($4.2 million) and its Preferred Stock (with a stated value of $7.2
million). As a consequence, it could not borrow under its revolving bank loan
agreement. Saba also received a notice of default from
8
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NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
the Colombian tax authorities for the payment of income taxes for 1997 and 1998.
Due to the Company and Saba not being in compliance with the above mentioned
requirements, restrictions and other covenants, combined with other normal
maturities of long term debt, approximately $2.0 and $28.8 million, of such long
term debt was classified as currently payable by the Company and Saba,
respectively, and as a result, the Company and Saba had working capital
deficiencies of approximately $1.8 million and $35.4 million, respectively, at
December 31, 1998.
The independent public accountants for the Company and Saba issued modified
reports at December 31, 1998, with respect to the ability of the Company and
Saba to each continue as a going concern. The Company's independent public
accountants, after consideration of the refinancing transactions and the
improvements in the operations and financial position as a whole, on September
16, 1999, deleted the fourth paragraph of the previously issued report in its
entirety. The deleted paragraph expressed the independent public accountants'
substantial doubt as to the ability of the Company to continue as a going
concern.
The entire working capital deficit of Saba that existed on the effective date of
the acquisition, March 24, 1999, was inherited by the Company. The Company has
entered into, and concluded, material transactions that conform to the Company's
strategy to capitalize on its asset base, including the following events:
o At May 1, 1999, the Company assumed full operation of its asphalt
refinery in California which is expected to significantly increase
operating cash flows,
o The Company secured financing with BNY Financial Corporation, ("BNY")
of up to $11.0 million in May 1999 and which was increased to up to
$12.0 million in September 1999,
o The payment of $6.0 million to Bank One, Texas ("Bank One") to reduce
existing debt owed by Saba,
o The Company negotiated terms and conditions with a financial
institution for funds up to $35.0 million, providing for refinancing to
reduce the current liabilities with respect to the Company's
indebtedness to Bank One, IPH and BNY,
o The Company entered into a term sheet providing for restructure of
Saba's Preferred Stock (See Note 5 - Preferred Stock of Subsidiary),
o The Company entered into a term sheet providing for restructure of
Saba's 9% senior subordinated debentures (See Note 4 - Notes Payable
and Long- Term Debt),
o The Company closed the sale of non-core assets of the Company,
including its oil and gas asset in Colombia, and
o Acquired the minority interests in its Canadian subsidiary (See Note
2 - Sale and Acquisition of Assets).
In view of the significant changes which result from the events described above,
management believes that the results of operations and cash flows of the Company
reported herein are indicative of the expected future results of operations of
the Company. Comparisons of the Company's results of operations for the nine and
three month periods ended September 30, 1999 and 1998, and cash flows for the
nine month periods ended September 30, 1999 and 1998, reflect the Company's
financial and operational strength. Such strength is attributable to the
Company's successful implementation of its business plan based upon consistent
cash flow that is hedged from oil price activity. Results of operations for the
nine month period ended September 30, 1999, and more particularly the three
month period ended September 30, 1999, are more representative of the Company's
long-term potential. Upon closing the refinancing transactions described above,
it is expected that there will be a material, favorable change to the Company's
Balance Sheet as a result of reclassifying current liabilities to long-term
liabilities. (See Management's Discussion and Analysis of Financial Condition
and Results of Operations and Liquidity and Capital Resources.)
9
<PAGE>
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market, and consist of the following at September 30, 1999:
Crude Oil $1,403,648
Asphalt and
related by-products 4,971,023
Oilfield materials
and supplies 962,937
----------
$7,337,608
==========
Oil and Gas Property
The Company periodically reviews the carrying value of its oil and gas
properties in accordance with requirements of the full cost method of
accounting. Under these rules, capitalized costs of oil and gas properties may
not exceed the present value of estimated future net revenues from proved
reserves, discounted at 10%, plus the lower of cost or fair market value of
unproved properties ("ceiling"). Application of this ceiling test generally
requires pricing future revenue at the prices in effect as of the end of each
reporting period and requires a writedown for accounting purposes if the ceiling
is exceeded.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
broadens the definition of a derivative instrument and establishes accounting
and reporting standards requiring that every derivative instrument be recorded
in the balance sheet as either an asset or liability measured at its fair market
value. Derivatives that are not hedges must be adjusted to fair value currently
in earnings. If a derivative is a hedge, depending on the nature of the hedge,
special accounting allows changes in fair value of the derivative to be either
offset against the change in fair value of the hedged asset or liability in the
income statement or to be recognized as comprehensive income (a component of
stockholders' equity) until the hedged item is recognized in earnings. The
Company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The Company adopted SFAS 133 in fiscal year 1999, but since it does not use
derivatives currently, there was no impact resulting from such adoption.
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NOTE 2 - SALE AND ACQUISITION OF ASSETS
In April 1999, the Company and IPH closed an agreement with Pembrooke Calox,
Inc. ("Pembrooke") for the sale of the Company's and IPH's interests in a
355-acre limestone property located in Indiana in exchange for a non-recourse
promissory note, secured by the limestone property. The buyer had the option to
pay either $3.85 million by July 31, 1999 followed by four annual payments of
$200,000 each beginning in 2001, or $5.7 million by November 1, 1999. The buyer
had not paid any funds to the Company or IPH on or before July 31, 1999. As part
of this transaction, the Company paid Pembrooke $50,000 and issued 16,736 shares
of Common Stock following the filing of a registration statement on May 17,
1999.The Company has not recorded the sales transaction due to the terms of the
sale and pending realization of the note receivable due on November 1, 1999.
(See Note 8 - Subsequent Events)
In July 1999, at a cost of $335,554 the Company acquired the remaining common
stock of Beaver Lake Resources Corporation ("BLRC") that it did not hold
effective July 31, 1999 whereby the Company issued a total of approximately
70,000 shares resulting in each BLRC shareholder receiving 1 share of the
Company's common stock in exchange for 74.4 shares of BLRC's common stock. BLRC
is now a wholly-owned subsidiary of the Company.
BLRC sold certain Canadian oil and gas interests in July and August 1999 for an
aggregate contract price of $915,000.
NOTE 3 - STATEMENT OF CASH FLOWS
Following is certain supplemental information regarding cash flows for the nine
month periods ended September 30, 1999 and 1998:
1999 1998
Interest paid $1,330,957 $ -
Income taxes paid $ 43,296 $ -
NOTE 3 - STATEMENT OF CASH FLOWS (continued)
Non-cash investing and financing transactions are as follows:
The dividend obligation on Saba's Preferred Stock for the three months ending
September 30, 1999, that was due and payable on September 30, 1999, of $107,400
was accrued by increasing that issue's reported carrying amount.
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A promissory note ($345,290), bearing interest at the rate of 13.5%, that was
due to the seller of an oil and gas property, which was acquired by Saba in
December 1997, was cancelled by the seller as part of a settlement. The settled
amount is part of the accounts payable at September 30, 1999.
NOTE 4 - NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following at September 30, 1999:
Saba 9% senior subordinated Debentures
due 2005 (a) $ 3,412,918
Loan agreement-Bank One (b) 14,101,769
Demand loan agreement with a bank (c) 1,250,000
Capital lease obligations (d) 461,431
Term loan with a bank (e) 353,860
Notes payable (f) 2,000,000
15% convertible senior subordinated
Debenture due 2001 (g) 1,000,000
Loan agreement-BNY Financial
Corporation (h) 9,404,000
Other 51,879
-----------
32,035,857
Less current portion 23,749,621
-----------
$ 8,286,236
===========
As discussed in Note 1, the Company completed the acquisition of Saba on March
24, 1999. The following notes discuss the debt obligations outstanding as of
September 30, 1999. With respect to certain of these instruments, the Company is
in the process of renegotiating the terms and conditions of the obligations.
NOTE 4 - NOTES PAYABLE AND LONG-TERM DEBT (continued)
(a) In December 1995, and February 1996, Saba issued a total of $12.65 million
of 9% convertible senior subordinated debentures ("Debentures") due December 15,
2005. The Debentures were convertible into common stock of Saba, at the option
of the holders of the Debentures, at any time prior to maturity at a conversion
price of $4.38 per share, subject to adjustment in certain events.
Debentures in the amount of $9,075,000 were converted into 2,074,213 shares of
Saba's common stock prior to the acquisition of Saba by the Company on March24,
1999.
In July and August 1999, the Company entered into a term sheet with a majority
of the holders of the outstanding Saba debentures to exchange the debentures of
Saba for new debentures of the Company with interest at the rate of 9%, maturing
on December 31, 2005 with a right of the Company to redeem at any time for an
amount equal to 102% of the principal amount plus any accrued but unpaid
interest, subject to the right of holders to first convert. The conversion price
offered by the Company is 95% of the average closing bid price of the Company's
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common stock for the 30 consecutive trading days of the Company's common stock
ending one day prior to the date notice of conversion is received by the
Company, but in no event less than $8.50 nor greater than $12.50 per share. The
terms further offer that, commencing April 1, 2000, each holder of the Company's
debentures shall have the right upon written notice to the Company to require
that it redeem its debentures at an amount equal to the principal amount plus
any accrued but unpaid interest. The Saba debentures were delisted from the
American Stock Exchange in August 1999.
Saba is not in compliance with certain of the Debentures' restrictions and
covenants, and accordingly, such debt is classified as currently payable at
September 30, 1999.
(b) Amounts outstanding under the loan agreement with Bank One aggregate $14.1
million at September 30, 1999. A portion of the indebtedness was advanced under
a reducing, revolving borrowing base loan. The balance of the indebtedness
consists of term loans that matured on July 31, 1998, and were not paid nor
extended.
In February 1999, Bank One notified Saba that as a result of continuing defaults
under Saba's principal credit facilities with Bank One the entire amount of
$20.1 million then outstanding under the facilities was accelerated and declared
immediately due and payable. In May 1999, the Company borrowed $6.0 million
under the terms of a new credit facility with BNY and applied such proceeds to
the Bank One indebtedness, reducing the outstanding balance to $14.1 million.
In July 1999, the Company, Saba and Bank One entered into an Amended and
Restated Forbearance Agreement, under which Bank One agreed that it would
forbear from exercising its remedies under the credit facilities through
September 15, 1999, provided that Saba maintain compliance with certain
conditions regarding Events of Default, making timely interest payments and
securing alternative financing to retire the Bank One indebtedness. Saba has
maintained compliance and Bank One has continued to forbear.
NOTE 4 - NOTES PAYABLE AND LONG-TERM DEBT(continued)
(c) The Company's Canadian subsidiary has a demand revolving reducing loan with
a borrowing base of $1.2 million. Interest is payable at a variable rate equal
to the Canadian prime rate plus 0.75% per annum (7.0% at September 30, 1999).
The loan is collateralized by the subsidiary's oil and gas producing properties
and a first and fixed floating charge debenture in the principal amount of $3.6
million over all assets of the subsidiary. The borrowing base reduces at the
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rate of $34,175 per month. In accordance with the terms of the loan agreement,
$410,100 of the total loan balance of $1.2 million is classified as currently
payable at September 30, 1999. Although the bank can demand payment in full of
the loan at any time, it has provided a written commitment not to do so except
in the event of default. Management believes that there has not been an event of
default under this agreement.
(d) A subsidiary of the Company leases certain equipment under agreements that
are classified as capital leases. Lease payments vary from three to five years.
The effective interest rate on the total amount of capitalized leases at
September 30, 1999, was 8.21%.
(e) The term loan with a bank ($353,860) is due to the seller of a fee interest
in property in which the Company owns mineral interests. The note bears interest
at the prime rate plus 1% (9.25% at September 30, 1999), is scheduled for
repayment in monthly installments to a maturity date of February 2001, and is
collateralized by the fee interest acquired by the Company.
(f) In October 1998 and November 1998, the Company borrowed $500,000 and
$1,500,000, respectively, from IPH. The initial borrowing does not bear
interest; the second note bears interest at the rate of 6%, and is
collateralized by all of the issued and outstanding shares of capital stock of
Greka SMV Inc., a wholly owned subsidiary of the Company. Both loans had been
amended and matured for payment on September 30, 1999. The Company intends to
pay off this obligation upon closing of a financing transaction secured by the
Company's interest in certain oil and gas assets and real estate.
(g) In February, 1999, the Company issued $1,000,000 of 15% convertible senior
subordinated debentures due February 1, 2001. The debentures are secured by the
Company's limestone deposits to the extent of the outstanding debenture balance.
The debentures are convertible into Common Stock of the Company, at the option
of the holders of the debentures, at any time from August 1, 1999, to January
31, 2000, at a conversion price of $15.00 per share, and at any time from
February 1, 2000, until January 31, 2001, at a conversion price of $20.00.
Interest will accrue on the debentures to the maturity date. The Company may
call the entire amount outstanding, or a portion thereof, at any time during the
term of the debenture by paying the principal amount owing plus any accrued
interest. The principal use of proceeds from the sale of the debentures was to
provide working capital.
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NOTE 4 - NOTES PAYABLE AND LONG-TERM DEBT(continued)
(h) In May 1999, the Company entered into a loan agreement with BNY that
provides for financing of up to $11.0 million, consisting of a term note in the
amount of $6.0 million and a revolving credit facility in the face amount of
$5.0 million. The term loan was fully advanced at closing and the proceeds were
used to reduce indebtedness with Bank One. Advances under the revolving loan are
based upon eligible accounts receivable and inventory of the Company's asphalt
refinery operation. Amounts outstanding under the credit facility bear interest
at the rate of prime plus 1% (9.25% at September 30, 1999) and are
collateralized by real estate interests located in Santa Maria, California, all
assets owned by Santa Maria Refining Company, and the common stock certificates
of Santa Maria Refining Company and Saba Realty, Inc., wholly-owned subsidiaries
of the Company. Amortization of the term loan began in August 1999, and
accordingly, $3.6 million of the term loan amount is classified as currently
payable at September 30, 1999.
NOTE 5 - PREFERRED STOCK OF SUBSIDIARY
In December 1997, Saba sold 10,000 shares of Series A 6% Convertible Preferred
Stock for $10.0 million to RGC International Investor LDC. ("RGC"). Since that
date, a portion of the issued shares had either been redeemed or converted,
including 150 shares of Preferred Stock converted into 305,868 shares of Saba
common stock in January 1999, such that at September 30, 1999, there remained
7,160 shares of preferred stock outstanding. On March 15, 1999, the Company and
RGC entered into a term sheet that provided for the conversion of the preferred
stock to a subordinated convertible note obligation of the Company.
NOTE 6 - BUSINESS SEGMENTS
Effective January 1, 1998, the Company adopted the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
Company considers that its operations are principally in three industry
segments: Central Coast of California production and asphalt refining
("Integrated Operations"), exploration and production ("E & P") Americas and
exploration and production ("E & P") international.
Earnings of industry segments exclude interest expense on corporate borrowings
and unallocated corporate expenses.
Foreign income and other taxes and certain state taxes are included in segment
earnings on the basis of operating results.
Identifiable assets are those assets used in the operations of the segments.
Corporate assets consist of cash, short-term investments, certain corporate
receivables, and other assets.
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NOTE 6 - BUSINESS SEGMENTS (continued)
Summaries of the Company's operations by segments for the nine and three month
periods ended September 30, 1999 and 1998, are as follows (dollars in
thousands):
Three months ended Integrated E & P E & P Corporate
September 30, 1999: Operations Americas international and other Total
-------- -------- -------- -------- -------
Total revenues ......... $ 8,734 $ 899 $ -- $ -- $ 9,633
Production costs ....... 4,974 661 -- -- 5,635
Other expenses ......... 279 177 81 224 761
Depreciation,
depletion and
amortization .......... 1,014 29 -- 68 1,111
-------- -------- -------- -------- --------
Results of operations
from segment
activities ............ 2,467 32 (81) (292) 2,126
Interest expense, income
taxes and other (income) 308 41 (265) 182 266
-------- -------- -------- -------- --------
Net Income (Loss) ...... $ 2,159 $ 9 $ 184 $ (474) $ 1,860
======== ======== ======== ======== ========
Identifiable assets at
September 30, 1999...... $ 39,833 $ 31,864 $ 4,474 $ 6,486 $ 82,657
======== ======== ======== ======== ========
Three months ended Integrated E & P E & P Corporate
September 30, 1998: Operations Americas international and other Total
-------- -------- -------- -------- ------
Total revenues ......... $ 10 $ 10
Production costs ....... 30 30
Other operating expenses $ 395 395
Depreciation, depletion
and amortization ...... 0 --
Results of operations -------- --------
from segment activities (415) (415)
Interest expense and
other (income) (net) ... (22) (22)
-------- --------
Net loss ............... $(393) $ (393)
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NOTE 6 - BUSINESS SEGMENTS (continued)
Nine months ended Integrated E & P E & P Corporate
September 30, 1999: Operations Americas international and other Total
- - -------------------- ------- ------- ------- --------- -------
Total revenues ......... $14,204 $ 2,463 $ 2,015 $ -- $18,682
Production costs ....... 7,761 1,412 1,111 -- 10,284
Other expenses ......... 460 600 208 1,080 2,348
Depreciation,
depletion and
amortization .......... 1,935 471 299 125 2,830
------- ------- ------- --------- -------
Results of operations
from segment
activities ............ 4,048 (20) 397 (1,205) 3,220
Interest expense, income tax
and other (income) ..... 380 103 (341) 1,096 1,238
------- ------- ------- --------- -------
Net Income
(Loss) ................. $ 3,668 $ (123) $ 738 $ (2,301) $ 1,982
======= ======= ======= ========= =======
Nine months ended Integrated E & P E & P Corporate
September 30, 1998: Operations Americas international and other Total
------- ------- ------- --------- -----
Total revenues ........... $ 130 130
Production costs ......... 119 119
Other operating expenses . 1,271 1,271
Depreciation, depletion
and amortization ........ --
- - --
------- -------
Results of operations
from segment activities (1,260) (1,260)
Interest expense and
other (income) (net) ..... (72) (72)
------- --------
Net(loss) ................ $(1,188) $(1,188)
======= ========
Total assets at September 30, 1999, increased by $61.8 million from the amount
reported at December 31, 1998, due principally to the acquisition of Saba by the
Company on March 24, 1999.
Revenues and expenses reflect Saba's operations on a consolidated basis from the
effective date of the acquisition, March 24, 1999.
In view of the significant changes to the Company during 1998 and the
acquisition of Saba completed in March 1999, and the changes resulting from the
sale of certain assets, the change in refinery operations, and debt
restructuring, management believes that the results of operations for the three
months ended September 30, 1999, of the Company reported herein are more
indicative of the expected future results of operations of the Company.
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NOTE 7 - CONTINGENCIES
In 1993, Saba acquired a producing mineral interest in California from a major
oil company. At the time of acquisition, Saba's investigation revealed that a
discharge of diluent, a light, oil-based fluid which is often mixed with heavier
grades of crude had occurred on the acquired property. The purchase agreement
required the seller to remediate the area of the diluent spill. After Saba
assumed operation of the property, it became aware of additional diluent
contamination and believes the major oil company is responsible to remediate
these areas as well. Saba has notified the seller of its obligation to
remediate. Notwithstanding the Company's compliance in proceeding with any
required remediation on seller's account, the Company is committed to hold the
seller accountable for the required remediation. Since the investigation is not
complete, an accurate estimate of cost cannot be made.
In 1995, Saba agreed to acquire an oil and gas interest in California on which a
number of out of production oil wells had been drilled by the seller. The
acquisition agreement required that Saba assume the obligation to abandon any
wells that Saba did not return to production, irrespective of whether certain
consents of third parties necessary to transfer the property to Saba were
obtained. Management believes Saba has no obligation to remediate this property
because it believes the seller did not give Saba any consideration to enter into
the contract for the property. Notwithstanding the Company's compliance in
proceeding with any required remediation on seller's account, is committed to
hold the seller accountable for the required obligations of the property. Since
the investigation is not complete, an accurate estimate of cost cannot be made.
The Company owns an asphalt refinery in Santa Maria, California, with which
significant environmental remediation obligations are associated. The party who
sold the asphalt refinery to Saba performs all environmental obligations that
arose during and as a result of its operations of the refinery prior to the
acquisition by Saba. A determination as to the extent of such remediation is
ongoing.
The Company, as is customary in the industry, is required to plug and abandon
wells and remediate facility sites on its properties after production operations
are completed. The cost of such operation will be significant and will occur,
from time to time, as properties are abandoned.
There can be no assurance that material costs for remediation or other
environmental compliance will not be incurred in the future. The occurrence of
such environmental compliance costs could be materially adverse to the Company.
No assurance can be given that the costs of closure of any of the Company's
other oil and gas properties would not have a material adverse effect on the
Company.
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<PAGE>
NOTE 8 - SUBSEQUENT EVENTS
On October 27, 1999, Pembrooke obtained a temporary restraining order enjoining
the Company and IPH from declaring Pembrooke in default of its payment on the
$5.7 million non-recourse note that was due and payable on November 1, 1999
secured by, and in connection with the sale to Pembrooke of the Company's and
IPH's interests in, a 355-acre limestone property located in Indiana. The court
ordered a referee to adjudicate a particular factual issue before ruling on
Pembrooke's motion for a preliminary injunction.
In November 1999, the Board of Directors of GREKA Energy unanimously approved
the Company's adoption of a shareholder rights plan in order to preserve the
long-term value of the Company for Greka Energy's shareholders. Under the
shareholder rights plan, one right will be distributed for each outstanding
share of GREKA Energy common stock. Each right will entitle the holder to buy
one share of GREKA Energy common stock for an initial exercise price of $60.00
per share. The rights will initially trade with common shares and will not be
exercisable unless certain takeover events occur. The plan generally provides
that if a person or group acquires or announces a tender offer for the
acquisition of 33% or more of GREKA Energy common stock without approval of the
Board of Directors, the rights will become exercisable and the holders of the
rights, other than the acquiring person or group, will be entitled to purchase
shares of GREKA Energy common stock (or under certain circumstances stock of the
acquiring entity) for 50% of its current market price. The rights may be
redeemed by GREKA Energy for a redemption price of $.01 per right.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
GREKA Energy is an independent integrated energy company committed to
create shareholder value by capitalizing on consistent cash flow hedged from oil
price fluctuations within integrated operations, exploiting E&P opportunities
and penetrating new niche markets utilizing proprietary technology with an
emphasis on low cost short radius horizontal drilling technology patented by BP
Amoco and licensed to GREKA Energy. GREKA Energy has oil and gas production,
exploration and development activities in North America and the Far East, with
primary areas of activity in Alberta, California, Louisiana, Texas, New Mexico,
Indonesia and China. In addition, GREKA Energy owns and operates an asphalt
refinery in California.
GREKA Energy has a three-prong strategy that capitalizes on its asset
base to enhance shareholder value as follows:
Integrated Hedged Operations
Hedged operations of GREKA Energy focus on the integration of its Santa Maria
(California) assets, including an asphalt refinery and interests in heavy oil
19
<PAGE>
fields. To date, GREKA Energy has only been able to supply to the asphalt
refinery 20-35% of its heavy oil requirements. The hedged operations are
targeted to capitalize on the stable asphalt market in California by providing
the feedstock (heavy oil) into the refinery at cost. The integration of the
refinery (100% owned) with the interests in the heavy oil producing fields (100%
working interest) provides a stable hedge to GREKA Energy on each equity barrel.
GREKA Energy's strategy in these integrated assets is two-fold:
1. GREKA Energy intends to proceed with acquisitions that enhance the
long-term feedstock supply to the refinery.
2. GREKA Energy intends to implement the proprietary Amoco Horizontal
Drilling Technology to cost-efficiently boost production rates from the
the Company's 150 potential drilling locations identified in the Santa
Maria Valley area of central California.
The two actions are targeted to increase throughput into the refinery from the
average rate for the three months ended September 30, 1999 of approximately
3,100 barrels per day to 10,000 barrels per day by yearend 2001. It is
anticipated that the profitability from these integrated operations will not be
affected by volatile oil prices relative to the equity barrels. It is also
anticipated that, by using equity barrels to supply the refinery, working
capital requirements should be lower and cash flow should be enhanced. The
continued stability of the price of asphalt, coupled with reduced costs for
processing and lifting, should create a substantial value for GREKA Energy's
shareholders.
Exploitation & Production
The Company is currently focusing on return to production ("RTP") work that had
been ignored by Saba for over eighteen months. Such RTP is expected to enhance
the current production levels and capitalize on current oil prices. GREKA Energy
plans to capitalize on its existing portfolio of domestic and international
exploration projects that are synergistic with GREKA Energy's Amoco Horizontal
Drilling Technology. The Company plans to specifically focus on its existing
concessions in locations such as China where the Company believes there is a
significant demand for energy.
Amoco Horizontal Drilling Technology
GREKA Energy plans to continuously pursue new, emerging opportunities in the
energy business to identify and evaluate niche markets for its proprietary
knowledge. Two specific niche targets are coal bed methane projects and gas
storage. These opportunities should provide significant upside from the use of
short horizontal laterals.
20
<PAGE>
Recent History
During the first part of 1998, management of GREKA Energy focused
substantially all of its efforts on corporate restructuring, recapitalization
and acquisition efforts and an investment in a horizontal drilling pilot program
in the Cat Canyon field in California that all were part of its strategy to
capitalize on its experience with horizontal drilling technology. During the
latter part of 1998 and early 1999, management was primarily focused on the
acquisition of Saba, which had substantial reserves suited to exploitation by
GREKA Energy's horizontal drilling technology, and considerable expenses were
incurred in connection with the Saba transactions in the first quarter of 1999.
Due to the significance to GREKA Energy of the Saba acquisition, which was
completed effective March 24, 1999, GREKA Energy's management and staff devoted
a substantial amount of time and effort to the acquisition. Greka Energy has
already executed, and continues to execute, a rework program to return to
production existing wells on all properties that had wells shut-in over eighteen
months. Subsequent to the reworks, Greka Energy intends during the fourth
quarter of 1999 to implement its horizontal drilling program using its
proprietary technology on the Santa Maria Valley area assets.
Acquisition of Saba
During the fourth quarter of 1998 and the first quarter of 1999, GREKA
Energy entered into the following transactions culminating in the acquisition of
Saba effective March 24, 1999:
On October 6, 1998, GREKA Energy entered into an agreement with RGC
International Investors, LDC, by which GREKA Energy acquired on October 6, 1998,
690 shares of the 8,000 shares of issued and outstanding Preferred Stock of Saba
held by RGC in exchange for cash in the amount of $750,000, of which $500,000
was borrowed from International Publishing Holding s.a. ("IPH"), a shareholder
of GREKA Energy. GREKA Energy executed a promissory note to repay the $500,000
to IPH without interest, which note matured September 30, 1999. The Company
intends to pay off this obligation upon closing of a financing transaction
secured by the Company's interest in certain oil and gas assets and real estate.
Under this Agreement, GREKA Energy was granted the exclusive right until
November 6,1998 to acquire from RGC up to an additional 6,310 shares of Saba
Preferred Stock held by RGC in exchange for cash in the amount of approximately
$6,859,000, with such exclusive right subject to an extension for an additional
thirty days by GREKA Energy's payment of $500,000. GREKA Energy paid $500,000 to
RGC on November 6, 1998 to extend the term of the exclusive right, but did not
exercise the right.
On October 8, 1998 GREKA Energy and Saba entered into an agreement under
which on November 6, 1998 Saba issued to GREKA Energy 333,333 shares of Saba
common stock in exchange for cash of $1,000,000.
The November 6, 1998 payments to RGC and Saba were financed by GREKA
Energy's issuance to IPH on November 4, 1998 of a promissory note payable in
the amount of $1,500,000, bearing 6% interest, which note matured September 30,
1999. The promissory note is secured by GREKA Energy's pledge of all of the
issued and outstanding shares of capital stock of Greka SMV, Inc., a wholly
owned subsidiary of GREKA Energy.
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<PAGE>
IPH in conjunction with GREKA Energy made open market purchases of
approximately 5% of the issued and outstanding shares of Saba common stock.
Under an option agreement between GREKA Energy and IPH, GREKA Energy had the
right to purchase the approximate 568,200 shares of Saba common stock purchased
by IPH at an exercise price equal to the cost to IPH of acquiring such shares
plus twenty percent. IPH had a put agreement that became effective April 1, 1999
and was exercised on such date. The Company will issue 140,886 shares to IPH in
exchange for the shares of Saba owned directly by IPH, following the
effectiveness of a registration statement. Subsequently, GREKA Energy during
October and early November 1998 directly acquired 80,000 shares of Saba common
stock in open market purchases at an aggregate cost of approximately $70,130.
On December 18, 1998 GREKA Energy entered into an agreement to acquire the
2,971,766 shares of Saba common stock held by Saba Acquisub, Inc. in exchange
for the issuance by GREKA Energy of 1,340,000 shares of GREKA Energy common
stock to Capco Resources Ltd., the shareholder of Saba Acquisub. Even though the
Company, in accordance with the terms of the agreement and in good faith, issued
the 1,340,000 shares of GREKA Energy common stock, the Company had actually
received from Capco Resources Ltd. only 2,006,566 shares of Saba common stock
held by Saba Acquisub, Inc. in return.
Also on December 18, 1998, GREKA Energy and Saba entered into an
acquisition agreement whereby GREKA Energy would acquire all of the remaining
shares of Saba common stock and the shareholders of Saba other than GREKA Energy
would receive shares of GREKA Energy common stock based on a contemplated
exchange ratio of one share of GREKA Energy common stock for each six shares of
Saba common stock. The acquisition was completed effective March 24, 1999 and
GREKA Energy issued approximately 1,290,000 shares of its common stock and Saba
became a wholly owned subsidiary of GREKA Energy.
Sale of Non-Core Assets; Limestone Property
In April 1999, the Company and IPH closed an agreement with Pembrooke
Calox, Inc. for the sale of the Company's and IPH's interests in a 355-acre
limestone property located in Indiana in exchange for a non-recourse promissory
note, secured by the limestone property. The buyer had the option to pay either
$3.85 million by July 31, 1999 followed by four annual payments of $200,000 each
beginning in 2001, or $5.7 million by November 1, 1999. The buyer had not paid
any funds to the Company or IPH on or before July 31, 1999. As part of this
transaction, the Company paid Pembrooke $50,000 and issued 16,736 shares of
Common Stock following the filing of a registration statement on May 17, 1999.
(See Part II, Item 1 - Legal Proceedings)
22
<PAGE>
Beaver Lake Resources Corporation
In July 1999, the Company acquired the remaining common stock of Beaver Lake
Resources Corporation ("BLRC") that it did not hold effective July 31, 1999
whereby the Company issued a total of approximately 70,000 shares resulting in
each BLRC shareholder receiving 1 share of the Company's common stock in
exchange for 74.4 shares of BLRC's common stock. BLRC is now a wholly-owned
subsidiary of the Company.
International Properties
In August 1999, GREKA Energy's wholly-owned subsidiary and the China United
Coalbed Methane Corporation Ltd. ("CUCBM") signed a production sharing contract
to jointly exploit coalbed methane (CBM) resources in Fengcheng, East China's
Jiangxi Province. The contract block, in which GREKA Energy has a 49% working
interest, covers a total area of 380,534 acres in Fengcheng which is
approximately 30 miles from the capital of Nanchang. Early studies indicate that
the block has more than 1.2 TCF of CBM recoverable reserves at a depth of
500-2000 feet. The field has been proven productive following 266 core samples
taken. Of the two wells drilled in the block, both are completed and are
successfully producing CBM. The 30-year contract provides that the Company, as
operator, will drill at least 10 CBM wells over a three year term.
Cautionary Information About Forward-Looking Statements
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that include, among others, statements concerning:
* the benefits expected to result from GREKA Energy's
acquisition of Saba discussed below, including
* synergies in the form of increased revenues,
* decreased expenses and avoided expenses and expenditures that are
expected to be realized by GREKA Energy and Saba as a result of the
transaction, and
* the complementary nature of GREKA Energy's horizontal drilling
technology and certain Saba oil reserves, and
* other statements of:
* expectations,
* anticipations,
* beliefs,
* estimations,
* projections, and
* other similar matters that are not historical facts, including such
matters as:
* future capital,
* development and exploration expenditures (including the amount
and nature thereof),
* drilling of wells, reserve estimates(including estimates of future
net revenues associated with such reserves and the present value of
such future net revenues),
* future production of oil and gas,
* repayment of debt,
* the state of GREKA Energy's Year 2000 readiness, * business
strategies, and * expansion and growth of business operations.
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<PAGE>
These statements are based on certain assumptions and analyses made by the
management of GREKA Energy in light of:
* past experience and perception of:
* historical trends,
* current conditions,
* expected future developments, and
* other factors that the management of GREKA Energy believes are
appropriate under the circumstances.
GREKA Energy cautions the reader that these forward-looking statements are
subject to risks and uncertainties, including those associated with:
* the financial environment,
* the regulatory environment, and
* trend projections,
that could cause actual events or results to differ materially from those
expressed or implied by the statements. Such risks and uncertainties include
those risks and uncertainties identified below.
Cautionary Information About Forward-Looking Statements (continued)
Significant factors that could prevent GREKA Energy from achieving its
stated goals include:
* the failure by GREKA Energy to integrate the respective operations of
GREKA Energy and Saba or to achieve the synergies expected from the
acquisition of Saba,
* the failure by GREKA Energy to obtain refinancing agreements or
arrange for the payment of Saba obligations,
* declines in the market prices for oil and gas,
* the failure of GREKA Energy's technology systems or the technology
systems of third parties with whom GREKA Energy has material
relationships to be Year 2000 compliant, and
* adverse changes in the regulatory environment affecting GREKA Energy.
The cautionary statements contained or referred to in this report should be
considered in connection with any subsequent written or oral forward-looking
statements that may be issued by GREKA Energy or persons acting on its or their
behalf. GREKA Energy undertakes no obligation to release publicly any revisions
to any forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
Long-Term Potential
Management believes that the results of operations and cash flows of GREKA
Energy reported herein are indicative of the expected future results of
operations and cash flows of GREKA Energy, most particularly, the results of
operations achieved during the three month period ended September 30, 1999. The
results of the Company as reported herein, and which are demonstrative of the
successful implementation of management's business plan, are beginning to
reflect the long-term potential of the Company. The Company's EBITDA is 33% of
its revenue for the three months ended September 30, 1999, and it is expected
that as the Company increases its revenues, its cash flows will increase
substantially.
24
<PAGE>
Results of Operations
Comparison of Three Month Periods Ended September 30, 1999 and 1998
Revenues increased from $32,112 for the third quarter of 1998 to $9,633,912
for the third quarter of 1999. This increase was primarily attributable to the
acquisition of Saba, followed by the cancellation of the processing agreement
with Crown Asphalt Distribution on April 30, 1999 and the subsequent recognition
of refinery revenues by the Company.
Production costs increased from $29,942 for the third quarter of 1998 to
$4,435,414 for the third quarter of 1999. This increase was primarily
attributable to the cancellation of the Crown marketing agreement and the
related recognition of refinery expenses by the Company and lease operating
expenses on properties included in the Saba acquisition.
Results of Operations (continued)
General and administrative expenses increased from $394,967 for the third
quarter of 1998 to $760,968 for the third quarter of 1999. The increase was
primarily attributable to expenses related to the acquisition of Saba.
Depletion, depreciation and amortization increased from $-0- for the third
quarter of 1998 to $1,111,148 for the third quarter of 1999. The increase was
primarily attributable to the acquisition of Saba.
Interest expense of $688,678 was attributable to borrowings by the Company
from IPH and GMAC, the issuance of 15% debentures and assumption of debt related
to the acquisition of Saba.
Comparison of Nine Month Periods Ended September 30, 1999 and 1998
Revenues increased from $201,863 in the first nine months of 1998 to
$18,682,475 in the first nine months of 1999. The substantial increase in
revenue is due to acquisition of Saba and cancellation of the marketing
agreement with Crown Asphalt Distribution and the related assumption of all
marketing and sales operations of the refinery.
Production costs increased from $119,334 in the first nine months of 1998
to $3,672,740 in the first nine months of 1999. This increase is consistent with
the increase in revenues related to the cancellation of the Crown agreement and
lease operating expenses on properties included in the Saba acquisition.
General and administrative expenses increased from $1,044,753 in the first
nine months of 1998 to $2,347,971 in the nine months of 1999. General and
administrative expenses have increased due to the acquisition of Saba.
Depreciation, depletion and amortization increased from $226,225 in the
first nine months of 1998 to $2,830,334 in the first nine months of 1999. The
increase was attributable to the acquisition of Saba.
Interest expense of $1,334,996 was attributable to borrowings by the
Company from IPH and BNY, the issuance of 15% debentures and assumption of debt
included in the acquisition of Saba.
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<PAGE>
Liquidity and Capital Resources
Working capital increased $18,494,930 from a deficit of $37,976,891 at
March 31, 1999 to a deficit of $19,481,961 at September 30, 1999. Working
capital deficit at September 30, 1999 of $19,481,961 increased from a working
capital deficit of $1,827,854 at December 31, 1998. Current assets increased
$15,416,859 from $421,807 at December 31, 1998 to $15,838,766 at September 30,
1999 which includes an increase of $234,803 in Cash and cash equivalents from
$250,212 at December 31, 1998 to $485,015 at September 30, 1999. Approximately
$7.7 million of refinery raw material and finished product inventory and
refinery accounts receivable result from refinery operations. Current
liabilities increased from $2,249,661 at December 31, 1998 to $35,320,727 at
September 30, 1999, an increase of $33,071,166. Accounts payable increased. The
current portion of long term debt increased $22,081,573 during the period. The
foregoing changes are a result of the acquisition of Saba and the Company's
assumption of the marketing and sales operations of its Santa Maria refinery.
Cash Flows
The Company's net cash used in operating activities increased from an
outflow of $1,447,475 for the nine month period ended September 30, 1998 to an
outflow of $1,893,153 for the nine month period ended September 30,1999. Net
income for the period, adjusted for non-cash charges, provided $5,044,184 of
cash inflow. Changes in other assets and liabilities were responsible for cash
outflows of $6,937,337.
The Company's net cash flows from investing activities decreased from a net
outflow of $1,180,560 from the nine month period ended September 30, 1998 to a
net outflow of $1,239,553 for the nine month period ended September 30, 1999.
This change was primarily attributable to a $1 million investment in inventory
for the asphalt refinery.
The Company's net cash provided by financing activities increased from an
inflow of $59,644 for the nine month period ended September 30, 1998 to an
inflow of $3,068,869 in the nine months ended September 30, 1999. Cash was
provided during the nine months ended September 30, 1999 from proceeds of the
Company's financing facility with BNY in the amount of $10,526,450 and proceeds
from the Company's 15% Debenture in the amount of $1 million. Cash was used
during the nine month period ended September 30, 1999 to reduce its obligation
to Bank One by $6 million and make payments on its BNY note payable in the
amount of $2,021,838.
Liquidity
Under the direction of GREKA Energy's management and in accordance with its
business strategy, GREKA Energy has improved its liquidity and expects to have
low capital requirements. Specifically, GREKA Energy expects to have an annual
capex of $5 million funded by its cash flow. The Company is current on all its
interest payments, and has sufficient cash flow for all of its operating and
foreseen capital requirements. Further, GREKA Energy intends to achieve the
following:
* Reduce current liabilitie from $23,749,621 to $11,749,621 as of
September 30, 1999 by obtaining up to $35.0 million of financing, the
proceeds of which, upon conclusion, will be used to reduce the current
liabilities with respect to the Company's indebtedness to Bank One,
IPH and BNY.
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* Utilize the in-house proprietary and cost effective horizontal
drilling technology to enhance production in the Santa Maria Valley
area.
* Continue integration of GREKA Energy-operated oil and gas properties
and the wholly-owned and operated asphalt refinery that collectively
provide for low cost operating expenses and high cash flow.
GREKA Energy's management also believes that the disposition of non-core assets
and acquisition of the minority interest of BLRC brings opportunities for cost
savings, and other synergies, resulting in improved cash flow potential for the
long-term growth of GREKA Energy and of shareholder value. Further, these
dispositions give GREKA Energy a stronger consolidated asset base upon which it
can rely in securing future financings, both equity and debt. However, there is
no assurance that any specific level of cost savings or other synergies will be
achieved or that such cost savings or other synergies will be achieved within
the time periods contemplated, or that GREKA Energy will be able to secure
future financings.
Capital Expenditures
The Company's growth is focused on acquisitions that are synergistic with
its technology. It is intended that such acquisitions will be achieved
concurrent with the closing of adequate financing. Operationally on the current
asset base, the Company expects to fund its annual capex of $5.0 million by its
cash flow.
Debt Financing and Restructuring
Outstanding debt and the Company's plans for payment or restructuring:
* The Company entered into a term sheet with a financial institution to
lend the Company up to $35.0 million, secured by the Company's
interest in certain oil and gas properties and certain California real
estate. Upon conclusion, the proceeds from this financing will be used
to reduce the current liabilities with respect to the Company's
indebtedness to Bank One, IPH, and BNY.
* The Company entered into a term sheet with a majority of the holders
of Saba's 9% senior subordinated debentures ($3.6 million) to exchange
the debentures of Saba for new debentures of the Company.
* The Company entered into a term sheet in March 1999 with the Saba
Preferred Stockholder holding Saba's Preferred Stock (with a stated
value of $7.3 million) that provided for the conversion of Saba's
Preferred Stock to a subordinated convertible note obligation of the
Company.
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In September 1999, the revolving credit facility that provides advances to
GREKA Energy's subsidiaries by BNY for working capital of up to $5.0 million
against eligible receivables and inventory of the Santa Maria asphalt refinery
was increased to $6.0 million, raising the total available funds acquired in
April 1999 under the revolving credit facility and the reducing term loan of
$6.0 million from $11.0 million to $12.0 million.
Debt Financing and Restructuring (continued)
In July 1999, the Company, Saba and Bank One entered into an amended and
restated forbearance agreement under which Bank One has agreed to forbear from
exercising its remedies to collect the indebtedness owed by Saba through
September 15, 1999 on the condition that the Company shall have entered into on
or before July 15, 1999 a term sheet with a reputable financial institution or
other lender acceptable to Bank One pursuant to which such lender has stated its
willingness to fund a loan to Saba on or before September 15, 1999, all or part
of the proceeds of which would be used to pay off in full the outstanding
principal balance and accrued, unpaid interest owed by Saba to Bank One. Saba
has maintained compliance and Bank One has continued to forbear.
In July 1999, the Company entered into a term sheet with a majority of the
holders of the outstanding Saba debentures to exchange the debentures of Saba
for new debentures of the Company with interest at the rate of 9%, maturing on
December 31, 2005 with a right of the Company to redeem at any time for an
amount equal to 102% of the principal amount plus any accrued but unpaid
interest, subject to the right of holders to first convert. The conversion price
offered by the Company is 95% of the average closing bid price of the Company's
common stock for the 30 consecutive trading days of the Company's common stock
ending one day prior to the date notice of conversion is received by the
Company, but in no event less than $8.50 nor greater than $12.50 per share. The
terms further offer that, commencing April 1, 2000, each holder of the Company's
debentures shall have the right upon written notice to the Company to require
that it redeem its debentures at an amount equal to the principal amount plus
any accrued but unpaid interest. The Saba debentures were delisted from the
American Stock Exchange in August 1999.
In August 1999, the Company entered into a term sheet with a financial
institution to lend the Company up to $35.0 million, secured by the Company's
interest in certain oil and gas properties and certain California real estate.
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Year 2000 Readiness Disclosure
Computer programs or other embedded technology that have been written using
two digits (rather than four) to define the applicable year and that have
time-sensitive logic may recognize a date using "00" as the Year 1900 rather
than the Year 2000, which could result in widespread miscalculations or system
failures. Both information technology systems and non-information technology
systems using embedded technology may be affected by the Year 2000. Management
currently believes that since GREKA Energy's drilling equipment does not make
use of embedded computer chips and its other operating equipment is not heavily
automated with technology systems, the costs of becoming ready for the Year 2000
will not have a material adverse effect on GREKA Energy's financial condition,
results of operations or cash flows.
GREKA Energy currently believes that its existing technology systems and
software will not need to be upgraded to become Year 2000 compliant. GREKA
Energy's third-party accounting software vendor has modified the current
operating system utilized by GREKA Energy and provided the modified system to
GREKA Energy in the first quarter of 1999. The cost of this modification was
included in the vendor's system support contract and did not result in a
significant additional expense for GREKA Energy.
GREKA Energy is in the process of verifying whether vendors, suppliers and
significant customers with which GREKA Energy has material relationships are
Year 2000 compliant. GREKA Energy believes that some of these third parties will
not be materially affected by the Year 2000 since those third parties are
relatively small entities which do not rely heavily on technology systems for
their operations. GREKA Energy does not know whether the other third parties
will be Year 2000 complaint. Under a worst-case scenario, if GREKA Energy and
such third parties are not Year 2000 compliant on a timely basis, there could be
financial risk to GREKA Energy, including supplier and service customer delays
resulting in short-term delay of revenue and substantial unanticipated costs.
Accordingly, GREKA Energy plans to devote all resources necessary to resolve
significant Year 2000 issues in a timely manner. GREKA Energy's current Year
2000 contingency plan is essentially to have all necessary tasks performed
manually in the event of material Year 2000 problems affecting GREKA Energy.
Management of GREKA Energy believes that GREKA Energy has adequate personnel to
perform those functions manually until any Year 2000 problems are resolved.
Inflation
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GREKA Energy does not believe that inflation will have a material impact on
GREKA Energy's future operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As discussed in the explanatory note preceding the table of contents for
this report, GREKA Energy filed its SEC reports for periods through December 31,
1998 under SEC Regulation S-B. Regulation S-B does not contain the disclosure
requirements under this item. In addition, the information under this item is
not required for interim period reports until after the first fiscal year end in
which this item is applicable. Therefore, GREKA Energy expects to begin
presenting the information required by this item in its Annual Report on Form
10-K for the fiscal year ending December 31, 1999.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The following material developments occurred during the quarter ended
September 30, 1999 with respect to the legal proceedings reported in the GREKA
Energy Annual Report on Form 10-KSB/A for the fiscal year ended December 31,
1998:
As reported in the GREKA Energy 1998 Annual Report on Form 10-KSB/A, on
December 11, 1998, a wholly-owned subsidiary of GREKA Energy, Sabacol, Inc.,
filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in U.S.
Bankruptcy Court for the Central District of California (BK Case No.
ND98-15858-RR). On April 26, 1999, following the Company's motion, it was
announced that Sabacol had successfully obtained the Bankruptcy Court's approval
of the sale of substantially all its assets and the authorized dismissal of its
bankruptcy case, upon consummation of the sale. Following Sabacol's request
filed in July 1999 with the bankruptcy court, an order dismissing the bankruptcy
case was entered on August 4, 1999.
In July 1999 in Gitte-Ten, Inc. v. Saba Petroleum Company (Case No. CV
980202 Superior and Municipal Courts of the State of California, County of San
Luis Obispo, March 1998), the matter was settled in September 1999 which
included a dismissal with prejudice as to the action.
Capco Resources, Ltd. v. GREKA Energy Corporation and Randeep S. Grewal
(Case No. 99-8521-R, U.S. District Court, Central District of California). In
August 1999, Capco Resources, Ltd. ("Capco") filed an action against GREKA and
Randeep S. Grewal, the President of GREKA, alleging that GREKA breached, and
GREKA and Mr. Grewal made misrepresentations in connection with, a Stock
Exchange Agreement entered into between Greka, Capco and Capco's affiliates (the
"Exchange"). Capco claims that it is entitled to $12.25 million in damages, plus
interest and costs, and requests that the court require GREKA to file a
registration statement for the resale of 1 million shares of GREKA common stock
that Capco received pursuant to the Exchange. Shortly after filing this suit
Capco threatened to exert control over and sell the GREKA shares in a brokerage
account that was to have been transferred to GREKA as part of the Exchange.
GREKA filed the case of GREKA vs. Capco and Service Asset Management Company
d/b/a Penson Financial Services, Inc. d/b/a Global Hanna Trading in the Denver
Colorado District Court and obtained a temporary restraining order temporarily
restraining this conduct by Capco (Case No. 99-CV-6006). Prior to the
preliminary injunction hearing Capco removed the case to the U.S. Federal
District Court in Denver, Colorado (Civil Action No. 99-K-1814). On September
17, 1999 GREKA received a new temporary restraining order from the federal
district court. This order remains in effect until a motion for preliminary
injunction is heard following the consolidation of Capco's federal action filed
in California with Greka's federal action sited in Colorado as a result of a
transfer from California to Colorado of Capco's federal action having been
ordered on October 18, 1999 by the California federal district court after
granting GREKA's motion. While GREKA and Mr. Grewal plan to vigorously defend
all claims asserted by Capco and to aggressively pursue all counter and third
party claims, the litigation is in its preliminary, pre-discovery stages.
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Pembrooke Calox, Inc. v. GREKA Energy Corporation, et al. (Index No.
604905/99, Supreme Court of the State of New York). In October 1999, Pembrooke
Calox, Inc. ("Pembrooke") obtained a temporary restraining order enjoining GREKA
from declaring Pembrooke in default of payment under a $5.7 million non-recourse
note due November 1, 1999 which was executed in exchange for Pembrooke's
acquisition of GREKA's interest in a limestone reserve located in Indiana.
Pembrooke's underlying action alleges, amongst other things, that GREKA withheld
information in violation of a settlement agreement entered into between the
parties. The court ordered a referee to adjudicate a particular factual issue
before ruling on Pembrooke's motion for a preliminary injunction. Without
setting forth any basis for the alleged damages, Pembrooke requests relief in
the amount of $501.5 million which is unsupportable and frivolous. While GREKA
plans to vigorously defend all claims asserted by Pembrooke and seek appropriate
sanctions, the litigation is in its preliminary, pre-discovery stages.
From time to time, GREKA Energy and its subsidiaries are named in legal
proceedings arising in the normal course of business. In the opinion of
management, such legal proceedings are not expected to have a material adverse
effect on GREKA Energy's financial condition, results of operations or cash
flows.
Item 2. Changes in Securities and Use of Proceeds.
During the three months ended September 30, 1999, the Company issued 69,898
shares of its Common Stock to the minority interest holders of BLRC in
connection with the Company's acquisition of the minority interests in BLRC (see
Overview-Beaver Lake Resources Corporation).
Item 3. Defaults Upon Senior Securities.
The information required by this Item is incorporated herein by reference
to the discussion in Part I Item 2 of this report under the caption "Debt
Financing and Restructuring."
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
In November 1999, the Board of Directors of GREKA Energy unanimously
approved the Company's adoption of a shareholder rights plan in order to
preserve the long-term value of the Company for Greka Energy's shareholders.
Under the shareholder rights plan, one right will be distributed for each
outstanding share of GREKA Energy common stock. Each right will entitle the
holder to buy one share of GREKA Energy common stock for an initial exercise
price of $60.00 per share. The rights will initially trade with common shares
and will not be exercisable unless certain takeover events occur. The plan
generally provides that if a person or group acquires or announces a tender
offer for the acquisition of 33% or more of GREKA Energy common stock without
approval of the Board of Directors, the rights will become exercisable and the
holders of the rights, other than the acquiring person or group, will be
entitled to purchase shares of GREKA Energy common stock (or under certain
circumstances stock of the acquiring entity) for 50% of its current market
price. The rights may be redeemed by GREKA Energy for a redemption price of $.01
per right.
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The following exhibits are furnished as part of this report:
Exhibit No. Description
3.1 Amendment to Article II of the Bylaws of Greka Energy*
10.1 Arrangement Agreement dated June 16, 1999 among GREKA Energy
Corporation and Beaver Lake Resources Corporation (filed as
Exhibit 10.1 to the GREKA Energy Report on Form 10-Q for the
quarter ended June 30, 1999 SEC file #0-207670 and
incorporated by reference herein)
10.2 Amended and Restated Executive Employment Agreement dated
November 3, 1999 among Randeep S. Grewal and Greka Energy*
10.3 Amendment dated September 24, 1999 to Loan and Security
Agreement dated April 30, 1999 among BNY Financial
Corporation, Greka Integrated, Inc., Saba Realty, Inc. and
Santa Maria Refining Company *
10.4 Rights Agreement dated November 3, 1999*
11.1 Computation of Earnings per Common Share*
27.1 Financial Data Schedule*
* Filed herewith
(b) During the quarter for which this report is filed, GREKA Energy filed
the following Reports on Form 8-K:
Current Report on Form 8-K dated July 14, 1999 which reported events under Item
2, Acquisition or Disposition of Assets.
Current Report on Form 8-K/A dated September 13, 1999 which reported events
under Item 2, Acquisition or Disposition of Assets, and Item 7, Financial
Statements and Exhibits.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GREKA ENERGY CORPORATION
Date November 15, 1999 By:/s/ Randeep S. Grewal
-------------------------------
Randeep S. Grewal, Chairman and
Chief Executive Officer
34
GREKA Energy Corporation
Amendment to Article II of the Bylaws
Section 13. Notice of Shareholder Proposals. (a) At an annual meeting
of the shareholders, only such business shall be conducted, and only such
proposals shall be acted upon, as shall have been brought before the annual
meeting (i) by, or at the discretion of, the board of directors or (ii) by any
shareholder of the corporation who complies with the notice procedures set forth
in this Section 13. For a proposal to be properly brought before an annual
meeting of the shareholders by a shareholder, the shareholder must have given
timely notice thereof in writing to the Secretary of the corporation. To be
timely, a shareholder's notice must be delivered to, or mailed and received at,
the principal executive offices of the corporation not less than sixty days nor
more than ninety days prior to the scheduled annual meeting of the shareholders,
regardless of any postponements, deferrals or adjournments of that meeting to a
later date; provided, however, that if less than seventy days' notice or prior
public disclosure of the date of the scheduled annual meeting is given or made,
to be timely notice by the shareholder must be so delivered or received not
later than the close of business on the tenth business day following the earlier
of the day on which such notice of the date of the scheduled annual meeting of
the shareholders was mailed or the day on which such public disclosure was made.
A shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (i) a brief description
of the proposal desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address,
as they appear on the corporation's books, of the shareholder proposing such
business and any other shareholders known by such shareholder to be supporting
such proposal, (iii) the class and number of shares of the corporation's stock
which are beneficially owned by the shareholder on the date of such shareholder
notice and by any other shareholders known by such shareholder to be supporting
such proposal on the date of such shareholder notice, and (iv) any financial
interest of the shareholder in such proposal.
(b) If the presiding officer of the annual meeting of the shareholders
determines that a shareholder proposal was not made in accordance with the terms
of this Section 13, he or she shall so declare at the annual meeting and any
such proposal shall not be acted upon at the annual meeting.
(c) This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of the shareholders of reports of officers,
directors and committees of the board of directors, but, in connection with such
reports, no business shall be acted upon at such annual meeting of the
shareholders unless stated, filed and received as herein provided.
Section 14. Nomination of Directors. (a) Only persons who are nominated
in accordance with the following procedures shall be eligible for the election
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of directors at an annual meeting of the shareholders. Nominations of persons
for election to the board of directors at an annual meeting may be made at a
meeting of shareholders, by or at the direction of the board of directors or a
committee thereof, or by any shareholder of the corporation entitled to vote for
the election of directors at the meeting who complies with the notice procedures
set forth in this Section 14. Such nominations, other than those made by or at
the direction of the board of directors or a committee thereof, shall be made
pursuant to timely notice in writing to the Secretary of the corporation. To be
timely, a shareholder's notice must be delivered to, or mailed and received at,
the principal executive offices of the corporation not less than sixty days nor
more than ninety days prior to the scheduled annual meeting of the shareholders,
regardless of any postponements, deferrals or adjournments of that meeting to a
later date; provided, however, that if less than seventy days' notice or prior
public disclosure of the date of the scheduled annual meeting is given or made,
to be timely notice by the shareholder must be so delivered or received not
later than the close of business on the tenth business day following the earlier
of the day on which such notice of the date of the scheduled annual meeting of
the shareholders was mailed or the day on which such public disclosure was made.
A shareholder's notice to the Secretary shall set forth (a) as to each person
whom the shareholder proposes to nominate for election or reelection as a
director, (i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the person, (iii) the
class and number of shares of stock of the corporation that are beneficially
owned by the person, and (iv) any other information relating to the person that
is required to be disclosed in solicitations for proxies for election of
directors pursuant to Section 14 of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder; and (b) as to the
shareholder giving the notice, (i) the name and address, as they appear on the
corporation's books, of the shareholder, and (ii) the class and number of shares
of the corporation's stock which are beneficially owned by the shareholder on
the date of such shareholder notice. The corporation may require any proposed
nominee to furnish such other information as may reasonably be required by the
corporation to determine the eligibility of such proposed nominee to serve as a
director of the corporation.
(b) If the presiding officer of the annual meeting of the shareholders
determines that a nomination was not made in accordance with the terms of this
Section 14, he or she shall so declare at the annual meeting and the defective
nomination shall be disregarded.
2
AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
This Amended and Restated Executive Employment Agreement is made and
entered into this 3rd day of November, 1999 (the "Effective Date") by and
between GREKA Energy Corporation, a Colorado corporation ("Employer"), and
Randeep S. Grewal ("Executive").
RECITALS
A. Employer and Executive initially entered into an Executive
Employment Agreement dated September 9, 1997, as amended by the First Amendment
to Employment Agreement dated October 14, 1998 (the "Agreement").
B. The Board of Directors of Employer (the "Board") has determined that
it is in the best interests of Employer and its shareholders to amend and
restate the terms of the Agreement and to ensure that Employer will have the
continued dedication of the Executive, notwithstanding the possibility, threat
or occurrence of a Change of Control (as hereinafter defined) of Employer. The
Board believes it is imperative to diminish the inevitable distraction of the
Executive by virtue of the personal uncertainties and risks created by a pending
or threatened Change of Control and to encourage the Executive's attention and
dedication to Employer currently and in the event of any threatened or pending
Change of Control, and to provide the Executive with a compensation and benefits
arrangements upon a Change of Control which ensure that the compensation and
benefits expectations of the Executive will be satisfied and which are
competitive with those of other corporations.
C. In order to accomplish these objectives, Employer desires to
continue the employment of Executive and Executive desires to continue his
employment with Employer, all upon and subject to the terms and conditions of
the Amended and Restated Agreement set forth herein.
NOW, THEREFORE, in consideration of the Executive's continued
employment with Employer and the mutual agreements hereinafter set forth, the
parties, intending to be legally bound, agree as follows:
1. Employment. Employer hereby agrees to continue to employ Executive
and Executive hereby accepts such employment, subject to the terms and
conditions of this Agreement. Executive shall serve in the capacity of Chairman,
Chief Executive Officer and President of Employer reporting solely to the Board
and shall perform such functions as the Board shall reasonably determine from
time to time, provided however that Executive's duties shall be consistent with
the foregoing capacity and with the training, talent and ability of Executive.
2. Time Dedicated. Executive shall devote the time and attention
reasonable to run a drilling company and shall at all times perform all of his
obligations hereunder to the best of his ability, experience and talent.
3. Term and Termination. The term of this Agreement shall commence on
the Effective Date and shall continue uninterrupted through and including
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December 31, 2004. The Agreement thereafter will be automatically renewed for
additional three year periods, unless terminated sooner by operation of one of
the other provisions of this Agreement. The Executive's employment hereunder may
be terminated as follows:
(a) Death. In the event the Executive dies prior to the expiration of
this Agreement, the Employer shall pay to the beneficiary of the Executive an
amount equal to the Executive's total compensation for 270 days (the "Severance
Period"), such amount payable in a lump sum to the designated beneficiary
hereunder within sixty (60) days of the Executive's Death. In addition, at the
option of the Executive's Estate, the Employer shall either (i) pay to the
Executive's Estate, in a lump sum within 60 days of the end of the Employer's
then-current fiscal year, an amount (to the extent such amount is a positive
number) equal to the value of all Employer stock and stock options held by the
Executive as of the date of his death, or (ii) distribute to the Executive's
Estate, within 60 days of the Executive's death, all Employer stock and stock
options held by the Executive as of the date of his death, all in accordance
with the terms of any benefits to which the Executive would be entitled in any
plan in which he is a participant.
(b) Disability. In the event that the Executive in unable to
substantially perform his duties hereunder for a period of six months during any
continuous period of 12 months due to physical or mental illness or disability,
whether or not connected to his employment hereunder, the Employer shall have
the right, by written notice to the Executive, to place the Executive on
disability status ("Disability Effective Date.") In such event, the Employer
shall pay to the Executive (or to his Estate if the Executive is no longer
alive) his Salary and Bonus and furnish to the Executive and his family all
Executive Benefits during the term of the Agreement. The determination of the
Executive's disability shall be made by the Executive's regular treating
physician.
(c) Cause. The Employer may terminate the Executive's employment
for"Cause". For purposes of this Agreement, "Cause" shall mean only:
(i) an act or acts of personal dishonesty taken by the Executive
and intended to result in substantial personal enrichment of
the Executive at the expense of the Employer;
(ii) repeated failure to perform the duties assigned to the
Executive under Section 1 of this Agreement which are
demonstrably willful and deliberate on the Executive's part
and which are not remedied in a reasonable period of time
after receipt of written notice from the Employer; or
(iii) the conviction of the Executive of a felony involving moral
turpitude which results in a detriment to the Employer, harms
the Employee's reputation, or otherwise reflects poorly on the
Employer.
(d) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason"means
any of the following:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
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by this Agreement, or any other action by the Employer which results in a
diminution in such position, authority, duties or responsibilities, excluding
for this purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Employer promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Employer to comply with any of the provisions
of Sections 7, 8 and 9 of this Agreement, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is remedied by the
Employer promptly after receipt of notice thereof given by the Executive;
(iii) Employer's requirement of the Executive that he be based at any
office or location other than New York, New York, except for travel reasonably
required in the performance of the Executive's responsibilities;
(iv) any purported termination by the Employer of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Employer or any successor to comply with and
satisfy the successor obligations of this Agreement.
For purposes of this section, any good faith determination of "Good Reason" made
by the Executive shall be conclusive.
(e) Notice of Termination. Any termination by the Employer for Cause or
by the Executive for Good Reason shall be communicated by Notice of Termination
to the other party hereto given in accordance with this Agreement. For purposes
of this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated, and (iii) specifies the effective date of the termination(which date
shall be not more than 15 days after the giving of such notice) (the "Date of
Termination"). The failure by the Executive to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason shall not waive any right of the Executive hereunder or preclude the
Executive from asserting such fact or circumstance in enforcing his rights
hereunder.
4. Obligations of the Employer upon Termination.
(a) Death. If the Executive's employment is terminated by reason of the
Executive's death, this Agreement shall not terminate without fulfillment of the
obligations to the Executive's legal representatives under this Agreement,
including those obligations that would have been accrued or earned by the
Executive hereunder through the date of the Severance Period, including any
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compensation previously deferred by the Executive (together with any accrued
interest thereon) and not yet paid by the Employer and any accrued vacation pay
not yet paid by the Employer and any other amounts or benefits owing to or
accrued or vested for the account of the Executive under the then applicable
employee benefit plans or policies of the Employer (such amounts are hereinafter
referred to as "Accrued Obligations"). All such Accrued Obligations shall be
paid to the Executive in a lump sum in immediately available federal funds
within thirty (30) days of the Date of Termination. Anything in this Agreement
to the contrary notwithstanding, the Executive's family shall be entitled to
receive benefits at least equal to the most favorable benefits provided by the
Employer to surviving families of executives of the Employer under such plans,
programs and policies relating to family death benefits, if any, in accordance
with the most favorable policies of the Employer in effect, or, if more
favorable to the Executive and/or the Executive's family, as if effect on the
date of the Executive's death with respect to other key executives and their
families.
(b) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability, this Agreement shall terminate without further
obligations to the Executive, other than those Salary and Bonus and Executive
Benefit obligations accrued or to be earned by the Executive hereunder through
the term of the Agreement. Anything in this Agreement to the contrary
notwithstanding, the Executive shall be entitled after the Disability Effective
Date to receive disability and other benefits at least equal to the most
favorable of those provided by the Employer to disabled employees and/or other
families accordance with such plans, programs and policies relating to
disability, if any, in accordance with the most favorable policies of the
Employer in effect at any time during the ninety (90) day period immediately
preceding the Disability Effective Date or, if more favorable to the Executive
and/or the Executive's family, as in effect at anytime thereafter with respect
to other key executives and their families.
(c) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive
the Highest Base Salary through the Date of Termination plus the amount of any
compensation previously deferred by the Executive (together with accrued
interest thereon). If the Executive terminates employment other than for Good
Reason, this Agreement shall terminate without further obligations to the
Executive, other than those obligations accrued or earned by the Executive
through the Date of Termination, including for this purpose, all Accrued
Obligations. Executive shall receive any vested or accrued compensation and
benefits under this or any other agreement notwithstanding the reason for
termination of employment.
(d) Good Reason; Other than for Cause or Disability of Death. If,
during the Employment Period, the Employer shall terminate the Executive's
employment other than for Cause, Disability, or Death or the Executive shall
terminate his employment for Good Reason, the Employer shall pay to the
executive in a lump sum in immediately available federal funds within thirty
(30) days, or as soon as practicable where the value of the benefit is not
readily ascertainable, after the Date of Termination the aggregate of the
following amounts:
(i) to the extent not theretofore paid, the Executive's Salary and
Bonus through the date of the Date of Termination;
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(ii) the Executive's Salary and Bonus for the balance of the term
of this Agreement at the rate set forth in the Agreement;
(iii) the Annual Bonus paid to the Executive for the balance of the
term of the Agreement;
(iv) in the case of compensation previously deferred by the
Executive, all amounts previously deferred (together with any
accrued interest thereon) and not yet paid by the Employer;
(v) all other amounts accrued and earned by the Executive through
the term of the Agreement and amounts otherwise owing under
the then existing plans and policies at the Employer; and
(vi) at the option of the Executive or his legal representative,
the Employer shall either (A) pay to the Executive or his
legal representative, in a lump sum within 30 days of the Date
of Termination, an amount (to the extent such amount is a
positive number) equal to the value of all Employer stock and
stock options held by the Executive as of the Date of
Termination, or (B) distribute to the Executive or his legal
representative, within 30 days of the Date of Termination, all
Employer stock and stock options held by the Executive as of
the Date of Termination.
Further, for the remainder of the term of the Agreement, or such longer period
as any plan, program or policy may provide, the Employer shall continue
Executive Benefits to the Executive and the Executive's family at least equal to
those which would have been provided to them in accordance with the plans,
programs and policies described in this Agreement as if the Executive's
employment had not been terminated, including health insurance and life
insurance, or, if more favorable, in accordance with the plans, programs or
policies of the Employer in effect at any time thereafter with respect to other
key executives and their families; for purposes of eligibility for retiree
benefits pursuant to such plans, programs and policies, the Executive shall be
considered to have remained employed until the end of the term of the Agreement
and to have retired on the last day of such period.
5. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Employer and for which
the Executive may qualify, nor shall anything herein limit or otherwise affect
such rights as the Executive may have under any stock option or other agreements
with the Employer or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan,
program or agreement of the Employer (including company stock and stock options)
at or subsequent to the Date of Termination shall be payable in accordance with
such plan, program or agreement.
6. Full Settlement. The Employer's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
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defense or other claim, right or action which the Employer may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement. The Employer
agrees to pay, to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest(regardless
of outcome thereof) by the Employer or others of the validity or enforceability
of, or liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the Executive about
the amount of any payment pursuant to any Section of this Agreement), plus in
each case interest at the applicable Federal rate provided for in Section 7872
(f) (2) of the Code. Employer also agrees to pay all legal fees and expenses
incurred by Executive in connection with the preparation, review, or enforcement
of this Agreement.
7. Salary and Bonus. In consideration for his services, Employer shall
pay the Executive a salary at the rate of $287,500 per annum. Such salary shall
be reviewed and increased not less than 15% annually in the good faith sole
discretion of the Board of Directors based upon Employer's and Executive's
performance during the prior year. Executive's salary hereunder shall be payable
in bi-monthly installments or on such other payment schedule as issued to pay
senior executives of Employer. Additionally, Executive shall receive an
irrevocable assignment of 2% overriding royalty of all oil and gas production
received by the Employer.
8. Stock Grants. Upon the Effective Date, the Executive shall be issued
30,000 shares of the Employer's Common Stock, no par value per share. These
shares shall be fully vested and non-forfeitable as of the date of their
issuance.
9. Executive Benefits.
(a) Annual Bonus. In addition to Salary and Bonus payable as herein
above provided, the Executive shall be awarded, for each fiscal year during the
term of the Agreement, an annual bonus (an "Annual Bonus") (either pursuant to
the incentive compensation plan of the Employer or otherwise) in cash at least
equal to the average bonus received by the executive officers of the Employer in
respect of the fiscal year for which the bonus is awarded.
(b) Stock Option, Incentive, Savings and Retirement Plans. In addition
to Base Salary and Bonus and Annual Bonus payable as herein above provided, the
Executive shall be entitled to participate during the term of the Agreement in
all stock option plans, incentive, savings and retirement plans, practices,
policies and programs applicable to other key or peer executives of the Employer
and its affiliates(including Employer's employee benefit plans, in each case
comparable to those in effect or as subsequently amended). Such plans,
practices, policies and programs, in the aggregate, shall provide the Executive
with compensation, benefits and reward opportunities at least as favorable as
the most favorable of such compensation, benefits and reward opportunities
provided by the Employer for the Executive under such plans and programs.
(c) Welfare Benefit Plans. During the term of the Agreement, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive benefits under the welfare benefit plans,
practices, policies and programs provided by the Employer and its affiliates
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(including, without limitation, medical, prescription, dental, disability,
salary continuance, executive life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other key or peer executives of Employer and its affiliates.
(d) Expenses. During the term of the Agreement, the Executive shall be
entitled to receive prompt reimbursement for reasonable expenses incurred by the
Executive in accordance with the most favorable policies and procedures of the
Employer and its affiliates.
(e) Fringe Benefits. During the term of the Agreement, the Executive
shall be entitled to those fringe benefits offered to other key employees of
Employer, as well as an automobile allowance of $1,000 per month.
(f) Office and Support Staff. During the term of the Agreement, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the other executive officers of the
Employer.
(g) Vacation. Upon the Effective Date, Executive is entitled to five
weeks of paid vacation per year. Paid vacation shall increased by one week per
year of service up to a maximum of seven weeks. Vacation time may be accrued up
to a maximum of six weeks or 240 hours. Once vacation accrual meets this
maximum, vacation accruals will cease until the vacation balance falls below the
maximum.
10. Corporate Opportunity. For the purpose of determining the
Executive's responsibility for presenting corporate opportunities to the Board
of Directors, the business in which the Employer is engaged shall be defined as
the horizontal oil and gas well drilling service business. The Executive shall
be permitted on his own time to engage in other businesses and can be rewarded
for presenting opportunities to the Board of Directors of the Employer outside
of the current corporate opportunities which are approved by and acted upon by
the Employer.
11. Confidentiality and Proprietary Information. The Executive shall
hold in a fiduciary capacity for the benefit of the Employer all secret or
confidential information or data relating to the Employer or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Employer or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or his representatives in
violation of this Agreement). After termination of the Executive's employment
with the Employer, the Executive shall not, without the prior written consent of
the Employer, communicate or divulge any such information or data to any one
other than the Employer and those designated by it. In no event shall an
asserted violation of the provisions of this Section constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
12. Board Membership. Executive shall be appointed to the Board of
Directors of Employer and shall subsequently be included for re-election on
management's proposed election slate, with such Board membership to terminate
when Executive's employment with Employer is terminated.
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13. Arbitration. Any controversy or claim arising out of or relating to
any provision of this Agreement or the breach thereof, shall be resolved by
binding arbitration in accordance with the rules then in effect of the American
Arbitration Association (the "AAA"), to the extent consistent with the laws of
the State of New York. Unless otherwise agreed by the parties, arbitration under
this provision must be initiated within 30 days of the action, inaction, or
occurrence about which the party initiating the arbitration is complaining.
Within fifteen days of the initiation of an arbitration hereunder, if the
parties are unable to agree on an arbitrator, each party will designate an
arbitrator pursuant to Rule 14 of the AAA Rules. The appointed arbitrators will
appoint a neutral arbitrator from the panel in the manner prescribed in Rule 13
of the AAA Rules. However, the arbitrator shall only be qualified if the
arbitrator is recognized as a qualified labor and employment arbitrator by the
American Arbitration Association or Federal Mediation & Conciliation Service.
The award may include an award of costs and attorneys' fees for the prevailing
party; provided, however, that Employer agrees that the Executive is not
required to pay any costs and attorney's fees awarded to Employer. It is agreed
that any party to any award rendered in any such arbitration proceedings may
seek a judgment upon the award and that judgment may be entered thereon by any
court having jurisdiction.
14. Miscellaneous.
(a) Entire Agreement. This Agreement contains the complete agreement
between the parties with respect to the subject matter hereof and supersedes any
prior agreements or understandings, written or oral. No waiver under this
Agreement shall be valid unless it is in writing and duly executed by the party
to be charged therewith. This Agreement may be amended at anytime, provided that
such amendment is in writing and is signed by each of the parties hereto.
(b) Binding Effect. This Agreement may not assigned by either party
hereto; provided that the Employer may assign this Agreement, in connection with
a merger or consolidation involving the Employer or a sale of substantially all
of its assets, to the surviving corporation or purchaser as the case may be, so
long as the assignee agrees to assume the Employer's obligations hereunder at
the time of the assignment. Subject to that limitation, this Agreement shall be
binding upon and shall inure to the benefit of Executive, his heirs and personal
representatives, and shall be binding upon and shall inure to the benefit of
Employer, its successors and assigns.
(c) Obligations of Successor. Employer will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of Employer to assume
expressly and agree in writing to perform this Agreement in the same manner and
to the same extent that Employer would be required to perform it if no such
succession had taken place. As used in this Agreement, "Employer" shall mean
Employer as hereinbefore defined and any successor to its business and/or assets
as aforesaid which assumes and agrees in writing to perform this Agreement by
operation of law, or otherwise.
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(d) Notice. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Randeep S. Grewal
10815 Briar Forest Drive
Houston, TX 77042
If to Employer: GREKA Energy Corporation
630 Fifth Avenue, Suite 1501
New York, New York 10111
Attn: Susan M. Whalen, Vice President
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(e) Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New York.
(f) Enforceability of Agreement. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
(g) Withholding of Taxes. Employer may withhold from any amounts payable
under this Agreement such federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(h) Waiver. The Executive's or Employer's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or Employer may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant Section 15(D)(c)(i)-(v), shall not be deemed
to be a waiver of such provision or right or any other provision or right of
this Agreement.
15. Employment After a Change of Control. Notwithstanding anything to
the contrary contained in this Agreement, the following provisions shall govern
in the event of a Change of Control of Employer (as hereinafter defined).
(A) Definitions. For purposes of this Section 15, the following
definitions shall apply:
(a) A "Change of Control" shall mean for purposes of this Section 15:
(i) The acquisition after the date hereof by any individual,
entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
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Exchange Act) of either (i) shares of common stock of Employer
(the "Company Common Stock"), or (ii) voting power of
outstanding voting securities of Employer entitled to vote
generally in the election of directors (the "Company Voting
Securities"), if that Person by virtue of such acquisition
becomes the beneficial owner of 33% or more of the outstanding
Company Common Stock or Company Voting Securities; provided,
however, that the following acquisitions shall not constitute
a Change of Control: (A) any acquisition directly from
Employer (excluding an acquisition by virtue of the exercise
of a conversion privilege), (B) any acquisition by Employer,
(C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by Employer or any corporation
controlled by Employer or (D) any acquisition by any
corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or
consolidation, the conditions described in clauses (A), (B)
and (C) of Section 15(A)(a)(iii) are satisfied; or
(ii) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at
least a majority of the members of the Board; provided,
however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by
Employer's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of either an actual or threatened contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(iii) Approval by the shareholders of Employer of a reorganization,
merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (A) more than 67% of,
respectively, the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the outstanding Company
Common Stock and outstanding Company Voting Securities
immediately prior to such reorganization, merger or
consolidation, in substantially the same proportions as their
ownership immediately prior to such reorganization, merger or
consolidation of the outstanding Company Common Stock and
outstanding Company Voting Securities, as the case may be, (B)
no Person (excluding Employer, any employee benefit plan (or
related trust) of Employer or such corporation resulting from
such reorganization, merger or consolidation and any Person
beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 33% or more
of the outstanding Company Common Stock or outstanding Voting
Securities, as the case may be) beneficially owns, directly or
indirectly, 33% or more of, respectively, the then outstanding
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shares of common stock of the corporation resulting from such
reorganization, merger or consolidation or the combined voting
power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the
board of directors of the corporation resulting from such
reorganization, merger or consolidation were members of the
Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or
consolidation; or
(iv) Approval by the shareholders of Employer of (A) a complete
liquidation or dissolution of Employer or (B) the sale or
other disposition of all or substantially all of the assets of
Employer, other than to a corporation, with respect to which
following such sale or other disposition, (1) more than 67%
of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the outstanding Company
Common Stock and outstanding Company Voting Securities
immediately prior to such sale or other disposition in
substantially the same proportion as their ownership
immediately prior to such sale or other disposition of the
outstanding Company Common Stock and outstanding Company
Voting Securities, as the case may be, (2) no Person
(excluding Employer and any employee benefit plan (or related
trust) of Employer or such corporation and any Person
beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 33% or more of the
outstanding Company Common Stock or outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or
indirectly, 33% or more of, respectively, the then outstanding
shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors and (3) at least a majority of the members of the
board of directors of such corporation were members of the
Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or
other disposition of assets of Employer.
(b) The "Change of Control Period" shall mean for purposes of this
Section 15 the period commencing on the date hereof and ending on the third
anniversary of such date; provided, however, that commencing on the date one
year after the date hereof, and on each annual anniversary of such date (such
date and each annual anniversary thereof shall be hereinafter referred to as the
"Renewal Date"), the Change of Control Period shall be automatically extended so
as to terminate three years from such Renewal Date.
(c) The "Change of Control Date" shall mean for purposes of this Section
15 the first date during the Change of Control Period (as defined in Section
l5(A)(b)) on which a Change of Control occurs. Anything in this Section 15 to
the contrary notwithstanding, if a Change of Control occurs and if the
Executive's employment with Employer is terminated prior to the date on which
the Change of Control occurs, and if it is reasonably demonstrated by the
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Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect the Change of Control
or (ii) otherwise arose in connection with or anticipation of the Change of
Control, then for all purposes of this Section 15 the "Change of Control Date"
shall mean the date immediately prior to the date of such termination of
employment.
(B) Change of Control Employment Period. Employer hereby agrees to
continue the Executive in its employ, and the Executive hereby agrees to remain
in the employ of Employer, in accordance with the terms and provisions of this
Agreement, for the period commencing on the Change of Control Date and ending on
the later of December 31, 2004 or the third anniversary of such date (the
"Change of Control Employment Period").
(C) Terms of Employment.
a. Position and Duties.
(i) During the Change of Control Employment Period, (A) the
Executive's position (including status, offices, titles, and
reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all
material respects with the most significant of those held,
exercised and assigned at any time during the 90-day period
immediately preceding the Change of Control Date and (B) the
Executive's services shall be performed at the location where
the Executive was employed immediately preceding the Change of
Control Date or any office which is the headquarters of
Employer and is less than 35 miles from such location.
(ii) During the Change of Control Employment Period, and excluding
any periods of vacation and sick leave to which the Executive
is entitled, the Executive agrees to devote his professional
time and attention during normal business hours to the
business and affairs of Employer and, to the extent necessary
to discharge the responsibilities assigned to the Executive
hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities.
During the Change of Control Employment Period it shall not be
a violation of this Agreement for the Executive to (A) serve
on corporate, civic or charitable boards or committees, (B)
deliver lectures, fulfill speaking engagements or teach at
educational institutions or (C) manage personal investments,
so long as such activities do not significantly interfere with
the performance of the Executive's responsibilities as an
employee of Employer in accordance with this Agreement. It is
expressly understood and agreed that to the extent that any
activities have been conducted by the Executive prior to the
Change of Control Date, the continued conduct of such
activities (or the conduct of activities similar in nature and
scope thereto) subsequent to the Change of Control Date shall
not hereafter be deemed to interfere with the performance of
the Executive's responsibilities to Employer.
b. Compensation. In the event of a Change of Control, the Executive's
compensation by Employer during the Change of Control Employment period shall
not be diminished in any particular respect from that prior to the Change of
Control, and shall include the following:
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(i) Salary and Bonus. During the Change of Control Employment
Period, the Executive shall receive a salary, which shall be
paid in equal installments on a monthly basis, at least equal
to twelve times the highest monthly base salary paid or
payable to the Executive by Employer and its affiliated
companies in respect of the twelve-month period immediately
preceding the month in which the Change of Control Date
occurs. During the Change of Control Employment Period, the
Annual Base Salary shall be reviewed at least annually and
shall be increased annually at a rate not less than 15% or as
shall be substantially consistent with increases in base
salary generally awarded in the ordinary course of business to
other peer executives of Employer and its affiliated
companies, whichever is greater. Any increase in salary shall
not serve to limit or reduce any other obligation to the
Executive under this Agreement. Executive's salary shall not
be reduced after any such increase and the term salary as
utilized in this Agreement shall refer to salary as so
increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by,
controlling or under common control with Employer.
Additionally, Executive shall receive an irrevocable
assignment of 2% overriding royalty of all oil and gas
production received by Employer.
(ii) Annual Bonus. In addition to Salary and Bonus payable as
herein provided, the Executive shall be awarded, for each
fiscal year ending during the Change of Control Employment
Period, an annual bonus (the "Annual Bonus") in cash at least
equal to the average bonus paid or payable, including by
reason of any deferral, to the Executive by Employer and its
affiliated companies in respect of the three fiscal years
immediately preceding the fiscal year in which the Change of
Control Date occurs (the "Recent Average Bonus"). Each such
Annual Bonus shall be paid no later than the end of the third
month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus.
(iii) Special Bonus. In addition to Salary and Bonus and Annual
Bonus payable as herein above provided, if the Executive
remains employed with Employer and its affiliated companies
through the first anniversary of the Change of Control Date,
Employer shall pay to the Executive a special bonus (the
"Special Bonus") in recognition of the Executive's services
during the crucial one-year transition period following the
Change of Control in cash equal to the sum of (A) the
Executive's Salary and Bonus and (B) the greater of (1) the
Annual Bonus paid or payable, including by reason of any
deferral, to the Executive for the most recently completed
fiscal year during the Change of Control Employment Period, if
any, and (2) the Recent Average Bonus (such greater amount
shall be hereinafter referred to as the "Highest Annual
Bonus"). The Special Bonus shall be paid no later than 30 days
following the first anniversary of the Change of Control Date.
(iv) Stock Option, Incentive, Savings and Retirement Plans. During
the Change of Control Employment Period, the Executive shall
be entitled to participate in all stock option plans,
incentive, savings and retirement plans, practices, policies
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and programs applicable generally to other key or peer
executives of Employer and its affiliated companies, but in no
event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured
with respect to both regular and special incentive
opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate,
than the most favorable of those provided by Employer and its
affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time
during the 90-day period immediately preceding the Change of
Control Date or if more favorable to the Executive, those
provided generally at any time after the Change of Control
Date to other key or peer executives of Employer and its
affiliated companies.
(v) Welfare Benefit Plans. During the Change of Control Employment
Period, the Executive and/or the Executive's family, as the
case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices,
policies and programs provided by Employer and its affiliated
companies (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee
life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable
generally to other key or peer executives of Employer and its
affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with
benefits which are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs
in effect for the Executive at any time during the 90-day
period immediately preceding the Change of Control Date or, if
more favorable to the Executive, those provided generally at
any time after the Change of Control Date to other key or peer
executives of Employer and its affiliated companies.
(vi) Expenses. During the Change of Control Employment Period, the
Executive shall be entitled to receive prompt reimbursement
for all reasonable employment expenses incurred by the
Executive in accordance with the most favorable policies,
practices and procedures of Employer and its affiliated
companies in effect for the Executive at any time during the
90-day period immediately preceding the Change of Control Date
or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other key or peer
executives of Employer and its affiliated companies.
(vii) Fringe Benefits. During the Change of Control Employment
Period, the Executive shall be entitled to fringe benefits in
accordance with the most favorable plans, practices, programs
and policies of Employer and its affiliated companies in
effect for the Executive at any time during the 90-day period
immediately preceding the Change of Control Date, or if more
favorable to the Executive, as in effect generally at any time
thereafter with respect to other key or peer executives of
Employer and its affiliated companies.
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(viii) Office and Support Staff. During the Change of Control
Employment Period, the Executive shall be entitled to an
office or offices of a size and with furnishings and other
appointments, and to exclusive personal secretarial and other
assistance, at least equal to the most favorable of the
foregoing provided to the Executive by Employer and its
affiliated companies at any time during the 90-day period
immediately preceding the Change of Control Date or, if more
favorable to the Executive, as provided generally at any time
thereafter with respect to other key or peer executives of
Employer and its affiliated companies.
(ix) Vacation. During the Change of Control Employment Period, the
Executive shall be entitled to paid vacation in accordance
with the most favorable plans, policies, programs and
practices of Employer and its affiliated companies as in
effect for the Executive at any time during the 90-day period
immediately preceding the Change of Control Date or, if more
favorable to the Executive, as in effect generally at any time
thereafter with respect to other key or peer executives of
Employer and its affiliated companies.
(D) Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Change of Control Employment
Period. In the Executive's employment is terminated by reason of the Executive's
disability during the Change of Control Employment Period (pursuant to the
definition of Disability set forth below), Employer may give to the Executive
written notice in accordance with Section 15(I)(a) of its intention to terminate
the Executive's employment. In such event, the Executive's employment with
Employer shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Change of Control Date"), provided that,
within the 30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this Section
15, "Disability" shall mean the absence of the Executive from the Executive's
duties with Employer on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness or disability which is
determined to be total and permanent by Executive's regular treating physician.
(b) Cause. Employer may terminate the Executive's employment during the
Change of Control Employment Period for Cause. For purposes of this Section 15,
"Cause" shall mean only:
(i) a material breach by the Executive of the Executive's obligations
under this Agreement (other than as a result of incapacity due to physical or
mental illness or disability) which is demonstrably willful and deliberate on
the Executive's part, which is committed in bad faith and without reasonable
belief that such breach is in the best interests of Employer and which is not
remedied in a reasonable period of time after receipt of written notice from
Employer specifying such breach or (ii) the conviction of the Executive of a
felony involving moral turpitude which results in a detriment to the Employer,
harms the Executive's reputation, or otherwise reflects poorly on the Employer.
Termination may occur only when (1) the Executive has been provided with written
notice of assertion that there is a basis for termination for cause which notice
15
<PAGE>
shall specify in reasonable detail specific facts regarding such assertion, (2)
such written notice is provided to the Executive a reasonable time before the
Board meets to consider any possible termination for cause, (3) at or prior to
the meeting of the Board to consider the matters described in the written
notice, an opportunity is provided to Executive and his counsel to be heard
before the Board with respect to any matters described in the written notice,
(4) any resolution or other Board action held with respect to any deliberation
regarding or decision to terminate the Executive for cause is duly adopted by a
vote of a majority of the entire Board at a meeting of the Board called and held
and (5) the Executive is promptly provided with a copy of the resolution or
other corporate action taken with respect to such termination. The unwillingness
of the Executive to accept any or all of a change in the nature or scope of his
position, title, authorities or duties, a reduction in his total compensation or
benefits, a relocation that he deems unreasonable, or other action by or at the
request of the Employer in respect of his position, title, authority or
responsibility that he deems to be contrary to this Agreement, may not be
considered by the Board to be a breach of this Agreement by the Executive.
(c) Good Reason; Window Period. The Executive's employment may be
terminated (i) during the Change of Control Employment Period by the Executive
for Good Reason or (ii) during the Window Period by the Executive without any
reason. For purposes of this Agreement, the "Window Period" shall mean the
30-day period immediately following the first anniversary of the Change of
Control Date. For purposes of this Section 15, "Good Reason" shall mean
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status,
offices, titles and reporting requirement), authority, duties
or responsibilities as contemplated by this Agreement or any
other action by Employer which results in a diminution in such
position, authority, duties or responsibilities, excluding for
this purpose an isolated, unsubstantial and inadvertent action
not taken in bad faith and which is remedied by Employer
promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by Employer to comply with any of the provisions
of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is
remedied by Employer promptly after receipt of notice thereof
given by the Executive;
(iii) Employer's requiring the Executive to be based at any office
or location other than New York, New York;
(iv) any purported termination by Employer of the Executive's
employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by Employer to comply with and satisfy Section
15(I)(b), provided that such successor has received at least
ten business days' prior written notice from Employer or the
Executive of the requirements of Section 15(I)(b).
For purposes of this Section 15(D)(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive.
16
<PAGE>
(d) Notice of Termination. Any termination by Employer for Cause, or by
the Executive without any reason during the Window Period or for Good Reason,
shall be communicated by Notice of Termination to the other party hereto given
in accordance with Section 15(I)(a). For purposes of this Section 15, a "Notice
of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination date
under such notice. The failure by the Executive or Employer to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or Employer
hereunder or preclude the Executive or Employer from asserting such fact or
circumstance in enforcing the Executive's or Employer's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by Employer for Cause, or by the Executive
without any reason during the Window Period or for Good Reason, the date of
receipt of the Notice of Termination or any later date specified therein, as the
case may be, (ii) if the Executive's employment is terminated by Employer other
than for Cause, Death or Disability, the Date of Termination shall be the date
on which Employer notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of Death or Disability, the Date
of Termination shall be the date of death of the Executive or the Disability
Change of Control Date, as the case may be.
(E) Obligations of Employer Upon Termination.
(a) Good Reason or during the Window Period; Other than for Cause, Death
or Disability. If, during the Change of Control Employment Period, Employer
shall terminate the Executive's employment other than for Cause, Death or
Disability or the Executive shall terminate employment either for Good Reason or
without any reason during the Window Period:
(i) Employer shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the
aggregate of the following amounts:
A. The sum of (1) the Salary and Bonus for the
Change of Control Employment Period at the
rate set forth in the Agreement, (2) the
Highest Annual Bonus for the Change of
Control Employment Period, (3) the Special
Bonus, if due to the Executive pursuant to
Section 15(C)b.ii., to the extent not
theretofore paid, (4) all other amounts
accrued and earned by the Executive for the
Change of Control Employment Period and
amounts otherwise owing under the then
existing plans, practices, policies and
agreements of Employer, (5) any compensation
previously deferred by the Executive
(together with any accrued interest or
earnings thereon) and any accrued vacation
pay, in each case to the extent not
theretofore paid (the sum of the amounts
described in clauses (1), (2), (3), (4) and
(5) shall be hereinafter referred to as the
"Accrued Change of Control Obligations");
and
17
<PAGE>
B. The amount (such amount shall be hereinafter
referred to as the "Severance Amount") equal
to the product of (1) two and (2) the sum of
(x) the Executive's annual base salary and
(y) the Highest Annual Bonus; provided,
however, that if the Special Bonus has not
been paid to the Executive, such amount
shall be increased by the amount of the
Special Bonus; and, provided further, that
such amount shall be reduced by the present
value (determined as provided in Section
280G(d)(4) of the Internal Revenue Code of
1986, as amended (the "Code")) of any other
amount of severance relating to salary or
bonus continuation to be received by the
Executive upon termination of employment of
the Executive under any severance plan,
policy or arrangement of Employer;
(ii) for the remainder of the Change of Control Employment
Period, or such longer period as any plan, program,
practice or policy may provide, Employer shall
continue Executive Benefits to the Executive and/or
the Executive's family at least equal to those which
would have been provided to them in accordance with
the plans, programs, practices and policies described
in Section 15(C)b.v. if the Executive's employment
had not been terminated in accordance with the most
favorable plans, practices, programs or policies of
Employer and its affiliated companies as in effect
and applicable generally to other key or peer
executives and their families during the 90-day
period immediately preceding the Change of Control
Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect
to other key or peer executives of Employer and its
affiliated companies and their families, provided,
however, that if the Executive becomes reemployed
with another employer and is eligible to receive
medical or other welfare benefits under another
employer-provided plan, the medical and other welfare
benefits described herein shall be secondary to those
provided under such other plan during such applicable
period of eligibility (such continuation of such
benefits for the applicable period herein set forth
shall be hereinafter referred to as "Welfare Benefit
Continuation"). For purposes of determining
eligibility of the Executive for retiree benefits
pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have
remained employed until the end of the Change of
Control Employment Period and to have retired on the
last day of such period;
(iii) to the extent not theretofore paid or provided,
Employer shall timely pay or provide to the Executive
and/or the Executive's family any other amounts or
Executive Benefits required to be paid or provided or
which the Executive and/or the Executive's family is
eligible to receive pursuant to this Agreement and
under any plan, program, policy or practice or
18
<PAGE>
contract or agreement of Employer and its affiliated
companies as in effect and applicable generally to
other key or peer executives of Employer and its
affiliated companies and their families (such other
amounts and benefits shall be hereinafter referred to
as the "Other Benefits"); and
(iv) at the option of the Executive or his legal
representative, the Employer shall either (A) pay to
the Executive or his legal representative, in a lump
sum within 30 days of the Date of Termination, an
amount (to the extent such amount is a positive
number) equal to the value of all Employer stock and
stock options held by the Executive as of the Date of
Termination, or (B) distribute to the executive or
his legal representative, within 30 days of
termination, all Employer stock and stock options
held by the Executive as of the Date of Termination.
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Change of Control Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for (i) payment of Accrued
Change of Control Obligations (which shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination) and the timely payment or provision of the Welfare Benefit
Continuation and Other Benefits (excluding, in each case, Death Benefits (as
defined below)) and (ii) payment to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination of
an amount equal to the greater of (A) the Severance Amount or (B) the present
value (determined as provided in Section 280G(d)(4) of the Code) of any cash
amount to be received by the Executive or the Executive's family as a death
benefit pursuant to the terms of any plan, policy or arrangement of Employer and
its affiliated companies, but not including any proceeds of life insurance
covering the Executive to the extent paid for directly or on a contributory
basis by the Executive (which shall be paid in any event as an Other Benefit)
(the benefits included in this clause (B) shall be hereinafter referred to as
the "Death Benefits").
(c) Disability. If the Executive's employment is terminated by reason of
the Executive's Disability during the Change of Control Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for (i) payment of Accrued Change of Control Obligations (which shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination) and the timely payment or provision of the Welfare Benefit
Continuation and Other Benefits (excluding, in each case, Disability Benefits
(as defined below)) and (ii) payment to the Executive in a lump sum in cash
within 30 days of the Date of Termination of an amount equal to the greater of
(A) the Severance Amount or (b) the present value (determined as provided in
Section 280G(d)(4) of the Code) of any cash amount to be received by the
Executive as a disability benefit pursuant to the terms of any plan, policy or
arrangement of Employer and its affiliated companies, but not including any
proceeds of disability insurance covering the Executive to the extent paid for
directly or on a contributory basis by the Executive (which shall be paid in any
event as an Other Benefit) (the benefits included in this clause (B) shall be
hereinafter referred to as the "Disability Benefits").
19
<PAGE>
(d) Cause; Other Than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Change of Control Employment Period,
this Agreement shall terminate without further obligations to the Executive
other than the obligation to pay to the Executive annual base salary through the
Date of Termination plus the amount of any compensation previously deferred by
the Executive, in each case to the extent theretofore unpaid. If the Executive
terminates employment during the Change of Control Employment Period, excluding
a termination either for Good Reason or without any reason during the Window
Period, this Agreement shall terminate without further obligations to the
Executive, other than for Accrued Change of Control Obligations and the timely
payment or provision of Other Benefits. In such case, all Accrued Change of
Control Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination.
(F) Non-exclusivity of Rights. Except as provided in Sections
15(E)(a)(ii), 15(E)(b) and 15(E)(c), nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by Employer or any of its affiliated companies and
for which the Executive may qualify, nor shall anything herein limit or
otherwise affect such rights as the Executive may have under any contract or
agreement with Employer or any of its affiliated companies. Amounts which are
vested benefits or which the Executive is otherwise entitled to receive under
any plan, policy, practice or program of or any contract or agreement with
Employer or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement.
(G) Full Settlement, Resolution of Disputes.
(a) Employer's obligation to make the payments provided for in this
Section 15 and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which Employer may have against the Executive or others. In no event
shall the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement and, except as provided in Section
15(E)(a)(ii), such amounts shall not be reduced whether or not the Executive
obtains other employment. Employer agrees to pay promptly as incurred, to the
full extent permitted by law, all legal fees and expenses which the Executive
may reasonably incur as a result of any contest (regardless of the outcome
thereof) by Employer, the Executive or others of the validity or enforceability
of, or liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the Executive about
the amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable Federal rate provided for in
Section 7872(f)(2)(A) of the Code.
(b) If there shall be any dispute between Employer and the Executive (i)
in the event of any termination of the Executive's employment by Employer,
whether such termination was for Cause, or (ii) in the event of any termination
of employment by the Executive, whether Good Reason existed, then, unless and
until there is a final, nonappealable judgment by a court of competent
jurisdiction declaring that such termination was for Cause or that the
20
<PAGE>
determination by the Executive of the existence of Good Reason was not made in
good faith, Employer shall pay all amounts, and provide all benefits, to the
Executive and/or the Executive's family or other beneficiaries, as the case may
be, that Employer would be required to pay or provide pursuant to Section
15(E)(a) as though such termination were by Employer without Cause, or by the
Executive with Good Reason; provided, however, that Employer shall not be
required to pay any disputed amount pursuant to this paragraph except upon
receipt of an agreement by or on behalf of the Executive to repay all such
amounts to which the Executive is ultimately adjudged by such court not to be
entitled.
(H) Certain Additional Payments by Employer.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by Employer to or
for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
15(H) (a "Payment") would be subject to the excise tax imposed by Section 4999
of the Code or any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), an
additional payment (a "Gross-Up Payment") shall be made by Employer to the
Executive in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 15(H)(c), all determinations
required to be made under this Section 15, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Arthur
Andersen LLP (the "Accounting Firm"), which shall provide detailed supporting
calculations both to Employer and the Executive within 15 business days of the
receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by Employer. In the event that the Accounting Firm
is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by Employer. Any
Gross-Up Payment, as determined pursuant to this Section 15(H), shall be paid by
Employer to the Executive within five days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with a written opinion
that failure to report the Excise Tax on the Executive's applicable federal
income tax return would not result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be binding upon Employer
and the Executive. As a result of the uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by Employer should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that Employer exhausts
its remedies pursuant to Section 15(H)(c) and the Executive thereafter is
21
<PAGE>
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by Employer to or for the benefit of the
Executive.
(c) The Executive shall notify Employer in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by
Employer of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and the Executive shall apprise Employer of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to Employer (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If Employer notifies the Executive in writing prior to the expiration
of such period that it desires to contest such claim, the Executive shall:
(i) give Employer any information reasonably requested by Employer
relating to such claim,
(ii) take such action in connection with contesting such claim as
Employer shall reasonably request in writing from time to
time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by Employer,
(iii) cooperate with Employer in good faith in order effectively to
contest such claim, and
(iv) permit Employer to participate in any proceedings relating to
such claim;
provided, however, that Employer shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 15(H)(c), Employer shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate Courts, as Employer shall
determine; provided, however, that if Employer directs the Executive to pay such
claim and sue for a refund, Employer shall advance the amount of such payment to
the Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, Employer's control of the contest shall be limited to
22
<PAGE>
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by
Employer pursuant to Section 15(H)(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to
Employer's complying with the requirements of Section 15(H)(c)) promptly pay to
Employer the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by Employer pursuant to Section 15(H)(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and Employer does not notify the Executive in writing of its intent
to contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Executive Employment Agreement as of the date first above written.
EXECUTIVE: EMPLOYER:
GREKA ENERGY CORPORATION,
a Colorado corporation
/s/ Randeep S. Grewal By: /s/ George G. Andrews
- - ---------------------- -------------------------------
Randeep S. Grewal Printed Name: George G. Andrews
Title: Director
23
GMAC
COMMERCIAL CREDIT LLC
1290 AVENUE OF THE AMERICAS o NEW YORK, NY 10104
212-408-7000
September 24, 1999
Greka Integrated, Inc.
Saba Realty, Inc.
Santa Maria Refining Company
3201 Airpark Drive, Suite 201
Santa Maria, CA 93455
Ladies/Gentlemen:
Reference is made to the Loan & Security Argeement between us dated as
of April 30, 1999 (the "Agreement"). All capitalized terms not otherwise defined
herein shall have such meaning as are ascribed to them under the Argeement.
This letter shall serve to confirm the agreement between us, that
effective immediately the Agreement shall be amended by deleting the dollar
amount of "$5,000,000" appearing in the definition of "Maximum Revolving Amount"
appearing on page 6 of the Agreement and by inserting the dollar amount of
"$6,000,000" in its place and stead.
Except as hereby specifically modified or amended all of the terms and
conditions set forth in the Agreement shall continue to remain in full force and
effect in accordance with their original terms.
If the foregoing correctly sets forth the agreement between us, please
execute a copy of this letter in the space provided below and return a fully
executed copy to our offices.
Very truly yours,
GMAC COMMERCIAL CREDIT LLC
By: /S/
------------------------------
Title:
READ & AGREED TO:
GREKA INTEGRATED, INC.
By: /S/ Randeep S. Grewal
-------------------------------
Title: Chairman, CEO & President
SABA REALTY, INC
By: /S/ Randeep S. Grewal
-------------------------------
Title: Chairman, CEO & President
SANTA MARIA REFINING COMPANY
By: /S/ Randeep S. Grewal
-------------------------------
Title: Chairman, CEO & President
RIGHTS AGREEMENT
dated
November 3, 1999
between
GREKA ENERGY CORPORATION
and
AMERICAN SECURITIES TRANSFER & TRUST, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 1. Certain Definitions......................................................................1
Section 2. Appointment of Rights Agent..............................................................7
Section 3. Issuance of Rights Certificates..........................................................7
Section 4. Form of Rights Certificates..............................................................9
Section 5. Countersignature and Registration.......................................................10
Section 6. Transfer, Split Up, Combination and Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen Rights Certificates................................10
Section 7. Exercise of Rights; Exercise Price; Expiration Date of Rights. ........................11
Section 8. Cancellation and Destruction of Rights Certificates.....................................13
Section 9. Reservation and Availability of Common Shares. .........................................13
Section 10. Record Date.............................................................................14
Section 11. Adjustment of Exercise Price, Number of Shares or Number of Rights......................15
Section 12. Certificate of Adjusted Exercise Price or Number of Shares .............................20
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power....................21
Section 14. Fractional Rights and Fractional Shares. ...............................................25
Section 15. Rights of Action. .....................................................................25
Section 16. Agreement of Rights Holders. ..........................................................26
Section 17. Rights Certificate Holder Not Deemed a Shareholder......................................26
Section 18. Concerning the Rights Agent.............................................................26
Section 19. Merger or Consolidation or Change of Name of Rights Agent. .............................27
Section 20. Duties of Rights Agent..................................................................27
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
Section 21. Change of Rights Agent..................................................................29
Section 22. Issuance of New Rights Certificates. ..................................................30
Section 23. Redemption .............................................................................31
Section 24. Exchange................................................................................32
Section 25. Notice of Certain Events ...............................................................33
Section 26. Notices.................................................................................34
Section 27. Supplements and Amendments ............................................................34
Section 28. Successors..............................................................................35
Section 29. Determinations and Actions by the Board of Directors, Etc...............................35
Section 30. Benefits of this Agreement..............................................................36
Section 31. Severability............................................................................36
Section 32. Governing Law...........................................................................36
Section 33. Counterparts............................................................................36
Section 34. Descriptive Headings....................................................................36
</TABLE>
ii
<PAGE>
RIGHTS AGREEMENT
This Rights Agreement (the "Agreement") is dated as of November 3,
1999, between GREKA Energy Corporation, a Colorado corporation (the "Company"),
and American Securities Transfer & Trust, Inc. (the "Rights Agent").
On November 3, 1999 (the "Rights Dividend Declaration Date"), the Board
of Directors of the Company authorized and declared a dividend of one Common
Share Purchase Right (a "Right") for each Common Share (as hereinafter defined)
of the Company outstanding as of the Close of Business (as hereinafter defined)
on November 3, 1999 (the "Record Date"), each Right representing the right to
purchase one share (as such number may be adjusted pursuant to the provisions of
this Agreement) of the Company's common stock, no par value per share (the
"Common Stock"), upon the terms and subject to the conditions herein set forth,
and further authorized and directed the issuance of one Right (as such number
may be adjusted pursuant to the provisions of this Agreement) with respect to
each Common Share that shall become outstanding between the Record Date and the
earlier of the Distribution Date and the Expiration Date (as such terms are
hereinafter defined), and in certain circumstances after the Distribution Date.
NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 33% or more of the Common Shares then outstanding, but shall
not include the Company, any Subsidiary of the Company or any employee benefit
plan of the Company or of any Subsidiary of the Company, or any entity holding
Common Shares for or pursuant to the terms of any such plan. Notwithstanding the
foregoing, no Person shall be deemed to be an Acquiring Person as the result of
an acquisition of Common Shares by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares beneficially
owned by such Person to 33% or more of the Common Shares of the Company then
outstanding; provided, however, that if a Person shall become the Beneficial
Owner of 33% or more of the Common Shares of the Company then outstanding by
reason of share purchases by the Company and shall, after such share purchases
by the Company, become the Beneficial Owner of any additional Common Shares of
the Company (other than pursuant to a dividend or distribution paid or made by
the Company on the outstanding Common Shares in Common Shares or pursuant to a
split or subdivision of the outstanding Common Shares), then such Person shall
be deemed to be an Acquiring Person unless upon becoming the Beneficial Owner of
such additional Common Shares of the Company such Person does not beneficially
own 33% or more of the Common Shares of the Company then outstanding.
Notwithstanding the foregoing, (i) if the Company's Board of Directors
determines in good faith that a Person who would otherwise be an "Acquiring
Person," as defined pursuant to the foregoing provisions of this paragraph (a),
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has become such inadvertently (including, without limitation, because (A) such
Person was unaware that it beneficially owned a percentage of the Common Shares
that would otherwise cause such Person to be an "Acquiring Person," as defined
pursuant to the foregoing provisions of this paragraph (a), or (B) such Person
was aware of the extent of the Common Shares it beneficially owned but had no
actual knowledge of the consequences of such beneficial ownership under this
Agreement) and without any intention of changing or influencing control of the
Company, and if such Person divested or divests as promptly as practicable a
sufficient number of Common Shares so that such Person would no longer be an
"Acquiring Person," as defined pursuant to the foregoing provisions of this
paragraph (a), then such Person shall not be deemed to be or to have become an
"Acquiring Person" for any purposes of this Agreement; and (ii) if, as of the
date hereof, any Person is the Beneficial Owner of 33% or more of the Common
Shares outstanding, such Person shall not be or become an "Acquiring Person," as
defined pursuant to the foregoing provisions of this paragraph (a), unless and
until such time as such Person shall become the Beneficial Owner of additional
Common Shares (other than pursuant to a dividend or distribution paid or made by
the Company on the outstanding Common Shares in Common Shares or pursuant to a
split or subdivision of the outstanding Common Shares), unless, upon becoming
the Beneficial Owner of such additional Common Shares, such Person is not then
the Beneficial Owner of 33% or more of the Common Shares then outstanding.
(b) "Adjustment Fraction" shall have the meaning set forth
in Section 11(a) hereof.
(c) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on the date of this Agreement.
(d) A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or indirectly, for
purposes of Section 13(d) of the Exchange Act and Rule 13d-3 thereunder
(or any comparable or successor law or regulation);
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire (whether such
right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding (other than
customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities), or
upon the exercise of conversion rights, exchange rights, rights (other
than the Rights), warrants or options, or otherwise; provided, however,
that a Person shall not be deemed pursuant to this Section l(d)(ii)(A)
to be the Beneficial Owner of, or to beneficially own, (1) securities
tendered pursuant to a tender or exchange offer made by or on behalf of
such Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange, or (2)
securities which a Person or any of such Person's Affiliates or
Associates may be deemed to have the right to acquire pursuant to any
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merger or other acquisition agreement between the Company and such
Person (or one or more of its Affiliates or Associates) which agreement
has been approved by the Board of Directors of the Company prior to
there being an Acquiring Person; or (B) the right to vote pursuant to
any agreement, arrangement or understanding; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security under this Section l(d)(ii)(B) if the agreement,
arrangement or understanding to vote such security (1) arises solely
from a revocable proxy or consent given to such Person in response to a
public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations of the Exchange
Act and (2) is not also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate thereof)
with which such Person or any of such Person's Affiliates or Associates
has any agreement, arrangement or understanding, whether or not in
writing (other than customary agreements with and between underwriters
and selling group members with respect to a bona fide public offering
of securities) for the purpose of acquiring, holding, voting (except to
the extent contemplated by the proviso to Section l(d)(ii)(B)) or
disposing of any securities of the Company; provided, however, that in
no case shall an officer or director of the Company be deemed (x) the
Beneficial Owner of any securities beneficially owned by another
officer or director of the Company solely by reason of actions
undertaken by such persons in their capacity as officers or directors
of the Company or (y) the Beneficial Owner of securities held of record
by the trustee of any employee benefit plan of the Company or any
Subsidiary of the Company for the benefit of any employee of the
Company or any Subsidiary of the Company other than the officer or
director, by reason of any influence that such officer or director may
have over the voting of the securities held in the plan.
(e) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in New York are authorized or
obligated by law or executive order to close.
(f) "Close of Business" on any given date shall mean 5:00
p.m., New York time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 p.m., New York time, on the next succeeding
Business Day.
(g) "Common Shares" when used with reference to the Company
shall mean the shares of Common Stock, no par value per share. Common Shares
when used with reference to any Person other than the Company shall mean the
capital stock (or equity interest) with the greatest voting power of such other
Person or, if such other Person is a Subsidiary of another Person, the Person or
Persons which ultimately control such first-mentioned Person.
(h) "Common Stock Equivalents" shall have the meaning set
forth in Section 11(a)(ii) hereof.
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(i) "Company" shall mean GREKA Energy Corporation, a Colorado
corporation, subject to the terms of Section 13(a)(iii)(C) hereof.
(j) "Current Per Share Market Price" on any security (a
"Security" for purposes of this definition), for all computations other than
those made pursuant to Section 11(a)(ii) hereof, shall mean the average of the
daily closing prices per share of such Security for the thirty (30) consecutive
Trading Days immediately prior to such date, and for purposes of computations
made pursuant to Section 11(a)(ii) hereof, the Current Per Share Market Price of
any Security on any date shall be deemed to be the average of the daily closing
prices per share of such Security for the ten (10) consecutive Trading Days
immediately prior to such date; provided, however, that in the event that the
Current Per Share Market Price of the Security is determined during a period
following the announcement by the issuer of such Security of (i) a dividend or
distribution on such Security payable in shares of such Security or securities
convertible into such shares or (ii) any subdivision, combination or
reclassification of such Security, and prior to the expiration of the applicable
thirty (30) Trading Day or ten (10) Trading Day period, after the ex-dividend
date for such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the Current Per
Share Market Price shall be appropriately adjusted to reflect the current market
price per share equivalent of such Security. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national securities
exchange, the last sale price or, if such last sale price is not reported, the
average of the high bid and low asked prices in the over-the-counter market, as
reported by Nasdaq or such other system then in use or, if on any such date the
Security is not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Security as selected by the Board of Directors of the Company. If on any
such date no market maker is making a market in the Security, the fair value of
such shares on such date as determined in good faith by the Board of Directors
of the Company shall be used. If the Security is not publicly held or so listed
or traded, Current Per Share Market Price shall mean the fair value per share as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes.
(k) "Current Value" shall have the meaning set forth in
Section 11(a)(ii) hereof.
(l) "Distribution Date" shall mean the earlier of (i) the
Close of Business on the tenth day after the Shares Acquisition Date (or, if the
tenth day after the Shares Acquisition Date occurs before the Record Date, the
Close of Business on the Record Date) or (ii) the Close of Business on the tenth
Business Day (or such later date as may be determined by action of the Company's
Board of Directors) after the date that a tender or exchange offer by any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the
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Company or of any Subsidiary of the Company, or any Person or entity organized,
appointed or established by the Company for or pursuant to the terms of any such
plan) is first published or sent or given within the meaning of Rule 14d-2(a) of
the General Rules and Regulations under the Exchange Act, if, assuming the
successful consummation thereof, such Person would be an Acquiring Person.
(m) "Equivalent Shares" shall mean Common Shares and any other
class or series of capital stock of the Company which is entitled to the same
rights as the Common Shares.
(n) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
(o) "Exchange Ratio" shall have the meaning set forth in
Section 24(a) hereof.
(p) "Exercise Price" shall have the meaning set forth in
Section 4(a) hereof.
(q) "Expiration Date" shall mean the earliest of (i) the Close
of Business on the Final Expiration Date, (ii) the Redemption Date, or (iii) the
time at which the Board of Directors orders the exchange of the Rights as
provided in Section 24 hereof.
(r) "Final Expiration Date" shall mean November 3, 2004.
(s) "Interested Person" with respect to a Transaction shall
mean any Person who (i) is or will become an Acquiring Person if the Transaction
were to be consummated or an Affiliate or Associate of such a Person, and (ii)
is, or directly or indirectly proposed, nominated or financially supported, a
director of the Company in office at the time of consideration of the
Transaction in question who was elected by written consent of shareholders or
who was elected at a special meeting of shareholders (a meeting other than a
regularly scheduled annual meeting).
(t) "Nasdaq" shall mean the National Association of Securities
Dealers, Inc. Automated Quotations System.
(u) "Person" shall mean any individual, firm, corporation or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
(v) "Post-Event Transferee" shall have the meaning set forth
in Section 7(e) hereof.
(w) "Pre-Event Transferee" shall have the meaning set forth
in Section 7(e) hereof.
(x) "Principal Party" shall have the meaning set forth in
Section 13(b) hereof.
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(y) "Record Date" shall have the meaning set forth in the
recitals at the beginning of this Agreement.
(z) "Redemption Date" shall have the meaning set forth in
Section 23(a) hereof.
(aa) "Redemption Price" shall have the meaning set forth in
Section 23(a) hereof.
(bb) "Rights Agent" shall mean American Securities Transfer
& Trust, Inc. or its successor or replacement as provided in Sections 19 and 21
hereof.
(cc) "Rights Certificate" shall mean a certificate
substantially in the form attached hereto as Exhibit A.
(dd) "Section 13 Event" shall mean any event described in
clause (i), (ii) or (iii) of Section 13(a) hereof.
(ee) "Securities Act" shall mean the Securities Act of 1933,
as amended.
(ff) "Shares Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) under the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has become
such; provided that, if such Person is determined not to have become an
Acquiring Person pursuant to Section l(a) hereof, then no Shares Acquisition
Date shall be deemed to have occurred.
(gg) "Spread" shall have the meaning set forth in Section
11(a)(ii) hereof.
(hh) "Subsidiary" of any Person shall mean any corporation or
other entity of which an amount of voting securities sufficient to elect a
majority of the directors or Persons having similar authority over such
corporation or other entity is beneficially owned, directly or indirectly, by
such Person, or any corporation or other entity otherwise controlled by such
Person.
(ii) "Substitution Period" shall have the meaning set forth
in Section 11(a)(ii) hereof.
(jj) "Summary of Rights" shall mean a summary of this
Agreement substantially in the form attached hereto as Exhibit B.
(kk) "Total Exercise Price" shall have the meaning set forth
in Section 4(a) hereof.
(ll) "Trading Day" shall mean a day on which the principal
national securities exchange or market system on which a referenced security is
listed or admitted to trading is open for the transaction of business or, if a
referenced security is not listed or admitted to trading on any national
securities exchange or market system, a Business Day.
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(mm) "Transaction" shall mean any merger, consolidation or
sale of assets described in Section 13(a) hereof or any acquisition of Common
Shares which would result in a Person becoming an Acquiring Person.
(nn) A "Triggering Event" shall be deemed to have occurred
upon any Person becoming an Acquiring Person.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable upon ten (10) days prior written notice to the Rights Agent. The
Rights Agent shall have no duty to supervise, and shall in no event be liable
for, the acts or omissions of any such co-Rights Agent.
Section 3. Issuance of Rights Certificates.
(a) Until the Distribution Date, (i) the Rights will be
evidenced (subject to the provisions of Sections 3(b) and 3(c) hereof) by the
certificates for Common Shares registered in the names of the holders thereof
(which certificates shall also be deemed to be Rights Certificates) and not by
separate Rights Certificates and (ii) the right to receive Rights Certificates
will be transferable only in connection with the transfer of Common Shares.
Until the earlier of the Distribution Date or the Expiration Date, the surrender
for transfer of such certificates for Common Shares shall also constitute the
surrender for transfer of the Rights associated with the Common Shares
represented thereby. As soon as practicable after the Distribution Date, the
Company will prepare and execute, the Rights Agent will countersign, and the
Company will send or cause to be sent (and the Rights Agent will, if requested,
send) by first-class, postage-prepaid mail, to each record holder of Common
Shares as of the Close of Business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Rights Certificate evidencing
one Right for each Common Share so held, subject to adjustment as provided
herein. As of the Distribution Date, the Rights will be evidenced solely by such
Rights Certificates and may be transferred by the transfer of the Rights
Certificates as permitted hereby, separately and apart from any transfer of
Common Shares, and the holders of such Rights Certificates as listed in the
records of the Company or any transfer agent or registrar for the Rights shall
be the record holders thereof.
(b) On the Record Date or as soon as practicable thereafter,
the Company will send a copy of the Summary of Rights by first-class,
postage-prepaid mail, to each record holder of Common Shares as of the Close of
Business on the Record Date, at the address of such holder shown on the records
of the Company's transfer agent and registrar. With respect to certificates for
Common Shares outstanding as of the Record Date, until the Distribution Date,
the Rights will be evidenced by such certificates registered in the names of the
holders thereof together with the Summary of Rights. Until the Distribution Date
(or, if earlier, the Expiration Date), the surrender for transfer of any
certificate for Common Shares outstanding on the Record Date, with or without
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a copy of the Summary of Rights, shall also constitute the transfer of the
Rights associated with the Common Shares represented thereby.
(c) Unless the Board of Directors of the Company by resolution
adopted at or before the time of the issuance of any Common Shares specifies to
the contrary, Rights shall be issued in respect of all Common Shares that are
issued after the Record Date but prior to the earlier of the Distribution Date
or the Expiration Date or, in certain circumstances provided in Section 22
hereof, after the Distribution Date. Certificates representing such Common
Shares shall also be deemed to be certificates for Rights, and shall bear the
following legend:
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO
CERTAIN RIGHTS AS SET FORTH IN A RIGHTS AGREEMENT BETWEEN GREKA ENERGY
CORPORATION AND AMERICAN SECURITIES TRANSFER & TRUST, INC. AS THE
RIGHTS AGENT, DATED AS OF NOVEMBER 3, 1999, (THE "RIGHTS AGREEMENT"),
THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY REFERENCE AND A
COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF GREKA
ENERGY CORPORATION. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE
RIGHTS AGREEMENT, SUCH RIGHTS WILL BE EVIDENCED BY SEPARATE
CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY THIS CERTIFICATE.
GREKA ENERGY CORPORATION WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A
COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE AFTER RECEIPT OF A WRITTEN
REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS
AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY PERSON WHO IS, WAS OR
BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE OR ASSOCIATE THEREOF (AS
SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER CURRENTLY
HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER, MAY
BECOME NULL AND VOID.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Shares represented by such certificates shall be
evidenced by such certificates alone, and the surrender for transfer of any such
certificate shall also constitute the transfer of the Rights associated with the
Common Shares represented thereby.
(d) In the event that the Company purchases or acquires any
Common Shares after the Record Date but prior to the Distribution Date, any
Rights associated with such Common Shares shall be deemed canceled and retired
so that the Company shall not be entitled to exercise any Rights associated with
the Common Shares which are no longer outstanding.
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Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to
purchase Common Shares and of assignment to be printed on the reverse thereof)
shall be substantially in the form of Exhibit A hereto and may have such marks
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange or a national market system, on which
the Rights may from time to time be listed or included, or to conform to usage.
Subject to the provisions of Section 11 and Section 22 hereof, the Rights
Certificates, whenever distributed, shall be dated as of the Record Date (or in
the case of Rights issued with respect to Common Shares issued by the Company
after the Record Date, as of the date of issuance of such Common Shares) and on
their face shall entitle the holders thereof to purchase such number of Common
Shares as shall be set forth therein at the price set forth therein (such
exercise price per Common Share being hereinafter referred to as the "Exercise
Price" and the aggregate Exercise Price of all Common Shares issuable upon
exercise of the number of Rights evidenced by the Rights Certificate being
hereinafter referred to as the "Total Exercise Price"), but the number and type
of securities purchasable upon the exercise of each Right and the Exercise Price
shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring
Person or any Associate or Affiliate of an Acquiring Person, (ii) a transferee
of an Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such or (iii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which a majority of the Company's Board of Directors
has determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect avoidance of Section 7(e) hereof, and any Rights
Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain (to the extent feasible) the following legend:
THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR
AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE
DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE
AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE
CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS AGREEMENT.
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Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chief Executive Officer, its President, or its Chief Financial
Officer, either manually or by facsimile signature, and by the Secretary or an
Assistant Secretary of the Company, either manually or by facsimile signature,
and shall have affixed thereto the Company's seal (if any) or a facsimile
thereof. The Rights Certificates shall be manually countersigned by the Rights
Agent and shall not be valid for any purpose unless countersigned. In case any
officer of the Company who shall have signed any of the Rights Certificates
shall cease to be such officer of the Company before countersignature by the
Rights Agent and issuance and delivery by the Company, such Rights Certificates,
nevertheless, may be countersigned by the Rights Agent and issued and delivered
by the Company with the same force and effect as though the person who signed
such Rights Certificates on behalf of the Company had not ceased to be such
officer of the Company, and any Rights Certificate may be signed on behalf of
the Company by any person who, at the actual date of the execution of such
Rights Certificate, shall be a proper officer of the Company to sign such Rights
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its office designated for such purposes, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Rights
Certificates, the number of Rights evidenced on its face by each of the Rights
Certificates and the date of each of the Rights Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Sections 7(e), 14 and 24
hereof, at any time after the Close of Business on the Distribution Date, and at
or prior to the Close of Business on the Expiration Date, any Rights Certificate
or Rights Certificates may be transferred, split up, combined or exchanged for
another Rights Certificate or Rights Certificates, entitling the registered
holder to purchase a like number of Common Shares (or, following a Triggering
Event, other securities, cash or other assets, as the case may be) as the Rights
Certificate or Rights Certificates surrendered then entitled such holder to
purchase. Any registered holder desiring to transfer, split up, combine or
exchange any Rights Certificate or Rights Certificates shall make such request
in writing delivered to the Rights Agent, and shall surrender the Rights
Certificate or Rights Certificates to be transferred, split up, combined or
exchanged at the office of the Rights Agent designated for such purpose. Neither
the Rights Agent nor the Company shall be obligated to take any action
whatsoever with respect to the transfer of any such surrendered Rights
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon the Rights
Agent shall, subject to Sections 7(e), 14 and 24 hereof, countersign and deliver
to the person entitled thereto a Rights Certificate or Rights Certificates, as
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the case may be, as so requested. The Company may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Rights
Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and, at the Company's
request, reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Rights Certificate if mutilated, the Company will make and
deliver a new Rights Certificate of like tenor to the Rights Agent for delivery
to the registered holder in lieu of the Rights Certificate so lost, stolen,
destroyed or mutilated.
Section 7. Exercise of Rights; Exercise Price; Expiration Date of
Rights.
(a) Subject to Sections 7(e), 23 and 24 hereof, the registered
holder of any Rights Certificate may exercise the Rights evidenced thereby
(except as otherwise provided herein) in whole or in part at any time after the
Distribution Date and prior to the Close of Business on the Expiration Date by
surrender of the Rights Certificate, with the form of election to purchase on
the reverse side thereof duly executed, to the Rights Agent at the office of the
Rights Agent designated for such purpose, together with payment of the Exercise
Price for each Common Share (or, following a Triggering Event, other securities,
cash or other assets as the case may be) as to which the Rights are exercised.
(b) The Exercise Price for the Common Share issuable pursuant
to the exercise of a Right shall initially be sixty dollars ($60.00), shall be
subject to adjustment from time to time as provided in Sections 11 and 13 hereof
and shall be payable in lawful money of the United States of America in
accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Exercise Price for the number of Common Shares
(or, following a Triggering Event, other securities, cash or other assets as the
case may be) to be purchased and an amount equal to any applicable transfer tax
required to be paid by the holder of such Rights Certificate in accordance with
Section 9(e) hereof, the Rights Agent shall, subject to Section 20(k) hereof,
thereupon promptly (i) (A) requisition from any transfer agent of the Common
Shares (or make available, if the Rights Agent is the transfer agent for the
Common Shares) a certificate or certificates for the number of Common Shares
(or, following a Triggering Event, other securities, cash or other assets as the
case may be) to be purchased and the Company hereby irrevocably authorizes its
transfer agent to comply with all such requests or (B) if the Company shall have
elected to deposit the total number of Common Shares (or, following a Triggering
Event, other securities, cash or other assets as the case may be) issuable upon
exercise of the Rights hereunder with a depositary agent, requisition from the
depositary agent depositary receipts representing such number of Common Shares
(or, following a Triggering Event, other securities, cash or other assets as the
case may be) as are to be purchased (in which case certificates for the Common
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Shares (or, following a Triggering Event, other securities, cash or other assets
as the case may be) represented by such receipts shall be deposited by the
transfer agent with the depositary agent) and the Company hereby directs the
depositary agent to comply with such request, (ii) when appropriate, requisition
from the Company the amount of cash to be paid in lieu of issuance of fractional
shares in accordance with Section 14 hereof, (iii) after receipt of such
certificates or depositary receipts, cause the same to be delivered to or upon
the order of the registered holder of such Rights Certificate, registered in
such name or names as may be designated by such holder and (iv) when
appropriate, after receipt thereof, deliver such cash to or upon the order of
the registered holder of such Rights Certificate. The payment of the Exercise
Price (as such amount may be reduced (including to zero) pursuant to Section
11(a)(ii) hereof) and an amount equal to any applicable transfer tax required to
be paid by the holder of such Rights Certificate in accordance with Section 9(e)
hereof, may be made in cash or by certified bank check, cashier's check or bank
draft payable to the order of the Company. In the event that the Company is
obligated to issue securities of the Company other than Common Shares, pay cash
and/or distribute other property pursuant to Sections 11(a) or 14 hereof, the
Company will make all arrangements necessary so that such other securities, cash
and/or other property are available for distribution by the Rights Agent, if and
when appropriate.
(d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Rights
Certificate or to his or her duly authorized assigns, subject to the provisions
of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Triggering Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such (a "Post-Event Transferee"), (iii) a transferee of an Acquiring
Person (or of any such Associate or Affiliate) who becomes a transferee prior to
or concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or to
any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which a majority of the Company's Board of Directors has determined is part of a
plan, arrangement or understanding which has as a primary purpose or effect the
avoidance of this Section 7(e) (a "Pre-Event Transferee") or (iv) any subsequent
transferee receiving transferred Rights from a Post-Event Transferee or a
Pre-Event Transferee, either directly or through one or more intermediate
transferees, shall become null and void without any further action and no holder
of such Rights shall have any rights whatsoever with respect to such Rights,
whether under any provision of this Agreement or otherwise. The Company shall
use all reasonable efforts to ensure that the provisions of this Section 7(e)
and Section 4(b) hereof are complied with, but shall have no liability to any
holder of Rights Certificates or to any other Person as a result of its failure
to make any determinations with respect to an Acquiring Person or any of such
Acquiring Person's Affiliates, Associates or transferees hereunder.
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(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall, in addition to having complied with the requirements of Section
7(a) above, have (i) completed and signed the certificate contained in the form
of election to purchase set forth on the reverse side of the Rights Certificate
surrendered for such exercise and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any Rights Certificate purchased or acquired by the Company otherwise
than upon the exercise thereof. The Rights Agent shall deliver all canceled
Rights Certificates to the Company, or shall, at the written request of the
Company, destroy such canceled Rights Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Common Shares.
(a) The Company covenants and agrees that it will use its best
efforts to cause to be reserved and kept available out of its authorized and
unissued Common Shares not reserved for another purpose (and, following the
occurrence of a Triggering Event, out of its authorized and unissued Common
Shares and/or other securities), the number of Common Shares (and, following the
occurrence of a Triggering Event, Common Shares and/or other securities) that
will be sufficient to permit the exercise in full of all outstanding Rights.
(b) If the Company shall hereafter list any of its Common
Shares on a national securities exchange, then so long as the Common Shares
(and, following the occurrence of a Triggering Event, Common Shares and/or other
securities) issuable and deliverable upon exercise of the Rights may be listed
on such exchange, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable (but only to the extent that it
is reasonably likely that the Rights will be exercised), all shares reserved for
such issuance to be listed on such exchange upon official notice of issuance
upon such exercise.
(c) The Company shall use its best efforts to (i) file, as
soon as practicable following the earliest date after the first occurrence of a
Triggering Event in which the consideration to be delivered by the Company upon
exercise of the Rights is described in Section 11(a) hereof, or as soon as is
required by law following the Distribution Date, as the case may be, a
registration statement under the Securities Act with respect to the securities
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purchasable upon exercise of the Rights on an appropriate form, (ii) cause such
registration statement to become effective as soon as practicable after such
filing and (iii) cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Securities Act) until
the earlier of (A) the date as of which the Rights are no longer exercisable for
such securities or (B) the date of expiration of the Rights. The Company may
temporarily suspend, for a period not to exceed ninety (90) days after the date
set forth in clause (i) of the first sentence of this Section 9(c), the
exercisability of the Rights in order to prepare and file such registration
statement and permit it to become effective. Upon any such suspension, the
Company shall issue a public announcement stating, and notify the Rights Agent,
that the exercisability of the Rights has been temporarily suspended, as well as
a public announcement and notification to the Rights Agent at such time as the
suspension is no longer in effect. The Company will also take such action as may
be appropriate under, or to ensure compliance with, the securities or "blue sky"
laws of the various states in connection with the exercisability of the Rights.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction, unless the requisite qualification
in such jurisdiction shall have been obtained, or an exemption therefrom shall
be available, and until a registration statement has been declared effective.
(d) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all Common Shares (or other
securities of the Company) delivered upon exercise of Rights shall, at the time
of delivery of the certificates for such securities (subject to payment of the
Exercise Price), be duly and validly authorized and issued and fully paid and
nonassessable shares.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the original issuance or delivery of the
Rights Certificates or of any Common Shares (or other securities of the Company)
upon the exercise of Rights. The Company shall not, however, be required to pay
any transfer tax which may be payable in respect of any transfer or delivery of
Rights Certificates to a person other than, or the issuance or delivery of
certificates or depositary receipts for the Common Shares (or other securities
of the Company) in a name other than that of, the registered holder of the
Rights Certificate evidencing Rights surrendered for exercise or to issue or to
deliver any certificates or depositary receipts for Common Shares (or other
securities of the Company) upon the exercise of any Rights until any such tax
shall have been paid (any such tax being payable by the holder of such Rights
Certificate at the time of surrender) or until it has been established to the
Company's satisfaction that no such tax is due.
Section 10. Record Date. Each Person in whose name any certificate for
a number of Common Shares (or other securities of the Company) is issued upon
the exercise of Rights shall for all purposes be deemed to have become the
holder of record of Common Shares (or other securities of the Company)
represented thereby on, and such certificate shall be dated, the date upon which
the Rights Certificate evidencing such Rights was duly surrendered and payment
of the Total Exercise Price with respect to which the Rights have been exercised
(and any applicable transfer taxes) was made; provided, however, that if the
date of such surrender and payment is a date upon which the transfer books of
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the Company are closed, such Person shall be deemed to have become the record
holder of such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the transfer books of the Company are open.
Prior to the exercise of the Rights evidenced thereby, the holder of a Rights
Certificate shall not be entitled to any rights of a holder of Common Shares (or
other securities of the Company) for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Exercise Price, Number of Shares or Number of
Rights. The Exercise Price, the number and kind of shares or other property
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Common Shares payable in Common
Shares, (B) subdivide the outstanding Common Shares, (C) combine the outstanding
Common Shares (by reverse stock split or otherwise) into a smaller number of
Common Shares, or (D) issue any shares of its capital stock in a
reclassification of the Common Shares (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), then, in each such event, except as otherwise
provided in this Section 11 and Section 7(e) hereof: (1) each Common Share (or
shares of capital stock issued in such reclassification of the Common Shares)
outstanding immediately following such time shall have associated with it the
number of Rights as were associated with one Common Share immediately prior to
the occurrence of the event described in clauses (A)-(D) above; and (2) the
Exercise Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that the Exercise Price thereafter shall equal the result obtained
by dividing the Exercise Price in effect immediately prior to such time by a
fraction (the "Adjustment Fraction"), the numerator of which shall be the total
number of Common Shares (or shares of capital stock issued in such
reclassification of the Common Shares) outstanding immediately prior to the
event described in clauses (A)-(D) above, and the denominator of which shall be
the total number of Common Shares outstanding immediately after such event;
provided, however, that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value, if any, of the
shares of capital stock of the Company issuable upon exercise of such Right.
Each Common Share that shall become outstanding after an adjustment has been
made pursuant to this Section 11(a) shall have associated with it the number of
Rights, exercisable at the Exercise Price and for the number of Common Shares
(or shares of such other capital stock) as one Common Share has associated with
it immediately following the adjustment made pursuant to this Section 11(a).
(i) Subject to Section 24 of this Agreement, in the
event a Triggering Event shall have occurred, then promptly following
such Triggering Event the Exercise Price for each Right, except as
provided in Section 7(e) hereof, shall be adjusted to thereafter equal
the product of 50% of the Current Per Share Market Price for Common
Shares on the date of occurrence of the Triggering Event; provided,
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however, that the Exercise Price and the number of Common Shares of the
Company so receivable upon exercise of a Right shall be subject to
further adjustment as appropriate in accordance with Section 11(e)
hereof to reflect any events occurring in respect of the Common Shares
of the Company after the occurrence of the Triggering Event.
(ii) In lieu of issuing Common Shares in accordance
with Section 11(a) hereof, the Company may, if a majority of the
Company's Board of Directors determines that such action is necessary
or appropriate and not contrary to the interest of holders of Rights
(and, in the event that the number of Common Shares which are
authorized by the Company's Articles of Incorporation but not
outstanding or reserved for issuance for purposes other than upon
exercise of the Rights are not sufficient to permit the exercise in
full of the Rights, or if any necessary regulatory approval for such
issuance has not been obtained by the Company, the Company shall): (A)
determine the excess of (1) the value of the Common Shares issuable
upon the exercise of a Right (the "Current Value") over (2) the
Exercise Price (such excess, the "Spread") and (B) with respect to each
Right, make adequate provision to substitute for such Common Shares,
upon exercise of the Rights, (1) cash, (2) a reduction in the Exercise
Price, (3) other equity securities of the Company (including, without
limitation, securities which a majority of the Company's Board of
Directors has deemed to have the same value as Common Shares (such
securities are herein called "Common Stock Equivalents")), except to
the extent that the Company has not obtained any necessary shareholder
or regulatory approval for such issuance, (4) debt securities of the
Company, except to the extent that the Company has not obtained any
necessary shareholder or regulatory approval for such issuance, (5)
other assets or (6) any combination of the foregoing, having an
aggregate value equal to the Current Value, where such aggregate value
has been determined by a majority of the Company's Board of Directors
based upon the advice of a nationally recognized investment banking
firm selected by a majority of the Company's Board of Directors;
provided, however, if the Company shall not have made adequate
provision to deliver value pursuant to clause (B) above within thirty
(30) days following the later of (x) the first occurrence of a
Triggering Event or (y) the date on which the Company's right of
redemption pursuant to Section 23(a) expires (the later of (x) or (y)
being referred to herein as the "Section 11(a)(ii) Trigger Date"), then
the Company shall be obligated to deliver, upon the surrender for
exercise of a Right and without requiring payment of the Exercise
Price, Common Shares (to the extent available), except to the extent
that the Company has not obtained any necessary shareholder or
regulatory approval for such issuance, and then, if necessary, cash,
which shares and/or cash have an aggregate value equal to the Spread.
If a majority of the Company's Board of Directors shall determine in
good faith that it is likely that sufficient additional Common Shares
could be authorized for issuance upon exercise in full of the Rights or
that any necessary regulatory approval for such issuance will be
obtained, the thirty (30) day period set forth above may be extended to
the extent necessary, but not more than ninety (90) days after the
Section 11(a)(ii) Trigger Date, in order that the Company may seek
shareholder approval for the authorization of such additional shares or
take action to obtain such regulatory approval (such period, as it may
be extended, the "Substitution Period"). To the extent that the Company
determines that some action need be taken pursuant to the first and/or
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second sentences of this Section 11(a)(ii), the Company (x) shall
provide, subject to Section 7(e) hereof, that such action shall apply
uniformly to all outstanding Rights and (y) may suspend the
exercisability of the Rights until the expiration of the Substitution
Period in order to seek any authorization of additional shares, to take
any action to obtain any required regulatory approval and/or to decide
the appropriate form of distribution to be made pursuant to such first
sentence and to determine the value thereof. In the event of any such
suspension, the Company shall issue a public announcement stating that
the exercisability of the Rights has been temporarily suspended, as
well as a public announcement at such time as the suspension is no
longer in effect. For purposes of this Section 11(a)(ii), the value of
the Common Shares shall be the Current Per Share Market Price of the
Common Shares on the Section 11(a)(ii) Trigger Date and the value of
any Common Stock Equivalent shall be deemed to have the same value as
the Common Shares on such date.
(b) In case the Company shall, at any time after the date of
this Agreement, fix a record date for the issuance of rights, options or
warrants to all holders of Common Shares entitling such holders (for a period
expiring within forty-five (45) calendar days after such record date) to
subscribe for or purchase Common Shares or securities convertible into Common
Shares at a price per share (or having a conversion price per share, if a
security convertible into Common Shares) less than the then Current Per Share
Market Price of the Common Shares on such record date, then, in each such case,
the Exercise Price to be in effect after such record date shall be determined by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of Common Shares
outstanding on such record date, plus the number of Common Shares which the
aggregate offering price of the total number of Common Shares to be offered or
issued (and/or the aggregate initial conversion price of the convertible
securities to be offered or issued) would purchase at such current market price,
and the denominator of which shall be the number of Common Shares outstanding on
such record date, plus the number of additional Common Shares to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by a majority of the
Company's Board of Directors, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights. Common Shares owned by or held for the account of
the Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed, and in the event that such rights, options or warrants are not so
issued, the Exercise Price shall be adjusted to be the Exercise Price which
would then be in effect if such record date had not been fixed.
(c) In case the Company shall, at any time after the date of
this Agreement, fix a record date for the making of a distribution to all
holders of the Common Shares or of any class (including any such distribution
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made in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation) of evidences of indebtedness or assets
(other than a regular quarterly cash dividend, if any, or a dividend payable in
Common Shares) or subscription rights, options or warrants (excluding those
referred to in Section 11(b)), then, in each such case, the Exercise Price to be
in effect after such record date shall be determined by multiplying the Exercise
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the Current Per Share Market Price of a Common Share
on such record date, less the fair market value per Common Share (as determined
in good faith by the Board of Directors of the Company, whose determination
shall be described in a statement filed with the Rights Agent) of the portion of
the cash, assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to a Common Share, and the
denominator of which shall be such Current Per Share Market Price of a Common
Share on such record date; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. Such adjustments shall be made successively whenever such
a record date is fixed, and in the event that such distribution is not so made,
the Exercise Price shall be adjusted to be the Exercise Price which would have
been in effect if such record date had not been fixed.
(d) Anything herein to the contrary notwithstanding, no
adjustment in the Exercise Price shall be required unless such adjustment would
require an increase or decrease of at least 1% in the Exercise Price; provided,
however, that any adjustments which by reason of this Section 11(d) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be made to
the nearest cent or to the nearest whole Common Share or other share, as the
case may be. Notwithstanding the first sentence of this Section 11(d), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three (3) years from the date of the transaction which requires such
adjustment or (ii) the Expiration Date.
(e) If as a result of an adjustment made pursuant to Section
11(a) or 13(a) hereof, the holder of any Right thereafter exercised shall become
entitled to receive any shares of capital stock other than Common Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right and, if required, the Exercise Price thereof, shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Shares contained in
Sections 11(a), 11(b), 11(c), 11(d), 11(g), 11(h), 11(i), 11(j), 11(k) and
11(l), and the provisions of Sections 7, 9, 10, 13 and 14 with respect to the
Common Shares shall apply on like terms to any such other shares.
(f) All Rights originally issued by the Company subsequent to
any adjustment made to the Exercise Price hereunder shall evidence the right to
purchase, at the adjusted Exercise Price, the number of Common Shares
purchasable from time to time hereunder upon exercise of the Rights, all subject
to further adjustment as provided herein.
(g) Unless the Company shall have exercised its election as
provided in Section 11(h), upon each adjustment of the Exercise Price as a
result of the calculations made in Section 11(b) and (c), each Right outstanding
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immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Exercise Price, that number of Common Shares
(calculated to the nearest whole share) obtained by (i) multiplying (x) the
number of Common Shares covered by a Right immediately prior to this adjustment,
by (y) the Exercise Price in effect immediately prior to such adjustment of the
Exercise Price, and (ii) dividing the product so obtained by the Exercise Price
in effect immediately after such adjustment of the Exercise Price.
(h) The Company may elect on or after the date of any
adjustment of the Exercise Price as a result of the calculations made in Section
11(b) or (c) to adjust the number of Rights, in substitution for any adjustment
in the number of Common Shares purchasable upon the exercise of a Right. Each of
the Rights outstanding after such adjustment of the number of Rights shall be
exercisable for the number of whole Common Shares for which a Right was
exercisable immediately prior to such adjustment. Each Right held of record
prior to such adjustment of the number of Rights shall become that number of
Rights (calculated to the nearest whole number) obtained by dividing the
Exercise Price in effect immediately prior to adjustment of the Exercise Price
by the Exercise Price in effect immediately after adjustment of the Exercise
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This record date may
be the date on which the Exercise Price is adjusted or any day thereafter, but,
if the Rights Certificates have been issued, shall be at least ten (10) days
later than the date of the public announcement. If Rights Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11(h), the Company shall, as promptly as practicable, cause to be distributed to
holders of record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Exercise
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(i) Irrespective of any adjustment or change in the Exercise
Price or the number of Common Shares issuable upon the exercise of the Rights,
the Rights Certificates theretofore and thereafter issued may continue to
express the Exercise Price per Common Share and the number of Common Shares
which were expressed in the initial Rights Certificates issued hereunder.
(j) Before taking any action that would cause an adjustment
reducing the Exercise Price below the par or stated value, if any, of the number
of Common Shares issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in
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order that the Company may validly and legally issue as fully paid and
nonassessable shares such number of Common Shares at such adjusted Exercise
Price.
(k) In any case in which this Section 11 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the number Common Shares and other capital stock or securities of the Company,
if any, issuable upon such exercise over and above the number of Common Shares
and other capital stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Exercise Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive such
additional shares upon the occurrence of the event requiring such adjustment.
(l) Anything in this Section 11 to the contrary
notwithstanding, prior to the Distribution Date, the Company shall be entitled
to make such reductions in the Exercise Price, in addition to those adjustments
expressly required by this Section 11, as and to the extent that it in its sole
discretion shall determine to be advisable in order that any (i) consolidation
or subdivision of the Common Shares, (ii) issuance wholly for cash of any Common
Shares at less than the current market price, (iii) issuance wholly for cash of
Common Shares or securities which by their terms are convertible into or
exchangeable for Common Shares, (iv) stock dividends or (v) issuance of rights,
options or warrants referred to in this Section 11, hereafter made by the
Company to holders of its Common Shares shall not be taxable to such
shareholders.
(m) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Sections 23, 24 or 27
hereof, take (or permit to be taken) any action if at the time such action is
taken it is reasonably foreseeable that such action will diminish substantially
or otherwise eliminate the benefits intended to be afforded by the Rights.
Section 12. Certificate of Adjusted Exercise Price or Number of Shares.
Whenever an adjustment is made as provided in Sections 11 and 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Common Shares a copy of
such certificate and (c) mail a brief summary thereof to each holder of a Rights
Certificate in accordance with Section 26 hereof. Notwithstanding the foregoing
sentence, the failure of the Company to make such certification or give such
notice shall not affect the validity of such adjustment or the force or effect
of the requirement for such adjustment. The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment contained
therein and shall not be deemed to have knowledge of such adjustment unless and
until it shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, following a Triggering Event, directly
or indirectly:
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(i) the Company shall consolidate with, or merge with
and into, any other Person (other than a wholly owned Subsidiary of the
Company in a transaction the principal purpose of which is to change
the state of incorporation of the Company and which complies with
Sections 11(a) and 11(m) hereof);
(ii) any Person shall consolidate with the Company, or
merge with and into the Company and the Company shall be the continuing
or surviving corporation of such consolidation or merger and, in
connection with such merger, all or part of the Common Shares shall be
changed into or exchanged for stock or other securities of any other
Person (or of the Company); or
(iii) the Company shall sell or otherwise transfer (or
one or more of its Subsidiaries shall sell or otherwise transfer), in
one or more transactions, assets or earning power aggregating 50% or
more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person or Persons (other than the
Company or one or more of its wholly owned Subsidiaries in one or more
transactions, each of which individually (and together) complies with
Section 11(m) hereof), then, concurrent with and in each such case,
(A) each holder of a Right (except as provided in
Section 7(e) hereof) shall thereafter have the right to
receive, upon the exercise thereof at a price equal to the
Total Exercise Price applicable immediately prior to the
occurrence of the Section 13 Event in accordance with the
terms of this Agreement, such number of validly authorized and
issued, fully paid, nonassessable and freely tradeable Common
Shares of the Principal Party (as hereinafter defined), free
of any liens, encumbrances, rights of first refusal or other
adverse claims, as shall be equal to the result obtained by
dividing such Total Exercise Price by 50% of the Current Per
Share Market Price of the Common Shares of such Principal
Party on the date of consummation of such Section 13 Event,
provided, however, that the Exercise Price and the number of
Common Shares of such Principal Party so receivable upon
exercise of a Right shall be subject to further adjustment as
appropriate in accordance with Section 11(e) hereof;
(B) such Principal Party shall thereafter be liable
for, and shall assume, by virtue of such Section 13 Event, all
the obligations and duties of the Company pursuant to this
Agreement;
(C) the term "Company" shall thereafter be deemed to
refer to such Principal Party, it being specifically intended
that the provisions of Section 11 hereof shall apply only to
such Principal Party following the first occurrence of a
Section 13 Event;
(D) such Principal Party shall take such steps
(including, but not limited to, the reservation of a
sufficient number of its Common Shares) in connection with the
consummation of any such transaction as may be necessary to
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ensure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to its
Common Shares thereafter deliverable upon the exercise of the
Rights; and
(E) upon the subsequent occurrence of any
consolidation, merger, sale or transfer of assets or other
extraordinary transaction in respect of such Principal Party,
each holder of a Right shall thereupon be entitled to receive,
upon exercise of a Right and payment of the Total Exercise
Price as provided in this Section 13(a), such cash, shares,
rights, warrants and other property which such holder would
have been entitled to receive had such holder, at the time of
such transaction, owned the Common Shares of the Principal
Party receivable upon the exercise of such Right pursuant to
this Section 13(a), and such Principal Party shall take such
steps (including, but not limited to, reservation of shares of
stock) as may be necessary to permit the subsequent exercise
of the Rights in accordance with the terms hereof for such
cash, shares, rights, warrants and other property.
(F) For purposes hereof, the "earning power" of the
Company and its Subsidiaries shall be determined in good faith
by the Company's Board of Directors on the basis of the
operating earnings of each business operated by the Company
and its Subsidiaries during the three fiscal years preceding
the date of such determination (or, in the case of any
business not operated by the Company or any Subsidiary during
three full fiscal years preceding such date, during the period
such business was operated by the Company or any Subsidiary).
(b) For purposes of this Agreement, the term "Principal Party"
shall mean:
(i) in the case of any transaction described in clause
(i) or (ii) of Section 13(a) hereof: (A) the Person that is the issuer
of the securities into which the Common Shares are converted in such
merger or consolidation, or, if there is more than one such issuer, the
issuer the Common Shares of which have the greatest aggregate market
value of shares outstanding, or (B) if no securities are so issued, (x)
the Person that is the other party to the merger, if such Person
survives such merger, or, if there is more than one such Person, the
Person the Common Shares of which have the greatest aggregate market
value of shares outstanding or (y) if the Person that is the other
party to the merger does not survive the merger, the Person that does
survive the merger (including the Company if it survives) or (z) the
Person resulting from the consolidation; and
(ii) in the case of any transaction described in clause
(iii) of Section 13(a) hereof, the Person that is the party receiving
the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions, or, if more than one
Person that is a party to such transaction or transactions receives the
same portion of the assets or earning power so transferred and each
such portion would, were it not for the other equal portions,
constitute the greatest portion of the assets or earning power so
transferred, or if the Person receiving the greatest portion of the
assets or earning power
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cannot be determined, whichever of such Persons is the issuer of Common
Shares having the greatest aggregate market value of shares
outstanding;
provided, however, that in any such case described in the foregoing clause
(b)(i) or (b)(ii), if the Common Shares of such Person are not at such time or
have not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect
Subsidiary of another Person the Common Shares of which are and have been so
registered, the term "Principal Party" shall refer to such other Person, or (2)
if such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Shares of which are and have been so registered, the term "Principal
Party" shall refer to whichever of such Persons is the issuer of Common Shares
having the greatest aggregate market value of shares outstanding, or (3) if such
Person is owned, directly or indirectly, by a joint venture formed by two or
more Persons that are not owned, directly or indirectly by the same Person, the
provisions set forth in clauses (1) and (2) above shall apply to each of the
owners having an interest in the venture as if the Person owned by the joint
venture was a Subsidiary of both or all of such joint venturers, and the
Principal Party in each such case shall bear the obligations set forth in this
Section in the same ratio as its interest in such Person bears to the total of
such interests.
(c) The Company shall not consummate any Section 13 Event
unless the Principal Party shall have a sufficient number of authorized Common
Shares that have not been issued or reserved for issuance to permit the exercise
in full of the Rights in accordance with this Section 13 and unless prior
thereto the Company and such issuer shall have executed and delivered to the
Rights Agent a supplemental agreement confirming that such Principal Party
shall, upon consummation of such Section 13 Event, assume this Agreement in
accordance with Sections 13(a) and 13(b) hereof, that all rights of first
refusal or preemptive rights in respect of the issuance of Common Shares of such
Principal Party upon exercise of outstanding rights have been waived, that there
are no rights, warrants, instruments or securities outstanding or any agreements
or arrangements which, as a result of the consummation of such transaction,
would eliminate or substantially diminish the benefits intended to be afforded
by the Rights and that such transaction shall not result in a default by such
Principal Party under this Agreement, and further providing that, as soon as
practicable after the date of such Section 13 Event, such Principal Party will:
(i) prepare and file a registration statement under the
Securities Act with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, use its
best efforts to cause such registration statement to become effective
as soon as practicable after such filing and use its best efforts to
cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Securities Act)
until the Expiration Date, and similarly comply with applicable state
securities laws;
(ii) use its best efforts to list (or continue the
listing of) the Rights and the securities purchasable upon exercise of
the Rights on a national securities exchange or to meet the eligibility
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requirements for quotation on Nasdaq and list (or continue the listing
of) the Rights and the securities purchasable upon exercise of the
Rights on Nasdaq; and
(iii) deliver to holders of the Rights historical
financial statements for such Principal Party which comply in all
respects with the requirements for registration on Form 10 (or any
successor form) under the Exchange Act.
In the event that at any time after the occurrence of a
Triggering Event some or all of the Rights shall not have been exercised at the
time of a transaction described in this Section 13, the Rights which have not
theretofore been exercised shall thereafter be exercisable in the manner
described in Section 13(a) (without taking into account any prior adjustment
required by Section 11(a)) .
(d) In case the "Principal Party" for purposes of Section
13(b) hereof has a provision in any of its authorized securities or in its
Articles or Certificate of Incorporation or by-laws or other instrument
governing its corporate affairs, which provision would have the effect of (i)
causing such Principal Party to issue (other than to holders of Rights pursuant
to Section 13 hereof), in connection with, or as a consequence of, the
consummation of a Section 13 Event, Common Shares of such Principal Party at
less than the then Current Per Share Market Price thereof or securities
exercisable for, or convertible into, Common Shares of such Principal Party at
less than such then Current Per Share Market Price, or (ii) providing for any
special payment, tax or similar provision in connection with the issuance of the
Common Shares of such Principal Party pursuant to the provisions of Section 13
hereof, then, in such event, the Company hereby agrees with each holder of
Rights that it shall not consummate any such transaction unless prior thereto
the Company and such Principal Party shall have executed and delivered to the
Rights Agent a supplemental agreement providing that the provision in question
of such Principal Party shall have been canceled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with or as a consequence of, the consummation of
the proposed transaction.
(e) The Company covenants and agrees that it shall not, at any
time after the Distribution Date, effect or permit to occur any Section 13
Event, if (i) at the time or immediately after such Section 13 Event there are
any rights, warrants or other instruments or securities outstanding or
agreements in effect which would substantially diminish or otherwise eliminate
the benefits intended to be afforded by the Rights, (ii) prior to,
simultaneously with or immediately after such Section 13 Event, the shareholders
of the Person who constitutes, or would constitute, the "Principal Party" for
purposes of Section 13(b) hereof shall have received a distribution of Rights
previously owned by such Person or any of its Affiliates or Associates or (iii)
the form or nature of organization of the Principal Party would preclude or
limit the exercisability of the Rights.
(f) The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers.
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Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of
Rights or to distribute Rights Certificates which evidence fractional Rights. In
lieu of such fractional Rights, there shall be paid to the registered holders of
the Rights Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable, as determined pursuant to
the second sentence of Section 1(j) hereof.
(b) The Company shall not be required to issue fractions of
Common Shares upon exercise of the Rights or to distribute certificates which
evidence fractional Common Shares. In lieu of fractional Common Shares, the
Company shall pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of a Common Share. For purposes of this
Section 14(b), the current market value of a Common Share shall be the closing
price of a Common Share (as determined pursuant to the second sentence of
Section 1(j) hereof) for the Trading Day immediately prior to the date of such
exercise.
(c) The holder of a Right by the acceptance of the Right
expressly waives his or her right to receive any fractional Rights or any
fractional shares upon exercise of a Right.
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Rights Certificate (or, prior
to the Distribution Date, of the Common Shares), without the consent of the
Rights Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his or her own behalf and for
his or her own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
his or her right to exercise the Rights evidenced by such Rights Certificate in
the manner provided in such Rights Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of, the obligations of any Person subject to this
Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
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(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates fully executed; and
(c) subject to Sections 6(a) and 7(f) hereof, the Company and
the Rights Agent may deem and treat the person in whose name the Rights
Certificate (or, prior to the Distribution Date, the associated Common Shares
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Shares certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent shall be affected by any notice to the
contrary.
Section 17. Rights Certificate Holder Not Deemed a Shareholder. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose to be the holder of the Common Shares or
any other securities of the Company which may at any time be issuable on the
exercise of the rights represented thereby, nor shall anything contained herein
or in any Rights Certificate be construed to confer upon the holder of any
Rights Certificate, as such, any of the rights of a shareholder of the Company
or any right to vote for the election of directors or upon any matter submitted
to shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
shareholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Rights Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability or expense, incurred without gross negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability in the premises. In no event will the Rights Agent be liable for
special, indirect, incidental or consequential loss or damage of any kind
whatsoever, even if the Rights Agent has been advised of the possibility of such
loss or damage.
(b) The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement in reliance upon any
Rights Certificate or certificate for the Common Shares or for other securities
of the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement or other paper or
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<PAGE>
document reasonably believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons, or
otherwise upon the advice of counsel as set forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto; provided, however, that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Rights Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person and
the determination of Current Per Share Market Price) be proved or established by
the Company prior to taking or suffering of any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
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certificate signed by any one of the Chief Executive Officer, the President, the
Chief Financial Officer, the Secretary or any Assistant Secretary of the Company
and delivered to the Rights Agent; and such certificate shall be full
authorization to the Rights Agent for any action taken or suffered in good faith
by it under the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company
and any other Person only for its own gross negligence, bad faith or willful
misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Rights Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
or any adjustment in the terms of the Rights (including the manner, method or
amount thereof) provided for in Sections 3, 11, 13, 23 or 24, or the
ascertaining of the existence of facts that would require any such change or
adjustment (except with respect to the exercise of Rights evidenced by Rights
Certificates after receipt by the Rights Agent of a certificate furnished
pursuant to Section 12 describing such change or adjustment); nor shall it by
any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Common Shares to be issued pursuant to this
Agreement or any Rights Certificate or as to whether any Common Shares will,
when issued, be validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
any one of Chief Executive Officer, the President, the Chief Financial Officer,
the Secretary or any Assistant Secretary of the Company, and to apply to such
officers for advice or instructions in connection with its duties, and it shall
not be liable for any action taken or suffered by it in good faith in accordance
with instructions of any such officer or for any delay in acting while waiting
for those instructions. Any application by the Rights Agent for written
instructions from the Company may, at the option of the Rights Agent, set forth
in writing any action proposed to be taken or omitted by the Rights Agent under
this Rights Agreement and the date on and/or after which such action shall be
taken or such omission shall be effective. The Rights Agent shall not be liable
for any action taken or omitted by the Rights Agent in accordance with a
proposal included in any such application on or after the date specified in such
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application (which date shall not be less than five (5) Business Days after the
date any officer of the Company actually receives such application, unless any
such officer shall have consented in writing to an earlier date) unless, prior
to taking any such action (or the effective date in the case of an omission),
the Rights Agent shall have received written instructions in response to such
application specifying the action to be taken or omitted.
(h) The Rights Agent and any shareholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not the Rights
Agent under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of such
funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has either
not been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company and to each
transfer agent of the Common Shares by registered or certified mail, and to the
holders of the Rights Certificates by first-class mail. The Company may remove
the Rights Agent or any successor Rights Agent upon thirty (30) days' notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of the Common Shares by registered or certified
mail, and to the holders of the Rights Certificates by first-class mail. If the
Rights Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Rights Agent. If the
Company shall fail to make such appointment within a period of thirty (30) days
after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Rights Agent or
by the holder of a Rights Certificate (who shall, with such notice, submit his
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or her Rights Certificate for inspection by the Company), then the registered
holder of any Rights Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States or
of any state of the United States, in good standing, which is authorized under
such laws to exercise corporate trust or shareholder services powers and is
subject to supervision or examination by federal or state authority and which at
the time of its appointment as Rights Agent has sufficient combined capital and
surplus as may be required by law. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares, and mail a notice thereof in writing to the registered
holders of the Rights Certificates. Failure to give any notice provided for in
this Section 21, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Rights Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Exercise Price and the number or kind or class of shares or other
securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of Common Shares following the Distribution Date and
prior to the redemption or expiration of the Rights, the Company (a) shall, with
respect to Common Shares so issued or sold pursuant to the exercise of stock
options or under any employee plan or arrangement or upon the exercise,
conversion or exchange of other securities of the Company outstanding at the
date hereof or upon the exercise, conversion or exchange of securities
hereinafter issued by the Company and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors of the Company, issue Rights
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided, however, that (i) no such Rights Certificate
shall be issued and this sentence shall be null and void ab initio if, and to
the extent that, such issuance or this sentence would create a significant risk
of or result in material adverse tax consequences to the Company or the Person
to whom such Rights Certificate would be issued or would create a significant
risk of or result in such options' or employee plans' or arrangements' failing
to qualify for otherwise available special tax treatment and (ii) no such Rights
Certificate shall be issued if, and to the extent that, appropriate adjustment
shall otherwise have been made in lieu of the issuance thereof.
Section 23. Redemption.
(a) The Company may, at its option and with the approval of
the Board of Directors, at any time prior to the Close of Business on the
earlier of (i) the tenth day following the Shares Acquisition Date (or such
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later date as may be determined by action of a majority of the Company's Board
of Directors and publicly announced by the Company) and (ii) the Final
Expiration Date, redeem all but not less than all of the then outstanding Rights
at a redemption price of $0.01 per Right, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof (such redemption price being herein referred to as the "Redemption
Price") and the Company may, at its option, pay the Redemption Price either in
Common Shares (based on the Current Per Share Market Price thereof at the time
of redemption) or cash. Such redemption of the Rights by the Company may be made
effective at such time, on such basis and with such conditions as the Board of
Directors in its sole discretion may establish. The date on which the Board of
Directors elects to make the redemption effective shall be referred to as the
"Redemption Date."
(b) Notwithstanding the provisions of Section 23(a), in the
event that a majority of the Board of Directors of the Company is elected by
shareholder action by written consent or at a special meeting of shareholders (a
meeting other than a regularly scheduled annual meeting), then until the earlier
to occur of (i) the 180th day following the effectiveness of such election or
(ii) the next regular annual meeting of shareholders of the Company following
the effectiveness of such election (including any postponement or adjournment
thereof), the Rights shall not be redeemed if such redemption is reasonably
likely to have the purpose or effect of facilitating a Transaction with an
Interested Person.
(c) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights, evidence of which shall have
been filed with the Rights Agent, and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price.
The Company shall promptly give public notice of any such redemption; provided,
however, that the failure to give or any defect in, any such notice shall not
affect the validity of such redemption. Within ten (10) days after the action of
the Board of Directors ordering the redemption of the Rights, the Company shall
give notice of such redemption to the Rights Agent and the holders of the then
outstanding Rights by mailing such notice to all such holders at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made. Neither the Company nor any of its Affiliates or Associates may
redeem, acquire or purchase for value any Rights at any time in any manner other
than that specifically set forth in this Section 23 or in Section 24 hereof, and
other than in connection with the purchase of Common Shares prior to the
Distribution Date.
Section 24. Exchange.
(a) Subject to applicable laws, rules and regulations, and
subject to Section 24(c) below, the Company may, at its option, by action of the
Board of Directors, at any time after the occurrence of a Triggering Event,
exchange all or part of the then outstanding and exercisable Rights (which shall
31
<PAGE>
not include Rights that have become void pursuant to the provisions of Section
7(e) hereof) for Common Shares at an exchange ratio of one Common Share per
Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors shall not be empowered to effect such exchange at any
time after any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or any such Subsidiary, or any entity
holding Common Shares for or pursuant to the terms of any such plan), together
with all Affiliates and Associates of such Person, becomes the Beneficial Owner
of 50% or more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to Section 24(a) and without any
further action and without any notice, the right to exercise such Rights shall
terminate and the only right thereafter of a holder of such Rights shall be to
receive that number of Common Shares equal to the number of such Rights held by
such holder multiplied by the Exchange Ratio. The Company shall give public
notice of any such exchange; provided, however, that the failure to give, or any
defect in, such notice shall not affect the validity of such exchange. The
Company shall mail a notice of any such exchange to all of the holders of such
Rights at their last addresses as they appear upon the registry books of the
Rights Agent. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
exchange will state the method by which the exchange of the Common Shares for
Rights will be effected and, in the event of any partial exchange, the number of
Rights which will be exchanged. Any partial exchange shall be effected pro rata
based on the number of Rights (other than Rights which have become void pursuant
to the provisions of Section 7(e) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with Section 24(a), the Company
shall either take such action as may be necessary to authorize additional Common
Shares for issuance upon exchange of the Rights or alternatively, at the option
of a majority of the Board of Directors, with respect to each Right (i) pay cash
in an amount equal to the Current Value (as hereinafter defined), in lieu of
issuing Common Shares in exchange therefor, or (ii) issue debt or equity
securities or a combination thereof, having a value equal to the Current Value,
in lieu of issuing Common Shares in exchange for each such Right, where the
value of such securities shall be determined by a nationally recognized
investment banking firm selected by majority vote of the Board of Directors, or
(iii) deliver any combination of cash, property, Common Shares and/or other
securities having a value equal to the Current Value in exchange for each Right.
For purposes of this Section 24(c) only, the Current Value shall mean the
product of the Current Per Share Market Price of Common Shares on the date of
the occurrence of the event described above in Section 24(a), multiplied by the
number of Common Shares for which the Right otherwise would be exchangeable if
there were sufficient shares available. To the extent that the Company
determines that some action need be taken pursuant to clauses (i), (ii) or (iii)
of this Section 24(c), the Board of Directors may temporarily suspend the
exercisability of the Rights for a period of up to sixty (60) days following the
date on which the event described in Section 24(a) shall have occurred, in order
32
<PAGE>
to seek any authorization of additional Common Shares and/or to decide the
appropriate form of distribution to be made pursuant to the above provision and
to determine the value thereof. In the event of any such suspension, the Company
shall issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended.
(d) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional Common Shares, there shall be paid to the
registered holders of the Rights Certificates with regard to which such
fractional Common Shares would otherwise be issuable, an amount in cash equal to
the same fraction of the current market value of a whole Common Share (as
determined pursuant to the second sentence of Section 1(j) hereof).
(e) The Company may, at its option, by majority vote of the
Board of Directors, at any time before any Person has become an Acquiring
Person, exchange all or part of the then outstanding Rights for Rights of
substantially equivalent value, as determined reasonably and in good faith by
the Board of Directors, based upon the advice of one or more nationally
recognized investment banking firms.
(f) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to Section 24(e) and without any
further action and without any notice, the right to exercise such Rights shall
terminate and the only right thereafter of a holder of such Rights shall be to
receive that number of Rights in exchange therefor as has been determined by the
Board of Directors in accordance with Section 24(e) above. The Company shall
give public notice of any such exchange; provided, however, that the failure to
give, or any defect in, such notice shall not affect the validity of such
exchange. The Company shall mail a notice of any such exchange to all of the
holders of such Rights at their last addresses as they appear upon the registry
books of the transfer agent for the Common Shares of the Company. Any notice
which is mailed in the manner herein provided shall be deemed given, whether or
not the holder receives the notice. Each such notice of exchange will state the
method by which the exchange of the Rights will be effected.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose to effect or permit to
occur any Triggering Event or Section 13 Event, the Company shall give notice
thereof to each holder of Rights in accordance with Section 26 hereof at least
twenty (20) days prior to the occurrence of such Triggering Event or such
Section 13 Event.
(b) In case any Triggering Event or Section 13 Event shall
occur, then, in any such case, the Company shall as soon as practicable
thereafter give to each holder of a Rights Certificate, in accordance with
Section 26 hereof, a notice of the occurrence of such event, which shall specify
the event and the consequences of the event to holders of Rights under Sections
11(a)(i) and 13 hereof.
33
<PAGE>
Section 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Rights Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
GREKA Energy Corporation
630 Fifth Avenue, Suite 1501
New York, NY 10111
Attn: Mr. Randeep S. Grewal,
Chairman and Chief Executive Officer
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1225 17th Street, Suite 2300
Denver, Colorado 80202-5596
Attn: Roger V. Davidson
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Rights Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
American Securities Transfer & Trust, Inc.
----------------------------
----------------------------
----------------------------
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments.
(a) Prior to the occurrence of a Distribution Date, the
Company may supplement or amend this Agreement in any respect without the
approval of any holders of Rights and the Rights Agent shall, if the Company so
directs, execute such supplement or amendment. From and after the occurrence of
a Distribution Date, the Company and the Rights Agent may from time to time
supplement or amend this Agreement without the approval of any holders of Rights
in order to (i) cure any ambiguity, (ii) correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provisions herein, (iii) shorten or lengthen any time period hereunder, or (iv)
to change or supplement the provisions hereunder in any manner that the Company
may deem necessary or desirable and that shall not adversely affect the
interests of the holders of Rights (other than an Acquiring Person or an
Affiliate or Associate of an Acquiring Person); provided, this Agreement may not
be supplemented or amended to lengthen, pursuant to clause (iii) of this
34
<PAGE>
sentence, (A) a time period relating to when the Rights may be redeemed at such
time as the Rights are not then redeemable or (B) any other time period unless
such lengthening is for the purpose of protecting, enhancing or clarifying the
rights of, and/or the benefits to, the holders of Rights (other than an
Acquiring Person or an Affiliate or Associate of an Acquiring Person). Upon the
delivery of a certificate from an appropriate officer of the Company that states
that the proposed supplement or amendment is in compliance with the terms of
this Section 27, the Rights Agent shall execute such supplement or amendment.
Prior to the Distribution Date, the interests of the holders of Rights shall be
deemed coincident with the interests of the holders of Common Shares.
(b) Notwithstanding the provisions of Section 27(a), in the
event that a majority of the Board of Directors of the Company is elected by
shareholder action by written consent or at a special meeting of shareholders (a
meeting other than a regularly scheduled annual meeting), then until the earlier
to occur of (i) the 180th day following the effectiveness of such election or
(ii) the next regular annual meeting of shareholders of the Company following
the effectiveness of such election (including any postponement or adjournment
thereof), this Rights Agreement shall not be supplemented or amended in any
manner reasonably likely to have the purpose or effect of facilitating a
Transaction with an Interested Person.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors, Etc.
For all purposes of this Agreement, any calculation of the number of Common
Shares outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding Common Shares of which any Person
is the Beneficial Owner, shall be made in accordance with the last sentence of
Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act.
The Board of Directors of the Company shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board, or the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend the Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
in good faith, shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights Certificates and all other parties and
(y) not subject the Board to any liability to the holders of the Rights.
Section 30. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, the Common Shares) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Rights Certificates (and, prior to the Distribution Date, the Common
Shares).
35
<PAGE>
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid Language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the Close of Business on the
tenth day following the date of such determination by the Board of Directors.
Section 32. Governing Law. This Agreement and each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Colorado and for all purposes shall be governed by and
construed in accordance with the laws of such state applicable to contracts to
be made and performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any number
of counterparts, with signature pages deliverable by facsimile transmission, and
each of such counterparts shall for all purposes be deemed to be an original,
and all such counterparts shall together constitute but one and the same
instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
36
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Rights
Agreement to be duly executed as of the day and year first above written.
COMPANY:
GREKA ENERGY CORPORATION,
a Colorado corporation
By: /s/ Randeep S. Grewal
--------------------------------
Randeep S. Grewal, Chairman and
Chief Executive Officer
RIGHTS AGENT:
AMERICAN SECURITIES TRANSFER
& TRUST, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
37
<PAGE>
EXHIBIT A
FORM OF RIGHTS CERTIFICATE
Certificate No. R-_______ ________ Rights
NOT EXERCISABLE AFTER THE EARLIER OF (i) NOVEMBER 3, 2004, (ii) THE
DATE TERMINATED BY THE COMPANY OR (iii) THE DATE THE COMPANY EXCHANGES
THE RIGHTS PURSUANT TO THE RIGHTS AGREEMENT. THE RIGHTS ARE SUBJECT TO
REDEMPTION, AT THE OPTION OF THE COMPANY, AT $0.01 PER RIGHT ON THE
TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES,
RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME
NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE
OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING
PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID
IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH RIGHTS
AGREEMENT.]*
* The portion of the legend in bracket shall be inserted only if
applicable and shall replace the preceding sentence.
RIGHTS CERTIFICATE
GREKA ENERGY CORPORATION
This certifies that ________________________________ or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement dated as of November 3, 1999 (the "Rights
Agreement"), between GREKA Energy Corporation, a Colorado corporation (the
"Company"), and American Securities Transfer & Trust, Inc. (the "Rights Agent"),
to purchase from the Company at any time after the Distribution Date (as such
term is defined in the Rights Agreement) and prior to 5:00 p.m., New York time,
on November 3, 2004 at the office of the Rights Agent designated for such
purpose, or at the office of its successor as Rights Agent, one fully paid
non-assessable share of Common Stock, no par value, (a "Common Share"), of the
Company, at an Exercise Price of sixty dollars ($60.00) per Common Share (the
A-1
<PAGE>
"Exercise Price"), upon presentation and surrender of this Rights Certificate
with the Form of Election to Purchase and related Certificate duly executed. The
number of Rights evidenced by this Rights Certificate (and the number of Common
Shares which may be purchased upon exercise hereof) set forth above are the
number and Exercise Price as of November 3, 1999, based on the Common Shares as
constituted at such date. As provided in the Rights Agreement, the Exercise
Price and the number and kind of Common Shares or other securities which may be
purchased upon the exercise of the Rights evidenced by this Rights Certificate
are subject to modification and adjustment upon the happening of certain events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
the Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the principal executive offices of
the Company and the above-mentioned office of the Rights Agent.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Rights Certificate (i) may be redeemed by the Company, at its option, at
a redemption price of $0.01 per Right or (ii) may be exchanged by the Company in
whole or in part for Common Shares, substantially equivalent Rights or other
consideration as determined by the Company.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the office of the Rights Agent designated for such purpose,
may be exchanged for another Rights Certificate or Rights Certificates of like
tenor and date evidencing Rights entitling the holder to purchase a like
aggregate amount of securities as the Rights evidenced by the Rights Certificate
or Rights Certificates surrendered shall have entitled such holder to purchase.
If this Rights Certificate shall be exercised in part, the holder shall be
entitled to receive upon surrender hereof another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.
No fractional portion of a Common Share will be issued upon the
exercise of any Right or Rights evidenced hereby but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of the Common
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a shareholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
A-2
<PAGE>
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of November 3, 1999.
ATTEST: GREKA ENERGY CORPORATION,
a Colorado corporation
__________________________ By: __________________________
_____________, Secretary Randeep S. Grewal, Chairman
and Chief Executive Officer
Countersigned:
AMERICAN SECURITIES TRANSFER & TRUST, INC.,
as Rights Agent
By: ________________________
____________________________
Its: _______________________
A-3
<PAGE>
Form of Reverse Side of Rights Certificate
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such holder desires to transfer the
Rights Certificate)
FOR VALUE RECEIVED _______________________________ hereby sells, assigns
and transfers unto
- - -----------------------------------------------------------------------------
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint
____________________________________________ Attorney, to transfer the within
Rights Certificate on the books of the within-named Company, with full power of
substitution.
Dated: ___________________, _________
-----------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934.
A-4
<PAGE>
Form of Reverse Side of Rights Certificate -- Continued
CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person, or an
Affiliate or Associate of any such Person (as such terms are defined in the
Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of any such Person.
Dated: _______________, _________
Signature ______________________________
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934.
A-5
<PAGE>
Form of Reverse Side of Rights Certificate -- Continued
FORM OF ELECTION TO PURCHASE
-----------------------------
(To be executed if holder desires to exercise the Rights Certificate)
To: ________________________________
The undersigned hereby irrevocably elects to exercise
______________________ Rights represented by this Rights Certificate to purchase
the number of Common Shares issuable upon the exercise of such Rights and
requests that certificates for such number of Common Shares be issued in the
name of:
Please insert social security or other identifying number
- - --------------------------------------------
(Please print name and address)
- - -------------------------------------------------
- - -------------------------------------------------
- - -------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance remaining of such
Rights shall be registered in the name of and delivered to:
Please insert social security or other identifying number
- - -------------------------------------------
(Please print name and address)
- - -------------------------------------------------
- - -------------------------------------------------
- - -------------------------------------------------
Dated: ________________, ________
Signature __________________________________
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934.
A-6
<PAGE>
Form of Reverse Side of Rights Certificate -- Continued
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate are not being
exercised by or on behalf of a person who is or was an Acquiring Person or an
Affiliate or Associate of any such Person (as such terms are defined in the
Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from
any Person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of any such Person.
Dated: _________________, __________
Signature ___________________________________________
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934.
NOTICE
The signature in the foregoing Forms of Assignment and Election must
conform to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
A-7
<PAGE>
EXHIBIT B
SHAREHOLDER RIGHTS PLAN
GREKA ENERGY CORPORATION
Summary of Rights
Distribution and The Board of Directors has declared
Transfer of Rights; a dividend of one Right for each share
Rights Certificate: of GREKA Energy Corporation Common Stock
outstanding. Prior to the Distribution Date referred
to below, the Rights will be evidenced by and trade
with the certificates for the Common Stock. After
the Distribution Date, GREKA Energy Corporation
(the "Company") will mail Rights certificates to the
Company's stockholders and the Rights will
become transferable apart from the Common Stock.
Distribution Date: Rights will separate from the Common Stock and
become exercisable following (a) the tenth day after
a person or group acquires beneficial ownership of
33% or more of the Company's Common Stock or
(b) the tenth business day (or such later date as may
be determined by a majority of the Board of
Directors) after a person or group announces a
tender or exchange offer, the consummation of
which would result in ownership by a person or
group of 33% or more of the Company's Common
Stock.
Common Stock After the Distribution Date, each Right
Purchasable Upon will entitle the holder to purchase one share
Exercise of Rights: of the Company's Common Stock for an initial
Exercise Price of $60.00,
subject to adjustment.
Flip-In: If an acquirer (an "Acquiring Person") obtains 40%
or more of the Company's Common Stock, then
each Right (other than Rights owned by an
Acquiring Person or its affiliates) will entitle the
holder thereof to purchase one share of the
Company's Common Stock at an adjusted Exercise
Price of 50% of the then current market value of the
Common Stock.
B-1
<PAGE>
Flip-Over: If, after an Acquiring Person obtains 40% or more
of the Company's Common Stock, (a) the Company
merges into another entity, (b) an acquiring entity
merges into the Company or (c) the Company sells
more than 50% of the Company's assets or earning
power, then each Right (other than Rights owned by
an Acquiring Person or its affiliates) will entitle
the holder thereof to purchase, for the Exercise
Price, a number of shares of Common Stock of the
Person engaging in the transaction having a then
current market value of twice the Exercise Price.
Exchange Provision: At any time after the date an Acquiring
Person obtains 33% or more of the
Company's Common Stock and prior to the
acquisition by the Acquiring Person of 50%
of the outstanding Common Stock, a
majority of the Board of Directors of the
Company may exchange the Rights (other
than Rights owned by the Acquiring Person
or its affiliates), in whole or in part, for
shares of Common Stock of the Company at
an exchange ratio of one share of Common
Stock per Right (subject to adjustment).
B-2
<PAGE>
Redemption of Rights will be redeemable at the Company's
the Rights: option for $0.01 per Right at any time on or prior
to the tenth day (or such later date as
may be determined by a majority of the Board of
Directors) after public announcement that a
Person has acquired beneficial ownership of 40%
or more of the Company's Common Stock.
Expiration of The Rights expire on the earliest of
the Rights: (a) November 3, 2004, or (b) exchange or
redemption of the Rights as described above.
Amendment of The terms of the Rights and the Rights
Terms of Rights: Agreement may be amended in any respect without
the consent of the Rights holders on or prior to
the Distribution Date; thereafter, the terms of
the Rights and the Rights Agreement may be amended
without the consent of the Rights holders in order
to cure any ambiguities or to make changes which
do not adversely affect the interests of Rights
holders (other than the Acquiring Person).
Voting Rights: Rights will not have any voting rights.
Anti-Dilution Rights will have the benefit of
Provisions: certain customary anti-dilution provisions.
Taxes: The Rights distribution should not be taxable for
federal income tax purposes. However, following
an event which renders the Rights exercisable or
upon redemption of the Rights, shareholders may
recognize taxable income.
The foregoing is a summary of certain principal terms of the
Shareholder Rights Plan only and is qualified in its entirety by reference to
the detailed terms of the Rights Agreement dated as of November 3, 1999, between
the Company and the Rights Agent.
B-3
GREKA ENERGY CORPORATION
Computation of Earnings (Loss) Per Common Share
For the Nine Month Period Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Six Months Three Months
Ended September 30 Ended September 30,
1999 1998 1999 1998
----------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Basic Earnings
Net Income (loss) before minority interest
in earnings (loss) of consolidated subsidiary 1,510,367 (1,188,449) 1,409,031 (392,797)
Minority interest in earnings (loss) of
consolidated subsidiary (20,617) 0 0 0
Preferred Stock dividends (223,000) (107,000)
----------- ---------- --------- ---------
Net Income (loss) available to Common 1,278,367 (1,188,449) 1,302,031 (392,797)
=========== ========== ========= =========
Basic Shares
Weighted average number of Common
Shares outstanding 4,255,737 1,570,981 4,290,079 1,570,981
=========== ========== ========= =========
Basic Earnings per Common Share
Net Income (loss) available to Common $ 0.30 $ (0.76) $ 0.30 $ (0.25)
=========== ========== ========= =========
Diluted Earnings
Net Income (loss) before minority interest
in earnings (loss) of consolidated
subsidiary 1,510,367 (1,188,449) 1,409,031 (392,797)
Minority Interest in earnings (loss) of
consolidated subsidiary (20,617) 0 0 0
Preferred Stock dividends (223,000) 0 (107,000) 0
Plus Interest expense attributable
to Debentures, net of related income taxes - - - 0
----------- ---------- ---------- ---------
Net Income (loss) available to Common 1,278,367 (1,188,449) 1,302,031 (392,797)
=========== ========== ========== =========
Diluted Shares
Weighted average number of Common
Shares outstanding 4,255,737 1,570,981 4,221,018 1,570,981
Effect of dilutive securities:
Of shares underlying options - - - -
Of shares underlying convertible
Debentures - - - -
---------- ---------- ---------- ---------
Diluted Shares 4,255,737 1,570,981 4,221,018 1,570,981
=========== ========== ========== =========
Diluted Earnings per Common Share
Net Income (loss) $ 0.00 $ (0.76) $ 0.27 $ (0.25)
=========== ========== ========== =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 000840402
<NAME> GREKA ENERGY CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 485,015
<SECURITIES> 0
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<ALLOWANCES> (161,500)
<INVENTORY> 7,337,608
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<PP&E> 71,160,415
<DEPRECIATION> 6,340,722
<TOTAL-ASSETS> 82,656,991
<CURRENT-LIABILITIES> 35,213,327
<BONDS> 8,286,236
0
7,411,756
<COMMON> 36,640,573
<OTHER-SE> (5,635,543)
<TOTAL-LIABILITY-AND-EQUITY> 82,656,991
<SALES> 18,077,497
<TOTAL-REVENUES> 18,682,475
<CGS> 6,611,000
<TOTAL-COSTS> 15,462,045
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 2,003,084
<INCOME-TAX> 472,100
<INCOME-CONTINUING> 1,530,984
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,530,984
<EPS-BASIC> 0.36
<EPS-DILUTED> 0
</TABLE>
