<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 27, 1999
KFx Inc.
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-23634 84-1079971
- ------------------------------- -------------- -------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
1999 Broadway, Suite 3200
Denver, Colorado 80202
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 293-2992
<PAGE>
Item 5. Other Events.
As described in the Registrant's press release dated August 30, 1999,
on August 27, 1999, the Registrant entered into an Exchange Agreement (the
"Exchange Agreement") with AIW/P Holdings, Inc., an Ohio corporation
("AIW/P"), pursuant to which the Registrant issued 527,000 shares of its
$.001 par value common stock (the "Stock") to AIW/P in exchange for AIW/P
assigning its fifteen percent (15%) ownership interest in Pegasus
Technologies, Limited, an Ohio limited liability company ("Pegasus"), to
the Registrant. AIW/P assigned its right to receive the Stock to Computer
Associates International, Inc. ("CA"), the parent company of AIW/P. Prior
to the transaction, the Registrant owned a sixty percent (60%) ownership
interest in Pegasus.
Pursuant to the Exchange Agreement, the Registrant agreed to file a
registration statement for the sale of the Stock by AIW/P, which right was
assigned to CA, and to use its best efforts to cause such registration
statement to become effective. Also pursuant to the Exchange Agreement, CA
agreed to certain restrictions on the sale of the Stock.
The Registrant is currently finalizing the terms and the necessary
documentation to merge its wholly owned subsidiary, Net Power Solutions,
LLC ("NPS"), with and into Pegasus. NPS markets and sells licenses to use
the software product developed by Pegasus known as NeuSIGHT. NeuSIGHT is a
neural network based software technology designed to optimize the
combustion performance of coal-fired electric utility boilers.
As part of considering the exchange with AIW/P and the merger of
Pegagus and NPS, the Registrant commissioned an independent third party
appraisal of the value of Pegasus and NPS. The appraisal was conducted by
the Evergreen Group and concluded that the estimated combined value of
Pegasus and NPS approximated $14,106,000. The Evergreen Group based its
analysis on the assumptions, and used the methodologies, set forth in the
appraisal.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
10.01 Exchange Agreement between the Registrant and AIW/P Holdings, Inc.
dated August 27, 1999.
10.02 Transfer Agreement by and between the Registrant and AIW/P Holdings,
Inc. dated August 27, 1999.
10.03 Direction Letter dated September 9, 1999 from AIW/P Holdings, Inc.
to the Registrant.
23.01 Consent of Evergreen Group (included in Exhibit 99.01).
<PAGE>
99.01 Report of the Evergreen Group to the Registrant dated February 19,
1999.
99.02 Press Release dated August 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
KFX INC.
Date: September 24, 1999 By: /s/ Seth L. Patterson
--------------------------------------------
Seth L. Patterson, Executive Vice President
and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
(c) Exhibits.
10.01 Exchange Agreement between the Registrant and AIW/P Holdings, Inc.
dated August 27, 1999.
10.02 Transfer Agreement by and between the Registrant and AIW/P Holdings,
Inc. dated August 27, 1999.
10.03 Direction Letter dated September 9, 1999 from AIW/P Holdings, Inc.
to the Registrant.
23.01 Consent of Evergreen Group (included in Exhibit 99.01).
99.01 Report of the Evergreen Group to the Registrant dated February 19,
1999.
99.02 Press Release dated August 30, 1999.
<PAGE>
EXHIBIT 10.01
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this "Agreement") is made this 27th day of August,
1999 (the "Closing Date"), by and between AIW/P Holdings, Inc., an Ohio
corporation ("AIW/P"), and KFx Inc., a Delaware corporation ("KFx"). All
capitalized terms used herein and not otherwise defined shall have the meanings
assigned to such terms in the Amended and Restated Operating Agreement of
Pegasus Technologies, Limited, an Ohio limited liability company (the
"Company"), dated as of March 23, 1998 (the "Amended and Restated Operating
Agreement").
WHEREAS, AIW/P owns a Membership Interest (the "AIW/P Membership Interest")
in the Company, representing a fifteen percent (15.00%) Percentage Interest in
the Company; and
WHEREAS, KFx desires to issue 527,000 shares (the "KFx Shares") of the
$.001 par value common stock of KFx to AIW/P in exchange for the assignment by
AIW/P of the AIW/P Membership Interest to KFx on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the premises, and the representations,
warranties, and covenants contained herein, the parties hereby agree as follows:
1. Exchange of AIW/P Membership Interest. Subject to the terms and
-------------------------------------
conditions set forth herein, AIW/P will assign the AIW/P Membership Interest to
KFx.
2. Exchange Consideration. As consideration for the assignment of the
----------------------
AIW/P Membership Interest set forth in Section 1 above, KFx will issue the KFx
Shares in the name of AIW/P or its designee. AIW/P understands and acknowledges
that the KFx Shares shall not be registered under the Securities Act of 1933, as
amended (the "1933 Act"), or any state securities
1
<PAGE>
laws, and, accordingly, that the KFx Shares when issued will be restricted
securities (as defined in Rule 144 promulgated under the 1933 Act). AIW/P
further understands and agrees that KFx shall instruct its transfer agent not to
register the transfer of any of the KFx Shares unless: (i) there is an effective
registration statement under the 1933 Act and all applicable state securities
laws with respect to the KFx Shares or (ii) KFx receives an opinion from legal
counsel acceptable in form and substance to the board of directors of KFx and
counsel to KFx to the effect that transfer or conveyance of the KFx Shares is
exempt from registration under the 1933 Act and all applicable state securities
laws. AIW/P also acknowledges that the certificate or certificates representing
the KFx Shares to be issued to AIW/P shall be stamped or otherwise imprinted
with a legend in the following form (in addition to any legend required under
state securities laws):
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY OF THE LAWS OF ANY STATE AND HAVE BEEN ISSUED
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT.
THE SHARES EVIDENCED BY THIS CERTIFICATE MAY NOT BE OFFERED,
TRANSFERRED, SOLD, PLEDGED, HYPOTHECATED, DONATED OR
OTHERWISE TRANSFERRED (WHETHER OR NOT FOR CONSIDERATION) BY
THE HOLDER IN THE ABSENCE OF REGISTRATION UNDER THE ACT OR
THE AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION.
FURTHER, NO SUCH OFFER, TRANSFER, SALE, PLEDGE,
HYPOTHECATION, DONATION OR OTHER TRANSFER IS TO TAKE PLACE
EXCEPT UPON RECEIPT BY COMPANY OF A FAVORABLE OPINION OF
COUNSEL OR THE SUBMISSION TO THE COMPANY OF SUCH OTHER
EVIDENCE AS MAY BE SATISFACTORY TO COUNSEL FOR THE COMPANY,
TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN
VIOLATION OF THE ACT.
3. Closing. The closing (the "Closing") of the exchange of the AIW/P
-------
Membership Interest for the KFx Shares shall take place at the offices of KFx
located at 1999 Broadway, Suite
2
<PAGE>
3200, Denver, Colorado 80202, concurrently with the execution of this Agreement
or at such other time and place as the parties may mutually agree.
4. Closing.
-------
4.1. KFx Obligations at Closing. At the Closing, KFx shall deliver to
--------------------------
AIW/P one or more certificates evidencing the KFx Shares in the name of AIW/P or
its designee.
4.2. AIW/P Obligations at Closing. At the Closing, AIW/P shall deliver to
----------------------------
KFx an executed Transfer and Assignment Agreement (the "Transfer Agreement") in
the form attached hereto as Exhibit A.
---------
4.3. Consummation of Closing. All acts, deliveries and confirmations
-----------------------
comprising the Closing regardless of chronological sequence shall be deemed to
occur contemporaneously and simultaneously upon the occurrence of the last act,
delivery or confirmation of the Closing and none of such acts, deliveries or
confirmations shall be effective unless and until the last of the same shall
have occurred.
4.4. Conditions to Closing. The effectiveness of this Agreement shall be
---------------------
contingent on the execution and delivery by the Company and AIWare, Inc., a
corporation related to AIW/P, of Amendment No. 2 to the License & Service
Agreement in the form attached hereto as Exhibit B.
5. Further Assurances. At any time and from time to time after the
------------------
Closing, and without the payment of any further consideration to AIW/P, AIW/P
agrees to execute and deliver to KFx such further instruments of sale, transfer,
conveyance, assignment and confirmation as may be reasonably requested by KFx in
order to more effectively transfer, convey and assign to KFx and to confirm
KFx's title to the AIW/P Membership Interest.
3
<PAGE>
6. AIW/P Membership Interest Subject to Amended and Restated Operating
-------------------------------------------------------------------
Agreement. KFx acknowledges that the AIW/P Membership Interest shall be subject
- ---------
to the terms, conditions and covenants of the Amended and Restated Operating
Agreement.
7. Representations and Warranties of AIW/P. AIW/P represents and
---------------------------------------
warrants to KFx as follows:
7.1. Organization; Existence. AIW/P is a corporation duly organized and
-----------------------
existing under the laws of the State of Ohio, and is in good standing in such
jurisdiction.
7.2. Power. AIW/P has all requisite legal power and authority to execute,
-----
deliver and perform this Agreement and the Transfer Agreement.
7.3. Authorization. The execution, delivery and performance of this
-------------
Agreement and the Transfer Agreement by AIW/P has been duly authorized by all
necessary corporate action on the part of AIW/P. This Agreement and the Transfer
Agreement constitute valid and binding obligations of AIW/P, enforceable against
AIW/P in accordance with their terms. The execution and delivery of the
Agreement and the Transfer Agreement and the performance of their terms by AIW/P
does not and will not conflict with the terms of AIW/P's certificate of
incorporation, bylaws or any material agreement to which AIW/P is a party. No
consent or approval of any governmental entity is required in connection with
the execution and delivery of this Agreement or the Transfer Agreement or the
performance of their terms.
7.4. Title to AIW/P Membership Interest. AIW/P owns outright all right,
----------------------------------
title and interest in and to the AIW/P Membership Interest, and the AIW/P
Membership Interest shall be transferred, conveyed, assigned and delivered to
KFx at the Closing, free and clear of all liens, encumbrances, covenants,
conditions or restrictions of any kind or nature whatsoever other than those
imposed
4
<PAGE>
under the Amended and Restated Operating Agreement.
7.5. Litigation. There is no litigation or proceeding pending or, to the
----------
knowledge of AIW/P threatened, involving AIW/P which could, if adversely
determined, materially affect AIW/P's obligations under this Agreement.
7.6. No Violation of Laws. The execution, delivery and performance of this
--------------------
Agreement and the Transfer Agreement do not violate any existing law, statute or
regulation applicable to AIW/P.
7.7. No Finders' Fees. AIW/P has no liability or obligation to pay any fee
----------------
or commission to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
7.8. Investment. AIW/P is purchasing the KFx Shares for its own account,
----------
for long-term investment and without the intention of reselling or
redistributing the KFx Shares. AIW/P has not made any arrangement or entered
into any agreement with third parties regarding the transfer of the KFx Shares.
8. Representations and Warranties of KFx. KFx represents and warrants to
-------------------------------------
AIW/P as follows:
8.1. Organization; Existence. KFx is a corporation duly organized and
-----------------------
existing under the laws of the State of Delaware, and is in good standing in
such jurisdiction.
8.2. Power. KFx has all requisite legal power and authority to execute,
-----
deliver and perform this Agreement.
8.3. Authorization. The execution, delivery and performance of this
-------------
Agreement by KFx has been duly authorized by all necessary corporate action on
the part of KFx. This Agreement constitutes a valid and binding obligation of
KFx, enforceable against KFx in accordance with its
5
<PAGE>
terms. The execution and delivery of the Agreement and the performance of its
terms does not and will not conflict with the terms of KFx's certificate of
incorporation, bylaws or any material agreement to which KFx is a party. No
consent or approval of any governmental entity is required in connection with
the execution and delivery of this Agreement or the performance of its terms.
When issued,the KFx Shares will be validly issued, fully-paid and non-assessable
and will be free and clear of any liens or encumbrances.
8.4. SEC Documents. KFx has filed all required reports, forms and other
-------------
documents (the "SEC Documents") with the United States Securities and Exchange
Commission (the "SEC") since January 1, 1998. As of their respective filing
dates, the SEC Documents complied in all material respects with the 1933 Act or
the Securities Exchange Act of 1934, as amended (the "1934 Act"), as the case
may be, and none of such SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein,
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, misleading.
8.5. Litigation. There is no litigation or proceeding pending or, to the
----------
knowledge of KFx threatened, involving KFx which could, if adversely
determined, materially affect KFx's obligations under this Agreement.
8.6. No Violation of Laws. The execution, delivery and performance of this
--------------------
Agreement does not violate any existing law, statute or regulation applicable to
KFx.
8.7. No Finders' Fees. KFx has no liability or obligation to pay any fee
----------------
or commission to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
9. Registration and Transfer Restrictions.
--------------------------------------
9.1. Registration Statement. Within thirty (30) days following the date of
----------------------
the Closing, KFx shall file a registration statement on Form S-3 or other
appropriate form (the "Registration Statement") with the SEC to register the KFx
Shares under the 1933 Act, and shall use its best efforts
6
<PAGE>
to cause the SEC to declare the Registration Statement effective within ninety
(90) days following the date of the Closing. KFx shall keep the Registration
Statement effective until December 31, 2000.
9.2. Restrictions on Sale. Notwithstanding the effectiveness of the
--------------------
Registration Statement, AIW/P covenants that it will not sell or otherwise
transfer all or part of the KFx Shares prior to January 1, 2000. AIW/P further
covenants that for the period of time from January 1, 2000 through June 30,
2000, AIW/P shall not sell more than 50,000 of the KFx Shares in any calendar
month.
9.3. Registration Expenses. All fees and expenses incident to the
---------------------
performance of or compliance with Section 9 of this Agreement by KFx will be
borne by KFx whether or not any of the Registration Statements become effective.
Such fees and expenses will include, without limitation, (i) all registration
and filing fees (including, without limitation, fees and expenses for compliance
with securities or "blue sky" laws), (ii) printing expenses (including, without
limitation, expenses of printing certificates for KFx Shares in a form eligible
for deposit with The Depository Trust Company and of printing a reasonable
number of prospectuses if the printing of such prospectuses is requested by
AIW/P, (iii) messenger, telephone and delivery expenses incurred by KFx, (iv)
fees and disbursements of counsel for KFx incurred by KFx, and (v) fees and
disbursements of independent certified public accountants (including the
expenses of any special audit and "comfort" letter required by or incident to
such performance) incurred by KFx. In no event, however, will KFx be responsible
for any underwriting discount or selling commission with respect to any sale of
KFx Shares by AIW/P or fees and expenses of counsel retained by AIW/P in
connection with the registration and sale of their KFx Shares.
7
<PAGE>
10. Indemnification.
---------------
10.1. Indemnification by KFx. With respect to Section 9, KFx will, without
----------------------
limitation as to time, indemnify and hold harmless, to the fullest extent
permitted by law, AIW/P, the officers, directors and agents and employees of
AIW/P, each person who controls AIW/P (within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act) and the officers, directors, agents and
employees of any such controlling person, from and against all losses, claims,
damages, liabilities, costs (including without limitation the costs of
investigation and reasonable attorneys' fees) and expenses (collectively,
"Losses"), as incurred, arising out of or based upon any untrue or alleged
untrue statement of a material fact contained in any Registration Statement,
prospectus or preliminary prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as the same are based upon information furnished in writing to KFx by
AIW/P expressly for use therein.
10.2 Indemnification by AIW/P. In connection with any Registration
------------------------
Statement, AIW/P will furnish to KFx in writing such information as KFx
reasonably requests for use in connection with any Registration Statement,
prospectus or preliminary prospectus and will indemnify, to the fullest extent
permitted by law, KFx, its directors and officers, agents and employees, each
person who controls KFx (within the meaning of Section 15 of the 1933 Act and
Section 20 of the 1934 Act), and the directors, officers, agents or employees of
such controlling persons, from and against all Losses, as incurred, arising out
of or based upon any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, prospectus or preliminary prospectus or
in any
8
<PAGE>
amendment or supplement thereto or arising out of or based upon any omission or
alleged omission to state therein of a material fact required to be stated
therein or necessary to make the statements therein not misleading, to the
extent, but only to the extent, that such untrue statement or omission is
contained in any information furnished in writing by AIW/P to KFx expressly for
use in such Registration Statement, prospectus or preliminary prospectus.
10.3. Conduct of Indemnification Proceedings. If any person shall become
--------------------------------------
entitled to indemnity hereunder, such indemnification shall be provided as set
forth in Section 11.3.
10.4. Contribution. If the indemnification provided for in this Section
------------
10 is unavailable to an indemnified party under Section 10.1 or 10.2 in respect
of any Losses or is insufficient to hold such indemnified party harmless, then
the indemnifying party, in lieu of indemnifying such indemnified party, will
contribute to the amount paid or payable by such indemnified party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the indemnifying party or indemnifying parties, on the one hand, and
such indemnified party, on the other hand, in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
or indemnifying parties, on the one hand, and such indemnified party, on the
other hand, will be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been taken
or made by, or related to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses will
be deemed to include any reasonable legal or other fees or expenses
9
<PAGE>
incurred by such party in connection with any action or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 10.4 were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
1l(f) of the 1933 Act) will be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
The indemnity, contribution and expense reimbursement obligations of
KFx hereunder will be in addition to any liability KFx may otherwise have
hereunder or otherwise. The provisions of this Section 10 will survive so long
as KFx Shares remain outstanding, notwithstanding any permitted transfer of the
KFx Shares by AIW/P thereof or any termination of this Agreement.
11. Indemnification.
---------------
11.1. AIW/P's Indemnification Obligation. In addition to the
----------------------------------
indemnification set forth above, AIW/P shall indemnify, defend and hold KFx
harmless from and against any and all claims, demands, losses, costs,
obligations, and liabilities, including without limitation, reasonable
attorneys' fees and costs, relating to or arising out of (i) AIW/P's breach of
this Agreement or the Transfer Agreement or (ii) the ownership of the AIW/P
Membership Interest prior to the Closing Date.
11.2. KFx's Indemnification Obligation. In addition to the
--------------------------------
indemnification set forth above, KFx shall indemnify, defend and hold AIW/P
harmless from and against any and all claims, demands, losses, costs,
obligations, and liabilities, including without limitation, reasonable
attorney's fees and costs, relating to or arising out of KFx's breach of this
Agreement.
10
<PAGE>
11.3. Indemnification Proceedings. Promptly after a party entitled to
---------------------------
indemnification pursuant to this Section 11 or Section 10 (the "Indemnitee") has
received notice of or has knowledge of any claim by a person not a party to this
Agreement (a "third party") or the commencement of any action or proceeding by a
third party, the Indemnitee shall promptly, and in any event within sixty (60)
days of the assertion of any claim or the discovery of any fact upon which the
Indemnitee intends to base a claim for indemnification under this Agreement (an
"Indemnitee Claim"), as a condition precedent to the Indemnitee Claim, give
written notice to the party or parties from whom indemnification is sought (the
"Indemnitor") of such claim. Such notice shall state the nature and the basis of
such claim and a reasonable estimate of the amount thereof. In the event of any
Indemnitee Claim, the Indemnitor, at its option, shall have the right to defend
or settle, at its own expense and by its own counsel, any such matter so long as
the Indemnitor pursues the same in good faith and diligently. If the Indemnitor
undertakes to defend or settle, it shall promptly notify the Indemnitee of its
intention to do so, and the Indemnitee shall cooperate with the Indemnitor and
its counsel in the defense thereof and in any settlement thereof.
Notwithstanding the foregoing, the Indemnitee shall have the right to
participate in any matter through counsel of its own choosing at the
Indemnitor's own expense; provided, that the Indemnitor's counsel shall always
be lead counsel and shall determine all litigation and settlement steps,
strategy and the like. Except as set forth in the preceding sentence, after the
Indemnitor has notified the Indemnitee of its intention to undertake to defend
or settle any such asserted liability, and for so long as the Indemnitor
diligently pursues such defense, the Indemnitor shall not be liable for any
additional legal expenses by the Indemnitee in connection with any defense or
settlement of such asserted liability, except to the extent such participation
is requested by the Indemnitor, in which case the Indemnitee shall be reimbursed
by
11
<PAGE>
the Indemnitor for its reasonable legal expenses. If the Indemnitor desires to
accept a final and complete settlement of any such third party claim and the
Indemnitee refuses to consent to any such settlement which contains a complete
and irrevocable release of the Indemnitee of all current and future claims
related to or arising out of the matter in dispute, then the Indemnitor's
liability under this Section 11.3 with respect to such third party claim shall
be limited to the amount so offered in settlement by said third party. If the
Indemnitor does not undertake to defend such matter to which the Indemnitee is
entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Indemnitee may undertake such defense through counsel of its
choice, at the cost and expense of the Indemnitor, and the Indemnitee may settle
such matter, without the consent of the Indemnitor, and the Indemnitor shall
immediately reimburse the Indemnitee for the amount paid in such settlement and
any other liabilities or expenses incurred (including all legal fees and
expenses) by the Indemnitee in connection therewith as such amounts,
liabilities, expenses and fees are incurred.
11.4. Other Remedies. Notwithstanding the indemnification obligations
--------------
contained within this Section 11, in no event shall the indemnification
provisions hereof limit in any way the ability of any of the parties to this
Agreement to seek any other remedies which may be available to them under the
law.
12. Survival of Representations and Warranties. The representations and
------------------------------------------
warranties of AIW/P and KFx contained in this Agreement shall survive the date
of this Agreement and shall continue in full force and effect thereafter subject
to any applicable statute of limitations.
13. Waiver of Claims. AIW/P hereby waives and forever discharges KFx and
----------------
its shareholders, directors, officers, employees, and agents from all known and
unknown, absolute and contingent, claims, defenses, setoffs, counterclaims,
causes of action, actions, suits or other legal
12
<PAGE>
proceedings of any kind existing on the Closing Date arising out of or related
to any transaction or the relationship between AIW/P and KFx, except for any
claims for performance under this Agreement.
14. Agreement Binding. This Agreement shall be binding upon and inure to
-----------------
the benefit of the parties named herein and their respective successors and
assigns.
15. Notices. All notices, requests, demands and other communications in
-------
connection with this Agreement shall be made in writing and may be mailed, hand
delivered, delivered by overnight courier service or transmitted via facsimile.
If mailed, such notice shall be sent by certified mail, postage prepaid, return
receipt requested. The date which is four (4) days after the date of mailing
shall be deemed to be the date on which notice was given. The postmark affixed
to such notice by the U.S. Post Office shall be conclusively presumed to be the
date of mailing for purposes of this Section 15. In the case of notice given by
hand delivery or overnight courier, such notice shall be deemed given on the
date of actual receipt of a complete, legible facsimile transmission, except
that if a facsimile transmission is received after business hours or on a
weekend or holiday, then the notice shall be deemed given on the next business
day following the receipt of the facsimile transmission. Notices shall be
directed to the parties as indicated below or to such other address or facsimile
number as may have been designated in writing by the addressee:
15.1. If to AIW/P: AIW/P Holdings, Inc.
3659 Green Road
Beachwood, Ohio 44077
Telephone:______________
Facsimile:______________
13
<PAGE>
with a copy to: Computer Associates Int'l., Inc.
One Computer Associates Place
Islandia, NY 11749
Telephone:______________
Facsimile:______________
15.2. If to KFx: KFx Inc.
1999 Broadway, Suite 3200
Denver, Colorado 80202
Telephone: (303) 293-2992
Facsimile: (303) 293-8430
with a copy to: Warren L. Troupe, Esq.
Morrison & Foerster LLP
370 Seventeenth Street, Suite 5200
Denver, Colorado 80202
Telephone: (303) 592-1500
Facsimile: (303) 592-1510
16. Titles and Captions. All section titles or captions contained in this
-------------------
Agreement are for convenience only and shall not be deemed part of the context
nor effect the interpretation of this Agreement.
17. Expenses of Sale. Except as otherwise indicated in this Agreement,
----------------
the parties shall each bear their own costs and expenses incurred in negotiating
and preparing this Agreement and the transactions contemplated hereby.
18. No Assignment. No party may assign, delegate or otherwise transfer
-------------
any of its rights or obligations under this Agreement without the written
consent of the other party. Any purported assignment in violation of this
Agreement shall be void.
19. Waivers. No amendment of any provision of this Agreement shall be
-------
valid unless the same shall be in writing and signed by the parties. No waiver
by any party of any default, misrepresentation, or breach of warranty hereunder,
whether intentional or not, shall be deemed to
14
<PAGE>
extend to any prior or subsequent default, misrepresentation, or breach of
warranty hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
20. Severability. Any term or provision of this Agreement that is invalid
------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions of this
Agreement or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction.
21. Jurisdiction. Any legal action, suit or proceeding in law or equity
------------
arising out of or relating to this Agreement and the transactions contemplated
by this Agreement may only be instituted in a state or federal court in the City
and County of Denver, Colorado, and each party agrees not to assert, by way of
motion, as a defense, or otherwise, in any such action, suit or proceeding, any
claim that it is not subject personally to the jurisdiction of such court, that
its property is exempt or immune from attachment or execution, that the action,
suit or proceeding is brought in an inconvenient forum, that the venue of the
action, suit or proceeding is improper or that this Agreement, or the subject
matter hereof or thereof may not be enforced in or by such court. Each party
further irrevocably submits to the jurisdiction of any such court in any such
action, suit or proceeding. Any and all service of process and any other notice
in any such action, suit or proceeding shall be effective against any party if
given by registered or certified mail, return receipt requested, or by any other
means of mail which requires a signed receipt, postage prepaid, mailed to such
party at the address listed in this Agreement. Nothing herein contained shall be
deemed to affect the right of any party to serve process in any manner permitted
by law.
22. Specific Performance. The parties hereto agree that irreparable
--------------------
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof
15
<PAGE>
and that the parties shall be entitled to specific performance of the terms
hereof in addition to any other remedy to which they are entitled at law or in
equity.
23. Incorporation of Exhibits. The exhibits identified in this Agreement
-------------------------
are incorporated herein by this reference and made a part of this Agreement.
24. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Colorado, without regard to the
conflicts of law rules of such state.
25. Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
26. Entire Agreement. This Agreement embodies the complete and entire
----------------
agreement between the parties related to the subject matter hereof. There are
no other agreements, understandings or negotiations, either oral or written,
which are inconsistent with the terms of this Agreement. This Agreement may not
be amended or in any manner modified unless such amendment or modification is
set forth in a written instrument which is signed by all parties.
27. Counterparts. This Agreement may be executed in identical
------------
counterparts, each of which shall be deemed an original for all purposes and all
of which shall constitute, collectively, one and the same agreement.
28. Time of the Essence. Time is of the essence with respect to each
-------------------
provision and condition of this Agreement.
16
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
Closing Date.
AIW/P HOLDINGS, INC.
By: /s/ T. Bennett
---------------------------------
Its: Senior Vice President
---------------------------------
KFx INC.
By: /s/ Theodore Venners
----------------------------------
Its: Chairman
---------------------------------
17
<PAGE>
EXHIBIT A
FORM OF TRANSFER AGREEMENT
THIS TRANSFER AND ASSIGNMENT AGREEMENT (this "Agreement"), effective as of
August ___, 1999, is entered into by and between KFx Inc., a Delaware
corporation ("KFx") and AIW/P Holdings, Inc., an Ohio corporation ("AIW/P"), for
the benefit of KFx. Capitalized terms not otherwise defined herein shall have
the meanings assigned to such terms in the Exchange Agreement dated August ___,
1999 between KFx and AIW/P (the "Exchange Agreement").
W I T N E S S E T H:
WHEREAS, AIW/P has agreed to sell and KFx has agreed to purchase AIW/P's
Membership Interests in Pegasus Technologies, Ltd., an Ohio limited liability
company pursuant to the Exchange Agreement and upon the terms and conditions set
forth in the Exchange Agreement.
NOW THEREFORE, in consideration of the sum of Ten Dollars ($10.00) and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Conveyance of Percentage Interests. AIW/P hereby bargains, sells,
assigns, transfers and conveys unto KFx, upon the terms and conditions
hereinafter stated, all of AIW/P's right, title and interest in and to AIW/P's
15% Percentage Interest.
TO HAVE AND TO HOLD the Percentage Interests unto KFx, its successors and
assigns, forever, free and clear of all liens and encumbrances.
AIW/P warrants and agrees to defend its title to the Percentage Interest
against every person lawfully claiming all or any part thereof by, through or
under AIW/P, but not otherwise.
2. Interpretation; Incorporation by Reference; Entire Agreement. This
Agreement shall be interpreted in accordance with the terms, covenants,
warranties, representations, conditions and agreements set forth in the Exchange
Agreement. This Agreement is dependent upon and shall be subject to all of the
provisions contained in the Exchange Agreement, which shall be deemed to be
incorporated by reference to the same extent as if set forth herein in full.
This Agreement together with the Exchange Agreement and all other, appendices,
exhibits and schedules to the Exchange Agreement, represent the entire
understanding and agreement among the parties hereto with respect to the subject
matter hereof. This Agreement cannot be amended, supplemented or changed and no
provision hereof can be waived, except by written instrument making specific
reference to this Agreement and signed by the party hereto against whom
enforcement of any such amendment, supplement, modification or waiver is sought.
The waiver of any right derived hereunder by a party hereto shall not be deemed
a waiver of any other right derived hereunder.
A-1
<PAGE>
IN WITNESS WHEREOF, the parties hereby have duly executed this Agreement as
of the date first written above.
AIW/P HOLDINGS, INC., an Ohio corporation
By: _________________________________
Name:________________________________
Title:_______________________________
A-2
<PAGE>
EXHIBIT B
FORM OF AMENDMENT NO. 2 TO THE
LICENSE & SERVICE AGREEMENT
Amendment No. 2 to the License & Service Agreement
("License & Service Agreement"), dated August 16, 1996, by and between Pegasus
Technologies, Ltd. & AIWare, Inc., as amended by that Joint Marketing &
Amendment Agreement, dated March 24, 1998
This Amendment No. 2 to the License & Service Agreement is made by and between
Pegasus Technologies, Ltd. ("Pegasus") & AIWare, Inc. ("AIWare"), on the date
set forth below.
RECITALS
WHEREAS, Pegasus is contemplating a merger or reorganization (the "Merger or
Reorganization"), either with or into a wholly-owned subsidiary of KFx, Inc., a
KFx, Inc. affiliated entity or a new corporation to be organized under the laws
of one of the states in the United States of America; and
WHEREAS, Section 12.4 of the License & Service Agreement presently requires that
Pegasus obtain the prior written consent of AIWare to assign any of its duties,
obligations or liabilities under the License & Service Agreement; and
WHEREAS, Section 12.4 of the License & Service Agreement grants AIWare the right
to assign its rights and delegate its obligations under the License & Service
Agreement without prior consent of Pegasus to related entities or to its
successors in interest; and
WHEREAS, to facilitate the Merger or Reorganization, the parties deem it
equitable to grant Pegasus the reciprocal right to assign its rights and
delegate its obligations under the License & Service Agreement without prior
consent of AIWare to related entities or to its successors in interest.
NOW, THEREFORE, in consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. Section 12.4 of the License & Service Agreement is hereby amended (as
denoted by underlined text) to read:
12.4 Parties' duties, obligations and liabilities hereunder may not be assigned
or delegated without the prior written consent of the other party.
Notwithstanding the foregoing, either party shall have the right to assign its
------------
rights and delegate its obligations hereunder without the prior written consent
of the other, to a wholly-owned subsidiary, an affiliated company, or to a
---------
successor entity by way of merger, reorganization, consolidation, or as a part
------ -----------------------------
of the
B-1
<PAGE>
sale of all of its assets or business; provided that such third party is bound
by the terms and conditions hereof and timely notice of such is given to the
other party.
2. Except as set forth above, the provisions of the License & Service Agreement
remain unchanged.
3. This Amendment No. 2 shall be subject to the laws of the State of Ohio.
4. This Amendment No. 2 may be executed in counterparts or by facsimile, each of
which when so executed, will have the same force and effect as an original
single instrument.
PEGASUS TECHNOLOGIES, LTD. AIWARE INC.
By: ______________________________ By:___________________________
Its:__________________ Its:_____________
Dated: ____________ Dated: ____________
B-2
<PAGE>
EXHIBIT 10.02
TRANSFER AGREEMENT
THIS TRANSFER AND ASSIGNMENT AGREEMENT (this "Agreement"), effective as of
August 27, 1999, is entered into by and between KFx Inc., a Delaware corporation
("KFx") and AIW/P Holdings, Inc., an Ohio corporation ("AIW/P"), for the benefit
of KFx. Capitalized terms not otherwise defined herein shall have the meanings
assigned to such terms in the Exchange Agreement dated August 27, 1999 between
KFx and AIW/P (the "Exchange Agreement").
W I T N E S S E T H:
WHEREAS, AIW/P has agreed to sell and KFx has agreed to purchase AIW/P's
Membership Interests in Pegasus Technologies, Ltd., an Ohio limited liability
company pursuant to the Exchange Agreement and upon the terms and conditions set
forth in the Exchange Agreement.
NOW THEREFORE, in consideration of the sum of Ten Dollars ($10.00) and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Conveyance of Percentage Interests. AIW/P hereby bargains, sells,
assigns, transfers and conveys unto KFx, upon the terms and conditions
hereinafter stated, all of AIW/P's right, title and interest in and to AIW/P's
15% Percentage Interest.
TO HAVE AND TO HOLD the Percentage Interests unto KFx, its successors and
assigns, forever, free and clear of all liens and encumbrances.
AIW/P warrants and agrees to defend its title to the Percentage Interest
against every person lawfully claiming all or any part thereof by, through or
under AIW/P, but not otherwise.
2. Interpretation; Incorporation by Reference; Entire Agreement. This
Agreement shall be interpreted in accordance with the terms, covenants,
warranties, representations, conditions and agreements set forth in the Exchange
Agreement. This Agreement is dependent upon and shall be subject to all of the
provisions contained in the Exchange Agreement, which shall be deemed to be
incorporated by reference to the same extent as if set forth herein in full.
This Agreement together with the Exchange Agreement and all other, appendices,
exhibits and schedules to the Exchange Agreement, represent the entire
understanding and agreement among the parties hereto with respect to the subject
matter hereof. This Agreement cannot be amended, supplemented or changed and no
provision hereof can be waived, except by written instrument making specific
reference to this Agreement and signed by the party hereto against whom
enforcement of any such amendment, supplement, modification or waiver is sought.
The waiver of any right derived hereunder by a party hereto shall not be deemed
a waiver of any other right derived hereunder.
1
<PAGE>
IN WITNESS WHEREOF, the parties hereby have duly executed this Agreement as
of the date first written above.
AIW/P HOLDINGS, INC., an Ohio corporation
By: /s/ T. Bennett
---------------------
Name: Tommy Bennett
---------------------
Title: Senior Vice President
---------------------
2
<PAGE>
EXHIBIT 10.03
AIW/P Holdings, Inc.
One Computer Associates Plaza
Islandia, NY 11788-7000
September 9, 1999
Mr. Seth L. Patterson
KFx Inc.
1999 Broadway
Suite 3200
Denver, CO 80202
Dear Mr. Patterson:
Pursuant to Section 1 of the Exchange Agreement (Agreement) dated August 27,
1999 between AIW/P Holdings, Inc. (AIW/P) and KFx Inc. (KFx), we hereby
designate Computer Associates International, Inc. (CA) as the party to which the
KFx Shares, as defined in the Agreement, should be issued. As confirmed below by
CA, we have obtained CA's agreement to comply with all applicable terms of the
Agreement, including without limitation, Section 9.2 covering restrictions on
the sale or transfer of the KFx Shares through June 30, 2000.
AIW/P HOLDINGS, INC.
By: /s/ T. Bennett
------------------------------------------
Name and Title of Authorized Officer of AIW/P
KFx Inc.:
Computer Associates International, Inc. hereby acknowledges its agreement to
comply with all applicable terms of the Exchange Agreement dated August 27, 1999
between AIW/P Holdings, Inc. and KFx Inc. (Agreement), including without
limitation, Section
1
<PAGE>
9.2 covering restrictions on the sale or transfer of the KFx Shares, as defined
in the Agreement.
COMPUTER ASSOCIATES INTERNATIONAL, INC.
By: /s/ T. Bennett
--------------------------------------
Name and Title of Authorized Officer of CA
2
<PAGE>
EXHIBIT 99.01
________________________________________________________________________________
[LOGO OF EVERGREEN GROUP APPEARS HERE]
February 19, 1999
Mr. Seth Patterson, Executive Vice President
KFx, Inc.
1999 Broadway, Suite 3200
Denver, Colorado
Dear Seth,
This report is to convey to KFx the results of my valuation analysis of two
companies, Net Power Solutions, LLC, and Pegasus Technologies, Limited,
both of which are controlled by KFx. The purpose of the analysis is to
provide objective valuation information in connection with various
potential transactions, including a merger of the two entities and raising
capital to fund growth and acquisitions.
Background Assumptions
----------------------
The two companies work together to develop and market software which
optimizes the operations of electric utility companies' coal-fired boilers
(used to generate steam for electricity). Pegasus, which is located in
Cleveland, Ohio, was founded in 1986. The Pegasus team of engineers have
significant technical expertise in coal-fired boilers and developed and
sold the software products to increase the efficiency of the boilers thus
reducing emissions and increasing power. KFx purchased its ownership in
Pegasus in March, 1998. Pegasus' current ownership is as follows:
KFx 60%
Radl Group (management) 25%
Computer Associates 15%
Net Power Solutions (NPS), located in Denver, was started by KFx in 1998 to
provide a marketing and installation services organization for the Pegasus
software. NPS has a new management team with significant sales and
marketing experience and a newly hired sales force. KFx owns 100% of the
NPS equity. NPS was formed primarily to accelerate the development of a
sales and marketing organization for Pegasus in view of certain expected
limitations on the
1
<PAGE>
ability of Pegasus to raise capital. As a practical matter, however, at
least through approximately the end of 1998, NPS used financial resources
that were available to Pegasus. Accordingly, the results of our valuation,
as summarized in this report combine the activities of NPS and Pegasus, as
contemplated in your business plan.
The basis for this valuation was the five-year projections that have been
developed by Pegasus and NPS management. The detailed projections are
available from the Company. A number of the assumptions that were used to
develop the five year projections are important to an understanding of the
resulting values. The most important of these assumptions are listed below:
1. Software sales are projected to increase at an aggressive, although
plausible, growth rate. The data available from industry reports backs up
management's projections in terms of size of market and number of
customers. An independent research study was recently completed by Resource
Data International, Inc interviewing the existing customers which are
operating their facilities with Pegasus software. Results show that
customers are generally pleased with the results of the product.
2. Pricing of the software is projected to increase substantially after a new
version of the product is complete in mid 1999. In addition, as a result of
the new version, the installation costs and related time are expected to
decrease substantially. Both of these assumptions may prove to be
aggressive but appear plausible in view of the benefits NeuSIGHT software
provides utilities (documented in the Resource Data International study,
completed in December, 1998) and various efforts underway to reduce
implementation costs.
3. Software license fees are assumed to be recognized as revenue at the time
the license is granted with the related installation service revenue
recognized over the course of the installation on a percentage of
completion basis. Until changes in certain business practices are
completed, under generally accepted accounting principles (GAAP), the
company may be prevented from recognizing license revenue at the time of
license grant. Nevertheless, assuming all other license agreement terms are
as assumed (principally that license fees are paid at time of license
grant), cash flows, and therefore company valuation under a discounted cash
flow method, would be unaffected.
4. Installations will be split between NPS/Pegasus personnel and Science
Applications International Corporation (SAIC) in accordance with the terms
of an agreement being negotiated with SAIC. All existing installations
(approximately 20) have been done by Pegasus personnel.
5. A discount rate of 50% is used to calculate the present value of the cash
flow stream which is a rate that would be used in valuing an equity
investment in a similar business risk. Once most of the key assumptions
discussed above have been demonstrated, a lower discount rate of 30% would
be justified to calculate the value of the company.
2
<PAGE>
6. No terminal value is calculated at the end of the five year projections.
The valuation that is attributed to a high growth software business in the
current public market is very high. Adding this higher number to the
analysis creates a very large number that may distract from the real value
of the business today and near term and did not appear realistic given the
number of unproven assumptions. After achieving performance reasonably
consistent with these projections for 1-3 years, inclusion of a terminal
value approximating five times earnings before tax of the last year of a
five year projection would be appropriate. A discount factor of 30% would
be applied to the projected pretax earnings each year and the terminal
value.
Analysis and Conclusions
------------------------
A significant amount of information was reviewed in developing this
valuation report. Detailed financial projections from Company management
were used as the basis for developing the five year projections of cash
flow for the two companies. Industry reports by BancBoston/Robertson
Stephens and Resource Data International, Inc. provided helpful background
information to confirm the size and growth in the utility market. A quote
from the BancBoston/Robertson Stephens report on deregulation in the
Utility Industry sums up their position, "we believe investors should
focus, not on utilities, but on the new entrants and on companies that will
bring new technologies and services to the market." NPS and Pegasus are
aimed at exactly this market.
There are assumptions in the five year projections that have yet to be
proven such as increased pricing of the product and the aggressive increase
in sales volumes. However, significant financial resources have been spent
to hire and train four new salespeople and complete new marketing material.
The uncertainty of these assumptions is the reason that the companies,
whether combined or separate, will not be accorded the premiums of
companies in the public market. The Venture Capital Industry would be a
typical source for equity financing if the two organizations are merged.
Using the projections developed by management, the current estimated value
of NPS/Pegasus is $14,106,000, using a discount rate of 50% on projected
five year pretax earnings.
There are other valuation methods that might provide different conclusions
and utilizing different assumptions might result in different conclusions
from this report, although the discounted cash flow method is one of the
most commonly used methods. We believe that this analysis and valuation
fairly estimates the value of NPS/Pegasus today. Of course the actual
results of these businesses will certainly differ from these projections
and the variances may be material. Appendix A to this report summarizes our
qualifications and relevant professional assignments. We understand that
this analysis may be included in reports filed with the Securities and
Exchange Commission.
3
<PAGE>
Please contact me if you have any questions regarding this report or the
assumptions contained in it and the conclusions. We appreciate working with
you and your staff and look forward to talking with you in the near future.
Sincerely,
/s/ Jon P. Jung
Jon P. Jung
4
<PAGE>
EXHIBIT 99.02
KFx NEWS
1999 Broadway, Suite 3200 . Denver, Colorado, USA . 80202 . (303) 293-2992
FOR IMMEDIATE RELEASE
---------------------
KFX CONTACTS: Seth L. Patterson - (303) 293-2992
John P. Venners - (703) 524-1113
KFX CONVERTS COMPUTER ASSOCIATES' INTEREST IN PEGASUS TECHNOLOGIES
Denver, CO (August 30, 1999) - KFx Inc. (AMEX: KFX) today announced the merger
of its wholly-owned subsidiary, Net Power Solutions with Pegasus Technologies,
Ltd., in which KFx owns a controlling interest. The combined company, taking the
Pegasus name, is the leader in neural network software optimization tools for
the utility industry.
As a part of the transaction, Computer Associates International (NYSE: CA) has
converted its 15% ownership interest in Pegasus into 527,000 shares of KFx
common stock, which carry sale restrictions through June 30, 2000. An
independent valuation of Pegasus and Net Power Solutions estimated their total
value at $14.1 million. Based on this valuation, the transaction with CA
calculates to a $4/share valuation for the KFx common shares. The remaining
elements of the merger are expected to be completed within approximately 30
days, after which KFx's ownership in Pegasus will exceed 75%.
"We are confident that Pegasus will be a major force in our total solutions
program, providing clean energy solutions for the environment," said Ted
Venners, Chairman and CEO of KFx.
This is one more building block in the KFx strategy to provide clean fuel,
software and consulting services to the power industry.
KFx focuses on providing total solutions for the power industry through delivery
of fuel production processes, intelligent software technologies and professional
services - enhancing the operational efficiency of energy production while
preserving the environment. More information about the company can be found on
the internet at www.kfx.com.
-----------
This news release contains forward-looking statements that involve a number of
risks and uncertainties. Important factors that could cause actual results to
differ materially from those indicated by such forward-looking statements are
set forth under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operation" in item 7 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 and as part I, item 2, of the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
