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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): March 7, 2000
KFx Inc.
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(Exact name of registrant as specified in its charter)
Delaware 0-23634 84-1079971
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(State or Other Jurisdiction of (Commission (IRS Employer
Incorporation) File Number) Identification No.)
1999 Broadway, Suite 3200
Denver, Colorado 80202
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 293-2992
Not Applicable
-------------------------------
(Former name or former address,
if changed since last report)
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ITEM 5. OTHER EVENTS.
As described in KFx' press release dated March 7, 2000, KFx
Inc. and Kennecott Energy Company, a wholly owned subsidiary of Rio
Tinto plc, closed two transactions through which Kennecott Energy
invested in Pegasus Technologies, Inc. ("Pegasus"), a KFx subsidiary.
Kennecott Energy purchased 4% of the outstanding common stock of
Pegasus (the "Pegasus Common Stock") directly from KFx for $1,000,000
and purchased $500,000 of newly authorized 6% cumulative convertible
Series A Preferred Stock (the "Pegasus Series A Stock") of Pegasus. In
addition, KFx cancelled secured debt totaling $3,630,000 in return for
shares of Pegasus Series A Stock. On an as converted basis, the
ownership of Pegasus is approximately as follows: KFx - 74%, Pegasus
management - 20% and Kennecott Energy - 6%.
Kennecott Energy has the right to purchase up to $3,500,000
additional Pegasus Series A Stock by December 31, 2004, representing an
additional 14% interest in Pegasus on an as converted basis. KFx also
entered into a Put Agreement with Kennecott Energy that gives Kennecott
Energy the right to sell the Pegasus Common Stock back to KFx at any
time within one year for a purchase price equal to the greater of
$1,000,000 or fair market value. All stockholders of Pegasus entered
into a new Stockholders and Voting Agreement.
In connection with these investments, KFx, Pegasus and
Kennecott Energy jointly developed a work plan for enhancements to
NeuSIGHT, new product development and the completion of other tasks
designed to improve the performance of Pegasus. KFx and Kennecott
Energy also formed Net Power Solutions, LLC, an entity which the
parties intend will offer total energy solutions to the electric
utility industry on a worldwide basis.
The Common Stock and Series A Preferred Stock Purchase
Agreement, Statement Respecting Rights of Series A Preferred Stock of
Pegasus, Stockholders and Voting Agreement, Put Agreement, Marketing
Services Agreement and Press Release are filed as Exhibits to this Form
8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
Exhibit 10.1 Common Stock and Series A Preferred Stock Purchase
Agreement among Pegasus Technologies, Inc., KFx Inc.
and Kennecott Energy Company dated March 3, 2000.*
Exhibit 10.2 Statement Respecting Rights of Series A Preferred
Stock of Pegasus Technologies, Inc.
* Portions of this exhibit have been omitted and filed separately with the
Securities and Exchange Commission pursuant to a confidential treatment
request.
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Exhibit 10.3 Pegasus Technologies, Inc. Stockholders and Voting
Agreement dated March 3, 2000.
Exhibit 10.4 Put Agreement dated March 3, 2000 between KFx Inc.
and Kennecott Energy Company.
Exhibit 10.5 Marketing Services Agreement dated March 3, 2000
among Pegasus Technologies, Inc., Net Power
Solutions, LLC, KFuel, LLC, KFx Inc. and Kennecott
Energy Company.
Exhibit 99.1 Press Release dated March 7, 2000.
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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: March 24, 2000 By: /s/ Seth L. Patterson
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Seth L. Patterson, Executive
Vice President and Chief
Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.1 Common Stock and Series A Preferred Stock Purchase Agreement among
Pegasus Technologies, Inc., KFx Inc. and Kennecott Energy Company dated
March 3, 2000.*
10.2 Statement Respecting Rights of Series A Preferred Stock of Pegasus
Technologies, Inc.
10.3 Pegasus Technologies, Inc. Stockholders and Voting Agreement dated
March 3, 2000.
10.4 Put Agreement dated March 3, 2000 between KFx Inc. and Kennecott Energy
Company.
10.5 Marketing Services Agreement dated March 3, 2000 among Pegasus
Technologies, Inc., Net Power Solutions, LLC, KFuel LLC, KFx Inc. and
Kennecott Energy Company.
99.1 Press Release dated March 7, 2000.
</TABLE>
* Portions of this exhibit have been omitted and filed separately with the
Securities and Exchange Commission pursuant to a confidential treatment
request.
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EXHIBIT 10.1
COMMON STOCK AND
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
among
PEGASUS TECHNOLOGIES, INC.
KFx INC.
and
KENNECOTT ENERGY COMPANY
dated March 3, 2000
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
TABLE OF CONTENTS
<S> <C> <C> <C>
1. AGREEMENT DEFINITIONS...........................................................................2
2. AGREEMENT TO SELL AND PURCHASE..................................................................8
2.01 Authorization of Preferred Shares by the Company.......................................8
2.02 Sale and Purchase of Common Stock......................................................9
2.03 Sale and Purchase of Series A Preferred Stock..........................................9
3. Closing, Delivery And Payment..................................................................10
3.01 Closing...............................................................................10
4. Representations and Warranties of the Company..................................................11
4.01 Organization, Good Standing and Qualification.........................................11
4.02 Articles of Incorporation and Bylaws; Records.........................................12
4.03 Capitalization........................................................................12
4.04 Authorization; Binding Obligations....................................................13
4.05 Non-Contravention; Consents...........................................................13
4.06 Financial Statements..................................................................15
4.07 Compliance With Legal Requirements....................................................16
4.08 Governmental Authorizations...........................................................16
4.09 Proprietary Rights....................................................................16
4.10 Proceedings; Orders...................................................................17
4.11 Title to Assets.......................................................................18
4.12 Material Contracts....................................................................19
4.13 Employees; Employee Benefits..........................................................20
4.14 Receivables; Major Customers..........................................................21
4.15 Major Suppliers.......................................................................22
4.16 Tax Matters...........................................................................22
4.17 Securities Laws Compliance; Registration Rights.......................................23
4.18 Finders and Brokers...................................................................23
4.19 Environmental Compliance..............................................................24
4.20 Insurance.............................................................................24
4.21 Related Party Transactions............................................................24
4.22 Absence of Changes....................................................................25
4.23 Reorganization Transaction............................................................27
4.24 Benefit Plans; ERISA..................................................................27
4.25 Full Disclosure.......................................................................29
4.26 Affiliated Assets.....................................................................30
4.27 KFx Organization, Good Standing and Qualification.....................................30
</TABLE>
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<TABLE>
<S> <C> <C> <C>
4.28 KFx Authorization; Binding Obligations................................................30
4.29 Ownership of Common Shares............................................................30
4.30 KFx Non-Contravention; Consents.......................................................30
4.31 KFx Debt..............................................................................31
5. Representations And Warranties Of The Purchaser................................................31
5.01 Organization and Good Standing........................................................31
5.02 Requisite Power and Authority.........................................................31
5.03 Non Contravention.....................................................................32
5.04 Investment Representations............................................................32
5.05 Consents..............................................................................33
6. Covenants Of The Company And KFx...............................................................33
6.01 Access and Investigation..............................................................33
6.02 Operation of Business.................................................................34
6.03 Filings and Consents..................................................................35
6.04 Notification; Updates to Disclosure Schedule..........................................36
6.05 Indebtedness by Related Parties.......................................................37
6.06 No Negotiation........................................................................37
6.07 Best Efforts..........................................................................38
6.08 Confidentiality.......................................................................38
6.09 Stock Option Plan.....................................................................38
6.10 Approval of Certificate of Designation; Authorization of Preferred Shares.............39
6.11 Affiliated Assets.....................................................................39
6.12 Marketing Entity......................................................................39
6.13 Unconverted KFx Debt..................................................................39
7. Conditions Precedent To Purchaser' Obligations.................................................40
7.01 Representations and Warranties........................................................40
7.02 Execution of Agreements...............................................................40
7.03 Certificate of Designation............................................................40
7.04 Satisfactory Completion of Pre-Investment Review......................................40
7.05 Business Plan.........................................................................41
7.06 Consents, Permits, Waivers and Approvals..............................................41
7.07 Reservation of Conversion Shares......................................................41
7.08 All Proceedings to be Satisfactory....................................................41
7.09 Corporate Documents...................................................................41
7.10 Formation of Net Power Solutions, LLC.................................................42
7.11 License Agreements....................................................................42
7.12 Election of Directors.................................................................42
7.13 Release of Lien.......................................................................42
7.14 Conversion of Debt....................................................................42
7.15 Compliance Certificate................................................................42
7.16 Delivery of Legal Opinion.............................................................42
</TABLE>
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<TABLE>
<S> <C> <C> <C>
7.18 Affiliated Assets.....................................................................42
8. Conditions Precedent To The Obligations of The Company and KFx.......
8.01 Representations and Warranties........................................................43
8.02 Execution of Agreements...............................................................43
8.03 Certificate of Designation............................................................43
8.04 Business Plan.........................................................................43
8.05 Consents, Permits, Waivers and Approvals..............................................43
8.06 Formation of Net Power Solutions, LLC.................................................43
8.07 Conversion of Debt....................................................................43
8.08 Compliance Certificate................................................................43
9. Indemnification, etc. .........................................................................44
9.01 Survival of Representations and Covenants.............................................44
9.02 Indemnification by the Company and KFx................................................44
9.03 No Contribution.......................................................................45
10. Miscellaneous..................................................................................46
10.01 Governing Law.........................................................................46
10.02 Survival..............................................................................46
10.03 Successors and Assigns................................................................47
10.04 Entire Agreement......................................................................47
10.05 Specific Enforcement..................................................................47
10.06 Severability..........................................................................47
10.07 Amendment.............................................................................47
10.08 Waiver................................................................................47
10.09 Notices...............................................................................47
10.10 Counterparts; Facsimile...............................................................49
10.11 Future Financings.....................................................................49
10.12 Press Releases and Announcements......................................................49
10.13 Expenses..............................................................................49
10.14 Interpretation........................................................................49
10.15 No Third Party Beneficiaries..........................................................51
Exhibit A..................Certificate of Designations
Exhibit B..................Stockholders Agreement
Exhibit C..................Marketing Services Agreement
Exhibit D..................Financial Statements
Exhibit E..................Put Agreement
</TABLE>
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COMMON STOCK AND SERIES A
PREFERRED STOCK PURCHASE AGREEMENT
This Common Stock and Series A Preferred Stock Purchase Agreement is
entered into as of March 3, 2000, by and among Pegasus Technologies, Inc., a
South Dakota corporation (the "COMPANY"), KFx Inc., a Delaware corporation
("KFX"), and Kennecott Energy Company, a Delaware corporation (the "PURCHASER").
In consideration of the mutual promises hereinafter set forth, the
parties hereto agree as follows:
R E C I T A L S
A. Purchaser is engaged in the business of selling coal to electric
utilities throughout the United States and continually evaluates technology that
promotes the use of coal in an environmentally friendly manner;
B. The Company is principally engaged in the installation of a neural
net software and related technology ("NEUSIGHT") in electric utility plants for
the purpose of improving the efficiency of coal-fired plants and reducing the
emission of NOx and other potentially harmful pollutants from such plants;
C. Purchaser believes that the successful implementation of the
programs and processes being utilized by the Company and the Purchaser's
opportunity to interact with its existing and potential customers could have a
beneficial effect on the Purchaser's business and potential coal markets;
D. KFx is the majority shareholder of the shares of the Company and
seeks sophisticated and knowledgeable investors in the Company in order to
increase the likelihood of success by the Company in this developmental phase of
NeuSIGHT and related products.
E. Based on the foregoing, the Purchaser desires to invest in the
Company and the Company and KFx desire to have the Purchaser as an investor in
the Company on the terms set forth herein.
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:
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AGREEMENT
1. DEFINITIONS
Capitalized terms in this Agreement are used as defined in this Article
1 or elsewhere in this Agreement (such terms to be equally applicable to the
singular and plural forms thereof):
"ACQUISITION TRANSACTION" means any transaction involving:
(a) the sale or other disposition of all or any material portion
of the Company's business or assets ;
(b) the issuance, sale or other disposition of (i) any capital
stock of the Company, (ii) any option, call, warrant or right
(whether or not immediately exercisable) to acquire any
capital stock of the Company, or (iii) any security,
instrument or obligation that is or may become convertible
into or exchangeable for any capital stock of the Company; or
(c) any merger, consolidation, business combination, share
exchange, reorganization or similar transaction involving the
Company.
"ADDITIONAL PREFERRED SHARES" has the meaning set forth in Section
2.03(b).
"AFFILIATE" means, with respect to any Person, a Person that, directly
or indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with such Person or an officer, director, holder of
10% or more of the outstanding equity securities of such Person, or the parent,
spouse or lineal descendant of any of the foregoing.
"AFFILIATED ASSETS" has the meaning set forth in Section 4.26.
"AGREEMENT" means this Common Stock and Series A Preferred Stock
Purchase Agreement, dated as of the date hereof, by and among the Company, KFx
and the Purchaser (including the Disclosure Schedule and all other Schedules and
Exhibits attached hereto), as it may be amended from time to time.
"BEST EFFORTS" means the efforts that a prudent Person desiring to
achieve a particular result would use in order to ensure that such result is
achieved in a commercially reasonable manner and as expeditiously as is
commercially reasonable under the circumstances.
"BREACH", when used in connection with any representation, warranty,
covenant, obligation or other provision set forth in this Agreement, means that
there is or has been any inaccuracy in or breach of, or any failure to comply
with or perform, such representation, warranty, covenant, obligation or other
provision.
"CERTIFICATE OF DESIGNATION" has the meaning set forth in Section 2.01.
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"CLOSING" has the meaning set forth in Section 3.01.
"CLOSING DATE" has the meaning set forth in Section 3.01.
"CLOSING DATE PREFERRED SHARES" has the meaning set forth in Section
2.03(a).
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON SHARES" has the meaning set forth in Section 2.01.
"COMMON STOCK" means the shares of common stock of the Company, $.001
par value per share.
"COMPANY" has the meaning set forth in the introductory paragraph.
"COMPANY CONTRACT" means any Contract:
(a) to which the Company is a party;
(b) by which the Company or any of its assets is bound or under
which the Company has any obligation; or
(c) under which the Company has any right or interest.
"COMPANY RETURNS" has the meaning set forth in Section 4.16.
"CONSENT" means any approval, consent, ratification, permission, waiver
or authorization (including any Governmental Authorization).
"CONTRACT" means, with respect to any Person, any written or oral
agreement, contract, lease, understanding, arrangement, instrument, note,
guaranty, indemnity, warranty, deed, assignment, power of attorney, certificate,
purchase order, work order, insurance policy, benefit plan, commitment,
covenant, assurance or undertaking of any nature to which such Person is a party
or by which its properties or assets are bound.
"CONVERSION SHARES" has the meaning set forth in Section 4.01.
"DAMAGES" shall include any loss, damage, injury, Liability, claim,
demand, settlement, judgment, award, fine, penalty, Tax, fee (including any
reasonable legal fee, expert fee, accounting fee or advisory fee), charge, cost
(including any reasonable cost of investigation) or expense of any nature.
"DISCLOSURE SCHEDULE" means the schedule (dated as of the date of this
Agreement), and as defined in Article 4, delivered to the Purchaser on behalf of
the Company and KFx, a copy of which is attached to this Agreement and
incorporated in this Agreement by reference.
"EMPLOYEE BENEFIT PLAN" has the meaning set forth in Section 3(3) of
ERISA.
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"ENCUMBRANCE" means any lien, pledge, hypothecation, charge, mortgage,
security interest, encumbrance, equity, trust, equitable interest, claim,
preference, right of possession, lease, tenancy, license, encroachment,
covenant, infringement, interference, Order, proxy, option, right of first
refusal, preemptive right, community property interest, legend, defect,
impediment, exception, reservation, limitation, impairment, imperfection of
title, condition or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
"ENTITY" means any corporation (including any non-profit corporation),
general partnership, limited partnership, limited liability partnership, limited
liability limited partnership, joint venture, estate, trust, cooperative,
foundation, society, political party, union, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or other entity.
"ENVIRONMENTAL LAW" means any Legal Requirement relating to pollution
or protection of human health or the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCLUDED CONTRACT" means any Company Contract that meets any of the
following requirements:
(a) the Company has entered into such Company Contract in the
Ordinary Course of Business and such Company Contract does not
contemplate or involve the payment of cash or other
consideration in an amount or having a value in excess of
$25,000; or
(b) has a term of less than 90 days or may be terminated by the
Company (without penalty) within 90 days after the delivery of
a termination notice by the Company.
"EXISTING PLAN" means the Company's 1999 Stock Incentive Plan, as in
existence on the date hereof.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 4.06.
"GAAP" means generally accepted accounting principles, consistently
applied.
"GOVERNMENTAL AUTHORIZATION" means any:
(a) permit, license, certificate, franchise, concession, approval,
Consent, ratification, permission, clearance, confirmation,
endorsement, waiver, certification, designation, rating,
registration, qualification or authorization
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that is or has been issued, granted, given or otherwise made
available by or under the authority of any Governmental Body
or pursuant to any Legal Requirement; or
(b) right under any Contract with any Governmental Body.
"GOVERNMENTAL BODY" means any:
(a) nation, principality, state, commonwealth, province,
territory, county, municipality, district or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental division, subdivision, department,
agency, bureau, branch, office, commission, council, board,
instrumentality, officer, official, representative,
organization, unit, body or Entity and any court or other
tribunal);
(d) multi-national governmental or quasi-governmental organization
or body; or
(e) other body exercising, or entitled to exercise, any executive,
legislative, judicial, administrative, regulatory, police,
military or taxing authority.
"INDEMNITEE" has the meaning set forth in Section 9.02.
"INITIAL WORK PROGRAM" shall have the meaning set forth in Section
7.05.
"KFx" has the meaning set forth in the introductory paragraph.
"KFx DEBT" has the meaning set forth in Section 4.31.
"KNOWLEDGE" of a particular fact or other matter means that:
(a) the individual in question is actually aware of such fact or
other matter; or
(b) a reasonable business person engaged in the Company's line of
business would be expected to discover or otherwise become
aware of such fact or other matter in the course of conducting
a reasonable inquiry concerning the truth or existence of such
fact or other matter.
The Company's Knowledge shall mean the Knowledge of those individuals identified
in Part 1(a) of the Disclosure Schedule and KFx's Knowledge shall mean the
Knowledge of those individuals identified in Part 1(b) of the Disclosure
Schedule.
"LEGAL REQUIREMENT" means any federal, state, local, municipal, foreign
or other law, statute, legislation, constitution, principle of common law,
resolution, ordinance,
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code, edict, decree, proclamation, treaty, convention, rule, regulation, ruling,
directive, pronouncement, requirement, specification, determination, decision,
opinion or interpretation that is or has been issued, enacted, adopted, passed,
approved, promulgated, made, implemented or otherwise put into effect by or
under the authority of any Governmental Body.
"LIABILITY" means any debt, obligation, duty or liability of any nature
(including any unknown, undisclosed, unmatured, unaccrued, unasserted,
contingent, indirect, conditional, implied, vicarious, derivative, joint,
several or secondary liability).
"MARKETING ENTITY" has the meaning set forth in Section 7.10.
"MARKETING SERVICES AGREEMENT" has the meaning set forth in Section
4.01.
"MATERIAL CONTRACT" has the meaning set forth in Section 4.12.
"MEMBER OF THE CONTROLLED GROUP" means each trade or business, whether
or not incorporated, that would be treated as a single employer with the Company
under Section 4001 of ERISA or Section 414(b), (c), (m) or (o) of the Code.
"MULTIEMPLOYER PLAN" means a plan described in Section 3(37) of ERISA.
"ORDER" means any:
(a) order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, verdict,
sentence, subpoena, writ or award that is or has been issued,
made, entered, rendered or otherwise put into effect by or
under the authority of any court, administrative agency or
other Governmental Body or any arbitrator or arbitration
panel; or
(b) Contract with any Governmental Body that is or has been
entered into in connection with any Proceeding.
"ORDINARY COURSE OF BUSINESS" means an action taken by or on behalf of
the Company that:
(a) is consistent with the Company's past practices and is taken
in the ordinary course of the Company's normal day-to-day
operations;
(b) is taken in accordance with prudent business practices
consistent with industry practice; and
(c) is not required to be authorized by the Company's stockholders
or the Company's board of directors or any committee of the
Company's board of directors.
"OUTSTANDING OPTIONS" has the meaning set forth in Section 4.03(b).
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"PERSON" means any individual, Entity or Governmental Body.
"PLAN" has the meaning set forth in Section 4.24.
"PRE-CLOSING PERIOD" means the period commencing as of the date of this
Agreement and ending on the Closing Date.
"PREFERRED SHARES" means the Closing Date Preferred Shares and the
Additional Preferred Shares.
"PREFERRED PER SHARE PRICE" has the meaning set forth in Section
2.03(a).
"PROCEEDING" means any action, suit, litigation, arbitration,
proceeding (including any civil, criminal, administrative, investigative or
appellate proceeding and any informal proceeding), prosecution, contest,
hearing, inquiry, inquest, audit, examination or investigation that is or has
been commenced, brought, conducted or heard by or before, or that otherwise has
involved or may involve, any Governmental Body or any arbitrator or arbitration
panel.
"PROPRIETARY ASSET" means any patent, patent application, trademark
(whether registered or unregistered and whether or not relating to a published
work), trademark application, trade name, fictitious business name, service mark
(whether registered or unregistered), service mark application, copyright
(whether registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know how, franchise, system, computer software,
invention, design, blueprint, proprietary product, technology, proprietary right
or other intellectual property right or intangible asset.
"PTI AGREEMENT" has the meaning set forth in Section 4.23.
"PURCHASER" has the meaning set forth in the introductory paragraph.
"PUT AGREEMENT" has the meaning set forth in Section 4.27.
"RADL GROUP" means, collectively, Brad J. Radl, Philip A. Weintz,
Willie B. Roland, Jr., Terry V. Radl and Richard W. Vesel.
"RELATED PARTY" means, with respect to the Company:
(a) KFx, or any of its Affiliates;
(b) each individual who is currently an officer of the Company;
(c) each member of the family of each of the individuals referred
to in clause (b) above; and
(d) any Entity (other than the Company) in which any one of the
Persons referred to in clauses (a), (b) and (c) above holds
(or in which more than
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one of such individuals collectively hold), beneficially or
otherwise, a material voting, proprietary or equity interest.
"REPRESENTATIVES" means as to any particular party, the officers,
directors, employees, attorneys, accountants, advisors and representatives of
such party. KFx and all other Related Parties shall be deemed to be
Representatives of the Company.
"RESTRUCTURING AGREEMENTS" has the meaning set forth in Section 4.23.
"SECURITIES ACT" means the Securities Act of 1933 (or any similar
successor federal statute), as amended, and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
"SERVICE MARKS" has the meaning set forth in Section 6.14.
"SPECIAL DAMAGES" has the meaning set forth in Section 9.02(d).
"STOCKHOLDERS AGREEMENT" has the meaning set forth in Section 4.01.
"SUPPLEMENTAL WORK PROGRAM" has the meaning set forth in Section 7.05.
"TAX" means any tax (including any income tax, franchise tax, capital
gains tax, estimated tax, gross receipts tax, value added tax, surtax, excise
tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax,
business tax, occupation tax, inventory tax, occupancy tax, withholding tax or
payroll tax), levy, assessment, tariff, impost, imposition, toll, duty
(including any customs duty), deficiency or fee, and any related charge or
amount (including any fine, penalty or interest).
"TAX RETURN" means any return (including any information return),
report, statement, declaration, estimate, schedule, notice, notification, form,
election, certificate or other document or information that is or has been filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
"TRANSACTION AGREEMENTS" has the meaning set forth in Section 4.01.
"USRPHC" has the meaning set forth in Section 4.16.
2. AGREEMENT TO SELL AND PURCHASE
2.01 Authorization of Preferred Shares by the Company. On or prior to
the Closing, (i) the Company shall have authorized the sale and issuance to the
Purchaser of shares of its Series A Preferred Stock having the rights,
preferences, privileges and restrictions set forth in the Statement Respecting
Rights under Series Stock, attached hereto as Exhibit A (the "CERTIFICATE OF
DESIGNATION"); and (ii) KFx shall have
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authorized the sale and conveyance to the Purchaser of 748,559 shares of the
Company's Common Stock (the "COMMON SHARES").
2.02 Sale and Purchase of Common Stock. Subject to the terms and
conditions hereof, at the Closing KFx hereby agrees to sell to the Purchaser and
the Purchaser agrees to purchase from KFx, the Common Shares for an aggregate
purchase price of $1,000,000.
2.03 Sale and Purchase of Series A Preferred Stock to Kennecott.
(a) Subject to the terms and conditions hereof, at the
Closing the Company hereby agrees to issue and sell to the Purchaser and the
Purchaser agrees to purchase from the Company, 467,849 shares of Series A
Preferred Stock (the "CLOSING DATE PREFERRED SHARES") at a purchase price per
share equal to $1.06872 (the "PREFERRED PER SHARE PRICE"), representing an
aggregate purchase price for the Closing Date Preferred Shares of $500,000.
(b) After the Closing Date, in addition to the Closing Date
Preferred Shares and the Common Shares, the Purchaser shall have the right, at
any time prior to December 31, 2004, to acquire 3,274,943 shares of Series A
Preferred Stock (the "ADDITIONAL PREFERRED SHARES") from the Company at the
Preferred Per Share Price (or an aggregate purchase price for all of the
Additional Preferred Shares, if issued, of $3,500,000), and upon exercise of
such right the Company shall issue and sell such shares of Series A Preferred
Stock to the Purchaser. The Additional Preferred Shares shall be issued on the
following conditions, unless such conditions are waived by the Purchaser:
(i) the Additional Preferred Shares shall be issued
in seven tranches of 467,849 shares each, representing an aggregate
purchase price for each tranche of $500,000;
(ii) each tranche shall be purchased by the Purchaser
within 10 business days of the later to occur of the following (A) the
Company's delivery to the Purchaser of a report, in a form reasonably
satisfactory to Purchaser, indicating that the Company has satisfied
the target objectives specified in the Initial Work Program and any
prior Supplemental Work Programs as may be applicable; and (B) the
report shall also include the Supplemental Work Program for the next
tranche, containing (x) written updates of the goals and objectives of
the Initial Work Program and any prior Supplemental Work Programs and
(y) a description of the targets and specific activities to be
accomplished under the newly proposed Supplemental Work Program with
the purchase price for such tranche of Additional Preferred Shares;
notwithstanding the foregoing or anything in Section 7.05 hereof, no
addition or change to the Initial Work Program or to any Supplemental
Work Program shall constitute a Supplemental Work Program without the
approval of the Purchaser; and
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(iii) no more than 3 tranches of Additional Preferred
Shares shall be issued and purchased during calendar year 2000, 2
tranches in calendar year 2001 and 2 tranches in calendar year 2002.
(c) Notwithstanding the provisions of Section 2.03(b), the
Purchaser shall have the absolute right and complete discretion at any time to
determine whether to continue purchasing tranches of Additional Preferred
Shares, regardless of the success of the Company relative to the target
objectives specified in the Business Plan and without any liability or duty to
the Company or KFx.
2.04 Sale and Purchase of Series A Preferred Stock to KFx. Subject to
the terms and conditions hereof, at the Closing the Company agrees to issue to
KFx, and KFx agrees to purchase from the Company, 3,396,377 shares of Series A
Preferred Stock at the Preferred Per Share Price in consideration of the
cancellation by KFx (and release of all liens and security interests held by KFx
in connection therewith) of $3,629,775 in debt owed by the Company to KFx.
3. CLOSING, DELIVERY AND PAYMENT
3.01 Closing. The closing of the sale and purchase of the shares under
this Agreement (the "CLOSING") shall take place at 10:00 a.m. on the date on
which all of the conditions specified in Article 7 have been satisfied or waived
by the Purchaser, at the offices of Davis, Graham & Stubbs LLP, 370 Seventeenth
Street, Suite 4700, Denver, Colorado, or at such other time or place as the
Company, KFx and the Purchaser may mutually agree (such date is hereinafter
referred to as the "CLOSING DATE"). Subject to the terms and conditions hereof,
the following transactions shall occur at the Closing:
(a) the Company shall deliver to the Purchaser certificates
representing the number of Closing Date Preferred Shares to be purchased at the
Closing by the Purchaser;
(b) the Company shall deliver to KFx certificates representing
3,396,377 shares of Series A Preferred Stock;
(c)the Purchaser shall effect payment for the Closing Date
Preferred Shares purchased from the Company at the Closing by certified check or
wire transfer of immediately available funds to an account designated by the
Company;
(d) KFx shall deliver to the Purchaser certificates
representing the number of Common Shares to be purchased at the Closing by the
Purchaser;
(e) the Purchaser shall effect payment for the Common Shares
purchased from KFx at the Closing by certified check or wire transfer of
immediately available funds to an account designated by KFx;
(f) each of the Transaction Agreements shall be executed and
delivered, if not already done;
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(g) the Company shall file the Certificate of Designation with
the Secretary of State of the State of South Dakota, if not already done;
(h) the Company and KFx shall each deliver to the Purchaser
the compliance certificate contemplated by Section 7.14;
(i) the legal opinions specified in Section 7.15 shall be
delivered to the Purchaser; and
(j) if not already done, a meeting of the stockholders of the
Company shall be held (or the written consent of the Stockholders shall be
obtained pursuant to the Company's Articles of Incorporation) at which the
stockholders shall elect a new board of directors of the Company in accordance
with Section 5.01(a) of the Stockholders Agreement.
Each of the transactions listed above (other than such transactions
that may take place prior to the Closing and that have been completed prior to
the Closing) shall be deemed to take place simultaneously and none of them shall
be deemed to have been completed until all of them have been completed.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as specifically set forth in the disclosure schedules attached
hereto (the "DISCLOSURE SCHEDULE"), the parts of which are numbered to
correspond to the Section numbers of this Agreement, the Company and KFx hereby
jointly and severally (except for those representations and warranties at
Sections 4.27 through 4.31 which are made solely by KFx) represent and warrant
to the Purchaser as follows:
4.01 Organization, Good Standing and Qualification. Except as set forth
in Part 4.01 of the Disclosure Schedule, the Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
South Dakota and is duly qualified to conduct business and is in good standing
under the laws of each jurisdiction in which the nature of its business or the
ownership or leasing of its properties requires such qualifications. The Company
has all requisite corporate power and authority to own and operate its
properties and assets, and to carry on its business as presently conducted and
as presently proposed to be conducted. The Company has all requisite power and
authority (a) to execute and deliver (i) this Agreement, (ii) the Stockholders
Agreement attached hereto as Exhibit B (the "STOCKHOLDERS AGREEMENT"), and (iii)
the Marketing Services Agreement attached hereto as Exhibit C (the "MARKETING
SERVICES AGREEMENT"), (b) to issue and sell the Preferred Shares and the shares
of Common Stock issuable upon conversion thereof (the "CONVERSION SHARES") and
(c) to carry out the other provisions of this Agreement, the Stockholders
Agreement and the Marketing Services Agreement (collectively, except for this
Agreement, the "TRANSACTION AGREEMENTS").
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4.02 Articles of Incorporation and Bylaws; Records.
(a) The Company has delivered or made available to the
Purchaser accurate and complete copies of:
(i) The Company's articles of incorporation and
bylaws, including all amendments thereto;
(ii) the stock records of the Company; and
(iii) the minutes and other records of the meetings
and other proceedings (including any actions taken by written Consent
or otherwise without a meeting) of the stockholders of the Company, the
board of directors of the Company and all committees of the board of
directors of the Company.
There have been no meetings or other proceedings of the stockholders of
the Company, the board of directors of the Company or any committee of the board
of directors of the Company that are not reflected in such minutes or other
records.
(b) The Company has never conducted any business under or
otherwise used, for any purpose or in any jurisdiction, any fictitious name,
assumed name, trade name or other name, except as set forth in Part 4.02(b) of
the Disclosure Schedule.
(c) There has not been any violation of any of the provisions
of the Company's articles of incorporation or bylaws or of any resolution
adopted by the Company's stockholders, the Company's board of directors or any
committee of the Company's board of directors, and no event has occurred, and no
condition or circumstance exists, except as set forth in Part 4.02(c) of the
Disclosure Schedule that reasonably could be expected (with or without notice or
lapse of time) to constitute or result directly or indirectly in such a
violation.
4.03 Capitalization.
(a) The authorized capital stock of the Company consists of
(i) 30,000,000 shares of Common Stock, par value $.001 per share, of which
14,106,000 shares have been issued and are outstanding, 10,579,500 of which are
held by KFx and 3,526,500 of which are held by the Radl Group; and (ii)
20,000,000 shares of preferred stock, par value $.001 per share, none of which
are issued and outstanding. All issued and outstanding shares of the Company's
capital stock have been duly authorized and validly issued in full compliance
with all applicable securities laws (or pursuant to valid exemptions therefrom)
and other applicable Legal Requirements, and are fully paid and non-assessable.
(b) Part 4.03(b) of the Disclosure Schedule sets forth the
names of each holder of Outstanding Options to purchase shares of the Company's
capital stock and, for each such holder, the number of options held, the grant
date, expiration date, vesting schedule and exercise price for such options. The
Company has reserved
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1,211,605 shares of Common Stock for issuance upon exercise of each of the
options listed in Part 4.03(b) of the Disclosure Schedule. Other than the
options set forth on Part 4.03(b) of the Disclosure Schedule (the "OUTSTANDING
OPTIONS"), there is no: (i) outstanding subscription, option, call, warrant or
right (whether or not currently exercisable) to acquire any shares of the
capital stock or other securities of the Company; (ii) outstanding security,
instrument or obligation that is or may become convertible into or exchangeable
for any shares of the capital stock or other securities of the Company; (iii)
Contract under which the Company is or reasonably would be expected to become
obligated to sell or otherwise issue any shares of its capital stock or any
other securities; or (iv) except as set forth in Part 4.03(b) of the Disclosure
Schedule, condition or circumstance that reasonably would be expected directly
or indirectly to give rise to or provide a basis for the assertion of a claim by
any Person to the effect that such Person is entitled to acquire or receive any
shares of capital stock or other securities of the Company.
(c) Except as set forth in Part 4.03(c) of the Disclosure
Schedule, the Company has never repurchased, redeemed or otherwise reacquired
(and has not agreed, committed or offered (in writing or otherwise) to
reacquire) any shares of capital stock or other securities of the Company. Any
securities so reacquired by the Company were (or will have been) reacquired in
full compliance with all applicable Legal Requirements.
(d) Prior to the Closing, all of the Preferred Shares and the
Conversion Shares (i) will have been duly authorized and reserved for issuance,
(ii) upon issuance in compliance with the provisions of this Agreement and the
Certificate of Designation will be validly issued, fully paid and
non-assessable, and (iii) upon issuance in compliance with the provisions of
this Agreement and the Certificate of Designation will have been issued in full
compliance with all applicable securities laws and other applicable Legal
Requirements.
4.04 Authorization; Binding Obligations. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for the
authorization of this Agreement and the Transaction Agreements, and for the
performance of all obligations of the Company hereunder and thereunder and for
the delivery of the Preferred Shares has been taken or will be taken prior to
the Closing. This Agreement and the Transaction Agreements constitute, or upon
execution and delivery will constitute, valid and binding obligations of the
Company enforceable in accordance with their terms, except as such
enforceability may be limited by applicable Legal Requirements relating to
bankruptcy or creditors' rights generally.
4.05 Non-Contravention; Consents. Neither the execution and delivery of
this Agreement or any of the Transaction Agreements, nor the consummation or
performance of any of the transactions contemplated herein or therein, will
directly or indirectly (with or without notice or lapse of time):
(a) except as set forth in Part 4.05(a) of the Disclosure
Schedule, contravene, conflict with or result in a violation of (i) any of the
provisions of the
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Company's articles of incorporation or bylaws, or (ii) any resolution adopted by
the Company's stockholders, the Company's board of directors or any committee of
the Company's board of directors;
(b) contravene, conflict with or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
transactions contemplated herein or in the Transaction Agreements or to exercise
any remedy or obtain any relief under, any material Legal Requirement or Order
to which the Company, or any of the assets owned or used by the Company, is
subject;
(c) cause the Company to become subject to, or to become
liable for the payment of, any Tax;
(d) cause any of the assets owned or used by the Company to be
reassessed or revalued by any Taxing authority or other Governmental Body;
(e) except as set forth in Part 4.05(e) of the Disclosure
Schedule, contravene, conflict with or result in a violation of any of the terms
or requirements of, or give any Governmental Body the right to revoke, withdraw,
suspend, cancel, terminate or modify, any Governmental Authorization that is
held by the Company or any of its employees or that otherwise relates to the
Company's business or to any of the assets owned or used by the Company;
(f) except as set forth in Part 4.05(f) of the Disclosure
Schedule, contravene, conflict with or result in a violation or Breach of, or
result in a default under, any provision of any of the Company Contracts;
(g) except as set forth in Part 4.05(g) of the Disclosure
Schedule, give any Person the right to (i) declare a default or exercise any
remedy under any Company Contract, (ii) accelerate the maturity or performance
of any Company Contract, or (iii) cancel, terminate or modify any Company
Contract;
(h) give any Person the right to any payment by the Company or
give rise to any acceleration or change in the award, grant, vesting or
determination of options, warrants, rights, severance payments or other
contingent obligations of any nature whatsoever of the Company in favor of any
Person, in any such case as a result of the change in control of the Company or
otherwise resulting from the transactions contemplated hereby; or
(i) result in the imposition or creation of any Encumbrance
upon or with respect to any asset owned or used by the Company.
Except as set forth in Part 4.05(j) of the Disclosure Schedule, the
Company will not be required to make any filing with or give any notice to, or
to obtain any Consent from, any Person in connection with the execution and
delivery of this Agreement or any Transaction Agreement or the consummation or
performance of any of the transactions contemplated herein or therein.
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4.06 Financial Statements.
(a) The Company has delivered to the Purchaser the unaudited
balance sheet of the Company as of December 31, 1999, and the related unaudited
statements of operations, changes in stockholders' equity and cash flows of the
Company for the 12 month period then ended (collectively, the "FINANCIAL
STATEMENTS"), which are attached hereto as Exhibit D.
(b) The Financial Statements are in accordance with the books
and records of the Company and present fairly in all material respects the
financial position of the Company as of the respective dates thereof and the
results of operations, changes in stockholders' equity and cash flows of the
Company for the periods covered thereby. The Financial Statements have been
prepared in accordance with GAAP, applied on a consistent basis throughout the
periods covered, subject to changes resulting from normal year-end adjustments
and except that such statements do not contain the notes required by GAAP.
(c) At the date of the Financial Statements, (i) the Company
had no Liabilities of any nature required by GAAP to be provided for in the
Financial Statements which were not provided for in the Financial Statements,
(ii) except as set forth in Part 4.06(c) of the Disclosure Schedule, the Company
had no other contingent Liabilities that would be required by GAAP to be
disclosed in the notes to the Financial Statements, (iii) the Company has
established reserves for all Liabilities with respect to which GAAP requires
that such resources be established, and (iv) all reserves established by the
Company and set forth in the Financial Statements were adequate for the purposes
for which they were established. As of the date of this Agreement, the Company
has no Liabilities, except for:
(A) Liabilities identified as such in the
"liabilities" column of the Financial Statements or set forth on Part
4.06(c) of the Disclosure Schedule;
(B) accounts payable (of the type required to be
reflected as current Liabilities in the "liabilities" column of a
balance sheet prepared in accordance with GAAP) incurred by the Company
in the Ordinary Course of Business since December 31, 1999;
(C) the Company's obligations under the Contracts
listed in Part 4.12 of the Disclosure Schedule and under Excluded
Contracts, to the extent that the existence of such obligations is
ascertainable solely by reference to such Contracts; and
(D) Liabilities that have arisen in the Ordinary
Course of Business since the date of the latest of the Financial
Statements.
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(d) Other than as set forth on Part 4.06(d) of the Disclosure
Schedule, there has been no material adverse change in the financial position of
the Company since the date of the Financial Statements.
4.07 Compliance With Legal Requirements. Except as set forth in Part
4.07 of the Disclosure Schedule:
(a) the Company is in compliance in all material respects with
each Legal Requirement that is applicable to it or to the conduct of its
business or the ownership or use of any of its assets;
(b) no event has occurred and no condition or circumstance
exists that could reasonably be expected (with or without notice or lapse of
time) to constitute or result directly or indirectly in a material violation by
the Company of, or a material failure on the part of the Company to comply with,
any Legal Requirement; and
(c) the Company has received no notice or other communication
(in writing or otherwise) pending from any Governmental Body or any other Person
regarding (i) any actual, alleged, possible or potential violation of, or
failure to comply with, any Legal Requirement, or (ii) any actual, alleged,
possible or potential obligation on the part of the Company to undertake, or to
bear all or any portion of the cost of, any cleanup or any remedial, corrective
or response action of any nature arising under any Environmental Law.
4.08 Governmental Authorizations. Except as set forth in Part 4.08 of
the Disclosure Schedule, the Company holds all Governmental Authorizations
necessary (i) to enable the Company to conduct its business in the manner in
which its business is currently being conducted, and (ii) to permit the Company
to own and use its assets in the manner in which they are currently owned and
used.
4.09 Proprietary Rights.
(a) Except as set forth in Part 4.09 of the Disclosure
Schedule and except for off-the-shelf "shrink wrapped" software products, there
is no material Proprietary Asset that is owned by or licensed to the Company or
that is otherwise used in connection with the Company's business.
(b) The Company has taken reasonable and prudent measures and
precautions necessary to protect the confidentiality and value of each
Proprietary Asset identified or required to be identified in Part 4.09 of the
Disclosure Schedule.
(c) All current employees and consultants of the Company have
executed agreements obligating them to protect and keep confidential the
Company's proprietary information and providing for the assignment to the
Company of inventions by such employees and consultants, copies of which
agreements have been made available to the Purchaser. The Company is not aware
that any of the employees or consultants of the Company is in violation of any
such agreements. The Company does
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not believe it is or will be necessary to utilize any inventions, trade secrets
or proprietary information of any of its employees made prior to their
employment by the Company, except for inventions, trade secrets or proprietary
information that have been assigned to the Company or are licensed by such
employees as described in Part 4.09 of the Disclosure Schedule.
(d) The Company has conducted its business without
infringement or claim of infringement of any license, patent, copyright, service
mark, trademark, trade name, trade secret or other intellectual property right
of others that could reasonably be expected to have a material adverse effect on
the business or assets of the Company. Except as set forth in Part 4.09(d) of
the Disclosure Schedule, the Company is not infringing, and has not at any time
infringed or received any notice or other communication (in writing or
otherwise) of any actual, alleged, possible or potential infringement of, any
Proprietary Asset owned or used by any other Person. To the Knowledge of the
Company and KFx, no other Person is infringing, and no Proprietary Asset owned
or used by any other Person infringes or conflicts with, any Proprietary Asset
owned or used by the Company.
(e) Except as set forth on Part 4.09(e) of the Disclosure
Schedule, the Company owns, licenses or has rights to all of the Proprietary
Assets used by the Company. The Proprietary Assets identified in Part 4.09 of
the Disclosure Schedule constitute all of the Proprietary Assets necessary to
enable the Company to conduct its business in the manner in which its business
is currently being conducted.
(f) The names "Pegasus" and "Pegasus Technologies" or any
variations thereof are not being used by the Company's direct competitors.
4.10 Proceedings; Orders.
(a) Except as set forth in Part 4.10 of the Disclosure
Schedule, there is no pending material Proceeding, and, to the Knowledge of the
Company and KFx, no Person has threatened to commence any material Proceeding:
(i) that involves the Company or that is directed at
the Company and otherwise relates to the Company's business or any of
the assets owned or used by the Company (whether or not the Company is
named as a party thereto); or
(ii) that challenges, or that is reasonably likely to
have the effect of preventing, delaying, making illegal or otherwise
interfering with, any of the transactions contemplated herein.
Except as set forth in Part 4.10 of the Disclosure Schedule, to the
Knowledge of the Company and KFx, no event has occurred, and no claim, dispute
or other condition or circumstance exists, that might directly or indirectly
give rise to or serve as a basis for the commencement of any such Proceeding.
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<PAGE> 22
(b) The Company has delivered to the Purchaser accurate and
complete copies of all pleadings, correspondence and other written materials to
which the Company has access that relate to any of the Proceedings identified in
Part 4.10 of the Disclosure Schedule.
(c) There is no Order to which the Company, or any of the
material assets owned or used by the Company, is subject.
(d) To the Knowledge of the Company and KFx, no officer or
employee of the Company is subject to any Order that prohibits such officer or
employee from engaging in or continuing any conduct, activity or practice
relating to the Company's business.
(e) To the Knowledge of the Company and KFx, there is no
proposed Order directed at the Company that, if issued or otherwise put into
effect, (i) is reasonably likely to have a material adverse effect on the
Company's business, condition, assets, liabilities, operations, financial
performance, net income or prospects (or on any aspect or portion thereof) or on
the ability of the Company to comply with or perform any covenant or obligation
under this Agreement or any of the Transaction Agreements, or (ii) is reasonably
likely to have the effect of preventing, delaying, making illegal or otherwise
interfering with any of the transactions contemplated herein.
4.11 Title to Assets.
(a) Except as set forth on Part 4.11(a) of the Disclosure
Schedule, the Company owns, and has good, valid and marketable title to, all
material assets purported to be owned by it, including:
(i) all assets reflected on the Financial Statements;
(ii) all assets referred to in Parts 4.09 and 4.14 of
the Disclosure Schedule and all of the Company's rights under Company
Contracts; and
(iii) all other assets reflected in the Company's
books and records as being owned by the Company.
Except as set forth in Part 4.11(a) of the Disclosure Schedule, all of said
assets are owned by the Company free and clear of any Encumbrances except liens
for current Taxes and assessments not delinquent or those which are not material
in scope or amount and do not materially interfere with the conduct of the
Company's business.
(b) Part 4.11(b) of the Disclosure Schedule identifies all
material assets that are being leased or licensed to the Company. All leases
pursuant to which the Company leases real or personal property are in good
standing and are valid and effective in accordance with their respective terms
and there exists no default thereunder or occurrence or condition that could
result in a default thereunder or termination thereof.
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The Company's buildings, equipment and other tangible assets are in good
operating condition, have been subjected only to reasonable and customary wear
and tear, and are useable in the Ordinary Course of Business, and the Company
owns, or has a valid leasehold interest in, all assets necessary for the conduct
of its business as presently conducted.
4.12 Material Contracts.
(a) Part 4.12(a) of the Disclosure Schedule identifies each
Company Contract, except for any Excluded Contract, that involves future
payments, performance of services or delivery of goods or materials to or by the
Company of an aggregate amount or value in excess of $25,000 or which otherwise
is material to the business or prospects of the Company (collectively, the
"MATERIAL CONTRACTS"). All nonmaterial Contracts of the Company do not in the
aggregate represent a material portion of the Liabilities of the Company. The
Company has made available to the Purchaser accurate and complete copies of all
Material Contracts identified in Part 4.12(a) of the Disclosure Schedule,
including all amendments thereto.
(b) Each Material Contract is valid and in full force and
effect, and is enforceable by the Company in accordance with its terms, except
as such enforceability may be limited by applicable Legal Requirements relating
to bankruptcy or creditors' rights generally.
(c) Except as set forth in Part 4.12(c) of the Disclosure
Schedule:
(i) the Company is not in default under any Material
Contract and, to the Knowledge of the Company and KFx, no Person has
violated or Breached, or declared or committed any default under, any
Material Contract;
(ii) no event has occurred, and no circumstance or
condition exists, that would reasonably be expected (with or without
notice or lapse of time) to: (A) result in a violation or Breach of any
of the provisions of any Material Contract, (B) give any Person the
right to declare a default or exercise any remedy in respect of a
default under any Material Contract, (C) give any Person the right to
accelerate the maturity or performance of any Material Contract, or (D)
give any Person the right to cancel, terminate or modify any Material
Contract;
(iii) the Company has not waived any of its material
rights under any Material Contract.
(d) Except as set forth in Part 4.12(d) of the Disclosure
Schedule:
(i) the Company has no outstanding guarantees and has
not agreed to cause, insure or become liable for, nor has it pledged
any of its assets to secure, the performance or payment of any
obligation or other Liability of any other Person; and
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(ii) the Company is not a party to or bound by (A)
any joint venture agreement, partnership agreement, profit sharing
agreement, cost sharing agreement, loss sharing agreement or similar
Contract, or (B) any Contract that creates or grants to any Person, or
provides for the creation or grant of, any stock appreciation right,
phantom stock right or similar right or interest, other than the
Existing Plan.
(e) The performance by the Company of its obligations under
the Material Contracts will not result in any material violation of or failure
to comply with any Legal Requirement.
(f) No Person is renegotiating, or has the contractual right
to renegotiate, any amount paid or payable to the Company under any Material
Contract or any other term or provision of any Material Contract.
(g) The Contracts identified in Part 4.12(a) of the Disclosure
Schedule and the Excluded Contracts collectively constitute all of the Contracts
necessary to enable the Company to conduct its business in the manner in which
such business is currently being conducted.
(h) To the Knowledge of the Company and KFx, no party to any
Material Contract has made a claim to the effect that the Company has failed to
perform an obligation thereunder. To the Knowledge of the Company and KFx, there
is no plan, intention or indication of any contracting party to any Contract to
cause the termination, cancellation or modification of such Contract or to
reduce or otherwise change its activity thereunder so as to adversely affect the
benefits derived or expected to be derived therefrom by the Company.
4.13 Employees; Employee Benefits.
(a) Part 4.13(a) of the Disclosure Schedule contains a list of
all employees of the Company, together with their respective job titles and
salaries. To the Knowledge of the Company and KFx (excluding from the definition
of Knowledge for purposes of this Section 4.13(a) only, Knowledge held by the
employee in question), no employee identified with an asterisk (*) next to his
or her name on Part 4.13(a) of the Disclosure Schedule intends to terminate his
employment with the Company prior to or within 12 months following the Closing.
(b) Part 4.13(b) of the Disclosure Schedule contains a list of
individuals who are currently performing services for the Company that are
material to the operation of its business and are classified as "consultants" or
"independent contractors."
(c) Part 4.13(c) of the Disclosure Schedule contains a list of
all KFx's employees and consultants who are currently performing services for
the Company who are material to the operation of the Company's business.
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(d) Except as set forth in Part 4.13(d) of the Disclosure
Schedule, the Company does not now have and has not in the past had in effect
any bonuses, profit sharing, pension, deferred compensation or similar plan or
agreement for the benefit of any of its employees.
(e) The Company has no collective bargaining agreements with
any of its employees. There is no labor union organizing activity pending or, to
the Knowledge of the Company and KFx, threatened with respect to the Company.
Except for those employment agreements identified in Part 4.13(e) of the
Disclosure Schedule, no employee has any agreement or contract, written or oral,
regarding his employment.
(f) To the Knowledge of the Company and KFx (excluding from
the definition of Knowledge for purposes of this Section 4.13(f) only, Knowledge
held by the employee in question), no employee of the Company, nor any
consultant with whom the Company has contracted, is in violation of any term of
any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company because of the nature of the business to be conducted
by the Company, and the continued employment by the Company of its present
employees, and the performance of the Company's Contracts with its independent
contractors, will not result in any such violation. The Company has not received
any notice alleging that any such violation has occurred.
4.14 Receivables; Major Customers.
(a) Part 4.14(a) of the Disclosure Schedule provides an
accurate and complete list of all customers with whom the Company currently does
a material amount of business or did a material amount of business during
calendar year 1999.
(b) Part 4.14(b) of the Disclosure Schedule accurately
identifies, and provides a breakdown of the revenues received from, each
customer or other Person that accounted for more than $25,000 of the gross
revenues of the Company for calendar year 1999. The Company has not received any
written notice or other written communication indicating that any customer or
other Person identified in Part 4.14(b) of the Disclosure Schedule may cease
dealing with the Company or may otherwise reduce the volume of business
transacted by such Person with the Company below historical levels other than in
the Ordinary Course of Business.
(c) Part 4.14(c) of the Disclosure Schedule provides an
accurate and complete aging of all accounts receivable, notes receivable and
other receivables of the Company as of December 31, 1999.
Except as set forth in Part 4.14(c) of the Disclosure Schedule, all existing
accounts receivable of the Company (including those accounts receivable
reflected on the Financial Statements that have not yet been collected and those
accounts receivable that have arisen since December 31, 1999, and have not yet
been collected) represent valid obligations of
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customers of the Company arising from bona fide transactions entered into in the
Ordinary Course of Business.
4.15 Major Suppliers. Part 4.15 of the Disclosure Schedule:
(a) provides an aging of the Company's accounts payable as of
December 31, 1999;
(b) provides an accurate and complete breakdown of all
customer deposits, deferred revenue related to customer contracts and other
deposits held by the Company as of December 31, 1999; and
(c) provides an accurate and complete breakdown of the
Company's indebtedness as of December 31, 1999.
4.16 Tax Matters.
(a) Each Tax required to have been paid, or claimed by any
Governmental Body to be payable, by the Company (whether pursuant to any Tax
Return or otherwise) has been duly paid in full on a timely basis. Any Tax
required to have been withheld or collected by the Company has been duly
withheld and collected, and (to the extent required) each such Tax has been paid
to the appropriate Governmental Body.
(b) All Tax Returns required to be filed by or on behalf of
the Company (or any of its predecessors in interest) with any Governmental Body
with respect to any Taxable period ending on or before the Closing Date
("COMPANY RETURNS") (i) have been or will be filed when due, and (ii) have been
or will be, when filed, accurately and completely prepared in material
compliance with all applicable Legal Requirements. All amounts shown on the
Company Returns to be due on or before the Closing Date, and all amounts
otherwise payable in connection with the Company Returns on or before the
Closing Date, have been or will be paid on or before the Closing Date.
(c) The Company's liability for unpaid Taxes for all periods
ending on or before the date of the Financial Statements does not, in the
aggregate, exceed the amount of the current liability accruals for Taxes
(excluding reserves for deferred Taxes) reported in the Financial Statements.
(d) Part 4.16(d) of the Disclosure Schedule accurately
identifies each examination or audit of any Company Return that has been
conducted by any Governmental Body since December 31, 1995. The Company does not
have any audit reports or similar documents relating to Company Returns. Except
as set forth in Part 4.16(d) of the Disclosure Schedule, no extension or waiver
of the limitation period applicable to any of the Company Returns has been
granted (by the Company or any other Person), and no such extension or waiver
has been requested from the Company.
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(e) No claim or other Proceeding is pending or, to the
Knowledge of the Company and KFx, has been threatened against or with respect to
the Company in respect of any Tax. There are no unsatisfied Liabilities for
Taxes (including Liabilities for interest, additions to Tax and penalties
thereon and related expenses) with respect to any notice of deficiency or
similar document received by the Company. The Company has not entered into or
become bound by any agreement or Consent pursuant to Section 341(f) of the Code.
The Company has not been, and will not be, required to include any adjustment in
Taxable income for any Tax period (or portion thereof) pursuant to Section 481
or 263A of the Code or any comparable provision under state or foreign Tax laws
as a result of transactions or events occurring, or accounting methods employed,
prior to the Closing.
(f) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of the Company that, individually or collectively, could
give rise directly or indirectly to the payment of any amount that would not be
deductible pursuant to Section 280G or Section 162 of the Code.
(g) The Company's capital stock does not constitute a United
States real property interest as that term is defined in Section
897(c)(1)(A)(ii) of the Code. The preceding representation is based on a
determination by the Company that the Company is not and has not been a United
States real property holding corporation (as that term is defined in Section
897(c)(2) of the Code) ("USRPHC") during the five-year period preceding the date
of this Agreement.
(h) The Company has no net operating losses or other Tax
attributes presently subject to limitation under Code Sections 382, 383 or 384,
or the federal consolidated return regulations.
(i) The Company is not liable for Taxes incurred by any
individual, trust, corporation, partnership or other Entity other than Company,
either as a transferee or pursuant to Treasury Regulations Section 1.1502-6, or
pursuant to any other provision of federal, state or local law or regulation.
The Company is not, and has never been, a party to or bound by any Tax indemnity
agreement, Tax sharing agreement, Tax allocation agreement or similar Contract.
4.17 Securities Laws Compliance; Registration Rights. The Company has
complied with all applicable federal and state securities laws in connection
with all offers and sales of securities prior to the date of this Agreement. The
Company has not heretofore granted any purchaser of its securities the right to
require the Company to register any securities under the Securities Act or to
qualify for any exemption thereunder.
4.18 Finders and Brokers. Neither the Company, KFx nor any Person
acting on behalf of the Company or KFx has negotiated with any finder, broker,
intermediary or any similar Person in connection with the transactions
contemplated herein.
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4.19 Environmental Compliance. The Company is in compliance in all
material respects with all applicable Environmental Laws. The Company has not
received any notice or other communication (in writing or otherwise) that
alleges that the Company is not in compliance with any Environmental Law, and,
to the Knowledge of the Company and KFx, there are no circumstances that may
prevent or interfere with the Company's compliance with any Environmental Law in
the future.
4.20 Insurance.
(a) Part 4.20(a) of the Disclosure Schedule lists the
Company's insurance policies or policies otherwise maintained for the direct or
indirect benefit of, the Company. Such list shall contain a brief description of
the coverage limits of the policies listed, including, without limitation, any
self-insurance or deductible amounts and the limits of the policy.
Part 4.20(a) of the Disclosure Schedule also identifies (A) any pending
application for insurance that has been submitted by or on behalf of the
Company, (B) each self-insurance or risk-sharing arrangement affecting the
Company or any of its assets, and (C) any pending claims with respect to such
policies. The Company has delivered or made available to the Purchaser accurate
and complete copies of all of the insurance policies identified in Part 4.20(a)
of the Disclosure Schedule (including all renewals thereof and endorsements
thereto) and all of the pending applications identified in Part 4.20(a) of the
Disclosure Schedule.
(b) Each of the policies identified in Part 4.20(a) of the
Disclosure Schedule is valid, enforceable and in full force and effect and not
subject, to the Knowledge of Company and KFx, to any actual or possible
cancellation of such policy. The nature, scope and dollar amounts of the
insurance coverage provided by said policies are sufficient to adequately insure
the Company's business, assets, operations, key employees, services and
potential liabilities. Except as set forth in Part 4.20(b) of the Disclosure
Schedule, the Company has paid all premiums due, and has otherwise performed all
of its obligations, under each policy to which it is a party or that provides
coverage to it or any of its directors or officers in connection with their
performance of services to the Company.
4.21 Related Party Transactions. Except as set forth in Part 4.21 of
the Disclosure Schedule and except for transactions entered into in the Ordinary
Course of Business and on arms-length terms and conditions, to the Knowledge of
the Company and KFx:
(a) no Related Party has, and no Related Party has at any time
since December 31, 1999, had, any direct or indirect (other than KFx and the
Radl Group solely by virtue of their ownership of the issued and outstanding
capital stock of the Company) interest of any nature in any asset used in or
otherwise relating to the business of the Company;
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(b) no Related Party is, or has at any time since December 31,
1999, been, indebted to the Company;
(c) since December 31, 1999, no Related Party has entered
into, or has had any direct or indirect financial interest in, any Contract,
transaction or business dealing of any nature involving the Company;
(d) no Related Party is competing, or has at any time since
December 31, 1999, competed, directly or indirectly, with the Company in any
market served by the Company;
(e) no Related Party has any claim or right against the
Company; and
(f) no event has occurred, and no condition or circumstance
exists, that would reasonably be expected (with or without notice or lapse of
time) to, directly or indirectly, give rise to or serve as a basis for any claim
or right in favor of any Related Party against the Company.
4.22 Absence of Changes. Except as set forth in Part 4.22 of the
Disclosure Schedule, since December 31, 1999, to the Knowledge of the Company
and KFx:
(a) there has not been any material adverse change in the
Company's business, financial condition, or results of operations, and no event
has occurred that would reasonably be expected to have a material adverse effect
on the Company's business, financial condition, or results of operations;
(b) the Company has not (i) declared, accrued, set aside or
paid any dividend or made any other distribution in respect of any shares of
capital stock, or (ii) repurchased, redeemed or otherwise reacquired any shares
of capital stock or other securities;
(c) the Company has not sold or otherwise issued any shares of
capital stock or any other securities, except for the grant of options under the
Existing Plan or pursuant to the exercise of the Outstanding Options in
accordance with their terms;
(d) the Company has not amended its articles of incorporation
or bylaws, other than as anticipated herein, and has not effected or been a
party to any Acquisition Transaction, recapitalization, reclassification of
shares, stock split, reverse stock split or similar transaction;
(e) the Company has not purchased or otherwise acquired any
asset with a purchase price in excess of $25,000 from any other Person, except
for purchases made in the Ordinary Course of Business;
(f) the Company has not leased or licensed any asset from any
other Person worth in excess of $25,000;
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(g) the Company has not made any capital expenditure in excess
of $25,000;
(h) the Company has not sold or otherwise transferred, and has
not leased or licensed, any material asset to any other Person except in the
Ordinary Course of Business;
(i) the Company has not written off as uncollectible, or
established any extraordinary reserve with respect to, any account receivable or
other indebtedness in excess of $25,000;
(j) the Company has not pledged or hypothecated any of its
material assets or otherwise permitted any of its material assets to become
subject to any Encumbrance;
(k) the Company has not made any material loan or advance to
any other Person (other than advances to employees for travel or business
expenses in the Ordinary Course of Business);
(l) the Company has not (i) established or adopted any
Employee Benefit Plan, or (ii) other than in the Ordinary Course of Business,
paid any bonus or made any profit sharing or similar payment to, or increased
the amount of the wages, salary, commissions, fringe benefits or other
compensation or remuneration payable to, any of its directors, officers or
employees;
(m) the Company has not increased the compensation of any of
its officers, or the rate of pay of its employees as a group, except as part of
regular compensation increases in the Ordinary Course of Business;
(n) there has been no resignation or termination of employment
of any officer or key employee of the Company;
(o) there has been no labor dispute involving the Company or
its employees and none is pending or, to the Knowledge of the Company and KFx,
threatened;
(p) the Company has not incurred, assumed or otherwise become
subject to any Liability, other than accounts payable (of the type required to
be reflected as current liabilities in the "liabilities" column of a balance
sheet prepared in accordance with GAAP) incurred by the Company in the Ordinary
Course of Business;
(q) the Company has not discharged any Encumbrance or
discharged or paid any indebtedness or other Liability, except for accounts
payable that have been incurred by the Company since December 31, 1999, in the
Ordinary Course of Business, and Liabilities that have been discharged or paid
in the Ordinary Course of Business;
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(r) the Company has not forgiven any debt in excess of $25,000
or otherwise released or waived any material right or claim;
(s) the Company has not changed any of its methods of
accounting or accounting practices in any material respect;
(t) the Company has not taken any action outside the Ordinary
Course of Business; and
(u) the Company has not agreed, committed or offered (in
writing or otherwise), and has not attempted, to take any of the actions
referred to in clauses "(c)" through "(t)" above.
4.23 Reorganization Transaction. The Agreement, dated December 13,
1999, by and between KFx and the Radl Group (the "PTI AGREEMENT"), and the other
agreements referenced therein and executed in connection with the consummation
of the transaction therein contemplated (together with the PTI Agreement, the
"RESTRUCTURING AGREEMENTS"), are valid and binding obligations and in full force
and effect, and are enforceable in accordance with their terms, except as such
enforceability may be limited by applicable Legal Requirements relating to
bankruptcy or creditors' rights generally. KFx is not in default under any of
the Restructuring Agreements and has not violated or breached, or declared or
committed any default thereunder and, to the Knowledge of the Company and KFx,
the Radl Group is not in default under the Restructuring Agreements nor has it
violated or breached or declared a default thereunder. No event has occurred,
and no circumstance or condition exists, that would reasonably be expected (with
or without notice or lapse of time) to (A) result in a violation or breach of
any of the provisions of any of the Restructuring Agreements or (B) give any
person the right to cancel, terminate or modify any of the Restructuring
Agreements. All transfers of equity interests set forth in the Restructuring
Agreements are valid, in full force and effect, and enforceable in accordance
with their terms and the Company has the full benefit of all material contracts
and agreements to which Net Power Solutions, LLC, a Delaware limited liability
company, and Pegasus Technologies Limited, an Ohio limited liability company,
were parties prior to the transactions contemplated by the Restructuring
Agreements. KFx and the Radl Group, individually and collectively, have fully
performed all of their respective covenants and obligations set forth in the
Restructuring Agreements; provided, however, that if performance was required
prior to the date of this Agreement, the obligations set forth in Sections 6.1.3
and 6.2.3 of the PTI Agreement have not been fully performed.
4.24 Benefit Plans; ERISA.
(a) Part 4.24 of the Disclosure Schedule lists (i) all
Employee Benefit Plans, (ii) all employment agreements, including, but not
limited to, any individual benefit arrangement, policy or practice with respect
to any current or former employee or director of the Company or Member of the
Controlled Group, and (iii) all other employee benefit, bonus or other incentive
compensation, stock option, stock purchase, stock
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appreciation, severance pay, lay-off or reduction in force, change in control,
sick pay, vacation pay, salary continuation, retainer, leave of absence,
educational assistance, service award, employee discount, fringe benefit plans,
arrangements, policies or practices, whether legally binding or not, to which
the Company or any Member of the Controlled Group or which KFx on behalf of the
Company, maintains, contributes to or has any obligation to or liability for
with respect to Company employees (collectively, the "PLANS").
(b) None of the Company or any Member of the Controlled Group
has ever contributed to, or ever been obligated to contribute to, a
Multiemployer Plan.
(c) The Company does not maintain or contribute to any welfare
benefit plan that provides health benefits to an employee after the employee's
termination of employment or retirement except as required under Section 4980B
of the Code and Sections 601 through 608 of ERISA.
(d) Each Plan that is an Employee Benefit Plan complies by its
terms and in operation in all material respects with the requirements provided
by any and all statutes, Orders or governmental rules or regulations currently
in effect and applicable to such Plan, including but not limited to ERISA and
the Code. In particular, the SAR/SEP sponsored by the Company complies with all
participation, nondiscrimination and vesting requirements of Section 408(k)(6)
of the Code.
(e) All reports, forms and other documents required to be
filed with any Government Body with respect to any Plan (including summary plan
descriptions, Forms 5500 and summary annual reports) have been timely filed and
are accurate in all material respects.
(f) None of the Plans is, nor has the Company or any Member of
the Controlled Group ever maintained or contributed to a Plan that was, intended
to qualify under Section 401(a) of the Code.
(g) All contributions for all periods ending prior to the
Closing Date (including periods from the first day of the current plan year to
the Closing Date) have been made prior to the Closing Date by the Company in
accordance with past practice and the recommended contribution in any applicable
actuarial report, except for amounts not yet required to be contributed.
(h) All insurance premiums have been paid in full, subject
only to normal retrospective adjustments in the ordinary course, with regard to
the Plans for plan years ending on or before the Closing Date.
(i) With respect to each Plan:
(i) no prohibited transactions (as defined in Section
406 or 407 of ERISA or Section 4975 of the Code) have occurred for
which a statutory exemption is not available;
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(ii) no action or claims (other than routine claims
for benefits made in the ordinary course of Plan administration for
which Plan administrative review procedures have not been exhausted)
are pending, threatened or imminent against or with respect to the
Plan, any employer who is participating (or who has participated) in
any Plan or any fiduciary (as defined in Section 3(21) of ERISA), of
the Plan;
(iii) neither the Company nor KFx has any Knowledge
of any facts that could give rise to any such action or claim; and
(iv) it provides that it may be amended or terminated
at any time and, except for previously accrued benefits protected, all
benefits payable to current, terminated employees or any beneficiary
may be amended or terminated by the Company at any time without
liability.
(j) All of the Plans, to the extent applicable, are in
compliance with the continuation of group health coverage provisions contained
in Section 4980B of the Code and Section 601 through 608 of ERISA.
(k) True, correct and complete copies of all documents
creating or evidencing any Plan have been made available to the Purchaser, and
true, correct and complete copies of all reports, forms and other documents
required to be filed with any governmental entity (including summary plan
descriptions, Forms 5500 and summary annual reports for all plans subject to
ERISA) have been made available to the Purchaser. There are no negotiations,
demands or proposals that are pending or have been made which concern matters
now covered, or that would be covered, by the type of agreements listed in Part
4.24 of the Disclosure Schedule.
(l) All expenses and liabilities relating to all of the Plans
have been fully and properly accrued on the Company's books and records and
disclosed in accordance with GAAP and in Plan financial statements.
4.25 Full Disclosure.
(a) Neither this Agreement (including all Schedules and
Exhibits hereto) nor any of the Transaction Agreements contains or will contain
any untrue statement of fact; and none of such documents, when taken together,
omits or will omit to state any fact necessary to make any of the
representations, warranties or other statements or information contained therein
not misleading.
(b) All of the information set forth in the Disclosure
Schedule, and all other information regarding the Company and its business,
financial condition or results of operations that has been furnished to the
Purchaser by or on behalf of the Company or KFx or any of their respective
Representatives, when taken together, is accurate and complete in all material
respects.
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(c) The Company and KFx have provided the Purchaser and their
respective Representatives with full and complete access to all of the Company's
records and other documents and data.
4.26 Affiliated Assets. Part 4.26 of the Disclosure Schedule lists all
assets, including all licenses, rights associated with any Contracts or
Proprietary Assets held by any Affiliate of the Company that are either (a)
currently used in the Company's business or services or (b) contemplated in the
Business Plan to be used in the Company's business or services (the "AFFILIATED
ASSETS").
4.27 KFx Organization, Good Standing and Qualification. KFx is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. KFx has all requisite corporate power and authority to
own and operate its properties and assets, and to carry on its business as
presently conducted and as presently proposed to be conducted. KFx has all
requisite power and authority (a) to execute and deliver (i) this Agreement,
(ii) the Stockholders Agreement, and (iii) the Put Agreement attached hereto as
Exhibit E (the "PUT AGREEMENT"), (b) to sell Common Shares and (c) to carry out
the other provisions of this Agreement, the Stockholders Agreement and the Put
Agreement.
4.28 KFx Authorization; Binding Obligations. All corporate action on
the part of KFx, its officers, directors and stockholders necessary for the
authorization of this Agreement, the Stockholders Agreement and the Put
Agreement, and for the performance of all obligations of the Company hereunder
and thereunder and for the delivery of the Common Shares has been taken or will
be taken prior to the Closing. This Agreement, the Stockholders Agreement and
the Put Agreement constitute, or upon execution and delivery will constitute,
valid and binding obligations of KFx enforceable in accordance with their terms,
except as such enforceability may be limited by applicable Legal Requirements
relating to bankruptcy or creditors' rights generally.
4.29 Ownership of Common Shares. KFx is the record and beneficial owner
of the Common Shares. KFx owns and holds, and will on the Closing Date own, hold
and pass on to the Purchaser, good and valid title to the Common Shares, free
and clear of all Encumbrances. KFx has full right and power to sell, assign,
exchange, transfer and deliver the Common Shares to the Purchaser as provided in
this Agreement.
4.30 KFx Non-Contravention; Consents. Neither the execution and
delivery of this Agreement, the Stockholders Agreement or the Put Agreement, nor
the consummation or performance of any of the transactions contemplated herein
or therein, will directly or indirectly (with or without notice or lapse of
time):
(a) contravene, conflict with or result in a violation of (i)
any of the provisions of KFx's certificate of incorporation or bylaws, or (ii)
any resolution adopted by KFx's stockholders, KFx's board of directors or any
committee of KFx's board of directors;
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(b) contravene, conflict with or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
transactions contemplated herein or therein or to exercise any remedy or obtain
any relief under, any Legal Requirement or any Order to which KFx, or any of the
assets owned or used by KFx, is subject;
(c) contravene, conflict with or result in a violation of any
of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by KFx and that relates to the Company's business or
to any of the assets owned or used by the Company;
(d) except for the consent of Thermo Ecotek Corporation which
is required in connection with the transactions contemplated hereby and pursuant
to a Contract between KFx and Thermo Ecotek Corporation, contravene, conflict
with or result in a violation or Breach of, or result in a default under, any
provision of any material Contract binding upon KFx or by which any of the
assets of KFx are bound; or
(e) result in the imposition or creation of any Encumbrance on
the Common Shares.
4.31 KFx Debt. As of December 31, 1999, the debt owed by the Company or
its Affiliates (including Net Power Solutions, LLC, a Delaware limited liability
company, and Pegasus Technologies Limited, an Ohio limited liability company) to
KFx (including principal and accrued interest, the "KFx DEBT") had a total
balance of $3,629,775.
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company and KFx as
follows:
5.01 Organization and Good Standing. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Purchaser has all requisite power and authority (a) to
execute and deliver (i) this Agreement, (ii) the Stockholders Agreement, (iii)
the Marketing Services Agreement, and (iv) the Put Agreement, and (b) to carry
out the other provisions of this Agreement, the Stockholders Agreement , the
Marketing Services Agreement and the Put Agreement.
5.02 Requisite Power and Authority. The Purchaser has the absolute and
unrestricted right, power and authority to enter into and to perform its
obligations under this Agreement and the Transaction Agreements, and the
execution, delivery and performance by the Purchaser of this Agreement and the
Transaction Agreements, and the consummation or performance of the transactions
contemplated herein and therein, have been duly authorized by all necessary
action on the part of the Purchaser. Each of this Agreement and the Transaction
Agreements constitutes, or upon execution and delivery will constitute, the
legal, valid and binding obligation of the Purchaser, enforceable
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against the Purchaser in accordance with its terms, except as such
enforceability may be limited by applicable Legal Requirements relating to
bankruptcy or creditors' rights generally.
5.03 Non Contravention. Neither the execution and delivery of this
Agreement or any other Transaction Agreement, nor the consummation or
performance of any of the transactions contemplated herein or therein, will
directly or indirectly contravene, conflict with or result in a violation of (i)
any of the provisions of the Purchaser's articles of incorporation, bylaws,
partnership agreement or other document of governance, as applicable, or (ii)
any resolution adopted by the Purchaser's stockholders, the Purchaser's board of
directors or any committee of the Purchaser's board of directors or the
Purchaser's investment committee or other governing body, as applicable.
5.04 Investment Representations. The Purchaser understands that neither
the Preferred Shares, the Common Shares nor the Conversion Shares have been
registered under the Securities Act. The Purchaser also understands that the
Preferred Shares and the Common Shares are being offered and sold pursuant to an
exemption from registration contained in the Securities Act based in part upon
the Purchaser's representations contained in this Agreement.
(a) Purchaser Bears Economic Risk. The Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests. Except for the rights of the
Purchaser under the Put Agreement, the Purchaser shall bear the economic risk of
this investment indefinitely unless the Common Shares or the Preferred Shares
(or the Conversion Shares) are registered pursuant to the Securities Act, or an
exemption from registration is available. Except as contemplated by the
Stockholders Agreement, the Purchaser understands that the Company has no
present intention of registering the Preferred Shares, the Conversion Shares or
any shares of its Common Stock (including the Common Shares). The Purchaser also
understands that there is no assurance that any exemption from registration
under the Securities Act will be available and that, even if available, such
exemption may not allow the Purchaser to transfer all or any portion of the
Preferred Shares, the Common Shares or the Conversion Shares under the
circumstances, in the amounts or at the times the Purchaser might propose.
(b) Acquisition for Own Account. The Purchaser is acquiring
the Preferred Shares, the Common Shares and the Conversion Shares for its own
account for investment only, and not with a view towards their distribution in
violation of applicable securities laws.
(c) Purchaser Can Protect Its Interest. By reason of its or of
its management's business or financial experience, the Purchaser has the
capacity to protect its own interests in connection with the transactions
contemplated by this Agreement. Further, the Purchaser is aware of no
publication of any advertisement in connection with the transactions
contemplated by this Agreement.
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(d) Accredited Investor. The Purchaser represents that it is
an "accredited investor" within the meaning of Regulation D under the Securities
Act.
(e) Company Information. The Purchaser has had an opportunity
to discuss the Company' s business, management and financial affairs with
directors, officers and management of the Company. The Purchaser has also had
the opportunity to ask questions of, and receive answers from, the Company and
its management regarding the terms and conditions of this investment.
(f) Rule 144. Except for the rights of the Purchaser under the
Put Agreement, the Purchaser acknowledges and agrees that the Common Shares, the
Preferred Shares and the Conversion Stock must be held indefinitely unless they
are subsequently registered under the Securities Act or an exemption from such
registration is available. The Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being through an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934, as amended) and the number of
shares being sold during any three-month period not exceeding specified
limitations.
5.05 Consents. All Consents, approvals, Orders, or authorizations of,
or registration, qualification, designation, declaration or filing with any
Governmental Body or banking authority required on the part of the Purchaser in
connection with the consummation of the transactions contemplated in this
Agreement have been or shall have been obtained prior to and shall be effective
as of the Closing.
6. COVENANTS OF THE COMPANY AND KFx
6.01 Access and Investigation. The Company and KFx shall each use its
Best Efforts to ensure that, at all times during the Pre-Closing Period:
(a) the Company and KFx and their respective Representatives
provide the Purchaser and its Representatives with reasonable access to the
Company's Representatives, personnel and assets and to all existing books,
records, Tax Returns, work papers, Company Contracts and other documents and
information relating to the Company;
(b) the Company and KFx and their respective Representatives
provide the Purchaser and its Representatives with such copies of existing
books, records, Tax Returns, work papers and other documents and information
relating to the Company as the Purchaser may request in good faith; and
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(c) the Company and KFx and their respective Representatives
compile and provide the Purchaser and its Representatives with such additional
financial, operating and other data and information regarding the Company as the
Purchaser or its Representatives may request in good faith.
6.02 Operation of Business. The Company and KFx shall each use its Best
Efforts to ensure that, during the Pre-Closing Period:
(a) the Company conducts its operations exclusively in the
Ordinary Course of Business and in the same manner as such operations have been
conducted prior to the date of this Agreement;
(b) except as contemplated by Sections 6.1.3 and 6.2.3 of the
PTI Agreement, the Company preserves intact its current business organization
and maintains its relations and good will with all suppliers, customers,
landlords, creditors, licensors, licensees, employees and other Persons having
business relationships with the Company;
(c) the Company keeps in full force all insurance policies
identified in Part 4.20(a) of the Disclosure Schedule;
(d) the Company's officers confer regularly with the Purchaser
concerning operational matters and otherwise report regularly to the Purchaser
concerning the status of the Company's business, condition, assets, liabilities,
operations, financial performance and prospects;
(e) the Company immediately notifies the Purchaser of any
inquiry, proposal or offer from any Person relating to any Acquisition
Transaction;
(f) the Company does not declare, accrue, set aside or pay any
dividend or make any other distribution in respect of any shares of capital
stock, and does not repurchase, redeem or otherwise reacquire any shares of
capital stock or other securities (except as expressly contemplated by this
Agreement);
(g) the Company does not sell or otherwise issue any shares of
capital stock or any other securities, other than pursuant to the exercise of
the Outstanding Options or the granting of new options under the Existing Plan;
(h) the Company does not amend its articles of incorporation
or bylaws (except as expressly contemplated by this Agreement), and does not
effect or become a party to any Acquisition Transaction, recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transaction (other than in connection with the transactions contemplated by this
Agreement and the Transaction Agreements);
(i) the Company does not form any subsidiary (other than the
formation of NPS, LLC as contemplated by Section 7.10) or acquire any equity
interest or other interest in any other Entity;
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(j) the Company does not make any capital expenditure, except
for capital expenditures that are made in the Ordinary Course of Business, and
that, when added to all other capital expenditures made on behalf of the Company
during the Pre-Closing Period, do not exceed $25,000 in the aggregate;
(k) the Company does not enter into or permit any of the
assets owned or used by the Company to become bound by any Material Contract,
except for any Excluded Contract and any Contract entered into in the Ordinary
Course of Business;
(l) the Company does not incur, assume or otherwise become
subject to any material Liability, except for current Liabilities (of the type
required to be reflected in the "liabilities" column of a balance sheet prepared
in accordance with GAAP) incurred in the Ordinary Course of Business and
Liabilities to KFx;
(m) the Company does not establish or adopt any Employee
Benefit Plan, and, except in the Ordinary Course of Business, does not pay any
bonus or make any profit sharing or similar payment to, or increase the amount
of the wages, salary, commissions, fringe benefits or other compensation or
remuneration payable to, any of its directors, officers or employees;
(n) the Company does not change any of its methods of
accounting or accounting practices in any material respect;
(o) the Company does not make any material Tax election;
(p) the Company promptly notifies the Purchaser following the
commencement of any material Proceeding involving or in any way relating to the
Company;
(q) the Company does not enter into any transaction or take
any other action of the type referred to in Section 4.22;
(r) the Company does not enter into any transaction or take
any other action outside the Ordinary Course of Business;
(s) the Company does not enter into any transaction or take
any other action that might cause or constitute a Breach of any representation
or warranty made by the Company or KFx in this Agreement; and
(t) the Company does not agree, commit or offer (in writing or
otherwise), and does not attempt, to take any of the actions described in
clauses "(f)" through "(s)" of this Section 6.02.
6.03 Filings and Consents. The parties shall use their Best Efforts to
ensure that:
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(a) each filing or notice required to be made or given
(pursuant to any applicable Legal Requirement, Order or Material Contract, or
otherwise) any such party in connection with the execution and delivery of this
Agreement or any of the Transaction Agreements or in connection with the
consummation or performance of any of the transactions contemplated herein or
therein is made or given as soon as possible after the date of this Agreement;
(b) each Consent required to be obtained (pursuant to any
applicable Legal Requirement, Order or Material Contract, or otherwise) by each
such party in connection with the execution and delivery of this Agreement or
any of the Transaction Agreements or in connection with the consummation or
performance of any of the transactions contemplated herein or therein (including
each of the Consents identified in Part 4.05(j) of the Disclosure Schedule) is
obtained as soon as possible after the date of this Agreement and remains in
full force and effect through the Closing Date;
(c) a copy of each filing made, each notice given and each
Consent obtained by such party during the Pre-Closing Period is promptly made
available to the other parties; and
(d) during the Pre-Closing Period, their respective
Representatives cooperate with the other parties, and prepare and make available
such documents and take such other actions as the other parties may request in
good faith, in connection with any filing, notice or Consent that the other
parties are required or elect to make, give or obtain.
6.04 Notification; Updates to Disclosure Schedule.
(a) During the Pre-Closing Period, the Company and KFx shall
promptly notify the Purchaser, and the Purchaser shall promptly notify the
Company and KFx, in writing of:
(i) the discovery of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes a Breach of any representation
or warranty made by any party in this Agreement;
(ii) any event, condition, fact or circumstance that
occurs, arises or exists after the date of this Agreement and that
would cause or constitute a Breach of any representation or warranty
made by a party in this Agreement if (A) such representation or
warranty had been made as of the time of the occurrence, existence or
discovery of such event, condition, fact or circumstance, or (B) such
event, condition, fact or circumstance had occurred, arisen or existed
on or prior to the date of this Agreement;
(iii) any party's Breach of any covenant or
obligation set forth in this Agreement; and
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(iv) any event, condition, fact or circumstance that
may make the timely satisfaction of any of the conditions set forth in
Article 7 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is
required to be disclosed pursuant to Section 6.04(a) requires any change in the
Disclosure Schedule, or if any such event, condition, fact or circumstance would
require such a change assuming the Disclosure Schedule were dated as of the date
of the occurrence, existence or discovery of such event, condition, fact or
circumstance, then the Company and KFx shall promptly deliver to the Purchaser
an update to the Disclosure Schedule specifying such change. No such update
shall be deemed to supplement or amend the Disclosure Schedule for the purpose
of (i) determining the accuracy of any of the representations and warranties
made by the Company or KFx in this Agreement, or (ii) determining whether any of
the conditions set forth in Article 7 has been satisfied; provided, however,
that they shall be deemed an amendment to the Disclosure Schedule for purposes
of Article 9 hereof. In addition, the Company and KFx and their respective
Representatives shall provide the Purchaser and its Representatives with (i) any
additional documents and information responsive to a request of the Purchaser
that becomes available subsequent to the Company's or KFx's response to such
request and (ii) any documents or information that become available that modify,
update or supplement any documents or other information already provided to the
Purchaser , in each case as promptly as reasonably practicable after such
additional information, documents or materials become available.
6.05 Indebtedness of Related Parties. Except for the KFx Debt (which is
addressed in the succeeding sentence), the Company and KFx shall cause all
indebtedness and other Liabilities of each Related Party to the Company
(including any such indebtedness or other Liability identified in Part 4.21 of
the Disclosure Schedule, but excluding travel advances to employees of the
Company in the Ordinary Course of Business) to be discharged and paid in full
prior to the Closing. In the case of the KFx Debt, the balance of the KFx Debt
as of December 31, 1999 shall be converted into shares of Series A Preferred
Stock at the Preferred Per Share Price and the amount of the KFx Debt as of the
Closing Date in excess of the balance thereof as of December 31, 1999 shall
remain a Liability of the Company.
6.06 No Negotiation. The Company and KFx shall ensure that, during the
Pre-Closing Period, none of the Company, KFx or any of the Company's or KFx's
Representatives directly or indirectly shall, without the Purchaser's prior
written consent (which shall not be unreasonably withheld):
(a) solicit or encourage the initiation of any inquiry,
proposal or offer from any Person (other than the Purchaser and those Persons
listed on Part 4.03(b) of the Disclosure Schedule) relating to any Acquisition
Transaction;
(b) participate in any discussions or negotiations with, or
provides any non-public information to, any Person (other than the Purchaser and
those Persons listed on Part 4.03(b) of the Disclosure Schedule) relating to any
Acquisition Transaction; or
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(c) consider the merits of any unsolicited inquiry, proposal
or offer from any Person (other than the Purchaser and those Persons listed on
Part 4.03(b) of the Disclosure Schedule) relating to any Acquisition
Transaction.
6.07 Best Efforts. During the Pre-Closing Period, the Company and KFx
shall use their respective Best Efforts to cause the conditions set forth in
Article 7, and the Purchaser shall use its Best Efforts to cause the conditions
set forth in Article 8, to be satisfied on a timely basis, and shall not take
any action or omit to take any action, the taking or omission of which would or
could reasonably be expected to result in any of the representations and
warranties set forth in this Agreement becoming untrue, in any of the conditions
of Closing set forth in Article 7 or Article 8, as the case may be, not being
satisfied or in the business of the Company becoming materially less valuable.
6.08 Confidentiality. The Company, the Purchaser, and KFx shall ensure
that, during the Pre-Closing Period:
(a) the Company, the Purchaser, KFx and their respective
Representatives and Affiliates keep strictly confidential the existence and
terms of this Agreement, except as otherwise required by any applicable Legal
Requirement or by the terms of this Agreement;
(b) none of the Company, the Purchaser, KFx or any of their
respective Representatives issues or disseminates any press release or other
publicity or otherwise makes any disclosure of any nature (to any of the
Company's suppliers, customers, landlords, creditors or employees or to any
other Person) regarding any of the transactions contemplated herein, except to
the extent that such party is required by law to make any such disclosure
regarding the transactions contemplated herein; and
(c) if the Company, KFx, the Purchaser or any of their
Affiliates is required by law to make any disclosure regarding the transactions
contemplated herein, such party advises the other parties, at least five
business days (to the extent practicable) before making such disclosure, of the
nature and content of the intended disclosure.
6.09 Stock Option Plan. The Company and KFx shall ensure that prior to
the Closing:
(a) the Company takes all necessary and appropriate steps to
assure that all outstanding options under the Existing Plan have been issued in
compliance with applicable Legal Requirements and to take and complete all
appropriate corrective measures to the satisfaction of Purchaser with respect to
any options that have not been issued in compliance therewith; and
(b) the Company shall not grant any options (or commit to
grant any options) to purchase shares in the Company except under the Existing
Plan, it being understood that such options shall be granted or committed solely
(i) in connection with recruitment of new employees to the Company and (ii) if
such options have an exercise
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price equal to the fair market value of each share of the Common Stock for which
such options are exercisable as of the date of the grant.
6.10 Approval of Certificate of Designation; Authorization of Preferred
Shares. The Company and KFx shall ensure that during the Pre-Closing Period:
(a) the Company approves or adopts, as applicable, by all
necessary further action of its board of directors and stockholders, the
Certificate of Designation and KFx shall vote its shares and execute and deliver
or cause to be executed and delivered any instruments, certificates, actions by
written Consent of stockholders or other documents or take such other actions
(or refrain from taking such actions) as may reasonably be required for the
purposes of approving the adoption of the Certificate of Designation;
(b) the Company authorizes, by all necessary further action of
its board of directors and stockholders, the sale and issuance to the Purchaser
of the Preferred Shares and the issuance and reservation of the Conversion
Shares to be issued upon conversion of the Preferred Shares; and
(c) the Preferred Shares and the Conversion Shares authorized
by the Company's board of directors and stockholders have the rights,
preferences, privileges and restrictions set forth in the Certificate of
Designation.
6.11 Affiliated Assets. The Affiliated Assets shall either (a) be
assigned to the Company or (b) the Company shall obtain rights from the
applicable Affiliate sufficient to allow the Company to enjoy full use the
Affiliated Assets for the conduct of its business and the provision of its
services, which rights shall be satisfactory to the Purchaser in its sole
discretion.
6.12 Unconverted KFx Debt. Within 45 days after the Closing Date, the
Company and KFx shall deliver to the Purchaser a detailed summary of the amount
of the KFx Debt as of the Closing Date. The portion of such KFx Debt that is not
converted into Series A Preferred Stock of the Company in accordance with
Section 7.13 hereof shall be evidenced by a promissory note of the Company to
KFx, which note shall (i) be payable solely out of the excess cash flow (meaning
the cash flow of the Company in excess of its operating expenses) of the
Company, (ii) bear interest at the rate of six percent (6%) per annum, and (iii)
be in form reasonably satisfactory to the Purchaser.
6.13 Operating Budget. Within 30 days after the Closing Date, the
Company shall deliver to the Purchaser a final operating budget for the years
2000 and 2001, which operating budget shall be reasonably satisfactory to the
Purchaser and, following the Purchaser's approval thereof, shall be presented to
the board of directors of the Company for approval.
6.14 Service Marks. Following the Closing, KFx shall diligently
complete the prosecution of the service marks for "Net Power Solutions" (Serial
No. 75/546,801) and
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"Energy Solutions for the Environment" (Serial No. 75/632,167) (together, the
"SERVICE MARKS") and shall bear all costs and expenses associated therewith.
Promptly upon the receipt by KFx of the Service Marks or either of them, KFx
shall irrevocably assign all of its right, title and interest in such Service
Mark(s) to the Company without any further consideration and the Company shall
grant to KFx, on terms reasonably acceptable to the board of directors of the
Company, a non-exclusive license to utilize the Service Marks or either of them
in the business of KFx so long as such use does not conflict with the business
or operations of the Company.
6.15 Computer Associates International, Inc. Within 30 days after the
Closing Date, the Company shall cause Net Power Solutions, LLC to assign to the
Company all of the right, title and interest of Net Power Solutions, LLC in, to
and under that certain Computer Associates International, Inc. Reseller
Agreement (CA Agreement No. 569117-001) between Computer Associates
International, Inc. and Net Power Solutions, Inc. (sic), dated July 31, 1998
from Net Power Solutions, LLC. To the extent required in connection with such
assignment, the Company shall use its Best Efforts to obtain the consent of
Computer Associates International, Inc.
7. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
The obligation of the Purchaser to purchase and pay for the Closing
Date Preferred Shares and the Common Shares shall be subject to the satisfaction
(or waiver by the Purchaser) of the following conditions as of the Closing Date:
7.01 Representations and Warranties. The representations and warranties
of the Company and KFx contained in this Agreement shall be (i) in the case of
representations and warranties qualified by materiality or material adverse
effect or the like, true and correct on and as of the Closing Date, and (ii) in
the case of representations and warranties not qualified by materiality or
material adverse effect or the like, true and correct in all material respects
as of the Closing Date.
7.02 Execution of Agreements. Concurrent with the Closing, (a) the
Company, the Purchaser and the existing stockholders of the Company shall have
executed and delivered the Stockholders Agreement; (b) the Purchaser, the
Company and the Marketing Entity shall have executed and delivered the Marketing
Services Agreement; and (c) the Purchaser and KFx shall have executed and
delivered the Put Agreement.
7.03 Certificate of Designation. Prior to or concurrent with the
Closing, the Company shall have filed the Certificate of Designation with the
Secretary of State of the State of South Dakota and shall have delivered a
certified copy of such Certificate of Designation to the Purchaser.
7.04 Satisfactory Completion of Pre-Investment Review. The Purchaser
shall have completed its pre-investment investigation and review of the
Company's business, financial condition, or results of operations including,
without limitation, confirmation that (i) the Company is entitled to use any
updates, upgrades, improvements or
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enhancements of any software or intellectual property rights necessary to
develop and use NeuSIGHT, and (ii) the key employees of the Company are subject
to written employment and proprietary rights agreements in favor of the Company,
and shall be satisfied in its sole discretion with the results of such
investigation and review.
7.05 Business Plan. The Company, KFx and the Purchaser shall have
prepared and each shall have approved (a) a strategic working program and
business plan of the Company (which, among other things, shall set forth a
conceptual framework for the goals and objectives of the Company's development
of NeuSIGHT) (the "INITIAL WORK PROGRAM"), (b) a supplement to the Initial Work
Program (consistent with the supplements contemplated by clause (B) of Section
2.03(b)(ii)) for the funding associated with the purchase of the Closing Date
Preferred Shares or any Additional Preferred Shares (the "SUPPLEMENTAL WORK
PROGRAM"), and (c) a draft of the operating budget of the Company for 2000 and
2001.
7.06 Consents, Permits, Waivers and Approvals. Any Consents required
for the transactions contemplated hereunder under any Company Contracts shall
have been obtained.
7.07 Reservation of Conversion Shares. The Company shall have duly
authorized and reserved sufficient shares of Common Stock for issuance of the
Conversion Shares.
7.08 All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company and KFx in connection with the
transactions contemplated hereby and all documents incident thereto shall be
satisfactory in form and substance to the Purchaser and its counsel, and the
Purchaser and its counsel shall have received all such counterpart originals or
certified or other copies of such documents as they reasonably may request.
7.09 Corporate Documents. The Purchaser and its counsel shall have
received copies of the following documents:
(a)(i)the Articles of Incorporation of the Company, certified
as of a recent date by the Secretary of State of their state of incorporation,
and (ii) a certificate of said Secretary dated as of a recent date as to the due
incorporation and good standing of the Company.
(b) a certificate of the Secretary or an Assistant Secretary
of the Company, dated the Closing Date and certifying: (i) that attached thereto
is a true and complete copy of the Bylaws of the Company, as in effect on the
date of such certification; (ii) that attached thereto is a true and complete
copy of all resolutions adopted by the Board of Directors of the Company,
authorizing the execution, delivery and performance of this Agreement, and the
Transaction Agreement, to the extent they are a party to such agreements, and
the relevant sale and delivery contemplated hereby, and that all such
resolutions are in full force and effect and are all the resolutions adopted
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in connection with the transactions contemplated by this Agreement, and the
Stockholder Agreement; (iii) that the Articles of Incorporation of the Company,
have not been amended since the date of the last amendment referred to in the
certificate delivered pursuant to clause (b)(ii) above; and (iv) to the
incumbency and specimen signature of each officer of the Company, executing this
Agreement, the Transaction Agreement, and any certificate or instrument
furnished pursuant hereto, and a certification by another officer of the
Company, as to the incumbency and signature of the officer signing the
certificate referred to in this clause (b); and
(c) such additional supporting documents and other information
with respect to the operations and affairs of the Company as the Purchaser or
its counsel reasonably may request.
7.10 Formation of Marketing Entity. The parties shall have mutually
agreed upon Articles of Organization and an Operating Agreement for Net Power
Solutions, LLC (the "MARKETING ENTITY"), a newly formed Colorado limited
liability company to be owned 50% by the Purchaser and 50% by the Company, and
the Articles of Organization shall have been filed with the Secretary of State
of the State of Colorado.
7.11 Election of Directors. The number of directors constituting the
entire Board of Directors of the Company shall have been fixed at five (5) and
the Purchaser's designee shall have been elected as a director and shall hold
such position as of the Closing Date.
7.12 Release of Lien. KFx shall have released any and all liens held by
it or for its benefit on any Proprietary Asset owned or used by the Company.
7.13 Conversion of Debt. The balance of the KFx Debt as of December 31,
1999 shall have been converted into 3,396,377 shares of Series A Preferred Stock
of the Company.
7.14 Compliance Certificate. The Company and KFx each shall have
delivered to the Purchaser a certificate, executed by the Presidents of KFx and
the Company, respectively, dated as of the Closing Date certifying that (a) the
conditions of Section 7.01 have been satisfied in all respects and (b) each of
the conditions set forth in this Article 7 has been satisfied in all material
respects
7.15 Delivery of Legal Opinion. The Purchaser shall have received (i)
the legal opinion of Bangs, McCullen, Butler, Foye & Simmons, L.L.P., counsel to
the Company, and (ii) the legal opinion of Morrison & Foerster LLP, counsel to
KFx, each in form reasonably acceptable to the Purchaser.
7.16 Affiliated Assets. The Affiliated Assets shall either (a) be
assigned to the Company or (b) the Company shall obtain rights from the
applicable Affiliate sufficient to allow the Company to enjoy full use the
Affiliated Assets for the conduct of its
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business and the provision of its services, which rights shall be satisfactory
to the Purchaser in its sole discretion
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND KFx
The obligation of the Company and KFx to consummate the transactions
contemplated hereby shall be subject to the satisfaction (or waiver by each the
Company and KFx) of the following conditions as of the Closing Date:
8.01 Representations and Warranties. The representations and warranties
of the Purchaser contained in this Agreement shall be (i) in the case of
representations and warranties qualified by materiality or material adverse
effect or the like, true and correct on and as of the Closing Date, and (ii) in
the case of representations and warranties not qualified by materiality or
material adverse effect or the like, true and correct in all material respect as
of the Closing Date.
8.02 Execution of Agreements. Concurrent with the Closing, (a) the
Company, the Purchaser and the existing stockholders of the Company shall have
executed and delivered the Stockholders Agreement; (b) the Purchaser, the
Company and Net Power Solutions, LLC shall have executed and delivered the
Marketing Services Agreement; and (c) the Purchaser and KFx shall have executed
and delivered the Put Agreement.
8.03 Certificate of Designation. Prior to or concurrent with the
Closing, the Company shall have filed the Certificate of Designation with the
Secretary of State of the State of South Dakota.
8.04 Business Plan. The Company, KFx and the Purchaser shall have
prepared and each shall have approved (a) the Initial Work Program, (b) a
supplement to the Initial Work Program (consistent with the supplements
contemplated by clause (B) of Section 2.03(b)(ii)) for the funding associated
with the purchase of the Closing Date Preferred Shares, and (c) an operating
budget for the Company for 2000 and 2001.
8.05 Consents, Permits, Waivers and Approvals. Any Consents required
for the transactions contemplated hereunder under any Company Contracts shall
have been obtained.
8.06 Formation of Marketing Entity. The parties shall have mutually
agreed upon Articles of Organization and an Operating Agreement for the
Marketing Entity, and the Articles of Organization shall have been filed with
the Secretary of State of the State of Colorado.
8.07 Conversion of Debt. The balance of the KFx Debt as of December 31,
1999 shall have been converted into 3,396,377 shares of Series A Preferred Stock
of the Company.
8.08 Compliance Certificate. The Purchaser shall have delivered to the
Company and KFx a certificate, executed by the President or a Vice President of
the
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Purchaser, dated as of the Closing Date certifying that the conditions of
Section 8.01 have been satisfied in all respects.
9. INDEMNIFICATION, ETC.
9.01 Survival of Representations and Covenants.
(a) To the extent provided in this Section 9.01(a), the
representations, warranties, covenants and obligations of each party shall
survive the Closing, any subsequent sale or other disposition of any or all of
the Preferred Shares or the Common Shares and any subsequent Acquisition
Transaction effected by or otherwise involving the Purchaser, KFx or the
Company, but only for the purpose of being true and correct in all material
respects as of the Closing (other than those covenants which by their specific
terms require performance after the Closing). Any representation the Breach of
which the Company or KFx had Knowledge on or prior to the Closing and any
covenants or obligations to be performed after the Closing shall survive and
continue for the applicable statute of limitation period or periods legally
applicable to them. All of the other representations, warranties (as well as the
covenants and obligations to be performed prior to the Closing Date) of the
parties shall terminate, and be deemed to have been satisfied and discharged in
full, on the second anniversary of the Closing Date.
(b) The representations, warranties, covenants and obligations
of the respective parties, and the rights and remedies that may be exercised by
any of them, shall not be limited or otherwise affected by or as a result of (i)
anything contained in the Certificate of Designation or (ii) any information
furnished to, or any investigation made by or Knowledge of, any of the parties
or any of their Representatives.
(c) For purposes of this Agreement, each statement or other
item of information set forth in the Disclosure Schedule shall be deemed to be a
representation and warranty made by the Company and KFx in this Agreement.
9.02 Indemnification by the Company and KFx.
(a) The Company and KFx shall, jointly and severally (except
for Damages attributable to the matter addressed in clause (v) of this Section
9.02(a) and, to the extent attributable thereto, any Damages under clause (vi),
which Damages shall solely be the liability of KFx), indemnify, defend and hold
harmless the Purchaser and each of its officers, directors, employees, agents
and Representatives (collectively, the "INDEMNITEES" and individually each an
"INDEMNITEE") from and against, and shall compensate and reimburse each of the
Indemnitees for, any Damages which are suffered or incurred by any of the
Indemnitees or to which any of the Indemnitees may otherwise become subject at
any time (regardless of whether or not such Damages relate to any third party
claim) and which arise from or as a direct or indirect result of, or are
directly or indirectly connected with:
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(i) any Breach of any representation or warranty made
by the Company or KFx in this Agreement;
(ii) any Breach of any covenant or obligation of the
Company or KFx;
(iii) * any
Liabilities relating to the Company's failure to be qualified to do
business in Ohio;
(iv) any Liability to which the Company may become
subject that directly or indirectly arises from the acts or omissions
of KFx;
(v) * ; or
(vi) any Proceeding relating to any Breach, or
Liability or matter of the type referred to in any of the clauses
listed above (including any Proceeding commenced by any Indemnitee for
the purpose of enforcing any of its rights under this Article 9).
(b) Notwithstanding the other provisions of this Article 9, in
no event shall the Company be required to indemnify the Purchaser for Damages
until the aggregate amount of such Damages sustained by the Purchaser exceeds
$50,000, and then only to the extent of such excess; provided, however, that the
provisions of this Section 9.02(b) shall not apply to any Damages arising from
or attributable to the litigation referred to in clause (v) of Section 9.02(a)
(c) In no event shall the Company or KFx be subject to any
Liability to the Purchaser under this Article 9 in an aggregate amount exceeding
the purchase price paid by the Purchaser for the Common Shares and the Preferred
Shares actually purchased by the Purchaser.
(d) In connection with * , the Company and KFx
acknowledge and agree that Purchaser shall be entitled to indemnification
hereunder in connection with any Special Damages resulting from *
. As used herein, "Special Damages" shall include consequential damages,
decline in value of the Company and lost opportunity to the Company resulting
from or arising in connection with * and the resolution thereof
such that the value of the Purchaser's investment in the Company is demonstrably
diminished from what the value of the Company would have been without the
Special Damages to the Company.
9.03 No Contribution. KFx waives, and acknowledges and agrees that it
shall not have and shall not exercise or assert or attempt to exercise or
assert, any right of contribution or right of indemnity or any other right or
remedy against the Company in connection with any indemnification obligation
under this Agreement.
* Language omitted and filed separately with the Securities and Exchange
Commission pursuant to a confidential treatment request.
45
<PAGE> 50
10. MISCELLANEOUS
10.01 Governing Law.
(a) This Agreement shall be governed in all respects by the
laws of the State of Colorado as such laws are applied to agreements between
Colorado residents entered into and performed entirely in Colorado, except that,
in the case of KFx, the General Corporation Law of the State of Delaware and, in
the case of the Company, the Business Corporation Act of the State of South
Dakota shall govern as to matters of corporate law.
(b) Any legal action or other legal proceeding relating to
this Agreement or the enforcement of any provision of this Agreement may be
brought or otherwise commenced in any state or federal court located in the City
and County of Denver, Colorado. Each party to this Agreement:
(i) expressly and irrevocably consents and submits to
the jurisdiction of each state and federal court located in the County
of Denver, Colorado (and each appellate court located in the State of
Colorado) in connection with any such legal proceeding, including to
enforce any settlement, order or award;
(ii) agrees that each state and federal court located
in the City and County of Denver, Colorado shall be deemed to be a
convenient forum; and
(iii) waives and agrees not to assert (by way of
motion, as a defense or otherwise), in any such legal proceeding
commenced in any state or federal court located in the City and County
of Denver, Colorado, any claim that such party is not subject
personally to the jurisdiction of such court, that such legal
proceeding has been brought in an inconvenient forum, that the venue of
such proceeding is improper or that this Agreement or the subject
matter of this Agreement may not be enforced in or by such court.
(c) Each party hereto agrees to the entry of an order to
enforce any resolution, settlement, order or award made pursuant to this Section
by the state and federal courts located in the County of Denver, Colorado and in
connection therewith hereby waives, and agrees not to assert by way of motion,
as a defense, or otherwise, any claim that such resolution, settlement, order or
award is inconsistent with or violative of the laws or public policy of the laws
of the State of Colorado or any other jurisdiction.
(d) Each party to this Agreement hereby knowingly,
voluntarily, and intentionally waives the right to a trial by jury in respect of
any litigation arising out of, under or in connection with this Agreement, this
waiver being a material inducement for each such party to enter into this
Agreement.
10.02 Survival. Subject to Section 9.01, the representations,
warranties, covenants and agreements made herein shall survive any investigation
made by the
46
<PAGE> 51
Purchaser and the closing of the transactions contemplated hereby. All
statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company and KFx hereunder solely as of the
date of such certificate or instrument.
10.03 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
Person who shall be a holder of the Preferred Shares or the Common Shares from
time to time.
10.04 Entire Agreement. This Agreement, the Exhibits, the Schedules and
the other documents expressly delivered pursuant hereto, including the
Stockholders Agreement, supersede any other agreement, whether written or oral,
that may have been made or entered into by the parties hereto relating to the
matters contemplated hereby and constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof, and no party
shall be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein and
therein.
10.05 Specific Enforcement. The Purchaser shall be entitled to specific
enforcement of its rights under this Agreement. The Company and KFx acknowledge
that money damages would be an inadequate remedy for its Breach of this
Agreement and Consent to an action for specific performance or other injunctive
relief in the event of any such Breach.
10.06 Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
10.07 Amendment. This Agreement may be amended or modified only upon
the mutual written Consent of the Company, KFx and the Purchaser.
10.08 Waiver. A provision of this Agreement may be waived only by a
written instrument executed by or on behalf of the party waiving compliance. The
failure of any party at any time or times to require performance of any
provision hereof shall in no manner affect the right at a later time to enforce
the same. No waiver by any party of any condition, or of any breach of any term,
covenant, representation or warranty contained in this Agreement, in any one or
more instances, shall be construed to be a waiver of any other condition or of
any other breach of the same or any other term, covenant, representation or
warranty.
10.09 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified; (b) when sent by confirmed telex or facsimile if sent
during normal business
48
<PAGE> 52
hours of the recipient, if not, then on the next business day; (c) five days
after having been sent by registered or certified mail, return receipt
requested, postage prepaid; or (d) two days after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt. All communications shall be sent to the parties hereto
at the respective addresses set forth below, or as notified by such party from
time to time at least 10 days prior to the effectiveness of such notice:
<TABLE>
<S> <C>
if to the Company: Pegasus Technologies, Inc.
5970 Heisley Road, Suite 300
Mentor, Ohio 44060
Attention: Chairman
Facsimile: (440) 357-1119
with a copy to: Morrison & Foerster LLP
5200 Republic Plaza
370 17th Street
Denver, Colorado 80202
Attention: Warren L. Troupe
Facsimile: (303) 592-1510
and with a copy to: Bangs, McCullen, Butler, Foye & Simmons, L.L.P.
818 St. Joseph Street
P.O. Box 2670
Rapid City, SD 57709
Attention: John H. Raforth
Facsimile: (605) 343-1503
if to KFx: KFx Inc.
1999 Broadway, Suite 3200
Denver, Colorado 80202
Attention: Chairman
Facsimile: (303) 293-8430
with a copy to: Morrison & Foerster LLP
5200 Republic Plaza
370 17th Street
Denver, Colorado 80202
Attention: Warren L. Troupe
Facsimile: (303) 592-1510
</TABLE>
48
<PAGE> 53
<TABLE>
<S> <C>
if to the Purchaser: Kennecott Energy Company
505 South Gillette
P.O. Box 3009
Gillette, Wyoming 82717-3009
Attention: Patricia Britton
Facsimile: (307) 687-6059
with a copy to: Davis, Graham & Stubbs LLP
370 17th Street, Suite 4700
Denver, Colorado 80202
Attention: Christopher L. Richardson
Facsimile: (303) 893-1379
</TABLE>
10.10 Counterparts; Facsimile. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument. This Agreement (or any counterpart
hereof) may be delivered by a party by facsimile, which facsimile delivery shall
be effective as if the original counterpart had been delivered.
10.11 Future Financings. Nothing contained in this Agreement or the
Purchaser's prior dealings with KFx or the Company shall be deemed to constitute
a commitment on the part of the Purchaser to purchase all of the Additional
Preferred Shares or to participate in any future financings by the Company.
10.12 Press Releases and Announcements. All press releases and
announcements concerning the transactions contemplated by this Agreement and the
other Transaction Agreements shall be mutually agreed to by the Company, KFx and
the Purchaser, except for any such disclosure required by law which, in the case
of such disclosure by the Company, shall, to the extent practicable under the
circumstances, be first discussed with the Purchaser and, in the case of such
disclosure by the Purchaser, shall, to the extent practicable under the
circumstances, be first discussed with the Company and KFx.
10.13 Expenses. Each party hereto will pay its own expenses incurred in
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated.
10.14 Interpretation.
(a) The various section headings are inserted for purposes of
reference only and shall not affect the meaning or interpretation of this
Agreement or any provision hereof.
(b) Each party hereto acknowledges that it has been
represented by competent counsel and participated in the drafting of this
Agreement and the other Transaction Agreements, and agrees that any applicable
rule of construction to the effect
49
<PAGE> 54
that ambiguities are to be resolved against the drafting party shall not be
applied in connection with the construction or interpretation of this Agreement
and the other Transaction Agreements.
(c) In this Agreement, unless a clear contrary intention
appears:
(i) the singular number includes the plural number
and vice versa;
(ii) reference to any Person includes such Person's
successors and assigns, but only if such successors and assigns are not
prohibited by this Agreement;
(iii) reference to any gender includes the other
gender and the neuter;
(iv) reference to any agreement (including this
Agreement), document or instrument means such agreement, document or
instrument as amended or modified and in effect from time to time in
accordance with the terms thereof and reference to any promissory note
includes any promissory note which is an extension or renewal thereof
or a substitute or replacement therefor;
(v) reference to any Law means such Law as amended,
modified, codified, replaced or reenacted, in whole or in part, and in
effect from time to time, including rules and regulations promulgated
thereunder and reference to any section or other provision of any Law
means that provision of such Law from time to time in effect and
constituting the substantive amendment, modification, codification,
replacement or reenactment of such section or other provision;
(vi) "hereunder," "hereof," "hereto" and words of
similar import shall be deemed references to this Agreement as a whole
and not to any particular Article, Section or other provision thereof;
(vii) the words "include," "includes" and "including"
shall be deemed to be followed by the phrase "without limitation";
(viii) the exhibits and attachments to the Disclosure
Schedule form an integral part of the Disclosure Schedule and are
incorporated by reference for all purposes as if set forth fully
therein;
(ix) all references (other than references to
Sections of the Code or any other statute) and subsections shall be
deemed to be references to Articles, Sections and subsections of this
Agreement unless the context shall otherwise require. References in
this Agreement to any Article shall include all Sections, subsections
and paragraphs in such Article, references in this Agreement to any
Section shall include all subsections and paragraphs in such Section;
and references in this Agreement to any subsection shall include all
paragraphs in such subsection.
10.15 No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and are not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
* * * *
50
<PAGE> 55
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
COMPANY:
PEGASUS TECHNOLOGIES, INC.
By: /s/ Seth L. Patterson
----------------------------------
Name: Seth L. Patterson
--------------------------------
Title: V.P. - Finance & C.F.O.
-------------------------------
KFx:
KFx INC.
By: /s/ Seth L. Patterson
----------------------------------
Name: Seth L. Patterson
--------------------------------
Title: E.V.P & C.F.O.
-------------------------------
PURCHASER:
KENNECOTT ENERGY COMPANY
By: /s/ Kent W. Goates
----------------------------------
Name: Kent W. Goates
--------------------------------
Title: Vice President & C.F.O.
-------------------------------
51
<PAGE> 1
EXHIBIT 10.2
STATEMENT RESPECTING RIGHTS
OF
SERIES A PREFERRED STOCK
OF
PEGASUS TECHNOLOGIES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. Dividend Rights..................................................................................1
(a) DECLARED DIVIDENDS.....................................................................1
(b) PREFERENCE.............................................................................2
(c) PARTIAL DIVIDENDS......................................................................2
2. Voting Rights....................................................................................2
(a) GENERALLY..............................................................................2
(b) SEPARATE VOTE OF SERIES A PREFERRED....................................................2
3. Liquidation Rights...............................................................................3
(a) LIQUIDATION VALUE......................................................................3
(b) PARTICIPATION..........................................................................3
(c) LIQUIDATION EVENTS.....................................................................3
(d) VALUATION. ...........................................................................4
(e) PROPORTIONATE PAYMENTS.................................................................4
4. Conversion Rights................................................................................4
(a) OPTIONAL CONVERSION....................................................................5
(b) AUTOMATIC CONVERSION...................................................................5
(c) SERIES A PREFERRED CONVERSION RATE.....................................................5
(d) CONVERSION PRICE.......................................................................5
(e) MECHANICS OF CONVERSION................................................................5
(f) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS...........................................6
(g) ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS................................6
(h) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS......................................7
(i) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION.............................8
(j) REORGANIZATIONS, ACQUISITIONS OR ASSET TRANSFERS.......................................8
(k) SALE OF SHARES BELOW SERIES A CONVERSION PRICE.........................................8
(l) CERTIFICATE OF ADJUSTMENT.............................................................11
(m) NOTICES OF RECORD DATE................................................................11
(n) FRACTIONAL SHARES.....................................................................11
(o) RESERVATION OF STOCK ISSUABLE UPON CONVERSION.........................................12
5. Certain Definitions.............................................................................12
6. Amendment and Waiver............................................................................13
7. General Provisions..............................................................................13
(a) REGISTRATION OF TRANSFER..............................................................13
(b) REPLACEMENT...........................................................................13
(c) NOTICES...............................................................................14
(d) PAYMENT OF TAXES......................................................................14
(e) NO DILUTION OR IMPAIRMENT.............................................................14
(f) NO REISSUANCE OF SERIES A PREFERRED...................................................14
</TABLE>
i
<PAGE> 3
STATEMENT RESPECTING RIGHTS
OF
SERIES A PREFERRED STOCK
OF
PEGASUS TECHNOLOGIES, INC.
DESIGNATION OF SERIES A PREFERRED
Seven Million Two Hundred Thousand (7,200,000) of authorized shares of
Preferred Stock are hereby designated "Series A Preferred Stock" (the "SERIES A
PREFERRED"). The rights, preferences, privileges, restrictions and other matters
relating to the Series A Preferred are as follows:
1. DIVIDEND RIGHTS.
(a) DECLARED DIVIDENDS. Holders of Series A Preferred, in preference to
the holders of Common Stock and any other stock of the Corporation that is not
by its terms expressly senior in right of payment to the Series A Preferred
(collectively, "JUNIOR STOCK"), shall be entitled to receive cash dividends that
accrue cumulatively during each fiscal year of the Corporation at the rate of 6%
of the Original Issue Price (as defined below) per annum on each outstanding
share of Series A Preferred (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like with respect to such shares). The
"ORIGINAL ISSUE PRICE" of the Series A Preferred shall be $1.06872 per share.
Dividends on the Series A Preferred shall be cumulative and shall begin to
accumulate (whether or not declared) on the Original Issue Date of the Series A
Preferred (as defined in Section 4(f) below). Such dividends shall be payable
if, when and as declared by the Board of Directors, but only out of funds that
are legally available therefor. In the event that the Corporation declares or
pays any dividends upon the Common Stock (whether payable in cash, securities or
other property) other than dividends or portions thereof payable in shares of
Common Stock, the Corporation shall also declare and pay to the holders of the
Series A Preferred at the same time that it declares and pays such dividends to
the holders of the Common Stock, the dividends that would have been declared and
paid with respect to the Common Stock issuable upon conversion of the Series A
Preferred had all of the outstanding Series A Preferred been converted
immediately prior to the record date for such dividend, or if no record date is
<PAGE> 4
fixed, the date as of which the record holders of Common Stock entitled to such
dividends are to be determined; provided, however, that such dividends shall
accrue and be paid to the holders of the Series A Preferred only in an amount
equal to the amount by which the dividends payable on the Common Stock exceed
the other dividends payable with respect to the Series A Preferred for the same
period.
(b) PREFERENCE. So long as any Series A Preferred remains outstanding,
without the prior written unanimous consent of the holders of the outstanding
shares of Series A Preferred, the Corporation shall not, nor shall it permit any
Subsidiary to, redeem, purchase or otherwise acquire directly or indirectly any
Junior Stock, nor shall the Corporation directly or indirectly pay or declare
any dividend or make any distribution upon any Junior Stock. The provisions of
this Section 1(b) shall not, however, apply to (i) the acquisition of shares of
any Junior Stock in exchange for shares of any other Junior Stock, or (ii) the
payment of cash dividends on the Common Stock to the extent that (A) there are
no accrued but unpaid Series A Preferred dividends and (B) equivalent dividends
are paid on the Series A Preferred as provided above, or (iii) any repurchase of
the capital stock of the Corporation in accordance with the terms of any stock
incentive plan of the Corporation that has been approved by the Corporation's
Board of Directors.
(c) PARTIAL DIVIDENDS. In the event the Board of Directors of the
Corporation declares dividends in a fiscal year in an amount less than the
aggregate amount of the dividend preference on the Series A Preferred set forth
in Section 1(a) above, then the entire amount of the dividends declared by the
Board of Directors shall be distributed ratably among the holders of the Series
A Preferred.
2. VOTING RIGHTS.
(a) GENERALLY. Except as otherwise provided herein or as required by
law, the Series A Preferred shall vote with the shares of the Common Stock of
the Corporation (and not as a separate class) at any annual or special meeting
of stockholders of the Corporation, and may act by written consent in the same
manner as the Common Stock, in either case upon the following basis: each holder
of shares of Series A Preferred shall be entitled to such number of votes as
shall be equal to the whole number of shares of Common Stock into which such
holder's aggregate number of shares of Series A Preferred are convertible
(pursuant to Section 4 below) immediately after the close of business on the
record date fixed for such meeting or the effective date of such written
consent.
(b) SEPARATE VOTE OF SERIES A PREFERRED. For so long as Kennecott
Energy Company owns at least four percent (4%) of the Common Stock Deemed
Outstanding (as defined in Section 4(k)(i)) or 400,000 shares of Series A
Preferred, the Corporation shall not, without first obtaining the unanimous
affirmative vote or written consent of the holders of the then outstanding
shares of Series A Preferred, voting together as a single class (the "REQUIRED
HOLDERS"), (i) amend or repeal any provision of, or add any
2
<PAGE> 5
provision to, the Articles of Incorporation or Bylaws of the Corporation if such
action would alter or change the preferences, rights, privileges or powers of,
or the restrictions provided for the benefit of, or create a class of stock
senior in rights and preferences to, the Series A Preferred, (ii) effect any
Liquidation (as defined in Section 3(c)), (iii) issue equity securities other
than Junior Stock (or any securities convertible into or exchangeable for such
equity securities including, without limitation, debt securities containing
equity features), (iv) increase the number of the Corporation's fully diluted
equity authorized for issuance to employees pursuant to any incentive stock or
other plan, whether currently in effect or subsequently created, (v) effect the
buyback or repurchase of Common Stock of the Corporation (except for buybacks
from directors or employees), (vi) increase the authorized size of the Board of
Directors to more than five (5) members, (vii) pay a dividend on the Series A
Preferred in other than cash, or (viii) increase the Corporation's debt
financing beyond the amounts permitted in the Stockholders Agreement currently
in effect.
3. LIQUIDATION RIGHTS.
(a) LIQUIDATION VALUE. Upon any Liquidation, whether voluntary or
involuntary, before any distribution or payment shall be made to the holders of
any Junior Stock, the holders of Series A Preferred shall be entitled to be paid
out of the assets of the Corporation an amount with respect to each share of
Series A Preferred equal to the sum of (i) the Original Issue Price subject to
appropriate adjustment to reflect any stock dividend, stock split, combination
or any other similar reclassification, reorganization or recapitalization
affecting the shares of Series A Preferred plus (ii) all accumulated but unpaid
dividends thereon (the "SERIES A LIQUIDATION PREFERENCE"). Notwithstanding the
foregoing, upon any Liquidation, the holders of the Series A Preferred can
convert the Series A Preferred to Common Stock.
(b) PARTICIPATION. Once the holders of Series A Preferred have received
payment of the Series A Liquidation Preference, the holders of the Series A
Preferred shall participate in any additional distributions proportionately with
the Common Stock as if such Series A Preferred was converted into Common Stock
on or prior to the Liquidation.
(c) LIQUIDATION EVENTS. At the option of the Required Holders, the
following events shall be considered a "LIQUIDATION" for purposes of Section
3(a):
(i) the dissolution, liquidation or winding up of the
Corporation;
(ii) any merger, acquisition, sale of voting control,
consolidation, business combination, reorganization or recapitalization of the
Corporation (whether accomplished in a single transaction or a series of related
transactions) in which the stockholders of the Corporation immediately prior to
such transaction own capital stock
3
<PAGE> 6
representing less than 50% of the Corporation's voting power immediately after
such transaction (an "ACQUISITION"); or
(iii) a sale, lease or other disposition of all or
substantially all of the assets of the Corporation (an "ASSET TRANSFER").
(d) VALUATION. In any of the events deemed to be a Liquidation, if the
consideration received by the Corporation is other than cash, its value will be
deemed to be its fair market value as determined in good faith by the Board of
Directors. Any securities shall be valued as follows:
(i) securities not subject to investment letter or other
similar restrictions on free marketability covered by (ii) below:
(A) if traded on a securities exchange or
through the Nasdaq National Market, the value shall be deemed
to be the average of the closing prices of the securities on
such quotation system over the thirty (30) day period ending
three (3) days prior to the closing;
(B) if actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or
sale prices (whichever is applicable) over the thirty (30) day
period ending three (3) days prior to the closing; and,
(C) if there is no active public market, the
value shall be the fair market value thereof, as determined by
the Board of Directors.
(ii) the method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) may be to make an appropriate discount from the market
value determined as above in (i)(A), (B) or (C) to reflect the approximate fair
market value thereof, as determined by the Board of Directors.
(e) PROPORTIONATE PAYMENTS. If, upon any Liquidation, the assets of the
Corporation shall be insufficient to make payment in full to all holders of
Series A Preferred, then such assets shall be distributed among the holders of
Series A Preferred at the time outstanding ratably in proportion to the full
amounts to which they would otherwise respectively be entitled.
4. CONVERSION RIGHTS.
The holders of the Series A Preferred shall have the following rights
with respect to the conversion of the Series A Preferred into shares of Common
Stock:
4
<PAGE> 7
(a) OPTIONAL CONVERSION. Subject to and in compliance with the
provisions of this Section 4, any shares of Series A Preferred may, at the
option of the holder, be converted at any time into fully-paid and nonassessable
shares of Common Stock. The number of shares of Common Stock to which a holder
of Series A Preferred shall be entitled upon conversion shall be the product
obtained by multiplying the "Series A Conversion Rate" then in effect
(determined as provided in Section 4(c)) by the number of shares of Series A
Preferred being converted.
(b) AUTOMATIC CONVERSION. Each share of Series A Preferred shall
automatically be converted into shares of Common Stock, based on the
then-effective Series A Conversion Price, at any time upon the earliest of (i)
the conversion by Kennecott Energy Company of all of the outstanding Series A
Preferred owned by it, and (ii) immediately prior to a Qualified IPO. Upon such
automatic conversion, all accrued but unpaid dividends, if any, shall be paid in
accordance with Section 4(e)(ii).
(c) SERIES A PREFERRED CONVERSION RATE. The conversion rate in effect
at any time for conversion of the Series A Preferred (the "SERIES A CONVERSION
RATE") shall be the quotient obtained by dividing the Original Issue Price, by
the "Series A Conversion Price" calculated as provided in Section 4(d).
(d) CONVERSION PRICE. The conversion price for the Series A Preferred
(the "SERIES A CONVERSION PRICE") shall initially be the Original Issue Price.
Such initial Series A Conversion Price shall be adjusted from time to time in
accordance with this Section 4. All references to the Series A Conversion Price
herein shall mean the Series A Conversion Price as so adjusted.
(e) MECHANICS OF CONVERSION.
(i) OPTIONAL CONVERSION. Each holder of Series A Preferred who
desires to convert the same into shares of Common Stock pursuant to this Section
4 shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Corporation or any transfer agent for the Series A Preferred,
and shall give written notice to the Corporation at such office that such holder
elects to convert the same. Such notice shall state the number of shares of
Series A Preferred being converted. Thereupon, the Corporation shall promptly
issue and deliver at such office to such holder a certificate or certificates
for the number of shares of Common Stock to which such holder is entitled and
shall promptly pay (A) in cash or, to the extent sufficient funds are not then
legally available therefor, in Common Stock (at the Common Stock's fair market
value determined by the Board of Directors as of the date of such conversion),
any accrued but unpaid dividends and any declared but unpaid dividends on the
shares of Series A Preferred being converted, and (B) in cash (at the Common
Stock's fair market value determined by the Board of Directors as of the date of
conversion) the value of any fractional share of Common Stock otherwise issuable
to any holder of Series A Preferred. Such conversion shall be deemed to have
been made at the close of business on the date
5
<PAGE> 8
of such surrender of the certificates representing the shares of Series A
Preferred to be converted, and the person entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such shares of Common Stock on such date.
(ii) AUTOMATIC CONVERSION. Upon the occurrence of an event
specified in Section 4(b) above, the outstanding shares of Series A Preferred
shall be converted into Common Stock automatically without any further action by
the holders of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent; provided,
however, that the Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Series A Preferred are either delivered
to the Corporation or its transfer agent as provided below, or the holder
notifies the Corporation or its transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement reasonably satisfactory to
the Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates. Upon surrender by any holder of the
certificates formerly representing shares of Series A Preferred at the office of
the Corporation or any transfer agent for the Series A Preferred, there shall be
issued and delivered to such holder promptly at such office and in its name as
shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares of
Series A Preferred surrendered were convertible on the date on which such
automatic conversion occurred, and the Corporation shall promptly pay in cash
(unless otherwise agreed by the holders of the Series A Preferred), all accrued
but unpaid dividends on the shares of Series A Preferred converted. Until
surrendered as provided above, each certificate formerly representing shares of
Series A Preferred shall be deemed for all corporate purposes to represent the
number of shares of Common Stock resulting from such automatic conversion.
(f) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall at any time or from time to time after the date that the first share of
Series A Preferred is issued (the "ORIGINAL ISSUE DATE") effect a subdivision of
the outstanding Common Stock without a corresponding subdivision of the Series A
Preferred, the Series A Conversion Price in effect immediately before that
subdivision shall be proportionately decreased. Conversely, if the Corporation
shall at any time or from time to time after the Original Issue Date combine the
outstanding shares of Common Stock into a smaller number of shares without a
corresponding combination of the Series A Preferred, the Series A Conversion
Price in effect immediately before the combination shall be proportionately
increased. Any adjustment under this subsection (f) shall become effective at
the close of business on the date the subdivision or combination becomes
effective.
(g) ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS. If the
Corporation at any time or from time to time after the Original Issue Date
makes, or fixes
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<PAGE> 9
a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, in each such event the Series A Conversion Price that is then in effect
shall be decreased as of the time of such issuance or, in the event such record
date is fixed, as of the close of business on such record date, by multiplying
the Series A Conversion Price then in effect by a fraction (1) the numerator of
which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date, and (2) the denominator of which is the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or distribution; provided,
however, that if such record date is fixed and such dividend is not fully paid
or if such distribution is not fully made on the date fixed therefor, the Series
A Conversion Price shall be recomputed accordingly as of the close of business
on such record date and thereafter the Series A Conversion Price shall be
adjusted pursuant to this subsection (g) to reflect the actual payment of such
dividend or distribution; provided, further, however, that no such adjustment
shall be made if, with the consent of the holders of the Series A Preferred the
holders of Series A Preferred simultaneously receive (i) a dividend or other
distribution of shares of Common Stock in a number equal to the number of shares
of Common Stock they would have received if all outstanding shares of Series A
Preferred had been converted into Common Stock on the date of such event or (ii)
a dividend or other distribution of shares of Series A Preferred, as of the date
of such event, convertible into such number of shares of Common Stock as is
equal to the number of additional shares of Common Stock being issued with
respect to each share of Common Stock in such dividend or distribution.
(h) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If the
Corporation at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, in each such event provision
shall be made so that the holders of the Series A Preferred shall receive upon
conversion thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of other securities of the Corporation which
they would have received had their Series A Preferred been converted into Common
Stock on the date of such event and had they thereafter during the period from
the date of such event to and including the conversion date, retained such
securities receivable by them as aforesaid during such period, subject to all
other adjustments called for during such period under this Section 4 with
respect to the rights of the holders of the Series A Preferred or with respect
to such other securities by their terms; provided, further, however, that no
such adjustment shall be made if the holders of Series A Preferred
simultaneously receive a dividend or other distribution of such securities in an
amount equal to the amount of such securities as they would have received if all
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<PAGE> 10
outstanding shares of Series A Preferred had been converted into Common Stock on
the date of such event.
(i) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If at
any time or from time to time after the Original Issue Date, the Common Stock
issuable upon the conversion of the Series A Preferred is changed into the same
or a different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a Liquidation or a
subdivision or combination of shares or stock dividend provided for elsewhere in
this Section 4), each holder of Series A Preferred shall have the right
thereafter to convert the Series A Preferred into the kind and amount of stock
and other securities and property receivable upon such recapitalization,
reclassification or other change by holders of the maximum number of shares of
Common Stock into which such shares of Series A Preferred could have been
converted immediately prior to such recapitalization, reclassification or
change, all subject to further adjustment as provided herein or with respect to
such other securities or property by the terms thereof.
(j) REORGANIZATIONS, ACQUISITIONS OR ASSET TRANSFERS. If at any time or
from time to time after the Original Issue Date, there is a capital
reorganization of the Common Stock, an Acquisition or Asset Transfer (other than
a recapitalization, subdivision, combination, reclassification, or stock
dividend of shares provided for elsewhere in this Section 4), provision shall be
made so that the holders of the Series A Preferred shall thereafter be entitled
to receive upon conversion of the Series A Preferred the number of shares of
stock or other securities or property of the Corporation to which a holder of
the number of shares of Common Stock deliverable upon conversion would have been
entitled on such capital reorganization, Acquisition or Asset Transfer subject
to adjustment in respect of such stock or securities by the terms thereof. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of Series
A Preferred after the capital reorganization, Acquisition or Asset Transfer to
the end that the provisions of this Section 4 (including adjustment of the
Series A Conversion Price then in effect and the number of shares issuable upon
conversion of the Series A Preferred) shall be applicable after that event and
be as nearly equivalent as practicable.
(k) SALE OF SHARES BELOW SERIES A CONVERSION PRICE.
(i) If at any time or from time to time after the Original
Issue Date, the Corporation issues or sells, or is deemed by the express
provisions of this subsection (k) to have issued or sold, Additional Shares of
Common Stock (as hereinafter defined), other than as a dividend or other
distribution on any class of stock as provided in Section 4(g) above, and other
than a subdivision or combination of shares of Common Stock as provided in
Section 4(f) above, for an Effective Price (as hereinafter defined) that is less
than the then-effective Series A Conversion Price, then and in each such case
the then-existing Series A Conversion Price shall be reduced, as of the opening
of
8
<PAGE> 11
business on the date of such issue or sale, to a price determined by multiplying
the Series A Conversion Price by a fraction (A) the numerator of which shall be
(x) the number of shares of Common Stock Deemed Outstanding (as defined below)
immediately prior to such issue or sale, plus (y) the number of shares of Common
Stock which the aggregate consideration received (as determined by paragraph
(ii) of this subsection (k) by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such Series A
Conversion Price, and (B) the denominator of which shall be the number of shares
of Common Stock Deemed Outstanding (as defined below) immediately prior to such
issue or sale plus the total number of Additional Shares of Common Stock so
issued.
(ii) For the purpose of making any adjustment required under
this subsection (k), the consideration received by the Corporation for any issue
or sale of securities shall (A) to the extent it consists of cash, be computed
at the net amount of cash received by the Corporation after deduction of any
underwriting or similar commissions, compensation or concessions paid or allowed
by the Corporation in connection with such issue or sale but without deduction
of any expenses payable by the Corporation, (B) to the extent it consists of
property other than cash, be computed at the fair value of that property as
determined in good faith by the Board of Directors, and (C) if Additional Shares
of Common Stock, Convertible Securities (as hereinafter defined) or rights or
options to purchase either Additional Shares of Common Stock or Convertible
Securities are issued or sold together with other stock or securities or other
assets of the Corporation for a consideration which covers both, be computed as
the portion of the consideration so received that may be reasonably determined
in good faith by the Board of Directors to be allocable to such Additional
Shares of Common Stock, Convertible Securities or rights or options.
(iii) For the purpose of the adjustment required under this
subsection (k), if the Corporation issues or sells any rights or options for the
purchase of, stock or other securities convertible into, Additional Shares of
Common Stock (such convertible stock or securities being herein referred to as
"CONVERTIBLE SECURITIES") and if the Effective Price of such Additional Shares
of Common Stock is less than the Series A Conversion Price, in each case the
Corporation shall be deemed to have issued at the time of the issuance of such
rights or options or Convertible Securities the maximum number of Additional
Shares of Common Stock issuable upon exercise or conversion thereof and to have
received as consideration for the issuance of such shares an amount equal to the
total amount of the consideration, if any, received by the Corporation for the
issuance of such rights or options or Convertible Securities, plus, in the case
of such rights or options, the minimum amounts of consideration, if any, payable
to the Corporation upon the exercise of such rights or options, plus, in the
case of Convertible Securities, the minimum amounts of consideration, if any,
payable to the Corporation (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the conversion
thereof; provided, that if in the case of Convertible
9
<PAGE> 12
Securities the minimum amounts of such consideration cannot be ascertained, but
are a function of anti-dilution or similar protective clauses, the Corporation
shall be deemed to have received the minimum amounts of consideration without
reference to such clauses; provided further that if the minimum amount of
consideration payable to the Corporation upon the exercise or conversion of
rights, options or Convertible Securities is reduced over time or on the
occurrence or nonoccurrence of specified events other than by reason of
antidilution adjustments, the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced; provided
further that if the minimum amount of consideration payable to the Corporation
upon the exercise or conversion of such rights, options or Convertible
Securities is subsequently increased, the Effective Price shall be again
recalculated using the increased minimum amount of consideration payable to the
Corporation upon the exercise or conversion of such rights, options or
Convertible Securities. No further adjustment of the Series A Conversion Price,
as adjusted upon the issuance of such rights, options or Convertible Securities,
shall be made as a result of the actual issuance of Additional Shares of Common
Stock on the exercise of any such rights or options or the conversion of any
such Convertible Securities. If any such rights or options or the conversion
privilege represented by any such Convertible Securities shall expire without
having been exercised, the Series A Conversion Price as adjusted upon the
issuance of such rights, options or Convertible Securities shall be readjusted
to the Series A Conversion Price which would have been in effect had an
adjustment been made on the basis that the only Additional Shares of Common
Stock so issued were the Additional Shares of Common Stock, if any, actually
issued or sold on the exercise of such rights or options or rights of conversion
of such Convertible Securities, and such Additional Shares of Common Stock, if
any, were issued or sold for the consideration actually received by the
Corporation upon the exercise, plus the consideration, if any, actually received
by the Corporation for the granting of all such rights or options, whether or
not exercised, plus the consideration received for issuing or selling the
Convertible Securities actually converted, plus the consideration, if any,
actually received by the Corporation (other than by cancellation of liabilities
or obligations evidenced by such Convertible Securities) on the conversion of
such Convertible Securities, provided that such readjustment shall not apply to
prior conversions of Series A Preferred.
(iv) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares
of Common Stock issued by the Corporation or deemed to be issued pursuant to
this subsection (k), other than (A) shares of Common Stock issued upon
conversion of the Series A Preferred; (B) the Reserved Employee Stock and/or
options or other Common Stock purchase rights, and the Common Stock issued
pursuant to the Corporation's 1999 Stock Incentive Plan or any other such
options or other rights issued or to be issued to employees, officers or
directors of, or consultants to the Corporation or any Subsidiary pursuant to
stock purchase or stock option plans or other arrangements that are approved by
the Board; (C) shares of Common Stock issued in any merger, Acquisition,
strategic transaction, or equipment leasing or debt financing, any of which must
have been
10
<PAGE> 13
unanimously approved by the members of the Board; (D) shares of Common Stock
issued or issuable by reason of a dividend, stock split or other distribution on
shares of Common Stock that is covered by Section 4(f), or Section 4(g); or (E)
shares of Common Stock issued or issuable as a dividend or distribution on the
on the Series A Preferred. The "EFFECTIVE PRICE" of Additional Shares of Common
Stock shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold by the Corporation under this subsection (k), into the aggregate
consideration received, or deemed to have been received by the Corporation for
such issue under this subsection (k), for such Additional Shares of Common
Stock.
(l) CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or
readjustment of the Series A Conversion Price for the number of shares of Common
Stock or other securities issuable upon conversion of the Series A Preferred, if
the Series A Preferred is then convertible pursuant to this Section 4, the
Corporation, at its expense, shall compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and shall mail such certificate, by first class
mail, postage prepaid, to each registered holder of Series A Preferred at the
holder's address as shown in the Corporation's books. The certificate shall set
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based, including a statement of (A) the
Series A Conversion Price at the time in effect, and (B) the type and amount, if
any, of other property which at the time would be received upon conversion of
the Series A Preferred.
(m) NOTICES OF RECORD DATE. Upon (i) any taking by the Corporation of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, or (ii) any Liquidation or other capital reorganization of the
Corporation, any reclassification or recapitalization of the capital stock of
the Corporation, or any merger or consolidation of the Corporation with or into
any other corporation, the Corporation shall mail to each holder of Series A
Preferred at least ten (10) days prior to the record date specified therein a
notice specifying (A) the date on which any such record is to be taken for the
purpose of such dividend or distribution and a description of such dividend or
distribution, (B) the date on which any such Liquidation, reorganization,
reclassification, transfer, consolidation, merger, is expected to become
effective, and (C) the date, if any, that is to be fixed as to when the holders
of record of Common Stock (or other securities) shall be entitled to exchange
their shares of Common Stock (or other securities) for securities or other
property deliverable upon such Liquidation, reorganization, reclassification,
transfer, consolidation, or merger.
(n) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of Series A Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Series A Preferred by a holder thereof shall be aggregated for purposes of
determining whether the
11
<PAGE> 14
conversion would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of any
fractional share, the Corporation shall, in lieu of issuing any fractional
share, pay cash equal to the product of such fraction multiplied by the Common
Stock's fair market value (as determined by the Board) on the date of
conversion.
(o) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Series A Preferred, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series A Preferred, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
5. CERTAIN DEFINITIONS.
"ACQUISITION" has the meaning set forth in Section 3(c)(ii).
"ASSET TRANSFER" has the meaning set forth in Section 3(c)(iii).
"COMMON STOCK DEEMED OUTSTANDING" means, as of a given date, be the sum
of the number of shares of Common Stock actually outstanding, plus the number of
shares of Common Stock into which the then-outstanding shares of Series A
Preferred could be converted if fully converted on the day immediately preceding
the given date plus the number of shares of Common Stock issuable upon
conversion or exercise of all other rights, options and convertible securities
which were convertible or exercisable on the day immediately preceding the given
date.
"CONVERTIBLE SECURITIES" has the meaning set forth in Section
4(k)(iii).
"JUNIOR STOCK" has the meaning set forth in Section 1(a).
"LIQUIDATION" has the meaning set forth in Section 3(c).
"ORIGINAL ISSUE DATE" has the meaning set forth in Section 4(f).
"ORIGINAL ISSUE PRICE" has the meaning set forth in Section 1(a).
"QUALIFIED IPO" shall mean the closing of a firm commitment
underwritten public offering of Common Stock with aggregate gross proceeds of at
least $20 million and a per share price of $10.00.
12
<PAGE> 15
"REQUIRED HOLDERS" has the meaning set forth in Section 2(b).
"RESERVED EMPLOYEE STOCK" means up to 1,211,605 of the Corporation's
outstanding shares of Common Stock on a fully diluted basis issuable to
employees, officers, directors or consultants of the Corporation pursuant to the
Corporation's 1999 Stock Incentive Plan.
"SERIES A CONVERSION PRICE" has the meaning set forth in Section 4(d).
"SERIES A CONVERSION RATE" has the meaning set forth in Section 4(c).
"SERIES A LIQUIDATION PREFERENCE" has the meaning set forth in Section
3(a).
"SERIES A PREFERRED" has the meaning set forth in the introductory
paragraph hereof.
"SUBSIDIARY" means any corporation of which the shares of outstanding
capital stock possessing the voting power (under ordinary circumstances) in
electing the board of directors are, at the time as of which any determination
is being made, owned by the Corporation either directly or indirectly through
Subsidiaries.
6. AMENDMENT AND WAIVER.
No amendment, modification or waiver of any of the terms or provisions
of the Series A Preferred shall be binding or effective without the prior
written consent of the Required Holders and no change in the terms hereof may be
accomplished by merger or consolidation of the Corporation with another
corporation or entity unless the Corporation has obtained the prior written
consent of the Required Holders.
7. GENERAL PROVISIONS.
(a) REGISTRATION OF TRANSFER. The Corporation shall keep at its
principal office a register for the registration of the Series A Preferred. Upon
the surrender of any certificate representing Series A Preferred at such place,
the Corporation shall, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
shares represented by the surrendered certificate. Each such new certificate
shall be registered in such name and shall represent such number of shares as is
requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate.
(b) REPLACEMENT. Upon receipt of evidence reasonably satisfactory to
the Corporation (an affidavit of the registered holder shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Series A Preferred, and in the case of any such loss, theft
or destruction, upon receipt of
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<PAGE> 16
indemnity reasonably satisfactory to the Corporation (provided that if the
holder is a financial institution or other institutional investor its own
agreement shall be satisfactory), or in the case of any such mutilation upon
surrender of such certificate, the Corporation shall (at its expense) execute
and deliver in lieu of such certificate a new certificate of like kind
representing the number of shares of such class represented by such lost,
stolen, destroyed or mutilated certificate and dated the date of such lost,
stolen, destroyed or mutilated certificate.
(c) NOTICES. Any notice required by the provisions of this Certificate
of Designation shall be in writing and shall be deemed effectively given: (i)
upon personal delivery to the party to be notified, (ii) when sent by confirmed
telex or facsimile if sent during normal business hours of the recipient; if
not, then on the next business day, (iii) five days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or (iv)
one day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All notices to
stockholders shall be addressed to each holder of record at the address of such
holder appearing on the books of the Corporation.
(d) PAYMENT OF TAXES. The Corporation shall pay all taxes (other than
taxes based upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon conversion of
shares of Series A Preferred, excluding any tax or other charge imposed in
connection with any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Series A Preferred
so converted were registered.
(e) NO DILUTION OR IMPAIRMENT. The Corporation shall not amend its
Certificate of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation.
(f) NO REISSUANCE OF SERIES A PREFERRED. No share or shares of Series A
Preferred acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued.
14
<PAGE> 1
EXHIBIT 10.3
PEGASUS TECHNOLOGIES, INC.
STOCKHOLDER AND VOTING AGREEMENT
DATED AS OF
MARCH 3, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Certain Definitions......................................................................................1
2. Registration Rights......................................................................................6
2.01 Request for Registration........................................................................6
2.02 Demand Registrations............................................................................6
2.03 Piggyback Registrations.........................................................................8
2.04 Expenses of Registration........................................................................8
2.05 Registration Procedures.........................................................................9
2.06 Holders' Obligation............................................................................10
2.07 Idemnification.................................................................................10
2.08 Other Obligations..............................................................................12
2.09 180-Day Lockup.................................................................................13
2.10 Termination of Registration Rights.............................................................13
3. Restrictions on Transfer of Stock.......................................................................13
3.01 Transfer of Shares.............................................................................13
3.02 Pre-Initial Public Offering First Refusal Rights...............................................13
3.03 Post-Initial Public Offering First Refusal Rights..............................................15
3.04 Exempt Transactions............................................................................15
4. Covenants of the Company................................................................................15
4.01 Basic Financial Information....................................................................16
4.02 Additional Information Rights..................................................................17
4.03 Prompt Payment of Taxes, Etc...................................................................17
4.04 Maintenance of Properties and Leases...........................................................18
4.05 Insurance......................................................................................18
4.06 Accounts and Records...........................................................................18
4.07 Independent Accountants........................................................................18
4.08 Compliance with Laws...........................................................................18
4.09 Maintenance of Corporate Existence, Etc........................................................18
4.10 New Securities.................................................................................19
5. Corporate Governance....................................................................................20
5.01 Board of Directors.............................................................................20
5.02 Meetings of the Board..........................................................................21
5.03 Committees.....................................................................................21
5.04 Reimbursement of Expenses......................................................................21
5.05 Certain Approvals..............................................................................22
5.06 Irrevocable Proxy and Power of Attorney........................................................22
6. Corporate Governance Policy; Business Plan and Budget...................................................23
7. Co-sale Rights..........................................................................................23
7.01 Sales by Existing Stockholders.................................................................23
8. Statement Respecting Rights.............................................................................25
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
9. Miscellaneous...........................................................................................26
9.01 Governing Law..................................................................................26
9.02 Successors and Assigns.........................................................................26
9.03 Entire Agreement: Amendment and Waiver.........................................................27
9.04 Notices, Etc...................................................................................27
9.05 Delays or Omissions............................................................................28
9.06 Severability...................................................................................29
9.07 Counterparts...................................................................................29
9.08 Termination....................................................................................29
9.09 Specific Enforcement...........................................................................29
9.10 Use of Investor's and KFx's Name...............................................................29
9.11 Relationship between Parties...................................................................29
9.12 Observance of Separate Entity Formalities......................................................30
</TABLE>
Exhibit A..................Corporate Governance Policy
Exhibit B..................Work Program
Exhibit C..................Operating Budget
ii
<PAGE> 4
STOCKHOLDER AND VOTING AGREEMENT
This Stockholder and Voting Agreement (this "AGREEMENT") is made and
entered into as of March 3, 2000, by and among (i) Pegasus Technologies, Inc.,
a South Dakota corporation (the "COMPANY"), (ii) KFx Inc., a Delaware
corporation ("KFx"), (iii) Kennecott Energy Company, a Delaware corporation
(the "INVESTOR"), Brad J. Radl, Philip A. Weintz, Willie B. Roland, Jr., Terry
V. Radl and Richard W. Vesel (together, Messers. Radl, Weintz, Roland, Radl and
Vesel shall be referred to as the "RADL GROUP"). KFx and the Radl Group are
referred to collectively as the "EXISTING STOCKHOLDERS" and individually as an
"EXISTING STOCKHOLDER" and the Existing Stockholders together with the Investor
are referred to collectively as the "STOCKHOLDERS" and individually as a
"STOCKHOLDER."
The Investor, KFx and the Company are parties to a Common Stock and
Series A Preferred Stock Purchase Agreement of even date herewith (the
"PURCHASE AGREEMENT"). The Investor's obligations under the Purchase Agreement
are conditioned upon the execution and delivery of this Agreement by the
Stockholders and the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties agree as follows:
1. CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
following respective meanings, which shall be equally applicable to the
singular and plural forms thereof, unless the context otherwise requires:
"AFFILIATE" means, with respect to any Person, a Person that, directly
or indirectly through one or more intermediaries, controls, or is controlled
by, or is under common control with such Person or an officer, director, holder
of 10% or more of the outstanding equity securities of such Person, or the
parent, spouse or lineal descendant of any of the foregoing.
"BEST EFFORTS" means the efforts that a prudent Person desiring to
achieve a particular result would use in order to ensure that such result is
achieved in a commercially reasonable manner and as expeditiously as is
commercially reasonable under the circumstances.
"CASH FLOW" means, for any period, the sum of (a) operating cash flow
as calculated pursuant to generally accepted accounting principles, plus (b)
cash interest payments on Indebtedness minus (c) cash paid for capital
expenditures (as determined in accordance with generally accepted accounting
principles) of the Company paid during such period.
<PAGE> 5
"CASH FLOW COVERAGE RATIO" means, as at any date of determination
thereof, the ratio of (a) the Cash Flow for the period of four fiscal quarters
ending on or most recently ended prior to such date to (b) the Operating Costs
for such period.
"CLOSING" means the date of the sale of shares of the Company's Common
Stock and Series A Preferred pursuant to the Purchase Agreement.
"COMMISSION" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"COMMON STOCK" means the Company's common stock, $0.001 par value per
share.
"COMPANY" has the meaning set forth in the introductory paragraph.
"CONVERSION EVENT" has the meaning set forth in Section 8.02.
"DEBT SERVICE" means, for any period, the sum of all principal paid
for Indebtedness plus interest payments made by the Company during such period
with respect such Indebtedness.
"DEBT SERVICE COVERAGE RATIO" means, as at any date of determination
thereof, the ratio of (a) Cash Flow for the period of two fiscal quarters
ending on or most recently ended prior to such date to (b) Debt Service for
such period.
"DEMAND REGISTRATION" has the meaning set forth in Section 2.01.
"ELECTION PERIOD" has the meaning set forth in Section 3.01.
"ENTITY" means any corporation (including any non profit corporation),
general partnership, limited partnership, limited liability partnership,
limited liability limited partnership, joint venture, estate, trust,
cooperative, foundation, society, political party, union, company (including
any limited liability company or joint stock company), firm or other
enterprise, association, organization or other entity.
"EXCHANGE ACT" means the Securities Exchange Act of 1934 (or any
similar successor federal statute), as amended, and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
"EXISTING STOCKHOLDER" has the meaning set forth in the introductory
paragraph to this Agreement.
"GOVERNMENTAL BODY" means any:
(a) nation, principality, state, commonwealth, province,
territory, county, municipality, district or other
jurisdiction of any nature;
2
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(b) federal, state, local, municipal, foreign or other
government;
(c) governmental or quasi governmental authority of any nature
(including any governmental division, subdivision,
department, agency, bureau, branch, office, commission,
council, board, instrumentality, officer, official,
representative, organization, unit, body or Entity and any
court or other tribunal);
(d) multi-national governmental or quasi-governmental
organization or body; or
(e) other body exercising, or entitled to exercise, any
executive, legislative, judicial, administrative, regulatory,
police, military or taxing authority.
"INCENTIVE PLAN" means the Company's 1999 Stock Incentive Plan.
"INDEBTEDNESS" means, for any period, all obligations of the Company
for borrowed money including, without limitation, all obligations of the
Company under capital leases (as determined in accordance with generally
accepted accounting principles) and all obligations, contingent or otherwise,
relative to the full amount of any letter of credit or surety bond, whether or
not drawn or called upon.
"INDEMNIFIED PARTY" has the meaning set forth in Section 2.07(c).
"INDEMNIFYING PARTY" has the meaning set forth in Section 2.07(c).
"INITIAL PUBLIC OFFERING" means the first underwritten public offering
of Common Stock of the Company registered on Form S-1 and filed with the
Commission under the Securities Act.
"INVESTOR" has the meaning set forth in the introductory paragraph.
"INVESTOR DIRECTOR" has the meaning set forth in Section 5.01(a)(ii).
"INVESTOR NOTICE" has the meaning set forth in Section 3.02(a).
"INVESTOR STOCK" means (i) shares of Common Stock owned by the
Investor or any transferee thereof; (ii) shares of Common Stock issued or
issuable upon the conversion or exercise of any stock (including, without
limitation, the Series A Preferred) warrants, options or other securities of
the Company owned by the Investor or any transferee thereof; and (iii) any
shares of Common Stock issued as a dividend or other distribution with respect
to or in exchange for or in replacement of the shares referenced in (i) and
(ii) above. Any reference to a percentage of Investor Stock of the Company
shall be determined on a fully diluted basis.
"LONG FORM REGISTRATION" has the meaning set forth in Section 2.01.
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"NEW ISSUANCE NOTICE" has the meaning set forth in Section 4.10(d)(i).
"NEW SECURITIES" has the meaning set forth in Section 4.10(c).
"OFFER NOTICE" has the meaning set forth in Section 3.02(a).
"OPERATING BUDGET" has the meaning set forth in Section 6.01(b).
"OPERATING COSTS" means, for any period, the sum, computed without
duplication, of all costs and expenses paid by the Company during such period
(or, in the case of any future period, projected to be paid or payable during
such period) in connection with the operation, maintenance and administration
of the Company, including, without limitation, all costs payable by the Company
in connection with its business whether by way of operations, debt service,
lease obligations, license fees, employee costs, taxes or otherwise (as
determined on a cash basis).
"OTHER STOCKHOLDERS" has the meaning set forth in Section 3.02(b).
"PARTICIPATING STOCKHOLDER" has the meaning set forth in Section
3.02(a).
"PARTICIPATING OTHER STOCKHOLDER" has the meaning set forth in Section
3.02(b).
"PERSON" means any individual, Entity or Governmental Body.
"PIGGYBACK REGISTRATION" has the meaning set forth in Section 2.03(a).
"PREEMPTIVE RIGHT" has the meaning set forth in Section 4.10(a).
"PREEMPTIVE RIGHT ELECTION NOTICE" has the meaning set forth in
Section 4.10(d)(i).
"PREFERRED STOCK" means preferred stock of the Company.
"PRO RATA SHARE" the percentage that the number of fully diluted
shares of Common Stock of the Company held by a Stockholder represents of the
fully diluted shares of Common Stock of the Company held by all of the
Stockholders (other than (i) the Transferring Stockholder in the case of a
determination pursuant to Section 3.02(a) or (ii) the Investor in the case of a
determination pursuant to Section 3.02(b)). In the case of any determination
hereunder, such determination shall be made assuming the exercise of all
outstanding options and warrants and the conversion of all outstanding
convertible securities, including, without limitation, the Series A Preferred.
"PURCHASE AGREEMENT" has the meaning set forth in the introductory
paragraph.
"RATABLE PERCENTAGE" has the meaning set forth in Section 4.10(b).
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"REGISTRABLE SECURITIES" means the Investor Stock and any other
Company securities eligible for registration; provided, however, that
Registrable Securities shall not include any shares of Investor Stock or other
securities that have previously been registered under the Securities Act or
that have otherwise been sold to the public in an open-market transaction under
Rule 144.
The terms "REGISTERS," "REGISTERED" and "REGISTRATION" shall refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of the
effectiveness of such registration statement by the Commission or by operation
of law.
"REGISTRATION EXPENSES" means all expenses incurred in effecting any
registration pursuant to this Agreement, including without limitation all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, blue sky fees and expenses,
expenses of any regular or special audits incident to or required by any such
registration, and the fees and expenses of one counsel for the selling holders
of Registrable Securities, but excluding Selling Expenses.
"RULE 13d-1" means Rule 13d-1 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
"RULE 144" means Rule 144 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the Commission.
"SECURITIES ACT" means the Securities Act of 1933 (or any similar
successor federal statute), as amended, and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
"SELLING EXPENSES" means all underwriting fees or discounts and
selling commissions applicable to the sale of Registrable Securities.
"SERIES A PREFERRED" means the Company's Series A Preferred Stock,
$0.001 par value per share.
"SHORT FORM REGISTRATION" has the meaning set forth in Section 2.01.
"SIGNIFICANT HOLDER" means the Investor or any transferee of the
Investor Stock to the extent that such Person holds either (i) Investor Stock
representing at least 4% of the issued and outstanding Stock of the Company or
(ii) those shares of Common Stock and Preferred Stock (or Conversion Shares, as
such term is defined in the Purchase Agreement) issued or conveyed pursuant to
Sections 2.02 and 2.03(a) of the Purchase Agreement.
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"STATEMENT RESPECTING RIGHTS" means that Statement Respecting Rights
of Series A Preferred Stock of the Company, which was filed with the Secretary
of State of the State of South Dakota on March 3, 2000 and which provides for
7,139,169 authorized shares of Series A Preferred.
"STOCK" means, with respect to any Stockholder, the shares of capital
stock of the Company, including, without limitation, Common Stock, Series A
Preferred and any security, held at any time by such Stockholder, directly or
indirectly, convertible or exchangeable for Common Stock of the Company or
securities exercisable or convertible or exchangeable for Common Stock.
"STOCKHOLDER" has the meaning set forth in the introductory paragraph
and, in addition, shall include any Person who acquires Stock and becomes a
party to this Agreement.
"TRANSFER" has the meaning set forth in Section 3.01.
"TRANSFERRING STOCKHOLDER" has the meaning set forth in Section
3.02(a).
"WORK PROGRAM" has the meaning set forth in Section 6.01(b).
2. REGISTRATION RIGHTS
2.01 Request for Registration.
(a) At any time or times commencing six months after the
effective date of the Initial Public Offering, the Investor may demand and
require that the Company effect (i) up to two registrations under the
Securities Act utilizing Form S-1 or any similar form (a "LONG FORM
REGISTRATION") and (ii) an unlimited number of registrations on Form S-3 or any
similar form, if available (a "SHORT FORM REGISTRATION") (each a "DEMAND
REGISTRATION"). Upon receipt of written notice of such demand, the Company
shall promptly give written notice of the proposed registration to all other
holders of Registrable Securities and shall include in such registration all
Registrable Securities specified in such demand, together with all Registrable
Securities of any other holder of Registrable Securities joining in such demand
as are specified in a written request received by the Company within 20 days
after delivery of the Company's notice.
(b) Notwithstanding the provisions of Section 2.01(a),
the Company shall not be obligated to register any securities in response to a
Demand Registration unless the aggregate offering value of the Registrable
Securities requested to be registered under such Demand Registration equals or
exceeds $5,000,000.
2.02 Demand Registrations.
(a) Deferral of Demand Registration. The Company shall
use its Best Efforts to file a registration statement with respect to each
Demand Registration requested
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pursuant to and in compliance with Section 2.01 as soon as reasonably
practicable after receipt of the demand of the Investor; provided, however,
that if in the good faith judgment of the Board of Directors of the Company,
such registration would be seriously detrimental to the Company because such
registration would interfere with a primary registration of securities by the
Company or any other material corporate transaction or activity and the Board
of Directors concludes, as a result, that it is advisable to defer the filing
of such registration statement at such time (as evidenced by an appropriate
resolution of the Board of Directors), then the Company shall have the right to
defer such filing for the period during which such registration would be
seriously detrimental; provided, however, that (i) the Company may not defer
the filing for a period of more than 90 days after receipt of the demand of the
Investor, (ii) the Company shall not exercise its right to defer a Demand
Registration more than once in any 12-month period, and (iii) if the Company
undertakes a primary registration following an exercise of its deferral right,
the holders of Registrable Securities shall have "piggyback" rights under
Section 2.03.
(b) Underwriting. If the Investor intends to distribute
the Registrable Securities covered by a Demand Registration by means of an
underwriting, it shall so advise the Company as a part of its demand made
pursuant to Section 2.01 and the Company shall include such information in its
written notice to holders of Registrable Securities. The Investor shall have
the right to select the managing underwriter(s) for an underwritten Demand
Registration, subject to the approval of the Company's Board of Directors (such
approval not to be unreasonably withheld). The right of any holder of
Registrable Securities to participate in an underwritten Demand Registration
shall be conditioned upon such holder's participation in such underwriting in
accordance with the terms and conditions thereof, and the Company and such
holders shall enter into an underwriting agreement in customary form.
(c) Priorities. Except as otherwise set forth herein,
the holders of Registrable Securities shall have absolute priority over any
other securities included in a Demand Registration. If other securities are
included in any Demand Registration that is not an underwritten offering and is
not a shelf or evergreen registration, all Registrable Securities included in
such offering shall be sold prior to the sale of any of such other securities.
If other securities are included in any Demand Registration that is an
underwritten offering, and the managing underwriter for such offering advises
the Company that in its opinion the amount of securities to be included exceeds
the amount of securities which can be sold in such offering without adversely
affecting the marketability thereof, the Company shall include in such
registration all Registrable Securities requested to be included therein prior
to the inclusion of any other securities. If the number of Registrable
Securities requested to be included in such registration exceeds the amount of
securities that in the opinion of such underwriter can be sold without
adversely affecting the marketability of such offering, such Registrable
Securities shall be included pro rata among the holders thereof based on the
percentage of the Investor Stock held by each such Stockholder.
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(d) Nothing contained herein shall obligate the Investor
to sell any Stock held by the Investor at the time of an Initial Public
Offering or any subsequent public offering of Stock.
2.03 Piggyback Registrations.
(a) Request for Inclusion. If any time after the Initial
Public Offering, but not in connection with the Initial Public Offering, the
Company shall seek registration of any of its securities for its own account or
for the account of other security holders of the Company on any registration
form (other than Form S-4 or S-8) which permits the inclusion of Registrable
Securities (a "PIGGYBACK REGISTRATION"), the Company shall promptly give each
holder of Registrable Securities written notice thereof and, subject to Section
2.03(c), shall include in such registration all the Registrable Securities
requested to be included therein pursuant to the written requests of holders of
Registrable Securities received within 20 days after delivery of the Company's
notice.
(b) Underwriting. If the Piggyback Registration relates
to an underwritten public offering, the Company shall so advise the holders of
Registrable Securities as a part of the written notice given pursuant to
Section 2.03(a). In such event, the right of any holder of Registrable
Securities to participate in such registration shall be conditioned upon such
holder's participation in such underwriting in accordance with the terms and
conditions thereof. All holders of Registrable Securities proposing to
distribute their securities through such underwriting shall (together with the
Company) enter into an underwriting agreement in customary form with the
representative of the underwriter or underwriters selected by the Company.
(c) Priorities. If such proposed Piggyback Registration
is an underwritten offering and the managing underwriter for such offering
advises the Company that the securities requested to be included otherwise
therein exceeds the amount of securities that can be sold in such offering,
except as otherwise provided in Section 2.01 and in this Section 2.03(c), any
securities to be sold by the Company in such offering shall have priority over
any Registrable Securities and other holders of securities seeking
registration, with the second priority for inclusion in such offering to be
offered to the holders of the Investor Stock (who, without their consent, shall
not have the number of shares of Registrable Securities for which they are
seeking registration reduced to less than 50% of the stock requested to be
registered by such holders), and third priority to all other holders of
securities seeking registration.
2.04 Expenses of Registration. All Registration Expenses incurred
in connection with the Long-Form Registrations and the Short Form and Piggyback
Registrations shall be borne by the Company. All Selling Expenses relating to
Registrable Securities included in any Demand or Piggyback Registration shall
be borne by the holders of such securities pro rata on the basis of the number
of shares registered for them.
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2.05 Registration Procedures. In the case of each registration
effected by the Company pursuant to this Article 2, the Company shall keep each
holder of Registrable Securities advised in writing as to the initiation of
such registration and as to the completion thereof. At its expense, the Company
shall use its Best Efforts to:
(a) cause such registration to be declared effective by
the Commission and, in the case of a Demand Registration, maintain such
registration effective for a period of 180 days or until the holders of
Registrable Securities included therein have completed the distribution
described in the registration statement relating thereto, whichever first
occurs;
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement (including post-effective
amendments) as may be necessary to comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement;
(c) obtain appropriate qualifications of the securities
covered by such registration under state securities or "blue sky" laws in such
jurisdictions as may be requested by the holders of Registrable Securities;
provided, however, that the Company shall not be required to file a general
consent to service of process in any jurisdiction in which it is not otherwise
subject to service in order to obtain any such qualification;
(d) furnish such number of prospectuses and other
documents incident thereto, including any amendment of or supplement to a
prospectus, as a holder of Registrable Securities from time to time may
reasonably request;
(e) notify each holder of Registrable Securities covered
by such registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such holder, prepare and
furnish to such holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or incomplete in the light of the circumstances then existing;
(f) cause all Registrable Securities covered by such
registration to be listed on each securities exchange or inter-dealer quotation
system on which similar securities issued by the Company are then listed;
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(g) provide a transfer agent and registrar for all
Registrable Securities covered by such registration and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration;
(h) otherwise comply with all applicable rules and
regulations of the Commission and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering the period of at
least twelve months, but not more than 18 months, beginning with the first
month after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act;
and
(i) in connection with any underwritten Demand
Registration, the Company shall enter into an underwriting agreement reasonably
satisfactory to the Initiating Holders containing customary underwriting
provisions, including indemnification and contribution provisions.
2.06 Holder's Obligations. Each holder of Registrable Securities
included in a registration statement shall not effect sales thereof after
receipt of written notice from the Company pursuant to Section 2.05(e) until
the Company notifies the holder otherwise.
2.07 Indemnification.
(a) The Company shall indemnify each holder of
Registrable Securities, each of such holder's officers, directors, partners,
agents, employees and representatives, and each person controlling such holder
within the meaning of Section 15 of the Securities Act, with respect to each
registration, qualification or compliance effected pursuant to this Article 2,
against all expenses, claims, losses, damages and liabilities (or actions,
proceedings or settlements in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by
the Company of the Securities Act or any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and shall reimburse each such indemnified person for any legal and any other
expenses reasonably incurred in connection with investigating and defending or
settling any such claim, loss, damage, liability or action; provided, however,
that the Company shall not be liable in any such case to the extent that any
such claims, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based upon written information furnished to
the Company by such holder of Registrable Securities and stated to be
specifically for use therein. It is agreed that the indemnity agreement
contained this Section 2.06(a) shall not apply to amounts paid in settlement of
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any loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld).
(b) Each holder of Registrable Securities included in
any registration effected pursuant to this Article 2 shall indemnify the
Company, each of its directors, officers, agents, employees and
representatives, and each person who controls the Company within the meaning of
Section 15 of the Securities Act, each other such holder of Registrable
Securities and each of their officers, directors and partners, and each person
controlling such holders, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
shall reimburse such indemnified persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in strict
conformity with written information furnished to the Company by such holder of
Registrable Securities; provided, however, that (x) no holder of such
Registrable Securities shall be liable hereunder for any amounts in excess of
the net proceeds received by such holder pursuant to such registration, and (y)
the obligations of such holder of Registrable Securities hereunder shall not
apply to amounts paid in settlement of any such claims, losses, damages or
liabilities (or actions in respect thereof) if such settlement is effected
without the consent of such holder (which consent has not been unreasonably
withheld).
(c) Each party entitled to indemnification under this
Section 2.07 (the "INDEMNIFIED PARTY") shall give written notice to the party
required to provide indemnification (the "INDEMNIFYING PARTY") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Section
2.07 to the extent such failure is not prejudicial. No Indemnifying Party in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include an unconditional release of such Indemnified
Party from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or the claim
in question as an Indemnifying Party may reasonably request in writing and as
shall be reasonably required in connection with defense of such claim and
litigation resulting therefrom.
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(d) If the indemnification provided for in this Section
2.07 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage or expense
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the
other in connection with the statements or omissions that resulted in such
loss, liability, claim, damage or expense as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and of
the Indemnified Party shall be determined by reference, among other things, to
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
(e) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in an underwriting
agreement entered into in connection with an underwritten public offering are
in conflict with the foregoing provisions, the provisions in such underwriting
agreement shall control.
2.08 Other Obligations. With a view to making available the
benefits of certain rules and regulations of the Commission that may effectuate
the registration of Registrable Securities or permit the sale of Registrable
Securities to the public without registration, the Company agrees:
(a) after its initial registration under the Securities
Act, to exercise its Best Efforts to cause the Company to be eligible to
utilize Form S-3 (or any similar form) for the registration of Registrable
Securities;
(b) at such time as any Registrable Securities are
eligible for transfer under Rule 144(k), upon the request of the holder of such
Registrable Securities, to remove any restrictive legend from the certificates
evidencing such securities at no cost to such holder;
(c) to use its Best Efforts to make and keep available
public information as defined in Rule 144 at all times from and after 90 days
following its initial registration under the Securities Act;
(d) to file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act
and the Exchange Act at any time after it has become subject to such reporting
requirements; and
(e) to furnish any holder of Registrable Securities upon
request a written statement by the Company as to its compliance with the
reporting requirements of
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Rule 144 (at any time from and after 90 days following the effective date of
the first registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents as a holder of Registrable Securities may
reasonably request in availing itself of any rule or regulation of the
Commission (including Rule 144A) allowing a holder of Registrable Securities to
sell any such securities without registration.
2.09 180-Day Lockup. If requested by the Company or a
representative of the underwriters of Common Stock (or other securities) of the
Company in connection with the Initial Public Offering, each holder of
Registrable Securities shall not sell or otherwise transfer or dispose of any
Common Stock (or other securities) of the Company held by such holder (other
than those included in the registration) for a period specified by the
representative of the underwriters, not to exceed 180 days following the
effective date of the Initial Public Offering, provided that all officers and
directors of the Company and holders of at least two percent of the Company's
voting securities enter into similar agreements. The Company may impose
stop-transfer instructions with respect to the shares of Common Stock (or other
securities) subject to the foregoing restriction until the end of said period.
2.10 Termination of Registration Rights. The right of any holder
of Registrable Securities to request inclusion of Registrable Securities in any
registration pursuant to this Article 2 shall not be applicable at such times
as all Registrable Securities beneficially owned by such holder of Registrable
Securities may be sold under Rule 144 during any three-month period.
3. RESTRICTIONS ON TRANSFER OF STOCK
3.01 Transfer of Shares. Except as otherwise provided herein, no
Stockholder shall pledge, mortgage or otherwise encumber any of its Stock, and
no Stockholder shall sell, transfer (directly or indirectly), assign or
otherwise dispose of (such sale, transfer, assignment, or other disposal, other
than an exempt transaction under Section 3.04 hereof, a "TRANSFER") any
interest in any of its Stock except pursuant to the provisions of this Article
3. As used herein, Transfer shall include any transaction, however structured,
pursuant to which the legal or beneficial ownership of the Stock changes from
the Person that has legal or beneficial ownership of the Stock as of the date
hereof. Subject to the terms and conditions of this Article 3, each Stockholder
agrees not to consummate any such Transfer until 10 days after the delivery to
the required parties of an Offer Notice unless the parties to the Transfer have
been finally determined pursuant to this Article 3 prior to the expiration of
such 10-day period (the "ELECTION PERIOD").
3.02 Pre-Initial Public Offering First Refusal Rights. (a) The
Existing Stockholders (as applicable, the "TRANSFERRING STOCKHOLDER") shall
only Transfer Stock prior to the Initial Public Offering, in compliance with
the provisions of this
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Section 3.02(a). If a Transferring Stockholder wishes to Transfer Stock, the
Transferring Stockholder shall deliver a written notice (an "OFFER NOTICE") to
the other Stockholders. The Offer Notice shall disclose in reasonable detail
the identity of the prospective transferee(s), the proposed number of shares of
Stock to be transferred and the proposed terms and conditions of such Transfer.
The Investor may elect to purchase some or all of the shares of Stock specified
in the Offer Notice at a price and on the terms specified therein by delivering
written notice of such election (the "INVESTOR NOTICE") to the Transferring
Stockholder and the other Stockholders as soon as practicable but in any event
within 60 days after delivery of the Offer Notice. If the Investor elects not
to purchase all such shares, then each other Stockholder (each, a
"PARTICIPATING STOCKHOLDER") may elect to purchase up to its Pro Rata Share (as
defined below) of the shares of Stock specified in the Offer Notice at a price
and on the terms specified therein by delivering written notice of such
election to the Transferring Stockholder and the other Stockholders as soon as
practicable but in any event within 20 days after receipt of an Investor Notice
stating that the Investor has elected not to purchase all such shares. Any
shares not elected to be purchased by the end of such 20-day period shall be
reoffered to the Participating Stockholders on a pro rata basis based upon the
number of shares held by the Participating Stockholders for a ten-day period by
written notice from the Transferring Stockholder to the Participating
Stockholders who have elected to purchase their Pro Rata Shares. If the
Investor or any Stockholders have elected to purchase shares from the
Transferring Stockholder, the transfer of such shares shall be consummated as
soon as practicable after the delivery of the election notices, but in any
event within 30 days after the expiration of the last applicable election
period. To the extent that the Investor and the other Stockholders have not
elected to purchase all of the shares specified in the Offer Notice, the
Transferring Stockholder may, within 90 days after the expiration of the last
applicable election period, transfer such shares to the transferees identified
in the Offer Notice at a price no less than the price per share specified in
the Offer Notice and on other terms no more favorable to the transferee(s) than
offered to the other Stockholders in the Offer Notice. The purchase price
specified in any Offer Notice shall be payable solely in cash or marketable
securities at the closing of the transaction or in installments over time.
(b) The Investor shall only Transfer Stock prior to the
Initial Public Offering, in compliance with the provisions of this Section
3.02(b). If the Investor wishes to Transfer Stock, the Investor shall deliver a
written notice (an "INVESTOR OFFER NOTICE") to the other Stockholders (the
"OTHER STOCKHOLDERS"). The Investor Offer Notice shall disclose in reasonable
detail the identity of the prospective transferee(s), the proposed number of
shares of the Stock to be transferred and the proposed terms and conditions of
such Transfer. Each of the Other Stockholders may elect to purchase up to its
Pro Rata Share of the Stock specified in the Investor Offer Notice at a price
and on the terms specified therein by delivering written notice of such
election to the Investor as soon as practicable but in any event within 20 days
after delivery of the Investor Offer Notice. If any Other Stockholder elects
not to purchase its Pro Rata Share of the Stock (a "DECLINING Stockholder"),
then the Investor shall deliver to the Other Stockholders who
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have elected to purchase (the "PARTICIPATING OTHER STOCKHOLDERS") written
notice specifying the aggregate number of shares of Stock that all Declining
Stockholders have not elected to purchase (the "SECOND OFFER NOTICE"). Each
Participating Other Stockholder may elect to purchase its pro rata portion
(based upon the number of shares held by the Participating Other Stockholders)
of the Declining Stockholder's Pro Rata Share of the Stock specified in the
Second Offer Notice at a price and on the terms specified therein by delivering
written notice of such election to the Investor as soon as practicable but in
any event within 20 days after delivery of the Second Offer Notice. If the
Participating Other Stockholders have elected to purchase all of the Stock
being offered by the Investor, the transfer of such shares shall be consummated
as soon as practicable after the delivery of the election notices, but in any
event within 30 days after the expiration of the last applicable election
period. To the extent that the Participating Other Stockholders have not
elected to purchase all of the Stock specified in the Investor Offer Notice,
the Investor may, within 90 days after the expiration of the last applicable
election period, transfer such Stock to the transferees identified in the
Investor Offer Notice at a price no less than the price per share specified in
the Investor Offer Notice and on other terms no more favorable to the
transferee(s) than offered to the other Stockholders in the Investor Offer
Notice. The purchase price specified in any Investor Offer Notice shall be
payable solely in cash or marketable securities at the closing of the
transaction or in installments over time.
(c) Any transferee of shares in accordance with Sections
3.02(a) or 3.02(b) shall, as a condition precedent to any Transfer, agree to be
bound by (and execute a counterpart of) this Agreement.
3.03 Post-Initial Public Offering First Refusal Rights. Subsequent
to the Initial Public Offering, any Existing Stockholder seeking to Transfer in
a single transaction or in a series of related transactions more than 5% of the
Company's outstanding as-converted Common Stock to a single holder or "group"
of holders as defined in Rule 13d-1, other than in connection with an
underwritten distribution of shares, shall first offer such Common Stock to the
Investor pursuant to the procedures set forth in Section 3.02.
3.04 Exempt Transactions. The restrictions set forth in this
Article 3 shall not apply to (i) the repurchase of shares by the Company
pursuant to the Incentive Plan (as in effect on the date hereof), (ii) the
transfer of all or any part of an individual Stockholder's shares of Stock
during his or her lifetime by gift or on his or her death by will or intestacy
to the Stockholder's immediate family (meaning the spouse, ancestors, lineal
descendants (including adopted children) and spouses of the lineal descendants
of such Stockholder), (iii) transfers by any Stockholder to a company
controlled by, under common control with or that controls such Stockholder or
(iv) any transfer pursuant to Article 8 hereof.
4. COVENANTS OF THE COMPANY
The Company hereby covenants and agrees, so long as any Investor Stock
is held by a Significant Holder, as follows:
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<PAGE> 19
4.01 Basic Financial Information. The Company shall, subject to
applicable law, including, without limitation, applicable antitrust laws,
furnish the following reports to each Significant Holder:
(a) As soon as practicable after the end of each fiscal
year of the Company, and in any event within 90 days thereafter, a consolidated
balance sheet of the Company and its subsidiaries, if any, as of the end of
such fiscal year, and consolidated statements of income and cash flow of the
Company and its subsidiaries, if any, for such year, prepared in accordance
with generally accepted accounting principles consistently applied and setting
forth in each case in comparative form the figures for the previous fiscal
year, all in reasonable detail and audited and certified by independent public
accountants of recognized national standing selected by the Company. The
Company shall also prepare and deliver to the Investor (i) a comparison of such
results to the Company's Work Program and the Operating Budget of the Company,
and (ii) a calculation of the Company's Debt Service Coverage Ratio for the
preceding year.
(b) As soon as practicable after the end of each
quarterly accounting period in each fiscal year of the Company, and in any
event within 45 days thereafter, a consolidated balance sheet of the Company
and its subsidiaries, if any, as of the end of each such quarterly period, and
consolidated statements of income and cash flow of the Company and its
subsidiaries, if any, for such period and for the current fiscal year to date,
prepared in accordance with generally accepted accounting principles
consistently applied and setting forth in comparative form the figures for the
corresponding periods of the previous fiscal year, subject to changes resulting
from normal year-end audit adjustments, all in reasonable detail and certified
by the chief financial officer of the Company (or the chief accounting officer
if no CFO is in place), except that such statements need not contain the notes
required by generally accepted accounting principles. The Company shall also
prepare and deliver to the Investor (i) a comparison of such results to the
Company's Work Program and the Operating Budget of the Company, and (ii) a
calculation of the Company's Debt Service Coverage Ratio for the preceding
quarter.
(c) As soon as practicable after the end of each monthly
accounting period and in any event within 30 days thereafter, a consolidated
balance sheet of the Company and its subsidiaries, if any, as of the end of
such month and consolidated statements of income and of cash flow of the
Company and its subsidiaries, if any, for each month and for the current fiscal
year of the Company to date, all subject to normal year-end audit adjustments,
prepared in accordance with generally accepted accounting principles
consistently applied and certified by the chief financial officer of the
Company (or the chief accounting officer if no CFO is in place), except that
such statements need not contain the notes required by generally accepted
accounting principles. The Company shall also prepare and deliver to the
Investor a comparison of such results to the Company's Work Program and the
Operating Budget of the Company.
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4.02 Additional Information Rights.
(a) The Company shall, subject to the requirements of
applicable law, including, without limitation, antitrust laws, permit each
Significant Holder to visit and inspect any of the properties of the Company,
including its books of account and other records (and make copies thereof and
take extracts therefrom), and to discuss its affairs, finances and accounts
with the Company's officers and its independent public accountants, all at such
reasonable times and as often as any such person may reasonably request.
(b) The Company shall deliver the following reports to
each Significant Holder:
(i) Annually (but in any event at least 30 days
prior to the commencement of each fiscal year of the Company)
the financial plan of the Company, in such manner and form as
approved by the Board of Directors of the Company, which
financial plan shall include an Operating Budget for such
fiscal year and the Work Program, as supplemented from
time-to-time pursuant to the terms and conditions of the
Purchase Agreement, for the Company.
(ii) Concurrently with delivery thereof, copies of
all reports and other written material submitted to the Board
of Directors.
(iii) Concurrently with delivery thereof, copies of
all reports or communications delivered to the financial
community, including all press releases.
(c) Each Significant Holder hereby agrees to hold in
confidence and trust and not to misuse or disclose any confidential information
provided pursuant to this Section 4.02.
4.03 Prompt Payment of Taxes, Etc. The Company shall promptly pay
and discharge, or cause to be paid and discharged, when due and payable, all
lawful taxes, assessments and governmental charges or levies imposed upon the
income, profits, property or business of the Company or any subsidiary;
provided, however, that any such tax, assessment, charge or levy need not be
paid if the validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Company shall have set aside on its books
adequate reserves with respect thereto; and provided, further, that the Company
shall pay all such taxes, assessments, charges or levies forthwith upon the
commencement of proceedings to foreclose any lien that may have attached as
security therefore. The Company shall promptly pay or cause to be paid when
due, in conformance with customary trade terms, all other obligations incident
to the operations of the Company.
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4.04 Maintenance of Properties and Leases. The Company shall keep
its properties and those of its subsidiaries, if any, in good repair, working
order and condition, reasonable wear and tear excepted, and from time to time
make all needful and proper repairs, renewals, replacements, additions and
improvements thereto; and the Company and its subsidiaries shall at all times
comply with each material provision of all leases to which any of them is a
party or under which any of them occupies property if the breach of such
provision would reasonably be expected to have a material and adverse effect on
the condition, financial or otherwise, or operations of the Company.
4.05 Insurance. The Company shall keep its assets and those of its
subsidiaries that are of an insurable character insured by financially sound
and reputable insurers against loss or damage by fire, explosion and other
risks customarily insured against by companies in the Company's line of
business, and the Company shall maintain, with financially sound and reputable
insurers, insurance against other hazards and risks and liability to persons
and property to the extent and in the manner customary for companies in similar
businesses similarly situated.
4.06 Accounts and Records. The Company shall keep true records and
books of account in which full, true and correct entries shall be made of all
dealings or transactions in relation to its business and affairs in accordance
with generally accepted accounting principles applied on a consistent basis.
4.07 Independent Accountants. The Company shall retain a "Big
Five" national accounting firm as its independent public accountants who shall
certify the Company's financial statements at the end of each fiscal year. In
the event the services of the independent public accountants so selected are
terminated, the Company shall promptly thereafter notify the holders of
Investor Stock and shall request the firm of independent public accountants
whose services are terminated to deliver to the Significant Holders a letter
from such firm setting forth the reasons for the termination of their services.
In the event of such termination, the Company shall promptly thereafter engage
another "Big Five" national accounting firm as its independent public
accountants. In its notice to the holders of Investor Stock the Company shall
state whether the change of accountants was recommended or approved by the
Board of Directors of the Company or any committee thereof.
4.08 Compliance with Laws. The Company and all its subsidiaries
shall duly observe and conform to all applicable laws and valid requirements of
governmental authorities relating to the conduct of their businesses or to
their properties or assets.
4.09 Maintenance of Corporate Existence, Etc. The Company shall
maintain in full force and effect its corporate existence, rights and
franchises and all licenses and other rights in or to use patents, processes,
licenses, trademarks, trade names or copyrights owned or possessed by it or any
subsidiary and deemed by the Company to be necessary to the conduct of their
respective businesses.
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4.10 New Securities.
(a) Preemptive Right. The Company hereby grants to the
Investor a preemptive right ("PREEMPTIVE RIGHT") to purchase Investor's Ratable
Percentage of any New Securities that the Company may, from time to time,
propose to issue and sell. The Company shall not issue any New Securities
except in compliance with the Preemptive Right.
(b) Ratable Percentage. Investor's "RATABLE PERCENTAGE,"
for purposes of this Section 4.10, is equal to the fraction obtained by
dividing (i) the sum of (A) the aggregate number of shares of Common Stock held
by the Investor or issuable to the Investor upon conversion of any Series A
Preferred held by the Investor and (B) the total number of shares of Common
Stock issuable upon exercise of any options or warrants then held by the
Investor by (ii) the sum of the total number of shares of (X) Common Stock, (Y)
Common Stock issuable upon the conversion of Series A Preferred, any options or
warrants (including Common Stock issuable upon conversion of any convertible
securities issuable upon the exercise of any options or warrants) or
convertible securities (other than the Series A Preferred) then outstanding,
and (Z) Common Stock issuable upon conversion or exercise of any other
equity-like securities issued to Stockholders.
(c) New Securities. Except as set forth below, "NEW
SECURITIES" shall mean any shares of capital stock of the Company, including
Common Stock and Preferred Stock, whether or not now authorized, and rights,
options, warrants or convertible securities. Notwithstanding the foregoing, New
Securities does not include securities issued or issuable (i) upon the
conversion of Preferred Stock outstanding as of the date hereof or issued
pursuant to the Purchase Agreement, (ii) pursuant to the Initial Public
Offering, (iii) in connection with any stock split, stock dividend, or
recapitalization, (iv) upon the exercise of the Outstanding Options (as defined
in the Purchase Agreement), (v) in connection with the merger or consolidation
of the Company with any other company, (vi) in connection with the purchase of
all or any portion of the assets of another business or (vii) in connection
with the issuance of Preferred Stock in accordance with the Purchase Agreement.
(d) Procedure.
(i) In the event the Company proposes to undertake
an issuance of New Securities, it shall promptly give the
Investor written notice (the "NEW ISSUANCE NOTICE") of its
intention, describing the amount and type of New Securities
to be issued, and the price and terms upon which the Company
proposes to issue the same. The Investor shall as soon as
reasonably practicable, and in any event within ninety days
from the date of receipt of the New Issuance Notice, exercise
the Preemptive Right to purchase up to the Investor's Pro
Rata Share of such New Securities for the price and upon the
terms specified in the New Issuance Notice by delivering
written notice (the
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"PREEMPTIVE RIGHT ELECTION NOTICE") to the Company and
stating therein the quantity of New Securities to be
purchased.
(ii) Settlement for the New Securities to be
purchased by the Investor pursuant to this Subsection (d)
shall be made either in cash or cash equivalents or through
repayment of indebtedness as soon as reasonably practicable
and in any event within one hundred days from the holders'
date of receipt of the New Issuance Notice; provided, however,
that if the terms of payment for the New Securities specified
in the New Issuance Notice were for other than cash against
delivery or promissory notes payable over time, the Investor
shall pay in cash or in promissory notes to the Company the
fair market value of such consideration as mutually agreed
upon by the Company and the Investor or, if no such agreement
is reached, as determined in good faith by the Board.
(iii) At the end of the applicable period of either
ninety days after the receipt of New Issuance Notice pursuant
to clause (i) above or within ninety days after such
determination of fair market value pursuant to clause (ii)
above, the Company shall have 90 days thereafter to sell the
New Securities not elected to be purchased by the Investor at
the price and upon the terms no more favorable to the
purchasers of such securities then specified in the New
Issuance Notice.
(iv) If the Investor shall have failed to deliver to
the Company its Preemptive Right Election Notice within the
time period described in this Subsection (d), the Investor
shall be deemed to have waived its Preemptive Right with
respect to such issuance of New Securities.
5. CORPORATE GOVERNANCE
5.01 Board of Directors.
(a) Concurrently with the Closing and at all times
thereafter, each Stockholder agrees to vote all securities of the Company over
which such Stockholder has voting control and to take all other necessary or
desirable actions within its control (whether as a stockholder, director or
officer of the Company or otherwise, and including without limitation
attendance at meetings in person or by proxy for purposes of obtaining a quorum
and execution of written consents in lieu of meetings), and the Company shall
take all necessary and desirable actions within its control (including, without
limitation, calling special board and stockholder meetings), so that:
(i) the Company shall have a Board of Directors
comprising five members;
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(ii) One voting representative designated by the
Investor shall be elected to the Company's Board of Directors
until such time as the Investor is no longer a Significant
Holder (the "INVESTOR DIRECTOR");
(iii) One voting representative designated by the
Radl Group shall be elected to the Company's Board of
Directors until such time as the Radl Group members do not
collectively own at least 4% of the issued and outstanding
Stock of the Company (the "RADL DIRECTOR");
(iv) in the event that the Investor Director or the
Radl Director for any reason ceases to serve as a member of
the Board during his term of office, the resulting vacancy on
the Board shall be filled by another Investor or Radl Group,
as the case may be, designated director; and
(v) if the Investor or the Radl Group fails to
designate a representative to fill the directorship pursuant
to the terms of this Section 5.01, the election of such
director shall be accomplished in accordance with the
Company's certificate of incorporation and bylaws and
applicable law.
Each member of the Board of Directors, as a condition to his or her
appointment or nomination, or prior to attending any meeting of the Board of
Directors or any committee thereof, shall execute a confidentiality agreement
in form and substance satisfactory to the Company and the Investor. The Company
will adopt a policy applicable to its directors to protect its proprietary
rights.
(b) To the extent that any provision of the Company's
certificate of incorporation or bylaws is inconsistent with the provisions of
this Agreement, the Stockholders agree to take all actions necessary to effect
such amendments to the certificate of incorporation or bylaws as may be
necessary and appropriate to give full effect to the provisions of this
Agreement.
5.02 Meetings of the Board. Prior to the completion of an Initial
Public Offering, the Board of Directors shall meet at least quarterly in
accordance with an agreed-upon schedule.
5.03 Committees. Promptly after the Closing, the Board of
Directors shall establish audit, nominating and compensation committees and
shall delegate to such committees those duties and powers as are customarily
performed by committees of such type. The parties hereto agree to elect the
Investor's nominee to chair the Audit Committee of the Board, which shall have
primary oversight responsibility for corporate compliance, risk management and
ethics issues.
5.04 Reimbursement of Expenses. The reasonable expenses of the
Directors incurred in attending Board or committee meetings shall be reimbursed
by the Company. If the Company adopts any plan or arrangement to compensate any
directors generally for
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service as a director either with cash or with stock options, then the Company
shall also extend the same compensation to the Investor Director and, in the
case of stock options, such options shall be freely transferable by the
Investor Director to the Investor as an Affiliate thereof. Notwithstanding the
foregoing, no director shall receive any compensation from the Company for
service on the Board of Directors until the Cash Flow Coverage Ratio exceeds
1.4 to 1.0.
5.05 Certain Approvals. For purposes of matters which require
shareholder vote under the Company's Bylaws, Articles of Incorporation or
applicable law, holders of Series A Preferred shall have the right to vote that
number of votes equal to the number of shares of Common Stock into which the
Series A Preferred may be converted. For so long as the Investor is a
Significant Holder, without the approval of the Investor Director the Company
shall not: (i) repurchase Common Stock (except for buybacks from directors or
employees) or the Series A Preferred, (ii) declare or pay dividends on or any
distribution on account of the Common Stock, (iii) merge, consolidate or sell
or assign all or substantially all of the Company's assets in which the
Shareholders will not own the majority of the equity of the surviving company,
(iv) amend or waive any provision of the Company's Certificate of Incorporation
or Bylaws to create a new series of preferred stock senior to or in parity with
the Series A Preferred or increase or decrease the authorized preferred stock
of the Company, (v) amend the Articles of Incorporation to change the rights,
preferences, privileges or limitations on the Series A Preferred or the Common
Stock, (vi) change the authorized size of the Board to more or less than five
members, (vii) increase the level of financing that would cause the Debt
Service Coverage Ratio to be reduced to below 1.2 to 1.0, (viii) increase the
number of shares available for stock options or other equity compensation
awards beyond the 2,500,000 options contained in the Company's 1999 Stock
Incentive Plan, whether under an existing or new option or incentive plan, or
(ix) dissolve, liquidate or wind up the Company.
5.06 Irrevocable Proxy and Power of Attorney.
(a) Each member of the Radl Group (other than Brad J.
Radl) hereby irrevocably appoints Brad J. Radl as its attorney-in-fact and
proxy of such member of the Radl Group, with full power of substitution, to
vote and otherwise act (by written consent or otherwise) with respect to the
shares of such member of the Radl Group at any meeting of Stockholders of the
Company (whether annual or special and whether or not an adjourned or postponed
meeting) or with respect to any written consent in lieu of any such meeting or
otherwise, to vote such shares as Brad J. Radl determines in his full
discretion. This proxy and power of attorney is irrevocable and coupled with an
interest and does not terminate on the disability or death of a member of the
Radl Group (other than Brad J. Radl) and shall continue for so long as this
Agreement remains in effect.
(b) Each Stockholder and the Company hereby revokes,
effective upon the execution and delivery of this Agreement, all proxies and
powers of attorney with
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respect to its respective shares that such party may have heretofore appointed
or granted, other than as set forth in Section 5.06(a).
(c) None of the Stockholders or the Company shall,
directly or indirectly, except as contemplated by this Agreement, deposit any
of its shares into a voting trust, or enter into any voting agreement with
respect to its shares.
6. CORPORATE GOVERNANCE POLICY; BUSINESS PLAN AND BUDGET
6.01 Concurrently with the Closing and at all times thereafter,
each Stockholder agrees to vote all securities of the Company over which such
Stockholder has voting control and to take all other necessary or desirable
actions within its control (whether as a stockholder, director or officer of
the Company or otherwise, and including without limitation attendance at
meetings in person or by proxy for purposes of obtaining a quorum and execution
of written consents in lieu of meetings), and the Company shall take all
necessary and desirable actions within its control (including, without
limitation, calling special board and stockholder meetings), so that the
Company shall adopt:
(a) a corporate governance policy, substantially in the
form attached hereto as Exhibit A, that, among other things, acknowledges the
respective business of the Investor and relieves directors designated by the
Investor from certain corporate opportunity obligations in favor of the
Company; and
(b) a strategic business plan including the scope of the
Company's business activities (the "WORK PROGRAM") and an operating budget
covering the initial two-year period of the Company's operations (the
"OPERATING BUDGET"), each approved by the Investor and substantially in the
form attached hereto as Exhibits B and C, respectively.
7. CO-SALE RIGHTS
7.01 Sales by Existing Stockholders.
(a) If an Existing Stockholder proposes to sell or
transfer any shares of Stock, then such Existing Stockholder shall promptly
give written notice (the "Notice") simultaneously to the Company and to the
Investor at least thirty (30) days prior to the closing of such sale or
transfer. The Notice shall describe in reasonable detail the proposed sale or
transfer including, without limitation, the number of shares of Stock to be
sold or transferred, the nature of such sale or transfer, the consideration to
be paid, and the name and address of each prospective purchaser or transferee.
(b) The Investor shall have the right, exercisable upon
written notice to the Existing Stockholder within fifteen (15) days after
Notice, to participate in such sale of Stock on the same terms and conditions.
Such Notice shall indicate the number of shares of Common Stock the Investor
wishes to sell under his or her right to participate. To the extent the
Investor exercises such right or participation in accordance with the
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terms and conditions set forth below, the number of shares of Stock that the
Existing Stockholder may sell in the transaction shall be correspondingly
reduced, unless the purchaser of the Stock desires to purchase all of the
shares which the Existing Stockholder and the Investor desire to sell, in which
case all of such shares shall be sold to the purchaser.
(c) The Investor may sell all or any part of that number
of shares equal to the product obtained by multiplying (i) the aggregate number
of shares of Stock covered by the Notice by (ii) a fraction the numerator of
which is the number of shares of Common Stock owned by Investor at the time of
the sale or transfer and the denominator of which is the total number of shares
of Common Stock owned by the Existing Stockholder and the Investor at the time
of the sale or transfer.
(d) The Investor shall effect its participation in the
sale by promptly delivering to such Existing Stockholder for transfer to the
prospective purchaser one or more certificates, properly endorsed for transfer,
which represent:
(i) the type and number of shares of Common Stock
which the Investor elects to sell; or
(ii) that number of shares of Series A Preferred
which is at such time convertible into the number of shares
of Common Stock which the Investor elects to sell; provided,
however, that if the prospective purchaser objects to the
delivery of Series A Preferred in lieu of Common Stock, the
Investor shall convert such Series A Preferred into Common
Stock and deliver Common Stock as provided in Section
7.01(d)(i) above. The Company agrees to make any such
conversion concurrent with the actual transfer of such shares
to the purchaser.
(e) The stock certificate or certificates that the
Investor delivers to such Existing Stockholder pursuant to Section 7.01(d)
shall be transferred to the prospective purchaser in consummation of the sale
of the Common Stock pursuant to the terms and conditions specified in the
Notice, and such Existing Stockholder shall concurrently therewith remit to the
Investor that portion of the sale proceeds to which Investor is entitled by
reason of its participation in such sale. To the extent that any prospective
purchaser or purchasers prohibits such assignment or otherwise refuses to
purchase shares or other securities from the Investor exercising its rights of
co-sale hereunder, such Existing Stockholder shall not sell to such prospective
purchaser or purchasers any Stock unless and until, simultaneously with such
sale, the prospective purchaser shall purchase such shares or other securities
from the Investor on the same terms and conditions specified in the Notice.
(f) The exercise or non-exercise of the rights of the
Investor hereunder to participate in one or more sales of Stock made by such
Existing Stockholder shall not adversely affect the rights of the Investor
under Section 3.02 hereof.
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(g) If the Investor does not elect to participate in the
sale of the Stock subject to the Notice, such Existing Stockholder may, not
later than sixty (60) days following delivery to the Company of the Notice,
enter into an agreement providing for the closing of the transfer of the Stock
covered by the Notice within thirty (30) days of such agreement on terms and
conditions not more favorable to the transferor than those described in the
Notice. Any proposed transfer on terms and conditions more favorable than those
described in the Notice, as well as any subsequent proposed transfer of any of
the Stock by such Existing Stockholder, shall again be subject to the co-sale
rights of the Investor and shall require compliance by such Existing
Stockholder with the procedures described in this Section 7.01.
8. STATEMENT RESPECTING RIGHTS
8.01 Within 30 days after the date hereof, the Company and the
Stockholders shall take all steps required to amend the Statement Respecting
Rights and any other documents deemed necessary to create such different
classes or sub-classes of Preferred Stock and related conversion mechanisms as
may be required to effect an adjustment to the number of shares of Series A
Preferred held by each holder thereof and the original issue price of such
shares in order (a) to enable the Investor to maintain its as-converted equity
interest in the Company at 2% for each $500,000 of investment in Series A
Preferred and (b) to adjust the number of shares of Series A Preferred held by
KFx to the number of such shares that KFx would have held had the price that
KFx paid for such shares equaled the average price per share paid by the
Investor, as determined following the adjustment contemplated in Section
8.01(a).
8.02 Such amendment shall provide that the adjustment mechanism
contemplated in Section 8.01 shall be invoked upon the occurrence of a
Liquidation (as defined in the Statement Respecting Rights), the sale or other
disposition of shares of Series A Preferred or as otherwise agreed by the
holders of the Series A Preferred (a "CONVERSION EVENT").
8.03 In addition to the adjustment contemplated in Section 8.01,
upon the occurrence of any Conversion Event, the Investor shall transfer to
KFx or KFx shall transfer to the Investor (as the case may be) without any
additional consideration being exchanged therefor, such number of shares of
Common Stock representing the difference between (i) the number of shares of
Common Stock transferred by KFx to the Investor on the date of the Closing and
(ii) the number of shares of Common Stock that would be required for the
Investor to hold a number of shares of Common Stock equal to 4% of the total
number of shares of Common Stock Deemed Outstanding (as such term is defined in
the Statement Respecting Rights).
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9. MISCELLANEOUS
9.01 Governing Law.
(a) This Agreement shall be governed in all respects by
the laws of the State of Colorado as such laws are applied to agreements
between Colorado residents entered into and performed entirely in Colorado,
except that the Business Corporation Act of the State of South Dakota shall
govern as to matters of corporate law.
(b) Any legal action or other legal proceeding relating
to this Agreement or the enforcement of any provision of this Agreement may be
brought or otherwise commenced in any state or federal court located in the
City and County of Denver, Colorado. Each party to this Agreement:
(i) expressly and irrevocably consents and submits
to the jurisdiction of each state and federal court located
in the County of Denver, Colorado (and each appellate court
located in the State of Colorado) in connection with any such
legal proceeding, including to enforce any settlement, order
or award;
(ii) agrees that each state and federal court
located in the City and County of Denver, Colorado shall be
deemed to be a convenient forum; and
(iii) waives and agrees not to assert (by way of
motion, as a defense or otherwise), in any such legal
proceeding commenced in any state or federal court located in
the City and County of Denver, Colorado, any claim that such
party is not subject personally to the jurisdiction of such
court, that such legal proceeding has been brought in an
inconvenient forum, that the venue of such proceeding is
improper or that this Agreement or the subject matter of this
Agreement may not be enforced in or by such court.
(c) Each party hereto agrees to the entry of an order to
enforce any resolution, settlement, order or award made pursuant to this
Section by the state and federal courts located in the County of Denver,
Colorado and in connection therewith hereby waives, and agrees not to assert by
way of motion, as a defense, or otherwise, any claim that such resolution,
settlement, order or award is inconsistent with or violative of the laws or
public policy of the laws of the State of Colorado or any other jurisdiction.
(d) Each party to this Agreement hereby knowingly,
voluntarily, and intentionally waives the right to a trial by jury in respect
of any litigation arising out of, under or in connection with this Agreement,
this waiver being a material inducement for each such party to enter into this
Agreement.
9.02 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, heirs, executors and administrators of the
parties hereto and the assigns of the parties
26
<PAGE> 30
hereto provided that such assignee is also a transferee of shares of Stock in
accordance with the terms and provisions hereof.
9.03 Entire Agreement; Amendment and Waiver. This Agreement and
the Purchase Agreement supersede any other agreement, whether written or oral,
that may have been made or entered into by the parties hereto relating to the
matters contemplated hereby and constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof. In
particular, the execution of this Agreement shall terminate all prior
stockholders agreements and registration rights agreements, or any similar
agreement to the foregoing, among any Stockholder and the Company. Neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
except by the written consent of the Company, the holders of the Investor Stock
and a majority in interest of the holders of the Common Stock (assuming the
conversion of all outstanding convertible securities including, without
limitation, the Series A Preferred).
9.04 Notices, Etc. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given: (a) upon personal
delivery to the party to be notified; (b) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient, if not, then
on the next business day; (c) five days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (d) two days
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall be
sent to the parties hereto at the respective addresses set forth below, or as
notified by such party from time to time at least 10 days prior to the
effectiveness of such notice:
<TABLE>
<S> <C>
if to the Investor: Kennecott Energy Company
505 South Gillette
P.O. Box 3009
Gillette, Wyoming 82717-3009
Attention: Patricia Britton
Facsimile: (307) 687-6059
with a copy to: Davis, Graham & Stubbs LLP 370
Seventeenth Street, Suite 4700
Denver, CO 80202
Attention: Christopher L. Richardson
Facsimile: (303) 893-1379
if to KFx: KFx Inc.
1999 Broadway, Suite 3200
Denver, CO 80202
Attention: Chairman
Facsimile: (303) 293-8430
</TABLE>
27
<PAGE> 31
<TABLE>
<S> <C>
with a copy to: Morrison & Foerster LLP
5200 Republic Plaza
370 Seventeenth Street
Denver, CO 80202
Attention: Warren L. Troupe
Facsimile: (303) 592-1510
if to the Company: Pegasus Technologies, Inc.
5970 Heisley Road, Suite 300
Mentor, Ohio 44060
Attention: Chairman
Facsimile: (440) 357-1119
with a copy to: Morrison & Foerster LLP
5200 Republic Plaza
370 Seventeenth Street
Denver, CO 80202
Attention: Warren L. Troupe
Facsimile: (303) 592-1510
and with a copy to: Bangs, McCullen, Butler, Foye & Simmons, L.L.P.
818 St. Joseph Street
P.O. Box 2670
Rapid City, SD 57709
Attention: John H. Raforth
Facsimile: (605) 343-1503
if to the Radl Group to: Brad J. Radl
Pegasus Technologies, Inc.
5970 Heisley Road, Suite 300
Mentor, Ohio 44060
Facsimile: (440) 357-1119
</TABLE>
9.05 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any Stockholder under this Agreement shall
impair any such right, power or remedy of such Stockholder nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part of any
Stockholder of any breach or default under this Agreement or any waiver on the
part of any Stockholder of any provisions or conditions of this Agreement must
be made in writing and shall be effective only to the extent specifically set
forth in such writing. All remedies, either
28
<PAGE> 32
under this Agreement or by law or otherwise afforded to any Stockholder, shall
be cumulative and not alternative.
9.06 Severability. Unless otherwise expressly provided herein, a
Stockholder's rights hereunder are several rights, not rights jointly held with
any of the other Stockholders. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
9.07 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. This Agreement (or any counterpart hereof) may
be delivered by a party by facsimile, which facsimile shall be effectual as of
the original counterpart had been delivered.
9.08 Termination.
(a) Except as provided in Section 9.08(b), this
Agreement shall terminate upon the successful completion of the Initial Public
Offering or earlier upon the unanimous consent of all Stockholders.
(b) Notwithstanding Section 9.08(a), the provisions of
this Agreement relating to registration rights (Article 2) and repurchase
option (Article 8), shall survive the completion of an Initial Public Offering
for a period of 5 years from the date of such completion.
9.09 Specific Enforcement. Any holder of Stock shall be entitled
to specific enforcement of its rights under this Agreement. The parties
acknowledge that money damages would be an inadequate remedy for a breach of
this Agreement and consent to an action for specific performance or other
injunctive relief in the event of any such breach.
9.10 Use of Investor's and KFx's Name. Neither the Company nor any
other party hereto shall (a) use in advertising or publicity the name of the
Investor or KFx (or any Affiliate thereof) or any trade name, trademark, trade
device, service mark, symbol or any abbreviation, contraction or simulation
thereof owned by the Investor or KFx without the prior written consent of the
Investor or KFx, which consent shall not be unreasonably withheld or delayed or
(b) represent that any product or service provided by the Company has been
approved or endorsed by the Investor or KFx without the prior written consent
of the Investor or KFx, as the case may be.
9.11 Relationship between Parties.
(a) Nothing in this Agreement or in the Purchase
Agreement shall deem the Investor and KFx to be involved in any joint venture
or relationship as partners and each of them agrees to take no action
inconsistent with the characterization of the
29
<PAGE> 33
Company as a corporation, and the relationship between the Investor and KFx
shall be deemed to be solely that of stockholders of the Company.
(b) Except to the extent expressly provided herein or in
the Purchase Agreement, neither this Agreement nor the Purchase Agreement shall
constitute an appointment of any of the parties hereto or thereto as the legal
representative or agent of any other party hereto or thereto, nor shall any
party hereto or thereto have any right or authority to assume, create or incur
in any manner any obligation or other liability of any kind, express or
implied, against, or in the name or on behalf of, the other party hereto or
thereto.
9.12 Observance of Separate Entity Formalities. The Company shall
establish and comply with a set of financial, accounting and corporate policies
that (a) observe its character as a separate legal entity from each of the
Investor and KFx, (b) are similar to those generally established by companies
comparable to the Company, and (c) are reasonably satisfactory to each of the
Investor and KFx in their sole discretion. Areas to be addressed by these
policies shall include (without limitation):
(i) cash management policies and cash investment
guidelines that shall be on terms and conditions established
comparable to those that would apply in an arms' length
transaction, including that all funds are accounted for
separately unless otherwise agreed to by the parties;
(ii) levels of authorization and approval by
management and the board of directors of the Company for
purchases, contracts, check signing, wire transfers and
capital commitments;
(iii) normal accounting procedures in accordance
with generally accepted accounting principles consistently
applied including accrual and recognition of expenses,
depreciation, revenue recognition; and
(iv) observing all other required formalities of law
for a South Dakota corporation including holding any required
meetings of its board of directors, as well as meetings of
stockholders in each case in accordance with the Articles of
Incorporation and the Bylaws of the Company.
*****
30
<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
COMPANY:
PEGASUS TECHNOLOGIES, INC.
By: /s/ Seth L. Patterson
--------------------------
Name: Seth L. Patterson
------------------------
Title: V.P. - Finance & C.F.O.
------------------------
INVESTOR:
KENNECOTT ENERGY CORPORATION
By: /s/ Kent W. Goates
--------------------------
Name: Kent W. Goates
------------------------
Title: Vice President & C.F.O.
------------------------
KFx:
KFx INC.
By: /s/ Seth L. Patterson
--------------------------
Name: Seth L. Patterson
------------------------
Title: E.V.P. & C.F.O.
------------------------
RADL GROUP:
/s/ Brad J. Radl
-------------------------------
Brad J. Radl
/s/ Philip A. Weintz
-------------------------------
Philip A. Weintz
/s/ Willie B. Roland, Jr.
-------------------------------
Willie B. Roland, Jr.
31
<PAGE> 35
/s/ Terry V. Radl
-------------------------------
Terry V. Radl
/s/ Richard W. Vesel
-------------------------------
Richard W. Vesel
32
<PAGE> 36
EXHIBIT A
CORPORATE GOVERNANCE POLICY
<PAGE> 37
EXHIBIT B
WORK PROGRAM
<PAGE> 38
EXHIBIT C
OPERATING BUDGET
<PAGE> 1
EXHIBIT 10.4
PUT AGREEMENT
This Put Agreement (this "Agreement") is made and entered into this 3rd day
of March, 2000, by and between KFx Inc., a Delaware corporation ("KFx"), and
Kennecott Energy Corporation, a Delaware corporation ("Kennecott").
W I T N E S S E T H:
WHEREAS, KFx and Kennecott are parties to that certain Common and Series A
Preferred Stock Purchase Agreement dated as of March 3, 2000 (the "Purchase
Agreement"), whereby, among other things, Kennecott purchased from KFx 748,559
shares of common stock, $.001 par value per share (the "Pegasus Stock"), of
Pegasus Technologies, Inc., a South Dakota corporation ("Pegasus"); and
WHEREAS, Kennecott desires to have the right to cause KFx to purchase, or
require KFx to find a purchaser for, the Pegasus Stock; and
WHEREAS, KFx is willing to so purchase or find a purchaser for the Pegasus
Stock;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Put Right. Upon prior written notice to KFx by Kennecott (the "Put
Notice"), KFx shall purchase (or find a person who is ready, willing and able to
purchase (and who in fact does purchase), on the terms and conditions set forth
herein) the Pegasus Stock from Kennecott at a purchase price equal to the result
of (i) the greater of (A) $1,000,000, or (B) the then Fair Market Value (as
defined below) of the Pegasus Stock, minus (ii) any amounts paid to Kennecott by
KFx or Pegasus pursuant to Article 9 of the Purchase Agreement. Such purchase
shall be consummated within 10 days after the later to occur of (x) the 90th day
following the date of the Put Notice, or (y) the final determination of the Fair
Market Value of the Pegasus Stock.
2. Fair Market Value. For purposes of this Agreement, the per share "Fair
Market Value" of the Pegasus Stock on any relevant date shall be determined as
follows:
(a) If the Pegasus Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Pegasus Stock on the date in question, as such price is reported
on the Nasdaq National Market or any successor system. If there is no
closing selling price for the Pegasus Stock on the date in question, then
the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(b) If the Pegasus Stock is at the time listed on any stock exchange,
then the Fair Market Value shall be the closing selling price per share of
Pegasus Stock on the date in question on the stock exchange that is the
primary market for the Pegasus Stock, as evidenced by Pegasus' market
capitalization on each market, as such price is officially
<PAGE> 2
quoted in the composite tape of transactions on such exchange. If there is
no closing selling price for the Pegasus Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(c) If for any reason the provisions of clause (a) or (b) are not
applicable as of any relevant date, the Fair Market Value of the Pegasus
Stock shall be determined in accordance with the provisions of Exhibit A
attached hereto.
3. Term. This Agreement shall terminate on March 3, 2001 (the "Termination
Date"). The parties acknowledge and agree that if the Put Notice is delivered to
KFx prior to the Termination Date, then the term of this Agreement is extended
for the time required to effectuate the put right set forth in Section 1.
4. Entire Agreement. This Agreement, including Exhibit A attached hereto,
constitutes the entire agreement between the parties with respect to the subject
hereof and supersedes all agreements, oral or written, previously made between
the parties hereto relating to the subject matter hereof; there are no other
understandings or agreements between the parties concerning the subject matter
hereof.
5. Binding Effect. This Agreement and the rights and obligations hereunder
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns.
6. Amendments. This Agreement may not be altered, modified, or amended
except by a writing signed by each of the parties hereto.
7. Further Assurances. Each of the parties hereto agrees to execute,
acknowledge, deliver, file, record and publish certificates, instruments,
agreements and documents, and to take all action which may be required by law or
may be deemed by KFx or Kennecott, in the exercise of their reasonable good
faith discretion, to be reasonably necessary in furtherance of the purposes and
the objectives and intentions underlying this Agreement and not inconsistent
with the terms hereof.
8. Notices. All notices required or permitted hereunder shall be in writing
and shall be deemed effectively given: (a) upon personal delivery to the party
to be notified; (b) when sent by confirmed telex or facsimile if sent during
normal business hours of the recipient, if not, then on the next business day;
(c) five days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (d) two days after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the parties
hereto at the respective addresses set forth below, or as notified by such party
from time to time at least 10 days prior to the effectiveness of such notice:
-2-
<PAGE> 3
<TABLE>
<S> <C>
if to KFx: KFx Inc.
1999 Broadway, Suite 3200
Denver, Colorado 80202
Attention: Chairman
Facsimile: (303) 293-8430
with a copy to: Morrison & Foerster LLP
370 17th Street, Suite 5200
Denver, Colorado 80202
Attention: Warren L. Troupe
Facsimile: (303) 592-1510
if to Kennecott: Kennecott Energy Company
505 South Gillette
P.O. Box 3009
Gillette, Wyoming 82717-3009
Attention: Patricia Britton
Facsimile: (307) 687-6059
with a copy to: Davis, Graham & Stubbs LLP
370 17th Street, Suite 4700
Denver, Colorado 80202
Attention: Christopher L. Richardson
Facsimile: (303) 893-1379
</TABLE>
9. Governing Law; Jurisdiction. This Agreement shall be governed by,
interpreted under, and construed in accordance with the laws of the State of
Colorado, applicable to contracts made and to be performed therein, without
giving effect to the principles of conflicts of law. Except in respect of an
action commenced by a third party in another jurisdiction, KFx and Kennecott
agree that any legal suit, action, or proceeding arising out of or relating to
this Agreement must be instituted in a state or federal court in the State of
Colorado, County of Denver, if there is any such court which has and will
exercise its jurisdiction in any such matter, and they hereby irrevocably
subject to the jurisdiction of any such court and agree not to assert therein
any objection based on venue or the inconvenience of such forum.
10. Captions. Captions used herein are inserted for reference purposes only
and shall not affect the interpretation or construction of this Agreement.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement. This Agreement may be
executed and delivered by facsimile transmission.
12. No Third Party Beneficiaries. This Agreement shall be binding upon and
inure solely to the benefit of the parties hereto and their successors and
assigns and nothing herein, express or implied, is intended to or shall confer
upon any other person any legal or equitable right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
-3-
<PAGE> 4
13. Expenses. Except as otherwise provided in Exhibit A, all costs and
expenses, including, without limitation, fees and disbursements of counsel,
financial advisors and accountants, incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such costs and expenses.
* * * * *
-4-
<PAGE> 5
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date and year first written above.
KFx Inc.
By: /s/ Seth L. Patterson
-----------------------------------
Name: Seth L. Patterson
---------------------------------
Title: E.V.P. & C.F.O.
--------------------------------
Kennecott Energy Corporation
By: /s/ Kent W. Goates
-----------------------------------
Name: Kent W. Goates
---------------------------------
Title: Vice President & C.F.O.
--------------------------------
-5-
<PAGE> 6
EXHIBIT A
PROCEDURES FOR DETERMINING
FAIR MARKET VALUE
(a) Generally. Whenever the Fair Market Value of the Pegasus Stock is
required to be determined under clause (c) of Section 2 of this Agreement, it
shall be determined by the mutual agreement of Kennecott and KFx. If Kennecott
and KFx cannot agree on Fair Market Value within forty-five days after the date
KFx receives the Put Notice, such amount shall be determined by independent
appraisal conducted by appraisers selected pursuant to paragraph (b) of this
Exhibit A. At any time prior to final determination of such amount pursuant to
paragraph (b), Kennecott and KFx shall be entitled to submit to the appraisers
(and shall submit to each other) any bids and other information from unrelated
third parties and any other information related to the valuation of the Pegasus
Stock that such party considers relevant, and such bids and other information
shall be accorded the weight such appraisers deem appropriate. Kennecott and KFx
shall each have an opportunity to comment on any such bids and other information
provided to the appraisers by the other party after receiving a copy thereof. In
determining the Fair Market Value of the Pegasus Stock, the appraisers shall
determine the value of Pegasus as a whole and shall not apply any valuation
discounts (such as minority interest and lack of marketability discounts). All
appraisals shall be in writing and delivered to each of KFx and Kennecott within
60 days of the appointment of the applicable appraiser.
(b) Selection. If an independent appraisal is required pursuant to this
Agreement, Kennecott and KFx shall consult for the purpose of appointing a
mutually acceptable, qualified appraiser. If they are unable to agree on a
single appraiser within ten (10) days, then the independent appraisal shall be
arrived at by mutual agreement of two independent appraisers, one chosen by
Kennecott and one chosen by KFx, or, if the values established by the two
appraisers differ by more than 10%, their appraisals shall be treated in the
manner described in paragraph (c) of this Exhibit A, together with an appraisal
arrived at by a third independent appraiser chosen by the mutual consent of such
two appraisers; provided, however, that if either party fails to appoint an
appraiser within fifteen (15) days after a written request to do so by the other
party, or if the values established by the two appraisers differ by more than
10%, and the two appraisers fail to appoint a third appraiser within twenty (20)
days after the date the latter of their appraisals is delivered to KFx and
Kennecott, then either party may initiate an arbitration proceeding with the
American Arbitration Association in Denver, Colorado for purposes of appointing
a nationally recognized, independent appraiser.
(c) Valuation. If one appraiser is chosen, the value determined by such
appraiser shall be final and binding upon Kennecott and KFx. If two appraisers
are chosen, one appraiser by Kennecott and one by KFx, and such appraisers agree
on the value (or the values determined by the appraisers differ by no more than
10%), such value (or the average values in the case of values that differ by no
more than 10%) shall be final and binding upon Kennecott and KFx. If three
appraisers are appointed and the difference between the determination which is
farther from the middle determination and the middle determination is more than
125% of the difference between the middle determination and the third
determination, then such farther determination shall be excluded, the remaining
two determinations shall be averaged, and such average shall be final and
binding upon Kennecott and KFx; otherwise, the average of all three
determinations shall be final and binding upon Kennecott and KFx.
(d) Expenses. All expenses of any appraisals hereunder shall be borne
equally by Kennecott and KFx.
A-1
<PAGE> 1
EXHIBIT 10.5
MARKETING SERVICES AGREEMENT
This Marketing Services Agreement (the "Agreement") is dated as of
March 3, 2000 (the "Effective Date") by and among Pegasus Technologies, Inc., a
South Dakota corporation with offices in Denver, Colorado and Mentor, Ohio
("Pegasus"), Net Power Solutions, LLC, a limited liability company formed under
the laws of the State of Colorado, with offices in Denver, Colorado (the
"Company" or "NPS"), KFuel, LLC, a Delaware limited liability company, with
offices in Denver, Colorado ("KFuel"), KFx Inc., a Delaware Corporation, with
offices in Denver, Colorado ("KFx") and Kennecott Energy Company, a Delaware
corporation with offices in Gillette, Wyoming and Denver, Colorado
("Kennecott"). Pegasus, NPS, KFuel, KFx and Kennecott are sometimes collectively
referred to herein as the "Parties" and individually as a "Party".
RECITALS
The Parties are entering into this Agreement for the following reasons:
A. Pegasus is principally engaged in the development and installation
of a neural net software and related technology, including any upgrades
and improvements developed in connection therewith, which shall be
referred to as the "Pegasus Products" for use in electric utility
generation facilities for the purpose of improving the efficiency of
coal-fired plants and reducing the emission of NOx and other
potentially harmful pollutants from such plants;
B. The majority and principal stockholder of Pegasus is KFx. KFx is
also a 51% member of KFuel which is engaged in the development of a
coal enhancement technology known as the "K-Fuel Process" that utilizes
heat and pressure to form an upgraded coal ("K-Fuel Products") for use
by electric utilities in coal-fired boilers;
C. Kennecott is a minority stockholder in Pegasus, a major producer of
coal in the United States and the largest producer of low sulfur coal
from the Powder River Basin in Montana and Wyoming. Kennecott is also a
49% member of KFuel;
D. Kennecott and Pegasus formed the Company for the primary purpose of
marketing Pegasus Products, the Coal Services and Coal Products (as
hereinafter defined) to electric utilities throughout the United
States;
E. Kennecott believes that the successful implementation of Pegasus
Products will have a beneficial effect on Kennecott's business and
potential coal markets;
F. Pegasus believes that the knowledge, sophistication, and resources
of Kennecott in utility markets will enhance the ability of the Company
to market Pegasus Products and related services and technology.
<PAGE> 2
AGREEMENT
THEREFORE, in consideration of the mutual promises exchanged herein and
other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Parties hereby agree as follows:
1.0 Marketing Services. The Company will provide marketing services and
overall coordination of its marketing activities as required by Pegasus
in connection with marketing Pegasus Products, Coal Products and Coal
Services. The marketing services will include among other things, the
preparation and annual update of a marketing plan to (a) identify
potential customers and their specific needs, (b) provide an economic
analysis to identify optimal pricing and economic returns for Pegasus
Products, Coal Products and Coal Services with respect to targeted
customers (the "Marketing Plan"), and (c) develop an integrated sales
and marketing program for the Pegasus Products, Coal Products and Coal
Services. The Company will coordinate the marketing of all Pegasus
Products for the Company whether or not it is the entity that makes the
direct sale. The Company will coordinate marketing of Pegasus Products
with the marketing of Coal Products and Coal Services by Kennecott.
2.0 Kennecott Support.
2.1 Marketing Manager. Kennecott will make available and the
Company will utilize the services of a Kennecott employee
experienced in coal marketing and utility analysis to direct
the marketing services to be provided by the Company to
Pegasus (the "Marketing Manager"). Kennecott will be
responsible for the compensation and benefits of the Marketing
Manager.
2.2 Coal Products and Services. Assuming mutual agreement on
essential contractual terms can be reached, Kennecott will
provide NPS and its customers with access to coal from
Kennecott affiliated mines ("Kennecott Coal") and, where
appropriate, will broker coal from non-Kennecott affiliated
mines ("Third Party Coal") (together, the Kennecott Coal and
Third Party Coal will be known as "Coal Products"). Kennecott
will also provide coal transportation, coal delivery, coal
inventory management and other coal-related services ("Coal
Services") that may be requested or required by the Company to
assist it in marketing Pegasus Products.
3.0 K-Fuel Process. At such time as the K-Fuels Process becomes
commercially feasible, NPS shall have the right to market K-Fuel
Products on a non-exclusive basis. KFx, Kennecott and KFuel each agrees
to provide NPS with the necessary rights and support to market K-Fuel
Process and K-Fuel Products to the appropriate targeted customers.
4.0 Principles of Marketing. The Parties agree that the following
principles will apply in connection with marketing of the Coal
Products, Coal Services and the Pegasus Products:
2
<PAGE> 3
4.1 Potential Customers. The Pegasus Products will be marketed to
utilities with the economic and technical wherewithal to
understand and appreciate the benefits and risks of utilizing
such products and to provide the appropriate indemnifications
to Pegasus and NPS in connection with such utilization (the
"Potential Customer(s)"). A transaction involving the sale of
Pegasus Products, Coal Services and Coal Products (or a mix
thereof) offered to a Potential Customer by NPS will be
referred to herein as a "Proposed Transaction".
4.2 Kennecott Involvement. Kennecott will have the right but not
the obligation to market or sell Coal Products and Coal
Services as part of any Proposed Transaction, it being
understood that Kennecott shall have no obligation to provide
such Coal Services or Coal Products if the Proposed
Transaction is not deemed by Kennecott to be either viable or
sufficiently profitable to Kennecott.
4.3 Pegasus Involvement. Pegasus will have the right to sell or
license the Pegasus Products through NPS for a Proposed
Transaction but it is not required to do so if the Proposed
Transaction is not deemed by Pegasus to be viable or
sufficiently profitable to Pegasus. Even if NPS is not
directly involved in a Proposed Transaction, Kennecott will
have the right to participate in communications with the
Potential Customer and, to the extent permitted by the
Potential Customer, to receive information provided by the
Potential Customer to Pegasus or NPS for use in the marketing
of Coal Products, Coal Services and Pegasus Products by NPS
and for the general use of Kennecott in understanding the
coal-related needs of the Potential Customer.
4.4 Related Sales. The Parties acknowledge and agree that other
suppliers of services and products to Potential Customers may
become involved in attempting to market the Pegasus Products
to Potential Customers without any requirement to reimburse
NPS for services provided with respect to such sales ("Related
Sales"); provided, however, the Parties acknowledge that to
the extent practicable, that Related Sales' opportunities
shall be developed through NPS. .
4.5 Marketing Information and Transaction Documentation; Marketing
Manager Approval. In order to assure coordination of the sales
efforts and the use and development of documentation
appropriate for the contemplated transactions, Pegasus agrees
that it will require all other parties to coordinate their
Related Sales activities with the Marketing Manager. No
written agreement involving a Related Sale or a Proposed
Transaction will be executed without prior review and approval
of the Marketing Manager as to the form of the written
documentation. The Marketing Manager will also coordinate and
approve any advertising
3
<PAGE> 4
materials or information brochures utilized in connection with
the development of a potential Related Sale or a Proposed
Transaction.
4.6 Kennecott's Access to Information. To the extent permitted by
the Potential Customer and applicable law, Kennecott will have
the right to obtain coal-related information from the
Potential Customer for use in the marketing of Coal Products,
Coal Services, and Pegasus Products by NPS and for the general
use of Kennecott in understanding the coal-related needs of
the Potential Customer.
4.7 Potential Kennecott Conflicts. The Company and Pegasus each
recognize that Kennecott may currently market and sell Coal
Products and Coal Services to the Potential Customers and that
Kennecott will continue its ongoing sales activities with such
Potential Customers while it may be marketing for or
negotiating with a particular Potential Customer with respect
to Coal Products and Coal Services associated with the
marketing and sale of the Pegasus Products.
4.8 Potential Pegasus Conflicts. Kennecott recognizes that Pegasus
may currently market Pegasus Products to Potential Customers
who are also customers or Potential Customers of Kennecott,
independent from NPS. Kennecott acknowledges that Pegasus will
continue its ongoing activities while Kennecott may be
marketing for or negotiating with a particular Potential
Customer for Coal Products and Coal Services produced from the
operating affiliates of Kennecott and while the Company may be
marketing to or negotiating with Potential Customers with
respect to Pegasus Products.
4.9 Pricing of Products. The Parties agree that the goal of NPS
will be to provide a "Power Solution" to Potential Customers
that will decrease their operating costs and/or improve their
operations (either by way of emissions reductions,
enhancements in efficiencies, or both). NPS will establish a
price for Pegasus Products, Coal Services and Coal Products
that covers the aggregated revenue that each of its
Participants would have received were they individually to
deal with the Potential Customers (the "Agreed Revenue") and
an amount to cover the costs plus an agreed markup for the
Marketing Manager and KFx personnel such as Ted Venners, when
working with NPS in selling its Power Solution, as applicable,
(together, the Agreed Revenue and the markup for the Marketing
Manager and KFx personnel shall be referred to as the "Base
Price"). As part of a Proposed Transaction, NPS will strive to
share in the benefit that the Potential Customer will enjoy
either from reduced costs or increased revenues (a "Successful
Transaction") to the Potential Customer and will provide a
formula for sharing in the resulting efficiencies to the
Potential Customer over and above the Base Price benefit (the
"Benefit Portion").
4
<PAGE> 5
5 Cost Sharing. Initially, Pegasus and Kennecott will each be responsible
for its own costs and the reimbursement of its own employees associated
with developing the Company's marketing activities. To the extent that
a sale of Pegasus Products is made without a corresponding sale of Coal
Products or Coal Services, Kennecott will be reimbursed for the time
directly expended by its Marketing Manager in effecting the Successful
Transaction. Similarly, to the extent that sales of Coal Services and
Coal Products are made without a corresponding sale of Pegasus
Products, KFx shall be reimbursed for the time directly expended by
such party in effecting the Successful Transaction to the extent such
time has not already been compensated for by Pegasus. To the extent
that a sale of Pegasus Products is associated with a sale of Coal
Products and/or Coal Services, Kennecott and KFx, as applicable, will
not seek reimbursement for the time directly expended by the Marketing
Manager or the KFx participant in connection with that Successful
Transaction.
6 Revenue Sharing. After each Participant has received the Agreed Revenue
for its own product or service from the Base Price, it will share in
the additional upside available from the Benefit Portion of a
Successful Transaction. This sharing will occur based on the relative
value added by each Participant and will be agreed to prior to entry
into any Proposed Transaction. Neither Pegasus nor Kennecott will be
required to proceed with a joint or separate proposal if it is not
satisfied with the "Agreed Revenue" or the determination of the
"relative value" represented by the Base Price or the Benefit Portion.
The difference between the Agreed Revenue and the Base Price shall be
allocated among the Parties in a manner consistent with Section 4.10
above.
7 Identified Supplier of Products and Services. To the extent that the
Potential Customer wants a Pegasus Product, Pegasus will provide it. To
the extent that the Potential Customer wants Coal Products or Coal
Services, Kennecott will provide them. Neither Pegasus nor Kennecott
will be required to enter into any agreement or provide any service or
product unless it is satisfied with the profit potential and terms of
the transaction. Each Participant will bear the cost of providing its
respective Product and Service.
8 Miscellaneous.
8.1 Confidentiality. The Parties hereto acknowledge and agree that
all information obtained in connection with this Agreement or
the operations of the Company in the provision of services
hereunder and the receipt and review of information from any
Potential Customer (whether in written, oral or electronic
form) shall be maintained in confidence by such Party and its
employees, officers and agents and not disclosed to any third
party without the consent of the providing party or as may
otherwise be required by applicable law.
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<PAGE> 6
8.2 Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (a) upon
personal delivery to the party to be notified: (b) when sent
by facsimile if sent during normal business hours of the
recipient, if not, then on the next business day; (c) five
days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (d) two days
after deposit with a nationally recognized overnight courier
service, specifying next day delivery. All communications
shall be sent to the parties hereto at the respective
addresses set forth below:
If to Kennecott: Kennecott Energy Corporation
505 S. Gillette Ave.
P.O. Box 3009
Gillette, WY 82717-3009
Attention: Patricia Britton
Facsimile: (307) 687-6059
With a copy to: Davis, Graham & Stubbs LLP
4700 Republic Plaza
370 Seventeenth Street
Denver, CO 80202
Attention: Christopher L. Richardson
Facsimile: (303) 893-1379
If to KFx Inc.: KFx Inc.
1999 Broadway, Suite 3200
Denver, CO 80202
Attention: Chairman
Facsimile: (303) 293-8430
With a copy to: Morrison & Foerster LLP
5200 Republic Plaza
370 Seventeenth Street
Denver, Colorado 80202
Attention: Warren L. Troupe
Facsimile: (303) 592-1510
If to the Company: Net Power Solutions, LLC
6300 South Syracuse Way
Suite 433
Englewood, CO 80111
Facsimile: (303) 224-0449
6
<PAGE> 7
If to Pegasus Technologies, Inc.: Pegasus Technologies, Inc.
5970 Heisley Road, Suite 300
Mentor, Ohio 44060
Attention: Chairman
Facsimile: (440) 357-1119
With a copy to: Morrison & Foerster LLP
5200 Republic Plaza
370 Seventeenth Street
Denver, Colorado 80202
Attention: Warren L. Troupe
Facsimile: (303) 592-1510
8.3 Entire Agreement. This Agreement supersedes any other agreement,
whether written or oral, that may have been made or entered into by the
Parties relating to the matters contemplated hereby, including the Term
Sheet dated as of February 8, 2000 among Kennecott, KFx and Pegasus,
and constitutes the full and entire understanding and agreement between
the Parties with regard to the subject matter hereof.
8.4 Term. Unless otherwise extended by the mutual agreement of the Parties
hereto, this Agreement shall remain in full force and effect until the
earlier of March 3, 2003 or the date the Parties hereto mutually agree
to terminate the Agreement.
8.5 Assignment. Any Party hereto may assign this Agreement to the surviving
party in any merger or consolidation in which it participates or to a
purchaser of all or substantially all of its assets or capital stock.
Otherwise, no Party to this Agreement may assign any rights or delegate
any duties hereunder without the prior written consent of the other
Parties, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, any Party hereto may assign its rights
and obligations hereunder to any wholly owned subsidiary or the parent
thereof without the prior consent of any Party hereto.
8.6 Amendment. This Agreement may only be amended in writing by the
agreement of all Parties hereto.
8.7 Governing Law.
(a) This Agreement shall be governed in all respects by the laws
of the State of Colorado as such laws are applied to
agreements between Colorado residents entered into and
performed entirely in Colorado
(b) Any legal action or other legal proceeding relating to this
Agreement or the enforcement of any provision of this
Agreement may be brought or otherwise commenced in any state
or federal
7
<PAGE> 8
court located in the City and County of Denver, Colorado. Each
Party to this Agreement:
(i) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in
the County of Denver, Colorado (and each appellate
court located in the State of Colorado) in connection
with any such legal proceeding, including to enforce
any settlement, order or award;
(ii) agrees that each state and federal court located in the
City and County of Denver, Colorado shall be deemed to
be a convenient forum; and
(iii) waives and agrees not to assert (by way of motion, as
a defense or otherwise), in any such legal proceeding
commenced in any state or federal court located in the
City and County of Denver, Colorado, any claim that
such Party is not subject personally to the
jurisdiction of such court, that such legal proceeding
has been brought in an inconvenient forum, that the
venue of such proceeding is improper or that this
Agreement or the subject matter of this Agreement may
not be enforced in or by such court.
(c) Each Party hereto agrees to the entry of an order to enforce
any resolution, settlement, order or award made pursuant to
this Section by the state and federal courts located in the
County of Denver, Colorado and in connection therewith hereby
waives, and agrees not to assert by way of motion, as a
defense, or otherwise, any claim that such resolution,
settlement, order or award is inconsistent with or violative
of the laws or public policy of the laws of the State of
Colorado or any other jurisdiction.
(d) Each Party to this Agreement hereby knowingly, voluntarily,
and intentionally waives the right to a trial by jury in
respect of any litigation arising out of, under or in
connection with this Agreement, this waiver being a material
inducement for each such Party to enter into this Agreement.
8.8 Waiver. A provision of this Agreement may be waived only by a written
instrument executed by or on behalf of the party waiving compliance.
The failure of any Party at any time or times to require performance of
any provision hereof shall in no manner affect the right at a later
time to enforce the same. No waiver by any Party of any condition, or
of any
8
<PAGE> 9
breach of any term, covenant, representation or warranty contained in
this Agreement, in any one or more instances, shall be construed to be
a waiver of any other condition or of any other breach of the same or
any other term, covenant, representation or warranty.
8.9 Counterparts; Facsimile. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument. This Agreement (or any
counterpart hereof) may be delivered by a Party by facsimile, which
facsimile delivery shall be effective as if the original counterpart
had been delivered.
8.10 Expenses. Each Party hereto will pay its own expenses incurred in
connection with the transactions contemplated hereby, whether or not
such transactions shall be consummated.
8.11 No Third Party Beneficiaries. This Agreement is intended for the
benefit of the Parties hereto and their respective permitted successors
and assigns and are not for the benefit of, nor may any provision
hereof be enforced by, any other person.
* * * *
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<PAGE> 10
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS AGREEMENT AS OF THE
EFFECTIVE DATE.
KENNECOTT ENERGY COMPANY
By: /s/ Kent W. Goates
------------------------------------------
Kent W. Goates, Vice President and CFO
KFx INC.
By: /s/ Seth L. Patterson
------------------------------------------
Seth L. Patterson, Executive Vice President
and CFO
PEGASUS TECHNOLOGIES, INC.
By: /s/ Seth L. Patterson
------------------------------------------
Seth L. Patterson, Vice President of
Finance and CFO
NET POWER SOLUTIONS, LLC
By: Kennecott Energy Company, its Manager
By: /s/ Kent W. Goates
------------------------------------------
Kent W. Goates, Vice President and CFO
KFUEL, LLC
By: KFx Inc., its Manager
By: /s/ Rudolph G. Swenson
------------------------------------------
Rudolph G. Swenson, Vice President
<PAGE> 1
EXHIBIT 99.1
KFX CLOSES KENNECOTT ENERGY COMPANY INVESTMENT IN PEGASUS TECHNOLOGIES
AND FORMS NET POWER SOLUTIONS
Denver, CO, March 7, 2000 - KFx Inc. (AMEX:KFX) and Kennecott Energy Company, a
wholly owned subsidiary of Rio Tinto plc, have closed two previously announced
transactions through which Kennecott Energy has invested in Pegasus
Technologies, Inc. (Pegasus), a KFx subsidiary.
Under the first transaction, Kennecott Energy has purchased 4 percent of the
outstanding common stock of Pegasus directly from KFx for $1,000,000. The second
transaction involves the direct investment by Kennecott Energy of up to
$4,000,000 in cash into KFx's Pegasus Technologies subsidiary - $500,000 of
which was received at closing. Proceeds from this second transaction will be
used to accelerate Pegasus' market penetration and continue new product
development to meet the growing market demands of the utility and industrial
power sectors. Under the terms of the transactions KFx and Kennecott Energy have
also formed Net Power Solution, LLC - an entity that offers total energy
solutions to the electric utility industry on a worldwide basis.
Kennecott Energy now owns approximately 6% of the outstanding voting stock of
Pegasus, while KFx owns 74% and Pegasus management owns the other 20%. As
Pegasus achieves certain milestones in new product development, Kennecott Energy
has the right under the second transaction to purchase additional stock in
Pegasus through 2004 to bring its total voting stock ownership in that company
to 20 percent.
"With this arrangement in place, Pegasus will be able to focus on developing the
tools and products to take its business to the next level," said Ted Venners,
Chairman of KFx. "While continuing to actively support Pegasus in its
development and marketing efforts, KFx will also turn its attention to
implementing the Net Power Solutions concept with Kennecott Energy."
Net Power Solutions' first product will be NeuSIGHT(R), the Pegasus developed
neural network technology for power plant optimization. Net Power Solutions will
also offer fuel management services involving coal procurement, transportation,
and inventory oversight.
"The ability for Net Power Solutions to provide fuel services (including the
super-compliance KFuel product) along with the power plant optimization
capabilities of NeuSIGHT(R), is unique in the industry," said Ted Venners,
Chairman of KFx. "We can now offer one stop shopping where utilities can meet
environmental compliance while maximizing their bottom line as the industry goes
through deregulation."
<PAGE> 2
Net Power Solutions offers a partnering opportunity for the utility customer
where Net Power will participate in the savings generated by its proprietary
technologies and the services its offers.
"In view of last week's action by the US Court of Appeals affirming most of the
action undertaken by the EPA in the fall of 1998 to curb nitrogen oxide
emissions, initiating these relationships with Kennecott Energy is extremely
timely," said Ted Venners, KFx Chairman. "Prior to last week's court decision,
EPA's 1998 action directed at 22 Northeastern, Midwestern and Southern states
and the District of Columbia had been effectively suspended by a May 1999 court
decision, triggering a significant slowdown in Pegasus' orders. This recent
development is expected to accelerate demand for Pegasus' combustion
optimization tools," added Venners.
Pegasus Technologies, a world leader in neural network optimization systems for
the power generation industry, currently has 36 units installed or being
installed. NeuSIGHT - the flagship product offered in the Pegasus suite of
products - is a solution set of process optimization products designed to reduce
harmful greenhouse gas emissions while enhancing the operations and efficiency
of fossil fuel-fired power generation plants. Using proven, advanced neural
network technology to achieve optimal performance on fossil fuel-fired furnaces,
NeuSIGHT optimizes the combustion process which reduces NOx, SO2 and CO2
emissions while improving heat rate and reducing operating costs. A recent study
by McIlvaine Company estimated that, by year 2003, $4.4 billion will be spent on
new optimization systems for existing coal-fired power plants alone.
In addition to various strategic resellers, Pegasus has strong partners and
alliances to develop its products and provide installation services. Computer
Associates International, Inc. provides the neural network technology and is a
shareholder in KFx. Pegasus has worked during the past year to finalize
relationships with Science Applications International Corporation as its
implementer, and with Babcock and Wilcox - a subsidiary of McDermott
International, Inc., and ABB Centrum - a division of the ABB Group, as
value-added resellers.
In addition to Pegasus' products, KFx offers its patented K-Fuel coal
beneficiation technology, a commercially demonstrated process using heat and
pressure to upgrade low rank clean coals. KFx's pre-existing strategic
partnership with Kennecott Energy consists of joint ownership of K-Fuel LLC,
which is a single-purpose company formed to construct and operate K-Fuel plants
worldwide. Current activities of K-Fuel LLC include confirmation of an optimal 3
million TPY K-Fuel plant design.
The U.S. burns just under 1 billion tons of coal per year to produce
approximately 53% of the country's electricity. Resource Data International of
Boulder, Colorado, a subsidiary of Financial Times, projects coal use in
existing power plants will increase by 12% by 2020, with another 4% increase for
new coal-fired power plants anticipated to be built between 2010 and 2020.
<PAGE> 3
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 KFx and Pegasus can be found
on the company's web site - www.kfx.com.
The discussion above contains, in addition to historical information,
forward-looking statements that include various risks and uncertainties. Such
forward-looking statements include statements regarding the Company's
expectations. The Company's actual results may differ materially from those
anticipated in such statements. Factors that might cause such a difference are
discussed in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" at item 7 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1998 and at Part 1, item 2 of the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.
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