As filed with the Securities and Exchange Commission on ________________, 1996
Registration No._____
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------
CONCORD ENERGY INCORPORATED
(Name of Small Business Issuer in its Charter)
Delaware 7990 22-2670198
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
Incorporation or Code Number)
organization)
75 Claremont Road
Bernardsville, New Jersey 07924
(908) 766-1020
(Address and telephone number of principal
executive officers and principal
place of business
----------
Silverman, Collura & Chernis, P.C.
381 Park Avenue South, Suite 1601
New York, New York 10016
(212) 779-8600
(Name, address and telephone
number of agent for service)
----------
Approximate date of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
Proposed Proposed
Maximum Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered Per Share (1) Offering Price Registration
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $.0001 Par Value on Behalf of 1,334,061 $3.00 $4,002,183 $1,379.95
Selling Security Holders
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock Issuable upon Exercise of 496,500 various 1,698,750 585.77(3)
Warrants Held by Selling Security Holders (2)
- -----------------------------------------------------------------------------------------------------------------------------------
Total 1,830,561 $5,700,933 $1,965.72
===================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee.
(2) Underlying shares of common stock issuable upon exercise of Warrants held
by the Selling Security Holders at various exercise prices. This
Registration Statement also covers such additional number of shares as may
become issuable upon exercise of the Warrants held by the Selling Security
Holders by reason of anti-dilution provisions pursuant to Rule 416.
(3) Calculation of fee is based on actual exercise prices of the various
Warrants and assumes exercise of all outstanding Warrants.
The Registration hereby amends this Registrant Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CONCORD ENERGY INCORPORATED
Cross-Reference Sheet
pursuant to Item 501(b)
Showing Location in Prospectus of Information
Required by Items of Form SB-2
<TABLE>
Registration Statement Item Caption In Prospectus
--------------------------- ---------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Facing Page; Cross-Reference Sheet;
Front Cover Prospectus Prospectus Cover Page
2. Inside Front and Outside Back Cover Pages Prospectus Cover Page; Prospectus Back
of Prospectus Cover Page
3. Summary Information and Risk Factors Prospectus Summary; The Company; Risk
Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Risk Factors
6. Dilution Not Applicable
7. Selling Security Holders Description of Securities; Resale by Selling
Security Holders
8. Plan of Distribution Prospectus Cover Page
9. Legal Proceedings Business
10. Directors, Executive Officers, Promoters and
Control Persons Management; Principal Shareholders
11. Security Ownership of Certain Beneficial
Owners and Management Principal Shareholders
12. Description of Securities Description of Securities
13. Interest of Named Experts and Counsel Legal Matters; Experts
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Management
2
<PAGE>
15. Organization Within Five Years Prospectus Summary; Business; Certain
Transactions
16. Description of Business Business
17. Management's Discussion and Analysis or Management's Discussion and Analysis of
Plan of Operation Financial Condition and Results of
18. Description of Property Business
19. Certain Relations and Related Transactions Certain Relationship and Related Party
20. Market for Common Equity and Related Price Range of Common Stock; Description
Stockholder Matters For Future Sale
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements With Accountants Not Applicable
on Accounting and Financial Disclosure
</TABLE>
3
<PAGE>
Prospectus
- ----------
CONCORD ENERGY INCORPORATED
1,830,561 SHARES OF COMMON STOCK
This prospectus relates to the possible sale, from time to time, by certain
shareholders ("Selling Security Holders") of the Company of up to 1,334,061
shares of the Company's Common Stock $.0001 par value, and 496,500 shares of
Common Stock issuable upon exercise of outstanding but unregistered Common Stock
purchase Warrants (the "Warrants"). Each of the Warrants entitles the holder to
purchase one share of Common Stock at the agreed Exercise Price during the
period stated in the Warrant. The Exercise Prices vary from $2.625 to $7.50 per
Warrant. (See Description of Securities; Selling Security Holders.) The Company
will not receive any proceeds from sales by Selling Security Holders, except to
the extent that Warrant holders choose to exercise their Warrants, in which case
the Company will receive the exercise price thereon.
The Company's Common Stock is listed on the NASDAQ Small Cap Market. The
closing bid and asked prices for the Common Stock on July 25, 1996 were 2 3/4
and 3 1/4, respectively. The Company's Warrants have never traded publicly and
no trading market will exist for the Warrants following sale of the Securities
registered hereby. For a discussion of certain factors that should be considered
by prospective purchasers of the securities offered hereby, see "Risk Factors,"
beginning on page 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The shares of Common Stock are offered by the Selling Security Holders from
time in market transactions to time at prevailing prices on the NASDAQ Small Cap
Market, in negotiated transactions, through the writing of options on a
combination of such methods of sale, at fixed price which may be changed, at
market prices prevailing at time of sale, at prices related to such market
prices or at negotiated prices. The Company will not receive any proceeds from
possible release by the Selling Securities Holders of their respective shares of
the Company's Common Stock. The Company will receive gross proceeds of
$1,698,750 if all outstanding Warrants are exercised. There can be no assurance
that any Warrants will be exercised. The Selling Security Holders may effect
such transactions by selling their shares of Common Stock to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Security Holders and/or
the purchasers of such share of Common Stock for whom such broker-dealer amy act
as agents or to whom they may sell as principals, or both (which compensation as
to a particular broker-dealer might be in excess of customary commissions.) The
Company has agreed to bear all expenses estimated at approximately $130,000 in
connection with the registration of the shares of Common stock to which this
prospectus relates.
The date of this Prospectus is August ___, 1996
4
<PAGE>
ADDITIONAL INFORMATION
With respect to the securities offered hereby, the Company has filed with
the principal office of the Securities and Exchange Commission (the
"Commission") in Washington, D.C., a Registration Statement on Form SB-2 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). For purposes hereof, the term "Registration Statement" means
the original Registration statement and any and all amendments thereto. This
Prospectus does not contain all of the information set forth in the registration
statement and the exhibits thereto, to which reference hereby is made. Each
statement made in this Prospectus concerning a document filed as an exhibit to
the Registration Statement is not necessarily complete and is qualified in its
entirety by reference to such exhibit for a complete statement of its
provisions. Any interested party may inspect the Registration Statement and its
exhibits without charge, or obtain a copy of all or any portion thereof, at
prescribed rates, at the public reference facilities of the Commission at its
principal office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. The Registration Statement and exhibits may also be
inspected at the Commission's regional offices at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and at 7
World Trade Center, Suite 1300, New York, New York 10048.
The Company is a reporting company subject to certain informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and files reports and other information with the Commission. Such reports
and other information may be inspected and copied at the public reference
facilities of the Commission in Washington, D.C. and at the same Regional
offices as described above. The Company's Common Stock is listed on the NASDAQ
Small Cap Market and reports and other information about the Company can be
inspected at NASDAQ 33 Whitehall Street, New York, New York 10004.
The Company furnishes its stockholders with annual reports containing
financial statements audited by independent certified public accountants and
files with the Commission quarterly reports containing unaudited financial
information for each of the first three quarters of each fiscal year following
the end of each such quarter.
The Company will provide without charge to each person who receives a
Prospectus, upon written or oral request, a copy of any information that is
incorporated by reference in this Prospectus (exclusive of exhibits to the
incorporated material.) Such requests should be made to the Company, attention:
Todd Hesse, 75 Claremont Road, Bernardsville, New Jersey 07924-2296; telephone
number 908-766-1020.
This Prospectus relates to the possible sale for the accounts of the
Selling Security Holders of up to (i) 1,334,061 shares of Common Stock and (ii)
496,500 shares of Common Stock issuable upon exercise of the Warrants.
5
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS
PROSPECTUS AND IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION AND
FINANCIAL STATEMENTS INCLUDING THE NOTES THERETO APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL REFERENCES IN THIS PROSPECTUS TO THE
NUMBER OF SHARES OF COMMON STOCK GIVE EFFECT TO THE 1 FOR 5 REVERSE SPLIT
EFFECTED DECEMBER 1, 1995.
Concord Energy Incorporated (the "Company") was incorporated in the State
of Delaware in 1985 under the name of Monoclonal International Technology, Inc.
The Company owns interests in approximately 100 oil and gas wells located
primarily in Texas and Louisiana. The Company's wholly-owned subsidiary, Concord
Operating, Inc., manages approximately 25 producing oil and gas wells. The
remainder are operated by unaffiliated entities.
In May, 1995 the Company acquired all of the outstanding stock of Knight
Equipment and Manufacturing Corporation and its wholly-owned subsidiary K&S
Engineering, Inc. ("KEMCO".) KEMCO locates, designs, refurbishes and installs
gas processing plants for the natural gas industry.
Effective March 1, 1996 the Company purchased all of the outstanding stock
of Integrated Petroleum Systems Corporation, ("IPS"). That company is engaged in
the business of developing specialized software and computer systems for
gathering, processing and distributing data for the oil and gas industry.
Concord Energy Incorporated including its wholly-owned subsidiaries KEMCO,
IPS and Concord Operating, Inc. are collectively referred to herein as the
"Company" or "Registrant". The Company's corporate headquarters are located at
75 Claremont Road, Bernardsville, New Jersey 07924-2296. The Company's telephone
number is (908) 766-1020.
The Company
Securities Offered(1): Selling Security Holders are offering
1,830,561 shares of Common Stock at prevailing
prices in the NASDAQ Small Cap Market,
including 496,500 shares reserved for issuance
upon exercise of outstanding Warrants.
Securities Outstanding: 5,929,852 shares of Common Stock.
Additional Securities Registered: 496,500 shares of Common Stock issuable upon
exercise of Warrants previously issued by the
Company. The Company will not receive any
proceeds from the sale of securities by the
Selling Security Holders, although it could
realize as much as $1,698,750 if all Warrants
are exercised.
Risk Factors: An investment in the Company's securities
involves a high degree of risk. For a
discussion of certain risk factors effecting
the Company, see "Risk Factors."
NASDAQ Symbol: CODE - Common Stock.
- -----------------
(1) Unless indicated to the contrary, all references in this prospectus to the
Company's outstanding securities do not give effect to 496,500 shares
reserved for issuance upon exercise of the Warrants.
6
<PAGE>
RISK FACTORS
The securities offered hereby are highly speculative in nature and involve
a high degree of risk. They should be purchased only by persons who can afford
to lose their entire investment. Therefore, each prospective investor should,
prior to purchase, consider very carefully the following risk factors, as well
as all other information set forth in this prospectus.
1. Relatively New Company.
The Company was organized in 1991. KEMCO was acquired by the Company in
May, 1995 and IPS was acquired in February, 1996. The Company experienced losses
for its last three fiscal years (See "Financial Statements.") If KEMCO had been
purchased on July 1, 1994, and had been part of the Company for the full year
ended June 30, 1995, the Company would have reported a consolidated net loss of
$1,496,488 for fiscal 1995. IPS is in a developmental stage and has not yet
recorded significant revenues from sales of its principal product. The Company's
future success will depend upon the ability of its operating subsidiaries to
become profitable on a consistent basis. There can be no assurance in that
regard. Meanwhile, the Company is subject to all the risks inherent in a
relatively new business venture. These risks include the Company's ability to
identify and finance additional potentially profitable acquisitions, since the
Company's business plan includes the search for operating companies involved in
energy related service businesses.
2. Continued Need For Financing.
As stated above, the Company's business plan includes an aggressive program
to identify acquisition candidates that meet certain criteria. Growth to date
has been funded by means of a combination of borrowed funds, proceeds of sale of
the Company's common stock in private placements and using the Company's stock
itself as currency as was the case in the acquisition of IPS. The acquisition of
KEMCO was accomplished by debt financing totaling approximately $3,700,000 and
the issuance of 1,300,000 shares of the Company's common stock (pre-split)
yielding approximately $800,000. An additional 2,000,000 shares (pre-split) were
issued to KEMCO's existing stockholders. Long-term debt related to financing the
KEMCO acquisition consists of a bond payable of $2,920,000 maturing on May 1,
1997. Some of the short term debt associated with KEMCO has been repaid, whereas
some has been renegotiated. Moreover, additional funds may be needed to fund the
working capital requirements of IPS until it becomes self sufficient. No
assurance can be given that additional financing will be available to the
Company for any of these purposes, or if available, on terms acceptable to the
Company.
3. Competition.
The oil and gas industry in which the Company participates are extremely
competitive. Many of the other companies that also engage in drilling operations
or provide services to the industry are large, well established entitles with
substantially larger operating staffs and greater capital resources than the
Company or KEMCO. The Company has been engaged in oil and gas operations only
since 1991 and therefore has a limited operating history. IPS knows of only two
other companies that produce software that performs functions comparable to that
of IPS. While IPS' management believes that it has a superior product, it has
only recently begun to market it and does not have sufficient experience to
weigh the impact of potential competition. One or more of its competitors may
improve their current products or develop new products, or new competitors may
arise, which compete more effectively with IPS products.
7
<PAGE>
4. Dependence Upon Key Personnel.
The Company is substantially dependent upon the continued services of Jerry
Swon, Chairman of the Board, Deral Knight, founder of KEMCO and Company Chief
Executive Officer ("CEO") and President and Richard Barden, President of IPS.
Messrs. Barden and Knight have entered into employment agreements with the
Company. Mr. Swon's services are the subject of an employment agreement,
currently under negotiation. The loss of the services of any of Messrs. Swon,
Knight or Barden through incapacity or otherwise would have a material adverse
effect upon the Company's business and prospects. To the extent that the
services of any of them become unavailable, the Company would be required to
retain other qualified personnel, and there can be no assurance that the Company
will be able to recruit and hire qualified persons on acceptable terms. The
Company currently has no key man life insurance on the lives of Messrs. Swon,
Knight and Barden.
5. Industry Risks.
The oil and gas industry is subject to extensive regulation and various
risks, many of which are beyond the Company's control. Legislation and
negotiation affecting the oil and gas industry in general are under constant
review for amendment or expansion, raising the possibility of changes that may
adversely affect the Company, KEMCO or IPS. Operating hazards and risks
attendant to the oil and gas industry include explosions, blowouts, cratering
and oil spills, any of which can result in the loss of hydrocarbons,
environmental pollution, personal injury and loss of life. Although the Company
is not directly involved in drilling operations, it, as well as its subsidiaries
are involved in the energy industry and could be adversely affected by such
industry risks including wide price fluctuations for oil and gas.
6. No Assurance As To Future Acquisitions.
The Company's business has grown solely through acquisitions. The Company's
business plan calls for continued acquisition of profitable or potentially
profitable entities engaged in businesses involved in some aspect of the energy
business. The Company's ability to achieve its expansion plans depends in large
part on its sound business judgment relative to identification of quality
targets and its negotiating strength. The Company will continue seek to acquire
businesses for a combination of cash, stock and borrowed funds. If potential
target companies are receptive to accepting equity in the Company as part of the
purchase price, the Company's ability to expand would be enhanced. There can be
no assurance that the Company's acquisition targets will be receptive to such
proposals. Moreover, there can be no assurance that the Company will succeed in
effecting future acquisitions that meet management's criteria. Finally, there
can be no assurance that once acquisitions are made they will have a positive
effect on the Company's operations. Any stock issued in connection with future
acquisitions will have a dilutive effect on the Company's presently outstanding
shares.
7. General Economic Risks.
The Company's current and future business plans are dependent, in large
part, on the state of the general economy. Adverse changes in general and local
economic conditions may adversely impact on investment in the Company. These
conditions and other factors beyond the Company's control include: (i)
unanticipated increases in operating costs; (ii) changes in federal, state or
local Rules and regulations regulating the environment; (iii) significant price
or other changes in imported energy sources; (iv) sharp fluctuations in oil and
8
<PAGE>
gas prices (v) weather and (vi) changes in technology. The Company has veered
from the business of oil and gas development and attempted to position itself in
aspects of the energy industry that are more stable and less susceptible to
these and other economic variables. Nevertheless, the Company remains vulnerable
to general and industry economic swings as does any business.
8. Marketing Capability.
Substantially all of KEMCO's and IPS' marketing activities are presently
conducted by their respective offices and a limited number of salespersons.
Management will continue to devote a substantial amount of time to developing
and maintaining continuing personal relationships with the Company's customers
and potential customers. The Company's growth prospects, however, will be
largely dependent upon the Company's ability to achieve greater penetration of
the respective markets for KEMCO's and IPS' products. Achieving such market
penetration will require the Company to attract skilled marketing personnel.
9. Control By Current Management.
The Company's officers and their relatives currently possess voting rights
representing about 9.07% of the Company's outstanding voting securities.
Accordingly, the Company's current management is able to exercise substantial
day to day control over the Company including influencing the election of
directors and generally directing the affairs of the Company.
10. Board Discretion In Application Of Proceeds.
The Company will realize no portion of the proceeds of resale by Selling
Security Holders. To the extent that outstanding common stock purchase warrants
are exercised, the Company could receive a maximum of $1,698,750. Such proceeds
have been primarily allocated to working capital and may be used for repayment
of indebtedness. No acquisitions are currently pending and there can be no
assurance that any acquisitions will be made. Accordingly, the Company's
management will have broad discretion as to the application of such proceeds.
11. No Dividends.
The Company has not paid any cash dividends on its Common Stock and does
not expect to declare or pay any cash or other dividends in the foreseeable
future. See "Dividends."
12. Arbitrary Exercise Price.
The exercise prices of the outstanding warrants were negotiated with
recipients of warrants and to a great extent, arbitrarily determined by the
Company. They are not necessarily related to the Company's asset value, book
value, results of operations or any other investment criteria. The exercise
prices of the Warrants should not be regarded as an indication of the future
market price of the Common Stock.
9
<PAGE>
13. Public Market For The Company's Securities;
Possible Volatility of Common Share Price.
The Company's Common Stock is traded on the NASDAQ Small Cap Market. None
of the Company's outstanding Warrants are so listed, nor is there any public
trading market for the warrants. There can be no assurance that the Company will
be able to maintain its NASDAQ listing. If the Common Stock were to be delisted
because of inability to meet the existing or future maintenance requirements of
NASDAQ, it would have a material adverse effect on the ability of investors to
resell their stock in the secondary market as well as on the Company's ability
to obtain future financing or make acquisitions utilizing its shares. The
trading in the Common Stock has at times been volatile. The market price may be
significantly affected by factors such as announcements by the Company as well
as variations in the Company's results of operations and stock market conditions
in general.
14. Further Dilution
496,500 shares of the Company's Common Stock underlying outstanding Common
Stock Purchase Warrants are being registered hereby on behalf of Selling
Security Holders. Exercise of such warrants will result in a reduction of the
ownership interest of the Company's shareholders. The holders of the warrants
may be expected to exercise them at a time when the Company may, in all
likelihood, be able to obtain needed capital from other sources on more
favorable terms.
15. Future Sales Of Common Shares
Under Rule 144 Or Otherwise
Of the 5,929,852 shares issued and outstanding as of the date of this
prospectus, a significant number of such shares are "restricted securities" as
that term is defined under Rule 144 promulgated under the Securities Act of
1933, as amended. The major portion of the restricted stock will become freely
tradeable between July and August, 1996. 177,912 shares of stock held by
officers, directors and affiliates are currently eligible for sale under Rule
144, subject to the limitations of that rule as summarized below. In general,
under Rule 144, a person who has satisfied a two-year holding period may sell
"restricted securities" within any three-month period limited to a number of
shares which does not exceed the greater of one percent of the then outstanding
shares or the average weekly trading volume during the four calendar weeks prior
to such sale. Rule 144 also permits the sale (without any quantity limitation)
of "restricted securities" by a person who is not an affiliate of the issuer and
who has satisfied a three-year holding period. The possibility exists that sales
made under Rule 144 or pursuant to other exemptions under the securities laws or
under registration statements may have a depressive effect on the price of the
Company's securities in the public trading market. See "Shares Eligible for
Future Sale" and "Principal Shareholders." The 360,000 shares of Common Stock in
the Company held by Deral Knight, President, are being registered hereby.
16. Company's Convertible Debt.
The Company has issued Convertible Promissory Notes totaling $1,270,000.
These notes are held by private investors ("Noteholders") who are entitled to
convert their notes to the Company's Common Stock at a stated conversion rate.
It is to the Company's advantage to eliminate debt through conversion by the
Noteholders. Obviously, such conversion will not take place unless the market
price for the Company's Common stock exceeds the applicable conversion price.
The impact on the market price which may result from resales under Rule 144 as
10
<PAGE>
well as other exemptive provisions, or by means of registration hereunder, could
be such as to make it impractical for Noteholders to convert, with the result
that the Company may be required to repay their notes at maturity. To date,
holders of notes totaling $1,100,000 have converted to Common Stock. No shares
held by such former note-holders are being registered hereby.
USE OF PROCEEDS
The Company intends to utilize the proceeds received from the exercise of
any Warrants, estimated to be $1,698,750 if all Warrants are exercised in full,
for general corporate and working capital purposes as well as to pursue the
Company's expansion plans. There can be no assurance that any of the Warrants
will be exercised. This is the Company's best estimate of its use of proceeds
generated from possible exercise of Warrants based on the current state of its
business operations, its current plans and current economic and industry
conditions. Any changes in the projected use of proceeds will be made at the
sole discretion of the Company's board of directors.
11
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1996(i) the actual
capitalization of the Company and (ii) the capitalization of the Company as
adjusted to give effect to the possible issuance of up to 496,500 shares of
Common Stock upon exercise of the outstanding Warrants. There can be no
assurance that any of the Warrants will be exercised.
As of March 31, 1996 (Unaudited)
--------------------------------
Adjusted for
Actual Exercise of Warrants
------ --------------------
Short Term Debt $4,367,838 $4,367,838
Long Term Debt $6,240,035 $6,240,035
and capital lease
obligations, less
current portion
Stockholders' equity
Common Stock $.0001 per
value, 20,000,000 shares $ 444 $ 494
authorized; 4,444,350 shares
(5,607,150 shares as adjusted)
issued and outstanding; Preferred Stock;
$.01 par value, 1,000 shares authorized,
0 shares issued and outstanding;
Additional paid in capital $ 15,783,886 $ 17,482,586
Accumulated deficit $( 3,452,325) $( 3,452,325)
Total stockholders equity $ 12,332,005 $ 14,030,755
Total capitalization $ 18,572,040 $ 20,270,790
12
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the NASDAQ Small Cap Market
under the symbol "CODE." The following table sets forth the high and low bid
prices for the Company's Common Stock for the periods indicated. The Company's
Common Stock was not listed on NASDAQ until January, 1996. Thus, prices prior to
that date are based on trading on the Electronic Bulletin Board operated by the
National Association of Securities Dealers, Inc. ("Bulletin Board") under the
symbol "CCNG." The following price information has been adjusted to reflect the
Company's December 1, 1995 one for five reverse stock split.
High
Quarter Ended Bid Low Bid
- ------------- --- -------
June 30, 1993 6 1/4 3 3/4
Sept. 30, 1993 11 1/4 4 3/8
Dec. 31, 1993 13 1/8 11 7/8
Mar. 31, 1994 12 1/2 10
June 30, 1994 9 3/8 5
Sept. 30, 1994 10 5/16 5 5/8
Dec. 31, 1994 9 3 1/8
Mar. 31, 1995 6 1/4 1 7/8
June 30, 1995 11 1/4 3 3/4
Sept. 30, 1995 6 1/4 3 1/8
Dec. 31, 1995 5 5/16 3 1/4
March 31, 1996 6 3 3/4
June 30, 1996 4 3/8 3 1/4
On July 25, 1996 the closing bid and asked quotations for the Company's
Common Stock as reported on the NASDAQ Small Cap Market were 2 3/4 and 3 1/4,
respectively. The above quotations represent prices between dealers and do not
include retail mark-ups, mark-downs or commissions. They do not necessarily
represent actual transactions.
The approximate number of record holders of the Company's Common Stock as
of July 25, 1996 was approximately 888. That number was determined from the
Company's transfer agent's list of record holders and does not include
beneficial owners of the Company's Common Stock whose shares are held in the
names of various dealers and clearing agencies.
DIVIDENDS
The Company has never paid any dividends, whether cash or property, on its
securities. For the foreseeable future it is anticipated that any earnings which
may be generated from operations of the Company will be used to finance the
growth of the Company and that dividends will not be paid to stockholders.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following data should be read in conjunction with the Company's
consolidated financial statements and related notes thereto appearing elsewhere
in this report. The historical financial date and information contained in this
report for the years ended June 30, 1995 and 1994 and the nine months ended a
March 31, 1996 reflect the combined financial information for the Company and
its operating subsidiaries, but for IPS which was not acquired until February,
1996. Financial information regarding KEMCO is reported from April 1, 1995
forward since that is the effective date of the KEMCO acquisition.
General Operations
In May, 1993 the Company (then known as Monoclonal International
Technologies, Inc.) ("Monoclonal") consummated an Agreement and Plan of
Reorganization ("Agreement") pursuant to which it entered into the oil and gas
industry. Under the Agreement, the Company changed its name to Concord Energy
Incorporated (referred to herein as the "Company") and became the parent entity
which manages and owns interests in approximately 100 oil and gas wells
primarily located in East Texas and the Louisiana Gulf Coast. The Company's oil
and gas subsidiary was formed in June, 1991 in order to effectuate a
consolidation of 166 oil and gas partnerships. Following Monoclonal's
acquisition of Concord, the Company changed its fiscal year end to June 30 in
order to coincide with the fiscal year of its operating subsidiary (Concord).
In May 1995, the Company acquired KEMCO, which locates, designs,
refurbishes, and installs gas processing plants for the natural gas industry.
The effective date of the acquisition was April 1, 1995. In February, 1996 the
Company acquired I.P.S. which has developed a combination of software and
hardware to gather, process, analyze and transmit production data of oil wells
more efficiently in the field.
Results of Operations
Nine months Ended March 31, 1996 compared to 1995
The Company's revenues are primarily the buying, selling and renting of gas
processing equipment. The Company also realizes revenue through the sale of oil
and gas, syndication sales by its affiliate Integrated Energy Incorporated
("Integrated") as well as through well operations. During the nine months ended
March 31, 1996 the Company reported total revenues of $10,731,747. Contract
revenues during the nine months period were $9,694,810. Rental income for during
the nine months period were $88,101. The Company's oil sales during the nine
month period were $417,475 while gas sales totaled $348,865. The Company
reported revenue from syndication sales of $140,000 and well operating income of
$39,902 during the nine months period ended March 31, 1996. By comparison,
during the nine month period ended March 31, 1995 the Company reported total
revenues of $1,504,130, including oil sales of $636,577 gas sales of $351,372
revenue from syndication sales and revenue interests of $467,075 and well
operating income of $49,106.
Total revenues increased by $9,227,617 during the nine months ended March
31, 1996 compared to the nine months period ended March 31, 1995. This increase
is primarily due to the addition of KEMCO's operations.
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Total costs and operating expenses during the nine months ended March 31,
1996 were $9,202,391. Cost of contract revenue during the period were
$6,005,281. Lease operating expenses accounted for $507,641 during the nine
months period. Lease operating expenses as a percentage of total oil and gas
sales were approximately 66%. In comparison, during the nine months period ended
March 31, 1995 lease operating expenses as a percentage of oil and gas sales
were approximately 60%. Total costs and operating expenses increased by
$6,942,765, and lease operating expenses decreased by $81,297, during the nine
months period ended March 31, 1996 as compared to the nine month period ended
March 31, 1995, and lease operating expenses as a percentage of total oil and
gas sales increased by approximately 6%. The increases in costs and operating
expenses primarily relate to the inclusion of KEMCO's costs of operations.
During the nine months period ended March 31, 1996 general and
administrative expenses were $2,363,424. $1,044,000 of such expenses were
incurred under the Company's management agreement with its affiliate Integrated.
Other general and administrative expenses; which include KEMCO's administrative
costs as well as professional fees and franchise taxes, were $1,319,424, during
the nine months period ended March 31, 1996. During the nine months period ended
March 31, 1995, the Company's total general and administrative expenses were
$1,298,785. $1,044,000 of such expenses were incurred under the Company's
management agreement with Integrated. The primary increase in the Company's
general and administrative costs are those additional costs associated with
KEMCO.
Depreciation, depletion and amortization expenses during the nine months
period ended March 31, 1996 were $326,044. During the nine months period ended
March 31, 1995 these expenses were $371,903. The $45,859 decrease in these
expenses primarily result from the reduction in oil and gas production,
partially offset by the additional depreciation related to KEMCO's property,
plant and equipment which totaled $90,000 for the nine months period ended March
31, 1996.
Interest expense for the nine months period ended March 31, 1996 was
$704,059. During the nine months period ended March 31, 1995 these expenses were
$272,597. The increase of $431,462 is primarily the result of the additional
debt obtained for KEMCO's inventory acquisitions and the financing related to
the KEMCO acquisition.
For the nine months period ended March 31, 1996 the Company reported net
income of $849,071. For the nine months period ended March 31, 1995 the Company
reported a net loss of $1,022,356. The increase in net income of $1,871,427 for
the nine months ended March 31, 1996 as compared to the nine months ended March
31, 1995, resulted from the addition of KEMCO's result of operations to the
Company's oil and gas operations.
Comparison of 1995 to 1994:
Historically, the Company's revenue was generated primarily through the
sale of oil and gas. With the acquisition of KEMCO, effective April 1, 1995,
approximately 40% of the Company's revenue for the fiscal year ending June 30,
1995 was generated from KEMCO's contract revenues. Also during the year ending
June 30, 1995, the Company reported total revenue of $3,273,207 representing an
increase of $904,953 or approximately 38% from the prior fiscal year. The
Company reported contract revenue during fiscal 1995 of $1,312,393, which
accounts for the increase in total revenue from fiscal 1994 to 1995.
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Oil sales during fiscal 1995 decreased by $139,623 or approximately 14%
from the prior fiscal year. This decrease was primarily attributable to a
reduction in production volumes due to normal production decline of wells and
the cessation of operations of certain unprofitable wells, partially offset by
the increase in the price per barrel received by the Company. During fiscal
1995, gas sales declined by $294,229, or approximately 40% from the prior fiscal
year. This decrease was primarily related to a reduction in the production
volume caused by the same factors that contributed to the reduction in oil
production volumes as noted above, combined with a decrease of approximately 23%
in the price per Mcf of gas received by the Company.
Syndication sales and revenue interests income during fiscal 1995 were
$552,490, which represents an increase of $19,416, or approximately 4% from the
prior fiscal year.
During fiscal 1995, well operating income decreased by $31,513 or
approximately 33% from the prior fiscal year. This decrease is primarily due to
shutting down of certain unprofitable and uneconomical wells for which COI had
been the operator.
Total costs and expenses during fiscal 1995 were $4,568,661 as compared to
$3,428,644 in fiscal 1994. The increase of $1,140,017 or approximately 33% is
primarily the result of inclusion of the costs of contract revenue of $1,087,163
from KEMCO. Lease operating expenses during fiscal 1995 decreased by $357,679 or
approximately 32% from the prior fiscal year. Lease operating expenses as a
percentage of total oil and gas sales were 57% in fiscal 1995, compared to 64%
in fiscal 1994. This decrease is primarily due to the ceasing of unproductive
and uneconomical wells as stated above.
Total general and administrative expenses during fiscal 1995 increased by
$454,290 to $2,141,326. Under the terms of the Company's management agreement
with Integrated, $1,392,000 remained constant from the prior fiscal year.
General and administrative costs associated with the newly acquired subsidiary
KEMCO were responsible for a majority of the increase in general and
administrative expense of approximately 26% from the prior fiscal year.
Depreciation, depletion and amortization expense during fiscal 1995
decreased by $43,757 or approximately 7%, compared to the prior fiscal year due
to the decrease in oil and gas production volume as previously discussed.
Interest expense during fiscal 1995 increased by $253,426 to $321,318. The
increase is primarily due to interest charges for short and long term debt
associated with inventory acquisitions for KEMCO, and interest charges on the
short term debt associated with the acquisition costs of KEMCO.
Comparison of 1994 to 1993:
The Company's revenue is primarily generated through the sale of oil and
gas. The Company also realizes revenue through syndication sales and revenue
interests, and well operations. During the years ending June 30, 1994 and 1993,
the Company reported total revenues of $2,368,254, representing a decrease of
$932,603 or approximately 28% from the prior fiscal year.
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Oil sales during fiscal 1994 decreased by $524,146 or approximately 34%
from the prior fiscal year. This decrease was primarily attributable to a
reduction in the price per barrel received by the Company and a reduction in
production volume due to production interruptions during the Company's reworking
of certain wells and the normal production decline of wells. During fiscal 1994,
gas sales totaled $739,780 representing a decrease of $480,930, or approximately
39%, from gas sales reported during the prior fiscal year. This decrease was
primarily related to a reduction in the production volume caused by the same
facts that contributed to the reduction in oil sales as noted above.
Syndication sales and revenue interest income during fiscal 1994 were
$533,074. This represented an increase of $61,955, or approximately 13%. This
increase was primarily attributable to an increase in syndication program sales.
During fiscal 1994, well operating income increased $10,518 or
approximately 12% from the prior fiscal year primarily due to an increase in
additional consulting services.
Total costs and expenses during fiscal 1994 were $3,428,644. Lease
operating expenses during fiscal 1994 decreased by $216,572 or approximately 16%
from the prior fiscal year. Lease operating expenses as a percentage of total
oil and gas sales were 64% in fiscal 1994, compared to 48% in fiscal 1993. This
increase is primarily due to the reduction in production volumes as stated
above.
General and administrative expenses during fiscal 1994 and 1993 were
$1,392,000 and $1,392,000, respectively under the terms of the Company's
management agreement with Integrated. Other general and administrative expenses
were $295,036 and $251,072 in fiscal 1994 and 1993, respectively, reflecting
increases in franchise taxes and outside professional service fees.
Depreciation, depletion and amortization expenses during fiscal 1994
decreased by $287,193 or approximately 31% compared to the prior fiscal year.
This decrease results primarily from a reduction in production volumes from the
prior fiscal year.
Liquidity and Capital Resources
On January 31, 1996 the Company agreed to issue 24,000 shares of common
stock in exchange for the retirement of approximately $100,000 of debt. In
January 1996 the Company sold 114,943 shares of common stock to private
investors and realized net proceeds of $250,000. In February 1996 the Company
sold 123,158 shares of common stock privately and realized net proceeds of
$350,428. In March 1996 the Company sold 175,000 shares of common stock
privately and realized net proceeds of $589,302. In April, 1996 the Company
issued a convertible note in the amount of $200,000. It also sold 103,800 shares
of common stock and realized net proceeds of $298,500.
In May, 1996 the Company sold 76,190 shares for net proceeds of 200,000. In
June, 1996 the Company issued a convertible note in the amount of $45,000 and
sold 139,400 shares for net proceeds of 314,937. In July, 1996 the Company sold
666,051 shares and realized net proceeds of $1,577,439.
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Liquidity and Capital Resources - Fiscal 1995 and 1994 Compared
As of June 30, 1995 and 1994, the Company had working capital (deficit) of
$6,604,297 and $(147,931), respectively, representing an increase (decrease) of
$6,752,228 and $(316,098) or approximately 4664% and (188)%, respectively. This
increase is primarily related to the acquisition of KEMCO and the related long
term debt and equity financing. During fiscal 1995, cash used in operating
activities was $975,574 representing an increase of $735,236 or approximately
306% from fiscal year 1994. This increase primarily resulted from the
combination of the increased interest expenses and reduction in production
revenues as previously discussed. The Company believes that the acquisition of
KEMCO, and the diversification and future growth potential it represents, will
have a major impact on the Company's financial development. The impact of KEMCO
for the 3 months reflected herein has been substantial. In fiscal 1995 notes
payable increased from $466,667 to $7,077,795. The primary purpose of the
increase in notes payable was to obtain the financing needed to acquire KEMCO.
On July 7, and August 21, 1995 the Company issued $500,000 and $275,000,
respectively, of convertible notes to private investors. On October 4, 1995 the
Company completed a sale of properties for approximately $461,250. In December,
1995 the Company sold 222,000 shares of common stock and realized net proceeds
of $500,000. A majority of these funds was used to meet the obligations
represented by the notes payable associated with the KEMCO acquisition.
Capital Expenditures and Commitments - March 31, 1996
During the nine months ended March 31, 1996, the Company incurred capital
expenditures of $162,762. These capital expenditures were primarily for
equipment purchases and renovations to an approximately 6,000 square foot
building by KEMCO. These lease renovations were necessary for occupancy to the
building which was acquired in November 1995. The building, located across from
KEMCO's main yard, is being used for KEMCO's engineering department. The total
costs of the building and renovations were approximately $75,000. The expansion
of the engineering department will allow KEMCO to consolidate the engineering
staff as well as expand to meet the anticipated future engineering work
requirements.
Capital Expenditures and Commitments - Fiscal 1995 and 1994
During fiscal 1995, the Company completed the acquisition of KEMCO at a
cost of 400,000 shares of the Company's common stock valued at $6.25 per share,
and a cash payment of $4,500,000 to KEMCO's former stockholders. The funds used
to make the cash payment were obtained through the issuance of short term and
long term notes and the sale of 260,000 shares of the Company's common stock.
Two of the short term notes have been personally guaranteed by the Company's
Board Chairman, Jerry Swon. KEMCO's former principal stockholder, Deral Knight,
continues to serve as KEMCO's CEO pursuant to a five-year employment agreement
and has recently assumed the duties of the CEO of the Company.
During fiscal 1995 and 1994, the Company invested $56,482 and $177,315
respectively, in oil and gas activities including surface equipment and
production facility upgrades, capitalized well workovers and recompletions.
These capital expenditures were funded through the sale of oil and gas interests
in fiscal 1994, and through reinvestment of operating cash flow and the proceeds
of notes payable.
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BUSINESS
Business Development
Concord Energy Incorporated (the "Company") was incorporated in the State
of Delaware in 1985 under the name Monoclonal International Technology, Inc.
("Monoclonal"). In 1986 Monoclonal conducted a public offering of its securities
and commenced its plans to engage in the research, development, production and
marketing of biomedical research reagents. Monoclonal's planned operations did
not materialize and it ceased research and development activities in 1989. In
May 1993 Monoclonal entered into an agreement and plan of reorganization
("Agreement") with Concord Energy, Inc. a privately held Nevada corporation
("Concord").
Pursuant to the terms of the Agreement, Monoclonal issued approximately
10,566,000 shares of its common stock in exchange for all outstanding shares of
Concord Energy, Inc., and Concord Energy, Inc. became a subsidiary of
Monoclonal. After giving effect to the transaction, the shareholders of Concord
Energy, Inc. owned approximately 95% of the issued and outstanding stock of
Monoclonal. Pursuant to the Agreement, Monoclonal changed its name to Concord
Energy Incorporated and all of Monoclonal's prior officers and directors
resigned. The existing officers and directors of Concord were then appointed as
replacement officers and directors of Concord Energy Incorporated.
In May of 1995 Knight Equipment and manufacturing Corporation and its
wholly owned subsidiary K & S Engineering, Inc. ("KEMCO") were acquired by the
Company. KEMCO locates, designs, refurbishes, and installs gas processing plants
for the natural gas industry.
In February, 1996 the Company acquired IPS which has developed a unique,
proprietary software used to collect, process, analyze and transmit data
relative to petroleum production and processing operations.
The Company owns interests in approximately 100 oil and gas wells located
primarily in Texas and Louisiana. The Company's wholly-owned subsidiary, Concord
Operating, Inc., manages approximately 25 producing oil and gas wells. The
remainder of the wells are operated by various non related or affiliated
companies. The Company's headquarters are located at 75 Claremont Road,
Bernardsville, New Jersey 07924.
Concord Energy Incorporated including its wholly-owned subsidiaries KEMCO,
IPS, Concord Energy, Inc. and Concord Operating, Inc., are collectively referred
to herein as the "Company" or the "Registrant."
Business Of Issuer
The Company is an independent oil and gas exploration and production
company which, through KEMCO, also locates, designs, refurbishes, and installs
gas plants for the natural gas industry. In addition, the Company provides
rentals of gas plants and services such as engineering, procurement,
dismantling, reapplication and relocation of complete gas processing facilities.
The Company has interests in approximately 100 wells which are located primarily
in East Texas and the Louisiana Gulf Coasts. A majority of the wells range in
depth from 7,000 feet to 15,000 feet and produce oil and gas from formations
which historically are known to have quality reserves. As stated above, through
IPS, the Company also markets its proprietary software known as the APEXTM
system.
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The Company's headquarters are located in Bernardsville, New Jersey. The
Company's subsidiary, KEMCO, has its offices and manufacturing facilities in
Jourdanton, Texas. The Company's subsidiary, Concord Operating, Inc. is also
located in Jourdanton. Prior to the acquisition of KEMCO, the Company's revenues
were derived from the sale of oil and gas, syndication sales and revenue
interests, and well operating activities. Approximately 26%, 42% and 46% of the
Company's revenues during the years ended June 30, 1995, 1994 and 1993,
respectively, were from the sale of crude oil. Natural gas sales represented
approximately 14%, 31% and 37% of the Company's revenues during the 1995, 1994
and 1993 fiscal years, respectively. Revenue derived from syndication sales and
revenue interests accounted for approximately 17%, 23% and 14% of total revenues
during fiscal 1995, 1994 and 1993, while revenue from well operating activities
represented approximately 2%, 4% and 3% of total 1995, 1994 and 1993 revenues,
respectively. Although KEMCO's operations which are included in the Company's
financial statements for the year ended June 30, 1995 are only from April 1,
1995 (the effective date of the acquisition) through the year end approximately
41% of the Company's revenue for the year ended June 30, 1995 was attributable
to KEMCO. The Company is committed to a growth strategy which emphasizes
diversification in the oil and gas service industry, while de-emphasizing oil
and gas exploration.
Description of KEMCO
Knight Equipment & Manufacturing Corporation ("KEMCO") is a Texas
corporation that was incorporated and began operations in 1986. KEMCO provides
to the natural gas industry a complete line of engineering, procurement,
dismantlement, moving, reconditioning, re-application and construction of
quality process equipment and facilities from surplus equipment. The services
provided by KEMCO include, but are not limited to, the location and supply of
complete plants, processing units and equipment, the purchase and sale of plants
and equipment for investment recovery and the inspection, appraisal and
reconditioning of equipment on a customized basis. K&S Engineering, Inc. ("K&S
Engineering"), the sole subsidiary of KEMCO, is a consulting engineering company
that provides, among other things, project management and engineering services
from conceptual ideas through design, procurement and construction as well as
preliminary investigations and project feasibility studies.
a) Equipment and Manufacturing Operations
The equipment and manufacturing activities of KEMCO consist of locating,
designing, refurbishing and installing predominately natural gas processing
equipment. KEMCO also provides rentals of gas processing equipment and services
such as engineering, procurement, dismantling and moving and erecting of gas
processing equipment at new locations. KEMCO maintains a majority of its
equipment inventory at its facilities in Jourdanton, Texas. These facilities
include construction and storage areas; electric, machine, and metal workshops
as well as engineering and administrative offices. Also within the Jourdanton
facilities is a sandblasting area approved by the Texas Natural Resource
Conservation Commission ("TNRCC"), and registered for abrasive cleaning. In
KEMCO's Jourdanton facilities and field sites controlled by KEMCO, KEMCO is
authorized by the National Board of Boiler and Pressure Vessel Inspectors for
repair and registration of "U" stamped vessels as well as being certified by the
American Society of Mechanical Engineers ("ASME") for the construction of new
"U" stamped pressure vessels. KEMCO maintains an inventory of gas processing
equipment and complete gas plants as well as miscellaneous parts, such as
vessels, valves, pipe, fittings and electrical components which may be needed to
complete refurbishing projects. KEMCO's equipment inventory is available for
sale on an "As-Is, Where-Is" basis, or it can be refurbished and or redesigned
to meet a given customer's specific needs.
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b) Industry Risks
The Company's equipment and manufacturing operations are subject to all the
hazards and risks normally incident to manufacturing and working with heavy
equipment. The Company is required to meet all the Occupational Safety and
Health Administration ("OSHA") regulations as well as those issued by Texas
Workman's Compensation. In accordance with these regulations, KEMCO requires
each of its employees to signify receipt, understanding and acceptance of
KEMCO's "CODE OF ETHICS - EMPLOYEE HANDBOOK - SAFETY MANUAL." Any contractors
who perform services to KEMCO must also signify their compliance with these
regulations. As protection against such hazards, KEMCO maintains insurance
coverage in the aggregate amount of $10,000,000, including physical damage on
certain risk, employer's liability, performance liability and comprehensive
general liability.
c) Earnings History
Summary income and expense information based on KEMCO's unaudited income
statements are as follows:
Six Months Ended Year Ended
---------------------- -----------------------
12/31/95 12/31/94 12/31/94 12/31/93
-------- -------- -------- --------
Total Revenue 7,405,284 3,022,301 7,256,605 7,427,330
Cost of Revenues 4,474,153 2,672,114 5,728,530 4,430,011
Earned (Loss)
Operating Income
(Loss) 2,201,653 (242,286) 216,373 1,521,612
--------- --------- ------- ---------
Net Income (Loss) 1,974,100 (212,659) 241,048 990,685
--------- --------- ------- ---------
The Company intends to increase KEMCO's manufacturing operations by
commencing the manufacture of new equipment as well as expanding KEMCO's rental
and leased processing equipment and complete gas processing plants and by
developing processing operation services.
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Description of IPS
Integrated Petroleum Systems Corporation ("IPS") was acquired by the
Company in February, 1996. It was organized under the laws of the State of
Colorado on November 19, 1991. IPS has developed a combination of computer
software and hardware to gather, process, analyze and transmit production data
of oil wells more efficiently in the field and transmit the data overnight to
the home office of an oil or gas development company. The software operates on
conventional PC platforms and special hand-held computers. The information
collected at the well can be imported directly into the accounting systems
typically used by the petroleum industry. The Company's proprietary system is
call APEXTM (for "Analysis and Production Express") and allows companies to:
1. Reduce field personnel and clerical support, together with related
costs;
2. Increase productivity and operating efficiency in the field; and
3. Gain access to well test and production data every 24 hours.
4. Improve the quality and accuracy of the client's central data base by
eliminating errors resulting from manually performed calculations and
copying from form to form.
5. Easily generate reports involving all types of production data.
6. Automatically export from APEX and share it with any other data base,
analytical package or accounting system used by a developer.
7. Establish a technological platform which is capable of expanding to
handle a variety of other field data collection and engineering tasks.
Current industry practices require that pressure, temperatures, volumes and
other types of data associated with the production of oil and gas, be gathered
by field operators (known as "pumpers") using pencils and scratch pads. Certain
calculations must then be made manually before the original notes are
transcribed onto a printed form furnished by the operating company transmitted
periodically (usually once every 1 or 2 weeks) to the home office. This entire
procedure consumes time and manpower, minimizing productivity and creating many
opportunities for errors to be introduced into the data stream. APEXTM
eliminates the unnecessary manual functions by allowing pumpers to capture this
data in the field - directly at its source - and then to automatically process
and transfer the information throughout the company each day. IPS believes that
this approach will reduce certain operating costs and increase productivity,
enabling the system to literally pay for itself in a matter of months.
The Company's management believes that the market for oil and gas
production hardware and software is in an early state of development. The
Company estimates the market (which has minimal penetration at this time) for
its existing APEXTM system to be in excess of $600 million. Every oil and gas
well operator is a potential buyer for the Company's products. Competition
presently is limited to two known companies. For the reasons cited below,
management believes APEXTM is a superior product when compared to the products
of these competitors.
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a) Competitive Advantages of APEXTM
[*An asterisk indicates features that are now in APEXTM and not currently
available from any of the Company's competitors]
Hardware
1. APEXTM utilizes state of the art hand-held technology for field-based
date collection activities. The hand-held unit most often sold by the Company is
obtained from an unrelated supplier, and has the broadest ambient temperature
range, can withstand a 6" drop to concrete, is waterproof and shockproof, and
has numerous other advantages.*
2. APEXTM offers more options than its current competitors by supporting
three different hardware platforms.*
Software
1. 100% user configurable sites, etc.
2. Remote programming and communications with field-based units.*
3. Complete custom reporting capability with integrated charts and
graphs.*
4. Total editing control over raw data with automatic audit trails.*
5. System security with multilevel password protection
6. True event-driven Windows user interface*
7. APEXTM can support data collection for fields of any size with no
limit to the number of wells.
8. APEXTM has established links with three popular production accounting
software packages and is now adding three more to the list.
Service
1. All APEXTM software, even in the field, can be supported remotely from
Denver via modem*
2. The Company believes it has developed a reputation for delivering
fast, responsive and effective service.
b) The APEXTM System
The Company has developed a copyrighted system which utilizes hand held
computers, specially designed for use in harsh, outdoor environments, to collect
different types of data pertaining to the petroleum industry. Presently, oil and
gas companies use field personnel (i.e. pumpers) to check and record well tests
and production data on individual wells and batteries. Using a pencil and
scratch pad pumpers note down raw data which they subsequently use to perform
manual volume/rate calculations and conversions. This information is then copied
(by hand, again) onto a lined form provided by the operating company, and is
eventually submitted to the home office on a weekly or monthly basis. Clerical
personnel must then proof and enter this data into a computer, where it can
eventually be viewed and utilized by home office personnel, usually 2-4 weeks
after the data was originally collected.
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The APEXTM system offers a simple, efficient and cost-effective alternative
to this antiquated process. The system utilizes carefully chosen hardware
platforms which are produced by well established, reputable manufacturers. The
hand held units are used by the pumpers and the companies to collect, process,
distribute and report well test information, production volumes and related
field data. The APEXTM one-time entry system does all the calculations and data
distribution automatically.
To use the system, the pumper takes a hand held unit into the field and
using the keypad, enters well test measurements and daily production data. At
the end of the day, the pumper returns the unit to a recharging modem. The data
within the unit is then automatically retrieved via the modem and uploaded into
a central data base (usually at night) where it can be accessed the next morning
by the petroleum company. The following day, the pumper simply picks up his
field unit and repeats the process.
At this time, APEXTM is comprised of three separate but interconnected
software modules and a proprietary communications/polling program which
collectively represent nearly nine man-years of development by software
engineers, petroleum engineers, operations people and other personnel. It would
require considerable time and expense for another company to duplicate the
functionality that now exists in the APEXTM system. APEXTM software is trademark
and copyright protected.
c) Other Products
An opportunity exists in providing equipment maintenance and safety
inspection software systems for "plants" (i.e. refineries, transmission stations
and processing facilities of all types) through North America and the world. In
the area between Houston and Lafayette, Louisiana, there are approximately 2,300
such plants in the oil and petrochemical industry alone. By virtue of a
strategic business alliance established between the IPS and Terrington Systems
Ltd. ("TSL"), the IPS offers three different software systems to meet the
specific needs of plant operators, all of which run on the same hand held
platforms as APEXTM. Additionally, the IPS and TSL intend to work together to
develop a system powerful enough to satisfy the requirements of local, regional
and enterprise-wide operations. With tens of thousands of sites world wide and a
total potential market of hundreds of millions of dollars. This represents
another major opportunity for the IPS.
d) Copyrights and Trademarks
IPS has copyrighted the proprietary software systems referred to herein as
APEXTM. "APEXTM" is a registered trademark of IPS, and through it, the Company.
e) Marketing
IPS' products are priced competitively, but at prices which should allow it
to sustain profitable operations. IPS currently directly sells APEXTM to its
customers. A support and maintenance contract is offered directly from IPS at a
cost of 18% of the original sales price, which management hopes will generate an
increasing stream of recurring revenues as the installed customer base grows.
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To date, IPS has run limited but successful advertisements in trade
magazines. The Company intends to expand its trade magazine advertisements and
run these advertisements on a more regular basis when financial resources permit
them to do so. IPS has developed promotional materials which describe the
product and provide information about IPS. The use of promotional materials will
be expanded.
IPS also has demonstrated APEXTM at several industry trade shows, including
the SPE Petroleum Computing Convention and SPE Annual International Exhibition.
These and other exhibitions are excellent opportunities to demonstrate APEXTM to
a large concentration of prospective customers. IPS plans to expand its trade
show presence when additional financial resources are available.
IPS markets its products through a direct sales force and in some areas by
agents. Generally, an in-person, physical demonstration of the system (usually
several) will be required to make a sale. IPS has developed a comprehensive
sales and marketing plan to make the entire sales process more efficient.
All sales of software and hardware are shipped to the destination
designated by the purchaser, with costs of delivery paid by the purchaser. If
IPS' personnel is required for training or installation, the purchaser will pay
for all time and expenses involved.
The product is currently being sold after having been tested and installed
at seven different oil companies which purchased the product at full price. Two
of such oil companies are in the process of converting their manual system to
the IPS system, and most of the others have indicated an interest in doing so as
soon as finances permit. A total of 83 hand-held units are in the field, and IPS
has received orders for an additional 32 units. The Company has begun to market
the product nationally and has developed significant levels of interest in the
product, many of which should develop into additional sales and new customers in
1996.
IPS does not have a significant history of sales and in fact, has incurred
historical losses because its efforts have been concentrated on development of
the APEXTM system. In February, 1996 the Company acquired all of IPS'
outstanding common stock through the issuance of 600,000 shares of the Company's
common stock to the former IPS shareholders in addition to the assumption of
approximately $250,000 of indebtedness plus a commitment to provide $550,000 of
working capital to IPS. In addition, the Company issued 15,176 of its shares to
retire $91,058 of IPS' indebtedness.
The Company
The Company is committed to a growth strategy which emphasizes
diversification in the oil and gas service industry, while de-emphasizing oil
and gas exploration. Pursuant to this strategy the Company acquired IPS in
February, 1996 and KEMCO in May of 1995. The Company intends to increase KEMCO's
manufacturing operations by commencing the manufacturing of new equipment as
well as expanding KEMCO's rental and leased processing equipment and complete
gas processing plants and by developing processing operation services. Concord
Operating, Inc. ("COI"), a wholly-owned subsidiary of the Company, manages the
Company's field operations. By utilizing COI's operating capabilities, the
Company has the ability to efficiently manage and enhance the production of its
wells at lower overhead and operating expenses, compared to wells operated by
other unaffiliated operators.
25
<PAGE>
Exploration and Production Operations
The exploration and production activities of the Company consist of the
geological and geographical evaluation of prospective oil and gas properties,
the acquisition of oil and gas leases or other interests in prospects and the
development and operation of properties for the production and sale of oil and
gas. The Company generates most of its projects through outside independent
consultants. Development drilling prospects are often identified by third
parties, including independent petroleum consultants and other oil and gas
companies. The Company conducts its development and production operations
primarily in East Texas and the Louisiana Gulf Coast. The majority of the
Company's natural gas production is sold under short term contracts. The
majority of gas contracts are with pipeline companies and local distribution
companies. Additionally, other gas is marketed through third party operators for
properties in which the Company has an interest but does not operate. The
majority of the Company's crude oil production is sold under short term
contracts at current posted prices for each geographic region. Concord
Operating, Inc. ("COI"), a wholly owned subsidiary of the Company, manages the
Company's field operations. By utilizing COI's operating capabilities, the
Company has the ability to efficiently manage and enhance the production of its
wells at lower overhead and operating expenses, compared to wells operated by
other unaffiliated operators.
The following summarizes certain of the Company's major prospects:
The Kilgore Waterflood Project
A waterflood is an enhanced oil recovery method in which water is injected
into an oil rich reservoir through injection wells. The injected water "pushes"
or "sweeps" the oil toward a select pattern of collector or producer wells.
Waterfloods typically extend the economic life or a marginally productive field
by re-energizing its reservoir as well as creating an economic rebirth for
fields that were previously "shut-in." The Kilgore Waterflood Project ("Kilgore
Field") is located in the center of the East Texas Field in the town of Kilgore,
Gregg County, Texas. The first major discovery in the East Texas Field was made
by C.M. "Dad" Joiner. The well was completed in the Woodbine Sandstone Formation
("Woodbine") and historically produced in excess of 1,000 barrels of oil per day
("BOPD"). The entire East Texas Field (the "Field") covers approximately 140,000
acres in Gregg, Rusk, Upshur, Smith and Cherokee Counties. The Field is
approximately 43 miles long on its north-south axis and has an average width of
five miles. The maximum thickness of the Woodbine is approximately 130 feet and
the average net "oil pay" (feet of productive oil formation) for the Field is
approximately 35 feet. The Kilgore Field is in excess of 40 acres in size and
has one water injection well and nine collecting wells. Water injection
commenced in September 1993 and oil production commenced in November 1993. The
Kilgore Field is currently producing, and test results from core samples,
engineering data, geological mapping and independent engineer reports, indicate
that there are significant recoverable reserves.
The Hester Field Project
The Hester Field Project (the "Hester Field") is located in St. James
Parish, Louisiana. The producing formation present in the Hester Field is the
D-3 sand reservoir. To date the field has produced approximately 320,000 barrels
of oil. The Hester Field oil reservoir is approximately 140 acres in size and
has very distinct geological boundaries. The Hester Field is currently
26
<PAGE>
undergoing workover operations, which based on bottom hole pressure tests
indicate recoverable reserves from the existing well to be approximately 280,000
gross barrels of oil. By drilling an additional well, another 238,000 gross
barrels of oil could potentially be recovered. The Company's share of the Hester
Field is approximately 38.5%.
Regulations
The oil and gas exploration and production industry is extensively
regulated by federal, state and local authorities. Legislation and regulation
affecting the industry are under constant review for amendment or expansion,
raising the possibilities of changes that may adversely affect the Company in
areas such as pricing and marketing of oil and gas production. Substantial
penalties may be assessed for non-compliance with various applicable statutes
and regulations and the overall regulatory burden on the industry increases the
cost of doing business, thereby reducing profits. Federal legislation and
regulatory control generally affect the oil and gas produced by the Company and
the manner in which such products are marketed, sold and transported.
The Company is required to comply with numerous state and local regulations
affecting different aspects of the oil and gas drilling and production
activities including the drilling of wells, the spacing of wells, the
utilization or pooling of oil and gas properties, environmental matters, safety
standards, the sharing of markets, production limitations, plugging and
abandonment, and restoration.
Moreover, various federal, state and local laws and regulations cover the
discharge of materials into the environment or otherwise relate to the
protection of the environment. These regulations may affect the Company's costs
of operations. It is not anticipated that the Company will be required in the
near future to expend amounts of money in relation to its total capital
expenditure program by reason of environmental laws or regulations. However,
since such laws and regulations frequently change, the Company cannot predict
the ultimate costs of compliance therewith.
Industry Hazards
The Company's oil and gas operations are subject to all the operating
hazards and risks normally incident to drilling and production of oil and gas,
such as explosions, encountering formations with abnormal pressure, blowouts,
cratering and oil spills, any of which can result in the loss of hydrocarbons,
environmental pollution, personal injury claims and loss of life. Such hazards
can also severely damage or destroy equipment, subsurface structures,
surrounding areas or property of others. As protection against such hazards the
Company maintains insurance coverage on the wells that it operates in the
aggregate amount of $2,000,000, including physical damage on certain risks,
employer's liability and comprehensive general liability. The Company believes
that its insurance coverage is adequate and customary for companies of a similar
size engaged in operations comparable to those of the Company. The Company also
requires that all providers of third party contract services carry insurance
which meets the Company's requirements. However, there can be no assurance that
losses will not occur from uninsurable risks or in amounts in excess of existing
coverage. The Company does not carry business interruption insurance in respect
to its operations due to the prohibitive cost. The occurrence of any event that
is not fully covered by insurance could have an adverse impact upon the
Company's financial condition and results of operations.
27
<PAGE>
Employees
Prior to July 1, 1996, the Company's management, administrative and
internal accounting functions were fulfilled by Integrated personnel under the
management agreement with the exception of KEMCO's administrative staff which
was compensated directly by KEMCO outside of the management agreement (see
"Related Party Transactions") and IPS' administrative personnel. Effective July
1, 1996 the management agreement terminated and the Company now pays its general
and administrative expenses and all other costs directly. KEMCO has an average
full-time work force of 40 employees in addition to about 20 independent
contractors who perform various technical services. The employees include
engineers, yard supervisors, field supervisors and technical people who are
assigned out on jobs. KEMCO has seven administrative employees including its
management.
IPS employs six people. Richard Barden is the Chief Executive Officer who
presently supervises all sales and general management for IPS. There are also
four programmers and one customer service representative. IPS is seeking to hire
a general manager to assist with sales, service and installation, plus an
additional technical support person as well as additional sales personnel.
Properties
i. Concord Energy Incorporated - Oil and Gas Properties
The Company has an ownership interest in approximately 100 producing wells
primarily located in East Texas and the Louisiana Gulf Coast, of which it
manages approximately 25 producing oil and gas wells through COI.
Proved Oil and Gas Reserves
The following table sets forth estimates of proved developed and proved
undeveloped oil and gas reserves and the present value of estimated future net
revenues attributable to such reserves, based on the assumptions that oil and
gas prices, and operating costs will remain fixed at year end levels. The
present value of the estimated future net revenues for proved oil and gas
reserves on the dates indicated below was computed by discounting the aggregate
future net revenues by 10% per year. The present value does not represent the
fair market value of such reserves. For the years ending June 30, 1995 and 1994,
this information is based upon the reserve reports prepared by Harris
Engineering Services of Houston, Texas. For the year ending June 30, 1993, this
information is based upon reserve reports prepared by Keith Petroleum
Consultants, Inc., Harris Engineering Services of Houston, Texas, Wendell B.
Cook, P.E. of Dallas, Texas and Hensley Consulting, Inc. of Tulsa, Oklahoma,
independent petroleum and geological engineering firms. Proved reserves are the
estimated quantities of oil, gas and natural gas liquids which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reserves under existing economic and operating
conditions. Proved developed reserves are proved reserves that can be expected
to be recovered through existing wells with existing equipment and operating
methods. The estimation of reserves requires substantial judgment on the part of
petroleum engineers sometimes resulting in imprecise determinations,
particularly with respect to new discoveries. The accuracy of any reserve
estimate depends on the quality of available data, engineering and geological
interpretation and judgment. Results of drilling, testing and production
subsequent to the date of the estimate may result in revisions of any such
estimate. Accordingly, estimates of reserves are often materially different from
the quantities of oil and gas that are ultimately recovered and such estimates
will change as future production and development information becomes available.
The reserve data represents estimates only and should not be construed as being
exact.
28
<PAGE>
Estimates of proved reserves at June 30, 1995 are as follows:
<TABLE>
<CAPTION>
June
---------------------------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Estimated proved developed
and proved undeveloped oil
and gas reserves:
Oil (Bbls) 1,748,260 2,053,247 2,023,547
Gas (Mcf) 2,369,230 2,185,352 1,999,359
EQB* 2,143,130 2,417,471 2,356,774
Present value of future net reserves $17,581,610 $21,467,268 $20,740,132
Present value of future net reserves
discounted at 10% $10,340,158 $12,565,490 $12,716,135
Estimated proved developed oil and gas reserves:
Oil (Bbls) 435,915 691,511 1,045,478
Gas (Mcf) 1,026,085 1,544,510 1,940,900
EQB 606,929 948,929 1,368,961
Present value of future net reserves $ 4,295,220 $ 7,233,884 $10,074,440
Present value of future net reserves
discounted at 10% $ 2,702,211 $ 4,611,568 $ 6,846,559
</TABLE>
The present value of future net reserves as stated above is determined by using
the Securities and Exchange Commission Regulations which include constant prices
of oil and gas as of the end of the fiscal year.
Average sales price and production costs per unit of production were as
follows:
Year Ended June 30,
------------------------
1995 1994 1993
---- ---- ----
Average sales price:
Crude oil, per barrel $16.77 $14.85 $18.95
Natural gas, per thousand cubic feet 1.57 1.95 2.01
Average crude oil and gas sales, per
equivalent barrel 12.98 13.31 15.09
Average production costs, per equivalent barrel 7.43 8.46 7.27
- ----------------
*Equivalent barrels (Mcf of gas is converted to equivalent barrels by dividing
by 6)
29
<PAGE>
Productive Wells, Developed and Undeveloped Acreage and
Drilling Activity Acreage
The following tables set forth the Company's developed acreage and productive
wells as of June 30, 1995, 1994 and 1993. "Gross" refers to total acres or wells
in which the Company has a working interest and "Net" refers to gross acres or
wells multiplied by the percentage of working interest owned by the Company.
Developed Acreage
-----------------
Gross Net
----- ---
1995 11,120 2,075
1994 13,560 2,723
1993 13,720 2,829
<TABLE>
<CAPTION>
Productive Wells
----------------
Oil Gas
-------------------------------- ------------------------------------------
Gross Net Gross Net Gross Net Gross Net
Number Number Developed Developed Number Number Developed Developed
of Wells of Wells Acreage Acreage of Wells of Wells Acreage Acreage
-------- --------- --------- --------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 98 25 5,920 1,482 26 4 5,200 593
1994 122 34 7,520 2,094 29 4 6,040 629
1993 124 35 7,680 2,199 29 4 6,040 629
</TABLE>
At June 30, 1995, the Company owned the rights to 1,214 gross (912 net)
undeveloped acres, all of which are located in the United States. The following
sets forth the states in which such acreage is located and the number of gross
and net acres:
State Gross Acres Net Acres
- ----- ----------- ---------
Texas 734 560
Louisiana 480 352
----- ---
Total 1,214 912
----- ---
30
<PAGE>
ii. KEMCO Properties
KEMCO's facilities in Jourdanton, Texas include a main yard of
approximately five acres. Within the main yard are; an administrative office
building of approximately 4,000 square feet, a warehouse and purchasing office
building of approximately 6,000 square feet; a mechanical workshops building of
approximately 10, 000 square feet, and an instrument and valve storage and
repair building of approximately 12,000 square feet. Across from KEMCO's main
yard, the Company owns a 6,000 square foot building which is utilized by KEMCO's
engineering department.
KEMCO's two other yards in Jourdanton, Texas are a seven acre laydown and
dismantling yard, and a 20 acre sandblasting, painting and storage yard. Both of
these yards are in close proximity to the main yard.
iii. IPS Properties
IPS leases 2,700 square feet of office space at 8480 East Orchard Road,
Suite 4350, Englewood, Colorado 80111. IPS anticipates that in the foreseeable
future, it will be necessary for it to establish offices in Texas and possibly
Alberta, Canada.
Competition
Competition in the oil and gas industry is intense. KEMCO encounters strong
competition from numerous gas processing equipment service companies. The
Company has always met with intense competition form oil and gas companies
engaged in drilling income programs and from partnerships and other joint
ventures. Many of these companies are large, well-established entities with
substantially larger operating staffs and greater capital resources than the
Company. In addition, many of them have engaged in the manufacturing and energy
businesses for a much longer period than the Company. The Company is at a
competitive disadvantage with these larger oil and gas entities in seeking
potentially promising oil and gas prospects. In addition, the Company faces
competition from numerous entities which actively engage as gas marketers and
brokers. The Company also faces competition from other fuel choices which supply
energy needs to consumers in industry. These are among the reasons that have led
the Company to de-emphasize its oil and gas exploratory activities and instead
to pursue acquisitions that provide services to the energy industry.
With respect to IPS, there are only two known significant competitors to
the APEXTM system. One, Anderson Consulting has a "TOW" system that was strictly
a PC based production accounting package until 1995 when they introduced a field
data collection system on a portable pen based platform. SAE's "POWER" system
utilizes hand held computers, and despite several important differences, is more
like APEXTM in terms of overall methodology and functionality. The Company
believes APEXTM to be superior to the competition, but is unable to assess the
competitive threat posed by their products. In any case, the potential market is
believed to be tremendous and IPS will become highly profitable if it can
capture a significant market share. The Company, of course, can provide no
assurance that this will take place.
Copyrights and Trademarks
IPS has copyrighted the proprietary software systems referred to herein as
APEXTM. "APEXTM" is a registered trademark of IPS, and through it, the Company.
31
<PAGE>
Legal Proceedings
There is no material litigation pending to which the Company is a party or
to which any of its property is subject.
MANAGEMENT
The following table sets forth the names and ages of all current directors
and officers of the Company and the positions in the Company held by them:
Director or
Name Age Position & Offices Officer Since
- ---- --- ------------------ -------------
Jerry Swon 46 Chairman of the Board 1993
Deral Knight 55 President, Chief Executive 1996
Officer and Director
Barry Laidlaw 46 Director 1996(1)
Neil Glass 49 Director 1993
Paul Chernis 61 Director 1993
Scott S. Kalish 37 Chief Financial Officer 1993
Todd B. Hesse 33 Secretary 1993
All directors and/or officers served as members of the Board of Directors
of Concord Energy, Inc. (a Nevada corporation) from inception to the time of the
Agreement with Monoclonal in May, 1993 (See Business - Business Development).
Directors are elected to serve until the next annual meeting of stockholders and
until their successors have been elected and have qualified. The by-laws permit
the board itself to fill vacancies and appoint additional directors pending
shareholder approval at the next annual meeting. Officers are appointed to serve
until the meeting of the Board of Directors following the next annual meeting of
stockholders and until their successors have been elected and qualified. The
last annual meeting was held on August 9, 1996.
Jerry Swon - Upon consummation of the transaction with Monoclonal in May,
1993, Mr. Swon became President, CEO and Chairman of the Company. Mr. Swon is
the founder, and prior to July 1, 1996 served as President and CEO of the
Company. He continues to be CEO of Integrated and Tucker Financial, Inc. As
Chairman, Mr. Swon continues to be responsible for acquisitions and project
financing, among other things. He has been involved in the oil and gas
investment business since 1979. He is a graduate of Hamline University.
- -----------------
(1) Mr. Laidlaw originally served as a director since 1993 and resigned in 1995.
He has agreed to rejoin the board as of May 31, 1996.
32
<PAGE>
Deral Knight - As part of the KEMCO acquisition, Mr. Knight agreed to
continue as the president of Knight Equipment and Manufacturing Corp. which he
founded. In May 1996 Mr. Knight became a director of the Company and in June
1996 became the President and CEO of the Company. Mr. Knight has been involved
in the oil and gas service industry since 1964. He is a graduate of Oklahoma
State University, where he received his Bachelor of Science degree in Chemical
Engineering.
Barry Laidlaw - Upon the consummation of the Monoclonal transaction, Mr.
Laidlaw became a director of the Company. Mr. Laidlaw is also the President of
Concord Operating, Inc., a wholly owned subsidiary of the Company, which was
organized in 1980. Prior to the organization of Concord Operating, Inc. he was
president of West Gas, Inc. where he was involved in all aspects of the oil and
gas business from negotiating contracts to field operations.
Neil Glass - Upon the consummation of the Monoclonal transaction, Dr.
Glass, a transplant surgeon became a director of the Company. He graduated from
New York University Medical School in 1972 and was an undergraduate and pre-med
student at University of Wisconsin and Texas Tech, respectively. Dr. Glass
previously maintained his medical practice in Camden, New Jersey for several
years before relocating to Ohio where he practices at Pike Community Hospital.
Paul Chernis - Upon the consummation of the Monoclonal transaction, Mr.
Chernis became a director of the Company. He had been a director of Concord
since its inception in July, 1991. He has also rendered legal services to
Integrated and Tucker Financial, Inc. He has been a member of the firm of
Silverman, Collura & Chernis, P.C. since June 1990, specializing in corporate
and securities law. That firm acts as Special Securities Counsel to the Company.
Mr. Chernis is a graduate of New York University School of Law, and prior to
entering private practice in 1972, he served as Assistant Regional Administrator
of the New York Regional Office of the Securities and Exchange Commission.
Scott S. Kalish - Mr. Kalish became Chief Financial Officer of the Company
upon the consummation of the Monoclonal transaction. Mr. Kalish had served as
Concord's Controller since 1991. Previously, he was supervisor of financial
accounting at Elf Acquitaine Offshore ("Elf") in Houston where he specialized in
oil and gas accounting and taxation. Prior to his association with Elf he was an
oil and gas accounting supervisor with Cliffs Drilling Company. Mr. Kalish is a
graduate of Roger Williams College.
Todd B. Hesse - Upon the consummation of the Monoclonal transaction, Mr.
Hesse became the Company's Secretary. In 1991 Mr. Hesse became a member of
Concord's management team. Prior to that, he was a senior associate with James
J. Lowrey & Co., a municipal financial advisory firm. At James J. Lowery & Co.,
Mr. Hesse was involved with the issuance of tax-exempt bonds and notes, as well
as developing reinvestment programs for various project funds. Mr. Hesse is a
graduate of Delaware Valley College.
EXECUTIVE COMPENSATION
The Company's Summary Compensation Table is provided herein. The Company
has no Option/SAR Grants, Aggregated Option/SAR Exercises or Fiscal year-end
Option/SAR Grants, for the years ended June 30, 1995, 1994, or 1993 nor are
there any long-term incentive plan ("LTIP") awards, or stock options or stock
appreciation rights.
Non-employee directors are not compensated for Board of Directors meetings
attended, although directors are reimbursed for travel expenses incurred in
attending meetings.
33
<PAGE>
SUMMARY COMPENSATION TABLE
For the Years Ended June 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name
and Year Other Restricted
Principal Ended Compensation Annual Stock Options/ LTIP All Other
Position June 30 Salary* Bonus ($) Compensation($)* Awards ($) SARs Payouts($) Compensation($)*
- -------- ------- ------------ --------- ---------------- ---------- ---- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jerry Swon 1995 $150,000 None None None None None None
President 1994 $150,000 None None None None None None
1993 $150,000 None None None None None None
Bruce Deichl** 1995 $100,000 None None None None None None
Executive Vice 1994 $100,000 None None None None None None
President 1993 $100,000 None None None None None
Barry Laidlaw 1995 $70,000 None None None None None None
Director 1994 $70,000 None None None None None None
1993 $70,000 None None None None None None
Scott S. Kalish 1995 $70,000 None None None None None None
Controller 1994 $70,000 None None None None None None
1993 $70,000 None None None None None None
Todd Hesse 1995 $45,000 None None None None None None
Secretary 1994 $45,000 None None None None None None
1993 $45,000 None None None None None None
</TABLE>
* Note: Salaries shown above have been allocated to listed payees out of funds
paid by the Company to Integrated under the management agreement (see
certain Relationships and Related Party Transactions, and Notes to
Financial Statements.)
**Bruce Deichl resigned as an officer and director on June 28, 1996.
The highest paid employees of the Company during the fiscal year ended June
30, 1996 were Jerry Swon ($150,000), Deral Knight ($125,000), Richard Barden,
IPS Chief Executive Officer ($100,000), and Barry Laidlaw (CEO of Concord
Operating, Inc.), and Scott Kalish ($70,000 each).
34
<PAGE>
Security Ownership Of Certain Beneficial Owners And Management
The following table contains information as of July 25, 1996 as to the
beneficial ownership or shares of the Company's common stock held by each person
who was the beneficial owner of more than 5% of the outstanding shares of that
class, each person who is a director or officer of the Company and all persons
as a group who are officers and directors of the Company, and as to the
percentage of outstanding shares held.
Name of Shares Approximate
Beneficial Owner Beneficially Owned (1) Percent of Class (2)
---------------- ---------------------- --------------------
Deral Knight(3) 360,000 6.07%
Jerry Swon 153,941 2.59%
Dr. Neil Glass 23,971 0.40%
Paul Chernis(4) 44 .00%
Total Held by Officers
and Directors (4) 537,956 9.07%
- ----------------
(1) As used in this section, the term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Securities Exchange Act of 1934 to
consist of sole or shared voting power (including the power to vote or direct
the vote) and/or sole or shared investment power (including the power to dispose
or direct the disposition with respect to the security in question through any
contract, arrangement, understanding, relationship or otherwise.
(2) As of July 25, 1996 there were 5,929,852 shares of common stock issued and
outstanding.
(3) Mr. Knight is the President of the Company's subsidiary KEMCO, and also
Company President, CEO and a director. His shares of the Company's common stock
were obtained pursuant to the Company's acquisition of KEMCO in May, 1995.
(4) Mr. Chernis is a member of the law firm of Silverman, Collura & Chernis,
P.C. which owns an additional 39,000 shares of the Company's common stock.
(5) As sole shareholder of Integrated, Mr. Swon may be deemed to be beneficially
interested in shares held by that entity as well. Accordingly, Integrated's
shares in the Company have been included in the number of shares held by Jerry
Swon and the total number of shares held by officers and directors as stated
above. The shares owned by Deral Knight, who became a director in May, 1996,
have been included in this total.
35
<PAGE>
RESALE BY SELLING SECURITY HOLDERS
This prospectus relates to the proposed resale by the Selling Security
Holders of up to 1,334,061 shares of outstanding common stock as well as the
resale of up to 496,500 additional shares of common stock issuable upon exercise
of the Company's outstanding common stock purchase warrants. The following table
sets forth as of June 30, 1996 certain information with respect to the persons
for whom the Company is registering the shares for resale to the public. The
Company will not receive any of the proceeds from the sale of the shares, but
will receive a maximum of $1,698,750 if the Warrants listed below are exercised.
<TABLE>
SHARES
Names of Selling No. of Shares No. of Shares Offered
Security Holders Currently Held Beneficially by Means of this Prospectus
- ---------------- --------------------------- ---------------------------
<S> <C> <C>
David R.J. Purcell(1) 895 895
Virgina L. and George M. Barden Jr.(1) 1,000 1,000
Thomas R. Jemison(1) 1,018 1,018
Kathleen Brown(1) 1,119 1,119
Richard Missan 2,500 2,500
Carl Henn 2,965 2,965
Lisa Faley Howard, Guardian & Trustee
For Jonathan & Megan Howard(1) 4,070 4,070
Robert L. Woods, Jr.(1) 4,467 4,467
William H. and Margaret Burke 4,467 4,467
Richard W. and Marie C. Faley(1) 4,467 4,467
Lisa Faley Howard and Luther
Damon Howard III 4,864 4,864
June M. Barden(1) 5,000 5,000
Pericles Investments Pty Ltd. 5,000 5,000
Ann Hamilton 8,315 8,315
Southwest Royalties, Inc.(1) 8,557 8,557
Reto M. Tuffli and Rachel De Baere(1) 8,934 8,934
Richard D. and June M. Barden(1) 10,000 10,000
Barden Land Services Inc. Pension Trust(1) 10,000 10,000
LBO Incorporated 10,000 10,000
John Banas 7,500 7,500
Robert Warner 11,810 11,810
Ruth A. Hattendorf Trust Dated 2/17/96(1) 11,172 11,172
James D. Chrisman(1) 11,172 11,172
Robert A. Barden(1) 12,255 12,255
Ridge Energy Corp.(1) 17,868 17,868
Frances Marino 20,000 20,000
Gail Woodward Schulz 20,000 20,000
Dominic Marino 20,000 20,000
John Schulz 20,000 20,000
James Marino 20,000 20,000
Canterbury Associates 25,000 25,000
Ronald Shear 28,276 25,000
</TABLE>
36
<PAGE>
<TABLE>
SHARES (Continued)
Names of Selling No. of Shares No. of Shares Offered
Security Holders Currently Held Beneficially by Means of this Prospectus
- ---------------- --------------------------- ---------------------------
<S> <C> <C>
David Kocian 26,000 26,000
William Scanlon 26,000 26,000
Ruth C. Buscetto Charitable Trust 26,316 26,316
Peter J. and Terry Buscetto 26,316 26,316
Rick Horn 28,117 28,117
Rickel & Assoc., Inc. 30,000 30,000
Deye Limited Partnership 30,000 30,000
National Securities Corp. Custodian
for Mark T. Shipley IRA #003-79719-18(1) 30,851 30,851
Mark T. Shipley(1) 32,010 32,010
Silverman Collura & Chernis, P.C. 39,000 39,000
Seymour Kroll 60,244 41,001
The Wong Family Rev. Tr. 42,500 42,500
B. Michael Pisani 62,000 62,000
Ned Cole 75,762 62,670
Richard D. Barden(1) 152,675 152,675
Deral Knight 360,000 360,000
--------- -------
Total 1,370,481 1,334,061
</TABLE>
(1) The Company will require the shareholder to agree in writing to a
lock-up agreement pursuant to which, no attempt will be made to sell these
shares prior to March, 1997.
37
<PAGE>
WARRANTS
<TABLE>
<CAPTION>
Names of No. of Warrants No. of Underlying Shares
Warrant Holders Currently Held Beneficially Registered Hereby
- --------------- --------------------------- -----------------
<S> <C> <C>
Ronald Shear 500 500
Alan Dlugash 1,000 1,000
Richard Missan 12,500 12,500
LBO Incorporated 20,000 20,000
Canterbury Associates 25,000 25,000
John Banas 37,500 37,500
5th Avenue Research and Advisory Group Inc. 100,000 100,000
Berkshire International Finance, Inc. 300,000 300,000
------- -------
Total 496,500 496,500
</TABLE>
38
<PAGE>
The Selling Security Holders may effect the sale of their Shares from time
to time in transactions (which may include block transactions) in the
over-the-counter market, in negotiated transactions, through the writing of
options on the Common stock, or a combination of such methods of sale, at fixed
prices which may be changed, at market prices prevailing at the time of sale, or
at negotiated prices.
The Company is not aware of any agreements, undertakings or arrangements
with any Underwriters or broker-dealers regarding the resale of their
securities. The Selling Security Holders may effect such transactions by selling
the Shares, as applicable, directly to purchasers or to or through
broker-dealers which may act as agents or principals. Such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Security Holders, and/or the purchasers of their Shares, as
applicable, for which such broker-dealers may act as agents or to whom they sell
as principal, or both (which compensation as to a particular broker-dealer might
be in excess of customary commissions). The Selling Security Holders and any
broker-dealers that act in connection with the sale of their Shares might be
deemed to be "underwriters" within the meaning of section 2(11) of the
Securities Act.
The Company has notified the Selling Security Holders of the prospectus
delivery requirements for sales made pursuant to this Prospectus and that, if
there are material changes to the stated plan of distribution, a post-effective
amendment with current information would need to be filed before offers are made
and no sales could occur until such amendment is declared effective.
Certain Relationships And Related Party Transactions
Jerry Swon, past President and current Chairman of the Board of the Company
owns all of the outstanding stock of Integrated, which is also a shareholder of
the Company. Integrated had provided certain services to the Company pursuant to
a management agreement (see below). Certain officers and directors of the
Company own a total of 537,956 of the Company's outstanding common stock as of
July 25, 1996, including the shares held by Integrated. In addition, Deral
Knight, Company President and CEO and also President of the Company's wholly
owned subsidiary KEMCO, owns 360,000 of the Company's outstanding common stock
as of July 25, 1996, (see Ownership of Certain Beneficial Owners and
Management.)
Promissory notes, aggregating $310,000 and bearing interest at 7% per
annum, due June 30, 1996 are payable to Deral Knight, an officer, director and
stockholder of the Company. Mr. Knight has agreed to extend the maturity dates.
The Company and Integrated entered into an agreement in or about June, 1991
that required Integrated to provide certain management, administrative and
accounting services to the Company and its subsidiaries, Concord Energy, Inc.
and Concord Operating, Inc., for $116,000 per month through June 30, 1996. While
the agreement was in effect, the Company was also entitled to 10%, through March
31, 1994 and was entitled to 20% thereafter, of all the syndicated retail
partnership gross sales made by Integrated. As additional consideration for the
agreement, Integrated assigned to the Company, effective June 1, 1991 through
March 31, 1994, its revenue sharing interest in all program syndications. In
fiscal 1995, the Company recorded $539,000 in syndication income and $13,490 in
management fee income. In fiscal 1994, the Company recorded $522,053 in
syndication income and $85,283 in revenue interests and management fee income in
fiscal 1993. The services provided by Integrated included the receipt of cash
for oil and gas sales and the payment of operating and capital expenditures on
behalf of the Company. As of July 1, 1996, the management agreement ceased to be
in effect.
39
<PAGE>
In conjunction with the above referenced agreement, the Company and
Integrated entered into an additional agreement by which the associated
receivables and payables may be netted. At March 31, 1996, the Company had a net
receivable due from Integrated of $789,872. At June 30, 1995, the Company had a
net payable to Integrated of $594,685.
As part of its ongoing operations, the Company conducts business with
Atascosa Electric Services ("AES"), an entity which is owned and controlled by
the family of Deral Knight, the president of KEMCO, who is also a stockholder of
the Company. At March 31, 1996, the receivable due from stockholder (Deral
Knight) and due from affiliated company ("AES") were $106,636 and $-0-
respectively.
Under the provisions of the agreement whereby the Company acquired Deral
Knight's stock in KEMCO, Deral Knight has agreed to return to the Company,
Concord Energy Incorporated common stock valued at $6.25 per share to the extent
that Deral Knight owed money to the Company at June 30, 1995. Accordingly, in
liquidation of the receivable balance, approximately 16,600 shares of Company
common stock issued to Deral Knight as part of the purchase price of his KEMCO
stock will be returned to the Company.
In December 1994, KEMCO (prior to its acquisition by the Company) entered
into an agreement with Integrated (the "Joint Venture Agreement") in which
Integrated agreed to finance the purchase of certain gas plant and gas
processing equipment. Upon the sale of the equipment, KEMCO and Integrated would
equally share in the "Where Is - As Is" profit or losses. During the three
months ended June 30, 1995, the Company sold the related inventory, as part of a
$1,550,000 total contact, for $900,000 which is included in contract revenue in
the accompanying statement of operations for fiscal 1995. Integrated's share of
the profit totalling $182,500 and the $535,000 cost of the inventory, are
included in the cost of contract revenue in the accompanying statement of
operations for fiscal 1995.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 20,000,000 shares of Common Stock,
$.0001 par value, and 1,000 shares of Preferred Stock, $.01 par value. As of
July 25, 1996 the Company had 5,929,852 shares of Common Stock and no shares of
Preferred Stock outstanding.
Common Stock
Each holder of Common Stock is entitled to one vote per share on all
matters to be voted upon by the Company's stockholders. Stockholders do not have
cumulative voting rights in the election of directors. Subject to preferences
that may be applicable to any shares of Preferred Stock, the holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. The Company has not paid, and does not presently intend to pay,
dividends on its Common Stock. In the event of a liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of holders of Preferred Stock, if any, then outstanding. The
Common Stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions available to the
Common Stock. All outstanding shares of Common Stock are validly authorized and
issued and are fully paid and non-assessable, and the shares of Common Stock to
be issued upon exercise of Warrants as described in this prospectus will be
validly authorized and issued, fully paid and non-assessable. As of July 25,
1996 there were approximately 888 recordholders of the Company's Common Stock.
40
<PAGE>
Preferred Stock
The Company is authorized to issue 1,000 shares of undesignated Preferred
Stock. The Board of Directors will have the authority to issue the undesignated
Preferred Stock from time to time in one or more series and to establish the
rights, preferences, privileges and restrictions granted to or imposed upon any
unissued shares of undesignated Preferred Stock and to fix the number of shares
constituting any series and the designation of such series, without any further
vote or action by the stockholders. Any future issuance of Preferred Stock may
have the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders and may adversely affect the
voting and other rights of the holders of Common Stock. At present, the Company
has no plans to issue any Preferred Stock.
Stockholder Action
Pursuant to the Company's Articles of Incorporation, with respect to any
act or action required of or by the holders of the Common Stock, the affirmative
vote of the holders of a majority of the issued and outstanding Common Stock
entitled to vote thereon is sufficient to authorize, affirm, ratify or consent
to such act or action, except as otherwise provided by law. Officers, directors
and holders' of 5% or more of the Company's outstanding common stock do not
constitute a majority and thus do not control the voting upon all actions
required or permitted to be taken by stockholders of the Company, including the
election of directors.
Possible Anti-Takeover Effects of Authorized but Unissued Stock
The Company's authorized but unissued capital stock consist of 1,000 shares
of Preferred Stock and 14,070,148 shares of Common Stock. One of the effects of
the existence of authorized but unissued capital stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a merger, tender offer, proxy contest
or otherwise, and thereby to protect the continuity of the Company's management.
If in the due exercise of its fiduciary obligations, for example, the Board of
Directors were to determine that a takeover proposal was not in the Company's
best interests, such shares could be issued by the Board of Directors without
stockholder approval in one or more private placements or other transactions
that might prevent or render more difficult or costly the completion of the
takeover transaction by diluting the voting or other rights of the proposed
acquire or insurgent stockholder or stockholder group, by creating a substantial
voting block in institutional or other hands that might undertake to support the
position of the incumbent Board of Directors, by effecting an acquisition that
might complicate or preclude the takeover, or otherwise. In this regard, the
Company's Articles of Incorporation grant the Board of Directors broad power to
establish the rights and preferences of the authorized and unissued Preferred
Stock, one or more series of which could be issued entitling holders to vote
separately as a class on any proposed merger or share exchange, to convert
Preferred Stock into a large number of shares of Common Stock or other
securities, to demand redemption at a specified price under prescribed
circumstances related to a change in control, or to exercise other rights
designed to impede a takeover.
41
<PAGE>
Certain Charter and Bylaws Provisions
Limitation of Liability
The Company's Amended Certificate of Incorporation and its Bylaws limit the
liability of directors and officers to the maximum extent permitted by Delaware
law. Delaware law provides that directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, including gross negligence, except liability for (i) breach of the
directors' duty of loyalty; (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law, (iii) the
unlawful payment of a dividend or unlawful stock purchase or redemption, and
(iv) any transaction from which the director derives an improper personal
benefit. Delaware law does not permit a corporation to eliminate a director's
duty of care, and any provision of the Company's Certificate of Incorporation to
the contrary would have no effect on the availability of equitable remedies,
such as injunction or rescission, based upon a director's breach of the duty of
care.
The Company is planning to enter into indemnification agreements with each
of its current and future directors and officers which provide for
indemnification of, and advancing of expenses to, such persons to the greatest
extent permitted by Delaware law, including by reason of action or inaction
occurring in the past and circumstances in which indemnification and the
advancing of expenses are discretionary under Delaware law. The Company believes
that the limitation of liability provision in its Amended Certificate of
Incorporation, its Bylaws and the indemnification agreements will facilitate the
Company's ability to continue to attract and retain qualified individuals to
serve as directors of the Company.
Insofar as indemnification for liabilities arising under the Securities
Act, as amended (the "Securities Act") may be permitted to directors, officers,
and controlling persons of the Company, the Company has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer, or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person of
the Company in connection with the securities being registered, the Company
will, unless in the opinion of its counsel the matter has been settled by a
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issues.
The Company's Amended Certificate of Incorporation authorizes the Company
to purchase and maintain insurance for the purposes of indemnification. The
Company has previously explored the cost and feasibility of acquiring directors'
and officers' insurance and has thus far opted not to apply for such insurance.
There can be no assurance that the Company will be able to obtain such insurance
on reasonable terms, or at all, however the matter is still under consideration.
At present, there is no pending litigation or proceeding involving any direct
or, officer, employee or agent for which indemnification will be required or
permitted under the Company's Amended Certificate of Incorporation, Amended
Bylaws or indemnification agreements. The Company is not aware of any threatened
litigation or proceeding which may result in a claim for such indemnification.
42
<PAGE>
Corporation Takeover Provisions
Section 203 of the Delaware General Corporation Law
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Under Section 203, certain "business
combinations" between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the date that such
stockholder became an interested stockholder, unless (i) the corporation has
elected in its original certificate of incorporation not to be governed by
Section 203 (the Company did not make such an election) (ii) the business
combination was approved by the Board of Directors of the corporation before the
other party to the business combination became an interested stockholder (iii)
upon consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers or held in employee benefit plans in which
the employees do not have a confidential right to render or vote stock held by
the plan) or, (iv) the business combination was approved by the Board of
Directors of the corporation and ratified by two-thirds of the voting stock
which the interested stockholder did not own. The three-year prohibition also
does not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of the majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an "interested
stockholder," transactions with an "interested stockholder" involving the assets
or stock of the corporation or its majority-owned subsidiaries and transactions
which increase an interested stockholder's percentage ownership of stock. The
term "interested stockholder" is defined generally as a stockholder who,
together with affiliates and associates, owns (or, within three years prior, did
own) 15% or more of a Delaware corporation's voting stock. Section 203 could
prohibit or delay a merger, takeover or other change in control of the Company
and therefore could discourage attempts to acquire the Company.
Stockholder Meetings and Other Provisions
Under the By-laws, special meetings of the stockholders of the Company may
be called only by a majority of the members of the Board of Directors or, the
Chairman. Stockholders are required to comply with certain advance notice
provisions with respect to any nominations of candidates for election to the
Company's Board of Directors or other proposals submitted for stockholder vote.
The Company's Amended Certificate of Incorporation provides that the authorized
number of directors may be changed only by resolution of the Board of Directors.
The existing board may fill vacancies and may add directors up to the maximum of
ten directors, subject to approval at the next shareholders' meeting. These
provisions may have the effect of deterring hostile takeovers or delaying
changes in control or management of the Company.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer & Trust Co., Inc., 2 Broadway, New York, N.Y. 10004.
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The Company currently has outstanding 5,929,852 shares of Common Stock. Of
these shares, the 1,334,061 shares being registered hereby will be freely
tradeable as will the 496,500 shares underlying outstanding Warrants, without
restriction or further registration under the Securities Act except for any
shares purchased by an "affiliate" of the Company, which will be subject to the
limitations of Rule 144 promulgated under the Securities Act ("Rule 144").
Existing shareholders of the Company include holders of 4,941,500 shares
that are not being registered hereby. Many of these shares were issued between
July and August, 1993 to individuals who had previously exchanged their
partnership interests in earlier oil and gas programs for shares of common stock
of Concord Energy Inc. (Nevada). When that company was acquired by the Company
in the summer of 1993, those individuals received shares of the Company's Common
Stock. Such Common Stock may not be resold unless it is first registered under
the Securities Act or is sold pursuant to an applicable exemption from
registration, inducing an exemption pursuant to Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares of Common Stock
for at least two years, including persons who are "affiliates" of the Company,
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of (i) 1% of the then outstanding shares of Common
Stock of the Company (59,299 shares on the Effective Date of this Registration
Statement), or (ii) the average weekly trading volume of the Common Stock during
the four calendar weeks preceding a sale by such person. Sales under Rule 144
are also subject to certain manner-of-sale provisions, notice requirements and
the availability of current public information about the Company. Under Rule
144, however, a person who has held shares of Common Stock for a minimum of
three years and who is not, and for the three months prior to the sale of such
shares has not been, an affiliate of the company is free to sell such shares
without regard to the volume, manner-of-sale and certain other limitations
contained in Rule 144. In late July or early August, 1996, holders of an
estimated 2,111,208 shares of the Company's Common Stock will become such
unaffiliated three year holders. Sales of substantial amounts of the Common
Stock in the public market in the future may have an adverse impact on the
market prices for the Common Stock. During the past ten months, a substantial
number of such Shares have already been sold into the market.
LEGAL MATTERS
Certain legal matters in connection with this Registration Statement are
being passed upon for the Company by Silverman, Collura & Chernis , P.C., 381
Park Avenue South, Suite 1601, New York, New York 10016. That firm owns 39,000
shares of the Company's Common Stock which are being registered hereby.
EXPERTS
The financial statements as of June 30, 1995 and for each of the three
years in the period ended June 30, 1995 included in this Prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
44
<PAGE>
Report of Independent Accountants
Board of Directors and
Stockholders of Concord Energy Incorporated
In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Concord Energy
Incorporated and its subsidiaries at June 30, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1995 in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the consolidated financial statements of Knight
Equipment & Manufacturing Corporation, a wholly-owned subsidiary which was
acquired by the Company during 1995 (see Note 3), which statements reflect total
assets of $5,649,099 at June 30, 1995, and total revenues of $1,352,370 for the
period from April 1, 1995 through June 30, 1995. Those statements were audited
by other auditors whose report thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for Knight
Equipment & Manufacturing Corporation, is based solely on the report of the
other auditors. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits and the report of other auditors provide a reasonable
basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Morristown, NJ
October 23, 1995
F-1
<PAGE>
Concord Energy Incorporated and Subsidiaries
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
June 30,
1995 1994
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 257,788 $ 66,601
Accounts receivable, net of allowance for
doubtful accounts of $67,490 and $0 696,558 296,994
Receivable due from Integrated, net -- 214,305
Receivable due from stockholder 103,619 --
Receivable due from affiliated company 15,937 --
Costs and estimated earnings in excess of
billings on uncompleted contracts 558,861 --
Inventories 8,452,625 --
Prepaid expenses and other current assets 62,220 --
------------ ------------
Total current assets 10,147,608 577,900
Property, plant and equipment, net 9,132,755 8,855,957
Bond issue costs, net 504,149 --
Other assets 50,000 --
------------ ------------
Total assets $ 19,834,512 $ 9,433,857
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of notes payable to stockholders $ 243,750 $ 272,917
Current portion of long-term debt 1,225,000 --
Accounts payable 858,535 316,815
Accrued expenses 501,243 136,098
Payable due to Integrated, net 594,685 --
Federal income taxes payable 120,098 --
------------ ------------
Total current liabilities 3,543,311 725,830
Notes payable to stockholders 225,000 193,750
Long-term debt 5,384,045 --
Capital lease obligations 46,673 --
------------ ------------
Total liabilities 9,199,029 919,580
------------ ------------
Commitments and Contingencies (Note 8)
Stockholders' equity:
Preferred stock, $.01 par value, 1,000 shares
authorized, 0 shares issued and outstanding -- --
Common stock, $.0001 par value, 20,000,000
shares authorized, 15,521,122 and 11,111,660
shares issued and outstanding 1,552 1,111
Paid-in capital 14,935,326 11,233,768
Accumulated deficit (4,301,395) (2,720,602)
------------ ------------
Total stockholders' equity 10,635,483 8,514,277
------------ ------------
Total liabilities and stockholders' equity $ 19,834,512 $ 9,433,857
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
F-2
<PAGE>
Concord Energy Incorporated and Subsidiaries
Consolidated Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Oil sales $ 859,338 $ 998,961 $ 1,523,107
Gas sales 445,551 739,780 1,220,710
----------- ----------- -----------
Total oil and gas sales 1,304,889 1,738,741 2,743,817
Contract revenue 1,312,393 -- --
Syndication sales and revenue interests 552,490 533,074 471,119
Well operating income 64,926 96,439 85,921
Rental income 38,509 -- --
----------- ----------- -----------
Total revenue 3,273,207 2,368,254 3,300,857
----------- ----------- -----------
Costs and Operating Expenses:
Lease operating 747,003 1,104,682 1,321,254
Cost of contract revenue 1,087,163 -- --
General and administrative:
Management agreement 1,392,000 1,392,000 1,392,000
Other expenses 749,326 295,036 251,072
Depreciation, depletion and amortization 593,169 636,926 924,119
----------- ----------- -----------
Total costs and operating expenses 4,568,661 3,428,644 3,888,445
----------- ----------- -----------
Loss from operations (1,295,454) (1,060,390) (587,588)
----------- ----------- -----------
Other income (expense):
Other income 14,244 2,300 3,485
Interest expense (321,318) (67,892) (75,861)
----------- ----------- -----------
(307,074) (65,592) (72,376)
----------- ----------- -----------
Loss before income taxes (1,602,528) (1,125,982) (659,964)
Income tax benefit 21,735 -- --
----------- ----------- -----------
Net loss $(1,580,793) $(1,125,982) $ (659,964)
=========== =========== ===========
Net loss per share $ (0.13) $ (0.10) $ (0.06)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
<PAGE>
Concord Energy Incorporated and Subsidiaries
Consolidated Statement of Changes in Stockholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
Paid-in Accumulated
Shares Amount capital deficit Total
---------- ------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1992 11,111,660 $1,111 $ 11,278,768 $ (934,656) $ 10,345,223
Recapitalization costs (Note 1) -- -- (45,000) -- (45,000)
Net loss -- -- -- (659,964) (659,964)
---------- ------ ------------ ----------- ------------
Balance at June 30, 1993 11,111,660 1,111 11,233,768 (1,594,620) 9,640,259
Net loss -- -- -- (1,125,982) (1,125,982)
---------- ------ ------------ ----------- ------------
Balance at June 30, 1994 11,111,660 1,111 11,233,768 (2,720,602) 8,514,277
Issuance of common stock 4,284,462 429 3,576,570 -- 3,576,999
Issuance of common stock upon
conversion of debt 125,000 12 124,988 -- 125,000
Net loss -- -- -- (1,580,793) (1,580,793)
---------- ------ ------------ ----------- ------------
Balance at June 30, 1995 15,521,122 $1,552 $ 14,935,326 $(4,301,395) $ 10,635,483
========== ====== ============ =========== ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
Concord Energy Incorporated and Subsidiaries
Consolidated Statement of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
1995 1994 1993
----------- ----------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(1,580,793) $(1,125,982) $(659,964)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation, depletion and amortization 593,169 636,926 924,119
Other noncash transactions 124,345 -- 41,325
Decrease (increase) in assets:
Accounts receivable (10,755) 140,322 157,979
Receivable due from stockholders (93,528) -- 50,000
Receivable due from affiliated company 15,352 -- --
Costs and estimated earnings in excess of billings
on uncompleted contracts (507,427) -- --
Inventories 34,982 -- --
Deferred income taxes (21,735) -- --
Other assets and liabilities (44,367) -- --
(Decrease) increase in liabilities:
Accounts payable (152,596) 80,564 (158,126)
Accrued expenses 39,646 (1,452) 55,900
Federal income taxes payable (182,357) -- --
Franchise tax payable 1,500 (32,264) 62,264
Receivable due from/payable due to Integrated, net 808,990 61,548 (338,569)
Interest payable to stockholders -- -- (4,167)
----------- ----------- ---------
Net cash (used in) provided by operating activities (975,574) (240,338) 130,761
----------- ----------- ---------
Cash flows from investing activities
Purchases of oil and gas equipment, well workovers
and recompletions (56,482) (177,315) (416,494)
Acquisition of business, net of cash acquired (3,851,523) -- --
Sale of oil and gas interests -- 407,134 --
Recapitalization costs paid -- -- (45,000)
Other, net (4,937) (630) --
----------- ----------- ---------
Net cash (used in) provided by investing activities (3,912,942) 229,189 (461,494)
----------- ----------- ---------
Cash flows from financing activities
Net proceeds from bonds payable 3,233,134 -- --
Net proceeds from notes payable 1,150,000 -- 150,000
Net proceeds from issuance of common stock 927,749 -- --
Principal payments on notes payable (231,180) (100,000) (83,333)
----------- ----------- ---------
Net cash flows provided by (used in) financing activities 5,079,703 (100,000) 66,667
----------- ----------- ---------
Net increase (decrease) in cash and cash equivalents 191,187 (111,149) (264,066)
Cash and cash equivalents at beginning of period 66,601 177,750 441,816
----------- ----------- ---------
Cash and cash equivalents at end of period $ 257,788 $ 66,601 $ 177,750
=========== =========== =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Organization, Recapitalization, and Operations
Concord Energy Incorporated (the "Company") is an oil and gas exploration
and production company which also locates, designs, refurbishes and
installs gas plants and gas processing equipment for customers in the
natural gas industry. In addition, the Company provides rentals of gas
plants and gas processing equipment and provides services such as
engineering, procurement, dismantling, reapplication and relocation of
complete gas processing facilities. The Company is headquartered in
Bernardsville, New Jersey with substantially all of its oil and gas
operations in East Texas and the Louisiana Gulf Coast. The Company's
wholly-owned subsidiaries, Concord Operating, Inc. ("COI") and Knight
Equipment & Manufacturing Corporation ("KEMCO") are located in Houston,
Texas and Jourdanton, Texas, respectively.
Concord Energy, Inc., (the Company's name prior to the recapitalization
described below) was formed in June 1991 for the purpose of combining the
net assets and operations of 166 previously independent oil and gas
partnerships (the "Partnerships") and the net assets and operations of COI
through an exchange of Partnership and COI net assets for common stock in
Concord Energy, Inc. The exchange was accounted for at historical cost.
Certain limited partners in the Partnerships which did not participate in
the exchange were allocated net working interests in the properties
previously held by the respective Partnerships.
Prior to the exchange, the Partnerships were managed by Integrated Energy,
Inc. ("Integrated") and Tucker Financial, Inc., ("Tucker") which were in
the business of establishing and managing oil and gas limited partnerships.
Subsequent to the exchange, Integrated continues to provide certain
management and administrative services to the Company pursuant to a
management agreement between the Company and Integrated. COI manages the
production of Company-owned oil and gas properties.
On May 19, 1993, Monoclonal International Technology, Inc. ("MITI")
acquired all of the outstanding common stock of Concord Energy, Inc. For
accounting purposes, the acquisition has been treated as a recapitalization
of Concord Energy, Inc., with MITI as the acquirer (i.e., a reverse
acquisition). In connection with the acquisition, MITI later changed its
name to Concord Energy Incorporated, approved a 1 for 230 reverse split of
its 127,784,100 shares of common stock and issued 10,556,077 shares of its
common stock in exchange for all the outstanding common stock of Concord
Energy, Inc. Historical stockholders' equity has been retroactively
restated for all periods presented in the accompanying consolidated
financial statements to account for the equivalent number of shares
received in the acquisition totalling 11,111,660 shares, after giving
effect to the difference in par value of Concord Energy, Inc. and MITI
stock with the offset to paid-in capital. Costs incurred in connection with
the recapitalization totalling $45,000 were recorded as a reduction in
paid-in capital during 1993.
2. Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements are comprised of the Company and its
wholly-owned subsidiaries, Concord Energy, Inc., Concord Operating, Inc.
and Knight Equipment & Manufacturing Corporation and its wholly-owned
subsidiary, K & S Engineering, Inc. All significant intercompany accounts
and transactions are eliminated in consolidation.
F-6
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Cash equivalents
Cash and cash equivalents include all cash and highly liquid investments
with original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or market using the first-in
first-out method. Inventory consists principally of gas plants,
compressors, separators, supplies and repair parts utilized by the Company
in conjunction with its design and refurbishing of gas plants and gas
processing equipment.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation, depletion and amortization.
The Company accounts for its oil and gas properties under the full cost
method of accounting. Under the full cost method, all costs incurred in
acquiring, exploring and developing oil and gas reserves are capitalized to
the full cost pool. When oil and gas properties are sold, retired or
otherwise disposed of, any applicable proceeds are credited to the full
cost pool, with no gain or loss recognized, unless the sale would have a
significant impact on the relationship between capitalized costs and proved
reserves. Since all of its oil and gas operations are within the United
States, the Company utilizes one cost pool to account for its oil and gas
properties. Depreciation, depletion and amortization of oil and gas
properties is computed based on the unit-of-production method for the cost
pool, based on estimates of proved reserves as determined by an independent
reserve engineer.
Other property, plant and equipment is recorded at cost less accumulated
depreciation. Repairs and maintenance costs which do not extend the useful
lives of the assets are expensed as incurred. Depreciation is provided for
on the straight-line method over the estimated useful lives of the assets
which range from three to seven years, except for buildings and
improvements which are depreciated over estimated useful lives ranging from
20 to 30 years.
Leases
Leases which meet certain criteria evidencing substantive ownership by the
Company are capitalized and the related capital lease obligations are
included in liabilities. Amortization and interest are charged to expense,
with rent payments being treated as payments of the capital lease
obligation. All other leases are accounted for as operating leases, with
rent payments being charged to expense as incurred.
Deferred financing and bond issuance costs
Costs incurred in conjunction with obtaining financing (including costs
associated with the issuance of bonds) are amortized using the
straight-line method over the term of the related financing agreement or
bond. Bond issuance costs at June 30, 1995 is stated net of accumulated
amortization of $21,945.
Revenue recognition
Oil and gas sales
Revenues from oil and gas sales are accrued as earned based on joint
interest billings obtained from the well operator.
F-7
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Contract revenue
Revenues from construction contracts are recognized based on the percentage
of completion method, measured on the basis of costs incurred to date to
estimated total budgeted costs for each contract. Contract costs include
all direct material and labor costs, including those indirect labor and
repair costs related to contract performance. Selling, general and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which
such losses are determined. Changes in job performance, job conditions,
estimated profitability and final contract settlements are monitored on a
periodic basis in order to determine if revisions to the income and cost
estimates are necessary as a result of such changes. Revisions to the
income and cost estimates, if any, are recognized in the period in which
such revisions are determined to be necessary. Costs and earnings in excess
of billings on uncompleted contracts represents an asset based on revenues
recognized in excess of amounts billed to customers. Billings in excess of
costs and earnings on uncompleted contracts is recorded as a liability and
represents contracts for which billings to date exceed cumulative revenues
recognized based on the percentage of completion method.
Syndication sales
Under an agreement between the Company and Integrated (see Note 12), the
Company is entitled to receive 20% of all sales made by Integrated of
syndicated retail partnerships. This revenue is recognized when earned.
Well operating income
The Company, through its wholly owned subsidiary COI, manages and operates
wells. The revenue generated from these services is recognized when earned.
Rental revenue
The Company leases certain gas plants and separators to customers under
short term leases which are accounted for as operating leases. At June 30,
1995, there are no significant future minimum rentals to be received under
these noncancelable operating leases.
Income taxes
The Company accounts for income taxes under the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities
are recognized based upon differences arising from the carrying amounts of
the Company's assets and liabilities for tax and financial reporting
purposes using enacted tax rates in effect for the year in which the
differences are expected to reverse. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
when the change in tax rates is enacted.
Net loss per share
Net loss per share of common stock is based upon the weighted average
number of shares of common stock outstanding (11,884,953 in fiscal 1995 and
11,111,650 in both fiscal 1994 and 1993). The Company's common stock
equivalents, which consist of outstanding warrants to purchase the
Company's common stock, are not considered in the net loss per share
calculation since their effect is anti-dilutive.
F-8
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. Business Combination
On May 7, 1995, the Company acquired all of the issued and outstanding
shares of common stock of KEMCO for $7,000,000 in a business combination
accounted for under the purchase method of accounting. The acquisition was
financed through 2,000,000 shares of the Company's common stock and
$4,500,000 in cash. Financing for the cash portion of the purchase price
was obtained primarily through the net proceeds from debt financings
totalling approximately $3,700,000 and the net proceeds from the issuance
of 1,300,000 shares of the Company's common stock totalling approximately
$800,000. The results of operations of KEMCO and its wholly-owned
subsidiary, K & S Engineering, Inc., subsequent to April 1, 1995, the date
effective control of KEMCO transferred to the Company for financial
reporting purposes, are included in these consolidated financial
statements.
Assuming that KEMCO had been purchased on July 1, 1994, the Company's
consolidated revenues, loss from operations, net loss and net loss per
share for the fiscal year ended June 30 would have been as follows:
1995
(unaudited)
Revenues $ 8,069,302
Loss from operations (1,114,982)
Net loss (1,496,488)
Net loss per share (.10)
4. Accounts Receivable and Concentration of Credit Risk
Accounts receivable represent amounts due from customers who are in the oil
and gas business throughout North and South America. Fluctuations in market
conditions impact the credit worthiness of these customers. The Company
reviews the financial condition of purchasers and joint interest
participants prior to signing sales or joint interest agreements. Payment
terms are on a short-term basis and in accordance with industry standards.
5. Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts
Information on contracts in progress at June 30 is as follows:
1995
Expenditures on uncompleted contracts $ 902,330
Estimated earnings thereon 203,135
----------
1,105,465
Less: Billings on uncompleted contracts 546,604
----------
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 558,861
==========
F-9
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
6. Property, Plant and Equipment, Net
Significant components comprising property, plant and equipment at June 30
include the following:
1995 1994
------------ ------------
Oil & gas properties:
Leasehold costs $ 7,368,416 $ 7,368,416
Lease well and equipment 1,944,882 1,944,882
Intangibles 1,904,925 1,904,925
Property, plant & equipment 945,431 913,407
Other 58,551 34,093
------------ ------------
12,222,205 12,165,723
------------ ------------
Other property, plant and equipment:
Land 159,913 --
Buildings and improvements 239,675 --
Machinery and equipment 149,219 --
Vehicles 218,769 --
Furniture, fixtures and software 81,710 53,016
------------ ------------
849,286 53,016
------------ ------------
Accumulated depreciation, depletion
and amortization (3,938,736) (3,362,782)
------------ ------------
Property, plant and equipment, net $ 9,132,755 $ 8,855,957
============ ============
Depreciation, depletion and amortization of oil and gas properties, and
depreciation of other property, plant and equipment for the fiscal years
ended June 30 is as follows:
1995 1994 1993
-------- -------- --------
Oil and gas properties $544,868 $619,254 $907,452
Other property, plant & equipment 48,301 17,672 16,667
-------- -------- --------
$593,169 $636,926 $924,119
======== ======== ========
At June 30, 1995, vehicles and accumulated depreciation, depletion and
amortization include $105,127 and $5,256, respectively, of vehicles
recorded under capital leases and the related accumulated amortization
through June 30, 1995. Amortization expense related to these vehicles
totalled $5,256 in 1995.
F-10
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
7. Debt and Capital Lease Obligations
Debt
Long-term debt includes the following at June 30:
1995
Bond payable, dated May 1995, with interest at 10% per
annum, requiring semi-annual interest payments through
maturity on May 1, 1997. The bond is secured by the
assets of KEMCO. As additional consideration, the
Company issued 450,000 shares of common stock to the
lender. $ 2,920,000
Secured notes payable, dated December 1994, with a face
value of $2,500,000 issued at a $750,000 discount. The
notes bear interest at 9% per annum with an effective
interest rate of 15% per annum. Semi-annual interest
payments of $112,500 are required through maturity in
January 2010. The notes are secured by certain gas
plants and equipment and a guarantee of the Company. 1,757,634
Secured notes payable, dated September 1994, with a
face value of $1,400,000 issued at a $604,500 discount.
The notes bear interest at 6% per annum payable
semi-annually with an effective interest rate of 14.02%
per annum. Annual principal payments of $140,000 are
required beginning in August 2005 through maturity in
August 2009. The notes are secured by certain oil and
gas property owned by the Company. 706,411
Acquisition bridge financing evidenced by notes payable
which bear interest at 12% per annum. The interest and
related principal are due at various maturity dates
through November 1995. Approximately $500,000 of the
notes at June 30, 1995 are secured by a personal
guarantee from Jerry Swon, the Chief Executive Officer
of the Company, who is also a shareholder of the
Company. An additional $200,000 of the notes at June
30, 1995 are secured by 200,000 shares of the Company's
common stock owned by Jerry Swon. 800,000
Unsecured note payable, bearing interest at 7% per
annum. Interest and principal are due at various dates
through August 1995. 300,000
F-11
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1995
12% convertible notes, dated October 1994, convertible
at maturity into shares of Company's common stock at $1
per share. During 1995, $125,000 of these notes matured
and were converted into 125,000 shares of the Company's
common stock. Upon the conversion, an additional 15,000
shares of the Company's common stock was issued as
consideration for accrued interest expense through the
date of conversion totalling $15,000. The remainder of
the notes mature in October 1996. The notes are secured
by certain oil and gas property owned by the Company. 125,000
-----------
Total debt outstanding 6,609,045
Less: current portion 1,225,000
-----------
Long-term debt $ 5,384,045
===========
As of June 30, 1995, maturities and scheduled payments for the next five
fiscal years and thereafter are: $1,225,000 in 1996; $2,920,000 in 1997;
and the remainder after fiscal year 2001.
Capital Lease Obligations
In conjunction with its acquisition of KEMCO, the Company acquired certain
leased equipment which is accounted for as capital leases. Prior to the
acquisition, the leases were prepaid at inception. Capital lease
obligations recorded in the accompanying consolidated financial statements
represent the present value of the lease purchase options which are
exercisable at the end of the lease term in December 1997, discounted at an
interest rate of 16%.
Capital lease obligations as of June 30, 1995 consist of the following:
Total future minimum lease payments due in fiscal 1998 $ 67,106
Less: amounts representing interest 20,433
-----------
Present value of minimum lease payments $ 46,673
===========
8. Commitments and Contingencies
Minimum Rental Commitments
The Company has several noncancelable operating leases, primarily for
office equipment, that expire over the next five years. These leases
generally contain renewal options for periods ranging from three to five
years and require the Company to pay all executory costs such as
maintenance and insurance. Rent expense for the year ended June 30, 1995
was $11,633.
F-12
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Future minimum lease payments under noncancelable operating leases as of
June 30, 1995 are as follows:
Fiscal Year
1996 $ 44,620
1997 35,493
1998 21,066
1999 9,549
2000 3,600
----------
Total minimum lease payments $ 114,328
==========
Legal Matters
As of June 30, 1995, the Company was involved in various litigation matters
which it considers to be in the normal course of business. In the opinion
of management, based upon consultation with legal counsel, the claims
either lack merit, or the potential liability, if any, upon the ultimate
disposition of these lawsuits will not have a material effect on the
Company's financial position or results of operations.
9. Outstanding Warrants
Warrants outstanding as of June 30, 1995 to purchase shares of the
Company's common stock are summarized as follows:
Date of Issuance Number of Shares Exercise Price/Share Expiration Date
---------------- ---------------- -------------------- ---------------
November 1994 7,500 $1.50 November 1997
December 1994 50,000 2.00 November 1995
December 1994 125,000 1.75 November 1995
June 1995 500,000 1.00 July 1996
June 1995 500,000 1.50 July 1997
The Company has sufficient shares authorized but not issued for use in the
event these warrants are exercised.
10. Supplementary Cash Flow Information
Supplementary cash flow information for the fiscal years ended June 30 is
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest paid $ 483,092 $ 67,892 $ 74,029
Taxes paid 213,519 82,264 --
Noncash investing and financing activities:
Issuance of common stock to acquire business 2,500,000 -- --
Issuance of common stock to convert note payable 125,000 -- --
Issuance of common stock in exchange for services 149,250 -- --
</TABLE>
F-13
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
11. Income Taxes
For the year ended June 30, 1995, the income tax benefit of $21,735 is
comprised of federal and state deferred tax benefits of $562,395 and
$2,637, respectively, offset by an increase in the deferred tax asset
valuation allowance of $543,297. For the years ended June 30, 1994 and
1993, no income tax provision (benefit) for federal or state income taxes
was recorded.
The provision (benefit) for income taxes differs from the statutory federal
rate for the fiscal years ended June 30 as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate (34.0%) (34.0%) (34.0%)
Valuation allowance of deferred income tax asset 33.9 34.0 40.5
Other .1 (0.0) (6.5)
--- --- ---
Effective tax rate 0.0% 0.0% 0.0%
=== === ===
</TABLE>
The components of the net deferred income tax asset as of June 30 are as
follows:
1995 1994
---- ----
Temporary differences:
Depreciation, depletion and amortization
of intangible drilling costs $(1,067,999) $ (513,585)
Other 153,244 --
----------- -----------
Total (914,755) (513,585)
Operating loss carryforward 3,428,367 2,483,900
----------- -----------
Deferred income tax asset 2,513,612 1,970,315
Valuation allowance (2,513,612) (1,970,315)
----------- -----------
Deferred income tax asset, net $ 0 $ 0
=========== ===========
The significant items included in the Company's noncurrent deferred tax
asset result from differences between the rates used in computing
depreciation, depletion and amortization of intangible drilling costs for
book and tax purposes. The Company's valuation allowance increased $543,297
in fiscal 1995 and $382,503 in fiscal 1994.
As of June 30, 1995, the Company had a net operating loss carryforward of
approximately $10,080,000 for regular tax purposes. Of these losses,
approximately $4,772,000 were incurred by Concord Energy, Inc., prior to
its acquisition by MITI, and will be subject to the separate return
limitation years rules of the Internal Revenue Code. These losses will
expire, if not utilized, in fiscal years ending June 30, 2006 through 2010.
F-14
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
12. Transactions with Related Parties
Related Party Ownership Interests
Integrated and Tucker, which are owned by an officer and director of the
Company, own 1.81% and 1.73%, respectively, of the Company's common stock
as of June 30, 1995. Additionally, certain officers and directors of the
Company, together with Integrated own or control 26.03% of the Company's
common stock as of June 30, 1995.
Receivables from Related Parties/Affiliated Company
Integrated and the Company have an agreement by which the associated
receivables and payables may be netted. At June 30, 1995, the Company has a
net payable due to Integrated of $594,685. At June 30, 1994, the Company
had a net receivable due from Integrated of $214,305.
As part of its ongoing operations, the Company conducts business with
Atascosa Electric Services ("AES"), an entity which is owned and controlled
by Deral Knight, the president of KEMCO, who is also a stockholder of the
Company. At June 30, 1995, the receivable due from stockholder (Deral
Knight) and due from affiliated company (AES) were $103,619 and $15,937,
respectively.
Under the provisions of the agreement whereby the Company acquired Deral
Knight's stock in KEMCO, Deral Knight has agreed to return to the Company,
Concord Energy Incorporated common stock valued at $1.25 per share to the
extent that Deral Knight owes money to the Company at June 30, 1995.
Accordingly, in liquidation of the receivable balance, approximately 83,000
shares of Company common stock issued to Deral Knight as part of the
purchase price of his KEMCO stock will be returned to the Company.
Notes Payable to Stockholders
Notes payable to stockholders bear interest at rates ranging from 6% to 12%
per annum which are generally payable in monthly installments through
maturity. Interest expense incurred on these notes during fiscal 1995, 1994
and 1993 totals $42,661, $67,892 and $74,029, respectively. The notes
mature at various dates through August 1996. Approximately $243,750 of the
notes at June 30, 1995 are secured by future production of approximately
225,000 equivalent barrels of oil.
Joint Venture Agreement with Integrated
In December 1994, KEMCO (prior to its acquisition by the Company) entered
into an agreement with Integrated (the "Joint Venture Agreement") in which
Integrated agreed to finance the purchase of certain gas plant and gas
processing equipment, which is to be sold by KEMCO, in exchange for 50% of
the profit realized by KEMCO on the sale of the inventory. During the three
months ended June 30, 1995, the Company sold the related inventory for
$900,000 which is included in contract revenue in the accompanying
statement of operations for fiscal 1995. Integrated's share of the profit
totalling $182,500 and the $535,000 cost of the inventory, are included in
cost of contract revenue in the accompanying statement of operations for
fiscal 1995.
F-15
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Management Agreement
The Company and Integrated have entered into an agreement (the "Management
Agreement") that requires Integrated to provide certain management,
administrative and accounting services to the Company and certain
subsidiaries for $116,000 per month through June 30, 1996. The services
provided by Integrated include the receipt of cash for oil and gas sales
and the payment of operating and capital expenditures on behalf of the
Company. In accordance with the original provisions of the Management
Agreement, the Company is also entitled to 10% of all syndicated retail
partnership gross sales made by Integrated. As additional consideration for
the Management Agreement, Integrated assigned to the Company, effective
June 1, 1991 through March 31, 1994, its revenue sharing in future program
syndications. Effective March 31, 1994, the Management Agreement was
modified to provide the Company with 20% of all syndicated retail
partnership gross sales made by Integrated. During fiscal 1994, the Company
sold to Integrated all of its revenue sharing interests which were earned
under the Management Agreement, aggregating $363,266. Revenue interest
income earned was also remitted to Integrated in connection with the sale.
The proceeds from the sale were recorded as a reduction to the Company's
full-cost oil and gas properties pool. In the fiscal years ended June 30,
the Company recorded income from Integrated as follows:
1995 1994 1993
---- ---- ----
Syndication income $539,000 $522,053 $385,836
Revenue interest income -- -- 60,028
Management fee income 13,490 11,021 25,255
-------- -------- --------
$552,490 $533,074 $471,119
======== ======== ========
Other Related Party Transactions
The two automobiles held under capital lease are to be transferred to an
officer and an employee of KEMCO upon the execution of the lease purchase
options at the expiration of the lease terms.
13. Supplemental Oil and Gas Information
The following tables set forth information about the Company's oil and gas
producing activities. All of the Company's activities are within the United
States.
a) Oil and Gas Reserves (Unaudited) - The following table of estimated
proved developed and proved undeveloped reserves of oil and gas has
been prepared by the Company utilizing estimates of year-end reserve
quantities provided by independent petroleum consultants. Reserve
estimates for producing oil and gas properties and for new discoveries
are inherently imprecise and are expected to change as additional
performance data becomes available.
F-16
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Oil Gas Total
(bbls) (Mcf) (EQB) (1)
---------- ---------- ----------
<S> <C> <C> <C>
Proved developed and proved undeveloped reserves:
Balance at June 30, 1992 1,515,756 2,456,666 1,925,200
Revisions of previous estimates 452,984 142,556 476,743
Extensions and discoveries 137,845 12,901 139,995
Production (80,396) (608,667) (181,841)
Sales of minerals in place (2,642) (4,097) (3,325)
---------- ---------- ----------
Balance at June 30, 1993 2,023,547 1,999,359 2,356,772
Revisions of previous estimates 110,306 406,222 178,010
Extensions and discoveries 1,691 241,640 41,964
Production (67,280) (379,859) (130,590)
Sales of minerals in place (15,017) (82,010) (28,685)
---------- ---------- ----------
Balance at June 30, 1994 2,053,247 2,185,352 2,417,471
Revisions of previous estimates (573,450) (223,880) (610,763)
Extensions and discoveries 319,720 703,384 436,951
Production (51,257) (295,626) (100,528)
Sales of minerals in place -- -- --
---------- ---------- ----------
Balance at June 30, 1995 1,748,260 2,369,230 2,143,131
========= ========= =========
Proved developed reserves:
June 30, 1993 1,045,478 1,940,900 1,368,961
June 30, 1994 691,511 1,544,510 948,929
June 30, 1995 435,915 1,026,085 606,929
</TABLE>
(1) Equivalent barrels (Mcf of gas is converted to equivalent barrels
by dividing by six).
b) Capitalized Costs Relating to Oil and Gas Producing Activities - are
as follows:
<TABLE>
<CAPTION>
June 30,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Proved and unproved oil and gas properties $ 12,222,205 $ 12,165,723 $ 12,395,542
Accumulated depletion, and valuation
allowances (3,855,255) (3,310,387) (2,691,133)
------------ ------------ ------------
Net capitalized costs $ 8,366,950 $ 8,855,336 $ 9,704,409
============ ============ ============
Depletion, depreciation and amortization per
equivalent barrel of production $ 5.43 $ 4.74 $ 4.99
============ ============ ============
</TABLE>
F-17
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
c) Costs incurred in Oil and Gas Property Acquisition, Exploration, and
Development Activities - are as follows:
Year Ended June 30,
1995 1994 1993
---- ---- ----
Property acquisition costs $10,754 $ 34,093 $ --
Development costs 45,728 143,222 416,494
------- -------- --------
Total $56,482 $177,315 $416,494
======= ======== ========
The Company has no unevaluated capitalized costs which are not currently
subject to depletion.
d) Results of Operations for Oil and Gas Producing Activities (excluding
corporate overhead and interest costs) are as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
1995 1994 1993
<S> <C> <C> <C>
Oil and gas sales $ 1,304,889 $ 1,738,741 $ 2,743,817
Production costs (747,003) (1,104,682) (1,321,254)
Depreciation, depletion and amortization (544,868) (619,254) (907,452)
----------- ----------- -----------
13,018 14,805 515,111
Income tax expense -- -- --
----------- ----------- -----------
Results of operations for oil and gas producing
activities (excluding corporate overhead and
interest costs) $ 13,018 $ 14,805 $ 515,111
=========== =========== ===========
</TABLE>
e) Standardized Measure of Discounted Future Net Cash Flows and Changes
Therein Relating to Proved Oil and Gas Reserves (Unaudited) - The
following table presents a standardized measure of future net cash
inflows relating to proved oil and gas reserves. Future cash inflows
were computed by applying year-end prices of oil and gas relating to
the Company's proved reserves to the estimated year-end quantities of
those reserves. Future production and development costs were computed
by estimating the expenditures expected to be incurred in developing
and producing the proved oil and gas reserves at the end of the year,
based on year-end costs and assuming continuation of existing economic
conditions. Future income expenses were computed by applying year-end
statutory tax rates with consideration of future tax rates already
legislated, to the future pretax net cash flows relating to the
Company's proved oil and gas reserves, less the tax basis of the
properties involved. The future income tax expense gives effect to tax
credits and allowances relating to the Company's proved oil and gas
reserves. Because of the imprecise nature of reserve estimates and the
unpredictable nature of the other variables used, actual future cash
inflows may vary considerably and the standardized measure does not
necessarily represent the fair market value of the Company's oil and
gas reserves.
F-18
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Future cash inflows $ 33,376,800 $ 40,221,450 $ 38,039,904
Future production and development costs (15,795,180) (18,754,182) (17,299,774)
Future income tax expense (473,342) (1,646,771) (1,741,734)
------------ ------------ ------------
Future net cash flows 17,108,278 19,820,497 18,998,396
10% annual discount for estimated timing of
cash flows (7,241,460) (8,901,778) (8,023,995)
------------ ------------ ------------
Standardized measure of discounted future net
cash flows at the end of the year 9,866,818 10,918,719 10,974,401
Standardized measure of discounted future net
cash flows at the beginning of the year 10,918,719 10,974,401 10,156,704
------------ ------------ ------------
Total change in standardized measure during the
year $ (1,051,901) $ (55,682) $ 817,697
============ ============ ============
</TABLE>
The following table sets forth an analysis of changes in the standardized
measure of discounted future net cash flows from proved oil and gas
reserves:
<TABLE>
<CAPTION>
Year Ended June 30,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales of oil and gas produced, net of production costs $ (557,886) $ (634,059) $(1,422,564)
Net changes in price and production costs 306,084 (706,812) (2,580,255)
Extensions, discoveries, and improved recovery, less
related costs 2,118,471 204,643 1,000,416
Development costs incurred during the year (45,728) (143,222) (416,494)
Revisions of previous quantity estimates (3,873,137) 291,731 2,153,928
Accretion of discount 2,146,727 2,074,013 1,673,552
Net change in income taxes 1,173,428 94,963 (982,366)
Sales of reserves in place -- 407,134 --
Other (2,319,860) (1,644,073) 1,391,480
----------- ----------- -----------
Total change in standardized measure during the year $(1,051,901) $ (55,682) $ 817,697
=========== =========== ===========
</TABLE>
F-19
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Average sales price and production costs per unit of production were as
follows:
<TABLE>
<CAPTION>
Year Ended June 30,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Average sales price:
Crude oil, per barrel $ 16.77 $ 14.85 $ 18.95
Natural gas, per thousand cubic feet 1.51 1.95 2.01
Average crude oil and gas sales, per equivalent barrel 12.98 13.31 15.09
Average production costs, per equivalent barrel 7.43 8.46 7.27
</TABLE>
14. Events Subsequent to Date of Balance Sheet
On July 7, 1995, the Company issued $500,000 of 12% convertible notes. Upon
maturity, or any time prior thereto, each $250,000 portion of the
obligation is convertible into additional shares of common stock. The notes
mature, one half each on July 7, 1996 and August 7, 1996, respectively.
On August 9, 1995, a warrant was issued for the purchase of 100,000 shares
of common stock at the price of $1.125 per share. This warrant's expiration
date is contingent upon the market price of the stock.
On August 17, 1995, a warrant was issued for the purchase of 137,500 shares
of common stock at the price of $1.50 per share. This warrant remains
exercisable until August 21, 1996.
On August 21, 1995, the Company issued $275,000 of 12% convertible notes.
Upon maturity, or any time prior thereto, the obligation is convertible
into additional shares of common stock at $1.00 per share. The note matures
on August 21, 1996.
On October 4, 1995, the Company completed a sale of oil and gas properties
for which the Company will realize net proceeds of approximately $450,000.
F-20
<PAGE>
Concord Energy Incorporated and Subsidiaries
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
(Unaudited) (Unaudited)
March 31 March 31
1996 1995
Assets
Current assets
Cash and cash equivalents $ 432,494 $ 115,780
Costs and estimated earnings in excess
of billings on uncompleted contracts 363,937 -
Accounts receivable, net of allowance for
doubtful accounts of $67,490 and $0 1,555,707 205,377
Receivable from stockholder 106,636 -
Receivable due from affiliated company 789,872 353,003
Inventories 9,510,074 -
Prepaid expenses and other assets 89,355 -
------------- -----------
Total current assets 12,848,076 674,160
Property, plant and equipment, net 8,547,141 8,548,874
Note receivable 1,000,000 -
Bond issuance costs, net 494,649 222,258
Other assets 50,012 2,125,000
------------- -----------
Total assets $22,939,877 $11,570,292
============= ===========
Liabilities and Stockholders' Equity
Current liabilities
Current portion of long-term debt $ 1,168,750 $ 1,468,750
Accounts payable 1,843,688 282,794
Accrued expenses 1,233,118 200,827
Payable due to Integrated, net - -
Federal income taxes payable 122,282 -
------------- -----------
Total current liabilities 4,367,838 1,952,371
Long term liabilities
Notes payable 6,193,362 1,813,000
Capital lease obligations 46,673 -
------------- -----------
Total Long term liabilities 6,240,035 1,813,000
------------- -----------
Commitments and Contingencies
Stockholders' equity
Preferred Stock, $.01 par value, 1,000 shares
authorized, 0 shares issued and outstanding - -
Common stock, $.0001 par value, 20,000,000
shares authorized, 4,444,350 and 11,464,268
(pre-split) shares issued and outstanding 444 1,111
Paid-In capital 15,783,886 11,546,768
Accumulated deficit (3,452,325) (3,742,958)
------------- -----------
Total stockholders' equity 12,332,005 7,804,921
------------- -----------
Total liabilities and stockholders'
equity $22,939,877 $11,570,292
============= ===========
The accompanying notes are an integral
part of these consolidated financial statements.
F-21
<PAGE>
Concord Energy Incorporated and Subsidiaries
Consolidated Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Quarter Ended Nine-Months Quarter Ended Nine-Months
March 31, March 31, March 31, March 31,
1996 1996 1995 1995
<S> <C> <C> <C> <C>
Revenue
Oil sales $ 140,397 $ 417,475 $ 217,636 $ 636,577
Gas sales 168,565 348,865 102,161 351,372
------- ------- ------- -------
Total oil and gas sales 308,962 766,340 319,797 987,949
Contract revenue 2,340,260 9,694,810 - -
Syndication sales and
revenue interests - 140,000 243,125 467,075
Well operating income 13,916 39,902 16,925 49,106
Rental income 37,367 88,101 - -
Software Sales 2,594 2,594 - -
----- -----
Total revenue 2,703,100 10,731,747 579,847 1,504,130
Costs and Operating Expenses
Lease operating 138,359 507,641 207,541 588,938
Cost of contract revenue 1,524,131 6,005,281 - -
General and administrative:
Management agreement 348,000 1,044,000 348,000 1,044,000
Other expenses 579,084 1,319,424 96,430 254,785
Depreciation, depletion and
amortization 55,000 326,044 123,694 371,903
------ ------- ------- -------
Total costs and operating
expenses 2,644,574 9,202,391 775,665 2,259,626
--------- --------- ------- ---------
Income (Loss) from Operations 58,526 1,529,356 (195,818) (755,496)
------ --------- -------- --------
Other income (expense)
Other income 1,778 23,774 2,583 5,737
Interest expense (43,916) (704,059) (138,168) (272,597)
------- -------- ------- --------
(42,139) (680,284) (135,585) (266,860)
------- ------- ------- --------
Income (Loss) before income
taxes 16,387 849,071 (331,402) (1,022,356)
------ ------- -------- ----------
Income tax expense - - - -
------ ------- -------- ----------
Net Income (Loss) $ 16,387 $ 849,071 $ (331,402) $ (1,022,356)
============= ============= =============== =============
Accumulated deficit, beginning
of period (3,468,712) (4,301,396) (3,411,556) (2,720,602)
============= ============= =============== =============
Accumulated deficit, end
of period $ (3,452,325) $ (3,452,325) $ (3,742,958) $ (3,742,958)
============= ============= =============== =============
Income (Loss) per share $ 0.00 $ 0.19 $ (0.07) $ (0.23)
The accompanying notes are an integral part
if these consolidated financial statements.
</TABLE>
F-22
<PAGE>
Concord Energy Incorporated and Subsidiaries
Consolidated Statement of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Quarter Ended Nine-Months Quarter Ended Nine-Months
March 31, March 31, March 31, March 31,
1996 1996 1995 1995
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net Income (loss) $ 16,387 $ 849,071 $ (331,402) $(1,022,356)
Adjustments to reconcile net
income/loss to net cash (used in)
provided by operating activities:
Depreciation, depletion and amortization 55,000 326,044 123,694 371,903
Other noncash transactions
Decrease (Increase) in assets:
Accounts receivable 1,184,929 (859,150) 57,323 91,617
Note receivable (1,000,000) (1,000,000) - -
Costs and estimated earning in excess
of billings on uncompleted contracts 369,092 194,924 - -
Receivable From Joint Venture (150,240)
Receivable due from Stockholder 8,441 (3,017) -
Receivable due from affiliated company (789,872) (773,935) (121,948) 11,542
Inventories 320,830 (1,057,449) - -
Deferred taxes
Other assets and liabilities 38,459 (17,648) - -
(Decrease) Increase in liabilities
Accounts payable (368,275) 985,153 (32,209) (34,022)
Accrued expenses 67,164 728,382 54,566 70,729
Federal income tax payable 8,333 2,184 - -
Franchise tax payable 10,000 45,000 7,500 (6,000)
Receivable due from/payable due
to Integrated, net (259,052) (594,685) - -
-------- -------- -------- --------
Net cash provided by (used in)
operating activities (338,563) (1,175,125) (242,476) (666,827)
-------- ---------- -------- --------
Cash flows from investing activities
Purchase of propery, plant, oil and gas equipment,
well workovers and recompletions (111,568) (162,762) (9,709) (80,902)
Acquisition of business, net of cash acquired (897,280) (897,280) (500,000) (500,000)
Sale of oil and gas interests - 477,332 - 16,082
Recapitalization costs
Investment in Joint Venture - - - (1,625,000)
Other, net - - - -
---------- -------- -------- ----------
Net cash (used in) provided by
investing activities (1,008,848) (582,710) (509,709) (2,189,820)
---------- -------- -------- ----------
Cash flows from financing activities
Net proceeds from bonds payable - - 275,000 2,228,242
Net proceeds from note payable 454,000 1,279,000 (425,000) 275,000
Net proceeds from issuance of common stock - - - 250,000
Net proceeds from sale of common stock 1,189,730 1,689,730 - 313,000
Net decrease in notes payable (93,938) (1,036,188) (68,750) (160,417)
------- ---------- ------- --------
Net cash flows provided by (used in)
financing activities 1,549,792 1,932,542 (218,750) 2,905,825
--------- --------- -------- ---------
Net increase (decrease) in cash and
cash equivalents 202,381 174,707 (970,935) 49,179
------- ------- -------- ------
Cash and cash equivalents at beginning of period 230,114 257,788 1,086,715 66,601
------- ------- --------- ------
Cash and cash equivalents at end of period $ 432,494 $ 432,494 $ 115,780 $ 115,780
========== ============== ============ ===========
The accompanying notes are an integral part
of these consolidated financial statements
</TABLE>
F-23
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Organization, Recapitalization, and Operations
Concord Energy Incorporated (the "Company") is an oil and gas exploration
and production company which also locates, designs, refurbishes and installs gas
plants and gas processing equipment for customers in the natural gas industry.
The Company also provides rentals of gas plants and gas processing equipment and
provides services such as engineering, procurement, dismantling, reapplication
and relocation of complete gas processing facilities. In addition, the Company
has developed unique, proprietary software which is used to collect, process,
analyze and transmit data relative to petroleum production and processing
operations. The Company is headquartered in Bernardsville, New Jersey with
substantially all of its oil and gas operations in East Texas and the Louisiana
Gulf Coast. The Company's wholly-owned subsidiaries, Concord Operating, Inc.
("COI"), Knight Equipment and Manufacturing Corporation ("KEMCO"), and
Integrated Petroleum Systems Corporation ("IPS") are located in Houston, Texas,
Jourdanton, Texas, and Denver, Colorado, respectively.
Concord Energy, Inc., (the Company's name prior to the recapitalization
described below) was formed in June 1991 for the purpose of combining the net
assets and operations of 166 previously independent oil and gas partnerships
(the "Partnerships") and the net assets and operations of COI through an
exchange of Partnership and COI net assets for common stock in Concord Energy,
Inc. The exchange was accounted for at historical cost. Certain limited partners
in the Partnerships which did not participate in the exchange were allocated net
working interests in the properties previously held by the respective
Partnerships.
Prior to the exchange, the Partnerships were managed by Integrated Energy,
Inc. ("Integrated") and Tucker Financial, Inc. ("Tucker") which were in the
business of establishing and managing oil and gas limited partnerships.
Subsequent to the exchange, Integrated continues to provide certain management
and administrative services to the Company pursuant to a management agreement
between the Company and Integrated. COI manages the production of Company-owned
oil and gas properties.
On May 19, 1993, Monoclonal International Technology, Inc. ("MITI")
acquired all of the outstanding common stock of Concord Energy, Inc., with MITI
as the acquirer (i.e. a reverse acquisition). In connection with the
acquisition, MITI later changed its name to Concord Energy Incorporated,
approved a 1 for 230 reverse split of its 127,784,100 shares of common stock and
issued 10,556,077 shares of its common stock in exchange for all the outstanding
common stock of Concord Energy, Inc. Historical stockholders equity has been
retroactively restated for all periods presented in the
F-24
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
accompanying consolidated financial statements to account for the equivalent
number of shares received in the acquisition totaling 11,111,660 shares, after
giving effect to the difference in par value of Concord Energy, Inc. and MITI
stock with the offset to paid-in capital. Costs incurred in connection with the
recapitalization totaling $45,000 were recorded as a reduction in paid-in
capital during 1993.
In December 1995, the company effectuated a 1 for 5 reverse split of it's
outstanding stock.
2. Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements are comprised of the Company and its
wholly-owned subsidiaries, Concord Energy, Inc., Concord Operating, Inc., and
Knight Equipment & Manufacturing Corporation and its wholly-owned subsidiary, K
& S Engineering, Inc. All significant intercompany accounts and transactions are
eliminated in consolidation.
Cash equivalents
Cash and cash equivalents include all cash and highly liquid investments
with original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or market using the first-in
first-out method. Inventory consists principally of gas plants, compressors,
separators, supplies and repair parts utilized by the Company in conjunction
with its design and refurbishing of gas plants and gas processing equipment.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation, depletion and amortization.
The Company accounts for its oil and gas properties under the full cost
method of accounting. Under the full cost method, all costs incurred in
acquiring, exploring and developing oil and gas reserves are capitalized to the
full cost pool. When oil and gas properties are sold, retired or otherwise
disposed of, any applicable proceeds are
F-25
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
credited to the full cost pool, with no gain or loss recognized, unless the sale
would have a significant impact on the relationship between capitalized costs
and proved reserves. Since all of its oil and gas operations are within the
United States, the Company utilizes one cost pool to account for its oil and gas
properties. Depreciation, depletion and amortization of oil and gas properties
is computed based on the unit-of-production method for the cost pool, based on
estimates of proved reserves as determined by an independent reserve engineer.
Other property, plant and equipment is recorded at cost less accumulated
depreciation. Repairs and maintenance costs which do not extend the useful lives
of the assets are expenses as incurred. Depreciation is provided for on the
straight-line method over the estimated useful lives of the assets which range
from three to seven years, except for buildings and improvements which are
depreciated over estimated useful lives ranging from 20 to 30 years.
Leases
Leases which meet certain criteria evidencing substantive ownership by the
company are capitalized and the related capital lease obligations are included
in liabilities. Amortization and interest are charges to expense, with rent
payments being treated as payments of the capital lease obligation. All other
leases are accounted for as operating leases, with rent payments being charges
to expense as incurred.
Deferred financing and bond issuance costs
Costs incurred in conjunction with obtaining financing (including costs
associated with the issuance of bonds) are amortized using the straight-line
method over the term of the related financing agreement or bond.
Revenue recognition
Oil and gas sales
Revenues from oil and gas sales are accrued as earned based on joint
interest billings obtained from the well operator.
Contract revenue
Revenues from construction contracts are recognized based on the percentage
of completion method, measured on the basis of costs incurred to date to
estimated total budgeted costs for each contract. Contract costs include all
direct material and labor
F-26
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
costs, including those indirect labor and repair costs related to contract
performance. Selling, general and administrative costs are charged to expense as
incurred. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in job performance, job
conditions, estimated profitability and final contract settlements are monitored
on a periodic basis in order to determine if revisions to the income and cost
estimates are necessary as a result of such changes. Revisions to the income and
cost estimates, if any, are recognized in the period in which such revisions are
determined to be necessary. Costs and earnings in excess of billings on
uncompleted contracts represent an asset based on revenues recognized in excess
of amounts billed to customers. Billings in excess of costs and earnings on
uncompleted contracts are recorded as a liability and represent contracts for
which billings to date exceed cumulative revenues recognized based on the
percentage of completion method.
Syndication sales
Under an agreement between the company and Integrated (see Note 12), the
Company is entitled to receive 20% of all sales made by Integrated of syndicated
retail partnerships. This revenue is recognized when earned.
Well operating income
The Company, through its wholly owned subsidiary COI, manages and operates
wells. The revenue generated from these services is recognized when earned.
Rental revenue
The Company leases certain gas plants and separators to customers under
short term leases which are accounted for as operating leases. At June 30, 1995,
there are no significant future minimum rentals to be received under these
noncancelable operating leases.
Income taxes
The Company accounts for income taxes under the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized based upon differences arising from the carrying of amounts of the
Company's assets and liabilities for tax and financial reporting purposes using
enacted tax rates in effect for the year in which the differences are expected
to reverse. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period when the change in tax rates is
enacted.
F-27
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Net income (loss) per share
Net loss per share of common stock is based upon the number of shares of
common stock outstanding (4,444,350) . The Company's common stock equivalents,
which consist of outstanding warrants to purchase the Company's common stock,
are not considered in the net income (loss) per share calculation since their
effect is anti-dilutive.
3. Business Combinations
On May 7, 1995, the company acquired all of the issued and outstanding
shares of the common stock of KEMCO for $7,000,000 in a business combination
accounted for under the purchase method of accounting. The acquisition was
financed through 400,000 shares of the Company's common stock and $4,500,000 in
cash. Financing for the cash portion of the purchase price was obtained
primarily through the net proceeds from debt financing totaling approximately
$3,700,000 and the net proceeds from the issuance of 260,000 shares of the
Company's common stock totaling approximately $800,000. The results of
operations of KEMCO and its wholly-owned subsidiary, K & S Engineering, Inc.,
subsequent to April 1, 1995, the date effective control of KEMCO transferred to
the Company for financial reporting purposes, are included in these consolidated
financial statements.
On March 1, 1996 the Company acquired all of the issued and outstanding
shares of the common stock of IPS for 600,000 shares of the Company's common
stock.
4. Accounts Receivable and Concentration of Credit Risk
Accounts receivable represent amounts due from customers who are in the oil
and gas business throughout North America. Fluctuations in market conditions
impact the credit worthiness of these customers. The Company reviews the
financial condition of purchasers and joint interest participants prior to
signing sales or joint interest agreements. Payment terms are on a short-term
basis and in accordance with industry standards.
5. Notes Receivable
On December 29, 1995, the Company completed a $1,600,000 gas processing
equipment sale consisting of $600,000 cash and a $1,000,000 note receivable at
an interest rate of 9% annually, due on March 29, 1997.
F-28
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
6. Property, Plant and Equipment, Net
Significant components comprising property, plant and equipment at March 31
include the following:
1996 1995
Oil & gas properties:
Leasehold costs $ 6,806,177 $ 7,378,124
Lease well & equipment 1,944,882 1,944,882
Intangibles 1,904,925 1,904,925
Property, plant & equipment 945,431 942,820
Other 58,551 58,551
----------- ------------
11,659,966 12,229,302
----------- ------------
Other property, plant & equipment
Land 159,913 -
Buildings & improvements 374,719 -
Machinery & equipment 234,921 -
Vehicles 218,769 -
Furniture, fixtures & software 163,633 53,016
----------- ------------
1,151,955 53,016
----------- ------------
Accumulated depreciation,
depletion and amortization (4,264,780) (3,733,444)
------------ ------------
Property, plant and equipment, net $ 8,547,141 $ 8,548,874
------------ ------------
Depreciation, depletion and amortization of oil and gas properties, and
depreciation of other property, plant and equipment for the periods ended March
31 is as follows:
1996 1995
Oil and gas properties $236,044 $371,281
Other property, plant
and equipment 90,000 621
-------- ----------
$326,044 $372,102
-------- ----------
F-29
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
7. Debt and Capital Lease Obligations
Debt
Long-term debt includes the following at March 31:
1996
Bond payable, dated May 1995, with interest
at 10% per annum, requiring semi-annual interest
payments through maturity on May 1, 1997. The
bond is secured by the assets of KEMCO. As
additional consideration, the Company issued
90,000 shares of common shares to the lender. $2,920,000
Secured notes payable, dated December 1994,
with a face value of $2,500,000 issued at
$750,000 discount. The notes bear
interest at 9% per annum with an
effective interest rate of 15% per annum.
Semi-annual interest payments of $112,500 are
required through maturity in January 2010. The
notes are secured by certain gas plants and
equipment and a guarantee of the Company. 1,760,263
Secured notes payable, dated September 1994,
with a face value of $1,400,000 issued at a
$604,500 discount. The notes bear interest at
6% per annum payable semi-annually with an
effective interest rate of 14.02% per annum.
Annual principal payments of $140,000 are
required beginning in August 2005 through
maturity in August 2009. The notes are secured
by certain oil and gas property owned by the Company. 708,787
F-30
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Acquisition bridge financing evidenced
by notes payable which bear interest at
12% per annum. The interest and related
principal are due at various maturity
dates through November 1996.
Approximately $530,000 of the notes at
September 30, 1995 are secured by a personal
guarantee from Jerry Swon, the Chief
Executive Officer of the Company, who is also a
shareholder of the Company. 270,000
In July, 1995 issued $500,000 of 12% convertible
notes. Upon maturity, or any time prior thereto,
each $250,000 portion of the obligation is
convertible into additional shares of common stock.
The notes mature, one half each July 7,
1996 and August 7, 1996, respectively. 500,000
On August 21, 1995, the Company issued $275,000
of 12% convertible notes. Upon maturity, or
any time prior thereto, the obligation is
convertible into additional shares of common
stock. The note matures on August 21, 1996. 275,000
Unsecured notes payable, originally in the amount
of $450,000 bearing interest at 7% to 7.5% per annum.
Principal and interest are due at various dates
through fiscal 1996. 450,000
12% convertible notes, dated October 1994,
convertible at maturity into shares of Company's
common stock. $125,000 of these notes matured
and were converted into 25,000 shares of the
Company's common stock. Upon the conversion,
an additional 3,000 shares of the Company's
common stock was issued consideration for accrued
interest expense through the date of conversion
totaling $15,000. The remainder of the notes mature
in October 1996. The notes are secured by certain oil
and gas property owned by the Company. 125,000
F-31
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Various convertible notes payable assumed from IPS which
have interest rates of 10% to 12%. 123,062
Various notes payable assumed from IPS which
have interest rates of 4.5% to 10%. 230,000
-------
Total debt outstanding 7,362,112
Less: current portion 1,168,750
---------
Long-term debt $6,193,362
----------
Capital Lease Obligations
In conjunction with its acquisition of KEMCO, the Company acquired certain
leased equipment which is accounted for as capital leases. prior to the
acquisition, the leases were prepaid at inception. Capital lease obligations
recorded in the accompanying consolidated financial statements represent the
present value of the lease purchase options which are exercisable at the end of
the lease term in December 1997, discounted at an interest rate of 16%.
Capital lease obligations as of March 31, 1996 consist of the following:
Total future minimum lease payments due
in fiscal 1998 $67,106
Less: amounts representing interest 20,433
--------
Present value of minimum lease payments $46,673
--------
F-32
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
8. Commitments and Contingencies
Minimum Rental Commitments
The Company has several noncancelable operating leases, primarily for
office equipment, that expire over the next five years. These leases generally
contain renewal options for periods ranging from three to five years and require
the Company to pay all executory costs such as maintenance and insurance.
9. Transactions with Related Parties
Related Party Ownership Interests
Integrated and Tucker, which are owned by an officer and director of the
Company, own 1.36% and 1.30%, respectively, of the Company's common stock as of
March 31, 1996. Additionally, certain officers and directors of the Company,
together with Integrated own or control 19.60% of the Company's common stock as
of March 31, 1996.
Receivables from Related Parties/Affiliated Company
Integrated and the Company have an agreement by which the associated
receivables and payables may be netted. At March 31, 1996, the Company has a net
receivable due from Integrated of $789,872. At March 31, 1995, the Company had a
net receivable due from Integrated of $353,003.
At March 31, 1996 The Company finalized a sale of gas processing and
related equipment to Integrated for $550,000, which is included in the net
receivable balance as of March 31, 1996. The Company's profit on the sale of
these items is approximately $250,000.
As part of its ongoing operations, the Company conducts business with
Atascosa Electric Services ("AES"), an entity which is owned and controlled by
Deral Knight, the president of KEMCO, who is also a stockholder of the Company.
At March 31, 1996, the receivable due from stockholder (Deral Knight) and due
from affiliated company (AES) were $106,636 and $0, respectively.
Under the provisions of the agreement whereby the Company acquired Deral
Knight's stock in KEMCO, Deral Knight has agreed to return to the Company,
Concord Energy Incorporated common stock valued at $6.25 per shares to the
extent that Deral Knight owed money to the Company at June 30, 1995.
Accordingly, in liquidation of the receivable balance, approximately 17,062
shares of Company common stock issued to Deral Knight as part of the purchase
price of his KEMCO stock have been returned to the Company.
F-33
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Notes Payable to Stockholders
Notes payable to stockholders bear interest at rates ranging from 5 to 12%
per annum which are generally payable in monthly installments through maturity.
Interest expense incurred on these notes during fiscal 1995, 1994 and 1993
totals $42,661, $67,892 and $74,029, respectively. The notes mature at various
dates through August 1996. Approximately $50,000 of the notes at December 31,
1995 are secured by future production of approximately 75,000 equivalent barrels
of oil.
Management Agreement
The Company and Integrated have entered into an agreement (the "Management
Agreement") that requires Integrated to provide certain management,
administrative and accounting services to the Company and certain subsidiaries
for $116,000 per month through June 30, 1996. Subject to automatic extension
under certian circumstances. The services provided by Integrated include the
receipt of cash for oil and gas sales and the payment of operating and capital
expenditures on behalf of the Company. In accordance with the original
provisions of the Management Agreement, the Company is also entitled to 10% of
all syndicated retail partnership gross sales made by Integrated. As additional
consideration for the Management Agreement, Integrated assigned to the Company,
effective June 1, 1991 through March 31, 1994, its revenue sharing in future
program syndications. Effective March 31, 1994, the Management Agreement was
modified to provide the Company with 20% of all syndicated retail partnership
gross sales made by Integrated. During fiscal 1994, the Company sold to
Integrated all of its revenue sharing interests which were earned under the
Management Agreement, aggregating $363,266. Revenue interest income earned was
also remitted to Integrated in connection with the sale. The proceeds from the
sale were recorded as reduction of the Company's full-cost oil and gas
properties pool. During the periods ended March 31, 1995 and 1996 the Company
recorded income from Integrated as follows:
1996 1995
Syndication income $140,000 $459,000
Revenue interest income - -
Management fee income - 8,075
-------- ----------
$140,000 $467,075
--------- ----------
F-34
<PAGE>
Concord Energy Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Other Related Party Transactions
The two automobiles held under capital lease are to be transferred to an
officer and an employee of KEMCO upon the execution of the lease purchase
options at the expiration of the lease terms.
10. Events Subsequent to Date of Balance Sheet
On April 3, 1996 the Company sold 103,800 shares of common stock in private
transactions and realized net proceeds of $298,500.
On April 29, 1996 the Company completed a private placement of convertible
debt and realized net proceeds of $179,000. The face amount of the debt is
$200,000 with a 3- year maturity and a 6% annual interest rate, payable
quarterly.
On May 10, 1996 the Company received a confirmation from a convertible note
holder to the effect that it had elected to convert its $275,000 note to common
stock at $3.00 per share.
F-35
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or the Representative. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof. This Prospectus does not constitute an offer or solicitation by
anyone in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or solicitation is not qualified to do
so or to anyone to whom it is unlawful to make such offer or solicitation.
TABLE OF CONTENTS
Page
----
Additional Information........................................................ 5
Prospectus Summary............................................................ 6
Risk Factors.................................................................. 7
Use of Proceeds...............................................................11
Capitalization................................................................12
Price Range of Common Stock...................................................13
Dividends.....................................................................13
Management's Discussion and Analysis of
Financial Condition and Results of Operations...............................14
Business......................................................................19
Management....................................................................32
Executive Compensation .......................................................33
Summary Compensation Table....................................................34
Resale by Selling Security Holders............................................36
Certain Relationships.........................................................38
Description of Securities.....................................................39
Shares Eligible for Future Sale...............................................43
Legal Matters.................................................................43
Experts.......................................................................43
Financial Statements..........................................................F1
--------------------
Until September ___, 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
================================================================================
CONCORD ENERGY INCORPORATED
1,334,061
SHARES OF
COMMON STOCK AND
496,500
SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE
OF WARRANTS
---------------
PROSPECTUS
---------------
August ___, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware and
Article 7 of the Company's Articles of Incorporation contain provisions for
indemnification of officers, directors, employees and agents of the Company. The
Articles of Incorporation require the Company to indemnify such persons to the
full extent permitted by Delaware law. Each person will be indemnified in any
proceeding if he acted in good faith and in a manner which he reasonably
believed to be in, or not opposed to, the best interest of the Company.
Indemnification would cover expenses, including attorney's fees, judgments,
fines and amounts paid in settlement.
The Company's Articles of Incorporation also provided that the Company's
Board of Directors may cause the Company to purchase and maintain insurance on
behalf of any present or past director or officer insuring against any liability
asserted against such person incurred in the capacity of direct or officer or
arising out of such status, whether or not the Company would have the power to
indemnify such person. The Company may seek to obtain directors' and officers'
liability insurance.
Item 25. Other Expenses of Issuance and Distribution.
SEC Registration Fee $ 1,965.72
Printing Expenses $ 10,000.00*
Legal Fees and Expenses $ 90,000.00**
Accounting Fees and Expenses $ 20,000.00*
Transfer Agent Fees $ 2,000.00*
Miscellaneous Expenses $ 5,000.00*
TOTAL $128,965.72*
- ----------
* Estimated
** Company counsel received 30,000 shares of common stock having an
approximate current market value of $3.00 per share for services in
connection with preparation of this Registration Statement.
The Selling Security Holders will not be paying any portion of the
foregoing expenses of issuance and distribution.
Item 26. Recent Sales of Unregistered Securities.
II-1
<PAGE>
The following information sets forth all shares of the $.0001 par value
Common Stock and redeemable warrants of the Registrant sold by it within the
past three years which were not registered under the Securities Act of 1933, as
amended. The Registrant was incorporated as a Delaware corporation in 1985.
The total number of outstanding shares of Common Stock as of July 25, 1996
were 5,929,852. After the Company, previously Monoclonal International
Technology, Inc., purchased all of the outstanding stock of Concord Energy,
Inc., it issued 2,111,208 (post-split) shares of Common Stock to about 500
Concord Energy, Inc. stockholders on August 3, 1993.
Subsequently, the Company issued the following shares of its Common Stock
to the following parties:
<TABLE>
<CAPTION>
Number of Consideration
Date Shares Paid Name
- ---- ------ ---- ----
<S> <C> <C> <C>
1995
October 26 8,000 Services David Kocian
December 20 222,000 $2.25 *Bank In Liechtenstein
1996
January 2 114,943 $2.17 *Arista Capital Growth Fund
January 22 20,000 Services Michael Pisani
10,000 Extension of Deye Limited Partnership
Note Maturity Date
2,000 Services Rick Horn
500 Services Gelvin Stevenson
6,250 Services Canterbury Associates
January 10 5,000 Services Sumberg Associates
January 17 4,000 Services Silverman, Collura & Chernis, P.C.
January 15 2,650 Services *Mountain View
January 24 1,000 Additional Seymour Kroll
Payment to Lender
February 5 63,492 $2.70 *Banque Frank, S.A.
February 21 59,566 $3.00 *Arista Capital Growth Fund
March 8 175,000 $3.37 *Various Investors
March 13 24,000 Payment of Rick Horn
Indebtedness
10,000 Services David Kocian
April 2 895 Acquisition of I.P.S. David Purcell
1,016 Acquisition of I.P.S. Thomas Jemison
1,119 Acquisition of I.P.S. Kathleen Brown
4,467 Acquisition of I.P.S. Richard and Marie Faley
4,467 Acquisition of I.P.S. William and Margaret Burke
4,467 Acquisition of I.P.S. Robert Woods, Jr.
4,070 Acquisition of I.P.S. Lisa Howard, ITF
Jonathan and Megan Howard
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Number of Consideration
Date Shares Paid Name
- ---- ------ ---- ----
<S> <C> <C> <C>
4,864 Acquisition of I.P.S. Lisa Howard and Luther
Howard II
7,265 Acquisition of I.P.S. Robert Barden
6,557 Acquisition of I.P.S. Southwest Royalties, Inc.
6,934 Acquisition of I.P.S. Reto Tutfli and Rachel DeBaere
11,172 Acquisition of I.P.S. Ruth Hattendorf Trust dated 2/17/96
11,172 Acquisition of I.P.S. James D. Chrisman
17,868 Acquisition of I.P.S. Ridge Energy Corp.
30,149 Acquisition of I.P.S. Mark T. Shipley
30,851 Acquisition of I.P.S. Mark T. Shipley I.R.A.
1,000 Acquisition of I.P.S. Virginia and George Barden, Jr.
5,000 Acquisition of I.P.S. June M. Barden
10,000 Acquisition of I.P.S. Barden Land Services Inc. Pension
Trust
10,000 Acquisition of I.P.S. Richard and June Barden
152,675 Acquisition of I.P.S. Richard D. Barden
21,000 Acquisition of I.P.S. William Scanlon
30,000 Acquisition of I.P.S. B. Michael Pisani
60,270 Acquisition of I.P.S. Ned Cole
14,501 Acquisition of I.P.S. Seymour Kroll
2,965 Acquisition of I.P.S. Carl Henn
26,316 Acquisition of I.P.S. Ruth Buscetto Charitable Trust
26,316 Acquisition of I.P.S. Peter and Terry Buscetto
11,000 Acquisition of I.P.S. Robert Waiver
25,000 Acquisition of I.P.S. Ronald Shear
52,632 Acquisition of I.P.S. Global Portfolios Pty Ltd.
April 3 103,800 2.88 *Arista High Technology Growth
Fund
May 22 76,190 2.63 *Arista High Technology Growth
Fund
99,623 2.76 *TA Securities Pty Ltd. (note
conversion)
May 23 100,000 2.11 *Bank Sarasin & Cie
June 18 39,400 2.54 *Aussie Investments
June 19 21,321 2.36 *Sage Capital Investments
(note conversion)
June 20 400,000 2.36 *Signature Equities Agency Gmbh
June 27 1,500 2.53 *Global Portfolios Pty Ltd.
(note conversion)
186,000 2.53 *Global Portfolios Pty Ltd.
(note conversion)
10,000 2.53 *Global Portfolios Pty Ltd.
(note conversion)
129,151 2.36 *Arista Capital Growth Fund Ltd.
36,900 2.36 *Arista High Technology Growth
Fund
July 3 6,500 Services *Mountain View Pty Ltd.
3,940 Services *Mountain View Pty Ltd.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Number of Consideration
Date Shares Paid Name
- ---- ------ ---- ----
<S> <C> <C> <C>
100,000 2.36 *Signature Equities Agency Gmbh
July 15 63,993 2.36 *Sage Capital Investments (note
conversion)
July 19 8,000 Services David Kocian
30,000 Services Silverman, Collura & Chernis, P.C.
1,400 Services Equities Magazine
1,500 Services Rick Horn
42,500 Purchase of Oil Wong Family Rev.
and Gas Interests Trust
July 23 12,500 Services Canterbury Associates
617 Services Rick Horn
667 Note Conversion *Global Portfolios Pty Ltd.
July 25 10,000 Services LBO Incorporated
</TABLE>
- ----------
* Denotes non - U.S. purchaser.
The foregoing shares were marked with restrictive legends and are
"restricted" shares as defined by Rule 144 promulgated under the Securities Act
of 1933, as amended. The Registrant believes that these transactions are exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended, and Regulation D promulgated thereunder as private transactions which
did not involve a public offering of securities, except for transactions (as
indicated) involving shares sold in reliance upon the registrations exemption.
The purchasers are aware that the shares were not registered under the
Securities Act of 1933, as amended, and cannot be referred or sold until they
have been so registered or until the availability of the exemption therefrom has
been established to the satisfaction of the small business issuer.
The Company has also issued 1,162,800 Common Stock Purchase Warrants as
follows:
<TABLE>
<CAPTION>
Number of Shares
Underlying Warrants Warrant Holder Exercise Price Consideration
- ------------------- -------------- -------------- -------------
<S> <C> <C> <C>
1,000 Alan D'Lugash $7.50 Loan Consideration
500 Ronald Shear 7.50 Loan Consideration
100,000 *Global Portfolios 2.90 Part of
Pty Ltd. (Expired) Convertible
Note Investment
100,000 *Globel Portfolios 7.50 Part of
Pty Ltd. Convertible
Note Investment
27,500 *TA Securities Pty 7.50 Part of
Ltd. Convertible
Note Investment
25,000 Canterbury Associates 4.00 Services
25,000 *Mountain View 3.00 Services
20,000 LBO Associates 5.00 Services
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
Underlying Warrants Warrant Holder Exercise Price Consideration
- ------------------- -------------- -------------- -------------
<S> <C> <C> <C>
100,000 Berkshire International 4.50 Services
Finance, Inc.
200,000 Berkshire International 2.625 Services
Finance, Inc.
175,000 *Var. Investors 4.50 Part of Equity
Investment
103,800 *Arista High Technology 4.50 Part of Equity
Fund Investment
20,000 Nascom 3.75 Part of Equity
Investment
100,000 Fifth Avenue Associates 3.75 Services
15,000 Stephen Robinson 4.00 Services
100,000 Univest Management, Inc. 5.00 Services
50,000 20th Century 2.75 Settlement of
Arbitration Claim
</TABLE>
- ----------
* Denotes non - U.S. purchaser.
496,500 shares underlying certain of the above-listed Common Stock purchase
Warrants are being registered hereby.
The issuance of the foregoing securities was made without registration
under the Securities Act in reliance upon the exemption provided by Section 4(2)
of the Securities Act and in compliance with Rule 506 of Regulation D under the
Securities Act, and where indicated, in reliance upon regulations.
Item 27. Exhibits
All exhibits marked with an asterisk (*) were included with the Company's
original Registration Statement filed with the Securities and Exchange
Commission in 1996. Exhibits marked with a double asterisk (**) were included
with the Company's subsequent reports filed with the Commission.
3.1 Original and Amended Articles of Incorporation of Registrant.*
3.2 By Laws of the Registrant.*
5.1 Opinion of Silverman, Collura & Chernis, P.C. as to the legality
of the securities being registered.
10.1 KEMCO acquisition agreement.**
10.2 I.P.S. acquisition agreement.
10.3 Deral Knight employment agreement.**
10.4 Richard Barden employment agreement.
24.1 Form of Consent of Price Waterhouse LLP
II-5
<PAGE>
24.2 Consent of Silverman, Collura & Chernis, P.C. (to be included in
their opinion to be filed as Exhibit 5.1).
Signed consent to be furnished by amendment.
Item 28. Undertakings.
(a) Rule 415 Offerings.
The undersigned small business issuer hereby undertakes that it will:
(1) File, during the period required by Rule 415, a post-effective
amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
Registration Statement; and
(iii) Includes any additional or changed material information on the
plan of distribution.
provided, however, the paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, and the information required
in a post-effective amendment by those paragraphs is contained in periodic
reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) For determining liability under the Securities Act of 1933, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(b) Request for acceleration of effective date.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
II-6
<PAGE>
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceedings) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such court.
(c) Reliance upon Rule 430A under the Securities Act.
The undersigned small business issuer hereby undertakes that it will:
(1) For determining any liability under the Securities Act of 1933, as
amended, treat the information omitted from the form of prospectus filed as
part of the registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the small business issuer under Rule
424(b)(1) or (4) or 497(h) under the Securities Act as part of this
registration statement as of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act of 1933, as
amended, treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered in
the registration statement, and that offering of the securities at that
time as the initial bona fide offering of those securities.
II-7
<PAGE>
POWER OF ATTORNEY
Each person whose signature appear below constitutes and appoints Deral
Knight his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and to take such actions in, and file with
the appropriate authorities in, whatever states said attorney-in-fact and agent
shall determine, such applications, statements, consents and other documents as
may be necessary or expedient to register securities of the Company for sale,
granting unto said attorney-in-fact and agent full power and authority to do so
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute or substitutes may lawfully do or
cause to be done by virtue hereof and the Registrant hereby confers like
authority on its behalf.
II-8
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in Bernardsville, New
Jersey on August 9, 1996.
CONCORD ENERGY INCORPORATED
By: /s/ Deral Knight
----------------------------------
Deral Knight, President
In accordance with the requirements of the Securities Act of 1933, this
Registration statement was signed by the following persons in the capacities and
on the dates stated.
Signature Title Date
--------- ----- ----
/s/ Jerry Wilson
- ------------------------------ Chairman of August 9, 1996
Jerry Wilson Board of Directors
/s/ Deral Knight
- ------------------------------ President, Chief August 9, 1996
Deral Knight Executive Officer
and Director
/s/ Scott Kalish
- ------------------------------ Chief Financial August 9, 1996
Scott Kalish Officer
/s/ Bary Laidlaw
- ------------------------------ Director August 9, 1996
Bary Laidlaw
/s/ Neal Glass
- ------------------------------ Director August 9, 1996
Neal Glass
/s/ Paul Chernis
- ------------------------------ Director August 9, 1996
Paul Chernis
August 14, 1996
Concord Energy Incorporated
75 Claremont Road
Bernardsville, New Jersey 07924-2296
Re: Registration Statement on Form SB-2
Gentlemen:
We have acted as counsel to Concord Energy Incorporated (the "Company"), a
Delaware corporation, pursuant to a Registration Statement on Form SB-2, as
filed with the Securities and Exchange Commission on August 14, 1996 (the
"Registration Statement"), covering an aggregate of 1,830,561 shares of the
Company's Common Stock, $.0001 par value (the "Common Stock") representing (i)
1,334,061 shares of Common Stock being registered on behalf of Selling Security
Holders and (ii) 496,500 shares underlying the Company's outstanding Common
Stock Purchase Warrants.
In acting as counsel for the Company and arriving at the opinions as
expressed below, we have examined and relied upon originals or copies, certified
or otherwise identified to our satisfaction, of such records of the Company,
agreements and other instruments, certificates of officers and representatives
of the Company, certificates of public officials and other documents as we have
deemed necessary or appropriate as a basis for the opinions expressed herein.
In connection with our examination we have assumed the genuineness of all
signatures, the authenticity of all documents tendered to us as originals, the
legal capacity of natural persons and the conformity to original documents of
all documents submitted to us as certified or photostated copies.
Based on the foregoing, and subject to the qualifications and limitations
set forth herein, it is our opinion that:
1. The Company had authority to issue the Common Stock and Common Stock
Purchase Warrants in the manner and under the terms set forth in the
Registration Statement.
<PAGE>
Concord Energy Incorporated
August 10, 1996
Page 2
2. The Common Stock has been duly authorized and when issued, delivered and
paid for by recipients in accordance with their respective terms, will be
validly issued, fully paid and non-assessable. This applies as well to the
Common Stock to be issued upon exercise of outstanding warrants.
We express no opinion with respect to the laws other than those of the
State of New York and Federal Laws of the United States of America, and we
assume no responsibility as to the applicability or the effect of the laws of
any other jurisdiction.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and its use as part of the Registration Statement.
We are furnishing this opinion to the Company solely for its benefit in
connection with the Registration Statement. It is not to be used, circulated,
quoted or otherwise referred to for any other purpose. Other than the Company no
one is entitled to rely on this opinion.
Very truly yours,
SILVERMAN, COLLURA & CHERNIS, P.C.
s\Silverman, Collura & Chernis, P.C.
------------------------------------
STOCK PURCHASE AGREEMENT ("Agreement"), effective as of March 1, 1996, by
and between Concord Energy Incorporated, a Delaware corporation with offices
located at 75 Claremont Road, Bernardsville, New Jersey 07924 (the "Company");
Jerry Swon, the Company's CEO; Integrated Petroleum Systems Corporation, a
Colorado corporation with offices located at 8480 East Orchard Road, Suite 4350,
Englewood, Colorado 80111 ("IPS"); Richard D. Barden, CEO of IPS; and the
existing Stockholders of IPS (the "Stockholders")
WHEREAS, the Company desires to acquire the business of IPS through the
acquisition of all outstanding shares of stock of IPS in accordance with the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the covenants set forth herein, it is
agreed as follows:
ARTICLE I
THE EXCHANGE
1.1 Terms of Exchange. On the basis of the representations, warranties,
covenants and agreements contained herein, and subject to the terms and
conditions of this Agreement.
(i) The Stockholders shall sell, assign, transfer and convey to the Company
at the Closing Date (as hereinafter defined) or as soon thereafter as
practicable all of the outstanding shares of capital stock of IPS ("IPS
Shares"). The Stockholders shall deliver at the Closing Date certificates
representing the IPS Shares duly endorsed in blank or accompanied by stock
powers duly endorsed in blank, in each case in proper form for transfer,
with signatures guaranteed as reasonably requested by the Company and with
<PAGE>
all stock transfer and other required documentary stamps affixed thereto.
(ii) In consideration for the IPS Shares, the Company shall deliver at the
Closing Date, certificates registered in such names and for such number of
shares of the Company's Common Stock as set forth on Schedule 1.1 annexed
hereto, ("Company Shares"). 10.175114 Shares of the Company's Common Stock
will be issued in exchange for each IPS Share presently outstanding. The
aggregate number of shares of the Company's Common Stock to be issued and
delivered to the Stockholders in exchange for the IPS Stock shall be
600,000 shares of the Company's Common Stock representing an aggregate of
14.1176% of the issued and outstanding common stock of the Company after
giving effect to the transactions described in this Agreement.
ARTICLE II
CLOSING
2.1 Closing. The Closing contemplated by Article 1 of this Agreement shall
be held at the offices of IPS within five days after the conditions set forth in
Articles 7.1(i) and 7.2(ii) of this Agreement have been satisfied, unless
another place or on such date as is agreed upon in writing by the parties (the
"Closing Date").
2.2 After the Closing Date and from time to time thereafter, the parties to
this Agreement shall execute such additional instruments and take such other
action as either party may reasonably request in order to effectuate the
transactions contemplated by this Agreement.
2
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company and its CEO represent and warrant to IPS as follows:
3.1 Organization and Standing. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite power, qualification and authority, corporate or
otherwise, to own, lease and operate its properties and assets and carry on its
business as and in the places where such properties and assets are now owned,
leased or operated or such business is now being conducted. True, complete and
correct copies of the Company's certificate of incorporation (or other charter
document), by-laws and all amendments thereto, as presently in effect will be
delivered to IPS at the Closing.
3.2 Authorization. The Company has all requisite power and authority to
execute, deliver and perform this Agreement. All necessary corporate proceedings
of the Company have been duly taken to authorize the execution, delivery and
performance of this Agreement by the Company. This Agreement has been duly
authorized, executed and delivered by the Company, constitutes the legal valid
and binding obligation of the Company, and is enforceable in accordance with the
terms hereof.
3.3 No Further Action Needed. No consent, authorization, approval, order,
license, certificate, permit, declaration or filing with, any federal, state,
local or other governmental authority or any court or other tribunal is required
by the Company for the execution, delivery or performance of this Agreement by
the Company. No consent of any party to any contract, agreement, instrument,
lease, license, arrangement, or understanding to which the Company is a party,
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or to which it or any of its properties or assets are subject, is required for
the execution, delivery or performance of this Agreement. The execution,
delivery and performance of this Agreement will not violate, result in a breach
of, conflict with, or entitle any party to terminate or call a default under any
term of any contract, agreement, instrument, lease, license, arrangement, or
understanding whereby the Company is a party to, or violate or result in a
breach of any term of the Certificate of Incorporation (or other charter
document) or by-laws of the Company, or violate, result in a breach of, or
conflict with any law, rule, regulation, order, judgment, or decree binding on
the Company or to which any of its operations, business, properties or assets
are subject.
3.4 Capitalization. The authorized capital stock of the Company consists of
20,000,000 shares of $.0001 par value common stock ("Company Common Stock"), of
which 4,250,000 shares shall be issued and outstanding after completion of this
transaction. Each of such outstanding shares of Company Common Stock is validly
authorized, validly issued and fully paid and non-assessable, has not been
issued and is not owned or held in violation of any preemptive right of
stockholders. At the Closing Date the Company Shares, upon issuance to the
Stockholders, shall be validly issued, fully paid and non-assessable.
3.5 Lack of Commitment to Issue Securities. There is not presently
outstanding nor is there any commitment, plan, or arrangement to issue, any
options, warrants or other rights calling for the issuance of any shares of
stock of the Company or any security or other instrument convertible into,
exercisable for or exchangeable for stock of the Company, except as disclosed on
Schedule 3.5 attached hereto.
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3.6 Financial Condition. Annexed hereto as Schedule 3.6 are true and
correct copies of the following: (i) audited consolidated balance sheets of the
Company for its last three fiscal years ended June 30, 1995, 1994 and 1993; (ii)
the unaudited balance sheet of the Company as of December 31, 1995 (most recent
date available); (iii) audited consolidated statements of income, statements of
retained earnings, and statements of changes in financial position and/or cash
flow of the Company for the last three fiscal years ended June 30, 1995, 1994
and 1993; and (iv) the unaudited consolidated statements of income, consolidated
statements of retained earnings, and consolidated statements of changes in
financial position and/or cash flow of the Company for the three (3) months
ended December 31, 1995 (most recent available). Each such balance sheet
presents fairly the consolidated financial condition, assets, liabilities, and
stockholders' equity of the Company as of its date; each such statement of
income and statement of retained earnings presents fairly the consolidated
results of operations of the Company for the period indicated; and each such
statement of changes in financial position and/or cash flow presents fairly the
consolidated information purported to be shown therein. The financial statements
referred to in this Section 3.6 have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, are correct and complete, and are in accordance with the books and
records of the Company.
3.7 Lack of Material Changes. Since June 30, 1995 (the most recent audited
financial statement date) except as described on Schedule 3.7 annexed hereto,
(a) There has not been any material adverse change in the financial
condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company.
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(b) The Company has not authorized, declared, paid, or effected any
dividend or liquidating or other distribution in respect of its
capital stock or any direct or indirect redemption, purchase, or other
acquisition of any such stock.
(c) The operations and business of the Company have been conducted in all
respects only in the ordinary course.
(d) The Company has not mortgaged, pledged or subjected to lien or other
encumbrances any of its assets.
(e) The Company has not suffered an extraordinary loss (whether or not
covered by insurance) or waived any right of substantial value.
(f) The Company has not sold or transferred any of its assets having a
book value of $100,000 or more or canceled any debts or claims,
except, in each case, in the ordinary course of business.
(g) There has not been any issuance of the Company's capital stock, bonds
or other corporate securities.
(h) There has not been any strike, lockout, labor trouble or any similar
event or condition of any character adversely affecting the business
of the Company.
(i) There has not been any increase in the compensation payable or to
become payable by the Company to any of its officers, employees or
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agents, or any known payment or arrangement made to or with any of
such persons, except as disclosed to Purchaser.
There is no fact known to the Company and/or its CEO which materially adversely
affects or in the future (as far as the Company or the CEO can foresee) may
materially adversely affect the financial condition, results of operations,
business, properties, assets, liabilities, or future prospects of the Company;
provided, however, that the Company and the CEO express no opinion as to
political or economic matters of general applicability.
3.8 Tax and Other Liabilities. (i) The Company has no liability or
obligation of any nature, accrued or contingent, including without limitation
liabilities for federal, state, local, or foreign taxes, liabilities to
customers or suppliers, direct or indirect, claims, losses, damages,
deficiencies (including deferred income tax and other net tax deficiencies),
costs, expenses, obligations, guarantees, or responsibilities, whether accrued,
absolute, or contingent, known or unknown, fixed or unfixed, liquidated or
unliquidated, secured or unsecured, (hereinafter collectively referred to as
"Liabilities") other than the following:
(a) Liabilities for which full provision and/or disclosure has been made
on the audited balance sheet (the "Last Balance Sheet") as of June 30,
1995 (the "Last Balance Sheet Date") referred to in Section 3.6 of
this Agreement and
(b) Other liabilities arising since the Last Balance Sheet and prior to
the Closing Date in the ordinary course of business which are not
inconsistent with the representations and warranties of the Company or
the CEO or any other provision of this Agreement. To the extent that
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any other liabilities in excess of $50,000 have arisen since the Last
Balance Sheet, such other liabilities are described in Schedule 3.8
annexed hereto.
(ii) Without limiting the generality of the foregoing, the amounts set up as
provisions for taxes on the Last Balance Sheet are sufficient for all accrued
and unpaid federal, state, local and foreign taxes of the Company, whether or
not due and payable and whether or not disputed, under tax laws, as in effect on
the Last Balance Sheet Date or now in effect, for the period ended on such date
and for all fiscal years prior thereto. The Company has filed all federal tax
returns required to be filed by them. The Company has paid (or has established
on the Last Balance Sheet a reserve for) all taxes, assessments, and other
governmental charges payable or remittable by it or levied upon it or its
properties, assets, income, or franchises which are due and payable. The Company
has not received reports as to adjustments from any taxing authority during the
past five years and the Company and its CEO know of no governmental or other
proceeding (formal or informal), or investigation pending, threatened, or in
prospect with respect to any such report or the subject matter of any such
report.
3.9 Litigation and Claims. There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or investigation pending,
threatened, or in process (or any basis therefore known to the Company or the
CEO) with respect to the Company, the CEO, or any of its or his business,
properties, or assets except as disclosed on Schedule 3.09 attached. The Company
is not affected by any present or threatened strike or other labor disturbance
nor to the knowledge of the Company, or the CEO, is any union attempting to
represent any employee of the Company as collective bargaining agent. The
Company is not in violation of, or in default with respect to, any law, rule,
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regulation, order, judgment, or decree; nor is the Company or the CEO required
to take any action in order to avoid such violation or default.
3.10 Assets. The financial statements annexed hereto as Schedule 3.6
contain a true and complete list of all real and other properties and material
assets (including but not limited to machinery, equipment, inventories, and
intangibles owned, leased, used in its business and/or licensed by the Company
(collectively the "Assets"). The Assets constitute all such properties and
assets which are necessary to conduct the business of the Company as presently
conducted and/or as the Company contemplates conducting.
3.11 Title to Assets. The Company has good and marketable titles to all of
the Assets (except real and other properties and assets as are held pursuant to
leases as referred to in Article 3.15 herein, free and clear of all liens,
mortgages, security interests, pledges, charges, conditional sales agreements
and security investments, and encumbrances (except as are listed in the
financial statements attached to the Agreement as Schedule 3.6).
3.12 Accounts and Notes Receivable. All accounts and notes receivable
reflected on the Last Balance Sheet, and those arising since the Last Balance
Sheet Date constitute valid and binding obligations, have been collected or are
and will be good and collectible, in each case at the aggregate recorded amounts
thereof without right of recourse, defense, deduction, return of goods,
counterclaim, offset, or set off on the part of the obligor, and, if not
collected, can reasonably be anticipated to be paid within 60 days of the date
incurred.
3.13 Lack of Restrictions. No real property owned, leased, licensed, or
used by the Company lies in an area which is, or to the knowledge of the Company
and/or the CEO, will be, subject to zoning, use, or building code restriction
which would prohibit, and no state of facts relating to the actions of another
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person or entity or its ownership, leasing, licensing, or use of any real or
personal property exists or will exist which would prevent, the continued
effective ownership, leasing, licensing, or use of such real property in the
business in which the Company is now engaged or the business in which it
contemplates engaging.
3.14 Contracts and Other Instruments. (i) Schedule 3.14 accurately and
completely details all contracts, licenses, instruments and agreements to which
the Company is a party, including but not limited to, all telephone agency
agreements, supply agreements, manufacturer agreements, price protection
agreements, distributorship agreements, OEM agreements, partnership agreements,
dealership agreements, fiduciary agreements, license agreements, marketing
agreements, commission agreements, sales agency agreements, other agency
agreements, bank credit agreements, factoring agreements, loan agreements,
indentures, promissory notes, guarantees, undertakings, other evidences of
indebtedness, letters of credit, joint venture agreements, operating agreements,
management agreements, agreements for the acquisition of merger or combination
with any other company, corporation or businesses signed within the last two
years, employment agreements, labor agreements, salesmen commission agreements,
independent contractor agreements, sales or purchase agreements for a term in
excess of one year which have an aggregate sale or purchase price in excess of
$50,000; contracts, agreements, arrangements, or understandings with any
stockholder, any director, officer, or employee, any relatives or affiliate of
any stockholder or of any such director, officer, or employee, or any other
corporation or enterprise in which any stockholder, any such director, officer,
or employee, or any such relative or affiliate then had or now has a 5% or
greater equity or voting or other substantial interest; government contracts,
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franchise agreements, management agreements, advisory agreements, consulting
agreements, advertising agreements, construction agreements, warehousing
agreements, engineering agreements, design agreements, major utility agreements
and any other agreements which involve the payment of in excess of $50,000 prior
to the date it can be terminated without penalty or premium (all of which
contracts, licenses, instruments, and agreements are hereinafter referred to
collectively as the "Contracts").
(ii) Neither the Company nor any other party to any such Contract, to the
best of the Company's and/or the CEO's knowledge, is now or expects in the
future to be in violation or breach of, or in default with respect to complying
with, any material provision thereof, and each such Contract, is in full force
and effect and is the legal, valid, and binding obligation of the parties
thereto and is enforceable as to them in accordance with their respective terms.
Neither the Company nor any other party to any such Contract has given notice of
termination or taken any action inconsistent with the continuance thereof. The
execution, delivery, and performance of this Agreement will not prejudice any
such Contract. The Company is not party to or bound by any other contract,
agreement, instrument, lease, license, arrangement, or understanding, or subject
to any charter or other restriction, which has had or may in the future have a
material adverse effect on the financial condition, results of operations,
business, properties, assets, liabilities, or future prospects of the Company.
3.15 Leases. Notes 6 and 7 to the Company's financial statements dated
December 31, 1995 which are included in Schedule 3.6 hereto, describe all of the
Company's leases and subleases to which the Company is a party ("Leases"). The
Company enjoys peaceful and undisturbed possession under all such leases. All
such Leases are legal, valid and binding agreements and the Company is a tenant
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or possessor in good standing thereunder, free of any default or breach
whatsoever and quietly enjoys the premises provided for therein. Each rental,
royalty or other payment due thereunder has been made; each act required to be
performed which, if not performed, would constitute a material breach thereof
has been duly performed; and no prohibited acts have been performed thereunder
which, if presented, would constitute a material breach thereof. Each of such
leases is in full force and effect and there is not under any such lease any
default or claim of default or event which, with or without notice of the lapse
of time or both would constitute a breach or default thereunder.
3.16 Capital Projects. As of the date of this Agreement, the Company has
not undertaken any capital projects the cost of completion of which would exceed
$100,000 except as listed in Schedule 3.16 attached hereto and made a part
hereof.
3.17 Environmental Laws. The Company is in material compliance with all
federal, state and local laws regarding environmental matters.
3.18 ERISA Matters. The Company does not have, nor does it contribute to,
any pension, profit sharing, option, other incentive plan, or any other type of
employee benefit plan (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974), or any obligation to or customary arrangement with
employees for bonuses, incentive compensation, or severance pay.
3.19 Insurance. Schedule 3.19 attached hereto and made a part hereof is a
complete and correct list of all insurance policies of any kind held by the
Company. Each such policy is valid and enforceable; all premiums and other
payments due from the Company on account of any such policy have been paid,
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there is no act or failure to act which has or might cause any such policy to be
canceled or terminated.
3.20 Labor Disputes. The Company is not a party to any union representation
or labor contract. The Company has not received any notice from any labor union
or group of employees that such union or group represents or believes or claims
it represents or intends to represent any of the employees of the Company; no
strike or work interruption by any of its employees is planned, under
consideration, threatened or imminent; and the Company has not made any loan or
given anything of value, directly or indirectly, to any officer, official, agent
or representative of any labor union or group of employees. The Company is not
delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed by
them to the date hereof or amounts required to be reimbursed to such employees.
In the event of termination of the employment of any of its employees, the
Company will not by reason of anything done prior to the Closing Date be liable
to any of said employees for "severance pay" or any other payments. The Company
is in compliance with all federal, state and local laws and regulations
respecting labor, employment and wages and hours; and there is no unfair labor
practice complaint against the Company pending before the National Labor
Relations Board or any comparable state or local agency.
3.21 Liens on Assets. Except as reflected on the Company's financial
statements (Schedule 3.6) the Company has good and marketable title to all of
its assets and such assets are not subject to any mortgages, pledges, liens,
conditional sales agreements, encumbrances and security interests or claims
except for minor imperfections in title and encumbrances, if any, which
singularly and in the aggregate are not substantial in amount and do not
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materially detract from the value of the property subject thereto or impair the
use thereof in the Company's business.
3.22 Condition of Tangible Assets. As of the Closing Date, all of the
Company's assets will be in normal, operating and useable condition, in a state
of good maintenance and repair, subject to ordinary wear and tear and scheduled
maintenance items, taking into consideration the age and utilization thereof,
and will conform to all applicable ordinances, regulations and other laws
(including those relating to building and zoning and environmental protection
and occupational safety and health).
3.23 Validity of Contemplated Transactions. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby (i) have been duly approved by the unanimous consent of the
Board of Directors of the Company; (ii) do not and will not contravene, violate
and/or result in a breach or default under any provision of the Certificate of
Incorporation or Bylaws of the Company as presently in effect; (c) do not
violate, are not in conflict with, and do not constitute a default under, or
cause the acceleration of any payments pursuant to, or otherwise impair the good
standing, validity, or effectiveness of any material agreement, contract,
license, indenture, instrument, lease, or mortgage, or subject the Company or
any of its assets to any indenture, mortgage, contract, commitment, or
agreement, other than this Agreement, to which the Company is a party or by
which the Company or any of its assets are bound; and (d) does not violate any
material provision of law, rule, regulation, order, permit, or license to which
the Company is subject.
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3.24 Subsidiaries. The Company owns no shares of capital stock or other
equity interest in any corporation, partnership, joint venture or other business
organization or enterprise, except as set forth in the financial statements
included in Schedule 3.6 annexed hereto.
3.25 Bank Accounts. Schedule 3.25 annexed hereto lists the names and
addresses of every bank and other financial institution in which the Company
maintains an account (whether checking, savings or otherwise), lock box or safe
deposit box, and the account numbers and names of persons having signing
authority or other access thereto.
3.26 Questionable Payments. Neither the Company, its CEO, any director,
officer, agent, employee, or other person associated with or acting on behalf of
the Company has, directly or indirectly: (i) used any corporate funds for
unlawful contributions, gifts, entertainment, or other unlawful payment to
foreign or domestic governmental officials or employees or to foreign or
domestic governmental officials or employees or to foreign or domestic political
parties or campaigns from corporate funds; (ii) violated any provision of the
Foreign Corrupt Practices Act of 1977; (iii) established or maintained any
unlawful or unrecorded fund of corporate monies or other assets; (iv) made any
false or fictitious entry on the books or records of the Company; (v) made any
bribe, rebate, payoff, influence payment, kickback, or other unlawful payment;
(vi) given any favor or gift which is not deductible for federal income tax
purposes; and/or (viii) made any bribe, kickback, or other payment of a similar
or comparable nature, whether lawful or not, to any person or entity, private or
public, regardless of form, whether in money, property, or services, to obtain
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favorable treatment in securing business or to obtain special concessions, or to
pay for favorable treatment for business secured or for special concessions
already obtained.
3.27 Directors and Officers. A true and complete list as of the date of
this Agreement indicating the Company's directors and officers, each of whom has
been duly elected is as follows:
NAME POSITION
---- --------
Jerry Swon President, Chief Executive and Chairman of the
Board of Directors
Bruce Deichl Vice President, Director
Todd Hesse Secretary - Director
Scott Kalish Treasurer - Director
Dr. Neil Glass Director
Charles Fallon Director
Paul Chernis Director
3.28 Liabilities. The financial statements annexed hereto as Schedule 3.6
reflect a true and complete list of all the Company bank loans, lines of credit,
financial institution indebtedness and other liabilities (including but not
limited to accounts payable and accrued expenses) outstanding as of the date of
this Agreement, which schedule includes the name of the creditor, amount
outstanding as of the date of this Agreement and essential repayment terms and
conditions.
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3.29 Public Company. The common stock of the Company is traded on the
NASDAQ Small Cap Stock Exchange and the Company is registered with the United
States Securities and Exchange Commission ("Commission") pursuant to Section
12(g) of the Securities Exchange Act of 1934. The Company is current with
respect to its filing obligations to the Commission as a "reporting company." To
the best of the Company's knowledge and belief and that of its CEO, there are no
pending or foreseeable enforcement proceedings or investigations relative to the
Company commenced by either the Commission or any state securities bureau.
3.30 Veracity of Statements. Neither this Agreement nor the representations
and warranties by the Company and/or its CEO contained herein or in any
documents, instruments,certificates or schedules furnished pursuant hereto or in
connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements or facts contained herein and therein not misleading. There is no
fact which adversely affects, or in the future may adversely affect, the
business, operations, affairs, condition or prospects of the Company's assets
and/or business which has not been set forth in this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF IPS
IPS hereby represents and warrants to the Company as follows:
4.1 Organization and Standing. IPS is a corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado and has
all requisite power and authority, corporate or otherwise, to own, lease and
operate its properties and to carry on its businesses in the places where such
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properties are now owned, leased or operated or such business is now being
conducted, or contemplated to be conducted.
4.2 Authorization. Subject to approval by IPS's Board of Directors, IPS has
all requisite power and authority, corporate and otherwise, to enter into this
Agreement and to assume and perform its obligations hereunder. Upon approval of
IPS's Board, the execution and delivery of this Agreement and the performance by
IPS of its obligations hereunder will be duly authorized by all necessary
corporate action. No further action or approval, corporate or otherwise, will be
required in order to constitute this Agreement as a valid, binding and
enforceable obligation of IPS.
4.3 Legal Proceedings. IPS is not aware of any material lawsuits pending
against it, nor has the CEO of IPS received any notice or written information
that any such lawsuits been threatened.
4.4 No Covenant as to Tax Consequences. It is expressly understood and
agreed that neither IPS nor its officers or agents has made any warranty or
agreement, express or implied, as to the tax consequences of the transactions
contemplated by this Agreement or the tax consequences of any action pursuant to
or growing out of this Agreement.
4.5 No Further Action Needed. No consent, authorization, approval, order,
license, certificate, permit, declaration or filing with, any federal, state,
local or other governmental authority or any court or other tribunal is required
by IPS for the execution, delivery or performance of this Agreement by IPS. No
consent of any party to any contract, agreement, instrument, lease, license,
arrangement, or understanding to which IPS is a party, or to which it or any of
its properties or assets are subject, is required for the execution, delivery or
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performance of this Agreement. The execution, delivery and performance of this
Agreement will not violate, result in a breach of, conflict with, or entitle any
party to terminate or call a default under any term of any contract, agreement,
instrument, lease, license, arrangement, or understanding whereby IPS is a party
to, or violate or result in a breach of any term of the Articles of
Incorporation (or other charter document) or by-laws of IPS, or violate, result
in a breach of, or conflict with any law, rule, regulation, order, judgment, or
decree binding on IPS or to which any of its operations, business, properties or
assets are subject.
4.6 Capitalization. The authorized capital stock of IPS consists of 100,000
shares of no par value common stock, of which 31,591 shares are currently issued
and outstanding, and 10,000 shares of preferred stock, of which 841 shares are
currently issued and outstanding. All of such outstanding shares have been duly
and validly issued, fully paid and non-assessable. No such shares are held in
violation of preemptive rights of any stockholder. At the Closing Date, the IPS
shares delivered to the Company shall be validly issued, fully paid and
non-assessable.
4.7 Financial Condition. Annexed hereto as Schedule 4.7 are true and
correct copies of IPS' balance sheets, income statements and statements of
retained earnings as of December 31, 1994 (audited) and September 30, 1995
(unaudited). These financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved and fairly reflect the financial position of IPS as of the
dates of the balance sheets and the results of operations for the periods
indicated.
4.8 Lack of Material Changes. Since September 30, 1995,
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(a) There has not been any material adverse change in the financial
condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company.
(b) The Company has not authorized, declared, paid, or effected any
dividend or liquidating or other distribution in respect of its
capital stock or any direct or indirect redemption, purchase, or other
acquisition of any such stock.
(c) The operations and business of the Company have been conducted in all
respects only in the ordinary course.
(d) The Company has not mortgaged, pledged or subjected to lien or other
encumbrances any of its assets.
(e) The Company has not suffered an extraordinary loss (whether or not
covered by insurance) or waived any right of substantial value.
(f) The Company has not sold or transferred any of its assets having a
book value of $5,000 or more or canceled any debts or claims, except,
in each case, in the ordinary course of business.
(g) There has not been any strike, lockout, labor trouble or any similar
event or condition of any character adversely affecting the business
of IPS.
(h) There has not been any increase in the compensation payable or to
become payable by IPS to any of its officers, employees or agents, or
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any known payment or arrangement made to or with any of such persons,
except as disclosed to Purchaser.
There is no fact known to IPS and/or its CEO which materially adversely affects
or in the future (as far as IPS or the CEO can foresee) may materially adversely
affect the financial condition, results of operations, business, properties,
assets, liabilities, or future prospects of IPS; provided, however, that IPS and
the CEO express no opinion as to political or economic matters of general
applicability.
4.9 Tax and Other Liabilities.
(i) IPS has no liability or obligation of any nature, accrued or contingent,
including without limitation liabilities for federal, state, local, or foreign
taxes, liabilities to customers or suppliers, direct or indirect, claims,
losses, damages, deficiencies (including deferred income tax and other net tax
deficiencies), costs, expenses, obligations, guarantees, or responsibilities,
whether accrued, absolute, or contingent, known or unknown, fixed or unfixed,
liquidated or unliquidated, secured or unsecured, (hereinafter collectively
referred to as "Liabilities") other than the following:
(a) Liabilities for which full provision and/or disclosure has been made
on the balance sheet dated September 30, 1995, and
(b) Other liabilities arising since the balance sheet as of September 30,
1995 and prior to the Closing Date in the ordinary course of business
which are not inconsistent with the representations and warranties of
IPS or its CEO or any other provision of this Agreement.
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(ii) Without limiting the generality of the foregoing, the amounts set up as
provisions for taxes on the September 30, 1995 balance sheet are sufficient for
all accrued and unpaid federal, state, local and foreign taxes of the Company,
whether or not due and payable and whether or not disputed, under tax laws as in
effect on September 30, 1995 or now in effect, for the period ended on such date
and for all fiscal years prior thereto. The Company has filed all federal tax
returns required to be filed by them. The Company has paid (or has established
on the September 30, 1995 balance sheet) a reserve for all taxes, assessments,
and other governmental charges payable or remittable by it or levied upon it or
its properties, assets, income, or franchises which are due and payable. The
Company has not received reports as to adjustments from any taxing authority
during the past five years and the Company and its CEO know of no governmental
or other proceeding (formal or informal), or investigation pending, threatened,
or in prospect with respect to any such report or the subject matter of any such
report.
4.10 Adverse Claims Relative to Proprietary Products. There is no
litigation, arbitration, or adverse claim, known to IPS or its CEO with respect
to any of IPS' hardware or software products.
4.11 Patents, Tradenames and Rights. To the best of its knowledge and that
of its CEO, IPS owns and holds all necessary patents, franchise rights,
trademarks, service marks, trade names, inventions, processes, know-how, trade
secrets, copyrights, licenses and other rights necessary to its business as now
conducted or proposed to be conducted. To the best of IPS' knowledge and that of
its CEO, IPS is not infringing upon or otherwise acting adversely to the right
or claimed right of any person with respect to any of the foregoing.
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4.12 Assets. Attached hereto as Schedule 4.12 is a true and complete list
of all real and other properties and material assets (i.e. any asset having a
book value in excess of $10,000), including but not limited to machinery,
equipment, inventories, and intangibles owned, leased, used in its business
and/or licensed by IPS (collectively the "Assets"). The Assets constitute all
such properties and assets which are necessary to conduct the business of IPS as
presently conducted and/or as IPS contemplates conducting.
4.13 Title to Assets. The Company has good title to all of the Assets, free
and clear of all liens, mortgages, security interests, pledges, charges,
conditional sales agreements, security investments and encumbrances (except as
listed in Schedule 4.13 attached.)
4.14 Accounts and Notes Receivable. All accounts and notes receivable
reflected on the balance sheet as of September 30, 1995 constitute valid and
binding obligations, have been collected or are and will be good and
collectible, in each case at the aggregate recorded amounts thereof without
right of recourse, defense, deduction, return of goods, counterclaim, offset or
setoff on the part of the obligor and if not collected, can reasonably be
anticipated to be paid within 60 days of the date incurred.
4.15 Lack of Restrictions. No real property owned, leased, licensed, or
used by the IPS lies in an area which is, or to the knowledge of IPS and/or the
CEO, will be, subject to zoning, use, or building code restriction which would
prohibit, and no state of facts relating to the actions of another person or
entity or its ownership, leasing, licensing, or use of any real or personal
property exists or will exist which would prevent, the continued effective
ownership, leasing, licensing, or use of such real property in the business in
which IPS is now engaged or the business in which it contemplates engaging.
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4.16 Contracts and Other Instruments. (i) Schedule 4.16 accurately and
completely details all contracts, licenses, instruments and agreements to which
IPS is a party, including but not limited to, all telephone agency agreements,
supply agreements, manufacturer agreements, price protection agreements,
distributorship agreements, OEM agreements, partnership agreements, dealership
agreements, fiduciary agreements, license agreements, marketing agreements,
commission agreements, sales agency agreements, other agency agreements, bank
credit agreements, factoring agreements, loan agreements, indentures, promissory
notes, guarantees, undertakings, other evidences of indebtedness, letters of
credit, joint venture agreements, operating agreements, management agreements,
agreements for the acquisition of merger or combination with any other company,
corporation or businesses signed within the last two years, employment
agreements, labor agreements, salesmen commission agreements, independent
contractor agreements, sales or purchase agreements for a term in excess of one
year which have an aggregate sale or purchase price in excess of $50,000;
contracts, agreements, arrangements, or understandings with any stockholder, any
director, officer, or employee, any relatives or affiliate of any stockholder or
of any such director, officer, or employee, or any other corporation or
enterprise in which any stockholder, any such director, officer, or employee, or
any such relative or affiliate then had or now has a 5% or greater equity or
voting or other substantial interest; government contracts, franchise
agreements, management agreements, advisory agreements, consulting agreements,
advertising agreements, construction agreements, warehousing agreements,
engineering agreements, design agreements, major utility agreements and any
other agreements which involve the payment of in excess of $50,000 prior to the
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date it can be terminated without penalty or premium (all of which contracts,
licenses, instruments, and agreements are hereinafter referred to collectively
as the "Contracts").
(ii) Neither IPS nor any other party to any such Contract, to the best of
IPS's and/or the CEO's knowledge, is now or expects in the future to be in
violation or breach of, or in default with respect to complying with, any
material provision thereof, and each such Contract, is in full force and effect
and is the legal, valid, and binding obligation of the parties thereto and is
enforceable as to them in accordance with their respective terms. Neither IPS
nor any other party to any such Contract has given notice of termination or
taken any action inconsistent with the continuance thereof. The execution,
delivery, and performance of this Agreement will not prejudice any such
Contract. IPS is not party to or bound by any other contract, agreement,
instrument, lease, license, arrangement, or understanding, or subject to any
charter or other restriction, which has had or may in the future have a material
adverse effect on the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of IPS.
4.17 Leases. Attached hereto and made a part hereof as Schedule "4.17" are
complete and correct copies of all of IPS's leases and subleases to which IPS is
a party ("Leases"). IPS enjoys peaceful and undisturbed possession under all
such leases. All such Leases are legal, valid and binding agreements and IPS is
a tenant or possessor in good standing thereunder, free of any default or breach
whatsoever and quietly enjoys the premises provided for therein. Each rental,
royalty or other payment due thereunder has been made; each act required to be
performed which, if not performed, would constitute a material breach thereof
has been duly performed; and no prohibited acts have been performed thereunder
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which, if presented, would constitute a material breach thereof. Each of such
leases is in full force and effect and there is not under any such lease any
default or claim of default or event which, with or without notice of the lapse
of time or both would constitute a breach or default thereunder.
4.18 Capital Projects. As of the date of this Agreement, IPS has not
undertaken any capital projects the cost of completion of which would exceed
$10,000 except as listed in Schedule 4.18 attached hereto and made a part
hereof.
4.19 ERISA Matters. IPS does not have, nor does it contribute to, any
pension, profit sharing, option, other incentive plan, or any other type of
employee benefit plan (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974), or any obligation to or customary arrangement with
employees for bonuses, incentive compensation, or severance pay.
4.20 Insurance. Schedule 4.20 attached hereto and made a part hereof is a
complete and correct list of all insurance policies of any kind held by IPS.
Each such policy is valid and enforceable; all premiums and other payments due
from IPS on account of any such policy have been paid, there is no act or
failure to act which has or might cause any such policy to be canceled or
terminated.
4.21 Labor Disputes. IPS is not a party to any union representation or
labor contract. IPS has not received any notice from any labor union or group of
employees that such union or group represents or believes or claims it
represents or intends to represent any of the employees of IPS; no strike or
work interruption by any of its employees is planned, under consideration,
threatened or imminent; and IPS has not made any loan or given anything of
value, directly or indirectly, to any officer, official, agent or representative
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of any labor union or group of employees. IPS is not delinquent in payments to
any of its employees for any wages, salaries, commissions, bonuses or other
direct compensation for any services performed by them to the date hereof or
amounts required to be reimbursed to such employees. In the event of termination
of the employment of any of its employees, IPS will not by reason of anything
done prior to the Closing Date be liable to any of said employees for "severance
pay" or any other payments. IPS is in compliance with all federal, state and
local laws and regulations respecting labor, employment and wages and hours; and
there is no unfair labor practice complaint against IPS pending before the
National Labor Relations Board or any comparable state or local agency.
4.22 Liens on Assets. Except as set forth on Schedule 4.13 attached hereto
IPS has good and marketable title to all of its assets and such assets are not
subject to any mortgages, pledges, liens, conditional sales agreements,
encumbrances and security interests or claims except for minor imperfections in
title and encumbrances, if any, which singularly and in the aggregate are not
substantial in amount and do not materially detract from the value of the
property subject thereto or impair the use thereof in IPS's business.
4.23 Condition of Tangible Assets. As of the Closing Date, all of IPS's
assets will be in normal, operating and useable condition, in a state of good
maintenance and repair, subject to ordinary wear and tear and scheduled
maintenance items, taking into consideration the age and utilization thereof,
and will conform to all applicable ordinances, regulations and other laws
(including those relating to building and zoning and environmental protection
and occupational safety and health).
4.24 Validity of Contemplated Transactions. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby (i) have been duly approved by the Consent of a majority of
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the Shareholders of IPS and the unanimous consent of the Board of Directors of
the Company; (ii) do not and will not contravene, violate and/or result in a
breach or default under any provision of the Certificate of Incorporation or
Bylaws of IPS as presently in effect; (c) do not violate, are not in conflict
with, and do not constitute a default under, or cause the acceleration of any
payments pursuant to, or otherwise impair the good standing, validity, or
effectiveness of any material agreement, contract, license, indenture,
instrument, lease, or mortgage, or subject IPS or any of its assets to any
indenture, mortgage, contract, commitment, or agreement, other than this
Agreement, to which IPS is a party or by which IPS or any of its assets are
bound; and (d) does not violate any material provision of law, rule, regulation,
order, permit, or license to which IPS is subject.
4.25 No Subsidiaries. IPS owns no shares of capital stock or any other
equity interest in any corporation, partnership, joint venture or other business
organization.
4.26 Bank Accounts. Schedule 4.26 annexed hereto lists the names and
addresses of every bank and other financial institution in which IPS maintains
an account (whether checking, savings or otherwise), lock box or safe deposit
box, and the account numbers and names of persons having signing authority or
other access thereto.
4.27 Questionable Payments. Neither IPS, its CEO, any director, officer,
agent, employee, or other person associated with or acting on behalf of IPS has,
directly or indirectly: (i) used any corporate funds for unlawful contributions,
gifts, entertainment, or other unlawful payment to foreign or domestic
governmental officials or employees or to foreign or domestic governmental
officials or employees or to foreign or domestic political parties or campaigns
from corporate funds; (ii) violated any provision of the Foreign Corrupt
Practices Act of 1977; (iii) established or maintained any unlawful or
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unrecorded fund of corporate monies or other assets; (iv) made any false or
fictitious entry on the books or records of IPS; (v) made any bribe, rebate,
payoff, influence payment, kickback, or other unlawful payment; (vi) given any
favor or gift which is not deductible for federal income tax purposes; and/or
(viii) made any bribe, kickback, or other payment of a similar or comparable
nature, whether lawful or not, to any person or entity, private or public,
regardless of form, whether in money, property, or services, to obtain favorable
treatment in securing business or to obtain special concessions, or to pay for
favorable treatment for business secured or for special concessions already
obtained.
4.28 Directors and Officers. A true and complete list as of the date of
this Agreement indicating IPS's directors and officers, each of whom has been
duly elected is as follows:
NAME POSITION
---- --------
Richard D. Barden President, Treasurer, Director
Mark T. Shipley Secretary, Director
Scott Kramer Director
4.29 Liabilities. Schedule 4.29 annexed hereto is a true and complete list
of all the IPS bank loans, lines of credit, financial institution indebtedness
and other liabilities (including but not limited to accounts payable and accrued
expenses) outstanding as of the date of this Agreement, which schedule includes
the name of the creditor, amount outstanding as of the date of this Agreement
and essential repayment terms and conditions.
4.30 Accuracy of All Statements Made by IPS. No representation or warranty
by IPS in this Agreement, nor any statement, certificate, schedule or exhibit
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hereto furnished or to be furnished by IPS pursuant to this Agreement, nor any
document or certificate delivered to the Company pursuant to this Agreement or
in connection with actions contemplated hereby, contains or shall contain any
untrue statement of material fact or omits or shall omit a material fact
necessary to make the statement contained therein not misleading.
ARTICLE 5
COVENANTS OF THE COMPANY AND CEO
5. Covenants of the Company and CEO. The Company and CEO, jointly and
severally covenant as follows:
5.1 The representations and warranties of the Company and CEO contained in
this Agreement and in the schedules hereto shall be true and correct in all
respects as of the Closing Date. The Company and the CEO shall give IPS prompt
notice of any change in any of the information contained in the representations
and warranties of either The Company or the CEO hereunder, the schedules hereto
or the documents furnished by the Company or the CEO in connection herewith
which occurs prior to the Closing Date. Upon the happening of any occurrence or
event prior to the Closing Date, which shall have a material adverse effect upon
the business or assets of the Company, IPS shall have the right to terminate
this Agreement by written notice to the Company and upon such termination, no
party shall have any further liability or obligation under this Agreement.
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5.2 The Company shall, prior to the Closing Date, deliver to IPS the
unanimous consent of its Board of Directors, which consent evidences the
approval of this Agreement and the transactions contemplated hereby.
5.3 The Company will, prior to the Closing Date, comply with all laws
affecting operation of its business, will not operate the said business other
than in the ordinary course, and will give notice to IPS of any event or
circumstance not in the ordinary course which materially affect the Company's
business or the Assets.
5.4 The Company and the CEO shall use their best efforts to take or cause
to be taken all action and do or cause to be done all things necessary, proper
or advisable to consummate the transactions contemplated by this Agreement,
including, without limitation, to obtain all consents, approvals and
authorizations of third parties, to make all filings with and give all notices
to third parties which may be necessary or required in order to effectuate the
transactions contemplated hereby and to provide all information necessary to
enable the Company to meet its disclosure responsibilities to the Securities and
Exchange Commission, NASD and the investment community.
5.5 The Company and the CEO will cause themselves to, conduct their
respective affairs so that at the Closing Date no representation or warranty of
the Company and/or the CEO, will be inaccurate, no covenant or agreement of the
Company and/or the CEO will be breached, and no condition in this Agreement will
remain unfulfilled by reason of the actions or omissions of the Company and/or
the CEO. Except as otherwise requested by IPS in writing, the Company and the
CEO will, use their best efforts to preserve the business operation of the
Company intact, to keep available the services of their present personnel, to
preserve in full force and effect the Contracts, and Leases of the Company, and
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to preserve the goodwill of the Company's suppliers, customers, and others
having business relations with the Company. Unless this Agreement is rightfully
terminated, the CEO and the Company will cause the Company to conduct its
business and operation in all respects only in the ordinary course.
5.6 The Company will provide IPS with $800,000 of operating capital in
calendar year 1996, of which $250,000 shall be in the form of retirement of IPS
debt as reflected in Schedule 5.6 attached, and the balance shall be provided in
accordance with the following schedule:
$100,000 --- prior to Closing
250,000 --- on or before March 30, 1996
200,000 --- on or before July 31, 1996
The Company will have provided $100,000 of the aforementioned $800,000 prior to
the Closing Date.
5.7 The Company Shares to be issued to the IPS Stockholders shall bear a
restrictive legend and may not be resold unless first registered with the
Securities and Exchange Commission, in the absence of an available exemption
from registration, such as would be applicable to a transaction not involving a
public offering. The Company shall be free, in its absolute discretion, to cause
the Company Shares held by any IPS Stockholder to be registered. Any shares of
stock in the Company which are used to satisfy IPS' indebtedness as referred to
in paragraph 6.4 hereunder will entitle the recipient thereof to registration
rights consisting of inclusion in a registration statement to be filed with the
Commission during March, 1996.
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ARTICLE 6
COVENANTS OF IPS
IPS covenants as follows:
6.1 The representations and warranties of IPS contained in this Agreement
shall be true and correct in all material respects as of the Closing Date, and
IPS shall give the Company prompt notice of any change in any of the information
contained in the representations and warranties of IPS hereunder or the
documents furnished by IPS in connection herewith which occurs prior to the
Closing Date.
6.2 IPS will use its best efforts to, prior to the Closing Date, comply
with all laws affecting the operation of its business.
6.3 IPS shall use its best efforts to take or cause to be taken all action
and do or cause to be done all things necessary, proper or advisable to
consummate the transactions contemplated by this Agreement, including, without
limitation, to obtain all consents, approvals and authorizations of third
parties and to make all filings with and give all notices to third parties which
may be necessary or required in order to effectuate the transactions
contemplated hereby.
6.4 IPS will cause approximately $100,500, but in no event less than
$88,000 of its indebtedness as listed in Schedule 6.4 to be converted to an
equity interest in the Company's shares, subject to registration rights as
described in paragraph 5.7 hereinabove.
6.5 IPS will operate, following the Closing, as a subsidiary under the
general direction of the Company's Board of Directors, but will continue to
function autonomously from a management standpoint. IPS' CEO, Richard Barden,
will continue to work under his existing employment and compensation agreements,
as amended, and will be responsible for management of IPS' day to day
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operations. Following the Closing of this transaction, the Company will exercise
its best efforts to cause a reserve to be established for use by its IPS
subsidiary, such reserve consisting of a minimum of 25% of net pre-tax earnings
generated by such subsidiary.
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ARTICLE 7
CONDITIONS OF CLOSING
7.1 The obligation of IPS to close hereunder shall be subject to the
fulfillment and satisfaction, by the Company, prior to or at the Closing Date,
of the following conditions or the written waiver thereof by IPS:
(i) Board Meeting. IPS's Board of Directors shall have approved all of the
transactions described in this Agreement by either a vote or written
consent of the majority of Board members, and a majority of IPS's
stockholders shall have executed consents approving the transactions
contemplated by this Agreement.
(ii) Representations and Warranties. The representation and warranties of
the Company in this Agreement shall be true and correct in all material
respects when made and shall be true and correct in all material respects
on and as of the Closing Date.
(iii) Delivery of Officers' Certificate. A certificate signed by the
Company's CEO shall be delivered to IPS certifying that each of the
warranties and representations set forth in this Agreement are true and
accurate as of the date of the Closing Date and that no event or occurrence
has transpired as of the Closing Date which has or will have a material
adverse effect upon the business or assets being acquired.
(iv) Compliance with Agreement. The Company and the CEO shall have
performed and complied with all of their covenants and obligations under
this Agreement and the Letter of Intent dated December 26, 1995, a copy of
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which is annexed hereto as Exhibit 7.1., and the Company and the CEO
further specifically agree to make all cash contributions to IPS, issue all
shares of stock, to pay all debts and liabilities in a timely manner, and
to perform and comply with all other covenants and obligations which are to
be discharged after the effective date hereof as set forth hereunder.
(v) Absence of Suit. No action, suit or proceedings before any court or any
governmental or regulatory authority shall have been commenced or
threatened and, no investigation by any governmental or regulatory
authority shall have been commenced, against the Company or the CEO,
seeking to restrain, prevent or change the transactions contemplated
hereby, or questioning the validity or legality of any such transactions,
or seeking damages in connection with any of such transactions.
(vi) Receipt of Approvals, Etc. All approvals, consents and/or waivers for
the Company and the CEO that are necessary to effect the transactions
contemplated hereby shall have been received.
(vii) Accuracy of Financial Statements. All balance sheets, statements of
income, statements of changes in financial position and/or cash flows and
other financial statements of the Company furnished to the CEO pursuant to
this Agreement shall be true, accurate and prepared in accordance with
generally accepted accounting principles.
(viii) Proceedings and Instruments Satisfactory; Certificates. All
proceedings, corporate or otherwise, to be taken in connection with the
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transactions contemplated by this Agreement shall have occurred and all
appropriate documents incident thereto as IPS may reasonably request shall
have been delivered to IPS.
7.2 The obligation of the Company to close hereunder shall be subject to
the fulfillment and satisfaction, prior to or at the Closing Date, of the
following conditions by IPS or the written waiver thereof by the Company:
(i) Representatives and Warranties. The representation and warranties of
IPS in this Agreement shall be true and correct in all material respects
when made and shall be true and correct in all material respects on and as
of the Closing Date.
(ii) Delivery of Officers' Certificate. IPS shall deliver to the Company a
certificate signed by its CEO, certifying that each of the warranties and
representations of IPS set forth in this Agreement is true and accurate as
of the date of the Closing Date and that no event or occurrence has
transpired as of the Closing Date which has or will have a material adverse
effect upon the business or assets being acquired.
(iii) Compliance with Agreement. IPS and the Stockholders shall have
performed and complied with materially all of their obligations and
delivered all securities required to be delivered under this Agreement and
the Letter of Intent dated December 26, 1995.
(iv) Absence of Suit. No action or lawsuit shall have been commenced
against IPS, seeking to restrain, prevent or change the transactions
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contemplated hereby, or questioning the validity or legality of any such
transactions, or seeking damages in connection with any of such
transactions.
(v) Receipt of Approvals, Etc. All approvals, consents and/or waivers for
IPS that are necessary to effect the transactions contemplated hereby shall
have been received.
(vi) Proceedings and Instruments Satisfactory; Certificates. All
proceedings, corporate or otherwise, to be taken in connection with the
transactions contemplated by this Agreement shall have occurred and all
appropriate documents incident thereto as the Company may reasonably
request shall have been delivered to the Company.
ARTICLE 8
INDEMNIFICATION
8.1 By IPS. IPS shall defend and promptly indemnify and save the Company
and the CEO harmless from, against, for and in respect of and shall pay any and
all damages, losses, obligations, liabilities, claims, encumbrances,
deficiencies, costs and expenses, including, without limitation, reasonable
attorneys' fees and other costs and expenses incident to any action,
investigation, claim or proceeding (all hereinafter collectively referred to as
"Losses") suffered, sustained, incurred or required to be paid by the Company
and the CEO by reason of IPS's breach of any warranty, representation or
covenant hereunder.
8.2 By the Company and CEO. The Company and the CEO, jointly and severally,
shall defend and promptly indemnify IPS, and its officers and directors, and
save and hold them harmless from, against, for and in respect of and shall pay
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any and all damages, losses, obligations, liabilities, claims, encumbrances,
deficiencies, costs and expenses, including without limitation, reasonable
attorneys' fees and other costs and expenses incident to any suit, action,
investigation, claim or proceeding (all hereinafter collectively referred to as
"Losses") suffered, sustained, incurred or required to be paid by IPS by reason
of (i) the existence of any and all obligations and/or liabilities of the
Company which were not disclosed to IPS in this Agreement; (ii) any breach or
failure of observance or performance of any representation, warranty, covenant,
agreement or commitment made by the Company and/or the CEO hereunder or relating
hereto or as a result of any such representation, warranty, covenant, agreement
or commitment being untrue or incorrect in any respect, or (iii) any and all
actions, suits, investigations, proceedings, demands, assessments, audits,
judgments and claims arising out of any of the foregoing or from any
misrepresentation or omission from any schedule to this Agreement, certificates,
financial statements or from any document furnished or required to be furnished
hereunder.
ARTICLE 9
EXPENSES
9.1 Expenses. The parties agree to bear their expenses individually, each
in respect of all expenses of any character incurred by it in connection with
this Agreement or the transactions contemplated hereby.
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ARTICLE 10
SECURITIES ACT PROVISIONS
10.1 Restrictions on Disposition of Shares. The Stockholders covenant and
warrant that the Shares to be received from the Company pursuant to this
Agreement are acquired for their own account and not with the present view
towards the distribution thereof without compliance with securities laws and
they will not dispose of the Shares except (i) pursuant to an effective
registration statement under the Securities Act of 1933, as amended, or (ii) in
any other transaction which, in the opinion of the Company's counsel, is exempt
from registration under the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission ("SEC") thereunder. In
order to effectuate the covenants of this subsection 10.1 an appropriate legend
will be placed upon each of the certificates of stock at the time of
distribution of the Shares by the Company pursuant to this Agreement, and stop
transfer instructions shall be placed with the transfer agent for the Shares.
10.2 Evidence of Compliance with Private Offering Exemption. The
Stockholders agree to supply the Company with such evidence as counsel for the
Company may require in order to evidence the private offering character of the
distribution of shares made pursuant to this Agreement.
10.3 Notice of Limitation Upon Disposition. IPS and the Stockholders are
aware that the Shares distributed pursuant to this Agreement will not have been
registered pursuant to the Securities Act of 1933, as amended; and, therefore,
under current interpretations and applicable rules, the Shares can not be
publicly sold for a period of at least two years, and at the expiration of such
two year period, sales of the Shares may be confined to brokerage transactions
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of limited amounts requiring certain notification filings with the SEC and such
disposition may be available only if the Company is current in its filings with
the SEC under the Securities Act of 1933, as amended, or other public disclosure
requirements, and the other limitations imposed thereby on the disposition of
Shares of the Company.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 Entire Agreement. This Agreement and the Letter of Intent dated
December 26, 1995 constitutes the entire agreement of the parties with respect
to the subject matter hereof.The representations, warranties, covenants and
agreements set forth in this Agreement and in any financial statements,
schedules or exhibits delivered pursuant hereto constitute all the
representations, warranties, covenants and agreements of the parties hereto and
upon which the parties have relied and except as may be specifically provided
herein. No change, modification, amendment, addition or termination of this
Agreement or any part thereof shall be valid unless in writing and signed by or
on behalf of the party to be charged therewith.
11.2 Survival of Covenants, etc. All warranties, representations and
covenants set forth herein shall survive the Closing Date of this Agreement.
11.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be given or made pursuant to any of the provisions of
this Agreement shall be deemed to have been duly given or made for all purposes
if sent by Federal Express delivery or by certified or registered mail, return
receipt requested and postage prepaid or hand delivered as follows:
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For IPS:
Integrated Petroleum Systems Corporation
8480 East Orchard Road
Suite 4350
Englewood, Colorado 80111
For the Company:
Concord Energy Incorporation
75 Claremont Road
Bernardsville, New Jersey 07924
Copy to:
Silverman, Collura & Chernis. P.C
381 Park Avenue Suite, Suite 1601
New York, New York 10016
11.4 Waiver. No waiver of the provisions hereof shall be effective unless
in writing and signed by the party to be charged with such waiver. No waiver
shall be deemed a continuing waiver or waiver in respect of any subsequent
breach or default, either of a similar or different nature, unless expressly so
stated in writing.
11.5 Governing Law. This Agreement shall be governed, interpreted and
construed in accordance with the laws of the State of New Jersey applicable to
contracts to be performed entirely within that State. Any dispute in any way
related to the subject matter of this Agreement shall be litigated exclusively
within the State of New Jersey and all parties hereto, including shareholders of
the Company consent to the jurisdiction of the State and/or United States
District Courts of New Jersey. Should any clause, section or part of this
Agreement be held or declared to be void or illegal for any reason, all other
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clauses, sections or parts of this Agreement which can be affected without such
illegal clause, section or part shall nevertheless continue in full force and
effect.
11.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and assigns
or heirs and personal representatives; provided, however, that no party may
assign any of its rights or delegate any of its duties under this Agreement
without the prior written consent of the other parties hereto.
11.7 Captions. The headings, captions or titles of paragraphs under
sections or subsections of this Agreement are for convenience and reference only
and do not in any way modify, interpret or construe the intent of the parties or
effect any of the provisions of this Agreement.
11.8 Time Periods. Any time period provided for herein which shall end or
expire on a Saturday, Sunday, or legal holiday shall be deemed extended to the
next full business day thereafter.
11.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same Agreement. The Stockholders shall execute this
agreement by the delivery of written consents approving the exchange of all
outstanding shares of common stock of IPS for an aggregate of 600,000 of the
outstanding shares of common stock of the Company.
11.10 Confidentiality. Neither this Agreement nor any memorandum of this
Agreement shall be recorded in the Public Records of any State or County. The
parties hereto agree to keep this Agreement confidential, as well as any
information or document obtained by either party in connection with this
transaction, except to the extent disclosure is required to or by any government
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agency or regulatory or quasi-regulatory body. The Company will not release any
information by press release or otherwise regarding this transaction without the
prior consent of IPS.
11.11 Joint Draftsmanship. The preparation of this Agreement has been a
joint effort of the parties and this Agreement shall not, solely as a matter of
judicial construction, be construed more severely against one of the parties
than the other.
11.12 Brokers. No broker, finder or investment banker other than Wiley
Capital is entitled to any brokerage, finders or other fee or commission in
connection with the transactions contemplated by this Agreement. IPS has made
arrangements for the compensation of Wiley Capital, and such compensation shall
be accounted for on the records of the Company and IPS as an IPS expense except
as may be otherwise agreed to by the Company. The Company agrees to indemnify,
hold harmless and defend IPS from and against any claims by other brokers,
finders or investment bankers claiming to have been retained by the Company.
11.13 Schedule Update. Not later than the second business day prior to the
anticipated date of Closing, the Company shall deliver to IPS any revisions to
the Company Schedules necessary to make such Company Schedules and the
representations and warranties contained in this Agreement true and correct as
of the Closing Date (the "Updated Company Schedules"). As used in this
Agreement, the term "Company Schedules" shall include the Updated Company
Schedules, if delivered.
44
<PAGE>
Not later than the second business day prior to the anticipated date of
Closing, IPS shall deliver to the Company any revisions to the IPS schedules
necessary to make such IPS schedules and the representations and warranties
contained in this Agreement true and correct as of the Closing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed on the date and year first above written.
INTEGRATED PETROLEUM SYSTEMS CORPORATION
By:_____________________________________
Richard D. Barden, CEO
CONCORD ENERGY INCORPORATED
By:_____________________________________
Jerry Swon, CEO
45
EXHIBIT 10.4
EMPLOYMENT CONTRACT
THIS AGREEMENT, made between INTEGRATED PETROLEUM SYSTEMS CORPORATION,
whose mailing address is 4590 South Yosemite, Building F-2, Suite 219 of the
County of Arapahoe, State of Colorado (herein referred to as "Employer" or
"IPS") and RICHARD D. BARDEN of Englewood, Colorado, herein referred to as
"Employee":
RECITALS
IPS is engaged in the business of developing specialized software and
computer systems for gathering, processing and distributing volumetric,
technical office at the aforesaid address. Employee has been engaged in the oil
and gas business for more than eighteen years and has developed and expertise
which will benefit Employer. Employee is willing to be employed by IPS, and IPS
is willing to employ employee, on the terms, covenants, and conditions
hereinafter set forth.
Article I:
EMPLOYMENT
Employer hereby employs, engages, and hires employee as President to serve
as chief executive officer, and employee hereby accepts and agrees to such
hiring, engagement and employment, subject to the general supervision and
pursuant to the orders, resolutions and directives of the Board of Directors.
Employee shall perform such duties as are customarily performed by one holding
such position in other, same, or similar business or enterprises as that engaged
in by employer, and shall also additionally render such other and unrelated
services and duties as may be assigned to him from time to time by the Board of
Directors.
Article II:
BEST EFFORTS OF EMPLOYEE
Employee agrees that he will at all times faithfully, industriously, and to
the best of his ability, experience, and talents, perform all of the duties that
may be required of and from him pursuant to the express and implicit terms
hereof, to the reasonable satisfaction of employer. Such duties shall be
rendered at the aforesaid principal place of business and/or at such other place
or places as employer shall in good faith require or as the interest, needs,
business, or opportunity of employer shall require.
Article III:
TERMS OF EMPLOYMENT
The term of this agreement shall be a period of six (6) years, commencing on
January 1, 1992, and terminating on December 31, 1997, subject, however, to
prior termination as hereinafter provided. At the expiration, this agreement
shall be considered renewed for regular periods of one year, provided neither
party submits a notice of termination.
1
<PAGE>
Article IV:
COMPENSATION OF EMPLOYEE
Employer shall pay employee, and employee shall accept from employer, in
full payment for employee's services hereunder, compensation which includes the
totality of benefits as defined in this article as follows:
4.1 Beginning January 1, 1992, at the rate of Sixty Five Thousand Dollars
($65,000.00) per year, which shall be payable biweekly. Said compensation shall
continue until such time as IPS has completed the Research and Development and
the Testing phases of its products, or until September 1, 1992, whichever first
occurs. Completion of the aforesaid phases shall be construed solely by the
Board of Directors;
4.2 At such time as the term defined in paragraph 4.1 has been fulfilled,
Employee's compensation shall be raised to Seventy Eight Thousand Dollars
($78,000.00) per year, payable biweekly as above. Said salary shall continue
until such time as IPS has attained the total of One Million Dollars
($1,000,000.00) in gross sales as represented by the official books of account
of the Corporation;
4.3 At such time as IPS has attained One Million Dollars ($1,000,000.00) in
gross sales as defined in paragraph 4.2, Employee's compensation shall be
increased to Ninety Six Thousand, Two Hundred Dollars ($96,200.00) per year,
which shall be payable biweekly as above;
4.4 Thereafter the Board of Directors shall review employee's compensation
annually and shall increase, but not decrease, Employee's compensation
commensurate with the financial ability of the company and in accordance with
compensation packages paid to chief executive officers of other companies of
similar size and operation;
4.5 In addition to the salary to be paid pursuant to paragraphs 4.1, 4.2
and 4.3, above the total compensation package referred to herein shall include
major medical insurance, disability insurance, vacation of four weeks per year
during the phases defined in paragraph 4.1 and 4.2, increasing to five weeks per
year beginning with the phase defined in paragraph 4.3 and thereafter; also, no
less than eight (8) paid holidays annually and five (5) paid sick days annually.
Employee shall be entitled (i) to accrue and carry forward into any new annual
period up to two (2) weeks of vacation time and thirty (30) sick days which such
accrued vacation and sick days shall be over and above for each calendar year,
and (ii) to be paid for any and all unused vacation time or sick days which are
not or may not be carried forward as described above.
4.6 Employer shall reimburse employee for all necessary expenses incurred
by employee while traveling pursuant to employer's directions.
Article V:
TERMINATION DUE TO DISCONTINUANCE OF BUSINESS
Anything herein contained to the contrary notwithstanding, in the event
that employer shall discontinue its business, then this agreement shall
terminate as of the last day of the month on which employer ceases operations at
such location with the same force and effect as if such last day of the month
were originally set as the termination date hereof.
2
<PAGE>
Article VI:
FULL TIME EMPLOYMENT
Employee shall devote substantially all of his time, attention, knowledge, and
skills to the business and interest of employer, and employer shall be entitled
to all of the benefits, profits or other issues arising from or incident to all
work, services and advice of employee.
Article VII:
TRADE SECRETS
Employee shall not at any time or in any manner, either directly or
indirectly, divulge, disclose or communicate to any person, form or corporation
in any manner whatsoever any information concerning any matters affecting or
relating to the business of employer, including without limiting the generality
of the foregoing, any of its customers, the prices it obtains or has obtained
from the sale of, or at which it sells or has sold, its products, or any other
information concerning the business of employer, its manner of operation, its
plans, processes, or other date without regards to whether all of the foregoing
matters will be deemed confidential, material, or important, the parties hereto
stipulating that as between them, the same are important, material, and
confidential and gravely affect the effective and successful conduct of the
business of employer, and employer's good will, and that any breach of terms of
this paragraph shall be a material breach of this agreement.
Article VIII:
COMPLETE AGREEMENT
This contract contains the complete agreement concerning the employment
arrangement between the parties and shall, as of the effective date hereof,
supersede all other agreements between the parties. The parties stipulate that
neither of them has made any representation with respect to the subject matter
of this agreement or any representations including the execution and delivery
hereof except such representations as are specifically set forth herein and each
of the parties hereto acknowledge that he or it has relied on its own judgment
in entering into this agreement. The parties hereto further acknowledge that any
payments or representations that may have heretofore been made by either of them
to the other are of no effect and that neither of them has relied thereon in
connection with his or its dealing with the other.
Article IX:
MODIFICATION OF CONTRACT
NO waiver or modification of this agreement or of any covenant, condition
or limitation herein contained shall be valid unless in writing and duly
executed both parties hereto and no evidence of any waiver or modification shall
be offered or received in evidence of any waiver or modification shall be
offered or received in evidence of any proceeding, arbitration, or litigation
between the parties hereto arising out of or affecting this agreement, or the
rights or obligations of the parties hereunder, unless such waiver or
modification is in writing, duly executed as aforesaid, and the parties further
agree that the provisions of this section may not be waived except as herein set
forth.
3
<PAGE>
Article X:
FIDELITY BOND
Employee will immediately make application for a fidelity or surety bond,
to any company designated by employer, in such amount as may be specified by
employer. Employer shall pay the premium on such bond, and such bond shall
continue in force in such amounts as employer may from time to time require and
in the event such bond is refused, or is ever canceled, except with the approval
of employer, employee may be terminated immediately and employee shall be
entitled to compensation to the date of such termination only.
Article XI:
TERMINATION
This agreement may not be terminated by either party except upon good
cause. If Employer shall so terminate this agreement, employee shall be entitled
to salary for nine (9) months. It is further agreed that any breach of any of
the terms of this contract by either party hereto will result in immediate and
irreparable injury to the other party and will authorize recourse to injunction
and/or specific performance as well as to all other legal or equitable remedies
to which such injured party may be entitled hereunder.
Article XII:
TERMINATION FOR DISABILITY
12.1 Notwithstanding anything in this agreement to the contrary, employer
is hereby given the option to terminate this agreement in the event that
employee shall, during the term hereof, become permanently disabled, as the term
"permanently disabled" is hereinafter fixed and defined. Such options shall be
deemed exercised by employer giving notice to employee via registered mail,
addressed to him in care of employer at 4950 South Yosemite, F-2, Suite 219,
Englewood, Colorado 80111, or at such other address as employee shall designate
in writing, of employer's intention to terminate this agreement on the last day
of the month during which such notice is mailed. On the giving of such notice,
this agreement shall cease on the last day of the month in which the notice is
so mailed, with the same force and effect as if such last day of the month were
the date originally herein set forth as the termination date hereof.
12.2 For the purpose of this agreement employee shall be deemed to have
become permanently disabled, if, during any year of the term hereof, because of
ill health, physical or mental disability or for other causes beyond his control
he shall have been continuously unable or unwilling or shall have failed to
perform his duties for a total period hereunder for ninety (90) consecutive
days, or if, during any year of the term hereof, he shall have been unable or
unwilling or shall have failed to perform his duties for a total period of one
hundred twenty (120) days, irrespective of whether or not such days are
consecutive. For the purposes hereof the term "any year of the term hereof" is
defined to mean any 12 calendar months period commencing on January 1, and
terminating on December 31, during the term of this agreement.
4
<PAGE>
Article XIII:
SEVERABILITY
All agreements and covenants contained herein are severable, and in the
event any of them, with the exception of those contained in Sections One and
Four hereof, shall be held to be invalid by any competent court, this contract
shall be interpreted as if such invalid agreements or covenants were not
contained herein.
Article XIV:
CHOICE OF LAW
It is the intention of the parties hereto that this agreement and the
performance hereunder and all suits and special proceedings hereunder be
construed in accordance with and under and pursuant to the laws of the State of
Colorado and that in any action, special proceeding or other proceeding that may
be brought arising out of, in connection with, or by reason of this agreement,
the laws of the State of Colorado shall be applicable and shall govern to the
exclusion of the law of any other forum, without regard to the jurisdiction in
which any action or special proceeding may be instituted.
IN WITNESS WHEREOF, the parties have executed this agreement on this 1st
day of November, 1991.
INTEGRATED PETROLEUM
SERVICES CORPORATION:
By: /s/ Richard D. Barden, Director
---------------------------
Richard D. Barden, Director
By: /s/ Mark T. Shipley, Director
-------------------------
Mark T. Shipley, Director
By: /s/ William S. Grigel, Director
---------------------------
William S. Grigel, Director
EMPLOYEE:
/s/ Richard D. Barden
-----------------
Richard D. Barden
5
<PAGE>
AMENDED EMPLOYMENT CONTRACT
WHEREAS, RICHARD D. BARDEN of Englewood, Colorado (hereafter referred to
him as "Employee") entered into an Employment Contract dated November 1, 1991,
for and with INTEGRATED PETROLEUM SYSTEMS CORPORATION, whose mailing address is
4590 South Yosemite, Building F-2, Suite 219 of the County of Arapahoe, State of
Colorado (hereafter referred to as "Employer" or "IPS"); and
WHEREAS, it is the mutual desire of these Parties to modify the terms of
the said contract in order to insure Employee's continued service with IPS.
NOW THEREFORE, the Parties stipulate and agree that the said Employment
Contract shall be and hereby is modified and amended as follows:
1. Article III
The first sentence shall be modified to read as follows:
"This agreement shall apply for a period of nine (9) years, commencing on
January 1, 1992, and terminating on December 31, 2000, subject, however, to
prior termination as hereinafter provided."
2. Article IV
Section 4.2 shall be modified to read:
"At such time as the term defined in paragraph 4.1 has been fulfilled,
Employee's compensation shall be raised to Seventy Eight Thousand Dollars
($78,000.00) per year, payable biweekly as above. Said salary shall
continue until such time as IPS has attained One Million Dollars
($1,000,000) in gross sales as represented by the official books of account
of the Corporation, or until January 1, 1996, whichever occurs first;"
Section 4.3 shall be modified to read:
"As of January 1, 1996, or at such time as IPS has attained One Million
Dollars ($1,000,000) in gross sales as defined in paragraph 4.2, above,
whichever occurs first, Employee's compensation shall be increased to
Ninety Six Thousand, Two Hundred Dollars ($96,200.00) per year, which shall
be payable biweekly as above;"
Section 4.5 shall be modified to read:
"In addition to the salary to be paid pursuant to paragraphs 4.1, 4.2 and
4.3, above, the total compensation package referred to herein shall include
an annual bonus, major medical insurance, disability insurance, vacation of
four weeks per year during the phases defined in paragraph 4.1 and 4.2,
increasing to five weeks per year beginning with the phase defined in
paragraph 4.3 and thereafter,. . ."
EXCEPT as indicated above, all of the other terms of the said Employment
Contract shall remain the same and unchanged.
<PAGE>
IN WITNESS WHEREOF, the parties have ratified and executed this agreement
on this 4th day of October, 1994.
INTEGRATED PETROLEUM
SYSTEMS CORPORATION:
By: /s/ Richard D. Barden, Director
---------------------------
Richard D. Barden, Director
By: /s/ Mark T. Shipley, Director
-------------------------
Mark T. Shipley, Director
EMPLOYEE:
By: /s/ Richard D. Barden, Director
---------------------------
Richard D. Barden, Director
2
[FORM OF ACCOUNTANT'S CONSENT]
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated October 23, 1995, except
as to Note 14 which is as of August __, 1996, relating to the financial
statements of Concord Energy Incorporated, which appears in such Prospectus. We
also consent to the references to us under the headings "Experts" and "Selected
Financial Data" in such Prospectus. However, it should be noted that Price
Waterhouse LLP has not prepared or certified such "Selected Financial Data."
