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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ______________
Commission File Number 0-19793
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MARCUM NATURAL GAS SERVICES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 84-1169358
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1675 Broadway, Suite 2150
Denver, Colorado 80202
(Address of principal executive offices) (Zip code)
(303)592-5555
(Registrant's telephone number, including area code)
---------------------------------
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
------ ------
As of July 31, 1996 there were 12,179,688 shares of the issuer's
Common Stock outstanding.
Traditional Small Business Disclosure Format
Yes No X
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MARCUM NATURAL GAS SERVICES, INC.
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
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Page
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PART I: FINANCIAL INFORMATION
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Item 1. Financial Statements
Unaudited Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 3
Unaudited Consolidated Statements of Operations -
For the Three Months Ended June 30, 1996 and
June 30, 1995
For the Six Months Ended June 30, 1996 and
June 30, 1995 5
Unaudited Consolidated Statements of Cash Flows -
For the Six Months Ended June 30, 1996 and
June 30, 1995 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
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PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
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<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 1,778,209 $ 1,500,812
Trade receivables, less allowance for doubtful accounts
of $129,093 and $167,032, respectively 4,411,486 4,761,242
Other receivables 175,425 387,138
Inventory 3,990,228 3,510,958
Prepaid expenses and other current assets 323,244 362,254
----------- ------------
Total current assets 10,678,592 10,522,404
----------- ------------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Equipment 2,686,712 2,566,102
Vehicles 123,917 155,189
Furniture and fixtures 639,217 633,991
Land, building and improvements 471,858 439,958
----------- ------------
Total 3,921,704 3,795,240
Less accumulated depreciation 2,126,830 1,873,968
----------- ------------
Property, plant and equipment, net 1,794,874 1,921,272
----------- ------------
OTHER ASSETS:
Customer lists (net of amortization of $1,567,078 and
$1,316,970, respectively) 7,718,378 7,968,486
Goodwill and other intangibles (net of amortization of
$494,520 and $429,017, respectively) 1,298,794 1,057,013
Investments in unconsolidated affiliates 322,788 152,460
Other 200,489 156,622
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Total other assets 9,540,449 9,334,581
----------- ------------
TOTAL $22,013,915 $ 21,778,257
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</TABLE>
See notes to unaudited consolidated financial statements.
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MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,464,732 $ 1,007,982
Accrued and other liabilities 1,556,503 1,624,126
Current maturities of notes payable 634,226 821,607
Current maturities of long-term debt 12,819 14,678
----------- -----------
Total current liabilities 3,668,280 3,468,393
----------- -----------
LONG-TERM NOTE PAYABLE 187,381
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Redeemable preferred stock - Series A, $.01 par value;
authorized, 1,000,000 shares; none issued and outstanding
Redeemable preferred Stock - Series B, $.01 par value;
authorized, 1,000,000 shares; none issued and outstanding
Redeemable preferred stock - Series C, $.01 par value;
authorized, 500,000 shares; none issued and outstanding
Common stock, $.01 par value; authorized, 25,000,000 shares;
issued and outstanding, 12,153,480 and 11,742,032
shares, respectively 121,535 117,420
Additional paid-in-capital 36,793,074 36,320,946
Accumulated deficit (18,756,355) (18,128,502)
----------- -----------
Total stockholders' equity 18,158,254 18,309,864
----------- -----------
TOTAL $22,013,915 $21,778,257
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</TABLE>
See notes to unaudited consolidated financial statements.
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MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
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JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
REVENUES:
Natural gas measurement sales and services $ 4,735,276 $ 4,357,721 $ 9,439,976 $ 9,754,614
Natural gas refueling equipment sales 1,091,388 1,553,294 2,086,233 2,263,907
Other 261,467 53,742 412,968 103,711
----------- ----------- ----------- ------------
Total revenues 6,088,131 5,964,757 11,939,177 12,122,232
----------- ----------- ----------- ------------
COSTS AND EXPENSES:
Cost of measurement sales and services 3,159,513 2,909,756 6,187,523 6,321,451
Cost of refueling equipment sales 904,837 1,252,493 1,743,144 1,809,301
General and administrative 1,357,621 1,091,526 2,541,523 2,187,043
Selling, marketing and service 535,927 752,703 1,114,033 1,662,048
Depreciation and amortization 292,559 321,718 590,341 691,665
Research and development 161,626 405,433 342,258 843,715
Interest and other 26,984 18,972 48,208 43,473
----------- ----------- ----------- ------------
Total costs and expenses 6,439,067 6,752,601 12,567,030 13,558,696
----------- ----------- ----------- ------------
NET LOSS $ (350,936) $ (787,844) $ (627,853) $ (1,436,464)
=========== =========== =========== ============
NET LOSS PER COMMON SHARE $ (0.03) $ (0.07) $ (0.05) $ (0.12)
=========== =========== =========== ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 12,017,868 11,732,032 11,973,869 11,734,040
=========== =========== =========== ============
</TABLE>
See notes to unaudited consolidated financial statements.
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MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
SIX MONTHS ENDED
JUNE 30,
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1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (627,853) $(1,436,464)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 590,341 691,665
Stock compensation expense 135,101
Royalty payments made with restricted stock 29,167
Loss on disposal of assets 3,846
Equity in (income) loss of unconsolidated affiliates (48,096) 3,269
Changes in other assets and liabilities, net of effects
of acquisitions:
Trade receivables 481,909 409,552
Inventory (465,012) 486,329
Other current assets 364,502 438,825
Other noncurrent assets (43,919) (78,628)
Accounts payable 390,218 (308,719)
Accrued and other liabilities (169,322) (509,016)
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Net cash provided by (used in) operating activities 640,882 (303,187)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (108,321) (272,089)
Additions to manufacturing rights and
software development costs (265,285) (74,401)
Net cash from acquisitions 164,308
Proceeds from sale of assets 30,390 1,000
Investments in unconsolidated affiliates (245,125)
Distributions from unconsolidated affiliates 9,050 121,925
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Net cash used in investing activities (414,983) (223,565)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on note payable to bank (316,000)
Issuance of common stock, net 63,551
Payments to redeem common stock subject
to put agreement (55,300)
Payments on long-term debt and capital
lease obligations (12,053) (95,019)
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Net cash provided by (used in) financing activities 51,498 (466,319)
---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 277,397 (993,071)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,500,812 3,370,852
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,778,209 $ 2,377,781
========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
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MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 1996 and December 31, 1995
For the Three Month Periods Ended June 30, 1996 and 1995 and
For the Six Month Period Ended June 30, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the
accounts of Marcum Natural Gas Services, Inc. and its wholly-owned
subsidiaries and have been prepared pursuant to rules and regulations of the
Securities and Exchange Commission. The accompanying consolidated financial
statements and notes thereto should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995.
In the opinion of the Company's management, all adjustments (all of
which are normal and recurring) have been made which are necessary for a fair
statement of the consolidated financial position of the Company and its
subsidiaries as of June 30, 1996 and the consolidated results of their
operations and cash flows for the three and six month periods ended June 30,
1996 and 1995.
2. ACQUISITIONS
Effective January 1, 1996, the Company, through its wholly-owned
subsidiary, Metretek, Incorporated, acquired the remaining 57.5% outstanding
shares of Metretek Europe, of which Metretek previously owned 42.5% of the
outstanding shares. In connection with this acquisition, the Company issued
175,000 shares of restricted common stock valued at $141,815. The fair value
of assets acquired was $389,085, including cash in the amount of $211,747. The
fair value of liabilities assumed was $133,428. Metretek's investment in
Metretek Europe at December 31, 1995 was $113,842. The acquisition was
accounted for as a purchase and the results of operations of Metretek Europe,
which are immaterial to consolidated operations have been included in the
Consolidated Statement of Operations from the date of acquisition.
On June 21, 1996, the Company, through its wholly-owned subsidiary,
Metretek, acquired substantially all of the assets of Sigma VI. Total
consideration for the assets of Sigma VI was $90,000 payable $45,000 at
closing, $15,000 payable September 18, 1996 and $30,000 payable December 17,
1996. Sigma VI is engaged in circuit board assembly, cable assembly and
related services primarily to customers in the electronics industry located in
Melbourne, Florida and the surrounding area. The acquisition was accounted for
as a purchase and the results of operations of Sigma VI, which are immaterial
to consolidated operations, have been included in the Consolidated Statement of
Operations from the date of acquisition.
3. NOTES PAYABLE
As of June 30, 1996, Metretek had an $821,607 balance outstanding on a
demand note made payable to a commercial bank arising under a secured line of
credit which had expired on April 30, 1996. On August 5, 1996, Metretek
entered into a loan and security agreement with the bank converting the
outstanding balance into two loans: a $421,607 term loan repayable in
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equal monthly principal payments plus interest over an 18 month period, and a
$400,000 revolving line of credit payable on demand, pending demand, with
interest only payable monthly and a maturity of January 31, 1998. The term
loan and the line of credit are secured by Metretek's accounts receivable,
inventory and equipment, cross-collateralized and cross-defaulted. In
addition, the Company has provided a guaranty to the bank. The loan agreement
requires Metretek to maintain a minimum adjusted working capital level, a
tangible net worth level and other related financial ratios and contains other
standard covenants related to operations by Metretek. Cumulative borrowings
under the loan agreement are limited to the sum of 75% of eligible domestic
trade accounts receivable, 55% of eligible foreign trade accounts receivable
and 50% of raw materials inventory of Metretek. The line of credit is subject
to a mandatory reduction provision which requires the balance outstanding to be
reduced to $300,000 and $200,000 for 30 consecutive day periods during 1996 and
1997, respectively.
4. STOCK COMPENSATION AND STOCK OPTIONS
In January 1996, the Company approved a non-qualified, compensatory
Employee Stock Purchase Plan (the "1996 Plan"), which allows eligible employees
to purchase shares of the Company's common stock through payroll deductions.
The shares can be purchased for 100% of the lower of the beginning or ending
fair market value of each one-month offering period and are matched by the
Company on a share-for-share basis. Purchases are limited to 15% of an
employee's eligible compensation. A total of 200,000 shares of common stock
are registered for offer and issuance under the 1996 Plan.
In March 1996, the Board of Directors approved the issuance of up to
90,000 restricted shares of the Company's common stock to seven key executives,
of which 67,500 (75%) have been issued. The final issuance of shares will be
in September 1996.
Effective June 4, 1996, pursuant to stockholder ratification of the
Board of Directors' authorization, all outstanding stock options held by the
officers, directors, employees and consultants of the Company were repriced to
an exercise price of $1.59 per share, the last sale price of the Common Stock
as reported on the Nasdaq National Market on March 8, 1996, the date of the
Board of Directors' authorization.
5. COMMITMENTS AND CONTINGENCIES
On June 27, 1996, the Company, through its wholly-owned subsidiary,
Metretek, amended certain payment provisions of its license agreement related
to sales by Metretek of royalty-bearing products utilizing certain metering
patents owned by the licensor. Under terms of the original license agreement,
Metretek had a commitment to pay in cash a 5% royalty on sales of
royalty-bearing products with a minimum annual royalty of $50,000 through the
year 2003. Payment terms under the amended license agreement provide for 1)
the issuance of restricted shares of the Company's common stock with a market
value of $100,000 as determined based on the average of the last sale price of
the Company's shares as reported on the Nasdaq National Market for ten
consecutive trading days preceding the amendment date in payment of royalties
due on November 6, 1996 and 1997; and 2) the issuance on November 6 annually
through the year 2001 of restricted shares of the Company's common stock with a
market value equal to the royalty amount due as determined based on the average
of the last sale price of the Company shares as reported on the Nasdaq National
Market for ten consecutive
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trading days preceding each November 6. In connection with the amended license
agreement, 72,727 restricted shares of the Company's common stock were issued
on June 27, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The following discussion of the Company's consolidated financial
condition as of June 30, 1996 and the Company's results of operations for the
six month periods ended June 30, 1996 and 1995 should be read in conjunction
with the Company's consolidated financial statements and related notes thereto
included elsewhere herein.
RESULTS OF OPERATIONS
The following table sets forth selected information related to the
Company's primary products and services and should assist in understanding the
Company's results of operations for the periods presented.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1996 1995
(dollar amounts in thousands)
<S> <C> <C>
REVENUES:
Southern Flow . . . . . . . . . . . . $ 5,364 $ 5,539
Metretek . . . . . . . . . . . . . . . 4,076 4,216
Marcum Fuel . . . . . . . . . . . . . 2,086 2,264
Total . . . . . . . . . . . . . . 11,939 12,122
GROSS PROFIT:
Southern Flow . . . . . . . . . . . . 1,352 1,559
Metretek . . . . . . . . . . . . . . . 1,901 1,874
Marcum Fuel . . . . . . . . . . . . . 343 455
Total . . . . . . . . . . . . . . 3,596 3,888
NET INCOME (LOSS):
Southern Flow . . . . . . . . . . . . 459 620
Metretek . . . . . . . . . . . . . . . 294 (602)
Marcum Fuel . . . . . . . . . . . . . (813) (813)
Total . . . . . . . . . . . . . . (628) (1,436)
</TABLE>
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SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Revenues. Revenues decreased $183,055, or 2%, for the six months
ended June 30, 1996 compared to the same period in 1995. Revenues from
Southern Flow decreased $174,936, or 3%, for the six months ended June 30,
1996, compared to the same period in 1995, due to bad weather, which restricted
some field services in the current period, and also due to increased pricing
pressures from customers and competitors. Revenues from Metretek decreased
$139,702, or 3%, for the six months ended June 30, 1996, compared to the same
period in 1995, which was comprised of a decrease in international sales of
$351,293, offset in part by an increase in Metretek's domestic sales of
$211,591. The decrease in Metretek's international sales was comprised of a
decrease in sales to a South American customer of approximately $435,000, as
well as a decrease in sales to Canadian customers of approximately $363,000,
offset in part by an increase in European sales of approximately $408,000
through Metretek's wholly-owned subsidiary, Metretek Europe. The increase in
Metretek's domestic revenues was comprised of an approximately $400,000
increase in automatic meter reading (AMR) systems offset in part by an
approximately $189,000 decrease in sales primarily to one customer of OEM
products which are then resold by the customer, mainly to natural gas utility
companies. The Company believes that a significant portion of the increase in
Metretek's domestic AMR revenues is attributable to the deregulation of the
interstate natural gas pipeline industry, which has increased the need for
timely and accurate measurement data for the Company's natural gas utility
customers in order to support more sophisticated billing techniques, and to an
increase in the price of certain products. Revenues from Marcum Fuel decreased
$177,674, or 8%, for the six months ended June 30, 1996 compared to the same
period in 1995 due to delays in the completion of current projects in its
natural gas refueling station design, construction and installation service
operations. Other revenues increased $309,257, or 298%, for the six months
ended June 30, 1996 compared to the same period in 1995. The primary reasons
for the increase resulted from additional MGT revenue of approximately $197,000
due to fees, reimbursements and equity income received by MGT from a business
trust formed in February 1996 for which there were no comparable fees,
reimbursements and equity income received in 1995 and an increase of
approximately $155,000 in other revenues from Metretek resulting primarily from
the receipt of approximately $124,000 in settlement with a former licensee for
royalty payments due through June 30, 1995, the date the former licensee ceased
operations.
Costs and Expenses. Cost of sales and services decreased $200,085, or
3%, for the six months ended June 30, 1996 compared to the same period in 1995.
Cost of sales and services from Southern Flow increased a nominal $33,102, or
1%, in the six months ended June 30, 1996 compared to the same period last
year. Southern Flow's gross profit margin after costs of sales and services
decreased from 28.2% to 25.2% in the 1996 period compared to the same period in
the previous year due primarily to increased pricing pressures from customers
and competitors as well as increased operating lease costs incurred in 1996.
Costs of sales and services from Metretek decreased $167,030, or 7%, in the six
month period in 1996 compared to the same period in 1995 and was due primarily
to Metretek's decreased sales in 1996, including a decrease in certain orders
in South America relating to the resale of measurement equipment not
manufactured by Metretek. These South American sales have higher associated
costs than sales of AMR products manufactured by Metretek and, as a result,
when combined with cost reductions effected by Metretek in August 1995,
Metretek's gross profit margin after costs of sales and services increased from
44.4% to 46.6% in the 1996 period compared to the same period in 1995. Costs
of sales and services from Marcum Fuel decreased $66,157, or 4%, in the six
months ended June 30, 1996 compared to the same period last year due to lower
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activity levels in this segment. Marcum Fuel's gross profit margin after costs
of sales decreased from 20.1% to 16.4% in the 1996 period compared to the same
period in 1995, reflecting a lower level of sales to which certain fixed
operating costs are allocated.
General and administrative expenses increased $354,480, or 16%, for
the six months ended June 30, 1996 compared to the same period in 1995. This
increase resulted primarily from increases in expenses of Metretek of
approximately $171,000 due to costs incurred at its wholly-owned subsidiary,
Metretek Europe, for which there were no comparable costs in 1995, an increase
in expenses of Southern Flow of approximately $70,000 attributable to increased
personnel costs, an increase in expenses of MGT of approximately $64,000
reflecting unreimbursed costs incurred in connection with the formation of a
business trust in February 1996 for which there were no comparable costs in
1995 as well as increased compensation costs, an increase in expenses of Marcum
Fuel of approximately $34,000 attributable to increased professional costs
incurred, and an increase in general corporate expenses of approximately
$15,000 attributable to the implementation of the Company's new employee stock
purchase plan.
Selling, marketing and service expenses decreased $548,015, or 33%,
for the six months ended June 30, 1996 compared to the same period in 1995.
This decrease resulted primarily from (i) an overall decrease in Marcum Fuel
and Metretek's sales, (ii) a reduction in personnel and (iii) a reduction in
advertising and promotional expenses, and to a lesser extent, to the transition
from an exclusive distributorship arrangement for Metretek's products in the
United States and Canada to a direct sales force in the United States beginning
in February 1995.
Depreciation and amortization expenses decreased $101,325, or 15%, for
the six months ended June 30, 1996 compared to the same period in 1995. This
decrease was primarily due to reduced depreciation costs associated with
Southern Flow leased vehicles, no longer accounted for as a capital lease
arrangement, as well as the 1995 write-off of $135,035 of certain Southern Flow
assets no longer in service. The lease was amended and is now accounted for as
an operating lease and the lease expense is reflected primarily in costs of
measurement sales and services.
Research and development expenses decreased $501,457, or 59%, for the
six months ended June 30, 1996 compared to the same period in 1995, which
resulted from a decrease of approximately $104,000 related to Marcum Fuel and a
decrease of approximately $397,000 related to Metretek. The decrease in
research and development expenses at Marcum Fuel reflects the completion of
certain product developments in early 1995. The decrease in research and
development expenses at Metretek reflects the termination of two projects
during 1995 and a reduction in personnel in August 1995.
SEASONALITY
The business of Marcum Fuel and Metretek are subject to seasonal
fluctuations. Historically, those businesses have realized a higher portion of
their revenues in the third and fourth quarters of the calendar year and the
lowest portion of their revenues in the first quarter. The business of
Metretek is particularly dependent on sales to natural gas utilities. The
utility industry is generally characterized by long budget and purchase cycles.
Purchases of Metretek's products by utilities are, to a substantial extent,
deferrable in the event utilities reduce capital expenditures as a result of
such conditions as unfavorable regulatory decisions, poor revenues due to
weather conditions or general economic downturns.
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FINANCIAL CONDITION AND LIQUIDITY
The Company requires capital principally for (i) the financing of
inventory and accounts receivable, (ii) research and development expenses,
(iii) capital expenditures for property and equipment and software development,
and (iv) the funding of possible future acquisitions.
Net cash provided by operating activities was approximately $641,000
for the six months ended June 30, 1996. The principal components of this
increase in cash were (i) cash provided of approximately $482,000 due to the
reduction in accounts receivables, (ii) cash provided in the amount of
approximately $390,000 for the increase of accounts payable, (iii)
approximately $83,000 of cash provided by operations, before changes in assets
and liabilities, (iv) approximately $151,000 of net cash provided for a
combination of the payment of miscellaneous liabilities offset by proceeds from
miscellaneous assets, and (v) cash used in the amount of approximately $465,000
related to the increases in inventory levels.
The Company plans to continue research and development efforts to
enhance its existing products and develop new products. The Company
anticipates that its research and development costs in 1996 will be
approximately $747,000, of which approximately $731,000 will relate to
Metretek's business and approximately $16,000 will relate to Marcum Fuel's
business. Research and development expenses in the amount of $342,258 were
incurred in the six month period ended June 30, 1996.
The Company anticipates capital expenditures in 1996 of approximately
$475,000, including $250,000 expected to be capitalized in connection with
software development at Metretek. The Company's capital expenditures in the
six month period ended June 30, 1996, were $373,606, including capitalized
manufacturing rights and software development costs in the amount of $265,285.
The Company's capital expenditures are expected to be primarily for production
and laboratory equipment, computer hardware and software.
The Company sells certain of its products and services under
protection of various purchaser warranties. The Company provides a reserve for
estimated warranty repair costs. Warranty repair expenses in the amount of
$36,024 were incurred in the six month period ended June 30, 1996, and the
estimated reserve balance was approximately $13,000 at that date.
As of June 30, 1996, Metretek had an $821,607 balance outstanding on a
demand note made payable to a commercial bank arising under a secured line of
credit which had expired on April 30, 1996. On August 5, 1996, Metretek
entered into a loan and security agreement with the bank converting the
outstanding balance into two loans: a $421,607 term loan repayable in equal
monthly principal payments plus interest over an 18 month period, and a
$400,000 revolving line of credit payable on demand, pending demand, with
interest only payable monthly and a maturity of January 31, 1998. The term
loan and the line of credit are secured by Metretek's accounts receivable,
inventory and equipment, cross-collateralized and cross-defaulted. In
addition, the Company has provided a guaranty to the bank. The loan agreement
requires Metretek to maintain a minimum adjusted working capital level, a
tangible net worth level and other related financial ratios and contains other
standard covenants related to operations by Metretek. Cumulative borrowings
under the loan agreement are limited to the sum of 75% of eligible domestic
trade accounts receivable, 55% of eligible foreign trade accounts receivable,
and 50% of raw materials inventory of Metretek. The line of credit is subject
to a mandatory
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reduction provision which requires the balance outstanding to be reduced to
$300,000 and $200,000 for 30 consecutive day periods during 1996 and 1997,
respectively.
In connection with the formation of Marcum Midstream 1995-2 Business
Trust (the Trust) on February 8, 1996, MGT acquired 5% of the total preferred
shares of the Trust for approximately $245,000. Funding for the acquired
interest was provided by reimbursements to MGT of fees and expenses by the
Trust when it was formed.
Based on the Company's current plans and assumptions, management
believes that a combination of cash on hand and expected cash flow from
operations will be sufficient to fund its operations, capital commitments and
the continued development of its business for at least the next twelve months.
Depending upon the Company's financial condition and business activity, the
Company could seek additional funds through debt financing or other sources.
However, there can be no assurance that such additional funds would be
available on terms acceptable to the Company.
13
<PAGE> 14
PART II.
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders of Marcum Natural Gas Services,
Inc., held on June 4, 1996, the following proposals were submitted to a vote of
security holders:
Proposal 1: To elect three Class II Directors of the Company, each for a
three year term expiring at the 1999 Annual Meeting of
Stockholders:
<TABLE>
<CAPTION>
FOR WITHHOLD
--- --------
<S> <C> <C>
A. Bradley Gabbard 10,543,547 216,752
Stephen E. McGregor 10,593,047 167,252
Albert F. Thomasson 10,543,833 216,466
</TABLE>
Proposal 2: To approve an amendment to the Company's 1991 Stock Option
Plan to increase the number of shares of common stock
issuable thereunder from 900,000 to 1,400,000.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NOT VOTED
--- ------- ------- ---------
<S> <C> <C> <C>
9,490,838 569,972 33,625 665,864
</TABLE>
Proposal 3: To approve and ratify the repricing of outstanding stock
options held by the Company's officers, employees and
consultants.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NOT VOTED
--- ------- ------- ---------
<S> <C> <C> <C>
6,863,218 2,096,725 773,262 1,027,094
</TABLE>
Proposal 4: To approve an amendment to the Company's Directors' Stock
Option Plan to reprice stock options outstanding thereunder.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NOT VOTED
--- ------- ------- ---------
<S> <C> <C> <C>
6,837,204 2,123,346 771,420 1,028,329
</TABLE>
Proposal 5: To ratify the appointment of Deloitte & Touche LLP as the
Company's independent public accountants for the fiscal year
ending December 31, 1996.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
10,529,264 200,853 30,182
</TABLE>
14
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment of Nonstatutory Stock Option Agreement
dated as of June 4, 1996, by and between Marcum
Natural Gas Services, Inc. and John T. Moore.
10.2 Loan and Security Agreement dated as of August 5,
1996, by and between Metretek, Incorporated and
First Union National Bank of Florida.
10.3 Marcum Natural Gas Services, Inc. Second Amended
and Restated Directors' Stock Option Plan
effective June 4, 1996.
27 Financial Data Schedule.
(b) The Company did not file any reports on Form 8-K during the
quarterly period ended June 30, 1996.
15
<PAGE> 16
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MARCUM NATURAL GAS SERVICES, INC.
By: /s/ W. Phillip Marcum
----------------------------------------
Date: August 12, 1996 W. Phillip Marcum
President and Chief Executive Officer
By: /s/ A. Bradley Gabbard
----------------------------------------
Date: August 12, 1996 A. Bradley Gabbard
Executive Vice President and
Chief Financial Officer
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. DESCRIPTION
<S> <C>
10.1 Amendment of Nonstatutory Stock Option Agreement dated as of June 4,
1996, by and between Marcum Natural Gas Services, Inc. and John T.
Moore.
10.2 Loan and Security Agreement dated as of August 5, 1996, by and
between Metretek, Incorporated and First Union National Bank of
Florida.
10.3 Marcum Natural Gas Services, Inc. Second Amended and Restated
Directors' Stock Option Plan effective June 4, 1996.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
Amendment of Nonstatutory Stock Option Agreement
dated as of June 4, 1996, by and between Marcum
Natural Gas Services, Inc. and John T. Moore.
<PAGE> 2
AMENDMENT
OF
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AMENDMENT OF NONSTATUTORY STOCK OPTION AGREEMENT ("Amendment") is
made and entered into as of the 4th day of June, 1996, by and between Marcum
Natural Gas Services, Inc., a Delaware corporation (the "Company"), and John T.
Moore (the "Optionee").
WITNESSETH
WHEREAS, on September 25, 1992, the Company granted to the Optionee an
option (the "Option") to purchase 100,000 shares of Common Stock, par value
$.01 per share ("Common Stock"), of the Company at an exercise price of $2.75
per share (the "Exercise Price"), pursuant to a Nonstatutory Stock Option
Agreement (the "Agreement"); and
WHEREAS, on June 4, 1996, the stockholders ratified the authorization
by the Board of Directors to reduce the Exercise Price to $1.59, which was the
last sale price of the Common Stock as reported on the Nasdaq Stock Market on
March 8, 1996, the date the Board of Directors authorized the repricing;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto, intending to be
legally bound hereby, agree as follows:
Section 1. Amendment of Exercise Price. Section 1 of the
Agreement is hereby amended by deleting the phrase "$2.75 per share" and
replacing it with "$1.59 per share", effecting a reduction in the Exercise
Price to $1.59 per share of Common Stock.
Section 2. Effect of Amendment. Except as and to the extent
modified by this Amendment, the Agreement shall remain in full force and effect
in all respects.
Section 3. Effectiveness of Amendment. This Amendment shall
become effective as of June 4, 1996. From and after such date any reference to
the Agreement shall mean the Agreement as modified by this Amendment, and the
term "this Agreement," "herein," "hereof" or the like shall mean the Agreement
as modified by this Amendment.
Section 4. Governing Law. This Amendment shall be governed by
and construed in accordance with the laws of the State of Colorado.
Section 5. Counterparts. This Amendment may be executed in any
number of counterparts, including counterparts signed by less than all parties
hereto, each of which, when executed, shall be deemed to be an original, but
all of which, when taken together, shall constitute one and the same agreement.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
COMPANY:
MARCUM NATURAL GAS SERVICES, INC.
By: /s/ W. Phillip Marcum
----------------------------------------
W. Phillip Marcum, President
OPTIONEE:
/s/ John T. Moore
------------------------------------------
John T. Moore
<PAGE> 1
EXHIBIT 10.2
Loan and Security Agreement dated as of August 5,
1996, by and between Metretek, Incorporated and
First Union National Bank of Florida.
<PAGE> 2
LOAN AND SECURITY AGREEMENT
$400,000.00 REVOLVING CREDIT FACILITY
AND
$421,607.00 TERM LOAN FACILITY
METRETEK, INCORPORATED
"BORROWER"
AND
FIRST UNION NATIONAL BANK OF FLORIDA
"BANK"
DATED: AS OF AUGUST 5, 1996
<PAGE> 3
TABLE OF CONTENTS
SECTION
NUMBER
<TABLE>
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-----------
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-------------
1.2 Financial Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
---------------
2. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
------------------------------
2.1 Valid Existence and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
-------------------------
2.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
---------
2.3 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
-------------------
2.4 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
----------
2.5 Agreements, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
---------------
2.6 Authorizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
--------------
2.7 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
-----
2.8 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
----------
2.9 Location . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
--------
2.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-----
2.11 Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-----------------
2.12 Labor Law Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-----------------
2.13 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
--------
2.14 Use and Location of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
------------------------------
2.15 Judgment Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
--------------
2.16 Intent and Effect of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
---------------------------------
2.17 Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-------------------
2.18 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-----
2.19 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
----------------------
3. THE LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
---------
3.1 Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
--------------
3.2 Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
---------
3.3 Calculation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-----------------------
3.4 Overdue Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
---------------
4. CONDITIONS PRECEDENT TO BORROWING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
---------------------------------
4.1 Conditions Precedent to Initial Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
---------------------------------------
4.2 Conditions Precedent to Each Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
------------------------------------
5. COVENANTS OF THE BORROWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-------------------------
5.1 Use of Loan Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
--------------------
5.2 Maintenance of Business and Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
--------------------------------------
5.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
---------
5.4 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-----------------
5.5 Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-----------
5.6 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
---------------------
5.7 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
----
5.8 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-----
5.9 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
---------
5.10 Merger, Sale, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-----------------
5.11 Loans and Other Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
---------------------------
5.12 Change in Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
------------------
5.13 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
--------
5.14 No Change in Name, Offices; Removal of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . 18
-------------------------------------------------
5.15 No Sale, Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
------------------
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C> <C>
5.16 Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
------------
5.17 Payment of Taxes, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
---------------------
5.18 Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-------------
5.19 Compliance; Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-------------------------------
5.20 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
------------
5.21 Compliance with Assignment Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-------------------------------
5.22 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
------------------
5.23 Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
-----------------
5.24 Minimum Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
---------------------
5.25 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
--------------------
5.26 Working Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
---------------
5.27 Total Liabilities to Tangible Net Worth Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
---------------------------------------------
5.28 Aggregate Indebtedness Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
---------------------------------
5.29 Deposit Relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
--------------------
5.30 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-----------------
5.31 Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
----------
6. DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-------
6.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-----------------
6.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
--------
6.3 Receiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
--------
7. SECURITY AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
------------------
7.1 Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
-----------------
7.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
--------
7.3 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-----------------
7.4 Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-----
7.5 Deposits; Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-------------------
7.6 Other Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
------------
7.7 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
--------
7.8 Tangible Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
-------------------
7.9 Waiver of Marshalling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
---------------------
8. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
-------------
8.1 No Waiver, Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
------------------------------
8.2 Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
---------------------------
8.3 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
--------
8.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
-------
8.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
-------------
8.6 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
----------------------
8.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
------------
8.8 No Usury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
--------
8.9 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
------
8.10 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
---------
8.11 Jurisdiction, Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
--------------------------------
8.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
----------------
8.13 Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
----------
8.14 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
--------------------
</TABLE>
ii
<PAGE> 5
LOAN AND SECURITY AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of August 5, 1996 between METRETEK,
INCORPORATED, a Florida corporation (the "Borrower"), and FIRST UNION NATIONAL
BANK OF FLORIDA, a national banking association (the "Bank");
Whereas, Borrower is currently indebted to the Bank pursuant to
that certain Consolidation Promissory Note and Security Agreement dated May 2,
1995 in the principal amount of $1,300,000.00 (the "Consolidation Note"); and
Whereas, the current outstanding principal balance of the
Consolidation Note as of the date of this Agreement is $821,607.00; and
Whereas, the Bank has agreed to renew the Consolidation Note on the
terms and conditions hereinafter set forth;
Now, therefore, in consideration of the mutual covenants herein
contained, the parties agree as follows:
1. DEFINITIONS. In addition to terms defined elsewhere in this
Agreement, the following terms have the meanings indicated:
1.1 Defined Terms.
"Account" shall mean any account receivable, including
any rights of payment for goods sold or leased or for services rendered, which
is not evidenced by an instrument or chattel paper, whether or not it has been
earned by performance, and in addition includes all property included in the
definition of "accounts" as used in the Code, together with any guaranties,
letters of credit and other security therefor.
"Account Debtor" shall mean a Person who is obligated
under any Account, Chattel Paper, General Intangible or instrument (as
instrument is defined in the Code).
"Adjusted Total Assets" shall mean total assets less
intangible assets.
"Adjusted Total Liabilities" shall mean total
liabilities less subordinated debt.
"Advance" shall mean an advance of proceeds of the
Revolving Loan to the Borrower pursuant to this Agreement, on any given Advance
Date.
1
<PAGE> 6
"Advance Date" shall mean the date as of which an
Advance is made.
"Advance Request" shall mean the written request for an
Advance under the Revolving Loan as identified in Section 3.1(f) hereof.
"Affiliate" of a named Person shall mean (a) any Person
owning 10% more of the voting stock or rights of such named Person or of which
the named Person owns 10% or more of such voting stock or rights; (b) any
Person controlling, controlled by or under common control with such named
Person; (c) any officer or director of such named Person or any Affiliates of
the named Person; and (d) any family member of the named Person or any
Affiliate of such named Person.
"Borrowing Base" shall have the meaning set forth in
Section 3.1(e) hereof.
"Business Day" shall mean a weekday on which commercial
banks are open for business in Orlando, Florida.
"Chattel Paper" shall mean all writing or writings
which evidence both a monetary obligation and a security interest in or the
lease of specific goods and in addition includes all property included in the
definition of "chattel paper" as used in the Code, together with any
guaranties, letters of credit and other security therefor.
"Code" shall mean the Uniform Commercial Code, as in
effect in Florida from time to time.
"Collateral" means the following property of the
Borrower, wherever located and whether now owned or hereafter acquired: (a) all
Inventory; (b) all Accounts and Chattel Paper and any other instrument or
intangible representing payment for goods or services; (c) all Equipment; (d)
any other collateral in which the Bank may be hereafter granted a security
interest or Lien; (e) all funds on deposit with or under the control of the
Bank or its agents or correspondents; and (f) all parts, replacements,
substitutions, profits, products and cash and non-cash proceeds of any of the
foregoing (including insurance proceeds payable by reason of loss or damage
thereto) in any form and wherever located. Collateral shall include all
written or electronically recorded records relating to any such Collateral and
other rights relating thereto.
"Debt" shall mean all liabilities of a Person as
determined under generally accepted accounting principles and all obligations
which such Person has guaranteed or endorsed or is otherwise secondarily or
jointly liable, and shall include, without limitation (a) all obligations for
borrowed money or purchased
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<PAGE> 7
assets, (b) obligations secured by assets whether or not any personal liability
exists, (c) the capitalized amount of any capital or finance lease obligations,
(d) the unfunded portion of pension or benefit plans or other similar
liabilities, (e) obligations as a general partner, (f) contingent obligations
pursuant to guaranties, endorsements, letters of credit and other secondary
liabilities, and (g) obligations for deposits.
"Default Rate" shall mean a rate equal to the lesser of
18% or highest rate of interest allowed by law.
"Eligible Domestic Accounts" shall mean all Accounts
(valued net of any sales tax included in the invoiced amount, the maximum
amount of any discounts or other reductions) arising from the sale of Inventory
to an Account Debtor or from the performance of services by the Borrower
payable not more than sixty (60) days after the due date of invoice and as to
which the Bank has a first priority perfected security interest subject only to
Permitted Liens, excluding (a) Accounts outstanding for sixty (60) days or more
from the due date of the invoice; (b) all Accounts owed by an Account Debtor if
more than 50% of the Accounts owed by such Account Debtor (or any Affiliate) to
the Borrower are ineligible because they are aged beyond sixty (60) days of the
due date of the invoice; (c) Accounts owing from any Affiliate of the Borrower;
(d) Accounts owed by a creditor of the Borrower or which are in dispute or
subject to any counterclaim, contra-account or offset; (e) Accounts owing by
any Account Debtor which is insolvent or generally unable to pay its debts as
they become due; (f) Accounts arising from a sale on a bill-and-hold,
guaranteed sale, sale-or-return, sale-on-approval, consignment or similar basis
or which is subject to repurchase, return, rejection, repossession, loss or
damage; (g) Accounts owed by an Account Debtor outside the United States; (h)
Accounts owed by the United States of America unless the Borrower shall have
complied with the federal Assignment of Claims Act; (j) Accounts as to which
the goods giving rise to the Account have not been delivered to and accepted by
the Account Debtor or the service giving rise to the Account has not ben
completely performed except for Accounts arising from software maintenance
contracts or which do not represent a final sale; (k) the total Accounts owed
by an Account Debtor and its Affiliates which exceed a credit limit established
by the Bank in its discretion (to the extent of such excess); (l) Accounts
evidenced by a note or other instrument, or Chattel Paper or reduced to
judgment; (m) Accounts which, by contract, subrogation, mechanics' lien laws or
otherwise, are subject to claims by the Borrower's creditors or other third
parties or which are owed by Account Debtors as to whom any creditor of the
borrower (including any bonding company) has lien rights; and (n) other
Accounts the validity, collectibility or amount of which is determined in good
faith by the Borrower or the Bank to be doubtful. No Accounts shall be
Eligible Domestic Accounts if any representation,
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<PAGE> 8
warranties or covenants herein relating thereto shall be in default.
"Eligible Foreign Accounts" shall mean all Accounts
owed by an Account Debtor including, without limitation, Metretek Europe, with
an invoice address outside the United States which otherwise meet the criteria
of Eligible Domestic Accounts.
"Eligible Inventory" shall mean the raw materials of
the Borrower as to which the Bank has a first priority perfected security
interest subject only to Permitted Liens, of a kind usually and customarily
sold by the Borrower and which is not, because of damage, age,
unmerchantability, obsolescence or any other condition or circumstance,
materially impaired in condition, value or marketability in the good faith
opinion of the Bank. Eligible Inventory shall be valued at book value. No
Inventory shall be Eligible Inventory if any representation, warranty, or
covenant herein relating to such Inventory is in default.
"Equipment" shall mean all furniture, fixtures,
equipment, motor vehicles, rolling stock and other tangible property of a
Person of every description, except Inventory and in addition includes all
property included in the definition of "equipment" as used in the Code.
"Event of Default" shall mean any event specified as
such in Section 6.1 hereof, provided that there shall have been satisfied any
requirement in connection with such event for the giving of notice or the lapse
of time, or both.
"Guarantor" shall mean Marcum Natural Gas Services,
Inc. and any Person now or hereafter guaranteeing, endorsing or otherwise
becoming liable for any Indebtedness.
"Guaranty Agreement" shall mean any guaranty instrument
now or hereafter executed and delivered by any Guarantor to the Bank, as it may
be modified.
"Indebtedness" shall mean all obligations now or
hereafter owed to the Bank by the Borrower, whether related or unrelated to the
Loan, including, without limitation, amounts owed or to be owed under the terms
of the Loan Documents, or arising out of the transactions described therein,
including, without limitation, the Loans, sums advanced to pay overdrafts on
any account maintained by the Borrower with the Bank, reimbursement obligations
for outstanding letters of credit or banker's acceptances issued to the account
of the Borrower, amounts paid by the Bank under letters of credit or drafts
accepted by the Bank for the account of the Borrower, together with all
interest accruing thereon, all fees, all costs of collection, attorneys' fees
and expenses of or advances by the Bank which the Bank pays or incurs in
discharge of obligations of the Borrower or to repossess,
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<PAGE> 9
protect, preserve, store or dispose of any Collateral, whether such amounts are
now due or hereafter become due, direct or indirect and whether such amounts
due are from time to time reduced or entirely extinguished and thereafter
re-incurred.
"Inventory" means all goods, merchandise and other
personal property of a Person which is held for sale or lease or furnished or
to be furnished under a contract for services or raw materials, and all work in
process and materials used or consumed or to be used or consumed in a Person's
business, and in addition, includes all property included in the definition of
"inventory" as used in the Code.
"Lien" (collectively "Liens") shall mean any mortgage,
pledge, statutory lien or other lien arising by operation of law, security
interest, trust arrangement, financing lease, collateral assignment or other
encumbrance, or any segregation of assets or revenues (whether or not
constituting a security interest) with respect to any present or future assets,
revenues or rights to the receipt of income of the Person referred to in the
context in which the term is used.
"Loan" (collectively "Loans") shall mean the Revolving
Loan and the Term Loan identified in Section 3.1 and Section 3.2 hereof.
"Loan Documents" shall mean this Agreement, any other
Security Agreement, any Note, any Guaranty Agreement, the Advance Requests,
UCC-1 financing statements and all other documents and instruments now or
hereafter evidencing, describing, guaranteeing or securing the Indebtedness
contemplated hereby or delivered in connection herewith, as they may be
modified.
"Maximum Revolving Loan Amount" shall mean $400,000.00
or such other greater amount as the Bank may consent to in writing from time to
time at the request of Borrower.
"Note" (collectively "Notes") shall mean the Revolving
Note and the Term Note as defined in Section 3.1 and Section 3.2 hereof, and
any other promissory note now or hereafter evidencing any Indebtedness, and all
modifications, extensions and renewals thereof.
"Permitted Debt" shall mean (a) the Indebtedness; (b)
Debt to Affiliates; (c) trade accounts payable and other accrued expenses
arising in the ordinary course of business; (d) capital lease obligations
existing on the date hereof or arising after the date hereof as permitted by
this Agreement; (e) accrued compensation and accrued taxes; (f) existing note
payable to McLean Enterprises; and (g) such other Debt as the Bank may consent
to in writing from time to time.
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"Permitted Liens" shall mean (a) Liens securing the
Indebtedness; (b) Liens for taxes or other governmental charges and other
statutory Liens; (c) Liens of mechanics, materialmen, warehousemen, carriers or
similar statutory Liens securing obligations incurred in the ordinary course of
business; (d) Liens resulting from deposits to secure payments of workmen's
compensation or other social security programs or to secure the performance of
statutory obligations, surety and appeal bonds, bonds or contracts (other than
for payment of Debt), or leases made in the ordinary course of business; (e)
landlord's Liens and similar Liens arising out of operation of law (provided
they are subordinate to the Bank's Liens on Collateral) so long as the
obligations secured thereby are not past due or are being contested as
permitted herein; and (f) such other Liens as the Bank may consent to in
writing from time to time.
"Person" shall mean any natural person, corporation,
unincorporated organization, trust, joint-stock company, joint venture,
association, company, limited or general partnership, any government, or any
agency or political subdivision of any government.
"Prime Rate" shall mean that index rate of interest per
annum announced from time to time by the Bank (or its successor) as its "prime
rate" or "prime lending rate" (which rate shall not necessarily be the best or
lowest rate for any particular type of loan or for loans to any particular
class or category of customer). A change in the Prime Rate shall become
effective from the beginning of the day on which such change is announced by
the Bank.
"Security Agreement" shall mean this Agreement as it
relates to a security interest in the Collateral, and any other mortgage,
security agreement or similar instrument now or hereafter executed by the
Borrower or other Person granting the Bank a security interest in any
Collateral to secure the Indebtedness.
"Subsidiary" shall mean any corporation, partnership or
other Person in which the Borrower, directly or indirectly, owns more than
fifty percent (50%) of the stock, capital or income interests, or other
beneficial interests, or which is effectively controlled by the Borrower.
"Tangible Net Worth" shall mean Adjusted Total Assets
less Adjusted Total Liabilities.
1.2 Financial Terms. All financial terms used herein shall
have the meanings assigned to them under generally accepted accounting
principles unless another meanings shall be specified.
2. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to
enter into this Agreement and to make the Loans provided for
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<PAGE> 11
herein, the Borrower makes the following representations and warranties, all of
which shall survive the execution and delivery of the Loan Documents. Unless
otherwise specified, such representations and warranties shall be deemed made
as of the date hereof and as of the Advance Date of any Advance by the Bank to
the Borrower.
2.1 Valid Existence and Power. The Borrower is a
corporation duly organized, validly existing and in good standing under the
laws of Florida and is duly qualified or licensed to transact business in all
places where the failure to be so qualified would have a material adverse
effect on it. The Borrower and each other Person which is a party to any Loan
Document (other than the Bank) has the power to make and perform the Loan
Documents executed by it and all such instruments will constitute the legal,
valid and binding obligations of such Person, enforceable in accordance with
their respective terms, subject only to bankruptcy and similar laws affecting
creditors' rights generally.
2.2 Authority. The execution, delivery and performance
thereof by the Borrower and each other Person (other than the Bank) executing
any Loan Document have been duly authorized by all necessary action of such
Person, and do not and will not violate any provision of law or regulation, or
any writ, order or decree of any court or governmental or regulatory authority
or agency or any provision of the governing instruments of such Person, and do
not and will not, with the passage of time or the giving of notice, result in a
breach of, or constitute a default or require any consent under, or result in
the creation of any Lien upon any property or assets of such Person pursuant
to, any law, regulation, or material instrument or agreement to which any such
Person is a party or by which any such Person or its respective properties may
be subject, bound or affected.
2.3 Financial Condition. Other than as disclosed in
financial statements delivered on or prior to the date hereof to the Bank or
arising in the ordinary course of business, neither the Borrower nor (to the
knowledge of the Borrower) any Guarantor has any material contingent
obligations or liabilities (including any guarantees or leases) or any material
unrealized or anticipated losses from any commitments of such Person except as
described on Exhibit 2.3 (if any). The Borrower is not aware of any material
adverse fact (other than facts which are generally available to the public and
not particular to the Borrower, such as general economic or industry trends)
concerning the conditions or future prospects of the Borrower or any Guarantor
which has not been fully disclosed to the Bank, including any adverse change in
the operations or financial condition of such Person since the date of the most
recent financial statements delivered to the Bank.
2.4 Litigation. There are no suits or proceedings pending,
or to the knowledge of the Borrower threatened, before any
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<PAGE> 12
court or by or before any governmental or regulatory authority, commission,
bureau of agency or public regulatory body against or affecting the Borrower,
(to the Borrower's knowledge) any Guarantor, or their assets, which if
adversely determined would have a material adverse effect on the financial
condition or business of the Borrower or such Guarantor.
2.5 Agreements, Etc. The Borrower is not a party to any
agreement or instrument or subject to any court order, governmental decree or
any charter or other corporate restriction, materially and adversely affecting
its business, properties or assets, operations or condition (financial or
otherwise) nor is the Borrower in default in any material respect in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument to which it is a party, or
any law, regulation, decree, order or the like.
2.6 Authorizations. All authorizations, consents,
approvals and licenses required under applicable law or regulation for the
ownership or operation of the property owned or operated by the Borrower or for
the conduct of any business in which it is engaged have been duly issued and
are in full force and effect, and it is not in default, nor has any event
occurred which with the passage of time or the giving of notice, or both, would
constitute a default, under any of the terms or provisions of any part thereof,
or under any order, decree, ruling, regulation, closing agreement or other
decision or instrument of any governmental commission, bureau or other
administrative agency or public regulatory body having jurisdiction over such
Person, which default would have a material adverse effect on such Person.
Except as noted herein, no approval, consent or authorization of, or filing or
registration with, any governmental commission, bureau or other regulatory
authority or agency is required with respect to the execution, delivery or
performance of any Loan Document.
2.7 Title. The Borrower has good title to all of the
assets shown in its financial statements free and clear of all Liens, except
Permitted Liens. The Borrower alone has full ownership rights in all
Collateral.
2.8 Collateral. The security interests granted to the Bank
herein and pursuant to any other Security Agreement (a) constitute and, as to
subsequently acquired property included in the Collateral covered by the
Security Agreement, will constitute, security interests under the Code entitled
to all of the rights, benefits and priorities provided by the Code and (b) are,
and as to such subsequently acquired Collateral will be fully perfected,
superior and prior to the rights of all third persons, now existing or
hereafter arising, subject only to Permitted Liens and to matters under the
direct control of the Bank. All of the Collateral is intended for use solely
in the Borrower's business.
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2.9 Location. The chief executive office of the Borrower
where the Borrower's business records are located is the address designated for
notices in Section 8.4 and the Borrower has no other places of business except
as shown on Exhibit 2.9, if any.
2.10 Taxes. The Borrower has filed all federal and state
income and other tax returns which, to the best knowledge of the Borrower, are
required to be filed, and have paid all taxes as shown on said returns and all
taxes, including ad valorem taxes, shown on all assessments received by it to
the extent that such taxes have become due, other than taxes being contested by
Borrower in good faith. The Borrower is not subject to any federal, state or
local tax Liens nor has the Borrower received any notice of deficiency or other
official notice to pay any taxes. The Borrower has paid all sales and excise
taxes due and payable by it.
2.11 Withholding Taxes. The Borrower has paid all
withholding, FICA and other payments required by federal, state or local
governments with respect to any wages paid to employees.
2.12 Labor Law Matters. No goods or services have been or
will be knowingly produced by the Borrower in violation of any applicable labor
laws or regulations or any collective bargaining agreement or other labor
agreements or in violation of any minimum wage, wage-and-hour or other similar
laws or regulations.
2.13 Accounts. Each Account, instrument, Chattel Paper and
other writing constituting any portion of the Collateral is (a) genuine and
enforceable in accordance with its terms except for such limits thereon arising
from bankruptcy and similar laws relating to creditors' rights; (b) not subject
to any defense, setoff, claim or counterclaim of a material nature against the
Borrower except as to which the Borrower has notified the Bank in writing; and
(c) not subject to any other circumstances that would impair the validity,
enforceability or amount of such Collateral except as to which the Borrower has
notified the Bank in writing. Each Account included in any Advance Request,
report or other document as an Eligible Account meets all the requirements of
an Eligible Account set forth herein.
2.14 Use and Location of Collateral. The Collateral is
located only, and shall at all times be kept and maintained only, at the
Borrower's location or locations as described herein, or such other place or
places as are appropriate, necessary or desirable in the ordinary course of
business. No such Collateral is attached or affixed to any real property so as
to be classified as a fixture unless the Bank has otherwise agreed in writing.
2.15 Judgment Liens. Neither the Borrower, nor any of its
assets, are subject to any unpaid judgments (whether or not stayed) or any
judgment liens in any jurisdiction.
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2.16 Intent and Effect of Transactions. This Agreement and
the transactions contemplated herein (a) are not made or incurred with intent
to hinder, delay or defraud any person to whom the Borrower has been, is now,
or may hereafter become indebted; (b) do not render the Borrower insolvent nor
is the Borrower insolvent on the date of this Agreement; (c) do not leave the
Borrower with an unreasonably small capital with which to engage in its
business or in any business or transaction in which it intends to engage; and
(d) are not entered into with the intent to incur, or with the belief that the
Borrower would incur, debts that would be beyond its ability to pay as such
debts mature.
2.17 Hazardous Materials. The Borrower's property and
improvements thereon have not in the past been used, are not presently being
used, and will not in the future be used for, nor does the Borrower engage in,
the handling, storage, manufacture, disposition, processing, transportation,
use or disposal of hazardous or toxic materials in violation of any applicable
statute or regulation.
2.18 ERISA. The Borrower has furnished to the Bank true and
complete copies of the latest annual report required to be filed pursuant to
Section 104 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), with respect to each employee benefit plan or other plan maintained
for employees of the Borrower and covered by Title IV of ERISA (a "Plan"), and
no Termination Event (as hereinafter defined) with respect to any Plan has
occurred and is continuing. For the purposes of this Agreement, a "Termination
Event" shall mean a "reportable event" as defined in Section 4043(b) of ERISA
("Reportable Event"), or the filing of a notice of intent to terminate under
Section 4041 of ERISA. The Borrower has no unfunded liability with respect to
any such plan.
2.19 Investment Company Act. The Borrower is not an
"investment company" as defined in the Investment Company Act of 1940, as
amended.
3. THE LOANS
3.1 Revolving Loan. The Bank may in its discretion lend to
the Borrower a total principal amount not to exceed the Maximum Revolving Loan
Amount (the "Revolving Loan") for working capital to be used in the operation
of the Borrower's business. The Revolving Loan shall be evidenced by and
payable in accordance with the terms of a renewal promissory note in the face
amount of $400,000.00 dated of even date herewith (the "Revolving Note"). The
Revolving Note shall evidence the outstanding principal balance of the Loan, as
it may change from time to time. ADVANCES UNDER THE REVOLVING LOAN ARE
DISCRETIONARY WITH THE BANK AND THE PRINCIPAL BALANCE OF THE REVOLVING LOAN, OR
SO MUCH THEREOF AS MAY BE ADVANCED, SHALL BE
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<PAGE> 15
PAYABLE IN FULL ON DEMAND. Advances under the Revolving Loan shall be subject
to the following terms:
(a) Advances of proceeds of the Revolving Loan
shall be limited to the Maximum Revolving Loan Amount at any time outstanding;
provided, however, that the Maximum Revolving Loan Amount shall be reduced by
the Borrower to $300,000.00 for thirty (30) consecutive days during calendar
year 1996 and shall be further reduced by the Borrower to $200,000.00 for
thirty (30) consecutive days during calendar year 1997.
(b) Should there occur any overdraft of any
deposit account maintained by the Borrower with the Bank, the Bank may, at its
option, disburse funds (whether or not in excess of the Maximum Revolving Loan
Amount) to eliminate such overdraft and such disbursement shall be deemed an
Advance of Loan proceeds hereunder entitled to all of the benefits of the Loan
Documents. Nothing herein shall be deemed an authorization of or consent to the
creation of an overdraft in any account or create any obligations on the part
of the Bank;
(c) All Advances by the Bank to or for the
account of the Borrower, whether or not in excess of the Maximum Revolving Loan
Amount, shall be considered part of the Indebtedness under the Revolving Note,
shall bear interest as provided in the Revolving Note, and shall be entitled to
all rights and benefits hereunder and under all other Loan Documents; and
(d) The Borrower shall not request and the Bank
will not be required to consider requests for Advances after January 31, 1998;
provided that the Bank may in its discretion extend such date in writing and
further provided that the repayment obligations of the Borrower for Advances
made by the Bank after such date (as it may be extended) shall be binding on
the Borrower and any Guarantor or other persons liable for any Indebtedness to
the same extent as obligations with respect to Advances made prior to such
date.
(e) The outstanding balance of the Revolving
Loan may increase and decrease from time to time, and Advances thereunder may
be repaid and reborrowed, but the total of Advances outstanding at any one time
under the Revolving Loan shall never exceed the lesser of:
(i) The Maximum Revolving Loan
Amount; and
(ii) the "Borrowing Base," which
shall be calculated by adding
(A) a sum equal to seventy-five
percent (75%) of the total
amount of Eligible Domestic
Accounts plus (B) a sum equal
to fifty percent (50%) of the
lesser of cost or
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fair market value of Eligible
Inventory of the Borrower plus
(C) a sum equal to fifty-five
percent (55%) of Eligible
Foreign Accounts.
The Borrower shall, within ten (10) Business Days of when a Borrowing Base
Certificate is due hereunder, pay to the Bank any amount by which the Revolving
Loan exceeds the Borrowing Base or the Maximum Revolving Loan Amount, whichever
is less. The Bank may, in its discretion, make, or permit to remain
outstanding, Advances to the Borrower in excess of the Borrowing Base and/or
the Maximum Revolving Loan Amount and all such amounts shall be part of the
Revolving Loan and Indebtedness, shall bear interest as provided in the
Revolving Note, shall be payable on demand and shall be entitled to all rights
and security provided for herein, in the Guaranty, the Security Agreement and
all other Loan Documents.
(f) Unless another satisfactory procedure for
disbursements is agreed upon in writing by the parties, the following procedure
will be used for disbursement of proceeds of the Revolving Loan. The Borrower
shall deliver a written and signed Advance Request to the Bank not later than
12:00 noon, Orlando time, on the Business Day of the proposed Advance Date, in
the form attached hereto as Exhibit 3.1, setting forth the amount of the
requested Advance, setting forth the Eligible Accounts and Eligible Inventory
of the Borrower as of the end of the prior month (together with other
components of the Borrowing Base) specifying the date (which shall be a
Business Day), and the amount of the proposed Advance of proceeds, and
providing such other information as the Bank may require.
3.2 Term Loan. Subject to the provisions of this
Agreement, the Bank shall lend to the Borrower the total principal amount of
$421,607.00 (the "Term Loan"). The Term Loan shall be evidenced by and payable
in accordance with the terms of a renewal promissory note in the face amount of
$421,607.00 dated of even date herewith (the "Term Note").
3.3 Calculation of Interest. All interest under the Notes
or hereunder shall be calculated on the basis of a 360-day year for the actual
number of days elapsed in an interest period (actual/360 method), unless the
Bank shall otherwise elect.
3.4 Overdue Amounts. Any payments not made as and when due
shall bear interest from the date due until paid at the Default Rate.
4. CONDITIONS PRECEDENT TO BORROWING. Prior to any Advance of the
proceeds of any Loan, the following conditions shall have been satisfied, in
the sole opinion of the Bank and its counsel:
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4.1 Conditions Precedent to Initial Advance. In addition
to any other requirement set forth in this Agreement, the Bank will not make
the initial Advance under the Loans unless and until the following conditions
shall have been satisfied:
(a) Loan Documents. The Borrower and each
other party to any Loan Documents, as applicable, shall have executed and
delivered this Agreement, the Notes, and other required Loan Documents, all in
form and substance satisfactory to the Bank.
(b) Supporting Documents. The Borrower shall
cause to be delivered to the Bank the following documents:
(i) A copy of the governing
instruments of the Borrower,
and a good standing certificate
of the Borrower, certified by
the appropriate official of its
state of incorporation and the
State of Florida, if different;
(ii) Incumbency certificate and
certified resolutions of the
board of directors (or other
appropriate Persons) of the
Borrower and each other Person
executing any Loan Documents
authorizing the execution,
delivery and performance of
the Loan Documents; and
(iii) UCC-11 searches and other Lien
searches showing no existing
security interests in or Liens
on the Collateral other than
the security interests of the
Bank.
(c) Insurance. The Borrower shall have
delivered to the Bank satisfactory evidence of insurance meeting the
requirements of Section 5.3.
(d) Perfection of Liens. UCC-l financing
statements and, if applicable, certificates of title covering the Collateral
executed by the Borrower shall duly have been recorded or filed in the manner
and places required by law to establish, preserve, protect and perfect the
interests and rights created or intended to be created by this Agreement and
all taxes, fees and other charges in connection with the execution, delivery
and filing of this Agreement, and the financing statements shall duly have been
paid.
(e) Subordinations. The Bank shall have
received subordinations satisfactory to it from all lessors that might have
landlord's Liens on any Collateral.
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(f) Additional Documents. The Borrower shall
have delivered to the Bank all additional opinions, documents, certificates and
other assurances that the Bank or its counsel may require.
4.2 Conditions Precedent to Each Advance. The following
conditions, in addition to any other requirements set forth in this Agreement,
shall have been met or performed by the Advance Date with respect to any
Advance Request:
(a) Advance Request. The Borrower shall have
delivered to the bank an Advance Request and other information, as required
under in Section 3.1(f).
(b) No Default. No default shall have occurred
and be continuing or will occur upon the making of the Advance in question and
the Borrower shall have delivered to the Bank an officer's certificate to such
effect, which may be incorporated in the Advance Request.
(c) Correctness of Representations. All
representations and warranties made by the Borrower and any Guarantor herein or
otherwise in writing in connection herewith shall be true and correct with the
same effect as though the representations and warranties had been made on and
as of the proposed Advance Date, and the Borrower shall have delivered to the
Bank an officer's certificate to such effect, which may be incorporated in the
Advance Request.
(d) No Adverse Change. There shall have been
no material adverse change in the condition, financial or otherwise, of the
Borrower or any Guarantor from such condition as it existed on the date of the
most recent financial statements of such Person delivered prior to date hereof.
(e) Periodic Report. The Bank shall have
received a current Accounts Receivable Report and a current Inventory report
(as requested by the Bank from time to time) sufficient in form and substance
to calculate and verify the Borrowing Base.
(f) Further Assurances. The Borrower shall
have delivered such further documentation or assurances as the Bank may
reasonably require.
5. COVENANTS OF THE BORROWER. The Borrower covenants and agrees that
from the date hereof and until payment in full of the Indebtedness and the
formal termination of this Agreement, unless the Bank shall otherwise consent
in writing, the Borrower:
5.1 Use of Loan Proceeds. Shall use the proceeds of the
Loan only for the commercial purposes permitted herein or otherwise
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permitted by the Bank and furnish the Bank all evidence that it may reasonably
require with respect to such use.
5.2 Maintenance of Business and Properties. Shall at all
times maintain, preserve and protect all Collateral and all the remainder of
its material property used or useful in the conduct of its business, and keep
the same in good repair, working order and condition, ordinary wear and tear
excepted, and from time to time make, or cause to be made, all material needful
and proper repairs, renewals, replacements, betterments and improvements
thereto so that the business carried on in connection therewith may be
conducted properly and in accordance with standards generally accepted in
businesses of a similar type and size at all times, and maintain and keep in
full force and effect all licenses and permits necessary to the proper conduct
of its business.
5.3 Insurance. Shall maintain such liability insurance,
workers' compensation insurance, business interruption insurance and casualty
insurance as may be required by law, customary and usual for prudent businesses
in its industry or as may be reasonably required by the Bank and shall insure
and keep insured all Collateral and other properties in good and responsible
insurance companies satisfactory to the Bank. All hazard insurance covering
Collateral shall be in amounts and shall contain co-insurance and deductible
provisions approved by the Bank, shall name and directly insure the Bank as
secured party and loss payee under a long-form New York standard loss payee
clause, or its equivalent, and shall not be terminable except upon 30 days'
written notice to the Bank. In the event of any Default hereunder, Bank is
authorized in its sole discretion to cancel any insurance and credit any
premium refunded against the unpaid balance due on the Indebtedness.
5.4 Notice of Default. Shall provide to the Bank immediate
notice of (a) the occurrence of an Event of Default, (b) any material
litigation or material changes in existing litigation or any judgment against
it or its assets, (c) any material damage or loss to property, (d) any notice
from taxing authorities as to claimed deficiencies or any tax lien (other than
notices pertaining to taxes being contested in good faith) or any notice
relating to alleged ERISA violations, (e) any Reportable Event, as defined in
ERISA, (f) any rejection, return, offset, dispute, loss or other circumstance
having a material adverse effect on any Collateral, and (g) any loss or
threatened loss of material licenses or permits.
5.5 Inspections. Shall permit inspections of the
Collateral and the records of such Person pertaining thereto, at such times and
in such manner as may be reasonably required by the Bank and shall further
permit such inspection, review and audits of its other records and its
properties (with such reasonable frequency and at such reasonable times as the
Bank may desire) by
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the Bank as the Bank may deem necessary or desirable from time to time. The
cost of such audits, reviews and inspections shall be borne by the Borrower.
5.6 Financial Information. Shall maintain books and
records in accordance with generally accepted accounting principles and shall
furnish to the Bank the following periodic financial information:
(a) Periodic Borrowing Base
Certificates/Compliance Certificates. Within 30 days of the end of each month
(or more frequently if required by the Bank), (i) a report listing Accounts and
all Eligible Accounts of the Borrower as of the last Business Day of such month
(the "Accounts Receivable Report") which shall include the amount and age of
each Account, the name of each Account Debtor and such other information as the
Bank may require in order to verify the Eligible Accounts, all in reasonable
detail and in form acceptable to the Bank, (ii) an income statement and a
balance sheet prepared in accordance with generally accepted accounting
principles, as at the end of any for such month and year-to-date, each
certified by the chief financial officer or president of the Borrower or the
controller of Guarantor as being materially true and accurate, (iii) a
financial covenant compliance certificate in the form set forth in Schedule 5.6
attached; and (iv) a Borrowing Base Certificate in the form set forth in
Schedule 3.1 attached.
(b) Financial Reports. Within 90 days after
the end of each fiscal year, and 60 days after the end of each fiscal quarter,
unaudited management-prepared financial statements, including, without
limitation, a balance sheet, profit and loss statement, and statement of cash
flows, with supporting schedules, prepared in accordance with generally
accepted accounting principles;
(c) No Default Certificates. Together with
each report required by Subsections (a) and (b), shall submit a certificate of
its president or chief financial officer or the controller of Guarantor that no
Event of Default then exists or if an Event of Default exists, the nature and
duration thereof and the Borrower's intention with respect thereto;
(d) Guarantor's Financial Statements. Shall
also cause the Guarantor to submit, within ninety (90) days of the close of
Guarantor's fiscal year: financial statements for such fiscal year with
supporting schedules, if any, including, without limitation, profit and loss
statement, balance sheet and statement of cash flows, which statements shall be
accompanied by an unqualified independent auditor's report of the certified
public accountant regularly serving the Guarantor, with the cost of such audit
being paid by Guarantor. Guarantor shall also provide within sixty (60) days
of the close of each fiscal quarter, unaudited
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management-prepared 10Q financial statements appearing in the Guarantor's Form
10-QSB or Form 10-Q, as applicable, including, without limitation, a balance
sheet, profit and loss statement, and statement of cash flows, with supporting
schedules (if any). Bank shall also promptly receive copies of all press
releases issued by Guarantor and any filings by Guarantor as required by the
Securities and Exchange Commission.
The financial statements required above shall be in consolidated
and, if required by the Bank, consolidating form for the Borrower and all
Subsidiaries required by generally accepted accounting principles to be
consolidated for financial reporting purposes. In addition to the financial
statements required herein, the Bank reserves the right to require other or
additional financial or other information concerning the Borrower, the
Guarantor and/or the Collateral, subject to the Bank's assurance of
confidential treatment of such information and subject further to the
Guarantor's obligations under the federal securities laws and regulations and
applicable stock market or stock exchange policies.
5.7 Debt. Shall not create, assume or permit to exist any
Debt, including any guaranties or other contingent obligations, other than (i)
Permitted Debt, and (ii) Debt incurred in the ordinary course of business.
5.8 Liens. Shall not create or permit to exist any Liens
on any of its property in excess of $5,000.00, except (i) Permitted Liens, (ii)
security interests required by the Loan Documents; (iii) liens for taxes
contested in good faith; and (iv) liens accruing by law for employee benefits.
5.9 Dividends. Shall not pay or declare any dividends.
5.10 Merger, Sale, Etc. Shall maintain its corporate
existence, good standing and necessary qualifications to do business and shall
not merge or consolidate with any Person or acquire all or substantially all of
the assets of, or 50% or more of any class of equity interest of, any Person or
sell, lease, assign or otherwise dispose of any Collateral or substantial
portion of its other assets (other than sales of obsolete or worn-out equipment
and sales of Inventory in the ordinary course of business), or sell or
otherwise dispose of stock of any Subsidiary.
5.11 Loans and Other Investments. Except for existing
balances set forth in Schedule 5.11 attached, shall not make or permit to exist
any advances, investments or loans to, or guarantee or become contingently
liable, directly or indirectly, in connection with the obligations, leases,
stock or dividends of, or own, purchase or make any commitment to purchase any
stock, bonds, notes, debentures or other securities of, or any interest in, or
make any capital contributions to (all of which are sometimes collectively
referred to herein as "Investments") any Person which
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total more than $30,000 in the aggregate, except for (a) purchases of direct
obligations of the federal government, (b) deposits in commercial banks, (c)
commercial paper of any U.S. corporation having the highest ratings then given
by Moody's Investors Service, Inc. or Standard & Poor's Corporation, (d)
existing investments in Subsidiaries, (e) endorsement of negotiable instruments
for collection in the ordinary course of business, (f) travel and expense
advances made in the ordinary course of business, and (g) loans and advances to
the Guarantor of up to a maximum of $150,000.00 at any point in time during
fiscal year 1996 and a maximum of $300,000.00 at any point in time during
fiscal year 1997, as long as such activity would not otherwise cause an Event
of Default.
5.12 Change in Business. Shall not enter into any business
which is substantially different from the business or businesses in which it is
presently engaged.
5.13 Accounts. (a) shall not sell, assign or discount any
of its Accounts, Chattel Paper or any promissory notes held by it other than
the discount of such notes in the ordinary course of business for collection;
and (b) shall notify the Bank promptly in writing with any discount, offset or
other deductions not shown on the face of an Account invoice and any dispute
over an Account, and any information relating to an adverse change in any
Account Debtor's financial condition or ability to pay its obligations.
5.14 No Change in Name, Offices; Removal of Collateral.
Shall not, unless it shall have given 60 days' advance written notice thereof
to the Bank, (a) change its name or the location of its chief executive office
or other office where books or records are kept or (b) permit any Inventory or
other tangible Collateral to be located at any location other than as specified
in Section 2.9 or Section 2.14.
5.15 No Sale, Leaseback. Shall not enter into any
sale-and-leaseback or similar transaction.
5.16 Margin Stock. Shall not use any proceeds of the Loan
to purchase or carry any margin stock (within the meaning of Regulation U of
the Board of Governors of Federal Reserve System) or extend credit to others
for the purpose of purchasing or carrying any margin stock.
5.17 Payment of Taxes, Etc. Shall pay before delinquent all
of its debts and taxes except that the Bank shall not unreasonably withhold its
consent to nonpayment of taxes being actively contested in accordance with law
(provided that the Bank may require bonding or other assurances).
5.18 Subordination. Shall cause all debt and other
obligations now or hereafter owed to any Guarantor or Affiliate to
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be subordinated in right of payment and security to the Indebtedness.
5.19 Compliance; Hazardous Materials. Shall strictly comply
with all laws, regulations, ordinances and other legal requirements,
specifically including, without limitation, ERISA, all securities laws and all
laws relating to hazardous materials and the environment.
5.20 Subsidiaries. Shall not acquire, form or dispose of
any Subsidiaries or permit any Subsidiary to issue capital stock except to its
parent without the Bank's prior written consent, nor shall the Borrower allow
an increase over the current level in the amount of loans, advances, or
investment in any Subsidiary, except for transactions in the ordinary course of
business.
5.21 Compliance with Assignment Laws. Shall comply with the
Federal Assignment of Claims Act and any other applicable law relating to
assignment of government contracts.
5.22 Further Assurances. Shall take such further action and
provide to the Bank such further assurances as may be reasonably requested to
ensure compliance with the intent of this Agreement and the other Loan
Documents.
5.23 Withholding Taxes. Shall pay as and when due all
employee withholding, FICA and other payments required by federal, state and
local governments with respect to wages paid to employees.
5.24 Minimum Current Ratio. Shall maintain at all times a
minimum ratio of total current assets to total current liabilities of 2.00 to
1.00.
5.25 Capital Expenditures. Shall not make aggregate capital
expenditures (including capitalized lease expenditures) in excess of
$600,000.00 for fiscal year 1996 or in excess of $100,000.00 for fiscal year
1997 without prior Bank approval.
5.26 Working Capital. Borrower shall at all times maintain
working capital of at least one million eight hundred thousand dollars
($1,800,000.00). "Working capital" shall mean the excess of the Borrower's
current assets over the Borrower's current liabilities. For purposes of this
computation, "current assets" shall mean all assets computed in accordance with
GAAP, adjusted for accounts receivables from Affiliates, and "current
liabilities" shall mean all liabilities computed in accordance with GAAP,
adjusted for accounts payables to Affiliates.
5.27 Total Liabilities to Tangible Net Worth Ratio.
Borrower shall at all times maintain a total liabilities, reduced by debt fully
subordinated to the Loan, to Tangible Net Worth ratio
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of not more than .75 to 1.00. For purposes of this computation, "total
liabilities" shall mean all liabilities, including capitalized leases and all
reserves for deferred taxes and other deferred sums appearing on the
liabilities side of a balance sheet, in accordance with generally accepted
accounting principles applied on a consistent basis.
5.28 Aggregate Indebtedness Limitation. The aggregate of
the Loans is subject to total Bank debt not greater than the lesser of required
monthly borrowing base certificate availability or $400,000 plus Term Loan
amortized balance.
5.29 Deposit Relationship. Borrower will maintain its
primary depository account with Bank.
5.30 Change of Control. Shall not permit a material change
of ownership or control of the Borrower.
5.31 Guarantees. Shall not guarantee or otherwise become
responsible for obligations of any other person or persons in an aggregate
amount in excess of $5,000.00 per fiscal year, other than the endorsement of
checks and drafts for collection in the ordinary course of business.
6. DEFAULT.
6.1 Events of Default. Each of the following shall
constitute an Event of Default:
(a) Any representation or warranty made by the
Borrower or any other party to any Loan Document (other than the Bank) herein
or therein or in any certificate or report furnished in connection herewith or
therewith shall prove to have been untrue or incorrect in any material respect
when made; or
(b) There shall occur any failure by the
Borrower in the payment, within ten (10) Business Days of the date when due, of
any principal of or interest on the Notes, any amounts due hereunder or any
other Loan Document, including any overage shown on any Borrowing Base
Certificate, or any other Indebtedness; or
(c) There shall occur any default that
continues for ten (10) Business Days by the Borrower or any other party to any
Loan Document (other than the Bank) in the performance of any agreement,
covenant or obligation contained in this Agreement or such Loan Document not
provided for elsewhere in this Section 6; or
(d) Any other obligation now or hereafter owed
by the Borrower to the Bank shall be in default or Borrower shall be in default
under any material contract or obligation, including, but not limited to, an
obligation for borrowed money owed to any other obligee, which default entitles
the obligee to accelerate any
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such obligations or exercise other remedies with respect thereto, which default
continues for ten (10) Business Days; or
(e) The Borrower or Guarantor shall (i)
voluntarily liquidate or terminate operations without prior Bank approval or
apply for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of such Person or of all or of a
substantial part of its assets, (ii) admit in writing its inability, or be
generally unable, to pay its debts as the debts become due, (iii) make a
general assignment for the benefit of its creditors, (iv) commence a voluntary
case under the federal Bankruptcy Code (as now or hereafter in effect), (v)
file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, (vi) fail to controvert in a timely and appropriate
manner, or acquiesce in writing to, any petition filed against it in an
involuntary case under the Bankruptcy Code, or (vii) take any corporate action
for the purpose of effecting any of the foregoing; or
(f) Without its application, approval or
consent, a proceeding shall be commenced, in any court of competent
jurisdiction, seeking in respect of such Person any remedy under the federal
Bankruptcy Code, the liquidation, reorganization, dissolution, winding-up, or
composition or readjustment of debt, the appointment of a trustee, receiver,
liquidator or the like of such Person, or of all or any substantial part of the
assets of such Person, or other like relief under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding is not dismissed within 120 days; or
(g) Any security interest or Lien of the Bank
hereunder or under any other Security Agreement shall not constitute a
perfected security interest of first priority in the Collateral thereby
encumbered that is not remedied within thirty (30) days after Borrower learns
thereof, subject only to Permitted Liens except in the case of Bank's
negligence in filing; or
(h) There shall occur any material loss, theft,
damage or destruction of any of the Collateral, which loss is not fully insured
(subject to standard deductibles and co-payments); or
(i) A final judgment in excess of $50,000 shall
be rendered against the Borrower or Guarantor and shall remain undischarged,
undismissed and unstayed for more than 30 days (except judgments validly
covered by insurance with a deductible of not more than $50,000) or there shall
occur any levy upon, or attachment, garnishment or other seizure of, any
material portion of the Collateral or other assets of the Borrower or Guarantor
by
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reason of the issuance of any tax levy, judicial attachment or garnishment or
levy of execution; or
(j) The Borrower or Guarantor shall fail to
pay, within ten 10 Business Days of demand, any returned or dishonored draft,
check, or other item which has been presented to the Bank and for which the
Borrower has received provisional credit; or
(k) Any Guarantor shall expressly repudiate or
revoke any Guaranty Agreement.
THE FOREGOING ENUMERATION OF EVENTS OF DEFAULT NOTWITHSTANDING, NOTHING HEREIN
SHALL BE DEEMED TO LIMIT, RESTRICT, IMPAIR OR DIMINISH THE ABSOLUTE RIGHT OF
THE BANK TO DEMAND PAYMENT OF THE REVOLVING LOAN IN FULL, AT ANY TIME, WITHOUT
CAUSE.
6.2 Remedies. If any Event of Default shall occur, the
Bank may, without notice to the Borrower, at its option, withhold further
Advances to the Borrower of proceeds of the Loans. Should (a) any Event of
Default occur and not be cured within thirty (30) days following delivery of
written notice thereof by the Bank to the Borrower (which notice shall be
complete upon hand or overnight delivery or upon facsimile delivery or mailing
by certified mail, return receipt requested) or (b) any other Event of Default
occur, the Bank may declare any or all Indebtedness to be immediately due and
payable (if not earlier demanded), bring suit against the Borrower to collect
the Indebtedness, exercise any remedy available to the Bank hereunder and take
any action or exercise any remedy provided herein or in any other Loan Document
or under applicable law. No remedy shall be exclusive of other remedies or
impair the right of the Bank to exercise any other remedies.
6.3 Receiver. In addition to any other remedy available to
it, the Bank shall have the absolute right, upon the occurrence of an Event of
Default, to seek and obtain the appointment of a receiver to take possession of
and operate and/or dispose of the business and assets of the Borrower and any
costs and expenses incurred by the Bank in connection with such receivership
shall bear interest at the Default Rate and shall be secured by all Collateral.
7. SECURITY AGREEMENT.
7.1 Security Interest.
(a) As security for the payment and performance
of any and all of the Indebtedness and the performance of all other obligations
and covenants of the Borrower hereunder and under the other Loan Documents,
certain or contingent, now existing or hereafter arising, which are now, or may
at any time or times hereafter be owing by the Borrower to the Bank, the
Borrower hereby pledges to the Bank and gives the Bank a continuing security
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interest in and general Lien upon and right of set-off against, all right,
title and interest of the Borrower in and to the Collateral, whether now owned
or hereafter acquired by the Borrower.
(b) Except as herein or by applicable law
otherwise expressly provided, the Bank shall not be obligated to exercise any
degree of care in connection with any Collateral in its possession, to take any
steps necessary to preserve any rights in any of the Collateral or to preserve
any rights therein against prior parties, and the Borrower agrees to take such
steps. In any case the Bank shall be deemed to have exercised reasonable care
if it shall have taken such steps for the care and preservation of the
Collateral or rights therein as the Borrower may have reasonably requested the
Bank to take and the Bank's omission to take any action not requested by the
Borrower shall not be deemed a failure to exercise reasonable care. No
segregation or specific allocation by the Bank of specified items of Collateral
against any liability of the Borrower shall waive or affect any security
interest in or Lien against other items of Collateral or any of the Bank's
options, powers or rights under this Agreement or otherwise arising.
(c) Upon any transfer of the Notes, the Bank
may deliver the Collateral, or any part thereof, to the transferee, as well as
any subsequent holder hereof who shall thereupon become vested with all the
power and rights herein given to the Bank in respect to the property so
transferred and delivered; and the Bank shall thereafter be forever relieved
and fully discharged from any liability or responsibility with respect to the
Collateral so transferred but with respect to any portion of the Collateral not
so transferred, the Bank shall retain all rights and powers hereby given.
(d) With prior written consent of Bank, which
Bank may withhold in its sole and absolute discretion, other Collateral may be
substituted for the original Collateral herein, in which event all rights,
duties, obligations, remedies and interests provided for, created or granted
shall apply fully to such substitute Collateral.
7.2 Remedies.
(a) If an Event of Default shall have occurred
and be continuing, without waiving any of its other rights hereunder or under
any other Loan Documents, the Bank shall have all rights and remedies of a
secured party under the Code (and the Uniform Commercial Code of any other
applicable jurisdiction) and such other rights and remedies as may be available
hereunder, under other applicable law or pursuant to contract. If requested by
the Bank, the Borrower will promptly assemble the Collateral and make it
available to the Bank at a place to be designated by the Bank. The Borrower
agrees that any notice by the Bank of the sale or
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disposition of the Collateral or any other intended action hereunder, whether
required by the Code or otherwise, shall constitute reasonable notice to the
Borrower if the notice is mailed to the Borrower by regular or certified mail,
postage prepaid, at least five days before the action to be taken. The
Borrower shall be liable for any deficiencies in the event the proceeds of the
disposition of the Collateral do not satisfy the Indebtedness in full.
(b) If an Event of Default shall have occurred
and be continuing, the Bank may demand, collect and sue for all amounts owed
pursuant to Accounts, General Intangibles, Chattel Paper or for proceeds of any
Collateral (either in the Borrower's name or the Bank's name at the latter's
option), with the right to enforce, compromise, settle or discharge any such
amounts. The Borrower appoints the Bank as the Borrower's attorney-in-fact to
endorse the Borrower's name on all checks, commercial paper and other
instruments pertaining to Collateral or its proceeds.
7.3 Power of Attorney. The Borrower authorizes the Bank at
the Borrower's expense to file any financing statements relating to the
Collateral (without the Borrower's signature thereon) which the Bank deems
appropriate and the Borrower irrevocably appoints the Bank as its
attorney-in-fact to execute any such financing statements in the Borrower's
name and to perform all other acts which the Bank deems appropriate to perfect
and to continue perfection of the security interest of the Bank. The Borrower
hereby appoints the Bank as the Borrower's attorney-in-fact to endorse, present
and collect on behalf of the Borrower and in the Borrower's name any draft,
checks or other documents necessary or desirable to collect any amounts which
the Borrower may be owed.
7.4 Entry. The Borrower hereby irrevocably consents to any
act by the Bank or its agents in entering upon any premises for the purposes of
either (i) inspecting the Collateral or (ii) taking possession of the
Collateral and the Borrower hereby waives its right to assert against the Bank
or its agents any claim based upon trespass or any similar cause of action for
entering upon any premises where the Collateral may be located.
7.5 Deposits; Insurance. Upon the occurrence and
continuance of an Event of Default, the Borrower authorizes the Bank to collect
and apply against the Indebtedness when due any cash or deposit accounts in its
possession, and any refund of insurance premiums or any insurance proceeds
payable on account of the loss or damage to any of the Collateral and
irrevocably appoint the Bank as its attorney-in-fact to endorse any check or
draft or take other action necessary to obtain such funds.
7.6 Other Rights. The Borrower authorizes the Bank without
affecting the Borrower's obligations hereunder or under any other Loan Document
from time to time (i) to take from any Person
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(other than the Borrower) and hold additional Collateral or guaranties for the
payment of the Indebtedness or any part thereof, and to exchange, enforce or
release such Collateral or guaranty of payment of the Indebtedness or any part
thereof and to release or substitute any endorser or guarantor or any party who
has given any security interest in any Collateral as security for the payment
of the Indebtedness or any part thereof or any party in any way obligated to
pay the Indebtedness or any part thereof; and (ii) upon the occurrence of any
Event of Default to direct the manner of the disposition of the Collateral and
the enforcement of any endorsements, guaranties, letters of credit or other
security relating to the Indebtedness or any part thereof as the Bank in its
sole discretion may determine.
7.7 Accounts. After any Event of Default, the Bank may
notify any Account Debtor of the Bank's security interest and may direct such
Account Debtor to make payment directly to the Bank for application against the
Indebtedness. Any such payments received by or on behalf of the Borrower at
any time, after an Event of Default, shall be the property of the Bank, shall
be held in trust for the Bank and not commingled with any other assets of any
Person (except to the extent they may be commingled with other assets of the
Borrower in an account with the Bank) and shall be immediately delivered to the
Bank in the form received. The Bank shall have the right to apply any proceeds
of Collateral to such of the Indebtedness as it may determine.
7.8 Tangible Collateral. Except as otherwise provided
herein or agreed to in writing by the Bank, no Inventory or other tangible
collateral shall be commingled with, or become an accession to or part of, any
property of any other Person so long as such property is Collateral. Upon the
occurrence of any Event of Default, the Borrower shall, upon the request of the
Bank, promptly assemble all tangible Collateral for delivery to the Bank or its
agents. No tangible Collateral shall be allowed to become a fixture unless the
Bank shall have given its prior written authorization.
7.9 Waiver of Marshalling. The Borrower hereby waives any
right it may have to require marshalling of its assets.
8. MISCELLANEOUS.
8.1 No Waiver, Remedies Cumulative. No failure on the part
of the Bank to exercise, and no delay in exercising, any right hereunder or
under any other Loan Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and are in addition to any other remedies provided by
law, any Loan Document or otherwise.
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8.2 Survival of Representations. All representations and
warranties made herein shall survive the making of the Loans hereunder and the
delivery of the Notes, and shall continue in full force and effect so long as
any Indebtedness is outstanding, there exists any commitment by the Bank to the
Borrower, and until this Agreement is formally terminated in writing.
8.3 Expenses. Whether or not the Loans herein provided for
shall be made, the Borrower shall pay all reasonable costs and expenses in
connection with the preparation, execution, delivery, amendment and enforcement
of this Agreement and any Loan Document, including the reasonable fees and
disbursements of counsel and paralegals for the Bank in connection therewith,
whether suit be brought or not and whether incurred at trial or on appeal, and
all costs of repossession, storage, disposition, protection and collection of
Collateral. If the Borrower should fail to pay any tax or other amount
required by this Agreement to be paid or which may be reasonably necessary to
protect or preserve any Collateral or the Borrower's or Bank's interests
therein, the Bank may make such payment and the amount thereof shall be payable
on demand, shall bear interest at the Default Rate from the date of demand
until paid and shall be deemed to be Indebtedness entitled to the benefit and
security of the Loan Documents. In addition, the Borrower agrees to pay and
hold the Bank harmless against any liability for payment of any state
documentary stamp taxes, intangible taxes or similar taxes (including interest
or penalties, if any) which may now or hereafter be determined to be payable in
respect to the execution, delivery or recording of any Loan Document or the
making of any Advance, whether originally thought to be due or not, and
regardless of any mistake of fact or law on the part of the Bank or the
Borrower with respect to the applicability of such tax. The provisions of this
section shall survive payment in full of the Loans and termination of this
Agreement.
8.4 Notices. Any notice or other communication hereunder
to any party hereto shall be by hand delivery, overnight delivery, facsimile,
telegram, telex or registered or certified mail and unless otherwise provided
herein shall be deemed to have been given or made when delivered, telegraphed,
telexed, faxed or deposited in the mails, postage prepaid, addressed to the
party at its address specified below (or at any other address that the party
may hereafter specify to the other parties in writing):
The Bank: First Union National Bank of Florida
Special Assets Department
Attn: L. Anthony Holmes
800 North Magnolia Avenue
Orlando, Florida 32803
Post Office Box 1000
Orlando, Florida 32802
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The Borrower: Metretek, Incorporated
300 North Drive
Melbourne, Florida 32934
Attention: Ronald W. McKee, President
8.5 Governing Law. This Agreement and the Loan Documents
shall be deemed contracts made under the laws of the State of Florida and shall
be governed by and construed in accordance with the laws of said state except
insofar as the laws of another jurisdiction may govern the perfection, priority
and enforcement of security interests in Collateral located in another
jurisdiction.
8.6 Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the Borrower, Guarantor, and the
Bank, and their respective successors and assigns; provided, that the Borrower
may not assign any of its rights hereunder without the prior written consent of
the Bank, and any such assignment made without such consent will be void.
8.7 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original and all of which when taken together shall constitute but one and the
same instrument.
8.8 No Usury. Notwithstanding anything contained in this
Agreement, the Notes, or in any other Loan Document to the contrary, in no
event will interest or other charges deemed to be interest be chargeable
against the Borrower if such amount (combined with any other amounts considered
to be in the nature of interest) would exceed the maximum amount permitted by
law from time to time while any of the Indebtedness is outstanding, and in the
event any amount in excess of the lawful maximum is charged or collected by the
Bank or paid by the Borrower, the Borrower shall be entitled to the
reimbursement of such excess.
8.9 Powers. All powers of attorney granted to the Bank are
coupled with an interest and are irrevocable.
8.10 Approvals. If this Agreement calls for the approval or
consent of the Bank, such approval or consent may be given or withheld in the
discretion of the Bank unless otherwise specified herein.
8.11 Jurisdiction, Service of Process.
(a) Any suit, action or proceeding against the
Borrower with respect to this Agreement, the Collateral or any Loan Document or
any judgment entered by any court in respect thereof may be brought in the
courts of Orange County, Florida or in the U.S. District Court for the Middle
District of Florida as the Bank
27
<PAGE> 32
(in its sole discretion) may elect, and the Borrower hereby accepts the
exclusive jurisdiction of those courts for the purpose of any suit, action or
proceeding.
(b) In addition, the Borrower hereby
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement, the Loan Documents,
the Collateral or any judgment entered by any court in respect thereof brought
in Orange County, Florida or the U.S. District Court for the Middle District of
Florida, as selected by the Bank, and hereby further irrevocably waives any
claim that any suit, action or proceedings brought in Orange County, Florida or
in such District Court has been brought in an inconvenient forum.
8.12 Entire Agreement. This Agreement and the other
instruments referred to herein contain the entire agreement of the parties
pertaining to its subject matter and supersede all prior written and oral
agreements pertaining hereto. This Agreement may be modified only in writing
executed by the Bank and Borrower.
8.13 Invalidity. The invalidity or unenforceability,
whether in general or in any particular circumstance, of any provision of this
Agreement, shall not affect its validity or enforceability in any other
circumstance, or any other provision hereof. The parties hereto hereby agree
that this Agreement shall be so interpreted to give effect and validity to all
the provisions hereof to the fullest extent permitted by law.
8.14 Waiver of Jury Trial. THE BORROWER AND THE BANK HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER OF THEM MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED UPON THIS AGREEMENT
OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY OTHER
LOAN DOCUMENT AND ANY OTHER AGREEMENT CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
Witnessed by: FIRST UNION NATIONAL BANK OF FLORIDA
- -------------------------------------
By: /s/ L. Anthony Holmes
Name: -----------------------------------
-------------------------------- Name: L. Anthony Holmes
---------------------------------
- ------------------------------------- Title: Vice President
Name: "Bank"
--------------------------------
As to Bank
28
<PAGE> 33
- ------------------------------------- METRETEK, INCORPORATED
Name:
-------------------------------- By: /s/ Ronald W. McKee
-----------------------------------
- ------------------------------------- Name: Ronald W. McKee
---------------------------------
Name: Title: President
-------------------------------- --------------------------------
As to Borrower "Borrower"
29
<PAGE> 34
EXHIBIT 2.3
CONTINGENT LIABILITIES
The following are material contingent liabilities of the Borrower,
Subsidiaries and/or Guarantors not disclosed in their financial statements:
<PAGE> 35
EXHIBIT 2.9
OFFICES OF BORROWER
List any offices of Borrower or any Subsidiary not listed in Section 8.4.
Sigma VI
305 North Drive, Suite A
Melbourne, FL 32935
Metretek-Europe, Ltd.
Metretek House
333 London Road Canberley
Surrey, England GuI5 3HQ
<PAGE> 36
EXHIBIT 3.1
FORM OF ADVANCE REQUEST
FIRST UNION NATIONAL BANK
BORROWING BASE CERTIFICATE
METRETEK, INCORPORATED
MONTHLY REPORT AS OF ____________________
In consideration of your continuing to make available to the undersigned
certain credit accommodations, we certify that the following figures accurately
represent, in all material respects, the entire amount of eligible accounts
receivable and raw materials inventory owing to, and owned by, the undersigned
and that such amount continues to be pledged to you as collateral security to
all loans owing by this company to you under the Loan and Security Agreement
dated August 5, 1996, free and clear of all liens and encumbrances except in
your favor.
Gross Domestic Trade Related A/R
Less A/R Aged > 60 Days ( )
Less 50% Cross Aged A/R ( )
-----------
Eligible Domestic A/R
75%
-----------
A) Net Eligible Domestic A/R
-----------
Gross Foreign Trade Related A/R
(including Metretek Europe)
Less A/R Aged > 60 Days ( )
Less 50% Cross Aged A/R ( )
-----------
Eligible Foreign A/R
55%
-----------
B) Net Eligible Foreign A/R
===========
Raw Materials Inventory
50%
-----------
C) Net Eligible Raw Materials Inventory
(Cap of $400,000)
===========
D) A + B + C Equals Total Eligible Collateral $
===========
Revolving Line of Credit Availability $ 400,000
Scheduled Amortized Term Loan Balance 421,607
-----------
E) Total Debt Availability $ 821,607
===========
Total Debt Outstanding cannot be greater than the lesser of (D) $____________
or (E) $821,607. Total Debt Outstanding at above date equals (F) $________.
Additional availability/overage equals the lesser of (D) or (E) less (F) equals
(G) $0.
Eligible Domestic Accounts, Eligible Foreign Accounts, and Eligible Inventory
are computed as defined in the Loan and Security Agreement.
<PAGE> 37
The above information is certified as materially correct. No events of
default, as defined in the Loan and Security Agreement, exist or have existed,
and are continuing, since the date of the last Borrowing Base Certificate.
Certified By:
---------------------------- ---------------------- -------
Name Title Date
<PAGE> 38
EXHIBIT 5.6
FINANCIAL COVENANT COMPLIANCE CERTIFICATE
We certify that the following reflect the status, as of
_______________, of the conditions of the Loan and Security Agreement dated
August 5, 1996.
METRETEK, INCORPORATED
- ------------------------
Date
By:
-----------------------------------
Name
-----------------------------------
Title
I. Working Capital
Current Assets $________
Less: Accounts Receivable from
affiliate - Marcum Fuel (_______)
Accounts Receivable from
employees and officers (_______)
Adjusted Current Assets $________
Current Liabilities (_______)
Plus: Accounts Payable to
stockholder - MNG _________
Adjusted Current Liabilities (________)
Adjusted Working Capital ________
Minimum Required Adjusted Working Capital ________
Excess or (Deficit) Adjusted Working Capital $
========
II. Current Ratio
Adjusted Current Assets $
========
Adjusted Current Liabilities $________
Adjusted Current Ratio _________
Minimum Required Current Ratio _________
III. Debt to Tangible Net Worth
Total Assets $________
Less: Intangible Assets (________)
Adjusted Total Assets $_________
Total Liabilities _________
Less: Subordinated Debt (________)
Adjusted Total Liabilities (_________)
Tangible Net Worth $=========
Adjusted Total Liabilities $_________
Tangible Net Worth $_________
Debt to Tangible Net Worth _________
Maximum Debt to Tangible
Net Worth Allowed _________
<PAGE> 39
EXHIBIT 5.11
INTERCOMPANY BALANCES FOR METRETEK, INCORPORATED
<TABLE>
<CAPTION>
June 30, 1996 Balances
As
Estimated Actual
<S> <C>
Metretek Receivable from/(Payable to) Affiliates:
Marcum Fuel Systems, Inc. $174,000 $ 174,152
Marcum Natural Gas Services, Inc. ($257,000) ($ 259,729)
Metretek Receivable from its Wholly-Owned
Subsidiaries:
Sigma VI $ 30,000 $ 32,399
Metretek Europe $ 33,307 $ 27,794
Metretek Europe Debenture Receivable $ 75,000 $ 75,000
</TABLE>
<PAGE> 1
EXHIBIT 10.3
Marcum Natural Gas Services, Inc. Second Amended and
Restated Directors' Stock Option Plan effective
June 4, 1996.
<PAGE> 2
MARCUM NATURAL GAS SERVICES, INC.
SECOND AMENDED AND RESTATED
DIRECTORS' STOCK OPTION PLAN
EFFECTIVE DATE: JUNE 4, 1996
1. PURPOSE
The purpose of this Second Amended and Restated Directors' Stock Option
Plan (the "Plan") is to assist Marcum Natural Gas Services, Inc. in attracting,
motivating and retaining qualified non-employee directors by providing a means
whereby such persons will be given an opportunity to acquire a proprietary
interest in the Company's future growth.
2. CERTAIN DEFINITIONS
When used in this Plan, unless the context otherwise requires:
2.1 "Board of Directors" or "Board" shall mean the Board of Directors
of Marcum Natural Gas Services, Inc. as constituted at any time.
2.2 "Change of Control" shall mean any of the following events:
(A) any "Person," as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, or any company owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportions as their ownership of
stock of the Company) is or becomes the "Beneficial Owner" as defined in
Rule 13d-3 under the Exchange Act, directly or indirectly, of 25% or more
of the combined voting power of the Company's outstanding securities;
(B) individuals who constitute the Board on the effective
date of the Plan (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming
a director subsequent to such effective date whose election, or nomination
for election, by the Company's stockholders, was approved by a vote of at
least a majority of the directors comprising the Incumbent Board (either
by a specific vote or by approval of the proxy statement of the Company in
which such person is named as a nominee for director, without objection to
such nomination) shall be, for purposes of this clause (B), considered as
though such person were a member of the Incumbent Board;
(C) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a
reverse stock split of outstanding voting securities, or consummation of
any such transaction if stockholder approval is not obtained, other than
(1) any such transaction which would result in at least 50% of the total
voting power represented by the voting securities of the surviving entity
outstanding immediately after such transaction being "Beneficially Owned"
(as defined above) by 75% or more of the holders of outstanding voting
securities of the Company immediately prior to the transaction, with the
voting
1
<PAGE> 3
power of each such continuing holder relative to other such continuing
holders not substantially altered in the transaction, or (2) a merger or
consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no "Person" (as defined above) acquires more
than 25% of the combined voting power of the Company's then outstanding
securities, or
(D) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets.
Notwithstanding anything in the foregoing to the contrary, no Change of
Control shall be deemed to have occurred with respect to any particular
Director by virtue of any transaction which results in such Director, or a
group of Persons which includes such Director, acquiring, directly or
indirectly, 25% or more of the combined voting power of the Company's
outstanding securities.
2.3 "Committee" shall mean the Committee as described in Section 3
hereof.
2.4 "Common Stock" shall mean a share of Common Stock, par value $0.01
per share, of the Company.
2.5 "Company" shall mean Marcum Natural Gas Services, Inc.
2.6 "Director" shall mean a person who, on any date a Directors'
Option would be granted to a Director hereunder, is a member of the Board of
Directors but who is not then an employee of the Company or any Subsidiary;
provided, however, that no member of the Board serving as a result of a
nomination or appointment pursuant to the terms of any debt instrument,
preferred stock, underwriting agreement, or other contract entered into by the
Company shall be deemed a Director for purposes of the Plan.
2.7 "Directors' Options" shall mean options to purchase shares
(subject to adjustment pursuant to Section 6.2 hereof) of Common Stock which
may be granted by the Company to each Director pursuant to Section 7.
2.8 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
2.9 "Fair Market Value" of a share of Common Stock on any date shall
mean the last bid or sale price of Common Stock as reported in the Wall Street
Journal for securities listed on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") or NASDAQ National Market System,
respectively for the date in question, or, if no such bid price or sale price
is available, the last bid price or sale price on the next preceding date for
which a bid price or sale price was so reported. If the Company's stock is
traded on an exchange, the closing price of the Common Stock shall be used in
lieu of bid price or sale price. If the Common Stock is not listed on NASDAQ
or NASDAQ National Market System or traded on an exchange, the Fair Market
Value shall be such amount as determined by the Committee.
2
<PAGE> 4
2.10 "Limited Right" shall mean the right, granted pursuant to Section
8, to receive payment, in cash, following a Change of Control, of an amount
equal to the product computed by multiplying (i) the excess of (a) the higher
of (x) the Minimum Price Per Share, if the Change of Control occurs as a result
of a Transaction, tender offer or exchange offer, or (y) the highest Fair
Market Value per share during the period commencing thirty days prior to the
Change of Control and ending immediately prior to the date the Limited Right is
exercised, over (b) the exercise price per share under the Directors' Option to
which such Limited Right relates, by (ii) the number of shares of Common Stock
as to which such Limited Right is being exercised provided that, in the case of
a Limited Right that has not been outstanding at least seven months at the time
the Change of Control occurs, the amount computed under part (A) of the
foregoing formula shall be equal to the highest amount that could be computed
under part (y) of such formula using a Fair Market Value that first became
determinable six months or more after the date of grant of the Limited Right
(with such Fair Market Value otherwise determined in accordance with the
foregoing formula).
2.11 "Minimum Price Per Share" shall mean the highest gross price
(before brokerage commissions and soliciting dealer's fees) paid or to be paid
for a share of Common Stock (whether by way of exchange, conversion,
distribution or upon liquidation or otherwise) in any Transaction, tender offer
or exchange offer occurring prior to the date on which such Limited Right is
exercised. If the consideration paid or to be paid in any such Transaction,
tender offer or exchange offer shall consist, in whole or in part, of
consideration other than cash, the Board or Committee shall take such action,
as in its judgment it deems appropriate, to establish the cash value of such
consideration, but such valuation shall not be less than the value, if any,
attributed to such consideration in writing by any party to such Transaction,
tender offer or exchange offer other than the Company.
2.12 "Plan" shall mean the Amended and Restated Directors' Stock Option
Plan of the Company, as initially authorized and adopted by the Board of
Directors at its meeting held on December 12, 1991 and by the stockholders of
the Company on August 6, 1992, as amended by the Board of Directors and the
stockholders of the Company effective June 1, 1995 and effective June 4, 1996,
and as amended thereafter from time to time.
2.13 "Subsidiary" shall mean any corporation in which the Company owns,
directly or indirectly, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock.
2.14 "Transaction" shall mean (A) any consolidation or merger of the
Company in which the Company is not the surviving corporation other than a
merger solely to effect a reincorporation or a merger of the Company as to
which stockholder approval is not required pursuant to Sections 251(f) or 253
of the Delaware General Corporation Law, or (B) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of 50%
or more of the assets or earning power of the Company, or (C) the adoption of
any plan or proposal for the liquidation or dissolution of the Company.
3
<PAGE> 5
3. ADMINISTRATION
The Plan shall be administered by the Board of Directors or by a Director
Stock Option Committee which shall consist of such members of the Board as may
be appointed by the Board. The Board and, if any, the Committee, shall have
full power and authority to construe, interpret and administer the Plan and to
make determinations which shall be final, conclusive and binding upon all
persons, including but not limited to the Company, the stockholders and any
person having an interest in any Directors' Options, provided that a Director
shall disqualify himself from deciding any question that is unique to his own
Directors' Option. If a member of the Committee, for any reason, shall cease
to serve, the vacancy may be filled by the Board of Directors. Any member of
the Committee may be removed at any time, with or without cause, by the Board
of Directors. No member of the Board shall be personally liable for any
action, determination or interpretation made in good faith with respect to the
Plan.
4. COMPLIANCE WITH RULE 16B-3
It is the intent of the Company that the Plan comply in all material
respects with Rule 16b-3 under the Exchange Act, including the "formula" plan
provisions of Rule 16b-3(c)(2). Accordingly, if any provision of the Plan or
any agreement hereunder does not comply with the applicable requirements of
Rule 16b-3, such provision shall be construed or deemed amended to the extent
necessary to conform to such requirements.
5. ELIGIBILITY
5.1 Eligible Directors. Directors' Options and Limited Rights may
be granted only to Directors. Employees of the Company or any of its
Subsidiaries are not eligible to receive Directors' Options or other awards
under the Plan.
5.2 Option Agreement. Each Directors' Option shall be evidenced
by a written agreement ("Option Agreement") containing such terms and
provisions as the Board or Committee may determine, subject to the provisions
of this Plan.
6. SHARES OF COMMON STOCK SUBJECT TO THE PLAN
6.1 Maximum Number. The maximum aggregate number of shares of
Common Stock that may be issued under the Plan shall be 650,000 shares. Such
shares may be authorized and unissued shares or may be treasury shares. If any
shares of Common Stock subject to a Directors' Option are not purchased before
such Directors' Option expires or otherwise terminates, unless the Directors'
Option is surrendered upon exercise of a Limited Right, such shares may again
be made subject to a Directors' Option.
6.2 Capital Changes. In the event any changes are made to the
shares of Common Stock (whether by reason of merger, consolidation,
reorganization, recapitalization, stock dividend in excess of one percent (1%)
at any single time, stock split, combination of shares, exchange of shares,
extraordinary cash dividend, change in corporate structure or otherwise), the
Board or Committee shall, in order to prevent dilution or enlargement of
Participants' rights, make appropriate adjustments in: (i) the number and kind
of shares of Common Stock theretofore made subject to Directors' Options,
and/or in the exercise price of said shares; and (ii) the aggregate number and
kind of shares which may be issued under the Plan. If any of the foregoing
adjustments shall result in a fractional share, the fraction shall be
disregarded, and the Company shall have no obligation to make any cash or other
payment with respect to such a fractional share.
4
<PAGE> 6
7. ANNUAL OPTION GRANTS
7.1 Initial Grants to New Directors. A Directors' Option to
purchase 20,000 shares of Common Stock shall be automatically granted to each
person who is first elected or appointed to serve as a member of the Board
after the effective date of the Plan and who, at the time of such election or
appointment, is a Director and was not, during the one-year period prior to the
date of such election or appointment, an employee of the Company or any
Subsidiary.
7.2 Annual Grants to Directors. A Directors' Option to purchase
40,000 shares of Common Stock shall be automatically granted to each Director
on the effective date of the Plan, and an additional Directors' Option to
purchase 10,000 shares of Common Stock shall be granted for each Director each
year on the date of the Annual Meeting of Shareholders; provided, however, that
a Directors' Option shall not be granted under this Section 7.2 to a Director
in a given year if, during the six-month period prior to and including the date
the Directors' Option would otherwise be granted pursuant to this Section 7.2,
such Director either was granted a Directors' Option pursuant to Section 7.1 or
such Director was an employee of the Company or any Subsidiary.
7.3 Terms of Directors' Options. Directors' Options shall be
nonstatutory stock options which shall be granted for no consideration other
than services, and shall be subject to the following terms and conditions:
(i) Exercise Price. The exercise price per share of
Common Stock purchasable under a Directors' Option shall be equal
to 100% of the Fair Market Value of a share of Common Stock on
the date of grant of such Directors' Option. A Directors' Option
shall be exercised by giving written notice of exercise to the
Company accompanied by payment in full of the exercise price in
cash (including by check) or by surrender of shares of Common
Stock acquired by the Director at least six months prior to the
exercise date (if the repurchase of shares by the Company is
permissible on the date of exercise under applicable law), which
shares have a fair market value at the time of delivery equal to
the exercise price, or a combination of a cash payment and such a
surrender of shares. Each share surrendered in payment of the
exercise price shall be valued at its Fair Market Value at the
exercise date.
(ii) Exercisability. A Directors' Option shall be
exercisable immediately upon grant, subject to the provisions of
Section 14.
(iii) Term and Termination of Service. Each Directors'
Option shall expire at the earlier of (a) ten years after the
date of grant, (b) the number of years after the Director ceases
to serve as a member of the Board equal to the number of years
(including any partial years) the Director served as a member of
the Board, if the Director ceases to serve as a member of the
Board for any reason other than dismissal for cause, and (c) at
the time the Director ceases to serve as a member of the Board,
if he is dismissed for cause; provided, however, that, if a
Director ceases serving as a member of the Board and, immediately
thereafter, he is employed by the Company or a Subsidiary, then,
solely for purposes of this Section 7.3, he shall not be deemed
to have ceased to serve as a member of the Board at that time,
and his continued employment by the Company or any Subsidiary
shall be deemed to be continued service as a member of the Board
for purposes of the Plan (except that such former Board member
shall not be eligible for additional grants of Directors' Options
under the Plan); and
5
<PAGE> 7
provided further, that a Directors' Option shall be exercisable
after the date a Director ceases to serve as a member of the
Board (unless the Director continues to be employed by the
Company or a Subsidiary under the preceding proviso) only to the
extent such Directors' Option was exercisable at such date.
7.4 Repricing of Directors' Options. Notwithstanding any other
provision of this Plan to the contrary, the exercise price per share of Common
Stock purchasable under all Directors' Options outstanding on March 8, 1996
shall be repriced (whether such repricing increases or decreases the exercise
price) to $1.59, which was the last sale price of the Common Stock reported on
the Nasdaq National Market on March 8, 1996, and which represented 100% of the
fair market value of a share of Common Stock on such date.
8. LIMITED RIGHTS
8.1 Grant of Limited Rights. A Limited Right shall be
automatically granted to each Director concurrently with the grant of each
Directors' Option to such Director. Such Limited Right shall be exercisable
with respect to the number of shares of Common Stock which are, or may become,
purchasable under any such Directors' Option, at the times specified in Section
8.2, and shall expire at the time the Directors' Option to which the Limited
Right relates expires. Other provisions of this Section 8.1 and Section 8.2
notwithstanding, a Limited Right shall not be exercisable within six months
after the date such Limited Right is deemed to be granted for purposes of
Section 16 of the Exchange Act. Each Director to whom Limited Rights are
granted shall be given written notice advising him of the grant of such rights
specifying the terms and conditions of the rights, which shall be subject to
all the provisions of this Plan.
8.2 Exercise of Limited Rights. Subject to the limitations set
forth in Section 8.1, a Limited Right may be exercised only during the period
beginning on the first day following the occurrence of a Change of Control and
ending on the sixtieth day following such date; provided, however, that if the
Change of Control occurs prior to the expiration of six months after the date
of grant of a Limited Right, then, solely for purposes of such Limited Right,
the Change of Control shall be deemed to have occurred at the expiration of
such six-month period, and such Limited Right shall be exercisable for a period
of 60 days following the expiration of such six-month period. Upon the
occurrence of a tender or exchange offer constituting a Change of Control, a
Limited Right may be exercised in such manner regardless of whether the Board
supports or opposes such tender or exchange offer. A Director shall exercise
his Limited Right by delivering a written notice to the Board of Directors
specifying the number of shares with respect to which he exercises a Limited
Right and agreeing to surrender the right to purchase an equivalent number of
shares of Common stock subject to his Directors' Option. If a Director
exercises a Limited Right, payment of his Limited Right shall be made in
accordance with Section 8.3 on or before the 'thirtieth day after the date of
exercise of the Limited Right. A Limited Right shall remain exercisable for so
long as the Directors' Option to which it relates is exercisable, as provided
in Section 7.3, in the event a Director ceases being a member of the Board
after a Change of Control. Notwithstanding the above, if a Director ceases
being a member of the Board before the occurrence of any Change of Control, his
Limited Rights shall expire immediately.
8.3 Form of Payment. If a Director elects to exercise a Limited
Right as provided in Section 8.2, the Company shall pay to the Director in cash
the amount set forth in Section 2.10 hereof, calculated with respect to the
shares as to which the Director has exercised such Limited Right, within thirty
days of the date of exercise of the Limited Right. If such amount is not paid
in full within the prescribed period, the Company shall be liable to such
Director for the costs of collection of such amount, including attorney's fees.
6
<PAGE> 8
8.4 Termination. When a Limited Right is exercised, the
Directors' Option to which it relates, if any, shall cease to be exercisable to
the extent of the number of shares of Common Stock with respect to which such
Limited Right was exercised. Upon the exercise or termination of a Directors'
Option, any Limited Right granted with respect thereto shall terminate to the
extent of the number of shares as to which such Directors' Option was exercised
or terminated.
9. NON-TRANSFERABILITY
No Directors' Option or Limited Right granted under this Plan, nor any
other rights acquired by a Director under this Plan, shall be assignable or
transferable by a Director, other than by will or the laws of descent and
distribution, or pursuant to a qualified domestic relations order as defined
under the Internal Revenue Code of 1986, as amended (the "Code") or Title I of
the Employee Retirement Income Security Act of 1974 ("ERISA"). In the event of
his death, the Directors' Option or any Limited Right may be exercised by the
personal representative of the Director's estate or, if no personal
representative has been appointed, by the successor or successors in interest
determined under the Director's will or under the applicable laws of descent
and distribution.
10. NO RIGHTS AS A STOCKHOLDER
A Director shall have no rights as a stockholder with respect to any
shares of Common Stock subject to a Directors' Option, until such Directors'
Option is exercised. Except as provided in Section 6.2, no adjustment shall be
made in the number of shares of Common Stock issued to a Director, or in any
other rights of the Director upon exercise of a Directors' Option, by reason of
any dividend, distribution, or other right granted to stockholders for which
the record date is prior to the date of exercise of the Director's Option.
11. AMENDMENT
The Company by action of the Board may amend, modify or terminate this
Plan at any time or amend, modify, or terminate any outstanding option
agreement, except that any such amendment, modification or termination shall be
subject to the approval of the Company's stockholders within one year after
such Board action if such stockholder approval is required by any federal or
state law or regulation or the rules of any stock exchange or automated
quotation system on which the Common Stock may be listed or quoted, or if the
Board in its discretion determines that obtaining such stockholder approval is
for any reason advisable, provided that any Plan provision that specifies the
Directors who may receive Directors' Options, the amount and price of
securities to be awarded to such Directors, and the timing of awards to such
Directors, or is otherwise a "plan provision" within the meaning of Rule
16b-3(c)(2)(ii)(B) under the Exchange Act or any successor provision thereto,
shall not be amended more than once every six months, other than to conform
with changes in the Code, ERISA, or the rules thereunder. Moreover, no action
may be taken by the Company without the consent of the affected Director which
will materially impair the rights of such Director under any award.
7
<PAGE> 9
12. REGISTRATION OF OPTIONED SHARES
The Directors' Options shall not be exercisable unless the sale of such
optioned shares is registered pursuant to an applicable effective registration
statement under the Securities Act of 1933, as amended, or unless, in the
opinion of counsel to the Company, the sale of such optioned shares would be
exempt from the registration requirements of the Securities Act of 1933, as
amended, and unless, in the opinion of such counsel, the sale would be exempt
from the registration or qualification requirements of applicable state
securities laws.
13. FINANCING ARRANGEMENTS
The Board of Directors or Committee, in its discretion, may enter into
arrangements with one or more banks, brokers or other financial institutions to
facilitate the exercise of Directors' Options and disposition of shares
acquired upon such exercise, including, without limitation, arrangements for
the simultaneous exercise of Directors' Options and sale of the shares acquired
upon such exercise, provided that no such arrangements may be made if the
making of such arrangement, or the authorization of such arrangements pursuant
to this Section 13, would cause the Plan to no longer constitute a "formula"
plan meeting the requirements of Rule 16b-3(c)(2) under the Exchange Act, or
any successor thereto.
14. EFFECTIVE DATE
This Plan was initially authorized and adopted by the Board of Directors
on December 12, 1991, and became effective upon approval by the Company's
stockholders at the annual meeting of stockholders on August 6, 1992. This Plan
was amended by the Board of Directors and the stockholders of the Company
effective June 1, 1995 and effective June 4, 1996. Unless earlier terminated by
the Board, the Plan shall terminate when no shares of Common Stock remain
reserved and available for issuance and the Company has no further obligation
with respect to any award granted under the Plan.
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-QSB FOR THE PERIOD ENDED JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,778,209
<SECURITIES> 0
<RECEIVABLES> 4,540,579
<ALLOWANCES> 129,093
<INVENTORY> 3,990,228
<CURRENT-ASSETS> 10,678,592
<PP&E> 3,921,704
<DEPRECIATION> 2,126,830
<TOTAL-ASSETS> 22,013,915
<CURRENT-LIABILITIES> 3,668,280
<BONDS> 187,381
<COMMON> 121,535
0
0
<OTHER-SE> 18,036,719
<TOTAL-LIABILITY-AND-EQUITY> 22,013,915
<SALES> 11,526,209
<TOTAL-REVENUES> 11,939,177
<CGS> 7,930,667
<TOTAL-COSTS> 12,518,822
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,208
<INCOME-PRETAX> (627,853)
<INCOME-TAX> 0
<INCOME-CONTINUING> (627,853)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (627,853)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
