<PAGE> 1
As filed with the Securities and Exchange Commission on September 4, 1998
Registration No. 333-60925
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------------
MARCUM NATURAL GAS SERVICES, INC.
---------------------------------
(Exact name of Registrant as specified in its charter)
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, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
A. BRADLEY GABBARD, EXECUTIVE VICE PRESIDENT
MARCUM NATURAL GAS SERVICES, INC.
1675 BROADWAY, SUITE 2150
DENVER, COLORADO 80202
(303) 592-5555
------------------------------------------------------------------------------
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
PAUL R. HESS, ESQ.
KEGLER, BROWN, HILL & RITTER CO., L.P.A.
65 EAST STATE STREET, SUITE 1800
COLUMBUS, OHIO 43215
(614) 462-5400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form if filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
<PAGE> 2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Class of Amount Proposed Maximum Proposed Maximum Amount of Registration
Securities to be to be Offering Price Aggregate Fee
Registered Registered Per Unit (1) Offering Price (1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 931,802 shares $4.00 (5) $3,727,208 (5) $1,099.53
per share, and related
Preferred Share Purchase
Rights (2)(3)(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Purchase
Warrants (4) 155,081 warrants (6) (6) (6)
- ------------------------------------------------------------------------------------------------------------------------------------
Total $3,727,208 $1,099.53 (7)
====================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended (the
"Securities Act").
(2) Includes Preferred Share Purchase Rights to purchase shares of Series C
Preferred Stock, par value $.01 per share, of Marcum Natural Gas
Services, Inc. No separate consideration will be received for the
Preferred Share Purchase Rights which, prior to the occurrence of
certain prescribed events, are not exercisable, will be evidenced by
the certificates for Common Stock and will be transferable along with
and only with the Common Stock.
(3) Represents the number of shares of Common Stock issuable upon exercise
of Common Stock Purchase Warrants (the "Warrants") to be distributed at
no cost to holders of Common Stock after the effective date of this
Registration Statement.
(4) Pursuant to Rule 416 under the Securities Act, the Registration
Statement also covers an indeterminate number of additional Warrants
and shares of Common Stock issuable upon exercise of the Warrants as
may be issued pursuant to the anti-dilution provisions of the Warrants.
(5) Based upon a Warrant exercise price of $4.00 per share.
(6) Represents Warrants being registered for resale by a Selling
Securityholder in the same registration statement as the Common Stock
issuable upon exercise of the Warrants; accordingly, no separate
registration fee is required pursuant to Rule 457(g) under the
Securities Act.
(7) No additional Registration Fee is due with this filing. A Registration
Fee in the amount of $1,657.33 was previously paid in connection with
the initial filing of the Registration Statement on August 7, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 4, 1998
PROSPECTUS
MARCUM NATURAL GAS SERVICES, INC.
931,802 Shares of Common Stock
155,081 Common Stock Purchase Warrants
This Prospectus relates to the offering by Marcum Natural Gas Services,
Inc. a Delaware corporation (the "Company"), of 931,802 shares of Common Stock,
par value $.01 per share (the "Common Stock"), of the Company issuable upon the
exercise of 931,802 Common Stock Purchase Warrants (the "Warrants"). The Company
will distribute the Warrants as a dividend at no cost to holders of record of
its Common Stock as of the close of business on September 10, 1998 (the "Record
Date"), on the basis of one Warrant for every four shares of Common Stock held
by such holder as of the Record Date. No fractional Warrants will be issued. The
number of Warrants to be distributed to each holder will be rounded down to the
nearest whole Warrant. The Warrants will be transferable separately from the
Common Stock immediately upon distribution. The distribution of the Warrants by
the Company to its stockholders is referred to herein as the "Warrant
Distribution".
Each Warrant entitles the holder thereof to purchase one share of the
Company's Common Stock at an exercise price of $4.00 per share, subject to
adjustment in certain events, at any time during the period commencing on the
Record Date and ending at 5:00 p.m., Denver, Colorado time, on September 10,
2003 (five years after the Record Date) (the "Warrant Expiration Date"). The
Warrants are redeemable at the option of the Company at a redemption price of
$.01 per Warrant at any time on at least 30 days prior written notice, if the
closing sale price of the Common Stock equals or exceeds $6.50 for 20
consecutive trading days ending within 30 days prior to the date notice of
redemption is given, and if at such time there is a current effective
registration statement covering the Common Stock underlying the Warrants. Upon
at least 30 days prior written notice to all holders of Warrants, the Company
has the right to reduce the exercise price and/or extend the term of the
Warrants. See "The Warrant Distribution".
This Prospectus also relates to the resale by a certain selling
securityholder (the "Selling Securityholder") of 155,081 Warrants that it will
receive in, or may be entitled to receive as a result of, the Warrant
Distribution, subject to the resale limitations of a certain lock-up agreement
between the Selling Securityholder and the Company. Although the Company will
receive proceeds from the exercise of outstanding Warrants from time to time if
and when they are exercised, the Company will not receive any of the proceeds
from the sale of the Warrants by the Selling Securityholder. The Selling
Securityholder may from time to time offer for sale all or a portion of such
Warrants upon The Nasdaq Stock Market's SmallCap Market (the "Nasdaq SmallCap
Market") or on such other market or exchange on which the Warrants may from time
to time be trading, in privately negotiated transactions, through a combination
of such methods of sale, or otherwise, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices. The Selling Securityholder
may effect such transactions by selling the Warrants directly to purchasers
acting as principals for their own accounts or to or through brokers or dealers
acting as principals or as agents for their own accounts or for their customers.
Such brokers or dealers may receive compensation in the form of
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<PAGE> 4
commissions, discounts or concessions from the Selling Securityholder and/or the
purchasers of the Warrants for whom such brokers or dealers act as agent, or to
whom they sell as principal, or both (which compensation to a particular broker
or dealer may be in excess of customary commissions). The Company has agreed to
pay all of the expenses incurred in connection with the registration of the
resale of the Warrants. See "Selling Securityholder".
The Common Stock is traded on The Nasdaq Stock Market's National Market
(the "Nasdaq National Market") under the symbol "MGAS". On September 3, 1998,
the last reported sale price of the Common Stock as reported on The Nasdaq
National Market was $1.97 per share. Prior to the date hereof, there has been no
public market for the Warrants. The Warrants have been approved for inclusion in
The Nasdaq SmallCap Market under the symbol "MGASW".
----------------
A PURCHASE OF THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DESCRIPTION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
SECURITIES OFFERED HEREBY.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
======================================================================================================================
UNDERWRITING
DISCOUNTS AND
PRICE TO PUBLIC COMMISSIONS (1) PROCEEDS TO COMPANY (2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $4.00 $0 $4.00
- ----------------------------------------------------------------------------------------------------------------------
Total (3) $3,727,208 $0 $3,727,208
======================================================================================================================
</TABLE>
(1) The shares of Common Stock are being offered and sold directly by the
Company, and no discounts, commissions or other remuneration will be
paid to any person for soliciting purchases of the shares of Common
Stock underlying the Warrants.
(2) Before deducting expenses of the offering payable by the Company,
estimated at $80,000.
(3) Assuming the exercise of all Warrants to be distributed by the Company
in the Warrant Distribution.
A certificate evidencing the Warrants ("Warrant Certificates") will be sent on
or about September 18, 1998 along with this Prospectus to each holder of record
of Common Stock on the Record Date. To the extent a stockholder does not
exercise or transfer his Warrants, his proportionate interest in the equity
ownership and voting power of the Company will be reduced. The Warrants may not
be exercised or sold by any person, and neither this Prospectus nor any Warrant
shall constitute an offer to sell or a solicitation of an offer to purchase any
shares of Common Stock, in any jurisdiction in which such transactions would be
unlawful.
The date of this Prospectus is September 10, 1998
2
<PAGE> 5
AVAILABLE INFORMATION
The Company is a reporting company subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy and information
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy and information statements and other
information filed by the Company with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission located at Room
1024 Judiciary Plaza, 450 Fifth Street, N.W., Room 204, Washington, D.C. 20549,
and at the Regional Offices of the Commission located at Seven World Trade
Center, Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may also be obtained from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, the
Company is required to file electronic versions of these documents with the
Commission through the Commission's Electronic Data Gathering, Analysis and
Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The Company's Common Stock is listed on The Nasdaq National Market.
Reports, proxy and information statements and other information concerning the
Company can be inspected at the offices of The Nasdaq Stock Market, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on
Form S-3 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference to such contract, agreement or other
document. The Registration Statement may be inspected without charge at the
principal office of the Commission in Washington, D.C., and copies of all or any
part thereof may be obtained from the Commission at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the
Commission pursuant to the Exchange Act and are hereby incorporated by reference
into this Prospectus:
(i) The Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997;
(ii) The Company's Quarterly Reports on Form 10-QSB for the quarterly
periods ended March 31, 1998 and June 30, 1998;
(iii) The Company's definitive Proxy Statement dated May 4, 1998 for
the Annual Meeting of Stockholders held on June 12, 1998;
(iv) The Company's Current Reports on Form 8-K filed with the
Commission on May 12, 1998 and July 7, 1998, and on Form 8-K/A filed with the
Commission on July 16, 1998; and
(v) The description of the Company's Common Stock, including the
description of the Company's Preferred Share Purchase Rights, contained in the
Company's Registration Statement on Form 8-A filed with the Commission on
January 10, 1993, as amended on Form 8-A/A Amendment No. 1 filed with the
Commission
3
<PAGE> 6
on April 3, 1998, including any amendments or reports filed with the Commission
for the purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to termination of the offering made by this Prospectus shall be deemed to
be incorporated by reference into this Prospectus and to be a part of this
Prospectus from the date of filing of such documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person who receives
this Prospectus, upon written or oral request of such person, a copy of any or
all documents incorporated by reference into this Prospectus, not including
exhibits to such documents unless such exhibits are themselves specifically
incorporated by reference into such documents. Copies of this Prospectus, as
amended or supplemented from time to time, and any other documents (or parts of
documents) that constitute part of this Prospectus under Section 10(a) of the
Securities Act will also be provided without charge to each such person, upon
written or oral request. Requests should be directed to Secretary, Marcum
Natural Gas Services, Inc., 1675 Broadway, Suite 2150, Denver, Colorado 80202,
telephone number (303) 592-5555.
FORWARD-LOOKING STATEMENTS
This Prospectus contains, under the captions "Prospectus Summary -- The
Company" and "Risk Factors", and incorporates by reference into this Prospectus
documents that contain, certain forward-looking statements within the meaning of
and made pursuant to the safe harbor provisions of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Forward-looking statements include
statements concerning plans, objectives, goals, strategies, future events or
performance, and underlying assumptions and other statements which are other
than statements of historical facts. When used in this Prospectus or in the
documents incorporated by reference into this Prospectus, the words "may",
"will", "project", "intend", "continue", "believe", "anticipate", "estimate",
"expect" and similar expressions, as they relate to the Company or the Company's
management, are intended to identify forward-looking statements. Such
forward-looking statements are based on the current beliefs and expectations of
management as well as assumptions made by and information currently available to
management and are subject to, and are qualified by, risks and uncertainties
that could cause actual results to differ materially from those expressed or
implied by those statements. These risks and uncertainties include, but are not
limited to, the factors described under "Risk Factors", as well as other risks
and uncertainties discussed elsewhere in this Prospectus or in certain documents
incorporated by reference into this Prospectus. The Company does not intend to,
and assumes no responsibility to, update any forward-looking statements, whether
as a result of new information, future events or otherwise.
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<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and consolidated
financial statements, including the related notes thereto, appearing elsewhere
in this Prospectus or in documents incorporated by reference into this
Prospectus. Unless otherwise indicated, all share and per share data and
information in this Prospectus has been adjusted to reflect a 1-for-4 reverse
split of the Company's Common Stock effected on July 6, 1998. References to the
"Company" herein include Marcum Natural Gas Services, Inc. and its subsidiaries,
unless the context otherwise requires. Prospective investors should carefully
consider the information set forth in "Risk Factors."
THE COMPANY
The Company is a diversified provider of energy measurement products,
services and data management to the energy industry. The Company's operations
include the design, manufacture and distribution of automated energy consumption
monitoring and recording systems and the provision of natural gas measurement
services. The Company is also engaged in the management of natural gas
processing and related assets. The Company, incorporated in Delaware on April 5,
1991, is a holding company that conducts its operations through three directly
owned subsidiaries: Metretek, Incorporated ("Metretek"), Southern Flow
Companies, Inc. ("Southern Flow"), and Marcum Gas Transmission, Inc. ("MGT").
The Company's strategy is to position itself as an integrated provider
of natural gas support products and services. The natural gas industry is
characterized by relatively abundant domestic reserves, increasing demand,
volatile prices and regulatory changes such as those resulting from the
deregulation of the interstate pipeline industry. The Company's strategy is to
acquire, develop and operate businesses that are positioned to take advantage of
these trends. In implementing this strategy, the Company acquired substantially
all of the assets of the Southern Flow Companies division of Weatherford
International Incorporated, a provider of natural gas measurement services, and
the Company acquired Metretek, which designs, manufactures and sells automated
systems to monitor and record natural gas consumption of commercial and
industrial customers of natural gas utility companies.
Southern Flow provides a full range of natural gas measurement services
principally to customers involved in natural gas production, gathering,
transportation and processing. Metretek designs, manufactures and sells
commercial and industrial automatic meter readers ("C & I AMR") systems,
electronic corrector equipment and other energy measurement products, services
and data management. Metretek's C&I AMR systems provide utility companies and
energy service providers with accurate and timely consumption data required in
order for them to optimize the operation of their natural gas delivery system
and compete effectively in a deregulated environment. MGT currently manages two
business trusts that own and operate natural gas related assets.
On May 4, 1998, Metretek completed the acquisition of substantially all
of the assets and business of American Meter Software Corporation (formerly
known as Eagle Research Corporation) (the "Selling Securityholder"), pertaining
to electronic correctors and non-radio-frequency meter reading devices in the
natural gas and electric utility industry (the "American Meter Transaction").
The Selling Securityholder is a wholly-owned subsidiary of American Meter
Company ("American Meter"), which is ultimately controlled by Ruhrgas AG, a
German corporation. In consideration for the American Meter Transaction, the
Company and Metretek paid and delivered to the Selling Securityholder at the
closing an aggregate purchase price (the "American Meter Purchase Price")
consisting of $1,300,000 in cash, 439,560 unregistered shares of Common Stock of
the Company, and a $1,200,000 convertible subordinated promissory note ($600,000
of which is contingent upon Metretek exceeding certain sales targets, as
discussed below) (the "American Meter Note"). Up to $1,028,107 of the principal
balance of the American Meter Note is convertible at any time at the option of
the Selling Securityholder into up to 180,766 unregistered shares of Common
Stock of the Company at the rate of $5.6875 of principal per share. The American
Meter Purchase Price is subject to upward adjustment based upon Metretek's
actual sales of products in the business acquired from the Selling
Securityholder during the 18-month period commencing July 1, 1998. If Metretek's
annualized sales of products in the acquired business exceeds $3,900,000 during
such period, then the American Meter Purchase Price will be increased on a
dollar-for-dollar basis to the extent of such sales surplus, but the American
Meter Purchase Price will not be increased above $4,500,000 even if annualized
sales
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<PAGE> 8
are greater than that amount. Any increase in the American Meter Purchase Price
will be effected by adjusting the principal balance of the American Meter Note.
Metretek also entered into a License Agreement (the "American Meter
License Agreement") with American Meter and the Selling Securityholder,
providing for the license by American Meter and the Selling Securityholder to
Metretek of certain operating software, and the development, manufacture and
sale by Metretek to American Meter and the Selling Securityholder of certain
electronic components and related equipment pertaining to electronic temperature
and pressure correction to be imbedded within certain new rotary and turbine
meters of American Meter. The American Meter License Agreement also grants to
American Meter and its affiliates the right to sell Metretek products in the
United States and Canada at certain agreed-upon prices. American Meter and the
Selling Securityholder also entered into the five year Non-Competition Agreement
(the "American Meter Non-Competition Agreement") with the Company and Metretek,
pursuant to which American Meter and the Selling Securityholder agreed not to
compete with Metretek in the acquired business.
While the Company regularly engages in discussions relating to
potential acquisitions and dispositions, the Company has no present agreements
or commitments with respect to any material acquisition or disposition.
The Company's principal executive offices are located at 1675 Broadway,
Suite 2150, Denver, Colorado 80202, and its telephone number at that address is
(303) 592-5555.
THE WARRANT DISTRIBUTION
The Company is distributing at no cost to holders of record of its
Common Stock on the Record Date one Warrant for each four shares of Common Stock
held on the Record Date. No Warrants to purchase fractional shares will be
issued, but rather the number of Warrants to be distributed to each holder will
be rounded down to the nearest whole number of Warrants.
Warrant Distribution............. Each holder of record of Common Stock on the
Record Date will receive one Warrant for
each four shares of Common Stock held on the
Record Date. An aggregate of up to 931,802
Warrants will be distributed. (1) (2)
Record Date...................... September 10, 1998
Description of Warrants.......... Each Warrant entitles the holder to purchase
from the Company one share of Common Stock
at an exercise price of $4.00 per share,
subject to adjustment in certain events, at
any time on or after the Record Date until
the Warrant Expiration Date. The Warrants
will be evidenced by transferable Warrant
Certificates.
Warrant Expiration Date.......... 5:00 p.m., Denver, Colorado time, on
September 10, 2003 (five years after the
Record Date).
Redemption of Warrants........... The Warrants are redeemable at the option of
the Company at a redemption price of $.01
per Warrant at any time on at least 30 days
prior written notice, if the closing sale
price of the Common Stock equals or exceeds
$6.50 for 20 consecutive trading days ending
within 30 days prior to the date notice of
redemption is given, and if at such time
there is a current effective registration
statement covering the Common Stock
underlying the Warrants.
Securities Being Offered Up to 931,802 shares of Common Stock
by the Company................. issuable upon the exercise of the Warrants
to be distributed in the Warrant
Distribution (1) (2).
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<PAGE> 9
Securities Being Resold
by Selling Securityholder...... 155,081 Warrants, subject to certain lock-up
restrictions (1).
Common Stock Outstanding
Prior to the Warrant
Distribution................... 3,546,445 shares (3).
Common Stock Outstanding
After the Warrant
Distribution................... 4,478,247 shares (1)(2)(3).
Use of Proceeds.................. For general corporate purposes, which may
include working capital, acquisitions and
repayment of debt.
Trading Symbols.................. Common Stock: "MGAS" (Nasdaq National
Market) Warrants: "MGASW" (Nasdaq SmallCap
Market)
Risk Factors..................... An investment in the securities offered
hereby involves a high degree of risk. See
"Risk Factors."
- -------------------------
(1) Includes up to 45,191 Warrants which are covered by the Prospectus and
which shall be issuable by the Company to the Selling Securityholder
upon the conversion of the American Meter Note, unless the Warrants are
redeemed and the American Meter Note is converted after the date of
redemption.
(2) Assuming the exercise of all Warrants. Subject to adjustment due to
rounding down to avoid fractional Warrants.
(3) Based on the number of shares of Common Stock outstanding on August 31,
1998. Excludes 418,284 shares of Common Stock issuable upon the
exercise of outstanding stock options and 96,620 shares of Common Stock
issuable upon the exercise of outstanding warrants as of August 31,
1998.
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<PAGE> 10
RISK FACTORS
An investment in the securities offered hereby involves a high degree
of risk. Prospective investors should carefully consider the following risk
factors, in addition to the other information set forth in or incorporated into
this Prospectus, in connection with evaluating an investment in the securities
offered hereby.
HISTORY OF OPERATING LOSSES AND UNCERTAINTY OF AND FLUCTUATION IN
FUTURE RESULTS. Although the Company has reported income from continuing
operations in recent fiscal years and net income in certain recent fiscal
quarters, the Company has a history of incurring net losses since it commenced
operations in 1991. As of June 30, 1998, the Company had an accumulated deficit
of approximately $21.6 million. For the six months ended June 30, 1998, the
Company had net loss of $368,318. For the fiscal years ended December 31, 1997
and 1996, the Company had a net loss of $1,524,137 and $1,541,417, respectively,
but had income from continuing operations of $752,516 and $7,988, respectively.
Most of the Company's historical operating losses were incurred by its
compressed natural gas refueling station equipment business, which was sold in
1997. There is no assurance that the Company will be profitable in the future,
or the extent of any profits.
The Company's operating revenues will fluctuate in the future as a
result of a number of factors, some of which are outside the Company's control,
including the timing of orders, delays in internal product design projects, the
cyclicality and seasonality of the utility industry, acceptance of new products
and new technology in the Company's markets, shifting customer bases, Company
expenditures on research and development, general economic conditions, economic
conditions in the utility industry, the effects of governmental regulations and
regulatory changes, capital expenditures and other costs relating to the
expansion of operations, the introduction of new products and services by the
Company or its competitors, the mix of products and services sold, pricing
changes, new product and service introductions by the Company and its
competitors, prices charged by suppliers, and other factors set forth in this
Prospectus.
DEPENDENCE ON UTILITY INDUSTRY; UNCERTAINTY RESULTING FROM MERGERS AND
ACQUISITIONS AND REGULATORY REFORM. Metretek derives substantially all of its
revenues from sales of its products and services to the utility industry. The
Company has experienced variability of operating results on both an annual and a
quarterly basis due primarily to utility purchasing patterns and delays of
purchasing decisions as a result of mergers and acquisitions in the utility
industry and changes or potential changes to the federal and state regulatory
frameworks within which the utility industry operates. The utility industry,
both domestic and foreign, is generally characterized by long budgeting,
purchasing and regulatory process cycles that can take up to several years to
complete. The Company's utility customers typically issue requests for quotes
and proposals, establish committees to evaluate the purchase, review different
technical options with vendors, analyze performance and cost/benefit
justifications and perform a regulatory review, in addition to applying the
normal budget approval process within a utility. Purchases of the Company's
products are, to a substantial extent, deferrable in the event that utilities
reduce capital expenditures as a result of mergers and acquisitions, pending or
unfavorable regulatory decisions, poor revenues due to weather conditions,
rising interest rates or general economic downturns, among other factors.
The domestic utility industry is currently the focus of regulatory
reform initiatives in virtually every state, which initiatives have resulted in
significant uncertainty for industry participants and raised concerns regarding
assets that would not be considered for recovery through ratepayer charges.
Consequently, many utilities are delaying purchasing decisions that involve
significant capital commitments. While the Company expects some states will act
on these regulatory reform initiatives in the near term, there can be no
assurance that the current regulatory uncertainty will be resolved in the near
future or that the advent of new regulatory frameworks will not have a material
adverse effect on the Company's business, financial condition or results of
operations. Moreover, in part as a result of the competitive pressures in the
utility industry arising from the regulatory reform process, many utility
companies are pursuing merger and acquisition strategies. The Company has
experienced considerable delays in purchase decisions by utilities that have
become parties to merger or acquisition transactions. Typically, such purchase
decisions are put on hold indefinitely when merger negotiations begin. The
pattern of merger and acquisition activity among utilities may continue for the
foreseeable future. If such merger
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and acquisition activity continues at its current rate or intensifies, the
Company's revenues may continue to be materially adversely affected.
NEED FOR ADDITIONAL FUNDS. The Company anticipates that it will have a
continuing need for funds to accomplish its goals in the future. In addition,
unanticipated events, over which the Company may have no control, could increase
the Company's operating costs or decrease its ability to generate revenues from
product and service sales. The Company anticipates, based on the Company's
currently proposed plans and assumptions relating to its operations, that the
proceeds of the Warrant Distribution, if any, together with projected cash flow
from operations and its available capacity under its current credit facility,
will be sufficient to satisfy its anticipated cash requirements. Because the
exercise price of the Warrants is significantly higher than the recent trading
price of the Common Stock, there is no assurance that the Warrants will ever be
exercised, or if exercised, how many will be exercised or when they will be
exercised. In the event the Company's plans change, its assumptions change or
prove to be inaccurate or if projected cash flow from operations and/or any
proceeds from the Warrant Distribution prove to be insufficient to fund
operations (including for reasons related to unanticipated technical or other
problems), the Company could be required to seek additional financing. There is
no assurance that the Company will be able to raise needed funds on terms
satisfactory to it, or that sufficient funds will be available when needed to
pursue its business plan. In addition, the terms of the Company's existing
credit facility prohibits the Company from incurring additional indebtedness
without lender consent. The Company's inability to secure necessary funds to
finance its business operations at the times and in the amounts required could
have a material adverse effect on its business, financial condition and results
of operations.
DEVELOPMENT OF NEW PRODUCTS AND NEW TECHNOLOGIES. The Company has made
and expects to continue to make substantial investments in technology relating
primarily to Metretek's business. The success of the Company, particularly with
respect to Metretek, depends to a significant extent on the development and
implementation of new product designs and technologies, as well as the
enhancement of its existing products. This product development will require
additional investments in order to maintain and enhance the Company's market
position. There can be no assurance that unforeseen problems will not occur with
respect to the Company's technology or products. Development schedules for new
products are subject to uncertainty and there can be no assurance that the
Company will meet its product development schedule. The Company has experienced
delays in new product development in the past and there can be no assurance that
delays will not be experienced in the future. Delays in new product development
can result from a number of causes, including changes in definition during the
development stage, initial failures of products or unexpected behavior of
products under certain conditions, failure of third-party supplied components to
meet specifications or lack of availability of such components, unplanned
interruptions with existing products that can result in reassignment of product
development resources, and other factors. Delays in the development and
availability of new products could have a material adverse effect on the
Company's business and operations. In addition, the Company's business may be
substantially adversely impacted if the Company is unable to keep abreast of the
latest technological developments, if the Company's existing technologies are
rendered obsolete or uneconomical, if the regulations or standards that are
developed are not favorable to the Company's product lines or if the Company's
competitors obtain more favorable market acceptance. There can be no assurance
that the Company will be successful in developing new products or enhancing its
existing products on a timely or cost-effective basis, or that such new products
or product enhancements will achieve market acceptance.
Also, the Company's ability to compete in new markets will depend upon
a number of factors including, without limitation, the Company's ability to
create demand for its products in such markets, its ability to manage its growth
effectively, the quality of its products, its ability to respond to changes in
its customers' businesses by updating existing products and introducing, in a
timely fashion, products which meet the needs of its customers and the ability
of the Company to respond rapidly to technological change. The failure of the
Company to do any of the foregoing could result in a material adverse effect on
its business, financial condition and results of operations. No assurance can be
given that the Company will be able to successfully compete in these markets, or
that it will be able to meet the technical specifications imposed by its
customers or potential customers.
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PRIVATE PROGRAMS. MGT is in the business of managing business trusts
and similar entities formed to acquire and operate natural gas asset programs.
These private entities are financed by private placements of equity interests
raising capital to acquire the assets and business to be operated by the
programs. Such private energy programs involve certain risks inherent to MGT as
the manager of such programs, including risks due to adverse changes in the
success of the programs due to events, conditions and factors outside of the
control of MGT such as general and local conditions affecting the energy market,
changes in the regulatory environment, reliance upon supplies and customers,
hazards of energy facilities, changes in technology, unforseeable capital
expenditures and other similar factors.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. The Company markets and
sells its Metretek products and services in certain international markets, and
Metretek has an established office in the United Kingdom. International
revenues, which are comprised of export sales to foreign markets from the United
States and sales by Metretek's United Kingdom subsidiary, were approximately 21%
of Metretek's revenues in fiscal 1997 and fiscal 1996, and approximately 8.7%
and 8.4% of the Company's consolidated revenues in fiscal 1997 and fiscal 1996,
respectively. There are certain risks inherent in transacting business
internationally, such as changes in applicable laws and regulatory requirements,
export and import restrictions, export controls relating to technology, tariffs
and other trade barriers, less favorable intellectual property laws,
difficulties in staffing and managing foreign operations, longer payment cycles,
problems in collecting accounts receivable, political instability, fluctuations
in currency exchange rates, expatriation controls and potential adverse tax
consequences, any of which could adversely impact the success of the Company's
international activities. A portion of the Company's revenues from sales to
foreign entities is in the form of foreign currencies. The Company has no
hedging or similar foreign currency contracts, and fluctuations in the value of
foreign currencies could adversely impact the profitability of the Company's
foreign operations. There can be no assurance that one or more of such factors
will not have a material adverse effect on the Company's future international
activities and, consequently, on the Company's business, financial condition or
results of operations. The Company has limited experience in conducting its
business outside the United States and may encounter unforeseen difficulties in
conducting operations in foreign countries. In addition, while the Company's
current products are designed to meet relevant regulatory requirements of
foreign markets in which they are sold, any inability to obtain any required
foreign regulatory approval and any changes in foreign regulatory requirements
could have a material adverse effect on the Company's ability to conduct
business in such markets.
COMPETITION. The markets for the Company's products and services are
highly competitive and are characterized by rapidly changing technology,
frequent product and service performance improvements and evolving industry
standards. The Company believes that its future ability to compete effectively
will depend, in part, upon its ability to continue to improve its products and
services and process technologies and to develop new technologies in order to
maintain the performance advantages of products and processes relative to
competitors, to adapt products and services and processes to technological
changes, to identify and adopt emerging industry standards and to adapt to
customer needs. Some of the Company's present and potential competitors have
substantially greater financial, marketing, technical, manufacturing and other
resources, name recognition and experience than the Company. The Company's
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements or to devote greater resources to the
development, promotion and sale of their products and services than the Company.
There can be no assurance that the Company will be able to compete successfully
in the future with any of these sources of competition. In addition, there can
be no assurance that competitive pressures will not result in price erosion,
reduced margins, loss of market share or other factors. Any of the foregoing
could have a material adverse effect on the Company's business, financial
condition and results of operations.
POTENTIAL ACQUISITIONS. Acquisitions have played an important role in
the implementation of the Company's business strategy, and the Company believes
that additional acquisitions are important to its growth, development and
continued ability to compete effectively in the marketplace. The Company
evaluates potential acquisitions and strategic investments on an ongoing basis.
In the event the Company were to identify an appropriate acquisition candidate,
there is no assurance that the Company would be able to successfully negotiate
the terms of any such acquisition, finance such acquisition and integrate such
acquired business, products,
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technologies or services into the Company's existing business and operations.
Furthermore, the integration of an acquired business could cause a diversion of
management time and resources. In addition, there can be no assurance that any
acquisition of new technology will lead to the successful development of new
products, or that any such new products or services, if developed, will achieve
market acceptance or prove to be profitable. There can be no assurance that a
given acquisition, when consummated, would not materially adversely affect the
Company's business, financial condition or results of operations. If the Company
proceeds with one or more significant acquisitions in which the consideration
consists of cash, a substantial portion of the Company's available cash
(including any proceeds of the Warrant Distribution) could be used to consummate
the acquisitions and may result in increased indebtedness, interest and
amortization expense or decreased operating income, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. If the Company consummates one or more significant
acquisitions in which the consideration consists of capital stock or securities
convertible into capital stock, or is financed with the net proceeds of the
issuance of capital stock or securities convertible into capital stock,
stockholders of the Company could suffer a significant dilution of their
percentage ownership interests in the Company. Except as otherwise set forth
herein, the Company presently has no agreements or commitments with respect to
any material acquisition and there can be no assurance that any such additional
businesses will be acquired. In addition, there can be no assurance that any
such acquisitions, if made, will be successful or that they will assist the
Company in the accomplishment of its long-term strategy.
LIMITED PROTECTION OF PROPRIETARY RIGHTS; POTENTIAL INFRINGEMENT OF
THIRD PARTY RIGHTS. The Company's success and ability to compete are dependent
in part upon its proprietary rights and technology. The Company relies on a
combination of patents, copyrights, trademark and trade secret laws to establish
and protect its rights in its products and proprietary technology. Although the
Company maintains certain patents related to its business, the Company does not
believe that its competitive position is dependent upon patent protection or
that its operations are dependent upon any individual patent. The Company
generally requires its employees and consultants to enter into nondisclosure and
assignment of invention agreements to limit use of, access to and distribution
of proprietary technology. There can be no assurance that the Company's means of
protecting its proprietary rights in the United States or abroad will be
adequate. In addition, the laws of some foreign countries may not protect the
Company's proprietary rights as fully or in the same manner as do the laws in
the United States. Despite the Company's efforts to protect its proprietary
rights, it may be possible for unauthorized third parties to copy, reverse
engineer or otherwise obtain, use or exploit aspects of the Company's products,
develop similar technology independently or otherwise obtain and use information
that the Company regards as proprietary. There can be no assurance that the
Company's competitors will not independently develop technologies similar or
superior to the Company's technology or design around the proprietary rights
owned by the Company. Although the Company is not aware that any of its products
infringe on the proprietary rights of third parties, there can be no assurance
that others will not assert claims of infringement in the future or that, if
made, such claims will not be successful.
YEAR 2000 COMPLIANCE. To the extent that the Company's software
applications contain source code that is unable to appropriately interpret the
upcoming calendar year "2000", some level of modification or even possibly
replacement of such source code or applications will be necessary. The Company
has initiated the process of analyzing its software applications and those of
its significant external suppliers, service providers and customers. However,
there can be no assurance that the Company will identify all such Year 2000
problems in its systems or in the computer systems of its suppliers, service
providers or customers in advance of their occurrence or that the Company's
suppliers and customers will be able to successfully rectify any problems that
are discovered. Although the expenses of the Company's efforts to identify and
address such problems, or the expenses or liabilities to which the Company may
become subject as a result of such problems, are not expected to have a material
adverse effect on the Company, there can be no assurance that the cost of
interruptions with the systems of suppliers, service providers or customers will
not have a material adverse effect on the Company's business, financial
condition or results of operations.
RISKS INHERENT IN NATURAL GAS OPERATIONS. The Company's operations are
subject to all the risks normally incident to the servicing and operation of
natural gas assets, including encountering unexpected
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pressures, explosions and fires, which could result in personal injuries, loss
of life, environmental damage and other damage to the properties of the Company
or others. These operations involve numerous financial, business, regulatory,
environmental, operating and legal risks. Damages occurring as a result of these
risks may give rise to product liability claims against the Company. The Company
has product liability insurance generally providing up to $6,000,000 of coverage
per occurrence. However, in accordance with customary industry practice, the
Company is not fully insured against these risks, nor are all such risks
necessarily insurable. Liability could exceed insurance, if any, and could have
a material adverse effect on the Company's business, financial condition or
results of operations.
GOVERNMENTAL REGULATION. The Company's business operations are subject
to various federal, state, local and foreign laws and regulations. There is no
assurance that laws and regulations either existing or enacted in the future or
the repeal or modification of current laws and regulations will not adversely
affect the Company's business, financial condition or results of operations.
Furthermore, amendments to statutes and regulations and the Company's expansion
into new areas could require the Company to continually modify or alter methods
of operations at costs which could be substantial. There can be no assurance
that the Company will be able, for financial or other reasons, to comply with
all applicable laws and regulations.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a large
extent on its ability to attract and retain qualified technical and management
personnel, including the abilities and continued participation of its executive
officers and key employees. There can be no assurance that the Company will be
successful in hiring or retaining the requisite personnel. The loss of the
services of any of these persons could have a material adverse effect on the
Company's business, financial condition or results of operations. The Company
does not carry key-man insurance policies on any of its officers, directors or
employees.
DEPENDENCE ON BUSINESS RELATIONSHIPS TO ACHIEVE MARKET PENETRATION. A
key element of the Company's business strategy is the formation of corporate
relationships with other companies to provide products and services to existing
and new markets. The Company is currently investing, and plans to continue to
invest, significant resources to develop these relationships. The Company
believes that its success in penetrating new markets will depend in large part
on its ability to maintain these relationships and to cultivate additional or
alternative relationships. There can be no assurance that the Company will be
able to develop additional corporate relationships with such companies, that
existing relationships will continue or be successful in achieving their
purposes or that such companies will not form competing arrangements.
CONTROL BY OFFICERS, DIRECTORS AND AFFILIATES. As of August 31, 1998,
the officers, directors and other affiliates of the Company beneficially owned
approximately 1,041,720 shares of Common Stock (including shares issuable upon
the exercise or conversion of (i) presently exercisable stock options, (ii)
presently exercisable warrants (other than the Warrants), and (iii) the American
Meter Note, but excluding the Warrants), which shares constituted 26.5% of the
total outstanding shares of Common Stock prior to the Warrant Distribution
(assuming all options, warrants and rights (other than the Warrants) held by the
officers, directors and affiliates are exercised or converted). While the
Company is unaware of any agreement among such persons to act together with
respect to their Common Stock, if such persons should agree to act together,
they would be able to materially influence the outcome of all matters submitted
to a vote of the Company's stockholders. Such a concentration of ownership may
have an adverse effect on the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE. Virtually all of the Company's
outstanding shares of Common Stock are presently eligible for immediate sale in
the public market. Sales of substantial amounts of Common Stock into the public
market, or a perception that such sales could occur, and the existence of
options and warrants to purchase Common Stock representing an overhanging
obligation of the Company to sell additional Common Stock at prices that may be
below the then current market price of the Common Stock, could adversely affect
the market price of the Common Stock and could impair the Company's future
ability to raise capital through the sale of its equity securities. Also as of
August 31, 1998, options to purchase 418,284 shares of Common Stock and warrants
to purchase 96,620 shares of Common Stock were outstanding. The Selling
Securityholder has certain registration rights with respect to 620,326 shares of
Common Stock issued to it by the Company or issuable to it upon the
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conversion of the American Meter Note, but the Selling Securityholder has agreed
with the Company not to sell any of the Warrants it receives in the Warrant
Distribution except subject to the limitations of a certain lock-up agreement.
ANTI-TAKEOVER PROVISIONS. Certain provisions of (i) the Restated
Certificate of Incorporation, as amended (the "Certificate"), and the By-Laws,
as amended (the "By-Laws"), of the Company, including a fair price requirement,
a classified Board of Directors, anti-greenmail restrictions, super majority
vote requirements for certain fundamental corporate actions and certain
provisions relating to stockholder actions, (ii) the termination arrangements in
the employment contracts with certain executive officers of the Company, and
(iii) the Company's Rights Agreement, may have the effect of delaying or
preventing a change in control of the Company and may make more difficult the
removal of incumbent management even if such transactions could be beneficial to
stockholders. Further, Section 203 of the General Corporation Law of the State
of Delaware (the "DGCL") prohibits the Company from engaging in certain business
combinations with interested stockholders. These provisions may have the effect
of delaying or preventing a change in control of the Company without action by
the stockholders, and therefore could adversely affect the market price of
Common Stock.
AUTHORIZATION AND ISSUANCE OF PREFERRED STOCK. The Board of Directors
of the Company is authorized to issue, without further stockholder approval, up
to 2,500,000 shares of Preferred Stock, par value $.01 per share (the "Preferred
Stock"), which consists of 1,000,000 shares of Series A Preferred Stock,
1,000,000 shares of Series B Preferred Stock and 500,000 shares of Series C
Preferred Stock. The terms of the Series A Preferred Stock and the Series C
Preferred Stock are fixed and include rights preferential to the Common Stock
with respect to dividends and liquidation preferences. The Board of Directors is
also authorized to establish the dividend rates, liquidation preferences, voting
rights, redemption and conversion terms and privileges with respect to the
Series B Preferred Stock without further stockholder approval. The Company may
in the future issue shares of Preferred Stock or create additional series and
classification of Preferred Stock. No shares of Preferred Stock are currently
issued and outstanding, and the Company has no current plan or intention to
issue any shares of Preferred Stock. The issuance of any shares of Preferred
Stock having rights superior to those of the Common Stock may result in a
decrease in the value or market price of the Common Stock and, further, could be
used by the Board of Directors as a means to prevent a change in control of the
Company. See "Description of Capital Stock - Preferred Stock."
NO DIVIDENDS. The Company has never paid any cash dividends and intends
to retain its earnings, if any, in the foreseeable future in order to finance
the operations and growth of the Company. In addition, the Company's credit
facility prohibits the payment of cash dividends without the consent of the
lender. Accordingly, it is anticipated that no dividends will be paid to holders
of the Common Stock in the foreseeable future.
VOLATILITY OF COMMON STOCK PRICE. The market price of the Company's
Common Stock has in the past been, and may in the future continue to be, highly
volatile. A variety of events, including quarter-to-quarter variations in
operating results, news announcements, trading volume, general trends in the
industry, overall market conditions, technological innovations or new products
or services by the Company or its competitors, revised earnings estimates or
other comments by analysts, general stock market trends and other factors, could
result in wide fluctuations in the market price of the Common Stock. Although
the exercise price of the Warrants has been fixed at a level substantially in
excess of the current market price of the Company's Common Stock as reported by
The Nasdaq National Market, no assurance can be given that the future market
price of the Common Stock will ever equal or exceed the exercise price of the
Warrants. In addition, it is possible that in some future period the Company's
operating results may be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock could be
materially adversely affected. Additionally, the stock market in general, and
the market for technology stocks in particular, have experienced extreme price
volatility in recent years. Volatility in price and volume has had a substantial
effect on the market prices of many technology companies for reasons unrelated
or disproportionate to the operating performance of such companies. These broad
market fluctuations could have a significant impact on the market price of the
Common Stock.
BROAD DISCRETION IN APPLICATION OF PROCEEDS. There is no assurance that
the Warrants will ever be exercised, or if any Warrants are exercised, how many
will be exercised. Accordingly, there is no assurance that the Warrant
Distribution will result in any net proceeds to the Company, or if any, how
much. Any net proceeds
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from the Warrant Distribution will be applied to working capital and general
corporate purposes. Accordingly, the Board of Directors of the Company is
retaining broad discretion as to the application of such proceeds. See "Use of
Proceeds."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants may be
redeemed by the Company at any time at a redemption price of $.01 per Warrant
upon at least 30 days prior written notice, provided that the market price of
the Common Stock for 20 consecutive trading days ending within 30 days of the
date notice is given equals or exceeds $6.50, subject to adjustment under
certain events. Redemption of the Warrants could force the holders to exercise
the Warrants and pay the exercise price at a time when it may be disadvantageous
for the holders to do so, sell the Warrants at the then current market price
when they might otherwise wish to hold the Warrants, or to accept the redemption
price, which will be substantially less than the market value of the Warrants at
the time of redemption.
CURRENT REGISTRATION STATEMENT AND STATE BLUE SKY REGISTRATION. Holders
of the Warrants will have the right to exercise the Warrants only if a current
registration statement relating to the Common Stock underlying the Warrants is
then effective, and only if the issuance of such Common Stock has been
registered or qualified, or complies with an exemption from such requirements,
under the securities laws of the states and jurisdictions in which the various
Warrant holders reside. Although the Company intends to use its best efforts to
keep the Registration Statement current during the Warrant exercise period,
there is no assurance that it will be able to do so. The Warrants may be
deprived of any value if a current registration statement covering the
underlying Common Stock is not kept effective, if the issuance of such Common
Stock is not registered or qualified, or is not made in compliance with
applicable exceptions from such requirements, in the states in which the Warrant
holders reside.
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of Common Stock upon the
exercise of Warrants will experience an immediate and substantial dilution in
the net tangible book value of the Common Stock. To the extent outstanding
options to purchase shares of the Company's Common Stock are exercised, there
will be further dilution.
UNCERTAINTY OF STOCK PRICE AFTER WARRANT DISTRIBUTION. The Company
cannot be certain what effect the issuance of up to 931,802 Warrants in the
Warrant Distribution or of up to 931,802 shares of Common Stock upon the
exercise of the Warrants at $4.00 per share will have on the market price of the
Common Stock.
DETERMINATION OF WARRANT EXERCISE PRICE. The exercise price of the
Warrants was arbitrarily determined by the Company and does not necessarily bear
any relation to the Company's book value, operating results, financial condition
or other established criteria of value. The exercise price of the Warrants is
substantially higher than the price the Common Stock is trading on the date of
this Prospectus or has traded in the recent past on The Nasdaq National Market.
The exercise price is not necessarily indicative of any future market price of
the Common Stock, and there is no assurance that the market price of the Common
Stock will equal or exceed the exercise price of the Warrants at any time during
or after the Warrant exercise period.
NO ASSURANCE OF PUBLIC MARKET FOR WARRANTS. Prior to the Warrant
Distribution, there has been no public market for the Warrants. Although the
Warrants have been approved for inclusion in The Nasdaq SmallCap Market, there
can be no assurance that a regular trading market will develop for the Warrants
or, if developed, can be sustained throughout the exercise period of the
Warrants.
NASDAQ NATIONAL MARKET LISTING. The Company's Common Stock is currently
listed on The Nasdaq National Market. The continued listing of the Common Stock
is dependent upon the Company and the Common Stock meeting certain market
listing requirements, including, without limitation, a $1.00 minimum bid price
for the Common Stock and a $5 million market value of public float (shares not
owned by an officer, director or 10% shareholder of the Company). If the Company
is unable to satisfy this current listing criteria in the future and cannot
qualify for listing on The Nasdaq SmallCap Market, then the Common Stock will
only be eligible for trading in the over-the-counter market in the so-called
"pink sheets" or the "Electronic Bulletin Board" of the
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National Association of Securities Dealers, Inc. As a consequence of such
delisting, an investor could find it more difficult to dispose of, or to obtain
accurate quotations as to the price of, the Company's securities, and the
reduction in liquidity could materially adversely affect the Company's ability
to issue additional securities to secure additional financing.
In addition, because the Company's Common Stock is listed on The Nasdaq
National Market, the issuance of the Warrants and the sale of the shares of
Common Stock issuable upon the exercise of the Warrants is subject to an
exemption from registration in most states. If the Common Stock were delisted
from The Nasdaq National Market, even if the Common Stock were listed on The
Nasdaq SmallCap Market, then such exemption would cease to apply, and the
Company would have to seek to register the issuance and/or the exercise of the
Warrants in most states. In such event, residents of jurisdictions in which the
Warrants were not registered or otherwise qualified for sale who acquired the
Warrants from the Company as a distribution, in open market purchases, or
otherwise, would not be able to exercise their Warrants unless and until the
Common Stock issuable thereunder was registered in the applicable jurisdiction
or an exemption from registration was available, neither of which can be
assured. Warrant holders would have no choice but to attempt to sell the
Warrants in a jurisdiction where such sale is permissible or allow them to
expire unexercised. The availability of those exemptions, however, may be
subject to certain conditions, including, in some cases, filing requirements
prior to issuing shares of Common Stock upon exercise.
In addition, if the Common Stock were delisted from trading on The
Nasdaq National Market and were not eligible for listing on The Nasdaq SmallCap
Market, and if the trading price of the Common Stock were to be below $5.00 per
share, trading in the Common Stock would also be subject to the requirements of
certain rules promulgated under the Exchange Act, which require additional
disclosure by broker-dealers in connection with any trades involving a stock
defined as a "penny stock" (generally, any non-Nasdaq equity security that has a
market price of less then $5.00 per share, subject to certain exceptions). Such
rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith, and impose various sales practice requirements on broker-dealers who
sell penny stocks to persons other than established customers and accredited
investors (generally institutions). For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
and sale. The additional burdens imposed upon broker-dealers by such
requirements may discourage broker-dealers from effecting transactions in the
Common Stock, which could severely limit the market liquidity of the Common
Stock and the ability of persons who exercise Warrants to sell the underlying
Common Stock in the secondary market.
USE OF PROCEEDS
The maximum net proceeds to the Company from the sale of the up to
931,802 shares of Common Stock issuable upon exercise of the Warrants to be
issued in or as a result of the Warrant Distribution are estimated to be
approximately $3,647,208 (assuming all the shares of Common Stock offered hereby
are purchased pursuant to the exercise of the Warrants and after deducting
estimated expenses of the Warrant Distribution of $80,000), although there is no
assurance all or any of the Warrants will ever be exercised. The Company
currently intends to use the net proceeds from the exercise of the Warrants for
working capital and general corporate purposes, which may include future
acquisitions by the Company, repayment of bank debt or the American Meter Note,
purchase of new equipment and product development. While the Company regularly
engages in discussions relating to potential acquisitions and may consider using
portions of any net proceeds for acquisition opportunities that arise in the
future, the Company currently has no present agreements or commitments with
respect to any material acquisition. The actual use of proceeds may vary
depending on many factors, including changes in the Company's financial
condition, business opportunities that become available to the Company, changes
in the Company's planned operations and changes in the business climate. Any
application of net proceeds will be at the discretion of the Board of Directors
of the Company. Pending the use of the proceeds as set forth above, the net
proceeds will be invested in short-term marketable securities.
The Company will not receive any of the proceeds from the issuance of
the Warrants to holders of the Company's Common Stock as a dividend in the
Warrant Distribution or from any sale of the Warrants by the Selling
Securityholder.
15
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of the Company and its
subsidiaries as of and for the years ended December 31, 1996 and 1997 have been
derived from the audited consolidated financial statements of the Company
incorporated by reference into this Prospectus. The selected consolidated
financial data of the Company and its subsidiaries as of and for the six months
ended June 30, 1997 and 1998 have been derived from the unaudited consolidated
financial statements of the Company incorporated by reference into this
Prospectus, which, in the opinion of management, contain all adjustments (all of
which are normal and recurring) necessary for a fair presentation of the
consolidated financial condition and the results of operations of the Company
and its subsidiaries as of and for the periods presented. The selected financial
data for the six months ended June 30, 1998 are not necessarily indicative of
the results that may be expected for the full year ending December 31, 1998. The
selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and the
related notes thereto incorporated by reference into this Prospectus. All share
and per share data in the following table has been restated to reflect the
one-for-four reverse split of the Common Stock of the Company effected on July
6, 1998.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
---------------------- ----------------------
1996 1997 1997 1998
------- ------- ------- --------
STATEMENT OF OPERATIONS DATA: (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Natural gas measurement sales and services....... $18,419 $20,390 $ 9,696 $ 8,695
Other............................................ 596 827 182 287
------- ------- ------- -------
Total revenues.............................. 19,015 21,217 9,878 8,982
------- ------- ------- -------
Costs and expenses:
Cost of measurement sales and services........... 11,987 12,921 6,040 5,639
General and administrative....................... 3,705 3,803 1,960 2,017
Selling, marketing and service................... 1,589 1,642 778 664
Depreciation and amortization.................... 907 945 467 477
Research and development......................... 730 1,062 505 451
Interest and other............................... 89 91 55 102
------- ------- ------- -------
Total costs and expenses.................... 19,007 20,464 9,805 9,350
------- ------- ------- -------
Income (loss) from continuing operations............ 8 753 73 (368)
------- ------- ------- -------
Loss from discontinued operations................... (1,549) (2,277) (2,009) 0
------- ------- ------- -------
Net loss............................................ $(1,541) $(1,524) $(1,936) $ (368)
======= ======= ======= =======
Income (loss) per basic common share:
Continuing operations............................ $ 0.00 $ 0.24 $ 0.02 $ (0.11)
Discontinued operations.......................... (0.51) (0.74) (0.65) 0.00
------- ------- ------- -------
Net loss per basic common share..................... $ (0.51) $ (0.50) $ (0.63) $ (0.11)
====== ======= ======= =======
Income (loss) per common share -- assuming
dilution:
Continuing operations............................ $ .00 $ 0.24 $ 0.02 $ (0.11)
Discontinued operations.......................... (0.51) (0.74) (0.65) 0.00
------- ------- ------- -------
Net loss per common share -- assuming dilution...... $ (0.51) $ (0.50) $ (0.63) $ (0.11)
======= ======= ======= =======
Weighted average common shares outstanding.......... 3,025 3,076 3,074 3,234
Incremental shares from assumed conversion of
stock options.................................... 1 8 1 0
------- ------- ------- -------
Weighted average common shares assuming dilution.... 3,026 3,084 3,075 3,234
======= ======= ======= =======
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------ -------------------
1996 1997 1997 1998
------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................... $ 7,282 $ 6,285 $ 5,921 $ 7,182
Total assets........................................ 19,589 18,679 18,302 21,266
Long term debt, including current maturities........ 646 388 919 1,503
Total stockholders' equity.......................... 17,292 15,849 15,434 17,636
</TABLE>
THE WARRANT DISTRIBUTION
The Company is distributing, at no cost, as a dividend to each holder
of its Common Stock of record as of the close of business on September 10, 1998,
the Record Date, one Warrant for each four shares of Common Stock held on the
Record Date. A total of up to 931,802 Warrants will be issued in the Warrant
Distribution, including up to 45,191 Warrants issuable to the Selling
Securityholder upon the conversion of the American Meter Note, if and when the
Selling Securityholder elects to convert the American Meter Note, unless the
Warrants are redeemed by the Company and the American Meter Note is converted
after the close of business on the date fixed for redemption.
No Warrants to purchase fractional shares will be issued. The number of
Warrants to be issued to each stockholder will be rounded down to the nearest
whole Warrant. Warrant holders may (i) purchase Common Stock through the
exercise of their Warrants, (ii) trade their Warrants, or (iii) allow their
Warrants to expire unexercised.
The Warrants will be issued pursuant to the terms and conditions of a
Warrant Agency Agreement (the "Warrant Agreement") between the Company and
American Securities Transfer & Trust, Inc. (the "Warrant Agent"), as Warrant
Agent. The following description of the Warrants is not complete and is
qualified in its entirety by reference to the Warrant Agreement, which is an
exhibit to the Registration Statement of which this Prospectus is a part and is
available upon request to the Company.
TERMS OF THE WARRANTS
Each Warrant entitles the holder thereof to purchase one share of the
Company's Common Stock at an exercise price of $4.00 per share, subject to
adjustment in certain events, at any time during the period commencing on the
Record Date and ending at 5:00 p.m., Denver, Colorado time, on September 10,
2003 (five years after the Record Date). Warrants not exercised prior to the
Warrant Expiration Date will no longer be exercisable, but will become null and
void and will have no value. Upon at least 30 days prior written notice to all
holders of Warrants, the Company has the right to reduce the exercise price
and/or to extend the term of the Warrants.
The Warrants are redeemable at the option of the Company at a
redemption price of $.01 per Warrant at any time on at least 30 days prior
written notice, if the closing sale price of the Common Stock equals or exceeds
$6.50 for 20 consecutive trading days ending within 30 days prior to the date
notice of redemption is given, and if at such time there is a current effective
registration statement covering the Common Stock underlying the Warrants.
Holders of Warrants will have the right to exercise the Warrants until the close
of business on the date fixed for redemption.
No Warrants will be exercisable unless at the time of exercise there is
a current prospectus covering the issuance of shares of Common Stock upon the
exercise of such Warrants under an effective registration statement filed with
the Commission and such shares of Common Stock have been qualified for sale or
are exempt from qualification under the securities laws of the state of
residence of the holder of such Warrants. Although the Company intends to have
all shares of Common Stock so qualified for sale in those states where the
Warrants are being offered and to maintain a current prospectus relating thereto
until the expiration of the Warrants, subject to the terms of the Warrant
Agreement, there can be no assurance that it will be able to do so. The Company
is also
17
<PAGE> 20
required to keep available a sufficient number of authorized shares of Common
Stock to permit exercise of the Warrants.
The exercise price of the Warrants and the number of shares of Company
Stock issuable upon exercise of the Warrants will be subject to adjustment to
protect against dilution in the event of stock dividends, stock splits,
combinations, subdivisions, reclassifications, reorganizations, mergers, and
similar corporate transactions. However, the Warrants are not subject to
adjustment for issuance of shares of Common Stock (or securities convertible
into or exercisable for Common Stock) at prices below the exercise price of the
Warrants.
The Company and the Warrant Agent may make such modifications to the
Warrants as they deem necessary and desirable that do not adversely affect the
interests of the Warrant holders. No other modification may be made to the
Warrants, without the consent of a majority of the Warrant holders.
DETERMINATION OF EXERCISE PRICE OF WARRANTS
The exercise price of the Warrants was arbitrarily determined by the
Company and does not necessarily bear any relation to the Company's book value,
operating results, financial condition or any other established criteria of
value, and should not be regarded as indicative of any future market price of
the Common Stock. The exercise price of the Warrants is substantially higher
than the price the Common Stock has traded in the recent past on The Nasdaq
National Market. No assurance can be given that the market price of the
Company's Common Stock will equal or exceed the exercise price of the Warrants
at any time during or after the exercise period.
METHOD OF OFFERING
The Warrant Distribution is being made directly by the Company. The
Company will not pay any underwriting discounts or commissions, finders fees or
other remuneration in connection with any distribution of the Warrants or sales
of the shares of the underlying Common Stock offered hereby, other than the fees
paid to American Securities Transfer & Trust, Inc. as the Warrant Agent. The
Company estimates that the expenses of the Warrant Distribution will be
approximately $80,000.
The Warrants will be evidenced by Warrant Certificates that will be
distributed to holders of record of Common Stock by the Warrant Agent, along
with copies of this Prospectus, on or about September 18, 1998.
All commissions, fees and other expenses (including brokerage
commissions and transfer taxes) incurred in connection with the exercise of the
Warrants are the responsibility of the holders of the Warrants, and none of such
commissions, fees or expenses will be paid by the Company.
EXERCISE OF WARRANTS AND WARRANT AGENT
Warrant holders may exercise the Warrants by properly completing and
signing the subscription form on the Warrants including, if required, a
signature guarantee from an eligible institution, and mailing or delivering the
Warrants to the Warrant Agent, together with a payment of the aggregate exercise
price of the Warrants in full (in U.S. dollars) by such holder, to:
American Securities Transfer & Trust, Inc.
938 Quail Street, Suite 101
Denver, Colorado 80215
Telephone: (303) 234-5300
Facsimile: (303) 234-5340
A holder may exercise Warrants in whole or in part, but no Warrants may be
exercised for fractional shares of Common Stock.
18
<PAGE> 21
The exercise price will be considered to have been paid only upon
clearance of the wire transfer, certified or official bank check, bank draft or
money order tendered therefor. All funds received by the Warrant Agent from the
exercise of the Warrants will be deposited upon receipt. Pending issuance of
certificates representing shares of Common Stock, funds received for the
exercise of Warrants will be held in a segregated escrow account.
Once a holder has exercised a Warrant, the exercise may not be revoked.
To be accepted, the properly completed Warrants and payment with respect to the
exercise price of the Warrants must be received by the Warrant Agent before 5:00
p.m. Denver, Colorado time on September 10, 2003. The instruction accompanying
the Warrants should be read carefully and followed in detail. WARRANTS SHOULD BE
SENT WITH PAYMENT TO THE WARRANT AGENT. DO NOT SEND WARRANTS TO THE COMPANY.
CERTIFICATES REPRESENTING THE SHARES OF COMMON STOCK SUBSCRIBED FOR
WILL BE ISSUED AND DELIVERED AS SOON AS PRACTICABLE AFTER PAYMENT OF THE
EXERCISE PRICE OF THE WARRANTS. HOLDERS OF WARRANTS, AS SUCH, WILL NOT HAVE ANY
RIGHTS AS STOCKHOLDERS OF THE COMPANY UNTIL STOCK CERTIFICATES REPRESENTING THE
SHARES OF COMMON STOCK SUBSCRIBED FOR ARE ISSUED TO THEM.
The risk of method of delivery of all documents and payment is on the
holders of the Warrants, not the Company. If the mail is used, it is recommended
that payments be made by registered mail, properly insured, return receipt
requested, and that a sufficient number of days be allowed to ensure delivery to
the Warrant Agent before the expiration of the Warrants.
Questions relating to the method of exercise and requests for
additional copies of this Prospectus should be directed to the Warrant Agent at
the address set forth above.
TRANSFER OF WARRANTS
The Warrants will be transferable separately from the Common Stock
immediately upon distribution. The Warrants have been approved for inclusion in
The Nasdaq SmallCap Market under the symbol "MGASW." However, there can be no
assurance that a trading market for the Warrants will develop or, if developed,
can be sustained throughout the exercise period of the Warrants.
NOMINEE HOLDERS
Holders on the Record Date who hold shares of Common Stock for the
account of others, such as brokers, trustees or depositories for securities (a
"Nominee Record Date Holder"), should contact the respective beneficial owners
of such shares as soon as possible to ascertain those beneficial owners'
intentions and to obtain instructions and certain beneficial owner certificates
with respect to their Warrants, all as included in the instruction distributed
by Nominee Record Date Holders to beneficial owners. If a beneficial owner so
instructs, the Nominee Record Date Holder should complete the appropriate
subscription form on the Warrants and submit them to the Warrant Agent with the
proper payment. In addition, beneficial owners of Common Stock or Warrants held
through such Nominee Record Date Holder should contact the Nominee Record Date
Holder and request the Nominee Record Date Holder to effect transactions in
accordance with the beneficial owner's instructions.
INTERPRETATION
All questions as to the validity, form, eligibility, including time of
receipt, and acceptance of any exercise will be determined by the Company, in
its sole discretion, which determination shall be final and binding. The Company
reserves the absolute right to reject any exercise if it is not in proper form
or if the acceptance thereof or the issuance of Common Stock pursuant thereto
could be deemed unlawful. The Company also reserves the right to waive any
defect with regard to any particular exercise. The Company shall not be under
any duty to give notification of any defects or irregularities in exercises, nor
shall it incur any liability for failure to give such notification. Warrants
will not be deemed to have been exercised until any such defects or
irregularities have been cured or waived within such time as the Company shall
determine. Warrant exercises with defects or irregularities
19
<PAGE> 22
which have not been cured or waived will be returned by the Company to the
appropriate holder of the Warrants as soon as practicable.
STATE AND FOREIGN SECURITIES LAWS
The Warrants may not be exercised by any person, and neither this
Prospectus nor any Warrants shall constitute an offer to sell or a solicitation
of an offer to purchase any shares of Common Stock in any jurisdiction in which
such transactions would be unlawful. The Company believes that any action
required of the Company has been taken to permit exercises of the Warrants and
purchases of the Common Stock in all states in which holders of Warrants as of
the Record Date reside. No action has been taken in any jurisdiction outside the
United States to permit offers and sales of the Warrants or the Common Stock.
Consequently, the Company may reject subscriptions pursuant to the exercise of
Warrants by any holder of Warrants outside the United States, and the Company
may also reject subscriptions from holders in jurisdictions within the United
States if it should later determine that it may not lawfully issue shares of
Common Stock without taking other actions in such jurisdiction.
POTENTIAL DILUTION
The Warrant Distribution may result in a significant dilution of the
voting interests of holders of the Company's Common Stock, depending on whether
such holders exercise their Warrants. Such dilution would reduce a Common Stock
holder's percentage ownership interest in the Company. As of August 31, 1998,
3,546,445 shares of Common Stock were issued and outstanding. If all the
Warrants to be issued in the Warrant Distribution are exercised (but no other
outstanding warrants or options are exercised and the American Meter Note is not
converted), then 4,433,056 shares of Common Stock will be outstanding (based on
the number of outstanding shares on August 31, 1998), and the percentage
ownership interest of a holder of Common Stock who does not exercise his
Warrants (whether because he trades or holds them, but does not exercise them)
would be decreased by approximately 20%.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated federal income
tax consequences of the Warrant Distribution. This summary is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), and the applicable
treasury regulations promulgated thereunder (the "Treasury Regulations"),
judicial authority and administrative rulings and practice, all as in effect on
the date hereof. Legislative, judicial or administrative rules and
interpretations are subject to change, potentially on a retroactive basis, at
any time and therefore could alter or modify the statements and conclusions set
forth below. For the purpose of this discussion, it is assumed that the Warrants
and the Common Stock are held as capital assets by United States persons (i.e.,
citizens or residents of the United States or domestic corporations). This
summary does not purport to be complete and does not address all aspects of
federal income taxation that may be relevant to a particular holder of Common
Stock or Warrants in light of such holder's personal investment circumstances,
holders holding Common Stock or Warrants as security for borrowings or those
holders subject to special treatment under the federal income tax laws (for
example, life insurance companies, tax-exempt organizations, foreign
corporations and nonresident alien individuals). The summary also does not
discuss any consequences of the Warrant Distribution under any state, local,
foreign, gift or estate tax laws. No ruling from the Internal Revenue Service
(the "Service") or opinion of counsel will be obtained regarding the federal
income tax consequences to the stockholders of the Company as a result of the
Warrant Distribution. ACCORDINGLY, EACH HOLDER IS ENCOURAGED TO CONSULT HIS OWN
TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF RECEIVING, HOLDING,
EXERCISING AND DISPOSING OF THE WARRANTS, INCLUDING THE APPLICATION AND EFFECT
OF STATE, LOCAL AND FOREIGN INCOME TAX LAWS.
20
<PAGE> 23
WARRANTS
Receipt of Warrants. The Company intends to treat the Warrant
Distribution as a nontaxable distribution pursuant to Section 305(a) of the
Code. Under the Company's intended treatment (i.e., treating the Warrant
Distribution as a non-taxable distribution), if a Warrant is exercised, the tax
basis of the Warrant in the hands of a holder will be determined by allocating
the holder's tax basis in his shares of Common Stock with respect to which the
Warrant was distributed between such shares of Common Stock and the Warrant, in
proportion to their relative fair market values on the date of distribution of
the Warrants (the "Warrant Distribution Date"). If, however, the fair market
value of the Warrant on the Warrant Distribution Date is less than 15% of the
fair market value of the shares of Common Stock with respect to which the
Warrant was distributed, the holder's tax basis in the Warrant will be deemed to
be zero unless the holder affirmatively elects, in accordance with Treasury
Regulations, to apportion his or her tax basis in accordance with the preceding
sentence. The holding period of a Warrant will include the holding period for
the shares of Common Stock with respect to which the Warrant was distributed.
However, the law applicable to the receipt of the Warrant Distribution
is not entirely clear and the Service may take the position that the Warrant
Distribution constitutes a taxable distribution under Section 301 of the Code.
In this event, a holder receiving a Warrant would be considered to have received
a distribution on the Warrant Distribution Date, in an amount equal to the fair
market value of the Warrant received. Although the Company has an accumulated
deficit in earnings and profits, to the extent the Company has current earnings
and profits in the taxable year of the Warrant Distribution, if the distribution
were treated as a taxable distribution, the distribution would be treated first
as a dividend taxable as ordinary income, next as a nontaxable recovery of the
adjusted tax basis in the Common Stock with respect to which the Warrant was
distributed and finally as gain from the sale or exchange of such Common Stock.
A holder's tax basis in a Warrant received in a taxable distribution would equal
the fair market value of the warrant as of the Warrant Distribution Date and the
holding period of the warrant would commence on the Distribution Date.
Exercise of Warrants. No gain or loss will be recognized by a holder of
Warrants upon exercise of the Warrants for cash. The adjusted tax basis of a
holder of Common Stock acquired upon exercise of Warrants will be equal to the
sum of the holder's adjusted tax basis in the exercised Warrants and the
exercise price of the Warrants. The holding period for Common Stock acquired
upon exercise of Warrants will commence on the date of such exercise.
Disposition of Warrants. The sale or other disposition of Warrants will
result in the recognition of gain or loss by the holder of such Warrant in an
amount equal to the difference between the amount realized and the holder's
adjusted tax basis in the Warrant (determined as discussed above). Gain or loss
will be capital gain or loss if the Warrant was held as a capital asset, and
will be long-term capital gain or loss if the Warrant has a holding period for
tax purposes of more than one year. As discussed above, the date on which the
holding period for the Warrant commences will depend on whether the Warrant is
treated as a non-taxable distribution or as a distribution taxable under Section
301 of the Code.
COMMON STOCK
The sale or other disposition of Common Stock acquired upon exercise of
a Warrant will result in the recognition of gain or loss by the holder of such
Common Stock in an amount equal to the difference between the amount realized
and the holder's adjusted tax basis in the Common Stock. Gain or loss will be
capital gain or loss if the Common Stock was held as a capital asset, and will
be long-term capital gain or loss if the Common Stock has a holding period for
tax purposes of more than one year. The holding period commences on the date
such Warrants are exercised.
TAX CONSEQUENCES TO THE COMPANY
The Company will not recognize any income or gain upon the distribution
of the Warrants, the exercise of the Warrants, or the expiration or redemption
of the Warrants.
21
<PAGE> 24
SELLING SECURITYHOLDER
The Selling Securityholder is American Meter Software Corporation
(formerly known as Eagle Research Corporation), a wholly-owned subsidiary of
American Meter Company, located at 105 Erskine Lane, Scott Depot, West Virginia
25560. The Warrants being offered by the Selling Securityholder pursuant to this
Prospectus consist of 155,081 Warrants to be issued to the Selling
Securityholder in the Warrant Distribution, including up to 45,191 Warrants
issuable upon the conversion of the American Meter Note (unless, if the Warrants
are called for redemption, such conversion occurs after the Warrants are
redeemed by the Company). Any such sale of the Warrants is subject to the terms
of a certain lock-up agreement ("Lock-Up Agreement") between the Selling
Securityholder and the Company. Under the terms of the Lock-Up Agreement, the
Selling Securityholder and its affiliates may not, until the earlier of the
Warrant Expiration Date or the date the Warrants are redeemed, if ever, directly
or indirectly, pursuant to this Prospectus, Rule 144 or otherwise, offer, sell,
grant any option to purchase or dispose of any Warrants (or announce the same)
without the prior written consent of the Company, except as follows: (i) during
any three-month period, 2% of the aggregate number of Warrants then outstanding
may be sold; and (ii) in the event the Company gives written notice of
redemption of the Warrants in accordance with the terms of the Warrant
Agreement, any or all of the Warrants may be sold. This Prospectus does not
cover the resale by the Selling Securityholder or any of its affiliates of any
shares of Common Stock, whether acquired in connection with the American Meter
Transaction, upon conversion of the American Meter Note, upon exercise of the
Warrants, or otherwise.
As of August 31, 1998, the Selling Securityholder beneficially owned
620,326 shares of Common Stock, including 180,766 shares of Common Stock
issuable upon the conversion of the American Meter Note, representing 16.6% of
the shares of Common Stock of the Company outstanding plus the shares of Common
Stock issuable upon conversion of American Meter Note. Harry I. Skilton, the
President, Chief Executive Officer and a Director of American Meter and an
executive officer and a director of the Selling Securityholder, beneficially
owns 9,357 shares of Common Stock, including 6,857 shares issuable upon the
exercise of outstanding stock options, which represents approximately 0.3% of
the outstanding shares of Common Stock. The shares of Common Stock beneficially
owned by Mr. Skilton have not been included in the Selling Securityholder's
beneficial ownership. The Selling Securityholder has certain registration rights
with respect to the Common Stock beneficially owned by it. See "Description of
Capital Stock--Registration Rights." The Selling Securityholder and American
Meter are also parties with the Company and Metretek with respect to the
American Meter License Agreement and the American Meter Non-Competition
Agreement. See "Prospectus Summary--The Company".
Because the Selling Securityholder may sell all, some or none of the
Warrants it beneficially owns, no estimate or assurance can be given as to the
number of Warrants that will actually be sold by the Selling Securityholder.
The Company has been advised by the Selling Securityholder that the
Selling Securityholder, or its pledgees, donees, transferees or other successors
in interest, may from time to time offer for sale all or a portion of the
Warrants it receives in the Warrant Distribution in one or more transactions
(which may include block transactions or ordinary brokerage transactions) on The
Nasdaq SmallCap Market or on such other market or exchange on which the Warrants
may from time to time be trading, in privately negotiated transactions, through
a combination of such methods of sale, or otherwise, at fixed prices that may be
changed, at market prices prevailing at the time of sale, at prices related to
prevailing market prices, or at negotiated prices. The Selling Securityholder,
or its pledgees, donees, transferees or other successors in interest, may effect
such transactions by selling the Warrants directly to purchasers, acting as
principals for their own accounts, or by selling their Warrants to or through
brokers or dealers acting as principals for their own accounts or as agents for
their customers. In effecting such transactions, the brokers or dealers engaged
by the Selling Securityholder may arrange for other brokers or dealers to
participate. Such brokers or dealers may receive compensation in the form of
commissions, discounts or concessions from the Selling Securityholder and/or the
purchasers of the Warrants for whom such brokers or dealers act as agent, or to
whom they sell as principal, or both (which compensation to a particular broker
or dealer may be in excess of customary commissions).
22
<PAGE> 25
The Selling Securityholder, and any brokers, dealers or agents that
participate with the Selling Securityholder in the distribution of the Warrants,
may be deemed to be "underwriters" within the meaning of the Securities Act, in
which event any compensation received by such brokers, dealers or agents and any
profits received by them upon the resale of the Warrants as principal may be
deemed to be underwriting discounts and commissions for purposes of the
Securities Act.
To the extent required, the amount of the Warrants to be offered, the
purchase prices, the public offering prices, the names of any agents, brokers,
dealers or underwriters, and any applicable commissions or discounts with
respect to a particular offer will be set forth by the Company in a Prospectus
Supplement accompanying this Prospectus or, if appropriate, a post-effective
amendment to the Registration Statement.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Warrants may be limited in its ability
to engage in market activities with respect to such Warrants or the Common
Stock. The Selling Securityholder and any other persons participating in the
sale or distribution of the Warrants will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which provisions may limit the timing of purchases and
sales of the Warrants or the Common Stock by the Selling Securityholder or any
other such person. The foregoing may affect the marketability of the Warrants.
The Company has agreed to indemnify the Selling Securityholder against
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments the Selling Securityholder may be required to make in
respect thereof. The Company has agreed to bear all expenses of the Warrants,
other than commissions, discounts, concessions, or other compensation payable to
brokers, dealers or underwriters in connection with such resale, which will be
borne by the Selling Securityholder.
Any or all of the sales or other transactions involving the Warrants
described above, whether effected by the Selling Securityholder, any broker,
dealer, agent or others, may be made pursuant to this Prospectus. In addition,
any Warrants that qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather than pursuant to this Prospectus.
Offers or sales of the Warrants have not been registered or qualified
under the laws of any country, other than the United States. In order to comply
with the securities laws of certain states, if applicable, the Warrants may be
sold in such jurisdictions only through registered or licensed brokers or
dealers. In addition, in certain states the Warrants may not be sold unless the
Warrants have been registered or qualified for sale in such states or an
exemption from registration or qualification is available and is complied with.
No underwriter, broker, dealer or agent has been engaged by the Company
in connection with the distribution of the Warrants to which this Prospectus
relates. All costs associated with this offering will be paid by the Company,
provided the Company shall not be responsible for any discounts, commissions,
concessions or other compensation payable to brokers, dealers or agents in
connection with the sale of Warrants.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, par value $.01 per share, and 2,500,000 shares of
Preferred Stock, par value $.01 per share, of which 1,000,000 shares are
designated as Series A, 1,000,000 shares are designated as Series B, and 500,000
shares are designated as Series C. As of August 31, 1998, (i) 3,546,445 shares
of Common Stock and no shares of Preferred Stock were issued and outstanding,
(ii) options to purchase 418,284 shares of Common Stock were outstanding, and
(iii) warrants (not including the Warrants) exercisable for 96,620 shares of
Common Stock were outstanding. The following description of the Company's
capital stock does not purport to be complete but is qualified in its entirety
by reference to the Company's Certificate and By-laws and the other documents
referred to herein, which are exhibits to the Registration Statement, and to the
DGCL.
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<PAGE> 26
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Such holders do
not have the right to cumulate their votes in the election of directors. Holders
of Common Stock are entitled to receive dividends when, as and if declared by
the Board of Directors out of funds legally available therefor. In the event of
a liquidation, dissolution or winding up of the Company, holders of Common Stock
have the right to a ratable portion of the assets remaining after satisfaction
of liabilities of the Company and subject to all liquidation preferences on any
outstanding shares of Preferred Stock. Holders of Common Stock have no
preemptive or preferential rights to purchase or subscribe for any part of any
additional securities or rights to convert their Common Stock into other
securities and are not subject to future calls or assessments by the Company.
Holders of Common Stock have no conversion, sinking fund or redemption rights.
All outstanding shares of Common Stock are, and all shares of Common Stock to be
issued upon exercise of the Warrants will, upon issuance and against payment as
contemplated herein, be, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, without further action by the
holders of Common Stock, to issue the Preferred Stock, from time to time, in one
or more series, and to designate the relative rights and preferences of the
Preferred Stock, when and if issued. Such rights and preferences may include
preferences on liquidation, redemption and conversion rights, voting rights,
dividends or other preferences, any of which may be dilutive of the interests of
the holders of the Common Stock and could adversely affect the voting power of
the holders of Common Stock. The issuance of Preferred Stock could also have the
effect of delaying or preventing a change in control of the Company and may have
an adverse effect on the rights of the holders of Common Stock.
All previously outstanding shares of Series A Preferred Stock, the
terms of which were fixed in connection with a previous transaction and would
need to be modified to facilitate any future issuances, have been converted into
Common Stock pursuant to their terms. The Board of Directors has not fixed any
of the rights or preferences of the Series B Preferred Stock. The Series C
Preferred Stock is to be issued in connection with the Rights Agreement
described below and has the following terms: cumulative quarterly dividends in
preference to the holders of Common Stock equal to the greater of $16.00 per
share or 100 times the dividend paid per share to holders of Common Stock; 100
votes per share; and a preference on liquidation equal to the greater of $64.00
per share or 100 times the amount payable per share to the holders of Common
Stock.
No shares of the Preferred Stock are presently outstanding, and the
Company has no current plans to issue any shares of Preferred Stock, except as
provided under "Rights Agreement" below.
WARRANTS
Warrants to be Issued in the Warrant Distribution. For a description of
the terms of the Warrants to be issued in the Warrant Distribution, see "The
Warrant Distribution".
Metretek Warrants. Pursuant to the Company's acquisition of Metretek,
the Company issued warrants to purchase Common Stock (the "Metretek Warrants")
to the holders of then outstanding warrants to purchase Metretek capital stock.
As of August 31, 1998, there were outstanding four series of Metretek Warrants
to purchase an aggregate of 36,620 shares of Common Stock (subject to adjustment
in certain events), with expiration dates ranging from 1999 to 2004 and exercise
prices ranging from $44.48 to $88.96 per share. The shares of Common Stock
issuable upon the exercise of the Metretek Warrants cannot be resold unless such
resale is registered under the Securities Act and under applicable state
securities laws or is made pursuant to an available exemption therefrom.
Other Warrants. The Company also has outstanding warrants to purchase
60,000 shares of Common Stock. Warrants to purchase 50,000 shares of Common
Stock (the "Consulting Warrants") were issued to an unaffiliated consultant (the
"Consultant"). The Consulting Warrants are exercisable until March 13, 2003
(subject to earlier termination in certain events), subject to vesting and with
exercise prices based upon an ascending
24
<PAGE> 27
market price of the Common Stock. Consulting Warrants to purchase 12,500 shares
of Common Stock were vested at on exercise price of $4.43 per share as of the
date of this Prospectus. In addition, warrants to purchase 10,000 shares of
Common Stock issued to an unaffiliated person are exercisable until September
17, 1999 at an exercise price of $17.00 per share. The shares of Common Stock
issuable upon the exercise of such warrants cannot be resold unless such resale
is registered under the Securities Act and under applicable state securities
laws or is made pursuant to an available exemption therefrom.
REGISTRATION RIGHTS
In connection with the American Meter Transaction, the Company granted
to the Selling Securityholder certain registration rights with respect to
620,326 shares of Common Stock issued to the Selling Securityholder, including
the shares of Common Stock issuable upon conversion of the American Meter Note.
The Selling Securityholder has the right to require the Company, on one occasion
between May 4, 2000 until May 4, 2006 (or 90 days after the Selling
Securityholder's beneficial ownership of the Company's Common Stock becomes less
than 10%), to file a registration statement under the Securities Act in order to
register all or any part of its shares of Common Stock. The Company may in
certain circumstances defer such registration, and in an underwritten public
offering, the underwriters have the right, subject to certain limitations, to
limit the number of shares included in such registration. The Company is
obligated to pay the first $10,000 of the expenses of any demand registration,
and the Selling Securityholder will pay all other expenses of such registration.
In addition, if the Company proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other
securityholders, then the Selling Securityholder is entitled to include its
shares of Common Stock in such registration, at the Company's expense, subject
to customary underwriting and hold-back provisions. The Selling Securityholder
has declined to exercise its registration rights with respect to this
registration, except for the registration of the resale of the Warrants. See
"Selling Securityholder".
The holders of the Metretek Warrants have the right, under certain
circumstances, to require the Company to register the shares of Common Stock
issuable upon exercise of the Metretek Warrants under the Securities Act and
applicable state securities laws commencing in 1999. See "-- Metretek Warrants",
above.
The Company has also granted to the Consultant certain registration
rights with respect to the 50,000 shares of Common Stock (the "Consulting
Shares") issuable upon exercise of the Consulting Warrants. The Consultant has
the right to require the Company, on one occasion between September 13, 1998 and
March 13, 2003, to file a registration statement under the Securities Act in
order to register the Consulting Shares. The Company may in certain
circumstances defer such registration, and in an underwritten public offering,
the underwriters have the right, subject to certain limitations, to limit the
number of Consulting Shares included in such registration. The Company is
obligated to pay the first $10,000 of the expenses of any demand registration,
and the Consultant will pay all other expenses of such registration. In
addition, if the Company proposes to register any of its securities under the
Securities Act, then the Consultant is entitled to include the Consulting Shares
in such registration, at the Company's expense, subject to customary
underwriting and hold-back provisions. The Consultant has declined to exercise
its registration rights with respect to this registration.
See "-- Other Warrants", above.
DELAWARE BUSINESS COMBINATION STATUTE
The Company is subject to the provisions of Section 203 of the DGCL
(the "Business Combination Statute"). In general, the Business Combination
Statute prohibits a publicly-held Delaware corporation from engaging in certain
"business combinations" with an "interested stockholder" for a period of three
years after the time that such stockholder became an interested stockholder,
unless (i) prior to such time, the board of directors approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (ii) the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding upon consummation
of the transaction which resulted in the stockholder becoming an interested
stockholder, or (iii) the business combination is approved by the board of
directors and authorized at a meeting of stockholders (and not by written
consent) by the affirmative vote of the holders of at least two-thirds of the
outstanding voting stock, other than shares held by the interested stockholder.
A "business combination" is defined
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<PAGE> 28
broadly to include a merger, consolidation, sale or other disposition of assets
and certain other transactions resulting in the receipt of financial benefits by
the interested stockholder. An "interested stockholder" is defined as a person
who, together with affiliates and associates, beneficially owns (or within the
preceding three years, did beneficially own) 15% or more of the outstanding
voting stock.
The Business Combination Statute could have the effect of delaying,
deferring or preventing a change in control of the Company by means of a tender
offer, open market purchase, a proxy fight or otherwise. These provisions are
designed to encourage persons seeking to acquire control of the Company to
negotiate a transaction with the Board of Directors. To the extent these
provisions discourage takeover attempts, they could deprive stockholders of
opportunities to realize takeover premiums for their shares or could depress the
market price of the Common Stock.
RIGHTS AGREEMENT
On December 2, 1991, the Board of Directors of the Company declared a
dividend of one preferred share purchase right (a "Right") for each share of
Common Stock outstanding on December 2, 1991 (the "Rights Record Date"), and
further authorized the issuance of one Right for each share of Common Stock
issued after the Record Date until the earlier of the "Rights Distribution
Date," the "Rights Redemption Date" and the "Rights Expiration Date" (as such
terms are defined below). Each Right entitles the registered holder thereof to
purchase from the Company one one-hundredth of a share of Series C Preferred
Stock, par value $.01 per share (the "Series C Preferred Share"), of the Company
at a purchase price of $100.00 per one one-hundredth of a Series C Preferred
Share (the "Series C Preferred Share Purchase Price"), subject to adjustment.
The description and terms of the Rights set forth herein is not complete and is
qualified in its entirety by reference to the Rights Agreement, dated December
2, 1991, as amended (the "Rights Agreement"), between the Company and American
Securities Transfer & Trust, Inc., as rights agent.
Until the earlier to occur of (i) the tenth day after a public
announcement that a person or group of affiliated or associated persons (a
"Person") has become an Acquiring Person, or (ii) the tenth business day (or
such later date as may be determined by the Board of Directors of the Company
prior to such time as any Person becomes an Acquiring Person) after the date of
commencement, or the first public announcement of the intention to commence, a
tender offer or exchange offer which would result in the beneficial ownership by
a person or group of 15% or more of the outstanding Common Stock (the earlier of
such dates being called the "Rights Distribution Date"), the Rights will be
evidenced by the certificates for Common Stock.
The term "Acquiring Person" is defined for purposes of the Rights
Agreement as any Person who beneficially owns 15% or more of the Common Stock
then outstanding, subject to certain exceptions for related parties set forth in
the Rights Agreement. Notwithstanding the foregoing, neither American Meter nor
any of its affiliates shall be deemed to be an "Acquiring Person," and no
"Rights Distribution Date" shall be deemed to have occurred, solely by reason of
the execution of the Purchase Agreement (or any amendment thereto in accordance
with the terms thereof) or the consummation of the transactions contemplated
thereby or by the beneficial ownership by American Meter and/or its affiliates
of up to, but not in excess of, 25% of the Common Stock then outstanding.
However, a Person who obtains beneficial ownership of 15% or more of the
outstanding shares of Common Stock, either (i) by reason of share purchases by
the Company reducing the number of shares of Common Stock outstanding, or (ii)
inadvertently, as determined in good faith by the Board of Directors of the
Company, if such Person promptly divests itself of enough shares of Common Stock
so as to beneficially own less than 15% of the outstanding Common Stock, shall
not be an Acquiring Person.
The Rights Agreement provides that, until the Rights Distribution Date,
the Rights will be transferred with and only with the Common Stock, and the
surrender for transfer of any certificates for Common Stock will also constitute
the transfer of the Rights associated with the Common Stock represented by such
certificate. As soon as practicable following the Rights Distribution Date,
separate certificates evidencing the Rights (the "Right Certificates") will be
mailed to holders of record of the Common Stock as of the close of business on
the Rights Distribution Date, and such separate Right Certificates alone will
evidence the rights. The Rights are not exercisable until the Rights
Distribution Date. The Rights will expire on December 1, 2001 (the "Rights
26
<PAGE> 29
Expiration Date"), unless the Rights Expiration Date is extended or unless the
Rights are earlier redeemed by the Registrant, in each case, as described below.
In the event any Person becomes an Acquiring Person, each holder of a Right,
other than Rights beneficially owned by an Acquiring Person (which will
thereafter be void), will thereafter have the right to receive upon exercise
that number of shares of Common Stock having a market value of two times the
Series C Preferred Share Purchase Price of the Right.
In the event that, at any time after the Rights Distribution Date, (i)
the Company is acquired in a merger or other business combination transaction,
(ii) any Person merges with and into the Company and the Company is the
surviving corporation, but the Common Stock is changed or exchanged, or (iii)
50% or more of the consolidated assets or earning power of the Company are sold
after a Person becomes an Acquiring Person, proper provision will be made so
that each holder of a Right, other than Rights beneficially owned by an
Acquiring Person (which have previously become voided as set forth above), will
thereafter have the right to receive, upon the exercise thereof at the then
current Series C Preferred Share Purchase Price of the Rights, that number of
shares of common stock of the acquiring company which at the time of such
transaction will have a market value of two times the exercise price of the
Right.
At any time after a Person becomes an Acquiring Person but before the
Acquiring Person becomes the beneficial owner of 50% or more of the outstanding
Common Stock, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by the Acquiring Person which have become void), in
whole or in part, at an exchange ratio of one share of Common Stock per Right,
subject to adjustment. At any time prior to the time a Person becomes an
Acquiring Person, the Board of Directors of the Company may redeem all, but not
less than all, of the Rights at a redemption price of $.04 per Right (such date
being called the "Rights Redemption Date").
The Rights Agreement may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights; provided, however,
that from and after such time as any Person becomes an Acquiring Person, no such
amendment may adversely affect the interests of the holders of the Rights, and
except that the Board of Directors of the Company may not reduce the threshold
at which "Acquiring Person" status is obtained to less than the greater of (i)
the sum of .001% and the largest percentage of the outstanding Common Stock then
known by the Company to be beneficially owned by any Person (other than certain
related parties), and (ii) 10%. Until a Right is exercised, the holder thereof,
as such, will have no rights as a stockholder of the Registrant on terms not
approved by the Board of Directors of the Company, including, without
limitation, the right to vote or to receive dividends.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a Person that attempts to acquire the Registrant on
terms not approved by the Board of Directors of the Company. Accordingly, the
existence of the Rights may deter certain acquirers from making takeover
proposals or tender offers in which stockholders may otherwise desire to
participate. The Rights may be beneficial to management in a hostile tender
offer and may have an adverse impact on stockholders who may want to participate
in such tender offer. However, the Rights are not intended to prevent any
takeover, but rather are designed to enhance the ability of the Board of
Directors of the Company to negotiate with an acquirer on behalf of all the
stockholders. In addition, the Rights should in no way interfere with any proxy
contest. The Rights should not interfere with any merger or other business
combination approved by the Board of Directors of the Company, because the Board
of Directors of the Company may, at its option, at any time prior to such time
as any Person becomes an Acquiring Person, redeem all but not less than all of
the outstanding Rights.
TRANSFER AGENT
The Transfer Agent for the Common Stock and the Warrants is American
Securities Transfer & Trust, Inc., 938 Quail Street, Suite 101, Lakewood,
Colorado 80215.
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<PAGE> 30
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of
the Common Stock issuable upon exercise of the Warrants, and of the resale of
the Warrants by the Selling Securityholder, will be passed upon for the Company
and the Selling Securityholder by Kegler, Brown, Hill & Ritter Co., L.P.A.,
Columbus, Ohio.
EXPERTS
The financial statements incorporated in this Prospectus by reference
from the Company's Annual Report on Form 10-KSB for the year ended December 31,
1997 have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The financial statements of Eagle Research Corporation included in the
Company's Current Report on Form 8-K/A, filed with the Commission on July 16,
1998, have been audited by Arthur Andersen LLP, independent public accountants,
for the period indicated in their report with respect thereto, and are
incorporated herein in reliance upon the authority of such firm as experts in
giving such report.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Section 145 of the DGCL, the Company's Certificate requires
the Company to indemnify any person who is, or is threatened to be made, a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Company), by reason of the fact that such person is or was an
officer or director of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation or
enterprise. The indemnity includes expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement of such action, suit or
proceeding, provided that such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Company, and, for criminal proceedings, had no reasonable cause to believe such
person's conduct was unlawful. The Company also is required to indemnify the
same persons against expenses (including attorneys' fees) in connection with the
defense or settlement of an action by or in the right of the Company under the
same conditions, except that no indemnification is permitted without judicial
approval unless the person is successful on the merits or otherwise in the
defense of any action referred to above, in which case the Company must
indemnify such person against the expenses which such person actually and
reasonably incurred.
As permitted by Section 102(b)(7) of the DGCL, the Company's
Certificate also contains a provision eliminating each director's liability to
the Company or its stockholders for monetary damages except (i) for any breach
of the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL providing for
liability of directors for unlawful payment of dividends or unlawful stock
purchases or redemptions, or (iv) for any transaction from which a director
derived an improper personal benefit.
The Company maintains directors and officers liability insurance
coverage that indemnifies its officers and directors against certain losses that
may arise out of their positions with the Company and indemnifies the Company
for liabilities it may incur to indemnify its officers and directors.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
28
<PAGE> 31
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH THIS PROSPECTUS
RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THIS PROSPECTUS.
-----------------
TABLE OF CONTENTS
PAGE
----
Available Information..........................................................3
Incorporation Of Certain Documents By Reference................................3
Forward-Looking Statements.....................................................4
Prospectus Summary.............................................................5
Risk Factors...................................................................8
Use Of Proceeds...............................................................15
Selected Consolidated Financial Data..........................................16
The Warrant Distribution......................................................17
Certain Federal Income Tax Consequences.......................................20
Selling Securityholder........................................................22
Description Of Capital Stock..................................................23
Legal Matters.................................................................28
Experts .....................................................................28
Indemnification Of Directors And Officers.....................................28
================================================================================
================================================================================
MARCUM NATURAL GAS SERVICES, INC.
931,802 SHARES OF
COMMON STOCK
155,081 COMMON STOCK
PURCHASE WARRANTS
----------
PROSPECTUS
----------
SEPTEMBER 10, 1998
================================================================================
29
<PAGE> 32
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses of the offering (other than underwriting
discounts and commissions), all of which are estimated (other than the SEC
Registration Fee and the Nasdaq Application Fee), will be paid by the
Registrant:
SEC Registration Fee $ 1,657
Nasdaq Application Fee 23,500
Blue Sky Fees and Expenses 5,000
Transfer Agent's Fees 4,000
Printing and Engraving Costs 18,000
Legal Fees and Expenses 20,000
Accounting Fees and Expenses 5,000
Miscellaneous 2,843
-------
Total $80,000
=======
The Selling Securityholder is not paying any of the expenses of the offering.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware provides in
regard to indemnification of directors and officers as follows:
Section 145. Indemnification of Officers, Directors, Employees and
Agents; Insurance.
(a) A corporation shall have power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which the person reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that the person's
conduct was unlawful.
(b) A corporation shall have power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or settlement
of such action or suit if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the
<PAGE> 33
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or
officer of a corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in subsections (a) and (b)
of this section, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of
this section (unless ordered by a court) shall be made by the corporation only
as authorized in the specific case upon a determination that indemnification of
the present or former director, officer, employee or agent is proper in the
circumstances because the person has met the applicable standard of conduct set
forth in subsections (a) and (b) of this section. Such determination shall be
made, with respect to a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not entitled to
be indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by former directors and officers or other
employees and agents may be so paid upon such terms and conditions, if any, as
the corporation deems appropriate.
(f) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections of this section shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in such person's official capacity and as to action in another
capacity while holding such office.
(g) A corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under this
section.
(h) For purposes of this section, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under this section with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the corporation"
shall include any service as a director,
<PAGE> 34
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner such person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
(j) The indemnification and advancement of expenses
provided by, or granted pursuant to, this section shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement, vote
of stockholders or disinterested directors, or otherwise. The Court of Chancery
may summarily determine a corporation's obligation to advance expenses
(including attorneys' fees).
In accordance with Section 102(b)(7) of the General Corporation Law of
the State of Delaware, the Registrant's Restated Certificate of Incorporation,
as amended, contains a provision eliminating the personal liability of a
director of the Registrant to the Registrant and its stockholders for monetary
damages for breach of fiduciary duty as a director, except for the liability of
a director for (i) any breach of the director's duty of loyalty to the
Registrant or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii)
unlawful payment of dividends or unlawful stock purchases or redemptions; or
(iv) any transaction for which the director derived an improper personal
benefit.
Article Ninth of the Registrant's Restated Certificate of
Incorporation, as amended, provides in regard to indemnification of directors
and officers as follows:
A. The corporation may indemnify or agree to indemnify any person who
was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact he is or was a director, officer, employee,
or agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee, or agent of another
corporation (including a subsidiary of this corporation), domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise,
against expenses, including attorneys' fees, judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonably cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendre or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
B. The corporation may indemnify or agree to indemnify any person who
was or is a party, or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, trustee, officer, employee, or
agent of another corporation (including a subsidiary of this corporation),
domestic or foreign, nonprofit or for profit, partnership, joint venture, trust,
or other enterprise against expenses, including attorneys' fees, actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interest of the corporation, except that no
indemnification shall be made in respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless, and only to the extent that, the Court of Chancery, or the court in
which such action or suit was brought shall determine upon application that,
despite the
<PAGE> 35
adjudication of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses as
the Court of Chancery or other such court shall deem proper.
C. To the extent that a director, trustee, officer, employee, or agent
has been successful on the merits or otherwise in defense of any action, suit,
or proceeding referred to in sections A. and B. of this Article, or in defense
of any claim, issue, or matter therein, he shall be indemnified against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
D. Any indemnification under sections A. and B. of this Article, unless
ordered by a court, shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in sections A. and B. of
this Article. Such determination shall be made (1) by a majority vote of a
quorum consisting of directors of the indemnifying corporation who were not and
are not parties to or threatened with any such action, suit, or proceeding, or
(2) if such a quorum is not obtainable or if a majority vote of a quorum of
disinterested directors so directs, in a written opinion by independent legal
counsel other than an attorney, or a firm having associated with it an attorney,
who has been retained by or who has performed services for the corporation or
any person to be indemnified within the past five (5) years, or (3) by the
stockholders, or (4) by the Court of Chancery or the court in which such action,
suit, or proceeding was brought. Any determination made by the disinterested
directors under section D.(1) or by independent legal counsel under section
D.(2) of this Article shall be promptly communicated to the person who
threatened or brought the action or suit by or in the right of the corporation
under Section B. of this Article, and within ten (10) days after receipt of such
notification, such person shall have the right to petition the Court of Chancery
or the court in which such action or suit was brought to review the
reasonableness of such determination.
E. No director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (1) for any breach of the director's
duty of loyalty to the corporation or its stockholders; (2) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law; (3) under Section 174 of the Delaware General Corporation Law;
or (4) for any transaction from which the director derived an improper personal
benefit.
F. Expenses, including attorneys' fees, incurred in any action, suit,
or proceeding referred to in sections A. and B. of this Article, may be paid by
the corporation in advance of the final disposition of such action, suit, or
proceedings upon receipt of a written undertaking by or on behalf of the
director, trustee, officer, employee, or agent to repay such amount, if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this Article. If a majority vote of a quorum of
disinterested directors so directs by resolution, said written undertaking need
not be submitted to the corporation. Such a determination that a written
undertaking need not be submitted to the corporation shall in no way affect the
entitlement of indemnification as authorized by this Article.
G. The indemnification and advancement of expenses provided in this
Article shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under the Restated
Certificate or the bylaws or any agreement, vote of stockholders or
disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
H. The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, trustee, officer, employee, or agent of another
corporation (including a subsidiary of this corporation), domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other enterprise
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such whether or not the corporation
would have the power to indemnify him against such liability under this Article.
I. For purposes of this Article, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer,
<PAGE> 36
employee, or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust, or other
enterprise, shall stand in the same position under the provisions of this
Article with respect to the resulting or surviving corporation as he would have
with respect to such constituent corporation if its separate existence had
continued.
J. For purposes of this Article, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee, or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
Article.
K. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
In addition, the Registrant maintains a directors' and officers'
liability insurance policy covering its directors and officers against certain
losses, including liabilities under the Securities Act, incurred by them in such
capacities to the extent such losses are not indemnified by the Registrant.
ITEM 16. EXHIBITS
(2) PLAN OF PURCHASE, SALE, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION:
(2.1) Asset Purchase Agreement, dated April 30, 1993, among
Weatherford [U.S.] Marcum Natural Gas Services, Inc.
(Incorporated by reference to Exhibit 2.1 to the Registrant's
Form 8-K filed on May 14, 1993.)
(2.2) Amended and Restated Agreement and Plan of Merger, dated as of
December 17, 1993, amended and restated as of January 31,
1994, among Marcum Natural Gas Services, Inc., Marcum
Acquisition Corp. and Metretek, Incorporated. (Incorporated by
reference to Appendix A of the Proxy Statement-Prospectus
filed as a part of Registrant's Registration Statement on Form
S-4, Registration No. 33-73874.)
(2.3) Asset Purchase Agreement, dated as of June 27, 1997, by and
between Natural Fuels Corporation, as buyer, and Marcum Fuel
Systems, Inc., DVCO Fuel Systems, Inc. and Marcum CNG Systems,
Inc., as seller. (Incorporated by reference to Exhibit 2.1 to
Registrant's Form 8-K filed on July 11, 1997.)
(2.4) Asset Purchase Agreement, dated as of March 23, 1998, by and
among Eagle Research Corporation, American Meter Company,
Metretek, Incorporated and Marcum Natural Gas Services, Inc.
(Incorporated by reference to Exhibit 2.6 of Registrant's Form
10-KSB for the year ended December 31, 1997).
(3) ARTICLES OF INCORPORATION AND BY-LAWS:
(3.1) Restated Certificate of Incorporation, as amended, of Marcum
Natural Gas Services, Inc. (Incorporated by reference to
Exhibit 3.1 to Registrant's Registration Statement on Form
S-18, Registration No. 33-44558.)
<PAGE> 37
(3.2) Certificate of Amendment to the Restated Certificate of
Incorporation, as amended, of Marcum Natural Gas Services,
Inc. (Incorporated by reference to Exhibit 3.1 of Registrant's
Form 8-K filed on July 7, 1998.)
(3.3) By-Laws of Marcum Natural Gas Services, Inc., as amended.
(Incorporated by reference to Exhibit 3.2 to Registrant's
Registration Statement on Form SB-2, Registration No.
33-82868.)
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
(4.1) Specimen Common Stock Certificate. (Incorporated by reference
to Exhibit 4.1 to Registrant's Registration Statement on Form
S-18, Registration No. 33-44558.)
(4.2) Rights Agreement, dated as of December 2, 1991, between Marcum
Natural Gas Services, Inc. and American Securities Transfer,
Inc. (Incorporated by reference to Exhibit 10.6 to
Registrant's Registration Statement on Form S-18, Registration
No. 33-44558.)
(4.3) Amendment No. 1 to Rights Agreement, dated as of March 23,
1998, between Marcum Natural Gas Services, Inc. and American
Securities Transfer & Trust, Inc. (incorporated by reference
to Exhibit 2 to Registrant's Form 8-A/A Amendment No. 1 filed
April 3, 1998).
(4.4) Form of Common Stock Purchase Warrant.*
(4.5) Form of Warrant Agency Agreement between Marcum Natural Gas
Services, Inc. and American Securities Transfer & Trust, Inc.*
(4.6) Notice and Waiver of Registration Rights and Lock-Up
Agreement, dated September 4, 1998, between Marcum Natural Gas
Services, Inc., Metretek, Incorporated, American Meter
Software Corporation and American Meter Company.**
(5) OPINION:
(5.1) Opinion of Kegler, Brown, Hill & Ritter Co., L.P.A.**
(23) CONSENTS OF EXPERTS AND COUNSEL:
(23.1) Deloitte & Touche LLP**
(23.2) Arthur Andersen LLP**
(23.3) Consent of Kegler, Brown, Hill & Ritter Co., L.P.A. (included
in Exhibit 5.1)**
(24) POWER OF ATTORNEY:
(24.1) Powers of Attorney of the Registrant and its executive
officers and directors (included on Signature Page).
- ----------------------
* Previously filed as an exhibit to this Registration Statement.
** Filed herewith.
<PAGE> 38
ITEM 17. UNDERTAKINGS.
(a) Small Business Issuer will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this Registration
Statement to:
(i) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement
of the securities offered, and the offering of the securities
at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities being registered that
remain unsold at the end of the offering.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Small Business Issuer pursuant to the foregoing
provisions, or otherwise, the Small Business Issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Small Business Issuer of expenses incurred or paid by a
director, officer or controlling person of the Small Business Issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Small Business Issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(d) The Small Business Issuer will:
(1) For determining any liability under the Securities Act,
treat the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the
Small Business Issuer under Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this Registration
Statement as of the time the Commission declared if effective.
(2) For determining any liability under the Securities Act,
treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities
offered in the registration statement, and that offering of
the securities at that time as the initial bona fide offering
of those securities.
<PAGE> 39
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Denver, State of Colorado on the 4th day of
September, 1998.
MARCUM NATURAL GAS SERVICES, INC.
By: /s/ W. PHILLIP MARCUM
-----------------------------------
W. Phillip Marcum, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-3 has been signed on September 4, 1998 by
the following persons in the capacities indicated.
SIGNATURE TITLE
- --------- -----
* President, Chief Executive Officer
- ---------------------------- and Director (Principal Executive
W. Phillip Marcum Officer)
* Executive Vice President, Chief Financial
- ---------------------------- Officer, Treasurer and Director
A. Bradley Gabbard (Principal Financial Officer)
* Principal Accounting Officer, Controller
- ---------------------------- and Secretary (Principal Accounting
Gary J. Zuiderveen Officer)
* Director
- ----------------------------
Basil M. Briggs
* Director
- ----------------------------
Robert Lloyd
* Director
- ----------------------------
Anthony D. Pell
* Director
- ----------------------------
Albert F. Thomasson
* Director
- ----------------------------
Ronald W. McKee
* Director
- ----------------------------
Harry I. Skilton
* Signed pursuant to a Power of Attorney
By /s/ PAUL R. HESS
-------------------------
Paul R. Hess, Attorney in Fact
<PAGE> 40
MARCUM NATURAL GAS SERVICES, INC.
AMENDMENT NO. 1
TO
FORM S-3
EXHIBIT INDEX
-------------
EXHIBIT NUMBER EXHIBIT DESCRIPTION
-------------- -------------------
4.4 Form of Common Stock Purchase Warrant*
4.5 Form of Warrant Agency Agreement between Marcum
Natural Gas Services, Inc. and American Securities
Transfer & Trust, Inc.*
4.6 Notice and Waiver of Registration Rights and Lock-Up
Agreement, dated September 4, 1998, between Marcum
Natural Gas Services, Inc., Metretek, Incorporated,
American Meter Software Corporation and American
Meter Company.**
5.1 Opinion of Kegler, Brown, Hill & Ritter Co., L.P.A.**
23.1 Consent of Deloitte & Touche LLP**
23.2 Consent of Arthur Andersen LLP**
23.3 Consent of Kegler, Brown, Hill & Ritter Co., L.P.A.
(Included in Exhibit 5.1)**
24.1 Powers of Attorney of the Registrant and its
executive officers and directors (included on
Signature Page)
- ---------------------------
* Previously filed as an exhibit to this Registration Statement.
** Filed herewith.
<PAGE> 1
EXHIBIT 4.6
NOTICE AND WAIVER OF
REGISTRATION RIGHTS AND LOCK-UP AGREEMENT
This NOTICE AND WAIVER OF REGISTRATION RIGHTS AND LOCK-UP AGREEMENT
(the "Agreement") is made and entered into as of the 4th day of September, 1998,
by and among MARCUM NATURAL GAS SERVICES, INC., a Delaware corporation
("Marcum"), METRETEK, INCORPORATED, a Florida corporation ("Metretek"), AMERICAN
METER COMPANY, a Delaware corporation ("American Meter"), and AMERICAN METER
SOFTWARE CORPORATION (formerly known as EAGLE RESEARCH CORPORATION), a West
Virginia corporation ("Eagle").
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to a certain Asset Purchase
Agreement, dated as of March 21, 1998 (the "Purchase Agreement"), pursuant to
which, among other things, Eagle has certain registration rights with respect to
the common stock, par value $.01 per share, of Marcum (the "Common Stock") it
acquired or has a right to acquire in connection with the Purchase Agreement;
and
WHEREAS, Marcum is proposing to issue Common Stock purchase warrants
(the "Warrants") as a dividend to its stockholders, including Eagle, and to
register with the Securities and Exchange Commission (the "SEC") the issuance of
its Common Stock upon the exercise of the Warrants; and
WHEREAS, the parties hereto wish to provide for certain arrangements
and understandings with respect to the registration, sale, and limitation on
sale by Eagle, of Warrants to be distributed by Marcum to Eagle;
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
1. Notice and Waiver of Notice of Registration. American Meter and
Eagle hereby acknowledge and agree that (a) this Agreement constitutes notice by
Marcum and Metretek that Marcum has filed a Registration Statement on Form S-3
(Registration No. 333-60925), as the same may be amended from time to time (the
"Registration Statement"), with the SEC in connection with a proposed dividend
and distribution of the Warrants (the "Warrant Distribution") to holders of
Common Stock of Marcum and the issuance of shares of Common Stock upon the
exercise of the Warrants and an offer to Eagle of the opportunity to register
its shares of Common Stock, and (b) such notice and offer are fully sufficient
to comply in all respects with the notice and registration offer obligations of
Marcum and Metretek under the Purchase Agreement. American Meter and Eagle
further waive any obligation of Marcum and
<PAGE> 2
Metretek to provide notice of the proposed registration or to offer Eagle the
opportunity to register its shares of Common Stock in connection with the
Warrant Distribution.
2. Waiver of Registration Rights. Except as set forth in Section 3
hereof, American Meter and Eagle hereby waive all registration rights held by
them with respect to the Warrant Distribution and further waive all of Marcum's
obligations under the Purchase Agreement to include any shares of Common Stock
held by Eagle in the Registration Statement.
3. Registration of Eagle Warrants. Subject to the lock-up agreement set
forth in Section 4 hereof, Marcum agrees to include all the Warrants issuable to
Eagle in the Warrant Distribution with respect to the 439,561 shares of Common
Stock issued to Eagle in connection with the closing of the transactions
contemplated by the Purchase Agreement (the "Closing"), and the up to 180,766
shares of Common Stock issuable to Eagle upon Eagle's conversion of that certain
$1,200,000 Convertible, Subordinated Promissory Note, dated May 4, 1998, made
payable to Eagle by Marcum and Metretek in connection with the Closing.
4. Lock-Up Agreement. American Meter and Eagle shall not, directly or
indirectly, for a period commencing on the date of the Warrant Distribution and
ending on the date the Warrants expire or are earlier redeemed, offer, sell or
contract to sell, grant any option to purchase, or otherwise dispose of (or
announce any of the foregoing) any Warrants, whether pursuant to the
Registration Statement, Rule 144 or otherwise, without Marcum's prior written
consent (which consent may be withheld for any or no reason), except as follows:
(a) Eagle may offer and sell an aggregate number of Warrants
equal to two percent (2%) of all outstanding Warrants during any three-month
period, provided that (i) the number of outstanding Warrants shall be computed
as of the first day of such three-month period; and (ii) Eagle's right to offer
and sell up to 2% of all outstanding Warrants during a three-month period shall
not be cumulative, and in the event Eagle does not offer and sell the maximum
number of Warrants permitted to be sold during any three-month period it shall
not be entitled to sell any unsold portion in any subsequent three-month period.
(b) Eagle may offer and sell all Warrants it acquires in the
Warrant Distribution in the event Marcum gives written notice that it intends to
redeem the Warrants and the redemption date is fixed or of a date within sixty
days (60), commencing upon the date such notice is given (or, if later, 60 days
prior to such redemption).
(c) Eagle may transfer any number of Warrants to American
Meter or any other entity of which Eagle or American Meter is a wholly-owned
subsidiary, provided that the Warrants shall continue to be subject to all the
restrictions set forth in this Agreement and provided further that it shall be a
condition of such transfer and that the transferee entity agree in a writing
signed by such transferee entity and delivered to Marcum to be bound by the
terms, conditions, limitations and restrictions set forth in this Agreement.
(d) Eagle may not make any offer or sale of the Warrants,
unless (i) such offer and sale is in compliance with all applicable laws, rules
and regulations (including, but not limited to, federal and state securities
laws rules and regulations), and (ii) such offer or sale
2
<PAGE> 3
does not adversely affect or require any amendment or supplement of the
Registration Statement or the Prospectus which is contained in the Registration
Statement.
5. Stop-Transfer Instructions. American Meter and Eagle agree and
consent to the placement of a restrictive legend on the certificates
representing the Warrants to be issued to Eagle, and the entry of stock transfer
instructions with the transfer or warrant agent for Marcum, prohibiting any
transfer of Warrants in contravention of the lock-up arrangements set forth in
Section 4 hereof. This lock-up agreement is irrevocable by American Meter and
Eagle.
6. No Marcum Obligation. As provided in Section 10.6(a)(iii) of the
Purchase Agreement, neither the giving of a notice of registration by Marcum nor
the request for inclusion of Warrants in such registration by Eagle shall, in
any way, obligate Marcum to file any registration statement at any time or
within any specific time period after receipt of Eagle's written request and,
notwithstanding the filing of any registration statement, Marcum may, at any
time before the effective date thereof, elect to delay or terminate the entire
registration process for any reason or no reason and without the consent of
Eagle.
7. Amendment. This Agreement may not be supplemented, amended or
modified in any manner in whole or in part except by a writing signed by all
parties to this Agreement that specifically states that it amends this
Agreement.
8. Waiver. The obligations of any party hereto may be waived only with
the written consent of the party giving the waiver. Any waiver by any party with
respect to any provision of this Agreement shall not operate or be construed to
be a waiver of any other provision or the waiver of the same provision on any
other occasion. The failure of a party to insist upon restricted adherence to
any provision of this Agreement on one or more occasion shall not be considered
a continuing waiver or deprive the party of the right thereafter to insist upon
strict adherence to that provision or any other provision of this Agreement.
9. Severability. If any provision of this Agreement is invalid,
illegal, or unenforceable in any situation, the balance of this Agreement shall
remain in effect, and such illegality, invalidity or unenforceability shall not
affect the legality, enforceability or validity of that provision in any other
situation, or the legality, enforceability or validity of any other provision of
this Agreement.
10. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
11. Specific Performance. The parties hereto acknowledge and agree that
the transactions contemplated by this Agreement are unique, that remedies at law
for any breach or threatened breach of this Agreement would be inadequate for
any loss, and that any defense in any action for specific performance that a
remedy at law would be adequate is hereby specifically waived. Accordingly, in
the event of any actual or threatened breach to any of the terms of this
Agreement, the non-breaching party shall have the right of specific performance
and injunctive relief giving effect to its rights under this Agreement, in
addition to any and all of the rights and remedies, at law or in equity, and all
other such rights and remedies are cumulative.
3
<PAGE> 4
12. Counterparts. This Agreement may be executed in one or more
counterparts, including counterparts executed by less than all parties hereto,
each of which shall be deemed an original, but all of which together shall
constitute one in the same instrument.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal substantive law of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver and
Notice of Registration Rights and Lock-Up Agreement to be executed and delivered
by the duly authorized officers as of the date first above written.
AMERICAN METER SOFTWARE CORPORATION
By: /s/ Harry I. Skilton
---------------------------------------
Its: Vice President
--------------------------------------
AMERICAN METER COMPANY
By: /s/ Harry I. Skilton
---------------------------------------
Its: President and Chief Executive Officer
--------------------------------------
MARCUM NATURAL GAS SERVICES, INC.
By: /s/ W. Phillip Marcum
----------------------------------
W. Phillip Marcum, President
METRETEK, INCORPORATED
By: /s/ W. Phillip Marcum
---------------------------------------
W. Phillip Marcum, Chief Executive
Officer
4
<PAGE> 1
EXHIBIT 5.1
KEGLER, BROWN, HILL & RITTER CO., L.P.A.
65 EAST STATE STREET, SUITE 1800
COLUMBUS, OHIO 43215-4294
(614) 462-5400
September 3, 1998
Marcum Natural Gas Services, Inc.
1675 Broadway
Suite 2150
Denver, Colorado 80202
Re: Marcum Natural Gas Services, Inc.
Registration Statement on Form S-3
Registration No. 333-60925
Gentlemen:
We have acted as counsel to Marcum Natural Gas Services, Inc., a
Delaware corporation (the "Company"), in connection with the Company's
Registration Statement on Form S-3 (Registration No. 333-60925), as amended (the
"Registration Statement"), as filed with the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), relating to (i) the issuance by the Company of up to 931,802
shares (the "Warrant Shares") of Common Stock, par value $.01 per share (the
"Common Stock") upon the exercise of 931,802 warrants to purchase shares of
Common Stock (the "Warrants"), and (ii) the resale by American Meter Software
Corporation, a West Virginia corporation (the "Selling Securityholder"), of up
to 155,081 Warrants (the "Selling Securityholder Warrants").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Company's
Restated Certificate of Incorporation, as amended, (ii) the Company's By-Laws,
as amended, (iii) the Registration Statement, (iv) the form of the Warrant
Agency Agreement to be entered into between the Company and American Securities
Transfer & Trust, Inc., as warrant agent (the "Warrant Agreement"), (v) specimen
certificates evidencing the Warrant Shares and the Warrants, (vi) resolutions
adopted by the Board of Directors of the Company relating to, among other
things, the Warrant Shares, the Warrants and the Registration Statement, and
(vii) such other documents, instruments, agreements and certificates as we have
deemed necessary or appropriate for the purpose of rendering the opinion below.
We have also examined such authorities of law as we have deemed relevant as a
basis for this opinion.
In our examination of the documents referred to above, we have assumed
the legal capacity of all natural persons, the genuineness of all signatures,
the authenticity and completeness of all documents submitted to us as certified,
conformed, photostatic or facsimile copies, and the authenticity and
completeness of the originals of such latter documents. As to any fact material
to the opinion expressed herein which we did not independently establish or
verify, we have relied upon written or oral certificates, statements,
representations and other documentation furnished to us by officers,
<PAGE> 2
employees and representatives of the Company, of public officials and of others
without independent verification of the facts set forth therein.
For purposes of this opinion, we have assumed that the Warrant
Agreement will be valid and binding on the Warrant Agent and enforceable against
the Warrant Agent in accordance with its terms.
Based upon and subject to the foregoing and the further qualifications
and limitations set forth below, we are of the opinion that:
1. The Warrant Shares have been duly authorized by the Company and duly
reserved for issuance by the Company and, when issued and sold by the Company
upon exercise of the Warrants against receipt of payment in full therefor and
otherwise in accordance with the terms and conditions of the Warrant and the
Warrant Agreement, will be legally and validly issued, fully paid and
nonassessable.
2. The Warrants, when issued and delivered by the Company in accordance
with the terms of the Warrant Agreement, and the Selling Securityholder
Warrants, when sold by the Selling Securityholder as described in the
Registration Statement, will be valid and binding obligations of the Company
entitled to the lenders of the Warrant Agreement and will be enforceable against
the Company in accordance with its terms except as enforcement thereof may be
limited by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or similar laws
affecting enforcement of creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law), and will be
legally and validly issued, fully paid and nonassessable.
In rendering the opinion above, we have assumed that (i) the
certificates representing the Warrant Shares and the Warrants will conform to
the specimens thereof examined by us, (ii) upon issuance of the Warrants
pursuant to the Warrant Agreement, the Company will have a sufficient number of
authorized but unissued shares of Common Stock not restricted for other purposes
to permit the issuance of the Warrant Shares, (iii) no changes occur in the
applicable law or pertinent facts, and (iv) the Company has complied, and during
the term of the Warrants will continue to comply, with all applicable state
securities laws.
We are admitted to practice law in the State of Ohio. This opinion is
limited to the Federal laws of the United States of America and the General
Corporation Law of the State of Delaware in effect as of the date hereof. This
opinion is furnished by us solely for the benefit of the Company in connection
with the issuance of the Warrant Shares and the Warrants, the resale of the
Selling Securityholder Warrants and the filing of the Registration Statement and
any amendments thereto. This opinion may not be furnished to or relied upon by
any other person or entity for any purpose or assigned, quoted or otherwise used
without our prior written consent. Please note that we are opining only as to
the matters expressly set forth herein, and no opinion should be inferred as to
any other matters. We express no opinion herein with respect to the meaning,
interpretation, validity, binding nature or enforceability of the Warrant
Agreement or any contract, agreement, instrument or other document entered into
pursuant to the Warrant Agreement.
<PAGE> 3
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement and to the use of our name under the
caption "Legal Matters". In giving such consent, however, we do not hereby admit
that we are within the category of persons whose consent is required under
Section 7 of the Securities Act or the rules and regulations of the Commission
promulgated thereunder.
Very truly yours,
/s/ KEGLER, BROWN, HILL & RITTER CO., L.P.A.
KEGLER, BROWN, HILL & RITTER CO, L.P.A.
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-60925 of Marcum Natural Gas Services, Inc. on
Form S-3 of our report dated March 12, 1998 (March 23, 1998 as to Note 8),
appearing in the Annual Report on Form 10-KSB of Marcum Natural Gas Services,
Inc. for the year ended December 31, 1997 and to the reference to us under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
September 3, 1998
<PAGE> 1
Exhibit 23.2
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement File No. 333-60925 of our report dated
March 23, 1998 on the Eagle Research Corporation financial statements which
report is included in Marcum Natural Gas Services, Inc.'s Form 8-K/A as filed on
July 16, 1998.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
September 3, 1998
