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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ___________
Commission File Number 0-19793
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MARCUM NATURAL GAS SERVICES, INC.
(Name of small business issuer in its charter)
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DELAWARE 84-1169358
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1675 BROADWAY, SUITE 2150, DENVER, CO 80202
(Address of principal executive offices) (zip code)
(303) 592-5555
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 Par Value
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(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year ended December 31, 1997
were $21,216,757.
As of March 19, 1998, the aggregate market value of the shares of Common Stock
held by non-affiliates was $13,257,080, based upon $1.31 per share of Common
Stock, the last sale price of the Common Stock on such date as reported on the
Nasdaq National Market.
As of March 19, 1998, 12,351,839 shares of the issuer's Common Stock were
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
None
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FORM 10-KSB
TABLE OF CONTENTS
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PART I ITEM 1. DESCRIPTION OF BUSINESS 1
General 1
Business Strategy 1
Metretek, Incorporated 2
Southern Flow Companies, Inc. 4
Marcum Gas Transmission, Inc. 5
Competition 6
Regulation 7
Employees 8
Research and Development 8
Raw Materials 8
Proprietary Rights 8
ITEM 2. DESCRIPTION OF PROPERTY 9
ITEM 3. LEGAL PROCEEDINGS 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 10
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
Results of Operations 11
Seasonality and Cyclicality 13
Financial Condition and Liquidity 13
Forward-Looking Statements 15
Recent Accounting Pronouncements 15
Year 2000 Matters 16
ITEM 7. FINANCIAL STATEMENTS 16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 16
PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT 17
Directors and Executive Officers 17
Key Employees 19
Section 16(a) Beneficial Ownership Reporting
Compliance 19
ITEM 10. EXECUTIVE COMPENSATION 20
Summary Compensation 20
Employment Agreements and Compensation Arrangements 20
Stock Option Grants 21
Stock Option Exercises and Values 22
Director Compensation 22
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 23
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 24
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 24
SIGNATURES 28
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Marcum Natural Gas Services, Inc. is a diversified provider of products
and services to the natural gas and natural gas utility industries. References
to the "Company" herein include Marcum Natural Gas Services, Inc. and its
subsidiaries, unless the context indicates otherwise. 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 gathering, processing and transportation facilities and related assets.
The Company, incorporated in Delaware on April 5, 1991, is a holding
company that conducts its continuing operations through three directly owned
subsidiaries: Metretek, Incorporated ("Metretek"), Southern Flow Companies,
Inc. ("Southern Flow"), and Marcum Gas Transmission, Inc. ("MGT"). In 1991,
the Company commenced its operations by acquiring a natural gas measurement
company and rights to certain compressed natural gas ("CNG") equipment designs
and licenses of certain technologies. In 1993, the Company significantly
enlarged its natural gas measurement operations by acquiring substantially all
of the assets of the Southern Flow Companies division of Weatherford
International Incorporated ("Weatherford"). In 1994, the Company acquired
Metretek, which designs, manufactures and distributes remote natural gas meter
reading systems.
Until recently, the Company had also operated in the CNG industry
through Marcum Denver, Inc. (formerly named Marcum Fuel Systems, Inc.) ("Marcum
Denver"), a directly owned subsidiary of the Company which engaged in the
design, manufacture and sale of CNG refueling station equipment. In June 1997,
Marcum Denver discontinued operations and sold substantially all of its assets
because growth in the CNG industry was not meeting management's expectations.
BUSINESS STRATEGY
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, 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.
Metretek's systems are commonly referred to as commercial and industrial
automatic meter reading ("C&I AMR") systems. 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. The Company expects demand for Metretek C&I AMR systems will
increase as deregulation continues to progress in North America and as utility
companies outside North America also become more privatized and deregulated.
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On March 23, 1998, the Company and Metretek entered into an agreement to
acquire certain assets of Eagle Research Corporation ("Eagle"), a subsidiary of
American Meter Company ("American Meter"). At the closing of such acquisition,
Metretek will enter into a licensing agreement with Eagle and American Meter
pursuant to which Metretek will license certain operating software of American
Meter and Eagle. The agreements, and the transactions contemplated thereby,
are more thoroughly discussed in "Metretek, Incorporated" below in this Item 1.
While the Company regularly engages in discussions relating to potential
acquisitions and dispositions, the Company has no present agreements,
commitments or understandings with respect to any such acquisition or
disposition, other than as referred to herein.
METRETEK, INCORPORATED
Metretek, which was acquired by the Company in 1994, was founded in 1977
in Melbourne, Florida as a developer, manufacturer and marketer of automated
systems for monitoring and recording energy consumption. These C&I AMR systems
are designed with three primary components:
1. An electronic printed circuit board assembly designed and
packaged to interface with an energy meter at the point of
consumption;
2. A communication link (typically a voice grade telephone line, but
cellular telephone and radio are used when appropriate); and
3. A software system running on a centrally located personal
computer or computer network, to manage communications and data
collection from remote meter sites. Once the data is collected,
the software also analyzes and formats the data to user
specifications.
The majority of Metretek's C&I AMR system sales are to natural gas
distribution utility companies, commonly referred to as local distribution
companies ("LDC"s). Sixty of the largest one hundred LDCs in North America
currently utilize Metretek systems to monitor and record the natural gas
consumption of their industrial and commercial accounts. The timely and
accurate information provided by the Metretek system is used by the operations,
engineering, natural gas supply, marketing, customer service and billing
departments of the LDC.
Metretek offers customization of its products and C&I AMR systems as
well as a broad array of post-sale support services which help create and
maintain customer satisfaction and loyalty. A direct sales force is employed
in the U.S. and contracted representatives and distributors are used outside
the U.S. The Company believes that as natural gas deregulation progresses to
the retail level in North America, and as utility companies outside North
America are privatized and their services deregulated, the demand for and use
of Metretek's C&I AMR systems will increase.
Outside of North America, Metretek has sold C&I AMR systems to natural
gas distribution utility companies in the United Kingdom, the Netherlands,
Pakistan, Australia, Argentina and Brazil. Over the past three years,
approximately 20% to 25% of Metretek's annual sales have been to customers
outside the U.S. All of the eight major gas distribution utility companies in
Canada own and operate Metretek systems.
Metretek Europe Limited ("Metretek Europe"), a wholly owned subsidiary
of Metretek located in Camberly, England, sells Metretek products primarily in
Western Europe. Metretek utilizes a direct sales force in conjunction with
distributors to market its products in other nations.
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Metretek has developed complementary products and systems for
application in the natural gas industry, including pipeline pressure and
cathodic protection monitoring. Modifications to existing products are in
process to make them useable for electric meter reading, power outage detection
and reporting, and liquid level measurement and indication.
Metretek's business strategy includes the acquisition of, and strategic
alliances with, measurement equipment providers and software application
developers (such as CellNet Data Systems, Inc. ("CellNet")) that can utilize or
enhance Metretek's offering of products and services.
In June 1996 Metretek acquired the assets of Sigma VI, Inc. ("Sigma
VI"), a contract manufacturer of electronic circuit boards located in
Melbourne, Florida. In addition to "board level" assembly of Metretek's
products, Sigma VI conducts business for circuit board assembly, coating and
testing with electronics companies primarily within a one hundred mile radius of
Melbourne. Sales by Sigma VI to these companies were $776,000 in 1997, up from
$214,000 in 1996.
On March 23, 1998, the Company and Metretek entered into an Asset
Purchase Agreement ("Purchase Agreement") with American Meter and Eagle,
pursuant to which Metretek agreed to acquire substantially all of the assets and
business of Eagle pertaining to electronic correctors and non-radio-frequency
meter reading devices in the natural gas and electric utility industry. Eagle
is a West Virginia corporation incorporated in 1976 and an 80% owned subsidiary
of American Meter, which is owned by Ruhrgas AG, a German natural gas merchant
company. Eagle designs, manufactures and sells a diversified line of high
technology process, control and telemetry systems to utility companies and
contractors which support utility companies in the natural gas and petroleum
industries. The assets to be acquired by Metretek include certain inventory,
equipment, trademarks and technology of Eagle and American Meter used in the
above-described business, but exclude accounts receivable, accounts payable and
certain inventory, equipment, software and other assets attributable to that
portion of Eagle's business not being acquired by Metretek. Pursuant to the
Purchase Agreement, Metretek will not assume any of Eagle's ongoing debts,
liabilities and obligations, except for certain transitional employee costs and
product warranty obligations. The assets and business of Eagle to be acquired
by Metretek will be moved to and operated out of Metretek's existing facility in
Melbourne, Florida. The consummation of the Purchase Agreement and the related
agreements discussed herein, and the commencement of the obligations of the
parties under such agreements, are subject to the closing of the Purchase
Agreement, which is subject to customary conditions precedent and is expected to
occur by the end of April 1998.
In consideration for the purchase of the assets and business, the
Company and Metretek will pay and deliver to Eagle at the closing $1,300,000 in
cash, 1,758,242 shares of Common Stock of the Company valued at $2,000,000, and
a $1,200,000 convertible promissory note. The purchase price is subject to
downward adjustment based upon Metretek's actual sales of products in the
business acquired from Eagle during the 18-month period commencing July 1,
1998. If Metretek's annualized sales of products in the business acquired are
less than $4,500,000 during such period, then the purchase price will be
decreased on a dollar-for-dollar basis to the extent of such sales deficit, but
the purchase price shall not be reduced below $3,900,000 even if annualized
sales are less than that amount. Any reduction in the purchase price will be
effected by reducing the amount of the note. The purchase price is also
subject to upward or downward adjustment based upon certain changes in Eagle's
inventory between December 31, 1997 and the closing date, and any adjustment
will be paid in cash within sixty (60) days after the parties have agreed to
the amount of the adjustment.
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The note will be convertible into unregistered shares of Common Stock of
the Company at the rate of $1.421875 of principal per share at any time after
the closing; provided, however, that in no event shall the aggregate number of
shares of Common Stock to be issued by the Company pursuant to the Purchase
Agreement exceed 19.99% of the aggregate number of shares of Common Stock of
the Company outstanding on the date preceding the closing date. The note will
bear interest on the unpaid principal balance at a fixed rate equal to 7.5% per
annum, payable quarterly in arrears, due and payable four (4) years from the
closing date, and may be prepaid at any time without penalty or premium.
Pursuant to the Purchase Agreement, the Company has granted Eagle the
one-time option to cause the shares of Common Stock to be issued to Eagle to be
registered under the Securities Act of 1933, as amended, and applicable state
securities laws, and has also granted Eagle certain piggy-back registration
rights to include such shares in any registration statement filed by the
Company, subject to customary underwriter cutbacks.
American Meter and Eagle have also entered into a Non-Competition
Agreement with the Company and Metretek, pursuant to which American Meter and
Eagle have agreed not to compete with Metretek in the acquired business for
five (5) years from the closing date, and all such parties have mutually agreed
to confidentiality covenants.
At the closing of the aforementioned transactions, Metretek will enter
into a license agreement ("License Agreement") with American Meter and Eagle,
providing for the license by American Meter and Eagle to Metretek of certain
operating software, and the development, manufacture and sale by Metretek to
American Meter and Eagle 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 License
Agreement will also grant to American Meter and its affiliates the right to
sell Metretek products in the United States and Canada at certain agreed-upon
prices.
Upon the closing of the Purchase Agreement, Harry I. Skilton, President
of American Meter, will become a member of the Board of Directors of the
Company. See "Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act".
The foregoing description of the terms of the acquisition of assets and
related transactions is qualified in its entirety by reference to the Purchase
Agreement which is attached as an Exhibit to this Form 10-KSB.
SOUTHERN FLOW COMPANIES, INC.
Southern Flow provides a full range of natural gas measurement services
principally to customers involved in natural gas production, gathering,
transportation, and processing. The Company commenced operations in this line
of business in 1991 via merger with an existing business. This business was
expanded significantly in 1993 when it acquired substantially all of the assets
of the Southern Flow Division of Weatherford. Through its predecessors,
Southern Flow has provided measurement services to the natural gas industry
since 1953.
Southern Flow provides a broad array of integrated natural gas
measurement services, including on-site field services, chart processing and
analysis, laboratory analysis, and data management and reporting. Natural gas
measurement services are used by producers of natural gas and pipeline
companies to verify volumes of natural gas custody transfers in pipelines and
natural gas gathering systems. To ensure that such data is accurate, on-site
field services and data collection must be coordinated with chart integration
and data
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development and management to produce timely reports. Southern Flow's field
services include the installation, testing, calibration, sales and maintenance
of measurement equipment and instruments. Southern Flow's chart processing
operations include analyzing, digitizing and auditing well charts and providing
custom reports as requested by the customer. Southern Flow provides these
services through 9 division offices located throughout the Gulf of Mexico,
Southwest, Mid-Continent and Rocky Mountain regions.
A majority of natural gas measurement services are currently performed
internally by natural gas producers and pipeline companies. The market for
independent natural gas measurement services is fragmented, with no single
company having the ability to exercise control. In addition to price, the
primary consideration for natural gas measurement customers is the quality of
services and the ability to maintain data integrity since natural gas
measurement has a direct effect on the natural gas producer's revenue and
royalty and working interest owner obligations. The Company believes that it
is able to effectively compete by (i) providing dependable integrated
measurement services, (ii) maintaining local offices in proximity to its
customer base, and (iii) retaining experienced and competent personnel.
Southern Flow provides measurement services to a variety of customers
with various natural gas measurement needs, including independent natural gas
producers and major oil and natural gas companies. Southern Flow also provides
its measurement services to a variety of natural gas gathering, pipeline and
transmission companies, and petro-chemical companies.
MARCUM GAS TRANSMISSION, INC.
MGT was organized in 1991 to acquire or finance the acquisition of
natural gas gathering, processing and transportation facilities and related
assets through partnerships, business trusts or similar entities. MGT then
manages and retains an ownership interest in the entities acquiring the assets.
Marcum Capital Resources, Inc. ("MCR"), a broker-dealer registered with the
National Association of Securities Dealers, Inc., was formed in 1992 as a
wholly owned subsidiary of MGT to secure private capital to finance
acquisitions by these partnerships, business trusts and other entities.
MGT has formed three such entities, which it manages and in which it has
an ownership interest. In 1994, MGT and Goodrich Petroleum Company of
Louisiana ("GPCL"), a wholly owned subsidiary of Goodrich Petroleum Company
("GPC") and a significant stockholder of the Company, formed Marcum-Patrick
Pipeline Program 1993-1 L.P. (the "Pipeline Partnership"), which owns a 33.333%
membership interest in Bayou South Gas Gathering Systems, L.C. ("Bayou"), which
owns certain natural gas gathering systems and related assets in northwest
Louisiana and northeast Texas. MGT and GPCL are the co-managing general
partners and hold a 4% and 6% limited partner interest, respectively, in the
Pipeline Partnership. In 1997, MGT, as a co-managing general partner of the
Pipeline Partnership, received $10,000 in administrative and management fees.
In March 1998, the Pipeline Partnership and MGT entered into an agreement with
Franks Petroleum, Inc. ("Franks"), the 66.667% member of Bayou, pursuant to
which Franks has agreed to purchase the Pipeline Partnership's membership
interest in Bayou for $1,650,000. The sale of the Pipeline Partnership's
membership interest in Bayou was approved by MGT and Goodrich, as its general
partners, subject to the affirmative vote of its limited partners. Upon
approval of the sale by the limited partners, MGT expects to receive a $32,000
repayment of an advance made to the Pipeline Partnership, payment of accrued
fees, and $58,000 net proceeds with respect to its limited partnership
interest.
In February 1996, MGT formed Marcum Midstream 1995-2 Business Trust ("MM
1995-2"), of which MGT is the managing trustee. MM 1995-2 purchased two deep
injection water disposal facilities located in
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northeastern Colorado, which purchase was financed by a $5,650,000 private
placement of preferred shares in MM 1995-2. MGT purchased 5% of the preferred
shares in MM 1995-2 which was funded by reimbursements to MGT of fees and
expenses by MM 1995-2 when it was formed. MGT, as managing trustee, is
responsible for administrative activities of MM 1995-2 for which it is entitled
to compensation from MM 1995-2. In addition, MGT, as managing trustee, is
entitled to receive performance distributions equal to approximately 8% of the
cash available for distribution by MM 1995-2 before "payout" and approximately
20% after "payout", as defined in the Declaration of Trust. In 1997, MGT
received approximately $97,000 in management and administrative fees and
$131,000 in performance distributions.
In August 1997, MGT formed Marcum Midstream 1997-1 Business Trust ("MM
1997-1"), of which MGT is the managing trustee. MM 1997-1 purchased a natural
gas liquids processing plant located near Midland, Texas, which purchase was
financed by a $9,250,000 private placement of preferred shares in MM 1997-1.
MGT purchased 5% of the preferred shares in MM 1997-1 which was funded by
reimbursements to MGT of fees and expenses by MM 1997-1 when it was formed.
MGT, as managing trustee, is responsible for administrative activities of MM
1997-1 for which it is entitled to compensation from MM 1997-1. In addition,
MGT, as managing trustee, is entitled to receive performance distributions
equal to approximately 9% of the cash available for distribution by MM 1997-1
before "payout" and approximately 21% after "payout", as defined in the
Declaration of Trust. In 1997, MGT did not receive any management and
administrative fees or performance distributions from MM 1997-1.
In December 1997, MGT sold to Odessa Exploration Incorporated
("Odessa"), a subsidiary of Key Energy Group, Inc., one-third of MGT's
preferred and performance share interests in MM 1995-2 and MM 1997-1 as well as
one-third of MGT's interest in future management and administrative fees from
those business trusts. The purchase price was $1,000,000, of which $600,000
was paid at closing and the remainder is payable in eight equal quarterly
installments in 1998 and 1999. The sale does not grant to or create in Odessa
any management rights or responsibilities with respect to either business
trust. MGT remains as the managing trustee and retains its remaining ownership
interest in both of the business trusts. See "Item 12. Certain Relationships
and Related Transactions."
COMPETITION
The market for Metretek's products and services is very competitive.
Although Metretek's product offering is very specific to the requirements for
industrial and commercial meter reading/monitoring in natural gas distribution
utility companies, many suppliers of residential meter reading systems also
offer products for commercial and/or industrial applications and can be
formidable competitors for utility companies desiring to implement residential
meter reading and to have all automatic/remote meter reading, including
industrial and commercial, performed on a single system. Also, major natural
gas meter and instrument manufacturers offer systems to remotely read and
interrogate their own equipment, and utility companies that use certain
manufacturers' meters exclusively may also choose to buy their communication
and data collection products as well. Metretek competes primarily on the basis
of product quality, applications expertise, and the quality of its service and
support, rather than on the basis of price.
Numerous companies compete directly with Southern Flow in the natural
gas measurement services industry, including companies which provide the same
services as Southern Flow and those which provide additional or related field
services. Although a majority of natural gas measurement services is currently
performed internally by natural gas producers and pipeline companies, most of
Southern Flow's direct competition consists of small measurement companies
providing limited services and serving limited
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geographical areas. Southern Flow offers a complete range of natural gas
measurement services over a wide geographical area which management believes
offers Southern Flow advantages over its competitors.
MGT encounters strong competition from major and independent oil and
natural gas companies and independent operators in acquiring and operating
natural gas gathering, processing and transportation systems.
REGULATION
Regulation of Natural Gas Industry Generally. The Company's operations
are affected in various degrees by political developments and federal and state
laws and regulations. In particular, natural gas production, operations and
economics are affected by price controls, by environmental, tax and other laws
relating to the natural gas industry, by changes in such laws and by changing
administrative regulations and the interpretations and application of such
laws, rules and regulations. Natural gas industry legislation and agency
regulation is periodically changed for a variety of political, economic and
other reasons.
The Company's international operations are also subject to the
political, economic and other uncertainties of doing business abroad including,
among others, risks of war, cancellation, expropriation, renegotiation or
modification of contracts, export and transportation regulations and tariffs,
taxation and royalty policies, foreign exchange restrictions, international
monetary fluctuations and other hazards arising out of foreign government
sovereignty over certain areas in which the Company conducts, plans to conduct
or in the future may conduct operations.
Federal and State Regulation of Natural Gas. Natural gas sales have
been deregulated at the wholesale, or pipeline, level since Federal Energy
Regulatory Commission ("FERC") Order 636 was issued in 1992. Since that time,
individual states have been studying various methods for deregulating natural
gas sales at the retail level. Many state utility commissions are currently
conducting pilot programs that allow residential and small commercial consumers
to select a provider of their choice, other than the local distribution
company, to supply their natural gas. As natural gas sales are deregulated, on
a state by state basis, the Company believes that timely collection and
reporting of consumption data will be needed and desired by utility companies
and energy service providers, particularly for residential and commercial
customers who are purchasing natural gas on an aggregate basis. The Company
believes that Metretek will benefit from such a regulatory environment.
Environmental Regulation. While various federal, state and local laws
and regulations covering the discharge of materials into the environment, or
otherwise relating to the protection of the environment, may affect the
Company's operations as a result of their effect on natural gas development,
exploration, production, transportation and dispensing operations, the
Company's operations are not currently subject to substantial environmental
laws and regulations. The Company believes it is in material compliance with
those environmental laws and regulations to which it is subject. It is not
anticipated that the Company will be required in the near future to expend
amounts that are material in relation to its total capital expenditures program
by reason of environmental laws and regulations. However, inasmuch as such
laws and regulations are frequently changed, the Company is unable to predict
the ultimate effect on the Company and cost of compliance to the Company.
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EMPLOYEES
At February 28, 1998, the Company and its subsidiaries had 228 full-time
employees. None of the employees are covered by a collective bargaining
agreement. The Company believes that its relations with its employees are
good.
RESEARCH AND DEVELOPMENT
The Company's basic research and development activities are conducted
primarily by Metretek. Metretek conducts research and development directed
towards improvements in its product and service offering which address
anticipated customer needs and potential new markets. Current research and
development activities for existing customers and markets are aimed at
expanding the Company's wireless communication capability, cost reduction of
pulse collection devices, and a new software operating system. Products and
services currently under development for new markets include an electric meter
interface and a monitoring and recording system for liquid levels in storage
tanks (primarily for use in propane distribution systems). The Company
incurred $1,062,264 and $730,117 for research and development expenses during
the years ended December 31, 1997 and 1996, respectively. The Company intends
to continue to allocate resources to the research and development of new
Metretek products and services in the future.
RAW MATERIALS
The Company's subsidiaries purchase memory chips, electronic components,
printed circuit boards, fabricated sheet metal parts, machined components,
aluminum, metallic castings and various other raw materials for their products.
While, in the opinion of management, the loss of any one supplier of materials
would not have a material adverse impact on the business or operations of the
Company, shortages in certain components such as memory chips, supply problems
from the Company's suppliers or the Company's inability to develop alternative
sources of supply quickly or cost-effectively could materially impact the
Company's ability to manufacture its products and therefore could adversely
affect the Company's business and operations. The Company mitigates this risk
by maintaining an inventory of such materials.
PROPRIETARY 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, trade marks and trade secret laws to establish and protect
its rights in its products and proprietary technology. Although the Company
maintains certain patents related to it 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 U.S. 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 its
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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.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases its corporate executive offices located in downtown
Denver, Colorado, which contain 3,443 square feet. The lease currently has a
monthly rental obligation of $4,031, including operating costs, expires July
31, 2001, and contains a market-rate renewable lease provision. MGT occupies a
portion of these corporate executive offices.
Metretek leases its principal business offices, located in Melbourne,
Florida, for its executive, manufacturing, engineering, warehouse and marketing
operations. This facility has 39,125 square feet and a current monthly rental
obligation of $23,166, including operating costs. The lease expires June 30,
2005. Metretek has sub-leased 8,470 square feet of its space for $6,678
monthly rental.
Southern Flow leases office facilities in the following locations:
Lafayette, Belle Chasse and Shreveport, Louisiana; Jackson, Mississippi;
Houston and Victoria, Texas; Tulsa, Oklahoma; and Aztec, New Mexico. These
offices have an aggregate of approximately 55,000 square feet, total monthly
rental obligations of approximately $28,100 and terms expiring at various times
through 2001. In addition, Southern Flow owns and occupies land and a 8,600
square foot office building in Dallas, Texas.
ITEM 3. LEGAL PROCEEDINGS
In 1993, a former employee filed an action in Denver District Court
against DVCO Fuel Systems, Inc. ("DVCO"), a subsidiary of Marcum Denver, and
the Company, alleging that the Company conspired with certain third parties to
defraud him and that the Company intentionally interfered with certain
contracts in which he had an interest. The former employee is seeking damages
in the amount of approximately $420,000 and punitive damages. The Company has
denied the former employee's claims and has asserted counterclaims against the
former employee, alleging that (i) he breached an agreement with the Company
which included a legal release, (ii) he made intentional and/or negligent
misrepresentations regarding his qualification and reputation in the compressed
natural gas industry, (iii) he breached his fiduciary duty to the Company, and
(iv) he disparaged the Company. On July 24, 1997, the former employee's action
was dismissed as a result of the Court's grant of the motion by the Company and
DVCO for summary judgement against the former employee's claims. The former
employee has appealed the Court's grant of summary judgement. The Company's
counterclaims against the former employee remain pending. Although the outcome
of this litigation is not determinable with certainty, in the opinion of the
Company's management, this litigation is not expected to have a material
adverse effect on the business, financial condition or results of operations of
the Company.
Other than as set forth above, there are no legal proceedings pending
or, to the knowledge of the Company, threatened against the Company or any of
its assets, other than litigation incidental and not material to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
9
<PAGE> 12
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "MGAS". The following table sets forth, for the periods indicated,
the closing high and low sale prices of the Common Stock as reported on the
Nasdaq National Market:
<TABLE>
<CAPTION>
PRICE RANGE
-------------
PERIOD HIGH LOW
------ ---- ----
<S> <C> <C> <C>
1996:
First Quarter 1.69 1.13
Second Quarter 1.56 1.13
Third Quarter 1.44 1.06
Fourth Quarter 1.13 .75
1997:
First Quarter 1.22 .75
Second Quarter .97 .69
Third Quarter 1.41 .83
Fourth Quarter 1.25 .88
</TABLE>
As of March 19, 1998, there were 325 holders of record of the Common
Stock. Because many of the shares of Common Stock are held by brokers and
other institutions on behalf of the stockholders, the Company estimates there
are at least 3,000 beneficial holders of its Common Stock.
The Company has never declared or paid any cash dividends on its Common
Stock. The Company's Board of Directors does not anticipate paying any cash
dividends in the foreseeable future, as it intends to retain any earnings to
finance the growth of the Company's business. In addition, the Company's loan
agreements limit or restrict the ability of the Company to pay dividends. The
payment of any cash dividends on the Common Stock in the future will depend on
such factors as the earnings, anticipated growth requirements and operating and
financial condition of the Company, contractual restrictions and any other
factors deemed relevant by the Board of Directors.
10
<PAGE> 13
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following discussion of the results of operations for the Company
for the years ended December 31, 1997 and 1996 and of the consolidated financial
condition of the Company as of December 31, 1997 should be read in conjunction
with the Company's consolidated financial statements and related notes thereto
included elsewhere herein.
RESULTS OF OPERATIONS
The following table sets forth selected information related to the
Company's primary products and services and should assist in an understanding of
the Company's results of operations for the periods presented.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------------
1997 1996
----------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C>
REVENUES:
Southern Flow $ 11,585 $ 10,835
Metretek 8,805 7,584
Other 827 596
----------- -----------
Total $ 21,217 $ 19,015
=========== ===========
GROSS PROFIT:
Southern Flow $ 2,960 $ 2,689
Metretek 4,509 3,743
----------- -----------
Total $ 7,469 $ 6,432
=========== ===========
NET INCOME (LOSS):
Southern Flow $ 1,188 $ 976
Metretek 234 152
Other (669) (1,120)
----------- -----------
Income from continuing operations 753 8
Loss from discontinued operations (2,277) (1,549)
----------- -----------
Total $ (1,524) $ (1,541)
=========== ===========
</TABLE>
On June 27, 1997, the Company sold its natural gas refueling equipment
segment and substantially all of the operating assets related thereto. The
financial statements have been reclassified to exclude the operating results of
the natural gas refueling equipment segment from continuing operations and to
account for this segment as discontinued operations (see Note 2 to the
Consolidated Financial Statements). The following discussion relates only to the
Company's continuing operations.
11
<PAGE> 14
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues. The Company's consolidated revenues for the year ended
December 31, 1997 increased $2,202,084, or 12%, compared to the same period in
1996, due to an increase in revenues by each of the Company's two subsidiaries
engaged in natural gas measurement sales and services and an increase in the
Company's other revenues. Metretek's revenues for the year ended December 31,
1997 increased $1,221,140, or 16%, compared to the same period in 1996,
consisting of an increase in domestic sales of $976,263 and an increase in
international sales of $244,877. The increase in Metretek's domestic revenues in
1997 was the net result of three key factors: (i) an increase in sales of
automated energy consumption monitoring and recording systems, Metretek's core
business, due to overall increased market demand; (ii) the inclusion of a full
year of circuit board assembly sales by Sigma VI, which Metretek acquired in
June 1996, and an expansion of Sigma VI's business; and (iii) the elimination of
its original equipment manufacture (OEM) product sales through an exclusive
distributorship arrangement that has been discontinued. The increase in
Metretek's international revenues was due primarily to improved sales to
customers in Canada and Argentina, despite a reduction in sales by Metretek
Europe, its European distribution subsidiary, due to decreased demand in the
United Kingdom market. Southern Flow's revenues increased $750,045, or 7%, for
the year ended December 31, 1997, compared to the same period in 1996, as a
result of its customers engaging in increased natural gas exploration and
production activities. Other Company revenues increased $230,899, or 39%, for
the year ended December 31, 1997, compared to the same period in 1996, due
principally to the net effect of three factors: (i) the sale by MGT of one-third
of its equity interest in two business trusts resulting in a gain of
approximately $456,000; (ii) the one-time receipt in 1996 of a $124,000
settlement amount from a former Metretek licensee; and (iii) the reduction in
equity income in 1997 from unconsolidated affiliates.
Costs and Expenses. Cost of sales and services for the year ended
December 31, 1997 increased $933,600, or 8%, compared to the same period in
1996. Metretek's cost of sales and services for the year ended December 31, 1997
increased $455,044, or 12%, compared to the same period in 1996 and was due
primarily to increased sales activity in 1997. As a result of cost reductions in
components of certain of its products, Metretek's gross profit margin after
costs of sales and services for the year ended December 31, 1997 increased from
49.4% to 51.2% compared to the same period in 1996. Southern Flow's cost of
sales and services for the year ended December 31, 1997 increased $478,556, or
6%, compared to the same period in 1996, primarily as a result of its increased
sales and services activity in 1997. Southern Flow's gross profit margin after
costs of sales and services for the year ended December 31, 1997 increased
slightly from 24.8% to 25.6% compared to the same period in 1996.
General and administrative expenses for the year ended December 31,
1997 increased $97,585, or 3%, compared to the same period in 1996, due
principally to the net effect of the following factors: (i) an increase in
expenses of Metretek of approximately $106,000 due primarily to costs incurred
at its wholly owned subsidiary, Sigma VI, which was acquired in June 1996; (ii)
an increase in expenses of Southern Flow of approximately $56,000 attributable
to additional personnel costs and increased state and franchise taxes in 1997
compared to 1996; (iii) increases in general and corporate expenses of
approximately $3,000; and (iv) a decrease in expenses of MGT of approximately
$67,000 for reimbursement of expenses incurred in connection with the
organization and formation of a new business trust in 1997.
Selling, marketing and service expenses for the year ended December 31,
1997 increased $54,234, or 3%, compared to the same period in 1996, all of which
related to activities at Metretek. The increase in these expenses was due
principally to the net effects of the following: (i) increases of approximately
$93,000
12
<PAGE> 15
incurred at its wholly owned subsidiaries, Metretek Europe and Sigma VI; and
(ii) a decrease of approximately $39,000 at Metretek due to a reduction in
advertising and promotional expenses.
Depreciation and amortization expenses for the year ended December 31,
1997 increased $37,793, or 4%, compared to the same period in 1996. This
increase was due to increased amortization associated with capitalized software
development at Metretek.
Research and development expenses for the year ended December 31, 1997
increased $332,147, or 45%, compared to the same period in 1996, due to existing
product enhancements and new product development projects at Metretek.
Interest and other expenses for the year ended December 31, 1997
increased $2,197, or 2%, compared to the same period in 1996. These expenses
increased because MGT began incurring interest expense from a loan agreement
entered into in April 1997, but this increase was partially mitigated by a
reduction in Metretek's interest expense as Metretek decreased its borrowings
under its credit facilities in 1997 compared to 1996.
SEASONALITY AND CYCLICALITY
The business of Metretek is subject to seasonal fluctuations, being
largely dependent on sales to natural gas utilities. The utility industry is
generally characterized by long budget and purchase cycles. Purchases of
Metretek's products by utilities are, to a substantial extent, deferrable in the
event utilities reduce capital expenditures as a result of such conditions as
unfavorable regulatory decisions, poor revenues due to weather conditions or
general economic downturns.
FINANCIAL CONDITION AND LIQUIDITY
The Company requires capital principally for (i) the financing of
inventory and accounts receivable, (ii) research and development expenses, (iii)
capital expenditures for property and equipment and software development, and
(iv) the funding of possible future acquisitions.
Net cash provided by operating activities was approximately $1,286,000
for the year ended December 31, 1997, which resulted from approximately
$1,294,000 in cash provided by continuing operations, before changes in assets
and liabilities. Approximately $204,000 in cash used to fund changes in working
capital and other asset and liability accounts was nearly entirely offset by
approximately $196,000 of cash provided by discontinued operations.
The Company plans to continue research and development efforts to
enhance its existing products and develop new products. The Company anticipates
that its research and development costs in 1998 will be approximately
$1,250,000, all of which will relate to Metretek's business. Research and
development expenses in the amount of $1,062,264 were incurred in the year ended
December 31, 1997.
The Company's capital expenditures in 1997 were $307,693. The Company
anticipates capital expenditures in 1998 of approximately $425,000 primarily for
production and laboratory equipment, computer hardware and software.
13
<PAGE> 16
Pursuant to the Purchase Agreement with American Meter and Eagle, the
Company will pay and deliver to Eagle at the closing, expected to occur by the
end of April 1998, $1,300,000 in cash and a $1,200,000 convertible promissory
note, in addition to shares of Common Stock of the Company. The note, to the
extent it is not converted into shares of Common Stock, will mature in April
2002. While the Company has sufficient cash on hand to make the cash payment at
closing, the Company may seek to improve its liquidity position through
additional borrowings from financial institutions. However, there can be no
assurance that the Company will be able to obtain any such additional borrowings
or that such borrowings will be on terms favorable to the Company.
In order to fund the organization of and MGT's investment in MM 1997-1,
MGT and Southern Flow entered into a loan agreement on April 18, 1997, as
amended May 14, 1997, with a commercial bank for a $400,000 term loan repayable
in equal monthly principal payments plus interest over a 36 month period (the
"MGT Loan"). The MGT Loan is secured by the accounts receivable, inventory,
selected equipment and real estate of Southern Flow and an assignment of MGT's
preferred and performance share interest in MM 1997-1 and is guaranteed by the
Company. The loan agreement requires the Company to maintain a minimum
consolidated tangible net worth and Southern Flow to maintain a minimum debt
service coverage ratio, and contains other standard covenants related to the
operations of Southern Flow and MGT. The outstanding balance under the loan
agreement is limited to an amount equal to 80% of the eligible accounts
receivable of Southern Flow.
In December 1997, MGT entered into a purchase agreement with Odessa
Exploration Incorporated ("Odessa"). Terms of the purchase agreement provided
for the sale to Odessa of one-third of MGT's preferred and performance share
interests in both MM 1995-2 and MM 1997-1 as well as one-third of MGT's interest
in future management and administrative fees from the business trusts. The
purchase price was $1,000,000 of which $600,000 was paid on closing and the
remainder is due in eight quarterly installments commencing January 1, 1998. The
sale does not grant to or create in Odessa any management rights or
responsibilities with respect to either business trust. MGT remains as the
managing trustee and retains its remaining ownership interest in both of the
business trusts.
On May 30, 1997, Metretek entered into a loan agreement (the "Metretek
Loan") with its commercial lender for an additional $200,000 line of credit that
converts to a term loan on March 15, 1998, after which any outstanding balance
due on the line of credit is payable in monthly principal payments plus interest
over an 18 month period. No amounts were borrowed under the Metretek Loan at
December 31, 1997. The loan agreement also extended the term of Metretek's
existing $400,000 working capital line of credit with the commercial bank from
January 31, 1998 to April 30, 1998. The Metretek Loan, together with the
existing indebtedness to the commercial lender, are secured by Metretek's
accounts receivable, inventory and equipment, cross-collateralized and
cross-defaulted, and guaranteed by the Company. The loan agreement requires
Metretek to maintain a minimum adjusted working capital level, a minimum current
ratio, a maximum debt to tangible net worth ratio and contains other standard
covenants related to operations by Metretek. Cumulative borrowings under the
loan agreement are limited to the sum of 75% of eligible domestic trade accounts
receivable, 55% of eligible foreign trade accounts receivable and 50% of raw
materials inventory of Metretek.
Based on the Company's current plans and assumptions, management
believes that its capital resources, including its cash on hand, borrowings and
expected cash flow from continuing
14
<PAGE> 17
operations, installment payments from the sale of MGT's one-third interest in
the business trusts, and additional proceeds from the disposition of the
remaining net assets of its discontinued operations, will be sufficient to fund
its currently anticipated working capital needs, capital commitments and debt
service requirements for at least the next twelve months. Depending upon the
Company's financial condition, including its liquidity needs and business
activity, the conditions in the capital and other financial markets, as well as
other factors, the Company may from time to time seek additional funds from the
proceeds of debt financing, the sale of equity or assets or other financing
methods. However, there can be no assurance that the Company will be able to
obtain any such additional funds when needed or on terms that will be favorable
to the Company.
FORWARD-LOOKING STATEMENTS
Statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, as well as in other parts of this report on
Form 10-KSB that look forward in time, which include everything other than
historical information, are forward-looking statements made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
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. From time
to time, the Company may publish or otherwise make available forward-looking
statements of this nature. All such forward-looking statements are based on the
current expectations of 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, changes in the energy industry in
general and the natural gas industry in particular; the capital resources,
technological requirements and internal business plans of the natural gas
utilities industry; technological changes in the natural gas industry; the
timely development and market acceptance of new product designs and
technologies; general economic conditions; the consummation of the American
Meter transaction and the Company's ability to successfully integrate and
utilize the acquired product lines and business, and the timing, amount and
value of future sales of those product lines and business; the impact and timing
of the deregulation of the various energy markets; the effect of weather
patterns on utility purchasing requirements; reliance on strategic alliances;
the amount of additional proceeds from the disposition of the remaining net
assets, and the gross margin payments on the disposed portion, of the natural
gas refueling equipment segment; the receipt and timing of future customer
orders; changes in competitive factors affecting the Company's operations;
unanticipated impacts of restructuring initiatives in natural gas utilities;
occurrences of events affecting the Company's ability to obtain funds from
operations, debt or equity to finance needed capital expenditures and other
investments; the ability to successfully identify and finance natural gas
opportunities; the impact of current and future laws and government regulations
affecting the energy industry in general and the natural gas industry in
particular; as well as other risks and uncertainties that are discussed in this
report or that are discussed from time to time in the Company's other reports
and filings with the Securities and Exchange Commission. The Company assumes no
responsibility to update any forward-looking statements, whether as a result of
new information, future events or otherwise.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", which is effective for periods beginning after December
15, 1997. SFAS 130 requires businesses to disclose comprehensive income and its
components in their general-purpose financial statements, with reclassification
of comparative (earlier period)
15
<PAGE> 18
financial statements. The adoption of SFAS 130 is not expected to have a
material impact on the Company's disclosures.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information", which is effective for periods
beginning after December 15, 1997. SFAS 131 redefines how operating segments are
determined and requires disclosure of certain financial and descriptive
information about a company's operating segments. The adoption of SFAS 131 is
not expected to have a material impact on the Company's disclosures.
YEAR 2000 MATTERS
The Company has initiated the process of preparing its computer
systems and applications for the year 2000. This process involves modifying or
replacing certain hardware and software utilized by the Company as well as
communicating with its significant external suppliers, service providers and
customers to ensure that they are taking appropriate action to remedy their
Year 2000 issues.
The Company will utilize both internal and external resources to
upgrade and test its software systems and expects to have substantially all of
the system upgrades and application changes completed by September 30, 1999.
The cost to the Company of the Year 2000 activities has not and is not expected
to be material to its financial position or results of operations in any given
year. These costs and the date on which the Company plans to complete the Year
2000 modifications and testing process are based on management's best
estimates, which were derived utilizing assumptions regarding future events.
However, there can be no guaranty that these estimates will be achieved and
actual results could differ from those plans.
ITEM 7. FINANCIAL STATEMENTS
The information required by this item is included herein on pages F-1
through F-22.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
16
<PAGE> 19
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
Certain information with respect to the directors and executive
officers of the Company is set forth below:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
W. Phillip Marcum 54 President, Chief Executive Officer,
Chairman of the Board and Director
A. Bradley Gabbard 43 Executive Vice President, Chief
Financial Officer, Treasurer and
Director
Basil M. Briggs(1) 62 Director
Robert Lloyd(1)(2) 59 Director
Albert F. Thomasson(2) 56 Director
Anthony D. Pell 59 Director
Ronald W. McKee 50 Director
</TABLE>
- --------------------
(1) Member, Compensation Committee
(2) Member, Audit Committee
W. PHILLIP MARCUM, a founder of the Company, has served as the
President, Chief Executive Officer, Chairman of the Board and a director of the
Company since its incorporation in April 1991. He also serves as the Chairman
and Chief Executive Officer of each of the Company's direct wholly owned
subsidiaries. He currently serves on the board of directors of one public
corporation, Key Energy Group, Inc., East Brunswick, New Jersey, an oilfield
service provider, and one privately-held corporation, Hydrologic, Inc.,
Asheville, North Carolina, a water analysis company. From November 1987 until
February 1991, Mr. Marcum was employed in the corporate finance department of
Boettcher & Company, Denver, Colorado, serving as a Senior Vice President. From
1976 to 1987, Mr. Marcum was employed by MGF Oil Corporation, Midland, Texas,
serving as its President and Chief Executive Officer the last three of those
years.
A. BRADLEY GABBARD, a founder of the Company, has served as a director
of the Company since its incorporation in April 1991, and has served as the
Executive Vice President of the Company since July 1993, and as the Chief
Financial Officer and Treasurer of the Company from April 1991 through July 1993
and since August 1996. He also served as its Vice President and Secretary from
April 1991 through July 1993. Mr. Gabbard has also served as the President of
Marcum Denver since July 1993. From October 1990 to February 1991, Mr. Gabbard
was employed by Boettcher & Company, serving as Vice President in its research
department. In 1987, Mr. Gabbard joined Great Horn, Inc., a privately held New
York based investment corporation, as its Vice President in charge of western
oil and gas investment activities. In 1988, Great Horn acquired a controlling
interest in Premier Resources, Ltd., Denver, Colorado, and appointed Mr. Gabbard
as the Executive Vice President and Chief Operating Officer, where he served
until the sale of Premier in 1990.
17
<PAGE> 20
From 1981 to 1987, Mr. Gabbard was employed by Search Drilling Company, Wichita,
Kansas, a privately held oil and gas company, initially serving as its Vice
President of Finance, and later as an Executive Vice President. From 1976 to
1981, Mr. Gabbard was employed in the Oklahoma City office of Ernst and Whinney
(now Ernst and Young), principally serving clients in the oil and gas industry.
Mr. Gabbard is a certified public accountant.
BASIL M. BRIGGS has served as a director of the Company since June
1991. He has been a practicing attorney in Detroit, Michigan since 1961 and has
been a shareholder of Cox, Hodgman & Giarmarco, P.C. in Troy, Michigan since
January 1, 1997. He was the President of Briggs & Williams, P.C., attorneys at
law, from its formation in 1977 through 1986, and of counsel with Miro, Weiner &
Kramer, P.C., Bloomfield Hills, Michigan, from 1987 through 1996. Mr. Briggs was
the Secretary of PPC from 1984, and a director of PPC from 1970, until it was
acquired by GPC in August 1995. Since August 1995, he has been a director of
GPC.
ROBERT LLOYD has served as a director of the Company since July 1993.
He currently manages his personal investments. From 1988 to 1989 he was an
Executive Director of Interallianz London Limited, the wholly owned corporate
finance subsidiary of Interallianz Bank Zurich A.G. Mr. Lloyd formerly held
several positions with Drexel Burnham Lambert Inc. and its affiliates, including
Managing Director and Senior Corporate Finance Officer in Europe.
ALBERT F. THOMASSON has served as a director of the Company since March
1994. Mr. Thomasson was a director of Metretek from 1981 until it was acquired
by the Company in March 1994. For the past five years, Mr. Thomasson has been
President of AFT Corporation, which provides management consulting services to
selected businesses in the Birmingham, Alabama area; President of AFTCO
Properties, Inc. and Brookhaven Properties, III, Inc., which are engaged in
residential real estate development in the Birmingham area; President of
Thomasson, Coal & Coke, Inc., which is a manufacturer of alloy block for
foundries until it merged into AFT Corporation in 1996; and Managing General
Partner of Opto Oil and Gas Company, which is engaged in the exploration and
development of oil and gas fields.
ANTHONY D. PELL has served as a director of the Company since June
1994. Mr. Pell is a director of Rochdale Investment Management Inc., New York,
New York. He was the President and co-owner of Pell, Rudman & Co., Boston,
Massachusetts, an investment advisory firm, from 1991 until 1993, when it was
acquired by United Asset Management Company, since which time he has served as a
consultant. Mr. Pell was a director of Metretek from 1985 until Metretek was
acquired by the Company in March 1994. Mr. Pell
18
<PAGE> 21
was associated with the law firm of Coudert Brothers from 1966 to 1968 and with
the law firm of Cadwalder, Wickersham and Taft from 1968 to 1972, specializing
in estate and tax planning. In 1972, Mr. Pell joined Boston Company Financial
Strategies, Inc. as a Vice President and was appointed a Senior Vice President
in 1975.
RONALD W. MCKEE has served as a director of the Company since August
1997 and has served as the President and Chief Operating Officer of Metretek
since September 1995. Mr. McKee had previously served as the Vice President of
Marketing of Metretek since he joined Metretek in 1989. From 1970 to 1989, Mr.
McKee held various sales and marketing management positions with Rockwell
International, Pittsburgh, Pennsylvania, and became the general sales and
marketing manager for Rockwell International's plug valve business in 1987.
The Company's Board of Directors currently consists of seven members,
divided into three classes, serving staggered three-year terms. Class I
directors, whose term expires in 1998, are Messrs. Marcum, Briggs and Lloyd.
Class II directors, whose term expires in 1999, are Messrs. Gabbard, McKee and
Thomasson. The Class III director, whose term expires in 2000, is Mr. Pell.
Pursuant to the Purchase Agreement with American Meter, the Company has agreed
to increase the size of the Board of Directors to eight (8) members and to
appoint Harry I. Skilton, President and Chief Executive Officer of American
Meter, as a Class III director, effective upon the closing of the Purchase
Agreement. In August 1997, Stephen E. McGregor resigned as a director of the
Company and Mr. McKee was appointed by the Board of Directors to fill his
vacancy. In March 1998, U.E. Patrick resigned as a director of the Company.
Officers are appointed by the Board of Directors and serve at its discretion
subject to the employment agreements discussed below.
KEY EMPLOYEES
Certain information with respect to key employees of the Company is set
forth below:
WOOD BREAZEALE, 68, has served as the President and Chief Operating
Officer and a director of Southern Flow since May 1993. Mr. Breazeale was
formerly the President and Chief Operating Officer of the Southern Flow
Companies, a division of Homco International, Inc., and a Vice President of
Homco International, Inc. from 1979 until the Company purchased the assets of
the Southern Flow Companies division of Weatherford in April 1993. Mr. Breazeale
founded Southern Flow Companies in 1953.
GARY J. ZUIDERVEEN, 39, has served as the Controller of the Company
since May 1994 and as the Secretary and Principal Accounting Officer of the
Company since August 1996. From June 1992 until May 1994, Mr. Zuiderveen was the
General Accounting Manager at the University Corporation for Atmospheric
Research in Boulder, Colorado. From 1983 until June 1992, Mr. Zuiderveen was
employed in the Denver, Colorado office of Deloitte & Touche LLP, providing
accounting and auditing services to clients primarily in the manufacturing and
financial services industries and serving in the firm's national office
accounting research department.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers, directors and 10% beneficial owners
(of which there were none in 1997) to file reports of ownership on Form 3 and
changes in ownership on Form 4 or Form 5 with the Securities and Exchange
Commission and the Nasdaq Stock Market, and to furnish the Company with copies
of all such reports filed. Based solely upon
19
<PAGE> 22
its review of the copies of such forms received by the Company, and written
representations from certain directors and executive officers that no Form 5's
were required to be filed by such persons, the Company believes that, during
1997, its executive officers and directors complied with all Section 16(a)
filing requirements except one report covering one transaction by Mr.
Patrick, a former director of the Company.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth the total compensation that the Company
paid or accrued for the last three fiscal years to its Chief Executive Officer
and its only other executive officers ("Named Executive Officers") whose total
salary and bonus exceeded $100,000 in the fiscal year ended December 31, 1997
("fiscal 1997"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Awards
------------
Annual Compensation Securities
----------------------------- Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Options(#) Compensation($)(1)
--------------------------- ---- ------------ ----------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
W. PHILLIP MARCUM 1997 $ 175,250 $ 31,395 200,000 $ 6,127
President and Chief Executive Officer 1996 162,000 21,900 305,000(2) 12,678
of the Company 1995 162,000 2,250 -0- 5,869
A. BRADLEY GABBARD 1997 127,292 24,225 100,000 5,877
Executive Vice President and 1996 121,000 13,200 93,000(2) 8,821
Chief Financial Officer 1995 117,000 1,625 -0- 4,461
of the Company
RONALD W. MCKEE(3) 1997 100,000 19,380 50,000 3,829
President of Metretek
</TABLE>
--------------------
(1) Includes amounts paid or accrued by the Company on behalf of the Named
Executive Officers in fiscal 1997 for (i) matching contributions under the
Company's 401(k) plan of $4,750 for Mr. Marcum, $4,750 for Mr. Gabbard, and
$2,941 for Mr. McKee; (ii) premiums for group term life insurance of $913
for Mr. Marcum, $663 for Mr. Gabbard, and $612 for Mr. McKee; and (iii)
premiums for long-term disability insurance of $464 for Mr. Marcum, $464
for Mr. Gabbard, and $276 for Mr. McKee.
(2) Includes 280,000 options originally granted prior to 1996 to Mr. Marcum
and 78,000 options originally granted prior to 1996 to Mr. Gabbard that
were repriced in 1996.
(3) Mr. McKee was not an executive officer of the Company prior to 1997.
EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS
In 1991, the Company entered into employment agreements with W. Phillip
Marcum, its President, Chief Executive Officer and Chairman of the Board, and A.
Bradley Gabbard, its Executive Vice President and Chief Financial Officer. These
employment agreements were amended on July 14, 1997 to provide for an
20
<PAGE> 23
extension of the employment term to three years for Mr. Marcum and 18 months for
Mr. Gabbard, with automatic additional one-year renewal periods when the term
expires, unless either party gives 60 days notice of termination. The base
salaries under these employment agreements, which are subject to annual upward
adjustments at the discretion of the Board of Directors, are currently set at
$200,000 for Mr. Marcum and $145,000 for Mr. Gabbard. In addition to the base
annual compensation, the employment agreements provide, among other things, for
standard benefits commensurate with the management levels involved. The
employment agreements also provide for the Company to establish an incentive
compensation fund, to be administered by the Compensation Committee of the Board
of Directors, to provide for incentive compensation to be paid to each officer
or employee (including Messrs. Marcum and Gabbard) deemed by the Compensation
Committee to have made a substantial contribution to the Company in the event of
a change of control of the Company or of the sale of substantially all of the
assets of the Company or similar transactions. The total amount of incentive
compensation from the fund available for distribution will be determined by a
formula based on the amount by which the fair market value per share of the
Common Stock exceeds $2.52, multiplied by a factor ranging from 10-20% depending
upon the ratio of the fair market value to $2.52. In the case of the sale of a
significant subsidiary of the Company or substantially all of the assets of a
significant subsidiary, a similar pro rata distribution is required. The
employment agreements also contain certain restrictions on each employee's
ability to compete, use of confidential information and use of inventions and
other intellectual property.
Effective January 1, 1998, the Company adopted the 1998 Employee Stock
Purchase Plan, pursuant to which all full-time employees of the Company,
including Messrs. Marcum, Gabbard and McKee, are entitled to purchase shares of
the Company's Common Stock at fifty percent (50%) of the market value of the
Common Stock on the purchase date, which market value is equal to the closing
sale price of the Common Stock as reported on the Nasdaq National Market. A
total of 200,000 shares of Common Stock have been reserved for issuance under
the 1998 Employee Stock Purchase Plan.
STOCK OPTION GRANTS
The following table sets forth certain information with respect to
grants of stock options made during fiscal 1997 to the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------------------------------------------
% OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE EXPIRATION
NAME OPTIONS GRANTED(#)(1) FISCAL YEAR(2) PRICE DATE
- ---- --------------------- -------------- ----- ----
<S> <C> <C> <C> <C>
W. Phillip Marcum 200,000 48.8% $0.84 July 14, 2007
A. Bradley Gabbard 100,000 24.4% $0.84 July 14, 2007
Ronald W. McKee 50,000 12.2% $0.94 March 20, 2007
</TABLE>
- ----------------
(1) The options in this table are incentive stock options or nonqualified
stock options ("NQSOs") granted under the Company's 1991 Stock Option Plan
and have exercise prices equal to the fair market value of the underlying
Common Stock on the date of grant, based on the last sale price of the
Common Stock on the date of grant as reported on the Nasdaq Stock Market.
The options have a term of ten years from the date of grant. The options
granted to Messrs.
21
<PAGE> 24
Marcum and Gabbard vest and become exercisable a follows: 25% were vested
and exercisable upon grant, and an additional 25% become vested and
exercisable when the last sale price of the Common Stock, as reported on
the Nasdaq Stock Market, first equals or exceeds each of the following
target prices: $1.50, $2.00 and $2.50. The options granted to Mr. McKee
were fully vested and exercisable on the date of grant.
(2) Based upon 410,000 options granted by the Company during 1997 to employees.
STOCK OPTION EXERCISES AND VALUES
The following table sets forth certain information, based upon the last
sale price of the Common Stock on December 31, 1997 as reported on the Nasdaq
National Market, with respect to stock options held by the Named Executive
Officers on December 31, 1997:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Fiscal Year-End(#) Fiscal Year-End($)(2)
------------------- ---------------------
Shares Acquired Exercisable/ Exercisable/
Name on Exercise(#) Value Realized($)(1) Unexercisable Unexercisable
- ---- -------------- -------------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
W. Phillip Marcum 25,000 $0 330,000/150,000 $20,500/$61,500
A. Bradley Gabbard 15,000 $0 103,000/75,000 $10,250/$30,750
Ronald W. McKee 10,000 $3,440 54,500/0 $15,500/0
</TABLE>
(1) Value realized is calculated as the fair market value of the Company's
Common Stock on the date of exercise, less the option exercise price, and
does not necessarily indicate that the optionee sold such stock.
(2) Represents the total gain which would be realized (without considering
taxes or brokerage expenses) if all in-the-money options held at year-end
were exercised and sold. Value of unexercised in-the-money options is
calculated based on the fair market value of the Common Stock on December
31, 1997 ($1.25), less the option exercise price. An option is in-the-money
if the fair market value of the Common Stock exceeds the option exercise
price.
DIRECTOR COMPENSATION
Directors, who are not officers or employees of the Company or any of its
subsidiaries ("Non-Employee Directors"), receive a fee of $1,000 for attendance
at each meeting of the Board of Directors. All Directors are reimbursed for the
cost of attending Board of Directors and committee meetings. Non-Employee
Directors also receive stock options granted by the Company under the Directors'
Stock Option Plan (the "Directors' Plan"). The Directors' Plan, which is
administered by the Board of Directors, provides for the grant of NQSOs for up
to 650,000 shares of Common Stock to non-employee directors of the Company. Each
person who is first elected or appointed to serve as a non-employee director of
the Company is automatically granted an option to purchase 20,000 shares of
Common Stock. On the date of the Annual Meeting of Shareholders each year, each
person who has served as a non-employee director for the previous six months is
automatically granted an option to purchase 10,000 shares of Common Stock.
Additional options can be granted to non-employee directors in the discretion of
the Board of Directors. All options vest immediately upon grant and are
exercisable for a 10 year term at a price equal to the fair market value of the
Common Stock on the date of
22
<PAGE> 25
grant. As of December 31, 1997, options to purchase 420,000 shares of Common
Stock were outstanding under the Directors' Plan at exercise prices ranging from
$0.78 to $1.59 per share.
On March 7, 1997, options to purchase 50,000 shares of Common Stock
were granted to Mr. McGregor (a former director of the Company) and options to
purchase 10,000 shares of Common Stock were granted to Mr. Lloyd under the
Directors' Plan at an exercise price of $1.03 per share, the fair market value
of a share of Common Stock on the day of grant, for personal services rendered
in connection with the CellNet strategic alliance. See "Item 1. Description of
Business -- Metretek, Incorporated" and "Item 12. Certain Relationships and
Related Transactions."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the
Company's Common Stock as of March 19, 1998 (except as otherwise noted in the
footnotes) by (i) each person known to the Company to be the beneficial owner of
more than 5% of the outstanding shares of Common Stock, (ii) each director of
the Company, (iii) each Named Executive Officer, and (iv) all directors and
executive officers of the Company as a group. Except as otherwise indicated, the
Company believes that the persons named in the table below have sole investment
and voting power with respect to the Common Stock owned by them, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
Shares Beneficially Owned
------------------------------
Name Number Percent of Class(1)
---- ------ -------------------
<S> <C> <C>
Alphi Investment Management Company(2) 808,500 6.5
155 Pfingsten Road, Suite 360
Deerfield, Illinois 60015
Goodrich Petroleum Company of Louisiana(3) 719,850 5.8
Post Office Box 1664
Shreveport, Louisiana 71165-1664
W. Phillip Marcum(4) 488,757 3.9
Albert F. Thomasson(5) 393,287 3.2
Robert Lloyd(6) 185,000 1.5
A. Bradley Gabbard(7) 148,435 1.2
Anthony D. Pell(8) 114,840 0.9
Ronald W. McKee(9) 77,630 0.6
Basil M. Briggs(10) 51,500 0.4
All directors and executive officers as a group (7 persons)(11) 1,459,449 11.1
</TABLE>
(1) The percentages are based upon 12,351,839 shares of Common Stock
outstanding as of March 19, 1998.
(2) Information based solely upon Amendment No. 5 to Schedule 13D, dated March
6, 1998, filed by Alphi Fund L.P. ("Alphi") with the Securities and
Exchange Commission. According to information contained therein, Alphi
Investment Management Company, in its capacity as general partner of Alphi,
has the sole power to vote and sole power to dispose of 808,500 shares
owned by Alphi.
(3) These shares are owned of record by GPCL, a wholly owned subsidiary of GPC.
Includes 44,650 shares as to which GPCL has purchase option rights, of
which 17,860 become exercisable March 31, 1998. Does not include an
additional 44,650 shares as to which GPCL has a right of first refusal. All
option rights and rights of first refusal expire March 31, 1998.
23
<PAGE> 26
(4) Includes 330,000 shares which may be acquired by Mr. Marcum under currently
exercisable stock options. Also includes 31,000 shares owned by Mr.
Marcum's wife. Does not include 150,000 options that are not currently
exercisable.
(5) Includes 9,351 shares beneficially owned or held of record by Mr.
Thomasson's wife and 96,487 shares held in trusts for the benefit of family
members of which he is trustee ("Thomasson Trusts"). Also includes 2,057
and 48,291 shares which may be acquired under currently exercisable
warrants by Mr. Thomasson and by the Thomasson Trusts, respectively, and
50,000 shares which may be acquired by Mr. Thomasson under currently
exercisable stock options.
(6) Includes 70,000 shares which may be acquired by Mr. Lloyd under currently
exercisable stock options.
(7) Includes 103,000 shares which may be acquired by Mr. Gabbard under
currently exercisable stock options. Also includes 3,000 shares owned by
Mr. Gabbard's children. Does not include 75,000 options that are not
currently exercisable.
(8) Includes 50,000 shares which may be acquired by Mr. Pell under currently
exercisable stock options and 13,400 shares held by Mr. Pell's wife.
(9) Includes 52,520 shares which may be acquired by Mr. McKee under currently
exercisable stock options.
(10) Mr. Briggs is a director of GPC, but no shares of Common Stock held by GPCL
have been attributed to Mr. Briggs. Includes 50,000 shares which may be
acquired by Mr. Briggs under currently exercisable stock options. Includes
1,500 shares owned by Mr. Briggs' wife.
(11) See notes (4) through (10).
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MGT and GPCL, a significant stockholder of the Company, are co-managing
general partners of, and hold limited partnership interests in, the Pipeline
Partnership. See "Item 1. Description of Business - Marcum Gas Transmission,
Inc."
On March 7, 1997, options to purchase 50,000 shares of Common Stock
were granted to Mr. McGregor, a former director of the Company, and options to
purchase 10,000 shares of Common Stock were granted to Mr. Lloyd under the
Directors' Plan at an exercise price of $1.03 per share for personal services
rendered by such non-employee directors in connection with the CellNet strategic
alliance.
In December 1997, MGT sold one-third of its preferred and performance
share interests and one-third of its interest in future management and
administrative fees in two business trusts to Odessa Exploration Incorporated, a
subsidiary of Key Energy Group, Inc., for a total purchase price of $1 million.
W. Phillip Marcum, the Chairman of the Board, President and Chief Executive
Officer and a director of the Company, is also a director of Key Energy Group,
Inc. See "Item 1. Description of Business - Marcum Gas Transmission, Inc."
Each material transaction between the Company and any related party is
approved by a majority of the members of the Board of Directors of the Company
who are disinterested in the transaction.
24
<PAGE> 27
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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 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 the Registration Statement on Form S-4,
Registration No. 33-73874.)
(2.3) Share Purchase Agreement, dated as of April 19, 1996,
by and between Harry J. Schneider, Theodore J.
Zeller, Metretek Europe Limited, Metretek,
Incorporated and Marcum Natural Gas Services, Inc.
(Incorporated by reference to Exhibit 2.1 to the
Quarterly Report on Form 10-QSB for the quarterly
period ended March 31, 1996).
(2.4) 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 the Form
8-K filed on July 11, 1997.)
(2.5) Purchase Agreement, dated December 3, 1997, by and
between Marcum Gas Transmission, Inc. and Odessa
Exploration Incorporated.
(2.6) 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.
(3) ARTICLES OF INCORPORATION AND BY-LAWS:
(3.1) Restated Certificate of Incorporation of Marcum
Natural Gas Services, Inc., as amended. (Incorporated
by reference to Exhibit 3.1 to Registration Statement
on Form S-18, Registration No. 33-44558.)
(3.2) By-Laws of Marcum Natural Gas Services, Inc., as
amended. (Incorporated by reference to Exhibit 3.2 to
the Registration Statement on Form SB-2, Registration
No. 33-82868.)
(4) INSTRUMENT DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
(4.1) Specimen Common Stock Certificate. (Incorporated by
reference to Exhibit 4.1 to the Registration
Statement on Form S-18, Registration No. 33-44558.)
(4.2) Form of Certificate representing warrants to purchase
shares of Common Stock of Marcum Natural Gas
Services, Inc. issued to former holders of warrants
of Metretek, Incorporated. (Incorporated by reference
to Exhibit 4.2 to the Registration Statement on Form
S-4, Registration No. 33-73874.)
25
<PAGE> 28
(4.3) 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 the Registration
Statement on Form S-18, Registration No. 33-44558.)
(4.4) Form of Registration Rights Agreement among Marcum
Natural Gas Services, Inc. and the former warrant
holders of Metretek, Incorporated. (Incorporated by
reference to Exhibit 4.4 to the Registration
Statement on Form S-4, Registration No. 33-73874.)
(10) MATERIAL CONTRACTS:
(10.1) Subscription Agreement, dated June 11, 1991, between
Marcum Natural Gas Services, Inc. and Patrick
Petroleum Corporation of Michigan. (Incorporated by
reference to Exhibit 10.1 to the Registration
Statement on Form S-18, Registration No. 33-44558.)
(10.2) Marcum Natural Gas Services, Inc. 1991 Stock Option
Plan, as amended and restated December 5, 1996.
(Incorporated by reference to Exhibit 10.2 to the
Form 10-KSB for the year ended December 31, 1996.)*
(10.3) Marcum Natural Gas Services, Inc. Directors' Stock
Option Plan, as amended and restated December 2,
1996. (Incorporated by reference to Exhibit 10.3 to
the Form 10-KSB for the year ended December 31,
1996.)*
(10.4) Employment Agreement, dated as of June 11, 1991,
between Marcum Natural Gas Services, Inc. and W.
Phillip Marcum. (Incorporated by reference to Exhibit
10.4 to the Registration Statement on Form S-18,
Registration No. 33-44558.)*
(10.5) Amendment No. 1 to the Employment Agreement between
Marcum Natural Gas Services, Inc. and W. Phillip
Marcum. (Incorporated by reference to Exhibit 10.1 to
the Quarterly Report on Form 10-QSB for the quarterly
period ended September 30, 1997.)*
(10.6) Employment Agreement, dated as of June 11, 1991,
between Marcum Natural Gas Services, Inc. and A.
Bradley Gabbard. (Incorporated by reference to
Exhibit 10.4 to the Registration Statement on Form
S-18, Registration No. 33-44558.)*
(10.7) Amendment No. 1 to the Employment Agreement between
Marcum Natural Gas Services, Inc. and A. Bradley
Gabbard. (Incorporated by reference to Exhibit 10.2
to the Quarterly Report on Form 10-QSB for the
quarterly period ended September 30, 1997.)*
(10.8) Loan and Security Agreement, dated as of August 5,
1996, between Metretek, Incorporated and First Union
Bank of Florida. (Incorporated by reference to
Exhibit 10.2 to the Quarterly Report on Form 10-QSB
for the quarterly period ended June 30, 1996.)
(10.9) Loan Agreement among Southern Flow Companies, Inc.,
Marcum Gas Transmission, Inc., Marcum Natural Gas
Services, Inc. and Commercial National Bank in
Shreveport
26
<PAGE> 29
Dated as of April 18, 1997, as amended May 14, 1997.
(Incorporated by reference to Exhibit 10 to the
Quarterly Report on Form 10-QSB for the quarterly
period ended March 31, 1997.)
(10.10) Loan Agreement, dated May 30, 1997, by and between
First Union National Bank of Florida and Metretek,
Incorporated. (Incorporated by reference to Exhibit
10 to the Quarterly Report on Form 10-QSB for the
quarterly period ended June 30, 1997.)
(10.11) Marcum Natural Gas Services, Inc. 1998 Employee Stock
Purchase Plan. (Incorporated by reference to Exhibit
4.3 to the Registration Statement on Form S-8,
Registration No. 333-435477.)*
(21) SUBSIDIARIES OF THE SMALL BUSINESS ISSUER:
(21.1) Subsidiaries of Marcum Natural Gas Services, Inc.
(23) CONSENTS OF EXPERTS AND COUNSEL:
(23.1) Deloitte & Touche LLP
(27) FINANCIAL DATA SCHEDULE
(27.1) Financial Data Schedule
- ---------------
*Management contract or compensation plan or arrangement required to be
filed as an exhibit to this form pursuant to Item 13(a) of Form 10-KSB.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the last quarter of
the period covered by this report.
27
<PAGE> 30
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MARCUM NATURAL GAS SERVICES, INC.
By: /s/ W. Phillip Marcum
--------------------------------------
W. Phillip Marcum, President and Chief
Executive Officer
Date: March 24, 1998
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ W. Phillip Marcum Chairman of the Board, President, March 24, 1998
- --------------------------------- Chief Executive Officer and Director
W. Phillip Marcum (Principal executive officer)
/s/ A. Bradley Gabbard Executive Vice President, Chief Financial March 24, 1998
- --------------------------------- Officer, Treasurer and Director (Principal
A. Bradley Gabbard financial officer)
/s/ Gary J. Zuiderveen Secretary, Controller and Principal March 24, 1998
- --------------------------------- Accounting Officer (Principal
Gary J. Zuiderveen accounting officer)
/s/ Basil M. Briggs Director March 24, 1998
- ---------------------------------
Basil M. Briggs
/s/ Robert Lloyd Director March 24, 1998
- ---------------------------------
Robert Lloyd
/s/ Albert F. Thomasson Director March 24, 1998
- ---------------------------------
Albert F. Thomasson
/s/ Anthony D. Pell Director March 24, 1998
- ---------------------------------
Anthony D. Pell
/s/ Ronald W. McKee Director March 24, 1998
- ---------------------------------
Ronald W. McKee
</TABLE>
28
<PAGE> 31
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF MARCUM
NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997 and 1996 F-5
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1997 and 1996 F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997 and 1996 F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE> 32
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Marcum Natural Gas Services, Inc.:
We have audited the consolidated balance sheets of Marcum Natural Gas Services,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Marcum Natural Gas
Services, Inc. and subsidiaries at December 31, 1997 and 1996, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Denver, Colorado
March 12, 1998 (March 23, 1998, as to Note 8)
F-2
<PAGE> 33
MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,938,554 $ 889,543
Trade receivables, less allowance for doubtful accounts
of $121,278 and $136,967, respectively 3,466,282 3,097,756
Other receivables 276,322 116,779
Inventory 2,748,626 2,428,466
Net assets of discontinued operations 204,067 2,676,898
Prepaid expenses and other current assets 291,004 315,200
----------- -----------
Total current assets 8,924,855 9,524,642
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST
(Note 4):
Equipment 2,413,850 2,169,729
Vehicles 56,793 50,896
Furniture and fixtures 452,389 454,558
Land, building and improvements 399,491 382,323
----------- -----------
Total 3,322,523 3,057,506
Less accumulated depreciation 2,047,837 1,782,102
----------- -----------
Property, plant and equipment, net 1,274,686 1,275,404
----------- -----------
OTHER ASSETS:
Customer list (net of accumulated amortization of $2,065,449 and
$1,620,204, respectively) 6,827,438 7,272,683
Goodwill and other intangibles (net of accumulated amortization
of $478,348 and $306,481, respectively) 854,629 1,026,496
Investments in unconsolidated affiliates 435,177 297,584
Other assets 362,679 192,626
----------- -----------
Total other assets 8,479,923 8,789,389
----------- -----------
TOTAL $18,679,464 $19,589,435
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 34
MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 615,778 $ 446,121
Accrued and other liabilities 1,826,434 1,204,692
Current maturities of notes payable (Note 4) 182,878 581,071
Current maturities of long-term debt and capital lease
obligations (Note 4) 14,791 10,866
------------ ------------
Total current liabilities 2,639,881 2,242,750
------------ ------------
LONG-TERM NOTE PAYABLE (NOTE 4) 177,778 46,845
------------ ------------
CAPITAL LEASE OBLIGATIONS (NOTE 4) 12,443 7,353
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDERS' EQUITY (NOTE 7):
Redeemable preferred stock - Series A, $.01 par value;
authorized, 1,000,000 shares; none issued and outstanding
Redeemable preferred stock - Series B, $.01 par value;
authorized, 1,000,000 shares; none issued and outstanding
Redeemable preferred stock - Series C, $.01 par value;
authorized, 500,000 shares; none issued and outstanding
Common stock, $.01 par value; authorized, 25,000,000 shares;
issued and outstanding, 12,311,288 and 12,231,327
shares, respectively 123,113 122,313
Additional paid-in-capital 36,913,648 36,844,447
Foreign currency translation adjustment 6,657 (4,354)
Accumulated deficit (21,194,056) (19,669,919)
------------ ------------
Total stockholders' equity 15,849,362 17,292,487
------------ ------------
TOTAL $ 18,679,464 $ 19,589,435
============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 35
MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1997 1996
<S> <C> <C>
REVENUES:
Natural gas measurement sales and services $ 20,390,102 $ 18,418,917
Other 826,655 595,756
------------ ------------
Total revenues 21,216,757 19,014,673
------------ ------------
COSTS AND EXPENSES:
Cost of measurement sales and services 12,920,612 11,987,012
General and administrative 3,802,815 3,705,230
Selling, marketing and service 1,642,556 1,588,322
Depreciation and amortization 944,956 907,163
Research and development 1,062,264 730,117
Interest and other 91,038 88,841
------------ ------------
Total costs and expenses 20,464,241 19,006,685
------------ ------------
INCOME FROM CONTINUING
OPERATIONS BEFORE TAXES 752,516 7,988
------------ ------------
INCOME TAX PROVISION (Note 6)
INCOME FROM CONTINUING OPERATIONS 752,516 7,988
------------ ------------
DISCONTINUED OPERATIONS:
Loss from operations (278,769) (1,549,405)
Loss from disposal (1,997,884)
------------ ------------
LOSS FROM DISCONTINUED OPERATIONS (2,276,653) (1,549,405)
------------ ------------
NET LOSS $ (1,524,137) $ (1,541,417)
============ ============
NET INCOME (LOSS) PER BASIC COMMON SHARE:
Continuing operations $ 0.06 $ 0.00
Discontinued operations (0.18) (0.13)
------------ ------------
NET LOSS PER BASIC COMMON SHARE $ (0.12) $ (0.13)
============ ============
NET INCOME (LOSS) PER COMMON SHARE -
ASSUMING DILUTION:
Continuing operations $ 0.06 $ 0.00
Discontinued operations (0.18) (0.13)
------------ ------------
NET LOSS PER SHARE - ASSUMING DILUTION $ (0.12) $ (0.13)
============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 36
MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
------------------- PAID-IN TRANSLATION ACCUMULATED
SHARES VALUE CAPITAL ADJUSTMENT DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1996 11,742,032 $ 117,420 $ 36,320,946 $ (18,128,502) $ 18,309,864
Stock issued in acquisition of Metretek Europe 175,000 1,750 140,065 141,815
Stock issued for royalty payments 122,882 1,229 148,771 150,000
Stock issued under Employee Stock
Purchase Plan 183,913 1,839 222,815 224,654
Other stock compensation 7,500 75 11,850 11,925
Foreign currency translation adjustment $ (4,354) (4,354)
Net loss (1,541,417) (1,541,417)
---------- --------- ------------ ------- ------------- ------------
BALANCE,
DECEMBER 31, 1996 12,231,327 122,313 36,844,447 (4,354) (19,669,919) 17,292,487
Stock issued in option exercises and
and Employee Stock Purchase Plan 79,961 800 69,201 70,001
Foreign currency translation adjustment 11,011 11,011
Net loss (1,524,137) (1,524,137)
---------- --------- ------------ ------- ------------- ------------
BALANCE,
DECEMBER 31, 1997 12,311,288 $ 123,113 $ 36,913,648 $ 6,657 $ (21,194,056) $ 15,849,362
========== ========= ============ ======= ============= ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 37
MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,524,137) $(1,541,417)
Adjustments to reconcile net loss to net cash provided by
continuing operations:
Loss from discontinued operations 278,769 1,549,405
Loss from disposal of discontinued operations 1,997,884
Depreciation and amortization 944,956 907,163
Stock compensation expense 124,252
Royalty payments made with restricted stock 50,000 50,000
Gain on sale of interest in unconsolidated affiliates (456,179)
Loss on disposal of property, plant and equipment 8,503 6,136
Equity in income of unconsolidated affiliates (6,136) (61,113)
Changes in other assets and liabilities:
Trade receivables (368,526) 559,818
Inventory (320,160) 160,856
Other current assets (135,347) 347,466
Other noncurrent assets (171,258) 283
Accounts payable 169,657 (163,797)
Accrued and other liabilities 621,742 (227,905)
----------- -----------
Net cash provided by continuing operations 1,089,768 1,711,147
Net cash provided (used) by discontinued operations 196,178 (1,714,640)
----------- -----------
Net cash provided (used) by operating activities 1,285,946 (3,493)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of interest in unconsolidated affiliates 600,000
Additions to property, plant and equipment (307,693) (170,558)
Additions to manufacturing rights
and software development costs (349,692)
Net cash from acquisitions 164,308
Proceeds from sale of property, plant and equipment 10,283 36,356
Investments in unconsolidated affiliate (393,125) (245,125)
Distributions from unconsolidated affiliates 68,481 47,163
----------- -----------
Net cash used in investing activities (22,054) (517,548)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from new promissory note 400,000
Payments on notes payable to bank (667,260) (193,691)
Issuance of common stock, net 70,001 112,327
Payments on long-term debt and capital lease obligations (17,622) (8,864)
----------- -----------
Net cash used by financing activities (214,881) (90,228)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,049,011 (611,269)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 889,543 1,500,812
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,938,554 $ 889,543
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 38
MARCUM NATURAL GAS SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - The accompanying consolidated financial statements include
the accounts of Marcum Natural Gas Services, Inc. ("MNGS") and its
wholly-owned subsidiaries, Southern Flow Companies, Inc. ("SFC"),
Metretek, Incorporated ("Metretek") and its wholly-owned subsidiaries,
Metretek Europe, Limited ("Metretek Europe"), and Sigma VI, Inc. ("Sigma
VI"), Marcum Gas Transmission, Inc. ("MGT") and its wholly-owned
subsidiary Marcum Capital Resources, Inc. ("MCRI"), and Marcum Denver,
Inc. (formerly Marcum Fuel Systems, Inc.), collectively referred to as the
Company.
MNGS was incorporated on April 5, 1991. The focus of its continuing
business operations is in three areas relating to the natural gas
industry: 1) the design, manufacture and distribution of automated energy
consumption, monitoring and recording systems, 2) natural gas measurement
services, and 3) management of natural gas gathering, processing and
transportation facilities and related assets. Metretek designs,
manufactures and sells automated systems to monitor and record natural gas
consumption of commercial and industrial customers of natural gas utility
companies. SFC provides natural gas measurement services. MGT acquires or
finances the acquisition of natural gas gathering, processing and
transportation facilities and related assets which it then manages. MCRI
secures private capital to finance the acquisitions.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of MNGS and its subsidiaries after elimination of
intercompany accounts and transactions. The Company uses the equity method
to account for its limited partnership interest in Marcum-Patrick Pipeline
Program 1993-1, L.P. and its preferred shareholder interests in Marcum
Midstream 1995-2 Business Trust and Marcum Midstream 1997-1 Business
Trust.
REVENUE RECOGNITION - Equipment and supply sales are recognized when
delivered, and natural gas measurement revenues are recognized as services
are provided.
STATEMENT OF CASH FLOWS - The Company considers all investments with a
maturity of three months or less at time of purchase to be cash
equivalents.
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash paid for interest $74,201 $92,260
Cash paid for income taxes $49,075 $32,060
Noncash financing and investing activities:
Acquisition of equipment by capital lease $26,637 $ --
</TABLE>
F-8
<PAGE> 39
INVENTORIES - Inventories are stated at the lower of first-in, first-out
cost or market. Inventories at December 31, 1997 and 1996 are summarized
as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Work in process $ 619,791 $ 723,485
Raw materials and supplies 1,051,910 663,864
Finished goods and merchandise 1,076,925 1,041,117
---------- ----------
Total $2,748,626 $2,428,466
========== ==========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is stated at
cost and is generally depreciated on the straight-line basis over
estimated useful lives ranging from 2 to 40 years. Property, plant and
equipment includes items under capital lease with a net book value of
$30,604 and $14,787 at December 31, 1997 and 1996, respectively.
INTANGIBLE ASSETS - SFC customer lists are being amortized over 20 years
using the straight-line method. Goodwill and other intangibles are being
amortized over periods ranging from 10 to 20 years. The Company
capitalizes software development costs integral to its products once
technological feasibility of the products and software has been
determined. Software development costs are being amortized over 5 years,
using the straight-line method. Unamortized software development costs at
December 31, 1997 and 1996 are $563,672 and $678,578, respectively.
Patents and license agreements are amortized on a straight-line basis over
the lesser of their estimated economic lives or their legal term of
existence.
ACCRUED AND OTHER LIABILITIES - Accrued and other liabilities at December
31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Payroll, employee benefits and related liabilities $1,021,963 $ 525,341
Deferred management fees 350,634
Deferred revenue 177,392 145,030
Sales, property and other taxes payable 97,862 302,324
Insurance premiums and reserves 110,442 196,312
Other 68,141 35,685
---------- ----------
Total $1,826,434 $1,204,692
========== ==========
</TABLE>
USE OF ESTIMATES - The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes.
Actual results could differ from those estimates.
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES - MGT owns a 4%
limited partnership interest in Marcum-Patrick Pipeline Program 1993-1,
L.P. ("MPP 1993-1"), which owns a 33.333% membership interest in Bayou
South Gas Gathering Systems, L.C. ("Bayou"), which owns certain natural
gas gathering systems and related assets in Louisiana and Texas. As
co-managing general partner of MPP 1993-1, MGT is entitled to
administrative and management fees. Administrative and management fees
earned and received from MPP 1993-1 for the years ended December 31, 1997
and 1996 were $10,000 and $24,079, respectively. Advances due from MPP
1993-1 included in other assets at December 31, 1997 and
F-9
<PAGE> 40
1996 were $32,000. On March 5, 1998, MPP 1993-1 and MGT entered into an
agreement with Franks Petroleum, Inc. ("Franks"), the 66.667% member of
Bayou, pursuant to which Franks has agreed to purchase the membership
interest of MPP 1993-1 in Bayou for $1,650,000. The sale of the membership
interest of MPP 1993-1 in Bayou was approved by the co-managing general
partners, subject to the affirmative vote of its limited partners. Upon
approval of the sale by the limited partners, MGT expects to recover the
carrying value of its investment in and advances to MPP 1993-1, together
with payment of accrued management and administrative fees.
In February 1996, MGT formed Marcum Midstream 1995-2 Business Trust ("MM
1995-2"), of which MGT is the managing trustee. MM 1995-2 purchased two
deep injection water disposal facilities located in northeastern Colorado,
which purchase was financed by a $5,650,000 private placement of preferred
shares of MM 1995-2. MGT purchased 5% of the preferred shares of MM 1995-2
for $245,125. MGT, as managing trustee, is responsible for the
administrative activities of MM 1995-2 for which it is entitled to
management and administrative fees from MM 1995-2. In addition, MGT holds
performance shares of MM 1995-2 which entitles it to receive performance
share distributions equal to approximately 8% of the cash available for
distribution by MM 1995-2 prior to "payout" and approximately 20% of the
cash available for distribution subsequent to "payout," as defined in the
Declaration of Trust. Management and administrative fees and performance
distributions earned for the years ended December 31, 1997 and 1996 were
$215,527 and $220,333, respectively. In addition, upon formation of MM
1995-2 in 1996, MGT was paid a $75,000 acquisition expense reimbursement
from proceeds of the private placement. Amounts due from MM 1995-2 for
accrued management and administrative fees and performance share
distributions included in other receivables at December 31, 1997 and 1996
were $38,333 and $50,726, respectively.
In August 1997, MGT formed Marcum Midstream 1997-1 Business Trust (MM
1997-1), of which MGT is the managing trustee. MM 1997-1 purchased a
natural gas liquids processing plant located near Midland, Texas, which
purchase was financed by a $9,250,000 private placement of preferred
shares of MM 1997-1. MGT purchased 5% of the preferred shares in MM 1997-1
for $393,125. MGT, as managing trustee, is responsible for administrative
activities of MM 1997-1 for which it is entitled to administrative and
management fees from MM 1997-1. In addition, MGT holds performance shares
of MM 1997-1 which entitles it to receive performance share distributions
equal to approximately 9% of the cash available for distribution by MM
1997-1 before "payout" and approximately 21% of the cash available for
distribution subsequent to "payout," as defined in the Declaration of
Trust. In 1997, MGT did not receive any management and administrative fees
or performance distributions from MM 1997-1. Upon formation of MM 1997-1,
MGT was paid a $75,000 acquisition expense reimbursement from proceeds of
the private placement.
In December 1997, MGT sold to Odessa Exploration Incorporated (Odessa), a
subsidiary of Key Energy Group, Inc., one-third of MGT's preferred and
performance share interests in MM 1995-2 and MM 1997-1 as well as
one-third of MGT's interest in future management and administrative fees
from the business trusts. The purchase price was $1,000,000, of which
$600,000 was paid at closing and the remainder is payable in eight equal
quarterly installments in 1998 and 1999. The sale does not grant Odessa
any management rights or responsibilities with respect to either business
trust. MGT remains as the managing trustee of both of the business trusts.
The sale of MGT's equity interest in the business trusts resulted in a
gain of $456,179 which is included in other revenues for the year ended
December 31, 1997. The sales proceeds allocable to the one-third interest
in future management and administrative fees are included in deferred
management fees at
F-10
<PAGE> 41
December 31, 1997, and will be recognized as income over the period in
which those fees are expected to be earned.
EXPORT SALES - The following table sets forth the Company's sales by
geographic area for its measurement sales and services segment for the
years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
UNITED SOUTH
STATES EUROPE CANADA AUSTRALIA AMERICA CONSOLIDATED
<S> <C> <C> <C> <C> <C> <C>
1997 Measurement
sales and services $ 18,494,272 $ 621,446 $ 557,865 $ 24,598 $ 691,921 $ 20,390,102
1996 Measurement
sales and services $ 16,805,244 $ 1,063,944 $ 441,903 $ 91,952 $ 15,874 $ 18,418,917
</TABLE>
FOREIGN CURRENCY - The assets and liabilities of Metretek Europe are
translated at the rate of exchange at year end while sales and expenses
are translated at the average rates in effect during the year. The net
effect of this translation adjustment is shown in the accompanying
financial statements as a component of stockholders' equity.
INCOME (LOSS) PER SHARE - In February 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") 128, "Earnings Per Share," which revises the manner in
which earnings per share is calculated. The Company adopted the provisions
of SFAS 128 for the year ending December 31, 1997. Income (loss) per basic
common share is based upon the weighted average shares of common stock
outstanding during the respective period. The Company's net income from
continuing operations, loss from discontinued operations and net loss, for
purposes of computing the basic and diluted per share amounts, are
identical. The following is a reconciliation of the weighted average
shares outstanding to the weighted average shares outstanding assuming
dilution:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Weighted average common shares 12,303,828 12,100,881
Incremental shares from assumed exercise of stock options 32,713 1,867
---------- ----------
Weighted average common shares assuming dilution 12,336,541 12,102,748
========== ==========
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS - The Company adopted SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" effective January 1, 1996. SFAS 121 requires
that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable and establishes guidelines for determining
recoverability based on future net cash flows from the use of the asset
and for the measurement of the impairment loss. Impairment loss is
calculated as the difference between the carrying amount of the asset and
its fair value. Any impairment loss is recorded in the period in which the
recognition criteria are first applied and met. Adoption of SFAS 121 had
no effect on the financial position or results of operations of the
Company.
STOCK BASED COMPENSATION - The Company adopted SFAS 123, "Accounting for
Stock Based Compensation" effective January 1, 1996. SFAS 123 requires
that stock based compensation be either accounted for, or disclosed, in
the financial statements. The Company adopted SFAS 123, electing only
F-11
<PAGE> 42
the disclosure provisions. Accordingly, adoption of SFAS 123 had no effect
on the financial position or results of operations of the Company.
CAPITAL STRUCTURE - The Company adopted SFAS 129, "Disclosure of
Information about Capital Structure," effective December 31, 1997. SFAS
129 established standards for disclosing information about an entity's
capital structure. The adoption of SFAS 129 did not have a material impact
on the Company's disclosures.
2. DISCONTINUED OPERATIONS
On June 27, 1997, the Company, through its wholly-owned subsidiary, Marcum
Fuel Systems, Inc. ("MFS"), sold its refueling equipment segment and
substantially all of the operating assets related thereto to Natural Fuels
Corporation ("Natural"), an affiliate of Public Service Co. of Colorado
and Colorado Interstate Gas, pursuant to the provisions of an Asset
Purchase Agreement, dated as of June 27, 1997 (the "Asset Purchase
Agreement"). Subsequent to the sale, MFS changed its name to Marcum
Denver, Inc.
The assets sold by MFS to Natural included certain inventory, equipment,
contracts, patents, trademarks and technology of MFS used in the
compressed natural gas vehicle fueling business, but excluded receivables
and payables (other than those attributed to assumed jobs), certain
inventory and contracts attributable to jobs in progress as of the closing
date, and the capital stock of its wholly-owned subsidiaries.
Pursuant to the Asset Purchase Agreement, (a) Natural paid MFS $373,628 in
cash at closing; (b) Natural agreed to pay an additional $47,735 in cash
for certain vehicles and equipment upon transfer of title to such vehicles
and equipment; (c) Natural assumed the warranty and service obligations of
MFS with respect to jobs completed by MFS and certain liabilities and
obligations of MFS in connection with pending jobs and job quotes assumed
by Natural; (d) Natural agreed to pay MFS 30% of the gross margin upon
Natural's completion of the assumed jobs; and (e) Natural agreed to pay
MFS a royalty on the sale by Natural and its affiliates of compressed
natural gas vehicle refueling dispensers that incorporate MFS metering
technology in an amount equal to (i) $750 per dispenser sold until the
earlier of the sale of the first 500 dispensers or five years from the
closing date, plus (ii) $500 per dispenser sold thereafter until the
earlier of the sale of 500 additional dispensers or five additional years.
MFS also granted to Natural a one-year license of the name "Marcum Fuel
Systems, Inc." and certain other trademarks and trade name pursuant to a
License Agreement.
The Asset Purchase Agreement provides for mutual respective
indemnification in the event of a breach of representations, warranties,
covenants, or obligations by either MFS or Natural. The obligations of MFS
to Natural under the Asset Purchase Agreement have been guaranteed by the
Company. In addition, the Company and W. Phillip Marcum, the Chairman of
the Board, President, Chief Executive Officer and a director of the
Company, also entered into a noncompetition agreement with Natural,
pursuant to which the Company and Mr. Marcum have agreed not to compete
with Natural in the compressed natural gas vehicle refueling business for
four years from the closing date.
MFS completed certain jobs in progress as of the closing date which were
not sold to Natural and is in the process of liquidating its remaining
assets. MFS has subcontracted certain projects to Natural until
appropriate consents are obtained to transfer the projects to Natural.
MFS, as well as the Company and its other wholly-owned subsidiaries, will
remain as indemnitors with respect to certain bonds underwritten in
connection with certain projects of MFS that will be completed by Natural.
Pursuant to
F-12
<PAGE> 43
the Asset Purchase Agreement, Natural will use commercially reasonable
efforts to assume the obligations of MFS and its affiliates under such
bonds or to replace such bonds, but there is no assurance that such
assumption or replacement of bonds or obligations will occur.
The Company incurred a loss on the disposition of the segment of
$1,997,884. The results of the refueling equipment segment have been
reported separately as discontinued operations. Prior year consolidated
financial statements have also been reclassified to present the refueling
equipment segment as a discontinued operation. Revenues of the
discontinued segment in 1997 were $2,593,088 through the date of
disposition and $4,599,378 for the year ended December 31, 1996. Net
assets of the discontinued segment at December 31, 1997 and 1996 consisted
of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
<S> <C> <C>
Current assets (primarily trade receivables and inventory) $ 408,920 $ 3,190,250
Other assets, net 883,300
Accounts payable, accrued expenses and other
disposal costs (204,853) (1,396,652)
----------- -----------
Net assets of discontinued operations $ 204,067 $ 2,676,898
=========== ===========
</TABLE>
3. ACQUISITIONS
METRETEK EUROPE - Effective January 1, 1996, the Company, through its
wholly-owned subsidiary, Metretek, acquired the remaining 57.5% of the
outstanding shares of Metretek Europe, of which Metretek previously owned
42.5% of the outstanding shares. In connection with this acquisition, the
Company issued 175,000 shares of restricted common stock valued at
$141,815. The fair value of assets acquired was $389,085, including cash
in the amount of $211,747. The fair value of liabilities assumed was
$133,428. Metretek's investment in Metretek Europe at December 31, 1995
was $113,842. The acquisition was accounted for as a purchase and the
results of operations of Metretek Europe, which are immaterial to
consolidated operations, have been included in the Consolidated Statement
of Operations from the date of acquisition.
SIGMA VI - On June 21, 1996, the Company, through its wholly-owned
subsidiary, Metretek, acquired substantially all of the assets of Sigma
VI. Total consideration for the assets of Sigma VI was $90,000. Sigma VI
is engaged in circuit board assembly, cable assembly and related services
primarily to customers in the electronics industry located in Melbourne,
Florida and the surrounding area. The acquisition was accounted for as a
purchase and the results of operations of Sigma VI, which are immaterial
to consolidated operations, have been included in the Consolidated
Statement of Operations from the date of acquisition.
F-13
<PAGE> 44
4. DEBT
NOTES PAYABLE - The balance of notes payable at December 31, 1997 and 1996
consists of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Term loans 357,956 327,916
Lines of credit 2,700 300,000
---------- ----------
360,656 627,916
Less current maturities 182,878 581,071
---------- ----------
Long-term note payable 177,778 46,845
========== ==========
</TABLE>
In order to fund the organization of and its investment in MM 1997-1, the
Company, through its wholly-owned subsidiaries, MGT and SFC, entered into
a loan agreement on April 18, 1997, as amended May 14, 1997, with a
commercial bank for a $400,000 term loan repayable in equal monthly
principal payments plus interest over a 36 month period (the "MGT Loan").
The MGT Loan is secured by the accounts receivable, inventory, selected
equipment and real estate of SFC and an assignment of MGT's preferred and
performance share interest in MM 1997-1 and is guaranteed by the Company.
The loan agreement requires the Company to maintain a minimum consolidated
tangible net worth and SFC to maintain a minimum debt service coverage
ratio, and contains other standard covenants related to the operations of
SFC and MGT. The outstanding balance under the loan agreement is limited
to an amount equal to 80% of the eligible accounts receivable of SFC.
On August 5, 1996, Metretek entered into a loan and security agreement
with a commercial bank converting the then $821,607 outstanding balance of
its demand note with the bank into two loans: a $421,607 term loan
repayable in equal monthly principal payments plus interest over an 18
month period, and a $400,000 revolving line of credit payable on demand,
pending demand, with interest only payable monthly and a maturity of
January 31, 1998. On May 30, 1997, Metretek entered into a new loan
agreement with its commercial lender for an additional $200,000 line of
credit that will convert into a term loan on March 15, 1998, after which
any outstanding balance due on the line of credit will become payable in
monthly principal payments plus interest over an 18 month period. The new
loan agreement also extended the term of Metretek's existing $400,000
working capital line of credit with the commercial bank from January 31,
1998 to April 30, 1998. Metretek's indebtedness to the commercial lender
is secured by Metretek's accounts receivable, inventory and equipment,
cross-collateralized and cross-defaulted, and guaranteed by the Company.
The loan agreement requires Metretek to maintain a minimum adjusted
working capital level, a minimum current ratio, a maximum debt to tangible
net worth ratio and contains other standard covenants related to
operations by Metretek. Cumulative borrowings under the loan agreement are
limited to the sum of 75% of eligible domestic trade accounts receivable,
55% of eligible foreign trade accounts receivable and 50% of raw materials
inventory of Metretek. Metretek had $597,300 available to borrow under its
two lines of credit at December 31, 1997.
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS - Long-term debt and capital
lease obligations at December 31, 1997 and 1996 consists of various notes
and leases payable in monthly installments, including interest ranging
from 8% to 12% collateralized by certain equipment.
F-14
<PAGE> 45
5. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS - In 1993, a former employee filed an action in Denver
District Court against DVCO Fuel Systems, Inc. ("DVCO"), a subsidiary of
Marcum Denver, and the Company, alleging that the Company conspired with
certain third parties to defraud him and that the Company intentionally
interfered with certain contracts in which he had an interest. The former
employee is seeking damages in the amount of approximately $420,000 and
punitive damages. The Company has denied the former employee's claims and
has asserted counterclaims against the former employee, alleging that (i)
he breached an agreement with the Company which included a legal release,
(ii) he made intentional and/or negligent misrepresentations regarding his
qualification and reputation in the compressed natural gas industry, (iii)
he breached his fiduciary duty to the Company, and (iv) he disparaged the
Company. On July 24, 1997, the former employee's action was dismissed as a
result of the Court's grant of the motion by the Company and DVCO for
summary judgment against the former employee's claims. The former employee
has appealed the Court's grant of summary judgment. The Company's
counterclaims against the former employee remain pending. Although the
outcome of this litigation is not determinable with certainty, in the
opinion of the Company's management, this litigation is not expected to
have a material adverse effect on the business, financial condition or
results of operations of the Company
Other than as set forth above, there are no legal proceedings pending or,
to the knowledge of the Company, threatened against the Company or any of
its assets, other than litigation incidental and not material to its
business.
OPERATING LEASES - The Company leases business facilities and vehicles
under operating lease agreements which specify minimum rentals.
Substantially all leases have renewal provisions. Rental expense for the
years ended December 31, 1997 and 1996 totaled $927,507 and $817,198,
respectively.
Future minimum rental payments under noncancelable operating leases having
an initial or remaining term of more than one year are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
<S> <C>
1998 $ 746,112
1999 659,430
2000 505,990
2001 407,289
2002 277,995
-----------
Total $ 2,596,816
===========
</TABLE>
EMPLOYEE BENEFIT PLANS - In 1993 the Company adopted a savings and
investment plan under Section 401(k). Metretek adopted a similar plan for
its employees in 1989 (the "Plans"). During 1996, the Plans were combined
under one plan. All employees age 21 or older with at least one year of
service are eligible to participate in the Plans. The Plans provide for
discretionary contributions by employees of up to 15% of their eligible
compensation. The Company may make discretionary matching contributions up
to 50% of participant contributions, subject to a maximum of 6% of each
participants' eligible compensation. The Company's 401(k) expense for the
years ended December 31, 1997 and 1996 was $149,805 and $131,587,
respectively.
F-15
<PAGE> 46
MPP 1993-1 PARTNERSHIP UNIT REPURCHASE COMMITMENT - Each year commencing
January 1, 1996, MGT must offer to purchase, for an amount not to exceed
$200,000 in the aggregate, MPP 1993-1 partnership units from interested
unit holders. The purchase price of each MPP 1993-1 partnership unit shall
equal two and one-half times the net cash from operations of MPP 1993-1
for its previous fiscal year divided by the total number of MPP 1993-1
partnership units outstanding. Each annual offer to purchase will be
extended for a period of up to 60 days or until the maximum annual
commitment amount of $200,000 has been used to purchase MPP 1993-1
partnership units. The maximum annual commitment amount is non-cumulative.
No MPP 1993-1 partnership units were repurchased in 1997 or 1996. Based on
the cash from operations of MPP 1993-1 in 1996, MGT's repurchase
commitment amount in 1998 is limited to approximately $119,800.
MM 1995-2 PREFERRED SHARES REPURCHASE COMMITMENT - Each year commencing
January 1, 2000, MGT must offer to purchase, for an amount not to exceed
$452,000 in the aggregate, MM 1995-2 preferred shares from interested
shareholders. The purchase price of each MM 1995-2 preferred share shall
equal one and one-half times the net cash from operations of MM 1995-2 for
its previous fiscal year, as adjusted in the reasonable discretion of MGT
for extraordinary and nonrecurring historical and expected items, divided
by the total number of MM 1995-2 preferred shares outstanding. Each annual
offer to purchase will be extended for a period of up to 60 days or until
the maximum annual commitment amount of $452,000 has been used to purchase
MM 1995-2 preferred shares. The maximum annual commitment amount is
non-cumulative.
MM 1997-1 PREFERRED SHARES REPURCHASE COMMITMENT - Each year commencing
January 1, 2001, MGT must offer to purchase, for an amount not to exceed
$400,000 in the aggregate, MM 1997-1 preferred shares from interested
shareholders. The purchase price of each MM 1997-1 preferred share shall
equal one and one-half times the net cash from operations of MM 1997-1 for
its previous fiscal year, as adjusted in the reasonable discretion of MGT
for extraordinary and nonrecurring historical and expected items, divided
by the total number of MM 1997-1 preferred shares outstanding. Each annual
offer to purchase will be extended for a period of up to 60 days or until
the maximum annual commitment amounts of $400,000 has been used to
purchase MM 1997-1 preferred shares. The maximum annual commitment amount
is non-cumulative.
LICENSE AGREEMENT - In June 1996, Metretek amended certain payment
provisions of its license agreement related to sales by Metretek of
royalty-bearing products utilizing certain metering patents owned by the
licensor. Under terms of the original license agreement, Metretek had a
commitment to pay in cash a 5% royalty on sales of royalty-bearing
products with a minimum annual royalty of $50,000 through the year 2003.
Payments terms under the amended license agreement provide for 1) the
issuance of restricted shares of the Company's common stock with a market
value of $100,000 as determined based on the average of the last sale
price of the Company's shares as reported on the Nasdaq National Market
for ten consecutive trading days preceding the amendment date in payment
of royalties due on November 6, 1996 and 1997; and 2) the issuance on
November 6 annually through the year 2001 of restricted shares of the
Company's common stock with a market value equal to the royalty amount due
as determined based on the average of the last sale price of the Company
shares as reported on the Nasdaq National Market for ten consecutive
trading days preceding each November 6. In connection with the amended
license agreement, 72,727 restricted shares of the Company's common stock
were issued on June 27, 1996 and 50,155 restricted shares of the Company's
common stock were issued on November 6, 1996. The license agreement was
further amended in March 1998 to defer the issuance of the restricted
shares of the Company's common stock initially due on November 6, 1997 to
November 6, 2002. Royalty expense of $50,000 was recognized in both 1997
and 1996, and the 1998 prepaid royalties are included in prepaid expenses
and other current assets at December 31, 1997.
F-16
<PAGE> 47
6. INCOME TAXES
No tax provision has been recognized in the current period because of net
operating losses incurred and a valuation allowance has been provided for
100% of the net deferred tax assets at December 31, 1997 and 1996.
The components of the Company's deferred tax assets and liabilities at
December 31, 1997 and 1996 are shown below:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Assets:
Net operating loss carryforwards $ 7,361,000 $ 6,854,000
Tax credit carryforwards 188,000 258,000
Allowance for bad debts 41,000 47,000
Warranty reserve and other accrued liabilities 89,000
----------- -----------
7,590,000 7,248,000
Liabilities:
Excess of income tax depreciation and amortization
over financial statement amounts 414,000 584,000
Other 50,000 59,000
----------- -----------
464,000 643,000
Net deferred tax asset 7,126,000 6,605,000
Valuation allowance (7,126,000) (6,605,000)
----------- -----------
Total $ 0 $ 0
=========== ===========
</TABLE>
At December 31, 1997, the Company had unused net operating losses to carry
forward against future years' taxable income of approximately $21,650,000
expiring in various amounts from 1998 to 2012. At December 31, 1997, the
Company had unused investment tax credits, general business tax credits,
and research and development tax credit carryforwards aggregating
approximately $188,000 expiring in various amounts from 1998 to 2008.
As a result of its acquisition of Metretek in 1994, the Company acquired
net operating loss carryforwards for tax purposes of $5,926,000 expiring
between 1998 and 2002. As a result of the change in ownership, utilization
of the carryforwards is limited to approximately $762,000 annually under
Section 382 of the Internal Revenue Code.
As a result of an acquisition in 1991, the Company acquired net operating
loss carryforwards for tax purposes of approximately $979,000 ($363,000,
net of limitation). Such carryforwards expire in years 1998 through 2005.
As a result of the change in ownership upon acquisition, utilization of
these net operating loss carryforwards is limited to approximately $33,000
annually. The valuation allowance provided includes $123,000 related to
the net operating losses of the acquired Company. When the benefits
related to the net operating loss carryforward that was not recognized at
the acquisition date is recognized in a subsequent period, it will first
reduce to zero any goodwill related to the acquisition, then reduce to
zero all other noncurrent intangible assets, and then reduce income tax
expense.
7. CAPITAL STOCK
STOCK COMPENSATION - In January 1996, the Company approved a
non-qualified, compensatory Employee Stock Purchase Plan (the "1996
Plan"), which allowed eligible employees to purchase shares
F-17
<PAGE> 48
of the Company's common stock through payroll deductions. The shares could
be purchased for 100% of the lower of the beginning or ending fair market
value of each one-month offering period and were matched by the Company on
a share-for-share basis. Purchases were limited to 15% of an employee's
eligible compensation. A total of 200,000 shares of common stock were
registered for offer and issuance under the 1996 Plan, of which 183,913
shares were issued during the year ended December 31, 1996. The Company
has since discontinued the 1996 Plan. Stock compensation expense in the
amount of $112,327 was recognized in 1996 representing the market value of
shares matched by the Company under the 1996 Plan.
In December 1997, the Company approved a non-qualified, compensatory
Employee Stock Purchase Plan (the "1998 Plan"), which will allow eligible
employees to purchase shares of the Company's common stock through payroll
deductions in 1998. Terms and conditions of the 1998 Plan are
substantially the same as the 1996 Plan. A total of 200,000 shares of
common stock were registered for offer and issuance under the 1998 Plan.
In March 1996, the Board of Directors approved the issuance of up to
90,000 restricted shares of the Company's common stock to seven key
executives. In December 1996, the Board of Directors rescinded 80,000 of
the shares. Of the remaining 10,000 restricted shares granted, 7,500
shares were issued and 2,500 shares were forfeited upon the resignation of
one of the employees.
STOCK OPTIONS - In December 1991, the Company adopted the 1991 Stock
Option Plan which was amended and restated on June 4, 1996 ("1991 SOP")
and the Director's Stock Option Plan ("Director SOP"). Under the 1991 SOP,
incentive stock options and nonqualified stock options may be granted to
officers and employees for up to 1,400,000 shares of common stock. Under
the 1991 SOP, options granted must be at exercise prices not less than the
fair market value of Company common stock on the date of grant. The 1991
SOP options have a term of ten years with the vesting terms determined on
the date of the grant. The Director SOP permits the granting of
nonqualified stock options for up to 650,000 shares of common stock to
nonemployee directors of the Company. Each Director SOP option is
exercisable at a price not less than the fair market value of Company
common stock on the date of grant. The Director SOP options have a term of
ten years and are vested on the date of grant. Options granted to certain
officers and non-employee directors contain limited rights for receipt of
cash for appreciation in stock value in the event of certain changes in
control.
METRETEK STOCK OPTION PLANS - Metretek stock options (all of which have
been assumed by the Company) were granted to certain key employees and
Board of Director members of Metretek under incentive stock option plans
adopted in various years. The incentive stock options granted are for
terms not exceeding 10 years from the date granted and become exercisable
on the date of grant. In May 1993, Metretek adopted the Metretek 1993
Long-Term Employee Stock Option Plan, (the "1993 Plan") which provided for
the grant of non-statutory stock options to purchase up to 71,939 shares
of common stock at an exercise price of $5.56 per share. No options were
outstanding under the 1993 Plan at December 31, 1997 or 1996.
F-18
<PAGE> 49
Options to purchase shares of common stock are summarized as follows:
<TABLE>
<CAPTION>
DIRECTORS STOCK 1991 STOCK
OPTION PLAN OPTION PLAN METRETEK OPTIONS OTHER OPTIONS
-------------------- ---------------------- --------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF OPTION OF OPTION OF OPTION OF OPTION
SHARES PRICE SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
January 1, 1996 230,000 $ 5.14 662,000 $ 3.47 72,638 $ 3.67 200,000 $ 3.71
Granted 300,000 1.58 902,500 1.53 54,587 1.59 180,000 1.59
Exercised
Forfeited (230,000) 5.14 (711,750) 3.34 (75,717) 3.42 (200,000) 3.70
Expired (14,891) 2.44
------- --------- -------- ---------
Outstanding at
December 31, 1996 300,000 1.58 852,750 1.52 36,617 1.59 180,000 1.59
Granted 120,000 0.91 410,000 0.90
Exercised (80,000) 0.88
Forfeited (141,750) 1.54
Expired (21,582) 1.59 (40,000) 1.59
------- --------- -------- ---------
Outstanding at
December 31, 1997 420,000 $ 1.38 1,041,000 $ 1.32 15,035 $ 1.59 140,000 $ 1.59
======= ========= ======== =========
Exercisable at
December 31:
1997 420,000 $ 1.38 718,750 $ 1.44 15,035 $ 1.59 140,000 $ 1.59
======= ========= ======== =========
1996 300,000 $ 1.58 672,750 $ 1.51 36,617 $ 1.59 180,000 $ 1.59
======= ========= ======== =========
</TABLE>
On June 4, 1996, pursuant to stockholder ratification of the Board of
Directors' authorization, all outstanding options held by the officers,
directors, employees and consultants of the Company were repriced to $1.59
per share, the last sale price of the common stock as reported on the
Nasdaq National Market on March 8, 1996, the date of the Board of
Directors' authorization. The repriced options are reflected as
forfeitures and new grants during the year ended December 31, 1996 in the
summary above.
The weighted average grant date fair values of options granted during the
years ended December 31, 1997 and 1996 were $0.34 and $0.66 per option,
respectively. The range of exercise price for options outstanding as of
December 31, 1997 was $0.78 to $1.59. The weighted average remaining
contractual life of options outstanding at December 31, 1997 was
approximately 7.1 years. The fair values of stock options were calculated
using a variation of the Black-Scholes stock option valuation model with
the following weighted average assumptions for grants in 1997 and 1996:
stock price volatility at 40% and 45%, respectively; risk-free rate of
return of 5.5% and 6.5%, respectively; dividend rate of $0.00 per year;
and an expected term of 4 years. If the fair value based method of
accounting set forth in SFAS 123 had been applied, the Company's net loss
and net loss per share would have increased to the pro forma amounts
indicated below:
F-19
<PAGE> 50
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
<S> <C> <C>
Net loss - as reported $ (1,524,137) $ (1,541,417)
Net loss - pro forma $ (1,565,137) $ (2,472,417)
Loss per basic and diluted Common Share - as reported $ (0.12) $ (0.13)
Loss per basic and diluted Common Share - pro forma $ (0.13) $ (0.20)
</TABLE>
The fair value of stock options included in the pro forma amounts for the
years ended December 31, 1997 and 1996 are not necessarily indicative of
future effects on net earnings and income per share.
STOCKHOLDER RIGHTS PLAN - On December 12, 1991, the shareholders of the
Company approved the Stockholder Rights Plan ("Plan"). The Plan calls for
the issuance of one preferred share purchase right ("Right") for each
share of common stock held by shareholders of record on December 2, 1991.
Each Right represents the right to purchase one one-hundredth of a share
of Series C Preferred Stock of the Company at an initial exercise price of
$25 per share. The Rights are exercisable through December 1, 2001, unless
earlier redeemed by the Company. In the event that the Company is involved
in a business combination, the Rights provide for the holder to acquire
common stock of the Company, or acquiring company, at a 50% discount. The
rights are redeemable by the Company at $.01 per Right.
STOCK WARRANTS - In September 1994, the Company settled a lawsuit related
to a dispute over services rendered by an individual in connection with
the acquisition of Southern Flow. As part of the settlement, the Company
issued 40,000 stock purchase warrants which entitle the holder to purchase
one share of Common Stock at $4.25 per share, the market price of the
stock on the settlement date. The warrants are immediately exercisable and
expire September 27, 1999.
On February 13, 1996, the Company's remaining 1,767,365 common stock
purchase warrants issued pursuant to the Company's 1992 initial public
offering expired without being exercised.
METRETEK STOCK WARRANTS - Metretek stock warrants were issued by Metretek
in prior periods in connection with issues of common stock and debentures.
Stock warrants were also issued by Metretek to certain stockholders as
remuneration for loans provided to Metretek and to a venture capital
company as remuneration for services rendered in connection with a new
issue of special preference stock. At December 31, 1997, stock warrants
outstanding allow the holders to purchase a total of 146,480 shares of
common stock at prices ranging from $11.12 to $22.24 per share. The
Metretek stock warrants are exercisable over periods expiring at various
dates from 1999 to 2004.
The shares of the Company's 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. The holders of the Metretek
Warrants have the right, under certain circumstances, to require the
Company to register the shares of the Company's common stock issuable upon
exercise of the Metretek Warrants under the Securities Act and applicable
state securities laws.
8. SUBSEQUENT EVENTS
On March 23, 1998, the Company and Metretek entered into an Asset Purchase
Agreement ("Purchase Agreement") with Eagle Research Corporation
("Eagle"), a subsidiary of American Meter Company ("American Meter"),
pursuant to which Metretek agreed to acquire substantially all of the
assets and business of Eagle pertaining to electronic correctors and
non-radio-frequency meter reading devices in
F-20
<PAGE> 51
the natural gas and electric utility industry. Eagle is a West Virginia
corporation incorporated in 1976 and an 80% owned subsidiary of American
Meter, which is owned by Ruhrgas AG, a German natural gas merchant
company. Eagle designs, manufactures and sells a diversified line of high
technology process, control and telemetry systems to utility companies and
contractors which support utility companies in the natural gas and
petroleum industries. The assets to be acquired by Metretek include
certain inventory, equipment, trademarks and technology of Eagle and
American Meter used in the above-described business, but excludes accounts
receivable, accounts payable and certain inventory, equipment, software
and other assets attributable to that portion of Eagle's business not
being acquired by Metretek. Pursuant to the Purchase Agreement, Metretek
will not assume any of Eagle's ongoing debts, liabilities, and
obligations, except for certain transitional employee costs and product
warranty obligations. The assets and business of Eagle to be acquired by
Metretek will be moved to and operated out of Metretek's existing facility
in Melbourne, Florida. The consummation of the Purchase Agreement and the
related agreements discussed herein, and the commencement of the
obligations of the parties under such agreements, are subject to the
closing of the Purchase Agreement which is subject to customary conditions
precedent, and is expected to occur by the end of April 1998.
In consideration for the purchase of the assets and business, the Company
and Metretek will pay and deliver to Eagle at the closing $1,300,000 in
cash, 1,758,242 shares of Common Stock of the Company valued at
$2,000,000, and a $1,200,000 convertible promissory note. The purchase
price is subject to downward adjustment based upon Metretek's actual sales
of products in the business acquired from Eagle during the 18-month period
commencing July 1, 1998. If Metretek's annualized sales of products in the
business acquired are less than $4,500,000 during such period, then the
purchase price will be decreased on a dollar-for-dollar basis to the
extent of such sales deficit, but the purchase price shall not be reduced
below $3,900,000 even if annualized sales are less than that amount. Any
reduction in the purchase price will be effected by reducing the amount of
the note. The purchase price is also subject to upward or downward
adjustment based upon certain changes in Eagle's inventory between
December 31, 1997 and the closing date, and any adjustment will be paid in
cash within sixty (60) days after the parties have agreed to the amount of
the adjustment.
The note will be convertible into unregistered shares of Common Stock of
the Company at the rate of $1.421875 of principal per share at any time
after the closing; provided, however, that in no event shall the aggregate
number of shares of Common Stock to be issued by the Company pursuant to
the Purchase Agreement exceed 19.99% of the aggregate number of shares of
Common Stock of the Company outstanding on the date preceding the closing
date. The note will bear interest on the unpaid principal balance at a
fixed rate equal to 7.5% per annum, payable quarterly in arrears, due and
payable four (4) years from the closing date, and may be prepaid at any
time without penalty or premium.
Pursuant to the Purchase Agreement, the Company has granted Eagle the
one-time option to cause the shares of Common Stock to be issued to Eagle
to be registered under the Securities Act of 1993, as amended, and
applicable state securities laws, and has also granted Eagle certain
piggy-back registration rights to include such shares in any registration
statement filed by the Company, subject to customary underwriter cutbacks.
American Meter and Eagle have also entered into a Non-Competition
Agreement with the Company and Metretek, pursuant to which American Meter
and Eagle have agreed not to compete with Metretek in the acquired
business for five (5) years form the closing date, and all such parties
have mutually agreed to confidentiality covenants.
F-21
<PAGE> 52
At the closing of the aforementioned transactions, Metretek will enter
into a license agreement ("License Agreement") with American Meter and
Eagle, providing for the license by American Meter and Eagle to Metretek
of certain operating software, and the development, manufacture and sale
by Metretek to American Meter and Eagle of certain electronic components
and related equipment pertaining to electronic temperature and pressure
correction to be imbedded with certain new rotary and turbine meters of
American Meter. The License Agreement will also grant American Meter and
its affiliates the right to sell Metretek products in the United States
and Canada at certain agreed-upon prices.
Upon the closing of the Purchase Agreement, Harry I. Skilton, President of
American Meter, will become a member of the Board of Directors of the
Company.
* * * * *
F-22
<PAGE> 53
MARCUM NATURAL GAS SERVICES, INC.
FORM 10-KSBC
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<S> <C>
2.5 PURCHASE AGREEMENT, DATED DECEMBER 3, 1997, BY AND
BETWEEN MARCUM GAS TRANSMISSION INC. AND ODESSA
EXPLORATION INCORPORATED.
2.6 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.
21.1 SUBSIDIARIES
23.1 CONSENT OF DELOITTE & TOUCHE LLP
27.1 FINANCIAL DATA SCHEDULE
</TABLE>
<PAGE> 1
EXHIBIT 2.5
PURCHASE AGREEMENT
This PURCHASE AGREEMENT (the "Agreement") is made and entered into as of
the 3rd day of December, 1997, by and between Marcum Gas Transmission, Inc., a
Colorado corporation (the "Company"), and Odessa Exploration Incorporated, a
Delaware corporation ("Purchaser").
RECITALS
WHEREAS, the Company is engaged in the business of acquiring and
managing natural gas gathering, processing and transportation facilities and
other related natural gas assets through the acquisition of ownership and
management interests in limited partnerships, business trusts and similar
business entities (the "Business"); and
WHEREAS, the Company desires to sell, and Purchaser desires to purchase,
beneficial interest shares in, and the right to receive cash payments in an
amount equal to one-third (1/3) of the fees that the Company is entitled to
receive as the managing trustee of, two natural gas assets business trusts, as
well as the right of first refusal to participate in any future similar
programs in which the Company participates, upon the terms and subject to the
conditions set forth herein;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto, intending to be legally bound hereby,
agree as follows:
Section 1. Sale and Purchase of Revenue Interest.
Section 1.1 Sale and Purchase. At the Closing (as defined
below), upon the terms and subject to the conditions set forth in this
Agreement, the Company shall sell, assign and transfer to Purchaser, and
Purchaser shall purchase from the Company, the Purchased Shares (as defined
below) and the Revenue Interest (as defined below).
Section 1.2 Purchase Price. As payment in consideration for
the sale and transfer of the Purchased Shares and the Revenue Interest, and the
grant of the Right of First Refusal (as defined below) by the Company to
Purchaser, Purchaser shall pay, upon the terms and subject to the conditions
set forth herein, a total purchase price of $1,000,000 (the "Purchase Price")
to the Company, or its designated successors or assigns, in cash or by wire
transfer of immediately available funds to an account designated by the Company
or its designee or assignee, as follows:
(a) The amount of $600,000.00 shall be paid by
Purchaser to the Company at the Closing; and
(b) Purchaser shall pay to the Company the amount of
$50,000.00 quarterly in eight (8) consecutive quarters commencing January 1,
1998; provided, however, that in the event any
<PAGE> 2
payment due date falls on a Saturday, Sunday or legal holiday, then such
payment shall be due on the first business day thereafter.
Section 1.3 Definitions. As used in this Agreement, the
following capitalized terms have the respective meanings set forth below:
(a) "Revenue Interest" means the right of Purchaser to
receive cash payments from the Company, upon the terms and subject to the
conditions set forth herein, in an amount equal to one-third (1/3) of the
aggregate gross amount of Program Fees (as defined below) that the Company is
entitled to receive from each of the Programs (as defined below), to the extent
of the Distributable Cash (as defined below) of that Program, from and after
the Closing Date, without offset or reduction for costs or fees incurred by the
Company.
(b) "Programs" means Marcum Midstream 1995-2 Business
Trust ("1995 Trust") and Marcum Midstream 1997-1 Business Trust ("1997 Trust"),
but specifically does not include Marcum-Patrick Pipeline Program 1993-1 L.P.
("1993 Program") or any Future Program (as defined below).
(c) "Future Program" means any future business trust,
limited partnership, limited liability company, joint venture or other similar
business entity through which the Company conducts the Business commencing on
or after the date hereof on a basis similar to the Programs, but specifically
does not include the Programs or the 1993 Program.
(d) "Program Documents" means, as applicable, the
declaration of trust, agreement of limited partnership, limited liability
company operating agreement or other similar charter and governing documents of
any Program or Future Program.
(e) "Program Fees" means, with respect to a Program,
the amount in cash the Company becomes entitled to receive from such Program
(as permitted by the terms of the Program Documents of such Program), to the
extent of the Distributable Cash of such Program, as fees for its services as
the managing trustee of such Program, including, but not limited to, management
fees, administrative fees and liquidation fees, but excluding any distributions
to the shareholders of such Program with respect to the Shares (as defined
below).
(f) "Distributable Cash" means, with respect to a
Program, the cash available for the payment of Program Fees that the Company is
entitled to receive from such Program without adversely affecting such
Program's ability to pay its other debts and obligations as they become due or
to carry out its ordinary business and affairs.
(g) "Shares" means the shares of beneficial interest
owned by the Company in the Programs, which consist of: (i) 5.65 Preferred
Shares and 40 Performance Shares in the 1995 Program, and (ii) 9.25 Preferred
Shares and 17 Performance Shares in the 1997 Program.
(h) "Purchased Shares" means the Shares to be purchased
by Purchaser hereunder, which consist of (i) 1.88333 Preferred Shares and
13.333 Performance Shares in the 1995 Program, and (ii) 3.08333 Preferred
Shares and 5.666 Performance Shares in the 1997 Program.
<PAGE> 3
Section 2. Revenue Interest.
Section 2.1 Timing of Payments. Within 45 days after the end
of each calendar quarter in which the Company becomes entitled to receive
Program Fees from either Program, the Company shall make a cash payment to
Purchaser in the amount of the Revenue Interest for such quarter.
Section 2.2 Distributions In Kind. In the event of any
distribution of assets by either Program to the Company other than cash
("Program Assets"), (a) if the Company retains such Program Assets, then the
amount of Program Fees shall be deemed to include the fair market value of such
Program Assets as of the date of the distribution, and, notwithstanding the
provisions of Section 2.1 hereof, Purchaser shall not be obligated to make a
cash payment of the Revenue Interest to the Company until up to three months
after receipt of such Program Assets, and (ii) if the Company makes a bona fide
sale of the assets to an unaffiliated person or entity, then the Program Fees
shall be deemed to include the amount of cash proceeds received in exchange for
the sale of such Program Assets and shall be payable by the Company to
Purchaser within 45 days after the end of the calendar quarter in which the
cash proceeds of the sale are received by the Company. The Company shall have
the right to elect, in its sole discretion, whether to retain or sell any
Program Assets received from either Program.
Section 2.3 Records of Program Fees. The Company shall
provide a written report of the calculation of the Revenue Interest to
Purchaser within 45 days after the end of each calendar quarter. The Company
will maintain accurate and complete books and records of the Revenue Interest
and the Program Fees, and Purchaser shall have the right, at its sole expense,
upon reasonable notice, to conduct an audit, directly or through its
independent accountants, of such books and records. For two years after the
end of each calendar year, Purchaser shall have the right to give written
notice to the Company of Purchaser's objections, if any, to the Revenue
Interest calculation during such calendar year. If Purchaser makes any such
objection, the parties will use commercially reasonable efforts to resolve any
such dispute within 30 days after the Company's receipt of Purchaser's notice
of objection to the Revenue Interest calculation. Any amounts which remain in
dispute after 30 days will be submitted for resolution to a "Big 6" accounting
firm (as presently constituted or their successors) mutually agreeable to the
Company and Purchaser, whose resolution will be conclusive. The Company and
Purchaser will bear the fees and expenses payable to such accounting firm in
connection with the determination in proportion to the allocation of disputed
amounts by such accounting firm. Any payment required will be made within ten
business days after the final determination (whether by agreement or by an
accounting firm).
Section 2.4 Taxes. Purchaser shall be responsible for the
filing of all reports and the payment of all federal, state, local and foreign
income, sales and other taxes attributable to Purchaser's receipt of payments
pursuant to the Revenue Interest.
Section 2.5 Revenue Interest Not An Interest in Either Program.
The Revenue Interest in and of itself shall represent only an obligation of the
Company and shall not represent any obligation of, or any shares or other
interest (ownership, management or otherwise) in, or any rights against, either
Program. Nothing set forth in this Agreement, express or implied, is intended,
or shall be construed or deemed, (a) to create or confer upon Purchaser any
legal or equitable right to manage or otherwise exercise any power or authority
of the managing trustee of the Program; or (b) to constitute Purchaser as a co-
managing trustee with, or the substitute managing trustee for, the Company in
either Program.
<PAGE> 4
Section 2.6 Revenue Interest Not an Equity Interest in the
Company or a Lien Against the Program Fees. The Revenue Interest, in and
of itself, represents only an obligation of the Company to make cash payments
to Purchaser in accordance with the terms and conditions of this Agreement.
Nothing set forth in this Agreement, express or implied, is intended, or shall
be construed, (a) to constitute or create a security interest, pledge or lien
of or against the Company's interest in the Program, the Program Fees or any
other assets or property of the Company; (b) to create or constitute any equity
interest in the Company or to constitute the sale or issuance of capital stock
of the Company to Purchaser; or (c) to give Purchaser the right to become a
shareholder of the Company or to exercise any of the rights of a shareholder of
the Company. The Company shall have the right to pay the amount due for the
Revenue Interest out of any source, shall not be restricted to making Revenue
Interest payments out of Program Fees, and shall not be required to segregate
any portion of the Program Fees.
Section 2.7 No Guarantee of Amount of Payments. EXCEPT AS
EXPRESSLY AND SPECIFICALLY SET FORTH IN SECTION 5 HEREOF, PURCHASER UNDERSTANDS
AND AGREES THAT THE COMPANY IS NOT MAKING ANY EXPRESS OR IMPLIED REPRESENTATION
OR WARRANTY, PROMISE, GUARANTEE OR ASSURANCE THAT ANY SPECIFIC OR MINIMUM
AMOUNT OF REVENUE INTEREST OR PROGRAM FEES WILL BE ACHIEVED IN THE FUTURE.
PURCHASER FURTHER UNDERSTANDS THAT THE COMPANY WILL HAVE NO LIABILITY OR
OBLIGATION TO PURCHASER HEREUNDER IN THE EVENT EITHER PROGRAM INCURS ANY
LOSSES, FAILS TO BE REQUIRED TO MAKE ANY PROGRAM FEES DURING ANY PERIOD OF
TIME, OR IS REQUIRED TO MAKE PROGRAM FEES THAT ARE LESS THAN THOSE MADE IN THE
PAST OR THAN THE EXPECTATIONS OF PURCHASER. THE COMPANY SPECIFICALLY DISCLAIMS
ANY PRIOR STATEMENT BY THE COMPANY OR ANY OFFICER OR OTHER PERSON AUTHORIZED TO
ACT ON BEHALF OF THE COMPANY THAT MAY HAVE BEEN INTERPRETED OR CONSTRUED AS A
REPRESENTATION, WARRANTY, PROMISE, GUARANTEE OR ASSURANCE WITH RESPECT TO THE
AMOUNT OF REVENUE INTEREST OR PROGRAM FEES. NO PERSON HAS BEEN AUTHORIZED BY
THE COMPANY TO MAKE ANY ORAL OR WRITTEN REPRESENTATION, WARRANTY, PROMISE,
GUARANTEE OR ASSURANCE WITH RESPECT TO THE AMOUNT OF REVENUE INTEREST OR
PROGRAM FEES, OR TO MAKE ANY OTHER EXPRESS OR IMPLIED REPRESENTATION, WARRANTY,
COVENANT, PROMISE, GUARANTEE OR ASSURANCE OTHER THAN THOSE SET FORTH IN SECTION
5 HEREOF, AND, IF GIVEN OR MADE, ANY SUCH REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
Section 3. Relationship of Parties The relationship between the
Company and Purchaser shall not be construed to create a joint venture,
partnership, association or any other affiliation between the parties hereto
other than that of independent parties to a contractual relationship as set
forth in this Agreement. It is understood and agreed by the parties hereto
that the Company and Purchaser are independent parties to this Agreement and
have no actual right, power or authority to bind or contract on behalf of the
other party with respect to any matters relating hereto. Neither party hereto
may represent to any other person or entity that it is the partner or agent of
the other party hereto or otherwise perform such acts or omit to perform such
acts that would cause another person or entity to reasonably believe that such
party hereto is a partner or agent of the other party hereto.
<PAGE> 5
Section 4. Rights Of First Refusal.
Section 4.1 Right of First Refusal of Purchaser to Participate
in Future Programs.
(a) From and after the Closing Date, Purchaser shall
have the right, but not the obligation, to participate in any Future Program
relating to the Business in which the Company participates in either an
investment or a management capacity or both, but only on the same terms and
conditions and with the same duties, obligations and liabilities as the Company
in such future Program ("Right of First Refusal").
(b) The Company shall, at least 30 days before the
consummation of any Future Program or the commencement of any private placement
of interests in the Future Program, deliver to Purchaser a notice of such
Future Program ("Notice of Future Program"), which Notice of Future Program
shall include a copy or summary of the terms and conditions of the proposed
Future Program and reasonable details thereof, including, without limitation,
the name and address of the seller, if any, a description of the assets, if
any, to be acquired, the purchase price of any assets to be purchased, the form
of proposed entity, the proposed structure of the Future Program, including
the types of interests, the types of interests, the management structure and
the description of any financing. The Company shall also provide, promptly
after written request, such additional information regarding the Future Program
as is reasonably requested by Purchaser.
(c) In the event Purchaser elects to exercise its
Right of First Refusal, it shall give written notice of such exercise ("Notice
of Exercise") to the Company on or before the thirtieth (30th) day after
Purchaser shall have received the Notice of Future Program. The Notice of
Exercise shall specify the amount and extent of Purchaser's participation in
the Future Program. In the event Purchaser elects to exercise its Right of
First Refusal, Purchaser shall cooperate with the Company and shall execute,
acknowledge, deliver and file any documents, instruments, consents, permits and
other assurances, documents and instruments reasonably requested in connection
with such Future Program, and deliver consideration for its participation in
the Future Program, on the same terms and conditions as the Company.
(d) Whether or not Purchaser elects to exercise its
Right of First Refusal with respect to any Future Program, the Revenue Interest
shall not include any fees or distributions to the Company from any Future
Program.
Section 4.2 Right of First Refusal to Purchase Purchased
Shares.
(a) From and after the Closing Date, if either the
Company or Purchaser ('Seller") desires to sell, transfer or otherwise dispose
of ("Transfer") all or any of its Shares or Purchased Shares, as applicable
("Offered Shares"), pursuant to a bona fide offer from a third party to
purchase the Offered Shares ("Bona Fide Offer"), the Seller shall first deliver
to the other party hereto ("Offeree") a notice of such offer ("Notice of
Offer") in respect of the Offered Shares. The Notice of Offer shall include a
copy or summary of the Bona Fide Offer and shall set forth the terms and
conditions of the proposed Transfer in reasonable detail, including, without
limitation, the name and address of the prospective purchaser ("Prospective
Purchase"), the proposed purchase price (or the basis of determining the
purchase price) ("Purchase Price"), the terms and conditions of payment and the
amount of the Offered Shares.
<PAGE> 6
(b) The Offeree shall have the prior right and option
("Right of First Refusal") to purchase all, but not less than all, of the
Offered Shares upon the terms set forth in the Bona Fide Offer, including, in
the event of a sale of Shares by the Company accompanied with the sale of its
interest as a managing trustee of a Program, the acquisition of that managing
trustee interest and acceptance of the duties and obligations associated
therewith by Purchaser. The Offeree shall exercise its Right of First Refusal
by giving written notice of such exercise ("Notice of Exercise") to the Seller
on or before the thirtieth (30th) day after the Offeree shall have received the
Notice of Offer.
(c) Should the Purchase Price specified in the Notice
of Offer be payable in property other than cash or evidences of indebtedness,
then the Offeree shall have the right to pay the Purchase Price in the form of
cash equal in amount to the value of such property. If the Seller and the
Offeree cannot agree on such cash value within ten business days after the
Seller's receipt of the Notice of Exercise, then the valuation shall be made by
an appraiser of recognized standing mutually agreeable to the Seller and the
Offeree or, if they cannot agree on an appraiser within 15 business days after
the Seller's receipt of the Notice of Exercise, each shall select an appraiser
of recognized standing and the two appraisers shall designate a third appraiser
of recognized standing, whose appraisal shall be determinative of such value.
The cost of such appraisal shall be shared equally by the Offeree and the
Seller.
(d) The Closing of Rights of First Refusal. The
closing of the purchase of the Offered Shares by Offeree shall take place at
the principal place of business of the Seller on a date thirty business days
(or, if later, five business days after any necessary valuation shall have been
made as provided in Section 4.2(c) above) after the date the Seller receives
the Notice of Exercise, unless the Seller and the Offeree unanimously agree on
a different place or time. The aggregate purchase price to be paid by the
Offeree shall be equal to the aggregate purchase price set forth in the Bona
Fide Offer, and shall be paid on the payment terms and conditions set forth in
the Bona Fide Offer or, at the option of the Offeree, in cash. At the closing,
the Seller shall deliver any certificates or other instruments evidencing the
purchase of the Offered Shares, along with an assignment of the Offered Shares,
in form and substance reasonably satisfactory to the Offeree, conveying to the
Offeree the Offered Shares free and clear of all liens, claims and
encumbrances, with general warranty covenants, along with all documents
reasonably necessary or appropriate to transfer such Offered Shares against
payment of the Purchase Price pursuant to the terms and conditions of the Bona
Fide Offer.
(e) Non-Exercise of Rights of First Refusal. If the
Offeree does not exercise its Right of First Refusal, then the Seller shall
have the right, for a period ending on the ninetieth (90th) day after the
delivery of a Notice of Offer, to Transfer the Purchased Shares to the
Prospective Purchaser identified in the Notice of Offer, at the same Purchase
Price and otherwise upon the same terms and conditions described in the Notice
of Offer; provided, however, that any such Transfer shall be effected in
compliance with law and the applicable Program Documents. If the Offered
Shares are not sold to such Prospective Purchaser during such 90 day period,
all of the restrictions, conditions and obligations imposed by this Agreement
on the Purchased Shares shall again apply to the Offered Shares.
Section 5. Representations and Warranties of the Company. The
Company hereby represents and warrants to Purchaser as follows:
Section 5.1 Organization of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Colorado.
<PAGE> 7
Section 5.2 Power and Authority. The Company has all
requisite right, power and authority to conduct the Business as it is presently
conducted, to own, lease and operate its assets, and to execute, deliver and
perform its obligations under this Agreement. The execution and delivery by
the Company of this Agreement and the performance by the Company of its
obligations hereunder have been duly and validly authorized by all requisite
corporate action of the Company.
Section 5.3 Enforceability. This Agreement has been duly and
validly executed and delivered on behalf of the Company and constitutes a
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as such enforcement may be limited
by applicable bankruptcy, insolvency, receivership, reorganization, moratorium
and other similar laws now or hereafter in effect relating to or affecting
creditors' rights and remedies generally, or by general principles governing
the availability of equitable remedies.
Section 5.4 No Conflicts. Except for the consent of
Commercial National Bank in Shreveport, (the "Marcum Bank Consent"), the
execution and delivery by the Company of this Agreement and the performance by
the Company of the transactions contemplated hereby do not and will not
violate, conflict with, or constitute a breach of or a default (or an event
that, after the giving of notice or the lapse or time or both, would constitute
a default) under (a) the Company's articles of incorporation or bylaws, (b) the
Program Documents of the Programs, or (c) any law, statute, rule or regulation,
or any contract, note, security agreement, mortgage, lease, loan agreement,
franchise, license, permit, order, injunction, writ, judgment, decree or any
other agreement, authorization or ruling binding upon the Company or the
Programs.
Section 5.5 Consents. Except for the Marcum Bank Consent, no
consent, authorization, permit or approval of any person or entity is necessary
for the Company to execute and deliver this Agreement and to consummate its
obligations hereunder.
Section 5.6 Litigation. There are no actions, suits, claims
or other proceedings pending or, to the best knowledge of the Company, overtly
threatened by or before any court or governmental authority against or
affecting the Company or the Programs, which, if adversely determined, would be
reasonably likely to have a material adverse effect on the Programs or on the
ability of the Company to execute, deliver and perform its obligations under
this Agreement.
Section 5.7 Organization of Programs. Each Program is a
Delaware business trust, duly organized, validly existing and in good standing
under the laws of the State of Delaware.
Section 5.8 Financial Statements of Programs. The Company
has furnished to Purchaser true and complete copies of the 1995 Trust's audited
balance sheet as of December 31, 1996, and the related audited statements of
operations and cash flows for the fiscal year then ended, and the 1995 Trust's
unaudited consolidated balance sheet as of June 30, 1997 and the related
unaudited statements of operations and cash flows for the six months then
ended, and the 1997 Trust's unaudited consolidated balance sheet as of August
13, 1997 (the date of formation) (the "Financial Statements"). The Financial
Statements (i) present fairly in all material respects the financial condition,
results of operations and cash flows of the Programs as of the specified dates
thereof and for the respective periods covered thereby; (ii) have been prepared
in accordance with generally accepted accounting principles consistently
applied throughout the periods indicated and with prior periods (except as set
forth in the notes thereto and subject, in the case of interim financial
statements, to normal year-end adjustments); and (iii) have been prepared in
<PAGE> 8
accordance and consistent with the books and records of the Programs, which
have been maintained in accordance with sound business practices.
Section 5.9 No Material Adverse Change to Programs. Since
June 30, 1997, there has been no material adverse change to the business,
affairs, condition or results of operation of the 1995 Trust. Since August 13,
1997, there has been no material adverse change to the business, affairs,
condition or results of operations of the 1997 Trust.
Section 5.10 Historical Information Regarding Programs. The
Company has furnished to Purchaser copies of all information furnished to
investors in the Programs. All historical information furnished by the
Company to Purchaser regarding the Programs is accurate and complete in all
material respects, as of the date thereof.
Section 5.11. The Company's Interest in Programs. The Company
is the managing trustee of each Program. The Company owns good and marketable
title to 5.65 Preferred Shares and 40 Performance Shares, in the 1995 Program
(representing 5% and 40%, respectively, of the outstanding shares of each such
class), and 8 Preferred Shares and 17 Performance Shares in the 1997 Program
(representing 5% and 42.5%, respectively, of the outstanding shares of each
such class), free and clear of any and all mortgages, pledges, security
interests and liens, other than those imposed under applicable law, the Program
Documents and the restrictions to be waived in the Marcum Bank Consent. All
Purchased Shares were duly authorized by the Programs and were validly issued
in compliance with all applicable laws.
Section 5.12. Broker's Fees. No broker, finder or investment
broker is or shall be entitled to receive any fee, commission or other
remuneration or compensation relating to the transactions contemplated by this
Agreement based on any action taken by or at the direction of the Company.
Section 6. Representations and Warranties of Purchaser.
Section 6.1 Corporate Status. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware.
Section 6.2 Power and Authority. Purchaser has all requisite
right, power and authority to execute, deliver and perform its obligations
under this Agreement. Purchaser's execution and delivery of this Agreement and
performance of its obligations hereunder have been duly and validly authorized
by all requisite corporate action of Purchaser.
Section 6.3 Enforceability. This Agreement has been duly and
validly executed and delivered on behalf of Purchaser and constitutes a legal,
valid and binding obligation of Purchaser enforceable against Purchaser in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, receivership, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights and
remedies generally or by principles governing the availability of equitable
remedies.
Section 6.4 No Conflicts. The execution and delivery by
Purchaser of this Agreement and the performance by Purchaser of the
transactions contemplated hereby do not and will not violate, conflict with, or
constitute a breach of or a default (or an event that, after the giving of
notice or the lapse or
<PAGE> 9
time or both, would constitute a default) under Purchaser's articles of
incorporation or bylaws, any law, statute, rule or regulation, or any contract,
note, security agreement, mortgage, lease, loan agreement, franchise, license,
permit, order, injunction, writ, judgment, decree or any other agreement,
authorization or ruling binding upon Purchaser.
Section 6.5 Consents. No consent, authorization permit or
approval of any person or entity is necessary for Purchaser to execute and
deliver this Agreement and to perform its obligations hereunder.
Section 6.6 Litigation. There are no actions, suits, claims
or other proceedings pending or, to the best knowledge of Purchaser, overtly
threatened by or before any court or governmental authority against or
affecting Purchaser which, if adversely determined, would be reasonably likely
to have a material adverse effect on the ability of Purchaser to execute,
deliver and perform its obligations under this Agreement.
Section 6.7 Intention, Sophistication and Access. Purchaser
is purchasing the Purchased Shares and the Revenue Interest solely for its own
account, and not as nominee or agent for any other person or entity, and not
with a view to any subsequent transfer of the Purchased Shares and the Revenue
Interest. Purchaser has such knowledge and experience in business and
financial matters to be capable of independently evaluating the merits and
risks of purchasing the Purchased Shares and the Revenue Interest. Purchaser
has independently evaluated the risks and merits of purchasing the Purchased
Shares and the Revenue Interest and has independently determined that the
Purchased Shares and the Revenue Interest is a suitable purchase for Purchaser.
Purchaser and its representatives have made an independent investigation of the
Company and the Programs in order to evaluate the risks and merits of
purchasing the Purchased Shares and the Revenue Interest. Purchaser and its
representatives have had an opportunity to ask questions of and to receive
answers from representatives of the Company, and has been given access to all
of the agreements, instruments, financial statements, books, records and other
information concerning the Company and the Programs as Purchaser deemed
necessary and appropriate to make an informed investment decision. Except as
expressly provided herein, in entering into this Agreement, Purchaser has not
relied upon any express or implied representations, warranties, assurances or
guarantee of any specified or minimum levels of Revenue Interest or Program
Fees or other estimates of future performance of the Programs or the Company or
the amounts of Program Fees or Revenue Interest, provided by the Company or any
agent authorized to act on behalf of the Company.
Section 6.8 Brokers' Fees. No broker, finder or investment
broker is or shall be entitled to receive any fees, commissions or other
remuneration relating to the transactions contemplated by this Agreement based
on any action by or at the direction of Purchaser.
Section 7. Additional Covenants.
Section 7.1 Access. Between the date of this Agreement and
the Closing Date, the Company shall provide Purchaser with reasonable access
during normal business hours to the books, records, financial statements and
other information relating to the Programs and the Company's interest in the
Programs.
Section 7.2 Confidentiality. Purchaser recognizes and
acknowledges that, prior to the date hereof it has had, and from and after the
date hereof it and its representatives will have, access to certain
confidential information relating to the Company and the Programs
("Confidential
<PAGE> 10
Information") that constitute valuable, special and unique assets of the
Company, the Programs and the Future Programs which are maintained as trade
secrets and proprietary property. The Confidential Information will also
include information about the amount and timing of Program Fees and payments of
the Revenue Interest, but shall exclude publicly available information (other
than by disclosure caused by Purchaser), and information required to be
disclosed by court order. Purchaser shall at all time treat and hold as
strictly confidential all such Confidential Information and will not at any
time on or after the date of this Agreement disclose to any person or entity or
use any such Confidential Information for any purpose, other than in connection
with the transactions contemplated by this Agreement. In the event this
Agreement is terminated for any reason whatsoever, before or after the Closing
Date. Purchaser will, upon request, return to the Company all written
Confidential Information furnished to Purchaser or its representatives in
connection herewith (including all summaries, extracts, copies and embodiments
thereof), immediately after the termination of this Agreement, without
retaining copies thereof.
Section 7.3 Consummation of Transactions. Upon the terms and
subject to the conditions of this Agreement, each of the parties hereto shall
use commercially reasonable efforts to cause all conditions to its and the
other party's obligations hereunder to be satisfied and to consummate its
obligations under this Agreement, and to cause the transactions contemplated by
this Agreement to be promptly consummated, including, but not limited,
obtaining the Marcum Bank Consent.
Section 7.4 Public Announcements. Purchaser and the Company
shall consult with each other before issuing any press release or otherwise
making any public statements or disclosures with respect to this Agreement or
the transactions contemplated hereby, and shall not issue any such press
release or make any such public statements or disclosures without the prior
consent of the other party, which consent shall not be unreasonably withheld or
delayed, except as may be required by applicable law, rules or regulations or
applicable stock exchange or stock market policies.
Section 7.5 Program Fees.
(a) The Company shall not resign its position as the managing
trustee of either Program or take any action reducing the amount of any fees,
including administration, management and liquidation fees, payable to the
Company as managing trustee by the Programs, without the consent of Purchaser,
which consent shall not be unreasonably withheld.
(b) (i) The parties hereto acknowledge and agree that the
Purchase Price is allocated among the Revenue Interest and the Purchased Shares
of the Programs for all purposes (including financial reporting and tax
purposes and the reimbursement set forth below) as set forth below:
<TABLE>
<S> <C> <C>
1995 TRUST:
Revenue Interest $ 141,853
Purchased Shares 333,276
----------
Total 1995 Trust $ 475,129
1997 TRUST:
Revenue Interest $ 208,781
Purchased Shares 316,090
----------
Total 1997 Trust 524,871
------------
Total Purchase Price $ 1,000,000
============
</TABLE>
<PAGE> 11
(ii) In the event that the Company either resigns its
position as the managing trustee of either Program, or otherwise takes any
action which results in the reduction of future Revenue Interests payable to
Purchaser as a result of the reduction and/or elimination of the Program Fees
of either Program, then Purchaser shall be entitled to reimbursement of a
portion of the Purchase Price equal to the unrecovered portion, if any, of the
Purchase Price allocable to the Revenue Interest (the "Unrecovered PPRI") of
the Program with respect to which such action was taken. The Unrecovered PPRI,
if any, shall be computed after giving effect to any cash distributed or to be
distributed as a result of the action which resulted in the claim or potential
claim for reimbursement. In the event of any such action, the Unrecovered
PPRI, if any, shall be paid to Purchaser within 45 days after the end of the
calendar quarter in which the action occurred.
(iii) The Company shall maintain a ledger of the
Unrecovered PPRI of each Program. The opening balance of the Unrecovered PPRI
shall be $141,853 for the 1995 Trust and $208,781 for the 1997 Trust. The
ledger balance of the Unrecovered PPRI of each Program shall be reduced by the
amount of payments of Revenue Interest to Purchaser with respect to such
Program. The Company shall also maintain a ledger for the unrecovered portion,
if any, of the Purchaser Price allocated to the Purchased shares ("Unrecovered
PPPS") of such Program. The ledger balances of the Unrecovered PPPS shall be
reduced by the amount of distributions made with respect to the Shares with
respect to such Program. Once the ledger balance of a Program's PPPS reaches
zero ($0), then future cash payments related to such Purchased Shares
(including any proceeds from the sale or liquidation of such Purchased Shares)
shall be used first to reduce the respective Program's PPRI, and thereafter to
reduce the other Program's PPRI ledger balance. Once a Program's PPRI has been
reduced to zero ($0), Purchaser shall have no further rights to any
reimbursement of the Purchase Price with respect to such Program.
Section 7.6 IRS Section 754 Election. The Company agrees to
cause the Programs to file an election under Section 754 of the Internal
Revenue Code of 1986, as amended, with respect to the transfer of the Purchased
Shares, upon the timely written request of Purchaser.
Section 8. Conditions Precedent to Purchaser's Obligations. The
obligation of Purchaser to purchase the Purchased Shares and the Revenue
Interest is subject to the satisfaction (unless waived in writing by
Purchaser), at or prior to the Closing, of each of the following conditions:
Section 8.1 Accuracy of Representations and Warranties. The
representations and warranties made by the Company in this Agreement shall be
true and correct in all material respects as of the date of this Agreement and
as of the Closing Date with the same effect as if such representations and
warranties had been made or given on the Closing Date.
Section 8.2 Performance of Covenants. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements, obligations and conditions under this Agreement which are to be
performed, satisfied or complied with by the Company at or prior to the
Closing.
Section 8.3 No Litigation. No action, suit, arbitration,
investigation or other proceeding shall be pending or overtly threatened by or
before any court or governmental authority by, against or affecting the
Company, the Programs or the Business (a) which questions the legality or
validity of this Agreement or the transactions contemplated hereby, or (b)
which, if decided adversely to the Company, would be reasonably likely to be a
material adverse effect on the Company, the Programs, the Business or the
Revenue Interest, or on the Company's ability to perform its obligations
hereunder.
<PAGE> 12
Section 8.4 Deliveries at Closing. The Company shall have
delivered to Purchaser at the Closing the Purchased Shares, the Revenue
Interest and each instrument required to be delivered by the Company to
Purchaser hereunder.
Section 8.5 Consents. The Marcum Bank Consent and all other
consents by persons or entities necessary to permit the consummation of the
transactions contemplated hereby shall have been duly obtained by the Company
prior to the Closing.
Section 8.6 Guaranty. The obligations of the Company to make
payments of the Revenue Interest as and when due and payable under Section 2.1
hereof and to indemnify Purchaser under Section 11.2(b) hereof shall be
guaranteed by Marcum Natural Gas Services, Inc., the sole shareholder of the
Company, in a written guaranty delivered at the Closing, in substantially the
form of Exhibit A hereto (the "Marcum Guaranty").
Section 9. Conditions Precedent to the Company's Obligations. The
obligations of the Company to sell the Purchased Shares and the Revenue
Interest to Purchaser is subject to the satisfaction (unless waived in writing
by the Company), at or prior to the Closing, of each of the following
conditions:
Section 9.1 Accuracy of Representations and Warranties. The
representations and warranties made by Purchaser in this Agreement shall be
true and correct in all material respects on and as of the date of this
Agreement and as of the Closing Date with the same effect as if such
representations and warranties had been made or given on the Closing Date.
Section 9.2 Performance of Covenants. Purchaser shall have
performed, satisfied and complied in all material respects with all of the
covenants, agreements, obligations and conditions under this Agreement which
are to be performed, satisfied or complied with by Purchaser at or prior to the
Closing.
Section 9.3 No Litigation. No action, suit, arbitration,
investigation or other proceeding shall be pending or overtly threatened by or
before any court or governmental authority by, against or affecting Purchaser
(a) which questions the legality or validity of this Agreement or the
transactions contemplated hereby, or (b) which, if decided adversely to
Purchaser, would be reasonably likely to be a material adverse effect on
Purchaser's ability to execute and deliver this Agreement or perform its
obligations hereunder.
Section 9.4 Deliveries at Closing. Purchaser shall have
delivered to the Company at the Closing the portion of the Purchase Price to be
delivered at the Closing and each of the other instruments required to be
delivered to the Company hereunder.
Section 9.5 Consents. The Marcum Bank Consent and all other
consents by persons or entities necessary to permit the consummation of the
transactions contemplated hereby shall have been duly obtained by the Company
prior to the Closing.
Section 10. The Closing.
Section 10.1 Date and Place. The consummation of the sale and
purchase of the Revenue Interest contemplated hereby (the "Closing") shall take
place within two (2) business days of the satisfaction of all conditions to the
Closing (the "Closing Date") at the offices of Marcum Natural Gas Services,
Inc. at
<PAGE> 13
1675 Broadway, Suite 2150, Denver, Colorado 80202, at 2:00 p.m. local time, or
at such other time and place as the parties shall mutually agree.
Section 10.2 Deliveries by the Company. At the Closing, the
Company shall deliver or cause to be delivered to Purchaser:
(a) The Marcum Bank Consent, if necessary;
(b) Instruments of assignment of the Purchased Shares
and the Revenue Interest;
(c) A Certificate duly executed by the President of the
Company, dated as of the Closing Date, certifying that, to the best of his
knowledge and belief after due inquiry, (i) the Company has fully performed,
satisfied and complied with all agreements, obligations, covenants and
conditions required by this Agreement to be performed, satisfied or complied
with at or prior to the Closing, and (ii) all of the representations and
warranties of the Company set forth in Section 5 of this Agreement are true and
correct in all material respects as of the Closing Date;
(d) The Marcum Guaranty; and
(e) All other items required to be delivered by the
Company pursuant to any provisions of this Agreement.
Section 10.3 Deliveries by Purchaser. At the Closing, Purchaser
shall deliver to the Company:
(a) The Purchase Price on the terms set forth in
Section 2.1 hereof; and
(b) A Certificate duly executed by the President of
Purchaser, dated as of the Closing Date, certifying that, to the best of his
knowledge and belief after due inquiry, (i) Purchaser has fully performed,
satisfied and complied with all agreements, obligations, covenants and
conditions required by this Agreement to be performed, satisfied or complied
with at or prior to the Closing, and (ii) all of the representations and
warranties of Purchaser set forth in Section 5 of this Agreement are true and
correct in all material respects as of the Closing Date; and
(c) All other items required to be delivered by Purchaser
pursuant to any provision of this Agreement.
Section 10.4 Effectiveness of Closing. No action to be taken or
delivery to be made at the Closing shall be effective until all of the actions
to be taken and deliveries to be made at the Closing are complete.
Section 11. Survival and Indemnification
Section 11.1 Survival. The representations and warranties of
the parties hereto as set forth herein shall survive the Closing until the
second anniversary of the Closing Date. The obligation of the Company to pay
Revenue Interest, the obligation of Purchaser to pay Purchaser Price to the
Company, and the other agreements and obligations of the parties hereto under
this Agreement shall survive the Closing.
<PAGE> 14
Section 11.2 Indemnification.
(a) The Company, on the one hand, and Purchaser, on the
other hand, shall indemnify, defend and hold harmless the other party, its
affiliates, successors and assigns, and their officers, directors,
shareholders, employees, agents and representatives, from and against any and
all losses, liabilities, damages, demands, taxes, claims, actions, costs and
expenses (including, without limitation, interest, fines, penalties, reasonable
attorneys' fees and court costs and amounts paid in settlement) ("Damages")
arising out of or resulting from any inaccuracy in any representation or
warranty made by it, or any breach, violation or failure by it to perform any
covenant, agreement or other obligation of it.
(b) In addition, the Company shall indemnify, defend
and hold harmless Purchaser, its affiliates, successors and assigns, and their
officers, directors, shareholders, employees, agents and representatives, from
and against any and all Damages arising out of or resulting from any claim by
any person or entity against any Program based upon facts, circumstances,
actions or omissions arising prior to the Closing Date.
Section 11.3 Claims for Indemnification.
(a) Whenever either party believes it has suffered or
incurred or is likely to suffer or incur any Damages, or any action or
proceeding is commenced or threatened or claim is made that could result in
Damages, which is reasonably likely to give rise to a claim ("Claim") for
indemnification under this Agreement, the party seeking indemnification
("Indemnified Party") shall, upon obtaining knowledge thereof, promptly notify
in writing the party against whom indemnification is sought ("Indemnifying
Party") of the Claim and, when and to the extent known, the facts constituting
the basis for such Claim and the amount and nature of the Damages or an
estimate thereof. The Indemnified Party's failure to timely notify the
Indemnifying Party of any Claim or potential Claim shall not relieve the
Indemnifying Party of any liability hereunder unless and only to the extent
that such failure causes the Indemnifying Party to lose the right to assert any
substantive rights or defenses or to the extent that the Indemnifying Party is
actually prejudiced in its rights or obligations.
(b) The Indemnified Party shall give the Indemnifying
Party a reasonable opportunity to participate in and to assume the defense of
any such Claim at the Indemnifying Party's own expense and with counsel of the
Indemnifying Party's own selection, reasonably satisfactory to the Indemnified
Party; provided, however, that the Indemnified Party shall at all times also
have the right, but not the obligation, to fully participate in the defense of
the Claim and to employ its own counsel at is own expense. If the Indemnifying
Party has not in fact employed legal counsel to assume the defense of such
Claim within a reasonable time after receiving notice of the Claim, then the
reasonable fees, disbursements and other charges of counsel from one separate
firm selected by the Indemnified Party shall be reimbursed by the Indemnifying
Party promptly as they are incurred.
(c) No party hereto shall compromise, settle or consent
to the entry of any judgment with respect to any Claim without the prior
written consent of the other interested party (which consent shall not be
unreasonably withheld or delayed).
(d) Each party hereto shall cooperate in every
reasonable way with the party assuming responsibility for the defense and
disposition of any such Claim, including making available to the defending
party all books, records and other material reasonably required by the
defending party for its use in defending the Claim.
<PAGE> 15
Section 11.4 Limitation on Liability.
(a) Neither Purchaser's nor the Company's liability
under this Section 11 shall exceed the aggregate amount of $1,000,000;
provided, however, that such limitation on liability shall not apply to the
Company's indemnification obligations arising under Section 11.2(b) hereof.
(b) Neither party shall seek or be entitled to
consequential damages or damages for lost profits in any Claim for
indemnification under this Section 11 nor shall it accept payment of any award
or judgment against the other party to the extent that such award of judgment
includes consequential damages or damages for lost profits.
Section 11.5 Effect of Knowledge. No party to this Agreement
shall be liable under this Section 11 for Damages resulting from any event
relating to a breach or inaccuracy of any representation or warranty if the
Indemnified Party had actual knowledge of such breach or inaccuracy on or
before the Closing Date of such event.
Section 12. Termination Before Closing; Term of Agreement.
Section 12.1 Termination Before Closing.
(a) Events of Termination Before Closing. This
Agreement may be terminated at any time prior to the Closing as follows:
(i) By mutual written agreement of the Company
and Purchaser;
(ii) By the Company or Purchaser by giving two
(2) business days prior written notice of such termination to the other if the
non-terminating party has materially breached any of its representations,
warranties, agreements or covenants hereunder;
(iii) By either Purchaser or the Company by giving
written notice to the other if the Closing Date has not occurred on or before
January 31, 1998, unless such party's intentional failure to fulfill any
obligation hereunder has been the cause of, or has resulted in, the failure of
the Closing to occur on or before such date.
(b) Effect of Termination. The termination of this
Agreement prior to the Closing, whether in accordance with any of the preceding
provisions of this Section 12.1 or otherwise, shall terminate all obligations
of the parties hereto under this Agreement, except for the obligations set
forth in Sections 7.2, 7.4, 11 and 13 hereof; provided, however, that the
termination of this Agreement shall not affect the rights of either the Company
or Purchaser against the other for breach of any representation, warranty,
covenant or agreement set forth in this Agreement.
Section 12.2 Term of Agreement. The term of this Agreement
shall commence as of the date of this Agreement and shall continue thereafter
until the dissolution, winding-up and liquidation of both Programs has been
completed, unless earlier terminated as provided in Section 12.1 hereof.
<PAGE> 16
Section 13. General Provisions
Section 13.1 Governing Law and Forum Selection. This Agreement
shall in all respects be governed by and construed and enforced in accordance
with the internal substantive laws of the State of Delaware, without giving
effect to any principle or rule of conflict or choice of laws. Any action,
suit or other proceeding seeking to enforce any right, remedy, obligation,
duty, covenant or provision of, or arising out of, this Agreement shall be
brought and entered against any party hereto exclusively in any federal or
state court of the State of Delaware or of the United States located in the
State of Delaware. Each party hereto irrevocably submits to the personal
jurisdiction of any such court and irrevocably waives, to the fullest extent of
the law, any objection that it may now or hereafter have to the laying of venue
in any such court and any claim that such action, suit or proceeding has been
brought in an inconvenient forum.
Section 13.2 Expenses. Each of the parties to this Agreement
agrees to pay its own costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby, including the fees and
expenses of its counsel, accountants and other advisers and agents, whether or
not the Closing occurs.
Section 13.3 Assignment. Neither this Agreement nor any of the
rights or obligations hereunder may be assigned, in whole or in part, by either
party hereto without the prior written consent of the other party hereto;
provided, however, that either party shall have the right from time to time to
assign this Agreement or any or all of its rights or obligations hereunder to
its parent corporation, to any of its majority-owned subsidiaries, or to any
other majority-owned subsidiary of its parent corporation.
Section 13.4 Company Actions. Nothing set forth in this
Agreement shall preclude the Company from merging or combining with, or
transferring all or substantially all of its asset to, another entity which
assumes all of the Company's obligations hereunder.
Section 13.5 Amendments. This Agreement may not be 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.
Section 13.6 Notices. Any and all notices, requests, demands
and other communications required or permitted to be given hereunder shall be
in writing and shall be deemed to have been duly given hereunder on the date
given if delivered personally, or sent by facsimile transmission (upon receipt
of confirmation of delivery) on the next business day if sent by overnight
courier service, or three business days after being sent by first class
(registered/certified) mail, postage prepaid, return receipt requested, to the
parties at the following addresses:
If to the Company: Marcum Gas Transmission, Inc.
1675 Broadway, Suite 2150
Denver, Colorado 80202
Attn: W. Phillip Marcum
Telephone: 303-592-5555
Facsimile: 303-592-5556
With a copy to: Marcum Natural Gas Services, Inc.
1675 Broadway, Suite 2150
Denver, Colorado 80202
Attn: W. Phillip Marcum
Telephone: 303-592-5555
Facsimile: 303-592-5556
<PAGE> 17
If to Purchaser: Odessa Exploration Incorporated
6010 Highway 191, Suite 210
Odessa, Texas 79762
Attn: D. Kirk Edwards
Telephone: 915-550-0500
Facsimile: 915-550-0544
With a copy to: Key Energy Group, Inc.
Two Town Center, 20th Floor
East Brunswick, NJ 08816
Attn: General Counsel
Telephone: 908-247-4822
Facsimile: 908-247-5148
Any party may change its designated address by giving written notice
thereof to all other parties hereto in the manner provided in this Section
13.6. Any party hereto may send any notice, request, demand, or other
communication to the intended recipient at the address above by using any other
means (such as telecopy, telex, expedited courier, messenger, ordinary mail or
electronic mail), but no such notice, demand, request or other communication
shall be deemed had been given until it is actually received by the recipient.
Section 13.7 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 of a breach of any provision of this Agreement shall not
operate or be construed to be a waiver of any other breach of that provision or
of any breach of any other provision of this Agreement. The failure of a party
to insist upon strict adherence to any provision of this Agreement on one or
more occasions shall not be considered a continuing waiver or deprive that
party of the right thereafter to insist upon strict adherence to that provision
or any other provision of this Agreement.
Section 13.8 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, validity or enforceability of
that provision in any other situation or legality, validity or enforceability
of any other provision of this Agreement.
Section 13.9 Headings. The headings used in this Agreement are
solely for convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
Section 13.10 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.
Section 13.11 Pronouns, Etc. The number and gender of each
pronoun used in this Agreement and the term "person" or "persons" or the like
shall be construed to mean both the number and gender of the individual,
corporation, partnership, firm, trust, agency and other entity as the context,
<PAGE> 18
circumstance or its antecedent may require. The terms "herein," "hereof," and
"hereto," and the like refer to this Agreement as a whole.
Section 13.4 No Third Party Beneficiaries. This Agreement does
not confer or create, is not intended by the parties hereto to confer or
create, and shall not be construed to as conferring or creating, upon any
person or entity other than the parties hereto and their successors and
permitted assigns any rights, remedies or causes of action under or by reason
of this Agreement.
Section 13.5 Counterparts. This Agreement may be executed in
one or more counterparts including counterparts executed by less than all
positions hereto, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 13.6 Entire Agreement. This Agreement constitutes the
entire agreement and understanding between the parties hereto with respect to
the subject matter hereof and supersedes all prior arrangements, agreements and
understandings, whether oral or written, among the parties hereto in connection
with the subject matter of this Agreement.
[Signature Page to Follow]
* * * * * * *
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement to be executed and delivered by their respective duly authorized
officers as of the date first set forth above.
MARCUM GAS TRANSMISSION, INC.
By: /s/ W. Phillip Marcum
----------------------------------------
W. Phillip Marcum, Chairman and
Chief Executive Officer
ODESSA EXPLORATION INCORPORATED
By: /s/ D. Kirk Edwards
----------------------------------------
D. Kirk Edwards, President
<PAGE> 1
EXHIBIT 2.6
================================================================================
ASSET PURCHASE AGREEMENT
BY AND AMONG
EAGLE RESEARCH CORPORATION
AMERICAN METER COMPANY
AND
METRETEK, INCORPORATED
MARCUM NATURAL GAS SERVICES, INC.
DATED: March 23, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Section 1. Sale and Purchase of the Assets . . . . . . . . . . . . . . . . . 1
Section 1.1 Sale and Purchase . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3 Liabilities . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2. Purchase Price and Payment . . . . . . . . . . . . . . . . . . . . 5
Section 2.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . 5
Section 2.2 Post-Closing Adjustment For Purchase Price For
Inventory. . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.3 Convertible Note . . . . . . . . . . . . . . . . . . . . 6
Section 2.4 Convertible Note Adjustment . . . . . . . . . . . . . . . 7
Section 2.5 Issued Shares . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.6 Allocation of Purchase Price . . . . . . . . . . . . . . 7
Section 3. Representations and Warranties of Seller and American Meter . . . 8
Section 3.1 Organization . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.3 Power and Authority . . . . . . . . . . . . . . . . . . . 8
Section 3.4 Enforceability . . . . . . . . . . . . . . . . . . . . . 8
Section 3.5 No Conflicts . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.6 Defaults . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.7 Consents . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.9 Ability to Dispose of the Assets . . . . . . . . . . . . 9
Section 3.10 Brokers' Fees . . . . . . . . . . . . . . . . . . . . . 9
Section 3.11 Financial Statements . . . . . . . . . . . . . . . . . . 9
Section 3.12 Absence of Undisclosed Liabilities . . . . . . . . . . . 10
Section 3.13 No Material Adverse Change . . . . . . . . . . . . . . . 10
Section 3.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.15 Title to and Condition of Assets . . . . . . . . . . . . 12
Section 3.16 Personal Property Leases . . . . . . . . . . . . . . . . 12
Section 3.17 Inventory . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.18 Intellectual Property . . . . . . . . . . . . . . . . . 13
Section 3.19 Relationships with Suppliers and Customers . . . . . . . 14
Section 3.20 Labor and Employment Matters . . . . . . . . . . . . . . 14
Section 3.21 Employee Benefit Plans . . . . . . . . . . . . . . . . . 15
Section 3.22 Insurance . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.23 Contracts . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.24 Licenses . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.25 Product Liability Claims. . . . . . . . . . . . . . . . 16
Section 3.26 Product Warranties . . . . . . . . . . . . . . . . . . . 16
Section 3.27 Compliance with Laws . . . . . . . . . . . . . . . . . . 16
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 3.28 No Loss of Rights or Legal Obstacles . . . . . . . . . . 17
Section 3.29 Transactions with Affiliates . . . . . . . . . . . . . . 17
Section 3.30 Absence of Certain Commercial Practices . . . . . . . . 17
Section 3.31 Securities Representations As To The Shares . . . . . . 17
Section 3.32 Full Disclosure . . . . . . . . . . . . . . . . . . . . 19
Section 4. Representations and Warranties of Purchaser and Marcum . . . . . . 19
Section 4.1 Organization . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.2 Power and Authority . . . . . . . . . . . . . . . . . . . 19
Section 4.3 Enforceability . . . . . . . . . . . . . . . . . . . . . 19
Section 4.4 No Conflicts . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.5 Consents . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.7 Shares . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.8 Capitalization of Marcum . . . . . . . . . . . . . . . . 20
Section 4.9 Securities Law Reports . . . . . . . . . . . . . . . . . 20
Section 4.10 Financial Statements . . . . . . . . . . . . . . . . . . 20
Section 4.11 Absence of Adverse Change . . . . . . . . . . . . . . . 20
Section 4.12 No Brokers . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5. Pre-Closing Covenants . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.1 Conduct of Business of Seller . . . . . . . . . . . . . . 21
Section 5.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.3 Risk of Loss . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.4 Bulk Sales . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.5 Consummation of Transactions . . . . . . . . . . . . . . 22
Section 5.6 Public Announcements . . . . . . . . . . . . . . . . . . 22
Section 5.7 Notification of Certain Matters . . . . . . . . . . . . . 22
Section 5.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.9 No Shopping . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.10 Employee Matters . . . . . . . . . . . . . . . . . . . . 23
Section 5.11 Assumed Warranty Obligations . . . . . . . . . . . . . . 24
Section 5.12 Repayment of Indebtedness and Release of Liens . . . . . 24
Section 5.13 Financial Statements . . . . . . . . . . . . . . . . . . 24
Section 5.14 Board Seat . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.15 Pantheon Software License Agreement . . . . . . . . . . 25
Section 5.16 Non-Competition Agreement . . . . . . . . . . . . . . . 25
Section 5.17 Amendment of Marcum Rights Agreement . . . . . . . . . . 25
Section 6. Conditions Precedent to Purchaser's and Marcum's Closing
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.1 Accuracy of Representations and Warranties . . . . . . . 25
Section 6.2 Performance of Covenants . . . . . . . . . . . . . . . . 25
Section 6.3 No Litigation . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.4 Deliveries at Closing . . . . . . . . . . . . . . . . . . 26
Section 6.5 Consents . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Section 6.6 Condition of Assets . . . . . . . . . . . . . . . . . . . 26
Section 6.7 Non-Competition Agreement . . . . . . . . . . . . . . . . 26
Section 6.8 License Agreement . . . . . . . . . . . . . . . . . . . . 26
Section 7. Conditions Precedent to Seller's and American Meter's
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.1 Accuracy of Representations and Warranties . . . . . . . 26
Section 7.2 Performance of Covenants . . . . . . . . . . . . . . . . 26
Section 7.3 No Litigation . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.4 Deliveries at Closing . . . . . . . . . . . . . . . . . . 26
Section 7.5 License Agreement . . . . . . . . . . . . . . . . . . . . 27
Section 8. The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8.1 Date and Place . . . . . . . . . . . . . . . . . . . . . 27
Section 8.2 Deliveries by Seller and American Meter . . . . . . . . . 27
Section 8.3 Deliveries by Purchaser . . . . . . . . . . . . . . . . . 28
Section 8.4 Effectiveness of Closing . . . . . . . . . . . . . . . . 29
Section 9. Survival and Indemnification . . . . . . . . . . . . . . . . . . . 29
Section 9.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9.2 Indemnification by the Seller and American Meter . . . . 29
Section 9.3 Indemnification by Purchaser and Marcum . . . . . . . . . 29
Section 9.4 Claims for Indemnification . . . . . . . . . . . . . . . 30
Section 9.5 Limitation on Liability . . . . . . . . . . . . . . . . . 30
Section 9.6 Non-Exclusive Indemnification . . . . . . . . . . . . . . 31
Section 9.7 Effect of Knowledge . . . . . . . . . . . . . . . . . . . 31
Section 9.8 Contribution . . . . . . . . . . . . . . . . . . . . . . 31
Section 10. Post-Closing and Other Covenants . . . . . . . . . . . . . . . . 31
Section 10.1 Further Assurances . . . . . . . . . . . . . . . . . . . 31
Section 10.2 Seller's Financial Statements . . . . . . . . . . . . . 32
Section 10.3 Preservation of Files and Records . . . . . . . . . . . 32
Section 10.4 Mutual Cooperation . . . . . . . . . . . . . . . . . . . 32
Section 10.5 Solicitation and Hiring . . . . . . . . . . . . . . . . 33
Section 10.6 Registration Rights . . . . . . . . . . . . . . . . . . 33
Section 10.7 Seller's Right of First Refusal to Acquire Purchaser . . 36
Section 10.8 Transition of Assets and Business . . . . . . . . . . . 36
Section 10.9 American Meter Licenses . . . . . . . . . . . . . . . . 37
Section 11. Termination and Confidentiality. . . . . . . . . . . . . . . . . 37
Section 11.1 Events of Termination . . . . . . . . . . . . . . . . . 37
Section 11.2 Effect of Termination . . . . . . . . . . . . . . . . . 37
Section 11.3 Confidentiality . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
Section 12. General Provisions . . . . . . . . . . . . . . . . . . . . . . . 38
Section 12.1 Governing Law . . . . . . . . . . . . . . . . . . . . . 38
Section 12.2 Expenses . . . . . . . . . . . . . . . .. . . . . . . . 38
Section 12.3 Assignment . . . . . . . . . . . . . . .. . . . . . . . 38
Section 12.4 Amendments . . . . . . . . . . . . . . . . . . . . . . . 38
Section 12.5 Notices . . . . . . . . . . . . . . . . . .. . . . . . . 38
Section 12.6 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 12.7 Severability . . . . . . . . . . . . . . . . . . . . . . 40
Section 12.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 12.9 Successors and Assigns . . . . . . . . . . . . . . . . . 40
Section 12.10 Pronouns, etc . . . . . . . . . . . . . . . . . . . . . 40
Section 12.11 No Third Party Beneficiaries . . . . . . . . . . . . . 40
Section 12.12 Schedules and Exhibits . . . . . . . . . . . . . . . . 40
Section 12.13 Specific Performance; Cumulative Remedies . . . . . . . 40
Section 12.14 Counterparts . . . . . . . . . . . . . . . . . . . . . 40
Section 12.15 Entire Agreement . . . . . . . . . . . . . . . . . . . 40
</TABLE>
SCHEDULES
1.1(a) Equipment
1.1(b) Inventory
1.1(c) Intellectual Property
1.1(g) Assigned Contracts
1.2 Excluded Assets
2.5 Allocation of Purchase Price
3.1 Foreign Qualification
3.13 Affiliated Transactions
3.15 Liens on Assets
3.16 Personal Property Leases
3.18 Intellectual Property
3.19 Customers and Suppliers
3.20 Employment Agreements
3.23 Contracts
3.26 Product Warranties
EXHIBITS
A. Convertible Note
B. Software Licensing Agreement
C. Non-Competition Agreement
D. Bill of Sale
E. Seller's Legal Opinion
F. Purchaser's Legal Opinion
<PAGE> 6
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of the 23rd day of March, 1998, by and among EAGLE RESEARCH
CORPORATION, a West Virginia corporation ("Seller"), AMERICAN METER COMPANY, a
Delaware corporation ("American Meter"), METRETEK, INCORPORATED, a Florida
corporation ("Purchaser"), and MARCUM NATURAL GAS SERVICES, INC., a Delaware
corporation ("Marcum").
W I T N E S S E T H:
WHEREAS, Seller is, among other things, engaged in the business of
developing, manufacturing and selling electronic meter correcting and reading
equipment, excluding those business activities conducted by Seller (i) that the
parties agree are associated with the design, construction and sale of remote
terminal units (the "RTU Business") (it being agreed that the Business shall
include, and the RTU Business shall not include, high-low pressure monitors
developed, manufactured and sold by Seller), and (ii) in the system
installation business (collectively, such activities of Seller, taking into
account the aforementioned excluded business activities, are hereinafter
referred to as the "Business"); and
WHEREAS, Seller desires to sell and Purchaser desires to purchase
certain assets of Seller used in the Business, upon the terms and subject to
the conditions set forth herein; and
WHEREAS, the parties hereto desire to enter into certain other covenants
among themselves as an inducement to and in connection with the execution,
delivery and performance of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, agreements, representations and warranties set forth herein, and
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:
SECTION 1. SALE AND PURCHASE OF THE ASSETS
SECTION 1.1 SALE AND PURCHASE. At the Closing (as defined below),
upon the terms and subject to the conditions set forth in this Agreement,
Seller shall sell, assign, transfer, convey and deliver to Purchaser, and
Purchaser shall purchase and acquire from Seller, all of Seller's right, title
and interest in and to all the assets of Seller of every kind, character and
description, whether now owned or hereafter acquired by Seller prior to the
Closing Date, whether tangible or intangible, and wherever located, which are
owned, used or held for use in connection with, generated by, derived from or
attributable to, or otherwise related to, the Business (excluding the Excluded
Assets, as defined in Section 1.2 hereof) (all of which are collectively
referred to herein as the "Assets"), including, but not limited to, the
following:
(a) all equipment, machinery, vehicles, office furniture,
fixtures, tools, dies, spare parts, appliances, computer hardware, equipment
and supplies, and other similar tangible personal property, including, without
limitation, the personal property and equipment set forth on Schedule 1.1(a)
hereto;
(b) all inventories, including, without limitation, raw
materials, work in process, finished goods, inventories held by customers on a
consignment basis, stocks, supplies, materials and
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manufactured and purchased parts, including, without limitation, the items of
inventory set forth on Schedule 1.1(b) hereto;
(c) all patents, trademarks, trade names, trade dress, logos,
service marks and copyrights, all applications, registrations, extensions,
reissues and continuations thereof, all licenses and sublicenses with respect
thereto, all rights thereunder, and all remedies against infringement thereof,
including, without limitation, those items set forth on Schedule 3.18 hereto
(including trademarks, trade names, trade dress and logos directly related to
the Assets and used by Seller in the Business that are owned by American
Meter), other than the name "Eagle" and all trademarks, trade names, trade
dress and logos associated with such name;
(d) all technologies, materials, formulations, data bases,
trade secrets, secret processes, know how, inventions and other intellectual
property and intangible property of every kind and nature;
(e) all computer software (including documentation and related
object and source codes), other than that pertaining to "Pantheon," as such
term is defined in the License Agreement (which is defined in Section 5.15
hereof);
(f) all rights and interests under orders, bids, quotations
and similar arrangements relating to the purchase or sale of Seller's goods and
services, and all deposits by customers, to the extent not fulfilled prior to
the Closing Date;
(g) all rights and interests under licenses, contracts,
agreements, leases and commitments, including without limitation, contracts
providing for the lease of equipment, machinery, office equipment, furniture
and vehicles, sales representative agreements, distributor agreements,
consignment agreements and other similar agreements, whether as principal or
agent or distribution, to the extent (i) transferable to Purchaser, (ii)
assumed in the sole discretion by Purchaser, and (iii) set forth on Schedule
1.1(g) hereof ("Assigned Contracts");
(h) all franchises, approvals, permits, licenses,
qualifications, authorizations, orders, registrations, certificates, variances,
and similar rights obtained from or issued by any Governmental Authority (as
defined in Section 3.5 below), and all pending applications therefor, that are
transferable to Purchaser;
(i) all rights and interests of Seller under all warranties,
guarantees and covenants not to compete for the benefit of the Business or the
Assets;
(j) all data, documents, forms, correspondence, lists, plats,
architectural plans, drawings, specifications, creative materials, advertising
and promotional literature and materials, studies, reports, and other printed,
written, machine readable, electronic or computer-generated materials, and such
financial information as reasonably necessary for Purchaser to operate the
Business, to the extent they relate to the Assets or the Business; and
(k) the Business as a going concern and all goodwill
associated therewith.
SECTION 1.2 EXCLUDED ASSETS. Notwithstanding any provision in Section
1.1 or elsewhere herein to the contrary, the Assets shall not include any of
the following:
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<PAGE> 8
(a) those Assets disposed of in the ordinary course of
business as permitted by this Agreement;
(b) the corporate franchise of Seller and the records of all
matters pertaining to its corporate existence including minute books, stock
transfer books, tax returns, tax identifications, books of account and other
records pertaining to Seller's corporate organization;
(c) the Purchase Price (as defined below) and all other rights
accruing to Seller under this Agreement;
(d) the rights to all of Seller's claims for any federal,
state, local or foreign tax refunds or adjustments;
(e) Seller's Employee Plans (as defined in Section 3.21
hereof);
(f) any leases of real or, except as set forth on Schedule
1.1(g), personal property by Seller as lessee;
(g) any rights and interests of Seller under contracts,
agreements and commitments that are not set forth on Schedule 1.1(g);
(h) the accounts receivable of Seller;
(i) cash and cash equivalent items;
(j) insurance policies, surety bonds, prepaid insurance
premiums, insurance claims and refunds and adjustments on insurance policies
and claims;
(k) net operating losses generated by Seller and all rights
pertaining thereto;
(l) assets, properties and rights set forth on Schedule 1.2;
and
(m) assets, properties and rights not used by Seller
principally in connection with the Business and not necessary for Purchaser to
conduct the Business, including, but not limited to, the Pantheon business and
assets, properties and rights related thereto, which are set forth on Schedule
1.2.
SECTION 1.3 LIABILITIES.
(a) Notwithstanding any other provision herein to the
contrary, Purchaser is not assuming and shall have no obligation to pay,
perform or discharge any liabilities, debts, accounts payable or other
obligations of Seller of any kind or nature whatsoever, whether known or
unknown, fixed or contingent, whenever arising or accruing, other than the
Assumed Liabilities (as defined in Section 1.3(b) below).
(b) From and after the Closing Date, Purchaser shall assume
and perform the Assumed Liabilities. As used herein, the term "Assumed
Liabilities" means only the following:
(i) One-half of the "Post-Closing Transitional Employee
Costs" (as defined in Section 5.10(g) hereof);
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<PAGE> 9
(ii) the Assumed Warranty Obligations (as defined in
Section 5.11 hereof); and
(iii) the Assumed Contracts set forth on Schedule 1.1(g)
hereto.
(c) Notwithstanding the foregoing, except for the Assumed
Liabilities expressly and specifically set forth above, for purposes of
amplification and not of limitation, Purchaser shall not assume and shall have
no obligation to pay or perform any of the following debts, liabilities or
obligations of Seller:
(i) any tax, fee or charge pertaining to the Assets
accruing on or prior to the Closing Date, including but not limited to income,
sales, use, transfer or other tax, whether imposed on Seller or Purchaser,
accruing due to the transactions contemplated hereby;
(ii) any trade or accounts payable of Seller;
(iii) any liabilities or obligations of Seller for (A)
wages, salaries, bonuses, commissions, vacation pay, sick pay, holiday pay,
severance or termination pay, (B) employee benefits, including without
limitation pension plans, bonus plans, profit-sharing plans, life, health or
disability insurance programs, 401(K) plans and other Employee Plans (as
defined in Section 3.21 hereof), (C) FICA, payroll or other payroll taxes, or
(D) any other liability or obligation pertaining to employees, consultants,
independent contractors and other persons or entities who provide services to
Seller;
(iv) Pre-Closing Transitional Employee Costs (as defined
in Section 5.10(g) hereof), other than as specified in Section 5.10(g);
(v) any real property lease of Seller;
(vi) any contract, agreement, lease or commitment not
specifically set forth on Schedule 1.1(g) hereto;
(vii) any environmental liability of Seller;
(viii) any debts, liabilities or obligations of Seller
arising under any guarantee, bond, debt, loan or credit agreement, promissory
note, mortgage, security agreement, pledge or other similar agreement or
instrument;
(ix) any obligation or liability of Seller to indemnify
any person or entity (including but not limited to any officer, director or
stockholder) for any expense, loss, damage, judgment, fine, cost, amount paid
in settlement, legal fees or otherwise, whether such indemnity is pursuant to
any statute, charter document, bylaws, agreement or otherwise);
(x) any liability or obligation relating to any
financial indebtedness of Seller;
(xi) any debt, liability or obligation incurred by
Seller under this Agreement, or
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<PAGE> 10
any cost or expense incurred in connection herewith or the transactions
contemplated hereby; or
(xii) any other debt, liability or obligation of Seller
or related to the Assets or the Business, whether fixed, contingent or
otherwise, whether or not arising in the ordinary course of business, that
accrues on or prior to the Closing Date.
SECTION 2. PURCHASE PRICE AND PAYMENT
SECTION 2.1 PURCHASE PRICE. As full payment and consideration for the
sale and transfer of the Assets by Seller to Purchaser, upon the terms and
subject to the conditions set forth herein, Purchaser shall assume and
thereafter perform the Assumed Liabilities of Seller set forth in Section
1.3(b) hereof and shall pay to Seller a total purchase price of $4,500,000,
plus or minus the "Inventory Adjustment Payment" (as defined in Section 2.2
hereof) and the "Convertible Note Adjustment" (as defined in Section 2.4
hereof) (the "Purchase Price") as follows:
(a) At the Closing, Purchaser shall pay to Seller the amount
of $1,300,000 (the "Cash Portion") by certified or bank cashier's check or by
wire transfer of immediately available funds to an account designated by
Seller;
(b) At the Closing, in payment of $2,000,000 of the Purchase
Price, Marcum shall issue and deliver to Seller a certificate representing
1,758,242 shares (the "Issued Shares") of Common Stock, par value $.01 per
share, of Marcum (the "Common Stock");
(c) At the Closing, in payment of $1,200,000 of the Purchase
Price, Purchaser and Marcum shall execute and deliver to Seller at the Closing
an unsecured, subordinated, convertible promissory note, substantially in the
form attached hereto as Exhibit A (the "Convertible Note");
(d) On the date specified in Section 2.2 hereof, the Inventory
Adjusting Payment shall be paid as specified in Section 2.2 hereof; and
(e) As specified in Section 2.4 hereof, the Convertible Note
Adjustment, if any, shall be made.
SECTION 2.2 POST-CLOSING ADJUSTMENT FOR PURCHASE PRICE FOR INVENTORY.
(a) Within 60 days after the Closing Date, Seller, with the
assistance of any relevant former employees of Seller who have been hired by
Purchaser, shall prepare and deliver to Purchaser a statement (the "Closing
Inventory Statement") setting forth the amount and value of the "Inventory" (as
defined below) of the Business as of the Closing Date (the "Closing Inventory
Amount"), computed in accordance with provisions of this Agreement. For
purposes of this Agreement, the term "Inventory" shall mean the value at the
close of business on the date of determination thereof of all inventory,
including raw materials, work in process and finished goods, used in the
Business, net of reserves for obsolescence. For purposes of this Agreement,
the parties agree that the Inventory as of December 31, 1997 was $1,683,772,
less reserves of $173,483 (the "1997 Inventory Amount"). The computation of
the Closing Inventory Amount shall be made on a basis consistent with the
method of computation for the 1997 Inventory Amount. Solely for purposes of
computing the amount, if any, of the Inventory Adjusting Payment (as defined
below in this Section 2.2), Purchaser hereby agrees that the amount and method
of determining the reserves for obsolescence used by Seller in calculating the
1997 Inventory
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<PAGE> 11
Amount, and all parties hereto agree that the same reserve amount will be used
to calculate the Closing Inventory Amount.
(b) If Purchaser does not deliver to Seller written notice of
any objections to the Closing Inventory Amount as proposed by Seller within 30
days after Purchaser's receipt of the Closing Inventory Statement, then the
Closing Inventory Amount set forth in the Closing Inventory Statement shall be
deemed conclusive and binding on the parties hereto. If Purchaser does so
deliver written notice of any objections in reasonable detail to the Closing
Inventory Amount, then Purchaser and Seller shall use their best efforts to
resolve the matters in dispute among themselves and agree upon the Closing
Inventory Amount. If Purchaser and Seller do not agree in writing on the
Closing Inventory Amount within 30 days after Seller's receipt of Purchaser's
notice of objections to Seller's determination of the Closing Inventory Amount,
then Purchaser and Seller and shall submit the issues and the amount in dispute
(the "Disputed Amount") to an accounting firm mutually acceptable to Purchaser
and Seller (the "Accountants") for final resolution and determination of the
Closing Inventory Amount. Each party shall furnish to the Accountants such
work papers and other documents relating to the disputed issues as the
Accountants may reasonably request and as are available to the parties, and
shall be afforded the opportunity to present to the Accountants any material
relating to the determination and to discuss the determination with
Accountants. The determination made by the Accountants as set forth in a
writing delivered to each party within 60 days after being engaged shall be
made in accordance with the provisions of this Agreement and shall be
conclusive and binding upon the parties hereto. Seller shall bear that portion
of the fees and expenses of the Accountants that is equal to the portion of the
Disputed Amount determined to have been correctly disputed by Purchaser, and
Purchaser shall bear the remainder of such fees and expenses.
(c) Seller shall make the work papers and back-up materials
used in preparing the Closing Inventory Statement available to Purchaser and
its accountants and representatives at reasonable times and upon reasonable
notice at any time during the review by the Purchaser of the Closing Inventory
Amount and the resolution by the parties of any objections thereof.
(d) Within 30 days after final determination of the Closing
Inventory Amount pursuant to Section 2.2, an adjusting payment (the "Inventory
Adjusting Payment") shall be made by Seller to Purchaser or by Purchaser to
Seller as follows: (i) if the 1997 Inventory Amount exceeds the Closing
Inventory Amount, then Seller shall make an Inventory Adjusting Payment to
Purchaser in the amount of the difference; and (ii) if the Closing Inventory
Amount exceeds the 1997 Inventory Amount, then Purchaser shall make an
Inventory Adjusting Payment to Seller in the amount of the difference. The
Inventory Adjusting Payment shall be paid in immediately available funds by
wire transfer to an account designated by the payee.
SECTION 2.3 CONVERTIBLE NOTE. The Convertible Note (a) shall bear
interest on the unpaid principal balance at a fixed rate per annum equal to
7.5% payable quarterly in arrears, (b) shall be due and payable four years from
the Closing Date in a single payment of unpaid principal together with accrued
and unpaid interest, (c) may be prepaid in whole at any time or in part from
time to time without penalty or premium, (d) shall be subject to certain debt
covenants of Marcum set forth in the Convertible Note, and (e) shall be
convertible into unregistered shares of Common Stock at the rate of $1.421875
of principal per share (the "Convertible Shares"); provided, however, that in
no event shall the aggregate number of Issued Shares and Convertible Shares
(collectively, the "Shares") to be issued by Marcum to Purchaser hereunder
exceed 19.99% of the aggregate number of Shares of Marcum outstanding on the
date preceding the Closing Date (the "Share Cap"). The amount of any principal
balance on the
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<PAGE> 12
Convertible Note, together with any accrued and unpaid interest thereon, as a
result of the Share Cap, if applicable, shall be paid in cash upon the maturity
date of the Convertible Note or if sooner upon either prepayment or conversion,
as the case may be, of the Convertible Note.
SECTION 2.4 CONVERTIBLE NOTE ADJUSTMENT.
(a) The amount of the Convertible Note is based upon the
assumption that average annualized gross sales ("Average Sales") for the period
from July 1, 1998 through December 31, 1999 (the "Sales Adjustment Period") of
products formerly manufactured and sold by Seller (the "Products") will be at
least $4,500,000. For purposes of this Section 2.4, "Average Sales" shall mean
the aggregate gross sales (net of returns and allowances) of the Products by
Purchaser and its affiliates during the during the Sales Adjustment Period,
multiplied by a fraction, the numerator of which is 12 and the denominator of
which is 18. For purposes of this Section 2.4, the term "Products" shall
include products sold by Purchaser and its affiliates, the design of which is
directly derived from the Products.
(b) Purchaser shall provide Seller with a quarterly report of
gross sales of Products during the Adjustment Period within 45 days after the
end of each quarter. The last such report shall be accompanied by a
certificate from Purchaser's Chief Financial Officer certifying the accuracy of
the final aggregate amount. Seller shall have the right to audit any report in
the amount of Average Sales at any time with reasonable notice to Purchaser.
(c) If Average Sales are less than $4,500,000, then the
principal amount of the Convertible Note shall be reduced dollar-for-dollar by
the amount of any such deficiency; provided, however, that the amount of any
such reduction in the principal amount of the Convertible Note shall not exceed
$600,000 (the amount of such reduction referred to herein as the "Convertible
Note Adjustment").
(d) In the event that Seller has converted into Convertible
Shares a portion of the Convertible Note in excess of the difference between
$1,300,000 and the Convertible Note Adjustment (the "Excess Conversion
Amount"), then within 30 days after the determination of the Excess Conversion
Amount, Seller shall pay the Excess Conversion Amount to Purchaser in
immediately available funds by wire transfers to an account designated by
Purchaser. The obligation of Seller to pay the Excess Conversion Amount to
Purchaser is joint and several with American Meter and shall survive the
Closing until satisfied in full notwithstanding any provision of Section 9.1
hereof to the contrary.
SECTION 2.5 ISSUED SHARES. The Shares shall be issued by Marcum in
transactions exempt from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"), and applicable state securities laws
and shall constitute "restricted securities" as such term is defined in Rule
144 promulgated under the Securities Act. Seller shall have certain
registration rights with respect to the Shares as set forth in Section 10.7
hereof.
SECTION 2.6 ALLOCATION OF PURCHASE PRICE. The Purchase Price set
forth in Section 2.1 hereof shall be allocated among the Assets for all
purposes (including financial reporting and tax purposes) as set forth on
Schedule 2.6 hereto. Seller and Purchaser each hereby covenants and agrees
that it will not take a position on any income tax return, before any
governmental agency charged with the collection of any income tax, or in any
judicial proceeding that is in any way inconsistent with the terms of this
Section 2.6.
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SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER AND AMERICAN METER.
Each of Seller and American Meter hereby jointly and severally
represents and warrants to and for the benefit of Purchaser and Marcum as
follows:
SECTION 3.1 ORGANIZATION. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of West
Virginia. American Meter is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Seller is duly
qualified or licensed to do business and is in good standing as a foreign
corporation in each state and other jurisdiction in which the ownership, lease
or operation of the Assets or the conduct of the Business requires such
qualification or licensing. Schedule 3.1 hereto sets forth an accurate and
complete list of each state in which Seller is licensed or qualified to do
business as a foreign corporation.
SECTION 3.2 SUBSIDIARIES. Seller has no direct or indirect
subsidiaries and does not own, hold or control, directly or indirectly, any
shares of capital stock or any equity, ownership, management or voting interest
in any corporation, general or limited partnership, limited liability company,
joint venture, business trust or other business entity or association
(collectively, "Entities").
SECTION 3.3 POWER AND AUTHORITY. Seller has all requisite right,
power and authority, corporate or otherwise, to conduct its business and
affairs (including the Business) as presently conducted and as proposed to be
conducted, to own, lease and operate its assets and properties (including the
Assets), and to execute, deliver, and perform its obligations under, this
Agreement and the other agreements and instruments to be executed and delivered
by it hereunder (the "Related Seller Agreements"). The execution and delivery
by it of this Agreement and the Related Seller Agreements and the performance
by it of its obligations hereunder and thereunder have been duly and validly
authorized by all requisite action, corporate or otherwise, of it.
SECTION 3.4 ENFORCEABILITY. This Agreement has been duly and validly
executed and delivered on behalf of it and does, and the Related Seller
Agreements when duly and validly executed by it shall, constitute legal, valid
and binding obligations of it, enforceable against it in accordance with their
respective terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, receivership, reorganization, moratorium and other
similar laws now or hereafter in effect relating to or affecting creditors'
rights and remedies generally, and by general principles of equity, whether
applied by a court of law or in equity.
SECTION 3.5 NO CONFLICTS. The execution and delivery by it of this
Agreement and the Related Seller Agreements and the performance by it of the
transactions and obligations contemplated hereby and thereby do not and will
not, directly or indirectly, (a) violate, conflict with, or constitute a breach
of or a default (or an event that, after the giving of notice or the lapse or
time or both, would constitute a default) under, any provision of (i) its
certificate or articles of incorporation, bylaws or other charter or
organizational documents, (ii) any agreement among its shareholders or between
it and its shareholders, (iii) any contract, obligation, note, security
agreement, mortgage, bond, indenture, lease, loan agreement, debt instrument or
other instrument, commitment or agreement to which any of the Assets are or may
be bound, or (iv) any license, franchise, approval, certificate, permit or
authorization held by it or applicable to the Assets; (b) violate any
applicable federal, state, local or foreign law, statute, rule, regulation or
ordinance, or any order, injunction, writ, judgment, decree or ruling of any
court, arbitrator or governmental, quasi-governmental, administrative or
regulatory body, agency or authority ("Governmental Authority"); (c) result in
the creation or imposition of any mortgage, lien, pledge,
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security interest, conditional sales rights under any applicable bulk sales or
bulk transfer law or other title retention agreement, or any other restriction,
encumbrance or claim of any kind or description on or against any of the
Assets; or (d) constitute an event which would permit any individual, Entity or
Governmental Authority (collectively, "Person") to terminate or modify any
Assigned Contract.
SECTION 3.6 DEFAULTS. It is not presently in breach or violation of
or default under or conflict with any item set forth in Section 3.5(a) or (b);
and no event or condition has occurred which, after the giving of notice or the
lapse of time or both, could be reasonably expected to result in any such
breach, violation, default or conflict.
SECTION 3.7 CONSENTS. No consent, authorization, permit or approval
of, notice or report to, or filing or registration with, or waiver
(collectively, "Consents") by, any Person is necessary for it to execute and
deliver this Agreement and the Related Seller Agreements and to perform its
obligations hereunder and thereunder, except for Consents the lack of which,
either individually or in the aggregate, shall have no material adverse effect
on the Assets or the Business or on its ability to consummate the transactions
contemplated by this Agreement or the Related Seller Agreements.
SECTION 3.8 LITIGATION. There are no actions, suits, claims,
investigations, arbitrations, hearings or other proceedings (whether civil,
criminal, administrative, investigative or informal) (collectively,
"Proceedings") pending or, to the best knowledge of it, threatened by, before
or involving any court, arbitrator or Governmental Authority (i) against it or
affecting the Business or the Assets, (ii) in which any Person has sought or is
reasonably likely to seek to restrain or prohibit, or to obtain damages or
other relief in connection with, this Agreement or the Related Seller
Agreements or the transactions contemplated hereby or thereby, or (iii) which,
if determined adversely to it, would be reasonably likely to have a material
adverse effect on the Business or the Assets or its ability to perform its
obligations hereunder or to consummate the transactions contemplated hereby.
Neither the Business nor any of the Assets are subject to any outstanding
judgment, order, writ, injunction, decree or ruling of any court, arbitrator or
Governmental Authority. Seller is not presently engaged in any legal action to
recover moneys due from damages caused by, or to enforce its rights against,
any third party relating to the Assets of the Business.
SECTION 3.9 ABILITY TO DISPOSE OF THE ASSETS. Seller is the sole
legal owner of the Assets and has the sole dispositive power with respect to
the Assets.
SECTION 3.10 BROKERS' FEES. No broker, finder, investment broker or
similar agent is or shall be entitled to receive any fee, commission or other
remuneration or compensation relating to the transactions contemplated by this
Agreement or the Related Seller Agreements based on any action taken by or on
behalf of it.
SECTION 3.11 FINANCIAL STATEMENTS. Seller has furnished (or, with
respect to the 1997 financial statements, will furnish prior to the Closing) to
Purchaser true and complete copies of Seller's audited balance sheets as of
December 31, 1996 and 1997, and the related statements of operations and cash
flows for the fiscal years then ended (together with the report thereon of
Arthur Anderson, independent certified public accountants, as to the 1997
financial statements, and Arnett & Foster, P.L.L.C., independent certified
public accountants, as to the 1996 financial statements, and in each case
together with the notes thereto). All such Financial Statements (together
with all related schedules and notes) (i) present fairly the financial
condition, results of operations and cash flows of Seller as of the respective
dates thereof and for the respective periods covered thereby; (ii) have been
prepared in
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accordance with generally accepted accounting principles consistently applied
throughout the periods indicated and with prior periods (except for changes
specifically noted therein); (iii) have been prepared in accordance and
consistent with the books and records of Seller; and (iv) reflect appropriate
reserves for all taxes and other liabilities or obligations of any nature,
whether accrued, absolute, fixed, contingent or otherwise and whether due or to
become due, and all reasonably anticipated losses related to the Business.
SECTION 3.12 ABSENCE OF UNDISCLOSED LIABILITIES. As of the date
hereof, except as set forth in the audited balance sheet of Seller as of
December 31, 1997 and the related notes thereto ("1997 Balance Sheet"), Seller
does not have any material debt, liability, guarantee or other obligation
related to the Assets or the Business, except for those that (i) are not
required by generally accepted accounting principles to be included in the 1997
Balance Sheet, and (ii) have been incurred after the date of the 1997 Balance
Sheet in the ordinary course of business and are usual and normal in amount,
both individually and in the aggregate. To the best knowledge of Seller and
American Meter, no circumstance or event has occurred prior to the Closing that
could be reasonably expected to give rise to any additional material debts,
liabilities or obligations pertaining to the Business after the Closing.
SECTION 3.13 NO MATERIAL ADVERSE CHANGE.
(a) Since December 31, 1997, (i) the Business has been
conducted only in its historic, ordinary course; (ii) there has been no
material adverse change in (x) the Assets or (y) the liabilities, operations,
affairs, condition (financial or otherwise) or prospects of the Business; and
(iii) there has been no damage, destruction, loss, occurrence or event (whether
or not insured against) which, either individually or in the aggregate, has
had, or might reasonably be expected to have, a material adverse effect on the
(x) Assets or (y) liabilities, operations, affairs, condition (financial or
otherwise) or prospects of the Business.
(b) Without limiting the generality of the foregoing, since
December 31, 1997, there has not been any:
(i) Sale, assignment, transfer, lease or other
disposition of any Assets, except of inventory and equipment to customers in
the ordinary course of business for fair consideration;
(ii) Mortgage, pledge, security interest, lien, claim or
other encumbrance or restriction granted by Seller, or otherwise created or
imposed, on or against any Asset or the Business;
(iii) Capital expenditure (or series of related capital
expenditures) by Seller relating to the Business exceeding $25,000;
(iv) Material destruction, damage to or loss (whether or
not insured against) of any Assets;
(v) Entering into any agreement, contract, lease or
license (or series of related instruments) relating to the Assets or the
Business, which either involves more than $25,000 or is outside the ordinary
course of business;
(vi) Modification, amendment, cancellation or
termination of any contract, agreement, lease or license relating to the Assets
or the Business to which Seller is a party, except in the ordinary course of
business;
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(vii) Commencement or notice or threat of commencement of
any Proceeding against or affecting the Business or the Assets;
(viii) Amendment to Seller's articles of incorporation or
bylaws;
(ix) Capital investment in, loan to or acquisition of
the securities or assets of, any other Person (other than in the ordinary
course of business);
(x) Grant of any license or sublicense of any Assets or
any rights under or with respect to any Intellectual Property;
(xi) Any transaction between Seller and any of its
officers, directors, employees or affiliates, other than in the ordinary course
of business and usual in amount and as disclosed on Schedule 3.13 hereto;
(xii) Waiver, cancellation, compromise or release of any
material right or claim of Seller relating to the Assets or the Business, or
forgiveness or cancellation of any material debt or claim relating to the
Assets or the Business;
(xiii) Failure to maintain levels of inventory in the
Business consistent with past ordinary practices, or alteration of the
inventory practices maintained by Seller during the previous twelve months
relating to the Business;
(xiv) Other events or conditions of any character that,
individually or in the aggregate, (A) have or might reasonably have a material
adverse effect on (i) the Assets, or (ii) the operations, liabilities,
condition (financial or otherwise) or prospects of the Business, or (B) cause
or might reasonably be expected to cause Seller to be in breach of any of its
representations, warranties or covenants hereunder; or
(xv) Any agreement, commitment, arrangement or
understanding by Seller to do any of the actions described in the preceding
clauses (i) through (xiv).
SECTION 3.14 TAXES.
(a) Within the times (or if later all penalties and interest
related thereto having been paid in full) and in the manner prescribed, Seller
has accurately prepared in good faith and properly filed all federal, state,
local and foreign tax returns, reports and forms required by law, rule,
regulation or otherwise to be filed relating to the Business and has paid all
taxes, assessments and penalties due and payable, and Seller has furnished to
Purchaser true and complete copies of all such tax returns, reports and forms
so filed since December 31, 1994. All tax returns, reports and forms filed by
Seller accurately set forth all items (to the extent required to be included or
reflected in such returns) relevant to its future tax liabilities, including
the tax bases of the Assets. Seller has fully paid or has made adequate
provision in the 1997 Balance Sheet for all federal, state, local and foreign
taxes relating to the Business for the period ending on the date of the 1997
Balance Sheet and for all subsequent periods. Seller has timely collected,
withheld and paid or, if not yet due, will pay when due, all taxes
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required to be withheld by any federal, state, local or foreign taxing
authority relating to the Business and complied with all information reporting
requirements related thereto.
(b) There are no disputes pending or overtly threatened by any
taxing authority as to taxes of any nature payable by Seller. No examinations
or audits of the federal, state, local or foreign tax returns of Seller
relating to the Business are currently in progress or, to the best knowledge of
Seller and American Meter, threatened or proposed. No deficiency or adjustment
for any tax has been claimed, proposed or assessed against Seller relating to
the Business by any taxing authority that remains unpaid.
(c) As used in this Section 3.14, the term "tax" includes all
federal, state, local or foreign income, franchise, profits, gross receipts,
value added, net worth, real property, personal property, sales, transfer, use,
service, ad valorem, stamp, environmental, windfall profits, employment, social
security, Medicare, disability, workers' compensation, unemployment
compensation, occupation severance, purchaser premiums, excise, withholding,
payroll and other taxes, charges, fees, levies, tariffs, duties and other
assessments of any kind or nature, imposed by the laws and regulations of any
governmental jurisdiction (federal, state, local or foreign) or by any taxing
authority (federal, state, local or foreign) and all interest, fines and
penalties related thereto.
SECTION 3.15 TITLE TO AND CONDITION OF ASSETS. The Assets constitute
all of the assets, rights and interests of every kind and description that are
used by Seller in the Business (other than assets of Seller or American Meter
that are not principally used in the Business and not necessary to conduct the
Business as set forth on Schedule 1.2 hereof) and will permit Purchaser to
operate the Business in compliance with all legal requirements substantially as
conducted by Seller. All tangible Assets are physically located at 105 Erskine
Lane, Scott Depot, West Virginia. Seller has and will transfer to Purchaser at
Closing good, valid, marketable and exclusive title to and rightful and
peaceful possession of all of the Assets, free and clear of any and all
mortgages, liens, security interests, pledges, charges, encumbrances, equities,
rights of first refusal, options to purchase, equitable interest, deeds of
trust, claims, easements, rights-of-way, covenants, conditions or restrictions
of any kind or nature whatsoever ("Liens"), except for (i) those disclosed in
the 1997 Balance Sheet; (ii) liens for current taxes not yet due and payable;
and (iii) Liens disclosed on Schedule 3.15 hereto which will be removed and
released at or prior to the Closing. Seller is in rightful possession of all
personal property leased to it from others and utilized in the Business. All
tangible personal property of Seller included in the Assets is generally in
good operating condition and repair (ordinary wear and tear excepted), has been
utilized or serviced only in a manner that would not void or limit the coverage
of any warranty thereon, has been properly maintained and are adequate and
suitable for its intended purposes.
SECTION 3.16 PERSONAL PROPERTY LEASES. Schedule 3.16 hereto sets
forth each lease of personal property under which Seller is either a lessee or
lessor of certain of the Assets. Each such lease is in full force and effect
and is a valid and binding obligation of Seller and of each of the parties
thereto. Seller is not, and Seller does not have any knowledge that any other
party is, in default with respect to any material term or condition of any such
lease, and no event has occurred which through the passage of time or the
giving of notice, or both, would constitute a default thereunder or would cause
the acceleration of any obligation of any party thereto or the creation of a
lien or encumbrance upon any Asset.
SECTION 3.17 INVENTORY. All of Seller's inventory of raw materials,
work in process and finished goods, parts and supplies (including inventory on
consignment) relating to the Business consists of items of a quantity and
quality usable and saleable in the ordinary course of business by Seller (net
of
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any reserve reflected in the 1997 Balance Sheet), except for obsolete,
defective, damaged and slow-moving items and items below standard quality, all
of which have been written down on the books of Seller to net realizable market
value or have been provided for by adequate reserves in the 1997 Balance Sheet.
All inventories of finished goods consist of items that have been manufactured
in accordance with, and which meet, applicable industry standards. All
inventories are correctly marked. The inventories shown on the 1997 Balance
Sheet are based on quantities determined by physical count or measurement and
are valued at the lesser of cost (determined on a first-in, first-out basis) or
market value and on a basis consistent with that of prior years and are
adjusted for excess and obsolescence.
SECTION 3.18 INTELLECTUAL PROPERTY.
(a) Schedule 3.18 sets forth a complete and accurate list and
brief description of all patents, trademarks, trade dress, logos, service marks,
trade names, corporate names, fictitious names and copyrights, and each
application therefor, which are either owned by Seller or which are used by
Seller in the Business and, in each case where Seller is not the owner thereof,
the name of the owner thereof. Except as set forth in Section 3.18, Seller is
the exclusive owner of and possesses adequate and valid licenses and other
rights to use all of the items set forth in Schedule 3.18 hereto and all trade
secrets, licenses, inventions, processes, discoveries, developments, designs,
formulas, know-how, drawings, customer and supplier lists, software,
confidential information and other proprietary information and all other
proprietary rights, intangible assets and intellectual property, and all copies
and tangible embodiments thereof in whatever form or medium necessary for the
operation of the Business as presently conducted (collectively, "Intellectual
Property").
(b) All rights of Seller in and to its Intellectual Property
related to the Business will be transferred to Purchaser at the Closing.
(c) Seller has taken all necessary and desirable action to
maintain and protect each item of Intellectual Property that it owns or uses in
connection with the Business. Seller has not interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual Property
rights of any third parties, and Seller has never received any charge,
complaint, claim, demand or notice alleging any such interference,
infringement, misappropriation or conflict (including any claim that Seller
must license or refrain from using any Intellectual Property rights of any
third party). To the best knowledge of Seller and American Meter, no third
party has interfered with, infringed upon, misappropriated or otherwise come
into conflict with any Intellectual Property rights of Seller. No claim,
demand, assertion, action, suit, arbitration, hearing, investigation or
proceeding is pending or, to the best knowledge of Seller, threatened, which
pertains to or challenges the validity, ownership or enforceability of any
right of Seller in respect to of Intellectual Property. To the best knowledge
of Seller and American Meter, the continued operation of the Business as
currently conducted will not interfere with, infringe upon, misappropriate or
otherwise come into conflict with any Intellectual Property rights of any third
parties.
(d) Seller is not a party to any agreement, document,
arrangement or understanding pursuant to which Seller has licensed or granted
any right or interest in, to or under any of its Intellectual Property in
connection with the Business. Seller is not obligated or under any liability
whatsoever to make any payment, by way of fees, royalties or otherwise, to any
owner or licensor of, or other claimant to, any of the Intellectual Property of
the Business. Seller has not disclosed any of its trade secrets or other
proprietary or confidential information of the Business to any Person, except
pursuant to a loan or other agreement obligating the recipient to maintain the
confidentiality thereof. To the best knowledge of
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Seller and American Meter, no employee of Seller is subject to any agreement,
arrangement or commitment with any former employer or other person, or is
subject to any judgments, order, decree or ruling of any court, arbitrator or
Governmental Authority regarding confidential information, or rights or
restrictions on competition, that would otherwise affect such employee's
ability to perform his duties to Seller. Seller has never agreed to indemnify
any person for or against any interference, infringement, misappropriation or
other conflict with respect to any item of its Intellectual Property.
SECTION 3.19 RELATIONSHIPS WITH SUPPLIERS AND CUSTOMERS. Schedule 3.19
contains a complete and accurate list of (i) the names, addresses and dollar
amounts of business of each of the 20 largest customers of the Business, in
terms of sales during 1997, and (ii) the name, address and dollar amounts of
business of each of the Seller's 10 largest suppliers during the 1997 fiscal
year for the Business. Since December 31, 1997, no supplier or customer of the
Business has canceled any contract or order or has indicated any intention to
terminate or materially alter its existing business relationship with Seller,
whether as a result of the transactions contemplated hereby or otherwise which
cancellation or termination would have a material advance effect on the
Business. Seller is not involved, and Seller has no knowledge of any facts or
circumstances which could result, in any material claim, dispute or controversy
with any of the material suppliers or customers of the Business.
SECTION 3.20 LABOR AND EMPLOYMENT MATTERS.
(a) Seller is not a party to any contract, collective
bargaining agreement or other agreement with any labor union including any
collective bargaining agreement.
(b) Seller is in compliance in all material respects with all
applicable laws, rules and regulations respecting the employment of, including
but not limited to, fair employment practices, terms and conditions of
employment, and wages and hours. Seller has not engaged in any unfair or
illegal labor practice, and there are no charges or claims of employment
discrimination or unfair labor practices pending, or, to the best knowledge of
Seller and American Meter, threatened against, Seller.
(c) Except as set forth in Schedule 3.20 hereto, Seller is not
a party to, nor is it or any of the Assets bound by, any written or oral,
express or implied, (i) retainer, consulting, severance, termination,
employment or similar contracts or agreements not terminable at will by Seller;
or (ii) pension, profit sharing, deferred compensation, bonus, stock option,
stock purchase or incentive plans or agreements providing for remuneration or
benefits to Seller's employees.
(d) Seller has not entered into any severance, termination or
similar arrangement in respect of any present or former officer, director,
employee or consultant that will result in any obligation, absolute or
contingent, of Purchaser or Seller to make any payment to any present or former
officer, director, employee or consultant following his or her termination of
employment by Seller, other than as agreed to by Purchaser and as otherwise
disclosed by Seller on Schedule 3.20 hereto.
(e) Seller had made payment in full to all of its employees of
all wages, salaries, commissions, bonuses, benefits and other compensation due
to such employees or otherwise arising under any policy, practice, agreements,
plan, program, statute or law.
(f) Seller, American Meter and their affiliates are in
compliance with their obligations, if any, pursuant to the Workers Adjustment
and Retraining Notification Act of 1988, as amended ("WARN"), and all other
notification obligations arising under any federal, state or local, or foreign
statute, rule or regulation.
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SECTION 3.21 EMPLOYEE BENEFIT PLANS.
(a) No Purchaser Obligation. Purchaser shall have no
obligation or liability with respect to any "employee benefit plan," as such
term is defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or any other welfare, bonus, deferred
compensation, retirement, incentive, pension, profit sharing, stock purchase,
stock option, stock appreciation right, severance, or other similar employee
benefit plan, program, policy, arrangement or practice, whether formal or
informal, written or oral (collectively, "Employee Plans"), covering any
current or former employee, officer or director of Seller. Each employee of
Seller shall receive from Seller all benefits to which he is entitled under
each Employee Plan in accordance with the provisions of such plans. In
addition, to the extent that any employee of Seller who was employed prior to
Closing participated in any Employee Plan within the meaning of Section 3(3) of
ERISA which is maintained by an ERISA Affiliate, Purchaser shall have no
obligation or liability with respect to such Employee Plans and any affected
employees shall receive from Seller all benefits to which they are entitled
under such plans, in accordance with the provisions of such plans.
(b) Continuation Rights. Purchaser shall have no obligation
or liability to providing continuation of coverage under any group health plan
maintained by Seller or any other ERISA Affiliate ("Continuation Rights") to
any employees of Seller who were employed prior to Closing.
SECTION 3.22 INSURANCE. All insurance policies under which the
Business and the Assets are insured or which provide for bonding and surety
arrangements in connection with the Business are in full force and effect and
have been issued under valid policies for the benefit of Seller by properly
licensed insurance companies. The premiums on such policies have been paid as
they became due and payable, and Seller is not in default with respect to
payment of premiums on any such policy. Seller shall maintain in full force
and effect insurance policies providing protection against losses and risks to
the Assets and Business that are customarily insured against by comparable
businesses until the Closing.
SECTION 3.23 CONTRACTS.
(a) Each Assigned Contract (i) is in full force and effect and
is a valid and binding obligation of Seller and of the other parties thereto,
enforceable by Seller in accordance with its terms, and (ii) may be transferred
by Seller to Purchaser without penalty and to the best knowledge of Seller and
American Meter will be enforceable by Purchaser. Neither Seller nor, to the
best knowledge of Seller and American Meter, any other party to an Assigned
Contract is in any material respect in breach of or in default under any
Assigned Contract, nor has any event or circumstance occurred which, with
notice or lapse of time or both, would constitute a material breach or default
of the Assigned Contract. Seller has not received notice and has no reason to
believe that any party to any Assigned Contract intends to cancel or terminate
any Assigned Contract or to exercise or not exercise any option thereunder.
(b) Schedule 3.23 hereto sets forth a complete and accurate
list of each of the following Contracts to which Seller is a party which apply
to any portion of the Business or the Assets: (i) any distributor's or
manufacturer's representative or agency agreement; (ii) any output or
requirements agreements; (iii) any agreement not entered into in the ordinary
course of business; (iv) any indenture, mortgage, deed of trust, lease or any
agreement that is unusual in nature, duration, or amount (including, without
limitation, any agreement requiring the performance by Company of any
obligation for a period
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of time extending beyond one year from the Closing Date involving total
consideration of more than $10,000); (v) any contract with any Government
Authority; (vi) any Contract for the lease of personal property to or from any
person providing for lease payments in excess of $10,000 per annum; (vii) any
Contract for the purchase or sale of raw materials, commodities, supplies,
products or other personal property, or for the furnishing or receipt of
services, the performance of which would extend over a period of more than one
(1) year or that involves consideration in excess of $10,000; (viii) any
contract concerning a partnership or joint venture; (ix) any Contract under
which it has created, incurred, assumed, guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, or under which it has
imposed a Lien on any of the Assets; (x) any Contract concerning
confidentiality or non-competition; (xi) any Contract involving any director,
officer, stockholder or other affiliate of Seller; (xii) any Contract for the
employment of any individual on a full-time, part-time, consulting, independent
contractor or other basis or providing severance benefits in excess of
customary severance benefits as set forth on Schedule 3.20; (xiii) any profit
sharing, deferred compensation, severance, termination or other plan or
arrangement for the benefit of current or former directors, officers, or
employees; (xiv) any Contract under which it has advanced or loaned any amount
to any of its directors, officers or employees; or (xv) any other Contract
material to the Assets or the Business.
SECTION 3.24 LICENSES. All licenses, rights, privileges, franchises,
permits, approvals, consents and other authorizations related to the Assets
reasonably necessary for the lawful conduct of the Business as it is presently
conducted and necessary to own, operate, maintain and use the Assets in the
manner in which they are now being operated, maintained and used, including all
applicable zoning, environmental, health, safety and other permits, have been
timely obtained and are currently in effect, except for any failure to have
such license or permit that has not had a material adverse effect on Seller's
ability to conduct the Business, and Seller has not violated, and is not in
violation of, any such licenses, rights, privileges, permits, franchises,
consents or other authorizations.
SECTION 3.25 PRODUCT LIABILITY CLAIMS. No Proceeding is pending or, to
the best knowledge of Seller and American Meter, threatened against or
affecting the Business, arising out of any injury to individuals or to property
as a result of the ownership, possession or use of any product manufactured,
sold, leased or delivered by Seller relating to the Business, and Seller knows
of no facts, circumstances, actions or omissions that could reasonably create
the basis for any such Proceeding.
SECTION 3.26 PRODUCT WARRANTIES. Schedule 3.26 sets forth a complete and
accurate description of all warranties and pending warranty and service
obligations of Seller to its customers in the Business with respect to the
products manufactured or sold by Seller within the two year period prior to the
date of this Agreement, including the beginning and ending dates of such
warranty obligations, and a summary of the warranty charges incurred by Seller
during 1996, 1997 and to date in 1998. Schedule 3.26 also contains a complete
and accurate copy of all such written warranties and terms and conditions, and a
list and amount of all products manufactured or sold by Seller during the past
two years. Each product manufactured, sold, leased or delivered by Seller to
any of its customers has been in material conformity with all applicable
contractual commitments and all express and implied warranties. Neither Seller
nor American Meter knows of any reasonable basis for any present or future
Proceeding against it giving rise to any liability, for replacement or repair
thereof or other damages in connection therewith, subject only to the reserve
for product warranty claims set forth on the 1997 Balance Sheet. There is no
pending or, to the best knowledge of Seller and American Meter, threatened
Proceeding under such warranties, other than the claim by Kukdong City Gas
Company (the "Korean Claim").
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SECTION 3.27 COMPLIANCE WITH LAWS. The Business and the Assets are and
have been in material compliance with all applicable federal, state, local and
foreign laws, statutes, ordinances, rules, regulations, codes, licenses,
permits, orders, judgments, decrees and other legal requirements (including,
without limitation, those applicable to building, health, employment, labor,
product liability, zoning, environmental protection, occupational safety,
storage, disposal, discharge into the environment of hazardous wastes,
environmental protection, conservation, unfair competition, labor practices or
corrupt practices) which affect or are applicable to the Assets and the
Business.
SECTION 3.28 NO LOSS OF RIGHTS OR LEGAL OBSTACLES. The execution and
delivery of this Agreement and the Related Seller Agreements by Seller and
American Meter and their performance of the transactions and obligations
contemplated hereby and thereby do not and will not (a) result in any loss of
any material legal right being transferred to Purchaser hereunder or
thereunder; (b) result in any termination, modification or cancellation of any
Assigned Contract; (c) result in the termination, modification, or cancellation
of, give rise to any right of termination, modification, or cancellation with
respect to, give rise to the acceleration of any performance required under,
result in any increase in any payment due or other liability under, change the
performance required under, or otherwise adversely affect any Assigned
Contract, or modify any Assigned Contract, or result in, or require, the
creation or imposition of any material lien, charge, or encumbrance upon the
Assets, or result in the termination or impairment of any material permit,
license, franchise, or authorization pertaining to the Assets; or (d) to the
best knowledge of Seller or American Meter, adversely affect the Assets or the
Business in any material respect.
SECTION 3.29 TRANSACTIONS WITH AFFILIATES. Seller is not a party to
any lease, license or other agreement, understanding or arrangement with any
affiliates of Seller that is necessary for Purchaser to continue to conduct the
Business after the Closing, as it is conducted on the date of the Agreement.
SECTION 3.30 ABSENCE OF CERTAIN COMMERCIAL PRACTICES. To the best of
Seller's knowledge, neither Seller nor any officer, director, employee or agent
of Seller (or any Person acting on behalf of any of the foregoing), has
directly or indirectly, in connection with the Business (i) given or agreed to
give any gift or similar benefit or more than nominal value on behalf of Seller
to any customer, supplier, employee or official of any Governmental Authority
(domestic or foreign), to induce the recipient or his employer to do business,
grant favorable treatment or compromise or forego any claim, (ii) made any
significant payment which might be improper under prevailing law (regardless of
the jurisdiction in which such payment was made) to promote or retain sales or
to help, procure or maintain good relations with suppliers, (iii) engaged in
any activity which constitutes a violation of the Foreign Corrupt Practices Act
of 1977, as amended, and the rules and regulations promulgated thereunder, (iv)
engaged in any practice violating any law prohibiting compliance with an
unsanctioned foreign boycott, (v) established or maintained any unrecorded or
illegal corporate fund or account or assets, (vi) made false or fictitious
entries on the books or records of Seller, or (vii) failed to perform its
obligations in any material respect under any Contract with, or violated in any
material respect any federal law known to Seller in its dealings with, the
Federal government or any agency or department thereof, including, but not
limited to, any law with respect to conspiracy to defraud, false claims,
conspiracy to defraud the United States, embezzlement or theft of public money,
fraud and false statements, false demands against the United States, mail
fraud, wire fraud, RICO, and truth in negotiations.
SECTION 3.31 SECURITIES REPRESENTATIONS AS TO THE SHARES.
(a) Investment Intent. Seller is acquiring the Shares solely
for its own account, and
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not as nominee or agent for any other person or entity, for investment purposes
only, and not with a view to any subsequent offering, resale or distribution of
the Shares.
(b) Sophistication and Suitability. Seller has such knowledge
and experience in business and financial matters to be capable of independently
evaluating the merits and risks of an investment in the Shares. Seller has
independently evaluated the risks and merits of acquiring the Shares and has
independently determined that the Shares are a suitable investment for Seller.
Seller has sufficient financial resources to bear the economic risk of a loss
of its entire investment in the Shares.
(c) Access to Information. Seller and its representatives
have made an independent investigation of Marcum and its assets, properties,
business, liabilities, financial condition, results of operations and
prospects, and have had access to all of the information it considers necessary
or appropriate in order to evaluate the risks and merits of acquiring the
Shares, and have received all information requested to its satisfaction.
(d) No Reliance. In making its investment decision, Seller
has not relied upon any representations made by Marcum with respect to Marcum
or the Shares (except as set forth in the Agreement) of any projections or
other estimates or forecasts of future performance provided by Marcum.
(e) Accredited Investor. Seller is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act.
(f) No Registration. Seller understands and acknowledges that
the Shares to be acquired by it hereunder have not been registered for offer or
sale to the Seller under the Securities Act or under the securities laws of any
state, but are being offered and sold by Marcum to Seller pursuant to and in
reliance upon exemptions from the registration requirements of such securities
laws, and that Marcum is relying upon the truth and accuracy of the
representations, warranties, covenants and agreements of the Seller set forth
herein in order to determine the availability of such exemptions and the
suitability of the Seller to acquire the Shares.
(g) Restrictions on Resale. Seller understands and
acknowledges that, as a consequence of the restrictions on subsequent transfer
imposed by the exemptions from registration referred to in this Section 3.31
above, the Shares may not subsequently be offered, sold, assigned, conveyed,
pledged, hypothecated or otherwise transferred by Seller except pursuant to an
effective registration statement registering the sale or transfer of the Shares
under the Securities Act and under applicable state securities laws or pursuant
to an exemption from such registration requirements, and the certificates
representing the Shares shall bear a legend setting forth such restrictions
substantially as follows:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or the
securities laws of any state, and may not be sold, assigned,
transferred, or otherwise disposed of unless the same is
registered under such Act and any applicable state securities
laws, or unless an exemption from such registration is available
and Seller receives evidence of such exemption reasonably
satisfactory to it (such as an opinion of counsel).
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SECTION 3.32 FULL DISCLOSURE. No representation, warranty or other
statement by Seller in this Agreement, or in any schedule, exhibit,
certificate, financial statement or other instrument or document furnished or
to be furnished to Purchaser, contains or will contain any untrue statement of
a material fact or omits or will omit any material fact necessary in order to
make any of the statements contained herein or therein, when taken as a whole,
not false or misleading in any material respect in light of the circumstances
in which they were made. There is no fact or circumstance known to Seller that
materially adversely affects, or in the future may be reasonably expected to
(insofar as Seller can now reasonably foresee) materially adversely affect, (i)
the Assets or (ii) the properties, liabilities, business, affairs, operations,
condition (financial or otherwise) or prospects of the Business that has not
been set forth herein or otherwise described to Purchaser.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND MARCUM.
Each of Purchaser and Marcum hereby jointly and severally represents and
warrants to and for the benefit of Seller and American Meter as follows:
SECTION 4.1 ORGANIZATION. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Florida.
Marcum is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware.
SECTION 4.2 POWER AND AUTHORITY. It has all requisite right, power
and authority, corporate or otherwise, to execute, deliver and perform its
obligations under this Agreement and the other agreements and instruments to be
executed and delivered by it hereunder (the "Related Purchaser Agreements").
The execution and delivery by it of this Agreement and the Related Purchaser
Agreements and performance of its obligations hereunder and thereunder have
been duly and validly authorized by all requisite action, corporate or
otherwise, of it.
SECTION 4.3 ENFORCEABILITY. This Agreement has been duly and validly
executed and delivered on behalf of it and does, and the Related Purchaser
Agreements, when duly executed and delivered on behalf of it will, constitute
legal, valid and binding obligations of it, enforceable against it in
accordance with its respective terms, except as such enforcement may be limited
by applicable bankruptcy, insolvency, receivership, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
and remedies generally, and by general principles of equity.
SECTION 4.4 NO CONFLICTS. The execution and delivery by it of this
Agreement and the Related Purchaser Agreements and the performance by it of the
transactions and obligations contemplated hereby and thereby do not and will
not (a) violate, conflict with, contravene or constitute a breach or a default
(or an event that, after the giving of notice or the lapse or time or both,
would constitute a default) under any provision of (i) its certificate or
articles of incorporation, bylaws or other charter or organizational documents;
(ii) any contract, agreement, obligation, understanding, commitment, note,
security agreement, lease, loan agreement, debt instrument or other instrument
or agreement to which it is a party or by which it or any of its assets is or
may become bound; (iii) any license, approval, certificate, permit or
authorization held by it; or (b) violate any applicable federal, state or local
law, statute, rule, regulation or ordinance, or any order, injunction, writ,
judgment, decree or ruling of any court, arbitrator or Governmental Authority.
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SECTION 4.5 CONSENTS. No Consent by any Person is necessary for it
to execute and deliver this Agreement and the Related Purchaser Agreements and
to perform its obligations hereunder and thereunder.
SECTION 4.6 LITIGATION. There are no Proceedings pending or, to the
best of its knowledge, threatened by or before any court, arbitrator or
Governmental Authority against it (i) in which any Person is seeking or is
reasonably likely to seek to restrain or prohibit, or to obtain damages or
other relief in connection with, this Agreement or the Related Purchaser
Agreements or the transactions contemplated hereby or thereby, (ii) which if
determined adversely to it would be reasonably likely to have a material
adverse effect on its ability to perform its obligations hereunder or to
consummate the transactions contemplated hereby, or (iii) which, if determined
adversely to it, would be reasonably likely to have a material adverse effect
on the assets, business, affairs, financial condition or operations of Marcum.
SECTION 4.7 SHARES. The Shares have been validly authorized and,
when issued as contemplated by this Agreement and the Convertible Note, will be
validly issued, fully paid and non-assessable.
SECTION 4.8 CAPITALIZATION OF MARCUM. The authorized capital stock
of Marcum 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, as of January 31, 1998, 12,329,552 shares of Common Stock, options to
purchase 1,585,675 shares of Common Stock, and no shares of Preferred Stock
were issued and outstanding.
SECTION 4.9 SECURITIES LAW REPORTS. Marcum has delivered to Seller
a complete and accurate copy of each Annual Report on Form 10-KSB, Quarterly
Report on Form 10-QSB, Current Report on Form 8-K and Proxy Statement (the "SEC
Reports") filed with the Securities and Exchange Commission (the "SEC")
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), since January 1, 1996. All SEC Reports were prepared in accordance with
and complied in all material respect with the applicable requirements of the
Securities Act and the Exchange Act, as the case may be, and the rules and
regulations thereunder, and as of the dates they were filed, none of the SEC
Reports (including, without limitation, any financial statements or schedules
included or incorporated by reference therein) contained any untrue statement
of a material fact or omitted to state a material fact required to be stated or
incorporated by reference therein, or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading in any material respect, except to the extent any such statement or
omission was superseded by a later-dated SEC Report.
SECTION 4.10 FINANCIAL STATEMENTS. In all material respects, the
consolidated financial statements of Marcum (including any notes thereto)
included in the SEC Reports were prepared in accordance with generally accepted
accounting principles applied on a consistent basis through the periods covered
thereby (except as disclosed in such financial statements), and fairly present
in all material respects the consolidated financial condition of Marcum as of
the dates thereof and the consolidated results of Marcum's operations and
consolidated cash flow for the periods then ended, subject, in the case of any
unaudited interim financial statements, to the omission of certain notes not
ordinarily accompanying such unaudited financial statements, and to normal
year-end adjustments.
SECTION 4.11 ABSENCE OF ADVERSE CHANGE. Since December 31, 1997,
there has not been any material adverse change in the assets, business,
affairs, operations, financial condition or operations of Marcum.
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SECTION 4.12 NO BROKERS. No broker, finder, investment broker or
similar agent is or shall be entitled to receive any fee, commission or other
remuneration or compensation relating to the transactions contemplated by this
Agreement or the Related Purchaser Agreements based on any action taken by or
on behalf of it.
SECTION 5. PRE-CLOSING COVENANTS.
SECTION 5.1 CONDUCT OF BUSINESS OF SELLER.
(a) From the date of this Agreement through the Closing Date,
Seller shall conduct the Business only in its ordinary course consistent with
past practices, including but not limited to using its best efforts to (i)
preserve intact the Business and its good will, including Seller's
relationships with its suppliers, customers, lenders and others having business
relationships with it, (ii) perform all its obligations in accordance with
their terms, (iii) maintain the Assets in good operating condition, (iv) keep
available the services of its present lessors, lessees, licensors, licensees,
suppliers, customers, employees and agents, and (v) comply with all applicable
laws, rules, regulations and orders.
(b) Without limiting the generality of the foregoing, from the
date of this Agreement until the Closing, Seller shall not, without the prior
written consent of Purchaser:
(i) Take any action referred to in Section 3.13(b)
hereof;
(ii) Take any action or omit to take any action which
would breach any covenant or agreement of Seller herein; or
(iii) Take any action which would cause any
representation or warranty of Seller herein to be inaccurate in any material
respect.
(c) From this date of this Agreement through the Closing Date,
Seller shall deliver to Purchaser on a no less than monthly basis, accurate,
complete and current copies of financial statements of Seller and any reports
with respect to the operations of the Business prepared by or for Seller. All
such financial statements shall be prepared in accordance with generally
accepted accounting principles considerably applied on a basis consistent with
Seller's 1997 financial statements.
SECTION 5.2 ACCESS. From the date of this Agreement through the
Closing Date, Seller shall provide Purchaser and its officers, directors,
employees and agents and representatives full access during normal business
hours to the Assets and to the employees, agents, properties, books, contracts,
accounts, commitments, records, tax returns and documents of Seller and shall
furnish to Purchaser and its agents and representatives books, records,
contracts, data and information concerning the Assets and the business and
affairs of Seller as Purchaser and its agents and representatives may
reasonably request. In the event that the transactions contemplated by this
Agreement fail to be consummated, then Purchaser shall promptly return to
Seller all data and information furnished to it and shall keep all such data
and information confidential. No investigation pursuant to this Section 5.2
shall affect any representation or warranty of Seller or any condition to the
Closing obligations of Purchaser.
SECTION 5.3 RISK OF LOSS. From the date of this Agreement through
the Closing Date, Seller assumes all risk of loss, whether by reason of theft,
fire, act of God, or other casualty, and Purchaser shall
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not be obligated to consummate the transactions contemplated hereby if there is
any material loss of the Assets caused by any casualty, whether through the
fault or negligence of Seller or otherwise.
SECTION 5.4 BULK SALES. Seller shall reimburse Purchaser for,
indemnify Purchaser from, and hold Purchaser harmless against, any liabilities,
claims, damages, costs and expenses (including, without limitation, reasonable
attorneys' fees) resulting from or arising out of (i) Seller's failure to
comply with any bulk sales or bulk transfer laws in respect of the transactions
contemplated by this Agreement, or (ii) any action brought or levy made as a
result thereof, other than the Assumed Liabilities.
SECTION 5.5 CONSUMMATION OF TRANSACTIONS. Upon the terms and subject
to the conditions of this Agreement, each of the parties hereto shall use its
reasonable best efforts, and will cooperate with each other, to take, or cause
to be taken, as promptly as practicable, all such actions and to do, or cause
to be done, all other things necessary to carry out its obligations under this
Agreement and under all other agreements contemplated by this Agreement and to
consummate and make effective the transactions contemplated hereby and thereby,
including obtaining all Consents which are necessary in connection with the
transactions contemplated hereby and thereby, provided that Purchaser shall not
be obligated to assume any additional liability of Seller or pertaining to the
Assets other than the Assumed Liabilities.
SECTION 5.6 PUBLIC ANNOUNCEMENTS. From the date of this Agreement
through the Closing Date or the earlier termination of this Agreement for any
reason, Purchaser and Seller shall consult with each other before issuing any
press releases or otherwise making any public statements or disclosures with
respect to this Agreement or the transactions contemplated hereby (directly or
through affiliates) and shall not issue any such press release or make any such
public statement without the prior consent of the other party, which consent
shall not be unreasonably withheld, except that a party hereto may make a
public statement without such consent to the extent the same shall be required
by applicable law or the rules and regulations of the Nasdaq Stock Market or
any other national securities exchange, market or association on which the
capital stock of that party is listed, traded or quoted, if such party has used
its reasonable best efforts to consult with the other party to obtain the other
party's consent but has not been able to do so in a timely manner.
SECTION 5.7 NOTIFICATION OF CERTAIN MATTERS. From the date of this
Agreement through the Closing Date, Purchaser and Seller each shall give prompt
notice to the other of (a) the occurrence, or failure to occur, of any event,
fact or circumstance the occurrence or failure of which would be reasonable
likely to cause any representation or warranty contained in this Agreement to
be untrue or inaccurate in any material respect, or that breaches or is
reasonably likely to breach any covenant or agreement set forth in this
Agreement, and (b) any material failure on its part to comply with or satisfy
any material covenant, condition or agreement to be complied with or satisfied
by it hereunder.
SECTION 5.8 TAXES.
(a) Pre-Closing. Seller shall be responsible for the timely
preparation of, for all federal, state, local or foreign income, excise,
withholding, property, sales, use, franchise and other tax returns, reports and
forms of Seller pertaining to the Assets for all taxable periods ending on or
before the Closing Date, and the payment of all amounts due thereunder.
(b) Due to Transactions. Seller shall pay all federal, state
and local sales, use, income, franchise, worker's compensation, unemployment
documentary and other transfer taxes and fees arising out of the transfer of
the Assets in accordance herewith, whether imposed by law on Seller or
Purchaser,
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and shall pay its portion, prorated as of the Closing Date, of all federal,
state, local and foreign personal property taxes relating to the Assets.
Purchaser shall not be responsible for any business, occupation, withholding,
or similar tax, or any taxes of any kind related to the Assets or the business
being purchased for any period before the Closing Date. Seller shall
indemnify, reimburse and hold Purchaser harmless in respect of any liability
for payment of or failure to pay any such taxes or any filing of or failure to
file any reports required in connection therewith.
SECTION 5.9 NO SHOPPING. From the date of this Agreement through the
Closing Date, neither Seller, American Meter nor any affiliates thereof shall,
directly or indirectly, through any officer, director, employee, agent or
otherwise, solicit, initiate, or encourage the initiation or submission of
inquiries, proposals or offers from, provide any information to, enter into
any agreement with, or participate in any discussions or negotiations
concerning any direct or indirect acquisition of any interest in Seller or any
of the Assets (other than the sale of inventory and equipment in the ordinary
course of business) by, any Person other than Purchaser. Seller shall
immediately notify Purchaser of, and communicate to Purchaser the terms of, any
such inquiry, proposal or offer that it may receive.
SECTION 5.10 EMPLOYEE MATTERS.
(a) Seller shall pay, perform and discharge, and remain liable
after the Closing, for all obligations to its employees, for compensation and
benefits, including wages, salaries, commissions, bonuses, deferred
compensation, severance, termination, insurance, pensions, profit-sharing,
vacation, sick pay and other compensation or benefits ("Seller Employees
Compensation") to which they are entitled for periods prior to the Closing
Date. Until the Closing Date, Seller shall not, without the prior written
consent of Purchaser, change the compensation or benefits of any of its
employees.
(b) Purchaser is not assuming and shall have no obligation to
pay any Seller Employees Compensation, whether accruing before, as a result of,
or after the Closing, except (i) one-half of the Post-Closing Transitional
Employee Costs (as defined below), and (ii) the compensation and benefits
employees of Seller who are not Transitional Employees who are employed by
Purchaser for services performed for Purchaser after the Closing. Seller shall
perform, and Purchaser is not assuming and shall have no obligation to perform,
any severance or termination obligations, liabilities and commitments accruing
or arising by agreement, plan or policy of Seller as a result of the
transactions contemplated hereby.
(c) Purchaser may, but shall have no obligation to, offer
employment to any of the current employees of Seller in the Business as
Purchaser may desire. In addition, Purchaser shall have the right, but not the
obligation, to offer employment to and to employ a sufficient number of current
employees of Seller, with American Meter's consent (which shall not be
unreasonably withheld), to enable Purchaser to make Pantheon feasible, to sell
Pantheon and to meet its other obligations under the License Agreements. Any
employee of Seller considered for employment by Purchaser shall be subject to
Purchaser's normal application and screening procedures and to Purchaser's
compensation and benefits policies. No provisions of this Agreement, express
or implied, shall confer on any employee or former employee of Seller any right
to employment or any continued right to employment for any extended period.
(d) Seller shall be responsible for the maintenance and
distribution of benefits accrued under any Employee Plans maintained by Seller
pursuant to the provisions of such plans. Purchaser shall assume neither any
liability for any such accrued benefits nor any fiduciary or administrative
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responsibility to account for or dispose of any such accrued benefits under any
Employee Plans maintained by Seller.
(e) All claims and obligations under, pursuant to or in
connection with any Employee Plans of Seller or arising under any legal
requirement affecting employees of Seller incurred on or before the Closing
Date resulting in or arising from events or occurrences occurring or commencing
on or prior to the Closing Date shall remain the responsibility of Seller,
whether or not such employees are hired by Purchaser after the Closing.
Purchaser will have and assume no obligation or liability under or in
connection with any such plan.
(f) Seller shall provide any and all notifications required by
all applicable federal, state and local laws in connection with the termination
of its employees, including notifications required under WARN, or any similar
state or local law, and any rules and regulations promulgated under any of the
foregoing.
(g) Purchaser and Seller shall establish a mutually acceptable
employee retention plan for certain transitional employees ("Transitional
Employees") of Seller to provide short-term transitional services in connection
with the transactions contemplated hereby. Such Transitional Employees shall
be entitled to severance and termination benefits of Seller as if they were
terminated by Seller on or prior to the Closing Date. All such severance or
termination benefits due to such Transitional Employees, and all other
employment costs and expenses of such Transitional Employees accruing prior to
the Closing Date (collectively, the "Pre-Closing Transitional Employee Costs"),
shall be borne solely by Seller. All employment costs and expenses for such
Transitional Employees accruing after the Closing Date, to the extent that such
expenses exceed any severance or termination benefits payable by Seller under
its severance policy, plus all costs and expenses incurred by Seller under WARN
for Transitional Employees terminated on or after the Closing Date ("Post-
Closing Transitional Employee Costs"), shall be borne equally by Seller and
Purchaser; provided, however, that Purchaser's obligations for all Post-Closing
Transitional Employee Costs in the aggregate shall not exceed $50,000. All
other costs incurred by Seller after the Closing in connection with WARN,
except as set forth in the immediately preceding sentence, shall be borne
solely by Seller.
SECTION 5.11 ASSUMED WARRANTY OBLIGATIONS. At the Closing, provided
that Seller's representations and warranties in Section 3.26 hereto are
accurate and complete, Purchaser shall assume the warranty obligations of
Seller (the "Assumed Warranty Obligations") for all equipment and products sold
by Seller within two years prior to the Closing Date with respect to the
Business, other than the Korean Claim. A complete and accurate list of all
such sales (by customer, amount, sale and type of equipment or services) is set
forth on Schedule 3.26 hereto.
SECTION 5.12 REPAYMENT OF INDEBTEDNESS AND RELEASE OF LIENS.
Contemporaneously with or prior to the Closing, Seller shall take all action
necessary to cause any Liens on or against the Assets to be released and
terminated as of the Closing Date.
SECTION 5.13 FINANCIAL STATEMENTS. Seller shall cause its Financial
Statements as of December 31, 1997, and for the one year period then ended, to
be audited by Arthur Anderson, independent certified public accountants (the
"Auditor"), and shall deliver the Auditor's report to Purchaser prior to the
Closing. Seller shall bear the costs of such audit, provided that Purchaser
shall bear any cost and expense of the audit, or of similar special procedures
incurred by Seller in order to permit Marcum to meet its financial reporting
requirements under the Exchange Act in connection with the transactions
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contemplated hereby which are in excess of Seller's normal and routine audit
expense. Seller shall cause the Auditor to reasonably cooperate with Purchaser
and Marcum to complete such audit and special procedures, to sign and deliver
any required consents to Marcum in connection with the Current Report on Form
8-K to be filed by Marcum with the SEC pursuant to the requirements of the
Exchange Act, and to cooperate in the preparation of pro forma financial
statements required by Form 8-K.
SECTION 5.14 BOARD SEAT. Marcum agrees to appoint Harry I. Skilton,
President and Chief Executive Officer of American Meter, to be appointed or
elected to the Marcum Board of Directors at the first Marcum Board of Directors
meeting held after the Closing, to serve as a director for a term expiring at
the 2000 annual meeting of stockholders.
SECTION 5.15 PANTHEON SOFTWARE LICENSE AGREEMENT. At the Closing,
Seller and Purchaser shall execute and deliver to each other a License
Agreement, substantively in the form of Exhibit B hereto (the "License
Agreement"), pertaining to the license by Seller to Purchaser after the Closing
of the Pantheon software, and as to the development, manufacture and sale by
Purchaser to Seller of certain electronic components and related equipment
pertaining to electronic temperature and pressure correction to be embedded
within certain new rotary and turbine meters of American Meter.
SECTION 5.16 NON-COMPETITION AGREEMENT. At the Closing, Seller and
American Meter shall execute and deliver to Purchaser and Marcum a five year
Non-Competition Agreement, in substantially the form of Exhibit C hereto (the
"Non-Competition Agreement").
SECTION 5.17 AMENDMENT OF MARCUM RIGHTS AGREEMENT. Marcum will amend
that certain Rights Agreement, dated as of December 2, 1991, by and between
Marcum and American Securities Transfer & Trust, Inc., as rights agent, which
currently provides for the distribution of certain rights after a Person has
acquired or obtained the right to obtain beneficial ownership of 15% or more of
the outstanding Shares of Common Stock of Marcum, to provide an exception for
American Meter, Eagle and their affiliates, so long as their aggregate
beneficial ownership (as defined in the Rights Agreement) does not exceed 25%
of more of the outstanding shares of Common Stock of Marcum.
SECTION 6. CONDITIONS PRECEDENT TO PURCHASER'S AND MARCUM'S CLOSING
OBLIGATIONS.
The obligations of Purchaser to purchase the Assets, to pay the Purchase
Price and to assume the Assumed Liabilities and of Purchaser and Marcum to take
the other actions contemplated hereby to be taken by Purchaser and Marcum,
respectively, at or prior to the Closing are subject to the satisfaction
(unless waived in writing by Purchaser), at or prior to the Closing, of each of
the following conditions:
SECTION 6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each and
every representation and warranty made by Seller and American Meter in this
Agreement shall be true and correct as of the date of this Agreement and as of
the Closing Date with the same effect as if made or given on the Closing Date.
SECTION 6.2 PERFORMANCE OF COVENANTS. Seller and American Meter shall
have performed, satisfied and complied with all covenants, agreements,
obligations and conditions under this Agreement which are to be performed,
satisfied or complied with by Seller and American Meter, respectively, at or
prior to the Closing.
SECTION 6.3 NO LITIGATION. No Proceeding shall be pending or overtly
threatened by or before any court, arbitrator or Governmental Authority (a)
which seeks the restraint, prohibition or the obtaining
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of damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated hereby, (b) which questions the
legitimacy, validity or enforceability of this Agreement or the transactions
contemplated hereby or (c) which, if successful, would have a material adverse
effect on the Assets or the Business or would materially and adversely affect
the ability of Seller or American Meter to consummate the transactions
contemplated hereby or of Purchaser after the Closing to operate the Business
substantially as currently operated.
SECTION 6.4 DELIVERIES AT CLOSING. Seller and American Meter shall
have delivered to Purchaser at the Closing the Assets and each of the
certificates, instruments, documents and agreements required to be delivered to
Purchaser and Marcum hereunder.
SECTION 6.5 CONSENTS. All Consents of any Person necessary to permit
the consummation of the transactions hereby shall have been duly obtained, made
or taken prior to the Closing.
SECTION 6.6 CONDITION OF ASSETS. Neither the Assets nor the Business
shall have been adversely effected in any material respect by, or sustained any
material loss, whether or not insured, which has not been remedied to
Purchaser's reasonable satisfaction as a result of, fire, accident, storm, or
other casualty, or labor or civil disputes, or act of God or public enemy.
SECTION 6.7 NON-COMPETITION AGREEMENT. Seller and American Meter
shall have executed and delivered to Purchaser and Marcum the Non-Competition
Agreement.
SECTION 6.8 LICENSE AGREEMENT. Seller and American Meter shall have
executed and delivered to Purchaser and Marcum the License Agreement.
SECTION 7. CONDITIONS PRECEDENT TO SELLER'S AND AMERICAN METER'S
OBLIGATIONS.
The obligations of Seller to sell and deliver the Assets to Purchaser
and of Seller and American Meter to perform their other obligations
contemplated hereby to be taken at or prior to the Closing are subject to the
satisfaction (unless waived in writing by Seller), at or prior to the Closing,
of each of the following conditions:
SECTION 7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties made by Purchaser and Marcum in this Agreement
shall be true and correct as of the date of this Agreement and as of the
Closing Date with the same effect as if made or given on the Closing Date.
SECTION 7.2 PERFORMANCE OF COVENANTS. Purchaser and Marcum shall have
performed, satisfied and complied with all of the covenants, agreements,
obligations and conditions under this Agreement which are to be performed,
satisfied or complied with by Purchaser and Marcum respectively, at or prior to
the Closing.
SECTION 7.3 NO LITIGATION. No Proceeding shall be pending or overtly
threatened by or before any court, arbitrator or Governmental Agency (a) which
seeks the restraint, prohibition or the obtaining of damages or other relief in
connection with this Agreement or the consummation of the transactions
contemplated hereby, (b) which questions the legitimacy, validity or
enforceability of this Agreement or the transactions contemplated hereby, or
(c) which, if successful, would materially and adversely affect the ability of
Purchaser and American Meter to consummate the transactions contemplated
hereby.
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SECTION 7.4 DELIVERIES AT CLOSING. Purchaser and Marcum shall have
delivered to Seller and American Meter at the Closing the Purchase Price and
each of the other certificates, instruments, documents and agreement required
to be delivered to Seller hereunder.
SECTION 7.5 LICENSE AGREEMENT. Purchaser shall have executed and
delivered to Seller and American Meter the License Agreement.
SECTION 8. THE CLOSING.
SECTION 8.1 DATE AND PLACE. Provided all conditions to the Closing
have been satisfied, the consummation of the transactions contemplated hereby
(the "Closing") shall take place at the offices of Metretek, Incorporated, 300
North Drive, Melbourne, Florida, at 10:00 a.m. local time, on a date no more
than 30 days after the date hereof, as determined by Purchaser, or at such
other time, date or place as the parties shall mutually agree (the "Closing
Date").
SECTION 8.2 DELIVERIES BY SELLER AND AMERICAN METER. At the Closing,
Seller and American Meter shall deliver or cause to be delivered to Purchaser
and Marcum, in form reasonably acceptable to Purchaser's counsel:
(a) Full, actual and unimpeded possession and enjoyment of the
Assets and the Business;
(b) Assignments and assumptions of all Assigned Contracts
being assumed by and assigned to Purchaser, duly executed by Seller, along with
all Consents required to permit such assignment and assumption;
(c) One or more duly executed bills of sale warranting good
and marketable title in and to the Assets, in the form of Exhibit D hereto, and
such other instruments of sale, conveyance, assignment and transfer as may be
reasonably requested by Purchaser, in order to vest in Purchaser all of
Seller's right, title and interest in and to all of the other Assets, free and
clear of any and all Liens;
(d) Any assignments required to transfer all right, title and
interest in the Intellectual Property to Purchaser;
(e) All Consents necessary to permit the consummation of the
transactions contemplated by this Agreement;
(f) All releases of all Liens encumbering any of the Assets;
(g) True and complete copies of corporate resolutions,
certified as of the Closing Date by the Secretary of Seller and of American
Meter as having been duly adopted by the Board of Directors and, if necessary,
shareholders of Seller and American Meter, respectively, authorizing Seller's
and American Meter's execution and delivery of this Agreement and the Related
Seller Agreements and their consummation of the transactions contemplated
hereby and thereby;
(h) Certificates duly executed by the President or Chief
Executive Officer of Seller and of American Meter, dated as of the Closing
Date, certifying that, to the best of their knowledge and belief after due
inquiry, (i) each of Seller and American Meter, respectively, has fully
performed, satisfied and complied with all agreements, obligations, covenants
and conditions required by this Agreement to
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be performed, satisfied or complied with by it at or prior to the Closing, and
(ii) all of the representations and warranties of Seller and American Meter,
respectively, set forth in Section 3 of this Agreement are true and correct as
of the Closing Date;
(i) An opinion of counsel for Seller and American Meter, dated
as of the Closing Date, substantially in the form attached hereto as Exhibit E;
(j) The License Agreement, duly executed by Seller and
American Meter;
(k) The Non-Competition Agreement, duly executed by Seller and
American Meter; and
(l) All other items required to be delivered by Seller or
American Meter pursuant to any provision of this Agreement.
SECTION 8.3 DELIVERIES BY PURCHASER. At the Closing, Purchaser and
Marcum shall deliver to Seller and American Meter, in form reasonably
acceptable to Seller's counsel:
(a) The Cash Portion of the Purchase Price as set forth in
Section 2.1 hereof, by cashier's or certified bank check or wire transfer of
immediately available funds to an account designated by Seller and American
Meter;
(b) One or more certificates representing the Initial Shares,
duly registered on the books of Marcum in the name of Purchaser;
(c) The Convertible Note, duly executed by Purchaser;
(d) True and complete copies of corporate resolutions,
certified as of the Closing Date by the Secretary of Purchaser and of Marcum as
having been duly adopted by the Board of Directors of Purchaser and of Marcum,
respectively, authorizing Purchaser's and Marcum's execution and delivery of
this Agreement and the Related Purchaser Agreements and their consummation of
the transactions contemplated hereby and thereby;
(e) Certificates duly executed by the President or Chief
Executive Officer of Purchaser and of Marcum, dated as of the Closing Date,
certifying that, to the best of their knowledge and belief after due inquiry,
(i) each of Purchaser and Marcum has fully performed, satisfied and complied
with all agreements, obligations, covenants and conditions required by this
Agreement to be performed, satisfied or complied with by Purchaser and Marcum,
respectively, at or prior to the Closing, and (ii) all of the representations
and warranties of Purchaser and Marcum, respectively, set forth in Section 4 of
this Agreement are true and correct as of the Closing Date;
(f) An opinion of counsel for the Purchaser and Marcum, dated
as of the Closing Date, substantially in the form attached hereto as Exhibit F;
and
(g) All other items required to be delivered by Purchaser or
Marcum pursuant to any provision of this Agreement.
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SECTION 8.4 EFFECTIVENESS OF CLOSING. No action to be taken or
delivery to be made at the Closing shall be effective until all of the actions
to be taken and deliveries to be made at the Closing are complete.
SECTION 9. SURVIVAL AND INDEMNIFICATION
SECTION 9.1 SURVIVAL. The indemnification obligations and the
representations, warranties, covenants and agreements set forth in this
Agreement shall survive the Closing and shall continue in full force and effect
until they expire on the second anniversary of the Closing Date (or such later
date as expressly provided herein), regardless of any investigation made by any
party hereto, except as to any Claims (as defined in Section 9.4) relating to
fraud or matters on which claims shall expire only upon expiration of the
applicable statute of limitations. No Claim pursuant to this Section 9 shall
be asserted by any party hereto after the expiration of the applicable survival
period or statute of limitations, as the case may be, except for Claims made in
writing prior to such expiration or actions (whether instituted before or after
such expiration) based on any Claim made in writing prior to such expiration.
The covenants and agreements of the parties hereto set forth in this Agreement
shall survive the Closing and shall continue in full force and effect
thereafter, subject to any termination thereof expressly set forth herein.
SECTION 9.2 INDEMNIFICATION BY THE SELLER AND AMERICAN METER. During
the period specified in Section 9.1, Seller and American Meter shall jointly
and severally indemnify, defend and hold harmless Purchaser and Marcum, their
affiliates, successors and assigns, and the officers, directors, shareholders,
partners, employees, agents and representatives of any of them, from and
against any and all claims, actions, suits, proceedings demands, losses
(including diminutions in value), expenses, obligations, taxes, liabilities,
damages, recoveries and deficiencies (including, without limitation, interest,
fines, penalties, costs of investigation, reasonable attorneys', accountants'
and other professionals' fees and expenses and amounts paid in settlement)
(collectively, "Damages") arising out of, based upon or resulting from (i) any
breach or violation of, inaccuracy or misrepresentation in, or failure by the
Seller or American Meter to perform, any representations, warranties,
covenants, agreements or other obligations of Seller or American Meter made in
this Agreement or in any schedule, certificate, exhibit or other document or
instrument furnished or to be furnished by Seller or American Meter to
Purchaser or Marcum pursuant to this Agreement, (ii) any act or omission of
Seller or American Meter with respect to, or any event or circumstance related
to, the ownership, lease or operation of the Assets or the conduct of the
Business, which act, omission, event or circumstance occurred, existed or
accrued existed prior to or at the time of the Closing, without regard to
whether a claim with respect to such matter is asserted before or after the
Closing, (iii) any debt, liability or obligation of Seller, American Meter or
the Business not included in the Assumed Liabilities, (iv) any failure by
Seller or American Meter to completely and timely comply with all applicable
provisions of (A) any applicable bulk sale or bulk transfer law of any
jurisdiction, (B) WARN or similar state or local laws, (C) the fraudulent
transfer or fraudulent conveyance laws of any jurisdiction, (v) any product
liability claims relating to products made or sold or services performed by
Seller or American Meter prior to the Closing Date (except to the extent
included in the Assumed Liabilities), or (vi) any violation of any
environmental law, rule, regulation or order by Seller or American Meter prior
to the Closing Date.
SECTION 9.3 INDEMNIFICATION BY PURCHASER AND MARCUM. During the
period specified in Section 9.1, Purchaser and Marcum shall jointly and
severally indemnify, defend and hold harmless Seller and American Meter, their
affiliates, successors and assigns, and the officers, directors, shareholders,
partners, employees, agents and representatives of any of them, from and
against any and all
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Damages arising out of, based upon or resulting from any breach or violation
of, inaccuracy or misrepresentation in, or failure by Purchaser or Marcum to
perform, any of the representations, warranties, covenants, agreements or other
obligations of the Purchaser or Marcum made in this Agreement or in any
schedule, certificate, exhibit or other document or instrument furnished or to
be furnished by Purchaser or Marcum to Seller or American Meter pursuant to
this Agreement.
SECTION 9.4 CLAIMS FOR INDEMNIFICATION.
(a) Whenever any party hereunder believes it has suffered or
incurred or is likely to suffer or incur any Damages, or any action or
proceeding is commenced or threatened or claim is made that could result in
Damages, which is reasonably likely to give rise to a claim ("Claim") for
indemnification under this Agreement, the party seeking indemnification
("Indemnified Party") shall, upon obtaining knowledge thereof, promptly notify
in writing the party against whom indemnification is sought ("Indemnifying
Party") of the Claim and, when known, the facts constituting the basis for such
Claim and the amount and nature of the Damages or an estimate thereof. The
Indemnified Party's failure to timely notify Indemnifying Party of any Claim or
potential Claim shall not relieve the Indemnifying Party of any liability
hereunder unless and only to the extent that such failure causes Indemnifying
Party to lose the right to assert any substantive rights or defenses or to the
extent that the Indemnifying Party is actually prejudiced in its rights or
obligations.
(b) The Indemnified Party shall give the Indemnifying Party a
reasonable opportunity to participate in and to assume the defense of any such
Claim at the Indemnifying Party's own expense and with counsel of the
Indemnifying Party's own selection reasonably satisfactory to the Indemnified
Party provided, however, that Indemnified Party shall at all times also have
the right but not the obligation, to fully participate in the defense of the
Claim and to employ its own counsel at its own expense. Notwithstanding the
foregoing, if the Indemnified Party reasonably determines that: (i) legal
defenses may be available to the Indemnified Party that are different from or
in addition to those available to the Indemnifying Party, (ii) a conflict or
potential conflict of interest exists between the Indemnified Party and the
Indemnifying Party (in which case the Indemnifying Party shall not have the
right to direct the defense of such Claim on behalf of the Indemnified Party),
or (iii) the Indemnifying Party has not in fact employed legal counsel to
assume the defense of such Claim within a reasonable time after receiving
notice of the Claim, then the reasonable fees, disbursements and other charges
of counsel from one separate firm selected by the Indemnified Party (and
reasonably acceptable to the Indemnified Party) shall be reimbursed by the
Indemnified Party promptly as they are incurred.
(c) No party hereto shall compromise, settle or consent to the
entry of any judgment with respect to any Claim without the prior written
consent of the other interested party or parties (which consent shall not be
unreasonably withheld or delayed) unless such compromise, settlement or consent
includes an unconditional release of all other interested parties hereto from
any and all liabilities on any Claims that are the subject matter thereof.
(d) Each party hereto shall cooperate in every reasonable way
with the party assuming responsibility for the defense and disposition of any
such Claim, including making available to the defending party all books,
records, and other material reasonably required by the defending party for its
use in defending the Claim.
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SECTION 9.5 LIMITATION ON LIABILITY.
(a) Notwithstanding the foregoing, the Indemnifying Party
shall not be required to indemnify the Indemnified Party hereunder unless and
until the aggregate amount of all Damages exceeds $25,000.00, and then only to
the extent of such excess.
(b) Neither party shall seek or be entitled to consequential
damages or damages for lost profits in any Claim for indemnification under this
Section 9 nor shall it accept payment of any award or judgment against the
other party to the extent that such award or judgment includes consequential
damages or damages for lost profits.
SECTION 9.6 NON-EXCLUSIVE INDEMNIFICATION. The foregoing
indemnification provisions are in addition to, and not in derogation of, or
statutory, equitable or common law remedies any party hereto may have for any
breach of representation, warranty, covenant or agreement.
SECTION 9.7 EFFECT OF KNOWLEDGE. No disclosure to and no
investigation by or on behalf of any party hereto shall be deemed to affect its
reliance on the representations, warranties, covenants and agreements contained
herein or to waive its rights to indemnification as provided herein for the
breach or violation of or inaccuracy or failure to perform or comply with any
representation, warranty, covenant or agreement of any other party hereto.
SECTION 9.8 CONTRIBUTION. If the indemnification provided for in this
Section 9 is for any reason unavailable or insufficient to indemnify the
Indemnified Party in respect of any Damages, then the Indemnifying Party shall
in lieu of indemnifying the Indemnified Party contribute to the total damages
to which the Indemnified Party may be subject in such proportion that shall be
appropriate to reflect the relative fault of the Indemnifying Party, on the one
hand, and the Indemnified Party, on the other hand, in connection with any
actions or omissions which resulted in such Damages as well as any other
relevant equitable considerations.
SECTION 10. POST-CLOSING AND OTHER COVENANTS.
SECTION 10.1 FURTHER ASSURANCES. At the Closing, Seller, through its
officers, directors, employees and agents, shall put Purchaser into full,
actual and unimpaired ownership, possession, enjoyment and control of the
Assets. At any time and from time to time after the Closing, Seller shall, at
the sole expense of Purchaser, execute, acknowledge and deliver any further
deeds, assignments, conveyances, consents, permits and other assurances,
documents and instruments of transfer reasonably requested by Purchaser, and
take any and all further actions consistent with the terms of this Agreement,
that may be reasonably requested by Purchaser for the purpose of more
effectively and fully assigning, transferring, granting and conveying to and
vesting in Purchaser all of Seller's right, title and interest in and to, or
reducing to possession, any or all of the Assets. If requested by Purchaser,
Seller shall, solely at Purchaser's expense (unless required due to a breach of
any representation, guaranty or covenant hereof by Seller), prosecute or
otherwise enforce in its own name for the benefit of Purchaser any claims,
rights or benefits that are transferred to Purchaser by this Agreement and
require prosecution and enforcement in Seller's name. In addition, Seller
shall provide all assistance reasonably requested by Purchaser to install the
environmental testing chambers of Seller in Purchaser's offices in Melbourne,
Florida, including, but not limited to, assisting Purchaser in the disassembly
of such chambers at Seller's offices, assisting Seller in the transportation of
such chambers to Purchaser's offices, and assisting Purchaser in the assembly
and testing of operability at
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Purchaser's offices to obtain operability comparable to the operability of the
chambers at Seller's premises.
SECTION 10.2 SELLER'S FINANCIAL STATEMENTS. Seller and American Meter
shall cause the Auditor to comply with the provisions of Section 5.13 hereof
after the Closing and shall cooperate and take all reasonable efforts, and use
its best efforts to cause the Auditor to cooperate and use its reasonable
efforts, to assist Marcum in complying with the financial reporting
requirements of Form 8-K and the SEC with respect to the transactions
contemplated hereby (including the preparation of historical financial
statements and pro forma financial statements related to the Business) and in
any future filings by Marcum under the Securities Act and the Exchange Act that
include or incorporate Seller's historical financial statements, and to provide
any consents required in such Form 8-K and in any such future filings by Marcum
that require the Auditor to furnish its consent in order for Marcum to fulfill
its financial reporting requirements.
SECTION 10.3 PRESERVATION OF FILES AND RECORDS.
(a) By Purchaser. For a period of five (5) years after the
Closing Date, Purchaser shall preserve all files and records relating to the
Business and the Assets that are in existence as of the Closing Date and that
are less than 5 years old as of the Closing Date, and shall allow Seller access
to such files and records and the right to make copies and extracts therefrom
at any time during normal business hours, and shall not dispose of any thereof,
provided that at any time after the Closing, Purchaser may give Seller written
notice of its intention to dispose of any part thereof, specifying the items to
be disposed of in reasonable detail. Seller may, within a period of 60 days
after receipt of any such notice, notify Purchaser of Seller's desire to retain
one or more of such items to be disposed of. Purchaser shall, upon receipt of
such notice from Seller, deliver to Seller at Seller's expense, the items
specified in Purchaser's notice to Seller which Seller has elected to retain.
(b) By Seller. For a period of five (5) years after the
Closing Date, Seller shall preserve all files and records relating to the
Business and the Assets that are in existence as of the Closing Date and that
are less than five (5) years old as of the Closing Date, and shall allow
Purchaser access to such files and records and the right to make copies and
extracts therefrom at any time during normal business hours, and shall not
dispose of any thereof, provided that at any time after the Closing, Purchaser
may give Seller written notice of its intention to dispose of any part thereof,
specifying the items to be disposed of in reasonable detail. Purchaser may,
within a period of 60 days after receipt of any such notice, notify Seller of
Purchaser's desire to retain one or more of such items to be disposed of.
Purchaser shall, upon receipt of such notice from Seller, deliver to Purchaser
at Purchaser's expense, the items specified in Purchaser's notice to Seller
which Purchaser has elected to retain.
SECTION 10.4 MUTUAL COOPERATION.
(a) Preparation of Reports, Etc. Each of Purchaser and
Seller shall cooperate and cause its respective employees and agents to
cooperate with each other in the preparation of financial and other reports and
statements relating to the Business and the Assets for periods ending on or
prior to the Closing.
(b) Taxes and Other Matters. In connection with the
preparation of any tax returns, any audit or other examination by any taxing or
other Governmental Authority, or any Proceeding or other matters including but
not limited to, environmental and other matters relating to the transactions
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contemplated by this Agreement, each party will provide the other with the
opportunity to make copies of any records or information which may be relevant
to such return, audit or examination, Proceeding or determination. Each party
shall make its employees available on a mutually convenient and reasonable
basis to provide additional information and explanation of any material
provided hereunder.
(c) Cooperation in Litigation. In the event that, after the
Closing Date, Seller or Purchaser shall reasonably require the participation of
officers and employees by each other to aid in the defense or prosecution of
litigation or claims, and so long as there exists no unwaived conflict of
interest between the parties, each of Seller and Purchaser shall make such
officers and employees reasonably available to participate in such defense or
prosecution provided that, except as required pursuant to the provisions
herein, the party requiring the participation of such officers and employees
shall pay all reasonable out-of-pocket costs, charges and expenses arising from
such participation.
SECTION 10.5 SOLICITATION AND HIRING.
(a) Covenant by Seller and American Meter. For a period of
five (5) years after the Closing Date, Seller and American Meter and their
affiliates shall not, directly or indirectly, as a stockholder, investor,
partner, director, officer, employee or otherwise (i) solicit or attempt to
induce any Restricted Marcum Employee to terminate his employment with Marcum
or Purchaser, or (ii) hire or attempt to hire any Restricted Marcum Employee.
For purposes of this Agreement, a "Restricted Marcum Employee" shall mean any
person who (i) was an employee of Purchaser or Marcum on the Closing Date or
(ii) was an employee of Seller or American Meter on the Closing Date who
received an employment offer from Purchaser within 60 business days following
the Closing Date and accepted such offer.
(b) Covenant by Purchaser and Marcum. For a period of five
(5) years after the Closing Date, Purchaser and Marcum and their affiliates
shall not, directly or indirectly, as a stockholder, investor, partner,
director, officer, employee or otherwise (i) solicit or attempt to induce any
Restricted Seller Employee to terminate his employment with Seller or American
Meter, or (ii) hire or attempt to hire any Restricted Seller Employee. For
purposes of this Agreement, a "Restricted Seller Employee" shall mean any
person who was an employee of Seller or American Meter on the Closing Date who
did not receive an employment offer from Purchaser within 60 business days
following the Closing Date and accept such offer.
SECTION 10.6 REGISTRATION RIGHTS.
(a) Piggy-Back Registration.
(i) Right to Piggy-Back. If at any time after the Closing
Date, Marcum proposes to register any of its shares of Common Stock under the
Securities Act for its own account or for the account of any of its
stockholders (except with respect to registration statements filed on Form S-4
(for acquisitions) or Form S-8 (for employee plans) or any successor or similar
forms or other unsuitable forms), Marcum shall promptly give written notice of
such proposed filing to Seller and offer Seller the opportunity to register
such number of Shares as it may request in writing. Upon the written request
of Seller received by Marcum within fifteen (15) days after the giving of the
notice by Marcum, Marcum shall use its best efforts to cause the Shares that
the Purchaser requests to be so registered to be included in such registration.
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(ii) Underwriting Procedures. If any registration
pursuant to this Section 10.6(a) shall be, in whole or in part, in connection
with an underwritten public offering of Common Stock of the Company, then
Marcum shall not be required to include any Shares in the registration unless
Purchaser accepts the terms and conditions of the underwriting as agreed upon
between Marcum and the underwriters. If the managing underwriter determines
and advises Marcum in writing (which shall promptly notify Seller) that the
inclusion in the underwriting of all or any of the Shares proposed to be
included by Seller would be reasonably likely to jeopardize the successful
marketing of the securities proposed to be registered for the underwriting by
Marcum or materially adversely affect the price, time or distribution of the
public offering, then Marcum shall only be required to include the number of
the Shares that the managing underwriter determines in its sole discretion,
will not materially adversely affect the public offering, and, if any such
reduction is so determined by the managing underwriter to be appropriate in
accordance with the standards set forth above, then the number of Shares
requested to be included in the underwriting shall be reduced, pro rata with
other stockholders, if any, participating in the public offering, to the number
determined to be appropriate by the managing underwriter (which may include a
reduction to zero).
(iii) No Marcum Obligation. Neither the giving of a
notice by Marcum nor any request by Purchaser under this Section 10.6(a) shall,
in any way, obligate Marcum to file any registration statement at any time or
within any specific time period after receipt of Seller'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
Purchaser, without any further obligation to Seller in respect of such
registration statement.
(b) Demand Right. If at any time during the period commencing
two (2) years after the Closing Date and ending the earlier of (i) eight years
after the Closing Date, or (ii) 90 days after Seller's beneficial ownership of
the Shares issued pursuant to this Agreement (including upon conversion of the
Convertible Note) constitutes less than 10% of the then outstanding shares of
Common Stock of Marcum, Marcum shall receive a written request ("Demand
Request") from Seller for the registration of all or any portion of the Shares
it receives in connection with this Agreement (the "Registration Shares"),
provided, that at the time of the Demand Request, at least a majority of the
total Shares issued pursuant to this Agreement (including upon conversion of
the Convertible Note) are still held of record by Seller, then Marcum, upon the
terms and subject to the conditions set forth in this Section 10.6, shall use
it best efforts to cause all Registration Shares to be registered in an
appropriate registration statement of the SEC as shall be selected by Marcum,
provided that if Marcum is eligible to use Form S-3 (or any successor form
thereto) for such registration, then such registration statement shall be used
unless such form is inappropriate or Marcum desires to use a different form.
If Seller intends for the public offering covered by its Demand Request to
occur by means of an underwriting, it shall so advise Marcum as a part of its
Demand Request, and the managing underwriter of such underwritten public
offering shall be selected by Seller and shall be reasonably acceptable to
Marcum. Marcum shall be obligated to register Shares under this Section
10.6(b) after receipt of a Demand Request on one occasion only. Marcum shall
be entitled to include in any registration statement filed pursuant to this
Section 10.6(b) additional shares of Common Stock for its own account and for
the account of its other security holders. If the managing underwriter advises
Marcum in writing that the inclusion of any or all such additional shares of
Common Stock would materially adversely affect the marketing of the public
offering of the Shares, then Marcum shall not be entitled to include such
additional shares of Common Stock in any such registration statement to the
extent the managing
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underwriter advises. Notwithstanding the provisions of this Section 10.6(b),
Marcum shall have the right to delay or suspend the filing of a registration
statement for up to 90 days from the time the filing thereof would otherwise be
required under the Section 10.6(b) if, in the good faith determination of
Marcum's board of directors, such registration would be seriously detrimental
to Marcum and its stockholders or would materially adversely affect the
business, affairs, properties, financial condition, results of operations or
prospects of Marcum or any pending or proposed acquisition, merger,
reorganization, recapitalization or other transaction or public offering of
Marcum's securities, or would require premature disclosure thereof not in the
best interests of Marcum; provided, however, that Marcum shall not be entitled
to exercise this right more than once.
(c) Information. It shall be condition precedent to the
obligation of Marcum hereunder to register the Shares under this Section 10.6
that Seller furnish to Marcum and the managing underwriters such information
regarding itself, the intended method of disposition of such securities and
such other information as Marcum or the managing underwriter shall from time to
time reasonably request and that shall be reasonably required to effect the
registration of the Shares.
(d) Expenses. Seller shall pay all underwriting and brokerage
fees, discounts and commissions related to the sale of the Shares in a public
offering registered pursuant to the provisions of this Section 10.6, together
with the fees and expenses of any separate counsel, accountants and other
advisors retained by Seller in connection with the offering. All other fees,
costs and expenses incurred in connection with any registration of public
offering including, but not limited to, all federal and state registration,
qualification, filing fees, printed and document distribution costs and
expenses, fees and disbursements of its counsel, accountants and other experts,
Nasdaq additional listing fees, transfer fees, exchange fees, fees of transfer
agents and registrants shall be borne as follows: (i) if pursuant to a demand
registration under Section 10.6(b), Marcum shall bear the first $10,000 of such
costs, fees and expenses, and Seller shall bear the difference, and Marcum also
shall bear its proportionate share of any such costs, fees and expenses to the
extent it includes additional shares of Common Stock in such registration, and
(ii) if pursuant to a piggy-back registration under Section 10.6(a), by Marcum,
but Seller shall bear its proportionate share of any such costs, fees and
expenses to the extent Shares of Seller are included in the registration.
(e) Indemnification. If any of the Shares are included in a
registration, to the extent permitted by law, Seller and American Meter shall
indemnify and hold harmless Marcum, each of its directors, each of its officers
who have signed the registration statement, each person, if any, who control
Marcum within the meaning of Section 15 of Securities Act or Section 20 of the
Exchange Act, any underwriter, and any controlling person of any such
underwriter, from and against any and all losses, claims, liabilities, damages
and expenses (including any investigative, legal, accounting and other expenses
reasonably incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding or any claim (the "Damages") asserted to which
any of the foregoing persons may become subject under the Securities Act, the
Exchange Act, or other federal or state law, common law or otherwise, insofar
as such Damages arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
any preliminary prospectus or final prospectus, or any amendments or
supplements thereto, the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation or alleged violation by Marcum of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law (collectively, a "Violation"), to the extent that such Violation
occurs in reliance upon and in conformity with written information furnished to
Marcum by American Meter or Seller expressly for use
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in connection with such registration; and Seller or American Meter shall pay,
as incurred, any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this Section 10.6 in connection with the
investigation or defense of any such Damages.
SECTION 10.7 SELLER'S RIGHT OF FIRST REFUSAL TO ACQUIRE PURCHASER.
(a) Proposed Transaction. From and after the Closing Date, if
Marcum intends or proposes to sell all or substantially all of the assets or
capital stock of Purchaser to a Person other than Marcum or an affiliate of
Marcum ("Proposed Purchaser"), or to consummate the merger, consolidation or
combination into a Proposed Purchaser in which transaction Purchaser is not the
survivor (a "Proposed Transaction"), Marcum (or its permitted transferee, if an
affiliate) shall first deliver to Seller a notice of such Proposed Transaction
("Notice of Proposed Marcum Sale") which shall include a copy or summary of the
Proposed Transaction and the terms and conditions thereof in reasonable detail,
including, without limitation, the proposed purchase price (or the basis of
determining the purchase price) ("Purchase Price) and the terms and conditions
of payment.
(b) Exercise. Seller shall have the prior right and option
("Right of First Refusal") to consummate the Proposed Transaction in the place
of the Proposed Purchaser upon the terms set forth in the Notice of Proposed
Sale, or on such other terms and conditions, no less favorable to Purchaser and
Marcum, from Purchaser and Marcum's perspective as determined in their sole
discretion, as the terms in the Notice of Proposed Sale. Seller shall exercise
its Right of First Refusal by giving written notice of such exercise ("Notice
of Exercise") to Purchaser on or before the thirtieth (30th) day after
Purchaser shall have received the Notice of Proposed Sale.
(c) Closing Upon Exercise of Right of First Refusal. The
Closing of the Proposed Transaction with Purchaser upon Seller's exercise of
its Right of First Refusal shall take place at the principal place of business
of Purchaser on a date 60 business days after the date Purchaser receives the
Notice of Exercise, unless the Seller and Purchaser unanimously agree on a
different place or time.
(d) Non-Exercise of Rights of First Refusal. If Seller does
not exercise its Right of First Refusal, then Purchaser shall have the right,
for a period ending on the 150th day after the delivery of Notice of Offer, to
consummate the Proposed Transaction with the Proposed Purchaser, at
substantially the same Purchase Price and otherwise upon substantially the same
terms and conditions described in the Notice of Offer.
(e) Termination of Covenant. The Right of First Refusal shall
expire five years from the Closing Date.
SECTION 10.8 TRANSITION OF ASSETS AND BUSINESS. For a period of 60
days after the Closing Date, (a) Seller shall, at its expense, maintain the
Assets at its existing facility, and Purchaser shall have the right to remove
the Assets any time during such 60-day period; and (b) Purchaser shall have the
right to operate the Business at Seller's facility, provided that Purchaser
shall promptly reimburse Seller for all out-of-pocket costs of such operation
upon notice from Seller. Seller shall be entitled to be reimbursed only for
the additional incremental costs it bears from such operation, it being agreed
that Seller shall not be entitled to be reimbursed for its rent or any costs
associated with administration, management information systems, accounting and
human resources.
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SECTION 10.9 AMERICAN METER LICENSES . For good and valuable
consideration paid to American Meter in connection with the transactions
contemplated hereby, from and after the Closing Date, American Meter (and any
affiliates owning the same) shall license to Purchaser and its affiliates
forever on a royalty-free basis, the right to use the technology specified in
U.S. Patent No. 5,656,784 and in the U.S. patent applications entitled "Printed
Circuit Board Coating & Method" and "Pulse Conditioning Circuit", and to
further develop and incorporate such technology into Purchaser's products and
services.
SECTION 11. TERMINATION AND CONFIDENTIALITY.
SECTION 11.1 EVENTS OF TERMINATION. This Agreement may be terminated
at any time prior to the Closing as follows:
(a) By mutual written agreement of Seller and Purchaser;
(b) By Seller or Purchaser by giving written notice to the
other, if the non-terminating party materially breaches any of its
representations, warranties, covenants or agreements hereunder;
(c) By any party hereto by giving written notice to the other
parties hereto if the Closing Date has not occurred on or before April 30,
1998, unless such party's intentional failure to fulfill any obligation
hereunder has been the cause of, or has resulted in, the failure of the Closing
to occur on or before such date; or
(d) By Purchaser or Seller if any court or Governmental
Authority of competent jurisdiction shall have issued an order, judgment,
decree, ruling or taken other action restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby.
SECTION 11.2 EFFECT OF TERMINATION. If any party terminates this
Agreement in accordance with Section 11.1, then all rights and obligations of
the parties shall cease, except for the obligations set forth in Sections 11.3
and 12.2 which shall survive such termination; provided, however, that any
termination of this Agreement shall not affect the rights of either Seller or
Purchaser against the other for breach of any representation, warranty,
covenant or agreement set forth in this Agreement.
SECTION 11.3 CONFIDENTIALITY. Notwithstanding the provisions of this
Section 11, if for any reason the transactions contemplated by this Agreement
are not consummated, each of the parties hereto shall keep confidential any
information obtained from any other party (except information publicly
available or in such party's domain prior to the date hereof, and except as
required by court order) and shall promptly return to the other parties all
schedules, documents, instruments, work papers or other written information,
without retaining copies thereof, previously furnished by it as a result of
this Agreement or in connection herewith.
SECTION 12. GENERAL PROVISIONS.
SECTION 12.1 GOVERNING LAW. This Agreement shall in all respects be
governed by and construed and enforced in accordance with the internal
substantive laws of the State of Florida, without giving effect to any
principle or rule of conflict or choice of laws. Any action suit, or other
proceeding seeking to enforce any right, remedy, obligation, duty, covenant or
provision of, or arising out of, this Agreement shall be brought and entered
against any party hereto exclusively in any federal or state court of the State
of Florida or of the United States located in the State of Florida. Each party
hereto
37
<PAGE> 43
irrevocably submits to the personal jurisdiction of any such court and
irrevocably waives, to the fullest extent of the law, any objection that it may
now or hereafter have to the laying of venue in any such court and any claim
that such action, suit or proceeding has been brought in an inconvenient form.
SECTION 12.2 EXPENSES. Except as expressly provided in Section 5.10 or
Section 10.7 hereof, each of the parties to this Agreement agrees to pay its
own costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby, including the fees and expenses of its
counsel, accounting and other advisers and agents.
SECTION 12.3 ASSIGNMENT. Neither this Agreement nor any of the rights
or obligations hereunder may be assigned by any party hereto without the prior
written consent of all other parties hereto, provided that Purchaser may, upon
prior notice to Seller but without the consent of Seller, assign or delegate
its rights and/or obligations, under this Agreement to any of its affiliates,
in which case such assignee shall be substituted for Purchaser hereunder as
though the assignee were the original party to this Agreement, and Purchaser
shall be released from all obligations under this Agreement.
SECTION 12.4 AMENDMENTS. This Agreement may not be supplemental,
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.
SECTION 12.5 NOTICES. Any and all notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given hereunder if delivered personally,
of if sent by facsimile transmission (upon receipt of confirmation of
delivery), on the next business day if sent or by overnight courier service, or
three business days after being sent by first class (registered/certified)
mail, postage prepaid, return receipt requested, to the parties at the
following addresses:
If to Purchaser or Marcum:
Metretek, Incorporated
300 North Drive
Melbourne, Florida 32934
Attn: Ronald M. McKee
Telephone: 407-259-9700
Facsimile: 407-259-2900
Marcum Natural Gas Services, Inc.
1675 Broadway, Suite 2150
Denver, Colorado 80202
Attn: W. Phillip Marcum
Telephone: 303-592-5555
Facsimile: 303-592-5556
38
<PAGE> 44
With a copy to:
Kegler, Brown, Hill & Ritter Co., L.P.A.
65 East State Street, Suite 1800
Columbus, Ohio 43215
Attn: Paul R. Hess, Esq.
Telephone: 614-462-5400
Facsimile: 614-464-2634
If to Seller or American Meter:
Eagle Research Corp.
105 Erskine Lane
Scott Depot, West Virginia 25560
Attn: Harry I, Skilton
Telephone: (304) 757-3300
Facsimile: (304) 757-0381
American Meter Company
300 Walsh Road, Building One
Horsham, Pennsylvania 19044-2234
Attn: Harry I. Skilton
Telephone: 215-830-1800
Facsimile: 215-830-1893
With a copy to:
Swidler & Berlin, Chtd.
3000 K Street, N.W., Suite 300
Washington, D.C. 20007-5116
Attn: Kenneth I. Schaner, Esq.
Telephone: (202) 424-7518
Facsimile: (202) 424-7643
Any party may change its designated address by giving written notice
thereof to all other parties hereto in the manner provided in this Section
12.5. Any party hereto may send any notice, request, demand, or other
communication to the intended recipient at the address above by using any other
means (such as telecopy, telex, expedited courier, messenger, ordinary mail or
electronic mail), but no such notice, demand, request or other communication
shall be deemed had been given until it is actually received by the recipient.
SECTION 12.6 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 of a breach of any provision of this Agreement shall not operate or
be construed to be a waiver of any other breach of that provision or of any
breach of any other provision of this Agreement. The failure of a party to
insist upon strict adherence to any provision of this Agreement on one or more
occasions shall not be considered a continuing waiver or deprive that party of
the right thereafter to insist upon strict adherence to that provision or any
other provision of this Agreement.
39
<PAGE> 45
SECTION 12.7 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, validity or enforceability of
that provision in any other situation or legality, validity or enforceability
of any other provision of this Agreement.
SECTION 12.8 HEADINGS. The headings used in this Agreement are solely
for convenience of reference and shall be given no effect in the construction
or interpretation of this Agreement.
SECTION 12.9 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.
SECTION 12.10 PRONOUNS, ETC. The number and gender of each pronoun used
in this Agreement and the term "person" or "persons" or the like shall be
construed to mean both the number and gender of the individual, corporation,
limited liability company, partnership, firm, trust, agency and other entity as
the context, circumstance or its antecedent may require. The terms "herein,"
"hereof," "hereby," "hereto" and the like refer to this Agreement as a whole.
SECTION 12.11 NO THIRD PARTY BENEFICIARIES. Except as expressly
provided in this Agreement, this Agreement does not confer or create, is not
intended by the parties hereto to confer or create, and shall not be construed
to as conferring or creating, upon any person or entity other than the parties
hereto and their successors and permitted assigns any rights, remedies or
causes of action under or by reason of this Agreement.
SECTION 12.12 SCHEDULES AND EXHIBITS. The schedules and exhibits
attached to this Agreement are incorporated into and made a part of this
Agreement as if they were fully set forth herein.
SECTION 12.13 SPECIFIC PERFORMANCE; CUMULATIVE REMEDIES. The parties
hereto acknowledge and agree that the transactions contemplated by this
Agreement are unique in that remedies at law for any breach or threatened
breach of this Agreement would be an inadequate remedy 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 other rights and remedies, at law or in equity, and all such rights and
remedies are cumulative.
SECTION 12.14 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 and the same instrument.
SECTION 12.15 ENTIRE AGREEMENT. This Agreement and the Related Seller
Agreement constitute the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes all prior
arrangements, agreements and understandings, whether oral or written, among the
parties hereto in connection with the subject matter of this Agreement and the
Related Seller Agreements.
(The next page is the Signature Page)
40
<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have caused this Asset Purchase
Agreement to be executed and delivered by their duly authorized officers as of
the date first above written.
EAGLE RESEARCH CORPORATION
By: /s/ HARRY I. SKILTON
-------------------------
Its: Vice President
------------------------
AMERICAN METER COMPANY
By: /s/ HARRY I. SKILTON
-------------------------
Its: President and Chief
------------------------
Executive Officer
METRETEK INCORPORATED
By: /s/ W. PHILLIP MARCUM
-------------------------
Its: Chairman and Chief
------------------------
Executive Officer
MARCUM NATURAL GAS SERVICES,
INC.
By: /s/ W. PHILLIP MARCUM
-------------------------
Its: President and Chief
------------------------
Executive Officer
<PAGE> 1
EXHIBIT 21.1
MARCUM NATURAL GAS SERVICES, INC.
SUBSIDIARIES
WHOLLY OWNED SUBSIDIARIES OF MARCUM NATURAL GAS SERVICES, INC.:
Southern Flow Companies, Inc., a Delaware corporation
Metretek, Incorporated, a Florida corporation
Marcum Gas Transmission, Inc., a Colorado corporation
Marcum Denver, Inc., a Colorado corporation
WHOLLY OWNED SUBSIDIARY OF MARCUM GAS TRANSMISSION, INC.:
Marcum Capital Resources, Inc., a Colorado corporation
WHOLLY OWNED SUBSIDIARIES OF METRETEK, INCORPORATED:
Metretek Europe Limited, a company organized and existing
under the laws of Great Britain
Sigma VI, Inc., a Florida corporation
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-54398, 33-60048, 33-78348, 33-88200, 333-00820, 333-07515 and 333-43547 of
Marcum Natural Gas Services, Inc. on Form S-8 of our reported 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.
/s/ DELOITTE & TOUCHE LLP
Denver, Colorado
March 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-KSB FOR THE YEAR ENDED DECEMBER
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,938,554
<SECURITIES> 0
<RECEIVABLES> 3,587,560
<ALLOWANCES> 121,278
<INVENTORY> 2,748,626
<CURRENT-ASSETS> 8,924,855
<PP&E> 3,322,523
<DEPRECIATION> 2,047,837
<TOTAL-ASSETS> 18,679,464
<CURRENT-LIABILITIES> 2,639,881
<BONDS> 190,221
0
0
<COMMON> 123,113
<OTHER-SE> 15,726,249
<TOTAL-LIABILITY-AND-EQUITY> 18,679,464
<SALES> 20,390,102
<TOTAL-REVENUES> 21,216,757
<CGS> 12,920,612
<TOTAL-COSTS> 20,373,203
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,038
<INCOME-PRETAX> 752,516
<INCOME-TAX> 0
<INCOME-CONTINUING> 752,516
<DISCONTINUED> (2,276,653)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,524,137)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
